Markel Group Inc.

Good morning and welcome to the Markel Corporation first quarter 2022 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 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 these projected from those projected in the forward-looking statements is included in our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the captions Risk Factors and Safe Harbor and Cautionary Statement. We may also discuss certain non-GAAP financial measures in the call today. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in our most recent Form 10-Q. Our Form 10-K and Form 10-Q can be found on our website at www.markell.com in the For Investors section. Please note this event is being recorded. I would now like to turn the conference over to Tom Gaynor, Co-Chief Executive Officer. Please go ahead.

Thank you, Andrea. Good morning. This is indeed Tom Gaynor, and it is my pleasure to welcome you to the first quarter of Markell Corporation Conference Call. I'm joined today by our co-CEO, Richie Witt. and our CFO, Jeremy Noble. As always, our objective is to share the news from our most recent financial statements, and more importantly, answer any questions you might have about Martell and the circumstances of your company. We always look forward to your thoughtful questions. In addition to this call, we've got two other events coming up that I offer up as chances to spend meaningful time with management. First, This weekend, we'll be heading back to Omaha to attend the Berkshire Hathaway annual meeting, as we've done for decades. We'll be hosting our annual Sunday brunch at 10 a.m. at the Marriott next to the Convention Center, and if you can join us, we'd love to see you. We take questions for a couple hours that day, and we absolutely love the chance to spend time with fellow long-term investors in Omaha during Berkshire weekend. Second, the Markell annual meeting will be at 2 p.m. on Wednesday, May 11th at the Virginia Credit Union Live Concert Arena at the Richmond Raceway. We invite you all to attend, and we'd welcome the chance to spend time with you at our upcoming annual meeting. As to the financial results of the first quarter, I'm very pleased with our performance, and I hope you share our sense of accomplishment and optimism. The first quarter is a short 90-day view of Markell. We enjoy three engines of insurance, Markel Ventures, and investments. While it is lovely when all three engines provide positive thrust, Markel is designed to succeed even if not all three are firing. In one dimension, i.e., that of the last 90 days, you can accurately say that only two of our three engines fired. That is correct, since in the first quarter, we earned excellent returns in our insurance and ventures operations, but experience negative mark-to-market swings in our investment portfolio. If I put myself in your shoes as an owner of Markel, though, here is what I would expect over time. There should be no surprises to you in our insurance operations when we report the results of any one quarter. You, as observers of the world, can know through regularly reported news whether major loss events like natural catastrophes, pandemics, wars, wildfires, tsunamis, hurricanes, earthquakes, or other big events took place or not. Given what you already know from general awareness of the news, I suspect you as reasonably informed and thoughtful owners would have some sense of how our insurance operations might perform. Richie will give you more details in a minute, but I'm pleased to be able to report to you that we enjoyed excellent results in our insurance operations, and I don't think we're reporting anything that should surprise you. Similarly, in our ventures operations, we've put together a diversified and robust set of businesses that have demonstrated their excellence for many years and through incredibly varied conditions, including the pandemic, supply chain issues, inflation, trade tensions, technological change, and all those factors I listed when I was talking about insurance. I'm pleased to report ongoing meaningful growth and profitability for Markel Ventures as we begin 2022. Jeremy will give you the numbers in just a minute. Finally, while the first 90 days saw mark-to-mark declines in our publicly traded portfolio of stocks and bonds, I think you as investors would agree that we are likely to regularly experience the most reported volatility with our investment engine as compared to the others. Given that reality, longer-term measurements matter way more than those of any given quarter. We regularly measure things in five-year time increments, including how we calculate incentive compensation for senior management, and I thought it might be helpful to take a quick glance at what the investment engine produced over the last five years as opposed to the last 90 days. On March 31, 2017, our equity portfolio stood at roughly $5 billion. Five years later, it stands at $8.7 billion, an increase of 74%. On March 31, 2017, our equity portfolio had an unrealized gain of roughly $2.5 billion. Five years later, it stands at $5.8 billion, an increase of 132% over that time. On March 31, 2017, each share of Markel sold for $978. Five years later, each share sold for $1,492, an increase of 53%. Those last five years included the pandemic, wildfires, tsunamis, and just about any other challenge you could imagine or even ones you couldn't imagine. While we necessarily report quarterly financial results as a publicly traded company, we think about and manage Markel over much longer timeframes. Financially, we tie our compensation of senior management to five-year rolling results, and in reality, we think in even longer timeframes such as decades and generations as we run this business. With that as a preamble, I'd now like to turn things over to Jeremy to provide you with the details from the first quarter.

Thank you, Tom, and good morning, everyone. Tom mentioned the first quarter of 2022 highlights the benefits that come from our diversified three-engine architecture at Markel. Volatility within the public equity markets and the effects of rising interest rates on our bond portfolio, while weighing down our investment returns during the quarter, were somewhat mitigated by strong operating results within our insurance and Markel Ventures operations. Looking at our underwriting results, gross written premiums were $2.5 billion for the first quarter of 2022, compared to $2.2 billion in 2021, an increase of 16%. Our increased premium volume reflects new business volume, more favorable rates, and expanded product offerings across many of our product lines, with the most notable growth coming from our professional liability and general liability product lines in both our insurance and reinsurance segments. Retention of gross written premiums was 86% in 2022, which is down one point from the same period last year. Our consolidated combined ratio for the first quarter of 2022 was an 89, which included $35 million, or two points, of net losses and loss adjustment expenses, and $12.3 million of seeded reinstatement premiums attributed to the Russia-Ukraine conflict. This compares to a 94 combined ratio for the same period last year, which included $64 million, or four points, of losses attributable to winter storm URI, and $19 million, or one point, of adverse development arising from a change in our estimate of COVID-19 ultimate losses a year ago. Excluding these loss impacts from both years, our consolidated combined ratio for the first quarter of 2022 was an 87 compared to an 88 the same period of 2021. This improvement reflects a lower attritional loss ratio within our insurance segment and a lower expense ratio, partially offset by less favorable development on prior year loss reserves. Higher earned premiums in 2022 compared to 2021 had a favorable impact on our expense ratio and an unfavorable impact on our prior accident years loss ratio. With regards to prior year loss reserve development, prior year loss reserves developed favorably by $96 million in the first quarter of this year compared to $91 million in the first quarter of last year. Turning to our investment results, net investment losses were $358 million in the first quarter of 2022 and were primarily attributable to a decrease in the fair value of our equity portfolio driven by unfavorable market value movements. This compares to net investment gains of $527 million in the first quarter of 2021 attributable to an increase in the fair value of our equity portfolio driven by favorable market value movements. 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 typically measure investment returns over longer periods of time. With regards to net investment income, we reported $73 million in the first quarter of 2022 compared to $97 million in the same period last year. The decrease this quarter reflects the impact of losses recognized on equity method investments, in the first quarter of this year, most notably our investment in Hagerty. Net investment income on our fixed maturities in 2022 was consistent with 2021, as the impact of higher average holdings of fixed maturities in 2022 was largely offset by lower yields compared to the same period a year ago. As a reminder, for accounting purposes, we are deemed to have the ability to exercise significant influence over Hagerty and therefore account for our investment in Hagerty under the equity method rather than at fair value. As of March 31st, 2022, the carrying value of our investment in Hagerty was $239 million, which was included in other assets on the consolidated balance sheet. As of March 31st, 2022, the estimated value of our investment based on the closing stock price of Hagerty's Class A common shares was approximately $840 million. Net unrealized investment gains decreased $476 million net of taxes during the first quarter of this year reflecting a decline in the fair value of our fixed maturity portfolio, resulting from increases in interest rates during the first quarter. As a reminder, we tend to hold substantially all of our fixed maturities until they mature. Now I'll cover the results of our Markel Ventures segment. Revenues from Markel Ventures increased 35% to $950 million in the first quarter of 2022, compared to $707 million for the comparable quarter last year. This increase reflects the contribution of revenues from our December 2021 acquisition of Metromon and August 2021 acquisition of Buckner, as well as strong organic growth across many of our other businesses. EBITDA from Markel Ventures was $96 million in the first quarter of 2022, compared to $81 million during the same period last year. The increase reflects higher revenues and improved operating results at our construction services and consulting services businesses, as well as a contribution from Metromon. As a reminder, EBITDA in the first quarter of 2021 included a pre-tax disposition gain of $22 million in connection with the sale of a portion of one of our healthcare businesses. Looking at our consolidated results for the quarter, our effective tax rate for the first quarter was 27%, which results having a relatively small pre-tax loss during the period. The estimated annual effective tax rate was 21% in the first quarter of both 2021 and 2022. We reported a net loss to common shareholders of $53 million in the first quarter of 2022 compared to net income to common shareholders of $574 million in the same period a year ago, largely attributed to the year-over-year swing in changes to our public equity portfolio evaluation. Comprehensive loss to shareholders for the first quarter of 2022 was $529 million compared to comprehensive income to shareholders of $359 million in the first quarter a year ago. again, driven by both fixed maturity and public equity valuations. Finally, I'll highlight a few transactions in the period and make a few comments on cash flows capital in our balance sheet. First, in March of this year, we completed the previously announced buyout transaction related to Markel CatCo, accelerating the return of all remaining trapped capital to investors in the Markel CatCo funds. Under the terms of the transaction, we provided cash funding of $45 million to purchase substantially all of Markel CatCo funds investments in Markel CatCo RE, which at present we anticipate being returned to us in time as remaining trust fund collateral is released. We also made $102 million in additional payments, net of insurance proceeds, to or for the benefit of investors in exchange for releases of all claims related to the transaction, the CatCo businesses, and investors' investments in the funds, including any pending litigation, which was recognized as an expense during the first quarter of 2022. We expect that the remaining runoff of CADCO will have minimal effect on our future results. Second, within our Nafila ILS operations, there were two transactions worth touching upon. In February 2022, we sold the majority of our controlling interest in our Velocity Managing General Agent operations for total cash consideration of $181 million, which resulted in a gain of $107 million. We continue to have a minority interest in Velocity after the sale, Velocity will continue to be a source of risk origination for our Nafila fund management operations. In March 2022, we entered into a definitive agreement to sell our controlling interest in our Volante managing general agent operations. This transaction is expected to close later this year in the third quarter and is subject to regulatory approvals and customary closing conditions. Following the disposition of Nafila's Volante operations, our Nafila ILS operations will be solely comprised of its core fund management operations. Turning to cash flows, net cash provided by operating activities was $415 million for the first quarter of 2022, compared to $318 million for the first quarter of last year. Operating cash flows in the first quarter of 2022 reflected strong cash flows from our underwriting operations, given the growth in premium volume. Total shareholders' equities stood at $14.1 billion at the end of March, compared to $14.7 billion at the end of the year. During the quarter, we repurchased 63,000 shares of our stock under our outstanding share repurchase program. All in all, we are pleased with the start of the year, particularly with the strong results in our insurance and Markel Ventures operations. We remain committed to building shareholder value over time. We believe we continue to advance this effort in the first quarter. With that, I'll turn it over to Richie to talk more about our insurance business.