First Quarter Return on Common Equity ("ROE")
of 8.1% and Non-GAAP Operating ROE1
of 12.8%
In the first quarter of 2022, we reported:
- Net premiums written ("NPW") increased 11% compared to first
quarter of 2021;
- GAAP combined ratio of 93.1%;
- Overall renewal pure price increases averaged 4.6%;
- After-tax net investment income of $59
million, up 4% compared to first quarter of 2021;
- Book value per common share of $42.73, down 8% in the first quarter; and
- Adjusted book value per common share¹ of $43.80, up 1% in the first quarter.
BRANCHVILLE, N.J., May 4, 2022
/PRNewswire/ -- Selective Insurance Group, Inc. (NASDAQ: SIGI)
reported strong financial results for the first quarter ended
March 31, 2022, with net income per
diluted common share of $0.89 and
non-GAAP operating income1 per diluted common share of
$1.41. The first quarter combined
ratio was a profitable 93.1%, the non-GAAP operating ROE was 12.8%,
and NPW increased 11% from a year ago. NPW increased 29% in our
E&S segment and 11% in our Standard Commercial Lines segment,
with the growth driven by renewal pure price increases, higher
retention, exposure growth, and strong new business growth.
For the quarter, the Investments segment contributed 8.7 points of
annualized ROE.
"Our consistent and strong results are a testament to our
constant focus on profitable growth and underwriting discipline.
Each of our insurance segments reported solid underwriting results
for the quarter, and Investments was a strong contributor to
non-GAAP operating income," said John
Marchioni, President and CEO.
"We continue to execute on our strategic priorities and enhance
our market position. Our decade-long track record of successfully
balancing our growth and profitability objectives positions us well
in the current environment. Our balance sheet remains strong, and
we are confident in our ability to effectively navigate the
challenges faced by our industry. Despite greater uncertainty as a
result of higher loss trends and increased financial market
volatility, we are well positioned to continue generating strong
returns on an absolute and relative basis," continued Mr.
Marchioni.
Operating Highlights
Consolidated Financial Results
|
Quarter ended March 31,
|
Change
|
$ and shares in millions, except per share
data
|
2022
|
2021
|
Net premiums
written
|
$
889.8
|
|
798.2
|
11
|
%
|
Net premiums
earned
|
812.3
|
|
725.0
|
12
|
|
Net investment income
earned
|
72.6
|
|
69.7
|
4
|
|
Net realized and
unrealized gains (losses), pre-tax
|
(40.4)
|
|
5.1
|
(888)
|
|
Total
revenues
|
846.1
|
|
803.9
|
5
|
|
Net underwriting
income, after-tax
|
44.1
|
|
61.4
|
(28)
|
|
Net investment income,
after-tax
|
58.5
|
|
56.3
|
4
|
|
Net income available to
common stockholders
|
54.0
|
|
106.8
|
(49)
|
|
Non-GAAP operating
income1
|
85.9
|
|
102.8
|
(16)
|
|
Combined
ratio
|
93.1
|
%
|
89.3
|
3.8
|
pts
|
Loss and loss expense
ratio
|
60.8
|
|
57.0
|
3.8
|
|
Underwriting expense
ratio
|
32.1
|
|
32.1
|
—
|
|
Dividends to
policyholders ratio
|
0.2
|
|
0.2
|
—
|
|
Net catastrophe
losses
|
2.5
|
pts
|
4.1
|
(1.6)
|
|
Non-catastrophe
property losses and loss expenses
|
18.5
|
|
15.9
|
2.6
|
|
(Favorable) prior year
reserve development on casualty lines
|
(2.5)
|
|
(4.8)
|
2.3
|
|
Net income available to
common stockholders per diluted common share
|
$
0.89
|
|
1.77
|
(50)
|
%
|
Non-GAAP operating
income per diluted common share1
|
1.41
|
|
1.70
|
(17)
|
|
Weighted average
diluted common shares
|
60.8
|
|
60.5
|
1
|
|
Book value per common
share
|
$
42.73
|
|
42.38
|
1
|
|
Adjusted book value per
common share¹
|
43.80
|
|
38.73
|
13
|
|
Overall Insurance Operations
For the first quarter, overall NPW increased 11% from a year
ago, reflecting average renewal pure price increases of 4.6%,
stronger retention, and new business growth of 14%. Our combined
ratio was 93.1% in the quarter, up from 89.3% a year ago, driven
primarily by higher non-catastrophe property losses and less
favorable prior year casualty reserve development, partially offset
by lower catastrophe losses. Our Insurance Operations generated 6.6
points of annualized ROE in the quarter.
Standard Commercial Lines Segment
For the first quarter, Standard Commercial Lines premiums
(representing 83% of total NPW) increased 11% compared to a year
ago. The premium growth reflected average renewal pure price
increases of 4.8%, solid retention of 87%, and new business
growth of 12%. The first quarter combined ratio was 93.6%, and
the variances driving the increase relative to the 88.2% combined
ratio a year ago are shown in the following table:
Standard Commercial Lines
Segment
|
Quarter ended March 31,
|
Change
|
$ in millions
|
2022
|
2021
|
Net premiums
written
|
$
737.6
|
|
665.6
|
11
|
%
|
Net premiums
earned
|
661.5
|
|
589.1
|
12
|
|
Combined
ratio
|
93.6
|
%
|
88.2
|
5.4
|
pts
|
Loss and loss expense
ratio
|
60.4
|
|
55.1
|
5.3
|
|
Underwriting expense
ratio
|
33.0
|
|
32.9
|
0.1
|
|
Dividends to
policyholders ratio
|
0.2
|
|
0.2
|
—
|
|
Net catastrophe
losses
|
2.3
|
pts
|
2.7
|
(0.4)
|
|
Non-catastrophe
property losses and loss expenses
|
17.5
|
|
14.2
|
3.3
|
|
(Favorable) prior-year
reserve development on casualty lines
|
(3.0)
|
|
(5.1)
|
2.1
|
|
Standard Personal Lines Segment
For the first quarter, Standard Personal Lines premiums
(representing 7% of total NPW) were flat compared to the prior-year
period. Renewal pure price increases averaged 0.6%, retention was
84%, and new business was down 2% compared to the prior year.
The first quarter combined ratio was 91.0%, and the variances
driving the increase relative to the 89.6% combined ratio a
year ago are shown in the following table:
Standard Personal Lines Segment
|
Quarter ended March 31,
|
Change
|
$ in millions
|
2022
|
2021
|
Net premiums
written
|
$
65.1
|
|
65.1
|
—
|
%
|
Net premiums
earned
|
72.6
|
|
73.8
|
(2)
|
|
Combined
ratio
|
91.0
|
%
|
89.6
|
1.4
|
pts
|
Loss and loss expense
ratio
|
66.8
|
|
63.9
|
2.9
|
|
Underwriting expense
ratio
|
24.2
|
|
25.7
|
(1.5)
|
|
Net catastrophe
losses
|
6.0
|
pts
|
7.6
|
(1.6)
|
|
Non-catastrophe
property losses and loss expenses
|
35.2
|
|
31.3
|
3.9
|
|
(Favorable) prior-year
reserve development on casualty lines
|
—
|
|
—
|
—
|
|
Excess and Surplus Lines Segment
For the first quarter, Excess and Surplus Lines premiums
(representing 10% of total NPW) were up 29% compared to the
prior-year period, driven by average renewal pure price increases
of 7.7% and new business growth of 25%. The first quarter combined
ratio was 91.1%, and the variances driving this improvement
relative to the 99.2% combined ratio a year ago are shown in
the following table:
Excess and Surplus Lines
Segment
|
Quarter ended March 31,
|
Change
|
$ in millions
|
2022
|
2021
|
Net premiums
written
|
$
87.1
|
|
67.5
|
29
|
%
|
Net premiums
earned
|
78.2
|
|
62.0
|
26
|
|
Combined
ratio
|
91.1
|
%
|
99.2
|
(8.1)
|
pts
|
Loss and loss expense
ratio
|
59.1
|
|
66.8
|
(7.7)
|
|
Underwriting expense
ratio
|
32.0
|
|
32.4
|
(0.4)
|
|
Net catastrophe
losses
|
1.7
|
pts
|
13.3
|
(11.6)
|
|
Non-catastrophe
property losses and loss expenses
|
11.6
|
|
14.3
|
(2.7)
|
|
(Favorable) prior year
reserve development on casualty lines
|
—
|
|
(8.1)
|
8.1
|
|
Investments Segment
For the first quarter, after-tax net investment income of
$59 million was up 4% compared to the
prior-year period. For the quarter, the overall portfolio's
after-tax earned income yield averaged 3.0%, and the fixed income
securities portfolio's after-tax earned income yield averaged 2.6%.
Alternative investments contributed $15
million of after-tax gains. The total return on the
investment portfolio of negative 3.5% was impacted by the rapid
rise in benchmark interest rates and wider credit spreads,
resulting in $245 million of
after-tax net unrealized losses on our fixed income
securities. In addition, we incurred $32 million of after-tax net realized and
unrealized losses, principally driven by: (i) $21 million of credit and intent-to-sell losses
as more of our fixed income securities were in an unrealized loss
position at March 31, 2022 and (ii)
$9 million of after-tax realized
losses from trading our fixed income securities to build book yield
in a higher interest rate environment. Invested assets per
dollar of common stockholders' equity was $3.02 at March 31,
2022, and the investment portfolio generated 8.7 points of
non-GAAP operating ROE.
Investments Segment
|
Quarter ended March 31,
|
Change
|
$ in millions, except per share
data
|
2022
|
2021
|
Net investment income
earned, after-tax
|
$
58.5
|
|
56.3
|
4
|
%
|
Net investment income
per common share
|
0.96
|
|
0.93
|
3
|
|
Effective tax
rate
|
19.4
|
%
|
19.2
|
0.2
|
pts
|
Average
yields:
|
|
|
|
|
|
Portfolio:
|
|
|
|
|
|
Pre-tax
|
3.7
|
|
3.7
|
—
|
|
After-tax
|
3.0
|
|
3.0
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
Pre-tax
|
3.2
|
%
|
3.3
|
(0.1)
|
pts
|
After-tax
|
2.6
|
|
2.6
|
—
|
|
Annualized ROE
contribution
|
8.7
|
|
8.9
|
(0.2)
|
|
Balance Sheet
$ in millions, except
per share data
|
March 31, 2022
|
|
December 31, 2021
|
|
Change
|
Total assets
|
$
10,310.5
|
|
|
10,461.4
|
|
|
(1)%
|
|
Total
investments
|
7,774.7
|
|
|
8,027.0
|
|
|
(3)
|
|
Long-term
debt
|
505.6
|
|
|
506.1
|
|
|
—
|
|
Stockholders'
equity
|
2,778.2
|
|
|
2,982.9
|
|
|
(7)
|
|
Common stockholders'
equity
|
2,578.2
|
|
|
2,782.9
|
|
|
(7)
|
|
Invested assets per
dollar of common stockholders' equity
|
3.02
|
|
|
2.88
|
|
|
5
|
|
Net premiums written to
policyholders' surplus
|
1.36
|
x
|
|
1.33
|
x
|
|
0.03
|
x
|
Book value per common
share
|
$
42.73
|
|
|
46.24
|
|
|
(8)
|
|
Adjusted book value per
common share¹
|
43.80
|
|
|
43.23
|
|
|
1
|
|
Debt to total
capitalization
|
15.4
|
%
|
|
14.5
|
%
|
|
0.9
|
pts
|
Book value per common share declined 8% during the first
quarter. The decline was principally driven by (i) a $4.07 change in net unrealized losses on our
fixed income securities portfolio from higher long-term interest
rates, and (ii) $0.28 of dividends on
our common stock paid to shareholders, partially offset by
$0.89 of net income per diluted
common share. During the first quarter, the Company repurchased
1,000 shares at an average price of $75.49 per share for a total of $75,488. Capacity under our existing repurchase
authorization was $96.5 million as of
March 31, 2022.
Selective's Board of Directors declared:
- A quarterly cash dividend on common stock of $0.28 per common share payable June 1, 2022, to holders of record on
May 16, 2022; and
- A cash dividend of $287.50 per
share on our 4.60% Non-Cumulative Preferred Stock, Series B
(equivalent to $0.28750 per
depository share) payable on June 15,
2022, to holders of record as of May
31, 2022.
Guidance
Our full-year expectations are as follows:
- A GAAP combined ratio, excluding net catastrophe losses, of
91.0%. Our combined ratio estimate assumes no additional prior-year
casualty reserve development;
- Net catastrophe losses of 4.0 points on the combined
ratio;
- After-tax net investment income of $205
million (prior guidance $200
million) that includes $15
million (prior guidance $20
million) in after-tax net investment income from our
alternative investments;
- An overall effective tax rate of approximately 20.5% that
assumes an effective tax rate of 19.5% for net investment income
and 21.0% for all other items; and
- Weighted average shares of 61 million on a fully diluted
basis.
The supplemental investor package, including financial
information not included in this press release, is available on the
Investors page of Selective's website at www.Selective.com.
Selective's quarterly analyst conference call will be simulcast at
10:00 A.M. ET, on Thursday, May 5, 2022, at
www.Selective.com. The webcast will be available for
rebroadcast until the close of business on June 4, 2022.
About Selective Insurance Group, Inc.
Selective Insurance Group, Inc. (Nasdaq: SIGI) is a holding
company for 10 property and casualty insurance companies rated "A+"
(Superior) by AM Best. Through independent agents, the insurance
companies offer standard and specialty insurance for commercial and
personal risks and flood insurance through the National Flood
Insurance Program's Write Your Own Program. Selective's unique
position as both a leading insurance group and an employer of
choice is recognized in a wide variety of awards and honors,
including the Fortune 1000 and being named a Great Place to Work®
in 2021. For more information about Selective, visit
www.Selective.com.
1Reconciliation of Net Income Available to Common
Stockholders to Non-GAAP Operating Income and Certain Other
Non-GAAP Measures
Non-GAAP operating income, non-GAAP operating income per diluted
common share, and non-GAAP operating return on common equity differ
from net income available to common stockholders, net income
available to common stockholders per diluted common share, and
return on common equity, respectively, by the exclusion of
after-tax net realized and unrealized gains and losses on
investments included in net income. Adjusted book value per common
share differs from book value per common share by the exclusion of
total after-tax unrealized gains and losses on investments included
in accumulated other comprehensive (loss) income. They are used as
important financial measures by management, analysts, and
investors, because the timing of realized and unrealized investment
gains and losses on securities in any given period is largely
discretionary. In addition, net realized and unrealized gains and
losses on investments could distort the analysis of trends. These
operating measurements are not intended as a substitute for net
income available to common stockholders, net income available to
common stockholders per diluted common share, return on common
equity, and book value per common share prepared in accordance with
U.S. generally accepted accounting principles (GAAP).
Reconciliations of net income available to common stockholders, net
income available to common stockholders per diluted common share,
return on common equity, and book value per common share to
non-GAAP operating income, non-GAAP operating income per diluted
common share, non-GAAP operating return on common equity, and
adjusted book value per common share, respectively, are provided in
the tables below.
Note: All amounts included in this release exclude intercompany
transactions.
Reconciliation of
Net Income Available to Common Stockholders
to Non-GAAP Operating Income
|
|
$ in millions
|
Quarter ended March 31,
|
2022
|
|
2021
|
Net income available to
common stockholders
|
$
54.0
|
|
106.8
|
Net realized and
unrealized investment losses (gains) included in net income, before
tax
|
40.4
|
|
(5.1)
|
Tax on reconciling
items
|
(8.5)
|
|
1.1
|
Non-GAAP operating
income
|
$
85.9
|
|
102.8
|
|
|
Reconciliation of
Net Income Available to Common Stockholders per Diluted Common
Share to Non-GAAP Operating Income per
Diluted Common Share
|
|
|
Quarter ended March 31,
|
2022
|
|
2021
|
Net income available to
common stockholders per diluted common share
|
$
0.89
|
|
1.77
|
Net realized and
unrealized investment losses (gains) included in net income, before
tax
|
0.66
|
|
(0.08)
|
Tax on reconciling
items
|
(0.14)
|
|
0.01
|
Non-GAAP operating
income per diluted common share
|
$
1.41
|
|
1.70
|
|
|
Reconciliation of
Return on Equity to Non-GAAP Operating Return on
Equity
|
|
|
Quarter ended March 31,
|
2022
|
|
2021
|
Annualized Return on
Equity
|
8.1
|
%
|
16.8
|
Net realized and
unrealized investment losses (gains) included in net income, before
tax
|
6.0
|
|
(0.8)
|
Tax on reconciling
items
|
(1.3)
|
|
0.2
|
Annualized Non-GAAP
Operating Return on Equity
|
12.8
|
%
|
16.2
|
|
|
Reconciliation of
Book Value per Common Share to Adjusted Book Value per Common
Share
|
|
|
Quarter ended March 31,
|
2022
|
|
2021
|
Book value per common
share
|
$
42.73
|
|
42.38
|
Total unrealized
investment losses (gains) included in accumulated other
comprehensive (loss) income, before
tax
|
1.35
|
|
(4.62)
|
Tax on reconciling
items
|
(0.28)
|
|
0.97
|
Adjusted book value per
common share
|
$
43.80
|
|
38.73
|
Note: Amounts in the tables above may not foot due to
rounding.
Forward-Looking Statements
Certain statements in this report, including information
incorporated by reference, are "forward-looking statements" as
defined by the Private Securities Litigation Reform Act of 1995
("PSLRA"). The PSLRA provides a safe harbor under the Securities
Act of 1933 and the Securities Exchange Act of 1934 for
forward-looking statements. These statements relate to our
intentions, beliefs, projections, estimations, or forecasts of
future events and financial performance. They involve known and
unknown risks, uncertainties, and other factors that may cause our
or industry actual results, activity levels, or performance to
materially differ from those expressed or implied by the
forward-looking statements. In some cases, you can identify
forward-looking statements by words such as "may," "will," "could,"
"would," "should," "expect," "plan," "anticipate," "target,"
"project," "intend," "believe," "estimate," "predict," "potential,"
"pro forma," "seek," "likely," "continue," or comparable terms. Our
forward-looking statements are only predictions, and we can give no
assurance that such expectations will prove correct. We undertake
no obligation, other than as federal securities laws may require,
to publicly update or revise any forward-looking statements for any
reason.
Factors that could cause our actual results to differ materially
from what we project, forecast, or estimate in forward-looking
statements include, without limitation:
- Related to COVID-19:
-
- Governmental directives to contain or delay the spread of the
COVID-19 pandemic have disrupted ordinary business commerce and
impacted financial markets. These governmental actions, the extent,
duration, and possible alteration based on future COVID-19-related
developments that we cannot predict, could materially and adversely
affect our results of operations, net investment income, financial
position, and liquidity.
- The amount of premium we record may be reduced and our
underwriting results may be adversely impacted by (i) voluntary
premium credits on in-force commercial and personal automobile
policies, (ii) state insurance commissioner or other regulatory
directives to implement premium-based credit in lines other than
commercial and personal automobile, and we may be required to
return more premium than warranted by our filed rating plans and
actual loss experience, (iii) the effects of our voluntary efforts
or the directives from various state insurance regulators to extend
individualized payment flexibility and suspend policy
cancellations, late payment notices, and late or reinstatement
fees, (iv) return premiums that could be significant because our
general liability and workers compensation policies provide for
premium audit of revenues and payrolls, and (v) collectability of
premiums, which may be impacted by policyholder financial distress
and insolvency.
- Our loss and loss expenses may increase, our related reserves
may not be adequate, and our financial condition and liquidity may
be materially impacted if litigation or changes in statutory or
common law (i) require payment of COVID-19-related business
interruption losses despite contrary terms, conditions, and
exclusions in our policies or (ii) presume that COVID-19 is a
work-related illness compensable under workers compensation
policies for employees who contract the virus, regardless of
whether they worked in industries defined as essential in various
COVID-19-related governmental directives or interacted with the
public as part of their job duties.
- Our net investment income may be impacted by the significant
equity and debt financial market volatility resulting from the
COVID-19 pandemic and the related governmental orders because (i)
financial market volatility is reflected in our alternative
investments' performance, (ii) increased spreads on fixed income
securities may create mark-to-market investment valuation losses
that reduce unrealized capital gains and impact GAAP equity, and
(iii) net realized losses may increase if we intend to sell more
securities, particularly in asset classes that are more
significantly impacted by COVID-19-related governmental directives
and to which the Federal Reserve Board is providing liquidity and
structural support.
- To varying degrees, the effect, lifting, or lapsing of
COVID-19-related governmental directives in 2021 have disrupted
supply chains and caused shortages of products, services, and
labor. These shortages may impact our ability to attract and retain
labor, including increasing attrition rates, wages, and the cost
and difficulty of obtaining third-party non-U.S.-based
resources.
- The ongoing Russian war against Ukraine is impacting global economic, banking,
commodity, and financial markets, exacerbating ongoing economic
challenges, including inflation and supply chain disruption, which
influences insurance loss costs, premiums and investment
valuation;
- Difficult conditions in global capital markets and the economy,
including the risk of prolonged higher inflation, could increase
loss costs and negatively impact investment portfolios;
- Deterioration in the public debt and equity markets and private
investment marketplace that could lead to investment losses and
interest rate fluctuations;
- Ratings downgrades on individual securities we own could affect
investment values and, therefore, statutory surplus;
- The adequacy of our loss reserves and loss expense
reserves;
- Frequency and severity of catastrophic events, including
natural events such as hurricanes, tornadoes, windstorms,
earthquakes, hail, severe winter weather, floods, and fires and
man-made events such as criminal and terrorist acts, including
cyber-attacks, explosions, and civil unrest;
- Adverse market, governmental, regulatory, legal, or judicial
conditions or actions;
- The geographic concentration of our business in the eastern
portion of the United States;
- The cost, terms and conditions, and availability of
reinsurance;
- Our ability to collect on reinsurance and the solvency of our
reinsurers;
- The impact of changes in U.S. trade policies and imposition of
tariffs on imports that may lead to higher than anticipated
inflationary trends for our loss and loss expenses;
- Uncertainties related to insurance premium rate increases and
business retention;
- Changes in insurance regulations that impact our ability to
write and/or cease writing insurance policies in one or more
states;
- The effects of data privacy or cyber security laws and
regulations on our operations;
- Major defect or failure in our internal controls or information
technology and application systems that result in harm to our brand
in the marketplace, increased senior executive focus on crisis and
reputational management issues and/or increased expenses,
particularly if we experience a significant privacy breach;
- Potential tax or federal financial regulatory reform provisions
that could pose certain risks to our operations;
- Our ability to maintain favorable ratings from rating agencies,
including AM Best, Standard & Poor's, Moody's, and Fitch;
- Our entry into new markets and businesses; and
- Other risks and uncertainties we identify in filings with the
United States Securities and Exchange Commission, including, but
not limited to, our Annual Report on Form 10-K and other periodic
reports.
These risk factors may not be exhaustive. We operate in a
continually changing business environment, and new risk factors
that we cannot predict or assess may emerge.
Selective's SEC filings can be accessed through the Investors
page of Selective's website, www.Selective.com, or through the
SEC's EDGAR Database at www.sec.gov (Selective EDGAR CIK No.
0000230557).
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SOURCE Selective Insurance Group, Inc.