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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
 FORM 10-Q
______________________________________________________________________________________
 
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2020
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of exchange on which registered
Common Stock, no par value
 
MKL
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes x No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer  
Non-accelerated filer  
Smaller reporting company
Emerging growth company 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  x
Number of shares of the registrant's common stock outstanding at April 21, 2020: 13,775,308


Table of Contents

Markel Corporation
Form 10-Q
Index
 
 
 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
32
 
 
 
52
 
 
 
53
 
 
54
 
 
 
 
 
 
57
 
 
 
58
 
 
 
62
 
 
 
63
 
 
65

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(dollars in thousands)
 
March 31,
2020
 
December 31,
2019
 
(unaudited)
 
 
ASSETS
 
 
 
Investments, at estimated fair value:
 
 
 
Fixed maturities, available-for-sale (amortized cost of $9,504,718 in 2020 and $9,448,840 in 2019)
$
10,123,615

 
$
9,970,909

Equity securities (cost of $3,234,028 in 2020 and $3,266,735 in 2019)
5,684,087

 
7,590,755

Short-term investments, available-for-sale (estimated fair value approximates cost)
250,872

 
1,196,248

Total Investments
16,058,574

 
18,757,912

Cash and cash equivalents
3,834,664

 
3,072,807

Restricted cash and cash equivalents
623,660

 
427,546

Receivables
2,088,579

 
1,847,802

Reinsurance recoverables
5,439,942

 
5,432,712

Deferred policy acquisition costs
630,600

 
566,042

Prepaid reinsurance premiums
1,260,009

 
1,415,857

Goodwill
2,309,576

 
2,308,548

Intangible assets
1,692,248

 
1,738,474

Other assets
2,110,935

 
1,906,115

Total Assets
$
36,048,787

 
$
37,473,815

LIABILITIES AND EQUITY
 
 
 
Unpaid losses and loss adjustment expenses
$
15,038,812

 
$
14,728,676

Life and annuity benefits
975,485

 
985,729

Unearned premiums
4,190,216

 
4,057,727

Payables to insurance and reinsurance companies
280,405

 
406,720

Senior long-term debt and other debt (estimated fair value of $3,587,000 in 2020 and $3,907,000 in 2019)
3,593,954

 
3,534,183

Other liabilities
2,082,168

 
2,504,802

Total Liabilities
26,161,040

 
26,217,837

Redeemable noncontrolling interests
155,417

 
177,562

Commitments and contingencies

 

Shareholders' equity:
 
 
 
Common stock
3,419,528

 
3,404,919

Retained earnings
6,039,474

 
7,457,176

Accumulated other comprehensive income
261,726

 
208,772

Total Shareholders' Equity
9,720,728

 
11,070,867

Noncontrolling interests
11,602

 
7,549

Total Equity
9,732,330

 
11,078,416

Total Liabilities and Equity
$
36,048,787

 
$
37,473,815

See accompanying notes to consolidated financial statements.

3


MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(dollars in thousands, except per share data)
OPERATING REVENUES
 
 
 
Earned premiums
$
1,330,709

 
$
1,203,977

Net investment income
88,243

 
114,182

Net investment gains (losses):
 
 
 
Net realized investment gains
9,738

 
681

Change in fair value of equity securities
(1,691,179
)
 
611,510

Net investment gains (losses)
(1,681,441
)
 
612,191

Products revenues
352,161

 
348,794

Services and other revenues
245,994

 
193,344

Total Operating Revenues
335,666

 
2,472,488

OPERATING EXPENSES
 
 
 
Losses and loss adjustment expenses
1,076,348

 
687,746

Underwriting, acquisition and insurance expenses
495,163

 
455,212

Products expenses
314,071

 
319,426

Services and other expenses
217,556

 
174,606

Amortization of intangible assets
37,858

 
40,668

Total Operating Expenses
2,140,996

 
1,677,658

Operating Income (Loss)
(1,805,330
)
 
794,830

Interest expense
(45,030
)
 
(40,290
)
Net foreign exchange gains (losses)
78,301

 
(21,864
)
Income (Loss) Before Income Taxes
(1,772,059
)
 
732,676

Income tax (expense) benefit
370,683

 
(155,163
)
Net Income (Loss)
(1,401,376
)
 
577,513

Net income attributable to noncontrolling interests
(4,387
)
 
(1,086
)
Net Income (Loss) to Shareholders
$
(1,405,763
)
 
$
576,427

 
 
 
 
OTHER COMPREHENSIVE INCOME
 
 
 
Change in net unrealized gains on available-for-sale investments, net of taxes:
 
 
 
Net holding gains arising during the period
$
64,377

 
$
152,331

Reclassification adjustments for net gains (losses) included in net income (loss)
1,187

 
(246
)
Change in net unrealized gains on available-for-sale investments, net of taxes
65,564

 
152,085

Change in foreign currency translation adjustments, net of taxes
(12,734
)
 
2,377

Change in net actuarial pension loss, net of taxes

 
1,361

Total Other Comprehensive Income
52,830

 
155,823

Comprehensive Income (Loss)
(1,348,546
)
 
733,336

Comprehensive income attributable to noncontrolling interests
(4,263
)
 
(1,091
)
Comprehensive Income (Loss) to Shareholders
$
(1,352,809
)
 
$
732,245

 
 
 
 
NET INCOME (LOSS) PER SHARE
 
 
 
Basic
$
(100.60
)
 
$
42.81

Diluted
$
(100.60
)
 
$
42.76


See accompanying notes to consolidated financial statements.

4


MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2020
Common Shares
 
Common
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Shareholders'
Equity
 
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
Interests
(in thousands)
 
December 31, 2019
13,794

 
$
3,404,919

 
$
7,457,176

 
$
208,772

 
$
11,070,867

 
$
7,549

 
$
11,078,416

 
$
177,562

Cumulative effect of adoption of ASU No. 2016-13, net of taxes
 
 
 
 
(3,827
)
 

 
(3,827
)
 

 
(3,827
)
 

January 1, 2020
13,794

 
3,404,919

 
7,453,349

 
208,772

 
11,067,040

 
7,549

 
11,074,589

 
177,562

Net income (loss)
 
 
 
 
(1,405,763
)
 

 
(1,405,763
)
 
3,301

 
(1,402,462
)
 
1,086

Other comprehensive income (loss)
 
 
 
 

 
52,954

 
52,954

 

 
52,954

 
(124
)
Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
(1,352,809
)
 
3,301

 
(1,349,508
)
 
962

Issuance of common stock
2

 
57

 

 

 
57

 

 
57

 

Repurchase of common stock
(21
)
 

 
(23,865
)
 

 
(23,865
)
 

 
(23,865
)
 

Restricted stock units expensed

 
19,369

 

 

 
19,369

 

 
19,369

 

Adjustment of redeemable noncontrolling interests

 

 
16,013

 

 
16,013

 

 
16,013

 
(16,013
)
Purchase of noncontrolling interest

 
(4,833
)
 

 

 
(4,833
)
 

 
(4,833
)
 
(5,252
)
Other

 
16

 
(260
)
 

 
(244
)
 
752

 
508

 
(1,842
)
March 31, 2020
13,775

 
$
3,419,528

 
$
6,039,474

 
$
261,726

 
$
9,720,728

 
$
11,602

 
$
9,732,330

 
$
155,417

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
Common Shares
 
Common
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders'
Equity
 
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
Interests
(in thousands)
 
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


MARKEL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(dollars in thousands)
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
(1,401,376
)
 
$
577,513

Adjustments to reconcile net income (loss) to net cash provided by operating activities
1,467,054

 
(558,790
)
Net Cash Provided By Operating Activities
65,678

 
18,723

INVESTING ACTIVITIES
 
 
 
Proceeds from sales of fixed maturities and equity securities
266,421

 
133,453

Proceeds from maturities, calls and prepayments of fixed maturities
104,226

 
128,449

Cost of fixed maturities and equity securities purchased
(382,415
)
 
(227,556
)
Net change in short-term investments
942,695

 
329,659

Proceeds from sales of equity and cost method investments
15,167

 
55

Additions to property and equipment
(29,907
)
 
(24,756
)
Proceeds from disposals of fixed assets
381

 
13,955

Acquisitions, net of cash acquired

 
(9,400
)
Other
(9,949
)
 
(1,739
)
Net Cash Provided By Investing Activities
906,619

 
342,120

FINANCING ACTIVITIES
 
 
 
Additions to senior long-term debt and other debt
89,428

 
87,356

Repayment of senior long-term debt and other debt
(30,274
)
 
(36,100
)
Repurchases of common stock
(23,865
)
 
(37,649
)
Purchase of noncontrolling interests
(11,483
)
 
(9,754
)
Distributions to noncontrolling interests
(1,842
)
 
(2,808
)
Other
(1,057
)
 
(1,114
)
Net Cash Provided (Used) By Financing Activities
20,907

 
(69
)
Effect of foreign currency rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
(35,233
)
 
7,199

Increase in cash, cash equivalents, restricted cash and restricted cash equivalents
957,971

 
367,973

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
3,500,353

 
2,396,432

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS AT END OF PERIOD
$
4,458,324

 
$
2,764,405


See accompanying notes to consolidated financial statements.

6


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, 2020 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, 2020 and 2019 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, 2019 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. The following accounting policies were updated to reflect accounting pronouncements that became effective in 2020. See note 2. Readers are urged to review the Company's 2019 Annual Report on Form 10-K for a more complete description of the Company's business and accounting policies.

b)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 earnings.

The Company completes a detailed analysis each quarter to assess declines in the fair value of available-for-sale investments. Effective January 1, 2020, the Company adopted Financial Accounting Standards Board (FASB) 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 the ASU, prior periods have not been restated.  

Premiums and discounts are amortized or accreted over the lives of the related fixed maturities as an adjustment to the yield using the effective interest method. Dividend and interest income are recognized when earned. The Company excludes accrued interest receivable from both the estimated fair value and the amortized cost basis of available-for-sale securities and includes such amount 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 earnings. Realized gains or losses from sales of available-for-sale investments are derived using the first-in, first-out method on the trade date.


7


c)    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 2, beginning January 1, 2020 an allowance is established for expected credit losses to be recognized over the life of the receivable. The Company considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions when estimating the allowance for credit losses. The Company uses information obtained from external sources to forecast short-term changes in macroeconomic conditions that are expected to impact the Company’s exposure to credit losses. 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.

d)    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 2, beginning January 1, 2020 the allowance is established for expected credit losses to be recognized over the life of the receivable. The Company considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions when estimating the allowance for credit losses. The Company uses information obtained from external sources to forecast short-term changes in macroeconomic conditions that are expected to impact the Company’s exposure to credit losses. 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.

2. 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 CECL, allowances are established for expected credit losses to be recognized over the life of financial assets. Application of the CECL model does not impact the Company's investment portfolio, which is not measured at amortized cost, but it impacts certain of the Company's other financial assets, including its reinsurance recoverables and receivables. ASC 326 also replaced the OTTI model with an impairment allowance model, subject to reversal, for available-for-sale investments, which are measured at fair value. 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 issued by the FASB 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
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


8


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 ASU requires insurance entities with long duration contracts to: (1) review and, if there is a change, update the assumptions used to measure cash flows at least annually, as well as update the discount rate assumption at each reporting date; (2) measure all market risk benefits associated with deposit (or account balance) contracts at fair value; and (3) disclose liability rollforwards and information about significant inputs, judgments, assumptions and methods used in measurement, including changes thereto and the effect of those changes on measurement. In August 2019, the FASB proposed an update to ASU No. 2018-12 to defer its effective date. The proposed update would make the ASU effective for the Company during the first quarter of 2022. ASU No. 2018-12 will, among other things, impact the discount rate used in estimating reserves for the Company’s life and annuity reinsurance portfolio, which is in runoff. Currently, the discount rate assumption is locked-in for the life of the contracts, unless there is a loss recognition event. The Company is currently evaluating ASU No. 2018-12 to determine the impact that adopting this standard will have on its consolidated financial statements.

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. 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

3. Acquisitions

VSC Fire & Security, Inc.

In November 2019, the Company acquired VSC Fire & Security, Inc. (VSC), a provider of comprehensive fire protection, life safety, and low voltage solutions to retailers, commercial campuses, healthcare facilities, and government properties throughout the southeastern United States. Total consideration for the acquisition was $225.0 million, which included cash consideration of $204.0 million. Total consideration also 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 the first quarter of 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 includes $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.


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. The net unrealized holding gains in the tables below are presented before taxes and any reserve deficiency adjustments for life and annuity benefit reserves. See note 11.

 
March 31, 2020
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Allowance for
Credit
     Losses (1)
 
Estimated
Fair
Value
Fixed maturities:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
320,475

 
$
11,932

 
$
(29
)
 
$

 
$
332,378

U.S. government-sponsored enterprises
324,596

 
48,688

 

 

 
373,284

Obligations of states, municipalities and political subdivisions
3,969,616

 
248,875

 
(4,090
)
 

 
4,214,401

Foreign governments
1,405,153

 
141,236

 
(29,019
)
 

 
1,517,370

Commercial mortgage-backed securities
1,820,232

 
104,386

 
(451
)
 

 
1,924,167

Residential mortgage-backed securities
849,171

 
71,191

 
(265
)
 

 
920,097

Asset-backed securities
8,648

 
1

 
(40
)
 

 
8,609

Corporate bonds
806,827

 
34,672

 
(6,451
)
 
(1,739
)
 
833,309

Total fixed maturities
9,504,718

 
660,981

 
(40,345
)
 
(1,739
)
 
10,123,615

Short-term investments
256,283

 
429

 
(5,840
)
 

 
250,872

Investments, available-for-sale
$
9,761,001

 
$
661,410

 
$
(46,185
)
 
$
(1,739
)
 
$
10,374,487


(1) 
Effective January 1, 2020, the Company adopted ASC 326 and as a result any impairment losses on the Company's available-for-sale investments are recorded as an allowance, subject to reversal. Prior periods have not been restated to conform with the current year presentation. See note 1.

 
December 31, 2019
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Estimated
Fair
Value
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasury securities
$
282,305

 
$
2,883

 
$
(402
)
 
$
284,786

U.S. government-sponsored enterprises
318,831

 
23,949

 
(200
)
 
342,580

Obligations of states, municipalities and political subdivisions
3,954,779

 
235,915

 
(812
)
 
4,189,882

Foreign governments
1,415,639

 
135,763

 
(9,398
)
 
1,542,004

Commercial mortgage-backed securities
1,761,777

 
57,450

 
(1,382
)
 
1,817,845

Residential mortgage-backed securities
855,641

 
32,949

 
(517
)
 
888,073

Asset-backed securities
11,042

 
28

 
(22
)
 
11,048

Corporate bonds
848,826

 
47,551

 
(1,686
)
 
894,691

Total fixed maturities
9,448,840

 
536,488

 
(14,419
)
 
9,970,909

Short-term investments
1,194,953

 
1,355

 
(60
)
 
1,196,248

Investments, available-for-sale
$
10,643,793

 
$
537,843

 
$
(14,479
)
 
$
11,167,157




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, 2020
 
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
$
3,299

 
$
(29
)
 
$

 
$

 
$
3,299

 
$
(29
)
Obligations of states, municipalities and political subdivisions
125,241

 
(3,988
)
 
3,021

 
(102
)
 
128,262

 
(4,090
)
Foreign governments
315,196

 
(11,902
)
 
166,516

 
(17,117
)
 
481,712

 
(29,019
)
Commercial mortgage-backed securities
31,968

 
(299
)
 
22,584

 
(152
)
 
54,552

 
(451
)
Residential mortgage-backed securities
3,441

 
(102
)
 
8,085

 
(163
)
 
11,526

 
(265
)
Asset-backed securities
6,653

 
(31
)
 
1,949

 
(9
)
 
8,602

 
(40
)
Corporate bonds
205,086

 
(4,547
)
 
40,188

 
(1,904
)
 
245,274

 
(6,451
)
Total fixed maturities
690,884

 
(20,898
)
 
242,343

 
(19,447
)
 
933,227

 
(40,345
)
Short-term investments
70,547

 
(5,840
)
 

 

 
70,547

 
(5,840
)
Total
$
761,431

 
$
(26,738
)
 
$
242,343

 
$
(19,447
)
 
$
1,003,774

 
$
(46,185
)


At March 31, 2020, the Company held 242 available-for-sale securities with a total estimated fair value of $1.0 billion and gross unrealized losses of $46.2 million. Of these 242 securities, 64 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $242.3 million and gross unrealized losses of $19.4 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.

 
December 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
$
36,862

 
$
(361
)
 
$
46,518

 
$
(41
)
 
$
83,380

 
$
(402
)
U.S. government-sponsored enterprises
24,148

 
(197
)
 
2,868

 
(3
)
 
27,016

 
(200
)
Obligations of states, municipalities and political subdivisions
127,836

 
(702
)
 
6,830

 
(110
)
 
134,666

 
(812
)
Foreign governments
162,907

 
(3,393
)
 
159,888

 
(6,005
)
 
322,795

 
(9,398
)
Commercial mortgage-backed securities
202,530

 
(1,126
)
 
33,853

 
(256
)
 
236,383

 
(1,382
)
Residential mortgage-backed securities
11,706

 
(66
)
 
58,162

 
(451
)
 
69,868

 
(517
)
Asset-backed securities

 

 
3,632

 
(22
)
 
3,632

 
(22
)
Corporate bonds
41,847

 
(1,287
)
 
40,274

 
(399
)
 
82,121

 
(1,686
)
Total fixed maturities
607,836

 
(7,132
)
 
352,025

 
(7,287
)
 
959,861

 
(14,419
)
Short-term investments
3,316

 
(60
)
 

 

 
3,316

 
(60
)
Total
$
611,152

 
$
(7,192
)
 
$
352,025

 
$
(7,287
)
 
$
963,177

 
$
(14,479
)


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.

11



Following the adoption of ASC 326, as described in note 1, 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, which 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 also considers whether it intends to sell an available-for-sale security or if it is more likely than not that 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 maturities at March 31, 2020 are shown below by contractual maturity.

(dollars in thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
333,013

 
$
324,193

Due after one year through five years
1,265,722

 
1,298,257

Due after five years through ten years
2,178,183

 
2,305,468

Due after ten years
3,049,749

 
3,342,824

 
6,826,667

 
7,270,742

Commercial mortgage-backed securities
1,820,232

 
1,924,167

Residential mortgage-backed securities
849,171

 
920,097

Asset-backed securities
8,648

 
8,609

Total fixed maturities
$
9,504,718

 
$
10,123,615



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

 
Three Months Ended March 31,
(dollars in thousands)
2020
 
2019
Interest:
 
 
 
Municipal bonds (tax-exempt)
$
16,601

 
$
18,826

Municipal bonds (taxable)
16,895

 
18,579

Other taxable bonds
39,972

 
40,781

Short-term investments, including overnight deposits
10,243

 
10,212

Dividends on equity securities
28,614

 
25,786

Income (loss) from equity method investments
(19,979
)
 
1,896

Other
757

 
2,301

 
93,103

 
118,381

Investment expenses
(4,860
)
 
(4,199
)
Net investment income
$
88,243

 
$
114,182




12


e)The following table presents net investment gains (losses) and the change in net unrealized gains included in other comprehensive income. 

 
Three Months Ended March 31,
(dollars in thousands)
2020
 
2019
Realized gains:
 
 
 
Sales and maturities of fixed maturities
$
1,385

 
$
144

Sales and maturities of short-term investments
98

 
1,591

Sales of cost method investments
11,167

 

Other
1,749

 
8

Total realized gains
14,399

 
1,743

Realized losses:
 
 
 
Sales and maturities of fixed maturities
(2,884
)
 
(280
)
Sales and maturities of short-term investments
(172
)
 
(782
)
Other
(1,605
)
 

Total realized losses
(4,661
)
 
(1,062
)
Net realized investment gains
9,738

 
681

Change in fair value of equity securities:
 
 
 
Equity securities sold during the period
(39,065
)
 
10,558

Equity securities held at the end of the period
(1,652,114
)
 
600,952

Change in fair value of equity securities
(1,691,179
)
 
611,510

Net investment gains (losses)
$
(1,681,441
)
 
$
612,191

Change in net unrealized gains on available-for-sale investments included in other comprehensive income:
 
 
 
Fixed maturities
$
98,567

 
$
217,294

Short-term investments
(6,706
)
 
1,355

Reserve deficiency adjustment for life and annuity benefit reserves (see note 11)
(12,872
)
 
(25,813
)
Net increase
$
78,989

 
$
192,836




13


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

The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Level 1 investments include those traded on an active exchange, such as the New York Stock Exchange. Level 2 investments include U.S. Treasury securities, U.S. government-sponsored enterprises, municipal bonds, foreign government bonds, commercial mortgage-backed securities, residential mortgage-backed securities, asset-backed securities and corporate debt securities. Level 3 investments include the Company's investments in certain insurance-linked securities funds managed by Markel CATCo Investment Management Ltd. (MCIM), a consolidated subsidiary, that are not traded on an active exchange, as further described and defined in note 12 (the Markel CATCo Funds), and are valued using unobservable inputs.

14



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

Due to the significance of unobservable inputs required in measuring the fair value of the Company's investments in the Markel CATCo Funds, these investments are classified as Level 3 within the fair value hierarchy. The fair value of the securities are derived using their reported net asset value (NAV) as the primary input, as well as other observable and unobservable inputs as deemed necessary by management. Management has obtained an understanding of the inputs, assumptions, process and controls used to determine NAV, which is calculated by an independent third party. Unobservable inputs to the NAV calculations include assumptions around premium earnings patterns and loss reserve estimates for the underlying securitized reinsurance contracts in which the Markel CATCo Funds invest. Significant unobservable inputs used 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. In July 2019, the Markel CATCo Funds were placed into run-off and capital is being returned to investors as it becomes available. However, due to the significant loss events on the underlying securitized reinsurance contracts in 2017 and 2018, portions of the Company's investments may be restricted up to three years.

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

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


15


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, 2020
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Fixed maturities, available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
332,378

 
$

 
$
332,378

U.S. government-sponsored enterprises

 
373,284

 

 
373,284

Obligations of states, municipalities and political subdivisions

 
4,214,401

 

 
4,214,401

Foreign governments

 
1,517,370

 

 
1,517,370

Commercial mortgage-backed securities

 
1,924,167

 

 
1,924,167

Residential mortgage-backed securities

 
920,097

 

 
920,097

Asset-backed securities

 
8,609

 

 
8,609

Corporate bonds

 
833,309

 

 
833,309

Total fixed maturities, available-for-sale

 
10,123,615

 

 
10,123,615

Equity securities:
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
1,940,775

 

 
131,307

 
2,072,082

Industrial, consumer and all other
3,612,005

 

 

 
3,612,005

Total equity securities
5,552,780

 

 
131,307

 
5,684,087

Short-term investments, available-for-sale
151,000

 
99,872

 

 
250,872

Total investments
$
5,703,780

 
$
10,223,487

 
$
131,307

 
$
16,058,574


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

 
$
284,786

 
$

 
$
284,786

U.S. government-sponsored enterprises

 
342,580

 

 
342,580

Obligations of states, municipalities and political subdivisions

 
4,189,882

 

 
4,189,882

Foreign governments

 
1,542,004

 

 
1,542,004

Commercial mortgage-backed securities

 
1,817,845

 

 
1,817,845

Residential mortgage-backed securities

 
888,073

 

 
888,073

Asset-backed securities

 
11,048

 

 
11,048

Corporate bonds

 
894,691

 

 
894,691

Total fixed maturities, available-for-sale

 
9,970,909

 

 
9,970,909

Equity securities:
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
2,463,190

 

 
45,992

 
2,509,182

Industrial, consumer and all other
5,081,573

 

 

 
5,081,573

Total equity securities
7,544,763

 

 
45,992

 
7,590,755

Short-term investments, available-for-sale
1,093,799

 
102,449

 

 
1,196,248

Total investments
$
8,638,562

 
$
10,073,358

 
$
45,992

 
$
18,757,912




16


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)
2020
 
2019
Equity securities, beginning of period
$
45,992

 
$
53,728

Purchases
90,000

 

Sales
(1,364
)
 
(6,869
)
Net investment losses on Level 3 investments
(3,321
)
 
(2,047
)
Transfers into Level 3

 

Transfers out of Level 3

 

Equity securities, end of period
$
131,307

 
$
44,812


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 replaces 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 in 2020. Underwriting results for the 2020 loss exposures on these contracts are attributed to the Company through its investment in the fund.

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, 2020 and 2019.

6. Receivables

The following table presents the components of receivables and the related allowance for credit losses.

(dollars in thousands)
March 31, 2020
 
December 31, 2019
Amounts receivable from agents, brokers and insureds
$
1,657,896

 
$
1,424,881

Trade accounts receivable
259,360

 
259,062

Other
194,173

 
182,582

 
2,111,429

 
1,866,525

Allowance for credit losses
(22,850
)
 
(18,723
)
Receivables
$
2,088,579

 
$
1,847,802


Following the adoption of ASC 326, as described in note 1, beginning January 1, 2020 the Company considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions to determine the allowance for credit losses. The increase in the allowance for credit losses on receivables from December 31, 2019 to March 31, 2020 reflects the impact of adopting this standard effective January 1, 2020 as well as a decline in short-term economic conditions as forecasted during the first quarter of 2020 as a result of expected impacts from the COVID-19 pandemic.

17


7. 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 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 program services and insurance-linked securities operations. Underwriting assets include assets attributed to the Company's Insurance and Reinsurance segments, discontinued underwriting lines of business, as well as assets that are not specifically allocated to the Company's other operations. Underwriting and investing assets are not allocated to the Company's underwriting segments since the Company does not manage its assets by underwriting segment. The Company does not allocate capital expenditures for long-lived assets to either of its underwriting segments for management reporting purposes.


18


a)
The following tables summarize the Company's segment disclosures.
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
Three Months Ended March 31, 2020
(dollars in thousands)
Insurance
 
Reinsurance
 
Investing
 
Markel Ventures (1)
 
Other (2)
 
Consolidated
Gross premium volume
$
1,414,711

 
$
513,186

 
$

 
$

 
$
394,927

 
$
2,322,824

Net written premiums
1,195,737

 
452,749

 

 

 
(2,008
)
 
1,646,478

 
 
 
 
 
 
 
 
 
 
 
 
Earned premiums
1,106,851

 
225,960

 

 

 
(2,102
)
 
1,330,709

Losses and loss adjustment expenses:
 
 
 
 
 
 
 
 
 
 
 
Current accident year
(1,006,635
)
 
(173,730
)
 

 

 

 
(1,180,365
)
Prior accident years
116,132

 
(13,912
)
 

 

 
1,797

 
104,017

Amortization of policy acquisition costs
(239,420
)
 
(56,391
)
 

 

 

 
(295,811
)
Other operating expenses
(183,302
)
 
(15,886
)
 

 

 
(164
)
 
(199,352
)
Underwriting loss
(206,374
)
 
(33,959
)
 

 

 
(469
)
 
(240,802
)
Net investment income

 

 
88,059

 
184

 

 
88,243

Net investment losses

 

 
(1,681,441
)
 

 

 
(1,681,441
)
Products revenues

 

 

 
352,161

 

 
352,161

Services and other revenues

 

 

 
158,876

 
87,118

 
245,994

Products expenses

 

 

 
(314,071
)
 

 
(314,071
)
Services and other expenses

 

 

 
(143,552
)
 
(74,004
)
 
(217,556
)
Amortization of intangible assets (3)

 

 

 
(11,841
)
 
(26,017
)
 
(37,858
)
Segment profit (loss)
$
(206,374
)
 
$
(33,959
)
 
$
(1,593,382
)
 
$
41,757

 
$
(13,372
)
 
$
(1,805,330
)
Interest expense
 
 
 
 
 
 
 
 
 
 
(45,030
)
Net foreign exchange gains
 
 
 
 
 
 
 
 
 
 
78,301

Loss before income taxes
 
 
 
 
 
 
 
 
 
 
$
(1,772,059
)
U.S. GAAP combined ratio (4)
119
%
 
115
%
 
 
 
 
 
NM

(5) 
118
%

(1) 
Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $13.9 million for the three months ended March 31, 2020.
(2) 
Other represents the total profit (loss) attributable to the Company's operations that are not included in a reportable segment as well as any amortization of intangible assets that is not allocated to a reportable segment. Amortization of intangible assets attributable to the Company's underwriting segments was $10.5 million for the three months ended March 31, 2020, however, the Company does not allocate amortization of intangible assets between the Insurance and Reinsurance segments.
(3) 
Segment profit for the Markel Ventures segment includes amortization of intangible assets attributable to Markel Ventures. Amortization of intangible assets is not allocated to the Company's Insurance and Reinsurance 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, 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