01—Abstract
Summary
Summary of the 10-K filed February 28, 2012. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation's 2011 Form 10-K describes the company as a diverse financial holding company that underwrites specialty insurance across three segments (Excess and Surplus Lines, Specialty Admitted and London Insurance Market) and owns industrial and service businesses through Markel Ventures.
In 2011, gross premium volume was $2.29 billiona, earned premiums were $1.98 billion, and the U.S. GAAP combined ratio was 102%, indicating an underwriting loss of $40.8 million. The company attributed the deterioration largely to natural catastrophes, which contributed $152.4 million, or eight points, of underwriting loss, while favorable development on prior years' loss reserves totaled $354.0 million. Net income to shareholders fell to $142.0 million, or $14.60 per diluted share, from $266.8 million in 2010.
Investment results were supported by net investment income of $263.7 millionb and net realized investment gains of $35.9 million, and net unrealized gains on investments increased $182.7 million. Book value per share rose 8% to $352.10, and shareholders' equity reached $3.39 billion. Senior long-term debt and other debt increased to $1.29 billion, reflecting a $250 million issuance of 5.35% senior notes in June 2011.
The filing highlights ongoing soft-market pricing pressure, particularly in professional and products liability within the Excess and Surplus Lines segment, and acquisitions including Aspen Holdings' FirstComp workers' compensation unit and several non-insurance businesses. Management also disclosed that its best estimate of net reserves exceeded the actuarial point estimate by $365 millionc at year-end 2011.
02—Key points
Key Highlights
- Net income to shareholders decreased to $142.0 million ($14.60 diluted EPS) in 2011 from $266.8 million in 2010, driven mainly by weaker underwriting results.
- The U.S. GAAP combined ratio rose to 102% in 2011 from 97% in 2010, producing an underwriting loss of $40.8 million; natural catastrophes accounted for $152.4 million, or eight points, of that loss.
- Favorable development on prior years' loss reserves was $354.0 million in 2011, compared with $278.0 million in 2010.
- Gross premium volume reached $2.29 billion in 2011, up from $1.98 billion in 2010, with Specialty Admitted growth driven in part by FirstComp ($226.7 million).
- Book value per share increased 8% to $352.10, and shareholders' equity rose to $3.39 billion.
- The company issued $250 million of 5.35% unsecured senior notes due 2021 in June 2011, and total senior long-term and other debt was $1.29 billion at year-end.
- Management reported that net investment income was $263.7 million and that equity securities represented 21% of invested assets at December 31, 2011.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 28, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $2.63B$2.23B | +18.2% |
| Operating Expenses | $2.35B$1.86B | +26.8% |
| Operating Income | $276.45M$369.17M | −25.1% |
| Interest Expense | $86.25M$73.66M | +17.1% |
| Net Income | $142.03M$266.79M | −46.8% |
| EPS (Basic) | $14.66$27.31 | −46.3% |
| EPS (Diluted) | $14.60$27.27 | −46.5% |
| Shares Outstanding (Basic) | 9.69M9.77M | −0.8% |
| Shares Outstanding (Diluted) | 9.73M9.79M | −0.6% |
05—Questions
Frequently Asked Questions
Why did Markel's profitability decline in 2011?
Net income to shareholders fell 47% compared with 2010, primarily because underwriting results deteriorated. The combined ratio rose to 102%, with natural catastrophes contributing $152.4 million, or eight points, of underwriting loss. The Specialty Admitted segment's combined ratio was 109%, and the London Insurance Market segment's combined ratio was 116%.
How did each underwriting segment perform in 2011?
The Excess and Surplus Lines segment had a combined ratio of 86% and an underwriting profit of $109.0 million. The Specialty Admitted segment had a combined ratio of 109% and an underwriting loss of $45.1 million. The London Insurance Market segment had a combined ratio of 116% and an underwriting loss of $109.5 million.
What was the source of reserve development in 2011?
Incurred losses included $354.0 million of favorable development on prior years' loss reserves. The filing attributes this mainly to $265.8 million of redundancies at Markel International and in the professional and products liability and casualty programs within the Excess and Surplus Lines segment. The filing also cautions against placing undue reliance on this favorable trend.
How did the company's investment portfolio perform?
Net investment income was $263.7 million, and net realized investment gains were $35.9 million, including $20.2 million of other-than-temporary impairment write-downs. Net unrealized gains on investments increased $182.7 million. The fixed maturity portfolio had an average rating of AA, and less than 1% was unrated or rated below investment grade.
What did the company say about its dividend and capital position?
Markel stated that its current strategy is to retain earnings, and it has not paid and does not expect to pay a cash dividend on common stock. The company had repurchased 118,056 shares at a cost of $44.6 million under a $200 million program, and its debt to total capital ratio was 27% at December 31, 2011.
06—Continue