Markel confirms Olympics and Wimbledon exposure as it reveals $325m coronavirus hit

Markel confirmed that it is exposed to event cancellation risks for both the Olympics and Wimbledon as it revealed operating losses of $1.8bn for the first quarter of 2020, compared to an operating profit of $0.8bn for the same period in 2019.

The decline in performance was largely driven by a 56.5% increase in losses and loss adjustment expenses to $1.1bn ($0.7bn) and a $1.7bn net investment loss compared to a $0.6bn net investment gain over the first quarter of 2019.

This included $325.0m of net losses and loss adjustment expenses attributed to the Covid-19 pandemic, which were net of ceded losses of $58.0 million.

The effect of the coronavirus losses was to add 24 percentage points to the insurer’s combined operating ratio, which climbed 23 percentage points to 118% for the first quarter of 2020 (2019: 95%).

Speaking on an analysts call after the announcement of the results, co-chief executive Richard R. Whitt said that, while the figures represented the insurer’s best estimate of the situation, figures could grow as indirect losses start to filter through.

“That is our best estimate [of expected coronavirus claims],” he said. “In terms of, for example, event cancellation, our event cancellation book goes from wedding cancellation to the Olympics and Wimbledon – so it runs the gamut. And we have tried to look out for the rest of the year in terms of what we think the potential exposure could be, and we’ve tried to book that in the first quarter.

“The thing that is not represented here in this number is the secondary losses or the indirect losses, and that’s things like the potential for D&O around bankruptcies or E&O for brokers, which we’re going to be dealing with, just like after 2008, over the next several quarters.”

And in its first quarter results announcement, Markel said these figures could change further as a result of judicial review and/or litigation surrounding the handling of coronavirus claims.

“The Company’s estimates are based on broad assumptions about coverage, liability and reinsurance, which ultimately may be subjected to judicial review or legislative action,” it wrote in its announcement. “Additionally, it is highly likely that there will be significant litigation involved in the handling of claims associated with Covid-19, and in certain instances, assessing the validity of policy exclusions for pandemics and interpreting policy terms to determine coverage for pandemics.

“While the Company believes the net reserves for losses and loss adjustment expenses for Covid-19 as of March 31 2020 are adequate based on information available at this time, the Company will continue to closely monitor reported claims, government actions, judicial decisions and changes in the levels of worldwide social disruption and economic activity arising from the pandemic and will adjust the estimates of gross and net losses as new information becomes available.”

“Such adjustments to the Company’s reserves for COVID-19 losses and loss adjustment expenses may be material to the Company’s results of operations, financial condition and liquidity,” the insurer added.

Whitt said the insurer was “taking steps to mitigate future exposure to pandemic losses by raising prices and adding policy terms and conditions, including additional exclusions” and also confirmed that its UK business interruption policies did not commonly have virus exclusions, with SME policies most likely to be exposed to this risk.

Despite this decline in profitability, Markel reported a 13.7% increase in earned premium to $1.1bn for its insurance business, with reinsurance earned premiums falling 2% to £226m