Markel praises underwriting; cedes historic A&E exposure to third party

Markel Corporation posted a solid set of underwriting results in 2015 despite what its executive chairman described as challenging market conditions. But its gross written premiums shrank slightly and its comprehensive income to shareholders was hit hard by a big decrease in net unrealized gains on investments.

The company’s comprehensive income to shareholders fell to $232.7 million in 2015 compared with $935.9 million in 2014. The company said the decrease was due to a decrease in net unrealiSed gains on investments, net of taxes, of $320.5 million in 2015 compared to an increase of $661.7 million in 2014. This was attributable to a decrease in the fair value of its fixed maturity and equity portfolios as of December 31, 2015 compared to December 31, 2014, it said.

However, its net income to shareholders was $582.8 million in 2015, a big increase in $321.2 million in 2014. It said this was driven by more favorable underwriting results and higher net realized investment gains, partially offset by higher income tax expense compared to 2014.

Its combined ratio year on year also improved significantly to 89 percent in 2015 compared with 95 percent in 2014.

It said this was driven by more favourable development on prior years' loss reserves in each of its underwriting segments in 2015 as well as a lower current accident year loss ratio in 2015 compared with 2014. The 2015 combined ratio included $627.8 million of favorable development on prior years' loss reserves compared to $435.5 million in 2014.

Markel has also bought reinsurance protection which has decreased the estimated volatility of its consolidated net reserves for unpaid losses and loss adjustment expenses. It ceded a significant portion of its asbestos and environmental exposures to a third party during the first and fourth quarters of 2015. “As a result of this decrease in estimated volatility, our level of confidence in our net reserves for unpaid losses and loss adjustment expenses increased,” the company said.

Its gross written premiums fell slightly last year to $4.6 billion, a 4 percent reduction on the $4.8 billion of business it wrote in 2014. The reduction was primarily attributable to a 13 percent decrease in gross premium volume in the reinsurance segment, which was driven by changes in its auto reinsurance book.

During 2014, it ceased writing auto reinsurance in the UK and decreased its quota share percentage on its non-standard auto reinsurance business in the US. “Additionally, lower gross premium volume in its general liability and property lines within the reinsurance segment was partially offset by higher gross premium volume in our professional liability line,” it said.

Commenting on pricing in reinsurance, the company said that it had seen small price increases across many of its product lines during 2015. However, beginning in 2013 and continuing through 2015, it said it experienced softening prices across most of its property product lines, as well as on its marine and energy lines.

“Our large account business is also subject to more pricing pressure. When we believe the prevailing market price will not support our underwriting profit targets, the business is not written. As a result of our underwriting discipline, gross premium volume may vary when we alter our product offerings to maintain or improve underwriting profitability,” the company said.

Alan Kirshner, executive chairman, said: “2015 was a tremendous year for our underwriting operations, which made substantial contributions to profitability despite challenging market conditions. We celebrated the 10 year anniversary of our Markel Ventures operations this year, which surpassed $1 billion in revenues, and welcomed the addition of CapTech in late 2015.

“We continue to pursue growth opportunities in both our Markel Ventures and insurance operations. We are excited about the recent Markel CATCo transaction, which expands our presence in the insurance-linked securities space and provides us with a platform to bring new insurance and investment products to the market. Overall, we are pleased with our 2015 results. We continue to drive shareholder value and want to thank our associates for their significant contributions in 2015."