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Strong Premiums, Solid Capital Position Aid Selective Insurance

Selective Insurance Group, Inc. SIGI has been riding on improved premium growth and strong net investment income, which is aiding its top line.

The company has a decent surprise history. It beat estimates in two of the trailing four quarters, the average beat being 5.9%. The stock has seen the Zacks Consensus Estimate being revised 3.2% downward over the last 60 days for current-quarter earnings.

Let’s delve into the factors that bode well for the company.

The P&C insurer continues to ride on geographic expansion for growth and diversification. Constant premium growth across segments helped the company’s total premiums improve 6.6% year over year in 2019. This upside can be attributed to strong retention and new business in the Standard Commercial Lines segment. As a result, the company’s top line registered 10.1% year-over-year growth in 2019.

Selective Insurance banks on impressive investment results. Its net investment income climbed 13% in 2019, driven by active portfolio management and a stellar operating cash flow. For 2020, the firm projects an after-tax investment income of $185 million, up from the prior guidance of $175 million.

The company also flaunts a sound capital structure, and remains committed toward returning value to its policyholders and shareholders via dividend payments. Riding on a solid capital position, the company has been hiking dividends, which register a five-year CAGR (2014-2019) of nearly 12.1%. Such shareholder-friendly moves make it an attractive pick for yield-seeking investors. Its dividend yield of 1.9% appears attractive compared with the industry’s 0.5%.

However, shares of this Zacks Rank #3 (Hold) company have depreciated 24.5% in a year’s time compared with the industry’s fall of 17.8%. Escalating expenses are likely to strain margin expansion.

Nevertheless, we believe the company’s healthy fundamentals will drive its shares in the days to come.

Stocks to Consider

Some better-ranked stocks in the same space are Axis Capital Holdings Limited AXS, First American Financial Corporation FAF, and RLI Corp. RLI. While First American Financial and RLI sport a Zacks Rank #1 (Strong Buy), Axis Capital carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

All three companies surpassed estimates in the last reported quarter by 150%, 33.33% and 28.57%, respectively.

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