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Selective Insurance Group Inc. SIGI is set to grow on rising premiums aided by solid renewal pure pricing, high retention and new business growth in Commercial Lines and Excess and Supply Lines.
SIGI has underperformed its industry in the past year. Shares are trading below the 50-day moving average, indicating a bearish trend.
Earnings History
SIGI’s earning history is disappointing. It lagged estimates in each of the last four quarters, the average negative earnings surprise being 58.78%.
Earnings declined 4.3% over the past five years, while the industry average growth was 19.3%.
Factors Favoring SIGI
Selective Insurance has been focused on improving its organic growth, with its Commercial Lines business increasing share of distribution partners' overall premium to 12%, appointing new distribution partners to achieve a 25% agent market share and expanding to new states.
The insurer’s overall premium stands to gain from improved pricing, new business growth and a high retention ratio.
The P&C insurer relies on geographic expansion for growth and diversification. Over the years, the company has successfully expanded in New Hampshire and has a presence in the Southwest region, such as Arizona, Colorado, Utah and Mexico. As a result, the company now has a total commercial lines presence in 27 states and expects to expand to new states.
Despite a low interest rate environment, SIGI has managed to deliver impressive investment results. We estimate net investment income to grow, banking on an increased invested asset base and higher book yields.
As part of wealth distribution, the company regularly raises dividends as well as buys back shares. A higher dividend yield compared to its industry makes SIGI an attractive pick for yield- seeking investors.
Concerns for SIGI
Being a property and casualty (P&C) insurer, Selective Insurance remains exposed to catastrophe loss stemming from natural disasters and weather-related events. This in turn induces underwriting volatility and weighs on combined ratio. SIGI estimates a GAAP combined ratio of 96% to 97% in 2025, including net catastrophe losses of 6 points. Underlying combined ratio is estimated in the 90-91% range.
SIGI’s debt levels have remained relatively stable in the past few years. Though its leverage compares favorably with the industry average, its times interest earned compares unfavorably with the industry.
Selective Insurance has been witnessing rising expenses over the years, primarily due to increasing loss and loss expense. For 2025, the company expects the expense ratio to increase to approximately 31.5%, partially due to greater profit-based compensation from expected underwriting improvement.