A month has gone by since the last earnings report for Selective Insurance (SIGI Quick QuoteSIGI - Free Report) . Shares have lost about 5.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Selective Insurance due for a breakout? 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 Q1 Earnings Lag on Higher Cat Loss

Selective Insurance reported first-quarter 2023 operating income of $1.44 per share, which missed the Zacks Consensus Estimate by 8.2% and our estimate of $2.09. The bottom line, however, increased 2.1% from the year-ago quarter.

The quarter witnessed higher net premiums written (NPW) and increased net investment income. The results were offset by lower underwriting income and wider catastrophe loss.

Behind the Headlines

Total revenues of $996.5 million increased 12.4% from the year-ago quarter’s figure, primarily due to higher premiums earned and improved net investment income. The top line missed the Zacks Consensus Estimate by 0.4% and beat our estimate of $995.2 million.

On a year-over-year basis, NPW increased 12% to $999.8 million, driven by renewal pure price increases, solid retention, new business and strong exposure growth. The figure was lower than our estimate of $1 billion.

After-tax net investment income improved 25% year over year to $73 million, driven by higher book yields from the investment of operating and investing cash flows over the past year in the higher interest rate environment.

Underwriting income declined 30% to $31 million. Net catastrophe loss of $55.3 million was wider than a loss of $20.6 million incurred in the year-ago quarter. Non catastrophe loss of $148.2 million was narrower than a loss of $150.4 million incurred in the year-ago quarter.

The combined ratio deteriorated 260 basis points (bps) on a year-over-year basis to 95.7, driven principally by higher catastrophe losses and lower prior year favorable casualty reserve development.

Total expenses increased 14% year over year to $885.1 million, primarily due to higher loss and loss expenses incurred, amortization of deferred policy acquisition costs, other insurance expenses and corporate costs. The figure was higher than our estimate of $786.2 million.

Segmental Results

Standard Commercial Lines’ NPW was up 10% year over year to $813.3 million. The figure was lower than our estimate of $841.7 million. Average renewal pure price increases of 7%, strong exposure growth and solid retention of 86% and new business growth of 15% drove the improvement in NPW.

The combined ratio deteriorated 110 bps to 94.7.

Standard Personal Lines’ NPW was up 31% year over year to $85.3 million. The figure was higher than our estimate of $65.1 million. Renewal pure price increases averaged 1.8%, retention was 87% and new business was up $16.7 million year over year.

The combined ratio deteriorated 2500 bps on a year-over-year basis to 116.

Excess & Surplus Lines’ NPW was up 16% year over year to $101.2 million, driven by average renewal pure price increases of 7.4% and new business growth of 9%. The figure was higher than our estimate of $99.8 million.

The combined ratio also improved 610 bps to 85.

Financial Update

Selective Insurance exited first-quarter 2023 with total assets of $11 billion, which grew 2% from December 2021 end. Long-term debt of $504.2 million was flat with the 2022 level.

Debt-to-total capitalization improved 70 bps to 15.9% at first-quarter 2023 end.

As of Mar 31, 2023, book value per share was $40.82, up 6% from the level as of 2022 end.

Annualized non-GAAP operating return on common equity was 14.6% in the first quarter of 2023, which expanded 180 bps year over year.

Capital Deployment

In the reported quarter, Selective Insurance did not repurchase any shares. It had $84.2 million remaining under authorization as of Mar 31, 2023.

2023 Guidance

Selective Insurance estimates GAAP combined ratio of 96.5%, including net catastrophe losses of 4.5 points.

After-tax net investment income of $300 million included after-tax net investment income from alternative four investments of $30 million.

The overall effective tax rate is expected to be around 21%, which assumes an effective tax rate of 20% for net investment income and 21% for all other items.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Selective Insurance has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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, NMI Holdings (NMIH Quick QuoteNMIH - Free Report) , has gained 9.7% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

NMI Holdings reported revenues of $136.78 million in the last reported quarter, representing a year-over-year change of +7.3%. EPS of $0.88 for the same period compares with $0.77 a year ago.

For the current quarter, NMI Holdings is expected to post earnings of $0.87 per share, indicating a change of +1.2% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for NMI Holdings. Also, the stock has a VGM Score of B.