Selective Reports Results for the First Quarter of 2018 – Net Income per Diluted Share of $0.32; Non-GAAP Operating Income(1) per Diluted Share of $0.46
In the first quarter of 2018:
- Net premiums written grew 4%
- Combined ratio was 99.2%
- After-tax net investment income was up 30%, to
$36 million - Annualized return on equity of 4.5% and non-GAAP return on equity of 6.5%
"Our significant progress in generating profitable growth was masked by elevated catastrophe and non-catastrophe property losses, primarily related to the severe winter weather we experienced," said
Operating Highlights
Consolidated Financial Results |
Quarter ended |
Change |
||||||
$ and shares in millions, except per share data |
2018 |
2017 |
||||||
Net premiums written |
$ |
624.6 |
598.7 |
4 |
% |
|||
Net premiums earned |
591.8 |
560.9 |
6 |
|||||
Net investment income earned |
43.2 |
37.4 |
16 |
|||||
Net realized and unrealized losses, pre-tax |
(10.5) |
(1.0) |
(909) |
|||||
Total revenues |
626.7 |
600.5 |
4 |
|||||
Net underwriting income, after-tax |
3.7 |
32.0 |
(88) |
|||||
Net investment income, after-tax |
35.8 |
27.5 |
30 |
|||||
Net income |
18.9 |
50.4 |
(62) |
|||||
Non-GAAP operating income1 |
27.3 |
51.1 |
(47) |
|||||
Combined ratio |
99.2 |
% |
91.2 |
8.0 |
pts |
|||
Loss and loss expense ratio |
65.0 |
56.6 |
8.4 |
|||||
Underwriting expense ratio |
33.8 |
34.6 |
(0.8) |
|||||
Dividends to policyholders ratio |
0.4 |
— |
0.4 |
|||||
Catastrophe losses |
4.4 |
pts |
2.2 |
2.2 |
||||
Non-catastrophe property losses |
17.9 |
12.7 |
5.2 |
|||||
(Favorable) prior year statutory reserve development on casualty lines |
(1.4) |
(2.6) |
1.2 |
|||||
Net income per diluted share |
$ |
0.32 |
0.85 |
(62) |
% |
|||
Non-GAAP operating income per diluted share1 |
0.46 |
0.86 |
(47) |
|||||
Weighted average diluted shares |
59.6 |
59.1 |
1 |
|||||
Book value per share |
$ |
28.25 |
27.34 |
3 |
Standard Commercial Lines
Standard Commercial Lines premiums, which represented 82% of our first quarter 2018 net premiums written, were up 5% in the quarter compared to a year ago. This growth reflects strong renewal pure price increases of 3.2%, excellent retention of 85%, and new business growth of 9%, to
Standard Commercial Lines |
Quarter ended |
Change |
||||||
$ in millions |
2018 |
2017 |
||||||
Net premiums written |
$ |
509.1 |
483.5 |
5 |
% |
|||
Net premiums earned |
465.4 |
438.4 |
6 |
|||||
Combined ratio |
98.5 |
% |
90.3 |
8.2 |
pts |
|||
Loss and loss expense ratio |
63.0 |
55.1 |
7.9 |
|||||
Underwriting expense ratio |
35.0 |
35.2 |
(0.2) |
|||||
Dividends to policyholders ratio |
0.5 |
— |
0.5 |
|||||
Catastrophe losses |
4.3 |
pts |
1.6 |
2.7 |
||||
Non-catastrophe property losses |
15.2 |
11.4 |
3.8 |
|||||
(Favorable) prior year statutory reserve development on casualty lines |
(1.7) |
(3.7) |
2.0 |
Standard Personal Lines
Standard Personal Lines premiums, which represented 11% of our first quarter 2018 net premiums written, increased 5% in the first quarter compared to a year ago, driven largely by strong renewal pure price increases of 3.8%, excellent retention of 85%, and a 4% increase in new business, to
Standard Personal Lines |
Quarter ended |
Change |
||||||
$ in millions |
2018 |
2017 |
||||||
Net premiums written |
$ |
67.9 |
64.7 |
5 |
% |
|||
Net premiums earned |
74.3 |
71.2 |
4 |
|||||
Combined ratio |
102.0 |
% |
92.8 |
9.2 |
pts |
|||
Loss and loss expense ratio |
74.6 |
62.2 |
12.4 |
|||||
Underwriting expense ratio |
27.4 |
30.6 |
(3.2) |
|||||
Catastrophe losses |
9.2 |
pts |
5.5 |
3.7 |
||||
Non-catastrophe property losses |
34.5 |
22.9 |
11.6 |
|||||
Unfavorable prior year statutory reserve development on casualty lines |
— |
2.8 |
(2.8) |
Excess and Surplus Lines
Excess and Surplus Lines premiums, which represented 7% of our first quarter 2018 net premiums written, decreased 6% in the first quarter compared to a year ago, driven by a 23% reduction in new business, reflecting our focus on improving profitability by implementing price increases and targeted underwriting actions. The combined ratio for the first quarter was 101.1%, 4.2 points higher than a year ago. This increase was mainly driven by an increase in current year loss costs of 4.8 points, coupled with elevated non-catastrophe property losses that were 7.5 points higher than a year ago. These impacts were partially offset by reductions in catastrophe losses of 3.9 points and the expense ratio of 3.1 points compared to a year ago.
Excess and Surplus Lines |
Quarter ended |
Change |
||||||
$ in millions |
2018 |
2017 |
||||||
Net premiums written |
$ |
47.6 |
50.5 |
(6) |
% |
|||
Net premiums earned |
52.2 |
51.2 |
2 |
|||||
Combined ratio |
101.1 |
% |
96.9 |
4.2 |
pts |
|||
Loss and loss expense ratio |
69.0 |
61.7 |
7.3 |
|||||
Underwriting expense ratio |
32.1 |
35.2 |
(3.1) |
|||||
Catastrophe losses |
(1.2) |
pts |
2.7 |
(3.9) |
||||
Non-catastrophe property losses |
17.8 |
10.3 |
7.5 |
Investment Income
After-tax net investment income in the first quarter was
Investments |
Quarter ended |
Change |
||||||
$ in millions, except per share data |
2018 |
2017 |
||||||
Net investment income earned, after-tax |
$ |
35.8 |
27.5 |
30 |
% |
|||
Net investment income per share |
0.60 |
0.46 |
30 |
|||||
Effective tax rate |
17.2 |
% |
26.6 |
(9.4) |
pts |
|||
Average yields: |
||||||||
Fixed income securities: |
||||||||
Pre-tax |
3.2 |
% |
3.0 |
0.2 |
pts |
|||
After-tax |
2.7 |
2.2 |
0.5 |
|||||
Portfolio: |
||||||||
Pre-tax |
3.0 |
2.8 |
0.2 |
|||||
After-tax |
2.5 |
2.0 |
0.5 |
Balance Sheet
$ in millions, except per share data |
|
|
Change |
||||
Total assets |
$ |
7,659.9 |
7,686.4 |
— |
% |
||
Total investments |
5,678.6 |
5,685.2 |
— |
||||
Short-term debt |
55.0 |
— |
NM |
||||
Long-term debt |
439.2 |
439.1 |
— |
||||
Stockholders' equity |
1,659.8 |
1,713.0 |
(3) |
||||
Invested assets per dollar of stockholders' equity |
3.42 |
3.32 |
3 |
||||
Book value per share |
28.25 |
29.28 |
(4) |
The 4% decrease in book value per share reflects unrealized losses on our investment portfolio coupled with dividends paid to shareholders, partially offset by net income earned in the quarter. Selective's Board of Directors declared an
Guidance
For 2018, Selective has updated its full year guidance and expects to generate the following results:
- A GAAP combined ratio, excluding catastrophe losses, of approximately 92.0%. This assumes no additional prior year casualty reserve development;
- Catastrophe losses of 3.5 points;
- After-tax net investment income of
$150 million , which includes$8 million of after-tax net investment income from our alternative investments; - An overall effective tax rate of approximately 18%, which includes an effective tax rate of 17% for net investment income, reflecting a tax rate of 5.25% for tax-advantaged municipal bonds and a tax rate of approximately 21% for all other investments; and
- Weighted average shares outstanding of 59.6 million.
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
About
1Reconciliation of Net Income to Non-GAAP Operating Income and Certain Other Non-GAAP Measures
Non-GAAP operating income, non-GAAP operating earnings per diluted share, and non-GAAP operating return on average equity differ from net income, earnings per share, and return on equity, respectively, by the exclusion of after-tax net realized and unrealized gains and losses on investments, if any. They are used as important financial measures by management, analysts, and investors, because the realization of net investment gains and losses on sales of securities in any given period is largely discretionary as to timing. In addition, these net realized investment gains and losses, as well as other-than-temporary investment impairments that are charged to earnings, and unrealized gains and losses on equity securities, could distort the analysis of trends. These operating measurements are not intended as a substitute for net income, earnings per share, or return on equity prepared in accordance with
Note: All amounts included in this release exclude intercompany transactions.
Reconciliation of Net Income to Non-GAAP Operating Income
$ in millions |
Quarter ended |
|||||
2018 |
2017 |
|||||
Net income |
$ |
18.9 |
50.4 |
|||
Exclude: Net realized (gains) losses and OTTI |
(3.5) |
1.0 |
||||
Exclude: Net unrealized losses |
14.1 |
— |
||||
Net realized losses, OTTI, and unrealized losses |
10.5 |
1.0 |
||||
Exclude: Tax on net realized losses, OTTI, and unrealized losses |
(2.2) |
(0.4) |
||||
Non-GAAP operating income |
$ |
27.3 |
51.1 |
Reconciliation of Net Income per Diluted Share to Non-GAAP Operating Income per Diluted Share
Quarter ended |
||||||
2018 |
2017 |
|||||
Net income per diluted share |
$ |
0.32 |
0.85 |
|||
Exclude: Net realized (gains) losses and OTTI |
(0.06) |
0.02 |
||||
Exclude: Net unrealized losses |
0.24 |
— |
||||
Net realized losses, OTTI, and unrealized losses |
0.18 |
0.02 |
||||
Exclude: Tax on net realized losses, OTTI, and unrealized losses |
(0.04) |
(0.01) |
||||
Non-GAAP operating income per diluted share |
$ |
0.46 |
0.86 |
Reconciliation of ROE to Non-GAAP Operating ROE
Quarter ended |
|||||
2018 |
2017 |
||||
Return on Average Equity |
4.5 |
% |
12.9 |
||
Exclude: Net realized (gains) losses and OTTI |
(0.8) |
0.3 |
|||
Exclude: Net unrealized losses |
3.3 |
— |
|||
Net realized losses, OTTI, and unrealized losses |
2.5 |
0.3 |
|||
Exclude: Tax on net realized losses, OTTI, and unrealized losses |
(0.5) |
(0.1) |
|||
Non-GAAP Operating Return on Average Equity |
6.5 |
% |
13.1 |
Note: Amounts in the tables above may not foot due to rounding.
Forward-Looking Statements
In this press release, Selective and its management discuss and make statements based on currently available information regarding their intentions, beliefs, current expectations, and projections regarding Selective's future operations and performance.
Certain statements in this report, including information incorporated by reference, are "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The PSLRA provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. These statements relate to our intentions, beliefs, projections, estimations, or forecasts of future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, or performance to be materially different from those expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by use of words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," or "continue" or other comparable terminology. These statements are only predictions, and we can give no assurance that such expectations will prove to be correct. We undertake no obligation, other than as may be required under the federal securities laws, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Factors that could cause our actual results to differ materially from those projected, forecasted, or estimated by us in forward-looking statements, include, but are not limited to:
- difficult conditions in global capital markets and the economy;
- deterioration in the public debt and equity markets and private investment marketplace that could lead to investment losses and fluctuations in interest rates;
- ratings downgrades could affect investment values and, therefore, statutory surplus;
- the adequacy of our loss reserves and loss expense reserves;
- the frequency and severity of natural and man-made catastrophic events, including, but not limited to, hurricanes, tornadoes, windstorms, earthquakes, hail, terrorism, explosions, severe winter weather, floods, and fires;
- adverse market, governmental, regulatory, legal, or judicial conditions or actions;
- the concentration of our business in the
Eastern Region ; - the cost and availability of reinsurance;
- our ability to collect on reinsurance and the solvency of our reinsurers;
- uncertainties related to insurance premium rate increases and business retention;
- changes in insurance regulations that impact our ability to write and/or cease writing insurance policies in one or more states;
- recent federal financial regulatory reform provisions that could pose certain risks to our operations;
- our ability to maintain favorable ratings from rating agencies, including
A.M. Best ,Standard & Poor's , Moody's, and Fitch; - our entry into new markets and businesses; and
- other risks and uncertainties we identify in filings with the
United States Securities and Exchange Commission , including, but not limited to, our Annual Report on Form 10-K and other periodic reports.
These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time-to-time. We can neither predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied in any forward-looking statements in this report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.
Selective's
www.Selective.com
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