Selective Insurance Group Inc. SIGI is set to grow on rising premiums aided by solid renewal pure pricing, high retention and new business growth in Commercial Lines and Excess and Supply Lines.
SIGI has underperformed its industry in the past year. Shares are trading below the 50-day moving average, indicating a bearish trend.
SIGI’s earning history is disappointing. It lagged estimates in each of the last four quarters, the average negative earnings surprise being 58.78%.
Earnings declined 4.3% over the past five years, while the industry average growth was 19.3%.
Selective Insurance has been focused on improving its organic growth, with its Commercial Lines business increasing share of distribution partners' overall premium to 12%, appointing new distribution partners to achieve a 25% agent market share and expanding to new states.
The insurer’s overall premium stands to gain from improved pricing, new business growth and a high retention ratio.
The P&C insurer relies on geographic expansion for growth and diversification. Over the years, the company has successfully expanded in New Hampshire and has a presence in the Southwest region, such as Arizona, Colorado, Utah and Mexico. As a result, the company now has a total commercial lines presence in 27 states and expects to expand to new states.
Despite a low interest rate environment, SIGI has managed to deliver impressive investment results. We estimate net investment income to grow, banking on an increased invested asset base and higher book yields.
As part of wealth distribution, the company regularly raises dividends as well as buys back shares. A higher dividend yield compared to its industry makes SIGI an attractive pick for yield- seeking investors.
Being a property and casualty (P&C) insurer, Selective Insurance remains exposed to catastrophe loss stemming from natural disasters and weather-related events. This in turn induces underwriting volatility and weighs on combined ratio. SIGI estimates a GAAP combined ratio of 96% to 97% in 2025, including net catastrophe losses of 6 points. Underlying combined ratio is estimated in the 90-91% range.
SIGI’s debt levels have remained relatively stable in the past few years. Though its leverage compares favorably with the industry average, its times interest earned compares unfavorably with the industry.
Selective Insurance has been witnessing rising expenses over the years, primarily due to increasing loss and loss expense. For 2025, the company expects the expense ratio to increase to approximately 31.5%, partially due to greater profit-based compensation from expected underwriting improvement.
SIGI’s trailing 12-month return on equity was 7.3%, lagging the industry average of 8.3%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders' funds.
Also, the return on invested capital in the trailing 12 months was 3.7%, lagging the industry average of 6.3%. It reflects SIGI’s inefficiency in utilizing funds to generate income.
Other players in the insurance industry are The Progressive Corporation PGR, Kingstone Companies KINS and Palomar Holdings PLMR.
Progressive’s earnings surpassed estimates in each of the last four quarters, the average surprise being 18.49%. A compelling product portfolio, leadership position, healthy policies in force, better pricing and a solid retention ratio should continue to drive premium improvement for Progressive. Distinctive new auto insurance options, along with competitive pricing, should help sustain improvement in policy life expectancy, a measure of customer retention.
Kingstone Companies is well poised for growth, given its heightened focus on its core business and scaling back of unprofitable non-core businesses. The insurer only writes businesses that meet its underwriting standards and profit-margin objectives. KINS expects direct written premiums in the core business to grow between 15% and 25% in 2025.
Palomar’s earnings surpassed estimates in each of the last four quarters, the average surprise being 18.49%. It is poised to gain from the increased volume of policies written across the lines of business, strong retention rates, strategic expansion of products’ geographic and distribution footprint and new partnerships. Palomar envisions being an industry leader in the crop business and among the top 10 crop premium riders in the United States by 2025. Its projections for the year exceed $200 million in premiums. It also believes that crops will secure $500 million of premiums in the intermediate future.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Progressive Corporation $(PGR)$ : Free Stock Analysis Report
Selective Insurance Group, Inc. (SIGI) : Free Stock Analysis Report
Kingstone Companies, Inc $(KINS)$ : Free Stock Analysis Report
Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
免责声明：投资有风险，本文并非投资建议，以上内容不应被视为任何金融产品的购买或出售要约、建议或邀请，作者或其他用户的任何相关讨论、评论或帖子也不应被视为此类内容。本文仅供一般参考，不考虑您的个人投资目标、财务状况或需求。TTM对信息的准确性和完整性不承担任何责任或保证，投资者应自行研究并在投资前寻求专业建议。