Moody’s Investor Service of Moody’s Corp. (MCO) affirmed an insurance financial strength (:IFS) rating of Essentia Insurance Company (Essentia), a subsidiary of Markel Corp. (MKL), at “A2.” However, the outlook for Essentia was changed to negative from stable by the credit rating agency.
The rating affirmation of Essentia came on the back of support provided by Markel’s lead insurance operating subsidiary, Evanston Insurance Company. The support comes in the form of 100% quota share reinsurance agreement. Evanston carries an “A2” IFS rating with a negative outlook.
Markel acquired Essentia in Jan, 2013 from OneBeacon Insurance Group Ltd. (OB). Essentia works as an insurance underwriter across the United States and reported $187 million of direct written premiums in 2012, while its policyholders’ surplus stood at $26 million at the end of third quarter of 2013. Essentia’s operations strongly complement Markel’s operating policy of aiming specialty business lines and products in niche markets and with unique risk characteristics.
Moreover, Markel’s lead insurance operating subsidiaries carrying “A2” IFS rating reflects its sturdy scale and position in excess and surplus (E&S) and specialty lines, consolidated risk adjusted capitalization, consistent underwriting earnings and also the strategic approach towards reserving.
However, Markel’s few volatile and long-tail lines of business, its exposure to catastrophes, and a large part of investment with equity exposure can drag on the earnings and cause capital volatility.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock along with maintaining credit worthiness in the market. We believe that strong ratings will help Markel and its lead insurance operating subsidiaries to retain investor confidence and help it write more businesses going forward.
Among other property and casualty insurers, A.M. Best Co. affirmed FSR of “A” (Excellent) and ICR of “a” for Aspen American Insurance Company and Aspen Specialty Insurance Company respectively in Sep, 2013. Both these companies are wholly owned subsidiaries of Aspen Insurance Holdings Limited (AHL). A stable outlook was assigned to all the ratings.
Markel presently carries a Zacks Rank #3 (Hold).