NEWS RELEASE
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LOGO MARKEL CORPORATION
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4521 Highwoods Parkway, Glen Allen, VA 23060 P.O. Box 2009, Glen Allen. VA 23058-2009
(804) 747-0136 (800) 446-6671 Fax: (804) 965-1600 www.markelcorp.com
MARKEL REPORTS RETURN TO UNDERWRITING PROFITS
FOR IMMEDIATE RELEASE CONTACT: BRUCE KAY
TELEPHONE: 804-747-0136
Richmond, VA, February 4, 2003 --- (NYSE - MKL) Markel Corporation
reported net income of $2.67 and $7.65 per diluted share, respectively, for the
quarter and year ended December 31, 2002 compared to a net loss of $4.78 and
$14.73 per diluted share, respectively, for the quarter and year ended December
31, 2001. Underwriting results improved significantly in 2002. Markel produced
its first quarterly underwriting profit since its acquisition of Markel
International in March of 2000. The Company reported a combined ratio of 99% and
103%, respectively, for the quarter and year ended December 31, 2002 compared to
a combined ratio of 128% and 124%, respectively, for the quarter and year ended
December 31, 2001. Alan I. Kirshner, Chairman and Chief Executive Officer,
commented, "We are pleased to have achieved underwriting profits in the fourth
quarter. We wish to thank our associates for their hard work and dedication over
the past several years. Through their efforts, our domestic operations have
produced outstanding results, and we are building a strong platform in the
London Market. Barring any surprises, we expect continuous improvement in our
underwriting margins for the next few years and long-term growth in book value
per share."
In evaluating its operating performance, the Company focuses on core
underwriting and investing results (core operations) before consideration of
realized gains or losses and amortization expenses (these measures do not
replace operating income or net income computed in accordance with generally
accepted accounting principles as a measure of profitability). The Company
believes that this measure provides meaningful information about the performance
of its core underwriting and investing activities. Following is a comparison of
2002 and 2001 results on a per diluted share basis (shares in thousands).
Quarter Ended Year Ended
December 31, December 31,
------------ ------------
2002 2001 2002 2001
-------------- ---------------- --------------- ---------------
Core operations $2.31 $(4.32) $4.98 $(13.13)
Realized gains .53 .26 3.37 1.52
Amortization expense (.17) (.72) (.70) (3.12)
-------------- ---------------- --------------- ---------------
Diluted net income (loss) 2.67 (4.78) 7.65 (14.73)
Net change in unrealized
gains (losses) and other (.24) .92 (.21) 5.72
-------------- ---------------- --------------- ---------------
Comprehensive income
(loss) $2.43 $(3.86) $7.44 $(9.01)
============== ================ =============== ===============
Weighted average
diluted shares 9,857 9,146 9,852 8,534
============== ================ =============== ===============
1
Fourth quarter 2002 income from core operations was $2.31 per share
compared to a loss from core operations of $4.32 per share in 2001. For the year
ended December 31, 2002, income from core operations was $4.98 per share
compared to loss from core operations of $13.13 per share in the prior year. The
2002 improvement was primarily due to minimal catastrophe losses and lower
underwriting losses in discontinued lines compared to 2001 partially offset by
$44 million of reserve increases in the third quarter of 2002 related primarily
to asbestos exposures. In addition, underwriting results improved in each of the
Company's three specialty market operating segments: Excess and Surplus Lines
(E&S), Specialty Admitted and the London Insurance Market.
The loss from core operations for the year ended December 31, 2001
was due to $213 million of reserve increases. During the fourth quarter of 2001,
the Company increased loss reserves and expense charges $70 million at Markel
International related to asbestos exposures, uncollectable reinsurance and
additional reinsurance costs. During the third quarter of 2001, the Company
recorded $75 million of estimated losses related to the terrorist attacks of
September 11, 2001; $39 million of reserve increases in Markel International's
discontinued worldwide motor program and $29 million of reserve increases in the
Company's Brokered Excess and Surplus Lines unit.
-Premium Analysis-
Quarter Ended December 31,
(Dollars in thousands)
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Gross Written Premiums Earned Premiums
2002 2001 2002 2001
--------------- ----------------- ---------------- ---------------
Excess and Surplus Lines $360,192 $ 260,408 $ 228,400 $ 145,781
Specialty Admitted 53,228 34,085 53,773 38,730
London Insurance Market 154,877 179,936 165,226 133,472
Other (Discontinued Lines) 3,625 20,861 10,549 21,845
--------------- ----------------- ---------------- ---------------
Total $571,922 $ 495,290 $ 457,948 $ 339,828
=============== ================= ================ ===============
-Premium Analysis-
Year Ended December 31,
(Dollars in thousands)
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Gross Written Premiums Earned Premiums
2002 2001 2002 2001
--------------- ----------------- ----------------- ---------------
Excess and Surplus Lines $1,316,575 $ 842,067 $ 768,563 $ 503,939
Specialty Admitted 235,598 162,512 185,933 138,321
London Insurance Market 622,081 715,826 558,534 467,551
Other (Discontinued Lines) 43,437 53,956 35,986 96,873
--------------- ----------------- ----------------- ---------------
Total $2,217,691 $1,774,361 $1,549,016 $1,206,684
=============== ================= ================= ===============
For the fourth quarter and year ended December 31, 2002, E&S and
Specialty Admitted gross written premiums increased 40% and 55%, respectively,
due to increased submission activity and price increases across all business
units. For the fourth quarter and year ended December 31, 2002, writings in the
London Insurance Market continued to meet the Company's expectations both in
terms of volume and price increases achieved. However, gross written premiums in
the London Insurance Market declined primarily due to stricter underwriting
guidelines, reduced policy limits and the reunderwriting of some classes of
business. Discontinued Lines consisted primarily of Corifrance's writings in
both periods of 2002.
2
-Combined Ratio Analysis-
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Quarter Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
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Excess and Surplus Lines 92% 95% 93% 102%
Specialty Admitted 98% 104% 100% 101%
London Insurance Market 104% 131% 107% 134%
Other (Discontinued Lines) 194% 373% 292% 229%
Consolidated 99% 128% 103% 124%
The E&S segment produced strong underwriting profits for the quarter
and the year ended December 31, 2002. In 2002, the E&S segment benefited from an
improved expense ratio due to higher volume and lower commission rates. For the
2001 year, the underwriting loss in the E&S segment was primarily the result of
$29 million of adverse loss development on New York contractors business
previously written by the Brokered Excess and Surplus Lines unit.
The Specialty Admitted segment produced underwriting profits in the
fourth quarter of 2002 and an underwriting break even result for the full year.
In 2002, Specialty Admitted benefited from an improved expense ratio due to
higher volume.
The combined ratio for the London Market segment improved significantly
for the quarter and year ended December 31, 2002 compared to the same periods
last year. Starting with a 110% combined ratio in the first quarter of 2002,
Markel International steadily improved to 107%, 106% and 104% combined ratios in
the second, third and fourth quarters of 2002. The segment benefited from an
improved expense ratio primarily due to lower commission rates. The Company is
intent on strengthening Markel International's operating performance and balance
sheet through a focus on expense control and underwriting discipline which
includes improved risk selection, pricing and the appropriate use of
reinsurance.
The underwriting loss from Discontinued lines was $9.9 million and
$68.9 million, respectively, for the fourth quarter and year ended December 31,
2002. During the third quarter of 2002, Discontinued Lines reserves were
increased $44 million, primarily as a result of increases in reserves for
asbestos and environmental (A&E) exposures following the completion of the
Company's annual A&E review.
The Company anticipates that all segments of the specialty insurance
marketplace in which it competes will continue to provide a favorable
environment for its operations. For 2003 budgeting purposes, the Company is
anticipating gross premium growth of 15%, with domestic operations slightly
higher and international operations slightly lower. More importantly, the
Company anticipates improved underwriting margins in all operating segments for
2003. All of the Company's insurance operations have and are achieving
significant rate increases. The Company expects its loss ratio to improve during
2003 as these price increases are earned.
3
Fourth quarter 2002 net investment income was $43.2 million compared
to $42.8 million in the prior year. Net investment income for the year ended
December 31, 2002 was $170.1 compared to $170.7 million in 2001. In both
periods, a larger investment portfolio offset lower investment yields. In the
fourth quarter the Company recognized $8.0 million of net realized gains
compared to $3.7 million of net realized gains in 2001. For the year ended
December 31, 2002, net realized gains were $51.0 million compared to net
realized gains of $20.0 million for the same period last year. Variability in
the timing of realized and unrealized investment gains and losses is to be
expected.
For the year the Company's investment portfolio increased 20% to $4.3
billion from $3.6 billion at December 31, 2001. Cash flows from operations were
approximately $500 million for 2002.
Amortization of intangible assets was $2.6 million in the fourth
quarter of 2002 compared to $7.6 million last year. For the year ended December
31, 2002, amortization of intangible assets was $10.7 million compared to $30.7
million in 2001. The Company adopted Financial Accounting Standards Board
Statement (Statement) No. 142, Goodwill and Other Intangible Assets, as of
January 1, 2002. The decrease in amortization in 2002 is due to the fact that
goodwill is no longer amortized after the adoption of Statement No. 142.
Instead, Statement No. 142 requires that goodwill and other intangible assets
with indefinite useful lives be tested for impairment annually in lieu of being
amortized. Intangible assets, other than goodwill, will be fully amortized by
the end of the second quarter of 2003.
The Company completed the transitional goodwill impairment test in
the first quarter of 2002 and the annual goodwill impairment test in the fourth
quarter of 2002, as required by Statement No. 142. The Company determined that
there was no indication of goodwill impairment. The following table compares net
income and net income per share for 2001, as adjusted for the adoption of
Statement No. 142, with the amounts for 2002 (in thousands, except per share
data):
Quarter Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
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Net income (loss) $26,346 $(43,736) $75,324 $(125,717)
Add back: Goodwill amortization - 4,790 - 19,162
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Adjusted net income (loss) $26,346 $(38,946) $75,324 $(106,555)
==================================================================
Adjusted net income (loss) per share:
Basic $2.68 $(4.26) $7.67 $(12.49)
Diluted $2.67 $(4.26) $7.65 $(12.49)
Average shares outstanding:
Basic 9,832 9,146 9,825 8,534
Diluted 9,857 9,146 9,852 8,534
4
Comprehensive income was $2.43 per share for the fourth quarter of 2002
compared to comprehensive loss of $3.86 per share in 2001. For the year ended
December 31, 2002, comprehensive income was $7.44 per share compared to a
comprehensive loss of $9.01 per share in 2001. The improvement in both periods
of 2002 was primarily due to higher net income compared to net losses in both
periods of 2001. The Company reported net unrealized gains, net of taxes, on its
fixed maturity and equity investments of $179.2 million at December 31, 2002
compared to $173.9 million at December 31, 2001.
Book value per common share was $117.89 at December 31, 2002 compared
to $110.50 at December 31, 2001.
In the Company's third quarter earnings release, the Company discussed
the funding status of a pension plan that covers a portion of our London based
associates and is closed to new participants. During the fourth quarter of 2002,
the Company elected to contribute $5.0 million to the plan. At December 31,
2002, the fair value of pension plan assets exceeded the plan's accumulated
benefit obligation. As a result, the potential adjustment to shareholders'
equity, which was discussed in the third quarter earnings release, was not
required.
This is a "Safe Harbor" statement under the Private Securities
Litigation Reform Act of 1995. It also contains general cautionary statements
regarding the Company's business, estimates and management assumptions. Future
actual results may materially differ from those in these statements because of
many factors. Among other things, the impact of the events of September 11, 2001
will depend on the number of insureds and reinsureds affected by the events, the
amount and timing of losses incurred and reported and questions of how coverage
applies. The occurrence of additional terrorist activities could have a material
impact on the Company and the insurance industry. The Company's anticipated
premium growth and anticipated improvements in underwriting profitability are
based on current knowledge and assumes no man-made or natural catastrophes, no
significant changes in products or personnel and no adverse changes in market
conditions. Recently enacted legislation requires the Company to offer terrorism
insurance. The potential impact of this legislation cannot be determined at this
time. Changing legal and social trends and inherent uncertainties in the loss
estimation process can adversely impact the adequacy of loss reserves and the
allowance for reinsurance recoverables. In addition, industry and economic
conditions can affect the ability and/or willingness of reinsurers to pay
balances due. The Company continues to closely monitor Discontinued Lines and
reinsurance programs and exposures. Adverse experience in these areas could lead
to additional charges. Regulatory actions can impede the Company's ability to
charge adequate rates and efficiently allocate capital. Economic conditions,
interest and foreign exchange rate volatility can have a significant impact on
the market value of fixed maturity and equity investments as well as the
carrying value of other assets and liabilities. The Company's premium growth,
underwriting and investment results have been and will continue to be
potentially materially affected by these factors. Additional factors, which
could affect the Company, are discussed in the Company's reports on Forms 8-K,
10-Q and 10-K. By making these forward looking statements, the Company is not
intending to become obligated to publicly update or revise any forward looking
statements whether as a result of new information, future events or other
changes. Readers are cautioned not to place undue reliance on any forward
looking statements, which speak only as at their dates.
The quarterly conference call, which will involve discussion of the
fourth quarter and year end financial results and may include forward-looking
information, will be held later today, Tuesday, February 4th, 2003 at
approximately 10:30 a.m. Eastern time. Any person interested in listening to the
call, or a replay of the call, which will be available approximately two hours
after the conclusion of the call until Friday, February 14, 2003, should contact
Markel's Investor Relations Department at 804-747-0136. Investors, analysts and
the general public may also listen to the call free over the Internet through
Markel Corporation's corporate web site, www.markelcorp.com. A replay of the
call will also be available on this web site until Friday, February 14, 2003.
The webcast, the conference call and the content and permitted replays
or rebroadcasts thereof, are the exclusive copyrighted property of Markel
Corporation and may not be copied, taped, rebroadcast, or published in whole or
in part without the express written consent of Markel Corporation.
* * * * * * * *
Markel Corporation markets and underwrites specialty insurance products
and programs to a variety of niche markets. In each of these markets, the
Company seeks to provide quality products and excellent customer service so that
it can be a market leader. The financial goals of the Company are to earn
consistent underwriting profits and superior investment returns to build
shareholder value.
5
MARKEL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(dollars in thousands, except per share data)
Quarter Ended Year Ended
December 31, December 31,
--------------------------------- ---------------------------------------
2002 2001 2002 2001
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OPERATING REVENUES
Earned premiums .................................. $ 457,948 $ 339,828 $ 1,549,016 $ 1,206,684
Net investment income ............................ 43,244 42,785 170,137 170,722
Net realized gains from investment sales ......... 7,965 3,728 51,042 20,006
--------------- ---------------- ------------------ -------------------
Total Operating Revenues ................... 509,157 386,341 1,770,195 1,397,412
--------------- ---------------- ------------------ -------------------
OPERATING EXPENSES
Losses and loss adjustment expenses .............. 316,448 296,471 1,114,610 1,049,421
Underwriting, acquisition and insurance
expenses ................................... 138,847 139,146 487,108 450,859
Amortization of intangible assets ................ 2,629 7,587 10,684 30,683
--------------- ---------------- ------------------ -------------------
Total Operating Expenses ................... 457,924 443,204 1,612,402 1,530,963
--------------- ---------------- ------------------ -------------------
Operating Income (Loss) .................... 51,233 (56,863) 157,793 (133,551)
Interest expense ................................. 10,069 10,836 40,100 48,647
--------------- ---------------- ------------------ -------------------
Income (Loss) Before Income Taxes .......... 41,164 (67,699) 117,693 (182,198)
Income tax expense (benefit) ..................... 14,818 (23,963) 42,369 (56,481)
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Net Income (Loss) ......................... $ 26,346 $ (43,736) $ 75,324 $ (125,717)
--------------- ---------------- ------------------ -------------------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains on securities, net of taxes
Net holding gains arising during the period $ 1,281 $ 11,311 $ 38,419 $ 62,695
Less reclassification adjustments for gains
included in net income .................. (5,177) (2,422) (33,177) (13,003)
--------------- ---------------- ------------------ -------------------
Net unrealized gains (losses) .............. (3,896) 8,889 5,242 49,692
Currency translation adjustments, net of taxes ... 1,549 (491) (7,232) (863)
--------------- ---------------- ------------------ -------------------
Total Other Comprehensive Income (Loss) ... (2,347) 8,398 (1,990) 48,829
--------------- ---------------- ------------------ -------------------
Comprehensive Income (Loss) ............... $ 23,999 $ (35,338) $ 73,334 $ (76,888)
--------------- ---------------- ------------------ -------------------
NET INCOME (LOSS) PER SHARE
Basic ....................................... $ 2.68 ($4.78) $ 7.67 ($14.73)
Diluted ..................................... $ 2.67 ($4.78) $ 7.65 ($14.73)
--------------- ---------------- ------------------ -------------------
Selected Data December 31, December 31,
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(dollars and shares in thousands, except per share data) 2002 2001
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Total investments and cash $ 4,314,152 $ 3,591,202
Reinsurance recoverable on paid and unpaid losses 1,730,879 1,569,012
Intangible assets 361,444 372,128
Total assets 7,408,560 6,440,628
Unpaid losses and loss adjustment expenses 4,366,803 3,699,973
Unearned premiums 937,364 806,922
Convertible notes payable 86,109 116,022
Long-term debt 404,384 264,998
8.71% Capital Securities 150,000 150,000
Total shareholders' equity 1,159,111 1,085,108
Book value per share $ 117.89 $ 110.50
Common shares outstanding 9,832 9,820
7
Markel Corporation
Segment Reporting Disclosures
For the Quarter and Year Ended December 31, 2002
Segment Gross Written Premium
Quarter Ended December 31, Year Ended December 31,
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2002 2001 (dollars in thousands) 2002 2001
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$ 360,192 $ 260,408 Excess and Surplus Lines $ 1,316,575 $ 842,067
53,228 34,085 Specialty Admitted 235,598 162,512
154,877 179,936 London Insurance Market 622,081 715,826
3,625 20,861 Other (Discontinued Lines) 43,437 53,956
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$ 571,922 $ 495,290 Consolidated $ 2,217,691 $ 1,774,361
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Segment Net Written Premium
Quarter Ended December 31, Year Ended December 31,
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2002 2001 (dollars in thousands) 2002 2001
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$ 253,023 $ 180,306 Excess and Surplus Lines $ 902,396 $ 579,651
48,120 31,037 Specialty Admitted 218,171 148,834
132,299 135,075 London Insurance Market 460,484 526,253
1,690 12,100 Other (Discontinued Lines) 36,137 31,694
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$ 435,132 $ 358,518 Consolidated $ 1,617,188 $ 1,286,432
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Segment Revenues
Quarter Ended December 31, Year Ended December 31,
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2002 2001 (dollars in thousands) 2002 2001
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$ 228,400 $ 145,781 Excess and Surplus Lines $ 768,563 $ 503,939
53,773 38,730 Specialty Admitted 185,933 138,321
165,226 133,472 London Insurance Market 558,534 467,551
51,209 46,513 Investing 221,179 190,728
10,549 21,845 Other (Discontinued Lines) 35,986 96,873
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$ 509,157 $ 386,341 Consolidated $ 1,770,195 $ 1,397,412
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Segment Profit (Loss)
Quarter Ended December 31, Year Ended December 31,
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2002 2001 (dollars in thousands) 2002 2001
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$ 18,459 $ 6,835 Excess and Surplus Lines $ 53,275 $ (10,358)
952 (1,446) Specialty Admitted (485) (1,505)
(6,880) (41,443) London Insurance Market (36,575) (157,011)
51,209 46,513 Investing 221,179 190,728
(9,878) (59,735) Other (Discontinued Lines) (68,917) (124,722)
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$ 53,862 $ (49,276) Consolidated $ 168,477 $ (102,868)
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Combined Ratios
Quarter Ended December 31, Year Ended December 31,
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2002 2001 2002 2001
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92% 95% Excess and Surplus Lines 93% 102%
98% 104% Specialty Admitted 100% 101%
104% 131% London Insurance Market 107% 134%
194% 373% Other (Discontinued Lines) 292% 229%
99% 128% Consolidated 103% 124%
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