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Selective Insurance (SIGI) Up 5.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Selective Insurance (SIGI - Free Report) . Shares have added about 5.3% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Selective Insurance Q2 Earnings Miss, Revenues Beat

Selective Insurance Group, Inc. reported second-quarter 2022 operating income of $1.17 per share, which missed the Zacks Consensus Estimate by 6.4%. The bottom line declined 37% from the year-ago quarter.

The quarter witnessed average renewal pure price increases, solid retention, higher new business and exposure growth. Lower after-tax alternative investment income, higher non-catastrophe losses and escalating costs were offsets.

Behind the Headlines

Total revenues of $908 million increased 9.4% from the year-ago quarter’s figure, primarily due to higher premiums earned and net premiums written. The top line outpaced the Zacks Consensus Estimate by 3.3%. On a year-over-year basis, NPW increased 12% to $930.7 million, driven by average renewal pure price increases of 5%, solid retention and exposure growth.

After-tax net investment income declined 16% year over year to $57 million due to decreased after-tax alternative investment income, partially offset by higher income from fixed income securities portfolio from higher book yields. Net underwriting income, after-tax, dropped 50% to $29.8 million. Net catastrophe loss of $45.6 million doubled year over year. Non-catastrophe property loss and loss expenses of $138.6 million increased 29.2% year over year due to higher severity, driven by inflationary pressure on new and used car prices, auto repair costs, and building materials and labor costs.

The combined ratio deteriorated 570 basis points (bps) on a year-over-year basis to 95.5, attributable to higher catastrophe losses and lower favorable casualty reserve development. Total expenses increased 18.6% year over year to $814.9 million, primarily due to higher loss and loss expenses incurred, other insurance expenses and amortization of deferred policy acquisition costs.

Segmental Results

Standard Commercial Lines’ NPW was up 12% year over year to $760.3 million. Average renewal pure price increases of 5.3% and higher retention of 86% drove the improvement in NPW. The combined ratio deteriorated 440 bps to 93.1.

Standard Personal Lines’ NPW increased 5% year over year to $82.6 million. Average renewal pure price increases of 0.6%, higher retention of 85%, and higher new business of 23% drove the improvement in NPW. The combined ratio deteriorated 2460 bps on a year-over-year basis to 116.9.

Excess & Surplus Lines’ NPW was up 13% year over year to $87.9 million, driven by average renewal pure price increases of 6.9% and new business growth of 17%. The combined ratio improved 80 bps to 95.8.

Financial Update

Selective Insurance exited second-quarter 2022 with total assets of $10.3 billion, which was 1% below the level at December 2021 end. Long-term debt of $505.1 million was flat with the 2021 level. Debt to total capitalization deteriorated 180 bps to 16.3% at second-quarter 2022 end.

As of Jun 30, 2022, the book value per share was $39.68, down 14% from the level as of 2021 end. Annualized non-GAAP operating return on equity was 11.4% in the second quarter of 2022, down 570 bps year over year. In the first half of 2022, Selective Insurance repurchased shares for $6.5 million. It had $90.1 million remaining under authorization as of Jun 30, 2022.

2022 Guidance

Selective Insurance estimates a GAAP combined ratio, excluding net catastrophe losses, of 90.5% (prior guidance 91.0%). The combined ratio estimate assumes no additional prior-year casualty reserve development. 

Selective Insurance estimates net catastrophe losses of 4 points on the combined ratio. After-tax net investment income was $215 million (prior guidance $205 million), including after-tax net investment income from its alternative investments of $15 million (prior guidance $15 million);

The overall effective tax rate is expected to be around 20.5%, which assumes an effective tax rate of 19.5% for net investment income and 21% for all other items. Weighted average shares were 61 million on a fully diluted basis.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -8.36% due to these changes.

VGM Scores

Currently, Selective Insurance has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Selective Insurance has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Selective Insurance belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Chubb (CB - Free Report) , has gained 3.8% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

Chubb reported revenues of $10.51 billion in the last reported quarter, representing a year-over-year change of +0.3%. EPS of $4.20 for the same period compares with $3.62 a year ago.

For the current quarter, Chubb is expected to post earnings of $3.65 per share, indicating a change of +38.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Chubb. Also, the stock has a VGM Score of B.


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