Markel CFO: Largest wildfire impact from fine art/specie book, more IP losses likely in 2025

By Michael Loney

Feb 7 - Markel management has said that its largest impact from the Los Angeles wildfires is from international fine art and specie business, adding that it will likely see more intellectual property collateral protection insurance (IP CPI) losses this year and that US casualty is achieving double-digit rate increases.

The group in its Q4 earnings release disclosed a $90mn to $130mn loss estimate for the wildfires in January this year.

On an investor call, Markel CFO Brian Costanzo said the estimate is inclusive of losses and reinstatement premiums across its global underwriting operations.

“This range includes no provision for potential salvage and subrogation recoveries, and we have minimal premiums subject to the California Fair Plan,” he said. “While several of our first-party product lines will have losses, our largest impact is in our international fine art and specie book.”

Costanzo noted that Markel incurred losses of $71mn, or just under 1.0 point on the combined ratio, from hurricanes Helene and Milton in 2024.

“These losses have come down from our original estimates and are well within our expectations for events of this size,” he said.

Markel in 2023 reported $40.1mn of net catastrophe losses from Hawaiian wildfires and Hurricane Idalia.

After markets closed on Wednesday, Markel reported fourth quarter operating income of $595.5mn, down from $1.13bn in Q4 2023.

The Richmond, Virginia-based carrier also announced that it will conduct a review of its businesses.

New York-listed Markel’s share price closed up 10.7 percent at $2,059.83 on Thursday as investors reacted to the results and business review.

The consolidated combined ratio improved to 95.7 percent in Q4 2024, from 106.9 percent in the same period of 2023.

On the call, Costanzo noted that Markel’s current accident year loss ratio was 64.4 percent in both 2024 and 2023.

“Prior year loss development was 6.1 points favourable in 2024 versus 1.4 points favourable in 2023 due to actions taken in 2023 to strengthen reserves in our casualty portfolio and higher prior year loss takedowns this year in our international portfolio,” Costanzo said.

The expense ratio was 36 percent in 2024, up from 35 percent in 2023.

Costanzo explained that the 1.0 point increase was driven by the decline in earned premiums in the US from the underwriting actions and changes in professional liability reinsurance structure and a higher operating expense ratio in international operations to support investment in growth initiatives.

More CPI losses “reasonably possible” in 2025

Markel’s exited IP CPI product line added 2.3 points to the insurance segment's results this year versus 1.3 points last year.

“We expect the impact of CPI losses on our results to decrease in 2025,” said Costanzo.

Markel reported $168.5mn in IP CPI losses and loss adjustment expenses in 2024, which had a 2.0 point impact on the overall combined ratio, up from $97.6mn in 2023, which had a 1.2 point overall combined ratio impact.

The carrier in its earnings release stated “we have continued to recognize losses on our IP CPI product line in 2024 as additional claim events occurred, which result from both a default on the loan and impairment of the underlying intellectual property.”

It added that as of the end of 2024 all losses on probable claims have been recognized but “we believe the potential for additional claims in 2025 is reasonably possible, and such amounts could be material to our results of operations and cash flows”.

“However, we believe the amount of such losses in 2025 is likely to be less than what we recognised in 2024,” it said.

Costanzo said that the reinsurance segment “continues to trail our targets” with a combined ratio of 101 percent for the year, driven by attritional loss ratios in professional and general liability products.

Specialty fell short of expectations

Insurance president Jeremy Noble said that within the specialty business “our personal lines, property, marine, health care, environmental, programs, commercial professional liability products and most of our small commercial offerings also exceeded our targets”.

“These lines represented over half of our gross written premiums in 2024,” he said.

However, underperformance in the US casualty and risk-managed professional liability books “weighed on our results”, he said, adding that “as a result our overall US specialty business fell short of our expectations”.

Noble noted actions taken in 2024, including early in the year exiting several product lines, including primary casualty retail, business owner's policy, risk-managed excess construction, risk-managed architects and engineers and CPI.

“These exits were accretive to our 2024 results and will be further accretive in 2025,” Noble said.

In addition, he said Markel took more than 100 underwriting actions across its portfolio, including “meaningfully reducing” the construction mix in the casualty portfolio, changing terms and conditions to eliminate certain exposures to subcontractors, reducing limits on excess lines and implementing premium caps in challenging states.

In addition, Markel achieved double-digit rate increases across the casualty portfolio “while walking away from risks that were not adequately priced and terminating certain underperforming programs”, Noble said.

In risk-managed professional liability products, Markel non-renewed business, contracted limits and improved portfolio mix through segmentation.

“In our most challenged class, US public D&O, we recently announced further actions to move to a single access point for public D&O and large financial institutions coverage based in Bermuda,” Noble said.

“In total, these actions, in addition to the exits mentioned in my first point, resulted in a reduction to gross written premiums of over $350mn in 2024, but it should be accretive to net income,” he added.

Noble was referencing the announcement earlier this week that Markel was reorganising its US professional lines operation, with this publication revealing that the move has seen 14 of its 22-strong US public D&O and large financial institutions team given notice.

When asked about the double-digit casualty rate increase on the call, Noble said that they are staying slightly ahead of loss trends.

“And I don't see any reason why that pricing environment shouldn't persist as we go into '25. We talked about, and obviously, it's pretty widely understood across the industry, given inflationary drivers, elevated loss costs, market dynamics, I would expect to continue to see pricing momentum in that space,” he said.

Noble also provided details of Markel’s reinsurance buying, stating it was “pretty pleased” at 1.1.

“I would call the market orderly in some pockets, such as property, and I'd say our marine and energy out of London, favourable terms, favourable pricing, good support and it's certainly a good outcome. That's improvement year over year,” he said.

“Professional, which we placed late in the year, was kind of flat on pricing. We kept the structure the same. Casualty, probably no surprise there, a little bit of an uptick in pricing. But all in all, good, good result, good support, pleased with the structures we have in place, not a lot of change year over year,” he added.