Best Affirms Markel’s Strength and Debt Ratings

June 30, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) of Markel North America Insurance Group and its debt ratings of “bbb” and “bb+” on Markel Corporation’s existing senior unsecured notes and preferred securities. The outlook for all the ratings remains stable.

“These rating actions recognize Markel’s sustained profitability through the first quarter of 2004, its solid overall capitalization and its position as one of the leading excess and surplus lines organizations in the United States,” said Best. “These ratings also acknowledge Markel Corporation’s financial leverage, coverage ratios and the additional financial flexibility afforded by its access to the capital markets.

“These attributes are supported by Markel’s excellent capitalization, favorable operating profitability and management’s conservative operating strategies, which is a testament to Markel’s success over the years.”

Best noted that “these positive attributes are somewhat tempered by Markel’s elevated underwriting leverage, its significant adverse loss reserve development reported in 2003 and the continued concerns–albeit lessened–from its affiliation with Markel International Insurance Company Limited.

“In recent years, underwriting leverage and overall capitalization were materially impacted by Markel’s aggressive premium growth and reserve actions taken in 2002 and 2003. According to management, a substantial portion of this growth stems from enhanced pricing and increased business opportunities in the excess and surplus lines market.”

Best also expressed concern over Markel’s adverse reserve development, posted over the last three years, “primarily related to asbestos and environmental liabilities, along with some modest development on certain core excess and surplus lines business segments.” It indicated, however, that “despite the rise in net underwriting leverage, capitalization is still supportive of its current rating level.”

“Markel Corporation’s financial leverage remains on par with its current rating level as demonstrated by a total debt to capital ratio of 23.3 percent and earnings to interest coverage of 5.8 times as of March 31, 2004,” Best continued. “The company has three senior debt issues, $70.7 million of 7.20 percent unsecured senior notes, $93.3 million of 7.00 percent unsecured senior notes and $247.5 million of 6.8 percent unsecured senior notes. Additionally, the company has $150.0 million of Company-Obligated Mandatorily Redeemable Preferred Capital Securities and $408.0 million of principal amount at maturity zero coupon Liquid Option Yield Notes (LYONs) outstanding. For liquidity purposes, a $220.0 million revolving credit facility is available, of which, $110.0 million was in available capacity as of March 31, 2004.”

Best affirmed its “A” rating and stable outlook on the following Markel subsidiaries:
— Associated International Insurance Company
— Deerfield Insurance Company
— Essex Insurance Company
— Evanston Insurance Company
— Markel American Insurance Company
— Markel Insurance Company

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