Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
  FORM 10-Q
___________________________________________
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2019
or
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______
Commission File Number: 001-15811
___________________________________________
MARKEL CORPORATION
(Exact name of registrant as specified in its charter)
___________________________________________
 
Virginia
 
54-1959284
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

4521 Highwoods Parkway, Glen Allen, Virginia 23060-6148
(Address of principal executive offices)
(Zip Code)
(804) 747-0136
(Registrant ' s telephone number, including area code)
  ___________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   x
 
Accelerated filer   o
 
Non-accelerated filer   o
Smaller reporting company  o
 
Emerging growth company  o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
Number of shares of the registrant's common stock outstanding at April 23, 2019 : 13,845,763


Table of Contents

Markel Corporation
Form 10-Q
Index
 
 
 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(dollars in thousands)
 
March 31,
2019
 
December 31,
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Investments, at estimated fair value:
 
 
 
Fixed maturities, available-for-sale (amortized cost of $9,852,710 in 2019 and $9,950,773 in 2018)
$
10,162,419

 
$
10,043,188

Equity securities (cost of $3,021,179 in 2019 and $2,971,856 in 2018)
6,381,173

 
5,720,945

Short-term investments, available-for-sale (estimated fair value approximates cost)
754,288

 
1,077,696

Total Investments
17,297,880

 
16,841,829

Cash and cash equivalents
2,415,421

 
2,014,168

Restricted cash and cash equivalents
348,984

 
382,264

Receivables
1,959,137

 
1,692,526

Reinsurance recoverables
5,292,335

 
5,221,947

Deferred policy acquisition costs
541,012

 
474,513

Prepaid reinsurance premiums
1,334,442

 
1,331,022

Goodwill
2,215,818

 
2,237,975

Intangible assets
1,712,618

 
1,726,196

Other assets
1,619,079

 
1,383,823

Total Assets
$
34,736,726

 
$
33,306,263

LIABILITIES AND EQUITY
 
 
 
Unpaid losses and loss adjustment expenses
$
14,332,665

 
$
14,276,479

Life and annuity benefits
1,011,637

 
1,001,453

Unearned premiums
3,892,388

 
3,611,028

Payables to insurance and reinsurance companies
368,389

 
337,326

Senior long-term debt and other debt (estimated fair value of $3,113,000 in 2019 and $3,030,000 in 2018)
3,058,968

 
3,009,577

Other liabilities
2,106,331

 
1,796,036

Total Liabilities
24,770,378

 
24,031,899

Redeemable noncontrolling interests
148,002

 
174,062

Commitments and contingencies

 

Shareholders' equity:
 
 
 
Common stock
3,395,940

 
3,392,993

Retained earnings
6,338,874

 
5,782,310

Accumulated other comprehensive income (loss)
61,168

 
(94,650
)
Total Shareholders' Equity
9,795,982

 
9,080,653

Noncontrolling interests
22,364

 
19,649

Total Equity
9,818,346

 
9,100,302

Total Liabilities and Equity
$
34,736,726

 
$
33,306,263

See accompanying notes to consolidated financial statements.

3

Table of Contents

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
(dollars in thousands, except per share data)
OPERATING REVENUES
 
 
 
Earned premiums
$
1,203,977

 
$
1,151,021

Net investment income
114,182

 
108,016

Net investment gains (losses):
 
 
 
Net realized investment gains (losses)
681

 
(946
)
Change in fair value of equity securities
611,510

 
(122,052
)
Net investment gains (losses)
612,191

 
(122,998
)
Products revenues
348,794

 
294,136

Services and other revenues
193,344

 
145,296

Total Operating Revenues
2,472,488

 
1,575,471

OPERATING EXPENSES
 
 
 
Losses and loss adjustment expenses
687,746

 
615,118

Underwriting, acquisition and insurance expenses
455,212

 
424,390

Products expenses
319,426

 
269,697

Services and other expenses
174,606

 
132,433

Amortization of intangible assets
40,668

 
28,823

Total Operating Expenses
1,677,658

 
1,470,461

Operating Income
794,830

 
105,010

Interest expense
40,290

 
40,059

Net foreign exchange losses
21,864

 
22,114

Income Before Income Taxes
732,676

 
42,837

Income tax expense
155,163

 
108,431

Net Income (Loss)
577,513

 
(65,594
)
Net income (loss) attributable to noncontrolling interests
1,086

 
(1,288
)
Net Income (Loss) to Shareholders
$
576,427

 
$
(64,306
)
 
 
 
 
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
$
152,331

 
$
(116,922
)
Reclassification adjustments for net gains (losses) included in net income (loss)
(246
)
 
814

Change in net unrealized gains on available-for-sale investments, net of taxes
152,085

 
(116,108
)
Change in foreign currency translation adjustments, net of taxes
2,377

 
4,953

Change in net actuarial pension loss, net of taxes
1,361

 
664

Total Other Comprehensive Income (Loss)
155,823

 
(110,491
)
Comprehensive Income (Loss)
733,336

 
(176,085
)
Comprehensive income (loss) attributable to noncontrolling interests
1,091

 
(1,246
)
Comprehensive Income (Loss) to Shareholders
$
732,245

 
$
(174,839
)
 
 
 
 
NET INCOME (LOSS) PER SHARE
 
 
 
Basic
$
42.81

 
$
(4.25
)
Diluted
$
42.76

 
$
(4.25
)

See accompanying notes to consolidated financial statements.

4

Table of Contents

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity
(Unaudited)
 
(in thousands)
Common Shares
 
Common
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders'
Equity
 
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
Interests
December 31, 2017
13,904

 
$
3,381,834

 
$
3,776,743

 
$
2,345,571

 
$
9,504,148

 
$
(2,567
)
 
$
9,501,581

 
$
166,269

Cumulative effect of adoption of ASU No. 2014-09, net of taxes
 
 
 
 
325

 

 
325

 

 
325

 

Cumulative effect of adoption of ASU No. 2016-01, net of taxes
 
 
 
 
2,623,773

 
(2,623,773
)
 

 

 

 

Cumulative effect of adoption of ASU No. 2018-02
 
 
 
 
(401,539
)
 
401,539

 

 

 

 

January 1, 2018
13,904

 
3,381,834

 
5,999,302

 
123,337

 
9,504,473

 
(2,567
)
 
9,501,906

 
166,269

Net loss
 
 
 
 
(64,306
)
 

 
(64,306
)
 
(493
)
 
(64,799
)
 
(795
)
Other comprehensive income (loss)
 
 
 
 

 
(110,533
)
 
(110,533
)
 

 
(110,533
)
 
42

Comprehensive Loss
 
 
 
 
 
 
 
 
(174,839
)
 
(493
)
 
(175,332
)
 
(753
)
Issuance of common stock
2

 
2

 

 

 
2

 

 
2

 

Repurchase of common stock
(11
)
 

 
(12,289
)
 

 
(12,289
)
 

 
(12,289
)
 

Restricted stock units expensed

 
7,212

 

 

 
7,212

 

 
7,212

 

Adjustment of redeemable noncontrolling interests

 

 
5,051

 

 
5,051

 

 
5,051

 
(5,051
)
Purchase of noncontrolling interest

 
(5,391
)
 

 

 
(5,391
)
 

 
(5,391
)
 
(39
)
Other

 
11

 
(19
)
 

 
(8
)
 
(1
)
 
(9
)
 
(4,706
)
March 31, 2018
13,895

 
$
3,383,668

 
$
5,927,739

 
$
12,804

 
$
9,324,211

 
$
(3,061
)
 
$
9,321,150

 
$
155,720

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
13,888

 
$
3,392,993

 
$
5,782,310

 
$
(94,650
)
 
$
9,080,653

 
$
19,649

 
$
9,100,302

 
$
174,062

Net income
 
 
 
 
576,427

 

 
576,427

 
758

 
577,185

 
328

Other comprehensive income
 
 
 
 

 
155,818

 
155,818

 

 
155,818

 
5

Comprehensive Income
 
 
 
 
 
 
 
 
732,245

 
758

 
733,003

 
333

Issuance of common stock
5

 

 

 

 

 

 

 

Repurchase of common stock
(37
)
 

 
(37,649
)
 

 
(37,649
)
 

 
(37,649
)
 

Restricted stock units expensed

 
6,848

 

 

 
6,848

 

 
6,848

 

Adjustment of redeemable noncontrolling interests

 

 
18,361

 

 
18,361

 

 
18,361

 
(18,361
)
Purchase of noncontrolling interest

 
(3,736
)
 

 

 
(3,736
)
 

 
(3,736
)
 
(5,025
)
Other

 
(165
)
 
(575
)
 

 
(740
)
 
1,957

 
1,217

 
(3,007
)
March 31, 2019
13,856

 
$
3,395,940

 
$
6,338,874

 
$
61,168

 
$
9,795,982

 
$
22,364

 
$
9,818,346

 
$
148,002


See accompanying notes to consolidated financial statements.

5

Table of Contents

MARKEL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
(dollars in thousands)
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
577,513

 
$
(65,594
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
(558,790
)
 
123,266

Net Cash Provided By Operating Activities
18,723

 
57,672

INVESTING ACTIVITIES
 
 
 
Proceeds from sales of fixed maturities and equity securities
133,453

 
140,728

Proceeds from maturities, calls and prepayments of fixed maturities
128,449

 
191,260

Cost of fixed maturities and equity securities purchased
(227,556
)
 
(497,377
)
Net change in short-term investments
329,659

 
129,032

Additions to property and equipment
(24,756
)
 
(23,362
)
Proceeds from disposals of fixed assets
13,955

 
100

Acquisitions, net of cash acquired
(9,400
)
 
(7,809
)
Other
(1,684
)
 
(816
)
Net Cash Provided (Used) By Investing Activities
342,120

 
(68,244
)
FINANCING ACTIVITIES
 
 
 
Additions to senior long-term debt and other debt
87,356

 
52,706

Repayment of senior long-term debt and other debt
(36,100
)
 
(102,306
)
Repurchases of common stock
(37,649
)
 
(12,289
)
Purchase of noncontrolling interests
(9,754
)
 
(6,863
)
Distributions to noncontrolling interests
(2,808
)
 
(4,706
)
Other
(1,114
)
 
(1,238
)
Net Cash Used By Financing Activities
(69
)
 
(74,696
)
Effect of foreign currency rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
7,199

 
26,074

Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
367,973

 
(59,194
)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
2,396,432

 
2,500,846

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS AT END OF PERIOD
$
2,764,405

 
$
2,441,652


See accompanying notes to consolidated financial statements.

6

Table of Contents

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.

a) Basis of Presentation. The consolidated balance sheet as of March 31, 2019 and the related consolidated statements of income (loss) and comprehensive income (loss), changes in equity and cash flows for the three months ended March 31, 2019 and 2018 are unaudited. In the opinion of management, all adjustments necessary for fair presentation of such consolidated financial statements have been included. Such adjustments consist only of normal, recurring items. Interim results are not necessarily indicative of results of operations for the entire year. The consolidated balance sheet as of December 31, 2018 was derived from Markel Corporation's audited annual consolidated financial statements.

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.

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. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements.

The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. Readers are urged to review the Company's 2018 Annual Report on Form 10-K for a more complete description of the Company's business and accounting policies.

b) Leases. Following the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), effective January 1, 2019, the present value of future lease payments for the Company’s leases with terms greater than 12 months are included on the consolidated balance sheet as lease liabilities and right-of-use lease assets.

The Company’s lease portfolio primarily consists of operating leases for real estate. Total expected lease payments are based on the lease payments specified in the contract and the stated term, including any options to extend or terminate that the Company is reasonably certain to exercise. The Company has elected the practical expedient to account for lease components and any associated non-lease components as a single lease component, and therefore allocates all of the expected lease payments to the lease component.

The lease liability, which represents the Company’s obligation to make lease payments arising from the lease, 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 our 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 consolidated balance sheet.

Rental expense is recognized on a straight line basis over the lease term and includes amortization of the right-of-use lease asset and imputed interest on the lease liability. Rental expense attributable to our underwriting operations is included in underwriting, acquisition and insurance expenses and rental expense attributable to our other operations is included in products expenses and services or other expenses on the consolidated statements of income and comprehensive income.


7


2 . Recent Accounting Pronouncements

Effective January 1, 2019, the Company adopted FASB ASU No. 2016-02, Leases (Topic 842) and several other ASUs that were issued as amendments to ASU No. 2016-02, which require lessees to record most leases on their balance sheets as a lease liability with a corresponding right-of-use asset, but continue to recognize the related rent expense within net income. The Company elected to apply the optional transition method, under which an entity initially applies the new lease standard to existing leases at the beginning of the period of adoption. The Company continues to apply the previous guidance to 2018 and prior periods. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed companies to carry forward their historical lease classification. As a result of adopting ASU No. 2016-02, the Company recorded a right-of-use lease asset and a lease liability of $243.7 million and $264.6 million , respectively as of January 1, 2019. ASU No. 2016-02 also requires expanded lease disclosures, which are included in note 11 . Adoption of this standard did not have a material impact on the Company’s results of operations or cash flows.

The following ASU issued by the FASB is relevant to the Company's operations and was adopted effective January 1, 2019. This ASU did not have a material impact on the Company's financial position, results of operations or cash flows:

ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU replaces the current incurred loss model used to measure impairment losses with an expected loss model for trade, reinsurance, and other receivables as well as financial instruments measured at amortized cost. For available-for-sale fixed maturities, which are measured at fair value, the ASU requires entities to record impairments as an allowance, rather than a reduction of the amortized cost, as is currently required under the other-than-temporary impairment model. ASU No. 2016-13 becomes effective for the Company during the first quarter of 2020 and will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating ASU No. 2016-13 to determine the potential impact that adopting this standard will have on its consolidated financial statements. Application of the new expected loss model for measuring impairment losses will not impact the Company's investment portfolio, none of which is measured at amortized cost, but will impact the Company's other financial assets, including its reinsurance recoverables. Upon adoption of this ASU, any impairment losses on the Company's available-for-sale fixed maturities will be recorded as an allowance, subject to reversal, rather than as a reduction in amortized cost.

In August 2018, the FASB issued ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The ASU requires insurance entities with long duration contracts to: (1) review and, if there is a change, update the assumptions used to measure cash flows at least annually, as well as update the discount rate assumption at each reporting date; (2) measure all market risk benefits associated with deposit (or account balance) contracts at fair value; and (3) disclose liability rollforwards and information about significant inputs, judgments, assumptions and methods used in measurement, including changes thereto and the effect of those changes on measurement. ASU No. 2018-12 becomes effective for the Company during the first quarter of 2021. The ASU 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.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The ASU requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. Currently, such costs are generally expensed as incurred. ASU No. 2018-15 becomes effective for the Company during the first quarter of 2020 and may be applied on a prospective or retrospective basis. Early adoption is permitted. The Company is currently evaluating ASU No. 2018-15 to determine the impact that adopting this standard will have on its consolidated financial statements.


8


The following ASUs issued by the FASB 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. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest
Entities

3 . Acquisitions

Brahmin Leather Works, LLC

In October 2018, the Company acquired 90% of Brahmin Leather Works, LLC (Brahmin), a Massachusetts-based privately held creator of fashion leather handbags. Total consideration for the acquisition was $193.8 million , which included cash consideration of $173.3 million . Total consideration also includes the estimated fair value of contingent consideration the Company expects to pay based on Brahmin’s earnings as defined in the purchase agreement, for the period of 2019 through 2021. The purchase price has been preliminarily allocated to the acquired assets and liabilities of Brahmin based on estimated fair values at the acquisition date. The Company has preliminarily recognized goodwill of $63.9 million , which is primarily attributable to expected future earnings and cash flow potential of Brahmin. The majority of the goodwill recognized is expected to be deductible for income tax purposes. The Company also has preliminarily recognized other intangible assets of $90.3 million , which includes $54.0 million of customer relationships, $35.0 million of trade names and $1.3 million of other intangible assets, which are expected to be amortized over a weighted average period of 16 years , 16 years and 8 years , respectively. The Company also has recognized redeemable non-controlling interests of $19.6 million . Results attributable to Brahmin are included in the Company’s Markel Ventures segment.
The Company has not completed the process of determining the fair value of the assets acquired and liabilities assumed. These valuations will be completed within the measurement period, which cannot exceed 12 months from the acquisition date. As a result, the fair value recorded for these items is a provisional estimate and may be subject to further adjustment. Any adjustments resulting from the valuations may impact the individual amounts recorded for assets acquired and liabilities assumed, as well as the residual goodwill.

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 $970.9 million , all of which was cash consideration. The purchase price has been preliminarily allocated to the acquired assets and liabilities of Nephila based on estimated fair values at the acquisition date. The Company has preliminarily recognized goodwill of $460.0 million , which is primarily attributable to expected future earnings and cash flow potential of Nephila. None of the goodwill recognized is expected to be deductible for income tax purposes. The Company also has preliminarily recognized other intangible assets of $533.5 million , which includes $452.0 million of investment management agreements, $31.0 million of broker relationships, $27.0 million of technology and $23.5 million of trade names, which are expected to be amortized over a weighted average period of 16 years , 12 years , 6 years and 14 years , respectively. The Company also has recognized noncontrolling interests of $25.5 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.

The Company has not completed the process of determining the fair value of the assets acquired and liabilities assumed. These valuations will be completed within the measurement period, which cannot exceed 12 months from the acquisition date. As a result, the fair value recorded for these items is a provisional estimate and may be subject to further adjustment. Any adjustments resulting from the valuations may impact the individual amounts recorded for assets acquired and liabilities assumed, as well as the residual goodwill.


9


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.

 
March 31, 2019
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Estimated
Fair
Value
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasury securities
$
272,837

 
$
1,048

 
$
(1,113
)
 
$
272,772

U.S. government-sponsored enterprises
356,042

 
12,121

 
(843
)
 
367,320

Obligations of states, municipalities and political subdivisions
4,206,957

 
156,087

 
(6,191
)
 
4,356,853

Foreign governments
1,481,680

 
133,912

 
(8,693
)
 
1,606,899

Commercial mortgage-backed securities
1,690,466

 
17,161

 
(24,016
)
 
1,683,611

Residential mortgage-backed securities
879,245

 
15,176

 
(4,544
)
 
889,877

Asset-backed securities
13,185

 
9

 
(105
)
 
13,089

Corporate bonds
952,298

 
26,346

 
(6,646
)
 
971,998

Total fixed maturities
9,852,710

 
361,860

 
(52,151
)
 
10,162,419

Short-term investments
755,264

 
130

 
(1,106
)
 
754,288

Investments, available-for-sale
$
10,607,974

 
$
361,990

 
$
(53,257
)
 
$
10,916,707


 
December 31, 2018
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Estimated
Fair
Value
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasury securities
$
248,286

 
$
308

 
$
(1,952
)
 
$
246,642

U.S. government-sponsored enterprises
357,765

 
5,671

 
(4,114
)
 
359,322

Obligations of states, municipalities and political subdivisions
4,285,068

 
96,730

 
(28,868
)
 
4,352,930

Foreign governments
1,482,826

 
98,356

 
(21,578
)
 
1,559,604

Commercial mortgage-backed securities
1,691,572

 
3,154

 
(44,527
)
 
1,650,199

Residential mortgage-backed securities
886,501

 
6,170

 
(12,499
)
 
880,172

Asset-backed securities
19,614

 
7

 
(213
)
 
19,408

Corporate bonds
979,141

 
13,234

 
(17,464
)
 
974,911

Total fixed maturities
9,950,773

 
223,630

 
(131,215
)
 
10,043,188

Short-term investments
1,080,027

 
443

 
(2,774
)
 
1,077,696

Investments, available-for-sale
$
11,030,800

 
$
224,073

 
$
(133,989
)
 
$
11,120,884



10


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.

 
March 31, 2019
 
Less than 12 months
 
12 months or longer
 
Total
(dollars in thousands)
Estimated
Fair
Value
 
Gross
Unrealized
Holding Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$

 
$
127,227

 
$
(1,113
)
 
$
127,227

 
$
(1,113
)
U.S. government-sponsored enterprises

 

 
93,014

 
(843
)
 
93,014

 
(843
)
Obligations of states, municipalities and political subdivisions
4,781

 
(33
)
 
370,149

 
(6,158
)
 
374,930

 
(6,191
)
Foreign governments
137,317

 
(3,048
)
 
147,720

 
(5,645
)
 
285,037

 
(8,693
)
Commercial mortgage-backed securities
8,865

 
(157
)
 
724,587

 
(23,859
)
 
733,452

 
(24,016
)
Residential mortgage-backed securities
1,874

 
(12
)
 
245,331

 
(4,532
)
 
247,205

 
(4,544
)
Asset-backed securities

 

 
12,371

 
(105
)
 
12,371

 
(105
)
Corporate bonds
56,587

 
(1,385
)
 
312,113

 
(5,261
)
 
368,700

 
(6,646
)
Total fixed maturities
209,424

 
(4,635
)
 
2,032,512

 
(47,516
)
 
2,241,936

 
(52,151
)
Short-term investments
74,250

 
(1,106
)
 

 

 
74,250

 
(1,106
)
Total
$
283,674

 
$
(5,741
)
 
$
2,032,512

 
$
(47,516
)
 
$
2,316,186

 
$
(53,257
)

At March 31, 2019 , the Company held 618 available-for-sale securities with a total estimated fair value of $2.3 billion and gross unrealized losses of $53.3 million . Of these 618 securities, 560 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $2.0 billion and gross unrealized losses of $47.5 million . The Company does not intend to sell or believe it will be required to sell these available-for-sale securities before recovery of their amortized cost.


11


 
December 31, 2018
 
Less than 12 months
 
12 months or longer
 
Total
(dollars in thousands)
Estimated
Fair
Value
 
Gross
Unrealized
Holding  Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding  Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding  Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
2,922

 
$
(83
)
 
$
156,352

 
$
(1,869
)
 
$
159,274

 
$
(1,952
)
U.S. government-sponsored enterprises
88,854

 
(1,923
)
 
96,337

 
(2,191
)
 
185,191

 
(4,114
)
Obligations of states, municipalities and political subdivisions
656,573

 
(12,455
)
 
453,736

 
(16,413
)
 
1,110,309

 
(28,868
)
Foreign governments
419,764

 
(14,461
)
 
84,776

 
(7,117
)
 
504,540

 
(21,578
)
Commercial mortgage-backed securities
653,410

 
(10,128
)
 
709,971

 
(34,399
)
 
1,363,381

 
(44,527
)
Residential mortgage-backed securities
276,777

 
(3,685
)
 
242,949

 
(8,814
)
 
519,726

 
(12,499
)
Asset-backed securities
1,645

 
(11
)
 
17,030

 
(202
)
 
18,675

 
(213
)
Corporate bonds
313,164

 
(10,965
)
 
222,761

 
(6,499
)
 
535,925

 
(17,464
)
Total fixed maturities
2,413,109

 
(53,711
)
 
1,983,912

 
(77,504
)
 
4,397,021

 
(131,215
)
Short-term investments
197,643

 
(2,774
)
 

 

 
197,643

 
(2,774
)
Total
$
2,610,752

 
$
(56,485
)
 
$
1,983,912

 
$
(77,504
)
 
$
4,594,664

 
$
(133,989
)

At December 31, 2018 , the Company held 1,005 securities with a total estimated fair value of $4.6 billion and gross unrealized losses of $134.0 million . Of these 1,005 securities, 541 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $2.0 billion and gross unrealized losses of $77.5 million .

The Company completes a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. All available-for-sale securities with unrealized losses are reviewed. The Company considers many factors in completing its quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer.

For fixed maturities, the Company considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due. For fixed maturities where the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment, which is recognized in other comprehensive income.


12


c) The amortized cost and estimated fair value of fixed maturities at March 31, 2019 are shown below by contractual maturity.

(dollars in thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
405,074

 
$
403,559

Due after one year through five years
1,297,910

 
1,316,382

Due after five years through ten years
2,140,339

 
2,221,684

Due after ten years
3,426,491

 
3,634,217

 
7,269,814

 
7,575,842

Commercial mortgage-backed securities
1,690,466

 
1,683,611

Residential mortgage-backed securities
879,245

 
889,877

Asset-backed securities
13,185

 
13,089

Total fixed maturities
$
9,852,710

 
$
10,162,419


d) The following table presents the components of net investment income.

 
Three Months Ended March 31,
(dollars in thousands)
2019
 
2018
Interest:
 
 
 
Municipal bonds (tax-exempt)
$
18,826

 
$
20,935

Municipal bonds (taxable)
18,579

 
17,633

Other taxable bonds
40,781

 
37,469

Short-term investments, including overnight deposits
10,212

 
10,590

Dividends on equity securities
25,786

 
24,007

Income from equity method investments
1,896

 
1,778

Other
2,301

 
(110
)
 
118,381

 
112,302

Investment expenses
(4,199
)
 
(4,286
)
Net investment income
$
114,182

 
$
108,016



13


e) The following table presents net investment gains (losses) and the change in net unrealized gains on available-for-sale investments. 

 
Three Months Ended March 31,
(dollars in thousands)
2019
 
2018
Realized gains:
 
 
 
Sales and maturities of fixed maturities
$
144

 
$
141

Sales and maturities of short-term investments
1,591

 
2,865

Other
8

 
889

Total realized gains
1,743

 
3,895

Realized losses:
 
 
 
Sales and maturities of fixed maturities
(280
)
 
(952
)
Sales and maturities of short-term investments
(782
)
 
(1,158
)
Other

 
(2,731
)
Total realized losses
(1,062
)
 
(4,841
)
Net realized investment gains (losses)
681

 
(946
)
Change in fair value of equity securities:
 
 
 
Change in fair value of equity securities sold during the period
10,558

 
5,130

Change in fair value of equity securities held at the end of the period
600,952

 
(127,182
)
Change in fair value of equity securities
611,510

 
(122,052
)
Net investment gains (losses)
$
612,191

 
$
(122,998
)
Change in net unrealized gains on available-for-sale investments included in other comprehensive income (loss):
 
 
 
Fixed maturities
$
217,294

 
$
(144,168
)
Short-term investments
1,355

 
47

Net increase (decrease)
$
218,649

 
$
(144,121
)


14


5 . Fair Value Measurements

Accounting Standards Codification (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.

Investments available-for-sale and equity securities. Equity securities and available-for-sale investments are recorded at fair value on a recurring basis. Available-for-sale investments include fixed maturities and short-term investments. Short-term investments include certificates of deposit, commercial paper, discount notes and treasury bills with original maturities of one year or less. Fair value for investments available-for-sale and equity securities are determined by the Company after considering various sources of information, including information provided by a third party pricing service. The pricing service provides prices for substantially all of the Company's fixed maturities and equity securities. In determining fair value, the Company generally does not adjust the prices obtained from the pricing service. The Company obtains an understanding of the pricing service's valuation methodologies and related inputs, which include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows and prepayment speeds. The Company validates prices provided by the pricing service by reviewing prices from other pricing sources and analyzing pricing data in certain instances.

The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Level 1 investments include those traded on an active exchange, such as the New York Stock Exchange. Level 2 investments include U.S. Treasury securities, U.S. government-sponsored enterprises, municipal bonds, foreign government bonds, commercial mortgage-backed securities, residential mortgage-backed securities, asset-backed securities and corporate debt securities. Level 3 investments include the Company's investments in certain insurance-linked securities funds managed by Markel CATCo Investment Management Ltd. (MCIM), a consolidated subsidiary, that are not traded on an active exchange, as further described and defined in note 13 (the Markel CATCo Funds), and are valued using unobservable inputs.

15



Fair value for investments available-for-sale and equity securities is measured based upon quoted prices in active markets, if available. Due to variations in trading volumes and the lack of quoted market prices, fixed maturities are classified as Level 2 investments. The fair value of fixed maturities is normally derived through recent reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable data described above. If there are no recent reported trades, the fair value of fixed maturities may be derived through the use of matrix pricing or model processes, where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Significant inputs used to determine the fair value of obligations of states, municipalities and political subdivisions, corporate bonds and obligations of foreign governments include reported trades, benchmark yields, issuer spreads, bids, offers, credit information and estimated cash flows. Significant inputs used to determine the fair value of commercial mortgage-backed securities, residential mortgage-backed securities and asset-backed securities include the type of underlying assets, benchmark yields, prepayment speeds, collateral information, tranche type and volatility, estimated cash flows, credit information, default rates, recovery rates, issuer spreads and the year of issue.

Due to the significance of unobservable inputs required in measuring the fair value of the Company's investments in the Markel CATCo Funds, these investments are classified as Level 3 within the fair value hierarchy. The fair value of the securities are derived using their reported net asset value (NAV) as the primary input, as well as other observable and unobservable inputs as deemed necessary by management. Management has obtained an understanding of the inputs, assumptions, process, and controls used to determine NAV, which is calculated by an independent third party. Unobservable inputs to the NAV calculations include assumptions around premium earnings patterns and loss reserve estimates for the underlying securitized reinsurance contracts in which the Markel CATCo Funds invest. Significant unobservable inputs used in the valuation of these investments include an adjustment to include the fair value of the equity that was issued by one of the Markel CATCo Funds in exchange for notes receivable, rather than cash, which is excluded from NAV. The determination of fair value of the securities also considers external market data, including the trading price relative to its NAV of CATCo Reinsurance Opportunities Fund Ltd. (CROF), a comparable security traded on a market operated by the London Stock Exchange and on the Bermuda Stock Exchange further described in note 13 . Generally, the Company's investments in the Markel CATCo Funds are redeemable annually as of January 1 st of each calendar year. However, in years with significant loss events on the underlying securitized reinsurance contracts, as was the case in 2018 and 2017, payment for the redemption of certain investments may be restricted for up to three years.

The Company's valuation policies and procedures for Level 3 investments are determined by management. Fair value measurements are analyzed quarterly to ensure the change in fair value from prior periods is reasonable relative to management's understanding of the underlying investments, recent market trends and external market data.

Senior long-term debt and other debt. Senior long-term debt and other debt is carried at amortized cost with the estimated fair value disclosed on the consolidated balance sheets. Senior long-term debt and other debt is classified as Level 2 within the fair value hierarchy due to variations in trading volumes and the lack of quoted market prices. Fair value for senior long-term debt and other debt is generally derived through recent reported trades for identical securities, making adjustments through the reporting date, if necessary, based upon available market observable data including U.S. Treasury securities and implied credit spreads. Significant inputs used to determine the fair value of senior long-term debt and other debt include reported trades, benchmark yields, issuer spreads, bids and offers.


16


The following tables present the balances of assets measured at fair value on a recurring basis by level within the fair value hierarchy.

 
March 31, 2019
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
272,772

 
$

 
$
272,772

U.S. government-sponsored enterprises

 
367,320

 

 
367,320

Obligations of states, municipalities and political subdivisions

 
4,356,853

 

 
4,356,853

Foreign governments

 
1,606,899

 

 
1,606,899

Commercial mortgage-backed securities

 
1,683,611

 

 
1,683,611

Residential mortgage-backed securities

 
889,877

 

 
889,877

Asset-backed securities

 
13,089

 

 
13,089

Corporate bonds

 
971,998

 

 
971,998

Total fixed maturities, available-for-sale

 
10,162,419

 

 
10,162,419

Equity securities:
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
2,053,233

 

 
44,812

 
2,098,045

Industrial, consumer and all other
4,283,128

 

 

 
4,283,128

Total equity securities
6,336,361

 

 
44,812

 
6,381,173

Short-term investments, available-for-sale
646,853

 
107,435

 

 
754,288

Total investments
$
6,983,214

 
$
10,269,854

 
$
44,812

 
$
17,297,880


 
December 31, 2018
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
246,642

 
$

 
$
246,642

U.S. government-sponsored enterprises

 
359,322

 

 
359,322

Obligations of states, municipalities and political subdivisions

 
4,352,930

 

 
4,352,930

Foreign governments

 
1,559,604

 

 
1,559,604

Commercial mortgage-backed securities

 
1,650,199

 

 
1,650,199

Residential mortgage-backed securities

 
880,172

 

 
880,172

Asset-backed securities

 
19,408

 

 
19,408

Corporate bonds

 
974,911

 

 
974,911

Total fixed maturities

 
10,043,188

 

 
10,043,188

Equity securities:
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
1,876,811

 

 
53,728

 
1,930,539

Industrial, consumer and all other
3,790,406

 

 

 
3,790,406

Total equity securities
5,667,217

 

 
53,728

 
5,720,945

Short-term investments, available-for-sale
981,616

 
96,080

 

 
1,077,696

Total investments
$
6,648,833

 
$
10,139,268

 
$
53,728

 
$
16,841,829




 

17


The following table summarizes changes in Level 3 investments measured at fair value on a recurring basis.

 
Three Months Ended March 31,
(dollars in thousands)
2019
 
2018
Equity securities, beginning of period
$
53,728

 
$
168,809

Purchases

 
28,900

Sales
(6,869
)
 
(28,252
)
Net investment losses on Level 3 investments
(2,047
)
 
(18,059
)
Transfers into Level 3

 

Transfers out of Level 3

 

Equity securities, end of period
$
44,812

 
$
151,398

Net investment losses related to the Company's investments in the Markel CATCo Funds primarily resulted from decreases in the NAV of these funds in both the three months ended March 31, 2019 and 2018 .
The Company also holds an investment in CROF which is a Level 1 investment included in equity securities on the Company's consolidated balance sheets. CROF is managed by MCIM and invests substantially all of its assets in one of the unconsolidated Markel CATCo Funds. Net investment losses for the three months ended March 31, 2019 and March 31, 2018 , also included a loss of $0.5 million and $5.9 million , respectively, related to the Company's investment in CROF. At March 31, 2019 and December 31, 2018 , the fair value of the Company's investment in CROF was $4.0 million and $4.5 million , respectively.

There were no transfers into or out of Level 1 and Level 2 during the three months ended March 31, 2019 and 2018 .

The Company did not have any assets or liabilities measured at fair value on a non-recurring basis during the three months ended March 31, 2019 and 2018 .

6 . Segment Reporting Disclosures

The Company's 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 across the Company. The Reinsurance segment includes all treaty reinsurance written across the Company. All investing activities related to the Company's underwriting operations are included in the Investing segment.

The Markel Ventures segment primarily consists of controlling interests in a diverse portfolio of businesses that operate in various industries. The chief operating decision maker reviews and assesses Markel Ventures’ performance in the aggregate, as a single operating segment.

The Company's other operations include the results of the Company's program services business and the results of the Company's insurance-linked securities operations attributable to MCIM and, beginning November 2018, Nephila. The Company's other operations also include results for underwriting 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 the Company's other operations are considered to be reportable segments.

Segment profit for the Company's underwriting segments is measured by underwriting profit. The property and casualty insurance industry commonly defines underwriting profit as earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses. Underwriting profit does not replace operating income or net income computed in accordance with U.S. GAAP as a measure of profitability. Underwriting profit or loss provides a basis for management to evaluate the Company's underwriting performance. Segment profit for the Investing segment is measured by net investment income and net investment gains. Segment profit for the Markel Ventures segment is measured by operating income.


18


For management reporting purposes, the Company allocates assets to its underwriting, investing, Markel Ventures and other operations. Underwriting assets are all assets not specifically allocated to the Investing or Markel Ventures segments, or to the Company's other operations. Underwriting and investing assets are not allocated to the Insurance and Reinsurance 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.

The following tables summarize the Company's segment disclosures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
(dollars in thousands)
Insurance
 
Reinsurance
 
Investing
 
Markel Ventures (1)
 
Other (2)
 
Consolidated
Gross premium volume
$
1,192,848

 
$
513,377

 
$

 
$

 
$
548,817

 
$
2,255,042

Net written premiums
998,358

 
478,967

 

 

 
(232
)
 
1,477,093

 
 
 
 
 
 
 
 
 
 
 
 
Earned premiums
973,727

 
230,510

 

 

 
(260
)
 
1,203,977

Losses and loss adjustment expenses:
 
 
 
 
 
 
 
 
 
 
 
Current accident year
(618,498
)
 
(139,472
)
 

 

 

 
(757,970
)
Prior accident years
72,574

 
(11,295
)
 

 

 
8,945

 
70,224

Amortization of policy acquisition costs
(199,999
)
 
(61,828
)
 

 

 

 
(261,827
)
Other operating expenses
(175,721
)
 
(14,559
)
 

 

 
(3,105
)
 
(193,385
)
Underwriting profit
52,083

 
3,356

 

 

 
5,580

 
61,019

Net investment income

 

 
113,930

 
252

 

 
114,182

Net investment gains

 

 
612,191

 

 

 
612,191

Products revenues

 

 

 
348,794

 

 
348,794

Services and other revenues

 

 

 
105,969

 
87,375

 
193,344

Products expenses

 

 

 
(319,426
)
 

 
(319,426
)
Services and other expenses

 

 

 
(94,870
)
 
(79,736
)
 
(174,606
)
Amortization of intangible assets (3)

 

 

 
(10,807
)
 
(29,861
)
 
(40,668
)
Segment profit (loss)
$
52,083

 
$
3,356

 
$
726,121

 
$
29,912

 
$
(16,642
)
 
$
794,830

Interest expense
 
 
 
 
 
 
 
 
 
 
(40,290
)
Net foreign exchange losses
 
 
 
 
 
 
 
 
 
 
(21,864
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
$
732,676

U.S. GAAP combined ratio (4)
95
%
 
99
%
 
 
 
 
 
NM

(5)  
95
%
(1)  
Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $14.0 million for the three months ended March 31, 2019 .
(2)  
Other represents the total profit (loss) attributable to the Company's operations that are not included in a reportable segment as well as any amortization of intangible assets that are not allocated to a reportable segment.
(3)  
Segment profit for the Markel Ventures segment includes amortization of intangible assets attributable to Markel Ventures. Amortization of intangible assets is not allocated to any other reportable segments.
(4)  
The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition and insurance expenses to earned premiums.
(5)  
NM - Ratio is not meaningful



19


 
Three Months Ended March 31, 2018
(dollars in thousands)
Insurance
 
Reinsurance
 
Investing
 
Markel Ventures (1)
 
Other (2)
 
Consolidated
Gross premium volume
$
1,093,362

 
$
492,333

 
$

 
$

 
$
461,189

 
$
2,046,884

Net written premiums
912,979

 
421,058

 

 

 
765

 
1,334,802

 
 
 
 
 
 
 
 
 
 
 
 
Earned premiums
902,851

 
247,964

 

 

 
206

 
1,151,021

Losses and loss adjustment expenses:
 
 
 
 
 
 
 
 
 
 
 
Current accident year
(570,027
)
 
(153,181
)
 

 

 

 
(723,208
)
Prior accident years
119,173

 
(13,071
)
 

 

 
1,988

 
108,090

Amortization of policy acquisition costs
(179,485
)
 
(62,420
)
 

 

 

 
(241,905
)
Other operating expenses
(169,971
)
 
(12,130
)
 

 

 
(384
)
 
(182,485
)
Underwriting profit
102,541

 
7,162

 

 

 
1,810

 
111,513

Net investment income

 

 
107,894

 
122

 

 
108,016

Net investment losses

 

 
(122,998
)
 

 

 
(122,998
)
Products revenues

 

 

 
294,136

 

 
294,136

Services and other revenues

 

 

 
97,921

 
47,375

 
145,296

Products expenses

 

 

 
(269,697
)
 

 
(269,697
)
Services and other expenses

 

 

 
(88,608
)
 
(43,825
)
 
(132,433
)
Amortization of intangible assets (3)

 

 

 
(10,097
)
 
(18,726
)
 
(28,823
)
Segment profit (loss)
$
102,541

 
$
7,162

 
$
(15,104
)
 
$
23,777

 
$
(13,366
)
 
$
105,010

Interest expense
 
 
 
 
 
 
 
 
 
 
(40,059
)
Net foreign exchange losses