Best Ratings Report

Editor's note: This information is courtesy of A.M. Best Co.
For further information, visit www.ambest.com/ratings.

A.M. Best Co. has affirmed the financial strength ratings (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 the debt ratings of Selective’s parent holding company, Selective Insurance Group, Inc. (SIGI) [NASDAQ:SIGI] (Branchville, NJ). The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)

The ratings reflect Selective’s solid capitalization, sustained level of operating profitability, established presence within its targeted regional markets, successful field-based operating model and the technology infrastructure, which allows the group the ability to leverage its strong agency relationships. Furthermore, the ratings consider the favorable market presence and strong franchise value of Selective, which ranks among the top 50 property/casualty organizations in the United States based on net premiums written. This strong reputation, along with Selective’s dedicated service capabilities, has enabled it to sustain strong market penetration and maintain high policyholder retention rates. The group also benefits from the additional financial flexibility provided by SIGI, which maintains modest financial leverage, strong interest coverage ratios and considerable liquid assets.

These positive rating factors are somewhat offset by Selective’s above average underwriting and investment leverage ratios and significant prior year adverse loss reserve development. In addition, Selective’s market profile is somewhat geographically concentrated relative to its rating level, as more than 50% of its writings are derived from three states (New Jersey, Pennsylvania and New York), leaving it exposed to regulatory, competitive and catastrophic risks.

Despite these concerns, the rating outlook is reflective of the group’s solid level of risk-adjusted capital, strong regional market knowledge and proven operating performance. While the group’s underwriting performance is expected to deteriorate modestly given the increased competitive environment and likelihood of higher catastrophe related losses, A.M. Best believes Selective should continue to report favorable operating results over the near term.

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 ICR of “a-” has been affirmed for Selective Insurance Group, Inc.

The following debt ratings have been affirmed:

Selective Insurance Group, Inc. —

-- “a-” on $36.9 million 8.87% senior unsecured notes, due 2010
-- “a-” on $49.9 million 7.25% senior unsecured notes, due 2034
-- “a-” on $99.4 million 6.70% senior unsecured notes, due 2035
-- “a-” on $8.7 million 1.6155% senior unsecured convertible notes,
due 2032
-- “bbb” on $100 million 7.50% junior subordinated notes, due 2066

*****

A.M. Best Co. has upgraded the financial strength rating (FSR) to B+ (Good) from B (Fair) and issuer credit rating to “bbb-” from “bb+” of North Country Insurance Company (North Country) (Watertown, NY). The outlook for both ratings has been revised to stable from positive.

The upgrades reflect North Country’s strengthened risk-adjusted capitalization and improved operating performance over the past several years. Recent operating profitability has been attributed to management’s commitment to underwriting discipline, pricing adequacy and enhanced risk selection. Despite soft market conditions, A.M. Best anticipates continuation of the company’s favorable operating results due to technology enhancements and new producer relationships.

Partially offsetting these positive rating factors is North Country’s geographic concentration as a predominant property writer in New York. As a result, earnings are exposed to significant weather-related events as well as changes in regulatory and competitive market conditions.

However, this exposure is partially mitigated by North Country’s prudent reinsurance program. Although North Country maintains a comparatively high expense structure relative to its industry composite, this burden is expected to decline in the future through strategic growth, sustained profitability and ongoing expense management initiatives.