Markel Corp. (NYSE:MKL) Q2 2020 Earnings Conference Call - Final Transcript

Jul 29, 2020 • 09:30 am ET

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Markel Corp. (NYSE:MKL) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Jeremy Noble

quarter. These COVID-19 losses increased our consolidated combined ratio for the first six months of 2020 at 12 points.

Our initial estimates of losses directly attributable to COVID-19 and the end of March reflected limited claims reporting. However, after considering the additional data gathered through increased claims reporting activity in the second quarter and while continuing to monitor actual levels of disruption caused by the pandemic, there were no significant changes in our assumptions during the second quarter.

As a reminder, our losses from COVID-19 are primarily attributed to business written within our international insurance operations, and primarily associated with coverages for event cancellation and business interruption losses and policies where no specific pandemic exclusions exist. Due to the inherent uncertainty associated with our assumptions surrounding COVID-19, which among other things include assumptions related to coverages, liability, reinsurance protection, duration and loss mitigation factors as well as the fact that the economic impacts of the pandemic continue to evolve, our estimates may be subject to a wide range of variability.

As the overall pandemic continue to evolve, we expect losses indirectly related to COVID-19 pandemic and associated with a broader range of coverages are likely to emerge within our professional liability, trade credit and Workers Compensation product lines among others, including our reinsurance product lines. To date we've not seen significant evidence of incurred losses increasing for these secondary exposures and no explicit provision was made for indirect COVID-19 losses in the second quarter.

It is worth noting that any increase in exposure associated with indirectly COVID-19 losses will lead to partially offset of an improving pricing environment. With regards to prior year loss reserve development, consistent with our reserving philosophy, prior year loss reserves developed favorably by $268 million in the first half of 2020 compared to a favorable prior year development of $189 million in 2019.

Turning to our investment results, as I mentioned in prior calls given our long-term focus, variability and the timing of investment gains and losses is to be expected, we continue to see volatility in the equity markets in the second quarter related to the economic uncertainty associated with the COVID-19 pandemic. Following the significant declines in the fair value of our equity portfolio during the first quarter, we saw meaningful recoveries in the second quarter and investment losses for the first half of 2020 were $770 million compared to net investment gains of $1 million last year, a year-over-year decline of $1.8 million.

With regards to net investment income, we reported $184 million in the first 2020 compared to $226 million in the first half of 2019. This decline is largely due to lower short-term interest rates, lower holding from fixed maturity securities in 2020. Net unrealized investment gains increased $237 million net of taxes during 2020 reflecting an increase in the fair value of our fixed maturity portfolio, resulting from declines in interest rates during the first half of the year.

Now I'll cover the results of the Markel Ventures segment.