Selective Insurance Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Unaudited quarter ended March 31, 2024; comparisons are with Q1 2023 unless otherwise stated. Selective is a property and casualty insurer reporting Standard Commercial Lines, Standard Personal Lines, Excess and Surplus (E&S) Lines, and Investments.
Financial performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $1,165.0 million | $999.8 million; up 17% |
| Net premiums earned | $1,050.9 million | $902.3 million; up 16% |
| Net investment income | $107.8 million pre-tax; $85.6 million after-tax | $91.5 million pre-tax; $73.1 million after-tax |
| Net income | $82.5 million | $92.6 million; down 11% |
| Net income available to common stockholders | $80.2 million; diluted EPS $1.31 | $90.3 million; diluted EPS $1.48 |
| Underwriting income | $19.0 million | $39.2 million; down 51% |
| Combined ratio | 98.2% | 95.7%; worsened 2.5 points |
| Operating cash flow | $114.2 million | $135.8 million |
| Stockholders’ equity | $3.01 billion | $2.95 billion at December 31, 2023 |
| Long-term debt | $503.3 million | $503.9 million at December 31, 2023 |
First-quarter loss and loss expense rose 24% to $704.3 million, faster than earned premium growth. The loss ratio increased to 67.0% from 62.9%, while the underwriting expense ratio improved to 30.9% from 32.6%. The annualized after-tax investment portfolio yield was 3.9%, up 0.2 points. Return on common equity was 11.5%, versus 15.1%; non-GAAP operating ROE was 11.7%, below management’s 12% target.
Segments and material changes
- Standard Commercial Lines: Net premiums written grew 15%, but underwriting income fell to $10.4 million from $38.9 million; combined ratio worsened to 98.8% from 94.7%. General liability recorded a $29.4 million underwriting loss and a 110.8% combined ratio, primarily reflecting adverse reserve development and higher loss trends.
- Standard Personal Lines: Net premiums written rose 17%. Underwriting loss narrowed to $5.3 million from $13.1 million and the combined ratio improved to 105.1% from 116.0%, but the segment remained unprofitable. New policy counts fell 37%, and retention was 83%, compared with 87%.
- E&S Lines: Net premiums written rose 24% and underwriting income increased to $14.0 million from $13.3 million. The combined ratio increased to 87.6% from 85.0%, mainly due to higher losses.
- Investments: Net investment income increased 18% pre-tax, supported by reinvestment at higher rates. Net realized and unrealized investment losses were $1.6 million, compared with gains of $3.3 million.
Across the company, renewal pure price increases were 8.1%, compared with 6.6% a year earlier; direct new business premiums rose to $260.8 million from $216.9 million. Net catastrophe losses were $55.2 million, broadly unchanged from $55.3 million.
Outlook, risks and liquidity
- 2024 guidance: Management raised its expected GAAP combined ratio to 96.5% from 95.5%, including 5.0 points of net catastrophe losses. The estimate assumes no additional prior-year casualty reserve development. Other full-year expectations were maintained: after-tax net investment income of $360 million, including $32 million from alternative investments; an effective tax rate of approximately 21%; and 61.5 million fully diluted weighted-average shares, assuming no share repurchases.
- Pricing and growth: Management expects Standard Personal Lines written renewal rate increases to exceed 20% for full-year 2024. Commercial general liability rate increases are expected to accelerate. The company added West Virginia and Maine to its commercial footprint in April 2024 and expects further state expansion, subject to regulatory approvals.
- Reserve risk: Prior-year reserve development was unfavorable by $15.8 million overall: $35.0 million unfavorable casualty development, partly offset by $19.2 million favorable property development. The casualty charge included $50.0 million of adverse general liability development, primarily from increased severities in accident years 2020–2023 attributed to social inflation; workers compensation provided a $15.0 million offset. Q1 2023 had $13.0 million favorable prior-year development.
- Capital and liquidity: GAAP equity was $3.0 billion, statutory surplus $2.8 billion, and debt-to-capital 14.3%. The Parent held $476.4 million in investments and cash; its stated minimum target for liquid investments is $210 million. The company reported $528.3 million of remaining FHLB borrowing capacity and $119.5 million of remaining intercompany loan capacity. No revolver or short-term FHLB borrowings were made in Q1; the $50 million revolving facility matures November 2025.
- Cash and commitments: Operating cash flow declined to $114.2 million, which management attributed primarily to reduced underwriting results. Contractual investment commitments totaled $424.5 million; management expects to fund them through normal operating and investing activities, though timing and amounts are uncertain.
- Other considerations: Unrealized losses on investments contributed to accumulated other comprehensive loss of $385.0 million. Management said it did not intend or expect to be required to sell the securities in unrealized-loss positions. The filing reports no pending legal proceeding believed likely to materially harm consolidated financial condition, results, or cash flows, while noting litigation outcomes can be unpredictable. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether general liability severity and social-inflation trends continue to produce adverse reserve development, and whether pricing adequately responds.
- Progress toward the revised 96.5% full-year combined-ratio guidance, particularly catastrophe losses and any further reserve adjustments.
- Whether Personal Lines rate increases improve profitability without further material deterioration in retention or new business.
- Delivery of the $360 million after-tax investment-income outlook and the assumptions for alternative investment returns.
- Liquidity, statutory dividend capacity, and funding of the $424.5 million investment commitments while maintaining capital and shareholder distributions.