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RICHMOND, Va., Oct. 28 /PRNewswire-FirstCall/ -- Markel Corporation (NYSE: MKL) reported a net loss of $1.68 per diluted share for the quarter ended September 30, 2003 compared to net income of $0.88 per diluted share for the quarter ended September 30, 2002. Net income for the nine month period ended September 30, 2003 was $7.99 per diluted share compared to $4.97 per diluted share for the nine month period ended September 30, 2002. The combined ratio was 110% and 101%, respectively, for the quarter and nine months ended September 30, 2003 compared to 110% and 105%, respectively for the quarter and nine months ended September 30, 2002. The Company's third quarter underwriting results reflect $55 million of reserve increases for asbestos and environmental loss exposures and $50 million of prior years' loss reserve increases at the Company's Investors Brokered Excess and Surplus Lines unit. Alan I. Kirshner, Chairman and Chief Executive Officer, commented, "Our goal has always been to establish reserves that are more likely redundant than deficient and the increases during the quarter are consistent with that goal. However, we are disappointed that the reserve increases have overshadowed the outstanding underwriting performance of the balance of our business. We expect a strong finish to 2003 and are well positioned for 2004."
In evaluating its operating performance, the Company focuses on core
underwriting and investing results (core operations) before consideration of
realized gains or losses and amortization expenses (these measures do not
replace operating income (loss) or net income (loss) computed in accordance
with generally accepted accounting principles as a measure of profitability).
The Company believes that this measure provides meaningful information about
the performance of its core underwriting and investing activities. The
Company's definition of core operations may not be comparable to that used by
other companies. Following is a comparison of 2003 and 2002 results on a per
diluted share basis, except for book value per common share outstanding
(shares in thousands).
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Core operations $(1.19) $(.66) $5.90 $2.66
Realized gains (losses) (.49) 1.71 2.36 2.84
Amortization expense - (.17) (.27) (.53)
Diluted net income
(loss) $(1.68) $.88 $7.99 $4.97
Weighted average
diluted shares 9,845 9,856 9,859 9,852
September 30, December 31,
2003 2002
Book value per common share
outstanding $132.24 $117.89
Common shares outstanding 9,846 9,832
The third quarter loss from core operations was $1.19 per share in 2003 compared to loss from core operations of $0.66 per share for 2002. The increased loss from core operations compared to the same period of 2002 was primarily due to higher prior years' loss reserve development in the Excess and Surplus Lines (E&S) segment partially offset by improved underwriting results for the Specialty Admitted and London Market segments. For the nine months ended September 30, 2003, income from core operations was $5.90 per share compared to income from core operations of $2.66 per share for the same period of 2002. The improved results for the nine month period ended September 30, 2003 were primarily due to underwriting profitability in the E&S and Specialty Admitted segments as well as improving underwriting results in our London Insurance Market segment partially offset by higher development of prior years' loss reserves in the Other segment compared to 2002.
Book value per common share outstanding increased to $132.24 at September
30, 2003 from $117.89 at December 31, 2002. The 2003 increase was primarily
the result of $78.8 million of net income and a $59.4 million increase in net
unrealized investment gains, net of taxes, during the nine months ended
September 30, 2003.
-Premium Analysis-
Quarter Ended September 30,
(Dollars in thousands)
Gross Written Premiums Earned Premiums
2003 2002 2003 2002
Excess and Surplus
Lines $398,581 $371,138 $266,800 $206,376
Specialty Admitted 81,095 73,762 60,467 49,393
London Insurance
Market 183,184 140,219 140,538 151,147
Other 8,574 18,289 8,190 10,337
Total $671,434 $603,408 $475,995 $417,253
-Premium Analysis-
Nine Months Ended September 30,
(Dollars in thousands)
Gross Written Premiums Earned Premiums
2003 2002 2003 2002
Excess and Surplus
Lines $1,135,992 $956,383 $750,716 $540,163
Specialty Admitted 212,533 182,370 172,541 132,160
London Insurance
Market 548,762 467,204 404,753 393,308
Other 37,738 39,812 19,211 25,437
Total $1,935,025 $1,645,769 $1,347,221 $1,091,068
For the quarter and nine month period ended September 30, 2003, the Company's gross written premiums increased 11% and 18%, respectively, and are on target with the Company's expectations for the full year.
-Combined Ratio Analysis-
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Excess and Surplus 99 % 92 % 92 % 94 %
Lines
Specialty Admitted 90 % 99 % 93 % 101 %
London Insurance 101 % 106 % 102 % 108 %
Market
Other 783 % 581 % 488 % 332 %
Consolidated 110 % 110 % 101 % 105 %
The Company regularly reviews the claims processes at its business units. During the third quarter of 2003, a review at the Investors Brokered Excess and Surplus Lines unit was initiated and is ongoing. The review highlighted case reserve estimates which did not meet the Company's standards. As a result, the Company has updated its actuarial assumptions and increased loss and loss adjustment expenses, primarily for the 1997-2001 accident years by $50 million during the quarter ended September 30, 2003. Other underwriting units included in the E&S segment produced favorable development on prior years' loss reserves and strong underwriting profits for the quarter and nine months ended September 30, 2003.
The Specialty Admitted segment produced improved underwriting results for the quarter and the nine months ended September 30, 2003 compared to the same periods of 2002. The significant improvement in both periods of 2003 was primarily due to lower current year losses and favorable development of prior years' loss reserves compared to both periods of 2002.
The combined ratio for the London Insurance Market improved for the quarter and nine months ended September 30, 2003 compared to the same periods of 2002. This improvement has resulted from a combination of lower loss ratios due to improved risk selection, pricing and the appropriate use of reinsurance and lower expense ratios due to lower commissions and expense control. The third quarter 2003 combined ratio of 101% decreased from 103% and 102%, respectively, in the first and second quarters of 2003. The London Insurance Market segment combined ratio has steadily improved and the London underwriting units continue to work towards their goal of underwriting profitability.
The underwriting loss from Other, which includes discontinued lines of business, was $55.9 million for the third quarter ended September 30, 2003 compared to an underwriting loss of $49.7 million in 2002. The Other underwriting loss for the nine month period ended September 30, 2003 was $74.5 million compared to $59.0 million for the same period of 2002. Both periods of 2003 included $55.0 million of reserve increases for asbestos and environmental exposures. Both periods of 2002 included $35.0 million of reserve increases due to asbestos and environmental exposures and related allowances for reinsurance bad debt and $9.0 million of reserve increases for reinsurance costs and collections issues for discontinued programs at Markel International.
The increase in prior years' loss reserves for asbestos and environmental exposures is being made in response to the Company's annual review of these exposures in both U.S. and international operations. The increase reflects a higher than expected incidence of new claims and recent adverse appellate and bankruptcy court decisions. The need to increase reserves for asbestos and environmental exposures in both 2002 and 2003 demonstrates that these reserves are subject to significant uncertainty due to potential loss severity and frequency resulting from the uncertain and unfavorable legal climate. The Company seeks to establish appropriate reserve levels for asbestos and environmental exposures; however, these reserves could be subject to increases in the future. The Company has established asbestos and environmental reserves without regard to the potential passage of asbestos reform legislation. These reserves are not discounted to present value and are forecasted to pay out over the next 50 years.
The Company anticipates that all segments of the specialty insurance marketplace in which it competes will continue to provide a favorable environment for its operations. Gross premium growth remains on target to meet the Company's expectations for the full year. While all of the Company's insurance operations continue to achieve rate increases compared to the prior year, rate increases have begun to slow or decline in certain lines of business. These include large direct and reinsurance property accounts, aviation and marine war accounts. The Company believes that the rates being obtained on these books of business are at levels that support our underwriting profit targets.
Third quarter 2003 net investment income was $46.4 million compared to $42.9 million in the prior year. Net investment income for the nine month period ended September 30, 2003 was $137.1 million compared to $126.9 million in 2002. In both periods of 2003, a larger investment portfolio offset lower investment yields.
In the third quarter of 2003, the Company recognized $7.4 million of net realized losses compared to $26.0 million of net realized gains in 2002. For the nine month period ended September 30, 2003, net realized gains were $35.8 million compared to net realized gains of $43.1 million for the same period last year. Variability in the timing of realized and unrealized investment gains and losses is to be expected.
Intangible assets, other than goodwill, were fully amortized as of June 30, 2003. For the nine months ended September 30, 2003, amortization of intangible assets was $4.1 million compared to $8.1 million for the same period of 2002.
Interest expense was $13.7 million for the third quarter of 2003 compared to $10.1 million for the same period of 2002. For the nine month period ended September 30, 2003, interest expense was $38.8 million compared to $30.0 million for the same period last year. The increase in both periods is primarily due to the Company's 2003 issuance of $250 million of 6.80% unsecured senior notes, due February 15, 2013. A portion of the net proceeds was used to repay $175 million outstanding under the Company's $300 million revolving credit facility. During the third quarter of 2003, the Company replaced the existing facility with a $220 million revolving credit facility expiring December 2006.
For the third quarter and nine months ended September 30, 2003, the Company's effective tax rate was 33% compared to 36% for the third quarter and nine months ended September 30, 2002. The decrease was due to the elimination during 2002 of nondeductible interest expense and the 2003 increase in investment allocations to tax-exempt securities.
Comprehensive loss was $27.7 million for the third quarter of 2003 compared to comprehensive income of $7.4 million for the same period of 2002. The comprehensive loss for the third quarter of 2003 was primarily due to lower net income as a result of reserve increases and a decrease in the market value of the Company's investment portfolio partially offset by more favorable currency translation adjustments compared to 2002. For the nine months ended September 30, 2003, comprehensive income was $142.1 million compared to $49.3 million in 2002. The improvement was primarily due to a significant increase in the market value of the Company's investment portfolio and higher net income for the nine months ended September 30, 2003 compared to 2002. Comprehensive loss for the third quarter of 2003 includes $2.8 million of losses from currency translation adjustments, net of taxes, compared to losses of $12.1 million for the same period of 2002. For the nine months ended September 30, 2003, gains from currency translation adjustments, net of taxes, were $4.0 million compared to losses of $8.8 million for the same period of 2002. The Company attempts to match assets and liabilities in original currencies to mitigate the impact of currency volatility.
At September 30, 2003, the Company's investment portfolio increased 16% to $5.0 billion from $4.3 billion at December 31, 2002. The Company reported net unrealized gains, net of taxes, on its fixed maturity and equity investments of $238.6 million at September 30, 2003 compared to $179.2 million at December 31, 2002. Equity securities were $805.1 million, or 16% of the total investment portfolio, at September 30, 2003 compared to $550.9 million, or 13%, at December 31, 2002. Net cash provided by operating activities was approximately $450 million for the first nine months of 2003 compared to approximately $360 million for the same period in 2002.
This is a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. It also contains general cautionary statements regarding the Company's 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 the Company and the insurance industry. The Company's anticipated premium growth and anticipated improvements in underwriting profitability are 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. The Company is legally required to offer terrorism insurance and has attempted to manage its exposure. However, in the event of a covered terrorist attack, the Company could sustain material losses. Changing legal and social trends and inherent uncertainties 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. The Company's review of claims processes at the Investors Brokered Excess and Surplus Line unit is ongoing. The Company continues to closely monitor discontinued lines and related reinsurance programs and exposures. Adverse experience in these areas could lead to additional charges. Regulatory actions can impede the Company's ability to charge adequate rates and efficiently allocate capital. Economic conditions, interest rates and foreign exchange rate volatility can have a significant impact on the market value of fixed maturity and equity investments as well as the carrying value of other assets and liabilities. The Company's premium growth, underwriting and investment results have been and will continue to be potentially materially affected by these factors. Additional factors, which could affect the Company, are discussed in the Company's reports on Forms 8-K, 10-Q and 10-K. By making these forward looking statements, the Company is 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 quarter and year to date financial results and may include forward-looking information, will be held Wednesday, October 29, 2003 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, November 7, 2003, 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, www.markelcorp.com. A replay of the call will also be available on this web site until Friday, November 7, 2003.
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.
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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums $475,995 $417,253 $1,347,221 $1,091,068
Net investment income 46,379 42,853 137,079 126,893
Net realized gains (losses)
from investment sales (7,360) 25,982 35,843 43,077
Total Operating Revenues 515,014 486,088 1,520,143 1,261,038
OPERATING EXPENSES
Losses and loss adjustment
expenses 378,868 324,438 938,820 798,162
Underwriting, acquisition
and insurance expenses 147,102 135,343 420,895 348,261
Amortization of intangible
assets - 2,629 4,127 8,055
Total Operating Expenses 525,970 462,410 1,363,842 1,154,478
Operating Income (Loss) (10,956) 23,678 156,301 106,560
Interest expense 13,720 10,078 38,756 30,031
Income (Loss) Before
Income Taxes (24,676) 13,600 117,545 76,529
Income tax expense (benefit) (8,143) 4,896 38,790 27,551
Net Income (Loss) $(16,533) $8,704 $78,755 $48,978
OTHER COMPREHENSIVE INCOME
(LOSS)
Unrealized gains (losses) on
securities, net of taxes
Net holding gains
(losses) arising during
the period $(13,224) $27,627 $82,705 $37,138
Less reclassification
adjustments for gains
(losses) included in net
income (loss) 4,784 (16,888) (23,298) (28,000)
Net unrealized gains
(losses) (8,440) 10,739 59,407 9,138
Currency translation
adjustments, net of taxes (2,750) (12,066) 3,975 (8,781)
Total Other Comprehensive
Income (Loss) (11,190) (1,327) 63,382 357
Comprehensive Income
(Loss) $(27,723) $7,377 $142,137 $49,335
NET INCOME (LOSS) PER SHARE
Basic $(1.68) $0.89 $8.00 $4.99
Diluted $(1.68) $0.88 $7.99 $4.97
Selected Data September 30, December 31,
(dollars and shares in 2003 2002
thousands, except per share
data)
Total investments and cash $4,993,685 $4,314,152
Reinsurance recoverable on
paid and unpaid losses 1,651,493 1,730,879
Intangible assets 357,317 361,444
Total assets 8,061,412 7,408,560
Unpaid losses and loss
adjustment expenses 4,647,026 4,366,803
Unearned premiums 1,079,790 937,364
Convertible notes payable 89,466 86,109
Long-term debt 478,049 404,384
8.71% Capital Securities 150,000 150,000
Total shareholders' equity 1,302,045 1,159,111
Book value per share $132.24 $117.89
Common shares outstanding 9,846 9,832
Markel Corporation
Segment Reporting Disclosures
For the Quarter and Nine Months Ended September 30, 2003
Segment Gross Written Premium
Quarter Ended September 30, Nine Months Ended September 30,
2003 2002 (dollars in thousands) 2003 2002
$398,581 $371,138 Excess and Surplus Lines $1,135,992 $956,383
81,095 73,762 Specialty Admitted 212,533 182,370
183,184 140,219 London Insurance Market 548,762 467,204
8,574 18,289 Other 37,738 39,812
$671,434 $603,408 Consolidated $1,935,025 $1,645,769
Segment Net Written Premium
Quarter Ended September 30, Nine Months Ended September 30,
2003 2002 (dollars in thousands) 2003 2002
$291,435 $251,600 Excess and Surplus Lines $812,910 $649,373
76,991 68,846 Specialty Admitted 199,778 170,051
150,257 72,923 London Insurance Market 435,846 328,185
5,101 11,399 Other 26,084 34,447
$523,784 $404,768 Consolidated $1,474,618 $1,182,056
Segment Revenues
Quarter Ended September 30, Nine Months Ended September 30,
2003 2002 (dollars in thousands) 2003 2002
$266,800 $206,376 Excess and Surplus Lines $750,716 $540,163
60,467 49,393 Specialty Admitted 172,541 132,160
140,538 151,147 London Insurance Market 404,753 393,308
39,019 68,835 Investing 172,922 169,970
8,190 10,337 Other 19,211 25,437
$515,014 $486,088 Consolidated $1,520,143 $1,261,038
Reconciliation of Segment Profit (Loss)
to Consolidated Operating Income (Loss)
Quarter Ended September 30, Nine Months Ended September 30,
2003 2002 (dollars in thousands) 2003 2002
$1,502 $15,596 Excess and Surplus Lines $58,171 $34,816
6,081 354 Specialty Admitted 11,809 (1,437)
(1,645) (8,803) London Insurance Market (7,966) (29,695)
39,019 68,835 Investing 172,922 169,970
(55,913) (49,675) Other (74,508) (59,039)
- (2,629) Amortization of Intangible Assets (4,127) (8,055)
$(10,956) $23,678 Consolidated $156,301 $106,560
Combined Ratios
Quarter Ended September 30, Nine Months Ended September 30,
2003 2002 2003 2002
99% 92% Excess and Surplus Lines 92% 94%
90% 99% Specialty Admitted 93% 101%
101% 106% London Insurance Market 102% 108%
783% 581% Other 488% 332%
110% 110% Consolidated 101% 105%
SOURCE Markel Corporation
-0- 10/28/2003
/CONTACT: Bruce Kay of Markel Corporation, +1-804-747-0136/
/Web site: http://www.markelcorp.com/
(MKL)
CO: Markel Corporation
ST: Virginia
IN: INS
SU: ERN CCA
RJ-JA
-- DCTU078 --
9559 10/28/2003 18:13 EST http://www.prnewswire.com