Markel Group Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Markel Corporation changed its name to Markel Group Inc. on May 26, 2023. Markel operates specialty insurance and reinsurance businesses, an investment portfolio, and Markel Ventures businesses.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total operating revenues | $3.38 billion | $3.07 billion | $11.16 billion | $7.46 billion |
| Operating income (loss) | $72.8 million | $66.9 million | $1.80 billion | $(1.15) billion |
| Net income (loss) to common shareholders | $42.6 million | $59.6 million | $1.21 billion | $(925.9) million |
| Diluted earnings (loss) per share | $3.14 | $3.08 | $90.69 | $(72.61) |
| Net cash from operating activities | — | $1.96 billion | $1.88 billion |
Q3 operating revenues rose 10%; earned premiums increased 8% to $2.12 billion. The quarter’s operating income included a $265.9 million net investment loss, principally from declines in equity-security values. For the nine months, net investment gains were $591.2 million, versus $2.19 billion of net investment losses in 2022; this market-driven swing was a major factor in the reported return to profit. Net investment income increased 73% year to date to $521.2 million, principally reflecting higher interest rates and increased invested balances.
Consolidated underwriting profit was $19.3 million in Q3 and $283.7 million year to date, down 85% and 42%, respectively. The combined ratio was 99.1% for Q3 and 95.4% year to date, versus 93.4% and 91.2% in 2022; below 100% indicates an underwriting profit. The year-to-date current accident-year loss ratio increased to 64.3% from 61.6%. Markel Ventures operating income increased 77% in Q3 to $107.3 million and 52% year to date to $330.1 million.
Financial position and liquidity
- At September 30, total assets were $52.75 billion, total equity $14.06 billion, and shareholders’ equity $14.00 billion. Cash and cash equivalents were $4.35 billion; restricted cash was $690.0 million.
- Investments totaled $23.78 billion, including $12.95 billion in fixed maturities and $8.57 billion in equity securities. Fixed-maturity securities had $1.12 billion of gross unrealized losses, mostly associated with securities in a loss position for at least 12 months. Markel reported no allowance for credit losses on these securities.
- Unpaid losses and loss-adjustment expenses were $22.14 billion, including $8.53 billion of reinsurance recoverables. Unearned premiums were $7.20 billion.
- Senior long-term debt and other debt were $3.77 billion, down from $4.10 billion at year-end 2022. The debt-to-capital ratio decreased to 21% from 24%. The corporate $300 million revolving facility had no borrowings; Markel reported covenant compliance. Markel Ventures subsidiaries had $171.3 million drawn on facilities with aggregate capacity of $715 million.
- Operating cash flow was $1.96 billion; investing activities used $1.34 billion and financing activities used $799.3 million during the first nine months. Markel repurchased $269.6 million of common stock. Book value per common share was $1,013.25, up from $935.65 at December 31, 2022.
Material changes, outlook and risks
- Insurance underwriting results weakened year over year, despite premium growth. Management cited higher attritional losses, adverse development in certain long-tail casualty lines, and a more cautious reserving approach. Year-to-date reserve development was favorable overall by $169.8 million, but included adverse development in general liability and public entity lines.
- Markel recorded $46.2 million of net losses from the 2023 Hawaiian wildfires and Hurricane Idalia. Management described catastrophe estimates as preliminary and subject to revision.
- Markel recognized $25.0 million of credit losses tied to a fraudulent $50.0 million letter of credit provided as collateral for reinsurance on an intellectual-property collateral protection policy. A second fraudulent letter of credit supports a separate contract with a $77.8 million aggregate limit; management says a covered loss is reasonably possible and is pursuing recovery and mitigation. No other ceded reinsurance contracts with Vesttoo or its affiliates were reported.
- Management described pricing as increasingly varied across product classes: significant increases in property and selected marine and energy lines, but modest decreases in some professional liability, cyber and workers’ compensation lines. It emphasized underwriting discipline amid economic and social inflation and rising loss costs.
- Markel reported no specific numerical earnings guidance. Management said it believes liquidity is adequate for capital and operating needs, while noting financing access and terms depend on various factors. It identified catastrophe severity, reserve estimation, reinsurance collectability and pricing, equity and interest-rate volatility, foreign exchange, economic conditions, litigation, and operational risks as factors that could affect results.
Investor verification points
- Track the fraudulent-letter-of-credit recovery efforts, the second contract’s potential claim exposure, and any further reserve or credit-loss charges.
- Assess whether higher attritional losses and adverse long-tail casualty development persist, and how catastrophe estimates and prior-year reserves develop.
- Separate recurring underwriting and investment income from volatile equity-security gains and losses when evaluating earnings.
- Monitor unrealized fixed-income losses, investment portfolio mix, reinsurance recoverables, debt levels, and the availability of subsidiary and holding-company liquidity.
- Review the 10-Q’s segment disclosures and risk factors for details on reinsurance counterparties, catastrophe exposure, market sensitivity, and other contingencies.