01—Abstract
Summary
Summary of the 10-K filed February 24, 2017. 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 and reinsurance in niche markets and owns industrial and service businesses through its Markel Ventures subsidiary.
In 2016 it reported gross premium volume of $4.80 billiona, net income to shareholders of $455.7 million (down from $582.8 million in 2015), and a U.S. GAAP combined ratio of 92%. Underwriting profit was $316.5 million, which included $505.2 million of favorable development on prior years' loss reserves, partly offset by $71.2 million of adverse development on medical malpractice and specified medical lines. Book value per share rose to $606.30, an 8% increase, and the company reported a five-year compound annual growth rate of 11%.
Invested assets reached $19.06 billionb at year end, with a taxable equivalent total investment return of 4.4% and an investment yield of 2.4%. Equity securities represented 56% of shareholders' equity at December 31, 2016. Net income was reduced by a $44.1 million loss on early extinguishment of debt, tied to the issuance of $500 million of 5.0% senior notes due 2046.
Total shareholders' equity was $8.46 billionc. The company also agreed on February 1, 2017 to acquire SureTec Financial Corp. for approximately $250 million, with closing expected in the first half of 2017.
The filing describes a soft property and casualty market, with softening prices across most property lines and in marine and energy since 2013. It also flags risks including the June 2016 Brexit vote, which could affect Markel International's and Lloyd's operations in EU markets, and possible U.S. tax reform that could affect tax-exempt municipal bond holdings.
02—Key points
Key Highlights
- 2016 gross premium volume of $4.80 billion, up 4% from $4.63 billion in 2015, with the U.S. Insurance segment reporting $2.6 billion and an underwriting profit of $152.7 million
- Consolidated U.S. GAAP combined ratio of 92% in 2016, compared with 89% in 2015 and 95% in 2014, with underwriting profit of $316.5 million
- Net income to shareholders of $455.7 million, down 22% from 2015, with a $44.1 million loss on early extinguishment of debt and lower net realized investment gains
- Favorable prior-year reserve development of $505.2 million in 2016, partly offset by $71.2 million of adverse development on medical malpractice and specified medical product lines
- Book value per share of $606.30, up 8% for the year, with an 11% five-year compound annual growth rate
- Invested assets of $19.06 billion and a taxable equivalent total investment return of 4.4%, with equity securities at 56% of shareholders' equity
- Agreement announced February 1, 2017 to acquire SureTec Financial Corp. for approximately $250 million, expected to close in the first half of 2017
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 24, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $5.61B$5.37B | +4.5% |
| Operating Expenses | $4.81B$4.51B | +6.6% |
| Operating Income | $805.17M$860.41M | −6.4% |
| Interest Expense | $129.90M$118.30M | +9.8% |
| Net Income | $455.69M$582.77M | −21.8% |
| EPS (Basic) | $31.41$41.99 | −25.2% |
| EPS (Diluted) | $31.27$41.74 | −25.1% |
| Shares Outstanding (Basic) | 14.01M13.98M | +0.3% |
| Shares Outstanding (Diluted) | 14.08M14.06M | +0.1% |
05—Questions
Frequently Asked Questions
How did Markel's underwriting performance change in 2016?
The consolidated combined ratio rose to 92% from 89% in 2015, and underwriting profit fell to $316.5 million from $429.7 million. The filing attributes the increase mainly to less favorable prior-year loss reserve development than in 2015. The 2016 current accident year included $22.1 million of losses from Canadian wildfires and $46.6 million from Hurricane Matthew.
Why did net income decline in 2016?
Net income to shareholders was $455.7 million, compared with $582.8 million in 2015. The filing cites less favorable underwriting results, a $44.1 million loss on early extinguishment of debt from the tender offer for 7.125% and 7.35% senior notes, and lower net realized investment gains of $65.1 million versus $106.5 million. Non-insurance operations partly offset these factors.
What is the company's exposure to the soft insurance market?
The filing states that the property and casualty market remains soft, with softening prices across most property lines and on marine and energy lines since 2013. Large account business faces more pricing pressure. Management says it will pursue price increases in 2017 where possible and will not write business when prevailing prices do not support its underwriting profit targets.
What are the main risks the filing highlights for Markel's international operations?
The filing discusses the June 23, 2016 Brexit vote, which could impair MIICL's and the Lloyd's syndicate's ability to transact EU business from U.K. offices. Markel is considering establishing an EU-based insurance carrier. Foreign currency movements also affected results, and 23% of 2016 consolidated gross premium writings related to foreign risks.
What is Markel Ventures and how did it perform in 2016?
Markel Ventures is a wholly owned subsidiary that owns industrial and service businesses outside the specialty insurance market. In 2016 it reported revenues of $1.2 billion, net income to shareholders of $56.2 million, and EBITDA of $165.1 million, compared with $91.3 million in 2015. Results were reduced by a $18.7 million goodwill impairment and a $10.3 million increase in the CapTech contingent consideration estimate.
06—Continue