Selective Insurance Group, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Fundamentals Improvement: Prioritizing profit improvement, moderating premium growth, and focusing on risk selection, individual policy pricing, and claim outcomes.
• Reserve Reviews: Engaged independent parties for semiannual reserve reviews, with external firms confirming reserves are reasonable and above industry central estimates.
• Commercial Auto Actions: Deployed an updated rating plan and predictive modeling in commercial auto, implemented tighter underwriting guidelines in fleet exposures, and promoted telematics and self-assessments in certain jurisdictions.
• Geographic Expansion: Continued to expand Standard Commercial Lines into new states, aiming for a near national footprint as part of diversification efforts.
• Capital Management: Aiming to return 20%-25% of earnings via dividends, repurchased $36 million of common stock in the quarter, and Board authorized a new $200 million share repurchase program.

Segment Performance

• Standard Commercial Lines: Recorded a combined ratio of 101.1% this quarter, with $3.7 million of unfavorable prior year casualty development and $6.6 million of higher current year casualty loss costs. Premium growth slowed to 4% in the quarter, renewal pure price increased, and retention was 82%.
• Excess and Surplus Lines: Grew 14% in the quarter, driven by average renewal pure price increases of 8.3%, with a combined ratio of 76.2%.
• Personal Lines: Had a combined ratio of 110.1%, with New Jersey personal auto reserving actions adding unfavorable prior year casualty development. Net premiums written declined 6%, but target business grew 12% in the quarter.

Guidance

• Full year operating return on equity expected in the 14% range.
• Combined ratio guidance for the full year is 97%-98%, with an underlying combined ratio of 91%-92%.
• After-tax net investment income expected to be $420 million, with an overall effective tax rate of 21.5%.
• Board authorized a new $200 million share repurchase program.

Risks

• Unfavorable prior year casualty reserve development, particularly in New Jersey for commercial and personal auto.
• Social inflation and elevated severity trends in casualty lines impacting the combined ratio.
• Competitive market environment affecting retention and premium growth.

Question and Answer

Q: Comments on commercial auto and if spillover to general liability could happen A: Reacceleration of severity trend in New Jersey commercial auto, but non-New Jersey commercial auto liability has held up reasonably Q: Reserve reviews and industry deficiencies A: External reviews confirm elevated trends across the industry, but Selective is reacting appropriately to these trends Q: Share buybacks during reserve pressure A: Open and closed claim reviews show no issues, high conviction in reserving estimates, Board confident in forward earnings Q: General liability reserves and state expansion A: No notable accident year movement in general liability, agency reaction to state expansion has been favorable Q: Premium growth and New Jersey actions A: Aggressive action in underperforming areas like New Jersey affects growth, but the trade-off is worth it for long-term profitability Q: Property RPC and corrective actions A: Property renewal premium change is accelerating, but focus remains on risk-adjusted margins to improve profitability Q: Corrective actions and retention A: Granular execution of pricing and underwriting strategies to mitigate retention impact, leveraging strong agency relationships