Markel's Earnings Miss, Revs Top Ests

Zacks

Markel Corp. (MKL) reported fourth-quarter 2013 operating net income of $5.92 per share, missing the Zacks Consensus Estimate of $5.99 per share by 1.2%. However, the number improved 2.4% year over year.

Including net realized investment gains, Markel’s net income for the reported quarter came in at $6.95 per share, up 11.6% year over year.

Bottom-line year over year growth was driven by escalating operating revenues.  

Operational Update

Total operating revenues of property and casualty insurer during the fourth quarter amounted to $1.28 billion, surpassing the Zacks Consensus Estimate of $1.10 billion by 16.1%. Also, the top line surged 58.4% year over year on account of higher premiums and increased investment income. The Excess and Surplus Lines and Specialty Admitted segments and the newly formed Alterra segment contributed significantly to top-line growth.

Total operating expenses of Markel during the quarter scaled up 53.1% year over year to $1.14 billion. Higher expenses were driven mainly by an increase in losses and loss adjustment expenses, underwriting, acquisition and insurance expenses and other expenses.

Markel’s combined ratio during the fourth quarter improved 400 basis points (bps) year over year to 96%.

Segment Update

Markel has been operating through three segments namely Excess and Surplus Lines, Specialty Admitted and London Insurance Segment. With the acquisition of Alterra during the second quarter, Markel formed a new segment– Alterra segment.

Excess and Surplus Lines – Net written premiums in the segment increased 11.3% year over year in the reported quarter.

On the back of higher premiums, operating income of the segment jumped to $51.1 million from the operating loss of $4.8 million incurred in the year-ago quarter.

Combined ratio improved 2400 bps year over year to 78% due to more favorable prior-year reserve development.

Specialty Admitted − Net written premiums in the segment climbed 24.7% year over year to $200 million.

Operating income also surged to $24.6 million recovering from the operating loss of $9 million incurred in the prior-year quarter.

Combined ratio improved 1900 bps year over year to 88% in the fourth-quarter.

London Insurance Segment – Net written premiums grew 3.6% year over year to $158 million during the quarter under review.

Operating income surged 61.5% year over year to $24.8 million.

Combined ratio improved 500 bps year over year to 87% in the fourth-quarter.

Alterra − This newly added segment reported its net written premiums of $207.3 million for the fourth-quarter 2013.

The segment faced an operating loss of $58.6 million during the quarter.

Combined ratio of the segment stood at 119%.

Full-Year 2013 Highlights

Markel’s operating net income for full year 2013 came in at $19.22 per share, missing the Zacks Consensus Estimate of $19.82 by 3%. The number also declined 19.1% year over year.

Including net realized investment gains, Markel’s net income was $22.48 per share, down 13.2% year over year. The decline was primarily attributable to $3.3 billion of acquisition cost related to the purchase of Alterra Capital Holdings Limited.

However, operating revenues during 2013 increased 44% year over year to $4.32 billion primarily due to strong growth across investing, insurance and Markel Ventures operations.

Financial Updates

Markel exited the fourth quarter with total cash and cash equivalents of $1.96 billion, declining 7.5% from third-quarter 2013 end level.

Book value per common share increased 18% from 2012 end to $477.16 at the end of 2013.

Net cash provided by the operating activities rose 89.9% year over year to $745.5 million for 2013. The hike came on the back of higher cash flows from investing and underwriting activities.

Zacks Rank

Markel presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Greenlight Capital Re, Ltd. (GLRE), Navigators Group Inc. (NAVG) and OneBeacon Insurance Group, Ltd. (OB). All these stocks sport a Zacks Rank #1 (Strong Buy).
 

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