Selective Insurance Group, Inc. (SIGI) is a leading provider of property and casualty insurance solutions, serving a diverse range of commercial and personal risk customers through its network of independent agents. With a rich history spanning over a century, the company has established itself as a trusted partner, known for its unwavering commitment to innovation, disciplined underwriting, and exceptional customer service.
Business Overview and History
Selective Insurance Group was founded in 1926 in Bridgeton, New Jersey, initially offering automobile insurance to local residents. In its early years, the company focused on providing insurance coverage for small and medium-sized businesses in New Jersey. Over the decades, the company has meticulously expanded its offerings and geographic footprint. In the 1960s, Selective entered the personal lines insurance market and began writing policies for homeowners and automobile owners.
The company faced significant challenges in the 1980s when it experienced losses due to an economic recession and high interest rates. To address these issues, Selective implemented strict underwriting practices and began diversifying its investment portfolio. These actions helped the company return to profitability in the early 1990s.
In the 2000s, Selective continued to grow its business, both organically and through strategic acquisitions. The company expanded its presence in the Excess and Surplus (E&S) Lines market, which provides coverage for unique or hard-to-place risks. Selective also entered new regional markets, such as the Southeast and Midwest, to further diversify its geographic footprint.
Today, Selective operates through ten insurance subsidiaries, each rated "A+" (Superior) by A.M. Best, serving customers across 35 states and the District of Columbia. The company has maintained this superior rating for over two decades, demonstrating its long-standing financial stability. Selective Insurance Group, Inc. became a publicly traded company in 1981, and its shares are listed on the Nasdaq Stock Market under the ticker symbol "SIGI."
One of the hallmarks of Selective's success has been its unwavering focus on building strong relationships with independent insurance agents. The company's distribution model, which emphasizes close collaboration with its agent partners, has allowed it to maintain a diversified portfolio and respond swiftly to changing market conditions. This approach has been instrumental in driving the company's steady growth, with net premiums written increasing by 13% on a year-over-year basis in the most recent quarter.
Financial Strength and Solvency
Selective's financial performance has been consistently solid, with the company reporting net income of $365.24 million in 2023, up from $224.89 million in 2022. The company's revenue for the 2023 fiscal year reached $4.23 billion, with operating cash flow of $758.91 million and free cash flow of $736.28 million. This strong profitability has enabled Selective to maintain a robust balance sheet, with a debt-to-capital ratio of 13.8% as of September 30, 2024, well below the industry average.
In the most recent quarter (Q3 2024), Selective 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. The company achieved a year-over-year revenue growth of 15% in Q3 2024, driven by higher net premiums earned, net investment income, and other income.
Selective's financial position remains strong, with a debt-to-equity ratio of 0.1583 as of September 30, 2024. The company's cash balance stood at $98,000, and it maintained access to a $50 million revolving credit facility that can be increased to $125 million. Selective's liquidity position is further underscored by its current ratio and quick ratio, both at 226.16 as of September 30, 2024.
The company's cash and invested assets totaled $9.64 billion at the end of the third quarter, providing ample liquidity to support its operations and growth initiatives.
Selective's underwriting discipline has been a key driver of its financial success, with the company consistently achieving combined ratios below 100%. In the third quarter of 2024, the company reported a GAAP combined ratio of 99.5%, despite facing elevated catastrophe losses due to events such as Hurricane Helene. The company's ability to navigate these challenges is a testament to its risk management practices and the strength of its reinsurance program.
Diversified Product Offerings and Geographic Expansion
Selective's diverse product portfolio has been instrumental in its ability to adapt to evolving market dynamics. The company operates through four main reportable segments:
1. Standard Commercial Lines: This segment includes general liability, commercial automobile, commercial property, workers' compensation, businessowners policies, and bonds lines of business. In Q3 2024, this segment saw 8% growth in net premiums written (NPW) compared to the prior year period, driven by renewal pure price increases of 9.1% and strong retention of 86%. The combined ratio for this segment was 99.2%, up from 94.7% in the prior year quarter, primarily due to higher net catastrophe losses and unfavorable prior year casualty reserve development.
2. Standard Personal Lines: This segment includes personal automobile, homeowners, and other personal lines. NPW decreased 2% in Q3 2024 compared to the prior year, as the company reduced direct new business premiums amid efforts to improve profitability through higher rate increases. The segment's combined ratio improved to 122.1% from 127.4% in the prior year quarter, driven by lower non-catastrophe property losses.
3. Excess and Surplus (E&S) Lines: This segment writes casualty and property coverage for customers that cannot obtain insurance in the standard market. In Q3 2024, the E&S Lines segment saw NPW growth of 28%, reflecting higher renewal pure price increases of 8% and strong new business growth. The combined ratio improved to 83.2% from 83.9% in the prior year quarter.
4. Investments: The Investments segment generated $123.2 million in revenue in Q3 2024, up 31% year-over-year. This was driven by a 17% increase in net investment income earned, as well as $5.4 million in net realized and unrealized investment gains. The annualized after-tax yield on the investment portfolio was 4.0% in the quarter.
Selective's geographic expansion has also been a key part of its growth strategy. In 2024, the company entered three new states – Washington, Oregon, and Nevada – bringing its total footprint to 35 states and the District of Columbia. This diversification has helped the company mitigate exposure to regional risks and capitalize on opportunities in underserved markets.
Challenges and Outlook
While Selective has demonstrated its resilience, the property and casualty insurance industry continues to face headwinds, including the ongoing impact of social inflation, elevated catastrophe losses, and regulatory uncertainties. In response to these challenges, Selective has taken proactive measures, such as implementing robust pricing actions and refining its underwriting guidelines to maintain profitability.
In its latest guidance, Selective expects its full-year 2024 GAAP combined ratio to be 102.5%, which includes 7.5 points of net catastrophe losses. This is an increase from the previous guidance of 101.5%, reflecting a higher catastrophe loss assumption. The company has reduced its underlying combined ratio guidance for the full year 2024 by 1 point to 90%.
Selective's after-tax net investment income estimate remains unchanged at $360 million, including $32 million from alternative investments. The company projects an effective tax rate of 21%, with a 20.5% rate on investments and 21% on all other items. Fully diluted weighted average shares are estimated to be 61.5 million, with no assumptions for share repurchases under the existing authorization.
For Q3 2024, Selective reported operating earnings per share of $1.40, with a year-to-date operating return on equity (ROE) of 4.8%. The company's full-year 2024 guidance implies an operating ROE in the high single-digit range, which is below their 12% target. This lower operating ROE is primarily due to reserving actions in the first and second quarters, along with catastrophe losses above expectations in the first nine months of the year.
Conclusion
Selective Insurance Group's enduring success is a testament to its unwavering commitment to disciplined underwriting, innovative risk management, and exceptional customer service. As the property and casualty insurance industry navigates a complex and rapidly changing environment, Selective's diversified product offerings, geographic footprint, and financial strength position it as a resilient and forward-thinking industry leader.
Despite facing challenges such as elevated catastrophe losses and unfavorable casualty reserve development, Selective continues to implement pricing actions and underwriting strategies to improve profitability across its insurance segments. The company's investment portfolio provides a steady stream of income and gains to support its financial position.
With a proven track record of weathering market cycles and delivering consistent shareholder value, Selective Insurance Group remains well-equipped to navigate the evolving landscape and capitalize on future opportunities. The company's strong balance sheet, ample liquidity, and strategic focus on key growth areas position it favorably for long-term success in the competitive property and casualty insurance market.