By David Bull

Feb 25 - (The Insurer) - Markel CEO Tom Gayner has told shareholders that further performance improvements are expected in its U.S. specialty business in 2025 after the recent repositioning of the book.

In his annual letter to shareholders, issued after Markel announced a board-led review into its specialty insurance business earlier this month, Gayner said that many parts of the company’s insurance operations performed well in 2024, while others require continued work.

Overall, the firm’s aggregate insurance combined ratio improved from 98.4% to 95.2%. The executive described the result as “encouraging” but said there is more work to do, with “some good, bad, and ugly in the mix” across its array of products and geographies.

Gayner highlighted the strong performance of Markel’s international operations, with the Simon Wilson-led business delivering a sub-80% combined ratio.

He also said programs fronting carrier State National put in “another great year”, with continued solid revenue and operating income performance.

But the Markel CEO also pointed to the “pockets of challenge” within the carrier’s U.S. specialty business.

“Some of our biggest challenges and disappointments occurred in construction defects, general liability, and risk-managed professional liability lines,” he commented.

He noted that two years ago Markel took a series of actions to drive improved performance across the group, including defining the holding company’s purpose and functions and reorganising around that, including switching to a sole CEO.

The aim, Gayner said, was to create clear decision rights for capital allocation decisions with a greater emphasis on profitability and returns across the group, leading to greater focus and urgency around actions to tackle underperformance in U.S. specialty business.

That in turn led to the carrier exiting product lines last year, including primary casualty retail, business owner’s policy, risk-managed excess construction, architects and engineers, and intellectual property $(IP)$ collateral protection insurance.

“The improving results in 2024 bear some fruit from those efforts, and we are optimistic about ongoing improvements. Our results improved in 2024 as a direct result of these actions, and we anticipate additional improvements in 2025 as we get past the expiration and costs of subpar products,” said the executive.

The announcement of the business review followed activist investor Jana Partners in December calling on the company to separate or sell its Markel Ventures investment business.

'NO MAS' TO IP COLLATERAL PROTECTION

In his letter to shareholders, Gayner also commented on Markel's decision to exit the IP collateralised protection insurance product.

“On a final note, we’ve had more than a bellyful of selling insurance to sophisticated players looking to do risk arbitrage and financial engineering transactions.

“We are no longer writing the intellectual property collateralised protection insurance product and have no intentions of writing any similar product in the future. As the boxer Roberto Duran said, ‘No mas’,” he said.

Markel reported losses and loss adjustment expenses of $168.5 million in 2024 related to the business, including $32.5 million of adverse development on prior accident years. In 2023 it reported $97.6 million of losses and loss adjustment expenses.

Gayner more generally highlighted 5.4 percentage points of favourable development in Markel’s insurance underwriting results, up from 0.5 points in 2023.

“As we have consistently stated since 1986, ‘We want our reserves to be more likely redundant than deficient’,” he commented.

He acknowledged that the fourth quarters of 2023 and 2022 – when Markel reported reserve deficiencies – had “jarred” investors.

“The rise of inflation and loss costs that followed the pandemic in 2020 caught us (and the industry) a bit by surprise. Our business skews towards longer-tail casualty lines rather than shorter-tail property risks, so feedback loops are longer.

“We could have responded more quickly. Still, I’m proud of the team for taking the hard steps to make our goal of conservative reserving real. This episode taught us a valuable lesson, and I’m confident that we will respond quicker in the future,” he commented.