Selective Insurance (SIGI) Q4 Earnings Beat, Improve Y/Y

Selective Insurance Group, Inc. (NASDAQ:SIGI) reported fourth-quarter 2018 operating income of $1.20 per share, beating the Zacks Consensus Estimate by 27.7%. Also, the bottom line surged nearly 40% from the year-ago period’s number.

The reported quarter benefited from disciplined underwriting franchise and a strong underlying insurance operations performance.

Full-Year Highlights

For 2018, Selective Insurance came up with operating income of $3.66 per share, surpassing the Zacks Consensus Estimate by 7.9% and also improving 17.7% from the year-earlier quarter.

Moreover, total revenues of $2.6 billion grew 7.2% year over year.

Behind the Headlines

Total revenues of $680.9 million were up 7.2% from the year-ago quarter’s figure. Also, the top line beat the Zacks Consensus Estimate by 2.9%.

Net investment income rose 41.7% year over year to $44 million, driven by higher interest rates, active portfolio management, stellar operating cash flow (18% of Net premiums written), increase in alternative investment returns and lower tax.

Net premiums written increased 5.2% year over year to $582.8 million. Combined ratio improved 10 basis points (bps) on a year-over-year basis to 92.7%.

Segment Results

Standard Commercial Lines net premiums written were up 5.9% year over year to $449.4 million on the back of solid renewal pure price improvement as well as retention and strength in new business. Combined ratio deteriorated 90 bps to 92.9% from the prior-year quarter’s level.

Standard Personal Lines net premiums written remained flat year over year at $72.7 million, reflecting higher renewal pure price and solid retention. Combined ratio improved 340 bps to 91.8% from the year-ago period’s count.

Excess & Surplus Lines net premiums written grew 6.7% year over year to $60.7 million, primarily attributable to a substantial uptick in new business. Combined ratio improved 360 bps to 92.9%.

Financial Update

Selective Insurance exited the fourth quarter with total assets of $7.9 billion, which climbed 3.5% above the level at December 2017 end.

As of Dec 31, 2018, book value per share was $30.40, having improved 3.8% year over year.

Annualized operating return on equity was 16.3% in the quarter under review, expanding 430 points year over year.

2019 Guidance

Selective Insurance projects a combined ratio (excluding catastrophe loss) of about 92% that assumes no prior-year casualty reserve development.

Catastrophe loss of 3.5 points has been estimated.

The company projects an after-tax investment income of $175 million, which comprises $8 million of after-tax net investment income from alternative investments.

The P&C insurer expects an overall effective tax rate of nearly 19% including the same of 18% for net investment income, which represents a tax rate of 5.25% for tax-advantaged municipal bonds and a tax rate of approximately 21% for all other items.

Weighted average shares outstanding of 60 million have been anticipated.

Zacks Rank

Selective Insurance carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other P&C Insurers

Among other players from the same space having reported fourth-quarter earnings so far, the bottom line of MGIC Investment Corp. (NYSE:MTG) and RLI Corp. (NYSE:RLI) beat the respective Zacks Consensus Estimate while that of The Progressive Corp. (NYSE:PGR) missed the same.

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