2020
Markel
Corporation
Annual Report & Form 10-K
THE CORPORATE PROFILE
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.
THE MARKEL STYLE
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
Financial Highlights
(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 common 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) per common share
Book value per common share
5-Year CAGR in book value per common share (1)
Closing stock price per share
5-Year CAGR in closing stock price (1)
(1)
CAGR—compound annual growth rate
$
$
$
$
$
$
9,267
5,612
98 %
2,795
9,735
798
1,192
24,927
41,710
3,484
12,800
2020
2019
2018
$
8,780
5,050
94 %
2,055
9,526
1,790
2,094
7,864
4,712
98 %
1,913
6,841
(128)
(376)
$
$
22,258
37,474
3,534
11,071
19,238
33,306
3,010
9,081
21 %
24 %
25 %
13,783
55.63
885.72
10 %
1,033.30
3 %
$
$
$
13,794
129.07
802.59
8 %
1,143.17
11 %
$
$
$
13,888
(9.55)
653.85
7 %
1,038.05
12 %
Operating Highlights
•
•
•
•
•
• Markel Ventures completed the acquisition of Lansing Building Products, LLC, a supplier of exterior building products
Gross premium volume exceeded $9 billion
Comprehensive income to shareholders of $1.2 billion
Combined ratio of 98%, including six points of COVID-19 losses and three points of catastrophe losses
Operating cash flows were $1.7 billion
Book value per common share was $885.72 at December 31, 2020, representing a 10% increase for the year
and materials to professional contractors throughout the U.S.
Contents
Letter to Business Partners
Form 10-K
Business
Risk Factors
Legal Proceedings
Executive Officers
Common Stock Data
Selected Financial Data
2 Critical Accounting Estimates
Safe Harbor and Cautionary Statement
10K - 2 Reports of Independent Registered Public
10K - 20
Accounting Firm
10K - 32 Consolidated Financial Statements
10K - 34 Notes to Consolidated Financial Statements
10K - 35 Management's Report on Internal Control
10K - 36
over Financial Reporting
Management's Discussion & Analysis
10K - 37 Directors
10K - 55
10K - 62
10K - 70
10K - 74
10K - 78
10K - 127
i
7173_TXT_C1.pdf 1 February 22, 2021
2020
To Our Business Partners,
Thank you
Thank you to our employees throughout Markel who
stood tall and continued to serve our customers
through circumstances we never imagined.
We look forward to continuing to earn your trust
whether you are an employee, customer, or
shareholder of Markel. Many of you are in all three
categories and we thank you for each role that you
play.
Thank you to our customers who continued to
depend on us.
Markel
Thank you to our shareholders who provided the
necessary capital to operate our business and fulfill
our promises.
Thank all of you for maintaining a long term
commitment to the enduring and timeless values we
articulate in the Markel Style. Our explicit creed that
embraces hard work, a zealous pursuit of excellence,
keeping a sense of humor, and honesty and fairness,
never goes out of style. We appreciate and embrace
all who share our dream.
Our values provide the ultimate in sustainability. We
believe that no matter what changes the future may
hold, the world will always need an organization like
Markel that is dedicated to serving the needs of
others.
Serving others works forever. The mindset of service
drives a durable flywheel that attracts people,
capital, and businesses.
Financial Highlights
We continue in our quest to build one of the world’s
great companies. We define a great company as one
with a culture and system of Win-Win-Win for our
employees, our customers, and our shareholders.
These values define our strategy and frame every
tactical decision. They apply to any and every
specific line of business.
We strive to make Markel a place where our
employees win by pursuing fulfilling careers of
service to our customers, continuously learning, and
providing for their families and communities, in a
dependable and sustainable fashion.
We strive to make Markel a place where our
customers win by finding everything from protection
against unexpected events and circumstances, to an
array of products and services from food making
equipment, fire protection, green plants,
management consulting, housing, medical services,
educational infrastructure, transportation, building
(in millions, except per share data)
2020
2019
2018
2017
2016
2015
2014
2013
2012
Total operating revenues
$ 9,735
9,526
6,841
6,062
5,612
5,370
5,134
4,323
3,000
Gross written premiums
$ 9,267
8,780
7,864
5,507
4,797
4,633
4,806
3,920
2,514
Combined ratio
Invested assets
Invested assets per common share
Net income (loss) to common
shareholders
Comprehensive income (loss) to
shareholders
98 % 94 %
98 % 105 %
92 %
89 %
95 %
97 %
97 %
$ 24,927
22,258
19,238
20,570
19,059
18,181
18,638
17,612
9,333
$ 1,808.50
1,613.62 1,385.24 1,479.45 1,365.72 1,302.48 1,334.89 1,259.26 969.23
$ 798
1,790
(128)
395
456
583
321
281
253
$ 1,192
2,094
(376)
1,175
667
233
936
459
504
Shareholders' equity
$ 12,800
11,071
9,081
9,504
8,461
7,834
7,595
6,674
3,889
Book value per common share
5-Year CAGR in book value per
common share(1)
Closing stock price per share
(1)
CAGR - compound annual growth rate
$ 885.72
802.59
653.85
683.55
606.30
561.23
543.96
477.16
403.85
10 %
8 %
7 %
11 %
11 %
11 %
14 %
17 %
9 %
$ 1,033.30
1,143.17 1,038.05 1,139.13 904.50
883.35
682.84
580.35
433.42
7173_TXT_C1.pdf 2 February 22, 2021
2
products, and multiple other necessary and desired
items. Our underlying values guide us and apply to
all of these products and services.
We strive to make Markel a place where our
shareholders earn good returns on their capital and
continue to want to provide us with it to make
everything we do possible.
In the course of this letter, we hope to give you a full
and candid report as to what is working well, and to
discuss areas where we must improve. We hope that
by the time you finish you will share our optimism
about the discipline, hard choices, successes, and
dedication we share to fully deliver on our
commitment of excellence in each and every facet of
Markel.
In 2020, we hit two-and-a-half out of our desired
three wins. Our employees, and our customers, both
continued to operate in a system that fulfilled the
promises and goals we set.
While we earned positive comprehensive income and
demonstrably increased the economic value of the
company, our shareholders did not see those returns
show up in the share price. That can be expected to
happen from time to time due to overall investment
market volatility. We acknowledge though that that
has now been the case over the last five year period.
And as you know, we consistently use five year time
frames as a reasonable period to measure our
performance. We know that delivering “two-and-a-
half out of three” wins is not satisfactory. We can
and must do better in order to regain traction and
make progress like what we’ve experienced at Markel
historically.
2020 Review
2020 stands out as a year unlike any other. We’re
sure you’ll read these words in many annual reports
and publications. While it may seem like there is an
unprecedented use of the word unprecedented we
believe it is fully justified this year.
This was truly a year unlike any other.
We started out in January brimming with optimism.
We had just put the bow on 2019 where we reported
a combined ratio of 94%. Those insurance results
were a four point improvement over the prior year
98%, which was affected by above average levels of
natural catastrophes. Our earned premiums grew
from $4.7 billion to over $5 billion and underwriting
profitability more than doubled from $114 million to
$281 million.
Over decades, Markel has accomplished the three
part, Win-Win-Win goals. We are optimistic and
confident that we also will do so in the future.
In our investment operations, we had just finished a
year when we earned 30% on our equity investment
portfolio. That capped off a decade where we earned
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2,630
2,225
2,069
1,977
2,551
2,576
2,200
2,262
2,092
1,770
1,397
1,094
2,291
1,982
1,906
2,213
2,359
2,536
2,401
2,518
2,572
2,218
1,774
1,132
102 % 97 % 95 % 99 % 88 % 87 % 101 % 96 % 99 % 103 % 124 % 114 %
8,728
8,224
7,849
6,893
7,775
7,524
6,588
6,317
5,350
4,314
3,591
3,136
907.20
846.24
799.34
702.34
780.84
752.80
672.34
641.49
543.31
438.79
365.70
427.79
142
267
202
(59)
406
393
148
165
123
75
(126)
(28)
252
431
591
(403)
337
551
64
273
222
73
(77)
82
3,388
3,172
2,774
2,181
2,641
2,296
1,705
1,657
1,382
1,159
1,085
752
352.10
326.36
282.55
222.20
265.26
229.78
174.04
168.22
140.38
117.89
110.50
102.63
20-Year
CAGR(1)
12 %
11 %
11 %
7 %
14 %
15 %
11 %
9 % 13 % 11 % 10 % 18 % 16 % 11 % 20 % 13 % 13 % 18 % 21 %
414.67
378.13
340.00
299.00
491.10
480.10
317.05
364.00
253.51
205.50
179.65
181.00
9 %
7173_TXT_C1.pdf 3 February 22, 2021
3
annual returns of 15.2% on our equity portfolio in a
disciplined, tax efficient, conservative, and low cost
manner. Recurring investment income of interest and
dividends reached a new record of $452 million, up
from $434 million, despite unrelenting headwinds of
lower and lower interest rates.
In our Ventures operations, we had posted record
EBITDA of $264 million, up from $170 million, and
revenues of $2.1 billion compared to $1.9 billion the
previous year.
In our Insurance-Linked Securities and Program
Services businesses, we made progress in continuing
to grow and build our strategic Nephila and State
National businesses. We continued to resolve the
lingering issues associated with the CATCo
operations. Profitability from these operations was
constrained by costs associated with winding up and
settling matters related to CATCo, which obscured
the underlying progress evident in the ongoing
businesses.
Our balance sheet was strong, and chock full of
conservatively stated insurance loss reserves, high-
quality fixed income investments to more than back
those reserves, no near-term debt maturities, and
appropriate levels of public equity investment
exposure.
Boy, were we ready to bring it all home in 2020.
Then, the pandemic ensued.
We did not see that coming.
The year did not unfold as we expected.
Fortunately, we’ve designed Markel to be resilient.
While we in no way predicted the pandemic or the
far reaching effects it would have on every aspect of
our businesses and the daily lives of everyone on
planet earth, we made forward progress this year
despite the pandemic.
We will never be able to predict the future.
We can and must though prepare to adapt and
adjust to whatever the future brings.
We’ve worked tirelessly towards the goal of building
one of the world’s great companies. We define that
goal as being a firm where we do things for our
customers rather than to our customers, where our
employees are better off for being with us, and
where our shareholders are better off for having
invested with us.
That is easy to say and enjoy when you’ve got
tailwinds. 2019 was such a year and we set records
across the organization. Comprehensive income in
2019 totaled $2.1 billion, which was more than the
previous four years combined, and nearly double any
single previous year.
A truer and more meaningful test of the success in
building one of the world’s great companies takes
place when conditions toughen. 2020, the year of
the pandemic, stands out as a punishingly brutal
exam.
In the face of this test we’ve got positive results to
report. Financially, we earned comprehensive income
of $1.2 billion in 2020.
We reported record volumes in both our insurance
and Ventures operations. We absorbed significant
and unexpected insured losses in the first quarter as
the pandemic started to take its toll. Then we
endured and adapted.
In our insurance operations, we wrote a record
amount of premium for the year and we earned
underwriting profits starting in the second quarter
and for the full year.
At Markel Ventures, we earned record revenues and
EBITDA. Each of our companies faced challenges
unlike any ever seen before. We needed to figure out
how to keep our people healthy and safe, we needed
to adapt to changing levels of what our customers
wanted, we needed to figure out how to keep our
supply chains functioning and effective, and multiple
other existential challenges. Despite swirling and
constantly changing conditions, our people endured
and adapted and went on to set records. We are
amazed and grateful for their dedication and
accomplishments.
We believe that 2020 stands as a testament to our
ability to do just that. We maintained an iron will
along with a mindset of adaptability and endurance.
We persisted and showed the ability to thrive despite
unpredicted and unprecedented events. And we are
very optimistic about our future.
We’ve spoken for years about the value of the Win-
Win-Win architecture underlying your company.
In our investment operations we earned a total
return of 9.4% with equity investment returns of
15.2% and fixed income returns of 5.7%.
In our Insurance-Linked Securities and Program
Services operations we reported revenues of $316
million and operating income of $5 million, which
was net of $59 million of amortization expense and
also reflects $51 million of expenses from CATCo’s
7173_TXT_C1.pdf 4 February 22, 2021
4
run off operations, the majority of which is non-
recurring.
revenues and earnings over the 15 years represented
in this table.
As always, we think it is critical to view our financial
results over meaningful periods of time. Quarterly
and annual results are subject to immense volatility
from investment market swings and natural
catastrophes. Over longer time frames, a more
meaningful and accurate picture emerges. For many
years, we’ve measured ourselves (and based our
executive incentive compensation) on five year
measurements. We think that creates better Win-
Win-Win and sustainable alignment for everyone
committed to Markel.
This table shows some key measurements over the
last three five-year periods.
(dollars in millions, except
per share data)
2016 -
2020
2011 -
2015
2006 -
2010
Total revenues
$ 37,776 $ 20,457 $ 11,398
Earned premiums
$ 23,488 $ 15,023 $ 9,870
Underwriting profits
ILS and Program
Services revenues
ILS and Program
Services operating loss
$
$
$
633 $
733 $
709
939
(54)
N/A
N/A
N/A
N/A
We began our strategic initiative in Insurance-Linked
Securities and Program Services during 2015 and the
most recent five-year time frame shows the
beginning era of what we expect will become a more
meaningful component of Markel over the next
several years. While our initial foray into ILS proved
expensive and difficult, we believe that we’ve learned
some important and critical lessons. Ongoing
technological and environmental change in insurance
markets continues to gallop ahead. ILS and Program
Services should serve to keep Markel as a leader,
guiding these changes and to protect us against the
forces of disruption in the insurance marketplace.
We’ve designed Markel to be a resilient and
adaptable company with “Three Engines” of
Insurance, Investments, and Markel Ventures, that
can power us forward. In any given year, one engine
may be under pressure but the other two can
provide positive thrust. In 2020, all three engines
contributed. Over multi-year periods, such as the
five-year time frame we consistently use to measure
and judge ourselves, all three engines dependably
propelled us forward.
Markel Ventures
revenues
$ 9,311 $ 3,379 $
456
Engine #1 - Insurance
Markel Ventures EBITDA $ 1,167 $
354 $
45
Net investment income
$ 2,283 $ 1,580 $ 1,391
Comprehensive income
to shareholders
Closing stock price
per share, at end of
period
$ 4,752 $ 2,384 $ 1,507
$ 1,033.30 $ 883.35 $ 378.13
These five-year views show that we’ve experienced
dramatic growth in the size and scale of Markel.
Unfortunately, our underwriting profitability moved
lower during the most recent five-year period. The
combination of record levels of natural catastrophes,
poor results in our reinsurance operations, and
COVID-19 losses weighed on our underwriting
profitability.
Investment income grew in both time frames, but at
a slowing rate due to the steady, ongoing
persistence of lower interest rates. Almost any time a
fixed income investment matured or was sold, we
had to replace it with something offering a lower
yield. Dividends on our equity portfolio grew which
counterbalanced some of the declines in interest
rates.
Our first engine, and the heritage of Markel, is
Insurance. In the Insurance engine, our insurance
and reinsurance operations faced unprecedented
challenges in the initial stages of the pandemic. As a
vivid example, event cancellation insurance stands
out as one product line where we experienced large
and unprecedented losses. Normal underwriting
disciplines of diversifying risk guided our approach in
writing event cancellation as it does in all of our
business lines. We, and our underwriters, fully
believed that writing policies for things like a tennis
tournament in England, the Olympics in Japan, a
music festival in Tennessee, a movie festival in
Colorado, a hot air balloon race in New Mexico, a
wine festival in California, a beer festival in Germany,
weddings, parades, concerts, ball games, and so on
and so on, would fit the definition of a portfolio of
diverse and uncorrelated risks.
In the case of the pandemic, all of those risks
correlated to each other. Spreading things out
geographically and throughout the year didn’t work.
All events were cancelled and significant losses
occurred on policies for these events. We did not
foresee that possibility.
Markel Ventures started as a dream in 2005 and
grew to become a meaningful contributor to
Fortunately, those losses are finite. We are not
writing event cancellation at this point and we are
7173_TXT_C2.pdf 5 February 25, 2021
5
near the end of when covered events from previously
written policies can take place.
Business interruption coverages also loom large as a
consequence of COVID-19. We have provided for the
losses we expect from business interruption. We did
so promptly as the pandemic unfolded and
recognized the losses we believed we would face.
Those reserves were calculated amidst conditions of
uncertainty and necessarily reflect estimates. As
2020 progressed we gained additional data and we
added to our estimates. As always, we did so in
order to provide reserves which reflected our best
estimate of our ultimate exposures.
We established COVID-19 related losses of $325
million in the first quarter of 2020 and additional
COVID-19 losses of $33 million subsequently in 2020.
As is always the case, we attempted to recognize all
of the losses we expect to the best of our ability.
Though we do not anticipate further COVID-19
losses, we cannot predict with certainty the extent to
which legal decisions and other factors may impact
the amount and nature of insured liabilities for
pandemic related circumstances.
Despite the surprise and dramatic insured losses at
the beginning of 2020, we managed to report a
modest underwriting profit for the year with a
combined ratio of 98%. While 98% falls short of our
goals and does not produce appropriate returns on
your capital, we are glad to be able to report
underwriting profitability despite and in light of the
unprecedented adverse conditions we faced in 2020.
As we stated earlier in this letter, we were very
optimistic about reporting better insurance combined
ratio results to you when we started the year. Along
with the pandemic, we had more hurricanes than
hurricane names in 2020, above average wildfires,
and a derecho. We hate making excuses but we
believe that we’ve made meaningful progress in
improving the fundamental performance of our
insurance operations and we’re disappointed at how
that progress is obscured by COVID-19 and above-
average levels of natural catastrophes.
The headlines of COVID-19 and hurricanes fall
outside our control. We cannot predict when or if
such forces will strike again.
We can however act on things within our control. We
have, and we continue to do so. Here is a small
sample of actions we’ve taken, which should improve
our financial results going forward.
First, we’ve significantly reduced writing insurance
and reinsurance with exposures to natural
catastrophes. We do not know to what extent
climate change and other factors have caused
insured losses to increase in recent years. Neither
can we predict with reasonable assurance what
might happen in 2021 and beyond. As such, we’ve
reduced our exposures to natural catastrophe-related
losses overall. Should such losses strike in 2021 our
losses will be less. We’ve not earned adequate
returns for the risk and capital charges associated
with large property related exposures for several
years. We will redeploy the capital previously
allocated to this business to higher and better uses
within Markel.
Second, we’ve focused on increased efficiency and
lower costs throughout our insurance operations. We
continue to invest in technology to simplify the
process of underwriting, marketing, distributing, and
administering every facet of an insurance
transaction. We’ve reduced our expense ratio from
37.7% in 2018 to 36.0% in 2020 and we are working
towards, and confident of, further improvement in
2021.
Third, we’ve considered what it would look like to
almost double the size of our insurance operations.
We want to grow to $10 billion of annual insurance
premiums in five years and earn $1 billion of annual
underwriting profit while doing so. We’ve adopted
this “10-5-1” target as an overarching goal to guide
and discipline decision making within our insurance
operations.
We are excited about this goal and believe it speaks
to several important dimensions. The $10 billion
speaks to growth. In 2020 we wrote $6 billion of
insurance premium. We believe that growing the top
line demonstrates that we are serving our customers
with insurance coverages they want and need.
Insurance rates continue to increase to reflect the
severe losses experienced by the industry across
multiple lines as well as the pervasive environment of
lower interest rates.
We expect to achieve this goal largely through
organic growth of our existing operations rather than
through acquisitions.
The “5” speaks to a time frame. We want to reach
the $10 billion of annual insurance premiums in the
next five years. The “5” provides a sense of urgency.
Technology continues to drive change at a faster and
faster pace. We can and must make decisions faster.
By committing to growth and attaching a time frame,
we’re holding ourselves responsible in a measurable
way to acting now rather than later.
7173_TXT_C1.pdf 6 February 22, 2021
6
The “1” speaks to $1 billion of annual underwriting
profits. Growth without profitability means we’re
doing something wrong. It also consumes capital
since regulators and rating agencies require us to
post capital to write insurance business. We’ve felt
the effects of growth without sufficient profitability in
the last few years and we’re committing to the
discipline of focus on the bottom line. We simply
cannot provide our customers with quality long term
financial promises if we do not earn sufficient profits
all along the way to pay claims and provide
appropriate returns at the same time.
In addition to the “10-5-1” goals from our insurance
operations, we expect meaningful profitability from
our reinsurance operations, as well as our Insurance-
Linked Securities and Program Services operations
beginning in 2021. We look forward to reporting
positive results and demonstrating the wisdom of
these initiatives.
Engine #2 - Investments
In 2020 we earned total investment returns of 9.4%
comprised of 15.2% on our equity portfolio and
5.7% on our fixed income portfolio.
That sentence doesn’t begin to address the tumult of
the 2020 investment markets. The epic volatility and
uncertainty all investors faced, and continue to face,
appropriately dominates all investment thought (or at
least it should in our opinion, we’re not sure if it
actually does).
Amidst the unprecedented conditions, we believe in
keeping our eyes on the North Star while navigating
amidst conditions of uncertainty. The North Star
guides investment decisions at Markel both for asset
allocation and specific security selection.
For example, we first decide to allocate capital either
to fixed income or equity investments. Following the
North Star, we first allocate enough capital into fixed
income holdings to more than match our expected
ultimate liability from insurance reserves.
We do this for two reasons. The first and most
important is to make sure that when our customer, a
policyholder, experiences a loss, we have the money
to pay the claim. This is our foremost promise about
the future, and we operate with a sense of
stewardship and trust when it comes to honoring this
promise. Consequently, we’re not gunning for the
highest returns with these funds; we are striving to
provide as much assurance as possible that we will
always have the means at hand to settle claims as
they come due.
The second reason to invest in fixed income
securities is to earn interest income. Interest rates
continue to decline beyond any level ever seen in
history. There has been no time on planet earth like
today where interest rates in many locations are
negative. When they’re not in negative territory, they
still seem too low to us to compensate us for the
irreducible credit, currency, and inflation risks.
Our portfolio consists of sovereign credits with taxing
authority at the federal, state, or municipal level, and
a variety of high credit quality, first mortgage liens
on daily use real estate, and a small component of
high quality corporate bonds.
Yields continue to diminish in the face of lower
overall interest rates. We are price takers, not price
makers, in this arena and as such, we simply have to
accept the rates on offer.
We believe that taking more credit or interest rate
risk for less return is unwise. While we’ve sacrificed
some incremental yield from taking this view in the
last several years, we simply can’t in good faith
commit your capital or the funds we hold on behalf
of our policyholders to riskier propositions. We think
we will be well served by maintaining the capital
integrity and storm worthiness of our balance sheet
despite the temptation to pick up some yield by
venturing further astray.
This stance will strike some as unnecessarily
conservative until the day it doesn’t. Just as is the
case with insurance underwriting decisions, we need
to balance potential rewards against potential risks.
The risk/reward ratios in credit markets don’t look
good to us.
At the same time, we are in a period of rapid growth
in our insurance operations. While premiums are
growing faster than underwriting profits we think it’s
best to post capital in the form of high quality and
shorter term fixed income securities, which keeps
regulators and rating agencies happy.
When our expected underwriting profitability
develops from this growth, we will have greater
degrees of flexibility and latitude to invest more
broadly. Underwriting profits create capital that we
can then invest in higher return equity securities of
all stripes.
In our equity portfolio we earned a total return of
15.2%. Our North Star in making equity investment
decisions is to follow our longstanding four part
discipline. Those four parts are, one, to invest in
businesses with good returns on capital that don’t
use too much leverage, two, with management
7173_TXT_C1.pdf 7 February 22, 2021
7
teams with equal measures of talent and integrity,
three, at companies with reinvestment opportunities
and capital discipline, and four, at fair prices.
We’ve followed that North Star consistently through
the entire history of Markel since our initial public
offering in 1986 and it serves us well. We believe in
the timelessness of the system. The names and
businesses that meet this test continue to change,
but the test remains the same.
Following that discipline caused us to reduce our
equity exposures in the first part of the year. In light
of the outbreak of the pandemic we re-underwrote
every security that we owned (equities and fixed
income) and made decisions based on our sense that
the fundamental economic environment had
experienced a seismic shift.
We also faced near term concerns about our
underwriting profitability and a strong desire to carry
the strongest balance sheet we could into an
environment where we thought there would be
opportunity to write well priced insurance business.
Tactically, that decision can be criticized as it caused
us to reduce our equity exposure by approximately
20% at lower prices than prevailed at the end of
2020. We understand and share the frustration of
that decision at that moment, but we would make
the same decision again faced with the same facts
and uncertainties. We made that decision to first
protect the company in the face of such uncertainty
and in order to maximize our ability to continue to
write insurance premiums at favorable rates. We
believe it is the best and highest use for capital in
this environment and we look forward to reporting
favorable results to you in the next few years that
stem in part from these actions.
Engine #3 - Markel Ventures
The people of Markel Ventures produced a
spectacular year. Revenues and EBITDA set new
records of $2.8 billion and $367 million respectively.
As we stated throughout the year, we stand amazed
and grateful at this accomplishment. Over the last 15
years we’ve brought together an amazing group of
companies led by talented and dedicated managers.
As a group they embody the values we seek. Their
performance in 2020 amidst conditions of
unprecedented adversity stands as nothing less than
stunning.
2019 had been a record year and we were optimistic
but slightly cautious as we entered 2020. Several of
our businesses are quite cyclical and highly sensitive
to general economic conditions such as auto sales,
freight volumes, and capital equipment budgets. We
were cautious entering 2020 because we had
enjoyed a spectacular run of strong economic growth
and favorable conditions for several years. They call
them cycles for a reason and we fully anticipated a
modest downturn as a strong possibility.
In March, we threw all of our budgets and plans out
the window. In many cases, business simply
stopped. Orders were cancelled and customers froze.
No one knew what the next day would bring.
Fortunately, our managers responded in spectacular
fashion. They adjusted and adapted every single
component of their organizations. They changed
workplace conditions to provide for the health and
safety of their employees, they figured out how to
operate with damaged supply chains and unsteady
vendors, they adjusted their costs, and they made
countless other decisions on a continuous basis
under conditions of epic uncertainty.
Fortunately, the general economy also found some
footing. Everyone in the world adapted to new
conditions and governments and authorities
responded with unprecedented financial and fiscal
injections to keep economies from imploding.
In the middle of the storm in April, Lansing Building
Products joined Markel. Our relationship with Lansing
dates back many years. Formal discussions about
them joining Markel began in 2019. Lansing
embodies the values and culture we seek. For
Lansing, Markel represents a long term home for a
third generation family business. We can help them
to grow and provide assurance to the people of that
organization that they will be working for a stable
and dependable organization. Their charge is to build
their business profitably and serve their customers.
As part of Markel, they will not be highly leveraged
or operate with a sometimes conflicting goal of
seeking an “exit” as would often be the case under
alternative forms of ownership.
For Markel, Lansing provides another venue and
forum for us to build resiliency and dependability.
Building products should be on a somewhat different
cycle than insurance, green plants, medical services,
or management consulting and as such, the
diversification should add stability to our overall cash
flows and economic performance.
In total, over the last 15 years we’ve cumulatively
invested approximately $2.7 billion to acquire the
businesses that comprise the Ventures group. So far,
those companies have dividended back, and built up
internal cash balances, of approximately $1.2 billion.
7173_TXT_C1.pdf 8 February 22, 2021
8
In a very over simplified notion, we have a net
investment of $1.5 billion in a collection of
businesses that earned $367 million in EBITDA in
2020 amidst tough economic conditions.
In May we raised $600 million of preferred equity to
increase the conservatism and heft of our balance
sheet and to help fund our growth opportunities. The
preferred stock is callable beginning in 2025.
We think any reasonable analyst would conclude
these businesses are worth far more than what we
paid and that they contribute to the resiliency and
value of the Markel Corporation in tangible and
intangible ways.
Capital Management
In 2021, we will follow the same capital allocation
triage. We’ve acted decisively to increase profitability
throughout Markel and we’re optimistic that we’ll be
marching through the four part list as we have in the
past. In fact, by year end 2020 we resumed modest
purchases of equity securities in our publicly traded
equity portfolio.
For many years we’ve followed a four step triage on
how we allocate capital. Our first priority is to
support our existing businesses. We prefer to fund
people who are already part of Markel and who have
already proven their skills and abilities.
Our second priority for capital is to acquire new
businesses to expand the scale and resiliency of
Markel.
Our third priority for capital is to acquire publicly
traded equity securities.
Our fourth priority is to repurchase our own stock
when we believe our shares to be trading below a
reasonable estimate of intrinsic value.
In the first part of 2020, we were allocating capital to
all four buckets. Our insurance businesses were
experiencing strong growth. We funded that growth
with short term and high quality fixed income
securities. This is the type of capital that rating
agencies and regulators prefer.
We also purchased Lansing Building Products.
Lansing embodies everything we look for in a
business. It meets each and every one of our four
part tests. The business enjoys a demonstrated
record of earning good returns on capital and not
using too much leverage to do it. The management
of Lansing embodies the values that guide Markel
and they will add to the cultural fabric of your
company in positive ways. Additionally, we believe
that Lansing can continue to grow within the building
products industry and the transaction took place at a
fair price.
As the pandemic developed and business conditions
changed, we halted purchasing additional equity
securities. In fact, we liquidated a portion of our
portfolio to help fund the opportunities we saw in our
existing insurance business as well as to complete
the Lansing acquisition. We also stopped
repurchasing our shares.
The Future
2020 brought challenges we never imagined. Despite
those challenges, we persisted and we adapted. We
provided for our customers and took care of our
people to the best of our ability. We reported
substantial profits and re-thought and re-engineered
each and every aspect of what takes place at Markel.
In larger and smaller doses, that describes what
we’ve done for decades. No decade ever ended up at
the same place or the same way it started.
Accordingly we changed, and grew, and prospered
all the way along. We’re incredibly optimistic about
our resilience, the power of our values based system,
our flexibility, and our unending dedication to serving
our customers, our employees, and our shareholders.
Win-Win-Win works and it represents the ultimate in
sustainability.
As we wrote in 1986, at the time of our initial public
offering, in the words of the Markel Style, “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.”
Those words stand as a timeless formula that will
drive our results in the future just as they have in the
past.
This company started as a dream.
The dream lives on.
Thank you.
Thomas S. Gayner, Co-Chief Executive Officer
Richard R. Whitt, III, Co-Chief Executive Officer
9
7173_TXT_C1.pdf 9 February 22, 2021
7173_TXT_C1.pdf 10 February 22, 2021
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, 2020
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:
Title of each class
Common Stock, no par value
Trading Symbol(s)
Name of exchange on which registered
MKL
New York Stock Exchange
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
Smaller reporting company ☐
Accelerated filer
☐
Emerging growth company ☐
Non-accelerated filer ☐
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 has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
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, 2020 was
approximately $12,437,000,000.
The number of shares of the registrant's Common Stock outstanding at February 2, 2021: 13,783,813.
Documents Incorporated By Reference: The portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on May 10, 2021, referred to in Part III.
7173_TXT_C1.pdf 11 February 22, 2021
Markel Corporation
Form 10-K
Index
Part I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Information about Our Executive Officers
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets—December 31, 2020 and 2019
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)—Years
Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Equity—Years Ended December 31, 2020,
2019 and 2018
Consolidated Statements of Cash Flows—Years Ended December 31, 2020, 2019 and
2018
Notes to Consolidated Financial Statements
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Part III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Exhibit Index
Signatures
Page Number
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NONE
NONE
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NONE
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10K - 35
10K - 36
10K - 37
10K - 65
10K - 70
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NONE
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NONE
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7173_TXT_C1.pdf 12 February 22, 2021
PART I
Item 1. BUSINESS
Markel Corporation is a diverse financial holding company serving a variety of niche markets. We aspire to build one of the
world's great companies and deploy three financial engines in pursuit of this goal.
Insurance - Our principal business markets and underwrites specialty insurance products using multiple platforms
that enable us to best match risk and capital.
Investing - Our investing activities are primarily related to our underwriting operations. The majority of our
investable assets come from premiums paid by policyholders and the remainder is comprised of shareholder funds.
Markel Ventures - Through our Markel Ventures operations, we own controlling interests in a diverse portfolio of
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. We measure financial success by our ability to grow book value per common 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 our performance. Growth in book value per common
share is an important measure of our success because it includes all underwriting, operating and investing results. Over the
past five years, we have grown book value per common share at a compound annual rate of 10% to $885.72 per share at
December 31, 2020. 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. Over the past five years, our stock price per
share increased at a compound annual rate of 3%.
The following graph presents book value per common share and stock price per share for the past five years as of December
31.
e
r
a
h
S
r
e
P
$1,200
$1,000
$800
$600
$400
$200
$0
1,139.13
1,143.17
1,038.05
1,033.30
904.50
606.30
683.55
653.85
885.72
802.59
2016
2017
2018
2019
2020
Book Value Per Common Share
Stock Price Per Share
7173_TXT_C1.pdf 13 February 22, 2021
10K - 2
Insurance
Our insurance engine is comprised of the following types of operations:
•
•
•
Underwriting - our underwriting operations are comprised of our risk-bearing insurance and reinsurance operations
Insurance-linked securities - our insurance-linked securities (ILS) operations include investment fund managers that
offer a variety of investment products, including insurance-linked securities, catastrophe bonds, insurance swaps and
weather derivatives, as well as managing general agents that place risks with the funds managed or with third parties
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
Through our underwriting, ILS and program services operations, we have a suite of capabilities through which we can access
capital to support our customers' risks, which includes our own capital through our underwriting operations, as well as third
party capital through our ILS and program services operations. Within each of these platforms, 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, including
the multiple platforms through which we can manage risk and deploy capital. For example, we may leverage the strength of
our underwriting platform to write certain risks on behalf of our ILS operations in accordance with their desired return
objectives. We may also cede certain risks written through our underwriting operations to our ILS operations to the extent
those risks are more aligned with the risk profile of our ILS investors than our own capital risk tolerance. Our ability to access
multiple insurance platforms allows us to achieve income streams from our insurance operations beyond the traditional
underwriting model.
Underwriting
Specialty Insurance and Reinsurance
Within our underwriting operations, we underwrite specialty insurance products on a risk-bearing basis. 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 and 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 and alternative platforms through which we can access capital to
support our customers' risks. Examples of niche insurance markets that we have targeted include liability coverage for highly
specialized professionals, wind and earthquake-exposed commercial properties, equine-related risks, classic cars, credit and
surety-related risks, collateral protection risks 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.
7173_TXT_C1.pdf 14 February 22, 2021
10K - 3
Our reinsurance products are written globally 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. 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 or provide experience refunds if the losses we
incur differ from those projected at the time of the execution of the contract or may require reinstatement premium to restore
the coverage after there has been a loss occurrence.
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 capacity lines and our ability to customize reinsurance solutions to fit our
cedents' needs. Additionally, as with our insurance underwriting operations, our ability to access third party capital through our
ILS and program services platforms provides additional capital alternatives to support certain risks, to the extent those risks do
not align with our underwriting risk tolerance. For example, in late 2020, we made the decision to discontinue writing
catastrophe-exposed property reinsurance on a risk-bearing basis, and instead will only write such business on behalf of our
ILS operations, to the extent it matches the risk profile of our third party ILS investors, who will ultimately assume the risk.
Our reinsurance product offerings include coverage for general liability, professional liability, property, workers'
compensation and credit and surety risks.
The following chart presents the composition of our underwriting operations between insurance and reinsurance based on 2020
gross premium volume of $7.2 billion, which also aligns with our two reportable underwriting segments.
84%
16%
Insurance
Reinsurance
The Insurance segment includes all of our direct business and facultative placements and is written through our Markel
Specialty, Markel International and State National divisions, with the exception of our State National division's program
services business, which is not included in a reportable segment. The Reinsurance segment includes all treaty reinsurance and
is primarily written through our Global Reinsurance division. Additional detail regarding our underwriting divisions and
products is included in "Underwriting Segments."
7173_TXT_C1.pdf 15 February 22, 2021
10K - 4
The following table summarizes our U.S. insurance and reinsurance subsidiaries.
U.S. Legal Entity
Evanston Insurance Company
Essentia Insurance Company
FirstComp Insurance Company
Markel American Insurance Company
Markel Global Reinsurance Company
Markel Insurance Company
National Specialty Insurance Company
State National Insurance Company, Inc.
Suretec Insurance Company
Abbreviation
State of Domicile
EIC
Essentia
FCIC
MAIC
MGRC
MIC
NSIC
SNIC
SIC
Illinois
Missouri
Nebraska
Virginia
Delaware
Illinois
Texas
Texas
Texas
All U.S. subsidiaries, with the exception of FCIC, are licensed, authorized, or accredited to write business in all 50 states and
the District of Columbia. EIC is also authorized in Guam, Puerto Rico, and the U.S. Virgin Islands, and MAIC is also licensed
in Puerto Rico. FCIC is licensed in 28 states.
The following table summarizes our international insurance and reinsurance subsidiaries.
International Legal Entity
Markel Bermuda Limited
Markel Insurance SE
Markel International Insurance Company Limited
Markel Syndicate 3000
Markets
Abbreviation
Country
MBL
MISE
MIICL
Bermuda
Germany
United Kingdom
Syndicate 3000
United Kingdom
In the U.S., we write business in the excess and surplus lines (E&S) and admitted insurance and reinsurance markets. The
E&S, or non-admitted, 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. In 2019, the E&S market represented $55 billion, or 8%, of the
$712 billion U.S. property and casualty industry.(1) In 2019, 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 EIC. 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. The majority of our admitted insurance operations are conducted through MIC, MAIC, FCIC and Essentia.
Our admitted operations also include SIC, SNIC, and NSIC. Our U.S. reinsurance operations are conducted through MGRC.
(1) Market Segment Report - U.S. Surplus Lines, A.M. Best (September 10, 2020).
10K - 5
7173_TXT_C1.pdf 16 February 22, 2021
We also participate in the London insurance and reinsurance market, which 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 this market 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 of London (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. We participate in the London insurance and reinsurance
market primarily through Markel Capital Limited (Markel Capital) and MIICL. Markel Capital is the corporate capital
provider for Syndicate 3000, through which our Lloyd's operations are conducted. Syndicate 3000 is managed by Markel
Syndicate Management Limited. In addition to their headquarters in London, Markel Capital and MIICL 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 $76 billion of gross written premium
in 2019, of which $47 billion was produced by Lloyd's syndicates.(1,2) In 2019, our share of the London market was
approximately 2% as measured by gross written premiums.
In Bermuda, which is known for its significant concentration of insurance and reinsurance businesses, we participate in the
worldwide insurance and reinsurance markets. The Bermuda property and casualty market is a significant source of capital for
the U.S. market and the leading location for cessions by U.S. insurers.(3) The Bermuda market produced $71 billion of gross
written premium in 2018.(4) In 2018, 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 MBL, 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 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, including Syndicate 3000, 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" under Item 1A Risk Factors.
While we operate in various other markets, substantially all of our gross written premiums in 2020 were written from our
platforms in the United States, United Kingdom, Bermuda and Germany. In 2020, 79% of gross premium writings from our
global underwriting operations were attributed to risks or cedents located in the United States. We were the 37th largest
reinsurer in 2019, as measured by worldwide gross reinsurance premium writings.(5)
Most of our business is placed through insurance and reinsurance brokers, retail insurance agents and intermediaries, including
managing general agents. Brokers and retail agents have limited quoting and binding authority. Managing general agents have
broader underwriting authority. These 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
brokers. 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 2020, the top two independent brokers accounted for 31% of gross premiums written in
our underwriting segments. Additionally, a significant portion of the reinsurance contracts securitized through our ILS
operations, for the benefit of third party investors, are placed through these two independent brokers.
(1) London Company Market Statistics Report, International Underwriting Association (October 2019).
(2) Lloyd's Annual Report 2019.
(3) Offshore Reinsurance in the U.S. Market, Reinsurance Association of America (2018).
(4) Bermuda Monetary Authority 2019 Annual Report.
(5) Market Segment Report - Global Reinsurance, A.M. Best (September 2, 2020).
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Ceded Reinsurance
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. 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.
Additionally, with multiple platforms through which we are able to connect risk and capital, we may leverage our underwriting
expertise to support third party capital in our ILS and program services platforms in order to most efficiently match our
customer’s risk with the appropriate source of capital. In those instances where we are ceding risks within our underwriting
operations to one of our other insurance platforms, we earn fees and commissions in exchange for our services.
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. In late 2020, we made the decision to discontinue writing
catastrophe-exposed property reinsurance within our Reinsurance segment on a risk-bearing basis, and instead, this business
will either be written directly by, or ceded to, our ILS operations to be placed with third party capital to the extent it fits the
ILS investors’ risk profile. On other product lines for which we purchase reinsurance or retrocessional reinsurance, we shifted
from buying proportional reinsurance coverages towards excess of loss coverages in both our Insurance and Reinsurance
segments in late 2018 and have also shifted from purchasing coverages related to specific lines of business towards enterprise-
wide coverages. All of these changes allow us to retain more of our profitable business while continuing to manage volatility
within our underwriting results. Net retention of gross premium volume in our underwriting segments was 83% in 2020 and
84% in 2019.
Reinsurance and retrocessional treaties are generally purchased on an annual or biennial basis and are subject to renegotiation
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.
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 unsecured exposure to any one reinsurer is material to our
ongoing business.
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.
See note 10 of the notes to consolidated financial statements included under Item 8 and Item 7A Quantitative and Qualitative
Disclosures About Market Risk for additional information about our ceded reinsurance programs and exposures.
Competition and Underwriting Philosophy
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, such as that provided through ILS,
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, enhanced digital capabilities
through which to distribute insurance products, 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
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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. More recently, we have also leveraged our underwriting capacity and expertise through
relationships with start-ups and digital distribution partners through which we can develop ideas that leverage emerging
technologies and modern customer acquisition strategies to create the service and experience that consumers have grown to
expect and demand.
Few barriers exist to prevent insurers and reinsurers from entering our markets within the property and casualty industry.
Market conditions, risk tolerance 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.
Following several years of price decreases, and the high level of natural catastrophes that occurred in 2017, we began seeing
more favorable rates in 2018, particularly on our catastrophe-exposed and loss-affected business, that have continued and
further strengthened through 2020 following the continued high level of natural catastrophes and the high level of losses
attributed to the COVID-19 pandemic. 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 loss experience in recent
years. These rate increases have been been more significant in the primary, or insurance markets, than the reinsurance markets.
By focusing on market niches where we have underwriting expertise, and leveraging capabilities offered through our multiple
insurance platforms, 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 2020, our
combined ratio was 98%. See Item 7 Management's Discussion & Analysis of Financial Condition and Results of Operations
for a discussion of our underwriting results.
We routinely review the pricing of our major product lines. 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.
Over the past few years, we have increased our focus on growing our most profitable lines of business and have discontinued
certain lines or programs that have not performed consistent with our expectations. This is particularly true within our
Reinsurance segment, where we made the decision in late 2020 to discontinue writing catastrophe-exposed property business
on a risk-bearing basis, and instead, this business will either be written directly by, or ceded to, our ILS operations to be placed
with third party capital. In more limited instances, we have taken similar actions within our Insurance segment, and we have
also made changes in our ceded reinsurance programs, as previously discussed. With these changes, along with the more
favorable rates we are seeing in the market, we expect less volatility in our underwriting results going forward.
Underwriting Segments
We monitor and assesses the performance of our ongoing underwriting operations on a global basis in the following two
segments: Insurance and Reinsurance. See note 2 of the notes to consolidated financial statements included under Item 8 for
additional segment reporting disclosures.
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Insurance Segment
Our Insurance segment reported gross premium volume of $6.0 billion, earned premiums of $4.7 billion and an underwriting
profit of $169.0 million in 2020. The following chart presents the composition of our Insurance segment by division based on
2020 gross premium volume.
Markel Specialty
Markel
International
State National
The Markel Specialty division writes business on an admitted and non-admitted basis for individuals and small businesses to
Fortune 1000 companies for agents and brokers in the U.S., Bermuda, the U.K. and Ireland as well as program insurance and
other specialty coverages for well-defined niche markets. This division was formed effective April 1, 2020 through the
combination of our Markel Assurance and Markel Specialty divisions. The newly combined Markel Specialty division creates
a unified platform that we believe makes it easier for our customers to access our diverse portfolio of products and capabilities
and provides an improved customer experience. The Markel International division writes business worldwide from our
London and Munich-based platforms, which include branch offices around the world. 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.
The following chart displays the types of products written in our Insurance segment based on 2020 gross premium volume.
Personal
Lines
Professional
Liability
Marine and
Energy
Property
General
Liability
Workers'
Compensation
Other
Specialty
Programs
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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 for 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 for, among other things, 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.
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, gas and renewable energy 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 and civil violence including war and civil war.
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.
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 various customer groups, such as amateur sports and senior living facilities. 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, including first and third party
coverages.
Other product lines within the Insurance segment include credit and surety products and collateral protection insurance.
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Reinsurance Segment
Our Reinsurance segment product offerings are underwritten primarily by our Global Reinsurance division, which operates
from platforms in the U.S., Bermuda and the U.K. Our Reinsurance segment reported gross premium volume of $1.1 billion,
earned premiums of $929.3 million and an underwriting loss of $34.0 million in 2020. The following chart displays the types
of products written in our Reinsurance segment based on 2020 gross premium volume.
Property
Specialty
Casualty
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. A significant portion of the property treaty business covers U.S. exposures, with the remainder coming
from international property exposures. Our property treaty products include coverage for catastrophe exposures, as well as
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 of underlying exposures and
geographic zones. 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. Based on the seasonal nature of hurricanes and wind storms, certain catastrophic losses are more likely to occur
in the third and fourth quarters of the year. In late 2020, we made the decision to discontinue writing catastrophe-exposed
property reinsurance within our Reinsurance segment on a risk-bearing basis, and instead, any such business will either be
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written directly by, or ceded to, our Nephila ILS operations to be placed with third party capital to the extent it fits the ILS
investors’ risk profile. However, as some of our reinsurance contracts are written with multi-year terms, we will continue to
have catastrophe-exposure through the expiration of those contracts, some of which extend into 2023. Additionally, on the
contracts that are ceded, we will continue to bear underwriting risk for aggregate agreement year losses on these exposures in
excess of a limit that we believe is highly unlikely to be exceeded. We also continue to have exposure to catastrophes on our
retrocessional reinsurance business.
Insurance-Linked Securities
Our insurance-linked securities 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, 2020 were $212.3 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). Headquartered in Bermuda, Nephila serves as an insurance and investment fund manager and managing
general agent 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). Nephila also serves as a managing general agent that underwrites and administers
property insurance policies and provides delegated underwriting services to providers of insurance capital, including 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, 2020,
Nephila's net assets under management were $9.6 billion.
See note 16 of the notes to consolidated financial statements included under Item 8 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
ILS 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, and MCIM is returning capital to investors as it becomes available. For further details regarding these developments
within our Markel CATCo operations, see note 19 of the notes to consolidated financial statements included under Item 8. As
of December 31, 2020, MCIM's remaining net assets under management were $1.0 billion.
See note 15 of the notes to consolidated financial statements included under Item 8 for further details regarding our Markel
CATCo operations.
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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, and subject to certain conditions, 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, which is provided through our State National division, generates fee income, in the form of
ceding (program service) fees, by offering issuing carrier capacity to both specialty managing 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 and other Nephila Reinsurers. 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, but may not have the required licenses and filings to do so. In general, fronting refers to business in which we write
insurance on behalf of a general agent or capacity provider and then cede all, or substantially all, of 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.
The following table summarizes the subsidiaries through which our program services business is primarily written.
Legal Entity
City National Insurance Company
Independent Specialty Insurance Company
National Specialty Insurance Company
State National Insurance Company, Inc.
United Specialty Insurance Company
Abbreviation
CNIC
ISIC
NSIC
SNIC
USIC
State of Domicile
Texas
Delaware
Texas
Texas
Delaware
All of these subsidiaries 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 a carrier rated
"A" by A.M. Best Company (Best). 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, 2020 were $104.2 million. Our
program services business generated $2.1 billion of gross written premium volume for the year ended December 31, 2020.
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
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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.
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 16 of the notes to consolidated financial statements included
under Item 8 for further details regarding our program with Syndicate 2357.
Ratings
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).
Seventeen of our eighteen insurance subsidiaries are rated by Best. All seventeen 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 eighteen 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 eighteen 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).
Investments
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. 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. In 2020, net investment income was
$371.8 million and net investment gains were $618.0 million. We focus on long-term total investment return, understanding
that the level of investment gains or losses and unrealized gains or losses may vary from one period to the next. Through
December 31, 2020, the five-year annual return for our investment portfolio was 7.4%. See "Investing Results" under Item 7
Management's Discussion & Analysis of Financial Condition and Results of Operations for more information about our
investing results, including taxable equivalent total investment return, and Item 7A Quantitative and Qualitative Disclosures
About Market Risk for more information about our investments.
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Markel Ventures
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, including
investment and capital allocation decisions for their respective companies.
Our senior management team is responsible for decisions regarding allocation of capital for acquisitions and new investments.
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 2 of the notes to consolidated financial
statements included under Item 8 for additional segment reporting disclosures.
During the last three years, our Markel Ventures operations have continued to expand through acquisitions of majority
interests in various businesses, including Lansing Building Products, LLC in 2020, VSC Fire & Security, Inc. in 2019 and
Brahmin Leather Works, LLC in 2018. See note 3 of the notes to consolidated financial statements included under Item 8 for
additional details related to these acquisitions.
In 2020, our Markel Ventures operations reported revenues of $2.8 billion, operating income of $254.1 million, net income to
shareholders of $145.4 million and earnings before interest, income taxes, depreciation and amortization (EBITDA) of $366.9
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" under Item 7 Management's
Discussion & Analysis of Financial Condition and Results of Operations for more information on EBITDA.
The following chart displays the types of businesses within our Markel Ventures segment based on 2020 operating revenues.
52%
48%
Products
Services
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 distribution, consulting and other types of
services to businesses and consumers. For example, types of services offered by businesses in this group include distribution
of exterior building products, fire protection and life safety services, management and technology consulting and retail
intelligence.
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The demand for many 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. and international markets for retailing, food production and transportation, as well as a variety of U.S. markets
including construction, housing, banking and financial services.
Regulatory Environment
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 certain risks associated with regulations
applicable to us, see Item 1A Risk Factors.
U.S. Insurance Regulation
State Regulation
Overview. Our U.S. insurance company 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.
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.
In 2020, the International Association of Insurance Supervisors adopted its Common Framework for the Supervision of
Internationally Active Insurance Groups (ComFrame). ComFrame establishes a comprehensive framework for supervisors to
address group-wide activities and risks of internationally active insurance groups (IAIGs) and lays the groundwork for better
supervisory cooperation and coordination. ComFrame requires the designation of a group-wide supervisor (regulator) for each
IAIG and imposes a group capital requirement that will 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.
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,
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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. RBC 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.
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. In developing SAP, insurance regulators were
primarily concerned with monitoring the solvency of insurance companies to assure an insurer's ability to pay all its current
and future obligations to policyholders.
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.
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 included under Item 8.
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, compliance of
underwriting services to policyholders, confirmation of licensing and appointment of producers, 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
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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 Accountability 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 have insurance operations domiciled in the U.K., Europe and Bermuda, which are subject
to regulation in those jurisdictions. In addition, we conduct business in Canada, Latin America, Asia Pacific and the Middle
East, where our businesses also are supervised by local regulatory authorities.
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. Following the U.K.'s exit from the E.U., the U.K.'s European Union (Withdrawal) Act 2018 transposes GDPR and
Solvency II into U.K. law as E.U. retained law.
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,
registered with the BMA as an insurance manager under the Bermuda Insurance Act 1978, and/or
registered with the BMA as an investment manager under the Bermuda Investments Business Act 2003.
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 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 previously described 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: a broader fiduciary duty to act in the best
interests of their clients; 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
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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.
Human Capital
Our culture is our greatest asset and is defined by the Markel Style. Written in 1986, in preparation for our initial public
offering, the Markel Style memorialized how we seek to operate our businesses and treat one another. It continues to provide
our guiding principles across our diverse group of businesses. Key within the Markel Style is the encouragement to look for a
better way to do things, to challenge management. We also seek spontaneity and flexibility and a respect for authority, but
disdain for bureaucracy. Our diverse financial holding company is managed in a way to accomplish these principles. Each of
our businesses operates with a high degree of autonomy so long as they operate within the principles of the Markel Style. This
allows our managers to make decisions that are best for their employees and customers, as well as our shareholders. We
believe this high degree of empowerment leads to the satisfaction that comes from being trusted in the responsibilities one has
been given.
Further outlined in the Markel Style is our creed of honesty and fairness in all our dealings; holding the individual's right to
self-determination in the highest light; putting aside individual concerns in the spirit of teamwork; and providing an
atmosphere in which people can reach their full potential. We greatly value our employees, encourage their career
development and reward their pursuit of excellence, while also celebrating a diverse workforce.
At December 31, 2020, we had approximately 18,900 employees, of whom approximately 4,600 were employed within our
insurance operations and approximately 14,300 were employed within our Markel Ventures operations.
Insurance
Our principal business markets and underwrites specialty insurance products and within that business exists a well-developed
process to ensure effective performance management, including an embedded annual and mid-year review process that enables
goal setting, development planning and performance assessment. Within our insurance operations, we also have undertaken
significant work over recent years to establish global leadership development programs for different levels of leadership at
Markel, including partnering with various renowned business schools to create leading-edge curriculum in this area.
Employee health and overall well-being is also a key priority, and we provide a range of employee and eligible partner plans
and programs, including health and voluntary benefits. These offerings include a variety of financial protection programs to
help our employees meet their unique investment and savings needs including life insurance, retirement savings with company
contributions in most situations and an employee stock purchase plan. Comprehensive employee assistance programs are
available in all our major markets along with other well-being and fitness resources.
We rely on our employees' ideas and input to help make Markel a great place to work. For example, we conduct regular pulse
surveys of employees across our insurance operations regarding their well-being and their ideas on how we can improve
employee engagement. In addition, every two years we conduct a major, global employee engagement survey across our
insurance operations, which historically has garnered more than 80% participation, and which enables us to identify, focus on
and track progress against key engagement drivers. This survey has generated additional ideas for employee engagement; and
we have made substantial changes and improvements in our human capital practices based on this feedback.
We are committed to embracing all aspects of diversity, including diversity of perspective, which we believe is crucial to
sustainable success. Markel accordingly supports and encourages focused efforts to continue to build the diversity of our
employee population and the inclusiveness of our culture. Our diversity and inclusion efforts seek to cultivate an inclusive
environment in which every employee feels valued, respected and accepted. We believe this environment helps us increase
creativity and innovation, foster business connections, serve our customers and maintain our market leadership.
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Within our insurance business, our global Diversity and Inclusion (D&I) Steering Committee comprises more than 20 senior
managers from around the globe who are charged with advising on D&I strategy and providing leadership support and
advocacy for our D&I efforts. We have a dedicated leader responsible for talent, diversity and inclusion, to further shape the
D&I strategy for our global workforce, and to ensure the integration of our D&I efforts with our global talent acquisition and
development processes. We recently introduced a regional scholarship program that is focused on underrepresented groups in
the insurance industry, and in late 2020, conducted unconscious bias awareness training that was completed by 79% of
insurance employees globally. We are also undertaking a two-year diversity and inclusion training program, including micro
learning on priority topics.
Our insurance operations support a range of employee-led D&I networks and resource groups that provide employee support
and development, while also engaging in community outreach, including our Markel Women's Network, BEAM (Black
Engagement at Markel), PRISM (LGBTQ+), Jitneys (Young Professionals), Markel Asian Professionals Network, Markel
Veterans Network, sponsorship of Dive-In (the insurance industry's annual diversity and inclusion festival), and connections
with a number of the London market partner networks. All of these networks and organizations have put in place goals and
programming that are focused on education and development, community engagement, talent acquisition and networking/
support.
Markel Ventures
Our Markel Ventures operations are comprised of a diverse portfolio of businesses from different industries through which we
own controlling interests. The Markel Ventures operations are viewed by management as separate and distinct from our
insurance operations with local management teams that oversee the day-to-day operations of their respective companies,
including human capital matters. When making these acquisitions, we seek, among other things, businesses whose leadership
teams demonstrate equal measures of both integrity and talent. As a result, each Markel Ventures business fosters a culture
within their operations, and with their employees, that aligns with the principles of the Markel Style.
Item 1A. RISK FACTORS
A wide range of factors could materially affect our future prospects and performance. The matters addressed under "Safe
Harbor and Cautionary Statement," "Developments Related to COVID-19," and "Critical Accounting Estimates" in Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 7A Quantitative and
Qualitative Disclosures About Market Risk 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, derechos, hail, severe winter weather and wildfires and
may include pandemics and events related to terrorism, riots and political and civil 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/or severity of weather-related catastrophes, we may
experience additional or elevated 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
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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 frequency and/or severity 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.
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
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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 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, 2020, our reserves for life and annuity benefits totaled $1.1
billion.
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 10 of the notes to consolidated financial statements included under Item 8
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, 2020, we were the beneficiary of letters of credit, trust accounts and funds withheld in the aggregate
amount of $3.8 billion, collateralizing $6.0 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.
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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 profits from our insurance operations. Insurance
and reinsurance markets are highly competitive. We compete on an international and regional basis with major U.S., Bermuda,
U.K., 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 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 changes. 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, or within our ILS and Program Services operations, our operating 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.
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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, 2020, our top two independent brokers represented 31% 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 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
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7173_TXT_C1.pdf 35 February 22, 2021
determine our required capital. In addition, in December 2020, the NAIC adopted a group capital calculation (GCC) for U.S.
based global insurance groups, along with model legislative language designed to enable the GCC once adopted by state
legislatures. The first formal filings of a GCC are expected to occur in 2022. Even though it is not intended to be a prescribed
capital requirement, the GCC, once implemented, 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.
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 55% and 69% of our shareholders'
equity at December 31, 2020 and 2019, respectively. Equity securities have historically produced higher returns than fixed
maturity securities 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
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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 maturity securities 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 meet our debt and other obligations, and pay dividends on our preferred stock, 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
meet our debt and other obligations, and pay dividends on our preferred stock, 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.
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. In December 2018, the U.S.
Department of Justice, U.S. Securities and Exchange Commission and Bermuda Monetary Authority initiated 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 Item 3 Legal Proceedings and note 19 of the notes to
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consolidated financial statements included under Item 8 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
requirements, 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 adequate and effective risk management and compliance programs,
compliance risks remain, particularly as we become subject to additional 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- and systems-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.
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 19 of the notes to consolidated financial statements
included under Item 8 and Item 3 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. 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
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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, civil, 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, civil, operational and economic risks. Deterioration
or volatility in foreign and international financial markets or general economic and political and civil conditions could
adversely affect our operating results, financial condition and liquidity. Concerns about the economic conditions, capital
markets, political, civil and economic stability and solvency of certain countries may contribute to global market volatility.
Political and civil changes in the jurisdictions 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. The U.K. left the
E.U. (Brexit) on January 31, 2020. The U.K. and the E.U. now exist as separate markets, with distinct legal and regulatory
regimes. While certain aspects of the relationship between the U.K. and the E.U. have been agreed, including under the Trade
and Cooperation Agreement that took effect January 1, 2021, many issues related to the provision of services between the
U.K. and the E.U. have not been addressed, particularly for financial services.
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The U.K.'s exit from 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 ultimate 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, a number, potentially large, of new and
divergent national laws and regulations, including new tax rules and data privacy rules, as the U.K. and E.U. regulatory
environments evolve. 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.
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.
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, regulatory,
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 3 of the notes to consolidated financial
statements included under Item 8 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, 2020, goodwill and intangible assets totaled $4.4 billion and
represented 34% 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 "Critical Accounting Estimates - Goodwill and
Intangible Assets" included under Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations and note 6 of the notes to consolidated financial statements included under Item 8 for information about our
goodwill and intangible assets.
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
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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.
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 personal, 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 non-compliance 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 personal, 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, confidential or 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 privacy and 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 and civil instability, unanticipated or additional regulatory
requirements or policies. As a result, our ability to conduct our business may be adversely affected.
7173_TXT_C1.pdf 41 February 22, 2021
10K - 30
COVID-19 Pandemic
The COVID-19 pandemic has had, and may continue to have, material adverse effects on us. The effects of the
COVID-19 pandemic, and U.S. and international responses, are wide-ranging, costly, disruptive and rapidly changing. The
COVID-19 pandemic has had, and may continue to have, material adverse effects on our underwriting, investment, Markel
Ventures and other operations, and on our results of operations and financial condition. Factors that give rise, or may give rise,
to those effects include, or may include, the following, as well as others that we cannot predict:
•
•
•
•
•
•
•
•
•
•
•
•
Executive, legislative or regulatory mandates or judicial decisions that require retroactive coverage of business
interruption claims stemming from the COVID-19 pandemic or to expand the scope of other types of insurance or
reinsurance coverages, for example, workers' compensation insurance;
Regulatory actions:
◦
◦
◦
◦
◦
◦
prohibiting or postponing the cancellation or non-renewal of insurance policies in accordance with policy
terms or requiring renewals on current terms and conditions;
requiring the coverage of losses irrespective of policy terms or exclusions;
relaxing policyholder reporting requirements for claims, which may affect coverage under our claims made
and claims made and reported policies;
requiring or encouraging premium refunds;
granting extended grace periods for premium payments; and
extending due dates to pay past due premiums;
Rapidly and dramatically changing business conditions and compliance obligations, including as a result of federal
and state executive orders and regulatory guidance;
Disruptions, delays and increased costs and risks related to working remotely, having limited or no access to our
facilities, workplace re-entry, employee safety concerns and reductions or interruptions of critical or essential
services. Those effects may include, among others:
◦
◦
an inability, or a decreased ability, to provide our insurance and non-insurance products and services,
provide customer service, pay third parties in a timely manner or perform other necessary business
functions; and
exposure to additional and increased risks related to internal controls, data security and information privacy,
for both us and for our suppliers, vendors and other third-parties with whom we do business;
Illnesses suffered by key employees, or a significant percentage of our workforce or the workforce of our agents,
brokers, suppliers or outsourcing providers, which could prevent or delay the performance of critical business
functions;
Illnesses suffered by employees who have continued to work, or who have or will return to work, in our facilities may
expose us to increased risk of employment related claims and litigation;
Lawsuits and other legal actions challenging the promptness of coverage determinations or the coverage
determinations themselves on claims under applicable insurance or reinsurance policies, including, among others,
business interruption claims, resulting in increased claims, litigation and related expenses;
Delays in the reporting of non-COVID-19 claims, and the settlement of those claims, due to a variety of factors,
including "stay-at-home" and similar orders instituted by many governmental authorities, potentially increasing the
severity of those claims and reducing the predictability of the underlying statistical data used in establishing reserves,
particularly for longer-tailed lines of business;
Reduced demand for our insurance and non-insurance products and services due to reduced global economic activity,
which could adversely impact our revenues and cash flows;
Adverse impacts on our revenues and cash flows due to:
◦
◦
◦
premium refunds or delayed receipt of premium payments;
delayed payment of reinsurance recoverables; and
expedited claims payments in response to regulatory requirements;
Adverse effects on future cash flows or earnings of one or more of our underwriting, Markel Ventures or other
acquired businesses, which could result in an impairment of goodwill or intangible assets and, in turn, a charge to net
income;
Increased needs for capital at our regulated insurance and reinsurance subsidiaries and non-insurance subsidiaries and
the constraints that may be placed on our liquidity and other uses of holding company capital;
7173_TXT_C1.pdf 42 February 22, 2021
10K - 31
•
•
•
•
•
•
•
•
Insured or reinsured losses from COVID-19-related claims could be greater than our reserves for those losses;
Volatility and declines in global financial markets, defaults on fixed maturity securities (including corporate bonds,
mortgage-backed securities and securities issued by municipalities, foreign governments and non-sovereign foreign
institutions), and declines in interest rates and dividend payments, which have reduced, and could continue to reduce,
future investment results and the fair market value of our invested assets;
Deterioration in global financial and economic conditions, which have had, or could have, a broad range of material
adverse effects on our businesses, and on our results of operations and financial condition, including, among others:
◦
◦
◦
◦
◦
◦
increased reinsurance costs and the inability to obtain the desired kinds and amounts of reinsurance;
furloughs and lay-offs of employees;
downgrades, or changes in outlook, by rating agencies of the financial strength or debt ratings of the
Company or our insurance or reinsurance company subsidiaries;
reduced ability to access capital;
inability of our key vendors and contract counterparties to perform or pay the obligations required of them
on a timely basis, or at all; and
increased credit risk, including credit risk related to our fixed maturity investments and receivables from
insureds, reinsurers and customers;
Deferred or reduced management and incentive fees from our insurance-linked securities operations, due to
uncertainty regarding actual or potential COVID-19 related loss exposures, adverse impacts on our ability to maintain
or raise third party capital for existing or new investment vehicles and increased risks related to our management of
third party capital;
A failure to satisfy financial covenants under our revolving credit agreement, which can be adversely affected by a
significant decline in our consolidated net worth due to changes in the fair value of our equity investments,
impairments in our fixed maturity investment portfolio, or impairment of our goodwill and intangible assets, as well
as other things that adversely impact our results of operations. While we currently have no debt outstanding under our
revolving credit facility, a failure to satisfy the financial covenants under the revolving credit agreement, unless
waived or amended, would result in our inability to borrow or secure letters of credit under that facility;
Increases in the number of consumer complaints challenging coverage or claims decisions under applicable insurance
policies;
Increases in the number of potential fraudulent claims made under insurance policies due to the economic hardships
experienced by companies and individuals as a result of the COVID-19 pandemic; and
Increases in local, state and federal taxes to pay for costs incurred by governmental expenditures associated with the
COVID-19 pandemic.
One or more of these factors resulting from the COVID-19 pandemic, and others the Company cannot anticipate, could have
material adverse effects on the Company's results of operations and financial condition; and the extent of these effects will
depend, at least in part, on the scope, severity, duration and subsequent recurrences of the pandemic. In addition, the Company
may take steps to mitigate potential risks or liabilities that may arise from the COVID-19 pandemic and related developments
and some of those steps may have a material adverse effect on the Company's results of operations and financial condition.
Even if an unfavorable outcome does not materialize, these factors, and actions the Company may take in response, may have
a material adverse impact on the Company's reputation and result in substantial expense and disruption.
See Item 7 Management's Discussion & Analysis of Financial Condition and Results of Operations, including "Developments
Related to COVID-19", and the notes to consolidated financial statements included under Item 8, including note 20
Developments Related to COVID-19, for additional discussion of effects COVID-19 has had, and could have, on our
businesses, results of operations and financial condition.
In addition, it is important to note and emphasize, the COVID-19 pandemic also may have the effect of triggering or
intensifying many of the risks described elsewhere under this Item 1A Risk Factors.
Item 3. LEGAL PROCEEDINGS
Markel CATCo Inquiries
We previously reported that in December 2018 the U.S. Department of Justice, U.S. Securities and Exchange Commission and
Bermuda Monetary Authority (together, the Governmental Authorities) initiated 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
10K - 32
7173_TXT_C1.pdf 43 February 22, 2021
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. At this time, we
are unable to predict the duration, scope or result of the Markel CATCo Inquiries.
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
($19.2 million through December 31, 2020) and default interest (up to an additional $16.2 million through December 31, 2020,
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.
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 monetary 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.
On June 5, 2020, Yeransian filed a third suit, Thomas Yeransian v. Markel Corporation (U.S. District Court for the District of
Delaware). Similar to the first and second suits, the third suit alleges that the Company is in default under the CVR agreement
and, in addition, has interfered with the current, on-going arbitration for the CVR valuation. The third suit seeks the same
monetary damages and relief as the original suit and the second suit, as well as other declaratory and non-monetary judgments
and orders. We filed a motion to stay this suit.
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.
7173_TXT_C1.pdf 44 February 22, 2021
10K - 33
Information About Our Executive Officers
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 59.
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 57.
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 62.
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 44.
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 58.
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 45.
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 61.
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 52.
Susan L. Davies
Chief Human Resources Officer, Markel Insurance since September 2018. Managing Executive, Human Resources from
January 2018 to August 2020. Senior Director Global Organization Effectiveness and Strategy from October 2016 to January
2018. Associate Vice President Talent Management of CarMax, Inc. (a public company) from September 2015 to October
2016. Age 56.
7173_TXT_C1.pdf 45 February 22, 2021
10K - 34
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
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.
$250
$200
$150
$100
$50
$0
2015
2016
2017
2018
2019
2020
Markel Corporation
S&P 500
Dow Jones U.S. Property & Casualty Insurance
Markel Corporation
S&P 500
Dow Jones U.S. Property & Casualty Insurance
(1)
$100 invested on December 31, 2015 in our common stock or the listed index. Includes reinvestment of dividends.
Years Ended December 31,
2015 (1)
2016
2017
2018
2019
2020
$
100 $
100
100
102 $
112
117
129 $
136
138
118 $
130
133
129 $
171
169
117
203
174
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 2, 2021 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 170,000. 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.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III for information on securities authorized for issuance under our equity compensation plans.
Available Information
This document represents Markel Corporation's Annual Report on 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 help@astfinancial.com
10K - 35
7173_TXT_C2.pdf 46 February 25, 2021
Item 6. SELECTED FINANCIAL DATA
(dollars in millions, except per share data)
2020
2019
2018
2017
2016
5-Year
CAGR (1)
Results of Operations
Earned premiums
Net investment income
Products revenues
Services and other revenues
Total operating revenues (2)
Net income (loss) to common shareholders (2)
$ 5,612
$ 5,050
$ 4,712
$ 4,248
$ 3,866
372
452
434
1,440
1,610
1,498
1,694
813
635
406
951
462
373
885
422
9,735
9,526
6,841
6,062
5,612
798
1,790
(128)
395
456
667
Comprehensive income (loss) to shareholders
1,192
2,094
(376)
1,175
Diluted net income (loss) per common share
$ 55.63
$ 129.07
$ (9.55)
$ 25.81
$ 31.27
Financial Position
Total investments, cash and cash equivalents and
restricted cash and cash equivalents (invested assets) $ 24,927
$ 22,258
$ 19,238
$ 20,570
$ 19,059
Total assets
41,710
37,474
33,306
32,805
25,875
Unpaid losses and loss adjustment expenses
16,222
14,729
14,276
13,584
10,116
Senior long-term debt and other debt
3,484
3,534
3,010
3,099
2,575
8 %
1 %
11 %
51 %
13 %
7 %
11 %
10 %
Shareholders' equity
12,800
11,071
9,081
9,504
8,461
10 %
Common shares outstanding (at year end, in
thousands)
Consolidated Performance Measures (3)
Book value per common share outstanding
5-Year CAGR in book value per common share (1)
Closing stock price
5-Year CAGR in closing stock price (1)
U.S. GAAP combined ratio
Investment yield
Taxable equivalent total investment return
Debt to capital
(1)
CAGR—compound annual growth rate.
13,783
13,794
13,888
13,904
13,955
$ 885.72
$ 802.59
$ 653.85
$ 683.55
$ 606.30
10 %
10 %
8 %
7 %
11 %
11 %
$ 1,033.30 $ 1,143.17 $ 1,038.05 $ 1,139.13 $ 904.50
3 %
3 %
98 %
2 %
9 %
21 %
11 %
94 %
3 %
15 %
24 %
12 %
98 %
3 %
(1) %
25 %
21 %
105 %
3 %
10 %
25 %
17 %
92 %
2 %
4 %
23 %
(2)
(3)
In accordance with the provisions of Accounting Standards Update No. 2016-01, beginning January 1, 2018, all changes in the fair value of equity
securities are recognized in net income.
These measures provide a basis for management to evaluate performance. The method we use to compute these measures may differ from the methods
used by other companies. See further discussion on the calculation of these measures and management's evaluation of these measures in Item 7
Management's Discussion & Analysis of Financial Condition and Results of Operations.
7173_TXT_C2.pdf 47 February 25, 2021
10K - 36
Item 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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, as well as recently issued accounting pronouncements that we have not yet adopted and their
expected effects on our consolidated financial position, results of operations and cash flows, see note 1 of the notes to
consolidated financial statements included under Item 8.
The following discussion and analysis includes discussion of changes in our results of operations and financial condition from
2019 to 2020 and should be read in conjunction with Item 6 Selected Financial Data, the consolidated financial statements and
related notes included under Item 8, Item 1A Risk Factors and "Safe Harbor and Cautionary Statement" under Item 7. A
discussion of changes in our results of operations and financial condition from 2018 to 2019 may be found in Part II Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form
10-K, which was filed with the U.S. Securities and Exchange Commission on February 21, 2020.
Results of Operations
The following table presents the components of net income to shareholders, net income to common shareholders and
comprehensive income to shareholders.
(dollars in thousands)
Insurance segment profit
Reinsurance segment loss
Investing segment profit (1)
Markel Ventures segment profit (2)
Other operations (3)
Interest expense
Net foreign exchange losses
Loss on early extinguishment of debt
Income tax expense
Net income attributable to noncontrolling interests
Net income to shareholders
Preferred stock dividends
Net income to common shareholders
Other comprehensive income to shareholders
Comprehensive income to shareholders
Years Ended December 31,
2020
2019
$
169,001 $
309,778
(75,470)
(39,999)
989,564
254,078
(63,289)
2,052,874
168,417
(13,724)
(177,582)
(171,687)
(95,853)
—
(2,265)
(17,586)
(168,682)
(486,346)
(15,737)
(8,996)
816,030
1,790,466
(18,400)
—
797,630
375,604
1,790,466
303,422
$
1,191,634 $
2,093,888
(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.
(2)
Segment profit for the Markel Ventures segment includes amortization of intangible assets attributable to Markel Ventures.
(3) Other operations includes the results attributable to our 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. Amortization of intangible assets attributable to our underwriting segments was $41.9 million and
$39.7 million for the years ended December 31, 2020 and 2019, respectively; however, we do not allocate amortization of intangible assets between the
Insurance and Reinsurance segments.
The decrease in comprehensive income to shareholders in 2020 was primarily due to lower net investment gains on our equity
portfolio in 2020 compared to 2019. Comprehensive income to shareholders in 2020 also reflects significant underwriting
losses and other impacts attributed to COVID-19, a novel coronavirus outbreak that was declared a pandemic by the World
Health Organization on March 11, 2020, which has caused unprecedented social and economic disruption, increased volatility
of capital markets and interventions by various governments and central banks around the world. The components of net
income to shareholders and comprehensive income to shareholders are discussed in further detail under "Underwriting
Results," "Investing Results," "Markel Ventures," "Other Operations," "Interest Expense, Loss on Early Extinguishment of
Debt and Income Taxes" and "Comprehensive Income to Shareholders."
7173_TXT_C1.pdf 48 February 22, 2021
10K - 37
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. 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. A
combined ratio less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an
underwriting loss. Segment profit for our underwriting segments may also include other revenues and expenses that are
attributable to our underwriting operations that are not captured in underwriting profit.
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
Disposal loss
U.S. GAAP Combined Ratios
Insurance
Reinsurance
Years Ended December 31,
2020
2019
$ 7,154,628
$ 6,436,168
$ 5,932,238
$ 5,412,071
83 %
84 %
$ 5,612,205
$ 5,049,793
$ 3,466,961
$ 2,891,190
$ 2,017,627
$ 1,878,093
$
$
127,617
(41,461)
$
$
280,510
—
96 %
104 %
93 %
104 %
Consolidated
(1)
94 %
Gross premium volume and net retention for the years ended December 31, 2020 and 2019 exclude $2.1 billion and $2.3 billion, respectively, of written
98 %
premiums attributable to our program services business and other fronting arrangements that were ceded.
Combined Ratio
Our consolidated combined ratio for 2020 included $360.4 million, or six points, of underwriting loss attributed to COVID-19
and $168.9 million, or three points, of underwriting loss attributed to natural catastrophes compared to $100.4 million, or two
points, of catastrophe losses in 2019. Excluding the impacts of COVID-19 and catastrophe losses, our combined ratio
improved due to a lower attritional loss ratio and a lower expense ratio arising from improved performance within our
Insurance segment in 2020 compared to 2019.
COVID-19 Losses
The following table summarizes, by segment, the components of the underwriting loss attributed to the COVID-19 pandemic
in 2020. The losses and loss adjustment expenses were net of ceded losses of $106.2 million.
(dollars in thousands)
Losses and loss adjustment expenses
Ceded (assumed) reinstatement premiums
Underwriting loss
Impact on combined ratio
Year Ended December 31, 2020
Insurance
Reinsurance
Consolidated
$ 296,420
$
61,884
$ 358,304
2,145
(93)
2,052
$ 298,565
$
61,791
$ 360,356
6 %
7 %
6 %
7173_TXT_C1.pdf 49 February 22, 2021
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The COVID-19 outbreak was identified as a potential exposure within our underwriting operations in late February, at which
point we began to regularly review all of our product lines to identify lines of business we believed could be directly impacted
by COVID-19 and to evaluate the extent to which the virus may impact our coverages. In those instances where we identified
COVID-19 as the proximate, or direct, cause of loss, we established net reserves for losses and loss adjustment expenses
totaling $325.0 million during the first quarter of 2020. Our direct losses from COVID-19 were primarily attributed to business
written within our international insurance operations and were primarily associated with coverages for event cancellation and
business interruption losses in policies where no specific pandemic exclusions exist. Since establishing these initial reserves in
the first quarter of 2020, we have increased our estimate of direct net losses and loss adjustment expenses attributable to
COVID-19 by $18.3 million following changes in certain assumptions on which our estimates are based, resulting in total
direct net losses and loss adjustment expenses of $343.3 million for the year ended December 31, 2020.
In addition to loss exposures that are directly attributable to COVID-19, we also are exposed to losses indirectly related to the
COVID-19 pandemic and associated with a broader range of coverages, including coverages within our trade credit,
professional liability and workers' compensation product lines, among others, as well as certain of our reinsurance product
lines. During 2020, we recognized $15.0 million of net losses and loss adjustment expenses in our trade credit product line
within our Insurance segment related to losses that were indirectly attributable to the pandemic. We do not believe any other
significant indirect losses attributable to COVID-19 have been incurred. See "Developments Related to COVID-19" for further
discussion of other potential indirect exposures arising from the pandemic.
The following table summarizes, by coverage and underwriting platform, the components of our direct net losses and loss
adjustment expenses from COVID-19 for 2020.
(dollars in millions)
Event cancellation
International
United States
Business interruption
International
United States
All other coverages
Total
Year Ended December 31, 2020
Insurance
Reinsurance
Consolidated
$
185.7 $
7.5
72.3
8.0
7.9
— $
—
21.6
13.6
26.7
185.7
7.5
93.9
21.6
34.6
$
281.4 $
61.9 $
343.3
Both the gross and net loss estimates for direct losses attributed to COVID-19 represent our best estimates as of December 31,
2020 based upon information currently available. These estimates are based on reported claims, detailed policy level reviews
and reviews of in-force assumed reinsurance contracts for potential exposures, as well as analysis of our ceded reinsurance
contracts and analysis provided by our brokers and claims counsel. We also considered the results of recent judicial rulings.
There are no recent historical events with similar characteristics to COVID-19, and therefore we have no past loss experience
on which to base our estimates. Additionally, the economic and social impacts of the pandemic continue to evolve.
Significant assumptions on which our estimates of reserves for direct COVID-19 losses and loss adjustment expenses are
based include:
•
•
•
the scope of coverage provided under our policies, particularly those that provide for business interruption coverage,
which generally falls under the following three categories:
◦
◦
◦
coverage has not been triggered because the policy's insuring agreement has not been satisfied and/or a
covered cause of loss has not been established;
the policy would not respond because the policy includes a communicable disease, virus or pandemic
exclusion; or
the policy may provide coverage for communicable diseases and pandemics, but also includes conditions
and limitations to coverage;
coverage provided under our ceded reinsurance contracts;
the expected duration of the disruption caused by the COVID-19 pandemic; and
7173_TXT_C1.pdf 50 February 22, 2021
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•
the ability of insureds to mitigate some or all of their losses. For example, in the case of our event cancellation
coverages, by deferring the event or moving to a virtual format, and for our business interruption exposures, the
ability to continue providing certain services or to provide services remotely.
Due to the inherent uncertainty associated with the assumptions surrounding the COVID-19 pandemic, these estimates are
subject to a wide range of variability. Our initial estimates in the first quarter of 2020 reflected limited claims reporting and
were based on broad assumptions about coverage, liability and reinsurance. A test case of a sample of business interruption
coverages for policies written in the United Kingdom (U.K.), which do not have the same exclusions as policies commonly
written in the U.S., concluded in the third quarter of 2020 with the court's judgment finding mostly in favor of policyholders.
This ruling was subsequently upheld by the U.K. supreme court. This ruling was most impactful to certain estimates in our
Reinsurance segment, where we increased our estimate of losses and loss adjustment expenses on certain treaties following an
increase in estimated losses by the respective cedents on the treaties. The ruling did not meaningfully impact the reserves
previously established for business interruption coverage within our Insurance segment given the assumptions made in our
initial estimates and our policy terms and conditions. Our estimates at December 31, 2020 also reflect additional data gathered
through increased claims reporting and changes in our expectation of the duration of the pandemic, which was most impactful
to our event cancellation coverages.
As of December 31, 2020, assumptions about coverage, liability and reinsurance continue to be subject to judicial review and
may be subject to other government action. Additionally, we have begun to see significant litigation involving the handling of
business interruption claims associated with COVID-19, and in certain instances, assessing the validity of policy exclusions
for pandemics and interpreting policy terms to determine coverage for pandemics, which are also in the process of being tested
in various judicial systems. While we believe our net reserves for losses and loss adjustment expenses for COVID-19 as of
December 31, 2020 are adequate based on information currently available, we continue to closely monitor reported claims,
government actions, judicial decisions and changes in the levels of worldwide social disruption and economic activity arising
from the pandemic and will adjust our estimates of gross and net losses as new information becomes available. Such
adjustments to our reserves for COVID-19 losses and loss adjustment expenses may be material to our results of operations,
financial condition and cash flows.
Catastrophe Losses
Underwriting results in 2020 included $168.9 million of underwriting loss from Hurricanes Isaias, Laura, Sally, Delta and
Zeta, as well as wildfires in the western U.S. and the derecho in Iowa (2020 Catastrophes). These losses and loss adjustment
expenses were net of ceded losses of $125.7 million. Underwriting results in 2019 included $100.4 million of underwriting
loss from Hurricane Dorian and Typhoons Faxai and Hagibis (2019 Catastrophes). These losses and loss adjustment expenses
were net of ceded losses of $62.5 million. The following table summarizes, by segment, the components of the underwriting
losses related to the 2020 and 2019 Catastrophes.
Years Ended December 31,
2020
2020 Catastrophes
2019
2019 Catastrophes
(dollars in thousands)
Insurance
Reinsurance
Consolidated
Insurance
Reinsurance
Consolidated
Losses and loss adjustment expenses
$ 124,386
$ 47,848
$ 172,234
$ 8,317
$ 105,644
$ 113,961
Ceded (assumed) reinstatement premiums
—
(3,368)
(3,368)
—
(13,552)
(13,552)
Underwriting loss
Impact on combined ratio
$ 124,386
$ 44,480
$ 168,866
$ 8,317
$ 92,092
$ 100,409
3 %
5 %
3 %
— %
10 %
2 %
The net losses and loss adjustment expenses on the 2020 Catastrophes as of December 31, 2020 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, preliminary industry loss estimates and output from both industry and proprietary
models, as well as analysis of our ceded reinsurance contracts. Given the number of events comprising the 2020 Catastrophes,
and in certain instances, the limited claims activity thus far, these estimates are still dependent on broad assumptions about
coverage, liability and reinsurance and are therefore subject to a wide range of variability. While we believe our reserves for
the 2020 Catastrophes as of December 31, 2020 are adequate, we continue to closely monitor reported claims and will adjust
our estimates of gross and net losses as new information becomes available.
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Insurance Segment
The combined ratio for the Insurance segment in 2020 was 96% (including six points for underwriting losses attributed to
COVID-19 and three points for underwriting losses on the 2020 Catastrophes) compared to 93% in 2019.
The increase in the combined ratio was driven by the impact of losses attributed to COVID-19 in 2020 and higher catastrophe
losses in 2020 compared to 2019, partially offset by a lower attritional loss ratio and a lower expense ratio in 2020 compared
to 2019. Higher earned premiums in 2020 compared to 2019 had a favorable impact on our expense ratio while reducing the
benefit of the prior accident years' loss ratio.
•
•
•
Excluding the impact of losses attributed to COVID-19 and the 2020 and 2019 Catastrophes, the current accident year
loss ratio decreased primarily due to lower loss experience and a benefit from improved pricing in 2020 on our
property and professional liability product lines. We also experienced lower attritional losses on our marine and
energy product lines in 2020, primarily due to changes in the mix of business.
The Insurance segment's 2020 combined ratio included $554.6 million of favorable development on prior years' loss
reserves compared to $462.1 million in 2019. The increase in favorable development was primarily due to more
favorable development on our professional liability product lines in 2020 compared to 2019 and favorable
development on our property product lines in 2020 compared to adverse development in 2019. These favorable
changes were partially offset by less favorable development on our general liability product lines in 2020 compared
to 2019. In 2020 and 2019, favorable development was most significant on our general liability, professional liability,
workers' compensation and marine and energy product lines. See note 9 of the notes to consolidated financial
statements included under Item 8 for more information on the Insurance segment's prior year loss reserve
development.
The decrease in the expense ratio in 2020 was primarily due to the favorable impact of higher earned premiums in
2020 while maintaining consistent levels of general expenses with 2019.
Reinsurance Segment
The combined ratio for the Reinsurance segment was 104% for both 2020 and 2019. In 2020, the Reinsurance segment
combined ratio included seven points for underwriting losses attributed to COVID-19 and five points for underwriting losses
on the 2020 Catastrophes. In 2019, the Reinsurance segment combined ratio included 10 points for underwriting losses on the
2019 Catastrophes.
Excluding the impact of COVID-19 and catastrophe losses, the combined ratio decreased in 2020 due to a lower attritional loss
ratio, partially offset by the impact of less favorable development on prior accident years' loss reserves.
•
•
Excluding the impact of losses attributed to COVID-19 and the 2020 and 2019 Catastrophes, the current accident year
loss ratio decreased primarily due to fewer large loss events across several product lines in 2020 compared to 2019,
most notably on our property product lines.
The Reinsurance segment's 2020 combined ratio included $51.8 million of favorable development on prior years' loss
reserves compared to $64.8 million in 2019. The decrease in favorable development was primarily due to more
adverse development on our public entity product lines in 2020, which totaled $34.4 million in 2020 or four points on
the segment combined ratio, as well as less favorable development on our whole account product line in 2020
compared to 2019. These unfavorable changes were partially offset by more favorable development on our property
product lines in 2020 compared to 2019. In 2020, favorable development was most significant on our property
product lines. In 2020 we also recognized additional exposure related to net favorable premium adjustments along
with adverse development on certain of our professional liability product lines. The favorable development on prior
years' loss reserves in 2019 was most significant on our property and whole account product lines. See note 9 of the
notes to consolidated financial statements included under Item 8 for more information on the Reinsurance segment's
prior year loss reserve development.
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Premiums
Gross Premium Volume
(dollars in thousands)
Insurance
Reinsurance
Other underwriting
Total Underwriting
Program services and other
Total
Years Ended December 31,
2020
2019
$
6,029,024 $
5,320,253
1,130,923
1,114,153
58
7,160,005
2,106,660
(79)
6,434,327
2,345,644
$
9,266,665 $
8,779,971
Gross premium volume in our underwriting operations increased 11% in 2020, primarily due to an increase in gross premium
volume in our Insurance segment. Also impacting consolidated gross premium volume were gross premiums written through
our program services business and other fronting arrangements, which decreased 10% in 2020. The decrease in gross premium
volume in our program services business was driven by the run-off of one large program and the cancellation of an in-force
book of policies related to another large program. Substantially all gross premiums from our program services business and
other fronting arrangements were ceded to third parties in 2020 and 2019. See "Other Operations" for further discussion on
gross premiums from our program services operations.
Gross premium volume in our Insurance segment increased 13% in 2020, primarily driven by new business and more
favorable rates within our professional liability, general liability, personal lines and marine and energy product lines.
Gross premium volume in our Reinsurance segment increased 2% in 2020, driven by higher gross premiums within our
professional liability and general liability product lines, partially offset by lower gross premiums within our credit and surety
product lines. Higher gross premiums within our professional liability product lines were primarily due to increased exposures
and improved pricing on renewals, as well as new business. Higher gross premiums within our general liability product lines
were primarily due to new business, partially offset by decreased exposures on renewals. Lower gross premiums within our
credit and surety product lines in 2020 were primarily due to unfavorable premium adjustments. 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 catastrophes that have occurred in recent years, and based on general market conditions, we are
seeing more favorable rates, particularly on our catastrophe-exposed and loss-affected business. We are also seeing improved
pricing on most of our other product lines, most notably within our general liability and professional liability product lines.
The primary exception is workers' compensation, where we continue to see low single digit rate decreases given generally
favorable loss 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.
See "Developments Related to COVID-19" for discussion of potential impacts of the pandemic on our premiums.
Net Written Premiums
(dollars in thousands)
Insurance
Reinsurance
Other underwriting
Total Underwriting
Program services and other
Total
7173_TXT_C1.pdf 53 February 22, 2021
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Years Ended December 31,
2020
2019
$
4,977,662 $
4,444,702
960,123
964,947
(170)
581
5,937,615
5,410,230
(5,377)
1,841
$
5,932,238 $
5,412,071
Net retention of gross premium volume for our underwriting operations was 83% in 2020 and 84% in 2019. The decrease in
net retention in 2020 was driven by our Insurance segment, due in part to a new quota share agreement to fully cede premiums
on a program that was put into run-off in 2020. 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.
In late 2020, we decided to discontinue writing catastrophe-exposed property reinsurance within our Reinsurance segment on a
risk-bearing basis, and beginning January 1, 2021, any such business will either be written directly by, or ceded to, our
Nephila insurance-linked securities (ILS) operations to be placed with third party capital to the extent it fits the ILS investors’
risk profile. For the year ended December 31, 2020, gross and net written premiums for this business were $221.2 million and
$125.2 million, respectively.
Earned Premiums
(dollars in thousands)
Insurance
Reinsurance
Other underwriting
Total Underwriting
Program services and other
Total
Years Ended December 31,
2020
2019
$
4,688,448 $
4,144,073
929,348
903,587
(170)
581
5,617,626
5,048,241
(5,421)
1,552
$
5,612,205 $
5,049,793
Earned premiums increased 11% in 2020, primarily due to the increase in gross premium volume within our Insurance
segment on our professional liability and general liability product lines, as previously discussed.
Disposal Loss
Results attributable to our Reinsurance segment for the year ended December 31, 2020 included a disposal loss of $41.5
million related to the planned disposition of our reinsurance operations in Latin America, which was included in services and
other expenses and was not included in the segment's underwriting loss. This disposal loss is primarily attributable to foreign
currency translation adjustments for these operations, which were previously included in accumulated other comprehensive
income.
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. We measure
investing results by our net investment income, net investment gains and the change in net unrealized investment gains on
available-for-sale investments, as well as investment yield and our taxable equivalent total investment return. Based on the
potential for volatility in the financial markets, we believe investment performance is best analyzed over several years.
7173_TXT_C1.pdf 54 February 22, 2021
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The following table summarizes our investment performance.
(dollars in thousands)
Net investment income
Net investment gains (losses) (1)
Change in net unrealized investment gains on
available-for-sale investments (2)
Investment yield (3)
Taxable equivalent total investment return
Invested assets, end of year
(1)
Years Ended December 31,
2020
$ 371,830
$ 617,979
2019
$ 451,888
$ 1,601,722
2018
$ 434,215
$ (437,596)
2017
$ 405,709
(5,303)
$
2016
$ 373,230
$ 65,147
$ 442,089
$ 381,890
$ (299,446)
$ 1,125,440
$ 342,111
2.4 %
9.4 %
$ 24,926,592
3.0 %
14.6 %
$ 22,258,265
2.7 %
(1.0) %
$ 19,238,261
2.6 %
10.2 %
$ 20,570,337
2.4 %
4.4 %
$ 19,058,666
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.
The increase in net unrealized gains on available-for-sale securities for the years ended December 31, 2020 and 2019 was net of an adjustment related to
our life and annuity benefit reserves of $68.2 million and $51.4 million, respectively.
Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.
(2)
(3)
Net investment income decreased 18% in 2020, driven primarily by the impact of lower short-term interest rates on short-term
investment income. We also earned lower interest income on our fixed maturity investment portfolio due to lower average
holdings of fixed maturity securities during 2020 compared to 2019 and a lower yield, as fixed maturity securities purchased in
2020 had lower interest rates than securities that matured or were called or sold in 2020. See note 4(d) of the notes to
consolidated financial statements included under Item 8 for further details on the components of net investment income.
Net investment gains were $618.0 million and $1.6 billion in 2020 and 2019, respectively. See note 4(e) of the notes to
consolidated financial statements included under Item 8 for further details on the components of net investment gains (losses).
Net investment gains in both 2020 and 2019 were primarily attributable to an increase in the fair value of equity securities. Net
investment gains for 2020 reflected significant market volatility experienced during the year. The impact of significant
declines in the fair value of our equity portfolio in the first quarter of 2020, driven by unfavorable market value movements
resulting from the onset of the COVID-19 pandemic, were more than offset by increases in the fair value of our equity
portfolio over the subsequent three quarters of 2020.
In 2020, the increase in net unrealized gains on available-for-sale investments was $442.1 million compared to $381.9 million
in 2019. The increase in net unrealized gains on available-sale investments in both 2020 and 2019 was attributable to an
increase in the fair value of our fixed maturity portfolio as a result of decreases in interest rates.
We 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 maturity securities, 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.
7173_TXT_C1.pdf 55 February 22, 2021
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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.
Equities
Fixed maturity securities, cash and
short-term investments (1)
Total portfolio, before foreign currency
effect
Total portfolio
Years Ended December 31,
2020
2019
2018
2017
2016
Five-Year
Annual
Return
Ten-Year
Annual
Return
15.2 %
30.0 %
(3.5) %
25.5 %
13.5 % 15.5 % 14.7 %
5.7 %
6.5 %
1.3 %
3.4 %
2.4 %
3.8 %
4.0 %
8.6 %
9.4 %
14.4 %
14.6 %
(0.7) %
(1.0) %
9.2 %
10.2 %
5.0 %
4.4 %
7.1 %
7.4 %
6.7 %
6.5 %
(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 maturity
securities
Net investment gains (losses) and change in net
unrealized investment gains on available-for-sale
securities (2)
Years Ended December 31,
2020
2019
2018
2017
2016
2.4 %
3.0 %
2.7 %
2.6 %
2.4 %
(0.5) %
(0.7) %
(0.6) %
(0.5) %
(0.4) %
0.4 %
0.4 %
0.4 %
0.4 %
0.4 %
5.8 %
10.3 %
(3.8) %
5.9 %
2.3 %
Taxable equivalent effect for interest and dividends (3)
Other (4)
Taxable equivalent total investment return
0.1 %
1.2 %
9.4 %
0.2 %
1.4 %
14.6 %
0.1 %
0.2 %
(1.0) %
0.4 %
1.4 %
10.2 %
0.4 %
(0.7) %
4.4 %
(1)
(2)
(3)
(4)
Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.
Adjustment includes the impact of changes in foreign currency exchange rates beginning in 2018.
Adjustment to tax-exempt interest and dividend income to reflect a taxable equivalent basis.
Adjustment to reflect the impact of time-weighting the inputs to the calculation of taxable equivalent total investment return and the impact of changes
in foreign currency exchange rates prior to 2018.
Invested Assets
Investments, cash and cash equivalents and restricted cash and cash equivalents (invested assets) were $24.9 billion at
December 31, 2020 compared to $22.3 billion at December 31, 2019, reflecting an increase of 12% in 2020 attributable to cash
flows from operations of $1.7 billion and increases in the fair value of equity and fixed maturity securities totaling $1.0 billion.
The following table presents the composition of our investment portfolio.
Short-term investments, cash and cash equivalents and restricted cash and cash equivalents
Fixed maturity securities
Equity securities
Total
December 31,
2020
2019
29 %
43 %
28 %
100 %
21 %
45 %
34 %
100 %
The change in the composition of the investment portfolio from December 31, 2019 to December 31, 2020 is primarily due to
a decrease in holdings of equity securities and an increase in holdings of short-term investments during 2020. Given the
dislocation in the financial markets and related uncertainty around the global credit markets following the onset of the
COVID-19 pandemic in the first quarter of 2020, we sold significant holdings of equity securities and subsequently reallocated
proceeds to purchase short-term investments and fixed maturity securities. See "Developments Related to COVID-19" for
7173_TXT_C1.pdf 56 February 22, 2021
10K - 45
further discussion of actions we took in our investment portfolio in response to the pandemic. In 2020, our holdings of cash
and cash equivalents also increased due to operating cash inflows and proceeds from our issuance of preferred shares, partially
offset by cash used for acquisitions, all of which are further discussed in "Liquidity and Capital Resources."
Markel Ventures
Our Markel Ventures 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.
In April 2020, we acquired a controlling interest in Lansing Building Products, LLC, a supplier of exterior building products
and materials to professional contractors throughout the U.S., which simultaneously acquired the distribution business of
Harvey Building Products to enhance its geographic reach and scale (together, Lansing).
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.
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
Right-of-use lease assets
Other
Total Other assets
Total Assets
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities
Senior long-term debt and other debt (1)
Other liabilities:
Lease liabilities
Other
Total Other liabilities
Total Liabilities
Redeemable noncontrolling interests
Shareholders' equity (2)
Noncontrolling interests
Total Equity
Total Liabilities and Equity
December 31,
2020
2019
$
$
$
363,532 $
299,051
901,045
623,120
256,758
225,630
606,777
473,122
412,554
492,477
368,126
176,155
1,449,312
3,636,060 $
303,053
441,934
81,778
161,783
988,548
2,550,835
270,361 $
775,650
139,068
929,243
374,667
380,190
754,857
1,800,868
245,642
1,599,466
(9,916)
1,589,550
3,636,060 $
$
85,680
281,660
367,340
1,435,651
177,562
950,086
(12,464)
937,622
2,550,835
(1)
(2)
Debt as of December 31, 2020 and 2019 included $733.0 million and $858.8 million, respectively, of debt due to other subsidiaries of Markel
Corporation, which was eliminated in consolidation.
Shareholders' equity as of December 31, 2020 and 2019 included $1.2 billion and $654.3 million, respectively, of common stock, which represents
Markel Corporation's investment in Markel Ventures, which was eliminated in consolidation.
7173_TXT_C1.pdf 57 February 22, 2021
10K - 46
(dollars in thousands)
OPERATING REVENUES
Products revenues
Services and other revenues
Net investment income
Total Operating Revenues
OPERATING EXPENSES
Products expenses
Services and other expenses
Amortization of intangible assets
Total Operating Expenses
Operating Income
Net foreign exchange gains (losses)
Interest expense (1)
Income Before Income Taxes
Income tax expense
Net Income
Net income attributable to noncontrolling interests
Net Income to Shareholders
EBITDA
(1)
Years ended December 31,
2020
2019
$
1,439,515 $
1,355,199
245
2,794,959
1,609,586
445,659
736
2,055,981
1,256,159
1,232,150
52,572
2,540,881
254,078
(1,092)
(46,664)
206,322
(45,815)
160,507
(15,058)
145,449 $
366,934 $
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
$
$
Interest expense for the years ended December 31, 2020 and 2019 included intercompany interest expense of $32.0 million and $24.9 million,
respectively, which was eliminated in consolidation.
Operating revenues from our Markel Ventures segment increased in 2020 due to the contribution of revenues from Lansing,
which was acquired in April 2020, and VSC, which was acquired in November 2019. Operating revenues in 2020 attributable
to these acquisitions totaled $915.7 million. Excluding the contributions of Lansing and VSC in 2020, operating revenues from
our other Markel Ventures businesses decreased in 2020, primarily due to lower sales volumes at our transportation-related
and equipment manufacturing businesses due in part to impacts attributable to the economic and social disruption caused by
the COVID-19 pandemic. These decreases were partially offset by the impact of higher sales volumes at one of our consumer
and building products businesses in 2020 compared to 2019.
Operating income and EBITDA from our Markel Ventures segment increased in 2020 due in part to the acquisitions of
Lansing and VSC, as well as higher sales volumes at one of our consumer and building products businesses, as previously
discussed. The increase in operating income and EBITDA in 2020 was also due to a loss recognized in 2019 related to the
disposition of certain components of one of our equipment manufacturing businesses. These increases were partially offset by
the impact of lower operating revenues at our transportation-related businesses, as previously discussed.
Net income to shareholders from our Markel Ventures segment increased in 2020, primarily due to higher operating income,
partially offset by higher interest expense and income tax expense.
See "Developments Related to COVID-19" for further discussion of impacts of the pandemic on our Markel Ventures
operations.
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.
7173_TXT_C1.pdf 58 February 22, 2021
10K - 47
The following table reconciles Markel Ventures operating income to Markel Ventures EBITDA.
(dollars in thousands)
Markel Ventures operating income
Depreciation expense
Amortization of intangible assets
Markel Ventures EBITDA
Years ended December 31,
2020
2019
$
254,078 $
168,417
60,284
52,572
53,554
41,973
$
366,934 $
263,944
The following table summarizes the cash flows attributable to Markel Ventures for the years ended December 31, 2020 and
2019.
(dollars in thousands)
Years ended December 31,
2020
2019
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year
$
256,758 $
Net cash provided by operating activities
Net cash used by investing activities
Net cash provided by financing activities (1) (2)
Effect of foreign currency rate changes on cash, cash equivalents, restricted cash and
restricted cash equivalents
Increase in cash, cash equivalents, restricted cash and restricted cash equivalents
164,336
201,514
357,675
(607,641)
(321,950)
356,542
213,032
198
106,774
(174)
92,422
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of year
(1) Net cash provided by financing activities for the year ended December 31, 2020 included a capital contribution from our holding company, Markel
Corporation, of $535.0 million, which was eliminated in consolidation. There were no capital contributions from our holding company for the year
ended December 31, 2019.
363,532 $
$
256,758
(2)
Net cash provided by financing activities for the year ended December 31, 2020 included net repayments of intercompany debt of $125.9 million, which
were eliminated in consolidation. Net cash provided by financing activities for the year ended December 31, 2019 included net additions to
intercompany debt of $252.8 million, respectively, which were eliminated in consolidation.
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,
2020
2019
Services and
other revenues
Services and
other expenses
Amortization of
intangible assets
Services and
other revenues
Services and
other expenses
Amortization of
intangible assets
(dollars in thousands)
Other operations:
Insurance-linked securities
$
Program services
Life and annuity
Other
Underwriting operations
212,307 $
104,171
1,233
20,627
338,338
231,473 $
20,427
17,713
17,896
287,509
Total
$
338,338 $
287,509 $
38,447 $
20,937
—
5,453
64,837
41,906
106,743 $
225,604 $
108,813
1,507
32,580
368,504
217,412 $
19,556
21,062
28,264
286,294
368,504 $
286,294 $
43,360
20,938
—
2,700
66,998
39,667
106,665
7173_TXT_C1.pdf 59 February 22, 2021
10K - 48
Insurance-Linked Securities
The decrease in operating revenues in our insurance-linked securities operations in 2020 was driven by lower revenues from
our Markel CATCo operations, which are in run-off, primarily due to lower assets under management during 2020 compared
to 2019 and a further reduction in the management fee rate in 2020. This decrease was partially offset by higher revenues from
our Nephila operations. Higher revenues from our Nephila operations in 2020 were due to growth in our managing general
agent operations, partially offset by lower investment management fees as a result of lower assets under management.
Nephila's net assets under management were $9.6 billion and $10.4 billion as of December 31, 2020 and 2019, respectively.
Markel CATCo's net assets under management were $1.0 billion and $2.8 billion as of December 31, 2020 and 2019,
respectively.
The increase in services and other expenses in our insurance-linked securities operations in 2020 was primarily due to an
increase in expenses at our Nephila operations due to growth in our managing general agent operations in 2020, partially offset
by a favorable impact from acquisition-related costs in 2019 that did not recur in 2020. Services and other expenses at our
Markel CATCo operations in 2020 were consistent with 2019 as the expenses associated with a legal settlement in 2020 were
offset by lower professional fees and general operating expenses in 2020, as these operations are in run-off. Services and other
expenses for both periods also reflect start-up costs associated with our new retrocessional insurance-linked securities fund
manager, Lodgepine.
Program Services
The decrease in operating revenues in our program services operations in 2020 compared to 2019 was primarily due to lower
gross premium volume. Gross premiums in our program services operations were $2.1 billion and $2.3 billion for the years
ended December 31, 2020 and 2019, respectively. The decrease in gross premium volume was driven by the run-off of one
large program and the cancellation of an in-force book of policies related to another large program resulting in a one-time
unfavorable premium adjustment of $55.0 million associated with the return of unearned premium in 2020. These decreases
were partially offset by gross written premiums from new programs added in 2020.
See "Developments Related to COVID-19" for discussion of actual and potential impacts of the pandemic on our insurance-
linked securities and program services operations.
Interest Expense, Loss on Early Extinguishment of Debt and Income Taxes
Interest Expense and Loss on Early Extinguishment of Debt
Interest expense was $177.6 million in 2020 compared to $171.7 million in 2019. The change in interest expense reflects the
impact of the following transactions that occurred in 2019:
•
•
•
the purchase and redemption of our 6.25% and 5.35% unsecured senior notes in the third and fourth quarters of 2019,
the repayment of our 7.125% unsecured senior notes in the third quarter of 2019 and
the issuance of our 5.0% unsecured senior notes issued in the second quarter of 2019 and the issuance of our 3.35%
and 4.15% unsecured senior notes in the third quarter of 2019.
In September 2019, we purchased a portion of our 6.25% unsecured senior notes and our 5.35% unsecured senior notes. In
October 2019, we redeemed the remaining outstanding balance on these notes. In connection with these redemptions, we
recognized losses on early extinguishment of debt of $17.6 million during 2019.
See note 12 of the notes to consolidated financial statements included under Item 8 for further details about our 2019 senior
long-term debt transactions.
Income Taxes
The effective tax rate was 17% in 2020 compared to 21% in 2019. The effective tax rate for 2020 differs from the effective tax
rate for 2019 and the statutory rate of 21% primarily due to a tax benefit that was recognized in 2020 for accumulated losses
on certain investments we sold that were not previously deductible. See note 13 of the notes to consolidated financial
statements included under Item 8 for further discussion of our income taxes.
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Comprehensive Income to Shareholders
The following table summarizes the components of comprehensive income to shareholders.
(dollars in thousands)
Net income to shareholders
Other comprehensive income
Change in net unrealized gains on available-for-sale investments, net of taxes
Other, net of taxes
Other comprehensive (income) loss attributable to noncontrolling interest
Other comprehensive income to shareholders
Comprehensive income to shareholders
Book Value per Common Share and Total Shareholder Return
Years Ended December 31,
2020
2019
$
816,030 $
1,790,466
352,773
22,849
(18)
297,977
5,424
21
375,604
303,422
$
1,191,634 $
2,093,888
Book value per common share increased 10% for the year ended December 31, 2020 and 23% for the year ended
December 31, 2019, primarily due to net income to shareholders, as shown above. Over the past five years, we have grown
book value per common share at a compound annual rate of 10% to $885.72 per share at December 31, 2020.
Our stock price per share decreased 10% for the year ended December 31, 2020 and increased 10% for the year ended
December 31, 2019. Over the past five years, our stock price per share increased at a compound annual rate of 3%.
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 21% at December 31, 2020 and 24% at December 31, 2019. The decrease reflects
an increase in shareholders' equity in 2020, primarily due to net income to shareholders as well as proceeds from our preferred
shares offering.
In May 2020, we issued 600,000 6.00% Fixed-Rate Reset Non-Cumulative Series A preferred shares, with no par value and a
liquidation preference of $1,000 per share, for aggregate net proceeds after expenses of $591.9 million. Dividends, if declared
by our Board of Directors, are payable semi-annually in arrears in December and June. If we do not declare and pay the full
dividends for the latest completed dividend period on all outstanding Series A preferred shares, we may not (i) declare or pay a
dividend on our common shares or (ii) purchase, redeem or otherwise acquire for consideration any common shares, subject to
certain exceptions. In 2020, total dividends declared and paid on Series A preferred shares were $18.4 million. See note 17 of
the notes to consolidated financial statements included under Item 8 for further information regarding our Series A preferred
shares.
At December 31, 2020, our holding company (Markel Corporation) held $4.1 billion of invested assets compared to $4.0
billion at December 31, 2019. The increase in holding company invested assets was primarily due to the proceeds from our
preferred shares offering and dividends from our subsidiaries, offset by cash used in connection with the acquisition of
Lansing. 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.
Our Board of Directors has approved the repurchase of up to $300 million of common stock under a share repurchase
program. As of December 31, 2020, $240.8 million remained available for repurchases under the program. We temporarily
suspended repurchases of our common shares in March 2020 in conjunction with other measures we took in response to
COVID-19, and in February 2021, we announced that we are recommencing repurchases under the program. This share
repurchase program has no expiration date but may be terminated by the Board of Directors at any time.
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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 maturity securities.
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 and pay dividends on our
preferred stock. 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
their respective jurisdictions. At December 31, 2020, our domestic insurance subsidiaries and Markel Bermuda Limited could
pay ordinary dividends of $1.1 billion during the following twelve months under these laws.
We maintain a 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 expires in April 2024.
See note 12 of the notes to consolidated financial statements included under Item 8 for further discussion of our revolving
credit facility. As of December 31, 2020 and 2019, there were no borrowings outstanding on our revolving credit facility.
We were in compliance with all covenants contained in our revolving credit facility at December 31, 2020. 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 of
these sources of capital and the availability and terms of future financings will depend on a variety of factors, and could be
adversely affected by, among other things, risks and uncertainties related to COVID-19. See "Developments Related to
COVID-19" for further discussion of the potential impacts of COVID-19 on our liquidity and capital resources and the
"Access to Capital" risk factors under Item 1A Risk Factors for more discussion regarding our access to capital sources.
Cash Flows and Invested Assets
Net cash provided by operating activities was $1.7 billion in 2020 compared to $1.3 billion in 2019. The increase in net cash
flows from operating activities for the year ended December 31, 2020 was primarily driven by higher net premium collections
in our Insurance segment.
Net cash used by investing activities was $511.7 million in 2020 compared to $535.2 million in 2019. In 2020, net cash used
by investing activities included $829.5 million of net purchases of short-term investments and $550.8 million of net cash used
for the acquisition of Lansing. Net cash used by investing activities in 2020 was net of $1.2 billion of proceeds from sales of
equity securities, net of purchases equity securities. See "Investing Results - Invested Assets" for discussion of changes in our
allocation of funds within the investment portfolio in 2020 and "Developments Related to COVID-19" for discussion of
actions we took in our investment portfolio in response to the pandemic. Net cash used by investing activities in 2019 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 maturity securities and sales of
equity securities, net of purchases of fixed maturity securities and equity securities. 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 $24.9 billion at December 31, 2020 compared to $22.3 billion at December 31, 2019. See "Investing
Results - Invested Assets" for further discussion of changes in invested assets during 2020.
Net cash provided by financing activities was $434.6 million in 2020 compared to $359.3 million in 2019. In 2020, we issued
preferred shares with net proceeds of $591.9 million, as previously discussed. In 2019, we issued unsecured senior notes with
net proceeds of $1.4 billion, before expenses. We used $861.9 million of these proceeds to repay our 7.125% unsecured senior
7173_TXT_C1.pdf 62 February 22, 2021
10K - 51
notes as well as purchase and redeem two additional series of our unsecured senior notes. See note 12 of the notes to
consolidated financial statements included under Item 8 for more details regarding the components of senior long-term debt.
Cash of $26.8 million and $116.3 million was used to repurchase shares of our common stock during 2020 and 2019,
respectively.
Contractual Obligations
The following table summarizes our contractual cash payment obligations at December 31, 2020.
Payments Due by Period
(1)
(dollars in thousands)
Unpaid losses and loss adjustment expenses (note 9)
Senior long-term debt and other debt (note 12)
Life and annuity benefits (note 11)
Lease payments (note 7)
Total
Total
4-5 years
1-3 years
$ 16,279,119 $ 4,078,054 $ 5,743,319 $ 3,083,903 $ 3,373,843
5,236,673
6,583,170
902,710
1,233,228
286,035
632,045
$ 24,727,562 $ 4,434,299 $ 6,914,861 $ 3,579,141 $ 9,799,261
262,487
124,876
107,875
888,878
134,840
147,824
195,132
70,802
90,311
Less than 1
year
More than
5 years
(1)
See respective notes to consolidated financial statements included under Item 8 for further discussion of these obligations.
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, 2020.
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 this table are our gross estimates of payments for known
liabilities as of December 31, 2020. 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.
Senior long-term debt and other debt was $3.5 billion at both December 31, 2020 and December 31, 2019. The amounts in the
contractual obligations table include interest expense and exclude net unamortized premium and net unamortized debt issuance
costs.
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, 2020. 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 table are our gross estimates of
known obligations as of December 31, 2020. These obligations are computed on a net present value basis on the consolidated
balance sheet as of December 31, 2020, whereas the expected payments by period in the table are the estimated payments at a
future time and do not reflect a discount of the amount payable or any adjustments for life and annuity benefit reserves.
Restricted Assets and Capital
At December 31, 2020, we had $4.7 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 $387.2 million at December 31, 2020 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
4(f) of the notes to consolidated financial statements included under Item 8 for further discussion of restrictions over our
invested assets.
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
10K - 52
7173_TXT_C1.pdf 63 February 22, 2021
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, 2020, the capital and surplus of each of our insurance subsidiaries significantly exceeded the amount of
statutory capital and surplus necessary to satisfy regulatory requirements.
Developments Related to COVID-19
On March 11, 2020, COVID-19, a novel coronavirus outbreak, was declared a pandemic by the World Health Organization.
This pandemic has caused unprecedented social and economic disruption, increased volatility of capital markets and
intervention by various governments and central banks around the world. In addition to the losses incurred in our underwriting
operations during 2020, and the decreased demand for certain products and services within our Markel Ventures operations,
we are experiencing significant impacts across our business operations. Most of the workforce in our insurance operations is
working remotely from their homes. For those employees who are returning to the office, we have taken significant measures
and developed new policies and procedures to protect their health and safety. While remote working continues to be the
predominate approach, and has been operating effectively, an extended period of remote work arrangements could strain our
business continuity plans, introduce or increase operational and control risks, including but not limited to increased
cybersecurity risks, and adversely impact our ability to effectively manage our businesses. Within our Markel Ventures
operations, most of our businesses are operating on their premises, however, their ability to continue to do so may be impacted
as the pandemic continues to evolve. For those employees in our insurance and Markel Ventures operations who are returning
to work, or have continued work, on our premises, there is a risk that they will contract COVID-19, which could expose us to
increased risk of employment related claims and litigation. Illnesses suffered by key employees, or a significant percentage of
our workforce, also could prevent or delay the performance of critical business functions.
We are committed to serving the needs of our employees, customers, business partners and shareholders and continue to focus
our efforts on safeguarding our people, supporting our front office and business operations and keeping our employees,
customers, business partners and shareholders informed.
Other impacts we have experienced in our operations during the year ended December 31, 2020, as well as steps we are taking
to respond to the economic disruption and dislocation caused by the pandemic, are discussed below, along with potential
future impacts to our results of operations and financial condition. See "Critical Accounting Estimates - Goodwill and
Intangible Assets" for discussion of our consideration of these impacts, among other things, on the valuation of our goodwill
and intangible assets.
Liquidity and Capital Resources
We seek to maintain prudent levels of liquidity and financial leverage for the protection of our policyholders, creditors and
shareholders. We began the year in a strong liquidity position, holding $4.0 billion of invested assets at our holding company,
and at December 31, 2020, our holding company held $4.1 billion of invested assets. Invested assets at the holding company as
of December 31, 2020 include net proceeds from our May 2020 issuance of preferred stock totaling $591.9 million, and
following two debt issuances in 2019 and the 2019 purchase and redemption of our unsecured senior notes due to mature in
2020 and 2021, we have no unsecured senior notes maturing until July 2022. We also have access to our $300 million
revolving credit facility. We continue to maintain a fixed maturity portfolio comprised of high credit quality, investment grade
securities with an average rating of "AA."
Significant volatility in the equity markets arising from economic uncertainty following the onset of the COVID-19 pandemic
resulted in a significant decline in the fair value of our equity portfolio in the first quarter of 2020. Although this decline was
more than offset by subsequent increases in the fair value of our equity portfolio attributable to net favorable market value
movements during the rest of the year, future declines in our investment portfolio are possible and could have a material
adverse impact on the Company's financial condition, results of operations and liquidity.
Given the dislocation in the financial markets and related uncertainty around the global credit markets resulting from the onset
of the pandemic, we took several steps within our investment portfolio to increase our allocation to cash. Initially, we were
retaining cash proceeds from maturities of short-term investments and fixed maturity securities and paused our purchases of
equity securities. However, as the global markets began to stabilize, we subsequently began reallocating cash to purchase
short-term investments and fixed maturity securities and on a more limited basis, equity securities. We also sold certain equity
securities based on our views of the underlying fundamentals of these positions and where pricing was deemed appropriate.
We also suspended repurchases of our common shares in March 2020, but subsequently recommenced our share repurchase
program in February 2021. We continue to focus on expense reductions across our company.
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Underwriting losses arising from COVID-19, as well as the 2020 Catastrophes, reduced the capital held by some of our
insurance subsidiaries. Capital at our insurance subsidiaries was also impacted by declines in the fair value of equity securities
following the onset of the pandemic, which subsequently recovered in the latter part of 2020. Our insurance operations may
require additional capital to support premium writings, and we remain committed to maintaining adequate capital and surplus
at each of our insurance subsidiaries. As of December 31, 2020, the statutory capital of all of our insurance subsidiaries
significantly exceeded required capital, and we believe we are well positioned to continue to pay claims, including those
arising from the pandemic, promptly in accordance with the terms of our policies.
We continue to believe we have adequate liquidity to meet our capital and operating needs, including that which may be
required to support the operating needs of our subsidiaries.
Underwriting Operations
As previously discussed, our underwriting results for the year ended December 31, 2020 included $343.3 million of net losses
and loss adjustment expenses directly attributed to COVID-19 (where COVID-19 was deemed the proximate cause of loss).
Due to the inherent uncertainty associated with the assumptions surrounding this pandemic, these estimates are subject to a
wide range of variability. While we believe our net reserves for direct losses and loss adjustment expenses for COVID-19 as of
December 31, 2020 are adequate based on information currently available, we continue to closely monitor reported claims,
government actions, judicial decisions and changes in local and worldwide social disruption arising from the pandemic and
will adjust our estimates of gross and net losses as new information becomes available. See "Results of Operations -
Underwriting Results" for further discussion on our estimate of direct losses and loss adjustment expenses attributed to
COVID-19.
We also have underwriting exposure to loss impacts that are indirectly related to the COVID-19 pandemic and associated with
a broader range of coverages, including coverages within our trade credit, professional liability and workers' compensation
product lines, among others, as well as certain of our reinsurance product lines. During the year ended December 31, 2020, we
recognized $15.0 million of net losses and loss adjustment expenses in our trade credit product line within our Insurance
segment related to losses that were indirectly attributable to the pandemic. As the impacts of the pandemic continue to evolve,
we expect that further losses indirectly related to the COVID-19 pandemic are likely to emerge. As an example, we provide
liability coverage for health and medical institutions and professions, as well as other professions, which have been strained or
otherwise impacted by the pandemic. We do not believe any other significant indirect losses have been incurred.
The widespread economic and social disruption caused by COVID-19 has created significant financial hardships for
individuals and businesses worldwide. However, we do not believe there has been any material change in our exposure to
credit losses.
The significant decline in economic activity during the pandemic may have a material unfavorable impact on our premium
volume, due to business closures, reduced recreational activity and lower gross receipts, revenues and payrolls of our insureds,
among other things. While premium volume for the year ended December 31, 2020 was impacted by these effects of the
pandemic, the impact was not material to our underwriting results. For those policies where the underlying loss exposures have
been reduced as a result of decreased economic activity or stay-at-home orders resulting from COVID-19, we also may be
required to refund premiums to policyholders, however, there have been no material adjustments required to date.
Within our underwriting operations, we also are reviewing and analyzing the underwriting guidelines and procedures we use to
underwrite and reinsure policies that provide coverages related to communicable diseases, viruses, pathogens and other similar
risks. Where appropriate, we are taking steps to mitigate our exposure to additional or further losses related to these types of
risks, including increasing pricing and adding policy terms and conditions, including exclusions. These actions may reduce
premium volume in certain classes of business. With few exceptions, we also stopped writing event cancellation risks, which
has reduced our future exposure to losses even if the duration of the pandemic continues to extend. Premium volume
attributable to this book of business was not material.
Markel Ventures Operations
Beginning in the second quarter of 2020, the economic and social disruption created by the pandemic impacted the results of
operations, financial position and cash flows of our Markel Ventures operations. Revenues across many of our businesses
decreased due to changes in consumer behavior and the overall impact of current economic conditions on commercial and
consumer spending, all of which impacted demand for certain products and services within our businesses. We also saw orders
and contracts canceled or postponed, and as a result of reduced demand, we temporarily reduced capacity at certain of our
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operations. While demand for products and services at most of our impacted businesses has begun to recover, since the social
and economic disruption caused by the pandemic is ongoing, we expect that revenues from our Markel Ventures operations
will continue to be impacted, and these impacts may continue to be material.
In order to partially mitigate the impact of decreased revenues, certain of our businesses took actions to reduce expenses,
including, but not limited to, elimination of non-essential expenses, cancellation or deferral of open positions, salary
reductions and workforce furloughs and reductions. Our businesses may increase borrowings, if needed, to maintain the cash
flow required to operate.
Further loss of revenues in certain of our products and services businesses could also impact the carrying value of inventory,
goodwill and intangible assets and other long-lived assets within our Markel Ventures operations, which may become
impaired. In certain cases, revenue declines also could result in ongoing cash and working capital constraints and could impact
the companies' liquidity and their ability to comply with debt covenants, and, in response, we may take steps necessary to
support these operations.
As a result of the economic hardship experienced by our customers, we may modify our payment terms or offer discounts to
our customers, and we also are exposed to increased credit risk. However, we do not believe there has been any material
change in our exposure to credit losses.
Insurance-Linked Securities and Program Services
Through our insurance-linked securities operations, we receive management fees for investment and insurance management
services based on the net asset value of the accounts we manage, and, for certain funds, incentive fees based on the annual
performance of the funds managed.
For the year ended December 31, 2020, investment losses attributed to COVID-19 within the investment funds we manage
were not significant; however, uncertainty around potential COVID-19 loss exposures within the funds we manage, has
reduced, and may further reduce, the net asset value on which our management fees are based. Volatility in the capital markets
and investor uncertainty regarding insurance industry exposure to COVID-19 also has impacted, and may continue to impact,
our ability to raise additional third party capital for the funds we manage, as well as for new funds. We also have experienced,
and may continue to experience, higher than anticipated investor redemptions from our funds. Deferred or reduced investment
management fees could have a material impact on our results of operations and financial condition, and the associated decline
in cash flows also could impact the carrying value of our goodwill and intangible assets within our ILS operations, which may
become impaired. See "Critical Accounting Estimates - Goodwill and Intangible Assets" for further discussion and
considerations regarding the valuation of goodwill and intangible assets attributed to our ILS operations as of December 31,
2020.
Our program services business generates fee income, in the form of ceding (program service) fees. This fee income is
calculated based on the gross premium volume of the insurance programs we support. Similar to our underwriting operations,
the significant decline in economic activity may have an unfavorable impact on premium volume, which may result in a
reduction in fee income.
For additional risks to our businesses related to COVID-19, see the risk factor titled "The COVID-19 pandemic has had, and
may continue to have, material adverse effects on us" under Item 1A Risk Factors.
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. These estimates, by necessity, are based on
assumptions about numerous factors. Actual results may differ materially from the estimates and assumptions used in
preparing the consolidated financial statements. Our accounts with accounting policies that involve critical accounting
estimates are unpaid losses and loss adjustment expenses, life and annuity benefits and goodwill and intangible assets.
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Unpaid Losses and Loss Adjustment Expenses
Our consolidated balance sheets included estimated unpaid losses and loss adjustment expenses of $16.2 billion and
reinsurance recoverables on unpaid losses of $5.7 billion at December 31, 2020 compared to $14.7 billion and $5.3 billion,
respectively, at December 31, 2019. 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 $3.3 billion for the year ended December 31, 2020 and $2.9 billion for the year ended December 31, 2019. 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.
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 loss adjustment expenses
and case reserves from estimated ultimate losses and loss adjustment expenses. IBNR reserves were 66% of total unpaid losses
and loss adjustment expenses at December 31, 2020 compared to 65% at December 31, 2019.
The following table summarizes case reserves and IBNR reserves. The amounts in the following table exclude 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.
(dollars in thousands)
December 31, 2020
Case reserves
IBNR reserves
Total
December 31, 2019
Case reserves
IBNR reserves
Total
Insurance
Reinsurance
Other
underwriting
Program
Services and
other
Consolidated
$ 2,917,179 $ 1,386,976 $
6,311,344
2,101,169
$ 9,228,523 $ 3,488,145 $
$ 5,511,286
51,591 $ 1,155,540
10,767,833
2,130,821
224,499
276,090 $ 3,286,361 (1) $ 16,279,119
$ 2,597,273 $ 1,404,461 $
5,502,167
2,052,512
$ 8,099,440 $ 3,456,973 $
127,639 $ 1,035,742
$ 5,165,115
9,605,470
1,880,367
170,424
298,063 $ 2,916,109 (1) $ 14,770,585
(1)
Substantially all of the premium written in our program services business is ceded, resulting in reinsurance recoverables on unpaid losses of $3.3 billion
and $2.9 billion as of December 31, 2020 and 2019, respectively.
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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, 2020 and December 31, 2019 were $8.3 million
and $2.2 million, respectively.
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
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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
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, as
well as pandemics, using the traditional actuarial methods previously described. 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, as well as
analysis of our ceded reinsurance contracts. 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
estimates 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
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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. 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.
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.
Loss reserves are established 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. 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. 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 particular point in time. The range determinations are based on
estimates and actuarial judgements and are intended to encompass reasonably likely changes in one 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. 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 $587.4 million, or 5.9%, at
December 31, 2020, compared to $577.5 million, or 6.5%, at December 31, 2019.
The difference between management's best estimate and the actuarially calculated point estimate in both 2020 and 2019 is
primarily associated with our long-tail business due to the subjective factors previously described that affect the development
of losses and represent instances where management's perspectives may differ from those of our actuaries. 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 of ultimate losses to the same extent as the actuaries.
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.
Our underwriting results in 2020 included $606.4 million of favorable development on prior years' loss reserves compared to
$535.3 million in 2019. In connection with our quarterly reviews of loss reserves, the actuarial methods we used have
exhibited a favorable trend, predominately for the 2016 to 2019 accident years, during 2020. 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. Additionally, as loss reserves are
recorded at management's best estimate, which is generally higher than the corresponding actuarially calculated point estimate,
the initial reserves established by management are more likely to be redundant than deficient. As actual losses continue to be
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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
2020 and 2019, 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 2021, we caution readers not to place undue reliance on this
favorable trend.
Changes in prior years' loss reserves, including the trends and factors that impacted loss reserve development in 2020 and
2019 as well as 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 expense are
discussed in further detail in note 9 of the notes to consolidated financial statements included under Item 8.
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, 2020. As described in note 9 of the notes to
consolidated financial statements included under Item 8, 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 underwriting
(1)
Net Loss
Reserves Held
Low End of
Actuarial
Range(1)
High End of
Actuarial
Range(1)
$
7,211.4 $
6,314.9 $
3,104.8
146.5
2,421.8
105.6
7,849.0
3,556.5
185.5
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.
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 favorable trends previously discussed will
continue and whether other trends may develop, we believe that a reasonably likely movement in prior years' loss reserves
during 2021 would range from favorable development of less than 1%, or $100 million, to favorable development of
approximately 6%, or $650 million, of December 31, 2020 net loss reserves. See "Developments Related to COVID-19" for
further discussion of factors related to the pandemic that could impact our net loss reserve estimates.
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
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event occurs. We review the adequacy of reserves for life and annuity reinsurance benefits quarterly. 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 $1.1 billion and $1.0 billion at December 31,
2020 and 2019, respectively. During 2020 and 2019, we increased our reserves for life and annuity benefits by $68.2 million
and $51.4 million, respectively, as a result of decreases in the market yield on the investment portfolio supporting the policy
benefit reserves, and decreased the change in net unrealized holding gains included in other comprehensive income by
corresponding amounts. As of December 31, 2020 and December 31, 2019, the cumulative adjustment to life and annuity
benefits attributable to unrealized gains on the underlying investment portfolio totaled $119.6 million and $51.4 million,
respectively.
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, 2020. 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, 2020 included goodwill and intangible assets of $4.4 billion as follows:
(dollars in millions)
Goodwill
Intangible assets
Total
December 31, 2020
Underwriting
Markel Ventures
Other (1)
Total
$
$
895.5 $
901.0 $
808.1 $
442.6
623.1
717.0
1,338.1 $
1,524.1 $
1,525.1 $
2,604.6
1,782.7
4,387.3
(1)
Amounts included in Other reflect our operations that are not included in a reportable segment, including our insurance-linked securities operations and
our program services operations.
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, 2020 and 2019, we recorded $497.1 million and $232.0 million, 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 impairment tests, including the optional assessment of qualitative factors for the annual impairment
test, which is used 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 tests for impairment as of October 1, 2020 based upon results of operations through September 30,
2020. We elected to perform a qualitative assessment for certain reporting units and performed a quantitative assessment for
other reporting units.
When performing our qualitative assessments, we considered macroeconomic factors such as industry conditions and market
conditions, which, for some of our reporting units, reflected significant impacts attributable to the COVID-19 pandemic. We
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7173_TXT_C1.pdf 72 February 22, 2021
also considered reporting unit-specific events, actual financial performance versus expectations and management's future
business expectations, which, in some instances, were also affected by the impacts of the COVID-19 pandemic, as well as the
amount by which the fair value of the reporting unit exceeded its carrying value at the date of the last quantitative assessment.
As part of our qualitative assessment of recently acquired reporting units with material goodwill, we considered the fact that
the businesses had been acquired in orderly transactions between market participants, and our purchase price represented fair
value at acquisition. For those recent acquisitions for which we elected to perform a qualitative assessment, there were no
events since acquisition that had a significant adverse impact on the fair value of these reporting units through the assessment
date. Based on the results of our qualitative assessments, we believe it is more likely than not that the fair value of each of
these reporting units exceeded its respective carrying amount as of the assessment date and December 31, 2020 and none of
these reporting units are at risk of a material impairment of goodwill. We considered similar factors to determine if there were
any indicators requiring an assessment of the recoverability of our definite lived intangible assets and concluded there were
not. However, a longer than anticipated recovery or further deterioration in market conditions related to the general economy
or the specific industries in which we operate, a sustained trend of weaker than anticipated financial performance within a
reporting unit beyond that which we considered or included in our assessments, or an increase in the market-based weighted
average cost of capital, among other factors, could significantly impact the impairment analysis and may result in future
goodwill or intangible asset impairment charges.
For those reporting units for which we used a quantitative approach to assess goodwill for impairment, we estimated the fair
value primarily using an income approach based on a discounted cash flow model. The cash flow projections used in the
discounted cash flow model included management's best estimate of future growth and margins. The discount rates used to
determine the fair value estimates were developed based on a capital asset pricing model using market-based inputs as well as
an assessment of the inherent risk in projected future cash flows. The estimated fair value of each of our reporting units for
which we performed a quantitative analysis significantly exceeded its respective carrying amount as of the assessment date,
except as discussed below. As there were no significant events or changes in circumstances impacting our reporting units
between the assessment date and December 31, 2020, we also believe the estimated fair value of each of these reporting units
significantly exceeded its respective carrying amount as of December 31, 2020.
At December 31, 2020, the carrying value of our Nephila fund management reporting unit included goodwill of $401.9
million. This Nephila reporting unit serves as an insurance and investment fund manager that offers a broad range of
investment products, including insurance-linked securities, catastrophe bonds, insurance swaps and weather derivatives.
Nephila receives management fees for these services 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. This reporting unit is a component of our
Nephila operations, which were acquired in late 2018 and recorded at fair value at that time. Given the limited time since
acquisition, its carrying value continues to closely approximate fair value, making our impairment assessment more sensitive
to changes in assumptions used to calculate fair value. Since acquiring this business in 2018, investment performance in the
broader ILS market has been adversely impacted by consecutive years of elevated catastrophe losses and uncertainty around
potential COVID-19 loss exposures. These events, as well as recent volatility in the capital markets, also have impacted
investor decisions around allocation of capital to ILS, which in turn have impacted our assumptions for capital raises and
redemptions within the funds we manage. Our cash flow assumptions for the Nephila fund management reporting unit reflect
management's best estimate of the reporting unit's future cash flows, based on information currently available, however, these
assumptions are inherently uncertain, require a high degree of estimation and judgment and are subject to change depending
on the outcome of future events. Changes to these assumptions or an increase in the market-based weighted average cost of
capital could have an adverse impact on the fair value of the Nephila fund management reporting unit, which could result in an
impairment of goodwill.
See the risk factor titled "Impairment in the value of our goodwill or other intangible assets could have a material adverse
effect on our operating results and financial condition" within Item 1A Risk Factors for further discussion of risks associated
with our goodwill and intangible assets.
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.
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Additional factors that could cause actual results to differ from those predicted are set forth under Item 1 Business, Item 1A
Risk Factors and Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations in this
report or are included in the items listed below:
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current global economic, market and industry conditions, as well as significant volatility, uncertainty and disruption
caused by the COVID-19 pandemic, including governmental, legislative, judicial or regulatory actions or developments
affecting our businesses;
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 insurance-linked securities 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;
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;
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7173_TXT_C1.pdf 74 February 22, 2021
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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 corporate bonds, municipal bonds, mortgage-backed securities 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 securities 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, including the COVID-19 pandemic, as well as actions of local, state and
federal authorities in response thereto, 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 or security breach of enterprise information technology systems that we use or a failure to comply with data
protection or privacy regulations;
outsourced providers may perform poorly, breach their obligations to us or expose us to enhanced risks;
our acquisitions may increase our operational and internal 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 in 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, civil, 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;
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 and our preferred shares;
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;
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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, debt or preferred share ratings or outlook 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.
Results from our underwriting, investing, Markel Ventures and other operations have been and will continue to be potentially
materially affected by these factors. In addition, with respect to previously reported developments at Markel CATCo and the
decision to place both the Markel CATCo Reinsurance Fund Ltd., a Bermuda exempted mutual fund company comprised of
multiple segregated accounts, and Markel CATCo Re Ltd. (Markel CATCo Re) into run-off:
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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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 maturity securities 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, 2020 was $24.9 billion, 43% of which was invested in
fixed maturity securities and 28% of which was invested in equity securities. At December 31, 2019, the estimated fair value
of our investment portfolio was $22.3 billion, 45% of which was invested in fixed maturity securities and 34% of which was
invested in equity securities.
Our fixed maturity securities 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 maturity securities 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.
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Equity Price Risk
We invest a portion of shareholder funds in equity securities, which have historically produced higher long-term returns
relative to fixed maturity 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 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, 2020, 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, 2020, our ten largest equity holdings represented
$3.1 billion, or 44%, of the equity portfolio. Investments in the property and casualty insurance industry represented $1.1
billion, or 15%, of our equity portfolio at December 31, 2020 and included a $744.4 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, 2020 and 2019. The selected hypothetical changes do not indicate what could be the
potential best or worst case scenarios.
(dollars in millions)
As of December 31, 2020
Equity securities
As of December 31, 2019
Equity securities
Interest Rate Risk
Estimated
Fair Value
Hypothetical
Price Change
Estimated
Fair Value after
Hypothetical
Change in Prices
Estimated
Hypothetical
Percentage Increase
(Decrease) in
Shareholders' Equity
$
$
6,994 35% increase $
35% decrease
7,591
35% increase
$
35% decrease
9,442
4,546
10,248
4,934
15.1 %
(15.1)
19.0 %
(19.0)
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 3.3
years and an average rating of "AA." See note 4(c) of the notes to consolidated financial statements included under Item 8 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.
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The following table summarizes our interest rate risk and shows the effect of hypothetical changes in interest rates as of
December 31, 2020 and 2019. The selected hypothetical changes do not indicate what could be the potential best or worst case
scenarios.
Estimated
Fair Value
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 Maturity
Securities
Shareholders'
Equity
(dollars in millions)
Fixed Maturity Securities
As of December 31, 2020
Total fixed maturity securities
$ 10,682 200 bp decrease $
100 bp decrease
100 bp increase
200 bp increase
As of December 31, 2019
Total fixed maturity securities
$
9,971
200 bp decrease $
Liabilities (1)
As of December 31, 2020
Borrowings
As of December 31, 2019
Borrowings
100 bp decrease
100 bp increase
200 bp increase
$
4,367 200 bp decrease $
100 bp decrease
100 bp increase
200 bp increase
$
3,907
200 bp decrease $
100 bp decrease
100 bp increase
200 bp increase
11.8 %
7.8 %
5.6
(5.2)
(10.2)
3.7
(3.4)
(6.7)
12.4 %
8.9 %
6.0
(5.7)
(10.9)
4.3
(4.0)
(7.8)
11,938
11,277
10,128
9,597
11,212
10,570
9,407
8,881
5,727
4,975
3,872
3,464
5,050
4,419
3,486
3,138
(1)
Changes in estimated fair value have no impact on shareholders' equity.
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. Our 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 and are therefore not subject to foreign currency
exchange rate risk. As of December 31, 2020 and December 31, 2019, the carrying value of goodwill and intangible assets that
are subject to foreign currency exchange rate risk was $119.1 million and $123.0 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,
2020 and 2019, substantially all of our monetary assets and liabilities denominated in foreign currencies were either matched
or hedged.
At December 31, 2020 and 2019, 88% and 89%, respectively, of our invested assets were denominated in U.S. Dollars. At
December 31, 2020 and 2019, 85% and 84%, 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.
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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 maturity securities that are unrated or rated below
investment grade. At December 31, 2020, 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 maturity
securities 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.
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, 2020, representing 60% of the total reinsurance recoverables, before considering allowances
for credit losses. 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 $473.2 million at
December 31, 2020, collateralizing reinsurance recoverable balances due from these ten reinsurers.
Within our program services business, our reinsurance recoverables balance for the ten largest reinsurers was $2.3 billion at
December 31, 2020, representing 70% of the $3.3 billion total reinsurance recoverables, before considering allowances for
credit losses. 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 $1.9 billion at
December 31, 2020, collateralizing reinsurance recoverable balances due from these ten reinsurers, and $2.8 billion for our
total reinsurance recoverables balance. 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 10 of the notes to
consolidated financial statements included under Item 8 for additional details about our reinsurance recoverables and
exposures.
Within our underwriting operations, we attempt to minimize credit exposure to reinsurers through adherence to internal
reinsurance guidelines. 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.
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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, which in some
instances, exceeds the related reinsurance recoverable. 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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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes (collectively, the consolidated financial statements), and our
report dated February 19, 2021 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Lansing Building Products, LLC (Lansing) during 2020. Management excluded Lansing's internal
control over financial reporting from its assessment of the effectiveness of the Company's internal control over financial
reporting as of December 31, 2020, associated with 2% of the Company's consolidated assets and 7% of the Company's
consolidated operating revenues included in the consolidated financial statements as of and for the year ended December 31,
2020. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control
over financial reporting of Lansing.
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.
7173_TXT_C1.pdf 81 February 22, 2021
10K - 70
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 19, 2021
7173_TXT_C1.pdf 82 February 22, 2021
10K - 71
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations
and its cash flows for each of the years in the three‑year period ended December 31, 2020, 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, 2020, 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 19, 2021 expressed an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.
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 judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken 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.
Estimation of the liability for unpaid losses and loss adjustment expenses for the
Company's underwriting operations
As described in Note 9, the Company has recorded a liability for unpaid losses and loss adjustment expenses (loss
reserves) of $16.2 billion as of December 31, 2020. Of this amount, $12.9 billion represents loss reserves for the
Company's underwriting operations. The Company's actuaries use established actuarial methods and past
development patterns to estimate ultimate losses to be paid. For its underwriting operations, loss reserves are
established at the Company's best estimates, which incorporate the actuarial point estimates and are adjusted for
certain subjective factors.
7173_TXT_C1.pdf 83 February 22, 2021
10K - 72
We identified the assessment of loss reserve estimation for the Company's underwriting operations as a critical audit
matter because it involved significant measurement uncertainty. The assessment of actuarial methods and key
assumptions used to estimate ultimate losses required specialized actuarial skills and subjective auditor judgment.
Key assumptions included weighting of actuarial methods, expected loss ratios, and patterns and variability of loss
development.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of internal controls over the Company's loss reserving process for its
underwriting operations. This included controls over key assumptions and the determination of loss reserves.
Additionally, we involved actuarial professionals with specialized skills and knowledge, who assisted in:
•
•
•
•
•
•
assessing the Company's actuarial methodologies by comparing to generally accepted actuarial methodologies
and evaluating the weighting of the methods based on common industry practice
evaluating certain assumptions about future claims reporting and payment patterns used to determine the
Company's actuarial point estimate for consistency with the Company's historical loss development and payment
patterns
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 methods and assumptions, for certain remaining
product lines comprised of those with smaller balances or shorter tail loss reporting and payment patterns
developing an independent range of consolidated loss reserves based on actuarial methods and assumptions and
comparing those results to the Company's recorded reserves
evaluating the movement of the Company's best estimate within our independently determined range of
consolidated loss reserves between reporting periods.
We have served as the Company's auditor since 1980.
Richmond, Virginia
February 19, 2021
7173_TXT_C1.pdf 84 February 22, 2021
10K - 73
MARKEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Investments, at estimated fair value:
Fixed maturity securities, available-for-sale (amortized cost of $9,655,261 in 2020 and
$9,448,840 in 2019)
Equity securities (cost of $2,732,998 in 2020 and $3,266,735 in 2019)
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 $4,367,000 in 2020 and
$3,907,000 in 2019)
Other liabilities
Total Liabilities
Redeemable noncontrolling interests
Commitments and contingencies
Shareholders' equity:
Preferred stock
Common stock
Retained earnings
Accumulated other comprehensive income
Total Shareholders' Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
See accompanying notes to consolidated financial statements.
December 31,
2020
2019
(dollars in thousands)
$ 10,681,734 $
6,994,110
2,034,099
19,709,943
4,341,736
874,913
1,930,211
5,989,337
630,794
1,451,858
2,604,624
1,782,718
2,393,920
9,970,909
7,590,755
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
$ 41,710,054 $ 37,473,815
$ 16,222,376 $ 14,728,676
985,729
4,057,727
406,720
1,069,986
4,433,245
493,470
3,484,023
2,946,631
28,649,731
245,642
3,534,183
2,504,802
26,217,837
177,562
591,891
3,428,340
8,195,182
584,376
12,799,789
14,892
12,814,681
—
3,404,919
7,457,176
208,772
11,070,867
7,549
11,078,416
$ 41,710,054 $ 37,473,815
7173_TXT_C1.pdf 85 February 22, 2021
10K - 74
MARKEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
2020
2019
2018
(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums
Net investment income
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
Net Income (Loss)
$
5,612,205 $
371,830
617,979
1,439,515
1,693,537
9,735,066
5,049,793 $
451,888
1,601,722
1,609,586
813,202
9,526,191
3,466,961
2,017,627
1,256,159
1,561,120
159,315
—
8,461,182
1,273,884
(177,582)
(95,853)
—
1,000,449
(168,682)
831,767
(15,737)
816,030
(18,400)
797,630 $
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
—
1,790,466 $
4,712,060
434,215
(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)
—
(128,180)
Net (income) loss attributable to noncontrolling interests
Net Income (Loss) to Shareholders
Preferred stock dividends
Net Income (Loss) to Common Shareholders
$
OTHER COMPREHENSIVE 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
Comprehensive Income (Loss) to Shareholders
NET INCOME (LOSS) PER COMMON SHARE
Basic
Diluted
See accompanying notes to consolidated financial statements.
10K - 75
7173_TXT_C1.pdf 86 February 22, 2021
$
356,159 $
299,125 $
(241,325)
(3,386)
(1,148)
7,849
352,773
29,847
(6,998)
375,622
1,207,389
297,977
382
5,042
303,401
2,102,863
(15,755)
1,191,634 $
(8,975)
2,093,888 $
(233,476)
(16,495)
2,341
(247,630)
(377,983)
2,213
(375,770)
55.67 $
55.63 $
129.25 $
129.07 $
(9.55)
(9.55)
$
$
$
MARKEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(dollars in thousands)
December 31, 2017
Preferred
Stock
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders'
Equity
Noncontrolling
Interests
Total Equity
Redeemable
Noncontrolling
Interests
$
— $ 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
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)
Other comprehensive income
(loss)
Comprehensive Income
(Loss)
Repurchase of common stock
Restricted stock awards
expensed
Adjustment to Nephila
purchase price allocation
Adjustment of redeemable
noncontrolling interests
Purchase of noncontrolling
interest
Other
December 31, 2019
Cumulative effect of adoption
of ASU No. 2016-13, net of
taxes
January 1, 2020
Net income
Other comprehensive income
Comprehensive Income
Issuance of preferred stock
Repurchase of common stock
Preferred stock dividends
Restricted stock awards
expensed
Acquisition of Lansing
Adjustment of redeemable
noncontrolling interests
Purchase of noncontrolling
interest
Other
December 31, 2020
325
—
325
—
3,381,834
2,595,484
(2,595,484)
(402,853)
5,969,699
(128,180)
—
402,853
152,940
—
(247,590)
—
—
9,504,473
(128,180)
(247,590)
(375,770)
(54,007)
16,191
—
—
(4,828)
(4,986)
(420)
—
—
—
—
—
—
—
—
—
—
325
—
—
(2,567)
(1,175)
—
(1,175)
—
9,501,906
(129,355)
(247,590)
(376,945)
(54,007)
—
—
23,392
—
—
(1)
16,191
—
23,392
(4,828)
(4,986)
(421)
—
—
—
166,269
(998)
(40)
(1,038)
—
—
19,670
—
4,828
(7,104)
(8,563)
174,062
16,816
—
(54,007)
16,191
—
—
—
—
—
—
(4,828)
(4,986)
(46)
3,392,993
—
(374)
5,782,310
1,790,466
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(94,650)
—
9,080,653
1,790,466
19,649
(7,820)
9,100,302
1,782,646
—
303,422
303,422
—
303,422
(21)
—
(116,307)
16,000
—
—
(4,219)
145
—
—
1,105
—
(398)
2,093,888
(116,307)
(7,820)
—
2,086,068
(116,307)
16,795
—
16,000
—
1,105
(4,219)
(253)
—
16,000
(8,250)
(8,250)
—
1,105
—
3,970
(4,219)
3,717
—
—
(1,105)
(4,542)
(7,648)
—
—
—
—
—
—
3,404,919
7,457,176
208,772
11,070,867
7,549
11,078,416
177,562
—
3,404,919
(3,827)
7,453,349
816,030
—
—
(3,827)
208,772
—
375,604
11,067,040
816,030
375,604
591,891
—
—
—
—
—
—
(26,832)
(18,400)
—
—
—
29,779
—
—
—
—
(28,705)
—
—
(6,131)
(227)
$ 591,891 $ 3,428,340 $ 8,195,182 $
—
(260)
1,191,634
591,891
(26,832)
(18,400)
29,779
—
(28,705)
(6,131)
(487)
—
—
—
—
—
—
—
—
—
7,549
3,226
—
3,226
—
—
—
—
—
—
—
4,117
(3,827)
11,074,589
819,256
375,604
1,194,860
591,891
(26,832)
(18,400)
29,779
—
(28,705)
(6,131)
3,630
—
177,562
12,511
18
12,529
—
—
—
—
43,566
28,705
(7,029)
(9,691)
584,376 $ 12,799,789 $
14,892 $ 12,814,681 $
245,642
See accompanying notes to consolidated financial statements.
10K - 76
7173_TXT_C1.pdf 87 February 22, 2021
MARKEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2020
2019
(dollars in thousands)
2018
$
831,767 $ 1,799,462 $
(130,353)
(2,733)
307,069
(617,979)
95,853
—
(28,174)
(549,654)
(61,569)
(34,480)
1,383,430
(44,651)
354,679
76,586
(70,277)
97,720
1,737,587
323,385
269,239
(1,601,722)
2,265
—
(103,982)
(209,971)
(93,015)
(84,835)
436,234
(52,159)
438,951
65,460
36,938
47,870
1,274,120
2,729
227,846
437,596
(106,598)
199,198
(27,961)
(434,809)
(15,585)
(230,199)
733,605
(50,541)
293,078
(4,313)
53,730
(54,566)
892,857
1,580,288
642,135
(1,322,218)
(829,457)
(5,066)
(101,301)
(554,127)
77,998
(511,748)
353,918
772,336
(955,970)
(95,867)
(257,663)
(123,376)
(245,332)
16,795
(535,159)
419,199
551,808
(1,545,913)
1,101,636
(8,864)
(106,593)
(1,175,211)
(33,301)
(797,239)
223,183
(275,996)
—
(26,832)
591,891
(18,400)
(59,290)
434,556
1,645,182
(1,103,674)
(27,073)
(116,307)
—
—
(38,811)
359,317
206,949
(289,199)
—
(54,007)
—
—
(42,728)
(178,985)
55,901
5,643
(21,047)
1,716,296
1,103,921
(104,414)
3,500,353
2,396,432
2,500,846
$ 5,216,649 $ 3,500,353 $ 2,396,432
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 reinsurance recoverables
Increase in deferred policy acquisition costs
Increase in prepaid reinsurance premiums
Increase in unpaid losses and loss adjustment expenses
Decrease in life and annuity benefits
Increase in unearned premiums
Increase (decrease) in payables to insurance and reinsurance companies
Increase (decrease) in income taxes payable
Other
Net Cash Provided By Operating Activities
INVESTING ACTIVITIES
Proceeds from sales of fixed maturity securities and equity securities
Proceeds from maturities, calls and prepayments of fixed maturity securities
Cost of fixed maturity securities 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
Issuance of preferred stock, net
Dividends paid on preferred stock
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 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
See accompanying notes to consolidated financial statements.
10K - 77
7173_TXT_C1.pdf 88 February 22, 2021
MARKEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. See note 2 for details regarding reportable segments.
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 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 other comprehensive income. Unrealized gains
and losses on equity securities, net of income taxes, are included in net income.
The Company completes a detailed analysis each quarter to assess declines in the fair value of its available-for-sale
investments. Effective January 1, 2020, the Company adopted Financial Accounting Standards Board (FASB) Accounting
Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, and related amendments, which created a new comprehensive credit losses standard, FASB Accounting
Standards Codification (ASC) 326, Financial Instruments—Credit Losses. Upon adoption of ASC 326, any impairment losses
on the Company's available-for-sale investments are recorded as an allowance, subject to reversal, rather than as a reduction in
amortized cost, as was required under the previous other-than-temporary impairment (OTTI) model. In accordance with the
provisions of ASU No. 2016-13, prior periods have not been restated. See note 1(w) for further discussion of the impact of
adopting this standard.
Premiums and discounts are amortized or accreted over the lives of the related fixed maturity securities as an adjustment to the
yield using the effective interest method. Dividend and interest income are recognized when earned. Accrued interest
receivable is excluded from both the estimated fair value and the amortized cost basis of available-for-sale securities and
included within other assets on the Company's consolidated balance sheets. Any uncollectible accrued interest receivable is
written off in the period it is deemed uncollectible. Realized investment gains or losses on available-for-sale investments are
included in net income. Realized gains or losses from sales of available-for-sale investments are derived using the first-in,
first-out method on the trade date.
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.
See note 4 and note 5 for further details regarding the Company's investment portfolio.
10K - 78
7173_TXT_C1.pdf 89 February 22, 2021
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.
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. 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.
The Company monitors credit risk associated with receivables, taking into consideration the fact that in certain instances in the
Company's insurance operations credit risk may be reduced by the Company's right to offset loss obligations or unearned
premiums against premiums receivable. An allowance is established for amounts deemed uncollectible and receivables are
recorded net of this allowance. Following the adoption of ASC 326, as described in note 1(w), beginning January 1, 2020 the
allowance is established for expected credit losses to be recognized over the life of the receivable. Any allowance for credit
losses is charged to net income in the period the receivable is recorded and revised in subsequent periods to reflect changes in
the Company's estimate of expected credit losses. The allowance for credit losses associated with the Company's receivables
was $24.2 million and $18.7 million as of December 31, 2020 and 2019, respectively.
g) Reinsurance Recoverables. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim
liability associated with the reinsured business. The Company evaluates the financial condition of its reinsurers and monitors
concentration of credit risk to minimize its exposure to significant losses from individual reinsurers. To further reduce credit
exposure on reinsurance recoverables, 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. An allowance is established for amounts deemed uncollectible and reinsurance
recoverables are recorded net of this allowance. Following the adoption of ASC 326, as described in note 1(w), beginning
January 1, 2020 the allowance is established for expected credit losses to be recognized over the life of the reinsurance
recoverable. Any allowance for credit losses is charged to net income in the period the recoverable is recorded and revised in
subsequent periods to reflect changes in the Company's estimate of expected credit losses. The allowance for credit losses
associated with the Company's reinsurance recoverables was $28.4 million and $26.8 million as of December 31, 2020 and
2019, respectively.
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. See note 2(a)
and (e) for further details regarding policy acquisition costs.
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. See note 6 for further details regarding
goodwill and intangible assets.
j) Property and Equipment. Property and equipment is maintained primarily by certain of the Company's Markel Ventures
businesses and is stated at cost less accumulated depreciation. Depreciation of property and equipment is calculated using the
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straight-line method over the estimated useful lives of the respective assets. Property and equipment, net of accumulated
depreciation, was $632.0 million and $588.6 million as of December 31, 2020 and 2019, respectively, and is included in other
assets on the Company's consolidated balance sheets.
k) Leases. The present value of future lease payments for the Company's leases with terms greater than 12 months is included
on the consolidated balance sheets 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 accounts 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 contractual obligation to make lease payments, 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 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 sheets.
Total lease costs are primarily comprised of rental expense for operating leases, which is recognized on a straight line basis
over the lease term. 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. See note 7 for
further details regarding leases.
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 $412.6 million and $303.1 million as of December 31, 2020
and 2019, 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 2025.
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 was also the redemption date. Changes in the redemption value also
result in an adjustment to net income to common shareholders in the calculation of basic and diluted net income per common
share. See note 17 for further details regarding the calculation of basic and diluted net income per common 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. See note
13 for further details regarding income taxes.
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
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reserve development studies, among other things. Recorded reserves are estimates, and the ultimate liability may be greater or
less than the estimates. See note 9 for further details regarding unpaid losses and loss adjustment expenses.
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. See note 11 for further details regarding life and annuity
benefits.
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
Other revenues primarily relate to the Company's Markel Ventures, insurance-linked securities (ILS) and program services
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. Contracts with customers generally have an
original term of one year or less. For contracts with customers that have an original term greater than one year, 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.
7173_TXT_C1.pdf 92 February 22, 2021
10K - 81
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.
Through its Markel Ventures operations, the Company has several different businesses that manufacture or produce a variety
of products, including ornamental plants, equipment used in baking systems, over-the-road transportation equipment, portable
dredges, residential homes and flooring for the trucking industry. 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.
Through its Markel Ventures operations, the Company also has several different businesses that provide various types of
services, including distribution of exterior building products, fire protection and life safety services and consulting services.
Service revenues are generally recognized over the term of the contracts based on hours incurred or as services are provided.
The Company's other revenues also include investment management fee income and managing general agent (MGA)
commissions provided through our ILS operations. Investment management fee income 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. MGA commissions are based on the direct written premiums of the insurance contracts placed. Commissions
received for these services are generally recognized when the related policy is written.
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.
See note 8 for further details regarding products, services, and other revenues.
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) 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
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currency translation adjustments within other comprehensive income. See note 18 for further details regarding the components
of other comprehensive income.
t) 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. See note 18
for further details regarding comprehensive income.
u) Net Income Per Common Share. Basic net income per common 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 common
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. See note 17 for further details regarding the calculation of basic
and diluted net income per common share.
v) 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. See note 15 for further details regarding the Company's involvement with VIEs.
w) Recent Accounting Pronouncements.
Accounting Standards Adopted in 2020
Effective January 1, 2020, the Company adopted ASC 326, Financial Instruments—Credit Losses. This new standard replaced
the incurred loss model used to measure impairment losses for financial assets measured at amortized cost with a current
expected credit loss (CECL) model and also made changes to the impairment model for available-for-sale investments. Under
the CECL model, allowances are established for expected credit losses to be recognized over the life of financial assets.
Application of the CECL model impacted certain of the Company's financial assets, including its reinsurance recoverables and
receivables. The CECL model did not impact the Company's investment portfolio, which is measured at fair value. However,
ASC 326 replaced the OTTI model with an impairment allowance model, subject to reversal, for available-for-sale
investments. As a result of adopting ASC 326, the Company increased its allowances for credit losses related to its reinsurance
recoverables and receivables by $3.8 million and $1.0 million, respectively, which was recorded through a cumulative-effect
adjustment to retained earnings as of January 1, 2020 ($3.8 million, net of taxes). The Company continues to apply the
previous guidance to 2019 and prior periods.
The following ASUs are relevant to the Company's operations and were adopted effective January 1, 2020. These ASUs did
not 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
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• 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
• ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable
Interest Entities
Accounting Standards Not Yet Adopted
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 FASB subsequently issued several ASUs as amendments to ASU No.
2018-12. The standard 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. ASU No. 2018-12 becomes effective for the
Company during the first quarter of 2023. The standard 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.
The following ASUs are 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. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
• ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting
2. Segment Reporting Disclosures
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 Company's underwriting segments
may also include other revenues and expenses that are attributable to the Company's underwriting operations that are not
captured in underwriting profit. 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.
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 insurance-linked securities and program services
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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.
Year Ended December 31, 2020
(dollars in thousands)
Gross premium volume
Net written premiums
Insurance
$ 6,029,024
4,977,662
Reinsurance
$ 1,130,923
960,123
Investing
Markel
Ventures (1)
Other (2)
$
— $
—
— $ 2,106,718
(5,547)
—
Consolidated
$ 9,266,665
5,932,238
Earned premiums
Losses and loss adjustment expenses:
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)
Segment profit (loss)
Interest expense
Net foreign exchange losses
Income before income taxes
U.S. GAAP combined ratio (4)
4,688,448
929,348
—
—
(5,591)
5,612,205
(3,373,085)
554,586
(988,668)
(712,280)
169,001
—
—
—
—
—
—
—
169,001
$
(700,240)
51,755
(240,493)
(74,379)
(34,009)
—
—
—
—
—
(41,461)
—
(75,470)
$
—
—
—
—
—
371,585
617,979
—
—
—
—
—
—
—
—
—
—
245
—
1,439,515
1,355,199
(1,256,159)
(1,232,150)
(52,572)
254,078 $
$ 989,564 $
—
23
—
(1,807)
(7,375)
—
—
—
338,338
—
(287,509)
(106,743)
(63,289)
(4,073,325)
606,364
(1,229,161)
(788,466)
127,617
371,830
617,979
1,439,515
1,693,537
(1,256,159)
(1,561,120)
(159,315)
$ 1,273,884
(177,582)
(95,853)
$ 1,000,449
96 %
104 %
NM (5)
98 %
(1)
(2)
(3)
(4)
(5)
Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $60.3 million for the year ended
December 31, 2020.
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. Amortization of intangible assets attributable to the Company's underwriting segments
was $41.9 million for the year ended December 31, 2020, however, the Company does not allocate amortization of intangible assets between the
Insurance and Reinsurance segments.
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 Insurance and Reinsurance segments.
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.
NM - Ratio is not meaningful
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Year Ended December 31, 2019
(dollars in thousands)
Gross premium volume
Net written premiums
Insurance
Reinsurance
Investing
Markel
Ventures (1)
Other (2)
Consolidated
$ 5,320,253
4,444,702
$ 1,114,153
964,947
$
— $
—
— $ 2,345,565
2,422
—
$ 8,779,971
5,412,071
Earned premiums
Losses and loss adjustment expenses:
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)
Segment profit (loss)
Interest expense
Net foreign exchange losses
Loss on early extinguishment of debt
Income before income taxes
U.S. GAAP combined ratio (4)
4,144,073
903,587
—
—
2,133
5,049,793
(2,730,971)
462,124
(860,917)
(704,531)
309,778
—
—
—
—
—
—
—
$ 309,778
(695,470)
64,768
(239,579)
(73,305)
(39,999)
—
—
—
—
—
—
—
(39,999)
$
—
—
—
—
—
451,152
1,601,722
—
—
—
—
—
$ 2,052,874 $
—
—
—
—
—
736
—
1,609,586
444,698
(1,455,245)
(389,385)
(41,973)
168,417 $
—
8,359
—
239
10,731
—
—
—
368,504
—
(286,294)
(106,665)
(13,724)
(3,426,441)
535,251
(1,100,496)
(777,597)
280,510
451,888
1,601,722
1,609,586
813,202
(1,455,245)
(675,679)
(148,638)
$ 2,477,346
(171,687)
(2,265)
(17,586)
$ 2,285,808
93 %
104 %
NM (5)
94 %
(1)
(2)
(3)
(4)
(5)
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.
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. Amortization of intangible assets attributable to the Company's underwriting segments
was $39.7 million for the year ended December 31, 2019, however, the Company does not allocate amortization of intangible assets between the
Insurance and Reinsurance segments.
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 Insurance and Reinsurance segments.
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.
NM - Ratio is not meaningful
7173_TXT_C1.pdf 97 February 22, 2021
10K - 86
Year Ended December 31, 2018
(dollars in thousands)
Gross premium volume
Net written premiums
Insurance
$ 4,749,166
3,904,773
Reinsurance
$ 1,050,870
882,285
Investing
Markel
Ventures (1)
Other (2)
$
— $
—
— $ 2,064,433
520
—
Consolidated
$ 7,864,469
4,787,578
Earned premiums
Losses and loss adjustment expenses:
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
Segment profit (loss)
Interest expense
Net foreign exchange gains
Loss before income taxes
U.S. GAAP combined ratio (4)
3,783,939
928,574
—
—
(453)
4,712,060
(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)
—
5,742
—
(1,941)
3,348
—
—
—
220,541
—
(108,185)
(75,722)
—
228,773
$
—
$ (118,287)
$
—
(3,894) $
(14,904)
77,479 $
(184,294)
(144,312)
(3,371,699)
550,984
(1,009,303)
(768,208)
113,834
434,215
(437,596)
1,497,523
635,083
(1,413,248)
(474,924)
(115,930)
(199,198)
39,759
(154,212)
106,598
(7,855)
$
$
94 %
113 %
NM (5)
98 %
(1)
(2)
(3)
(4)
(5)
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.
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. Amortization of intangible assets attributable to the Company's underwriting segments
was $44.5 million for the year ended December 31, 2018, however, the Company does not allocate amortization of intangible assets between the
Insurance and Reinsurance segments.
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 Insurance and Reinsurance segments.
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.
NM - Ratio is not meaningful
7173_TXT_C1.pdf 98 February 22, 2021
10K - 87
b) 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,
2020
2019
2018
$
1,261,411 $
1,039,617 $
1,068,365
356,934
458,050
405,210
238,909
338,186
561,383
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
4,688,448
4,144,073
3,783,939
191,968
441,599
295,781
929,348
(5,591)
201,486
408,368
293,733
903,587
2,133
233,195
360,739
334,640
928,574
(453)
$
5,612,205 $
5,049,793 $
4,712,060
The Company does not manage products at this level of aggregation as it offers a diverse portfolio of products and manages
these products in logical groupings within each underwriting segment.
c) During the years ended December 31, 2020, 2019 and 2018, 79%, 81% and 79%, respectively, of gross premiums written in
the Company's underwriting segments were attributed to risks or cedents located in the United States. Substantially all of the
gross premiums written in the Company's program services and other fronting businesses during 2020, 2019 and 2018 were
attributed to risks located in the United States.
Most of the Company's gross written premiums are placed through insurance and reinsurance brokers. During the years ended
December 31, 2020, 2019 and 2018, the Company's top two independent brokers accounted for 31%, 28% and 25% of gross
premiums written in the Company's underwriting segments. During the years ended December 31, 2020, 2019 and 2018, the
top two independent brokers accounted for 20%, 17% and 13%, respectively, of gross premiums written in the Insurance
segment and 84%, 82% and 76%, respectively, of gross premiums written in the Reinsurance segment.
During the years ended December 31, 2020, 2019 and 2018, the portion of Markel Ventures segment revenues attributable to
U.S. operations was 95%, 90%, and 88%, respectively.
7173_TXT_C1.pdf 99 February 22, 2021
10K - 88
d) 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,
2020
2019
$ 24,781,946 $ 22,129,633
7,228,297
3,636,060
6,621,639
2,550,835
35,646,303
31,302,107
6,063,751
6,171,708
$ 41,710,054 $ 37,473,815
e) The following table summarizes deferred policy acquisition costs, unearned premiums and unpaid losses and loss
adjustment expenses.
(dollars in thousands)
December 31, 2020
Insurance segment
Reinsurance segment
Other underwriting
Total Underwriting
Program services and other
Total
December 31, 2019
Insurance segment
Reinsurance segment
Other underwriting
Total Underwriting
Program services and other
Total
3. Acquisitions
Lansing Building Products, LLC
Deferred Policy
Acquisition Costs
Unearned
Premiums
Unpaid Losses
and
Loss Adjustment
Expenses
$
454,723 $
2,746,032 $
9,241,952
$
$
176,071
708,855
3,417,973
—
—
276,090
630,794
3,454,887
12,936,015
—
978,358
3,286,361
630,794 $
4,433,245 $ 16,222,376
392,774 $
2,356,875 $
8,119,046
173,268
677,260
3,395,459
—
—
298,062
566,042
3,034,135
11,812,567
—
1,023,592
2,916,109
$
566,042 $
4,057,727 $ 14,728,676
In April 2020, the Company acquired a controlling interest in Lansing Building Products, LLC, a supplier of exterior building
products and materials to professional contractors throughout the U.S., which simultaneously acquired the distribution
business of Harvey Building Products to enhance geographic reach and scale (together, Lansing), bringing the Company's
ownership in Lansing to 91%. Under the terms of the acquisition agreement, the Company has the option to acquire the
remaining equity interests and the remaining equity holders 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 Lansing's earnings in specified periods preceding
the redemption dates. Total consideration for both transactions was $559.2 million, all of which was cash.
The purchase price was allocated to the acquired assets and liabilities of Lansing based on estimated fair value at the
acquisition date. The Company recognized goodwill of $287.1 million, which is primarily attributable to expected future
earnings and cash flow potential of Lansing. The majority of the goodwill recognized is not deductible for income tax
purposes. The Company also recognized other intangible assets of $210.0 million, which included $188.0 million of customer
relationships and $22.0 million of trade names, which are being amortized over a weighted average period of 16 years and 14
years, respectively. The Company also recognized redeemable noncontrolling interests of $43.6 million. Results attributable to
Lansing are included in the Company's Markel Ventures segment.
7173_TXT_C1.pdf 100 February 22, 2021
10K - 89
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 of
$204.0 million. Total consideration also included 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.
As of December 31, 2019, the purchase price was preliminarily allocated to the acquired assets and liabilities of VSC based on
estimated fair value at the acquisition date. During 2020, the Company completed the process of determining the fair value of
the assets and liabilities acquired with VSC. The Company recognized goodwill of $124.9 million, which is primarily
attributable to expected future earnings and cash flow potential of VSC. All of the goodwill recognized is deductible for
income tax purposes. The Company also recognized other intangible assets of $64.5 million, which included $48.0 million of
customer relationships, $14.0 million of trade names and $2.5 million of other intangible assets, which are being amortized
over a weighted average period of 12 years, 12 years and 8 years, respectively. Results attributable to VSC are included in the
Company's Markel Ventures segment.
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
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.
Brahmin Leather Works, LLC
In October 2018, the Company acquired 90% of Brahmin Leather Works, LLC (Brahmin), a creator of fashion leather
handbags. Total consideration for the acquisition was $192.9 million, which included cash of $172.3 million. Total
consideration also included 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. Under the terms of the
acquisition agreement, the Company has the option to acquire the remaining equity interests and the remaining equity holders
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 Brahmin's earnings in specified periods preceding the redemption dates.
The purchase price was allocated to the acquired assets and liabilities of Brahmin based on estimated fair value at the
acquisition date. 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 included $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.
The purchase price was allocated to the acquired assets and liabilities of Nephila based on estimated fair values at the
acquisition date. 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 included $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.
10K - 90
7173_TXT_C1.pdf 101 February 22, 2021
4. 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 adjustments related to life and annuity benefit
reserves. See note 11.
(dollars in thousands)
Fixed maturity securities:
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 maturity securities
Short-term investments
December 31, 2020
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Estimated
Fair
Value
Amortized
Cost
$
580,716 $
9,091 $
500,053
51,593
3,903,292
1,352,616
1,736,257
811,732
5,812
764,783
9,655,261
2,030,460
386,784
275,450
149,359
58,742
154
96,257
1,027,430
3,645
(507) $
(92)
589,300
551,554
(235)
4,289,841
(57)
(34)
(29)
—
1,628,009
1,885,582
870,445
5,966
(3)
861,037
(957)
10,681,734
(6)
2,034,099
Investments, available-for-sale
$ 11,685,721 $
1,031,075 $
(963) $ 12,715,833
(dollars in thousands)
Fixed maturity securities:
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 maturity securities
Short-term investments
Investments, available-for-sale
December 31, 2019
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Estimated
Fair
Value
Amortized
Cost
$
282,305 $
2,883 $
318,831
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)
4,189,882
(9,398)
(1,382)
(517)
(22)
(1,686)
1,542,004
1,817,845
888,073
11,048
894,691
(14,419)
9,970,909
(60)
1,196,248
$ 10,643,793 $
537,843 $
(14,479) $
11,167,157
7173_TXT_C1.pdf 102 February 22, 2021
10K - 91
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.
(dollars in thousands)
Fixed maturity securities:
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
Corporate bonds
Total fixed maturity securities
Short-term investments
Total
Less than 12 months
December 31, 2020
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
$
66,220 $
(507) $
— $
— $
66,220 $
(507)
14,878
(92)
—
—
14,878
(92)
28,037
20,790
(223)
(57)
2,960
—
(12)
—
30,997
20,790
13,178
(26)
2,526
(8)
15,704
3,345
92
146,540
349,978
$ 496,518 $
(29)
(3)
(937)
(6)
(943) $
—
—
3,345
—
5,486
—
5,486 $
92
152,026
349,978
—
(20)
—
(20) $ 502,004 $
(235)
(57)
(34)
(29)
(3)
(957)
(6)
(963)
At December 31, 2020, the Company held 36 available-for-sale securities with a total estimated fair value of $502.0 million
and gross unrealized losses of $963 thousand. Of these 36 securities, six securities had been in a continuous unrealized loss
position for one year or longer and had a total estimated fair value of $5.5 million and gross unrealized losses of $20 thousand.
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.
(dollars in thousands)
Fixed maturity securities:
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 maturity securities
Short-term investments
Total
Less than 12 months
December 31, 2019
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)
6,830
(110)
134,666
(3,393)
159,888
(6,005)
322,795
(812)
(9,398)
202,530
(1,126)
33,853
(256)
236,383
(1,382)
11,706
—
(66)
58,162
(451)
69,868
—
3,632
(22)
3,632
41,847
(1,287)
40,274
(399)
82,121
607,836
3,316
$ 611,152 $
(7,132)
(60)
352,025
—
(7,287)
—
959,861
3,316
(7,192) $ 352,025 $
(7,287) $ 963,177 $
(517)
(22)
(1,686)
(14,419)
(60)
(14,479)
7173_TXT_C1.pdf 103 February 22, 2021
10K - 92
At December 31, 2019, the Company held 201 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.
Following the adoption of ASC 326, as described in note 1(w), beginning January 1, 2020 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 the result of a
credit loss. 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 credit-related impairment to determine whether a credit
loss exists, including the extent to which fair value is below cost, the implied yield to maturity, rating downgrades of the
security and whether or not the issuer has failed to make scheduled principal or interest payments. The Company also takes
into consideration information about the financial condition of the issuer and industry factors that could negatively impact the
capital markets.
If the decline in fair value of an available-for-sale security below its amortized cost is considered to be the result of a credit
loss, 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 loss. Any such amount is recorded as an allowance and recognized in net income. The
allowance is limited to the difference between the fair value and the amortized cost of the security. Any remaining decline in
fair value represents the non-credit portion of the impairment, which is recognized in other comprehensive income. The
Company did not have an allowance for credit losses as of December 31, 2020.
As part of its quarterly analysis for impairment, the Company also considers whether it intends to sell an available-for-sale
security or if it is more likely than not it will be required to sell the security before recovery of its amortized cost. In these
instances, a decline in fair value 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.
c) The amortized cost and estimated fair value of fixed maturity securities at December 31, 2020 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 maturity securities
Amortized
Cost
Estimated
Fair Value
$
383,330 $
390,636
1,861,527
2,348,671
2,507,932
7,101,460
1,736,257
811,732
5,812
1,994,002
2,592,111
2,942,992
7,919,741
1,885,582
870,445
5,966
$
9,655,261 $ 10,681,734
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations
with or without penalties, and the holders may have the right to put the securities back to the issuer. Based on expected
maturities, the estimated average duration of fixed maturity securities at December 31, 2020 was 5.6 years.
7173_TXT_C1.pdf 104 February 22, 2021
10K - 93
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,
2020
2019
2018
$
63,718 $
71,351 $
66,713
157,990
14,321
89,303
(4,430)
434
72,818
162,861
50,425
100,222
4,368
5,338
388,049
467,383
(16,219)
(15,495)
80,016
73,058
159,329
48,765
90,840
(1,924)
881
450,965
(16,750)
$
371,830 $
451,888 $
434,215
e) The following table presents the components of net investment gains (losses) and the change in net unrealized gains
included in other comprehensive income (loss).
(dollars in thousands)
Fixed maturity securities:
Realized gains
Realized losses
Short-term investments:
Realized gains
Realized losses
Cost-method investments:
Realized gains
Other investment losses
Net realized investment gains (losses)
Equity securities:
Change in fair value of securities sold during the period
Change in fair value of securities held at the end of the period
Total change in fair value
Net investment gains (losses)
Change in net unrealized gains included in other comprehensive income
(loss):
Years Ended December 31,
2020
2019
2018
$
12,582 $
(8,473)
6,851 $
(2,848)
4,221
(5,768)
2,037
(463)
1,457
(2,999)
1,604
(10,545)
14,239
(5,142)
14,780
—
(3,943)
(1,482)
—
(1,486)
(11,974)
(470,008)
38,291
1,073,207
603,199
1,564,913
1,603,204
20,177
(445,799)
(425,622)
$
617,979 $
1,601,722 $
(437,596)
Fixed maturity securities
$
507,903 $
429,654 $
(297,158)
Short-term investments
Adjustment for life and annuity benefit reserves (see note 11)
2,344
(68,158)
3,626
(51,390)
(2,288)
—
Net increase (decrease)
$
442,089 $
381,890 $
(299,446)
7173_TXT_C1.pdf 105 February 22, 2021
10K - 94
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,
2020
2019
$
4,217,230 $
4,134,164
874,913
427,546
$
5,092,143 $
4,561,710
December 31,
2020
2019
$
4,704,943 $
4,155,621
387,200
406,089
$
5,092,143 $
4,561,710
g) At December 31, 2020 and 2019, 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.
5. 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.
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 maturity securities 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 maturity securities 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
7173_TXT_C1.pdf 106 February 22, 2021
10K - 95
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 15 (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 maturity securities are classified as
Level 2 investments. The fair value of fixed maturity securities is normally derived through recent reported trades for identical
or similar securities, making adjustments through the reporting date based upon available market observable data previously
described. If there are no recent reported trades, the fair value of fixed maturity securities 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. 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, the timing of which is impacted by contractual terms regarding release of collateral on the
underlying securitized reinsurance contracts, as well as required regulatory approvals.
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.
7173_TXT_C1.pdf 107 February 22, 2021
10K - 96
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 maturity securities, 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 maturity securities, 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
Total investments
(dollars in thousands)
Assets:
Investments:
Fixed maturity securities, 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 maturity securities, available-for-sale
Equity securities:
Level 1
Level 2
Level 3
Total
December 31, 2020
$
— $
—
589,300 $
551,554
— $
—
589,300
551,554
—
—
—
—
—
—
—
4,289,841
1,628,009
1,885,582
870,445
5,966
861,037
10,681,734
—
—
—
—
—
—
—
4,289,841
1,628,009
1,885,582
870,445
5,966
861,037
10,681,734
2,516,361
4,419,256
6,935,617
1,922,459
8,858,076 $ 10,793,374 $
—
—
—
111,640
58,493
—
58,493
—
2,574,854
4,419,256
6,994,110
2,034,099
58,493 $ 19,709,943
Level 1
Level 2
Level 3
Total
December 31, 2019
— $
—
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
—
—
—
—
—
—
—
4,189,882
1,542,004
1,817,845
888,073
11,048
894,691
9,970,909
$
$
Insurance, banks and other financial institutions
Industrial, consumer and all other
Total equity securities
Short-term investments, available-for-sale
Total investments
2,463,190
5,081,573
7,544,763
1,093,799
8,638,562 $ 10,073,358 $
—
—
—
102,449
$
45,992
—
45,992
—
2,509,182
5,081,573
7,590,755
1,196,248
45,992 $ 18,757,912
7173_TXT_C1.pdf 108 February 22, 2021
10K - 97
The following table summarizes changes in Level 3 investments measured at fair value on a recurring basis, all of which are
attributed to the Company's investments in the Markel CATCo Funds.
(dollars in thousands)
Equity securities, beginning of period
Purchases
Sales
Net investment gains (losses) on Level 3 investments
Equity securities, end of period
2020
2019
$
$
45,992 $
90,000
(73,902)
(3,597)
58,493 $
53,728
500
(9,448)
1,212
45,992
In connection with the run-off of one of the Markel CATCo Funds and to facilitate the return of capital to third party investors,
the Company invested $90.0 million in that fund effective January 1, 2020. This investment replaced collateral previously
provided by other investors for 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, all of which either
had expired or were commuted as of June 30, 2020. Underwriting results for the 2020 loss exposures on these contracts are
attributed to the Company through its investment in that fund.
Sales for the years ended December 31, 2020 and 2019 reflect the return of capital in connection with the run-off of the
Markel CATCo Funds and the sale of the Company's investment in the Markel Diversified Fund in December 2020.
Except as disclosed in note 3, the Company did not have any assets or liabilities measured at fair value on a non-recurring
basis during the years ended December 31, 2020 and 2019.
6. Goodwill and Intangible Assets
The following table presents a rollforward of the components of goodwill by reportable segment.
(dollars in thousands)
January 1, 2019
Acquisitions (see note 3)
Foreign currency movements and other adjustments (2)
December 31, 2019 (3)
Acquisitions (see note 3)
Foreign currency movements and other adjustments (2)
December 31, 2020 (3)
(1)
Insurance
Reinsurance
Markel
Ventures
(1)
Other
Total
$ 770,184 $ 122,745 $ 497,338 $ 847,708 $ 2,237,975
—
1,263
—
—
118,878
—
118,878
(9,439)
(40,129)
(48,305)
$ 771,447 $ 122,745 $ 606,777 $ 807,579 $ 2,308,548
—
—
287,097
—
287,097
1,253
8,979
$ 772,700 $ 122,745 $ 901,045 $ 808,134 $ 2,604,624
7,171
555
—
Amounts included in Other reflect the Company's operations that are not included in a reportable segment.
(2)
(3)
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.
As of December 31, 2020 and 2019, 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.
There was no impairment of goodwill during 2020 or 2019. See note 1 for further details regarding impairment testing.
During 2018, the Company recorded a goodwill and intangible asset impairment charge at MCIM totaling $179.0 million. As a
result of governmental inquiries into the Company's Markel CATCo operations in late 2017 and early 2018, 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. Both the Markel CATCo Funds
and Markel CATCo Re were subsequently placed into run-off. See note 19 for further details on matters related to the
Company's Markel CATCo operations.
7173_TXT_C1.pdf 109 February 22, 2021
10K - 98
The following table presents a rollforward of net intangible assets by reportable segment.
(dollars in thousands)
January 1, 2019
Acquisitions (see note 3)
Amortization of intangible assets
Foreign currency movements and other adjustments (3)
December 31, 2019
Acquisitions (see note 3)
Amortization of intangible assets
Foreign currency movements and other adjustments (3)
December 31, 2020
(1)
Underwriting
(1)
Markel Ventures
(2)
Other
Total
$
489,088 $
431,457 $
805,651 $ 1,726,196
41,506
71,629
—
113,135
(39,667)
(41,973)
(66,998)
(148,638)
(6,767)
12,009
42,539
47,781
$
484,160 $
473,122 $
781,192 $ 1,738,474
—
210,000
—
210,000
(41,906)
(52,572)
(64,837)
(159,315)
385
442,639 $
(7,430)
623,120 $
604
(6,441)
716,959 $ 1,782,718
$
Amounts included in Underwriting reflect the intangible assets associated with the Company's underwriting segments, which are not allocated between
(2)
(3)
the Insurance and Reinsurance segments.
Amounts included in Other reflect the Company's operations that are not included in a reportable segment.
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 $159.0 million for 2021, $155.5 million for 2022, $153.7 million for 2023,
$151.7 million for 2024 and $145.1 million for 2025. Indefinite-lived intangible assets were $92.4 million at both
December 31, 2020 and 2019.
For the year ended December 31, 2020, the Company acquired $210.0 million of intangible assets, all of which is amortizable
over a weighted average period of 16 years. These definite-lived intangible assets acquired during 2020 include customer
relationships and trade names, which are expected to be amortized over a weighted average period of 16 years and 14 years,
respectively.
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
Total
7. Leases
December 31,
2020
2019
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
1,203,128 $
(340,424) $
1,021,427 $
(267,580)
468,000
207,360
231,177
113,202
92,000
74,333
21,449
152,635
(62,911)
(99,719)
(85,610)
(71,888)
(22,489)
—
(20,616)
(76,909)
468,000
206,249
208,959
113,389
92,000
74,635
21,449
151,978
(33,345)
(89,234)
(68,961)
(60,611)
(16,355)
—
(19,366)
(64,160)
$
2,563,284 $
(780,566) $
2,358,086 $
(619,612)
The Company's leases primarily consist of operating leases for real estate and have remaining terms of up to 22 years. Total
lease costs for operating leases were $94.4 million and $62.7 million for the years ended December 31, 2020 and 2019,
respectively. Total rental expense was $52.9 million for the year ended December 31, 2018, which was prior to adoption of
FASB ASU 2016-02, Leases (Topic 842).
7173_TXT_C1.pdf 110 February 22, 2021
10K - 99
The following table summarizes details for the Company's operating leases recorded on the consolidated balance sheet.
(dollars in thousands)
Right-of-use lease assets
Lease liabilities
Weighted average remaining lease term
Weighted average discount rate
December 31,
2020
2019
$ 528,418
$ 565,249
$
$
232,717
262,139
12.1 years
8.5 years
3.0 %
3.3 %
The following table summarizes maturities of the Company's operating lease liabilities as of December 31, 2020, which
reconciles to total lease liabilities included in other liabilities on the Company's consolidated balance sheet.
Years Ending December 31,
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less imputed interest
Total operating lease liabilities
8. Products, Services and Other Revenues
$
(dollars in
thousands)
90,311
78,953
68,871
59,137
48,738
286,035
632,045
(66,796)
$
565,249
The amount of revenues from contracts with customers for the years ended December 31, 2020, 2019 and 2018 was $2.9
billion, $2.2 billion and $1.9 billion, respectively.
The following table presents revenues from contracts with customers by segment and 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).
2020
2019
2018
Years Ended December 31,
Markel
Ventures
Other
Total
Markel
Ventures
Other
Total
Markel
Ventures
Other
Total
$ 1,396,706 $
— $ 1,396,706 $ 1,558,265 $
— $ 1,558,265 $ 1,452,332 $
— $ 1,452,332
1,295,734
116,476
1,412,210
392,680
97,447
490,127
367,572
33,236
400,808
—
117,193
117,193
—
150,864
150,864
—
91,527
91,527
2,692,440
233,669
2,926,109
1,950,945
248,311
2,199,256
1,819,904
124,763
1,944,667
(dollars in
thousands)
Products
Services
Investment
management
Total revenues
from contracts
with customers
Program services
and other fronting
—
102,989
102,989
—
116,376
Other
102,274
1,680
103,954
103,339
3,817
116,376
107,156
—
94,118
92,161
1,660
94,118
93,821
Total
$ 2,794,714 $ 338,338 $ 3,133,052 $ 2,054,284 $ 368,504 $ 2,422,788 $ 1,912,065 $ 220,541 $ 2,132,606
Receivables from contracts with customers were $406.4 million and $263.9 million as of December 31, 2020 and 2019,
respectively.
10K - 100
7173_TXT_C3.pdf 111 February 26, 2021
9. 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
Effect of adoption of ASC 326 (see note 1)
Years Ended December 31,
2020
2019
2018
$
9,475,261 $
9,214,443 $
8,964,945
68,368
3,849
18,857
—
(69,119)
—
Adjusted net reserves for losses and loss adjustment expenses, beginning
of year
9,547,478
9,233,300
8,895,826
Incurred losses and loss adjustment expenses:
Current accident year
Prior accident years
4,073,325
3,426,441
3,371,699
(606,414)
(535,307)
(551,040)
Total incurred losses and loss adjustment expenses
3,466,911
2,891,134
2,820,659
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, end of year
Reinsurance recoverables on unpaid losses
749,887
1,779,980
2,529,867
1,195
10,485,717
5,736,659
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)
9,214,443
5,062,036
Gross reserves for losses and loss adjustment expenses, end of year
$ 16,222,376 $ 14,728,676 $ 14,276,479
COVID-19 Losses
In 2020, underwriting results included $358.3 million of net losses and loss adjustment expenses attributed to the COVID-19
pandemic, including $343.3 million for which COVID-19 was identified as the proximate, or direct, cause of loss. These
losses and loss adjustment expenses were net of ceded losses of $106.2 million.
Both the gross and net loss estimates for direct losses attributed to COVID-19 represent the Company's best estimates as of
December 31, 2020 based upon information currently available. The Company's estimates for these direct losses and loss
adjustment expenses are based on reported claims, detailed policy level reviews and reviews of in-force assumed reinsurance
contracts for potential exposures, as well as analysis of ceded reinsurance contracts. These estimates also consider analysis
provided by brokers and claims counsel and the results of recent judicial rulings. There are no recent historical events with
similar characteristics to COVID-19, and therefore the Company has no past loss experience on which to base its estimates.
Additionally, the economic and social impacts of the pandemic continue to evolve.
Significant assumptions on which the Company's estimates of reserves for direct COVID-19 losses and loss adjustment
expenses are based include:
•
•
•
•
the scope of coverage provided under the Company's policies, particularly those that provide for business interruption
coverage;
coverage provided under the Company's ceded reinsurance contracts;
the expected duration of the disruption caused by the COVID-19 pandemic; and
the ability of insureds to mitigate some or all of their losses.
The Company's estimates continue to be based on broad assumptions about coverage, liability and reinsurance. Additionally,
there has been significant litigation involving the handling of business interruption claims associated with COVID-19, and in
certain instances, assessing the validity of policy exclusions for pandemics and interpreting policy terms to determine coverage
for pandemics. Such matters have been, and are expected to continue to be, subject to judicial review and also may be subject
to other government action. A test case of a sample of business interruption coverages for policies written in the United
Kingdom, which do not have the same exclusions as policies commonly written in the U.S., concluded in the third quarter of
10K - 101
7173_TXT_C1.pdf 112 February 22, 2021
2020 with the court's judgment finding mostly in favor of policyholders. This ruling was subsequently upheld by the United
Kingdom supreme court. This ruling was most impactful to certain estimates in the Company's Reinsurance segment, resulting
in an increase in the Company's estimate of losses and loss adjustment expenses on certain treaties following an increase in
estimated losses by the respective cedents on the treaties. The Company's estimates at December 31, 2020 also reflect
additional data gathered through increased claims reporting and a change in expectation of the duration of the pandemic.
While the Company believes the net reserves for losses and loss adjustment expenses for COVID-19 as of December 31, 2020
are adequate based on information currently available, the Company will continue to closely monitor reported claims,
government actions, judicial decisions and changes in the levels of worldwide social disruption and economic activity arising
from the pandemic and will adjust the estimates of gross and net losses as new information becomes available. Such
adjustments to the Company's reserves for COVID-19 losses and loss adjustment expenses may be material to the Company's
results of operations, financial condition and cash flows. See note 20 for details regarding other potential loss exposures
arising from the pandemic.
Catastrophe Losses
In 2020, underwriting results also included $168.9 million of underwriting loss from Hurricanes Isaias, Laura, Sally, Delta and
Zeta, as well as wildfires in the western U.S. and the derecho in Iowa (2020 Catastrophes). The underwriting loss on the 2020
Catastrophes was comprised of $172.2 million of net losses and loss adjustment expenses partially offset by $3.4 million of net
assumed reinstatement premiums. These losses and loss adjustment expenses were net of ceded losses of $125.7 million.
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 Catastrophe for the year ended December 31, 2019 were net of ceded losses of $62.5 million.
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 Catastrophes for the year ended December 31, 2018 were net of ceded
losses of $244.1 million.
b) Reserving Methodology
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.
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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 66% of total unpaid losses and loss adjustment
expenses at December 31, 2020 compared to 65% at December 31, 2019.
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, as well as analysis of our
ceded reinsurance contracts. The Company also considers 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, 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 2020, 2019 and
2018 Catastrophes as of December 31, 2020 represent the Company's best estimates based upon information currently
available. For the 2020 Catastrophes, these estimates are still dependent on broad assumptions about coverage, liability and
reinsurance. While the Company believes the reserves for the 2020, 2019 and 2018 Catastrophes as of December 31, 2020 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 of the Company's lines of business represents 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.
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The Company's ultimate liability may be greater or less than current reserves. Changes in the Company's 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 that impact the assumptions used to derive the Company's
estimates. The Company closely monitors new information on reported claims and uses statistical analyses prepared by its
actuaries to evaluate the adequacy of recorded reserves. Management exercises judgment when assessing the relative
credibility of loss development trends.
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.
c) Prior Accident Year Loss Development
The following tables summarize, by segment, the product lines with the most significant changes in prior accident years' loss
reserves for the years ended December 31, 2020, 2019 and 2018, along with the corresponding accident years and the trends
and factors that impacted management's best estimate of ultimate losses and loss adjustment expenses on underlying products
in each of these product lines. The Company does not estimate losses at this level of aggregation as it offers a diverse portfolio
of products and manages these products in logical groupings within each underwriting segment. As a result of the trends and
factors described in the following tables, the Company's actuaries adjusted their estimates of the ultimate liability for unpaid
losses and loss adjustment expenses. Additionally, for those product lines with favorable development on prior accident years'
loss reserves, management has now given more credibility to the favorable trends observed by the Company's actuaries and
after also incorporating these favorable trends into its best estimate, reduced prior years' loss reserves accordingly.
(dollars in millions)
Insurance segment:
Year Ended December 31, 2020
Loss
Development
Accident Years with
Most Significant
Development
Trends and Factors Impacting Loss Estimates
General liability
$
(131.8) Several
Professional liability
(128.9) Several
Workers' compensation
Marine and energy
Other products
Total Insurance
Reinsurance segment:
Property
Public entity
(92.3) 2017 to 2019
(46.0) 2016 to 2019
(155.6)
(554.6)
(68.4) 2017 to 2019
34.4 2016 to 2019
Professional liability
Other products
Total Reinsurance
Total decrease
21.0 2016 to 2019
(38.8)
(51.8)
$
(606.4)
More favorable claims experience than
originally anticipated across several sub-
product lines
More favorable claims experience than
originally anticipated across several sub-
product lines
Lower loss severity than originally
anticipated
Lower than expected frequency of claims
Lower than expected severity of claims
Higher than expected frequency and severity
of claims
Recognition of additional exposure due to net
favorable premium adjustments and higher
than expected loss severity and claims
frequency
10K - 104
7173_TXT_C1.pdf 115 February 22, 2021
Year Ended December 31, 2019
Loss
Development
Accident Years with
Most Significant
Development
Trends and Factors Impacting Loss Estimates
(dollars in millions)
Insurance segment:
General liability
$
(161.4) 2015 to 2018
Workers' compensation
(108.4) 2016 to 2018
Professional liability
(61.8) 2017 and 2018
Marine and energy
Other products
Total Insurance
Reinsurance segment:
Property
Whole account
Other products
Total Reinsurance
(43.7) 2017 and 2018
(86.8)
(462.1)
(29.6) 2016 and 2017
(26.2) 2010 and prior
(9.0)
(64.8)
Net other prior years' development
(8.4)
Total decrease
$
(535.3)
Lower loss severity than originally anticipated
Lower loss severity than originally anticipated
and a net decrease in open claims
Lower than expected case incurred losses and
a decrease in the frequency of large losses
Lower than expected loss severity and claims
frequency
Lower than expected incurred and paid losses
on reported claims
Lower than expected incurred and paid losses
on reported claims
Loss
Development
Accident Years with
Most Significant
Development
Trends and Factors Impacting Loss Estimates
December 31, 2018
Lower than expected claims frequency
Lower loss severity than originally anticipated
and a net decrease in open claims
Favorable development on 2017 catastrophe
events and lower than expected development
on known claims
Lower than expected case incurred losses
Lower than expected incurred and paid losses
on reported claims
Lower than expected loss severity and claims
frequency
Lower loss severity than originally anticipated
and a decrease in frequency of claims
Adverse claims activity
(dollars in millions)
Insurance segment:
General liability
$
(143.0) 2012 to 2017
Workers' compensation
(100.1) 2013 to 2017
Marine and energy
Professional liability
Other products
Total Insurance
Reinsurance segment:
Credit and surety
Marine and energy
Professional liability - medical
Professional liability - other
Other products
Total Reinsurance
(70.7) 2017 and 2018
(68.5) 2016 and 2017
(120.0)
(502.3)
(23.9) Several
(18.0) 2012 to 2016
(19.5) 2009 to 2013
35.7 Several
(17.3)
(43.0)
Net other prior years' development
(5.7)
Total decrease
$
(551.0)
10K - 105
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d) Historic Loss Development
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, 2020. 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 2019 is presented as supplementary information.
Incurred losses in both our Insurance and Reinsurance segments generally remain outstanding more than nine 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 following tables related to transactions denominated
in a foreign currency have been translated into U.S. Dollars using the exchange rates in effect at December 31, 2020.
The difference between the segment loss development implied by the tables for the year ended December 31, 2020 and actual
losses and loss adjustment expenses on prior accident years for the Insurance and Reinsurance segments for the year ended
December 31, 2020 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, 2020
totaled $78.1 million for the Insurance segment and $38.5 million for the Reinsurance segment.
The remaining difference between the segment loss development implied by the tables for the year ended December 31, 2020
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 previously described, none of which are material to the Insurance or Reinsurance segments.
The Insurance segment table that follows 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.
10K - 106
7173_TXT_C1.pdf 117 February 22, 2021
Insurance Segment
Ultimate Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Unaudited
As of December 31,
As of
December
31,
Total of
Incurred-
but-Not-
Reported
Liabilities,
Net of
Reinsurance
Cumulative
Number of
Reported
Claims
(in
thousands)
2012
2013
2014
2015
2016
2017
2018
2019
2020
December 31, 2020
$ 1,382.5 $ 1,623.6 $ 1,502.6 $ 1,439.8 $ 1,406.4 $ 1,373.3 $ 1,359.7 $ 1,339.2 $ 1,327.3 $
1,750.6
1,709.8
1,539.0
1,474.2
1,426.8
1,380.4
1,338.0
1,312.5
1,876.5
1,711.9
1,644.4
1,585.3
1,537.0
1,515.9
1,488.1
1,798.9
1,727.3
1,604.8
1,549.6
1,518.7
1,485.7
1,886.0
1,882.9
1,779.8
1,724.6
1,697.0
2,344.2
2,214.0
2,092.7
2,032.5
2,470.6
2,368.9
2,241.2
2,599.0
2,459.5
68.4
87.7
112.5
140.6
179.5
263.5
573.6
999.3
3,235.7
2,157.3
$ 17,279.5
129
90
82
88
96
132
184
211
157
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
2020
$ 234.6 $ 571.2 $ 785.2 $ 944.3 $ 1,060.9 $ 1,126.2 $ 1,160.7 $ 1,188.2 $ 1,211.0
272.8
574.5
333.8
783.8
663.0
324.2
955.6
1,044.6
1,108.1
1,132.2
1,155.1
901.8
1,071.0
1,177.4
1,262.8
1,306.1
669.4
373.8
882.2
1,047.2
1,158.7
1,228.1
757.4
440.6
988.7
1,175.9
1,282.1
997.7
1,294.5
1,484.3
497.8
1,034.1
1,308.8
531.1
1,008.0
(dollars in
millions)
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
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
577.9
$ 10,561.4
246.0
$ 6,964.1
Ultimate incurred losses and allocated loss adjustment expenses as of December 31, 2013 for the Insurance segment include
$257.9 million and $314.4 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, 2019 and 2020 accident years
include 66 thousand, 17 thousand, 24 thousand, 54 thousand, 89 thousand and 44 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.
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7173_TXT_C1.pdf 118 February 22, 2021
Reinsurance Segment
(dollars in
millions)
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
Ultimate Incurred 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
2020
Total of
Incurred-
but-Not-
Reported
Liabilities,
Net of
Reinsurance
December
31, 2020
$
73.5 $ 555.8 $ 513.0 $ 490.6 $ 460.5 $ 459.3 $ 451.1 $ 448.2 $
443.5 $
594.3
586.0
579.0
552.1
565.1
530.7
538.5
536.8
517.0
518.9
549.5
583.8
536.2
529.5
906.1
512.3
561.9
527.2
527.8
938.1
760.0
494.2
538.0
515.7
526.3
943.0
795.1
681.7
496.4
522.0
510.5
535.8
944.1
788.6
695.7
687.4
$ 5,624.0
28.3
36.6
70.8
121.9
89.0
207.9
256.6
354.2
511.4
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
2020
$
4.2 $
65.1 $ 130.0 $ 185.4 $ 233.4 $ 266.0 $ 291.4 $ 311.6 $
329.3
71.9
157.4
98.5
211.6
158.5
63.9
270.7
225.4
133.4
79.8
303.8
272.9
206.8
170.9
157.6
334.1
310.3
258.1
242.2
359.4
87.5
353.4
344.8
305.9
299.0
481.6
259.8
54.2
369.3
363.5
331.5
351.6
564.1
364.1
182.6
95.2
$ 2,951.2
476.3
$ 3,149.1
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
Ultimate incurred losses and allocated loss adjustment expenses as of December 31, 2013 for the Reinsurance segment include
$480.1 million and $543.4 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 $53.2
million and $69.5 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 for the 2012 and 2013 accident years exclude any claims paid prior to the acquisition.
The following table presents supplementary information about average historical claims duration as of December 31, 2020
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
2
3
4
20.9 %
12.4 %
23.4 %
16.8 %
14.7 %
13.2 %
11.3 %
10.5 %
5
7.3 %
8.8 %
6
5.0 %
6.3 %
7
2.4 %
4.4 %
8
1.9 %
3.9 %
9
1.7 %
4.0 %
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7173_TXT_C1.pdf 119 February 22, 2021
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
December 31, 2020
$
6,964,146
3,149,115
121,697
8,254
10,243,212
2,010,817
305,507
143,856
3,276,479
5,736,659
299,000
(56,495)
242,505
Total gross liability for unpaid losses and loss adjustment expenses
$
16,222,376
e) 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, 2020, A&E reserves were $219.7 million and $65.5 million on a gross and net basis, respectively. At
December 31, 2019, A&E reserves were $234.2 million and $74.4 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, 2020 are adequate.
10. 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 credit losses expected to be recognized over the life of the reinsurance recoverables.
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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.
Within the Company's underwriting operations, at December 31, 2020 and 2019, balances recoverable from the ten largest
reinsurers, by group, represented 60% and 62%, respectively, of reinsurance recoverables before considering reinsurance
allowances and collateral. At December 31, 2020, the largest reinsurance balance was due from Fairfax Financial Group and
represented 9% of reinsurance recoverables before considering reinsurance allowances and collateral.
Within its 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, 2020 and 2019, balances recoverable from the ten largest
reinsurers, by group, represented 70% and 71%, respectively, of reinsurance recoverables before considering reinsurance
allowances and collateral. At December 31, 2020, the largest reinsurance balance was due from Fosun International Holdings
Ltd. and represented 18% 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)
Underwriting:
Written
Earned
Program services and other:
Written
Earned
Consolidated:
Written
Earned
(dollars in thousands)
Underwriting:
Written
Earned
Program services and other:
Written
Earned
Consolidated:
Written
Earned
Year Ended December 31, 2020
Direct
Assumed
Ceded
Net Premiums
5,715,038 $
1,444,967 $
(1,222,390) $
5,937,615
5,357,888 $
1,394,239 $
(1,134,501) $
5,617,626
2,038,743
2,084,888
67,917
74,847
(2,112,037)
(2,165,156)
(5,377)
(5,421)
7,753,781 $
1,512,884 $
(3,334,427) $
5,932,238
7,442,776 $
1,469,086 $
(3,299,657) $
5,612,205
Year Ended December 31, 2019
Direct
Assumed
Ceded
Net Premiums
5,084,641 $
1,349,686 $
(1,024,097) $
5,410,230
4,767,836 $
1,289,375 $
(1,008,970) $
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
$
$
$
$
$
$
$
$
10K - 110
7173_TXT_C1.pdf 121 February 22, 2021
(dollars in thousands)
Underwriting:
Written
Earned
Program services and other:
Written
Earned
Consolidated:
Written
Earned
Year Ended December 31, 2018
Direct
Assumed
Ceded
Net Premiums
$
$
$
$
4,562,256 $
1,236,740 $
(1,013,406) $
4,785,590
4,384,562 $
1,291,032 $
(964,549) $
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
Substantially all of the premium written and earned in the Company's program services and other fronting operations for the
years ended December 31, 2020, 2019 and 2018 was ceded. The percentage of consolidated ceded earned premiums to gross
earned premiums was 37%, 39% and 38% for the years ended December 31, 2020, 2019 and 2018, respectively. The
percentage of consolidated assumed earned premiums to net earned premiums was 26%, 27% and 28% for the years ended
December 31, 2020, 2019 and 2018, 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 for the years ended December 31, 2020 and 2019, 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
11. Life and Annuity Benefits
The following table presents life and annuity benefits.
(dollars in thousands)
Life
Annuities
Accident and health
Total
Years ended December 31,
2020
2019
2018
$
$
4,189,948 $
3,447,186 $
3,530,790
(722,619)
(556,618)
(710,568)
3,467,329 $
2,890,568 $
2,820,222
December 31,
2020
2019
$
125,856 $
900,298
43,832
125,094
813,476
47,159
$
1,069,986 $
985,729
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 2020 and 2019, the Company increased life
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7173_TXT_C1.pdf 122 February 22, 2021
and annuity benefits by $68.2 million and $51.4 million, respectively, as a result of decreases in the market yield on the
investment portfolio supporting the policy benefit reserves, and decreased the change in net unrealized holding gains included
in other comprehensive income by corresponding amounts. No adjustment was required for the year ended December 31,
2018. As of December 31, 2020 and December 31, 2019, the cumulative adjustment to life and annuity benefits attributable to
unrealized gains on the underlying investment portfolio totaled $119.6 million and $51.4 million, respectively.
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, 2020.
As of December 31, 2020, the largest life and annuity benefits reserve for a single contract was 33.9% of the total.
None of the annuities included in life and annuity benefits on the consolidated balance sheets are subject to discretionary
withdrawal.
12. Senior Long-Term Debt and Other Debt
The following table summarizes the Company's senior long-term debt and other debt.
(dollars in thousands)
4.90% unsecured senior notes, due July 1, 2022, interest payable semi-annually, net of
unamortized discount of $432 in 2020 and $705 in 2019
3.625% unsecured senior notes, due March 30, 2023, interest payable semi-annually, net of
unamortized discount of $452 in 2020 and $653 in 2019
3.50% unsecured senior notes, due November 1, 2027, interest payable semi-annually, net of
unamortized discount of $1,729 in 2020 and $2,013 in 2019
3.35% unsecured senior notes, due September 17, 2029, interest payable semi-annually, net
of unamortized discount of $2,163 in 2020 and $2,410 in 2019
7.35% unsecured senior notes, due August 15, 2034, interest payable semi-annually, net of
unamortized discount of $937 in 2020 and $1,005 in 2019
5.0% unsecured senior notes, due March 30, 2043, interest payable semi-annually, net of
unamortized discount of $4,983 in 2020 and $5,207 in 2019
5.0% unsecured senior notes, due April 5, 2046, interest payable semi-annually, net of
unamortized discount of $6,177 in 2020 and $6,421 in 2019
4.30% unsecured senior notes, due November 1, 2047, interest payable semi-annually, net of
unamortized discount of $3,973 in 2020 and $4,126 in 2019
5.0% unsecured senior notes, due May 20, 2049, interest payable semi-annually, net of
unamortized discount of $7,422 in 2020 and $7,684 in 2019
4.15% unsecured senior notes, due September 17, 2050, interest payable semi-annually, net
of unamortized discount of $5,272 in 2020 and $5,449 in 2019
Other debt, at various interest rates ranging from 1.7% to 6.1%
Senior long-term debt and other debt
December 31,
2020
2019
$
349,498 $
349,181
249,464
249,226
297,769
297,402
297,404
297,125
128,859
128,788
244,742
244,505
493,035
492,761
295,333
295,154
591,316
591,010
493,935
42,668
3,484,023 $
493,759
95,272
3,534,183
$
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,
2019).
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.
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. In connection with the September 2019 tender offer and purchase
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7173_TXT_C1.pdf 123 February 22, 2021
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 $42.7 million and $70.4 million associated
with its Markel Ventures subsidiaries as of December 31, 2020 and 2019, 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 $4.4 billion and $3.9 billion at
December 31, 2020 and 2019, respectively.
The following table summarizes the future principal payments due at maturity on senior long-term debt and other debt as of
December 31, 2020.
Years Ending December 31,
2021
2022
2023
2024
2025
2026 and thereafter
Total principal payments
Net unamortized discount
Net unamortized debt issuance costs
Senior long-term debt and other debt
$
(dollars in
thousands)
36,493
356,128
250,360
—
—
2,879,847
$
3,522,828
(33,541)
(5,264)
$
3,484,023
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, 2020) 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 the Company's credit facility as of December 31, 2020 and 2019.
At December 31, 2020, 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 $178.2 million, $169.7 million and $155.4 million in interest on its senior long-term debt and other debt
during the years ended December 31, 2020, 2019 and 2018, respectively.
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13. 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 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
Years Ended December 31,
2020
2019
2018
$
1,003,714 $
1,664,762 $
99,373
(3,265)
621,046
(107,228)
$
1,000,449 $
2,285,808 $
(7,855)
Years Ended December 31,
2020
2019
2018
$
167,099 $
139,597 $
4,316
171,415
(9,972)
7,239
(2,733)
23,364
162,961
217,928
105,457
323,385
77,936
41,833
119,769
(77,255)
79,984
2,729
$
168,682 $
486,346 $
122,498
Foreign income tax expense includes U.S. income tax expense on foreign operations, including 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 $241.7 million, $128.2 million and $63.1 million in 2020, 2019 and 2018,
respectively. Income taxes payable were $17.2 million and $64.1 million at December 31, 2020 and 2019, respectively, and
were included in other liabilities on the consolidated balance sheets. Income taxes receivable were $26.1 million and $6.3
million at December 31, 2020 and 2019, respectively, and were included in other assets on the consolidated balance sheets.
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 has not elected 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, 2020, 2019 and 2018, GILTI tax was not material to the consolidated financial statements.
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7173_TXT_C1.pdf 125 February 22, 2021
The following table presents a reconciliation of income taxes computed using the U.S. corporate tax rate to the Company's
income tax expense.
(dollars in thousands)
Income taxes at U.S. corporate tax rate
Increase (decrease) resulting from:
Nondeductible (deductible) losses on certain foreign investments
Tax-exempt investment income
Foreign operations
Change in tax status of U.K. subsidiaries
Other
Income tax expense
Effective tax rate
(1)
NM - Ratio is not meaningful
Years Ended December 31,
2020
2019
2018
$ 210,093
$
480,020
$
(1,650)
(38,666)
(16,415)
6,500
—
7,170
—
(18,430)
14,718
(6,658)
16,696
26,552
(18,927)
4,951
103,281
8,291
$ 168,682
$
486,346
$
122,498
17 %
21 %
NM (1)
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
Lease liabilities
Unearned premiums recognized for income tax purposes
Life and annuity benefits
Accrued incentive compensation
Net operating loss carryforwards
Tax credit carryforwards
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
Right-of-use lease assets
Deferred policy acquisition costs
Other differences between financial reporting and tax bases
Total gross deferred tax liabilities
Net deferred tax liability
December 31,
2020
2019
$
192,755 $
163,522
135,104
116,714
108,825
30,374
27,341
15,885
63,840
690,838
(24,396)
666,442
1,102,476
173,059
127,391
118,581
131,070
55,362
102,020
84,890
35,132
39,429
47,233
52,604
580,192
(45,544)
534,648
996,543
134,573
49,583
113,243
101,426
1,652,577
1,395,368
$
986,135 $
860,720
As of December 31, 2020 and 2019, the Company's consolidated balance sheets included net deferred tax liabilities of $990.1
million and $883.0 million, respectively, in other liabilities and net deferred tax assets of $3.9 million and $22.3 million,
respectively, in other assets.
At December 31, 2020, the Company had tax credit carryforwards of $15.9 million, all of which the Company expects to
utilize before expiration. The earliest any of these credits will expire is 2029.
At December 31, 2020, the Company also had net operating losses of $25.8 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 2029 and 2037. At
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7173_TXT_C2.pdf 126 February 25, 2021
December 31, 2020, certain branch operations in Europe and a wholly owned subsidiary in Brazil had net operating losses of
$72.8 million that can be used to offset future income in their local jurisdictions. The Company's ability to use $26.7 million of
these losses expires between the years 2021 and 2027. 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, 2020, the Company had total gross deferred tax assets of $690.8 million. The Company has a valuation
allowance of $24.4 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 $666.4 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, 2020, the Company did not have any material unrecognized tax benefits. The Company does not anticipate
any changes in unrecognized tax benefits during 2021 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, 2020, 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, 2017.
14. 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 $48.6 million, $42.4
million and $41.8 million in 2020, 2019 and 2018, 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, 2020 and 2019 were $220.5 million and $191.4 million,
respectively, and the related fair value of plan assets was $242.3 million and $216.9 million, respectively. The corresponding
net asset for pension benefits, also referred to as the funded status of the plan, at December 31, 2020 and 2019 was included in
other assets on the Company's consolidated balance sheets.
15. 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. With the exception of an investment in one of the Markel CATCo
Funds ($58.5 million and $26.8 million at December 31, 2020 and 2019, respectively), 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 not the primary beneficiary of the Markel CATCo Funds or Markel CATCo Re and
therefore does not consolidate these entities. As of December 31, 2019, the Company was also the sole investor in another one
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7173_TXT_C1.pdf 127 February 22, 2021
of the Markel CATCo Funds and consolidated that fund as its primary beneficiary but did not have a variable interest in that
fund at December 31, 2020. See note 5 for additional details on the Company's investments in the Markel CATCo Funds.
The Company's exposure to risk from unconsolidated Markel CATCo Funds and Markel CATCo Re is generally limited to its
investment and any earned but uncollected fees. The Company has not issued any investment performance guarantees to these
VIEs or their investors. As of December 31, 2020 and 2019, net assets under management of MCIM for unconsolidated VIEs
were $929.2 million and $2.7 billion, respectively.
In July 2019, both the Markel CATCo Funds and Markel CATCo Re were placed into run-off, and MCIM is returning capital
to investors as it becomes available. See note 19 for further details regarding developments within the Company's Markel
CATCo operations.
16. Related Party Transactions
The Company engages in certain related party transactions in the normal course of business at arm's length.
Insurance-Linked Securities
Within the Company's insurance-linked securities operations, the Company provides investment and insurance management
services through MCIM and Nephila. See note 15 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. For the years ended December 31, 2020, 2019 and 2018, total revenues from the Company's insurance-linked
securities operations were $212.3 million, $225.6 million and $91.5 million, respectively, of which $177.8 million, $200.8
million and $90.6 million, respectively, were attributed to unconsolidated entities managed by Nephila and MCIM.
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, 2020, 2019 and 2018, gross premiums written through
the Company's program with Nephila were $412.4 million, $425.0 million and $322.1 million, respectively, all of which were
ceded to Nephila Reinsurers. As of December 31, 2020 and 2019, reinsurance recoverables on the consolidated balance sheets
included $353.8 million and $238.8 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 the 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 other 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.
The Hagerty Group, LLC
In June 2019, the Company acquired a minority ownership interest in Hagerty Group. See note 3. Essentia Insurance Company
(Essentia), 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. For the years ended December 31, 2020 and 2019, gross written premiums
attributable to Hagerty written on Essentia were $506.7 million and $422.1 million, respectively, of which $239.3 million and
$202.1 million, respectively, were ceded to Hagerty Re.
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7173_TXT_C1.pdf 128 February 22, 2021
17. Shareholders' Equity
a) The Company has 50,000,000 shares of no par value common stock authorized. The following table presents a rollforward
of changes in common shares issued and outstanding.
(in thousands)
Issued and outstanding common shares, beginning of year
Issuance of common shares
Repurchase of common shares
Issued and outstanding common shares, end of year
Years Ended December 31,
2020
2019
13,794
13
(24)
13,783
13,888
16
(110)
13,794
b) The Company also has 10,000,000 shares of no par value preferred stock authorized, of which 600,000 shares were issued
and outstanding at December 31, 2020. In May 2020, the Company issued 600,000 6.00% Fixed-Rate Reset Non-Cumulative
Series A preferred shares, with no par value and a liquidation preference of $1,000 per share, for an aggregate initial purchase
price of $600 million. Net proceeds of the Series A preferred shares offering, after deducting the underwriting discount and
offering expenses, was $591.9 million. Preferred stock and related additional paid-in capital are included in preferred stock on
the Company's consolidated balance sheet. The Company has the option to redeem the Series A preferred shares:
•
•
•
in whole but not in part, at any time, within 90 days after the occurrence of a "rating agency event," at $1,020 per
Series A preferred share, plus accrued and unpaid dividends,
in whole but not in part, at any time, within 90 days after the occurrence of a "regulatory capital event" at $1,000 per
Series A preferred share, plus accrued and unpaid dividends, or
in whole or in part, on June 1, 2025, or every fifth anniversary of that date, at $1,000 per Series A preferred share,
plus accrued and unpaid dividends.
A "rating agency event" means that any nationally recognized statistical rating organization that publishes a rating for the
Company amends, clarifies or changes the criteria it uses to assign equity credit to securities like the Series A preferred shares,
which results in shortening the length of time that the Series A preferred shares are assigned a particular level of equity credit
or in the lowering of the equity credit assigned to the preferred shares.
A "regulatory capital event" means that the Company becomes subject to capital adequacy supervision by a capital regulator
and determines that, under such capital adequacy guidelines, the liquidation preference amount of the Series A preferred
shares would not qualify as capital.
The Series A preferred shares rank senior to the Company's common stock with respect to the payment of dividends and
liquidation rights. Holders of the Series A preferred shares are entitled to receive non-cumulative cash dividends, when, as and
if declared by the Board of Directors, from the original issue date, semi-annually in arrears on the first day of June and
December of each year. The Company accrues dividends when they are declared by the Board of Directors. To the extent
declared, these dividends will accrue, on the liquidation preference of $1,000 per share, at a fixed annual rate of 6.00% from
the original issue date to June 1, 2025. After June 1, 2025, the dividend rate will reset every five years and accrue at an annual
rate equal to the five-year U.S. Treasury Rate as of two business days prior to the reset date, plus 5.662%. Dividends will not
be cumulative and will not be mandatory. Accordingly, if dividends are not declared for any dividend period, then dividends
for that dividend period will not accrue and will not be payable.
In 2020, total dividends declared and paid on Series A preferred stock were $18.4 million, or $30.67 per share.
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c) The following table presents net income (loss) per common share and diluted net income (loss) per common share.
(in thousands, except per share amounts)
Net income (loss) to common shareholders
Adjustment of redeemable noncontrolling interests
Adjusted net income (loss) to common shareholders
Basic common shares outstanding
Dilutive potential common shares from restricted stock units and restricted
stock (1) (2)
Diluted common shares outstanding
Basic net income (loss) per common share
Diluted net income (loss) per common share (1)
Years Ended December 31,
2020
2019
2018
797,630 $
1,790,466 $
(128,180)
(28,705)
1,105
(4,828)
768,925 $
1,791,571 $
(133,008)
13,811
13,861
13,923
12
13,823
20
13,881
55.67 $
55.63 $
129.25 $
129.07 $
—
13,923
(9.55)
(9.55)
$
$
$
$
(1)
(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.
The Company has an equity incentive compensation plan that provides for grants and awards of restricted stock units to employees as a performance
retention or hiring incentive. The plan also provides for awards of restricted stock to non-employee directors. At December 31, 2020, there were 179,565
shares available for future awards under the Company's equity incentive compensation plan.
18. Other Comprehensive Income
Other comprehensive income includes changes in net unrealized gains on available-for-sale investments, which is comprised
of net holding gains arising during the period, changes in unrealized other-than-temporary impairment losses, if any, and
reclassification adjustments for net realized 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 noncontrolling interests.
(dollars in thousands)
December 31, 2017
Cumulative effect of adoption of ASU No. 2016-01
Cumulative effect of adoption of ASU No. 2018-02
January 1, 2018
Total other comprehensive income (loss) before income taxes
Income tax (expense) benefit
Total other comprehensive income (loss)
December 31, 2018
Total other comprehensive income before income taxes
Income tax expense
Total other comprehensive income
December 31, 2019
Total other comprehensive income (loss) before income taxes
Income tax (expense) benefit
Total other comprehensive income (loss)
December 31, 2020
Unrealized
Gains
on Available-for-
Sale Investments
$ 2,477,973 $
(2,597,976)
401,539
281,536
(299,446)
65,970
(233,476)
48,060 $
381,890
(83,913)
297,977
346,037 $
442,089
(89,316)
352,773
698,810 $
$
$
$
Foreign
Currency
Net Actuarial
Pension Loss
Total
(74,003) $
2,492
1,314
(70,197)
(14,932)
(1,523)
(16,455)
(86,652) $
403
—
403
(86,249) $
29,829
—
29,829
(56,420) $
—
—
(58,399) $ 2,345,571
(2,595,484)
402,853
152,940
(311,415)
63,825
(247,590)
(94,650)
388,683
(85,261)
303,422
208,772
463,069
(87,465)
375,604
584,376
(58,399)
2,963
(622)
2,341
(56,058) $
6,390
(1,348)
5,042
(51,016) $
(8,849)
1,851
(6,998)
(58,014) $
Effective January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, 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
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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 Tax Cuts and Jobs Act
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.
19. Commitments and Contingencies
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 Company
cannot currently predict the duration, scope or result of the Markel CATCo Inquiries.
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.
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) In 2019, the Company established Lodgepine Capital Management Limited (Lodgepine), a 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, and subject to certain conditions, the Company has committed to invest up to $100
million in Lodgepine Fund Limited.
c) On March 11, 2020, COVID-19, a novel coronavirus outbreak, was declared a pandemic by the World Health Organization.
See note 20 for further details regarding potential impacts of COVID-19 on the Company's business.
d) 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.
20. Developments Related to COVID-19
The COVID-19 pandemic has caused unprecedented social and economic disruption, increased volatility of capital markets
and intervention by various governments and central banks around the world, the effects of which have impacted almost all of
the Company's operations during 2020. The Company cannot reasonably estimate the extent or duration of the impacts of the
pandemic; however, further potential impacts of the pandemic on the Company's results of operations, financial condition and
cash flows, including those described below, could be material.
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Significant volatility in the equity markets arising from economic uncertainty following the onset of the COVID-19 pandemic
resulted in a significant decline in the fair value of the Company's equity portfolio in the first quarter of 2020. Although this
decline was more than offset by subsequent increases in the fair value of our equity portfolio attributable to net favorable
market value movements during the rest of the year, future declines in the Company's investment portfolio are possible.
As described in note 9, the Company's underwriting results for the year ended December 31, 2020 included $343.3 million of
net losses and loss adjustment expenses directly attributed to COVID-19 and assumptions used to develop this estimate are
inherently uncertain and subject to a wide range of variability. The Company also has underwriting exposure to loss impacts
that are indirectly related to the COVID-19 pandemic and associated with a broader range of coverages, including coverages
within the Company's trade credit, professional liability and workers' compensation product lines, among others, as well as
certain of the Company's reinsurance product lines. Underwriting results for the year ended December 31, 2020 included $15.0
million of net losses and loss adjustment expenses indirectly attributed to the COVID-19 pandemic on the Company's trade
credit product line within the Insurance segment; however, the Company does not believe any other significant indirect losses
have been incurred. Business closures, reduced recreational activity and lower gross receipts, revenues and payrolls of
insureds, among other things, also may impact the Company's premium volume and the economic impacts of the pandemic on
the Company's insureds also may subject it to increased credit risk. A significant decline in economic activity also could
impact premium volume within the Company's program services operations, which may result in a reduction in fee income.
Within the Company's Markel Ventures operations, many of the Company's businesses experienced decreased demand for
their products and services as a result of the pandemic. While demand for products and services at most of the Company's
impacted business have begun to recover, since the social and economic disruption caused by the pandemic is ongoing, the
Company expects that revenues from its Markel Ventures operations will continue to be impacted, and these impacts may
continue to be material. In certain cases, revenue declines also could result in ongoing cash and working capital constraints
and could impact the companies' liquidity and their ability to comply with debt covenants.
Within the Company's insurance-linked securities operations, investment losses attributed to COVID-19 within the investment
funds managed by the Company were not significant; however, uncertainty around potential COVID-19 loss exposures has
reduced, and may further reduce, the net asset value on which the Company's management fees are based. Volatility in the
capital markets and investor uncertainty regarding insurance industry exposure to COVID-19 also has impacted, and may
continue to impact, the Company's ability to raise additional third party capital for the funds it manages. The Company also
has experienced, and may continue to experience, higher than anticipated investor redemptions from the funds.
Loss of revenues in the Company's underwriting, Markel Ventures, insurance-linked securities or other operations also could
impact the carrying value of the Company's goodwill and intangible assets and, with respect to its Markel Ventures operations,
inventory and other long-lived assets, which may become impaired. As detailed in note 6, the Company's consolidated balance
sheet as of December 31, 2020 included goodwill and intangible assets of $4.4 billion. The Company completed its annual
tests for goodwill and indefinite-lived intangible asset impairment as of October 1, 2020 based upon results of operations
through September 30, 2020. Based on the results of these tests, as well as analysis of the impacts of COVID-19 on definite-
lived intangible assets, the Company determined none of its goodwill or intangible assets were impaired. However, delayed
recovery or further deterioration in market conditions related to the general economy and the specific industries in which the
Company operates, a sustained trend of weaker than anticipated financial performance within a reporting unit, or an increase in
the market-based weighted average cost of capital, among other factors, could significantly impact the impairment analysis
and may result in future goodwill or intangible asset impairment charges that, if incurred, could have a material adverse effect
on the Company's financial condition and results of operations.
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21. Statutory Financial Information
a) The following table summarizes statutory capital and surplus for the Company's insurance subsidiaries.
(dollars in thousands)
United States
United Kingdom
Bermuda
Other
December 31,
2020
2019
$
$
$
$
3,967,112 $
3,673,216
635,382 $
638,864
1,905,070 $
1,604,184
103,828 $
70,746
As of December 31, 2020, 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.
The following table summarizes statutory net income (loss) for the Company's insurance subsidiaries.
(dollars in thousands)
United States
United Kingdom
Bermuda
Other
Years Ended December 31,
2020
616,135 $
(25,776) $
228,740 $
(4,628) $
2019
419,396 $
108,759 $
447,479 $
(4,499) $
2018
414,957
40,203
(131,411)
(5,193)
$
$
$
$
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, 2020, the Company's U.S. insurance
subsidiaries could pay up to $670.5 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 maturity securities 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.
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7173_TXT_C1.pdf 133 February 22, 2021
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. Earnings of the Company's
U.K. insurance subsidiaries are available for distribution to the holding company to the extent not otherwise restricted.
Bermuda
The Company's Bermuda insurance subsidiary, Markel Bermuda Limited (MBL), 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, 2020, MBL satisfied both the enhanced capital
requirements and the minimum solvency and liquidity requirements.
Under the Bermuda Insurance Act, MBL 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, MBL 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. MBL 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, MBL 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 MBL'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, 2020, MBL could pay up to $476.3 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, 2020 was $1.1 billion. Of this amount, $374.8 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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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.
CONDENSED BALANCE SHEETS
ASSETS
Investments, at estimated fair value:
Fixed maturity securities, available-for-sale (amortized cost of $248,206 in 2020 and
$658,557 in 2019)
Equity securities (cost of $1,307,230 in 2020 and $1,487,478 in 2019)
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
Shareholders' equity:
Preferred stock
Common stock
Retained earnings
Accumulated other comprehensive income
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
December 31,
2020
2019
(dollars in thousands)
$
274,297 $
1,817,068
1,249,970
3,341,335
657,539
65,971
14,737
676,307
1,831,333
724,558
3,232,198
737,072
1,077
19,846
12,259,007
12,239,086
85,756
37,505
364,403
60,111
2,170
347,023
$ 16,826,253 $ 16,638,583
$
3,441,355 $
3,438,910
317,753
1,835,000
—
170,270
97,086
18,270
129,835
145,701
4,026,464
5,567,716
591,891
3,428,340
8,195,182
584,376
—
3,404,919
7,457,176
208,772
12,799,789
11,070,867
$ 16,826,253 $ 16,638,583
(1)
In December 2018, Markel Corporation purchased Markel Global Reinsurance Company, an indirectly owned subsidiary of Markel Corporation, from
Alterra USA Holdings Limited (Alterra USA), another indirectly owned subsidiary of Markel Corporation, by issuing a $1.4 billion note payable to
Alterra USA. In March 2020, Alterra USA made a non-cash distribution of capital to Markel Corporation of $1.4 billion that satisfied the obligation
under the note payable.
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CONDENSED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
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
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
Net Income (Loss) to Shareholders
Preferred stock dividends
Net Income (Loss) to Common Shareholders
OTHER COMPREHENSIVE INCOME (LOSS) TO
SHAREHOLDERS
Change in net unrealized gains on available-for-sale investments, net of
taxes:
$
Years Ended December 31,
2020
2019
2018
(dollars in thousands)
$
18,026 $
466,244
48,845 $
863,335
32,631
749,171
27,774
82,389
110,163
594,433
1,025
187,562
6,823
—
195,410
3,848
293,296
297,144
1,209,324
6,436
219,082
3,973
13,656
243,147
399,023
400,289
16,718
816,030
(18,400)
797,630 $
966,177
851,337
(27,048)
1,790,466
—
1,790,466 $
(3,341)
(110,356)
(113,697)
668,105
6,532
145,681
(3,391)
—
148,822
519,283
(696,045)
48,582
(128,180)
—
(128,180)
Net holding gains (losses) arising during the period
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
Change in net unrealized gains on available-for-sale investments, net of
taxes
$
21,482 $
14,016 $
(1,492)
334,677
285,109
(239,833)
(14,937)
(4,591)
2,564
11,551
3,443
5,285
352,773
297,977
(233,476)
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
Comprehensive Income (Loss) to Shareholders
29,829
(6,998)
375,604
1,191,634 $
$
403
5,042
303,422
2,093,888 $
(16,455)
2,341
(247,590)
(375,770)
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CONDENSED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net income (loss) to shareholders
Adjustments to reconcile net income (loss) to shareholders to net cash
provided (used) by operating activities
Net Cash Provided (Used) By Operating Activities
INVESTING ACTIVITIES
Proceeds from sales of fixed maturity securities and equity securities
Proceeds from maturities, calls and prepayments of fixed maturity
securities
Cost of fixed maturity securities 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
Issuance of preferred stock, net
Dividends paid on preferred stock
Other
Years Ended December 31,
2020
2019
2018
(dollars in thousands)
$
816,030 $
1,790,466 $
(128,180)
(708,162)
(1,530,940)
3,637
107,868
259,526
(124,543)
557,088
326,564
204,478
39,051
41,673
(90,459)
(82,332)
34,560
(26,336)
(522,666)
(236,251)
930,876
15,164
(25,000)
14,865
100,000
12,712
(20,000)
(605,426)
(413,148)
(103,133)
—
—
(972,619)
(4,917)
(213,100)
17,984
6,719
(619,181)
(455,010)
(4,917)
(8,652)
46,969
—
1,384,182
—
(50,000)
(99,839)
47,105
—
—
(484,811)
(13,248)
—
—
(26,832)
(116,307)
(54,007)
591,891
(18,400)
—
—
15
(2,564)
—
—
(70)
Net Cash Provided (Used) By Financing Activities
496,674
667,413
(6,972)
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
(14,639)
471,929
(84,546)
738,149
266,220
350,766
$
723,510 $
738,149 $
266,220
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23. Quarterly Financial Information (unaudited)
The following table presents the unaudited quarterly results of consolidated operations for 2020, 2019 and 2018.
(dollars in thousands, except per share amounts)
Mar. 31
June 30
Sept. 30
Dec. 31
Quarters Ended
2020
Operating revenues
Net income (loss)
Net income (loss) to common shareholders
$
335,666 $
3,132,015 $
2,911,735 $
3,355,650
(1,401,376)
(1,405,763)
931,671
921,768
454,043
452,726
520,089
847,429
828,899
931,961
Comprehensive income (loss) to shareholders
(1,352,809)
1,092,393
Net income (loss) per common share:
Basic
Diluted
2019
Operating revenues
Net income
Net income to common shareholders
Comprehensive income to shareholders
Net income per common share:
Basic
Diluted
2018
Operating revenues
Net income (loss)
Net income (loss) to common shareholders
Comprehensive income (loss) to shareholders
Net income (loss) per common share:
$
$
(100.60) $
(100.60) $
65.81 $
65.75 $
31.07 $
31.03 $
59.44
59.33
$
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)
Basic
Diluted
$
$
(4.25) $
(4.25) $
20.01 $
19.97 $
28.56 $
28.50 $
(53.88)
(53.88)
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2020, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures (Disclosure Controls), as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
(Exchange Act). 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).
Based upon this 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 Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
Management's Report On Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act. 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.
10K - 127
7173_TXT_C1.pdf 138 February 22, 2021
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-PEOs and the PFO, we evaluated the
effectiveness of our internal control over financial reporting as of December 31, 2020, 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, 2020.
In conducting our evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, we
excluded internal control over financial reporting associated with Lansing Building Products, LLC (Lansing), which was
acquired in April 2020. Lansing’s operations represented 2% of our consolidated assets as of December 31, 2020 and 7% of
our consolidated operating revenues for the year then ended.
KPMG LLP, our independent registered public accounting firm, has issued an attestation report on the effectiveness of our
internal control over financial reporting as of December 31, 2020, which is included in Item 8 Financial Statements and
Supplementary Data.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2020 that materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART III
Except for the information set forth under "Information About Our Executive Officers" in Part I, the information required by
Part III (Items 10, 11, 12, 13 and 14) will be incorporated by reference from the Company's Proxy Statement for its 2021
Annual Meeting of Shareholders pursuant to instructions G(1) and G(3) of the General Instructions to Form 10-K.
PART IV
Item 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The following consolidated financial statements, as well as the Reports of Independent Registered Public Accounting Firm, are
included in Item 8.
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets—December 31, 2020 and 2019
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)—Years Ended December 31,
2020, 2019 and 2018
Consolidated Statements of Changes in Equity—Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows—Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page Number
10K - 70
10K - 74
10K - 75
10K - 76
10K - 77
10K - 78
Other schedules are omitted because they are not required, information therein is not applicable, or is reflected in the
consolidated financial statements or notes to consolidated financial statements.
(b) Exhibits
See Exhibit Index.
7173_TXT_C1.pdf 139 February 22, 2021
10K - 128
Exhibit No.
Document Description
EXHIBIT INDEX
3.1(a)
3.1(b)
3.2
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)
Articles of Amendment to the 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 27, 2020)
Bylaws, as amended and restated May 11, 2020 (incorporated by reference from Exhibit 3.2 in the Registrant's
report on Form 10-Q filed with the Commission for the quarter ended June 30, 2020)
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.
10K - 129
7173_TXT_C1.pdf 140 February 22, 2021
Exhibit No.
Document Description
10.1(a)
10.1(b)
10.2
10.3(a)
10.3(b)
10.4
10.5
10.6
10.7
10.8
10.9
10.10(a)
10.10(b)
10.10(c)
10.11(a)
10.11(b)
10.12(a)
10.12(b)
10.13
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 (incorporated by reference from Exhibit 10.1(b) in the Registrant's Report on Form 10-K filed
with the Commission for the year ended December 31, 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)*
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)*
Amended and Restated Executive Employment Agreement, dated as of March 24, 2019, between Markel
Corporation and Richard R. Grinnan* **
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)*
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)*
10K - 130
7173_TXT_C1.pdf 141 February 22, 2021
10.14(a)
10.14(b)
10.14(c)
10.14(d)
10.14(e)
10.15
21
23
31.1
31.2
31.3
32.1
101
104
*
**
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 (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 (incorporated by reference from Exhibit 10.15(i) in the Registrant's
report on Form 10-K filed with the Commission for the year ended December 31, 2019)*
Form of Restricted Stock Award Agreement for Outside Directors 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 June 30, 2020)*
Markel Corporation 2020 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.1 in the
Registrant's report on Form 8-K filed with the Commission May 15, 2020)*
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 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, 2020, filed on February 19, 2021, 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
10K - 131
7173_TXT_C1.pdf 142 February 22, 2021
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
Thomas S. Gayner
Co-Chief Executive Officer
(Co-Principal Executive Officer)
February 19, 2021
/s/ Richard R. Whitt, III
Richard R. Whitt, III
Co-Chief Executive Officer
(Co-Principal Executive Officer)
February 19, 2021
/s/ Jeremy A. Noble
Jeremy A. Noble
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
February 19, 2021
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
Date
/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/ Oscar Guerrero
Oscar Guerrero
/s/ Mark M. Besca
Mark M. Besca
/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/ Anthony F. Markel
Anthony F. Markel
/s/ Darrell D. Martin
Darrell D. Martin
/s/ Harold L. Morrison, Jr.
Harold L. Morrison, Jr.
/s/ Michael O'Reilly
Michael O'Reilly
/s/ A. Lynne Puckett
A. Lynne Puckett
Chairman of the Board
February 19, 2021
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
Director
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
February 19, 2021
10K - 132
7173_TXT_C2.pdf 143 February 25, 2021
Directors
Steven A. Markel
Chairman of the Board
Mark M. Besca
Retired Leader of Long-Term Value and Stakeholder Capitalism initiative,
New York Office Managing Partner and a Lead and Senior Advisory Partner of Fortune 500 companies
EY (formerly Ernst & Young, LLP)
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 Chief Operating Officer
Dominion Energy
Lemuel E. Lewis
Retired Executive Vice President and Chief Financial Officer
Landmark Communications, Inc.
Anthony F. Markel
Retired Vice Chairman, President and Chief Operating Officer
Markel Corporation
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 O'Reilly
Retired Vice Chairman and Chief Financial Officer
The Chubb Corporation
A. Lynne Puckett
Senior Vice President and General Counsel
Celanese Corporation
Richard R. Whitt, III
Co-Chief Executive Officer
7173_TXT_C1.pdf 144 February 22, 2021
i
MARKEL CORPORATION
Headquarters
Glen Allen, VA
Insurance
Asia Pacific
Dubai, United Arab Emirates · Hong Kong · Labuan, Malaysia · Mumbai, India · Shanghai, China · Singapore ·
Tokyo, Japan
Bermuda
Hamilton
Canada
Montreal · Toronto · Vancouver
Europe
Barcelona, Spain · Berlin, Germany · Dublin, Ireland · Madrid, Spain · Munich, Germany · Pierrefitte-en-Auge, France ·
Rotterdam, Netherlands · Stockholm, Sweden
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 · Chicago, IL · Dallas-Fort Worth, TX · Denver, CO · Glen Allen, VA ·
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 · Vancouver, WA · 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