RICHMOND, Va., Feb. 3 /PRNewswire-FirstCall/ -- Markel Corporation (NYSE: MKL) reported diluted net income per share of $20.52 for the year ended December 31, 2009 compared to diluted net loss per share of $5.95 for 2008. The 2009 combined ratio was 95% compared to 99% in 2008. Book value per common share outstanding increased 27% to $282.55 at December 31, 2009 from $222.20 at December 31, 2008. Over the five-year period ended December 31, 2009, compound annual growth in book value per common share outstanding was 11%.
Alan I. Kirshner, Chairman and Chief Executive Officer, commented, "While 2009 was certainly a volatile year for the financial markets and a challenging year for the economy and the insurance industry, our associates met these challenges and delivered solid underwriting profits and strong investment returns. Their efforts enabled us to grow book value per share to an all time high. We do not expect significant improvement in the insurance market in 2010. However, we are excited about the opportunities we see to provide quality products and services to our customers and build value for our shareholders."
The following tables present selected financial data from 2009 and 2008.
Year Ended
December 31,
(in thousands, except per share amounts) 2009 2008
------------ ------------
Net income (loss) to
shareholders $201,638 $(58,767)
============ ============
Comprehensive income (loss) to
shareholders $590,995 $(403,269)
============ ============
Weighted average diluted shares 9,826 9,876
Diluted net income (loss) per
share $20.52 $(5.95)
============ ============
(in thousands, except per share amounts) December 31, December 31,
2009 2008
------------ ------------
Book value per common share outstanding $282.55 $222.20
============ ============
Common shares outstanding 9,819 9,814
------------ ------------
The improvement in diluted net income per share during 2009 was primarily due to lower realized investment losses as a result of significantly less write downs for other-than-temporary declines in the estimated fair value of investments compared to 2008.
Comprehensive income to shareholders for 2009 was $591.0 million compared to comprehensive loss to shareholders of $403.3 million in 2008. This favorable movement was primarily due to a significant increase in net unrealized gains on investments during 2009 compared to a significant decline in net unrealized gains on investments during 2008.
Combined Ratio Analysis
-----------------------
Year Ended
December 31,
-----------------------
2009 2008
-------- --------
Excess and Surplus Lines 96% 92%
Specialty Admitted 99% 106%
London Insurance Market 91% 104%
Other Insurance (Discontinued Lines) NM NM
-------- --------
Consolidated 95% 99%
NM - Ratio is not meaningful. Further discussion of Other Insurance
(Discontinued Lines) underwriting loss follows.
The decrease in the combined ratio was the result of better underwriting performance due in part to a benign hurricane season in 2009. Our 2008 underwriting results included $94.8 million, or 5 points, of underwriting loss related to Hurricanes Gustav and Ike (2008 Hurricanes). The 2009 combined ratio included approximately $33 million, or 2 points, of costs associated with the implementation of our One Markel initiative compared to approximately $20 million, or 1 point, for 2008. The combined ratio for 2009 included $235.3 million of favorable development on prior years' loss reserves compared to $163.8 million in 2008.
The Excess and Surplus Lines segment's combined ratio for the year ended December 31, 2009 was 96% compared to 92% (including 3 points of losses on the 2008 Hurricanes) in 2008. The combined ratio increased in 2009 due to a higher expense ratio and a higher current accident year loss ratio on non-catastrophe-exposed lines of business, which were partially offset by more favorable development of prior years' loss reserves compared to 2008. The higher current accident year loss ratio in 2009 was due in part to higher than expected incurred losses during 2009 in certain professional liability programs, most notably our architects and engineers book of business, as a result of recent economic conditions. The Excess and Surplus Lines segment's 2009 combined ratio included $130.8 million of favorable development on prior years' loss reserves compared to $118.8 million in 2008. The redundancies on prior years' loss reserves experienced within the Excess and Surplus Lines segment in 2009 and 2008 were primarily on our professional and products liability programs due to lower loss severity than originally anticipated.
The Specialty Admitted segment's combined ratio for the year ended December 31, 2009 was 99% compared to 106% (including 5 points of losses on the 2008 Hurricanes) in 2008. Aside from the impact of the storms, the 2009 combined ratio benefited from a lower current accident year loss ratio and a lower expense ratio compared to 2008. In 2008, the current accident year loss ratio was adversely impacted by a greater than expected incidence of high severity property losses on specialty program business. Due to corrective actions taken during late 2008 and early 2009, we have not seen the same pattern of loss development on the 2009 accident year for this book of business. The lower expense ratio in 2009 was primarily due to our decision in the fourth quarter of 2008 to close the Markel Global Marine and Energy unit. The Specialty Admitted segment's 2009 combined ratio included $0.3 million of adverse development on prior years' loss reserves compared to $16.5 million of favorable development on prior years' loss reserves in 2008.
The London Insurance Market segment's combined ratio was 91% for the year ended December 31, 2009 compared to 104% (including 8 points of losses on the 2008 Hurricanes) in 2008. Aside from the impact of the storms, the improved combined ratio for 2009 was due to greater favorable development of prior years' loss reserves. The London Insurance Market segment's 2009 combined ratio included $108.1 million of favorable development on prior years' loss reserves compared to $58.3 million in 2008. During 2009, actual incurred losses and loss adjustment expenses on reported claims for the 2003 to 2006 accident years were less than we expected in our actuarial analyses. This favorable experience occurred in a variety of programs across each of our divisions, most notably the professional liability programs in the Retail and Professional and Financial Risks divisions.
The Other Insurance (Discontinued Lines) segment produced an underwriting loss of $4.7 million for the year ended December 31, 2009 compared to an underwriting loss of $28.1 million in 2008. The underwriting loss in both 2009 and 2008 was primarily a result of loss reserve development on asbestos and environmental exposures. The Other Insurance (Discontinued Lines) segment's underwriting loss for the year ended December 31, 2009 included $10.0 million of loss reserve development on asbestos and environmental exposures compared to $24.9 million in 2008. We complete an in-depth review of our asbestos and environmental exposures annually in the third quarter of each year. During our 2009 review, we increased our estimate of the number of claims that will ultimately be closed with an indemnity payment and, as a result, increased prior years' loss reserves accordingly. During our 2008 review, we noted that claims had been closed with total indemnity payments that were higher than had been anticipated, and as a result of this higher than expected average severity on closed claims, our actuaries updated their average severity assumptions for both open claims and claims incurred but not yet reported. The underwriting loss related to asbestos and environmental reserve increases in 2009 was partially offset by favorable development of loss reserves in other discontinued lines of business included in this segment.
Premium Analysis
Year Ended December 31,
(dollars in thousands)
---------------------------------------------------
Gross Written Premiums Earned Premiums
2009 2008 2009 2008
---------------------------------------------------
Excess and
Surplus Lines $962,702 $1,163,992 $940,098 $1,089,967
Specialty
Admitted 301,827 355,061 303,897 315,764
London Insurance
Market 641,226 693,138 572,438 615,828
Other Insurance
(Discontinued
Lines) 138 593 (598) 625
---------------------- ----------------------
Total $1,905,893 $2,212,784 $1,815,835 $2,022,184
======================= =======================
Gross written premiums for the year ended December 31, 2009 decreased 14% compared to 2008. The decrease in 2009 was primarily due to continued competition across many of our product lines and the effects of the current economic environment. Premiums for many of our product lines are based upon our insureds' revenues, gross receipts or payroll, which have been negatively impacted by the depressed levels of business activity that began in 2008. The decline in gross written premium in the Excess and Surplus Lines segment was also impacted by the transition to our regional underwriting model during the first half of 2009. Additionally, the effect of foreign currency exchange rate movements in the London Insurance Market segment accounted for two points of the decrease in gross written premiums for 2009 compared to 2008.
Net retention of gross premium volume was 90% for 2009 and 89% for 2008. Net retention of gross written premiums increased compared to 2008, which is consistent with our strategy to retain more of our profitable business.
Earned premiums for the year ended December 31, 2009 decreased 10% compared to 2008. The decrease in 2009 was primarily due to lower earned premiums in the Excess and Surplus Lines segment as a result of lower gross premium volume compared to 2008. Another contributing factor was the effect of foreign currency exchange rate movements in our London Insurance Market segment, which accounted for two points of the decrease in earned premiums for 2009 compared to 2008.
Net investment income for the year ended December 31, 2009 was $259.8 million compared to $282.1 million in 2008. The decrease in 2009 was primarily due to having lower yields and average invested assets compared to 2008. Our investment yield in 2009 declined compared to 2008 as we increased our allocation to short-term investments and cash and cash equivalents, while short-term interest rates declined. Additionally, dividend income in 2009 was lower than dividend income in 2008. For the year ended December 31, 2009, net investment income included a favorable change in the fair value of our credit default swap of $3.0 million compared to an adverse change of $13.7 million in 2008.
Net realized investment losses for the year ended December 31, 2009 were $96.1 million compared to $407.6 million in 2008. Net realized investment losses for 2009 included $90.0 million of write downs for other-than-temporary declines in the estimated fair value of investments compared to $339.2 million in 2008. Variability in the timing of realized and unrealized investment gains and losses is to be expected.
Invested assets were $7.8 billion at December 31, 2009 compared to $6.9 billion at December 31, 2008. Equity securities and investments in affiliates were $1.4 billion, or 18% of invested assets, at December 31, 2009 compared to $1.2 billion, or 17% of invested assets, at December 31, 2008. Net unrealized gains on investments, net of taxes, were $417.8 million at December 31, 2009 compared to $58.7 million at December 31, 2008. At December 31, 2009, we held securities with gross unrealized losses of $54.3 million, or less than 1% of invested assets.
Interest expense for the year ended December 31, 2009 increased to $54.0 million from $48.2 million in 2008. In September 2009, we issued $350 million of 7.125% unsecured senior notes.
The income tax benefit for the year ended December 31, 2009 was 2% of our income before income taxes, which differs from the statutory tax rate of 35% primarily as a result of tax-exempt investment income and tax benefits associated with our foreign operations. The income tax benefit for the year ended December 31, 2008 was 63% of our loss before income taxes, which differs from the statutory tax rate of 35% primarily as a result of tax-exempt investment income and foreign and other tax credits.
In October 2009, we acquired Elliott Special Risks, a Canadian managing general agent that provides insurance underwriting and administrative services to insurers, and Panel Specialists, Inc., a company based in Temple, Texas that manufactures panels, wall systems, casework, furniture and other related products. Additionally, in November 2009, we acquired a majority interest in Ellicott Dredge Enterprises, LLC, a manufacturer of dredging equipment for both domestic and international markets, which is headquartered in Baltimore, Maryland. Total consideration for these three acquisitions was approximately $150 million, and the related operating revenues and expenses are included in other revenues and other expenses in the consolidated statements of operations and comprehensive income (loss).
This release contains statements concerning or incorporating our expectations, assumptions, plans, objectives, future financial or operating performance and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.
There are risks and uncertainties that may cause actual results to differ materially from predicted results in forward-looking statements. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Additional factors that could cause actual results to differ from those predicted are set forth under "Risk Factors" and "Safe Harbor and Cautionary Statement" in our 2008 Annual Report on Form 10-K or are included in the items listed below:
- our anticipated premium volume is based on current knowledge and assumes no significant man-made or natural catastrophes, no significant changes in products or personnel and no adverse changes in market conditions;
- we are legally required in certain instances to offer terrorism insurance and have attempted to manage our exposure; however, if there is a covered terrorist attack, we could sustain material losses;
- the impact of the events of September 11, 2001 will depend on the resolution of on-going insurance coverage litigation and arbitrations;
- the frequency and severity of catastrophic events is unpredictable and may be exacerbated if, as many forecast, conditions in the oceans and atmosphere result in increased hurricane or other adverse weather-related activity;
- changing legal and social trends and inherent uncertainties (including but not limited to those uncertainties associated with our asbestos and environmental reserves) in the loss estimation process can adversely impact the adequacy of loss reserves and the allowance for reinsurance recoverables;
- adverse developments in insurance coverage litigation could result in material increases in our estimates of loss reserves;
- the loss estimation process may become more uncertain if we experience a period of rising inflation;
- the costs and availability of reinsurance may impact our ability to write certain lines of business;
- industry and economic conditions can affect the ability and/or willingness of reinsurers to pay balances due;
- after the commutation of ceded reinsurance contracts, any subsequent adverse development in the re-assumed loss reserves will result in a charge to earnings;
- regulatory actions can impede our ability to charge adequate rates and efficiently allocate capital;
- economic conditions, volatility in interest and foreign currency exchange rates and changes of market value in concentrated investments can have a significant impact on the fair value of fixed maturity and equity investments, as well as the carrying value of other assets and liabilities, and this impact is heightened by the recent levels of market volatility;
- we cannot predict the extent and duration of the current economic recession; the effects of government intervention into the markets to address the recent financial crisis (including, among other things, financial stability and recovery initiatives; the government's ownership interest in American International Group, Inc. and the restructuring of that company; potential regulatory changes affecting the insurance and financial services industries and the securities and derivatives markets; and changes in tax policy); and their combined impact on our industry, business and investment portfolio;
- because of adverse conditions in the financial services industry, access to capital has generally become more difficult and/or more expensive, which may adversely affect our ability to take advantage of business opportunities as they may arise;
- our One Markel initiative may take longer to implement and cost more than we anticipate and may not achieve some or all of its objectives;
- we completed a number of acquisitions in late 2009 and may engage in additional acquisition activity in the future, which may increase operational and control risks for a period of time;
- if we experience a pandemic or a localized catastrophic event in an area where we have offices, our business operations could be adversely affected;
- loss of services of any executive officers could impact our operations; and
- adverse changes in our assigned financial strength or debt ratings could impact our ability to attract and retain business or obtain capital.
Our premium volume and underwriting and investment results have been and will continue to be potentially materially affected by these factors. By making forward-looking statements, we do not intend to become obligated to publicly update or revise any such statements whether as a result of new information, future events or other changes. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as at their dates.
Our previously announced conference call, which will involve discussion of our financial results and business developments and may include forward-looking information, will be held Thursday, February 4, 2010, beginning at 10:30 a.m. (Eastern Standard Time). Any person interested in listening to the call, or a replay of the call, which will be available from approximately two hours after the conclusion of the call until Monday, February 15, 2010, should contact Markel's Investor Relations Department at 804-747-0136. Investors, analysts and the general public may also listen to the call free over the Internet through Markel Corporation's web site, www.markelcorp.com. A replay of the call will also be available on this web site until Monday, February 15, 2010.
Markel Corporation markets and underwrites specialty insurance products and programs to a variety of niche markets. In each of these markets, the Company seeks to provide quality products and excellent customer service so that it can be a market leader. The financial goals of the Company are to earn consistent underwriting profits and superior investment returns to build shareholder value.
MARKEL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
Quarter Ended Year Ended
December 31, December 31,
-------------------------------------------------
2009 2008 2009 2008
--------- --------- ---------- ----------
(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums $454,977 $501,997 $1,815,835 $2,022,184
Net investment income 60,698 62,530 259,809 282,148
Net realized investment
gains (losses):
Other-than-temporary
impairment losses (4,414) (152,019) (95,570) (339,164)
Less other-than-
temporary impairment
losses recognized in
other comprehensive
income (loss) 376 - 5,620 -
--------- --------- ---------- ----------
Other-than-temporary
impairment losses
recognized in net
income (loss) (4,038) (152,019) (89,950) (339,164)
Net realized investment
gains (losses), excluding
other-than-temporary
impairment losses 8,327 (55,328) (6,150) (68,430)
--------- --------- ---------- ----------
Net realized investment
gains (losses) 4,289 (207,347) (96,100) (407,594)
--------- --------- ---------- ----------
Other revenues 31,404 19,974 89,782 79,845
--------- --------- ---------- ----------
Total Operating
Revenues 551,368 377,154 2,069,326 1,976,583
--------- --------- ---------- ----------
OPERATING EXPENSES
Losses and loss
adjustment expenses 215,982 240,020 992,863 1,269,025
Underwriting,
acquisition and
insurance expenses 195,342 186,477 736,660 738,546
Amortization of
intangible assets 2,357 1,504 6,698 5,742
Other expenses 27,546 18,612 80,499 74,889
--------- --------- ---------- ----------
Total Operating
Expenses 441,227 446,613 1,816,720 2,088,202
--------- --------- ---------- ----------
Operating Income
(Loss) 110,141 (69,459) 252,606 (111,619)
Interest expense 18,030 11,781 53,969 48,210
--------- --------- ---------- ----------
Income (Loss) Before
Income Taxes 92,111 (81,240) 198,637 (159,829)
Income tax benefit (1,631) (48,630) (3,782) (101,395)
--------- --------- ---------- ----------
Net Income (Loss) $93,742 $(32,610) $202,419 $(58,434)
========= ========= ========== ==========
Less net income
attributable to
noncontrolling
interests 386 100 781 333
Net Income (Loss)
to Shareholders $93,356 $(32,710) $201,638 $(58,767)
OTHER COMPREHENSIVE INCOME (LOSS)
Change in net unrealized
gains on investments,
net of taxes:
Net holding gains
(losses) arising
during the period $(13,101) $(220,464) $326,959 $(594,767)
Unrealized other-than-
temporary impairment
losses on fixed
maturities arising
during the period,
net of taxes 1,512 - (5,405) -
Less reclassification
adjustments for net
(losses) included
in net income (loss) (3,732) 134,315 52,883 264,898
--------- --------- ---------- ----------
Change in net
unrealized gains on
investments, net
of taxes (15,321) (86,149) 374,437 (329,869)
Change in currency
translation adjustments,
net of taxes 5,354 (4,513) 19,239 (7,893)
Change in net actuarial
pension loss, net
of taxes (2,075) (7,488) (4,268) (6,740)
--------- --------- ---------- ----------
Total Other
Comprehensive
Income (Loss) (12,042) (98,150) 389,408 (344,502)
--------- --------- ---------- ----------
Comprehensive Income
(Loss) $81,700 $(130,760) $591,827 $(402,936)
--------- --------- ---------- ----------
Less comprehensive
income attributable to
noncontrolling
interests 437 100 832 333
Comprehensive Income
(Loss) to
Shareholders $81,263 $(130,860) $590,995 $(403,269)
========= ========= ========== ==========
NET INCOME (LOSS) PER SHARE
Basic $9.51 $(3.33) $20.54 $(5.95)
Diluted $9.49 $(3.33) $20.52 $(5.95)
========= ========= ========== ==========
Selected Data
(dollars and shares in thousands, December 31,
-----------------------
except per share data) 2009 2008
------------------------------------------------------------------------
Total investments and
cash and cash equivalents $7,848,673 $6,892,806
Reinsurance recoverable
on paid and unpaid losses 952,145 1,098,748
Goodwill and intangible
assets 502,833 361,424
Total assets 10,241,896 9,512,054
Unpaid losses and loss
adjustment expenses 5,427,096 5,492,339
Unearned premiums 717,728 827,888
Senior long-term debt
and other debt 963,648 694,409
Total shareholders' equity 2,774,360 2,180,674
Book value per share $282.55 $222.20
Common shares outstanding 9,819 9,814
Markel Corporation
Segment Reporting Disclosures
For the Quarters and Years Ended December 31, 2009 and 2008
Segment Gross Written Premiums
Quarter Ended December 31, Year Ended December 31,
-------------------------------------------------------------------------
2009 2008 (dollars in thousands) 2009 2008
-------------------------------------------------------------------------
$222,217 $254,961 Excess and Surplus Lines $962,702 $1,163,992
75,130 88,823 Specialty Admitted 301,827 355,061
131,259 121,319 London Insurance Market 641,226 693,138
(1) 120 Other Insurance 138 593
(Discontinued Lines)
-------------------------------------------------------------------------
$428,605 $465,223 Consolidated $1,905,893 $2,212,784
=========================================================================
Segment Net Written Premiums
Quarter Ended December 31, Year Ended December 31,
-------------------------------------------------------------------------
2009 2008 (dollars in thousands) 2009 2008
-------------------------------------------------------------------------
$203,458 $228,910 Excess and Surplus Lines $869,695 $1,028,816
70,259 79,027 Specialty Admitted 279,266 321,109
115,947 117,799 London Insurance Market 566,046 617,946
(458) 472 Other Insurance (598) 625
(Discontinued Lines)
-------------------------------------------------------------------------
$389,206 $426,208 Consolidated $1,714,409 $1,968,496
=========================================================================
Segment Revenues
Quarter Ended December 31, Year Ended December 31,
-------------------------------------------------------------------------
2009 2008 (dollars in thousands) 2009 2008
-------------------------------------------------------------------------
$222,645 $263,111 Excess and Surplus Lines $940,098 $1,089,967
76,952 81,610 Specialty Admitted 303,897 315,764
155,838 156,806 London Insurance Market 572,438 615,828
(458) 470 Other Insurance (598) 625
(Discontinued Lines)
64,987 (144,817) Investing 163,709 (125,446)
31,404 19,974 Other 89,782 79,845
-------------------------------------------------------------------------
$551,368 $377,154 Consolidated $2,069,326 $1,976,583
=========================================================================
Reconciliation of Segment Profit (Loss)
to Consolidated Operating Income (Loss)
Quarter Ended December 31, Year Ended December 31,
-------------------------------------------------------------------------
2009 2008 (dollars in thousands) 2009 2008
-------------------------------------------------------------------------
$19,107 $59,230 Excess and Surplus Lines $36,242 $88,162
749 (2,405) Specialty Admitted 2,324 (18,235)
23,215 23,144 London Insurance Market 52,462 (27,259)
582 (4,469) Other Insurance (4,716) (28,055)
(Discontinued Lines)
64,987 (144,817) Investing 163,709 (125,446)
3,858 1,362 Other 9,283 4,956
(2,357) (1,504) Amortization of (6,698) (5,742)
Intangible Assets
-------------------------------------------------------------------------
$110,141 $(69,459) Consolidated $252,606 $(111,619)
=========================================================================
Combined Ratios
Quarter Ended December 31, Year Ended December 31,
-------------------------------------------------------------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
91% 77% Excess and Surplus Lines 96% 92%
99% 103% Specialty Admitted 99% 106%
85% 85% London Insurance Market 91% 104%
-------------------------------------------------------------------------
90% 85% Consolidated 95% 99%
=========================================================================
SOURCE Markel Corporation
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