A.M. Best Affirms Credit Ratings of Markel Corporation and Most Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb+” of Markel Corporation and all of its Long-Term Issue Credit Ratings (Long-Term IRs) and indicative Long-Term IRs (see below for a detailed list of Long-Term IRs and indicative Long-Term IRs). A.M. Best also has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of “a+” of the members of the Markel North America Insurance Group (see below for a detailed list of companies), and the FSR of A (Excellent) and the Long-Term ICRs of “a” of Markel Bermuda Limited (Hamilton, Bermuda) and its affiliates, Alterra America Insurance Company and Markel Global Reinsurance Company (collectively, Markel Bermuda). The outlook of these Credit Ratings (ratings) is stable.

At the same time, A.M. Best has removed from under review with positive implications and affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of SureTec Insurance Company. In addition, A.M. Best has removed from under review with positive implications and upgraded the FSR to A (Excellent) from A- (Excellent) and the Long-Term ICR to “a” from “a-” for SureTec Indemnity Company. The outlook assigned to the FSRs is stable, while the assigned outlook of the Long-Term ICRs is positive. Collectively, these two companies are referred to as SureTec. All companies are headquartered in Houston, TX.

Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb” of State National Companies, Inc. (Delaware), which is now an intermediate holding company within the Markel Corporation enterprise. The outlook of the rating is positive. Subsequently, A.M. Best has withdrawn the Long-Term ICR of “bbb” of State National Companies, Inc., as it is no longer the publicly traded ultimate parent of a rated entity as a result of its acquisition by Markel Corporation. The ratings of the members of its rated operating subsidiaries – the members of the State National Group – are unchanged by the withdrawal of the holding company’s Long-Term ICR.

The ratings of the Markel North America Group, which is considered the lead rating unit in the Markel Corporation enterprise, reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM). The group’s baseline risk-adjusted capitalization measures in the strongest category, as it does under various stress scenarios.

Balance sheet strength is further supported by the group’s lengthy track record of favorable loss reserve development, strong and consistent positive cash flows and organic generation of surplus growth. The group generally outperforms its peers in terms of underwriting results, and return on equity generally exceeds the composite average. However, the group maintains relatively high underwriting leverage, and investment income generation tends to trail the average of the composite, reflecting that the group’s investment strategy focuses primarily on long-term capital appreciation, with investment income as a secondary consideration. The group’s operating ratio and pre-tax return on revenue tend to lag the peer group averages. The favorable business profile assessment reflects the group’s solid market position, ranking among the Top 35 writers of property/casualty insurance in the United States, with a solid ranking among U.S.-based surplus lines writers. The group’s business is well-diversified by geography and line of business, both within the United States and globally. The group has entities able to write on an admitted and non-admitted basis, which allows it to retain business under a variety of market conditions. Markel has developed, implemented and embedded a risk management framework that appropriately addresses the risks inherent in its profile, and its risk management capabilities generally meet or exceed its risk profile.

The ratings of Markel Bermuda reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate ERM. The group’s strongest level of risk-adjusted capitalization is supported by the generally favorable development of loss reserves in recent years and substantial retrocession program consisting primarily of highly-rated reinsurance and collateralized programs. Operating performance generally lags the reinsurance peer composite but outperforms the industry overall. The group’s business is well-diversified by geography and line of business, as well as between reinsurance and insurance.

The ratings of SureTec reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, limited business profile and appropriate ERM. Risk-adjusted capitalization at the strongest level is supported by growth in net premiums written that has generally been exceeded by surplus growth in recent years. Operating performance generally outperforms the group’s similarly rated surety peers, and the group has consistently generated strong operating returns. The group’s business is concentrated in the surety space (although diversified between contract and commercial surety offerings) and also is significantly concentrated geographically, with the two largest states representing 70% of direct premiums written in 2017. The rating upgrades of SureTec Indemnity Company reflect that it is now considered a member of the SureTec Insurance Company rating unit, as a result of its strategic importance to the group.

The Markel Corporation maintains financial leverage and coverage that are within A.M. Best’s guidelines for its rating and a level of risk-adjusted capitalization that supports its insurance operations, as well as the risk in its considerable non-insurance investment portfolio. While common stock leverage is elevated as a result of the group’s investment strategy, which emphasizes long-term capital growth, the company has a long track record of successfully managing these investments. For 2017, A.M. Best expects underwriting results to deteriorate for the overall enterprise, particularly in the reinsurance operation, as a result of increased catastrophe activity. While contained within the group’s risk tolerance, the losses will negatively impact equity growth in 2017.

The FSR of A (Excellent) and the Long-Term ICRs of “a+” have been affirmed, each with a stable outlook, for the following members of Markel North America Insurance Group:

• Essentia Insurance Company
• Evanston Insurance Company
• FirstComp Insurance Company
• Markel American Insurance Company
• Markel Insurance Company
• Markel International Insurance Company Ltd.

The following Long-Term IRs have been affirmed, each with a stable outlook:

Markel Corporation—
-- “bbb+” on $350 million 7.125% senior unsecured notes, due 2019
-- “bbb+” on $250 million 5.35% senior unsecured notes, due 2021
-- “bbb+” on $350 million 4.9% senior unsecured notes, due 2022
-- “bbb+” on $250 million 3.625% senior unsecured notes, due 2023
-- “bbb+” on $300 million 3.5% senior unsecured notes, due 2027
-- “bbb+” on $200 million 7.35% senior unsecured notes, due 2034
-- “bbb+” on $250 million 5.0% senior unsecured notes, due 2043
-- “bbb+” on $500 million 5.0% senior unsecured notes, due 2046
-- “bbb+” on $300 million 4.3% senior unsecured notes, due 2047

Alterra Finance, LLC (guaranteed by Markel Corporation)—
-- “bbb+” on $350 million 6.25% senior unsecured notes, due 2020

The following indicative Long-Term IRs under the existing shelf registration have been affirmed, each with a stable outlook:

Markel Corporation—
-- “bbb+” on senior unsecured debt
-- “bbb” on subordinated debt
-- “bbb-” on preferred securities

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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A.M. Best

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Jim Peavy, +1 908-439-2200, ext. 5644

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Source: A.M. Best