-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OvhVVXKmMC0xHL3Hmc3+YYAGH1Q8FpYqATgbldlziqKbQQTal6bdu0pfGpz/dTdr J+tv/aneqxjObnqGbhx/wA== 0000950133-95-000262.txt : 19950517 0000950133-95-000262.hdr.sgml : 19950517 ACCESSION NUMBER: 0000950133-95-000262 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950509 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARKEL CORP CENTRAL INDEX KEY: 0000803509 STANDARD INDUSTRIAL CLASSIFICATION: 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: 95535566 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 FORM 10-Q FOR MARKEL CORPORATION 1 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, 1995 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 April 21, 1995: 5,407,498 1 2 Markel Corporation Form 10-Q Index
Page Number PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets-- March 31, 1995 and December 31, 1994 3 Consolidated Statements of Income-- Three Months Ended March 31, 1995 and 1994 4 Consolidated Statements of Cash Flows-- Three Months Ended March 31, 1995 and 1994 5 Notes to Consolidated Financial Statements-- March 31, 1995 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 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements MARKEL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
March 31, December 31, -------------------------------- 1995 1994 - - -------------------------------------------------------------------------------------------------------------------- (dollars in thousands) ASSETS Investments, available-for-sale, at estimated fair value Fixed maturities (cost of $494,548 in 1995 and $441,983 in 1994) $ 489,236 $ 423,114 Equity securities (cost of $100,540 in 1995 and $98,117 in 1994) 116,511 107,315 Short-term investments (estimated fair value approximates cost) 83,741 81,258 - - -------------------------------------------------------------------------------------------------------------------- Total investments, available-for-sale 689,488 611,687 - - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 2,493 10,229 Receivables 100,116 130,562 Reinsurance recoverable on unpaid losses 188,067 180,934 Reinsurance recoverable on paid losses 39,289 45,163 Deferred policy acquisition costs 26,917 26,064 Prepaid reinsurance premiums 40,741 37,290 Property and equipment 42,343 43,288 Intangible assets 45,008 45,086 Deferred tax asset 4,392 14,912 Other assets 17,580 17,274 - - -------------------------------------------------------------------------------------------------------------------- Total assets $ 1,196,434 $ 1,162,489 ==================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Unpaid losses and loss adjustment expenses $ 655,471 $ 652,930 Unearned premiums 154,000 146,553 Payables to insurance companies 88,328 79,758 Long-term debt (estimated fair value of $92,735 in 1995 and $87,489 in 1994) 100,699 100,686 Other liabilities 39,661 44,061 - - -------------------------------------------------------------------------------------------------------------------- Total liabilities 1,038,159 1,023,988 - - -------------------------------------------------------------------------------------------------------------------- Stockholders' equity Common stock 22,948 22,929 Retained earnings 128,398 121,858 Net unrealized gains (losses) on fixed maturities and equity securities, net of taxes 6,929 (6,286) - - -------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 158,275 138,501 - - -------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,196,434 $ 1,162,489 ====================================================================================================================
See accompanying notes to consolidated financial statements. 3 4 MARKEL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income
Three Months Ended March 31, ---------------------------- 1995 1994 - - -------------------------------------------------------------------------------------------------------------------- (dollars in thousands, except per share data) Operating revenues Earned premiums $65,784 $55,122 Net investment income 8,368 6,750 Net realized gains from investment sales 1,563 2,703 Other 810 893 - - -------------------------------------------------------------------------------------------------------------------- Total operating revenues 76,525 65,468 - - -------------------------------------------------------------------------------------------------------------------- Operating expenses Losses and loss adjustment expenses 42,023 34,243 Underwriting, acquisition and insurance expenses 22,605 19,308 Other 417 1,097 Amortization of intangible assets 703 1,720 - - -------------------------------------------------------------------------------------------------------------------- Total operating expenses 65,748 56,368 - - -------------------------------------------------------------------------------------------------------------------- Operating income 10,777 9,100 Interest expense 1,939 1,864 - - -------------------------------------------------------------------------------------------------------------------- Income before income taxes 8,838 7,236 Income taxes 2,298 2,026 - - -------------------------------------------------------------------------------------------------------------------- Net income $ 6,540 $ 5,210 ==================================================================================================================== Earnings per share Primary $ 1.17 $ 0.93 - - -------------------------------------------------------------------------------------------------------------------- Fully diluted $ 1.17 $ 0.93 ====================================================================================================================
See accompanying notes to consolidated financial statements. 4 5 MARKEL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows
Three Months Ended March 31, ----------------------------- 1995 1994 - - -------------------------------------------------------------------------------------------------------------------- (dollars in thousands) Operating Activities Net income $ 6,540 $ 5,210 Adjustments to reconcile net income to net cash provided (used) by operating activities 42,977 (8,834) - - -------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 49,517 (3,624) - - -------------------------------------------------------------------------------------------------------------------- Investing Activities Proceeds from sales of fixed maturities and equity securities 103,668 95,210 Proceeds from maturities of fixed maturities 5,268 2,917 Cost of fixed maturities and equity securities purchased (162,711) (119,380) Net change in short-term investments (2,484) (3,778) Other (1,013) 2,461 - - -------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (57,272) (22,570) - - -------------------------------------------------------------------------------------------------------------------- Financing Activities Net proceeds from issuance of long-term debt -- 24,280 Repayment of long-term debt -- (1,500) Other 19 (404) - - -------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 19 22,376 - - -------------------------------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents (7,736) (3,818) Cash and cash equivalents at beginning of period 10,229 12,386 - - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 2,493 $ 8,568 ====================================================================================================================
See accompanying notes to consolidated financial statements. 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--March 31, 1995 1. Principles of Consolidation The consolidated balance sheet as of March 31, 1995 and the related consolidated statements of income and cash flows for the three months ended March 31, 1995 and 1994, 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. Certain reclassifications of prior year's amounts have been made to conform with 1995 presentations. 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, ---------------------------- 1995 1994 - - -------------------------------------------------------------------------------------------------------------------- Net income, as reported $ 6,540 $ 5,210 Dividends on redeemable preferred stock (4) (4) - - -------------------------------------------------------------------------------------------------------------------- Primary and fully diluted income $ 6,536 $ 5,206 ==================================================================================================================== Average common shares outstanding 5,388 5,420 Shares applicable to common stock equivalents 182 183 - - -------------------------------------------------------------------------------------------------------------------- Average primary shares outstanding 5,570 5,603 Additional dilution attributable to common stock equivalents 16 1 - - -------------------------------------------------------------------------------------------------------------------- Average fully diluted shares outstanding 5,586 5,604 ====================================================================================================================
6 7 3. Reinsurance The table below summarizes the effect of reinsurance on premiums written and earned (dollars in thousands):
Three Months Ended March 31, - - -------------------------------------------------------------------------------------------------------------------- 1995 1994 - - -------------------------------------------------------------------------------------------------------------------- Written Earned Written Earned Direct $ 80,546 $ 78,176 $ 63,010 $ 66,184 Assumed 16,967 11,890 6,047 7,434 Ceded (27,734) (24,282) (14,833) (18,496) - - -------------------------------------------------------------------------------------------------------------------- Net premiums $ 69,779 $ 65,784 $ 54,224 $ 55,122 ====================================================================================================================
Incurred losses and loss adjustment expenses are net of reinsurance recoveries of $17.8 million and $15.1 million for the three months ended March 31, 1995 and 1994, respectively. 7 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Three Months ended March 31, 1995 compared to Three Months ended March 31, 1994 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 lines. Professional liability coverage is offered to physicians and health professionals, insurance companies, directors and officers, attorneys and architects and engineers. Products liability insurance is provided to manufacturers and distributors. 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, 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, 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, - - -------------------------------------------------------------------------------------------------------------------- 1995 1994 (amounts in thousands) 1995 1994 - - -------------------------------------------------------------------------------------------------------------------- $ 32,295 $ 30,297 Professional/Products Liability $ 27,347 $ 25,404 26,299 18,144 Excess & Surplus Lines 16,657 13,656 23,671 18,716 Specialty Program Insurance 16,237 12,514 8,172 1,445 Specialty Personal Lines 5,084 2,200 4,650 4,090 Other 459 1,348 - - -------------------------------------------------------------------------------------------------------------------- $ 95,087 $ 72,692 Total $ 65,784 $ 55,122 ====================================================================================================================
Gross premium volume for the first quarter in 1995 increased 31% to $95.1 million from $72.7 million for the same period in the prior year. Premiums from professional/products liability insurance advanced 7% to $32.3 million from $30.3 million a year ago. The gain was attributed primarily to growth in the medical malpractice and specified medical professions product lines. Higher production from directors' and officers' professional liability insurance also contributed to the increase. Excess and surplus lines gross premium volume grew 45% to $26.3 million from $18.1 million in 1994. Production from a specialty property insurance program introduced in the second quarter of 1993 continued to show significant growth. First quarter special property premiums amounted to $9.3 million compared to $2.9 million for the same period in the prior year. The growth in excess and surplus lines gross premium volume was also prompted by higher casualty business. 8 9 Gross premiums from specialty program insurance increased to $23.7 million from $18.7 million. The Company reported higher production in the first quarter from each of its product lines focused on specialty program insurance following policy processing and other operating improvements. Specialty personal lines premiums rose sharply to $8.2 million from $1.4 million in 1994. The increase reflected the first quarter 1995 acquisition of a book of mobile home business and production from a commercial auto program started in the second quarter of 1994. Other gross premium totalled $4.7 million, compared to $4.1 million in 1994. Other gross premium volume included production from the Company's brokerage operations. Total operating revenues rose 17% to $76.5 million from $65.5 million in the prior year. First quarter earned premiums were $65.8 million compared to $55.1 million for the first quarter of 1994. The 19% advance resulted primarily from higher gross premium volume and increasing retentions in prior years. Net investment income increased 24% to $8.4 million from $6.8 million a year ago. The increase reflected the impact of higher yields and significant growth in the Company's investment portfolio. Realized gains were $1.6 million for the first quarter in 1995 compared to $2.7 million last year. Total operating expenses for the first quarter were $65.7 million compared to $56.4 million in 1994. The 17% 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, ----------------------------- 1995 1994 - - -------------------------------------------------------------------------------------------------------------------- Gross premium volume $ 95,087 $ 72,692 Net premiums written $ 69,779 $ 54,224 Net retention 73% 75% Earned premiums $ 65,784 $ 55,122 Losses and loss adjustment expenses $ 42,023 $ 34,243 Underwriting, acquisition and insurance expenses $ 22,605 $ 19,308 GAAP ratios Loss ratio 64% 62% Expense ratio 34% 35% - - -------------------------------------------------------------------------------------------------------------------- Combined ratio 98% 97% ====================================================================================================================
9 10 The first quarter combined loss and expense ratio was 98% compared to 97% last year. The loss ratio increased to 64% from 62% in 1994 due to the recognition of lower redundancies in prior years' reserves. The expense ratio declined to 34% from 35% a year ago. Higher earned premiums and ongoing cost control efforts accounted for the improvement in the expense ratio. Amortization expense for the first quarter of 1995 was $0.7 million compared to $1.7 million for the same period last year. Amortization expense decreased in accordance with the expiration of noncompete agreements in December 1994. 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 1995, income from core underwriting and investing operations increased 28% to $8.0 million from $6.3 million in 1994. Higher net investment income, growth in earned premiums and continued underwriting profitability accounted for most of the growth. The Company's effective tax rate for the first quarter was 26% of income before income taxes compared to 28% of income before income taxes for the same period last year. First quarter 1995 net income was $6.5 million compared to $5.2 million in 1994. Relative to 1994, first quarter net income reflected higher net investment income and higher earned premiums with continued underwriting profitability. FINANCIAL CONDITION AS OF MARCH 31, 1995 The Company's insurance operations collect premiums and pay current claims, reinsurance costs 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, 1995, the Company reported net cash provided by operating activities of $49.5 million, compared to net cash used by operating activities of $3.6 million for the same period in 1994. During the first quarter of 1995, the Company collected $28 million following the amendment of an indemnification agreement with one of the sellers of the Company's Shand/Evanston subsidiary. In the prior year, operating cash flow was adversely affected by the payment of certain large claims related primarily to pre-1987 environmental impairment liability (EIL) business. The timing of the claim payments was such that a substantial portion of the related reinsurance had not been collected at the end of the first quarter in 1994. For the three month period ended March 31, 1995, the Company reported net cash used by investing activities of $57.3 million. The Company's invested assets increased to $689.5 million at March 31, 1995 from $611.7 million at December 31, 1994. At March 31, 1995 the Company's fixed maturity and equity investments comprised approximately 71% and 17% of total investments, respectively. 10 11 The Company expects variability in its realized and unrealized investment gains due to interest rate volatility as well as other economic conditions. The market value of the Company's investment portfolio increased by $20.3 million during the first quarter. As of March 31, 1995, the cost of the Company's fixed maturity investments exceeded fair market value by $5.3 million, while the fair market value of its equity investments exceeded cost by $16.0 million. Stockholders' equity at March 31, 1995 was $158.3 million compared to $138.5 million at December 31, 1994. During the quarter, net unrealized investment gains increased by $13.2 million. There were no other material changes in the Company's financial condition from that reported as of December 31, 1994. OTHER ITEMS During the first quarter, the Company entered into an agreement to purchase Lincoln Insurance Company (LIC) of Wilmington, Delaware from an operating subsidiary of The Thomson Corporation. LIC is an excess and surplus lines insurer with approximately $28 million of premium volume in 1994 and pro forma assets of $80 million at December 31, 1994. Markel expects to significantly reorganize LIC and renew certain portions of its business in Essex Insurance Company, an existing Markel subsidiary. The terms of the transaction provide for the acquisition of the stock of LIC for total consideration of approximately $24 million. Additionally, the Company will obtain indemnification against adverse development of loss and loss adjustment expenses and uncollectible reinsurance, if any, in an amount up to the purchase price. The Company will fund the transaction with available cash on hand and borrowings up to $18 million under existing lines of credit. The transaction is expected to be completed during the second quarter of 1995, subject to certain regulatory approvals. 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, 1995. 11 12 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 28th day of April, 1995. 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 13 Exhibit Index Number Description 27 Financial Data Schedule * * Filed electronically with the Commission's operational EDGAR system. 13 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, 1995 for Markel Corporation and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1995 MAR-31-1995 489,236 0 0 116,511 0 0 689,488 2,493 39,289 26,917 1,196,434 655,471 154,000 0 0 100,699 22,948 0 0 135,327 1,196,434 65,784 8,368 1,563 810 42,023 15,733 6,872 8,838 2,298 6,540 0 0 0 6,540 1.17 1.17 0 0 0 0 0 0 0
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