Selective Insurance Group, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Delivered an overall combined ratio of 96.1% and after-tax net investment income of $96 million. Return on equity and operating return on equity were 14.4%. Net premiums written grew 7% due to excess and surplus lines and standard commercial lines, while personal lines premium decreased 12% for profitability improvement.
• Corporate Strategy: Focus on growing with existing partners and strategically appointing new agency locations. Added 30 agency locations in the first quarter. Since 2017, 13 states have been added to standard commercialized with 5 last year, and profitability in these expansion states meets expectations. Technology investments are critical for efficiency and scale, with active development of AI use cases for underwriting and claims, and progress in modernizing systems for excess and surplus lines, commercial lines, and claims.

Segment Performance

• Standard Commercial Lines: Reported a 96.4% combined ratio. Renewal pure price increased to 9.1%, driven by general liability at 12%. Retention was stable at 85%. Renewal pure price, excluding workers' compensation, was 10.5%. Commercial property and commercial auto both had renewal pure price increases exceeding 10%.
• Excess and Surplus Lines: Driven by average renewal pure pricing increases of 8.7% and 20% net premiums written growth. Had a 92.5% combined ratio and 81 underlying combined ratio. Market remains competitive but sees continued growth opportunities.
• Personal Lines: Delivered a combined ratio of 98%, renewal pure price 24.1%. Target business grew 11%, but total personal lines net premiums written decreased due to profit improvement actions. New business decreased by 58% as focus was on profitable growth in states with adequate rate levels.

Guidance

• 2025 Outlook: Full-year combined ratio expected between 96% and 97%, underlying combined ratio 90% to 91%. After-tax net investment income guidance remains $405 million. GAAP combined ratio expected between 96-97% including six points of catastrophe losses. No additional prior accident year reserve development assumed in guidance. Alternative investments could face valuation headwinds. Overall effective tax rate approximately 21.5%, estimated 61.5 million fully diluted weighted average shares.

Risks

• External Environment: Macroeconomic uncertainty including financial market performance, international trade, and possible recession pose risks. Alternative investments face valuation headwinds, and tariffs and economic uncertainty affect the insurance business.
• Social Inflation: Pressures underwriting margins due to elevated loss trend environment, particularly impacting average casualty severities.

Question and Answer

Q: Drill down on casualty loss trends and pricing in GL A: View of loss trend unchanged at about 8.5% all-in casualty loss trends. GL is in the 9% range driven by severity. In 2024, acted quickly to increase expected loss ratio in GL line by over 7 points and continues to stay with that trend expectation.

Q: Seasonality and workers' comp comments A: Seasonality is largely driven by noncap property, historically typical. Workers' comp accident year basis around 97-98, written rate around negative 3. Flattening frequency trends and severity inflation (largely medical) are factors, with prior years emerging favorably but immature.

Q: Competitive environment and pricing A: Pricing targets above broader market, impacting conversion rates and new business. Conviction in GL pricing based on higher severity trends. Retention has held up well, and pricing strategy is executed granularly.

Q: Bond book and surety book A: Surety book is small (around $40 million, 11% of overall premium) with strong results. Not writing large contract surety, predominantly a small and middle market player in that space.

Q: Pushback on pricing from macro environment A: No significant pushback recently. Strong exposure change in commercial lines portfolio. Focus on addressing underlying causes of loss cost increases, with litigation abuse importance for customers.