By 2023, Markel Corporation is hopeful of achieving at least a 90% combined ratio in its reinsurance business after its decision to reduce volatility in the book by transitioning the property line to its insurance-linked securities (ILS) operation Nephila.
Markel began this process in the first quarter of 2021, and in the final quarter of last year, the company went further and announced plans to exit Lodgepine and its retrocession property reinsurance book.
Also in the fourth quarter, the firm purchased additional reinsurance to transition the remaining run-off of its property cat reinsurance book to third parties.
As a result of the reduced volatility, Markel is targeting a combined ratio of at least 90% in its reinsurance book and hopes to have achieved this within the next two years.
In 2021, the carrier’s reinsurance segment fell to a $55 million underwriting loss on the back of $100 million in catastrophe losses, reporting a combined ratio of 105%.
During a recent call discussing its 2021 results, Markel’s Co-Chief Executive Officer (CEO), Richie Whitt, explained that the majority of these losses were in property and retro reinsurance.
But with both of these lines now placed into run-off, and a shift in underwriting focus, Markel’s leadership team is hopeful of improving the profitability of the reinsurance book.
“The current focus within reinsurance is to grow and optimize our profitability within the core casualty, professional liability, and specialty reinsurance lines,” said Whitt. “Seeking to attain at least a 90% combined ratio on those product lines longer-term.”
Later in the call, Whitt noted that while it’s challenging to discern the underlying performance of the ongoing book because of all the cat losses, the underlying, go-forward book came in at about a 96% combined ratio in 2021, and Markel expects that to be better in 2022.
“So, we’ll continue to make progress towards that 90% in 2022, but more likely to get there hopefully in 2023,” he added.
While the reinsurance segment fell to an underwriting loss in 2021, the book did expand by 17% regardless of the pull-back from property cat. Regarding further growth in the year ahead, Whitt explained that although the focus will be on profitability, growth depends on market opportunities.
“And, so, while I don’t expect growth, we’re not going to pass on great opportunities if we see them. So, I’m going to sit here and tell you more than likely we would expect it to be flattish, but we’re not going to pass on great opportunities because we said that we might be flat,” he said.
