CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JULY 20, 2010 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a+" of Markel North America Insurance Group (Markel) (Glen Allen, VA) and its members. A.M. Best also has affirmed the ICR of "bbb+" and debt ratings of Markel Corporation (MKL) (Glen Allen, VA) [NYSE: MKL]. The outlook for these ratings is stable. (See below for a detailed list of the companies and ratings.)
The rating actions follow MKL's recent announcement that it has entered into a definitive agreement to acquire the privately held insurance group, Aspen Holdings Inc., a provider of workers' compensation and related services, MKL's first quarter 2010 earnings announcement and results through the most recent quarter. The ratings also recognize Markel's improved operating performance in 2009, the rebound in the financial markets, its stronger risk-adjusted capitalization and well-established market position as one of the leading excess and surplus lines organizations in the United States.
Despite the soft market, Markel has generated sustained operating profits on a pretax basis leading to generally consistent generation of net income annually. These ratings also acknowledge the group's historically excellent operating cash flow, adequate liquidity and the financial flexibility of MKL. Markel continues to develop further its enterprise risk management (ERM) platform, as well as integrate more aspects and elements to help improve the comprehensive assessment of corporate risks and their correlation. A.M. Best feels the company is still working on formalizing most elements of its ERM process.
Somewhat tempering these positive factors is the continuation of the soft market, the potential market disruption and setbacks caused by the introduction of One Markel—the organization's newly implemented regional business model, and the culmination of these two factors on Markel's growth and earnings prospects. In addition to adopting a regional business model, Markel also is in the midst of a second major undertaking in the implementation of establishing a new business system and process project, resulting in additional costs to the organization in 2009 as well as 2010.
Other attenuating factors include the decline in Markel's underwriting income during the past two years caused by an increasing expense platform and a decline in premium writings as it relates to the prevailing soft market, and to some extent, the affects from the One Markel transition. Markel has long maintained underwriting leverage higher than the average of the surplus lines composite, driven by its conservative loss reserving.
Concurrently, A.M. Best has downgraded the FSR to A- (Excellent) from A (Excellent) and ICR to "a-" from "a+" of Deerfield Insurance Company (Deerfield) (De
erfield, IL), as this company no longer qualifies for group rating status under A.M. Best's group rating methodology. The outlook for these ratings is stable.
The rating actions on Deerfield are based solely on the application of A.M. Best's group rating methodology and Deerfield's limited role and relative significance as a member of Markel.
Although Deerfield no longer meets group rating requirements, the company maintains strong risk-adjusted capital and receives partial rating enhancement through the implied support of Markel.
MKL's financial leverage remains on par with its current rating level as demonstrated by an approximate debt-to-capital ratio of 25% as of March 31, 2010. Holding company liquid assets (cash, cash equivalents and short-term investments) were a robust 13.3 times annual interest expense as of this same date. For liquidity purposes, MKL maintains a $270.0 million revolving credit facility, of which there is no amount outstanding.
The FSR of A (Excellent) and ICRs of "a+" have been affirmed for Markel North America Insurance Group and its following members:
- Associated International Insurance Company
- Essex Insurance Company
- Evanston Insurance Company
- Markel American Insurance Company
- Markel Insurance Company
The following debt ratings have been affirmed:
Markel Corporation—
- "bbb+" on $250 million, 6.80% senior unsecured notes, due 2013
- "bbb+" on $350 million, 7.125% senior unsecured notes, due 2019
- "bbb+" on $200 million, 7.35% senior unsecured notes, due 2034
- "bbb+" on $150 million, 7.50% senior unsecured notes, due 2046
The following indicative ratings on securities available under the existing shelf registration have been affirmed:
Markel Corporation—
- "bbb-" on preferred securities
- "bbb" on subordinated debt
- "bbb+" on senior unsecured debt
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.