Fitch Rates Selective's New Senior Debt Offering 'BBB+'

CHICAGO--()--Fitch Ratings has assigned a 'BBB+' rating to Selective Insurance Group's (Selective) $175 million 5.875% senior note issuance due 2043. The Rating Outlook for all ratings is Stable. A complete list of ratings is provided at the end of this release.

Selective has granted the underwriters the option to purchase up to an additional $25 million of Senior Notes within 30 days to cover over-allotments which could bring the total issuance of the senior notes to $200 million.

The new issue rating is equivalent to the ratings on Selective's existing senior debt. The net proceeds are expected be used to fund the repayment of the company's outstanding $100 million of junior subordinated notes due 2066 that became callable in 2011. Fitch expects that the remaining proceeds will be for general corporate purposes.

Selective's pro forma debt to capital ratio in the case of a $200 million issuance would increase to approximately 27.2% following the refinancing. At Dec. 31, 2012, Selective's financial leverage was roughly 22% and GAAP earnings-based interest coverage was 2.4x. Fitch does not expect leverage to remain above 25% over the long term. Leverage sustained at pro forma levels, along with continued modest interest coverage, could put negative pressure on Selective's overall ratings.

On Dec. 13, 2012, Fitch affirmed all of its ratings for Selective and its subsidiaries with a Stable Outlook.

SENSITIVITY/RATING DRIVERS

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, and a material deterioration in current balance sheet strengths. Fitch's rating rationale anticipates operating leverage as measured by net written premiums to equity to remain below 1.7x, financial leverage to remain below 25%, and operating earnings based interest coverage to reach 5-7(x) or better.

Fitch considers a rating upgrade to be unlikely in the near term due to Selective's current company profile including its regional concentration, smaller capital base relative to larger peers, and pressured underwriting results. Key rating triggers that could lead to an upgrade over the long term include a material and sustained improvement on recent underwriting performance that causes Fitch to view Selective as meaningfully better than peers and the industry, and material capital growth with all else being equal.

Fitch has assigned the following rating:

Selective Insurance Group, Inc.

--$175 million senior notes 5.875% due 2043 'BBB+'.

Fitch currently rates the Selective Insurance Group's companies as follows:

Selective Insurance Group, Inc.

--IDR 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+';

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

--IFS at 'A+'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Jan. 11, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731

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Contacts

Fitch Ratings
Primary Analyst:
Christopher A. Grimes, CFA, +1-312-368-3263
Associate Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Gretchen K. Roetzer, +1-312-606-2327
Director
or
Committee Chairperson:
R. Andrew Davidson, CFA, +1-312-368-3144
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst:
Christopher A. Grimes, CFA, +1-312-368-3263
Associate Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Gretchen K. Roetzer, +1-312-606-2327
Director
or
Committee Chairperson:
R. Andrew Davidson, CFA, +1-312-368-3144
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com