Markel Group Inc.

Good morning and welcome to the Markel Group fourth quarter and year-end 2024 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 2024 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 2024 results. The press release for our 2024 results, as well as our Form 10-K and Form 10-Q, 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, Audrey, and good morning. Tom Gaynor here. Despite it being past the Larry David cutoff, Happy New Year to all. The New Year is a natural time to express gratitude and say thank you. It's a time to look forward, to plan, to set priorities, to do some self-examination, and recommit to important values. It's also time to share our 2024 results with you and to talk about our plan for 2025 and beyond. First, let me start by saying thank you to the special people at the Markell Group. I'm lucky to come to work with the people of the Markel Group every day. We're 22,000 beating hearts who join as one to conduct our business with humanity and do things for people, not to people. Working at Markel Group is a team sport. We focus on creating a win-win-win world where customers, associates, and shareholders all win. A world where we grow the pie together. I'm proud of and grateful for our leaders and associates. They embrace our culture and make it real. They seek to improve constantly and to serve our customers and shareholders all day, every day. Thank you all for what you do. In 2024, this team of leaders and associates achieved operating income and returns above our targets. In any given year, our results are like those of a crew boat from rower one down the line to number eight, including the coxswain. Every year, like every race, is a slightly different story when it comes to how the oars are rowing. In 2024, the public equity portfolio was our boat's stern pair, setting the pace with strong returns. In the middle of the boat for this run, we saw mixed results from our insurance business. Many areas performed well, including international, state and national, and much of the U.S. especially. Underwriting income and reinsurance as well as some areas within US specialty were below our expectations. Finally, our ventures businesses continued to generate strong profitability and exceeded our target returns, driven by strong performance in our consumer and building products businesses. Ventures found a strong, steady pace in 2024 from the bow. Together, our rowers produced an outstanding year of returns in 2024, which is part of the beauty of the design. but there's still the opportunity for better operating performance and for every bore to drive to its full potential and in unison with every stroke. Later, we will share more about what we were doing to get there. But first, some context is important. The insurance underperformance has not been a one-year thing. Some of these seeds were sown during a transitional period that began when Markel passed the baton to his next generation of leaders, which began formally in 2016. By 2022, it became clear that the initial structure put in on the front end, which included a co-CEO approach, was causing challenges in terms of focus and accountability. At that time, and with that realization, we implemented a series of actions to drive improved performance at the company, including, one, defining the purpose and function of the Markel Group, two, organizing around that purpose including appointing a sole CEO and making additional key changes in leadership. Three, creating a clear decision framework with respect to capital allocation. And four, placing greater emphasis on profitability and returns. The combination of these changes has helped restore greater accountability and focus. Much has already been accomplished from making these changes, in particular within our insurance business. There, we began to address underperforming products through specific portfolio actions, exiting several unprofitable lines, re-underwriting others, and growing in areas of strength. Jeremy will provide an update on these actions shortly. Looking back from where we stand today, we have much to be proud of. Markel is earning good returns. We remain committed to our customers. We see these green shoots in our insurance business from the steps we have taken there. The Markel style continues to guide us. Overall, the Markel Group system is stronger and much of the groundwork for the road ahead has been laid. But our aspiration is not just to be a good company or even a great company, but to be one of the world's great companies. That means more consistent excellence across all our operations all the time is required. Charting such a course requires continuous self-examination and a never-ending Zealous Pursuit of Excellence. In 2025 and beyond, we will continue to improve the foundation of our business. Yesterday, we announced a board-led review that will include evaluating where we can continue to improve our insurance organization. As part of the review, we will consider ways to simplify our structure, find greater efficiency, optimize our approach to capital allocation, and enhance our disclosures. External consultants and advisors will assist with the review. We look forward to updating our shareholders when that work is completed. Before moving forward, I want to mention that we will not be taking questions in the board led review at this time, and we'll focus on questions related to our business. Our pursuit of becoming one of the world's great companies and Markel has always come from providing an atmosphere in which people can reach their potential. We want to ensure that our associates are invigorated and empowered. We want to reward the best performing crew members and hold every crew member in the boat accountable. Your feedback will be incorporated into our work. As the author Ken Blanchard once said, feedback is the breakfast of champions. One theme that emerged from our recent conversations with shareholders is that you see early progress in insurance, but also would like more information on what success looks like path to get there, and signposts to track along the way. In a similar vein, investors also asked for increased clarity with respect to certain aspects of ventured performance, as it doesn't seem to be fully appreciated. We will do better to provide you with this information. Beyond all that I just mentioned on the capital allocation front, we have been repurchasing more shares over the last two years. In 2022, I believe the trend in our stock price started to significantly diverge from that of Markel Group's intrinsic value. In 2022, we repurchased 291 million of our shares. This was when I began speaking more openly about the business's intrinsic value growth. It's my duty to explain to our shareholders why we're using more of their capital for share repurchases. We repurchased more shares in 23 and 24, totaling $445 million and $573 million, respectively. In 2024, our board authorized an additional $2 billion in share repurchases. Several board members, managers, and I have also bought shares personally. But what will ultimately close the gap between our stock price and intrinsic value as we see it? We will continue to focus on everything within our control. We will run our businesses at the highest levels, and invest behind our winners. Where we are falling short, we will learn. We will also strive to communicate more clearly. As the great Dr. Seuss once said, sometimes the questions are complicated and the answers are simple. To that end, we simplified our intrinsic value calculation. In last year's annual letter to shareholders, I discussed the building blocks of Markel Group's intrinsic value, the framework we provided in our press release this morning. takes those principles and simplifies them further. We provide this not as a fixed number, but to show how we begin to think about the intrinsic value growth of Markel Group. It's a starting point. I'd also encourage placing less stock in the precise number and more in the rate of change you can see over time when you calculate this consistently year after year. The record will show that the number has compounded at high rates over the last five years and since our IPO in 1986. Our recent growth benefited from a period of above-average returns in our equity portfolio. We must improve our insurance results to reach our full potential in the next five years. We must also live our values, serve our customers, and communicate with our long-term partners who trust us with their capital. I am confident we will do just that. Just as the coxswain calls out when it's time for the rowers to give it everything they've got, We know that it's time for us to make those hands fly. Before I turn it over to Brian, I would like to welcome some new team members. In 2024, we welcomed two new businesses and their leaders, Valor and EPI, to our team. Valor Environmental joined the family in June. Valor, founded by J.J. Mondato and Kirk Foster, offers erosion control and stormwater management services. These are required for anyone moving dirt and water in the U.S. With JJ and Kirk, we found common ground in our shared values and focus on customer service. We also welcomed Deborah Martin and her team at EPI to the family in September. However, we could not formally and publicly welcome them at that time due to the pending nature of certain final regulatory approvals that were just recently received. We were happy to make things official in January. After a career as an educator, Deborah founded EPI. which sponsors an exchange visitor program for teachers. It serves school districts in the southeast and mid-Atlantic U.S. states. Welcome to Valor and EPI. With that, I'll turn the call over to Brian, who will go through some of our financial numbers for 2024. He will then turn it over to Jeremy, who will talk about performance in the insurance business. Brian?

Thank you, Tom. Good morning, everyone. I will first review key metrics at the Markel Group level. Then I will share performance numbers for our insurance and ventures businesses, plus our investment results. At the group level, let me begin by talking in a bit more detail about the intrinsic value that Tom mentioned. Before getting into the specific numbers, I'll offer you a Surgeon General's warning for our simple approach. As Tom suggested, we intentionally left our calculation at the 100 course level. Simple and easy to follow, designed for ease of use and interpretation. It should be used with an awareness of its limitations, such as determining an appropriate multiple involves considering many factors, including the nature of the various cash flow streams. We just picked one that seemed reasonably conservative. Twelve times is not the multiple we would pay for a business, nor would we consider buying a business for less than 12 times to be automatically accreted to intrinsic value. Items that are one time in nature have not been adjusted for, such as disposal gains or losses. All good things for an analyst to consider. The value of equities is a snapshot in time as of the end of each year, and the world is dynamic. Like commercials that you would see for medications, using this formula as a precise measure could cause dizziness, headaches, tunnel vision, or other side effects. You get the point. And I could go on and on with those like they tend to at the end of those commercials and actually spend more time with that than what the purpose of the calculation is. But I think that makes the illustration. Recognizing these limitations of the approach, we believe that our simplified method provides an annual insight into how we think about value creation when viewed over longer time periods. Details of our intrinsic value calculation can be found in the back of this morning's press release. Using our intrinsic value calculation and taking a five-year view, Marshall Group's intrinsic value compounded at 18.3% over the last five years. This is compared to total shareholder return over the same period growing at 8.6%, highlighting the gap that Tom mentioned previously. Beginning at the At the beginning of 2024, we began reporting our operating income for investments, ventures, insurance, and on a consolidated basis. Operating income is a key driver of intrinsic value and our long-term incentives. If you must pick one metric for our scorecard, operating income is a good place to start. Markel Group's operating income was $3.7 billion in 2024, up from $2.9 billion in 2023. As Tom noted, the largest contributor to operating income was unrealized gains in our equity portfolio. Breaking down our operating income by engine. Insurance operating income was $601 million for the year and $143 million in the fourth quarter. Insurance operating income includes our global underwriting profits, along with fee-based income from Nafila and State National. Investments operating income was $2.8 billion for the year and $367 million in the fourth quarter. Our annual investment operating income further breaks down at $913 million of recurring net investment income, $1.8 billion of net investment gains, largely from the mark on our equity portfolio, and $52 million of earnings from equity method investments. Ventures operating income across our 21 businesses was $520 million for the year and $132 million in the fourth quarter. The beauty of the Markel Group system lies in the fact that these diversified streams produce a river of cash flow. Operating income is generally convertible into cash that can be redeployed. Growth in insurance premiums and the time lag of paying reserves also generates cash, further fueling reinvestment. This growth generates future operating cash flows, all in a cost and tax-efficient manner. Our total cash flows from operating activities in 2024 totaled $2.6 billion, driven largely by our insurance engine. Moving to our insurance operations. In insurance, we serve our customers through specialized underwriting, building lasting partnerships with our distribution partners, focusing on the long-term, our strong balance sheet, and maximizing our people-powered culture. First, a comment about the natural catastrophe losses. During 2024, we incurred 71 million, or just under one point, of losses related to Hurricane Helene and Hurricane Milton. These losses have come down from our original estimates and are well within our expectations for events of this size. Further, while it is still early days, For the California wildfires, we disclosed an estimated $90 million to $130 million impact on our first quarter 2025 results. This estimate is inclusive of losses and reinstatement premiums across our global underwriting operations. This range includes no provision for potential salvage and subrogation recoveries, and we have minimal premiums subject to the California Fair Plan. While several of our first-party product lines will have losses, our largest impact is in our international fine arts and specie book. Overall, our underwriting teams have done an excellent job of minimizing our exposure to wildfire losses. Moving to our segment results, starting with our insurance segment, which largely represents our specialty and international divisions. Gross written premium was $9.4 billion, A net earned premium was $7.4 billion in 2024, each representing a 2% increase from a year ago. Insurance premiums grew despite numerous portfolio actions that reduced premiums in our U.S. casualty and risk managed professional lines taken to improve the balance of the portfolio. The combined ratio was 94.3% versus 97.8% in 2023. an improvement of 3.5 points, driven by higher prior action year loss takedowns and our underwriting actions starting to earn through, with more benefits from these actions expected in 2025 and beyond. Our current action year loss ratio was 64.4% in both 2024 and 2023. Prior year loss development was 6.1 points favorable in 2024, versus 1.4 points favorable in 2023 due to actions taken in 2023 to strengthen reserves in our casualty portfolio and higher prior year loss takedowns this year in our international portfolio. The expense ratio was 36% in 2024 versus 35% in 2023, with the one point increase driven by the decline in earned premiums in the U.S. from the underwriting actions and changes in our professional liability reinsurance structure, and a higher operating expense ratio in our international operations to support investment and growth initiatives. Our Exited Collateral Protection Insurance product line, or CPI, added 2.3 points on the insurance segment results this year versus 1.3 points last year. We expect the impact of CPI losses on our results to decrease in 2025. Jeremy will speak later about what we've done this past year and are further doing in 2025 to improve the long-term results within our U.S. specialty business. Moving to our reinsurance segment, reinsurance underwriting profit continues to trail our targets with a combined ratio of 101 for the year. Higher attritional loss ratios in our professional and general liability products drove this. We also had some large individual losses within our credit insurity products. Our prior year loss ratio was slightly favorable this year, and we had 34 million, or three points, of adverse development this year from our recently discontinued public entity product line. Turning next to our program services and ILS businesses, a.k.a. State National and Nafila. In 2024, State National had strong, consistent performance with operating profits of $122 million, and Nafila produced operating income of $41 million, a bit lower than last year. However, the 2023 results included $31 million in one-time fee income related to releasing capital from side pockets. Turning next to our results from Markel Ventures. In ventures, our operating businesses are autonomous and accountable. We use equity capital to acquire our family of businesses while promoting a long-term focus and our shared set of values. We seek companies with lasting competitive advantages that provide strong, steady returns on capital across economic cycles. Within certain of our businesses, cycles will and do occur. We price that into our underwriting. As to our 2024 revenues, total revenues exceeded $5 billion for the first time in our history, experiencing year-over-year growth of 3%. Our consumer and building products businesses drove the majority of ventures growth, while transportation-related businesses took a step back. As context, transportation-related demand has been very strong since the first half of 2020. providing a tailwind for our market-leading businesses in this sector the past few years. Historically, these businesses typically experience five to ten-year cycles, with the rising need for transportation equipment and predictable replacement cycles fueling growth from one cycle to the next. So while revenues have come down from the high points of the cycle, these are businesses that particularly benefit from our long-term high equity capital approach. Additionally, our construction services businesses, our largest grouping by total revenues, saw a deceleration in growth this year compared to last with flat year-over-year revenue growth when excluding the addition of Valor in June. Like transportation-related markets, demand for construction services was particularly strong post-COVID. Although elevated interest rates present a challenge for construction activity in this economic climate, we consider flat, reoccurring revenue growth to be a solid result for this group. Ventures operating income was $520 million for the year. Within both our equipment manufacturing and consumer and building products businesses, strong revenue growth drove even stronger operating income growth over the past two years. Although we noted that revenues across all of our construction services businesses were flat, excluding Ballard, the construction services operating margins did decline slightly. Now moving over to our investments. Through our public equity portfolio, we own interest in many of the best businesses in the world. We seek out profitable businesses with good returns on capital, management teams with integrity and talent, and companies that have attractive reinvestment opportunities and are available at reasonable valuations. Our equity portfolio earned a 20.1% return with $1.8 billion in net investment gains included in our 2024 operating income. The equity portfolio averaged a compound annual growth rate of 14.3% over the last five years. We don't expect these returns to be repeated in the next five years, but we're pleased with our portfolio. It has and should compound capital at attractive rates over long periods. Net investment income was $920 million in 2024 versus $735 million last year. For 2024, our fixed income book yield was 3.2%. In the fourth quarter, we continued to add new fixed income investments at higher yields, approximately 4.4%, versus maturing bonds at approximately 3.6%. 98% of our bond portfolio was held in fixed income securities that are rated AA or better. Now we'll turn it over to Jeremy, who will provide more commentary on insurance.