Markel Corporation — Q1 2021 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2021, with comparisons to Q1 2020 and the balance sheet compared with December 31, 2020. Markel is a diversified financial holding company focused on specialty insurance and reinsurance, investments, and Markel Ventures businesses.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total operating revenues | $2.900 billion | $335.7 million |
| Net income (loss) to shareholders | $573.7 million | $(1.406) billion |
| Diluted earnings (loss) per share | $42.02 | $(100.60) |
| Net cash from operating activities | $318.1 million | $65.7 million |
| Net investment gains (losses) | $526.9 million | $(1.681) billion |
| Net investment income | $96.6 million | $88.2 million |
- Earned premiums rose 13% to $1.498 billion; net written premiums increased 14% to $1.881 billion. Gross premium volume, excluding ceded fronting premiums, grew 13% to $2.170 billion.
- Consolidated underwriting generated $91.0 million of profit, versus a $240.8 million loss. The combined ratio improved to 93.9% from 118.1%. Insurance recorded a 90.6% combined ratio and $116.9 million underwriting profit; Reinsurance remained unprofitable, with a 109.1% combined ratio and $23.2 million underwriting loss.
- Markel Ventures operating revenue grew 38% to $706.6 million and operating income rose 23% to $51.5 million. The revenue increase primarily reflected the Lansing acquisition; Q1 2021 results also included a $22.0 million transaction gain related to a healthcare-business sale.
- Total assets were $43.043 billion and total liabilities $29.623 billion at March 31. Shareholders’ equity was $13.164 billion. Long-term and other debt was $3.565 billion; management reported a 21% debt-to-capital ratio, unchanged from year-end.
- Investments totaled $21.094 billion. Cash and cash equivalents were $3.882 billion, with a further $615.5 million of restricted cash. Management reported invested assets of $25.6 billion, including investments, cash, and restricted cash.
- Operating cash flow was $318.1 million. Investing activities used $1.078 billion, principally reflecting increased short-term investment holdings and net purchases of fixed maturities. Financing activities provided $53.7 million. Book value per common share increased 3% from $885.72 at year-end to $913.33.
Material changes versus Q1 2020
- The sharp swing to profit largely reflects investment-market comparisons: 2021 had $526.9 million of net investment gains, while 2020 recorded $1.681 billion of losses, primarily from equity-security fair-value declines during the onset of COVID-19. Q1 2021 equity-market gains were partly offset by a $271.2 million decline in unrealized gains on available-for-sale investments in other comprehensive income, associated mainly with higher interest rates.
- Underwriting improved materially. Q1 2020 included $325.0 million of COVID-19 losses; Q1 2021 included $64.3 million of net Winter Storm Uri losses and $18.6 million of adverse prior-year COVID-19 development.
- Prior-year reserve development was favorable by $90.9 million overall in 2021, compared with $104.1 million favorable in 2020. The 2021 total included $89.1 million favorable development in selected Insurance lines, partly offset by $18.6 million adverse COVID-19 development in Reinsurance.
- Markel discontinued writing catastrophe-exposed property reinsurance on a risk-bearing basis in its Reinsurance segment effective January 2021. Existing multi-year contracts and retrocessional reinsurance leave continuing catastrophe exposure, with some contracts extending into 2023.
Outlook, risks, and contingencies
- The filing provides no specific financial guidance or quantified full-year outlook. Management described favorable pricing in many lines, particularly catastrophe-exposed, loss-affected, general liability, and professional liability business, while workers’ compensation rates continued to decline modestly. Management said it would not write business when pricing did not support underwriting profit targets.
- Management stated there were no material changes in its assessment of COVID-19 risks during the quarter. COVID-19 reserve estimates remain uncertain and could change materially as claims, legal decisions, and economic conditions develop. Winter Storm Uri estimates were also preliminary and subject to revision.
- The company said it believed reserves were adequate based on information available at quarter-end, but highlighted reserve-estimation uncertainty, especially for reinsurance, catastrophe losses, and COVID-19 claims. Total unpaid losses and loss adjustment expenses were $16.601 billion.
- Markel CATCo operations are in run-off. The company disclosed ongoing inquiries by the U.S. Department of Justice, SEC, and Bermuda Monetary Authority concerning reserves recorded in late 2017 and early 2018. The scope and outcome are uncertain; adverse outcomes, litigation, fines, or remedial measures could materially affect results, financial condition, or reputation.
- Management said it believed liquidity was sufficient for capital needs, while noting capital access and financing terms depend on market conditions and other risks. Other identified risks include equity-price, interest-rate, foreign-currency and credit risk, reinsurer collectability, legal and regulatory developments, and catastrophe frequency and severity.
Important facts for investors to verify
- How much of earnings and book-value performance reflects recurring underwriting and operating results versus volatile investment fair-value movements.
- Subsequent development of Winter Storm Uri and COVID-19 claims, including any material changes in reserve estimates and reinsurance recoveries.
- Whether favorable prior-year reserve development persists, and whether the Reinsurance segment can achieve underwriting profitability after exiting risk-bearing catastrophe property business.
- Developments in the CATCo regulatory inquiries and any related litigation, costs, or sanctions.
- Markel Ventures operating trends excluding the Lansing acquisition and the healthcare transaction gain, alongside leverage, liquidity, and investment-portfolio sensitivity to interest-rate and equity-market changes.