SELECTIVE INSURANCE GROUP INC Annual Report - Investor Summary

Selective Insurance Group (SIGI) stands out as a property and casualty (P&C) insurer, generating substantial profits not just from underwriting policies but also from strategically investing the premiums it collects. This dual approach underpins its financial strength. This summary offers retail investors a clear, concise look at SIGI's recent annual performance, key financial health, and future outlook.

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Company Overview and Business Model

Selective Insurance Group operates primarily as a property and casualty (P&C) insurer, focusing on commercial lines such as workers' compensation, general liability, commercial auto, and property insurance for businesses. It also provides personal lines and flood insurance. SIGI's business model thrives on two key profit drivers: underwriting profits (the difference between premiums collected and claims/expenses paid) and investment income earned from its large investment portfolio. This dual strategy is standard in the insurance industry, with investment performance becoming increasingly crucial.

Financial Performance: A Snapshot

Selective Insurance Group delivered robust financial performance in the most recent fiscal year, fueled by strong premium growth and significant investment income.

• Total Revenue: The company reported total revenue of $4.786 billion in 2025, a healthy increase from $4.369 billion in 2024 and $3.957 billion in 2023. This growth reflects both expanding insurance operations and a strong contribution from investments.
• Net Premiums Written (NPW): SIGI achieved solid growth in its core insurance business, with Net Premiums Written (premiums collected before reinsurance) reaching approximately $4.2 billion in 2025, up from $3.9 billion in 2024 and $3.6 billion in 2023. This indicates successful market penetration and client retention.
• Investment Income: A standout performer, investment income surged to $686.3 million in 2025, marking a 20.5% increase from $569.6 million in 2024 and a substantial 50% jump from $457.7 million in 2023. This consistent growth highlights the effectiveness of SIGI's investment strategy, particularly in a favorable interest rate environment.
• Underwriting Profitability (Combined Ratio): The company maintained strong underwriting discipline, achieving a Combined Ratio of 95.5% in 2025, an improvement from 96.2% in 2024 and 97.0% in 2023. A combined ratio below 100% signifies an underwriting profit, meaning SIGI earns money from its insurance operations alone, before factoring in investment income.
• Net Income: Reflecting both underwriting and investment success, Net Income reached approximately $450 million in 2025, up from $390 million in 2024 and $330 million in 2023, translating to solid earnings per share growth.
• Retained Earnings: Consistent growth in Retained Earnings further evidences the company's financial strength, reaching $2.75 billion by the end of 2025, up from $2.5 billion in 2024 and $2.2 billion in 2023. This signifies consistent profitability and a robust capital base.
• Accumulated Other Comprehensive Income (AOCI): Accumulated Other Comprehensive Income (AOCI), which tracks unrealized gains and losses on investments, showed a negative $25 million at the end of 2025. This worsened from a negative $11 million in both 2024 and 2023. This decline primarily stems from unrealized losses on debt securities, likely due to rising interest rates impacting the market value of existing, lower-yielding bonds. While AOCI does not affect current cash flow, it temporarily reduces the overall book value of the company's assets.

Major Achievements and Challenges

SIGI's recent performance highlights several key achievements and ongoing challenges:

Achievements:

• Exceptional Investment Income Growth: A significant and consistent increase in investment income has been a primary driver of overall profitability.
• Strong Underwriting Profitability: Maintaining a combined ratio below 100% demonstrates effective risk selection and claims management.
• Consistent Premium Growth: Healthy growth in Net Premiums Written indicates successful expansion and market presence.
• Robust Capital Accumulation: Growing retained earnings enhance financial stability and capacity for future growth.

Challenges:

• Unrealized Investment Losses: The increase in unrealized losses on debt securities, as reflected in AOCI, presents a challenge. While these losses are not realized, they signal market volatility and potential pressure if interest rates continue to rise or if assets must be sold prematurely.
• Competitive Market: The P&C insurance market remains highly competitive, demanding continuous innovation in product offerings and pricing strategies.
• Catastrophe Exposure: As an insurer, SIGI remains exposed to significant losses from natural catastrophes, which can impact underwriting results.

Financial Health, Liquidity, and Capital Structure

Selective Insurance Group maintains a stable and healthy financial position, underpinned by a robust investment portfolio and well-managed debt.

• Investment Portfolio: The company holds a substantial and diversified investment portfolio, primarily composed of high-quality fixed-income instruments, valued at $9.726 billion at the end of 2025, up from $8.47 billion in 2024. These holdings, including U.S. Treasury, corporate debt, asset-backed, and mortgage-backed securities, provide a strong foundation for future investment income.
• Debt Structure: SIGI's long-term debt structure remains stable, with total senior notes and other long-term debt consistently at $1.25 billion in both 2025 and 2024. These notes feature staggered maturities ranging from 2026 to 2049, indicating a well-managed debt ladder and no immediate significant refinancing risks.
• Liquidity: A large and liquid investment portfolio, combined with consistent cash flow from premium collection and investment income, provides ample liquidity to meet policyholder obligations and operational needs.

Key Risks for Investors

Investors should consider these key risks:

• Market Interest Rate Risk: Further increases in interest rates could depress the market value of SIGI's existing fixed-income portfolio, affecting AOCI and potentially future investment income if reinvestment rates fall below current yields.
• Underwriting Risk: Exposure to natural catastrophes (e.g., hurricanes, wildfires, severe weather) and other large-scale claims events could significantly impact underwriting profitability.
• Competitive Landscape: Intense competition in the P&C market could pressure premium pricing and market share.
• Regulatory Changes: Changes in insurance regulations, capital requirements, or accounting standards could affect operations and financial results.
• Economic Downturns: A severe economic recession could reduce demand for insurance products, increase claims frequency, or lead to defaults on investment holdings.

Competitive Positioning

Selective Insurance Group distinguishes itself through strong relationships with independent agents, a focus on specialized commercial lines, and a disciplined underwriting approach. Its regional focus and expertise in specific market segments enable it to offer tailored solutions and foster strong customer loyalty. SIGI also leverages technology to enhance the agent experience and streamline operations, driving efficiency and superior service in a competitive market.

Leadership and Strategic Initiatives

SIGI's leadership drives profitable growth through several key strategic initiatives:

• Agent-Centric Model: Strengthening partnerships with independent agents to expand distribution and market reach.
• Underwriting Discipline: Maintaining strict underwriting standards to ensure profitability and effectively manage risk exposure.
• Technology Investment: Enhancing digital capabilities for agents and policyholders, improving operational efficiency, and leveraging data analytics for better risk assessment.
• Product Diversification: Expanding specialized commercial offerings and exploring new market opportunities to reduce concentration risk and capture growth.
• Sustainable Investment Practices: Optimizing the investment portfolio for long-term returns while considering environmental, social, and governance (ESG) factors.

Future Outlook

Selective Insurance Group's outlook appears positive, bolstered by its strong financial performance, disciplined underwriting, and robust investment income growth. Its long-term debt structure, with maturities extending to 2049, highlights a stable, long-term financial planning approach. While rising interest rates impacting AOCI present a short-term challenge, SIGI's ability to generate significant investment income and maintain underwriting profitability positions it well for continued success. Future performance will largely depend on sustained premium growth, effective claims management, and the broader interest rate environment. The company's strategic focus on agent relationships and technological advancements should drive efficiency and market share in the evolving insurance landscape.