PR Newswire
RICHMOND, Va., Feb. 5, 2019
RICHMOND, Va., Feb. 5, 2019 /PRNewswire/ -- Markel Corporation (NYSE: MKL) reported operating revenues of $6.8 billion for the year ended December 31, 2018 compared to $6.1 billion in 2017. Comprehensive loss to shareholders was $375.8 million for the year ended December 31, 2018 compared to comprehensive income to shareholders of $1.2 billion in 2017. Diluted net loss per share was $9.55 for the year ended December 31, 2018 compared to diluted net income per share of $25.81 in 2017. The combined ratio was 98% in 2018 compared to 105% in 2017. Book value per common share outstanding was $653.85 at December 31, 2018, down 4% from $683.55 at December 31, 2017. Over the five-year period ended December 31, 2018, the compound annual growth in book value per common share outstanding was 7%.
Thomas S. Gayner and Richard R. Whitt, Co-Chief Executive Officers, commented, "We continued to see organic growth and substantial contributions from our recent acquisitions within both our insurance and Markel Ventures operations. Our underwriting results for the year were positive, despite significant catastrophe losses in 2018. Comprehensive loss to shareholders and book value per share were impacted by declines in both our fixed income and equity portfolios, driven by an increase in interest rates and unfavorable movements in the equity markets during 2018. Our results were also impacted by a goodwill and intangible asset impairment in our Markel CATCo operations; however, we remain committed to our strategy in the insurance-linked securities market. In the fourth quarter, we completed the acquisition of Nephila, the industry's preeminent insurance-linked securities investment manager, and we are excited about the strategic opportunities this business brings to Markel. The acquisition of Nephila, along with our other recent acquisitions, reflects our continued strategy and commitment to build long-term value for our shareholders."
The following tables present selected financial data from 2018 and 2017.
Years Ended December 31, | |||||||
(in thousands, except per share amounts) | 2018 | 2017 | |||||
Operating revenues | $ | 6,841,285 | $ | 6,061,659 | |||
Income (loss) before income taxes | $ | (7,855) | $ | 87,295 | |||
Net income (loss) to shareholders | $ | (128,180) | $ | 395,269 | |||
Comprehensive income (loss) to shareholders | $ | (375,770) | $ | 1,174,974 | |||
Weighted average diluted shares | 13,923 | 14,006 | |||||
Diluted net income (loss) per share | $ | (9.55) | $ | 25.81 | |||
(in thousands, except per share amounts) | December 31, 2018 | December 31, 2017 | |||||
Book value per common share outstanding | $ | 653.85 | $ | 683.55 | |||
Common shares outstanding | 13,888 | 13,904 |
Comprehensive loss to shareholders for 2018 was $375.8 million compared to comprehensive income to shareholders of $1.2 billion in 2017. The decrease was primarily due to a decrease in net unrealized gains on available-for-sale investments, net of taxes, of $233.5 million in 2018 compared to an increase in net unrealized gains on investments, net of taxes, of $763.0 million in 2017. We also experienced net investment losses of $437.6 million in 2018 compared to $5.3 million in 2017 and income tax expense of $122.5 million in 2018 compared to income tax benefit of $313.5 million in 2017. Partially offsetting these decreases was underwriting profit of $113.8 million in 2018 compared to an underwriting loss of $207.2 million in 2017.
Effective January 1, 2018, we adopted Financial Accounting Standards Board, Accounting Standards Update (ASU) No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Liabilities, and as a result, equity securities are no longer classified as available-for-sale with unrealized gains and losses recognized in other comprehensive income. Rather, all changes in fair value of equity securities are now recognized in net income. For the year ended December 31, 2018, the change in fair value of equity securities was a loss of $425.6 million included in net loss compared to a gain of $1.1 billion for the year ended December 31, 2017, of which $1.0 billion was included in other comprehensive income. This change in presentation has no impact on comprehensive income (loss) to shareholders.
In October 2018, we acquired 90% of Brahmin Leather Works, LLC (Brahmin), a Massachusetts-based privately held creator of fashion leather handbags. Results attributable to Brahmin are included in our Markel Ventures segment.
In November 2018, we acquired all of the outstanding shares of Nephila Holdings Ltd. (Nephila), a Bermuda-based investment manager offering a broad range of investment products, including insurance-linked securities, catastrophe bonds, insurance swaps and weather derivatives. Nephila operates as a separate business unit and its operating results are not included in a reportable segment.
Underwriting Results
Consolidated | |||
Combined Ratio Analysis | |||
Years Ended December 31, | |||
2018 | 2017 | ||
Insurance | 94% | 97% | |
Reinsurance | 113% | 132% | |
Consolidated | 98% | 105% |
The consolidated combined ratio was 98% in 2018 compared to 105% in 2017. The decrease in the consolidated combined ratio for 2018 compared to 2017 was primarily attributable to lower catastrophe losses in 2018 compared to 2017.
Underwriting results in 2018 included $287.3 million, or six points, of underwriting loss from Hurricanes Florence and Michael, Typhoon Jebi and wildfires in California (2018 Catastrophes). Underwriting results in 2017 included $565.3 million, or 13 points, of underwriting loss from Hurricanes Harvey, Irma, Maria and Nate as well as the earthquakes in Mexico and wildfires in California (2017 Catastrophes).
The following table summarizes, by segment, the components of the underwriting losses related to the 2018 and 2017 Catastrophes.
Years Ended December 31, | |||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||
2018 Catastrophes | 2017 Catastrophes | ||||||||||||||||||||||
(dollars in thousands) | Insurance | Reinsurance | Consolidated | Insurance | Reinsurance | Consolidated | |||||||||||||||||
Losses and loss adjustment expenses, net | $ | 105,265 | $ | 187,490 | $ | 292,755 | $ | 254,976 | $ | 330,384 | $ | 585,360 | |||||||||||
Ceded (assumed) reinstatement premiums | 5,142 | (10,583) | (5,441) | 12,391 | (32,465) | (20,074) | |||||||||||||||||
Underwriting loss | $ | 110,407 | $ | 176,907 | $ | 287,314 | $ | 267,367 | $ | 297,919 | $ | 565,286 | |||||||||||
Impact on combined ratio | 3% | 19% | 6% | 8% | 32% | 13% |
The estimated net losses and loss adjustment expenses on the 2018 and 2017 Catastrophes were net of estimated ceded losses of $244.1 million and $490.3 million, respectively. Both the gross and net loss estimates on the 2018 and 2017 Catastrophes as of December 31, 2018 represent our best estimate of losses based upon information currently available. Our estimates for these losses are based on claims received to date and detailed policy level reviews, industry loss estimates, output from both industry and proprietary models as well as a review of in-force contracts. These estimates are dependent on broad assumptions about coverage, liability and reinsurance. While we believe our reserves for the 2018 and 2017 Catastrophes as of December 31, 2018 are adequate, we continue to closely monitor reported claims and will adjust our estimates of gross and net losses as new information becomes available. The net losses and loss adjustment expenses for the 2018 and 2017 Catastrophes were within our risk tolerance for events of this magnitude.
Insurance Segment
The combined ratio for the Insurance segment in 2018 was 94% (including three points for the underwriting loss on the 2018 Catastrophes) compared to 97% (including eight points for the underwriting loss on the 2017 Catastrophes) in 2017. The decrease in the 2018 combined ratio was driven by lower catastrophe losses, partially offset by a less favorable prior accident years' loss ratio. Although favorable development on prior years' loss reserves in 2018 was comparable to 2017, the benefit to our prior years' loss ratio was reduced given the impact of higher earned premiums in 2018 compared to 2017.
The Insurance segment's 2018 combined ratio included $502.3 million of favorable development on prior years' loss reserves compared to $500.6 million in 2017. More favorable development on our workers' compensation and marine and energy product lines was offset by less favorable development on our professional liability and property product lines. The increase in favorable development on the marine and energy product lines was largely attributable to favorable development in 2018 related to the 2017 Catastrophes. In both 2018 and 2017, favorable development on prior years' loss reserves occurred across several product lines, but was most significant on our general liability, workers' compensation, marine and energy and professional liability product lines.
Reinsurance Segment
The combined ratio for the Reinsurance segment in 2018 was 113% (including 19 points for the underwriting loss on the 2018 Catastrophes) compared to 132% (including 32 points for the underwriting loss on the 2017 Catastrophes) in 2017. The decrease in the 2018 combined ratio was driven by lower catastrophe losses and favorable development on prior accident years' loss reserves in 2018 compared to adverse development in 2017. These decreases were partially offset by a higher expense ratio in 2018 compared to 2017. Excluding the impact of underwriting losses related to the 2018 and 2017 Catastrophes described above, the current accident year loss ratio decreased, primarily due to net favorable premium adjustments in 2018 compared to net unfavorable premium adjustments in 2017. The increase in the expense ratio was driven by the impact of lower assumed reinstatement premiums related to the 2018 Catastrophes compared to the 2017 Catastrophes and a lower benefit from ceding commissions, partially offset by lower profit sharing expenses in 2018 compared to 2017.
The Reinsurance segment's 2018 combined ratio included $43.0 million of favorable development on prior years' loss reserves compared to $7.8 million of adverse development on prior years' loss reserves in 2017. In 2017, prior years' loss reserves included $85.0 million of adverse development, or nine points on the 2017 Reinsurance segment combined ratio, related to the decrease in the discount rate, known as the Ogden Rate, used to calculate lump sum awards in United Kingdom (U.K.) bodily injury cases. Excluding the impact of the 2017 change in the Ogden Rate, favorable development on prior years' loss reserves decreased compared to 2017 due to less favorable development on our property product lines in 2018, including adverse development related to the 2017 Catastrophes. Favorable development in 2018 was most significant on our marine and energy and surety product lines. Partially offsetting this favorable development was adverse development on our professional liability product lines in 2018. In 2017, adverse development resulting from the Ogden Rate change described above and on our professional liability product lines was largely offset by favorable development on our property product lines.
Premiums and Net Retentions
Premium Analysis | |||||||||||||||
Years Ended December 31, | |||||||||||||||
Gross Written Premiums | Earned Premiums | ||||||||||||||
(dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Insurance | $ | 4,749,166 | $ | 4,141,201 | $ | 3,783,939 | $ | 3,314,033 | |||||||
Reinsurance | 1,050,870 | 1,112,101 | 928,574 | 934,114 | |||||||||||
Other | (1,040) | (195) | (1,468) | (169) | |||||||||||
Total Underwriting | 5,798,996 | 5,253,107 | 4,711,045 | 4,247,978 | |||||||||||
Other - Program Services | 2,065,473 | 253,853 | 1,015 | — | |||||||||||
Total | $ | 7,864,469 | $ | 5,506,960 | $ | 4,712,060 | $ | 4,247,978 |
Gross Premium Volume
Gross premium volume in our underwriting segments increased 10% in 2018 compared to 2017. The increase in gross premium volume was attributable to an increase in gross premium volume in our Insurance segment, partially offset by a decrease in gross premium volume in our Reinsurance segment. Also impacting consolidated gross premium volume was $2.1 billion of gross premium written through our program services business acquired as part of the State National transaction, which is not included in our underwriting segments. Substantially all gross premium written in our program services business was ceded to third parties in 2018 and 2017.
Gross premium volume in our Insurance segment increased 15% in 2018 compared to 2017 driven by increased premiums from our new surety and collateral protection businesses, both of which were acquired in 2017, as well as growth within our general and professional liability product lines and personal lines business.
Gross premium volume in our Reinsurance segment decreased 6% in 2018 compared to 2017, primarily due to a large specialty quota share treaty entered into in the first quarter of 2017 that did not renew in 2018, as well as lower gross premium volume in our property product lines, primarily due to contracts that did not renew. These decreases were partially offset by growth in our surety product lines as well as higher gross premium volume in our general liability, professional liability and worker's compensation product lines resulting from favorable premium adjustments and timing of renewals. Significant variability in gross premium volume can be expected in our Reinsurance segment due to individually significant contracts and multi-year contracts.
Net Retention
Net retention of gross premium volume for our underwriting operations was 83% in 2018 and 84% in 2017. The decrease in net retention in 2018 was primarily driven by lower retention on our personal lines business within the Insurance segment and an increase in property catastrophe reinsurance coverage purchases in 2018 compared to 2017. Within our underwriting operations, we purchase reinsurance and retrocessional reinsurance in order to manage our net retention on individual risks and enable us to write policies with sufficient limits to meet policyholder needs.
Earned Premiums
Earned premiums for 2018 increased 11% compared to 2017. The increase in earned premiums was attributable to higher earned premiums in our Insurance segment, primarily driven by growth in gross premium volume in our general liability, professional liability and marine and energy product lines. The increase was also attributable to earned premiums within our new surety and collateral protection product lines acquired in 2017. These increases were partially offset by the impact of lower assumed reinstatement premiums related to the 2018 Catastrophes compared to the 2017 Catastrophes.
Investing Results
Net investment income for 2018 was $434.2 million compared to $405.7 million in 2017. The increase in 2018 was driven by an increase in short-term investment income, primarily due to higher short-term interest rates, and higher dividend income due to increased equity holdings.
Net investment losses for 2018 were $437.6 million compared to $5.3 million in 2017. Net investment losses in 2018 were primarily attributable to a decrease in the fair value of equity securities of $425.6 million in 2018, which was attributable to unfavorable market value movements and a decline in the fair value of our investments in insurance-linked securities funds (ILS Funds), which are managed by Markel CATCo Investment Management Ltd. (Markel CATCo). Net investment losses in 2018 and 2017 included losses of $124.6 million and $52.0 million, respectively, on our investment in the ILS Funds. These losses primarily resulted from decreases in the net asset value of the ILS Funds, which were driven by the impact of losses from Hurricanes Harvey, Irma and Maria and the 2017 wildfires in California on the underlying reinsurance contracts in which the ILS Funds are invested. At December 31, 2018 and 2017, the fair value of our investments in the ILS Funds was $58.2 million and $189.3 million, respectively.
Markel Ventures
We report the results of our Markel Ventures operations in our Markel Ventures segment. This segment includes a diverse portfolio of businesses from different industries that offer various types of products and services to businesses and consumers. The following table summarizes the results from our Markel Ventures segment.
Years Ended December 31, | |||||||
(dollars in thousands) | 2018 | 2017 | |||||
Operating revenues | $ | 1,912,065 | $ | 1,333,280 | |||
Operating income | $ | 77,479 | $ | 115,250 | |||
EBITDA | $ | 169,894 | $ | 188,383 | |||
Net income to shareholders | $ | 35,258 | $ | 103,559 |
See below for a reconciliation of Markel Ventures operating income to Markel Ventures earnings before interest, income taxes, depreciation and amortization (EBITDA).
The increase in revenues from our Markel Ventures segment in 2018 compared to 2017 was primarily due to the acquisition of Costa Farms in the third quarter of 2017 and Brahmin in the fourth quarter of 2018. The increase was also attributable to higher sales volumes from certain of our products and services businesses.
Operating income and EBITDA from our Markel Ventures segment decreased in 2018 compared to 2017 primarily due to $33.5 million of expense related to an internal investigation and remediation associated with the manufacture of products at one of our businesses and an impairment charge of $14.9 million related to intangible assets at this business, both of which were recorded in the second quarter of 2018. Additionally, 2017 included insurance recoveries in excess of 2017 storm losses totaling $44.4 million related to Hurricane Irma, partially offset by an increase in our estimate of contingent consideration payments in 2017 of $19.0 million.
Net income to shareholders from our Markel Ventures segment decreased in 2018 compared to 2017 as a result of decreased operating income, the impact of recording a one-time tax benefit of $37.1 million in the fourth quarter of 2017 following the enactment of the Tax Cuts and Jobs Act (TCJA) and as a result of higher interest expense in 2018 compared to 2017. See Income Taxes below for a discussion of the TCJA.
After considering the impact of the items discussed above, operating income, net income to shareholders and EBITDA increased in 2018 as a result of having a full year of Costa Farms operations and higher sales volumes from certain of our businesses in 2018 compared to 2017.
Markel CATCo
Effective January 18, 2019, as previously announced, two senior executives of Markel CATCo are no longer with the Company. We had accrued $64.3 million of incentive and retention compensation for the two individuals as of September 30, 2018, of which $34.9 million was accrued as of December 31, 2017. This accrual was reversed in the fourth quarter of 2018 and was reflected as a reduction to services and other expenses in our consolidated statement of loss and comprehensive loss.
Also in the fourth quarter of 2018, we reduced the carrying value of the goodwill and intangible assets of the Markel CATCo reporting unit to zero, which resulted in an impairment charge of $179.0 million. In light of governmental inquiries into loss reserves recorded in late 2017 and early 2018 at an entity managed by Markel CATCo, and taking into consideration the departure of two senior executives and certain redemption rights that are now being offered to investors in ILS Funds managed by Markel CATCo, Markel CATCo's ability to maintain or raise capital has been adversely impacted. As a result, we performed an assessment of the recoverability of goodwill and intangible assets at the Markel CATCo reporting unit as of December 31, 2018 and determined this impairment charge was necessary.
Interest Expense and Income Taxes
Interest Expense
Interest expense was $154.2 million in 2018 compared to $132.5 million in 2017. The increase in interest expense in 2018 compared to 2017 was primarily due to interest associated with our 4.30% unsecured senior notes and our 3.50% unsecured senior notes issued in the fourth quarter of 2017, partially offset by the repayment of our 7.20% unsecured notes in the second quarter of 2017.
Income Taxes
The effective tax rate for 2018 is not meaningful due to the small pre-tax loss for the year and a large non-recurring item. The effective tax rate for 2017 is also not meaningful due to a large non-recurring item.
Income tax expense was $122.5 million in 2018 compared to an income tax benefit of $313.5 million in 2017. In 2017, as a result of the enactment of the TCJA, we recorded a one-time tax benefit of $339.9 million. This one-time benefit from the TCJA was attributable to the remeasurement of our U.S. deferred tax assets and liabilities on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases at the lower enacted U.S. corporate tax rate, offset in part by the tax on the deemed repatriation of foreign earnings. During 2018, we decided to treat our most significant U.K. subsidiaries as domestic corporations for U.S. tax purposes. As a result, the earnings and profits from those subsidiaries are no longer considered to be indefinitely reinvested and we recorded a one-time deferred tax charge of $103.3 million related to the book and tax basis differences attributable to those subsidiaries.
In addition to the large non-recurring item mentioned above, our income tax expense in 2018 differs from the tax benefit calculated at the statutory rate of 21% primarily as a result of nondeductible losses of $124.6 million on our investment in Markel CATCo managed ILS Funds in 2018, partially offset by the impact of tax-exempt investment income. See Investing Results above for a discussion of these investment losses.
Financial Condition
Invested assets were $19.2 billion at December 31, 2018 compared to $20.6 billion at December 31, 2017. During 2018, we increased our holdings of fixed maturities and equity securities, and reduced our holdings of short-term investments and cash and cash equivalents. Equity securities comprised 30% of invested assets, at December 31, 2018 compared to 29% of invested assets, at December 31, 2017. Fixed maturities represented 52% of our invested assets at December 31, 2018 compared to 48% at December 31, 2017. Short-term investments, cash and cash equivalents and restricted cash represented 18% of our invested assets, at December 31, 2018 compared to 23% of at December 31, 2017. Net unrealized gains on investments, net of taxes, were $48.1 million at December 31, 2018 compared to $2.5 billion at December 31, 2017. Upon adoption of ASU No. 2016-01, described above, cumulative net unrealized gains on equity securities of $2.6 billion, net of deferred income taxes of $684.4 million, were reclassified from accumulated other comprehensive income into retained earnings. At December 31, 2018, we held available-for-sale securities with gross unrealized losses of $134.0 million, or less than 1% of invested assets.
At December 31, 2018, our holding company held $2.6 billion of invested assets compared to $2.7 billion of invested assets at December 31, 2017. The decrease in holding company invested assets is primarily due to cash used for acquisitions, interest payments associated with our unsecured senior notes and loans and capital contributions made to our subsidiaries, partially offset by dividends received from our subsidiaries.
Net cash provided by operating activities was $892.9 million in 2018 compared to $858.5 million in 2017. Net cash flows from operating activities for the year ended December 31, 2018 reflected higher net premiums collections in the Insurance segment and lower payments for employee profit sharing compared to 2017. Also reflected in net cash provided by operating activities for 2018 was higher claims settlement activity in both of our underwriting segments compared to 2017, due in part to the 2017 Catastrophes. We also experienced claims settlement activity related to the 2018 Catastrophes.
Safe Harbor and Cautionary Statement
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. Such statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management.
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 2017 Annual Report on Form 10-K and most recent Quarterly Report on Form 10-Q or are included in the items listed below:
Our premium volume, underwriting and investment results and results from our other operations have been and will continue to be potentially materially affected by these factors. In addition, with respect to previously announced developments at Markel CATCo:
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 Wednesday, February 6, 2019, beginning at 9:30 a.m. (Eastern Time). Any person interested in listening to the call should contact Markel's Investor Relations Department at 804-747-0136. Investors, analysts and the general public also may 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 from approximately one hour after the conclusion of the call until Monday, February 18, 2019.
Markel Corporation is a diverse financial holding company serving a variety of niche markets. The Company's principal business markets and underwrites specialty insurance products. In each of the Company's businesses, it 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 and operating profits and superior investment returns to build shareholder value. Visit Markel Corporation on the web at www.markelcorp.com.
Markel Corporation and Subsidiaries Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(dollars in thousands, except per share data) | 2018 | 2017 | 2018 | 2017 | |||||||||||
OPERATING REVENUES | |||||||||||||||
Earned premiums | $ | 1,227,532 | $ | 1,131,940 | $ | 4,712,060 | $ | 4,247,978 | |||||||
Net investment income | 114,505 | 101,553 | 434,215 | 405,709 | |||||||||||
Net investment losses: | |||||||||||||||
Other-than-temporary impairment losses | — | (328) | — | (7,589) | |||||||||||
Net realized investment gains (losses), excluding other-than-temporary impairment losses | (2,890) | 15,348 | (11,974) | 47,174 | |||||||||||
Change in fair value of equity securities | (843,032) | (18,808) | (425,622) | (44,888) | |||||||||||
Net investment losses | (845,922) | (3,788) | (437,596) | (5,303) | |||||||||||
Products revenues | 368,487 | 302,798 | 1,497,523 | 951,012 | |||||||||||
Services and other revenues | 178,250 | 129,764 | 635,083 | 462,263 | |||||||||||
Total Operating Revenues | 1,042,852 | 1,662,267 | 6,841,285 | 6,061,659 | |||||||||||
OPERATING EXPENSES | |||||||||||||||
Losses and loss adjustment expenses | 869,573 | 655,632 | 2,820,715 | 2,865,761 | |||||||||||
Underwriting, acquisition and insurance expenses | 459,590 | 417,944 | 1,777,511 | 1,589,464 | |||||||||||
Products expenses | 351,243 | 257,233 | 1,413,248 | 850,449 | |||||||||||
Services and other expenses | 80,618 | 125,452 | 474,924 | 458,621 | |||||||||||
Amortization of intangible assets | 29,671 | 27,308 | 115,930 | 80,758 | |||||||||||
Impairment of goodwill and intangible assets | 184,294 | — | 199,198 | — | |||||||||||
Total Operating Expenses | 1,974,989 | 1,483,569 | 6,801,526 | 5,845,053 | |||||||||||
Operating Income (Loss) | (932,137) | 178,698 | 39,759 | 216,606 | |||||||||||
Interest expense | 39,490 | 35,438 | 154,212 | 132,451 | |||||||||||
Net foreign exchange gains | (41,171) | (394) | (106,598) | (3,140) | |||||||||||
Income (Loss) Before Income Taxes | (930,456) | 143,654 | (7,855) | 87,295 | |||||||||||
Income tax expense (benefit) | (177,082) | (295,672) | 122,498 | (313,463) | |||||||||||
Net Income (Loss) | (753,374) | 439,326 | (130,353) | 400,758 | |||||||||||
Net income (loss) attributable to noncontrolling interests | (1,831) | 4,445 | (2,173) | 5,489 | |||||||||||
Net Income (Loss) to Shareholders | $ | (751,543) | $ | 434,881 | $ | (128,180) | $ | 395,269 | |||||||
OTHER COMPREHENSIVE INCOME (LOSS) | |||||||||||||||
Change in net unrealized gains (losses) on available-for-sale investments, net of taxes: | |||||||||||||||
Net holding gains (losses) arising during the period | $ | 64,744 | $ | 209,543 | $ | (241,325) | $ | 787,339 | |||||||
Reclassification adjustments for net gains (losses) included in net income (loss) | 2,353 | (9,698) | 7,849 | (24,296) | |||||||||||
Change in net unrealized gains (losses) on available-for-sale investments, net of taxes | 67,097 | 199,845 | (233,476) | 763,043 | |||||||||||
Change in foreign currency translation adjustments, net of taxes | 3,473 | (9,321) | (16,495) | 10,449 | |||||||||||
Change in net actuarial pension loss, net of taxes | 600 | 3,868 | 2,341 | 6,259 | |||||||||||
Total Other Comprehensive Income (Loss) | 71,170 | 194,392 | (247,630) | 779,751 | |||||||||||
Comprehensive Income (Loss) | (682,204) | 633,718 | (377,983) | 1,180,509 | |||||||||||
Comprehensive income (loss) attributable to noncontrolling interests | (1,831) | 4,471 | (2,213) | 5,535 | |||||||||||
Comprehensive Income (Loss) to Shareholders | $ | (680,373) | $ | 629,247 | $ | (375,770) | $ | 1,174,974 | |||||||
NET INCOME (LOSS) PER SHARE | |||||||||||||||
Basic | $ | (53.88) | $ | 30.48 | $ | (9.55) | $ | 25.89 | |||||||
Diluted | $ | (53.88) | $ | 30.39 | $ | (9.55) | $ | 25.81 | |||||||
Selected Data | December 31, | ||||||||||
(dollars and shares in thousands, except per share data) | 2018 | 2017 | |||||||||
Total investments, cash and cash equivalents and restricted cash and cash equivalents | $ | 19,238,261 | $ | 20,570,337 | |||||||
Reinsurance recoverable on paid and unpaid losses | 5,221,947 | 4,745,390 | |||||||||
Goodwill and intangible assets | 3,964,171 | 3,133,145 | |||||||||
Total assets | 33,306,263 | 32,805,016 | |||||||||
Unpaid losses and loss adjustment expenses | 14,276,479 | 13,584,281 | |||||||||
Unearned premiums | 3,611,028 | 3,308,779 | |||||||||
Senior long-term debt and other debt | 3,009,577 | 3,099,230 | |||||||||
Total shareholders' equity | 9,080,653 | 9,504,148 | |||||||||
Book value per common share outstanding | $ | 653.85 | $ | 683.55 | |||||||
Common shares outstanding | 13,888 | 13,904 |
Markel Corporation and Subsidiaries Supplemental Financial Information For the Quarters and Years Ended December 31, 2018 and 2017 | |||||||||||||||
Gross Written Premiums | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Insurance | $ | 1,173,826 | $ | 1,020,689 | $ | 4,749,166 | $ | 4,141,201 | |||||||
Reinsurance | 115,372 | 86,385 | 1,050,870 | 1,112,101 | |||||||||||
Other | (1,039) | (10) | (1,040) | (195) | |||||||||||
Underwriting total | 1,288,159 | 1,107,064 | 5,798,996 | 5,253,107 | |||||||||||
Other - Program Services | 488,222 | 253,853 | 2,065,473 | 253,853 | |||||||||||
Consolidated | $ | 1,776,381 | $ | 1,360,917 | $ | 7,864,469 | $ | 5,506,960 | |||||||
Net Written Premiums | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Insurance | $ | 968,984 | $ | 843,697 | $ | 3,904,773 | $ | 3,439,796 | |||||||
Reinsurance | 87,149 | 78,462 | 882,285 | 978,160 | |||||||||||
Other | (254) | (12) | (1,468) | (169) | |||||||||||
Underwriting total | 1,055,879 | 922,147 | 4,785,590 | 4,417,787 | |||||||||||
Other - Program Services | 20 | — | 1,988 | — | |||||||||||
Consolidated | $ | 1,055,899 | $ | 922,147 | $ | 4,787,578 | $ | 4,417,787 | |||||||
Net Earned Premiums | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Insurance | $ | 1,001,832 | $ | 912,556 | $ | 3,783,939 | $ | 3,314,033 | |||||||
Reinsurance | 225,720 | 219,396 | 928,574 | 934,114 | |||||||||||
Other | (254) | (12) | (1,468) | (169) | |||||||||||
Underwriting total | 1,227,298 | 1,131,940 | 4,711,045 | 4,247,978 | |||||||||||
Other - Program Services | 234 | — | 1,015 | — | |||||||||||
Consolidated | $ | 1,227,532 | $ | 1,131,940 | $ | 4,712,060 | $ | 4,247,978 | |||||||
Combined Ratios | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Insurance | 99 | % | 88 | % | 94 | % | 97 | % | |||||||
Reinsurance | 151 | % | 122 | % | 113 | % | 132 | % | |||||||
Consolidated | 108 | % | 95 | % | 98 | % | 105 | % | |||||||
Components of Consolidated Operating Income | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Insurance Segment Profit (1) | $ | 9,505 | $ | 107,235 | $ | 228,773 | $ | 85,097 | |||||||
Reinsurance Segment Loss (1) | (115,347) | (49,258) | (118,287) | (300,018) | |||||||||||
Investing Segment Income (Loss) | (731,473) | 97,638 | (3,894) | 400,074 | |||||||||||
Markel Ventures Segment Profit (2) | 17,050 | 44,216 | 77,479 | 115,250 | |||||||||||
Other (3) | (111,872) | (21,133) | (144,312) | (83,797) | |||||||||||
Consolidated Operating Income (Loss) | $ | (932,137) | $ | 178,698 | $ | 39,759 | $ | 216,606 |
(1) | Segment profit (loss) for each of the Company's underwriting segments is measured by underwriting profit (loss). |
(2) | Segment profit for the Markel Ventures segment includes amortization of intangible assets attributable to Markel Ventures. Amortization of intangible assets is not allocated to any other reportable segments. |
(3) | Other represents the total profit (loss) attributable to the Company's operations that are not included in a reportable segment as well as any amortization of intangible assets and impairment of goodwill and intangible assets that is not allocated to a reportable segment. |
Markel Corporation and Subsidiaries Supplemental Financial Information (continued) For the Quarters and Years Ended December 31, 2018 and 2017 | |||||||||||||||
Products, Services and Other Revenues | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Products revenues: | |||||||||||||||
Markel Ventures | $ | 368,487 | $ | 302,798 | $ | 1,497,523 | $ | 951,012 | |||||||
Services and other revenues: | |||||||||||||||
Markel Ventures | 103,494 | 97,202 | 414,542 | 382,268 | |||||||||||
Investment management | 38,562 | 8,856 | 91,527 | 28,740 | |||||||||||
Program services | 28,286 | 15,328 | 95,688 | 15,328 | |||||||||||
Life and annuity | 387 | 388 | 1,660 | 2,022 | |||||||||||
Other | 7,521 | 7,990 | 31,666 | 33,905 | |||||||||||
178,250 | 129,764 | 635,083 | 462,263 | ||||||||||||
Total | $ | 546,737 | $ | 432,562 | $ | 2,132,606 | $ | 1,413,275 | |||||||
Products, Services and Other Expenses | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Products expenses: | |||||||||||||||
Markel Ventures | $ | 351,243 | $ | 257,233 | $ | 1,413,248 | $ | 850,449 | |||||||
Services and other expenses: | |||||||||||||||
Markel Ventures | 92,868 | 88,026 | 366,739 | 336,484 | |||||||||||
Investment management | (31,837) | 14,954 | 21,417 | 52,636 | |||||||||||
Program services | 2,134 | 6,508 | 24,298 | 6,508 | |||||||||||
Life and annuity | 6,714 | 7,209 | 27,855 | 28,218 | |||||||||||
Other | 10,739 | 8,755 | 34,615 | 34,775 | |||||||||||
80,618 | 125,452 | 474,924 | 458,621 | ||||||||||||
Total | $ | 431,861 | $ | 382,685 | $ | 1,888,172 | $ | 1,309,070 |
Markel Corporation and Subsidiaries | |||||||||||||||
Reconciliation of Non-GAAP Financial Measure | |||||||||||||||
The following table reconciles Markel Ventures operating income to Markel Ventures earnings before interest, income taxes, depreciation and amortization (EBITDA). | |||||||||||||||
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Markel Ventures operating income | $ | 17,050 | $ | 44,216 | $ | 77,479 | $ | 115,250 | |||||||
Depreciation expense | 13,702 | 12,960 | 52,207 | 41,704 | |||||||||||
Amortization of intangible assets | 10,876 | 10,652 | 40,208 | 31,429 | |||||||||||
Markel Ventures EBITDA - Total | $ | 41,628 | $ | 67,828 | $ | 169,894 | $ | 188,383 | |||||||
Markel Ventures EBITDA - Products | $ | 25,929 | $ | 53,997 | $ | 102,310 | $ | 124,811 | |||||||
Markel Ventures EBITDA - Services | 15,699 | 13,831 | 67,584 | 63,572 | |||||||||||
Markel Ventures EBITDA - Total | $ | 41,628 | $ | 67,828 | $ | 169,894 | $ | 188,383 |
Markel Ventures EBITDA is a non-GAAP financial measure. We use Markel Ventures EBITDA as an operating performance measure in conjunction with U.S. GAAP measures, including revenues, operating income and net income, to monitor and evaluate the performance of our Markel Ventures segment. Because EBITDA excludes interest, income taxes, depreciation and amortization, it provides an indicator of economic performance that is useful to both management and investors in evaluating our Markel Ventures businesses as it is not affected by levels of debt, interest rates, effective tax rates, levels of depreciation or amortization resulting from purchase accounting.
Net Income (Loss) per Share
Net income (loss) per share was determined by dividing adjusted net income (loss) to shareholders by the applicable weighted average shares outstanding. Diluted net income (loss) per share is computed by dividing adjusted net income (loss) to shareholders by the weighted average number of common shares and dilutive potential common shares outstanding during the year.
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
(in thousands, except per share amounts) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net income (loss) to shareholders | $ | (751,543) | $ | 434,881 | $ | (128,180) | $ | 395,269 | |||||||
Adjustment of redeemable noncontrolling interests | 1,793 | (10,156) | (4,828) | (33,738) | |||||||||||
Adjusted net income (loss) to shareholders | $ | (749,750) | $ | 424,725 | $ | (133,008) | $ | 361,531 | |||||||
Basic common shares outstanding | 13,916 | 13,934 | 13,923 | 13,964 | |||||||||||
Dilutive potential common shares from options | — | 1 | — | 1 | |||||||||||
Dilutive potential common shares from restricted stock units and restricted stock | — | 40 | — | 41 | |||||||||||
Diluted shares outstanding | 13,916 | 13,975 | 13,923 | 14,006 | |||||||||||
Basic net income (loss) per share (1) | $ | (53.88) | $ | 30.48 | $ | (9.55) | $ | 25.89 | |||||||
Diluted net income (loss) per share (1) (2) | $ | (53.88) | $ | 30.39 | $ | (9.55) | $ | 25.81 |
(1) | Effective January 1, 2018, we adopted ASU No. 2016-01 and equity securities are no longer classified as available-for-sale with unrealized gains and losses recognized in other comprehensive income, rather, changes in the fair value of equity securities are now recognized in net income. Prior periods have not been restated to conform to the current presentation. |
(2) | The impact of restricted stock units and restricted stock of 25 thousand shares was excluded from the computation of diluted earnings per share for both the quarter and year ended December 31, 2018 because the effect would have been anti-dilutive. |
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SOURCE Markel Corporation
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