Fitch Affirms Markel Corporation's Ratings Following Acquisition of Alterra

  Fitch Affirms Markel Corporation's Ratings Following Acquisition of Alterra

Business Wire

CHICAGO & LONDON -- May 1, 2013

Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) ratings of
Markel Corporation's (NYSE: MKL) seven principal property and casualty
insurance (P/C) subsidiaries. Fitch has also affirmed the following ratings
for MKL:

--Issuer Default Rating (IDR) at 'BBB+';

--Senior unsecured notes at 'BBB'.

Fitch has also affirmed the 'A' IFS ratings of Alterra Capital Holdings
Limited (Alterra)'s five principal P/C insurance subsidiaries.

Fitch has downgraded and removed from Rating Watch Negative Alterra's IDR and
debt ratings to align with those of MKL, based on Fitch's notching guidelines
for the U.S. regulatory environment:

Alterra Capital Holdings Limited

--IDR to 'BBB+' from 'A-'.

The Rating Outlook is Stable. A full ratings list is provided at the end of
this release.

KEY RATING DRIVERS

MKL's acquisition of Alterra Capital Holdings Limited (Alterra) for
approximately $3 billion closed today, May 1, 2013. Fitch views the
transaction as improving the business platform of the combined organization,
with a complementary and disciplined approach to risk management. Fitch
expects potential execution risk in integrating the two organizations to be
manageable.

MKL's rating strengths include pricing and underwriting discipline through
market cycles and expertise in a number of specialty P/C insurance products
and niche markets. The Alterra acquisition brings additional scale to the U.S.
platform and large account global insurance and reinsurance business, which
are new to MKL.

Pro forma gross written premiums are expected to exceed $4.4 billion and
combined GAAP operating leverage is expected to be roughly equivalent to the
0.57 times (x) MKL reported at Dec. 31, 2012.

Fitch believes that MKL's conservative reserving practices contribute to
balance sheet strength and quality of earnings. The company has posted
cumulative reserve redundancies (exceeding actuarially calculated point
estimates) in each of the last nine years.

MKL's favorable prior year development continues to exceed industry trends,
trimming 18.6 points and 17.9 points from the combined ratio in 2012 and 2011,
respectively. Material adjustments to Alterra's reserves are not expected and
MKL's reserving practices will be implemented in the Alterra book over time.

MKL's reserves are backed by a high-quality, liquid bond portfolio. The
pre-acquisition investment portfolio at year-end 2012 included 26% equities
and 21% cash and short-term investments. The pro forma investment allocation
including Alterra was approximately 73% fixed maturity, 15% equities, 10% cash
and short term and 2% other.

MKL's pro forma financial leverage ratio (FLR) is 26.3%. This compared to a
FLR 27.3%, excluding non-recourse subsidiary debt and FAS 115 for MKL at Dec.
31, 2012. MKL's debt-servicing capabilities remain ample due to solid
operating company maximum dividend capacity and holding company cash position.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade of MKL's ratings include
sustained improvement in operating performance as evidenced by return on
equity (ROE) of 10% or greater, or a decrease in the target for maximum FLR to
below 25%.

Key rating triggers that could lead to a downgrade of MKL's ratings include
material underperformance of newly acquired Alterra businesses, a material
deterioration in underwriting, a sustained decline in operating company
capitalization of 20% or greater, or an increase in the target for maximum FLR
to above 30%.

Fitch has affirmed the following ratings with a Stable Outlook:

Markel Corporation

--IDR at 'BBB+';

--7.125% senior notes due Sept. 30, 2019 at 'BBB';

--5.35% senior notes due June 1, 2021 at 'BBB';

--4.9% senior notes due July 1, 2022 at 'BBB'.

--3.625% senior notes due Mar. 30, 2023 at 'BBB';

--7.35% senior notes due Aug. 15, 2034 at 'BBB'.

--5% senior notes due Mar. 30, 2043 at 'BBB'.

Associated International Insurance Co.

Deerfield Insurance Company

Essex Insurance Company

Essentia Insurance Company

Evanston Insurance Company

Markel American Insurance Company

Markel Insurance Company

Markel International Insurance Company Limited

--Insurer Financial Strength (IFS) at 'A'.

Alterra Bermuda Limited

Alterra Europe plc

Alterra Reinsurance USA Inc.

Alterra Excess & Surplus Insurance Company

Alterra America Insurance Company

--IFS at 'A'.

Fitch has downgraded and removed from Watch Negative the following ratings:

Alterra Capital Holdings Limited

--IDR to 'BBB+' from 'A-'.

Alterra Finance LLC

--IDR to 'BBB+' from 'A-';

--6.25% senior notes due Sept. 30, 2020 to 'BBB' from 'BBB+'.

Alterra USA Holdings Limited

--IDR to 'BBB+' from 'A-';

--7.2% notes due April 14, 2017 to 'BBB' from 'BBB+'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Jan. 11, 2013).

Applicable Criteria and Related Research

Insurance Rating Methodology ¬タヤ Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=790159

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Contact:

Fitch Ratings
Primary Analyst
Martha M. Butler, CFA, +1 312-368-3191
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas M. Pawlowski, CFA, +1 312-368-2054
Senior Director
or
Tertiary Analyst
Anna Bender, +44-203-530-1671
Associate Director
or
Committee Chairperson
R. Andrew Davidson, CFA, +1 312-368-3144
Senior Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com
 
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