What gave comfort to release workers' comp reserves for recent accident years, and does the current analysis support the 2026 guide of 5% or $800 million favorable development?

Workers' comp has performed well, with favorable actual vs. expected trends allowing for reserve releases. Overall reserve releases are concentrated in first-party lines (property, marine, personal E&S homeowners) and the international book, while casualty and professional lines show modest adverse development, largely in line with expectations. “Specifically on workers' comp. I mean, that has behaved very well, I think, across the industry in general. But for us, in particular, from an A versus E standpoint, we've been holding a fair amount of margin there for a while. We're starting to release some of that as the A versus E continues to come in and trend favorably.”

What did the third-party actuarial firm discover that Markel didn't see in Q1 regarding the State National collateral shortfall, and what type of business was related to this issue?

The Q2 increase resulted from more granular data, a ground-up internal actuarial review, and the third-party engagement, which allowed for a more conservative estimate. The business primarily involved primary habitational casualty, with a small portion of excess casualty (<10%), concentrated in a few states. “What we did was we went back and got more granular data on this program that we did not have available. We did our own ground-up actuarial review internally. We engaged the third party. And then we also look at our kind of insurance book of primary casualty that we have written for a long time, have a lot of credible data there. use all of those data points to kind of analyze the claims trend on what we were seeing in that series of programs, 5 different programs that kind of pass through to this counterparty.”

Given the core book ex-cat ex-PYD loss ratio was 60% in Q1 and 63.5% in Q2, what is the right run rate for the rest of the year?

The Q2 level of 63.5% is considered the current run rate. The increase was primarily driven by an intentional increase in the loss pick for the personal umbrella line, applied to two quarters of premium, done proactively due to early signs of adverse trends. “I would say where we booked in the second quarter is kind of where we feel things are -- the main increase driver was we did increase our loss pick on our personal umbrella line here in the second quarter. When we do that, it applies to 2 quarters of premium. So it becomes a little bit of a larger increase in the quarter.”

MKL

Markel Group (MKL) Q2 FY26 earnings call: guidance and Q&A

Q: Was the third-party actuarial review for the State National collateral shortfall limited to one counterparty or did it cover all unrated reinsurance partners?

The specific third-party engagement was limited to the contract with identified issues, though management continuously reviews all exposures. The $205 million reserve reflects a conservative estimate based on a comprehensive internal review and external validation. “That specific engagement was for the specific contract where we thought we had some issues, and we wanted to nail that down. the best of our abilities. As you might imagine, we as managers do in our duty are looking at everything at the same time, but the specific third party was engaged just for that topic.”

Q: Given the core book ex-cat ex-PYD loss ratio was 60% in Q1 and 63.5% in Q2, what is the right run rate for the rest of the year?

The Q2 level of 63.5% is considered the current run rate. The increase was primarily driven by an intentional increase in the loss pick for the personal umbrella line, applied to two quarters of premium, done proactively due to early signs of adverse trends. “I would say where we booked in the second quarter is kind of where we feel things are -- the main increase driver was we did increase our loss pick on our personal umbrella line here in the second quarter. When we do that, it applies to 2 quarters of premium. So it becomes a little bit of a larger increase in the quarter.”

Earnings call· Jun 2026 (Q2 FY26)· Financials· Jul 30, 2026

Source: earnings call transcript

Executive summary

Markel Group Inc. Q2 FY26 — Underwriting Profitability Improves Amidst State National Reserve Charge

Markel Group delivered improved underwriting profitability in its insurance segment, maintaining a 93% combined ratio, while actively deploying AI to enhance operational efficiency. However, a significant reserve charge in the State National business impacted the Financial segment's results. The company continues its disciplined capital allocation, prioritizing share repurchases and long-term value creation, even as industrial markets face headwinds and property insurance remains competitive.

Highlights

Markel Insurance achieved a combined ratio of 93% for the fourth consecutive quarter, improving from 97% in Q2 FY25.
Ongoing insurance business (excluding Global Reinsurance exit and Hagerty fronting) grew top-line gross written premiums by 10% in Q2 FY26.
Consumer and Other segment's adjusted operating income increased by 20% to $122 million in Q2 FY26 on 4% revenue growth.
The company repurchased $237 million of its shares in Q2 FY26, bringing year-to-date repurchases to $371 million and reducing total outstanding shares by nearly 10% over the last five years.
AI deployment in insurance operations led to a 50-90% reduction in initial risk assessment time and over 90% accuracy, contributing to 50% GWP growth in London for specific lines.

Concerns

A $205 million reserve was recognized in the Financial segment for a collateral shortfall related to a bankrupt capacity provider within State National, impacting Q2 FY26 adjusted operating income.
The Financial segment recorded an adjusted operating loss of $149 million in Q2 FY26, down from an income of $78 million in Q2 FY25, primarily due to the State National charge.
Industrial segment adjusted operating income declined by 27% to $75 million in Q2 FY26, driven by tighter margins and softer demand in car hauling equipment.
U.S. Wholesale and Specialty division's gross written premiums decreased by 4% in Q2 FY26 due to intentional contraction in certain lines and a softening property rate environment.
Programs and Solutions division's underwriting gross written premiums were down 27% in Q2 FY26, primarily due to the shift of the Hagerty program to a pure fronting model.

Guidance & targets

Category	Target	Timeline	Confidence
Return on Equity (Insurance Operations)	double-digit return on equity high materiality	Full Year · FY26	Medium
Underwriting Profit	a little lighter than $700 million high materiality	Full Year · FY26	Low

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Markel Group Consolidated Operating revenues were flat for both the quarter and the first six months compared to the prior year. Adjusted operating income decreased due to the State National charge. Operating income (Q2): $1.6B vs $1.1B (Q2 FY25)Operating income (6M): $1.3B vs $1.4B (6M FY25)Adjusted operating income (Q2): $436M vs $578M (Q2 FY25)Adjusted operating income (6M): $934M vs $1.1B (6M FY25)Net income to common shareholders (Q2): $1.2BDiluted EPS (Q2): $93Net income to common shareholders (6M): $957MDiluted EPS (6M): $74	$4.0B	flat	—	—
Markel Insurance Improved underwriting profitability and higher net investment income drove increased adjusted operating income. Growth was strong when excluding the impact of exiting Global Reinsurance and transitioning the Hagerty program. Gross written premiums (Q2): $2.4B vs $2.8B (Q2 FY25)Gross written premiums (6M): $4.6B vs $5.6B (6M FY25)Growth (ex-Global Reinsurance and Hagerty fronting): 10% (Q2 and 6M)Net earned premiums (Q2): down 3%Net earned premiums (6M): down 3%Combined ratio (Q2): 93% vs 97% (Q2 FY25)Combined ratio (6M): 93% vs 96% (6M FY25)Catastrophe losses (Q2): $41M (2 points) related to Middle East conflictCatastrophe losses (6M): $76M (2 points) related to Middle East conflictAdjusted operating income (6M): $746M vs $552M (6M FY25)Total operating income (H1, including net investment gains): $1.2B	—	—	—	Adjusted operating income (Q2): $376M
International division (Insurance) Growth was led by marine and energy, general liabilities, and professional liability lines. The combined ratio was impacted by catastrophe losses from the Middle East conflict. Gross written premiums (Q2): $890MCombined ratio (Q2 FY25): 78%Middle East conflict losses: 6 points (Q2)	—	31%	—	Combined ratio: 82%
U.S. Wholesale and Specialty division (Insurance) The decrease in GWP was driven by intentional contraction in binding contractors and casualty lines and a softening property rate environment, partially offset by growth in professional liability. The combined ratio improved due to underwriting actions. Gross written premiums (Q2): $799MCombined ratio (Q2 FY25): 102%	—	down 4%	—	Combined ratio: 97%
Programs and Solutions division (Insurance) The reduction in GWP was primarily due to the shift of the Hagerty program to a pure fronting model. The combined ratio increased due to a higher current accident year loss ratio in personal umbrella and certain delegated programs. Underwriting gross written premiums (Q2): $717MGrowth (ex-Hagerty shift): 6%Combined ratio (Q2 FY25): 91%	—	down 27%	—	Combined ratio: 94%
Industrial segment Revenue growth was driven by a bolt-on acquisition. Organic revenue was flat due to lower sales volume in car hauling equipment, offsetting growth in precast concrete and fire safety services. Adjusted operating income declined due to tighter margins and softer demand. Revenue (6M): $1.9BRevenue growth (6M): 4%Organic revenue (Q2): flatOrganic revenue (6M): 2%Adjusted operating income (Q2 FY25): $105MAdjusted operating income (6M): $125MAdjusted operating income (6M FY25): $162M	$1.0B	2%	—	Adjusted operating income: $75M
Financial segment The segment recorded an adjusted operating loss primarily due to the $205 million bad debt charge within State National Programs. Prior year's 6-month revenue included nonrecurring gains of $41 million. Revenue (Q2 FY25): $173MRevenue (6M): $333MRevenue (6M FY25): $351MAdjusted operating income (Q2 FY25): $78MAdjusted operating loss (6M): $113MAdjusted operating income (6M FY25): $158MBad debt charge: $205M	$171M	—	—	Adjusted operating loss: $149M
Consumer and Other segment Increased sales volume, particularly in ornamental plants during the seasonally strongest period, drove revenue and adjusted operating income growth. Organic revenue was essentially flat for the first six months. Revenue (6M): $832MRevenue growth (6M): 2%Organic revenue (6M): flatAdjusted operating income (Q2 FY25): $102MAdjusted operating income (6M): $162MAdjusted operating income (6M FY25): $134M	$552M	4%	—	Adjusted operating income: $122M

Product announcements

Product	Type	Timeline	Details
Cortex business unit	launch	last week (relative to call date)
AI accelerator fund	launch	February of this year (launched), April (ideas put into production)

Deals & partnerships

Bain & Co Partnered to build a new strategic business unit (Cortex) for U.S. casualty risks.

Collaboration to reimagine underwriting and servicing of hard-to-place U.S. casualty risks using AI tools, leading to the launch of Cortex.

Harvey AI Partnered to deploy generative AI across 6 classes of business for sophisticated specialty underwriting.

Comprehensive wiring of 6 classes of business across U.S. and international operations, totaling over $500 million of existing GWP, to enhance underwriting efficiency and accuracy.

Risks & headwinds

Collateral shortfall and reserve charge in State National Q2 FY26

$205M reserve charge

Mitigation:Conservative estimate, internal and third-party actuarial review, State National is well-capitalized and part of Markel Group's diversified system.

Soft end market conditions in Industrial segment H1 FY26, continuing

Adjusted operating income down 27% to $75M (Q2 FY26)

Mitigation:Long-term competitive position, enduring and essential end markets, making long-term SG&A investments for future growth.

Softening property rate environment and aggressive competition H1 FY26, expected to continue in H2

GWP down 4% in U.S. Wholesale and Specialty

Mitigation:Disciplined underwriting, walking away from risks where technical rates are not met, focusing on areas where Markel can add value.

Divergence between casualty claims trend and rates current

Claims trending 10-12%, rates ~9%

Mitigation:Reducing line sizes, decreasing exposure to construction casualty, launching Cortex business unit for hard-to-place risks, operating in a defensive mode.

Higher current accident year loss ratio in personal umbrella and certain delegated programs Q2 FY26

Combined ratio up to 94% in Programs and Solutions

Mitigation:Proactively increased loss pick on personal umbrella line earlier than typical, based on early signs of adverse trends.

What to watch in Q3 FY26

Underwriting Profit Trajectory

next quarter

Current Previously targeted $700M, now 'a little lighter'

Target Clarity on revised full-year underwriting profit outlook

Why it matters

Underwriting profit is a key driver of insurance segment performance and overall profitability.

I think that it's probably a little lighter than that, but we're very encouraged by the progress so far, and I don't want to put a number on it.

Find out whether MKL delivers this. Inve re-checks your case every morning.

Q&A highlights

Was the third-party actuarial review for the State National collateral shortfall limited to one counterparty or did it cover all unrated reinsurance partners?

The specific third-party engagement was limited to the contract with identified issues, though management continuously reviews all exposures. The $205 million reserve reflects a conservative estimate based on a comprehensive internal review and external validation.

“That specific engagement was for the specific contract where we thought we had some issues, and we wanted to nail that down. the best of our abilities. As you might imagine, we as managers do in our duty are looking at everything at the same time, but the specific third party was engaged just for that topic.”

asked by Tracy Benjiji · answered by Thomas Gayner

2 min read 5 chapters

Detailed narrative

Insurance Business Transformation and AI Adoption

Markel Insurance has undergone a significant reorganization, establishing 3 divisions and 14 business units, each with clear leadership and financial plans. This restructuring, focused on customer obsession and empowering business leaders, has led to improved and more consistent underwriting results, with the combined ratio at 93% for four consecutive quarters.

The company is also aggressively deploying AI, including launching a new business unit, Cortex, for U.S. casualty risks, wiring 6 classes of business with generative AI to reduce risk assessment time by 50-90% and achieve over 90% accuracy, and funding an AI accelerator for ground-up innovation.

State National Collateral Shortfall and Reserve Charge

The Financial segment recognized a $205 million reserve charge in Q2 FY26 due to a collateral shortfall within its State National business. This issue stemmed from losses developing faster than collateral for specific primary habitational casualty business, concentrated in a few states, written between 2012 and 2021.

Management engaged a third-party actuarial firm for this specific contract and confirmed that the charge reflects a conservative estimate, consistent with Markel's reserving philosophy. Despite this, State National remains well-capitalized and a significant contributor to Markel Group's long-term earnings.

Capital Allocation and Shareholder Returns

Markel Group continues its 360-degree approach to capital allocation, prioritizing long-term returns. The company repurchased $237 million of its shares in Q2 FY26, bringing year-to-date repurchases to $371 million and over $2 billion since the beginning of 2022. These repurchases, funded through earnings and not leveraging up, have reduced outstanding shares by nearly 10% over the last five years, contributing to a 16% compound annual growth rate in average operating income per share over the same period.

The company maintains a solid balance sheet to pursue acquisitions and investments.

Segment Performance Dynamics

The Industrial segment experienced a 27% decline in adjusted operating income to $75 million in Q2 FY26, despite a 2% revenue increase, primarily due to tighter margins and softer demand in cyclical markets like car hauling equipment. Conversely, the Consumer and Other segment saw strong performance, with adjusted operating income growing 20% to $122 million on 4% revenue growth, driven by leadership execution, higher-margin businesses, and acquisitions.

The International insurance division showed robust growth, with gross written premiums up 31% to $890 million, while U.S. Wholesale and Specialty GWP declined 4% due to strategic contractions and a softening property market.

Underwriting Discipline and Market Conditions

Markel is focused on underwriting discipline, prioritizing bottom-line profit over top-line growth. In casualty lines, claims are trending in the low double digits (10-12%), while rates are slightly below (around 9%), leading Markel to reduce line sizes and exposure to construction casualty.

The property market remains highly competitive, with rates continuing a downward trajectory, prompting Markel to walk away from risks where technical rates are not met. Management notes an encouraging trend of increased discipline across the insurance industry, suggesting more stable market cycles.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.