SELECTIVE INSURANCE GROUP INC Q1 FY2024 earnings call

• Pricing and Growth: Strong pricing, exposure increases, and stable retention drove growth. General liability renewal pure price was 6.5%, up from previous periods. Overall renewal pure price was 8.1%.
• Reserves and Loss Trends: There was $35 million of net unfavorable prior year casualty reserve development. General liability reserves were strengthened due to elevated social inflation and average paid severities. Workers' compensation had favorable prior year reserve development. Social inflation led to higher severities, with expectations of accelerated rate increases in general liability.
• Geographic Expansion: The company continued its methodical geographic expansion, adding Maine and West Virginia to the Standard Commercial Lines footprint in April 2024, with plans to launch Oregon, Washington, Nevada in 2024 and other states in 2025.

In the first quarter, Selective Insurance Group's insurance segments had an operating ROE of 11.7% and net premiums written grew 16%. The combined ratio was 98.2% due to reserving actions. Standard Commercial Lines saw $50 million of unfavorable general liability development offset by $15 million of favorable workers' compensation development. Excess and Surplus lines had 24% net premiums written growth and an 87.6% combined ratio. Personal Lines had a combined ratio of 105.1% in the quarter, but the underlying combined ratio was 93.7%, with personalized net premiums written increasing 17%. Revenue contribution: Standard Commercial Lines, Excess and Surplus, and Personal Lines are the key segments, with specific financial metrics as detailed above.

• GAAP combined ratio expected to be 96.5% for 2024, up from the original guidance of 95.5% due to prior year reserve development.
• After-tax net investment income is expected to be $316 million, including $32 million from alternative investments.
• Operating ROE is expected to exceed the 12% target for the full year.

• Social inflation leading to higher loss severities and uncertain loss trends.
• Jurisdictions with expanded liability theories and high damage awards posing challenges.
• Uncertainty in reinsurance renewals, as reinsurers may be more cautious on casualty lines.

Q: Michael Zaremski asked about the stability of the underlying inter-commercial loss ratio despite reserve changes and loss trend commentary.

A: John Marchioni responded that property non-cat came in better than expected, and there were offsetting factors including a $20 basis point impact from current year adjustment and a prior year development impact. Anthony Harnett clarified the 80 basis point impact was from prior year development.

Q: Michael Phillips inquired about growth in commercial lines, specifically new customer count and focus on growth.

A: John Marchioni stated that growth in commercial lines is driven by pricing expectations, retention, and policy count in the low-single-digits, with a focus on pricing relative to market expectations.

Q: Dean Criscitiello asked about rate increases in commercial lines and pricing flexibility.

A: John Marchioni replied that commercial lines have pricing flexibility through scheduled debits/credits and multiple companies filed in states, allowing for achieving pricing expectations.

Q: Grace Carter asked about updated guidance for the combined ratio and casualty reinsurance renewals.

A: Tony Harnett said the favorable non-cat property loss variance was neutralized in assumptions, and John Marchioni mentioned early conversations on reinsurance renewals for the July 1 program, evaluating pricing and program terms.

Q: Robert Farnam asked about litigation funding and future litigation trends.

A: John Marchioni noted litigation funding impacts across the board, with social inflation affecting severities, and while commercial auto shows some moderation, the trial bar continues to seek fertile grounds.