Selective Insurance Group Q4 Earnings Call Highlights

Core Insights - Selective Insurance Group is focusing on improved profitability and strong investment results, with expectations for further margin improvement in 2026 and beyond [5] Commercial Auto - The company anticipates accident-year margins to improve in 2025 due to double-digit rate increases over multiple years, exceeding an assumed loss trend of approximately 8% [1] - However, Selective increased commercial auto casualty loss costs by nearly 6 points and raised its expected severity trend for commercial auto liability to about 10% [1] - In total, Selective strengthened commercial auto reserves by approximately $190 million in 2025, primarily related to the 2024 and 2025 accident years [1] Financial Performance - Selective reported a fourth-quarter GAAP combined ratio of 93.8%, a 4.7-point improvement from the prior-year quarter, attributed to no net prior year reserve development [3] - For the full year 2025, the combined ratio improved to 97.2% from 103% in 2024, mainly due to lower prior-year casualty reserve development and lower catastrophe losses [3] - Fourth-quarter fully diluted EPS was $2.52, up 66% year over year, and operating EPS was $2.57, up 59% [4] Underwriting and Reserves - The company experienced favorable workers' compensation development that offset unfavorable emergence in commercial and personal auto lines [2] - Net premiums written grew by 5% for the year, driven by deliberate actions to improve underwriting profitability [2] - Selective strengthened reserves for both 2024 and 2025, indicating comfort with the overall carried reserve position [2] Segment Trends - Standard Commercial Lines, the largest segment, posted a fourth-quarter combined ratio of 92.9%, with premium growth driven by a renewal pure price increase of 7.5% [7] - E&S premium grew by 4% in the quarter, with average renewal pure price increases of 7.8% [8] - Personal Lines produced a fourth-quarter combined ratio of 103%, deteriorating from 91.7% in the prior-year quarter, primarily due to catastrophe losses [9] Investment and Reinsurance - Fourth-quarter after-tax net investment income was $114 million, up 17% from a year earlier, with an average credit quality of A+ [10] - The company renewed its property catastrophe program, maintaining a $100 million retention and increasing the coverage exhaustion point to $1.5 billion [11] 2026 Outlook - Selective's 2026 guidance calls for a GAAP combined ratio of 96.5% to 97.5%, with an expected underlying improvement in Personal Lines and Commercial Lines [12][13] - After-tax net investment income is projected to be $465 million, up 10% from 2025 [12] - The company expects an operating ROE in the 14% range for 2026, supported by continued casualty pricing and mix actions [13] Strategic Focus - The company is focused on risk selection, policy pricing, claims outcomes, and the use of data, analytics, technology, and artificial intelligence as it approaches its 100th anniversary in 2026 [14]