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Markel's (MKL) Q3 Earnings Lag, Revenues Top Estimates

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Markel Corporation (MKL - Free Report) reported third-quarter 2022 earnings of $13.17 per share, which missed the Zacks Consensus Estimate by about 25.4%. The bottom line decreased 4.4% year over year.

Markel witnessed higher earned premiums and lower net investment income, which were offset by higher expenses 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 4.3%. The top line rose 23.6% 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 20% in the quarter. The increase was due to continued growth in gross premium volume from new business, strong policy retention levels, more favorable rates and expanded product offerings.

Net investment income increased 18% year over year to $107.7 million in the third quarter, driven by higher interest income on short-term investments due to higher short-term interest rates in 2022.

Total operating expenses of Markel increased 22.4% 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 was flat year over year at 93 in the reported quarter.

Segment Update

Insurance: Gross premium increased 21% year over year to $2.3 billion. The uptick was driven by new business volume, strong policy retention levels, more favorable rates and expanded product offerings, resulting in growth across all its product lines, most notably in general liability and professional liability product lines as well as notable growth within marine and energy product lines.

Underwriting profit came in at $85.5 million, down 42% year over year. The combined ratio deteriorated 560 bps year over year to 95.

Reinsurance: Gross premiums decreased 1% year over year to $179.5 million, attributable to lower gross premiums within professional liability and property product lines, partly offset by higher gross premiums within several of other product lines, driven by more favorable premium adjustments and a favorable impact from the timing of renewal.

Underwriting profit of $43.3 million rebounded from the year-ago quarter’s loss of $30.4 million. The combined ratio improved 2870 bps year over year to 83.4 in the third quarter.

Markel Ventures: Operating revenues of $1.2 billion improved 34% year over year. Operating income of $60.5 million increased 10% year over year.

Financial Update

Markel exited the third quarter with investments, cash and cash equivalents of $4.8 billion as of Sep 30, 2022, down 1% from 2021 end.

The debt balance decreased 5.3% year over year to $4.1 billion as of Sep 30, 2022. The debt-to-capital ratio was 33.6% as of Sep 30, 2022, reflecting a deterioration of 340 basis points from 2021 end.

Book value per share decreased 16.2% from year-end 2021 to $868.68 as of Sep 30, 2022 attributable to comprehensive loss to shareholders for the nine months ended Sep 30, 2022.

Net cash provided by operating activities was $1.9 billion year to date, up 15.9% year over year, driven by higher net premiums within 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 third-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) missed the mark.

Travelers’ third-quarter 2022 core income of $2.20 per share beat the Zacks Consensus Estimate by 24.3% but decreased 15.4% year over year.  Total revenues increased 6.8% from the year-ago quarter to $9.4 billion and beat the Zacks Consensus Estimate by 2.5%.

Net written premiums increased 110% year over year to $9.2 billion. Underwriting gain of $115 million increased 53.3% year over year in the reported quarter.  The combined ratio improved 40 bps year over year to 98.2.

RLI’s third-quarter 2022 operating earnings of 50 cents per share beat the Zacks Consensus Estimate by 51.5% but declined 23.1% from the prior-year quarter. Operating revenues of $312.7 million were up 15.3% year over year but missed the Zacks Consensus Estimate by 1.3%.

Gross premiums written increased 13.3% year over year to $403.8 million. Underwriting income of $8.8 million decreased 35.8% while the combined ratio deteriorated 240 bps year over year to 97.

Progressive’s earnings per share of 49 cents missed the Zacks Consensus Estimate of $1.24 as well as our estimate of $1.38. The bottom line, however, improved more than threefold from 14 cents earned in the year-ago quarter.

Net premiums written were $13 billion in the quarter, up 5% from $11.7 billion a year ago but missed our estimate of $14.2 billion. The combined ratio — the percentage of premiums paid out as claims and expenses — improved 120 bps from the prior-year quarter’s level to 99.2.

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