Markel Group Inc.

Good morning and welcome to the Markel Group second quarter 2025 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 the number zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star followed by the number one on your touch-tone phone. To withdraw your question, please press star followed by the number 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 second quarter 2025 results, as well as our most recent annual quarterly report on Form 10-Q, including under the captions Safe Harbor and Cautionary Statements and Risk Factors. We may also discuss certain non-GAAP financial measures during the conference call today. You may find the most directly comparable GAAP measures and reconciliation to GAAP for these measures in the press release for our second quarter 2025 results or in our most recent Form 10-Q. The press release for our second quarter 2025 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, Kelvin, and good morning. This is indeed Tom Gaynor. It's my great pleasure to welcome you along with Brian Costanzo, our CFO, and Simon Wilson, the CEO of Markel Insurance, to our second quarter 2025 conference call. Mike Heaton, our COO, will also be available and join us for the Q&A portion. At Markel Group, we are a diverse and resilient family of businesses with insurance at the core. We aspire to be the best home for our businesses. Over the past few years, we've made significant changes, all with the goal of relentlessly compounding your capital over time. We continue to take actions towards this goal. On today's call, beyond providing an overview of our results, we'll provide an update on some of our recent steps to improve our insurance business and enhance the financial reporting and disclosures for the insurance operations to better align it with the business's strategy and provide more detail for investors. As we announced earlier this year, We appointed Simon Wilson as the new leader of Markel Insurance, who, along with his team, is making great strides to improve that business with a point of emphasis on our U.S. markets. Markel has been a leading specialty insurance company dating back to 1930, but every great company must continually renew itself, zealously pursue excellence, and look for ways to improve. We are no different. We're working on that pursuit of excellence in our insurance operations by continuing to simplify and place more autonomy and accountability in the hands of individual business leaders through clear ownership of separate profit and loss statements. We've seen this decentralized approach work in our international operations. This is not a new idea. It's also the approach that characterized our US operations for most of their long history. It's the approach that will plant seeds for the future and put our cornerstone insurance business back in the top tier. Those seeds will take time to fully bear fruit in our operating numbers, but I believe that increasing accountability and expense efficiency will lead to improved results over time. Also, yesterday we announced the next big step in the insurance business's simplification. Specifically, the decision to sell our reinsurance renewal rights and to stop writing new business through our global reinsurance operation. As a reminder, we entered reinsurance when we acquired Altera over 10 years ago. When the Markel Insurance team began to refocus on its core competitive advantages, it became evident that we should focus on our more core lines of business. While decisions like these are never easy, I am confident this step is necessary to deliver on our commitment within the Markel style to be a market leader in each of our pursuits. Simon and the team also simplified the organizational structure of our U.S. wholesale and specialty operations during the quarter and consolidated the business under the leadership of Wendy Hauser. Simon will take you through the details, but essentially we have combined our previous insurance and reinsurance segments while creating four distinct operating divisions of U.S. wholesale and specialty, U.S. programs and solutions, international, and global reinsurance, which we have now placed into runoff. Brian will provide more detail later regarding how we have resegmented the reporting for our insurance businesses to align with how we're running them going forward. Again, we believe this will provide investors with greater transparency, allowing them to better track our performance. Finally, we increased our loss estimates and strengthened reserves within our discontinued U.S. and European risk-managed D&O professional liability products, which is in runoff, and within our global reinsurance reserves, establishing a higher level of management margin as we put the book into runoff. Our years of pursuing growth in our risk-managed D&O product line have proven an expensive lesson. It's one that we have learned from. and responding to through the simplification and improvement work in our insurance operations. Despite putting up additional reserves for our U.S. and European risk-managed DNO and global re-exposures, it's important to note that we reported six points of overall favorable reserve development for Markel Insurance in the first half of the year. We continue to set our reserves at conservative levels that we believe will be more likely redundant than deficient. Our favorable reserve development in aggregate continues to validate that statement. We've reported favorable reserve development for over 20 years in a row, and our goal is to continue to extend that record. Also, the investments we hold against those reserves generate significant investment income. For example, overall recurring investment income from interest and dividends reached $467 million for the first half of 2025 compared to $441 million a year ago. With respect to our public equities, the always volatile mark-to-market changes in the carrying value of our equity securities was a positive $431 million for the first half of 2025 compared to a positive $772 million in the prior year. Switching to our ventures operations, Revenues year to date grew to $2.7 billion compared to $2.6 billion, and operating income grew to $310 million versus $281 million. The venture's businesses funded all ongoing capital expenditures internally while generating cash for use at the holding company to repurchase shares and other general purposes. Our leaders within these businesses continue operating with autonomy, accountability, and excellence driving great returns for shareholders. These businesses, along with our underwriting profits and investment income, added to liquidity, which we have been building intentionally. Our significant cash and short-term investment balances reflect our desire to retain optionality across a broad set of future potential market environments. As for the price of your shares, each Markel Group share closed at $1,997, on June 30, 2025, compared to $1,576 a year ago and $923 five years ago on June 30, 2020. Our fully deleted share count now stands at $12.8 million compared to $13.1 a year ago as we continue to repurchase our shares. Over the last five years, the price of each share of Markel Group compounded at an annual growth rate of over 16%. Over the last 39 years of our existence as a public company, that number has been approximately 15%. So to restate the fundamentals, in our largest business, we provide specialized forms of insurance all around the world. We're dedicated to earning an underwriting profit from doing so, and we have for decades. We allocate those underwriting earnings to investing in minority or majority-owned equity investments, which can earn higher returns than available from traditional fixed income securities. We then take the income earned from our investments, ventures, and underwriting operations and rinse and repeat and do it all over again. By consistently following this strategy, we've created a flywheel that continues to relentlessly compound the value of your company over decades through constantly allocating capital to its highest and best use. Finally, our board level review is ongoing. I hope you can see from the evidence that we continue to act when we see opportunities to build the value of your company every day. With that, I'd like to turn the call over to Brian Costanzo to update you on the numbers. Brian?

Thank you, Tom. Good morning, everyone. The start of 2024, we began reporting Markel Group segment operating income for our investments, ventures, and insurance engines. Operating income is a key driver of our intrinsic value and long-term incentives. If you must pick one metric for our scorecard, operating income is the best place to start. We use five-year periods to keep that scorecard because the expected volatility in the mark-to-market of our equity portfolio normalizes over longer periods. Over the past four calendar years, plus the first six months of this year, we have accumulated operating income of just over 11 billion. In the second quarter of 2025, Consolidated operating income was $1.1 billion versus $410 million in the same period one year ago. The biggest driver of the year-over-year difference was changes in unrealized gains on the equity portfolio, which flows through GAAP operating income distorting quarterly year-over-year comparisons. Within our insurance engine, which includes our Markel Insurance business, along with our state, national, and Nafila businesses, Operating income was $128 million for the second quarter of 2025 versus $177 million in the same period one year ago. The decline in year-over-year was driven by less favorable prior year loss development and a higher expense ratio. Markel Ventures revenues were up 7% in the second quarter or $1.55 billion in the second quarter of 2025 versus $1.45 billion in the comparable period one year ago. Ventures operating income was up 17% year-over-year in the second quarter of 2025, or $208 million in the second quarter this year versus $177 million in the same period last year. These increases were driven by the contributions from EPI, which we began consolidating in the first quarter of 2025, and Valor, which we acquired last year, along with increases within our construction services businesses partially offset by decreases from our transportation businesses. Since EPI and Valor are newer businesses to the family, we thought context on each would be helpful. The multi-year nature of EPI's education placement contracts provides stability to its quarterly results. The company sponsors an exchange visitor program for teachers. It serves school districts in the Southeast and Mid-Atlantic U.S. states. It serves a market with favorable long-term demand trends. This, plus EPI's sterling reputation, gives that business good revenue and earnings visibility with a steady growth profile. Ballard services the cyclical commercial and residential construction markets, where the latter has experienced softening conditions of late. However, the growing importance of proper erosion control and stormwater protection provides Ballard with a backdrop for growth over cycles. Our equity finance approach and capital discipline factors in cyclicality when we underwrite businesses. We are thrilled to welcome both businesses to the family. Turning over to our investments. Investments operating income was $822 million for the second quarter of 2025 and $100 million for the same period one year ago. Our equity portfolio returned 5.4% in the second quarter, with $597 million in mark-to-market gains, which are included in our Q2 2025 operating income, versus $116 million in losses in the comparable quarter last year. While we expect to see short-term fluctuations in our equity portfolio when measuring them on a quarterly basis, over the long term, our public equity portfolio has created excellent returns and now has a cumulative unrealized gain of $8.3 billion. We continue to take advantage of our low cost and tax efficient structures, long-term holding lens, and allocating a portion of our incoming cash flows to compound capital in our public equity portfolio. Net investment income was $228 million in Q2 2025 versus $220 million in Q2 2024. While net investment income from our fixed portfolio increased, declines in short-term interest rates caused the year-over-year increases in interest income to moderate. In Q2 2025, our fixed income book yield was 3.5% and our short-term investments yield was 3.9%. We continued to add new fixed income investments at higher yields, approximating 4.2% versus maturing bonds with yields approximating 3.4%. 96% of our bond portfolio is held in fixed income securities that are rated AA or better. As we have previously discussed, we seek to materially match our fixed income portfolio in both duration and currency to our net loss reserve liabilities. During the second quarter, the dollar weakened against our two primary transactional foreign currencies, the Euro, and the British Pound. We reported a net loss from foreign currency in the quarter of 192 million, which was substantially offset by positive movements in foreign currency within our fixed income portfolio that is included within other comprehensive income. During the second quarter, we also made a change to our capital stack through the redemption of our 600 million 6% preferred stock. The coupon rate on that instrument would have reset to current market rates exceeding 10% had we not redeemed the security this past quarter. I'll now spend a little more time discussing our Markel Insurance underwriting operations, our largest cornerstone operating business. First, I want to call attention to the changes in our external reporting this quarter within our insurance operations to align with our recent organizational and management changes. We have resegmented our insurance operations and are now reporting our Markel Insurance business under Simon's leadership as one segment. As Tom mentioned, this new segment combines our previous insurance and reinsurance segments while providing more detail by breaking this segment into four operating divisions, U.S. Wholesale and Specialty, Programs and Solutions, International, and our Global Reinsurance Division, which we have placed into runoff. We believe our expanded disclosures will help investors better understand the performance and underlying drivers of our insurance business going forward. You can see a breakdown of our quarterly and year-to-date results by operating division within our 10Q. These changes are an initial step in our commitment to adapt and improve our external reporting. We expect to make further improvements to our reporting in the second half of this year and look forward to providing updates on our progress. I'll now provide a bit more detail on the results of our new Markel insurance segment. Underwriting gross written premiums were down 2% for the quarter and up 1% on a year-to-date basis versus the comparable periods last year. The decline in gross written premiums in the second quarter was driven by a 26% decline from global reinsurance due to the timing of renewal on large contracts and a decline of 5% with our U.S. wholesale and specialty division due to the impact of exiting our U.S. risk-managed D&O product line. Programs and solutions gross written premiums were up 8% in the second quarter versus the same period one year ago, driven by growth in personal lines. Further, international was up 5% in the second quarter year-over-year, with growth across multiple product lines. For all of Markel Insurance, net earned premium was up 3% on a consolidated basis in the second quarter and 1% year to date versus the same period one year ago. Our more modest earned premium growth reflects growth within many areas of our portfolio, offset by the impact on gross written premiums from the underwriting actions in certain U.S. casualty and professional liability lines that we've taken to improve profitability. We expect the impact on earned premiums from these underwriting actions to reduce in the second half of this year while continuing to improve our overall attritional loss ratio. The Markel Insurance combined ratio was 96.9% versus 93.8% in the same quarter one year ago. Adverse development in certain now discontinued product lines negatively impacted our combined ratio for the quarter. Our U.S. and European risk-managed D&O professional liability lines added 127 million or six points to the second quarter overall combined ratio. Adverse development within our global reinsurance division added 50 million or two points to the Markel insurance combined ratio. Further, losses from our collateral protection CPI product added another 26 million or one point to our current accident year attritional loss ratio. Excluding the impact from these runoff products, our Markel Insurance combined ratio for the quarter is in line with our long-term targets. Our current accident year's loss ratio was 64.5% in the second quarter of 2025 versus 66.6% in the same period one year ago, reflecting the impact of our underwriting actions along with lower losses on our CPI product this year versus last year. Prior year loss development was 3.8% favorable on the combined ratio in the second quarter of 2025 versus 7.2% favorable in the comparable period last year. The lower favorable development year over year is the result of the reserving actions I just discussed in our runoff risk managed DNO and global reinsurance product lines. while our ongoing book produced favorable loss takedowns, most notably within our property and marine and energy product lines. Our expense ratio was 36.3% in the second quarter of 2025 versus 34.5% in the comparable period. 50 basis points of the increase was driven by one-time severance and increased holding company allocations related to professional fees. The remainder was driven by increases in controllable expenses. We acknowledge that our expense ratio is not where it needs to be and are committed to reducing the controllable expense ratio within our insurance operations over time. As a reminder, beginning in 2023, we began taking a series of decisive actions, which we believe will better position the insurance business for profitable growth in the future. First, we took corrective actions through exiting several product lines, including primary casualty retail, business owner's policy, risk-managed excess construction, risk-managed architects and engineers, and CPI. Second, across our portfolio, we meaningfully reduced the construction mix in our casualty portfolio. We changed the terms and conditions to eliminate certain exposures to subcontractors, reduced limits on excess lines, and implemented premium caps in challenging states. We have been achieving double-digit rate increases across the CASB portfolio this year and are walking away from risks that are not adequately priced. Third, we took further actions in 2025, including combining our risk-managed public D&O to a single access point within our Bermuda platform in our programs and solutions division. and placed our U.S. and European platforms for this line into runoff. We also announced yesterday the transition of our global reinsurance business into runoff through the sale of renewal rights to Nationwide. Premiums will continue to be earned in this division over the next two to three years due to the multiyear nature of contracts. Further, we will have some renewal contracts processed in the third quarter and premium writings going forward will largely be tied to adjustments on in-force contracts. We expect the accumulation of all these actions to be accretive to our 2025 and 2026 results, but they will put short-term pressure on Markel Insurance's gross written premium growth. We continue to hold loss reserves at a level that we believe is more likely redundant than deficient. Our reserves strengthening within our runoff books this quarter includes management actions intended to put these reserves at a level above our actuarial best estimate, creating a higher degree of confidence in the reserves' adequacy. We expect our reserving philosophy to continue to produce prior-year loss takedowns in future periods. We expect all of our actions to drive an improved attritional combined ratio in the back half of 2025 and continued improvement into 2026. With that, I will turn it over to Simon.