Markel Corp.’s plan to acquire State National Companies for $919 million drew steady, neutral reaction from both Fitch Ratings and A.M. Best.
Fitch Ratings responded to the July 26 acquisition announcement by affirming Markel’s current ratings and the company’ stable ratings outlook. Similarly, A.M. Best left its current ratings unchanged, and said that Markel’s credit ratings outlook remains stable.
“While [Markel’s) credit risk to reinsurance recoverables will increase following the close of the transaction, Fitch believes this risk is manageable,” Fitch ratings said, adding that the purchase price for State National should be financial leverage neutral.
“Fitch believes that [Markel] is likely to continue to hold significant cash and investment at the holding company following the close of the transaction,” the ratings agency said.
Similarly, A.M. Best said that once the acquisition is complete by year-end, “Markel’s debt-to-capital ratio is expected to remain within A.M. Best’s guidelines for the current rating.”
A.M. Best noted that the “debt-to-tangible capital ratio will be elevated from its recent levels, reflecting the increase in goodwill and intangible assets associated with these transactions.” But at the same time, A.M. Best said, this would be offset by “solid cash flows associated with the businesses being acquired.”
Fitch affirmed the ‘A+’ (Strong) insurer financial strength ratings for Markel’s main property/casualty insurance subsidiaries, as well as its ‘BBB+’ ranking for Markel’s senior unsecured notes.
A.M. Best said that the long-term issuer credit rating of “bbb+” for Markel remains unchanged. As well, all long-term issuer credit ratings for Markel and all financial strength ratings and long-term issuer credit ratings for Markel’s insurance subsidiaries remain unchanged.
Markel said it is buying State National in a bid to diversify its underwriting and revenue streams. State National is a specialty property/casualty insurance services provider focused on collateral protection insurance that insurers personal automobiles, and other vehicles held as collateral for loans made by credit unions. Its Program Services segment provides access to the US. property/casualty insurance market in exchange for ceding fees. State National is a major player in the pure-play U.S. insurance fronting business.
Markel, based in Virginia, is a holding company for insurance, reinsurance and global investment operations.
Sources: Fitch Ratings, A.M. Best