01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation reported 2015 net income to shareholders of $582.8 milliona, up from $321.2 million in 2014, driven by more favorable underwriting results and higher net realized investment gains.
Consolidated gross premium volume was $4.63 billionb, down from $4.81 billion in 2014, with the decline attributed mainly to the Reinsurance segment, where auto reinsurance was reduced. The consolidated U.S. GAAP combined ratio improved to 89% from 95% in 2014, and underwriting profit rose to $429.7 million from $177.6 million. Favorable development on prior years' loss reserves totaled $627.8 million in 2015, including $82.7 million of reserve reductions tied to two retroactive reinsurance transactions that ceded a significant portion of asbestos and environmental (A&E) exposures.
Book value per share increased 3% to $561.23c, while comprehensive income to shareholders fell to $232.7 million from $935.9 million because net unrealized gains on investments declined $320.5 million net of taxes. Net investment income was $353.2 million, and the taxable equivalent total investment return was (0.7)%. Markel Ventures, the non-insurance subsidiary group, generated revenues of $1.0 billion and EBITDA of $91.3 million.
In December 2015 the company acquired substantially all assets of CATCo Investment Management and 80% of CapTech Ventures, and it expects Markel CATCo IM to manage more than $3 billiond of assets in 2016. The filing describes a company with $7.8 billion of shareholders' equity and $2.2 billion of senior long-term debt and other debt at year-end 2015.
Equity securities were 52% of shareholders' equity, and the company identifies its concentrated equity portfolio, including a $414.1 million investment in Berkshire Hathaway common stock, as a source of earnings volatility. Management reports that the property and casualty market remains soft, that prices have softened in property, marine and energy lines, and that future prior-year reserve movements in 2016 could range from a deficiency of less than 1% to a redundancy of about 5% of net loss reserves.
02—Key points
Key Highlights
- Net income to shareholders rose to $582.8 million in 2015 from $321.2 million in 2014, and diluted net income per share was $41.74 versus $22.27.
- The consolidated U.S. GAAP combined ratio improved to 89% from 95%, producing an underwriting profit of $429.7 million versus $177.6 million in 2014.
- Favorable prior-year reserve development totaled $627.8 million in 2015, including $82.7 million of reserve reductions linked to retroactive reinsurance transactions that ceded A&E exposures.
- Gross premium volume declined 4% to $4.63 billion, mainly from a 13% decrease in the Reinsurance segment, where auto reinsurance was reduced.
- Book value per share increased 3% to $561.23, while comprehensive income to shareholders fell to $232.7 million due to a $320.5 million net decrease in unrealized gains.
- Markel Ventures generated $1.0 billion of revenues and $91.3 million of EBITDA, and the company acquired CATCo Investment Management and 80% of CapTech Ventures in December 2015.
- Investment returns were weak, with taxable equivalent total investment return of (0.7)% and equity securities representing 52% of shareholders' equity.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $5.37B$5.13B | +4.6% |
| Operating Expenses | $4.51B$4.58B | −1.4% |
| Operating Income | $860.41M$557.82M | +54.2% |
| Interest Expense | $118.30M$117.44M | +0.7% |
| Net Income | $582.77M$321.18M | +81.4% |
| EPS (Basic) | $41.99$22.38 | +87.6% |
| EPS (Diluted) | $41.74$22.27 | +87.4% |
| Shares Outstanding (Basic) | 13.98M13.98M | 0.0% |
| Shares Outstanding (Diluted) | 14.06M14.06M | 0.0% |
05—Questions
Frequently Asked Questions
How profitable was Markel's underwriting business in 2015?
The three underwriting segments produced a combined underwriting profit of $429.7 million in 2015, with a consolidated U.S. GAAP combined ratio of 89%. U.S. Insurance reported a combined ratio of 89%, International Insurance 86%, and Reinsurance 90%. The Other Insurance (Discontinued Lines) segment had an underwriting loss of $20.4 million.
Why did comprehensive income fall even though net income rose?
Net income to shareholders increased to $582.8 million, but comprehensive income to shareholders dropped to $232.7 million from $935.9 million. The main reason was a $320.5 million decrease in net unrealized gains on investments, net of taxes, driven by lower equity market performance and rising interest rates on fixed maturities.
What did the retroactive reinsurance transactions accomplish?
In March and October 2015, Markel ceded portfolios of policies primarily covering asbestos and environmental exposures to a third party. The filing states that these transactions reduced the uncertainty around these exposures and lowered estimated volatility in net reserves, which led management to reduce prior years' loss reserves by $82.7 million. Cash payments for the two transactions totaled $156.4 million.
What are the main risks highlighted in the filing?
The filing highlights a soft property and casualty market with softening prices in property, marine and energy lines, and exposure to equity market volatility through a concentrated equity portfolio of $4.07 billion. It also cites reserve uncertainty, especially for long-tail and A&E claims, reliance on reinsurers, and possible ratings downgrades that could affect business volume.
06—Continue