Markel Group Inc.

Good morning and welcome to the Markel Group third quarter 2023 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 our most recent annual report on Form 10-K and quarterly report on Form 10Q, 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 our most recent Form 10Q. Our Form 10K and Form 10Q can be found on our website at www.mklgroup.com in the Investor Relations 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.

Thank you, Regina. Good morning, and welcome to the Markel Group Third Quarter Conference Call for 2023. My name is Tom Gaynor, and I'm joined this morning by Terry Gendron, the Chief Financial Officer, and Jeremy Noble, the President of Insurance, to brief you on our results as well as to answer your thoughtful questions. At Markel Group, we remain committed to our long-term goal of building one of the world's great companies. We define that as creating a win-win-win culture where our customers are better off for having done business with us, our colleagues are better off by being part of the Markel Group, and our shareholders earn excellent returns on their capital as a result of the wins by customers and colleagues. overall i'm pleased with the performance of the markel group through the first nine months of 2023 but we do have a flu a few blemishes to deal with this year as always we will be honest and candid in sharing not only what's working well but what needs improvement we believe that this honest and candid self-assessment is the best way to maintain the discipline and clear-headedness needed to make good decisions going forward. It is also the way to earn your trust as we demonstrate to you that we acknowledge our challenges and face them head on. Terry will provide you with the detailed numbers in just a minute, and Jeremy will follow with his report on our insurance operations. But before we get to that, I wanted to start off with some high-level commentary. As Sheryl Crow sang, every day is a winding road. She's right. We've got some great news, some good news, and some challenging news this quarter. While we may be on a winding road, we do continue to move forward. As to the great news, Markel Ventures continues to produce simply outstanding results. For the first nine months this year, operating income rose 52% from $217 million to $330 million, and EBITDA rose 35% from $353 million to $474 million. There were no material acquisitions at Ventures during this time period. These are basically applesauce to applesauce numbers. I simply could not be more pleased with the performance of Ventures. The management teams that lead those companies continue to produce outstanding results for the Markel Group. The numbers speak for themselves. As to the good news, and it's very good, our recurring interest and dividend income grew 73% from $302 million to $521 million in the first nine months of 2023. We continue to invest the cash flows and maturing bonds into higher yielding fixed income securities. Each investment we make in fixed income these days carries a higher interest rate than the bonds that are maturing. I would expect us to continue to earn even higher amounts of recurring investment income in the prevailing interest rate environment. As to our equity investment portfolio, we earned a return of 9.3% through the first nine months of 2023. While this trails the S&P return of 13.1%, we do remain over 100 basis points ahead of the S&P for more than 30 years. I would very happily sign up for the sort of annualized investment results we are putting up so far in 2023. I'd also happily accept 100 basis points of outperformance for the next three decades if I could do so. As to the challenging news in our insurance operations, we reported a year-to-date combined ratio of 95, and for the third quarter, we reported a combined ratio of 99. These results are below our expectations and stem from multiple factors. First, we continue to experience inflation in our claims payments. That inflation reflects higher overall price levels and social inflation that we see in the current legal environment. We continue to incorporate these trends in our reserve setting process. I'm pleased to report to you that despite the challenges, we continue to live up to our goal of setting reserves that prove to be more likely to be redundant than deficient. We did report favorable development in the third quarter. Some of the factors that led to these results include two points of losses in the third quarter from natural catastrophes, including the Hawaiian wildfires, and Hurricane Idalia. Additionally, we experienced approximately three points of losses in the third quarter from the losses in our collateral protection book, which include exposure to the widely reported Vestu bankruptcy and fraud case. Collateral protection is a relatively new product to us and to the marketplace. We learned some tough lessons here, and we've made significant adjustments to the product. While we are extremely disappointed with this loss, We believe we've addressed the causes aggressively, and we are actively working to mitigate potential future losses associated with this product. We are especially disappointed with these particular losses as they obscure the outstanding performance from so many other components of our insurance operations. Rest assured, we continue to work tirelessly to make each engine of the Markel Group perform at the highest levels, and we look forward to future periods of sharing our progress on exactly that with you. We never like calling out specific reasons for disappointing results. Discussions of natural catastrophes and headline events can deteriorate into an exercise of excuse making. I don't like making excuses any more than you like hearing them. We know that you as shareholders expect us to be able to manage the normal flow of catastrophe losses, headline events of wars, consequences of climate change, and other things that go bump in the night and still produce acceptable results. That is the very nature of what a successful insurance operation does. We understand the assignment. Rest assured, we continue to work tirelessly to make each engine of the Markel Group perform at the highest levels, and we look forward to future periods of sharing our progress on exactly that with you. Finally, as one additional marker of our overall financial strength and performance, We invested 270 million in additional public equity investments during the first nine months, which should produce additional returns into the future. The current unrealized gain on our public equity portfolio stands at over $5 billion. I expect that amount to continue to grow over time. We also repurchased 269 million of our own stock so far in 2023, compared with 208 million in the first nine months of last year. My expectation is that we'll continue to produce profitable results in our insurance ventures and investment engines, and we will be dividing those profits among future shares, fewer shares. That seems like a recipe for increasing shareholder value to me. Additionally, I stated last quarter that in five of the last six quarters, I've personally taken money out of my pocket to buy Markel Group stock on the open market. I continue to do so again during the past quarter. In fact, I invested approximately my entire after-tax salary from Markel Group during the quarter to purchase shares in the open market. At this point, I now have purchased Markel Group shares in six of the last seven quarters. I am confident in our team. I believe in their talent and dedication. I believe they will produce excellent results. We remain committed to building one of the world's great companies, and I thank you for your ongoing support. I'll turn it over to Terry to provide you some of the details of our financial results. Jeremy will pick up with his comments on our insurance agent, and then we'll open the floor for questions. Terry?

Thank you, Tom, and good morning, everyone. As Tom pointed out, we have a mix of results this quarter, which highlights the importance of our three-engine architecture. Using the words of Sheryl Crow, the diversity in our family of business may be helping us get a little bit closer to feeling fine. starting off with our underwriting operations. Gross written premiums grew 5% to $7.9 billion for the first nine months of 2023, compared to $7.5 billion in 2022. Our increased premium volume reflects new business and more favorable rates across many of the product lines within our insurance segment, partially offset by 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. Our consolidated combined ratio for the first nine months of 2023 was a 95% compared to a 91% for the same period last year. Our 2023 combined ratio included 46 million or one point of net losses attributed to the Hawaiian wildfires and Hurricane Adelia. Our 2022 combined ratio included 70 million of net losses attributed to Hurricane Ian and 35 million attributed to the Russia-Ukraine conflict, which together added two points to the combined ratio. Excluding these losses from both years, our consolidated combined ratio for the first nine months of 23 was a 95% compared to 89% in 2022. The increase was driven by a higher attritional loss ratio in 2023 within our insurance segment, which Jeremy will discuss further. Prior year loss reserves developed favorably by $170 million in the first nine months of 2023, compared to $204 million in the first nine months of 2022. We experienced favorable loss reserve development across multiple product lines in 23, most notably across our international professional liability product lines and our property product lines within the insurance segment. The favorable development in 2023 was partially offset by adverse development on our general liability product lines within our insurance segment due to an increased frequency of large claims over the past several quarters under excess and umbrella and primary casualty contractors' liability products. We also experienced adverse development within our reinsurance segment in 2023 on our general liability product lines and a discontinued portion of our public entity product line. Turning to our investment results, we reported net investment income of $521 million in the first nine months of 2023, compared to $302 million in the same period last year, with meaningful increases from fixed maturity securities, short-term investments, and cash and cash equivalents. Interest income on our fixed maturity securities reflects a higher yield and higher average holdings compared to last year. On a year-to-date basis, yields on our purchases of fixed maturities have been about 250 basis points higher than securities that rolled off. Higher income from short-term investments is due to higher short-term interest rates in the current year. The largest share of the increase is due to higher interest income from our cash and cash equivalents, as we have increased our allocation to money market funds to take advantage of the current interest rate environment. During the first nine months of 2023, we recognized net unrealized investment losses within other comprehensive loss of $135 million net of taxes compared to net unrealized investment losses of $1.3 billion net of taxes in 2022. These movements correspond to decreases in the fair value of our fixed maturity portfolio resulting from increases in interest rates. Recall that we typically hold our fixed maturities until they mature and would generally expect unrealized holding gains and losses attributed to changes in interest rates to reverse in future periods as bonds mature. As of September 30th, over 99% of our fixed maturity portfolio was rated AA or better, and there are no current or expected credit losses within the portfolio. Net investment gains of $591 million for the first nine months of 23 reflect favorable market value movements, driving a return of 9.3% on our public equity portfolio during the period. This compares to net investment losses of $2.2 billion for the same period of 2022. As you 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. With regard to our Markel Ventures segment, revenues from Markel Ventures increased 6% to $3.7 billion in the first nine months of 2023 up from $3.5 billion for the first nine months of last year. The increase reflects growth and improved pricing across several of our businesses. EBITDA from Markel Ventures increased 35% to $474 million for the first nine months of 2023, from $353 million during the same period last year. The increase was driven by our products businesses, which had higher margins in 23 compared to 22, as we saw material and freight costs stabilize. Our effective tax rate for the first nine months of 2023 was 21% compared to 23% in the same period last year. We reported net income to common shareholders of $1.2 billion for the first nine months of 2023 compared to a net loss to common shareholders of $926 million in the same period a year ago, with the change largely attributed to the year-over-year swing in our public equity portfolio evaluation. Comprehensive income to shareholders for the first nine months of 2023 with $1.1 billion compared to comprehensive loss to shareholders of $2.1 billion in the first nine months of 2022 with swings in both fixed maturity and public equity valuations as the largest drivers. Net cash provided by operating activities with $2 billion for the first nine months of 2023 compared to $1.9 billion for the same period last year. Operating cash flows in 2023 reflected strong cash flows from each of our operating engines, with the most significant contribution from our insurance engine and a notable year-over-year increase coming from our Markel Ventures engine. Total shareholders' equity stood at $14 billion at the end of September, compared to $13.2 billion at the end of the year. Overall, we're pleased with our consolidated results so far this year and are confident that we're taking the right steps to address the current challenges. on our road to building long-term shareholder value. With that, I'll turn it over to Jeremy to talk more about our insurance engine.