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Markel Beats EPS Est., Lags Y/Y

TRV MKL

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Markel Corporation (MKL - Snapshot Report) generated operating earnings of $4.99 per share in the third quarter of 2012, surpassing the Zacks Consensus Estimate of $4.62 by 8%. However, earnings lagged the prior-year earnings of $5.48 per share.

Reported net income for the third quarter of 2012 stood at $5.32 per share, marginally below the prior-year net income of $5.48 a share.

The year-over-year earnings comparison was adversely affected by significant unfavorable prior-year loss reserve development related to asbestos and environmental exposures. However, substantial revenue growth and improved underwriting results partially offset the negatives.

Operating revenues amounted to $595 million, lagging the Zacks Consensus Estimate of $608 million. Revenues surpassed the year-ago figure of $562 million. However, including net realized investment gains/losses and other revenues, Markel reported total revenues of $766 million, significantly surpassing the year-ago revenues of $676 million.

Markel’s combined ratio for the reported quarter came in at 101%, slightly deteriorating from 100% in the third quarter of 2011. However, the combined ratio for the reported quarter includes 6 basis points (bps) for unfavorable prior-year loss reserve development on the asbestos and environmental reserves and 1 bps for underwriting, acquisition and insurance expenses related to changes in accounting method. Additionally, the prior-year combined ratio includes 7 bps related to underwriting losses caused by catastrophes.

Balance Sheet and Capital Structure

Markel’s cash and cash equivalents stood at $835 million as of September 30, 2012, improving from $775 million as of December 31, 2011. Cash flow from operation in the first nine months of 2012 amounted to $240 million, declining from $261 million in the prior-year period.

Total assets as of September 30, 2012 stood at $12.4 billion, improving from $11.5 million as of December 31, 2011. Long-term debt at the end of the reported quarter amounted to $1.51 billion, while shareholders equity was $3.8 billion. Additionally, book value per share was $395.48 as of September 30, 2012, surging 12% from $352.10 at 2011-end.

Zacks Rank

Markel currently carries a Zacks #2 Rank (short-term Buy), which is supported by our long-term ‘Outperform’ recommendation. Peer The Travelers Companies Inc. (TRV - Analyst Report) also carries a short-term Zacks #2 Rank (Buy) and a long-term ‘Outperform’ recommendation.

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