Posted on 21 May 2010
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 (Selective) and its seven property/casualty pooling members. Concurrently, A.M. Best has affirmed the ICR of "a-" and debt ratings of Selective's parent holding company, Selective Insurance Group, Inc. The outlook for all ratings is negative. (See below for a detailed listing of the companies and ratings.)
The ratings reflect Selective's strong capitalization, solid level of operating profitability and established presence within its targeted regional markets. 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.
The 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. 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.
The outlook further considers A.M. Best's 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.