Markel Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The filing registrant is Markel Corporation. Amounts below are U.S. dollars.
Business context and financial results
Markel operates specialty insurance and reinsurance businesses, an investment portfolio, and Markel Ventures, a group of businesses outside insurance. Q2 and first-half results reflect growth in premiums and Ventures, alongside substantial investment gains.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total operating revenues | $3.50B | $3.13B | $6.40B | $3.47B |
| Operating income (loss) | $1.08B | $1.24B | $1.82B | $(563)M |
| Net income (loss) to common shareholders | $774M | $922M | $1.35B | $(484)M |
| Diluted earnings (loss) per common share | $57.02 | $65.75 | $99.03 | $(34.83) |
| Net cash from operating activities | Not presented by quarter | $813M | $489M |
Underwriting: Earned premiums rose 15% in Q2 to $1.57B and 14% in the first half to $3.07B. The consolidated combined ratio improved to 86.9% in Q2 from 88.4%, and to 90.4% for the first half from 103.1%; below 100% indicates underwriting profit. First-half underwriting profit was $296M, versus an $83M loss in 2020.
Investments and Ventures: Q2 net investment gains were $675M, down from $911M; first-half gains were $1.20B, compared with a $770M loss in 2020. Equity-security fair-value increases were the primary driver. Markel Ventures revenue increased 59% in Q2 to $1.08B and operating income rose 37% to $109M; first-half increases were 50% and 32%, respectively. Lansing and stronger sales volumes contributed to growth.
Financial position, liquidity and material changes
- At June 30, total assets were $45.64B, including $22.91B of investments and $3.68B of cash and cash equivalents. Shareholders’ equity was $13.97B.
- Senior long-term and other debt was $4.16B, versus $3.48B at year-end 2020. Debt-to-capital was 23%, compared with 21%. In May, Markel issued $600M of 3.45% senior notes due 2052; it expected to use part of the proceeds to retire $350M of 4.9% notes due in 2022.
- Invested assets, including restricted cash, totaled $27.3B, compared with $24.9B at year-end. Management stated it believed liquidity was sufficient for capital needs. Operating cash flow increased to $813M; investing activities used $2.24B, mainly reflecting purchases of short-term and fixed-maturity investments.
- Book value per common share increased 10% from $885.72 at December 31, 2020 to $974.45 at June 30, 2021. First-half other comprehensive income included a $162M after-tax decline in unrealized gains on available-for-sale investments.
- Results shifted sharply versus first-half 2020, when pandemic-related claims and investment-market declines contributed to a net loss. The 2021 first-half rebound was led by investment gains and underwriting profits. In Q2, however, lower investment gains contributed to lower net income than a year earlier.
Outlook, commentary and risks
- No specific earnings or revenue guidance was provided. Management reported more favorable pricing across most insurance lines, particularly general and professional liability and catastrophe-exposed lines; workers’ compensation pricing remained modestly negative. Management said it would not write business when pricing did not support its underwriting targets.
- First-half losses included $67.9M net from Winter Storm Uri and an $18.5M increase in estimated COVID-19 losses. Markel said estimates depend on coverage, liability and reinsurance assumptions; further COVID-19 reserve adjustments could materially affect results, financial condition and cash flows.
- Prior-year reserve development was favorable by $226.1M overall, including $213.3M favorable development in specified Insurance product lines, partly offset by $32.8M adverse development in Reinsurance property lines, partly related to COVID-19 estimates.
- Effective January 2021, Markel discontinued risk-bearing property reinsurance writing in its Global Reinsurance division. It retained exposure on prior multi-year treaties, some extending into 2023. A portion of retrocessional property business was ceded to Lodgepine effective July 1, 2021; its fund had launched with $98.9M of initial investor capital, including Markel’s $18.9M investment.
- Governmental inquiries into historical Markel CATCo reserve setting and disclosures remained unresolved; the company said it could not predict their duration, scope or outcome. An adverse outcome, related litigation or regulatory action could cause material costs or disruption.
- Other key risks include catastrophe severity, reserve estimation uncertainty, reinsurance collectability, market and interest-rate movements, and ongoing COVID-19 effects. Management reported no material change in its pandemic risk assessment during the first half.
Important facts for investors to verify
- How much reported earnings and book-value growth depend on equity-market gains, and how investment volatility may affect future results.
- Subsequent development of COVID-19, Winter Storm Uri and prior-year reserves, especially Reinsurance property exposures.
- Progress and potential financial, legal or regulatory consequences of the Markel CATCo inquiries.
- Debt maturities and use of the 2021 note proceeds, including any retirement of the 2022 notes.
- Whether improved premium growth and combined ratios persist as pricing and business mix change.