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Selective Insurance (SIGI) Prices Senior Notes Worth $300M

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Selective Insurance Group, Inc. (SIGI - Free Report) has announced the pricing of $300 million aggregate principal amount of Senior Notes. The notes carry an interest rate of 5.375% with maturity scheduled in 2049.

Following this news, the company gained 0.2% in the last two trading sessions.

Selective Insurance plans to utilize the net proceeds of the issuance for redeeming the entire $185-million aggregate principal amount of senior notes, carrying an interest rate of 5.875% and set to mature in 2043. The redemption price of the notes will be equal to 100% of the aforementioned principal amount plus accrued and unpaid interest thereon to, but excluding, the date of redemption. This apart, the remaining portion of the proceeds will be utilized for general corporate purposes.

The company has issued a notice of its plan to redeem the aforementioned senior notes. These notes will be redeemed on Mar 26, 2019.

The company displays its prudence by issuing senior notes amid a still low interest rate environment to procure funds. By capitalizing on the low interest rate environment, the company is attempting to reduce its interest burden, thereby facilitating its margin expansion. Also, the company’s operational strength should enable it to service debt uninterruptedly, maintaining its stock’s creditworthiness in the process.

However, with the new issuance, interest expense will increase. Although in 2018, the company saw a slip of 0.3% in the metric from the level of 2017. We still believe in the company’s strong position to clear debts, banking on operational efficiencies, largely driven by organic growth.

As of Dec 31, 2018, total debt of the company was $407.1 million, which dipped 0.1% from $407.6 million at 2017 end. The debt-to-capital ratio on Dec 31, 2018 was 19.7%, improving 70 basis points from 20.4% in the prior-year period. However, the latest offering will deteriorate the debt-to-capital ratio by 240 basis points.

Zacks Rank and Share Price Movement

Currently, Selective Insurance carries a Zacks Rank #3 (Hold). Shares of the company have gained 8.3% year to date, underperforming the S&P 500 index’s gain of 11.8%. However, we expect premium growth, better investment results and a solid capital position to drive the stock higher in the near term.

Stocks to Consider

Investors interested in better-ranked stocks from the insurance industry can consider Arch Capital Group Ltd. (ACGL - Free Report) , Cincinnati Financial Corporation (CINF - Free Report) and Berkshire Hathaway Inc. (BRK.B - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arch Capital Group provides property, casualty and mortgage insurance and reinsurance products worldwide. The company delivered positive surprises in all the last four reported quarters, the average being 14.72%.

Cincinnati Financial provides property and casualty insurance products in the United States. The company pulled off positive surprises in three of the trailing four reported quarters, the average earnings surprise being 18.08%.

Berkshire Hathaway provides property and casualty insurance and reinsurance plus life, accident and health reinsurance besides operating railroad systems in North America. The company came up with positive surprises in three of the preceding four reported quarters, the average beat being 4.31%.


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