Selective Insurance Group (NASDAQ:SIGI) reported third-quarter results marked by improved underwriting margins, higher investment income and continued actions to improve profitability in commercial casualty lines, while management emphasized that it is prioritizing underwriting discipline over near-term premium growth.
Chairman, President and CEO John Marchioni said the insurer delivered a 16.9% operating return on equity for the quarter, its ninth consecutive quarter of double-digit operating returns. The company’s operating return on equity was 14.3% year to date.
The company posted fully diluted earnings per share of $2.11 and non-GAAP operating EPS of $2.37, according to Executive Vice President and CFO Patrick Brennan. Its GAAP combined ratio improved 1.8 points from a year earlier to 96.8, including 5.4 points of catastrophe losses. A combined ratio below 100 indicates underwriting profitability.
Underwriting Results and Casualty Focus
Marchioni said the third-quarter results reflected improvement in Standard Commercial Lines and Personal Lines, while the company’s excess and surplus, or E&S, business produced an 86.5 combined ratio.
Management said commercial casualty profitability remains a key focus. Brennan said commercial auto and general liability have not yet reached the company’s target profitability levels, and Selective is continuing to seek rate increases and tighten risk selection. The company’s underlying general liability reserves have been stable for seven consecutive quarters following actions taken in 2024 to address elevated severities and revise forward loss-cost assumptions.
In Standard Commercial Lines, renewal pure price increased 5.7% during the quarter, or 6.4% excluding workers’ compensation. Property renewal premium rose 7%, including 3.5 points of exposure growth. General liability pricing increased 7.9%, commercial auto pricing rose 7.6%, and commercial auto liability pricing increased 11.6%.
Marchioni said Selective has accelerated efforts to improve its portfolio mix by targeting its lowest-performing renewal cohorts. Retention in its best-performing cohorts remained at 90%, while retention in the lowest-performing cohorts fell to 52% from 79% a year earlier. Those lower-performing cohorts represented about 10% of premium, and renewal pure price in the group increased 17.2%.
Standard Commercial Lines net premiums written declined 8% in the quarter. Marchioni said targeted retention actions in underperforming cohorts accounted for about five points of that decline, while the remaining reduction was driven by lower new business. He said the company views the actions as necessary to improve long-term underwriting returns despite pressure on current premium growth.
“We are prioritizing improved underwriting returns over volume,” Marchioni said, adding that Selective expects the current actions to position the company for stronger growth and profitability as market conditions adjust to casualty loss trends.
Personal Lines and Growth Initiatives
In Personal Lines, Selective said profitability continued to improve in its target mass-affluent market. Average new-business home values exceeded $1.1 million during the first nine months of the year, and target-market business represented approximately 71% of homeowners premium.
Year to date, target-market homeowners direct premiums written rose 8%, offset by a 12% decline in the more challenged auto line. Personal Lines renewal pure price increased 8.1% in the third quarter and 9.3% through the first nine months. The segment’s year-to-date underlying combined ratio improved by 3.3 points.
Marchioni said Selective sees potential for near-term geographic expansion in the high-net-worth homeowners market. The company also appointed 120 new agency locations year to date in Standard Commercial Lines and cited early agency engagement in Montana and Wyoming, two newer markets for the insurer.
In E&S, Selective said its retail-access initiative has moved from build-out to execution, with agency appointments and its underwriting model in place. The company is also seeking to broaden its brokerage appetite with longtime wholesale partners, including potential non-admitted offerings in areas where it has existing experience, such as inland marine.
Investment Income, Capital and Outlook
After-tax net investment income increased 16% year over year to $127 million in the quarter, driven by higher portfolio book yields and strong alternative investment returns. Brennan said the investment portfolio maintained an average credit quality of A+ and its duration increased modestly to 4.5 years as the company locked in higher yields for longer.
Market movements increased after-tax unrealized losses on fixed-income investments, contributing to a 5% decline in book value per common share to $55.02. Adjusted book value per common share, which excludes unrealized investment gains and losses, rose 2% to $62.
Selective ended the quarter with $3.4 billion of GAAP equity and $3.7 billion of statutory surplus. During the quarter, the company returned about 63% of after-tax net income to shareholders through its regular dividend and $55 million of share repurchases.
- The company increased its quarterly dividend by 12%, representing its 13th consecutive annual dividend increase.
- The board authorized a new $200 million share-repurchase program.
- Including $53 million remaining under the prior authorization as of Sept. 30, Selective had about $253 million of total repurchase capacity.
For the full year, Selective maintained its expectation for a GAAP combined ratio of 96.5% to 97.5%, now assuming 5.5 points of catastrophe losses rather than six points. Brennan said the updated assumptions suggest results closer to the midpoint of that range.
The company raised its forecast for after-tax net investment income to $490 million from $480 million. Management said losses from Hurricane Isaias are expected to be immaterial based on its path, Selective’s exposure and early claims reporting.
Selective continues to expect a full-year underwriting expense ratio of approximately 31.5%, implying a fourth-quarter expense ratio near 32%. Brennan said third-quarter expenses reflected lower premium volume, strategic investments and higher premium write-offs tied to an enhanced premium-audit process.
About Selective Insurance Group (NASDAQ:SIGI)
Selective Insurance Group, Inc is a holding company for a group of property and casualty insurance subsidiaries. Founded in 1926 and headquartered in Branchville, New Jersey, the company provides insurance products and related services primarily through a network of independent agents.
Selective serves commercial, personal and public-sector customers. Its commercial offerings include business owners policies, commercial automobile, workers’ compensation, general liability, commercial property and other specialty coverages.
