The following text field filters the results that follow as you type.
RICHMOND, Va., Jan. 26 /PRNewswire-FirstCall/ -- Markel Corporation (NYSE: MKL) reported net income of $4.97 per diluted share for the quarter ended December 31, 2004 compared to net income of $4.44 per diluted share for the same period of 2003. Net income for the year ended December 31, 2004 was $16.41 per diluted share compared to $12.31 per diluted share in 2003. The combined ratio was 94% and 96%, respectively, for the quarter and year ended December 31, 2004 compared to 96% and 99%, respectively, for the same periods in 2003. Book value per common share outstanding increased 20% to $168.22 at December 31, 2004. Alan I. Kirshner, Chairman and Chief Executive Officer, commented, "While this year's results include losses for the 2004 hurricanes and development of prior years' losses on business we no longer write, strong underwriting profits on our core business and exceptional investment returns have resulted in another year of record earnings. These results demonstrate our continued commitment and ability to grow book value per share at a high rate of return for our shareholders."
Following is a comparison of 2004 and 2003 results on a per diluted share basis (in thousands, except per share amounts):
Quarter Ended Year Ended
December 31, December 31,
2004 2003 2004 2003
Net income $50,274 $44,722 $165,412 $123,477
Comprehensive income $150,243 $79,925 $272,677 $222,062
Weighted average
diluted shares 10,189 10,197 10,190 10,196
Diluted net income
per share $4.97 $4.44 $16.41 $12.31
Weighted average diluted shares and diluted net income per share reflect our fourth quarter 2004 adoption of Financial Accounting Standards Board's Emerging Issues Task Force (EITF) Issue No. 04-8. EITF Issue No. 04-8 addresses the effect of contingently convertible instruments on diluted earnings per share. Our convertible notes payable are contingently convertible instruments. The impact of adopting EITF Issue No. 04-8 was additional dilution of approximately 2% in all periods presented and we have restated previously reported diluted net income per share in accordance with this new standard. If the convertible notes payable had been converted into common shares at December 31, 2004, book value per common share outstanding would have increased by approximately 2%.
The increase in diluted net income per share for both periods of 2004 was due to improved underwriting results and higher investment income offset in part by lower realized gains and increased interest expense. Diluted net income per share for the year ended December 31, 2004 also included a non- recurring tax benefit of $4.1 million. Diluted net income per share for the year ended December 31, 2003 included amortization expense, net of tax, of $2.7 million.
Comprehensive income was $150.2 million for the fourth quarter of 2004 compared to comprehensive income of $79.9 million for the same period of 2003. The improvement was primarily due to an increase in the market value of our investment portfolio in the fourth quarter of 2004 compared to the same period of 2003. For the year ended December 31, 2004, comprehensive income was $272.7 million compared to $222.1 million in 2003. The increase in comprehensive income was primarily due to higher net income for the year ended December 31, 2004 compared to 2003.
Following is a comparison of 2004 and 2003 book value per common share outstanding (shares in thousands):
December 31, December 31,
2004 2003
Book value per common
share outstanding $168.22 $140.38
Common shares
outstanding 9,847 9,847
Book value increased to $168.22 per share primarily as a result of $165.4 million of net income and $106.3 million of increases in net unrealized investment gains, net of taxes, for the year ended December 31, 2004. This increase represents a 20% compounded growth in book value per share over the past one and five year periods ended December 31, 2004.
-Combined Ratio Analysis-
Quarter Ended Year Ended
December 31, December 31,
2004 2003 2004 2003
Excess and Surplus Lines 90% 82% 87% 90%
Specialty Admitted 78% 82% 86% 90%
London Insurance Market 108% 110% 117% 104%
Other 120% 820% 136% 533%
Consolidated 94% 96% 96% 99%
The increase in the combined ratio for the Excess and Surplus Lines segment for the quarter ended December 31, 2004 was primarily due to a $25 million increase in prior years' loss reserves at the Investors Brokered Excess and Surplus Lines unit. During the fourth quarter of 2004, we determined that development of reported claims in the California commercial and residential contractors book of business written by the Investors Brokered Excess and Surplus Lines unit was higher than expected. As a result, we have increased our loss reserves and decided to exit the California contractors market given the volatility of losses for this book of business. The improvement in the combined ratio for the year ended December 31, 2004 was primarily due to less development of prior years' loss reserves at the Investors Brokered Excess and Surplus Lines unit and continued favorable development of prior years' loss reserves at other operating units in this segment compared to 2003.
The Specialty Admitted segment produced improved underwriting results for the quarter and year ended December 31, 2004 compared to the same periods of 2003. The improvement for both periods was primarily due to favorable development of prior years' loss reserves.
The London Insurance Market segment's improved underwriting performance for the quarter ended December 31, 2004 was due to lower development of prior years' loss reserves offset in part by a higher expense ratio compared to the same period of 2003. The increase in the expense ratio for the quarter ended December 31, 2004 was primarily due to lower earned premiums in 2004 compared to 2003 and the effect of the weakened U.S. dollar against other world currencies. The increase in the London Insurance Market segment's combined ratio for the year ended December 31, 2004 was primarily due to $45 million of net losses for the 2004 hurricanes and $30 million of loss reserve increases for adverse development from 1997 to 2001 on U.S. casualty reinsurance, financial institution risks and general and professional liability exposures, most of which are no longer written.
The underwriting loss from Other was $2.9 million for the quarter ended December 31, 2004 compared to $21.6 million for 2003.(1) The Other underwriting loss for the year ended December 31, 2004 was $13.5 million compared to $96.1 million for the same period of 2003. The Other underwriting loss for the year ended December 31, 2003 included reserve increases for asbestos and environmental exposures ($55 million) and professional indemnity and general liability exposures ($20 million), as well as allowances for reinsurance costs and collection issues ($13 million).
-Premium Analysis-
Quarter Ended December 31,
(Dollars in thousands)
Gross Written Premiums Earned Premiums
2004 2003 2004 2003
Excess and Surplus Lines $363,402 $384,616 $288,630 $280,936
Specialty Admitted 58,386 58,114 69,298 62,734
London Insurance Market 151,863 189,681 138,553 170,363
Other 7,344 4,795 14,603 2,997
Total $580,995 $637,206 $511,084 $517,030
-Premium Analysis-
Year Ended December 31,
(Dollars in thousands)
Gross Written Premiums Earned Premiums
2004 2003 2004 2003
Excess and Surplus Lines $1,478,210 $1,520,608 $1,146,142 $1,031,652
Specialty Admitted 294,114 270,647 265,671 235,275
London Insurance Market 700,002 738,443 604,070 575,116
Other 46,074 42,533 38,004 22,208
Total $2,518,400 $2,572,231 $2,053,887 $1,864,251
Gross written premiums for the quarter and year ended December 31, 2004 declined 9% and 2%, respectively, compared to the same periods of 2003. The decrease in both periods was due to increased competition across many product lines and our re-underwriting of various books of business during 2004. We do not intend to sacrifice underwriting profits to achieve top line growth. While we anticipate continued pricing pressure in 2005, we will continue to focus on new product development, client relations and our ultimate goal of underwriting profitability.
Net retention of gross written premiums for both the quarter and year ended December 31, 2004 was 81% compared to 79% and 77%, respectively, for the same periods of 2003. Net retention of gross written premiums has increased consistent with our strategy to retain more of our profitable business. The increase was primarily due to changes in the mix of premium writings and purchasing less reinsurance in both the Excess and Surplus Lines and the London Insurance Market segments during 2004 compared to 2003.
Earned premiums for the fourth quarter of 2004 declined 1% compared to the same period of 2003. The decrease was due to lower earned premiums for the London Insurance Market segment in the quarter ended December 31, 2004 compared to the same period of 2003 primarily due to the withdrawal over the past year from various programs, including aviation, and lower prior years' premium writings in 2004 compared to 2003. For the year ended December 31, 2004, earned premiums increased 10% compared to the same period of 2003. This increase in earned premiums for 2004 was due to higher net written premiums over the past two years.
Fourth quarter 2004 net investment income was $56.1 million compared to $45.5 million in the prior year. The increase was primarily due to growth in our investment portfolio over the past year. Net investment income for the year ended December 31, 2004 was $204.0 million compared to $182.6 million in 2003. The increase for the year was a result of investment portfolio growth in 2004 partially offset by lower investment yields compared to 2003.
Net realized losses for the quarter ended December 31, 2004 were $2.8 million compared to net realized gains of $9.2 million in 2003. For the year ended December 31, 2004, net realized gains were $4.1 million compared to $45.0 million for the same period last year. Variability in the timing of realized and unrealized investment gains and losses is to be expected.
Interest expense was $15.9 million and $56.2 million, respectively, for the quarter and year ended December 31, 2004 compared to $13.2 million and $52.0 million, respectively, for the same periods of 2003. The increase in both periods was primarily due to interest on our 7.35% unsecured senior notes which were issued in August 2004.
Before considering the nonrecurring tax benefit of $4.1 million reported in the third quarter, the effective tax rate was 28% for the year ended December 31, 2004 compared to 32% for the same period of 2003. The 28% effective tax rate differs from the statutory tax rate of 35% primarily due to tax exempt investment income.
At December 31, 2004, our investment portfolio was $6.3 billion, an increase of approximately 18% from $5.3 billion at December 31, 2003. We reported net unrealized gains, net of taxes, on our fixed maturity and equity investments of $377.1 million at December 31, 2004 compared to $270.8 million at December 31, 2003. Equity securities were $1.3 billion, or 21%, of our total investment portfolio at December 31, 2004 compared to $968.8 million, or 18%, of our total investment portfolio at December 31, 2003.
Net cash provided by operating activities was $689 million for the year ended December 31, 2004 compared to $631 million for the same period of 2003.
We completed the sale of Corifrance, our wholly-owned reinsurance subsidiary, on January 11, 2005. We considered Corifrance a non-strategic subsidiary and have included it in our Other segment since its acquisition as part of Terra Nova in March 2000. We do not expect this transaction to result in a material gain or loss in 2005.
This is a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. It also contains general cautionary statements regarding our business, estimates and management assumptions. Future actual results may materially differ from those in these statements because of many factors. Among other things, the impact of the events of September 11, 2001 will depend on the number of insureds and reinsureds affected by the events, the amount and timing of losses incurred and reported and questions of how coverage applies. The occurrence of additional terrorist activities could have a material impact on our business and the insurance industry. 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 to offer terrorism insurance and have attempted to manage our exposure. However, in the event of a covered terrorist attack, we could sustain material losses. 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. In addition, industry and economic conditions can affect the ability and/or willingness of reinsurers to pay balances due. We continue to closely monitor our discontinued lines and reinsurance programs and exposures. Adverse experience in these areas could lead to additional charges. Regulatory actions can impede our ability to charge adequate rates and efficiently allocate capital. Economic conditions, interest rates, foreign exchange rate volatility and concentration of investments can have a significant impact on the market value of our fixed maturity and equity investments, as well as the carrying value of other assets and liabilities. Our premium volume, underwriting and investment results have been and will continue to be potentially materially affected by these factors. Additional factors that could affect our business are discussed in our reports on Forms 8-K, 10-Q and 10-K. By making these forward-looking statements, we are not intending to become obligated to publicly update or revise any forward-looking 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.
The quarterly conference call, which will involve discussion of the fourth quarter and year-end financial results and may include forward-looking information, will be held Thursday, January 27, 2005 at approximately 10:30 a.m. Eastern Time. Any person interested in listening to the call, or a replay of the call, which will be available approximately two hours after the conclusion of the call until Friday, February 4, 2005, 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 corporate web site, http://www.markelcorp.com. A replay of the call will also be available on this web site until Friday, February 4, 2005.
The webcast, the conference call and the content and permitted replays or rebroadcasts thereof are the exclusive copyrighted property of Markel Corporation and may not be copied, taped, rebroadcast or published in whole or in part without the express written consent of Markel Corporation.
(1) We believe that a successful insurance business must produce an underwriting profit, and we evaluate and manage our operations on that basis. Some of the information in this release, in particular underwriting profit and loss, is considered a non-GAAP financial measure. A reconciliation of this measure to operating income is set forth in Segment Reporting Disclosures below.
We market and underwrite specialty insurance products and programs to a variety of niche markets. In each of these markets, we seek to provide quality products and excellent customer service so that we can be a market leader. Our financial goals 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
Quarter Ended Year Ended
December 31, December 31,
2004 2003 2004 2003
(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums $511,084 $517,030 $2,053,887 $1,864,251
Net investment income 56,122 45,529 204,032 182,608
Net realized gains (losses)
from investment sales (2,798) 9,202 4,139 45,045
Total Operating
Revenues 564,408 571,761 2,262,058 2,091,904
OPERATING EXPENSES
Losses and loss adjustment
expenses 298,413 330,702 1,308,343 1,269,522
Underwriting, acquisition
and insurance expenses 182,438 163,815 673,450 584,710
Amortization of intangible
assets - - - 4,127
Total Operating
Expenses 480,851 494,517 1,981,793 1,858,359
Operating Income 83,557 77,244 280,265 233,545
Interest expense 15,903 13,205 56,220 51,961
Income Before Income
Taxes 67,654 64,039 224,045 181,584
Income tax expense 17,380 19,317 58,633 58,107
Net Income $50,274 $44,722 $165,412 $123,477
OTHER COMPREHENSIVE INCOME
Unrealized gains on
securities, net of taxes
Net holding gains
arising during the
period $96,140 $38,223 $108,945 $120,928
Less reclassification
adjustments for gains
(losses) included in
net income 1,819 (5,981) (2,690) (29,279)
Net unrealized gains 97,959 32,242 106,255 91,649
Currency translation
adjustments, net of taxes 2,010 2,961 1,010 6,936
Total Other
Comprehensive Income 99,969 35,203 107,265 98,585
Comprehensive Income $150,243 $79,925 $272,677 $222,062
NET INCOME PER SHARE
Basic $5.11 $4.54 $16.79 $12.55
Diluted $4.97 $4.44 $16.41 $12.31
Selected Data
(dollars and shares in
thousands, except per share December 31, December 31,
data) 2004 2003
Total investments and cash $6,316,747 $5,349,952
Reinsurance recoverable on
paid and unpaid losses 1,756,022 1,770,607
Intangible assets 339,717 357,317
Total assets 9,397,586 8,532,233
Unpaid losses and loss
adjustment expenses 5,482,367 4,929,713
Unearned premiums 1,026,296 1,060,188
Convertible notes payable 94,817 90,601
Senior long-term debt 610,260 521,510
8.71% Junior Subordinated
Debentures 150,000 150,000
Total shareholders' equity 1,656,503 1,382,279
Book value per share $168.22 $140.38
Common shares outstanding 9,847 9,847
Markel Corporation
Segment Reporting Disclosures
For the Quarters and Years Ended December 31, 2004 and 2003
Segment Gross Written Premiums
Quarter Ended December 31, Year Ended December 31,
2004 2003 (dollars in thousands) 2004 2003
$363,402 $384,616 Excess and Surplus Lines $1,478,210 $1,520,608
58,386 58,114 Specialty Admitted 294,114 270,647
151,863 189,681 London Insurance Market 700,002 738,443
7,344 4,795 Other 46,074 42,533
$580,995 $637,206 Consolidated $2,518,400 $2,572,231
Segment Net Written Premiums
Quarter Ended December 31, Year Ended December 31,
2004 2003 (dollars in thousands) 2004 2003
$285,545 $293,818 Excess and Surplus Lines $1,156,044 $1,106,728
53,836 54,368 Specialty Admitted 276,363 254,146
123,712 156,000 London Insurance Market 580,730 591,846
5,954 (3,565) Other 37,247 22,519
$469,047 $500,621 Consolidated $2,050,384 $1,975,239
Segment Revenues
Quarter Ended December 31, Year Ended December 31,
2004 2003 (dollars in thousands) 2004 2003
$288,630 $280,936 Excess and Surplus Lines $1,146,142 $1,031,652
69,298 62,734 Specialty Admitted 265,671 235,275
138,553 170,363 London Insurance Market 604,070 575,116
53,324 54,731 Investing 208,171 227,653
14,603 2,997 Other 38,004 22,208
$564,408 $571,761 Consolidated $2,262,058 $2,091,904
Reconciliation of Segment Profit (Loss)
to Consolidated Operating Income
Quarter Ended December 31, Year Ended December 31,
2004 2003 (dollars in thousands) 2004 2003
$28,592 $50,007 Excess and Surplus Lines $147,550 $108,178
15,342 11,283 Specialty Admitted 37,943 23,092
(10,764) (17,185) London Insurance Market (99,907) (25,151)
53,324 54,731 Investing 208,171 227,653
(2,937) (21,592) Other (13,492) (96,100)
- - Amortization of Intangible Assets - (4,127)
$83,557 $77,244 Consolidated $280,265 $233,545
Combined Ratios
Quarter Ended December 31, Year Ended December 31,
2004 2003 2004 2003
90% 82% Excess and Surplus Lines 87% 90%
78% 82% Specialty Admitted 86% 90%
108% 110% London Insurance Market 117% 104%
120% 820% Other 136% 533%
94% 96% Consolidated 96% 99%
######
SOURCE: Markel Corporation
CONTACT: Bruce Kay of Markel Corporation, +1-804-747-0136
Web site: http://www.markelcorp.com