S&P Revises Selective’s Outlook to Stable; Affirms Ratings

Standard & Poor’s Ratings Services has revised its outlook on Selective Insurance Group Inc. (SIGI) and its operating subsidiaries (collectively, Selective) to stable from negative. S&P also affirmed its ‘BBB’ counterparty credit rating on SIGI and its ‘A’ counterparty credit and financial strength ratings on Selective.

“The rating actions reflect Selective’s significantly improved capital adequacy from a year ago. The group’s capital adequacy now meets our expectations,” explained credit analyst Siddhartha Ghosh. “Selective’s consolidated capital adequacy, as measured by our risk-based capital model, was redundant at the ‘A’ rating level as of year-end 2009. This compares favorably with a significantly deficient capital adequacy level at the end of 2008.”

S&P added that the ratings are also supported by “the company’s strong competitive position in the small to medium regional markets in the Mid-Atlantic region. Selective’s strong agency relationship, predictive modeling capabilities for granular pricing and underwriting decisions, continuing price increases across most commercial and personal lines, and strong retentions all enhance its strong competitive position. Another factor supporting the rating is SIGI’s strong financial flexibility, with conservative financial leverage of 19.9 percent as of June 30, 2010, compared with 23.5 percent at year-end 2009.”

As “mitigating factors,” S&P cited the “company’s lower operating earnings in recent years, its still-weak underwriting results in personal lines, and its geographic concentration in the northeast, especially in New Jersey. Selective’s operating earnings are a weakness to the rating because they have deteriorated in recent years. Selective also has a substantial business concentration in the Mid-Atlantic region, particularly in New Jersey, which generated about 26.9 percent of its total 2009 direct premium written.”

S&P said the stable outlook reflects its view that “Selective’s competitive position will remain strong in the foreseeable future while the company maintains strong retentions in both personal and commercial lines businesses.

“We believe that the company will be able to withstand the current competitive conditions better than many of its regional peers because of its strong cycle management, careful risk selection, measurable growth in profitable segments, and effective use of its predictive modeling. Selective’s underwriting performance, as measured by statutory combined ratios, will be slightly stronger than historical levels but should remain in line with that of the property/casualty insurance industry.”

Source: Standard & Poor’s