SELECTIVE INSURANCE GROUP INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was challenging with an operating ROE of 7.1% below the 12% target, but ended with a strong capital position. Net premiums written grew 12%, underlying combined ratio was 89.4%, and book value per share increased 6%. Investment performance was strong with after-tax net investment income of $363 million.
• Reserving actions included strengthening prior year casualty reserves by $100 million in the fourth quarter and adding $47 million to the current accident year. Total casualty reserving actions in 2024 totaled $411 million.
• Standard Commercial Lines and Excess and Surplus lines had underlying combined ratios in line with 2023. Personal Lines improved underlying combined ratio by 9.6 points in 2024 with price increases and underwriting actions.
• Invested $683 million of new money during the quarter at an average pretax yield of 6.1%. Renewed property catastrophe reinsurance program with increased coverage and a conservatively positioned portfolio.

Segment Performance

• Standard Commercial Lines: Grew net premiums written by 12%. Underlying combined ratio was in line with 2023 despite actions to increase current year loss cost expectations.
• Excess and Surplus lines: Recorded 29% growth, exceeding $500 million in net premiums written for the first time. 2024 combined ratio was 89.7% (including 4 points of prior year reserve strengthening), with an underlying combined ratio of 81.1% in line with 2023.
• Personal Lines: Net premiums written increased 4% for the year, but saw a 3% decrease in the fourth quarter. Combined ratio was 91.7% in the fourth quarter and 109.3% for the year, with an underlying combined ratio of 89.3% in 2024 and 86% in the fourth quarter.

Guidance

• 2025 guidance assumes GAAP combined ratio of 96%-97% (including 6 points of catastrophe losses), expense ratio expected to increase to approximately 31.5%, and after-tax net investment income expected to be $405 million (a 12% increase from 2024).
• Operating ROE expected to be approximately 15%. Personal Lines expected to produce an underwriting profit in 2025.

Risks

• Social inflation remains a headwind impacting loss trends, particularly in general liability.
• Elevated uncertainty in the external environment affects reserving diagnostics.
• Catastrophe losses exceeded guidance in 2024 by 1.5 points.

Question and Answer

Q: Question on reserving methods and GL reserve charge margin.

A: John Marchioni discussed the evolution of the reserving process and that the company carries a risk margin above the actuarial best estimate, consistent with historical levels.

Q: Question on casualty loss trends in 2025 guidance.

A: John Marchioni explained that casualty loss ratio assumptions for 2025 include an expected loss trend of approximately 8.5% for casualty, with GL severity trends considered.

Q: Question on GL reserve charge drivers.

A: John Marchioni discussed social inflation's broad-based impact across jurisdictions, with certain states exacerbating the effect, some of which are in the company's footprint.

Q: Question on E&S casualty reserve charge.

A: John Marchioni addressed that social inflation trends are present in E&S, but frequency trends remain favorable, and pricing has been strong, with the company adjusting severity assumptions appropriately.

Q: Question on reserve review process cadence and commercial auto reserves.

A: John Marchioni and Patrick Brennan discussed the quarterly reserve review process and confidence in the reserving process to avoid bleed over from GL issues into commercial auto reserves, noting commercial auto was an earlier area impacted by social inflation with shorter tail and quicker reaction.