01—Abstract
Summary
Summary of the 10-K filed March 2, 2009. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation's 2008 annual report reports a net loss of $58.8 milliona, compared with net income of $405.7 million in 2007, as results were hit by $339.2 million of other-than-temporary impairment write-downs on investments and a 2008 combined ratio of 99%.
Underwriting profit fell to $14.6 millionb from $264.4 million, largely because of $94.8 million of underwriting losses from Hurricanes Gustav and Ike. Net investment income was $283.7 million, while net realized investment losses were $407.6 million, and net unrealized holding gains fell by $507.5 million. Book value per share declined 16% to $222.20, and shareholders' equity dropped to $2.18 billion from $2.64 billion.
The company operates three specialty insurance segments: Excess and Surplus Lines (gross premium volume of $1.16 billionc, underwriting profit of $88.2 million), Specialty Admitted ($355.1 million gross premium, underwriting loss of $18.2 million), and London Insurance Market ($693.1 million gross premium, underwriting loss of $27.3 million). Management is pursuing a multi-year "One Markel" initiative to move the Excess and Surplus Lines units to a customer-focused regional structure, and it is aggressively pursuing price increases in many product lines. Favorable prior-year reserve development was $163.8 million, but the filing also disclosed $24.9 million of adverse asbestos and environmental development.
Equity securities were 49% of shareholders' equity at year-end 2008, versus 70% a year earlier, and the filing notes that a 35% decline in equity prices could cause a material decrease in shareholders' equity. The filing also discloses a pending lawsuit filed February 10, 2009 by Guaranty Bank against subsidiary Evanston Insurance Company, with the limit of additional liability estimated at about $135 milliond. Management believes the plaintiff is not entitled to the relief sought but says the outcome cannot be predicted at this time.
02—Key points
Key Highlights
- Net loss of $58.8 million in 2008 versus net income of $405.7 million in 2007, driven by $339.2 million of other-than-temporary investment write-downs and $407.6 million of net realized investment losses.
- Combined ratio of 99% in 2008 (versus 88% in 2007), including 5 points from $94.8 million of underwriting losses related to Hurricanes Gustav and Ike.
- Gross premium volume of $2.21 billion in 2008, down from $2.36 billion in 2007, with Excess and Surplus Lines premium volume declining 12% as competition intensified.
- Book value per share fell 16% to $222.20, and shareholders' equity declined to $2.18 billion from $2.64 billion.
- Favorable prior-year loss reserve development of $163.8 million, partly offset by $24.9 million of adverse asbestos and environmental development.
- Equity securities were 49% of shareholders' equity at December 31, 2008, down from 70% at December 31, 2007, and the filing warns of material equity-price risk.
- Launched the multi-year "One Markel" initiative to move Excess and Surplus Lines underwriting to a customer-focused regional model, with systems costs of approximately $100 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed March 2, 2009Financial Statements
| Revenue | $1.98B |
| Operating Expenses | $2.09B |
| Operating Income | -$111.62M |
| Interest Expense | $48.21M |
| Net Income | -$58.77M |
| EPS (Basic) | $-5.95 |
| EPS (Diluted) | $-5.95 |
05—Questions
Frequently Asked Questions
Why did Markel swing to a net loss in 2008?
The loss reflected $339.2 million of other-than-temporary write-downs on equity and fixed maturity investments, $407.6 million of total net realized investment losses, and lower underwriting profit of $14.6 million (versus $264.4 million in 2007). The underwriting decline was driven mainly by higher current accident year loss ratios and $94.8 million of losses from Hurricanes Gustav and Ike.
How did the insurance segments perform in 2008?
The Excess and Surplus Lines segment reported an underwriting profit of $88.2 million with a 92% combined ratio. The Specialty Admitted segment had an underwriting loss of $18.2 million (106% combined ratio), and the London Insurance Market segment had an underwriting loss of $27.3 million (104% combined ratio).
What is the status of the Guaranty Bank lawsuit?
On February 10, 2009, Guaranty Bank sued subsidiary Evanston Insurance Company and managing general agent Universal Assurors Agency in the U.S. District Court for the Eastern District of Wisconsin, seeking return of approximately $30 million in premiums paid and continued coverage. The filing estimates the limit of Markel's additional liability on the covered loans at about $135 million, and says the outcome cannot be predicted at this time.
What is management doing to improve results going forward?
Management is aggressively pursuing price increases in many product lines and plans stricter underwriting guidelines and significantly higher prices on catastrophe-exposed business in 2009. It is also moving the Excess and Surplus Lines units to a regional structure under the One Markel initiative, and it will reduce catastrophe exposure if higher pricing cannot be achieved.
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