Q1 2022 Markel Corp Earnings Call
Good morning, and welcome to the Markel Corporation first quarter 2022 conference call.
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During the call today, we may make forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95. They are based on current assumptions and opinions concerning a variety of known and unknown risks.
<unk> results may differ materially from those contained in or suggested by such forward looking statements.
Additional information about factors that could cause actual results to differ materially from these projected from those projected in the forward looking statements is included in our most recent annual report on Form 10-K , and quarterly report on Form 10-Q , including under the caption risk factors and safe Harbor and cautionary statements.
We may also discuss certain non-GAAP financial measures in the call today, you may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in our most recent Form 10-Q .
Our Form 10-K and Form 10-Q can be found on our website at www Dot Markel dot com in the for investors section.
Please note this event is being recorded.
I'd now like to turn the conference over to Tom Gayner Co Chief Executive Officer. Please go ahead.
Thank you Andrew and good morning, This is Andy Tom Gayner.
It's my pleasure to welcome you for.
First quarter Markel Corporation conference call I'm joined today by our co CEO , Richie Whitt and our CFO Jeremy.
As always our objective.
As to share the news from our most recent financial statements and more importantly answer any questions you might have about markel and the circumstances of your company.
Always look forward to your thoughtful questions.
In addition to this call you've got two other events coming up that and offer up as chances to spend meaningful time with management.
This weekend, we'll be heading back to.
To attend the Berkshire Hathaway annual meeting as we've done for decades, we will be hosting our annual Sunday brunch at 10, a M. At the Marriott next to the Convention Center and if you can join US we'd love to see.
We take questions for a couple of hours that day, and we absolutely love the chance to spend time with fellow long term investors in Omaha during Berkshire weekend.
Second the <unk>.
RTL annual meeting will be at two P M.
And as Dave May 11 at the Virginia Credit Union Live concert arena at the Richmond Raceway, we invite you all to attend and we would welcome the chance to spend time with you at our upcoming annual meeting.
As to the financial results for the first quarter I am very pleased with our performance and I Hope you share our sense of accomplishment and optimism.
The first quarter is a short 90 day view of Markel.
<unk> three engines on insurance Markel ventures and investments.
While it is lovely, but all three.
To provide positive thrust barco was designed to succeed even if not all three are firing.
In one dimension I E that over the last 90 days you can accurately say that only two of our three engine spike.
That is correct since in the first quarter, we earn excellent returns at our insurance and ventures operations, but experienced negative mark to market swings in our investment portfolio.
If I put myself in your shoes as an owner of Markel, though here's what I would expect over time.
There should be no surprises to you in our insurance operations. When we report the results of any one quarter.
As observers of the World Kendo through regularly reported news with a major loss events like natural catastrophes, Pandemics wars wildfires tsunami as hurricanes earthquakes or other big events took place or not.
Given what you already know from general awareness of the news I suspect us reasonably informed and thoughtful owners would have some sets of our insurance operations by perform.
Richard will give you more details in a minute, but im pleased to be able to report to you that we enjoyed excellent results in our insurance operations and I don't think we're reporting anything that should surprise you.
Similarly in our ventures operations, we've put together a diversified and robust set of businesses that have demonstrated their excellence for many years and through incredibly varied conditions, including the pandemic supply chain issues inflation trade tensions technological change and all of those factors I listed when I was.
Talking about insurance.
I am pleased to report ongoing meaningful growth and profitability for Markel ventures as we begin 2022, Jeremy will give you the numbers in just a minute.
Finally, while the first 90 days on Mark to market declines in our publicly traded portfolio of stocks and bonds. I think you as investors would agree that we are likely to regularly experience. The most reported volatility with our investment engine as compared to the others given that reality.
Longer term measurements matter way more than those of any given quarter.
We regularly measure things and five year time increments, including how we calculate incentive compensation for senior management.
It might be helpful to take a quick glance at what the investment engine produced over the last five years as opposed to the last 90 days.
On March 31 2017.
Our equity portfolio stood at roughly $5 billion.
Five years later it stands at $8 7 billion, an increase of 74%.
On March 31, 2017, our equity portfolio had an unrealized gain of roughly $2 5 billion.
Five years later it stands at $5 8 billion, an increase of 132% over that time.
On March 31, 2017, each share of Markel sold for $978 five years later each year. So for 2014 92, an increase of 53%.
Those last five years included the pandemic wildfires Tsunamis and just about any other challenge you could imagine or even once you couldnt imagine.
While we necessarily report quarterly financial results as a publicly traded company.
We think about and manage markel over much longer timeframes.
Financially, we tie our compensation of senior management to five Youre Rolling results and in reality, we think an even longer timeframes, such as decades and generations as we run this business with.
With that as preamble I'd now like to turn things over to Jeremy to provide you with the details from the first quarter.
Thank you Tom and good morning, everyone. Tom mentioned, the first quarter of 2022 highlights the benefits that come from our diversified three engine architecture Markel volatility within the public equity markets and the effects of rising interest rates on our bond portfolio, while weighing down our investment returns during the quarter were somewhat mitigated by strong operating results.
Within our insurance and Markel ventures operations.
Looking at our underwriting results gross written premiums were $2 5 billion for the first quarter of 2022 compared to $2 2 billion in 2021, an increase of 16% or.
Our increased premium volume reflects new business volume more favorable rates and expanded product offerings across many of our product lines with the most notable growth coming from our professional liability and general liability product lines in both our insurance and reinsurance segments.
Retention of gross written premiums was 86% in 2022, which is down one point from the same period last year.
Our consolidated combined ratio for the first quarter of 2022 was <unk> 89, which included $35 million or two points of net losses and loss adjustment expenses and $12 $3 million of ceded reinstatement premiums attributed to the Russia, Ukraine conflict. This compares to a 94 combined ratio for the same period last year.
Which included $64 million with four points of losses attributable to winter storm, Yuri and $19 million or one point of adverse development arising from a change in our estimate of COVID-19, ultimate losses, a year ago.
Excluding these loss impacts from both years, our consolidated combined ratio for the first quarter of 2022 was <unk> 87 compared to <unk> 88 for the same period of 2021. This improvement reflects a lower attritional loss ratio within our insurance segment and a lower expense ratio, partially offset by less favorable development on prior year loss.
Loss reserves.
Higher earned premiums in 2022 compared to 2021 had a favorable impact on our expense ratio and an unfavorable impact on our prior accident years' loss ratio.
With regards to prior year loss reserve development prior year loss reserves developed favorably by $96 million in the first quarter of this year compared to $91 million in the first quarter of last year.
Turning to our investment results.
<unk> losses were $358 million in the first quarter of 2022 and were primarily attributable to a decrease in the fair value of our equity portfolio driven by unfavorable market value movements. This compares to net investment gains of $527 million in the first quarter of 2021 attributable to an increase in the fair value of our eco.
Portfolio, driven by favorable market value movements.
I have mentioned in prior calls given our long term focus variability in the timing of investment gains and losses is to be expected and we typically measure investment returns over longer periods of time.
With regards to net investment income, we reported $73 million in the first quarter of 2022 compared to $97 million from the same period last year. The decrease this quarter reflects the impact of losses recognized on equity method investments in the first quarter. This year, most notably our investment in Haggerty.
Net investment income on our fixed maturities in 2022 was consistent in 2021 as the impact of higher average holdings of fixed maturities in 2022 was largely offset by lower yields compared to the same period a year ago.
As a reminder for accounting purposes, we are deemed to have the ability to exercise significant influence over haggerty and therefore account for our investment in aggregate under the equity method rather than a fair value.
As of March 31, 2022, the carrying value of our investment in Haggerty was $239 million.
Which was included in other assets on the consolidated balance sheet.
As of March 31, 2022, the estimated value of our investment based on the closing stock price.
Of Hagrid is class a common shares was approximately $840 million.
Net unrealized investment gains decreased $476 million.
Net of taxes during the first quarter of this year, reflecting a decline in the fair value of our fixed maturity portfolio, resulting from increases in interest rates. During the first quarter. As a reminder, we tend to hold substantially all of our fixed maturities until they mature.
Now I'll cover the results of our Markel ventures segment.
Revenues from Markel ventures increased 35% to $950 million in the first quarter of 2022 compared to $707 million for the comparable quarter last year. This increase reflects the contribution of revenues from our December 2021 acquisition of Metro month in August 2021.
Acquisition of partner as well as strong organic growth across many of our other businesses.
EBITDA from Markel ventures was $96 million in the first quarter of 2022 compared to $81 million. During the same period last year. The increase reflects higher revenues and improved operating results at our construction services and consulting services businesses as well as the contribution from Metro model.
As a reminder, EBITDA in the first quarter of 2021 included a pre tax disposition gain of $22 million in connection with the sale of a portion of one of our health care businesses.
Looking at our consolidated results for the quarter.
Our effective tax rate for the first quarter was 27%, which results having a relatively small pretax loss during the period. The estimated annual effective tax rate was 21% in the first quarter of both 2021 and 2022.
We reported a net loss of common shares to common shareholders of $53 million in the first quarter of 2022 compared to net income to common shareholders of $574 million in the same period, a year ago, largely attributed to the year over year swing and changes to our public equity portfolio valuation.
Consequence of loss to shareholders for the first quarter of 2022 was $529 million.
Compared to comprehensive income to shareholders of $359 million.
In the first quarter, a year ago again, driven by both fixed maturity and public equity valuations.
Finally, I'll highlight a few transactions in the period and make a few comments on cash flows capital and our balance sheet first in March of this year. We completed the previously announced buyout transaction related to Markel <unk> accelerating the return of all remaining trapped capital to investors in the Markel <unk> funds.
Under the terms of the transaction, we provided cash funding of $45 million to purchase substantially all of Markel CAC of funds investments in Markel <unk>, which at present, we anticipate being returned to US in time as remaining Trust fund collateral is released we also made $102 million in additional payments net of insurance proceeds.
Seats, two or for the benefit of investors and exchange for releases of all claims related to the transaction the <unk> businesses and investors investments in the funds, including any pending litigation, which was recognized as an expense during the first quarter of 2022, we expect that the remaining runoff of CAC will have minimal effect.
On our future results.
Second within our Nyphil ILS operations, there were two transactions worth touching upon in February 2022, we sold the majority of our controlling interest in our velocity managing general agent operations for total cash consideration of $181 million, which resulted in a gain of $107 million. We continue to have a minority.
Interest in velocity after the sale and velocity will continue to be a source of risk origination volume to fill a fund management operations and.
In March 2022, we entered into a definitive agreement to sell our controlling interest in our velocity managing general agent operations. This transaction is expected to close later this year in the third quarter and is subject to regulatory approvals and customary closing conditions.
Following the disposition of <unk> operations are in fill of ILS operations will be solely comprised of its core fund management operations.
Turning to cash flows net cash provided by operating activities was $415 million for the first quarter.
2022, compared to $318 million for the first quarter of last year operating cash flows in the first quarter of 2022 reflected strong cash flows from our underwriting operations given the growth in premium volume.
Total shareholders' equity stood at $14 1 billion at the end of March compared to $14 7 billion at the end of the year.
During the quarter, we repurchased 63000 shares of our stock under our outstanding share repurchase program.
All in all we are pleased with the start for the year, particularly with the strong results in our insurance and Markel ventures operations, we remain committed to building shareholder value over time, we believe we continue to advance this effort in the first quarter with that I'll turn it over to Richie to talk more about our insurance businesses.
Thanks, Jeremy and good morning, everyone I am excited today to discuss with you our insurance engines first quarter results. Obviously, it's only 90 days into the into the year, but we are off to a strong start to the year.
Many of the trends that we discussed throughout last year continued in the first quarter the pricing environment continues to hold up well inorganic growth remains strong.
As Jeremy said, we achieved an 89% combined ratio for the period, despite two points of losses from the Russia, Ukraine conflict.
Business production continues to be robust with 16% growth in our underwriting operations with gross written premium surpassing $2 5 billion for the quarter and that's the first time, we've done that and 17% growth within our program services operations.
While we continue to benefit from a favorable pricing environment. We are also seeing new business growth across most of our product lines.
In particular within our professional and general liability products.
As Jeremy mentioned, we also had an active quarter in the Io space completing the sale of our majority interest in the velocity MGA operations and announcing the sale of our Volante MGA operations, which we expect to close sometime later this year both of these transactions unlock significant value.
From our Nephila acquisition in 2018, and also allowed us to devote full attention to the opportunities they see in the cap arena right now.
Now I will discuss our first quarter results within our insurance engine, which include our underwriting operations State National program services operations.
And the filler insurance linked securities operations.
So I'll kick it off with the insurance segment.
Gross written premiums in the insurance segment were up 19% in the quarter with.
Just under $2 billion in premium writings, while earned premiums were up 16% for the period.
We saw double digit growth rates across all of our major product lines in particular within the professional liability and general liability product lines, where we have identified new business opportunities in both our domestic and international operations and have benefited from new program opportunities we continue to bear.
<unk> from favorable rating environment within most of our insurance product lines.
The rate increases achieved continue to gradually moderate.
The combined ratio for the quarter in the insurance segment was 87% compared to 91 last year. The current year combined ratio included $20 million or one point of net losses related to the Russia, Ukraine conflict versus 39 million or three points of net losses last year related to winter storm here.
Excluding the impact from these events the combined ratio decreased by just over one point due to a two point decrease in our attritional loss ratio across several product lines, reflecting the impact from rising rates and our ability to write more premium and our preferred product classes.
This was partially offset by a decrease in favorable development from prior accident years losses in the quarter higher earned premiums have a favorable impact on our expense ratio and an unfavorable impact on our prior accident years' loss ratio.
So next I will talk about the reinsurance segment gross written premium within the reinsurance segment were up 8% for the quarter, while earned premiums were up 12%.
Premium growth was driven by higher premiums in our general liability and professional liability lines from both new business and higher renewals due in part to more favorable rates along with the impact from favorable premium adjustments within our credit and surety professional liability and general liability product lines.
This growth was partially offset by lower premiums in our property and workers' compensation lines.
Our property lines continue to run off as part of our exit strategy with the transition of our reinsurance property lines to the Philips and the decision to discontinue writing retro property business within our underwriting operations as of the end of the first quarter.
In terms of reinsurance property, we are fully off risk at this point.
The reduction in workers' compensation was due to the non renewal of one large quota share treaty.
The combined ratio for the period with in the reinsurance segment was 95% compared to 109 a year ago.
Current year combined ratio included $15 million or five points of net losses from the Russia, Ukraine conflict compared to $25 million or 10 points of losses last year related to winter storm year lag.
Last year. The segment was also impacted by adverse development of $19 million related to losses from COVID-19.
Excluding the impact from these events the reinsurance segment combined ratio decreased two points due to lower adverse development on prior accident year losses, partially offset by slightly higher current accident year attritional loss ratio.
The segment had adverse had modest adverse loss development this quarter driven entirely by the impact from favorable prior year premium adjustments offset in part by favorable loss development in our property product lines.
The current accident year Attritional loss ratio increase due to mix of business since our discontinued property lines carried a lower attritional loss ratio, partially offset by decreases this year in our attritional loss ratio within our general liability and general liability lines.
Next I'll touch on programs services, and other fronting operations and our ILS operations, both of which are reported as part of our other operations.
So as a reminder, almost all of the gross written premium from our program services and other fronting operations exceeded our program services and other fronting operations continue their strong performance with program services producing $706 million.
In premiums during the period and total revenues from fronting operations of $34 million with continued strong profit margins are.
Our ILS operations consists entirely of the Philip operations going forward operating revenues were flat to last year with higher revenues at our velocity MGA operations offset by lower revenues at the velocity MGA operations due to the sale of that unit in February .
While velocity will continue to partner with and produce significant premiums and supportive in that Philip bonds.
Post sale the Mga's Commission revenues, obviously will no longer be included in <unk> results.
<unk> assets under management within the fund management operations were $8 6 billion as of March 31 2002.
I'll finish up with a few comments about market conditions, and obviously happy to answer any questions during Q&A.
As I said earlier in my comments trends continue largely in line with what we discussed at year end rates have held up well and organic growth has remained solid rate increases continue to gradually moderate but have held up better than we would have predicted a quarter or two ago.
I believe that uncertainty around inflation, both economic and social financial market volatility, including interest rate increases recession concerns and the Russia, Ukraine conflict have all played some role in supporting continued underwriting discipline in the market.
There continues to be much discussion in the industry around inflation and its impact on claims cost.
As you would expect I think we are banking more claims inflation into both our pricing and reserving and believe rate increases remained ahead of claims inflation.
We will be watching each of our over 100 specialty lines very closely and will adjust underwriting and pricing strategies as needed to maintain profitability.
Bottom line, we're right, where we want to be at the end of the first quarter and I got to tell you that feels great considering where we stood at the end of the first quarter in 2020 with COVID-19, and at the end of the first quarter in 2021 with winter Storm Yuri.
Even better however, we're really excited about the opportunities for the rest of the year.
Thanks for your time today, and now I'll turn things over to Tom. Thank you bridging.
The people of Markel ventures continues to make me grateful and amazed their absolute dedication to the to their customers and to their colleagues continues to show up month after month quarter after quarter and year after year.
Today's numbers that Jeremy shared speak volumes as to how the human values of Markel continue to manifest themselves in our financial results.
The current environment remains challenging by the people and supplies, but our managers continued to demonstrate their resilience and creativity I find their results to be inspiring.
On the acquisition front, and adding new businesses to Markel ventures, we continue to see elevated prices as a general statement as such I would not expect to add a new platform to Markel ventures this year for.
For reference I thought the same thing during the first quarter of the last several years.
Despite that attractive situations came up and we added wonderful businesses in each of the last several years, we will see how 2022 develops.
Managers can Ceos running the Markel ventures businesses also continue to pursue opportunities to add to our existing businesses and I would expect some fruitful developments as a consequence also.
So fortunately our existing array of businesses continued to perform well generate cash Roe and provide resilience and diversification to markel.
In our investment operations the change in the value of our fixed income portfolio was due entirely to the increase in the overall level of interest rates.
We're no credit losses in the portfolio and that continues a multi year record of pristine results from fixed income.
Reinvestment rates on maturities and current cash flows continued to increase and that should yield increases in recurring investment income in upcoming quarters.
We generally hold our fixed income securities to maturity and unrealized gains or losses.
All Tim to revert back to zero in the fullness of time.
In our equity portfolio, a ratio of publicly traded equities to our shareholders' equity stood at 61% at the end of the first quarter.
It's a conservative ratio.
Given our insurance profitability capital position interest profitability durability of recurring investment income and attractive purchase prices, we are continuing to buy common stocks and repurchase our own stock.
We are also ready willing and able to consider attractive acquisitions in the insurance or ventures worlds.
Like to thank you again for your ongoing commitment to Markel, we can't build one of the world's great companies with a fellow long term owners, who have the same goal.
We believe that our win win win architecture of serving our customers and our fellow employees.
It's wonderful returns for our shareholders as well.
We are delighted to connect with you to update your following these first quarter results.
And we look forward to seeing you at one of our upcoming events shortly with that Andrea.
So kind as to open the floor for questions.
We will now begin the question and answer session.
A question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Jeff Smith of William Blair. Please go ahead.
Good morning, everyone.
Could you talk about the loss environment.
Do you see loss cost trends running yet and then any detail that you can provide on maybe the components how much is related to social inflation.
Versus CPI inflation.
I know its helpful. In place you can be done to sort of isolate but just curious at CPI inflation sort of taking over or is that additive on that.
<unk> comp how are they running now.
Jeff This is Richie.
Take a shot and I'll see if Jeremy or Tom want to add in.
I think you've got to start with recognizing that youre not seeing much in terms of the data at this point when we talk to our claims folks. They are really not seeing a whole lot of claims inflation showing up in our numbers yet however.
We know with all the things that are going on out in the environment, both CPI inflation litigation finance.
Tore.
Erosion of tort reform over the years, we note that claims inflation is running higher than it historically has.
I can't give you a precise number and.
Completely right.
I have said earlier on the order of 100 different <unk>.
Lines of business and so it would be different in each of those lines of business.
But I do think it's more than what we've historically seen.
But I still believe when you look at the rate increases.
That we're still achieving we're.
We're in the high single digits in terms of rate increases I still believe there is a margin.
On that versus what claims inflation is running at right now.
Got it got it okay.
And then on the competitive environment.
Obviously, it's holding up.
Really well.
<unk> are you are you surprised that disciplined after probably call it three years.
Some people have gotten 30 plus percent cumulative rate.
We are still holding up I understand the cost pressures, whether it's been tough interest rates are low.
Are you surprised are you starting to see some competitors start to get more aggressive on price and terms and conditions.
Are you seeing any indication of that or is it staying pretty rational.
I would say it is staying pretty rational, but yes, I mean, clearly we are seeing more competition.
As the rate of increase has decelerated.
I think some of the new entrants both company and MGA I think they've had some impact on the on the margin I do think after three and in some cases four years of rate increases People's assessment of rate adequacy changes and so they are at.
Hittite changes so.
This market.
The cycle is no different than past cycles.
We're probably past the peak of this cycle, but it is coming off very gradually and I think I said in my comments.
Probably more gradually than I would have predicted a few quarters ago and I think it's some of the things that have been developing the war inflation interest rates you name. It I think there's enough things out there that give people pause and and.
And so it has been a very gradual gentle glide on the rates as opposed to maybe something faster than I might have predicted a few quarters ago.
Okay.
That's helpful. If I could just one last one on the fixed income securities.
I was wondering if you could discuss your philosophy there, they're all they're held as available for sale.
You are saying you hold the maturity anyway, though I'm just wondering if theres any contemplating any changes to that strategy. In this rising interest rate environment. I mean can you switch those to hold to maturity.
And not have the mark to market changes or what are you what are your thoughts on that.
Well, it's like Abraham Lincoln, One said.
How many how many like.
This is Doug have you could call a tail of leg.
Answers for calling a tail like doesn't make it a lake.
The accounting terms of available for sale or held the maturity.
Whichever one you use the mark to market value is.
Real economic number that's out there we think about things in real economic terms. So we really don't expect to have any changes in what we're doing or the way that we label. The accounting now theres another sort of accounting nuance. That's very important to remember is that our philosophy on fixed income is that we buy fixed income.
And that's against the reserves and what we expect to pay out in claims and expenses of running the business and the reason we buy fixed income securities that have a duration of between four and five years is because that matches the duration of what we expect to pay.
Pay out the claims.
So when when interest rates rise and you see a mark to market decrease in the fixed income portfolio. If you will really doing the net present value of the reserves you would see an equal and offsetting reduction in the amount of the reserves that was an accounting matter, we don't discount our reserves to their net.
So economically what we're doing is we're hedging and matching and saying straight up either way because one of the things that we fully believe that we have.
No idea how to predict accurately what interest rates are going to do so either way, whether they go up or whether they go down.
Hedged were matched.
We're making a spread of return between positive yields on our bond portfolio and the negative cost float that we get through underwriting profitability.
And as long as we keep that spread positive number.
These things add up to the good overtime.
Okay very helpful. Thanks for the answers.
Thank you.
The next question comes from Mark Hughes of Truest. Please go ahead.
Yes. Thank you good morning good.
Good morning, Mark.
The.
Cat losses were pretty low in the quarter.
Get much lower how much.
Other than the Russia, Ukraine.
How much is that you are underwriting versus the.
Backdrop, just a more favorable.
Backdrop Q1 and any thoughts on kind of implications when we think about.
The future trajectory on cat losses.
Something important to us.
It was a relatively light first quarter in terms of cats Mark.
Excluding Russia Ukraine.
And so I would say, it's a combination I would say it was a relatively light first quarter.
Where we write cat exposed business, but also I mean, I think it is showing up the fact that we have been derisking in terms of cat over the last several years and so, whereas we would have budgeted probably three or so points of cat losses, the last year or two.
Our budget for Cat losses, and 22, I think is around 1% does that is that.
Right.
Jeremy So so it's a combination of both our.
Relatively light first quarter and the fact that we have.
<unk> been diligently working to reduce cat exposure in the portfolio.
So thats.
Mark It's Jeremy I'd, just add one other point, we typically only call out large significant named events within our cat. So.
We don't tend to sort of get all of that sort of cat activity and disclose that when they're smaller mouth, but theres always a little bit of if you will almost like Attritional cat, we sort of embed in our underlying result, but then to Rich's point are modeled average annual losses have come down significantly in recent years as we've addressed reducing volatility in our focus.
Associated with catastrophes.
Yeah. That's helpful. Thank you and then on the.
The expense ratio any one time benefit in the quarter.
Due to efficiency and leverage.
Yes, it's more it's Jeremy again, it's more efficiency and leverage right. We continue to enjoy growth significant growth on the top line and we're able to sort of not ceded direct in controllable expenses.
On that base grow at the same rate. So we continue to benefit in that way, so nothing significantly faster that that would really call out.
Yes.
I think you've touched on it but kind of your latest thoughts around the workers' comp market.
Non renewed a treaty reinsurance.
The reinsurance book.
How are you looking at that business, both on the primary and reinsurance.
Yes, the market that is the one part of the market that is <unk>.
Resisted.
Pardon me.
And rates have continued to.
Lead drift down two 3%.
As a result, I mean, we still think there's margin in the primary side of the business and so.
We continue to write business there, but we recognize that the margin is smaller in workers comp right now.
We got to <unk>.
Looking at that reinsurance deal.
With the cumulative rate decreases that have happened over the last few years, we didn't we didn't believe it stacked up and so we stepped away.
When you say the margin is smaller or are you, saying you're thinking real isn't the other lines that you are writing your preferred categories are you.
Talking about relative to what you might have written comp last year and the year before right relative to workers comp over the last few years workers' comp has been a.
Great line of business for several years now.
That helps explain why people have been competitive and it there have been good results but.
I just wouldn't expect the kinds of results. We've had we've enjoyed in workers comp over the last several years in the next few years unless something changes changes in terms of the pricing dynamic.
Thank you.
Again, if you would like to ask a question. Please press Star then one.
Our next question will come from Mark Dwelle of RBC. Please go ahead.
Yes, good morning.
A few questions.
First maybe for Jeremy.
The on the <unk>.
<unk>.
Mark to market I guess for the for the equity investment accounting is there a way you can help us understand like kind of how to track that number.
New that hagrid Ishares had declined in the quarter and so I expect that there would be some adjustment for that but the amount that you adjusted by was different in both percentage terms and obviously in dollar terms than what the stock price performance was so is there a way that we can kind of think about that are going to get our arms around it.
Sure Mark it's Gerry I'll take I'll take a stab at that and Richard talk and can join in as well with regards to where we provide what the.
Approximation to the fair value might be based upon the traded a shares you can rough rough rough think of markel, having about 23% ownership in aggregate and so just think of that in terms of their sort of market capitalization and at a certain point.
Todd that's a little bit of that fair value proxy as far as what's recorded in our books, it's more a function of us taking our proportionate share of <unk> underlying earnings.
Any other capital transactions, we do have to record that however on a quarter lag because obviously aggregator as a publicly traded company. We wanted access to the information on top it's not significant period over period. So just thinking of the relationship between the two figures. So we we report on in a little bit of how to think about that sort of fair value.
Proxy that we put in it.
And it's probably worth talking about the warrants and how they impact yes sure. So one of the things that will create a little bit of underlying volatility with regards to our held so what we hold on the actual markel balance sheet in other assets, we will see a little bit of volatility relative to the mark to market at Agri has relative to their warrants. So you think of.
The warrant activity because of the move in the aggregate stock price through the end of the year that creates sort of a liability and an expense, but we reflected as part of the reduction we would've seen at $3 31 versus <unk> 31.
So that creates a little bit more volatility.
As a kind of more of a one off they also.
Either year end result, would've had the transaction costs associated with going public with that.
That's really a one time event.
So that's the primary thing that we're picking up there as the earnings results. So it's not really the movement in the stock price.
I'm sorry.
Yes, what we hold on the balance sheet is just a function of their underlying our proportionate share of their underlying earnings and any other capital transactions.
But it's not it's not the movement in the fair value of their stock.
Got it that's very helpful.
Second question. This one maybe for Tom or Jeremy.
Could you just provide you talked already at length about kind of how you think about your investment portfolio and duration matching and so forth could you just provide a couple of maybe general statistics in terms of what the portfolio duration is right now.
Kind of what the book yield is and where new money yields are relative to that.
Yes, I don't have precise numbers on my fingertips.
The duration will be roughly 400 quarter, four and a third or something like that.
Then.
New money rates are a little bit higher than what the existing.
Yields are so when we are investing new money, we are at the point.
Over the last couple of months with rates Havent gone up, but the new money investment rates are higher than the embedded yield.
Okay.
Yes, that's fine.
And then the.
The other question I had.
Obviously you've sold.
<unk> and velocity.
Over the last couple of quarters here.
Talk about strategically why it's better to be out of those as compared to retaining them. They really.
They don't have a lot of capital associated with them and they seem to make money. So I guess the question would be.
Why not keep them as compared to realize.
A little bit of cash flow at the moment.
Sure Mark well both of those.
Organizations were acquired obviously as part of the acquisition.
<unk>.
They were.
Investments quite honestly.
<unk> had made in those two operations.
We've looked at it two ways and both cases management.
Head ownership had partial ownership of those businesses.
And.
So they had an interest in realizing.
The value of those organizations at some point that that had been sort of memorialized through the deals that Phil will put together with management in both cases. So we wanted to we wanted to be fair to the management of those two operations and allow them to realize the value part of the value that.
He had created there.
Obviously, we were unable to unlock significant value for Nephila and Markel Corporation.
And honestly.
Great businesses, great people, but there is quite a bit of time that is spent in terms of managing those operations that now we can fully devote to the core business, which is.
Fund management for cat risk and climate risk and we think the opportunity right now in the Catarina is significant and so.
All of those things play into it but really just getting super focused on our core business.
It was probably the driver.
Okay. That's helpful.
And then one last question if I may.
In terms of the Russia, and Ukraine exposure I mean, you had reasonably good disclosure of that in the Q, but could you just talk about in terms of.
How many.
It probably being fairly broad terms I mean, you have considerable more exposure that could arise there or have you already been impact on most of the.
Accounts are transactions that you would expect to be impacted or.
I'm trying to get a sense of like how much of this is the tip of the iceberg and how much of it is the whole iceberg.
Yes.
<unk>.
To be just just blunt Marc.
Very we have very little information at this point.
Coming out of.
Conflict, obviously as we all know the war is still.
Ongoing and so its not like Youre able to send adjusters in.
See what the status is on the ground so.
We tried to make.
A good faith estimate of what what could potentially be our exposure I would tell you what we've put up it is 100% IV and are at this point.
And really sort of thinking about what our net retentions could be and how our reinsurance works.
<unk> tried to put up something that we felt like was a very.
No.
Yes.
Best estimate of what could happen obviously the longer it goes on.
On.
Both from a humanitarian standpoint, and just economic damages standpoint things get worse.
But.
We do not write that much business in Ukraine, or Russia for that matter tiny.
Respects to our overall book of business, but but obviously when you start adding up policy limits you can get to some big numbers, but we really don't believe it is a material issue to Markel Corporation, but again the longer it goes the worse it gets from a humanitarian situation as well as an economic situation.
Understood. That's helpful. Thanks, that's all my questions.
This concludes our question and answer session I would like to turn the conference back I was wanted to Tom Gayner for any closing remarks.
Thank you very much enjoyed being with you we hope to see you either in Omaha enrichment soon you will.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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