2019
Markel
Corporation
Annual Report & Form 10-K
T H E C O R P O R AT E P R O F I L E
Markel Corporation is a diverse financial holding company
serving a variety of niche markets. Our principal business
markets and underwrites specialty insurance products.
In each of our businesses, we seek to provide quality
products and excellent customer service so that we can be a
market leader.
Our financial goals are to earn consistent underwriting and
operating profits and superior investment returns to build
shareholder value.
T H E M A R K E L S T Y L E
Markel has a Commitment to Success. We believe in hard
work and a zealous pursuit of excellence while keeping a sense
of humor. Our creed is honesty and fairness in all our dealings.
The Markel way is to seek to be a market leader in each of
our pursuits. We seek to know our customers’ needs and to
provide our customers with quality products and service.
Our pledge to our shareholders is that we will build the
financial value of our Company. We respect our relationship
with our suppliers and have a commitment to our communities.
We are encouraged to look for a better way to do things…to
challenge management. We have the ability to make decisions
or alter a course quickly. The Markel approach is one of
spontaneity and flexibility. This requires a respect for authority
but a disdain of bureaucracy.
At Markel, we hold the individual’s right to self-
determination in the highest light, providing an atmosphere in
which people can reach their personal potential. Being results-
oriented, we are willing to put aside individual concerns in the
spirit of teamwork to achieve success.
Above all, we enjoy what we are doing. There is excitement
at Markel, one that comes from innovating, creating, striving for
a better way, sharing success with others…winning.
Highlights
F i n a n c i a l H i g H l i g H t s
(dollars in millions, except per share data)
Gross premium volume
Earned premiums
U.S. GAAP combined ratio
Markel Ventures segment operating revenues
Total operating revenues
Net income (loss) to shareholders
Comprehensive income (loss) to shareholders
Total investments, cash and cash equivalents and restricted
cash and cash equivalents (invested assets)
Total assets
Senior long-term debt and other debt
Shareholders' equity
Debt to capital
Per sHare Data
Common shares outstanding (at year end, in thousands)
Diluted net income (loss)
Book value
5-Year CAGR in book value per share(1)
Closing stock price
5-Year CAGR in closing stock price (1)
(1) CAGR — compound annual growth rate
O P e r at i n g H i g H l i g H t s
• Total operating revenues exceeded $9 billion
$
$
2019
8,780
5,050
$
2018
7,864
4,712
$
2017
5,507
4,248
94%
98%
105%
2,055
9,526
1,790
2,094
22,258
37,474
3,534
11,071
1,913
6,841
(128)
(376)
1,334
6,062
395
1,175
$
19,238
33,306
3,010
9,081
$
20,570
32,805
3,099
9,504
24%
25%
25%
13,794
129.07
802.59
$
$
13,888
(9.55)
653.85
$
$
13,904
25.81
683.55
$
$
8%
7%
11%
$ 1,143.17
$ 1,038.05
$ 1,139.13
11%
12%
21%
• Comprehensive income to shareholders of $2.1 billion, driven by gains on our investment portfolio
of nearly $2 billion
• Combined ratio of 94%, including two points of catastrophe losses
• Operating cash flows were $1.3 billion
• Book value per share was $802.59 at December 31, 2019, representing a 23% increase for the year
• Markel Ventures operating revenues exceeded $2 billion and further expanded through its fourth
quarter acquisition of VSC Fire & Security, a provider of comprehensive fire protection, life safety
and low voltage solutions
Contents
Letters to Business Partners
Business Overview
Risk Factors
Selected Financial Data
Management’s Report on Internal Control
over Financial Reporting
Reports of Independent Registered Public
Accounting Firm
Consolidated Financial Statements
2
18
40
52
54
55, 56
58
Notes to Consolidated Financial Statements
Management’s Discussion & Analysis
Critical Accounting Estimates
Safe Harbor and Cautionary Statement
Legal Proceedings
Other Information
Directors and Executive Officers
Index for Form 10-K
62
120
122
153
156
158
161
162
2019
To Our Business Partners
Here is your 2019 Markel Corporation annual report.
The Markel Corporation
At Markel, we aspire to build one of the world’s great
companies. We believe that the pursuit of excellence
in and of itself is a worthy goal. It provides a sense of
meaning for the people of your company.
We follow a long term, win-win-win approach. We do
our best to work in such a way that our customers,
our employees, and our shareholders all win. When
everyone wins they want to keep playing. James Carse
described the sustainability of this central idea as an
“infinite game.” We love what we do and want Markel
to keep going forever.
In this report we’ll update you as our partners on our
actions of the past year and our hopes and dreams
for the future. We hope you enjoy it and share our
enthusiasm as we continue to build Markel.
At Markel we’re building and developing a culture that
allows us to operate a diverse array of insurance,
industrial and service businesses, and investment
operations. Our culture unites them all. We describe
attributes of the culture through the words of the
“Markel Style.” We practice the values of the Markel
Style every day, in every business, in every place.
We believe our approach attracts customers and
employees. We believe these values create a
dependable North Star. With that North Star in place,
we can reliably steer.
We know that our culture may not appeal to everyone.
We acknowledge that our explicit focus on these
values may set us apart, but it strongly attracts those
for whom it resonates. We offer a home for
outstanding employees who want to be part of a long
F i n a n c i a l H i g H l i g H t s
(in millions, except per share data)
2019
$
$
Total operating revenues
Gross written premiums
Combined ratio
Investment portfolio
Portfolio per share
Net income (loss) to shareholders $
Comprehensive income (loss)
to shareholders
Shareholders’ equity
Book value per share
5-Year CAGR in book
value per share (1)
Closing stock price
2
(1) CAGR — compound annual growth rate
2018
6,841
7,864
2017
6,062
5,507
2016
5,612
4,797
2015
5,370
4,633
2014
5,134
4,806
2013
4,323
3,920
2012
3,000
2,514
2011
2,630
2,291
98%
105%
92%
89%
95%
97%
97%
102%
97%
95%
99%
88%
87%
101%
96%
99% 103%
124% 114% 101%
9,526
8,780
94%
2010
$ 2,225
$ 1,982
2009
2,069
1,906
$ 8,224
7,849
$846.24
799.34
$
$
267
431
$ 3,172
202
591
2,774
2008
1,977
2,213
6,893
702.34
(59)
(403)
2,181
$326.36
282.55
222.20
2007
2,551
2,359
7,775
780.84
406
337
2,641
265.26
2006
2,576
2,536
2005
2,200
2,401
7,524
6,588
752.80
672.34
393
148
551
2,296
64
1,705
229.78
174.04
2004
2,262
2,518
6,317
641.49
165
273
1,657
168.22
2003
2,092
2,572
2002
1,770
2,218
2001
1,397
1,774
2000
1,094
1,132
1999
524
595
5,350
4,314
3,591
3,136
1,625
543.31
438.79
365.70
427.79
290.69
123
222
1,382
75
73
1,159
(126)
(77)
1,085
(28)
82
752
41
(40)
383
140.38
117.89
110.50
102.63
68.59
20-Year
CAGR(1)
16%
14%
14%
9%
21%
18%
13%
$ 22,258
$ 1,613.62
1,790
19,238
1,385.24
(128)
20,570
1,479.45
395
19,059
1,365.72
456
18,181
1,302.48
583
18,638
1,334.89
321
17,612
1,259.26
281
2,094
$
$ 11,071
$ 802.59
(376)
9,081
653.85
1,175
9,504
683.55
667
8,461
606.30
233
7,834
561.23
936
7,595
543.96
459
6,674
477.16
9,333
969.23
253
504
3,889
403.85
8,728
907.20
142
252
3,388
352.10
8%
7%
11%
11%
11%
14%
17%
9%
9%
13%
11%
10%
18%
16%
11%
20%
13%
13%
18%
21%
22%
$1,143.17
1,038.05
1,139.13
904.50
883.35
682.84
580.35
433.42
414.67
$378.13
340.00
299.00
491.10
480.10
317.05
364.00
253.51
205.50
179.65
181.00
155.00
11%
term institution which stands for something. We offer
We think this letter serves as a critical tool to provide
a home for different businesses who want to focus on
a qualitative narrative to help understand our
serving their customers and taking care of them year
quantitative results.
after year. We offer a home for shareholders looking
to invest their capital in a successful long term
All of the numbers, as well as those that we will report
institution that will work hard to increase in value.
to you in the future, stem from forces often difficult to
quantify, namely the fundamental values by which we
We enjoyed a very good year in 2019. Our customers
manage Markel. This letter serves to discuss
won. They demonstrated their satisfaction with our
these values.
products and services by doing more business with us
than ever before. Our employees won. We employed
Some of the numbers reflect external forces beyond
more people than ever before. They enjoyed the
our control. We do not know what will happen in any
opportunity to serve our customers, learn new skills,
one year in the realms of interest rates, man-made or
provide for their families, and serve their communities.
natural catastrophes, economic activity, inflation,
Our shareholders won. They owned a business that
currency exchange rates, and other important but
produced record comprehensive income and operated
unknowable events. We will however always run
in such a way that we should be able to repeat these
Markel with the notion that we must be prepared to be
statements in future years.
resilient and durable through any and every kind of
environment we face.
We deploy three powerful financial engines at Markel,
namely, our insurance businesses, our Markel Ventures
Richie and I take our roles as stewards of this company
operations, and our investment activities. All three of
seriously. We want to thank you, our owners and
those engines provided positive thrust in 2019.
fellow employees, for the responsibility and the
privilege you’ve granted us in overseeing Markel.
Every year we write this letter to accompany the array
This is a unique company.
of numbers in the attached financial statements.
2010
$ 2,225
$ 1,982
2009
2,069
1,906
2008
1,977
2,213
2007
2,551
2,359
2006
2,576
2,536
2005
2,200
2,401
2004
2,262
2,518
2003
2,092
2,572
2002
1,770
2,218
2001
1,397
1,774
2000
1,094
1,132
1999
524
595
97%
95%
99%
88%
87%
101%
96%
99% 103%
124% 114% 101%
$ 8,224
$846.24
267
$
431
$
$ 3,172
$326.36
7,849
799.34
202
591
2,774
282.55
6,893
702.34
(59)
(403)
2,181
222.20
7,775
780.84
406
337
2,641
265.26
7,524
752.80
393
551
2,296
229.78
6,588
672.34
148
64
1,705
174.04
6,317
641.49
165
273
1,657
168.22
5,350
543.31
123
222
1,382
140.38
4,314
438.79
75
73
1,159
117.89
3,591
365.70
(126)
(77)
1,085
110.50
3,136
427.79
(28)
82
752
102.63
1,625
290.69
41
(40)
383
68.59
20-Year
CAGR(1)
16%
14%
14%
9%
21%
18%
13%
13%
11%
10%
18%
16%
11%
20%
13%
13%
18%
21%
22%
$378.13
340.00
299.00
491.10
480.10
317.05
364.00
253.51
205.50
179.65
181.00
155.00
11%
3
As we all work every day, we do so in a way that
We think that looking at the five year numbers
creates wins for our customers, our employees, and
provides better and more meaningful data than year-
our shareholders. We do so with a forever mindset and
by-year results. In any given year, swings in investment
an appreciation for the cumulative result that
markets cause volatility in the annual results.
develops over time.
Insurance also regularly experiences meaningful
volatility from catastrophes. Finally, within Markel
When we take care of customers each and every day,
Ventures we own several cyclical businesses whose
when we solve problems for them, when we provide
results vary widely given general economic
meaningful jobs and career opportunities for our
activity levels.
people, and when we earn financial rewards from
doing so, we create the opportunity to wake up and do
With a five year measurement period we think you as
it again tomorrow.
shareholders get a better gauge of our underlying
economic progress. We also hold ourselves as
That is the timeless and endless description of the
managers accountable to the exact same standard.
Markel Corporation. It has worked now for 90 years
We use a five year measurement period to determine
and we believe it will continue to do so.
incentive compensation. We are with you side by side.
2019 Financial Results
During 2019 we reported top line total revenues of
$9.5 billion compared to $6.8 billion a year ago, an
increase of 39%. At the bottom line we reported
comprehensive income of $2.1 billion compared to a
comprehensive loss of $376 million last year.
Those are record highs for your company and we’re
delighted to report that headline to you.
As a first pass in providing context and explanation of
this year’s results, we’ll continue the pattern we set
last year by reviewing the cumulative results of the
last five years. For the 2015-2019 five year period, we
reported total revenues of $33.4 billion versus $17.3
billion in the 2010-2014 period, an increase of 93%.
Over the same five year period we reported total
comprehensive income of $3.8 billion compared to
$2.6 billion, an increase of 47% and Markel shares
We are generally pleased with the long term results
and the economic progress of your company. We know
we have some specific challenges and corrections to
make. We’ve learned immense lessons about new and
existing businesses and we’re incredibly optimistic
about our ability to apply those lessons to continue to
grow your company over time. We hope you share our
optimism as well.
As always, to further reinforce the long term nature of
Markel, we include a 21 year table of our results at the
bottom of this letter. This tapestry of numbers paints
a vivid picture of the success of our long term process
over decades.
The longer term mindset guides us as we make
decisions. We think about what would be best for our
customers and our employees over the long term in
each and every decision that we make. We’re confident
if we do that well, our shareholders will be pleased
closed the year at $1,143.17 compared to $682.84,
with the results.
an increase of 67% over the same five years.
4
Markel Corporation
The Three Engines Of Markel
economic and technological landscapes that are
beyond our control.
Markel stands as a resilient company able to adapt
and grow in the face of ever changing landscapes.
Today, one simple way to categorize the diversity of
Technological progress changes business models.
Markel is to think of your company as being comprised
Financial markets experience volatile swings between
of three engines. Those engines are Insurance,
ecstasy and gloom, governments change, and so on
Ventures and Investments.
and so on.
The beauty of Markel is that we are open minded as
we pursue business opportunities. We are not
constrained by a narrow vision. As we wrote in the
initial annual report in 1986, we pursue a strategy of
“specialization and diversification.”
Specialization means that we pursue excellence by
being expert at what we do. Whether it is in a
particular form of insurance, investments,
transportation equipment, concierge medical care,
houseplants, baking equipment, consulting, or any of
the other myriad activities of the Markel Corporation,
we strive to provide the absolute best value to
our customer.
Diversification among specialization creates resilience
for Markel. The world continues to change at an
accelerating pace and we do not know what lies
ahead. We do know, however, that some businesses of
today will not exist in the future, even if they are the
very best at what they do. As such we need to
continue to diversify. We need to adapt and change
our existing businesses to meet the needs of a
changing world. We also need to continue to pursue
new business opportunities as we have since our
beginning 90 years ago.
We specialize and diversify to pursue the dual goals
of providing the best products and services to our
customers, and being adaptable to change in
Engine #1 – Insurance (Insurance,
Reinsurance, Insurance-Linked Securities,
and Program Services)
Insurance Engine – Insurance Cylinder
We enjoyed a very good year in our insurance
businesses. We wrote total premiums of $5.3 billion
compared to $4.7 billion, an increase of 12% from
last year. We wrote more business than last year and
we did so more profitably with a one point
improvement in our combined ratio to 93% compared
to 94% in 2018. Barring extraordinary catastrophes in
2020 we expect to be able to say the same thing this
time next year.
As you can see in the 21 year chart at the bottom of
this letter our consolidated combined ratio has ranged
between 87% at its low point to 124% in our most
challenging year. Our goal is to produce consistent
underwriting profits. We continue to make progress
against that goal.
Within our insurance business we enjoyed
spectacular results from our Markel Assurance
division which operates largely in the U.S. Markel
Assurance comprises the legacy excess and surplus
wholesale insurance lines on which Markel was
founded along with a growing business to serve
admitted retail markets.
5
Markel Assurance remains a crown jewel within
Over the years, we’ve enjoyed solid profitability from
Markel. We polish that jewel every day. Over the last
our International insurance operations. We have
several years, under the leadership of Bryan Sanders,
consistently increased our capability to operate in the
we’ve continued to focus on making Markel easier to
London marketplace as a stand-alone company and
do business with. We continue to communicate to our
side stepped some of the costs inherent in the Lloyd’s
current and prospective customers that we can do
system. We’ve continued to increase our geographical
more for them than ever before. Our increased
presence throughout the U.K. in markets outside
volumes show the message is getting through.
London and we’ve expanded our operations in Canada,
Germany, India, the Netherlands, Spain, and other
Within our U.S. based insurance operations we also
growing markets.
enjoyed a tremendous year at our Markel Specialty
operation under the leadership of Matt Parker. Matt
These expansions create profitable revenues for
and his team focus on program insurance products
Markel and platforms to grow sustainably in the
that cover an eclectic and growing list such as horses,
future. For example, we’ve operated in Germany since
farms, camps, classic boats and cars, electricians,
2012, well before any talk of Brexit began. We
plumbers, dry wall contractors, mom and pop
leveraged that platform and now have an established,
restaurants, and others. We insure small businesses
fully licensed insurance company operating in
and the people who make things work.
Continental Europe and we are prepared to operate on
both sides of the English Channel in any foreseeable
In the past, our talented underwriting experts writing
environment. We did not predict Brexit when we came
various forms of coverage for our customers tended to
across Frederik Wulff eight years ago. We just found a
operate primarily within the confines of specific
industries or niche areas. We’ve worked hard to
great leader who embodied the Markel Style and built
a business together. In light of Frederik’s
communicate to our customers that Markel continues
accomplishments and future vision he now serves as
to increase in size and scale. We can do more for them.
head of our European insurance operations.
We can provide more coverages and we can create
seamless solutions across multiple classes and types
The worldwide insurance market continues to grow as
of insurance risks.
billions of people move towards greater affluence.
Our opportunity to serve these needs all around the
Our ongoing growth and profitability at Markel
globe is immense and we have the people, regulatory
Assurance and Markel Specialty stands as powerful
structure, and skills to grow for years to come as the
evidence that the process continues to work.
global economy continues to develop.
In our international operations headquartered in
Insurance Engine – Reinsurance Cylinder
London, success in 2019 was more muted. The Lloyd’s
market in London remains an expensive place to do
In our reinsurance operations our results improved
business. The City of London itself suffers from cost
compared to 2018. We wrote $1.1 billion of premiums
pressures and ample (read tough) competition as the
in both years, with a combined ratio of 104% in 2019
concentration of insurance industry professionals
compared to 113% in 2018.
remains intense.
6
Markel Corporation
Reinsurance over the decades has produced positive
typhoons, and of course, lawyers, we began charging
yet volatile results. We’re taking steps to continue to
more per unit of risk. We did so in 2018 and results
improve our reinsurance operations. While we
were better, but not wonderful, since 2018 also was
acknowledge that reinsurance remains a volatile
a high catastrophe event year.
business, we expect better returns in the future
from these actions.
We again charged more per unit of risk in 2019
than in 2018. Once again, results improved, but not
We are fortunate in that reinsurance is a part of, but
yet to satisfactory levels. In 2020, we continue to
not the totality of, our insurance business. Given the
charge more per unit of risk. We will see how the
inherent volatility in both rates and losses in
year develops and whether losses industry-wide
reinsurance, it is an excellent component within the
will continue to set new records, but we continue to
larger entity of Markel.
be paid increasing rates to bear those risks.
In certain market environments, vivid recent
We are prepared to allocate our capital to reinsurance
memories of large losses cause many reinsurance
markets when we believe that it will earn appropriate
providers to diminish their appetite for premiums.
results but we are willing to allocate our capital
At those times, we can and do offer our capital, and
elsewhere within Markel when we do not have that
we write more business with the expectation of
expectation.
earning appropriate returns.
In other market environments, capital is flush and
memories of losses fade. In those markets,
reinsurance capacity tends to be ample, and we
appropriately diminish our writings as other
participants displace us by pricing risk at rates
we think are insufficient.
Insurance Engine – Insurance-Linked
Securities and Program Services Cylinder
In last year’s letter we discussed the nature of
Insurance-Linked Securities (ILS) and their role in the
insurance eco-system. To review the bidding, we
entered into the ILS business with our purchase of
CATCo in 2015, followed by State National in 2017,
Because we are diversified and not dependent on
and Nephila in 2018.
reinsurance, as a mono line carrier might be, we can be
opportunistic and grow and shrink our revenues like
accordion bellows.
That sentence is easy to say and hard to do. The
human beings who run our reinsurance business
don’t like to turn away business. But the reality of
the market demands that they do. We can and
must behave this way as responsible and
dependable reinsurers.
Following the record level of property losses in 2017
and again in 2018 from hurricanes, wildfires,
These stand as transformative acquisitions for Markel.
While the learning curve has had unexpected and
painful bumps along the way, we believe the
advantages for Markel will continue to accelerate and
grow over time. We are proceeding through the
learning curve. We expect increasing returns from our
ILS operations over time.
As is the case with every other industry in the world,
progress brought about by technological change
means that we need to be “Better, Faster, and
Cheaper” in providing goods and services to our
7
customers. In the halcyon days of the past you could
You might ask, “What is better, faster, and cheaper”
pick any two of those, but not all three at the same
about this? The answer is that the speed and quality
time. That is no longer the case. For every product and
should be roughly the same but it should be cheaper.
every service, at every time and everywhere, all
The returns demanded by the external investors are
businesses need to figure out how to be Better, Faster,
different than those we expect on our own capital.
and Cheaper. If any given business can’t figure out how
Often they are lower. The outside investors tend to
to do so, a competitor will.
focus on those returns not being correlated to the
returns of other assets as well as the absolute level
It is in the DNA of Markel that we innovate and adapt.
of returns themselves.
ILS and our efforts in this arena, stand as a paramount
example of how we are attempting to compete
By contrast, we at Markel are well designed through
effectively in a changing world.
our diversified three engine structure to accept
volatility from any one stream of capital returns.
In traditional insurance offerings, we as a company put
We primarily focus on the rate of the return in and of
up our capital to stand behind the risk we take when
itself. We can accept volatility and correlations on our
we write an insurance policy. We underwrite specific
balance sheet due to our diversification and structure.
risks to determine appropriate pricing, we write a
Through the ILS mechanism we can earn excellent
spread of business to keep systemic risk in check, we
returns as managers of the process rather than
manage the claims process, and we handle the legal
through the provision of our own capital.
and regulatory issues connected to the provision of
insurance.
Well, you might ask, “Why has this not worked out like
In ILS, we do all of the above except for one thing.
you hoped so far?”
With ILS, third parties such as endowments, pension
The answer is that in 2017 and 2018 CATCo funds
funds, and other investors, provide the capital.
experienced severe losses due to the record levels of
We manage all of the other processes and are paid
property catastrophes those years. In the wake of
management fees and incentive fees for doing so.
those losses, U.S. and Bermuda regulatory authorities
But the pure return on capital flows to the external
initiated inquiries into the loss reserves recorded in
capital providers, not to Markel as an insurance
late 2017 and early 2018.
company. The same is true of our Program Services
operations, which match insurance risk to third-party
As part of the inquiry process we retained outside
capital and provide services for a fee when doing so.
counsel to conduct an internal review. The internal
review found no evidence that CATCo personnel acted
To some degree, the provision of traditional insurance
in bad faith in exercising business judgment in the
can be viewed as railroad tracks that run between the
setting of reserves and making related disclosures
ultimate risk insured and the capital base of an
during late 2017 and early 2018. The governmental
insurance company. In ILS transactions, that rail line
authorities’ inquiries are ongoing and we continue to
starts at the same place i.e. the risk a customer needs
fully cooperate with them.
to insure. Those tracks run through the same
mechanical and regulatory landscape, and then they
The unprecedented catastrophe losses of 2017 and
spur off to a pool of externally provided capital rather
2018 simply exceeded CATCo’s expectations used to
8
than to the balance sheet of the insurance company.
Markel Corporation
determine pricing for the high severity, low frequency
By contrast, our experiences at State National, as led
offerings they provided to the retrocessional
by founder Terry Ledbetter (who just retired on
reinsurance market. Severity turned out to be higher
January 1 of this year with full regalia and a very
as did frequency.
honorable discharge) and his successor Matt Freeman,
and at Nephila, led by Frank Majors and Greg Hagood,
Not surprisingly, due to the unpredictability of the
have gone well. Both of those businesses continue to
duration, scope and outcome of the inquiries,
perform according to our expectations prior to
substantially all of the capital invested in CATCo by ILS
acquisition. We are absolutely thrilled with their
investors was tendered for redemption. Consequently,
progress to date, as well as their future path
as announced in July 2019, CATCo has ceased
within Markel.
accepting new investments and is not writing any
more business, effectively going into runoff.
State National, through their Program Services
As we move forward, we’ve adjusted our pricing, and
process framework that enables managing general
our appetite to write this business, to reflect this
agents (MGA’s) to operate. They use many of those
difficult experience. We’ve also developed additional
same skills and abilities to provide similar services to
tools to participate in this necessary market that
the ILS marketplace. State National provides access to
operations, provides much of the regulatory and
should provide appropriate returns and risk
management for Markel.
In addition to the expenses involved in investigating
ratings and licenses, and they manage the complicated
50 state, multi-country jurisdiction regulatory matters
that accompany the provision of insurance. They are
the leading firm in this marketplace and they continue
and dealing with the CATCo matter, we also were a
to shine.
significant investor in CATCo’s ILS products. We
thought it was valuable to demonstrate that we stood
Nephila pioneered the ILS market over 20 years ago
side by side with outside investors in putting up our
and they stand as the market leader in the industry.
own capital alongside theirs. We suffered losses on
Nephila offers a wide array of insurance products that
that capital alongside the outside investors.
operate right at the heart of the insurance and
The plan was that, over time, ILS mechanisms and
results would become widely known and a historical
track record would provide outside investors with
reinsurance marketplaces. While their results were
diminished by the record levels of catastrophe losses
in recent years, their fundamental operations remain
well within our expectations at the time of the
comfort. As that took place, we would shift our own
acquisition.
investment capital to other uses within the Markel
Corporation and operate our ILS platforms as fee
Nephila’s customer relationships continue to deepen
management businesses for other investors. The
and broaden as existing and new investors continue to
record level of property catastrophe losses in 2017
add Insurance Linked Securities to their investment
and 2018 interrupted the plan. We believe the
portfolios. Broadly speaking, “alternative assets”
disruption in ILS is a temporary circumstance. In the
continue to be attractive to pension, endowment, and
long run, we continue to believe in the ILS mechanism
other pools of investment capital. Nephila started this
and its ability to provide better, faster, and cheaper
market and continues to be a leader.
insurance solutions in many circumstances.
9
There’s an old joke that goes, “What do you call
Our ILS platform makes the rest of Markel better by
alternative medicine when it works?”
broadening the ways in which we can serve our
The answer is, “Medicine.”
insurance customers. It makes us a better and more
skilled company that can do more for existing and
potential customers.
Increasingly, the “alternative assets” of the ILS world
continue to provide attractive, understandable, and
Markel also makes our ILS businesses better by
non-correlated returns for many investors. We may not
providing a stable and consistent ownership base from
yet be at the point where they are just called “assets”
which the employees of those businesses can continue
in the investment world, but we are drawing closer to
to expand and grow. That circular and virtuous circle
that day.
We expect ongoing consolidation in the ILS industry.
We expect advantages of scale to become more and
between our various business units has and will
continue to produce financial benefits for our
shareholders. Win-win-win.
more important. Large and sophisticated investors
Engine #2 – Markel Ventures
need large and sophisticated counterparties to design,
process, and execute various strategies for the growing
In 2019 total revenues of Markel Ventures reached
array of ILS “alternative” assets. We are the leading
$2.1 billion compared to $1.9 billion a year ago.
company in this field and we expect to enjoy increasing
Earnings before Interest, Taxes, Depreciation, and
advantages and profitability from that position over
Amortization (EBITDA) totaled $264 million compared
time.
to $170 million a year ago. (We use EBITDA as the
least-worst proxy to describe our sense of the
Additionally, our operations in ILS address another
economic profitability of Markel Ventures. Our reason
strategic imperative at Markel. Namely, we want to be
for doing so is that in the early years following an
able to seamlessly provide any insurance customer
acquisition, the A, or amortization number shows up
with solutions that meet any specialty insurance need
as a major expense of the business. That is the cost of
from soup to nuts. As we continue to develop the ILS
Markel purchasing the business, not the ongoing costs
mechanism to operate in more and more realms of the
of running the business. We think it is important to
insurance world, we will continue to offer wider,
separate that out to give you a better picture of how
deeper, and broader, products to our insurance
our underlying businesses are performing.)
customers in a seamless, better, faster, cheaper way.
The great news is the Markel Ventures, as led by Mike
We own and operate the leading ILS platform in the
Heaton and his team, continue to perform
industry. We’re just getting started in this world and
wonderfully. We started Ventures in late 2005 and in
the addressable market is immense. Weather and
the first full year, the run rate of Ventures was
climate related risks are well suited to be addressed
approximately $60 million of revenues and $5 million
via the ILS market. Markel possesses unique
of EBITDA. As of 2019, revenues now stand at $2.1
opportunities to act as a dealer in the secondary
billion with EBITDA of $264 million.
market for ILS securities already in existence. ILS
should also be well suited to expand beyond the
We make our decisions by thinking in “cash money”
original markets of large property catastrophe risks as
terms rather than GAAP accounting conventions.
the sector matures and learns to process longer tailed
Over the last 15 years, up until our November 2019
liability risks. The list goes on and on.
acquisition of VSC, we’ve deployed a total of
10
Markel Corporation
approximately $1.9 billion of “cash money” into
We will likely always have some businesses that face
Markel Ventures. During that same time, in addition
temporary, or more permanent, challenges. Over time
to self-funding the day-to-day capital needs
if we do our job well, the proportion of Markel
(including growth), the Markel Ventures companies
Ventures companies in that condition should continue
have returned “cash money” to us and built up internal
to diminish. That has indeed been our experience and
cash balances of roughly $900 million combined.
it makes us wildly optimistic about our future.
As we currently stand, we’ve got a diversified array of
operating businesses that produced EBITDA of
Second- During the last three years, we have not
$264 million in 2019 with approximately $1 billion
actively sought new acquisitions with traditional
of net investment in the businesses.
business development activities through traditional
transaction processes. We observed that market prices
We are delighted with both the returns these
for businesses increased markedly and created a
businesses produced over the years and the additional
“sellers” market. That dynamic kept us from
resilience they add to the Markel Corporation.
participating in traditional auction based
Markel Ventures provides a stream of cash flow over
acquisition processes.
and above, and different to, that provided by our
insurance operations. It stands as an amazing story
That said, our growing reputation as quality owners,
and fundamental component as to how we can best
with long term vision, autonomous operating
assure the long term growth and sustainability of the
practices, and all of the elements of the Markel Style,
Markel Corporation.
made us a preferred buyer in many circumstances.
During the last five years we directly purchased VSC
As is the case with any new endeavor, there is always a
Fire & Security led by Mike Meehan, Brahmin Leather
learning curve. Over the last 14 years we’ve learned
Works led by Susan Thacker, Costa Farms led by Joche
immense lessons about what defines a wonderful
and Maria Smith, and CapTech led by the co-founders
operating company. We’ve learned how to retain and
Sandy Williamson and Slaughter Fitz-Hugh, with their
attract talented managers, we’ve learned how to deal
leadership team of Kevin McQueen, Steve Holdych,
with unexpected challenges, and we’ve learned how to
Vinnie Schoenfelder, and Joanna Bergeron. We also
build a team that can constantly grow and handle
partnered with Chas Burkhart to form Rosemont
larger and larger opportunities and challenges.
Investment Group. All of these acquisitions came
about from principal to principal discussions without
There are several points about Markel Ventures that
traditional intermediaries. Some of those
we’d like to highlight from 2019.
First- Within our diversified array of businesses it
conversations took place over multiple years and
sometimes they led to very quick action.
should come as no surprise that some are performing
We remain cautious about the overall environment to
spectacularly well, some are on track with normal
acquire additional Markel Ventures operations in the
expectations, and that some are not meeting
current pricing environment but we continue to be
performance goals. Over the last 15 years of Markel
pleased and honored to receive inbound calls.
Ventures operations, an increasing number of our
Increasing arrays of spectacularly successful
businesses are performing well, and largely
autonomously. That is the ultimate goal.
businesspeople know about Markel and they’re calling
to see if they can join the family.
11
This is an immense business advantage. Our years of
Our total invested assets stood at $22.3 billion at year
history and behavior continue to produce cascading
end. We manage the vast majority of our investments
opportunities to grow.
in house at an extraordinarily low cost (8 basis points
for total management costs) and with tax efficiency
In true Markel fashion, the sellers of these businesses
(as witnessed by the current unrealized gain of
won by receiving appropriate and fair consideration for
$3.9 billion).
a lifetime of work. The employees of the companies
won by joining forces with Markel, and finding a stable
The first thing we do in making investment decisions is
and long term oriented home where they could build
to allocate funds to our fixed income holdings to more
careers. Our shareholders won by deploying capital in
than match our insurance liabilities (the reserves).
profitable and well run businesses with organic growth
We are holding those reserves on our balance sheet
opportunities and further expansion possibilities.
for the benefit of our policyholders and we take
Win-win-win.
Engine #3 – Investments
2019 stands as a record breaking year. In our equity
portfolio we earned a return of 30% and in our fixed
income operations we earned a return of 6.5%.
The total investment portfolio produced a return of
14.6%. This is the highest total return from the
portfolio in 24 years.
While we celebrate the wonderful returns of 2019 it
is important to view them in a longer term context.
We enjoyed a year where interest rates declined.
In that environment, equity prices rose at a faster rate
than our estimates of the intrinsic value of the
companies themselves.
Long time readers of this report will probably
recognize the consistency of this section.
Over the decades, our investment operations continue
to produce fantastic returns for Markel. Our five and
ten year equity portfolio returns stand at 11.7% and
15.2% respectively. We’ve consistently followed the
same discipline in selecting investments and that
discipline has, and in our opinion will continue to,
stand the test of time.
minimal credit risk as we do so. We merely wish to
earn a positive spread between the cost of those
funds as shown by our underwriting results and what
we can earn on plain vanilla high quality fixed income
investments.
In 2019 we reported a combined ratio of 94%. That
means that during the year the cost of the reserves on
our balance sheet stood at a negative 6%.
We then take that money and invest it in the fixed
income markets. The low and sometimes negative
interest rates seen in current bond market prices are a
growing and troubling development in our opinion.
Fortunately, the negative cost of funds generated by
our insurance operations is more negative than the
low and negative rates of interest on offer from the
credit markets. We continue to earn a small but
positive spread on our fixed income holdings but that
spread is under pressure.
The next step in allocating investment capital within
our insurance operations is to look for equity securities
with the promise of higher rates of return than what
would be available from fixed income alternatives.
As we look for equity securities we follow a consistent,
time tested, and four part discipline. First, we look for
businesses earning good rates of return that use only
12
Markel Corporation
modest leverage to do so. Second, we look for
More importantly, we think that the second and third
management teams with equal measure of talent and
order effects of how management teams, investors,
integrity. Third, we look for businesses with
and government leaders behave in the face of the
opportunities to reinvest their capital and grow
unprecedented interest rate environment are
organically or by acquisition, and/or with capital
worrisome and give us pause.
discipline to repurchase shares or pay dividends.
And fourth, we look to acquire these holdings at fair
Capital markets are like the Wild West right now and
prices where our long term returns as shareholders
anything goes. In an environment where anything
should be similar to the underlying growth in intrinsic
goes, something is going to go wrong. We don’t have
value of the company itself.
any specific predictions or forecast. We just remain as
extraordinarily disciplined and long term oriented as
We’ve followed this four part process for decades and
we know how to be in the face of the unprecedented
it worked spectacularly well in 2019. More
challenge of producing positive investment returns in
importantly, it has worked for decades and produced
a low/negative interest rate world.
higher returns for us than what would have been the
case had we invested more similarly to most insurance
What we can control in the face of these forces is our
based entities and limited ourselves to a
predominantly fixed income portfolio.
own behavior. We will continue to behave according
to, and in keeping with, our disciplined investment
process no matter what. We also believe that
In our fixed income operations we look for high credit
behavior will continue to deliver dependable and
quality instruments and we match those holdings in
delightful results.
duration and currency to our insurance liabilities.
That strategy serves us well as we’ve never
experienced any meaningful credit losses in the
portfolio, and we’ve earned positive spreads
compared to the cost of those funds as measured by
our underwriting results.
Capital
The productive thrust of the three engines of Markel
Corporation creates a wonderful circumstance.
Those firing engines all worked together to create a
situation where we both have capital and keep
Count on us to continue this approach.
creating more of it.
We remain wary of investing in an environment
dominated by the forces unleashed by low and
negative interest rates. There is simply no way to
easily produce our historical results with those gale
force headwinds. As we noted earlier in the year,
we’d rather sell bonds than buy them at current rates.
In May and September we did take advantage of the
low interest rate environment to refinance our
upcoming debt maturities at Markel, which included
raising capital with a 4.15% coupon and a 31 year
maturity.
A great question you might have is, “What are you
going to do with it?”
Over time, the answer to that question will determine
how successful we are at building the financial
value of your company as we pledge to do in the
Markel Style.
As has been the case for many years, we have a four
step triage in place for how we allocate the capital
flowing into Markel.
13
Our first choice is to allocate capital within our existing
increased the pace at which we are doing so. We will
business where we see opportunities to profitably
be disciplined and rational as we repurchase shares
grow and expand. We know and trust the people
just as we are in every other capital allocation
running the operations. They are proven veterans with
decision.
a track record of producing excellent results. The
people of this organization who historically produced
You might ask, “How do you value Markel stock?”
good returns on capital stand first in line when it
comes to funding growth and expansion. Fortunately,
we see opportunities to deploy capital in this way both
in our insurance and ventures operations. We will fund
everything we can find that meets this test.
For many years following the IPO, Markel existed
largely as an insurance company with the embedded
investment operation that attaches to any insurance
company. In that environment, the book value per
share provided a reasonable proxy and starting point
Our second choice is to acquire new businesses that
for how to value Markel shares. The activities of the
we believe will produce appropriate returns on capital.
company were well captured by the accounting
We enjoy a long history of acquiring insurance and
process that sum to book value. The rates of growth
non-insurance businesses. We’ve bought big
of that book value per share provided a good
businesses that stretched our abilities and capital base
indication of the economic progress of Markel over
at the time. We’ve learned how to do that and
time.
transform and adapt ourselves to big opportunities
and changing conditions. We’ve bought smaller
businesses as well. And we’ve bought businesses in
and outside the U.S.
As Markel has grown and entered new businesses
through our Markel Ventures operations, as well as
the ILS and Program Services businesses, and as we
begin repurchasing more shares, the book value per
As we noted earlier, each and every one of these
share calculation begins to lose its ability to describe
transactions involved learning curves of various shapes
the intrinsic value and progress occurring at Markel.
and slopes, but the net result remains extraordinarily
We are earning returns that are not well captured in
positive for Markel. We will continue to allocate capital
the book value per share calculation.
to acquisition opportunities as we find them.
In recognition of this fact, we as managers break
Our third choice is to invest in publicly traded
down our operations into certain components. First,
securities when we find stocks that meet our four
we look at our insurance operations and think about a
part test. We’ve done so with excellent results for
normalized expectation of underwriting profitability.
decades and we continue to see opportunities to
Second, we look at our investments and think about
allocate capital to equities in our long term and
normalized amounts of return expectations from the
disciplined manner.
portfolio. Third, we look at our Markel Ventures and
think about normalized profits from those operations.
Our fourth choice is to repurchase shares of Markel
Fourth, we look at our ILS and Program Services
Corporation when we’ve funded all the previous
businesses and our normalized expectations of
opportunities and when Markel shares are attractively
earnings from those operations. We add all of those
priced. We’ve purchased modest amounts of Markel
up. After that, we subtract out the capital
stock over the years but starting last year we
expenditures necessary to keep the businesses going.
14
Markel Corporation
We also subtract out all interest and taxes. These
there are a few particular items that it is important to
steps net to our sense of the recurring, comprehensive
write at this time.
income of Markel.
First, many people make contributions and do
We go through this process over rolling, multi-year
fantastic work in their careers. Alan’s work rises above
time frames to adjust for normal volatility and
that standard. His work was not limited to his
cyclicality. We then apply a reasonable range of
individual accomplishments and achievements along
multiples to our estimate of our comprehensive
the way. Alan’s work was systemic.
income to develop our intrinsic sense of the enterprise
value of Markel. We then subtract out the debt we
By that I mean that Alan, as the primary author of the
owe and divide by the number of shares outstanding
Markel Style, created a document and guide for how
to determine our estimate of the intrinsic value of
all 19,000 people of Markel operate the company
each share of Markel.
today. Alan himself couldn’t talk individually to
19,000 people, or spend time with each of them on a
We’ve followed this process consistently for many
regular basis. Given that physical reality, Alan crafted
years. We would never assign false precision to any
the Markel Style in preparation for the initial public
single point estimate in any single year, but we think
offering of Markel back in 1986. By writing that
the exercise provides directionally correct data from
document, each of those roughly 300 employees at
which we can make rational capital allocation
the time, and the over 19,000 of today, could hear his
decisions.
voice and understand his vision for Markel.
The net of all of this discussion is that we’re executing
The idea behind the phrase, “It is written” carries
all four steps.
Alan Kirshner
As we close this letter we want to take a moment to
celebrate and commemorate the career of Alan
Kirshner. There would not be the Markel Corporation
of today if not for Alan.
As of the annual meeting, Alan will retire from his post
as Executive Chair. Alan started in 1960 assisting
Milton Markel in the underwriting department and in
his 60 years at Markel, he’s done every job along the
way culminating in his current role.
special meaning. That phrase means that a lasting
statement is being made. It means that those who
follow should pay special attention to the ideas and
directions when written down.
The Markel Style represents exactly that idea for us as
employees of Markel. Alan knew that the day would
come when he and his partners, Tony and Steve
Markel, would no longer be the day to day managers
of the Markel Corporation. He knew that the day
would come when the Markel Corporation would grow
in size and scale such that the top executives could
not personally know all of the employees, as was the
case in the days before the public offering in 1986.
There are so many aspects to Alan that it is impossible
to do justice to him in a few paragraphs. That said,
As such, he worked to create a written document that
would serve as guideposts for Richie and me as well as
15
those that will follow us in due time. He worked to
were learning and growing and building new skills and
create a document that people in every office around
capabilities to cope with a changing world. The Markel
the globe, and in every business that Markel might
Style explicitly instructs us to provide, “an atmosphere
someday enter, could read and understand the high
in which people can reach their personal potential.”
purpose of this company.
We believe in continuous learning. It describes the
mindset of the people of Markel.
In the Markel Style there are two words that Ken
Newsome, the CEO of Markel Food Group (our first
Alan also knew that unless our shareholders won and
Markel Ventures acquisition), pointed out as being
earned appropriate financial returns that we would
especially meaningful. Those two words were
not be allowed to carry on as managers and build
“winning” and “insurance.” As a close reader of the
Markel following these goals. For a business to
Style might observe, the word “winning” is the final
continue to exist and to serve its customers and
commanding word of the document and the word
employees, it must be profitable. Otherwise it goes
“insurance” is not mentioned.
Even prior to our IPO in 1986, Alan intuitively
away. The Markel Style explicitly states that “Our
pledge to our shareholders is that we will build the
financial value of our company.” He was right then,
understood that a company dedicated to the service of
and his instruction remains correct for us today.
others might someday expand beyond its initial
Unless we produce financial results for our
business of insurance. He created a document that
shareholders we will not continue to have the right to
allowed for the ongoing creativity, and drive, of current
build Markel.
and future Markel employees to “pursue excellence”
and he recognized that none of us knew or know
Alan’s contribution to the Markel Corporation goes
where that might lead.
beyond the capabilities of one person. His contribution
is that of a “system” that serves as the formula by
“Winning” is the last word of the Style. Again, Alan
which all of us at Markel operate this company.
intuitively understood the importance of sustainability
inherent in win-win-win architecture necessary to build
Outside of Markel in community service roles, Alan
a great company. He knew that unless customers felt
served as the founder of Partnership for the Future
that they had won, and were better off because they
and the Faison Center. Both of those institutions serve
had done business with Markel, they would not want
young people in Richmond and beyond. Partnership
to do business with us again. He knew that if we did
for the Future helps high school students from
things for our customers rather than to them, that
challenged backgrounds prepare and succeed at
they would be back. They would refer others to us and
college and at life. The organization teaches study
help to create recurring and growing revenues for
habits, financial discipline, life skills, employment
Markel over time.
skills, and countless other necessary elements to
those whose exposure to those factors may otherwise
Alan knew that unless our employees felt that they
be limited.
won, they would always think about contributing their
skills, creativity, and efforts somewhere else. He knew
The Faison Center aids both children and adults with
that our employees had to be able to provide for their
autism. While it started and operates in Richmond,
families, and always be in an environment where they
the skills, techniques and learnings that have been
16
Markel Corporation
developed at the Faison Center are now applied far
instructed us in the Style, we pledge hard work and a
and wide. Faison stands as a leader in how to help
zealous pursuit of excellence. We’ll follow the letter
those with autism and their families. None of the
and the spirit of what you taught us to keep Markel
systemic achievements of Faison would have
moving forward, and we thank you for your decades
happened without the vision, and non-stop financial
of selfless example and teaching.
and personal, commitment of Alan Kirshner.
Onward
Please check out the websites for Partnership for the
Respectfully submitted,
Future and the Faison Center to learn more about the
remarkable work and accomplishments of these
institutions and know as you are reading them that
Thomas S. Gayner, Co-Chief Executive Officer
they would not exist were it not for Alan Kirshner.
Alan- We, and so many others, love you and thank
Richard R. Whitt, III, Co-Chief Executive Officer
you. We could not have done it without you. As you
Message from Incoming Chairman
Fellow Shareholders,
It is an honor for me to be asked to serve as your next Chairman.
First, I must thank Alan Kirshner for his loyal service to Markel and particularly for his inspirational impact on so
many Markel employees over the years. When I joined Markel in 1975, I was one of those young associates who
Alan took under his wing. Since then he has been a wonderful mentor, advisor and a truly good friend.
Markel Corporation was founded by my grandfather, Sam Markel, in 1930. With the company now in its 90th year
and as I celebrate 45 years with Markel we are committed to both preserving the values of our past yet continuing
to change to meet the challenges of the future.
I look forward to leading your Board of Directors and Executive Management team as we continue our quest to
build one of the world’s great companies.
Steven A. Markel, Vice Chairman
17
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W
Markel Corporation is a diverse financial holding company serving a variety of niche markets. Our principal business markets
and underwrites specialty insurance products. We believe that our specialty product focus and niche market strategy enable us
to develop expertise and specialized market knowledge. We seek to differentiate ourselves from competitors by our expertise,
service, continuity and other value-based considerations. We also own interests in various businesses that operate outside of the
specialty insurance marketplace. Our financial goals are to earn consistent underwriting and operating profits and superior
investment returns to build shareholder value.
Our business is comprised of the following types of operations:
• Underwriting – our underwriting operations are comprised of our risk-bearing insurance and reinsurance operations
• Investing – our investing activities are primarily related to our underwriting operations
• Markel Ventures – our Markel Ventures operations include our controlling interests in a diverse portfolio of businesses that
operate outside of the specialty insurance marketplace
• Insurance-linked securities – our insurance-linked securities operations include investment fund managers that offer a
variety of investment products, including insurance-linked securities, catastrophe bonds, insurance swaps and weather
derivatives
• Program services – our program services business serves as a fronting platform that provides other insurance entities access
to the United States (U.S.) property and casualty insurance market
U n d e r w r i t i n g
Specialty Insurance and Reinsurance
The specialty insurance market differs significantly from the standard market. In the standard market, insurance rates and
forms are highly regulated, products and coverages are largely uniform with relatively predictable exposures and companies tend
to compete for customers on the basis of price. In contrast, the specialty market provides coverage for hard-to-place risks that
generally do not fit the underwriting criteria of standard carriers.
Competition in the specialty insurance market tends to focus less on price than in the standard insurance market and more on
other value-based considerations, such as availability, service and expertise. While specialty market exposures may have higher
perceived insurance risks than their standard market counterparts, we seek to manage these risks to achieve higher financial
returns. To reach our financial and operational goals, we must have extensive knowledge and expertise in our chosen markets.
Many of our larger accounts are considered on an individual basis where customized forms and tailored solutions are employed.
By focusing on the distinctive risk characteristics of our insureds, we have been able to identify a variety of niche markets where
we can add value with our specialty product offerings. Examples of niche insurance markets that we have targeted include wind
and earthquake-exposed commercial properties, liability coverage for highly specialized professionals, equine-related risks,
classic cars, credit and surety-related risks, lender services and marine, energy and environmental-related activities. Our market
strategy in each of these areas of specialization is tailored to the unique nature of the loss exposure, coverage and services
required by insureds. In each of our niche markets, we assign teams of experienced underwriters and claims specialists who
provide a full range of insurance services.
We also participate in the reinsurance market in certain classes of reinsurance product offerings. In the reinsurance market, our
clients are other insurance companies, or cedents. We typically write our reinsurance products in the form of treaty reinsurance
contracts, which are contractual arrangements that provide for automatic reinsuring of a type or category of risk underwritten
by cedents. Generally, we participate on reinsurance treaties with a number of other reinsurers, each with an allocated portion
of the treaty, with the terms and conditions of the treaty being substantially the same for each participating reinsurer. With
treaty reinsurance contracts, we do not separately evaluate each of the individual risks assumed under the contracts and are
largely dependent on the individual underwriting decisions made by the cedent. Accordingly, we review and analyze the
cedent’s risk management and underwriting practices in deciding whether to provide treaty reinsurance and in pricing of treaty
reinsurance contracts.
18
Our reinsurance products are written on both a quota share and excess of loss basis. Quota share contracts require us to share
the losses and expenses in an agreed proportion with the cedent. Excess of loss contracts require us to indemnify the cedent
against all or a specified portion of losses and expenses in excess of a specified dollar or percentage amount. In both types of
contracts, we may provide a ceding commission to the cedent.
We distinguish ourselves in the reinsurance market by the expertise of our underwriting teams, our access to global reinsurance
markets, our ability to offer large lines and our ability to customize reinsurance solutions to fit our client’s needs. Our
reinsurance product offerings include coverage for general liability, professional liability, property, workers’ compensation and
credit and surety risks.
Markets
In the U.S., we write business in the excess and surplus lines (E&S) and specialty admitted insurance and reinsurance markets.
In 2018, the E&S market represented $50 billion, or 7%, of the $678 billion U.S. property and casualty industry.(1) In 2018,
we were the second largest E&S writer in the U.S. as measured by direct premium writings.(1)
Our E&S insurance operations are conducted through Evanston Insurance Company (Evanston), an Illinois domiciled insurance
company. The majority of our specialty admitted insurance operations are conducted through Markel Insurance Company
(MIC), domiciled in Illinois; Markel American Insurance Company (MAIC), domiciled in Virginia; FirstComp Insurance
Company (FCIC), domiciled in Nebraska; and Essentia Insurance Company (Essentia), domiciled in Missouri. Our specialty
admitted operations also include Suretec Insurance Company (SIC), State National Insurance Company, Inc. (SNIC) and
National Specialty Insurance Company (NSIC), all of which are domiciled in Texas, and Suretec Indemnity Company (SINC),
which is domiciled in California. Our U.S. reinsurance operations are conducted through Markel Global Reinsurance Company
(Markel Global Re), a Delaware-domiciled reinsurance company.
We participate in the London insurance market primarily through Markel Capital Limited (Markel Capital) and Markel
International Insurance Company Limited (MIICL). Markel Capital is the corporate capital provider for Markel Syndicate 3000,
through which our Lloyd’s of London (Lloyd’s) operations are conducted. Markel Syndicate 3000 is managed by Markel
Syndicate Management Limited. Markel Capital and MIICL are headquartered in London, England and have offices across the
United Kingdom (U.K.), Europe, Canada, Latin America, Asia Pacific and the Middle East through which we are able to offer
insurance and reinsurance. The London insurance market produced approximately $71 billion of gross written premium in
2018, of which $45 billion was produced by Lloyd’s syndicates.(2,3) In 2018, our share of the London market was approximately
2% as measured by gross written premiums.
In Bermuda, we write business in the worldwide insurance and reinsurance markets. The Bermuda property and casualty
insurance and reinsurance market produced $82 billion of gross written premium in 2017.(4) In 2017, our share of the Bermuda
market was approximately 1% as measured by gross written premiums in our underwriting operations. We conduct our
Bermuda underwriting operations through Markel Bermuda Limited (Markel Bermuda), which is registered as a Class 4 insurer
and Class C long-term insurer under the insurance laws of Bermuda.
We also write business through Markel Insurance SE (MISE), a regulated insurance carrier located in Munich, Germany. In
anticipation of the U.K.’s exit from the European Union (E.U.), which occurred on January 31, 2020, we established MISE in
2018. From its offices in Germany, MISE transacts business in E.U. member states and throughout the European Economic Area
(EEA). MISE has established branches in Ireland, the Netherlands, Spain, Switzerland and the U.K. In order to maintain access to
E.U. business for Lloyd’s syndicates, the Society of Lloyd’s has organized an insurance company in Brussels, Belgium, which
supplements, or serves as an alternative to, MISE for access to E.U. markets. For further discussion regarding the exit of the U.K.
from the E.U., and its potential impacts to us, see the Risk Factor titled “The exit of the United Kingdom from the European
Union could have a material adverse effect on us.”
(1) Market Segment Report - U.S. Surplus Lines, A.M. Best (September 13, 2019).
(2) London Company Market Statistics Report, International Underwriting Association (October 2019).
(3) Lloyd’s Annual Report 2018.
(4) Bermuda Monetary Authority 2018 Annual Report.
19
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
While we operate in various other markets, substantially all of our gross written premiums in 2019 are written from our
platforms in the United States, United Kingdom, Bermuda and Germany.
Our reinsurance operations, which include our operations based in the U.S., the U.K. and Bermuda, as described above, made us
the 38th largest reinsurer in 2018, as measured by worldwide gross reinsurance premium writings.(1)
In 2019, 19% of gross premium writings from our underwriting operations related to foreign risks (i.e., coverage for risks or
cedents located outside of the U.S.), of which 36% were from the U.K. and 12% were from Canada. There were no other
individual foreign countries from which premium writings were material. Premium writings are attributed to individual
countries based upon location of risk or cedent. See note 8(d) of the notes to consolidated financial statements for additional
information.
Most of our business is placed through insurance and reinsurance brokers and retail insurance agents. Some of our insurance
business is also placed through managing general agents, third parties who have been granted authority to bind risks on our
behalf in accordance with underwriting guidelines we prescribe. We seek to develop and capitalize on relationships with
insurance and reinsurance brokers, insurance and reinsurance companies, large global corporations and financial intermediaries
to develop and underwrite business. A significant volume of premium for the property and casualty insurance and reinsurance
industry is produced through a small number of large insurance and reinsurance brokers. In 2019, the top three independent
brokers accounted for 28% of gross premiums written in our underwriting segments. See note 8(d) of the notes to consolidated
financial statements for additional information. Additionally, a significant portion of the reinsurance contracts securitized
through our insurance-linked securities operations, for the benefit of third party investors, are placed through these top three
independent brokers.
Competition
We compete with numerous domestic and international insurance companies and reinsurers, Lloyd’s syndicates, risk retention
groups, insurance buying groups, risk securitization programs, alternative capital sources and alternative self-insurance
mechanisms. We also compete with new companies that continue to be formed to enter the insurance and reinsurance markets,
particularly companies with new or “disruptive” technologies or business models. Competition may take the form of lower
prices, broader coverages, greater product flexibility, higher coverage limits, higher quality services or higher ratings by
independent rating agencies. In all of our markets, we compete on the basis of overall financial strength, ratings assigned by
independent rating agencies, development of specialty products to satisfy well-defined market needs and by maintaining
relationships with agents, brokers and insureds who rely on our expertise. This expertise is our principal means of competing.
We offer a diverse portfolio of products, each with its own distinct competitive environment, which requires us to be responsive
to changes in market conditions for individual product lines. With each of our products, we seek to write business that produces
underwriting profits by competing with innovative ideas, appropriate pricing, expense control and quality service to
policyholders, agents and brokers.
Few barriers exist to prevent insurers and reinsurers from entering our markets within the property and casualty industry.
Market conditions and capital capacity influence the degree of competition at any point in time. During periods of excess
underwriting capacity, as defined by availability of capital, competition can result in lower pricing and less favorable policy
terms and conditions for insurers. During periods of reduced underwriting capacity, pricing and policy terms and conditions are
generally more favorable for insurers. Historically, the performance of the property and casualty reinsurance and insurance
industries has tended to fluctuate in cyclical periods of price competition and excess underwriting capacity, followed by periods
of high premium rates and shortages of underwriting capacity. At any given time, our portfolio of insurance products could be
experiencing varying combinations of these characteristics. This cyclical market pattern can be more pronounced in the
specialty insurance and reinsurance markets in which we compete than the standard insurance market.
(1) Market Segment Report - Global Reinsurance, A.M. Best (August 29, 2019).
20
Following the high level of natural catastrophes that occurred in 2017 and 2018, and based on general market conditions, we
have seen more favorable rates, particularly on our catastrophe-exposed and loss-affected business. We are also seeing improved
pricing on many of our other product lines, the primary exception being workers’ compensation, where we continue to see rate
decreases given favorable experience in recent years.
We routinely review the pricing of our major product lines and will continue to pursue price increases in 2020, when possible.
However, when we believe the prevailing market price will not support our underwriting profit targets, the business is not
written. As a result of our underwriting discipline, gross premium volume may vary when we alter our product offerings to
maintain or improve underwriting profitability.
Underwriting Philosophy
By focusing on market niches where we have underwriting expertise, we seek to earn consistent underwriting profits, which are
a key component of our strategy. The property and casualty insurance industry commonly defines underwriting profit or loss as
earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses. We believe
that the ability to achieve consistent underwriting profits demonstrates knowledge and expertise, commitment to superior
customer service and the ability to manage insurance risk. We use underwriting profit or loss as a basis for evaluating our
underwriting performance.
The combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment
expenses and underwriting, acquisition and insurance expenses to earned premiums. A combined ratio less than 100% indicates
an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. In 2019, our combined ratio was
94%. See Management’s Discussion & Analysis of Financial Condition and Results of Operations for further discussion of our
underwriting results.
Underwriting Segments
Our chief operating decision maker allocates resources to and assesses the performance of our ongoing underwriting operations
on a global basis in the following two segments: Insurance and Reinsurance. In determining how to monitor and report our
underwriting results, we consider many factors, including the nature of the insurance product sold, the type of account written
and the type of customer served.
The Insurance segment includes all direct business and facultative placements and the Reinsurance segment includes all treaty
reinsurance. Results for lines of business discontinued prior to, or in conjunction with, acquisitions, including development on
asbestos and environmental loss reserves and the results attributable to the run-off of life and annuity reinsurance business, are
monitored separately and are not included in a reportable segment.
See note 8 of the notes to consolidated financial statements for additional segment reporting disclosures.
21
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
M a r k e l c O r P O r at i O n
2 0 1 9 g r O s s P r e M i u M V O l u M e ( $ 6 . 4 b i l l i O n )
I n s u r a n c e S e g m e n t
Our Insurance segment includes both hard-to-place risks written outside of the standard market on an E&S basis and unique
and hard-to-place risks that must be written on an admitted basis due to marketing and regulatory reasons. Business in this
segment is written through our Markel Assurance, Markel Specialty, Markel International and State National divisions. The
State National division was created as a result of the acquisition of State National Companies, Inc. (State National) in
November 2017. The State National division’s collateral protection underwriting business is included in the Insurance segment
and its program services business is not included in a reportable segment.
Our Insurance segment reported gross premium volume of $5.3 billion, earned premiums of $4.1 billion and an underwriting
profit of $309.8 million in 2019.
22
Markel Assurance Division
The Markel Assurance division writes commercial and Fortune 1000 accounts for brokers located in the U.S., Bermuda, Ireland
and the U.K. In the U.S. accounts are written on an E&S basis and on an admitted basis when a risk must remain with the
admitted insurance company for marketing and regulatory reasons. The E&S market focuses on hard-to-place risks and loss
exposures that generally cannot be written in the standard market. U.S. insurance regulations generally require an E&S account
to be declined by admitted carriers before an E&S company may write the business. E&S eligibility allows our insurance
subsidiaries to underwrite unique loss exposures with more flexible policy forms and unregulated premium rates. This typically
results in coverages that are more restrictive and more expensive than coverages in the standard market. The Markel Assurance
division also writes complex, Fortune 1000 accounts on an admitted basis. Our business that is written in the admitted market
is likewise focused on risks that, although unique and hard-to-place, can still be written in the standard market.
Markel Assurance business is primarily written through wholesale brokers, retail brokers and surplus lines general agents who
have limited quoting and binding authority. Admitted business produced by this division is written primarily through MAIC,
which is authorized to write business in all 50 states, the District of Columbia and Puerto Rico. Business written on a non-
admitted basis and in the E&S market is primarily written through Evanston, which is authorized to write business in all
50 states and the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands, as well as Markel Bermuda, MISE
and MIICL.
Markel Specialty Division
The Markel Specialty division writes program insurance and other specialty coverages for well-defined niche markets, primarily
on an admitted basis. Our business written in the admitted market focuses on risks that, although unique and hard-to-place in
the standard market, must remain with an admitted insurance company for marketing and regulatory reasons. Hard-to-place
risks written in the admitted market cover insureds engaged in similar, but highly specialized, activities that require a total
insurance program not otherwise available from standard insurers or insurance products that are overlooked by large admitted
carriers. The admitted market is subject to more state regulation than the E&S market, particularly with regard to rate and form
filing requirements, restrictions on the ability to exit lines of business, premium tax payments and membership in various state
associations, such as state guaranty funds and assigned risk plans.
Business written in the Markel Specialty division is primarily written by retail insurance agents who have very limited or no
underwriting authority. We also utilize managing general agents, who have broader underwriting authority, for certain of our
product lines. Agents are carefully selected and agency business is controlled through regular audits and pre-approvals. Certain
products and programs are marketed directly to consumers or distributed through wholesale producers. Personal lines coverages
included in this segment are marketed directly to the consumer using direct mail, internet and telephone promotions, as well as
relationships with various motorcycle and boat manufacturers, dealers and associations.
The majority of the business produced by this division is written through MIC, Essentia and MAIC. MIC and Essentia, which
specializes in coverage for classic cars and boats, are licensed to write property and casualty insurance in all 50 states and the
District of Columbia.
Markel International Division
The Markel International division writes business worldwide from our London and Munich-based platforms, which include
branch offices around the world. This includes Markel Syndicate 3000, through which our Lloyd’s operations are conducted,
MIICL and MISE. The London insurance market is known for its ability to provide innovative, tailored coverage and capacity for
unique and hard-to-place risks. Hard-to-place risks in the London market are generally distinguishable from standard risks due
to the complexity or significant size of the risk. It is primarily a broker market, which means that insurance brokers bring most
of the business to the market. Risks written in the Markel International division are written on either a direct basis or a
subscription basis, the latter of which means that loss exposures brought into the market are typically insured by more than one
insurance company or Lloyd’s syndicate, often due to the high limits of insurance coverage required. When we write business in
the subscription market, we prefer to participate as lead underwriter in order to control underwriting terms, policy conditions
and claims handling. Through our Munich-based platform, the Markel International division operates a global network of
branches that focus on specialty commercial risks in their respective local markets.
23
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
State National Division
The State National division writes collateral protection insurance, which insures personal automobiles and other vehicles held
as collateral for loans made by credit unions, banks and specialty finance companies through its lender services product line on
both an admitted and non-admitted basis. This business is primarily written on SNIC and NSIC, which are licensed to write
property and casualty insurance in all 50 states and the District of Columbia.
The following chart displays the types of products written in our Insurance segment.
i n s u r a n c e s e g M e n t
2 0 1 9 g r O s s P r e M i u M V O l u M e ( $ 5 . 3 b i l l i O n )
General Liability product offerings include a variety of primary and excess liability coverages targeting apartments and office
buildings, retail stores, contractors, consultants, construction professionals, financial service professionals, professional
practices, social welfare organizations and medical products, as well as businesses in the life sciences, energy, medical,
healthcare, pharmaceutical, recreational, transportation, heavy industrial and hospitality industries. Specific products include
excess and umbrella products, products liability products, environmental liability products and casualty facultative reinsurance
written for individual casualty risks.
Professional liability coverages include unique solutions for highly specialized professions, including architects and engineers,
lawyers, accountants, agents and brokers, service technicians and consultants. We offer claims-made medical malpractice
coverage for doctors and dentists; claims-made professional liability coverage to individual healthcare providers such as
therapists, pharmacists, physician assistants and nurse anesthetists; and coverages for medical facilities and other allied
healthcare risks such as clinics, laboratories, pharmacies and senior living facilities. Other professional liability coverages
include errors and omissions, union liability, professional indemnity, intellectual property, executive liability for financial
institutions and Fortune 1000 companies and management liability. Additionally, we offer cyber liability products, which
provide coverage primarily for data breach and privacy liability, data breach loss to insureds and electronic media coverage.
Personal lines products provide first and third party coverages for classic cars, motorcycles and a variety of personal watercraft,
including vintage boats, high performance boats and yachts and recreational vehicles, such as motorcycles, snowmobiles and
ATVs. Based on the seasonal nature of much of our personal lines business, we generally will experience higher claims activity
during the second and third quarters of the year. Additionally, property coverages are offered for mobile homes, dwellings and
homeowners that do not qualify for standard homeowner’s coverage. Other products offered include special event protection
and pet health coverage.
24
Property coverages consist principally of fire, allied lines (including windstorm, hail and water damage) and other specialized
property coverages, including catastrophe-exposed property risks such as earthquake and wind on both a primary and excess
basis. Catastrophe-exposed property risks are typically lower frequency and higher severity in nature than more standard
property risks. Our property coverages are exposed to windstorm losses that, based on the seasonal nature of those events, are
more likely to occur in the third and fourth quarters of the year. Our property risks range from small, single-location accounts to
large, multi-state, multi-location, multi-national accounts on a worldwide basis. Other types of property products include inland
marine products, railroad-related products and specie coverage for fine art on exhibition and in private collections.
Marine and energy products include a portfolio of coverages for cargo, energy, hull, liability, war and terrorism risks. The cargo
product line is an international transit-based book providing coverage for many types of cargo. Energy coverage includes all
aspects of oil and gas activities. Hull coverages consist of coverage for physical damage to ocean-going tonnage, yachts and
mortgagees’ interests. Liability coverage provides for a broad range of energy liabilities, as well as traditional marine exposures
including charterers, terminal operators and ship repairers. War coverage includes protections for the hulls of ships and aircraft,
and other related interests, against war and associated perils. Terrorism coverage provides for property damage and business
interruption related to political violence including war and civil war.
Workers’ compensation products provide wage replacement and medical benefits to employees injured in the course of
employment and target main-street, service and artisan contractor businesses, retail stores and restaurants.
Specialty programs business included in this segment is offered on a standalone or package basis and generally targets
specialized commercial markets and customer groups. Targeted groups include youth and recreation oriented organizations and
camps, child care operators, schools, social service organizations, museums and historic homes, performing arts organizations,
senior living facilities and wineries. Other specialty programs business written in this segment includes general agent programs
that use managing general agents to offer single source admitted and non-admitted programs for a specific class or line of
business, first and third party coverages for medical transport, small fishing ventures, charters, utility boats and boat rentals and
property and liability coverages for small to medium-sized commercial risks, including farms, zoos and animal boarding,
breeding and training facilities.
Other product lines within the Insurance segment include credit and surety products and collateral protection insurance.
R e i n s u r a n c e S e g m e n t
Our Reinsurance segment includes property, casualty and specialty treaty reinsurance products offered to other insurance and
reinsurance companies globally through the broker market. Our treaty reinsurance offerings include both quota share and
excess of loss reinsurance and are typically written on a participation basis, which means each reinsurer shares proportionally in
the business ceded under the reinsurance treaty written. Our reinsurance products may include features such as contractual
provisions that require our cedent to share in a portion of losses resulting from ceded risks, may require payment of additional
premium amounts if we incur greater losses than those projected at the time of the execution of the contract, may require
reinstatement premium to restore the coverage after there has been a loss occurrence or may provide for experience refunds if
the losses we incur are less than those projected at the time the contract is executed. Substantially all of our reinsurance product
offerings are underwritten by our Global Reinsurance division. The Global Reinsurance division operates from platforms in the
U.S., Bermuda and the U.K. Business written in the Global Reinsurance division is produced primarily through Markel Global
Re, which is licensed or accredited to provide reinsurance in all 50 states and the District of Columbia. The Global Reinsurance
division also writes business through Markel Bermuda and Markel Syndicate 3000.
Our Reinsurance segment reported gross premium volume of $1.1 billion, earned premiums of $903.6 million and an
underwriting loss of $40.0 million in 2019.
25
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
The following chart displays the types of products written in our Reinsurance segment.
r e i n s u r a n c e s e g M e n t
2 0 1 9 g r O s s P r e M i u M V O l u M e ( $1.1 b i l l i O n )
Our casualty treaty reinsurance programs are written on a quota share and excess of loss basis and include general liability,
professional liability, medical malpractice and environmental impairment liability. General liability reinsurance includes
umbrella and excess casualty products that are written worldwide. Our professional liability reinsurance programs are offered
worldwide and consist of directors and officers liability, including publicly traded, private, and non-profit companies in both
commercial and financial institution arenas; lawyers errors and omissions for small, medium and large-sized law firms;
accountants errors and omissions for small and medium-sized firms; technology errors and omissions and cyber liability
focusing on network security and privacy exposures. Medical malpractice reinsurance products are offered in the United States
and include coverage for physician, surgeon, hospital and long term care medical malpractice writers. Environmental treaty
reinsurance provides coverage for pollution legal liability, contractors pollution and professional liability exposures on both a
nationwide and regional basis within the U.S.
Specialty treaty reinsurance products offered in the Reinsurance segment include structured and whole turnover credit, political
risk, mortgage and contract and commercial surety reinsurance programs covering worldwide exposures, public entity
reinsurance products, workers’ compensation excess of loss and quota share treaties, whole account, marine and agriculture
reinsurance products. Our mortgage products offer coverage for private mortgage insurers in the U.S., Australia and Europe.
Our public entity reinsurance products offer customized programs for government risk pools, including counties, municipalities,
schools, public housing authorities and special districts (e.g., water, sewer, parks) located in the U.S. Types of coverage for public
entities include general liability, environmental impairment liability, cyber and errors and omissions. Our workers’
compensation business includes standard and catastrophe exposed workers’ compensation business. Marine reinsurance
products include offshore and onshore marine and energy risks on a worldwide basis, including hull, cargo and liability.
Agriculture reinsurance covers multi-peril crop insurance, hail and related exposures, for risks located in the U.S. and Canada.
Property treaty products are offered on an excess of loss and quota share basis for catastrophe, per risk and retrocessional
exposures worldwide. Our catastrophe exposures are generally written on an excess of loss basis and target both personal and
commercial lines of business providing coverage for losses from natural disasters, including hurricanes, wind storms and
earthquakes. We also reinsure individual property risks such as buildings, structures, equipment and contents and provide
coverage for both personal lines and commercial property exposures. Our retrocessional products provide coverage for all types
26
of underlying exposures and geographic zones. A significant portion of the property treaty business covers U.S. exposures, with
the remainder coming from international property exposures. Our property products are exposed to windstorm losses that,
based on the seasonal nature of those events, are more likely to occur in the third and fourth quarters of the year.
Ceded Reinsurance
Within our underwriting operations, we purchase reinsurance and retrocessional reinsurance to manage our net retention on
individual risks and overall exposure to losses, while providing us with the ability to offer policies with sufficient limits to meet
policyholder needs. See “Program Services” section below for an overview of ceded reinsurance within our program services
business, which is managed separately from our underwriting operations.
In a reinsurance transaction, an insurance company transfers, or cedes, all or part of its exposure in return for a premium. In a
retrocessional reinsurance transaction, a reinsured exposure is further ceded to another reinsurer. We purchase reinsurance and
retrocessional reinsurance coverage for our catastrophe-exposed policies to ensure that our net retained catastrophe risk is
within our corporate tolerances. Beginning in late 2018, we shifted from buying proportional catastrophe reinsurance or
retrocessional reinsurance coverages towards excess of loss catastrophe coverages in both our Insurance and Reinsurance
segments. On other product lines for which we purchase reinsurance or retrocessional reinsurance, we are also beginning to
shift from purchasing coverages related to specific lines of business towards enterprise-wide coverages. Both of these changes
allow us to retain more of our profitable business while continuing to manage volatility within our underwriting results.
As a result of these changes, we are retaining more gross premium volume and have lower ceding commissions within our
underwriting segments. Net retention of gross premium volume in our underwriting segments was 84% in 2019 and 83%
in 2018.
Our ceded reinsurance and retrocessional contracts do not legally discharge us from our primary liability for the full amount of
the policies, and we will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the
reinsurance agreement. We attempt to minimize credit exposure to reinsurers through adherence to internal ceded reinsurance
guidelines. We manage our exposures so that no exposure to any one reinsurer is material to our ongoing business. To
participate in our reinsurance program, prospective companies generally must: (i) maintain an A.M. Best Company (Best) or
Standard & Poor’s (S&P) rating of “A” (excellent) or better; (ii) maintain minimum capital and surplus of $500 million and
(iii) provide collateral for recoverables in excess of an individually established amount. In addition, certain foreign reinsurers for
our U.S. insurance operations must provide collateral equal to 100% of recoverables, with the exception of reinsurers who have
been granted certified or authorized status by an insurance company’s state of domicile. Our credit exposure to Lloyd’s
syndicates is managed through individual and aggregate exposure thresholds.
When appropriate, we pursue reinsurance commutations that involve the termination of ceded reinsurance and retrocessional
reinsurance contracts. Our commutation strategy related to ceded reinsurance and retrocessional contracts is to reduce credit
exposure and eliminate administrative expenses associated with the run-off of ceded reinsurance placed with certain reinsurers.
The following table displays balances recoverable from our ten largest reinsurers by group from our underwriting operations at
December 31, 2019. The contractual obligations under reinsurance and retrocessional contracts are typically with individual
subsidiaries of the group or syndicates at Lloyd’s and are not typically guaranteed by other group members or syndicates at
Lloyd’s. Reinsurance recoverable balances are shown before consideration of balances owed to reinsurers and any potential
rights of offset, any collateral held by us and allowances for bad debts. These ten reinsurance groups represent approximately
62% of our $2.5 billion reinsurance recoverables balance attributed to our underwriting operations, before considering
allowances for bad debts.
27
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
Reinsurance Group
A.M. Best Rating
Reinsurance Recoverable
Fairfax Financial Group
RenaissanceRe Holdings Ltd.
AXIS Capital Holdings Limited
Lloyd’s of London
Munich Re Group
EXOR S.p.A
Alleghany Corporation
Swiss Re Group
Liberty Mutual Holding Company
Everest Re Group
Reinsurance recoverables for ten largest reinsurers
Total reinsurance recoverables
A
A+
A+
A
A+
A+
A+
A+
A
A+
(dollars in thousands)
$
240,708
222,244
177,019
171,306
158,406
150,993
123,637
113,014
99,046
95,990
1,552,363
$ 2,522,992
Reinsurance and retrocessional treaties are generally purchased on an annual or biennial basis and are subject to renegotiations
at renewal. In most circumstances, the reinsurer remains responsible for all business produced before termination. Treaties
typically contain provisions concerning ceding commissions, required reports to reinsurers, responsibility for taxes, arbitration
in the event of a dispute and provisions that allow us to demand that a reinsurer post letters of credit or assets as security if a
reinsurer becomes an unauthorized reinsurer under applicable regulations or if its rating falls below an acceptable level.
See note 11 of the notes to consolidated financial statements and Management’s Discussion & Analysis of Financial Condition
and Results of Operations for additional information about our ceded reinsurance programs and exposures.
I n v e s t m e n t s
Our business strategy recognizes the importance of both consistent underwriting and operating profits and superior investment
returns to build shareholder value. We rely on sound underwriting practices to produce investable funds while minimizing
underwriting risk. The majority of our investable assets come from premiums paid by policyholders. Policyholder funds are
invested predominantly in high-quality government, municipal and corporate bonds that generally match the duration and
currency of our loss reserves. The balance, comprised of shareholder funds, is available to be invested in equity securities,
which over the long run, have produced higher returns relative to fixed maturity investments. When purchasing equity
securities, we seek to invest in profitable companies, with honest and talented management, that exhibit reinvestment
opportunities and capital discipline, at reasonable prices. We intend to hold these investments over the long term. Substantially
all of our investment portfolio is managed by company employees.
We evaluate our investment performance by analyzing net investment income and net investment gains (losses) as well as our
taxable equivalent total investment return, which is a non-GAAP financial measure. Taxable equivalent total investment return
includes items that impact net income, such as coupon interest on fixed maturities, dividends on equity securities and
investment gains or losses, as well as changes in unrealized gains or losses on available-for-sale securities, which do not impact
net income. Certain items that are included in net investment income have been excluded from the calculation of taxable
equivalent total investment return, such as amortization and accretion of premiums and discounts on our fixed maturity
portfolio, to provide a comparable basis for measuring our investment return against industry investment returns. The
calculation of taxable equivalent total investment return also includes the current tax benefit associated with income on certain
investments that is either taxed at a lower rate than the statutory income tax rate or is not fully included in U.S. taxable
income. We believe the taxable equivalent total investment return is a better reflection of the economics of our decision to
invest in certain asset classes. We do not lower the quality of our investment portfolio in order to enhance or maintain yields.
We focus on long-term total investment return, understanding that the level of investment gains or losses and unrealized gains
or losses on available-for-sale securities may vary from one period to the next.
28
The following table summarizes our investment performance.
Years Ended December 31,
(dollars in thousands)
2019
2018
2017
2016
2015
Net investment income
Net investment gains (losses)(1)
Change in net unrealized investment gains
Investment yield(2)
$
451,888
$ 1,601,722
$
381,890
$
434,215
$ (437,596)
$ (299,446)
$ 405,709
$
(5,303)
$ 1,125,440
$ 373,230
$ 65,147
$ 342,111
$ 353,213
$ 106,480
$ (457,584)
3.0%
2.7%
2.6%
2.4%
2.3%
(1) Effective January 1, 2018, we adopted Financial Accounting Standards Board Accounting Standards Update (ASU) No. 2016-01. As a result,
equity securities are no longer classified as available-for-sale with unrealized gains and losses recognized in other comprehensive income;
rather, all changes in the fair value of equity securities are now recognized in net income. Prior periods have not been restated to conform to
the current presentation.
(2) Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.
We believe our investment performance is best analyzed from the review of taxable equivalent total investment return over
several years. The following table presents taxable equivalent total investment return before and after the effects of foreign
currency movements.
a n n u a l t a x a b l e e q u i Va l e n t t O t a l i n V e s t M e n t r e t u r n s
Equities
Fixed maturities, cash and short-term
investments(1)
Total portfolio, before foreign currency effect
Total portfolio
Years Ended December 31,
2019
2018
2017
2016
2015
Five-Year Ten-Year
Annual Annual
Return
Return
30.0%
(3.5)% 25.5%
13.5%
(2.5)% 11.7% 15.2%
6.5%
14.4%
14.6%
3.4%
1.3%
(0.7)%
9.2%
(1.0)% 10.2%
2.4%
5.0%
4.4%
1.6%
0.5%
(0.7)%
3.0%
5.5%
5.3%
3.9%
6.7%
6.4%
Invested assets, end of year (in millions)
$22,258
$19,238
$20,570
$19,059
$18,181
(1) Includes cash and cash equivalents and restricted cash and cash equivalents.
The following table reconciles investment yield to taxable equivalent total investment return.
Investment yield (1)
Adjustment of investment yield from
amortized cost to fair value
Net amortization of net premium on fixed
maturities
Net investment gains (losses) and change
in net unrealized investment gains on
available-for-sale securities
Taxable equivalent effect for interest and dividends(2)
Other(3)
Taxable equivalent total investment return
Years Ended December 31,
2019
3.0%
2018
2.7%
2017
2.6%
2016
2015
2.4%
2.3%
(0.7)%
(0.6)%
(0.5)%
(0.4)%
(0.4)%
0.4%
0.4%
0.4%
0.4%
0.5%
10.3%
0.2%
1.4%
14.6%
(3.4)%
0.1%
(0.2)%
(1.0)%
5.9%
0.4%
1.4%
10.2%
2.3%
0.4%
(0.7)%
4.4%
(2.0)%
0.4%
(1.5)%
(0.7)%
(1) Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.
(2) Adjustment to tax-exempt interest and dividend income to reflect a taxable equivalent basis.
(3) Adjustment to reflect the impact of changes in foreign currency exchange rates and time-weighting the inputs to the calculation of taxable
equivalent total investment return.
29
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
We monitor our investment portfolio to ensure that credit risk does not exceed prudent levels. S&P and Moody’s provide
corporate and municipal debt ratings based on their assessments of the credit quality of an obligor with respect to a specific
obligation. S&P’s ratings range from “AAA” (capacity to pay interest and repay principal is extremely strong) to “D” (debt is in
payment default). Securities with ratings of “BBB” or higher are referred to as investment grade securities. Debt rated “BB” and
below is regarded by S&P as having predominantly speculative characteristics with respect to capacity to pay interest and repay
principal. Moody’s ratings range from “Aaa” to “C” with ratings of “Baa” or higher considered investment grade.
Our fixed maturity portfolio has an average rating of “AA,” with 98% rated “A” or better by at least one nationally recognized
rating organization. Our policy is to invest in investment grade securities and to minimize investments in fixed maturities that
are unrated or rated below investment grade. At December 31, 2019, less than 1% of our fixed maturity portfolio was unrated or
rated below investment grade. Our fixed maturity portfolio includes securities issued with financial guaranty insurance.
We purchase fixed maturities based on our assessment of the credit quality of the underlying assets without regard to insurance.
The following chart presents our fixed maturity portfolio, at estimated fair value, by rating category at December 31, 2019.
2019 c r e D i t q u a l i t y O F F i x e D M at u r i t y P O rt F O l i O ($10.0 b i l l i O n)
See “Market Risk Disclosures” in Management’s Discussion & Analysis of Financial Condition and Results of Operations for
additional information about investments.
M a r k e l
V e n t u r e s
Through our wholly owned subsidiary Markel Ventures, Inc. (Markel Ventures), we own interests in various businesses that
operate outside of the specialty insurance marketplace. These businesses are viewed by management as separate and distinct
from our insurance operations. Local management teams oversee the day-to-day operations of these companies, while strategic
decisions, including investment and capital allocation decisions, are made by our senior management team.
Our strategy in making these investments is similar to our strategy for purchasing equity securities. We seek to invest in
profitable companies, with honest and talented management, that exhibit reinvestment opportunities and capital discipline,
at reasonable prices. We intend to own the businesses acquired for a long period of time.
Our chief operating decision maker allocates resources to and assesses the performance of these various businesses in the
aggregate as the Markel Ventures segment. This segment includes a diverse portfolio of businesses from different industries that
offer various types of products and services to businesses and consumers. See note 8 of the notes to consolidated financial
statements for additional segment reporting disclosures.
30
During the last three years, our Markel Ventures operations have expanded through acquisitions of majority interests in various
businesses, including the Costa Farms companies, Brahmin Leather Works, LLC and VSC Fire & Security, Inc. See note 2 of the
notes to consolidated financial statements for additional details related to these acquisitions.
In 2019, our Markel Ventures operations reported revenues of $2.1 billion, operating income of $168.4 million, net income to
shareholders of $92.9 million and earnings before interest, income taxes, depreciation and amortization (EBITDA) of $263.9
million. We use Markel Ventures EBITDA, which is a non-GAAP financial measure, as an operating performance measure in
conjunction with revenues, operating income and net income. See “Markel Ventures” in Management’s Discussion & Analysis
of Financial Condition and Results of Operations for more information on EBITDA.
The following chart displays the types of offerings within our Markel Ventures segment.
M a r k e l V e n t u r e s s e g M e n t
2 0 1 9 O P e r at i n g r e V e n u e s ( $ 2 . 1 b i l l i O n )
Our Markel Ventures products group is comprised of businesses that manufacture or produce equipment, transportation-related
products, and consumer and building products. For example, types of products offered by businesses in this group include
equipment used in baking systems and food processing, over-the-road car haulers and laminated oak and composite wood
flooring used in the trucking industry as well as ornamental plants and residential homes.
Our Markel Ventures services group is comprised of businesses that provide healthcare, consulting and others types of services
to businesses and consumers. For example, types of services offered by businesses in this group include management and
technology consulting, behavioral healthcare and retail intelligence.
The demand for certain of our Markel Ventures products and services is seasonal, with variations in revenues throughout the
year depending on the industry, and cyclical based on certain larger economic trends and activity.
The majority of our businesses in this segment are headquartered across the U.S., with subsidiaries of certain businesses located
outside of the U.S. This segment offers a wide range of products and services across many markets and encounters a variety of
competitors that vary by product line, end market and geographic area. Each business within the segment has several main
competitors and numerous smaller ones in most of their end markets and geographic areas. Examples of the end markets
include U.S. consumer markets for healthcare, U.S. and international markets for retail, food service, food production,
automobile transporters, governments, and truck trailers, as well as U.S. based businesses in a variety of industries including
the banking, financial services, and energy industries.
31
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
I n s u r a n c e - L i n k e d S e c u r i t i e s
Our insurance-linked securities (ILS) operations are comprised of our Nephila and run-off Markel CATCo operations, as further
described below. We receive management fees for investment and insurance management services provided through these
operations based on the net asset value of the accounts managed, and for certain funds, incentive fees based on the annual
performance of the funds managed. Through our Nephila operations, we also provide managing general agent services and
receive commissions based on the direct written premiums of the insurance contracts placed. Total revenues from our
insurance-linked securities operations for the year ended December 31, 2019 were $225.6 million, which are included in
services and other revenues in our consolidated statement of income and comprehensive income.
Nephila
In November 2018, we completed the acquisition of all of the outstanding shares of Nephila Holdings Ltd. (together with its
subsidiaries, Nephila). Through its subsidiaries, Nephila primarily serves as an insurance and investment fund manager
headquartered in Bermuda that offers a broad range of investment products, including insurance-linked securities, catastrophe
bonds, insurance swaps and weather derivatives.
Nephila serves as the investment manager to several Bermuda, Ireland and U.S. based private funds (the Nephila Funds).
To provide access for the Nephila Funds to the insurance, reinsurance and weather markets, Nephila also acts as an insurance
manager to certain Bermuda Class 3 and 3A reinsurance companies and Lloyd’s Syndicate 2357 (Syndicate 2357) (collectively,
the Nephila Reinsurers). The results of the Nephila Reinsurers are attributed to the Nephila Funds primarily through derivative
transactions between these entities. Neither the Nephila Funds nor the Nephila Reinsurers are subsidiaries of Markel
Corporation, and as such, these entities are not included in our consolidated financial statements. As of December 31, 2019,
Nephila’s net assets under management were $10.4 billion.
See note 17 of the notes to consolidated financial statements for further details regarding our Nephila operations.
Markel CATCo
Our Markel CATCo operations are conducted through Markel CATCo Investment Management Ltd. (MCIM). MCIM is an
insurance-linked securities investment fund manager headquartered in Bermuda and, through 2019, was focused on building
and managing highly diversified, collateralized retrocession and reinsurance portfolios covering global property catastrophe
risks. MCIM serves as the insurance manager for Markel CATCo Re Ltd. (Markel CATCo Re), a Bermuda Class 3 reinsurance
company, and as the investment manager for Markel CATCo Reinsurance Fund Ltd., a Bermuda exempted mutual fund
company comprised of multiple segregated accounts (Markel CATCo Funds). MCIM also serves as the investment manager to
CATCo Reinsurance Opportunities Fund Ltd. (CROF), a limited liability closed-end Bermuda exempted mutual fund company
listed on a market operated by the London Stock Exchange and on the Bermuda Stock Exchange. CROF invests substantially all
of its assets in Markel CATCo Reinsurance Fund Ltd.
In July 2019, MCIM announced it would cease accepting new investments in the Markel CATCo Funds and would not write
any new business in Markel CATCo Re. Both the Markel CATCo Funds and Markel CATCo Re have been placed into run-off,
returning capital to investors as it becomes available. For further details regarding developments within our Markel CATCo
operations, see note 20 of the notes to consolidated financial statements.
As of December 31, 2019, MCIM’s net assets under management were $2.8 billion, a portion of which is attributable to our
investments in the Markel CATCo Funds. As of December 31, 2019, the fair value of our investments in the Markel CATCo
Funds and CROF totaled $50.6 million, which is included in equity securities on our consolidated balance sheet.
See note 16 and note 17 of the notes to consolidated financial statements for further details regarding our Markel CATCo
operations.
32
Lodgepine
In 2019, we established Lodgepine Capital Management Limited (Lodgepine), our new retrocessional insurance-linked securities
fund manager in Bermuda. Lodgepine’s initial product offering will be Lodgepine Fund Limited, a property catastrophe
retrocessional investment fund, which is expected to launch in 2020. We have committed to invest up to $100 million in
Lodgepine Fund Limited. Lodgepine Fund Limited initially plans to subscribe to a portfolio of retrocessional reinsurance,
which includes contracts written in our Reinsurance segment.
P r o g r a m S e r v i c e s
Following the acquisition of State National in 2017, our operations expanded to include a program services business, which is
provided through our State National division. Our program services business generates fee income, in the form of ceding
(program service) fees, by offering issuing carrier capacity to both specialty general agents and other producers who sell, control
and administer books of insurance business that are supported by third parties that assume reinsurance risk, including Syndicate
2357. These reinsurers are domestic and foreign insurers and institutional risk investors (capacity providers) that want to access
specific lines of U.S. property and casualty insurance business. Fronting refers to business in which we write insurance on behalf
of a general agent or capacity provider and then cede the risk under these policies to the capacity provider in exchange for ceding
fees.
Through our program services business, we write a wide variety of insurance products, principally including general liability
insurance, commercial liability insurance, commercial multi-peril insurance, property insurance and workers’ compensation
insurance. Program services business written through our State National division is separately managed from our underwriting
divisions, which write similar products, in order to protect our program services customers and eliminate internal competition
for this business. Our program services business is primarily written through SNIC, NSIC and City National Insurance
Company (CNIC), all of which are domiciled in Texas, and United Specialty Insurance Company (USIC) and Independent
Specialty Insurance Company (ISIC), which are domiciled in Delaware. SNIC, NSIC, CNIC, USIC and ISIC are licensed to write
property and casualty insurance in all 50 states and the District of Columbia. USIC is also eligible to write business in the U.S.
Virgin Islands. Many of our programs are arranged with the assistance of brokers that are seeking to provide customized
insurance solutions for specialty insurance business that requires an A.M. Best “A” rated carrier. Our specialized business
model relies on third party producers or capacity providers to provide the infrastructure associated with providing policy
administration, claims handling, cash handling, underwriting, or other traditional insurance company services. We believe there
are relatively few active competitors in the fronting business. We compete primarily on the basis of price, customer service,
geographic coverage, financial strength ratings, licenses, reputation, business model and experience.
Total revenues attributed to our program services business for the year ended December 31, 2019 were $108.8 million.
Our program services business generated $2.3 billion of gross written premium volume for the year ended December 31, 2019.
In our program services business, we generally enter into a 100% quota share reinsurance agreement whereby we cede to the
capacity provider substantially all of our gross liability under all policies issued by and on behalf of us by the producer.
The capacity provider is generally entitled to 100% of the net premiums received on policies reinsured, less the ceding fee to us,
the commission paid to the producer and premium taxes on the policies. In connection with writing this business, we also enter
into agency agreements with both the producer and the capacity provider whereby the producer and capacity provider are
generally required to deal directly with each other to develop business structures and terms to implement and maintain the
ongoing contractual relationship. In a number of cases, the producer and capacity provider for a program are part of the same
organization or are otherwise affiliated. As a result of our contract design, substantially all of the underwriting risk and
operational risk inherent in the arrangement is borne by the capacity provider. The capacity provider assumes and is liable for
substantially all losses incurred in connection with the risks under the reinsurance agreement, including judgments and
settlements. Our contracts with capacity providers do not legally discharge us from our primary liability for the full amount of
the policies, and we will be required to pay the loss and bear collection risk if the capacity provider fails to meet its obligations
under the reinsurance agreement. As a result, we remain exposed to the credit risk of capacity providers, or the risk that one of
our capacity providers becomes insolvent or otherwise unable or unwilling to pay policyholder claims. We mitigate this credit
risk generally by either selecting well capitalized, highly rated authorized capacity providers or requiring that the capacity
provider post substantial collateral to secure the reinsured risks.
33
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
Although we reinsure substantially all of the risks inherent in our program services business, we have certain programs that
contain limits on our reinsurers’ obligations to us that expose us to underwriting risk, including loss ratio caps, aggregate
reinsurance limits or exclusion of the credit risk of producers. Under certain programs, including one program with Syndicate
2357, an unconsolidated affiliate, we also bear underwriting risk for annual aggregate agreement year losses in excess of a limit
that we believe is highly unlikely to be exceeded. See note 17 of the notes to consolidated financial statements for further details
regarding our program with Syndicate 2357.
The following table displays balances recoverable from our ten largest reinsurers by group for our program services business,
based on gross reinsurance recoverable balances at December 31, 2019. The contractual obligations under reinsurance and
retrocessional contracts are typically with individual subsidiaries of the group or syndicates at Lloyd’s and are not typically
guaranteed by other group members or syndicates at Lloyd’s. Reinsurance recoverable balances are shown before consideration
of balances owed to reinsurers and any potential rights of offset, and allowances for bad debts. These ten reinsurance groups
represent 71% of our $2.9 billion reinsurance recoverables balance attributed to our program services business, before
considering allowances for bad debts.
Reinsurance Group
Fosun International Holdings Ltd.
Lloyd’s of London(2)
Knight Insurance Company Ltd.
James River Group Holdings, Ltd.
RenaissanceRe Holdings Ltd.
Enstar Group Limited
Everest Re Group
Greenlight Capital Re, Ltd.
Qatar Insurance Company S.A.Q.
MS&AD Insurance Group Holdings, Inc.
A.M. Best
Rating
Gross
Reinsurance
Recoverable
Collateral
Applied(1)
Net
Reinsurance
Recoverable
(dollars in thousands)
A-
A
B++
A
A+
A-
A+
A-
A
A+
$ 631,205
454,791
379,454
192,953
140,749
70,654
61,999
55,907
54,737
52,680
$ 631,088
—
379,454
192,953
777
24,217
—
55,907
54,737
52,680
$
117
454,791
—
—
139,972
46,437
61,999
—
—
—
703,316
Reinsurance recoverables for ten largest gross reinsurers
2,095,129
1,391,813
Total reinsurance recoverables
$ 2,936,569
$ 1,940,691
$ 995,878
(1) Collateral is applied to each reinsurer, up to the amount of the gross recoverable, to determine the net recoverables presented in this table.
As of December 31, 2019, we were the beneficiary of letters of credit, trust accounts and funds withheld totaling $1.7 billion collateralizing
reinsurance recoverable balances from our top 10 reinsurers and $2.4 billion for our total reinsurance recoverables balance, which in some
instances, exceeds the balance of the related reinsurance recoverable.
(2) Net reinsurance recoverable from Lloyd’s of London includes $219.5 million attributable to Syndicate 2357, an unconsolidated affiliate.
S h a r e h o l d e r
V a l u e
Our financial goals are to earn consistent underwriting and operating profits and superior investment returns to build
shareholder value. We measure financial success by our ability to grow book value per share and the market price per share of
our stock, or total shareholder return, at high rates of return over a long period of time. To mitigate the effects of short-term
volatility, we generally use five-year time periods to measure ourselves. Growth in book value per share is an important measure
of our success because it includes all underwriting, operating and investing results. For the year ended December 31, 2019,
book value per share increased 23% primarily due to net income to shareholders of $1.8 billion and a $298.0 million increase in
net unrealized gains on investments, net of taxes. Over the past five years, we have grown book value per share at a compound
annual rate of 8% to $802.59 per share at December 31, 2019. Growth in total shareholder value is also an important measure of
our success, as a significant portion of our operations are not recorded at fair value or otherwise captured in book value. For the
year ended December 31, 2019, our stock price per share increased 10%. Over the past five years, our stock price per share
increased at a compound annual rate of 11%.
34
The following graph presents book value per share and stock price per share for the past five years as of December 31.
R e g u l a t o r y E n v i r o n m e n t
We are subject to extensive state, federal and international regulation and supervision in the jurisdictions in which we do
business. Regulations vary from jurisdiction to jurisdiction. Additionally, as a company with publicly-traded securities, we are
also subject to certain legal and regulatory requirements applicable generally to public companies, including the rules and
regulations of the U.S. Securities and Exchange Commission (SEC) and the New York Stock Exchange relating to reporting and
disclosure, accounting and financial reporting, corporate governance and other matters.
The following is a summary of significant regulations that apply to our businesses, but it is not intended to be a comprehensive
review of every regulation to which we are subject. For information regarding risks associated with regulations applicable to us,
see “Item 1A - Risk Factors.”
U.S. Insurance Regulation
State Regulation
Overview. Our U.S. insurance subsidiaries are subject to varying degrees of regulation and supervision by the states and other
jurisdictions in which they do business. In the U.S., authority for the regulation, supervision and administration of the business
of insurance in each state is generally delegated to a state insurance commissioner who oversees a regulatory body responsible
for the supervision of the business of insurance. Through this authority, state regulatory authorities have broad regulatory,
supervisory and administrative powers relating to: solvency standards; corporate conduct; market conduct activities; regulating
unfair trade and claims practices; licensing of insurers; licensing and appointment of agents; approval of forms and policies used;
the nature of, and limitations on, insurers’ investments; the form and content of annual statements and other reports on the
financial condition of insurers; and establishment of loss reserves. States also regulate various aspects of the contractual
relationships between insurers and independent agents. In addition, the National Association of Insurance Commissioners
(NAIC), comprised of the insurance commissioners of each U.S. jurisdiction, develops or amends model statutes and regulations
that, in turn, most states adopt.
35
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
Group Supervision – Global Supervisory College; Global Common Framework. Regulators within and outside the U.S. are
increasingly coordinating the regulation of multinational insurers by conducting a supervisory college. A supervisory college is
a forum of the regulators having jurisdictional authority over an insurance holding company’s worldwide insurance subsidiaries.
The supervisory college meets with executive management to evaluate the insurance group on both a group-wide and
legal-entity basis, particularly with respect to its financial data, business strategies, enterprise risk management and
corporate governance. The Illinois Department of Insurance is our lead insurance regulator for purposes of conducting our
supervisory college.
The NAIC and state insurance regulators, as well as regulators in countries where we have operations, are currently working
with the International Association of Insurance Supervisors to develop a global common framework (ComFrame) for the
supervision of internationally active insurance groups (IAIGs). If adopted, ComFrame would require the designation of a group-
wide supervisor (regulator) for each IAIG and would impose a group capital requirement that would be applied to an IAIG in
addition to the current legal entity capital requirements imposed by state and international insurance regulators. In response to
ComFrame, the NAIC revised the model Insurance Holding Company System Regulatory Act to allow state insurance
regulators in the U.S. to be designated as group-wide supervisors for U.S. based IAIGs. Additionally, the NAIC is developing a
group capital standard that would be applied to U.S. based insurance groups.
Holding Company Statutes. In addition to regulatory supervision of our U.S. insurance subsidiaries, we are subject to state
statutes governing insurance holding company systems. Typically, those statutes require that we periodically file information
with the appropriate state insurance commissioner, including information concerning our capital structure, ownership,
financial condition, dividend payments and other material transactions with affiliates, and general business operations.
These statutes also require approval of changes in control of an insurer or an insurance holding company. Generally, “control”
for these purposes is defined as ownership or voting power of 10% or more of a company’s voting shares. Additional
requirements include group-level reporting, submission of an annual enterprise risk report by a regulated insurance company’s
ultimate controlling person and providing information regarding an insurer’s non-insurer affiliates.
Risk Based Capital Requirements. The NAIC uses a risk based capital (RBC) formula that is designed to measure the capital of
an insurer taking into account the company’s investments and products. These requirements provide a formula which, for
property and casualty insurance companies, establishes capital thresholds for four categories of risk: asset risk, insurance risk,
interest rate risk and business risk. At December 31, 2019, the capital and surplus of each of our U.S. insurance subsidiaries was
above the minimum regulatory thresholds. See note 21 of the notes to consolidated financial statements.
Financial Exams. State insurance regulators also prescribe the form and content of statutory financial statements, perform
periodic financial examinations of insurers, set minimum reserve and loss ratio requirements, establish standards for
permissible types and amounts of investments and require minimum capital and surplus levels. These statutory capital and
surplus requirements include RBC rules promulgated by the NAIC.
Statutory Accounting Principles. Each of our U.S. insurance company subsidiaries is required to file detailed quarterly and
annual reports, including financial statements, in accordance with prescribed statutory accounting rules, with regulatory
officials in the jurisdictions in which they conduct business. The quarterly and annual financial reports filed with the states
utilize statutory accounting principles (SAP) that are different from U.S. GAAP. As a basis of accounting, SAP was developed to
monitor and regulate the solvency of insurance companies. In developing SAP, insurance regulators were primarily concerned
with assuring an insurer’s ability to pay all its current and future obligations to policyholders. As a result, statutory accounting
focuses on conservatively valuing the assets and liabilities of insurers, generally in accordance with standards specified by the
insurer’s domiciliary state. The values for assets, liabilities and equity reflected in financial statements prepared in accordance
with U.S. GAAP are usually different from those reflected in financial statements prepared under SAP.
Own Risk and Solvency Assessment and Enterprise Risk Management. We must submit an Own Risk and Solvency
Assessment Summary Report (ORSA) annually to our lead insurance regulator. The ORSA is a confidential internal assessment
of the material and relevant risks associated with an insurer’s current business plan and the sufficiency of capital resources to
support those risks. In addition, we must file an annual enterprise risk report with our lead insurance regulator. The report must
identify the material risks within the insurance holding company system that could pose enterprise risk to the U.S.
insurance subsidiaries.
36
Rates and Form Filings. The policy forms and various premium rates of our U.S. admitted insurance subsidiaries are subject to
regulation in every state in which they conduct business. In many states, rates and policy forms must be filed with the
applicable insurance regulator prior to their use, and in some states, rates and forms must be affirmatively approved by the
applicable insurance regulator prior to use.
Dividends. The laws of the domicile states of our U.S. insurance subsidiaries govern the amount of dividends that may be paid
to our holding company, Markel Corporation. Generally, statutes in the domicile states of our insurance subsidiaries require
prior approval for payment of extraordinary, as opposed to ordinary, dividends. See note 21 of the notes to consolidated
financial statements.
Market Conduct. State insurance laws and regulations include numerous provisions governing trade practices and the
marketplace activities of insurers, including provisions governing marketing and sales practices, data security, policyholder
services, claims management, anti-fraud controls and complaint handling. State regulatory authorities generally enforce these
provisions through periodic market conduct examinations.
Investment Regulation. Investments by our U.S. insurance companies must comply with applicable laws and regulations that
prescribe the kind, quality and concentration of investments. In general, these laws and regulations permit investments in
federal, state and municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate
and certain other investments, subject to specified limits and certain other qualifications.
Federal Regulation
The U.S. federal government and its regulatory agencies generally do not directly regulate the business of insurance. However,
two federal government bodies, the Federal Insurance Office (FIO) and the Financial Stability Oversight Council (FSOC), each
created under The Dodd Frank Wall Street Reform and Consumer Protection Act, may impact the regulation of insurance.
Although the FIO is prohibited from directly regulating the business of insurance, it has authority to represent the U.S. in
international insurance matters and has limited powers to preempt certain types of state insurance laws. The FIO also can
recommend to the FSOC that it designate an insurer as an entity posing risks to the U.S. financial stability in the event of the
insurer’s material financial distress or failure. We have not been so designated. The U.S. federal laws that most affect our day-to-
day insurance operations are: the Gramm-Leach-Bliley Act; the Fair Credit Reporting Act; the Health Insurance Portability and
Accounting Act of 1996, as amended; the Terrorism Risk Insurance Act of 2002, as amended; anti-money laundering laws and
regulations; the Nonadmitted and Reinsurance Reform Act of 2010, as amended; and the rules and regulations of the Office of
Foreign Assets Control.
International Insurance Regulation
Overview. Our international insurance operations are subject to regulation and supervision in various jurisdictions. These
regulations, which vary depending on the jurisdiction, include, among others, solvency and market conduct regulations; anti-
corruption, anti-money laundering, and anti-terrorist financing guidelines, laws and regulations; various privacy, insurance, tax,
tariff, trade and sanctions laws and regulations; and corporate, employment, intellectual property and investment laws and
regulations. Outside of the U.S., we operate largely in the U.K., Europe and Bermuda, as well as in Canada, Latin America, Asia
Pacific and the Middle East, and our businesses are supervised by local regulatory authorities in these jurisdictions.
European Regulation. We are subject to regulation by the Prudential Regulatory Authority and Financial Conduct Authority in
respect of our U.K. insurance businesses. We are also subject to regulation by the Federal Financial Supervisory Authority, better
known by its abbreviation BaFin, in respect of our German insurance carrier.
Our U.K. and German insurance businesses are subject to both the E.U.’s General Data Protection Regulation (GDPR) and
Solvency II. GDPR came into effect in May 2018, and requires businesses operating in the E.U. to comply with conditions for
processing personal data. Solvency II came into effect in January 2016, and requires our U.K. and German businesses to maintain
certain capital standards and publish risk-related information in the form of a Solvency and Financial Condition Report.
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Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
Bermuda Regulation. The insurance industry in Bermuda is regulated by the Bermuda Monetary Authority (BMA). Under the
Bermuda Insurance Act 1978, and related regulations and standards of the BMA, each Bermuda insurance company is subject to,
among other things: licensing, capital, surplus and liquidity requirements; solvency standards; restrictions on dividends and
distributions; and periodic examinations of the company and its financial condition. In addition, each insurance company must
obtain prior approval of ownership and transfer of shares and maintain a principal office and appoint and maintain a principal
representative in Bermuda. The BMA also requires that each insurance company contract for local services, such as corporate
secretary, insurance manager and registered representative services, at market rates.
ILS Regulation
Our insurance-linked securities operations are subject to regulation and supervision by various regulatory authorities, both in
the U.S. and internationally. Certain of our ILS subsidiaries are organized and regulated as follows:
• registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended,
• registered with the U.S. Commodity Futures Trading Commission as a commodity pool operator or a commodity trading
advisor under the Commodity Exchange Act, as amended, or
• registered with the BMA as an insurance manager under the Bermuda Insurance Act.
Certain other ILS subsidiaries serve as the investment manager to one or more private funds that are registered with the
BMA under the Investment Funds Act of 2006, as amended, or the Segregated Accounts Companies Act 2000, as amended.
In addition, these operations include business relationships with certain U.S., U.K. and Bermuda insurance companies that are
subject to U.S. and international insurance regulation as described above in this “Regulatory Environment” section.
As a result, subsidiaries involved in our ILS operations are subject to regulations that may impose substantive and material
restrictions and requirements on their operations, including, among other things: disclosure of information about our businesses
and conflicts of interests to clients; maintenance of written policies and procedures; maintenance of extensive books and
records; restrictions on the types of fees we may charge, including performance fees; restrictions on solicitation arrangements;
requirements regarding engaging in transactions with clients; maintenance of an effective compliance program; and other
restrictions and requirements applicable to custody of client assets, client privacy, advertising, pay-to-play prohibitions and
cybersecurity; as well as possible sanctions, disciplinary actions or other penalties for non-compliance.
Markel Ventures Regulation
Our Markel Ventures businesses are subject to a wide variety of U.S. federal, state, and local laws and regulations, as well as
international laws and regulations applicable to their international operations. Specifically, the most significant of these laws
and regulations cover the following areas: safety, health, employment, the environment, transportation, U.S. and international
trade, anti-corruption, data privacy and security and government contracts.
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R a t i n g s
Financial stability and strength are important purchase considerations of policyholders, cedents and insurance agents
and brokers. Because an insurance premium paid today purchases coverage for losses that might not be paid for many
years, the financial viability of the insurer is of critical concern. Various independent rating agencies provide
information and assign ratings to assist buyers in their search for financially sound insurers. Rating agencies periodically
re-evaluate assigned ratings based upon changes in the insurer’s operating results, financial condition or other significant
factors influencing the insurer’s business. Changes in assigned ratings could have an adverse impact on an insurer’s
ability to write new business.
Best assigns financial strength ratings (FSRs) to property and casualty insurance companies based on quantitative criteria
such as profitability, leverage and liquidity, as well as qualitative assessments such as the spread of risk, the adequacy
and soundness of ceded reinsurance, the quality and estimated market value of assets, the adequacy of loss reserves and
surplus and the competence, experience and integrity of management. Best’s FSRs range from “A++” (superior) to “F”
(in liquidation).
Eighteen of our nineteen insurance subsidiaries are rated by Best. All eighteen of our insurance subsidiaries rated by Best
have been assigned an FSR of “A” (excellent). Our Lloyd’s syndicate is part of a group rating for the Lloyd’s overall
market, which has been assigned an FSR of “A” (excellent) by Best.
Nine of our nineteen insurance subsidiaries are rated by S&P. All nine of our insurance subsidiaries rated by S&P have
been assigned an FSR of “A” (strong). Our Lloyd’s syndicate is part of a group rating for the Lloyd’s overall market, which
has been assigned an FSR of “A+” (strong) by S&P.
Five of our nineteen insurance subsidiaries are rated by Moody’s Corporation (Moody’s). All five insurance subsidiaries
rated by Moody’s have been assigned an FSR of “A2” (good).
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Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
R i s k
F a c t o r s
A wide range of factors could materially affect our future prospects and performance. The matters addressed under “Safe Harbor
and Cautionary Statement,” “Critical Accounting Estimates” and “Market Risk Disclosures” in Management’s Discussion and
Analysis of Financial Condition and Results of Operations and other information included or incorporated in this report describe
many of the significant risks that could affect our operations and financial results. We are also subject to the following risks.
Headings and sub-headings for the Risk Factors below are for reference purposes only and are not intended to limit or affect in
any way the meaning or scope of each Risk Factor.
Risks Primarily Related to Our Insurance Operations
Loss Exposures
We may experience losses or disruptions from catastrophes. As a company with significant property and casualty insurance
underwriting operations, we may experience losses from man-made or natural catastrophes. Catastrophes include, but are not
limited to, windstorms, hurricanes, earthquakes, tornadoes, hail, severe winter weather and wildfires and may include
pandemics and events related to terrorism and political unrest. While we employ catastrophe modeling tools in our
underwriting process, we cannot predict how severe a potential catastrophe will be before it occurs. The extent of losses from
catastrophes is a function of the total amount of losses incurred, the number of insureds affected, the frequency and severity of
the events, the effectiveness of our catastrophe risk management program and the adequacy of our reinsurance coverage.
Most catastrophes occur over a small geographic area; however, some catastrophes may produce significant damage in large,
heavily populated areas. In addition, catastrophes may have a material adverse effect on the investment management and
incentive fees earned by our ILS operations and returns on our investments in ILS funds. Catastrophes also may result in
significant disruptions in our insurance and other operations, as well as loss of income and assets. If climate change results in
an increase in the frequency and severity of weather-related catastrophes, we may experience additional catastrophe-related
losses or disruptions, which may be material.
The failure of any of the methods we employ to manage our loss exposures could have a material adverse effect on us. We seek
to manage our loss exposures in a variety of ways, including adhering to maximum limitations on policies written in defined
geographical zones, limiting program size for each client, establishing per risk and per occurrence limitations for each event,
employing coverage restrictions and following prudent underwriting guidelines for each program written. We also seek to
manage our loss exposures through geographic diversification. Underwriting is a matter of judgment, involving assumptions
about matters that are inherently unpredictable and beyond our control, and for which historical experience and probability
analysis may not provide sufficient guidance. One or more future events could result in claims that substantially exceed our
expectations, which could have a material adverse effect on our results of operations and financial condition. In addition, we
seek to manage our loss exposures by policy terms, coverage exclusions and choice of legal forum. Disputes relating to coverage
and choice of legal forum also arise. As a result, various provisions of our policies, such as choice of forum, or coverage
limitations or exclusions, may not be enforceable in the manner we intend and some or all of our methods to manage loss
exposures may prove ineffective.
The effects of emerging claim and coverage issues on our business are uncertain. As industry practices and legal, judicial, social
and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge.
These issues may have a material adverse effect on our business by either broadening coverage beyond our underwriting intent
or by increasing the number or size of claims. In some instances, these changes may not become apparent until after we have
issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under our
insurance or reinsurance contracts may not be known for many years after a contract is issued. For example, many states have
recently extended the statute of limitations for certain victims of sexual abuse. This may result in a higher frequency of claims
over a more extended reporting period than originally expected.
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We use analytical models to assist our decision making in key areas such as pricing, reserving and capital modeling and actual
results may differ materially from the model outputs and related analyses. We use various modeling techniques and data
analytics (e.g., scenarios, predictive and stochastic modeling, and forecasting) to analyze and estimate exposures, loss trends and
other risks associated with our insurance and ILS businesses. This includes both proprietary and third-party modeled outputs
and related analyses to assist us in, among other things, decision-making related to underwriting, pricing, capital allocation,
reserving, investing, reinsurance and catastrophe risk. We incorporate numerous assumptions and forecasts about the future
level and variability of policyholder behavior, loss frequency and severity, interest rates, equity markets, inflation, capital
requirements, and currency exchange rates, among others. The modeled outputs and related analyses from both proprietary
models and third party models are subject to various assumptions, uncertainties, model design errors, complexities and the
inherent limitations of any statistical analysis, including those arising from the use of historical internal and industry
data and assumptions.
In addition, the modeled outputs and related analyses may from time to time contain inaccuracies, perhaps in material respects,
including as a result of inaccurate inputs or applications thereof (whether due to data error, human error or otherwise).
Consequently, actual results may differ materially from our modeled results. Our profitability and financial condition
substantially depend on the extent to which our actual experience is consistent with assumptions we use in our models and
ultimate model outputs. If, based upon these models or other factors, we misprice our products or fail to appropriately estimate
the risks we are exposed to, our business, results of operations and financial condition may be materially adversely affected.
Loss Reserves
Our results may be affected because actual insured or reinsured losses differ from our loss reserves. Significant periods of time
often elapse between the occurrence of an insured or reinsured loss, the reporting of the loss to us and our payment of that loss.
To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities representing estimates of amounts
needed to pay reported and unreported losses and the related loss adjustment expenses. The process of estimating loss reserves is
a difficult and complex exercise involving many variables and subjective judgments. This process may also become more
difficult if we experience a period of rising inflation. As part of the reserving process, we review historical data and consider the
impact of such factors as:
• trends in claim frequency and severity,
• changes in operations,
• emerging economic and social trends,
• trends in insurance rates,
• inflation or deflation, and
• changes in the regulatory and litigation environments.
This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an
appropriate basis for predicting future events. There is no precise method, however, for evaluating the impact of any specific
factor on the adequacy of reserves, and actual results will differ from original estimates. As part of the reserving process, we
regularly review our loss reserves and make adjustments as necessary. Future increases in loss reserves for our underwriting
operations will, and for our programs services operations may, result in additional charges to earnings, which may be material.
In addition, reinsurance reserves are subject to greater uncertainty than insurance reserves primarily because a reinsurer relies
on (i) the original underwriting decisions and claims decisions made by ceding companies and (ii) information and data from
ceding companies. As a result, we are subject to the risk that our ceding companies may not have adequately evaluated the risks
reinsured by us and the premiums ceded may not adequately compensate us for the risks we assume. In addition, reinsurance
reserves may be less reliable than insurance reserves because there is generally a longer lapse of time from the occurrence of the
event to the reporting of the loss or benefit to the reinsurer and ultimate resolution or settlement of the loss.
Changes in the assumptions and estimates used in establishing reserves for our life and annuity reinsurance book could result in
material increases in our estimated loss reserves for such business. Our run-off life and annuity reinsurance book exposes us to
mortality risk, which is the risk that the level of death claims may differ from that which we assumed in establishing the
reserves for our life and annuity reinsurance contracts. Some of our life and annuity reinsurance contracts expose us to longevity
risk, which is the risk that an insured person will live longer than expected when the reserves were established, or morbidity
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Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
risk, which is the risk that an insured person will become critically ill or disabled. Our reserving process for the life and annuity
reinsurance book is designed with the objective of establishing appropriate reserves for the risks we assumed. Among other
things, this process relies heavily on analysis of mortality, longevity and morbidity trends, lapse rates, interest rates and
expenses. As of December 31, 2019, our reserves for life and annuity benefits totaled $985.7 million.
We expect mortality, morbidity, longevity, and lapse experience to fluctuate somewhat from period to period, but believe they
should remain reasonably predictable over a period of many years. Mortality, longevity, morbidity or lapse experience that is less
favorable than the mortality, longevity, morbidity or lapse rates that we used in establishing the reserves for a reinsurance
agreement will negatively affect our net income because the reserves we originally set for the risks we assumed may not be
sufficient to cover the future claims and expense payments. Furthermore, even if the total benefits paid over the life of the
contract do not exceed the expected amount, unexpected increases in the incidence of deaths or illness can result in changes to
our assumptions in a given reporting period, adversely affecting our net income in any particular reporting period. Fluctuations
in interest rates will impact the performance of our investments related to our life and annuity reinsurance book. If there are
changes to any of the above factors to the point where a reserve deficiency exists, a charge to earnings will be recorded, which
may have a material adverse effect on our results of operations and financial condition.
Ceded Reinsurance
We may be unable to purchase reinsurance protection on terms acceptable to us, or we may be unable to collect on reinsurance
we purchase. Our underwriting operations purchase reinsurance and retrocessional reinsurance to manage our net retention on
individual risks and mitigate the volatility of losses on our results of operations and financial condition, while providing us with
the ability to offer policies with sufficient limits to meet policyholder needs. In addition, we reinsure substantially all of the
risks inherent in our program services business, however, we have certain programs that contain limits on our reinsurers’
obligations to us that expose us to underwriting risk, including loss ratio caps, aggregate reinsurance limits or exclusion of the
credit risk of producers. See note 11 of the notes to consolidated financial statements for information about ceded reinsurance
for our program services businesses.
The ceding of insurance does not legally discharge us from our primary liability for the full amount of the policies. Reliance on
reinsurance recoveries may create credit risk as a result of the reinsurer’s inability or unwillingness to pay reinsurance claims
when due. We generally select well capitalized and highly rated reinsurers and in certain instances we require reinsurers to post
substantial collateral to secure the reinsured risks. Deterioration in the credit quality of existing reinsurers or disputes over the
terms of reinsurance could result in charges to earnings, which may have a material adverse effect on our results of operations
and financial condition. In addition, collateral may not be sufficient to cover the reinsurer’s obligation to us, and we may not be
able to cause the reinsurer to deliver additional collateral.
As of December 31, 2019, we were the beneficiary of letters of credit, trust accounts and funds withheld in the aggregate amount
of $2.9 billion, collateralizing $5.4 billion in reinsurance recoverables. The remaining unsecured reinsurance recoverables are
ceded to highly-rated, well capitalized reinsurers. Our reinsurance recoverables are based on estimates, and our actual liabilities
may exceed the amount we are able to recover from our reinsurers or any collateral securing the liabilities. The failure of a
reinsurer to meet its obligations to us, whether due to insolvency, dispute or other unwillingness or inability to pay, or due to
our inability to access sufficient collateral to cover our liabilities, could have a material adverse effect on our results of
operations and financial condition.
The availability and cost of reinsurance are determined by market conditions beyond our control. There is no guarantee that our
desired amounts of reinsurance or retrocessional reinsurance will be available in the marketplace in the future. In addition,
available capacity may not be on terms we deem appropriate or acceptable or with companies with whom we want to do
business. This could have a material adverse effect on our results of operations and financial condition.
Market Competition
Competition in the insurance and reinsurance markets could reduce our underwriting profits. Insurance and reinsurance
markets are highly competitive. We compete on an international and regional basis with major U.S., Bermuda, European, and
other international insurers and reinsurers and with underwriting syndicates, some of which have greater financial, marketing,
and management resources than we do, have greater access to “big data,” and may be able to offer a wider range of, or more
42
sophisticated, commercial and personal lines products. Recent industry consolidation, including business combinations among
insurance and other financial services companies, has resulted in larger competitors with even greater financial resources. In
addition, capital market participants have created alternative products that are intended to compete with reinsurance products.
Similar to other industries, the insurance industry is undergoing rapid and significant technological and other change. There is
increasing focus by traditional insurance industry participants, technology companies, “InsurTech” start-up companies and
others on using technology and innovation to simplify and improve the customer experience, increase efficiencies, redesign
products, alter business models and effect other potentially disruptive changes in the insurance industry. If we do not anticipate,
keep pace with and adapt to technological and other changes impacting the insurance industry, it will harm our ability to
compete, decrease the value of our products to customers, and materially and adversely affect our business. Furthermore,
innovation, technological change and changing customer preferences in the markets in which we operate also pose other risks
to our businesses. For example, they could result in increasing our service, administrative, policy acquisition or general expenses
as we seek to distinguish our products and services from those of our competitors or otherwise keep up with such innovation
and changes.
Increased competition could result in fewer submissions, lower premium rates, and less favorable policy terms and conditions,
which could reduce our underwriting profits and have a material adverse effect on our results of operations and financial
condition.
The historical cyclicality in the property and casualty insurance industry could have a material adverse effect on our ability to
improve or maintain underwriting profits or to grow or maintain premium volume. The insurance and reinsurance markets
have historically been cyclical, characterized by extended periods of intense price competition due to excessive underwriting
capacity, and more recently alternative sources of capital, as well as brief periods when shortages of capacity permitted more
favorable rate levels. Among our competitive strengths have been our specialty product focus and our niche market strategy.
These strengths also make us vulnerable in periods of intense competition to actions by other insurance companies who seek to
write additional premiums without appropriate regard for underwriting profitability. At times it could be very difficult for us to
grow or maintain premium volume levels without sacrificing underwriting profits. If we are not successful in maintaining rates
or achieving rate increases, it may be difficult for us to improve or maintain underwriting profits or to grow or maintain
premium volume levels.
Insurance Operations
Our efforts to develop new products, expand in targeted markets or improve business processes and workflows may not be
successful and may increase or create new risks. From time to time, to protect and grow market share or improve our efficiency,
we invest in strategic initiatives to:
• develop products that insure risks we have not previously insured, include new coverages or change coverage terms;
• change commission terms;
• change our underwriting processes;
• improve business processes and workflow to increase efficiencies and productivity and to enhance the experience of our
customers and producers;
• expand distribution channels; and
• enter geographic markets where we previously have had relatively little or no market share.
43
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
We may not be successful in these efforts, and even if we are successful, they may increase or create the following risks,
among others:
• demand for new products or expansion into new markets may not meet our expectations;
• new products and expansion into new markets may increase or change our risk exposures, and the data and models we use
to manage those exposures may not be as effective as those we use in existing markets or with existing products;
• models underlying automated underwriting and pricing decisions may not be effective;
• efforts to develop new products or markets or to change commission terms may create or increase distribution channel
conflicts;
• in connection with the conversion of existing policyholders to a new product, some policyholders’ pricing may increase
while the pricing for other policyholders may decrease, the net impact of which could negatively impact retention and
profit margins; and
• changes to our business processes or workflow, including the use of new technologies, may give rise to execution risk.
These efforts may require us to make substantial expenditures, which may negatively impact results in the near term, and if not
successful, could materially and adversely affect our results of operations.
We depend on a few brokers for a large portion of our revenues and the loss of business provided by any one of them could have
a material adverse effect on us. We market our insurance and reinsurance worldwide through insurance and reinsurance brokers.
For the year ended December 31, 2019, our top three independent brokers represented 28% of the gross premiums written by
our underwriting operations. Loss of all or a substantial portion of the business provided by one or more of these brokers could
have a material adverse effect on our business.
Our insurance companies and senior debt are rated by various rating agencies, and a downgrade or potential downgrade in one or
more of these ratings could have a material adverse effect on us. Financial strength ratings are an important factor in
establishing the competitive position of insurance and reinsurance companies. Our senior debt ratings also affect the availability
and cost of capital. Certain of our insurance and reinsurance company subsidiaries and our senior debt securities are rated by
various rating agencies. Our financial strength and debt ratings are subject to periodic review, and are subject to revision or
withdrawal at any time. The financial strength ratings of our insurance subsidiaries are significantly influenced by their
statutory surplus amounts and leverage and capital adequacy ratios and other financial metrics. Rating agencies may implement
changes to their ratings methodologies or internal models that have the effect of increasing or decreasing the amount of capital
our insurance subsidiaries must hold or restrict how the company may deploy its capital in order to maintain its current ratings.
For example, for certain of our insurance subsidiaries, rating agencies may take into account in their calculations the collateral
provided to us by reinsurers. A change in this practice could adversely impact our ratings. We cannot be sure that we will be able
to retain our current or any future ratings. If our ratings are reduced from their current levels by one or more rating agencies, our
competitive position in our target markets within the insurance industry could suffer and it would be more difficult for us to
market our products. A ratings downgrade could result in a substantial loss of business as policyholders and ceding company
clients move to other companies with higher claims-paying and financial strength ratings. In addition, a downgrade could trigger
contract provisions that allow cedents to terminate their reinsurance contracts on terms disadvantageous to us or require us to
collateralize our obligations through trusts or letters of credit. A ratings downgrade could also have a material adverse effect on
our liquidity, including the availability of our letter of credit facilities, and limit our access to capital markets, increase our cost
of borrowing or issuing debt and require us to post collateral.
The amount of capital that our insurance subsidiaries have and must hold to maintain their financial strength and credit ratings
and meet other requirements can vary significantly from time to time and is sensitive to a number of factors, some of which are
outside of our control. Capital requirements for our insurance subsidiaries are prescribed by the applicable insurance regulators,
while rating agencies establish requirements that inform ratings for our insurance subsidiaries and senior debt securities.
Projecting surplus and the related capital requirements is complex and requires making assumptions regarding how our business
will perform within the broader macroeconomic environment. Insurance regulators and rating agencies evaluate company
capital through financial models that calculate minimum capitalization requirements based on risk-based capital formulas for
property and casualty insurance groups and their subsidiaries. In any particular year, capital levels and risk-based capital
44
requirements may increase or decrease depending on a variety of factors including the mix of business written by our insurance
subsidiaries and correlation or diversification in the business profile, the amount of additional capital our insurance subsidiaries
must hold to support business growth, the value of securities in our investment portfolio, changes in interest rates and foreign
currency exchange rates, as well as changes to the regulatory and rating agency models used to determine our required capital.
In addition, the NAIC is developing a group capital calculation for U.S. based global insurance groups, and expects to
implement a new standard in 2020. Even though it is not intended to be a prescribed capital requirement, this calculation could
have an impact on the amount of group capital we are required to hold and how it is allocated.
Insurance Regulation
Our insurance subsidiaries are subject to supervision and regulation that may have a material adverse effect on our operations
and financial condition. Our insurance subsidiaries are subject to supervision and regulation by the regulatory authorities in
the various jurisdictions in which they conduct business, including state, national and international insurance regulators.
Regulatory authorities have broad regulatory, supervisory and administrative powers relating to, among other things, data
protection and data privacy, solvency standards, licensing, coverage requirements, policy rates and forms and the form and
content of financial reports. Regulatory and legislative authorities continue to implement enhanced or new regulatory
requirements, in certain instances intended to prevent future financial crises or otherwise assure the stability of financial
institutions. Regulatory authorities also may seek to exercise their supervisory or enforcement authority in new or more
extensive ways, such as imposing increased capital requirements. These actions, if they occur, could affect the competitive
market and the way we conduct our business and manage our capital and could result in lower revenues and higher costs.
As a result, such actions could have a material effect on our results of operations and financial condition.
Regulators may challenge our use of fronting arrangements in states in which our capacity providers are not licensed. Our
program services business enters into fronting arrangements with general agents and domestic and foreign insurers that want to
access specific U.S. property and casualty insurance business in states in which the capacity providers are not licensed or are
not authorized to write particular lines of insurance. Some state insurance regulators may object to these fronting
arrangements. In certain states, an insurance commissioner has the authority to prohibit an authorized insurer from acting as
an issuing carrier for an unauthorized insurer. In addition, insurance departments in states in which there is no such statutory
or regulatory prohibition, could deem the assuming insurer to be transacting insurance business without a license and the
issuing carrier to be aiding and abetting the unauthorized sale of insurance.
If regulators in any of the states where we conduct our fronting business were to prohibit or limit those arrangements, we
would be prevented or limited from conducting that business for which a capacity provider is not authorized in those states,
unless and until the capacity provider is able to obtain the necessary licenses. This could have a material adverse effect on our
results of operations and financial condition.
Risks Primarily Related to Our Investments and Access to Capital
Changes in Economic Conditions
Our investment results may be impacted by changes in interest rates, U.S. and international monetary and fiscal policies as
well as broader economic conditions. We receive premiums from customers for insuring their risks. We invest these funds until
they are needed to pay policyholder claims. Fluctuations in the value of our investment portfolio can occur as a result of
changes in interest rates and U.S. and international fiscal, monetary and trade policies as well as broader economic conditions
(including, for example, equity market conditions and significant inflation or deflation). Although we attempt to take measures
to manage the risks of investing in these changing environments, we may not be able to mitigate our sensitivity to them
effectively. Despite our mitigation efforts, which include duration and currency targets for asset portfolios, compliance
monitoring of these targets and means to reasonably and effectively match asset duration and currency to the duration and
currency of the loss reserves, changes in interest rates and U.S. and international fiscal, monetary and trade policies as well as
broader economic conditions could have a material adverse effect on our investment results.
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Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
We invest a significant portion of our shareholders’ equity in equity securities, which may result in significant variability in our
investment results and net income and may have a material adverse effect on shareholders’ equity. Additionally, our equity
investment portfolio is concentrated, and declines in the value of these significant investments could have a material adverse
effect on our financial results. Equity securities were 69% and 63% of our shareholders’ equity at December 31, 2019 and 2018,
respectively. Equity securities have historically produced higher returns than fixed maturities over long periods of time;
however, investing in equity securities may result in significant variability in investment returns from one period to the next.
In volatile financial markets, we could experience significant declines in the fair value of our equity investment portfolio,
which would result in a material decrease in net income and shareholders’ equity. Our equity portfolio is concentrated in
particular issuers and industries and, as a result, a decline in the fair value of these concentrated investments also could result
in a material decrease in net income and shareholders’ equity. A material decrease in shareholders’ equity may have a material
adverse effect on our ability to carry out our business plans.
Access to Capital
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
To the extent that cash flows generated by our operations are insufficient to fund future operating requirements, or that our
capital position is adversely impacted by a decline in the fair value of our investment portfolio, losses from catastrophe events
or otherwise, we may need to raise additional funds through financings or curtail our growth. We also may be required to
liquidate fixed maturities or equity securities, which may result in realized investment losses. Any further sources of capital,
including capacity needed for letters of credit, if available at all, may be on terms that are unfavorable to us. Our access to
additional sources of capital will depend on a variety of factors, such as market conditions, the general availability of credit, the
availability of credit to the industries in which we operate, our results of operations, financial condition, credit ratings and
credit capacity, as well as pending litigation or regulatory investigations. Our ability to borrow under our revolving credit
facility and letter of credit facilities is contingent on our compliance with the covenants and other requirements under those
facilities. Similarly, our access to capital may be impaired if regulatory authorities or rating agencies take negative actions
against us. Our inability to obtain adequate capital when needed could have a negative impact on our ability to invest in, or
take advantage of opportunities to expand, our businesses, such as possible acquisitions or the creation of new ventures, and
inhibit our ability to refinance our existing indebtedness on terms acceptable to us. Any of these effects could have a material
adverse effect on our results of operations and financial condition.
Our failure to comply with covenants and other requirements under our revolving credit facility, senior debt and other
indebtedness could have a material adverse effect on us. The agreements and indentures relating to our revolving credit facility,
senior debt and other indebtedness, including letter of credit facilities used by certain of our insurance subsidiaries, contain
covenants and other requirements. If we fail to comply with those covenants or requirements, the lenders, noteholders or
counterparties under those agreements and indentures could declare a default and demand immediate repayment of all
amounts owed to them. In addition, where applicable, our lenders may cancel their commitments to lend or issue letters of
credit or require us to pledge additional or a different type of collateral. A default under one debt agreement may also put us at
risk of a cross-default under other debt agreements or other arrangements. Any of these effects could have a material adverse
effect on our results of operations and financial condition.
Our liquidity and our ability to make payments on debt or other obligations depend on the receipt of funds from our
subsidiaries. We are a holding company, and as a result, our cash flow and our ability to service our debt and pay our other
obligations depend upon the earnings of our subsidiaries and on the distribution of earnings, loans or other payments by our
subsidiaries to us. The payment of dividends by our insurance subsidiaries, which account for a significant portion of our
operating cash flows, may require prior regulatory notice or approval or may be restricted by capital requirements imposed by
regulatory authorities. Similarly, our insurance subsidiaries may require capital contributions from us to satisfy their capital
requirements. In addition, our reinsurance contracts typically allow the cedent, upon a reduction in an insurance company’s
capital in excess of specified amounts, to terminate its contract on terms disadvantageous to us or to exercise other remedies
that may adversely affect us. Those contract provisions may have the effect of limiting distributions by our insurance
subsidiaries to us.
46
Risks Primarily Related to Our ILS Operations
We may be exposed to risk in connection with our management of third party capital. Some of our operating subsidiaries may
owe certain legal duties and obligations to third party investors. A failure to fulfill any of those duties or obligations could result
in significant liabilities, penalties or other losses, and harm our businesses and results of operations. In addition, third party
investors may decide not to renew their investments in the funds we manage, which could materially impact the financial
condition of those funds, and could, in turn, have a material adverse effect on our results of operations and financial condition.
Moreover, we may not be able to maintain or raise additional third party capital for the funds we manage or for potential new
funds and therefore we may forego existing or potential fee income and other income generating opportunities.
Developments at our Markel CATCo operations could have a material adverse effect on us. The U.S. Department of Justice,
U.S. Securities and Exchange Commission and Bermuda Monetary Authority are conducting inquiries into loss reserves
recorded in late 2017 and early 2018 at Markel CATCo Re (the Markel CATCo Inquiries). Subsequently, several related putative
class actions were filed against Markel Corporation and certain present or former officers and directors alleging violations of the
federal securities laws relating to the matters that are the subject of the Markel CATCo Inquiries. Those actions were
consolidated and were voluntarily dismissed. See “Legal Proceedings” in this report and note 20 of the notes to consolidated
financial statements for more information regarding the Markel CATCo Inquiries and other matters related to Markel CATCo.
The Markel CATCo Inquiries and the related matters, as well as other matters of which we are currently unaware, could result
in additional claims, litigation, investigations, enforcement actions or proceedings. For example, additional litigation may be
filed by investors in the Markel CATCo Funds. We also could become subject to increased regulatory scrutiny, investigations or
proceedings in any of the jurisdictions where we operate. If any regulatory authority takes action against us or we enter into an
agreement to settle a matter, we may incur sanctions or be required to pay substantial fines or implement remedial measures
that could prove costly or disruptive to our businesses and operations. An unfavorable outcome in one or more of these matters,
and others we cannot anticipate, could have a material adverse effect on our results of operations and financial condition.
In addition, we may take steps to mitigate potential risks or liabilities that may arise from the Markel CATCo Inquiries and
related developments, and some of those steps may have a material impact on our results of operations or financial condition.
Even if an unfavorable outcome does not materialize, these matters, and actions we may take in response, could have an
adverse impact on our reputation, limit our access to capital markets and result in substantial expense and disruption.
Risks Related to All of Our Operations
Legal and Regulatory Risks
The legal and regulatory requirements applicable to our businesses are extensive. Failure to comply could have a material
adverse effect on us. Each of our businesses is highly dependent on the ability to engage on a daily basis in a large number of
financial and operational activities, including, among others, insurance underwriting, claim processing, investment activities,
the management of third party capital and providing products and services to businesses and consumers, many of which are
highly complex. These activities are subject to internal guidelines and policies, as well as legal and regulatory standards,
including, among others, those related to privacy, anti-corruption, anti-bribery and global finance and investments and
insurance matters. Our continued expansion into new businesses and markets has brought about additional requirements.
While we believe that we have adopted appropriate risk management and compliance programs, compliance risks will continue
to exist, particularly as we become subject to new rules and regulations. Failure to comply with, or to obtain, appropriate
authorizations or exemptions under any applicable laws and regulations could result in restrictions on our ability to do business
or undertake activities that are regulated in one or more of the jurisdictions in which we conduct business. Any such failure
could also subject us to fines, penalties, equitable relief and changes to our business practices. In addition, a failure to comply
could result in defaults under our senior unsecured debt agreements or credit facilities or damage our businesses or
our reputation.
Compliance with applicable laws and regulations is time consuming and personnel-intensive. Shareholder activism, the current
political environment, and the current high level of government intervention and regulatory reform may lead to substantial
new regulations and compliance obligations. Any changes in, or the enactment of new, applicable laws and regulations may
increase the complexity of the regulatory environment in which we operate, which could materially increase our direct and
indirect compliance costs and other expenses of doing business, and have a material adverse effect on our results of operations
and financial condition.
47
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
Losses from legal and regulatory actions may have a material adverse effect on us. From time to time we may be involved in
various legal actions, including at times multi-party or class action litigation, some of which involve claims for substantial or
indeterminate amounts. A significant unfavorable outcome in one or more of these actions could have a material adverse effect
on our results of operations and financial condition. We are also involved from time to time in various regulatory actions,
investigations and inquiries, including market conduct exams by insurance regulatory authorities. If a regulatory authority
takes action against us or we enter into a consent order or agreement to settle a matter, a regulatory authority has the option
to require us to pay substantial fines or implement remedial measures that could prove costly or disruptive to our businesses
and operations. Even if an unfavorable outcome does not materialize, these matters could have an adverse impact on our
reputation and result in substantial expense and disruption. See note 20 of the notes to consolidated financial statements and
“Legal Proceedings.”
We are subject to laws and regulations relating to economic and trade sanctions and bribery and corruption, the violation of
which could have a material adverse effect on us. We are required to comply with the economic and trade sanctions and
embargo programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control and similar multi-
national bodies and governmental agencies worldwide, as well as applicable anti-corruption laws and anti-bribery and
regulations of the U.S., the U.K. and other jurisdictions where we operate. A violation of a sanction, embargo program, or anti-
corruption law, could subject us, and individual employees, to a regulatory enforcement action as well as significant civil and
criminal penalties. In addition, a violation could result in defaults under our outstanding indebtedness or credit facilities or
damage our businesses or our reputation. Those penalties or defaults, or damage to our businesses or reputation, could have a
material adverse effect on our results of operations and financial condition. In some cases the requirements and limitations
applicable to the global operations of U.S. companies and their affiliates are more restrictive than, and may even conflict with,
those applicable to non-U.S. companies and their affiliates, which also could have a material adverse effect on our results of
operations and financial condition.
Employee error and misconduct may be difficult to detect and prevent and may result in significant losses. There have been a
number of cases involving misconduct by employees in a broad range of industries in recent years, and we run the risk of
misconduct by our employees. Instances of fraud, illegal acts, errors, failure to document transactions properly or to obtain
proper internal authorization, or failure to comply with regulatory requirements or our internal policies may result in losses.
It is not always possible to deter or prevent employee errors or misconduct, and the controls that we have in place to prevent
and detect this activity may not be effective in all cases.
Global Operations
We manage our global operations through a network of business entities, which could result in inconsistent management,
governance and oversight practices. We manage our global operations through a network of business entities throughout the
U.S., Bermuda, the U.K., Europe, Canada, Latin America, Asia Pacific and the Middle East. These business entities are managed
by executives, and supported by shared and centralized services, primarily at the holding company level; however, for certain of
our businesses subsidiary-level management is responsible for day-to-day operations, profitability, personnel decisions, the
growth of the business, and legal and regulatory compliance, including adherence to applicable local laws. Operating through
subsidiary-level management can make it difficult for us to implement strategic decisions and coordinated procedures
throughout our global operations. In addition, some of our business entities operate with management, sales, and support
personnel that may be insufficient to support growth in their respective locations and industries, without significant central
oversight and coordination. We continue to enhance our operating, governance and oversight procedures to effectively support,
and improve transparency throughout, our global operations and network of business entities; however, our operating strategy
nonetheless could result in inconsistent management, governance, and oversight practices, which may have a material adverse
effect on our results of operations and financial condition.
We have substantial international operations and investments, which expose us to increased political, operational and
economic risks. A substantial portion of our revenues and income is derived from our operations and investments outside the
U.S., including from the U.K., Bermuda, Europe, Canada, Latin America, Asia Pacific and the Middle East. Our international
operations and investments expose us to increased political, operational and economic risks. Deterioration or volatility in
foreign and international financial markets or general economic and political conditions could adversely affect our operating
results, financial condition and liquidity. Concerns about the economic conditions, capital markets, political and economic
stability and solvency of certain countries may contribute to global market volatility. Political changes in the jurisdictions
48
where we operate and elsewhere, some of which may be disruptive, can also interfere with our customers and our activities in
a particular location. Our international operations also may be subject to a number of additional risks, particularly in emerging
economies, including restrictions such as price controls, capital controls, currency exchange limits, ownership limits and other
restrictive or anti-competitive governmental actions or requirements, which could have a material adverse effect on our
businesses.
General economic, market or industry conditions could lead to investment losses, adverse effects on our businesses and limit
our access to the capital markets. General economic and market conditions and industry specific conditions, including
extended economic recessions or expansions; prolonged periods of slow economic growth; inflation or deflation; fluctuations
and volatility in foreign currency exchange rates, commodity and energy prices and interest rates; volatility in the credit and
capital markets; the imposition of tariffs and other changes in international trade regulation and other factors, could lead to:
substantial realized and unrealized investment losses in future periods; declines in demand for, or increased frequency and
severity of claims made under, our insurance products; disruptions in global supply chains and increased costs of inputs for our
products and services; reduced demand for our services and the products we sell and distribute; and limited or no access to the
capital markets. Any of these impacts could have a material adverse effect on our results of operations, financial condition, debt
and financial strength ratings or our insurance subsidiaries’ capital.
The exit of the United Kingdom from the European Union could have a material adverse effect on us. On June 23, 2016, the
U.K. voted to exit the E.U. (Brexit). The effects of Brexit will depend in part on agreements, if any, the U.K. makes to retain
access to E.U. markets. A Withdrawal Agreement was agreed between the U.K. government and the E.U. in October 2019 and
was approved by the U.K. Parliament on January 23, 2020. Under the Withdrawal Agreement, the U.K. left the E.U. on
January 31, 2020. The effect of the Withdrawal Agreement is that E.U. laws continue to have effect in the U.K. during a
transition period until December 31, 2020. The final terms of the future relationship between the U.K. and the E.U. remain to
be negotiated. Ultimately, all Brexit terms also must be ratified by the legislative bodies of the 27 E.U. member states.
The U.K.’s exit from the E.U., and negotiations regarding the future terms of trade between the U.K. and the E.U., could
continue to contribute to instability in global financial markets, including foreign currency markets, and adversely affect
European and worldwide economic or market conditions. Significant uncertainties remain related to the political, monetary
and economic impacts of Brexit, including related tax, accounting and financial reporting implications. Brexit could also lead to
legal and regulatory uncertainty and potentially a large number of new and divergent national laws and regulations, including
new tax rules, as the U.K. determines which E.U. laws to replace or replicate. These impacts, combined with the legal and
regulatory uncertainty, may adversely affect our operations and also may result in increased claims arising from the impact on
our policyholders. For example, in the absence of an agreement or a waiver for cross border data transfers, many U.K. and
E.U. companies, including our U.K. and E.U. based operations, may not be able to comply with E.U. data privacy laws
immediately after the transition period ends on December 31, 2020.
Without a Brexit agreement on future terms of trade, U.K. based insurers may be prohibited from administering policies for, or
paying claims to, EEA policyholders post Brexit. In order to provide certainty for its EEA policyholders, MIICL transferred its
legacy EEA exposures, claims and policies to MISE. This transfer was approved by the U.K. High Court and became effective on
March 29, 2019. Lloyd’s also has commenced its transfer of legacy EEA exposures. That transfer is expected to be completed
prior to December 31, 2020, however there is no assurance that approval of that transfer will be granted or on what terms and
conditions. Lloyd’s has indicated that it intends to honor contractual commitments, including the payment of valid claims, and
expects that its approach will be respected by EEA regulators pending the completion of its transfer of legacy EEA exposures.
The European Insurance and Occupational Pensions Authority has issued its recommendation to E.U. member states that they
adopt legislation to permit the orderly run-off of legacy EEA exposures, claims and policies by U.K. insurers. While some
E.U. member states have adopted such legislation, no E.U. member state is obligated to do so, and the terms of any such
legislation may vary significantly among the E.U. member states. Without an orderly run-off regime for legacy business in
every E.U. member state, Lloyd’s, and in turn, Syndicate 3000, may be impaired in running-off business, including paying
claims, in the E.U. member states.
Any of these effects of Brexit, and others we cannot anticipate, could have a material adverse effect on our results of operations
and financial condition.
49
Markel Corporation & Subsidiaries
B U S I N E S S O V E R V I E W (continued)
Acquisitions, Integration and Retention
We may not find suitable acquisition candidates or new ventures. As part of our growth strategy, we continue to evaluate
possible acquisition transactions on an ongoing basis, and at any given time we may be engaged in discussions with respect to
possible acquisitions and new ventures. We may not be able to identify suitable acquisition targets or ventures, any such
transactions may not be financed or completed on acceptable terms and our future acquisitions or ventures may
not be successful.
The integration of acquired companies may not be as successful as we anticipate. We have completed, and expect to complete,
acquisitions in an effort to achieve profitable growth in our underwriting and other insurance operations and to create
additional value on a diversified basis in our Markel Ventures operations. Acquisitions present operational, strategic and
financial risks, as well as risks associated with liabilities arising from the previous operations of the acquired companies.
We also must make decisions about the degree to which we integrate acquisitions into our existing businesses, operations and
systems, and over what timeframe. Those decisions may adversely affect how successfully the acquired businesses perform,
both in the short term and in the long term. All of these risks are magnified in the case of a large acquisition. Integration of the
operations and personnel of acquired companies may prove more difficult than anticipated, which may result in failure to
achieve financial objectives associated with the acquisition or diversion of management attention. In addition, integration of
formerly privately-held companies into the management and internal control and financial reporting systems of a publicly-held
company presents additional risks. See note 2 of the notes to consolidated financial statements for information about our
recent acquisitions.
Impairment in the value of our goodwill or other intangible assets could have a material adverse effect on our operating results
and financial condition. As of December 31, 2019, goodwill and intangible assets totaled $4.0 billion and represented 37% of
shareholders’ equity. We record goodwill and intangible assets at fair value upon the acquisition of a business. Goodwill
represents the excess of amounts paid to acquire businesses over the fair value of the net assets acquired. Goodwill and
indefinite-lived intangible assets are evaluated for impairment annually, or more frequently if events or circumstances indicate
that their carrying value may not be recoverable. Declines in operating results, divestitures, sustained market declines and
other factors that impact the fair value of a reporting unit could result in an impairment of goodwill or intangible assets and,
in turn, a charge to net income. Such a charge could have a material adverse effect on our results of operations or financial
condition. Developments that adversely affect the future cash flows or earnings of an acquired business may cause the goodwill
or intangible assets recorded for it to be impaired. See note 6 of the notes to consolidated financial statements.
The loss of one or more key executives or an inability to attract and retain qualified personnel could have a material adverse
effect on us. Our success depends on our ability to retain the services of our existing key executives and to attract and retain
additional qualified personnel in the future. The loss of the services of any of our key executives or the inability to hire and
retain other highly qualified personnel in the future could have a material adverse effect on our ability to conduct or grow
our business.
Information Technology Systems and Third-Party Systems and Service Providers
Information technology systems that we use could fail or suffer a security breach, which could have a material adverse effect on
us or result in the loss of regulated or sensitive information. Our businesses are dependent upon the operational effectiveness
and security of our enterprise systems and those maintained by third parties. Among other things, we rely on these systems to
interact with producers, insureds, customers, clients, and other third parties, to perform actuarial and other modeling functions,
to underwrite business, to prepare policies and process premiums, to process claims and make claims payments, to prepare
internal and external financial statements and information, as well as to engage in a wide variety of other business activities.
A significant failure of our enterprise systems, or those of third parties upon which we may rely, whether because of a natural
disaster, network outage or a cyber-attack on those systems, could compromise our personal, confidential and proprietary
information as well as that of our customers and business partners, impede or interrupt our business operations and could result
in other negative consequences, including remediation costs, loss of revenue, additional regulatory scrutiny and fines, litigation
and monetary and reputational damages. Although we have implemented controls and take protective actions to reduce the risk
of an enterprise failure and protect against a security breach, such measures may be insufficient to prevent, or mitigate the
effects of, a natural disaster, network outage or a cyber-attack on our systems that could result in liability to us, cause our data
to be corrupted or stolen and cause us to commit resources, management time and money to prevent or correct those failures.
50
In addition, we are subject to numerous data privacy laws and regulations enacted in the jurisdictions in which we do business.
A misuse or mishandling of confidential or proprietary information being sent to or received from a client, employee or third
party could damage our businesses or our reputation or result in significant monetary damages, regulatory enforcement actions,
fines and criminal prosecution in one or more jurisdictions. For example, under the European General Data Protection
Regulation there are significant new punishments for noncompliance which could result in a penalty of up to 4% of a firm’s
global annual revenue. In addition, a violation of data privacy laws and regulations could result in defaults under our
outstanding indebtedness or credit facilities. Those monetary damages, penalties, regulatory or legal actions or defaults, or the
damage to our businesses or reputation, could have a material adverse effect on our results of operations and financial
condition. Third parties to whom we outsource certain functions are also subject to these risks, and their failure to adhere to
these laws and regulations also could damage our businesses or reputation or result in regulatory intervention, which could
have a material adverse effect on our results of operations and financial condition.
Further, we routinely transmit, receive and store personal, confidential and proprietary information by email and other
electronic means. Although we attempt to protect this confidential and proprietary information, we may be unable to do so in
all cases, especially with customers, business partners and other third parties who may not have or use appropriate controls to
protect confidential information.
While we maintain cyber risk insurance providing first party and third party coverages, that insurance may not cover all costs
associated with the consequences of personal and confidential and proprietary information being compromised. A material
cyber security breach could have a material adverse effect on our results of operations and financial condition.
Outsourced providers may perform poorly, breach their obligations to us or expose us to enhanced risks. We outsource certain
business functions to third-party providers, and these providers may not perform as anticipated or may fail to adhere to the
obligations owed to us. For example, certain of our business units rely on relationships with a number of third-party
administrators under contracts pursuant to which these third-party administrators manage and pay claims on our behalf and
advise us with respect to case reserves. In these relationships, we rely on controls incorporated in the provisions of the
administration agreement, as well as on the administrator’s internal controls, to manage the claims process within our
prescribed parameters. In addition, certain of our business units use managing general agents, general agents and other
producers to write and administer business on our behalf within prescribed underwriting authorities. Although we monitor
these administrators, agents, producers and other service providers on an ongoing basis, our monitoring efforts may not be
adequate, or our service providers could exceed their authorities or otherwise breach obligations owed to us, which could result
in operational disruption, reputational damage and regulatory intervention and otherwise have a material adverse effect on our
results of operation and financial condition.
In addition, we outsource certain technology and business process functions to third parties and may do so increasingly in the
future. If we do not effectively develop and implement our outsourcing strategy, third party providers do not perform as
anticipated or we experience technological or other problems with a transition, we may not realize productivity improvements
or cost efficiencies and may experience operational difficulties, increased costs and a loss of business. Our outsourcing of
certain technology and business process functions to third parties may expose us to enhanced risk related to data security,
which could result in monetary and reputational damages. In addition, our ability to receive services from third party providers
might be impacted by cultural differences, political instability, unanticipated regulatory requirements or policies. As a result,
our ability to conduct our business may be adversely affected.
E m p l o y e e s
At December 31, 2019, we had approximately 18,600 employees, of whom approximately 14,000 were employed within our
Markel Ventures operations.
51
Markel Corporation & Subsidiaries
S E L E C T E D F I N A N C I A L
D A T A (dollars in millions, except per share data) (1)
results OF OPeratiOns
Earned premiums
Net investment income
Products revenues
Services and other revenues
Total operating revenues(2)
Net income (loss) to shareholders(2)
Comprehensive income (loss) to shareholders
Diluted net income (loss) per share
Financial POsitiOn
Total investments, cash and cash equivalents and restricted cash and cash
equivalents (invested assets)
Total assets
Unpaid losses and loss adjustment expenses
Senior long-term debt and other debt
Shareholders’ equity
Common shares outstanding (at year end, in thousands)
O P E R A T I N G P E R F O R M A N C E M E A S U R E S (1,3)
OPerating Data
Book value per common share outstanding
5-Year CAGR in book value per share(4)
Closing stock price
5-Year CAGR in closing stock price(4)
ratiO analysis
U.S. GAAP combined ratio(5)
Investment yield(6)
Taxable equivalent total investment return(7)
Investment leverage(8)
Debt to capital
2019
2018
2017
$ 5,050
452
1,610
813
9,526
1,790
2,094
$ 129.07
$ 22,258
37,474
14,729
3,534
11,071
13,794
$
$
4,712
434
1,498
635
6,841
(128)
(376)
(9.55)
$ 19,238
33,306
14,276
3,010
9,081
13,888
$
$
4,248
406
951
462
6,062
395
1,175
25.81
$ 20,570
32,805
13,584
3,099
9,504
13,904
$ 802.59
$ 653.85
$ 683.55
8%
7%
11%
$ 1,143.17
$ 1,038.05
$1,139.13
11%
12%
21%
94%
3%
15%
2.0
24%
98%
3%
(1)%
2.1
25%
105%
3%
10%
2.2
25%
(1) Reflects the acquisition of Alterra Capital Holdings Limited effective May 1, 2013, which included the issuance of equity totaling $2.3
billion.
(2) In accordance with the provisions of ASU No. 2016-01, beginning January 1, 2018, all changes in the fair value of equity securities are
recognized in net income.
(3) Operating Performance Measures provide a basis for management to evaluate our performance. The method we use to compute these
measures may differ from the methods used by other companies. See further discussion of management’s evaluation of these measures in
Management’s Discussion & Analysis of Financial Condition and Results of Operations.
(4) CAGR—compound annual growth rate.
52
2016
2015
2014
2013
2012
2011
2010
$ 3,866
373
885
422
5,612
456
667
$ 31.27
$ 19,059
25,875
10,116
2,575
8,461
13,955
$ 3,824
353
872
215
5,370
583
233
$ 41.74
$ 18,181
24,939
10,252
2,239
7,834
13,959
$ 3,841
363
681
203
5,134
321
936
$ 22.27
$18,638
25,198
10,404
2,251
7,595
13,962
$ 3,232
317
550
161
4,323
281
459
$ 22.48
$ 17,612
23,956
10,262
2,256
6,674
13,986
$ 2,147
282
367
172
3,000
253
504
$ 25.89
$ 9,333
12,557
5,371
1,493
3,889
9,629
$ 1,979
264
215
136
2,630
142
252
$ 14.60
$ 8,728
11,532
5,399
1,294
3,388
9,621
$ 1,731
273
156
30
2,225
267
431
$ 27.27
$ 8,224
10,826
5,398
1,016
3,172
9,718
5-Year
CAGR(4)
10-Year
CAGR(4)
6%
4%
19%
32%
13%
11%
6%
35%
61%
16%
4%
8%
7%
11%
14%
10%
8%
15%
$ 606.30
$ 561.23
$543.96
$ 477.16
$ 403.85
$ 352.10
$326.36
8%
11%
11%
11%
14%
17 %
9%
9%
13%
$904.50
$ 883.35
$682.84
$ 580.35
$ 433.42
$ 414.67
$ 378.13
11%
13%
17%
18%
15%
14%
(2)%
(3)%
4%
92%
2%
4%
2.3
23%
89%
2%
(1)%
2.3
22%
95%
2%
7%
2.5
23%
97%
3%
7%
2.6
25%
97%
4%
9%
2.4
28%
102%
4%
7%
2.6
28%
97%
4%
8%
2.6
24%
(5) The U.S. GAAP combined ratio measures the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition and
insurance expenses to earned premiums.
(6) Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.
(7) See “Investing Results” in Management’s Discussion & Analysis of Financial Condition and Results of Operations for detail regarding the
calculation of taxable equivalent total investment return.
(8) Investment leverage represents total invested assets divided by shareholders’ equity.
53
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S R E P O R T O N I N T E R N A L C O N T R O L O V E R F I N A N C I A L R E P O R T I N G
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
Management does not expect that its internal control over financial reporting will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Internal control over financial reporting is a process that involves human diligence and compliance
and is subject to lapses in judgment and breakdowns resulting from human failures. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
have been detected. The design of any system of internal control over financial reporting also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.
Under the supervision and with the participation of management, including the Co-Principal Executive Officers and the
Principal Financial Officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation, we have concluded that we maintained effective internal
control over financial reporting as of December 31, 2019.
KPMG LLP, our independent registered public accounting firm, has issued an attestation report on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2019, which is included herein.
Thomas S. Gayner
Co-Chief Executive Officer
(Co-Principal Executive Officer)
Richard R. Whitt, III
Co-Chief Executive Officer
(Co-Principal Executive Officer)
Jeremy A. Noble
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
February 21, 2020
54
R E P O R T O F
I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
To the Shareholders and Board of Directors
Markel Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Markel Corporation and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related
consolidated statements of income (loss) and comprehensive income (loss), changes in equity, and cash flows
for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the
consolidated financial statements), and our report dated February 21, 2020 expressed an unqualified opinion on
those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Richmond, Virginia
February 21, 2020
55
Markel Corporation & Subsidiaries
R E P O R T O F
I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
To the Shareholders and Board of Directors
Markel Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Markel Corporation and subsidiaries (the
Company) as of December 31, 2019 and 2018, the related consolidated statements of income (loss) and
comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period
ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2020 expressed
an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of
accounting for investments in equity securities as of January 1, 2018 due to the adoption of Accounting
Standards Update No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgment. The communication
of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
56
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on
the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the estimation of the liability for unpaid losses and loss adjustment expenses for the
Company’s underwriting operations
As described in Note 10, the Company has recorded a liability for unpaid losses and loss adjustment expenses
(loss reserves) of $14.7 billion as of December 31, 2019, of which $11.8 billion represents loss reserves for the
Company’s underwriting operations. The Company’s actuaries use established actuarial methods and patterns
of past claims activity to estimate ultimate losses to be paid. The actuarial point estimate represents the
actuaries’ estimate of the most likely amount that will ultimately be paid to settle the losses that have occurred
at a particular point in time. Loss reserves are established at the Company’s best estimate, which is generally
higher than the actuarial point estimate for its underwriting operations.
We identified the evaluation of the estimation of loss reserves for the Company’s underwriting operations as a
critical audit matter. The assessment of actuarial methods and key assumptions about future claim reporting
and payment patterns, which were used to estimate ultimate losses, required specialized actuarial skills and
knowledge. In addition, the Company’s best estimate incorporated additional or different perspectives from
its actuaries on certain subjective factors, such as credibility and timeliness of claims information received
from third parties, economic and social inflation, judicial decisions, changes in law, and other internal and
external factors that affect loss development. The evaluation of these perspectives and their impact on certain
assumptions utilized by the Company to estimate the loss reserves required subjective auditor judgment.
The primary procedures we performed to address this critical audit matter included the following. We tested
certain internal controls over the Company’s loss reserving process, including internal controls related to
methods and assumptions used to derive the actuarial point estimate and the Company’s best estimate of loss
reserves for its underwriting operations. We also involved actuarial professionals with specialized skills and
knowledge, who assisted in:
● Assessing the Company’s actuarial methodologies by comparing to generally accepted actuarial
methodologies;
● Evaluating whether certain assumptions about future claims reporting and payment patterns used to
determine the Company’s actuarial point estimate are consistent with the Company’s historical loss
reporting and payment patterns;
● Developing an independent range of consolidated loss reserves by:
○ Developing independent actuarial estimates for certain product lines with long-tail loss reporting and
payment patterns using the Company’s underlying historical claims and policy data, as well as industry
loss reporting and payment data for workers’ compensation lines;
○ Assessing the Company’s actuarial analyses, including their actuarial methods and assumptions
discussed above, for certain remaining product lines comprised of those with smaller balances or
shorter tail loss reporting and payment patterns; and
● Evaluating the movement of the Company’s best estimate within our independently calculated range of
consolidated loss reserves between reporting periods.
We have served as the Company’s auditor since 1980.
Richmond, Virginia
February 21, 2020
57
Markel Corporation & Subsidiaries
C O N S O L I D A T E D B A L A N C E S H E E T S
assets
Investments, at estimated fair value:
Fixed maturities, available-for-sale (amortized cost
of $9,448,840 in 2019 and $9,950,773 in 2018)
Equity securities (cost of $3,266,735 in 2019 and $2,971,856 in 2018)
Short-term investments, available-for-sale
(estimated fair value approximates cost)
Total Investments
Cash and cash equivalents
Restricted cash and cash equivalents
Receivables
Reinsurance recoverables
Deferred policy acquisition costs
Prepaid reinsurance premiums
Goodwill
Intangible assets
Other assets
tOtal assets
liabilities anD equity
Unpaid losses and loss adjustment expenses
Life and annuity benefits
Unearned premiums
Payables to insurance and reinsurance companies
Senior long-term debt and other debt (estimated fair value of
$3,907,000 in 2019 and $3,030,000 in 2018)
Other liabilities
Total Liabilities
Redeemable noncontrolling interests
Commitments and contingencies
Shareholders’ equity:
Common stock
Retained earnings
Accumulated other comprehensive income (loss)
Total Shareholders’ Equity
Noncontrolling interests
Total Equity
tOtal liabilities anD equity
See accompanying notes to consolidated financial statements.
December 31,
2019
2018
(dollars in thousands)
$
9,970,909
7,590,755
$ 10,043,188
5,720,945
1,196,248
18,757,912
3,072,807
427,546
1,847,802
5,432,712
566,042
1,415,857
2,308,548
1,738,474
1,906,115
1,077,696
16,841,829
2,014,168
382,264
1,692,526
5,221,947
474,513
1,331,022
2,237,975
1,726,196
1,383,823
$ 37,473,815
$ 33,306,263
$ 14,728,676
985,729
4,057,727
406,720
3,534,183
2,504,802
26,217,837
177,562
3,404,919
7,457,176
208,772
11,070,867
7,549
11,078,416
$ 14,276,479
1,001,453
3,611,028
337,326
3,009,577
1,796,036
24,031,899
174,062
3,392,993
5,782,310
(94,650)
9,080,653
19,649
9,100,302
$ 37,473,815
$ 33,306,263
58
C O N S O L I D A T E D S T A T E M E N T S O F
I N C O M E ( L O S S ) A N D C O M P R E H E N S I V E I N C O M E ( L O S S )
OPerating reVenues
Earned premiums
Net investment income
Net investment gains (losses):
Other-than-temporary impairment losses
Net realized investment gains (losses),
excluding other-than-temporary impairment losses
Change in fair value of equity securities
Net investment gains (losses)
Products revenues
Services and other revenues
Total Operating Revenues
OPerating exPenses
Losses and loss adjustment expenses
Underwriting, acquisition and insurance expenses
Products expenses
Services and other expenses
Amortization of intangible assets
Impairment of goodwill and intangible assets
Total Operating Expenses
Operating Income
Interest expense
Net foreign exchange gains (losses)
Loss on early extinguishment of debt
Income (Loss) Before Income Taxes
Income tax (expense) benefit
Net Income (Loss)
Net (income) loss attributable to noncontrolling interests
net incOMe (lOss) tO sHareHOlDers
OtHer cOMPre He nsiVe incOMe (lOss)
Change in net unrealized gains on available-for-sale investments,
net of taxes:
Net holding gains (losses) arising during the period
Reclassification adjustments for net gains (losses)
included in net income (loss)
Change in net unrealized gains on available-for-sale investments,
net of taxes
Change in foreign currency translation adjustments, net of taxes
Change in net actuarial pension loss, net of taxes
Total Other Comprehensive Income (Loss)
Comprehensive Income (Loss)
Comprehensive (income) loss attributable to noncontrolling interests
cO M P r e H e n s i V e incOMe (lOss) tO sH a r e H O l D e r s
net incOMe (lOss) Per sHare
Basic
Diluted
See accompanying notes to consolidated financial statements.
Years Ended December 31,
2019
2018
2017
(dollars in thousands, except per share data)
$
5,049,793
451,888
$ 4,712,060
434,215
$ 4,247,978
405,709
—
—
(7,589)
(1,482)
1,603,204
1,601,722
1,609,586
813,202
9,526,191
2,891,190
1,878,093
1,455,245
675,679
148,638
—
7,048,845
2,477,346
(171,687)
(2,265)
(17,586)
2,285,808
(486,346)
1,799,462
(8,996)
1,790,466
$
$
(11,974)
(425,622)
(437,596)
1,497,523
635,083
6,841,285
2,820,715
1,777,511
1,413,248
474,924
115,930
199,198
6,801,526
39,759
(154,212)
106,598
—
(7,855)
(122,498)
(130,353)
2,173
(128,180)
$
$
47,174
(44,888)
(5,303)
951,012
462,263
6,061,659
2,865,761
1,589,464
850,449
458,621
80,758
—
5,845,053
216,606
(132,451)
3,140
—
87,295
313,463
400,758
(5,489)
395,269
$
$
$
299,125
$
(241,325)
$
787,339
(1,148)
7,849
(24,296)
297,977
382
5,042
303,401
2,102,863
(8,975)
2,093,888
129.25
129.07
$
$
$
$
$
$
$
$
(233,476)
(16,495)
2,341
(247,630)
(377,983)
2,213
763,043
10,449
6,259
779,751
$ 1,180,509
(5,535)
(375,770)
$ 1,174,974
(9.55)
(9.55)
$
$
25.89
25.81
59
Markel Corporation & Subsidiaries
C O N S O L I D A T E D
S T A T E M E N T S
O F
C H A N G E S
I N E Q U I T Y
Shareholders’ Noncontrolling
Total
Equity
Interests
Total Equity
$ 8,467,411
Redeemable
Noncontrolling
Interests
$ 73,678
(in thousands)
December 31, 2016
Net income (loss)
Common
Shares
13,955
Common
Stock
$3,368,666
Other comprehensive income
Comprehensive Income (Loss)
Issuance of common stock
Repurchase of common stock
58
(109)
Restricted stock awards expensed
Acquisition of Costa Farms
Adjustment of redeemable
noncontrolling interests
Purchase of noncontrolling interest
Other
—
—
—
—
—
552
—
15,881
—
—
(2,955)
(310)
Retained
Earnings
$3,526,395
395,269
—
—
(110,838)
—
—
(33,738)
—
(345)
Accumulated
Other
Comprehensive
Income (Loss)
$1,565,866
—
779,705
—
—
—
—
—
—
—
$ 8,460,927 $ 6,484
395,269
779,705
1,174,974
552
(110,838)
15,881
—
(33,738)
(2,955)
(655)
(895)
—
(895)
—
—
—
—
—
(8,330)
174
394,374
779,705
1,174,079
552
(110,838)
15,881
6,384
46
6,430
—
—
—
—
66,600
(33,738)
(11,285)
(481)
33,738
(6,179)
(7,998)
December 31, 2017
13,904
3,381,834
3,776,743
2,345,571
9,504,148
(2,567)
9,501,581
166,269
Cumulative effect of adoption of
ASU No. 2014-09, net of taxes
Cumulative effect of adoption of
ASU No. 2016-01, net of taxes
Cumulative effect of adoption of
ASU No. 2018-02
January 1, 2018
Net loss
Other comprehensive loss
Comprehensive Loss
Issuance of common stock
Repurchase of common stock
Restricted stock awards expensed
Acquisition of Brahmin
Acquisition of Nephila
Adjustment of redeemable
noncontrolling interests
Purchase of noncontrolling interest
Other
December 31, 2018
Net income (loss)
325
—
325
2,595,484
(2,595,484)
(402,853)
402,853
—
—
—
—
—
325
—
—
—
—
—
13,904
3,381,834
5,969,699
152,940
9,504,473
—
(247,590)
(128,180)
(247,590)
(2,567)
(1,175)
—
9,501,906
166,269
(129,335)
(247,590)
(998)
(40)
(128,180)
—
—
(54,007)
—
—
—
(4,828)
—
(374)
32
(48)
—
—
—
—
—
—
2
—
16,191
—
—
—
(4,986)
(48)
(375,770)
(1,175)
(376,945)
(1,038)
2
(54,007)
16,191
—
—
(4,828)
(4,986)
(422)
—
—
—
—
2
(54,007)
16,191
—
—
—
—
19,670
23,392
23,392
—
—
—
(1)
(4,828)
(4,986)
(423)
4,828
(7,104)
(8,563)
—
—
—
—
—
—
—
—
13,888
3,392,993
5,782,310
(94,650)
9,080,653
19,649
9,100,302
174,062
1,790,466
—
1,790,466
(7,820)
1,782,646
16,816
Other comprehensive income (loss)
Comprehensive Income (Loss)
Issuance of common stock
Repurchase of common stock
16
(110)
Restricted stock awards expensed
Adjustment to Nephila purchase
price allocation
Adjustment of redeemable
noncontrolling interests
Purchase of noncontrolling interest
Other
—
—
—
—
—
—
—
(116,307)
—
—
1,105
—
(398)
303,422
303,422
—
303,422
(21)
2,093,888
(7,820)
2,086,068
16,795
—
—
—
—
—
—
—
43
(116,307)
16,000
—
—
—
43
(116,307)
16,000
—
(8,250)
(8,250)
—
—
—
—
1,105
(4,219)
—
—
(296)
3,970
1,105
(4,219)
3,674
(1,105)
(4,542)
(7,648)
43
—
16,000
—
—
(4,219)
102
December 31, 2019
13,794
$3,404,919
$7,457,176
$ 208,772
$11,070,867 $ 7,549
$11,078,416
$177,562
60
See accompanying notes to consolidated financial statements.
C O N S O L I D A T E D
S T A T E M E N T S
O F
C A S H
F L O W S
$
OPerating actiVities
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred income tax expense (benefit)
Depreciation and amortization
Net investment losses (gains)
Net foreign exchange losses (gains)
Impairment of goodwill and intangible assets
Increase in receivables
Increase in deferred policy acquisition costs
Increase in unpaid losses and loss adjustment expenses, net
Decrease in life and annuity benefits
Increase in unearned premiums, net
Increase (decrease) in payables to insurance and reinsurance companies
Increase (decrease) in income taxes payable
Increase (decrease) in accrued expenses
Increase (decrease) in other liabilities
Other
Net Cash Provided By Operating Activities
inVesting actiVities
Proceeds from sales of fixed maturities and equity securities
Proceeds from maturities, calls and prepayments of fixed maturities
Cost of fixed maturities and equity securities purchased
Net change in short-term investments
Cost of equity method investments
Additions to property and equipment
Acquisitions, net of cash acquired
Other
Net Cash Used By Investing Activities
Financing actiVities
Additions to senior long-term debt and other debt
Repayment of senior long-term debt and other debt
Premiums and fees related to early extinguishment of debt
Repurchases of common stock
Payment of contingent consideration
Purchase of noncontrolling interests
Distributions to noncontrolling interests
Other
Net Cash Provided (Used) By Financing Activities
Effect of foreign currency rate changes on cash, cash equivalents,
restricted cash and restricted cash equivalents
Increase (decrease) in cash, cash equivalents, restricted cash and
Years Ended December 31,
2019
2018
2017
(dollars in thousands)
1,799,462
$ (130,353)
$ 400,758
323,385
269,239
(1,601,722)
2,265
—
(103,982)
(93,015)
226,263
(52,159)
354,116
65,460
36,938
24,432
(9,528)
32,966
1,274,120
353,918
772,336
(955,970)
(95,867)
(257,663)
(123,376)
(245,332)
16,795
(535,159)
1,645,182
(1,103,674)
(27,073)
(116,307)
(14,113)
(9,754)
(8,992)
(5,952)
359,317
2,729
227,846
437,596
(106,598)
199,198
(27,961)
(15,585)
298,796
(50,541)
62,879
(4,313)
53,730
(23,756)
(5,637)
(25,173)
892,857
419,199
551,808
(1,545,913)
1,101,636
(8,864)
(106,593)
(1,175,211)
(33,301)
(324,090)
203,871
5,303
(3,140)
—
(38,259)
(67,923)
619,305
(55,647)
197,706
(40,761)
(35,968)
(71,669)
45,051
23,992
858,529
577,650
1,129,895
(1,176,281)
234,743
(13,023)
(74,652)
(1,431,712)
8,923
(797,239)
(744,457)
206,949
(289,199)
—
(54,007)
(15,914)
(13,523)
(9,164)
(4,127)
(178,985)
664,657
(259,972)
—
(110,838)
(5,018)
(18,334)
(7,899)
(6,281)
256,315
5,643
(21,047)
45,295
restricted cash equivalents
1,103,921
(104,414)
415,682
Cash, cash equivalents, restricted cash and restricted cash
equivalents at beginning of year
2,396,432
2,500,846
2,085,164
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND
RESTRICTED CASH EQUIVALENTS AT END OF YEAR
$
3,500,353
$ 2,396,432
$2,500,846
See accompanying notes to consolidated financial statements.
61
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
1. Summary of Significant Accounting Policies
Markel Corporation is a diverse financial holding company serving a variety of niche markets. Markel Corporation's principal
business markets and underwrites specialty insurance products. Through its wholly owned subsidiary, Markel Ventures, Inc.
(Markel Ventures), Markel Corporation also owns interests in various businesses that operate outside of the specialty
insurance marketplace.
a) Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with
United States (U.S.) generally accepted accounting principles (GAAP) and include the accounts of Markel Corporation and its
consolidated subsidiaries, as well as any variable interest entities (VIEs) that meet the requirements for consolidation (the
Company). All significant intercompany balances and transactions have been eliminated in consolidation. The Company
consolidates the results of its Markel Ventures subsidiaries on a one-month lag, with the exception of significant transactions
or events that occur during the intervening period. Certain prior year amounts have been reclassified to conform to the
current presentation.
b) Use of Estimates. The preparation of financial statements in accordance with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Management periodically reviews its estimates and assumptions. Quarterly reviews include
evaluating the adequacy of reserves for unpaid losses and loss adjustment expenses, life and annuity reinsurance benefit
reserves and litigation contingencies. Estimates and assumptions for goodwill and intangible assets are reviewed in conjunction
with an acquisition, and goodwill and indefinite-lived intangible assets are reassessed at least annually for impairment. Actual
results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements.
c) Investments. Available-for-sale investments and equity securities are recorded at estimated fair value. Unrealized gains and
losses on available-for-sale investments, net of income taxes, are included in accumulated other comprehensive income in
shareholders' equity. The Company completes a detailed analysis each quarter to assess whether the decline in the fair value of
any available-for-sale investment below its cost basis is deemed other-than-temporary.
Premiums and discounts are amortized or accreted over the lives of the related fixed maturities as an adjustment to the yield
using the effective interest method. Dividend and interest income are recognized when earned. Realized investment gains or
losses are included in earnings. Realized gains or losses from sales of available-for-sale investments are derived using the first-in,
first-out method on the trade date.
Effective January 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update
(ASU) No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial
Liabilities. Upon adoption of the ASU, equity securities are no longer classified as available-for-sale and unrealized gains and
losses on equity securities, net of income taxes, are included in earnings. In accordance with the provisions of the ASU,
prior periods have not been restated to conform to the new presentation.
Investments accounted for under the equity method of accounting are recorded at cost within other assets on the consolidated
balance sheets and subsequently increased or decreased by the Company's proportionate share of the net income or loss of the
investee. The Company records its proportionate share of net income or loss of the investee in net investment income.
The Company records its proportionate share of other comprehensive income or loss of the investee as a component of other
comprehensive income. Dividends or other equity distributions in excess of the Company's cumulative equity in earnings of
the investee are recorded as a reduction of the investment. The Company reviews equity method investments for impairment
when events or circumstances indicate that a decline in the fair value of the investment below its carrying value is
other-than-temporary.
d) Cash and Cash Equivalents. The Company considers all investments with original maturities of 90 days or less to be cash
equivalents. The carrying value of the Company's cash and cash equivalents approximates fair value.
e) Restricted Cash and Cash Equivalents. Cash and cash equivalents that are restricted as to withdrawal or use are recorded as
restricted cash and cash equivalents. The carrying value of the Company’s restricted cash and cash equivalents approximates
fair value.
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f) Receivables. Receivables include amounts receivable from agents, brokers and insureds, which represent premiums that are
both currently due and amounts not yet due on insurance and reinsurance policies. Premiums for insurance policies are
generally due at inception. Premiums for reinsurance policies generally become due over the period of coverage based on the
policy terms. The Company monitors the credit risk associated with premiums receivable, taking into consideration the fact
that in certain instances credit risk may be reduced by the Company's right to offset loss obligations or unearned premiums
against premiums receivable. Amounts deemed uncollectible are charged to net income in the period they are determined.
Changes in the estimate of reinsurance premiums written will result in an adjustment to premiums receivable in the period
they are determined. Receivables also include amounts receivable from contracts with customers, which represent the
Company’s unconditional right to consideration for satisfying the performance obligations outlined in the contract.
g) Reinsurance Recoverables. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim
liability associated with the reinsured business. Allowances are established for amounts deemed uncollectible and reinsurance
recoverables are recorded net of these allowances. The Company evaluates the financial condition of its reinsurers and
monitors concentration risk to minimize its exposure to significant losses from individual reinsurers.
h) Deferred Policy Acquisition Costs. Costs directly related to the acquisition of insurance premiums are deferred and
amortized over the related policy period, generally one year. The Company only defers acquisition costs incurred that are
related directly to the successful acquisition of new or renewal insurance contracts, including commissions to agents and
brokers and premium taxes. Commissions received related to reinsurance premiums ceded are netted against broker
commissions in determining acquisition costs eligible for deferral. To the extent that future policy revenues on existing policies
are not adequate to cover related costs and expenses, deferred policy acquisition costs are charged to earnings. The Company
does not consider anticipated investment income in determining whether a premium deficiency exists.
i) Goodwill and Intangible Assets. Goodwill and intangible assets are recorded as a result of business acquisitions. Goodwill
represents the excess of the amount paid to acquire a business over the net fair value of assets acquired and liabilities assumed
at the date of acquisition. Indefinite-lived and other intangible assets are recorded at fair value as of the acquisition date.
The determination of the fair value of certain assets acquired and liabilities assumed involves significant judgment and the use
of valuation models and other estimates, which require assumptions that are inherently subjective. Goodwill and indefinite-
lived intangible assets are tested for impairment at least annually. The Company completes an annual test during the fourth
quarter of each year based upon the results of operations through September 30. Intangible assets with definite lives are
amortized using the straight-line method over their estimated useful lives, generally five to 20 years, and are reviewed for
impairment when events or circumstances indicate that their carrying value may not be recoverable.
j) Property and Equipment. Property and equipment is maintained primarily by certain of the Company's Markel Ventures
businesses and are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property
and equipment are calculated using the straight-line method over the estimated useful lives of the respective assets. Property
and equipment, net of accumulated depreciation and amortization, was $588.6 million and $551.5 million as of December 31,
2019 and 2018, respectively, and is included in other assets on the Company's consolidated balance sheets.
k) Leases. Following the adoption of FASB ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019, the present value of
future lease payments for the Company’s leases with terms greater than 12 months are included on the consolidated balance
sheet as lease liabilities and right-of-use lease assets.
The Company’s lease portfolio primarily consists of operating leases for real estate. Total expected lease payments are based on
the lease payments specified in the contract and the stated term, including any options to extend or terminate that the
Company is reasonably certain to exercise. The Company has elected the practical expedient to account for lease components
and any associated non-lease components within a contract as a single lease component, and therefore allocates all of the
expected lease payments to the lease component.
The lease liability, which represents the Company’s obligation to make lease payments arising from the contract, is calculated
based on the present value of expected lease payments over the remaining lease term, discounted using the Company’s
collateralized incremental borrowing rate at the commencement date. The lease liability is then adjusted for any prepaid rent,
lease incentives received or capitalized initial direct costs to determine the lease asset, which represents the Company’s right to
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use the underlying asset for the lease term. Lease liabilities and lease assets are included in other liabilities and other assets,
respectively, on the Company’s consolidated balance sheet.
Total lease costs are primarily comprised of rental expense for operating leases. Rental expense is recognized on a straight line
basis over the lease term and includes amortization of the right-of-use lease asset and imputed interest on the lease liability.
Rental expense attributable to the Company’s underwriting operations is included in underwriting, acquisition and insurance
expenses and rental expense attributable to the Company’s other operations is included in products expenses and services and
other expenses in the consolidated statements of income and comprehensive income.
l) Inventories. Inventories are maintained at certain of the Company’s Markel Ventures businesses and consist primarily of raw
materials, work-in-process and finished goods. Inventories are generally valued using the first-in-first-out method and stated at
the lower of cost or net realizable value. Inventories were $303.1 million and $298.7 million as of December 31, 2019 and 2018,
respectively, and are included in other assets on the Company’s consolidated balance sheets.
m) Redeemable Noncontrolling Interests. The Company owns controlling interests in various companies through its Markel
Ventures operations. In some cases, the Company has the option to acquire the remaining equity interests, and the remaining
equity interests have the option to sell their interests to the Company, in the future. The redemption value of the remaining
equity interests is generally based on the respective company’s earnings in specified periods preceding the redemption date.
The redeemable noncontrolling interests generally are or become redeemable through 2023.
The Company recognizes changes in the redemption value that exceed the carrying value of redeemable noncontrolling
interests to retained earnings as if the balance sheet date were also the redemption date. Changes in the redemption value also
result in an adjustment to net income to shareholders in the calculation of basic and diluted net income per share.
n) Income Taxes. The Company records deferred income taxes to reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when management believes it is
more likely than not that some, or all, of the deferred tax assets will not be realized. The Company recognizes the tax benefit
from an uncertain tax position taken or expected to be taken in income tax returns only if it is more likely than not that the tax
position will be sustained upon examination by tax authorities, based on the technical merits of the position. Tax positions that
meet the more likely than not threshold are then measured using a probability weighted approach, whereby the largest amount
of tax benefit that is greater than 50% likely of being realized upon ultimate settlement is recognized. The Company recognizes
interest and penalties related to uncertain tax positions in income tax expense.
o) Unpaid Losses and Loss Adjustment Expenses. Unpaid losses and loss adjustment expenses on the Company’s property and
casualty insurance business are based on evaluations of reported claims and estimates for losses and loss adjustment expenses
incurred but not reported. Estimates for losses and loss adjustment expenses incurred but not reported are based on reserve
development studies, among other things. Recorded reserves are estimates, and the ultimate liability may be greater or less
than the estimates.
p) Life and Annuity Benefits. The Company has a run-off block of life and annuity reinsurance contracts that subject the
Company to mortality, longevity and morbidity risks. The assumptions used to determine policy benefit reserves are generally
locked-in for the life of the contract unless an unlocking event occurs. To the extent existing policy reserves, together with the
present value of future gross premiums and expected investment income earned thereon, are not adequate to cover the present
value of future benefits, settlement and maintenance costs, the locked-in assumptions are revised to current best estimate
assumptions and a charge to earnings for life and annuity benefits is recognized at that time. Because of the assumptions and
estimates used in establishing reserves for life and annuity benefit obligations and the long-term nature of these reinsurance
contracts, the ultimate liability may be greater or less than the estimates. Results attributable to the run-off of life and annuity
reinsurance business are included in services and other revenues and services and other expenses in the Company’s consolidated
statements of income and comprehensive income.
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q) Revenue Recognition.
Property and Casualty Premiums
Insurance premiums written are generally recorded at the inception of a policy and earned on a pro rata basis over the policy
period, typically one year. The cost of reinsurance ceded is initially recorded as prepaid reinsurance premiums and is amortized
over the reinsurance contract period in proportion to the amount of insurance protection provided. Premiums ceded are netted
against premiums written. For multi-year contracts where insurance premiums are payable in annual installments, written
premiums are recorded at the inception of the contract based on management’s best estimate of total premiums to be received.
For contracts where the cedent has the ability to unilaterally commute or cancel coverage within the term of the policy,
premiums are generally recorded on an annual basis or up to the contract cancellation point. The remaining premiums are
estimated and included as written at each successive anniversary date within the multi-year term.
Assumed reinsurance premiums are recorded at the inception of each contract based upon contract terms and information
received from cedents and brokers and are earned on a pro rata basis over the coverage period, or for multi-year contracts,
in proportion with the underlying risk exposure to the extent there is variability in the exposure through the coverage period.
Changes in reinsurance premium estimates are expected and may result in significant adjustments in any period. These
estimates change over time as additional information regarding changes in underlying exposures is obtained. Any subsequent
differences arising on such estimates are recorded as premiums written in the period they are determined and are earned on a
pro rata basis over the coverage period. The Company uses the periodic method to account for assumed reinsurance from
foreign reinsurers. The Company’s foreign reinsurers provide sufficient information to record foreign assumed business in the
same manner as the Company records assumed business from U.S. reinsurers.
Certain contracts that the Company writes provide for reinstatement of coverage. Reinstatement premiums are the premiums
for the restoration of the insurance or reinsurance limit of a contract to its full amount after a loss occurrence by the insured or
reinsured. The Company accrues for reinstatement premiums resulting from losses recorded. Such accruals are based upon
contractual terms and management judgment is involved with respect to the amount of losses recorded. Changes in estimates
of losses recorded on contracts with reinstatement premium features will result in changes in reinstatement premiums based
on contractual terms. Reinstatement premiums are recognized at the time losses are recorded and are generally earned on a pro
rata basis over the coverage period.
Other Revenues
Effective January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and
related amendments, which created a new comprehensive revenue recognition standard, FASB Accounting Standards
Codification (ASC) 606, Revenue from Contracts with Customers, that serves as a single source of revenue guidance for
contracts with customers unless those contracts are within the scope of other standards, such as insurance contracts. ASC 606
is not applicable to the Company’s insurance premium revenues or revenues from its investment portfolio but is applicable to
most of the Company’s other revenues, as described below.
Other revenues primarily relate to the Company’s Markel Ventures operations and consist of revenues from the sale of products
and services. Revenues are recognized when, or as, control of the promised goods or services is transferred to the Company’s
customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or
services. All contracts with customers either have an original expected length of one year or less or the Company recognizes
revenue at the amount for which it has a right to invoice for the products delivered or services performed. Certain customers
may receive volume rebates or credits for products and services, which are accounted for as variable consideration. The
Company estimates these amounts based on the expected amount to be provided to the customer and reduces revenues
recognized by a corresponding amount. The Company does not expect significant changes to its estimates of variable
consideration over the term of the contracts.
Payment terms for products and services vary by the type of product or service offered and the location of the customer, and
payment is typically received at or shortly after the point of sale. For certain products, the Company requires partial payment in
the form of a deposit before the products are delivered to the customer, which is included in other liabilities on the Company’s
consolidated balance sheets.
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Products revenues are primarily generated from the sale of equipment used in baking systems, portable dredges, over-the-road
transportation equipment, flooring for the trucking industry, ornamental plants and residential homes. Most of the Company’s
product revenues are recognized when the products are shipped to the customer or the products arrive at the agreed upon
destination with the end customer. Some of the Company’s contracts include multiple performance obligations. For such
arrangements, revenues are allocated to each performance obligation based on the relative standalone selling price, which is
derived from amounts stated in the contract.
Services revenues are primarily generated by delivering healthcare services, retail intelligence and consulting services. Service
revenues are generally recognized over the term of the contracts based on hours incurred or as services are provided.
Investment management fee income in the Company’s insurance-linked securities operations is recognized over the period in
which investment management services are provided and is calculated and recognized monthly based on the net asset value of
the accounts managed. For certain accounts, the Company is also entitled to participate, on a fixed-percentage basis, in any net
income generated in excess of an agreed-upon threshold as established by the underlying investment management agreements.
In general, net income is calculated at the end of each calendar year and incentive fees are payable annually. Incentive fee
income is recognized at the conclusion of the contractual performance period, when the uncertainty related to performance has
been resolved.
Program services fees, or ceding fees, received in exchange for providing access to the U.S. property and casualty insurance
market are based on the gross premiums written on behalf of general agent and capacity provider clients. Ceding fees are earned
in a manner consistent with the recognition of the gross premiums earned on the underlying insurance policies, generally on a
pro rata basis over the terms of the underlying policies reinsured.
r) Program Services. In connection with its program services business, the Company enters into contractual agreements with
both producing general agents and reinsurers, whereby the general agents and reinsurers are typically obligated to each other for
payment of insurance amounts, including premiums, commissions and losses. To the extent these funds are not the obligation
of the Company and are settled directly between the general agent and the reinsurer, no receivables or payables are recorded for
these amounts. All obligations of the Company’s insurance subsidiaries owed to or on behalf of their policyholders are recorded
by the Company and, to the extent appropriate, offsetting reinsurance recoverables are recorded.
s) Stock-based Compensation. Stock-based compensation expense is generally recognized as part of underwriting, acquisition
and insurance expenses over the requisite service period. Stock-based compensation expense, net of taxes, was $24.6 million in
2019, $13.0 million in 2018 and $11.9 million in 2017.
t) Foreign Currency Transactions. The U.S. Dollar is the Company’s reporting currency and the primary functional currency of
its foreign underwriting operations. The functional currencies of the Company’s other foreign operations are the currencies of
the primary economic environments in which the majority of their business is transacted.
Foreign currency transaction gains and losses are the result of exchange rate changes on transactions denominated in currencies
other than the functional currency at each foreign entity. Monetary assets and liabilities are remeasured to the functional
currency at current exchange rates, with resulting gains and losses included in net foreign exchange gains within net income.
Non-monetary assets and liabilities are remeasured to the functional currency at historic exchange rates. Available-for-sale
securities are recorded at fair value with resulting gains and losses, including the portion attributable to movements in
exchange rates, included in the change in net unrealized gains on available-for-sale investments, net of taxes within other
comprehensive income. While we attempt to naturally hedge our exposure to foreign currency fluctuations by matching assets
and liabilities in the same currencies, there is a financial statement mismatch between the gains or losses recorded in net
income related to insurance reserves denominated in non-functional currencies and the gains or losses recorded in other
comprehensive income related to the available-for-sale securities held in non-functional currencies supporting the reserves.
Assets and liabilities of foreign operations denominated in a functional currency other than the U.S. Dollar are translated into
the U.S. Dollar at current exchange rates, with resulting gains or losses included, net of taxes, in the change in foreign currency
translation adjustments within other comprehensive income.
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Historically, the Company also designated certain additional currencies, including the British Pound Sterling, the Euro, and the
Canadian Dollar, as functional currencies within its foreign underwriting operations that were deemed to contain distinct and
separable operations in those foreign economic environments. However, over time the Company’s foreign underwriting
operations have evolved and are now managed on a global basis. Effective January 1, 2018, management reassessed its
functional currency determination as required by ASC 830, Foreign Currency Matters, and concluded that its foreign
underwriting operations have evolved to function as an extension, or integral component, of the Company’s global
underwriting operations, and are no longer deemed to contain distinct and separable operations. As a result, more foreign
currency denominated transactions are designated as non-functional, with related remeasurement gains and losses included in
net income. The change in the Company’s functional currency determination has been applied on a prospective basis in
accordance with ASC 830. Therefore, any translation gains and losses that were previously recorded in accumulated other
comprehensive income through December 31, 2017 remain unchanged through December 31, 2019.
u) Derivative Financial Instruments. Derivative instruments, including derivative instruments resulting from hedging
activities, are measured at fair value and recognized as either assets or liabilities on the consolidated balance sheets. The
changes in fair value of derivatives are recognized in earnings.
v) Comprehensive Income. Comprehensive income represents all changes in equity that result from recognized transactions
and other economic events during the period. Other comprehensive income refers to revenues, expenses, gains and losses that
under U.S. GAAP are included in comprehensive income but excluded from net income, such as unrealized gains or losses on
available-for-sale investments, foreign currency translation adjustments and changes in net actuarial pension loss.
w) Net Income Per Share. Basic net income per share is computed by dividing adjusted net income to shareholders by the
weighted average number of common shares outstanding during the year. Diluted net income per share is computed by dividing
adjusted net income to shareholders by the weighted average number of common shares and dilutive potential common shares
outstanding during the year.
x) Variable Interest Entities. The Company determines whether it has relationships with entities defined as VIEs in accordance
with ASC 810, Consolidation. Under this guidance, a VIE is consolidated by the variable interest holder that is determined to
be the primary beneficiary.
An entity in which the Company holds a variable interest is a VIE if any of the following conditions exist: (a) the total equity
investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial
support, (b) as a group, the holders of equity investment at risk lack either the direct or indirect ability through voting rights or
similar rights to make decisions about an entity’s activities that most significantly impact the entity’s economic performance
or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some
investors are disproportionate to their obligation to absorb the expected losses of the entity, their rights to receive the expected
residual returns of the entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of
an investor with disproportionately few voting rights.
The primary beneficiary is defined as the variable interest holder that is determined to have the controlling financial interest as
a result of having both (a) the power to direct the activities of a VIE that most significantly impact the economic performance
of the VIE and (b) the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to
the VIE.
The Company determines whether an entity is a VIE at the inception of its variable interest in the entity and upon the
occurrence of certain reconsideration events. The Company continually reassesses whether it is the primary beneficiary of
VIEs in which it holds a variable interest.
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y) Recent Accounting Pronouncements.
Accounting Standards Adopted in 2019
Effective January 1, 2019, the Company adopted FASB ASU No. 2016-02, Leases (Topic 842) and several other ASUs that were
issued as amendments to ASU No. 2016-02, which require lessees to record most leases in their balance sheets as a lease
liability with a corresponding right-of-use asset, but continue to recognize the related rent expense within net income.
The Company elected to apply the optional transition method, under which an entity initially applies the new lease standard to
existing leases at the beginning of the period of adoption. The Company continues to apply the previous guidance to 2018 and
prior periods. The Company also elected the package of practical expedients permitted under the transition guidance within
the new standard, which, among other things, allowed companies to carry forward their historical lease classification. As a
result of adopting ASU No. 2016-02, the Company recorded a right-of-use lease asset and a lease liability of $243.7 million and
$264.6 million, respectively as of January 1, 2019. ASU No. 2016-02 also requires expanded lease disclosures, which are
included in note 7. Adoption of this standard did not have a material impact on the Company’s results of operations or
cash flows.
The following ASU issued by the FASB is relevant to the Company’s operations and was adopted effective January 1, 2019.
This ASU did not have a material impact on the Company’s financial position, results of operations or cash flows:
• ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on
Purchased Callable Debt Securities
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. The FASB subsequently issued several ASUs as amendments to ASU No. 2016-13.
The standard replaces the current incurred loss model used to measure impairment losses with a current expected credit loss
(CECL) model for financial instruments measured at amortized cost, including reinsurance recoverables and trade receivables.
For available-for-sale fixed maturities, which are measured at fair value, the ASU requires entities to record impairments as an
allowance, rather than a reduction of the amortized cost, as is currently required under the other-than-temporary impairment
model. ASU No. 2016-13 becomes effective for the Company during the first quarter of 2020 and will be applied using a
modified retrospective approach through a cumulative-effect adjustment to retained earnings as of January 1, 2020. Application
of the CECL model will not impact the Company’s investment portfolio, none of which is measured at amortized cost, but will
impact certain of the Company’s other financial assets, including its reinsurance recoverables and receivables. The adjustment
to retained earnings at January 1, 2020 will not be material. Upon adoption of this ASU, any impairment losses on the
Company’s available-for-sale fixed maturities will be recorded as an allowance, subject to reversal, rather than as a reduction in
amortized cost. None of these changes are expected to have a material impact on the Company’s financial position, results of
operations or cash flows.
In August 2018, the FASB issued ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the
Accounting for Long-Duration Contracts. The ASU requires insurance entities with long duration contracts to: (1) review and,
if there is a change, update the assumptions used to measure cash flows at least annually, as well as update the discount rate
assumption at each reporting date; (2) measure all market risk benefits associated with deposit (or account balance) contracts at
fair value; and (3) disclose liability rollforwards and information about significant inputs, judgments, assumptions and methods
used in measurement, including changes thereto and the effect of those changes on measurement. In November 2019, the
FASB issued ASU No. 2019-09, Financial Services—Insurance (Topic 944): Effective Date, which deferred the effective date of
ASU No. 2018-12 for the Company until the first quarter of 2022. ASU No. 2018-12 will, among other things, impact the
discount rate used in estimating reserves for the Company’s life and annuity reinsurance portfolio, which is in runoff.
Currently, the discount rate assumption is locked-in for the life of the contracts, unless there is a loss recognition event.
The Company is currently evaluating ASU No. 2018-12 to determine the impact that adopting this standard will have on
its consolidated financial statements.
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In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement
that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use
software and hosting arrangements that include an internal-use software license. The ASU requires an entity to expense the
implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. Currently,
such costs are generally expensed as incurred. ASU No. 2018-15 becomes effective for the Company during the first quarter of
2020 and will be applied on a prospective basis. Adoption of this ASU is not expected to have a material impact on the
Company’s financial position, results of operations or cash flows.
The following ASUs issued by the FASB are also relevant to the Company’s operations and are not yet effective. These ASUs
are not expected to have a material impact on the Company’s financial position, results of operations or cash flows:
• ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement
• ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure
Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
• ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest
Entities
• ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
2. Acquisitions
VSC Fire &Security, Inc.
In November 2019, the Company acquired VSC Fire & Security, Inc. (VSC), a provider of comprehensive fire protection,
life safety, and low voltage solutions to retailers, commercial campuses, healthcare facilities, and government properties
throughout the southeastern United States. Total consideration for the acquisition was $225.0 million, which included cash
consideration of $204.0 million. Total consideration also includes the estimated fair value of contingent consideration the
Company expects to pay in 2021 based on VSC’s earnings, as defined in the purchase agreement. The purchase price was
preliminarily allocated to the acquired assets and liabilities of VSC based on estimated fair value at the acquisition date.
The Company preliminarily recognized goodwill of $118.9 million, which is primarily attributable to expected future earnings
and cash flow potential of VSC. The majority of the goodwill recognized is expected to be deductible for income tax purposes.
The Company also preliminarily recognized other intangible assets of $70.5 million, which includes $54.0 million of customer
relationships, $14.0 million of trade names and $2.5 million of other intangible assets, which are expected to be amortized over
a weighted average period of 12 years, 12 years and 8 years, respectively. Results attributable to VSC will be included in the
Company’s Markel Ventures segment.
The Company has not completed the process of determining the fair value of the assets acquired and liabilities assumed.
These valuations are required to be completed within the measurement period, which cannot exceed 12 months from the
acquisition date. As a result, the fair value recorded for these items is a provisional estimate and may be subject to adjustment.
Once completed, any adjustments resulting from the valuations may impact the individual amounts recorded for assets
acquired and liabilities assumed, as well as the residual goodwill.
The Hagerty Group, LLC
In June 2019, the Company acquired a minority ownership interest in The Hagerty Group, LLC (Hagerty Group), a company
that primarily operates as a managing general agent under the names Hagerty Insurance Agency and Hagerty Classic Marine
Insurance Agency (collectively, Hagerty). Hagerty Group also includes Hagerty Re, a Bermuda Class 3 reinsurance company.
Hagerty Group is a leading automotive lifestyle brand and provider of specialty insurance to automobile enthusiasts. Total
69
Markel Corporation & Subsidiaries
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(continued)
consideration for the Company’s investment was $212.5 million. The Company’s investment in Hagerty Group is accounted
for under the equity method and is included in other assets on the Company’s consolidated balance sheet.
Essentia Insurance Company, one of the Company’s insurance subsidiaries, is the exclusive insurance underwriter for Hagerty
in the U.S., and a portion of this insurance is ceded to Hagerty Re. Gross written premiums attributable to Hagerty for the year
ended December 31, 2019 were $422.1 million, of which $202.1 million were ceded to Hagerty Re.
Brahmin Leather Works, LLC
In October 2018, the Company acquired 90% of Brahmin Leather Works, LLC (Brahmin), a Massachusetts-based privately held
creator of fashion leather handbags. Total consideration for the acquisition was $192.9 million, which included cash
consideration of $172.3 million. Total consideration also includes the estimated fair value of contingent consideration the
Company expects to pay based on Brahmin’s earnings as defined in the purchase agreement, for the period of 2019 through 2021.
As of December 31, 2018, the purchase price was preliminarily allocated to the acquired assets and liabilities of Brahmin based
on estimated fair value at the acquisition date. During 2019, the Company completed the process of determining the fair value
of the assets and liabilities acquired with Brahmin. The Company recognized goodwill of $63.8 million, which is primarily
attributable to expected future earnings and cash flow potential of Brahmin. The majority of the goodwill recognized is
deductible for income tax purposes. The Company also recognized other intangible assets of $93.3 million, which includes
$57.0 million of customer relationships, $35.0 million of trade names and $1.3 million of other intangible assets, which are
being amortized over a weighted average period of 16 years, 16 years and 8 years, respectively. The Company also recognized
redeemable noncontrolling interests of $19.6 million. Results attributable to Brahmin are included in the Company’s Markel
Ventures segment.
Nephila Holdings Ltd.
In November 2018, the Company acquired all of the outstanding shares of Nephila Holdings Ltd. (Nephila), a Bermuda-based
investment fund manager offering a broad range of investment products, including insurance-linked securities, catastrophe
bonds, insurance swaps and weather derivatives. Nephila generates revenue primarily through management and incentive fees.
Total consideration for the acquisition was $974.4 million, all of which was cash consideration.
As of December 31, 2018, the purchase price was preliminarily allocated to the acquired assets and liabilities of Nephila based
on estimated fair values at the acquisition date. During 2019, the Company completed the process of determining the fair value
of the assets and liabilities acquired with Nephila. The Company recognized goodwill of $434.2 million, which is primarily
attributable to expected future earnings and cash flow potential of Nephila. None of the goodwill recognized is deductible for
income tax purposes. The Company also recognized other intangible assets of $551.0 million, which includes $468.0 million of
investment management agreements, $32.0 million of broker relationships, $27.0 million of technology and $24.0 million of
trade names, which are being amortized over a weighted average period of 17 years, 12 years, 6 years and 14 years, respectively.
The Company also recognized noncontrolling interests of $15.1 million attributable to certain consolidated subsidiaries of
Nephila that are not wholly-owned. Nephila operates as a separate business unit and its operating results are not included in a
reportable segment.
SureTec Financial Corp.
In April 2017, the Company completed the acquisition of SureTec Financial Corp. (SureTec), a Texas-based privately held surety
company primarily offering contract, commercial and court bonds. Results attributable to this acquisition are included in the
Insurance segment.
70
Total consideration for this acquisition was $246.9 million, which included cash consideration of $225.6 million. Total
consideration also includes the estimated fair value of contingent consideration the Company expects to pay based on SureTec’s
earnings, as defined in the merger agreement, for the years 2017 through 2020. The purchase price was allocated to the acquired
assets and liabilities of SureTec based on estimated fair values on the acquisition date. The Company recognized goodwill of
$70.4 million, which is primarily attributable to synergies that are expected to result upon integration of SureTec into the
Company’s insurance operations. None of the goodwill recognized is deductible for income tax purposes. The Company also
recognized other intangible assets of $103.0 million, which includes $92.0 million of agent relationships to be amortized over
a weighted average period of 15 years.
Costa Farms Companies
In August 2017, the Company acquired 81% of the holding company for the Costa Farms companies (Costa Farms), a Florida-
based privately held grower of house and garden plants. Under the terms of the acquisition agreement, the Company has the
option to acquire the remaining equity interests and the remaining equity interests have the option to sell their interests to the
Company in the future. The redemption value of the remaining equity interests is generally based on Costa Farm’s earnings in
specified periods preceding the redemption date. Total consideration for the purchase was $417.2 million, which included cash
consideration of $387.9 million. Total consideration also included $29.3 million of contingent consideration, which represented
the Company’s initial estimate of the fair value of the contingent consideration the Company expected to pay based on Costa
Farms’ earnings, as defined in the purchase agreement, annually through 2021. Subsequent changes in the Company’s
expectation of the contingent consideration obligation are recorded as operating expenses in the consolidated statements of
income and comprehensive income. Operating expenses for the year ended December 31, 2017 included $19.0 million related
to an increase in the Company’s estimate of the contingent consideration obligation, which now reflects the maximum amount
of contingent consideration payable under the purchase agreement. The purchase price was allocated to the acquired assets and
liabilities of Costa Farms based on estimated fair values at the acquisition date. The Company recognized goodwill of
$186.2 million, which is primarily attributable to expected future earnings and cash flow potential of Costa Farms. The
majority of the goodwill recognized is deductible for income tax purposes. The Company also recognized other intangible assets
of $192.0 million, which includes $161.0 million of customer relationships and $31.0 million of trade names, which are
expected to be amortized over a weighted average period of 17 years and nine years, respectively. The Company also recognized
redeemable noncontrolling interests of $66.6 million. Results attributable to this acquisition are included in the Company’s
Markel Ventures segment.
State National Companies, Inc.
In November 2017, the Company completed its acquisition of 100% of the issued and outstanding common stock of State
National Companies, Inc. (State National), a Texas-based leading specialty provider of property and casualty insurance that
includes both fronting services and collateral protection insurance coverage. Pursuant to the terms of the merger agreement,
State National stockholders received $21.00 cash for each outstanding share of State National common stock (other than
certain performance-based restricted shares that did not vest in connection with the transaction). Total consideration for this
acquisition was $918.8 million, all of which was cash consideration.
The purchase price was allocated to the acquired assets and liabilities of State National based on estimated fair values at the
acquisition date. The Company recognized goodwill of $379.2 million, none of which is deductible for income tax purposes.
The goodwill is attributable to the Company’s ability to achieve future revenue growth from new customers and the continued
enhancement of State National’s existing technology. Goodwill is also attributable to State National’s assembled workforce and
synergies associated with the integration of State National into the Company’s insurance operations and investing activities.
The Company also recognized intangible assets of $370.5 million, including indefinite lived intangible assets of $32.0 million
for insurance licenses. The other intangible assets of $338.5 million included $289.0 million of customer relationships,
$22.5 million of trade names and $27.0 million of technology, which are being amortized over a weighted average period of
13 years, 13 years and 9 years, respectively. Results attributable to State National’s collateral protection insurance coverages are
included in the Insurance segment. Results attributable to State National’s program services business are not included in a
reportable segment.
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(continued)
3. Investments
a) The following tables summarize the Company’s available-for-sale investments. Commercial and residential mortgage-
backed securities include securities issued by U.S. government-sponsored enterprises and U.S. government agencies. The net
unrealized holding gains in the tables below are presented before taxes and any reserve deficiency adjustments for life and
annuity benefit reserves. See note 12.
(dollars in thousands)
Fixed maturities:
U.S. Treasury securities
U.S. government-sponsored enterprises
Obligations of states, municipalities and
political subdivisions
Foreign governments
Commercial mortgage-backed securities
Residential mortgage-backed securities
Asset-backed securities
Corporate bonds
Total fixed maturities
Short-term investments
December 31, 2019
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Estimated
Fair
Value
Amortized
Cost
$
282,305
318,831
$
2,883
23,949
$
(402)
(200)
$
284,786
342,580
3,954,779
1,415,639
1,761,777
855,641
11,042
848,826
9,448,840
1,194,953
235,915
135,763
57,450
32,949
28
47,551
536,488
1,355
(812)
(9,398)
(1,382)
(517)
(22)
(1,686)
(14,419)
(60)
4,189,882
1,542,004
1,817,845
888,073
11,048
894,691
9,970,909
1,196,248
Investments, AvAIlAble-For-sAle
$ 10,643,793
$ 537,843
$ (14,479)
$ 11,167,157
(dollars in thousands)
Fixed maturities:
U.S. Treasury securities
U.S. government-sponsored enterprises
Obligations of states, municipalities and
political subdivisions
Foreign governments
Commercial mortgage-backed securities
Residential mortgage-backed securities
Asset-backed securities
Corporate bonds
Total fixed maturities
Short-term investments
December 31, 2018
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Estimated
Fair
Value
Amortized
Cost
$
248,286
357,765
$
308
5,671
$
(1,952)
(4,114)
$
246,642
359,322
4,285,068
1,482,826
1,691,572
886,501
19,614
979,141
9,950,773
1,080,027
96,730
98,356
3,154
6,170
7
13,234
223,630
443
(28,868)
(21,578)
(44,527)
(12,499)
(213)
(17,464)
(131,215)
(2,774)
4,352,930
1,559,604
1,650,199
880,172
19,408
974,911
10,043,188
1,077,696
Investments, AvAIlAble-For-sAle
$ 11,030,800
$ 224,073
$ (133,989)
$ 11,120,884
72
b) The following tables summarize gross unrealized investment losses on available-for-sale investments by the length of time
that securities have continuously been in an unrealized loss position.
December 31, 2019
Less than 12 months
12 months or longer
Total
Estimated
Fair
Value
Gross
Unrealized
Holding
Losses
Estimated
Fair
Value
Gross
Unrealized
Holding
Losses
Estimated
Fair
Value
Gross
Unrealized
Holding
Losses
$ 36,862
$
(361)
$ 46,518
$
(41)
$ 83,380
$
(402)
24,148
(197)
2,868
(3)
27,016
(200)
127,836
162,907
(702)
(3,393)
6,830
159,888
(110)
(6,005)
134,666
322,795
(812)
(9,398)
(dollars in thousands)
Fixed maturities:
U.S. Treasury securities
U.S. government-sponsored
enterprises
Obligations of states, municipalities
and political subdivisions
Foreign governments
Commercial mortgage-backed
securities
202,530
(1,126)
33,853
(256)
236,383
(1,382)
Residential mortgage-backed
securities
Asset-backed securities
Corporate bonds
Total fixed maturities
Short-term investments
11,706
—
41,847
607,836
3,316
(66)
—
(1,287)
(7,132)
(60)
58,162
3,632
40,274
(451)
(22)
(399)
352,025
(7,287)
––
––
69,868
3,632
82,121
959,861
3,316
(517)
(22)
(1,686)
(14,419)
(60)
totAl
$ 611,152
$ (7,192)
$ 352,025
$ (7,287)
$ 963,177
$ (14,479)
At December 31, 2019, the Company held 201 available-for-sale securities with a total estimated fair value of $963.2 million
and gross unrealized losses of $14.5 million. Of these 201 securities, 122 securities had been in a continuous unrealized loss
position for one year or longer and had a total estimated fair value of $352.0 million and gross unrealized losses of $7.3 million.
The Company does not intend to sell or believe it will be required to sell these available-for-sale securities before recovery of
their amortized cost.
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(continued)
December 31, 2018
Less than12 months
12 months or longer
Total
Estimated
Fair
Value
Gross
Unrealized
Holding
Losses
Estimated
Fair
Value
Gross
Unrealized
Holding
Losses
Estimated
Fair
Value
Gross
Unrealized
Holding
Losses
$
2,922
$
(83) $ 156,352
$
(1,869)
$ 159,274
$
(1,952)
(dollars in thousands)
Fixed maturities:
U.S. Treasury securities
U.S. government-sponsored
enterprises
88,854
(1,923)
96,337
(2,191)
185,191
(4,114)
Obligations of states, municipalities
and political subdivisions
Foreign governments
Commercial mortgage-backed
656,573
419,764
(12,455)
(14,461)
453,736
84,776
(16,413)
(7,117)
1,110,309
504,540
(28,868)
(21,578)
securities
653,410
(10,128)
709,971
(34,399)
1,363,381
(44,527)
Residential mortgage-backed
securities
Asset-backed securities
Corporate bonds
Total fixed maturities
Short-term investments
276,777
1,645
313,164
2,413,109
197,643
(3,685)
(11)
(10,965)
(53,711)
(2,774)
242,949
17,030
222,761
1,983,912
––
(8,814)
(202)
(6,499)
(77,504)
––
519,726
18,675
535,925
4,397,021
197,643
(12,499)
(213)
(17,464)
(131,215)
(2,774)
totAl
$ 2,610,752
$ (56,485) $ 1,983,912
$ (77,504)
$ 4,594,664
$ (133,989)
At December 31, 2018, the Company held 1,005 securities with a total estimated fair value of $4.6 billion and gross unrealized
losses of $134.0 million. Of these 1,005 securities, 541 securities had been in a continuous unrealized loss position for one year
or longer and had a total estimated fair value of $2.0 billion and gross unrealized losses of $77.5 million.
The Company completes a detailed analysis each quarter to assess whether the decline in the fair value of any investment
below its cost basis is deemed other-than-temporary. All available-for-sale securities with unrealized losses are reviewed. The
Company considers many factors in completing its quarterly review of securities with unrealized losses for other-than-
temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial
condition and near-term prospects of the issuer.
For fixed maturities, the Company considers whether it intends to sell the security or if it is more likely than not that it will be
required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to
recover all amounts outstanding when contractually due. For fixed maturities where the Company intends to sell the security
or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a
decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value of the
security at the time of assessment, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity
below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the
estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the
estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the
credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis
for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment,
which is recognized in other comprehensive income.
74
c) The amortized cost and estimated fair value of fixed maturities at December 31, 2019 are shown below by contractual
maturity.
(dollars in thousands)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Commercial mortgage-backed securities
Residential mortgage-backed securities
Asset-backed securities
totAl FIxed mAturItIes
Amortized
Cost
Estimated
Fair Value
$
337,917
1,256,079
2,157,624
3,068,760
6,820,380
1,761,777
855,641
11,042
$
333,759
1,289,760
2,274,569
3,355,855
7,253,943
1,817,845
888,073
11,048
$ 9,448,840
$ 9,970,909
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower.
Based on expected maturities, the estimated average duration of fixed maturities at December 31, 2019 was 5.9 years.
d) The following table presents the components of net investment income.
(dollars in thousands)
Interest:
Municipal bonds (tax-exempt)
Municipal bonds (taxable)
Other taxable bonds
Short-term investments, including
overnight deposits
Dividends on equity securities
Income (loss) from equity method investments
Other
Investment expenses
net Investment Income
Years Ended December 31,
2019
2018
2017
$
71,351
72,818
162,861
$ 80,016
73,058
159,329
$ 87,768
70,771
145,085
50,425
100,222
4,368
5,338
467,383
(15,495)
48,765
90,840
(1,924)
881
450,965
(16,750)
26,772
82,096
11,076
(828)
422,740
(17,031)
$ 451,888
$ 434,215
$ 405,709
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Markel Corporation & Subsidiaries
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(continued)
e) The following table presents net investment gains (losses) and the change in net unrealized gains included in other
comprehensive income (loss).
(dollars in thousands)
Realized gains:
Sales and maturities of fixed maturities
Sales of equity securities (1)
Sales and maturities of short-term investments
Other
Total realized gains
Realized losses:
Sales and maturities of fixed maturities
Sales of equity securities (1)
Sales and maturities of short-term investments
Other-than-temporary impairments
Other
Total realized losses
Net ReAlIzed Investment GAIns (losses)
Change in fair value of equity securities:(1)
Change in fair value of equity securities sold during the period
Change in fair value of equity securities held at the end of the period
Change in fair value of equity securities(1)
Years Ended December 31,
2019
2018
2017
$
6,851
—
1,457
400
8,708
(2,848)
—
(2,999)
—
(4,343)
(10,190)
(1,482)
38,291
1,564,913
1,603,204
$
4,221
—
1,604
1,281
7,106
(5,768)
—
(10,545)
—
(2,767)
(19,080)
(11,974)
20,177
(445,799)
(425,622)
$
5,525
40,113
—
6,644
52,282
(1,983)
(1,830)
(699)
(7,589)
(596)
(12,697)
39,585
6,989
(51,877)
(44,888)
Net investment gains (losses)
$ 1,601,722
$
(437,596)
$
(5,303)
Change in net unrealized gains on available-for-sale investments
included in other comprehensive income (loss):
Fixed maturities
Equity securities(1)
Short-term investments
Reserve deficiency adjustment for life and annuity benefit reserves
(see note 12)
$
429,654
—
3,626
(51,390)
$
(297,158)
—
(2,288)
—
$
89,741
1,035,793
(94)
—
Net IncreAse (DecreAse)
$
381,890
$
(299,446)
$1,125,440
(1) Effective January 1, 2018, the Company adopted ASU No. 2016-01. As a result, equity securities are no longer classified as available-for-sale
with unrealized gains and losses recognized in other comprehensive income; rather, all changes in the fair value of equity securities are
now recognized in net income. Prior periods have not been restated to conform to the current presentation. Prior to adopting ASU No.
2016-01, the Company recorded certain investments in equity securities at estimated fair value with changes in fair value recorded in
net income.
76
f) Total restricted assets are included on the Company’s consolidated balance sheets as follows.
(dollars in thousands)
Investments
Restricted cash and cash equivalents
totAl
The following table presents the components of restricted assets.
(dollars in thousands)
Assets held in trust or on deposit to support underwriting activities
Assets pledged as security for letters of credit
totAl
December 31,
2019
2018
$ 4,134,164
427,546
$ 4,781,566
382,264
$ 4,561,710
$ 5,163,830
December 31,
2019
2018
$ 4,155,621
406,089
$ 4,780,613
383,217
$ 4,561,710
$ 5,163,830
g) At December 31, 2019 and 2018, investments in securities issued by the U.S. Treasury, U.S. government agencies and
U.S. government-sponsored enterprises were the only investments in any one issuer that exceeded 10% of shareholders’ equity.
At December 31, 2019, the Company’s ten largest equity holdings represented $3.0 billion, or 39%, of the equity portfolio.
Investments in the property and casualty insurance industry represented $1.2 billion, or 16%, of the equity portfolio at
December 31, 2019. Investments in the property and casualty insurance industry included a $721.8 million investment in the
common stock of Berkshire Hathaway Inc.
4. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, establishes a three-level hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the
assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is
significant to the fair value measurement of the asset or liability.
Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded
and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of
observable market data when available. The levels of the hierarchy are defined as follows:
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in
active markets.
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability and market-corroborated inputs.
Level 3 – Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value
measurement.
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Markel Corporation & Subsidiaries
N O T E S
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(continued)
In accordance with ASC 820, the Company determines fair value based on the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair
value, the Company uses various methods, including the market, income and cost approaches. The Company uses valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The following section
describes the valuation methodologies used by the Company to measure assets and liabilities at fair value, including an
indication of the level within the fair value hierarchy in which each asset or liability is generally classified.
Available-for-sale investments and equity securities. Available-for-sale investments and equity securities are recorded at fair
value on a recurring basis. Available-for-sale investments include fixed maturities and short-term investments. Short-term
investments include certificates of deposit, commercial paper, discount notes and treasury bills with original maturities of one
year or less. Fair value for available-for-sale investments and equity securities are determined by the Company after
considering various sources of information, including information provided by a third party pricing service. The pricing service
provides prices for substantially all of the Company’s fixed maturities and equity securities. In determining fair value, the
Company generally does not adjust the prices obtained from the pricing service. The Company obtains an understanding of the
pricing service’s valuation methodologies and related inputs, which include, but are not limited to, reported trades, benchmark
yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows and prepayment speeds. The Company
validates prices provided by the pricing service by reviewing prices from other pricing sources and analyzing pricing data in
certain instances.
The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value
hierarchy level based upon trading activity and the observability of market inputs. Level 1 investments include those traded
on an active exchange, such as the New York Stock Exchange. Level 2 investments include U.S. Treasury securities,
U.S. government-sponsored enterprises, municipal bonds, foreign government bonds, commercial mortgage-backed securities,
residential mortgage-backed securities, asset-backed securities and corporate debt securities. Level 3 investments include the
Company’s investments in certain insurance-linked securities funds managed by Markel CATCo Investment Management
Ltd. (MCIM), a consolidated subsidiary, that are not traded on an active exchange, as further described and defined in note 16
(the Markel CATCo Funds), and are valued using unobservable inputs.
Fair value for available-for-sale investments and equity securities is measured based upon quoted prices in active markets,
if available. Due to variations in trading volumes and the lack of quoted market prices, fixed maturities are classified as Level 2
investments. The fair value of fixed maturities is normally derived through recent reported trades for identical or similar
securities, making adjustments through the reporting date based upon available market observable data described above.
If there are no recent reported trades, the fair value of fixed maturities may be derived through the use of matrix pricing or
model processes, where future cash flow expectations are developed based upon collateral performance and discounted at an
estimated market rate. Significant inputs used to determine the fair value of obligations of states, municipalities and political
subdivisions, corporate bonds and obligations of foreign governments include reported trades, benchmark yields, issuer spreads,
bids, offers, credit information and estimated cash flows. Significant inputs used to determine the fair value of commercial
mortgage-backed securities, residential mortgage-backed securities and asset-backed securities include the type of underlying
assets, benchmark yields, prepayment speeds, collateral information, tranche type and volatility, estimated cash flows, credit
information, default rates, recovery rates, issuer spreads and the year of issue.
Due to the significance of unobservable inputs required in measuring the fair value of the Company’s investments in the
Markel CATCo Funds, these investments are classified as Level 3 within the fair value hierarchy. The fair value of the
securities are derived using their reported net asset value (NAV) as the primary input, as well as other observable and
unobservable inputs as deemed necessary by management. Management has obtained an understanding of the inputs,
assumptions, process and controls used to determine NAV, which is calculated by an independent third party. Unobservable
inputs to the NAV calculations include assumptions around premium earnings patterns and loss reserve estimates for the
underlying securitized reinsurance contracts in which the Markel CATCo Funds invest. Significant unobservable inputs used
78
in the valuation of these investments include an adjustment to include the fair value of the equity that was issued by one of
the Markel CATCo Funds in exchange for notes receivable, rather than cash, which is excluded from NAV. The determination
of fair value of the securities also considers external market data, including the trading price relative to its NAV of CATCo
Reinsurance Opportunities Fund Ltd., a comparable security traded on a market operated by the London Stock Exchange and
on the Bermuda Stock Exchange. In July 2019, the Markel CATCo Funds were placed into run-off and capital is being returned
to investors as it becomes available. However, due to the significant loss events on the underlying securitized reinsurance
contracts in 2017 and 2018, portions of the Company’s investments may be restricted up to three years.
The Company’s valuation policies and procedures for Level 3 investments are determined by management. Fair value
measurements are analyzed quarterly to ensure the change in fair value from prior periods is reasonable relative to
management’s understanding of the underlying investments, recent market trends and external market data.
Senior long-term debt and other debt. Senior long-term debt and other debt is carried at amortized cost with the estimated fair
value disclosed on the consolidated balance sheets. Senior long-term debt and other debt is classified as Level 2 within the fair
value hierarchy due to variations in trading volumes and the lack of quoted market prices. Fair value for senior long-term debt
and other debt is generally derived through recent reported trades for identical securities, making adjustments through the
reporting date, if necessary, based upon available market observable data including U.S. Treasury securities and implied credit
spreads. Significant inputs used to determine the fair value of senior long-term debt and other debt include reported trades,
benchmark yields, issuer spreads, bids and offers.
The following tables present the balances of assets measured at fair value on a recurring basis by level within the fair value
hierarchy.
(dollars in thousands)
Assets:
Investments:
Fixed maturities, available-for-sale:
U.S. Treasury securities
U.S. government-sponsored enterprises
Obligations of states, municipalities
and political subdivisions
Foreign governments
Commercial mortgage-backed securities
Residential mortgage-backed securities
Asset-backed securities
Corporate bonds
Total fixed maturities, available-for-sale
Equity securities:
Insurance, banks and other financial institutions
Industrial, consumer and all other
Total equity securities
Short-term investments, available-for-sale
December 31, 2019
Level 1
Level 2
Level 3
Total
$
—
—
—
—
—
—
—
—
—
2,463,190
5,081,573
7,544,763
1,093,799
$
284,786
342,580
$
— $
—
284,786
342,580
4,189,882
1,542,004
1,817,845
888,073
11,048
894,691
9,970,909
—
—
—
102,449
—
—
—
—
—
—
—
45,992
—
45,992
—
4,189,882
1,542,004
1,817,845
888,073
11,048
894,691
9,970,909
2,509,182
5,081,573
7,590,755
1,196,248
Total Investments
$ 8,638,562
$ 10,073,358
$ 45,992
$ 18,757,912
79
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
(dollars in thousands)
Assets:
Investments:
Fixed maturities, available-for-sale:
U.S. Treasury securities
U.S. government-sponsored enterprises
Obligations of states, municipalities
and political subdivisions
Foreign governments
Commercial mortgage-backed securities
Residential mortgage-backed securities
Asset-backed securities
Corporate bonds
Total fixed maturities, available-for-sale
Equity securities:
Insurance, banks and other financial institutions
Industrial, consumer and all other
Total equity securities
Short-term investments, available-for-sale
December 31, 2018
Level 1
Level 2
Level 3
Total
$
—
—
—
—
—
—
—
—
—
1,876,811
3,790,406
5,667,217
981,616
$
246,642
359,322
$
4,352,930
1,559,604
1,650,199
880,172
19,408
974,911
10,043,188
—
—
—
96,080
—
—
—
—
—
—
—
—
—
53,728
—
53,728
—
$
246,642
359,322
4,352,930
1,559,604
1,650,199
880,172
19,408
974,911
10,043,188
1,930,539
3,790,406
5,720,945
1,077,696
Total investments
$ 6,648,833
$ 10,139,268
$
53,728
$ 16,841,829
The following table summarizes changes in Level 3 investments measured at fair value on a recurring basis.
(dollars in thousands)
Equity securities, beginning of period
Purchases
Sales
Net investment losses on Level 3 investments
Transfers into Level 3
Transfers out of Level 3
Equity securities, end of period
$
2019
53,728
500
(9,448)
1,212
—
—
$
2018
168,809
28,900
(35,335)
(108,646)
—
—
$
45,992
$
53,728
Net investment gains (losses) on Level 3 investments related to the Company’s investments in the Markel CATCo Funds
primarily resulted from changes in the NAV of these funds in 2019 and 2018.
There were no transfers into or out of Level 1 and Level 2 during 2019 or 2018.
Except as disclosed in note 2, the Company did not have any assets or liabilities measured at fair value on a non-recurring basis
during the years ended December 31, 2019 and 2018.
80
5. Receivables
The following table presents the components of receivables.
(dollars in thousands)
Amounts receivable from agents, brokers and insureds
Trade accounts receivable
Other
Allowance for doubtful receivables
receIvAbles
6. Goodwill and Intangible Assets
December 31,
2019
2018
$ 1,424,881
259,062
182,582
1,866,525
(18,723)
$ 1,327,549
226,282
154,273
1,708,104
(15,578)
$ 1,847,802
$ 1,692,526
The following table presents a rollforward of the components of goodwill by reportable segment.
(dollars in thousands)
Insurance
Reinsurance
January 1, 2018
Acquisitions (see note 2)
Impairment of goodwill
Foreign currency movements
and other adjustments(2)
December 31, 2018(3)
Acquisitions (see note 2)
Foreign currency movements
and other adjustments(2)
Markel
Ventures
$ 424,981
73,174
––
Other(1)
$ 457,917
474,901
(91,910)
Total
$ 1,777,464
548,075
(91,910)
$ 122,745
––
––
––
(817)
6,800
4,346
$ 122,745
––
$ 497,338
118,878
$ 847,708
––
$ 2,237,975
118,878
$ 771,821
––
––
(1,637)
$ 770,184
––
1,263
––
(9,439)
(40,129)
(48,305)
DeceMber 31, 2019(3)
$ 771,447
$ 122,745
$ 606,777
$ 807,579
$ 2,308,548
(1)Amounts included in Other reflect the Company’s operations that are not included in a reportable segment.
(2)Foreign currency movements and other adjustments includes adjustments to goodwill resulting from changes to the preliminary purchase
price allocation, if any, for acquisitions that occurred in the prior year.
(3)As of December 31, 2019 and 2018, goodwill was net of accumulated impairment losses of $139.2 million, of which $91.9 million was in
Other and $47.3 million was in Markel Ventures.
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. The Company completes an
annual test during the fourth quarter of each year based upon the results of operations through September 30. There was no
impairment of goodwill during 2019 or 2017. Total impairment of goodwill for the year ended December 31, 2018 was
$91.9 million.
81
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
During 2018, the Company recorded a goodwill and intangible asset impairment charge at MCIM totaling $179.0 million.
In light of governmental inquiries into loss reserves recorded in late 2017 and early 2018 at Markel CATCo Re Ltd.
(Markel CATCo Re), an unconsolidated subsidiary managed by MCIM, and taking into consideration the departure of two
senior MCIM executives and special redemption rights that were offered to investors in the Markel CATCo Funds, as defined
in note 16, the Company concluded MCIM’s ability to maintain or raise capital had been adversely impacted. As a result, the
Company performed an assessment of the recoverability of goodwill and intangible assets at the MCIM reporting unit as of
December 31, 2018. As a result of the assessment, the Company reduced the carrying value of the goodwill and intangible
assets of the MCIM reporting unit to zero, which resulted in a goodwill impairment charge of $91.9 million and an intangible
asset impairment charge of $87.1 million, both of which were recorded to impairment of goodwill and intangible assets in the
consolidated statement of loss and comprehensive loss for the year ended December 31, 2018. The intangible asset charge
primarily related to intangible assets associated with MCIM’s investment management agreements with the Markel CATCo
Funds. In July 2019, MCIM announced it would cease accepting new investments in the Markel CATCo Funds and would not
write any new business in Markel CATCo Re. Both the Markel CATCo Funds and Markel CATCo Re have been placed into
run-off, returning capital to investors as it becomes available. See note 20 for further details.
The following table presents a rollforward of the components of net intangible assets.
(dollars in thousands)
Underwriting(1)
January 1, 2018
Acquisitions (see note 2)
Amortization of intangible assets
Impairment of intangible assets
Foreign currency movements and other adjustments(3)
December 31, 2018
Acquisitions (see note 2)
Amortization of intangible assets
Foreign currency movements and other adjustments(3)
DeceMber 31, 2019
$ 537,957
1,538
(44,464)
(4,431)
(1,512)
$ 489,088
41,506
(39,667)
(6,767)
$ 484,160
Markel
Ventures
$ 400,589
85,736
(40,208)
(14,904)
244
$ 431,457
71,629
(41,973)
12,009
$ 473,122
Other(2)
$ 417,135
521,071
(31,258)
(87,953)
(13,344)
$ 805,651
––
(66,998)
42,539
Total
$ 1,355,681
608,345
(115,930)
(107,288)
(14,612)
$ 1,726,196
113,135
(148,638)
47,781
$ 781,192
$ 1,738,474
(1)Amounts included in Underwriting reflect the intangible assets associated with the Company’s underwriting segments, which are not
allocated between the Insurance and Reinsurance segments.
(2)Amounts included in Other reflect the Company’s operations that are not included in a reportable segment.
(3)Foreign currency movements and other adjustments include adjustments to intangible assets resulting from changes to the preliminary
purchase price allocation, if any, for acquisitions that occurred in the prior year.
Amortization of intangible assets is estimated to be $150.2 million for 2020, $146.3 million for 2021, $142.9 million for 2022,
$141.0 million for 2023 and $139.1 million for 2024. Indefinite-lived intangible assets were $92.4 million at both December 31,
2019 and 2018.
For the year ended December 31, 2019, the Company acquired $113.1 million of intangible assets, all of which is amortizable
over a weighted average period of 11 years. The definite-lived intangible assets acquired during 2019 include customer
relationships, trade names and other intangible assets, which are expected to be amortized over a weighted average period of 12,
12 and 10 years, respectively.
82
The following table presents the components of intangible assets.
(dollars in thousands)
Customer relationships
Investment management agreements
Broker relationships
Trade names
Technology
Agent relationships
Insurance licenses
Renewal rights
Other
December 31,
2019
2018
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
$ 1,021,427
468,000
206,249
208,959
113,389
92,000
74,635
21,449
151,978
$
(267,580)
(33,345)
(89,234)
(68,961)
(60,611)
(16,355)
––
(19,366)
(64,160)
$ 953,739
441,000
204,367
193,154
109,208
92,000
74,635
21,053
107,441
$ (204,261)
––
(78,559)
(62,827)
(47,090)
(10,175)
––
(18,272)
(49,217)
totAl
$ 2,358,086
$
(619,612)
$ 2,196,597
$ (470,401)
7. Leases
The Company’s leases primarily consist of operating leases for real estate and have remaining terms of up to 15 years. Total
lease costs for operating leases were $62.7 million for the year ended December 31, 2019. Total rental expense was $52.9
million and $44.6 million for the years ended December 31, 2018 and 2017, respectively, which was prior to adoption of ASU
2016-02. See note 1(y).
The following table summarizes details for the Company’s operating leases recorded on the consolidated balance sheet as of
December 31, 2019.
(dollars in thousands)
Right-of-use lease assets
Lease liabilities
Weighted average remaining lease term
Weighted average discount rate
$ 232,717
$ 262,139
8.5 years
3.3%
83
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
The table below summarizes maturities of the Company’s operating lease liabilities as of December 31, 2019, which reconciles
to total lease liabilities included in other liabilities on the Company’s consolidated balance sheet.
Years Ending December 31,
(dollars in thousands)
2020
2021
2022
2023
2024
2025 and thereafter
Total lease payments
Less imputed interest
totAl operAtIng leAse lIAbIlItIes
8. Segment Reporting Disclosures
$ 49,529
45,463
39,519
34,095
26,989
107,410
303,005
(40,866)
$ 262,139
The chief operating decision maker reviews the Company’s ongoing underwriting operations on a global basis in the following
two segments: Insurance and Reinsurance. In determining how to allocate resources and assess the performance of its
underwriting results, management considers many factors, including the nature of the insurance product sold, the type of
account written and the type of customer served. The Insurance segment includes all direct business and facultative placements
written within the Company’s underwriting operations. The Reinsurance segment includes all treaty reinsurance written
within the Company’s underwriting operations. All investing activities related to the Company’s insurance operations are
included in the Investing segment.
The chief operating decision maker reviews and assesses Markel Ventures’ performance in the aggregate, as a single operating
segment. The Markel Ventures segment primarily consists of controlling interests in a diverse portfolio of businesses that
operate in various industries.
The Company’s other operations include the results of the Company’s insurance-linked securities operations and program
services business, as well as the results of its legal and professional consulting services. Other operations also include results for
lines of business discontinued prior to, or in conjunction with, acquisitions, including development on asbestos and
environmental loss reserves and results attributable to the run-off of life and annuity reinsurance business, which are monitored
separately from the Company’s ongoing underwriting operations. For purposes of segment reporting, none of these other
operations are considered to be reportable segments.
Segment profit for each of the Company’s underwriting segments is measured by underwriting profit. The property and
casualty insurance industry commonly defines underwriting profit as earned premiums net of losses and loss adjustment
expenses and underwriting, acquisition and insurance expenses. Underwriting profit does not replace operating income or
net income computed in accordance with U.S. GAAP as a measure of profitability. Underwriting profit or loss provides a
basis for management to evaluate the Company’s underwriting performance. Segment profit for the Investing segment is
measured by net investment income and net investment gains. Segment profit for the Markel Ventures segment is
measured by operating income.
84
For management reporting purposes, the Company allocates assets to its underwriting operations and to its Investing and
Markel Ventures segments and certain of its other operations, including its program services and insurance-linked securities
operations. Underwriting assets include assets attributed to the Company’s Insurance and Reinsurance segments, discontinued
underwriting lines of business, as well as assets that are not specifically allocated to the Company’s other operations.
Underwriting and investing assets are not allocated to the Company’s underwriting segments since the Company does not
manage its assets by underwriting segment. The Company does not allocate capital expenditures for long-lived assets to either
of its underwriting segments for management reporting purposes.
a) The following tables summarize the Company’s segment disclosures.
(dollars in thousands)
Insurance
Reinsurance
Investing
Markel
Ventures(1)
Other (2)
Consolidated
Gross premium volume
Net written premiums
$ 5,320,253
4,444,702
$ 1,114,153
964,947
$
— $
—
— $ 2,345,565
2,422
—
$ 8,779,971
5,412,071
Year Ended December 31, 2019
Earned premiums
Losses and loss adjustment expenses:
4,144,073
903,587
Current accident year
Prior accident years
Amortization of policy
acquisition costs
Other operating expenses
Underwriting profit (loss)
Net investment income
Net investment gains
Products revenues
Services and other revenues
Products expenses
Services and other expenses
Amortization of intangible assets (3)
(2,730,971)
462,124
(860,917)
(704,531)
309,778
(695,470)
64,768
(239,579)
(73,305)
(39,999)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
451,152
1,601,722
736
—
1,609,586
—
—
444,698
— (1,455,245)
(389,385)
—
—
(41,973)
2,133
5,049,793
—
8,359
—
239
(3,426,441)
535,251
(1,100,496)
(777,597)
10,731
280,510
—
—
—
368,504
—
(286,294)
(106,665)
451,888
1,601,722
1,609,586
813,202
(1,455,245)
(675,679)
(148,638)
Segment profit (loss)
$ 309,778
$ (39,999)
$ 2,052,874 $
168,417
$
(13,724)
$ 2,477,346
Interest expense
Net foreign exchange gains
Loss on early extinguishment of debt
Income before income taxes
(171,687)
(2,265)
(17,586)
$ 2,285,808
u.s. gAAp combIned rAtIo(4)
93%
104%
nM(5)
94%
(1) Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $53.6 million for the
year ended December 31, 2019.
(2) Other represents the total profit (loss) attributable to the Company’s operations that are not included in a reportable segment as well as any
amortization of intangible assets and impairment of goodwill and intangible assets that are not allocated to a reportable segment.
(3) Segment profit for the Markel Ventures segment includes amortization of intangible assets attributable to Markel Ventures. Amortization of
intangible assets is not allocated to the Company’s underwriting segments.
(4) The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment
expenses and underwriting, acquisition and insurance expenses to earned premiums.
(5) NM – Ratio is not meaningful
85
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
(dollars in thousands)
Insurance
Reinsurance
Investing
Markel
Ventures (1)
Other (2)
Consolidated
Gross premium volume
Net written premiums
$ 4,749,166
3,904,773
$ 1,050,870
882,285
$
— $
—
— $ 2,064,433
520
—
$ 7,864,469
4,787,578
Year Ended December 31, 2018
Earned premiums
Losses and loss adjustment expenses:
3,783,939
928,574
Current accident year
Prior accident years
Amortization of policy
acquisition costs
Other operating expenses
Underwriting profit (loss)
Net investment income
Net investment losses
Products revenues
Services and other revenues
Products expenses
Services and other expenses
Amortization of intangible assets (3)
Impairment of goodwill and
intangible assets
(2,596,057)
502,260
(770,183)
(691,186)
228,773
(775,642)
42,982
(239,120)
(75,081)
(118,287)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
433,702
(437,596)
513
—
1,497,523
—
—
414,542
— (1,413,248)
(366,739)
—
(40,208)
—
(453)
4,712,060
—
5,742
(3,371,699)
550,984
—
(1,941)
3,348
—
—
—
220,541
—
(108,185)
(75,722)
(1,009,303)
(768,208)
113,834
434,215
(437,596)
1,497,523
635,083
(1,413,248)
(474,924)
(115,930)
—
(14,904)
(184,294)
(199,198)
Segment profit (loss)
$
228,773
$ (118,287)
$ (3,894)
$
77,479
$ (144,312)
$
39,759
Interest expense
Net foreign exchange gains
Loss before income taxes
(154,212)
106,598
$
(7,855)
u.s. gAAp combIned rAtIo(4)
94%
113%
nm(5)
98%
(1) Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $52.2 million for the
year ended December 31, 2018.
(2) Other represents the total profit (loss) attributable to the Company’s operations that are not included in a reportable segment as well as any
amortization of intangible assets that is not allocated to a reportable segment.
(3) Segment profit for the Markel Ventures segment includes amortization of intangible assets attributable to Markel Ventures. Amortization of
intangible assets is not allocated to the Company’s underwriting segments.
(4) The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment
expenses and underwriting, acquisition and insurance expenses to earned premiums.
(5) NM – Ratio is not meaningful
86
Year Ended December 31, 2017
(dollars in thousands)
Insurance
Reinsurance
Investing
Markel
Ventures(1)
Other (2)
Consolidated
Gross premium volume
Net written premiums
$ 4,141,201
3,439,796
$ 1,112,101
978,160
$
— $
—
— $
—
253,658
(169)
$ 5,506,960
4,417,787
Earned premiums
Losses and loss adjustment expenses:
3,314,033
934,114
Current accident year
Prior accident years
Amortization of policy
acquisition costs
Other operating expenses
(2,442,344)
500,627
(675,470)
(611,749)
(924,879)
(7,803)
(218,883)
(82,567)
Underwriting profit (loss)
85,097
(300,018)
—
—
—
—
—
—
—
—
—
—
—
—
Net investment income
Net investment losses
Products revenues
Services and other revenues
Products expenses
Services and other expenses
Amortization of intangible assets (3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
405,377
(5,303)
—
—
—
—
—
332
—
951,012
382,268
(850,449)
(336,484)
(31,429)
(169)
4,247,978
—
8,638
—
(795)
7,674
—
—
—
79,995
—
(122,137)
(49,329)
(3,367,223)
501,462
(894,353)
(695,111)
(207,247)
405,709
(5,303)
951,012
462,263
(850,449)
(458,621)
(80,758)
Segment profit (loss)
$ 85,097
$ (300,018)
$ 400,074
$ 115,250
$ (83,797)
$
216,606
Interest expense
Net foreign exchange gains
Income before income taxes
(132,451)
3,140
$
87,295
u.s. gAAp combIned rAtIo(4)
97%
132%
nm(5)
105%
(1) Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $41.7 million for the
year ended December 31, 2017.
(2) Other represents the total profit (loss) attributable to the Company’s operations that are not included in a reportable segment as well as any
amortization of intangible assets and impairment of goodwill and intangible assets that are not allocated to a reportable segment.
(3) Segment profit for the Markel Ventures segment includes amortization of intangible assets attributable to Markel Ventures. Amortization of
intangible assets is not allocated to the Company’s underwriting segments.
(4) The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment
expenses and underwriting, acquisition and insurance expenses to earned premiums.
(5) NM – Ratio is not meaningful
87
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
b) The following table summarizes deferred policy acquisition costs, unearned premiums and unpaid losses and loss
adjustment expenses.
(dollars in thousands)
December 31, 2019
Insurance segment
Reinsurance segment
Other underwriting
Total Underwriting
Program services and other
totAl
December 31, 2018
Insurance segment
Reinsurance segment
Other underwriting
Total Underwriting
Program services and other
totAl
Deferred Policy
Acquisition Costs
Unearned
Premiums
Unpaid Losses and
Loss Adjustment Expenses
$ 392,774
173,268
—
566,042
—
$ 2,356,875
677,260
—
3,034,135
1,023,592
$
8,119,046
3,395,459
298,062
11,812,567
2,916,109
$ 566,042
$ 4,057,727
$ 14,728,676
$ 315,363
159,150
—
474,513
—
$ 2,031,140
630,435
—
2,661,575
949,453
$
7,947,772
3,425,751
386,329
11,759,852
2,516,627
$ 474,513
$ 3,611,028
$ 14,276,479
c) The following table summarizes earned premiums by major product grouping.
(dollars in thousands)
Insurance segment:
General liability
Professional liability
Property
Marine and energy
Personal lines
Programs
Workers’ compensation
Other products
Total Insurance
Reinsurance segment:
Property
Casualty
Specialty
Total Reinsurance
Other
totAl eArned premIums
Years Ended December 31,
2019
2018
2017
$ 1,039,617
814,587
364,830
391,464
378,522
294,418
349,770
510,865
$ 889,543
701,867
369,116
376,747
374,543
288,398
329,690
454,035
$ 764,956
628,878
365,513
312,282
382,761
273,954
319,679
266,010
4,144,073
3,783,939
3,314,033
201,486
408,368
293,733
903,587
2,133
233,195
360,739
334,640
928,574
(453)
321,178
327,912
285,024
934,114
(169)
$ 5,049,793
$ 4,712,060
$ 4,247,978
The Company does not manage products at this level of aggregation. The Company offers a diverse portfolio of products and
manages these products in logical groupings within each underwriting segment.
88
d) The following table summarizes the Company’s gross written premiums by country. Gross written premiums are attributed
to individual countries based upon location of risk or cedent.
(dollars in thousands)
United States
United Kingdom
Canada
Other countries
Total Underwriting
United States – Program services and other
totAl
Years Ended December 31,
% of
Total
81%
7
2
10
100%
2018
$ 4,587,486
471,818
127,546
612,146
5,798,996
2,065,473
$ 7,864,469
% of
Total
79%
8
2
11
100%
% of
Total
79%
7
3
11
100%
2017
$ 4,163,753
374,941
132,018
582,395
5,253,107
253,853
$ 5,506,960
2019
$ 5,172,074
458,370
151,606
652,277
6,434,327
2,345,644
$ 8,779,971
Most of the Company’s gross written premiums are placed through insurance and reinsurance brokers. During the years ended
December 31, 2019, 2018 and 2017, the Company’s top three independent brokers accounted for 28%, 25% and 27% of gross
premiums written in the Company’s underwriting segments. During the years ended December 31, 2019, 2018 and 2017, the
top three independent brokers accounted for 17%, 13% and 14%, respectively, of gross premiums written in the Insurance
segment and 82%, 76% and 78%, respectively, of gross premiums written in the Reinsurance segment.
e) During the years ended December 31, 2019, 2018 and 2017, Markel Ventures segment revenues attributable to U.S.
operations were 90%, 88%, and 85%, respectively, of total Markel Ventures segment revenues.
f) The following table reconciles segment assets to the Company’s consolidated balance sheets.
(dollars in thousands)
Segment assets:
Investing
Underwriting
Markel Ventures
Total segment assets
Other operations
totAl Assets
December 31,
2019
2018
2017
$ 22,129,633
6,621,639
2,550,835
$ 19,100,790
6,451,984
2,124,506
$ 20,317,160
6,828,048
1,900,728
31,302,107
27,677,280
29,045,936
6,171,708
5,628,983
3,759,080
$ 37,473,815
$ 33,306,263
$ 32,805,016
89
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
9. Products, Services and Other Revenues
The amount of revenues from contracts with customers for the years ended December 31, 2019, 2018 and 2017 was $2.2 billion,
$1.9 billion and $1.3 billion, respectively.
The following table disaggregates revenues from contracts with customers by type, all of which are included in products
revenues and services and other revenues in the consolidated statements of income (loss) and comprehensive income (loss).
Years Ended December 31,
2019
2018
2017
Markel
Ventures
Other
Total
Markel
Ventures
Other
Total
Markel
Ventures
Other
Total
$1,558,265 $
—
$1,558,265 $ 1,452,332
$
— $1,452,332
$ 902,739
$
— $ 902,739
392,680
97,447
490,127
367,572
33,236
400,808
339,430
34,746
374,176
—
150,864
150,864
—
91,527
91,527
—
28,740
28,740
1,950,945
248,311
2,199,256
1,819,904
124,763
1,944,667
1,242,169
63,486
1,305,655
(dollars in
thousands)
Products
Services
Investment
management
Total revenues
from contracts
with customers
Program services
and other fronting
—
116,376
Other
103,339
3,817
116,376
107,156
—
92,161
94,118
1,660
94,118
93,821
—
14,487
91,111
2,022
14,487
93,133
totAl
$2,054,284
$368,504
$2,422,788
$ 1,912,065
$ 220,541
$2,132,606
$1,333,280
$ 79,995
$ 1,413,275
The following table presents receivables and customer deposits related to our contracts with customers.
(dollars in thousands)
Receivables
Customer deposits
December 31, 2019
December 31, 2018
$ 263,904
$ 60,623
$ 247,532
$ 48,238
90
10. Unpaid Losses and Loss Adjustment Expenses
a) The following table presents a reconciliation of consolidated beginning and ending reserves for losses and loss
adjustment expenses.
(dollars in thousands)
Net reserves for losses and loss adjustment expenses,
beginning of year
Effect of foreign currency rate changes on beginning of
year balance
Adjusted net reserves for losses and loss adjustment expenses,
beginning of year
Incurred losses and loss adjustment expenses:
Current accident year
Prior accident years
Years Ended December 31,
2019
2018
2017
$ 9,214,443
$ 8,964,945
$ 8,108,717
18,857
(69,119)
110,079
9,233,300
8,895,826
8,218,796
3,426,441
(535,307)
3,371,699
(551,040)
3,367,223
(497,627)
Total incurred losses and loss adjustment expenses
2,891,134
2,820,659
2,869,596
Payments:
Current accident year
Prior accident years
Total payments
Effect of foreign currency rate changes on current year activity
Net reserves for losses and loss adjustment expenses of
acquired insurance companies
Net reserves for losses and loss adjustment expenses, end of year
Reinsurance recoverables on unpaid losses
671,208
1,979,032
2,650,240
1,067
—
9,475,261
5,253,415
666,515
1,835,027
2,501,542
(500)
—
671,112
1,513,580
2,184,692
3,752
57,493
9,214,443
8,964,945
5,062,036
4,619,336
gross reserves For losses And loss Adjustment expenses, end oF YeAr
$ 14,728,676
$ 14,276,479
$ 13,584,281
In 2019, underwriting results included $100.4 million of underwriting loss from Hurricane Dorian and Typhoons Faxai and
Hagibis (2019 Catastrophes). The underwriting loss on the 2019 Catastrophes was comprised of $114.0 million of net losses and
loss adjustment expenses partially offset by $13.6 million of net assumed reinstatement premiums. The net losses and loss
adjustment expenses on the 2019 Catastrophes were net of ceded losses of $62.5 million.
Incurred losses and loss adjustment expenses in 2019 included $535.3 million of favorable development on prior years’ loss
reserves, which included $431.0 million of favorable development on the Company’s general liability, workers’ compensation,
professional liability and marine and energy product lines within the Insurance segment and property and whole account product
lines within the Reinsurance segment. Favorable development within the Company’s Insurance segment was primarily driven
by lower loss severity than originally anticipated and a net decrease in open claims. Favorable development within the
Company’s Reinsurance segment was largely driven by lower than expected incurred and paid losses on reported claims.
In 2018, underwriting results included $287.3 million of underwriting loss from Hurricanes Florence and Michael, Typhoon Jebi
and wildfires in California (2018 Catastrophes). The underwriting loss on the 2018 Catastrophes was comprised of $292.8 million
of net losses and loss adjustment expenses partially offset by $5.4 million of net assumed reinstatement premiums. The net
losses and loss adjustment expenses on the 2018 Catastrophe for the year ended December 31, 2018 were net of ceded losses of
$244.1 million.
Incurred losses and loss adjustment expenses in 2018 included $551.0 million of favorable development on prior years’ loss
reserves, which included $424.1 million of favorable development on the Company’s general liability, workers’ compensation,
91
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
professional liability and marine and energy product lines within the Insurance segment and credit and surety and marine and
energy product lines within the Reinsurance segment. Favorable development within the Company’s Insurance segment was
primarily driven by lower claim frequency and lower loss severity than originally anticipated. Favorable development within the
Company’s Reinsurance segment was largely driven by lower than expected incurred and paid losses on reported claims.
In 2017, underwriting results included $565.3 million of underwriting loss from Hurricanes Harvey, Irma, Maria and Nate as
well as the earthquakes in Mexico and wildfires in California (2017 Catastrophes). The underwriting loss on the 2017
Catastrophes was comprised of $585.4 million of net losses and loss adjustment expenses partially offset by $20.1 million of net
assumed reinstatement premiums. The net losses and loss adjustment expenses on the 2017 Catastrophes for the year ended
December 31, 2017 were net of ceded losses of $490.3 million.
Incurred losses and loss adjustment expenses in 2017 included $497.6 million of favorable development on prior years’ loss reserves,
which included $422.9 million of favorable development on the Company’s general liability, marine and energy, professional
liability, and workers’ compensation product lines as well as personal lines business within the Insurance segment and property
product lines within the Reinsurance segment. The favorable development within the Company’s Insurance segment was primarily
driven by favorable case incurred loss development and lower loss severity than originally anticipated. Favorable development
within the Company’s Reinsurance segment was due in part to lower than expected development on reported events, favorable
claims settlements and lower than expected claims activity. The favorable development in 2017 was partially offset by $85.0
million of adverse development on the auto product line within the Reinsurance segment, resulting from a decrease in the discount
rate, known as the Ogden Rate, used to calculate lump sum awards in United Kingdom (U.K.) bodily injury cases.
In 2017, the Company recorded net reserves for losses and loss adjustment expenses of $57.5 million as a result of acquisitions
completed during the year. All acquired net reserves were recorded at fair value as part of the Company’s purchase accounting.
See note 2 for a discussion of the Company’s acquisitions.
In 2017, the Company recognized a previously deferred gain of $3.9 million, which is included in losses and loss adjustment
expenses in the consolidated statement of income and comprehensive income. This amount is excluded from the prior years’
incurred losses and loss adjustment expenses for 2017 in the above table as the deferred gain was included in other liabilities on
the consolidated balance sheet as of December 31, 2016, rather than unpaid losses and loss adjustment expenses.
The Company uses a variety of techniques to establish the liabilities for unpaid losses and loss adjustment expenses based upon
estimates of the ultimate amounts payable. The Company maintains reserves for specific claims incurred and reported (case
reserves) and reserves for claims incurred but not reported (IBNR reserves), which include expected development on reported
claims. The Company does not discount its reserves for losses and loss adjustment expenses to reflect estimated present value,
except for reserves held for a runoff book of U.K. motor business. Additionally, reserves assumed in connection with an
acquisition are recorded at fair value at the acquisition date. The fair value adjustment includes an adjustment to reflect the
acquired reserves for losses and loss adjustment expenses at present value plus a risk premium, the net of which is amortized to
losses and loss adjustment expenses within the consolidated statements of income.
As of any balance sheet date, all claims have not yet been reported, and some claims may not be reported for many years.
As a result, the liability for unpaid losses and loss adjustment expenses includes significant estimates for incurred but not
reported claims.
There is normally a time lag between when a loss event occurs and when it is actually reported to the Company. The actuarial
methods that the Company uses to estimate losses have been designed to address the lag in loss reporting as well as the delay in
obtaining information that would allow the Company to more accurately estimate future payments. There is also a time lag between
cedents establishing case reserves and re-estimating their reserves, and notifying the Company of the new or revised case reserves. As
a result, the reporting lag is more pronounced in reinsurance contracts than in the insurance contracts due to the reliance on ceding
companies to report their claims. On reinsurance transactions, the reporting lag will generally be 60 to 90 days after the end of a
reporting period, but can be longer in some cases. Based on the experience of the Company’s actuaries and management, loss
development factors and trending techniques are selected to mitigate the difficulties caused by reporting lags. The loss development
and trending factor selections are evaluated at least annually and updated using cedent specific and industry data.
92
IBNR reserves are based on the estimated ultimate cost of settling claims, including the effects of inflation and other social and
economic factors, using past experience adjusted for current trends and any other factors that would modify past experience.
IBNR reserves are generally calculated by subtracting paid losses and loss adjustment expenses and case reserves from estimated
ultimate losses and loss adjustment expenses. IBNR reserves were 65% of total unpaid losses and loss adjustment expenses at
December 31, 2019 compared to 64% at December 31, 2018.
In establishing liabilities for unpaid losses and loss adjustment expenses, the Company’s actuaries estimate an ultimate loss
ratio, by accident year or policy year, for each product line with input from underwriting and claims personnel. For product lines
in which loss reserves are established on a policy year basis, the Company has developed a methodology to convert from policy
year to accident year for financial reporting purposes. In estimating an ultimate loss ratio for a particular line of business, the
actuaries may use one or more actuarial reserving methods and select from these a single point estimate. To varying degrees,
these methods include detailed statistical analysis of past claim reporting, settlement activity, claim frequency and severity,
policyholder loss experience, industry loss experience and changes in market conditions, policy forms and exposures. Greater
judgment may be required when new product lines are introduced or when there have been changes in claims handling
practices, as the statistical data available may be insufficient. These estimates also reflect implicit and explicit assumptions
regarding the potential effects of external factors, including economic and social inflation, judicial decisions, changes in law,
general economic conditions and recent trends in these factors. Management believes the process of evaluating past experience,
adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events.
Estimates for losses from widespread catastrophic events are based on claims received to date, detailed policy and reinsurance
contract level reviews, industry loss estimates and output from both industry and proprietary models. Due to the inherent
uncertainty in estimating such losses, these estimates are subject to variability, which increases with the severity and
complexity of the underlying event. As additional claims are reported and paid, and industry loss estimates are revised, the
Company incorporates this new information into its analysis and adjusts its estimate of ultimate losses and loss adjustment
expenses. For example, both the gross and net losses on the 2019, 2018 and 2017 Catastrophes as of December 31, 2019
represent the Company’s best estimates based upon information currently available. For the 2019 Catastrophes, these estimates
are still dependent on broad assumptions about coverage, liability and reinsurance. While the Company believes the reserves for
the 2019, 2018 and 2017 Catastrophes as of December 31, 2019 are adequate, it continues to closely monitor reported claims
and will adjust estimates of gross and net losses as new information becomes available.
Loss reserves are established at management’s best estimate, which is generally higher than the corresponding actuarially
calculated point estimate. The actuarial point estimate represents the actuaries’ estimate of the most likely amount that will
ultimately be paid to settle the losses that have occurred at a particular point in time; however, there is inherent uncertainty in
the point estimate as it is the expected value in a range of possible reserve estimates. In some cases, actuarial analyses, which
are based on statistical analysis, cannot fully incorporate all of the subjective factors that affect development of losses. In other
cases, management’s perspective of these more subjective factors may differ from the actuarial perspective. Subjective factors
where management’s perspective may differ from that of the actuaries include: the credibility and timeliness of claims
information received from third parties, economic and social inflation, judicial decisions, changes in law, changes in
underwriting or claims handling practices, general economic conditions, the risk of moral hazard and other current and
developing trends within the insurance and reinsurance markets, including the effects of competition. As a result, the
actuarially calculated point estimates for each line of business represent starting points for management’s quarterly review
of loss reserves.
Inherent in the Company’s reserving practices is the desire to establish loss reserves that are more likely redundant than
deficient. As such, the Company seeks to establish loss reserves that will ultimately prove to be adequate. As part of the
Company’s acquisition of insurance operations, to the extent the reserving philosophy of the acquired business differs from the
Company’s reserving philosophy, the post-acquisition loss reserves will be strengthened until total loss reserves are consistent
with the Company’s target level of confidence. Furthermore, the Company’s philosophy is to price its insurance products to
make an underwriting profit. Management continually attempts to improve its loss estimation process by refining its ability to
analyze loss development patterns, claim payments and other information, but uncertainty remains regarding the potential for
adverse development of estimated ultimate liabilities.
93
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
Management currently believes the Company’s gross and net reserves are adequate. However, there is no precise method for
evaluating the impact of any significant factor on the adequacy of reserves, and actual results will differ from original estimates.
b) The following tables present undiscounted loss development information, by accident year, for the Company’s Insurance and
Reinsurance segments, including cumulative incurred and paid losses and allocated loss adjustment expenses, net of
reinsurance, as well as the corresponding amount of IBNR reserves as of December 31, 2019. This level of disaggregation is
consistent with how the Company analyzes loss reserves for both internal and external reporting purposes. The loss
development information for the years ended December 31, 2012 through 2018 is presented as supplementary information.
Incurred losses in both our Insurance and Reinsurance segments generally remain outstanding more than eight years; however,
data prior to 2012 is not practically available by segment as a result of a change in the Company’s reportable segments in 2014.
Additionally, reserves for the Company’s international operations are determined on a policy year basis and historical data prior
to 2012 does not exist by accident year. All amounts included in the tables below related to transactions denominated in a
foreign currency have been translated into U.S. Dollars using the exchange rates in effect at December 31, 2019.
The difference between the segment loss development implied by the tables for the year ended December 31, 2019 and actual
losses and loss adjustment expenses on prior accident years for the Insurance and Reinsurance segments for the year ended
December 31, 2019 is primarily attributed to the fact that amounts presented in these tables exclude amounts attributed to the
2011 and prior accident years. Favorable development on 2011 and prior accident years for the year ended December 31, 2019
totaled $46.9 million, or 10% of total incurred losses and loss adjustment expenses on prior accident years, for the Insurance
segment. Favorable development on 2011 and prior accident years for the year ended December 31, 2019 totaled $43.0 million
for the Reinsurance segment. For the Reinsurance segment, this favorable development was primarily due lower than expected
paid and incurred losses on reported claims within the segment’s whole account product line, on the 2006 to 2008 accident
years, and on its professional liability product lines across multiple accident years. Within the Company’s professional liability
product lines, the favorable development on 2011 and prior accident years was largely offset by an increase in losses and loss
adjustment expenses on the 2017 and 2018 accident years as a result of net favorable premium adjustments in 2019, for which
the related incurred losses were attributed to the 2017 and 2018 accident years.
The remaining difference between the segment loss development implied by the tables for the year ended December 31, 2019
and actual losses and loss adjustment expenses on prior accident years is attributed to the fact that amounts presented in these
tables exclude unallocated loss adjustment expenses and exclude amounts attributable to reserve discounting and fair value
adjustments recorded in conjunction with acquisitions, as well as differences in the presentation of foreign currency
movements, as described above, none of which are material to the Insurance or Reinsurance segments.
The Insurance segment table below also includes claim frequency information, by accident year. The Company defines a claim
as a single claim incident, per policy, which may include multiple claimants and multiple coverages on a single policy. Claim
counts include claims closed without a payment as well as claims where the Company is monitoring to determine if an
exposure exists, even if a reserve has not been established.
All of the business contained within the Company’s Reinsurance segment represents treaty business that is assumed from other
insurance or reinsurance companies, for which the Company does not have access to the underlying claim counts. Further, this
business includes both quota share and excess of loss treaty reinsurance, through which only a portion of each reported claim results in
losses to the Company. As such, the Company has excluded claim count information from the Reinsurance segment disclosures.
In 2013, the Company completed the acquisition of Alterra Capital Holdings Limited (Alterra), the results of which are included
in both of the Company’s reportable segments. Ultimate incurred losses and loss adjustment expenses, net of reinsurance as of
December 31, 2013 include outstanding liabilities for losses and loss adjustment expenses of Alterra as of the acquisition date,
by accident year, and not in any prior periods. Pre-acquisition data is not available by segment and accident year due in part to
the impact of significant intercompany reinsurance contracts. Additionally, Alterra reserves were historically determined on a
policy year basis and pre-acquisition data does not exist in a format that can be used to determine accident year. Following the
acquisition, ongoing business attributable to Alterra was integrated with the Company’s other insurance operations and is not
separately tracked.
94
Insurance Segment
Ultimate Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
(dollars in millions)
Accident
Unaudited
As of December 31,
As of
December 31,
Total of
Incurred-but-
Not-Reported
Cumulative
Number of
Liabilities, Net of Reported Claims
(in thousands)
Reinsurance
2012
2013
2014
2015
2016
2017
2018
2019
December 31, 2019
$1,370.8 $1,613.2 $1,491.6
1,698.2
1,738.0
1,866.0
$1,430.2
1,528.4
1,700.1
1,786.6
$1,397.8 $1,364.1 $1,350.7 $ 1,330.5
1,464.9
1,329.3
1,632.2
1,505.3
1,714.2
1,505.4
1,875.3
1,716.5
2,076.2
2,354.8
2,582.3
1,372.0
1,525.7
1,537.3
1,770.8
2,198.9
2,457.3
1,418.1
1,574.2
1,591.7
1,872.1
2,330.8
$ 101.3
126.7
138.6
197.1
297.3
422.4
904.0
1,639.8
128
88
80
85
90
124
173
181
$ 14,400.3
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Unaudited
As of December 31,
As of
December 31,
2012
2013
2014
2015
2016
2017
2018
2019
$ 233.8 $ 568.6 $ 781.5
572.1
332.3
271.8
$ 939.5
780.0
659.2
322.8
950.5
896.5
666.0
372.5
$ 1,055.0 $1,119.8 $1,153.2 $ 1,180.1
1,125.1
1,255.3
1,151.9
1,169.8
1,286.7
1,027.8
527.9
1,101.3
1,170.5
1,041.9
983.7
992.8
496.7
1,038.9
1,064.7
877.7
753.7
438.8
Year
2012
2013
2014
2015
2016
2017
2018
2019
Total
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
Total
All outstanding liabilities for unpaid losses and loss adjustment expenses
before 2012, net of reinsurance
Total liabilities for unpaid losses and loss adjustment expenses, net of
reinsurance
$ 8,724.6
365.7
$ 6,041.4
Ultimate incurred losses and allocated loss adjustment expenses as of December 31, 2013 for the Insurance segment include
$256.5 million and $313.4 million of losses and loss adjustment expenses on the 2012 and 2013 accident years, respectively,
attributable to Alterra. Cumulative paid losses and allocated loss adjustment expenses as of December 31, 2013 include $36.8
million and $29.5 million of paid losses and allocated loss adjustment expenses on the 2012 and 2013 accident years,
respectively, attributable to the acquired Alterra reserves and post-acquisition Alterra business. Cumulative paid losses and
allocated loss adjustment expenses and cumulative reported claims for the 2012 and 2013 accident years exclude any claims
paid or closed prior to the acquisition.
Variability in claim counts is primarily attributable to claim counts associated with a personal lines product with high claim
frequency and low claim severity. Cumulative reported claims for the 2012, 2013, 2017, 2018 and 2019 accident years include
66 thousand, 17 thousand, 24 thousand, 54 thousand and 78 thousand, respectively, of claim counts associated with this
product. The Company did not write this business from 2014 to 2016. The related net incurred losses and allocated loss
adjustment expenses are not material to the Insurance segment.
95
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
Reinsurance Segment
Ultimate Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
(dollars in millions)
Accident
Unaudited
As of December 31,
Total of
Incurred-but
Not-Reported
Liabilities, Net of
Reinsurance
As of
December 31,
2012
2013
2014
2015
2016
2017
2018
2019
December 31, 2019
$ 73.0
$ 551.7
588.0
$ 508.7
580.3
577.4
$ 486.6
548.3
564.5
527.9
$ 457.8
534.7
536.4
514.0
522.1
$ 456.2
544.8
581.2
532.4
532.1
905.3
$ 448.0 $
507.5
559.1
523.5
530.6
938.1
759.2
445.1
489.4
535.4
511.9
529.3
943.1
792.5
678.2
$ 4,924.9
$ 42.4
42.7
87.7
143.4
126.6
276.1
373.4
483.1
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Unaudited
As of December 31,
As of
December 31,
2012
2013
2014
2015
2016
2017
2018
2019
$ 4.1
$ 64.7
71.3
$ 129.1
155.7
98.0
$ 184.3
209.9
158.1
63.8
$ 232.0
268.9
226.4
133.4
79.7
$ 264.4
301.9
274.5
207.2
170.4
158.0
$ 289.5
331.9
311.8
258.5
241.5
359.5
87.5
All outstanding liabilities for unpaid losses and loss adjustment expenses
before 2012, net of reinsurance
Total liabilities for unpaid losses and loss adjustment expenses, net of
reinsurance
$ 309.5
351.0
346.0
306.2
298.3
481.5
256.7
54.1
$ 2,403.3
553.5
$ 3,075.1
Year
2012
2013
2014
2015
2016
2017
2018
2019
Total
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
Total
Ultimate incurred losses and allocated loss adjustment expenses as of December 31, 2013 for the Reinsurance segment include
$476.2 million and $537.5 million of losses and loss adjustment expenses on the 2012 and 2013 accident years, respectively,
attributable to Alterra. Cumulative paid losses and allocated loss adjustment expenses as of December 31, 2013 include $52.7
million and $68.7 million of paid losses and allocated loss adjustment expenses on the 2012 and 2013 accident years,
respectively, attributable to the acquired Alterra reserves and post-acquisition Alterra business. Cumulative paid losses and
allocated loss adjustment expenses for the 2012 and 2013 accident years exclude any claims paid prior to the acquisition.
96
The following table presents supplementary information about average historical claims duration as of December 31, 2019
based on the cumulative incurred and paid losses and allocated loss adjustment expenses presented above.
Average Annual Percentage Payout of Incurred Losses by Age (in Years), Net of Reinsurance
Unaudited
Insurance
Reinsurance
1
20.8%
12.1%
2
23.5%
16.5%
3
14.8%
13.2%
4
11.5%
10.8%
5
7.4%
8.4%
6
5.1%
6.6%
7
2.2%
4.8%
8
2.0%
4.5%
The following table reconciles the net incurred and paid loss development tables to the liability for losses and loss adjustment
expenses on the consolidated balance sheet.
(dollars in thousands)
Net outstanding liabilities
Insurance segment
Reinsurance segment
Other underwriting
Program services and other
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance
Reinsurance recoverable on unpaid losses
Insurance segment
Reinsurance segment
Other underwriting
Program services and other
Total reinsurance recoverable on unpaid losses
Unallocated loss adjustment expenses
Unamortized discount, net of acquisition fair value adjustments, included
in unpaid losses and loss adjustment expenses
TotAl gross lIAbIlItY For unpAId losses And loss Adjustment expenses
December 31, 2019
$ 6,041,424
3,075,109
134,299
2,224
9,253,056
1,838,552
349,124
155,714
2,910,025
5,253,415
264,029
(41,824)
222,205
$ 14,728,676
c) The Company has exposure to asbestos and environmental (A&E) claims primarily resulting from policies written by
acquired insurance operations before their acquisition by the Company. The Company’s exposure to A&E claims originated
from umbrella, excess and commercial general liability insurance policies and assumed reinsurance contracts that were written
on an occurrence basis from the 1970s to mid-1980s. Exposure also originated from claims-made policies that were designed to
cover environmental risks provided that all other terms and conditions of the policy were met. A&E claims include property
damage and clean-up costs related to pollution, as well as personal injury allegedly arising from exposure to hazardous materials.
Development on A&E loss reserves is monitored separately from the Company’s ongoing underwriting operations and is not
included in a reportable segment.
At December 31, 2019, A&E reserves were $234.2 million and $74.4 million on a gross and net basis, respectively. At December
31, 2018, A&E reserves were $247.7 million and $83.0 million on a gross and net basis, respectively.
The Company’s reserves for losses and loss adjustment expenses related to A&E exposures represent management’s best
estimate of ultimate settlement values based on statistical analysis of these reserves by the Company’s actuaries. A&E
exposures are subject to significant uncertainty due to potential loss severity and frequency resulting from the uncertain and
unfavorable legal climate. A&E reserves could be subject to increases in the future, however, management believes the
Company’s gross and net A&E reserves at December 31, 2019 are adequate.
97
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
11. Reinsurance
In reinsurance and retrocession transactions, an insurance or reinsurance company transfers, or cedes, all or part of its exposure
in return for a premium. The ceding of insurance does not legally discharge the Company from its primary liability for the full
amount of the policies, and the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet
its obligations under the reinsurance or retrocessional agreement. A credit risk exists with ceded reinsurance to the extent that
any reinsurer is unable to meet the obligations assumed under the reinsurance or retrocessional contracts. Allowances are
established for amounts deemed uncollectible.
Within its underwriting operations, the Company uses reinsurance and retrocessional reinsurance to manage its net
retention on individual risks and overall exposure to losses while providing it with the ability to offer policies with sufficient
limits to meet policyholder needs. The Company evaluates the financial condition of its reinsurers and monitors
concentration of credit risk arising from its exposure to individual reinsurers. To further reduce credit exposure to
reinsurance recoverable balances, the Company has received collateral, including letters of credit and trust accounts, from
certain reinsurers. Collateral related to these reinsurance agreements is available, without restriction, when the Company
pays losses covered by the reinsurance agreements.
Within the Company’s underwriting operations, at December 31, 2019 and 2018, balances recoverable from the ten largest
reinsurers, by group, represented 62% and 61%, respectively, of reinsurance recoverables before considering reinsurance
allowances and collateral. At December 31, 2019, the largest reinsurance balance was due from Fairfax Financial Group and
represented 10% of reinsurance recoverables before considering reinsurance allowances and collateral.
Within the Company’s program services business, the Company generally enters into 100% quota share reinsurance agreements
whereby the Company cedes to the capacity provider (reinsurer) substantially all of its gross liability under all policies issued by
and on behalf of the Company by the general agent. However, there are certain programs that contain limits on the reinsurers’
obligations to the Company that expose the Company to underwriting risk, including loss ratio caps, exclusions of the credit risk
of producers and aggregate reinsurance limits that the Company believes are unlikely to be exceeded. The Company also
remains exposed to the credit risk of the reinsurer, or the risk that one of its reinsurers becomes insolvent or otherwise unable or
unwilling to pay policyholder claims. This credit risk is generally mitigated by either selecting well capitalized, highly rated
authorized capacity providers or requiring that the capacity provider post substantial collateral to secure the reinsured risks.
Within the Company’s program services business, at December 31, 2019 and 2018, balances recoverable from the ten largest
reinsurers, by group, represented 71% and 75%, respectively, of reinsurance recoverables before considering reinsurance
allowances and collateral. At December 31, 2019, the largest reinsurance balance was due from Fosun International Holdings
Ltd. and represented 21% of reinsurance recoverables before considering reinsurance allowances and collateral.
The following tables summarize the effect of reinsurance and retrocessional reinsurance on premiums written and earned.
(dollars in thousands)
Direct
Assumed
Ceded
Net Premiums
Year Ended December 31, 2019
Underwriting:
Written
Earned
Program services and other:
Written
Earned
Consolidated:
Written
Earned
98
$ 5,084,641
$ 4,767,836
$ 1,349,686
$ 1,289,375
$ (1,024,097)
$ (1,008,970)
$ 5,410,230
$ 5,048,241
2,256,747
2,194,671
88,897
78,778
(2,343,803)
(2,271,897)
1,841
1,552
$ 7,341,388
$ 1,438,583
$ (3,367,900)
$ 5,412,071
$ 6,962,507
$ 1,368,153
$ (3,280,867)
$ 5,049,793
(dollars in thousands)
Direct
Assumed
Ceded
Net Premiums
Year Ended December 31, 2018
Underwriting:
Written
Earned
Program services and other:
Written
Earned
Consolidated:
Written
Earned
$ 4,562,256
$ 4,384,562
$ 1,236,740
$ 1,291,032
$ (1,013,406)
(964,549)
$
$ 4,785,590
$ 4,711,045
2,022,548
1,850,656
42,925
28,581
(2,063,485)
(1,878,222)
1,988
1,015
$ 6,584,804
$ 1,279,665
$ (3,076,891)
$ 4,787,578
$ 6,235,218
$ 1,319,613
$ (2,842,771)
$ 4,712,060
(dollars in thousands)
Direct
Assumed
Ceded
Net Premiums
Year Ended December 31, 2017
Underwriting:
Written
Earned
Program services and other:
Written
Earned
Consolidated:
Written
Earned
$ 3,919,602
$ 3,777,335
$ 1,333,505
$ 1,286,043
$
$
(835,320)
(815,400)
$ 4,417,787
$ 4,247,978
252,865
291,287
988
1,352
(253,853)
(292,639)
—
—
$ 4,172,467
$ 1,334,493
$ (1,089,173)
$ 4,417,787
$ 4,068,622
$ 1,287,395
$ (1,108,039)
$ 4,247,978
Substantially all of the premium written and earned in the Company’s program services and other fronting operations for the years
ended December 31, 2019, 2018 and 2017 was ceded. The percentage of consolidated ceded earned premiums to gross earned
premiums was 39%, 38% and 21% for the years ended December 31, 2019, 2018 and 2017, respectively. The percentage of
consolidated assumed earned premiums to net earned premiums was 27%, 28% and 30% for the years ended December 31, 2019,
2018 and 2017, respectively.
Substantially all of the incurred losses and loss adjustment expenses in the Company’s program services and other fronting
operations, which totaled $1.6 billion and $1.3 billion for the years ended December 31, 2019 and 2018, respectively, were ceded.
The following table summarizes the effect of reinsurance and retrocessional reinsurance on losses and loss adjustment expenses
in the Company’s underwriting operations.
(dollars in thousands)
Gross
Ceded
Net losses and loss adjustment expenses
Years Ended December 31,
2019
2018
$ 3,447,186
(556,618)
$ 2,890,568
$ 3,530,790
(710,568)
$ 2,820,222
2017
$ 3,722,604
(856,843)
$ 2,865,761
99
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
12. Life and Annuity Benefits
The following table presents life and annuity benefits.
(dollars in thousands)
Life
Annuities
Accident and health
totAl
December 31,
2019
2018
$ 125,094
813,476
47,159
$ 122,798
827,773
50,882
$ 985,729
$ 1,001,453
Life and annuity benefits are compiled on a reinsurance contract-by-contract basis and are discounted using standard actuarial
techniques and cash flow models. Since the development of the life and annuity reinsurance reserves is based upon cash flow
projection models, the Company must make estimates and assumptions based on cedent experience, industry mortality tables,
and expense and investment experience, including a provision for adverse deviation. The assumptions used to determine policy
benefit reserves are generally locked-in for the life of the contract unless an unlocking event occurs. Loss recognition testing is
performed to determine if existing policy benefit reserves, together with the present value of future gross premiums and
expected investment income earned thereon, are adequate to cover the present value of future benefits, settlement and
maintenance costs. If the existing policy benefit reserves are not sufficient, the locked-in assumptions are revised to current best
estimate assumptions and a charge to earnings for life and annuity benefits is recognized at that time.
Life and annuity benefits are also adjusted to the extent unrealized gains on the investments supporting the policy benefit
reserves would result in a reserve deficiency if those gains were realized. During 2019, the Company recognized a reserve
deficiency resulting from a decrease in the market yield on the investment portfolio supporting the policy benefit reserves by
increasing life and annuity benefits by $51.4 million and decreasing the change in net unrealized holding gains included in other
comprehensive income by a corresponding amount. As of December 31, 2019, the cumulative adjustment to life and annuity
benefits attributable to unrealized gains on the underlying investment portfolio totaled $51.4 million. No adjustment was
required for the years ended December 31, 2018 or 2017.
Because of the assumptions and estimates used in establishing the Company’s reserves for life and annuity benefit obligations
and the long-term nature of these reinsurance contracts, the ultimate liability may be greater or less than the estimates.
The average discount rate for the life and annuity benefit reserves was 2.3% as of December 31, 2019.
As of December 31, 2019, the largest life and annuity benefits reserve for a single contract was 32.8% of the total.
None of the annuities included in life and annuity benefits on the consolidated balance sheet are subject to discretionary
withdrawal.
100
13. Senior Long-Term Debt and Other Debt
The following table summarizes the Company’s senior long-term debt and other debt.
(dollars in thousands)
7.125% unsecured senior notes, due September 30, 2019, interest payable semi-annually,
net of unamortized discount of $0 in 2019 and $142 in 2018
$
6.25% unsecured senior notes, due September 30, 2020, interest payable semi-annually,
net of unamortized premium of $0 in 2019 and $17,213 in 2018
5.35% unsecured senior notes, due June 1, 2021, interest payable semi-annually,
net of unamortized discount of $0 in 2019 and $499 in 2018
4.90% unsecured senior notes, due July 1, 2022, interest payable semi-annually,
December 31,
2019
2018
—
—
—
$ 234,640
367,213
249,417
net of unamortized discount of $705 in 2019 and $978 in 2018
349,181
348,864
3.625% unsecured senior notes, due March 30, 2023, interest payable semi-annually,
net of unamortized discount of $653 in 2019 and $855 in 2018
249,226
248,988
3.50% unsecured senior notes, due November 1, 2027, interest payable semi-annually,
net of unamortized discount of $2,013 in 2019 and $2,298 in 2018
297,402
297,035
3.35% unsecured senior notes, due September 17, 2029, interest payable semi-annually,
net of unamortized discount of $2,410 in 2019
297,125
—
7.35% unsecured senior notes, due August 15, 2034, interest payable semi-annually,
net of unamortized discount of $1,005 in 2019 and $1,074 in 2018
128,788
128,715
5.0% unsecured senior notes, due March 30, 2043, interest payable semi-annually,
net of unamortized discount of $5,207 in 2019 and $5,431 in 2018
244,505
244,269
5.0% unsecured senior notes, due April 5, 2046, interest payable semi-annually,
net of unamortized discount of $6,421 in 2019 and $6,664 in 2018
492,761
492,486
4.30% unsecured senior notes, due November 1, 2047, interest payable semi-annually,
net of unamortized discount of $4,126 in 2019 and $4,278 in 2018
295,154
294,975
5.0% unsecured senior notes, due May 20, 2049, interest payable semi-annually,
net of unamortized discount of $7,684 in 2019
4.15% unsecured senior notes, due September 17, 2050, interest payable semi-annually,
net of unamortized discount of $5,449 in 2019
Other debt, at various interest rates ranging from 1.7% to 6.1%
591,010
493,759
95,272
—
—
102,975
senIor long-term debt And other debt
$ 3,534,183
$ 3,009,577
In May 2019, the Company issued $600 million of 5.0% unsecured senior notes due May 20, 2049. Net proceeds to the
Company were $592.2 million, before expenses. In September 2019, the Company used a portion of these proceeds to repay its
7.125% unsecured senior notes due September 30, 2019 ($234.8 million aggregate principal outstanding at December 31, 2018).
The Company expects to use the remainder of the proceeds for general corporate purposes.
In September 2019, the Company issued $300 million of 3.35% unsecured senior notes due September 17, 2029 and $500
million of 4.15% unsecured senior notes due September 17, 2050. Net proceeds to the Company were $297.5 million and
$494.5 million, respectively, before expenses. The Company used a portion of these proceeds to purchase $125.2 million of
principal on its 6.25% unsecured senior notes due September 30, 2020 (2020 Notes) and $97.8 million of principal on its 5.35%
unsecured senior notes due June 1, 2021 (2021 Notes) through a tender offer at a total purchase price of $130.1 million and
$103.0 million, respectively.
101
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
In October 2019, the Company used a portion of the remaining proceeds from the September 2019 issuances to redeem the
remaining outstanding balance of $224.8 million on its 2020 Notes and $152.2 million on its 2021 Notes for a total purchase
price of $233.4 million and $160.2 million, respectively. The Company expects to use the remainder of the proceeds for general
corporate purposes. In connection with the September 2019 tender offer and purchase described above and the October 2019
redemption, the Company recognized a loss on early extinguishment of debt of $17.6 million during 2019.
The Company’s 7.35% unsecured senior notes due August 15, 2034 are not redeemable. The Company’s other unsecured senior
notes are redeemable by the Company at any time, subject to payment of a make-whole premium to the noteholders. None of
the Company’s senior long-term debt is subject to any sinking fund requirements.
The Company’s other debt is primarily associated with its subsidiaries and includes $70.4 million and $78.1 million associated
with its Markel Ventures subsidiaries as of December 31, 2019 and 2018, respectively. The Markel Ventures debt is non-recourse
to the holding company and generally is secured by the assets of those subsidiaries. ParkLand, a subsidiary of the Company, has
formed subsidiaries for the purpose of acquiring and financing real estate (the real estate subsidiaries). The assets of certain real
estate subsidiaries, which are not material to the Company, are consolidated in accordance with U.S. GAAP but are not
available to satisfy the debt and other obligations of the Company or any affiliates other than those real estate subsidiaries.
The estimated fair value of the Company’s senior long-term debt and other debt was $3.9 billion and $3.0 billion at December
31, 2019 and 2018, respectively.
The following table summarizes the future principal payments due at maturity on senior long-term debt and other debt as of
December 31, 2019.
Years Ending December 31,
(dollars in thousands)
2020
2021
2022
2023
2024
2025 and thereafter
Total principal payments
Net unamortized discount
Net unamortized debt issuance costs
senIor long-term debt And other debt
$
63,519
25,546
356,185
250,428
—
2,879,852
$ 3,575,530
(35,673)
(5,674)
$ 3,534,183
In April 2019, the Company entered into a credit agreement for a new revolving credit facility, which provides up to $300
million of capacity for future acquisitions, investments and stock repurchases, and for other working capital and general
corporate purposes. At the Company’s discretion, up to $200 million of the total capacity may be used for letters of credit. The
Company may increase the capacity of the facility by up to $200 million subject to obtaining commitments for the increase and
certain other terms and conditions. The Company pays interest on balances outstanding under the facility and a utilization fee
for letters of credit issued under the facility. The Company also pays a commitment fee (0.20% at December 31, 2019) on the
unused portion of the facility based on the Company’s leverage ratio as calculated under the credit agreement. The credit
agreement includes financial covenants that require that the Company not exceed a maximum leverage ratio and maintain a
minimum amount of consolidated net worth, as well as other customary covenants and events of default. This facility replaced
the Company’s previous $300 million revolving credit facility and is scheduled to expire in April 2024. There were no
borrowings outstanding on either credit facility as of December 31, 2019 and 2018.
At December 31, 2019, the Company was in compliance with all covenants contained in its revolving credit facility. To the extent
that the Company is not in compliance with its covenants, the Company’s access to the revolving credit facility could be restricted.
The Company paid $169.7 million, $155.4 million and $141.3 million in interest on its senior long-term debt and other debt
during the years ended December 31, 2019, 2018 and 2017, respectively.
102
14. Income Taxes
Income (loss) before income taxes includes the following components.
(dollars in thousands)
Domestic operations
Foreign operations
Income (loss) beFore Income tAxes
Income tax expense (benefit) includes the following components.
(dollars in thousands)
Current:
Domestic
Foreign
Total current tax expense
Deferred:
Domestic
Foreign
Total deferred tax expense (benefit)
Income tAx expense (beneFIt)
Years Ended December 31,
2019
$ 1,664,762
621,046
$ 2,285,808
2018
99,373
(107,228)
2017
$ 337,704
(250,409)
(7,855)
$ 87,295
$
$
Years Ended December 31,
2019
2018
2017
$
139,597
23,364
162,961
$
77,936
41,833
119,769
$ ($19,255)
29,882
10,627
217,928
105,457
323,385
(77,255)
79,984
2,729
(222,427)
(101,663)
(324,090)
$ 486,346
$ 122,498
$ (313,463)
Foreign income tax expense includes U.S. income tax expense on foreign operations, which includes U.S. income tax on the
Company’s U.K. and Bermuda-based operations, certain of which have elected to be taxed as domestic corporations for U.S. tax
purposes. State income tax expense is not material to the consolidated financial statements.
The Company made net income tax payments of $128.2 million, $63.1 million and $70.2 million in 2019, 2018 and 2017,
respectively. Income taxes payable were $64.1 million and $83.7 million at December 31, 2019 and 2018, respectively, and were
included in other liabilities on the consolidated balance sheets. Income taxes receivable were $6.3 million and $49.3 million at
December 31, 2019 and 2018, respectively, and were included in other assets on the consolidated balance sheets.
In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (TCJA), which made significant modifications to U.S. income tax
law, most of which were effective January 1, 2018. As a result, the Company recorded a one-time tax benefit of $339.9 million in
2017, a portion of which was considered provisional. The one-time benefit from the TCJA was primarily attributable to the
remeasurement of the Company’s U.S. deferred tax assets and liabilities on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and their tax bases at the lower enacted U.S. corporation tax rate,
partially offset by the tax on the deemed repatriation of foreign earnings. In 2018, the Company completed its determination of
the accounting for the TCJA, which resulted in an additional tax benefit of $5.7 million.
In 2018, the Company decided to elect to treat its two most significant U.K. subsidiaries as domestic corporations for U.S. tax
purposes. As a result, the earnings and profits from those subsidiaries are no longer considered to be indefinitely reinvested, and
during 2018, the Company recorded a one-time deferred tax charge of $103.3 million related to the book and tax basis
differences attributable to those subsidiaries. For subsidiaries the Company did not elect to treat as domestic corporations for
U.S. tax purposes, the Company is subject to the U.S. Global Intangible Low Taxes Income (GILTI) tax. The Company
recognizes the impact of the GILTI tax as incurred, and therefore has not recorded deferred taxes on the temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. For the years ended
December 31, 2019 and 2018, GILTI tax was not material to the consolidated financial statements.
103
Markel Corporation & Subsidiaries
N O T E S
T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
The following table presents a reconciliation of income taxes computed using the U.S. corporate tax rate to the Company’s
income tax expense (benefit).
(dollars in thousands)
Income taxes at U.S. corporate tax rate
Increase (decrease) resulting from:
Foreign operations
Tax-exempt investment income
Change in tax status of U.K. subsidiaries
Tax credits
Nondeductible loss on investments managed by MCIM
TCJA
Other
Years Ended December 31,
2019
2018
2017
$
480,020
$
(1,650)
$
30,553
14,718
(18,430)
(6,658)
(4,104)
—
—
20,800
4,951
(18,927)
103,281
(3,617)
26,552
(5,699)
17,607
37,207
(41,565)
—
(10,236)
16,231
(339,899)
(5,754)
Income tAx expense (beneFIt)
$ 486,346
$
122,498
$ (313,463)
The following table presents the components of domestic and foreign deferred tax assets and liabilities.
(dollars in thousands)
Assets:
Unpaid losses and loss adjustment expenses
Unearned premiums recognized for income tax purposes
Life and annuity benefits
Lease liabilities
Tax credit carryforwards
Net operating loss carryforwards
Accrued incentive compensation
Other differences between financial reporting and tax bases
Total gross deferred tax assets
Less valuation allowance
Total gross deferred tax assets, net of allowance
Liabilities:
Investments
Goodwill and other intangible assets
Deferred policy acquisition costs
Right-of-use lease assets
Other differences between financial reporting and tax bases
Total gross deferred tax liabilities
net deFerred tAx lIAbIlItY
December 31,
2019
2018
$ 163,522
102,020
84,890
55,362
47,233
39,429
35,132
52,604
580,192
(45,544)
534,648
996,543
134,573
113,243
49,583
101,426
1,395,368
$ 164,497
85,952
78,370
—
39,877
46,662
30,308
39,763
485,429
(36,286)
449,143
590,250
124,953
89,716
—
90,269
895,188
$
860,720
$
446,045
As of December 31, 2019 and 2018, the Company’s consolidated balance sheets included net deferred tax liabilities of $883.0
million and $481.9 million, respectively, in other liabilities and net deferred tax assets of $22.3 million and $35.9 million,
respectively, in other assets.
104
At December 31, 2019, the Company had tax credit carryforwards of $47.2 million, all of which the Company expects to utilize
before expiration. The earliest any of these credits will expire is 2028.
At December 31, 2019, the Company also had net operating losses of $33.5 million that can be used to offset future taxable
income in the U.S. The Company’s ability to use the majority of these losses expires between the years 2028 and 2037. At
December 31, 2019, certain branch operations in Europe and a wholly owned subsidiary in Brazil had net operating losses of
$109.3 million that can be used to offset future income in their local jurisdictions. The Company’s ability to use $33.0 million
of these losses expires between the years 2020 and 2029. The remaining losses are not subject to expiration. As discussed below,
the deferred tax assets related to losses at certain of the Company’s subsidiaries and branches are offset by valuation allowances.
At December 31, 2019, the Company had total gross deferred tax assets of $580.2 million. The Company has a valuation
allowance of $45.5 million to offset gross deferred tax assets primarily attributable to cumulative net operating losses at certain
of the Company’s subsidiaries and branches. The Company believes that it is more likely than not that it will realize the
remaining $534.6 million of gross deferred tax assets through generating taxable income or the reversal of existing temporary
differences attributable to the gross deferred tax liabilities.
At December 31, 2019, the Company did not have any material unrecognized tax benefits. The Company does not anticipate any
changes in unrecognized tax benefits during 2020 that would have a material impact on the Company’s income tax provision.
The Company is subject to income tax in the U.S. and in foreign jurisdictions. The Internal Revenue Service is currently
examining the Company’s 2017 U.S. federal income tax return. The Company believes its income tax liabilities were adequate
as of December 31, 2019, however, these liabilities could be adjusted as a result of this examination. With few exceptions, the
Company is no longer subject to income tax examination by tax authorities for years ended before January 1, 2016.
15. Employee Benefit Plans
a) The Company maintains defined contribution plans for employees of its U.S. insurance operations in accordance with Section
401(k) of the U.S. Internal Revenue Code of 1986. Employees of the Company’s Markel Ventures subsidiaries are provided post-
retirement benefits under separate defined contribution plans. The Company also provides various defined contribution plans for
employees of its international insurance and other operations, which are in line with local market terms and conditions of
employment. Expenses relating to the Company’s defined contribution plans were $42.4 million, $41.8 million and $36.7
million in 2019, 2018 and 2017, respectively.
b) The Terra Nova Pension Plan is a defined benefit plan that covers certain employees in the Company’s international
insurance operations who meet the eligibility conditions set out in the plan. The plan has been closed to new participants since
2001, and employees have not accrued benefits for future service in the plan since April 2012. The projected benefit obligations
of the Terra Nova Pension Plan as of December 31, 2019 and 2018 were $191.4 million and $171.5 million, respectively, and the
related fair value of plan assets was $216.9 million and $187.0 million, respectively. The corresponding net asset for pension
benefits, also referred to as the funded status of the plan, at December 31, 2019 and 2018 was included in other assets on the
Company’s consolidated balance sheets.
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Markel Corporation & Subsidiaries
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(continued)
16. Variable Interest Entities
MCIM, a wholly-owned consolidated subsidiary of the Company, is an insurance-linked securities investment fund manager
and reinsurance manager headquartered in Bermuda. Results attributable to MCIM are not included in a reportable segment.
MCIM serves as the insurance manager for Markel CATCo Re, a Bermuda Class 3 reinsurance company, and as the investment
manager for Markel CATCo Reinsurance Fund Ltd., a Bermuda exempted mutual fund company comprised of multiple
segregated accounts (Markel CATCo Funds). The Markel CATCo Funds issue multiple classes of nonvoting, redeemable
preference shares to investors and the Markel CATCo Funds are primarily invested in nonvoting preference shares of Markel
CATCo Re. The underwriting results of Markel CATCo Re are attributed to the Markel CATCo Funds through those nonvoting
preference shares. Voting shares in Markel CATCo Reinsurance Fund Ltd. and Markel CATCo Re are held by MCIM.
The Markel CATCo Funds and Markel CATCo Re are considered VIEs, as their preference shareholders have no voting rights.
MCIM has the power to direct the activities that most significantly impact the economic performance of these entities, but does
not have a variable interest in any of the entities. Except as described below, the Company is not the primary beneficiary of the
Markel CATCo Funds or Markel CATCo Re, and therefore does not consolidate these entities, as the Company’s involvement is
generally limited to that of an investment or insurance manager, receiving fees that are at market and commensurate with the
level of effort required.
The Company is the sole investor in one of the Markel CATCo Funds, the Markel Diversified Fund, and consolidates that fund
as its primary beneficiary. Total assets of the Markel Diversified Fund, which are included on the Company’s consolidated
balance sheets were $19.6 million and $28.6 million as of December 31, 2019 and 2018, respectively, and are primarily
comprised of an investment in one of the Markel CATCo Funds. The Company also has an investment in another one of the
Markel CATCo Funds ($26.8 million and $26.2 million as of December 31, 2019 and 2018, respectively). With the exception of
the Company’s investment in the Markel Diversified Fund, the Company does not have the obligation to absorb losses or the
right to receive benefits from its investments in the Markel CATCo Funds that could potentially be significant to the respective
fund, and therefore does not consolidate those funds.
The Company’s exposure to risk from the unconsolidated Markel CATCo Funds and Markel CATCo Re was historically limited
to its investment and any earned but uncollected fees. In 2019, the Company also entered into various reinsurance contracts
that were ceded to Markel CATCo Re. See note 17. The Company has not issued any investment performance guarantees to
these VIEs or their investors. As of December 31, 2019 and 2018, net assets under management of MCIM for unconsolidated
VIEs were $2.7 billion and $3.4 billion, respectively. See note 20.
17. Related Party Transactions
The Company engages in certain related party transactions in the normal course of business at arm’s length.
Within the Company’s insurance-linked securities operations, the Company provides investment and insurance management
services through MCIM and Nephila. See note 16 for details regarding operations conducted through MCIM. Nephila serves as
the investment manager to several Bermuda, Ireland and U.S. based private funds (the Nephila Funds). To provide access for the
Nephila Funds to the insurance, reinsurance and weather markets, Nephila also provides managing general agent services and
acts as an insurance manager to certain Bermuda Class 3 and 3A reinsurance companies and Lloyd’s Syndicate 2357 (Syndicate
2357) (collectively, the Nephila Reinsurers). The Company receives management fees for investment and insurance
management services provided through its insurance-linked securities operations based on the net asset value of the accounts
managed, and, for certain funds, incentive fees based on the annual performance of the funds managed. Nephila also receives
commissions from the Nephila Reinsurers, which are based on the direct written premiums of the insurance contracts placed.
Total revenues from the Company’s insurance-linked securities operations for the years ended December 31, 2019, 2018 and
2017 were $225.6 million, $91.5 million and $28.7 million, respectively, of which $200.8 million, $90.6 million and $28.7
million, respectively, were attributed to unconsolidated entities managed by Nephila and MCIM. Other related party
transactions with the Company’s insurance-linked securities operations are described below.
106
Nephila
Within the Company’s program services business, the Company has a program with Nephila through which the Company
writes insurance policies that are ceded to Syndicate 2357 and certain other Nephila Reinsurers. Through this arrangement,
Nephila utilizes certain of the Company’s licensed insurance companies to write U.S. catastrophe exposed property risk that is
then ceded to Nephila Reinsurers. For the years ended December 31, 2019 and 2018, gross premiums written through the
Company’s program with Nephila were $425.0 million and $322.1 million, respectively, all of which were ceded to Nephila
Reinsurers. As of December 31, 2019 and 2018, reinsurance recoverables on the consolidated balance sheets included $238.8
million and $179.8 million, respectively, due from Nephila Reinsurers.
Under this program, the Company bears underwriting risk for annual aggregate agreement year losses in excess of a limit the
Company believes is unlikely to be exceeded. To the extent losses under this program exceed the prescribed limit, the Company
is obligated to pay such losses to the cedents without recourse to Nephila Reinsurers. While the Company believes losses under
this program are unlikely, those losses, if incurred, could be material to the Company’s consolidated results of operations and
financial condition.
The Company has also entered into both assumed and ceded reinsurance transactions with the Nephila Reinsurers in the
normal course of business, which are not material to the Company’s consolidated financial statements.
Markel CATCo
During the first quarter of 2019, the Company entered into various reinsurance contracts with third parties that were ceded to
Markel CATCo Re, an unconsolidated subsidiary, in exchange for ceding fees. These reinsurance contracts primarily cover
losses for events that occurred during 2019, however, in some instances, coverage is also provided for adverse development on
2018 and prior accident years’ loss events. Incurred losses on these contracts are fully ceded to Markel CATCo Re. The loss
exposures on these contracts are fully collateralized by Markel CATCo Re up to an amount that the Company believes is
unlikely to be exceeded. For the year ended December 31, 2019, the Company earned $8.8 million of ceding fees attributed to
these contracts, which was included in services and other revenues in the Company’s consolidated statement of income and
other comprehensive income. As of December 31, 2019, the Company’s estimate of ultimate incurred losses and loss
adjustment expenses on these reinsurance contracts totaled $4.9 million, all of which was ceded to Markel CATCo Re. The
corresponding reinsurance recoverables due from Markel CATCo Re are fully collateralized. Results attributed to these
contracts are not included in a reportable segment.
Within the Company’s underwriting operations, the Company also enters into reinsurance contracts that are ceded to Markel
CATCo Re. Under this program, the Company retains underwriting risk for annual aggregate agreement year losses in excess of
a limit the Company believes is unlikely to be exceeded. To the extent losses under this program exceed the prescribed limit,
the Company is obligated to pay such losses to the cedents without recourse to Markel CATCo Re. For the years ended
December 31, 2019, 2018 and 2017, gross premiums written and ceded to Markel CATCo Re were $5.5 million, $10.9 million
and $9.7 million, respectively.
18. Shareholders’ Equity
a) The Company had 50,000,000 shares of no par value common stock authorized of which 13,794,142 shares and 13,887,711
shares were issued and outstanding at December 31, 2019 and 2018, respectively. The Company also has 10,000,000 shares of no
par value preferred stock authorized, none of which was issued or outstanding at December 31, 2019 or 2018.
In August 2019, the Board of Directors approved a new share repurchase program (the 2019 Program) to replace the previous
share repurchase program that was approved by the Board of Directors in May 2018 (the 2018 Program). Consistent with the
2018 Program, the 2019 Program provides for the repurchase of up to $300 million of common stock and has no expiration date
but may be terminated by the Board of Directors at any time.
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(continued)
During the year ended December 31, 2019, the Company repurchased an aggregate of 104,719 shares of common stock at a cost
of $111.6 million, including 73,371 shares repurchased under the 2018 Program at a cost of $75.8 million, and 31,348 shares
repurchased under the 2019 program at a cost of $35.8 million. In total, the Company repurchased 93,036 shares of common
stock under the 2018 Program at a cost of $97.2 million.
b) Net income (loss) per share was determined by dividing adjusted net income (loss) to shareholders by the applicable weighted
average shares outstanding. Basic shares outstanding include restricted stock units that are no longer subject to any
contingencies for issuance, but for which the corresponding shares have not been issued. Diluted net income (loss) per share is
computed by dividing adjusted net income (loss) to shareholders by the weighted average number of common shares and dilutive
potential common shares outstanding during the year.
(in thousands, except per share amounts)
2019
2018
2017
Net income (loss) to shareholders(1)
Adjustment of redeemable noncontrolling interests
Adjusted net income (loss) to shareholders
$ 1,790,466
1,105
$ 1,791,571
$ (128,180)
(4,828)
$ (133,008)
$ 395,269
(33,738)
$ 361,531
Years Ended December 31,
Basic common shares outstanding
Dilutive potential common shares from options
Dilutive potential common shares from restricted stock units and
restricted stock(2)
Diluted shares outstanding
Basic net income (loss) per share
Diluted net income (loss) per share(2)
13,861
—
20
13,881
129.25
129.07
$
$
13,923
—
—
13,923
(9.55)
(9.55)
$
$
13,964
1
41
14,006
25.89
25.81
$
$
(1) Effective January 1, 2018, the Company adopted ASU No. 2016-01. As a result, the change in fair value of equity securities is no longer
recognized in other comprehensive income; rather, all changes in the fair value of equity securities are now recognized in net income. Prior
periods have not been restated to conform to the current presentation.
(2) The impact of restricted stock units and restricted stock of 25 thousand shares was excluded from the computation of diluted earnings per
share for the year ended December 31, 2018 because the effect would have been anti-dilutive.
c) In May 2016, the Company adopted the Markel Corporation 2016 Employee Stock Purchase and Bonus Plan (the 2016 Stock
Purchase Plan) which replaced the Company’s prior employee stock purchase and bonus plan. The 2016 Stock Purchase Plan
provides a method for employees and directors to purchase shares of the Company’s common stock on the open market. The
plan encourages share ownership by providing for the award of bonus shares to participants equal to 10% of the net increase in
the number of shares owned under the plan in a given year, excluding shares acquired through the plan’s loan program
component (the Loan Program). Under the Loan Program, the Company previously offered subsidized unsecured loans so
participants could purchase shares and awarded bonus shares equal to 5% of the shares purchased with a loan. In May 2019, the
Loan Program was discontinued and employees may no longer obtain loans from the Company for the purpose of purchasing
shares of the Company’s common stock under the 2016 Stock Purchase Plan. Outstanding loans continue to follow the original
payment schedule until paid in full. The Company authorized 125,000 shares for purchase under the 2016 Stock Purchase Plan,
of which 100,471 and 105,283 shares were available for purchase as of December 31, 2019 and 2018, respectively. At December
31, 2019 and 2018, loans outstanding under the plans, which are included in receivables on the consolidated balance sheets,
totaled $18.4 million and $19.2 million, respectively.
108
d) In May 2016, the Company adopted the 2016 Equity Incentive Compensation Plan (2016 Compensation Plan), which
provides for grants and awards of restricted stock, restricted stock units, performance grants, and other stock based awards to
employees and non-employee directors and is administered by the Compensation Committee of the Company’s Board of
Directors (Compensation Committee). At December 31, 2019, there were 205,686 shares available for future awards under the
2016 Compensation Plan.
Restricted stock units are awarded to certain employees and executive officers based upon meeting performance conditions
determined by the Compensation Committee. These awards generally vest at the end of the third year following the year for
which the Compensation Committee determines performance conditions have been met. At the end of the vesting period,
recipients are entitled to receive one share of the Company’s common stock for each vested restricted stock unit. During 2019,
the Company awarded 11,418 restricted stock units to employees and executive officers based on performance conditions
being met.
Restricted stock units also are awarded to employees to assist the Company in securing or retaining the services of key
employees. During 2019, the Company awarded 2,759 restricted stock units to employees as a hiring or retention incentive.
These awards generally vest over a three-year period and entitle the recipient to receive one share of the Company’s common
stock for each vested restricted stock unit.
During 2019, the Company awarded 968 shares of restricted stock to its non-employee directors. The shares awarded to non-
employee directors will vest in 2020.
The following table summarizes nonvested share-based awards.
Nonvested awards at January 1, 2019
Granted
Vested
Forfeited
Nonvested awards at December 31, 2019
Number
of Awards
20,873
15,145
(17,391)
(1,053)
17,574
Weighted Average
Grant-Date
Fair Value
$ 1,042.83
1,025.81
1,011.55
1,038.76
$ 1,073.99
The fair value of the Company’s share-based awards granted under the 2016 Compensation Plan was determined based on the
closing price of the Company’s common shares on the grant date. The weighted average grant-date fair value of the Company’s
share-based awards granted in 2019, 2018 and 2017 was $1,025.81, $1,121.68 and $979.23, respectively. As of December 31,
2019, unrecognized compensation cost related to nonvested share-based awards was $7.8 million, which is expected to be
recognized over a weighted average period of 1.6 years. The fair value of the Company’s share-based awards that vested during
2019, 2018 and 2017 was $17.6 million, $19.1 million and $28.8 million, respectively.
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(continued)
19. Other Comprehensive Income
Other comprehensive income includes net holding gains on available-for-sale investments arising during the period, changes in
unrealized other-than-temporary impairment losses on fixed maturities arising during the period and reclassification
adjustments for net gains included in net income. Other comprehensive income also includes changes in foreign currency
translation adjustments and changes in net actuarial pension loss.
The following table presents the change in accumulated other comprehensive income (loss) by component, net of taxes and
noncontrolling interests.
(dollars in thousands)
December 31, 2016
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Total other comprehensive income
Unrealized
Holding Gains on
Available-for-Sale
Securities
Foreign
Currency
Net Actuarial
Pension Loss
Total
$ 1,714,930
787,339
$ (84,406)
10,403
$ (64,658)
3,092
$ 1,565,866
800,834
(24,296)
763,043
—
10,403
3,167
6,259
(21,129)
779,705
December 31, 2017
$ 2,477,973
$
(74,003)
$ (58,399)
$ 2,345,571
Cumulative effect of adoption of ASU No. 2016-01
Cumulative effect of adoption of ASU No. 2018-02
January 1, 2018
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other
comprehensive income
(2,597,976)
401,539
281,536
(241,325)
2,492
1,314
(70,197)
(16,455)
7,849
—
Total other comprehensive income (loss)
(233,476)
(16,455)
—
—
(58,399)
—
2,341
2,341
(2,595,484)
402,853
152,940
(257,780)
10,190
(247,590)
December 31, 2018
$
48,060
$ (86,652)
$ (56,058)
$
(94,650)
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Total other comprehensive income
299,125
(1,148)
297,977
403
—
403
2,908
302,436
2,134
5,042
986
303,422
December 31, 2019
$
346,037
$ (86,249)
$ (51,016)
$ 208,772
Effective January 1, 2018, the Company adopted ASU No. 2016-01 and as a result, equity securities are no longer classified as
available-for-sale with unrealized gains and losses recognized in other comprehensive income. Rather, changes in the fair value
of equity securities are now recognized in net income. Upon adoption of this ASU, cumulative net unrealized gains on equity
securities of $2.6 billion, net of deferred income taxes, were reclassified from accumulated other comprehensive income into
retained earnings.
Effective January 1, 2018, the Company adopted ASU No. 2018-02, Income Statement - Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provided an
option to reclassify tax effects remaining in accumulated other comprehensive income as a result of the TCJA to retained
earnings. As a result of adopting the ASU, the Company reclassified $402.9 million of previously recognized deferred taxes
from accumulated other comprehensive income into retained earnings as of January 1, 2018.
110
The following table summarizes the tax expense (benefit) associated with each component of other comprehensive income.
(dollars in thousands)
Change in net unrealized gains on available-for-sale investments:
Net holding gains (losses) arising during the period
Reclassification adjustments for net gains (losses)
included in net income (loss)
Change in net unrealized gains on available-for-sale investments
Change in foreign currency translation adjustments
Change in net actuarial pension loss
totAl
Years Ended December 31,
2019
2018
2017
$ 84,219
$ (68,056)
$ 372,469
(305)
83,914
—
1,348
2,086
(65,970)
1,523
622
(10,072)
362,397
28
1,284
$ 85,262
$ (63,825)
$ 363,709
The following table presents the details of amounts reclassified from accumulated other comprehensive income (loss) into
income (loss), by component.
(dollars in thousands)
Unrealized holding gains on available-for-sale securities:
Other-than-temporary impairment losses
Net realized investment gains (losses), excluding other-than-temporary
impairment losses
Total before income taxes
Income taxes
Years Ended December 31,
2019
2018
2017
$
—
$
—
$
(7,589)
1,453
1,453
(305)
(9,935)
(9,935)
2,086
41,957
34,368
(10,072)
Reclassification of unrealized holding gains (losses), net of taxes $
1,148
$ (7,849)
$ 24,296
Net actuarial pension loss:
Underwriting, acquisition and insurance expenses
Income taxes
Reclassification of net actuarial pension loss, net of taxes
$
$
(6,390)
1,348
(5,042)
$ (2,963)
622
$ (2,341)
$
$
(3,815)
648
(3,167)
20. Commitments and Contingencies
Contingencies arise in the normal course of the Company’s operations and are not expected to have a material impact on the
Company’s financial condition or results of operations.
a) Late in the fourth quarter of 2018, the Company was contacted by and received inquiries from the U.S. Department of Justice,
U.S. Securities and Exchange Commission and Bermuda Monetary Authority (collectively, Governmental Authorities) into loss
reserves recorded in late 2017 and early 2018 at Markel CATCo Re (the Markel CATCo Inquiries), an unconsolidated subsidiary
managed by MCIM. As a result, the Company engaged outside counsel to conduct an internal review.
The internal review was completed in April 2019 and found no evidence that MCIM personnel acted in bad faith in exercising
business judgment in the setting of reserves and making related disclosures during late 2017 and early 2018. The Company’s
outside counsel has met with the Governmental Authorities and reported the findings from the internal review. The
Markel CATCo Inquiries are ongoing. The Company cannot currently predict the duration, scope or result of the Markel
CATCo Inquiries.
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(continued)
During the internal review, the Company discovered violations of Markel policies by two senior executives of MCIM. As a
result, these two executives are no longer with the Company. As of December 31, 2017, the Company had accrued incentive
and retention compensation for the two executives totaling $34.9 million which remained unpaid as of December 31, 2018.
This amount was reversed in the fourth quarter of 2018 and reflected as a reduction to services and other expenses. All accruals
for retention and incentive compensation recorded earlier in 2018 for the two executives were also reversed in the fourth
quarter of 2018.
Between January 11, 2019 and March 7, 2019, several related putative class actions were filed in the U.S. District Court for the
Southern District of New York against Markel Corporation and certain present or former officers and directors alleging
violations of the federal securities laws relating to the matters that are the subject of the Markel CATCo Inquiries . The actions
were consolidated. On August 6, 2019, the Markel Securities Litigation was voluntarily dismissed.
On February 21, 2019, Anthony Belisle and Alissa Fredricks, the two senior executives who are no longer with MCIM, each
separately filed suit against MCIM and Markel Corporation, which suits were amended on March 29, 2019 and March 28,
2019, respectively. As amended, Mr. Belisle’s complaint alleged claims for, among other things, breach of contract, defamation,
invasion of privacy, indemnification, intentional interference with contractual relations and deceptive and unfair acts and
sought relief of, among other things, $66.0 million in incentive compensation, enhanced compensatory damages,
consequential damages, damages for emotional distress and injury to reputation, exemplary damages and attorneys’ fees. In
June 2019, MCIM, Markel Corporation, and Mr. Belisle agreed to commence binding arbitration to finally, fully and
confidentially resolve the claims and counterclaims alleged in the action, and the Belisle suit was dismissed with prejudice in
July 2019. The arbitrators have been selected and the arbitration proceeding has commenced. The Company believes that Mr.
Belisle’s claims are without merit and any material loss resulting from the Belisle binding arbitration to be remote. As
amended, Ms. Fredricks’ complaint alleged claims for, among other things, breach of contract, defamation, invasion of privacy,
indemnification, intentional interference with contractual relations and deceptive and unfair acts and sought relief of, among
other things, $7.5 million in incentive compensation, consequential damages, damages for emotional distress and injury to
reputation, exemplary damages and attorneys’ fees. In June 2019, the action filed by Ms. Fredricks was settled by mutual
agreement to the satisfaction of all parties.
In December 2018, investors in the Markel CATCo Funds were offered an additional redemption opportunity (the Special
Redemption) to redeem any or all shares held as of June 30, 2019. Through both the Special Redemption and the annual
redemption for January 1, 2019, substantially all of the capital in the Markel CATCo Funds was tendered for redemption. In
July 2019, MCIM announced it would cease accepting new investments in the Markel CATCo Funds and would not write any
new business in Markel CATCo Re. Both the Markel CATCo Funds and Markel CATCo Re have been placed into run-off,
returning capital to investors as it becomes available. This process is expected to take approximately three years. Payment for
the redemptions of shares is an obligation of the Markel CATCo Funds, not Markel Corporation or its subsidiaries.
In connection with the run-off of one of the Markel CATCo Funds, the Company has committed to invest $90 million in that
fund to collateralize risk exposures within the underlying reinsurance contracts in which the fund is invested related to loss
events that occur after December 31, 2019 and through the expiration of the reinsurance contracts in 2020. Underwriting
results for the 2020 exposures on these contracts will be attributed to the Company through its investment in the fund.
The Markel CATCo Inquiries, as well as other matters related to or arising from the Markel CATCo Inquiries, including
matters of which the Company is currently unaware, could result in additional claims, litigation, investigations, enforcement
actions or proceedings. For example, additional litigation may be filed by investors in the Markel CATCo Funds. The
Company also could become subject to increased regulatory scrutiny, investigations or proceedings in any of the jurisdictions
where it operates. If any regulatory authority takes action against the Company or the Company enters into an agreement to
settle a matter, the Company may incur sanctions or be required to pay substantial fines or implement remedial measures that
could prove costly or disruptive to its businesses and operations. Costs associated with the Company’s internal review,
including legal and investigation costs, as well as legal costs incurred in connection with any existing or future litigation, are
being expensed as incurred.
112
An unfavorable outcome in one or more of these matters, and others the Company cannot anticipate, could have a material
adverse effect on the Company’s results of operations and financial condition. In addition, the Company may take further steps
to mitigate potential risks or liabilities that may arise from the Markel CATCo Inquiries and related developments and some of
those steps may have a material impact on the Company’s results of operations or financial condition. Even if an unfavorable
outcome does not materialize, these matters, and actions the Company may take in response, could have an adverse impact on
the Company’s reputation and result in substantial expense and disruption.
b) The Company has reviewed events at one of its Markel Ventures products businesses. Since becoming aware of a matter late
in the first quarter of 2018 related to the business’s manufacture of products, the Company has conducted an investigation,
reviewed the business’s operations and developed remediation plans. Upon completion of its review during 2018, the Company
recorded an expense of $33.5 million in its results of operations. This amount represented management’s best estimate of
amounts considered probable including: remediation costs associated with the manufacture of products, costs associated with
the investigation of this matter, a write down of inventory on hand and settlement costs related to pre-existing litigation.
Final resolution of this matter could ultimately result in additional remediation and other costs, the amount of which cannot
be estimated at this time, but which could have a material impact on the Company’s income before income taxes. However,
management does not expect this matter ultimately will have a material adverse effect on the Company’s results of operations
or financial condition. If a determination is made that additional costs associated with this matter are considered probable,
these additional costs will be recognized as an expense in the Company’s results of operations. As of December 31, 2019, $20.2
million remained accrued for ongoing remediation efforts.
c) In 2019, the Company established Lodgepine Capital Management Limited (Lodgepine), its new retrocessional insurance-
linked securities fund manager in Bermuda. Lodgepine’s initial product offering will be Lodgepine Fund Limited, a property
catastrophe retrocessional investment fund, which is expected to launch in 2020. The Company has committed to invest up to
$100 million in Lodgepine Fund Limited.
21. Statutory Financial Information
a) Statutory capital and surplus and statutory net income (loss) for the Company’s insurance subsidiaries as of December 31,
2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017, respectively, is summarized below.
(dollars in thousands)
United States
United Kingdom
Bermuda
Other
Statutory Capital and Surplus
December 31,
2019
3,673,216
662,151
1,604,184
73,643
$
$
$
$
2018
3,158,828
621,802
1,495,563
74,704
$
$
$
$
As of December 31, 2019, the Company’s actual statutory capital and surplus significantly exceeded the regulatory
requirements. As a result, the amount of statutory capital and surplus necessary to satisfy regulatory requirements is not
significant in relation to actual statutory capital and surplus.
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N O T E S
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C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
(continued)
(dollars in thousands)
United States
United Kingdom
Bermuda
Other
Statutory Net Income (Loss)
Years Ended December 31,
2019
$ 419,396
$ 108,759
$ 447,479
(360)
$
2018
$ 414,957
$
40,203
$ (131,411)
(5,193)
$
2017
$ 312,828
$ (25,785)
$ (78,070)
(4,812)
$
The Solvency II Directive (Solvency II) that governs the calculation of statutory capital and surplus for the Company’s U.K. and
German insurance subsidiaries does not provide requirements for the calculation of net income. Amounts presented in the table
above for the Company’s U.K. and German insurance subsidiaries, in which the amount attributable to Germany is included in
Other, have been calculated in accordance with U.K. and German GAAP, respectively.
United States
The laws of the domicile states of the Company’s U.S. insurance subsidiaries govern the amount of dividends that may be
paid to the Company. Generally, statutes in the domicile states of the Company’s U.S. insurance subsidiaries require prior
approval for payment of extraordinary, as opposed to ordinary, dividends. As of December 31, 2019, the Company’s U.S.
insurance subsidiaries could pay up to $561.8 million to the holding company during the following 12 months under the
ordinary dividend regulations.
In converting from U.S. statutory accounting principles to U.S. GAAP, typical adjustments include deferral of policy acquisition
costs, differences in the calculation of deferred income taxes and the inclusion of net unrealized gains or losses relating to fixed
maturities in shareholders’ equity. The Company does not use any permitted statutory accounting practices that are different
from prescribed statutory accounting practices which impact statutory capital and surplus.
United Kingdom
The Company’s U.K. insurance subsidiary, Markel International Insurance Company Limited (MIICL), and its Lloyd’s of London
(Lloyd’s) managing agent, Markel Syndicate Management Limited (MSM), are authorized by the Prudential Regulation
Authority (PRA) and regulated by both the PRA and the Financial Conduct Authority (FCA). The PRA oversees compliance
with established periodic auditing and reporting requirements, minimum solvency margins and individual capital assessment
requirements under Solvency II and imposes dividend restrictions, while both the PRA and the FCA oversee compliance with
risk assessment reviews and various other requirements. MIICL is required to give advance notice to the PRA for any
transaction or proposed transaction with a connected or related person. MSM is required to satisfy the solvency requirements of
Lloyd’s. In addition, the Company’s U.K. subsidiaries must comply with the United Kingdom Companies Act of 2006, which
provides that dividends may only be paid out of profits available for that purpose. Beginning in 2018, earnings of the Company’s
U.K. insurance subsidiaries are no longer considered indefinitely reinvested for U.S. income tax purposes and, as a result, are
available for distribution to the holding company to the extent not otherwise restricted.
114
Bermuda
The Company’s Bermuda insurance subsidiary, Markel Bermuda Limited (Markel Bermuda), is subject to enhanced capital
requirements in addition to minimum solvency and liquidity requirements. The enhanced capital requirement is determined by
reference to a risk-based capital model that determines a control threshold for statutory capital and surplus by taking into
account the risk characteristics of different aspects of the insurer’s business. At December 31, 2019, Markel Bermuda satisfied
both the enhanced capital requirements and the minimum solvency and liquidity requirements.
Under the Bermuda Insurance Act, Markel Bermuda is prohibited from paying or declaring dividends during a fiscal year if it is
in breach of its enhanced capital requirement, solvency margin or minimum liquidity ratio or if the declaration or payment of
the dividend would cause a breach of those requirements. If an insurer fails to meet its solvency margin or minimum liquidity
ratio on the last day of any financial year, it is prohibited from declaring or paying any dividends during the next financial year
without the approval of the Bermuda Monetary Authority (BMA). Further, Markel Bermuda is prohibited from declaring or
paying, in any financial year, dividends of more than 25% of its total statutory capital and surplus as set forth in its previous
year’s statutory balance sheet unless at least seven days before payment of those dividends it files with the BMA an affidavit
stating that it will continue to meet its solvency margin and minimum liquidity ratio. Markel Bermuda must obtain the BMA’s
prior approval for a reduction by 15% or more of the total statutory capital as set forth in its previous year’s financial statements.
In addition, as a long-term insurer, Markel Bermuda may not declare or pay a dividend to any person other than a policyholder
unless the value of the assets in its long-term business fund, as certified by Markel Bermuda’s approved actuary, exceeds the
liabilities of its long-term business. The amount of the dividend cannot exceed the aggregate of that excess and any other funds
legally available for the payment of the dividend. As of December 31, 2019, Markel Bermuda could pay up to $401.0 million to
the holding company during the following 12 months without making any additional filings with the BMA.
Other Jurisdictions
The Company’s other foreign subsidiaries, including its German insurance subsidiary, are subject to capital and solvency
requirements in their respective jurisdictions of domicile.
b) Lloyd’s sets the corporate members’ required capital annually based on each syndicates’ business plans, rating environment,
reserving environment and input arising from Lloyd’s discussions with, among others, regulatory and rating agencies. Such
required capital is referred to as Funds at Lloyd’s (FAL), and comprises cash and investments. The amount of cash and
investments held as FAL as of December 31, 2019 was $899.3 million. Of this amount, $336.7 million was provided by the
holding company and is not available for general use by the Company. The remaining amount, provided by the Company’s
insurance subsidiaries, is not available for distribution to the holding company. The Company’s corporate member may also be
required to maintain funds under the control of Lloyd’s in excess of its capital requirements and such funds also may not be
available for distribution to the holding company.
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S T A T E M E N T S
(continued)
22. Markel Corporation (Parent Company Only) Financial Information
The following parent company only condensed financial information reflects the financial position, results of operations and
cash flows of Markel Corporation.
C O N D E N S E D
B A L A N C E S H E E T S
assets
Investments, at estimated fair value:
December 31,
2019
2018
(dollars in thousands)
Fixed maturities, available-for-sale (amortized cost of $658,557 in 2019 and
$
676,307
$
717,681
$717,666 in 2018)
Equity securities (cost of $1,487,478 in 2019 and $1,117,363 in 2018)
Short-term investments, available-for-sale (estimated fair value approximates cost)
Total Investments
Cash and cash equivalents
Restricted cash and cash equivalents
Receivables
Investments in consolidated subsidiaries
Notes receivable from subsidiaries
Income taxes receivable
Other assets
tOtal assets
liabilities anD sHareHOlDers’ equity
Senior long-term debt
Notes payable to subsidiaries(1)
Income taxes payable
Net deferred tax liability
Other liabilities
Total Liabilities
Total Shareholders’ Equity
tOtal liabilities anD sHareHOlDers’ equity
1,831,333
724,558
3,232,198
737,072
1,077
19,846
12,239,086
60,111
2,170
347,023
1,175,120
451,499
2,344,300
263,043
3,177
19,295
10,697,605
160,111
21,174
135,722
$
16,638,583
$ 13,644,427
$
3,438,910
1,835,000
18,270
129,835
145,701
5,567,716
11,070,867
$
2,539,389
1,895,000
—
64,564
64,820
4,563,773
9,080,654
$
16,638,583
$ 13,644,427
(1) In December 2018, Markel Corporation purchased Markel Global Reinsurance Company, an indirectly owned subsidiary of Markel
Corporation, from Alterra USA Holdings Limited, another indirectly owned subsidiary of Markel Corporation, by issuing a $1.4 billion note
payable to subsidiary.
116
C O N D E N S E D S T A T E M E N T S O F I N C O M E
( L O S S ) A N D C O M P R E H E N S I V E I N C O M E ( L O S S )
reVenues
Net investment income
Dividends on common stock of consolidated subsidiaries
Net investment gains (losses):
Net realized investment gains (losses), including
other-than-temporary impairment losses
Change in fair value of equity securities(1)
Net investment gains (losses)
Total Revenues
exPenses
Services and other expenses
Interest expense
Net foreign exchange losses (gains)
Loss on early extinguishment of debt
Total Expenses
Income Before Equity in Undistributed Earnings of Consolidated
Subsidiaries and Income Taxes
Equity in undistributed earnings (losses) of consolidated subsidiaries
Income tax (expense) benefit
Years Ended December 31,
2019
2018
2017
(dollars in thousands)
$
48,845
$
32,631
$
21,076
863,335
749,171
895,920
3,848
293,296
297,144
1,209,324
6,436
219,082
3,973
13,656
243,147
966,177
851,337
(27,048)
(3,341)
(110,356)
(113,697)
668,105
6,532
145,681
(3,391)
—
148,822
519,283
(696,045)
48,582
3,383
—
3,383
920,379
11,708
122,151
—
—
133,859
786,520
(469,365)
78,114
net incOMe (lOss) tO sHareHOlDers(1)
$ 1,790,466
$ (128,180)
$
395,269
OtHer cOMPre He nsiVe incOMe (lOss) tO sHareHOlDers
Change in net unrealized gains on available-for-sale investments,
net of taxes:
Net holding gains (losses) arising during the period
$
14,016
$
(1,492)
$
52,277
Consolidated subsidiaries’ net holding gains (losses) arising
during the period
Reclassification adjustments for net gains (losses)
included in net income (loss) to shareholders
Consolidated subsidiaries’ reclassification adjustments for
net gains (losses) included in net income (loss) to shareholders
3,443
Change in net unrealized gains on available-for-sale
investments, net of taxes
Change in foreign currency translation adjustments, net of taxes
Consolidated subsidiaries’ change in foreign currency
translation adjustments, net of taxes
Consolidated subsidiaries’ change in net actuarial pension loss,
net of taxes
Total Other Comprehensive Income (Loss) to Shareholders
285,109
(239,833)
735,062
297,977
(233,476)
(4,591)
—
403
5,042
303,422
2,564
5,285
—
(1,513)
(22,783)
763,043
(2,260)
(16,455)
12,663
2,341
(247,590)
6,259
779,705
cOMPreHensiVe incOMe (lOss) tO sHareHOlDers
$ 2,093,888
$
(375,770)
$ 1,174,974
(1) Effective January 1, 2018, the Company adopted ASU No. 2016-01. As a result, equity securities are no longer classified as available-for-sale
with unrealized gains and losses recognized in other comprehensive income; rather, all changes in the fair value of equity securities are now
recognized in net income. Prior periods have not been restated to conform to the current presentation.
117
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S T A T E M E N T S
(continued)
C O N D E N S E D S T A T E M E N T S O F C A S H F L O W S
OPerating actiVities
Net income (loss) to shareholders
Adjustments to reconcile net income (loss) to shareholders to net cash
Years Ended December 31,
2019
2018
2017
(dollars in thousands)
$ 1,790,466
$
(128,180)
$
395,269
provided (used) by operating activities
(1,530,940)
3,637
(166,132)
Net Cash Provided (Used) By Operating Activities
259,526
(124,543)
229,137
inVesting actiVities
Proceeds from sales of fixed maturities and equity securities
Proceeds from maturities, calls and prepayments of fixed maturities
Cost of fixed maturities and equity securities purchased
Net change in short-term investments
Return of capital from subsidiaries
Decrease (increase) in notes receivable due from subsidiaries
Capital contributions to subsidiaries
Acquisitions, net of cash acquired
Cost of equity method investments
Other
Net Cash Provided (Used) by Investing Activities
Financing actiVities
Additions to senior long-term debt
Increase (decrease) in notes payable to subsidiaries
Repayment of senior long-term debt
Premiums and fees related to early extinguishment of debt
Repurchases of common stock
Other
Net Cash Provided (Used) by Financing Activities
Increase (decrease) in cash, cash equivalents, restricted cash
and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash
equivalents at beginning of year
casH, casH equiValents, restricteD casH anD
restricteD casH equiValents at enD OF year
326,564
41,673
(82,332)
(236,251)
14,865
100,000
(413,148)
—
(213,100)
6,719
(455,010)
1,384,182
(99,839)
(484,811)
(13,248)
(116,307)
(2,564)
667,413
204,478
34,560
(26,336)
930,876
12,712
(20,000)
(103,133)
(972,619)
(4,917)
(8,652)
20,562
64,705
(72,910)
649,181
45,225
(58)
(270,623)
(1,153,683)
—
(3,661)
46,969
(721,262)
—
47,105
—
—
(54,007)
(70)
(6,972)
592,923
—
—
—
(110,838)
(9,848)
472,237
471,929
(84,546)
(19,888)
266,220
350,766
370,654
$
738,149
$
266,220
$
350,766
118
23. Quarterly Financial Information (unaudited)
The following table presents the unaudited quarterly results of consolidated operations for 2019, 2018 and 2017.
(dollars in thousands, except per share amounts)
Mar. 31
June 30
Sept. 30
Dec. 31
Quarters Ended
2019
Operating revenues
Net income(1)
Net income to shareholders(1)
Comprehensive income to shareholders
Net income per share:
Basic
Diluted
2018
Operating revenues
Net income (loss)(1)
Net income (loss) to shareholders(1)
Comprehensive income (loss) to shareholders
Net income (loss) per share:
Basic
Diluted
2017
Operating revenues
Net income (loss)(1)
Net income (loss) to shareholders(1)
Comprehensive income (loss) to shareholders
Net income (loss) per share:
$ 2,472,488
$ 2,439,116
$ 2,033,058
$ 2,581,529
577,513
576,427
732,245
506,483
497,298
623,330
203,953
205,637
250,069
511,513
511,104
488,244
$
$
42.81
42.76
$
$
36.10
36.07
$
$
13.97
13.95
$
$
36.34
36.26
$ 1,575,471
$ 1,987,013
$ 2,235,949
$ 1,042,852
(65,594)
(64,306)
(174,839)
279,587
278,231
164,336
409,028
409,438
315,106
(753,374)
(751,543)
(680,373)
$
$
(4.25)
(4.25)
$
$
20.01
19.97
$
$
28.56
28.50
$
$
(53.88)
(53.88)
$ 1,411,751
$ 1,481,493
$ 1,506,148
$ 1,662,267
71,040
69,869
223,239
151,427
149,660
342,357
(261,035)
(259,141)
(19,869)
439,326
434,881
629,247
Basic
Diluted
$
$
3.91
3.90
$
$
10.34
10.31
$
$
(18.82)
(18.82)
$
$
30.48
30.39
(1) Effective January 1, 2018, the Company adopted ASU No. 2016-01. As a result, the change in fair value of equity securities is no longer
recognized in other comprehensive income; rather, all changes in the fair value of equity securities are now recognized in net income. Prior
periods have not been restated to conform to the current presentation.
119
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
The accompanying consolidated financial statements and related notes have been prepared in accordance with United States
(U.S.) generally accepted accounting principles (GAAP) and include the accounts of Markel Corporation and its subsidiaries, as
well as any variable interest entities that meet the requirements for consolidation (the Company). For a discussion of our
significant accounting policies, see note 1 of the notes to consolidated financial statements.
The following discussion and analysis includes discussion of changes in our results of operations and financial condition from
2018 to 2019 and should be read in conjunction with Selected Financial Data, the consolidated financial statements and related
notes and the discussion under “Risk Factors” and “Safe Harbor and Cautionary Statement.”
A discussion of changes in our results of operations and financial condition from 2017 to 2018 may be found in Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Form 10-K, which was
filed with the U.S. Securities and Exchange Commission on February 28, 2019.
Our Business
We are a diverse financial holding company serving a variety of niche markets. Our principal business markets and underwrites
specialty insurance products. We believe that our specialty product focus and niche market strategy enable us to develop
expertise and specialized market knowledge. We seek to differentiate ourselves from competitors by our expertise, service,
continuity and other value-based considerations. We also own interests in various businesses that operate outside of the
specialty insurance marketplace. Our financial goals are to earn consistent underwriting and operating profits and superior
investment returns to build shareholder value.
Our business is comprised of the following types of operations:
• Underwriting – our underwriting operations are comprised of our risk-bearing insurance and reinsurance operations
• Investing – our investing activities are primarily related to our underwriting operations
• Markel Ventures – our Markel Ventures operations include our controlling interests in a diverse portfolio of businesses
that operate outside of the specialty insurance marketplace
• Insurance-linked securities – our insurance-linked securities operations include investment fund managers that offer a
variety of investment products, including insurance-linked securities, catastrophe bonds, insurance swaps and weather
derivatives
• Program services – our program services business serves as a fronting platform that provides other insurance entities
access to the United States (U.S.) property and casualty insurance market
Underwriting and Investing
Our chief operating decision maker allocates resources to and assesses the performance of our ongoing underwriting operations
on a global basis in the following two segments: Insurance and Reinsurance. In determining how to monitor our underwriting
results, we consider many factors, including the nature of the insurance product sold, the type of account written and the type
of customer served. The Insurance segment includes all direct business and facultative placements written across the Company.
The Reinsurance segment includes all treaty reinsurance written across the Company. Results for lines of business discontinued
prior to, or in conjunction with, acquisitions, including development on asbestos and environmental loss reserves and the
results attributable to the run-off of life and annuity reinsurance business, are monitored separately and are not included in a
reportable segment. All investing activities related to our underwriting operations are included in the Investing segment.
Our Insurance segment includes both hard-to-place risks written outside of the standard market on an excess and surplus basis
and unique and hard-to-place risks that must be written on an admitted basis due to marketing and regulatory reasons. Risks
written in our Insurance segment are written on either a direct basis or a subscription basis, the latter of which means that the
loss exposures brought into the market are typically insured by more than one insurance company or Lloyd’s of London
syndicate. When we write business in the subscription market, we prefer to participate as lead underwriter in order to control
underwriting terms, policy conditions and claims handling. The following products are included in this segment: general
liability, professional liability, primary and excess of loss property, including catastrophe-exposed property, personal property,
workers’ compensation, marine and energy liability coverages, specialty program insurance for well-defined niche markets, and
liability and other coverages tailored for unique exposures. Business in this segment is written through our Markel Assurance,
120
Markel Specialty, Markel International and State National divisions. The Markel Assurance division writes commercial and
Fortune 1000 accounts on an excess and surplus as well as admitted basis. The Markel Specialty division writes program
insurance and other specialty coverages for well-defined niche markets, primarily on an admitted basis. The Markel
International division writes business worldwide from our London and Munich-based platforms, which include branch offices
around the world.
Our Reinsurance segment includes property, casualty and specialty treaty reinsurance products offered to other insurance and
reinsurance companies globally through the broker market. Our treaty reinsurance offerings include both quota share and
excess of loss reinsurance and are typically written on a participation basis, which means each reinsurer shares proportionally
in the business ceded under the reinsurance treaty written. Principal lines of business include: property (including catastrophe-
exposed property), professional liability, general liability, credit, surety, auto and workers’ compensation. Our reinsurance
product offerings are underwritten by our Global Reinsurance division.
Markel Ventures
Through our wholly-owned subsidiary Markel Ventures, Inc. (Markel Ventures), we own interests in various businesses that we
monitor and report in the Markel Ventures segment. These businesses are viewed by management as separate and distinct from
our insurance operations and are comprised of a diverse portfolio of businesses from different industries that offer various types
of products and services to businesses and consumers, predominately in the United States. Our products group is comprised of
businesses that manufacture or produce equipment, transportation-related products and consumer and building products. For
example, types of products offered by businesses in this group include equipment used in baking systems and food processing,
over-the-road car haulers and laminated oak and composite wood flooring used in the trucking industry as well as ornamental
plants and residential homes. The services group is comprised of businesses that provide healthcare, consulting and other types
of services to businesses and consumers. For example, types of services offered by businesses in this group include management
and technology consulting, behavioral healthcare and retail intelligence.
In November 2019, we acquired VSC Fire & Security, Inc. (VSC), a Virginia-based privately held provider of comprehensive fire
protection, life safety and low voltage solutions. Results attributable to VSC will be included in our Markel Ventures segment.
In October 2018, we acquired 90% of Brahmin Leather Works (Brahmin), a Massachusetts-based privately held creator of fashion
leather handbags. Results attributable to Brahmin are included in our Markel Ventures segment.
Insurance-Linked Securities
Our insurance-linked securities operations are comprised of our Nephila and run-off Markel CATCo operations.
In November 2018, we completed the acquisition of all of the outstanding shares of Nephila Holdings Ltd. (together with its
subsidiaries, Nephila). Nephila primarily serves as an insurance and investment fund manager headquartered in Bermuda that
offers a broad range of investment products, including insurance-linked securities, catastrophe bonds, insurance swaps and
weather derivatives.
Nephila serves as the investment manager to several Bermuda, Ireland and U.S. based private funds (the Nephila Funds). To provide
access for the Nephila Funds to the insurance, reinsurance and weather markets, Nephila also provides managing general agent
services and acts as an insurance manager to certain Bermuda Class 3 and 3A reinsurance companies and Lloyd’s Syndicate 2357
(Syndicate 2357) (collectively, the Nephila Reinsurers). The results of the Nephila Reinsurers are attributed to the Nephila Funds
primarily through derivative transactions between these entities. Neither the Nephila Funds nor the Nephila Reinsurers are
subsidiaries of Markel Corporation, and as such, these entities are not included in our consolidated financial statements. As of
December 31, 2019, Nephila’s net assets under management were $10.4 billion.
Our Markel CATCo operations are conducted through Markel CATCo Investment Management Ltd. (MCIM). MCIM is an
insurance-linked securities investment fund manager headquartered in Bermuda and through 2019, was focused on building
and managing highly diversified, collateralized retrocession and reinsurance portfolios covering global property catastrophe
risks. MCIM serves as the insurance manager for Markel CATCo Re Ltd. (Markel CATCo Re), a Bermuda Class 3 reinsurance
company, and as the investment manager for Markel CATCo Reinsurance Fund Ltd., a Bermuda exempted mutual fund
company comprised of multiple segregated accounts (Markel CATCo Funds). MCIM also serves as the investment manager
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C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
to CATCo Reinsurance Opportunities Fund Ltd. (CROF), a limited liability closed-end Bermuda exempted mutual fund
company listed on a market operated by the London Stock Exchange and on the Bermuda Stock Exchange. CROF invests
substantially all of its assets in Markel CATCo Reinsurance Fund Ltd. Both Markel CATCo Re and the Markel CATCo Funds
are unconsolidated subsidiaries of Markel Corporation. As of December 31, 2019, MCIM’s net assets under management
were $2.8 billion, a portion of which is attributable to our investments in the Markel CATCo Funds.
In July 2019, MCIM announced it would cease accepting new investments in the Markel CATCo Funds and would not write
any new business in Markel CATCo Re. Both the Markel CATCo Funds and Markel CATCo Re have been placed into run-off,
returning capital to investors as it becomes available. See note 20 of the notes to consolidated financial statements for further
details regarding other developments within our Markel CATCo operations.
In 2019, we established Lodgepine Capital Management Limited (Lodgepine), our new retrocessional insurance-linked
securities fund manager in Bermuda. Lodgepine’s initial product offering will be Lodgepine Fund Limited, a property
catastrophe retrocessional investment fund, which is expected to launch in 2020. We have committed to invest up to
$100 million in Lodgepine Fund Limited. Lodgepine Fund Limited initially plans to subscribe to a portfolio of
retrocessional reinsurance, which includes contracts written in our Reinsurance segment.
Program Services
Our program services business is conducted through our State National division and is separately managed from our
underwriting operations. Our program services business generates fee income, in the form of ceding (program service) fees,
by offering issuing carrier capacity to both specialty general agents and other producers who sell, control, and administer
books of insurance business that are supported by third parties that assume reinsurance risk, including Syndicate 2357.
Through our program services business, we write a wide variety of insurance products, principally including general
liability insurance, commercial liability insurance, commercial multi-peril insurance, property insurance and workers’
compensation insurance, substantially all of which is ceded to third parties.
For further discussion of our underwriting, investing, Markel Ventures, insurance-linked securities and program services
operations, see the respective sections under Business Overview.
Critical Accounting Estimates
Critical accounting estimates are those estimates that both are important to the portrayal of our financial condition and results
of operations and require us to exercise significant judgment. The preparation of financial statements in accordance with U.S.
GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of material contingent assets and liabilities, including litigation contingencies. These estimates, by
necessity, are based on assumptions about numerous factors.
We review the adequacy of reserves for unpaid losses and loss adjustment expenses and life and annuity reinsurance benefit
reserves quarterly. Estimates and assumptions for goodwill and intangible assets are reviewed in conjunction with acquisitions
and goodwill and indefinite-lived intangible assets are reassessed at least annually for impairment. Actual results may differ
materially from the estimates and assumptions used in preparing the consolidated financial statements.
Unpaid Losses and Loss Adjustment Expenses
Our consolidated balance sheets included estimated unpaid losses and loss adjustment expenses of $14.7 billion and
reinsurance recoverables on unpaid losses of $5.3 billion at December 31, 2019 compared to $14.3 billion and $5.1 billion,
respectively, at December 31, 2018. Included in these balances were unpaid losses and loss adjustment expenses and
reinsurance recoverables on unpaid losses attributable to our program services business and other fronting arrangements
totaling $2.9 billion for the year ended December 31, 2019 and $2.5 billion for the year ended December 31, 2018. Our
consolidated balance sheets do not include reserves for losses and loss adjustment expenses attributed to unconsolidated
subsidiaries or affiliates that we manage through our insurance-linked securities operations, including Markel CATCo Re
and the Nephila Reinsurers.
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We accrue liabilities for unpaid losses and loss adjustment expenses based upon estimates of the ultimate amounts payable.
We maintain reserves for specific claims incurred and reported (case reserves) and reserves for claims incurred but not
reported (IBNR reserves).
Reported claims are in various stages of the settlement process, and the corresponding reserves for reported claims are based
upon all information available to us. Case reserves consider our estimate of the ultimate cost to settle the claims, including
investigation and defense of lawsuits resulting from the claims, and may be subject to adjustment for differences between costs
originally estimated and costs subsequently re-estimated or incurred. Claims are settled based upon their merits, and some
claims may take years to settle, especially if legal action is involved.
As of any balance sheet date, all claims have not yet been reported, and some claims may not be reported for many years.
As a result, the liability for unpaid losses and loss adjustment expenses includes significant estimates for incurred but not
reported claims.
There is normally a time lag between when a loss event occurs and when it is actually reported to us. The actuarial methods
that we use to estimate losses have been designed to address the lag in loss reporting as well as the delay in obtaining
information that would allow us to more accurately estimate future payments. There is also often a time lag between cedents
establishing case reserves and re-estimating their reserves, and notifying us of the new or revised case reserves. As a result, the
reporting lag is more pronounced in our reinsurance contracts than in our insurance contracts due to the reliance on ceding
companies to report their claims to us. On reinsurance transactions, the reporting lag will generally be 60 to 90 days after the
end of a reporting period, but can be longer in some cases. Based on the experience of our actuaries and management, we select
loss development factors and trending techniques to mitigate the difficulties caused by reporting lags. At least annually, we
evaluate and update our loss development and trending factor selections using cedent specific and industry data.
U.S. GAAP requires that IBNR reserves be based on the estimated ultimate cost of settling claims, including the effects of
inflation and other social and economic factors, using past experience adjusted for current trends and any other factors that
would modify past experience. IBNR reserves are generally calculated by subtracting paid losses and case reserves from
estimated ultimate losses. IBNR reserves were 65% of total unpaid losses and loss adjustment expenses at December 31, 2019
compared to 64% at December 31, 2018.
Each quarter, our actuaries prepare estimates of the ultimate liability for unpaid losses and loss adjustment expenses based on
established actuarial methods. Management reviews these estimates, supplements the actuarial analyses with information
provided by claims, underwriting and other operational personnel and determines its best estimate of loss reserves, which is
recorded in our consolidated financial statements. Our procedures for determining the adequacy of loss reserves at the end of
the year are substantially similar to the procedures applied at the end of each interim period.
Any adjustments to reserves resulting from our interim or year-end reviews, including changes in estimates, are recorded as a
component of losses and loss adjustment expenses in the period of the change. Reserve changes that increase previous
estimates of ultimate claims cost are referred to as unfavorable or adverse development, or reserve strengthening. Reserve
changes that decrease previous estimates of ultimate claims cost are referred to as favorable development.
Program Services
For our program services business, case reserves are generally established based on reports received from the general agents or
reinsurers with whom we do business. Our actuaries review the case loss reserve data received for sufficiency, consistency with
historical data and for consistency with other programs we write that have similar characteristics. IBNR reserves are calculated
using either our program experience or, where the program data is not credible, industry experience for similar products or lines
of business. Substantially all of the premium written in our program services business is ceded and net reserves for unpaid
losses and loss adjustment expenses as of December 31, 2019 and December 31, 2018 were $2.2 million and $2.6 million,
respectively.
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Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
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C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Underwriting
For our insurance operations, we are generally notified of insured losses by our insureds or their brokers. Based on this
information, we establish case reserves by estimating the expected ultimate losses from the claim (including any administrative
costs associated with settling the claim). Our claims personnel use their knowledge of the specific claim along with internal
and external experts, including underwriters, actuaries and legal counsel, to estimate the expected ultimate losses.
For our reinsurance operations, case reserves are generally established based on reports received from ceding companies or their
brokers. For excess of loss contracts, we are typically notified of insurance losses on specific contracts and record a case reserve
for the estimated expected ultimate losses from the claim. For quota share contracts, we typically receive aggregated claims
information and record a case reserve based on that information. As with insurance business, we evaluate this information and
estimate the expected ultimate losses.
Our liabilities for unpaid losses and loss adjustment expenses can generally be categorized into two distinct groups, short-tail
business and long-tail business. Short-tail business refers to lines of business, such as property, accident and health, automobile,
watercraft and marine hull exposures, for which losses are usually known and paid shortly after the loss actually occurs. Long-
tail business describes lines of business for which specific losses may not be known and reported for some period and losses take
much longer to emerge. Given the time frame over which long-tail exposures are ultimately settled, there is greater uncertainty
and volatility in these lines than in short-tail lines of business. Our long-tail coverages consist of most casualty lines, including
professional liability, directors’ and officers’ liability, products liability, general and excess liability and excess and umbrella
exposures, as well as workers’ compensation insurance. Some factors that contribute to the uncertainty and volatility of long-
tail casualty programs, and thus require a significant degree of judgment in the reserving process, include the inherent
uncertainty as to the length of reporting and payment development patterns, the possibility of judicial interpretations or
legislative changes, including changes in workers’ compensation benefit laws, that might impact future loss experience relative
to prior loss experience and the potential lack of comparability of the underlying data used in performing loss reserve analyses.
Our ultimate liability may be greater or less than current reserves. Changes in our estimated ultimate liability for loss
reserves generally occur as a result of the emergence of unanticipated loss activity, the completion of specific actuarial or
claims studies or changes in internal or external factors. We closely monitor new information on reported claims and use
statistical analyses prepared by our actuaries to evaluate the adequacy of our recorded reserves. We are required to exercise
considerable judgment when assessing the relative credibility of loss development trends. Our philosophy is to establish loss
reserves that are more likely redundant than deficient. This means that we seek to establish loss reserves that will ultimately
prove to be adequate. As a result, if new information or trends indicate an increase in frequency or severity of claims in
excess of what we initially anticipated, we generally respond quickly and increase loss reserves. If, however, frequency or
severity trends are more favorable than initially anticipated, we often wait to reduce our loss reserves until we can evaluate
experience in additional periods to confirm the credibility of the trend. In addition, for long-tail lines of business, trends
develop over longer periods of time, and as a result, we give credibility to these trends more slowly than for short-tail or less
volatile lines of business. As part of our acquisition of underwriting operations, to the extent the reserving philosophy of the
acquired business is less conservative than our reserving philosophy, the post-acquisition loss reserves will be strengthened
until total loss reserves are consistent with our target level of confidence.
In establishing our liabilities for unpaid losses and loss adjustment expenses, our actuaries estimate an ultimate loss ratio, by
accident year or policy year, for each of our product lines with input from our underwriting and claims personnel. For product
lines in which loss reserves are established on a policy year basis, we have developed a methodology to convert from policy year
to accident year for financial reporting purposes. In estimating an ultimate loss ratio for a particular line of business, our
actuaries may use one or more actuarial reserving methods and select from these a single point estimate. To varying degrees,
these methods include detailed statistical analysis of past claim reporting, settlement activity, claim frequency and severity,
policyholder loss experience, industry loss experience and changes in market conditions, policy forms and exposures. The
actuarial methods we use include:
Initial Expected Loss Ratio Method – This method multiplies earned premiums by an expected loss ratio. The expected
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loss ratio is selected utilizing industry data, our historical data, frequency-severity and rate level forecasts and
professional judgment.
Paid Loss Development – This method uses historical loss payment patterns to estimate future loss payment patterns.
Our actuaries use the historical loss patterns to develop factors that are applied to current paid loss amounts to
calculate expected ultimate losses.
Incurred Loss Development – This method uses historical loss reporting patterns to estimate future loss reporting
patterns. Our actuaries use the historical loss patterns to develop factors that are applied to current reported losses to
calculate expected ultimate losses.
Bornhuetter-Ferguson Paid Loss Development – This method divides the projection of ultimate losses into the portion that
has already been paid and the portion that has yet to be paid. The portion that has yet to be paid is estimated as the product of
three amounts: the premium earned for the exposure period, the expected loss ratio and the percentage of ultimate losses that
are still unpaid. The expected loss ratio is selected by considering historical loss ratios, adjusted for any known changes in
pricing, loss trends, adequacy of case reserves, changes in administrative practices and other relevant factors.
Bornhuetter-Ferguson Incurred Loss Development – This method is identical to the Bornhuetter-Ferguson paid loss
development method, except that it uses the percentage of ultimate losses that are still unreported, instead of the
percentage of ultimate losses that are still unpaid.
Frequency/Severity – Under this method, expected ultimate losses are equal to the product of the expected ultimate number
of claims and the expected ultimate average cost per claim. Our actuaries use historical reporting patterns and severity patterns
to develop factors that are applied to the current reported amounts to calculate expected ultimate losses.
Outstanding to IBNR Ratio Method – Under this method, IBNR is based on a detailed review of remaining open claims.
This method assumes that the estimated future loss development is indicated by the current level of case reserves.
Other Methods – We cannot estimate losses from widespread catastrophic events, such as hurricanes and earthquakes, using
the traditional actuarial methods described above. In the initial months after a catastrophic event occurs, our actuaries estimate
losses and loss adjustment expenses based on claims received to date, detailed policy and reinsurance contract level reviews,
industry loss estimates and output from both industry and proprietary models. The availability of data from these procedures
varies depending on the timing of the event relative to the point at which we develop our estimate. We also consider loss
experience on historical events that may have similar characteristics to the underlying event. Due to the inherent uncertainty
in estimating such losses, these estimates are subject to variability, which increases with the severity and complexity of the
underlying event. As additional claims are reported and paid, and industry loss estimates are revised, we incorporate this new
information into our analysis and adjust our estimate of ultimate losses and loss adjustment expenses.
Each actuarial method has its own set of assumptions and its own strengths and limitations, with no one method being better
than the others in all situations. Our actuaries select the reserving methods that they believe will produce the most reliable
estimate for the class of business being evaluated. Greater judgment may be required when we introduce new product lines or
when there have been changes in claims handling practices, as the statistical data available may be insufficient. In these
instances, we may rely upon assumptions applied to similar lines of business, rely more heavily on industry experience, take
into account changes in underwriting guidelines and risk selection or review the impact of changes in claims reserving
practices with claims personnel.
A key assumption in most actuarial analyses is that past development patterns will repeat themselves in the future, absent a
significant change in internal or external factors that influence the ultimate cost of our unpaid losses and loss adjustment
expenses. Our estimates reflect implicit and explicit assumptions regarding the potential effects of external factors, including
economic and social inflation, judicial decisions, changes in law, general economic conditions and recent trends in these
factors. Our actuarial analyses are based on statistical analysis but also consist of reviewing internal factors that are difficult to
analyze statistically, including underwriting and claims handling changes. In some of our markets, and where we act as a
reinsurer, the timing and amount of information reported about underlying claims are in the control of third parties. This can
also affect estimates and require re-estimation as new information becomes available.
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Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
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C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
As indicated above, we may use one or more actuarial reserving methods, which incorporate numerous underlying judgments
and assumptions, to establish our estimate of ultimate loss reserves. While we use our best judgment in establishing our estimate
for loss reserves, applying different assumptions and variables could lead to significantly different loss reserve estimates.
Loss frequency and loss severity are two key measures of loss activity that often result in adjustments to actuarial assumptions
relative to ultimate loss reserve estimates. Loss frequency measures the number of claims per unit of insured exposure. When
the number of newly reported claims is higher than anticipated, generally speaking, loss reserves are increased. Conversely, loss
reserves are generally decreased when fewer claims are reported than expected. Loss severity measures the average size of a
claim. When the average severity of reported claims is higher than originally estimated, loss reserves are typically increased.
When the average claim size is lower than anticipated, loss reserves are typically decreased. For example, in both of the past
two years, we experienced favorable development on prior years’ loss reserves in our workers’ compensation insurance product
lines as a result of decreases in loss severity.
Changes in prior years’ loss reserves, including the trends and factors that impacted loss reserve development, as well as the
likelihood that such trends and factors could result in future loss reserve development, are discussed in further detail under
“Results of Operations.”
Loss reserves are established at management’s best estimate, which is generally higher than the corresponding actuarially
calculated point estimate. The actuarial point estimate represents our actuaries’ estimate of the most likely amount that will
ultimately be paid to settle the losses that have occurred at a particular point in time; however, there is inherent uncertainty in
the point estimate as it is the expected value in a range of possible reserve estimates. In some cases, actuarial analyses, which are
based on statistical analysis, cannot fully incorporate all of the subjective factors that affect development of losses. In other cases,
management’s perspective of these more subjective factors may differ from the actuarial perspective. Subjective factors where
management’s perspective may differ from that of the actuaries include: the credibility and timeliness of claims information
received from third parties, economic and social inflation, judicial decisions, changes in law, changes in underwriting or claims
handling practices, general economic conditions, the risk of moral hazard and other current and developing trends within the
insurance and reinsurance markets, including the effects of competition. As a result, the actuarially calculated point estimates for
each of our lines of business represent starting points for management’s quarterly review of loss reserves. Additionally, following
an acquisition of insurance operations, to the extent the reserving philosophy of the acquired business is less conservative than
our reserving philosophy, the percentage by which management’s best estimate exceeds the actuarial point estimate will
generally be lower until we build total loss reserves that are consistent with our historic level of confidence. Management’s best
estimate of net reserves for unpaid losses and loss adjustment expenses exceeded the actuarially calculated point estimate by
$577.5 million, or 6.5%, at December 31, 2019, compared to $578.1 million, or 6.7%, at December 31, 2018.
The difference between management’s best estimate and the actuarially calculated point estimate in both 2019 and 2018 is
primarily associated with our long-tail business. Actuarial estimates can underestimate the adverse effects of broader coverage
terms, lower prices and excess underwriting capacity because the impact of changes in risk selection and terms and conditions
can be difficult to quantify. In addition, the frequency of claims may increase in a recessionary environment. Similarly, the risk
an insured will intentionally cause or be indifferent to loss may increase during an economic downturn, and the attention to
loss prevention measures may decrease. These subjective factors affect the development of losses and represent instances where
management’s perspectives may differ from those of our actuaries. As a result, management has attributed less credibility than
our actuaries to favorable trends experienced on our long-tail business and has not incorporated these favorable trends into its
best estimate to the same extent as the actuaries.
See note 10 of the notes to consolidated financial statements for further details regarding the historical development of reserves
for losses and loss adjustment expenses and changes in methodologies and assumptions used to calculate reserves for unpaid
losses and loss adjustment expenses.
Management also considers the range, or variability, of reasonably possible losses determined by our actuaries when establishing
its best estimate for loss reserves. The actuarial ranges represent our actuaries’ estimate of a likely lowest amount and likely
highest amount that will ultimately be paid to settle the losses that have occurred at a particular point in time. The range
determinations are based on estimates and actuarial judgments and are intended to encompass reasonably likely changes in one
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or more of the factors that were used to determine the point estimates. Using statistical models, our actuaries establish high and
low ends of a range of reasonable reserve estimates for each of our underwriting segments.
The following table summarizes our reserves for net unpaid losses and loss adjustment expenses and the actuarially
established high and low ends of a range of reasonable reserve estimates at December 31, 2019. As described in note 10 of
the notes to consolidated financial statements, unpaid losses and loss adjustment expenses attributable to acquisitions are
recorded at fair value as of the acquisition date, which generally consists of the present value of the expected net loss and
loss adjustment expense payments plus a risk premium. The net loss reserves presented in this table represent our
estimated future payments for losses and loss adjustment expenses, whereas the reserves for unpaid losses and loss
adjustment expenses included on the consolidated balance sheet include the unamortized portion of fair value adjustments
recorded in conjunction with an acquisition.
(dollars in millions)
Insurance
Reinsurance
Other
Net Loss
Reserves Held
Low End of
Actuarial Range(1)
High End of
Actuarial Range(1)
$ 6,256.2
3,033.3
152.8
$ 5,485.8
2,314.5
119.4
$ 6,748.9
3,374.2
172.5
(1) Due to the actuarial methods used to determine the separate ranges for each component of our business, it is not appropriate to aggregate
the high or low ends of the separate ranges to determine the high and low ends of the actuarial range on a consolidated basis.
Undue reliance should not be placed on these ranges of estimates as they are only one of many points of reference used by
management to determine its best estimate of ultimate losses. Further, actuarial ranges may not be a true reflection of the
potential variability between loss reserves estimated at the balance sheet date and the ultimate cost of settling claims. Actuarial
ranges are developed based on known events as of the valuation date, while ultimate losses are subject to events and
circumstances that are unknown as of the valuation date.
Life and Annuity Benefits
We have a run-off block of life and annuity reinsurance contracts which subject us to mortality, longevity and morbidity risks.
The related reserves are compiled by our actuaries on a reinsurance contract-by-contract basis and are computed on a
discounted basis using standard actuarial techniques and cash flow models. Since the development of our life and annuity
reinsurance reserves is based upon cash flow projection models, we must make estimates and assumptions based on cedent
experience, industry mortality tables, and expense and investment experience, including a provision for adverse deviation. The
assumptions used to determine policy benefit reserves are generally locked-in for the life of the contract unless an unlocking
event occurs. To the extent existing policy reserves, together with the present value of future gross premiums and expected
investment income earned thereon, are not adequate to cover the present value of future benefits, settlement and maintenance
costs, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings for life and annuity
benefits is recognized at that time. Life and annuity benefits are also adjusted to the extent unrealized gains on the investments
supporting the policy benefit reserves would result in a reserve deficiency if those gains were realized.
Our consolidated balance sheets included reserves for life and annuity benefits of $985.7 million and $1.0 billion at
December 31, 2019 and 2018, respectively. During 2019, the Company recognized a reserve deficiency resulting from a decrease
in the market yield on the investment portfolio supporting the policy benefit reserves by increasing life and annuity benefits by
$51.4 million and decreasing the change in net unrealized holding gains included in other comprehensive income by a
corresponding amount. As of December 31, 2019, the cumulative adjustment to life and annuity benefits attributable to
unrealized gains on the underlying investment portfolio totaled $51.4 million. No adjustment was required for the year ended
December 31, 2018.
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Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
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C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Because of the assumptions and estimates used in establishing reserves for life and annuity benefit obligations and the long-
term nature of these reinsurance contracts, the ultimate liability may be greater or less than the estimates. The average
discount rate for the life and annuity benefit reserves was 2.3% as of December 31, 2019. The accretion of this discount is
recognized in the statement of income and comprehensive income within services and other expenses. Invested assets and the
related investment income that support the life and annuity reinsurance contracts are reported in the Investing segment. We
expect the results from our life and annuity business will continue to reflect losses in future periods due to the accretion of the
discount on the life and annuity benefit reserves, which are forecast to pay out over the next 40 to 50 years. Services and other
revenues attributable to the life and annuity business represent ongoing premium adjustments on existing contracts.
Goodwill and Intangible Assets
Our consolidated balance sheet as of December 31, 2019 included goodwill and intangible assets of $4.0 billion. Goodwill and
intangible assets are recorded as a result of business acquisitions. Goodwill represents the excess of the amount paid to acquire
a business over the net fair value of assets acquired and liabilities assumed at the date of acquisition. Indefinite-lived and other
intangible assets are recorded at fair value as of the acquisition date. The determination of the fair value of certain assets
acquired, including goodwill and intangible assets, and liabilities assumed involves significant judgment and the use of
valuation models and other estimates, which require assumptions that are inherently subjective. During the years ended
December 31, 2019 and 2018, we recorded $232.0 million and $1.2 billion, respectively, of goodwill and intangible assets in
connection with acquisitions.
Intangible assets with definite lives are reviewed for impairment when events or circumstances indicate that their carrying
value may not be recoverable. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or when
events or circumstances indicate that their carrying value may not be recoverable. A significant amount of judgment is required
in performing the annual impairment test, including whether to assess qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. This assessment serves as a basis for
determining whether it is necessary to perform a quantitative impairment test.
We completed our annual test for impairment as of October 1, 2019 based upon results of operations through September 30,
2019 and elected to perform a qualitative assessment for all of our reporting units. When performing the assessment, we
considered macroeconomic factors such as industry and market conditions. We also considered reporting unit-specific events,
actual financial performance versus expectations and management’s future business expectations. As part of our qualitative
assessment of certain reporting units with material goodwill, we considered the fact that some of the businesses had been
recently acquired in orderly transactions between market participants, and our purchase price represented fair value at
acquisition. There were no events since acquisition that had a significant impact on the fair value of these reporting units as of
the assessment date.
Based on the results of our qualitative assessment, and because there were no indicators of impairment between the assessment
date and December 31, 2019, we believe the fair value of each of our reporting units exceeded its respective carrying amount as
of the assessment date and December 31, 2019.
During 2018, we performed an assessment of the recoverability of goodwill and intangible assets at the MCIM reporting unit as
of December 31, 2018. Based on the results of the assessment, we reduced the carrying value of the goodwill and intangible
assets of the MCIM reporting unit to zero. See note 6 and note 20 of the notes to consolidated financial statements for further
details around these impairment charges and other developments in our Markel CATCo operations.
Recent Accounting Pronouncements
See note 1(y) of the notes to consolidated financial statements for discussion of recently issued accounting pronouncements that
we have not yet adopted and the expected effects on our consolidated financial position, results of operations and cash flows.
128
Results of Operations
The following table presents the components of net income (loss) to shareholders and comprehensive income (loss)
to shareholders.
(dollars in thousands)
Insurance segment underwriting profit
Reinsurance segment underwriting loss
Investing segment profit (loss)(1)
Markel Ventures segment profit(2)
Other operations(3)
Interest expense
Net foreign exchange gains (losses)
Loss on early extinguishment of debt
Income tax expense
Net (income) loss attributable to noncontrolling interests
net Income (loss) to shAreholders
Other comprehensive income (loss) to shareholders
comprehensIve Income (loss) to shAreholders
Years Ended December 31,
$
$
2019
309,778
(39,999)
2,052,874
168,417
(13,724)
(171,687)
(2,265)
(17,586)
(486,346)
(8,996)
1,790,466
303,422
$ 2,093,888
$
2018
228,773
(118,287)
(3,894)
77,479
(144,312)
(154,212)
106,598
—
(122,498)
2,173
(128,180)
(247,590)
(375,770)
(1) Net investment income and net investment gains, if any, attributable to Markel Ventures are included in segment profit for Markel
Ventures. All other net investment income and net investment gains are included in Investing segment profit (loss).
(2) Segment profit for the Markel Ventures segment includes amortization of intangible assets attributable to Markel Ventures. Amortization of
intangible assets is not allocated to any other reportable segments.
(3) Other operations includes the results attributable to the Company’s operations that are not included in a reportable segment as well as any
amortization of intangible assets that is not allocated to a reportable segment.
The change in comprehensive income (loss) to shareholders from 2018 to 2019 was primarily due to net investment gains of
$1.6 billion in 2019 compared to net investment losses of $437.6 million in 2018. We also experienced an increase in net
unrealized gains on available-for-sale investments, net of taxes, of $298.0 million in 2019 compared to a decrease in net
unrealized gains on available-for-sale investments, net of taxes, of $233.5 million in 2018. The components of net income (loss)
to shareholders and comprehensive income (loss) to shareholders are discussed in further detail under “Underwriting Results,”
“Premiums,” “Investing Results,” “Markel Ventures,” “Other Operations,” “Interest Expense, Loss on Early Extinguishment
of Debt and Income Taxes” and “Comprehensive Income (Loss) to Shareholders.”
Underwriting Results
Underwriting profits are a key component of our strategy to build shareholder value. We believe that the ability to achieve
consistent underwriting profits demonstrates knowledge and expertise, commitment to superior customer service and the
ability to manage insurance risk. The property and casualty insurance industry commonly defines underwriting profit or
loss as earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses.
We use underwriting profit or loss and the combined ratio as a basis for evaluating our underwriting performance.
The combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss
adjustment expenses and underwriting, acquisition and insurance expenses to earned premiums. The combined ratio is
the sum of the loss ratio and the expense ratio. A combined ratio less than 100% indicates an underwriting profit, while a
combined ratio greater than 100% reflects an underwriting loss. The loss ratio represents the relationship of incurred
losses and loss adjustment expenses to earned premiums. The expense ratio represents the relationship of underwriting,
acquisition and insurance expenses to earned premiums.
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Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
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C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
The following table presents selected data from our underwriting operations.
(dollars in thousands)
Gross premium volume(1)
Net written premiums
Net retention(1)
Earned premiums
Losses and loss adjustment expenses
Underwriting, acquisition and insurance expenses
Underwriting profit
U.S. GAAP Combined Ratios
Insurance
Reinsurance
Consolidated
(continued)
Years Ended December 31,
2019
6,436,168
5,412,071
84%
5,049,793
2,891,190
1,878,093
280,510
2018
5,800,984
4,787,578
83%
4,712,060
2,820,715
1,777,511
113,834
$
$
$
$
$
$
$
$
$
$
$
$
93%
104%
94%
94%
113%
98%
(1) Gross premium volume and net retention for the years ended December 31, 2019 and 2018 exclude $2.3 billion and $2.1 billion,
respectively, of written premiums attributable to our program services business and other fronting arrangements that were ceded.
The consolidated combined ratio was 94% in 2019 compared to 98% in 2018. The decrease in the consolidated combined ratio
was attributable to lower catastrophe losses in 2019 compared to 2018. Underwriting results in 2019 included $100.4 million,
or two points, of underwriting loss from Hurricane Dorian and Typhoons Faxai and Hagibis (2019 Catastrophes). Underwriting
results in 2018 included $287.3 million, or six points, of underwriting loss from Hurricanes Florence and Michael, Typhoon Jebi
and wildfires in California (2018 Catastrophes).
The following table summarizes, by segment, the components of the underwriting losses related to the 2019 and 2018
Catastrophes.
Years Ended December 31,
2019
2019 Catastrophes
2018
2018 Catastrophes
(dollars in thousands)
Insurance
Reinsurance Consolidated
Insurance
Reinsurance Consolidated
Losses and loss adjustment expenses
Ceded (assumed) reinstatement
premiums
$
8,317
$ 105,644
$ 113,961
$ 105,265
$ 187,490
$ 292,755
—
(13,552)
(13,552)
5,142
(10,583)
(5,441)
Underwriting loss
$
8,317
$ 92,092
$ 100,409
$ 110,407
$ 176,907
$ 287,314
Impact on combined ratio
—%
10%
2%
3%
19%
6%
130
The net losses and loss adjustment expenses on the 2019 and 2018 Catastrophes were net of ceded losses of $62.5 million
and $244.1 million, respectively. Both the gross and net losses on the 2019 and 2018 Catastrophes as of December 31, 2019
represent our best estimates based upon information currently available. Our estimates for these losses are based on
claims received to date, detailed policy and reinsurance contract level reviews, industry loss estimates and output from
both industry and proprietary models. For the 2019 Catastrophes, these estimates are still dependent on broad assumptions
about coverage, liability and reinsurance. While we believe our reserves for the 2019 and 2018 Catastrophes as of
December 31, 2019 are adequate, we continue to closely monitor reported claims and will adjust our estimates of gross
and net losses as new information becomes available. The net losses and loss adjustment expenses for the 2019 and 2018
Catastrophes were within our risk tolerance for events of this magnitude.
Excluding the impact of the 2019 and 2018 Catastrophes, the 2019 combined ratio was flat compared to 2018. Higher
earned premiums in 2019 had a favorable impact on our expense ratio and an unfavorable impact on the prior accident
years’ loss ratio.
The 2019 combined ratio included $535.3 million of favorable development on prior years’ loss reserves compared to
$551.0 million in 2018. In connection with our quarterly reviews of loss reserves, the actuarial methods we used have
exhibited a favorable trend, predominately for the 2015 to 2018 accident years, during 2019. This trend was observed using
statistical analysis of actual loss experience for those years, particularly with regard to most of our long-tail books of
business within the Insurance segment, which developed more favorably than we had expected. Loss reserves are recorded
at management’s best estimate, which is generally higher than the corresponding actuarially calculated point estimate due
to subjective factors where management’s perspective may differ from that of the actuaries. As a result, the initial reserves
established by management are more likely to be redundant than deficient. As actual losses continue to be lower than
anticipated, it has become more likely that the underwriting results will prove to be better than originally estimated.
Additionally, as most actuarial methods rely upon historical reporting patterns, the favorable trends experienced on earlier
accident years have resulted in a re-estimation of our ultimate incurred losses on more recent accident years. When we
experience loss frequency or loss severity trends that are more favorable than we initially anticipated, we often evaluate
the loss experience over a period of several years in order to assess the relative credibility of loss development trends. In
both 2019 and 2018, based upon our evaluations of claims development patterns in our long-tail, and often volatile, lines
of business, our actuaries reduced their estimates of ultimate losses. Management also gave greater credibility to the
favorable trends experienced on earlier accident years and upon incorporating these favorable trends into its best estimate,
we reduced prior years’ loss reserves on more recent accident years accordingly. While we believe it is possible that there
will be additional favorable development on prior years’ loss reserves in 2020, we caution readers not to place undue
reliance on this favorable trend.
The following discussion provides more detail by segment of the underwriting results described above. Following this segment-
based discussion is a summary table of prior years’ loss reserve development.
Insurance Segment
The combined ratio for the Insurance segment in 2019 was 93% compared to 94% (including three points for the underwriting
loss on the 2018 Catastrophes) in 2018. The decrease in the combined ratio was driven by lower catastrophe losses in 2019
compared to 2018, which was largely offset by a less favorable prior accident years’ loss ratio. Higher earned premiums in 2019
had a favorable impact on our expense ratio and an unfavorable impact on the prior years’ loss ratio. The expense ratio
decreased compared to 2018, primarily due to the favorable impact of higher earned premiums in 2019 compared to 2018,
partially offset by higher variable expenses. Higher variable expenses were largely driven by a lower benefit from ceding
commissions in 2019 compared to 2018 due to recent changes in our outwards reinsurance treaty structures. In late 2018, we
shifted from buying proportional reinsurance coverages towards excess of loss coverages for our general liability and
professional liability product lines.
131
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
The Insurance segment’s 2019 combined ratio included $462.1 million of favorable development on prior years’ loss reserves
compared to $502.3 million in 2018. The decrease in favorable development was primarily due to less favorable development
on our marine and energy product lines in 2019 compared to 2018 and adverse development on our property product lines in
2019 compared to favorable development in 2018. These unfavorable changes were partially offset by more favorable
development on our general liability product lines in 2019 compared to 2018. The adverse development on our property product
lines in 2019 was due to adverse development on our brokerage property product lines resulting from higher than expected
attritional losses as well as modest adverse development on prior year catastrophes.
The following is a discussion of the product lines with the most significant development on prior years’ loss reserves in the
Insurance segment during the last two years.
The favorable development on prior years’ loss reserves in the Insurance segment in 2019 and 2018 included $161.4 million and
$143.0 million, respectively, of favorable development on various long-tail general and excess liability lines. The favorable
development in 2019 was most significant on the 2015 to 2018 accident years. In 2019, the favorable development was due in
part to lower loss severity than originally anticipated. The favorable development in 2018 occurred across several accident
years, but was most significant on the 2012 to 2017 accident years. In 2018, the favorable development was due in part to lower
than expected claim frequency. As a result of these factors, our actuarial estimates of the ultimate liability for unpaid losses and
loss adjustment expenses in 2019 and 2018 were reduced, and management reduced prior years’ loss reserves accordingly.
In 2019 and 2018, we also experienced $108.4 million and $100.1 million, respectively, of favorable development on our
workers’ compensation product line. The favorable development in 2019 occurred across several accident years, but was most
significant on the 2016 to 2018 accident years. The favorable development in 2018 was most significant on the 2013 to 2017
accident years. In both years, actual incurred losses and loss adjustment expenses on prior accident years for reported claims on
our workers’ compensation product lines were less than we anticipated in our actuarial analyses due in part to lower loss
severity than originally anticipated and a net decrease in open claims. As a result, our actuaries reduced their estimates of
ultimate losses in 2019 and 2018 and management assigned greater credibility to this favorable experience and reduced prior
years’ loss reserves accordingly.
In 2019 and 2018, we also experienced $61.8 million and $68.5 million, respectively, of favorable development on our
professional liability product lines. The favorable development in 2019 occurred across several accident years, but was most
significant on the 2017 and 2018 accident years. The favorable development in 2018 occurred across several accident years, but
was most significant on the 2016 and 2017 accident years. In 2019 and 2018, the favorable development occurred across
multiple professional liability lines and was driven primarily by lower than expected case incurred losses. In 2019 there was also
a decrease in the frequency of large losses. As a result, our actuaries reduced their estimates of ultimate losses in 2019 and 2018
and management assigned greater credibility to this favorable experience and reduced prior years’ loss reserves accordingly.
In 2019 and 2018, we also experienced $43.7 million and $70.7 million, respectively, of favorable development on our marine
and energy product lines. The favorable development in 2019 was most significant on the 2017 and 2018 accident years,
primarily driven by lower than expected loss severity and claims frequency. The favorable development in 2018 was most
significant on the 2013 to 2017 accident years, driven by favorable development on the 2017 Catastrophes and lower than
expected development on known claims. As a result of these factors, our actuarial estimates of the ultimate liability for unpaid
losses and loss adjustment expenses were reduced, and management reduced prior years’ loss reserves accordingly.
132
Reinsurance Segment
The combined ratio for the Reinsurance segment in 2019 was 104% (including 10 points for the underwriting loss on the 2019
Catastrophes) compared to 113% (including 19 points for the underwriting loss on the 2018 Catastrophes) in 2018. The
decrease in the combined ratio was primarily driven by lower catastrophe losses, as well as more favorable development on
prior accident years’ loss reserves in 2019 compared to 2018. Excluding the impact of the 2019 and 2018 Catastrophes, the
current accident year loss ratio increased due to higher attritional losses on our property product lines arising from recent
changes in our outwards property reinsurance treaty structures. In 2019, we eliminated our proportional property reinsurance
treaty and purchased additional excess of loss property and catastrophe reinsurance coverage. We also experienced higher
attritional losses across most of our other product lines in 2019 compared to 2018. These unfavorable impacts on the current
accident year loss ratio in 2019 were partially offset by net favorable premium adjustments in 2019, primarily on our
professional liability product lines, compared to net unfavorable premium adjustments 2018.
The Reinsurance segment’s 2019 combined ratio included $64.8 million of favorable development on prior years’ loss reserves
compared to $43.0 million in 2018. The increase in favorable development was primarily due to more favorable development
on our property product lines in 2019 compared to 2018, which included favorable development on prior year catastrophes in
2019 compared to adverse development on prior year catastrophes in 2018. We also experienced favorable development on our
general liability product lines in 2019 compared to adverse development in 2018. These favorable changes were partially offset
by less favorable development on our credit and surety product lines in 2019 compared to 2018.
The following is a discussion of the product lines with the most significant development on prior years’ loss reserves in the
Reinsurance segment during the last two years.
The favorable development on prior years’ loss reserves in the Reinsurance segment in 2019 included $29.6 million of favorable
development on our property product lines. The favorable development in 2019 occurred across several accident years, but was
most significant on the 2016 and 2017 accident years. The favorable development in 2019 was driven by lower than expected
incurred and paid losses on reported claims. As a result, our actuarial estimates of the ultimate liability for unpaid losses and
loss adjustment expenses were reduced, and management reduced prior years’ loss reserves accordingly.
In 2019, we also experienced $26.2 million of favorable development on our whole account product lines. The favorable
development in 2019 occurred across several accident years, but was most significant on accident years prior to 2010. The
favorable development in 2019 was driven by lower than expected incurred and paid losses on reported claims giving greater
credibility to a favorable loss development trend. As a result, our actuarial estimates of the ultimate liability for unpaid losses
and loss adjustment expenses were reduced, and management reduced prior years’ loss reserves accordingly.
The favorable development on prior years’ loss reserves in the Reinsurance segment in 2018 included $23.9 million of favorable
development on our credit and surety product lines, across several accident years. The favorable development in 2018 was
driven primarily by lower than expected incurred and paid losses on reported claims. As a result of these factors, our actuarial
estimates of the ultimate liability for unpaid losses and loss adjustment expenses were reduced, and management reduced prior
years’ loss reserves accordingly.
In 2018, we also experienced $18.0 million of favorable development on our marine and energy product lines. The favorable
development occurred across several accident years, but was most significant on the 2012 to 2016 accident years. The favorable
development in 2018 was primarily driven by lower than expected loss severity and claims frequency. As a result of these
factors, our actuarial estimates of the ultimate liability for unpaid losses and loss adjustment expenses were reduced, and
management reduced prior years’ loss reserves accordingly.
133
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Prior years’ loss reserves in the Reinsurance segment in 2018 also included $16.2 million of adverse development on our
professional liability product lines. In 2018, we experienced adverse claims activity on certain of our professional liability
product lines and recognized $35.7 million of adverse development. Adverse development on certain of our professional
liability product lines, was partially offset by $19.6 million of favorable development on our medical product lines during 2018,
primarily on the 2009 to 2013 accident years. The favorable development was driven by a combination of factors, including
lower loss severity than was originally anticipated and a decrease in the frequency of claims. As a result of these factors, our
actuarial estimates of the ultimate liability for unpaid losses and loss adjustment expenses were reduced, and management
reduced prior years’ loss reserves accordingly.
The following tables summarize the increases (decreases) in prior years’ loss reserves, as discussed above.
(dollars in millions)
Insurance segment:
General liability
Workers’ compensation
Professional liability
Marine and energy
Reinsurance segment:
Property
Whole account
Net other prior years’ development
Decrease
(dollars in millions)
Insurance segment:
General liability
Workers’ compensation
Professional liability
Marine and energy
Reinsurance segment:
Credit and surety
Marine and energy
Professional liability
Net other prior years’ development
Decrease
Year Ended December 31, 2019
Insurance
Segment
Reinsurance
Segment
Other
Total
$ (161.4)
(108.4)
(61.8)
(43.7)
(86.8)
$ (462.1)
$ (161.4)
(108.4)
(61.8)
(43.7)
(29.6)
(26.2)
(104.2)
$ (535.3)
$ (29.6)
(26.2)
(9.0)
$ (64.8)
$ (8.4)
$ (8.4)
Year Ended December 31, 2018
Insurance
Segment
Reinsurance
Segment
Other
Total
$ (143.0)
(100.1)
(68.5)
(70.7)
(120.0)
$ (502.3)
$ (143.0)
(100.1)
(68.5)
(70.7)
(23.9)
(18.0)
16.2
(143.0)
$ (551.0)
$ (23.9)
(18.0)
16.2
(17.3)
$ (43.0)
$ (5.7)
$ (5.7)
Over the past two years, we have experienced favorable development on prior years’ loss reserves of 6% of beginning of year net
loss reserves. It is difficult for management to predict the duration and magnitude of an existing trend and, on a relative basis, it
is even more difficult to predict the emergence of factors or trends that are unknown today but may have a material impact on
loss reserve development. In assessing the likelihood of whether the above favorable trends will continue and whether other
trends may develop, we believe that a reasonably likely movement in prior years’ loss reserves during 2020 would range from
favorable development of less than 1%, or $50 million, to favorable development of approximately 7%, or $650 million, of
December 31, 2019 net loss reserves.
134
Premiums
The following table summarizes gross premium volume.
GROSS PREMIUM VOLUME
(dollars in thousands)
Insurance
Reinsurance
Other underwriting
totAl underwrItIng
Program services and other
totAl
Years Ended December 31,
2019
2018
$ 5,320,253
$ 4,749,166
1,114,153
(79)
6,434,327
2,345,644
1,050,870
(1,040)
5,798,996
2,065,473
$ 8,779,971
$ 7,864,469
Gross premium volume in our underwriting segments increased 11% in 2019 compared to 2018. The increase in gross premium
volume arose from both our Insurance and Reinsurance segments. Also impacting consolidated gross premium volume were
gross premiums written from our program services business and other fronting arrangements, which increased 14% in 2019.
Substantially all gross premiums from our program services business and other fronting arrangements were ceded to third
parties in 2019 and 2018.
Gross premium volume in our Insurance segment increased 12% in 2019 compared to 2018. The increase was primarily driven
by growth within our general liability, professional liability and personal lines product lines.
Gross premium volume in our Reinsurance segment increased 6% in 2019 compared to 2018. The increase was driven by higher
gross premiums within our general liability product lines, primarily due to a favorable impact from the timing of renewals,
higher premium volume within our workers’ compensation product line and favorable premium adjustments on our
professional liability product lines. These increases were partially offset by lower gross premiums in our property product lines,
primarily due to non-renewals. Significant variability in gross premium volume can be expected in our Reinsurance segment
due to individually significant contracts and multi-year contracts.
Following the high level of natural catastrophes that occurred in 2017 and 2018, and based on general market conditions, we
have seen more favorable rates, particularly on our catastrophe-exposed and loss-affected business. We are also seeing improved
pricing on many of our other product lines, the primary exception being workers’ compensation, where we continue to see rate
decreases given favorable experience in recent years. When we believe the prevailing market price will not support our
underwriting profit targets, the business is not written. As a result of our underwriting discipline, gross premium volume may
vary when we alter our product offerings to maintain or improve underwriting profitability.
135
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
The following table summarizes net written premiums.
NET WRITTEN PREMIUMS
(dollars in thousands)
Insurance
Reinsurance
Other underwriting
totAl underwrItIng
Program services and other
totAl
(continued)
Years Ended December 31,
2019
2018
$ 4,444,702
964,947
$ 3,904,773
882,285
581
(1,468)
5,410,230
4,785,590
1,841
1,988
$ 5,412,071
$ 4,787,578
Net retention of gross premium volume for our underwriting operations was 84% in 2019 and 83% in 2018. The increase in net
retention in 2019 was driven by an increase in net retention in our Insurance segment resulting from recent changes in our
outwards reinsurance treaty structures. In late 2018, we shifted from buying proportional reinsurance coverages towards excess
of loss coverages for our general liability and professional liability product lines, which resulted in higher retentions. These
increases in net retention were partially offset by lower retention on our personal lines product lines. Within our underwriting
operations, we purchase reinsurance and retrocessional reinsurance in order to manage our net retention on individual risks and
overall exposure to losses, and enable us to write policies with sufficient limits to meet policyholder needs.
The following table summarizes earned premiums.
EARNED PREMIUMS
(dollars in thousands)
Insurance
Reinsurance
Other underwriting
totAl underwrItIng
Program services and other
totAl
Years Ended December 31,
2019
2018
$ 4,144,073
903,587
581
$ 3,783,939
928,574
(1,468)
5,048,241
4,711,045
1,552
1,015
$ 5,049,793
$ 4,712,060
Earned premiums for 2019 increased 7% compared to 2018. The increase in earned premiums was attributable to an increase in
earned premiums in our Insurance segment, partially offset by a decrease in our Reinsurance segment. The increase in earned
premiums in our Insurance segment was primarily due to the increase in gross premium volume within our general liability and
professional liability product lines, as described above. The decrease in earned premiums in our Reinsurance segment was
primarily driven by the non-renewal of two large specialty quota share treaties and lower premium volume in our property
product lines, as described above. These decreases were partially offset by an increase in gross premium volume within our
workers’ compensation and professional liability product lines, as described above.
136
Investing Results
Our business strategy recognizes the importance of both consistent underwriting and operating profits and superior investment
returns to build shareholder value. We rely on sound underwriting practices to produce investable funds while minimizing
underwriting risk. We measure investing results by our net investment income and net investment gains as well as our taxable
equivalent total investment return.
The following table summarizes our investment performance.
(dollars in thousands)
Net investment income
Net investment gains (losses)
Change in net unrealized investment gains on available-for-sale investments (1)
Investment yield(2)
Taxable equivalent total investment return, before foreign currency effect
Taxable equivalent total investment return
Invested assets, end of year
Years Ended December 31,
2019
451,888
$
$ 1,601,722
433,280
$
2018
$
$
$
434,215
(437,596)
(299,446)
3.0%
14.4%
14.6%
2.7%
(0.7)%
(1.0)%
$ 22,258,265
$ 19,238,261
(1) The change in net unrealized gains on available-for-sale securities excludes the reserve deficiency adjustment for life and annuity benefit
reserves of $51.4 million for the year ended December 31, 2019.
(2) Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.
Net investment gains for 2019 were $1.6 billion compared to net investment losses of $437.6 million in 2018. See note 3(e) of
the notes to consolidated financial statements for further details on the components of net investment gains (losses). Net
investment gains in 2019 were attributable to an increase in the fair value of equity securities of $1.6 billion, which was driven
by favorable market value movements. Net investment losses in 2018 were primarily attributable to a decrease in the fair value
of equity securities of $425.6 million in 2018, which was driven by unfavorable market value movements and a $108.6 million
decline in the fair value of our investments in the Markel CATCo Funds. The decrease in fair value of these funds in 2018
primarily resulted from decreases in the net asset value following the impact of losses from Hurricanes Harvey, Irma and Maria
and the 2017 wildfires in California on the underlying reinsurance contracts in which the Markel CATCo Funds are invested.
Net investment losses in 2018 also included a loss of $16.0 million related to our investment in CROF. At December 31, 2019
and 2018, the fair value of our investments in the Markel CATCo Funds and CROF totaled $50.6 million and $58.2 million,
respectively, which is included in equity securities on our consolidated balance sheets. These investments remain exposed to
adverse development on loss events that occurred in 2019, 2018 and 2017, which may result in further declines in fair value.
In 2019, the increase in net unrealized gains on available-for-sale investments was $433.3 million, which was attributable to an
increase in the fair value of our fixed maturity portfolio in 2019 as a result of a decrease in interest rates. In 2018, the decrease in
net unrealized gains on available-for-sale investments was $299.4 million, which was attributable to a decrease in the fair value
of our fixed maturity portfolio in 2018 as a result of an increase in interest rates.
Net investment income increased 4% in 2019 compared to 2018. The increase in 2019 was driven by higher dividend income
due to increased equity holdings and dividend rates. Higher dividend income in 2019 was partially offset by a decrease in
interest income on our fixed maturity portfolio, primarily driven by a decrease in our holdings. See note 3(d) of the notes to
consolidated financial statements for further details on the components of net investment income.
137
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
We also evaluate our investment performance by analyzing taxable equivalent total investment return, which is a non-GAAP
financial measure. Taxable equivalent total investment return includes items that impact net income, such as coupon interest
on fixed maturities, changes in fair value of equity securities, dividends on equity securities and realized investment gains or
losses on available-for-sale securities, as well as changes in unrealized gains or losses on available-for-sale securities, which do
not impact net income. Certain items that are included in net investment income have been excluded from the calculation of
taxable equivalent total investment return, such as amortization and accretion of premiums and discounts on our fixed
maturity portfolio, to provide a comparable basis for measuring our investment return against industry investment returns. The
calculation of taxable equivalent total investment return also includes the current tax benefit associated with income on certain
investments that is either taxed at a lower rate than the statutory income tax rate or is not fully included in U.S. taxable
income. We believe the taxable equivalent total investment return is a better reflection of the economics of our decision to
invest in certain asset classes. We focus on our long-term investment return, understanding that the level of investment gains or
losses may vary from one period to the next.
The following table reconciles investment yield to taxable equivalent total investment return.
Investment yield(1)
Adjustment of investment yield from amortized cost to fair value
Net amortization of net premium on fixed maturities
Net investment gains (losses) and change in net unrealized
investment gains on available-for-sale securities
Taxable equivalent effect for interest and dividends(2)
Other(3)
Taxable equivalent total investment return
Years Ended December 31,
2019
3.0%
(0.7)%
0.4%
10.3%
0.2%
1.4%
14.6%
2018
2.7%
(0.6)%
0.4%
(3.4)%
0.1%
(0.2)%
(1.0)%
(1) Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.
(2) Adjustment to tax-exempt interest and dividend income to reflect a taxable equivalent basis.
(3) Adjustment to reflect the impact of changes in foreign currency exchange rates and time-weighting the inputs to the calculation of taxable
equivalent total investment return.
Investments, cash and cash equivalents and restricted cash and cash equivalents (invested assets) increased 16% in 2019. The
increase in the investment portfolio in 2019 was attributable to increases in the fair value of equity securities of $1.6 billion,
cash flows from operations of $1.3 billion and our net issuances of senior long-term debt and other debt totaling $541.5 million.
Short-term investments, cash and cash equivalents and restricted cash and cash equivalents represented 21% of our invested
assets at December 31, 2019 compared to 18% at December 31, 2018. Fixed maturities represented 45% of our invested assets at
December 31, 2019 compared to 52% at December 31, 2018. Equity securities at December 31, 2019 represented 34% of our
invested assets compared to 30% at December 31, 2018. The change in the composition of the portfolio from December 31, 2018
to December 31, 2019 is primarily due to the increase in the fair value of our equity securities portfolio in 2019. We also
increased our holdings of equity securities during both 2019 and 2018 in order to achieve higher long-term investment returns.
In 2018, however, the increase in our holdings of equity securities was more than offset by declines in the fair value of the
securities. In 2019, our holdings of cash and cash equivalents increased primarily due to operating cash inflows, our net
issuances of senior long-term debt and net maturities and calls of fixed maturities. During 2018, we used cash and cash
equivalents and short-term investments to purchase fixed maturities and we also decreased our holdings of short-term
investments to fund acquisitions.
138
Markel Ventures
We report the results of our Markel Ventures operations in our Markel Ventures segment. This segment includes a diverse
portfolio of businesses from different industries that offer various types of products and services to businesses and consumers,
predominately in the United States. We measure Markel Ventures’ results by its operating income and net income, as well as
earnings before interest, income taxes, depreciation and amortization (EBITDA). We consolidate the results of our Markel
Ventures subsidiaries on a one-month lag, with the exception of significant transactions or events that occur during the
intervening period.
The following tables summarize the amounts recognized on the consolidated balance sheets and consolidated statements of
income related to Markel Ventures.
(dollars in thousands)
Assets
Cash and cash equivalents
Receivables
Goodwill
Intangible assets
Other assets:
Inventory
Property, plant and equipment, net
Other
Total Other assets
tOtal assets
lIAbIlItIes And equItY
Accounts payable and accrued liabilities
Senior long-term debt and other debt(1)
Other liabilities
Total Liabilities
Redeemable noncontrolling interests
Shareholders’ equity(2)
Noncontrolling interests
Total Equity
tOtal liabilities anD equity
December 31,
2019
2018
$
256,758
225,630
606,777
473,122
303,053
441,934
243,561
988,548
$
164,336
188,048
497,338
431,457
298,729
407,834
136,764
843,327
$ 2,550,835
$ 2,124,506
$
139,068
929,243
367,340
1,435,651
177,562
950,086
(12,464)
937,622
$
149,907
684,099
258,843
1,092,849
174,062
860,931
(3,336)
857,595
$ 2,550,835
$ 2,124,506
(1) Debt as of December 31, 2019 and 2018 included $858.8 million and $606.0 million, respectively, of debt due to other subsidiaries of Markel
Corporation, which was eliminated in consolidation.
(2) Shareholders’ equity as of December 31, 2019 and 2018 included $654.3 million and $658.6 million, respectively, of common stock, which
represents Markel Corporation’s investment in Markel Ventures, which was eliminated in consolidation.
139
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(dollars in thousands)
operAtIng revenues
Net investment income
Products revenues
Services and other revenues(1)
Total Operating Revenues
operAtIng expenses
Products expenses
Services and other expenses
Amortization of intangible assets
Impairment of goodwill and intangible assets
Total Operating Expenses
Operating Income
Net foreign exchange gains
Interest expense(2)
Income Before Income Taxes
Income tax expense
Net Income
Net (income) loss attributable to noncontrolling interests
net incOMe tO sHareHOlDers
EBITDA
(continued)
Years Ended December 31,
2019
2018
$
736
1,609,586
445,659
2,055,981
$
513
1,497,523
417,461
1,915,497
1,455,245
389,385
41,973
—
1,886,603
169,378
384
(33,795)
135,967
(35,317)
100,650
(7,749)
92,901
263,944
$
$
1,413,248
366,739
40,208
14,904
1,835,099
80,398
21
(28,423)
51,996
(18,579)
33,417
1,841
35,258
169,894
$
$
(1) Services and other revenues for the years ended December 31, 2019 and 2018 included intercompany revenues of $1.0 million and
$2.9 million, respectively, which were eliminated in consolidation.
(2) Interest expense for the years ended December 31, 2019 and 2018 included intercompany interest expense of $24.9 million and
$18.1 million, respectively, which was eliminated in consolidation.
Operating revenues from our Markel Ventures operations increased in 2019 compared to 2018 driven by higher revenues in our
products businesses, primarily due to the contribution of revenues from Brahmin, which was acquired in the fourth quarter of
2018. The increase was also attributable to higher sales volumes and selling prices at our transportation-related businesses and
growth within one of our consulting services businesses. These increases were partially offset by lower sales volumes at one of
our equipment manufacturing businesses.
Operating income and EBITDA from our Markel Ventures operations increased in 2019 compared to 2018 due in part to
expenses incurred in 2018 related to an investigation and remediation accrual associated with the manufacture of products at
one of our businesses and an impairment charge related to intangible assets at this reporting unit in 2018. See note 20 of the
notes to consolidated financial statements for more details regarding the investigation and remediation accrual. Excluding these
charges, the increase in operating income and EBITDA in 2019 was primarily attributable to improved operating results at one
of our consumer and building products businesses, higher revenues from our transportation-related businesses, as described
above, and the contribution of a full year of operations at Brahmin, partially offset by the impact of lower revenues at one of our
equipment manufacturing businesses, as described above, and losses in 2019 related to the disposition of certain components of
one of our equipment manufacturing businesses.
Net income to shareholders from our Markel Ventures operations increased in 2019 compared to 2018, primarily due to higher
operating income, partially offset by higher income tax and interest expenses.
140
Markel Ventures EBITDA is a non-GAAP financial measure. We use Markel Ventures EBITDA as an operating performance
measure in conjunction with U.S. GAAP measures, including operating revenues, operating income and net income to
shareholders, to monitor and evaluate the performance of our Markel Ventures segment. Because EBITDA excludes interest,
income taxes, depreciation and amortization, it provides an indicator of economic performance that is useful to both
management and investors in evaluating our Markel Ventures businesses as it is not affected by levels of debt, interest rates,
effective tax rates or levels of depreciation or amortization resulting from purchase accounting. The following table reconciles
Markel Ventures operating income to Markel Ventures EBITDA.
(dollars in thousands)
Markel Ventures operating income(1)
Depreciation expense
Amortization of intangible assets
Markel Ventures EBITDA
Years Ended December 31,
2019
2018
$ 168,417
$
77,479
53,554
41,973
52,207
40,208
$ 263,944
$ 169,894
(1) Operating income for the years ended December 31, 2019 and 2018 excluded intercompany revenues of $1.0 million and $2.9 million,
respectively.
The following table summarizes the cash flows attributable to Markel Ventures for the years ended December 31, 2019
and 2018.
(dollars in thousands)
Years Ended December 31,
2019
2018
Cash, cash equivalents, restricted cash and restricted cash equivalents,
beginning of year
Net cash provided by operating activities(1)
Net cash used by investing activities
Net cash provided by financing activities(2)
Effect of foreign currency rate changes on cash, cash equivalents, restricted cash and
restricted cash equivalents
$ 164,336
201,514
(321,950)
213,032
(174)
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
92,422
$ 165,172
163,870
(256,533)
92,125
(298)
(836)
cAsh, cAsh equIvAlents, restrIcted cAsh And restrIcted cAsh equIvAlents, end oF YeAr
$ 256,758
$ 164,336
(1) Net cash provided by operating activities for the years ended December 31, 2019 and 2018 included cash flows related to intercompany
revenues, which were eliminated in consolidation.
(2) Net cash provided by financing activities for the years ended December 31, 2019 and 2018 included net additions to intercompany debt of
$252.8 million and $130.0 million, respectively, which were eliminated in consolidation.
141
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Other Operations
The following table presents the components of operating revenues and operating expenses that are not included in a
reportable segment.
Years Ended December 31,
2019
2018
Services
and other
revenues
Services
and other
expenses
Amortization
of
intangible
assets
Impairment
of goodwill
and
intangible
assets
Services
and other
revenues
Services
and other
expenses
Amortization
of
intangible
assets
Impairment
of goodwill
and
intangible
assets
$ 225,604 $ 217,412
$ 43,360
$ —
$ 91,527
$ 21,417
$ 7,964
$ 179,017
(dollars in thousands)
Other operations:
Insurance-linked
securities
Program services
108,813
Life and annuity
Other
1,507
32,580
19,556
21,062
28,264
368,504
286,294
Underwriting operations
20,938
—
2,700
66,998
39,667
—
—
—
—
—
95,688
1,660
31,666
24,298
27,855
34,615
220,541
108,185
20,776
—
2,518
31,258
44,464
—
—
846
179,863
4,431
totAl
$ 368,504 $ 286,294
$ 106,665
$ —
$ 220,541
$ 108,185
$ 75,722
$ 184,294
Insurance-Linked Securities
The increase in operating revenues in our insurance-linked securities operations in 2019 compared to 2018 reflects the full year
contribution of revenues from Nephila in 2019, which was acquired in the fourth quarter of 2018. The contribution of revenues
from Nephila was partially offset by lower revenues from MCIM due to lower assets under management during 2019 compared
to 2018 and, effective January 1, 2019, a reduction in management fees charged on sidepocket shares, which represent shares
that are restricted following the occurrence of catastrophic loss events for which uncertainty still exists around the ultimate
incurred losses on the underlying reinsurance contracts.
The increase in operating expenses in our insurance-linked securities operations in 2019 compared to 2018 is attributable to a
full year of operating expenses for Nephila in 2019 and the impact of the reversal of accrued incentive and retention
compensation for two former MCIM senior executives totaling $34.9 million in 2018, which was reflected as a reduction to
services and other expenses in 2018. Additionally, 2019 included costs associated with the internal review of matters at our
Markel CATCo operations and related litigation costs. These increases were partially offset by the impact of a goodwill and
intangible asset impairment charge totaling $179.0 million at the MCIM reporting unit in 2018. See note 20 of the notes to
consolidated financial statements for further details around developments in our run-off Markel CATCo operations.
Program Services
Operating revenues in our program services operations increased 14% compared to 2018 due to higher premium volume.
Operating expenses in our program services operations decreased in 2019 compared to 2018 due to higher acquisition-related
expenses in 2018.
142
Interest Expense, Loss on Early Extinguishment of Debt and Income Taxes
Interest Expense and Loss on Early Extinguishment of Debt
Interest expense was $171.7 million in 2019 compared to $154.2 million in 2018. The increase in interest expense in 2019
compared to 2018 was primarily due to a $565.2 million net increase in principal outstanding on our senior long-term debt
during 2019. Interest expense in 2019 included interest expense associated with our 5.0% unsecured senior notes issued in the
second quarter of 2019 and our 3.35% and 4.15% unsecured senior notes issued in the third quarter of 2019. These increases
were partially offset by lower interest expense resulting from the repayment of our 7.125% unsecured senior notes in the third
quarter of 2019 as well as the purchase and redemption of our 6.25% and 5.35% unsecured senior notes in the third and fourth
quarters of 2019.
In September 2019, we purchased $125.2 million of principal on our 6.25% unsecured senior notes due September 30, 2020
(2020 Notes) and $97.8 million of principal on our 5.35% unsecured senior notes due June 1, 2021 (2021 Notes) through a
tender offer at a total purchase price of $130.1 million and $103.0 million, respectively. In October 2019, we redeemed the
remaining outstanding balance of $224.8 million on our 2020 Notes and $152.2 million on our 2021 Notes for a total purchase
price of $233.4 million and $160.2 million, respectively. In connection with the September 2019 tender offer and purchase and
the October 2019 redemption, we recognized losses on early extinguishment of debt of $17.6 million during 2019.
See “Liquidity and Capital Resources” for further discussion of our 2019 senior long-term debt transactions.
Income Taxes
The effective tax rate for 2019 was 21%. The effective tax rate for 2018 was not meaningful due to a small pre-tax loss for the
year and a one-time deferred tax charge, described below.
In 2018, we decided to elect to treat our two most significant United Kingdom (U.K.) subsidiaries as domestic corporations for
U.S. tax purposes. As a result, the earnings and profits from those subsidiaries are no longer considered to be indefinitely
reinvested, and during 2018, we recorded a one-time deferred tax charge of $103.3 million related to the book and tax basis
differences attributable to those subsidiaries. In addition to this one-time deferred tax charge, our effective tax rate in 2018
differed from the statutory rate of 21% primarily as a result of nondeductible losses of $124.6 million on our investments in the
Markel CATCo Funds and CROF in 2018, partially offset by the impact of tax-exempt investment income.
Comprehensive Income (Loss) to Shareholders
The following table summarizes the components of comprehensive income (loss) to shareholders.
(dollars in thousands)
Net income (loss) to shareholders
Other comprehensive income (loss)
Change in net unrealized gains on available-for-sale investments, net of taxes
Other, net of taxes
Other comprehensive loss attributable to noncontrolling interest
Other comprehensive income (loss) to shareholders
comprehensIve Income (loss) to shAreholders
Years Ended December 31,
2019
2018
$ 1,790,466
$ (128,180)
297,977
5,424
21
303,422
(233,476)
(14,154)
40
(247,590)
$ 2,093,888
$ (375,770)
143
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Book Value per Share and Total Shareholder Return
Book value per share increased 23% for the year ended December 31, 2019 and decreased 4% for the year ended December 31,
2018, primarily due to net income to shareholders, as shown above. Over the past five years, we have grown book value per
share at a compound annual rate of 8% to $802.59 per share at December 31, 2019.
Our stock price per share increased 10% for the year ended December 31, 2019 and decreased 9% for the year ended
December 31, 2018. Over the past five years, our stock price per share increased at a compound annual rate of 11%.
Liquidity and Capital Resources
Holding Company
We seek to maintain prudent levels of liquidity and financial leverage for the protection of our policyholders, creditors and
shareholders. Our debt to capital ratio was 24% at December 31, 2019 and 25% at December 31, 2018.
At December 31, 2019, our holding company (Markel Corporation) held $4.0 billion of invested assets compared to $2.6 billion
at December 31, 2018. The increase in holding company invested assets is primarily due to the net proceeds from the issuance
of unsecured senior notes in 2019 and dividends received from our subsidiaries, partially offset by the repayment and purchase
of certain unsecured senior notes in 2019. After satisfying our interest and principal obligations on our senior long-term debt
and notes payable to subsidiaries, as well as any other holding company obligations, excess liquidity at Markel Corporation is
available, among other things, to allocate capital to our existing businesses, complete acquisitions, build our portfolio of equity
securities or repurchase shares of our common stock.
In August 2019, our Board of Directors approved a new share repurchase program (the 2019 Program) to replace the previous
share repurchase program. Consistent with the previous program, the 2019 Program provides for the repurchase of up to $300
million of common stock and has no expiration date but may be terminated by the Board of Directors at any time. As of
December 31, 2019, we had repurchased 31,348 shares of common stock under the 2019 Program at a cost of $35.8 million.
Our underwriting operations collect premiums and pay claims, reinsurance costs and operating expenses. Premiums collected
from our underwriting operations are invested primarily in short-term investments and long-term fixed maturities. Short-term
investments held by our insurance subsidiaries provide liquidity for projected claims, reinsurance costs and operating expenses.
As a holding company, Markel Corporation receives cash from its subsidiaries as reimbursement for operating and other
administrative expenses it incurs. The reimbursements are made within the guidelines of various management agreements
between the holding company and its subsidiaries.
The holding company relies on dividends from its subsidiaries to meet debt service obligations. Under the insurance laws of the
various states in which our domestic insurance subsidiaries are incorporated, an insurer is restricted in the amount of dividends
it may pay without prior approval of regulatory authorities. There are also regulatory restrictions on the amount of dividends
that certain of our foreign subsidiaries may pay based on applicable laws in Bermuda and the U.K. At December 31, 2019, our
domestic insurance subsidiaries and Markel Bermuda Limited could pay ordinary dividends of $962.8 million during the
following twelve months under these laws.
In April 2019, we entered into a credit agreement for a new revolving credit facility, which provides up to $300 million of
capacity for future acquisitions, investments and stock repurchases and for other working capital and general corporate
purposes. At our discretion, up to $200 million of the total capacity may be used for letters of credit. We may increase the
capacity of the facility by up to $200 million subject to obtaining commitments for the increase and satisfying certain other
terms and conditions. This facility replaced our previous $300 million revolving credit facility and expires in April 2024.
See note 13 of the notes to consolidated financial statements for further discussion of our revolving credit facility. As of
December 31, 2019 and 2018, there were no borrowings outstanding on either of our revolving credit facilities.
144
We were in compliance with all covenants contained in our revolving credit facility at December 31, 2019. To the extent that
we are not in compliance with our covenants, our access to the revolving credit facility could be restricted. While we believe
this to be unlikely, the inability to access the revolving credit facility could adversely affect our liquidity.
We have access to various capital sources, including dividends from certain of our insurance and Markel Ventures subsidiaries,
holding company invested assets, undrawn capacity under our revolving credit facility and access to the debt and equity capital
markets. We believe that we have sufficient liquidity to meet our capital needs. However, the availability and terms of future
financings will depend on a variety of factors. For more discussion regarding our access to capital sources, see “Risk Factors,”
including the section titled “Access to Capital.”
Cash Flows and Invested Assets
Net cash provided by operating activities was $1.3 billion in 2019 compared to $892.9 million in 2018. The increase in net cash
flows from operating activities for the year ended December 31, 2019 was primarily driven by higher net premiums collections
in our Insurance segment compared to 2018.
Net cash used by investing activities was $535.2 million in 2019 compared to $797.2 million in 2018. In 2019, net cash used by
investing activities included $245.3 million of net cash used for acquisitions and $257.7 million of cash used for equity method
investments, including $212.5 million of cash used to purchase a minority ownership interest in The Hagerty Group, LLC. Net
cash used by investing activities in 2019 was net of $170.3 million of proceeds from maturities and sales of fixed maturities and
sales of equity securities, net of purchases of fixed maturities and equity securities. Net cash used by investing activities in 2018
included $574.9 million of purchases of fixed maturities and equity securities, net of proceeds from maturities and sales of fixed
maturities and sales of equity securities. In 2018, net cash used for acquisitions of $1.2 billion was partially offset by reductions
in our holdings of short-term investments totaling $1.1 billion. In 2018, we reduced our holdings of short-term investments to
fund acquisitions. See “Investing Results” for further discussion of changes in our allocation of funds within the investment
portfolio in 2018. Cash flow from investing activities is affected by various factors such as anticipated payment of claims,
financing activity, acquisition opportunities and individual buy and sell decisions made in the normal course of our investment
portfolio management.
Invested assets were $22.3 billion at December 31, 2019 compared to $19.2 billion at December 31, 2018. The increase was
primarily attributable to an increase in the fair value of our equity securities, driven by favorable market value movements.
Net cash provided by financing activities was $359.3 million in 2019 compared to net cash used by financing activities of $179.0
million in 2018. In 2019, we issued unsecured senior notes with net proceeds of $1.4 billion, before expenses. We used a portion
of these proceeds to repay the remaining outstanding balance of our 7.125% unsecured senior notes due September 30, 2019
($234.8 million aggregate principal outstanding at December 31, 2018). We used an additional portion of these proceeds to
purchase a total of $600.0 million of principal on two additional series of our unsecured senior notes for a total purchase price of
$626.7 million. The remaining proceeds from our 2019 debt issuances are available to be used for general corporate purposes.
See note 13 of the notes to consolidated financial statements for more details regarding the components of senior long-term
debt. In 2018, cash used by financing activities included $82.3 million of net repayments of debt. Cash of $116.3 million and
$54.0 million was used to repurchase shares of our common stock during 2019 and 2018, respectively.
Contractual Obligations
The following table summarizes our contractual cash payment obligations at December 31, 2019.
(dollars in thousands)
Unpaid losses and loss adjustment
expenses (estimated)
Life and annuity benefits (estimated)
Senior long-term debt and other debt
Payments Due by Period(1)
Total
Less than 1
year
1-3 years
4-5 years
More than
5 years
$ 14,770,585
1,238,505
6,795,835
$ 5,096,551
77,683
224,013
$ 4,464,073
130,108
688,759
$ 2,280,539
121,380
515,142
$ 2,929,422
909,334
5,367,921
totAl
$ 22,804,925
$ 5,398,247
$ 5,282,940
$ 2,917,061
$ 9,206,677
(1) See notes 10, 12 and 13 of the notes to consolidated financial statements for further discussion of these obligations.
145
Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Unpaid losses and loss adjustment expenses were $14.7 billion and $14.3 billion at December 31, 2019 and 2018, respectively.
Reserves for unpaid losses and loss adjustment expenses represent future contractual obligations associated with property and
casualty insurance and reinsurance contracts issued to our policyholders or other insurance companies. Information presented
in the table of contractual cash payment obligations is an estimate of our future payment of claims as of December 31, 2019.
Payment patterns for losses and loss adjustment expenses were generally based upon historical claims settlement patterns.
Each claim is settled individually based upon its merits and certain claims may take years to settle, especially if legal action is
involved. The actual cash payments for settled claims will vary, possibly significantly, from the estimates shown in the
preceding table. The unpaid losses and loss adjustment expenses in the table above are our gross estimates of payments for
known liabilities as of December 31, 2019. The expected payments by period are the estimated payments at a future time,
whereas the reserves for unpaid losses and loss adjustment expenses included on the consolidated balance sheet include the
unamortized portion of any fair value adjustments for unpaid losses and loss adjustment expenses assumed in conjunction with
an acquisition and any adjustments to discount reserves.
The following table summarizes case reserves and IBNR reserves. See note 10 of the notes to consolidated financial statements
and “Critical Accounting Estimates” for a discussion of estimates and assumptions related to unpaid losses and loss
adjustment expenses.
(dollars in thousands)
Insurance
Reinsurance
Other
underwriting
Program
Services and other
Consolidated
December 31, 2019
Case reserves
IBNR reserves
$ 2,597,273
5,502,167
$ 1,404,461
2,052,512
totAl
$ 8,099,440
$ 3,456,973
December 31, 2018
Case reserves
IBNR reserves
$ 2,719,038
5,204,653
$ 1,336,884
2,144,456
totAl
$ 7,923,691
$ 3,481,340
$ 127,639
170,424
$ 298,063
$ 166,844
219,485
$ 386,329
$ 1,035,742
1,880,367
$ 5,165,115
9,605,470
$ 2,916,109(1)
$ 14,770,585
$ 881,847
1,634,781
$ 5,104,613
9,203,375
$ 2,516,628(1)
$ 14,307,988
(1) Substantially all of the premium written in our program services business is ceded, resulting in reinsurance recoverables on unpaid losses of
$2.9 billion and $2.5 billion as of December 31, 2019 and 2018, respectively.
Reserves for life and annuity benefits represent future contractual obligations associated with reinsurance contracts issued to
other insurance companies. Information presented in the table of contractual cash payment obligations is an estimate of our
future payment of benefits as of December 31, 2019. The assumptions used in estimating the likely payments due by period are
based on cedent experience, industry mortality tables, and our expense experience. Due to the inherent uncertainty in the
process of estimating the timing of such payments, there is a risk that the amounts paid in any such period can be significantly
different from the estimates shown in the preceding table. The life and annuity benefits in the above table are our gross
estimates of known obligations as of December 31, 2019. These obligations are computed on a net present value basis on the
consolidated balance sheet as of December 31, 2019, whereas the expected payments by period in the table above are the
estimated payments at a future time and do not reflect a discount of the amount payable or any reserve deficiency adjustments
for life and annuity benefit reserves.
Senior long-term debt and other debt was $3.5 billion at December 31, 2019 and $3.0 billion at December 31, 2018. The
amounts in the contractual obligations table above include interest expense and exclude net unamortized premium and net
unamortized debt issuance costs.
Restricted Assets and Capital
At December 31, 2019, we had $4.2 billion of invested assets held in trust or on deposit for the benefit of policyholders or ceding
companies or to support underwriting activities. Additionally, we have pledged investments and cash and cash equivalents
totaling $406.1 million at December 31, 2019 as security for letters of credit that have been issued by various banks on our
behalf. These invested assets and the related liabilities are included in our consolidated balance sheet. See note 3(f) of the notes
to consolidated financial statements for further discussion of restrictions over our invested assets.
146
Our insurance operations require capital to support premium writings, and we remain committed to maintaining adequate
capital and surplus at each of our insurance subsidiaries. The National Association of Insurance Commissioners (NAIC)
developed a model law and risk-based capital formula designed to help regulators identify domestic property and casualty
insurers that may be inadequately capitalized. Under the NAIC’s requirements, a domestic insurer must maintain total capital
and surplus above a calculated threshold or face varying levels of regulatory action. Capital adequacy of our foreign insurance
subsidiaries is regulated by applicable laws of the U.K., Bermuda and other jurisdictions, including Germany. At December 31,
2019, the capital and surplus of each of our insurance subsidiaries significantly exceeded the amount of statutory capital and
surplus necessary to satisfy regulatory requirements.
Market Risk Disclosures
Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the
result of changes in equity prices, interest rates, foreign currency exchange rates and commodity prices. Our consolidated
balance sheets include assets and liabilities with estimated fair values that are subject to market risk. Our primary market risks
have been equity price risk associated with investments in equity securities, interest rate risk associated with investments in
fixed maturities and foreign currency exchange rate risk associated with our international operations. Some businesses within
our Markel Ventures operations are exposed to commodity price risk resulting from changes in the price of raw materials, parts
and other components necessary to manufacture products, however, this risk is not material to the Company. The operating
results of these businesses could be adversely impacted should they be unable to obtain price increases from customers in
response to significant increases in raw material, parts and other component prices.
The estimated fair value of our investment portfolio at December 31, 2019 was $22.3 billion, 45% of which was invested in
fixed maturities and 34% of which was invested in equity securities. At December 31, 2018, the estimated fair value of our
investment portfolio was $19.2 billion, 52% of which was invested in fixed maturities and 30% of which was invested in
equity securities.
Our fixed maturities and equity securities are recorded at fair value, which is measured based upon quoted prices in active
markets, if available. We determine fair value for these investments after considering various sources of information, including
information provided by a third party pricing service. The pricing service provides prices for substantially all of our fixed
maturities and equity securities. In determining fair value, we generally do not adjust the prices obtained from the pricing
service. We obtain an understanding of the pricing service’s valuation methodologies and related inputs, which include, but are
not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows and
prepayment speeds. We validate prices provided by the pricing service by reviewing prices from other pricing sources and
analyzing pricing data in certain instances.
Equity Price Risk
We invest a portion of shareholder funds in equity securities, which have historically produced higher long-term returns relative
to fixed maturities. We seek to invest in profitable companies, with honest and talented management, that exhibit reinvestment
opportunities and capital discipline, at reasonable prices. We intend to hold these investments over the long term and focus on
long-term total investment return, understanding that gains or losses on investments may fluctuate from one period to the next.
Changes in the fair value of equity securities are recognized in net income.
At December 31, 2019, our equity portfolio was concentrated in terms of the number of issuers and industries. Such
concentrations can lead to higher levels of price volatility. At December 31, 2019, our ten largest equity holdings represented
$3.0 billion, or 39%, of the equity portfolio. Investments in the property and casualty insurance industry represented
$1.2 billion, or 16%, of our equity portfolio at December 31, 2019. Our investments in the property and casualty insurance
industry included a $721.8 million investment in the common stock of Berkshire Hathaway Inc., a company whose subsidiaries
engage in a number of diverse business activities in addition to insurance. We have investment guidelines that set limits on the
equity holdings of our insurance subsidiaries.
The following table summarizes our equity price risk and shows the effect of a hypothetical 35% increase or decrease in market
prices as of December 31, 2019 and 2018. The selected hypothetical changes do not indicate what could be the potential best or
worst case scenarios.
147
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Estimated
Fair Value
Hypothetical
Price Change
Estimated
Fair Value after
Hypothetical
Change in Prices
Estimated
Hypothetical
Percentage Increase
(Decrease) in
Shareholders’ Equity
$ 7,591
$ 5,721
35% increase
35% decrease
35% increase
35% decrease
$ 10,248
4,934
$ 7,723
3,719
19.0%
(19.0)
17.4%
(17.4)
(dollars in millions)
As of December 31, 2019
Equity securities
As of December 31, 2018
Equity securities
Interest Rate Risk
Our fixed maturity investments and borrowings are subject to interest rate risk. Increases and decreases in interest rates
typically result in decreases and increases, respectively, in the fair value of these financial instruments.
The majority of our investable assets come from premiums paid by policyholders. These funds are invested predominantly in
high quality government, municipal and corporate bonds that generally match the duration and currency of our loss reserves.
The fixed maturity portfolio, including short-term investments and cash and cash equivalents, has an average duration of
4.0 years and an average rating of “AA.” See note 3(c) of the notes to consolidated financial statements for disclosure of
contractual maturity dates of our fixed maturity portfolio. The changes in the estimated fair value of the fixed maturity
portfolio are presented as a component of shareholders’ equity in accumulated other comprehensive income, net of taxes.
We work to manage the impact of interest rate fluctuations on our fixed maturity portfolio. The effective duration of the fixed
maturity portfolio is managed with consideration given to the estimated duration of our liabilities. We have investment
guidelines that limit the maximum duration and maturity of the fixed maturity portfolio.
We use a commercially available model to estimate the effect of interest rate risk on the fair values of our fixed maturity
portfolio and borrowings. The model estimates the impact of interest rate changes on a wide range of factors including duration,
prepayment, put options and call options. Fair values are estimated based on the net present value of cash flows, using a
representative set of possible future interest rate scenarios. The model requires that numerous assumptions be made about the
future. To the extent that any of the assumptions are invalid, incorrect estimates could result. The usefulness of a single point-
in-time model is limited, as it is unable to accurately incorporate the full complexity of market interactions.
148
The following table summarizes our interest rate risk and shows the effect of hypothetical changes in interest rates as of
December 31, 2019 and 2018. The selected hypothetical changes do not indicate what could be the potential best or worst
case scenarios.
(dollars in millions)
Estimated
Fair Value
FIXED MATURITY
INVESTMENTS
As of December 31, 2019
Total fixed maturity
investments
$ 9,971
As of December 31, 2018
Total fixed maturity
investments
$ 10,043
LIABILITIES( 1 )
As of December 31, 2019
Borrowings
$
3,907
As of December 31, 2018
Borrowings
$ 3,030
Hypothetical
Change in
Interest Rates
(bp=basis points)
Estimated
Fair Value after
Hypothetical Change
in Interest Rates
Hypothetical Percentage
Increase (Decrease) in
Fair Value of
Fixed Maturities
Shareholders’
Equity
12.4%
6.0
(5.7)
(10.9)
13.2%
6.4
(6.0)
(11.9)
8.9%
4.3
(4.0)
(7.8)
11.5%
5.6
(5.3)
(10.4)
200 bp decrease
100 bp decrease
100 bp increase
200 bp increase
200 bp decrease
100 bp decrease
100 bp increase
200 bp increase
200 bp decrease
100 bp decrease
100 bp increase
200 bp increase
200 bp decrease
100 bp decrease
100 bp increase
200 bp increase
$ 11,212
10,570
9,407
8,881
$ 11,364
10,681
9,436
8,848
$ 5,050
4,419
3,486
3,138
$
3,555
3,270
2,826
2,652
(1) Changes in estimated fair value have no impact on shareholders’ equity.
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Markel Corporation & Subsidiaries
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Foreign Currency Exchange Rate Risk
We have foreign currency exchange rate risk associated with certain of our assets and liabilities related to certain of our foreign
operations. We manage this risk primarily by matching assets and liabilities in each foreign currency, other than non-monetary
assets, as closely as possible. Non-monetary assets primarily consist of goodwill and intangible assets, a portion of which are
remeasured into the U.S. Dollar at historic exchange rates. As of December 31, 2019 and December 31, 2018, the carrying value
of goodwill and intangible assets which are subject to foreign currency exchange rate risk was $123.0 million and
$126.5 million, respectively.
To assist with the matching of assets and liabilities in foreign currencies, we periodically purchase foreign currency forward
contracts and we purchase or sell foreign currencies in the open market. Realized and unrealized gains and losses on our forward
contracts are recorded in earnings. Our forward contracts generally have maturities of three months. At December 31, 2019 and
2018, substantially all of our monetary assets and liabilities denominated in foreign currencies were either matched or hedged.
At December 31, 2019 and 2018, 89% and 87%, respectively, of our invested assets were denominated in U.S. Dollars. At
December 31, 2019 and 2018, 84% and 83%, respectively, of our reserves for unpaid losses and loss adjustment expenses and life
and annuity benefits were denominated in U.S. Dollars. At those dates, the largest foreign currency denominated balances
within both our invested assets and reserves for unpaid losses and loss adjustment expenses and life and annuity benefits were
the Euro and British Pound Sterling.
Credit Risk
Fixed Maturity Investments
Credit risk exists within our fixed maturity portfolio from the potential for loss resulting from adverse changes in an issuer’s
ability to repay its debt obligations. We monitor our investment portfolio to ensure that credit risk does not exceed prudent
levels. We have consistently invested in high credit quality, investment grade securities. Our fixed maturity portfolio has an
average rating of “AA,” with 98% rated “A” or better by at least one nationally recognized rating organization. Our policy is to
invest in investment grade securities and to minimize investments in fixed maturities that are unrated or rated below
investment grade. At December 31, 2019, less than 1% of our fixed maturity portfolio was unrated or rated below investment
grade. Our fixed maturity portfolio includes securities issued with financial guaranty insurance. We purchase fixed maturities
based on our assessment of the credit quality of the underlying assets without regard to insurance.
Our fixed maturity portfolio includes securities issued by foreign governments and non-sovereign foreign institutions. General
concern exists about the financial difficulties facing certain foreign countries in light of the adverse economic conditions
experienced over the past several years. We monitor developments in foreign countries, currencies and issuers that could pose
risks to our fixed maturity portfolio, including ratings downgrades, political and financial changes and the widening of credit
spreads. We believe that our fixed maturity portfolio is highly diversified and is comprised of high quality securities.
We obtain information from news services, rating agencies and various financial market participants to assess potential negative
impacts on a country or company’s financial risk profile. We analyze concentrations within our fixed maturity portfolio by
country, currency and issuer, which allows us to assess our level of diversification with respect to these exposures, reduce
troubled exposures should they occur and mitigate any future financial distress that these exposures could cause.
General concern exists about municipalities that experience financial difficulties during periods of adverse economic conditions.
We manage the exposure to credit risk in our municipal bond portfolio by investing in high quality securities and by diversifying
our holdings, which are typically either general obligation or revenue bonds related to essential products and services.
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Reinsurance Recoverables
We have credit risk to the extent any of our reinsurers are unwilling or unable to meet their obligations under our ceded
reinsurance agreements. Within our underwriting operations, our reinsurance recoverables balance for the ten largest reinsurers
was $1.6 billion at December 31, 2019, representing 62% of the total reinsurance recoverables, before considering allowances for
bad debts. All of our ten largest reinsurers within our underwriting operations were rated “A” or better by A.M. Best. We were
the beneficiary of letters of credit, trust accounts and funds withheld in the aggregate amount of $550.7 million at
December 31, 2019, collateralizing reinsurance recoverable balances due from these ten reinsurers.
Within our program services business, our reinsurance recoverables balance for the ten largest reinsurers was $2.1 billion at
December 31, 2019, representing 71% of the total reinsurance recoverables, before considering allowances for bad debts. Six of
our ten largest reinsurers within our program services business were rated “A” or better by A.M. Best. We were the beneficiary
of letters of credit, trust accounts and funds withheld in the aggregate amount of $1.4 billion at December 31, 2019,
collateralizing reinsurance recoverable balances due from these ten reinsurers. For reinsurers with a credit rating of lower than
“A” we employ a stringent collateral monitoring program, under which the majority of the reinsurance recoverable balances are
fully collateralized. These collateral requirements are regularly monitored by a credit committee within our program services
operations. See note 11 of the notes to consolidated financial statements for further discussion of reinsurance recoverables
and exposures.
Within our underwriting operations, we attempt to minimize credit exposure to reinsurers through adherence to internal
reinsurance guidelines. We monitor changes in the financial condition of each of our reinsurers, and we assess our concentration
of credit risk on a regular basis. Within our program services business, we mitigate credit risk by either selecting well
capitalized, highly rated authorized reinsurers or requiring that the reinsurer post substantial collateral to secure the reinsured
risks. While we believe that net reinsurance recoverable balances are collectible, deterioration in reinsurers’ ability to pay, or
collection disputes, could adversely affect our operating cash flows, financial position and results of operations.
Impact of Inflation
Property and casualty insurance premiums are established before the amount of losses and loss adjustment expenses, or the
extent to which inflation may affect such expenses, is known. Consequently, in establishing premiums, we attempt to
anticipate the potential impact of inflation. We also consider inflation in the determination and review of reserves for losses
and loss adjustment expenses and life and annuity benefits since portions of these reserves are expected to be paid over extended
periods of time. This is especially true for our long-tailed lines of business. Although our life and annuity reinsurance business
is in run-off, we must monitor the effect that inflation, among other things, has on the related reserves. We regularly complete
loss recognition testing to ensure that held reserves are sufficient to meet our future claim obligations in the current
investment environment.
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C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Controls and Procedures
As of December 31, 2019, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls
and procedures pursuant to Securities Exchange Act Rule 13a-15 (Disclosure Controls). This evaluation was conducted under
the supervision and with the participation of our management, including the Co-Principal Executive Officers (Co-PEOs) and the
Principal Financial Officer (PFO).
Our management, including the Co-PEOs and PFO, does not expect that our Disclosure Controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.
Based upon our controls evaluation, the Co-PEOs and PFO concluded that effective Disclosure Controls were in place to
ensure that the information required to be disclosed in reports we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we carried out an evaluation, under the supervision and with the
participation of our management, including the Co-PEOs and the PFO, of the effectiveness of our internal control over financial
reporting as of December 31, 2019. See Management’s Report on Internal Control over Financial Reporting and our independent
registered public accounting firm’s attestation report on the effectiveness of our internal control over financial reporting.
There were no changes in our internal control over financial reporting during the fourth quarter of 2019 that materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
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Safe Harbor and Cautionary Statement
This report 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. Such statements may use words such as
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our
management.
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 “Business Overview,” “Risk
Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report or are
included in the items listed below:
• our expectations about future results of our underwriting, investing, Markel Ventures and other operations are based on current
knowledge and assume no significant man-made or natural catastrophes, no significant changes in products or personnel and
no adverse changes in market conditions;
• the effect of cyclical trends on our underwriting, investing, Markel Ventures and other operations, including demand and
pricing in the insurance, reinsurance and other markets in which we operate;
• actions by competitors, including the use of technology and innovation to simplify the customer experience, increase
efficiencies, redesign products, alter models and effect other potentially disruptive changes in the insurance industry, and the
effect of competition on market trends and pricing;
• our efforts to develop new products, expand in targeted markets or improve business processes and workflows may not be
successful and may increase or create new risks (e.g., insufficient demand, change to risk exposures, distribution channel
conflicts, execution risk, increased expenditures);
• the frequency and severity of man-made and natural catastrophes (including earthquakes, wildfires and weather-related
catastrophes) may exceed expectations, are unpredictable and, in the case of wildfires and weather-related catastrophes, may be
exacerbated if, as many forecast, changing conditions in the oceans and atmosphere result in increased hurricane, flood, drought
or other adverse weather-related activity;
• we offer insurance and reinsurance coverage against terrorist acts in connection with some of our programs, and in other
instances we are legally required to offer terrorism insurance; in both circumstances, we actively manage our exposure, but if
there is a covered terrorist attack, we could sustain material losses;
• emerging claim and coverage issues, changing legal and social trends, and inherent uncertainties in the loss estimation process
can adversely impact the adequacy of our loss reserves and our allowance for reinsurance recoverables;
• reinsurance reserves are subject to greater uncertainty than insurance reserves, primarily because of reliance upon the original
underwriting decisions made by ceding companies and the longer lapse of time from the occurrence of loss events to their
reporting to the reinsurer for ultimate resolution;
• inaccuracies (whether due to data error, human error or otherwise) in the various modeling techniques and data analytics (e.g.,
scenarios, predictive and stochastic modeling, and forecasting) we use to analyze and estimate exposures, loss trends and other
risks associated with our insurance and ILS businesses could cause us to misprice our products or fail to appropriately estimate
the risks to which we are exposed;
• changes in the assumptions and estimates used in establishing reserves for our life and annuity reinsurance book (which is in
runoff), for example, changes in assumptions and estimates of mortality, longevity, morbidity and interest rates, could result in
material increases in our estimated loss reserves for such business;
• adverse developments in insurance coverage litigation or other legal or administrative proceedings could result in material
increases in our estimates of loss reserves;
• initial estimates for catastrophe losses are often based on limited information, are dependent on broad assumptions about
the nature and extent of losses, coverage, liability and reinsurance, and those losses may ultimately differ materially from
our expectations;
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
• changes in the availability, costs, quality and providers of reinsurance coverage, which may impact our ability to write
or continue to write certain lines of business or to mitigate the volatility of losses on our results of operations and
financial condition;
• the ability or willingness of reinsurers to pay balances due may be adversely affected by industry and economic conditions,
deterioration in reinsurer credit quality and coverage disputes, and collateral we hold, if any, may not be sufficient to cover a
reinsurer’s obligation to us;
• 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;
• general economic and market conditions and industry specific conditions, including extended economic recessions or
expansions; prolonged periods of slow economic growth; inflation or deflation; fluctuations in foreign currency exchange rates,
commodity and energy prices and interest rates; volatility in the credit and capital markets; and other factors;
• economic conditions, actual or potential defaults in municipal bonds or sovereign debt obligations, volatility in interest and
foreign currency exchange rates and changes in market value of concentrated investments can have a significant impact on the
fair value of our fixed maturity and equity securities, as well as the carrying value of our other assets and liabilities, and this
impact may be heightened by market volatility and our ability to mitigate our sensitivity to these changing conditions;
• economic conditions may adversely affect our access to capital and credit markets;
• the effects of government intervention, including material changes in the monetary policies of central banks, to address
financial downturns and economic and currency concerns;
• the impacts that political and civil unrest and regional conflicts may have on our businesses and the markets they serve or that
any disruptions in regional or worldwide economic conditions generally arising from these situations may have on our
businesses, industries or investments;
• the impacts that health epidemics and pandemics may have on our business operations and claims activity;
• the impact on our businesses in the event of a repeal, in part or in whole, or modification of U.S. health care reform legislation
and regulations;
• changes in U.S. tax laws, regulations or interpretations, or in the tax laws, regulations or interpretations of other jurisdictions in
which we operate, and adjustments we may make in our operations or tax strategies in response to those changes;
• a failure of our enterprise information technology systems and those maintained by third parties upon which we may rely, or a
failure to comply with data protection or privacy regulations;
• outsourced providers may fail to perform as we anticipate or may breach their obligations to us;
• our acquisitions may increase our operational and control risks for a period of time;
• we may not realize the contemplated benefits, including cost savings and synergies, of our acquisitions;
• any determination requiring the write-off of a significant portion of our goodwill and intangible assets;
• the failure or inadequacy of any methods we employ to manage our loss exposures;
• the loss of services of any executive officer or other key personnel could adversely impact one or more of our operations;
• the manner in which we manage our global operations through a network of business entities could result inconsistent
management, governance and oversight practices and make it difficult for us to implement strategic decisions and
coordinate procedures;
• our substantial international operations and investments expose us to increased political, operational and economic risks,
including foreign currency exchange rate and credit risk;
• the political, legal, regulatory, financial, tax and general economic impacts, and other impacts we cannot anticipate, related to
the United Kingdom’s withdrawal from the European Union (Brexit), which could have adverse consequences for our
businesses, particularly our London-based international insurance operations;
154
• our ability to obtain additional capital for our operations on terms favorable to us;
• our compliance, or failure to comply, with covenants and other requirements under our revolving credit facility, senior debt and
other indebtedness;
• our ability to maintain or raise third party capital for existing or new investment vehicles and risks related to our management
of third party capital;
• the effectiveness of our procedures for compliance with existing and future guidelines, policies and legal and regulatory
standards, rules, laws and regulations;
• the impact of economic and trade sanctions and embargo programs on our businesses, including instances in which the
requirements and limitations applicable to the global operations of U.S. companies and their affiliates are more restrictive than,
or conflict with, those applicable to non-U.S. companies and their affiliates;
• regulatory changes, or challenges by regulators, regarding the use of certain issuing carrier or fronting arrangements;
• our dependence on a limited number of brokers for a large portion of our revenues and third-party capital;
• adverse changes in our assigned financial strength or debt ratings could adversely impact us, including our ability to attract and
retain business, the amount of capital our insurance subsidiaries must hold and the availability and cost of capital;
• changes in the amount of statutory capital our insurance subsidiaries are required to hold, which can vary significantly and is
based on many factors, some of which are outside our control;
• losses from litigation and regulatory investigations and actions; and
• a number of additional factors may adversely affect our Markel Ventures operations, and the markets they serve, and negatively
impact their revenues and profitability, including, among others: adverse weather conditions, plant disease and other
contaminants; changes in government support for education, healthcare and infrastructure projects; changes in capital spending
levels; changes in the housing and commercial construction markets; liability for environmental matters; volatility in the
market prices for their products; and volatility in commodity prices and interest and foreign currency exchange rates.
Our premium volume, underwriting and investment results and results from our other operations have been and will continue
to be potentially materially affected by these factors. In addition, with respect to previously reported developments at MCIM
and the decision to place both the Markel CATCo Funds and Markel CATCo Re into run-off:
• the inquiries by the U.S. Department of Justice, U.S. Securities and Exchange Commission and Bermuda Monetary
Authority into loss reserves recorded in late 2017 and early 2018 at Markel CATCo Re (the Markel CATCo Inquiries) may
result in adverse findings, reputational damage, the imposition of sanctions, increased costs, litigation and other negative
consequences; and
• management time and resources may be diverted to address the Markel CATCo Inquiries, as well as related litigation.
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.
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
O F
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
F I N A N C I A L
(continued)
Legal Proceedings
Markel CATCo Inquiries
We previously reported that the U.S. Department of Justice, U.S. Securities and Exchange Commission and Bermuda Monetary
Authority (together, the Governmental Authorities) are conducting inquiries into loss reserves recorded in late 2017 and early
2018 at our Markel CATCo operations. Those reserves are held at Markel CATCo Re, an unconsolidated subsidiary of MCIM.
The Markel CATCo Inquiries are limited to MCIM and its subsidiaries (together, Markel CATCo) and do not involve other
Markel subsidiaries.
We retained outside counsel to conduct an internal review of Markel CATCo’s loss reserving in late 2017 and early 2018. The
internal review was completed in April 2019 and found no evidence that Markel CATCo personnel acted in bad faith in
exercising business judgment in the setting of reserves and making related disclosures during late 2017 and early 2018. Our
outside counsel has met with the Governmental Authorities and reported the findings from the internal review.
The Markel CATCo Inquiries are ongoing and we continue to fully cooperate with the Governmental Authorities. At this time,
we are unable to predict the duration, scope or result of the Markel CATCo Inquiries.
Belisle Arbitration
On February 21, 2019, Anthony Belisle filed a lawsuit, Anthony Belisle v. Markel CATCo Investment Management Ltd and
Markel Corp. (U.S. District Court for the District of New Hampshire), which suit was amended on March 29, 2019. As
amended, the complaint alleged claims for, among other things, breach of contract, defamation, invasion of privacy,
indemnification, intentional interference with contractual relations and deceptive and unfair acts and sought relief of, among
other things, $66.0 million in incentive compensation, enhanced compensatory damages, consequential damages, damages for
emotional distress and injury to reputation, exemplary damages and attorneys’ fees. In June 2019, MCIM, Markel Corporation,
and Mr. Belisle agreed to commence binding arbitration to finally, fully and confidentially resolve the claims and counterclaims
alleged in the action, and the Belisle suit was dismissed with prejudice in July 2019. The arbitrators have been selected and the
arbitration proceeding has commenced. We believe that Mr. Belisle’s claims are without merit.
Thomas Yeransian v. Markel Corporation
In October 2010, we completed the acquisition of Aspen Holdings, Inc. (Aspen). As part of the consideration for that acquisition,
Aspen shareholders received contingent value rights (CVRs). Based on a valuation of the CVRs as of their December 31, 2017
maturity date, we paid $9.9 million to the CVR holders on June 5, 2018, which represents 90% of the undisputed portion of the
final amount we believe we are required to pay under the CVR agreement.
Prior to the December 31, 2017 CVR maturity date, the CVR holder representative, Thomas Yeransian, had disputed our prior
estimation of the value of the CVRs. On September 15, 2016, Mr. Yeransian filed a suit, Thomas Yeransian v. Markel
Corporation (U.S. District Court for the District of Delaware), alleging, among other things, that we are in default under the
CVR agreement. The suit seeks: $47.3 million in damages, which represents the unadjusted value of the CVRs; plus interest
($17.1 million through December 31, 2019) and default interest (up to an additional $14.1 million through December 31, 2019,
depending on the date any default occurred); and an unspecified amount of punitive damages, costs, and attorneys’ fees.
At the initial hearing held February 21, 2017, the court stayed the proceedings and ordered the parties to discuss resolving the
dispute pursuant to the independent CVR valuation procedure under the CVR agreement. The parties met on April 5, 2017, but
were unsuccessful in reaching agreement on a process for resolving the dispute. We subsequently filed a motion to stay the
litigation and compel arbitration, and, on July 31, 2017, the court issued an order granting that motion.
156
On September 20, 2018, a new judge was assigned to the case. On October 12, 2018, the court denied both Mr. Yeransian’s
motion to reconsider the order staying the litigation and compelling arbitration and our motion for sanctions against Mr.
Yeransian for violating the confidentiality of mediation proceedings. The court subsequently (1) on December 3, 2018 ordered
Mr. Yeransian to provide the court and us with the identity of an actuarial firm to participate in the selection of independent
experts for the CVR valuation process under the CVR agreement and (2) on December 11, 2018 denied Mr. Yeransian’s motion for
judgment that we had waived our right to require Mr. Yeransian’s participation in the CVR valuation process. On July 8, 2019,
the Court granted our motion for instructions as to how the independent experts are to conduct the CVR valuation process and
denied Mr. Yeransian’s motion to have a hearing officer appointed to oversee the valuation process. The independent experts,
who were jointly selected by the parties, have been engaged and are conducting the valuation process.
On November 13, 2018, Mr. Yeransian filed a second suit, Thomas Yeransian v. Markel Corporation (U.S. District Court for the
District of Delaware), which also alleges that the Company is in default under the CVR agreement. The second suit seeks the
same damages and relief as the original suit. We filed a motion to stay this suit until the arbitration for the original suit has
concluded and the CVR holders have received the remainder of the final amount due under the CVR Agreement. The court
granted that motion on August 6, 2019.
We believe Mr. Yeransian’s suits to be without merit. We further believe that any material loss resulting from the suits to be
remote. We do not believe the contractual contingent consideration payments related to the CVRs, as ultimately determined by
the independent experts in the valuation process, will have a material impact on the Company’s liquidity.
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Markel Corporation & Subsidiaries
O T H E R I N F O R M A T I O N
Performance Graph
The following graph compares the cumulative total return (based on share price) on our common stock with the cumulative
total return of companies included in the S&P 500 Index and the Dow Jones U.S. Property & Casualty Insurance Companies
Index. This information is not necessarily indicative of future results.
Markel Corporation
S&P 500
Dow Jones U.S. Property & Casualty Insurance
Years Ended December 31,
2014
$ 100
100
100
2015
$ 129
101
109
2016
$ 132
114
128
2017
$ 167
138
150
2018
$ 152
132
145
2019
$ 167
174
184
(1) $100 invested on December 31, 2014 in our common stock or the listed index. Includes reinvestment of dividends.
Common Stock and Dividend Information
Our common stock trades on the New York Stock Exchange under the symbol MKL. The number of shareholders of record as of
February 4, 2020 was approximately 300. The total number of shareholders, including those holding shares in street name or in
brokerage accounts, is estimated to be in excess of 160,000. Our current strategy is to retain earnings and, consequently, we
have not paid and do not expect to pay a cash dividend on our common stock.
158
Common Stock Repurchases
The following table summarizes our common stock repurchases for the quarter ended December 31, 2019.
Issuer Purchases of Equity Securities
(a)
(b)
(c)
Period
October 1, 2019 through October 31, 2019
November 1, 2019 through November 30, 2019
December 1, 2019 through December 31, 2019
Total
Total
Number of
Shares
Purchased
3,795
10,770
12,163
26,728
Average
Price
Paid per
Share
$ 1,147.03
$ 1,144.93
$ 1,132.55
$ 1,139.59
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans
or Programs(1)
3,795
10,770
12,163
26,728
(d)
Approximate
Dollar
Value of
Shares that
May Yet Be
Purchased
Under
the Plans or
Programs
(in thousands)
$ 290,283
$ 277,952
$ 264,176
$ 264,176
(1) The Board of Directors approved the repurchase of up to $300 million of our common stock pursuant to a share repurchase program publicly
announced on August 21, 2019 (the 2019 Program). The 2019 Program terminated and replaced a similar $300 million program authorized
in May 2018 (the 2018 Program). Under the 2019 Program, as under the 2018 Program, we may repurchase outstanding shares of our
common stock from time to time in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1
under the Securities Exchange Act of 1934. The 2019 Program has no expiration date, but may be terminated by the Board of Directors at
any time.
Available Information
This document represents Markel Corporation’s Annual Report and Form 10-K, which is filed with the U.S. Securities and
Exchange Commission.
We make available free of charge on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the U.S. Securities and Exchange Commission. Our website address is www.markel.com.
Transfer Agent
American Stock Transfer & Trust Co., LLC, Operations Center, 6201 15th Avenue, Brooklyn, NY 11219 (800) 937-5449
info@astfinancial.com
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O T H E R I N F O R M A T I O N (continued)
Code of Conduct
We have adopted a code of business conduct and ethics (Code of Conduct) which is applicable to all directors and employees,
including executive officers. We have posted the Code of Conduct on our website at www.markel.com. We intend to satisfy
applicable disclosure requirements regarding amendments to, or waivers from, provisions of our Code of Conduct by posting such
information on our website. Shareholders may obtain a copy of the Code of Conduct by emailing investorrelations@markel.com,
writing Investor Relations, at the address of the corporate offices listed below, or calling (800) 446-6671.
Annual Shareholders’ Meeting
Shareholders of Markel Corporation are invited to attend the Annual Meeting to be held at Altria Theater, 6 North Laurel Street,
Richmond, Virginia at 4:30 p.m. ET, May 11, 2020.
Corporate Offices
Markel Corporation, 4521 Highwoods Parkway, Glen Allen, Virginia 23060-6148 (804) 747-0136 (800) 446-6671
160
D I R E C T O R S
A N D E X E C U T I V E O F F I C E R S
Directors
Alan I. Kirshner
Chairman of the Board
K. Bruce Connell
Retired Executive Vice President and
Group Chief Underwriting Officer
XL Capital Ltd.
Thomas S. Gayner
Co-Chief Executive Officer
Stewart M. Kasen
Retired President and
Chief Executive Officer
S&K Famous Brands, Inc.
Diane Leopold
Executive Vice President and
Co-Chief Operating Officer
Dominion Energy
Information About Our Executive Officers
Lemuel E. Lewis
Retired Executive Vice President and
Chief Financial Officer
Landmark Communications, Inc.
Michael O’Reilly
Retired Vice Chairman and
Chief Financial Officer
The Chubb Corporation
Anthony F. Markel
Vice Chairman
Steven A. Markel
Vice Chairman
Darrell D. Martin
Retired Executive Vice President and
Chief Financial Officer
Markel Corporation
Harold L. Morrison, Jr.
Retired Senior Vice President, Chubb
Group and Division President, Field
Operations, North America Insurance
Chubb Insurance Company
Michael J. Schewel
Vice President, General Counsel and
Secretary
Tredegar Corporation
Richard R. Whitt, III
Co-Chief Executive Officer
Debora J. Wilson
Retired President and
Chief Executive Officer
The Weather Channel
Alan I. Kirshner
Executive Chairman since January 2016. Chairman of the Board since 1986. Chief Executive Officer from 1986 to
December 2015. Director since 1978. Age 84.
Anthony F. Markel
Vice Chairman of Markel Corporation and the Board since May 2008. President and Chief Operating Officer from March 1992
to April 2008. Director since 1978. Age 78.
Steven A. Markel
Vice Chairman of Markel Corporation and the Board since March 1992. Director since 1978. Age 71.
Thomas S. Gayner
Co-Chief Executive Officer since January 2016. President and Chief Investment Officer from May 2010 to December 2015.
Chief Investment Officer from January 2001 to December 2015. President, Markel-Gayner Asset Management Corporation,
a subsidiary, since December 1990. Director from 1998 to 2004. Director since August 2016. Age 58.
Richard R. Whitt, III
Co-Chief Executive Officer since January 2016. President and Co-Chief Operating Officer from May 2010 to December 2015.
Senior Vice President and Chief Financial Officer from May 2005 to May 2010. Director since August 2016. Age 56.
Robert C. Cox
President and Chief Operating Officer, Insurance Operations since September 2018. Executive Vice President of Chubb Ltd.
(a public company) and Division Chairman of Chubb Ltd.’s North American Financial Lines from January 2016 until
retirement in July 2016; Executive Vice President of Chubb &Son and Chief Operating Officer of Chubb Specialty Insurance
from June 2013 to January 2016. Age 61.
Michael R. Heaton
President, Markel Ventures since January 2016; President and Chief Operating Officer, Markel Ventures, Inc., a subsidiary,
since January 2016 and September 2013, respectively. Age 43.
Bradley J. Kiscaden
President and Chief Administrative Officer, Insurance Operations since September 2018. Executive Vice President and Chief
Actuarial Officer from July 2012 to September 2018. Chief Actuarial Officer from March 1999 to September 2018. Age 57.
Jeremy A. Noble
Senior Vice President and Chief Financial Officer since September 2018. Senior Vice President, Finance from June 2018 to
September 2018. Finance Director, Markel International from July 2015 to June 2018. Managing Director, Internal Audit from
September 2011 to July 2015. Age 44.
Linda V. Schreiner
Senior Vice President, Strategic Management since January 2016. Senior Vice President, Human Resources and
Communications of MeadWestvaco Corporation (a public company) from January 2002 to July 2015. Age 60.
Richard R. Grinnan
Senior Vice President, Chief Legal Officer and Secretary since February 2020. General Counsel and Secretary from June 2014 to
February 2020. Assistant General Counsel from August 2012 to June 2014. Age 51.
161
Markel Corporation & Subsidiaries
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2019
Commission File Number 001-15811
MARKEL CORPORATION
(Exact name of registrant as specified in its charter)
A Virginia Corporation
IRS Employer Identification No. 54-1959284
4521 Highwoods Parkway, Glen Allen, Virginia 23060-6148
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code:
(804) 747-0136
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value, MKL, New York Stock
Exchange
(title of each class, trading symbol and name of the
exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
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 for 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 [ ]
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ ]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. [ ]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the shares of the registrant’s
Common Stock held by non-affiliates as of June 30, 2019 was
approximately $14,711,000,000.
162
The number of shares of the registrant’s Common Stock
outstanding at February 4, 2020: 13,782,159.
Documents Incorporated By Reference
The portions of the registrant’s Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on May 11, 2020,
referred to in Part III.
Index and Cross References-Form 10-K Annual Report
Item No.
Part I
1. Business
1A. Risk Factors
1B. Unresolved Staff Comments
2. Properties
3. Legal Proceedings
4. Mine Safety Disclosures
Information About Our Executive Officers
Part II
5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
6.
7. Management’s Discussion and Analysis of
Page
18-51, 158-160
40-51
NONE
NONE
156
NONE
161
119, 158-159
52
Financial Condition and Results of Operations
120-157
7A. Quantitative and Qualitative Disclosures
8.
About Market Risk
Financial Statements and Supplementary Data
The response to this item is submitted in Item 15.
9. Changes in and Disagreements With Accountants
147
on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
Part III
10. Directors, Executive Officers and Corporate
Governance*
Code of Conduct
NONE
54-55, 152
NONE
161
160
11. Executive Compensation*
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters*
13. Certain Relationships and Related Transactions, and
Director Independence*
14. Principal Accounting Fees and Services*
*Portions of Item 10 and Items 11, 12, 13 and 14 will be
incorporated by reference from the Registrant’s Proxy
Statement for its 2020 Annual Meeting of Shareholders
pursuant to instructions G(1) and G(3) of the General
Instructions to Form 10-K.
Part IV
15. Exhibits, Financial Statement Schedules
a. Documents filed as part of this Form 10-K
(1) Reports of Independent Registered Public
55-57
Accounting Firm
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income (Loss)
and Comprehensive Income (Loss)
59
Consolidated Statements of Changes in Equity 60
Consolidated Statements of Cash Flows
61
Notes to Consolidated Financial Statements 62-119
(2) Schedules have been omitted since they either are
58
not required or are not applicable, or the information
called for is shown in the Consolidated Financial
Statements and Notes thereto.
(3) See Index to Exhibits for a list of Exhibits filed as part
of this report
b. See Index to Exhibits and Item 15a(3)
c. See Index to Financial Statements and Item 15a(2)
16. Form 10-K Summary
NONE
Exhibit No. Document Description
Exhibit Index
3(i)
3(ii)
4.1
4.2(a)
4.2(b)
4.2(c)
4.2(d)
4.2(e)
4.2(f)
4.2(g)
4.2(h)
4.2(i)
4.2(j)
4.2(k)
Amended and Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 in the Registrant’s
report on Form 8-K filed with the Commission May 13, 2011)
Bylaws, as amended and restated May 14, 2018 (incorporated by reference from Exhibit 3(ii) in the Registrant’s report
on Form 10-Q filed with the Commission for the quarter ended June 30, 2018)
Description of Registrant’s Securities**
Indenture dated as of June 5, 2001 between Markel Corporation and The Chase Manhattan Bank, as Trustee
(incorporated by reference from Exhibit 4.1 in the Registrant’s report on Form 8-K filed with the Commission
June 5, 2001)
Form of Third Supplemental Indenture dated as of August 13, 2004 between Markel Corporation and JPMorgan
Chase Bank (formerly known as The Chase Manhattan Bank), as Trustee, including form of the securities as Exhibit
A (incorporated by reference from Exhibit 4.2 in the Registrant’s report on Form 8-K filed with the Commission
August 11, 2004)
Form of Seventh Supplemental Indenture dated as of July 2, 2012 between Markel Corporation and The Bank of
New York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as
Exhibit A (incorporated by reference from Exhibit 4.2 in the Registrant’s report on Form 8-K filed with the
Commission June 29, 2012)
Form of Eighth Supplemental Indenture dated as of March 8, 2013 between Markel Corporation and The Bank of
New York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as
Exhibit A (incorporated by reference from Exhibit 4.2 in the Registrant’s report on Form 8-K filed with the
Commission March 7, 2013)
Form of Ninth Supplemental Indenture dated as of March 8, 2013 between Markel Corporation and The Bank of
New York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as
Exhibit A (incorporated by reference from Exhibit 4.3 in the Registrant’s report on Form 8-K filed with the
Commission March 7, 2013)
Form of Tenth Supplemental Indenture dated as of April 5, 2016 between Markel Corporation and The Bank of New
York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as Exhibit A
(incorporated by reference from Exhibit 4.2 in the Registrant’s report on Form 8-K filed with the Commission
March 31, 2016)
Eleventh Supplemental Indenture dated as of November 2, 2017 between Markel Corporation and The Bank of New
York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as Exhibit A
(incorporated by reference from Exhibit 4.2 in the Registrant’s report on Form 8-K filed with the Commission
November 2, 2017)
Twelfth Supplemental Indenture dated as of November 2, 2017 between Markel Corporation and The Bank of New
York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as Exhibit A
(incorporated by reference from Exhibit 4.3 in the Registrant’s report on Form 8-K filed with the Commission
November 2, 2017)
Thirteenth Supplemental Indenture, dated as of May 20, 2019, between Markel Corporation and The Bank of New
York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as Exhibit A
(incorporated by reference from Exhibit 4.2 in the Registrant’s report on Form 8-K filed with the Commission
May 20, 2019)
Fourteenth Supplemental Indenture, dated as of September 17, 2019, between Markel Corporation and The Bank of
New York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as
Exhibit A (incorporated by reference from Exhibit 4.2 in the Registrant’s report on Form 8-K filed with the
Commission September 17, 2019)
Fifteenth Supplemental Indenture, dated as of September 17, 2019, between Markel Corporation and The Bank of
New York Mellon (as successor to The Chase Manhattan Bank), as Trustee, including form of the securities as
Exhibit A (incorporated by reference from Exhibit 4.3 in the Registrant’s report on Form 8-K filed with the
Commission September 17, 2019)
The registrant hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of all other
instruments defining the rights of holders of long-term debt of the registrant and its subsidiaries.
163
Markel Corporation & Subsidiaries
Exhibit No.
Document Description
10.1(a)
10.1(b)
10.2(a)
10.2(b)
10.3
10.4
10.5(a)
10.5(b)
10.6
10.7
10.8
10.9
10.10
10.11(a)
10.11(b)
10.11(c)
Credit Agreement, dated as of April 10, 2019, among Markel Corporation, Markel Bermuda Limited, Markel
Global Reinsurance Company, Alterra Finance LLC, the lenders party from time to time thereto, and Wells
Fargo Bank, National Association, as administrative agent (incorporated by reference from Exhibit 10.1 in the
Registrant’s report on Form 8-K filed with the Commission April 12, 2019)
First Amendment to Credit Agreement, dated as of December 13, 2019, among Markel Corporation, Markel
Bermuda Limited, Markel Global Reinsurance Company, Alterra Finance LLC and Wells Fargo National
Association**
Form of Amended and Restated Employment Agreement with Alan I. Kirshner (incorporated by reference
from Exhibit 10.2 in the Registrant’s report on Form 10-K filed with the Commission for the year ended
December 31, 2008)*
Amendment, dated February 21, 2019, to Amended and Restated Employment Agreement, dated
December 31, 2018, between Markel Corporation and Alan I. Kirshner (incorporated by reference from Exhibit
10.1 in the Registrant’s report on Form 8-K filed with the Commission February 22, 2019) *
Form of Amended and Restated Employment Agreement with Anthony F. Markel (incorporated by reference
from Exhibit 10.4 in the Registrant’s report on Form 10-K filed with the Commission for the year ended
December 31, 2008)*
Form of Executive Employment Agreement with Anne G. Waleski (incorporated by reference from Exhibit
10.5 in the Registrant’s report on Form 10-K filed with the Commission for the year ended December 31,
2008)*
Amended and Restated Employment Agreement with Steven A. Markel (incorporated by reference from
Exhibit 10.1 in the Registrant’s report on Form 10-Q filed with the Commission for the quarter ended
September 30, 2015)*
Amendment dated as of December 31, 2017 to Amended and Restated Employment Agreement with Steven A.
Markel (incorporated by reference from Exhibit 10.6 in the Registrant’s report on Form 10-K filed with the
Commission for the year ended December 31, 2017)*
Employment Agreement, dated June 28, 2018, between Markel Corporation and Robert C. Cox (incorporated
by reference from Exhibit 10.1 in the Registrant’s report on Form 8-K filed with the Commission
July 12, 2018)*
Amended and Restated Form of Executive Employment Agreement with Bradley J. Kiscaden and Linda V.
Schreiner (incorporated by reference from Exhibit 10.1 in the Registrant’s report on Form 8-K filed with the
Commission August 21, 2018)*
Amended and Restated Executive Employment Agreement, dated as of August 15, 2018, between Markel
Corporation and Thomas S. Gayner (incorporated by reference from Exhibit 10.2 in the Registrant’s report on
Form 8-K filed with the Commission August 21, 2018)*
Amended and Restated Executive Employment Agreement, dated as of August 15, 2018, between Markel
Corporation and Richard R. Whitt, III (incorporated by reference from Exhibit 10.3 in the Registrant’s report on
Form 8-K filed with the Commission August 21, 2018)*
Executive Employment Agreement, dated as of August 15, 2018, between Markel Corporation and Jeremy A.
Noble (incorporated by reference from Exhibit 10.4 in the Registrant’s report on Form 8-K filed with the
Commission August 21, 2018)*
Markel Corporation Voluntary Deferral Plan (incorporated by reference from Exhibit 10.14 in the Registrant’s
report on Form 10-K filed with the Commission for the year ended December 31, 2015)*
Amendment to Markel Corporation Voluntary Deferral Plan (incorporated by reference from Exhibit 10.20 in
the Registrant’s report on Form 10-K filed with the Commission for the year ended December 31, 2018)*
Amendment to Markel Corporation Voluntary Deferral Plan (incorporated by reference from Exhibit 10.1 in
the Registrant’s report on Form 10-Q filed with the Commission for the quarter ended September 30, 2019)*
164
Exhibit No.
Document Description
10.12(a)
10.12(b)
10.13(a)
10.13(b)
10.14
10.15(a)
10.15(b)
10.15(c)
10.15(d)
10.15(e)
10.15(f)
10.15(g)
10.15(h)
10.15(i)
21
23
31.1
31.2
31.3
32.1
32.2
32.3
101
104
Markel Corporation Omnibus Incentive Plan (incorporated by reference from Appendix B in the Registrant’s
Proxy Statement and Definitive 14A filed with the Commission April 2, 2003)*
May 2010 Restricted Stock Units Deferral Election Form (incorporated by reference from Exhibit 10.2 in the
Registrant’s report on Form 10-Q filed with the Commission for the quarter ended June 30, 2010)*
Markel Corporation 2012 Equity Incentive Compensation Plan (incorporated by reference from Appendix A in
the Registrant’s Proxy Statement and Definitive 14A filed with the Commission March 16, 2012)*
Restricted Stock Units Deferral Election Form for the 2012 Equity Incentive Compensation Plan (incorporated
by reference from Exhibit 10.24 in the Registrant’s report on Form 10-K filed with the Commission for the year
ended December 31, 2012)*
Markel Corporation Executive Bonus Plan, as amended and restated May 14, 2018 (incorporated by reference
from Exhibit 10.1 in the Registrant’s report on Form 10-Q filed with the Commission for the quarter ended
June 30, 2018)*
2016 Equity Incentive Compensation Plan (incorporated by reference from Exhibit 10.1 in the Registrant’s
report on Form 8-K filed with the Commission May 19, 2016)*
Form of Performance Based (Cliff Vesting) Restricted Stock Unit Award Agreement for Executive Officers for
the 2016 Equity Incentive Compensation Plan (incorporated by reference from Exhibit 10.3 in the Registrant’s
report on Form 10-Q filed with the Commission for the quarter ended June 30, 2016)*
Form of Time Based (Cliff Vesting) Restricted Stock Unit Award Agreement for Executive Officers for the 2016
Equity Incentive Compensation Plan (incorporated by reference from Exhibit 10.4 in the Registrant’s report on
Form 10-Q filed with the Commission for the quarter ended June 30, 2016)*
Form of Time Based (Graded Vesting) Restricted Stock Unit Award Agreement for Executive Officers for the
2016 Equity Incentive Compensation Plan (incorporated by reference from Exhibit 10.5 in the Registrant’s
report on Form 10-Q filed with the Commission for the quarter ended June 30, 2016)*
Form of Restricted Stock Award Agreement for Outside Directors for the 2016 Equity Incentive Compensation
Plan (incorporated by reference from Exhibit 10.6 in the Registrant’s report on Form 10-Q filed with the
Commission for the quarter ended June 30, 2016)*
Form of Performance-Based Restricted Stock Unit Award Agreement for Executive Officers for the 2016 Equity
Incentive Compensation Plan (revised May 2017) (incorporated by reference from Exhibit 10.1 in the
Registrant’s report on Form 8-K filed with the Commission May 17, 2017)*
Form of Performance-Based (Graded Vesting) Restricted Stock Unit Award Agreement for Executive Officers
for the 2016 Equity Incentive Compensation Plan (incorporated by reference from Exhibit 10.2 in the
Registrant’s report on Form 10-Q filed with the Commission for the quarter ended March 31, 2018)*
Form of Performance-Based (Cliff Vesting) Restricted Stock Unit Award Agreement for Executive Officers
(revised 2019) for the 2016 Equity Incentive Compensation Plan (incorporated by reference from Exhibit 10.5 in
the Registrant’s report on Form 10-Q filed with the Commission for the quarter ended March 31, 2019)*
Form of Performance-Based Restricted Stock Unit Award Agreement for Executive Officers for the 2016 Equity
Incentive Compensation Plan* **
Certain Subsidiaries of Markel Corporation**
Consent of KPMG LLP**
Certification of Co-Principal Executive Officer Pursuant to Rule 13a-14(a)/ 15d-14(a)**
Certification of Co-Principal Executive Officer Pursuant to Rule 13a-14(a)/ 15d-14(a)**
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/ 15d-14(a)**
Certification of Co-Principal Executive Officer furnished Pursuant to 18 U.S.C. Section 1350**
Certification of Co-Principal Executive Officer furnished Pursuant to 18 U.S.C. Section 1350**
Certification of Principal Financial Officer furnished Pursuant to 18 U.S.C. Section 1350**
The following consolidated financial statements from Markel Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2019, filed on February 21, 2020, formatted in Inline XBRL: (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), (iii)
Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to
Consolidated Financial Statements.**
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Indicates management contract or compensatory plan or arrangement
** Filed with this report
165
Markel Corporation & Subsidiaries
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
MARKEL CORPORATION
/s/ Thomas S. Gayner
/s/ Richard R. Whitt, III
/s/ Jeremy A. Noble
Thomas S. Gayner
Co-Chief Executive Officer
(Co-Principal Executive Officer)
February 21, 2020
Richard R. Whitt, III
Co-Chief Executive Officer
(Co-Principal Executive Officer)
February 21, 2020
Jeremy A. Noble
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
February 21, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Title
/s/ Alan I. Kirshner
Alan I. Kirshner
/s/ Anthony F. Markel
Anthony F. Markel
/s/ Steven A. Markel
Steven A. Markel
/s/ Thomas S. Gayner
Thomas S. Gayner
/s/ Richard R. Whitt, III
Richard R. Whitt, III
/s/ Jeremy A. Noble
Jeremy A. Noble
/s/ Nora N. Crouch
Nora N. Crouch
/s/ K. Bruce Connell
K. Bruce Connell
/s/ Stewart M. Kasen
Stewart M. Kasen
/s/ Diane Leopold
Diane Leopold
/s/ Lemuel E. Lewis
Lemuel E. Lewis
/s/ Darrell D. Martin
Darrell D. Martin
/s/ Harold L. Morrison, Jr.
Harold L. Morrison, Jr.
/s/ Michael O’Reilly
Michael O’Reilly
/s/ Michael J. Schewel
Michael J. Schewel
/s/ Debora J. Wilson
Debora J. Wilson
166
Date
February 21, 2020
Executive Chairman,
Chairman of the Board
Director, Vice Chairman
February 21, 2020
Director, Vice Chairman
February 21, 2020
Director, Co-Chief Executive Officer
(Co-Principal Executive Officer)
Director, Co-Chief Executive Officer
(Co-Principal Executive Officer)
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
M A R K E L C O R P O R A T I O N
Headquarters
Glen Allen, VA
Insurance
Asia Pacific
Dubai, United Arab Emirates · Hong Kong · Kuala Lumpur, Malaysia · Labuan, Malaysia · Mumbai, India · Shanghai, China ·
Singapore · Tokyo, Japan
Bermuda
Hamilton
Canada
Montreal · Toronto · Vancouver
Europe
Barcelona, Spain · Dublin, Ireland · Madrid, Spain · Munich, Germany · Pierrefitte-en-Auge, France · Rotterdam, Netherlands ·
Stockholm, Sweden · Zurich, Switzerland
Latin America
Bogotá, Colombia · Buenos Aires, Argentina · Rio de Janeiro, Brazil
United Kingdom
Birmingham, England · Bristol, England · Leeds, England · London, England · Manchester, England · Rugby, England ·
Sheffield, England
United States
Atlanta, GA · Austin, TX · Birmingham, AL · Boston, MA · Chicago, IL · Dallas-Fort Worth, TX · Denver, CO ·
Glen Allen, VA · Hartford, CT · Hawley, PA · Houston, TX · Las Vegas, NV · Los Angeles, CA · Milwaukee, WI · Nashville, TN ·
New York, NY · Omaha, NE · Portland, OR · Providence, RI · Red Bank, NJ · San Antonio, TX · San Diego, CA · San Francisco, CA ·
Scottsdale, AZ · Summit, NJ · Tampa, FL · Warrenton, VA
Markel Ventures
Europe
Gorinchem, Netherlands
United States
Ashland, VA · Baltimore, MD · Bethlehem, PA · Cape Girardeau, MO · Fairfield, NJ · Fairhaven, MA · Gainesville, GA ·
Glen Allen, VA · Miami, FL · Reading, PA · Richmond, VA · Temple, TX · West Conshohocken, PA
Markel Corporation
4521 Highwoods Parkway
Glen Allen, Virginia 23060
(800) 446-6671
www.markel.com