01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation (now Markel Group Inc., NYSE: MKL) is a diverse financial holding company that underwrites specialty insurance across three segments: Excess and Surplus Lines, Specialty Admitted, and the London Insurance Market, and also owns industrial and service businesses through Markel Ventures.
In 2012 the company reported gross premium volume of $2.51 billiona, up from $2.29 billion in 2011, a consolidated U.S. GAAP combined ratio of 97% versus 102% in 2011, and net income to shareholders of $253.4 million versus $142.0 million. Book value per share rose 15% to $403.85, and favorable development on prior years' loss reserves totaled $399.0 million. The most significant pending event is the agreement, announced December 2012, to merge Alterra Capital Holdings Limited into a Markel subsidiary for approximately $3.1 billion in stock and cash, with closing expected in the first half of 2013 subject to regulatory approvals.
Current shareholders would own roughly 69% of the combined company. The filing also describes the completed acquisition of Essentia Insurance Company, effective January 1, 2013, and several 2012 acquisitions including Thompson Insurance Enterprises and non-insurance businesses such as Havco, Tromp and Reading. Balance-sheet highlights include total assets of $12.56 billionb, shareholders' equity of $3.89 billion, senior long-term debt and other debt of $1.49 billion, and invested assets of $9.33 billion.
The company reported a 2012 taxable equivalent total investment return of 9.0%c, and it noted that equity securities were 62% of shareholders' equity. Management described market conditions as having improved during 2012, with mid-single digit favorable rate changes across the portfolio.
02—Key points
Key Highlights
- Gross premium volume rose to $2.51 billion in 2012 from $2.29 billion in 2011, with the Specialty Admitted segment up 17% and Excess and Surplus Lines up 7%.
- Consolidated U.S. GAAP combined ratio improved to 97% in 2012 from 102% in 2011, and underwriting profit was $63.6 million versus a $40.8 million loss in 2011.
- Net income to shareholders increased to $253.4 million from $142.0 million, and diluted net income per share was $25.89 versus $14.60.
- Book value per share increased 15% to $403.85 at year end, driven by net income and a $242.2 million increase in net unrealized gains on investments, net of taxes.
- Favorable development on prior years' loss reserves totaled $399.0 million in 2012, though the filing includes $38.2 million of adverse development on asbestos and environmental exposures.
- Pending acquisition of Alterra Capital Holdings Limited for about $3.1 billion in stock and cash, with closing expected in the first half of 2013 subject to regulatory approvals.
- Hurricane Sandy produced estimated net losses of $99.6 million in 2012, which the filing states contributed five points to the Excess and Surplus Lines combined ratio.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $3.00B$2.63B | +14.1% |
| Operating Expenses | $2.60B$2.35B | +10.3% |
| Operating Income | $404.81M$276.45M | +46.4% |
| Interest Expense | $92.76M$86.25M | +7.5% |
| Net Income | $253.38M$142.03M | +78.4% |
| EPS (Basic) | $25.96$14.66 | +77.1% |
| EPS (Diluted) | $25.89$14.60 | +77.3% |
| Shares Outstanding (Basic) | 9.64M9.69M | −0.5% |
| Shares Outstanding (Diluted) | 9.67M9.73M | −0.6% |
05—Questions
Frequently Asked Questions
What is the status of the Alterra acquisition?
The boards of Markel and Alterra approved a merger agreement in December 2012, and both companies' shareholders have approved it. The transaction remains subject to regulatory approvals, and closing is expected in the first half of 2013. Alterra shareholders would receive 0.04315 Markel shares and $10.00 in cash per Alterra share, for aggregate consideration of about $3.1 billion.
How profitable was the underwriting business in 2012?
The consolidated combined ratio was 97% in 2012, compared with 102% in 2011 and 97% in 2010. Underwriting profit was $63.6 million in 2012. The Excess and Surplus Lines segment's combined ratio was 94%, Specialty Admitted was 108%, and London Insurance Market was 89%.
Does Markel pay a dividend?
No. The filing states that the current strategy is to retain earnings, and the company has not paid and does not expect to pay a cash dividend on its common stock. Instead, it repurchased $16.9 million of common stock in 2012 under a $200 million authorization.
What were the main sources of investment income?
Net investment income was $282.1 million in 2012, and net realized investment gains were $31.6 million. The taxable equivalent total investment return was 9.0%. Equity securities represented 26% of invested assets at year end, and the fixed maturity portfolio had an average rating of AA.
What are the main risks highlighted in the filing?
The filing highlights catastrophe losses, the adequacy of loss reserves (including asbestos and environmental exposures), reinsurer credit risk, equity market concentration, and the integration risks of acquisitions, particularly Alterra. It also notes that a soft insurance market can make it difficult to grow premium volume without sacrificing underwriting profit.
06—Continue