Fitch has also affirmed the following ratings for MKL:
--Issuer Default Rating (IDR) at 'A-';
--Senior unsecured notes at 'BBB+'.
The Rating Outlook is Stable. A complete list of ratings follows at the end of this release.
KEY RATING DRIVERS
The affirmation reflects MKL's very strong balance sheet profile, and its strong business and operating risk profile.
GAAP operating EBIT coverage improved to 6.4x for 2015 and was 5.4x for the first nine months of 2016. The combined ratio of 88.8% in 2015 improved from 95.4% in 2014 and was 92.9% for the first nine months of 2016, with no reported catastrophe losses since 2013. Barring catastrophe losses, Fitch believes MKL's improved margins are sustainable as expense synergies and the company's specialty market expertise are being incorporated into the larger business platform.
MKL's reserving practices contribute to both balance sheet strength and earnings quality. MKL posted cumulative reserve redundancies in each of the last 12 years. Favorable prior-year development continues to exceed industry trends, trimming 11.7 points, 16.4 points and 11.3 points respectively, from the combined ratio for nine months 2016, and full years 2015 and 2014, respectively. The prior year development for 2016 was less favourable than 2015 primarily because of the impact of asbestos and environmental retroactive reinsurance transactions completed in 2015.
Consolidated GAAP operating leverage and net leverage were 0.49x and 1.99x, respectively, at
Fitch believes MKL is maintaining pricing and underwriting discipline in a more competitive P/C pricing environment, as evidenced by an almost 3% decline in net premium volume for 2015, from the prior year. Reinsurance net premium volume declined due to MKL's decision to exit
Common shareholders' equity grew almost 9% in the first nine months of 2016 to
MKL's financial leverage ratio (FLR) was 23.1% at
Key rating triggers that could lead to an upgrade of MKL's ratings include very strong operating performance with a combined ratio consistently below 95%, GAAP operating EBIT coverage consistently at or above 10x, maintenance of GAAP net leverage below 2.5x, FLR maintained below 20% and further increases in operating scale.
Key rating triggers that could lead to a downgrade of MKL's ratings include an operating EBIT coverage ratio sustained at 5.0x or below, any unexpected adverse developments from recent acquisitions, including a goodwill write down or a material deterioration in underwriting performance, and a decline in operating company surplus or shareholders' equity of 20% or greater.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
--IDR at 'A-';
--7.125% senior notes due
--5.35% senior notes due
--4.9% senior notes due
--3.625% senior notes due
--7.35% senior notes due
--5% senior notes due
--5% senior notes due
--IDR at 'A-'.
--IDR at 'A-';
--6.25% senior notes due
--IDR at 'A-';
--7.2% notes due
--IFS at 'A+'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
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