Reuters logo
Fitch Rates Markel Corporation's New Senior Debt 'BBB+'; Affirms Ratings
October 30, 2017 / 8:31 PM / 22 days ago

Fitch Rates Markel Corporation's New Senior Debt 'BBB+'; Affirms Ratings

(The following statement was released by the rating agency) CHICAGO, October 30 (Fitch) Fitch Ratings assigns a senior unsecured debt rating of 'BBB+' to Markel Corporation's (NYSE: MKL) new issues of $300 million senior notes due 2027 and $300 million due 2047. In addition, Fitch affirms all of MKL's ratings with a Stable Outlook. The affirmations include the Insurer Financial Strength rating of its operating subsidiaries at 'A+' (Strong), MKL's outstanding senior notes at 'BBB+' and Issuer Default Rating (IDR) at 'A-'. A full list of the ratings actions follows at the end of this release. MKL intends to use the net proceeds of this offering for general corporate purposes. With the new issuance, MKL's pro forma financial leverage ratio (FLR) will increase to 24.9% at Sept. 30, 2017, compared to 20.9% actual at Sept. 30, 2017 and 22.5% at Dec. 31, 2016. MKL's operating EBIT coverage fell to 0.4x for the first nine months of 2017, from 5.7x in 2016 and 6.4x in 2015. MKL's debt servicing capability is enhanced by holding company cash and liquid investments of $2.5 billion at Sept. 30, 2017. Fitch estimates that MKL will continue to hold significant cash and investments following the close of the pending acquisition of State National Companies, Inc. and including the net proceeds from the offering. The affirmation of MKL's ratings follows a review of the company's year-to-date detailed results, including the previously reported pre-tax catastrophe losses estimate of $503 million, including reinstatement premiums, for third quarter 2017 hurricanes and other events. MKL's combined ratio through nine months 2017 increased to 108.5% and included 16.1 points for catastrophe losses, compared to 92.9%, and 1.1 points in catastrophe losses for the same period in 2016. Net income to shareholders for nine months 2017 fell to -$40 million, from $323 million for the same period in 2016. Fitch estimates net income will be modestly positive for full-year 2017. MKL's shareholders' equity increased 5.3% to $8.9 billion at Sept. 30, 2017, following an increase of 8% for full-year 2016. Contributing to the growth were unrealized gains on equity investments, for which MKL has a higher than average allocation, as well as net income in 2016. KEY RATING DRIVERS Other rationale for the affirmation of MKL's ratings include the company's strong business and operating risk profile, strong financial performance and very strong balance sheet profile. Total statutory surplus in MKL's statutory entities, including Markel Capital Limited, grew over 7% in 2016 to $6.3 billion. The U.S. operations score on Fitch's Prism capital model remained 'Strong' for 2016. For 2015, Markel Bermuda and Markel International scored 'Extremely Strong' and 'Very Strong', respectively, on Fitch's factor-based model. Available to support operating company capitalization, if needed, are holding company cash and liquid assets of $2.5 billion at Sept. 30, 2017. MKL's reserving practices contribute to both balance sheet strength and earnings quality. MKL posted cumulative reserve redundancies (exceeding actuarially calculated point estimates) in each of the last 13 years. Favorable prior-year development continues to exceed industry trends, trimming 10.9 points, 13.1 points and 16.4 points, from the combined ratio for nine months 2017 and for full years 2016 and 2015, respectively. RATING SENSITIVITIES Key rating factors 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 sensitivities 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 writedown or a material deterioration in underwriting performance, a decline in operating company surplus or shareholders' equity of 20% or greater, and FLR greater than 28%. FULL LIST OF RATING ACTIONS Fitch has assigned the following ratings: Markel Corporation --Senior notes due 2027 at 'BBB+'; --Senior notes due 2047 at 'BBB+'. Fitch has affirmed the following ratings: Markel Corporation --Long-Term Issuer Default Rating (IDR) at 'A-'; --Senior notes due Sept. 30, 2019 at 'BBB+'; --Senior notes due June 1, 2021 at 'BBB+'; --Senior notes due July 1, 2022 at 'BBB+'; --Senior notes due March 30, 2023 at 'BBB+'; --Senior notes due Aug. 15, 2034 at 'BBB+'; --Senior notes due March 30, 2043 at 'BBB+'; --Senior notes due April 5, 2046 'BBB+'. Alterra Finance LLC --Long-Term IDR at 'A-'; --Senior notes due Sept. 30, 2020 at 'BBB+'. Alterra America Insurance Company Essentia Insurance Company Evanston Insurance Company Markel American Insurance Company Markel Bermuda Limited Markel Global Reinsurance Company Markel Insurance Company Markel International Insurance Company Limited --IFS at 'A+'. The Rating Outlook is Stable. MKL's ratings were affirmed on July 27, 2017 following the company's announced agreement to acquire the outstanding shares of State National Companies, Inc. The transaction is expected to close in the fourth quarter of 2017. Contact: Primary Analyst Martha M. Butler, CFA Senior Director +1-312-368-3191 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Douglas M. Pawlowski, CFA Senior Director +1-312-368-2054 Tertiary Analyst Ekaterina Ishchenko Assistant Director +44-203-530-1532 Committee Chairperson Mark E. Rouck, CFA Senior Director +1-312-368-2085 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below