Best Upgrades Markel Int’l, Lloyd’s Syndicate 3000 Ratings to ‘A-‘

July 1, 2003

A.M. Best Co. announced that it has upgraded the financial strength rating to A- (Excellent) from B++ (Very Good) of the U.K.-basedarkel International Insurance Company Ltd (MIIC), has also assigned a Best’s syndicate rating of A- (Excellent) to Lloyd’s Syndicate 3000, which is managed by Markel Syndicate Management Ltd. The outlook on both ratings is stable.

“This rating action reflects A.M. Best’s revised view of MIIC as strategically important to Markel North America Insurance Group (Markel). Historically, the financial strength rating has not benefited from any implicit support. Other rating factors include MIIC’s prospective excellent risk-adjusted capitalisation and improving underwriting performance,” said Best.

The rating agency indicated that the ‘A-‘ rating on syndicate 3000 “reflects the syndicate’s excellent prospective operating performance and business profile, in addition to the financial strength of the Lloyd’s market–currently rated A- (Excellent)–which underpins the security of all Lloyd’s syndicates.” It noted, however, that the syndicates rating factors might be affected by a “prospective contraction of premium income through management’s strategy to transfer business out of the syndicate” to MIIC.

Best emphasized the increasing strategic importance MIIC now has for Markel, noting that the parent company had “committed capital support” and that MIIC was committed to “the successful implementation of Markel’s underwriting philosophy.” It also indicated that it “believes MIIC offers additional business opportunities for Markel through its provision of complementary underwriting lines and the development of Markel’s brand in the London insurance market.”

Best noted that, “Following the erosion of capital over the last three years, Markel has agreed to provide an additional USD 45 million, which would improve MIIC’s risk-adjusted capitalisation to an excellent level.” It “expects MIIC to maintain a capitalisation commensurate with the current rating level thereafter.”

The strict underwriting controls that Markel has put in place should also bolster MIIC’s prospects, as it recovers from $54 million in losses between 2000 and 2002, which “reflected not only weak trading conditions and World Trade Center (WTC) losses but poor underwriting control and deterioration of old year liabilities, in particular asbestos related claims.” Best noted that “Since acquiring the Terra Nova group in 2000, Markel’s management has implemented strict underwriting controls as a strategic priority that has resulted in prospective improved underwriting performance. A.M. Best expects a significant improved combined ratio of approximately 100% in 2003. ”

Best listed the following Expectations:
— This rating upgrade is predicated upon the aforementioned injection of additional capital by the end of July 2003.
— A.M. Best expects MIIC to continue its prudent underwriting strategy in line with that of its parent company.
— A.M. Best does not foresee an adverse loss development for asbestos related claims over and above that already factored into MIIC’s risk-adjusted capital requirements

It also said that it expects “syndicate 3000 to report operating profits of between 20%-25% on capacity (before personal expenses) when both the 2002 and 2003 underwriting years of account close. This will translate to profits of approximately 30% on net written premiums for both years. The syndicate, a product of amalgamating four Terra Nova syndicates, commenced underwriting for the 2002 year of account. Operating performance of these syndicates was historically poor. The excellent prospective operating performance reflects A.M. Best’s view of a successful revision of management and underwriting structures since Markel Corporation acquired the business.”

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