01—Abstract
Summary
Summary of the 10-K filed March 1, 2007. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation (now Markel Group Inc.) reported a strong 2006 in its 10-K filed March 1, 2007.
Net income rose to $392.5 milliona from $147.9 million in 2005, and the U.S. GAAP combined ratio improved to 87% from 101%. Underwriting profit was $283.9 million, compared with an underwriting loss of $11.8 million in 2005. The filing attributes the improvement to a benign hurricane season relative to 2005, lower losses from the 2005 Hurricanes (Katrina, Rita and Wilma), and favorable development on prior years' loss reserves of $132.3 million.
Gross premium volume grew to $2.54 billionb from $2.40 billion, and earned premiums reached $2.18 billion. The company operates in three segments: Excess and Surplus Lines, Specialty Admitted, and the London Insurance Market. Shareholders' equity increased to $2.30 billion from $1.71 billion, and book value per share rose 32% to $229.78.
Net investment income was $271.0 millionc, and the taxable equivalent total investment return was 11.2%. The filing also flags material risks.
Louisiana court rulings on flood coverage after Hurricane Katrina could increase losses, and the company said the impact "may be material" but could not yet quantify it. Asbestos and environmental reserves were increased, and the company noted continuing competitive pressure on pricing in 2007.
02—Key points
Key Highlights
- Net income of $392.5 million in 2006, up from $147.9 million in 2005
- U.S. GAAP combined ratio of 87% in 2006, compared with 101% in 2005
- Underwriting profit of $283.9 million in 2006, versus an underwriting loss of $11.8 million in 2005
- Book value per share of $229.78, up 32% for the year; five-year compound annual growth of 16%
- Gross premium volume of $2.54 billion and net written premiums of $2.19 billion in 2006
- Favorable development of $132.3 million on prior years' loss reserves, primarily from the Shand Professional/Products Liability unit
- Potential material increase in Hurricane Katrina losses if Louisiana court rulings on flood coverage are upheld
03—Questions
Frequently Asked Questions
What drove the improvement in Markel's underwriting results in 2006?
The combined ratio improved to 87% from 101%. The filing cites lower losses from the 2005 Hurricanes ($54.9 million of underwriting losses in 2006 versus $246.3 million in 2005) and favorable development on prior years' loss reserves of $132.3 million, largely from redundancies at the Shand Professional/Products Liability unit.
What is the main litigation-related risk to Markel's losses?
Beginning in late November 2006, Louisiana state and federal trial courts ruled that flood damage following the New Orleans levee breaches may not be excluded from coverage under similar policies. These rulings are being appealed. If upheld, Hurricane Katrina losses would increase, and the company said the impact may be material but could not yet quantify the range.
How did the investment portfolio perform?
Invested assets grew to $7.5 billion. Net investment income was $271.0 million and net realized investment gains were $63.6 million. The taxable equivalent total investment return was 11.2%, up from 1.5% in 2005. Net unrealized holding gains increased by $246.1 million, largely from equity securities.
What changed in the company's capital structure in 2006?
Shareholders' equity rose to $2.30 billion from $1.71 billion. The 8.71% convertible LYONs converted into about 335,000 shares. The company issued $150 million of 7.50% senior debentures due 2046 and planned to redeem the 8.71% Junior Subordinated Debentures on January 2, 2007. The debt-to-total-capital ratio fell to 27% from 33%.
04—Continue