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Rating Action:

Moody’s affirms Selective Insurance Group’s ratings (Baa2 senior debt); outlook stable

06 May 2021


New York , May 6, 2021 – Moody's Investors Service ("Moody's") has affirmed the Baa2 senior debt rating of Selective Insurance Group, Inc.'s (NASDAQ: SIGI) and the A2 insurance financial strength (IFS) ratings of its insurance operating subsidiaries (collectively, Selective). Please see complete list below. The rating outlook for Selective is stable.

RATINGS RATIONALE

According to Moody's, the affirmation of Selective's ratings reflects the group's strong regional franchise focused on low-to-medium hazard, small to middle market commercial lines (80% of consolidated net premiums written) with support from established independent agencies. Other strengths include strong underwriting profitability, adjusted financial leverage in the low-to-mid 20s, good earnings and cash flow coverage of interest, and a conservative investment portfolio. Partially offsetting these positive factors are the company's significant gross natural catastrophe exposure, particularly in the Northeast, a sizable commercial lines concentration in small to midsize contractors (about one third of total premiums), exposure to long-tail casualty products, which have greater reserve and pricing risk, and limited scale in personal lines.

Selective has reported healthy combined ratios averaging 93.7% to 95% over the past three years and has steadily expanded outside of its core Northeastern footprint. The company's field underwriting model, with an underwriter in every agency office, and a strong network of approximately 1,400 independent agency distribution partners in its core states, is a significant driver of healthy profitability and its strong retention of standard commercial lines business. The company has long focused on analytics and predictive modeling, which gives it the ability to offer a high level of pricing sophistication, service and customization in its products and claims services.

The stable outlook reflects Moody's expectation that Selective will continue to generate solid underwriting results and maintain good capital adequacy and strong liquidity. For the first three months of 2021, Selective reported net income of $107 million compared to $15 million in the prior year period, helped by strong growth in net earned premiums, solid investment income and an absence of coronavirus related charges. The company's reported combined ratio improved to 89.3% for the first quarter of 2021 from 96.7% in the prior year quarter, while the underlying combined ratio, which excludes catastrophes and prior-year reserve development was 90% compared to 93.1% in the prior year period due to a lower expense ratio and better than expected non-catastrophe property losses.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to an upgrade of Selective's ratings include: (i) significant geographic diversification while maintaining profitability and reducing gross catastrophe risk, (ii) consistent profitability through the cycle (sustained return on capital above 8%) and maintenance of pretax interest coverage above 6x, (iii) gross underwriting leverage less than 3x, and (iv) adjusted financial leverage in the low 20% range.

Factors that could lead to a downgrade of Selective's ratings include: (i) weak earnings profile with return on capital below 4%, (ii) adjusted financial leverage consistently above 30% and/or interest coverage below 4x, (iii) gross underwriting leverage consistently above 4.5x, (iv) decline in shareholders' equity by 10% or more.

Moody's has affirmed the following ratings:

Selective Insurance Group, Inc. -- senior unsecured debt at Baa2, perpetual preferred stock at Ba1(hyb), senior unsecured shelf at (P)Baa2, senior subordinate shelf at (P)Baa3, junior subordinate shelf at (P)Baa3, preferred shelf at (P)Ba1;

Selective Insurance Company of America -- insurance financial strength at A2;

Selective Insurance Company of South Carolina -- insurance financial strength at A2;

Selective Insurance Company of the Southeast -- insurance financial strength at A2;

Selective Insurance Company of New York -- insurance financial strength at A2;

Selective Insurance Company of New England -- insurance financial strength at A2;

Selective Auto Insurance Company of New Jersey -- insurance financial strength at A2;

Selective Casualty Insurance Company -- insurance financial strength at A2;

Selective Fire and Casualty Insurance Company -- insurance financial strength at A2;

Selective Way Insurance Company -- insurance financial strength at A2; and

MESA Underwriters Specialty Insurance -- insurance financial strength at A2.

The rating outlook for these entities is stable.

The principal methodology used in these ratings was Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Selective is a property and casualty insurance holding company based in New Jersey that ranks 30th in standard commercial lines. For 2020, the company's business mix consisted of standard commercial lines representing about 80% of net written premiums, personal lines at 11%, and excess and surplus lines at 9%. For the first quarter of 2021, Selective reported net premiums written of $798 million and net income of $107 million. Shareholders' equity was $2.7 billion as of March 31, 2021.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Paulette Truman
VP-Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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