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RICHMOND, Va., Feb 4, 2003 /PRNewswire-FirstCall via COMTEX/ -- Markel
Corporation (NYSE: MKL) reported net income of $2.67 and $7.65 per diluted
share, respectively, for the quarter and year ended December 31, 2002 compared
to a net loss of $4.78 and $14.73 per diluted share, respectively, for the
quarter and year ended December 31, 2001. Underwriting results improved
significantly in 2002. Markel produced its first quarterly underwriting profit
since its acquisition of Markel International in March of 2000. The Company
reported a combined ratio of 99% and 103%, respectively, for the quarter and
year ended December 31, 2002 compared to a combined ratio of 128% and 124%,
respectively, for the quarter and year ended December 31, 2001. Alan I.
Kirshner, Chairman and Chief Executive Officer, commented, "We are pleased to
have achieved underwriting profits in the fourth quarter. We wish to thank our
associates for their hard work and dedication over the past several years.
Through their efforts, our domestic operations have produced outstanding
results, and we are building a strong platform in the London Market. Barring any
surprises, we expect continuous improvement in our underwriting margins for the
next few years and long-term growth in book value per share."
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 or net income 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. Following is a comparison of 2002 and 2001 results on a per diluted share basis (shares in thousands).
Quarter Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
Core operations $2.31 $(4.32) $4.98 $(13.13)
Realized gains .53 .26 3.37 1.52
Amortization expense (.17) (.72) (.70) (3.12)
Diluted net income (loss) 2.67 (4.78) 7.65 (14.73)
Net change in unrealized
gains (losses) and other (.24) .92 (.21) 5.72
Comprehensive income (loss) $2.43 $(3.86) $7.44 $(9.01)
Weighted average diluted
shares 9,857 9,146 9,852 8,534
Fourth quarter 2002 income from core operations was $2.31 per share compared to
a loss from core operations of $4.32 per share in 2001. For the year ended
December 31, 2002, income from core operations was $4.98 per share compared to
loss from core operations of $13.13 per share in the prior year. The 2002
improvement was primarily due to minimal catastrophe losses and lower
underwriting losses in discontinued lines compared to 2001 partially offset by
$44 million of reserve increases in the third quarter of 2002 related primarily
to asbestos exposures. In addition, underwriting results improved in each of the
Company's three specialty market operating segments: Excess and Surplus Lines
(E&S), Specialty Admitted and the London Insurance Market.
The loss from core operations for the year ended December 31, 2001 was due to $213 million of reserve increases. During the fourth quarter of 2001, the Company increased loss reserves and expense charges $70 million at Markel International related to asbestos exposures, uncollectable reinsurance and additional reinsurance costs. During the third quarter of 2001, the Company recorded $75 million of estimated losses related to the terrorist attacks of September 11, 2001; $39 million of reserve increases in Markel International's discontinued worldwide motor program and $29 million of reserve increases in the Company's Brokered Excess and Surplus Lines unit.
-Premium Analysis-
Quarter Ended December 31,
(Dollars in thousands)
Gross Written Earned
Premiums Premiums
2002 2001 2002 2001
Excess and Surplus
Lines $360,192 $260,408 $228,400 $145,781
Specialty Admitted 53,228 34,085 53,773 38,730
London Insurance
Market 154,877 179,936 165,226 133,472
Other (Discontinued
Lines) 3,625 20,861 10,549 21,845
Total $571,922 $495,290 $457,948 $339,828
-Premium Analysis-
Year Ended December 31,
(Dollars in thousands)
Gross Written Earned
Premiums Premiums
2002 2001 2002 2001
Excess and Surplus
Lines $1,316,575 $842,067 $768,563 $503,939
Specialty Admitted 235,598 162,512 185,933 138,321
London Insurance
Market 622,081 715,826 558,534 467,551
Other (Discontinued
Lines) 43,437 53,956 35,986 96,873
Total $2,217,691 $1,774,361 $1,549,016 $1,206,684
For the fourth quarter and year ended December 31, 2002, E&S and Specialty
Admitted gross written premiums increased 40% and 55%, respectively, due to
increased submission activity and price increases across all business units. For
the fourth quarter and year ended December 31, 2002, writings in the London
Insurance Market continued to meet the Company's expectations both in terms of
volume and price increases achieved. However, gross written premiums in the
London Insurance Market declined primarily due to stricter underwriting
guidelines, reduced policy limits and the reunderwriting of some classes of
business. Discontinued Lines consisted primarily of Corifrance's writings in
both periods of 2002.
-Combined Ratio Analysis-
Quarter Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
Excess and Surplus Lines 92 % 95 % 93 % 102 %
Specialty Admitted 98 % 104 % 100 % 101 %
London Insurance Market 104 % 131 % 107 % 134 %
Other (Discontinued
Lines) 194 % 373 % 292 % 229 %
Consolidated 99 % 128 % 103 % 124 %
The E&S segment produced strong underwriting profits for the quarter and the
year ended December 31, 2002. In 2002, the E&S segment benefited from an
improved expense ratio due to higher volume and lower commission rates. For the
2001 year, the underwriting loss in the E&S segment was primarily the result of
$29 million of adverse loss development on New York contractors business
previously written by the Brokered Excess and Surplus Lines unit.
The Specialty Admitted segment produced underwriting profits in the fourth quarter of 2002 and an underwriting break even result for the full year. In 2002, Specialty Admitted benefited from an improved expense ratio due to higher volume.
The combined ratio for the London Market segment improved significantly for the quarter and year ended December 31, 2002 compared to the same periods last year. Starting with a 110% combined ratio in the first quarter of 2002, Markel International steadily improved to 107%, 106% and 104% combined ratios in the second, third and fourth quarters of 2002. The segment benefited from an improved expense ratio primarily due to lower commission rates. The Company is intent on strengthening Markel International's operating performance and balance sheet through a focus on expense control and underwriting discipline which includes improved risk selection, pricing and the appropriate use of reinsurance.
The underwriting loss from Discontinued lines was $9.9 million and $68.9 million, respectively, for the fourth quarter and year ended December 31, 2002. During the third quarter of 2002, Discontinued Lines reserves were increased $44 million, primarily as a result of increases in reserves for asbestos and environmental (A&E) exposures following the completion of the Company's annual A&E review.
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. For 2003 budgeting purposes, the Company is anticipating gross premium growth of 15%, with domestic operations slightly higher and international operations slightly lower. More importantly, the Company anticipates improved underwriting margins in all operating segments for 2003. All of the Company's insurance operations have and are achieving significant rate increases. The Company expects its loss ratio to improve during 2003 as these price increases are earned.
Fourth quarter 2002 net investment income was $43.2 million compared to $42.8 million in the prior year. Net investment income for the year ended December 31, 2002 was $170.1 compared to $170.7 million in 2001. In both periods, a larger investment portfolio offset lower investment yields. In the fourth quarter the Company recognized $8.0 million of net realized gains compared to $3.7 million of net realized gains in 2001. For the year ended December 31, 2002, net realized gains were $51.0 million compared to net realized gains of $20.0 million for the same period last year. Variability in the timing of realized and unrealized investment gains and losses is to be expected.
For the year the Company's investment portfolio increased 20% to $4.3 billion from $3.6 billion at December 31, 2001. Cash flows from operations were approximately $500 million for 2002.
Amortization of intangible assets was $2.6 million in the fourth quarter of 2002 compared to $7.6 million last year. For the year ended December 31, 2002, amortization of intangible assets was $10.7 million compared to $30.7 million in 2001. The Company adopted Financial Accounting Standards Board Statement (Statement) No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. The decrease in amortization in 2002 is due to the fact that goodwill is no longer amortized after the adoption of Statement No. 142. Instead, Statement No. 142 requires that goodwill and other intangible assets with indefinite useful lives be tested for impairment annually in lieu of being amortized. Intangible assets, other than goodwill, will be fully amortized by the end of the second quarter of 2003.
The Company completed the transitional goodwill impairment test in the first quarter of 2002 and the annual goodwill impairment test in the fourth quarter of 2002, as required by Statement No. 142. The Company determined that there was no indication of goodwill impairment. The following table compares net income and net income per share for 2001, as adjusted for the adoption of Statement No. 142, with the amounts for 2002 (in thousands, except per share data):
Quarter Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
Net income (loss) $26,346 $(43,736) $75,324 $(125,717)
Add back: Goodwill
amortization - 4,790 - 19,162
Adjusted net income (loss) $26,346 $(38,946) $75,324 $(106,555)
Adjusted net income
(loss) per share:
Basic $2.68 $(4.26) $7.67 $(12.49)
Diluted $2.67 $(4.26) $7.65 $(12.49)
Average shares
outstanding:
Basic 9,832 9,146 9,825 8,534
Diluted 9,857 9,146 9,852 8,534
Comprehensive income was $2.43 per share for the fourth quarter of 2002 compared
to comprehensive loss of $3.86 per share in 2001. For the year ended December
31, 2002, comprehensive income was $7.44 per share compared to a comprehensive
loss of $9.01 per share in 2001. The improvement in both periods of 2002 was
primarily due to higher net income compared to net losses in both periods of
2001. The Company reported net unrealized gains, net of taxes, on its fixed
maturity and equity investments of $179.2 million at December 31, 2002 compared
to $173.9 million at December 31, 2001.
Book value per common share was $117.89 at December 31, 2002 compared to $110.50 at December 31, 2001.
In the Company's third quarter earnings release, the Company discussed the funding status of a pension plan that covers a portion of our London based associates and is closed to new participants. During the fourth quarter of 2002, the Company elected to contribute $5.0 million to the plan. At December 31, 2002, the fair value of pension plan assets exceeded the plan's accumulated benefit obligation. As a result, the potential adjustment to shareholders' equity, which was discussed in the third quarter earnings release, was not required.
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 man- made or natural catastrophes, no significant changes in products or personnel and no adverse changes in market conditions. Recently enacted legislation requires the Company to offer terrorism insurance. The potential impact of this legislation cannot be determined at this time. 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 continues to closely monitor Discontinued Lines and 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 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 fourth quarter and year end financial results and may include forward-looking information, will be held later today, Tuesday, February 4th, 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, February 14, 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, http://www.markelcorp.com . A replay of the call will also be available on this web site until Friday, February 14, 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 Year Ended
December 31, December 31,
2002 2001 2002 2001
(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums $457,948 $339,828 $1,549,016 $1,206,684
Net investment income 43,244 42,785 170,137 170,722
Net realized gains from
investment sales 7,965 3,728 51,042 20,006
Total Operating Revenues 509,157 386,341 1,770,195 1,397,412
OPERATING EXPENSES
Losses and loss adjustment
expenses 316,448 296,471 1,114,610 1,049,421
Underwriting, acquisition
and insurance expenses 138,847 139,146 487,108 450,859
Amortization of intangible
assets 2,629 7,587 10,684 30,683
Total Operating Expenses 457,924 443,204 1,612,402 1,530,963
Operating Income (Loss) 51,233 (56,863) 157,793 (133,551)
Interest expense 10,069 10,836 40,100 48,647
Income (Loss) Before
Income Taxes 41,164 (67,699) 117,693 (182,198)
Income tax expense (benefit) 14,818 (23,963) 42,369 (56,481)
Net Income (Loss) $26,346 $(43,736) $75,324 $(125,717)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains on
securities, net of taxes
Net holding gains arising
during the period $1,281 $11,311 $38,419 $62,695
Less reclassification
adjustments for gains
included in net income (5,177) (2,422) (33,177) (13,003)
Net unrealized gains
(losses) (3,896) 8,889 5,242 49,692
Currency translation
adjustments, net of taxes 1,549 (491) (7,232) (863)
Total Other Comprehensive
Income (Loss) (2,347) 8,398 (1,990) 48,829
Comprehensive Income (Loss) $23,999 $(35,338) $73,334 $(76,888)
NET INCOME (LOSS) PER SHARE
Basic $2.68 ($4.78) $7.67 ($14.73)
Diluted $2.67 ($4.78) $7.65 ($14.73)
Selected Data
(dollars and shares in thousands, December 31, December 31,
except per share data) 2002 2001
Total investments and cash $4,314,152 $3,591,202
Reinsurance recoverable on paid and
unpaid losses 1,730,879 1,569,012
Intangible assets 361,444 372,128
Total assets 7,408,560 6,440,628
Unpaid losses and loss adjustment
expenses 4,366,803 3,699,973
Unearned premiums 937,364 806,922
Convertible notes payable 86,109 116,022
Long-term debt 404,384 264,998
8.71% Capital Securities 150,000 150,000
Total shareholders' equity 1,159,111 1,085,108
Book value per share $117.89 $110.50
Common shares outstanding 9,832 9,820
Markel Corporation
Segment Reporting Disclosures
For the Quarter and Year Ended December 31, 2002
Segment Gross Written Premium
Quarter Ended Year Ended
December 31, December 31,
2002 2001 (dollars in thousands) 2002 2001
$360,192 $260,408 Excess and Surplus Lines $1,316,575 $842,067
53,228 34,085 Specialty Admitted 235,598 162,512
154,877 179,936 London Insurance Market 622,081 715,826
3,625 20,861 Other (Discontinued Lines) 43,437 53,956
$571,922 $495,290 Consolidated $2,217,691 $1,774,361
Segment Net Written Premium
Quarter Ended Year Ended
December 31, December 31,
2002 2001 (dollars in thousands) 2002 2001
$253,023 $180,306 Excess and Surplus Lines $902,396 $579,651
48,120 31,037 Specialty Admitted 218,171 148,834
132,299 135,075 London Insurance Market 460,484 526,253
1,690 12,100 Other (Discontinued Lines) 36,137 31,694
$435,132 $358,518 Consolidated $1,617,188 $1,286,432
Segment Revenues
Quarter Ended Year Ended
December 31, December 31,
2002 2001 (dollars in thousands) 2002 2001
$228,400 $145,781 Excess and Surplus Lines $768,563 $503,939
53,773 38,730 Specialty Admitted 185,933 138,321
165,226 133,472 London Insurance Market 558,534 467,551
51,209 46,513 Investing 221,179 190,728
10,549 21,845 Other (Discontinued Lines) 35,986 96,873
$509,157 $386,341 Consolidated $1,770,195 $1,397,412
Segment Profit (Loss)
Quarter Ended Year Ended
December 31, December 31,
2002 2001 (dollars in thousands) 2002 2001
$18,459 $ 6,835 Excess and Surplus Lines $ 53,275 $(10,358)
952 (1,446) Specialty Admitted (485) (1,505)
(6,880) (41,443) London Insurance Market (36,575) (157,011)
51,209 46,513 Investing 221,179 190,728
(9,878) (59,735) Other (Discontinued Lines) (68,917) (124,722)
$53,862 $(49,276) Consolidated $168,477 $(102,868)
Combined Ratios
Quarter Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
92% 95% Excess and Surplus Lines 93% 102%
98% 104% Specialty Admitted 100% 101%
104% 131% London Insurance Market 107% 134%
194% 373% Other (Discontinued Lines) 292% 229%
99% 128% Consolidated 103% 124%
SOURCE Markel Corporation
CONTACT: Bruce Kay of Markel Corporation, +1-804-747-0136 URL: http://www.markelcorp.com http://www.prnewswire.com
Copyright (C) 2003 PR Newswire. All rights reserved.