Se eee celine ty
are pleased to report exceptional results for 1988. Total operating revcaues increased bY 7H. (0
569.5 million. Net income Was up 68%, 0 SLT.1 million, and net income per share was UP 247%, 19
$u.8o, These results represent a return on average shareholders’ equity of 5135, once again exceeding
cour long-term goal of earning 20% on equity. Marke!’ strategy of diversifying into dllferent segrnens of the
aan are aductey (brokerage, claims an! underwriting) and specializing in unique product niches has in
proven to be successful
Gur brokerage operations had good results with fotal revenues inescasing by 8%, though growth in this ae
yas lmfted by the soft insurance market. Transportation and animal mortality cevenuies were down due (0 seve
price competition, However, revenue from all other product lines increased. Our sialcBY of diversification and
reclamation minimized the effects ofthe prevaling soft market. Adeliionally, the Law Enforcement Liability book
aioe required from Special Risks, fae in October 1988, contibuted to fourth quarter results, With this
sequisiton, along with further market penetration in other product lies, we expect 1989 co be an even SHOMgEE
‘year for the brokerage operations,
Tie aims operations reported revenues of 829.8 milion, up from $11.3 milion fast year; largely asthe res
cour acquisition of Lindscy & Newsom in late 1987, During 1988, we mace a great deal of progress consolidating the
Gperattons of Lindsey & Newsom, National Claims, and Gordon Boyd fective January 1, 1969, these combines Ness
aeeged into one organization unde the oame Lindsey & Newsom Claim Services. Through several sguilt0 and
eases expansion the claims operation moved into 6 new states with 18 addtional offices during 1968 Unie) and
aeerramn moat opetites in 30 states through 130 oFices. While we have made significant strides in developing 2 0s.
Galt, fll service clams operation, much remain ro e done. The profit magi in this aes Nae been impacted by
dann associated with the amalgamation and expansion program, However, we remain very optimistic about she
future of Lindsey & Newsom and the claims business.
ihe insurrce underwriting operations have continued to provide both growth and profits for the Corporation
Famed premiums increased 4%, largely due 10 éxpansion Inco addtional states and the appoiniment of NEW AES
aaa oemed lows and expense ratio was 84%, which was significantly better than our goal and the majority of Oe
sence industry. We have always tied to be very conservative in establishing our estimates fr oss reserdes. This
spetfegy proved beneficial in 1988, as reserves set in prior years have proven to be redundant, Withovt Wt benefit of
Seated) Prtuncy our combined loss and expense rao would have heen 95%, whic is sil quite pond and well ‘within
Shjeetives, We believe the reserves established at year-end 1988, are conservative, though any funure Dene ss are
Slaheute to predict. ‘The insurance market continucs to be very competitive and while we exDect 0 5 ‘continued
growth (albelt more slowiy) and profitably, we do anticipate smaller margins as the combined rato iS likely 10
increase. Our goal of earning underwriting profits remains intact
Gur equity investments contributed $6.0 milion tothe Corporation in 1988, «8 compared 10 41.8 rillion the
previous year. This increase sas the single most significant reason for our increased net /neorre and is primarily
Fare eeauisition of the Shand/Evanston Group in December 1987. The Shandvanston Group maisained is
aasjcoeriting disciplines and price levels, producing results which excecttd our expectations, Because Whe
virkets in which Shand/Evanston competes were impacted by the soft insurance market, earned prema
TTeclined by 423%, 0 $615 million as compared 0 $105.4 milion in 1987, More importanty, he combined loss
seer expense ratio improved from 109% in 1987, 0 108% in 1988. Our objective is to earn wnderwn Ne profits
a eee this wll be dificult to achieve with decfiing premium volume, we remain committed to this Ba
aac Financial once apt enjoyed a successful year. Ninten eighty-eight results were favorably afeced Py
i ee hr in the Shand/Fvanston Group. which more than offct several somewhat unusual items which
aaa O87 results. The Canadian insurance industry, and thus the insurance operations of Fairfax is
rperiencing the same competitive environment as inthe United States, The claims adjusting business Ot
san gcted by the soft cycle, allowing Fairfax's Morden & Helwig to prosper regardless of the 7c ‘Additionally,
aaraetihas expamded its investment banking activities and completed several transactions curing dhe Yea. In
eae hee 1988, we converted cu convertible preferred stock into common stock. As a results Marke!
Corporation's equity in Fira’ earings will be increased from 17% t0 25% in 1989. Prospects for ‘continued
sgrowrth and profitability from this ailiate are favorable
To jane 1988, we completed the sale of an additional 650,000 shares of stock at $16.25 per share, The net
proceeds of this oering were $9.6 million, which were used primarily 0 increase ovs invest the
coos aaston Group. A succesful offering Is not possible without the investient community, andl tels SYPPA
ie appreciated. While we were reluctant fo sell additional shares at selatively Low priceleartiny nultiple, we had
ar apportunity to invest the proceeds in our business at rates of return which would aot cause dusion
cxisting shuarcholders. The additional capital also strengthened our balance sect.During the year we renegotiated our revolving eredit and term loan agreement, and increased our borrowing
under this facility ¢0 $15 million. We believe the interest rates and gepayiment terms of this facility are quite
competitive and very manageable, and we are not uncomfortable with this level of debt
Sharcholders’ equity, including redeemable common stock, at year end was $49.8 milo
share, This compares to $21.6 million, or 86.00 per share, at December 31, 1987,
In 1988, we achieved unusually good results by almost any measuce. As previously stated, revenues wete up
78%, net income per share was up 54%, and return on average sharcholders’ equity was 31%. Not only ate these
exceptional results, but they were accomplished in a very competitive, soft insurance cycle. We expect the
nsuranice marker to Femain soft in 1989, anc probably beyond. As our 1988 results were favorably alfected by
‘sequisitions completed in late 1987, we do not expect our 1989 revenue growth or net income growth to match
1988 levels. We are confident, however, that by adhering to our strategy of diversification into different segments
of the insurance industry and specialization in unique product fines, we ean achieve out long-term goals of
inereasing revenues by 20% annually and earning 4 20% return on equity.
While we have grown very quickly in the past few years, we are sill a relatively small company in the
insurance industry. We view this as an advantage, and while we expect to continue to grow, we will seck to
maintain our strategy of decentralization, allowing the key people in each ofthe buisiness units to respond quickly
And intelligently to opportunities in theit respective market segments,
The insurance industry will continue to be cyclical and the cusrent soft market is likely to continue for some
time. However, the industry is quite large (over $200 billion in premiums) and regardless of the eycle, there will
be opportunities for those who can take advantage of them, We have a group of very talented individuals capable
oF delivering customized products, superior customer service, and immediate response to the changing needs of
our customers,
The insurance cycle has very little impact on the claims adnai
overall economic activity, Any occasional peaks and valleys are the result of unusual weather patterns, We now
have the opportunity to develop a large, international claims organization in an industry characterized by smal,
local operations. The opportunity for profitable growth is very exciting and we will maintain a Jong-tetm focus on
building a strong, quality claims opetation.
Markel Corporation looks toward the future with optimism, In spite of the very competitive, soft market
environment, we believe many opportunities for continued growth and development exist. The past few years
have been marked by record financial results and we remain committed to our goal of sustaining this performance
over the long term,
Our accomplishments are made possible only through the support of our customers, agents, suppliers,
shareholders, and, most importantly, our people. It is our people who make the difference and deserve the credit
Theit commitment is evidenced by participation, enthusiasm, and the fact tht so many have chosen to share in
the company’s future through stock ownership. The men and women of the Markel Companies have made us
successful for the past 60 years and they continue to put forth exceptional effort. Our people ARF Markel, and
fogether we are committed to success.
Oh Ne he ba Maa. Aue
1 or $11.44 per
‘tration business, which generally responds to
Alan L. Kirshner Anthony F, Markel Steven A, Markel
President and Executive Executive
Chairman of the Board Vice President Vice President
The Market way ts t0 ook to be a
‘marker loader in each of one
ursuits We soot 10 know our
customers’ needs and to provide onr
Customers with quality products and
service