Fitch Affirms Markel Corporation; Outlook Stable

CHICAGO & LONDON--()--Fitch Ratings has affirmed the 'A+' Insurer Financial Strength (IFS) ratings for 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 'A-';

--Senior unsecured notes at 'BBB+'.

The Rating Outlook is Stable. A complete list of ratings follows at the end of this release.

KEY RATING DRIVERS

The affirmation reflects MKL's very strong balance sheet profile, and its strong business and operating risk profile.

GAAP operating EBIT coverage improved to 6.4x for 2015 and was 5.4x for the first nine months of 2016. The combined ratio of 88.8% in 2015 improved from 95.4% in 2014 and was 92.9% for the first nine months of 2016, with no reported catastrophe losses since 2013. Barring catastrophe losses, Fitch believes MKL's improved margins are sustainable as expense synergies and the company's specialty market expertise are being incorporated into the larger business platform.

MKL's reserving practices contribute to both balance sheet strength and earnings quality. MKL posted cumulative reserve redundancies in each of the last 12 years. Favorable prior-year development continues to exceed industry trends, trimming 11.7 points, 16.4 points and 11.3 points respectively, from the combined ratio for nine months 2016, and full years 2015 and 2014, respectively. The prior year development for 2016 was less favourable than 2015 primarily because of the impact of asbestos and environmental retroactive reinsurance transactions completed in 2015.

Consolidated GAAP operating leverage and net leverage were 0.49x and 1.99x, respectively, at Sept. 30, 2016. The score for U.S. subsidiaries on Fitch's Prism capital model was 'Strong' at year-end 2015. UK and Bermuda operating company capital adequacy is consistent with the U.S.

Fitch believes MKL is maintaining pricing and underwriting discipline in a more competitive P/C pricing environment, as evidenced by an almost 3% decline in net premium volume for 2015, from the prior year. Reinsurance net premium volume declined due to MKL's decision to exit UK motor reinsurance and materially scale back its quota share percentage on U.S. non-standard auto reinsurance. For the first nine months of 2016, net premium volume increased 4.6%, with modestly declining premium in international insurance and increases in U.S. insurance and reinsurance.

Common shareholders' equity grew almost 9% in the first nine months of 2016 to $8.5 billion at Sept. 30, 2016. Contributing to the growth were net income as well as higher unrealized gains on fixed maturities as well as equity investments, for which MKL has a higher than average allocation.

MKL's financial leverage ratio (FLR) was 23.1% at Sept. 30, 2016. Debt servicing capabilities are augmented by holding company cash and liquid assets that cover projected 2016 debt service by more than 12x. Operating company maximum dividend capacity is solid and share repurchase activity has been minimal.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade of MKL's ratings include very strong operating performance with a combined ratio consistently below 95%, GAAP operating EBIT coverage consistently at or above 10x, maintenance of GAAP net leverage below 2.5x, FLR maintained below 20% and further increases in operating scale.

Key rating triggers that could lead to a downgrade of MKL's ratings include an operating EBIT coverage ratio sustained at 5.0x or below, any unexpected adverse developments from recent acquisitions, including a goodwill write down or a material deterioration in underwriting performance, and a decline in operating company surplus or shareholders' equity of 20% or greater.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Markel Corporation

--IDR at 'A-';

--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+';

--5% senior notes due April 5, 2046 'BBB+'.

Alterra Capital Holdings Limited

--IDR at 'A-'.

Alterra Finance LLC

--IDR at 'A-';

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

Alterra USA Holdings Limited

--IDR at 'A-';

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

Alterra America Insurance Company

Associated International Insurance Co.

Essentia Insurance Company

Evanston Insurance Company

Markel American Insurance Company

Markel Bermuda Limited

Markel Global Reinsurance Company

Markel Insurance Company

Markel International Insurance Company Limited

--IFS at 'A+'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Insurance Rating Methodology (pub. 15 Sep 2016)

https://www.fitchratings.com/site/re/887191

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014809

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014809

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas M. Pawlowski, CFA
Senior Director
+1-312-368-2054
or
Tertiary Analyst
Graham Coutts
Director
+44-203-530-1654
or
Committee Chairperson
Mark E. Rouck, CFA
Senior Director
+1-312-368-2085
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
Email: hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas M. Pawlowski, CFA
Senior Director
+1-312-368-2054
or
Tertiary Analyst
Graham Coutts
Director
+44-203-530-1654
or
Committee Chairperson
Mark E. Rouck, CFA
Senior Director
+1-312-368-2085
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
Email: hannah.james@fitchratings.com