01—Abstract
Summary
Summary of the 10-K filed March 1, 2005. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation reported 2004 net income of $165.4 milliona, up from $123.5 million in 2003, on earned premiums of $2.05 billion and total operating revenues of $2.26 billion.
Diluted net income per share was $16.41b, versus $12.31 in 2003. The company's U.S. GAAP combined ratio improved to 96% from 99%, and the company reported an underwriting profit of $72.1 million. Book value per share rose to $168.22 from $140.38, and shareholders' equity reached $1.66 billion at year end.
The company operates in three specialty segments: Excess and Surplus Lines, Specialty Admitted, and London Insurance Market. The London segment posted an underwriting loss of $99.9 millionc in 2004, driven partly by $46.1 million of hurricane losses and $30.0 million of prior-year reserve increases. Growth and earnings quality were mixed.
Gross premium volume fell about 2% to $2.52 billiond, as the Excess and Surplus Lines segment declined 3% and the London segment declined 5%, reflecting increased competition and pricing pressure. Net investment income rose to $204.0 million, and the investment portfolio grew to $6.3 billion. Prior-year reserve increases were $33.9 million in 2004, down sharply from $128.6 million in 2003, though the company did strengthen reserves at Investors Brokered Excess and Surplus Lines and at Markel International.
Management noted continued pricing pressure expected in 2005. The balance sheet expanded, with total assets of $9.40 billion and senior long-term debt of $610.3 million after a $200 million issuance of 7.35% senior notes due 2034.
The company sold its Corifrance subsidiary on January 11, 2005 for approximately $60 million, and it does not pay a cash dividend, choosing to retain earnings. The filing also discloses $1.8 billion of reinsurance recoverables, with the ten largest reinsurers representing 57% of that balance.
02—Key points
Key Highlights
- Net income of $165.4 million in 2004, up from $123.5 million in 2003; diluted EPS of $16.41 versus $12.31
- U.S. GAAP combined ratio of 96% in 2004, improved from 99% in 2003 and 103% in 2002
- Book value per share of $168.22 at year end, up 20% for 2004; five-year compound annual growth of 20%
- Gross premium volume declined to $2.52 billion from $2.57 billion, with the Excess and Surplus Lines and London segments both down
- London Insurance Market segment posted an underwriting loss of $99.9 million, including $46.1 million of hurricane losses and $30.0 million of prior-year reserve increases
- Net investment income rose to $204.0 million; invested assets reached $6.3 billion
- Sold Corifrance subsidiary on January 11, 2005 for approximately $60 million; no cash dividend paid, with earnings retained
03—Questions
Frequently Asked Questions
How profitable was Markel's underwriting in 2004?
Markel recorded an underwriting profit of $72.1 million in 2004, compared with $10.0 million in 2003 and an underwriting loss of $52.7 million in 2002. The consolidated U.S. GAAP combined ratio was 96%. The Excess and Surplus Lines segment had an 87% combined ratio and Specialty Admitted had 86%, while the London Insurance Market segment had 117% and the Other segment had 136%.
Did premium volume grow in 2004?
No. Gross premium volume was $2.52 billion in 2004, down from $2.57 billion in 2003. The company attributed the decline to increased competition and its re-underwriting of certain books of business. Net earned premiums did increase to $2.05 billion from $1.86 billion, reflecting higher net written premiums in prior years and a higher net retention of 81%.
What risks did the filing highlight for investors?
The filing highlighted loss reserve uncertainty, particularly for asbestos and environmental exposures and the Investors Brokered Excess and Surplus Lines unit, as well as collectibility of $1.8 billion in reinsurance recoverables. The company also flagged continued pricing pressure expected in 2005, potential terrorism-related losses, and the possibility that the Terrorism Risk Insurance Act may not be extended beyond December 31, 2005.
Does Markel pay dividends, and how is it financed?
Markel does not pay a cash dividend on its common stock and expects to retain earnings for the foreseeable future. Senior long-term debt was $610.3 million at year end, including $196.8 million in net proceeds from 2004 senior notes. The company had a $220 million revolving credit facility with no balance outstanding at December 31, 2004, and it reported a debt-to-total-capital ratio of 28% when the 8.71% Junior Subordinated Debentures are treated as equity.
04—Continue