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Markel's (MKL) Q2 Earnings Miss, Revenues Beat Estimates

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Markel Corporation (MKL - Free Report) reported second-quarter 2022 earnings of $13.78 per share, which missed the Zacks Consensus Estimate by 35.7%. The bottom line decreased 28% year over year.

Markel witnessed higher earned premiums, which were partially offset by higher expenses, lower net investment income and deterioration in the combined ratio.

Markel Corporation Price, Consensus and EPS Surprise


Quarterly Operational Update     

Total operating revenues of $3.4 billion beat the Zacks Consensus Estimate by 1.7%. The top line rose 18.4% year over year on higher earned premiums, products revenues, services and other revenues. The increase was partly offset by lower net investment income.

Earned premiums increased 16.9% in the quarter. The increase was due to continued growth in gross premium volume from new business, more favorable rates and expanded product offerings.

Net investment income decreased 2.7% year over year to $93.7 million in the second quarter. The decrease was due to the losses on equity method investments.

Total operating expenses of Markel increased 22.7% year over year to about $3 billion, primarily due to higher losses and loss adjustment expenses, underwriting, acquisition and insurance expenses, products expenses, services and other expenses and amortization of intangible assets.

Markel’s combined ratio deteriorated 400 basis points (bps) year over year to 91 in the reported quarter, attributable to the impact of less favorable development on prior accident years’ loss reserves.

Segment Update

Insurance: Gross premium increased 23% year over year to $2.2 billion. The uptick was driven by new business volume, more favorable rates and expanded product offerings, resulting in growth across all of its product lines, most notably its professional liability and general liability product lines.

Underwriting profit came in at $166.4 million, down 19% year over year. The combined ratio deteriorated 520 bps year over year to 89.4.

Reinsurance: Gross premiums increased 3% year over year to $289.1 million. The uptick was driven by increases in renewals within its professional liability product lines due to increased exposure arising from growth in underlying portfolios and more favorable rates, as well as a new business, primarily on its professional liability and general liability product lines.

Underwriting profit of $3.8 million rebounded from the year-ago quarter’s loss of $5.1 million. The combined ratio improved 340 bps year over year to 98.5 in the second quarter.

Markel Ventures: Operating revenues of $1.4 billion improved 27% year over year. Operating income of $107 million decreased 1% year over year.

Financial Update

Markel exited the second quarter with investments, cash and cash equivalents of $4.9 billion as of Jun 30, 2022, up 0.6% from 2021 end.

The debt balance increased 3.2% year over year to $4.4 billion as of Jun 30, 2022. The debt-to-capital ratio was 26% as of Jun 30, 2022, reflecting a deterioration of 300 basis points from 2021 end. It reflected a decline in shareholders' equity, primarily attributable to decreases in the fair value of investment portfolio, driven by unfavorable movements in the public equity markets and increases in interest rates in 2022.

Book value per share decreased 13.3% from year-end 2021 to $898.53 as of Jun 30, 2022. The decrease was primarily due to other comprehensive losses to shareholders for the six months ended Jun 30, 2022.

Net cash provided by operating activities was $921 million in the second quarter of 2022, up 13.3% year over year, driven by higher net premium volumes in the Insurance segment, partially offset by $101.9 million of payments made in connection with the Markel CATCo buy-out transaction.

Zacks Rank

Markel currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Property & Casualty Insurers

Of the insurance industry players that have reported second-quarter results so far, The Travelers Companies (TRV - Free Report) and RLI Corporation (RLI - Free Report) beat the respective Zacks Consensus Estimate for earnings, while The Progressive Corporation (PGR - Free Report) met the mark.

Travelers’ core income of $2.57 per share beat the Zacks Consensus Estimate by 28.5% but decreased 26% year over year. Total revenues increased 7% year over year, primarily due to higher premiums, and beat the consensus estimate by 1.8%. Net written premiums increased 11%, driven by strong retention rates and positive renewal premium changes across all the segments. Underwriting gain of $113 million decreased 65% year over year in the reported quarter.  

Travelers’ combined ratio deteriorated 300 bps year over year to 98.3 due to higher catastrophe losses and a higher underlying combined ratio.

RLI’s operating earnings of $1.49 per share beat the Zacks Consensus Estimate by 6.1% and improved 36.7% from the prior-year quarter. Operating revenues were $301.3 million, up 16.9% year over year, driven by 17.3% higher net premiums earned and 10.5% higher net investment income. The top line beat the Zacks Consensus Estimate of $276 million by 0.9%.

RLI’s underwriting income of $56 million increased 53%, primarily due to the strong performance of the Property and Surety segments. The combined ratio improved 460 bps year over year to 80.2.

Progressive’s earnings per share of 95 cents came in line with the Zacks Consensus Estimate. The bottom line declined 37.1% year over year. Progressive’s net premiums written were $12.4 billion in the quarter, up 8% from $11.7 billion a year ago.

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