It has been about a month since the last earnings report for Selective Insurance (SIGI - Free Report) . Shares have added about 1.3% in that time frame, underperforming 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 drivers.
Selective Insurance (SIGI - Free Report) Q2 Earnings Top Estimates, Up Y/Y
Selective Insurance Group reported second-quarter 2018 operating income of $1.01 per share, beating the Zacks Consensus Estimate by 12.2%. Also, the bottom line surged 48.5% from the year-ago period’s number.
Notably, the company delivered record operating income per share and also witnessed better investment results and improved premiums across its segments such as, Standard Commercial Lines and Standard Personal Lines. This uptrend is however, partially offset by a decline in premiums at Excess & Surplus Lines.
Including one-time items, net income of 99 cents per share jumped 41.4% year over year.
Behind Second-Quarter Headlines
Total revenues of $651.9 million rose 6.1% from the year-ago quarter’s figure.
Net investment income gained 24.1% year over year to $37.6 million owing to higher interest rates, lower tax rate as well as active portfolio management and security selection.
Net premiums written climbed 6.7% year over year to $655.2 million. Combined ratio improved 100 basis points (bps) on a year-over-year basis to 93.7%.
Standard Commercial Lines net premiums written was up 7.5 % year over year to $514.9 million on the back of solid renewal pure price improvement, a substantially positive retention and new business growth. Combined ratio improved 80 bps to 91.4% from the prior-year quarter’s level.
Standard Personal Lines net premiums written grew 7.4% year over year to $83.9 million, mainly driven by a strong renewal pure price increase, positive retention and new business strength. Combined ratio improved 1430 bps to 93.7% from the year-ago period’s count.
Excess & Surplus Lines net premiums written dipped 0.7% year over year to $56.4 million due to decline in new business, which reflected a highly competitive marketplace and targeted underwriting actions undertaken to improve profitability. Combined ratio deteriorated 1720 bps to 114.7%. An increase in current-year loss costs together with higher non-catastrophe property loss induced this deterioration.
Selective Insurance exited the second quarter with total assets of $7.7 billion, which inched up 0.3% from the year-ago period’s level.
As of Jun 30, 2018, book value per share was $28.86, down 1.4% year over year.
Annualized return on equity was 14.3% in the reported quarter compared with 9.9% in the prior-year quarter.
Selective Insurance’s board of directors approved a dividend of 18 cents per share, payable Sep 4 to stockholders of record as of Aug 15, 2018.
2018 Guidance Reiterated
Selective Insurance anticipates delivering a combined ratio (excluding catastrophe loss) of about 92%.
The company projects an after-tax investment income of $150 million, which will include $8 million of after-tax net investment income from alternative investments.
The P&C insurer estimates an overall effective tax rate of nearly 18% including the same of 17% for net investment income, which reflects a tax rate of 5.25% for tax-advantaged municipal bonds and a tax rate of approximately 21% for all other investments.
Weighted average shares outstanding of 59.6 million have been projected.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
Currently, Selective Insurance has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Selective Insurance has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.