Markel Group Inc.

Good morning and welcome to Marquette Corporation's second quarter 2020 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchstone phone. To withdraw your question, please press star then two. During the call, we will make forward-looking statements with the meaning of Private Securities Litigation Reform Act of 1995. They are based on current assumptions and opinions concerning a variety of known and unknown risks. Actual results may differ materially from those contained in or suggested by such forward-looking statements. Additional information about factors that could cause actual results to differ Materially from those projected in the forward-looking statement is included under the captions risk factor and safe harbor and cautionary statement. In our most recent annual report on Form 10-K and quarterly report on Form 10-Q, we may also discuss certain non-GAAP financial measures in the call today. You may find the most directly comparable GAAP measures and reconciliation Thank you so much. Good morning.

and welcome to the Markel Corporation second quarter conference call. This is Tom Gayner and I'm joined today as usual by my co-CEO Richie Witt as well as our CFO Jeremy Noble. That may be the last time we get to use the word usual in this call. There doesn't seem to be much that would fall into the camp of usual these days. In fact, I've commented for the last several months that there is an unprecedented use of the word unprecedented So far in 2020, unprecedented strikes me as the right word to use. I look forward to the day it becomes an overused cliche, but I don't think we're there yet. Despite the unprecedented conditions that we and everyone else face, we've got good news to report to you this morning. Across Markel, in every business, and for every customer, our people exhibited unusual and spectacular adaptability and dedication to serve our customers and each other. Our second quarter results with meaningful growth and profitability in each of the three engines of insurance, investments, and ventures reflect their efforts. All of the associates of Markel worked unbelievably hard and with great dedication and creativity to find a way forward. Speaking for Richie and Jeremy, I want to extend our thanks to our dedicated associates and the way in which the people of Markel have adapted and persisted to serve our customers amidst the unprecedented conditions triggered by the coronavirus. Now while much of today's call will focus on financial measurements and the effects of COVID-19, I want to take a moment to also address another virus we're facing as a society, namely the virus of racism. Let me be clear, we explicitly reject racism and discrimination. We are fully committed to the dignity and worth of each and every individual. During the last few months, Richie and I have had the opportunity to listen to many of our associates and hear their voices and stories in new ways. We are listening and learning. I think the difficult conversations are having a very positive effect. We're confronting issues and problems that we haven't faced before in such a head-on way. The honesty and openness is refreshing, and I think it gives us all a chance to learn in a new way and to make real progress. We mean the words of the Markov style. Those words include fairness in all our dealings and providing an atmosphere in which people can reach their personal potential. We cite those core beliefs because they are crucial components behind another statement in the style, namely the quest to find a better way to do things. count on our consistent commitment to these ideals. At this point, let me return to the financial reports in the second quarter. Jeremy will provide you with an update on the numbers, and then Richie will update you on our insurance and insurance-linked securities operations. I will then follow with comments on our investments and ventures operations. After that, we look forward to answering your questions.

Jeremy? Thank you, Tom, and good morning, everyone. Our underwriting, investing, and marketable ventures results for the first half of 2020 were meaningfully impacted by the effects of the COVID-19 pandemic. But encouragingly, we saw positive contributions from each of our three engines during the second quarter. While COVID-19 has and likely will continue to influence both the asset and liability sides of our balance sheet, our financial condition was strong at the end of the second quarter. We are well positioned to take advantage of opportunities that are being presented and the specialty insurance marketplace. Looking at our underwriting results, gross written premiums were $3.7 billion for the first half of 2020, compared to $3.3 billion in 2019, an increase of 12%. This increase was due almost entirely to our insurance segment, which reported gross written premiums of $3 billion, an increase of 16% compared to 2019. This growth related primarily to increased writing within our professional liability General Liability, Grinnan Energy, and Personal Lines, Product Lines. Gross written premium within our reinsurance segment was consistent with 2019 at roughly $740 million. Year-to-date retention of gross written premiums held constant at 84% in both 2020 and 2019. Earned premiums increased 12% to $2.7 billion in 2020, primarily due to higher written premium volume in our insurance segment. Our consolidated combined ratio for the first six months of 2020 was a 103 compared to a 95 in 2019. For the second quarter of 2020, we reported an 88 combined ratio compared to a 95 a year ago. As we discussed a quarter ago, we recognized $325 million of pre-tax net losses and loss adjustment expenses during the first quarter for those policies and contracts where COVID-19 was identified as an approximate cause of loss. There were no changes in our loss estimates during the second quarter. These COVID-19 losses increased our consolidated combined ratio for the first six months of 2020 by 12 points. Our initial estimates of losses directly attributable to COVID-19 at the end of March reflected limited claims reporting. However, after considering the additional data gathered through increased claims reporting activity in the second quarter, 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 are primarily associated with coverages for event cancellation and business interruption losses in 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 and many more. As the overall effects of the 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 have 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 indirect COVID-19 losses will at least be partially offset by the benefits 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've mentioned in prior calls, given our long-term focus, variability in 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 decline in the fair value of our equity portfolio during the first quarter, we saw meaningful recoveries in the second quarter. Net investment losses for the first half of 2020 were $770 million, compared to net investment gains of $1 billion last year, a year-over-year decline of $1.8 billion. With regards to net investment income, we reported $184 million in the first half of 2020, compared to $226 million in the first half of 2019. The decline is largely due to lower short-term interest rates and lower holdings on 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 Mark Hill Ventures segment. Revenues from Markel Ventures increased to $1.2 billion for the first half of 2020, compared to $1.1 billion last year. Higher revenues from our services businesses were partially offset by lower revenues within our products businesses. Revenues within our services businesses reflect the contributions of revenues from our acquisition of Lansing Building Products, which we completed in late April, and acquisition of VSC Fire and Security, which closed during the fourth quarter of 2019. Within our products businesses, the economic and social disruption caused by COVID-19 resulted in decreased demand in many of our businesses during the second quarter. EBITDA from Markel Ventures was $173 million for the first half of 2020, compared to $160 million last year, reflecting the contributions of Lansing and VFC, partially upset by the impact of lower operating revenues in certain of our businesses. Looking at our consolidated results for the year, Our effective tax rate was at 21% for the first half of 2020 compared to 22% in 2019. We reported a net loss to common shareholders of $484 million for the first half of 2020 compared to net income to common shareholders of $1.1 billion a year ago. Driven by the net loss, comprehensive loss to shareholders for the first half of 2020 was $260 million compared to comprehensive income of $1.4 billion in 2019. Finally, I'll make a few comments on cash flows, capital, and our balance sheet. Net cash provided by operating activities was $489 million for the first half of 2020 compared to $249 million for 2019. Operating cash flows for 2020 reflected the effects of lower claims settlement activity in both our insurance and reinsurance segments and higher premium collections as we've seen strong growth in our insurance segment over the past several quarters. Invested assets of the holding company were $3.7 billion at June 30th, compared to $4 billion at the end of 2019. The decrease in holding company invested assets was due to funds used to acquire Lansing, as well as the decrease in the fair value of our equity portfolio, again related to the impacts of COVID-19, all of which was partially offset by the proceeds from our preferred shares offering. We recognize the importance of liquidity and a strong balance sheet in times of uncertainty. We intend to ensure Markel is resilient for the long term. In addition to the steps we began taking in early March to maintain our ongoing capital and liquidity needs and manage against volatility, in May 2020, we issued $600 million of 6% fixed rate reset non-cumulative Series A preferred shares with no par value and a liquidation preference of $1,000 per share for an aggregate net proceeds after expenses of $592 million. We continue to maintain a fixed-maturity portfolio comprised of high-credit-quality investment-grade securities with an average rating of AA. Our debt-to-total capital ratio at the end of June is 24%, unchanged from the end of 2019, and we have no unsecured senior notes for Turing until July of 2022. We believe we are well positioned to meet the ongoing capital liquidity needs, including supporting growth in our insurance operations, should we continue to see attractive opportunities in the specialty marketplace. Total shareholders' equity stood at $11.4 billion as of the end of June, compared to $11.1 billion at year end. Much as I said a quarter ago, the unprecedented events surrounding COVID-19 certainly impacted our year-to-date results. However, the actions we've taken over the years to build a diverse and resilient organization will help us navigate through the current uncertainty arising from this pandemic. We are well-positioned to continue our efforts to build one of the world's great companies. With that, I'll turn it over to Richie to talk more about our insurance business.