Markel Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 6 speakers on the call.

Operator

Good morning, and welcome to the Markel Group Second Quarter 2023 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. 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.

Operator

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 And the forward looking statements is included in our most recent annual report on Form 10 ks and quarterly report on Form 10 Q, including under the captions Safe Harbor and Cautionary Statement and Risk Factors. We may 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 ks and Form 10 Q can be found on our website at www.mklgroup.com in the Investor Relations section.

Operator

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.

Speaker 1

Good morning. Good morning. Thank you. From Richmond, Virginia, I'd like to welcome you to the Markel Group's 2nd quarter conference call. This is indeed Tom Gayner.

Speaker 1

I serve as your CEO, and it is my pleasure to welcome you to the call this morning. I'm joined by our Chief Financial Officer, Terry Gendron And our President of Insurance, Jeremy Noble, to share our results with you and to answer your questions. We are very pleased with the results we're reporting to you today. Each of our 3 engines, Insurance, Markel Ventures and Investments produced positive thrust during the first half of twenty twenty three. In our insurance operations, we enjoyed double digit growth in earned premiums and solid underwriting profitability With a combined ratio of 93% for the first half of twenty twenty three.

Speaker 1

Importantly, we report those results With an ongoing commitment to putting up insurance reserves in a way which we believe will be more likely to prove redundant than deficient. You can see that commitment through our years of reporting favorable loss development in the vast majority of the times when we report to you each quarter's results. This quarter continues to show that same pattern of favorable development. There's unrelenting commitment at the Markel Group to our culture based on our values. The conservatism we embrace in setting reserves demonstrates our words and action.

Speaker 1

Both Terry and Jeremy will provide more details on our insurance results in their comments. Markel Ventures produced excellent results during the first half of 2023. Revenues rose to $2,500,000,000 compared to $2,300,000,000 a year ago and EBITDA reached $317,000,000 Versus 250 in the first half of twenty twenty two. It's worth pointing out that this growth in revenues and profitability was largely organic. These are the results of the existing businesses as there were no major acquisitions at Markel Ventures.

Speaker 1

We did get to apply some capital at a couple of our existing businesses. They added to their businesses with acquisitions of companies in their respective industries And we love it when that happens. We also continued the ongoing process of purchasing certain non controlling interests As originally planned in the original acquisitions. Investments also provided excellent returns. Recurring investment income rose 74 percent to $329,000,000 versus $189,000,000 in the first half of twenty twenty two.

Speaker 1

Our publicly traded equity portfolio produced 6 month returns of 11.9%. While this trails the white hot return of 17% By the S and P 500, we remain 100 basis points ahead of that index for over 30 years. We don't usually move ahead during sprints, But we do tend to outlast the competition when it comes to marathons. During the first half of twenty twenty three, We repurchased $187,000,000 of Markel Group Shares. Last year, we repurchased $126,000,000 in the same time period.

Speaker 1

We also made net purchases of publicly traded equity securities of $155,000,000 compared to $63,000,000 a year ago. The tax efficient net unrealized gain on our equity portfolio now stands at $5,400,000,000 compared to $4,200,000,000 a year ago. While we as a public company always provide you with the split times of quarterly results, we are running a marathon, Not a series of sprints. The split times that we are reporting to you today look good to me as the Head Coach, But I think these results demonstrate that we remain on track to produce excellent marathon results as we have over long periods before. To put some actual numbers on that and quantify a bit, I remind you that we consistently use rolling 5 year measurement intervals To gauge longer term progress at The Markel Group.

Speaker 1

The last 5 years included some of the most difficult insurance and investment markets we've ever faced. The last 5 years also included the effects of some acquisitions and expansions into new businesses, which did not go as well as we would have hoped at first. Despite that, we've made meaningful progress. Please consider the following. Revenues in the 1st 6 months of 2018 We're $3,600,000,000 revenues in the 1st 6 months of 2023, 5 years later came in at $7,800,000,000 An increase of 119%.

Speaker 1

Underwriting profits in the 1st 6 months of 2018 were 209,000,000 Underwriting profits in the 1st 6 months of 2023 were $264,000,000 an increase of 27%. Recurring investment income for the 1st 6 months of 2018 was $213,000,000 Recurring investment Income in the 1st 6 months of 2023 was $329,000,000 an increase of 54%. The EBITDA of Markel Ventures in the 1st 6 months of 2018 was $82,000,000 The EBITDA of Markel Ventures in the 1st 6 months of 2023 It's $317,000,000 an increase of 2 84%. The total number of shares of Markel outstanding 5 years ago was 13,900,000. The total number of shares of Markel today is 13,300,000, a decrease of 4.3%.

Speaker 1

The price per share 5 years ago on June 30, 2018 was $10.84 5 years later, Share price stood at $13.85 an increase of 28%. This combination of facts along with many other factors Seems to have created a situation where many of the indicators of the economic value of Markel Group seem to have appreciated at a faster rate The net of the share price. In response to those circumstances, we've repurchased shares in recent years. Additionally, our rate of repurchases was higher In the first half of twenty twenty three than any other period. It's also a matter of public record that in 5 of the last six quarters, I've personally taken money out of my pocket to purchase some Markel Group shares.

Speaker 1

Now I'll turn things over to our CFO, Terry Gendron, to provide you with some details from the quarter Then to Jeremy Newbel to discuss our insurance operations. I'll then return with just a few brief comments about our ventures and investment results, And then we'll open the floor for your thoughtful questions. Teri?

Speaker 2

Thank you, Tom, and good morning, everyone. As Tom mentioned, each of our 3 engines produced a solid quarter. Strong revenue growth within our insurance operations, higher profitability within Markel Ventures An excellent return from our investment engine showed the benefits of our diversified reengine architecture. Starting off with our underwriting operations. Gross written premiums grew 7% to $5,400,000,000 for the first half of twenty twenty three Compared to $5,000,000,000 in 2022.

Speaker 2

Our increased premium volume reflects new business and more favorable rates Across many of the product lines within our Insurance segment. The most notable growth came from our personal lines, Marine and Energy, Property and General Liability product lines, while we saw lower premium volume within our professional liability product lines. Our consolidated combined ratio for the first half of twenty twenty three was 93% compared to a 90% for the first half of last year. The increase was driven by a higher attritional loss ratio and expense ratio in 2023 within our Insurance segment. Prior year loss reserves developed favorably by $139,000,000 in the first half of twenty twenty three Compared to $123,000,000 in the first half of twenty twenty two.

Speaker 2

We experienced favorable loss reserve development across multiple product lines in 2023, most notably across our international professional liability product lines. The favorable development in 2023 was partially offset by adverse development on our general liability product lines Due to an increased frequency of large claims over the past several quarters on our excess and umbrella product. Turning to our investment results. Net investment gains of $157,000,000 in the first half of twenty twenty three We're driven by favorable market value movements. This compares to net investment losses of $1,900,000,000 for the first half of twenty twenty two, Driven by unfavorable market value movements.

Speaker 2

As you've heard us say many times before, we focus on long term investment performance, expecting variability in the equity markets and the timing of investment gains and losses from period to period. As Tom noted, we'll continue to measure investment returns Over longer periods of time. With regard to net investment income, we reported $329,000,000 in the first half of twenty twenty three Compared to $189,000,000 in the same period last year. The increase is largely attributable to higher interest income from our money market and short term investments due to higher short term interest rates in 2023. Additionally, Interest income on our fixed maturity securities increased, reflecting a higher yield and higher average holdings compared to last year.

Speaker 2

During the first half of twenty twenty three, we recognized net unrealized gains on our available for sale investments of $30,000,000 Within other comprehensive income, primarily related to the positive impacts of net foreign exchange movements on our fixed maturity portfolio. This compares to net unrealized losses of $882,000,000 for the same period last year, corresponding to the impact of increases in interest rates on our fixed maturity portfolio. Recall that we typically hold our fixed maturities until they mature and would generally expect unrealized holding gains and losses Attributable to changes in interest rates to reverse in future periods as bonds mature. Our fixed maturity portfolio had an average rating of AAA as of June 30, and there are no current or expected credit losses within the portfolio. Now we'll cover the results of our Markel Ventures segment.

Speaker 2

Revenues from Markel Ventures increased 8% to $2,500,000,000 in the first half of 2023, up from $2,300,000,000 for the first half of last year. The increase reflects organic growth and improved pricing across several of our businesses. EBITDA from Markel Ventures increased 27 percent to $317,000,000 for the first half of twenty twenty three From $250,000,000 during the same period last year. The increase was driven by our products businesses, which had higher margins in 2023 Compared to 2022 as we saw material and freight costs stabilize. Looking at our consolidated results, Our effective tax rate for the first half of twenty twenty three was 21% compared to 22% in the same period last year.

Speaker 2

We reported net income to common shareholders of $1,200,000,000 for the first half of twenty twenty three compared to a net loss to common shareholders of $986,000,000 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 half of twenty twenty three was $1,200,000,000 compared to comprehensive loss to shareholders of $1,700,000,000 in the first half of twenty twenty two, with swings in both fixed maturity and public equity valuations as the largest drivers. Turning to cash flows. Net cash provided by operating activities was $1,000,000,000 for the first half of twenty twenty three compared to $921,000,000 for the same period last year. Operating cash flows in the first half of twenty twenty three Reflected strong cash flows from each of our operating engines with the most notable year over year increase coming from our Markel Ventures operations.

Speaker 2

Within our underwriting operations, operating cash flows in 2023 were net of $125,000,000 payment made in the 1st quarter To complete a retroactive reinsurance transaction to seed our runoff book of UK Motor Casualty Business. Total shareholders' equity stood at $14,200,000,000 at the end of June compared to $13,200,000,000 at the end of the year. Overall, we're very pleased with our performance during the 1st 2 quarters of 2023, and we remain confident in our ability to continue building long term shareholder With that, I'll turn it over to Jeremy to talk more about our insurance engine.

Speaker 3

Thanks, Terry, and good morning, everyone.

Speaker 1

It's great to be with you this morning to recap our Insurance Engine results, the first half twenty twenty three. The midpoint of the year, we continue to remain focused on achieving profitable growth across all of our insurance businesses. I'm pleased to report that we are well on our way to achieving that goal, with revenues across our insurance operations totaling $4,100,000,000 for the year, Up 7% from last year, while generating pre tax operating income $325,000,000 Additionally, we continue to invest the float created by our underwriting operations at attractive yields. Let me now share a few thoughts on our first half results from across our collection of insurance businesses, which include our insurance and reinsurance underwriting operations, State National Program Services and the FILA Insurance Linked Securities. Looking first at our Insurance segment, For the 1st 6 months of the year, we continued to grow premiums in lines where we see opportunities and feel good about the levels of rate adequacy.

Speaker 1

Overall gross written premiums in the Insurance segment grew by 9% from a year ago. We are taking advantage of the improved pricing environment in property. We are also growing in many of our other product offerings, including inland marine, binding, personal lines, programs in select marine and energy classes within the London market. As we have discussed in recent quarters, the current market cycle is nuanced, With each product line having a bit of its own story, fortunately, our breadth of product offering when combined with our exceptional underwriting talent Allows us to develop robust go to market strategies by product. We have continued to decrease our writings in certain of our professional liability lines, Most notably in the large account public D and O space, as we continue to remain uncomfortable with the rate decreases and loss cost trends in these products.

Speaker 1

Professional line space has also been impacted by changes in the broader economy, including a slowdown in M and A and public listings. We remain resolute in our disciplined approach to underwriting and are walking away from business that we believe is not adequately priced and does not meet our profitability targets. We also continue to see benefits from our actions taken over the past few years to reduce our exposure to outsized losses in our underwriting results We're actively managing our net exposure to natural catastrophe property losses. As a result, we've experienced only modest losses this year For secondary peril events, such as winter and convective storm events, while the industry grapples with this more broadly. Within our Insurance segment, we produced a combined ratio of 93% for the first half of the year, up 5 points from a year ago.

Speaker 1

This is primarily due to higher attritional loss ratios in our professional liability and general liability product lines. We recognize that the economic and claims environment that will exist in the future when we ultimately settle claims on these long tail lines is uncertain. Given recent trends, our view is that it's best to on the side of caution and build in more of a margin of safety To address the inevitably unpredictable nature of estimating future loss costs. We also continue to maintain a cautious approach relative Recognizing prior accident year loss takedowns. However, across all of our insurance product lines, we realized $124,000,000 of favorable development on prior year's loss reserves for the 1st 6 months of the year, contributing a 4 point benefit to the combined ratio.

Speaker 1

Prior accident year loss takedowns decreased slightly from a year ago, representing a 1 point increase in the year to date combined ratio. This was driven largely by 2 offsetting factors. First, we realized a more meaningful amount of favorable loss development on our professional liability book within our international operations compared to a year ago due to benign experience across several product classes. It is worth noting, we continue to remain cautious on prior year loss reserve development trends on our professional liability lines Within our U. S.

Speaker 1

And Bermuda risk managed portfolio. 2nd, offsetting the increased takedowns within our international professional liability lines Was adverse development within our U. S. Casualty book, most notably our Excess and Umbrella product line. This is primarily on the Pre COVID 2017 to 2019 accident years, where the loss experience continues to outpace expectations.

Speaker 1

Our loss reserving philosophy remains unchanged. We continue to hold loss reserves at levels more likely to prove redundant than deficient and react quickly And loss trends outpace expectations by strengthening loss reserve levels. Further, we are generally not taking credit Favorable trends observed from the 2020 and later accident years, where we expect the benefits of improved underwriting conditions Could lead to greater long term profitability. Turning next to the Reinsurance segment. Our re underwriting actions within the portfolio over the past 2 years continue to deliver profitable improvement.

Speaker 1

We produced a combined ratio of 93 for the first half of the year, An improvement in the combined ratio of 4 points, while premium volumes decreased by 4% from a year ago. Decrease in gross written premiums within the Reinsurance segment was due to lower premiums in our professional liability lines, partially offset by higher premiums in our marine and energy lines. Premium volume trends are impacted by both premium adjustment activity And timing differences related to renewals. This continues to be most notable in our transactional liability book within our professional liability product line, Where deal flow continues to remain slow, resulting in ultimate lower ultimate premium volumes year over year. Lower premium adjustment activity has the effect of increasing our current year attritional loss ratio, which is offset by a decrease in our prior accident year's loss ratio.

Speaker 1

Overall, the combined ratio within our reinsurance operations improved year to date in 2023, given the losses incurred last year on the Russia Ukraine war, As well as experiencing greater favorable prior year loss reserve development in the current year. Next, I'll touch on our program services and other fronting operations And ILS operations, both of which are reported as part of our other operations. Total premium production within our program services and other fronting operations Total $1,500,000,000 this year versus $1,400,000,000 a year ago. This 5% increase in operating revenues The 1st 6 months of the year was due to expansion of existing programs and addition of new programs. Our State National team continues to perform extremely well.

Speaker 1

We are pleased with the business development pipeline we see. Further, any dislocation in the fronting space should see State National benefit given its strong and reputable history and leading market position. Within our Nephila ILS operations, revenues and expenses for the 1st 6 months of the year were down due to the impact of the sale of our Velocity MGA operations in the Q1 of 2022 and the sale of our Velocity MGA operations in the Q4 of 2022. In addition, revenues within our fund management operations are down from last year due to lower assets under management, Which stand at $7,200,000,000 at the end of the period. As a reminder, we realized a gain of $107,000,000 in the Q1 last year Related to the sale of our majority stake in Velocity.

Speaker 1

While our current results in Nephila reflect the lower levels of AUM being experienced, Results for the Q2 generated a pre tax operating profit. The current pricing environment for catastrophe exposed property risk has created an attractive return proposition for investors. Our team is working very hard to capitalize on these market opportunities, Focusing on price transparency, portfolio construction. Turning to current market commentary and outlook. Submission activity and new business opportunities generally remain strong outside of professional lines, particularly for our excess and circle funds operations.

Speaker 1

Clients are still turning to specialty market solutions given current levels of uncertainty and ongoing economic activity and see the attractiveness Our breadth of product offering. Just a couple of comments on rate across our portfolio. As I mentioned before, each product area And region of the world has its own story. But broadly speaking, rates are holding up fairly well. And by and large, in our estimation, are keeping up with and in some cases, Slightly ahead of our view of trend.

Speaker 1

We have many products where rates are up 5% to 10%. For most product lines, if rate adequacy is in question, We are seeing success pushing for rate. Equally, we can see evidence of reducing new business, policy retention And quote and bind rates when we aren't getting the traction we need. We're also able to push on terms and conditions as well as structure Or shape the portfolio if it helps towards desire and attention. This is what I'd expect to see under the circumstances.

Speaker 1

It's a demonstration of our commitment to underwriting discipline. Biggest exceptions are property lines where rates are accelerating more meaningfully from the start of the year And risk manage large account D and O where prices continue to decrease somewhat inexplicably. I'm at a loss for why public D and O pricing continues to Deteriorate as well as professional liability pricing trends generally. We remain cautious in these areas, which is contributing to our shrinking exposure. Generally speaking, we're focused on maintaining rate adequacy across the entirety of our portfolio, where we are unable to attain sufficient rate increases Or effectively adjust terms and conditions or limits, we are walking away from accounts that do not meet our profitability targets.

Speaker 1

These actions may have the effect of slowing the top line growth trend from what we've seen in the past couple of years. But given the breadth of product offering we have, We are confident we will find pockets that are attractive to grow and we remain very optimistic around longer term profitable growth objectives. I think we are very well positioned as we approach the latter half of twenty twenty three and look ahead to twenty twenty four. Thank you. And with that, I'll turn things back over to Tom.

Speaker 1

Thank you, Jeremy. As Terry reported, we enjoyed an excellent first half in our Markel Ventures operations. The CEOs and the people of those organizations Continue to do a great job of serving their customers and their associates. Total revenues at Ventures rose 8% in the first half From $2,300,000,000 to $2,500,000,000 EBITDA rose 27% from $230,000,000 to 3 17,000,000 One of the very encouraging points about this comparison is that it's largely organic. It's largely apples to apples And not due to additional acquisitions.

Speaker 1

I hope you take some comfort in seeing these results. I know that I do. I'm delighted that we were able to apply some capital The purchases of non controlling interest in our array of interest companies as fully planned for at the time of the original acquisitions and At a couple of our companies, we're able to add some additional companies to our family. The acquisition of additional businesses Within our platforms of existing businesses is one of our favorite ways to deploy capital, and I'm encouraged to see the maturation And ongoing development of this aspect of Markel Ventures. We remain interested in additional platform acquisitions at Markel Ventures, Remain disciplined in our approach.

Speaker 1

We remain involved in a few conversations, but I have nothing to report to you on that front. And all I can say is that we continue to work at the task and we will be both opportunistic and disciplined in considering opportunities. In the investment engine, you can see the effect of higher interest rates and solid equity performance shine through. Recurring investment income grew 74 percent from $189,000,000 to $329,000,000 in the first half And new money investment rates continue to be higher than the fixed income maturities rolling off as they mature. We continue to purchase only the highest credit quality securities that we can find and remain roughly matched in duration and currency to our insurance liabilities.

Speaker 1

In our equity portfolio, we earned 11.9% returns in the first half and we purchased $155,000,000 net of new holdings Compared to $63,000,000 a year ago. We continue to find securities, which meet our hurdle rates for new investments. We also have cash flowing in to fund the growth of our insurance and ventures operations and repurchase Markel Group shares all at the same time. All right. As is always the case, there are challenges at your company.

Speaker 1

There always will be. That will always be the case and there never is a time when we're not worried about something or working on some problem. That's reality. The good news is that you've got decades to judge us by to ascertain whether we're up to those challenges or not. I think the preponderance of evidence would suggest that we are.

Speaker 1

The additional good news is that the values and the culture we've developed over decades To guide our actions and decisions remains unchanged. We're committed to continuing on that path to building 1 of the world's great companies With our win win win architecture and I look forward to answering your thoughtful questions and working on the future. As Bud Lightyear would say to Infinity and beyond. With that, we welcome your questions.

Operator

Our first question will come from the line of Mark Hughes with Truist. Please go ahead.

Speaker 4

Thank you. Good morning.

Speaker 1

Good morning.

Speaker 5

I wonder

Speaker 4

if there's any more detail you could provide on the Reserve development that you're seeing, you described in the 2017 to 2019 accident years, is that Social inflation, medical inflation, just a little more on that would be interesting.

Speaker 1

Yes, sure, Mark. It's Jeremy. It's very similar to what we've talked about in recent quarters and I think what's being reported broadly across industry. The reality is that the business that we put on the books In years like 2015 to 2019, our view now is it's not going to be as ultimately profitable as we believed at the time. And that's Because it's a time that has passed since that.

Speaker 1

So you get into that confluence of events, rising economic inflation, Compounding aspects of that, the impacts of COVID, the court closures, the lag in sort of reporting, and then certainly to the point that you raised, Social inflation is a very real thing. So the cost of handling and adjusting and settling claims has gone up And the role and the prominence of litigation financing has been rising. And so ultimately, we're witnessing pockets In those longer tail lines, particularly casually like we report this quarter, where actual loss frequency and severity are in excess of our expectations. And the reality is when we see a little bit of that activity, we allow a bit of time to make sure that we think that there is a trend there. And if we see that trend, then we're reacting very quickly and we're asking to try to push hard to get ahead of that and put that behind us.

Speaker 1

Equally, I would say it's really important to point out that a lot of time has passed obviously between the sort of This quarter, 17 to 19 years for that block of business from 15 to 19. And in those years more recently, A lot of changes that have taken place. So pushing rate, improving terms and conditions, addressing limits, attachment points, Segmentation strategies, we've seen deductibles rise. So lots of things have improved the overall health of the portfolios. But We are left to address those older years.

Speaker 4

I appreciate that detail. How about the workers' Comp line, how are you approaching that at this point? And then are you seeing any medical inflation pick up there?

Speaker 1

Yes. Great question. So within workers' comp, it continues to be a great and you have to recall, our workers' comp book It's pretty sort of niche within the broader segment. So it's a lot of very sort of micro workers' comp And some of the trends that we would see would be a little bit different than maybe broader workers' comp more broadly. That line of business has been very profitable For us, we've consistently seen reductions in prior year loss reserves over time.

Speaker 1

We still see some of that that the levels aren't as significant. We don't yet see the impact and prices have been coming off consistently in recent years because of the very positive Performance in the product line, we continue to monitor it very closely. We have not seen an impact of rising medical inflation Impacting that book for us as of yet, but we're very focused on reviewing that trend. And And the book has not been growing at the rate of the broader portfolio as well. We'll see.

Speaker 1

We're paying very, very close attention to that.

Speaker 4

Then one other question, the program services fronting, Big increase this quarter. I think for the 6 months, it's been not quite as big. Was that just a timing issue on renewals? Or is there some new business this quarter?

Speaker 1

Yes. It's a handful of things. So within our state national business, really pleased with where we Stand there. We are expanding a few very strategic relationships. We've actually probably done a little bit better In retention of some of the programs than we would have anticipated, we've onboarded a number of new programs.

Speaker 1

And equally, I think the pipeline at State National looks very good. So some of that played out in the second quarter and We're up modestly year to date. Also within that total fronting space is some of the fronting we do associated with our Nephila operations When we offer a rated balance sheet. So we've seen some opportunistic growth in that space because of the attractiveness of the property catastrophe The environment more broadly. So less sort of timing and you never know with our state national platform, we had some very large deals and there's always an ebb and flow of What's kind of coming in?

Speaker 1

What's leaving the platform? But feel really, really good about where we're positioned right now.

Speaker 4

Appreciate it. Thank you.

Speaker 1

Sure.

Operator

Your next question comes from the line of John Fox with

Speaker 5

Thank you. Well, Mark asked 2 of my questions, so I'll go with the 3rd. Well, first of all, great results.

Speaker 1

Thank you, John.

Speaker 5

So thank you for that. I just wanted to ask if I'm looking at this the right way. Tom, I heard you talk about the investment income potential that continue to grow and I'm wondering if you're under selling it. When I look at the Q, it's about 13 $700,000,000 in bonds at fair value, which assuming you get without any credit hits, And it's yielding less than 3% at this point. So it seems to me there's a couple of $100,000,000 of investment income Late earnings power that's going to earn in over the next few years as those bonds mature.

Speaker 5

Am I looking at that the right way?

Speaker 1

Yes.

Speaker 5

And that magnitude seems reasonable?

Speaker 1

Yes.

Speaker 5

Okay, great. Thank you.

Speaker 1

You're welcome. Two words.

Operator

Our next question will come from the line of Scott Hyliniak with RBC Capital Markets. Please go ahead.

Speaker 3

Yes, good morning. The first question I have was on the insurance unit, the premium growth there, it ticked up a little bit versus Q1. Just curious how you're feeling about just overall pricing, new business environment. Are you constructive in terms of growth for the rest So 23 and 24, it sounded like you were kind of based on the commentary about most pricing. I mean, there's a few areas.

Speaker 3

But just anything you talk about that and is the growth just being impacted mostly by professional liability and D and O, But the rest of the portfolio, you're feeling pretty good about in terms of the rest of 2023 2024?

Speaker 1

I think that's pretty well said, Scott. I don't have a lot to add to that. There's a number of product classes and I mentioned some of these earlier Where we feel it's very attractive. We're seeing great opportunities to grow. I mentioned property and inland marine and Personal lines and binding, surety programs, marine and energy and London.

Speaker 1

So that's one of the benefits we have of having a very broad And diversified product portfolio, we can really sort of choose our points that are most attractive in the insurance market cycle. We've talked about the fact it's pretty nuanced right now. So you have to have a strategy around each major product line. You're exactly right. We are a large professional liability lines writer.

Speaker 1

And so because of one part, a lack of activity in the space that reduces exposure being brought to the market overall and also How the pricing environment is looking, not just in public D and O, I mean, that's the best example. But we're being cautious and thoughtful around E and O, EPLI, other lines as well. And because we have a large book that weighs some of the growth opportunity. Casualty is an area where the growth is more tempered compared to last couple of years, but it's a good example of where we are able to push rate And we're certainly able to sort of have sort of segmentation strategies about how and where we choose to play in the casualty line. So Overall, feel okay in that space as well.

Speaker 1

So I think the growth opportunities remain out there and we're pretty confident about our platform Given the breadth of products offering.

Speaker 3

Okay, great. That's helpful detail. I just wanted to follow-up one quick question too on the Reserve admin general liability, the umbrella access casualty for 2017 and 2019. Is this This is based on some of the uptick in cases and claims. Obviously, you're seeing something, but is it just Kind of early signs and you're putting up IBNR just to be conservative on that or just anything you can touch on the actual activity that you're seeing there, Either frequency or severity in those lines.

Speaker 3

Is there anything more you can comment on that?

Speaker 1

Yes. I mean, there's stuff To completely pinpoint, Scott, beyond just suggesting, within our actuarial models, especially when you're starting to talk about those older years, so These are on sort of really the 2017 and 2019 years, right? So several years, these would be maturing well under their cycles. We've now a lot of history with these programs. And we would be seeing at this point more reported loss activity than we would have been anticipating.

Speaker 1

I don't I'm not drawn to a specific element with regards to frequency versus severity. It's just in total, the claims reporting pattern, the volume of activity It's more significant than what we would expect. And then you extrapolate that. So a little bit of out A little bit more reported activity than what we would have expected in our underlying models. If we're concerned that that could become a trend, We extrapolate that and we take a more significant movement, right.

Speaker 1

So the total dollars in the period of actual versus expected On that loss activity, it pales in comparison to the total amount of loss development we recognized in the period. So now we'll wait and see how that sort of trends and develops over time. But a lot of that is now sitting in IBNR. We continue to be very, very cautious to respond quickly on that back year development.

Speaker 3

Okay. Got it. And just last question just on Markel Ventures. Tom, could you comment on just you mentioned some conversations and discussions you're having and How those have kind of trended just the number of them this year versus last year and anything you can add there and Is deal pricing still, I know I was kind of holding you back a little bit. Is that still the case now or Just any update on kind of what you're seeing in terms of potential M and A for ventures?

Speaker 1

Sure. Well, let me give you some precise answers on that. So The conversations we're having now, I would report as some. The conversations a year ago, almost none. So just a few more people to talk to.

Speaker 1

And the gap would be in pricing and remaining disciplined and being a different kind of buyer Then the other buyers that are out there, that's something obviously sellers are aware of. We can bridge those gaps and get close in some markets. Other markets, we just have to wait and let the tide roll out a little bit and we've been doing that for a while. And this is not unprecedented. The first Markel Ventures deal we did Was in 2,005, we didn't do the second one until I think 3 years later in 2,008.

Speaker 1

So we're used to periods where we just talk to people And wait for the stars to align.

Speaker 3

Yes. Well, some is better than none, right?

Speaker 1

That's correct.

Speaker 5

All right. Thanks a lot.

Speaker 4

Thanks. Thank you.

Operator

This concludes our question and answer I would like to turn the conference back over to Tom Gayner for any closing remarks.

Speaker 1

Thank you very much for your ongoing support and interest.

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Key Takeaways

  • Insurance premiums grew 7% in H1 2023 with a 93% combined ratio and $139 million of favorable prior‐year loss reserve development, reflecting conservative reserving and disciplined underwriting.
  • Markel Ventures delivered 8% organic revenue growth to $2.5 billion and 27% higher EBITDA of $317 million, driven by stable material costs and strategic bolt-on acquisitions.
  • Investment income rose 74% to $329 million on higher interest rates, while the public equity portfolio returned 11.9% in six months, contributing to a tax-efficient unrealized gain of $5.4 billion.
  • Over a rolling five-year period, revenues are up 119%, recurring investment income +54%, underwriting profits +27%, and Ventures EBITDA +284%, with shares outstanding down 4.3% and share price up 28%.
  • Management emphasizes a “marathon” focus on long-term value through conservative reserving, rate adequacy, and walking away from unprofitable lines to maintain underwriting discipline.
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Earnings Conference Call
Markel Group Q2 2023
00:00 / 00:00