Selective Insurance Upped to Strong Buy - Analyst Blog

On May 13, Zacks Investment Research upgraded Selective Insurance Group Inc. SIGI by a notch to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Selective Insurance has been witnessing rising earnings estimates on the back of improved core growth. A diversified product portfolio and healthy capital position have also been fuelling improved market trends.

Additionally, this specialty property-casualty insurer delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 35.11%.

On Apr 23, Selective Insurance reported first-quarter 2014 operating earnings per share of 23 cents, which outpaced the Zacks Consensus Estimate by a whopping 109.1%. However, the reported figure was lower than the year-ago quarter figure by 36%. The year-over-year decline was primarily due to significantly higher catastrophe and property losses and rise in underwriting expenses.

Nonetheless, retention in standard lines remained strong at 83%, while decent improvement was witnessed in renewal pure price and premiums growth, resulting in top-line growth of 10.7%. Additionally, investment income grew 7% driven by higher income from alternatives and fixed income investments. These factors led to strong cash flows and book value per share.

Although underlying combined ratio deteriorated slightly in first-quarter 2014, it is expected to improve to about 92% in 2014. Selective Insurance's fundamental strength and prudent capital management and positive reserve developments further instill investor confidence in the stock.

Positive estimate revisions witnessed by Selective Insurance also reflect optimism. The Zacks Consensus Estimate for 2014 jumped 17.2% to $1.77 per share in the last 30 days. Meanwhile, the estimate for 2015 moved north by 7% to $2.28 during the same period.

Moreover, on year-over-year basis, earnings are projected to rise by 7.5% and 28.8% in2014 and 2015, respectively. Furthermore, no downward revision in estimates was witnessed for both the years.

Other Stocks to Consider

Apart from Selective Insurance, investors interested in the insurance industry could consider Aspen Insurance Holdings Ltd. AHL, Atlas Financial Holdings Inc. AFH and Endurance Specialty Holdings Ltd. ENH. All these stocks sport the same Zacks Rank as Selective Insurance.