Will Selective Insurance's Cat Loss Ail Earnings in Q1? (Revised)

Selective Insurance Group, Inc. SIGI has announced catastrophe loss estimates of about $26 million, emanating from winter storm that impacted the east coast of the United States in early January 2018 and the Nor'easters in March.

This apart, the company also estimated non-catastrophe insured property loss of $28 million from early January deep freeze in the company's footprint states and a relatively large number of severe fire loss.  

Selective Insurance noted that the company’s total loss exceeded its expectation by about $33 million, dragging the bottom line by 44 cents.

Property and casualty insurer Chubb Limited CB has issued cat loss estimates of $305 million from California mudslides and northeast winter storms.

However, pre-tax net favorable prior-year casualty reserve development of $8 million and 3.2% higher standard commercial lines pure renewal pricing will limit the downside for Selective Insurance Group to some extent. The company expects the bottom line to be boosted by 11 cents owing to favorable prior year casualty reserve development.

The company is set to release first-quarter earnings results on May 2. Our proven model does not shows that the stock is likely to beat estimates this quarter, This is because  an unfavorable Zacks Rank #4 (Hold) combined with an Earnings ESP of 0.00% makes surprise positive prediction difficult. The Zacks Consensus Estimate for the first quarter of 2018 is pegged at 45 cents, reflecting 47.7% year-over-year decrease.

Being a property and casualty insurer, Selective Insurance has been prone to suffering losses due to catastrophe events. Last year, the company suffered catastrophe losses of $67 million. As a result of unprecedented hurricanes, wildfires and earthquakes, 2017 was the costliest year for insurers in terms of cat loss.

For Selective Insurance, catastrophe loss accounted for 290 basis points on the 2017 combined ratio. The company estimates combined ratio for 2018 to hover around 95% with catastrophe loss impact of about 350 basis points.

Nonetheless, the insurer remains focused on achieving a standard Commercial Lines written renewal pure price increase, improving renewal underwriting quality while maintaining strong and stable retention and undertaking underwriting actions in Excess and Surplus Lines segment to improve profitability.

The company believes that these initiatives coupled with lower tax incidence strongly place the company for long-term growth. Shares of the company have outperformed the industry year to date. The stock has gained 3.4% against the industry’s increase of 0.9%.

 
Stocks to Consider

Two better-ranked insurers from the same industry are Alleghany Corporation Y and National General Holdings Corp. NGHC , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company pulled off an average four-quarter positive earnings surprise of 5.16%.

National General Holdings a specialty personal lines insurance holding company, provides various insurance products and services in the United States. The company delivered an average four-quarter beat of 11.54%.

(We are reissuing this article to correct a mistake. The original article, issued on Apr 10, 2018, should no longer be relied upon.)

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Chubb Limited (CB) : Free Stock Analysis Report
 
Alleghany Corporation (Y) : Free Stock Analysis Report
 
Selective Insurance Group, Inc. (SIGI) : Free Stock Analysis Report
 
National General Holdings Corp (NGHC) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research