Markel Group Inc.

Good morning and welcome to the Markel Corporation third quarter 2022 conference call. All participants will be in a 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, press star one again. 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 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, Regina. Good morning. Let me add my welcome for the Markell Corporation third quarter conference call. This is indeed Tom Gaynor. It is my pleasure to welcome you to our quarterly call. I'm joined this morning by my co-CEO, Richie Witt, and our CFO, Jeremy Noble. They will update you on our overall financial results and our insurance operations in just a minute. But before they do, as they say in the news business, don't swallow the headline. Well, here's the headline. Things are going very well at Markel. I'm delighted to share these results with you, full stop. Now, recognize that when you look at the headline numbers, that may not be your immediate reaction. So please let me share a few points with you that might help you enjoy the same sense of progress and optimism that I have. First, our insurance operations are solidly profitable and growing at the same time. Richie and Jeremy will give you more numbers and details on this. But from my point of view, there are these sorts of underwriting profits and to be growing and to continue to report favorable reserve development In the face of ongoing large-scale natural catastrophes such as Ian and ongoing inflationary pressures, whether CPI flavor or social flavor, is fantastic. I am so proud of and grateful for our insurance operations and the results they are posting. We've had some bumps along the way in pieces and parts of our insurance operations in the last few years, but I think these results validate the hard work, hard decisions, the discipline and the dedication of the people of our insurance operations, I also think these results bode well for the future. Second, our reinsurance operations posted solid profitability in the face of all of the challenging factors I just noted. The ongoing high levels of property catastrophe losses for the industry would normally correlate to tough results in our reinsurance business. We've spoken for the last several years about what we've done to improve our reinsurance results, and I hope these numbers provide you with some assurance that we're on the right track. More importantly, I think these reinsurance results speak to something very important about our culture. There's no question that reinsurance results were far from optimal in recent years. As is always the case around every aspect of Markel, We did our best to figure out what was wrong, what we needed to improve, and then we went about the work, the hard work, of making things better. As is always the case, we didn't deny there was a problem and we didn't run away from it. We just went to work every day and concentrated on making it better. We've sensed internally that things have been better in our reinsurance operations for a while now, but with the time lags involved in insurance accounting, it takes a while for those results to be visible in our financial reporting. Additionally, in what should emphasize the improvement, consider the acid test of the modest impact of Ian on our results. In Sherlock Holmes terms, Ian was the dog that didn't bite. I hope that you can now share our confidence that we're on the right track in reinsurance and that it will be a valuable contributor to our overall results going forward. Third, Markel Ventures continues to set new records in revenues and profitability. Markel Ventures provides doses of resiliency, optionality, culture, and cash to the Markel Corporation. The people of Ventures continue to operate in challenging environments of supply chain challenges, tough labor markets, inflationary pressures, and increasing regulatory burdens. Despite those ongoing challenges, the Ventures teams continue to set new records. I can't thank them enough for their ongoing and unrelenting commitment to excellence. Fourth, our state, national, and NFILA operations continue to make progress. The performance of state and national continues to go from strength to strength. There are also two important items of note at NFILA that I hope encourage you. One is that we've received proceeds of over $300 million from the sales of the two MGA operations that were part of NFILA. Secondly, as we roll through another difficult year of industry catastrophe losses, the performance of the NIFILA funds demonstrates the underwriting process is creating investment results that track expectations. The impact of storms like Ian and other industry losses are developing along the lines expected by our modeling and loss expectation methodology, and that bodes well for the future. Fourth, investments. Wait, what? On the surface, the well-known declines of both equity and bond markets are penalizing current reported returns. That's true. But what does that mean? The answer is, it depends. If markets were going down and we had to sell our investments at the same time, that would be awful. If markets were going down and we just stood pat, that would probably be okay, but not wonderful. If markets were going down and we were steadily buying more equity securities and bonds with higher interest income and our own stock at lower prices, that would be fantastic. I'm delighted to report to you that our circumstances today are exactly that. We're buying. That adds to the overall earning power of Markel over time. Fifth, so far this year, we've regained $350 million of senior long-term debt. and we've purchased $208 million of Markel stock. That amount almost doubles what we repurchased in the first nine months of last year. Six, our recurring net investment income of the interest income and dividends we receive continue to grow. During the quarter, that line item grew 18% from $91 million to $108 million. I think we can reasonably expect to see ongoing increases in recurring investment income for the foreseeable future. summarize before i turn the call over to jeremy i like our hand you as our shareholders on a profitable insurance operation that is growing we're investing those profits at profits at positive long-term rates of return in additional insurance opportunities publicly traded securities ventures operations and our own shares you're hungry for good returns from your investment and so are we you can picture markel as a pizza the size of the overall pizza is growing and we're cutting it into fewer slices. It seems to me like the value of each slice is growing. I'm guessing the market will see it that way in the fullness of time. With that, we'll shift away from the talk of pizza, and I'll turn now to Jeremy to provide more color and details on the financial results. Jeremy?

Thank you, Tom, and good morning, everyone. We often talk of win-win-wins and of the importance of being an organization for which others are better off for being associated with. It's events like Ian that remind us of this virtue and where we must follow through. I'm incredibly proud of our associates who are tirelessly supporting our customers and the local communities that have been impacted. Whether we look to our settling of claims to get people back on their feet or the supply of building materials to help restore, Markel is actively working to improve the situation, and our thoughts continue to be with the people of Florida at this time. We remain pleased with the strong performance of our insurance and Markel Ventures operations. We are confident in the quality and durability of our investment portfolio, as well as our ability to execute against our operating plans within our insurance and ventures businesses. We continue to find opportunities to allocate capital across our three engines, and we remain focused on building long-term shareholder value. Overall, it's been a pretty solid first three quarters of the year. Looking first at our underwriting results, gross written premium surpassed $7.5 billion for the first nine months of 2022, compared to $6.3 billion in 2021, an increase of 19%. Our increased premium volume reflects new business volume, strong policy retention levels, more favorable rates, and expanded product offerings. Our professional liability and general liability product lines continue to lead the way, but we also achieve meaningful growth across many of our other product lines. Our consolidated combined ratio was a 91 for the first nine months of both 2022 and 2021. Our 2022 combined ratio included $70 million of net losses attributed to Hurricane Ian and $35 million attributed to the Russia-Ukraine conflict, which combined added two points to the year-to-date combined ratio. All losses attributed to the Russia-Ukraine conflict were recognized in the first quarter, and our initial estimates associated with this event remain unchanged. In 2021, we incurred $182 million, or four points, of net losses from natural catastrophes in the first nine months. Excluding these loss impacts from both years, our consolidated combined ratio for the first nine months of the year was an 89 compared to an 87 for the same period at 21. The increase reflects the impact of less favorable development on prior accident year loss reserves this year compared to last year, partially offset by a lower expense ratio. With regards to prior year loss reserve development, prior year loss reserves developed favorably by $204 million in the first nine months of this year compared to $366 million in the first nine months of last year. In 2022, among the reasons we experienced lower favorable development was due to greater than anticipated claim settlements and increased claims frequency and severity trends on certain of our professional liability product lines within our insurance segment. The impacts of economic and social inflation have created more uncertainty around the ultimate losses that will be incurred to settle claims, particularly on our longer tail product lines, such as professional liability and general liability. As a result, we are approaching reductions in prior year loss reserves cautiously, particularly on more recent accident years. As I stated last quarter and consistent with our reserving philosophy, we are responding quickly to increased loss reserves following any indication of increased claims frequency or severity in excess of our previous expectations. In instances where claims trends are more favorable than we previously anticipated, we're often waiting to reduce our loss reserves, and we'll evaluate our experience over additional periods of time. Turning to our investment results, net investment losses included in net income were $2.2 billion in the first nine months of the year. We're primarily attributable to a decrease in the fair value of our equity portfolio, driven by significant declines in the public equity markets during the period. This compares to net investment gains of $1.2 billion in the first nine months of last year, attributable to an increase in the fair value of our equity portfolio, driven by favorable market value movements. As you've heard us say many times before, we focus on long-term investment performance. We continue to maintain our investing discipline, understanding the periodic clients and the equity markets are to be expected and will result in the variability in timing of investment gains and losses. We will continue to measure investment returns over longer periods of time. At the end of September, the fair value of our equity portfolio included cumulative unrealized holding gains of $3.9 billion. With regards to net investment income, We reported $274 million in the first nine months of this year compared to $284 million in the same period last year. The decrease reflects the impact of losses recognized on equity method investments this year compared to income from equity method investments last year. That investment income on our fixed maturity securities this year was up slightly compared to last year. The impact of higher average holdings and fixed maturity securities in the current year was mostly offset by lower yield compared to the same period a year ago. we're beginning to see the benefit of higher interest rates on our net investment income through recent purchases of higher yielding fixed maturity securities. That impact will become more meaningful in future periods as lower yielding securities mature and continue to be replaced with higher yielding securities. Beginning in the second quarter this year, the book yield on new purchases began to exceed the average book yield of our portfolio. Net unrealized investment gains decreased $1.3 billion net of taxes during the first nine months of this year, reflecting a decline in the fair value of our fixed maturity portfolio, resulting from increases in interest rates. As a reminder, we typically hold our fixed maturities until they mature. We generally expect these unrealized losses to reverse in future periods as bonds mature. Our portfolio has an average rating of AAA, and there are no current or expected credit losses within the portfolio. Now I'll cover the results of our Mark Hill Ventures segment. Revenues from Markhill Ventures increased 31% to $3.5 billion for the first nine months of 2022, compared to $2.7 million in the same period 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 organic growth across many of our other businesses, most notably at our construction services businesses. EBITDA from Markhill Ventures was $353 million for the first nine months of this year, compared to $304 million during the same period last year. The increase reflects higher revenues and improved operating results across several businesses, as well as the contribution of Metromon. Looking at our consolidated results for the first nine months of this year, our year-to-date results demonstrate how well our core operations are navigating the current economic environment and executing at a high level. We reported a net loss to common shareholders of $922 million for the first nine months of this year compared to net income to common shareholders of $1.5 billion in the same period a year ago. This was largely attributed to the year-over-year swing in changes in our public equity portfolio evaluation. Comprehensive loss to shareholders for the first nine months was $2.2 billion compared to comprehensive income to shareholders of $1.3 billion in the first nine months of last year. Again, this was driven by both fixed maturity and public equity valuations. It's worth highlighting that given the magnitude of our equity portfolio, we believe generally accepted accounting principles, which require that we include unrealized gains and losses on equity securities in net income, create volatility in revenues in net income, which can obscure the strong operating performance of our businesses. Finally, I'll make a few comments on cash flows, capital, and our balance sheets. Net cash provided by operating activities was $1.9 billion in the first nine months of this year, compared to $1.6 billion the same period last year. Operating cash flows in 2022 reflected strong cash flows from our underwriting operations, given the growth in premium volume. Total shareholders' equities stood at $12.3 billion at the end of September, compared to $14.7 billion at the end of the year. Again, this decline is driven by declines in both the fixed maturity and public equity valuations, as I previously discussed. July 1st, we retired $350 million, 4.9% unsecured senior notes. And during the first nine months of 2022, we repurchased 163,000 shares of our stock under our outstanding share repurchase program. With that, I'll turn it over to Richie to talk more about our insurance business.