01—Abstract
Summary
Summary of the 10-K filed March 27, 2001. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation, an insurance holding company, reported a 2000 net loss of $27.6 milliona (diluted loss of $3.99 per share), compared with net income of $40.6 million in 1999, while comprehensive income rose to $81.5 million on unrealized investment gains.
The result was driven by the March 2000 acquisition of Terra Nova (Bermuda) Holdings Ltd., now Markel International, whose continuing operations posted a 116% combined ratio. Consolidated combined ratio reached 114% versus 101% in 1999, with North America at 97%. Gross premium volume nearly doubled to $1.13 billion, and earned premiums rose to $938.5 millionb from $437.2 million.
Book value per share increased 50% to $102.63, and shareholders' equity rose to $752.4 millionc. Total investments and cash grew to $3.14 billion, and the investment portfolio returned 12% in 2000. Debt to total capital (Capital Securities as debt) was 49%, or 39% with the Capital Securities treated as equity.
Management noted that in February 2001 the company completed an offering of 1,288,940 shares with net proceeds of about $198.5 milliond, which it expects to use to repay or retire long-term debt. Management describes the North American specialty business as performing well in a firming market, with gross written premiums up 27%.
Management attributes the International underwriting losses to business on the books before the acquisition and says it is repricing and reunderwriting that business. The filing also notes a lawsuit seeking approximately $27 million against Terra Nova, which the company intends to defend vigorously.
02—Key points
Key Highlights
- Net loss of $27.6 million, or $3.99 per diluted share, in 2000, versus net income of $40.6 million ($7.20 per diluted share) in 1999
- Consolidated U.S. GAAP combined ratio of 114% in 2000 (Markel North America 97%, Markel International 116%, Other/Discontinued Lines 174%)
- Acquisition of Terra Nova (Bermuda) Holdings Ltd., now Markel International, completed March 24, 2000; total consideration about $658 million
- Gross premium volume rose to $1.13 billion from $594.9 million; earned premiums rose to $938.5 million from $437.2 million
- Book value per share increased 50% to $102.63; shareholders' equity of $752.4 million at year-end 2000
- Total investments and cash of $3.14 billion; 2000 total portfolio return of 12.4% per the investment returns table
- February 2001 common stock offering of 1,288,940 shares with net proceeds of about $198.5 million, to be used to repay or retire debt
03—Questions
Frequently Asked Questions
Why did Markel report a net loss in 2000?
The filing attributes the loss mainly to underwriting losses at Markel International, both from continuing programs and from discontinued lines, along with $32 million of reserve strengthening on Gryphon discontinued lines. Interest expense rose to $52.3 million and amortization of intangible assets rose to $23.3 million, both largely from the Markel International acquisition.
How did the Terra Nova acquisition affect the company?
The company became the holding company for Markel North America and acquired Terra Nova (Bermuda) Holdings Ltd., which became its international division, Markel International. The company issued about 1.75 million common shares and contingent value rights and paid about $325 million in cash. It borrowed $245 million under its $400 million revolving credit facility to help fund the transaction.
How strong is the North American business compared with International?
Markel North America reported a 97% combined ratio and gross written premiums up 27%, with the company saying it was tightening underwriting in a firming market. Markel International reported a 116% combined ratio from continuing operations, which management said was about 6% worse than its original expectation, and it is repricing and reunderwriting that book.
What did management do with the balance sheet after the acquisition?
The debt to total capital ratio rose to 39% (Capital Securities as equity) from 24%, above the company's long-term target of one-third debt. The February 2001 equity offering raised about $198.5 million, which management said would bring the ratio below that target once the proceeds are used to repay or retire debt.
04—Continue