TEXT-Fitch affirms Markel Corp ratings
May 9 - Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) ratings of Markel Corporation's (NYSE: MKL) seven principal property and casualty insurance 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.) 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. With solid earnings quality, MKL's long-term financial performance, measured by growth in book value per share, is above average. Rating concerns are principally related to the challenges posed by competitive market conditions affecting MKL's core specialty business. The company reported a combined ratio of 102.1% for 2011, which deteriorated from 96.5% and 95.2% for the full years 2010 and 2009, respectively. MKL's business has moderate exposure to catastrophe losses. However, for 2011 catastrophe losses of $152 million added 7.7 points to the combined ratio. This compares with an average 2.2 points in catastrophe losses over the five years ending 2010. Fitch believes that MKL's conservative reserving practices contribute to balance sheet strength. MKL has posted cumulative reserve redundancies (exceeding actuarially calculated point estimates) in each of the last eight years. Favorable prior year reserve development continues to exceed industry trends and trimmed 17.9 points from the combined ratio in 2011, compared with 16.0 points and 12.9 points for the full years 2010 and 2009, respectively. Reserves are backed by a high-quality, liquid fixed-income investment portfolio. Operating company capitalization is considered adequate but is supported by very strong holding company cash and invested assets, amounting to $1.2 billion at year-end 2011. Consolidated GAAP operating leverage of 0.60 times (x) at Dec. 31, 2011 has improved steadily over the last five years and remains within ratings expectations. Although somewhat higher than industry averages, MKL's financial leverage ratio (FLR), which excludes non-recourse secured subsidiary debt and FAS 115, of 26.9% at Dec. 31, 2011 remained within ratings expectations. Debt-servicing capabilities remain ample due to solid operating company maximum dividend capacity and holding company cash position. Share repurchase activity has been modest. Key ratings drivers that could lead to a downgrade of MKL's ratings include a material deterioration in underwriting or balance sheet strengths, and material underperformance of newly acquired businesses. Fitch's rating rationale anticipates consolidated GAAP operating leverage to remain below 1.0x and FLR to remain below 30%. Key ratings triggers that could lead to an upgrade of MKL's ratings include continued improvement in operating company capitalization along with GAAP operating EBIT to financing charges consistently above 8.0x, or a decrease in the target for maximum FLR to below 25%. Fitch has affirmed the following ratings with a Stable Outlook: Markel Corporation --IDR at 'BBB+'; --$250 million 6.8% senior notes due Feb. 15, 2013 at 'BBB'; --$350 million 7.125% senior notes due Sept. 30, 2019 at 'BBB'; --$250 million 5.35% senior notes due June 1, 2021 at 'BBB'; --$200 million 7.35% senior notes due Aug. 15, 2034 at 'BBB'; --$150 million 7.5% senior notes due Aug. 22, 2046 at 'BBB'. Associated International Insurance Co. Deerfield Insurance Company Essex Insurance Company Evanston Insurance Company Markel American Insurance Company Markel Insurance Company Markel International Insurance Company Limited --Insurer Financial Strength (IFS) at 'A'.