• Underlying Combined Ratio: 89.4%, a 90-basis-point improvement from 2023.
• Commercial Lines Renewal Pure Pricing: 8.8% with retention of 85%.
• Excess and Surplus Lines Growth: 29%, exceeding $500 million of net premiums written.
• Personal Lines Net Premiums Written: Increased 4% for the year, 3% decrease in the fourth quarter.
• Fully Diluted EPS (Q4): $52; Non-GAAP Operating EPS (Q4): $62.
• Return on Equity (Q4): 12.7%; Operating Return on Equity (Q4): 13.5%.
• Fully Diluted EPS (Full Year): $3.23; Non-GAAP Operating EPS (Full Year): $3.27, down 44% from a year ago.
• Return on Equity (Full Year): 7.0%; Operating Return on Equity (Full Year): 7.1%.
• GAAP Combined Ratio (Q4): 98.5%, including 8.8 points of prior year reserve strengthening.
• Catastrophe Losses Impact: Reduced combined ratio by 90 basis points.
• After Tax Net Investment Income (Q4): $97 million, up 24% from a year ago.
• After Tax Net Investment Income (Full Year): $363 million, up 17% from 2023.
• Book Value Per Share (Full Year): Increased 6%; Adjusted Book Value Per Share: Up 4%.
• Debt-to-Capital Ratio: 14%.
• 2025 Guidance - GAAP Combined Ratio: 96% to 97%, including 6 points of catastrophe losses.
• 2025 Guidance - After Tax Net Investment Income: Expected to be $405 million, a 12% increase over 2024.

• Warning! GuruFocus has detected 3 Warning Sign with SIGI.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Selective Insurance Group Inc (NASDAQ:SIGI) reported a 90-basis-point improvement in their 2024 underlying combined ratio, excluding catastrophe losses and prior year casualty development.
• The company achieved strong price changes in recent years, with commercial lines renewal pure pricing at 8.8% and retention at 85%.
• Excess and surplus lines experienced a robust year with 29% growth, exceeding $500 million of net premiums written for the first time.
• After tax net investment income for the fourth quarter was $97 million, up 24% from a year ago, and for the year, it was $363 million, slightly above their 2024 guidance.
• Selective Insurance Group Inc (NASDAQ:SIGI) successfully renewed their property catastrophe reinsurance program with improved terms and conditions, maintaining a $100 million retention while increasing coverage exhaustion point to $1.4 billion.

Negative Points

• The company's fully diluted EPS for the full year was $3.23, down 44% from the previous year, with a return on equity of 7.0%, which was disappointing after 10 consecutive years of double-digit operating ROE.
• The GAAP combined ratio for the quarter was 98.5%, including 8.8 points of prior year reserve strengthening, which was higher than their original guidance.
• Catastrophe losses exceeded original guidance by 1.5 points, contributing to a full-year combined ratio of 103%, 7.5 points higher than expected.
• Net prior year casualty reserve strengthening was $100 million, with significant strengthening in general liability and E&S lines.
• The expense ratio for the year was 30.6%, and the 2025 guidance assumes an increase to approximately 31.5%, partially due to greater profit-based compensation from expected underwriting improvement.

Q & A Highlights

Q: Can you explain your reserving methods and any embedded extra margin in your GL book for the current calendar year? A: John Marchioni, CEO, explained that while the fundamentals of reserving haven't changed, the level of detail and insight has improved. The company consistently carries a risk margin above the actuarial best estimate, determined by observed risk factors. This margin has remained consistent over time.

Q: Regarding the casualty loss ratio for 2025, is it lower than previously stated, and what is the reasoning behind this? A: John Marchioni clarified that the 9% trend is specific to general liability (GL), while the overall casualty trend includes workers' comp and commercial auto. The GL trend remains slightly above 9% for severity, which is embedded in the 2025 expected loss ratios.

Q: How much of the GL calendar 2024 charge was primary versus excess and umbrella on commercial lines? A: The charge was predominantly in general liability (GL), with some movement in umbrella, mainly affecting the 2022 and 2023 accident years. The umbrella book is entirely written on a supported basis, providing earlier frequency indications.

Q: Can you provide more insight into the potential for higher accident year loss ratio picks going forward? A: John Marchioni noted that the 2024 current year movements impacted the combined ratio, with casualty expected loss ratios moving higher despite strong rates. Property trends are improving, with rates outpacing trends. The 2025 guidance assumes continued severity increases, which are considered prudent.

Q: Are there specific states contributing to the GL commercial reserve charge, and what trends are you observing? A: Social inflation is broad-based, impacting all jurisdictions, particularly in bodily injury cases. Certain states, like Georgia, have exacerbated impacts due to case law and statutes. Some states, like Texas, have recently become hotspots, but major states like Texas, Florida, and California are not in Selective's commercial footprint.

Q: How are you addressing the E&S reserve charge of $20 million, and what are your plans for this segment? A: The E&S segment has seen favorable frequency trends and strong pricing. The company has embedded higher severity assumptions in recent accident years and continues to react quickly to emerging data. The segment is generating a combined ratio slightly under 90%.

Q: Is there a structural reason for the quarterly reserve reviews leading to small adjustments rather than a one-time charge? A: John Marchioni emphasized the importance of a quarterly ground-up reserve review process, which allows for timely reactions to emerging data and supports pricing and underwriting actions. This approach has historically held up well against industry trends.

Q: What is your view on commercial auto reserves, given its link to social inflation, and how does it differ from GL? A: Patrick Brennan, CFO, expressed confidence in the company's reserving process. Commercial auto was the first to show social inflation impacts, with assumed loss trends adjusted earlier than GL. The company has maintained strong pricing above trend levels, supporting the view that commercial auto was the first, not the next, shoe to drop.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.