Fitch Affirms Markel Corporation; Outlook Negative

CHICAGO & LONDON--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following:

Markel Corporation (Markel)

--Issuer Default Rating (IDR) at 'BBB+';

--$250 million 6.8% senior notes due Feb. 15, 2013 at 'BBB';

--$200 million 7.35% senior notes due Aug. 15, 2034 at 'BBB';

--$150 million 7.5% senior notes due Aug. 22, 2046 at 'BBB'.

Markel International Insurance Company (MIICL)

Associated International Insurance Company

Deerfield Insurance Company

Essex Insurance Company

Evanston Insurance Company

Markel American Insurance Company

Markel Insurance Company

--Insurer Financial Strength (IFS) at 'A.'

The Rating Outlook is Negative.

The rating affirmation reflects improvement in Markel's capital position thus far in 2009 with shareholders' equity increasing 8% to $2.4 billion on June 30, 2009 following the significant 17% decline in shareholders' equity to $2.2 billion on Dec. 31, 2008. The increase through the first six months of 2009 was driven by $49 million of net income and an increase in net unrealized gains of $97 million as credit and investment markets have partially recovered thus far in 2009.

The Negative Outlook reflects the company's above-average exposure to equity markets and the potential for investment market declines in 2009. While Fitch believes Markel's longstanding investment philosophy has enabled the company to grow book value over the years, in the near to intermediate term Markel faces greater uncertainty regarding further investment portfolio deterioration than property-casualty peers whose portfolios are weighted more heavily to U.S. treasuries and municipal bonds.

Fitch will continue to monitor Markel's underwriting and investment performance and its impact on capitalization in 2009.

During the first half of 2009 Markel North America's (MNA) statutory surplus increased 10% to $1.1 billion as a result of $24 million of net income, a $36 million change in unrealized investment gains, and a $64 million capital contribution from the holding company. Fitch notes that Markel holds approximately $818 million in cash and investments at the holding company which could be downstreamed to the insurance subsidiaries should capitalization deteriorate in 2009. In 2008 Markel demonstrated its willingness to support its insurance subsidiaries by contributing $135 million to MNA and $15 million to MIICL.

Markel reported a combined ratio of 97% through the first six months of 2009, up from 93% for the same period in 2008. Markel's year-to-date 2009 underwriting results were negatively impacted by a higher current accident year loss ratio attributable to price deterioration across multiple lines partially offset by $94 million of favorable reserve development on prior accident years. Markel began implementing rate increases across various product lines in late 2008 and exited a number of alternative risk transfer programs as well as the Markel Global Marine and Energy unit, which Fitch believes will benefit underwriting results going forward. Additionally, the company's expense ratio was up two points in 2009 due to the costs associated with its 'One Markel' project, which moves the company to a regional office model and updates systems to support the new structure.

Markel's ratings also benefit from conservative reserving and accounting practices across the organization. In recent years, MIICL has made significant progress in building a reserve buffer and bringing its reserving methodology into line with that of MNA. The ratings also consider Markel's significant reduction in its reinsurance recoverable exposure through collections and commutations.

Fitch believes Markel's high-quality bond portfolio provides ample liquidity to meet its policyholder and debt servicing obligations. Fitch notes that Markel has no material direct exposure to sub-prime residential mortgage-backed securities, preferred stocks or alternative investments. On June 30, 2009 the company had approximately $1.5 billion of cash and short-term investments. Additionally the company has a $375 million bank line of credit that expires in December 2010. The company's financial leverage, as measured by debt to total capitalization, remains low at 23.9%.

Fitch expects Markel will continue to hold cash and investments at the holding company equal to at least 2 times (x) annual interest expense. Fitch also expects operating-based earnings coverage will meet, or exceed, the 4x level that is the threshold for the current rating level.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.





Fitch Ratings, New York

Tana M. Higman, +1-312-368-3122 (Chicago)

Douglas M. Pawlowski, CFA, +1-312-368-2054 (Chicago)

Lyuba Tarnopolsky, +44 20 74717-4147 (London)

Morgan Lau, +44 20 7682-7384 (London)

Media Relations:

Brian Bertsch, +1-212-908-0549

brian.bertsch@fitchratings.com

Peter Fitzpatrick, + 44 (0)20 7417 4364 (London)

peter.fitzpatrick@fitchratings.com



Source: Fitch Ratings