Best Affirms Alterra Capital and Subs Ratings; Outlook Stable

August 9, 2013

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Alterra Bermuda Limited and its affiliated operating companies, as well as the ICR of “bbb” of Alterra Bermuda’s immediate parent company, Alterra Capital Holdings Limited.

Best also affirmed all debt ratings of Alterra, Alterra USA Holdings Limited, Alterra Finance, LLC (both domiciled in Delaware) and Alterra Capital Trust I. All the above named companies are domiciled in Bermuda, unless otherwise specified.

Best noted that on May 1, 2013, Alterra was acquired by Markel Corporation, and the integration is ongoing. Both Alterra and Markel are specialty-focused underwriters.

The ratings for the Alterra organization “take into consideration its recent change in ownership, the future benefits to be derived from its integration into Markel, as well as some of the immediate benefits gained in terms of enhanced scale, reach, the Markel brand, distribution platform and its leadership position in the excess and surplus lines marketplace in the United States,” Best’s report said.

As the integration plans are ongoing, Best said it “will continue to maintain a dialogue with management to review and discuss Alterra, its future plans and how the Alterra organization will ultimately align with Markel and its existing members. Until that time, the ratings of Alterra are considered as if this were a ‘bolt-on’ acquisition and assume no material changes to business profile, capitalization, performance as well as inter-company reinsurance.

“In addition to the new owner, these ratings also reflect Alterra Bermuda’s solid financial performance through the second quarter of 2013 and its strong risk-adjusted capitalization. Alterra has platforms and operations in major global underwriting markets, which gives it flexibility to optimize its underwriting portfolio composition. Being part of Markel, revenue and earnings prospects are likely to be enhanced through synergies, the leveraging of existing business relationships and efficiencies gained.”

As partial offsetting factors Best cited the “current soft market in casualty classes of business, which represents a significant portion of Alterra’s risk portfolio and the challenging investment climate that places increased pressure on underwriting profitability.

“Rating factors that could lead to a downgrading of the Alterra organization’s ratings and/or a revised outlook to negative include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to peers, significant adverse loss reserve development or a material decline in its risk-adjusted capital.

“Alternatively, factors that could lead to an upgrading of the ratings include continued favorable operating profitability coupled with maintenance of a strong risk-adjusted capital level and/or explicit or implicit support from Markel that would enhance the capital or profile of the Alterra organization.”

Best summarized the ratings affected by its actions as follows:
The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for Alterra Bermuda Limited and its following affiliated operating companies:
Markel Europe plc
Alterra America Insurance Company
Alterra Excess and Surplus Insurance Company
Alterra Reinsurance USA Inc.

The following debt ratings have been affirmed:
Alterra USA Holdings Limited (guaranteed by Alterra Capital Holdings Limited)— –“bbb” on $100 million 7.2% senior secured notes, due 2017
Alterra Finance, LLC (guaranteed by Alterra Capital Holdings Limited)— –“bbb” on $350 million 6.25% senior unsecured notes, due 2020

The following indicative ratings under the current shelf registration have been affirmed:
Alterra Capital Holdings Limited—
–“bbb” on senior unsecured debt
–“bbb-” on subordinated debt
–“bb+” on preferred stock
Alterra USA Holdings Limited (guaranteed by Alterra Capital Holdings Limited)— –“bbb” on senior secured debt –“bbb-” on subordinated debt
Alterra Capital Trust I (guaranteed by Alterra Capital Holdings Limited)— –“bb+” on preferred securities

Source: A.M. Best

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