01—Abstract
Summary
Summary of the 10-K filed February 28, 2014. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation reported a transformative 2013 driven by its acquisition of Alterra Capital Holdings Limited, completed May 1, 2013 for total purchase consideration of $3.3 billiona.
The company describes itself as a diverse financial holding company serving niche specialty insurance markets, and it also owns industrial and service businesses through Markel Ventures. Net income to shareholders rose to $281.0 millionb in 2013 from $253.4 million in 2012, and total operating revenues increased to $4.32 billion from $3.00 billion. The U.S. GAAP combined ratio was 97% in 2013, flat with 2012, and included $411.1 million of favorable development on prior years' loss reserves.
Balance sheet size expanded sharply. Total assets rose to $23.96 billionc from $12.56 billion, invested assets reached $17.6 billion, and shareholders' equity grew to $6.67 billion from $3.89 billion, largely reflecting equity issued for Alterra. Book value per share increased 18% to $477.16, and the company stated a five-year compound annual growth rate of 17%.
Gross premium volume grew to $3.92 billiond from $2.51 billion, with the Alterra segment contributing $1.04 billion. The filing also highlights integration and concentration risks. Alterra integration costs totaled $75.1 million in 2013, and the company noted that equity securities were 49% of shareholders' equity at year end, down from 62% a year earlier.
Management said the property and casualty market remains soft, with softening prices on catastrophe-exposed property and reinsurance lines in the fourth quarter of 2013. The company also agreed to acquire Abbey Protection plc for $190.0 million, completed January 17, 2014.
02—Key points
Key Highlights
- Acquired Alterra Capital Holdings Limited on May 1, 2013 for total purchase consideration of $3.3 billion, creating a new Alterra operating segment.
- Net income to shareholders was $281.0 million in 2013, up from $253.4 million in 2012; diluted net income per share was $22.48.
- U.S. GAAP combined ratio was 97% in 2013, flat with 2012, and included $411.1 million of favorable development on prior years' loss reserves.
- Book value per share rose 18% to $477.16, with a five-year compound annual growth rate of 17%.
- Total assets grew to $23.96 billion from $12.56 billion, and shareholders' equity increased to $6.67 billion from $3.89 billion.
- Gross premium volume reached $3.92 billion in 2013 versus $2.51 billion in 2012, with the Alterra segment reporting a 118% combined ratio and $154.9 million underwriting loss from May 1 to December 31, 2013.
- Equity securities represented 49% of shareholders' equity at December 31, 2013, down from 62% in 2012, and the company reported the market remains soft with softening prices in catastrophe-exposed property and reinsurance in Q4 2013.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 28, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $4.32B$3.00B | +44.1% |
| Operating Expenses | $3.85B$2.60B | +48.2% |
| Operating Income | $475.75M$404.81M | +17.5% |
| Interest Expense | $114.00M$92.76M | +22.9% |
| Net Income | $281.02M$253.38M | +10.9% |
| EPS (Basic) | $22.57$25.96 | −13.1% |
| EPS (Diluted) | $22.48$25.89 | −13.2% |
| Shares Outstanding (Basic) | 12.54M9.64M | +30.1% |
| Shares Outstanding (Diluted) | 12.59M9.67M | +30.2% |
05—Questions
Frequently Asked Questions
What was the most significant corporate event for Markel in 2013?
The most significant event was the acquisition of Alterra Capital Holdings Limited, completed May 1, 2013, for total purchase consideration of $3.3 billion. The filing says the acquisition added size and scale and created a new Alterra operating segment. Alterra's results from the acquisition date through December 31, 2013 produced an underwriting loss of $154.9 million, which included $75.1 million of transaction and acquisition-related costs.
How profitable was Markel's underwriting in 2013?
Underwriting profit was $103.0 million in 2013, compared with $63.6 million in 2012 and an underwriting loss of $40.8 million in 2011. The consolidated U.S. GAAP combined ratio was 97%, meaning underwriting results were profitable, though the filing notes that favorable prior-year reserve development of $411.1 million contributed significantly.
What is the outlook for pricing in Markel's core markets?
The company stated that it still considers the overall property and casualty market to be soft despite stabilizing prices in recent years. It reported that in the fourth quarter of 2013 it began to see softening prices on catastrophe-exposed property lines and in its reinsurance book, and it plans to pursue price increases in 2014 where possible.
What is the status of Markel's investment portfolio and equity exposure?
Invested assets increased to $17.6 billion at December 31, 2013 from $9.3 billion a year earlier, largely due to the Alterra acquisition. Equity securities were $3.3 billion, or 18% of invested assets, versus 26% in 2012. The company reported net investment income of $317.4 million and net realized investment gains of $63.2 million for 2013, and it noted its fixed maturity portfolio had an average rating of "AA."
What acquisition did Markel complete after year end?
On January 17, 2014, Markel completed the acquisition of Abbey Protection plc, an integrated specialty insurance and consultancy group headquartered in London, for total consideration of $190.0 million in cash. Abbey focuses on protection against legal expenses and professional fees for small and medium-sized enterprises and affinity groups in the United Kingdom.
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