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RICHMOND, Va., July 29 /PRNewswire-FirstCall/ -- Markel Corporation (NYSE: MKL) reported net income of $5.97 and $9.66 per diluted share, respectively, for the quarter and six month period ended June 30, 2003 compared to net income of $2.36 and $4.09 per diluted share, respectively, for the quarter and six month period ended June 30, 2002. Both periods of 2003 benefited from continued improvement in underwriting profits and increased net investment income and realized gains. The combined ratio for the second quarter of 2003 was 95% compared to 101% in 2002. For the six month period ended June 30, 2003, the combined ratio was 96% compared to 102% in the prior year. Alan I. Kirshner, Chairman and Chief Executive Officer, commented, "During the second quarter, we continued to build upon the momentum created by our strong results over the past several quarters. Our investment portfolio produced impressive total returns and underwriting profits continued to increase. The combination of underwriting profits and strong investment returns resulted in a 15% increase in book value per share for the first six months of 2003."
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. 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 Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Core operations $3.65 $1.77 $7.08 $3.32
Realized gains 2.42 .76 2.85 1.13
Amortization expense (.10) (.17) (.27) (.36)
Diluted net income $5.97 $2.36 $9.66 $4.09
Weighted average
diluted shares 9,862 9,854 9,861 9,849
June 30, December 31,
2003 2002
Book value per common
share outstanding $135.07 $117.89
Common shares outstanding 9,841 9,832
Second quarter 2003 income from core operations was $3.65 per share compared to income from core operations of $1.77 per share for the same period of 2002. For the six months ended June 30, 2003, income from core operations was $7.08 per share compared to income from core operations of $3.32 per share in the prior year. The improved results for both periods were primarily due to underwriting profitability in the Excess and Surplus Lines (E&S) and Specialty Admitted segments as well as improving underwriting results in our London Insurance Market segment.
Book value per common share outstanding increased to $135.07 at June 30,
2003 from $117.89 at December 31, 2002. The 2003 increase was primarily the
result of $95.3 million of net income and a $67.8 million increase in net
unrealized investment gains, net of taxes, during the six months ended June
30, 2003.
-Premium Analysis-
Quarter Ended June 30,
(Dollars in thousands)
Gross Written Premiums Earned Premiums
2003 2002 2003 2002
Excess and Surplus
Lines $371,802 $304,303 $247,242 $176,659
Specialty Admitted 73,700 62,086 57,416 43,606
London Insurance Market 165,888 156,026 129,977 119,586
Other 7,465 1,300 4,238 6,425
Total $618,855 $523,715 $438,873 $346,276
-Premium Analysis-
Six Months Ended June 30,
(Dollars in thousands)
Gross Written Premiums Earned Premiums
2003 2002 2003 2002
Excess and Surplus
Lines $737,411 $585,245 $483,916 $333,787
Specialty Admitted 131,438 108,608 112,074 82,767
London Insurance Market 365,578 326,985 264,215 242,161
Other 29,164 21,523 11,021 15,100
Total $1,263,591 $1,042,361 $871,226 $673,815
For the quarter and six month period ended June 30, 2003, E&S and
Specialty Admitted gross written premiums increased 22% and 25%, respectively,
due to increased submission activity and price increases across all business
units. Writings in the London Insurance Market increased 6% and 12% for the
quarter and six month period ended June 30, 2003, respectively, and continued
to meet the Company's expectations both in terms of volume and price increases
achieved. Other consisted primarily of Corifrance's writings in both periods
of 2003 and 2002.
-Combined Ratio Analysis-
Quarter Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Excess and Surplus Lines 88% 93% 88% 94%
Specialty Admitted 92% 105% 95% 102%
London Insurance Market 102% 107% 102% 109%
Other 342% 186% 269% 162%
Consolidated 95% 101% 96% 102%
The E&S segment produced strong underwriting profits for the quarter and the six months ended June 30, 2003 and continues to benefit from improved pricing, more restrictive coverage and better risk selection. The underwriting profits in both periods of 2003 resulted primarily from favorable development of prior years' loss reserves in the Essex E&S Lines and the Shand Professional/Products Liability units. This favorable development was partially offset by adverse development of prior years' loss reserves in the Investors Brokered Excess and Surplus Lines unit. During the six months ended June 30, 2003, this unit experienced approximately $11 million of adverse development on loss reserves primarily for business written between 1996 and 2000.
The Specialty Admitted segment produced underwriting profits for the quarter and the six months ended June 30, 2003 compared to underwriting losses for the same periods of 2002. The significant improvement in both periods of 2003 was primarily the result of favorable development on prior years' loss reserves. The Company continues to focus on pricing, risk selection and expense control to meet its profitability goals for the Specialty Admitted segment.
The combined ratio for the London Insurance Market improved for the quarter and six months ended June 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 second quarter 2003 combined ratio of 102% decreased from 103% in the first quarter 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 $10.3 million and $18.6 million, respectively, for the second quarter and six month period ended June 30, 2003 compared to $5.5 million and $9.4 million, respectively, in the same periods of 2002. The increase in the underwriting loss for both periods was primarily due to increases in the allowance for potentially uncollectible reinsurance and run off provisions for discontinued lines of business.
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 anticipates gross premium growth of 15%, with domestic operations slightly higher and international operations slightly lower. Management continues to believe that this is a reasonable growth forecast 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 in certain lines of business.
Second quarter 2003 net investment income was $45.5 million compared to $42.6 million in the prior year. Net investment income for the six month period ended June 30, 2003 was $90.7 million compared to $84.0 million in 2002. In both periods of 2003, a larger investment portfolio offset lower investment yields.
In the second quarter of 2003, the Company recognized $36.7 million of net realized gains compared to $11.5 million of net realized gains in 2002. For the six month period of 2003, net realized gains were $43.2 million compared to net realized gains of $17.1 million for the same period last year. Realized gains in both periods of 2003 were primarily the result of the Company's decision to sell certain government securities and buy higher yielding fixed income investments, including tax-exempt municipal bonds. Variability in the timing of realized and unrealized investment gains and losses is to be expected.
Amortization of intangible assets was $1.5 million in the second quarter of 2003 compared to $2.6 million last year. For the six month period of 2003, amortization of intangible assets was $4.1 million compared to $5.4 million for the same period of 2002. Intangible assets, other than goodwill, were fully amortized at the end of the second quarter of 2003.
Interest expense was $13.6 million for the second quarter of 2003 compared to $10.9 million for the same period of 2002. For the six months ended June 30, 2003, interest expense was $25.0 million compared to $20.0 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 revolving credit facility.
For the second quarter and six months ended June 30, 2003, the Company's effective tax rate was 33% compared to 35% and 36%, respectively, for the second quarter and six month period of 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 income was $151.2 million for the second quarter of 2003 compared to $37.7 million for the same period of 2002. For the six month period ended June 30, 2003, comprehensive income was $169.9 million compared to $42.0 million in 2002. The improvement in both periods of 2003 was primarily due to a significant increase in the market value of the Company's investment portfolio during the second quarter of 2003 and significantly higher net income compared to 2002. Comprehensive income for the second quarter of 2003 includes a $4.7 million gain from currency translation adjustments, net of taxes, compared to a gain of $3.8 million for the same period of 2002. For the six month period of 2003, gains from currency translation adjustments, net of taxes, were $6.7 million compared to gains of $3.3 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 June 30, 2003, the Company's investment portfolio increased 12% to $4.8 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 $247.0 million at June 30, 2003 compared to $179.2 million at December 31, 2002. Equity securities were $729.2 million, or 15% of the total investment portfolio, at June 30, 2003 compared to $550.9 million, or 13%, at December 31, 2002. Cash flows from operations were approximately $258 million for the first six months of 2003 compared to approximately $150 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 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 tomorrow, Wednesday, July 30, 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, August 8, 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, August 8, 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
Quarter Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums $438,873 $346,276 $871,226 $673,815
Net investment income 45,467 42,576 90,700 84,040
Net realized gains from
investment sales 36,732 11,471 43,203 17,095
Total Operating
Revenues 521,072 400,323 1,005,129 774,950
OPERATING EXPENSES
Losses and loss adjustment
expenses 279,933 239,268 559,952 473,724
Underwriting, acquisition
and insurance expenses 138,157 111,669 273,793 212,918
Amortization of intangible
assets 1,498 2,629 4,127 5,426
Total Operating
Expenses 419,588 353,566 837,872 692,068
Operating Income 101,484 46,757 167,257 82,882
Interest expense 13,641 10,872 25,036 19,953
Income Before Income
Taxes 87,843 35,885 142,221 62,929
Income tax expense 28,988 12,648 46,933 22,655
Net Income $58,855 $23,237 $95,288 $40,274
OTHER COMPREHENSIVE INCOME
Unrealized gains on
securities, net of taxes
Net holding gains
arising during the
period $111,458 $18,090 $95,929 $9,511
Less reclassification
adjustments for gains
included in net
income (23,876) (7,457) (28,082) (11,112)
Net unrealized gains
(losses) 87,582 10,633 67,847 (1,601)
Currency translation
adjustments, net of taxes 4,741 3,783 6,725 3,285
Total Other
Comprehensive Income 92,323 14,416 74,572 1,684
Comprehensive Income $151,178 $37,653 $169,860 $41,958
NET INCOME PER SHARE
Basic $5.98 $2.37 $9.68 $4.10
Diluted $5.97 $2.36 $9.66 $4.09
Selected Data
(dollars and shares in thousands, June 30, December 31,
except per share data) 2003 2002
Total investments and cash $4,820,616 $4,314,152
Reinsurance recoverable on
paid and unpaid losses 1,637,720 1,730,879
Intangible assets 357,317 361,444
Total assets 7,876,613 7,408,560
Unpaid losses and loss adjustment expenses 4,467,216 4,366,803
Unearned premiums 1,029,834 937,364
Convertible notes payable 88,333 86,109
Long-term debt 477,571 404,384
8.71% Capital Securities 150,000 150,000
Total shareholders' equity 1,329,255 1,159,111
Book value per share $135.07 $117.89
Common shares outstanding 9,841 9,832
Markel Corporation
Segment Reporting Disclosures
For the Quarter and Six Months Ended June 30, 2003
Segment Gross Written Premium
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 (dollars in thousands) 2003 2002
$371,802 $304,303 Excess and Surplus Lines $737,411 $585,245
73,700 62,086 Specialty Admitted 131,438 108,608
165,888 156,026 London Insurance Market 365,578 326,985
7,465 1,300 Other 29,164 21,523
$618,855 $523,715 Consolidated $1,263,591 $1,042,361
Segment Net Written Premium
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 (dollars in thousands) 2003 2002
$265,780 $207,174 Excess and Surplus Lines $521,475 $397,773
69,320 57,277 Specialty Admitted 122,787 101,205
137,869 138,147 London Insurance Market 285,589 255,262
2,902 574 Other 20,983 23,048
$475,871 $403,172 Consolidated $950,834 $777,288
Segment Revenues
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 (dollars in thousands) 2003 2002
$247,242 $176,659 Excess and Surplus Lines $483,916 $333,787
57,416 43,606 Specialty Admitted 112,074 82,767
129,977 119,586 London Insurance Market 264,215 242,161
82,199 54,047 Investing 133,903 101,135
4,238 6,425 Other 11,021 15,100
$521,072 $400,323 Consolidated $1,005,129 $774,950
Segment Profit (Loss)
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 (dollars in thousands) 2003 2002
$28,866 $11,922 Excess and Surplus Lines $56,669 $19,220
4,739 (2,142) Specialty Admitted 5,728 (1,791)
(2,565) (8,899) London Insurance Market (6,321) (20,892)
82,199 54,047 Investing 133,903 101,135
(10,257) (5,542) Other (18,595) (9,364)
$102,982 $49,386 Consolidated $171,384 $88,308
Combined Ratios
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
88% 93% Excess and Surplus Lines 88% 94%
92% 105% Specialty Admitted 95% 102%
102% 107% London Insurance Market 102% 109%
342% 186% Other 269% 162%
95% 101% Consolidated 96% 102%
SOURCE Markel Corporation
-0- 07/29/2003
/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 ERP
MB-JA
-- DCTU045 --
0063 07/29/2003 18:27 EDT http://www.prnewswire.com