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Fitch Affirms Selective Insurance's Ratings; Outlook Stable
May 16, 2017 / 9:30 PM / in 7 months

Fitch Affirms Selective Insurance's Ratings; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, May 16 (Fitch) Fitch Ratings has affirmed Selective Insurance Group, Inc.'s (Selective) operating subsidiaries' Insurer Financial Strength (IFS) ratings at 'A+'. The Rating Outlook is Stable. A complete list of ratings follows at the end of the release. KEY RATING DRIVERS The affirmation of Selective's ratings reflects the company's strong financial performance and strong capitalization with growth in shareholders' equity. The company's ratings also reflect its business profile with a strong competitive position as a regional commercial lines writer with underwriting diversification derived from personal lines and excess and surplus business. Selective's underwriting performance remained strong as the company's calendar-year combined ratio (GAAP basis) improved to 91.2% in the first quarter of 2017 (1Q17), down from 92.2% for 1Q16 as the company reported positive growth in pricing and favorable loss experience. Selective's full-year 2016 combined ratio was 92.9%. Selective achieved an underwriting profit in each of its reporting segments in 1Q17: Standard Commercial (90.3% combined ratio), Standard Personal (92.8%), and Excess and Surplus (96.9%). The company's shareholders' equity increased by 4% in 1Q17 to nearly $1.6 billion as a result of strong net earnings and unrealized investment gains. Group statutory surplus was approximately $1.6 billion at March 31, 2017. Selective's insurance subsidiary capital adequacy, as measured by Fitch's Prism capital model, remains 'Very Strong' based on 2015 data. Prism results for 2016 will be available in late summer 2017. Selective's GAAP operating leverage (net premiums written to shareholders' equity) remains higher than that of peer companies. At Dec. 31, 2016, GAAP operating leverage was approximately 1.5x. The company's higher level of underwriting leverage allows the company to generate higher than peer returns on average equity (ROAE) when the company produces an underwriting profit. Selective reported a low double-digit ROAE for the third consecutive year in 2016. Selective employed a conservative amount of financial leverage at the end of 1Q17, as the company utilizes long-term senior debt as well as Federal Home Loan Bank borrowings through the company's insurance subsidiaries. The company's financial leverage ratio is roughly 22% at March 31, 2017. The company maintained low-double-digit operating earnings-based interest coverage in 1Q17 and full-year 2016 as strong underwriting results drove favorable earnings and coverage metrics. Fitch estimates statutory fixed charge coverage of over 8x for full-year 2017 based on the insurance subsidiaries' maximum ordinary dividend capacity of $193 million during the year. RATING SENSITIVITIES 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; --Material deterioration in capitalization including a failure to remain comfortably within the 'Strong' category on Fitch's Prism capital model; --Operating leverage as measured by net written premiums-to-equity rising above 1.6x, net leverage rising above 4.8x; --Financial leverage above 25%; --Operating earnings-based interest coverage that fails to remain at 5x-7x or better and statutory fixed charge coverage below 4.5x. Key rating triggers that could lead to an upgrade over the long term include: --Enhanced scale and relative competitive position associated with higher rating levels; --Sustained recent underwriting performance in which Selective maintains a low-90s% calendar-year combined ratio; --Statutory net leverage under 3.5x; --Financial leverage approximating 15%; --Operating earnings-based interest coverage reaching low double digits or better. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings with a Stable Outlook: Selective Insurance Group, Inc. --Issuer Default Rating 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+'; --$185 million senior notes 5.875% due Feb. 9, 2043 at 'BBB+'. 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 Selective Casualty Insurance Company Selective Fire and Casualty Insurance Company --IFS at 'A+'. Contact: Primary Analyst Christopher A. Grimes, CFA Director +1-312-368-3263 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Douglas Pawlowski, CFA Senior Director +1-312-368-2054 Committee Chairperson Mark E. Rouck, CPA, CFA Senior Director +1 312-368-2085 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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