Fitch Affirms Markel Corporation's Ratings; Outlook Stable

CHICAGO & LONDON--(BUSINESS WIRE)-- 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, as well as its strong and improved business and operating risk profile.

GAAP operating EBIT coverage improved to 6.4x for 2015 and 7.3x of the first three months of 2016. The combined ratio of 88.8% in 2015 improved from 95.4% in 2014 and was 87.6% for the first three months of 2016, with no catastrophe losses in any period. 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.

Adding to Fitch's belief that underwriting profits and operating EBIT coverage will be sustainable at current levels are MKL's reserving practices, which 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 16.4 points and 11.3 points respectively, from the combined ratio for 2015 and 2014, respectively.

Consolidated GAAP operating leverage and net leverage were 0.49x and 2.07x, respectively, at year-end 2015. The score for U.S. subsidiaries on Fitch's Prism capital model was 'very strong' at year-end 2014. 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 by nearly 14% in 2015 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.

Common shareholders' equity grew 5% in the first three months of 2016 to $8.2 billion at March 31, 2016. Contributing to the growth were net income as well as higher unrealized gains, primarily on equity investments, for which MKL has a higher than average allocation.

MKL's pro forma financial leverage ratio (FLR) was 23.5% at March 31, 2016, following new issuance and a tender offer of existing senior notes. 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 affirms 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 1, 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

Essex 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. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881564

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1006123

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1006123

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160615006573/en/

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
Matt Power
Associate Director
+44-203-530-1389
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: [email protected]

Source: Fitch Ratings

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