Markel UW income dips on slower releases as insurance GWP grows 23%

Underwriting income at Markel dipped by around 19 percent to $165mn in the second quarter, mostly as a result of less favorable prior-year development than a year ago.

Markel also released $44mn in reserves in its insurance segment, which was down from $155mn a year ago, though its reserve charge in reinsurance fell to $14mn from $22mn last year. That led the company to release a net $26mn in reserves in this year’s second quarter, down from $135mn last year.

The insurance segment’s underwriting gain dropped to $166mn in this year’s second quarter, compared with $205mn last year. Markel’s reinsurance unit improved to a $4mn underwriting gain after recording a $5mn loss last year. The consolidated underwriting gain last year was $205mn.

In total, Markel fell to a $69.19 net loss per diluted share, a sharp deterioration on the $57.02 in diluted net profit per share it had a year ago, but that was the result of a broad downturn in the equity and fixed income markets in this year’s second quarter.

Wall Street analysts had been predicting $20.23 in diluted earnings per share.

In a statement included with the company’s results, Markel’s co-CEOs Richie Whitt and Tom Gayner brushed off the fall in the investment portfolio as temporary and said they expect it to rebound.

“Given our focus on long-term performance and investing discipline, we are confident in the durability of our portfolio and understand that periodic volatility is to be expected,” the co-CEOs said.

They added: “We believe our financial performance is most meaningfully measured over longer periods of time, which tends to mitigate the effects of short-term volatility and also aligns with the longer-term perspective we apply to operating our businesses.”

The co-CEOs said the company generally uses five-year periods to evaluate its performance.

Whitt announced in May plans to retire in early 2023, with the company’s current CFO Jeremy Noble set to take over leadership of the insurance operations when he steps down.

Core loss ratio improves 1.2pts to 59.2%

Overall, Markel’s combined ratio rose to 91 percent from 87 percent in Q2 2021.

The insurance division’s reported GAAP combined ratio rose to 89 percent, up from 84 percent, though the reinsurance business improved its combined ratio to 99 percent from 102 percent.

Markel improved its consolidated core, underlying loss ratio by 1.2 points to 59.2 percent from 60.4 percent.

The insurance operation lowered its ex-cat accident year loss ratio by 1.2 points, to 58.6 percent, and the same figure for reinsurance improved by 0.2 points to 62.8 percent.

Markel cited better results in its professional liability and general liability product line for the improvement in insurance.

“Within our insurance engine, new business opportunities, an attractive pricing environment and solid portfolio construction contributed to strong top line growth and, when combined with continued expense management efforts, resulted in a 90 percent combined ratio for the first six months of 2022,” Whitt and Gayner said in their joint statement.

Professional liability sees adverse development

Commenting on the slowdown in reserve releases, the (re)insurer said it had adverse development on its professional liability product lines, where it was most significant in the 2015 to 2019 accident years, and came from “unfavorable claim settlements and increased claim frequency on our errors and omissions and financial institutions products”.

General liability, on the other hand, was seeing a reduction in prior-year losses, Markel said.

Catastrophes had no impact on Markel’s underwriting results.

Markel has been vocal about winding down its property reinsurance operations, which Whitt expects will substantially curb the volatility of the company’s underwriting results.

Gross written premiums (GWP) company-wide increased by 14 percent to $3.3bn.

GWP in Markel’s insurance operations increased by 23 percent, to $2.24bn, while the same figure for the reinsurance unit was up 3 percent to $289mn.

Markel said it has continued to see more favorable rates across most of its product lines, particularly within its professional liability and general liability product lines. The company noted that it is beginning to see rate increases moderate on many of its product lines however.

“Rate increases continue to be based on general market conditions and the impacts of economic and social inflation, including increased litigation, on loss costs,” the company said.

“Additionally, recent increases in economic inflation, and an expectation that this trend will continue, have created more uncertainty around the ultimate losses that will be incurred to settle claims on these longer-tail product lines.”

It added: “These factors, as well as the impacts of the low interest rate environment on net investment income in recent years, have resulted in higher rates.”

Growth in the professional and general liability lines in reinsurance helped offset the drop in property premiums from non-renewals.

Editor’s Note: A previous version of this story erroneously stated that Markel incurred $47mn in costs tied to the Russia-Ukraine conflict. That figure represents the costs the company has recognized through the first six months of 2022, and were incurred in the first quarter.