RICHMOND, Va., Feb. 2 /PRNewswire-FirstCall/ -- Markel Corporation
(NYSE: MKL) reported diluted net loss per share of $5.95 for the
year ended December 31, 2008 compared to diluted net income per
share of $40.64 for 2007. The 2008 combined ratio was 99% compared
to 88% in 2007. Book value per common share outstanding decreased
16% to $222.20 at December 31, 2008 from $265.26 at December 31,
2007. Over the five-year period ended December 31, 2008, compound
annual growth in book value per common share outstanding was 10%.
Alan I. Kirshner, Chairman and Chief Executive Officer, commented,
"At this time last year, it would have been almost impossible to
predict the significant deterioration in general economic
conditions and considerable dislocation of the global financial
markets that we have experienced in 2008. Markel has not been
immune to these difficult times, but we are pleased that we
achieved an underwriting profit for the year despite $95 million of
hurricane losses. We recognize that our obligation is to preserve
and build Markel's capital in any environment and we are taking the
appropriate steps to do this in 2009." The following tables present
selected financial data from 2008 and 2007. Year Ended December 31,
(in thousands, except per share amounts) 2008 2007 Net income
(loss) $(58,767) $405,669 Comprehensive income (loss) $(403,269)
$337,047 Weighted average diluted shares 9,876 9,981 Diluted net
income (loss) per share $(5.95) $40.64 December 31, December 31,
(in thousands, except per share amounts) 2008 2007 Book value per
common share outstanding $222.20 $265.26 Common shares outstanding
9,814 9,957 The 2008 diluted net loss per share was primarily due
to net realized investment losses, which includes both losses from
the sale of securities and write downs for other-than-temporary
declines in the estimated fair value of investments. Comprehensive
loss for 2008 was $403.3 million compared to comprehensive income
of $337.0 million in 2007. This unfavorable movement was primarily
due to a more significant decline in net unrealized holding gains
on investments during 2008 than in 2007 and to lower underwriting
profits in 2008 compared to 2007. Combined Ratio Analysis Year
Ended December 31, 2008 2007 Excess and Surplus Lines 92% 82%
Specialty Admitted 106% 92% London Insurance Market 104% 93% Other
NM NM Consolidated 99% 88% NM -- Ratio is not meaningful. Further
discussion of Other underwriting loss follows. The increase in the
combined ratio was primarily the result of higher current accident
year loss ratios across all segments in 2008 compared to 2007 due
in part to $94.8 million, or 5 points, of underwriting loss related
to Hurricanes Gustav and Ike (2008 Hurricanes). At September 30,
2008, we reported an underwriting loss of $115.1 million related to
the 2008 Hurricanes. During the fourth quarter of 2008, the
underwriting loss related to the 2008 Hurricanes decreased $20.3
million primarily due to lower losses than previously anticipated
at the Markel Essex Excess and Surplus Lines and Markel
International units. The combined ratio for 2008 included $163.5
million of favorable development on prior years' loss reserves
compared to $197.3 million in 2007. The Excess and Surplus Lines
segment's combined ratio for the year ended December 31, 2008 was
92% (including 3 points of losses on the 2008 Hurricanes) compared
to 82% in 2007. In addition to the effect of the 2008 Hurricanes,
the combined ratio increased in 2008 due to a higher current
accident year loss ratio and lower favorable development of prior
years' loss reserves than in 2007. The higher current accident year
loss ratio in 2008 was primarily attributable to price
deterioration across most of our product lines and increased claims
costs. The Excess and Surplus Lines segment's 2008 combined ratio
included $118.8 million of favorable development on prior years'
loss reserves compared to $154.0 million in 2007. The redundancies
on prior years' loss reserves experienced within the Excess and
Surplus Lines segment during 2008 and 2007 were primarily on our
professional liability programs at the Markel Shand
Professional/Products Liability unit. The prior year loss reserve
redundancies in 2008 have decreased from 2007 due to the softening
of the insurance market, which has resulted in price deterioration
within this segment in recent years. The loss reserve redundancies
experienced in both 2008 and 2007 were partially offset by adverse
loss reserve development at the Markel Re unit, which primarily
resulted from higher than expected average claim frequency and
severity on two general liability programs within the Specialized
Markel Alternative Risk Transfer (SMART) division. In early 2008,
we decided to close the Markel Re unit and transferred the excess
and umbrella program, casualty facultative placements and public
entity business previously written there to the Markel Brokered
Excess and Surplus Lines unit. The Specialty Admitted segment's
combined ratio for the year ended December 31, 2008 was 106%
(including 5 points of losses on the 2008 Hurricanes) compared to
92% in 2007. The increase in the 2008 combined ratio was due to a
higher current accident year loss ratio and a higher expense ratio
compared to 2007. Aside from the impact of the storms, the higher
current accident year loss ratio in 2008 was primarily attributable
to a greater than expected incidence of high severity property
losses at the Markel Specialty Program Insurance unit and to
several large losses at the Markel Global Marine and Energy unit.
The increase in the expense ratio for 2008 was primarily the result
of lower earned premiums and higher policy acquisition costs
compared to 2007. Incurred losses and loss adjustment expenses for
the Specialty Admitted segment in 2008 included favorable
development of prior years' loss reserves of $16.2 million compared
to $17.3 million in 2007. During the fourth quarter of 2008, we
decided to close the Markel Global Marine and Energy unit and
placed those programs into run off. Gross premium volume for the
Markel Global Marine and Energy unit was $29.4 million in 2008. The
London Insurance Market segment's combined ratio was 104%
(including 8 points of losses on the 2008 Hurricanes) for the year
ended December 31, 2008 compared to 93% in 2007. In addition to the
effect of the 2008 Hurricanes, the increase in the combined ratio
in 2008 was primarily the result of a higher current accident year
loss ratio as compared to 2007. The higher current accident year
loss ratio in 2008 was primarily due to price deterioration across
all of the divisions at this unit and adverse loss experience on
certain classes of business. This adverse experience was most
notable within the Professional and Financial Risks division on the
medical malpractice and construction professionals classes. The
London Insurance Market segment's combined ratio for 2008 included
$58.3 million of favorable development on prior years' loss
reserves compared to $49.4 million in 2007. Redundancies on prior
years' loss reserves were experienced at each of Markel
International's divisions during 2008, most notably within the
professional liability programs at the Professional and Financial
Risks and Retail divisions. Actual incurred losses and loss
adjustment expenses on reported claims at these divisions were less
than we expected in our actuarial analyses, and as a result we
reduced prior years' loss reserves accordingly. The Other segment
produced an underwriting loss of $28.1 million for the year ended
December 31, 2008 compared to an underwriting loss of $14.3 million
in 2007. The underwriting loss in 2008 and 2007 was primarily a
result of the completion of our annual review of asbestos and
environmental exposures during the third quarters of 2008 and 2007.
During these reviews, we noted higher than expected settlements on
existing claims, which caused us to increase our estimate of
ultimate loss reserves for asbestos and environmental exposures by
$24.9 million and $34.0 million in 2008 and 2007, respectively. The
underwriting loss related to asbestos and environmental reserve
increases in 2007 was partially offset by favorable development of
loss reserves in other discontinued lines of business. Premium
Analysis Year Ended December 31, (dollars in thousands) Gross
Written Premiums Earned Premiums 2008 2007 2008 2007 Excess and
Surplus Lines $1,163,992 $1,316,691 $1,089,967 $1,154,773 Specialty
Admitted 355,061 346,647 315,764 320,144 London Insurance Market
693,138 693,197 615,828 640,425 Other 593 2,404 625 1,952 Total
$2,212,784 $2,358,939 $2,022,184 $2,117,294 Gross written premiums
for the year ended December 31, 2008 decreased 6% compared to 2007.
The decrease was primarily the result of increased competition
across many of our product lines and the decision to exit a number
of alternative risk transfer programs previously underwritten by
the Markel Re unit. Net retention of gross premium volume was 89%
for 2008 and 87% for 2007. Net retention of gross written premiums
increased compared to 2007, which is consistent with our strategy
to retain more of our profitable business. Earned premiums for the
year ended December 31, 2008 decreased 4% compared to 2007. The
decrease in 2008 was primarily due to lower earned premiums in the
Excess and Surplus Lines segment as a result of lower gross premium
volume compared to 2007 and lower earned premiums in the London
Insurance Market segment due to foreign currency exchange rate
movements. Net investment income for the year ended December 31,
2008 was $283.7 million compared to $306.5 million in 2007. During
2008, investment yields declined due in part to lower current
yields on the portfolio as we increased our allocation to
short-term investments and cash and cash equivalents compared to
2007. In addition to this change in investment allocation,
short-term interest rates decreased during 2008. Net investment
income in 2008 and 2007 included adverse changes in the fair value
of our credit default swap of $13.7 million and $3.1 million,
respectively. Net realized investment losses for the year ended
December 31, 2008 were $407.6 million compared to net realized
investment gains of $59.5 million in 2007. Net realized investment
gains (losses) include both gains (losses) from the sale of
securities and losses from write downs for other-than-temporary
declines in the estimated fair value of investments. Net realized
investment gains (losses) included $339.2 million and $19.8 million
of write downs for other-than-temporary declines in the estimated
fair value of investments in 2008 and 2007, respectively. Net
realized investment losses for 2008 included write downs for 52
equity securities, two nonredeemable preferred stocks and 15 fixed
maturities. Approximately 23% of the write downs during 2008 were
due to the determination that we no longer had the intent to hold
these securities until they fully recovered in value as we began
selling a portion of the securities in order to allocate capital to
other securities with greater potential for long-term investment
returns. The remainder of the write downs related to securities
that had other indications of other-than-temporary impairment.
During the year ended December 31, 2008, pre-tax net unrealized
investment gains decreased $507.5 million. The decrease in pre-tax
net unrealized investment gains combined with net realized
investment losses totaled $915.1 million for 2008. This aggregate
unfavorable movement in the value of our investment portfolio
during 2008 represented approximately 12% of our average invested
assets for the year. At December 31, 2008, invested assets
decreased 11% to $6.9 billion from $7.8 billion at December 31,
2007. Equity securities and investments in affiliates were $1.2
billion, or 17% of invested assets, at December 31, 2008 compared
to $1.9 billion, or 25% of invested assets, at December 31, 2007.
Net unrealized holding gains on investments, net of taxes, were
$58.7 million at December 31, 2008 compared to $388.5 million at
December 31, 2007. At December 31, 2008, we held securities with
gross unrealized losses of $241.3 million, or less than 4% of
invested assets. Interest expense for the year ended December 31,
2008 decreased to $47.4 million from $56.3 million in 2007, which
was due to a decrease in average debt outstanding primarily as a
result of the maturity of our 7.00% and 7.20% unsecured senior
notes in May 2008 and August 2007, respectively. The income tax
benefit for the year ended December 31, 2008 was 64% of our loss
before income taxes. The rate of tax benefit is higher than that
obtained by applying the statutory rate of 35% to pre-tax losses
due to the additional tax benefits associated with favorable
permanent differences, principally tax-exempt investment income and
foreign and other tax credits recognized during 2008. The effective
tax rate was 29% for 2007. The effective tax rate for 2007 differs
from the statutory tax rate of 35% primarily due to tax-exempt
investment income. This release contains statements concerning or
incorporating our expectations, assumptions, plans, objectives,
future financial or operating performance and other statements that
are not historical facts. These statements are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. There are risks and uncertainties that may
cause actual results to differ materially from predicted results in
forward-looking statements. Factors that may cause actual results
to differ are often presented with the forward-looking statements
themselves. Additional factors that could cause actual results to
differ from those predicted are set forth under "Risk Factors" and
"Safe Harbor and Cautionary Statement" in our 2007 Annual Report on
Form 10-K or are included in the items listed below: -- our
anticipated premium volume is based on current knowledge and
assumes no significant man-made or natural catastrophes, no
significant changes in products or personnel and no adverse changes
in market conditions; -- we are legally required in certain
instances to offer terrorism insurance and have attempted to manage
our exposure; however, if there is a covered terrorist attack, we
could sustain material losses; -- the impact of the events of
September 11, 2001 will depend on the resolution of on-going
insurance coverage litigation and arbitrations; -- the frequency
and severity of catastrophic events is unpredictable and may be
exacerbated if, as many forecast, conditions in the ocean and
atmosphere result in increased hurricane or other adverse
weather-related activity; -- changing legal and social trends and
inherent uncertainties (including but not limited to those
uncertainties associated with our asbestos and environmental
reserves) in the loss estimation process can adversely impact the
adequacy of loss reserves and the allowance for reinsurance
recoverables; -- adverse developments in insurance coverage
litigation could result in material increases in our estimates of
loss reserves; -- the costs and availability of reinsurance may
impact our ability to write certain lines of business; -- industry
and economic conditions can affect the ability and/or willingness
of reinsurers to pay balances due; -- after the commutation of
ceded reinsurance contracts, any subsequent adverse development in
the re-assumed loss reserves will result in a charge to earnings;
-- regulatory actions can impede our ability to charge adequate
rates and efficiently allocate capital; -- economic conditions,
volatility in interest and foreign exchange rates and concentration
of investments 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, and this impact is
heightened by the current levels of market volatility; -- we cannot
predict the extent and duration of current economic and market
disruptions; the effects of government interventions (including,
among other things, the Troubled Asset Relief Program, the American
International Group, Inc. takeover, the Administration's economic
stimulus package and potential regulatory changes) into the market
to address these disruptions; and their combined impact on our
industry, business and investment portfolio; -- because of adverse
conditions in the financial services industry, access to capital
has generally become more difficult, which may adversely affect our
ability to take advantage of business opportunities as they may
arise; -- our new business model may take longer to implement and
cost more than we anticipate and may not achieve some or all of its
objectives; -- loss of services of any executive officers could
impact our operations; and -- adverse changes in our assigned
financial strength or debt ratings could impact our ability to
attract and retain business or obtain capital. Our premium volume
and underwriting and investment results have been and will continue
to be potentially materially affected by these factors. By making
forward-looking statements, we do not intend to become obligated to
publicly update or revise any such statements whether as a result
of new information, future events or other changes. Readers are
cautioned not to place undue reliance on any forward-looking
statements, which speak only as at their dates. Our previously
announced conference call, which will involve discussion of our
financial results and business developments and may include
forward-looking information, will be held Tuesday, February 3,
2009, beginning at 10:30 a.m. (Eastern Standard Time). Any person
interested in listening to the call, or a replay of the call, which
will be available from approximately two hours after the conclusion
of the call until Friday, February 13, 2009, 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 web site,
http://www.markelcorp.com/. A replay of the call will also be
available on this web site until Friday, February 13, 2009. 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.
MARKEL CORPORATION AND SUBSIDIARIES Consolidated Statements of
Operations and Comprehensive Income (Loss) Quarter Ended Year Ended
December 31, December 31, 2008 2007 2008 2007 (dollars in
thousands, except per share data) OPERATING REVENUES Earned
premiums $501,997 $519,202 $2,022,184 $2,117,294 Net investment
income 62,973 70,971 283,738 306,458 Net realized investment gains
(losses) (207,347) (5,226) (407,594) 59,504 Total Operating
Revenues 357,623 584,947 1,898,328 2,483,256 OPERATING EXPENSES
Losses and loss adjustment expenses 240,020 257,095 1,269,025
1,096,203 Underwriting, acquisition and insurance expenses 186,477
195,605 738,546 756,699 Amortization of intangible assets 1,144 950
4,383 2,145 Total Operating Expenses 427,641 453,650 2,011,954
1,855,047 Operating Income (Loss) (70,018) 131,297 (113,626)
628,209 Interest expense 11,601 12,866 47,390 56,251 Income (Loss)
Before Income Taxes (81,619) 118,431 (161,016) 571,958 Income tax
expense (benefit) (48,909) 24,990 (102,249) 166,289 Net Income
(Loss) $(32,710) $93,441 $(58,767) $405,669 OTHER COMPREHENSIVE
LOSS Net unrealized losses on investments, net of taxes: Net
holding losses arising during the period $(220,464) $(19,608)
$(594,767) $(33,638) Less reclassification adjustments for net
gains (losses) included in net income (loss) 134,315 4,763 264,898
(40,323) Net unrealized losses (86,149) (14,845) (329,869) (73,961)
Currency translation adjustments, net of taxes (4,513) (576)
(7,893) 3,793 Change in net actuarial pension loss, net of taxes
(7,488) 606 (6,740) 1,546 Total Other Comprehensive Loss (98,150)
(14,815) (344,502) (68,622) Comprehensive Income (Loss) $(130,860)
$78,626 $(403,269) $337,047 NET INCOME (LOSS) PER SHARE Basic
$(3.33) $9.38 $(5.95) $40.73 Diluted $(3.33) $9.36 $(5.95) $40.64
Selected Data December December (dollars and shares in thousands,
31, 2008 31, 2007 except per share data) Total investments and cash
and cash equivalents $6,908,456 $7,788,206 Reinsurance recoverable
on paid and unpaid losses 1,098,748 1,151,224 Goodwill and
intangible assets 344,031 344,911 Total assets 9,477,690 10,134,419
Unpaid losses and loss adjustment expenses 5,492,339 5,525,573
Unearned premiums 827,888 940,309 Senior long-term debt 688,509
680,698 Total shareholders' equity 2,180,674 2,641,162 Book value
per share $222.20 $265.26 Common shares outstanding 9,814 9,957
Markel Corporation Segment Reporting Disclosures For the Quarters
and Years Ended December 31, 2008 and 2007 Segment Gross Written
Premiums Quarter Ended December 31, Year Ended December 31, 2008
2007 (dollars in thousands) 2008 2007 $254,961 $296,005 Excess and
Surplus Lines $1,163,992 $1,316,691 88,823 73,859 Specialty
Admitted 355,061 346,647 121,319 131,014 London Insurance Market
693,138 693,197 120 542 Other 593 2,404 $465,223 $501,420
Consolidated $2,212,784 $2,358,939 Segment Net Written Premiums
Quarter Ended December 31, Year Ended December 31, 2008 2007
(dollars in thousands) 2008 2007 $228,910 $256,543 Excess and
Surplus Lines $1,028,816 $1,121,373 79,027 67,861 Specialty
Admitted 321,109 322,461 117,799 109,287 London Insurance Market
617,946 601,976 472 371 Other 625 1,952 $426,208 $434,062
Consolidated $1,968,496 $2,047,762 Segment Revenues Quarter Ended
December 31, Year Ended December 31, 2008 2007 (dollars in
thousands) 2008 2007 $263,111 $279,102 Excess and Surplus Lines
$1,089,967 $1,154,773 81,610 80,891 Specialty Admitted 315,764
320,144 156,806 158,838 London Insurance Market 615,828 640,425
(144,374) 65,745 Investing (123,856) 365,962 470 371 Other 625
1,952 $357,623 $584,947 Consolidated $1,898,328 $2,483,256
Reconciliation of Segment Profit (Loss) to Consolidated Operating
Income (Loss) Quarter Ended December 31, Year Ended December 31,
2008 2007 (dollars in thousands) 2008 2007 $59,230 $42,723 Excess
and Surplus Lines $88,162 $205,417 (2,405) 8,160 Specialty Admitted
(18,235) 26,887 23,144 14,132 London Insurance Market (27,259)
46,370 (144,374) 65,745 Investing (123,856) 365,962 (4,469) 1,487
Other (28,055) (14,282) Amortization of (1,144) (950) Intangible
Assets (4,383) (2,145) $(70,018) $131,297 Consolidated $(113,626)
$628,209 Combined Ratios Quarter Ended December 31, Year Ended
December 31, 2008 2007 2008 2007 77% 85% Excess and Surplus Lines
92% 82% 103% 90% Specialty Admitted 106% 92% 85% 91% London
Insurance Market 104% 93% 85% 87% Consolidated 99% 88% DATASOURCE:
Markel Corporation CONTACT: Bruce Kay of Markel Corporation,
+1-804-747-0136 Web Site: http://www.markelcorp.com/
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