01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation, now Markel Group Inc., is a diverse financial holding company that underwrites specialty insurance products in niche markets and also owns industrial and service businesses through its wholly-owned subsidiary Markel Ventures, Inc. For 2014, the company reported earned premiums of $3.84 billiona, net income to shareholders of $321.2 million (up from $281.0 million in 2013), and a U.S. GAAP combined ratio of 95%, compared with 97% in 2013.
Gross premium volume rose to $4.81 billionb from $3.92 billion, largely reflecting the May 2013 acquisition of Alterra Capital Holdings Limited and the inclusion of its premiums for a full year. Book value per share increased 14% to $543.96, driven by net income and a $661.7 million increase in net unrealized gains on investments, net of taxes. Total invested assets grew to $18.64 billion, and shareholders' equity reached $7.59 billion.
The company recorded $435.5 millionc of favorable development on prior years' loss reserves in 2014, though it also cautioned that this favorable trend should not be relied upon, and it recorded a $13.7 million goodwill impairment related to the Diamond Healthcare reporting unit. The filing also highlights ongoing exposure to asbestos and environmental claims, with A&E net reserves of $287.7 million, and to equity market risk, since equity securities represented 54% of shareholders' equity at year end. Debt to capital was 23%, down from 25% in 2013, and the company reported approximately 8,600 employees.
02—Key points
Key Highlights
- Gross premium volume reached $4.81 billion in 2014, up from $3.92 billion in 2013, with Alterra premiums contributing for a full year.
- Net income to shareholders was $321.2 million in 2014, up from $281.0 million in 2013; diluted EPS was $22.27 versus $22.48.
- The U.S. GAAP combined ratio improved to 95% in 2014 from 97% in 2013, and underwriting profit rose to $177.6 million from $103.0 million.
- Book value per share increased 14% to $543.96, supported by a $981.0 million increase in net unrealized investment gains.
- Favorable prior-year reserve development of $435.5 million contributed to results, though management cautioned against relying on this trend.
- Markel Ventures generated revenues of $838.1 million and net income to shareholders of $9.6 million, which included a $13.7 million goodwill impairment.
- Equity securities were 54% of shareholders' equity at year end, creating significant equity price risk.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $5.13B$4.32B | +18.8% |
| Operating Expenses | $4.58B$3.85B | +18.9% |
| Operating Income | $557.82M$475.75M | +17.3% |
| Interest Expense | $117.44M$114.00M | +3.0% |
| Net Income | $321.18M$281.02M | +14.3% |
| EPS (Basic) | $22.38$22.57 | −0.8% |
| EPS (Diluted) | $22.27$22.48 | −0.9% |
| Shares Outstanding (Basic) | 13.98M12.54M | +11.5% |
| Shares Outstanding (Diluted) | 14.06M12.59M | +11.7% |
05—Questions
Frequently Asked Questions
How did Markel's underwriting performance change in 2014?
The U.S. GAAP combined ratio improved to 95% in 2014 from 97% in 2013, and underwriting profit increased to $177.6 million from $103.0 million. The filing attributes the improvement to a lower expense ratio, partly offset by less favorable prior accident years' loss development, and notes that 2013 expenses included $75.1 million of Alterra acquisition-related costs.
What drove the increase in book value per share?
Book value per share rose 14% to $543.96, primarily due to net income to shareholders of $321.2 million and a $661.7 million increase in net unrealized gains on investments, net of taxes.
What are the main risks highlighted in the filing?
The filing highlights soft market pricing conditions, reserve uncertainty (including $287.7 million of net A&E reserves), reliance on reinsurers, and equity price risk, since equity securities were 54% of shareholders' equity. A 35% decline in equity prices would reduce shareholders' equity by an estimated 12.8%.
How is the company's capital structure positioned?
Senior long-term debt and other debt was $2.25 billion, and the debt-to-capital ratio was 23% at year end, down from 25% in 2013. The company had no borrowings outstanding under its $300 million revolving credit facility at December 31, 2014.
06—Continue