Ratings Recap: Markel Int’l. & Lloyd’s Syndicate, Lancashire, Caribbean Alliance, Globe Re

June 20, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of the UK-based Markel International Insurance Company Limited (MIICL) with stable outlooks. Best also affirmed Markel’s Lloyd’s Syndicate 3000 – see below. “MIICL is expected to maintain excellent risk-adjusted capitalization in 2008, despite the anticipated payment of a dividend to its parent,” said Best. “The ongoing improvement in the quality of the company’s capital is expected to continue, owing to a further reduction in reinsurance recoveries.” Best also said it “believes the risk of further reserve deterioration relating to business written prior to 2002 will continue to diminish, as the level of technical reserves for these years reduces and development stabilizes. The combined ratio is expected to deteriorate in 2008 from the 95 percent achieved in 2007, principally due to persistent pricing pressure in the competitive UK retail and professional and financial risks markets. Best still said it expects a “small underwriting profit, supported by MIICL’s focus on prudent cycle management and conservative reserving practices in recent accident years. The rating also factors the explicit support and financial flexibility of the company’s publicly listed parent, Markel Corporation. MIICL and Lloyd’s Syndicate 3000 represent approximately 30 percent of the Markel group’s gross premium income and provide the group with access to UK, London market and international business. MIICL’s planning, reserving, investment management and catastrophe modeling benefit from the support of
Markel Corporation, and profitability objectives are fully aligned with those of the parent. In addition, the company is protected by the group’s joint property catastrophe program.

A.M. Best Co. has affirmed its Syndicate Rating of ‘A’ (Excellent) and the issuer credit rating of “a+” of Lloyd’s Syndicate 3000 with a stable outlook. “The ratings reflect the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates,” Best noted. The rating agency also indicated that “the syndicate’s financial flexibility is enhanced by the continued support of Markel Corporation, the ultimate parent company of its managing agent, Markel Syndicate Management Ltd. Best said that on an annually accounted basis it “anticipates a solid operating profit in 2008, assuming normal catastrophe experience and the absence of significant reserve movements.” The syndicate’s combined ratio is expected to increase to almost 100 percent, (from 91 percent last year) “principally due to downward pressure on prices in core business lines,” said Best. “However, performance is likely to be supported by material investment earnings and a prudent approach to cycle management. Gross premium income is expected to fall in 2008 as the syndicate cuts back on business where rating conditions are unfavorable.” Best added that it “believes Markel remains committed to syndicate 3000 as its main underwriting center for those markets where the Lloyd’s brand has strong recognition, particularly marine and large U.S. property risks. In November 2007, Markel opened an office in Singapore to write professional indemnity,
directors’ and officers’ liability and marine-related business on behalf of the syndicate. A Canadian office was established in 2005.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Bermuda-based Lancashire Insurance Company and Lancashire Insurance Company (UK) Limited. Best also affirmed the ICR of “bbb-” and debt rating of “bb+” on $132 million subordinated notes, due December 2035 of Lancashire Holdings Limited. The outlook for all ratings is stable. “These rating actions reflect the group’s strong risk adjusted capitalization, favorable operating results to date and financial flexibility afforded by its listing on AIM, a subsidiary market of the London Stock Exchange,” said Best. “Additionally, the ratings reflect the group’s successful execution of its business plan presented to A.M. Best when the ratings were assigned. Furthermore, the ratings recognize the systems and controls implemented to monitor and manage the risks to the organization. Partially offsetting these positive attributes are the challenges the group faces due to softening market conditions in its targeted lines of business. Despite these challenging operating conditions, the outlook is reflective of the expectation that the group will continue to produce favorable results and risk-adjusted capitalization will continue to support the ratings.”

A.M. Best Co. has upgraded the financial strength rating to A- (Excellent) from ‘B++’ (Good) and issuer credit rating (ICR) to “a-” from “bbb” of Caribbean Alliance Insurance Company Limited (CAI), located in Antigua and Barbuda, West Indies. The outlook for both ratings is stable. Best said the upgrades “are based on CAI’s solid capitalization, historically favorable operating results, conservative underwriting philosophy and growing market presence in the Eastern Caribbean Islands. The ratings also recognize management’s regional market expertise and its commitment to sound underwriting practices.” Best added that the Company’s “historically profitable operating results are attributable to CAI’s extensive knowledge of each island and control of its aggregate exposures. CAI’s underwriting guidelines focus on providing coverage to higher quality inland risks, while reducing exposures in coastal or flood prone areas. Partially offsetting these positive rating factors are CAI’s geographic concentration and competitive marketplace.

Standard & Poor’s Ratings Services said today that it assigned its credit ratings to the $100 million variable-rate notes series 1 to be issued by Globe Re Ltd. as follows: $45 Million Class A -‘BBB-; $40 Million Class B ‘BB’; $15 Million Class C -‘B’. S&P explained: “Insurance companies cede some of their risks to reinsurers to reduce their liability. They structure their reinsurance programs to pay out at certain loss levels (layers). Credit analyst Cameron Heath added: “The risks being securitized are participations in specific layers of reinsurance programs from selected cedants that cover catastrophic risks–including hurricane, tornado, and earthquake–in the U.S. only.” The notes originated with Hannover Rueckversicherung AG (Hannover Re). It transferred certain specific risks originated from the U.S. to Globe Re for securitization in the capital markets. Hannover Re, together with its subsidiary companies, has written the risks alongside its existing underwriting. Heath also indicated: “The purpose of this transaction is to take advantage of specific market opportunities in 2008. As such, this is a one-year transaction.”

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