SELECTIVE INSURANCE GROUP INC (SIGIP) Q2 2026 Earnings Call Transcript

I would now like to turn the call over to Brad Bryant Wilson, senior vice president. Please go ahead, sir.

Good morning. Thank you for joining Selective's Second Quarter 2026 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement, and investor presentation on the Investors section of selective.com. A replay of today's webcast will be available there shortly after this call. Joining me are John Joseph Marchioni, our Chairman, President, and Chief Executive Officer, and Patrick Sean Brennan, Executive Vice President and Chief Financial Officer. They will discuss our results and take your questions. During the call, we will reference non-GAAP measures used by insurance professionals to evaluate financial and operating performance, including operating income, operating return on common equity, and adjusted book value per common share. Reconciliations to the most comparable GAAP measures are available in our financial supplements on our Investor Relations page. We will also make forward-looking statements under the Private Securities Litigation Reform Act of 2000. These statements and projections about future performance are subject to risks and uncertainties we disclose in our SEC filings. We undertake no obligation to update or revise any forward-looking statements. Now, I will turn the call over to John.

Thanks, Brad, and good morning. This has been an exciting few months for Selective. In May, we celebrated our 100th anniversary and our 50th year as a public company by ringing the NASDAQ closing bell. More recently, we opened our new corporate headquarters in Short Hills, New Jersey. This office broadens our access to talent and positions us near transportation hubs that connect us more easily across our expanding geographic footprint. On July 1, we opened for business in Montana and Wyoming and are pleased with early traction and agency engagement. These milestones reflect our long-term commitment to disciplined growth and operational excellence. This marked our eighth consecutive quarter with double-digit operating ROE. We delivered a 13.7% operating ROE, led by excellent investment income, which grew 18% year over year. Each insurance segment produced an underwriting profit, and our 98% combined ratio improved 2.2 points from a year ago. E&S performance remained strong, and our Personal Lines combined ratio of 94.1 for the first half of the year is ahead of our 95% combined ratio target. Driving margin improvement in Standard Commercial Lines, our largest segment, remains a key area of focus. Net premiums written declined 5% for the quarter. We believe discipline is imperative in the current environment and we remain fully committed to expanding our market share meaningfully where and when margins warrant it. We believe the composition of that decline is important, as a meaningful portion reflects actions we are taking to improve portfolio economics and long-term returns. Year to date, our E&S and Personal Lines segments outperformed our 95% combined ratio target. In Standard Commercial Lines, our combined ratio was 99.7%. As such, we remain focused on improving margins and further diversifying our business mix. Contractors continues to be an important industry vertical where we have proven expertise. However, the casualty-oriented nature of this business has pressured performance in recent years as we and the industry work through elevated commercial casualty loss trends. In 2025, contractors represented 43% of our commercial lines premiums. Through the first half of 2026, they accounted for 33% of new business. While new business diversification improved, Standard Commercial Lines new business premium declined 22% in the second quarter, consistent with the first quarter decrease. Stronger new business pricing informed by our view of expected loss trends, combined with a competitive market, drove lower conversion rates. We are leveraging our tools, granular insights, and differentiated operating model to drive higher renewal retention on our best-performing business and meaningfully lower retention on our underperforming business through appropriate rating action. While the overall rate increases have moderated, we expect these mix-improvement actions will contribute to improved profitability. The execution of this strategy accelerated during the second quarter. Retention in our best-performing renewal cohort was 89% for the quarter, consistent with a year ago. At the same time, retention in our worst-performing cohorts decreased from 81% to 55%, and renewal rate increased from 11.5% to 18%. This is exactly the portfolio effect we intended, as we believe these actions improve the earnings power of the portfolio over time. These actions are simultaneously supporting our broader organizational priority to further diversify our business. In the quarter, contractors retention declined approximately two points year over year, reflecting its casualty orientation and our view of required rate levels in commercial auto liability and general liability. Of the six percentage point decline in Standard Commercial Lines net premiums written this quarter, lower new business contributed three percentage points of the decrease. Actions on the renewal portfolio, specifically in our worst-performing cohorts, drove the remaining three percentage points. We are constraining growth where margins did not meet our targets, and focusing new business and retention strategies on the business that continues to enhance the earning power of the book. While these actions take time to earn through the portfolio, we believe they position us for improved underlying margins and more attractive risk-adjusted returns. E&S delivered another strong quarter with a 91.8% combined ratio and disciplined underwriting across both property and casualty. Renewal pure price increased 3.4%, with continued rate momentum in casualty reflecting our view of general liability loss trends. Property pricing was slightly negative, consistent with competitive market conditions and strong margins. Increased competition in the marketplace along with our disciplined approach contributed to a 2% premium decline in the quarter. The E&S market has benefited from strong tailwinds over recent years but historically has exhibited more cyclicality than the admitted market. We are seeing more capacity entering the E&S marketplace, including appetite expansion by admitted market carriers. With our strong margins, 50-state footprint, and expansion of our distribution channel to include our retail agents, we believe E&S continues to present a long-term opportunity to support our profitable growth and diversification objectives. Personal Lines profitability continues to improve, despite expected variability in property losses. The combined ratio was 95.5, up from 91.6 in the second quarter of 2025, driven by higher non-catastrophe property losses. Year to date, the combined ratio of 94.1 was 80 basis points better than the first six months of 2025 and compared favorably to the 100.6 combined ratio for the full year 2025. Results remain stronger outside of New Jersey. Net premiums written declined 8% with target business down 2%. New business decreased 36% in the quarter, driven by an increasingly competitive auto market and restrictions we have in place to manage exposure in New Jersey. Homeowners premium was relatively flat in the quarter, as we continue to gain traction in our target market. Average new business home values remained in excess of $1 million for the first half of the year, and target market business now represents approximately 70% of our homeowners' premium. We are focused on growth in our target market, where we believe our rates are adequate. Renewal pure price increased 8.9% with continued refinement of our segmentation strategy. For each of our insurance segments, the actions we are taking to strengthen our portfolio reflect the same disciplined approach that has long guided Selective's success. We remain focused on improving fundamentals across risk selection, individual policy pricing, and claim outcomes. We are diversifying revenue and income within and across our three insurance segments and further leveraging data, analytics, and technology, including artificial intelligence, to drive operational efficiency and improve underwriting and claim outcomes. Now I will turn the call over to Patrick.

Thanks, John, and good morning, everyone. For the quarter, we reported fully diluted EPS of $2.11 and non-GAAP operating EPS of $1.95, resulting in a 14.8% ROE and a 13.7% operating ROE. Our GAAP combined ratio was 98.0%, including 5.6 points of catastrophe losses. Year to date, strong after-tax net investment income and a GAAP combined ratio of 98.1 delivered a 13% ROE and a 12.8% operating ROE, ahead of our 12% target. As in the first quarter, we had no prior year casualty reserve development at the segment or line of business level. Severities have generally tracked in line with expectations. However, we have observed higher-than-expected frequency in the first half of the year for commercial auto liability and have adjusted our current year loss ratios accordingly. In commercial auto, the year-to-date underlying loss ratio of 69.7 was up modestly compared to full year 2025, including the current accident year frequency-adjusted and previously contemplated severity pressures, partially offset by earned renewal pure price. In general liability, the year-to-date underlying loss ratio was 0.8 points higher than full year 2025, reflecting elevated severity trends we embedded in the current accident year as part of our planning process. Turning to pricing: for the quarter, excluding workers' compensation, renewal pure price increased 7.4%. General liability pricing increased 8.7%, and commercial auto pricing increased 9.3%, up 20 basis points sequentially. Auto liability pricing approached 13%, demonstrating our ability to deliver rate increases where they are most needed. Property renewal premium increased 7.7%, including 3.3 points of exposure growth. We are prudently managing the impact of net premiums written as we balance maintaining a competitive expense ratio with strategic investments to support future growth and operational efficiency. We remain committed to technology investments that we believe will increase the capacity and decision quality of our teams. For 2026, we expect our expense ratio will be consistent with our expectation of approximately 31.5% at the beginning of the year. Effective July 1, we renewed our casualty excess of loss and property per-risk reinsurance treaties. These treaties cover our Standard Commercial Lines, Standard Personal Lines, and E&S businesses. The casualty excess of loss treaty covers our entire casualty portfolio and provides $87 million in excess of a $3 million retention. As part of the renewal, we reduced our co-participation in the first layer from 20% to 8% and all remaining layers were fully placed with no co-participation. We also renewed our property per-risk treaty, which now provides $115 million of coverage in excess of a $5 million retention on a per-risk basis. The $20 million increase in treaty limit from the expiring program reflects continued business growth and higher insured values across the portfolio. Turning to capital management, our capital management approach is unchanged. We prioritize supporting the profitable growth of our business over the long term and aim to return 20% to 25% of earnings to shareholders through dividends. We will also opportunistically repurchase shares. During the quarter, we returned nearly 50% of our after-tax net income to shareholders through a regular dividend and $32 million of share repurchases at attractive valuations. Our strong capital position supports this commitment to delivering long-term value. At quarter end, $108 million remained on our authorization. After-tax net investment income was $119 million in the quarter, up 18% year over year. This generates 13.9 points of ROE. The increase in net investment income was due to higher book yields driven by higher interest rates across the yield curve. The deployment of strong operating cash flows and active portfolio management also contributed to this positive outcome. The portfolio remains conservatively positioned with an average credit quality of A+ and a duration of 4.3 years. Turning to guidance, we continue to expect a GAAP combined ratio between 96.5% and 97.5% assuming six points of catastrophe losses. Given year-to-date underlying results, we expect to be near the top of the range. We now expect after-tax net investment income of $480 million, up from our original expectation of $465 million. Our guidance assumes an effective tax rate of 21.5% and a fully weighted average share count of 60.2 million, reflecting year-to-date share repurchases. With that, operator, please start our question-and-answer session.

Thank you. To withdraw your question, please press 1-1 again. Our first question comes from the line of Michael Phillips with Oppenheimer. Your line is now open.

Thank you. Good morning, everybody. John, I want to take my first question on your comments in the opening remarks on the new business and commercial growth, or decline, in the quarter. I guess two things. First, I think your renewal pricing, while sequentially down, I do not think it was down as much as we have seen from others. And then secondly, this obviously is the first quarter you have taken deliberate actions. Maybe the important point is that second point, it's not the first quarter you have done that. So, the drop you mentioned, new business, it contributed about half of that drop in commercial lines. Were you more aggressive with those actions this quarter than you have been in prior quarters? Or was there something else that led to the decline as we think about kind of what that means for future quarters?

Yeah. I guess to your point, Mike, the stance we have taken with regard to pricing overall on new business pricing is not new. That was certainly there in the latter part of last year and maybe even part of this year. And the decline in new business in Q1 was pretty consistent with what we saw in Q2. I think when we talk about what happens going forward, I think there is a market dynamic here that will certainly drive that. We have seen pressure on hit rates in commercial lines; our traditional hit rates would have been in the mid-thirties, I would say they are probably down into the low 30s at this point. And I think that will continue to the extent that market pricing does not start to become more reflective of where run-rate profitability is, particularly in general liability and where the loss trends are. At the same time, we continue to view this market as one where individual risk selection matters a lot. So we have a view on overall pricing on a line-by-line basis, but there are still high-quality accounts to be found in this marketplace, and our ability to identify those accounts, pursue those accounts, and ultimately win those accounts will give us potential to continue to generate solid new business on a go-forward basis and improve mix at the same time. So not just sitting here waiting for the market to turn, we are dialing up our efforts to increase submission activity in the places — on a segment and geographic basis — where we can effectively compete at our target pricing levels. Those areas do exist, and our effort is on finding those.

Okay. Thank you, John. Patrick made the comment on commercial auto and frequency. Do you have any details you can provide on where it is coming from? Do you think this quarter was more of an anomaly? Is there a trend here that we should be focused on or worry about?

I would say we saw in the first half of the year some elevated frequency. There is a hypothesis to suggest that you see this when you have a heavier winter like we saw in the northern part of the U.S. this year. But rather than put full weight on that hypothesis, we thought it was prudent to react to what we saw. I will also say we saw this a couple of years back in workers' compensation; it ultimately reversed itself and settled out, and we are not predicting that will happen. We just view it as a prudent step to respond to what you see in the data early in the year. If it reverses, that is great. If it does not, we have responded to it already.

And maybe just lastly, high-level question for the industry. There have been some tort reform actions in some states, I think less so in some of your higher concentration geographic footprints. Have you seen any efforts that would give credible evidence that things might be turning for the better there? Your casualty loss picks are still where they were last three quarters, so it suggests not. Any evidence that you can rely on there?

I would say there has been some success. Georgia was the first state to make significant reforms, and I think that has certainly improved that environment. We have seen more targeted reforms in places like South Carolina around liquor liability. More recently, you saw in North Carolina significant restrictions, if not outright bans, on third-party litigation financing. I think those are all positives. Some of the more recent actions, while they do not affect us, such as efforts in New York to curtail fraud in the claim system, are positive directionally, but I would consider these idiosyncratic items on a state-by-state basis and not broad-based enough to impact the direction of severity trends. Our expectation is the environment we are in will continue and will ultimately find its own natural level, but we are not anticipating or predicting that will happen this year. Pricing accordingly, this is a big area of focus for us as an industry. It is our trade association's top item in public policy, so we are doing our best to change that outcome, but I do not expect any significant change in the near term.

Thank you. Our next question comes from the line of Paul Newsome with Piper Sandler. Your line is now open.

Good morning. Thanks for the call. Maybe a little bit to tease out on Patrick's comment about the combined ratio maybe a little bit towards the higher end of the range. In hindsight, is that kind of a thought that it is about the claim frequency issues that you are talking about? Or is it a competitive situation that is a little bit different than what you thought about at the beginning of the year? Just maybe a little bit of what came in as unexpected over the last six months that trend-wise you think might be interesting and have changed it.

Paul, thanks for the question. I frame this in a couple of ways. One is we did indicate a range and we are affirming the range that we started with at the beginning of the year, signaling that more recent changes that we have had in the current accident year will flow through there. So part of the messaging is we see that and we are helping folks understand how we expect the rest of the year to go. When you look at the rest of the year, we have a pretty robust planning process and in that process, when we are looking at creating our budgets and forecasts, we understand there are seasonal aspects and different things that happen throughout the year. As an example, if you look at first quarter of this year, our expense ratio was a little bit higher because some of the corporate expenses tend to flow through in the first quarter, and we see that on a regular basis. Those types of things are built into our plan. So when you look at the balance of the year, I think we would be sitting here saying we think we are going to land at the top end of the range, and what drives that is that non-cat property tends to be a little bit heavier in the first half of the year. We have contemplated all of the other pricing and underwriting actions that we have contemplated for the balance.

So the non-cat weather is sort of the hindsight surprise?

No. Actually, quite the opposite. We tend to expect that non-cat weather will be a little bit higher in the first half of the year. So that is why you would see maybe different loss ratios implied in the first half versus the second half in our planning process. What I am saying is the guide to the top end is reflecting the fact that to this point, we have taken additional losses into the current year and therefore that will be reflected in the full year results. We did not anticipate that as we came into the year.

Do you think the competitive perspective is different than what you expected this year? In general, maybe just some thoughts broadly, because you folks are doing a lot of changing and pushing price where others are not. You guys have a little bit different perspective than others might have.

Thanks, Paul. Let me tackle that. I dislike projecting how other companies think about the world, but when you look at where the market is and where results are for us and the rest of the industry on a commercial casualty basis — whether it's GL or commercial auto — run-rate performance is not good. The industry is generating an underwriting loss in general liability and underwriting loss in commercial auto, specifically on the auto liability side. There is generally not a sense, and I have not heard any public commentary with conviction, that loss trends on commercial casualty are tempering. So there is no real explanation for why pricing has not remained firm specifically for GL. It has for commercial auto liability, but it has not for GL. I think we do expect that will temper. When you break down results and look at what happened in 2024 and 2025, the industry on GL added a little over $10 billion of adverse development in calendar year 2024, and in calendar year 2025 the industry added another $8 billion-plus to GL prior-year. That should reflect in how we think about current year run rates from a loss ratio perspective, and that should be reflected in the pricing environment. It does not indicate a declining pricing environment, but that is what we are seeing in GL, which is why we maintain conviction that it has to reverse itself and we are going to take that stance. On the auto side, while pricing has remained firm, specifically on the auto liability side, results have not really improved across the industry, which suggests that pricing there will remain firm. The issue is willingness across the industry to subsidize those results with really strong property, really strong specialty lines, workers' comp, prior-year favorable development, and strong personal lines results. Our expectation is as margins in those more profitable lines and segments start to temper — and we know they will because pricing in those areas has tightened meaningfully — it will put more pressure on these longer-tail casualty lines, which are currently running at an underwriting loss for the industry and many companies. That will force the issue regarding pricing. Our efforts over the last couple of years are to stay out in front of that curve.

No, that makes a lot of sense. Thank you.

Thank you. Our next question comes from the line of Michael Zaremski with BMO. Your line is now open.

I guess just curious, given the bump in frequency which hopefully is temporary, why did you not decide to take any reserve additions, maybe in commercial auto? Also, maybe talk about GL as well. It is good to see no reserve additions, but any — it sounds like no changes in loss trend assumptions this quarter.

Thanks, Mike. To answer the latter part first, we have not seen or are pointing to any change in our view of loss trend. Our reaction in the current year was entirely driven by our view of frequency in the current year, and as a result of that there was no need for a response with regard to prior years. Prior years are evaluated separately by line across all prior accident years, and the current year frequency is your early indicator, as we have always said. There is a hypothesis that suggests this is weather-related in the first part of the year, but we think it is prudent to react to what we see in the data. That is what we have done, it is incorporated into our results and our full-year guidance, and we think that is a sensible place to be. Regarding GL, GL has been stable for us since 2024. We took a significant charge in GL in 2024, and when you look over the last eight quarters since then, our GL reserve position has been very stable. There were a couple of small movements highlighted over the course of 2025, but those were driven by umbrella because we include umbrella in our GL line, and the umbrella experience was driven by auto as we have discussed. We feel good about the actions we took in GL a couple of years ago and getting out in front of that issue.

Got it. Not sure you want or are able to quantify, but on IBNR ratios, would you be able to share whether the IBNR ratios you are booking in GL and commercial auto for the 2026 vintage are meaningfully higher, the same, or lower than how you booked prior vintages? As we look at the higher loss ratios, I want to tease out whether that is coming from payment being a bit higher, or is it IBNR.

I would suggest you look at what you can see in Schedule P for 2025 and prior to do that analysis. IBNR ratios cannot be looked at in isolation. For longer-tail casualty lines, you have to evaluate IBNR ratios in the context of what is happening with disposal rates and reporting patterns. Disposal rates have come down meaningfully over the last several years, which means cycle times have lengthened and would suggest higher IBNR ratios across different companies because disposal rates are much lower and that is driven by higher litigation rates. So IBNR ratios are one data point, and I am not suggesting our IBNR ratios do not look strong — they do when you go through that analysis in 2025. You have to think about them in the broader picture. For us, our disposal rates on auto have actually held up quite well and have been quite stable despite a higher litigation rate. But I think you will see across the industry that is not necessarily the case in GL, where cycle times have lengthened and disposal rates have come down, which creates additional risk when looking at those IBNR ratios.

Maybe lastly, the move to the Short Hills headquarters — I know you have long had a great HQ in Branchville. In the short run, has it created any turnover or issues impacting the top line, as some employees may have decided not to make the move?

Short answer: no, it has not impacted growth. We are moving our corporate functions to the new location. Our underwriting organization is spread out across six regional offices, one of which is in Branchville co-located with our corporate headquarters, and that is not moving — it is going to stay. So in terms of disruption to the underwriting organization, it is relatively minimal. A move like this is disruptive overall, and the population impacted is a little less than 20% of our population; it is stretched out over a period of years to provide flexibility and manage disruption. We are trying to manage that disruption as best we can. As we mentioned in the prepared comments, we think this positions the organization for the future in a much better way. We were founded in Branchville and we will maintain a strong presence there. We are going to have a large underwriting operation there, our flood operation will be there, and a number of other functions will remain. I want to reinforce that our roots are strong and deep and we will continue to honor those.

Thank you. Our next question comes from the line of Meyer Shields with Keefe, Bruyette & Woods. Your line is now open.

Thanks so much. Two quick questions, if I can. One: is the premium decline in commercial property a function of rate or is that spillover from the underwriting actions that you are taking on other liability lines?

I would say it is related to what we are doing overall. We tend to write on a package basis. We have very little monoline property in the portfolio, so the decline is a little bit less than you see in auto. I think that is more a function of rate being lower in property than in auto, for example, but it is not like we have underwriting actions focused specifically on property. In fact, our property results have been quite strong. It is really the portfolio effect of what we are trying to do from a profitability improvement perspective.

That is very helpful. Second, the underlying loss ratio in BOP went up — is that weather or is that more conservatism on the liability side?

I would say it is property-related. Our non-cat property in the quarter was a bit above expected; there is variability there. There is nothing to point to from a casualty perspective. On a year-to-date basis it is a little above expected, but in the quarter it was a bit more above expected. So that is it.

Understood. I know the Personal Lines book is intentionally focused on the mass affluent. When we look at broader industry data, we're still seeing surprisingly low levels of severity trend outside of bodily injury. I am wondering, is that showing up in Selective's results also?

Outside of auto bodily injury, those severity trends are more driven by economic inflation. When you think about PD, property damage, liability and then auto and homeowners, it is more economic inflation-driven. The tariff impacts have been much more muted than anticipated, and economic inflation has been more well behaved outside certain aspects of CPI, which is probably keeping severity trend in check outside of bodily injury. That is reflective of what we see in our own portfolio.

Thank you. Our next question comes from the line of Rowland Mayor with RBC Capital Markets. Your line is now open.

Hi. Good morning. To start, when did the contractors diversification efforts kick off? Can you walk through what portion of your book has gone through the renewal process there?

I would say diversification efforts are not a new concept for us. Over the last year or so we have been particularly focused on making sure we can shift the mix. There is not a single point in time where you can say the renewal portfolio has fully cycled through; this is a longer-term strategy. Construction is a good business for us and has been for a long time. This is more about line-of-business diversification. Auto and general liability are big lines for us and will continue to be, but we want to continue to diversify into other lines and other segments of business. We are taking some concentrated action on the renewal portfolio that you should expect to work its way through the book. That is the primary driver here.

Thank you. The workers' comp loss ratio improves quite significantly year over year and versus the first quarter. What was the driver of that?

Primarily, we have had lower frequency. We started to see a little frequency elevation in the first couple of quarters of 2024 that ultimately leveled out and that influenced our thinking into 2025 when we were seeing flattening frequency trends. Frequencies in 2025 came through quite well relative to expected, and we reflected that in our 2026 expected loss ratios. We saw that better frequency continue through the first half of this year. There is a secondary item: we made enhancements to our audit process that led to some additional premium capture without associated loss exposure, but that is more of an operational item than anything else.

Given the negative top line, can you walk through capital management and whether you would consider taking the payout ratio up? I think it is about 50% right now.

Given slower growth, that does change the demand for capital. We take a long view and continue to look for ways to invest in profitable growth. John talked about where we are looking for opportunities to grow. Our dividend payout target is in the 20% to 25% range over the long term. As we have said previously, we will opportunistically buy back shares where it is attractive and accretive. Those principles are always in balance. We evaluate the best use of our capital to drive consistent returns over time. Return on equity is an important metric, so as we think about the amount of capital we have and how we deploy it, we are always looking to ensure we do so in a way that drives consistent ROE.

Rowland, to amplify Patrick's point, think about organizational growth over a longer-term time period. That is how we think about it and how we invest in the business. Selective's growth story is no different than it was a quarter or two ago, but there will be times where growth will temper based on market dynamics and other factors, and there will be times where it will accelerate. We are positioned to take advantage of those opportunities as they emerge. Think about our growth story over a longer-term horizon. We saw this before in 2010 and 2011 where growth flattened because we focused on underwriting and pricing discipline where needed, and those actions set us up for a long period of strong compounded annual growth. We are positioning to do that again and will make sure margins are appropriate over time.

Thank you. Have a great summer.

Thank you. I am currently showing no further questions at this time. I would like to now hand the call back over to John Joseph Marchioni for closing remarks.

Great. Well, thank you all for joining us. We appreciate your time, your interest, and the questions. As always, if you have any additional questions, please feel free to reach out. Thank you.

This concludes today's conference. Thank you for your participation. You may now disconnect.