A.M. Best Co.
has commented that the issuer credit rating (ICR) and debt ratings of
(Markel) (Glen Allen, VA) [NYSE: MKL] and the financial strength rating and ICRs of its insurance subsidiaries are unchanged. The ratings of Markel and its subsidiaries were previously affirmed on November 13, 2012.
This comment is in response to the recently announced definitive merger agreement between Markel and
Alterra Capital Holdings Limited
(Alterra) [NASDAQ: ALTE] and takes into consideration the terms of the merger, the future business prospects and synergies gained from the transaction, as well as the pro forma financials of the combined entity. This merger increases Markel’s rank among the largest property/casualty insurance organizations in the United States, with approximately $6 billion of consolidated GAAP equity. While this merger enhances Markel’s diversification, scale and presence, A.M. Best also considers the relative size of this transaction to Markel, any future integration issues that might be encountered and some caution regarding the required level of due diligence, which come with any sizeable transaction as large as this.
Under the terms of the agreement, Markel will be acquiring Alterra for a combination of stock and cash. Each common share of Alterra stock will be exchanged for 0.04315 common shares of Markel stock plus $10 in cash. The aggregate consideration paid for Alterra is approximately $3.15 billion. Following the merger, Markel’s existing shareholders will own approximately 69% of the combined company, with Alterra’s shareholders owning the remaining 31%. Completion of the transaction is contingent upon customary closing conditions, including shareholder and regulatory approvals, and it is expected to close in the first half of 2013.
As of September 30, 2012, Markel’s total debt-to-capital ratio was 28%, increasing to 35% when debt is measured relative to adjusted tangible capital. Markel’s financial leverage is expected to improve following repayment of the $247 million unsecured senior notes at their maturity on February 15, 2013. While weather-related losses from Hurricane Sandy are expected to place some pressure on 2012 underwriting results, Markel’s earnings are expected to remain solid, and both its cash coverage ratios and financial leverage should remain supportive of its ratings.