Fitch Affirms Selective Insurance’s Ratings; Outlook Stable
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--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 disciplined underwriting culture, 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 2011 were significantly affected by a second straight year of record catastrophe losses, including losses from Hurricane Irene, which represented the largest single catastrophe loss in Selective's history. The impact of these above-average losses was somewhat offset by reserve releases of
Selective's combined ratio (GAAP) through three-months 2012 improved to 100.4% from 103.6% during the same period in 2011 due to a decline in non-catastrophe losses and premium growth that has outpaced growth in loss costs.
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-average catastrophe losses.
Selective entered into the Excess and Surplus lines (E&S) market in 2011 as it entered into a renewal rights transaction for contract binding authority E&S business from Alterra Capital Holdings, Ltd. Selective also purchased MUSIC (subsequently rebranded
Fitch continues to believe that as of March. 31, 2012, Selective's capitalization is adequate, with both stockholder's equity and statutory surplus maintaining strong positions of
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 22.1% at
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
Key rating triggers that could lead to a downgrade include ongoing 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, net leverage to shift down towards 4.5x from currently levels of nearly 5.0x, financial leverage to remain below 25%, and operating earnings based interest coverage to reach 5x-7x or better.
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-';
--
--
--
Selective Insurance Company of
--IFS at 'A+'.
Fitch has assigned the following rating with a Stable Outlook:
--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.
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Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018
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