Selective Insurance Reports Strong 3Q Net Income

Selective Insurance Group, Inc. (NASDAQ: SIGI) today reported financial results for the third quarter ended September 30, 2020, with net income per diluted share of $1.16 and non-GAAP operating income¹ per diluted share of $1.06.

"We delivered strong results despite a quarter of unusually high weather-related catastrophe losses for Selective and the industry. We produced a 97.0% combined ratio, an excellent 10.9% non-GAAP operating ROE, and $1.06 of non-GAAP operating income per share, despite experiencing $80 million, or 11.4 points on the combined ratio, of catastrophe losses in the quarter. The Midwest derecho and Hurricane Isaias accounted for a combined $50 million of the catastrophe losses, with 19 smaller events accounting for the remainder," said John Marchioni, President and CEO.

"We grew NPW 6% in the quarter, driven by excellent results in our core business, standard commercial lines.  With an average account size of approximately $12,000, this segment produced healthy growth of 8% as renewal pure price increased to 4.6% and retention improved to 86%.  Our consistent multi-year track record of generating strong renewal pure price relative to expected claims trend has us well positioned to deliver continued profitable growth.  Investment income also was a strong contributor to the results, increasing 22% to $55 million after-tax, as it benefited from a rebound in the value of alternative investments."

"Our solid growth and profitability in a challenging environment reflects our strong relationships with best-in-class distribution partners, our sophisticated underwriting and pricing tools, and excellent customer servicing capabilities," continued Mr. Marchioni.  "We are extremely proud of our Claims team for their prompt response and excellent customer service, demonstrating the value we provide to our customers in the most challenging times."

Overall Insurance Operations

For the quarter, overall NPW increased 6% compared to the third quarter of 2019, due to increased retention and 4.4% in overall renewal pure price increases.  The 97.0% combined ratio reflects the elevated catastrophe losses that were offset partially by (i) the impact of favorable prior year casualty reserve development, (ii) lower non-catastrophe property losses compared to a year ago, and (iii) our on-going expense management initiatives.  Insurance operations generated 2.8 points of non-GAAP operating ROE in the quarter.

Standard Commercial Lines Segment

Standard Commercial Lines premiums, which are 80% of total NPW, were up a very strong 8%, driven by (i) 4.6% in renewal pure price increases, (ii) a 3% increase in new business from a year ago, to $99 million, and (iii) strong retention at 86%.  The third quarter 92.3% combined ratio included 7.0 points of catastrophe losses.

Standard Personal Lines Segment

Standard Personal Lines premiums, which are 11% of total NPW, were down 2% in the quarter compared to 2019.  Renewal pure price increases were 1.8%, retention was 83%, and new business was up 18% compared to last year.  The third quarter combined ratio was 119.0%, up 18.2 points from a year ago, driven by elevated catastrophe losses, which were 27.1 points higher than the third quarter of 2019.  A 3.3 point reduction in non-catastrophe property losses was a partial offset.

Excess And Surplus Lines Segment

Excess and Surplus Lines premiums, which represented 9% of total NPW, were stable compared to the third quarter of 2019.  Strong new business growth of 29% and renewal pure price increases of 7.0% were offset by a reduction in renewal and endorsement activity.  The combined ratio was 112.0%, a 15.1-point increase compared to a year ago, driven by elevated catastrophe losses that were 17.1 points higher than a year ago.

Investments Segment

Net investment income, after-tax, was up a very strong 22% in the quarter, to $55.1 million.  The increase was driven by alternative investment gains of $19 million pre-tax, or $15 million after-tax, which are reported on a one-quarter lag and reflect the market rebound during second quarter 2020.  The after-tax earned income yield on the portfolio averaged 3.1%.  Invested assets per dollar of stockholders' equity was $3.04 at September 30, 2020, and the investment portfolio generated 9.4 points of non-GAAP operating ROE in the quarter.

Guidance

For 2020, our revised full-year guidance to reflect our current estimated full-year impact of COVID-19, is as follows:

• A GAAP combined ratio, excluding catastrophe losses, between 88% and 89%. Our combined ratio estimate assumes no additional prior-year casualty reserve development in the fourth quarter;
• Catastrophe losses of 8.0 points on the combined ratio. As COVID-19 has not been designated a catastrophe event by the Insurance Services Office's Property Claims Services unit, such losses are not included as catastrophes;
• After-tax net investment income of $175 million, that includes between $10 million and $15 million in after-tax net investment income from our alternative investments;
• An overall effective tax rate of approximately 18.5%, which includes an effective tax rate of 18.5% for net investment income, 5.25% for tax-advantaged municipal bonds, and 21% for all other items; and
• Weighted average shares of 60.5 million on a diluted basis.

The supplemental investor package, including financial information that is not part of this press release, is available on the Investors page of Selective's website at www.Selective.com.  Selective's quarterly analyst conference call will be simulcast at 10:00 a.m. ET, on Thursday, October 29, 2020 at www.Selective.com.  The webcast will be available for rebroadcast until the close of business on November 28, 2020.