Markel Group Inc.

Good morning and welcome to the Markel Corporation first quarter 2023 conference call. All participants will be in a listen-only mode. If 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, the number 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 Security 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, safe harbor and cautionary statements and risk factors. We also discussed 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 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, Chief Executive Officer. Please go ahead.

Good morning. Thank you, Chantel, and welcome to the first quarter of Markell Conference Call. This is indeed Tom Gaynor, your CEO, and I'm joined today by my new colleague, Terry Gendron. She started as our CFO in mid-March. I'll remind you, that means she was here for all of two weeks of our first quarter. Given that tenure, we'll probably ask her all of the really hard questions. Additionally, Jeremy Noble, president of our insurance operations, is also on the call with us today. As always, we remind you that at Markel, we focus on the long term. We've been in business since 1930 through three generations of the Markel family and have been public since 1986. Every action we take remains focused on the long-term success of Markel. All of us are committed to building one of the world's great companies. We define a great company as one driven by win-win-win architecture. We do our best to make sure that our customers win by doing business with us, that our associates win by being part of this organization, and that our shareholders win through high and durable returns on their capital. We're more oriented towards timeframes of 90 years than the 90 days that make up quarters, but we do enjoy the process of sharing our quarterly report card with you. You are the owners of this business, and we appreciate the chance to discuss how things are going, what we're working on, and any highlights or lowlights happening at your company. We look forward to your thoughtful questions on our circumstances. As to 2023, we've got good news to share with you. We're off to a good start. As David Letterman might say, Compared to the negative headlines that tend to dominate the news, here's today's list of the top 10 things to be happy about as a shareholder of Markel. Number 10, all three engines of Markel produced positive results in the first quarter. The beauty of the design of our three engine system is that as long as any single one of them is doing well, that can create enough thrust to drive the whole ship forward. Not all three will always be positive in every quarter and every year, but in the vast majority of quarters and years, we make forward progress. The first quarter of 2023 was one where there was positive thrust in insurance, ventures, and investments. Number nine, earned premiums in our insurance operations grew to 1.97 billion, up from 176 billion a year ago. We continue to produce profitable growth through careful and disciplined underwriting. Number eight, the insurance operations produce meaningful underwriting profits. While our combined ratio of 94 is a bit above our targets, we are proud of that result. It reflects both underwriting discipline and a commitment to integrity and conservativism in the way we report these results to you. As we state consistently, we wish our loss reserves to be more likely to be redundant than deficient. We continue to meet that crucial goal as witnessed by yet another quarterly report with favorable development of prior year reserves. We do not accomplish that 100% of the time, but we get pretty darn close to meeting that standard. While we remain in an environment of inflationary pressures, both social and monetary, I think that continuing to report reserve redundancies is a big accomplishment. We remain committed to that goal, as we have been for decades. Number seven, recurring investment income grew to $159 million, up from $92 million as we continue to invest at higher and higher interest rates. Number six, our ventures operations set records and revenues in EBITDA. That growth was almost entirely organic as we didn't do any acquisitions during 2022. It's an apples to apples comparison. Number five, we continued to purchase attractively priced, publicly traded equity securities that met our four-part test of buying profitable businesses with good returns on capital and not too much leverage, run by managers with equal measures of talent and integrity, with reinvestment opportunities and capital discipline at fair prices. During the first quarter, we bought a net of 65 million of public securities. Number four, we continued to repurchase our own shares. During the first quarter, we bought 81 million of Markel shares. Our recurring investment income largely provided the cash we used to buy additional common stocks and our own shares. Number three, Our unrealized gain on our portfolio of publicly traded equities reached $4.9 billion. Number two, while there is no mark-to-market of the value of our Markel Ventures operations captured by GAAP accounting, I would assert that record revenues in EBITDA would strongly suggest that those businesses continue to increase in value. Number one, inbound phone calls for potential acquisitions started to reappear during the first quarter. This seems like a logical consequence of the disruption caused by rising interest rates and volatility in financial markets, and that ought to lead to opportunities for us over time. The net of all these things is that Markel continues to produce wins for our customers, our associates, and our shareholders across the board. With that, I'll turn it over to Terry to provide you with the numbers that flesh out some specifics behind the top 10 list. Jeremy will then pick up some commentary on our insurance operations, And then I'll follow up with a few thoughts about ventures and investing. And after that, we'll take your questions. Terry?

Thank you, Tom. And good morning, everyone. I couldn't be happier to be part of the Markel team. It's been just a short while, but I can already see the role the Markel culture plays in our long-term success. On to our first quarter results. As Tom remarked, 2023 is off to a good start, reflecting growth and meaningful contributions from each of our three engines. Starting off with our underwriting operations, gross written premiums were $2.7 billion for the first quarter of 2023 compared to $2.5 billion in 2022, an increase of 6%. Our increased premium volume reflects new business volume and more favorable rates across many of the product lines within our insurance segment, with the most notable growth coming from our personal lines, property, and marine and energy product lines, while we saw lower premium volume within our professional liability product lines, where we're adjusting our writings in reaction to changes in market conditions and downward pressure on rates within certain classes. Retention of gross written premiums was 83% in 2023, which is down three points from the same period last year. The lower retention in 2023 compared to 2022 reflects higher session rates on our professional liability and personal lines product lines within the insurance segment, and our marine and energy product lines within the reinsurance segment, as well as changes in mix of business within the reinsurance segment. Our consolidated combined ratio for the first quarter of 2023 was a 94%. This compares to an 89% for the first quarter last year which included $35 million or two points of net losses and loss adjustment expenses attributed to the Russia-Ukraine conflict. The increase in the consolidated combined ratio reflects a higher attritional loss ratio and the impact of less favorable development on prior accident years lost reserves in 2023 compared to 2022 within our insurance segment. Prior year loss reserves developed favorably by 71 million in the first quarter of 2023, compared to 96 million in the first quarter of 2022. The decrease was due to favorable development on our general liability and professional liability product lines in our insurance segment in 22, which we did not experience in 2023. We remain cautious and conservative in our approach to reducing prior year loss reserves on our longer tail general liability and professional liability lines given the current uncertain economic environment. Turning to our investment results. Net investment gains were $373 million in the first quarter of 2023 and reflect an increase in the fair value of our equity portfolio driven by favorable market value movements. This compares to net investment losses of $358 million for the comparable quarter in 2022 which reflected a decrease in the fair value of our equity portfolio, driven by unfavorable market value movements. As you've heard us say many times before, we focus on long-term investment performance, expecting variability in the equity markets, and the timing of investment gains and losses from period to period. We will continue to measure investment returns over longer periods of time. At the end of March, the fair value of our equity portfolio included cumulative unrealized holding gains of $4.9 billion. With regard to net investment income, we reported $159 million in the first quarter of 2023 compared to $92 million in the same period last year. The increase is largely attributable to higher interest income from our money market and short-term investments due to higher short-term interest rates in 2023. Additionally, interest income on our fixed maturity securities increased reflecting a higher yield and higher average holdings compared to last year. The change in net unrealized investment losses included in other comprehensive income for the first quarter of 2023 net of taxes was an increase of $164 million compared to a decrease of $521 million in 2022. These movements correspond to changes in the fair value of our fixed maturity portfolio resulting from changes in interest rates. Recall that we typically hold our fixed maturities until they mature and would generally expect unrealized holding gains and losses to reverse in future periods as bonds mature. Our fixed maturity portfolio had an average rating of AAA as of March 31st, and there are no current or expected credit losses within the portfolio. Now I'll cover the results of our Markel Ventures segment. Revenues from Markel Ventures increased 16%, to 1.1 billion in the first quarter of 2023, up from 950 million for the comparable quarter last year. The increase reflects strong organic growth and improved pricing across many of our businesses. EBITDA from Markel Ventures increased 25% to 120 million for the first quarter of 2023, from 96 million during the same period last year. The increase reflects higher revenues and improved operating results at our transportation-related and equipment manufacturing businesses. Before turning to the consolidated results for the quarter, there's one new item I'd like to draw your attention to related to the new accounting standard on long-duration insurance contracts that we adopted January 1st, which impacts our portfolio of life and annuity reinsurance contracts. Because our portfolio is in runoff, many of the provisions of the new standard don't apply to our books. The most meaningful change is the requirement to update the discount rate on our reserves each quarter, with the impact reflected in other comprehensive income. All prior periods have been restated as required by the new accounting standard, which was most impactful to our other comprehensive income for 2022, given the significant increases in interest rates throughout the year. The impact of updating the discount rate for our life and annuity benefit reserves as of December 31, 2022, resulted in a net benefit of $89.6 million to the accumulated other comprehensive loss compared to the amount we previously reported. Looking at our consolidated results for the quarter, our effective tax rate for the first quarter of 2023 was 20%. The estimated annual effective tax rate is 22% in the first quarter of 2023 compared to 21% in the same period last year. We reported net income to common shareholders of $489 million for the first quarter of 2023 compared to a net loss to common shareholders of $52 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 income to shareholders for the first quarter of 2023 was $646 million compared to comprehensive loss to shareholders of $512 million in the first quarter of 2022 with both fixed maturity and public equity valuations as the largest drivers. Finally, I'll make a few comments on cash flows, capital, and our balance sheet. Turning to cash flows, net cash provided by operating activities was $284 million for the first quarter of 2023 compared to $415 million for the first quarter of last year. Operating cash flows in the first quarter of 2023 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. Within our underwriting operations, operating cash flows in the first quarter of 2023 were net of a $125 million payment made to complete a retroactive reinsurance transaction to seed our runoff book of UK motor casualty business. Total shareholders' equity stood at $13.7 billion at the end of March, compared to $13.2 billion at the end of the year. During the first quarter of 2023, we repurchased 63,000 shares of our stock under our outstanding share repurchase program, which is consistent with the number of shares repurchased in the first quarter of 2022. All in all, we're pleased with the start of the year, producing strong results, that reflect the benefit of our three-engine architecture. We're confident in the strength of our business and the contribution each makes in building shareholder value over time. With that, I'll turn it over to Jeremy to talk more about the insurance engine.