Selective Insurance Group (SIGI)

Property and casualty insurer Selective Insurance Group (NASDAQ:SIGI) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 9.3% year on year to $1.36 billion. Its non-GAAP profit of $1.75 per share was 11.9% below analysts’ consensus estimates.

Company Overview

Founded in 1926 during the early days of automobile insurance, Selective Insurance Group (NASDAQ:SIGI) is a property and casualty insurance company that sells commercial, personal, and excess and surplus lines insurance products through independent agents.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

Selective Insurance Group competes with larger national property and casualty insurers like Travelers (NYSE:TRV), Chubb (NYSE:CB), and The Hartford (NYSE:HIG), as well as regional insurers such as Cincinnati Financial (NASDAQ:CINF) and Erie Indemnity (NASDAQ:ERIE).

Insurers earn revenue three ways. The core insurance business itself, often called underwriting and represented in the income statement as premiums earned, is one way. Investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities is the second way. Fees from various sources such as policy administration, annuities, or other value-added services is the third. Selective Insurance Group struggled to consistently generate demand over the last five years as its revenue dropped at a 6.2% annual rate. This wasn’t a great result and suggests it’s a lower quality business.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Selective Insurance Group’s recent performance shows its demand remained suppressed as its revenue has declined by 29.1% annually over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Selective Insurance Group reported year-on-year revenue growth of 9.3%, and its $1.36 billion of revenue exceeded Wall Street’s estimates by 364%.

Since the company recorded losses on certain securities, it generated more net premiums earned than revenue during the last five years, meaning Selective Insurance Group lives and dies by its underwriting activities because non-insurance operations barely move the needle.

Our experience and research show the market cares primarily about an insurer’s net premiums earned growth as investment and fee income are considered more susceptible to market volatility and economic cycles.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore gross premiums less what’s ceded to reinsurers as a risk mitigation and transfer strategy.

Selective Insurance Group’s net premiums earned has grown at a 12.4% annualized rate over the last five years, better than the broader insurance industry and faster than its total revenue.

When analyzing Selective Insurance Group’s net premiums earned over the last two years, we can paint a similar picture as it recorded an annual growth rate of 12.5%. Since two-year net premiums earned grew faster than total revenue over this period, it's implied that other line items such as investment income grew at a slower rate. These additional streams do play a key role in the bottom line, but their impact can vary. While some firms have excelled in consistently investing their float, sudden shifts in the fixed income and equity markets can heavily sway short-term performance.

This quarter, Selective Insurance Group’s net premiums earned was $1.20 billion, up 8.3% year on year and in line with Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio is:

• The costs of underwriting (salaries, commissions, overhead) + what an insurer pays out in claims, all divided by net premiums earned

If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last five years, Selective Insurance Group’s combined ratio couldn’t build momentum, hanging around 98.3%. It was also flat on a two-year basis, showing the company has consistently failed to improve its efficiency.

In Q3, Selective Insurance Group’s combined ratio was 98.6%, falling short of analysts’ expectations by 193.3 basis points (100 basis points = 1 percentage point). This result was in line with the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Selective Insurance Group’s EPS grew at a decent 11.9% compounded annual growth rate over the last five years, higher than its 6.2% annualized revenue declines. However, we take this with a grain of salt because its combined ratio didn’t improve and it didn’t repurchase its shares, meaning the delta came from factors we consider non-core or less sustainable over the long term.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Selective Insurance Group, its two-year annual EPS growth of 9.2% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Selective Insurance Group reported adjusted EPS of $1.75, up from $1.40 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Selective Insurance Group’s full-year EPS of $6.44 to grow 23.8%.

Insurers are balance sheet businesses, collecting premiums upfront and paying out claims over time. Premiums collected but not yet paid out, often referred to as the float, are invested and create an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality because it reflects long-term capital growth and is harder to manipulate than more commonly-used metrics like EPS.

Selective Insurance Group’s BVPS grew at a mediocre 6.4% annual clip over the last five years. However, BVPS growth has accelerated recently, growing by 16.2% annually over the last two years from $40.35 to $54.46 per share.

Over the next 12 months, Consensus estimates call for Selective Insurance Group’s BVPS to grow by 16.1% to $57.16, top-notch growth rate.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Selective Insurance Group currently has $902.3 million of debt and $3.49 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.2×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity, or ROE, represents the ultimate measure of an insurer's effectiveness, quantifying how well it transforms shareholder investments into profits. Over the long term, insurance companies with robust ROE metrics typically deliver superior shareholder returns through a balanced approach to capital management.

Over the last five years, Selective Insurance Group has averaged an ROE of 11.5%, uninspiring for a company operating in a sector where the average shakes out around 12.5%.

We were impressed by how significantly Selective Insurance Group blew past analysts’ revenue expectations this quarter. On the other hand, its EPS missed and its book value per share fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 5.6% to $76.81 immediately following the results.

Updated: December 4, 2025 at 11:21 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Selective Insurance Group.

Selective Insurance Group doesn’t top our investment wishlist, but we understand that it’s not a bad business. First off, its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months. And while Selective Insurance Group’s worsening combined ratio shows the business has become less productive, its projected EPS for the next year implies the company’s fundamentals will improve.

Selective Insurance Group’s P/B ratio based on the next 12 months is 1.4x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $83.43 on the company (compared to the current share price of $76.94).