Best Affirms Markel International’s Ratings; Syndicate 3000; Outlook Stable

September 8, 2011

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 of the ratings remains stable.

MIICL’s ultimate parent company is the U.S.-based Markel Corporation, which is also the ultimate parent company of syndicate 3000’s managing agent, Markel Syndicate Management Ltd, and its capital provider, Markel Capital Limited. Best noted that “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.”

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

Best also noted that in spite of planned dividend payments to Markel, “MIICL is expected to maintain an excellent stand-alone risk-adjusted capitalization in 2011 and into 2012, with a good operating performance anticipated. 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 2011, in spite of losses from the Japanese earthquake in the first half of the year. The result is likely to be supported by releases from prior year reserves and solid investment earnings. In 2010, the company reported a pre-tax profit of $111.6 million as a result of a strong underwriting performance, assisted by significant favorable development of prior years’ loss reserves and substantial unrealized investment gains.”

However, Best also indicated that “MIICL’s underwriting performance in 2011 is likely to be weaker, given the challenging conditions in its core UK market and the impact of losses from natural catastrophes during the year to date. A combined ratio for MIICL of around 100 percent is anticipated (2010: 76 percent), notwithstanding the likely availability of 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. In addition, over 9 percent of gross written premiums are derived from Europe through branch offices in Spain and Sweden.

“MIICL underwrites a well-diversified portfolio and leads over 50 percent of its business. Of its principal lines of business, retail represented 25 percent of gross written premiums in 2010, professional and financial risks 23 percent, specialty 15 percent, marine 14 percent and property 13 percent.”

Best said the ratings of Lloyd’s Syndicate 3000 “reflect the financial strength of the Lloyd’s of London (Lloyd’s) market, which underpins the security of all Lloyd’s syndicates.” Best added that it believes the “syndicate’s financial flexibility is enhanced by the continued support of Markel.”

On an annually accounted basis, Best said it anticipates a “solid operating profit in 2011, supported by a good investment performance to offset the impact of losses from the Australian floods, New Zealand earthquake and Japanese earthquake and tsunami, whilst assuming normal catastrophe experience for the second half of the year.

“The combined ratio is likely to be between 95 percent and 100 percent (2010: 100 percent), in spite of a modest hardening of rates for some lines of business, especially marine energy following the Deepwater Horizon oil rig loss and property in response to the various natural catastrophes in the first half of 2011.”

Best described Syndicate 3000 as having a “good business profile within the Lloyd’s market and leads approximately 45 percent of its business. The syndicate’s capacity has been increased to £340 million [$542 million] for the 2011 year of account (2010: £300 million [$478.5 million]), demonstrating Markel’s commitment to syndicate 3000 as its main underwriting center for marine and large U.S. property risks written in the London market.”

The report also noted that Elliot Special Risks, the Canadian Managing General Agent that Markel acquired in October 2009, “supplied 12 percent of the syndicate’s gross written premiums in its first full year and is expected to contribute over 18 percent in 2011. With expansion of the existing professional indemnity, marine cargo and marine liability books in particular and a new terrorism account, the syndicate’s overall premium is likely to increase by over 10 percent in 2011.”

Source: A.M. Best

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