The notes carry an interest rate of 6.80%. The proceeds from the notes will be used to retire outstanding bank indebtedness and to partially pre-fund its 7.25% senior notes maturing in November 2003. The new debt is being issued under Markel's existing $475 million shelf registration. Presently, the financial strength ratings of Markel's subsidiaries and its other debt ratings remain unchanged. A.M. Best plans to complete its annual review of Markel and all its related ratings by the end of first quarter 2003. The outlook for all ratings is stable.
Markel's debt ratings incorporate a reduction of financial leverage over the past few years, and management is committed to continuing this trend. Given that the proceeds from the current debt offering will be used to repay existing debt in 2003, financial leverage remains approximately the same at 35.6% (including trust preferreds). A.M. Best supports management's intention to eliminate its short-term bank debt for a longer-term capital structure.
Proceeds from previous debt and equity offerings have been and are continuing to repay outstanding debt, restructure capital and provide additional capital to the U.S. subsidiaries to support growth, re-capitalize Markel International and fortify the holding company cash position. Holding company cash flow and existing liquid securities are sufficient to pay obligations in 2003 without subsidiary dividends leaving a $300 million untapped bank facility for alternative liquidity. Given the voluntary pay down of the bank facility, management is looking to re-build its cash cushion throughout 2003, potentially through the return of excess capital from various subsidiaries.
From the perspective of Markel's insurance company operations, the 2002 year brought continued strong underwriting performance and revenue production from Markel's North American operations. Markel International Insurance Company Limited (formerly known as Terra Nova Insurance Company Limited) and Markel Syndicate 3000 at Lloyd's produced improved underwriting results that indicate management is continuing to focus on instilling its core operational values into the company. Strategically, operations are focused on the specific lines of business with proven track records of profitability and/or excellent profit potential. Writings in the London Market met with the company's expectations in terms of volume and more importantly, price increases. However, the application of the company's stricter underwriting guidelines, reduced policy limits and re-underwriting of some business produced lower gross premiums written. Markel International will likely continue to present somewhat of a drag on the overall corporate results. Considering the consolidated underwriting profit produced in the fourth quarter 2002--the first such quarterly result since the purchase of Terra Nova Insurance Company--A.M. Best anticipates 2003 will be a good year for Markel overall. Profitability should produce capital that will combine with any funds downstreamed from the holding company to support growth. The positive full year North American and International results were produced despite the $44 million in pre-tax reserve increases in the third quarter of 2002, which affected both the domestic and overseas operations.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.
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