Selective Insurance (SIGI) Up 7.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for
Selective Insurance (SIGI). Shares have added about 7.9% 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 the most recent earnings report in
order to get a better handle on the important catalysts.

Selective Insurance Q4 Earnings Beat on Solid
Underwriting

Selective Insurance Group, Inc. reported fourth-quarter 2023
operating income of $1.94 per share, which beat the Zacks Consensus
Estimate by 1%. The bottom line increased 32.9% from the year-ago
quarter. The company witnessed average renewal pure price
increases, new business growth, solid net investment income as well
as lower catastrophe losses in the quarter.

Behind the Headlines

Total revenues of $1.1 billion
increased 15.4% from the year-ago quarter's figure, primarily due
to higher premiums earned, net investment income and other income.
The top line missed the Zacks Consensus Estimate by 0.7%.

On a year-over-year basis, net premiums written (NPW)
increased 17% to $991 million, reflecting new business growth and
effective management of the renewal portfolio. Average renewal pure
price increased 7.4%, with stable retention and increased exposure.
The figure was higher than our estimate of $963.9 million.
After-tax net investment income increased 20% year over year to $78
million.

After-tax net underwriting income was $52 million, which
increased 38% year over year. Net catastrophe losses of $24.6
million were lower than the year-ago loss of $45.7 million.
Non-catastrophe property loss and loss expenses were $172.1
million, higher than the year-ago loss of $161.4 million. The
combined ratio of 93.7 improved 100 basis points year over year,
with lower catastrophe and non-catastrophe property losses and an
improved expense ratio. The Zacks Consensus Estimate and our
estimate was 94.

Total expenses increased 12.9% year over year to $953.7
million, primarily due to higher loss and loss expenses incurred,
other insurance expenses, amortization of deferred policy
acquisition costs and interest expenses. The figure was higher than
our estimate of $937.2 million.

Segmental Results

Standard Commercial Lines' NPW was
up 13% year over year to $764.3 million. The premium growth
reflected average renewal pure price increase of 7.3%, new business
growth of 14%, strong exposure growth and stable retention of 86%.
The figure was higher than our estimate of $763.4 million. The
combined ratio improved 240 basis points (bps) to 93.1. The Zacks
Consensus Estimate was 94 and our estimate was 95.2.

Standard Personal Lines' NPW increased 27% year over year to
$107 million. Renewal pure price increases averaged 8.9%, retention
was 87% and new business was up $3.7 million, which drove the
improvement in NPW. The figure was higher than our estimate of
$93.6 million. The combined ratio deteriorated 1700 bps on a
year-over-year basis to 116.9. The Zacks Consensus Estimate was
pegged at 100 while our estimate was 95.8.

Excess & Surplus Lines' NPW was up 36% year over year to
$111.6 million, driven by average renewal pure price increases of
6.1% and new business growth of 58%. The figure was higher than our
estimate of $106.9 million. The combined ratio improved 810 bps to
76.2. The Zacks Consensus Estimate was pegged at 86, while our
estimate was 83.6.

Full-Year Highlights

Operating earnings of 5.86
increased 17% year over year. NPW was a record $4.1 billion and
marked a 16% year-over-year increase. Underwriting income dropped
20% to $104.9 million while the combined ratio deteriorated 140
basis points to 96.5% with lower catastrophe and non-catastrophe
property losses and an improved expense ratio.

Financial Update

Selective Insurance exited 2023
with total assets of $11.8 billion, which was 9% above the level at
December 2022 end. Long-term debt of $504.6 million declined 0.2%
from the 2022 level. Debt-to-total capitalization improved 200 bps
to 14.6% from the level as of 2022 end. As of Dec 31, 2023, book
value per share was $445.42, up 18% year over year. SIGI achieved
the 10th consecutive year of double-digit operating ROE of 14.4%,
which exceeded the 12% target and expanded 200 basis points year
over year.

Share Repurchase and Dividend
Update

No shares were bought back in 2023.
SIGI had $84.2 million remaining under authorization as of Dec 31,
2023. The board of directors authorized a quarterly cash dividend
of 35 cents per share. The dividend will be paid out on Mar 1 to
shareholders of record at the close of business on Feb 15,
2024.

2024 Guidance

SIGI estimates a GAAP combined
ratio of 95.5%, including net catastrophe losses of 5 points. The
combined ratio estimate assumes no additional prior-year casualty
reserve development. Selective Insurance estimates an after-tax net
investment income of $360 million and includes $32 million of
after-tax net investment income from alternative investments. The
overall effective tax rate is expected to be around 21%, which
assumes an effective tax rate of 20.5% for net investment income
and 21% for all other items. Weighted average shares were 61.5
million on a fully diluted basis.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted 5.17% due to these
changes.

VGM Scores

At this time, 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 second quintile 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.

Outlook

Estimates have been broadly trending upward for the stock, and
the magnitude of these revisions looks promising. 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 is part of the Zacks Insurance - Property
and Casualty industry. Over the past month, Progressive (PGR), a
stock from the same industry, has gained 6.1%. The company reported
its results for the quarter ended December 2023 more than a month
ago.

Progressive reported revenues of $16.59 billion in the last
reported quarter, representing a year-over-year change of +22.5%.
EPS of $2.96 for the same period compares with $1.50 a year
ago.

Progressive is expected to post earnings of $2.60 per share for
the current quarter, representing a year-over-year change of +300%.
Over the last 30 days, the Zacks Consensus Estimate has changed
+15.1%.

Progressive has a Zacks Rank #1 (Strong Buy) based on the
overall direction and magnitude of estimate revisions.
Additionally, the stock has a VGM Score of B.

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