Q2 2022 Markel Corp Earnings Call
Good morning, and welcome to the Markel Corporation second quarter 2022 conference call all participants will be in listen only mode.
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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 1995.
Based on current assumptions and opinions concerning a variety of known and unknown risks.
Actual results may differ materially from those contained in or suggested by such forward looking statements additional information.
Information about factors that could cause actual results to differ materially from those projected into 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 statement.
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.
I would now like to turn the conference over to Tom Gayner Co Chief Executive Officer. Please go ahead.
Thank you Andrew This is Tom Gayner, and I'm pleased to welcome you to the Markel Corporation second quarter 2022 Conference call I'm joined this morning as usual by my co CEO Richie Whitt.
Update you on our insurance engine and our CFO , Jeremy Noble who will speak to the overall financial results of Markel.
We're pleased with our ongoing economic performance the first half results and our insurance and ventures engines show continued growth in revenues and earnings the investment results require a little bit more analysis and thought to see the progress, we're making but I am pleased with our results and our process.
I'll speak more specifically about investments and ventures after Ritchie it a few minutes.
We always look forward to sharing our results with you. We continue to focus on building the long term value of markel in multiple dimensions.
We continue to operate with the win win win focus where our customers are better off for having dealt with us.
Our associates, along with their families and communities are better off for being part of us and our shareholders are in excellent returns on the capital needed to run this business.
While these quarterly updates occur every 90 days, we think and act with a much longer timeframe, we think about years or decades and generations, rather than quarters, and we hope you share our long term goals of building one of the world's great companies.
Thank you for your steadfast support of this journey.
As the old saying goes Rome wasn't built in a day and neither is Mark Hill. The people who've built Rome worked every day and so the way. This call was our 90 day update on this lifelong project and we look forward to your thoughtful questions and comments with that ill turn things over to Jeremy to share our financial results.
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Thank you Tom and good morning, everyone.
Tom's comments suggest the first half of 2022 continues to highlight the benefits that come from our diversified three engine architecture here at Markel, while growth in our insurance and Markel ventures operations drove meaningful contributions to our operating results the volatility within the public equity markets and the effects of rising interest rates on our.
Bond portfolio significantly impacted our investment results this year.
Looking first at our underwriting results gross written premiums were $5 billion for the first half of 2022 compared to $4 3 billion in 2021, an increase of 18%.
Our increased premium volume reflects new business volume more favorable rates and expanded product offerings and was achieved across many of our product lines.
The most notable growth came from our professional liability and general liability product lines in both our insurance and reinsurance segments.
Our consolidated combined ratio for the first half of 2022 and 2021 was <unk> 90.
2022, combined ratio included $35 million or one point of net loss and loss adjustment expenses and $12 $3 million of ceded reinstatement premiums attributed to the Russia, Ukraine conflict.
All of this was recognized in the first quarter and our initial estimates associated with this event remain unchanged.
This compares to $68 million or two points of losses attributable to winter storm, Yuri and $19 million of adverse development arising from a change in our estimate of COVID-19 Ultimate losses included in our 2021 combined ratio.
Excluding these watson from both years, our consolidated combined ratio for the first half of 2022 was <unk> 89 compared to an 88 for the same period in 2021.
The increase reflects the impact of less favorable development on prior accident year loss reserves with our insurance segment. This year compared to last year, partially offset by a lower expense ratio and lower attritional loss ratio within our insurance segment.
Prior year loss reserves developed favorably by $123 million from the first half of 2022 compared to $226 million in the first half of 2021.
2022, we experienced adverse development on certain professional liability product lines, primarily arising from unfavorable claim settlement and.
And increased claims frequency.
<unk> for both our professional liability and general liability product lines, the impacts of economic and social inflation have created more uncertainty around the ultimate losses that will be incurred to settle claims on these long tail product lines.
As a result, we are approaching reductions to prior year's loss reserves cautiously in general on long tail lines. We are responding quickly to increase loss reserves. Following any indication of increased claims frequency or severity in excess of our previous expectations, whereas in instances where claims are trending.
More favorable than we previously anticipated, we will often wait to reduce our loss reserves until we have sufficient confidence that such reductions are warranted.
Turning to our investment results net investment losses included in net income was $1 9 billion in the first half of 2022. This was primarily attributable to a decrease in the fair value of our equity portfolio driven by significant declines in the public equity markets. During the period. This compares to net investment gains of $1 2 billion.
In the first half of 2021 attributable to an increase in the fair value of our equity portfolio driven by favorable market value movements.
As you've heard US say many times before we focus on long term performance. We continued to maintain our invest in discipline understanding the periodic declines in the equity markets are to be expected and will result in variability in the timing of investment gains and losses, we will continue to measure investment returns over longer periods of time.
With regards to net investment income, we reported a $166 million in the first half of 'twenty, two compared to $193 million from the same period last year. The decrease reflects the impact of losses recognized on equity method investments this year compared to income on equity method investments last year.
Net investment income on our fixed maturity securities in 2022 was consistent with last year.
The impact of higher average holdings of fixed maturity securities. This year was largely offset by lower yield compared to the same period a year ago.
Beginning in the second quarter of this year the book yield on new purchases of fixed maturity securities began to exceed the average book yield on our portfolio.
Net unrealized investment gains decreased $837 million net of taxes. During the first half of 2022. This reflects the decline in the fair value of our fixed maturity portfolio, resulting from increases in interest rates during the first half of 2022.
Reminder, we tend to hold substantially all of our fixed maturities until they mature in our portfolio has an average rating of AAA.
Now I'll cover the results of our Markel ventures segment revenues from Markel ventures increased 30% to $2 3 billion in the first half of 'twenty two compared to $1 8 billion in the same period last year. This increase reflects the contribution of revenues from our December 2021.