Markel turns on its tail, trims reserve releases for 2022 profit tally

Markel turned cautious on the eventual cost of its long-tailed business, undercutting its 2022 earnings with caution on reserve releases even as core underwriting results held or firmed.

The group's combined ratio rose 2 percentage points (pps) to 92% on less favourable prior year period reserve adjustments in its primary insurance segment, partially offset by a lower expense ratio and lower catastrophe losses.

Markel has noted some signals in claims patterns and taken a deep dive into loss cost patterns, CEO Tom Gayner told his company’s Q4 earnings call.

The pandemic may have lengthened the tail on parts of the Markel book and economic and social inflation can swing in to deliver an eventual blow, he suggested. “No doubt the court closures lengthened the tail,” Gayner said. He cited a pattern in select professional lines in which it has become “more likely that our layers get infiltrated.”

“We react to bad news pretty quickly and we are cautious with regard to the economic background,” Gayner said.

Earned premiums rose 17% to $7.59 billion in 2022 with management citing “continued growth in premium volume from new business, strong policy retention levels, more favourable rates and expanded product offerings.”

The insurance segment suffered a 4.3 pps increase in its combined ratio to 91.67% as a 2.4 pps cut to the expense ratio and a marginal decrease in the current year loss ratio couldn’t overcome the notable 7.1 pps decline in reduced favourable reserve adjustments from prior periods. Gross premium was up 19%.

The reinsurance segment swung back to a minor underwriting profit of $83.9 million from a prior year loss on a 13.2 pps improvement for the combined ratio. The current year loss ratio came down 8.4 pps to 63.6% and the group returned to prior period reserve releases.

A negative net investment gain wiped out the underlying earnings picture to leave shareholders with negative comprehensive earnings of $1.3 billion. Management brushed of the investment loss with traditional reference to the longer-term investment value of the asset portfolio.

Operating revenues and operating income from Markel Ventures increased 31% and 19%, respectively, in 2022, reflecting contributions from recent acquisitions and notable organic growth.

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