Business & Finance
Business and Finance
Business and Finance
Thu, November 18, 2010
Wed, November 17, 2010 Fitch Affirms Markel Corporation's Ratings; Outlook Stable
CHICAGO & LONDON--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Markel Corporation (NYSE: MKL) at 'BBB+' and its senior debt ratings at 'BBB'. Additionally, Fitch has affirmed the Insurer Financial Strength (IFS) ratings of MKL's property and casualty insurance subsidiaries at 'A'. A list of all ratings is detailed below. The Rating Outlook is Stable.
MKL's rating strengths include: pricing and underwriting discipline through market cycles, expertise in a number of specialty property/casualty insurance products and niche markets, and conservative reserving practices that contribute to balance sheet strength as well as earnings quality and stability. MKL's long-term financial performance, measured by growth in book value per share, is among the best in the industry.
Rating concerns are principally related to the challenges posed by competitive market conditions affecting MKL's core specialty business. While MKL has continued to generate underwriting profits, they are down significantly from 2007, and less favorable market trends may impact results going forward. MKL posted a combined ratio of 99.2% in the nine months of 2010, compared to 96.9% for the prior year period.
MKL also has an above-average equity investment exposure, at 21% of invested assets at Sept. 30, 2010, which was the principal source of volatility in shareholders' equity and operating subsidiary capitalization in 2008 and 2009. Notably, MKL's high-quality fixed-income portfolio, with an average rating of 'AA', provides ample liquidity to meet its policyholder obligations, in Fitch's view.
MKL has posted cumulative reserve redundancies in each of the last six years. Favorable prior year reserve development continues to exceed industry trends and trimmed 14.3 points from the combined ratio through nine months of 2010 compared to 11.4 points for the same period in 2009.
Although pressured in the near term as the property/casualty industry is solidly entrenched in the soft phase of the market cycle, Fitch expects MKL's disciplined approach to its markets and sound balance sheet management to position the company for long-term profitability and underwriting stability. Operating company capitalization is considered adequate, and is supported by a very strong holding company cash and investments of $903 million at Sept. 30, 2010.
Fitch's rating rationale anticipates consolidated GAAP operating leverage to remain below 1.0 (compared to 0.62x at year-end 2009), equity-credit-adjusted (ECA) leverage to remain below 30% (compared to 26% at Sept. 30, 2010) and total financing and commitments (TFC) ratio to remain below 0.4x (compared to 0.34x at Sept. 30, 2010).
Items that could cause Fitch to downgrade MKL's ratings include a material deterioration in underwriting, or balance sheet strengths and underperformance of newly acquired Aspen Holding's workers' compensation business, essentially a new business for MKL.
While Fitch considers a rating upgrade to be unlikely in the near term, the key rating drivers that could lead to an upgrade in the longer term include improved operating company capitalization combined with a material and sustained improvement on recent underwriting performance that causes Fitch to view MKL as meaningfully better than similarly-rated peers.
Fitch has affirmed the following ratings with a Stable Outlook:
Markel Corporation (MKL)
--Issuer Default Rating (IDR) at 'BBB+';
--$250 million 6.8% senior notes due Feb. 15, 2013 at 'BBB';
--$350 million 7.125% senior notes due Sept. 30, 2019 at 'BBB';
--$200 million 7.35% senior notes due Aug. 15, 2034 at 'BBB';
--$150 million 7.5% senior notes due Aug. 22, 2046 at 'BBB'.
Markel International Insurance Company Limited (MIICL)
Associated International Insurance Co.
Deerfield Insurance Company
Essex Insurance Company
Evanston Insurance Company
Markel American Insurance Company
Markel Insurance Company
--Insurer Financial Strength (IFS) at 'A.'
Additional information is available at '[ www.fitchratings.com ]'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Aug. 16, 2010);
--'Non-Life Insurance Rating Methodology' (March 24, 2010).
Applicable Criteria and Related Research:
Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766 ]
Non-Life Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369 ]
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