Yahoo Finance Selective Insurance Group Inc (SIGI) Q1 2024 Earnings Call Transcript Highlights: Key Financial ...
Operating ROE: 11.7%
Net Premiums Written Growth: 16%
Combined Ratio: 98.2%
Net Unfavorable Prior Year Casualty Reserve Development: $35 million
General Liability Unfavorable Development: $50 million
Workers' Compensation Favorable Development: $15 million
General Liability and Umbrella Renewal Pure Price: 6.5%
Overall Renewal Pure Price: 8.1%
Excess and Surplus Lines Combined Ratio: 87.6%
Personal Lines Combined Ratio: 105.1%
Personalized Net Premiums Written Growth: 17%
Fully Diluted EPS: $1.31
Non-GAAP Operating EPS: $1.33
Return on Equity: 11.5%
GAAP Combined Ratio: 98.2%
After-tax Net Investment Income: $86 million
2024 GAAP Combined Ratio Guidance: 96.5%
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Selective Insurance Group Inc (NASDAQ:SIGI) reported a strong operating return on equity (ROE) of 11.7%.
Net premiums written grew by 16%, driven by strong pricing, exposure increases, and stable retention.
Overall renewal pure price increased to 8.1%, indicating effective pricing strategies.
Excess and Surplus lines showed excellent performance with 24% growth in net premiums written and an 87.6% combined ratio.
Personal Lines showed signs of improvement with a 10.9 point improvement in the combined ratio from the first quarter of 2023.
Negative Points
The combined ratio was elevated at 98.2%, above the target of 95%, due to reserving actions taken during the quarter.
Selective Insurance Group Inc (NASDAQ:SIGI) reported $35 million of net unfavorable prior year casualty reserve development.
General liability and umbrella renewal pure price increases indicate a need for further rate acceleration due to industry-wide social inflation.
Personal Lines experienced a decrease in retention to 83%, approximately 4 points below last year's rate, due to strategic profit improvement actions.
The company faces heightened challenges in certain jurisdictions with expanded liability theories and higher damage awards.
Q & A Highlights
Q: Thanks for moving the call up till 8:00 a.m. First question, and thanks for all the color you guys gave on kind of how you changed all the accident years on the reserves and whatnot and loss trend. But I'm trying to just -- this is something we've seen in a lot of other carriers, and this isn't a Selective thing I'm asking about. But if we look at the underlying inter-commercial loss ratio, it didn't change much year-over-year despite all the commentary you've given us about kind of expecting a higher loss trend and what happened with reserves. So maybe I'm just focusing too much on the underlying loss ratio. But why would that be kind of stable-ish given what transpired over the course of the year-to-date? A: Yes, Mike, thank you for the question. I'll try to break it down into the pieces for you, and we're focused on the current year and the current year underlying. So the first thing we want to do is separate out property and casualty. So, property and specifically non-cat property came in better than expected in Q1. So, I think let's put that off to the side. So, that drives some of the underlying stability. With regard to casualty and general liability in particular, and in Tony's prepared comments, he talked about the impact on guidance. We did make an adjustment to the current year by -- which, on an annualized basis, raises the current year for -- on an all-in basis by 80 basis points. So you've got a couple of offsetting factors there, and I think that's the primary driver. But now let me just take it one step further, because I think if you look at that and tie it back to the loss trend commentary, so we've been giving you casualty loss trend assumptions or expected casualty loss trend assumptions very consistently year-over-year. And if you look at what we gave you for the '24 year, we had an assumption of 8% casualty trend. And as we've disclosed in our prepared comments, if you exclude workers' comp from that, which gets you to focus more on GL and auto liability, it was closer to 9%. Now, while we don't update our current year loss trend assumptions quarterly, we do that on an annual basis, the effective impact of that 1 point -- roughly 1 point loss ratio move is about the equivalent of having moved your trend assumption by about 2 points. So I think that's -- you've got the minus or the increase on the loss ratio underlying from the casualty adjustment we made, and you've got an offsetting impact from your non-cat property going in the other direction.
Q: Okay. Okay, that's great context. My follow-up, I'll be mindful of other people in the queue, it's just, now that you've, I guess, just time has gone on and you've been upping your loss trend for a little while. Is it emanating out of, you think any certain classes of -- like other than just business line, right, GL, and you said Umbrella, is it coming out of any, do you think, certain types of business? I know Selective has a very strong niche in construction. Or is there kind of any macro portfolio trends you guys have been able to hone in on that you think this could be emanating from? And I guess lastly, you also break-out and talked about Umbrella a lot. What percentage of your reserves, if you're able to tell us, is Umbrella, because I don't think we can see that on a stat basis. A: Okay. So I'll handle the first part of the question, and then I will come back to you with regard to the Umbrella question. But just with regard to where this might be emanating from, I would say, at the highest-level, we continue to view this as kind of a market-wide shift in average severities. Now I'll go a little deeper on that because there's no question, and I think this has always been the case, and I think this is also an industry dynamic. There are certain jurisdictions that have and have always had or at least in more recent memory, have had more tough legal environments. So think states like Georgia and South Carolina, New York, New Jersey, Pennsylvania, Illinois. And I think when you have social inflationary trends like we're seeing, if you have more challenging legal environments and cases where you have either case law or statute that has expanded theories of liability, I think you do see a more outsized impact as these social inflationary factors hit. But the states I just took you through are pretty large states and pretty consistently in most companies' portfolio. So I think that's point number one. There are certainly some geographic differences in the magnitude of the impacts. But I think that what we're talking about in terms of social inflationary trends are pretty evident across the board. I think the other important point to highlight is, and I think this is where we gain confidence in viewing this as a social inflationary trend. In addition to the fact that it's hit pretty consistently across all accident years, all open accident years over the last several years, if you look at our mix of business over the last decade and including the more recent years, the limit profile of our book has been very consistent over that time frame, in addition to the underlying limits profile, our reinsurance attachment point on casualty has remained at $2 million. So, you've got stability there. From an industry classification perspective, percent contractors versus percent manufacturing and wholesaling or mercantile and service has also remained quite consistent. Our hazard grade distribution; low, medium, high hazard has remained very consistent. So there's no shifts in the underlying portfolio. And the one shift, and honestly, it hasn't been all that dramatic is, as we've expanded geographically, we've seen a little bit of a shift in our geographic footprint. But based on the states I just took you through that tend to be the hotter spots from a litigation environment perspective, you would generally view that geo expansion as a diversifier from that vantage point. So I think when you put all those pieces together, that kind of gives us the confidence to make the statements around the overall dynamics at play here. And Tony, why don't you just touch on the second question? A: Yes, we can follow back up after the call. We don't have the split right in front of us on the Umbrella versus GL. But as a total, I would just sit there and say our general liability reserves represent about 40% to 50% of our reserve position.
Q: John, the question relates to kind of timing of reserve reviews. I think this kind of comes up every now and then, but maybe a refresher here. What you give us for general liability reserve changes, obviously, that's kind of a total of what you do because of all the granular data that you have inside the house that we don't have, right? So, I don't know how many segments [are
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
