Here's Why You Should Hold Selective Insurance (SIGI) Stock

Selective Insurance Group, Inc. SIGI has been gaining momentum, given renewal pure price increases, solid retention rates, new business growth and strong financial standing.

Growth Projections

Selective Insurance’s expected long-term earnings growth rate is pegged at 13.4%, which betters the industry average of 9.7%.

Estimate Revision

The Zacks Consensus Estimate for 2021 and 2022 has moved 1.5% and 5.5% north, respectively, in the past 60 days, reflecting analysts’ optimism.

Earnings Surprise History

Selective Insurance has a decent earnings surprise history. Its bottom-line beat estimates in each of the last four quarters, the average being 44.8%.

Zacks Rank & Price Performance

Selective Insurance currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 21.7%, outperforming the industry’s increase of 13.2%.

Image Source: Zacks Investment Research

Style Score

Selective Insurance is well poised for progress, as is evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Return on Equity (ROE)

Selective Insurance’s ROE for the trailing 12 months is 15.3%, better than the industry average of 5.6%. This reflects its efficiency in utilizing its shareholders’ funds. 

Business Tailwinds

Considering strong renewal fuel price increases, exposure growth, solid retention rates, and strong new business growth in outstanding commercial lines and Excess and Surplus Lines (E&S) segments, Selective Insurance’s premium income is expected to improve in the future, which, in turn, will boost revenue growth.

The Zacks Consensus Estimate for Selective Insurance’s 2021 and 2022 revenues is pegged at $3.4 billion and $3.7 billion, respectively, indicating a year-over-year increase of nearly 15.1% and 8.8%.

For 2021, SIGI projects an after-tax net investment income of approximately $240 million, up from the previous guidance of $220 million. It includes $75 million in after-tax net investment income from alternative investments, up from $55 million guided earlier. The upped guidance reflects solid after-tax alternative investment gains. The insurer has witnessed five consecutive quarters of strong income from alternatives.

Selective Insurance expects GAAP combined ratio, excluding catastrophe losses, of 88%, indicating an improvement from the previous guidance of 89% and reflects strong profitability as well.

Selective Insurance boasts an impressive solvency level. Riding on solid earnings, its book value per share should increase. In the third quarter, SIGI repaid $50 million of Federal Home Loan Bank debt, which reduced its debt-to-capital ratio to 14.6%.

Banking on solid financial flexibility, SIGI is able to grow above its sustainable growth rate, which provides it with better growth opportunities.

At present, it has $96.6 million of remaining capacity under the share repurchase program.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance sector are First American Financial FAF, Cincinnati Financial Corporation CINF and Berkshire Hathaway (BRK.B). While First American sports a Zacks Rank #1 (Strong Buy), Cincinnati Financial and Berkshire carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

First American’s earnings surpassed estimates in each of the last four quarters, the average beat being 29.19%. In the past year, First American has lost 43.8%. The Zacks Consensus Estimate for 2021 and 2022 has moved 0.4% and 0.5% north, respectively, in the past 30 days.

Higher direct premiums and escrow fees, increased domestic residential purchase and commercial transactions, higher operating revenues in the home warranty business and higher net realized investment gains in both the home warranty and property and casualty businesses are likely to drive First American’s premium income.

Cincinnati Financial surpassed estimates in each of the last four quarters, the average earnings surprise being 40.05%. In the past year, Cincinnati Financial has rallied 34.5%. The Zacks Consensus Estimate for 2021 and 2022 has moved 1.3% and 5% north, respectively, in the past 60 days.

Cincinnati Financial is well poised to gain from premium growth initiatives, price increases and a higher level of insured exposures.

The bottom line of Berkshire Hathaway surpassed estimates in two of the last four quarters and missed the same in the other two, the average being 5.53%. In the past year, Berkshire Hathaway has rallied 31.4%. The Zacks Consensus Estimate for BRK.B’s 2021 and 2022 earnings implies a year-over-year increase of 29.3% and 6.7%, respectively.

Berkshire Hathaway is expected to benefit from its growing Insurance business, Manufacturing, Service and Retailing, Finance and Financial Products segments, and strategic acquisitions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.