Markel Group Inc.

Good morning and welcome to the Markel Corporation third 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, please press star then one on your touchtone phone. To withdraw your question, please press star then two. During the call today we may make forward-looking statements within the meaning of the 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 statements is included under the captions Risk Factors and Self 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 gap measures and a reconciliation to gap for these measures in our most recent Form 10Q, which can be found at our website at www.markell.com in the Investors Relations section. Please note this event is being recorded. I would now like to turn the conference over to Tom Gayner, Co-Chief Executive Officer. Please go ahead.

Thank you, Emily. Good morning and welcome. We apologize for the delay in starting the call this morning. We understand that one of the numbers that was distributed was incorrect and connected you to the replay, which of course has not happened yet. This is the actual call. We've sent out an email with the correct number and we see a roster is being assembled in something of a slow and arduous fashion. We apologize for that error on our part. We hope others are able to join us in process and that the replay will work as functioned and we are grateful that you're You're here this morning. So good morning and welcome. As stated, this is Tom Gayner. I'm here today with our co-CEO, Richie Witt, and our CFO, Jeremy Noble. We're glad you've joined us, and we look forward to briefing you on current conditions as well as answering your questions. I'm not telling you anything you don't know when I say that 2020 remains unlike any other year. The systemic challenges of the COVID-19 pandemic and all that follow in its wake remain immense and unrelenting. That said, I could not be more proud of the efforts of everyone in this organization to truly serve our customers, our associates, and our shareholders in the face of adversity. We've provided for claims and financial assistance to our policyholder customers to cover substantial losses and economic costs. Those losses stem not just from the things you see in the headlines regarding the pandemic, but also a spate of natural catastrophes such as more hurricanes than hurricane names, wildfires, a major derecho, and ongoing and recurring events and circumstances that we see regularly in our insurance operations. We continue to provide necessary and desirable products and services throughout our Markel Ventures operations. That includes building the machines that bake bread. Things don't get much more basic or necessary than that. Man Does Not Live by Bread Alone. We also produce and provide everything from medical services, housing, houseplants to brighten your day, and trailers to convey everything from industrial gases to the car you drive. We make truck floors to keep the products you need from falling out of the bottom of the trailer, technology consulting services to manage and keep track of it all, and many other items as well. And by the way, we also provide fire suppression services to keep it off from catching on fire. We're doing our best to keep our associates safe and gainfully employed throughout these trying times. We're also working to produce financial results, which create the capital we need to be able to serve our customers and associates. Over many years, and as displayed through the first nine months of 2020, we've built a system at Markel to be a resilient and robust company. We work to serve and dependably honor the promises we make. We've built a diversified three-engine machine consisting of our insurance, investment, and Markel Ventures operations. Those components work together to fulfill our purpose each and every day. We're delighted to be able to report our 2020 year-to-date progress in doing so this morning. Clearly, work remains to be done. While our insurance operations remain mildly in the red to the year-to-date, we've recovered dramatically since the first quarter shock losses We recognize that the onset of the COVID-19 pandemic, we've accelerated our pace of making tough but necessary decisions to increase the durability and quality of our insurance operations, which will be measured by improved profitability. In our investment operations, we're reporting profitable results through the first nine months. While that is always too short a timeframe to draw conclusions about investing, Those results continue a multi-year pattern of conservative and profitable investing. Our investments protect our balance sheet and stand behind the promises we make, and they also produce appropriate returns. In our ventures operations, we produced outstanding results so far in 2020. The leaders of the ventures businesses adapted and figured out ways to surmount unprecedented conditions and circumstances. I am grateful and amazed for their work and accomplishments. The performance of our three engines demonstrates the resilience and the spirit of Markel to fulfill our purpose of serving our customers, our associates, and our shareholders. We believe in win-win-win as the fundamental architecture underlying Markel, and we're pleased to be able to share how that played out in the unprecedented conditions of 2020 today. Even more importantly, we hope this update provides you with a shared optimism of how we will continue to evolve and build even more resilience and sustainability going forward. At this point, I'll turn the call over to Jeremy to review the financial details of the year to date. Richie will then follow with some commentary on our insurance and insurance-linked securities operations, and then I will speak briefly about our ventures and investment engines. Following that, we will take your questions. With that, Jeremy.

Thank you, Tom, and good morning, everyone. Our underwriting, investing and Markel Ventures results continue to be heavily influenced by the effects of the COVID-19 pandemic. Fortunately, we saw positive contributions from each of our three engines during the third quarter. Our insurance operations produced an underwriting profit despite elevated levels of natural catastrophe losses, as well as increases to reserves related to the pandemic, reflecting the strong underlying performance of our business. Our Markel Ventures operations delivered meaningful profits, demonstrating their resilience despite economic uncertainty, and our investment portfolio also saw gains amid volatile market conditions. Looking at our underwriting results, gross written premiums were $5.4 billion for the first nine months of 2020 compared to $4.9 billion in 2019, an increase of 10%. This increase was attributable to our insurance segment, which reported gross written premiums of $4.5 billion, an increase of 13% compared to the 2019 period. This premium growth is attributable to both our growth and more favorable rates within our professional liability and General Liability product lines, as well as growth in our personal product lines. Gross written premiums within our reinsurance segment were consistent with the 2019 period at roughly $960 million. Year-to-date retention of gross written premiums was 83% in 2020, which is down one point from 84% in 2019. And earned premiums through the first nine months increased 10% to $4.1 billion in 2020, primarily due to higher written premium volume in our insurance segment. Our consolidated combined ratio for the first nine months of 2020 was a 101 compared to a 95 in 2019. For the third quarter of 2020, we reported a 97 combined ratio compared to a 94 a year ago. Our 2020 combined ratio included nine points of underwriting losses attributed to COVID-19 for the nine-month period compared to three points for the quarter. As I've discussed For the past two quarters, we recognized $325 million of pre-tax net losses and loss adjustment expenses during the first quarter of this year for those policies and contracts where COVID-19 was identified as the proximate or direct cause of loss. During the third quarter, we increased our loss estimates on these coverages by $32 million and also recognized $15 million of losses on our trade credit product line arising from the economic uncertainty resulting from the pandemic. As a reminder, Our losses for 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 includes assumptions around coverages, liability reinsurance protection, duration, and loss mitigation factors, as well as the fact that the economic impacts of the pandemic continue to evolve, our estimates continue to be subject to a wide range of variability. During the third quarter, a test case of a sample of business interruption coverages for policies written in the United Kingdom was completed, with the court's judgment finding mostly in the favor of policyholders. This ruling was most impactful to certain estimates in our reinsurance segment, where we increased our estimate of losses and loss adjustment expenses on certain treaties following increase in estimated losses by our seedings. Within our insurance segment, the ruling did not meaningfully impact the reserves previously established for business interruption coverage, given the assumptions we initially made in our policy terms and conditions. Our estimate that September 30th, 2020 also reflect additional data gathered through increased claims reporting and change in our expected duration of the pandemic, which was most impactful to our event cancellation coverages. In addition to the explicit provision of losses recognized during the quarter on our trade credit product line, as the overall effects of the pandemic continue to evolve, further losses indirectly related to the COVID-19 pandemic are possible and may also emerge within our professional liability and workers' compensation product lines, among others, including our reinsurance product lines. To date, we have not seen any other evidence of significant incurred losses increasing for these secondary exposures. Our underwriting results for the first nine months of both 2020 and 2019 also reflect losses attributable to natural catastrophes. Our 2020 combined ratio included $101 million, or two points, of underwriting losses from Hurricanes Laura, Sally, Izayas, as well as the Midwest Oretjo and wildfires in the western U.S., compared to our 2019 combined ratio, which included $43 million, or one point, of underwriting losses from Hurricane Dorian and Typhoon Faxile. With regards to prior year loss reserve development consisting with our reserving philosophy, prior year loss reserves developed favorably by $435 million in the first nine months of 2020 compared to favorable prior year development of $337 million in 2019. Turning to our investment results, following the significant declines in the fair value of our equity portfolio during the first quarter, we have seen meaningful recoveries in the second and third quarters. Net investment losses for the first nine months for 2020 for $231 million compared to net investment gains of $1.1 billion last year, a year-over-year decline of $1.3 billion. 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, and we may continue to see volatility in the equity markets due in part to the economic uncertainty caused by the pandemic. With regards to net investment income, we reported $274 million for the first nine months of 2020, and many more. The decline is largely due to lower short-term interest rates and lower holdings of fixed-maturity securities in 2020. Net unrealized investment gains increased $298 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 nine months of the year. Now we'll cover the results of our Markel Ventures segment. Revenues from Markel Ventures surpassed $2 billion through the first nine months of 2020, compared to $1.6 billion last year. This increase reflects the contribution of revenues from our recent acquisition of Lansing Building Products, which we completed in late April, and the acquisition of VSC Fire and Security, which closed during the fourth quarter of 2019. Excluding the contributions of Lansing and VSC in 2020, operating revenues in our Markel Ventures operations decreased compared to 2019, as a result of decreased demand attributed to the economic and social disruption caused by the COVID-19 pandemic. EBITDA from Markdale Ventures was $284 million for the first nine months of 2020 compared to $219 million last year, reflecting the contribution of Lansing and VSC as well as growth and improved operating results in certain of our businesses. Looking at our consolidated results for the year, our affected tax rate for the first nine months of 2020 was not meaningful through the small pre-tax loss in the period. The effective tax rate was 22% for the nine months ended September 30th, 2019. And the estimated annual effective tax rate for both periods was 21%. We reported a net loss to common shareholders of $31 million for the first nine months of 2020 compared to net income to shareholders of 1.3 billion a year ago. And when combined with the contribution of the increase in net unrealized gains on our fixed maturity portfolio, Comprehensive income to shareholders for the first nine months of 2020 was $260 million compared to $1.6 billion a year ago. Finally, I'll make a few comments on cash flows, capital, and our balance sheet. Net cash provided by operating activities was $1.3 billion for the first nine months of 2020 compared to $712 million in 2019. Operating cash flows for 2020 reflected 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 $3.8 billion at the end of September, compared to $4 billion at the end of 2019. The change in holding company invested assets reflects funds used to acquire Lansing, as well as a decrease in the fair value of our equity portfolio, both of which were partially offset by the proceeds from our May 2020 preferred shares offering. Total shareholders' equity stood at $11.9 billion at the end of September, compared to $11.1 billion at year end. 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 September was 23%, down slightly from 24% at year-end, and we have no unsecured senior notes maturing until July 2022. We believe we are well-positioned to meet our ongoing capital and liquidity needs, including supporting the growth in our insurance operations, as we expect to continue to see attractive opportunities in the specialty insurance marketplace. I'll turn it over to Richie to talk more about our insurance business.