01—Abstract
Summary
Summary of the 10-K filed February 28, 2011. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation (now Markel Group Inc.) reported a solid 2010 with net income to shareholders of $266.8 milliona, up from $201.6 million in 2009, and diluted net income per share of $27.27.
Book value per share rose to $326.36b from $282.55, and shareholders' equity reached $3.17 billion. The company's U.S. GAAP combined ratio was 97% in 2010, compared with 95% in 2009, reflecting higher catastrophe losses (including the Chilean earthquake and Deepwater Horizon explosion), higher expense ratios tied to the Atlas system initiative, and losses on two mortgage-related programs. Favorable development on prior years' loss reserves of $278.0 million helped offset these pressures.
Gross premium volume rose to $1.98 billionc from $1.91 billion, driven by the acquisition of Aspen Holdings (FirstComp workers' compensation) in October 2010 and growth in the London Insurance Market segment, while the Excess and Surplus Lines segment declined. Net investment income was $272.5 million and net realized investment gains were $36.4 million, with a taxable equivalent total investment return of 7.9% for 2010. Management highlighted that the company remains in a soft insurance market, with price deterioration across many product lines, and that the company has not paid a cash dividend on its common stock.
Investors should note the concentration of equity holdings, with equity securities at 54% of shareholders' equity at year-end 2010, and the company's exposure to asbestos and environmental claims, with net A&E reserves of $216.0 milliond. The company also authorized a share repurchase program of up to $200 million in November 2010, of which $2.8 million had been used by year-end.
02—Key points
Key Highlights
- Net income to shareholders of $266.8 million in 2010, up from $201.6 million in 2009; diluted EPS of $27.27 versus $20.52.
- Book value per share increased 16% to $326.36; shareholders' equity rose to $3.17 billion from $2.77 billion.
- U.S. GAAP combined ratio of 97% in 2010 versus 95% in 2009, with the 2010 result including $33.0 million of losses from the Chilean earthquake and Deepwater Horizon explosion.
- Favorable development on prior years' loss reserves of $278.0 million in 2010, primarily from Markel International and professional and products liability programs.
- Acquired Aspen Holdings on October 15, 2010 for $135.6 million, adding FirstComp workers' compensation operations within the Specialty Admitted segment.
- Gross premium volume of $1.98 billion in 2010 versus $1.91 billion in 2009; Excess and Surplus Lines premium declined while London Insurance Market grew 11%.
- Equity securities were 54% of shareholders' equity at December 31, 2010, a concentration the filing identifies as a risk factor.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 28, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $2.23B$2.07B | +7.5% |
| Operating Expenses | $1.86B$1.82B | +2.2% |
| Operating Income | $369.17M$252.61M | +46.1% |
| Interest Expense | $73.66M$53.97M | +36.5% |
| Net Income | $266.79M$201.64M | +32.3% |
| EPS (Basic) | $27.31$20.54 | +33.0% |
| EPS (Diluted) | $27.27$20.52 | +32.9% |
| Shares Outstanding (Basic) | 9.77M9.81M | −0.5% |
| Shares Outstanding (Diluted) | 9.79M9.83M | −0.4% |
05—Questions
Frequently Asked Questions
How did Markel's underwriting performance change in 2010?
The combined ratio rose to 97% from 95% in 2009. Underwriting profit fell to $59.8 million from $86.3 million, driven by higher catastrophe losses, a higher expense ratio linked to the Atlas initiative, and $74.7 million of losses on two mortgage-related programs, partly offset by $278.0 million of favorable prior-year reserve development.
What drove the increase in net income in 2010?
Net income to shareholders rose 32% to $266.8 million, primarily because net realized investment losses turned into a $36.4 million gain and other-than-temporary impairment write-downs fell to $12.2 million from $90.0 million in 2009.
Does Markel pay a dividend?
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.
What share repurchase activity occurred?
In November 2010 the Board approved repurchases of up to $200 million of common stock. By December 31, 2010, the company had repurchased 7,956 shares at a cost of $2.8 million under this program.
What risks does the filing highlight for investors?
Key risks include catastrophe losses, uncertainty in loss reserves (including asbestos and environmental exposures with net reserves of $216.0 million), reinsurer credit risk, a concentrated equity portfolio, soft market pricing pressure, and integration risk from recent acquisitions.
06—Continue