Recently, credit rating agency, Fitch Ratings affirmed the issuer default rating of Markel Corp. (MKL) at “BBB+” and the debt rating on its senior unsecured notes at “BBB” as per Reuters. The rating agency also affirmed the insurer financial strength rating of seven main property and casualty (P&C) insurance subsidiaries of Markel at “A”. All the ratings carry a stable outlook.
Markel’s proficiency in various P&C insurance products, foothold in niche markets and disciplined approach toward pricing and underwriting during all phases of market cycles support its strong ratings. Moreover, the company has a strong cash and investment position, while its reported operating leverage witnessed constant improvement over the past 5 years.
According to Fitch, Markel’s strong balance sheet is supported by its conservative approach to reserve creation. Moreover, the company has a highly liquid investment portfolio consisting of high-quality fixed-income securities.
However, Markel faces stiff competition in its core specialty business, which is a matter of concern. Moreover, the company is substantially exposed to catastrophe losses, which adversely affect its earnings.
While the stable outlook indicates low possibility of a revision in the near term, steady improvement in capitalization level, together with reported operating earnings before interest and taxes to financing charges ratio of over 8.0x, is likely to result in an upward revision. Moreover, if the maximum financial leverage ratio target falls below 25%, it could lead to a rating upgrade.
On the other hand, a substantial weakening of underwriting results or balance sheet position as well as lower-than-expected results in the recently acquired businesses could lead to a ratings downgrade.
Markel currently carries a Zacks #3 Rank (short-term Hold). Peer The Travelers Companies, Inc. (TRV) also carries a Zacks #3 Rank.
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