Selective Insurance Group (SGZ.CL) 2025 Conference September 03, 2025 01:35 PM ET Company ParticipantsBrad Wilson - SVP - IR & TreasurerJohn Marchioni - CEO, President & ChairmanPatrick Brennan - EVP & CFOBrad WilsonOkay. Good afternoon again. For our next session, we have Selective CEO, John Marchioni and CFO, Patrick Brennan here. Really excited to have you join us. I'm going to kick off with a fairly predictable question.I want to talk about a little bit about the reserve development in the second quarte ...

Financial Data and Key Metrics Changes - Operating return on equity (ROE) reached 18.7%, a record for the second quarter [10] - Operating earnings were $4.35 per diluted share, with earnings growth of approximately 25% on an ex-cat basis [10] - The overall combined ratio improved by approximately seven points year-over-year, while the ex-cat combined ratio improved by three points [10][24] - Net investment income increased by 16.7% to $105.5 million [25][37] - Book value increased by 6% sequentially and 13.2% year-to-date [38] Business Line Data and Key Metrics Changes - Personal lines achieved a strong current accident year ex-cat combined ratio of 84.8%, reflecting a 5.4-point improvement from the prior year [27] - Core Commercial delivered a combined ratio of 93%, with a combined ratio excluding catastrophes of 88.9% [32] - Specialty segment net written premium growth was 4.6%, with a mid-80s combined ratio [17] - Personal lines growth was 3.7%, with double-digit growth in targeted diversification states [31] Market Data and Key Metrics Changes - The market environment is characterized by significant variability across insurance product lines, with rising competition in property and building pricing pressures in liability [9] - The company is experiencing favorable conditions in the lower mid-market and smaller size account space, particularly in the Specialty segment [18] Company Strategy and Development Direction - The company is focused on a specialized and diversified portfolio of products through a select distribution model targeting top independent agents [8] - Investments in data, analytics, and technology are being made to enhance operational efficiency and scalability [19][20] - The company aims to maintain significant price increases in response to higher severity and unpredictable nature of catastrophe losses [12] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive business outlook, with widespread profitability and target level returns across most segments [9] - The company is well-positioned to capitalize on emerging opportunities and continue delivering high-quality results [10] - Management remains cautious about potential impacts from tariffs and is actively monitoring market conditions [13] Other Important Information - The company completed a successful renewal of its property treaties, reflecting effective property and catastrophe management initiatives [35] - The third quarter catastrophe load is expected to be 6.8%, with ongoing efforts to improve the portfolio's risk profile [39] Q&A Session Summary Question: Specialty segment and decelerating rate environment - Management highlighted the resilience of pricing and ongoing profitability in the Specialty segment, emphasizing differentiation in lower middle market and small business [42][44] Question: Commercial auto charge and trends - Management noted that commercial auto is a relatively small line, with increased reserves being prudent rather than indicative of a larger trend [46][47] Question: Catastrophe load guidance for Q3 - The expected catastrophe load of 6.8% reflects improvements in both personal and commercial lines, with ongoing efforts to manage risk [52][53] Question: Competitive environment in commercial lines - Management discussed the diversification of the portfolio as a strength, with expectations for continued resilience in small commercial despite competitive pressures [54][56] Question: Investment income guidance - Management expressed confidence in the investment income outlook, driven by strong cash flows and favorable reinvestment rates [59][61] Question: Distribution strategy in personal lines - Management is focused on diversifying the business across existing states rather than rapidly expanding into new ones, while adding agents to enhance growth [67][68] Question: Technology and operational efficiency - Management emphasized the importance of targeted tech-driven investments to enhance operating models and efficiency, positioning the company for scalable growth [70][74]

Financial Data and Key Metrics Changes - Operating return on equity (ROE) reached 18.7%, a record for the second quarter [9] - Operating earnings were $4.35 per diluted share, with earnings growth of approximately 25% on an ex-cat basis [9] - The overall combined ratio improved by approximately seven points year-over-year, while the ex-cat combined ratio improved by three points [9][23] - Net investment income increased by 16.7% to $105.5 million [24] Business Line Data and Key Metrics Changes - Personal lines business showed strong profitability with a current accident year ex-cat combined ratio of 84.8%, reflecting a 5.4-point improvement from the prior year [27] - Core Commercial segment delivered a combined ratio of 93%, with a combined ratio excluding catastrophes of 88.9% [32] - Specialty segment achieved a current accident year loss ratio ex-cat of 49%, favorable compared to expectations and the prior year [34] Market Data and Key Metrics Changes - Personal lines growth was 3.7%, with double-digit growth in targeted diversification states [31] - Net written premium growth in Core Commercial improved by 4.4%, led by 5.6% growth in small commercial [33] - Specialty net written premium growth was 4.6%, with retention improving to 81.8% [35] Company Strategy and Development Direction - The company is focused on a diversified portfolio and specialized products through a select distribution model targeting top independent agents [7] - Investments in data, analytics, and technology are prioritized to enhance operational efficiency and customer experience [18][19] - The company aims to capitalize on emerging opportunities in a dynamic market environment characterized by variability across insurance product lines [8] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive business outlook with widespread profitability across most segments [8] - The company is well-positioned to sustain profit margins while executing its targeted growth strategy [12] - Management remains cautious about potential impacts from tariffs but has not yet seen material effects [12] Other Important Information - The company repurchased approximately 295,000 shares of common stock totaling $48.2 million [40] - The third quarter catastrophe load is expected to be 6.8% [40] Q&A Session Summary Question: Inquiry about the Specialty segment and rate environment - Management acknowledged the resilient pricing in the Specialty segment and emphasized their focus on lower middle market and small business [44][46] Question: Concerns regarding commercial auto charges - Management clarified that commercial auto is a relatively small line for them, and the increase in reserves is primarily IBNR [48][49] Question: Catastrophe load guidance for Q3 - Management confirmed a 6.8% catastrophe load for Q3, with improvements expected in both personal and commercial lines [53][54] Question: Competitive environment in commercial lines - Management noted that their diversified portfolio helps maintain pricing stability despite competitive pressures [56][58] Question: Investment income guidance - Management expressed confidence in their investment income performance, driven by strong cash flows and favorable reinvestment rates [61][63]

Core Insights - Cincinnati Financial reported revenue of $2.78 billion for the quarter ended June 2025, reflecting a 15.3% increase year-over-year, with an EPS of $1.97 compared to $1.29 in the same quarter last year [1] - The reported revenue matched the Zacks Consensus Estimate, while the EPS exceeded expectations by 41.73% [1] Financial Performance Metrics - The combined ratio for Commercial Lines Insurance was 92.9%, significantly better than the average estimate of 99.1% from five analysts [4] - The combined ratio for Excess and Surplus Lines Insurance was 91.1%, outperforming the average estimate of 92.7% [4] - The combined ratio for Personal Lines Insurance was 102%, slightly better than the average estimate of 104.1% [4] - Loss and loss expenses for Commercial Lines Insurance were reported at 63.3%, compared to the average estimate of 68% [4] Revenue Breakdown - Earned premiums for Excess and Surplus Lines Insurance were $174 million, exceeding the average estimate of $171.2 million, marking a year-over-year increase of 15.2% [4] - Total revenues for Excess and Surplus Lines Insurance reached $175 million, compared to the average estimate of $172 million, representing a 15.1% year-over-year change [4] - Earned premiums for Property Casualty Insurance were $2.4 billion, matching the average estimate and showing a 15.5% increase year-over-year [4] - Earned premiums for Personal Lines Insurance were $804 million, surpassing the average estimate of $793.28 million, with a year-over-year increase of 27.4% [4] - Earned premiums for the Life Insurance Subsidiary were $83 million, slightly above the average estimate of $82.31 million, reflecting a 2.5% year-over-year change [4] - Earned premiums for Commercial Lines Insurance were $1.21 billion, slightly below the average estimate of $1.22 billion, indicating a 9.5% year-over-year increase [4] - Total earned premiums were reported at $2.48 billion, just below the average estimate of $2.49 billion, with a year-over-year change of 15% [4] - Fee revenues for Property Casualty Insurance were $3 million, slightly below the average estimate of $3.2 million, showing no year-over-year change [4] Stock Performance - Cincinnati Financial's shares returned +2.2% over the past month, while the Zacks S&P 500 composite increased by +4.9% [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Core Insights - Analysts project Cincinnati Financial (CINF) will report quarterly earnings of $1.37 per share, a 6.2% increase year over year, with revenues expected to reach $2.78 billion, reflecting a 15.4% increase from the same quarter last year [1] Earnings Estimates - The consensus EPS estimate has remained unchanged over the last 30 days, indicating a collective reevaluation by analysts [1][2] - Revisions to earnings estimates are crucial for predicting investor actions, with empirical research showing a strong correlation between earnings estimate trends and short-term stock performance [2] Key Metrics Projections - Analysts forecast 'Investment income, net of expenses- Total' to reach $278.79 million, a 15.2% year-over-year increase [4] - 'Revenue- Excess and surplus lines insurance- Earned premiums' is expected to be $171.20 million, indicating a 13.4% year-over-year change [4] - 'Revenues- Personal Lines Insurance- Earned premiums' is projected at $793.28 million, reflecting a 25.7% increase year over year [4] Insurance Metrics - 'Revenues- Life Insurance Subsidiary- Earned premiums' is estimated at $82.31 million, a 1.6% increase from the prior-year quarter [5] - The 'Excess and surplus lines insurance - Combined ratio' is expected to be 92.7%, down from 95.4% a year ago [5] - 'Personal Lines Insurance - Combined ratio' is projected at 104.1%, compared to 106.9% in the previous year [5] Loss and Expense Estimates - 'Commercial Lines Insurance - Loss and loss expenses' is expected to be 68.0%, up from 67.4% in the same quarter last year [6] - 'Excess and surplus lines insurance - Loss and loss expenses' is projected at 65.5%, compared to 67.5% in the previous year [6] - 'Personal Lines Insurance - Loss and loss expenses' is estimated at 74.4%, down from 77.6% a year ago [7] Underwriting Expenses - 'Excess and surplus lines insurance - Underwriting expenses' is projected to be 27.1%, down from 27.9% in the same quarter last year [8] - 'Personal Lines Insurance - Underwriting expenses' is expected to be 29.7%, slightly up from 29.3% in the previous year [8] Stock Performance - Over the past month, shares of Cincinnati Financial have returned +2.9%, compared to the Zacks S&P 500 composite's +5.9% change [8]

Financial Data and Key Metrics Changes - The company achieved operating earnings per share of $3.87, a first-quarter record, and a combined ratio of 94.1%, slightly outperforming expectations [20] - Net written premiums grew by 3.9% in the first quarter [20] - Catastrophe losses were 6.3%, with California wildfire losses accounting for $35 million [21] - Excluding catastrophes, the combined ratio improved to 87.8%, reflecting a 1.7-point improvement over the prior year [21] Business Line Data and Key Metrics Changes - Personal Lines achieved net written premium growth of 3%, with a 7.1% increase excluding the Midwest [7][9] - Core Commercial net written premium growth was 3.8%, driven by middle market momentum [10] - Specialty segment's premium growth was 5.4%, with upper single-digit to double-digit growth in profitable lines [14] Market Data and Key Metrics Changes - The company noted increased competition in the small commercial market, particularly in certain sectors [40][56] - The competitive environment in Personal Lines is becoming more aggressive, especially in the direct channel [56] Company Strategy and Development Direction - The company is focused on profitable growth in high-potential markets while managing exposure in the Midwest [7] - There is an emphasis on targeted catastrophe mitigation efforts and adjusting pricing in states with improved profitability [9][10] - The company plans to leverage investments in field sales and underwriting to accelerate new agency appointments [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating economic uncertainties, citing a strong book of business and diversified premium streams [17][18] - The company anticipates strong underwriting profitability driven by pricing exceeding loss trends and higher net investment income [36] Other Important Information - The company has repurchased approximately 178,000 shares of common stock year-to-date, with $274 million remaining under the share repurchase program [34] - The second quarter catastrophe load is expected to be 7.9% [35] Q&A Session Summary Question: Comments on small commercial pricing environment - Management acknowledged increased competition in small commercial and indicated adjustments in new business pricing to regain growth momentum [40][41] Question: Competitive environment in Personal Lines - Management confirmed that the competitive landscape is becoming more aggressive, particularly in the auto insurance sector, but expressed confidence in their strategy [55][56] Question: Frequency benefits in home insurance - Management attributed favorable frequency to higher deductibles and customer reluctance to file small claims, indicating this trend may continue [67][70] Question: Casualty loss trend assumptions - Management noted that casualty loss trend assumptions have been raised consistently over the past five years, reflecting ongoing adjustments to market conditions [74] Question: Clarification on catastrophe reserve releases - Management clarified that their guidance does not include prior year development (PYD) and emphasized a prudent approach to managing their balance sheet [75]

Financial Data and Key Metrics Changes - The company achieved operating earnings per share of $3.87, a first-quarter record, and a combined ratio of 94.1%, slightly outperforming expectations [21] - Net written premiums grew by 3.9% in the first quarter [21] - Catastrophe losses were 6.3%, with California wildfire losses accounting for $35 million [22] - Excluding catastrophes, the combined ratio improved to 87.8%, reflecting a 1.7-point improvement over the prior year [22] Business Line Data and Key Metrics Changes - Personal Lines achieved net written premium growth of 3%, with a 7.1% increase excluding the Midwest [9][10] - Core Commercial saw net written premium growth of 3.8%, driven by middle market momentum [11] - Specialty segment's premium growth was 5.4%, with 7.3% growth excluding programs [15] Market Data and Key Metrics Changes - The company noted increased competition in the small commercial market, particularly in certain sectors [41][58] - The personal lines market is becoming more competitive, with increased shopping and consistent terms across markets [59][61] Company Strategy and Development Direction - The company is focused on profitable growth in high-potential markets while managing exposure in the Midwest [10] - There is an emphasis on targeted catastrophe mitigation efforts and adjusting pricing in states where profitability has improved [10][14] - The company plans to leverage investments in field sales and underwriting to accelerate growth in high-opportunity sectors [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating economic uncertainties, citing a strong book of business and diversified premium streams [18] - The company is prepared to face potential tariffs and recessionary impacts, with a focus on maintaining profitability [19] - Management expects premium growth to increase in the second quarter, driven by strong underwriting profitability and higher net investment income [36][37] Other Important Information - The company repurchased approximately 178,000 shares of common stock year-to-date through April, with $274 million remaining under the share repurchase program [35] - The second quarter catastrophe load is expected to be 7.9% [36] Q&A Session Summary Question: Comments on small commercial pricing environment - Management confirmed increased competition in small commercial and noted adjustments in new business pricing to regain growth momentum [41][43] Question: Clarification on liability pricing expectations - Management indicated that the expectation of liability pricing increases applies to all casualty lines, not just umbrella [45] Question: Insights on competitive environment in Personal Lines - Management discussed the deliberate strategy to diversify the book of business while improving profitability across various states [54][56] Question: Frequency benefits in home insurance - Management attributed favorable frequency to higher deductibles and customer reluctance to submit small claims, which is expected to continue [70][72] Question: Casualty loss trend assumptions - Management refrained from providing specific numbers due to variability across different lines but confirmed that assumptions have increased meaningfully over the years [75] Question: Catastrophe reserve releases and guidance - Management clarified that their guidance does not include prior year development (PYD) for catastrophe loads [76]

Financial Data and Key Metrics Changes - In Q1 2025, Kinsale's operating earnings per share increased by 6% and gross written premium grew by 8% compared to Q1 2024 [6] - The company reported a combined ratio of 82% and an annualized operating return on equity of 22.5% [6][12] - Net investment income rose by 33.1% year-over-year due to growth in the investment portfolio [13] Business Line Data and Key Metrics Changes - The Commercial Property division experienced an 18% decrease in premium, which was the largest underwriting unit last year [9] - Excluding the Commercial Property division, Kinsale's direct written premium grew by 16.7% [10] - Personal lines and small commercial property teams continued to grow at double-digit rates [10] Market Data and Key Metrics Changes - The E&S market remained steady in Q1 2025, but competition continued to increase [11] - Overall rates for the quarter were down 1%, with the Commercial Property division seeing rates down about 20% [20] - Casualty rates overall were up modestly, driven by construction and general casualty [20] Company Strategy and Development Direction - Kinsale focuses on disciplined underwriting and a technology-driven low-cost model, which provides a durable competitive advantage [21][25] - The company is expanding its personal lines book, particularly in high-value homeowners and manufactured homes [18] - Kinsale aims to maintain profitability over growth, prioritizing high-margin segments and controlling underwriting [41][90] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business model and the ability to sustain underwriting performance despite competitive pressures [40][42] - The company is well-positioned to grow even in a contracting economy, with a low expense ratio compared to competitors [46] - Management remains optimistic about growth prospects and the ability to take market share from higher-expense competitors [25] Other Important Information - The estimated loss from the Palisades wildfire was revised to about $41 million gross and $22 million net of reinsurance [7] - Kinsale repurchased $10 million in shares during Q1 2025, with expectations for similar modest levels of repurchases in the future [15] Q&A Session Summary Question: Submission growth trends between property and casualty lines - The commercial property is experiencing the biggest decline in growth rate, while the rest of the properties continue to show strong submission growth [28][29] Question: Impact of competition on property slowdown - Increased competition in the large property account space is noted, with more capital entering the market [34][35] Question: Confidence in sustaining underwriting performance - Management is confident in their business model, focusing on high-margin segments and controlling underwriting [40][42] Question: Kinsale's strategy in a potential recession - The company believes it can continue to grow even in a contracting economy due to its low expense ratio [46] Question: Changes in loss trends for property and casualty lines - A decrease in reported losses and a favorable mix of business contributed to strong underlying loss ratios [54][55] Question: Appetite for large commercial property - Kinsale has not changed its appetite for large commercial property, focusing on the right pricing terms [74][75] Question: Sustainability of high loss ratios in fronting companies - Management believes that high loss ratios are unsustainable for fronting companies, which will eventually change the competitive landscape [84][85] Question: Core loss ratio and willingness to sacrifice margin for growth - Kinsale prioritizes profitability over growth, managing profitability at a granular level [88][90] Question: Competition in the commercial property market - The competitive environment in the commercial property market is described as steady, with no significant changes noted [96][99] Question: Long-term mix between property and casualty - The E&S market is generally viewed as one-third property and two-thirds casualty, with ongoing efforts to expand into homeowners insurance [104][105]

Core Viewpoint - Cincinnati Financial Corporation (CINF) is anticipated to show revenue growth but a significant decline in earnings for the first quarter of 2025, with revenues expected to reach $2.7 billion, reflecting a 16.3% increase year-over-year, while the bottom line is projected to report a loss of 29 cents per share, indicating a 116.9% decrease from the previous year [1][2]. Revenue Expectations - The Zacks Consensus Estimate for CINF's first-quarter revenues is $2.7 billion, which represents a 16.3% growth compared to the same quarter last year [1]. - Earned premiums are expected to be $2.4 billion, up 16.6% from the year-ago figure, aligning with the Zacks Consensus Estimate [4]. - Personal Lines revenues are projected at $763 million, indicating a 29.5% improvement from the previous year [5]. - Excess and Surplus lines revenues are estimated at $163 million, reflecting a 16.4% increase year-over-year [6]. - Net investment income is expected to be $278.4 million, up 12.2% from the prior year [7]. Expense and Loss Projections - Total expenses are anticipated to rise by 40.2% to $2.8 billion, driven by higher insurance losses and various operational costs [7]. - CINF expects catastrophe losses from the California wildfire to be between $450 million and $525 million, with the Personal Lines segment absorbing 73% of this loss [8]. Earnings Prediction Model - CINF has an Earnings ESP of -86.48%, indicating a lower likelihood of an earnings beat, as the Most Accurate Estimate of a loss of 53 cents per share is significantly worse than the consensus estimate of a loss of 29 cents [3]. - CINF holds a Zacks Rank of 3, suggesting a neutral outlook [3].