NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) ratings of Markel Corporation's (NYSE: MKL) principal property and casualty insurance (P/C) subsidiaries. Fitch has also affirmed the following ratings for MKL:
--Issuer Default Rating (IDR) at 'BBB+';
--Senior unsecured notes at 'BBB'.
The Rating Outlook has been revised to Positive from Stable. A complete list of ratings is provided at the end of this release.
KEY RATING DRIVERS
The Outlook revision recognizes continued seasoning of MKL's acquisition of Alterra Capital Holdings Limited (closed on May 1, 2013), including the step-up in scale into a larger and more favorable market position, particularly in its U.S. and London Market business platforms. Fitch believes the integration thus far has been a relatively smooth process that has maintained a complementary and disciplined approach to risk management. This is reflected in continued growth in shareholders' equity to $7.2 billion at Sept. 30, 2014.
Consolidated GAAP operating leverage and net leverage were conservative at 0.59x and 2.49x, respectively, at Sept. 30, 2014. Operating company capital adequacy in the U.S., UK and Bermuda is consistent with the rating category and supported by very strong holding company cash and invested assets of $1.2 billion at Sept. 30, 2014. The score for U.S. subsidiaries on Fitch's Prism capital model increased to 'very strong' from 'strong' at year-end 2013.
MKL's rating strengths include pricing and underwriting discipline and expertise in a number of specialty P/C insurance products and niche markets. MKL maintains flexibility with a broad product portfolio of primary insurance and reinsurance and Fitch expects MKL will continue to successfully manage through various market conditions and cycles. Net premiums written of $3.1 billion through nine months of 2014 were 50% U.S. insurance, 22% international insurance and 28% treaty reinsurance. Within the reinsurance segment, premiums were approximately 60% casualty and 40% property reinsurance.
MKL reported a combined ratio of 97.4% for the first nine months of 2014, which compared to 97.3% for the same period in 2013. The expense ratio declined 4.3 points to 37.3% with the elimination of transaction and other acquisition-related costs as well as increased scale. The loss ratio increased 4.4 points to 60.1% as MKL continues to build the legacy Alterra reserves until they are consistent with its confidence level. Over time, Fitch expects the company to achieve higher margins as expense synergies and MKL's specialty market expertise are incorporated into the larger business platform.
Fitch believes that MKL's reserving practices contribute to balance sheet strength and quality of earnings. MKL has posted cumulative reserve redundancies (exceeding actuarially calculated point estimates) in each of the last 10 years. Favorable prior year development continues to exceed industry trends, trimming 9 points and 12.4 points from the combined ratio for the nine month periods in 2014 and 2013, respectively.
MKL's financial leverage ratio (FLR) was 23.4% at Sept. 30, 2014. GAAP operating EBIT coverage was 3.7x for nine months 2014 and is augmented by holding company cash and liquid assets that cover projected 2014 debt service by more than 11x, as well as solid operating company maximum dividend capacity. Share repurchase activity has been modest.
RATING SENSITIVITIES
Key rating triggers that could lead to an upgrade of MKL's ratings include maintaining a combined ratio below 98%, GAAP net leverage below 2.75x, holding company cash and invested assets of at least $1 billion and improving GAAP operating interest coverage to 5x or better.
Key rating triggers that could lead to a downgrade of MKL's ratings include a sustained material deterioration in underwriting, and a sustained decline in operating company capitalization of 20% or greater.
Fitch affirms the following ratings. The Outlook has been revised to Positive from Stable:
Markel Corporation
--IDR at 'BBB+';
--7.125% senior notes due Sept. 30, 2019 at 'BBB';
--5.35% senior notes due June 1, 2021 at 'BBB';
--4.9% senior notes due July 1, 2022 at 'BBB'.
--3.625% senior notes due March 30, 2023 at 'BBB';
--7.35% senior notes due Aug. 15, 2034 at 'BBB'.
--5% senior notes due March 30, 2043 at 'BBB'.
Alterra Capital Holdings Limited
--IDR at 'BBB+'.
Alterra Finance LLC
--IDR at 'BBB+';
--6.25% senior notes due Sept. 30, 2020 at 'BBB'.
Alterra USA Holdings Limited
--IDR at 'BBB+';
--7.2% notes due April 14, 2017 at 'BBB'.
Alterra America Insurance Company
Alterra Excess & Surplus Insurance Company
Alterra Reinsurance USA Inc.
Associated International Insurance Co.
Deerfield Insurance Company
Essentia Insurance Company
Essex Insurance Company
Evanston Insurance Company
Markel American Insurance Company
Markel Bermuda Limited
Markel Europe plc
Markel Insurance Company
Markel International Insurance Company Limited
--IFS at 'A'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 4, 2014).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=939656
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