A.M. Best Affirms Ratings of Markel Corp. and Its Domestic Subsidiaries

Jun 26, 2009 (Close-Up Media via COMTEX) -- MKL | Quote | Chart | News | PowerRating -- 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 ICR of "bbb+" and debt ratings of Markel Corp. (MKL) (Glen Allen, VA) (NYSE: MKL). The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)

These rating actions recognize Markel's well-established market position as one of the leading excess and surplus lines organization's in the United States, its sustained operating profitability on a pretax basis and the group's solid risk-adjusted capitalization. These ratings also acknowledge the group's excellent operating cash flow, adequate liquidity and the financial flexibility of MKL.

Somewhat tempering these positive factors is Markel's elevated underwriting leverage and above average common stock leverage. Markel has long held an underwriting leverage position higher than the average of the surplus lines composite, driven by its conservative loss reserving. Significant capital losses in 2008, on both a realized and unrealized basis, reflect the impact of the financial market crisis. The group's posting of a net operating loss for the year was driven by other than temporarily impaired charges.

The decline in surplus in 2008 primarily was due to dividends paid, a change in unrealized gain/loss and a change in non-admitted assets relating to deferred tax assets. Dividends paid to MKL are partially offset by Markel's contributed capital later in 2008, which also contributed materially to the decline in surplus. Despite the elevated underwriting leverage, Markel's capitalization still supports its current ratings. Prior to 2008, excellent operating performance had fueled surplus appreciation annually helping to fortify capital strength.

MKL's financial leverage remains on par with its current rating level as demonstrated by a debt-to-capital ratio of 25.3 percent as of March 31. Holding company liquid assets were a robust 14.9 times annual interest expense at year-end 2008. For liquidity purposes, MKL maintains a $375.0 million revolving credit facility, of which there was $150.0 million outstanding as of March 31.

The FSR of A (Excellent) and ICRs of "a+" have been affirmed for Markel North America Insurance Group and its following members:

- Associated International Insurance Company

- Deerfield Insurance Company

- Essex Insurance Company

- Evanston Insurance Company

- Markel American Insurance Company

- Markel Insurance Company

The ICR of "bbb+" has been affirmed for Markel Corp.

The following debt ratings have been affirmed:

Markel Corp.--

-- "bbb+" on $250 million, 6.80 percent senior unsecured notes, due 2013

-- "bbb+" on $200 million, 7.35 percent senior unsecured notes, due 2034

-- "bbb+" on $150 million, 7.50 percent senior unsecured notes, due 2046

The following indicative ratings on securities available under the existing shelf registration have been affirmed:

Markel Corp.--

-- "bbb-" on preferred securities

-- "bbb" on subordinated debt

-- "bbb+" on senior unsecured debt

For Best's Credit Ratings, an overview of the rating process and rating methodologies: ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at: ambest.com/ratings/methodology.

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