Selective Insurance Group (SIGI) Tops Q3 EPS by 9c, Revenues Beat

Selective Insurance Group (NASDAQ: SIGI) reported Q3 EPS of $1.16, $0.09 better than the analyst estimate of $1.07. Revenue for the quarter came in at $776.6 million versus the consensus estimate of $701 million.

In the third quarter of 2020:

• Strong net premiums written ("NPW") growth of 6% compared to the third quarter of 2019;
• Profitable GAAP combined ratio of 97.0% despite 11.4 percentage points of catastrophe losses in the quarter;
• Annualized return on equity ("ROE") was 11.9% and non-GAAP operating ROE1 was 10.9%;
• Overall renewal pure price increased 4.4%; and
• After-tax net investment income of $55 million, up 22% compared to the third quarter of 2019.

"We delivered strong results despite a quarter of unusually high weather-related catastrophe losses for Selective and the industry. We produced a 97.0% combined ratio, an excellent 10.9% non-GAAP operating ROE, and $1.06 of non-GAAP operating income per share, despite experiencing $80 million, or 11.4 points on the combined ratio, of catastrophe losses in the quarter. The Midwest derecho and Hurricane Isaias accounted for a combined $50 million of the catastrophe losses, with 19 smaller events accounting for the remainder," said John Marchioni, President and CEO.

"We grew NPW 6% in the quarter, driven by excellent results in our core business, standard commercial lines. With an average account size of approximately $12,000, this segment produced healthy growth of 8% as renewal pure price increased to 4.6% and retention improved to 86%. Our consistent multi-year track record of generating strong renewal pure price relative to expected claims trend has us well positioned to deliver continued profitable growth. Investment income also was a strong contributor to the results, increasing 22% to $55 million after-tax, as it benefited from a rebound in the value of alternative investments."

"Our solid growth and profitability in a challenging environment reflects our strong relationships with best-in-class distribution partners, our sophisticated underwriting and pricing tools, and excellent customer servicing capabilities," continued Mr. Marchioni. "We are extremely proud of our Claims team for their prompt response and excellent customer service, demonstrating the value we provide to our customers in the most challenging times."

Guidance

For 2020, our revised full-year guidance to reflect our current estimated full-year impact of COVID-19, is as follows:

• A GAAP combined ratio, excluding catastrophe losses, between 88% and 89%. Our combined ratio estimate assumes no additional prior-year casualty reserve development in the fourth quarter;
• Catastrophe losses of 8.0 points on the combined ratio. As COVID-19 has not been designated a catastrophe event by the Insurance Services Office's Property Claims Services unit, such losses are not included as catastrophes;
• After-tax net investment income of $175 million, that includes between $10 million and $15 million in after-tax net investment income from our alternative investments;
• An overall effective tax rate of approximately 18.5%, which includes an effective tax rate of 18.5% for net investment income, 5.25% for tax-advantaged municipal bonds, and 21% for all other items; and
• Weighted average shares of 60.5 million on a diluted basis.

For earnings history and earnings-related data on Selective Insurance Group (SIGI) click here.

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