Q3 2023 Markel Corp Earnings Call
Good morning, and welcome to the more Calgroup third quarter 2023 conference call. All participants will be in listen only mode should you need assistance. Please signal of a conference specialist by pressing that Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.
You May press Star then one on your Touchtone phone to withdraw your question. Please press Star then one again during the call today, we may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
They are 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 about factors that could cause actual results to differ materially 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 Safe Harbor, and cautionary statement and risk factors.
We also discuss certain non-GAAP financial measures during 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 N K L group Dot com in the Investor Relations section. Please note. This event is being recorded I would now like to turn the conference over to Tom Gayner, Chief Executive Officer. Please go ahead.
Thank you Regina good morning, and welcome to the Markel Group third quarter conference call for 2023.
Name is Tom Gayner, and I'm joined this morning by Terry genuine Chief Financial Officer, and Jeremy Noble the President of insurance to brief you on our results as well as to answer your thoughtful questions.
Mark how group, we remain committed to our long term goal of building one of the world's great companies define that as creating a win win win culture.
Our customers are better off for having done business with us our colleagues are better off by being part of the Merck algorithm and our shareholders earn excellent returns on their capital as a result of the wins by customers and colleagues.
Overall I'm pleased with the performance at the Mark helping them through the first nine months of 2023, but we do have a flu a few blemishes to deal with this year.
As always we will be honest and candid and sharing not only whats working well, but what needs improvement.
We believe that this honest and candid self assessment is the best way to maintain the discipline and clear headed that's needed to make good decisions going forward.
It is also the way to earn your trust as we demonstrate to you that we acknowledge our challenges and face them head on.
Terry will provide you with the detailed numbers in just a minute and Jeremy will follow with his report on our insurance operations, but before we get to that I wanted to start off with some high level commentary.
As Sheryl Crow, saying everyday is a winding road.
She's right, we've got some great news some good news and some challenging news this quarter, while we may be on a winding road, we do continue to move forward.
So the great News Markel ventures continues to produce simply outstanding results for the first nine months. This year operating income rose, 52% from $217 million to $330 million.
And EBITDA rose, 35% from 353 million to $474 million.
There were no material acquisitions adventures. During this time period. These are basically applesauce applesauce numbers.
I simply could not be more pleased with the performance debentures. The management teams that leave those companies continue to produce outstanding results for the Mark Calgroup the numbers speak for themselves as.
So the good news.
And it's very good a recurring interest and dividend income grew 73% from 302 million to $521 million in the first nine months of 2023.
We continue to invest the cash flows and maturing bonds into higher yielding fixed income securities.
Each investment we make in fixed income these days carries a higher interest rate than the bonds that are maturing.
I would expect us to continue to earn even higher amounts of recurring investment income and the prevailing interest rate environment.
As to our equity investment portfolio, we earned a return of nine 3% through the first nine months of 2023, while this trails. The S&P return of 13, 1%. We do remain over 100 basis points ahead of the S&P for more than 30 years.
Very happily sign up for the sort of annualized investment results were putting up so far in 2023.
I'd also happily accept 100 basis points of outperformance for the next three decades, if I can do so.
As to the challenging news and our insurance operations, we reported a year to date combined ratio of 95% and for the third quarter, We reported a combined ratio of 99.
These results are below our expectations and stemmed from multiple factors first we continue to experience inflation in our claims payments.
That inflation reflects higher overall price levels and social inflation that we see in the current legal environment.
We continue to incorporate these trends in our reserve setting process I am pleased to report to you that despite the challenges we continued to live up to our goal of setting reserves that proved to be more likely to be redundant than deficient. We did report favorable development in the third quarter.
Yes.
Some of the factors that led to these results include two points of losses in the third quarter from natural catastrophes, including the Hawaiian wildfires and Hurricane Ike failure.
Additionally, we experienced approximately three points of losses in the third quarter from the losses in our collateral protection book, which include exposure to the widely reported zest to bankruptcy and fraud case.
Lateral protection is a relatively new product to us and to the marketplace. We learned some tough lessons here and we've made significant adjustments to the product.
While we are extremely disappointed with this loss. We believe we have addressed the causes aggressively and we are actively working to mitigate potential future losses associated with this product.
We're especially disappointed with these particular losses as they obscure the outstanding performance from so many other components of our insurance operations.
Assured we continue to work tirelessly to make each engender the mark Calgroup perform at the highest levels and we look forward to future periods of sharing our progress on exactly that with you.
We never like calling out specific reasons for a disappointing results discussions of natural catastrophes in headline events can deteriorate into an exercise of excuse making I don't like making excuses anymore than you liked hearing.
We know that you as shareholders expect us to be able to manage the normal flow of catastrophe losses headline events of worst consequences of climate change and other things that go bump in the night and still produce acceptable results that is the very nature of what a successful insurance operation does we understand the assignment.
Yeah.
Rest assured we continue to work tirelessly to make each engine and the Mark how group performed at the highest levels and we look forward to future periods of sharing our progress on exactly that with you.
Finally, as one additional marker of our overall financial strength and performance, we invested $270 million and additional public equity investments during the first nine months, which should produce additional returns into the future.
The current unrealized gain on our public equity portfolio stands at over $5 billion I expect that amount to continue to grow over time.
We also repurchased $269 million of our own stock so far in 2023 compared with $208 million in the first nine months of last year.
My expectation is that we'll continue to produce profitable results in our insurance ventures, an investment engines, and we will be dividing those profits among future shares.
Fewer shares that seems like a recipe for increasing shareholder value to me.
Additionally, I stated last quarter that in five of the last six quarters I've personally taking money out of my pocket to by Mark Health Group stock on the open market.
Continue to do so again during the past quarter in fact, I invested approximately my entire after tax salary for Markel group during the quarter to purchase shares in the open market at this point I know purchase Mark Health group shares in six of the last seven quarters I am confident in our team I believe in their talent and dedication.
I believe they will produce excellent results.
We remain committed to building one of the world's great companies.
Thank you for your ongoing support with that I'll turn it over to Terry to drive some of the details of our financial results Jeremy will pick up with his comments on our insurance agent and then we will open the floor for questions Sarah.
Thank you Tom and good morning, everyone as Tom pointed out we have a mix of results this quarter, which highlights the importance of our estimations and architecture you can know.
The words of channel crowd the diversity in our family of business may be helping us to get a little bit closer to hearing fine.
Starting off with our underwriting operations.
Written premiums grew 5% to $7 9 billion for the first nine months of 2023 compared to $7 5 billion in 2022.
Our increased premium volume affecting EBIT net and more favorable rates across many of the parties.
Within our insurance segment, partially offset by lower premium volume within our professional liability product lines, where we're adjusting our writings in reaction to changes in market conditions and downward pressure on rates within certain classes.
Our consolidated combined ratio for the first nine months of 2023 with a 95% compared to 91% for the same period last year.
23, combined ratio included $46 million or one point.
Of net losses attributed to the Hawaiian wildfires and hurricane of Dahlia.
Our 2022 combined ratio included $70 million of net losses attributed to hurricane in and 35 million attributed to divest of Ukraine conflict, which together added two points to the combined ratio.
Excluding these losses from both years, our consolidated combined ratio for the first nine months of 'twenty, three with a 95% compared to 89% in 2022.
The increase was driven by a higher attritional loss ratio in 2023 within our insurance segment, which Jeremy will discuss further.
Prior year loss reserves developed favorably by $170 million in the first nine months of 2023 compared to $204 million in the first nine months of 2022.
We experienced favorable loss reserve development across multiple product lines in 'twenty three.
Notably across our international professional liability product lines, and our property product lines within the insurance segment.
The favorable development in 2023, with partially offset by adverse development on our general liability product lines within our insurance segment.
With increased frequency of large claims over the past several quarters, and our excess and umbrella and primary and primary casualty contractors liability products.
We also experienced adverse development within our reinsurance segment in 2023 on our general liability product lines and in discontinued portion of our public entity product line.
Turning to our investment results.
We reported net investment income of $521 million in the first nine months of 2023 compared to $302 million in the same period last year with meaningful increases from fixed maturity securities short term investments and cash and cash equivalents.
Interest income on our fixed maturity securities reflects a higher yield and higher average holdings compared to last year.
Year to date basis yields on our purchases of fixed maturities has been about 250 basis points higher than securities that rolled off.
Income from short term investments is due to higher short term interest rates in the current year.
The largest share of the increase is due to higher interest income from our cash and cash equivalents as we have increased our allocation to money market funds to take advantage of the current interest rate environment.
During the first nine months of 2023, we recognized net unrealized investment losses within other comprehensive loss of $135 million net of taxes compared to net unrealized investment losses at one 3 billion net of taxes in 2022.
These movements correspond to decreases in the fair value of our fixed maturity portfolio, resulting from increases in interest rates.
Recall that we typically hold our fixed maturities until they mature and we generally expect unrealized holding gains and losses attributed to changes in interest rates to reverse in future periods and our bonds mature.
As of September 30th over 99% of our fixed maturity portfolio was rated double a or better and there are no current or expected credit losses within the portfolio.
Net investment gains of 591 million for the first nine months of 'twenty three reflect favorable market value movements driving a return of nine 3% on our public equity portfolio during the period.
This comparison net investment losses of $2 2 billion for the same period of 2022.
As you've heard US say many times before we focus on long term investment performance.
Pecking variability in the equity markets and the timing of investment gains and losses from period to period.
With regard to our Markel ventures segment.
Revenues from Markel ventures increased 6% to $3 7 billion in the first nine months of 2023.
From $3 5 million for the first nine months of last year, the increase reflects growth and improved pricing across several of our businesses.
EBITDA from Markel ventures increased 35% to $474 million for the first nine months of 2023 from $353 million during the same period last year the.
The increase was driven by our products businesses, which had higher margins in 2003 compared to 22, as we saw material and freight costs stabilize.
Our effective tax rate for the first nine months of 2023 was 21% compared to 23% in the same period last year.
We reported net income to common shareholders of.
$1 2 billion for the first nine months of 2023 compared to a net loss to common shareholders of $926 million in the same period, a year ago with the change largely attributed to the year over year swing in our public equity portfolio valuation.
Comprehensive income to shareholders for the first nine months of 2023 with $1 1 billion compared to comprehensive loss to shareholders of $2 1 billion in the first nine months of 2022 with swings in both fixed maturity in public equity valuations at the largest drivers.
Net cash provided by operating activities with $2 billion for the first nine months of 2023 compared to $1 9 billion for the same period last year.
Operating cash flow in 2023 reflected strong cash flows from each of our operating engines with the most significant contribution from our insurance engine and notable year over year increase coming from our Markel ventures engine.
Total shareholders' equity stood at $14 billion at the end of September compared to $13 2 million at the end of the year.
Overall, we're pleased with our consolidated results. So far this year and are confident that we're taking the right steps to address the current challenges on a road to building long term shareholder value.
With that I'll turn it over to Jeremy to talk more about our insurance engine.
Thanks, Terry and good morning, everyone. It's great to be with you to discuss our insurance engine results for the third quarter.
Clearly our insurance operations performance is not where we want it to be however, I am confident we are taking the right actions quickly in the near term to successfully confront what are predominantly industrywide challenges set markel up for long term success as.
As I walk you through our financials, you will see our performance is being impacted by a few pockets within our product portfolio that are negatively influencing our underwriting results for the period. This includes the well documented higher loss cost trends in recent years, which are creating prior adverse.
Adverse reserve development within our risk managed D&O and excess casualty lines and mid market excess and umbrella and primary casualty contractors liability books.
We're working incredibly hard to evaluate the ultimate cost of settling claims on these meaningful portfolios examining the maturing accident years from the last soft market cycle, while seeking to gain confidence around margins on more recent accident years. There were written in a more favorable market environment. We.
We are also maintaining a higher level of prudence on our current accident year loss picks within these products due to the uncertainty around future loss cost trends.
We are acting with a great deal of discipline being more selective around new business pushing rates and terms and letting business laps that doesn't meet our profitability targets. We are in the process of remixing, our portfolio to improve overall profitability and ensuring our reserves are robust as we move into 2024.
Sure Mark Heller has long been a conservative company and one that demonstrates caution when it comes to evaluating adverse claims trends let.
Let me now share a few further thoughts on our results from across our collection of insurance businesses, which includes our insurance and reinsurance state National program services and the total insurance linked securities operations.
Across all of our businesses within the insurance engine through three quarters. We have produced $6 3 billion in revenues up 8% from last year, while generating pre tax operating income of $371 million insurance engine also continues to generate significant operating cash flows and we've been intentional about taking the cash and.
Maximizing the investment return on the float generated by our underwriting operations and attractive market yields.
Moving to the results of our underwriting operations, we reported a combined ratio of 99% in the third quarter results, which was significantly influenced by several noteworthy items three to be exact.
First we realized a total of $46 million or two points of losses in the quarter related to catastrophe events, specifically, the Hawaiian wildfires and Hurricane Italia.
It was concentrated in our small commercial inland marine and RV property launch.
We also recognized $30 million or just under two points of development on the prior accident year losses within our run off portion of our public entity line in reinsurance. We exited this segment of reinsurance not for profit entities in California, and other West Coast States in 2020.
<unk> that this book was not performing adequately and we now believe the ultimate losses from this book are likely to be greater than what we had previously allowed for based on a recent completion of an actuarial and claims review.
Finally, we recognized losses in the quarter within our intellectual property collateral protection product line, including a $25 million or one point impact to the combined ratio from credit losses related to a fraudulent letter of credit provided by best suits, our CPI product in total at a three point impact on our combined ratio.
If you exclude these three items our reported combined ratio of 99 in the quarter converts to a 93 consistent with our results for the first half of this year. This highlights. The fact that we have many product lines within our portfolio that are performing very well.
Turning to premium production overall gross written premiums in our underwriting operations grew by 1% in the quarter and 5% year to date as I pointed out last quarter. We continued to achieve premium growth in lines, where we see opportunities. We feel good about the levels rate adequacy. We are taking advantage of the improved pricing environment and have achieved strong growth.
And our property inland marine binding personal lines, and select marine and energy classes internationally as well as regional growth in our UK European and Asian operations.
Just as important we continue to reduce writings in certain classes, where we are seeing unacceptable rate decreases relative to loss cost trends.
In our professional liability lines. This is most notable in the large account public DNO space. We've also decreased writings in our intellectual property collateral protection line as part of our re underwriting effort in that product.
Our professional lines writings have also been impacted by changes in the broader economy, including the slowdown in M&A and public listings, which is impacting premium volume within our transaction liability product line in both our insurance and reinsurance segments.
In other professional classes in particular within our international portfolio, we are pursuing growth opportunities, where we find the business to be adequately priced although growth has moderated over the course of 2023.
Within our general liability product lines, we are seeing solid rate increases overall and achieving moderate opportunistic growth. For example, we are increasing our writings and are finding casualty and environmental lines, which have been consistently profitable.
Conversely, we are contracting premiums in our primary casualty contractors liability and excess and umbrella lines, where loss costs have been more challenging and we are carefully selecting risks pushing rate managing limits and attachment points combat these trends.
Our year to date consolidated combined ratio of 95 for the first nine months of the year is up four points from a year ago.
This increase is driven by the items I just discussed earlier impacting the third quarter results along with the impact from higher Attritional loss ratios in our professional liability and general liability product lines and slightly lower overall prior accident year loss take downs, largely driven by our general liability lines.
With respect to the increases in our current accident year loss ratio, we remain cautious and recognizing the benefits from our product diversification and re underwriting strategies within our general liability and professional liability product classes, we are choosing to increase the confidence level in our loss picks to reflect the higher loss cost trends were seeing in prior.
Our accident years, and the uncertainty around the economic and claims environment that will exist in the future. When we ultimately settled claims on these long tail lines.
We also continue to maintain a cautious approach to recognizing prior accident year loss takedowns, we recognized $170 million of three points of prior accident year loss take downs for the first nine months of the year down slightly from a year ago.
As I've stated in prior quarters, our loss reserving philosophy remains unchanged. We continue to hold loss reserves at levels that are more likely to prove redundant than deficient and we are reacting quickly by recognizing additional loss reserves on loss trends outpaced previously held expectations.
One final comment to make relative to our underwriting results with respect to our reinsurance segment, where we produced a combined ratio of a one or two in the quarter.
While this result is disappointing it should be noted that the prior accident year was adverse development in the runoff segment of our public entity book added 11 points to the third quarter reinsurance segment combined ratio excluding.
Excluding this development. Our reinsurance result is more aligned with our long term underwriting targets. We have worked hard in the past few years to re underwrite our reinsurance treaty mix and return our reinsurance results profitability, we remain confident that over the long term, we will see positive and sustainable impact of those efforts materialize in our results.
Next I'll quickly touch on the two portions of our business and are reported as part of our other operations our program services and other fronting operations and our insurance linked securities operations.
Total premium production within our program services and other fronting operations totaled $3 billion year to date versus $2 6 billion a year ago, resulting in an increase in operating revenues of 2% for the first nine months of the year due to expansion of existing programs and addition of new programs or state National team continues to perform.
<unk>, well, producing consistent profitability and continuing to pursue opportunities within our business development pipeline.
Within our Nephila insurance linked securities operations revenues and expenses for the first nine months of the year were down due to the impact of the sale of our MGA operations in 2022.
Revenues within our fund management operations are up from last year due to revenues recognized during the third quarter. This year $30 million related to the release of capital that had been trapped in side pockets.
Our assets under management and a pillar of $6 $8 billion is down from a year ago due to the redemption of size classes in the quarter, which outpaced profits generated from funds year to date.
However, the current pricing environment for catastrophe exposed property risk has created a very attractive return proposition for investors and the platform has produced profitable results for the year.
The team is working very hard to capitalize on these market opportunities focusing on price transparency and portfolio construction.
This time, we feel very well positioned heading into 2024.
Turning to current market commentary and outlook submission activity and new business opportunities remain robust outside of professional lines, which continued to be impacted by less M&A activity and an unfavorable pricing environment.
Raul trends within the specialty insurance marketplace remains strong.
Just a few comments on rate across our portfolio throughout 2023, we have achieved modest rate increases across the landscape of our diversified product portfolio and the current pricing environment right trends for more diversion byproduct class. In contrast in the past few years pricing seems to be keeping pace with her spend slightly ahead in <unk>.
<unk>.
We are achieving significant rate increases in our property coverages in select marine and energy product lines due to the recent industry loss experience and increasing costs of obtaining reinsurance protection.
Additionally, within our general liability product lines, we continue to achieve modest rate increases across most product classes and has seen the level of rate increases improve over the course of the year.
Within our insurance and reinsurance professional liability product lines, we have seen modest rate decreases overall driven by notable decreases within our public directors and officers product consistent with the broader trends across the industry and to a lesser extent within our errors and omissions coverages and.
In other professional product liability product lines, particularly within our international portfolio. We are generally seeing consistency in rates and are continuing to pursue growth opportunities, where we find that business to be adequately priced. We're also seeing moderate rate decreases globally within our cyber product line in response to several years of significant rate increases.
And strong industry underwriting performance. Despite these current trends, we view cyber as a long term growth opportunity.
We continue to realize low single digit rate increase decreases within our workers compensation product line and are reacting accordingly on a state by state basis to maintain profitability.
In closing our focus as a business unit remains on achieving long term profitable growth across our insurance platform. We have numerous success stories to celebrate across our diversified portfolio of doing just that reinsurance market conditions are favorable and we are taking advantage of this within our operations our state National business continues.
His track record of consistent profitable performance and the fellow we're seeing strong returns thus far this year within our portfolios opening the door to future growth opportunities.
Thank you and with that I will turn things back over to Tom. Thank you, Jeremy and with that Regina. If you would please be so kind as to open the floor for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then one again at this time, we will pause momentarily to assemble our roster.
Our first question comes from the line of Mark Hughes with Truest. Please go ahead.
Yes, Thank you and good morning.
Good morning.
The contracted book.
GL line I think you've described some challenges there how long is the tail on that book.
Do you think.
The broader issue that perhaps others are not recognizing yet we're keeping.
Do you think they are in a ranking accordingly, just a little more there would be helpful.
Yes, great market Cheramie couple of things on that so on that primary casualty contractors liability book and I think I might have spoken to this last year when we experienced in development in that book in the third or fourth quarter.
We would observe that the tail had has extended.
And some of that would be naturally the result of the court closures and the pandemic effect, we didn't really react to that but generally speaking I think.
Tailed patterns within primary casually are growing a little bit longer and thats part of what we've adjusted within our sort of reserving models moving forward. Some of that is going to be we write a significant amount of construction business. Some of that is also the nature of as you get into larger projects the tails a little.
Longer as well.
So that is a little bit of what's going on there I can't speak to what others are or are not recognizing.
Clearly theres been a lot of conversations from reinsurers with regards to their elevated levels of concerns around.
Exposures that are growing and clearly they've got access to a lot of data from clients to evaluate what that looks like.
I can't speak to what's going through other books.
Yeah, when you think about your <unk>.
The written premium in the insurance segment.
As you kind of take steps to adjust to this environment would you expect.
Growth rate could be more consistent with this quarter or kind of pop back up to the high single low double digits.
Yes, great Great question, Mark So I think some of that has worked its way through so growth in insurance from.
From a written premium standpoint, clearly has moderated compared to recent years.
Further the case.
In the third quarter, I think theres kind of two meaningful offsetting stories. So we've got pockets of premium contraction, which are I think being offset by numerous bright spots of growth. So.
John.
Our substantial writer of professional and financial lines and it represents north of a quarter of our overall writings and as well being covered that sector has been hit both by less economic activity from lower M&A and public listing activity as well as a decline in pricing in the latter of which has meant we're less comfortable with the risk.
Adjusted rebounds and rate adequacy, and therefore, we've let some of that business laps, that's leading to lower renewal retention were being less aggressive on new business. So we're seeing contraction there internationally. The business is performing well the premiums are flat. We've also contracted in pockets of the general liability portfolio, which I touched on in <unk>.
Comments as we look to reshape the portfolio improve diversification I think the best example of that is demonstrating more discipline within construction in the big four states and lastly in our marine and energy portfolio internationally. We let go of one very large facility that wasn't performing and we're seeing less adjustment premiums in our marine <unk>.
Given the closure of the grain corridor in the Black Sea, we've been able to offset those reductions with meaningful growth across a broad range of products. So property inland marine binding personal lines surety programs environmental insure tech in our UK Europe Asia platforms across other marine <unk>.
The launch so I feel we're actually really good about our forward prospects and about the actions that we've been taking a lot of that is working its way through the through the portfolio, but all of those actions collectively I think that should be accretive to earnings and to enter returns. The one other comment on might make on premium volume it kind of pertains to the property marketplace.
We've grown here, but thats due in large part to taking meaningful rate versus expanding exposure in property. Overall is a smaller component of our portfolio. Then I think it is for many others.
Do you believe the risk adjusted returns on property had been very compelling this year and we've been taking advantage both in insurance as well as on a pillow operations, but.
That said I. Appreciate some is certainly leaned into the market harder this year and use that to fuel overall growth.
And returns and it's been a good year three through 10 months no doubt at the property pricing environment remains constructive and I think it will we can further take advantage of that across our platform in 2000 and for us as well.
I appreciate that thanks, Joe Thank you.
Yes.
And again to ask a question. Please press Star then one your next question will come from the line of Andrew Anderson with Jefferies. Please go ahead.
Hey, good morning, maybe continuing on the on the property opportunity in insurance, if I look back at 22, I think property and Marine was maybe about 15% of MTGE is there kind of a ceiling for the amount that youll rate for those two lines and I'm thinking that carries a higher cat load, but perhaps a better underlying loss ratio just given the.
The strong rate environment.
Yeah, and important too to recognize as Jeremy again important to recognize that we have.
<unk> access and can take advantage of the property market environment and the risk adjusted return propositions in a couple of different ways. So we can we can write that through conventional traditional insurance.
And we can also take advantage of that and are taking advantage that through on a pillow insurance linked securities operations, which is more where the reinsurance would come into play as well.
This year has been has been interesting so fortunately we're kind of.
10 months into the year, we're largely through the wind season Amit.
Our book has performed the books have performed across the industry quite well, but it's been a challenging last six years previously five of the last six have been <unk>.
Aggregate insurance losses for natural catastrophes in excess of $100 billion.
So while the risk adjusted return proposition from our modeled situation looks very compelling. This year. There was questions in our mind as to how was the year going to play out we would benefit if it did play out well, we did grow and took advantage of the rate and pricing environment.
And then it was a question of what will it look like going into 2024 will the pricing environment be sustainable or was it sort of change after sort of one year. It does look like we should have stable, but firm and constructive market pricing environment. So we have the ability to deploy more capital there should we choose to do.
To do so we.
We will look at that I'm, not going to put a projection around that but it's certainly something that we would take a close look at it.
Okay backup.
Good year.
Yes, and then maybe on the reinsurance side. The book has changed a lot over the years and so as the rate environment. How should we kind of think of like an updated target near to medium term for an ex cat ex <unk> combined ratio and maybe just with that can you kind of give us a refresher of the <unk>.
Of Geo and professional liability accounts you are writing in this segment.
Sure so.
So from a from a sort of.
Reinsurance platform standpoint, we are first and foremost focus on profitability versus being focused on.
On growth now it's happened to be within the professional casualty and specialty lines. The last few years, we've been able to take advantage of some hopkinson of growth opportunistically to offset some of the contraction that the portfolio experienced when we repositioned properties through through to fill up.
From a profitability target standpoint, and a combined ratio we've kind of spoken in the last couple of years I mean, we want that book to.
To generate meaningful returns on meaningful and appropriate returns on capital and pushing it towards the lower the lower 90 or 90 being a target is something that we are we are aspiring to sort of achieve.
And we're certainly trying to price our deals and portfolio on the most recent underwriting years in that regard.
But theres just a lot of noise on the back here and on long tail lines within reinsurance it takes a while to ultimately.
See where that book gets we we're going to we're going to always reserve with a pad a degree of caution on long tail professional and liability lines. So I will take a little bit of time.
As far as the makeup of the book it really can kind of change and it really depends on the underlying clients, we have both quota share and excess of loss structures.
These are these are often broad.
Highly well respected highly regarded insurance companies, where we participate on the on a subscription basis on the account and it's a wide range of underlying risks. It is more of a U S position book, but it does have some international exposure as well.
Okay. Thanks for the detail yes.
Your next question will come from the line of Scott <unk> with RBC capital markets. Please go ahead.
Yes. Good morning, just a question on the actual collateral protection online Im just wondering if you can.
Do you feel like you captured most of the impact there from from some of the recent events.
<unk>.
Right.
Yes.
And the headlines.
Just how comfortable are you with.
I guess the.
The exposures there and also some of the changes I think you touched a little bit on those are some of the changes you made to that book.
So just trying to get to that book.
Yes, sure Scott again, Jeremy so so we've previously disclosed.
Sorry, I disclosed that our exposure to <unk>.
<unk> was in the form of two fraudulent letters of credit, which were provided as reinsurance collateral to our Bermuda based insurance carrier.
For intellectual property collateral protection insurance products, one was for $50 million. The other is for just under $78 million during.
During the third quarter, we had to pay a claim.
For the $50 million amount.
Than we otherwise would not have had to pay have the collateral been valid and thats, where we recognized $25 million as far as credit loss.
We're suggesting we we believe there is some degree of an ability to mitigate.
Some of that exposure, but that would be a pocket of exposure.
We have a.
Assess the likelihood around whether a claim may arise. Its a claims made product. So on that second exposure there isn't to claim yet and just for familiarity on the product you have to have both a claim and then it has to be the case that the underlying assets, including the intellectual property.
I don't have a value that could offset against the loan that was in place and so what we're highlighting there is we have exposure and we're flagging minutes at least reasonably possible that that could become a claim and if it were to be additional exposure there.
Clearly in that situation, we will take every step that we possibly can to mitigate remediate against that that loss as well. So we're actively pursuing remedies, including within the <unk> bankruptcy to reduce any losses that we incur.
On the core product line.
This was a relatively new product wasn't new product that was brought to market I think sort of in 2020.
And it played an integral role in the inception of a sort of a nascent product.
And undoubtedly we've learned from the early years.
Analogize, it to sort of for R&D and we've taken a number of underwriting actions within that book.
But we've also contracted our premium writing significantly.
One of the things we've done is we shortened the limits that we issue and clearly we're not we're not fronting within that book any more either so we'll watch how the core book performs but a lot of exposure that is more meaningful to markel come through that exposure divestiture, which I, which I covered off.
Okay and then just.
Another question just on you mentioned youre, increasing loss picks in certain lines, which I know Mark how is the conservative company that has always been a conservative company, but is there any particular areas that that you can point to or is that just kind of broadly just casually just trying to pick up.
Inflation in.
Severity and those kinds of things just anything more to add.
It is most significantly concentrated within our general liability and professional product lines and more specifically within segments of those classes, but theyre large segments and then once we've run underwritten for a long time, we've also grown meaningfully over the years. So again that primary casualty contractors, GNL GL excess and umbrella.
<unk>.
<unk>.
And what I would sort of say there is we feel like there continues to be uncertainty in the current claims environment and we're dealing with a degree of unknown and I would just say generally that causes our radar to be up and it doesn't feel like the recent social inflation trends the cost to adjust and settle claims.
The prevalence of litigation funding the aggressiveness of the plane as far the sentiment of journeys and so on is likely to abate in the near term. So we're planning accordingly, we're building in a margin of safety today to try to be a step ahead of that tomorrow, that's kind of what <unk> always done to your to your point.
We are obviously also responded by we're pushing rate. We're adjusting terms were shortening limits, we're modifying attachment points deal by deal basis. We're shaping our portfolio is really taking a robust analysis of this underlying claims trends and activities using segmentation strategies.
That's an impact exposures in locations subclasses, insureds and so on and we're trying to build more diversification into our book by challenging areas, where we were maybe slightly concentrated in favor of segments, where we wanted to grow. So I mentioned earlier, the examples sort of thinking of construction of contractors in the four largest states.
Sensitive to the weight of the business in those in those spaces. So yes.
Each each organization each company is going to sort of take different approaches timing.
Timing is always going to differ.
Largely I think what I'm speaking to I would view that to be an industry wide set of circumstances, we've been talking about it for a while the industry has been grappling with it a while.
I would also say that fortunately.
I think as we didn't really good conversations with our trading partners in the current trading environment, given some of the industry missteps in the year I mean more due consideration is given to the quality of the insurance solution. Our market leading claims handling capabilities. I think are really well recognized and clients are thinking really carefully about who is going to be there for them in <unk>.
Five years 10 years 20 years. So I think I think we're kind of trying to go with that from a from a little bit of a position of strength.
Okay.
Thanks.
Yeah.
And this concludes our question and answer session I would like to hand, the call back over to Tom Gayner for any closing remarks.
Thank you very much for joining us we look forward to catching up with you 90 days from now. Thank you so much bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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