Property and casualty insurer Selective Insurance Group (NASDAQ: SIGI) fell short of the market’s revenue expectations in Q3 CY2025, with sales falling 88.9% year on year to $138.7 million. Its non-GAAP profit of $1.75 per share was 11.9% below analysts’ consensus estimates.

Is now the time to buy SIGI? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Selective Insurance Group’s third quarter was marked by a significant market disappointment, with management attributing underperformance to elevated loss trends in commercial auto, particularly in New Jersey. CEO John Marchioni called out “unfavorable prior year casualty reserve development” as a primary factor, noting $35 million in commercial auto charges and ongoing challenges in specific jurisdictions. Management’s tone was notably cautious, acknowledging that rate increases alone will not restore profitability in affected lines. Additional reserve reviews by external third parties confirmed Selective’s processes are consistent with industry best practices, but the company’s results were pressured by ongoing severity trends.

Looking forward, Selective Insurance Group’s guidance emphasizes a focus on improving underwriting margins through targeted risk selection, tighter underwriting guidelines, and enhanced use of data and technology. Management believes operational investments—including predictive modeling and telematics adoption—will help counter ongoing pressure in casualty lines. Marchioni stated, “We will trade short-term impacts for long-term sustainable success,” highlighting the company’s commitment to making difficult decisions to restore margins. The outlook is also shaped by continued diversification across geographies and insurance segments, as well as a disciplined approach to capital returns through dividends and share repurchases.

Key Insights from Management’s Remarks

Management highlighted that Q3 performance was driven by reserve strengthening in commercial auto, offset by lighter catastrophe losses and improved non-catastrophe property results. Forward guidance is shaped by ongoing underwriting actions and operational investments.

• Commercial auto reserve actions: Unfavorable prior year reserve development was concentrated in commercial auto liability, driven by rising severity trends in New Jersey. Management responded by increasing loss assumptions and deploying updated rating models to better segment risk.
• Underwriting discipline and rate increases: The company continued to implement tighter underwriting guidelines and achieved high single-digit renewal price increases in general liability and commercial auto. However, these actions led to lower policy retention and slower premium growth, reflecting a willingness to prioritize margin over volume.
• Property lines stability: Lighter catastrophe activity and favorable non-catastrophe property outcomes partially offset casualty pressures. Management noted that renewal premium changes in property remained strong, though they expect some deceleration in rate increases going forward.
• Geographic and segment diversification: Selective expanded its Standard Commercial Lines footprint into new states, aiming to reduce concentration risk in markets like New Jersey. The company also continued to grow its Excess and Surplus (E&S) segment and target mass affluent customers in Personal Lines.
• External reviews and process validation: Multiple independent third parties reviewed Selective’s reserving and claims management practices, confirming they are in line with industry best practices. Management expressed confidence in current reserve levels, citing external validation as a key factor behind ongoing capital management decisions.

Drivers of Future Performance

Management expects future performance to hinge on the effectiveness of recent underwriting actions, continued rate discipline, and the ability to leverage data and technology for improved risk selection.

• Targeted underwriting improvements: Selective is prioritizing more granular pricing models, state-level analytics, and enhanced telematics adoption to reduce loss volatility and restore underwriting margins, especially in commercial auto.
• Margin recovery and profitability focus: The company’s outlook incorporates a higher catastrophe load but assumes no further reserve development. Management’s focus remains on balancing premium growth with profitability, even if that means accepting lower retention rates as a trade-off.
• Ongoing diversification and technology investment: The company is expanding its geographic reach and developing new products across its three business segments. Investments in predictive analytics and operational efficiency are expected to support long-term growth and mitigate exposure to concentrated risks.

Catalysts in Upcoming Quarters

The StockStory team will be watching (1) the pace and effectiveness of commercial auto underwriting actions, particularly in high-severity states like New Jersey; (2) the impact of geographic and segment diversification on reducing volatility and concentration risk; and (3) continued progress in deploying predictive analytics and telematics to improve loss ratios. Execution on these fronts, alongside disciplined capital management, will be key markers of Selective Insurance’s ability to deliver on its long-term margin targets.

Selective Insurance Group currently trades at $77.07, down from $81.40 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

Our Favorite Stocks Right Now

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.