Press Release - DECEMBER 19, 2018
AM Best Affirms Credit Ratings of Markel Corporation and Most Subsidiaries
FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 19, 2018
At the same time, AM Best has upgraded the Long-Term ICRs to “a+” from “a” and affirmed the FSRs of A (Excellent) of SureTec Insurance Company and SureTec Indemnity Company. The outlook of the Long-Term ICR has been revised to stable from positive while the outlook of the FSR remains stable. These two companies are now members of the Markel North America Insurance Group. Both companies are headquartered in Houston, TX.
Concurrently, AM Best has upgraded the Long-Term ICRs to “a+” from “a” and affirmed the FSR of A (Excellent) of State National Insurance Company, Inc. and its subsidiaries, which operate under a pooling agreement and are collectively referred to as State National Group (State National) (see below for a detailed listing of companies). The outlook of the Long-Term ICR has been revised to stable from positive while the outlook of the FSR remains stable. All companies are headquartered in Bedford, TX.
The ratings of the Markel North America Group, which is considered the lead rating unit in the Markel Corporation enterprise, reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a+” of Lloyd’s Syndicate 3000 (Markel Syndicate Management Limited) (Syndicate 3000) (United Kingdom). The outlook of these ratings remains stable. Markel Corporation (Markel) is the ultimate parent company of Syndicate 3000’s managing agent, Markel Syndicate Management Limited, and of its corporate member, Markel Capital Limited. Syndicate 3000 is important to Markel as its main underwriting center for marine, large U.S. and international property risks and specialty and financial lines written in the London market.
The group’s balance sheet strength assessment reflects its risk-adjusted capitalization, which is categorized as strongest under baseline and various stress scenarios. Balance sheet strength is further supported by the group’s lengthy track record of favorable loss reserve development, strong and positive cash flows and a comprehensive reinsurance program. However, the group maintains relatively high underwriting leverage, and investment income generation tends to trail the average of the composite, reflecting that the group’s investment strategy focuses primarily on long-term capital appreciation, with investment income as a secondary consideration. The group’s underwriting performance is in line with the peer group average, but its total return on equity outperforms the peer group average reflecting the benefit of its investment strategy. The group’s operating ratio and pre-tax return on revenue tend to lag the peer group averages. The favorable business profile assessment reflects the group’s solid market position, ranking among the top 35 writers of property/casualty insurance in the
United States, with a solid ranking among U.S.-based surplus lines writers. The group’s business is well-diversified by geography and line of business within the United States and globally. The group has entities able to write on an admitted and non-admitted basis, which allows it to retain business under a variety of market conditions. Markel has developed, implemented and embedded a risk management framework that appropriately addresses the risks inherent in its profile, and its risk management capabilities generally meet or exceed its risk profile.
The ratings of Markel Bermuda reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The group’s strongest level of risk-adjusted capitalization is supported by the generally favorable development of loss reserves in recent years and substantial retrocession program consisting primarily of highly rated reinsurance and collateralized programs. Operating performance generally lags the reinsurance peer composite but outperforms the industry overall, despite the impact of weather losses in 2017 and 2018. The group’s business is well-diversified by geography and line of business, as well as between reinsurance and insurance.
The ratings of State National reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate ERM. The group’s strongest level of risk-adjusted capitalization is supported by the extended history of sustained operating profitability driven by its core collateral protection insurance business, and long-standing market position providing fronting services. These positive factors are offset somewhat by the group’s elevated gross leverage, reflecting its business model of providing program services that include significant cessions to unaffiliated reinsurers. The group has managed the associated collateral and credit risk well, mostly mitigating concern related to the elevated leverage. The group’s operating performance over time has outperformed the industry by a substantial margin, which was a key factor in the rating upgrade. Extensive ERM programs are in place and specialized to the State National business model utilizing comprehensive capabilities managing collateralized counterparty relationships.
The ratings of Syndicate 3000 reflect the balance sheet strength of the Lloyd’s market, which AM Best categorizes as very strong, as well as the market’s strong operating performance, favorable business profile and appropriate ERM. The Lloyd’s market rating is the floor for all syndicate ratings, reflecting the Lloyd’s chain of security and, in particular, the role of the Central Fund, which partially mutualizes capital at the market level.
The Markel Corporation maintains financial leverage and coverage that are within AM Best’s guidelines for its rating and a level of risk-adjusted capitalization that supports its insurance operations, as well as the risk in its considerable non-insurance investment portfolio. While common stock leverage is elevated as a result of the group’s investment strategy, which emphasizes long-term capital growth, the company has a long track record of successfully managing these investments. While underwriting results have been challenged by catastrophe activity in 2017 and 2018, AM Best anticipates that the company will produce favorable underwriting results over the long term while maintaining risk-adjusted capitalization.
The FSR or A (Excellent) and the Long-Term ICRs of “a+” have been affirmed, each with a stable outlook, for the following members of Markel North America Insurance Group:
Markel Insurance SE
* Concurrently, AM Best has withdrawn the ratings of EC Insurance Company Limited, following management’s request to no longer participate in AM Best’s interactive credit rating process.
The Long-Term ICRs have been upgraded to “a+” from “a” and the FSR of A (Excellent) has been affirmed. The Long-Term ICR has been revised to stable from positive while the FSR remains stable for the following members of State National Group:
The following Long-Term IRs have been affirmed, each with a stable outlook:
— “bbb+” on $350 million 7.125% senior unsecured notes, due 2019
— “bbb+” on $250 million 5.35% senior unsecured notes, due 2021
— “bbb+” on $350 million 4.9% senior unsecured notes, due 2022
— “bbb+” on $250 million 3.625% senior unsecured notes, due 2023
— “bbb+” on $300 million 3.5% senior unsecured notes, due 2027
— “bbb+” on $200 million 7.35% senior unsecured notes, due 2034
— “bbb+” on $250 million 5.0% senior unsecured notes, due 2043
— “bbb+” on $500 million 5.0% senior unsecured notes, due 2046
— “bbb+” on $300 million 4.3% senior unsecured notes, due 2047
Alterra Finance, LLC (guaranteed by Markel Corporation)—
— “bbb+” on $350 million 6.25% senior unsecured notes, due 2020
The following indicative Long-Term IRs under the existing shelf registration have been affirmed, each with a stable outlook:
— “bbb+” on senior unsecured debt
— “bbb” on subordinated debt
— “bbb-” on preferred securities
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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