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A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Selective Insurance Group and its seven P/C pooling members.
Best also affirmed the ICR of “a-” and debt ratings of Selective’s parent holding company, Selective Insurance Group, Inc. (SIGI) of Branchville, NJ. However, Best said the outlook for all of the ratings is negative.
The ratings reflect Selective’s “strong capitalization, solid level of operating profitability and established presence within its targeted regional markets, ” Best explained. “These positive attributes are driven by the group’s experienced management team, disciplined underwriting focus and growing use of sophisticated predictive analytic modeling tools.
“The ratings further acknowledge the group’s successful field-based operating model and technology infrastructure, which allows it the ability to leverage its strong independent agency relationships. In addition, Selective benefits from the financial flexibility provided by SIGI, which maintains financial leverage that is in line with its current ratings, as well as additional liquidity through Selective’s access to capital markets and lines of credit.”
Best indicated that the negative rating outlook “reflects the decline in Selective’s reported operating performance in recent years due to the deterioration in its underwriting results, sizeable investment losses and impairment charges and elevated catastrophe losses experienced in first-quarter 2010.”
The bulletin pointed out that Selective reported “sizeable realized investment losses in 2008 and 2009, primarily driven by other than temporary impairment charges, as well as substantial unrealized investment losses related to the decline in market value of its equity portfolio and alternative investment portfolio.
“Furthermore, while catastrophe-related losses have not had a major impact on Selective’s historical underwriting results, the group experienced losses of $24.0 million in first-quarter 2010, adding approximately seven points to the combined ratio.”
Best added that the outlook further considers its continued concern that “operating earnings will not return to historical levels given the ongoing challenges Selective faces to improve underwriting results due to the current competitive market environment in the commercial lines segment and underperforming personal lines of business. Consequently, additional downward rating pressure may be evidenced should overall capitalization and operating measures exhibit further deterioration.”
Best summarized the ratings of the companies affected 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 following debt ratings have been affirmed:
Selective Insurance Group, Inc.—
— “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