Greetings, welcome to the Markel Corporation first quarter 2013 earnings conference call. At this time, all participants are in listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Gayner, President and Chief Investment Officer. Thank you, sir. You may now begin.
Good morning, everyone. This is Tom Gayner, and along with my colleagues, Anne Waleski, Mike Crowley, and Richie Witt, we welcome you to the Markel Corporation first quarter 2013 conference call. Before we get started, we are required to remind you of the safe harbor provision. Here it goes. During our call today, we may make forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements is included under the captions risk factors in safe harbor and cautionary statement in our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We may also discuss certain non-GAAP financial measures in the call today. You may find a reconciliation to GAAP of these measures on our website at www.markelcorp.com in our quarterly report on Form 10-Q. Thanks again for joining us this morning.
We're off to a good start in 2013, but that's really only a small part of the story. It's a big, big day around here as we've now closed the Alterra transaction, and today marks the first day of a new era at Markel. We welcome our new shareholders and associates. We look forward to discussing our recent results, our plans for the future, and answering your thoughtful questions about your company. With that, let's get started with Anne's review of the first quarter results.
Thank you, Tom, good morning, everyone. As I will discuss in more detail in just a minute, we are off to a great start in 2013. We've had strong underwriting results, robust investment performance, and increased revenue and profitability from our non-insurance operations, which we refer to as Markel Ventures. Premium volume has benefited from acquisitions and organic growth. Our favorable underwriting performance for the quarter was driven by a lower expense ratio, more favorable development of prior year loss reserves, and lower attritional losses. Our total operating revenues grew 12% to $820 million in 2013 from $733 million in 2012. The increase is due to a 6% increase in revenues from our insurance operations and a 67% increase in revenues from Markel Ventures. Moving into our underwriting results, first quarter 2013 gross written premiums were $743 million, which is an increase of 15% compared to 2012.
The increase in 2013 was primarily due to higher gross premium volume in the specialty admitted segment. As previously announced, effective January 1st, 2013, we acquired Essentia Insurance Company, which underwrites insurance exclusively for Hagerty Insurance Agency. Hagerty is the leading insurance provider for classic cars, vintage boats, motorcycles, and automotive collectibles. Gross premium volume attributable to the new Hagerty business and Thomco, which was acquired in January 2012, contributed $63 million to the specialty admitted segment for the first quarter of 2013. Net written premiums were approximately $663 million, up 14% to the prior year. Net retention was down slightly in 2013 at 89% compared to 90% in 2012. Earned premiums increased 7%. This increase was driven by a 19% increase in earned premium from the specialty admitted segment. Our combined ratio was 91% for the first quarter of 2013 compared to 100% in 2012.
The 2012 combined ratio included $20 million or four points of expense related to our prospective adoption of the new DAC accounting standard. Excluding the impact of this adoption of the DAC standard in the first quarter of 2012, the decrease in the combined ratio in the first quarter of 2013 was primarily driven by more favorable development of prior year loss reserves in the excess and surplus line segment and lower attritional losses in each of our three operating segments compared to the same period of 2012. Favorable redundancies on prior year's loss reserves increased to $78 million, or 14 points of favorable development, compared to $64 million, or 12 points of favorable development in 2012. Now we'll talk a little bit about Markel Ventures. In the first quarter of 2013, revenue from Markel Ventures was $162 million as compared to $97 million in 2012.
Net income to shareholders from Markel Ventures was $4 million in 2013 compared to $200,000 in 2012. EBITDA was $19 million in 2013 as compared to $9 million in 2012. Revenues, net income to shareholders, and EBITDA from Markel Ventures increased in the first quarter of 2013 compared to the same period of 2012, primarily due to more favorable results at AMF Bakery Systems and our acquisition of Pasco in 2012. Now taking a look at our investment results. Investment income was down 19% in 2013 to just under $65 million. Net investment income for 2013 included a favorable change in the fair value of our credit default swaps of $3 million as compared to $11 million in 2012. Net realized investment gains for the first quarter of 2013 were $18 million, compared to $12 million in the first quarter of 2012.
There were no write-downs for other than temporary impairments in either period. Unrealized gains increased $250 million before taxes in 2013, driven by increases in equity securities. Tom will make further comments and give further details about investments in his comments. Looking at our total results for the first quarter, the effective tax rate was 24% in 2013, compared to an effective tax rate of 23% in 2012. The increase is primarily due to anticipating a smaller tax benefit related to tax-exempt investment income as a result of projecting higher pre-tax income for 2013 than in 2012. We reported net income to shareholders of $89 million as compared to $57 million in 2012. Book value per share increased 7% to $431 per share at March 31st, 2013, from $404 per share at year-end. Finally, I'll make a couple of comments about cash flow and the balance sheet.
Net cash provided by operating activities in the first quarter was $56 million. That compares to net cash used by operating activities of $64 million for the first quarter of 2012. The increase in net cash provided by operating activities during the first quarter of 2013 was driven by higher cash flows from underwriting activities as a result of increased premium volume, primarily in the specialty admitted segment, and decreased claim settlement activity as compared to the first quarter of 2012. Additionally, the three months ended March 31st, 2013, include higher cash flows from Markel Ventures, partially offset by higher profit-sharing payments compared to the same period of 2012. Invested assets at the holding company were $1.6 billion at March 31st, 2013, compared to $1.4 billion at December 31st, 2012.
The increase in invested assets is primarily the result of our March 2013 debt issuance of $500 million, partially offset by the repayment of $250 million of unsecured senior notes in February 2013. As Tom noted, everyone here is very excited about today's closing of the Alterra acquisition and the future possibilities that this transaction provides for both employees and shareholders of the combined company. With that, I'll turn it over to Mike to further discuss operations.
Thanks, Anne. Good morning. The results for the first quarter of 2013 for North American operations were very good in a number of areas. The gross written premiums for North America operations increased 20.6% year-over-year. The expense ratio improved in both segments. The E&S segment had an excellent first quarter. Gross written premium increased 10% year-over-year. Once again, all five regions in the E&S segment saw an increase in the gross written premiums. This increase was driven by the growth in a number of product lines, including excess and umbrella, medical, casualty, and environmental. The E&S combined ratio for the quarter was 77.5%. The expense ratio improved year-over-year by 5.7%, driven by the accounting change for DAC in 2012 and a reduction in corporate allocations. Prior year losses were favorable due to higher takedowns across multiple lines in 2013 compared to 2012.
Keep in mind that these takedowns are consistent with Markel's historical practices. The E&S segment continues to improve efficiency by reducing the number of agent appointments, limiting access to certain products where prior activity had been unproductive, and better educating agents about what to submit and what not to submit based on Markel's appetite and success in our target product lines. This improvement in efficiency is supported by the fact that binders increased 29% on almost the same number of quotes issued. All in all, a super quarter for the E&S segment. The specialty segment gross written premium increased 37.2% as a result of booking more gross written premium for Thomco compared to the first quarter of 2012 and the addition of the Hagerty business. We began booking Hagerty premium on January 1st of 2013.
Excluding Thomco and Hagerty, the specialty division premium volume decreased slightly as a result of our terminating certain accident and health programs and the transfer of the garage business to the E&S segment. The combined ratio for the specialty segment was 108.5%, which is a 4.9% improvement versus 2012. This decrease was partially due to a decrease in FirstComp loss ratio, which is the result of pricing increases and a geographical shift to more profitable non-California business. The expense ratio improved to 43.2% from 47.2% in 2012. This improvement is primarily driven by the accounting change for DAC, which added 4% to the expense ratio in the first quarter of 2012. Excluding Hagerty and Thomco, the specialty admitted expense ratio is down 4.6 points in addition from the impact of DAC mentioned above. This is driven by lower head counts, lower profit sharing costs, and lower overhead charges.
The expense ratio was negatively impacted by the fact that we front-loaded some expenses for Hagerty. FirstComp and Thomco businesses are still in transition, and we continue to build margin of safety and loss reserves in these product lines and on the Hagerty business, consistent with Markel's reserving and pricing philosophy. We're currently conducting a detailed review of all specialty product lines. For those specialty product lines that need improvement, i.e., rates, plans are in place or will be implemented to improve results. It's important to note that we achieved rate increases of approximately 4% on North America business, with the largest increases coming in workers' compensation and property. These rate increases in the E&S and specialty segments, along with some economic growth by our customers, is a key factor in our premium growth. Within our product line leadership, we made several changes.
We withdrew from railroad third party and taxi lines of business earlier this year. These lines have not shown progress on corrective actions, therefore, we decided to stop writing this business. During the fourth quarter call, we mentioned moving a number of underwriters from the product line group to regional roles to be closer to our agents and brokers. This has reduced referrals, added to our frontline underwriting expertise, is producing additional premium, as well as adding to the efficiency mentioned earlier in the E&S segment. All of our product line leaders and managers have been busy with the Alterra transition, our plans have been announced. Richie will speak more to the Alterra deal in his comments. Richie?
Thanks, Mike. Good morning, everybody. I'll start off with a few comments about Markel International's first quarter, then give an update on the Alterra integration. Markel International had a nice start to 2013. Gross written premiums increased 7% to $296 million. Areas of growth included our specialty and professional liability divisions, as well as our Singapore and Netherlands branches. First quarter pricing trends were largely in line with recent quarters' modest price increases. International achieved an overall average price increase of almost 3% in the first quarter. Despite price increases in certain areas, in many areas of the market, things remain competitive, particularly in the professional liability, retail, and [declining divisions]. International's combined ratio for the first quarter of 2013 was a 92%. This compares to 97 in the first quarter of 2012.
Remember that the first quarter of 2012 included approximately three points for the adoption of the DAC accounting standard. The 2013 results have benefited from a slightly lower. Plenty of work to do to fully embed and take advantage of this system, but this is an important milestone and accomplishment for the entire international team. Moving to Alterra to give an update on our acquisition. Since our initial announcement of the deal on December 19th, this has been a constant area of intense focus for countless Markel and Alterra associates. I want to welcome the Alterra associates to our Markel family and want to thank all Alterra and Markel associates for their tireless work over the last four months as we've all prepared for close and made progress on the integration.
It really is a testament to the bench strength at Markel and Alterra that we could work as hard as we have on the integration over the past four months and still produce great results in the first quarter. The integration team has done an excellent job getting us ready for the day one close. We've necessarily been focused on day one activities. Just some examples would include large items like defining and communicating new reporting lines, client communications, website updates. We've been combining certain reinsurance protections, and we've been working on our combined branding strategy. We've also been focused on what you might consider more administrative but also critically important items like email addresses, systems access, bank and trust account access. We arrive at the close date having made excellent progress in all areas.
We're now moving our attention to longer-term initiatives and making sure we have a smooth transition for our clients and our new associates. Our message for both clients and our associates is scale-enhanced business as usual. Over the next several quarters, we'll continue to more tightly integrate the two newly created divisions of global insurance and Global Reinsurance, as well as the business lines that are going to be merged into our excess and surplus and Markel International divisions. Similar activities are obviously taking place across all support areas. As of today's close, I'd sum up our progress is very good, but with lots of heavy lifting to do to achieve our goals for the combined operations of the new Markel. I'd like to turn it over to Tom.
Thank you, Richie. Morning again. My goal this morning is to cover three items. Item 1, the first quarter investment results in our public securities portfolio. Item 2, the start of the year for our Markel Ventures operations. Item 3, our prospective plan for our newly expanded investment portfolio we now manage as a result of the Alterra acquisition. As to Item 1, the year is off to a fine start. In our equity and fixed income portfolios, we earned a total return of 13.1% and a half a percent, respectively. The total return for the portfolio was 3.5%, and I am very happy with those results. While any one quarter is essentially mean, the way in which those returns were earned means a great deal. In our equity portfolio, we continue to own a set of high-quality, global, successful companies.
In many cases, the dividend yields comfortably exceed what we can earn on appropriate fixed income alternatives. We also continue our longstanding process of step-by-step, measured, and selective additions to the equity portfolio.
In our fixed income operations, we continue to maintain a portfolio of the highest credit quality that we can find. We continue to let the duration roll in. In a repeat statement from previous quarters and now year, we believe that interest rates are too low and the risks of longer-term fixed income commitments outweigh the rewards. As such, we continue to build a portfolio that increasingly resembles cash. Stay tuned for our plan on what we will do with the cash. On March 31, equities represented 65% of our shareholders' equity up from 62% at year-end. It's worth pointing out to our new and long-standing shareholders that our approach in managing our equity portfolio remains quite tax efficient. With low turnover and stocks that go up over time, we now sit on an unrealized gain of $1.3 billion.
We've provided for the taxes in our financial statements. Those taxes remain deferred until such time as we actually sell the securities and realize the gain. It's worth remembering that at a 35% tax rate, the deferred tax associated with this gain would be roughly $450 million. I know that you all love hearing about accounting just as much as I love talking about it. I think it's worth taking a minute to engage in a little thought experiment on this topic. Imagine if our balance sheet was only comprised of the unrealized gains in the equity investment portfolio. In that case, we would have an asset of $1.3 billion on the left-hand side of the balance sheet and a liability of $450 million for future taxes and equity capital of $850 million on the right-hand side.
The net effect of this dynamic is that we've got the entire $1.3 billion working for us as shareholders on a reported equity capital base of $850 million. This is incredibly tax efficient and helps our reported return on equity over time. Over the decades, this component of our balance sheet and capital has grown larger and larger. It is a meaningful contributor to total shareholder returns at Markel and not a common feature in the insurance world. I'm glad to report that those balances continued to grow during the first quarter by following the same discipline we've used to build it for decades. On to item two. Markel Ventures operations also performed very well during the first quarter of 2013. Our other revenues of $172 million that you see in the income statement are largely those of the Ventures company. Those revenues rose 55% compared to last year.
Other expenses, $152 million, up 52% from a year ago. Back to accounting again, those expenses include non-cash amortization and purchase accounting entries that are separate and distinct from the ongoing operational performance of the Markel Ventures company. As such, we use EBITDA in our internal review and management of those operations. As Anne noted earlier, EBITDA more than doubled to $19.4 million in the first quarter compared to $9.4 million in the previous year. A reconciliation of EBITDA to GAAP net income is available on our website in the earnings. Item three, the biggest single challenge and opportunity on the asset side of the balance sheet at this time is the future investment and capital allocation decisions that we will make with our growing cash balances, which are now augmented by the addition of the investment balances from Alterra.
We'll invest the money in the same way we've invested the assets of Markel over the years. Specifically, on the fixed income side, we will continue to focus on high credit quality and maintaining the duration that is shorter than our natural position of matching the duration of the insurance liabilities to our bond portfolio. We'll continue to do this until interest rates are higher than they are today and that we feel we are being paid appropriately to accept the risk of longer-term commitments. While this penalizes current investment income, it doesn't penalize it very much at today's low rates of interest across the curve. On the equity side, we have a vibrant and profitable insurance business. We have a strong balance sheet and plenty of cash. Our constraint is finding appropriate ideas and protecting and preserving the balance sheet.
For now, we will continue to methodically invest in many of the same securities we already own. Prices are still reasonable in many cases, and we will pick up investment yield from the dividends as we go. Given our new circumstances, we will have a lot of dry powder, and we will look to deploy that more aggressively as opportunities present themselves. I cannot predict when the general environment will produce an opportunity, but I'm confident that it will. As many people say about the weather wherever they live, if you don't like it, wait five minutes and it'll change. We're in a unique and what I think is a fantastic position in that we have capital to deploy in what could be a rapidly changing environment. Rest assured that the same disciplines and thought processes we've used for decades to make those decisions remain in place.
I'm optimistic about our opportunities to make positive capital allocation decisions in the coming years as well as the ultimate results for Markel shareholders. As we begin this new era at Markel, I took a moment this morning to look at our first annual report and to remind myself of what this team has accomplished for you in the years since we went public in 1986. Immediately following the public offering, we had shareholders' equity of about $16 million and a total investment portfolio of approximately $30 million. We've been about the process of reinvesting our earnings and making sound capital allocation decisions for a long time, and I think it's fair to say the results should speak for themselves.
To add one more note on a sense of perspective, the comprehensive income in the first quarter of 2013 of $257 million exceeded our entire cumulative earnings during our first decade as a public company. I know that analyst reports on Markel rarely address comprehensive income in their estimates and discussions about it, but the comprehensive income is what we as shareholders ultimately receive as owners of this business. As such, it's what we focus on as the stewards of this company. It's undeniable that we face a challenge as we begin to integrate the Alterra operations into Markel and reinvest our new, larger base of capital. The good news is that we've done this sort of thing before, and we are excited and optimistic about doing it again now and into the future. We'd like to go ahead and open up the floor for your questions.
Jeff, if you would be so kind as to open up the floor.
Thank you. Ladies and gentlemen, we will now be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of John Fox with Fenimore Asset Management. Please proceed with your question.
Okay. Thank you. Good morning, everyone.
Good morning, John.
I have a few questions. First for Tom Gayner. You mentioned the Alterra portfolio. Do you have a sense of how long it will take to make that look more like a Markel portfolio?
A lot of that really is going to be opportunistically driven, John. In the price and the environment that we're operating in today, it's going to be pretty methodical and just step by step. If market opportunities present themselves, we will act expeditiously, but I don't have a good prediction for you.
Okay. Tom, where will you take the equities, the stock portfolio as a percentage of Markel's shareholder equity?
Well, for instance, at the end of the quarter, we were at 65%.
Right.
That obviously goes down as you add in a bunch of cash from the Alterra capital. My goal would be to get that back to that sort of ratio, and in fact, go beyond that, as I see good opportunities to do so. We'll let it go down before we start to rebuild it.
Okay. I think these other two questions are for Mike.
By the way, before you start asking Mike questions.
Oh.
If you have any really good ideas, call me later.
Okay, I will. Mike, a number of insurance companies have kind of talked about organic price increases in the first quarter.
Right.
I wonder, from a perspective on your business, do you see kind of a natural increase in prices and what that number might be?
Well, as we said, we're seeing something in the range of 4% in North America now with a little more in workers' comp and property. Right now, I see that just continuing. I don't see it going up a lot from here, and I don't see it going down. Right now, we're just kind of planning on the same kind of trends.
Okay. Richie mentioned 3 in international, kind of low single digits.
Yeah. No, I think it's amazing. We talk about the different markets, but there tends to be a lot of similarity in terms of how they move. 3% over there, 4% here, pretty consistent.
Right. Okay. The results, these are terrific results for the first quarter, the specialty admitted line is not terrific, and I'm just wondering your thoughts on that. Are you looking at taking different actions? It seems to be an outlier of the three segments at this point.
Right. A couple of things are going on there, John. One, in the quarter, about 66% of the revenue with specialty is coming from three new businesses. FirstComp, Thomco, and the Hagerty business. All of those businesses are being subjected to our conservative reserving practices for a period of time. In addition, the expense ratio for Thomco and for Hagerty in the first quarter is high because of things that are going on there. We front-loaded a lot of expenses for Hagerty. We wrote $30-something million of business, but we only earned about $4 million, and we've got some booking of contingencies and other things that drive that expense ratio way up in the first quarter, and that'll trend down during the course of the year. The expense ratio for the specialty, excluding that, is 38.6%.
Everybody else is moving in the right direction, and FirstComp has made great strides in their expense ratio and in their loss ratio. They're following the plan that we set in place for them when we acquired them in late 2010. There are a couple of lines of business in the specialty segment that are not performing the way we would like them to do, and we're taking action on those.
Okay. Thank you.
Thank you. The next question comes from the line of Jay Cohen with Bank of America Merrill Lynch. Please proceed with your question.
Yes. Thank you. Are you going to be putting out any pro forma information as far as working the Alterra numbers into a new presentation? It's hard to update the model when we don't know where all the numbers are going, I guess.
Jay, we'll be filing an 8-K, but it'll probably be 10 weeks from now.
That's fine. Thank you very much.
Okay.
Thank you. The next question comes from the line of Mark Dwelle with RBC Capital Markets. Please proceed with your question.
Good morning. A couple of numbers questions to start out with. You had provided the split of the portion of the Markel Ventures revenues were in the other revenues. Could you give us the portion of the expenses that are in the other expenses line that mirrors up with that?
Yeah. While Anne looks for those numbers, I'm reading the total other revenues off the Form 10-Q. She had the exact Markel Ventures numbers.
Right. Markel Ventures related revenues were $162 million. The associated expenses are about $145 million.
$145 million. Thank you. Second question-
By the way, Mark, that includes the non-tax expenses.
Right. Of course.
Keep a dial on that.
Right. The second question, did you have any particular amount of catastrophe losses in the quarter? I didn't see any references, and I couldn't think of any, but just thought if there were any, you could highlight them.
No, nothing too big.
Nothing of significance, Mark. Also, obviously, it's in the queue. We had some takedowns actually on Hurricane Sandy in the quarter. In a sense, we had a negative.
Yeah, I saw those. Okay.
That quarter.
All right. Then somebody had mentioned in their opening remarks, I think it was you, Richie, the integration of the kind of combined reinsurance platform to cover the combined entities. Is there anything you can share with respect to that in terms of how that's going to affect the ratio of gross to net premiums? Obviously, it's my job to figure out how many dollars of premiums you're going to add in. I'd like to at least take a stab at the ratio, if we could.
Sure. Mark, what I think I'd tell you this year is we are starting to look at programs and how we can combine them. I think the first step, quite honestly, is actually to bring them together. We're not so much focused on moving retentions as we are just kind of getting to fewer programs right now. I would tell you that for 2013, if you sort of took the mix of our retention and Alterra's retention, that's probably where we'll end up, whatever that is in the middle. I don't have that number to hand. After we kind of get through this initial phase during 2013, next year, we'll start looking critically at those retention levels, and my assumption would be we'd start bringing those up some. This year is do no harm right now. We just want to start putting things together.
That's very helpful. Thanks. I'll let everybody else take a go. Thanks.
Thank you. The next question comes from the line of Adam Klauber with William Blair. Please proceed with your question.
Thanks. Good morning.
Good morning, Adam.
How is the general E&S environment? Are you seeing much flow over from the standard markets?
I think we're seeing some, Adam. It's hard to measure. We like to think that a lot of our growth has come from the fact that we've done a much better job articulating to our producers exactly what we want. It's also a result of the last couple of years of upgrading our coverages and our forms. We're being a lot more active with our brokers in terms of being out, knocking on doors, asking for the business. I think that's driven a lot of it as well. It's hard to put a number on what we're seeing roll over from the standard market. I think we're seeing some of that.
Okay. As far as for the overall company, your accident, your loss ratio, excluding cats, was down by roughly 200 basis points. How much of that is due to light weather?
Due to? Sorry, can you repeat that?
How much of that is due to just weather being pretty light during the winter?
It's going to be a little bit of that. There's no question. First quarter was a very light quarter for weather. Also, we're seeing the impact of modest price increases that we've gotten over the last couple of years. That's starting to help the loss ratio as well. It's a mix of the two.
Okay. Then as far as what are you seeing on the loss trends in workers' comp? I guess if you can distinguish California versus non-California would be helpful.
The loss ratio is obviously improving at First Comp. If you keep in mind, as we've said on other calls, First Comp has been restructuring their business and moving a lot more toward non-California business and more attractive states. I don't have the numbers right in front of me, but their California comp business is down substantially from a couple of years ago. The trends, not only their loss trends, but their expense trends are moving absolutely in the right direction. They're managing their business just as we ask them to.
The only thing I'd add to that is, as you can expect, the trends in work comp sort of mirror what's going on in medical. It's higher than the overall economy, and
California, as it has always been, is higher than the rest of the country. I don't think we're seeing anything crazy there.
No.
I think it's sort of a continuation of what's been a theme.
Okay. Finally, with the E&S, you had a pretty good-sized release. I know reserve releases are going to jump around, but were there any one or two items driving that release?
The release was predominantly on casualty lines, it was spread across several years.
Okay. Thank you very much.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Doug Mewhirter with SunTrust. Please proceed with your question.
Hi, good morning. First, Richie, just a little numbers question. I noticed the expense ratio in the London Market division had quite an improvement, below 40% for the first time in a while. Is there anything there? Were there any particular credits, or are you just more blocking and tackling, better scale?
Well, obviously, we had the DAC adjustment in the first quarter of last year. It's probably not as dramatic as maybe it appears on the surface. I think you're right, though. The underlying trend is down some, and I think it's primarily more volume. We're getting more volume, and we're able to spread our fixed costs a little further. Good news.
Yes, definitely. Tom, you had a pretty comprehensive overview of how you're going to bring Alterra's portfolio around. Is there going to be any particular, I guess, for lack of a better term, liquidation events in advance of that where you definitely overweight Alterra's cash just because you would rather get something more stable to bring over to Markel? Would it be more you would take their portfolio and move, I guess, as you find opportunities to up your investments on the Markel side, you will liquidate the Alterra's investments on a case-by-case basis?
Yes.
If that was clear.
The good news is that the vast majority of the Alterra investment portfolio is just fine. It's high-quality fixed income investments, and those will largely remain in place, and that's a pretty smooth integration process. They did pursue things in the realm of alternative investments. They've been very cooperative and helpful in terms of liquidating some of that ahead of the closing. That process will continue, and it'll take some time. There's a half-life associated with that. Frankly, this time next year, there will still be some of that. That is largely an independent process compared to where we're deploying capital on cash. I'm hard-pressed to imagine a scenario where we want to invest more than we can right now. We can go about whatever changes we're making on Alterra in a very methodical and orderly way.
We got plenty of cash to fund investment ideas as we have them, and they're two distinct things.
Okay. Thanks a lot. That's all my questions.
Thank you. Our next question comes from the line of Ray Iardella with Macquarie. Please proceed with your question.
Thanks, and good morning, everyone. I guess a quick question. Tom, you spent a lot of time on the Alterra portfolio, the asset side. Maybe can you give us an update on how you're thinking about reserves for Alterra now that I guess you had a little bit more time to take a look at them? Maybe if there's any need to bring them up to the Markel standards, given the way you guys approach reserving?
What I'd say there is when we did our due diligence at Alterra, we felt comfortable with the reserve levels, that there was a redundancy. Probably not at the same level as our reserving standards, but solid reserving, and that was very reassuring when we got through the due diligence. Obviously, we've been spending a lot of time with the Alterra folks over the last four months, and we haven't seen anything that would change our opinion of what we saw in due diligence. Similar to other acquisitions that we've done in the past, Tom talked about a methodical process. It will be a methodical process to bring them into line with Markel's reserving standards as we go forward.
Probably the best thing I would tell you in terms of purchase adjustments, if you will, is to look at the pro formas that were part of our debt issuance back in March. That would give you an idea of what we're talking about or thinking about doing, and I think that's pretty much in line with where our thinking is today.
Thanks again. I'll take a look at those documents.
Thanks.
Thank you. Mr. Gayner, it appears there are no further questions at this time. I would like to turn the floor back over to you for any concluding remarks.
Well, great. Thank you very much. Thank you for joining us. We look forward to seeing you all soon. Take care.
Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.