Best Affirms Markel International, Lloyd’s Syndicate Ratings; Outlook Stable

November 14, 2012

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a+” of UK-based Markel International Insurance Company Limited (MIICL) and Lloyd’s Syndicate 3000.

The outlook for all ratings remains stable.

The rating action complements the affirmation of Markel Corporation’s U.S. ratings, which, Best noted is MIICL’s ultimate parent company, and also the “ultimate parent company of syndicate 3000’s managing agent, Markel Syndicate Management Ltd, and its capital provider, Markel Capital Limited. MIICL and the syndicate account for over one-third of the Markel group’s gross premium income and provide the group with access to the UK and London markets as well as international business.”

Best said “MIICL’s ratings reflect its excellent stand-alone risk-adjusted capitalization, good operating performance and good business profile. The ratings also take into consideration the continued support of Markel and the company’s strategic importance to the Markel group.”

The ratings report also indicated that “in spite of a substantial dividend payment to Markel in 2011, MIICL is expected to maintain an excellent stand-alone risk-adjusted capitalization in 2012 and into 2013, after allowing for further dividend payments and a planned increase in catastrophe exposure. In addition, MIICL benefits from the explicit support and financial flexibility of its parent, which has contributed capital of approximately $200 million since acquiring the company.

“MIICL is expected to report a good pre-tax profit for 2012, supported by releases from prior year reserves and solid investment earnings. In 2011, the company reported a pre-tax profit of $26.2 million (2010: $111.6 million) as a result of a catastrophe-affected underwriting performance offset by significant favorable development of prior years’ loss reserves and a good investment return.”

Best also pointed out that “underwriting performance in 2011 suffered from losses from the Japanese earthquake, US tornadoes, Hurricane Irene, the Maersk Gryphon event and the floods in Thailand, leading to a combined ratio of 106 percent. In 2012, although conditions in MIICL’s core UK market remain challenging, assuming a more normal catastrophe experience during the year a combined ratio between 95 percent and 100 percent is anticipated, supported by good, albeit reduced, prior year reserve releases and the company’s prudent approach to cycle management.

“MIICL has a good position as a specialist underwriter of professional liability and property insurance in the UK and London markets,” Best continued. “In addition, nearly 8 percent of gross written premiums are derived from Europe through branch offices in Spain, Sweden and, from October 2011, the Netherlands. MIICL underwrites a well-diversified portfolio and leads over 50 percent of its business. Of its principal lines of business, retail represented 21 percent of gross written premiums in 2011, professional and financial risks 20 percent, marine 19 percent, specialty 16 percent and delegated liability and property 9 percent.”

Best explained that its ratings on “Lloyd’s Syndicate 3000 reflect the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates.” In addition, Best said it “believes the syndicate’s financial flexibility is enhanced by the continued support of Markel.

“On an annually accounted basis, following two years of catastrophe-affected underwriting performance, with combined ratios of 100 percent and 117 percent, respectively, the syndicate is expected to achieve a better performance in 2012. Assuming a more normal catastrophe experience for the year, a combined ratio between 95 percent and 100 percent is forecast, supported by a similar level of reserve releases to 2011. Good rate increases are anticipated within the lines of business affected by natural catastrophes in 2011. A good investment return is likely to support a strong operating performance.

“Syndicate 3000 has a good business profile within the Lloyd’s market and leads approximately 45 percent of its business. The syndicate’s capacity for the 2012 year of account has been maintained at the 2011 level of £340 million [$540.3 million], demonstrating Markel’s continued commitment to syndicate 3000 as its main underwriting center for marine and large US property risks written in the London market. With expansion of the new terrorism and trade credit books in particular, the syndicate’s overall premium is likely to increase by approximately 5 percent in 2012.”

Best indicated that “positive rating actions in respect of MIICL are considered unlikely in the near future; however, an unexpected weak operating performance or a reduction in the level of support from or a negative rating action on the Markel group could lead to negative pressure on the company’s ratings. A factor that may lead to positive or negative rating actions for the syndicate is a change in the rating of the Lloyd’s market, which currently has an FSR of ‘A’ (Excellent) and an ICR of “a+”, both with a stable outlook.”

Source: A.M. Best – Europe

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