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Third Quarter Return on Common Equity ("ROE") of 7.0% and Non-GAAP Operating ROE1 of 10.5%
In the third quarter of 2022, we reported:
BRANCHVILLE, N.J., Nov. 2, 2022 /PRNewswire/ -- Selective Insurance Group, Inc. (NASDAQ: SIGI) reported financial results for the third quarter ended September 30, 2022, with net income per diluted common share of $0.66 and non-GAAP operating income1 per diluted common share of $0.99. The third quarter combined ratio was a profitable 96.8%, with 4.0% points of catastrophe losses, including a $10 million ultimate net loss for Hurricane Ian. Non-catastrophe property losses were 3.5 points above the prior-year period. The non-GAAP operating ROE was 10.5%, and NPW increased 11% from a year ago. NPW growth was strong across our Standard Commercial Lines, Standard Personal Lines, and Excess & Surplus segments, driven by renewal pure price increases, solid retention, and exposure growth. For the quarter, the Investments segment contributed 8.9 points of annualized ROE.
"We are proud of our results and ability to effectively navigate through an environment characterized by capital markets volatility and historic levels of economic inflation. We have established an organizational discipline focused on balancing profitability and growth, as demonstrated by our strong and consistent results throughout this challenging environment," said John Marchioni, President and CEO.
Operating Highlights | ||||||||||
Consolidated Financial Results | Quarter ended September 30, | Change | Year-to-Date September 30, | Change | ||||||
$ and shares in millions, except per share data | 2022 | 2021 | 2022 | 2021 | ||||||
Net premiums written | $ 903.4 | 812.9 | 11 | % | $ 2,723.9 | 2,444.3 | 11 | % | ||
Net premiums earned | 853.9 | 767.2 | 11 | 2,500.6 | 2,232.7 | 12 | ||||
Net investment income earned | 63.9 | 93.0 | (31) | 206.7 | 246.5 | (16) | ||||
Net realized and unrealized (losses) gains, pre-tax | (25.7) | 0.2 | (14,609) | (108.9) | 15.4 | (809) | ||||
Total revenues | 895.0 | 865.0 | 3 | 2,605.9 | 2,509.5 | 4 | ||||
Net underwriting income, after-tax | 21.4 | 8.6 | 148 | 95.3 | 130.0 | (27) | ||||
Net investment income, after-tax | 51.5 | 74.7 | (31) | 166.7 | 198.5 | (16) | ||||
Net income available to common stockholders | 40.2 | 71.4 | (44) | 131.5 | 297.8 | (56) | ||||
Non-GAAP operating income1 | 60.5 | 71.3 | (15) | 217.5 | 285.7 | (24) | ||||
Combined ratio | 96.8 | % | 98.6 | (1.8) | pts | 95.2 | % | 92.6 | 2.6 | pts |
Loss and loss expense ratio | 64.1 | 65.9 | (1.8) | 62.7 | 60.0 | 2.7 | ||||
Underwriting expense ratio | 32.6 | 32.6 | — | 32.4 | 32.4 | — | ||||
Dividends to policyholders ratio | 0.1 | 0.1 | — | 0.1 | 0.2 | (0.1) | ||||
Net catastrophe losses | 4.0 | pts | 10.0 | (6.0) | 4.0 | pts | 5.8 | (1.8) | ||
Non-catastrophe property losses and loss expenses | 19.6 | 16.1 | 3.5 | 18.3 | 15.5 | 2.8 | ||||
(Favorable) prior-year reserve development on casualty lines | (1.9) | (1.8) | (0.1) | (1.9) | (3.0) | 1.1 | ||||
Net income available to common stockholders per diluted common share | $ 0.66 | 1.18 | (44) | % | $ 2.16 | 4.92 | (56) | % | ||
Non-GAAP operating income per diluted common share1 | 0.99 | 1.18 | (16) | 3.57 | 4.72 | (24) | ||||
Weighted average diluted common shares | 60.8 | 60.6 | — | 60.8 | 60.5 | 1 | ||||
Book value per common share | $ 36.96 | 45.27 | (18) | 36.96 | 45.27 | (18) | ||||
Adjusted book value per common share¹ | 44.59 | 41.56 | 7 | 44.59 | 41.56 | 7 |
Overall Insurance Operations
For the third quarter, overall NPW increased 11% from a year ago, reflecting average renewal pure price increases of 5.3%, solid retention, new business, and exposure growth. Our combined ratio was 96.8% in the quarter, compared with 98.6% a year ago, with the improvement driven by lower catastrophe losses. Our underlying combined ratio, which excludes catastrophe losses and casualty reserve development, was 94.7% this quarter, compared to 90.4% a year ago. The 4.3-point increase was driven principally by non-catastrophe property losses that were 3.5 points higher than a year ago. The increase in non-catastrophe property losses was primarily driven by higher severities from inflationary pressures on items such as new and used car prices, auto repair costs, and building materials and labor costs. While our booked casualty loss ratios remain on plan and unchanged for the 2022 accident year, the recognition of $9.3 million of ceded earned casualty reinstatement premium in the quarter, principally due to development on one large loss from the 2018 treaty year and two large losses from the 2020 treaty year, added 0.8 points to the all-lines combined ratio. Our Insurance Operations generated 3.7 points of annualized ROE in the quarter.
Standard Commercial Lines Segment
For the third quarter, Standard Commercial Lines premiums (representing 80% of total NPW) increased 11% compared to a year ago. The premium growth reflected average renewal pure price increases of 5.8%, new business growth of 5%, and consistently solid retention of 86%. The third quarter combined ratio was 96.8%. The following table shows the variances relative to the 97.2% combined ratio a year ago:
Standard Commercial Lines Segment | Quarter ended September 30, | Change | Year-to-Date September 30, | Change | ||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||
Net premiums written | $ 727.5 | 652.6 | 11 | % | $ 2,225.4 | 1,995.3 | 12 | % | ||
Net premiums earned | 692.4 | 619.6 | 12 | 2,034.1 | 1,808.5 | 12 | ||||
Combined ratio | 96.8 | % | 97.2 | (0.4) | pts | 94.5 | % | 91.4 | 3.1 | pts |
Loss and loss expense ratio | 63.4 | 63.5 | (0.1) | 61.1 | 57.9 | 3.2 | ||||
Underwriting expense ratio | 33.3 | 33.5 | (0.2) | 33.2 | 33.3 | (0.1) | ||||
Dividends to policyholders ratio | 0.1 | 0.2 | (0.1) | 0.2 | 0.2 | — | ||||
Net catastrophe losses | 2.6 | pts | 8.1 | (5.5) | 2.7 | pts | 4.3 | (1.6) | ||
Non-catastrophe property losses and loss expenses | 18.7 | 14.5 | 4.2 | 16.9 | 13.7 | 3.2 | ||||
(Favorable) prior-year reserve development on casualty lines | (2.3) | (2.3) | — | (2.4) | (3.3) | 0.9 |
Standard Personal Lines Segment
For the third quarter, Standard Personal Lines premiums (representing 10% of total NPW) increased 11% compared to a year ago. Renewal pure price increases averaged 0.5%, retention was 85%, and new business was up $7.2 million, or 70%, compared to last year. The third quarter combined ratio was 101.8%. The following table shows the variances relative to the 115.2% combined ratio a year ago:
Standard Personal Lines Segment | Quarter ended September 30, | Change | Year-to-Date September 30, | Change | ||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||
Net premiums written | $ 86.8 | 78.2 | 11 | % | $ 234.5 | 221.9 | 6 | % | ||
Net premiums earned | 75.6 | 73.4 | 3 | 221.6 | 220.5 | 1 | ||||
Combined ratio | 101.8 | % | 115.2 | (13.4) | pts | 103.3 | % | 99.0 | 4.3 | pts |
Loss and loss expense ratio | 75.7 | 88.8 | (13.1) | 77.8 | 72.7 | 5.1 | ||||
Underwriting expense ratio | 26.1 | 26.4 | (0.3) | 25.5 | 26.3 | (0.8) | ||||
Net catastrophe losses | 14.9 | pts | 26.7 | (11.8) | 16.5 | pts | 13.7 | 2.8 | ||
Non-catastrophe property losses and loss expenses | 38.4 | 39.1 | (0.7) | 36.8 | 34.8 | 2.0 | ||||
(Favorable) prior-year reserve development on casualty lines | — | — | — | — | — | — |
Excess and Surplus Lines Segment
For the third quarter, Excess and Surplus Lines premiums (representing 10% of total NPW) increased 9% compared to the prior-year period, driven by average renewal pure price increases of 6.7% and new business growth of 8%. The third quarter combined ratio was 93.0%. The following table shows the variances relative to the 93.7% combined ratio a year ago:
Excess and Surplus Lines Segment | Quarter ended September 30, | Change | Year-to-Date September 30, | Change | ||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||
Net premiums written | $ 89.1 | 82.1 | 9 | % | $ 264.1 | 227.1 | 16 | % | ||
Net premiums earned | 85.8 | 74.3 | 15 | 244.8 | 203.8 | 20 | ||||
Combined ratio | 93.0 | % | 93.7 | (0.7) | pts | 93.3 | % | 96.3 | (3.0) | pts |
Loss and loss expense ratio | 61.0 | 62.8 | (1.8) | 61.2 | 64.7 | (3.5) | ||||
Underwriting expense ratio | 32.0 | 30.9 | 1.1 | 32.1 | 31.6 | 0.5 | ||||
Net catastrophe losses | 5.4 | pts | 9.2 | (3.8) | 3.3 | pts | 10.5 | (7.2) | ||
Non-catastrophe property losses and loss expenses | 10.1 | 6.5 | 3.6 | 12.4 | 10.5 | 1.9 | ||||
(Favorable) prior-year reserve development on casualty lines | — | — | — | — | (3.4) | 3.4 |
Investments Segment
For the third quarter, after-tax net investment income of $52 million was down $23 million, or 31%, compared to last year. After-tax alternative investment income was $38 million lower in third quarter 2022 than the prior-year period. The variance was driven by a $4 million after-tax loss in third quarter 2022 compared to an after-tax gain of $34 million in third quarter 2021. This decline was partially offset by significantly higher income from our fixed income securities portfolio due to higher book yields. For the quarter, the after-tax earned income yield averaged 2.7% for the overall portfolio, and 3.4% for the fixed income securities portfolio. The investment portfolio's total return was (2.6)%, driven by a sharp increase in interest rates during the quarter. These resulted in $189 million of after-tax net unrealized losses on our fixed income securities recorded in accumulated other comprehensive income, and $20 million of after-tax net realized and unrealized losses recorded in net income. Invested assets per dollar of common stockholders' equity was $3.38 at September 30, 2022, and the investment portfolio generated 8.9 points of non-GAAP operating ROE for the quarter.
Investments Segment | Quarter ended September 30, | Change | Year-to-Date September 30, | Change | ||||||
$ in millions, except per share data | 2022 | 2021 | 2022 | 2021 | ||||||
Net investment income earned, after-tax | $ 51.5 | 74.7 | (31) | % | $ 166.7 | 198.5 | (16) | % | ||
Net investment income per common share | 0.85 | 1.23 | (31) | 2.74 | 3.28 | (16) | ||||
Effective tax rate | 19.3 | % | 19.7 | (0.4) | pts | 19.4 | % | 19.5 | (0.1) | pts |
Average yields: | ||||||||||
Portfolio: | ||||||||||
Pre-tax | 3.4 | 4.8 | (1.4) | 3.5 | 4.3 | (0.8) | ||||
After-tax | 2.7 | 3.8 | (1.1) | 2.9 | 3.4 | (0.5) | ||||
Fixed income securities: | ||||||||||
Pre-tax | 4.2 | % | 3.1 | 1.1 | pts | 3.7 | % | 3.2 | 0.5 | pts |
After-tax | 3.4 | 2.5 | 0.9 | 3.0 | 2.6 | 0.4 | ||||
Annualized ROE contribution | 8.9 | 11.0 | (2.1) | 8.9 | 10.1 | (1.2) |
Balance Sheet | ||||||||
$ in millions, except per share data | September 30, 2022 | December 31, 2021 | Change | |||||
Total assets | $ 10,520.5 | 10,461.4 | 1 % | |||||
Total investments | 7,536.1 | 8,027.0 | (6) | |||||
Long-term debt | 505.2 | 506.1 | — | |||||
Stockholders' equity | 2,427.5 | 2,982.9 | (19) | |||||
Common stockholders' equity | 2,227.5 | 2,782.9 | (20) | |||||
Invested assets per dollar of common stockholders' equity | 3.38 | 2.88 | 17 | |||||
Net premiums written to policyholders' surplus | 1.45 | x | 1.33 | x | 0.12 | x | ||
Book value per common share | $ 36.96 | 46.24 | (20) | |||||
Adjusted book value per common share¹ | 44.59 | 43.23 | 3 | |||||
Debt to total capitalization | 17.2 | % | 14.5 | % | 2.7 | pts |
Book value per common share declined by $9.28, or 20%, during the first nine months of 2022. The decline was principally driven by (i) a $10.64 change in after-tax net unrealized losses on our fixed income securities portfolio from higher interest rates, and (ii) $0.84 of dividends on our common stock paid to shareholders, partially offset by $2.16 of net income per diluted common share. During the first nine months of 2022, the Company repurchased 165,159 shares for $12.4 million, or an average price of $75.20 per share. Capacity under our existing repurchase authorization was $84.2 million as of September 30, 2022.
Selective's Board of Directors declared:
Guidance
Our full-year expectations are as follows:
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, November 3, 2022, at www.Selective.com. The webcast will be available for rebroadcast until the close of business on December 2, 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 listing in the Fortune 1000 and certification as a Great Place to Work® in 2022 for the third consecutive year. 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. These non-GAAP measures 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 September 30, | Year-to-Date September 30, | |||||
2022 | 2021 | 2022 | 2021 | ||||
Net income available to common stockholders | $ 40.2 | 71.4 | 131.5 | 297.8 | |||
Net realized and unrealized investment losses (gains) included in net income, before tax | 25.7 | (0.2) | 108.9 | (15.4) | |||
Tax on reconciling items | (5.4) | — | (22.9) | 3.2 | |||
Non-GAAP operating income | $ 60.5 | 71.3 | 217.5 | 285.7 |
Reconciliation of Net Income Available to Common Stockholders per Diluted Common Share to Non-GAAP Operating Income per | |||||||
Quarter ended September 30, | Year-to-Date September 30, | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Net income available to common stockholders per diluted common share | $ 0.66 | 1.18 | 2.16 | 4.92 | |||
Net realized and unrealized investment losses (gains) included in net income, before tax | 0.42 | — | 1.79 | (0.25) | |||
Tax on reconciling items | (0.09) | — | (0.38) | 0.05 | |||
Non-GAAP operating income per diluted common share | $ 0.99 | 1.18 | 3.57 | 4.72 |
Reconciliation of Return on Common Equity to Non-GAAP Operating Return on Common Equity | ||||||||
Quarter ended September 30, | Year-to-Date September 30, | |||||||
2022 | 2021 | 2022 | 2021 | |||||
Return on Common Equity | 7.0 | % | 10.6 | 7.0 | 15.1 | |||
Net realized and unrealized investment losses (gains) included in net income, before tax | 4.4 | — | 5.8 | (0.8) | ||||
Tax on reconciling items | (0.9) | — | (1.2) | 0.2 | ||||
Non-GAAP Operating Return on Common Equity | 10.5 | % | 10.6 | 11.6 | 14.5 |
Reconciliation of Book Value per Common Share to Adjusted Book Value per Common Share | |||||||
Quarter ended September 30, | Year-to-Date September 30, | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Book value per common share | $ 36.96 | 45.27 | 36.96 | 45.27 | |||
Total unrealized investment losses (gains) included in accumulated other comprehensive (loss) income, before tax | 9.67 | (4.71) | 9.67 | (4.71) | |||
Tax on reconciling items | (2.04) | 1.00 | (2.04) | 1.00 | |||
Adjusted book value per common share | 44.59 | 41.56 | 44.59 | 41.56 |
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, forward-looking statements include the words "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:
These risk factors may not be exhaustive. We operate in a constantly changing business environment, and new risk factors may emerge any time.
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.