Business & Finance
Business and Finance
Business and Finance
Thu, May 26, 2011
Wed, May 25, 2011 Fitch Rates Markel Corporation's Senior Notes 'BBB'; Affirms Ratings; Outlook Stable
CHICAGO & LONDON--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) ratings of Markel Corporation's (NYSE: MKL) principal operating subsidiaries and has assigned a 'BBB' rating to MKL's $250 million issuance of senior notes due May 2021. Fitch has also affirmed the following ratings for MKL:
--Issuer Default Rating (IDR) at 'BBB+';
--Senior unsecured notes at 'BBB'.
The Rating Outlook is Stable. A full list of rating actions appears at the end of this release.
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; conservative reserving practices that contribute to balance sheet strength, as well as earnings quality and stability; and a high-quality, liquid fixed-income investment portfolio. 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 2006 and 2007, and less favorable market trends may continue to affect results going forward.
Operating company capitalization is considered adequate but is supported by a very strong holding company cash position, which has averaged more than $750 million for the last five years. Although consolidated GAAP operating leverage of 0.56x at Dec. 31, 2010 was somewhat higher than industry aggregates, it has improved steadily over the last five years and remains within ratings expectations considering the long-tailed nature of many of the company's lines of business.
MKL's business has moderate exposure to catastrophe losses, a key risk and source of volatility for many industry participants. However, catastrophe losses of $69 million in the first three months of 2011 added 14.8 points to the combined ratio of 111.6%. This compares with an average 2.2 points in catastrophe losses over the last five years.
MKL has posted cumulative reserve redundancies in each of the last seven years. Favorable prior year reserve development continues to exceed industry trends and trimmed 16.1 points from the combined ratio in 2010, up from 13.0 points in 2009.
MKL's pro forma equity-credit-adjusted (ECA) leverage (excluding FAS 115) of 28.5% at March 31, 2011 remained within ratings expectations and increased from 24.8% at year-end 2010. Debt-servicing capabilities remain ample and share repurchase activity has been modest.
Key ratings drivers that could lead to a downgrade of MKL's ratings include a material deterioration in underwriting or balance sheet strengths, and underperformance of newly acquired workers' compensation business. Fitch's rating rationale anticipates consolidated GAAP operating leverage to remain below 1.0 times (x) and ECA leverage to remain below 30%.
Key ratings drivers that could lead to an upgrade of MKL's ratings include improved operating company capitalization combined with underwriting performance that causes Fitch to view MKL as comparable from a ratings perspective with higher rated companies.
Fitch has assigned the following rating:
Markel Corporation
--$250 million senior notes due May 2021 at 'BBB'.
Fitch has affirmed the following ratings with a Stable Outlook:
Markel Corporation
--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'.
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' (March 31, 2011);
--'Non-Life Insurance Rating Methodology' (March 31, 2011);
--'Life Insurance Rating Methodology' (March 31, 2011);
--'Fitch's Approach to Rating Insurance Groups' (March 24, 2010);
Applicable Criteria and Related Research:
Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266 ]
Non-Life Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=604366 ]
Life Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612905 ]
Fitch's Approach to Rating Insurance Groups
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765 ]
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ WWW.FITCHRATINGS.COM ]'. 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.
