Good morning, and welcome to the Markel Group Second Quarter 2023 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] 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 10-Q, including under the caption Safe Harbor and Cautionary Statements 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 10-Q. 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 Gayner, Chief Executive Officer. Please go ahead.

Good morning. Thank you. From Richmond, Virginia, I'd like to welcome you to the Markel Group's second quarter conference call. This is indeed Tom Gayner, has served as your CEO, and it is my pleasure to welcome you to the call this morning. I'm joined by our Chief Financial Officer, Teri Gendron; and our President of Insurance, Jeremy Noble, to share our results with you and to answer your questions. We are very pleased with the results we're reporting to you today. Each of our three engines: Insurance, Markel Ventures and Investments produced positive thrust during the first half of 2023. In our insurance operations, we enjoyed double-digit growth in earned premiums and solid underwriting profitability with a combined ratio of 93% for the first half of 2023. Importantly, we report those results with an ongoing commitment to putting up insurance reserves in a way, which we believe will be more likely to prove redundant than deficient. You can see that commitment through our years of reporting favorable loss development in the vast majority of the times when we report to you each quarter's results. This quarter continues to show that same pattern of favorable development. There's unrelenting commitment at the Markel Group to our culture based on our values. The conservatism we embrace in setting reserves demonstrates our words and action. Both Teri and Jeremy will provide more details on our insurance results and their comments. Markel Ventures produced excellent results during the first half of 2023. Revenues rose to $2.5 billion compared to $2.3 billion a year ago, and EBITDA reached $317 million versus $250 million in the first half of 2022. It's worth pointing out that this growth in revenues and profitability was largely organic. These are the results of the existing businesses as there were no…

Thank you, Tom, and good morning, everyone. As Tom mentioned, each of our three engines produced a solid quarter, strong revenue growth within our insurance operations, higher profitability within Markel Ventures and excellent returns from our investment engine showed the benefits of our diversified three-engine architecture. Starting off with our underwriting operations. Gross written premiums grew 7% to $5.4 billion for the first half of 2023, compared to $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. The most notable growth came from our personal lines, marine and energy, property and general liability product lines while we saw lower premium volume within our professional liability product lines. Our consolidated combined ratio for the first half of 2023 was 93% compared to 90% for the first half of last year. The increase was driven by a higher attritional loss ratio and expense ratio in 2023 within our insurance segment. Prior year loss reserves developed favorably by $139 million in the first half of 2023 compared to $123 million in the first half of 2022. We experienced favorable loss reserve development across multiple product lines in 2023, most notably across our international professional liability product lines. The favorable development in 2023 was partially offset by adverse development on our general liability product lines due to an increased frequency of large claims over the past several quarters on our excess and umbrella product. Turning to our investment results. Net investment gains of – I'm sorry, of $857 million in the first half of 2023 were driven by favorable market value movements. This compares to net investment losses of $1.9 billion for the first half of 2022, driven by unfavorable market value movements. As you've heard us say…

Thanks, Teri, and good morning, everyone. It’s great to be with you this morning to recap our insurance engine results the first half 2023. The midpoint of the year, we continue to remain focused on achieving profitable growth across all of our insurance businesses. I’m pleased to report that we are well on our way to achieving that goal with revenues across our insurance operations totaling $4.1 billion for the year, up 7% from last year, while generating pre-tax operating income $325 million. Additionally, we continue to invest the float created by our underwriting operations at attractive yield. Let me now share a few thoughts on our first half results from across our collection of insurance businesses, which include our insurance and reinsurance underwriting operations, state national program services, and Nephila insurance-linked securities. Looking first at our Insurance segment. For the first six months of the year, we continue to grow premiums in lines where we see opportunities and feel good about the levels of rate adequacy. Overall gross written premiums in the Insurance segment grew by 9% from a year ago. We are taking advantage of the improved pricing environment in property. We are also growing in many of our other product offerings, including inland marine, binding, personal lines, programs and select marine and energy classes within the London market. As we have discussed in recent quarters, the current market cycle is nuanced with each product line having a bit of its own story. Fortunately, our breadth of product offering when combined with our exceptional underwriting talent allows us to develop robust go-to-market strategies by product. We have continued to decrease our writings in certain of our professional liability lines, most notably in the large account public D&O space, as we continue to remain uncomfortable with the rate decreases…

Thank you, Jeremy. As Teri reported, we enjoyed an excellent first half in our Markel Ventures operations. The CEOs and the people of those organizations continue to do a great job of serving their customers and their associates. Total revenues Adventures rose 8% in the first half from $2.3 billion to $2.5 billion. EBITDA rose 27% from $230 million to $317 billion. One of the very encouraging points about this comparison is that it’s largely organic. It’s largely apples to apples and not due to additional acquisitions. I hope you take some comfort in seeing these results. I know that I do. I’m delighted that we were able to apply some capital to purchases of non-controlling interests in our array of ventures companies as fully planned for at the time of the original acquisitions, and that a couple of our companies were able to add some additional companies to our family. The acquisition of additional businesses within our platforms of existing businesses is one of our favorite ways to deploy capital, and I’m encouraged to see the maturation and ongoing development of this aspect of Markel Ventures. We remain interested in additional platform acquisitions at Markel Ventures, but remain disciplined in our approach. We remain involved in a few conversations, but I have nothing to report to you on that front, and all I can say is that we continue to work at the task and we will be both opportunistic and disciplined in considering opportunities. In the investment engine, you can see the effect of higher interest rates and solid equity performance shined through. Recurring investment income grew 74% from $189 million to $329 million in the first half, and new money investment rates continued to be higher than the fixed income maturities rolling off as they mature. We…

[Operator Instructions] Our first question will come from the line of Mark Hughes with Truist. Please go ahead.

Thank you. Good morning.

Good morning.

I wonder if there’s any more detail you could provide on the reserve development that you’re seeing that you described in the 2017 to 2019 accident years. Is that social inflation, medical inflation? Just a little more on that would be interesting.

Yes, sure. Mark, it’s Jeremy. It’s very similar to what we’ve talked about in recent quarters, and I think what’s being reported broadly across the industry. The reality is, is that the business that we put on the books in years like 2015 to 2019, our view now is it’s not going to be as ultimately profitable as we believe at the time, and that’s because for the time that has passed since then. And so you get into that confluence of events, rising economic inflation, compounding aspects of that, the impacts of COVID, the court closures, the lag in sort of reporting, and then certainly to the point that you raised. Social inflation is a very real thing, so the cost of handling and adjusting and settling claims has gone up, and the role and the prominence of litigation financing has been rising. And so ultimately, we’re witnessing pockets in those longer tail lines, particularly casually like we report this quarter where actual loss frequency and severity are in excess of our expectations. And the reality is, is when we see a little bit of that activity, we allow a bit of time to make sure that we think that there is a trend there. And if we see that trend, then we’re reacting very quickly and we’re acting to try to push hard to get ahead of that and put that behind us. Equally, I would say it’s really important to point out that a lot of times has passed obviously between those sort of this quarter, 2017 to 2019 years for that block of business from 2015 to 2019. And in those years more recently, right, a lot of changes that have taken place. So pushing rate, improving terms and conditions, addressing limits, attachment points, segmentation strategies. We’ve seen deductibles rise. So lots of things have improved the overall health of the portfolios, but we are left to address those older years.

Yes. Appreciate the detail. How about the workers’ comp line? How are you approaching that at this point? And then are you seeing any medical inflation pick up there?

Yes. Great question. So within workers’ comp it continues to be a great – and you have to recall, our workers’ comp book is pretty sort of niche within the broader segment. So it’s a lot of very sort of micro workers’ comp and some of the trends that we would see would be a little bit different than maybe broader workers’ comp more broadly. That line of business has been very profitable for us. We’ve consistently seen reductions in prior year loss reserves over time. We still see some of that that the levels aren’t as significant. We don’t yet see the impact – and prices have been coming off consistently in recent years because of the very positive performance in the product line. We continue to monitor it very closely. We have not seen an impact or rising medical inflation impacting that book for us as of yet, but we’re very focused on reviewing that trend. And the book has not been, it is not been growing at the rate of the broader portfolio as well. So we’ll see. We’re paying very, very close attention to that.

Then one other question, the program services fronting big increase this quarter, I think for the six months it’s been not quite as big. Is that just a timing issue on renewals or is there some new business this quarter?

Yes. It’s a handful of things. So within our state national business really pleased with where we stand there, we are expanding a few very strategic relationships. We’ve actually probably done a little bit better in retention of some of the programs than we would’ve anticipated. We’ve onboarded a number of new programs. And equally I think the pipeline at state national looks very good. So some of that played out in the second quarter and we’re up modestly year-to-date. Also within that total fronting space is some of the fronting we do associated with our Nephila operations when we offer a rated balance sheet. So we’ve seen some opportunistic growth in that space because of the attractiveness of the property, catastrophe environment more broadly. So less sort of timing and you never know with our state national platform, we have some very large deals and there’s always an ebb and flow of what’s kind of coming in and what’s leaving the platform. But feel really, really good about where we’re positioned right now.

Appreciate it. Thank you.

Sure.

Your next question comes from the line of John Fox with Fenimore Asset Management. Please go ahead.

Thank you. Well, Mark asked two of my questions, so I’ll go with the third. Well, first of all, great results.

Thank you, John.

So thank you for that. I just want to ask if I’m looking at this the right way. Tom, I heard you talk about the investment income potential to continue to grow. And I'm wondering if you're under selling it. When I look at the Q, it's about $13.7 billion in bonds at fair value, which assuming you get without any credit hits and it's yielding less than 3% at this point. So it seems to me, there's a couple of hundred million of investment income, latent earnings power that's going to earn in over the next few years as those bonds mature. Am I looking at that the right way?

Yes. Excuse me of being too wordy in my answers, right. Yes.

And that magnitude seems reasonable?

Yes.

Okay. Great. Thank you.

You’re welcome.

[Operator Instructions] Our next question will come from the line of Scott Heleniak with RBC Capital Markets. Please go ahead.

Yes. Good morning. The first question I have was on the insurance unit. The premium growth there, it ticked up a little bit versus Q1. And just curious how you're feeling about just overall pricing in new business environment. Are you constructive in terms of growth for the rest of 2023 and 2024. It sounded like you were kind of based on the commentary about most pricing. I mean there's a few areas. But just anything you can talk about that? And is the growth just being impacted mostly by professional liability and D&O, but the rest of the portfolio you're feeling pretty good about in terms of the rest 2023 and 2024?

I think that's pretty well said, Scott. I don't have a lot to add to that. There's a number of product classes and I mentioned some of this earlier, where we feel it's very attractive. We're seeing great opportunities to grow. I mentioned property and inland marine and personal lines and binding, surety programs, marine and energy in London. So that's one of the benefits we have of having a very broad and diversified product portfolio, we can really sort of choose our points that are most attractive in the insurance market cycle. And we've talked about the fact that it's pretty nuanced right now, so you have to have a strategy around each major product on. You're exactly right. We are a large professional liability lines rider. And so because of one part, a lack of activity in the space that reduces exposure being brought to the market overall and also how the pricing environment is looking not just in public D&O. I mean, that's the best example. But we're being cautious and thoughtful around E&O, EPLI, other lines as well. And because we had a large book that weighs some of the growth opportunity. Casualty is an area where the growth is more tempered compared to last couple of years, but it's a good example of where we are able to push rate and we're certainly able to sort of have sort of segmentation strategies about how and where we choose to play in the casualty line. So overall, if you okay in that space as well. So I think the growth opportunities remain out there, and we're pretty confident about our platform given the breadth of product offering.

Okay. Great. That's helpful detail. I just wanted to follow up one quick question, too, on the reserve add and general liability, the umbrella excess casualty for 2017 and 2019. Is this a – it's based on some of the – an uptick in cases and claims. Obviously, you're seeing something, but – is it just kind of early signs and you're putting up IBNR just to be conservative on that? Or just anything you can touch on the actual activity that you're seeing there, either frequency or severity in those lines? Is there anything more you can comment on that?

Yes. I mean, there's something to completely pinpoint, Scott. Beyond just suggesting within our actuarial models, especially when you're starting to talk about those older years. So these are on sort of really the 2017 and 2019 years – so several years these would be maturing well under their cycles. We have had a lot of history with these programs. And we would be seeing this point more reported loss activity than we would have been anticipating. I don't – I'm not drawn to a specific element with regards to frequency versus severity. It's just in total, the claims reporting pattern, the volume of activity is more significant than what we would expect. And then you extrapolate that. So a little bit of out – a little bit more reported activity than we would have expected in our underlying models, if we concerned that could become a trend. We extrapolate that, and we take a more significant movement, right. So the total dollars in the period of actual versus expected on that loss activity, it pales in comparison to the total amount of loss development we recognized in the period. So now we'll wait and see how that sort of trends and develops over time. But a lot of that is now sitting in IBNR, we continue to be very, very cautious to respond quickly on that back year development.

Okay. Got it. And just a last question just on Markel Ventures, Tom, could you comment on just – you mentioned some conversations and discussions you're having and how those have kind of trended just the number of them this year versus last year and anything you can add there? And is deal pricing still – I know I was kind of holding you back a little bit. Is that still case now? Or just any update on kind of what you're seeing in terms of potential M&A for ventures.

Sure. Well, let me give you some precise answers on that. So the conversations we're having now, reported some, the conversations a year ago, almost none. So just a few more people have talked to. And the gap would be in pricing and remaining disciplined and being a different kind of buyer than the other buyers that are out there. That's something obviously sellers are aware of. We can bridge those gaps and get close in some markets. Other markets, we just have to wait and let the tide roll out a little bit and we've been doing that for a while. And it's not unprecedented. The first Markel Ventures deal we did was in 2005. We didn't do the second 1 until I think, three years later in 2008. So we're used to periods where we just talk to people and wait for the stars to align.

Yes. Well, some is better than none, right?

That's correct.

All right, thanks a lot.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Tom Gayner for any closing remarks.

Thank you very much for your ongoing support and interest. We look forward to catching up with you in another 90 days. We will.

The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.