By Chris Munro

Jan 30 - (The Insurer) - Selective Insurance Group’s share price was down more than 10 percent in early morning trading on Thursday as investors responded to the carrier’s Q4 2024 earnings miss.

The company’s stock was trading at $84.35 at 11:00 in New York on Thursday, down 10.3 percent from Wednesday’s close.

As The Insurer previously reported, after the markets closed on Wednesday, Branchville, New Jersey-based Selective posted operating income per diluted common share of $1.62 for the final three months of 2024, down from the prior-year period’s $1.94, and a miss on the $1.99 that was the consensus forecast of eight analysts as per S&P Capital IQ.

Selective reported a fourth quarter 2024 combined ratio of 98.5 percent, a 4.8 point deterioration from Q3 2023.

Net unfavourable prior-year casualty reserve development of $100mn contributed 8.8 points to the firm’s fourth quarter 2024 combined ratio, compared with a 1.0 point impact in Q4 2023.

In a note, JMP analyst Matthew Carletti said the earnings miss was “driven by adverse prior-period reserve development in the general liability book”.

According to Carletti, the latest round of reserve charges follows four separate reserve charges totaling $371mn that Selective has undertaken over the past five quarters.

“We have held the view for some time that Selective had underestimated casualty loss cost trends, only to begin revising higher in recent years, and then leaning in on the pricing accelerator,” said Carletti in the note.

“While we believe its view of loss cost trends today is much more realistic, and pricing has followed (pure price increase in Q4 in standard commercial was 8.8 percent), it has been playing catch-up in the past few years.

“Additionally, the commercial auto line has shown moderate levels of adverse development for each of the past 10 years, and we think the ongoing struggles in the general casualty book will lead investors to more closely scrutinise other areas of the business, such as commercial auto,” Carletti added.

On a call with analysts to discuss the results, Selective’s chief financial officer Patrick Brennan provided further details on the reserve strengthening.

The carrier actually booked $25mn of favourable prior-year workers compensation reserve development in Q4 2024, but as Brennan explained, that was more than offset by $100mn of general liability, $20mn of E&S and $5mn of personal auto strengthening.

Alongside the prior-year reserve strengthening, Selective also added $47mn above original guidance to its current accident year reserves in Q4 2024.

Brennan said that $47mn comprised $41mn of general liability reserves and $6mn in E&S.

“We believe these actions are prudent, considering the elevated uncertainty in the external environment and its impact on our reserving diagnostics,” said Brennan.

“We will continue to respond to emerging information, incorporate our view of risk factors and book our best estimate,” he added.

During the call, Selective chairman, president and CEO John Marchioni said the company remains comfortable with the overall composition and quality of its underwriting portfolio, despite the adverse emergence in general liability.

“While rate increases will continue to be our primary focus for profitability improvement, we also have been making underwriting refinements, including managing limits and coverage grants in challenging jurisdictions, driving improved terms and conditions, and focusing production on better-performing classes of business,” Marchioni stated.

In Q4 2024, Selective grew its net premiums written $(NPW.SI)$ by 10 percent to $1.09bn.

That NPW growth was driven by renewal pure price increases of 10.7 percent, a small acceleration from the 10.5 percent seen in Q3 2024, and a rise of 3.3 points from 2023’s fourth quarter.

On the call, Marchioni said commercial lines renewal pure pricing stood at 8.8 percent and retention of 85 percent in 2024’s fourth quarter, with both figures in line with Q3 2024’s results.

“Exposure growth added 3.8 points, contributing to our total renewal premium change of 12.9 percent,” said Marchioni.

Ex-workers’ compensation commercial lines pricing increased 10.1 percent in Q4 2024, the same as in the third quarter.

“Renewal pure pricing in commercial property was 11.3 percent and commercial auto was 10.7 percent,” Marchioni said.

“General liability renewal pure pricing was 10.6 percent, up from 10.2 percent in the third quarter, 7.6 percent in the second quarter and 6.5 percent in the first quarter,” Marchioni detailed.

The executive said that Selective began 2024 with an expected loss trend of 7 percent, which included 4 percent for property and 8 percent for casualty.

“Our renewal pure price last year, excluding exposure change, was 9.5 percent,” he stated.

“Nonetheless, we increased our loss picks because of the unfavorable emergence in recent accident years. These actions reflected further elevated severities, primarily attributable to general liability and excessive surplus lines,” Marchioni added.