Best Revises Selective and Subs Outlook to Negative; Affirms Ratings

May 28, 2009

A.M. Best Co. has revised its rating outlook to negative from stable, but has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Selective Insurance Group and its seven property/casualty pooling members.

Best also revised the outlook to negative from stable and affirmed the ICR of “a-” and the various debt ratings of Selective’s parent holding company, Selective Insurance Group, Inc.(SIGI) of Branchville, NJ.

Best explained that it has revised outlook to reflect “Selective’s weakened operating results as well as its sizable investment losses and impairment charges at year-end 2008, which resulted in deteriorating risk-adjusted capitalization.

“In 2008, Selective reported $27.1 million in realized investment losses, primarily driven by other than temporary impairment charges related to residential mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities, corporate bonds, common stock and limited partnerships, as well as $97.9 million in unrealized investment losses (after-tax), primarily driven by a decline in market values of its equity portfolio and alternative investment portfolio.”

In addition Best said the outlook revision “further considers the challenges Selective faces to improve operating results and bolster overall capitalization through organic growth, given the competitive market environment in the commercial lines segment and the group’s susceptibility to additional losses in its alternative investment portfolio as evidenced through first quarter 2009 results. Consequently, additional downward rating pressure may be evidenced should overall capitalization and operating measures exhibit further deterioration.”

Selective ranks among the top 50 P/C organizations in the U.S. based on net premiums written, and “maintains a favorable market presence and strong franchise value within its targeted regional markets,” Best noted. “The group benefits from its successful field-based operating model and technology infrastructure, which allows the group the ability to leverage its strong agency relationships. Selective also benefits from the financial flexibility provided by SIGI.”

Best’s report summarized the Selective Group’s ratings as follows:
The FSR of A+ (Superior) and ICRs of “aa-” have been affirmed for Selective Insurance Group and its following property/casualty pooling members:
— Selective Insurance Company of America
— Selective Way Insurance Company
— Selective Insurance Company of the Southeast
— Selective Insurance Company of New York
— Selective Insurance Company of South Carolina
— Selective Insurance Company of New England
— Selective Auto Insurance Company of New Jersey
The ICR of “a-” has been affirmed for Selective Insurance Group, Inc.
The following debt ratings have been affirmed:
Selective Insurance Group, Inc. —
— “a-” on $24.6 million 8.87 percent senior unsecured notes, due 2010
— “a-” on $49.9 million 7.25 percent senior unsecured notes, due 2034
— “a-” on $99.4 million 6.70 percent senior unsecured notes, due 2035
— “bbb” on $100 million 7.50 percent junior subordinated notes, due 2066
The following indicative ratings on the shelf registration have been affirmed:
Selective Insurance Group, Inc. —
— “a-” on senior debt
— “bbb+” on subordinated debt
— “bbb” on preferred stock

Source: A.M. Best –

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