Selective Insurance ((SIGI)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Selective Insurance Group’s recent earnings call for 2024 revealed mixed performance, capturing both commendable strides and notable challenges. The company saw robust growth in net premiums and investment income, alongside strategic expansions. However, it grappled with a higher combined ratio and substantial reserve strengthening due to social inflation pressures, which impacted its operating return on equity (ROE), falling short of the company’s targets.
Strong Net Premiums Growth
Selective Insurance Group demonstrated solid business expansion with a reported 12% growth in net premiums written for the year. This growth underscores the company’s continued success in broadening its market reach and securing a stronger foothold in the insurance sector.
Improvement in Underlying Combined Ratio
The company showed improvement in its underlying combined ratio, which improved by 90 basis points from 2023, reaching 89.4% for 2024, excluding catastrophe losses and prior year casualty development. This positive development indicates better operational efficiency and risk management practices.
Excess and Surplus Lines Growth
The Excess and Surplus lines segment exhibited exceptional performance, achieving a 29% growth and surpassing $500 million in net premiums written for the first time. The segment maintained a combined ratio of 89.7%, highlighting its strong contributions to the overall business.
Investment Income Increase
Selective experienced a 17% rise in after-tax net investment income, reaching $363 million for the year. This increase significantly bolstered the company’s return on equity, showcasing effective investment strategies.
Strategic Initiatives and Market Expansion
The company made strategic advancements by expanding its Standard Commercial Lines into five new states and repositioning its Personal Lines. Additionally, enhancements in technology for Excess and Surplus lines were implemented, aiming to strengthen market presence and operational capabilities.
Operating ROE Below Target
Despite these gains, the operating ROE for 2024 was 7.1%, falling short of the 12% target. This shortfall highlights ongoing challenges in achieving desired return levels, necessitating continued strategic adjustments.
Elevated Combined Ratio
The year 2024 saw an elevated combined ratio of 103%, a significant increase of 6.5 points from 2023. This rise was chiefly due to strengthened casualty reserves, addressing elevated severities in claims.
Significant Reserve Strengthening
Selective undertook considerable reserving actions, totaling $411 million, with $311 million related to prior accident years. This strategic move was essential to mitigate risks associated with escalating claim severities.
Challenging Environment and Social Inflation
Social inflation posed a significant challenge, influencing loss trends and compelling the company to adjust current year loss expectations. This environment underscores the need for adaptive strategies to manage external pressures effectively.
Forward-Looking Guidance
Looking ahead, Selective Insurance Group expects a GAAP combined ratio between 96% and 97% for 2025, including an estimated six points for catastrophe losses. An after-tax net investment income of $405 million is anticipated, with an overall loss trend assumption of 7%. The company aims for an ambitious operating ROE of approximately 15% in 2025, signaling a strategic focus on improving profitability.
In summary, Selective Insurance Group’s 2024 earnings call reflected a balanced view of achievements and challenges. While significant progress was made in expanding market operations and increasing investment income, the company faces hurdles with social inflation and reserve strengthening, impacting its financial targets. Moving forward, Selective is poised to enhance its strategic initiatives, aiming for improved profitability in 2025.
