Q2 2020 Markel Corp Earnings Call
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After todays presentation will be an opportunity to ask questions to ask a question. You May proceed star one what are your Touchtone phone to withdraw your question. Please press Star then two very well we will make forward looking statements.
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Well based on current assumptions underpinning, yes concerning a variety of known and unknown.
Actual results may differ materially from those contained in our suggested by such forward looking statement.
[music] information about factors that could cause actual results to differ.
Really from those projected in the forward looking statement is included under the caption tools.
And safe Harbor and cautionary statement.
And our most recent annual report on form 10-K, and quarterly report on form 10-K.
Yes, we may also discuss certain non-GAAP financial measures and the call today, you must find the most directly comparable GAAP measures and reconciliation to GAAP. So these measures in our most recent form 10-Q, what can be found on our website at www Dot my.
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That's still relations section.
No well being recorded I would now like turn the conference over to Tom Gayner Cold chain.
That's a sir please go ahead.
Thanks, So much good morning welcome.
Welcome to the Markel Corporation second quarter Conference call.
Tom Gayner I'm joined today as usual.
Kosier, Richie Whitt as well as our CFO Jeremy noble.
That maybe the last time, we get to use the word usual in this call.
Doesn't seem to be much it would fall into the capital usual. These days in fact I commented for the last several months, there's an unprecedented use the word unprecedented.
So far in 2020 unprecedented strikes me is the right work at you.
I look forward to the day it becomes an overused <unk>, but I don't think we're there yet.
Despite the unprecedented conditions that we and everyone else phase we've got good news to report to you. This morning.
Across Markel in every business and for every customer our people exhibited unusual and spectacular adaptability and dedication to serve our customers at each other.
Our second quarter results with meaningful growth and profitability in each of the three engines of insurance investments and ventures reflect their efforts.
All of the associates at Markel worked unbelievably hard and with great dedication and creativity to find a way forward.
Speaking for Ritchie and Jeremy I want to extend our thanks to our dedicated associates and the way in which the people of Markel have adopted and persisted to serve our customers I missed the unprecedented conditions triggered by the carotid virus.
Now while much of today's call will focus on financial measurements and the effects of Covance 19, I want to take a moment also address another virus, we're facing that society, namely the virus of racism.
Let me be clear, we explicitly reject racism and discrimination.
We are fully committed to the dignity and were each and every individual.
During the last few months Ritchie and I had the opportunity to listen to many of our associates your their voices and storage in new ways, we're listening Marta I.
I think that difficult conversations are having a very positive effect, what confronting issues and problems that we haven't faced before in such a head on way.
Honesty, and openness is refreshing and I think it gives us all attached to learn and a new way and to make real progress.
We mean to work the Mark how style. Those words include fairness in all our dealings and providing an atmosphere, which people can reach their personal potential. We cite goes core beliefs, because they are crucial components behind another statement in the style, namely the quest to find a better way to do.
Count on our consistent commitment to these ideas.
At this point I.
Let me return to the financial reports in the second quarter.
Jeremy will provide you with an update on the numbers and then Richard will update you on our insurance and insurance like Securities operation.
I will then follow with comments on our investments and ventures operations. After that we look forward to answering your questions Jeremy.
Thank you Tom and good morning, everyone.
Our underwriting investing in Markel ventures results for the first half of 2020 were meaningfully impacted by the effects of the come in 19 pandemic, but encouragingly, we saw positive contributions from each of our three engine starting the second quarter lock up in 19 had unlikely we'll continue to influence both jaeson liability side.
Our balance sheet, our financial condition was strong at the end of the second quarter, we are well positioned to take advantage of opportunities that are being presented in the specialty insurance marketplace.
Looking at our underwriting results gross written premiums were $3.7 billion for the first half of 2020 compared to $3.3 billion in 2019 in increased 12%. This increase was due almost entirely to our insurance segment, which reported gross written premiums of $3 billion increase of 16%.
Compared to 2019 this growth related primarily to increased writings within our professional liability general liability marine and energy and personal lines product lines.
Gross written premium within our reinsurance segment, where it's consistent with 2019 at roughly $740 million.
Year to date retention of gross written premiums helicopter that 84%, but 2000 22019.
Earned premiums increased 12% to $2.7 billion in 2020, primarily due to higher written premium volume in our insurance segment.
Our consolidated combined ratio for the first six months of 2020 was a one of the three compared to a 95 in 2019.
Second quarter 2020 reported an 88 combined ratio compared with 95 year again.
As we discussed a quarter ago, we recognized $325 million, a pre tax net losses and loss adjustment expenses during the first quarter, but that's policies. In contrast, Workover 19 was identified as approximate cause a loss there were no changes in our loss estimates during the second quarter. He's cobot 19 losses increased our consolidated.
Combined ratio the first six months of 2020 by 12 points.
Our initial estimates the losses directly attributable to covert 19 at the end of March reflected limited claims reporting however, after considering the additional data gathered through increased claims reporting activity in the second quarter, while continuing to monitor actual levels of disruption caused by the pandemic there were no significant changes in our assumptions.
During the second quarter.
As a reminder, our losses from Cowen Nineteena, primarily attributed to business written within our international insurance operations are primarily associated with coverages for event cancellation business interruption losses and policies were no specific endemic exclusions exist did the inherent uncertainty associated with our assumption surrounding code at night.
Team, which among other things, including assumptions related to coverages liability reinsurance protection duration and loss mitigation factors as well. The fact, the economic in accident pandemic continue to evolve our estimates may be subject to a wide range of variability.
At the overall, Texas pandemic continue to evolve we expect losses indirectly related to pick up in 19 pandemic and associated with a broader range of coverages are likely to emerge within our professional liability trade credit workers' compensation product lines, among others, including a reinsurance product lines to date.
We've not seen significant evidence of incurred losses, increasing for these secondary exposures and no explicit prevention was made for indirect 'cause it 19 losses in the second quarter.
It's worth noting that any increase in exposure associated with indirect code 19 losses, well at least partially offset by the benefits of an improving pricing environment.
With regard to prior year loss reserve development consistent with our reserving philosophy prior year loss reserves developed favorably by $268 million in the first half of 2020 compared to a favorable prior year development of $189 million in 2019.
Turning to our investment results.
I've mentioned in prior calls given our long term focus variability in the timing of investment gains and losses as to the expected. We continued to see volatility in the equity markets in the second quarter later to the economic uncertainty associated with the covered 19 pandemic. Following the significant declines in the fair value of our equity portfolio. During the first quarter. We saw me.
Heating fuel recoveries in the second quarter net investment losses for the first half 2020 $770 million compared to net investment gains of $1 billion last year, a year over year decline at $1.8 billion with regards to net investment income we reported $184 million in the first half 2020 compared to 200.
$26 million in the first half of 2019 decline is largely due to lower short term interest rates lower holding some fixed maturity securities in 2020.
Net unrealized investment gains increased $237 million net of taxes during 2020, reflecting an increase in the fair value of our fixed maturity portfolio, resulting from declines in interest rates during the first half a year.
Now I'll cover the result of Markel ventures segment.
Revenues from Markel ventures increased $1.2 billion for the first half 2020 compared to $1.1 billion last year.
Higher revenues from our services businesses were partially offset by lower revenues within our products businesses revenues within our services businesses, reflecting contributions of revenues from our acquisition of Lansing building products, which we completed in late April and acquisition of via see fire and security, which closed during the fourth quarter 2019.
We did our products businesses, the economic and social disruption caused by Koby 19 resulted in decreased demand and many of our business is starting to second quarter.
EBITDA for Markel ventures was $173 million for the first half 2020 compared to $160 million last year, reflecting the contributions of Lansing and Dfc, partially offset by the impact of lower operating revenues in certain of our businesses.
Looking at our consolidated results for the year, our effective tax rate was a 21% for the first half of 2020 compared to 22% in 2019.
We reported a net loss to common shareholders, a $484 million for the first half in 2020 compared to net income to common shareholders of $1.1 billion a year ago.
Driven by the net loss comprehensive loss to shareholders for the first half 2020 $260 million compared a comprehensive income of $1.4 billion in 2019.
Finally, I'll make a few comments on cash flows capital in our balance sheet.
Net cash provided by operating activities was $489 million for the first half 2020 compared to $249 million for 2019 operating cash flows for 2020 reflected the effects of lower claim settlement activity in both our insurance and reinsurance segments and higher premium questions as we've seen strong growth in our insurance segment.
Over the past several quarters invested asset to the holding company were $3.7 billion at June Thirtyth compared to $4 billion at the end of 2019.
The decrease in holding company invested assets was due to funds used to acquire Lansing as well as the decrease in the fair value of our equity portfolio again related to the impact to cover 19, all of which was partially offset by the proceeds from our preferred shares offering.
We recognize the importance of liquidity and a strong balance sheet times of uncertainty and we intend to ensure markel is resilient for long term. In addition to the steps we began taking in early March to maintain our ongoing capital liquidity needs manage against volatility in May 2020.
We issued $600 million, a 6% fixed rate reset noncumulative series, a preferred shares but no par value in a liquidation preference for $1000 per share for an aggregate net proceeds after expenses of $592 million. We continue to maintain a fixed maturity portfolio brought the high credit quality investment grade securities at an average rate.
Eating a double away our debt to total capital ratio at the end of June was 24% unchanged for the end of 2019, we have no unsecured senior notes maturing until July of 2022.
We believe we are well positioned to meet the ongoing capital liquidity needs, including supporting growth in our insurance operations should we continue to see attractive opportunities and especially marketplace.
On the shareholders equity stood at $11.4 billion as in the ended June compared to $11.1 billion at year end.
Much that's had a quarter ago, you unprecedented events surrounding code 19, certainly impacted our year to date results. However, the actions we've taken over the years to build a diverse resilient organization will help us navigating the current uncertainty arising from this pandemic, we're well positioned to continue our efforts to build one of the world's great companies that I'll turn it over to Ritchie.
More about our insurance businesses.
Thanks, Jeremy and good morning, everyone. The first half 2020 has been more eventful in volatile than most full years.
We had a fantastic plan and building momentum as we entered 2020, we were executing well until Kogut 19 hit with its unprecedented cap like Fury on a global scale impacting every industry geography and community.
Thanks to our dedicated employees, we took that first quarter hit we quickly adapted and restage the furious come back in the second quarter.
While we recognize there's still significant uncertainties. The 2020 underwriting year is far from lost we believe to a person that we can make up significant ground over the next six months.
This will require staying focused on what we can't control and preparing us best possible for those things not under control.
As Jeremy mentioned related to the coated the direct could 19 loss reserves, we did not adjust our original 325 million provision for direct cobot 19 losses in the second quarter.
This is largely due to the fact that we've not seen evidence either positive or negative that would require us to change our estimate.
Claims are materializing, largely as we estimated and are being reserved and settled in line with our original assumptions.
Despite the fact that we made no changes to our original estimate the ongoing nature and uniqueness of the coated 19 pandemic means the range of potential outcomes is wider than any catastrophe we have ever see.
Now I'll discuss our insurance businesses, which include our underwriting operations, our state National program services operations, and our insurance linked securities operations.
So starting with the insurance segment gross written premiums for the quarter are up 185 million were 14% compared to the second quarter of 2019.
For the first six months premiums are up 407 million or 16%.
Premium growth for both the quarter and first six months was driven by continued organic new business growth and rate increases in our professional liability and just general liability products, along with growth this quarter, and our marine and energy products.
The combined ratio for the insurance segment was 88% for the second quarter of 2020 compared to 95% last year.
Seven point improvement in the combined ratio was driven by more favorable development on prior accident years loss reserves, a lower expense ratio and our lower current accident year loss ratio. This is a rare insurance trifecta.
The increase in favorable development on prior accident years losses was primarily driven by our property and general liability lines.
The combined ratio for the first six months for the insurance segment was 103 versus 95% for the same period a year ago. The eight point, increasing the combined ratio was driven primarily by 293 million were 13 point of losses attributed to direct cobot 19 exposures recorded in the first quarter.
The impact from Cobot losses was partially offset by an increase in favorable development on prior accident year losses, primarily in our professional liability and property product lines.
Higher earned premiums for both the quarter and six months within our insurance segment had a favorable impact on our expense ratio and an unfavorable impact from the prior years loss ratio.
Turning to our reinsurance segment gross written premiums for both the quarter in a year or flat compared to the same periods in 2019.
And this quarter, we saw higher gross written premiums in our professional liability line due to favorable timing differences and favorable premium adjustments offset by lower premiums in our product line property line and that is aligned with our strategy to reduce natural catastrophe volatility.
For the year, we saw higher gross premiums and workers compensation driven by a large relationship.
Offset by lower premiums in our credit surety line largely due to the timing of renewals.
As we mentioned each quarter significant volatility in gross premium volume can be expected in our reinsurance segment due to individually significant deals and the timing of renewals.
The combined ratio for the reinsurance segment was 90 for the second quarter of 2020 compared to 96 last year.
The six point decrease was primarily driven by both lower loss ratio and expense ratio. The decrease in the loss ratio was primarily driven by improved results on our property product lines.
The decrease in the expense ratio was driven by the benefit of higher earned premiums along with lower profit sharing expense.
The combined ratio for the first six months for the reinsurance segment was 102% versus 97 for the same period a year ago.
Five point increase was driven by higher current accident year loss ratio due to 32 million or seven points of direct coated 19 losses recorded in the first quarter that was partially offset by lower expense ratio due to lower acquisition cost.
Next I'll touch on our program services and I left operations and as a reminder amounts for our program serves as an iOS operations, our reported within services and other revenue expenses within our operating results.
Starting with state National gross written premium volume for state National program services operation was down on both a quarter and year to date basis, driven by the run off of one large program and the enforced cancellation of another large program, which resulted in a one time unfavorable premium adjustment.
As a reminder, almost all of state nationals gross written premium ceded.
Ceding fee revenue was flat for the quarter ended the year, we saw improvement in our operating expenses for the quarter as a result of lower profit sharing expenses.
Turning to our IR last operations, our combined dialects operations have loved have roughly 11.6 billion net assets under management as of June Thirtyth 2020 are Markel Catco operations are continuing the orderly wind down process.
And have been successful it returning approximately 900 million of Investor capital during the first six months of the year.
Revenues from our iOS operations increased 9% from the prior years quarter interrupt 4% for the year to date period, which is being driven by growth from our to fill in GA operations.
That growth is being partially offset by a reduction reduction in management fees coming from both Catco end to fill up as a result of layer lower a U M and a reduction in management fees charged on side pockets.
Operating expenses from Iowa decreased compared to the prior year, which is primarily due to fewer professional fees associated with the internal review at Markel Catco, partially offset by continued startup costs associated.
With our retro I less fund manager large fine.
In the fill expenses were in line with the prior year.
I'll finish up with some market commentary.
It's very clear we've entered a hard market for most insurance and reinsurance lines.
Some of the factors driving the hard market or concerns around social inflation, historically low interest rates recent financial market volatility.
Elevated recent natural catastrophe activity and significant uncertainties caused by the kind of in 19 pandemic and those include the potential for regulatory action or litigation that would expand the insurance industries loss exposure.
Areas, most impacted in rare rates or increasing the most and fastest or general liability professional liability in property lines.
However, with the exception of workers comp all lines are seeing some form of rate increase underwear improvement in terms with those lines that saw strength. During this time last year compounding rate increases currently.
Most of our largest lines are now seeing double digit rate increases and that momentum appear sustainable.
These rate increases are more than offsetting lower premium volume in classes hardest hit by the pandemic as an example, our workers compensation business and really any business focused on small businesses, which had been hard hit by the economic closures and disruptions.
Those are under pressure.
Despite continued unprecedented uncertainty we entered the second half of the year with optimism.
Thank you for your time today, and now I'd like to turn it over to Tom.
Thank you Richard.
I'm pleased to report to you that we experienced a meaningful rebound in our investment portfolio during the second quarter.
Equities rebounded 18% during the quarter following the 22% lost in the first quarter and now stand at negative 8.4% for the year to date.
We continue to earn positive mark to market returns on our fixed income portfolio from lower levels of overall interest rates and essentially no credit losses, given our longstanding commitment to very high credit quality.
The total investment return for the portfolio after all expenses and foreign exchange effects was negative 0.3% for 2020 year to date.
Investments always operate within the overall context of the Markel Corporation.
Our investments to support the capital base, we need to operate our insurance businesses as well as to produce attractive total returns.
We think that the current highest and best capital allocation decision. We can make right now is to support the growth of our insurance operations.
As witnessed in the second quarter results insurance prices are going up and we are being paid more per unit of wrist risk first and foremost writing more and better priced insurance business looks to us the best use of capital at Markel right now.
Given the current opportunity to grow our insurance premiums and the tough combination we experienced during the first quarter of negative returns our equity portfolio and our underwriting operations as well as the effects on tangible capital from the early days of our acquisitions and ventures in insurance linked securities businesses.
We decided to reduce our exposure to publicly traded equities during the market rally at the second quarter.
Those sales along with the addition of the $600 million of preferred equity raised put us in excellent condition to take full advantage of current opportunities to grow our insurance operations and manage levels of uncertainty.
Our individual equity purchase and sale decisions continued to be driven by our long standing for step process of looking for businesses with good returns on capital and not too much debt run by managers for the equal measures of talent and integrity with reinvestment opportunities and capital discipline at fair prices.
While the world is changing at a rapid pace, we believe those principles remain relevant and durable.
We believe that the code 19 circumstances of 2020 in many cases reduced the long term profitability of several companies.
We also think that the infusion of liquidity into financial markets by governments around the world altered the ability to invest at prices to compensate us for the risks involved.
In many cases, we concluded that we'd rather right insurance at current prices and reacted accordingly.
At June Thirtyth, following net sales of approximately 1.2 billion.
Equity stood at 5.7 billion of market cap.
Which is 50% of our shareholders' equity of 11.4 bed.
Our cash short term and longer term fixed maturities stand at 16.6 day.
We expect continued to build the cash and fixed income balances to reflect the increased inflows of insurance premiums. During this period of growth and insurance that stance should serve to increase our investment options going forward.
While uncertainty and volatility will likely continue to dominate the landscape well priced insurance risks generate capital and future opportunities for all of Markel as the expected profitability gets recognized over time.
We will revisit our allocation as our view of the risk reward balance changes in insurance investments or ventures.
Right now look for us to continue to build our cash and fixed income balances until conditions change.
On ventures, I'm extremely proud of the businesses and the way that they have adapted to the unprecedented swift and dramatic changes of the last few months as Jeremy mentioned earlier revenues totaled 1.2 billion. During the first six months of 2020 compared to 1.1 billion in 2019, even.
That totaled 173 million compared to 160 made in the previous year.
Those results benefited from the inclusion of Dfc fire and security last year and one month of results from Lansing building products, even without those additions I'm deeply encouraged by the results from Markel ventures.
In many cases, the ventures managers faced extreme conditions as a result of cobot 19, shutdowns and unprecedented changes in customer behavior in ordering patterns.
Additionally, keeping our workforce safe and manufacturing and field service operations continues to require new procedures and challenges.
Incredibly proud of how the people of ventures companies adapted to serve their customers and each other throughout this time.
Those challenges all continue and we are by no means out of the words, but I think the performance of the businesses in 2020 stands as a testament to the value they bring to their customers.
We do not anticipate any acquisitions in the ventures group in the near term.
We continue to think that the best current capital allocation decision as to support the growth an opportunity in our insurance business. We continue to believe that Markel continues to be served well by our diversified three engine strategy of building excellent insurance investment and ventures operations.
While code 19 created a whirling negative cluster that eliminated the normal benefits of diversification during the first quarter. We're pleased to report rebounds and improvement to you this quarter.
We look forward to future years, when we get to use the word usual and abandoned the word unprecedented and we appreciate your long term support and partnership as we get from here to there.
With that thank you very much and we'd now like to answer your questions.
Operator, if you so fives to open the lines for questions we will now.
So now I'm so sorry.
To ask a question in the press Star one run on your Touchtone phone.
You are using a speakerphone please pick up your hands.
Perhaps in the key to withdraw your question. Please press Star then too.
Hi, My we'll pause momentarily to assemble our roster.
Our first question is from Mark Hughes from some tests.
Yes.
Thank you very much good morning.
[noise] the.
Less business could you give us a sense of Ah your outlook there in terms of assets and just overall activity.
Yes, Mark Ritchie here.
I think the outlook is positive I.
I think we commented on the call last quarter.
That.
As as the Cobot 19 situation was unfolding as markets were.
Becoming incredibly volatile.
I think this people's decisions on asset allocation I think that were basically frozen.
As things have rebounded as there's been a little more calm in the markets.
We have definitely seen an uptick in terms of conversations.
People are getting more comfortable with doing their due diligence virtually as opposed to onsite and so we're very hopeful that we will see additional mandates.
Terms, if you went into second half a year.
So very feels very different today than it did back in March April.
And then.
In the insurance operation. The Geo you described that is a very good the growth opportunity no there's been the.
I think you've expressed concerns about social inflation, but you seem to be writing a lot of business and you had the favorable development.
In the the quarter.
It is social inflation as much of an issue no.
In the in the Geo line.
You know again cobot 19. This change just about every aspect of life and I think we still have to.
Give some time to see how cove at 19 impacts social inflation, but.
Theres no doubt, we were seeing social inflation.
Before Kogan started I think they're probably has some aspect of social inflation going on.
How that plays out I don't know, but given the level of rate increase well, given where our portfolio was and giving the level of rate increases. We're now seeing I feel pretty comfortable that is that is running ahead of social whatever we would be seeing in terms of social inflation.
And then finally on the workers comp there's been some discussion of maybe that the stabilizing at some point on the near future here, how do you see the.
Well, we were seeing some green shoots in may.
In June, but obviously, we've had hotspot developing we've had some states considering and in some cases going backwards in terms of opening up. So I think I think we have to see what impact that has on on the workers comp line.
What we've seen so far in terms of workers comp is the impact to covert 19 on the topline I premium and.
People, either canceling policies or premium being return that impact is looking much bigger than the impact on the walk line are you paying for co that 19 claims.
So.
Our workers comp is held up reasonably well, but I think it's going to face headwinds.
Until the code that 19 situation is better under control.
Hello about pricing there and.
Pricing you know it's been down.
For several quarters because.
Just the.
The results had been so good and workers comp I think the pressure on pricing is moderating it is probably still negative at this point, but I would say that pressure is moderating, but that's being offset to some extent by.
You know, there's just less business out there and we in particular, we focus on small business and obviously small businesses. If it had been hit pretty hard by could have had 19.
Thank you.
Our next question is some cap Smith from William Blair.
Yes, hi.
Hi, Thanks, good morning.
Got you had mentioned the the rate environment, obviously really good see double digit rate increases in didn't quite a few linings.
Could you maybe provide some more detail some numbers behind that some of the highest growth lines.
Well.
Some of the areas, we're seeing the highest.
Rates are and I think this is fairly consistent with what you've probably heard on another call general liability casualty and professional liability or probably leading the pack and you know, we're seeing sort of solid mid teens in those two areas obviously property.
Thats approaching 20% sort of rates.
We have been we're pretty flat and property, which which means you know we've been getting rate increase, but we've actually been reducing exposure and that's been part of our plan does would reduce our Nat cat volatility.
We have always been big writers of professional and casualty and that is where we're seeing the biggest rating rate increases and I think that that's why you're seeing us growing at the right. We're growing in the first half the year.
Okay.
And then the email environment I mean, it seems like.
Lloyd some particular could be kit.
More by the pandemic.
And they had already they had been pulling back yet she had been pulling back are you seeing is even more dislocation there from did the pandemic more opportunities to grow.
Yeah, I think there is there's there's clearly dislocation and those three areas probably are the area, but the prices are the highest there. So that would suggest that's the areas of highest level of dislocation casualty professional and property.
You know it is obviously covert 19 as part of it but.
Keep in mind things, we're moving in this direction, even before Cove at 19 up as a result of social inflation in those other items that I talked about but without a doubt I mean, we're we're pretty big players over in London. We're obviously, a very big player in E N assets and we are seeing sick.
Nipping at a significant business increases in both of those areas.
Okay.
It was there any catastrophe losses in the quarter.
Absolutely.
We had catastrophe losses.
But we would have turned those sort of an attritional nature not big enough to call out, but we certainly did have a have some catastrophe losses. We also had and I just anticipating the question riot civil commotion losses, Yes, we had some of those as well.
At this point again, we see does more than Attritional, sorta nature, and not big enough to call out specifically in our results.
HM Okay.
Okay. Thank you.
Our next question, there's some John Soc, some someone asked of management.
Go ahead.
Good morning, everyone.
Rich I was just going to ask your why you didnt have any protest or weather losses in the quarter, but I'll move on.
[laughter] well, what's the what's the threshold on that the materiality, where you disclose it.
Okay.
I mean, we don't have any specific number.
Hi, John but 10 to 20 million I mean, we would we would want to see an event the larger than that before we would break it out in the numbers might interrupt routines and we would actually not want to see into that larger [laughter] record. Good point [laughter], Yeah, 10 to 20 million it would need to get to that.
Sort of level before we'd call it out in the results.
So your accident year numbers include.
Yes, those losses, and that's just kind of being in the insurance business. So you didn't break out exactly if it hasn't been those things that would have been something else.
All the surprises insurance or negative I'm somewhat lumpy, but yes badly.
Hey, I'm remembering that Markel ventures.
Reports on a one quarter log.
Was that correct.
One month lag when my one month like upgrade.
So I was not correct and so the economic environment of April and May.
In the June quarter.
That's exactly right and that's what I'm trying to convey.
Some of those businesses a day one to have stoppages, just that's a that's a myocardial infarction and write their ability to to adjust and adapt and recapture some business and get things Roland.
Just stand at slack Jawed amazement of what some of those managers have done.
Well that's great. Thank you thank Dan.
Uh huh.
You can extend my thanks.
[laughter].
I have a bigger picture question I mean, I noticed what you did in the equity portfolio reading the Q last night.
And I notice.
In an environment of.
Very strong reinsurance pricing that.
You're not writing a lot more premium.
And so I just had the observation it looks like they're de risking the company.
And like you to comment on that and are you.
Doing that because the.
The great opportunities insurance because.
Over the last few years the results have been quite volatile and you're trying to reduce that.
The overall general involvement with the virus.
Can you just.
Take all those things are maybe other things you're thinking about it and comment on my observation sure well two large extent I think you've answered your own question. All those factors play into exactly what's going on so first off and as we're reporting you just take the second quarter numbers on a standalone basis, you'll reported an 88 so.
Given the ability to write insurance premium and get an 88 combined ratio we want to do as much of that as we possibly can.
And cash and fixed income types of investments or the kind of is the flavor of capital that rating agencies and regulators like the most when you're backing that sort of opportunity. So if we can if we can write insurance it at 88.
<unk>.
Spectacularly inclined to do so.
The fullest extent possible secondly in terms of the rate per unit of risk, which which ritchie or use that phrase and I would use the exact same thing.
When we looked at the landscape of things we can do again the rate per unit of risk right. Now is best in the insurance world. So when we take the take the microscope and examine everything that we own whether it's an equity or fixed income securities. We do have to compare it against the opportunity costs and the comparison.
Of the of the other things we can do and are acting we think logically as we followed that analysis.
And then your point about sort of and the results of the last years some volatility within the insurance book itself. There are some lines, which tend to be more volatile and some that tend to be less volatile and if you're able to get at 88 on something that's less volatile rather than more volatile and more cat exposed.
Well you want to do the stuff is less volatile. So I think apart rolls were reversed John you would you would go through the same sort of logic chain and make the same sort of decisions that were making.
Okay, great and on.
7 billion or tangible capital, including the preferred.
I mean, you're writing that.
You know.
50 cents on the dollar terms of premium and then.
What's the potential for that to increase how.
Much premium leverage do you think you could add.
I think we can continue to grow I mean, the market opportunity is there and I don't think were restricted in terms of our capital base. So I think I've said in my comments.
We think this hard you know what we're seeing in terms of the market is sustainable and you know our goal is to write as much of it as we possibly can Bob Cox who's on the call who runs our insurance operations he likes to say.
Every everyday that goes by as one day closer to the end of the hard market and we want to make sure. We take advantage of every day.
Yes.
Well 6 billion or burn data.
Hey person underwriting profit would be very nice.
So we're shooting for.
Okay and Ritchie in IR less.
Oh they.
Are they.
<unk> expenses there the level is that the run rate or are there still legal expenses in the or how should we think about that yeah. The picture is still a bit muddied with the legal expenses from catco, okay, but but I can tell ya.
You know we're very very.
Mystic in terms of our opportunity to raise capital into the second half of the year and even more so in to 21.
And.
That there's tremendous leverage in that business you know as we are able to add <unk> AG we.
The expense base really does not have to move a lot. The great majority of that should drop to the bottom line and that's that's what we're hoping for over the next 18 or so months.
Okay, great. Thank you.
Our next question is from mob dwelling from RBC. Please go ahead.
Hi, Good morning, I have a save three questions first Richie you had talked about the cobot 19 charge that you took last quarter and that is it held up well and and so forth in terms of you know the reserving practice.
Yeah, I just a question I'm I'm going to ask is are you still writing business in areas like event cancellation in some of the other lines that you referred to a that regenerating charges and if so.
You know what you might have done as far as terms and conditions et cetera, <unk> order to stay in those markets.
We are writing very little event cancellation today, we put a moratorium on writing event a when the cobot 19 situation broke up to the extent, we write it going forward it would have to have a.
Communicable disease exclusion Ah, but the likelihood is we were right considerably less of that business going forward.
It was a fairly small line for us, but it had an outsized Lawson. This event and you know we're trying to avoid those sorts of businesses small businesses that create big losses that that's not what we want.
In terms of property, we've always had a for the most part.
Virus exclusions and of course, the way property policies are constructed physical damage is required first.
We have been reducing our property exposure not so much because the code, but certainly cobot is in the mix, we've been reducing our property exposure to reduce the natural cat.
Volatility that it brings so you know of the lives of the been heavily exposed to covert we're writing less of those today.
Okay. That's helpful.
Second question.
Yes for Tom It mainly relates to ventures say, they obviously had a very very strong quarter.
And so I'm going to ask for kind of an unprecedented pieces information from you.
Can you hear what portion of the revenues in the quarter came from recent acquisitions I'm trying to triangulate kind of what the underlying run rate was on the ongoing businesses and that's the reason I was asking.
Looking at Jeremy as I answered the question I think on a same store basis, so without Lansing or dfc in their revenues were down about 14% in the core in the in the quarter year over year, and EBITDA was down about 7% if I recall.
I don't have a number two anyway. So there that that's the right just to fix.
And that's helpful. Thank you.
And then on the last question that I had mean, you just commented to the to the last gentlemen, about the strong capital position and the ability to grow.
But then you did a a preferred offering in the quarter fairly substantial Oh and I guess I was curious to just talk through you know why you chose a preferred offering and why you felt you needed capital out.
This particular point in time.
Hey markets, such as share and become a couple of thoughts there. So.
Yes, certainly due to some extent that was to improve liquidity and capital position in the short term and adequately respond to some of the uncertainties around existing in may relative to kind of 19 also though and we saw this kind of playing out in the second quarter.
We thought we'd be able to deploy capital into our insurance operations to take advantage of improving market conditions and opportunities that we're beginning to seems specialty insurance marketplace and some of that has and that kind of played out in the second quarter and obviously when she was commenting on that a little bit earlier with regard to this structure I mean, we've looked at hybrid car.
Capital in the past, we felt that and in May that was a good time to kind of add preferred stock to our capital structure. We recognize the number appears across our industry hit on similar and their capital structure and we like the fact is treated as capital for rating.
Agency purposes, and accounting purposes, we were comfortable increasing the overall financial leverage.
But you know we were focused on not had an increasing if you like debt leverage at the time.
And I might add Jeremys point.
Used the phrase we've looked at hybrid capital in fact, we've used hybrid forms of capital several times over the course of last 30 years and the guiding principle. There as you know often times, there's some distinctions between GAAP financial capital and what regulators look at what rating agencies look at and we always want to take care the shareholders and protect.
Common equity to the extent possible. So you sort of have to respond to the situation look at what specific kind of securities are available that that meet the needs and give you the opportunity to to refinance that or pay that back up in in some sort of identifiable timeframe that keeps the comedy.
I'm playing shareholders a in the best possible position.
I appreciate all the answers thank you.
Our next question it sounds so that's all I know from Deutsche Bank.
Go ahead.
Yeah. Thanks.
Good morning, you just following up on.
The prior question, what the unprecedented information on the acquisition and ventures.
Is there a way we can think about the potential forward impacted these acquisitions.
To help us kind of lay out what the.
Locations are for the underlying businesses versus the benefit that we have from these acquisitions coming online.
Sure well in economic sense, as we always think that we're going to make double digit returns on capital when we lay out a dollar of capital in the in the form of an acquisition. So that's the way, we underwrite them and that would be what I would lay out there as the longer term in the short term there could be all kind of volatility around that I would report.
Do you have that that's so far again I'm, just very impressive very grateful and the way that the managers as business continued to operate them.
And can wildly fluctuating circumstances.
So I'm not going to the reports of the first six months, where there's companies are operating and the black producing cash flows Uh huh.
No. It's what we wake up to any given day, but they're they're doing pretty well it I would not want to put too fine a point or have a model kind of number for the next this quarter can we do not do expectations are forward guidance in that sense.
Well the shot [laughter] underwriting looking at the underwriting businesses.
He feels like there's a growing expectation and Dave in maybe at this point, even a a frustration in some respect that we're getting this headline pricing increases.
It just feels like.
Loss cost expectations are increasing as well and we're just we're not getting.
Underlying or Attritional loss ratio improvement and I think people had been hoping for [laughter], how can we think about.
Loss cost trends versus pricing over a period of time in the dynamics, we have today versus the dynamics of five years ago and in what that could mean for attritional underwriting margin as we look over the next couple of quarters are yours.
Oh, that's an interesting one let me I'll try it Phil.
Like I said that it's a little difficult to put your finger on what social inflation is doing right now.
Because of all the code that issues and what's happened in the economy I think that that as muddied. The waters. There I do believe in terms of pricing that is happening right now I believe we're starting to create a margin against any sort of reasonable.
Expectation of social inflation, you know when when we start hitting a mid teens in terms of price increases and that's coming on and then we're now to a point where that that's a compounding on some price increases that we received in 2019 you.
I have to believe just based on what we've seen in terms of social inflation in the past because it's nothing new that that is creating some margin against that so you know my hope would be as you know.
If this is a sustainable market for awhile.
I think we should be able to create some additional margin against social inflation and hopefully see those attritional loss ratio is a bump down a bit Tom likes to say Hey, this quarter were that's one quarter in Russia. So we've got one quarter in a row of we're going to see if we can make it two quarters in a row next quarter.
Got it and the last one for me and I apologize if I missed that earlier.
Any update on lodge pine and I will be the fund raising going though.
Again, we got a lot of you know what kind of said in the first quarter up through about May I think most investors were pretty frozen trying to kind of assess what had happened to their portfolios. We have seen a significant change in tone and the amount of conversations and.
The amount of due diligence that's going on is picking up that book is a one one book largely it's you know to January 1st book, and so quite honestly people aren't going to make their decisions until probably into the fall as to whether they want to invest a we're having some great conversations.
But I think just the way the calendar works, we're not gonna have signed commitments until sometime in the fall.
Okay got it thank you.
Our next question I know some mark Hughes from some tests.
Perhaps.
Yes. Thank you just a couple of quick ones any comments on the medical professional liability line.
You know a mark we used to be they used to be a really big part of what we did and just that market had as then challenged for a number of years and so it's become a much smaller part of what we do.
But as as I said, most lines are improving and there are certainly improvement in the health.
Health lies the broader health lines, and we're taking advantage of that Ah, but are the base. We're starting with is much smaller than it was several years ago because of that challenged environment.
And then the when we think about your new business through the quarter, you were up 14% and insurance written premium.
With that the more weighted to the back a part of the corridor and is that the more of a better run rate on the go forward basis.
You know, it's it's been relatively consistent in sort of that mid teens first and second quarter, you know, whether we've seen all of the impact of Ah Cobiz 19 [noise].
You know your guess is as good as mine its certainly.
Hurt our smaller businesses, but that's been more than made up for a by price increases in more business coming in a boat BNS in London. So you know that sort of mid teens is that seems to be the run rate through the first six months.
Thank you.
This concludes our question and answer session.
I'd now like to turn the conference back over to Tom Gayner for closing remarks.
Thank you very much for joining us. Thank you for your support we look forward to talking with you again next quarter. Thank you.
The conference has now concluded function.
Hi, Jason you may now disconnect.