Markel reports 2022 financial results
RICHMOND, Va., Feb. 1, 2023 /CNW/ -- Markel Corporation (NYSE: MKL) today reported its financial results for the year ended December 31, 2022.
"Our 2022 results reflect the strength and balance of our three-engine architecture of insurance, investments, and Markel Ventures. Each engine delivered strong operating performance this year, generating an impressive $2.7 billion of operating cash flows," said Thomas S. Gayner, Chief Executive Officer.
"Our insurance engine alone produced over $8 billion in revenues with the underwriting, ILS, and program services platforms each contributing positively to the bottom line. Our underwriting operations delivered a combined ratio in the low 90s, as a result of excellent premium growth as well as expense discipline, while navigating current economic realities and an evolving insurance market," Gayner continued. "Markel Ventures produced another record-setting year for revenues, operating income, and EBITDA as our businesses adapt to an ever-changing economic landscape.
"Our investment income is starting to benefit from higher interest rates, which we expect to continue as we purchase higher yielding securities. Declines in the fair value of our equity and bond portfolios during the year represent unrealized losses that weighed heavily on our comprehensive income and book value in 2022, however, our focus, as always, is on long-term investment performance. We understand that periodic market volatility is to be expected and believe the long-term view is a better reflection of the quality of our portfolio," Gayner remarked.
"I would like to thank team members across the whole company, our customers, and business partners for contributing to a remarkable year, and of course, our shareholders for giving us the opportunity to build your company into one of the world's great companies."
These tables present summary financial data for 2022 and 2021. Generally accepted accounting principles (GAAP) require that we include unrealized gains and losses on equity securities in net income. Given the magnitude of our equity portfolio, we believe that this approach creates volatility in revenues and net income that can obscure the operating performance of our businesses and does not align with our long-term investment philosophy. As of December 31, 2022, the fair value of our equity portfolio included cumulative unrealized gains of $4.6 billion.
Years Ended December 31, | |||
(in thousands, except per share amounts) | 2022 | 2021 | |
Earned premiums | $ 7,587,792 | $ 6,503,029 | |
Markel Ventures operating revenues | $ 4,757,527 | $ 3,643,827 | |
Net investment income | $ 446,755 | $ 367,417 | |
Net investment gains (losses) | $ (1,595,733) | $ 1,978,534 | |
Comprehensive income (loss) to shareholders | $ (1,308,817) | $ 2,078,244 | |
Diluted net income (loss) per common share | $ (23.57) | $ 176.51 | |
Combined ratio | 92 % | 90 % | |
(in thousands, except per share amounts) | December 31, 2022 | December 31, 2021 | |
Book value per common share | $ 929.27 | $ 1,036.20 | |
Common shares outstanding | 13,423 | 13,632 | |
Highlights of our 2022 results include:
Earned premiums grew 17% in 2022, reflecting continued growth in premium volume from new business, strong policy retention levels, more favorable rates and expanded product offerings.
The higher combined ratio in 2022 compared to 2021 was primarily attributable to the impact of less favorable development on prior years loss reserves, partially offset by a lower expense ratio and lower catastrophe losses.
Operating revenues and operating income from Markel Ventures increased 31% and 19%, respectively, in 2022, reflecting contributions from recent acquisitions and notable organic growth.
The growth in net investment income in 2022 was primarily due to the impact of rising interest rates during the year on our short-term investments and cash equivalents, as well as higher average holdings of fixed maturity securities.
Net investment losses in 2022 reflected a decrease in the fair value of our equity portfolio resulting from unfavorable market value movements. Substantially all of our net investment losses in 2022 were unrealized.
Comprehensive loss to shareholders in 2022 resulted from net investment losses and unrealized losses on our fixed maturity portfolio, which more than offset operating income from our insurance and Markel Ventures operations. We typically hold our fixed maturity investments to maturity and generally would expect these losses to reverse.
Operating cash flows totaled $2.7 billion in 2022, up 19% over 2021, reflecting strong cash inflows from our underwriting operations given the growth in premium volume in recent periods.
We believe our financial performance is most meaningfully measured over longer periods of time, which tends to mitigate the effects of short-term volatility and also aligns with the longer-term perspective we apply to operating our businesses. We generally use five-year periods to measure our performance. Over the five-year period ended December 31, 2022, the compound annual growth in book value per common share was 6%. Over the five-year period ended December 31, 2022, our share price increased at a compound annual rate of 3%.
While these measures, considered independently of other factors, fall below our internal targets, we remain confident in the strong operating performance of our businesses. In addition, we give consideration to the following information in assessing our compound annual growth in book value per common share:
Amortization expense - As we grow through acquisitions, our intangible assets grow. GAAP requires that we amortize a portion of these acquired intangible assets, which is a non-cash charge to net income. Amortization of acquired intangible assets for the five-year period ended December 31, 2022 totaled $763.2 million.
Unrealized gains and losses on fixed maturity securities - Since we generally hold our bonds to maturity and invest in high credit quality, investment grade securities, unrealized gains and losses from our bond portfolio are generally expected to reverse as the securities mature. The fair value of our bond portfolio included cumulative pre-tax unrealized losses of $949.1 million as of December 31, 2022 compared to cumulative pre-tax unrealized gains of $389.5 million as of December 31, 2017.
Value of our businesses - Book value does not include changes in the fair value of our acquired businesses or equity method investments, other than decreases arising from an impairment. Acquired businesses include our Markel Ventures, insurance-linked securities (ILS) and program services businesses.
Insurance Results
Our Insurance engine includes our underwriting, insurance-linked securities, program services and other fronting operations. The following table presents the components of our Insurance engine gross premium volume and operating revenues.
Years Ended December 31, | |||||
(dollars in thousands) | 2022 | 2021 | % Change | ||
Gross premium volume: | |||||
Underwriting | $ 9,847,538 | $ 8,485,929 | 16 % | ||
Program services and other fronting (1) | 3,354,144 | 2,952,753 | 14 % | ||
Insurance operations | $ 13,201,682 | $ 11,438,682 | 15 % | ||
Operating revenues: | |||||
Insurance segment | $ 6,528,263 | $ 5,465,284 | 19 % | ||
Reinsurance segment | 1,063,347 | 1,042,048 | 2 % | ||
Insurance-linked securities, program services and other insurance | 493,746 | 342,142 | 44 % | ||
Insurance operations | $ 8,085,356 | $ 6,849,474 | 18 % | ||
(1) | Substantially all gross premiums from our program services business and other fronting arrangements were ceded to third parties for the years ended December 31, 2022 and 2021. |
Underwriting Results
The following table presents summary data for our consolidated underwriting operations, which are comprised predominantly of our Insurance and Reinsurance segments. Our consolidated underwriting results also include results from discontinued lines of business and the retained portion of our program services operations.
Years Ended December 31, | |||||
(dollars in thousands) | 2022 | 2021 | % Change | ||
Gross premium volume | $ 9,843,555 | $ 8,480,494 | 16 % | ||
Net written premiums | $ 8,203,390 | $ 7,119,731 | 15 % | ||
Earned premiums | $ 7,587,792 | $ 6,503,029 | 17 % | ||
Underwriting profit | $ 626,620 | $ 628,085 | — % | ||
Underwriting Ratios (1) | Point Change | ||||
Loss ratio | |||||
Current accident year loss ratio | 60.8 % | 62.4 % | (1.6) | ||
Prior accident years loss ratio | (2.2) % | (7.4) % | 5.2 | ||
Loss ratio | 58.6 % | 55.1 % | 3.5 | ||
Expense ratio | 33.2 % | 35.3 % | (2.1) | ||
Combined ratio | 91.7 % | 90.3 % | 1.4 | ||
Current accident year loss ratio catastrophe impact (2) | 0.6 % | 3.0 % | (2.4) | ||
Current accident year loss ratio Russia-Ukraine conflict impact (2) | 0.5 % | — % | 0.5 | ||
Prior accident years loss ratio COVID-19 impact (2) | (0.1) % | 0.2 % | (0.3) | ||
Current accident year loss ratio, excluding catastrophes and Russia-Ukraine conflict (3) | 59.7 % | 59.4 % | 0.3 | ||
Combined ratio, excluding current year catastrophes, Russia-Ukraine conflict and COVID-19 (3) | 90.7 % | 87.1 % | 3.6 | ||
(1) | Amounts may not reconcile due to rounding. |
(2) | The point impact of catastrophes, the Russia-Ukraine conflict and COVID-19 is calculated as the associated net losses and loss adjustment expenses divided by total earned premiums. |
(3) | See Supplemental Financial Information for additional information regarding these non-GAAP financial measures. |
Premiums
The increase in gross premium volume in our underwriting operations in 2022 was driven by growth within our Insurance segment across all product lines. Net retention of gross premium volume for our underwriting operations was 83% in 2022 compared to 84% in 2021. The decrease in net retention in 2022 was driven by lower retention within our Insurance segment, partially offset by higher retention within our Reinsurance segment. The increase in earned premiums in our underwriting operations in 2022 was primarily attributable to higher gross premium volume.
Combined Ratio
In 2022, underwriting results included $46.2 million of net losses and loss adjustment expenses attributed to Hurricane Ian, which included a $23.8 million reduction from our initial estimate recorded for the quarter ended September 30, 2022 based on reported claims activity and updated output from our catastrophe models. In 2022, underwriting results also included $35.7 million of net losses and loss adjustment expenses attributed to the military conflict between Russia and Ukraine that began following Russia's invasion of Ukraine in February 2022. Our estimate for ultimate net losses attributed to the Russia-Ukraine conflict is consistent with our initial estimate recorded for the quarter ended March 31, 2022. In 2021, underwriting results included $195.0 million of net losses and loss adjustment expenses attributed to Winter Storm Uri, the floods in Europe and Hurricane Ida (2021 Catastrophes) as well as $15.7 million of net losses and loss adjustment expenses resulting from an increase in our net estimate of ultimate losses and loss adjustment expenses attributed to COVID-19. Excluding these losses from the respective periods, the increase in our consolidated combined ratio in 2022 compared to 2021 was driven by the impact of less favorable development on prior accident years loss reserves within our Insurance segment in 2022 compared to 2021, partially offset by a lower expense ratio within our Insurance segment.
Insurance Segment
Years Ended December 31, | |||||
(dollars in thousands) | 2022 | 2021 | % Change | ||
Gross premium volume | $ 8,606,700 | $ 7,239,676 | 19 % | ||
Net written premiums | $ 7,040,176 | $ 5,998,890 | 17 % | ||
Earned premiums | $ 6,528,263 | $ 5,465,284 | 19 % | ||
Underwriting profit | $ 549,871 | $ 696,413 | (21) % | ||
Underwriting Ratios (1) | Point Change | ||||
Loss ratio | |||||
Current accident year loss ratio | 60.3 % | 60.6 % | (0.3) | ||
Prior accident years loss ratio | (2.2) % | (9.3) % | 7.1 | ||
Loss ratio | 58.1 % | 51.3 % | 6.8 | ||
Expense ratio | 33.5 % | 35.9 % | (2.4) | ||
Combined ratio | 91.6 % | 87.3 % | 4.3 | ||
Current accident year loss ratio catastrophe impact (2) | 0.7 % | 1.7 % | (1.0) | ||
Current accident year loss ratio Russia-Ukraine conflict impact (2) | 0.4 % | — % | 0.4 | ||
Prior accident years loss ratio COVID-19 impact (2) | 0.0 % | (0.1) % | 0.1 | ||
Current accident year loss ratio, excluding catastrophes and Russia-Ukraine conflict (3) | 59.2 % | 58.9 % | 0.3 | ||
Combined ratio, excluding current year catastrophes, Russia-Ukraine conflict and COVID-19 (3) | 90.6 % | 85.6 % | 5.0 | ||
(1) | Amounts may not reconcile due to rounding. |
(2) | The point impact of catastrophes, the Russia-Ukraine conflict and COVID-19 is calculated as the associated net losses and loss adjustment expenses divided by total earned premiums. |
(3) | See Supplemental Financial Information for additional information regarding these non-GAAP financial measures. |
Premiums
The increase in gross premium volume in our Insurance segment in 2022 was driven by new business volume, strong policy retention levels, more favorable rates and expanded product offerings, resulting in growth across all of our product lines, most notably in our general liability and professional liability product lines. Net retention of gross premium volume was 82% in 2022 compared to 83% in 2021. The decrease in net retention for the year ended December 31, 2022 was primarily due to higher cession rates on our professional liability and personal lines product lines in 2022 compared to 2021, partially offset by the impact of higher retention rates on new programs business. The increase in earned premiums in 2022 was primarily due to higher gross premium volume.
Combined Ratio
The Insurance segment's current accident year losses and loss adjustment expenses in 2022 included $46.2 million and $23.0 million of net losses and loss adjustment expenses attributed to Hurricane Ian and the Russia-Ukraine conflict, respectively. Current accident year losses in 2021 included $94.7 million of net losses and loss adjustment expenses attributed to the 2021 Catastrophes. Excluding these losses from the respective periods, the current accident year loss ratio in 2022 was consistent with 2021. Despite achieving higher premium rates on our professional liability and general liability product lines, we generally kept our estimates of ultimate loss ratios on these product lines for the 2022 accident year consistent with the 2021 accident year due to the unfavorable claims trend within these product lines on prior accident years during 2022 arising from current and anticipated levels of economic and social inflation.
The Insurance segment's 2022 combined ratio included $142.9 million of favorable development on prior accident years loss reserves compared to $506.3 million in 2021. The decrease in favorable development was primarily due to adverse development on our general liability and professional liability product lines in 2022 compared to favorable development in 2021.
Adverse development on our general liability and professional liability product lines was primarily attributable to unfavorable claim settlements and increased claim frequency and severity on a number of products, including contractors and excess and umbrella within general liability and directors and officers, errors and omissions and employment practices liability within professional liability. Development on prior years loss reserves within our general liability and professional liability product lines in 2022 was impacted by broader market conditions, including the effects of economic and social inflation, and was most pronounced on the 2016 to 2019 accident years, which was before we began achieving significant rate increases for these product lines. The impacts of social inflation were most significant on our large, risk-managed excess professional liability accounts, corresponding with a notable rise in the number of class action lawsuits on these years and the recent unfavorable legal environment. The development of this claims trend was disrupted by state and federal court closures following the onset of the COVID-19 pandemic in 2020, which has delayed court proceedings for claims on the impacted product lines.
These factors have created more uncertainty around the ultimate losses that will be incurred to settle claims on these longer-tail product lines, and as a result, we are approaching reductions to prior year loss reserves on more recent accident years cautiously. Consistent with our reserving philosophy, we are responding quickly to increase loss reserves following any indication of increased claims frequency or severity in excess of our previous expectations, whereas in instances where claims trends are more favorable than we previously anticipated, we are often waiting to reduce loss reserves and will evaluate our experience over additional periods of time.
In 2022, favorable development was most significant on our workers' compensation, programs, property and credit and surety product lines. In 2021, favorable development was most significant on our general liability, property, workers' compensation, professional liability and marine and energy product lines.
The decrease in the Insurance segment's expense ratio in 2022 was primarily due to the favorable impact of higher earned premiums in 2022 while maintaining consistent levels of general expenses with 2021, as we continue to focus on scaling our insurance operations.
Reinsurance Segment
Years Ended December 31, | |||||
(dollars in thousands) | 2022 | 2021 | % Change | ||
Gross premium volume | $ 1,229,851 | $ 1,246,143 | (1) % | ||
Net written premiums | $ 1,167,312 | $ 1,126,167 | 4 % | ||
Earned premiums | $ 1,063,347 | $ 1,042,048 | 2 % | ||
Underwriting profit (loss) | $ 83,859 | $ (55,238) | NM (1) | ||
Underwriting Ratios (2) | Point Change | ||||
Loss ratio | |||||
Current accident year loss ratio | 63.6 % | 72.0 % | (8.4) | ||
Prior accident years loss ratio | (2.4) % | 1.9 % | (4.3) | ||
Loss ratio | 61.2 % | 73.9 % | (12.7) | ||
Expense ratio | 30.9 % | 31.4 % | (0.5) | ||
Combined ratio | 92.1 % | 105.3 % | (13.2) | ||
Current accident year loss ratio catastrophe impact (3) (4) | — % | 9.6 % | (9.6) | ||
Current accident year loss ratio Russia-Ukraine conflict impact (3) | 1.2 % | — % | 1.2 | ||
Prior accident years loss ratio COVID-19 impact (3) | (0.3) % | 2.1 % | (2.4) | ||
Current accident year loss ratio, excluding catastrophes and Russia-Ukraine conflict (5) | 62.4 % | 62.3 % | 0.1 | ||
Combined ratio, excluding current year catastrophes, Russia-Ukraine conflict and COVID-19 (5) | 91.2 % | 93.6 % | (2.4) | ||
(1) | NM - Ratio is not meaningful |
(2) | Amounts may not reconcile due to rounding. |
(3) | The point impact of catastrophes, the Russia-Ukraine conflict and COVID-19 is calculated as the associated net losses and loss adjustment expenses divided by total earned premiums. |
(4) | The point impact of catastrophes does not include the favorable impact of assumed reinstatement premiums associated with the 2021 Catastrophes of $21.7 million for the year ended December 31, 2021. Reinstatement premiums were not significant for the year ended December 31, 2022. |
(5) | See Supplemental Financial Information for additional information regarding these non-GAAP financial measures. |
Premiums
The modest decrease in gross premium volume in our Reinsurance segment in 2022 was primarily attributable to non-renewals within our property product lines and the non-renewal of a large treaty within our workers' compensation product line, largely offset by the impact of new business, primarily within our general liability and professional liability product lines, and more favorable premium adjustments within our credit and surety product lines. We discontinued writing property retrocessional reinsurance in 2022 and property reinsurance in 2021, which resulted in a $123.3 million reduction in gross premium volume in 2022 compared to 2021. Significant variability in gross premium volume can be expected in our Reinsurance segment due to individually significant contracts and multi-year contracts.
Net retention of gross premium volume was 95% in 2022 compared to 90% in 2021. The increase in net retention was driven by changes in mix of business. We have experienced growth in highly retained product lines during the year, while the non-renewed property business had a lower retention rate than the rest of the segment.
The increase in earned premiums in 2022 was primarily attributable to growth in gross premium volume within our professional liability and general liability product lines in recent periods, partially offset by the impact of lower gross premiums within our property product lines.
Combined Ratio
The Reinsurance segment's current accident year losses and loss adjustment expenses in 2022 included $12.7 million of net losses and loss adjustment expenses attributed to the Russia-Ukraine conflict. Current accident year losses in 2021 included $100.3 million of net losses and loss adjustment expenses attributed to the 2021 Catastrophes. Excluding these losses from the respective periods, the current accident year loss ratio in 2022 was consistent with 2021. The benefit of higher premium rates on our general liability and professional liability product lines and more favorable premium adjustments in 2022 compared to 2021 was offset by the unfavorable impact of changes in the mix of business within the segment and the benefit in 2021 of $21.7 million of favorable assumed reinstatement premiums on catastrophes. The change in mix of business had an unfavorable impact as the non-renewed property business had a lower attritional loss ratio than the rest of the segment.
The Reinsurance segment's 2022 combined ratio included $26.1 million of favorable development on prior accident years loss reserves, which was primarily attributable to favorable development within our property product lines related to natural catastrophes and our credit and surety product lines. Favorable development on prior years loss reserves in 2022 was partially offset by additional exposures recognized on prior accident years related to net favorable premium adjustments on our general liability, credit and surety and professional liability product lines. In 2021, the combined ratio included $19.9 million of adverse development on prior accident years loss reserves, which was primarily attributable to net adverse development on natural catastrophes and COVID-19 within our property product lines, as well as additional exposures recognized on prior accident years related to net favorable premium adjustments on our professional liability product lines.
Insurance-linked Securities, Program Services and Other Insurance
The following table presents the components of operating revenues and operating expenses attributable to our insurance-linked securities, program services and other insurance operations, which are not included in a reportable segment. Underwriting results attributable to these operations include results from discontinued lines of business, which are reported separate from our Insurance and Reinsurance segments, and the retained portion of our program services operations.
Years Ended December 31, | |||||||||||
2022 | 2021 | ||||||||||
(dollars in thousands) | Operating | Operating | Net | Operating | Operating | Net | |||||
Services and other: | |||||||||||
Insurance-linked securities | $ 109,020 | $ 125,316 | $ (16,296) | $ 202,019 | $ 186,510 | $ 15,509 | |||||
Insurance-linked securities - disposition gains | 225,828 | — | 225,828 | — | — | — | |||||
Program services and other fronting | 149,993 | 27,613 | 122,380 | 125,716 | 20,132 | 105,584 | |||||
Life and annuity | 1,040 | ||||||||||