OREANDA-NEWS. S&P Global Ratings said today that it has affirmed its 'BBB+' counterparty credit and senior unsecured debt ratings on Markel Corp. with a stable outlook. At the same time, we affirmed our 'A' counterparty credit and financial strength ratings on Markel Corp.'s core operating insurance subsidiaries and revised the outlook to positive from stable. We have also withdrawn our counterparty credit and financial strength ratings on Essex Insurance Co., reflecting this subsidiary's merger into another Markel operating subsidiary, Evanston Insurance Co.

"We view Markel's operating insurance subsidiaries as having a strong business risk profile and very strong financial risk profile, which lead to possible anchors of either 'a' or 'a+'," said S&P Global Ratings credit analyst Laline Carvalho. "We currently assign an 'a' anchor to Markel, reflecting our view that the group's competitive position is more in line with other peers rated in the 'A' range. Our positive outlook on Markel reflects our view that the group's business risk profile is strengthening in light of a stronger competitive position supported by strong operating performance and could be more in line with higher-rated peers over the next 12-24 months if the group continues to enhance its business platform and report strong results."

We currently apply a two-notch differential between our financial strength rating on Markel's core insurance companies and our counterparty credit and senior debt ratings on the holding company--nonstandard notching for U. S.-based companies (the standard notching is three notches). This reflects Markel's history of holding significant amounts of nonregulated cash and invested assets at the holding company level, which totaled $1.4 billion as of March 31, 2016. Outside of a large acquisition, we believe it's likely that Markel Corp. will maintain significant cash and invested assets at the holding company, likely more than $1 billion.

"Our stable outlook on Markel Corp. and related core intermediate holding companies reflects our view that the ultimate parent's fixed-charge coverage and financial leverage metrics are more in line with other 'BBB+' rated insurance holding companies," Ms. Carvalho continued. "We may revise our outlook on Markel's operating insurance subsidiaries to stable in the next 12-24 months if the group experiences a sustained deterioration in its competitive position, as shown by earnings performance consistently below peers, if underwriting losses are meaningfully outside its tolerances, or its capital adequacy position falls significantly."

We may lower our ratings on the ultimate holding company and related intermediary holding companies if cash and investments at the holding company fall to less than $800 million or if the allocation of its consolidated capital changes so that a significant majority of the group's capital base is located in the U. S., where we believe the regulatory environment is more stringent. We may also lower our rating on the ultimate parent if fixed-charge coverage falls to and remains at less than 5x.

"We may raise our ratings on Markel's operating subsidiaries over the next 12-24 months if we believe their competitive position has strengthened to the level of higher-rated peers in the 'A+' range," Ms. Carvalho added. "We would expect Markel to continue showing operating results in line with or above its peer group and extremely strong capital and earnings profile. It's unlikely that we will raise our ratings on the ultimate holding company in the next two years given our expectation that the holding company will likely continue to report fixed-charge coverage and financial leverage in line with the current ratings."