Fitch Affirms Selective Insurance's IDR at 'A-'; IFS at 'A+'; Outlook Stable

Fitch Ratings has affirmed Selective Insurance Group, Inc. (Selective) (Nasdaq:SIGI) as follows:

–Issuer Default Rating (IDR) ‘A-‘;

–Senior debt ‘BBB+’;

–Junior subordinated debt ‘BBB’.

Fitch has also affirmed the ‘A+’ insurer financial strength (IFS) rating of the members of the Selective intercompany pool, listed in the table below. Fitch assigned the ‘A+’ IFS rating to the newest member of the pool, Selective Auto Insurance Company of New Jersey. The Rating Outlook for all ratings is Stable.

The affirmations reflect Selective’s consistently favorable operating results, disciplined underwriting culture, strong independent agency relationships, and improved diversification through continued efforts to reduce its concentration in New Jersey.

Selective’s strong regional presence and small and middle market commercial lines focus has allowed for continued premium rate increases above industry experience and manageable catastrophe risk. Selective’s primary operating states do not include the large-catastrophe prone states of Florida, California, Texas, Alabama, or Louisiana.

These positives are partially offset by the company’s continued geographically concentrated revenue base (although less so now compared to past years), moderate historical adverse loss reserve development, moderate operating leverage, and increased competition.

Selective conducts a sizable portion of its business in the state of New Jersey. In recent years, the company has expanded into the Midwest to diversify its insurance exposure out of New Jersey and the Northeast U.S. In 2006 the top five states accounted for 69% of total net written premium – New Jersey (31%), down from 34% in 2005, Pennsylvania (14%), New York (11%), Maryland (7%), and Virginia (6%), down slightly from 73% in 2005 and 75% in 2004.

The company’s ongoing strategy is to focus on commercial lines as the core operations, while maintaining a smaller personal lines segment. Commercial lines account for approximately 87% of the insurance operations with the remaining 13% in personal lines. Operating results in commercial lines have overall been very favorable with GAAP combined ratios of 95.1% in 2006, following 93.7% in 2005, 96.1% in 2004 and 101.5% in 2003.

Personal lines experienced combined ratios of 102.6% in 2006, 102.9% in 2005, 100.9% in 2004, and 105.5% in 2003. Personal lines results have been negatively impacted by additional reserving related to a New Jersey Supreme Court judicial ruling to eliminate the application of the serious life impact standard to personal auto bodily injury liability cases. Excluding the adverse court ruling and associated reserve actions, Fitch believes the combined ratio would have been closer to 100%.

Fitch expects the personal lines market to remain very competitive in the near term, however, Fitch believes Selective will continue to maintain adequate pricing and conservatively manage its exposures, and will ultimately be willing to sacrifice growth or market share if necessary. Fitch does expect that, in the near term, Selective will prudently grow its personal lines where profitable.

Fitch expects insurance company operating leverage to be maintained at a level not to exceed 2.0 times (x). At year-end 2006, leverage was 1.5x, down slightly from 1.6x at year-end 2005.

Fitch has affirmed the following ratings with a Stable Outlook:

Selective Insurance Group, Inc.

–Issuer Default Rating (IDR) ‘A-‘;

–$100 million senior notes 6.7% due Nov. 1, 2035 ‘BBB+’;

–$50 million senior notes 7.25% due Nov. 15, 2034 ‘BBB+’;

–$305 million senior convertible notes 1.6155% due Sept. 24, 2032 ‘BBB+’;

–$100 million junior subordinated notes 7.5% due Sept. 27, 2066 ‘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.

–Insurer financial strength (IFS) ‘A+’.

Fitch has assigned the following rating with a Stable Outlook:

Selective Auto Insurance Company of New Jersey.

–Insurer financial strength (IFS) ‘A+’.

Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, 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.