A month has gone by since the last earnings report for Selective Insurance (SIGI). Shares have added about 4% 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 drivers.
Selective Insurance Misses Q3 Earnings Estimates, Raises Dividend
Selective Insurance Group, Inc. reported third-quarter 2024 operating income of $1.40 per share, which missed the Zacks Consensus Estimate by 17.1%. The bottom line decreased 7% from the year-ago quarter. The quarterly results reflected average renewal pure price increases and stable retention across Standard Commercial Lines and Excess & Surplus Lines. Soft performance at Standard Personal Lines, higher catastrophe losses and poor underwriting income were offsets.
Total revenues of $1.2 billion increased 13.9% from the year-ago quarter’s figure, primarily due to higher premiums earned, net investment income and net premiums written (NPW). However, the top line missed the Zacks Consensus Estimate by 0.4%. On a year-over-year basis, NPW increased 9% to $1.15 billion, driven by accelerating renewal pure price increases and stable Standard Commercial Lines retention. The figure was higher than our estimate of $1.2 billion. Net investment income earned, before-tax, increased 17% year over year to $117.8 million. The figure was higher than our estimate of $117.3 million. The Zacks Consensus Estimate was pegged at $114 million.
After-tax net underwriting income was $4.1 million, which plunged 83% year over year. Pre-tax catastrophe losses more than doubled year over year to $148.8 million. Non-catastrophe property loss and loss expenses of $146.7 million decreased 15.1% year over year. The combined ratio of 99.5 deteriorated 270 basis points (bps) year over year due to elevated catastrophe losses. Losses resulted from 19 named storms in the quarter, with Hurricane Helene estimated at $85 million of pre-tax losses.
Total expenses increased 16.4% year over year to $1.1 billion, primarily due to higher loss and loss expense incurred, amortization of deferred policy acquisition costs, other insurance expenses and interest expense. The figure matched our estimate.
Standard Commercial Lines’ NPW was up 8% year over year to $903.9 million. The premium growth reflected average renewal pure price increases of 9.1% and stable retention of 86%. The figure was lower than our estimate of $963 million. The combined ratio deteriorated 450 bps to 99.2. The Zacks Consensus Estimate and our estimate were both pegged at 93.3.
Standard Personal Lines’ NPW decreased 2% year over year to $111 million, with a renewal pure price of 22.8% and higher average policy sizes. Retention was 75%, down 13 points from a year ago, and new business decreased 49% due to deliberate profit improvement actions. The figure was lower than our estimate of $130.9 million. The combined ratio improved 530 bps on a year-over-year basis to 122.1. The Zacks Consensus Estimate was pegged at 102.8, while our estimate was 120.6.
Excess & Surplus Lines’ NPW was up 28% year over year to $142.7 million, driven by new business growth of 43% and average renewal pure price increases of 8%. The figure was higher than our estimate of $ $130.5 million. The combined ratio improved 70 bps to 83.2. The Zacks Consensus Estimate was pegged at 88, while our estimate was 84.3.
Selective Insurance exited third-quarter 2024 with total assets of $13.4 billion, which was 14% below the level at the end of December 2023. Long-term debt of $ 508.2 million increased 1% from the 2023 level. Debt-to-total capitalization improved 80 bps to 13.8% from the 2023-end level. As of Sept. 30, 2024, book value per share was $48.82, up 9% year over year. Annualized non-GAAP operating return on equity was 12.1% in the third quarter of 2024, which contracted 290 bps year over year.
In the third quarter of 2024, Selective Insurance repurchased shares for $8.7 million. It had $75.5 million remaining under authorization as of Sept. 30, 2024. The board of directors authorized a 9% increase in the quarterly cash dividend to 38 cents per share. The dividend will be paid out on Dec. 2 to shareholders of record at the close of business as of Nov. 15, 2024.
SIGI estimates a GAAP combined ratio of 102.5%, up 1 point from the earlier guidance of 101.5%. The combined ratio estimate includes net catastrophe losses of 7.5 points, up from the prior guidance of 5.5 points. The company expects losses from Hurricane Milton, which made landfall on Oct. 9, 2024, to be immaterial. Selective Insurance estimates after-tax net investment income of $360 million, which includes $32 million from alternative investment. The company has an overall effective tax rate of approximately 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.
It turns out, fresh estimates have trended upward during the past month.
At this time, Selective Insurance has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.
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.
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 2.5%. The company reported its results for the quarter ended September 2024 more than a month ago.
Progressive reported revenues of $19.43 billion in the last reported quarter, representing a year-over-year change of +23.7%. EPS of $3.58 for the same period compares with $2.09 a year ago.
For the current quarter, Progressive is expected to post earnings of $3.06 per share, indicating a change of +3.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.6% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Progressive. Also, the stock has a VGM Score of B.
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