Fitch Affirms Markel Corporation's Ratings; Outlook Stable

CHICAGO & LONDON--(BUSINESS WIRE)--

Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) ratings of Markel Corporation's MKL principal property and casualty insurance (P/C) subsidiaries. Fitch has also affirmed the following ratings for MKL:

--Issuer Default Rating (IDR) at 'BBB+';

--Senior unsecured notes at 'BBB'.

The Rating Outlook is Stable. A full ratings list is provided at the end of this release.

KEY RATING DRIVERS

MKL's rating strengths include pricing and underwriting discipline through market cycles and expertise in a number of specialty property/casualty insurance products and niche markets. Fitch views the recent acquisition of Alterra Capital Holdings Limited (closed on May 1, 2013) as improving the business platform of the combined organization, with a complementary and disciplined approach to risk management. Alterra brings additional scale to the U.S. platform, and large account global insurance and reinsurance business, which are new to MKL.

Fitch expects potential execution risk in integrating the two organizations to be manageable. MKL reported a combined ratio of 97.3% for the first nine months of 2013, and this included $70 million, or 3.1 points in transaction costs and other acquisition-related costs. Over time, Fitch expects the company to achieve higher margins as expense synergies, and MKL's specialty market expertise are incorporated into the larger business platform.

Fitch believes that MKL's conservative reserving practices contribute to balance sheet strength and quality of earnings. MKL has posted cumulative reserve redundancies (exceeding actuarially calculated point estimates) in each of the last nine years. Favorable prior year development continues to exceed industry trends, and trimmed 18.6 points and 12.4 points from the combined ratio for 2012 and through nine months of 2013, respectively. No prior year development (favorable or adverse) was recorded for the Alterra segment and MKL's reserving practices are expected to be implemented over time.

Operating company capital adequacy is consistent with the rating category. The score for U.S. subsidiaries (excluding Alterra) on Fitch's Prism capital model was 'strong' at year-end 2012. GAAP operating leverage of 0.50x at Sept. 30, 2013 was supported by very strong holding company cash and invested assets of $1.1 billion at Sept. 30, 2013.

MKL's financial leverage ratio (FLR) was 24.8% at Sept. 30, 2013. Debt-servicing capabilities remain ample due to solid operating company maximum dividend capacity and holding company cash position. Share repurchase activity has been modest.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade of MKL's ratings include sustained improvement in operating performance as evidenced by return on equity (ROE) of 10% or greater, or a decrease in the target for maximum FLR to below 25%.

Key rating triggers that could lead to a downgrade of MKL's ratings include material underperformance of newly acquired Alterra businesses, a material deterioration in underwriting, a sustained decline in operating company capitalization of 20% or greater, or an increase in the target for maximum FLR to above 30%.

Fitch has affirmed the following ratings with a Stable Outlook:

Markel Corporation

--IDR at 'BBB+';

--7.125% senior notes due Sept. 30, 2019 at 'BBB';

--5.35% senior notes due June 1, 2021 at 'BBB';

--4.9% senior notes due July 1, 2022 at 'BBB'.

--3.625% senior notes due March 30, 2023 at 'BBB';

--7.35% senior notes due Aug. 15, 2034 at 'BBB'.

--5% senior notes due March 30, 2043 at 'BBB'.

Alterra Capital Holdings Limited

--IDR at 'BBB+'.

Alterra Finance LLC

--IDR at 'BBB+';

--6.25% senior notes due Sept. 30, 2020 at 'BBB'.

Alterra USA Holdings Limited

--IDR at 'BBB+';

--7.2% notes due April 14, 2017 at 'BBB'.

Alterra America Insurance Company

Alterra Excess & Surplus Insurance Company

Alterra Reinsurance USA Inc.

Associated International Insurance Co.

Deerfield Insurance Company

Essentia Insurance Company

Essex Insurance Company

Evanston Insurance Company

Markel American Insurance Company

Markel Bermuda Limited

Markel Europe plc

Markel Insurance Company

Markel International Insurance Company Limited

--IFS at 'A'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Nov. 13, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology -- Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=809151

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