Moody's cuts Markel outlook

Moody's Investors Service confirmed Markel Corp.'s senior debt at Baa3 and its other ratings, but changed the outlook to negative from stable, primarily due to the continued pattern of adverse reserve development that has emerged in recent years.

Third quarter earnings included a $50 million net charge for prior years' loss reserves and a $55 million net charge to bolster asbestos and environmental reserves. Although nine-month results continued to show improvement, Moody's noted earnings volatility was inconsistent with a stable outlook.

Moody's believes financial and double leverage remain relatively high, and that financial flexibility is constrained due to lower unencumbered dividend capacity relative to fixed charges.

Markel presently has sufficient liquidity and capital resources, but Moody's believes dependence on bank borrowings to meet near-term holding company obligations and other working capital needs remains a concern.

Fitch confirms Markel

Fitch Ratings confirmed the ratings of Markel Corp., including senior debt at BBB- and trust preferreds at BB+. The outlook is stable.

Overall, Markel's continuing insurance operations have benefited from the hard market conditions and have reported strong underwriting results in 2003, Fitch said. However, results were partially offset in third quarter by charges for legacy issues that results in a boost to reserves.

Third quarter charges notwithstanding, Fitch believes Markel generally employs conservative accounting and reserving practices that improve the quality of its earnings and capital.

Ratings also consider moderately high financial leverage, which is above 30%.

Fitch confirms General Mills

Fitch Ratings confirmed General Mills' BBB+ senior unsecured debt rating. The outlook remains negative.

General Mills' ratings are supported by management's commitment to debt reduction and stable operating earnings and cash flow, which are derived from a balanced portfolio of no. 1 and no. 2 packaged food brands, Fitch said.

The company has achieved volume growth outpacing the packaged food industry and other key players within the industry. Volume growth was driven by items in faster growing categories within the sector and successful new product and packaging innovations.

Importantly, General Mills' manufacturing and distribution programs aimed at cost reduction and increasing efficiency have led to $350 million in cumulative annual cost savings since the $10.0 billion acquisition of Pillsbury and another $125 million is expected this year, Fitch said. These programs include eliminating redundancies, bringing functions previously outsourced into the organization, and improving the efficiency of the supply chain, selling and distribution networks.

Fitch's negative outlook reflects the company's weak credit protection measures for its assigned rating. The outlook is expected to remain negative until the company pays down a significant portion of its outstanding debt and leverage becomes more commensurate with the rating level.

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