01—Abstract
Summary
Summary of the 10-K filed March 26, 2003. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation, a Virginia corporation listed on the New York Stock Exchange, reported for fiscal 2002 net income of $75.3 milliona, or $7.65 per diluted share, compared with a net loss of $125.7 million in 2001.
Total operating revenues rose to $1.77 billionb from $1.40 billion, and earned premiums increased to $1.55 billion from $1.21 billion. Gross premium volume reached $2.2 billion, up from $1.8 billion, driven by the Excess and Surplus Lines and Specialty Admitted segments. The U.S. GAAP combined ratio improved to 103% from 124% in 2001, and the London Insurance Market segment improved to 107% from 134%.
Book value per share rose 7% to $117.89c. The result still carries notable reserve pressure. The company recorded $131.6 million of prior-year reserve increases in 2002, including $66.3 million in Other (Discontinued Lines), of which $35.0 million related to asbestos exposures.
Gross asbestos-related reserves were $255.7 milliond at year end. Other (Discontinued Lines) produced an underwriting loss of $68.9 million, and the company disclosed that its IRS examination of 1997 to 1999 returns includes an assessment based on alleged reserve overstatements, which it is appealing. Liquidity improved, with operating cash flow of $507.4 million versus $164.5 million in 2001.
Debt to total capital was 27%, and the company issued $200 million of 6.80% senior notes due 2013 in February 2003 to repay revolver borrowings. The company stated it does not intend to pay cash dividends and expects its combined ratio to improve during 2003 as rate increases are earned.
02—Key points
Key Highlights
- Net income of $75.3 million ($7.65 per diluted share) in 2002, versus a net loss of $125.7 million in 2001
- U.S. GAAP combined ratio improved to 103% in 2002 from 124% in 2001; the company returned to underwriting profitability in the fourth quarter of 2002
- Gross premium volume grew to $2.2 billion from $1.8 billion; Excess and Surplus Lines gross premium volume increased 56% to $1.3 billion
- Prior-year reserve increases of $131.6 million in 2002, including $35.0 million for asbestos exposures in Other (Discontinued Lines)
- Operating cash flow of $507.4 million in 2002, compared with $164.5 million in 2001
- Book value per share of $117.89, up 7% for the year; the company's stated objective is 20% compound annual growth over five years
- Long-term debt of $404.4 million and convertible notes of $86.1 million at year end; February 2003 issuance of $200 million 6.80% senior notes
03—Questions
Frequently Asked Questions
What drove the swing from a 2001 net loss to 2002 net income?
The filing attributes the improvement mainly to higher underwriting results across the three underwriting segments, with minimal catastrophe losses in 2002 compared with 2001's September 11 losses of $75.0 million net. Net realized gains were $51.0 million in 2002 versus $20.0 million in 2001, and amortization of intangible assets fell to $10.7 million from $30.7 million after the adoption of Statement No. 142.
How much exposure does Markel still have to asbestos and environmental claims?
At December 31, 2002, asbestos-related reserves were $255.7 million gross and $134.4 million net. Gross A&E reserves totaled $356.2 million. The company stated that these reserves are not discounted and are forecast to pay out over the next 50 years, and that adverse development is possible.
What is the status of the London Insurance Market operations?
The London Insurance Market segment's combined ratio improved to 107% in 2002 from 134% in 2001, and it posted an underwriting loss of $36.6 million for the year. Quarterly combined ratios improved from 110% in the first quarter to 104% in the fourth quarter. The company stated that it expects this business to produce underwriting profits.
What does the company expect for 2003?
The company anticipates gross premium volume growth of 15% in 2003, with domestic operations slightly higher and international operations slightly lower. It expects its U.S. GAAP combined ratio to improve as rate increases are earned, and it plans to invest an additional $150 million to $200 million in equity securities during 2003.
04—Continue