Selective Insurance Estimates Q2 Cat Loss, Updates Guidance

Selective Insurance Group, Inc. SIGI estimates preliminary second-quarter net catastrophe losses of $83 million, pre-tax. The expected loss could be due to the company’s exposure to storms and civil unrest claims.

The catastrophe events designated by Insurance Services Office’s Property Claims Services (PCS) unit, include two April storms, which caused loss of $43 million and civil unrest claims, which resulted in losses of $18 million.

The company estimates second-quarter combined ratio in the range of 98% to 99%, primarily due to higher-than expected losses from catastrophic events. Excluding catastrophe loss, combined ratio is estimated in the range of 85% to 86%, The estimated combined ratio takes into account $15 million of net prior year favorable casualty reserve development, lower-than-expected non-catastrophe property losses, and ongoing expense initiatives, partially offset by the previously disclosed COVID-19 related charges. 

Concurrently, Selective Insurance estimates net earnings per share ("EPS") for the second quarter in the range of 55 cents to 60 cents and operating EPS in the range of 35 cents to 40 cents, with the difference principally reflecting net realized and unrealized investment gains.

The Zacks Consensus Estimate for second-quarter earnings is currently pegged at 33 cents, indicating a decline of 71.5% from the year-ago quarter reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

Being a property and casualty insurer, financial results of Selective Insurance are negatively impacted by losses from natural and man-made catastrophes, inducing earnings volatility. In the first quarter of 2020, catastrophe loss increased 58.8% to $33.2 million with combined ratio deteriorating 200 basis points on a year-over-year to 96.7%.

Nonetheless, Selective Insurance has substantial reinsurance protection. The property catastrophe excess of loss treaty program has a $40 million retention and provides coverage of up to $775 million in ground up losses, subject to some co-participation and reinstatement premium.

Selective Insurance is set to report second-quarter earnings on Jul 29 after market close. Our proven model predicts an earnings beat for the company this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. Selective Insurance has an Earnings ESP of +13.21% and Zacks Rank #3. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Shares of this property and casualty insurer have lost 14.3% year to date compared with the industry's decline of 16%.


You can see the complete list of today’s Zacks #1 Rank stocks here.

Full-Year Guidance Revised

Based on the preliminary second-quarter results, the company updated its full-year 2020 guidance. GAAP combined ratio, excluding catastrophe losses, is expected in the range of 90% and 91%, which indicates an improvement from the prior guidance of a range of 92% to 93%. The combined ratio estimate assumes no additional prior-year casualty reserve development in the second half of the year.

Catastrophe losses are expected to lower combined ratio by 600 bps, given higher-than-expected catastrophe losses through the first half of the year.

After-tax net investment income is expected to be $170 million, indicating $10.0 million improvement from the prior guidance, including after-tax alternative investment income of $0-$5 million.

Catastrophe Loss Estimates of Some Other P&C Insurers

Several property and casualty insurers are coming up with their second-quarter catastrophe loss estimates. Chubb Limited CB estimated second-quarter global net catastrophe loss of $1.807 billion pretax or $1.15 billion after tax, net of reinsurance including reinstatement premiums.

Arch Capital Group Ltd. ACGL estimated second quarter pre-tax net catastrophe losses in the range of $205 million to $225 million across its property casualty insurance and reinsurance segments, net of reinsurance recoveries and reinstatement premiums.

Cincinnati Financial Corporation CINF expects to incur pre-tax catastrophe loss of approximately $231 million, stemming from exposure to severe storms and civil unrest.

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