Greetings. Welcome to the Markel Corporation third quarter 2013 earnings conference call. At this time, all participants are in a 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, Mr. Gayner. You may begin.
Thank you, Rob. Good morning. Welcome to the Markel Corporation 2013 third quarter conference call. My name is Tom Gayner, and it is my privilege to greet you this morning. In a few minutes, turn things over to our Chief Financial Officer, Anne Waleski, and my Co-Presidents, Mike Crowley and Richie Whitt, to give you a brief update on how things are going at Markel these days. Prior to this call, I was speaking with one of our long-term shareholders about the conference call process. He told me that he has owned the stock for about 20 years. That our call was boring. He said that he really couldn't imagine us saying anything in the call that would change his mind about Markel, his long-term ownership of the stock. I thanked him for his honesty. Actually I agreed with him.
My number one goal is actually to still be here 20 years from now and delivering a report just as boring as this one. I suspect what he told me is true for our loyal and long-term owners who provide us with the capital we need to run this business. I also suspect it's true for shorter-term followers of the stock, who usually issue a sell recommendation immediately following this call. As the character Inigo Montoya said in The Princess Bride, "You keep using that word. I don't think it means what you think it does." I'll leave it to those of you with access to the long-term chart of Markel to decide which unchanging point of view you wish to embrace. The force that propelled the 27-year line on the chart up and to the right cannot be found within the cells of a spreadsheet.
Boring works for me when it comes to talking about our financial results. We shouldn't be that exciting. I'm all in favor of grinding it out along the same lines that we have through our 27 years as a public company. We've looked after the capital that you entrusted to us. We've produced wonderful returns for the owners of this company. Roughly speaking, the longer you've owned Markel, the more money you've made. By the way, while it may look and sound boring, I can promise you that we're having a lot of fun doing this. There is not a day that goes by when I don't hear laughter in this office. In addition, there are some days when we're simply stunned by what happens. I promise you that we are not bored.
With that prelude, let me share with you what I do consider to be the boring part of our call, the safe harbor statement that our general counsel advises me to share with you. 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 and Safe Harbor and Cautionary Statements 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 for these measures on our website at www.markelcorp.com, and our quarterly report in Form 10-Q. Anne?
Thank you, Tom, for always starting us out with a smile. Good morning, everyone. I am pleased to be able to report that for the first nine months of 2013, we have produced strong underwriting results and profitable growth in each of our legacy operating segments. The Alterra segment has performed within our expectations, and we continue to make significant progress with the integration efforts. Our total operating revenues grew 39% to $3 billion in 2013 from $2.2 billion in 2012. The increase is due to a 42% increase in revenues from our insurance operations, which include $531 million from the Alterra segment, and a 41% increase in revenues from our non-insurance operations, which we refer to as Markel Ventures. Moving into the underwriting results, for the nine months of 2013, gross written premiums were $2.9 billion, which is an increase of 53% compared to 2012.
The increase in 2013 was primarily due to $715 million of premiums from the Alterra segment since our acquisition on May 1st, 2013, as well as higher gross premium volume in the specialty admitted and excess and surplus line segments. The increase in specialty admitted is driven by premiums from the Hagerty and THOMCO businesses. Within the excess and surplus line segment, the increase is due in part to the impact of more favorable rates and improving economic conditions. Net written premiums for 2013 were approximately $2.4 billion, up 44% to the prior year for the same reasons I just mentioned. Net retention was down in the first nine months of 2013 at 83%, compared to 89% in 2012. The decrease in net retention is due to the inclusion of premiums written by Alterra from May 1st to September 30th, 2013.
Net retention in the Alterra segment for the five-month period was 66%. Net retention for the legacy Markel segments was flat at 89% for both periods. Earned premiums increased 44%. The increase in 2013 was primarily due to $530 million of earned premium from the Alterra segment for the five months ended September 30th, 2013, as well as higher earned premium volume in the specialty admitted and excess and surplus line segments. The increase in specialty admitted is due to earned premiums from the Hagerty and THOMCO businesses. Our combined ratio was 97% for the first nine months of 2013, compared to 96% in 2012. The increase in the combined ratio was due to a lower prior year loss ratio, partially offset by a lower expense ratio compared to the same period in 2012.
During 2013, the benefit of the favorable development of prior year's loss reserve had less of an impact on the combined ratio when compared to the same period of 2012 due to higher earned premiums in the current year. The 2013 results were also impacted by the Alterra segment, which added 6 points to the combined ratio, driven by $70 million of merger and acquisition costs and $33 million of catastrophe losses. Favorable development on prior year loss reserves increased to $281 million, or 12 points, compared to $260 million, or 17 points, in 2012. These amounts are net of $28 million in 2013 and $31 million in 2012 of unfavorable loss reserve development on asbestos and environmental exposures within our discontinued line segment. We complete our annual review of these exposures during the third quarter of each year.
During this year's review, our expectation of the severity of the outcome for known claims increased. We increased our prior year loss reserves accordingly. The decrease in the expense ratio for the first nine months of 2013 is driven by higher earned premiums in our legacy Markel segments compared to 2012, partially offset by the impact of the merger and acquisition costs incurred by Alterra. Excluding the merger and acquisition costs incurred in 2013, the inclusion of Alterra had a favorable impact on the expense ratio. Alterra's had a lower expense ratio than we have had historically. The expense ratio for 2012 was unfavorably impacted by the prospective adoption of the new DAC standard, which increased our expenses by $41 million or 3 points on the 2012 combined ratio. Next, I'll discuss the results of Markel Ventures.
In the first nine months of 2013, revenues from Markel Ventures were $486 million compared to $345 million in 2012. Net income to shareholders for Markel Ventures was $18 million in 2013 compared to $9 million in 2012. EBITDA was $64 million in 2013 as compared to $41 million in 2012. Revenues, net income to shareholders, and EBITDA from Markel Ventures increased in the first nine months of 2013 compared to the same period of 2012, primarily as a result of more favorable results at AMF Bakery Systems and our acquisitions in 2012 of Havco and Reading Bakery Systems. Next, we'll turn to the investment results. Investment income was up in 2013 to just under $229 million.
Net investment income for 2013 included $44 million of investment income attributable to Alterra, which was net of $39 million in amortization expense from adjusting Alterra's fixed maturity securities to a new amortized cost basis at the acquisition date. Net investment income also included favorable changes in the fair value of our credit default swap of $9 million as compared to $14 million for 2012. Excluding the impact of Alterra and the credit default swap, net investment income for the first nine months of 2013 decreased compared to 2012, due in part to a decrease in our fixed maturities and an increase in cash and cash equivalents. Net realized investment gains for 2013 were $41 million compared to $25 million in 2012. Included in net realized gains were $4.6 million of other than temporary impairments as compared to $4.2 million in 2012. Tom will discuss investments further in his comments.
Looking at our total results for the nine months, our effective tax rate was 28% in 2013 compared to an effective tax rate of 19% in 2012. The increase is primarily due to higher estimated earnings taxed at a 35% rate and 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 2012. We reported net income to shareholders of $182 million, compared to $197 million in 2012. Book value per share increased approximately 14% to $462 per share at September 30th, 2013, from $404 per share at year-end. The increase is primarily due to equity issued in connection with the acquisition of Alterra and $253 million of comprehensive income to shareholders. Finally, I'll make a few comments about cash flow and the balance sheet.
Net cash provided by operating activities was $542 million for the nine months ended September 30th, 2013, compared to $240 million for the same period of 2012.
The increase was driven by higher cash flows from underwriting activities and investment activities. The increase in cash flows from underwriting activities is primarily a result of the acquisition of Alterra and higher premium volume, primarily in our specialty admitted and excess and surplus line segments. Invested assets at the holding company were $1.1 billion as September 30th, compared to $1.4 billion at year-end. The decrease in invested assets is primarily the result of cash paid for the Alterra acquisition, partially offset by a net increase in debt. I'd like to close with a quick mention of the announcement we made on October 9th, 2013, regarding our offer to acquire Abbey Protection, the U.K.-based integrated specialist insurance and consultancy group. Subject to shareholder and regulatory approval, we expect this to close in January of 2014. At this point, I will turn it over to Mike to further discuss operations.
Thanks, Anne. Good morning. The results for legacy Markel North American operations were very good and continued the positive trend we've seen during the year. Gross written premiums increased 20% over prior year in the third quarter and 23% over prior year for nine months. The E&S segment performed well again, with all five regions again showing growth. Gross written premiums increased 8% over prior year in the quarter and 12% over prior year for nine months. The combined ratio of 87.8% for the quarter was 1 point better than the prior year. The year-to-date combined ratio was 80.9% compared to 90.6% for the same period last year. The segment continues to improve operating efficiency and the service to our agents and brokers.
Confirmation of this comes from the fact that annualized premiums for underwriting is up over 8%, and the upgrades to our wholesale broker portal continue to receive very positive reviews from our agents. During the quarter, we announced that John Latham, President of the E&S division, will be stepping down from that position on January 1st, 2014. John has begun his plans for retirement in 2016 and has elected to spend his final few years with Markel focusing on our customers and assisting me with special projects. John has done an exceptional job leading the E&S division over the past few years, and he is to be commended for the excellent results that we're realizing today. I want to emphasize that this is John's decision, and he will remain fully engaged at Markel over the next couple of years.
Bryan Sanders, who joined Markel with the Alterra acquisition, will assume the position of President of E&S division effective January 1, 2014. Bryan has a long and outstanding background in the wholesale world, having been in the industry for 32 years. He has served in leadership positions with Alterra, Max Specialty, and HRH, where we worked together. We have great confidence that Bryan will continue the success achieved under John's leadership. The specialty admitted segment also had a very good quarter. Gross written premiums increased 37% over prior year in the quarter and are up 39% year-to-date. The combined ratio in the quarter was 90.3 or 18.9 points lower than prior year due to the lower calendar year loss ratio and higher prior year takedowns. The year-to-date combined ratio is 100.8 or 7.4 points lower than prior year.
As Anne said, the increase in gross written premiums in the specialty division continues to be driven by the Hagerty and THOMCO businesses. In the segment, we're continuing to execute on our plans, which we talked about on the last call, to exit unprofitable lines and non-renew certain specific accounts in order to improve our underwriting results for this segment. With regards to our product line leadership, headed by Gerard Albanese, the quarter was very active. We're continuing to execute plans integrating the Alterra professionals within the product line leadership group. They have successfully combined brokerage property teams and have adopted the Alterra property integration tools and pricing for the book. Mike Miller, who led the marine practice at Alterra, has expanded his responsibilities and has both commercial ocean marine and middle marine reporting to him.
We continue to hold joint product line meetings across the organization, including professionals from Alterra, wholesale specialty, and Markel International, to foster closer working relationships among these professionals. Meetings have been held with the marine property, professional liability, and energy teams. We've also now consolidated all of our homeowners business into our personal lines division under Audrey Hanken's leadership. Previously, this business resided in Alterra wholesale and their personal lines operation. The only comment that I will make with regards to the rate environment is that we are still getting modest rate increases, although down slightly from earlier in the year. In summary, a very good quarter for North American operations. I'll now turn the call over to Richie Whitt.
Thanks, Mike, good morning, everyone. I'll start my comments with Markel International's nine-month results and then give an update on the Alterra integration. Markel International had an amazingly consistent, and sticking with Tom's theme, somewhat boring result for the first nine months of 2013. When I say boring, I mean that in the absolute best of ways. Boring is good in insurance. International produced consistently strong results driven by solid prior accident year reserve releases and light catastrophe losses. Gross written premiums increased 3% to $725 million. Areas of growth included our specialty books as well as our Singapore and Netherlands branches. Pricing trends have been very consistent throughout the year, with modest single-digit price increases. However, in many areas of the market, things remain competitive, particularly in cat-exposed property, both insurance and reinsurance, professional liability, retail, and equine lines.
There is much discussion in the industry on where pricing trends are headed right now. At Markel, we are going to continue to push for price increases. Given the current interest rate environment, there really is no room to reduce rates and produce acceptable returns. International's combined ratio for the nine months of 2013 and 2012 was an 88 combined. As I said previously, both years benefited from relatively wide catastrophe losses and solid prior accident year reserve releases. While the nine-month results were delightfully boring at Markel International, the team was extremely busy and anything but bored with the integration of Alterra going on and the announcement of the proposed acquisition of Abbey Protection. As Anne said, if all goes as expected, this deal will close in January next year. We are extremely excited to add the Abbey team to Markel International.
Abbey adds unique retail products and services to our international insurance portfolio, we see opportunities to grow their already strong franchise in legal expense and professional fee protection. Now I'd like to give a quick update on the acquisition of Alterra. It's been approximately six months since the deal closed on May 1st. We've made excellent progress bringing the two organizations together, with every day that passes, things feel more and more like business as usual. As Anne stated, Alterra's results have largely been in line with our expectations, this is a really important statement, as our expectations for Alterra are very high. Within the Alterra segment premium volume and the global insurance and reinsurance divisions have met, in some cases, exceeded expectations and are in line with prior year's volume.
Lines of business that will ultimately become part of Markel International and excess and surplus have also performed well. The Alterra segment results for the nine months, which includes $70 million of merger and acquisition costs, are again in line with our expectations, we have begun the process of establishing a margin of safety on loss reserve. Obviously, this is similar to what we have done with all past acquisitions. We're looking forward to the day in the not-too-distant future when we no longer talk about legacy Markel and legacy Alterra and simply discuss our Markel results. I believe we're well on our way at this point. As I stated last quarter, we still have some work to do with our systems and our back office processes in order to fully integrate all elements of Alterra operations into our existing model.
As such, we're managing and reporting the results of the legacy operations, which include U.S. insurance, Alterra at Lloyd's, global insurance, and global reinsurance as our Alterra segment and expect to continue to do this for the remainder of the year. We have several initiatives in place to make the changes in systems and processes that are necessary in order to implement a new segment reporting structure by the first quarter of next year. You will also note that we've included the legacy Alterra life and annuity book, which is in runoff in our other discontinued lines segment. With one quarter to go, we're on target for an excellent year with outstanding underwriting profits and very nice book value growth. Now I'd like to turn it over to Tom.
Thank you, Ricky. As we've alluded to earlier, we're delighted to report our year-to-date results to you. In our investment operations, we earned 23.2% on our equity portfolio for the first nine months of 2013. Amazingly enough, that's an outperformance of 350 basis points compared to the S&P 500 return of 19.7%. Let me repeat, 350 basis points ahead. Normally, I would expect to underperform in a rip-roaring bull market since we are conservative and defensive in nature. I won't complain about it, though. More importantly, this continues a multi-decade record of superior investment returns. I think it's fair to say that our four-part investment discipline of investing in profitable businesses with good returns on unlevered capital, with honest and talented managers, capital discipline and reinvestment opportunities at fair prices works. It is time-tested, and we are sticking to it.
In our fixed income operations, we earned a return of -0.6%. Interest rates are moving up, and Detroit, among others, is going bankrupt. As such, we're keeping our duration short and credit quality as high as we know how to make it. In total, we earned 4.5% on our investments, and I'm very pleased with those results as they contributed meaningfully to the comprehensive income of the Markel Corporation. We are methodically adding capital to our equity portfolio and expect to continue to do so. At Markel Ventures, total revenues rose 40% to $486 million from $345 million a year ago. Our share of EBITDA from the companies rose 54% to $64.2 million, up from $41.5 million a year ago. During the third quarter, we added Eagle Construction to the family. Eagle is the leading Richmond-based home builder, and we've known the principals of the company for two generations.
We formally worked with them together for several years in our Markel|Eagle joint venture, and we are delighted to welcome the home building organization to Markel. One data point that might help you understand our respect for Eagle is that in 2008 and 2009
When the construction industry collapsed and home building stood at the very epicenter of the financial crisis, Eagle remains profitable. These are our kind of people, and we couldn't be happier that they are with us now. Finally, I'd like to close with one thought that I think separates Markel from so many other companies, and even from Markel in its earlier days. Mainly, from where we sit today, we get to see opportunities to deploy capital in our existing insurance businesses, new insurance opportunities, publicly traded securities, privately held businesses, expansions and additions to businesses we already own, and to an increasingly robust network of people we know and have done business with. Some people would call this deal flow. I think a better name for it is idea flow, because it creates a 360-degree view of the world. I believe this is highly unusual and incredibly valuable.
Most companies are more constrained in their notions of what they can and will do and how they think about the allocation of capital. We are a comprehensive company. We have a comprehensive idea flow that covers the waterfront. We have experience at successfully reinvesting our capital in all sorts of businesses all around the world. There is not a long list of organizations with those characteristics and a demonstrated track record of doing it reasonably well. Hang on, folks. We are just getting started. We look forward to your questions about the frame. Rob, if you'd open up the floor for questions, please.
Thank you. We'll now be conducting a question-and-answer session. If you'd 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. One moment please while we poll for questions. Thank you. Our first question is from the line of Doug Mewhirter of SunTrust Robinson. Please proceed with your question.
Hi, good morning. I just had really one question for Mike. Legacy and especially in [inaudible] business, the reserve releases in this quarter actually accelerated. I was just wondering, what accident years or what sub-lines or segments did you see that? I guess, related to that question, just how your efforts to, I guess, reprice or improve the workers' comp business is going.
One, it's going very well, two, FirstComp drove a lot of that. Anne, what was it, the 11 to 12 years?
Right.
Yeah. That where we had the releases. That business is performing very well, a lot of it also has to do with the move of premium from California to non-California business, and it's growing.
Okay. Actually, it just reminded me of another question. There's been a couple of competitors in the workers' comp space who have had some trouble. I'm not sure how much overlap you had with them, has that triggered any positive disruption in the market for you, where you're maybe seeing more submissions or you're getting a tiny bit more price leverage because of maybe less supply in the market?
We are getting rate. I can't comment on where that business is coming from. We are growing. We are getting rate. We are moving into different geographic areas. The business, I've said for a number of quarters that FirstComp is performing and on the path that we had set out for them when we acquired them in November of 2010. They're executing their business extremely well in a tough comp environment. We couldn't be more pleased with the direction of that business.
Okay, great. Thanks. That's all my questions.
Our next question comes from the line of Mark Dwelle of RBC Capital Markets. Please proceed with your question.
Yeah, good morning. Just a couple of questions. Richie, you talked a little bit about Abbey Protection. Can you just give us a little sense of what their historic level of premiums has been and where their combined ratios are and things like that, just to kind of frame the possibilities there?
Sure. It's a bit of a hybrid business, Mark. You have to think of it in terms of revenues really, quite honestly, because it's both an underwriting business and a service business. Historically, about GBP 40 million in revenue, so call that about $60 million. They've been able to drop about GBP 10 million, call it about $15 million to the bottom line. It's a combination of underwriting risk, where they take underwriting risk on legal protection or other professional services, like for if a person is brought in on a tax audit or something like that by the Inland Revenue in the U.K., as well as they provide services such as advice, legal advice, and some of that tax advice. It's an interesting business because it's a little bit insurance, it's a little bit service. It fits very nicely into our retail operations.
It gives us additional product set to offer our small to medium-sized retail customers. We think it really kind of expands what we can do in the U.K. retail market.
Thanks. That's really helpful background. On the question, I guess maybe for Anne or Tom, the level of cash on the balance sheet, not within the investment classification, but just the actual cash. It's probably the highest I've ever seen it. Is this just taking the opportunity to build cash resources, with the debt markets the way they've been? Or do you have some other kind of allocation in mind for some of that cash?
Well, the number one spectacular reason that it keeps growing is because we're making a lot of money. That's a good thing.
True point.
The bond portfolio, for instance, as I said, it's not really much of a yield curve, it's a yield line. The opportunity cost of staying short and staying in cash and preserving all the optionality for what you want to do with it doesn't incur much in the way of opportunity cost. Those are some factors going on there. The other factor is we did just do a major acquisition. We've got another one in the works right now. We're buying companies in Markel Ventures. We got a lot of opportunity to deploy that. As always, you can expect us to be careful and methodical about the way we would go about it. You can also expect at some point that with higher interest rates, which I expect, we'll invest the bond portfolio in a longer-term fashion than what we do right now.
Okay, fair enough. One last thing, just a numbers question for Anne. You were saying the portion of amortization related to the Alterra piece of investment income, that was $39 million, you had said?
That's correct.
They earned $44 million and the amortization was $39 million. Really almost no benefit out of this quarter.
No, that was the 44 was net of the 39.
Right.
Got it.
Also, that's sort of an interesting feature of our financials since we took over Alterra. You're not seeing a huge increase in investment income because of that amortization, but where you are seeing it is in the cash flow.
Right.
$540 million of cash flow is a significant increase over what we had at this point in the last year. That amortization sort of explains some of the difference between what you're seeing through the P&L and what you're seeing on the cash flow statement.
Okay. That's very helpful. Thanks. I'll stop there.
Thank you. Our next question comes from the line of Jay Cohen of Bank of America. Please proceed with your question.
Yeah, thank you. A couple questions. First is, in the third quarter, it looks like the ventures business earnings were quite a bit lower than the run rate of what we had been seeing. I'm just taking kind of other revenues minus other expenses. What's going on there?
Jay, I don't actually think there's anything significant going on there. If you're comparing it to the prior period, it could just be timing of orders. In looking through the quarter results, there wasn't anything worthy of note.
It looked to me like the net of other revenues and expenses had been running $15 million-$20 million. This quarter looked like it was closer to $8 million. Are you saying even though that looks like a big drop, there's nothing unusual at all?
No, there wasn't anything unusual in our analysis, but I'm happy to pick it up with you offline and kind of go through it, but nothing came up worthy of note. Like I said, there can be some timing and some seasonality in the numbers, but nothing worthy of comment.
By the way, this is a bit of a guess on my part. What we look at in terms of looking at the businesses and how they're doing is the EBITDA and the cash generations of business itself. We talked about that earlier in the call with the numbers. The Markel Ventures portfolio companies are doing just fine. We had previously used as a rough shortcut the other revenues and other expenses as a pretty good proxy for what's going on at Markel Ventures. There are other things that go on in other revenues and other expenses that might distort that number a bit, but the directional information we gave you on the revenues and the EBITDA of Markel Ventures is a pretty good description of how things are going there, and they're going pretty well.
Got it. These things are becoming a bigger part of the income statement. It'd be great to get better disclosure around that since it's going to be growing as well. Just one quick request, that's all. Second question, the amortization of the Alterra investment portfolio, which is obviously holding back GAAP investment income. Can you talk about what that number looks like going forward?
The amortization number for Alterra's investment portfolio will be taken across the duration of the portfolio, basically. It's going to run for, I would guess, three or four years.
Right.
Probably look close to the same quarter-over-quarter, although it'll come down some as we sell securities.
Yeah. Maybe a way to think about it, I think it's roughly, and help me out here, guys, $20 million a quarter right now?
Yes.
The duration of the portfolio is about probably five years.
Four to five years.
That $20 million should sort of trail off over the next four years or so from that $20 million down to nothing as each security matures. It's a pretty big number. The day we bought Alterra was probably the.
High.
Yeah, close to probably the low for the rates, and they've kind of backed up since then. We marked the portfolio up pretty significantly on May 1st, and that's what we're amortizing through.
Got it. No, that makes sense. I'm sure it's in the queue, I just didn't see it yet. The unamortized portion, what does that equal right now?
I don't know, and I'm not sure it's in the queue, but I'm sure that's something we'd be willing to put in going forward if it's not.
It's in.
I don't see a big deal with it.
Yeah, no.
We'll get something to you, Jay.
That's great. Thanks. That's helpful. I'll re-queue with other questions. Thank you.
Thank you.
As a reminder, to ask a question, you may press star one. The next question is from Matthew Berry of Lane5 Capital. Please proceed with your question.
Hello, everyone.
Hello.
I have a couple of questions. Richie, you spoke about establishing a margin of safety for the Alterra book. I noticed that the current year loss ratio was improved quarter-over-quarter, and there are no prior year developments in there in the Alterra segment. Could you describe how that process works, how it will evolve over time, and how it will impact the financials?
Sure. Very consistent with what we've done in all past acquisitions. We have a policy or a philosophy at Markel of being more likely redundant than deficient. When we buy companies, we sort of tread our way into that philosophy by adding a margin of safety to the current accident year. The reason for the decrease year-over-year was catastrophe losses in the prior year, primarily. I can assure you, we did take the actuarial pick, and did a very consistent methodology to add a margin of safety to the reserves in the quarter, and we'll be doing that as we go forward. Margin of safety that we've added depends on the type of business that it is. In past acquisitions, it's been anywhere from four points to 10 points on the business on the current accident year as we earn that business.
What I guess I'd tell you here is it's in that range of what we're adding to the Alterra current accident year as it's earned onto our books.
Okay, good. That's consistent with what I see over the long run in terms of reserve releases and how that cycle works. That makes sense. Then one for Tom, which is, I wouldn't, in my limited experience with home builders, describe the majority of them as profitable, high return on invested capital with solid management and great reinvestment opportunities. Could you describe what you see that's different at Eagle and how they run their business different from the typical home builder?
Well, the great thing about Eagle, as demonstrated by the fact that they remained profitable, as miserable an environment as you could have, is that intellectual capital of the organization is really what matters. You have people who have outstanding relationships with subcontractors and a network of people who can get things done. The size of the Eagle organization, relative to what they do in terms of the people that are on their payroll, is actually relatively small. It's like an accordion. It can expand and shrink back depending on the set of opportunities that are out there, and they've successfully done it for two generations. We have a lot of confidence in their ability to continue to do that.
That flexibility and frankly, being part of Markel is a huge advantage for them in the sense that when the appropriate time to add capital and to try to seize opportunities and push ahead, we can support that program. At the same time, when it's time to go in reverse a little bit and shrink and hunker down, that's okay because they can redistribute that capital back to us, and we'll find other ways to put it to use. If you're a standalone mono-line company, you don't typically have that flexibility. Same sort of thing that we have happening in our insurance businesses where as opposed to one line of insurance, we have 100. Different times, some of them need capital, and others are generating capital within the overall corporate environment. We can put capital to good use.
Okay. Thank you very much.
Thank you.
As a reminder, you may press star one to ask a question. We will pause briefly to poll for questions. Thank you. There are no further questions at this time. I would now like to turn the floor back to management for closing comments.
Thank you very much. We look forward to speaking with you soon. Bye-bye.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.