-----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, Prsuhetr8WF0aJ8iD0sgKDS+VAiVKkw+HAABOMAgcSnf5VOP+CaVnG1NWM5c9/aS stIAahZCeTab6vN1KW366w== 0000916641-97-000740.txt : 19970730 0000916641-97-000740.hdr.sgml : 19970730 ACCESSION NUMBER: 0000916641-97-000740 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970729 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARKEL CORP CENTRAL INDEX KEY: 0000803509 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 540292420 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13051 FILM NUMBER: 97646986 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 2ND 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 June 30, 1997 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 1-13051 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 July 29, 1997: 5,490,323 1 Markel Corporation Form 10-Q Index Page Number PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets-- June 30, 1997 and December 31, 1996 3 Consolidated Statements of Income-- Quarters and Six Months Ended June 30, 1997 and 1996 4 Consolidated Statements of Cash Flows-- Six Months Ended June 30, 1997 and 1996 5 Notes to Consolidated Financial Statements-- June 30, 1997 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION: Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 13
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements MARKEL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
June 30, December 31, -------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- (dollars in thousands) ASSETS Investments, available-for-sale, at estimated fair value Fixed maturities (cost of $973,306 in 1997 and $879,401 in 1996) $ 982,664 $ 885,874 Equity securities (cost of $145,834 in 1997 and $132,558 in 1996) 237,915 193,395 Short-term investments (estimated fair value approximates cost) 110,946 51,507 - ----------------------------------------------------------------------------------------------------------------------------------- Total investments, available-for-sale 1,331,525 1,130,776 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 1,183 11,054 Receivables 62,963 58,336 Reinsurance recoverable on unpaid losses 219,439 210,518 Reinsurance recoverable on paid losses 13,225 11,631 Deferred policy acquisition costs 36,586 37,979 Prepaid reinsurance premiums 41,157 44,881 Property and equipment 9,055 15,434 Intangible assets 38,104 39,297 Other assets 38,814 45,391 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $ 1,792,051 $1,605,297 =================================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Unpaid losses and loss adjustment expenses $ 956,045 $ 935,582 Unearned premiums 193,101 200,852 Payables to insurance companies 28,136 23,870 Long-term debt (estimated fair value of $93,132 in 1997 and $115,191 in 1996) 93,140 114,691 Other liabilities 62,422 61,967 Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest Debentures of the Company 150,000 -- - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,482,844 1,336,962 - ----------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity Common stock 24,531 24,347 Retained earnings 218,741 200,237 Net unrealized gains on fixed maturities and equity securities, net of taxes 65,935 43,751 - ----------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 309,207 268,335 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 1,792,051 $ 1,605,297 =================================================================================================================================== See accompanying notes to consolidated financial statements. 3 MARKEL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income Quarter Ended Six Months Ended June 30, June 30, --------------------------- ---------------------------- 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- (dollars in thousands, except per share data) Operating revenues Earned premiums $84,132 $ 71,393 $ 165,803 $ 148,190 Net investment income 16,797 11,853 33,503 24,137 Net realized gains (losses) from investment sales 418 (467) (160) 2,507 Other 353 893 1,027 1,828 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 101,700 83,672 200,173 176,662 - ----------------------------------------------------------------------------------------------------------------------------------- Operating expenses Losses and loss adjustment expenses 54,506 46,327 107,156 100,879 Underwriting, acquisition and insurance expenses 28,912 24,089 57,226 48,819 Other -- 458 -- 908 Amortization of intangible assets 596 660 1,193 1,335 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 84,014 71,534 165,575 151,941 - ----------------------------------------------------------------------------------------------------------------------------------- Operating income 17,686 12,138 34,598 24,721 Interest expense 5,210 2,021 10,244 4,050 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 12,476 10,117 24,354 20,671 Income taxes (benefit) 2,754 (15,973) 5,842 (13,229) - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 9,722 $ 26,090 $ 18,512 $ 33,900 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings per share Primary $ 1.72 $ 4.61 $ 3.28 $ 5.99 - ----------------------------------------------------------------------------------------------------------------------------------- Fully diluted $ 1.72 $ 4.60 $ 3.27 $ 5.98 =================================================================================================================================== See accompanying notes to consolidated financial statements. 4 MARKEL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended June 30, ------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- (dollars in thousands) Operating activities Net Income $ 18,512 $ 33,900 Adjustments to reconcile net income to net cash provided by operating activities 8,022 1,051 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 26,534 34,951 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities Proceeds from sales of fixed maturities and equity securities 311,108 209,900 Proceeds from maturities of fixed maturities 28,519 38,670 Cost of fixed maturities and equity securities purchased (448,045) (288,856) Net change in short-term investments (59,439) 16,400 Net proceeds from sale of building 6,500 -- Other (1,813) (2,026) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (163,170) (25,912) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities Net proceeds from issuance of company obligated mandatorily redeemable preferred securities 148,166 -- Repayments and repurchases of long-term debt (21,577) (7,050) Other 176 73 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 126,765 (6,977) - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (9,871) 2,062 Cash and cash equivalents at beginning of period 11,054 18,315 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 1,183 $ 20,377 ===================================================================================================================================
See accompanying notes to consolidated financial statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--June 30, 1997 1. Principles of Consolidation The consolidated balance sheet as of June 30, 1997, the related consolidated statements of income for the quarters and six months ended June 30, 1997 and 1996, and the consolidated statements of cash flows for the six months ended June 30, 1997 and 1996, 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):
Quarter Ended Six Months Ended June 30, June 30, ------------------------- --------------------------- 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Net income, as reported $ 9,722 $ 26,090 $18,512 33,900 Dividends on redeemable preferred stock (4) (4) (8) (8) - ----------------------------------------------------------------------------------------------------------------------------------- Primary and fully diluted income $ 9,718 $ 26,086 $18,504 $ 33,892 =================================================================================================================================== Average common shares outstanding 5,485 5,428 5,475 5,426 Shares applicable to common stock equivalents 174 233 171 231 - ----------------------------------------------------------------------------------------------------------------------------------- Average primary shares outstanding 5,659 5,661 5,646 5,657 Additional dilution attributable to common stock equivalents 5 8 8 10 - ----------------------------------------------------------------------------------------------------------------------------------- Average fully diluted shares outstanding 5,664 5,669 5,654 5,667 ===================================================================================================================================
In February 1997, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 128, Earnings per Share. The statement establishes new standards for computing and presenting earnings per share (EPS). It replaces the presentation of primary EPS with basic EPS and the presentation of fully diluted EPS with diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock and then shared in the earnings of the entity. The Company will be required to adopt SFAS No. 128 during the fourth quarter and for year ending December 31, 1997. Under the new standard, basic EPS would have been 1.77 and 3.38 and diluted EPS would have been 1.72 and 3.28 for the second quarter and the six months ended June 30, 1997, respectively. 6 3. Reinsurance The table below summarizes the effect of reinsurance on premiums written and earned (dollars in thousands):
Quarter Ended June 30, - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Written Earned Written Earned Direct $ 107,969 $ 106,245 $ 106,037 $ 91,381 Assumed 2,063 1,541 1,583 2,402 Ceded (24,230) (23,654) (25,809) (22,390) - ----------------------------------------------------------------------------------------------------------------------------------- Net premiums $ 85,802 $ 84,132 $ 81,811 $ 71,393 =================================================================================================================================== Six Months Ended June 30, - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Written Earned Written Earned Direct $ 204,577 $ 213,058 $ 198,154 $ 187,162 Assumed 3,207 3,260 3,642 6,578 Ceded (46,009) (50,515) (47,071) (45,550) - ----------------------------------------------------------------------------------------------------------------------------------- Net premiums $ 161,775 $ 165,803 $ 154,725 $ 148,190 ===================================================================================================================================
Incurred losses and loss adjustment expenses are net of reinsurance recoveries of $23.2 million and $11.1 million for the quarters ended June 30, 1997 and 1996, respectively, and $41.3 million and $23.7 million for the six months ended June 30, 1997 and 1996, respectively. 4. Company Obligated Mandatorily Redeemable Preferred Securities (Capital Securities) On January 8, 1997 the Company arranged the sale of $150 million of 8.71% Capital Securities issued under an Amended and Restated Declaration of Trust dated January 13, 1997 (The Declaration) by Markel Capital Trust I (the Trust), a statutory business trust sponsored and wholly-owned by Markel Corporation. Proceeds from the sale of the Capital Securities were used to purchase the Company's 8.71% Junior Subordinated Debentures (the Debentures) due January 1, 2046, issued to the Trust under an indenture dated January 13, 1997 (the Indenture). The Debentures are the sole assets of the Trust. The Company has the right to defer interest payments on the Debentures for up to five years. The Capital Securities and related Debentures are redeemable by the Company on or after January 1, 2007. Payments of distributions and other amounts due on the Capital Securities (to the extent the Trust has funds on hand legally available for the payment of such distributions) are irrevocably guaranteed by the Company (the Guarantee). Taken together, the Company's obligations under the Debentures, the Indenture, the Declaration and the Guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of distributions and other amounts due on the Capital Securities. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Quarter and Six Months ended June 30, 1997 compared to Quarter and Six Months ended June 30, 1996 The Company underwrites specialty insurance products and programs to niche markets. Significant areas of underwriting include excess and surplus lines, professional and products liability, specialty programs, specialty personal and commercial lines, and brokered excess and surplus lines. Property/casualty insurance for nonstandard and hard-to-place risks is underwritten on an excess and surplus lines basis. 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. 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 coverages for watercraft, motorcycles, automobiles, mobile homes, dwellings and commercial freight companies. The brokered excess and surplus lines unit writes hard-to-place, large general liability and products liability accounts. Following is a comparison of gross premium volume by significant underwriting area:
Gross Premium Volume Quarter Ended June 30, Six Months Ended June 30, - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 (amounts in thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- $ 33,385 $ 29,890 Excess & Surplus Lines $ 61,960 $ 58,935 28,964 32,116 Professional/Products Liability 59,613 63,311 20,108 24,916 Specialty Program Insurance 38,652 45,662 15,573 20,528 Specialty Personal and Commercial Lines 23,767 34,090 11,742 -- Brokered Excess and Surplus Lines 22,853 -- 968 3,488 Other 2,032 6,285 - ----------------------------------------------------------------------------------------------------------------------------------- $110,740 $110,938 Total $208,877 $208,283 ===================================================================================================================================
Gross premium volume was $110.7 million for the second quarter and $208.9 million for the six month period in 1997 compared to $110.9 million and $208.3 million, respectively, for the same periods last year. Aggressive competition in many of the Company's markets contributed to decreased premium volume which was offset by the acquisition of Investors Insurance Holding Corp. (Investors). Excess and surplus lines second quarter gross premium volume was $33.4 million, an increase of 12%, compared to $29.9 million in 1996. For the six month period, excess and surplus lines gross premium volume rose 5% to $62.0 from $58.9 million in 1996. Increased production in the property and excess and umbrella programs was responsible for the growth in both periods. Premiums from professional/products liability insurance were $29.0 million for the second quarter and $59.6 million for the six month period compared to $32.1 million and $63.3 million, respectively, for the same periods last year. Growth in the employment practices line was more than offset by lower production from 8 other lines, including directors and officers liability, medical malpractice and the specified medical programs. Gross premiums from specialty program insurance were $20.1 million for the second quarter and $38.7 million for the six month period compared to $24.9 million and $45.7 million for the quarter and six month period of 1996. Increased competition in the youth and recreation program and re-underwriting portions of the agribusiness program contributed to the decrease. In addition, in 1997, the division began directly placing all of its workers' compensation business with another insurance carrier. Specialty personal and commercial lines premiums declined to $15.6 million for the second quarter and $23.8 million for the six month period from $20.5 million and $34.1 million, respectively, during the same periods in 1996. The decrease was primarily due to discontinuance of two auto insurance programs. Premiums from Brokered Excess and Surplus Lines totaled $11.7 million in the second quarter and $22.9 million for the first six months of 1997. This new underwriting unit is the result of the purchase of Investors on October 31, 1996. Other gross premiums totaled $1.0 million for the second quarter and $2.0 million for the six month period compared to $3.5 million and $6.3 million for the quarter and six month periods in 1996. Other gross premium volume included facultative reinsurance placed by the Professional/Products Liability unit and run-off business related to Lincoln Insurance Company. While certain of the Company's products may be adversely affected by the increased competition and lower rates which characterize a "soft" insurance market, the Company does not intend to relax underwriting standards or rates in order to sustain premium volume. Further, the volume of premiums written may vary significantly with the Company's decision to alter its product concentration to maintain or improve underwriting profitability. The Company enters into reinsurance agreements in order to reduce its liability on individual risks and enable it to underwrite policies with higher limits. The Company's net retention of gross premium volume increased to 78% in the second quarter of 1997 and 77% for the six month period compared to 74% for both periods in 1996. The increases for both periods reflect higher retentions in the specialty personal and commercial lines division. 9 Following is a comparison of earned premiums by significant underwriting area:
Earned Premiums Quarter Ended June 30, Six Months Ended June 30, - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 (amounts in thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- $ 20,924 $ 17,075 Excess & Surplus Lines $ 40,906 $ 35,214 26,047 26,455 Professional/Products Liability 51,631 58,014 16,886 15,663 Specialty Program Insurance 34,101 32,099 13,117 11,581 Specialty Personal and Commercial Lines 24,947 20,300 7,203 -- Brokered Excess and Surplus Lines 14,239 -- (45) 619 Other (21) 2,563 - ----------------------------------------------------------------------------------------------------------------------------------- $ 84,132 $ 71,393 Total $165,803 $148,190 ===================================================================================================================================
Total operating revenues for the second quarter rose 22% to $101.7 million from $83.7 million in the prior year. For the six month period, operating revenues rose 13% to $200.2 million from $176.7 million a year ago. Earned premiums advanced 18% to $84.1 million for the quarter and 12% to $165.8 million for the six month period compared to $71.3 million for the second quarter and $148.2 million for the six month period of 1996. The growth resulted from increased retentions in the Company's core products and the acquisition of Investors in the Fall of 1996. Second quarter net investment income increased 42% to $16.8 million from $11.9 million a year ago. For the six month period, net investment income increased 39% to $33.5 million from $24.1 million in 1996. The increase reflected the impact of significant growth in the Company's investment portfolio due to the acquisition of Investors, the issuance of $150 million of Capital Securities in January 1997 and operating cash flows. In the second quarter, the Company realized $0.4 million of investment gains compared to $0.5 million of losses in 1996. For the six month period, realized investment losses were $0.2 million compared to $2.5 million of gains for the same period last year. Variability in the timing of realized investment gains or losses 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 second quarter were $84.0 million, an increase of 17%, compared to $71.5 million in 1996. Total operating expenses for the six month period were $165.6 million, an increase of 9%, compared to $151.9 million a year ago. The increases for both periods resulted primarily from higher variable expenses associated with higher earned premiums. 10 Following is a comparison of selected data from the Company's operations (in thousands):
Quarter Ended June 30, Six Months Ended June 30, - ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 (amounts in thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- $110,740 $ 110,938 Gross premium volume $208,877 $208,283 $ 85,802 $ 81,811 Net premiums written $161,775 $154,725 78% 74% Net Retention 77% 74% $ 84,132 $ 71,393 Earned premiums $165,803 $148,190 $ 54,506 $ 46,327 Losses and loss adjustment expenses $107,156 $100,879 Underwriting acquisition and $ 28,912 $ 24,089 insurance expenses $ 57,226 $ 48,819 GAAP ratios 65% 65% Loss ratio 65% 68% 34% 34% Expense ratio 34% 33% - ---------------------------------------------------------------------------------------------------------------------------------- 99% 99% Combined ratio 99% 101% ===================================================================================================================================
Underwriting performance is measured by the combined ratio of losses and expenses to earned premiums. For the quarter, the combined ratio was flat at 99% compared to 1996. The combined ratio was 99% for the six month period compared to 101% in 1996. The quarterly loss ratio was flat at 65% when compared to 1996, while the six month loss ratio decreased to 65% from 68% a year ago. The six month 1997 loss ratio compares favorably to 1996 due to winter storm losses and underwriting losses in the professional liability book of business in 1996. The expense ratio for the second quarter was flat at 34% compared to 1996. The expense ratio for the six month period was 34% compared to 33% in 1996. The increase was due to higher acquisition and overhead expenses which were partially offset by the recognition of contingent profit commissions. 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, expenses related to the amortization of intangible assets and any nonrecurring items. 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 transactions which do not reflect current operating costs. For the second quarter of 1997, income from core underwriting and investing operations advanced 17% to $9.9 million, or $1.75 per primary share, from $8.5 million, or $1.50 per primary share, in 1996. The increase was due to higher net investment income from the larger investment portfolio supported by underwriting profits. For the six month period, income from core operations grew 32% to $19.5 million, or $3.46 per primary share, from $14.9 million, or $2.63 per primary share, last year. The six month period benefited from higher net investment income and a 1% underwriting profit compared to a 1% underwriting loss for the same period last year. The Company's effective tax rate for the second quarter of 1997 was 22% compared to (158%) in 1996. For the six month period, the tax rate was 24% compared to (64%) last year. In the second quarter of 1996, the Company recognized a nonrecurring benefit of $18.4 million related to the realization of tax benefits 11 attributable to certain differences between financial reporting and tax bases of assets acquired in a prior period. This benefit was recognized when management determined that estimated tax liabilities were less than amounts previously accrued. Second quarter 1997 net income was $9.7 million compared to $26.1 million in 1996. For the six month period net income was $18.5 million compared to $33.9 million last year. The 1997 decrease was due to the nonrecurring tax benefit recognized in the second quarter of 1996, offset by higher net investment income and continued underwriting profits. Financial Condition as of June 30, 1997 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 six month period ended June 30, 1997, the Company reported net cash provided by operating activities of $26.5 million, compared to net cash provided by operating activities of $35.0 million for the same period in 1996. The decrease was due to various large claims payments and slowed growth in gross premium volume in the first quarter of 1997. For the six month period ended June 30, 1997, the Company reported net cash used by investing activities of $163.2 million compared to $25.9 million in 1996. The difference was primarily due to the Company's investment of the $150 million Capital Securities offering proceeds. At June 30, 1997 the Company's fixed maturity and equity investments comprised approximately 74% and 18% 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. In January 1997 the Company arranged the sale of $150 million of 8.71% Capital Securities issued by Markel Capital Trust I, a statutory business trust sponsored by Markel Corporation. Proceeds from the sale of the Capital Securities were used to purchase the Company's 8.71% Junior Subordinated Debentures due January 1, 2046. The Capital Securities and related Debentures are redeemable by the Company on or after January 1, 2007. The Company used $15 million of the proceeds of the offering to reduce indebtedness under its revolving credit facility in the first quarter of 1997. The remainder will be used for general corporate purposes. As of June 30, 1997 the unused balances available under the Company's revolving credit facility totaled $150 million compared to $135 million at December 31, 1996. Shareholders' equity at June 30, 1997 was $309.2 million compared to $268.3 million at December 31, 1996. Book value per share rose to $56.33 at June 30, 1997 from $49.16 at December 31, 1996. 12 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The Corporation's Annual Meeting was held on May 13, 1997, in Richmond, Virginia. At the Annual Meeting, shareholders elected directors for the ensuing year and ratified the selection by the Board of Directors of KPMG Peat Marwick LLP as the Company's independent auditors for the year ending December 31, 1997. The results of the meeting were as follows: Election of Directors For Withheld - --------------------- --- -------- Alan I. Kirshner 4,477,580 31,738 Anthony F. Markel 4,478,956 30,362 Steven A. Markel 4,478,956 30,362 Darrell D. Martin 4,477,580 31,738 Leslie A. Grandis 4,478,716 30,602 Stewart M. Kasen 4,477,395 31,923 Gary L. Markel 4,478,956 30,362 V. Prem Watsa 4,473,031 36,287 Ratification of Selection of Auditors: Abstentions and Brokers For Against Non-Votes --- ------- --------- 4,502,249 5,137 1,932 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 June 30, 1997. 13 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 29th day of July, 1997. 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) 14 Exhibit Index Number Description 27 Financial Data Schedule * * Filed electronically with the Commission's operational EDGAR system 15 EX-27 2 EXHIBIT 27 - 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 June 30, 1997 for Markel Corporation and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1997 JUN-30-1997 982,664 0 0 237,915 0 0 1,331,525 1,183 13,225 36,586 1,792,051 956,045 193,101 0 0 93,140 0 0 24,531 284,676 1,792,051 165,803 33,503 (160) 1,027 107,156 40,348 16,878 24,354 5,842 18,512 0 0 0 18,512 3.28 3.27 0 0 0 0 0 0 0
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