A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and has assigned issuer credit ratings (ICR) of “a” to the Markel North America Insurance Group (Markel) and its subsidiaries.
Concurrently, A.M. Best has affirmed the debt ratings of “bbb” and “bb+” of Markel Corporation’s (MKL) existing senior unsecured notes and preferred securities. All ratings have a stable outlook.
These rating actions recognize Markel’s favorable market position as one of the leading excess and surplus lines organizations in the United States, the sustained profitability reported through the first quarter of 2005 and the solid capitalization maintained at each of its operating entities. These ratings also acknowledge the additional financial flexibility afforded by MKL which, in 2002 and 2003, enabled its property/casualty subsidiaries to fortify surplus and cash flow through retained earnings and suspended dividends.
The ratings assigned to MKL take into consideration the additional $200 million senior debt offering completed in August 2004, management’s financial leverage target of 30%, as well as the liquidity and coverage ratios maintained at MKL. These attributes are supported by the marked improvements within the surplus lines market, Markel’s position within this market segment, and its affects on premium growth, earnings and capital accumulation.
These positive attributes are somewhat tempered by Markel’s elevated underwriting leverage, continued adverse loss reserve development reported in 2004 and the potential capital strain related to its subsidiary, Markel International Insurance Company Limited. In recent years, underwriting leverage and overall capitalization were materially impacted by Markel’s significant premium growth and reserve actions taken from 2002-2004. A substantial portion of this growth, however, reflects enhanced pricing as opposed to new business.
During the last three years, Markel has posted adverse reserve development, primarily related to asbestos and environmental liabilities, along with some development on certain core excess and surplus lines business segments. Despite the rise in net underwriting leverage, capitalization remains supportive of its current rating levels.
MKL’s financial leverage remains on par with its current rating levels as demonstrated by a total debt-to-capital ratio of 34.5% and earnings before interest and taxes (EBIT) to interest coverage of 7.8 times as of March 31, 2005. For liquidity purposes, MKL has a $220.0 million revolving credit facility, of which, the entire capacity was available as of March 31, 2005.
The financial strength rating of A (Excellent) has been affirmed and issuer credit ratings of “a” have been assigned to Markel North America Insurance Group and its following 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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