Markel Group Inc.

Good morning and welcome to the Marco Corporation fourth 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 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 the press release for our 2022 results, as well as our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the captions Safe Harbor and Cautionary Statement and Risk Factors. We may also discuss certain non-GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in the press release for our 2022 results. The press release for our 2022 results, as well as our Form 10-K and Form 10-Q, can be found on our website at www.markle.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, Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning, everyone. As Brian Duell Murray said in Groundhog Day, Rise and Shine Campers, Don't forget your booties because it's cold outside. Happy Groundhog Day from Richmond, Virginia, where we're getting our first snow of the season. It doesn't happen very often around here, so I just couldn't let the occasion pass without saying something. This is Tom Gaynor, not Brian Doyle Murray. I'm your CEO, and it's my pleasure to welcome you to the Markel Corporation year-end conference call. I'm joined today by Brian Costanzo, our Chief Accounting Officer, and Jeremy Noble, the President of our Insurance Operations. On today's call, Brian will give you a rundown on the financial results we just reported, and Jeremy will follow with some comments on our insurance operations. I'll come back after them with a few thoughts about our ventures and investment operations, and then we will open the floor for any questions you might have. As a public company, the cadence of these calls is every 90 days. Each quarter we share our financial results with you as we hold this call. While we update you one quarter at a time, Let me assure you, that is not the cadence we follow in managing Markel. Our North Star remains the dual time horizon of forever and right now. We believe that the combination of the long-term time horizon embodied by the concept of forever, coupled with the discipline and urgency of the right now, provides a balance that serves us well. Quarters are like the rings inside the trunk of a mighty sequoia tree. They give you a useful piece of information about one small chapter in the life of the tree, but any given ring is just one in a sequence of many. Given our longer-term focus, one of the ways we monitor our results is to look at some key numbers in five-year buckets. We use five-year increments to gain perspective. We also tie our incentive compensation calculations for our executive management to five-year results to demonstrate our commitment to long-term performance. For your consideration, here are some of the five-year numbers for the years that just ended. One, from 2018 to 22, we reported total revenues of just over $50 billion, up from $26.5 billion in the previous five-year period. That's an increase of roughly 90%. Two, we reported earned premiums from our insurance operations of $29.5 billion, up from $19 billion. That's an increase of 55%. Three, we reported underwriting profits of 1.8 billion up from 821 million. That's an increase of 116%. Four, we reported ILS and program services revenues of 1.7 billion up from 44 million. That's an increase of 3,763.64%. Now, I wouldn't extrapolate that particular number if I were in your shoes. Five, We reported Markel Ventures revenues of just over $15 billion up from just over $5 billion. That's an increase of 200%. Sixth, we reported Markel Ventures EBITDA of $1.7 billion up from $600 million. That's an increase of 183%. Seven, we reported net investment income of $2 billion up from $1.7 billion. That's an increase of about 18%. Eight, we reported comprehensive income of $3.7 billion up from $3.5 billion. That's an increase of 6%. And finally, nine, the price per share ended at $1,317, up from $1,139 five years ago. That's an increase of about 15%. I hope you would share my sense of forward progress at Markel of meaningful amounts measured in meaningful amounts of time. We're excited and pleased with most, but not all, of those numbers. And we're optimistic that as we brew the next five-year batch, we'll be pleased with each line of that report. In the next five years, if we make the same sort of progress on the first eight items on the list, I'll be surprised if the ninth line doesn't follow up. With that update and comment on the five-year numbers, I'll turn it over to Brian for his comments on the 2022 results.

Thank you, Tom, and good morning, everyone. I'm happy to be with you all this morning to report the numbers from our 2022 results. Our insurance and Marco Ventures operations delivered strong operating results while navigating a complex macroeconomic environment, and we're pleased with the steady growth we're seeing in the investment income generated on the investment portfolio. While the volatility in the equity and bond markets created unrealized losses in the portfolio this year, we remain focused on long-term investment performance which better reflects the quality and durability of our investment portfolio. Starting off with our underwriting operations, gross written premiums surpassed $9.8 billion for the year, compared to $8.5 billion in 2021, an increase of 16%. Our increased premium volume reflects new business volume, strong policy retention levels, continued increases in rates, and expanded product offerings. Our professional liability and general liability product lines continue to lead the way, but we've also achieved meaningful growth across many of our other product lines. Our consolidated combined ratio was 92% in 2022, which included 46 million of net losses attributed to Hurricane Ian and 36 million of net losses attributed to the Russia Ukraine conflict for a combined one point impact to the combined ratio. In the fourth quarter, we reduced our initial estimate for losses attributed to Hurricane Ian by $24 million. Our estimate for net losses attributed to the Russia-Ukraine conflict were recognized in the first quarter and remain unchanged throughout the year. In 2021, our consolidated combined ratio was 90%, which included 195 million, or three points, of losses on natural catastrophes. Excluding these event losses from both years, our consolidated combined ratio in 2022 was a 91% compared to an 87% for 2021. 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 $167 million in 2022, compared to $480 million in 2021. In 2022, we experienced adverse development on certain of our general liability and professional liability product lines within our insurance segment in the 2016 through 2019 accident years, primarily arising from unfavorable claim settlements and increased claim frequency and severity trends. As discussed in the third quarter, 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. And as a result, we are approaching reductions to prior year loss reserves cautiously, particularly on more recent accident years. Consistent with our reserving philosophy, we are responding quickly to increased loss reserves following indications increased claims frequency or severity in excess of our expectations. Whereas in instances where claim trends are more favorable than we previously anticipated, we are often waiting to reduce our loss reserves and we evaluate our experience over additional periods of time. Turning next to our investment results, net investment losses included in net income were $1.6 billion in 2022, and were primarily attributable to a decrease in the fair value of our equity portfolio driven by significant declines in the public equity markets during the year. This compares to net investment gains of $2 billion in 2021 attributable to an increase in the fair value of our equity portfolio driven by favorable market movements. As you've heard us say many times before, We focus on long-term investment performance, and we continue to maintain our investing discipline, understanding that periodic declines in the equity markets are to be expected and will result in variability in the timing of investment gains and losses. We will continue to measure investment returns over longer periods of time. At the end of December, the fair value of our equity portfolio included cumulative unrealized holding gains of $4.6 billion. With regards to net investment income, we reported $447 million in 2022 compared to $367 million in 2021. It's worth noting that these amounts are now comprised entirely of our recurring interest and dividend income from the investment portfolio. Previously, net investment income also included the income or loss recognized on our equity method investments, which are managed separately from the rest of the investment portfolio, the results from which are now included in other revenues. The increase in net investment income in 2022 reflects the benefit of higher interest rates on our short-term investments and cash equivalents during the last half of the year, as yields on these investments have increased sharply from nearly 0% a year ago. We are also beginning to see the benefit of higher interest rates than our fixed maturity portfolio through recent purchases at higher yield rates. That impact will become more meaningful in future periods as lower yielding securities mature and are replaced by higher yielding securities. Beginning in the second quarter of this year, the book yield on new purchases of fixed maturity securities began to exceed the average book yield on the portfolio. Net unrealized investment losses included in our comprehensive income in 2022 totaled $1.1 billion net of taxes, 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 maturity securities until maturity and would generally expect unrealized losses or gains to reverse in future periods as the 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 Markell Ventures segment. Revenues from Markell Ventures increased 31% to $4.8 billion in 2022, compared to $3.6 billion last year. This increase reflects the contribution of revenues from our December 2021 acquisition of Metromont, an increased contribution from Buckner, which was acquired in August 2021, as well as strong organic growth across many of our other businesses, most notably at our construction service businesses. EBITDA from Markel Ventures was $506 million for the year, compared to $403 million last year. The increase reflects higher revenues and improved operating results across several businesses, as well as the contribution of Metromark. EBITDA for 2022 was impacted by increased costs of material and labor across many of our businesses, which reflect the impact of broader economic conditions, including the impacts of inflation on our operations during the year. Looking next at our consolidated results for 2022, our effective tax rate was 32%. However, this is not indicative of our ongoing effective tax rate. Rather, it's a result of having a few immaterial items that combine for a net tax benefit that is being magnified by our small pre-tax loss for the year. We reported a net loss to common shareholders of $250 million in 2022 compared to net income to common shareholders of $2.4 billion in 2021, largely attributed to the year-over-year swing in changes to our public equity portfolio valuation. Comprehensive loss to shareholders for 2022 was $1.3 billion compared to comprehensive income to shareholders of $2.1 billion in 2021, driven by changes in both the fixed maturity and public equity valuations. It's worth highlighting once again 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 and net income creates volatility in revenues and net income that can obscure the strong operating performance of our businesses. Finally, I'll make a few comments on cash flows, capital, and our balance sheet. Net cash provided by operating activities was $2.7 billion in 2022 compared to $2.3 billion in 2021. Operating cash flows in 2022 reflected strong cash flows from each of our operating engines but most significantly within our underwriting operations given the strong premium volume in recent periods. Total shareholders' equity stood at $13.1 billion at the end of the year compared to $14.7 billion at the end of 2021. Again, this decline is driven by declines in both fixed maturity and public equity investments, as I previously discussed. During 2022, we repurchased 233,000 shares of our stock. under our outstanding share repurchase program versus 163,000 shares last year. With that, I will turn it over to Jeremy to talk more about our insurance businesses.