管理層發言
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 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. 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 adjustments 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 on 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 our 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.
分析師問答
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 it was 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 it is 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 part of this year. 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, 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. 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. 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. Our ability to identify those accounts, pursue those accounts, and ultimately win those accounts will give us the 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 kind of 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' comp. It ultimately reversed itself and settled out, and we are not predicting that will happen here. 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, less so in some of your higher-concentration geographic footprints. Have you seen any efforts that would give credible evidence that suggest things might be turning for the better there? Your casualty loss picks are still where they were the 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 that has certainly improved that environment. We have seen more targeted reforms in places like South Carolina around liquor liability. More recently, in North Carolina, there were 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 directly — for instance, efforts in New York to curtail fraud in the claims system — are positive directionally. But I would view these as idiosyncratic, state-by-state items and not broad-based enough to change the direction of severity trends. Our expectation is the environment will ultimately find its own natural level, but we are not anticipating a significant change in the near term. This is a big area of focus for us and for the industry; it's our trade association's top public policy item, so we are doing our best to change that outcome, but I do not expect material change in the immediate future.
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 have thought about at the beginning of the year? Just 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 a couple of ways. We did indicate a range and are affirming the range we started with at the beginning of the year, while signaling that more recent changes we have had in the current accident year will flow through. Part of the messaging is we see that and 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 robust planning process and in that process we understand there are seasonal aspects and different things that happen throughout the year. For example, in the first quarter of this year our expense ratio was a little higher because some 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. If you look at the balance of the year, we would be sitting here saying we think we are going to land at the top end of the range. What drives that is that non-catastrophe property tends to be a little heavier in the first half of the year, and we have contemplated all of the other pricing and underwriting actions that we have planned for the balance.
So the non-cat weather is sort of the in-hindsight surprise variation?
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 different loss ratios implied in the first half versus the second half in our planning process. 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 the full year will reflect that. We did not anticipate that as we came into the year.
Sorry about my confusion. Do you mind if I go back to the same question from a competitive perspective? Do you think it is different than what you expected this year? In general, maybe some thoughts broadly? You guys are doing a lot of changing and pushing price where others are not. So I think you have a different perspective than others might have.
Thanks, Paul. Let me tackle that. When you look at the market and results in commercial casualty, whether it is general liability or commercial auto, run-rate performance is not good. The industry is generating underwriting losses in general liability and in commercial auto, specifically on the auto liability side. There is generally not public commentary with conviction that loss trends on commercial casualty are tempering. So there is no clear explanation for why pricing has not remained firm specifically for GL. Pricing has been firmer for commercial auto liability, but not for GL. We do expect that will temper. When you break down results and look at 2024 and 2025, the industry added a little over $10 billion of adverse to GL in calendar year 2024 and another $8 billion-plus to GL prior-year adverse in calendar year 2025. That should be reflected in how we think about current-year run rates from a loss ratio perspective and 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. On the auto side, while pricing has remained firm, results have not really improved across the industry, which suggests pricing will remain firm there as well. The issue is willingness across the industry to subsidize those results with strong property, specialty lines, workers' comp, prior-year favorable development, and strong personal lines results. Our expectation is as margins in those more profitable lines start to temper — and we know they will because pricing in those areas has tightened — that will put more pressure on these longer-tail casualty lines that are currently running at an underwriting loss. That will force the issue with regard to pricing. Our efforts over the last couple of years are to stay out in front of that curve.
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? And could you also talk about general liability? It is good to see no reserve additions, but it sounds like no changes in loss trend assumptions this quarter.
Mike, thank you. To answer the latter part first: we have not changed our view of loss trend. Our reaction in the current year was driven by our view of frequency in the current year. That is why there was no need to change prior-year reserves. Prior years are evaluated separately by line across all prior accident years; the current year is evaluated based on current frequency, which is an early indicator. We have always said we would respond to current-year frequency. There is a hypothesis that this is weather-related in the first part of the year, but we thought it prudent to react to what we saw. That is incorporated into our results and our full-year guidance. On general liability, GL has been stable for us since 2024. We took a significant charge in GL in 2024, and over the last eight quarters since then our GL reserve position has been very stable, with a couple of small movements we highlighted over 2025, primarily driven by umbrella which includes auto. We feel good about the actions we took in GL a couple of years ago and continue to get out in front of that issue.
Got it. Not sure you want or are able to quantify, but are the IBNR ratios you are booking in GL and commercial auto for the 2026 vintage meaningfully higher, the same, or lower than how you booked prior vintages? As we look at the higher loss ratios, is that coming from paid being 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 disposal rates and reporting patterns. Disposal rates have come down meaningfully over the last several years, which means cycle times have lengthened and that suggests higher IBNR ratios across different companies because disposal rates are lower, driven by higher litigation rates. So IBNR ratios are one data point; you have to think about them in the broader picture. For us, our disposal rates on auto have held up quite well and have been stable despite a higher litigation rate. You'll see similar trends across the industry in GL where cycle times have lengthened and disposal rates have come down, creating additional risk when looking at IBNR ratios.
Okay. It is exciting the continued transition to the Short Hills headquarters — you announced it a while back. In the short run, has it been creating any turnover or issues that might be impacting anything like top line, as some employees may have decided not to make the move?
Thanks for the question. The short answer is no — it has not impacted growth. We are moving our corporate functions to the new location; our underwriting organization is spread across six regional offices, one of which is in Branchville co-located with our corporate headquarters and that is not moving. So disruption to the underwriting organization is relatively minimal. The population impacted by this move is less than 20% of our population and it is being stretched out over years to provide flexibility. 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, New Jersey, and we will maintain a strong presence there with a large underwriting operation, our flood operation, and a number of other functions remaining. Our roots are strong and deep and we will continue to honor that.
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. 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 because we tend to write on a package basis. There is very little monoline property in the portfolio. The decline is a little less than you see in auto, but I think that is more a function of rate being lower in property than in auto. I am not suggesting we have underwriting actions focused specifically on property — in fact, our property results have been quite strong. It is more 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-related or 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. Year to date it is a little above expected, and in the quarter it was a bit higher than expected. So it is non-cat property variability.
Fair enough. I know the Personal Lines book is intentionally focused on the mass-affluent. When we look at broader industry data, we are still seeing surprisingly low levels of severity trend outside of bodily injury. Is that showing up in Selective's results also?
Outside of auto bodily injury, sublines are seeing low severities. That is pretty reflective of what we see in our own portfolio. Outside of auto BI, severity trends in personal lines are more driven by economic inflation — for PD, property damage, and homeowners. Tariff impacts have been much more muted than anticipated and overall economic inflation has been more well-behaved, which is keeping severity trend in check outside of BI.
Thank you. Our next question comes from the line of Rowland Mayor with RBC Capital Markets. Your line is now open.
Hi. Good morning. When did the contractors diversification efforts kick off? Can you walk through what portion of your book has gone through the renewal process there?
Diversification efforts are not new for us. Over the last year we have been particularly focused on shifting the mix. There is not a single point in time where the renewal portfolio has all cycled through; this is a longer-term strategy. Construction has been a good business for us for a long time. This is more about line-of-business diversification. Auto and general liability remain big lines for us, but we want to continue to diversify into other lines and segments. We are taking concentrated action on the renewal portfolio that will work its way through the book over time.
The workers' comp loss ratio improves quite significantly year over year and versus the first quarter. What was the driver of that?
Primarily, we've seen lower frequency. We talked about this in 2024 and saw some frequency elevation that ultimately leveled out, which influenced how we thought about 2025. Frequencies in 2025 came through quite well relative to expected and that better frequency continued through the first half of this year. There is also a secondary operational item: we made enhancements to our audit process that led to some additional premium capture without associated loss exposure. But the primary driver is improved frequency.
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.
Slower growth does change the demand for capital, but we take a long view. We are continuing to look for ways to invest in profitable growth. Our dividend payout target is 20% to 25% of earnings over the long term, and we will opportunistically buy shares when it is attractive and accretive to do so. We always evaluate the best use of capital to drive consistent returns over time. Return on equity is an important consideration, so we think about capital deployment in a way that preserves consistent ROE.
I'll amplify Patrick's point. Think about growth over a longer-term horizon. We invest with that horizon in mind. Selective's growth story is unchanged. There will be times when growth tempers due to market dynamics and other factors, and times when it accelerates. We saw this after 2010 and 2011 where growth flattened while we focused on underwriting and pricing discipline, and those actions set us up for a long period of solid compounding. We are positioning to do the same going forward, ensuring profit 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, 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.