Markel will remediate strapped casualty lines; exit worst-performers
Markel will reduce, reshape and re-underwrite its books across specific lines in casualty after 2023 loss trends showed a struggling sector and prompted massive reserve writing, top company officials have indicated.
Word follows a Q4 earnings report from Markel showing difficulties in general and professional liability lines had slowed premium growth and pushed the group’s combined ratio up 6.7 points to 98.4% on rising loss trends and the fresh reserves.
“We're down 10 points - literally and figuratively - from where we'd like to be in insurance operations,” CEO Tom Gaynor said to put a sports metaphor on what he calls a half-time report. “We are in the locker room now and adjusting our game plan.”
Exits, reductions and re-underwriting will be a targeted exercise, with numerous pockets within the broader classes still showing strong performance, Jeremy Noble, Markel’s president of insurance, told the company’s Q4 earnings call.
“We really are taking a very targeted view within each of our product areas, a tailored approach,” Noble said.
For some classes, “we will exit or have exited altogether,” Noble said. But “a lot of what we are doing will be about portfolio balance and overall portfolio management,” he added, citing subsegments in need of reduction, others in need of work on rate, wordings, geographic mix and more.
Still, “a lot of business within these portfolios” is performing “very well,” Noble insisted. “We can continue to grow.”
New growth has managed to outpace the reductions and gear shifting done to date. Q4 gross written premium rose by $63 million year on year or 2.7% even as Markel shed $100 million in premium in select lines during the quarter, he indicated.
Results of the remediation won’t be so very immediate as new underwriting earns in at pace and loss trend “either holds up or moderates slightly” relative to 2023 assumptions, officials said. Long-tail casualty lines with “5, 6, 8%” loss trend are “not uncommon.”
Even on new sales and renewals, “I don't think we’ll get there overnight and it has to be sustained,” Noble told the earnings call. Rising talk of “the pervasive nature of social inflation” will “continue to be an opportunity to push on rat rate in casualty lines in 2024.”
To the extent that loss trend stems from social inflation, negative trends will likely continue. “I don‘t have any reason to believe that abates any time in the near future” and such loss drivers require “a greater margin of safety.” Some of the problems come as claims have “lagged the historical pattern.” Others are specific to the Markel specialty in construction.
But inflation, social or economic, is just one cause among many. Following what officials called the “extensive loss review” in Q4, Noble admits to “other aspects that led to some of the reserve adjustments we made in Q4.”
Major reserving in the same lines in the reinsurance segment were written as IBNR following the signals from Markel’s own primary books, without having received any worrying signals from the group’s own cedant clients, officials claimed.
Noble calls it “a cautious approach to ensure that we are building reserves that are more likely redundant than deficient.”
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