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Selective reports “higher than expected” cat losses as Q2 net income falls

4th August 2022 - Author: Kassandra Jimenez-Sanchez

Selective Insurance has reported a second quarter net income of $37.2 million, a significant fall compared to the $119.6 million reported in the same period last year.

Selective Insurance GroupDespite this, net premiums written (NPW) increased 12%, to $930.7 million compared to $833.2 million in the second quarter of 2021, mainly led by the standard commercial lines premiums, which represented 82% of the NPW total.

According to Selective, the rise in NPW reflected average renewal, pure price increases of 5.0%, solid retention, and exposure growth.

Yet the reported net investment income earned was down 16%, from $83.7 million in Q2 2021 to $70.2 million this year. Additionally, there was a net realised and unrealised loss (pre-tax) of £42.9 million compared to an income of $10.1 million last year.

Overall, net investment income went down from $67.4 million in Q2 2021, to $56.7 million this year.

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At the same time, net underwriting income was $29.8 million, compared to $60 million in last year’s second quarter.

This resulted in a weaker but profitable combined ratio of 95.5%, compared to 89.8% reported in the second quarter of 2021. This increase was driven by higher catastrophe losses and lower favourable casualty reserve development, according to Selective.

The insurer noted that 5.5 points of catastrophe losses of the combined ratio were mainly tied to severe Midwest weather impacting the company’s Standard Personal Lines segment.

Non-catastrophe property losses were 0.9 points above expectations, Selective added, due to higher severity, driven by inflationary pressures on new and used car prices, auto repair costs, and building materials and labour costs.

Compared to the second quarter of 2021, non-catastrophe property losses were 0.7 points below expectations, driven by lower frequencies.

Standard Commercial Lines premiums increased 12%, to $760.3 million, compared to the $677.1 million reported in Q2 2021. Its combined ratio increased to 3.1%, compared to 88.7% in 2021.

The premium growth reflected average renewal pure price increases of 5.3% and higher retention of 86%, Selective noted.

Excess and Surplus (E&S) Lines premiums increased 13%, from $77.5 million last year to $87.9 million in Q2 2022, this was also driven by average renewal pure price, which increased 6.9%, and new business growth of 17%.

E&S lines combined ratio improved this quarter, to 95.8%, compared to a 96.6% reported in the second quarter of 2021.

Standard Personal Lines premiums increased 5%, to $82.6 million compared to $78.6million in Q2 2021. This second quarter reported a weaker combined ratio of 116.9%, compared to the 92.3% reported in the same period last year.

John Marchioni, President and CEO, said: “Our underwriting discipline continues to be the main driver for Selective’s consistent, profitable growth. Despite challenging markets and higher than expected catastrophe losses from several smaller events, we delivered solid underwriting results and investment performance.

“Our strong distribution relationships and sophisticated underwriting tools drive our ability to consistently balance profitability and growth. Our decade-long focus on obtaining appropriate risk-adjusted pricing has enabled us to execute successfully despite greater loss trend uncertainty.

“Our balance sheet remains extremely strong, and we continue to enhance our market position with our customers and distribution partners.”

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