A.M. Best Affirms Ratings of Markel Corporation and Its Affiliates

A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of the members of the Markel North America Insurance Group (Markel). Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and the ICR of “bbb+” of FirstComp Insurance Company (FirstComp) (Omaha, NE). Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and the 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].

A.M. Best also has affirmed the FSR of A (Excellent) and the ICRs of “a” of Markel Bermuda Limited (Markel Bermuda), formerly Alterra Bermuda Limited, and its affiliated operating companies. Markel Bermuda was acquired by MKL in May 2013.

In addition, A.M. Best has affirmed the ICR of “bbb” of Markel Bermuda’s immediate parent company, Alterra Capital Holdings Limited (Alterra), and all debt ratings of Alterra, Alterra USA Holdings Limited and Alterra Finance, LLC (both domiciled in Delaware). At the same time, A.M. Best has withdrawn the debt rating of “bb+” on the preferred securities of Alterra Capital Trust I, as this entity was dissolved. All the above named companies are domiciled in Bermuda, unless otherwise specified. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)

These rating affirmations follow MKL’s fourth quarter earnings announcement and consider the integration and continued assimilation of Alterra and its operating companies into MKL as well as the benefits to be garnered from this combination in terms of enhanced scale, global reach, investment float, brand, broader distribution and Markel’s solidified leadership position in the U.S. wholesale and specialty commercial marketplace. These benefits also consider the organization’s enhanced diversification attributes and its ability to participate using a larger balance sheet. With assimilation efforts still in progress, A.M. Best will continue to maintain a dialogue with management to review and discuss future plans and the ultimate alignment of existing entities.

The ratings of Markel and its members reflect the specialty niche markets and businesses that each of these entities serve and their defined roles within the group. Markel also benefits from its relationships, particularly with wholesalers and retailers, and its leadership position among excess and surplus lines insurers in the United States. The ability to customize and create solutions for its insureds is a key component to Markel’s success over the years. The group also benefits from its ability to seek out and find new specialty niche opportunities in the admitted market as demonstrated by some of its more recent acquisitions and partnerships. In addition, these ratings acknowledge Markel’s supportive risk-adjusted capitalization, excellent operating cash flow, adequate liquidity and the financial flexibility afforded to it through MKL. Despite Markel’s high loss reserve leverage, its loss reserves are generally viewed as conservative, which has served the group well in terms of favorable reserve development.

While the ratings of FirstComp are afforded partial rating enhancement—given the explicit financial support provided and its strategic role within the group—these ratings also take into consideration the company’s relatively narrow business profile, competitive market pressures and the challenges related to today's current macroeconomic factors. The ratings of FirstComp also consider its supportive risk-adjusted capitalization, as well as its favorable historical and prospective underwriting performance. Explicit support is provided by Markel’s affiliate, Evanston Insurance Company, through quota share reinsurance, which covers 50% of all business written on and after November 1, 2010. FirstComp is one of the leading providers of workers’ compensation coverage in the United States, specializing in small, main street businesses in underserved rural markets across 28 states.

The ratings for Deerfield also recognize its niche role within the group and are afforded partial rating enhancement through the implied support of Markel.

The ratings of Markel Bermuda and its subsidiaries reflect the niche markets and businesses that each of these entities serve and their current roles within Markel Bermuda and MKL. While A.M. Best acknowledges the inherent benefits from the merger of Alterra and MKL—and that the combination should ultimately prove to be beneficial—the ratings of Markel Bermuda receive no rating enhancement until the fruits of management’s integration/assimilation efforts are solidified. Aside from this, Markel Bermuda’s ratings reflect its broad acceptance among the broker market, supportive risk-adjusted capitalization and the advantages of being part of a larger organization. These attributes are somewhat offset by legacy reserves associated with U.S. casualty business, soft reinsurance pricing due to the emergence of new alternative capital flowing into the reinsurance space, low new money yields and the recent reserve strengthening actions taken in 2013.

Post-merger, MKL's financial leverage remains supportive of its current ratings. MKL’s total debt (preferred stock) -to-capital ratio as of December 31, 2013 was 25.3%, increasing to 30.5% when debt is measured relative to adjusted tangible capital. Parent holding company cash flow, liquidity and debt servicing capabilities are all supportive of the ratings.

Drivers that could lead to a downgrading of the ratings and/or a revision of the outlook to negative include unfavorable operating profitability trends, outsized catastrophe or investment losses in a given quarter or year, material adverse loss reserve development and/or a material decline in the organization’s risk-adjusted capital. Alternatively, triggers that could lead to an upgrading of the ratings include continued favorable operating profitability, coupled with maintenance of a strong risk-adjusted capital level and/or changes to the explicit or implicit support from MKL and its members.

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

• Associated International Insurance Company
• Essex Insurance Company
• Essentia Insurance Company
• Evanston Insurance Company
• Markel American Insurance Company
• Markel Insurance Company

The FSR of A (Excellent) and ICRs of “a” have been affirmed for Markel Bermuda Limited and its following operating affiliates:

• Markel Europe plc
• Alterra America Insurance Company
• Alterra Excess & Surplus Insurance Company
• Alterra Reinsurance USA Inc.

The following debt ratings have been affirmed:

Markel Corporation—

-- “bbb+” on $250 million, 5.35% senior unsecured notes, due 2021

-- “bbb+” on $350 million, 7.125% senior unsecured notes, due 2019

-- “bbb+” on $200 million, 7.35% senior unsecured notes, due 2034

-- “bbb+” on $350 million, 4.90% senior unsecured notes, due 2022

-- “bbb+” on $250 million, 3.625% senior unsecured notes, due 2023

-- “bbb+” on $250 million, 5.0% senior unsecured notes, due 2043

Alterra USA Holdings Limited (guaranteed by Alterra Capital Holdings Limited)—

-- “bbb” on $100 million, 7.2% senior unsecured notes, due 2017

Alterra Finance, LLC (guaranteed by Alterra Capital Holdings Limited)—

-- “bbb” on $350 million, 6.25% senior unsecured notes, due 2020

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

Markel Corporation—

-- “bbb-” on preferred securities

-- “bbb” on subordinated debt

-- “bbb+” on senior unsecured debt

Alterra Capital Holdings Limited—

-- “bb+” on preferred securities

-- “bbb-” on subordinated debt

-- “bbb” on senior unsecured debt

Alterra USA Holdings Limited (guaranteed by Alterra Capital Holdings Limited)—

-- “bbb-” on subordinated debt

-- “bbb” on senior secured debt

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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