A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and the issuer credit rating (ICR) to "a" from "a-" of Markel International Insurance Company Limited (MIICL) (United Kingdom). The outlook on both ratings is stable.
The upgrade reflects MIICL's improving risk-adjusted capitalisation, good prospective operating performance and support from its U.S. parent company, Markel Corporation. A partially offsetting factor continues to be the potential for further reserve deterioration relating to the company's discontinued U.S. casualty business, although the importance of this factor for the rating is reducing.
A.M. Best anticipates a further improvement in MIICL's excellent risk-adjusted capitalisation in 2007 as a result of positive after-tax earnings, commutation of existing liabilities and a reduction in reinsurance recoveries. Capital and surplus is forecast to rise by approximately 10% from USD 372 million as at year-end 2006.
A good combined ratio between 95% and 100% is forecast for 2007 (2006: 105%), despite deteriorating market conditions in the company's core UK markets. Results are expected to be supported by favourable reserve development on recent accident years, principally for retail and professional liability business. In addition, claims development for business written prior to 2002 is likely to be stable. A reduction in premium income of over 5% is anticipated as the company cuts back on business where rating conditions are unfavourable.
MIICL has substantially reduced its exposure to claims relating to discontinued US casualty business through commutations and is likely to continue to actively pursue this strategy. As at year-end 2007, reserves for risks written prior to 2002 are forecast to represent approximately 40% of total gross reserves, down from 70% as at year-end 2004. However, inherent uncertainty relating to the adequacy of these reserves remains a factor in A.M. Best's rating analysis, albeit a diminishing one.
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