01—Abstract
Summary
Summary of the 10-K filed February 21, 2020. Cited figures are marked; the original filing is the authoritative source.
Markel Corporation, a diverse financial holding company serving niche markets, reported strong 2019 results in its Form 10-K filed February 21, 2020.
Net income to shareholders was $1.79 billiona, compared with a net loss of $128.2 million in 2018, driven largely by $1.60 billion of net investment gains from equity securities. Total operating revenues rose to $9.53 billion from $6.84 billion, and the U.S. GAAP combined ratio improved to 94% from 98%. Shareholders' equity increased to $11.07 billion, and book value per share rose 23% to $802.59.
Underwriting performance was solid but mixed by segment. The Insurance segment produced an underwriting profit of $309.8 millionb on gross premium volume of $5.3 billion, while the Reinsurance segment posted an underwriting loss of $40.0 million on $1.1 billion of gross premium volume. Favorable development on prior years' loss reserves totaled $535.3 million, and 2019 catastrophes (Hurricane Dorian and Typhoons Faxai and Hagibis) cost $100.4 million of underwriting results, compared with $287.3 million from 2018 catastrophes.
Markel Ventures, the non-insurance businesses, generated $2.1 billionc of operating revenues and $263.9 million of EBITDA. The filing also highlights risks investors should weigh.
Equity securities represented 69%d of shareholders' equity at year-end 2019, creating significant earnings volatility. The Markel CATCo inquiries by the U.S. Department of Justice, SEC and Bermuda Monetary Authority remain ongoing, and the company placed the Markel CATCo funds into run-off in July 2019.
02—Key points
Key Highlights
- Net income to shareholders of $1.79 billion in 2019, versus a net loss of $128.2 million in 2018, driven by $1.60 billion of net investment gains.
- Consolidated U.S. GAAP combined ratio of 94% in 2019, compared with 98% in 2018.
- Book value per share increased 23% to $802.59 at December 31, 2019; shareholders' equity rose to $11.07 billion.
- Favorable development of $535.3 million on prior years' loss reserves, partly offset by $100.4 million of underwriting losses from 2019 catastrophes.
- Insurance segment underwriting profit of $309.8 million on $5.3 billion of gross premium volume; Reinsurance segment underwriting loss of $40.0 million on $1.1 billion.
- Markel Ventures generated $2.1 billion of operating revenues and $263.9 million of EBITDA in 2019.
- Equity securities were 69% of shareholders' equity at December 31, 2019, and the Markel CATCo inquiries by U.S. and Bermuda authorities remain ongoing.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 21, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $9.53B$6.84B | +39.2% |
| Operating Expenses | $7.05B$6.80B | +3.6% |
| Operating Income | $2.48B$39.76M | +6130.9% |
| Interest Expense | $171.69M$154.21M | +11.3% |
| Net Income | $1.80B-$128.18M | +1503.9% |
| EPS (Basic) | $129.25$-9.55 | +1453.4% |
| EPS (Diluted) | $129.07$-9.55 | +1451.5% |
| Shares Outstanding (Basic) | 13.86M13.92M | −0.4% |
| Shares Outstanding (Diluted) | 13.88M13.92M | −0.3% |
05—Questions
Frequently Asked Questions
What drove the swing from a 2018 net loss to 2019 net income?
Net investment gains of $1.60 billion in 2019, primarily from a $1.60 billion increase in the fair value of equity securities, compared with net investment losses of $437.6 million in 2018. Underwriting profit also improved to $280.5 million from $113.8 million, and 2018 included a $199.2 million impairment of goodwill and intangible assets.
How did the underwriting business perform?
The consolidated combined ratio improved to 94% from 98%, reflecting lower catastrophe losses and $535.3 million of favorable prior-year reserve development. The Insurance segment combined ratio was 93%, while the Reinsurance segment combined ratio was 104%, including 10 points from 2019 catastrophes.
What is the company's exposure to equity market volatility?
Equity securities represented 69% of shareholders' equity at December 31, 2019, up from 63% in 2018. The filing notes that a hypothetical 35% decrease in equity prices would reduce shareholders' equity by 19.0%, so investment results may vary significantly from period to period.
What is the status of the Markel CATCo matters?
The U.S. Department of Justice, SEC and Bermuda Monetary Authority inquiries into loss reserves at Markel CATCo Re are ongoing, and the company cannot predict their duration, scope or result. An internal review found no evidence of bad faith by Markel CATCo personnel. The Markel CATCo funds and Markel CATCo Re were placed into run-off in July 2019.
How did the Markel Ventures businesses contribute?
Markel Ventures reported 2019 operating revenues of $2.1 billion, operating income of $168.4 million, net income to shareholders of $92.9 million and EBITDA of $263.9 million. Results were supported by the contribution of Brahmin and by higher revenues in transportation-related businesses, partly offset by lower equipment manufacturing sales.
06—Continue