Selective Insurance Group (SIGI) Tops Q4 EPS by 28c, Revenues Beat

Selective Insurance Group (NASDAQ: SIGI) reported Q4 EPS of $1.37, $0.28 better than the analyst estimate of $1.09. Revenue for the quarter came in at $728.9 million versus the consensus estimate of $622.25 million.

In the fourth quarter of 2019:

• Net premiums written ("NPW") increased 8%
• GAAP combined ratio was 91.8%
• Overall renewal pure price averaged 3.8%
• After-tax net investment income was up 6%, to $47 million
• Annualized ROE was 15.1% and non-GAAP operating ROE1 was 15.2%

"We are proud of our financial results, including our full-year non-GAAP operating ROE of 13.3%, which marks our sixth consecutive year of double-digit ROEs placing us in an elite group of insurance companies achieving similar results," said Gregory E. Murphy, Chairman and Chief Executive Officer. "Non-GAAP Operating ROE was reduced by 130 basis points in the quarter, and 60 basis points for the full year, due to unrealized gains that increased book value by 9% in 2019. In the fourth quarter, we generated an excellent 91.8% GAAP combined ratio, which benefited from lower catastrophe losses and 3.0 points of favorable prior year casualty reserve development. For the year, the 93.7% GAAP combined ratio included 3.1 points of catastrophe losses, which was below our annual expectations of 3.5 points, and 2.3 points of favorable prior year casualty reserve development. Investment results remained strong, with net investment income, after-tax, up 6% to $47 million in the quarter and up 13%, to $181.2 million for the year. For the year, the change in unrealized after-tax gains on our available-for-sale securities amounted to $169 million."

"Net premiums written increased 8% in the quarter about twice the expected annual industry growth rate, driven by strong retention and new business in our Standard Commercial Lines segment, partially offset by lower Standard Personal Lines and Excess and Surplus Lines premiums," Mr. Murphy added. "Overall renewal pure price increases were 3.8%, in line with expected loss trend, which positions us well for the future. Heading into 2020, our balance sheet remains extremely strong, with a record of $2.2 billion of stockholders\' equity and excellent financial liquidity, and we continue to generate strong cash flow from operations of 18% of net premiums written in 2019."

Mr. Murphy continued, "We continue to excel in a competitive insurance marketplace. Successful execution on our strategic objectives has been key to driving our best-in-class operating and financial performance. Late last year we announced our well-developed management transition plan with John Marchioni to assume the role of Chief Executive Officer, effective February 1, 2020. As I step into my new role as Executive Chairman, I have absolute confidence that, under John's leadership, Selective will continue to execute on achieving its objectives in the coming years, while becoming a truly unique company in the marketplace."

Guidance

For 2020, Selective expects to generate the following results:

• GAAP combined ratio, excluding catastrophe losses, of 91.5%. This assumes no prior-year casualty reserve development;
• Catastrophe losses of 3.5 points;
• After-tax net investment income of $185 million, which includes $14 million of after-tax net investment income from our alternative investments;
• An overall effective tax rate of approximately 19.5%, which includes an effective tax rate of 18.5% for net investment income, reflecting a tax rate of 5.25% for tax-advantaged municipal bonds and a tax rate of 21% for all other items; and
• Weighted average shares outstanding of 60.5 million.

For earnings history and earnings-related data on Selective Insurance Group (SIGI) click here.

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