Virginia-based Markel Corporation reported net income of $5.97 and $9.66 per diluted share, respectively, for the quarter and six month period ended June 30, 2003 compared to net income of $2.36 and $4.09 per diluted share, respectively, for the quarter and six month period ended June 30, 2002.
Both periods of 2003 benefited from continued improvement in underwriting profits and increased net investment income and realized gains. The combined ratio for the second quarter of 2003 was 95 percent compared to 101 percent in 2002. For the six month period ended June 30, 2003, the combined ratio was 96 percent compared to 102 percent in the prior year. Alan Kirshner, chairman and CEO, commented, “During the second quarter, we continued to build upon the momentum created by our strong results over the past several quarters. Our investment portfolio produced impressive total returns and underwriting profits continued to increase. The combination of underwriting profits and strong investment returns resulted in a 15 percent increase in book value per share for the first six months of 2003.”
Second quarter 2003 income from core operations was $3.65 per share compared to income from core operations of $1.77 per share for the same period of 2002. For the six months ended June 30, 2003, income from core operations was $7.08 per share compared to income from core operations of $3.32 per share in the prior year. The improved results for both periods were primarily due to underwriting profitability in the Excess and Surplus Lines (E&S) and Specialty Admitted segments as well as improving underwriting results in the London Insurance Market segment.
Book value per common share outstanding increased to $135.07 at June 30, 2003 from $117.89 at Dec. 31, 2002. The 2003 increase was primarily the result of $95.3 million of net income and a $67.8 million increase in net unrealized investment gains, net of taxes, during the six months ended June 30, 2003.
For the quarter and six month period ended June 30, 2003, E&S and Specialty Admitted gross written premiums increased 22 percent and 25 percent, respectively, due to increased submission activity and price increases across all business units. Writings in the London Insurance Market increased 6 percent and 12 percent for the quarter and six month period ended June 30, 2003, respectively, and continued to meet the company’s expectations both in terms of volume and price increases achieved. Other consisted primarily of Corifrance’s writings in both periods of 2003 and 2002.
The E&S segment produced strong underwriting profits for the quarter and the six months ended June 30, 2003 and continues to benefit from improved pricing, more restrictive coverage and better risk selection. The underwriting profits in both periods of 2003 resulted primarily from favorable development of prior years’ loss reserves in the Essex E&S Lines and the Shand Professional/Products Liability units. This favorable development was partially offset by adverse development of prior years’ loss reserves in the Investors Brokered Excess and Surplus Lines unit. During the six months ended June 30, 2003, this unit experienced approximately $11 million of adverse development on loss reserves primarily for business written between 1996 and 2000.
The Specialty Admitted segment produced underwriting profits for the quarter and the six months ended June 30, 2003 compared to underwriting losses for the same periods of 2002. The significant improvement in both periods of 2003 was primarily the result of favorable development on prior years’ loss reserves. The company continues to focus on pricing, risk selection and expense control to meet its profitability goals for the Specialty Admitted segment.
The combined ratio for the London Insurance Market improved for the quarter and six months ended June 30, 2003 compared to the same periods of 2002. This improvement has resulted from a combination of lower loss ratios due to improved risk selection, pricing and the appropriate use of reinsurance and lower expense ratios due to lower commissions and expense control. The second quarter 2003 combined ratio of 102 percent decreased from 103 percent in the first quarter of 2003. The London Insurance Market segment combined ratio has steadily improved and the London underwriting units continue to work towards their goal of underwriting profitability.
The underwriting loss from Other, which includes discontinued lines of business, was $10.3 million and $18.6 million, respectively, for the second quarter and six month period ended June 30, 2003 compared to $5.5 million and $9.4 million, respectively, in the same periods of 2002. The increase in the underwriting loss for both periods was primarily due to increases in the allowance for potentially uncollectible reinsurance and run off provisions for discontinued lines of business.
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 anticipates gross premium growth of 15 percent, with domestic operations slightly higher and international operations slightly lower. Management continues to believe that this is a reasonable growth forecast for the full year. While all of the company’s insurance operations continue to achieve rate increases compared to the prior year, rate increases have begun to slow in certain lines of business.
Second quarter 2003 net investment income was $45.5 million compared to $42.6 million in the prior year. Net investment income for the six month period ended June 30, 2003 was $90.7 million compared to $84.0 million in 2002. In both periods of 2003, a larger investment portfolio offset lower investment yields.
In the second quarter of 2003, the company recognized $36.7 million of net realized gains compared to $11.5 million of net realized gains in 2002. For the six month period of 2003, net realized gains were $43.2 million compared to net realized gains of $17.1 million for the same period last year.
Realized gains in both periods of 2003 were primarily the result of the company’s decision to sell certain government securities and buy higher yielding fixed income investments, including tax-exempt municipal bonds. Variability in the timing of realized and unrealized investment gains and losses is to be expected.
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