|[December 13, 2012]
Fitch Affirms Selective Insurance's Ratings; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed Selective Insurance Group, Inc.'s (Selective)
ratings as follows:
--Issuer Default Rating (IDR) at 'A-';
--Senior debt at 'BBB+';
--Junior subordinated debt at 'BBB-'.
Fitch has also affirmed the 'A+' Insurer Financial Strength (IFS)
ratings of the members of the Selective intercompany pool. The Rating
Outlook is Stable. A full rating list is shown below.
The affirmation of Selective's ratings reflects the company's
conservative balance sheet with solid capitalization and reserve
strength as well as underwriting performance in line with peers. The
ratings continue to reflect Selective's strong independent agency
relationships, strong loss reserve position, and improved
diversification through continued efforts to reduce its concentration in
The company's underwriting results in 2012 were significantly impacted
by Hurricane Sandy, a post-tropical storm that made landfall in New
Jersey on Oct. 30th, representing the second consecutive year in which a
storm with hurricane force winds appeared in the region within
Selective's primary geographic footprint, following Hurricane Irene in
Selective reported that Sandy generated an estimated gross loss of $100
million-$120 million which more than doubled the company's previous
record single event catastrophe loss, from Hurricane Irene. However,
pre-tax net of reinsurance losses related to Sandy were limited to $52
million, reflecting the reinsurance program the company has in place to
help mitigate its property catastrophe exposure. The impact of this loss
was also somewhat offset by flood claim servicing revenue of $12 million
from the National Flood Insurance Program (NFIP). Selective is the sixth
largest writer for the NFIP.
Selective's combined ratio (GAAP) through nine-months 2012 improved to
102.3% versus 107.4% for full year 2011, due to a decline in
non-catastrophe losses and premium growth that has outpaced growth in
loss costs. As a result of Sandy, fourth quarter 2012 results are
expected to modestly deteriorate and the company anticipates an
additional 2.0 point impact on its full year 2012 combined ratio
relative to previously stated projections. Fitch notes that the
company's accident-year combined ratio, excluding the impact of
catastrophe losses, improved by 2.0 points over the prior year period,
reflecting a modest improvement in run-rate underwriting results.
Selective's calendar year underwriting results also include a lesser
impact from favorable loss reserve development than regional peers.
Fitch views Selective's historical profitability as better than peers
but results have declined in recent years due to cyclical underwriting
pressure, weaker investment performance and above aerage catastrophe
Fitch continues to believe that Selective's balance sheet is
conservative and that, as of Sept. 30, 2012, capitalization is good,
with both stockholder's equity and statutory surplus maintaining strong
positions of approximately $1.1 billion, respectively. Fitch believes
that Selective maintains adequate capital and uses a moderate amount of
operating leverage (annualized net premium written to equity). At Sept.
30, 2012, annualized operating leverage was 1.53 times (x), versus 1.34x
at year-end 2011, with the increase driven primarily by the addition of
excess and surplus lines premium as well as from price improvement
experienced in the commercial and personal segments.
Fitch also believes that Selective employs a moderate amount of
financial leverage, has ample financial flexibility, and limited
near-term liquidity needs. The company's unadjusted debt-to-total
capital ratio is roughly 21.4% at Sept. 30, 2012.
Historically, Selective's strong regional presence and small and middle
market commercial lines focus has allowed for premium rate increases
above industry experience. Selective conducts a sizable portion of its
business in the state of New Jersey; however, the company has expanded
into the Midwest to diversify its insurance exposure out of New Jersey
and the Northeast U.S. In 2011, the top five states accounted for 59% of
total net written premium, with New Jersey at 25%.
Key rating triggers that could lead to a downgrade include prolonged
underwriting weakness, demonstrated by a failure to produce an
underwriting profit given normal catastrophe losses, and a material
deterioration in current balance sheet strengths. Fitch's rating
rationale anticipates operating leverage as measured by net written
premiums to equity to remain below 1.7x, financial leverage to remain
below 25%, and operating earnings based interest coverage to reach 5x-7x
Fitch considers a rating upgrade to be unlikely in the near term due to
Selective's current company profile including its regional
concentration, smaller capital base relative to larger peers, and
pressured underwriting results. Key rating triggers that could lead to
an upgrade over the long term include a material and sustained
improvement on recent underwriting performance that causes Fitch to view
Selective as meaningfully better than peers and the industry, and
material capital growth with all else being equal.
Fitch has affirmed the following ratings with a Stable Outlook:
Selective Insurance Group, Inc.
--IDR at 'A-';
--$100 million senior notes 6.7% due Nov. 1, 2035 at 'BBB+';
--$50 million senior notes 7.25% due Nov. 15, 2034 at 'BBB+';
--$100 million junior subordinated notes 7.5% due Sept. 27, 2066 at
Selective Insurance Company of America
Selective Way Insurance Company
Selective Insurance Company of South Carolina
Selective Insurance Company of the Southeast
Selective Insurance Company of New York
Selective Insurance Company of New England
Selective Auto Insurance Company of New Jersey
Mesa Underwriters Specialty Insurance Company
--IFS at 'A+'.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Oct. 18, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended
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