Markel Corporation (NYSE:MKL) released fourth-quarter 2015 results Wednesday after the bell. As expected, the specialty insurer treated investors to yet another solid quarter despite continued challenging market conditions.
Quarterly operating revenue climbed 6.3% year over year to $1.42 billion, and translated to a 75.7% increase in net income per diluted share to $14.14. Wall Street was expecting less on both fronts, with consensus estimates calling for roughly flat net income of $7.21 per share on a slight year-over-year decline in revenue to $1.33 billion.
But the more important metric to gauge Markel's success as a financial holding company is book value per share, which stood at $561.23 as of December 31, 2015. That's a sequential increase of 1.7% from $551.63 last quarter, and up 3.2% from $543.96 at the end of 2014. For the five-year period ended Dec. 31, Markel's compound annual growth in book value per share was 11%.
On investment performance
Relatedly, Markel's comprehensive income to shareholders was roughly $135 million in Q4, down from $418.6 million in the same year-ago period. This was primarily caused by a decrease in net unrealized gains on investments, which itself was due to a decrease in fair value of Markel's fixed maturity and equity portfolios over the past year.
Markel's net investment income during the quarter fell 11.3% year over year, to $82.7 million, while total invested assets as of Dec. 31 were $18.2 billion, down from $18.6 billion as of Dec. 31, 2014. Equity securities comprised $4.1 billion, or 22%, of that total, or roughly the same percentage of total invested assets at the end of 2014. As it stands, equity securities and now represent 52.3% of shareholders' equity.
Meanwhile, fixed maturities comprised 52% of invested assets at the end of the year (up from 56% last year), while short-term investments, cash, and cash equivalents represented the remaining 26% (up from 22% at the end of 2014).
Net unrealized gains (net of taxes) remained steady from last quarter at $1.5 billion and fell from $1.8 billion at the end of 2014. But that doesn't mean Markel CIO Tom Gayner is worried. By holding equities for long periods of time without selling, Gayner ensures that net unrealized investment gains can trend upward over the long term, helping him avoid an unnecessary tax bill and more effectively compound shareholders' returns.
Markel's insurance businesses once again turned in stellar underwriting results. Similar to last quarter, insurance operations achieved a consolidated combined ratio of 88% -- meaning they earned $12 for every $100 in premiums they wrote -- this time including an 87% combined ratio from U.S. insurance, 83% from international insurance, and 83% from Markel's reinsurance operations.
That brings Markel's full-year 2015 combined ratio to 89%, an enormous improvement over 95% in 2014, thanks both to more favorable development on last year's loss reserves -- think extra money Markel set aside for insurance claims that didn't happen -- and a lower current accident year loss ratio this year. Most significantly, Markel credits the decrease in current accident year loss ratio to lower attritional losses -- or losses associated with ordinary operations, not major losses -- across several product lines in the reinsurance segment in 2015.
When all was said and done in 2015, gross premium volume fell 4% to $4.632 billion (though it would have declined just 2% had it not been for the negative effects of foreign exchange), driven primarily by a 13% decline in gross premium volume in reinsurance. We should also keep in mind that Markel recently closed on its acquisition of CATCo, an insurance-linked securities investment fund manager and reinsurance manager that offers the company a platform to bring new insurance and investment products to market.
Finally, Markel Ventures -- which houses Markel's diversified portfolio of non-insurance businesses -- saw revenue climb 9.4% year over year to $269.7 million. That includes a 4.4% increase in revenue from manufacturing-centric businesses to $187.8 million, driven primarily by Markel's 2014 acquisition in 2014 of auto transport trailer manufacturer Cottrell. In addition, revenue from non-manufacturing businesses climbed 19.3% to $75.5 million, and "Other" revenue at Markel Ventures rose 84% year over year to $6.4 million.
On the bottom line, Markel Ventures' turned in a net loss to shareholders of $3.3 million, while its earnings before interest, taxes, depreciation, and amortization (EBITDA) fell slightly from the same year-ago period to $15 million. Note that both net income and EBITDA in non-manufacturing businesses were net of a $14.9 million non-cash goodwill impairment charge during the quarter related to its Diamond Healthcare reporting unit.
Also during the quarter, Markel Ventures completed its acquisition of CapTech Ventures, a management and IT consulting firm with a broad customer base. Because of a one-month lag in consolidating results of Markel Ventures, however, results for CapTech will be included in Markel's financial statements beginning in January.
Overall, however, this represents another undeniably solid quarter from Markel as it unapologetically maintains its long-term approach of generating shareholder value. And that's great news for investors (including myself) who plan to continue holding Markel stock for years to come.