Markel Corporation (MKL -0.03%) released first-quarter 2016 results Tuesday after the market close. And though shares are little changed as of this writing, make no mistake: Investors should be pleased with the specialty insurer's solid start to the year.
Quarterly operating revenue climbed 5.7% year over year, to just less than $1.38 billion, and translated to a 17.3% decline in net income per diluted share, to $11.15. While we don't lend much credence to Wall Street's near-term oriented expectations, analysts' consensus estimates predicted revenue would increase just 1.9%, to $1.33 billion, and result in significantly lower net income of $6.79 per share.
Markel is a financial holding company, and arguably the best way to gauge its success is by measuring its long-term growth in book value per share. As of March 31, 2016, Markel's book value per share stood at $589.86, an increase of 5.1% from $561.23 at the end of 2015, and up 4.5% from $564.29 this time one year ago.
Markel Executive Chairman Alan Kirshner added,
2016 is off to a strong start with solid contributions from our underwriting, investing and Markel Ventures operations. Our growth in book value per share for the quarter reflects significant returns from our investment portfolio and our long-term focus on underwriting discipline. We are well-positioned to continue to build shareholder value and to take advantage of profitable growth opportunities as they arise.
Comprehensive income to shareholders climbed 40.9% year over year, to $397 million, driven primarily by unrealized gains on investments. Net investment income fell 1.7% year over year, to $91.3 million, given lower bond income on Markel's fixed maturity portfolio -- albeit primarily due to timing of maturities and purchases as compared to the same year-ago period.
Total invested assets stood at $18.5 billion at the quarter's end, up from $18.2 billion at the end of last quarter. Equity securities comprised just over $4.3 billion, or $23% of that total, up from 22% last quarter, and representing roughly 52% of shareholder's equity. During the subsequent conference call, Markel Chief Investment Officer (and now co-CEO) Tom Gayner made it a point to remind shareholders that Markel has historically invested between 50% and 80% of shareholders' equity in securities.
"Over the last year," Gayner explained, "we've had a higher degree of turnover in the portfolio than normal, which reflects our view that the landscape for business is changing at a faster pace than historically was the case. When refined, we tend to accumulate gradually and persistently over time."
Fixed maturities comprised just under 55% of invested assets at the quarter's end, up from 52% last quarter, while short-term investments, cash, and cash equivalents represented the remaining 22%. Net unrealized gains (net of taxes) climbed to $1.7 billion from $1.5 billion last quarter. As another reminder, by holding equities for long periods of time without selling, Gayner ensures net unrealized investment gains can trend upward over the long term, helping the company avoid an unnecessary tax bill, and more effectively compound shareholders' returns.
(Continued) Underwriting outperformance
Markel's insurance businesses achieved another solidly profitable quarter. Markel's consolidated combined ratio remained steady from last quarter, at 88% -- meaning they earned $12 for every $100 in premiums they wrote -- including an 89% combined ratio from U.S. insurance, 95% from international insurance, and 82% from Markel's reinsurance operations. But this was also an increase from its even better 83% consolidated combined ratio in last year's first quarter, driven mostly by less favorable developments on prior years' loss reserves.
Next, gross premium volume grew 11% year over year, to just over $1.39 billion, including a 20% increase in gross premiums from reinsurance, to $453.5 million, 11% growth from U.S. Insurance, to $647.8 million, and a slight increase from International Insurance, to $291.4 million. This includes one additional week of gross premium volume during the quarter as compared to the same year-ago period.
Finally, with the non-insurance side of things over at Markel Ventures, operating revenue grew 16.7% year over year, to $286.5 million. This included a 20.2% year-over-year increase in manufacturing business revenue, to $192.7 million, 6.1% growth at non-manufacturing, to $93.8 million, a 27.8% decline in investment management business revenue, to $7.2 million, and a slight increase in "other" business revenue, to $6.3 million.
On the bottom line, Markel Ventures grew its net income to shareholders by 33.9%, to $14.1 million, and earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 22.5%, to $41.1 million. Markel Ventures made no new acquisitions during the quarter, but did reveal that its total consideration for last quarter's acquisition of CapTech was $60.6 million. Financial contributions from this acquisition were included this quarter.
In the end, there were no big surprises from Markel in today's report. Rather, investors were treated to another steady quarter with solid contributions from investments, insurance, and Markel Ventures alike. While the market's muted reaction might not show it, investors should be more than happy with these results.