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SI

SELECTIVE INSURANCE GROUP INC (SIGI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered non-GAAP operating EPS of $1.62 and GAAP EPS of $1.52; the GAAP combined ratio was 98.5% as reserve strengthening and social inflation pressures persisted .
  • Net premiums written rose 10% year over year to $1.09B; after-tax net investment income was strong at $97M (+24% YoY), contributing 13.2 points to ROE .
  • Management issued FY2025 guidance for a GAAP combined ratio of 96–97% (including 6 cat points), after-tax net investment income of $405M, a 21.5% effective tax rate, and 61.5M diluted shares, implying an operating ROE of ~15% and a return to target-level profitability .
  • Key narrative: casualty reserve strengthening ($100M) concentrated in general liability drove Q4 headwinds, but pricing momentum (Commercial Lines renewal pure price +10.7%) and personal lines repositioning improved the trajectory into 2025 .

What Went Well and What Went Wrong

What Went Well

  • Investment income outperformed: after-tax net investment income rose to $97M (+24% YoY), with 4.0% after-tax portfolio yield and 13.2 points of annualized ROE contribution .
  • Personal Lines profitability inflected: Q4 combined ratio improved to 91.7% (-25.2 pts YoY) on strong pricing (renewal pure price 27.3%) and underwriting actions to target mass affluent customers .
  • E&S growth remained robust: NPW +27% YoY in Q4, with strong new business (+29%) and renewal pure price +8.2%; underlying profitability is resilient despite higher severity assumptions .
  • Quote: “We continue to focus on returning our performance to the combination of growth and profitability investors expect… With these pricing actions… we are well positioned to capitalize on our competitive strengths.” — CEO John Marchioni .

What Went Wrong

  • Casualty reserve strengthening: $100M net unfavorable prior-year development in Q4 increased the combined ratio by 8.8 points; GL was the primary driver, partially offset by favorable workers’ comp .
  • Standard Commercial margin pressure: Q4 combined ratio rose to 100.2% (+7.1 pts YoY) on GL reserve actions; retention remained stable but new business moderated .
  • E&S prior-year development: $20M unfavorable in Q4 added 14.2 points to the segment CR, highlighting broader social inflation impacts even in non-admitted casualty .
  • Analyst concern: Recurrent sequential increases to current accident-year loss picks (Q4 +$47M) raised questions about the pace and sufficiency of reserve strengthening, especially in GL .

Financial Results

Consolidated metrics and trajectory

MetricQ2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$1,196.0 $1,244.3 $1,256.4
GAAP Diluted EPS ($)$(1.08) $1.47 $1.52
Non-GAAP Operating EPS ($)$(1.10) $1.40 $1.62
Combined Ratio (%)116.1% 99.5% 98.5%
After-Tax Net Investment Income ($USD Millions)$86.3 $93.4 $97.3
Net Premiums Written ($USD Millions)$1,226.1 $1,157.6 $1,089.6

Segment performance

Segment KPIQ2 2024Q3 2024Q4 2024
Standard Commercial NPW ($USD Millions)$963.1 $903.9 $833.4
Standard Commercial Combined Ratio (%)118.8% 99.2% 100.2%
Standard Personal NPW ($USD Millions)$116.1 $111.0 $103.6
Standard Personal Combined Ratio (%)118.1% 122.1% 91.7%
E&S NPW ($USD Millions)$146.8 $142.7 $152.6
E&S Combined Ratio (%)94.6% 83.2% 93.1%

KPIs and operating drivers

KPIQ2 2024Q3 2024Q4 2024
Commercial Lines Renewal Pure Price (%)7.9% 9.1% 8.8%
GL Renewal Pure Price (%)7.6% 10.2% 10.6%
Standard Commercial Retention (%)85% 86% 85%
Personal Lines Renewal Pure Price (%)20.7% 22.8% 27.3%
Cat Loss Impact (CR points)8.4 pts 13.4 pts (0.9) pts (benefit)
Prior-Year Casualty Dev (CR points)16.3 pts 0 pts 8.8 pts

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP Combined RatioFY 2024101.5% (raised from 96.5% in Jul) 102.5% (Oct update) Raised
GAAP Combined RatioFY 2025—96–97% (incl. 6 cat points) New (lower vs FY24)
After-Tax Net Investment IncomeFY 2024$360M $360M Maintained
After-Tax Net Investment IncomeFY 2025—$405M New (higher vs FY24)
Effective Tax RateFY 2024~21% ~21% Maintained
Effective Tax RateFY 2025—~21.5% New
Weighted Avg Diluted SharesFY 202461.5M 61.5M Maintained
Weighted Avg Diluted SharesFY 2025—61.5M New
Quarterly Dividend (Common)Q2/Q3/Q4 2024$0.35 (Q2) $0.38 (Q3, Q4 declared) Raised (Q3), Maintained (Q4)

Note: On Feb 25, 2025, SIGI issued $400M 5.900% senior notes due 2035 to support organic growth; debt-to-capital pro forma ~22% (from ~14%) . While post-quarter, it enhances 2025 capital flexibility.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Social inflation & GL severityElevated GL severity; PYD $176M (Q2); raised current-year loss picks; GL trend ~9% severity; industry-wide impact discussed Q4 PYD $100M (GL $100M, favorable WC $25M); added $47M to current year (GL $41M, E&S $6M); maintaining ~9% GL severity assumption Still a headwind; prudent reserving
Pricing & retentionCommercial renewal pure price 7.9% (Q2), 9.1% (Q3); retention 85–86%; willingness to trade growth for profitability Commercial renewal pure price 8.8%; GL 10.6%; retention ~85%; exposure adds ~3.8 pts Firm pricing momentum
Catastrophe environmentElevated cats (28 events in Q2; Helene ~$85M in Q3); raising cat load in guidance Q4 cats modest; reinsurance tower renewed Jan 1 with higher exhaustion ($1.4B) and improved terms; personal-lines buy-down added Risk protection strengthened
Personal Lines repositioningRate actions; mass affluent focus; retention decline; underlying improvement starts CR 91.7% in Q4; renewal pure price 27.3%; management expects underwriting profit in 2025 Improving trajectory
E&S strategy & techStrong growth; platform modernization; binding/brokerage growth NPW >$500M in 2024; higher severity assumptions; PYD $20M but underlying strong; scalability investments continue Growth with caution on severity
Reinsurance programJuly 1 treaty renewals; casualty XOL $88M above $2M; property XOL $65M above $5M Jan 1 property cat program retained $100M, exhaustion raised to $1.4B; top layer 75% collateralized; peak peril PML 4% of GAAP equity (1-in-250) Improved coverage profile
Capital & leverageDebt-to-cap ~14–15%; potential future debt if needed Post-Q4 $400M notes; debt-to-cap ~22% Added flexibility for growth

Management Commentary

  • Strategic posture: “Our actions to strengthen our casualty reserves coupled with our solid underlying profitability have positioned us well to meet and exceed our return targets in the years ahead.” — CEO John Marchioni .
  • 2025 profitability outlook: “Our 2025 guidance implies an operating ROE of approximately 15%.” — CEO John Marchioni .
  • Reserving philosophy: “We carry a position or a risk margin above the actuarial best estimate… determined by our view of the risk factors.” — CEO John Marchioni .
  • Commercial auto context: “We believe [commercial auto] was the first shoe to drop… our assumed BI loss trends since 2021 averaged ~8% and earned rate ~10.3%.” — CEO John Marchioni .
  • Personal lines: “With the actions we have taken, we expect personal lines will produce an underwriting profit in 2025.” — CEO John Marchioni .

Q&A Highlights

  • GL reserves and margin: Analysts probed embedded risk margins and allocation between primary vs umbrella; management affirmed consistent risk margin above best estimate and predominance in GL accident year 2023 .
  • Current-year loss picks: Sequential increases ($47M in Q4) reflect prudent response to early severity signals; management prefers quicker reaction to immature accident years rather than year-end “true-ups” .
  • Commercial auto risk: Confidence stems from earlier recognition of severity trend, shorter tail, and multi-year double-digit pricing; Q3 PYD +$10M and current-year +$5M address 2023 severity .
  • Non-cat property volatility: Favorable outcomes tied to pricing and terms (deductibles, roof depreciation, cosmetic exclusions), but management cautioned normalization ahead .
  • Reinsurance and PML: Property cat tower improved; peak US hurricane net PML ~4% of GAAP equity at 1-in-250-year .

Estimates Context

  • Wall Street consensus from S&P Global for Q4 2024 EPS and revenue was unavailable due to system request limits at the time of retrieval. As a result, we cannot formally classify beats/misses versus consensus for this quarter.

Key Takeaways for Investors

  • GL reserve actions likely nearing completion: Q4 PYD ($100M) plus higher current-year loss picks suggest a more conservative stance, reducing downside tail risk into FY2025 .
  • Pricing tailwind intact: GL renewal pure price at 10.6%, commercial property ~11–12% (Q3 data), and commercial auto ~10–11% should support margin rebuild despite 7–8.5% casualty loss trends .
  • Personal lines turnaround should add earnings leverage in 2025 as elevated pricing earns through and underwriting actions mature .
  • E&S growth remains a strategic asset; severity assumptions are higher, but segment profitability and scalability investments position it for attractive risk-adjusted returns .
  • Reinsurance and capital position improved: Jan 1 reinsurance renewal lifted cat exhaustion to $1.4B; February senior notes enhance funding for organic growth and widen optionality .
  • Near-term trading: Stock sensitivity to any sign of stabilizing GL severity and confirmation of underlying CR in the 90–91% range (as guided) could be positive; watch Q1 catastrophe outcomes and reserve commentary .
  • Medium-term thesis: If pricing momentum persists and personal lines deliver underwriting profit, FY2025 operating ROE near ~15% appears achievable, supporting multiple expansion back toward pre-2024 norms .