OLDWICK, N.J.–(BUSINESS WIRE)–A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Markel North America Insurance Group (Markel) (Glen Allen, VA) and its members. Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and ICR of “bbb+” of FirstComp Insurance Company (FirstComp) (Omaha, NE). Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Deerfield Insurance Company (Deerfield) (Deerfield, IL), as well as the ICR of “bbb+” and all debt ratings of the publicly-traded parent, Markel Corporation (MKL) (Glen Allen, VA) (NYSE: MKL). The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)
The rating affirmations of Markel recognize its well-established market position as one of the leading excess and surplus lines organizations in the United States, its sustained operating profitability and the group’s solid risk-adjusted capitalization. Additionally, these ratings acknowledge Markel’s excellent operating cash flow, adequate liquidity and the financial flexibility afforded by MKL.
While Markel continues to benefit from its long-standing reputation among U.S. wholesalers and retailers, Markel’s recent underwriting performance continues to be adversely affected by prevailing soft market conditions, as well as increased expenses, which is due in part to costs associated with the implementation of a new business system and process initiatives from the One Markel transition. Similar to other insurers, Markel’s 2011 results were impeded by increased storm loss activity in the United States. Markel has long maintained underwriting leverage higher than the average of the surplus lines composite, driven by its conservative loss reserving. This conservatism also has resulted in the release of prior years’ loss reserves, which has served to bolster recent reported results.
Acquired by MKL in October of 2010, the rating actions for FirstComp recognize its new strategic role within the organization, its adequate risk-adjusted capitalization and favorable historical and prospective underwriting performance. The ratings also take into consideration the company’s rapid growth since 2006, potential future reserve development, relatively narrow business profile, competitive market pressures and the challenges related to today’s current macroeconomic factors. Started in 1997, FirstComp has become one of the leading providers of workers’ compensation coverage in the United States, specializing in small, main street businesses in underserved rural markets across 31 states.
The ratings of FirstComp also acknowledge its partial parental rating enhancement based on the capital support previously provided to FirstComp in the fourth quarter of 2010 and the 50% quota share reinsurance agreement with a Markel affiliate, Evanston Insurance Company, which covers all business written after November 1, 2010. The fourth quarter capital infusion of $31.5 million was used to support the reserve strengthening actions taken by Markel’s management.
The ratings for Deerfield reflect its low underwriting leverage and favorable historical underwriting performance, as well as the partial rating enhancement it receives through the implied support of Markel.
MKL’s financial leverage remains supportive of its current ratings as demonstrated by a debt-to-capital ratio and debt to tangible capital ratio of 27.5% and 33.0%, respectively, as of June 30, 2011.
The FSR of A (Excellent) and ICR of “a+” have been affirmed for Markel North America Insurance Group and its following members:
- Associated International Insurance Company
- Essex Insurance Company
- Evanston Insurance Company
- Markel American Insurance Company
- Markel Insurance Company
The following debt ratings have been affirmed:
— “bbb+” on $250 million, 5.35% senior unsecured notes, due 2021
— “bbb+” on $250 million, 6.80% senior unsecured notes, due 2013
— “bbb+” on $350 million, 7.125% senior unsecured notes, due 2019
— “bbb+” on $200 million, 7.35% senior unsecured notes, due 2034
— “bbb+” on $150 million, 7.50% senior unsecured notes, due 2046
The following indicative ratings on securities available under the existing shelf registration have been affirmed:
— “bbb-” on preferred securities
— “bbb” on subordinated debt
— “bbb+” on senior unsecured debt