SELECTIVE INSURANCE GROUP INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Introduced new Executive Vice President and Chief Financial Officer Patrick Brennan, who brings significant insurance and corporate finance experience.
• Priority is to deliver combined ratios in line with or better than the 95% target in each insurance segment. Leverages disciplined planning process for underwriting and pricing.
• Addressed social inflation impact on loss trends, took prudent reserve actions with no prior accident year development in total casualty portfolio. Achieved renewal pure price increases in general liability, commercial property, and commercial auto.
• Expanded geographic footprint in Standard Commercial Lines by adding states like Washington, Oregon, and Nevada. Focus on E&S segment for growth and profitability with strong net premiums written growth and favorable combined ratio.
• Took actions to improve Personal Lines profitability through rate actions and shifting toward the mass affluent segment, with underlying combined ratio improvement despite net premiums written decrease.

Segment Performance

• Standard Commercial Lines: Net premiums written grew 8% in the quarter. Combined ratio was 99.2% including 13.4 points of catastrophe losses; underlying combined ratio (excluding catastrophes) was 87.7%. Renewal pure pricing in standard commercial lines accelerated to 9.1% this quarter.
• Excess and Surplus Lines: Net premiums written increased 28% in the quarter with an 83.2% combined ratio. Represents 12% of net premiums written.
• Personal Lines: Net premiums written decreased 2% in the quarter. Renewal pure pricing was strong at 22.8%, average policy size increased 19%, but retention was 75%. Underlying combined ratio improved by 15.3 points compared to Q3 2023.

Guidance

• Full year guidance implies operating ROE in the high single-digit range, below the 12% target due to reserving actions and catastrophe losses.
• GAAP combined ratio updated to 102.5% from previous 101.5% due to higher catastrophe loss assumption; non-catastrophe property losses partially offset this.
• After-tax net investment income estimate remains $360 million, including $32 million from alternative investments.
• Quarterly dividend per common share increased to $0.38, a 9% increase.

Risks

• Social inflation: Impacting loss severities and requiring continued underwriting and claims discipline.
• Catastrophe losses: Elevated catastrophe losses impacted the combined ratio, with Hurricane Helene being a significant contributor.
• Reserve development risks: Modest reserve development in some lines, with severity-driven actions in commercial auto.

Question and Answer

• Q: Clarification on commercial auto reserves and social inflation spread A: John and Tony discussed commercial auto reserve actions, noting small prior year and current year adjustments, and social inflation as an industry-wide trend.
• Q: On Patrick Brennan's role in reserve studies A: John explained the consistent reserving process with multiple involved parties, including Patrick's beneficial input in refining decisions.
• Q: Standard commercial lines underlying loss ratio and non-catastrophe property losses A: John and Patrick discussed non-catastrophe property losses as normal variability but positively impacted by pricing, with expectations of normalization in the fourth quarter.
• Q: Hurricane Helene losses and mix A: John explained Helene's impact, noting it added 7.6 points to the combined ratio, and that excluding it, the quarter was relatively in-line.
• Q: Rate trajectory in Personal Lines and GL loss trend A: John discussed state-by-state rate updates and stable GL loss trend assumptions, with continued efforts to achieve rate adequacy.
• Q: Retention in Standard Commercial and distribution partners A: John talked about retention holding well despite rate increases, noting a dynamic market and focus on growth through geographic expansion.
• Q: Premium to surplus and property losses A: John and Tony discussed premium to surplus as a metric and property loss components, including auto and fire losses as major contributors.
• Q: Catastrophe breakdown by line in Standard Commercial A: John provided breakdown of property ($93.7M), BOP ($4.4M), and commercial auto ($2.3M) losses in Standard Commercial Lines.
• Q: Long-term view on Standard Personal Lines A: John discussed near-term focus on proving competitiveness in the target market and potential state expansion for long-term growth.