How did Markel perform in 2007 compared with 2006?

Net income rose to $405.7 million from $392.5 million, and diluted net income per share was $40.64 versus $39.40. Higher net investment income and lower interest expense offset lower underwriting profit, which fell to $264.4 million from $283.9 million.

What are the main segments of Markel's business?

Markel operates in three specialty insurance segments: Excess and Surplus Lines, which had $1.32 billion of gross premium volume; Specialty Admitted, with $346.6 million; and London Insurance Market, with $693.2 million. Underwriting profit in these segments was $205.4 million, $26.9 million and $46.4 million, respectively.

What risks could affect Markel's loss reserves and results?

Loss reserves are estimates and actual results may differ. The filing cites asbestos and environmental exposures, where 2007 development added $34.0 million of adverse reserve charges. It also notes that a potential adverse Louisiana Supreme Court ruling on flood coverage for Hurricane Katrina losses could increase losses and could be material.

Does Markel pay dividends?

No. The company stated its current strategy is to retain earnings, and it has not paid and does not expect to pay a cash dividend on its common stock. It did repurchase 49,500 shares for $24.2 million in 2007 under its share repurchase program.

What did management say about market conditions for 2008?

Management stated that competition in the property and casualty insurance industry will remain strong in 2008. Rates in 2007 were generally lower than in 2006, especially in professional liability, non-catastrophe property and certain casualty lines, and the company is focusing on customer service, new products and geographic expansion.

MKL 10-K FY2007 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.

Markel Corporation (now Markel Group Inc.) reported 2007 net income of $405.7 million^a, up from $392.5 million in 2006, and diluted net income per share of $40.64.

Book value per share rose 15% to $265.26^b, driven by net income partially offset by a $74.0 million decrease in net unrealized holding gains, net of taxes. Over the past five years, book value per share has compounded at an annual rate of 18%. The company operates in three specialty insurance segments: Excess and Surplus Lines, Specialty Admitted and London Insurance Market.

Gross premium volume fell to $2.36 billion^c in 2007 from $2.54 billion in 2006, reflecting increased competition and the company's underwriting discipline in softening market conditions. The U.S. GAAP combined ratio was 88% in 2007, compared with 87% in 2006, and underwriting profit was $264.4 million. Favorable development on prior years' loss reserves totaled $197.3 million, though this was partially offset by $34.0 million of adverse development on asbestos and environmental exposures.

Net investment income rose to $306.5 million^d, and net realized investment gains were $59.5 million. Total investments and cash reached $7.79 billion, and shareholders' equity grew to $2.64 billion. The company expects competition in the property and casualty industry to remain strong in 2008, and management notes that rates in several lines have declined.

Risk factors highlighted in the filing include potential catastrophe losses, uncertainty in loss reserve estimates (particularly for asbestos and environmental claims), and a pending Louisiana Supreme Court question on flood coverage related to Hurricane Katrina, whose adverse ruling could materially increase losses. The company paid no cash dividend, choosing to retain earnings, and its debt-to-total-capital ratio decreased to 20% from 27% after 2007 debt redemptions.

02—Key points

Key Highlights

Net income of $405.7 million in 2007, up from $392.5 million in 2006; diluted EPS of $40.64.
Book value per share rose 15% to $265.26; five-year compound annual growth of 18%.
U.S. GAAP combined ratio of 88% in 2007, producing an underwriting profit of $264.4 million.
Favorable prior-year loss reserve development of $197.3 million, partly offset by $34.0 million of adverse A&E development.
Gross premium volume declined to $2.36 billion from $2.54 billion as competition increased and rates softened.
Net investment income of $306.5 million and net realized investment gains of $59.5 million.
Debt-to-total-capital ratio fell to 20% from 27% after redeeming the 8.71% Junior Subordinated Debentures and repaying 7.20% senior notes.

03—Questions

Frequently Asked Questions

How did Markel perform in 2007 compared with 2006?
Net income rose to $405.7 million from $392.5 million, and diluted net income per share was $40.64 versus $39.40. Higher net investment income and lower interest expense offset lower underwriting profit, which fell to $264.4 million from $283.9 million.
What are the main segments of Markel's business?
Markel operates in three specialty insurance segments: Excess and Surplus Lines, which had $1.32 billion of gross premium volume; Specialty Admitted, with $346.6 million; and London Insurance Market, with $693.2 million. Underwriting profit in these segments was $205.4 million, $26.9 million and $46.4 million, respectively.
What risks could affect Markel's loss reserves and results?
Loss reserves are estimates and actual results may differ. The filing cites asbestos and environmental exposures, where 2007 development added $34.0 million of adverse reserve charges. It also notes that a potential adverse Louisiana Supreme Court ruling on flood coverage for Hurricane Katrina losses could increase losses and could be material.
Does Markel pay dividends?
No. The company stated its current strategy is to retain earnings, and it has not paid and does not expect to pay a cash dividend on its common stock. It did repurchase 49,500 shares for $24.2 million in 2007 under its share repurchase program.
What did management say about market conditions for 2008?
Management stated that competition in the property and casualty insurance industry will remain strong in 2008. Rates in 2007 were generally lower than in 2006, especially in professional liability, non-catastrophe property and certain casualty lines, and the company is focusing on customer service, new products and geographic expansion.

04—Continue

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