Selective Reports Fourth Quarter 2022 Results, Including Net Income of $1.38 per Diluted Common Share and Non-GAAP Operating Income(1) of $1.46 per Diluted Common Share
Selective Insurance Group reported significant financial results for Q4 2022, with a return on equity (ROE) of 14.8% and a non-GAAP operating ROE of 15.6%. Despite a 14% increase in net premiums written (NPW) and a combined ratio of 94.7%, net income fell to $84.2 million, a 13% decline year-over-year. The impact of Winter Storm Elliott resulted in pre-tax underwriting losses of $57.8 million, raising the combined ratio by 6.5 points. Full-year ROE stood at 8.8%. The company plans for a GAAP combined ratio of 96.5% for 2023 and expects $300 million in after-tax net investment income.
- Net premiums written increased 14% year-over-year.
- Non-GAAP operating ROE of 15.6% demonstrates strong profitability.
- Increased book value per common share by 4% in Q4 2022.
- Net income available to common stockholders decreased by 13% year-over-year.
- Combined ratio worsened to 94.7%, up from 93.1% a year ago.
- Book value per common share declined by 17% throughout 2022.
Fourth Quarter 2022 Return on Common Equity ("ROE") of
Full Year 2022 ROE of
In the fourth quarter of 2022, we reported:
- Net premiums written ("NPW") increased
14% compared to the fourth quarter of 2021; - GAAP combined ratio of
94.7% , compared to93.1% in the fourth quarter of 2021; - Commercial Lines renewal pure price increases averaged
5.6% , compared to5.0% in the fourth quarter of 2021; - After-tax net investment income of
, up$65 million 1% compared to the fourth quarter of 2021; - Book value per common share of
, up$38.57 4% in the fourth quarter; and - Adjusted book value per common share¹ of
, up$45.49 2% in the fourth quarter.
Catastrophe losses in the quarter were driven by Winter Storm Elliott. This storm impacted 37 states, 26 of which are in our standard lines footprint. We have recorded
Despite Winter Storm Elliott, non-GAAP operating ROE in the quarter was
"2022 marks our ninth consecutive year of double-digit non-GAAP operating ROEs. Against a backdrop of elevated catastrophe losses, higher loss cost trends, and capital market volatility, these results reflect the success of our underwriting discipline and profitable growth strategies," said
"In 2023, we expect to build on our strong market position. Our superior distribution partnerships, sophisticated underwriting tools, and strong capital and liquidity position support our profitable growth opportunities,"
Operating Highlights | ||||||||||
Consolidated Financial Results | Quarter ended | Change | Year-to-Date | Change | ||||||
$ and shares in millions, except per share data | 2022 | 2021 | 2022 | 2021 | ||||||
Net premiums written | $ 849.7 | 745.4 | 14 | % | $ 3,573.6 | 3,189.7 | 12 | % | ||
Net premiums earned | 872.8 | 784.5 | 11 | 3,373.4 | 3,017.3 | 12 | ||||
Net investment income earned | 81.4 | 80.1 | 2 | 288.2 | 326.6 | (12) | ||||
Net realized and unrealized (losses) gains, pre-tax | (5.9) | 2.2 | (362) | (114.8) | 17.6 | (752) | ||||
Total revenues | 952.2 | 869.7 | 9 | 3,558.1 | 3,379.2 | 5 | ||||
Net underwriting income, after-tax | 36.4 | 42.7 | (15) | 131.8 | 172.7 | (24) | ||||
Net investment income, after-tax | 65.5 | 64.5 | 1 | 232.2 | 263.0 | (12) | ||||
Net income available to common stockholders | 84.2 | 96.7 | (13) | 215.7 | 394.5 | (45) | ||||
Non-GAAP operating income1 | 88.9 | 94.9 | (6) | 306.4 | 380.6 | (19) | ||||
Combined ratio | 94.7 | % | 93.1 | 1.6 | pts | 95.1 | % | 92.8 | 2.3 | pts |
Loss and loss expense ratio | 62.4 | 60.4 | 2.0 | 62.7 | 60.1 | 2.6 | ||||
Underwriting expense ratio | 32.1 | 32.5 | (0.4) | 32.3 | 32.5 | (0.2) | ||||
Dividends to policyholders ratio | 0.2 | 0.2 | — | 0.1 | 0.2 | (0.1) | ||||
Net catastrophe losses | 5.2 | pts | 4.5 | 0.7 | 4.3 | pts | 5.4 | (1.1) | ||
Non-catastrophe property losses and loss expenses | 18.5 | 16.0 | 2.5 | 18.3 | 15.6 | 2.7 | ||||
(Favorable) prior-year reserve development on casualty lines | (4.4) | (1.9) | (2.5) | (2.5) | (2.7) | 0.2 | ||||
Net income available to common stockholders per diluted common share | $ 1.38 | 1.59 | (13) | % | $ 3.54 | 6.50 | (46) | % | ||
Non-GAAP operating income per diluted common share1 | 1.46 | 1.56 | (6) | 5.03 | 6.27 | (20) | ||||
Weighted average diluted common shares | 60.9 | 60.8 | — | 60.9 | 60.7 | — | ||||
Book value per common share | $ 38.57 | 46.24 | (17) | 38.57 | 46.24 | (17) | ||||
Adjusted book value per common share1 | 45.49 | 43.23 | 5 | 45.49 | 43.23 | 5 |
Overall Insurance Operations
For the fourth quarter, overall NPW increased
Standard Commercial Lines Segment
For the fourth quarter, Standard Commercial Lines premiums (representing
Standard Commercial Lines Segment | Quarter ended | Change | Year-to-Date | Change | ||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||
Net premiums written | $ 676.6 | 597.7 | 13 | % | $ 2,902.0 | 2,593.0 | 12 | % | ||
Net premiums earned | 705.7 | 635.4 | 11 | 2,739.8 | 2,443.9 | 12 | ||||
Combined ratio | 95.5 | % | 93.1 | 2.4 | pts | 94.8 | % | 91.9 | 2.9 | pts |
Loss and loss expense ratio | 62.3 | 59.5 | 2.8 | 61.5 | 58.4 | 3.1 | ||||
Underwriting expense ratio | 33.0 | 33.3 | (0.3) | 33.1 | 33.3 | (0.2) | ||||
Dividends to policyholders ratio | 0.2 | 0.3 | (0.1) | 0.2 | 0.2 | — | ||||
Net catastrophe losses | 5.7 | pts | 4.2 | 1.5 | 3.5 | pts | 4.3 | (0.8) | ||
Non-catastrophe property losses and loss expenses | 16.5 | 14.5 | 2.0 | 16.8 | 13.9 | 2.9 | ||||
(Favorable) prior-year reserve development on casualty lines | (4.7) | (2.4) | (2.3) | (3.0) | (3.0) | — |
Standard Personal Lines Segment
For the fourth quarter, Standard Personal Lines premiums (representing
Standard Personal Lines Segment | Quarter ended | Change | Year-to-Date | Change | ||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||
Net premiums written | $ 84.6 | 70.4 | 20 | % | $ 319.1 | 292.3 | 9 | % | ||
Net premiums earned | 77.8 | 73.1 | 6 | 299.4 | 293.6 | 2 | ||||
Combined ratio | 99.9 | % | 97.6 | 2.3 | pts | 102.4 | % | 98.6 | 3.8 | pts |
Loss and loss expense ratio | 75.4 | 71.0 | 4.4 | 77.2 | 72.2 | 5.0 | ||||
Underwriting expense ratio | 24.5 | 26.6 | (2.1) | 25.2 | 26.4 | (1.2) | ||||
Net catastrophe losses | 5.3 | pts | 9.9 | (4.6) | 13.6 | pts | 12.7 | 0.9 | ||
Non-catastrophe property losses and loss expenses | 45.7 | 35.7 | 10.0 | 39.1 | 35.0 | 4.1 | ||||
(Favorable) prior-year reserve development on casualty lines | — | — | — | — | — | — |
Excess and Surplus Lines Segment
For the fourth quarter, Excess and Surplus Lines premiums (representing
Excess and Surplus Lines Segment | Quarter ended | Change | Year-to-Date | Change | ||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||
Net premiums written | $ 88.5 | 77.3 | 14 | % | $ 352.5 | 304.4 | 16 | % | ||
Net premiums earned | 89.3 | 76.0 | 17 | 334.2 | 279.8 | 19 | ||||
Combined ratio | 84.3 | % | 88.8 | (4.5) | pts | 90.9 | % | 94.3 | (3.4) | pts |
Loss and loss expense ratio | 52.3 | 56.9 | (4.6) | 58.8 | 62.6 | (3.8) | ||||
Underwriting expense ratio | 32.0 | 31.9 | 0.1 | 32.1 | 31.7 | 0.4 | ||||
Net catastrophe losses | 1.6 | pts | 1.6 | — | 2.9 | pts | 8.1 | (5.2) | ||
Non-catastrophe property losses and loss expenses | 10.5 | 8.9 | 1.6 | 11.9 | 10.1 | 1.8 | ||||
(Favorable) prior-year reserve development on casualty lines | (5.6) | — | (5.6) | (1.5) | (2.5) | 1.0 |
Investments Segment
For the fourth quarter, after-tax net investment income of
Investments Segment | Quarter ended | Change | Year-to-Date | Change | ||||||
$ in millions, except per share data | 2022 | 2021 | 2022 | 2021 | ||||||
Net investment income earned, after-tax | $ 65.5 | 64.5 | 1 | % | $ 232.2 | 263.0 | (12) | % | ||
Net investment income per common share | 1.08 | 1.06 | 2 | 3.81 | 4.34 | (12) | ||||
Effective tax rate | 19.6 | % | 19.5 | 0.1 | pts | 19.4 | % | 19.5 | (0.1) | pts |
Average yields: | ||||||||||
Portfolio: | ||||||||||
Pre-tax | 4.2 | 4.0 | 0.2 | 3.6 | 4.2 | (0.6) | ||||
After-tax | 3.4 | 3.2 | 0.2 | 2.9 | 3.4 | (0.5) | ||||
Fixed income securities: | ||||||||||
Pre-tax | 4.6 | % | 3.1 | 1.5 | pts | 3.9 | % | 3.2 | 0.7 | pts |
After-tax | 3.7 | 2.5 | 1.2 | 3.1 | 2.6 | 0.5 | ||||
Annualized ROE contribution | 11.5 | 9.4 | 2.1 | 9.4 | 9.9 | (0.5) |
Balance Sheet | ||||||||
$ in millions, except per share data | Change | |||||||
Total assets | $ 10,802.3 | 10,461.4 | 3 % | |||||
Total investments | 7,837.5 | 8,027.0 | (2) | |||||
Long-term debt | 504.7 | 506.1 | — | |||||
Stockholders' equity | 2,527.6 | 2,982.9 | (15) | |||||
Common stockholders' equity | 2,327.6 | 2,782.9 | (16) | |||||
Invested assets per dollar of common stockholders' equity | 3.37 | 2.88 | 17 | |||||
Net premiums written to policyholders' surplus | 1.44 | 1.33 | 0.11 | |||||
Book value per common share | $ 38.57 | 46.24 | (17) | |||||
Adjusted book value per common share1 | 45.49 | 43.23 | 5 | |||||
Debt to total capitalization | 16.6 | % | 14.5 | % | 2.1 | pts |
Book value per common share declined by
Selective's Board of Directors declared:
- A quarterly cash dividend on common stock of
per common share that is payable$0.30 March 1, 2023 , to holders of record onFebruary 15, 2023 ; and - A cash dividend of
per share on our$287.50 4.60% Non-Cumulative Preferred Stock, Series B (equivalent to per depository share) payable on$0.28 750March 15, 2023 , to holders of record as ofFebruary 28, 2023 .
Guidance
For 2023, our full-year expectations are as follows:
- A GAAP combined ratio of
96.5% , including net catastrophe losses of 4.5 points. Our combined ratio estimate assumes no prior-year casualty reserve development; - After-tax net investment income of
that includes after-tax net investment income from our alternative investments of$300 million ;$30 million - An overall effective tax rate of approximately
21% , which assumes an effective tax rate of20% for net investment income and21% for all other items; and - Weighted average shares of 61 million on a fully diluted basis.
The supplemental investor package, including financial information not included in this press release, is available on the Investors page of Selective's website at www.Selective.com. Selective's quarterly analyst conference call will be simulcast at
About
1Reconciliation of Net Income Available to Common Stockholders to Non-GAAP Operating Income and Certain Other Non-GAAP Measures
Non-GAAP operating income, non-GAAP operating income per diluted common share, and non-GAAP operating return on common equity differ from net income available to common stockholders, net income available to common stockholders per diluted common share, and return on common equity, respectively, by the exclusion of after-tax net realized and unrealized gains and losses on investments included in net income. Adjusted book value per common share differs from book value per common share by the exclusion of total after-tax unrealized gains and losses on investments included in accumulated other comprehensive (loss) income. These non-GAAP measures are used as important financial measures by management, analysts, and investors, because the timing of realized and unrealized investment gains and losses on securities in any given period is largely discretionary. In addition, net realized and unrealized gains and losses on investments could distort the analysis of trends. These operating measurements are not intended as a substitute for net income available to common stockholders, net income available to common stockholders per diluted common share, return on common equity, and book value per common share prepared in accordance with
Note: All amounts included in this release exclude intercompany transactions.
Reconciliation of Net Income Available to Common Stockholders to Non-GAAP Operating Income | ||||||||
$ in millions | Quarter ended | Year-to-Date | ||||||
2022 | 2021 | 2022 | 2021 | |||||
Net income available to common stockholders | $ 84.2 | 96.7 | 215.7 | 394.5 | ||||
Net realized and unrealized investment losses (gains) included in net income, before tax | 5.9 | (2.2) | 114.8 | (17.6) | ||||
Tax on reconciling items | (1.2) | 0.5 | (24.1) | 3.7 | ||||
Non-GAAP operating income | $ 88.9 | 94.9 | 306.4 | 380.6 | ||||
Reconciliation of Net Income Available to Common Stockholders per Diluted Common Share to Non-GAAP Operating Income | ||||||||
Quarter ended | Year-to-Date | |||||||
2022 | 2021 | 2022 | 2021 | |||||
Net income available to common stockholders per diluted common share | $ 1.38 | 1.59 | 3.54 | 6.50 | ||||
Net realized and unrealized investment losses (gains) included in net income, before tax | 0.10 | (0.04) | 1.89 | (0.29) | ||||
Tax on reconciling items | (0.02) | 0.01 | (0.40) | 0.06 | ||||
Non-GAAP operating income per diluted common share | $ 1.46 | 1.56 | 5.03 | 6.27 | ||||
Reconciliation of Return on Common Equity to Non-GAAP Operating Return on Common Equity | ||||||||
Quarter ended | Year-to-Date | |||||||
2022 | 2021 | 2022 | 2021 | |||||
Return on Common Equity | 14.8 % | 14.0 | 8.8 | 14.8 | ||||
Net realized and unrealized investment losses (gains) included in net income, before tax | 1.0 | (0.3) | 4.7 | (0.7) | ||||
Tax on reconciling items | (0.2) | 0.1 | (1.1) | 0.2 | ||||
Non-GAAP Operating Return on Common Equity | 15.6 % | 13.8 | 12.4 | 14.3 | ||||
Reconciliation of Book Value per Common Share to Adjusted Book Value per Common Share | ||||||||
Quarter ended | Year-to-Date | |||||||
2022 | 2021 | 2022 | 2021 | |||||
Book value per common share | $ 38.57 | 46.24 | 38.57 | 46.24 | ||||
Total unrealized investment losses (gains) included in accumulated other comprehensive (loss) income, before tax | 8.75 | (3.80) | 8.75 | (3.80) | ||||
Tax on reconciling items | (1.83) | 0.79 | (1.83) | 0.79 | ||||
Adjusted book value per common share | 45.49 | 43.23 | 45.49 | 43.23 |
Note: Amounts in the tables above may not foot due to rounding.
Forward-Looking Statements
Certain statements in this report, including information incorporated by reference, are "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The PSLRA provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. These statements relate to our intentions, beliefs, projections, estimations, or forecasts of future events and financial performance. They involve known and unknown risks, uncertainties, and other factors that may cause our or industry actual results, activity levels, or performance to materially differ from those expressed or implied by the forward-looking statements. In some cases, forward-looking statements include the words "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," "continue," or comparable terms. Our forward-looking statements are only predictions, and we can give no assurance that such expectations will prove correct. We undertake no obligation, other than as federal securities laws may require, to publicly update or revise any forward-looking statements for any reason.
Factors that could cause our actual results to differ materially from what we project, forecast, or estimate in forward-looking statements include, without limitation:
- Difficult conditions in global capital markets and the economy, including prolonged higher inflation, could increase loss costs and negatively impact investment portfolios;
- Deterioration in the public debt and equity markets and private investment marketplace that could lead to investment losses and interest rate fluctuations;
- Ratings downgrades on individual securities we own could affect investment values and, therefore, statutory surplus;
- The adequacy of our loss reserves and loss expense reserves;
- Frequency and severity of catastrophic events, including natural events such as hurricanes, tornadoes, windstorms, earthquakes, hail, severe winter weather, floods, and fires and man-made events such as criminal and terrorist acts, including cyber-attacks, explosions, and civil unrest;
- Adverse market, governmental, regulatory, legal, or judicial conditions or actions;
- The geographic concentration of our business in the eastern portion of
the United States ; - The cost, terms and conditions, and availability of reinsurance;
- Our ability to collect on reinsurance and the solvency of our reinsurers;
- The impact of changes in
U.S. trade policies and imposition of tariffs on imports that may lead to higher than anticipated inflationary trends for our loss and loss expenses; - Related to COVID-19:
- From enactment in 2020 until expiration, governmental directives to contain or delay the spread of COVID-19 disrupted ordinary business commerce and impacted financial markets. Should new directives be issued or implemented, we cannot predict the extent, duration, or possible impact on our results of operations, net investment income, financial position, and liquidity.
- Similarly, we cannot predict the amount our premiums may be reduced, or the impact on our underwriting results, from any future (i) voluntary premium credits on in-force commercial and personal automobile policies, (ii) state insurance commissioner, or other regulatory directives, to implement premium-based credit in lines other than commercial and personal automobile, (iii) voluntary efforts or directives from various state insurance regulators to extend individualized payment flexibility or suspend policy cancellation, late payment notices, and late or reinstatement fees, or (iv) litigation brought by policyholders to recover premiums they allege were excessive during the period of any governmental directive.
- We have been successful to date in defending against payment of COVID-19-related business interruption losses based on our policies' terms, conditions, and exclusions. However, should the highest courts determine otherwise, our loss and loss expenses may increase, our related reserves may not be adequate, and our financial condition and liquidity may be materially impacted.
- To varying degrees, the effect, lifting, or lapsing of COVID-19-related governmental directives can disrupt supply chains and cause shortages of products, services, and labor. These shortages may impact our ability to attract and retain labor, including increasing attrition rates, wages, and the cost and difficulty of obtaining third-party non-
U.S. -based resources. - The ongoing Russian war against
Ukraine is impacting global economic, banking, commodity, and financial markets, exacerbating ongoing economic challenges, including inflation and supply chain disruption, which influences insurance loss costs, premiums and investment valuation; - Uncertainties related to insurance premium rate increases and business retention;
- Changes in insurance regulations that impact our ability to write and/or cease writing insurance policies in one or more states;
- The effects of data privacy or cyber security laws and regulations on our operations;
- Major defect or failure in our internal controls or information technology and application systems that result in harm to our brand in the marketplace, increased senior executive focus on crisis and reputational management issues and/or increased expenses, particularly if we experience a significant privacy breach;
- Potential tax or federal financial regulatory reform provisions that could pose certain risks to our operations;
- Our ability to maintain favorable ratings from rating agencies, including AM Best,
Standard & Poor's , Moody's, and Fitch; - Our entry into new markets and businesses; and
- Other risks and uncertainties we identify in filings with the
United States Securities and Exchange Commission , including, but not limited to, our Annual Report on Form 10-K and other periodic reports.
These risk factors may not be exhaustive. We operate in a constantly changing business environment, and new risk factors may emerge any time.
Selective's
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