Fitch Affirms Alterra's IFS Ratings Following Announced Acquisition by Markel

CHICAGO--()--Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) ratings of Alterra Capital Holdings Limited's (Alterra) insurance subsidiaries. The Rating Outlook is Stable. Additionally, Fitch has placed on Rating Watch Negative Alterra's 'A-' Issuer Default Ratings (IDR) and 'BBB+' senior debt ratings. A full list of ratings follows at the end of this release.

Fitch's rating action follows today's announcement that Markel Corporation (Markel) intends to acquire Alterra, with the transaction expected to close in the first half of 2013. The affirmation and Stable Outlook on Alterra's 'A' IFS ratings reflects that they are rated the same as Markel's IFS ratings and would likely be affirmed at this level upon closing of the merger. The affirmation also reflects Alterra's solid capitalization, sizable underwriting platform, strong earnings track record, and disciplined and flexible approach to managing risk.

The Rating Watch Negative on Alterra's IDR and debt ratings reflects that upon the closing of the pending acquisition, Fitch will align Alterra's debt ratings with those of Markel under a consolidated U.S. entity approach. This will result in a one-notch downgrade to Alterra's IDR and debt ratings based on Fitch's notching guidelines for a U.S. regulatory environment.

Alterra announced an initial net loss estimate from Hurricane Sandy in the range of $90 million to $120 million pre-tax.

Fitch considers this level to be manageable given the company's solid capitalization, although the loss estimate is still subject to significant uncertainty.

Alterra's profitability improved through the first nine months of 2012 primarily due to lower catastrophe losses which totaled net $15 million vs. $198 million for the first nine months of 2011. As a result, Alterra reported net income of $196 million and a combined ratio of 92.9% at Sept. 30, 2012 vs. net income of $34 million and a combined ratio of 98.4% for the same nine-month period in 2011.

Alterra's reported underwriting profit and positive net income in 2011, a year of record-high industry catastrophe losses, was notable among peers with significant reinsurance operations, and is attributable in part to the company's balanced product mix (reinsurance 57%, insurance 43% of gross premium written (GPW)) with less property exposure (35% of 2011 GPW) than many peers.

Fitch has affirmed the following ratings with a Stable Outlook:

Alterra Bermuda Limited

Alterra Europe plc

Alterra Reinsurance USA Inc.

Alterra Excess & Surplus Insurance Company

Alterra America Insurance Company

--IFS at 'A'.

Fitch has placed the following ratings on Rating Watch Negative:

Alterra Capital Holdings Limited

--IDR at 'A-'.

Alterra Finance LLC

--IDR at 'A-';

--$350 million 6.25% senior notes due Sept. 30, 2020 at 'BBB+'.

Alterra USA Holdings Limited

--IDR at 'A-';

--$90.6 million 7.2% notes due April 14, 2017 at 'BBB+'.

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:

--'Hurricane Sandy: Sensitivity Analysis of Insured Loss Scenarios Special Report' (Nov. 8, 2012);

--'Reinsurers Well Positioned to Withstand Hit from Sandy' Fitch Wire (Nov. 5, 2012);

--'Insurance Rating Methodology' (Oct. 18, 2012).

Applicable Criteria and Related Research:

Hurricane Sandy - Sensitivity Analysis of Insured Loss Scenarios

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694791

Insurance Rating Methodology - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=692293

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Contacts

Fitch Ratings
Primary Analyst
Gretchen Roetzer, +1-312-606-2327
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
or
Committee Chairperson
Mark E. Rouck, CPA, CFA, +1-312-368-2085
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Gretchen Roetzer, +1-312-606-2327
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
or
Committee Chairperson
Mark E. Rouck, CPA, CFA, +1-312-368-2085
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com