Markel (MKL) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Markel Group's financial statements show increased total assets and a significant turnaround to net income driven by strong investment gains Consolidated Balance Sheets Consolidated balance sheets show total assets increased to $52.18 billion by June 30, 2023, driven by investments and equity growth Consolidated Balance Sheet Highlights (unaudited) | (dollars in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Investments | $23,473,613 | $22,198,009 | | Total Assets | $52,184,133 | $49,791,259 | | Total Liabilities | $37,480,610 | $36,054,220 | | Total Shareholders' Equity | $14,185,499 | $13,151,094 | Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Consolidated income statements show a significant turnaround to net income for Q2 and H1 2023, driven by substantial net investment gains Key Income Statement Data (Unaudited) | (dollars in thousands, except per share data) | Quarter Ended June 30, 2023 | Quarter Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $4,142,536 | $1,792,207 | $7,785,925 | $4,398,443 | | Operating Income (Loss) | $970,064 | $(1,176,794) | $1,723,960 | $(1,217,054) | | Net Income (Loss) to Common Shareholders | $677,511 | $(933,796) | $1,166,163 | $(985,537) | | Diluted Net Income (Loss) Per Common Share | $50.09 | $(69.15) | $87.34 | $(75.56) | Consolidated Statements of Changes in Equity Total shareholders' equity increased to $14.19 billion by June 30, 2023, driven by net income and other comprehensive income, offset by repurchases Changes in Equity - Six Months Ended June 30, 2023 | (dollars in thousands) | Amount | | :--- | :--- | | Equity at Dec 31, 2022 | $13,151,094 | | Net Income | $1,184,163 | | Other Comprehensive Income | $26,751 | | Repurchase of common stock | $(187,161) | | Preferred stock dividends | $(18,000) | | Equity at June 30, 2023 | $14,185,499 | Condensed Consolidated Statements of Cash Flows Condensed cash flow statements show increased net cash from operations, with cash used in investing and financing for securities and debt/stock repurchases Cash Flow Summary - Six Months Ended June 30 | (dollars in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided By Operating Activities | $1,008,621 | $920,989 | | Net Cash Used By Investing Activities | $(373,561) | $(403,361) | | Net Cash Used By Financing Activities | $(629,881) | $(386,709) | Notes to Consolidated Financial Statements Notes detail accounting policies, segment performance, and investment composition, highlighting ASU No. 2018-12 adoption and strong Investing segment performance - Effective January 1, 2023, the Company adopted ASU No. 2018-12, changing accounting for long-duration contracts and requiring restatement of prior periods, primarily affecting life and annuity benefits[25][26] - In March 2023, the Company completed a retroactive reinsurance transaction, ceding its UK motor casualty liabilities for payments of $125.1 million[78] - In March 2023, the company retired $250.0 million of its 3.625% unsecured senior notes[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses company performance across Insurance, Investments, and Markel Ventures engines, highlighting H1 2023 improvements from investment gains and strong financial position Our Business Markel Group operates through three engines: Insurance, Investments, and Markel Ventures, aiming for long-term common share price growth - Markel Group operates as a holding company with three core engines: Insurance, Investments, and Markel Ventures[114][115][116] - The company's primary measure of financial success is the long-term growth of its stock's market price, achieving a 5% compound annual growth rate over the five years ended June 30, 2023[117] - The Insurance engine operates through three platforms: Underwriting, Insurance-Linked Securities (ILS), and Program Services[118] Results of Operations Total operating revenues for H1 2023 increased to $7.8 billion, driven by significant net investment gains, leading to $1.21 billion comprehensive income Comprehensive Income (Loss) to Shareholders Summary | (dollars in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Insurance operations profit | $325,289 | $372,920 | | Investing segment profit (loss) | $1,175,853 | $(1,746,757) | | Markel Ventures segment profit | $222,818 | $156,783 | | Net income (loss) to shareholders | $1,184,163 | $(967,537) | | Comprehensive income (loss) to shareholders | $1,210,914 | $(1,729,602) | - The significant improvement in comprehensive income for H1 2023 was primarily due to pre-tax net investment gains on equity securities of $859.2 million (compared to $1.9 billion losses in H1 2022) and pre-tax net unrealized gains on fixed maturity securities of $41.2 million (compared to $1.1 billion losses in H1 2022)[137] Financial Condition Company financial condition strengthened, with debt-to-capital ratio decreasing to 21% and invested assets growing to $28.7 billion, supported by repurchases and credit facility - The consolidated debt-to-capital ratio improved to 21% at June 30, 2023, down from 24% at December 31, 2022, due to debt retirement and increased shareholders' equity[198] - The company repurchased $187.2 million of its common stock during the first six months of 2023, with $323.8 million remaining available for repurchases as of June 30, 2023[201][208] - In June 2023, the company entered into an amended and restated corporate revolving credit facility providing up to $300 million of capacity, with no outstanding borrowings as of June 30, 2023[203] Critical Accounting Estimates Critical accounting estimates involve determining reserves for unpaid losses and loss adjustment expenses, and valuing goodwill and intangible assets, requiring judgment and review - The company's critical accounting estimates involve determining reserves for unpaid losses and loss adjustment expenses, and the valuation of goodwill and intangible assets[210] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks include equity price, interest rate, and foreign currency exchange rate risks, with no material changes in these or credit risk exposures in H1 2023 - The company's main market risks are equity price risk, interest rate risk, and foreign currency exchange rate risk[220] - There were no material changes in the company's market risk or credit risk exposures in the first six months of 2023 compared to the 2022 Annual Report[220][222] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting in Q2 2023 - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[223][224] - There were no changes in internal control over financial reporting during Q2 2023 that materially affected, or are reasonably likely to materially affect, internal controls[225] PART II. OTHER INFORMATION Item 1. Legal Proceedings Court ruled in favor of Markel Group in Thomas Yeransian lawsuits on June 8, 2023, with decision appealed and company believing material loss is remote - In the Thomas Yeransian v. Markel Corporation lawsuits, the court ruled in favor of the company on all counts on June 8, 2023, with the plaintiff appealing the decision[226] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, company repurchased 78,017 common shares at $1,341.65 per share, with $323.8 million remaining for future repurchases Issuer Purchases of Equity Securities - Q2 2023 | Period | Total Shares Purchased | Average Price Paid per Share | Value Remaining for Repurchase (end of period) | | :--- | :--- | :--- | :--- | | April 2023 | 23,900 | $1,326.43 | $396,736,000 | | May 2023 | 27,686 | $1,351.15 | $359,328,000 | | June 2023 | 26,431 | $1,345.46 | $323,766,000 | | Total Q2 | 78,017 | $1,341.65 | $323,766,000 | Item 5. Other Information Steven A. Markel, Chair of the Board, adopted a Rule 10b5-1 trading arrangement on May 31, 2023, for potential sale of up to 1,398 common shares - Steven A. Markel, Chair of the Board, adopted a Rule 10b5-1 trading plan on May 31, 2023, for the sale of up to 1,398 common shares[230] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including amended bylaws, credit agreements, employment agreements, and required CEO/CFO certifications - Key exhibits filed include amended Bylaws, an Amended and Restated Credit Agreement, forms of Executive Employment Agreements, and CEO/CFO certifications[232][234] Signatures The report was duly signed on August 2, 2023, by CEO Thomas S. Gayner and CFO Teresa S. Gendron - The Form 10-Q was signed on August 2, 2023, by CEO Thomas S. Gayner and CFO Teresa S. Gendron[236][237]