Selective Insurance Group issued the following announcement on May 1.
In the first quarter of 2019:
Net premiums written ("NPW") advanced 8%
GAAP combined ratio was 94.7%
After-tax net investment income was up 15%, to $41 million
Annualized return on equity ("ROE") was 13.2% and non-GAAP operating ROE was 11.6%
Selective Insurance Group, Inc. (NASDAQ: SIGI) today reported its financial results for the first quarter ended March 31, 2019. Net income per diluted share was $1.02, compared to $0.32 a year ago. Non-GAAP operating income per diluted share was $0.90, compared to $0.46 a year ago. "The annualized non-GAAP operating ROE at 11.6% was a strong start to the year and continues the double digit levels that we have consistently generated since 2013," said Gregory E. Murphy, Chairman and Chief Executive Officer.
Mr. Murphy continued, "Our excellent first quarter financial results reflect the ongoing execution of our strategic initiatives that drive the Company's success in a highly competitive insurance marketplace. For the quarter, we had: (i) renewal pure pricing that was in-line with expected loss trend; and (ii) NPW increased 8%. Our above industry growth rate reflects, in part, renewal pure price increases and new business premium written, as well as the added premium from our five greenfield expansion states. We are now writing commercial lines in 27 states. Our highly talented employees work with sophisticated data and tools that provide our 'ivy league' distribution partners with solid new business opportunities for both new and renewal growth. We have also implemented several safety programs, including our newly minted 'Selective® Drive' program, that is designed to reduce distracted driving and help make our communities safer."
"From a profit stand point, each insurance segment contributed to our GAAP combined ratio of 94.7% that generated 5.7 points of annualized non-GAAP ROE. In addition, results in our investment segment have been excellent as net investment income after-tax was up 15%, to $41 million, contributing 8.9 points of non-GAAP operating ROE. The rise in net investment income, after-tax, reflected: (i) cash flow from operations that was 7% of NPW; (ii) active management of the core fixed income portfolio; and (iii) $106 million of net proceeds from our 5.375% Senior Note issuance," stated Mr. Murphy.
On March 1, 2019, Selective issued $300 million aggregate principal amount of 5.375% Senior Notes due 2049. Part of the net proceeds from the offering were used to: (i) redeem the $185 million aggregate principal amount of Selective's 5.875% Senior Notes due 2043; and (ii) the balance of $106 million are being used for general corporate purposes. This marks the first Institutional public debt deal in the Company's 93 year history. Mr. Murphy stated, "Completing this 30-year public institutional debt transaction was another major step forward for the Company's financial flexibility." As a result of the redemption of the 5.875% Senior Notes the Company had debt retirement costs of $3.3 million after-tax, which are excluded from non-GAAP operating income.
Operating Highlights
| Consolidated Financial Results | Quarter ended March 31, | Change | ||||||
| $ and shares in millions, except per share data | 2019 | 2018 | ||||||
| Net premiums written | $ | 672.9 | 624.6 | 8 | % | |||
| Net premiums earned | 632.6 | 591.8 | 7 | |||||
| Net investment income earned | 50.6 | 43.2 | 17 | |||||
| Net realized and unrealized gains (losses), pre-tax | 13.5 | (10.5) | 228 | |||||
| Total revenues | 699.0 | 626.7 | 12 | |||||
| Net underwriting income, after-tax | 26.5 | 3.7 | 609 | |||||
| Net investment income, after-tax | 41.3 | 35.8 | 15 | |||||
| Net income | 61.3 | 18.9 | 224 | |||||
| Non-GAAP operating income1 | 54.0 | 27.3 | 98 | |||||
| Combined ratio | 94.7 | % | 99.2 | (4.5) | pts | |||
| Loss and loss expense ratio | 61.1 | 65.0 | (3.9) | |||||
| Underwriting expense ratio | 33.3 | 33.8 | (0.5) | |||||
| Dividends to policyholders ratio | 0.3 | 0.4 | (0.1) | |||||
| Catastrophe losses | 3.3 | pts | 4.4 | (1.1) | ||||
| Non-catastrophe property losses and loss expenses2 | 17.1 | 19.6 | (2.5) | |||||
| (Favorable) prior year reserve development on casualty lines | (1.6) | (1.4) | (0.2) | |||||
| Net income per diluted share | $ | 1.02 | 0.32 | 219 | % | |||
| Non-GAAP operating income per diluted share1 | 0.90 | 0.46 | 96 | |||||
| Weighted average diluted shares | 59.9 | 59.6 | 1 | |||||
| Book value per share | $ | 32.51 | 28.25 | 15 | ||||
Overall Insurance Operations
For the quarter, overall NPW growth was a strong 8%, driven by sound new business levels and solid renewal pure price increases. The GAAP combined ratio marked positive ongoing underwriting and claim improvements leading to a 5.7-point contribution to the annualized non-GAAP operating ROE.
Standard Commercial Lines Segment
Standard Commercial Lines premiums, which represented 81% of total net premiums written, were up 7% in the first quarter. This growth reflects strong renewal pure price increases of 3.4%, retention of 84%, and an increase in new business of 11%, to $109 million. The 3.7-point improvement in the first quarter's combined ratio, to 94.8%, was driven by the items in the table below. The favorable prior year casualty reserve development was driven by the workers compensation and general liability lines of business.
| Standard Commercial Lines Segment | Quarter ended March 31, | Change | ||||||
| $ in millions | 2019 | 2018 | ||||||
| Net premiums written | $ | 546.7 | 509.1 | 7 | % | |||
| Net premiums earned | 497.2 | 465.4 | 7 | |||||
| Combined ratio | 94.8 | % | 98.5 | (3.7) | pts | |||
| Loss and loss expense ratio | 60.1 | 63.0 | (2.9) | |||||
| Underwriting expense ratio | 34.3 | 35.0 | (0.7) | |||||
| Dividends to policyholders ratio | 0.4 | 0.5 | (0.1) | |||||
| Catastrophe losses | 3.2 | pts | 4.3 | (1.1) | ||||
| Non-catastrophe property losses and loss expenses2 | 15.0 | 16.6 | (1.6) | |||||
| (Favorable) prior year reserve development on casualty lines | (2.0) | (1.7) | (0.3) | |||||
Standard Personal Lines Segment
Standard Personal Lines premiums, which represented 10% of total net premiums written, were up 2% in the quarter and included renewal pure price increases of 5.2% and stable retention of 84%. The combined ratio in the first quarter was 95.9%, a 6.1-point improvement from a year ago, the drivers of which are outlined in the table below.
| Standard Personal Lines Segment | Quarter ended March 31, | Change | ||||||
| $ in millions | 2019 | 2018 | ||||||
| Net premiums written | $ | 69.4 | 67.9 | 2 | % | |||
| Net premiums earned | 77.3 | 74.3 | 4 | |||||
| Combined ratio | 95.9 | % | 102.0 | (6.1) | pts | |||
| Loss and loss expense ratio | 68.6 | 74.6 | (6.0) | |||||
| Underwriting expense ratio | 27.3 | 27.4 | (0.1) | |||||
| Catastrophe losses | 5.3 | pts | 9.2 | (3.9) | ||||
| Non-catastrophe property losses and loss expenses2 | 37.6 | 39.0 | (1.4) | |||||
Excess and Surplus Lines Segment
Excess and Surplus Lines premiums, which represented 9% of total net premiums written, increased 19% in the quarter, driven by a 41% increase in new business. Over the past few years, we have focused on numerous profitability initiatives that included: targeted price increases, business mix shifts, modifying certain underwriting standards, and the decision to exit specific underperforming classes of business, while entering into new distribution relationships. The premium growth in the first quarter continues to reflect the impact of one particularly large relationship that we reestablished in the second quarter of 2018. The combined ratio for the first quarter was 92.1%, a 9.0-point improvement driven by the factors outlined in the table below.
| Excess and Surplus Lines | Quarter ended March 31, | Change | ||||||
| $ in millions | 2019 | 2018 | ||||||
| Net premiums written | $ | 56.9 | 47.6 | 19 | % | |||
| Net premiums earned | 58.1 | 52.2 | 11 | |||||
| Combined ratio | 92.1 | % | 101.1 | (9.0) | pts | |||
| Loss and loss expense ratio | 59.7 | 69.0 | (9.3) | |||||
| Underwriting expense ratio | 32.4 | 32.1 | 0.3 | |||||
| Catastrophe losses | 1.4 | pts | (1.2) | 2.6 | ||||
| Non-catastrophe property losses and loss expenses2 | 7.8 | 18.9 | (11.1) | |||||
Investments Segment
Net investment income, after-tax, in the first quarter was $41 million, up 15%, driven by: (i) cash flow from operations that was 7% of NPW; (ii) active management of the core fixed income portfolio; and (iii) the $106 million of net proceeds from our 5.375% Senior Notes issuance. The after-tax earned income yield on the portfolio averaged 2.8% in the quarter, while invested assets per dollar of stockholders' equity were $3.24 at March 31, 2019.
| Investments | Quarter ended March 31, | Change | ||||||
| $ in millions, except per share data | 2019 | 2018 | ||||||
| Net investment income earned, after-tax | $ | 41.3 | 35.8 | 15 | % | |||
| Net investment income per share | 0.69 | 0.60 | 15 | |||||
| Effective tax rate | 18.4 | % | 17.2 | 1.2 | pts | |||
| Average yields: | ||||||||
| Fixed income securities: | ||||||||
| Pre-tax | 3.6 | % | 3.2 | 0.4 | pts | |||
| After-tax | 3.0 | 2.7 | 0.3 | |||||
| Portfolio: | ||||||||
| Pre-tax | 3.4 | 3.0 | 0.4 | |||||
| After-tax | 2.8 | 2.5 | 0.3 | |||||
| Balance Sheet | |||||||
| $ in millions, except per share data | March 31, 2019 | December 31, 2018 | Change | ||||
| Total assets | $ | 8,282.8 | 7,952.7 | 4 | % | ||
| Total investments | 6,233.7 | 5,960.7 | 5 | ||||
| Long-term debt | 550.1 | 439.5 | 25 | ||||
| Stockholders' equity | 1,925.2 | 1,791.8 | 7 | ||||
| Invested assets per dollar of stockholders' equity | 3.24 | 3.33 | (3) | ||||
| Book value per share | 32.51 | 30.40 | 7 | ||||
Book value per share increased 7% in the quarter, driven by net income and $1.36 of net unrealized gains on our fixed income securities portfolio per share, partially offset by dividends paid to shareholders. Selective's Board of Directors declared a $0.20 per share quarterly cash dividend on common stock that is payable June 3, 2019, to shareholders of record as of May 15, 2019.
Guidance
After one quarter of results, we are increasing our full-year after-tax net investment income guidance by $5 million, to $180 million, mainly due to net proceeds from the 5.375% Senior Notes issuance. All other assumptions remain the same. Our full-year expectations are as follows:
A GAAP combined ratio, excluding catastrophe losses, of 92.0%. This assumes no additional prior year casualty reserve development;
Catastrophe losses of 3.5 points;
After-tax net investment income of $180 million, which includes $8 million of after-tax net investment income from our alternative investments;
An overall effective tax rate of approximately 19%, which also includes an effective tax rate of 18% for net investment income, reflecting a tax rate of 5.25% for tax-advantaged municipal bonds, and a tax rate of 21% for all other items; and
Weighted average shares outstanding of 60 million.
The supplemental investor package, including financial information that is not part of 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 11:00 a.m. ET, on Thursday, May 2, 2019 at www.Selective.com. The webcast will be available for rebroadcast until the close of business on June 3, 2019.
Original source can be found here.
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