NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Markel Corporation is a diverse financial holding company serving a variety of niche markets. Markel Corporation's principal business markets and underwrites specialty insurance products. Through its wholly owned subsidiary, Markel Ventures, Inc. (Markel Ventures), Markel Corporation also owns interests in various businesses that operate outside of the specialty insurance marketplace. See note 2 for details regarding reportable segments.
a) Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) and include the accounts of Markel Corporation and its consolidated subsidiaries, as well as any variable interest entities (VIEs) that meet the requirements for consolidation (the Company). All significant intercompany balances and transactions have been eliminated in consolidation. The Company consolidates the results of its Markel Ventures subsidiaries on a one-month lag, with the exception of significant transactions or events that occur during the intervening period. Certain prior year amounts have been reclassified to conform to the current presentation.
b) Use of Estimates. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Management periodically reviews its estimates and assumptions. Quarterly reviews include evaluating the adequacy of reserves for unpaid losses and loss adjustment expenses, life and annuity reinsurance benefit reserves and contingencies. Estimates and assumptions for goodwill and intangible assets are reviewed in conjunction with an acquisition, and goodwill and indefinite-lived intangible assets are reassessed at least annually for impairment. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements.
c) Investments. Available-for-sale investments and equity securities are recorded at estimated fair value. Unrealized gains and losses on available-for-sale investments, net of income taxes, are included in other comprehensive income. Unrealized gains and losses on equity securities, net of income taxes, are included in net income.
The Company completes a detailed analysis each quarter to assess declines in the fair value of its available-for-sale investments. Effective January 1, 2020, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and related amendments, which created a new comprehensive credit losses standard, FASB Accounting Standards Codification (ASC) 326, Financial Instruments—Credit Losses. Upon adoption of ASC 326, any impairment losses on the Company's available-for-sale investments are recorded as an allowance, subject to reversal, rather than as a reduction in amortized cost, as was required under the previous other-than-temporary impairment (OTTI) model. In accordance with the provisions of ASU No. 2016-13, prior periods have not been restated. See note 1(w) for further discussion of the impact of adopting this standard.
Premiums and discounts are amortized or accreted over the lives of the related fixed maturity securities as an adjustment to the yield using the effective interest method. Dividend and interest income are recognized when earned. Accrued interest receivable is excluded from both the estimated fair value and the amortized cost basis of available-for-sale securities and included within other assets on the Company's consolidated balance sheets. Any uncollectible accrued interest receivable is written off in the period it is deemed uncollectible. Realized investment gains or losses on available-for-sale investments are included in net income. Realized gains or losses from sales of available-for-sale investments are derived using the first-in, first-out method on the trade date.
Investments accounted for under the equity method of accounting are recorded at cost within other assets on the consolidated balance sheets and subsequently increased or decreased by the Company's proportionate share of the net income or loss of the investee. The Company records its proportionate share of net income or loss of the investee in net investment income. The Company records its proportionate share of other comprehensive income or loss of the investee as a component of other comprehensive income. Dividends or other equity distributions in excess of the Company's cumulative equity in earnings of the investee are recorded as a reduction of the investment. The Company reviews equity method investments for impairment when events or circumstances indicate that a decline in the fair value of the investment below its carrying value is other-than-temporary.
See note 4 and note 5 for further details regarding the Company's investment portfolio.
d) Cash and Cash Equivalents. The Company considers all investments with original maturities of 90 days or less to be cash equivalents. The carrying value of the Company's cash and cash equivalents approximates fair value.
e) Restricted Cash and Cash Equivalents. Cash and cash equivalents that are restricted as to withdrawal or use are recorded as restricted cash and cash equivalents. The carrying value of the Company's restricted cash and cash equivalents approximates fair value.
f) Receivables. Receivables include amounts receivable from agents, brokers and insureds, which represent premiums that are both currently due and amounts not yet due on insurance and reinsurance policies. Premiums for insurance policies are generally due at inception. Premiums for reinsurance policies generally become due over the period of coverage based on the policy terms. Changes in the estimate of reinsurance premiums written will result in an adjustment to premiums receivable in the period they are determined. Receivables also include amounts receivable from contracts with customers, which represent the Company's unconditional right to consideration for satisfying the performance obligations outlined in the contract.
The Company monitors credit risk associated with receivables, taking into consideration the fact that in certain instances in the Company's insurance operations credit risk may be reduced by the Company's right to offset loss obligations or unearned premiums against premiums receivable. An allowance is established for amounts deemed uncollectible and receivables are recorded net of this allowance. Following the adoption of ASC 326, as described in note 1(w), beginning January 1, 2020 the allowance is established for expected credit losses to be recognized over the life of the receivable. Any allowance for credit losses is charged to net income in the period the receivable is recorded and revised in subsequent periods to reflect changes in the Company's estimate of expected credit losses. The allowance for credit losses associated with the Company's receivables was $24.2 million and $18.7 million as of December 31, 2020 and 2019, respectively.
g) Reinsurance Recoverables. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business. The Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk to minimize its exposure to significant losses from individual reinsurers. To further reduce credit exposure on reinsurance recoverables, the Company has received collateral, including letters of credit and trust accounts, from certain reinsurers. Collateral related to these reinsurance agreements is available, without restriction, when the Company pays losses covered by the reinsurance agreements. An allowance is established for amounts deemed uncollectible and reinsurance recoverables are recorded net of this allowance. Following the adoption of ASC 326, as described in note 1(w), beginning January 1, 2020 the allowance is established for expected credit losses to be recognized over the life of the reinsurance recoverable. Any allowance for credit losses is charged to net income in the period the recoverable is recorded and revised in subsequent periods to reflect changes in the Company's estimate of expected credit losses. The allowance for credit losses associated with the Company's reinsurance recoverables was $28.4 million and $26.8 million as of December 31, 2020 and 2019, respectively.
h) Deferred Policy Acquisition Costs. Costs directly related to the acquisition of insurance premiums are deferred and amortized over the related policy period, generally one year. The Company only defers acquisition costs incurred that are related directly to the successful acquisition of new or renewal insurance contracts, including commissions to agents and brokers and premium taxes. Commissions received related to reinsurance premiums ceded are netted against broker commissions in determining acquisition costs eligible for deferral. To the extent that future policy revenues on existing policies are not adequate to cover related costs and expenses, deferred policy acquisition costs are charged to earnings. The Company does not consider anticipated investment income in determining whether a premium deficiency exists. See note 2(a) and (e) for further details regarding policy acquisition costs.
i) Goodwill and Intangible Assets. Goodwill and intangible assets are recorded as a result of business acquisitions. Goodwill represents the excess of the amount paid to acquire a business over the net fair value of assets acquired and liabilities assumed at the date of acquisition. Indefinite-lived and other intangible assets are recorded at fair value as of the acquisition date. The determination of the fair value of certain assets acquired and liabilities assumed involves significant judgment and the use of valuation models and other estimates, which require assumptions that are inherently subjective. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. The Company completes an annual test during the fourth quarter of each year based upon the results of operations through September 30. Intangible assets with definite lives are amortized using the straight-line method over their estimated useful lives, generally five to 20 years, and are reviewed for impairment when events or circumstances indicate that their carrying value may not be recoverable. See note 6 for further details regarding goodwill and intangible assets.
j) Property and Equipment. Property and equipment is maintained primarily by certain of the Company's Markel Ventures businesses and is stated at cost less accumulated depreciation. Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives of the respective assets. Property and equipment, net of accumulated depreciation, was $632.0 million and $588.6 million as of December 31, 2020 and 2019, respectively, and is included in other assets on the Company's consolidated balance sheets.
k) Leases. The present value of future lease payments for the Company's leases with terms greater than 12 months is included on the consolidated balance sheets as lease liabilities and right-of-use lease assets.
The Company's lease portfolio primarily consists of operating leases for real estate. Total expected lease payments are based on the lease payments specified in the contract and the stated term, including any options to extend or terminate that the Company is reasonably certain to exercise. The Company accounts for lease components and any associated non-lease components within a contract as a single lease component, and therefore allocates all of the expected lease payments to the lease component.
The lease liability, which represents the Company's contractual obligation to make lease payments, is calculated based on the present value of expected lease payments over the remaining lease term, discounted using the Company's collateralized incremental borrowing rate at the commencement date. The lease liability is then adjusted for any prepaid rent, lease incentives received or capitalized initial direct costs to determine the lease asset, which represents the Company's right to use the underlying asset for the lease term. Lease liabilities and lease assets are included in other liabilities and other assets, respectively, on the Company's consolidated balance sheets.
Total lease costs are primarily comprised of rental expense for operating leases, which is recognized on a straight line basis over the lease term. Rental expense attributable to the Company's underwriting operations is included in underwriting, acquisition and insurance expenses and rental expense attributable to the Company's other operations is included in products expenses and services and other expenses in the consolidated statements of income and comprehensive income. See note 7 for further details regarding leases.
l) Inventories. Inventories are maintained at certain of the Company's Markel Ventures businesses and consist primarily of raw materials, work-in-process and finished goods. Inventories are generally valued using the first-in-first-out method and stated at the lower of cost or net realizable value. Inventories were $412.6 million and $303.1 million as of December 31, 2020 and 2019, respectively, and are included in other assets on the Company's consolidated balance sheets.
m) Redeemable Noncontrolling Interests. The Company owns controlling interests in various companies through its Markel Ventures operations. In some cases, the Company has the option to acquire the remaining equity interests, and the remaining equity interests have the option to sell their interests to the Company, in the future. The redemption value of the remaining equity interests is generally based on the respective company's earnings in specified periods preceding the redemption date. The redeemable noncontrolling interests generally are or become redeemable through 2025.
The Company recognizes changes in the redemption value that exceed the carrying value of redeemable noncontrolling interests to retained earnings as if the balance sheet date was also the redemption date. Changes in the redemption value also result in an adjustment to net income to common shareholders in the calculation of basic and diluted net income per common share. See note 17 for further details regarding the calculation of basic and diluted net income per common share.
n) Income Taxes. The Company records deferred income taxes to reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. The Company recognizes the tax benefit from an uncertain tax position taken or expected to be taken in income tax returns only if it is more likely than not that the tax position will be sustained upon examination by tax authorities, based on the technical merits of the position. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach, whereby the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement is recognized. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. See note 13 for further details regarding income taxes.
o) Unpaid Losses and Loss Adjustment Expenses. Unpaid losses and loss adjustment expenses on the Company's property and casualty insurance business are based on evaluations of reported claims and estimates for losses and loss adjustment expenses incurred but not reported. Estimates for losses and loss adjustment expenses incurred but not reported are based on
reserve development studies, among other things. Recorded reserves are estimates, and the ultimate liability may be greater or less than the estimates. See note 9 for further details regarding unpaid losses and loss adjustment expenses.
p) Life and Annuity Benefits. The Company has a run-off block of life and annuity reinsurance contracts that subject the Company to mortality, longevity and morbidity risks. The assumptions used to determine policy benefit reserves are generally locked-in for the life of the contract unless an unlocking event occurs. To the extent existing policy reserves, together with the present value of future gross premiums and expected investment income earned thereon, are not adequate to cover the present value of future benefits, settlement and maintenance costs, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings for life and annuity benefits is recognized at that time. Because of the assumptions and estimates used in establishing reserves for life and annuity benefit obligations and the long-term nature of these reinsurance contracts, the ultimate liability may be greater or less than the estimates. Results attributable to the run-off of life and annuity reinsurance business are included in services and other revenues and services and other expenses in the Company's consolidated statements of income and comprehensive income. See note 11 for further details regarding life and annuity benefits.
q) Revenue Recognition.
Property and Casualty Premiums
Insurance premiums written are generally recorded at the inception of a policy and earned on a pro rata basis over the policy period, typically one year. The cost of reinsurance ceded is initially recorded as prepaid reinsurance premiums and is amortized over the reinsurance contract period in proportion to the amount of insurance protection provided. Premiums ceded are netted against premiums written. For multi-year contracts where insurance premiums are payable in annual installments, written premiums are recorded at the inception of the contract based on management's best estimate of total premiums to be received. For contracts where the cedent has the ability to unilaterally commute or cancel coverage within the term of the policy, premiums are generally recorded on an annual basis or up to the contract cancellation point. The remaining premiums are estimated and included as written at each successive anniversary date within the multi-year term.
Assumed reinsurance premiums are recorded at the inception of each contract based upon contract terms and information received from cedents and brokers and are earned on a pro rata basis over the coverage period, or for multi-year contracts, in proportion with the underlying risk exposure to the extent there is variability in the exposure through the coverage period. Changes in reinsurance premium estimates are expected and may result in significant adjustments in any period. These estimates change over time as additional information regarding changes in underlying exposures is obtained. Any subsequent differences arising on such estimates are recorded as premiums written in the period they are determined and are earned on a pro rata basis over the coverage period. The Company uses the periodic method to account for assumed reinsurance from foreign reinsurers. The Company's foreign reinsurers provide sufficient information to record foreign assumed business in the same manner as the Company records assumed business from U.S. reinsurers.
Certain contracts that the Company writes provide for reinstatement of coverage. Reinstatement premiums are the premiums for the restoration of the insurance or reinsurance limit of a contract to its full amount after a loss occurrence by the insured or reinsured. The Company accrues for reinstatement premiums resulting from losses recorded. Such accruals are based upon contractual terms and management judgment is involved with respect to the amount of losses recorded. Changes in estimates of losses recorded on contracts with reinstatement premium features will result in changes in reinstatement premiums based on contractual terms. Reinstatement premiums are recognized at the time losses are recorded and are generally earned on a pro rata basis over the coverage period.
Other Revenues
Other revenues primarily relate to the Company's Markel Ventures, insurance-linked securities (ILS) and program services operations and consist of revenues from the sale of products and services. Revenues are recognized when, or as, control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Contracts with customers generally have an original term of one year or less. For contracts with customers that have an original term greater than one year, the Company recognizes revenue at the amount for which it has a right to invoice for the products delivered or services performed. Certain customers may receive volume rebates or credits for products and services, which are accounted for as variable consideration. The Company estimates these amounts based on the expected amount to be provided to the customer and reduces revenues recognized by a corresponding amount. The Company does not expect significant changes to its estimates of variable consideration over the term of the contracts.
Payment terms for products and services vary by the type of product or service offered and the location of the customer, and payment is typically received at or shortly after the point of sale. For certain products, the Company requires partial payment in the form of a deposit before the products are delivered to the customer, which is included in other liabilities on the Company's consolidated balance sheets.
Through its Markel Ventures operations, the Company has several different businesses that manufacture or produce a variety of products, including ornamental plants, equipment used in baking systems, over-the-road transportation equipment, portable dredges, residential homes and flooring for the trucking industry. Most of the Company's product revenues are recognized when the products are shipped to the customer or the products arrive at the agreed upon destination with the end customer. Some of the Company's contracts include multiple performance obligations. For such arrangements, revenues are allocated to each performance obligation based on the relative standalone selling price, which is derived from amounts stated in the contract.
Through its Markel Ventures operations, the Company also has several different businesses that provide various types of services, including distribution of exterior building products, fire protection and life safety services and consulting services. Service revenues are generally recognized over the term of the contracts based on hours incurred or as services are provided.
The Company's other revenues also include investment management fee income and managing general agent (MGA) commissions provided through our ILS operations. Investment management fee income is recognized over the period in which investment management services are provided and is calculated and recognized monthly based on the net asset value of the accounts managed. For certain accounts, the Company is also entitled to participate, on a fixed-percentage basis, in any net income generated in excess of an agreed-upon threshold as established by the underlying investment management agreements. In general, net income is calculated at the end of each calendar year and incentive fees are payable annually. Incentive fee income is recognized at the conclusion of the contractual performance period, when the uncertainty related to performance has been resolved. MGA commissions are based on the direct written premiums of the insurance contracts placed. Commissions received for these services are generally recognized when the related policy is written.
Program services fees, or ceding fees, received in exchange for providing access to the U.S. property and casualty insurance market are based on the gross premiums written on behalf of general agent and capacity provider clients. Ceding fees are earned in a manner consistent with the recognition of the gross premiums earned on the underlying insurance policies, generally on a pro rata basis over the terms of the underlying policies reinsured.
See note 8 for further details regarding products, services, and other revenues.
r) Program Services. In connection with its program services business, the Company enters into contractual agreements with both producing general agents and reinsurers, whereby the general agents and reinsurers are typically obligated to each other for payment of insurance amounts, including premiums, commissions and losses. To the extent these funds are not the obligation of the Company and are settled directly between the general agent and the reinsurer, no receivables or payables are recorded for these amounts. All obligations of the Company's insurance subsidiaries owed to or on behalf of their policyholders are recorded by the Company and, to the extent appropriate, offsetting reinsurance recoverables are recorded.
s) Foreign Currency Transactions. The U.S. Dollar is the Company's reporting currency and the primary functional currency of its foreign underwriting operations. The functional currencies of the Company's other foreign operations are the currencies of the primary economic environments in which the majority of their business is transacted.
Foreign currency transaction gains and losses are the result of exchange rate changes on transactions denominated in currencies other than the functional currency at each foreign entity. Monetary assets and liabilities are remeasured to the functional currency at current exchange rates, with resulting gains and losses included in net foreign exchange gains within net income. Non-monetary assets and liabilities are remeasured to the functional currency at historic exchange rates. Available-for-sale securities are recorded at fair value with resulting gains and losses, including the portion attributable to movements in exchange rates, included in the change in net unrealized gains on available-for-sale investments, net of taxes within other comprehensive income. While we attempt to naturally hedge our exposure to foreign currency fluctuations by matching assets and liabilities in the same currencies, there is a financial statement mismatch between the gains or losses recorded in net income related to insurance reserves denominated in non-functional currencies and the gains or losses recorded in other comprehensive income related to the available-for-sale securities held in non-functional currencies supporting the reserves.
Assets and liabilities of foreign operations denominated in a functional currency other than the U.S. Dollar are translated into the U.S. Dollar at current exchange rates, with resulting gains or losses included, net of taxes, in the change in foreign
currency translation adjustments within other comprehensive income. See note 18 for further details regarding the components of other comprehensive income.
t) Comprehensive Income. Comprehensive income represents all changes in equity that result from recognized transactions and other economic events during the period. Other comprehensive income refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income but excluded from net income, such as unrealized gains or losses on available-for-sale investments, foreign currency translation adjustments and changes in net actuarial pension loss. See note 18 for further details regarding comprehensive income.
u) Net Income Per Common Share. Basic net income per common share is computed by dividing adjusted net income to shareholders by the weighted average number of common shares outstanding during the year. Diluted net income per common share is computed by dividing adjusted net income to shareholders by the weighted average number of common shares and dilutive potential common shares outstanding during the year. See note 17 for further details regarding the calculation of basic and diluted net income per common share.
v) Variable Interest Entities. The Company determines whether it has relationships with entities defined as VIEs in accordance with ASC 810, Consolidation. Under this guidance, a VIE is consolidated by the variable interest holder that is determined to be the primary beneficiary.
An entity in which the Company holds a variable interest is a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) as a group, the holders of equity investment at risk lack either the direct or indirect ability through voting rights or similar rights to make decisions about an entity's activities that most significantly impact the entity's economic performance or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some investors are disproportionate to their obligation to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity's activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.
The primary beneficiary is defined as the variable interest holder that is determined to have the controlling financial interest as a result of having both (a) the power to direct the activities of a VIE that most significantly impact the economic performance of the VIE and (b) the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company determines whether an entity is a VIE at the inception of its variable interest in the entity and upon the occurrence of certain reconsideration events. The Company continually reassesses whether it is the primary beneficiary of VIEs in which it holds a variable interest. See note 15 for further details regarding the Company's involvement with VIEs.
w) Recent Accounting Pronouncements.
Accounting Standards Adopted in 2020
Effective January 1, 2020, the Company adopted ASC 326, Financial Instruments—Credit Losses. This new standard replaced the incurred loss model used to measure impairment losses for financial assets measured at amortized cost with a current expected credit loss (CECL) model and also made changes to the impairment model for available-for-sale investments. Under the CECL model, allowances are established for expected credit losses to be recognized over the life of financial assets. Application of the CECL model impacted certain of the Company's financial assets, including its reinsurance recoverables and receivables. The CECL model did not impact the Company's investment portfolio, which is measured at fair value. However, ASC 326 replaced the OTTI model with an impairment allowance model, subject to reversal, for available-for-sale investments. As a result of adopting ASC 326, the Company increased its allowances for credit losses related to its reinsurance recoverables and receivables by $3.8 million and $1.0 million, respectively, which was recorded through a cumulative-effect adjustment to retained earnings as of January 1, 2020 ($3.8 million, net of taxes). The Company continues to apply the previous guidance to 2019 and prior periods.
The following ASUs are relevant to the Company's operations and were adopted effective January 1, 2020. These ASUs did not have a material impact on the Company's financial position, results of operations or cash flows:
• ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
• ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
• ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
Accounting Standards Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The FASB subsequently issued several ASUs as amendments to ASU No. 2018-12. The standard requires insurance entities with long duration contracts to: (1) review and, if there is a change, update the assumptions used to measure cash flows at least annually, as well as update the discount rate assumption at each reporting date; (2) measure all market risk benefits associated with deposit (or account balance) contracts at fair value; and (3) disclose liability rollforwards and information about significant inputs, judgments, assumptions and methods used in measurement, including changes thereto and the effect of those changes on measurement. ASU No. 2018-12 becomes effective for the Company during the first quarter of 2023. The standard will, among other things, impact the discount rate used in estimating reserves for the Company's life and annuity reinsurance portfolio, which is in runoff. Currently, the discount rate assumption is locked-in for the life of the contracts, unless there is a loss recognition event. The Company is currently evaluating ASU No. 2018-12 to determine the impact that adopting this standard will have on its consolidated financial statements.
The following ASUs are relevant to the Company's operations and are not yet effective. These ASUs are not expected to have a material impact on the Company's financial position, results of operations or cash flows:
• ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
• ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
2. Segment Reporting Disclosures
The chief operating decision maker reviews the Company's ongoing underwriting operations on a global basis in the following two segments: Insurance and Reinsurance. In determining how to allocate resources and assess the performance of its underwriting results, management considers many factors, including the nature of the insurance product sold, the type of account written and the type of customer served. The Insurance segment includes all direct business and facultative placements written within the Company's underwriting operations. The Reinsurance segment includes all treaty reinsurance written within the Company's underwriting operations. All investing activities related to the Company's insurance operations are included in the Investing segment.
The chief operating decision maker reviews and assesses Markel Ventures' performance in the aggregate, as a single operating segment. The Markel Ventures segment primarily consists of controlling interests in a diverse portfolio of businesses that operate in various industries.
The Company's other operations include the results of the Company's insurance-linked securities operations and program services business, as well as the results of its legal and professional consulting services. Other operations also include results for lines of business discontinued prior to, or in conjunction with, acquisitions, including development on asbestos and environmental loss reserves and results attributable to the run-off of life and annuity reinsurance business, which are monitored separately from the Company's ongoing underwriting operations. For purposes of segment reporting, none of these other operations are considered to be reportable segments.
Segment profit for each of the Company's underwriting segments is measured by underwriting profit. The property and casualty insurance industry commonly defines underwriting profit as earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses. Underwriting profit does not replace operating income or net income computed in accordance with U.S. GAAP as a measure of profitability. Underwriting profit or loss provides a basis for management to evaluate the Company's underwriting performance. Segment profit for the Company's underwriting segments may also include other revenues and expenses that are attributable to the Company's underwriting operations that are not captured in underwriting profit. Segment profit for the Investing segment is measured by net investment income and net investment gains. Segment profit for the Markel Ventures segment is measured by operating income.
For management reporting purposes, the Company allocates assets to its underwriting operations and to its Investing and Markel Ventures segments and certain of its other operations, including its insurance-linked securities and program services
operations. Underwriting assets include assets attributed to the Company's Insurance and Reinsurance segments, discontinued underwriting lines of business, as well as assets that are not specifically allocated to the Company's other operations. Underwriting and investing assets are not allocated to the Company's underwriting segments since the Company does not manage its assets by underwriting segment. The Company does not allocate capital expenditures for long-lived assets to either of its underwriting segments for management reporting purposes.
a) The following tables summarize the Company's segment disclosures.
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Year Ended December 31, 2020
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(dollars in thousands)
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Insurance
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Reinsurance
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Investing
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Markel Ventures (1)
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Other (2)
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Consolidated
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Gross premium volume
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$
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6,029,024
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$
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1,130,923
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$
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—
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$
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—
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$
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2,106,718
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$
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9,266,665
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Net written premiums
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4,977,662
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960,123
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—
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—
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(5,547)
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5,932,238
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Earned premiums
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4,688,448
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929,348
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—
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—
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(5,591)
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5,612,205
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Losses and loss adjustment expenses:
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Current accident year
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(3,373,085)
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(700,240)
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—
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—
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—
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(4,073,325)
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Prior accident years
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554,586
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51,755
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—
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—
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23
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606,364
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Amortization of policy acquisition costs
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(988,668)
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(240,493)
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—
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—
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—
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(1,229,161)
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Other operating expenses
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(712,280)
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(74,379)
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—
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—
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(1,807)
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(788,466)
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Underwriting profit (loss)
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169,001
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(34,009)
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—
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|
|
—
|
|
|
(7,375)
|
|
|
127,617
|
|
Net investment income
|
—
|
|
|
—
|
|
|
371,585
|
|
|
245
|
|
|
—
|
|
|
371,830
|
|
Net investment gains
|
—
|
|
|
—
|
|
|
617,979
|
|
|
—
|
|
|
—
|
|
|
617,979
|
|
Products revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
1,439,515
|
|
|
—
|
|
|
1,439,515
|
|
Services and other revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
1,355,199
|
|
|
338,338
|
|
|
1,693,537
|
|
Products expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,256,159)
|
|
|
—
|
|
|
(1,256,159)
|
|
Services and other expenses
|
—
|
|
|
(41,461)
|
|
|
—
|
|
|
(1,232,150)
|
|
|
(287,509)
|
|
|
(1,561,120)
|
|
Amortization of intangible assets (3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(52,572)
|
|
|
(106,743)
|
|
|
(159,315)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss)
|
$
|
169,001
|
|
|
$
|
(75,470)
|
|
|
$
|
989,564
|
|
|
$
|
254,078
|
|
|
$
|
(63,289)
|
|
|
$
|
1,273,884
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(177,582)
|
|
Net foreign exchange losses
|
|
|
|
|
|
|
|
|
|
|
(95,853)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
1,000,449
|
|
U.S. GAAP combined ratio (4)
|
96
|
%
|
|
104
|
%
|
|
|
|
|
|
NM
|
(5)
|
98
|
%
|
(1)Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $60.3 million for the year ended December 31, 2020.
(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 $41.9 million for the year ended December 31, 2020, however, the Company does not allocate amortization of intangible assets between the Insurance and Reinsurance segments.
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(dollars in thousands)
|
Insurance
|
|
Reinsurance
|
|
Investing
|
|
Markel Ventures (1)
|
|
Other (2)
|
|
Consolidated
|
Gross premium volume
|
$
|
5,320,253
|
|
|
$
|
1,114,153
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,345,565
|
|
|
$
|
8,779,971
|
|
Net written premiums
|
4,444,702
|
|
|
964,947
|
|
|
—
|
|
|
—
|
|
|
2,422
|
|
|
5,412,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums
|
4,144,073
|
|
|
903,587
|
|
|
—
|
|
|
—
|
|
|
2,133
|
|
|
5,049,793
|
|
Losses and loss adjustment expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year
|
(2,730,971)
|
|
|
(695,470)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,426,441)
|
|
Prior accident years
|
462,124
|
|
|
64,768
|
|
|
—
|
|
|
—
|
|
|
8,359
|
|
|
535,251
|
|
Amortization of policy acquisition costs
|
(860,917)
|
|
|
(239,579)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,100,496)
|
|
Other operating expenses
|
(704,531)
|
|
|
(73,305)
|
|
|
—
|
|
|
—
|
|
|
239
|
|
|
(777,597)
|
|
Underwriting profit (loss)
|
309,778
|
|
|
(39,999)
|
|
|
—
|
|
|
—
|
|
|
10,731
|
|
|
280,510
|
|
Net investment income
|
—
|
|
|
—
|
|
|
451,152
|
|
|
736
|
|
|
—
|
|
|
451,888
|
|
Net investment gains
|
—
|
|
|
—
|
|
|
1,601,722
|
|
|
—
|
|
|
—
|
|
|
1,601,722
|
|
Products revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
1,609,586
|
|
|
—
|
|
|
1,609,586
|
|
Services and other revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
444,698
|
|
|
368,504
|
|
|
813,202
|
|
Products expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,455,245)
|
|
|
—
|
|
|
(1,455,245)
|
|
Services and other expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
(389,385)
|
|
|
(286,294)
|
|
|
(675,679)
|
|
Amortization of intangible assets (3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(41,973)
|
|
|
(106,665)
|
|
|
(148,638)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss)
|
$
|
309,778
|
|
|
$
|
(39,999)
|
|
|
$
|
2,052,874
|
|
|
$
|
168,417
|
|
|
$
|
(13,724)
|
|
|
$
|
2,477,346
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(171,687)
|
|
Net foreign exchange losses
|
|
|
|
|
|
|
|
|
|
|
(2,265)
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(17,586)
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
2,285,808
|
|
U.S. GAAP combined ratio (4)
|
93
|
%
|
|
104
|
%
|
|
|
|
|
|
NM
|
(5)
|
94
|
%
|
(1)Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $53.6 million for the year ended December 31, 2019.
(2)Other represents the total profit (loss) attributable to the Company's operations that are not included in a reportable segment as well as any amortization of intangible assets that is not allocated to a reportable segment. Amortization of intangible assets attributable to the Company's underwriting segments was $39.7 million for the year ended December 31, 2019, however, the Company does not allocate amortization of intangible assets between the Insurance and Reinsurance segments.
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
(dollars in thousands)
|
Insurance
|
|
Reinsurance
|
|
Investing
|
|
Markel Ventures (1)
|
|
Other (2)
|
|
Consolidated
|
Gross premium volume
|
$
|
4,749,166
|
|
|
$
|
1,050,870
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,064,433
|
|
|
$
|
7,864,469
|
|
Net written premiums
|
3,904,773
|
|
|
882,285
|
|
|
—
|
|
|
—
|
|
|
520
|
|
|
4,787,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums
|
3,783,939
|
|
|
928,574
|
|
|
—
|
|
|
—
|
|
|
(453)
|
|
|
4,712,060
|
|
Losses and loss adjustment expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year
|
(2,596,057)
|
|
|
(775,642)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,371,699)
|
|
Prior accident years
|
502,260
|
|
|
42,982
|
|
|
—
|
|
|
—
|
|
|
5,742
|
|
|
550,984
|
|
Amortization of policy acquisition costs
|
(770,183)
|
|
|
(239,120)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,009,303)
|
|
Other operating expenses
|
(691,186)
|
|
|
(75,081)
|
|
|
—
|
|
|
—
|
|
|
(1,941)
|
|
|
(768,208)
|
|
Underwriting profit (loss)
|
228,773
|
|
|
(118,287)
|
|
|
—
|
|
|
—
|
|
|
3,348
|
|
|
113,834
|
|
Net investment income
|
—
|
|
|
—
|
|
|
433,702
|
|
|
513
|
|
|
—
|
|
|
434,215
|
|
Net investment losses
|
—
|
|
|
—
|
|
|
(437,596)
|
|
|
—
|
|
|
—
|
|
|
(437,596)
|
|
Products revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
1,497,523
|
|
|
—
|
|
|
1,497,523
|
|
Services and other revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
414,542
|
|
|
220,541
|
|
|
635,083
|
|
Products expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,413,248)
|
|
|
—
|
|
|
(1,413,248)
|
|
Services and other expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
(366,739)
|
|
|
(108,185)
|
|
|
(474,924)
|
|
Amortization of intangible assets (3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,208)
|
|
|
(75,722)
|
|
|
(115,930)
|
|
Impairment of goodwill and intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,904)
|
|
|
(184,294)
|
|
|
(199,198)
|
|
Segment profit (loss)
|
$
|
228,773
|
|
|
$
|
(118,287)
|
|
|
$
|
(3,894)
|
|
|
$
|
77,479
|
|
|
$
|
(144,312)
|
|
|
$
|
39,759
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(154,212)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign exchange gains
|
|
|
|
|
|
|
|
|
|
|
106,598
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,855)
|
|
U.S. GAAP combined ratio (4)
|
94
|
%
|
|
113
|
%
|
|
|
|
|
|
NM
|
(5)
|
98
|
%
|
(1)Products expenses and services and other expenses for the Markel Ventures segment include depreciation expense of $52.2 million for the year ended December 31, 2018.
(2)Other represents the total profit (loss) attributable to the Company's operations that are not included in a reportable segment as well as any amortization of intangible assets that is not allocated to a reportable segment. Amortization of intangible assets attributable to the Company's underwriting segments was $44.5 million for the year ended December 31, 2018, however, the Company does not allocate amortization of intangible assets between the Insurance and Reinsurance segments.
(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
b) The following table summarizes earned premiums by major product grouping.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Insurance segment:
|
|
|
|
|
|
General liability
|
$
|
1,261,411
|
|
|
$
|
1,039,617
|
|
|
$
|
889,543
|
|
Professional liability
|
1,068,365
|
|
|
814,587
|
|
|
701,867
|
|
Property
|
356,934
|
|
|
364,830
|
|
|
369,116
|
|
Marine and energy
|
458,050
|
|
|
391,464
|
|
|
376,747
|
|
Personal lines
|
405,210
|
|
|
378,522
|
|
|
374,543
|
|
Programs
|
238,909
|
|
|
294,418
|
|
|
288,398
|
|
Workers' compensation
|
338,186
|
|
|
349,770
|
|
|
329,690
|
|
Other products
|
561,383
|
|
|
510,865
|
|
|
454,035
|
|
Total Insurance
|
4,688,448
|
|
|
4,144,073
|
|
|
3,783,939
|
|
Reinsurance segment:
|
|
|
|
|
|
Property
|
191,968
|
|
|
201,486
|
|
|
233,195
|
|
Casualty
|
441,599
|
|
|
408,368
|
|
|
360,739
|
|
Specialty
|
295,781
|
|
|
293,733
|
|
|
334,640
|
|
Total Reinsurance
|
929,348
|
|
|
903,587
|
|
|
928,574
|
|
Other
|
(5,591)
|
|
|
2,133
|
|
|
(453)
|
|
Total earned premiums
|
$
|
5,612,205
|
|
|
$
|
5,049,793
|
|
|
$
|
4,712,060
|
|
The Company does not manage products at this level of aggregation as it offers a diverse portfolio of products and manages these products in logical groupings within each underwriting segment.
c) During the years ended December 31, 2020, 2019 and 2018, 79%, 81% and 79%, respectively, of gross premiums written in the Company's underwriting segments were attributed to risks or cedents located in the United States. Substantially all of the gross premiums written in the Company's program services and other fronting businesses during 2020, 2019 and 2018 were attributed to risks located in the United States.
Most of the Company's gross written premiums are placed through insurance and reinsurance brokers. During the years ended December 31, 2020, 2019 and 2018, the Company's top two independent brokers accounted for 31%, 28% and 25% of gross premiums written in the Company's underwriting segments. During the years ended December 31, 2020, 2019 and 2018, the top two independent brokers accounted for 20%, 17% and 13%, respectively, of gross premiums written in the Insurance segment and 84%, 82% and 76%, respectively, of gross premiums written in the Reinsurance segment.
During the years ended December 31, 2020, 2019 and 2018, the portion of Markel Ventures segment revenues attributable to U.S. operations was 95%, 90%, and 88%, respectively.
d) The following table reconciles segment assets to the Company's consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
Segment assets:
|
|
|
|
Investing
|
$
|
24,781,946
|
|
|
$
|
22,129,633
|
|
Underwriting
|
7,228,297
|
|
|
6,621,639
|
|
Markel Ventures
|
3,636,060
|
|
|
2,550,835
|
|
Total segment assets
|
35,646,303
|
|
|
31,302,107
|
|
Other operations
|
6,063,751
|
|
|
6,171,708
|
|
Total assets
|
$
|
41,710,054
|
|
|
$
|
37,473,815
|
|
e) The following table summarizes deferred policy acquisition costs, unearned premiums and unpaid losses and loss adjustment expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Deferred Policy
Acquisition Costs
|
|
Unearned
Premiums
|
|
Unpaid Losses and
Loss Adjustment Expenses
|
December 31, 2020
|
|
|
|
|
|
Insurance segment
|
$
|
454,723
|
|
|
$
|
2,746,032
|
|
|
$
|
9,241,952
|
|
Reinsurance segment
|
176,071
|
|
|
708,855
|
|
|
3,417,973
|
|
Other underwriting
|
—
|
|
|
—
|
|
|
276,090
|
|
Total Underwriting
|
630,794
|
|
|
3,454,887
|
|
|
12,936,015
|
|
Program services and other
|
—
|
|
|
978,358
|
|
|
3,286,361
|
|
Total
|
$
|
630,794
|
|
|
$
|
4,433,245
|
|
|
$
|
16,222,376
|
|
December 31, 2019
|
|
|
|
|
|
Insurance segment
|
$
|
392,774
|
|
|
$
|
2,356,875
|
|
|
$
|
8,119,046
|
|
Reinsurance segment
|
173,268
|
|
|
677,260
|
|
|
3,395,459
|
|
Other underwriting
|
—
|
|
|
—
|
|
|
298,062
|
|
Total Underwriting
|
566,042
|
|
|
3,034,135
|
|
|
11,812,567
|
|
Program services and other
|
—
|
|
|
1,023,592
|
|
|
2,916,109
|
|
Total
|
$
|
566,042
|
|
|
$
|
4,057,727
|
|
|
$
|
14,728,676
|
|
3. Acquisitions
Lansing Building Products, LLC
In April 2020, the Company acquired a controlling interest in Lansing Building Products, LLC, a supplier of exterior building products and materials to professional contractors throughout the U.S., which simultaneously acquired the distribution business of Harvey Building Products to enhance geographic reach and scale (together, Lansing), bringing the Company's ownership in Lansing to 91%. Under the terms of the acquisition agreement, the Company has the option to acquire the remaining equity interests and the remaining equity holders have the option to sell their interests to the Company in the future. The redemption value of the remaining equity interests is generally based on Lansing's earnings in specified periods preceding the redemption dates. Total consideration for both transactions was $559.2 million, all of which was cash.
The purchase price was allocated to the acquired assets and liabilities of Lansing based on estimated fair value at the acquisition date. The Company recognized goodwill of $287.1 million, which is primarily attributable to expected future earnings and cash flow potential of Lansing. The majority of the goodwill recognized is not deductible for income tax purposes. The Company also recognized other intangible assets of $210.0 million, which included $188.0 million of customer relationships and $22.0 million of trade names, which are being amortized over a weighted average period of 16 years and 14 years, respectively. The Company also recognized redeemable noncontrolling interests of $43.6 million. Results attributable to Lansing are included in the Company's Markel Ventures segment.
VSC Fire & Security, Inc.
In November 2019, the Company acquired VSC Fire & Security, Inc. (VSC), a provider of comprehensive fire protection, life safety, and low voltage solutions to retailers, commercial campuses, healthcare facilities, and government properties throughout the southeastern United States. Total consideration for the acquisition was $225.0 million, which included cash of $204.0 million. Total consideration also included the estimated fair value of contingent consideration the Company expects to pay in 2021 based on VSC's earnings, as defined in the purchase agreement.
As of December 31, 2019, the purchase price was preliminarily allocated to the acquired assets and liabilities of VSC based on estimated fair value at the acquisition date. During 2020, the Company completed the process of determining the fair value of the assets and liabilities acquired with VSC. The Company recognized goodwill of $124.9 million, which is primarily attributable to expected future earnings and cash flow potential of VSC. All of the goodwill recognized is deductible for income tax purposes. The Company also recognized other intangible assets of $64.5 million, which included $48.0 million of customer relationships, $14.0 million of trade names and $2.5 million of other intangible assets, which are being amortized over a weighted average period of 12 years, 12 years and 8 years, respectively. Results attributable to VSC are included in the Company's Markel Ventures segment.
The Hagerty Group, LLC
In June 2019, the Company acquired a minority ownership interest in The Hagerty Group, LLC (Hagerty Group), a company that primarily operates as a managing general agent under the names Hagerty Insurance Agency and Hagerty Classic Marine Insurance Agency (collectively, Hagerty). Hagerty Group also includes Hagerty Re, a Bermuda Class 3 reinsurance company. Hagerty Group is a leading automotive lifestyle brand and provider of specialty insurance to automobile enthusiasts. Total consideration for the Company's investment was $212.5 million. The Company's investment in Hagerty Group is accounted for under the equity method and is included in other assets on the Company's consolidated balance sheet.
Brahmin Leather Works, LLC
In October 2018, the Company acquired 90% of Brahmin Leather Works, LLC (Brahmin), a creator of fashion leather handbags. Total consideration for the acquisition was $192.9 million, which included cash of $172.3 million. Total consideration also included the estimated fair value of contingent consideration the Company expects to pay based on Brahmin's earnings, as defined in the purchase agreement, for the period of 2019 through 2021. Under the terms of the acquisition agreement, the Company has the option to acquire the remaining equity interests and the remaining equity holders have the option to sell their interests to the Company in the future. The redemption value of the remaining equity interests is generally based on Brahmin's earnings in specified periods preceding the redemption dates.
The purchase price was allocated to the acquired assets and liabilities of Brahmin based on estimated fair value at the acquisition date. The Company recognized goodwill of $63.8 million, which is primarily attributable to expected future earnings and cash flow potential of Brahmin. The majority of the goodwill recognized is deductible for income tax purposes. The Company also recognized other intangible assets of $93.3 million, which included $57.0 million of customer relationships, $35.0 million of trade names and $1.3 million of other intangible assets, which are being amortized over a weighted average period of 16 years, 16 years and 8 years, respectively. The Company also recognized redeemable noncontrolling interests of $19.6 million. Results attributable to Brahmin are included in the Company's Markel Ventures segment.
Nephila Holdings Ltd.
In November 2018, the Company acquired all of the outstanding shares of Nephila Holdings Ltd. (Nephila), a Bermuda-based investment fund manager offering a broad range of investment products, including insurance-linked securities, catastrophe bonds, insurance swaps and weather derivatives. Nephila generates revenue primarily through management and incentive fees. Total consideration for the acquisition was $974.4 million, all of which was cash.
The purchase price was allocated to the acquired assets and liabilities of Nephila based on estimated fair values at the acquisition date. The Company recognized goodwill of $434.2 million, which is primarily attributable to expected future earnings and cash flow potential of Nephila. None of the goodwill recognized is deductible for income tax purposes. The Company also recognized other intangible assets of $551.0 million, which included $468.0 million of investment management agreements, $32.0 million of broker relationships, $27.0 million of technology and $24.0 million of trade names, which are being amortized over a weighted average period of 17 years, 12 years, 6 years and 14 years, respectively. The Company also recognized noncontrolling interests of $15.1 million attributable to certain consolidated subsidiaries of Nephila that are not wholly-owned. Nephila operates as a separate business unit and its operating results are not included in a reportable segment.
4. Investments
a) The following tables summarize the Company's available-for-sale investments. Commercial and residential mortgage-backed securities include securities issued by U.S. government-sponsored enterprises and U.S. government agencies. The net unrealized holding gains in the tables below are presented before taxes and any adjustments related to life and annuity benefit reserves. See note 11.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Holding
Gains
|
|
Gross
Unrealized
Holding
Losses
|
|
|
|
Estimated
Fair
Value
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
580,716
|
|
|
$
|
9,091
|
|
|
$
|
(507)
|
|
|
|
|
$
|
589,300
|
|
U.S. government-sponsored enterprises
|
500,053
|
|
|
51,593
|
|
|
(92)
|
|
|
|
|
551,554
|
|
Obligations of states, municipalities and political subdivisions
|
3,903,292
|
|
|
386,784
|
|
|
(235)
|
|
|
|
|
4,289,841
|
|
Foreign governments
|
1,352,616
|
|
|
275,450
|
|
|
(57)
|
|
|
|
|
1,628,009
|
|
Commercial mortgage-backed securities
|
1,736,257
|
|
|
149,359
|
|
|
(34)
|
|
|
|
|
1,885,582
|
|
Residential mortgage-backed securities
|
811,732
|
|
|
58,742
|
|
|
(29)
|
|
|
|
|
870,445
|
|
Asset-backed securities
|
5,812
|
|
|
154
|
|
|
—
|
|
|
|
|
5,966
|
|
Corporate bonds
|
764,783
|
|
|
96,257
|
|
|
(3)
|
|
|
|
|
861,037
|
|
Total fixed maturity securities
|
9,655,261
|
|
|
1,027,430
|
|
|
(957)
|
|
|
|
|
10,681,734
|
|
Short-term investments
|
2,030,460
|
|
|
3,645
|
|
|
(6)
|
|
|
|
|
2,034,099
|
|
Investments, available-for-sale
|
$
|
11,685,721
|
|
|
$
|
1,031,075
|
|
|
$
|
(963)
|
|
|
|
|
$
|
12,715,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Holding
Gains
|
|
Gross
Unrealized
Holding
Losses
|
|
Estimated
Fair
Value
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
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 maturity securities
|
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
|
|
b) The following tables summarize gross unrealized investment losses on available-for-sale investments by the length of time that securities have continuously been in an unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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 maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
66,220
|
|
|
$
|
(507)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66,220
|
|
|
$
|
(507)
|
|
U.S. government-sponsored enterprises
|
14,878
|
|
|
(92)
|
|
|
—
|
|
|
—
|
|
|
14,878
|
|
|
(92)
|
|
Obligations of states, municipalities and political subdivisions
|
28,037
|
|
|
(223)
|
|
|
2,960
|
|
|
(12)
|
|
|
30,997
|
|
|
(235)
|
|
Foreign governments
|
20,790
|
|
|
(57)
|
|
|
—
|
|
|
—
|
|
|
20,790
|
|
|
(57)
|
|
Commercial mortgage-backed securities
|
13,178
|
|
|
(26)
|
|
|
2,526
|
|
|
(8)
|
|
|
15,704
|
|
|
(34)
|
|
Residential mortgage-backed securities
|
3,345
|
|
|
(29)
|
|
|
—
|
|
|
—
|
|
|
3,345
|
|
|
(29)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
92
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
92
|
|
|
(3)
|
|
Total fixed maturity securities
|
146,540
|
|
|
(937)
|
|
|
5,486
|
|
|
(20)
|
|
|
152,026
|
|
|
(957)
|
|
Short-term investments
|
349,978
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
349,978
|
|
|
(6)
|
|
Total
|
$
|
496,518
|
|
|
$
|
(943)
|
|
|
$
|
5,486
|
|
|
$
|
(20)
|
|
|
$
|
502,004
|
|
|
$
|
(963)
|
|
At December 31, 2020, the Company held 36 available-for-sale securities with a total estimated fair value of $502.0 million and gross unrealized losses of $963 thousand. Of these 36 securities, six securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $5.5 million and gross unrealized losses of $20 thousand. The Company does not intend to sell or believe it will be required to sell these available-for-sale securities before recovery of their amortized cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
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 maturity securities
|
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.
Following the adoption of ASC 326, as described in note 1(w), beginning January 1, 2020 the Company completes a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is the result of a credit loss. All available-for-sale securities with unrealized losses are reviewed. The Company considers many factors in completing its quarterly review of securities with unrealized losses for credit-related impairment to determine whether a credit loss exists, including the extent to which fair value is below cost, the implied yield to maturity, rating downgrades of the security and whether or not the issuer has failed to make scheduled principal or interest payments. The Company also takes into consideration information about the financial condition of the issuer and industry factors that could negatively impact the capital markets.
If the decline in fair value of an available-for-sale security below its amortized cost is considered to be the result of a credit loss, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit loss. Any such amount is recorded as an allowance and recognized in net income. The allowance is limited to the difference between the fair value and the amortized cost of the security. Any remaining decline in fair value represents the non-credit portion of the impairment, which is recognized in other comprehensive income. The Company did not have an allowance for credit losses as of December 31, 2020.
As part of its quarterly analysis for impairment, the Company also considers whether it intends to sell an available-for-sale security or if it is more likely than not it will be required to sell the security before recovery of its amortized cost. In these instances, a decline in fair value is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security.
c) The amortized cost and estimated fair value of fixed maturity securities at December 31, 2020 are shown below by contractual maturity.
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Amortized
Cost
|
|
Estimated
Fair Value
|
Due in one year or less
|
$
|
383,330
|
|
|
$
|
390,636
|
|
Due after one year through five years
|
1,861,527
|
|
|
1,994,002
|
|
Due after five years through ten years
|
2,348,671
|
|
|
2,592,111
|
|
Due after ten years
|
2,507,932
|
|
|
2,942,992
|
|
|
7,101,460
|
|
|
7,919,741
|
|
Commercial mortgage-backed securities
|
1,736,257
|
|
|
1,885,582
|
|
Residential mortgage-backed securities
|
811,732
|
|
|
870,445
|
|
Asset-backed securities
|
5,812
|
|
|
5,966
|
|
Total fixed maturity securities
|
$
|
9,655,261
|
|
|
$
|
10,681,734
|
|
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties, and the holders may have the right to put the securities back to the issuer. Based on expected maturities, the estimated average duration of fixed maturity securities at December 31, 2020 was 5.6 years.
d) The following table presents the components of net investment income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Interest:
|
|
|
|
|
|
Municipal bonds (tax-exempt)
|
$
|
63,718
|
|
|
$
|
71,351
|
|
|
$
|
80,016
|
|
Municipal bonds (taxable)
|
66,713
|
|
|
72,818
|
|
|
73,058
|
|
Other taxable bonds
|
157,990
|
|
|
162,861
|
|
|
159,329
|
|
Short-term investments, including overnight deposits
|
14,321
|
|
|
50,425
|
|
|
48,765
|
|
Dividends on equity securities
|
89,303
|
|
|
100,222
|
|
|
90,840
|
|
Income (loss) from equity method investments
|
(4,430)
|
|
|
4,368
|
|
|
(1,924)
|
|
Other
|
434
|
|
|
5,338
|
|
|
881
|
|
|
388,049
|
|
|
467,383
|
|
|
450,965
|
|
Investment expenses
|
(16,219)
|
|
|
(15,495)
|
|
|
(16,750)
|
|
Net investment income
|
$
|
371,830
|
|
|
$
|
451,888
|
|
|
$
|
434,215
|
|
e) The following table presents the components of net investment gains (losses) and the change in net unrealized gains included in other comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Fixed maturity securities:
|
|
|
|
|
|
Realized gains
|
$
|
12,582
|
|
|
$
|
6,851
|
|
|
$
|
4,221
|
|
Realized losses
|
(8,473)
|
|
|
(2,848)
|
|
|
(5,768)
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
Realized gains
|
2,037
|
|
|
1,457
|
|
|
1,604
|
|
Realized losses
|
(463)
|
|
|
(2,999)
|
|
|
(10,545)
|
|
Cost-method investments:
|
|
|
|
|
|
Realized gains
|
14,239
|
|
|
—
|
|
|
—
|
|
Other investment losses
|
(5,142)
|
|
|
(3,943)
|
|
|
(1,486)
|
|
Net realized investment gains (losses)
|
14,780
|
|
|
(1,482)
|
|
|
(11,974)
|
|
Equity securities:
|
|
|
|
|
|
Change in fair value of securities sold during the period
|
(470,008)
|
|
|
38,291
|
|
|
20,177
|
|
Change in fair value of securities held at the end of the period
|
1,073,207
|
|
|
1,564,913
|
|
|
(445,799)
|
|
Total change in fair value
|
603,199
|
|
|
1,603,204
|
|
|
(425,622)
|
|
Net investment gains (losses)
|
$
|
617,979
|
|
|
$
|
1,601,722
|
|
|
$
|
(437,596)
|
|
Change in net unrealized gains included in other comprehensive income (loss):
|
|
|
|
|
|
Fixed maturity securities
|
$
|
507,903
|
|
|
$
|
429,654
|
|
|
$
|
(297,158)
|
|
Short-term investments
|
2,344
|
|
|
3,626
|
|
|
(2,288)
|
|
Adjustment for life and annuity benefit reserves (see note 11)
|
(68,158)
|
|
|
(51,390)
|
|
|
—
|
|
Net increase (decrease)
|
$
|
442,089
|
|
|
$
|
381,890
|
|
|
$
|
(299,446)
|
|
f) Total restricted assets are included on the Company's consolidated balance sheets as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
Investments
|
$
|
4,217,230
|
|
|
$
|
4,134,164
|
|
Restricted cash and cash equivalents
|
874,913
|
|
|
427,546
|
|
|
|
|
|
Total
|
$
|
5,092,143
|
|
|
$
|
4,561,710
|
|
The following table presents the components of restricted assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
Assets held in trust or on deposit to support underwriting activities
|
$
|
4,704,943
|
|
|
$
|
4,155,621
|
|
Assets pledged as security for letters of credit
|
387,200
|
|
|
406,089
|
|
Total
|
$
|
5,092,143
|
|
|
$
|
4,561,710
|
|
g) At December 31, 2020 and 2019, investments in securities issued by the U.S. Treasury, U.S. government agencies and U.S. government-sponsored enterprises were the only investments in any one issuer that exceeded 10% of shareholders' equity.
5. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability.
Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy are defined as follows:
Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.
Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.
Level 3 - Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement.
In accordance with ASC 820, the Company determines fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods, including the market, income and cost approaches. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value, including an indication of the level within the fair value hierarchy in which each asset or liability is generally classified.
Available-for-sale investments and equity securities. Available-for-sale investments and equity securities are recorded at fair value on a recurring basis. Available-for-sale investments include fixed maturity securities and short-term investments. Short-term investments include certificates of deposit, commercial paper, discount notes and treasury bills with original maturities of one year or less. Fair value for available-for-sale investments and equity securities are determined by the Company after considering various sources of information, including information provided by a third party pricing service. The pricing service provides prices for substantially all of the Company's fixed maturity securities and equity securities. In determining fair value, the Company generally does not adjust the prices obtained from the pricing service. The Company obtains an understanding of the pricing service's valuation methodologies and related inputs, which include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows and prepayment
speeds. The Company validates prices provided by the pricing service by reviewing prices from other pricing sources and analyzing pricing data in certain instances.
The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Level 1 investments include those traded on an active exchange, such as the New York Stock Exchange. Level 2 investments include U.S. Treasury securities, U.S. government-sponsored enterprises, municipal bonds, foreign government bonds, commercial mortgage-backed securities, residential mortgage-backed securities, asset-backed securities and corporate debt securities. Level 3 investments include the Company's investments in certain insurance-linked securities funds managed by Markel CATCo Investment Management Ltd. (MCIM), a consolidated subsidiary, that are not traded on an active exchange, as further described and defined in note 15 (the Markel CATCo Funds), and are valued using unobservable inputs.
Fair value for available-for-sale investments and equity securities is measured based upon quoted prices in active markets, if available. Due to variations in trading volumes and the lack of quoted market prices, fixed maturity securities are classified as Level 2 investments. The fair value of fixed maturity securities is normally derived through recent reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable data previously described. If there are no recent reported trades, the fair value of fixed maturity securities may be derived through the use of matrix pricing or model processes, where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Significant inputs used to determine the fair value of obligations of states, municipalities and political subdivisions, corporate bonds and obligations of foreign governments include reported trades, benchmark yields, issuer spreads, bids, offers, credit information and estimated cash flows. Significant inputs used to determine the fair value of commercial mortgage-backed securities, residential mortgage-backed securities and asset-backed securities include the type of underlying assets, benchmark yields, prepayment speeds, collateral information, tranche type and volatility, estimated cash flows, credit information, default rates, recovery rates, issuer spreads and the year of issue.
Due to the significance of unobservable inputs required in measuring the fair value of the Company's investments in the Markel CATCo Funds, these investments are classified as Level 3 within the fair value hierarchy. The fair value of the securities are derived using their reported net asset value (NAV) as the primary input, as well as other observable and unobservable inputs as deemed necessary by management. Management has obtained an understanding of the inputs, assumptions, process and controls used to determine NAV, which is calculated by an independent third party. Unobservable inputs to the NAV calculations include assumptions around premium earnings patterns and loss reserve estimates for the underlying securitized reinsurance contracts in which the Markel CATCo Funds invest. The determination of fair value of the securities also considers external market data, including the trading price relative to its NAV of CATCo Reinsurance Opportunities Fund Ltd., a comparable security traded on a market operated by the London Stock Exchange and on the Bermuda Stock Exchange. In July 2019, the Markel CATCo Funds were placed into run-off and capital is being returned to investors as it becomes available, the timing of which is impacted by contractual terms regarding release of collateral on the underlying securitized reinsurance contracts, as well as required regulatory approvals.
The Company's valuation policies and procedures for Level 3 investments are determined by management. Fair value measurements are analyzed quarterly to ensure the change in fair value from prior periods is reasonable relative to management's understanding of the underlying investments, recent market trends and external market data.
Senior long-term debt and other debt. Senior long-term debt and other debt is carried at amortized cost with the estimated fair value disclosed on the consolidated balance sheets. Senior long-term debt and other debt is classified as Level 2 within the fair value hierarchy due to variations in trading volumes and the lack of quoted market prices. Fair value for senior long-term debt and other debt is generally derived through recent reported trades for identical securities, making adjustments through the reporting date, if necessary, based upon available market observable data including U.S. Treasury securities and implied credit spreads. Significant inputs used to determine the fair value of senior long-term debt and other debt include reported trades, benchmark yields, issuer spreads, bids and offers.
The following tables present the balances of assets measured at fair value on a recurring basis by level within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(dollars in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Fixed maturity securities, available-for-sale:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
—
|
|
|
$
|
589,300
|
|
|
$
|
—
|
|
|
$
|
589,300
|
|
U.S. government-sponsored enterprises
|
—
|
|
|
551,554
|
|
|
—
|
|
|
551,554
|
|
Obligations of states, municipalities and political subdivisions
|
—
|
|
|
4,289,841
|
|
|
—
|
|
|
4,289,841
|
|
Foreign governments
|
—
|
|
|
1,628,009
|
|
|
—
|
|
|
1,628,009
|
|
Commercial mortgage-backed securities
|
—
|
|
|
1,885,582
|
|
|
—
|
|
|
1,885,582
|
|
Residential mortgage-backed securities
|
—
|
|
|
870,445
|
|
|
—
|
|
|
870,445
|
|
Asset-backed securities
|
—
|
|
|
5,966
|
|
|
—
|
|
|
5,966
|
|
Corporate bonds
|
—
|
|
|
861,037
|
|
|
—
|
|
|
861,037
|
|
Total fixed maturity securities, available-for-sale
|
—
|
|
|
10,681,734
|
|
|
—
|
|
|
10,681,734
|
|
Equity securities:
|
|
|
|
|
|
|
|
Insurance, banks and other financial institutions
|
2,516,361
|
|
|
—
|
|
|
58,493
|
|
|
2,574,854
|
|
Industrial, consumer and all other
|
4,419,256
|
|
|
—
|
|
|
—
|
|
|
4,419,256
|
|
Total equity securities
|
6,935,617
|
|
|
—
|
|
|
58,493
|
|
|
6,994,110
|
|
Short-term investments, available-for-sale
|
1,922,459
|
|
|
111,640
|
|
|
—
|
|
|
2,034,099
|
|
Total investments
|
$
|
8,858,076
|
|
|
$
|
10,793,374
|
|
|
$
|
58,493
|
|
|
$
|
19,709,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(dollars in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Fixed maturity securities, 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 maturity securities, 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
|
|
The following table summarizes changes in Level 3 investments measured at fair value on a recurring basis, all of which are attributed to the Company's investments in the Markel CATCo Funds.
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
2020
|
|
2019
|
Equity securities, beginning of period
|
$
|
45,992
|
|
|
$
|
53,728
|
|
Purchases
|
90,000
|
|
|
500
|
|
Sales
|
(73,902)
|
|
|
(9,448)
|
|
Net investment gains (losses) on Level 3 investments
|
(3,597)
|
|
|
1,212
|
|
Equity securities, end of period
|
$
|
58,493
|
|
|
$
|
45,992
|
|
In connection with the run-off of one of the Markel CATCo Funds and to facilitate the return of capital to third party investors, the Company invested $90.0 million in that fund effective January 1, 2020. This investment replaced collateral previously provided by other investors for risk exposures within the underlying reinsurance contracts in which the fund is invested related to loss events that occur after December 31, 2019 and through the expiration of the reinsurance contracts, all of which either had expired or were commuted as of June 30, 2020. Underwriting results for the 2020 loss exposures on these contracts are attributed to the Company through its investment in that fund.
Sales for the years ended December 31, 2020 and 2019 reflect the return of capital in connection with the run-off of the Markel CATCo Funds and the sale of the Company's investment in the Markel Diversified Fund in December 2020.
Except as disclosed in note 3, the Company did not have any assets or liabilities measured at fair value on a non-recurring basis during the years ended December 31, 2020 and 2019.
6. Goodwill and Intangible Assets
The following table presents a rollforward of the components of goodwill by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Insurance
|
|
Reinsurance
|
|
Markel Ventures
|
|
Other(1)
|
|
Total
|
January 1, 2019
|
$
|
770,184
|
|
|
$
|
122,745
|
|
|
$
|
497,338
|
|
|
$
|
847,708
|
|
|
$
|
2,237,975
|
|
Acquisitions (see note 3)
|
—
|
|
|
—
|
|
|
118,878
|
|
|
—
|
|
|
118,878
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency movements and other adjustments (2)
|
1,263
|
|
|
—
|
|
|
(9,439)
|
|
|
(40,129)
|
|
|
(48,305)
|
|
December 31, 2019 (3)
|
$
|
771,447
|
|
|
$
|
122,745
|
|
|
$
|
606,777
|
|
|
$
|
807,579
|
|
|
$
|
2,308,548
|
|
Acquisitions (see note 3)
|
—
|
|
|
—
|
|
|
287,097
|
|
|
—
|
|
|
287,097
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency movements and other adjustments (2)
|
1,253
|
|
|
—
|
|
|
7,171
|
|
|
555
|
|
|
8,979
|
|
December 31, 2020 (3)
|
$
|
772,700
|
|
|
$
|
122,745
|
|
|
$
|
901,045
|
|
|
$
|
808,134
|
|
|
$
|
2,604,624
|
|
(1)Amounts included in Other reflect the Company's operations that are not included in a reportable segment.
(2)Foreign currency movements and other adjustments includes adjustments to goodwill resulting from changes to the preliminary purchase price allocation, if any, for acquisitions that occurred in the prior year.
(3)As of December 31, 2020 and 2019, goodwill was net of accumulated impairment losses of $139.2 million, of which $91.9 million was in Other and $47.3 million was in Markel Ventures.
There was no impairment of goodwill during 2020 or 2019. See note 1 for further details regarding impairment testing.
During 2018, the Company recorded a goodwill and intangible asset impairment charge at MCIM totaling $179.0 million. As a result of governmental inquiries into the Company's Markel CATCo operations in late 2017 and early 2018, the Company performed an assessment of the recoverability of goodwill and intangible assets at the MCIM reporting unit as of December 31, 2018. As a result of the assessment, the Company reduced the carrying value of the goodwill and intangible assets of the MCIM reporting unit to zero, which resulted in a goodwill impairment charge of $91.9 million and an intangible asset impairment charge of $87.1 million, both of which were recorded to impairment of goodwill and intangible assets in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2018. Both the Markel CATCo Funds and Markel CATCo Re were subsequently placed into run-off. See note 19 for further details on matters related to the Company's Markel CATCo operations.
The following table presents a rollforward of net intangible assets by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Underwriting(1)
|
|
Markel Ventures
|
|
Other(2)
|
|
Total
|
January 1, 2019
|
$
|
489,088
|
|
|
$
|
431,457
|
|
|
$
|
805,651
|
|
|
$
|
1,726,196
|
|
Acquisitions (see note 3)
|
41,506
|
|
|
71,629
|
|
|
—
|
|
|
113,135
|
|
Amortization of intangible assets
|
(39,667)
|
|
|
(41,973)
|
|
|
(66,998)
|
|
|
(148,638)
|
|
|
|
|
|
|
|
|
|
Foreign currency movements and other adjustments (3)
|
(6,767)
|
|
|
12,009
|
|
|
42,539
|
|
|
47,781
|
|
December 31, 2019
|
$
|
484,160
|
|
|
$
|
473,122
|
|
|
$
|
781,192
|
|
|
$
|
1,738,474
|
|
Acquisitions (see note 3)
|
—
|
|
|
210,000
|
|
|
—
|
|
|
210,000
|
|
Amortization of intangible assets
|
(41,906)
|
|
|
(52,572)
|
|
|
(64,837)
|
|
|
(159,315)
|
|
|
|
|
|
|
|
|
|
Foreign currency movements and other adjustments (3)
|
385
|
|
|
(7,430)
|
|
|
604
|
|
|
(6,441)
|
|
December 31, 2020
|
$
|
442,639
|
|
|
$
|
623,120
|
|
|
$
|
716,959
|
|
|
$
|
1,782,718
|
|
(1)Amounts included in Underwriting reflect the intangible assets associated with the Company's underwriting segments, which are not allocated between the Insurance and Reinsurance segments.
(2)Amounts included in Other reflect the Company's operations that are not included in a reportable segment.
(3)Foreign currency movements and other adjustments include adjustments to intangible assets resulting from changes to the preliminary purchase price allocation, if any, for acquisitions that occurred in the prior year.
Amortization of intangible assets is estimated to be $159.0 million for 2021, $155.5 million for 2022, $153.7 million for 2023, $151.7 million for 2024 and $145.1 million for 2025. Indefinite-lived intangible assets were $92.4 million at both December 31, 2020 and 2019.
For the year ended December 31, 2020, the Company acquired $210.0 million of intangible assets, all of which is amortizable over a weighted average period of 16 years. These definite-lived intangible assets acquired during 2020 include customer relationships and trade names, which are expected to be amortized over a weighted average period of 16 years and 14 years, respectively.
The following table presents the components of intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
(dollars in thousands)
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Customer relationships
|
$
|
1,203,128
|
|
|
$
|
(340,424)
|
|
|
$
|
1,021,427
|
|
|
$
|
(267,580)
|
|
Investment management agreements
|
468,000
|
|
|
(62,911)
|
|
|
468,000
|
|
|
(33,345)
|
|
Broker relationships
|
207,360
|
|
|
(99,719)
|
|
|
206,249
|
|
|
(89,234)
|
|
Trade names
|
231,177
|
|
|
(85,610)
|
|
|
208,959
|
|
|
(68,961)
|
|
Technology
|
113,202
|
|
|
(71,888)
|
|
|
113,389
|
|
|
(60,611)
|
|
Agent relationships
|
92,000
|
|
|
(22,489)
|
|
|
92,000
|
|
|
(16,355)
|
|
Insurance licenses
|
74,333
|
|
|
—
|
|
|
74,635
|
|
|
—
|
|
Renewal rights
|
21,449
|
|
|
(20,616)
|
|
|
21,449
|
|
|
(19,366)
|
|
Other
|
152,635
|
|
|
(76,909)
|
|
|
151,978
|
|
|
(64,160)
|
|
Total
|
$
|
2,563,284
|
|
|
$
|
(780,566)
|
|
|
$
|
2,358,086
|
|
|
$
|
(619,612)
|
|
7. Leases
The Company's leases primarily consist of operating leases for real estate and have remaining terms of up to 22 years. Total lease costs for operating leases were $94.4 million and $62.7 million for the years ended December 31, 2020 and 2019, respectively. Total rental expense was $52.9 million for the year ended December 31, 2018, which was prior to adoption of FASB ASU 2016-02, Leases (Topic 842).
The following table summarizes details for the Company's operating leases recorded on the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
Right-of-use lease assets
|
$
|
528,418
|
|
|
$
|
232,717
|
|
Lease liabilities
|
$
|
565,249
|
|
|
$
|
262,139
|
|
Weighted average remaining lease term
|
12.1 years
|
|
8.5 years
|
Weighted average discount rate
|
3.0
|
%
|
|
3.3
|
%
|
The following table summarizes maturities of the Company's operating lease liabilities as of December 31, 2020, which reconciles to total lease liabilities included in other liabilities on the Company's consolidated balance sheet.
|
|
|
|
|
|
Years Ending December 31,
|
(dollars in thousands)
|
2021
|
$
|
90,311
|
|
2022
|
78,953
|
|
2023
|
68,871
|
|
2024
|
59,137
|
|
2025
|
48,738
|
|
2026 and thereafter
|
286,035
|
|
Total lease payments
|
632,045
|
|
Less imputed interest
|
(66,796)
|
|
Total operating lease liabilities
|
$
|
565,249
|
|
8. Products, Services and Other Revenues
The amount of revenues from contracts with customers for the years ended December 31, 2020, 2019 and 2018 was $2.9 billion, $2.2 billion and $1.9 billion, respectively.
The following table presents revenues from contracts with customers by segment and type, all of which are included in products revenues and services and other revenues in the consolidated statements of income (loss) and comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
(dollars in thousands)
|
Markel Ventures
|
|
Other
|
|
Total
|
|
Markel Ventures
|
|
Other
|
|
Total
|
|
Markel Ventures
|
|
Other
|
|
Total
|
Products
|
$
|
1,396,706
|
|
|
$
|
—
|
|
|
$
|
1,396,706
|
|
|
$
|
1,558,265
|
|
|
$
|
—
|
|
|
$
|
1,558,265
|
|
|
$
|
1,452,332
|
|
|
$
|
—
|
|
|
$
|
1,452,332
|
|
Services
|
1,295,734
|
|
|
116,476
|
|
|
1,412,210
|
|
|
392,680
|
|
|
97,447
|
|
|
490,127
|
|
|
367,572
|
|
|
33,236
|
|
|
400,808
|
|
Investment management
|
—
|
|
|
117,193
|
|
|
117,193
|
|
|
—
|
|
|
150,864
|
|
|
150,864
|
|
|
—
|
|
|
91,527
|
|
|
91,527
|
|
Total revenues from contracts with customers
|
2,692,440
|
|
|
233,669
|
|
|
2,926,109
|
|
|
1,950,945
|
|
|
248,311
|
|
|
2,199,256
|
|
|
1,819,904
|
|
|
124,763
|
|
|
1,944,667
|
|
Program services and other fronting
|
—
|
|
|
102,989
|
|
|
102,989
|
|
|
—
|
|
|
116,376
|
|
|
116,376
|
|
|
—
|
|
|
94,118
|
|
|
94,118
|
|
Other
|
102,274
|
|
|
1,680
|
|
|
103,954
|
|
|
103,339
|
|
|
3,817
|
|
|
107,156
|
|
|
92,161
|
|
|
1,660
|
|
|
93,821
|
|
Total
|
$
|
2,794,714
|
|
|
$
|
338,338
|
|
|
$
|
3,133,052
|
|
|
$
|
2,054,284
|
|
|
$
|
368,504
|
|
|
$
|
2,422,788
|
|
|
$
|
1,912,065
|
|
|
$
|
220,541
|
|
|
$
|
2,132,606
|
|
Receivables from contracts with customers were $406.4 million and $263.9 million as of December 31, 2020 and 2019, respectively.
9. Unpaid Losses and Loss Adjustment Expenses
a) The following table presents a reconciliation of consolidated beginning and ending reserves for losses and loss adjustment expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Net reserves for losses and loss adjustment expenses, beginning of year
|
$
|
9,475,261
|
|
|
$
|
9,214,443
|
|
|
$
|
8,964,945
|
|
Effect of foreign currency rate changes on beginning of year balance
|
68,368
|
|
|
18,857
|
|
|
(69,119)
|
|
Effect of adoption of ASC 326 (see note 1)
|
3,849
|
|
|
—
|
|
|
—
|
|
Adjusted net reserves for losses and loss adjustment expenses, beginning of year
|
9,547,478
|
|
|
9,233,300
|
|
|
8,895,826
|
|
Incurred losses and loss adjustment expenses:
|
|
|
|
|
|
Current accident year
|
4,073,325
|
|
|
3,426,441
|
|
|
3,371,699
|
|
Prior accident years
|
(606,414)
|
|
|
(535,307)
|
|
|
(551,040)
|
|
Total incurred losses and loss adjustment expenses
|
3,466,911
|
|
|
2,891,134
|
|
|
2,820,659
|
|
Payments:
|
|
|
|
|
|
Current accident year
|
749,887
|
|
|
671,208
|
|
|
666,515
|
|
Prior accident years
|
1,779,980
|
|
|
1,979,032
|
|
|
1,835,027
|
|
Total payments
|
2,529,867
|
|
|
2,650,240
|
|
|
2,501,542
|
|
Effect of foreign currency rate changes on current year activity
|
1,195
|
|
|
1,067
|
|
|
(500)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for losses and loss adjustment expenses, end of year
|
10,485,717
|
|
|
9,475,261
|
|
|
9,214,443
|
|
Reinsurance recoverables on unpaid losses
|
5,736,659
|
|
|
5,253,415
|
|
|
5,062,036
|
|
Gross reserves for losses and loss adjustment expenses, end of year
|
$
|
16,222,376
|
|
|
$
|
14,728,676
|
|
|
$
|
14,276,479
|
|
COVID-19 Losses
In 2020, underwriting results included $358.3 million of net losses and loss adjustment expenses attributed to the COVID-19 pandemic, including $343.3 million for which COVID-19 was identified as the proximate, or direct, cause of loss. These losses and loss adjustment expenses were net of ceded losses of $106.2 million.
Both the gross and net loss estimates for direct losses attributed to COVID-19 represent the Company's best estimates as of December 31, 2020 based upon information currently available. The Company's estimates for these direct losses and loss adjustment expenses are based on reported claims, detailed policy level reviews and reviews of in-force assumed reinsurance contracts for potential exposures, as well as analysis of ceded reinsurance contracts. These estimates also consider analysis provided by brokers and claims counsel and the results of recent judicial rulings. There are no recent historical events with similar characteristics to COVID-19, and therefore the Company has no past loss experience on which to base its estimates. Additionally, the economic and social impacts of the pandemic continue to evolve.
Significant assumptions on which the Company's estimates of reserves for direct COVID-19 losses and loss adjustment expenses are based include:
•the scope of coverage provided under the Company's policies, particularly those that provide for business interruption coverage;
•coverage provided under the Company's ceded reinsurance contracts;
•the expected duration of the disruption caused by the COVID-19 pandemic; and
•the ability of insureds to mitigate some or all of their losses.
The Company's estimates continue to be based on broad assumptions about coverage, liability and reinsurance. Additionally, there has been significant litigation involving the handling of business interruption claims associated with COVID-19, and in certain instances, assessing the validity of policy exclusions for pandemics and interpreting policy terms to determine coverage for pandemics. Such matters have been, and are expected to continue to be, subject to judicial review and also may be subject to other government action. A test case of a sample of business interruption coverages for policies written in the United Kingdom, which do not have the same exclusions as policies commonly written in the U.S., concluded in the third quarter of
2020 with the court's judgment finding mostly in favor of policyholders. This ruling was subsequently upheld by the United Kingdom supreme court. This ruling was most impactful to certain estimates in the Company's Reinsurance segment, resulting in an increase in the Company's estimate of losses and loss adjustment expenses on certain treaties following an increase in estimated losses by the respective cedents on the treaties. The Company's estimates at December 31, 2020 also reflect additional data gathered through increased claims reporting and a change in expectation of the duration of the pandemic.
While the Company believes the net reserves for losses and loss adjustment expenses for COVID-19 as of December 31, 2020 are adequate based on information currently available, the Company will continue to closely monitor reported claims, government actions, judicial decisions and changes in the levels of worldwide social disruption and economic activity arising from the pandemic and will adjust the estimates of gross and net losses as new information becomes available. Such adjustments to the Company's reserves for COVID-19 losses and loss adjustment expenses may be material to the Company's results of operations, financial condition and cash flows. See note 20 for details regarding other potential loss exposures arising from the pandemic.
Catastrophe Losses
In 2020, underwriting results also included $168.9 million of underwriting loss from Hurricanes Isaias, Laura, Sally, Delta and Zeta, as well as wildfires in the western U.S. and the derecho in Iowa (2020 Catastrophes). The underwriting loss on the 2020 Catastrophes was comprised of $172.2 million of net losses and loss adjustment expenses partially offset by $3.4 million of net assumed reinstatement premiums. These losses and loss adjustment expenses were net of ceded losses of $125.7 million.
In 2019, underwriting results included $100.4 million of underwriting loss from Hurricane Dorian and Typhoons Faxai and Hagibis (2019 Catastrophes). The underwriting loss on the 2019 Catastrophes was comprised of $114.0 million of net losses and loss adjustment expenses partially offset by $13.6 million of net assumed reinstatement premiums. The net losses and loss adjustment expenses on the 2019 Catastrophe for the year ended December 31, 2019 were net of ceded losses of $62.5 million.
In 2018, underwriting results included $287.3 million of underwriting loss from Hurricanes Florence and Michael, Typhoon Jebi and wildfires in California (2018 Catastrophes). The underwriting loss on the 2018 Catastrophes was comprised of $292.8 million of net losses and loss adjustment expenses partially offset by $5.4 million of net assumed reinstatement premiums. The net losses and loss adjustment expenses on the 2018 Catastrophes for the year ended December 31, 2018 were net of ceded losses of $244.1 million.
b) Reserving Methodology
The Company uses a variety of techniques to establish the liabilities for unpaid losses and loss adjustment expenses based upon estimates of the ultimate amounts payable. The Company maintains reserves for specific claims incurred and reported (case reserves) and reserves for claims incurred but not reported (IBNR reserves), which include expected development on reported claims. The Company does not discount its reserves for losses and loss adjustment expenses to reflect estimated present value, except for reserves held for a runoff book of U.K. motor business. Additionally, reserves assumed in connection with an acquisition are recorded at fair value at the acquisition date. The fair value adjustment includes an adjustment to reflect the acquired reserves for losses and loss adjustment expenses at present value plus a risk premium, the net of which is amortized to losses and loss adjustment expenses within the consolidated statements of income.
As of any balance sheet date, all claims have not yet been reported, and some claims may not be reported for many years. As a result, the liability for unpaid losses and loss adjustment expenses includes significant estimates for incurred but not reported claims.
There is normally a time lag between when a loss event occurs and when it is actually reported to the Company. The actuarial methods that the Company uses to estimate losses have been designed to address the lag in loss reporting as well as the delay in obtaining information that would allow the Company to more accurately estimate future payments. There is also a time lag between cedents establishing case reserves and re-estimating their reserves, and notifying the Company of the new or revised case reserves. As a result, the reporting lag is more pronounced in reinsurance contracts than in the insurance contracts due to the reliance on ceding companies to report their claims. On reinsurance transactions, the reporting lag will generally be 60 to 90 days after the end of a reporting period, but can be longer in some cases. Based on the experience of the Company's actuaries and management, loss development factors and trending techniques are selected to mitigate the difficulties caused by reporting lags. The loss development and trending factor selections are evaluated at least annually and updated using cedent specific and industry data.
IBNR reserves are based on the estimated ultimate cost of settling claims, including the effects of inflation and other social and economic factors, using past experience adjusted for current trends and any other factors that would modify past experience. IBNR reserves are generally calculated by subtracting paid losses and loss adjustment expenses and case reserves from estimated ultimate losses and loss adjustment expenses. IBNR reserves were 66% of total unpaid losses and loss adjustment expenses at December 31, 2020 compared to 65% at December 31, 2019.
In establishing liabilities for unpaid losses and loss adjustment expenses, the Company's actuaries estimate an ultimate loss ratio, by accident year or policy year, for each product line with input from underwriting and claims personnel. For product lines in which loss reserves are established on a policy year basis, the Company has developed a methodology to convert from policy year to accident year for financial reporting purposes. In estimating an ultimate loss ratio for a particular line of business, the actuaries may use one or more actuarial reserving methods and select from these a single point estimate. To varying degrees, these methods include detailed statistical analysis of past claim reporting, settlement activity, claim frequency and severity, policyholder loss experience, industry loss experience and changes in market conditions, policy forms and exposures. Greater judgment may be required when new product lines are introduced or when there have been changes in claims handling practices, as the statistical data available may be insufficient. These estimates also reflect implicit and explicit assumptions regarding the potential effects of external factors, including economic and social inflation, judicial decisions, changes in law, general economic conditions and recent trends in these factors. Management believes the process of evaluating past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events.
Estimates for losses from widespread catastrophic events are based on claims received to date, detailed policy and reinsurance contract level reviews, industry loss estimates and output from both industry and proprietary models, as well as analysis of our ceded reinsurance contracts. The Company also considers loss experience on historical events that may have similar characteristics to the underlying event. Due to the inherent uncertainty in estimating such losses, these estimates are subject to variability, which increases with the severity and complexity of the underlying event. As additional claims are reported and paid, and industry loss estimates are revised, the Company incorporates this new information into its analysis and adjusts its estimate of ultimate losses and loss adjustment expenses. For example, both the gross and net losses on the 2020, 2019 and 2018 Catastrophes as of December 31, 2020 represent the Company's best estimates based upon information currently available. For the 2020 Catastrophes, these estimates are still dependent on broad assumptions about coverage, liability and reinsurance. While the Company believes the reserves for the 2020, 2019 and 2018 Catastrophes as of December 31, 2020 are adequate, it continues to closely monitor reported claims and will adjust estimates of gross and net losses as new information becomes available.
Loss reserves are established at management's best estimate, which is generally higher than the corresponding actuarially calculated point estimate. The actuarial point estimate represents the actuaries' estimate of the most likely amount that will ultimately be paid to settle the losses that have occurred at a particular point in time; however, there is inherent uncertainty in the point estimate as it is the expected value in a range of possible reserve estimates. In some cases, actuarial analyses, which are based on statistical analysis, cannot fully incorporate all of the subjective factors that affect development of losses. In other cases, management's perspective of these more subjective factors may differ from the actuarial perspective. Subjective factors where management's perspective may differ from that of the actuaries include: the credibility and timeliness of claims information received from third parties, economic and social inflation, judicial decisions, changes in law, changes in underwriting or claims handling practices, general economic conditions, the risk of moral hazard and other current and developing trends within the insurance and reinsurance markets, including the effects of competition. As a result, the actuarially calculated point estimates for each of the Company's lines of business represents starting points for management's quarterly review of loss reserves.
Inherent in the Company's reserving practices is the desire to establish loss reserves that are more likely redundant than deficient. As such, the Company seeks to establish loss reserves that will ultimately prove to be adequate. As part of the Company's acquisition of insurance operations, to the extent the reserving philosophy of the acquired business differs from the Company's reserving philosophy, the post-acquisition loss reserves will be strengthened until total loss reserves are consistent with the Company's target level of confidence. Furthermore, the Company's philosophy is to price its insurance products to make an underwriting profit. Management continually attempts to improve its loss estimation process by refining its ability to analyze loss development patterns, claim payments and other information, but uncertainty remains regarding the potential for adverse development of estimated ultimate liabilities.
The Company's ultimate liability may be greater or less than current reserves. Changes in the Company's estimated ultimate liability for loss reserves generally occur as a result of the emergence of unanticipated loss activity, the completion of specific actuarial or claims studies or changes in internal or external factors that impact the assumptions used to derive the Company's estimates. The Company closely monitors new information on reported claims and uses statistical analyses prepared by its actuaries to evaluate the adequacy of recorded reserves. Management exercises judgment when assessing the relative credibility of loss development trends.
Management currently believes the Company's gross and net reserves are adequate. However, there is no precise method for evaluating the impact of any significant factor on the adequacy of reserves, and actual results will differ from original estimates.
c) Prior Accident Year Loss Development
The following tables summarize, by segment, the product lines with the most significant changes in prior accident years' loss reserves for the years ended December 31, 2020, 2019 and 2018, along with the corresponding accident years and the trends and factors that impacted management's best estimate of ultimate losses and loss adjustment expenses on underlying products in each of these product lines. The Company does not estimate losses at this level of aggregation as it offers a diverse portfolio of products and manages these products in logical groupings within each underwriting segment. As a result of the trends and factors described in the following tables, the Company's actuaries adjusted their estimates of the ultimate liability for unpaid losses and loss adjustment expenses. Additionally, for those product lines with favorable development on prior accident years' loss reserves, management has now given more credibility to the favorable trends observed by the Company's actuaries and after also incorporating these favorable trends into its best estimate, reduced prior years' loss reserves accordingly.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
(dollars in millions)
|
Loss Development
|
|
Accident Years with Most Significant Development
|
|
Trends and Factors Impacting Loss Estimates
|
Insurance segment:
|
|
|
|
|
|
General liability
|
$
|
(131.8)
|
|
|
Several
|
|
More favorable claims experience than originally anticipated across several sub-product lines
|
Professional liability
|
(128.9)
|
|
|
Several
|
|
More favorable claims experience than originally anticipated across several sub-product lines
|
Workers' compensation
|
(92.3)
|
|
|
2017 to 2019
|
|
Lower loss severity than originally anticipated
|
Marine and energy
|
(46.0)
|
|
|
2016 to 2019
|
|
Lower than expected frequency of claims
|
Other products
|
(155.6)
|
|
|
|
|
|
Total Insurance
|
(554.6)
|
|
|
|
|
|
Reinsurance segment:
|
|
|
|
|
|
Property
|
(68.4)
|
|
|
2017 to 2019
|
|
Lower than expected severity of claims
|
Public entity
|
34.4
|
|
|
2016 to 2019
|
|
Higher than expected frequency and severity of claims
|
Professional liability
|
21.0
|
|
|
2016 to 2019
|
|
Recognition of additional exposure due to net favorable premium adjustments and higher than expected loss severity and claims frequency
|
Other products
|
(38.8)
|
|
|
|
|
|
Total Reinsurance
|
(51.8)
|
|
|
|
|
|
|
|
|
|
|
|
Total decrease
|
$
|
(606.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(dollars in millions)
|
Loss Development
|
|
Accident Years with Most Significant Development
|
|
Trends and Factors Impacting Loss Estimates
|
Insurance segment:
|
|
|
|
|
|
General liability
|
$
|
(161.4)
|
|
|
2015 to 2018
|
|
Lower loss severity than originally anticipated
|
Workers' compensation
|
(108.4)
|
|
|
2016 to 2018
|
|
Lower loss severity than originally anticipated and a net decrease in open claims
|
Professional liability
|
(61.8)
|
|
|
2017 and 2018
|
|
Lower than expected case incurred losses and a decrease in the frequency of large losses
|
Marine and energy
|
(43.7)
|
|
|
2017 and 2018
|
|
Lower than expected loss severity and claims frequency
|
Other products
|
(86.8)
|
|
|
|
|
|
Total Insurance
|
(462.1)
|
|
|
|
|
|
Reinsurance segment:
|
|
|
|
|
|
Property
|
(29.6)
|
|
|
2016 and 2017
|
|
Lower than expected incurred and paid losses on reported claims
|
Whole account
|
(26.2)
|
|
|
2010 and prior
|
|
Lower than expected incurred and paid losses on reported claims
|
Other products
|
(9.0)
|
|
|
|
|
|
Total Reinsurance
|
(64.8)
|
|
|
|
|
|
Net other prior years' development
|
(8.4)
|
|
|
|
|
|
Total decrease
|
$
|
(535.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(dollars in millions)
|
Loss Development
|
|
Accident Years with Most Significant Development
|
|
Trends and Factors Impacting Loss Estimates
|
Insurance segment:
|
|
|
|
|
|
General liability
|
$
|
(143.0)
|
|
|
2012 to 2017
|
|
Lower than expected claims frequency
|
Workers' compensation
|
(100.1)
|
|
|
2013 to 2017
|
|
Lower loss severity than originally anticipated and a net decrease in open claims
|
Marine and energy
|
(70.7)
|
|
|
2017 and 2018
|
|
Favorable development on 2017 catastrophe events and lower than expected development on known claims
|
Professional liability
|
(68.5)
|
|
|
2016 and 2017
|
|
Lower than expected case incurred losses
|
Other products
|
(120.0)
|
|
|
|
|
|
Total Insurance
|
(502.3)
|
|
|
|
|
|
Reinsurance segment:
|
|
|
|
|
|
Credit and surety
|
(23.9)
|
|
|
Several
|
|
Lower than expected incurred and paid losses on reported claims
|
Marine and energy
|
(18.0)
|
|
|
2012 to 2016
|
|
Lower than expected loss severity and claims frequency
|
Professional liability - medical
|
(19.5)
|
|
|
2009 to 2013
|
|
Lower loss severity than originally anticipated and a decrease in frequency of claims
|
Professional liability - other
|
35.7
|
|
|
Several
|
|
Adverse claims activity
|
Other products
|
(17.3)
|
|
|
|
|
|
Total Reinsurance
|
(43.0)
|
|
|
|
|
|
Net other prior years' development
|
(5.7)
|
|
|
|
|
|
Total decrease
|
$
|
(551.0)
|
|
|
|
|
|
d) Historic Loss Development
The following tables present undiscounted loss development information, by accident year, for the Company's Insurance and Reinsurance segments, including cumulative incurred and paid losses and allocated loss adjustment expenses, net of reinsurance, as well as the corresponding amount of IBNR reserves as of December 31, 2020. This level of disaggregation is consistent with how the Company analyzes loss reserves for both internal and external reporting purposes. The loss development information for the years ended December 31, 2012 through 2019 is presented as supplementary information. Incurred losses in both our Insurance and Reinsurance segments generally remain outstanding more than nine years; however, data prior to 2012 is not practically available by segment as a result of a change in the Company's reportable segments in 2014. Additionally, reserves for the Company's international operations are determined on a policy year basis and historical data prior to 2012 does not exist by accident year. All amounts included in the following tables related to transactions denominated in a foreign currency have been translated into U.S. Dollars using the exchange rates in effect at December 31, 2020.
The difference between the segment loss development implied by the tables for the year ended December 31, 2020 and actual losses and loss adjustment expenses on prior accident years for the Insurance and Reinsurance segments for the year ended December 31, 2020 is primarily attributed to the fact that amounts presented in these tables exclude amounts attributed to the 2011 and prior accident years. Favorable development on 2011 and prior accident years for the year ended December 31, 2020 totaled $78.1 million for the Insurance segment and $38.5 million for the Reinsurance segment.
The remaining difference between the segment loss development implied by the tables for the year ended December 31, 2020 and actual losses and loss adjustment expenses on prior accident years is attributed to the fact that amounts presented in these tables exclude unallocated loss adjustment expenses and exclude amounts attributable to reserve discounting and fair value adjustments recorded in conjunction with acquisitions, as well as differences in the presentation of foreign currency movements, as previously described, none of which are material to the Insurance or Reinsurance segments.
The Insurance segment table that follows also includes claim frequency information, by accident year. The Company defines a claim as a single claim incident, per policy, which may include multiple claimants and multiple coverages on a single policy. Claim counts include claims closed without a payment as well as claims where the Company is monitoring to determine if an exposure exists, even if a reserve has not been established.
All of the business contained within the Company's Reinsurance segment represents treaty business that is assumed from other insurance or reinsurance companies, for which the Company does not have access to the underlying claim counts. Further, this business includes both quota share and excess of loss treaty reinsurance, through which only a portion of each reported claim results in losses to the Company. As such, the Company has excluded claim count information from the Reinsurance segment disclosures.
In 2013, the Company completed the acquisition of Alterra Capital Holdings Limited (Alterra), the results of which are included in both of the Company's reportable segments. Ultimate incurred losses and loss adjustment expenses, net of reinsurance as of December 31, 2013 include outstanding liabilities for losses and loss adjustment expenses of Alterra as of the acquisition date, by accident year, and not in any prior periods. Pre-acquisition data is not available by segment and accident year due in part to the impact of significant intercompany reinsurance contracts. Additionally, Alterra reserves were historically determined on a policy year basis and pre-acquisition data does not exist in a format that can be used to determine accident year. Following the acquisition, ongoing business attributable to Alterra was integrated with the Company's other insurance operations and is not separately tracked.
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Ultimate Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
|
Total of Incurred-but-Not-Reported Liabilities, Net of Reinsurance
|
|
Cumulative Number of Reported Claims
|
Unaudited
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
(in thousands)
|
Accident Year
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
December 31, 2020
|
2012
|
$
|
1,382.5
|
|
|
$
|
1,623.6
|
|
|
$
|
1,502.6
|
|
|
$
|
1,439.8
|
|
|
$
|
1,406.4
|
|
|
$
|
1,373.3
|
|
|
$
|
1,359.7
|
|
|
$
|
1,339.2
|
|
|
$
|
1,327.3
|
|
|
$
|
68.4
|
|
|
129
|
|
2013
|
|
|
1,750.6
|
|
|
1,709.8
|
|
|
1,539.0
|
|
|
1,474.2
|
|
|
1,426.8
|
|
|
1,380.4
|
|
|
1,338.0
|
|
|
1,312.5
|
|
|
87.7
|
|
|
90
|
|
2014
|
|
|
|
|
1,876.5
|
|
|
1,711.9
|
|
|
1,644.4
|
|
|
1,585.3
|
|
|
1,537.0
|
|
|
1,515.9
|
|
|
1,488.1
|
|
|
112.5
|
|
|
82
|
|
2015
|
|
|
|
|
|
|
1,798.9
|
|
|
1,727.3
|
|
|
1,604.8
|
|
|
1,549.6
|
|
|
1,518.7
|
|
|
1,485.7
|
|
|
140.6
|
|
|
88
|
|
2016
|
|
|
|
|
|
|
|
|
1,886.0
|
|
|
1,882.9
|
|
|
1,779.8
|
|
|
1,724.6
|
|
|
1,697.0
|
|
|
179.5
|
|
|
96
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
2,344.2
|
|
|
2,214.0
|
|
|
2,092.7
|
|
|
2,032.5
|
|
|
263.5
|
|
|
132
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
2,470.6
|
|
|
2,368.9
|
|
|
2,241.2
|
|
|
573.6
|
|
|
184
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,599.0
|
|
|
2,459.5
|
|
|
999.3
|
|
|
211
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,235.7
|
|
|
2,157.3
|
|
|
157
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,279.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
|
|
|
|
|
Unaudited
|
|
As of December 31,
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
Accident Year
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
2012
|
$
|
234.6
|
|
|
$
|
571.2
|
|
|
$
|
785.2
|
|
|
$
|
944.3
|
|
|
$
|
1,060.9
|
|
|
$
|
1,126.2
|
|
|
$
|
1,160.7
|
|
|
$
|
1,188.2
|
|
|
$
|
1,211.0
|
|
|
|
|
|
2013
|
|
|
272.8
|
|
|
574.5
|
|
|
783.8
|
|
|
955.6
|
|
|
1,044.6
|
|
|
1,108.1
|
|
|
1,132.2
|
|
|
1,155.1
|
|
|
|
|
|
2014
|
|
|
|
|
333.8
|
|
|
663.0
|
|
|
901.8
|
|
|
1,071.0
|
|
|
1,177.4
|
|
|
1,262.8
|
|
|
1,306.1
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
324.2
|
|
|
669.4
|
|
|
882.2
|
|
|
1,047.2
|
|
|
1,158.7
|
|
|
1,228.1
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
373.8
|
|
|
757.4
|
|
|
988.7
|
|
|
1,175.9
|
|
|
1,282.1
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
440.6
|
|
|
997.7
|
|
|
1,294.5
|
|
|
1,484.3
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
497.8
|
|
|
1,034.1
|
|
|
1,308.8
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
531.1
|
|
|
1,008.0
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
577.9
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,561.4
|
|
|
|
|
|
All outstanding liabilities for unpaid losses and loss adjustment expenses before 2012, net of reinsurance
|
|
246.0
|
|
|
|
|
|
Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance
|
|
$
|
6,964.1
|
|
|
|
|
|
Ultimate incurred losses and allocated loss adjustment expenses as of December 31, 2013 for the Insurance segment include $257.9 million and $314.4 million of losses and loss adjustment expenses on the 2012 and 2013 accident years, respectively, attributable to Alterra. Cumulative paid losses and allocated loss adjustment expenses as of December 31, 2013 include $36.8 million and $29.5 million of paid losses and allocated loss adjustment expenses on the 2012 and 2013 accident years, respectively, attributable to the acquired Alterra reserves and post-acquisition Alterra business. Cumulative paid losses and allocated loss adjustment expenses and cumulative reported claims for the 2012 and 2013 accident years exclude any claims paid or closed prior to the acquisition.
Variability in claim counts is primarily attributable to claim counts associated with a personal lines product with high claim frequency and low claim severity. Cumulative reported claims for the 2012, 2013, 2017, 2018, 2019 and 2020 accident years include 66 thousand, 17 thousand, 24 thousand, 54 thousand, 89 thousand and 44 thousand, respectively, of claim counts associated with this product. The Company did not write this business from 2014 to 2016. The related net incurred losses and allocated loss adjustment expenses are not material to the Insurance segment.
Reinsurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultimate Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
|
Total of Incurred-but-Not-Reported Liabilities, Net of Reinsurance
|
|
|
|
Unaudited
|
|
As of December 31,
|
|
|
(dollars in millions)
|
As of December 31,
|
|
|
|
Accident Year
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
December 31, 2020
|
|
|
2012
|
$
|
73.5
|
|
|
$
|
555.8
|
|
|
$
|
513.0
|
|
|
$
|
490.6
|
|
|
$
|
460.5
|
|
|
$
|
459.3
|
|
|
$
|
451.1
|
|
|
$
|
448.2
|
|
|
$
|
443.5
|
|
|
$
|
28.3
|
|
|
|
2013
|
|
|
594.3
|
|
|
586.0
|
|
|
552.1
|
|
|
538.5
|
|
|
549.5
|
|
|
512.3
|
|
|
494.2
|
|
|
496.4
|
|
|
36.6
|
|
|
|
2014
|
|
|
|
|
579.0
|
|
|
565.1
|
|
|
536.8
|
|
|
583.8
|
|
|
561.9
|
|
|
538.0
|
|
|
522.0
|
|
|
70.8
|
|
|
|
2015
|
|
|
|
|
|
|
530.7
|
|
|
517.0
|
|
|
536.2
|
|
|
527.2
|
|
|
515.7
|
|
|
510.5
|
|
|
121.9
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
518.9
|
|
|
529.5
|
|
|
527.8
|
|
|
526.3
|
|
|
535.8
|
|
|
89.0
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
906.1
|
|
|
938.1
|
|
|
943.0
|
|
|
944.1
|
|
|
207.9
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
760.0
|
|
|
795.1
|
|
|
788.6
|
|
|
256.6
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681.7
|
|
|
695.7
|
|
|
354.2
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687.4
|
|
|
511.4
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,624.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
|
|
|
|
|
Unaudited
|
|
As of December 31,
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
Accident Year
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
|
|
|
2012
|
$
|
4.2
|
|
|
$
|
65.1
|
|
|
$
|
130.0
|
|
|
$
|
185.4
|
|
|
$
|
233.4
|
|
|
$
|
266.0
|
|
|
$
|
291.4
|
|
|
$
|
311.6
|
|
|
$
|
329.3
|
|
|
|
|
|
2013
|
|
|
71.9
|
|
|
157.4
|
|
|
211.6
|
|
|
270.7
|
|
|
303.8
|
|
|
334.1
|
|
|
353.4
|
|
|
369.3
|
|
|
|
|
|
2014
|
|
|
|
|
98.5
|
|
|
158.5
|
|
|
225.4
|
|
|
272.9
|
|
|
310.3
|
|
|
344.8
|
|
|
363.5
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
63.9
|
|
|
133.4
|
|
|
206.8
|
|
|
258.1
|
|
|
305.9
|
|
|
331.5
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
79.8
|
|
|
170.9
|
|
|
242.2
|
|
|
299.0
|
|
|
351.6
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
157.6
|
|
|
359.4
|
|
|
481.6
|
|
|
564.1
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
87.5
|
|
|
259.8
|
|
|
364.1
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54.2
|
|
|
182.6
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95.2
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,951.2
|
|
|
|
|
|
All outstanding liabilities for unpaid losses and loss adjustment expenses before 2012, net of reinsurance
|
|
476.3
|
|
|
|
|
|
Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance
|
|
$
|
3,149.1
|
|
|
|
|
|
Ultimate incurred losses and allocated loss adjustment expenses as of December 31, 2013 for the Reinsurance segment include $480.1 million and $543.4 million of losses and loss adjustment expenses on the 2012 and 2013 accident years, respectively, attributable to Alterra. Cumulative paid losses and allocated loss adjustment expenses as of December 31, 2013 include $53.2 million and $69.5 million of paid losses and allocated loss adjustment expenses on the 2012 and 2013 accident years, respectively, attributable to the acquired Alterra reserves and post-acquisition Alterra business. Cumulative paid losses and allocated loss adjustment expenses for the 2012 and 2013 accident years exclude any claims paid prior to the acquisition.
The following table presents supplementary information about average historical claims duration as of December 31, 2020 based on the cumulative incurred and paid losses and allocated loss adjustment expenses presented above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of Incurred Losses by Age (in Years), Net of Reinsurance
|
Unaudited
|
1
|
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
|
8
|
|
9
|
Insurance
|
20.9
|
%
|
|
23.4
|
%
|
|
14.7
|
%
|
|
11.3
|
%
|
|
7.3
|
%
|
|
5.0
|
%
|
|
2.4
|
%
|
|
1.9
|
%
|
|
1.7
|
%
|
Reinsurance
|
12.4
|
%
|
|
16.8
|
%
|
|
13.2
|
%
|
|
10.5
|
%
|
|
8.8
|
%
|
|
6.3
|
%
|
|
4.4
|
%
|
|
3.9
|
%
|
|
4.0
|
%
|
The following table reconciles the net incurred and paid loss development tables to the liability for losses and loss adjustment expenses on the consolidated balance sheet.
|
|
|
|
|
|
(dollars in thousands)
|
December 31, 2020
|
Net outstanding liabilities
|
|
Insurance segment
|
$
|
6,964,146
|
|
Reinsurance segment
|
3,149,115
|
|
Other underwriting
|
121,697
|
|
Program services and other
|
8,254
|
|
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance
|
10,243,212
|
|
|
|
Reinsurance recoverable on unpaid losses
|
|
Insurance segment
|
2,010,817
|
|
Reinsurance segment
|
305,507
|
|
Other underwriting
|
143,856
|
|
Program services and other
|
3,276,479
|
|
Total reinsurance recoverable on unpaid losses
|
5,736,659
|
|
|
|
Unallocated loss adjustment expenses
|
299,000
|
|
Unamortized discount, net of acquisition fair value adjustments, included in unpaid losses and loss adjustment expenses
|
(56,495)
|
|
|
242,505
|
|
Total gross liability for unpaid losses and loss adjustment expenses
|
$
|
16,222,376
|
|
e) The Company has exposure to asbestos and environmental (A&E) claims primarily resulting from policies written by acquired insurance operations before their acquisition by the Company. The Company's exposure to A&E claims originated from umbrella, excess and commercial general liability insurance policies and assumed reinsurance contracts that were written on an occurrence basis from the 1970s to mid-1980s. Exposure also originated from claims-made policies that were designed to cover environmental risks provided that all other terms and conditions of the policy were met. A&E claims include property damage and clean-up costs related to pollution, as well as personal injury allegedly arising from exposure to hazardous materials. Development on A&E loss reserves is monitored separately from the Company's ongoing underwriting operations and is not included in a reportable segment.
At December 31, 2020, A&E reserves were $219.7 million and $65.5 million on a gross and net basis, respectively. At December 31, 2019, A&E reserves were $234.2 million and $74.4 million on a gross and net basis, respectively.
The Company's reserves for losses and loss adjustment expenses related to A&E exposures represent management's best estimate of ultimate settlement values based on statistical analysis of these reserves by the Company's actuaries. A&E exposures are subject to significant uncertainty due to potential loss severity and frequency resulting from the uncertain and unfavorable legal climate. A&E reserves could be subject to increases in the future, however, management believes the Company's gross and net A&E reserves at December 31, 2020 are adequate.
10. Reinsurance
In reinsurance and retrocession transactions, an insurance or reinsurance company transfers, or cedes, all or part of its exposure in return for a premium. The ceding of insurance does not legally discharge the Company from its primary liability for the full amount of the policies, and the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance or retrocessional agreement. A credit risk exists with ceded reinsurance to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance or retrocessional contracts. Allowances are established for credit losses expected to be recognized over the life of the reinsurance recoverables.
Within its underwriting operations, the Company uses reinsurance and retrocessional reinsurance to manage its net retention on individual risks and overall exposure to losses while providing it with the ability to offer policies with sufficient limits to meet policyholder needs.
Within the Company's underwriting operations, at December 31, 2020 and 2019, balances recoverable from the ten largest reinsurers, by group, represented 60% and 62%, respectively, of reinsurance recoverables before considering reinsurance allowances and collateral. At December 31, 2020, the largest reinsurance balance was due from Fairfax Financial Group and represented 9% of reinsurance recoverables before considering reinsurance allowances and collateral.
Within its program services business, the Company generally enters into 100% quota share reinsurance agreements whereby the Company cedes to the capacity provider (reinsurer) substantially all of its gross liability under all policies issued by and on behalf of the Company by the general agent. However, there are certain programs that contain limits on the reinsurers' obligations to the Company that expose the Company to underwriting risk, including loss ratio caps, exclusions of the credit risk of producers and aggregate reinsurance limits that the Company believes are unlikely to be exceeded. The Company also remains exposed to the credit risk of the reinsurer, or the risk that one of its reinsurers becomes insolvent or otherwise unable or unwilling to pay policyholder claims. This credit risk is generally mitigated by either selecting well capitalized, highly rated authorized capacity providers or requiring that the capacity provider post substantial collateral to secure the reinsured risks.
Within the Company's program services business, at December 31, 2020 and 2019, balances recoverable from the ten largest reinsurers, by group, represented 70% and 71%, respectively, of reinsurance recoverables before considering reinsurance allowances and collateral. At December 31, 2020, the largest reinsurance balance was due from Fosun International Holdings Ltd. and represented 18% of reinsurance recoverables before considering reinsurance allowances and collateral.
The following tables summarize the effect of reinsurance and retrocessional reinsurance on premiums written and earned.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
(dollars in thousands)
|
Direct
|
|
Assumed
|
|
Ceded
|
|
Net Premiums
|
Underwriting:
|
|
|
|
|
|
|
|
Written
|
$
|
5,715,038
|
|
|
$
|
1,444,967
|
|
|
$
|
(1,222,390)
|
|
|
$
|
5,937,615
|
|
Earned
|
$
|
5,357,888
|
|
|
$
|
1,394,239
|
|
|
$
|
(1,134,501)
|
|
|
$
|
5,617,626
|
|
Program services and other:
|
|
|
|
|
|
|
|
Written
|
2,038,743
|
|
|
67,917
|
|
|
(2,112,037)
|
|
|
(5,377)
|
|
Earned
|
2,084,888
|
|
|
74,847
|
|
|
(2,165,156)
|
|
|
(5,421)
|
|
Consolidated:
|
|
|
|
|
|
|
|
Written
|
$
|
7,753,781
|
|
|
$
|
1,512,884
|
|
|
$
|
(3,334,427)
|
|
|
$
|
5,932,238
|
|
Earned
|
$
|
7,442,776
|
|
|
$
|
1,469,086
|
|
|
$
|
(3,299,657)
|
|
|
$
|
5,612,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(dollars in thousands)
|
Direct
|
|
Assumed
|
|
Ceded
|
|
Net Premiums
|
Underwriting:
|
|
|
|
|
|
|
|
Written
|
$
|
5,084,641
|
|
|
$
|
1,349,686
|
|
|
$
|
(1,024,097)
|
|
|
$
|
5,410,230
|
|
Earned
|
$
|
4,767,836
|
|
|
$
|
1,289,375
|
|
|
$
|
(1,008,970)
|
|
|
$
|
5,048,241
|
|
Program services and other:
|
|
|
|
|
|
|
|
Written
|
2,256,747
|
|
|
88,897
|
|
|
(2,343,803)
|
|
|
1,841
|
|
Earned
|
2,194,671
|
|
|
78,778
|
|
|
(2,271,897)
|
|
|
1,552
|
|
Consolidated:
|
|
|
|
|
|
|
|
Written
|
$
|
7,341,388
|
|
|
$
|
1,438,583
|
|
|
$
|
(3,367,900)
|
|
|
$
|
5,412,071
|
|
Earned
|
$
|
6,962,507
|
|
|
$
|
1,368,153
|
|
|
$
|
(3,280,867)
|
|
|
$
|
5,049,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
(dollars in thousands)
|
Direct
|
|
Assumed
|
|
Ceded
|
|
Net Premiums
|
Underwriting:
|
|
|
|
|
|
|
|
Written
|
$
|
4,562,256
|
|
|
$
|
1,236,740
|
|
|
$
|
(1,013,406)
|
|
|
$
|
4,785,590
|
|
Earned
|
$
|
4,384,562
|
|
|
$
|
1,291,032
|
|
|
$
|
(964,549)
|
|
|
$
|
4,711,045
|
|
Program services and other:
|
|
|
|
|
|
|
|
Written
|
2,022,548
|
|
|
42,925
|
|
|
(2,063,485)
|
|
|
1,988
|
|
Earned
|
1,850,656
|
|
|
28,581
|
|
|
(1,878,222)
|
|
|
1,015
|
|
Consolidated:
|
|
|
|
|
|
|
|
Written
|
$
|
6,584,804
|
|
|
$
|
1,279,665
|
|
|
$
|
(3,076,891)
|
|
|
$
|
4,787,578
|
|
Earned
|
$
|
6,235,218
|
|
|
$
|
1,319,613
|
|
|
$
|
(2,842,771)
|
|
|
$
|
4,712,060
|
|
Substantially all of the premium written and earned in the Company's program services and other fronting operations for the years ended December 31, 2020, 2019 and 2018 was ceded. The percentage of consolidated ceded earned premiums to gross earned premiums was 37%, 39% and 38% for the years ended December 31, 2020, 2019 and 2018, respectively. The percentage of consolidated assumed earned premiums to net earned premiums was 26%, 27% and 28% for the years ended December 31, 2020, 2019 and 2018, respectively.
Substantially all of the incurred losses and loss adjustment expenses in the Company's program services and other fronting operations, which totaled $1.6 billion for the years ended December 31, 2020 and 2019, were ceded.
The following table summarizes the effect of reinsurance and retrocessional reinsurance on losses and loss adjustment expenses in the Company's underwriting operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Gross
|
$
|
4,189,948
|
|
|
$
|
3,447,186
|
|
|
$
|
3,530,790
|
|
Ceded
|
(722,619)
|
|
|
(556,618)
|
|
|
(710,568)
|
|
Net losses and loss adjustment expenses
|
$
|
3,467,329
|
|
|
$
|
2,890,568
|
|
|
$
|
2,820,222
|
|
11. Life and Annuity Benefits
The following table presents life and annuity benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
Life
|
$
|
125,856
|
|
|
$
|
125,094
|
|
Annuities
|
900,298
|
|
|
813,476
|
|
Accident and health
|
43,832
|
|
|
47,159
|
|
Total
|
$
|
1,069,986
|
|
|
$
|
985,729
|
|
Life and annuity benefits are compiled on a reinsurance contract-by-contract basis and are discounted using standard actuarial techniques and cash flow models. Since the development of the life and annuity reinsurance reserves is based upon cash flow projection models, the Company must make estimates and assumptions based on cedent experience, industry mortality tables, and expense and investment experience, including a provision for adverse deviation. The assumptions used to determine policy benefit reserves are generally locked-in for the life of the contract unless an unlocking event occurs. Loss recognition testing is performed to determine if existing policy benefit reserves, together with the present value of future gross premiums and expected investment income earned thereon, are adequate to cover the present value of future benefits, settlement and maintenance costs. If the existing policy benefit reserves are not sufficient, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings for life and annuity benefits is recognized at that time.
Life and annuity benefits are also adjusted to the extent unrealized gains on the investments supporting the policy benefit reserves would result in a reserve deficiency if those gains were realized. During 2020 and 2019, the Company increased life
and annuity benefits by $68.2 million and $51.4 million, respectively, as a result of decreases in the market yield on the investment portfolio supporting the policy benefit reserves, and decreased the change in net unrealized holding gains included in other comprehensive income by corresponding amounts. No adjustment was required for the year ended December 31, 2018. As of December 31, 2020 and December 31, 2019, the cumulative adjustment to life and annuity benefits attributable to unrealized gains on the underlying investment portfolio totaled $119.6 million and $51.4 million, respectively.
Because of the assumptions and estimates used in establishing the Company's reserves for life and annuity benefit obligations and the long-term nature of these reinsurance contracts, the ultimate liability may be greater or less than the estimates. The average discount rate for the life and annuity benefit reserves was 2.3% as of December 31, 2020.
As of December 31, 2020, the largest life and annuity benefits reserve for a single contract was 33.9% of the total.
None of the annuities included in life and annuity benefits on the consolidated balance sheets are subject to discretionary withdrawal.
12. Senior Long-Term Debt and Other Debt
The following table summarizes the Company's senior long-term debt and other debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
4.90% unsecured senior notes, due July 1, 2022, interest payable semi-annually, net of unamortized discount of $432 in 2020 and $705 in 2019
|
$
|
349,498
|
|
|
$
|
349,181
|
|
3.625% unsecured senior notes, due March 30, 2023, interest payable semi-annually, net of unamortized discount of $452 in 2020 and $653 in 2019
|
249,464
|
|
|
249,226
|
|
3.50% unsecured senior notes, due November 1, 2027, interest payable semi-annually, net of unamortized discount of $1,729 in 2020 and $2,013 in 2019
|
297,769
|
|
|
297,402
|
|
3.35% unsecured senior notes, due September 17, 2029, interest payable semi-annually, net of unamortized discount of $2,163 in 2020 and $2,410 in 2019
|
297,404
|
|
|
297,125
|
|
7.35% unsecured senior notes, due August 15, 2034, interest payable semi-annually, net of unamortized discount of $937 in 2020 and $1,005 in 2019
|
128,859
|
|
|
128,788
|
|
5.0% unsecured senior notes, due March 30, 2043, interest payable semi-annually, net of unamortized discount of $4,983 in 2020 and $5,207 in 2019
|
244,742
|
|
|
244,505
|
|
5.0% unsecured senior notes, due April 5, 2046, interest payable semi-annually, net of unamortized discount of $6,177 in 2020 and $6,421 in 2019
|
493,035
|
|
|
492,761
|
|
4.30% unsecured senior notes, due November 1, 2047, interest payable semi-annually, net of unamortized discount of $3,973 in 2020 and $4,126 in 2019
|
295,333
|
|
|
295,154
|
|
5.0% unsecured senior notes, due May 20, 2049, interest payable semi-annually, net of unamortized discount of $7,422 in 2020 and $7,684 in 2019
|
591,316
|
|
|
591,010
|
|
4.15% unsecured senior notes, due September 17, 2050, interest payable semi-annually, net of unamortized discount of $5,272 in 2020 and $5,449 in 2019
|
493,935
|
|
|
493,759
|
|
Other debt, at various interest rates ranging from 1.7% to 6.1%
|
42,668
|
|
|
95,272
|
|
Senior long-term debt and other debt
|
$
|
3,484,023
|
|
|
$
|
3,534,183
|
|
In May 2019, the Company issued $600 million of 5.0% unsecured senior notes due May 20, 2049. Net proceeds to the Company were $592.2 million, before expenses. In September 2019, the Company used a portion of these proceeds to repay its 7.125% unsecured senior notes due September 30, 2019 ($234.8 million aggregate principal outstanding at December 31, 2019).
In September 2019, the Company issued $300 million of 3.35% unsecured senior notes due September 17, 2029 and $500 million of 4.15% unsecured senior notes due September 17, 2050. Net proceeds to the Company were $297.5 million and $494.5 million, respectively, before expenses. The Company used a portion of these proceeds to purchase $125.2 million of principal on its 6.25% unsecured senior notes due September 30, 2020 (2020 Notes) and $97.8 million of principal on its 5.35% unsecured senior notes due June 1, 2021 (2021 Notes) through a tender offer at a total purchase price of $130.1 million and $103.0 million, respectively.
In October 2019, the Company used a portion of the remaining proceeds from the September 2019 issuances to redeem the remaining outstanding balance of $224.8 million on its 2020 Notes and $152.2 million on its 2021 Notes for a total purchase price of $233.4 million and $160.2 million, respectively. In connection with the September 2019 tender offer and purchase
described above and the October 2019 redemption, the Company recognized a loss on early extinguishment of debt of $17.6 million during 2019.
The Company's 7.35% unsecured senior notes due August 15, 2034 are not redeemable. The Company's other unsecured senior notes are redeemable by the Company at any time, subject to payment of a make-whole premium to the noteholders. None of the Company's senior long-term debt is subject to any sinking fund requirements.
The Company's other debt is primarily associated with its subsidiaries and includes $42.7 million and $70.4 million associated with its Markel Ventures subsidiaries as of December 31, 2020 and 2019, respectively. The Markel Ventures debt is non-recourse to the holding company and generally is secured by the assets of those subsidiaries. ParkLand, a subsidiary of the Company, has formed subsidiaries for the purpose of acquiring and financing real estate (the real estate subsidiaries). The assets of certain real estate subsidiaries, which are not material to the Company, are consolidated in accordance with U.S. GAAP but are not available to satisfy the debt and other obligations of the Company or any affiliates other than those real estate subsidiaries.
The estimated fair value of the Company's senior long-term debt and other debt was $4.4 billion and $3.9 billion at December 31, 2020 and 2019, respectively.
The following table summarizes the future principal payments due at maturity on senior long-term debt and other debt as of December 31, 2020.
|
|
|
|
|
|
Years Ending December 31,
|
(dollars in
thousands)
|
2021
|
$
|
36,493
|
|
2022
|
356,128
|
|
2023
|
250,360
|
|
2024
|
—
|
|
2025
|
—
|
|
2026 and thereafter
|
2,879,847
|
|
Total principal payments
|
$
|
3,522,828
|
|
Net unamortized discount
|
(33,541)
|
|
Net unamortized debt issuance costs
|
(5,264)
|
|
Senior long-term debt and other debt
|
$
|
3,484,023
|
|
In April 2019, the Company entered into a credit agreement for a new revolving credit facility, which provides up to $300 million of capacity for future acquisitions, investments and stock repurchases, and for other working capital and general corporate purposes. At the Company's discretion, up to $200 million of the total capacity may be used for letters of credit. The Company may increase the capacity of the facility by up to $200 million subject to obtaining commitments for the increase and certain other terms and conditions. The Company pays interest on balances outstanding under the facility and a utilization fee for letters of credit issued under the facility. The Company also pays a commitment fee (0.20% at December 31, 2020) on the unused portion of the facility based on the Company's leverage ratio as calculated under the credit agreement. The credit agreement includes financial covenants that require that the Company not exceed a maximum leverage ratio and maintain a minimum amount of consolidated net worth, as well as other customary covenants and events of default. This facility replaced the Company's previous $300 million revolving credit facility and is scheduled to expire in April 2024. There were no borrowings outstanding on the Company's credit facility as of December 31, 2020 and 2019.
At December 31, 2020, the Company was in compliance with all covenants contained in its revolving credit facility. To the extent that the Company is not in compliance with its covenants, the Company's access to the revolving credit facility could be restricted.
The Company paid $178.2 million, $169.7 million and $155.4 million in interest on its senior long-term debt and other debt during the years ended December 31, 2020, 2019 and 2018, respectively.
13. Income Taxes
Income (loss) before income taxes includes the following components.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Domestic operations
|
$
|
1,003,714
|
|
|
$
|
1,664,762
|
|
|
$
|
99,373
|
|
Foreign operations
|
(3,265)
|
|
|
621,046
|
|
|
(107,228)
|
|
Income (loss) before income taxes
|
$
|
1,000,449
|
|
|
$
|
2,285,808
|
|
|
$
|
(7,855)
|
|
Income tax expense includes the following components.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
Domestic
|
$
|
167,099
|
|
|
$
|
139,597
|
|
|
$
|
77,936
|
|
Foreign
|
4,316
|
|
|
23,364
|
|
|
41,833
|
|
Total current tax expense
|
171,415
|
|
|
162,961
|
|
|
119,769
|
|
Deferred:
|
|
|
|
|
|
Domestic
|
(9,972)
|
|
|
217,928
|
|
|
(77,255)
|
|
Foreign
|
7,239
|
|
|
105,457
|
|
|
79,984
|
|
Total deferred tax expense (benefit)
|
(2,733)
|
|
|
323,385
|
|
|
2,729
|
|
Income tax expense
|
$
|
168,682
|
|
|
$
|
486,346
|
|
|
$
|
122,498
|
|
Foreign income tax expense includes U.S. income tax expense on foreign operations, including the Company's U.K. and Bermuda-based operations, certain of which have elected to be taxed as domestic corporations for U.S. tax purposes. State income tax expense is not material to the consolidated financial statements.
The Company made net income tax payments of $241.7 million, $128.2 million and $63.1 million in 2020, 2019 and 2018, respectively. Income taxes payable were $17.2 million and $64.1 million at December 31, 2020 and 2019, respectively, and were included in other liabilities on the consolidated balance sheets. Income taxes receivable were $26.1 million and $6.3 million at December 31, 2020 and 2019, respectively, and were included in other assets on the consolidated balance sheets.
In 2018, the Company decided to elect to treat its two most significant U.K. subsidiaries as domestic corporations for U.S. tax purposes. As a result, the earnings and profits from those subsidiaries are no longer considered to be indefinitely reinvested, and during 2018, the Company recorded a one-time deferred tax charge of $103.3 million related to the book and tax basis differences attributable to those subsidiaries. For subsidiaries the Company has not elected to treat as domestic corporations for U.S. tax purposes, the Company is subject to the U.S. Global Intangible Low Taxes Income (GILTI) tax. The Company recognizes the impact of the GILTI tax as incurred, and therefore has not recorded deferred taxes on the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. For the years ended December 31, 2020, 2019 and 2018, GILTI tax was not material to the consolidated financial statements.
The following table presents a reconciliation of income taxes computed using the U.S. corporate tax rate to the Company's income tax expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Income taxes at U.S. corporate tax rate
|
$
|
210,093
|
|
|
$
|
480,020
|
|
|
$
|
(1,650)
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
Nondeductible (deductible) losses on certain foreign investments
|
(38,666)
|
|
|
—
|
|
|
26,552
|
|
Tax-exempt investment income
|
(16,415)
|
|
|
(18,430)
|
|
|
(18,927)
|
|
Foreign operations
|
6,500
|
|
|
14,718
|
|
|
4,951
|
|
Change in tax status of U.K. subsidiaries
|
—
|
|
|
(6,658)
|
|
|
103,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
7,170
|
|
|
16,696
|
|
|
8,291
|
|
Income tax expense
|
$
|
168,682
|
|
|
$
|
486,346
|
|
|
$
|
122,498
|
|
|
|
|
|
|
|
Effective tax rate
|
17
|
%
|
|
21
|
%
|
|
NM (1)
|
(1)NM - Ratio is not meaningful
The following table presents the components of domestic and foreign deferred tax assets and liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
Assets:
|
|
|
|
Unpaid losses and loss adjustment expenses
|
$
|
192,755
|
|
|
$
|
163,522
|
|
Lease liabilities
|
135,104
|
|
|
55,362
|
|
Unearned premiums recognized for income tax purposes
|
116,714
|
|
|
102,020
|
|
Life and annuity benefits
|
108,825
|
|
|
84,890
|
|
Accrued incentive compensation
|
30,374
|
|
|
35,132
|
|
Net operating loss carryforwards
|
27,341
|
|
|
39,429
|
|
|
|
|
|
Tax credit carryforwards
|
15,885
|
|
|
47,233
|
|
Other differences between financial reporting and tax bases
|
63,840
|
|
|
52,604
|
|
|
|
|
|
Total gross deferred tax assets
|
690,838
|
|
|
580,192
|
|
Less valuation allowance
|
(24,396)
|
|
|
(45,544)
|
|
Total gross deferred tax assets, net of allowance
|
666,442
|
|
|
534,648
|
|
Liabilities:
|
|
|
|
Investments
|
1,102,476
|
|
|
996,543
|
|
Goodwill and other intangible assets
|
173,059
|
|
|
134,573
|
|
Right-of-use lease assets
|
127,391
|
|
|
49,583
|
|
Deferred policy acquisition costs
|
118,581
|
|
|
113,243
|
|
Other differences between financial reporting and tax bases
|
131,070
|
|
|
101,426
|
|
Total gross deferred tax liabilities
|
1,652,577
|
|
|
1,395,368
|
|
Net deferred tax liability
|
$
|
986,135
|
|
|
$
|
860,720
|
|
As of December 31, 2020 and 2019, the Company's consolidated balance sheets included net deferred tax liabilities of $990.1 million and $883.0 million, respectively, in other liabilities and net deferred tax assets of $3.9 million and $22.3 million, respectively, in other assets.
At December 31, 2020, the Company had tax credit carryforwards of $15.9 million, all of which the Company expects to utilize before expiration. The earliest any of these credits will expire is 2029.
At December 31, 2020, the Company also had net operating losses of $25.8 million that can be used to offset future taxable income in the U.S. The Company's ability to use the majority of these losses expires between the years 2029 and 2037. At
December 31, 2020, certain branch operations in Europe and a wholly owned subsidiary in Brazil had net operating losses of $72.8 million that can be used to offset future income in their local jurisdictions. The Company's ability to use $26.7 million of these losses expires between the years 2021 and 2027. The remaining losses are not subject to expiration. As discussed below, the deferred tax assets related to losses at certain of the Company's subsidiaries and branches are offset by valuation allowances.
At December 31, 2020, the Company had total gross deferred tax assets of $690.8 million. The Company has a valuation allowance of $24.4 million to offset gross deferred tax assets primarily attributable to cumulative net operating losses at certain of the Company's subsidiaries and branches. The Company believes that it is more likely than not that it will realize the remaining $666.4 million of gross deferred tax assets through generating taxable income or the reversal of existing temporary differences attributable to the gross deferred tax liabilities.
At December 31, 2020, the Company did not have any material unrecognized tax benefits. The Company does not anticipate any changes in unrecognized tax benefits during 2021 that would have a material impact on the Company's income tax provision.
The Company is subject to income tax in the U.S. and in foreign jurisdictions. The Internal Revenue Service is currently examining the Company's 2017 U.S. federal income tax return. The Company believes its income tax liabilities were adequate as of December 31, 2020, however, these liabilities could be adjusted as a result of this examination. With few exceptions, the Company is no longer subject to income tax examination by tax authorities for years ended before January 1, 2017.
14. Employee Benefit Plans
a) The Company maintains defined contribution plans for employees of its U.S. insurance operations in accordance with Section 401(k) of the U.S. Internal Revenue Code of 1986. Employees of the Company's Markel Ventures subsidiaries are provided post-retirement benefits under separate defined contribution plans. The Company also provides various defined contribution plans for employees of its international insurance and other operations, which are in line with local market terms and conditions of employment. Expenses relating to the Company's defined contribution plans were $48.6 million, $42.4 million and $41.8 million in 2020, 2019 and 2018, respectively.
b) The Terra Nova Pension Plan is a defined benefit plan that covers certain employees in the Company's international insurance operations who meet the eligibility conditions set out in the plan. The plan has been closed to new participants since 2001, and employees have not accrued benefits for future service in the plan since April 2012. The projected benefit obligations of the Terra Nova Pension Plan as of December 31, 2020 and 2019 were $220.5 million and $191.4 million, respectively, and the related fair value of plan assets was $242.3 million and $216.9 million, respectively. The corresponding net asset for pension benefits, also referred to as the funded status of the plan, at December 31, 2020 and 2019 was included in other assets on the Company's consolidated balance sheets.
15. Variable Interest Entities
MCIM, a wholly-owned consolidated subsidiary of the Company, is an insurance-linked securities investment fund manager and reinsurance manager headquartered in Bermuda. Results attributable to MCIM are not included in a reportable segment.
MCIM serves as the insurance manager for Markel CATCo Re, a Bermuda Class 3 reinsurance company, and as the investment manager for Markel CATCo Reinsurance Fund Ltd., a Bermuda exempted mutual fund company comprised of multiple segregated accounts (Markel CATCo Funds). The Markel CATCo Funds issue multiple classes of nonvoting, redeemable preference shares to investors and the Markel CATCo Funds are primarily invested in nonvoting preference shares of Markel CATCo Re. The underwriting results of Markel CATCo Re are attributed to the Markel CATCo Funds through those nonvoting preference shares. Voting shares in Markel CATCo Reinsurance Fund Ltd. and Markel CATCo Re are held by MCIM.
The Markel CATCo Funds and Markel CATCo Re are considered VIEs, as their preference shareholders have no voting rights. MCIM has the power to direct the activities that most significantly impact the economic performance of these entities, but does not have a variable interest in any of the entities. With the exception of an investment in one of the Markel CATCo Funds ($58.5 million and $26.8 million at December 31, 2020 and 2019, respectively), the Company's involvement is generally limited to that of an investment or insurance manager, receiving fees that are at market and commensurate with the level of effort required. The Company is not the primary beneficiary of the Markel CATCo Funds or Markel CATCo Re and therefore does not consolidate these entities. As of December 31, 2019, the Company was also the sole investor in another one
of the Markel CATCo Funds and consolidated that fund as its primary beneficiary but did not have a variable interest in that fund at December 31, 2020. See note 5 for additional details on the Company's investments in the Markel CATCo Funds.
The Company's exposure to risk from unconsolidated Markel CATCo Funds and Markel CATCo Re is generally limited to its investment and any earned but uncollected fees. The Company has not issued any investment performance guarantees to these VIEs or their investors. As of December 31, 2020 and 2019, net assets under management of MCIM for unconsolidated VIEs were $929.2 million and $2.7 billion, respectively.
In July 2019, both the Markel CATCo Funds and Markel CATCo Re were placed into run-off, and MCIM is returning capital to investors as it becomes available. See note 19 for further details regarding developments within the Company's Markel CATCo operations.
16. Related Party Transactions
The Company engages in certain related party transactions in the normal course of business at arm's length.
Insurance-Linked Securities
Within the Company's insurance-linked securities operations, the Company provides investment and insurance management services through MCIM and Nephila. See note 15 for details regarding operations conducted through MCIM. Nephila serves as the investment manager to several Bermuda, Ireland and U.S. based private funds (the Nephila Funds). To provide access for the Nephila Funds to the insurance, reinsurance and weather markets, Nephila also provides managing general agent services and acts as an insurance manager to certain Bermuda Class 3 and 3A reinsurance companies and Lloyd’s Syndicate 2357 (Syndicate 2357) (collectively, the Nephila Reinsurers). The Company receives management fees for investment and insurance management services provided through its insurance-linked securities operations based on the net asset value of the accounts managed, and, for certain funds, incentive fees based on the annual performance of the funds managed. Nephila also receives commissions from the Nephila Reinsurers, which are based on the direct written premiums of the insurance contracts placed. For the years ended December 31, 2020, 2019 and 2018, total revenues from the Company's insurance-linked securities operations were $212.3 million, $225.6 million and $91.5 million, respectively, of which $177.8 million, $200.8 million and $90.6 million, respectively, were attributed to unconsolidated entities managed by Nephila and MCIM.
Within the Company's program services business, the Company has a program with Nephila through which the Company writes insurance policies that are ceded to Syndicate 2357 and certain other Nephila Reinsurers. Through this arrangement, Nephila utilizes certain of the Company's licensed insurance companies to write U.S. catastrophe exposed property risk that is then ceded to Nephila Reinsurers. For the years ended December 31, 2020, 2019 and 2018, gross premiums written through the Company's program with Nephila were $412.4 million, $425.0 million and $322.1 million, respectively, all of which were ceded to Nephila Reinsurers. As of December 31, 2020 and 2019, reinsurance recoverables on the consolidated balance sheets included $353.8 million and $238.8 million, respectively, due from Nephila Reinsurers. Under this program, the Company bears underwriting risk for annual aggregate agreement year losses in excess of a limit the Company believes is unlikely to be exceeded. To the extent losses under this program exceed the prescribed limit, the Company is obligated to pay such losses to the cedents without recourse to the Nephila Reinsurers. While the Company believes losses under this program are unlikely, those losses, if incurred, could be material to the Company's consolidated results of operations and financial condition.
The Company has also entered into other assumed and ceded reinsurance transactions with the Nephila Reinsurers in the normal course of business, which are not material to the Company's consolidated financial statements.
The Hagerty Group, LLC
In June 2019, the Company acquired a minority ownership interest in Hagerty Group. See note 3. Essentia Insurance Company (Essentia), one of the Company's insurance subsidiaries, is the exclusive insurance underwriter for Hagerty in the U.S., and a portion of this insurance is ceded to Hagerty Re. For the years ended December 31, 2020 and 2019, gross written premiums attributable to Hagerty written on Essentia were $506.7 million and $422.1 million, respectively, of which $239.3 million and $202.1 million, respectively, were ceded to Hagerty Re.
17. Shareholders' Equity
a) The Company has 50,000,000 shares of no par value common stock authorized. The following table presents a rollforward of changes in common shares issued and outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2020
|
|
2019
|
Issued and outstanding common shares, beginning of year
|
13,794
|
|
|
13,888
|
|
Issuance of common shares
|
13
|
|
|
16
|
|
Repurchase of common shares
|
(24)
|
|
|
(110)
|
|
Issued and outstanding common shares, end of year
|
13,783
|
|
|
13,794
|
|
b) The Company also has 10,000,000 shares of no par value preferred stock authorized, of which 600,000 shares were issued and outstanding at December 31, 2020. In May 2020, the Company issued 600,000 6.00% Fixed-Rate Reset Non-Cumulative Series A preferred shares, with no par value and a liquidation preference of $1,000 per share, for an aggregate initial purchase price of $600 million. Net proceeds of the Series A preferred shares offering, after deducting the underwriting discount and offering expenses, was $591.9 million. Preferred stock and related additional paid-in capital are included in preferred stock on the Company's consolidated balance sheet. The Company has the option to redeem the Series A preferred shares:
•in whole but not in part, at any time, within 90 days after the occurrence of a "rating agency event," at $1,020 per Series A preferred share, plus accrued and unpaid dividends,
•in whole but not in part, at any time, within 90 days after the occurrence of a "regulatory capital event" at $1,000 per Series A preferred share, plus accrued and unpaid dividends, or
•in whole or in part, on June 1, 2025, or every fifth anniversary of that date, at $1,000 per Series A preferred share, plus accrued and unpaid dividends.
A "rating agency event" means that any nationally recognized statistical rating organization that publishes a rating for the Company amends, clarifies or changes the criteria it uses to assign equity credit to securities like the Series A preferred shares, which results in shortening the length of time that the Series A preferred shares are assigned a particular level of equity credit or in the lowering of the equity credit assigned to the preferred shares.
A "regulatory capital event" means that the Company becomes subject to capital adequacy supervision by a capital regulator and determines that, under such capital adequacy guidelines, the liquidation preference amount of the Series A preferred shares would not qualify as capital.
The Series A preferred shares rank senior to the Company's common stock with respect to the payment of dividends and liquidation rights. Holders of the Series A preferred shares are entitled to receive non-cumulative cash dividends, when, as and if declared by the Board of Directors, from the original issue date, semi-annually in arrears on the first day of June and December of each year. The Company accrues dividends when they are declared by the Board of Directors. To the extent declared, these dividends will accrue, on the liquidation preference of $1,000 per share, at a fixed annual rate of 6.00% from the original issue date to June 1, 2025. After June 1, 2025, the dividend rate will reset every five years and accrue at an annual rate equal to the five-year U.S. Treasury Rate as of two business days prior to the reset date, plus 5.662%. Dividends will not be cumulative and will not be mandatory. Accordingly, if dividends are not declared for any dividend period, then dividends for that dividend period will not accrue and will not be payable.
In 2020, total dividends declared and paid on Series A preferred stock were $18.4 million, or $30.67 per share.
c) The following table presents net income (loss) per common share and diluted net income (loss) per common share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands, except per share amounts)
|
2020
|
|
2019
|
|
2018
|
Net income (loss) to common shareholders
|
$
|
797,630
|
|
|
$
|
1,790,466
|
|
|
$
|
(128,180)
|
|
Adjustment of redeemable noncontrolling interests
|
(28,705)
|
|
|
1,105
|
|
|
(4,828)
|
|
Adjusted net income (loss) to common shareholders
|
$
|
768,925
|
|
|
$
|
1,791,571
|
|
|
$
|
(133,008)
|
|
|
|
|
|
|
|
Basic common shares outstanding
|
13,811
|
|
|
13,861
|
|
|
13,923
|
|
|
|
|
|
|
|
Dilutive potential common shares from restricted stock units and restricted stock (1) (2)
|
12
|
|
|
20
|
|
|
—
|
|
Diluted common shares outstanding
|
13,823
|
|
|
13,881
|
|
|
13,923
|
|
Basic net income (loss) per common share
|
$
|
55.67
|
|
|
$
|
129.25
|
|
|
$
|
(9.55)
|
|
Diluted net income (loss) per common share (1)
|
$
|
55.63
|
|
|
$
|
129.07
|
|
|
$
|
(9.55)
|
|
(1)The impact of restricted stock units and restricted stock of 25 thousand shares was excluded from the computation of diluted earnings per share for the year ended December 31, 2018 because the effect would have been anti-dilutive.
(2)The Company has an equity incentive compensation plan that provides for grants and awards of restricted stock units to employees as a performance retention or hiring incentive. The plan also provides for awards of restricted stock to non-employee directors. At December 31, 2020, there were 179,565 shares available for future awards under the Company's equity incentive compensation plan.
18. Other Comprehensive Income
Other comprehensive income includes changes in net unrealized gains on available-for-sale investments, which is comprised of net holding gains arising during the period, changes in unrealized other-than-temporary impairment losses, if any, and reclassification adjustments for net realized gains included in net income. Other comprehensive income also includes changes in foreign currency translation adjustments and changes in net actuarial pension loss. The following table presents the change in accumulated other comprehensive income (loss) by component, net of noncontrolling interests.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Unrealized
Gains
on Available-for-Sale Investments
|
|
Foreign
Currency
|
|
Net Actuarial
Pension Loss
|
|
Total
|
December 31, 2017
|
$
|
2,477,973
|
|
|
$
|
(74,003)
|
|
|
$
|
(58,399)
|
|
|
$
|
2,345,571
|
|
Cumulative effect of adoption of ASU No. 2016-01
|
(2,597,976)
|
|
|
2,492
|
|
|
—
|
|
|
(2,595,484)
|
|
Cumulative effect of adoption of ASU No. 2018-02
|
401,539
|
|
|
1,314
|
|
|
—
|
|
|
402,853
|
|
January 1, 2018
|
281,536
|
|
|
(70,197)
|
|
|
(58,399)
|
|
|
152,940
|
|
Total other comprehensive income (loss) before income taxes
|
(299,446)
|
|
|
(14,932)
|
|
|
2,963
|
|
|
(311,415)
|
|
Income tax (expense) benefit
|
65,970
|
|
|
(1,523)
|
|
|
(622)
|
|
|
63,825
|
|
Total other comprehensive income (loss)
|
(233,476)
|
|
|
(16,455)
|
|
|
2,341
|
|
|
(247,590)
|
|
December 31, 2018
|
$
|
48,060
|
|
|
$
|
(86,652)
|
|
|
$
|
(56,058)
|
|
|
$
|
(94,650)
|
|
Total other comprehensive income before income taxes
|
381,890
|
|
|
403
|
|
|
6,390
|
|
|
388,683
|
|
Income tax expense
|
(83,913)
|
|
|
—
|
|
|
(1,348)
|
|
|
(85,261)
|
|
Total other comprehensive income
|
297,977
|
|
|
403
|
|
|
5,042
|
|
|
303,422
|
|
December 31, 2019
|
$
|
346,037
|
|
|
$
|
(86,249)
|
|
|
$
|
(51,016)
|
|
|
$
|
208,772
|
|
Total other comprehensive income (loss) before income taxes
|
442,089
|
|
|
29,829
|
|
|
(8,849)
|
|
|
463,069
|
|
Income tax (expense) benefit
|
(89,316)
|
|
|
—
|
|
|
1,851
|
|
|
(87,465)
|
|
Total other comprehensive income (loss)
|
352,773
|
|
|
29,829
|
|
|
(6,998)
|
|
|
375,604
|
|
December 31, 2020
|
$
|
698,810
|
|
|
$
|
(56,420)
|
|
|
$
|
(58,014)
|
|
|
$
|
584,376
|
|
Effective January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and as a result, equity securities are no longer classified as available-for-sale with unrealized gains and losses recognized in other comprehensive income. Rather, changes in the fair value of equity securities are now recognized in net income. Upon adoption of this ASU, cumulative net unrealized
gains on equity securities of $2.6 billion, net of deferred income taxes, were reclassified from accumulated other comprehensive income into retained earnings.
Effective January 1, 2018, the Company adopted ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provided an option to reclassify tax effects remaining in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act to retained earnings. As a result of adopting the ASU, the Company reclassified $402.9 million of previously recognized deferred taxes from accumulated other comprehensive income into retained earnings.
19. Commitments and Contingencies
a) Late in the fourth quarter of 2018, the Company was contacted by and received inquiries from the U.S. Department of Justice, U.S. Securities and Exchange Commission and Bermuda Monetary Authority (collectively, Governmental Authorities) into loss reserves recorded in late 2017 and early 2018 at Markel CATCo Re (the Markel CATCo Inquiries), an unconsolidated subsidiary managed by MCIM. As a result, the Company engaged outside counsel to conduct an internal review.
The internal review was completed in April 2019 and found no evidence that MCIM personnel acted in bad faith in exercising business judgment in the setting of reserves and making related disclosures during late 2017 and early 2018. The Company's outside counsel has met with the Governmental Authorities and reported the findings from the internal review. The Company cannot currently predict the duration, scope or result of the Markel CATCo Inquiries.
The Markel CATCo Inquiries, as well as other matters related to or arising from the Markel CATCo Inquiries, including matters of which the Company is currently unaware, could result in additional claims, litigation, investigations, enforcement actions or proceedings. For example, additional litigation may be filed by investors in the Markel CATCo Funds. The Company also could become subject to increased regulatory scrutiny, investigations or proceedings in any of the jurisdictions where it operates. If any regulatory authority takes action against the Company or the Company enters into an agreement to settle a matter, the Company may incur sanctions or be required to pay substantial fines or implement remedial measures that could prove costly or disruptive to its businesses and operations. Costs associated with the Company's internal review, including legal and investigation costs, as well as legal costs incurred in connection with any existing or future litigation, are being expensed as incurred.
An unfavorable outcome in one or more of these matters, and others the Company cannot anticipate, could have a material adverse effect on the Company's results of operations and financial condition. In addition, the Company may take further steps to mitigate potential risks or liabilities that may arise from the Markel CATCo Inquiries and related developments and some of those steps may have a material impact on the Company's results of operations or financial condition. Even if an unfavorable outcome does not materialize, these matters, and actions the Company may take in response, could have an adverse impact on the Company's reputation and result in substantial expense and disruption.
b) In 2019, the Company established Lodgepine Capital Management Limited (Lodgepine), a new retrocessional insurance-linked securities fund manager in Bermuda. Lodgepine's initial product offering will be Lodgepine Fund Limited, a property catastrophe retrocessional investment fund, and subject to certain conditions, the Company has committed to invest up to $100 million in Lodgepine Fund Limited.
c) On March 11, 2020, COVID-19, a novel coronavirus outbreak, was declared a pandemic by the World Health Organization. See note 20 for further details regarding potential impacts of COVID-19 on the Company's business.
d) Contingencies arise in the normal course of the Company's operations and are not expected to have a material impact on the Company's financial condition or results of operations.
20. Developments Related to COVID-19
The COVID-19 pandemic has caused unprecedented social and economic disruption, increased volatility of capital markets and intervention by various governments and central banks around the world, the effects of which have impacted almost all of the Company's operations during 2020. The Company cannot reasonably estimate the extent or duration of the impacts of the pandemic; however, further potential impacts of the pandemic on the Company's results of operations, financial condition and cash flows, including those described below, could be material.
Significant volatility in the equity markets arising from economic uncertainty following the onset of the COVID-19 pandemic resulted in a significant decline in the fair value of the Company's equity portfolio in the first quarter of 2020. Although this decline was more than offset by subsequent increases in the fair value of our equity portfolio attributable to net favorable market value movements during the rest of the year, future declines in the Company's investment portfolio are possible.
As described in note 9, the Company's underwriting results for the year ended December 31, 2020 included $343.3 million of net losses and loss adjustment expenses directly attributed to COVID-19 and assumptions used to develop this estimate are inherently uncertain and subject to a wide range of variability. The Company also has underwriting exposure to loss impacts that are indirectly related to the COVID-19 pandemic and associated with a broader range of coverages, including coverages within the Company's trade credit, professional liability and workers' compensation product lines, among others, as well as certain of the Company's reinsurance product lines. Underwriting results for the year ended December 31, 2020 included $15.0 million of net losses and loss adjustment expenses indirectly attributed to the COVID-19 pandemic on the Company's trade credit product line within the Insurance segment; however, the Company does not believe any other significant indirect losses have been incurred. Business closures, reduced recreational activity and lower gross receipts, revenues and payrolls of insureds, among other things, also may impact the Company's premium volume and the economic impacts of the pandemic on the Company's insureds also may subject it to increased credit risk. A significant decline in economic activity also could impact premium volume within the Company's program services operations, which may result in a reduction in fee income.
Within the Company's Markel Ventures operations, many of the Company's businesses experienced decreased demand for their products and services as a result of the pandemic. While demand for products and services at most of the Company's impacted business have begun to recover, since the social and economic disruption caused by the pandemic is ongoing, the Company expects that revenues from its Markel Ventures operations will continue to be impacted, and these impacts may continue to be material. In certain cases, revenue declines also could result in ongoing cash and working capital constraints and could impact the companies' liquidity and their ability to comply with debt covenants.
Within the Company's insurance-linked securities operations, investment losses attributed to COVID-19 within the investment funds managed by the Company were not significant; however, uncertainty around potential COVID-19 loss exposures has reduced, and may further reduce, the net asset value on which the Company's management fees are based. Volatility in the capital markets and investor uncertainty regarding insurance industry exposure to COVID-19 also has impacted, and may continue to impact, the Company's ability to raise additional third party capital for the funds it manages. The Company also has experienced, and may continue to experience, higher than anticipated investor redemptions from the funds.
Loss of revenues in the Company's underwriting, Markel Ventures, insurance-linked securities or other operations also could impact the carrying value of the Company's goodwill and intangible assets and, with respect to its Markel Ventures operations, inventory and other long-lived assets, which may become impaired. As detailed in note 6, the Company's consolidated balance sheet as of December 31, 2020 included goodwill and intangible assets of $4.4 billion. The Company completed its annual tests for goodwill and indefinite-lived intangible asset impairment as of October 1, 2020 based upon results of operations through September 30, 2020. Based on the results of these tests, as well as analysis of the impacts of COVID-19 on definite-lived intangible assets, the Company determined none of its goodwill or intangible assets were impaired. However, delayed recovery or further deterioration in market conditions related to the general economy and the specific industries in which the Company operates, a sustained trend of weaker than anticipated financial performance within a reporting unit, or an increase in the market-based weighted average cost of capital, among other factors, could significantly impact the impairment analysis and may result in future goodwill or intangible asset impairment charges that, if incurred, could have a material adverse effect on the Company's financial condition and results of operations.
21. Statutory Financial Information
a) The following table summarizes statutory capital and surplus for the Company's insurance subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
United States
|
$
|
3,967,112
|
|
|
$
|
3,673,216
|
|
United Kingdom
|
$
|
635,382
|
|
|
$
|
638,864
|
|
Bermuda
|
$
|
1,905,070
|
|
|
$
|
1,604,184
|
|
Other
|
$
|
103,828
|
|
|
$
|
70,746
|
|
As of December 31, 2020, the Company's actual statutory capital and surplus significantly exceeded the regulatory requirements. As a result, the amount of statutory capital and surplus necessary to satisfy regulatory requirements is not significant in relation to actual statutory capital and surplus.
The following table summarizes statutory net income (loss) for the Company's insurance subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
United States
|
$
|
616,135
|
|
|
$
|
419,396
|
|
|
$
|
414,957
|
|
United Kingdom
|
$
|
(25,776)
|
|
|
$
|
108,759
|
|
|
$
|
40,203
|
|
Bermuda
|
$
|
228,740
|
|
|
$
|
447,479
|
|
|
$
|
(131,411)
|
|
Other
|
$
|
(4,628)
|
|
|
$
|
(4,499)
|
|
|
$
|
(5,193)
|
|
The Solvency II Directive (Solvency II) that governs the calculation of statutory capital and surplus for the Company's U.K. and German insurance subsidiaries does not provide requirements for the calculation of net income. Amounts presented in the table above for the Company's U.K. and German insurance subsidiaries, in which the amount attributable to Germany is included in Other, have been calculated in accordance with U.K. and German GAAP, respectively.
United States
The laws of the domicile states of the Company's U.S. insurance subsidiaries govern the amount of dividends that may be paid to the Company. Generally, statutes in the domicile states of the Company's U.S. insurance subsidiaries require prior approval for payment of extraordinary, as opposed to ordinary, dividends. As of December 31, 2020, the Company's U.S. insurance subsidiaries could pay up to $670.5 million to the holding company during the following 12 months under the ordinary dividend regulations.
In converting from U.S. statutory accounting principles to U.S. GAAP, typical adjustments include deferral of policy acquisition costs, differences in the calculation of deferred income taxes and the inclusion of net unrealized gains or losses relating to fixed maturity securities in shareholders' equity. The Company does not use any permitted statutory accounting practices that are different from prescribed statutory accounting practices which impact statutory capital and surplus.
United Kingdom
The Company's U.K. insurance subsidiary, Markel International Insurance Company Limited (MIICL), and its Lloyd's of London (Lloyd's) managing agent, Markel Syndicate Management Limited (MSM), are authorized by the Prudential Regulation Authority (PRA) and regulated by both the PRA and the Financial Conduct Authority (FCA). The PRA oversees compliance with established periodic auditing and reporting requirements, minimum solvency margins and individual capital assessment requirements under Solvency II and imposes dividend restrictions, while both the PRA and the FCA oversee compliance with risk assessment reviews and various other requirements. MIICL is required to give advance notice to the PRA for any transaction or proposed transaction with a connected or related person. MSM is required to satisfy the solvency requirements of Lloyd's. In addition, the Company's U.K. subsidiaries must comply with the United Kingdom Companies Act of 2006, which provides that dividends may only be paid out of profits available for that purpose. Earnings of the Company's U.K. insurance subsidiaries are available for distribution to the holding company to the extent not otherwise restricted.
Bermuda
The Company's Bermuda insurance subsidiary, Markel Bermuda Limited (MBL), is subject to enhanced capital requirements in addition to minimum solvency and liquidity requirements. The enhanced capital requirement is determined by reference to a risk-based capital model that determines a control threshold for statutory capital and surplus by taking into account the risk characteristics of different aspects of the insurer's business. At December 31, 2020, MBL satisfied both the enhanced capital requirements and the minimum solvency and liquidity requirements.
Under the Bermuda Insurance Act, MBL is prohibited from paying or declaring dividends during a fiscal year if it is in breach of its enhanced capital requirement, solvency margin or minimum liquidity ratio or if the declaration or payment of the dividend would cause a breach of those requirements. If an insurer fails to meet its solvency margin or minimum liquidity ratio on the last day of any financial year, it is prohibited from declaring or paying any dividends during the next financial year without the approval of the Bermuda Monetary Authority (BMA). Further, MBL is prohibited from declaring or paying, in any financial year, dividends of more than 25% of its total statutory capital and surplus as set forth in its previous year's statutory balance sheet unless at least seven days before payment of those dividends it files with the BMA an affidavit stating that it will continue to meet its solvency margin and minimum liquidity ratio. MBL must obtain the BMA's prior approval for a reduction by 15% or more of the total statutory capital as set forth in its previous year's financial statements. In addition, as a long-term insurer, MBL may not declare or pay a dividend to any person other than a policyholder unless the value of the assets in its long-term business fund, as certified by MBL's approved actuary, exceeds the liabilities of its long-term business. The amount of the dividend cannot exceed the aggregate of that excess and any other funds legally available for the payment of the dividend. As of December 31, 2020, MBL could pay up to $476.3 million to the holding company during the following 12 months without making any additional filings with the BMA.
Other Jurisdictions
The Company's other foreign subsidiaries, including its German insurance subsidiary, are subject to capital and solvency requirements in their respective jurisdictions of domicile.
b) Lloyd's sets the corporate members' required capital annually based on each syndicates' business plans, rating environment, reserving environment and input arising from Lloyd's discussions with, among others, regulatory and rating agencies. Such required capital is referred to as Funds at Lloyd's (FAL), and comprises cash and investments. The amount of cash and investments held as FAL as of December 31, 2020 was $1.1 billion. Of this amount, $374.8 million was provided by the holding company and is not available for general use by the Company. The remaining amount, provided by the Company's insurance subsidiaries, is not available for distribution to the holding company. The Company's corporate member may also be required to maintain funds under the control of Lloyd's in excess of its capital requirements and such funds also may not be available for distribution to the holding company.
22. Markel Corporation (Parent Company Only) Financial Information
The following parent company only condensed financial information reflects the financial position, results of operations and cash flows of Markel Corporation.
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(dollars in thousands)
|
ASSETS
|
|
|
|
Investments, at estimated fair value:
|
|
|
|
Fixed maturity securities, available-for-sale (amortized cost of $248,206 in 2020 and $658,557 in 2019)
|
$
|
274,297
|
|
|
$
|
676,307
|
|
Equity securities (cost of $1,307,230 in 2020 and $1,487,478 in 2019)
|
1,817,068
|
|
|
1,831,333
|
|
Short-term investments, available-for-sale (estimated fair value approximates cost)
|
1,249,970
|
|
|
724,558
|
|
Total Investments
|
3,341,335
|
|
|
3,232,198
|
|
Cash and cash equivalents
|
657,539
|
|
|
737,072
|
|
Restricted cash and cash equivalents
|
65,971
|
|
|
1,077
|
|
Receivables
|
14,737
|
|
|
19,846
|
|
Investments in consolidated subsidiaries
|
12,259,007
|
|
|
12,239,086
|
|
Notes receivable from subsidiaries
|
85,756
|
|
|
60,111
|
|
Income taxes receivable
|
37,505
|
|
|
2,170
|
|
Other assets
|
364,403
|
|
|
347,023
|
|
Total Assets
|
$
|
16,826,253
|
|
|
$
|
16,638,583
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
Senior long-term debt
|
$
|
3,441,355
|
|
|
$
|
3,438,910
|
|
Notes payable to subsidiaries (1)
|
317,753
|
|
|
1,835,000
|
|
Income taxes payable
|
—
|
|
|
18,270
|
|
Net deferred tax liability
|
170,270
|
|
|
129,835
|
|
Other liabilities
|
97,086
|
|
|
145,701
|
|
Total Liabilities
|
4,026,464
|
|
|
5,567,716
|
|
Shareholders' equity:
|
|
|
|
Preferred stock
|
591,891
|
|
|
—
|
|
Common stock
|
3,428,340
|
|
|
3,404,919
|
|
Retained earnings
|
8,195,182
|
|
|
7,457,176
|
|
Accumulated other comprehensive income
|
584,376
|
|
|
208,772
|
|
Total Shareholders' Equity
|
12,799,789
|
|
|
11,070,867
|
|
Total Liabilities and Shareholders' Equity
|
$
|
16,826,253
|
|
|
$
|
16,638,583
|
|
(1)In December 2018, Markel Corporation purchased Markel Global Reinsurance Company, an indirectly owned subsidiary of Markel Corporation, from Alterra USA Holdings Limited (Alterra USA), another indirectly owned subsidiary of Markel Corporation, by issuing a $1.4 billion note payable to Alterra USA. In March 2020, Alterra USA made a non-cash distribution of capital to Markel Corporation of $1.4 billion that satisfied the obligation under the note payable.
CONDENSED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(dollars in thousands)
|
REVENUES
|
|
|
|
|
|
Net investment income
|
$
|
18,026
|
|
|
$
|
48,845
|
|
|
$
|
32,631
|
|
Dividends on common stock of consolidated subsidiaries
|
466,244
|
|
|
863,335
|
|
|
749,171
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains (losses), including other-than-temporary impairment losses
|
27,774
|
|
|
3,848
|
|
|
(3,341)
|
|
Change in fair value of equity securities
|
82,389
|
|
|
293,296
|
|
|
(110,356)
|
|
Net investment gains (losses)
|
110,163
|
|
|
297,144
|
|
|
(113,697)
|
|
|
|
|
|
|
|
Total Revenues
|
594,433
|
|
|
1,209,324
|
|
|
668,105
|
|
EXPENSES
|
|
|
|
|
|
Services and other expenses
|
1,025
|
|
|
6,436
|
|
|
6,532
|
|
Interest expense
|
187,562
|
|
|
219,082
|
|
|
145,681
|
|
Net foreign exchange losses (gains)
|
6,823
|
|
|
3,973
|
|
|
(3,391)
|
|
Loss on early extinguishment of debt
|
—
|
|
|
13,656
|
|
|
—
|
|
Total Expenses
|
195,410
|
|
|
243,147
|
|
|
148,822
|
|
Income Before Equity in Undistributed Earnings of Consolidated Subsidiaries and Income Taxes
|
399,023
|
|
|
966,177
|
|
|
519,283
|
|
Equity in undistributed earnings (losses) of consolidated subsidiaries
|
400,289
|
|
|
851,337
|
|
|
(696,045)
|
|
Income tax (expense) benefit
|
16,718
|
|
|
(27,048)
|
|
|
48,582
|
|
Net Income (Loss) to Shareholders
|
816,030
|
|
|
1,790,466
|
|
|
(128,180)
|
|
Preferred stock dividends
|
(18,400)
|
|
|
—
|
|
|
—
|
|
Net Income (Loss) to Common Shareholders
|
$
|
797,630
|
|
|
$
|
1,790,466
|
|
|
$
|
(128,180)
|
|
OTHER COMPREHENSIVE INCOME (LOSS) TO SHAREHOLDERS
|
|
|
|
|
|
Change in net unrealized gains on available-for-sale investments, net of taxes:
|
|
|
|
|
|
Net holding gains (losses) arising during the period
|
$
|
21,482
|
|
|
$
|
14,016
|
|
|
$
|
(1,492)
|
|
Consolidated subsidiaries' net holding gains (losses) arising during the period
|
334,677
|
|
|
285,109
|
|
|
(239,833)
|
|
|
|
|
|
|
|
Reclassification adjustments for net gains (losses) included in net income (loss) to shareholders
|
(14,937)
|
|
|
(4,591)
|
|
|
2,564
|
|
Consolidated subsidiaries' reclassification adjustments for net gains (losses) included in net income (loss) to shareholders
|
11,551
|
|
|
3,443
|
|
|
5,285
|
|
Change in net unrealized gains on available-for-sale investments, net of taxes
|
352,773
|
|
|
297,977
|
|
|
(233,476)
|
|
|
|
|
|
|
|
Consolidated subsidiaries' change in foreign currency translation adjustments, net of taxes
|
29,829
|
|
|
403
|
|
|
(16,455)
|
|
Consolidated subsidiaries' change in net actuarial pension loss, net of taxes
|
(6,998)
|
|
|
5,042
|
|
|
2,341
|
|
Total Other Comprehensive Income (Loss) to Shareholders
|
375,604
|
|
|
303,422
|
|
|
(247,590)
|
|
Comprehensive Income (Loss) to Shareholders
|
$
|
1,191,634
|
|
|
$
|
2,093,888
|
|
|
$
|
(375,770)
|
|
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(dollars in thousands)
|
OPERATING ACTIVITIES
|
|
|
|
|
|
Net income (loss) to shareholders
|
$
|
816,030
|
|
|
$
|
1,790,466
|
|
|
$
|
(128,180)
|
|
Adjustments to reconcile net income (loss) to shareholders to net cash provided (used) by operating activities
|
(708,162)
|
|
|
(1,530,940)
|
|
|
3,637
|
|
Net Cash Provided (Used) By Operating Activities
|
107,868
|
|
|
259,526
|
|
|
(124,543)
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
Proceeds from sales of fixed maturity securities and equity securities
|
557,088
|
|
|
326,564
|
|
|
204,478
|
|
Proceeds from maturities, calls and prepayments of fixed maturity securities
|
39,051
|
|
|
41,673
|
|
|
34,560
|
|
Cost of fixed maturity securities and equity securities purchased
|
(90,459)
|
|
|
(82,332)
|
|
|
(26,336)
|
|
Net change in short-term investments
|
(522,666)
|
|
|
(236,251)
|
|
|
930,876
|
|
Return of capital from subsidiaries
|
15,164
|
|
|
14,865
|
|
|
12,712
|
|
Decrease (increase) in notes receivable due from subsidiaries
|
(25,000)
|
|
|
100,000
|
|
|
(20,000)
|
|
Capital contributions to subsidiaries
|
(605,426)
|
|
|
(413,148)
|
|
|
(103,133)
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
—
|
|
|
(972,619)
|
|
Cost of equity method investments
|
(4,917)
|
|
|
(213,100)
|
|
|
(4,917)
|
|
Other
|
17,984
|
|
|
6,719
|
|
|
(8,652)
|
|
Net Cash Provided (Used) By Investing Activities
|
(619,181)
|
|
|
(455,010)
|
|
|
46,969
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
Additions to senior long-term debt
|
—
|
|
|
1,384,182
|
|
|
—
|
|
Increase (decrease) in notes payable to subsidiaries
|
(50,000)
|
|
|
(99,839)
|
|
|
47,105
|
|
Repayment of senior long-term debt
|
—
|
|
|
(484,811)
|
|
|
—
|
|
Premiums and fees related to early extinguishment of debt
|
—
|
|
|
(13,248)
|
|
|
—
|
|
Repurchases of common stock
|
(26,832)
|
|
|
(116,307)
|
|
|
(54,007)
|
|
Issuance of preferred stock, net
|
591,891
|
|
|
—
|
|
|
—
|
|
Dividends paid on preferred stock
|
(18,400)
|
|
|
—
|
|
|
—
|
|
Other
|
15
|
|
|
(2,564)
|
|
|
(70)
|
|
Net Cash Provided (Used) By Financing Activities
|
496,674
|
|
|
667,413
|
|
|
(6,972)
|
|
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
|
(14,639)
|
|
|
471,929
|
|
|
(84,546)
|
|
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year
|
738,149
|
|
|
266,220
|
|
|
350,766
|
|
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS AT END OF YEAR
|
$
|
723,510
|
|
|
$
|
738,149
|
|
|
$
|
266,220
|
|
23. Quarterly Financial Information (unaudited)
The following table presents the unaudited quarterly results of consolidated operations for 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
(dollars in thousands, except per share amounts)
|
Mar. 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
2020
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
335,666
|
|
|
$
|
3,132,015
|
|
|
$
|
2,911,735
|
|
|
$
|
3,355,650
|
|
Net income (loss)
|
(1,401,376)
|
|
|
931,671
|
|
|
454,043
|
|
|
847,429
|
|
Net income (loss) to common shareholders
|
(1,405,763)
|
|
|
921,768
|
|
|
452,726
|
|
|
828,899
|
|
Comprehensive income (loss) to shareholders
|
(1,352,809)
|
|
|
1,092,393
|
|
|
520,089
|
|
|
931,961
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(100.60)
|
|
|
$
|
65.81
|
|
|
$
|
31.07
|
|
|
$
|
59.44
|
|
Diluted
|
$
|
(100.60)
|
|
|
$
|
65.75
|
|
|
$
|
31.03
|
|
|
$
|
59.33
|
|
2019
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
2,472,488
|
|
|
$
|
2,439,116
|
|
|
$
|
2,033,058
|
|
|
$
|
2,581,529
|
|
Net income
|
577,513
|
|
|
506,483
|
|
|
203,953
|
|
|
511,513
|
|
Net income to common shareholders
|
576,427
|
|
|
497,298
|
|
|
205,637
|
|
|
511,104
|
|
Comprehensive income to shareholders
|
732,245
|
|
|
623,330
|
|
|
250,069
|
|
|
488,244
|
|
Net income per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
42.81
|
|
|
$
|
36.10
|
|
|
$
|
13.97
|
|
|
$
|
36.34
|
|
Diluted
|
$
|
42.76
|
|
|
$
|
36.07
|
|
|
$
|
13.95
|
|
|
$
|
36.26
|
|
2018
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
1,575,471
|
|
|
$
|
1,987,013
|
|
|
$
|
2,235,949
|
|
|
$
|
1,042,852
|
|
Net income (loss)
|
(65,594)
|
|
|
279,587
|
|
|
409,028
|
|
|
(753,374)
|
|
Net income (loss) to common shareholders
|
(64,306)
|
|
|
278,231
|
|
|
409,438
|
|
|
(751,543)
|
|
Comprehensive income (loss) to shareholders
|
(174,839)
|
|
|
164,336
|
|
|
315,106
|
|
|
(680,373)
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(4.25)
|
|
|
$
|
20.01
|
|
|
$
|
28.56
|
|
|
$
|
(53.88)
|
|
Diluted
|
$
|
(4.25)
|
|
|
$
|
19.97
|
|
|
$
|
28.50
|
|
|
$
|
(53.88)
|
|