Selective Insurance Group, Inc. (SIGI – Free Report) is well-positioned to benefit from strong recovery, increases in fuel prices, increased exposure, favorable market conditions for surplus and surplus (E&S) lines, higher income earned from a portfolio of fixed income securities and prudent deployment of capital.
Growth forecasts
The Zacks Consensus Estimate for Selective Insurance’s 2023 earnings is pegged at $5.84 per share, indicating a 16.1% increase from the year-ago figure on 15.4% higher revenue of $4.24 billion . The consensus estimate for 2024 earnings is pegged at $7.71 per share, representing a 31.9% increase from the year-ago figure on 11.5% higher revenue of $4.73 billion.
The expected long-term earnings growth rate is pegged at 23.8%, beating the industry average of 12.3%.
Zacks Rank and Price Performance
SIGI currently carries a Zacks Rank #3 (Hold). Year-to-date, the stock is up 11.7%, compared to the industry’s 12.2% gain.
Image source: Zacks Investment Research
Return on Equity (ROE)
ROE is a measure of profitability reflecting how efficiently a company uses its shareholders’ funds. Annualized non-GAAP operating return on common equity was 13.2% in the first half of 2023, up 1,400 basis points year-over-year. Based on 2023 guidance, the company remains on track for a solid 2023 performance with an above-target operating ROE of 12%.
Business headwind
Strong renewals, fuel price increases, exposure growth, solid retention rates and higher new business wins in standard commercial and E&S lines should drive premium growth.
Steady improvement in premiums led to an improvement in the top line. Over the past six years (2017-2022), total revenue has witnessed a CAGR of 6.3% and a further 19.8% in the first nine months of 2023.
The E&S Lines segment of selective insurance is likely to improve due to renewal rate increases, greater direct new business and favorable E&S Lines market conditions.
Given the impressive investment performance, SIGI anticipates net investment income after taxes of $300 million, which includes $30 million in net investment income after taxes from alternative investments. Higher income earned by a portfolio of fixed income securities due to the improved accounting yield received from investing operating and investing cash flows over the past year in a higher interest rate environment is likely to boost the benchmark.
Backed by a solid capital position, the company is growing dividends, which register a nine-year CAGR (2015-2023) of nearly 8.8%. It had $84.2 million of shares remaining under its authorization as of September 30, 2023. Based on strong financial and operational results, the board approved a 7% increase in the quarterly cash dividend in November 2022. Such unwavering efforts reinforce confidence among investors, which making it an attractive choice for profit-seeking investors.
The Zacks Consensus Estimate for Selective Insurance’s 2024 earnings has moved 0.9% north over the past 30 days. This should inspire confidence among investors in the stock.
Stocks to consider
Some better ranked stocks from the property and casualty insurance industry are Arch Capital Group Ltd. (ACGL – Free report), CNA Financial Corporation (CNA – Free report) and Kinsale Capital Group, Inc. (KNSL – Free Report), each of which currently has a Zacks Rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.
Arch Capital has a solid track record of beating earnings estimates in each of the past four quarters, averaging 35.16%. Year-to-date, ACGL is up 31.2%.
The Zacks Consensus Estimate for ACGL’s 2023 and 2024 earnings per share is set at $7.70 and $7.77, indicating a year-over-year increase of 58.1% and 1%, respectively.
CNA Financial has a solid track record of beating earnings estimates in three of the past four quarters, while missing in one, averaging 9.24%. Year to date, CNA has lost 2.1.
The Zacks Consensus Estimate for CNA’s 2023 and 2024 earnings have moved 2.8% and 5.3% north, respectively, over the past 30 days.
Kinsale Capital has beaten estimates for each of the last four quarters, averaging 14.25%. Year-to-date, KNSL is up 32.6%.
KNSL’s 2023 and 2024 Zacks Consensus Estimates have moved 8.5% and 7.8% north, respectively, over the past 30 days, reflecting analyst optimism.
