In its DNA: why Markel strives for collaboration

Markel’s Global Reinsurance division has now completely replaced the premium it lost when it transferred its property-catastrophe book to Nephila in 2020 with new casualty and specialty business. But that strategic decision, as tough as it was at the time, epitomises the company’s philosophy of leveraging its capacity and expertise in the most efficient way possible.

That is the view of Jed Rhoads, president and chief underwriting officer, Markel Global Re, speaking about the business’s portfolio since that move. Rhoads has full oversight of the company’s reinsurance division, which now writes assumed treaty and facultative business covering 15 casualty and specialty lines. He also wears other hats: he is president of entities with balance sheets in Bermuda and the US and sits on the company’s leadership team.

In this last role, he stresses, he wears a corporate hat—he must consider the business’s other lines of business, as opposed to just reinsurance, including its insurance businesses; programme management capabilities; its fronting entity State National, acquired in 2017; and its property-cat and insurance-linked securities offering, now managed exclusively by Nephila, which it acquired in 2018.

“That leadership team works together to bring our different capabilities and capital together in the most efficient way possible,” Rhoads says.

One stark example of decision-making with that in mind was when the company decided to create a “one-door” policy for property cat assumed reinsurance—determining that Nephila was the better home for it.

“The global reinsurance team had a good position and highly experienced people. It meant we had to do a lot of soul-searching and decide where the most talent and resources resided. It was a tough decision, but we decided Nephila had a broader capability,” Rhoads says.

“We transferred hundreds of millions of dollars of business to Nephila, and we have been pleased with the way that has worked out. It has reduced volatility on the Markel balance sheet and it eliminates confusion with clients and brokers as to where they should place property cat business within Markel.”

The company now stresses to clients that Nephila and Markel Reinsurance are owned by the same entity. “We have different trading names but if a particular cedant has property needs they go to Nephila. For everything else, they speak to us. We can collectively put up meaningful size capacity delivered in the most efficient form,” he explains.

Transferring that much business meant a reduction in the size of its reinsurance unit in the short term, but that has all now been replaced, Rhoads says. “I am pleased to say that we have replaced all that business with casualty business growth. We now have the same top line as before, thanks to an improving casualty market the past three years.”

That achievement illustrates the inherent diversity across the Markel Group. He stresses that the company is always seeking ways to offer clients a fuller service and find ways for the different units to work together. This is intrinsic in the way Nephila and Markel Global Reinsurance now complement each other—rather than compete—but it can also be seen in other parts of the business.

Markel Global Reinsurance writes 15 lines of business, of which 14 are also written by Markel’s insurance units. The businesses complement each other in other ways. One example Rhoads cites is where an insurtech startup that was sourced by the Global Re division was fronted by State National, with 100 percent of that risk then reinsured by the Global Re division.

“It was a win for everyone,” Rhoads says. “Equally, Markel insurance has done some interesting arrangements with Nephila on property business, and we are exploring ways to partner with Nephila on casualty insurance products. It is about having the tools, capabilities and desire to deliver products to customers in the best and most efficient way. That is in the DNA of Markel.”

This diversity helps the company manage market conditions which, while broadly positive overall at present, can vary in different parts of the business. Commenting only on casualty and specialty reinsurance business, Rhoads says that the business has enjoyed three years of rate increases now: double-digit on the casualty side and high single-digit on the specialty side.

Despite this apparently positive picture, he remains wary. Social and economic inflation will result in claims inflation, he states. “It is difficult to predict what future claims costs will be so we are adding a load for that in pricing.

“Cedants understand that the price of everything is rising. Judges and juries are awarding more, legal advertising is exploding, some larger plaintiffs cases are being financed by third parties, and we have witnessed some more liberal judicial appointments. So, yes, current conditions are good, but they need to be better to accommodate for social inflation.”

This will inform the company’s approach to the year-end renewals. Rhoads explains that the business splits its 15 lines of business into three categories: core, elastic or opportunistic. This categorisation will determine its appetite for the line when it comes to capacity and pricing.

He offers some examples to illustrate this point: professional liability is a core line, casualty facultative is elastic and cyber is opportunistic—at present. “Every year, ahead of the renewal, we look at our products and split them into buckets depending on what we know about rates, market conditions and future claims costs. A product can move between buckets year on year,” he explains.

“The aim is to be as intelligent as we can about capital management. That is something where the reinsurance industry could be better. It needs to better understand the value of reinsurance capital to ceding companies—and better forecast what the cost of capital and claims might be in the future. There are still some pretty strong headwinds ahead.”

On that note of uncertainty, Rhoads adds that there are certain big issues that concern him—and which the industry must work collectively to solve. He believes that, especially in the context of an increasingly litigious environment, the industry should be concerned by the casualty spectre of growing claims in two specific areas: talcum powder and batteries, including battery disposal.

“On such issues, we are only beginning to scratch the surface on claims. Where does that all come out? It could get worse before it gets better,” he says, noting that some in the industry believe insurers should take the initiative and seek administrative settlements on such issues.

“It could cost us less in the long run and get the money into hands of claimants more quickly. Those are both good reasons to explore that approach,” he concludes.