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Selective Insurance Group, Inc. (SIGI - Free Report) reported third-quarter 2022 operating income of 99 cents per share, which missed the Zacks Consensus Estimate by 14.7%. The bottom line declined 16.9% from the year-ago quarter.
The quarter witnessed average renewal pure price increases, solid retention, higher new business and exposure growth. Lower alternative investment income and escalating costs were offsets.
Behind the Headlines
Total revenues of $920.7 million increased 6.5% from the year-ago quarter’s figure, primarily due to higher premiums earned. The top line outpaced the Zacks Consensus Estimate by 3.3%.
On a year-over-year basis, NPW increased 11% to $903.4 million, driven by average renewal pure price increases of 5%, solid retention and exposure growth.
Net investment income declined 31% year over year to $63.9 million due to decreased after-tax alternative investment income, partially offset by higher income from the fixed-income securities portfolio due to higher book yields.
Net underwriting income, after-tax, more than doubled to $21.4 million. The combined ratio improved 180 basis points (bps) on a year-over-year basis to 96.8, driven by lower catastrophe losses.
Total expenses increased 9.1% year over year to $842.4 million, primarily due to higher loss and loss expenses incurred, amortization of deferred policy acquisition costs, other insurance expenses and corporate expenses.
Segmental Results
Standard Commercial Lines’ NPW was up 11% year over year to $727.5 million. Average renewal pure price increases of 5.8%, new business growth of 5%, and consistently solid retention of 86% drove the improvement in NPW. The combined ratio improved 40 bps to 96.8.
Standard Personal Lines’ NPW increased 11% year over year to $86.8 million. Average renewal pure price increases of 0.5%, higher retention of 85% and 70% higher new business drove the improvement in NPW. The combined ratio improved 1340 bps on a year-over-year basis to 101.8.
Excess & Surplus Lines’ NPW was up 9% year over year to $89.1 million, driven by average renewal pure price increases of 6.7% and new business growth of 8%. The combined ratio improved 70 bps to 93.3.
Financial Update
Selective Insurance exited third-quarter 2022 with total assets of $10.5 billion, which was 1% higher than the level at December 2021 end.
Long-term debt of $505.2 million, flat with the 2021 level. Debt-to-total capitalization deteriorated 270 bps to 17.2% at third-quarter 2022 end.
As of Sep 30, 2022, the book value per share was $39.96, down 20% from the level as of 2021 end.
Annualized non-GAAP operating return on equity was 10.5% in the third quarter of 2022, down 10 bps year over year.
Capital Deployment
The board approved a 7% increase in the quarterly cash dividend to 30 cents per share, to be paid out on Dec 1, 2022, to holders of record as of Nov 15, 2022
In the first nine months of 2022, Selective Insurance repurchased shares for $12.4 million. It had $84.2 million remaining under authorization as of Jun 30, 2022.
2022 Guidance
Selective Insurance estimates a GAAP combined ratio, excluding net catastrophe losses, of 91.5%, (prior guidance 90.5%). The combined ratio estimate assumes no additional prior-year casualty reserve development.
Selective Insurance estimates net catastrophe losses of 3.5 points (prior guidance was 4.0 points) on the combined ratio. After-tax net investment income is expected to be $215 million, including after-tax net investment income from its alternative investments of $7 million (prior guidance was $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.
Selective Insurance looks to achieve 2022 ROE target of 11%, marking the ninth consecutive year of double-digit non-GAAP operating returns on common equity.
Of the insurance industry players that have reported third-quarter results so far, The Travelers Companies (TRV - Free Report) and RLI Corporation (RLI - Free Report) beat the respective Zacks Consensus Estimate for earnings, while The Progressive Corporation (PGR - Free Report) missed the mark.
Travelers’ third-quarter 2022 core income of $2.20 per share beat the Zacks Consensus Estimate by 24.3% but decreased 15.4% year over year. Total revenues increased 6.8% from the year-ago quarter to $9.4 billion and beat the Zacks Consensus Estimate by 2.5%.
Net written premiums increased 110% year over year to $9.2 billion. Underwriting gain of $115 million increased 53.3% year over year in the reported quarter. The combined ratio improved 40 bps year over year to 98.2.
RLI’s third-quarter 2022 operating earnings of 50 cents per share beat the Zacks Consensus Estimate by 51.5% but declined 23.1% from the prior-year quarter. Operating revenues of $312.7 million were up 15.3% year over year but missed the Zacks Consensus Estimate by 1.3%.
Gross premiums written increased 13.3% year over year to $403.8 million. Underwriting income of $8.8 million decreased 35.8% while the combined ratio deteriorated 240 bps year over year to 97.
Progressive’s earnings per share of 49 cents missed the Zacks Consensus Estimate of $1.24 as well as our estimate of $1.38. The bottom line, however, improved more than threefold from 14 cents earned in the year-ago quarter.
Net premiums written were $13 billion in the quarter, up 5% from $11.7 billion a year ago but missed our estimate of $14.2 billion. The combined ratio — the percentage of premiums paid out as claims and expenses — improved 120 bps from the prior-year quarter’s level to 99.2.
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Selective Insurance (SIGI) Q3 Earnings Miss, Guidance Revised
Selective Insurance Group, Inc. (SIGI - Free Report) reported third-quarter 2022 operating income of 99 cents per share, which missed the Zacks Consensus Estimate by 14.7%. The bottom line declined 16.9% from the year-ago quarter.
The quarter witnessed average renewal pure price increases, solid retention, higher new business and exposure growth. Lower alternative investment income and escalating costs were offsets.
Behind the Headlines
Total revenues of $920.7 million increased 6.5% from the year-ago quarter’s figure, primarily due to higher premiums earned. The top line outpaced the Zacks Consensus Estimate by 3.3%.
On a year-over-year basis, NPW increased 11% to $903.4 million, driven by average renewal pure price increases of 5%, solid retention and exposure growth.
Net investment income declined 31% year over year to $63.9 million due to decreased after-tax alternative investment income, partially offset by higher income from the fixed-income securities portfolio due to higher book yields.
Net underwriting income, after-tax, more than doubled to $21.4 million. The combined ratio improved 180 basis points (bps) on a year-over-year basis to 96.8, driven by lower catastrophe losses.
Total expenses increased 9.1% year over year to $842.4 million, primarily due to higher loss and loss expenses incurred, amortization of deferred policy acquisition costs, other insurance expenses and corporate expenses.
Segmental Results
Standard Commercial Lines’ NPW was up 11% year over year to $727.5 million. Average renewal pure price increases of 5.8%, new business growth of 5%, and consistently solid retention of 86% drove the improvement in NPW. The combined ratio improved 40 bps to 96.8.
Standard Personal Lines’ NPW increased 11% year over year to $86.8 million. Average renewal pure price increases of 0.5%, higher retention of 85% and 70% higher new business drove the improvement in NPW. The combined ratio improved 1340 bps on a year-over-year basis to 101.8.
Excess & Surplus Lines’ NPW was up 9% year over year to $89.1 million, driven by average renewal pure price increases of 6.7% and new business growth of 8%. The combined ratio improved 70 bps to 93.3.
Financial Update
Selective Insurance exited third-quarter 2022 with total assets of $10.5 billion, which was 1% higher than the level at December 2021 end.
Long-term debt of $505.2 million, flat with the 2021 level. Debt-to-total capitalization deteriorated 270 bps to 17.2% at third-quarter 2022 end.
As of Sep 30, 2022, the book value per share was $39.96, down 20% from the level as of 2021 end.
Annualized non-GAAP operating return on equity was 10.5% in the third quarter of 2022, down 10 bps year over year.
Capital Deployment
The board approved a 7% increase in the quarterly cash dividend to 30 cents per share, to be paid out on Dec 1, 2022, to holders of record as of Nov 15, 2022
In the first nine months of 2022, Selective Insurance repurchased shares for $12.4 million. It had $84.2 million remaining under authorization as of Jun 30, 2022.
2022 Guidance
Selective Insurance estimates a GAAP combined ratio, excluding net catastrophe losses, of 91.5%, (prior guidance 90.5%). The combined ratio estimate assumes no additional prior-year casualty reserve development.
Selective Insurance estimates net catastrophe losses of 3.5 points (prior guidance was 4.0 points) on the combined ratio. After-tax net investment income is expected to be $215 million, including after-tax net investment income from its alternative investments of $7 million (prior guidance was $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.
Selective Insurance looks to achieve 2022 ROE target of 11%, marking the ninth consecutive year of double-digit non-GAAP operating returns on common equity.
Zacks Rank
Selective Insurance currently 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 Insurers
Of the insurance industry players that have reported third-quarter results so far, The Travelers Companies (TRV - Free Report) and RLI Corporation (RLI - Free Report) beat the respective Zacks Consensus Estimate for earnings, while The Progressive Corporation (PGR - Free Report) missed the mark.
Travelers’ third-quarter 2022 core income of $2.20 per share beat the Zacks Consensus Estimate by 24.3% but decreased 15.4% year over year. Total revenues increased 6.8% from the year-ago quarter to $9.4 billion and beat the Zacks Consensus Estimate by 2.5%.
Net written premiums increased 110% year over year to $9.2 billion. Underwriting gain of $115 million increased 53.3% year over year in the reported quarter. The combined ratio improved 40 bps year over year to 98.2.
RLI’s third-quarter 2022 operating earnings of 50 cents per share beat the Zacks Consensus Estimate by 51.5% but declined 23.1% from the prior-year quarter. Operating revenues of $312.7 million were up 15.3% year over year but missed the Zacks Consensus Estimate by 1.3%.
Gross premiums written increased 13.3% year over year to $403.8 million. Underwriting income of $8.8 million decreased 35.8% while the combined ratio deteriorated 240 bps year over year to 97.
Progressive’s earnings per share of 49 cents missed the Zacks Consensus Estimate of $1.24 as well as our estimate of $1.38. The bottom line, however, improved more than threefold from 14 cents earned in the year-ago quarter.
Net premiums written were $13 billion in the quarter, up 5% from $11.7 billion a year ago but missed our estimate of $14.2 billion. The combined ratio — the percentage of premiums paid out as claims and expenses — improved 120 bps from the prior-year quarter’s level to 99.2.