Markel doubles underwriting profits, but sinks on equity portfolio

Global specialty insurer  Markel managed to double first quarter underwriting profits on a nearly 20% top-line surge and favourable claims developments, but watched the black ink fade to red on a mass of investment losses.

For the group, gross written premiums rose 21.2% to $3.4 billion, ahead of the 17.5% growth in earned premiums. Primary insurance led the growth with an 18.6% y/y increase in GWP, ahead of an 8.2% or $305 million increase for the smaller reinsurance operations.

With claims rising at a slower pace of 10.1% vs. Q1 2021 and with a slight pick-up in favourable prior year reserve adjustments, underwriting profits more than doubled on the prior year period to $197 million. That took nearly 5 percentage points off of the GAAP combined ratio for the group as a whole to 89%.

“Our first quarter results reflect continued progress against our underwriting initiatives as we grew our premium base through a combination of rate increases and new business opportunities,” co-CEOs Thomas Gayner (pictured, Left) and Richard Whitt (pictured, Right) said in a statement. “These results further demonstrate the effects of our ongoing focus on underwriting and expense discipline.”

Claims containment included both lower catastrophe losses and a lower attritional loss ratio in 2022 compared to 2021, management said. Count $64.3 million, or four points, of net losses and loss adjustment expenses to Winter Storm Uri.

The Russian invasion of Ukraine went on to deliver $35 million, or two points, of net losses and loss adjustment expenses, as well as $12.3 million of additional reinsurance costs, management said.

Reinsurance operations swung back to an operating profit of $13.3 million and a 95% combined ratio after the Q1 2021 loss of $23.2 million on a 109% combined ratio.

But the bulk of the nominal increase in underwriting profits came in primary coverage, where underwriting profits rose 60% to $187.5 million and took nearly 4 percentage points off the segment combined ratio to 87%.

Markel ventures took an eye-opening 35% top line gain through what management claimed was a “combination of strong organic growth and contributions from our 2021 acquisitions.”  But segment results are down lightly year on year to take several points off of segment margin.

Net investments swung to a heavy $358.4 million loss to push the group into the red before the bottom line. Management pointed the finger at equity markets and urged investors to look longer-term.

“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.”

Q1 earnings also included a $107.3 million gain on the sale of a stake in unit Velocity.

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