Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Markel Group Inc (MKL, Financial) reported a 5% increase in total revenues to $8.2 billion for the first half of 2024.
- Net investment income saw a significant rise of 34%, reaching $441 million in the first half of 2024.
- The company achieved a 6% growth in gross written premiums within its underwriting operations.
- Markel Ventures reported a 4% increase in revenues and a 7% rise in operating income, driven by higher revenues and improved operating margins.
- The company repurchased $260 million of its common stock in the first half of 2024, compared to $187 million in the same period last year.
Negative Points
- The consolidated combined ratio for the first half of 2024 increased to 94% from 93% in the same period of 2023.
- Higher attritional loss ratios were noted in the professional liability and general liability insurance product lines.
- The intellectual property collateral protection portfolio, which is in runoff, negatively impacted the combined ratio performance.
- The company experienced a contraction in rates in the property insurance line, returning to low single digits.
- The economic environment remains challenging, with increased competition and downward pressure on rates in some classes.
Q & A Highlights
Q: Please fill a hole for you around the prior year reserve release of 6.9% team has spent for coal is often it seems like and consistent trend mid-March Calkins release reserves each quarter on insulin. I'm thinking is playing out initially set the loss picks lower or am I not thinking of the right way?
A: Yes, Andrew, this is Tom. I've been in market cap for 34 years now and have owned stock since the IPO in 1986. The phrase you would hear over and over again was we set our reserves at levels more likely to prove redundant than deficient. This has been an unchanging value statement forever. We look at our book of business, risks, and exposures, and take our best guess at ultimate loss costs. We prefer to be wrong the right way, providing a margin of safety to absorb surprises while reporting fairly. This philosophy has always been the case and will continue to be so.
Q: And I think the valuation on Valor was around 200 million plus. What are you looking at in terms of industries and potential low price points as you move forward?
A: In terms of potential industry, we do not have a specific vertical we seek. We like businesses that produce good returns on capital, don't use too much debt, have management teams with integrity and talent, and offer reinvestment opportunities at a fair price. We are open to various industries and have built relationships over the years. Our phones are ringing more today than in the last couple of years, which is exciting.
Q: Could you touch on how your quarterly approach to reserve studies has changed, if at all? Should we continue to expect a larger widespread study conducted annually in the fourth quarter?
A: We do a comprehensive reserving study and analysis every quarter across various years and products. The fourth quarter periods you mentioned included more specific deeper dives in targeted areas due to reserving trends. Our approach to reserving is consistent over time, always looking at new trends and doing deeper dives as needed. The reserve analysis from the end of the year has held up well, resulting in favorable development this year.
Q: On the growth within the insurance segment, 2% in the quarter, but it sounds like you're getting some rate on GL. Would you expect primary insurance growth to accelerate in the second half?
A: There are many factors at play. We are reshaping and re-underwriting certain areas to drive different outcomes. While some lines are down over 20% year over year, the remainder of our products are generally achieving good levels of profitability and have grown 8% in aggregate. We see opportunities for growth in international space, personal lines, property, inland marine, and small commercial. We are focused on growing in products where we see market value and profitability.
Q: Could you talk about the reinsurance deal between State National and James River, and the risk sharing in terms of future developments?
A: The deal is a State National deal, and State National Insurance Company entered into a loss portfolio and adverse development cover reinsurance contract. The obligations were 100% retroceded to a high-quality reinsurer with typical credit risk mitigation features. This deal showcases our capabilities in the fronting space, supporting large, complex transactions while maintaining risk management practices.
Q: Can you walk us through the claims process with the intellectual property collateral protection product?
A: The product has a dual trigger: a default on the loan and an impairment in the intellectual property collateralizing the loan. Claims are recognized when both conditions are met. The process from default to determining the value of the IP collateral can take six to nine months. The majority of loss activity is expected to be recognized by the end of 2025.
Q: Why not take a reserve charge now for the intellectual property item, given the expected similar loss levels in the subsequent two quarters?
A: The intellectual property product has a different trigger mechanism. Claims are recognized when there is a default on the loan and an impairment of the IP collateral. This is ahead of when the actual losses are finalized. It's similar to how mortgage defaults are spread out over the life of the loan.
Q: Given the growth in property, can you give us a sense of your cat exposure in the insurance segment heading into wind season?
A: We have actively managed our property aggregates over time, reducing volatility. Our property writings are now a core aspect of our portfolio. While we have opportunistically grown in this space, our overall cat exposure as a percentage of shareholders' equity has come down over time. We continue to benefit from a larger, more diversified portfolio and balance sheet.
Q: On ventures, you did 5% revenue growth. Is this a good trend line going forward? Which businesses are performing well, and which are slower?
A: The rate of growth in ventures is slowing a bit, reflecting overall economic conditions. Labor markets are softening, inventory is building up, order books are softer, and interest rates exist. These factors contribute to a tougher environment. However, we remain confident in our long-term growth prospects and continue to focus on opportunities within our diversified portfolio.
Q: The reinsurance segment premium growth has bounced around. Can you help us think about your ideal size here, and is a mid-90s combined ratio still the target?
A: Premium growth in reinsurance has been influenced by favorable timing, inception date changes, and increased participation in favorable renewals. We also saw modest new business opportunities. The combined ratio has been steady, reflecting our long-tail oriented casualty, professional, and specialty portfolio. We expect to see modest growth opportunities and maintain a mid-90s combined ratio target.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
