-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OabkdFwxVhCHEKTMuNZoeUlUUvQpAImYhAGtotKO5CRWVuIzbSL7JoEyA38yb9xi yCBu5G/BHccPn04gZicDmA== 0000916641-96-000291.txt : 19960502 0000916641-96-000291.hdr.sgml : 19960502 ACCESSION NUMBER: 0000916641-96-000291 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARKEL CORP CENTRAL INDEX KEY: 0000803509 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 540292420 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15458 FILM NUMBER: 96554432 BUSINESS ADDRESS: STREET 1: 4551 COX RD CITY: GLEN ALLEN STATE: VA ZIP: 23060-3382 BUSINESS PHONE: 8047470136 MAIL ADDRESS: STREET 1: P O BOX 2009 CITY: GLEN ALLEN STATE: VA ZIP: 23058-2009 10-Q 1 1ST QUARTER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1996 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____ Commission File Number 0-15458 MARKEL CORPORATION (Exact name of registrant as specified in its charter) Virginia 54-0292420 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 4551 Cox Road, Glen Allen, Virginia 23060-3382 (Address of principal executive offices) (Zip code) (804) 747-0136 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Number of shares of the registrant's common stock outstanding at March 29, 1996: 5,425,743 1 Markel Corporation Form 10-Q Index Page Number PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets-- March 31, 1996 and December 31, 1995 3 Consolidated Statements of Income-- Three Months Ended March 31, 1996 and 1995 4 Consolidated Statements of Cash Flows-- Three Months Ended March 31, 1996 and 1995 5 Notes to Consolidated Financial Statements-- March 31, 1996 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K 11 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements MARKEL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
March 31, December 31, ------------------------------------------------- 1996 1995 (dollars in thousands) ASSETS Investments, available-for-sale, at estimated fair value Fixed maturities (cost of $725,105 in 1996 and $683,568 in 1995) $ 725,241 $ 706,055 Equity securities (cost of $118,367 in 1996 and $104,538 in 1995) 152,471 134,346 Short-term investments (estimated fair value approximates cost) 36,485 68,182 ------------- ------------- Total investments, available-for-sale 914,197 908,583 ------------- ------------- Cash and cash equivalents 18,699 18,315 Receivables 49,565 47,210 Reinsurance recoverable on unpaid losses 159,346 159,141 Reinsurance recoverable on paid losses 12,074 20,404 Deferred policy acquisition costs 32,584 32,024 Prepaid reinsurance premiums 39,044 39,728 Property and equipment 27,076 27,729 Intangible assets 41,277 41,657 Other assets 25,596 19,746 ------------- ------------- Total assets $ 1,319,458 $ 1,314,537 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Unpaid losses and loss adjustment expenses $ 750,685 $ 734,409 Unearned premiums 166,131 170,697 Payables to insurance companies 20,401 17,247 Long-term debt (estimated fair value of $104,710 in 1996 and $109,189 in 1995) 106,702 106,689 Other liabilities 65,973 72,053 ------------- ------------- Total liabilities 1,109,892 1,101,095 ------------- ------------- Shareholders' equity Common stock 23,167 23,118 Retained earnings 164,143 156,333 Net unrealized gains on fixed maturities and equity securities, net of taxes 22,256 33,991 ------------- ------------- Total shareholders' equity 209,566 213,442 ------------- ------------- Total liabilities and shareholders' equity $ 1,319,458 $ 1,314,537 ============= ============= See accompanying notes to consolidated financial statements.
3 MARKEL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income
Three Months Ended March 31, ---------------------------- 1996 1995 ------- ------- (dollars in thousands, except per share data) Operating revenues Earned premiums $76,797 $65,784 Net investment income 12,284 8,368 Net realized gains from investment sales 2,974 1,563 Other 935 810 ------- ------- Total operating revenues 92,990 76,525 ------- ------- Operating expenses Losses and loss adjustment expenses 54,552 42,023 Underwriting, acquisition and insurance expenses 24,730 22,605 Other 450 417 Amortization of intangible assets 675 703 ------- ------- Total operating expenses 80,407 65,748 ------- ------- Operating income 12,583 10,777 Interest expense 2,029 1,939 ------- ------- Income before income taxes 10,554 8,838 Income taxes 2,744 2,298 ------- ------- Net income $ 7,810 $ 6,540 ======= ======= Earnings per share Primary $ 1.38 $ 1.17 ------- ------- Fully diluted $ 1.38 $ 1.17 ======= ======= See accompanying notes to consolidated financial statements.
4 MARKEL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 1995 --------- --------- (dollars in thousands) Operating Activities Net income $ 7,810 $ 6,540 Adjustments to reconcile net income to net cash provided by operating activities 15,078 42,977 --------- --------- Net cash provided by operating activities 22,888 49,517 --------- --------- Investing Activities Proceeds from sales of fixed maturities and equity securities 117,564 103,668 Proceeds from maturities of fixed maturities 21,338 5,268 Cost of fixed maturities and equity securities purchased (191,972) (162,711) Net change in short-term investments 31,697 (2,484) Other (1,180) (1,013) --------- --------- Net cash used by investing activities (22,553) (57,272) --------- --------- Financing Activities Other 49 19 --------- --------- Net cash provided by financing activities 49 19 --------- --------- Increase (decrease) in cash and cash equivalents 384 (7,736) Cash and cash equivalents at beginning of period 18,315 10,229 --------- --------- Cash and cash equivalents at end of period $ 18,699 $ 2,493 ========= ========= See accompanying notes to consolidated financial statements.
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--March 31, 1996 1. Principles of Consolidation The consolidated balance sheet as of March 31, 1996 and the related consolidated statements of income and cash flows for the three months ended March 31, 1996 and 1995, are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results of operations for the full year. The consolidated financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the Company's annual consolidated financial statements and notes. 2. Earnings per share Earnings per share was determined by dividing net income, as adjusted below, by the applicable shares outstanding (in thousands): Three Months Ended March 31, ------------------ 1996 1995 ------- ------ Net income, as reported $7,810 $6,540 Dividends on redeemable preferred stock (4) (4) ------- ------ Primary and fully diluted income $7,806 $6,536 ======= ====== Average common shares outstanding 5,424 5,388 Shares applicable to common stock equivalents 236 182 ------- ------ Average primary shares outstanding 5,660 5,570 Additional dilution attributable to common stock equivalents 8 16 ------- ------ Average fully diluted shares outstanding 5,668 5,586 ======= ====== 6 3. Reinsurance The table below summarizes the effect of reinsurance on premiums written and earned (dollars in thousands): Three Months Ended March 31, ------------------------------------------ 1996 1995 ------------------- -------------------- Written Earned Written Earned Direct $ 92,117 $ 95,781 $ 80,546 $ 78,176 Assumed 2,059 4,176 16,967 11,890 Ceded (21,262) (23,160) (27,734) (24,282) -------- -------- -------- -------- Net premiums $ 72,914 $ 76,797 $ 69,779 $ 65,784 ======== ======== ======== ======== Incurred losses and loss adjustment expenses are net of reinsurance recoveries of $12.6 million and $17.8 million for the three months ended March 31, 1996 and 1995, respectively. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months ended March 31, 1996 compared to Three Months ended March 31, 1995 The Company underwrites specialty insurance products and programs to niche markets. Significant areas of underwriting include professional and products liability, excess and surplus lines, specialty programs and specialty personal and commercial lines. Professional liability coverage is offered to physicians and health professionals, insurance companies, directors and officers, attorneys and architects and engineers. Special risk programs provide products liability insurance for manufacturers and distributors and tailored coverages for other unique exposures. Property/casualty insurance for nonstandard and hard-to-place risks is underwritten on an excess and surplus lines basis. Specialty program insurance includes coverage for camps, youth and recreation, child care, health and fitness and agribusiness organizations, as well as accident and health insurance for colleges. The Company also underwrites personal and commercial property and liability coverage for watercraft, motorcycles, automobiles, mobile homes, dwellings and commercial freight companies, and maintains wholesale and retail brokerage operations that produce business primarily for its insurance subsidiaries. Following is a comparison of gross premium volume and earned premiums by significant underwriting area:
Gross Premium Volume Earned Premiums ---------------------------- ---------------------------- Three Months Ended March 31, Three Months Ended March 31, ---------------------------- ---------------------------- 1996 1995 (amounts in thousands) 1996 1995 -------- -------- --------------------------------------- -------- -------- $ 31,195 $ 32,295 Professional/Products Liability $ 31,559 $ 27,347 29,045 26,299 Excess & Surplus Lines 18,139 16,657 20,746 23,671 Specialty Program Insurance 16,436 16,237 13,562 8,172 Specialty Personal and Commercial Lines 8,719 5,084 2,797 4,650 Other 1,944 459 -------- -------- --------------------------------------- -------- -------- $ 97,345 $ 95,087 Total $ 76,797 $ 65,784 ======== ======== ======================================= ======== ========
Gross premium volume for the first quarter in 1996 increased to $97.3 million from $95.1 million for the same period in the prior year. Premiums from professional/products liability insurance were $31.2 million compared to $32.3 million a year ago. Growth in the specified medical professions product line was more than offset by lower production from other lines, including directors' and officers' professional liability and the special risk programs. Excess and surplus lines gross premium volume grew 10% to $29.0 million from $26.3 million in 1995. Production from the specialty property insurance program continued to show significant growth. Growth was also prompted by a new excess and umbrella program. Gross premiums from specialty program insurance were $20.7 million compared to $23.7 million in the first quarter of 1995. Increased competition in the health and fitness and agribusiness programs contributed to the decrease. 8 Specialty personal and commercial lines premiums rose sharply to $13.6 million from $8.2 million in 1995. Several recently added programs, including property coverage for mobile homes and low value dwellings, liability coverage for commercial autos and physical damage coverage for personal autos contributed $11.0 million to quarterly production compared to $6.3 million for the same period last year. Other gross premiums totaled $2.8 million compared to $4.7 million in 1995. Other gross premium volume included production from the Company's brokerage operations. Total operating revenues rose 22% to $93.0 million from $76.5 million in the prior year. First quarter earned premiums were $76.8 million compared to $65.8 million for the first quarter of 1995. The 17% advance resulted primarily from higher gross premium volume throughout 1995 attributed to new products and increasing retentions in our core products. Net investment income increased 47% to $12.3 million from $8.4 million a year ago. The increase reflected the impact of higher yields and significant growth in the Company's investment portfolio over the past year. Realized gains were $3.0 million for the first quarter in 1996 compared to $1.6 million last year. Variability in the timing of realized investment gains is to be expected and often results from interest rate volatility which affects the market values of fixed maturities and equity investments. Total operating expenses for the first quarter were $80.4 million compared to $65.7 million in 1995. The 22% increase resulted primarily from higher variable expenses associated with higher earned premiums. Following is a comparison of selected data from the Company's operations (in thousands): Three Months Ended March 31, ------------------- 1996 1995 -------- -------- Gross premium volume $ 97,345 $ 95,087 Net premiums written $ 72,914 $ 69,779 Net retention 75% 73% Earned premiums $ 76,797 $ 65,784 Losses and loss adjustment expenses $ 54,552 $ 42,023 Underwriting, acquisition and insurance expenses $ 24,730 $ 22,605 GAAP ratios Loss ratio 71% 64% Expense ratio 32% 34% -------- -------- Combined ratio 103% 98% ======= ======= The first quarter combined loss and expense ratio was 103% compared to 98% last year. The loss ratio increased to 71% from 64% in 1995. There are two primary reasons for this increase. The first relates to concerns about pricing adequacy on a portion of the medical malpractice book of business. The Company is reevaluating risk selection and pricing for these exposures. In addition, winter storm losses adversely impacted the first quarter loss ratio. The 1996 expense 9 ratio, 32% compared to 34% in 1995, was favorably impacted by contingent profit commissions and the increase in earned premiums. In evaluating its operating performance, the Company focuses on core underwriting and investing results before consideration of realized gains or losses from the sales of investments and expenses related to the amortization of intangible assets. Management believes this is a better indicator of the Company's operating performance because it reduces the variability in results associated with realized investment gains or losses and eliminates the impact of accounting conventions which do not reflect current operating costs. For the first quarter of 1996, income from core underwriting and investing operations increased to $6.4 million from $6.1 million in 1995. Higher net investment income and growth in earned premiums were partially offset by underwriting losses. The Company's effective tax rate for the first quarter in both years was 26% of income before income taxes. First quarter 1996 net income was $7.8 million compared to $6.5 million in 1995. Relative to 1995, first quarter net income reflected higher net investment income, earned premiums and realized gains which were partially offset by underwriting losses. Financial Condition as of March 31, 1996 The Company's insurance operations collect premiums and pay current claims, reinsurance commissions and operating expenses. Premiums collected and positive cash flows from the insurance operations are invested primarily in short-term investments and long-term bonds. The Company's short-term investments provide liquidity for projected claims, reinsurance costs and operating expenses. For the three month period ended March 31, 1996, the Company reported net cash provided by operating activities of $22.9 million, compared to net cash provided by operating activities of $49.5 million for the same period in 1995. In the prior year, operating cash flow was affected by the collection of $28 million following the amendment of an indemnification agreement with one of the sellers of the Company's Shand/Evanston subsidiary. For the three month period ended March 31, 1996, the Company reported net cash used by investing activities of $22.6 million. The Company's invested assets increased to $914.2 million at March 31, 1996 from $908.6 million at December 31, 1995. The unrealized appreciation of the Company's investment portfolio decreased $18.1 million since December 31, 1995. As of March 31, 1996, the estimated fair value of the Company's fixed maturity investments was approximately equal to cost, while the estimated fair value of its equity investments exceeded cost by $34.1 million. At March 31, 1996 the Company's fixed maturity and equity investments comprised approximately 79% and 17% of total investments, respectively. The Company expects variability in its realized and unrealized investment gains due to interest rate volatility as well as other economic conditions. 10 As of March 31, 1996 and December 31, 1995, the unused balances available under the Company's revolving credit facility totaled $33.0 million. Shareholders' equity at March 31, 1996 was $209.6 million compared to $213.4 million at December 31, 1995. During the quarter, net unrealized investment gains, net of taxes, decreased by $11.7 million. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The Exhibits to this Report are listed in the Exhibit Index. (b) No reports on Form 8-K were filed during the quarter ended March 31, 1996. 11 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, this 30th day of April, 1996. Markel Corporation By Alan I. Kirshner --------------------------------- Alan I. Kirshner Chief Executive Officer (Principal Executive Officer) By Anthony F. Markel --------------------------------- Anthony F. Markel President (Principal Operating Officer) By Steven A. Markel --------------------------------- Steven A. Markel Vice Chairman By Darrell D. Martin --------------------------------- Darrell D. Martin Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 12 Exhibit Index Number Description 27 Financial Data Schedule * * Filed electronically with the Commission's operational EDGAR system. EX-27 2 FINANCIAL DATA SCHEDULE
7 This schedule contains summary financial information extracted from the financial statements contained in the Form 10-Q for the quarterly period ended March 31, 1996 for Markel Corporation and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 MAR-31-1996 725,241 0 0 152,471 0 0 914,197 18,699 12,074 32,584 1,319,458 750,685 166,131 0 0 106,702 0 0 23,167 186,399 1,319,458 76,797 12,284 2,974 935 54,552 18,135 6,595 10,554 2,744 7,810 0 0 0 7,810 1.38 1.38 0 0 0 0 0 0 0
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