Selective Insurance Group, Inc. Q4 FY2024 earnings call

• 2024 was a challenging year with operating ROE of 7.1% below the 12% target, but ended with strong capital position. - Acted to strengthen casualty reserves and had solid underlying profitability. - Advanced strategic initiatives in 2024 like adding five states to Standard Commercial Lines operating footprint, repositioning in Personal Lines, and enhancing technology for Excess and Surplus lines. - In 2024, took casualty reserving actions totaling $411 million. - Growth strategies focus on creating long-term shareholder value with combined ratio as primary success measure. - Personal Lines implemented significant price increases and underwriting actions to transition to mass affluent market. - Excess and Surplus lines continue to pursue technology and automation investments for scalability.

In 2024, net premiums written grew by 12%. Underlying combined ratio was 89.4%. Standard Commercial Lines and Excess and Surplus lines had underlying combined ratios in line with 2023 despite increasing current year loss cost expectations. Excess and Surplus lines had 29% growth, exceeding $500 million in net premiums written, with a 2024 combined ratio of 89.7% (including four points of prior year reserve strengthening) and an underlying combined ratio of 81.1%. Personal Lines net premiums written increased 4% for the year but saw a 3% decrease in the fourth quarter. Its 2024 combined ratio was 109.3%, with the underlying combined ratio at 89.3% and the quarter at 86%. Renewal pure price increased significantly in Personal Lines.

2025 guidance: GAAP combined ratio expected to be 96% - 97% including six points of catastrophe losses. After-tax net investment income expected to be $405 million (12% increase over 2024). Underlying combined ratio expected in the 90% - 91% range. Expense ratio expected to increase to approximately 31.5%. Operating ROE expected to be approximately 15%.

Social inflation remains a headwind for the industry. Elevated loss trends, especially in general liability, pose risks. Uncertain external environment impacts reserving diagnostics. Catastrophe losses can impact combined ratio. Reserve development based on emerging information has uncertainties.

Q: Good morning. Thanks. John, first question is kind of a basic one on reserving methods...

A: Yes. Thanks, Mike. So just a comment relative to the reserving process...

Q: Second question, if I heard you right on at the end of your comments about the casualty loss trends embedded into your guidance for 2025...

A: Yes. So the 9% we've been talking about is for GL and that continues to be where we have GL on a forward trend basis...

Q: Last one kind of a numbers question. Your primary casualty versus your kind of excess and commercial umbrella...

A: Yes. It was predominantly GL. There was some umbrella movement, but there was predominantly GL and predominantly in the 2023 accident years...

Q: Good morning. It's Paul. It's my actual first name. I wanted to see if you could give us just a few more comments to make us comfortable about the potential for just higher accident year loss ratio picks as we go forward...

A: Yes, Paul, thank you for the question. So I guess the most important piece is to unpack this between property and casualty...

Q: Hi. Thank you for taking my questions. I want to go back to the GL commercial reserve charge. I'm just wondering, can you add more color on what you see behind the data that comes in...

A: Sure. So just a couple of comments. Number one is, I think our commentary on this question in the past is consistent to how I view the question currently, which is social inflation is broad based in nature...

Q: I also have a follow-up on the E&S casualty reserve charge of $20 million. It seems to indicate some emerging loss trend. Are you addressing the underwriting appetite and pricing in this segment going forward...

A: Yes. Thank you. A couple of additional comments on E&S because we've made these points in the past and I think they continue to hold...

Q: Good morning. Thanks. This is Dan on for Mike. I guess just first on your reserve review process. Would you say there's something structural in the way you're reviewing your reserves every quarter that would lead it to where these small bites of the apple occur versus maybe just like a one-time ground up...

A: Yes. So again I think there's always a recency bias. And obviously, in 2024, we've acted and we've acted in a way that we think is timely and prudent...

Q: Great. Thank you for that. And then maybe just switching gears to auto a little bit, maybe for, Patrick, given you've been in the seat for three months now, you're coming from a major commercial auto writer. What are your view of the commercial auto reserves today? And just given it's the epicenter of social inflation, what gives you confidence that the issues in GL necessarily don't bleed into the commercial auto reserves...

A: Yes. I'll hit on a few things there. Thanks for the question. In terms of confidence in the -- we may not have this bleed over into commercial auto. I think we've said in previous conference calls, but we think commercial auto was actually the first shoe to drop as it relates to commercial to social inflation...