01—Abstract
Summary
Summary of the 10-K filed March 1, 2010. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation's 2009 annual report describes a specialty insurer that markets and underwrites niche P&C products through three segments: Excess and Surplus Lines, Specialty Admitted, and London Insurance Market.
In 2009 gross premium volume fell to $1.91 billiona from $2.21 billion in 2008, and earned premiums declined to $1.82 billion from $2.02 billion, reflecting continued soft-market competition and the economic downturn. The company reported a U.S. GAAP combined ratio of 95% in 2009, compared with 99% in 2008, and an underwriting profit of $86.3 million. Net income to shareholders was $201.6 million, versus a net loss of $58.8 million in 2008, driven mainly by lower net realized investment losses of $96.1 million (versus $407.6 million in 2008) and favorable development of $235.3 million on prior-year loss reserves.
Investment results improved sharply. The taxable equivalent total portfolio return was 13.2% in 2009 after -9.6% in 2008, and net unrealized gains rose $566.7 millionb. Book value per share increased 27% to $282.55, and shareholders' equity reached $2.77 billion.
Total investments and cash were $7.85 billionc at year-end. Debt rose to $964 million after the issuance of $350 million of 7.125% senior notes due 2019, and the company acquired Elliott Special Risks and several non-insurance businesses during the fourth quarter.
The filing also flags risks that matter to investors: management's best estimate of net reserves exceeded the actuarial point estimate by $371 milliond (8.9%), a pending Guaranty Bank lawsuit against subsidiary Evanston Insurance Company, and the One Markel initiative, now expected to cost about $140 million and take longer than originally planned. Equity securities represented 49% of shareholders' equity at year-end.
02—Key points
Key Highlights
- Gross premium volume was $1.91 billion in 2009, down from $2.21 billion in 2008; earned premiums were $1.82 billion versus $2.02 billion.
- U.S. GAAP combined ratio improved to 95% in 2009 from 99% in 2008, producing an underwriting profit of $86.3 million.
- Net income to shareholders was $201.6 million in 2009, compared with a net loss of $58.8 million in 2008.
- Net realized investment losses narrowed to $96.1 million from $407.6 million, including $90.0 million of other-than-temporary impairment write-downs.
- Favorable development of $235.3 million on prior years' loss reserves, primarily from Markel International and professional and products liability programs in Excess and Surplus Lines.
- Book value per share rose 27% to $282.55; the taxable equivalent total portfolio return was 13.2% in 2009 versus -9.6% in 2008.
- Issued $350 million of 7.125% senior notes due 2019; total senior long-term and other debt rose to $963.6 million, and the debt-to-total-capital ratio was 26%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 1, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $2.07B$1.98B | +4.7% |
| Operating Expenses | $1.82B$2.09B | −13.0% |
| Operating Income | $252.61M-$111.62M | +326.3% |
| Interest Expense | $53.97M$48.21M | +11.9% |
| Net Income | $201.64M-$58.77M | +443.1% |
| EPS (Basic) | $20.54$-5.95 | +445.2% |
| EPS (Diluted) | $20.52$-5.95 | +444.9% |
| Shares Outstanding (Basic) | 9.81M— | — |
| Shares Outstanding (Diluted) | 9.83M— | — |
05—Questions
Frequently Asked Questions
How did Markel's underwriting performance change in 2009?
The U.S. GAAP combined ratio improved to 95% from 99% in 2008, and underwriting profit was $86.3 million compared with $14.6 million in 2008. The filing attributes the improvement to a benign hurricane season and more favorable prior-year reserve development, partly offset by a higher expense ratio tied to the One Markel initiative and lower earned premiums.
What drove the swing to net income in 2009?
Net income to shareholders was $201.6 million, compared with a net loss of $58.8 million in 2008. The filing says the improvement was mainly due to lower net realized investment losses ($96.1 million versus $407.6 million), better underwriting results, and international underwriting profits, partly offset by a lower income tax benefit.
What risks does the filing highlight for investors?
The filing cites loss reserve uncertainty, with management's best estimate of net reserves $371 million (8.9%) above the actuarial point estimate. It also notes exposure to equity markets, since equity securities were 49% of shareholders' equity, the pending Guaranty Bank lawsuit against Evanston Insurance Company, asbestos and environmental reserves, catastrophe exposure, and the risk that the One Markel initiative takes longer and costs more than planned.
How is the company's investment portfolio positioned?
Total investments and cash were $7.85 billion at year-end 2009. The fixed maturity portfolio averaged an 'AA' rating, with about 90% rated 'A' or better, and the average duration was 4.3 years. Equity securities made up 17% of invested assets. The company reported net investment income of $259.8 million for 2009.
Is Markel paying dividends?
No. The filing states that the company's current strategy is to retain earnings, and it has not paid and does not expect to pay a cash dividend on its common stock. Instead, it reported repurchases of $136.6 million in cumulative shares under its program since 2005, with no repurchases in 2009.
06—Continue