Business Overview and History
Selective Insurance Group, Inc. (SIGI) is a leading property and casualty insurance provider with a rich history spanning over a century. Headquartered in Branchville, New Jersey, the company has established itself as a trusted partner for individuals and businesses seeking comprehensive insurance solutions.
Selective Insurance Group, Inc. was founded in 1926 as the Selective Casualty Insurance Company, initially focusing on providing automobile insurance coverage in New Jersey. Over the following decades, the company expanded its product offerings and geographic footprint, becoming a leading regional insurance provider in the Northeast and Mid-Atlantic states. In the 1980s and 1990s, Selective underwent significant growth and transformation, broadening its commercial lines offerings to include general liability, commercial property, and workers' compensation insurance. The company also expanded into the personal lines market, providing homeowners and personal automobile coverage.
In 1990, the company changed its name to Selective Insurance Group, Inc. to better reflect its diversified insurance business. The early 2000s presented a major challenge for Selective when it experienced financial and operational difficulties due to underpricing in certain insurance lines, leading to reserve deficiencies and underwriting losses. To address these issues, Selective implemented a turnaround strategy that involved disciplined underwriting, enhanced risk management, and a focus on profitability over growth. These efforts helped the company regain its financial footing and return to profitability.
In the late 2000s and 2010s, Selective continued to evolve and expand its insurance offerings, entering the excess and surplus (E&S) lines market to provide coverage for risks that are difficult to place in the standard insurance marketplace. The company also increased its geographic footprint, entering new states and diversifying its exposure. Throughout this period, Selective maintained a strong focus on underwriting discipline, risk management, and operational efficiency.
Today, Selective Insurance Group, Inc. operates through four reportable segments: Standard Commercial Lines, Standard Personal Lines, Excess and Surplus (E&S) Lines, and Investments. The company's insurance subsidiaries, collectively referred to as the "Insurance Subsidiaries," write a wide range of property and casualty insurance products, including general liability, commercial automobile, workers' compensation, and personal automobile and homeowners insurance.
Selective has been steadily expanding its geographic footprint, entering 13 new states since 2017 and now operating in 35 states. This expansion strategy has contributed to the company's growth and diversification of risk exposure.
Financial Overview
As of the latest reporting period in 2024, Selective Insurance Group's financial position remains robust, with a GAAP equity of $3.2 billion and statutory surplus of $2.8 billion. The company's debt-to-capital ratio stood at a conservative 13.8%, well below its internal threshold of 25%. This strong capitalization, combined with the company's access to various sources of liquidity, provides Selective with ample financial flexibility to support its strategic initiatives and navigate potential challenges.
In the first nine months of 2024, Selective reported net premiums written (NPW) of $3.54 billion, representing a 13% increase compared to the same period in the prior year. This growth was primarily driven by renewal pure price increases across its insurance segments, as well as higher direct new business. The company's operating return on equity (ROE) for the nine-month period stood at 4.8%, with a full-year 2024 guidance of operating ROE in the high single-digit range.
For the most recent fiscal year (2023), Selective reported revenue of $4.23 billion, net income of $365.24 million, operating cash flow of $758.91 million, and free cash flow of $736.28 million. In the most recent quarter (Q3 2024), the company reported revenue of $1.24 million, net income of $92.28 million, operating cash flow of $387.37 million, and free cash flow of $377.96 million. Revenue increased 15% year-over-year, driven by higher net premiums earned, net investment income, and net premiums written. Net income increased 3% year-over-year.
Liquidity
Selective Insurance Group maintains a strong liquidity position, supported by various sources including dividends from its Insurance Subsidiaries, lines of credit, and the ability to issue debt and equity securities. This robust liquidity profile enhances the company's ability to meet its financial obligations, fund growth initiatives, and respond to market opportunities or challenges as they arise.
As of Q3 2024, Selective had $98,000 in cash and a $50 million revolving credit facility that can be increased to $125 million, which was undrawn. Additionally, four of the company's insurance subsidiaries are members of the Federal Home Loan Bank (FHLB) and can access additional liquidity through FHLB borrowings, with $530.9 million of remaining capacity as of Q3 2024.
The company's debt-to-equity ratio stood at 0.1583, indicating a conservative leverage position. The current ratio and quick ratio were both 0.5352, reflecting the company's ability to meet its short-term obligations.
Segment Performance and Operational Highlights
Selective's Standard Commercial Lines segment, which accounts for the majority of its business, reported NPW growth of 11% in the first nine months of 2024, driven by strong renewal pure price increases and stable retention. The segment's combined ratio of 105.6% for the period was impacted by elevated catastrophe losses and unfavorable prior year casualty reserve development, primarily in the general liability line of business.
The Standard Commercial Lines segment contributed 32% of total NPW in the first nine months of 2024. Renewal pure price increases averaged 8.2%, with strong retention of 85%. Key lines of business in this segment include general liability, commercial automobile, commercial property, workers' compensation, businessowners policies, and bonds.
The company's Excess and Surplus (E&S) Lines segment continued to demonstrate strong performance, with NPW growth of 30% in the first nine months of 2024. This growth was supported by renewal pure price increases and higher direct new business. The E&S Lines segment maintained a combined ratio of 88.4% during this period, reflecting Selective's disciplined underwriting and risk selection in this specialized market. The E&S Lines segment contributed 12% of total NPW in the first nine months of 2024, with renewal pure price increases averaging 6.8%.
In the Standard Personal Lines segment, Selective reported a 6% increase in NPW for the first nine months of 2024. The company has been actively taking rate actions and refining its pricing factors to improve the profitability of this business, with renewal pure pricing reaching 18.5% during the period. While the segment's combined ratio of 115.2% remained elevated, the company's actions are expected to positively impact results in the coming periods. The Standard Personal Lines segment contributed 9% of total NPW in the first nine months of 2024 and focuses on providing personal automobile, homeowners, and other personal insurance products through independent insurance agencies.
Investments and Capital Management
Selective's investment portfolio, which represents a significant portion of the company's assets, is conservatively positioned, with fixed income and short-term investments accounting for 92% of the portfolio as of September 30, 2024. The portfolio maintains a high credit quality, with an average rating of AA- and an effective duration of 3.9 years. In the first nine months of 2024, the company's after-tax net investment income increased 15% to $265 million, contributing 12.6 points to the company's operating ROE.
The Investments segment manages Selective's investment portfolio, which had a carrying value of $9.64 billion as of September 30, 2024. Net investment income increased 15% in the first nine months of 2024 compared to the same period in 2023, primarily due to higher interest rates, active portfolio management, and operating cash flow deployment. The annualized after-tax yield on the investment portfolio was 3.9% in the first nine months of 2024.
Selective has demonstrated a disciplined approach to capital management, prioritizing the preservation of financial strength and the prudent deployment of capital to support organic growth and strategic initiatives. During the first nine months of 2024, the company repurchased approximately 103,000 shares of common stock for $8.7 million, leaving $75.5 million remaining under its existing share repurchase authorization.
Challenges and Mitigation Strategies
While Selective has navigated various industry challenges over the years, the company continues to face headwinds related to social inflation, which has led to increased loss severities, particularly in the general liability line of business. In response, the company has taken proactive measures to strengthen its reserve position and implement robust pricing strategies to maintain profitability.
In the Standard Personal Lines segment, Selective has been actively working to improve profitability through rate increases, the introduction of new policy terms and conditions, and a strategic shift towards the mass affluent market. These actions are expected to enhance the segment's performance in the coming periods.
The insurance industry as a whole has faced challenges from social inflation, leading to higher loss severities, particularly in the general liability line of business. Selective has taken actions to address this, including pushing for significant renewal pure price increases in its general liability, commercial property, and commercial auto lines.
Outlook and Future Prospects
Despite the near-term challenges, Selective remains well-positioned for long-term success. The company's strong capital position, diversified business model, and focus on innovation and risk management provide a solid foundation for weathering market fluctuations and capitalizing on growth opportunities.
Looking ahead, Selective is committed to expanding its geographic footprint, enhancing its data analytics capabilities, and continuing to refine its underwriting and pricing strategies to drive profitable growth. The company's proven track record of navigating industry cycles and its unwavering dedication to serving its customers and distribution partners position Selective as a resilient and forward-thinking player in the property and casualty insurance landscape.
For the full year 2024, Selective now expects a GAAP combined ratio of 102.5%, up from their previous guidance of 101.5%. This 1 point increase reflects a higher catastrophe loss assumption of 7.5 points. The company reduced the full year 2024 underlying combined ratio by 1 point to 90%. Selective's estimate for after-tax net investment income remains unchanged at $360 million, including $32 million from alternative investments. The company provided a 21% effective tax rate guidance and estimates a fully diluted weighted average share count of 61.5 million, with no assumptions for share repurchases.
Overall, Selective Insurance Group maintains a strong capital position and continues to focus on profitable growth, risk selection, and disciplined underwriting to navigate the current market environment and deliver value to its stakeholders.