Greetings, and welcome to the Markel Corporation Fourth Quarter 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steve Markel, Vice Chairman for Markel Corporation. Thank you Mr. Markel, you may begin.

Thank you, operator. During our call today, we may make forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements is described under the caption Risk Factors and Safe Harbor and Cautionary Statement in our most recently filed annual report on Form 10-K and quarterly report on Form 10-Quarter, and in the Safe Harbor Statement beginning on page five of the press release, dated February 2nd. Today, will follow our same format as in prior quarterly calls. After a few introductory comments, Richie Whitt will review our financials. Paul Springman, the insurance operations; Tom Gayner will follow with a discussion of the investment landscape. And I will moderate the questions and answers. The quarter had very good underwriting results in the fourth quarter and we closed the year with 99% combined ratio as a result of the hurricanes recorded in the third quarter. Investment returns continued to be challenging as I'm sure all of you know, and book value for common share ended the year $322, a decline of about 16% from the prior year. Over the past five years, we've compounded book value at a 10% rate which as you all know is significantly under our long-term target. We remain very committed to our long-term philosophy and policy and believe that a combination of solid investment results and solid underwriting results will build shareholder value. We believe in spite of the current environment that that model will work for Markel in the long-term and with continued... continued commitment to implementing that model. With that, I'll ask Richie Whitt to review the quarter and year results and turn it over to the other speakers. Richie?

Thanks Steve and good morning everyone. I am going to follow the similar format of past quarters and I'll focus my comments primarily on a year-to-date results. I'll start by discussing our underwriting operations and then follow that with a brief discussion of our investment results and then bring the two together with a discussion of total results for the year. Many of the trends discussed in our quarterly calls continued for the full year. The two biggest issues obviously affecting our 2008 results are the competitive insurance market and the volatile financial markets and their impacts on our investment portfolio. In addition, as you know we had losses from Hurricane Gustav and Ike in the third quarter of 2008. So, first let's kick off with the underwriting results. Due to increased competition in all of our markets during 2008, gross premium volumes decreased 6% to about 2.2 billion. About one quarter of this decrease was due to exiting certain programs previously written as Markel Re unit... as former Markel Re unit. Net written premiums decreased 4%and premium retentions were up to 89% from 87% in 2007. We continue to pack away and increase our retentions in our various lines of business and are pleased we've got that up to 89% this year. Non-premiums decreased 4% to approximately $2 billion, compared to about $2.1 billion in 2007. Our combined ratio was 99% for 2008, compared to 88% in 2007. We have produced underwriting profits in five of the past six years. Our only miss was in 2007 with a 101 combined ratio as a result of Hurricane Katrina. The increased net combined ratio for 2008 was a result of $95 million or 5 points of loss from Hurricane Gustav and Ike. I want to point out that this represents approximately…

Thank you Richie and good morning everyone. You've just heard Steve's opening remarks and Richie's report on our numbers from the fourth quarter of the year and for the entire 2008 year. And in just a few minutes Tom will take us through our investment results. Today, it's my pleasure to give you report on the operational side of the business and to update you on two or three important fronts. First, our combined operating ratio for the year is 99%, which produces a nominal underwriting profit. We vow to improve this number significantly during 2009. Last quarter in my remarks, I highlighted the need for increased pricing virtually across the Board in all product lines. I am pleased to report that although it has got us some business during the fourth quarter, prices at Markel have leveled in all areas and have begun to move up in most. Before I get into the specifics on that point, I'd like to talk about our individual segment results from 2008. Our Excess and Surplus Lines segment produced a combined operating ratio of 92% for the year representing 8 solid points of underwriting profit. While not quite the banner year that we had in 2007, still a very admirable result, especially in these difficult market conditions that we continue to face. Premium volume in this segment was off approximately 10%. This was due to three factors, first our decision at the end of 2007 to close the smart division of Markel Re. This particular unit had failed to meet our expectations and there were no more prospects for improvements in the following year. Second, there continues to be much more competition than we originally anticipated for new business opportunities that lasted virtually throughout the entire year. And lastly, we incurred heavy competition…

Thank you Paul. As Richie reported to you a few moments ago, our investment results were disappointing in 2008. First the facts, in equities, we were down 34%. In fixed income we were up 0.2%, in total we were down 6.9% in local currency. After adjusting for FX effects, which are essentially neutral, through our booked value since the decline in the reported value of our FX denominated investment assets, are offset by the decline in our FX denominated insurance reserve liabilities. The total investment portfolio declined 9.6% in 2008, these investment results drove the decline in our book value from $265 to $222 per share in 2008. Those are clearly very disappointing results and the worst investment results we've ever experienced at Markel. While I know that all of you share the same unhappiness as we do in those results, I'd like to spend just a few moments covering three topics. First, I will attempt to put our results into some context of what is happening in worldwide investment markets. Second, I will describe some of the actions we took in managing the portfolio throughout this extraordinary period and third, I will make some comments on our circumstances and expectations for the future. And I also look forward to your specific questions on our investments. First, the context. This is the first decline in book value per the share at Markel since 1999. And the upward of jagged path of growth in our book value per share, we also experienced annual declines in 1990 and 1994. While we are never pleased to report this kind of result and we are never satisfied or complacent when the news is good, ups and downs our inevitable in business and life and it is important to keep an even keel in all…

Thank you, Tom. We're very pleased to see 2008 go and we welcome 2009. I'd like to summarize a few key points before we open the floor for your questions. On the underwriting side, prices at Markel are going up and we will continue to maintain underwriting discipline. Our underwriting margins will improve and continue to help build shareholder value. On the investment side, we do not pretend to know how low equity markets might go or when they might recover but we do continue to believe strongly that the long-term is extremely positive for quality businesses run by talented and honest managers. On the financial side, our financial strength is as strong as it's ever been and our balance sheet is rock solid. And we are well prepared to take advantage of opportunities that we see in the specialty insurance marketplace. And finally, our One Markel re-organization plan is progressing extremely well. And related to this, I would like to share with you that several of our senior managers are now taking on new roles and responsibilities in the organization. Last year, as you know, we promoted Paul Springman to President and Chief Operating Officer. During 2009, Paul will focus primarily on the transition of One Markel's wholesale unit to the One Markel regional model. Our five regional Presidents will report directly to Paul, while he will be...continue to be involved in major decisions affecting their operation, it's our intent to allow him to be able to devote the majority of his time and attention to the success of One Markel. Gary Albanese, has also recently been promoted to Chief Underwriting Officer and will oversee all of Markel's underwriting through the newly formed product line groups. Gary is fresh off a five year assignment as President of Markel International.…

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question is coming from Mark Hughes with Suntrust Bank. Please state your question.

Thank you very much. How much might slower economy offsets better pricing you're describing?

It's hard Mark, to be precise and in terms of premium dollars, we're sort of less concerned with where the premium dollars go for businesses, revenues drop 50%, but the rates that we charge them increases 25%.We might still see a reduction in the gross premium. But we have a much higher rate relative to the exposure; because generally insurance exposures will flat the volume of business they're doing. So there could be some contraction in the total premiums people pay as their businesses contract. But what we're really interest in is the rate per unit of exposure that we're assuming and we fully expect to see those increase and as a result, obviously we expect to see our underwriting margins improve.

Great, one other question, anyway to quantify the benefits of the One Markel initiative or maybe I'll ask it other way, how much out-performance did you get from the prototype Texas office?

The jury is still out and it's trying to measure actual performance in terms of the Texas prototype. And in 2009 and 2008, the net effect of additional cost, I mean we're investing in the One Markel platform and will throughout 2009, Richie in a second maybe can share with you some of the numbers. But the real out-performance will be selling more products to more agents and getting better relations which should improving our relationships in distribution with those agents. The cost base on the operational side will be assuming several years in the future and mostly measured in the ability to do more business with the same resources. But Richie, you might share some specifics on the economics.

Yes, during 2008, I think we ultimately ended up at about 18 million of cost related to the One Markel project. For 2009, we're forecasting approximately 50 million of cost for the project and that won't be exactly evenly spread throughout the year. It's in the realm of being evenly spread throughout the year. I... Paul might want to just speak for a second about the Dallas prototype which is some of the encouraging times we've seen.

Mark, happy to take the question. I would say probably from the operational perspective the number one issue that we've had is holding our producer expectations down. We have been overwhelmed with new business opportunities since we opened our doors in the middle part of September, and we opened the office with roughly 20 associates, 16 of which had prior Markel experience. We're now up somewhere north of 30 and ultimately I think we'll probably be in the 40 to 45 range in the next quarter or two. But we're seeing opportunities in product areas from existing clients that previously did not have access to those products. And we haven't even really begun to scratch the surface in terms of prospecting for new clients and new broker relationships. But just by being closer to the brokers in the Plano, Texas office, we've been given opportunities in areas that previously we never saw before. So we're very, very pleased with the initial response and will be rolling out of this model during the first quarter to all of the regions here inside the company.

Thank you.

Our next question is coming from Joshua Shanker of Citigroup. Please state your question.

Yeah I'd like to take your pulse on the acting year of loss effects, given the backload in terms, how long do you think before the industry stabilizes in terms of increasing loss effects?

I am not really sure I understand your question. As it relates Markel, we consistently try to pick the current years fairly conservatively. And as the data becomes more clear, obviously, we are trying to estimate them and achieve a margin of safety and therefore, seeing the loss reserves run down overtime. The industry as a whole is something I'd probably better not try to comment on, but my sense is that whatever margins were created four, five years ago are largely depleted in the overall industry numbers, but it would vary very dramatically from company-to-company based upon the management losses.

If you rate generally surrounding the marketplace were to be stable during 2009, not yet rising, would your losses be essentially stable through the next ... through the year we're in right now?

At Markel?

At Markel.

We would expect our price... essentially to be based upon what we achieve in pricing and what we see in the marketplace in terms of the clients' development. Our forecast would be that with improving pricing we'll have improving margins.

And at stable pricing stable margins?

And we don't expect to have stable prices of Markel.

Okay.

But yes, that would be correct.

Okay, and then and the second question...

If the pricing would stable, we would expect losses to increase with inflation, we expect loses to increase in a recession as... I mean claims generally go up in a recessionary environment. When times are rosy, people are less likely to file claims. They tend to be settled less expensively, there is so much of your fraud and awesome... awesome (ph) claims in good environment. So the claims environment in a recession will be worst industry wise. There is no doubt about that.

Well then the...

I am talking about the overall environment.

Right. In the press release, you pointed out that the increased losses are related to pricing having year-over-year compounded down significantly. Not so much about the anticipation of the recession bringing increased losses. Do you think that those increased losses are reflecting both, expected rise in losses due to recessionary factors plus declining year-over-year pricing?

For the losses in December 2008 would not include events that our forecasted through current and future.

Well, we have, would it been the losses from 4Q '08 event (ph) are growing through your P&L if they are going to do some reporting like obviously they're going to include the impact of recessionary economy of course?

Losses for the current 2009 will affect that yes.

And also for 4Q '08 forecast. But we are certainly in... I don't know if you expect 4Q '08 to be accelerate in terms of all the recessions certainly has and has been happening for not this year, but last year as well?

Well we believe our fix in 2008 include margins of safety that are quite adequate.

Okay. I feel very good. And the second question involves comments made at the last Annual Meeting about there's a lot of bargains out there in the equity market. But we'd rather invest in simple or easier to understand ideas, aka non-financial versus hard to understand ideas, and which one we can also take a pulse on, the easier to understand versus hard to understand fees and where we stand in terms of maybe how we... what is a attractive stock at this point?

Well, I'll let Tom pick up on that but I think it's fair to say that we've learned a lot about what's easier to understand and what's harder to understand and then maybe there were some things that we thought were easy to understand two years ago that are more difficult to understand today. So Tom, you want to pick up on that point?

I would agree with your comment and we're continuing to lean on the spectrum of easier and more straight-forward rather than complex.

And do you expect along those lines that we'll see continued rotation in the equity portfolio?

In the same way that we go to work every day and look at everything and think about everything and sort everything, compare it to everything else, but that's a natural process that shouldn't be any different in 2009 than it was last year and the year before.

Well, thank you very much and good luck.

Thanks.

Thank you.

Our next question is coming from Sam Houston with Linking Square Capital (ph). Please state your question.

Good morning. Can you comment on how much excess capital you think hedge as a holding company as well as the insurance company and do you think the rating agencies agree with the assessment and then have do you plan to use your excess capital if you are thinking about buybacks, acquisitions or organic growth? Thanks.

Richie I'll let you deal with the dollar amounts but it's a holding company and insurance companies are now after you're through I'll pick up on how we're going to spend it.

Okay. Well, we have about six... as we've have said, we have 650 million of cash in investments as the holding company. We have about $1 billion of statutory capital in the U.S. and we have roughly... and can you help me out in the U.K. of 500 million capital, in the U.K. Obviously with the equity markets, well and the bond markets having a tough year, just say we have large amounts of excess capital in the insurance company. I don't know if we can say that. We certainly have enough capital in the insurance companies and we'll also be taking some dividends out of the insurance companies this year. But, I don't think I can say today we have 30% excess or something like that. There is more than enough capital to execute our 2009 business plan in the insurance companies and we will take some dividend. As the holding company level, we'd like to have net sales and treasurer (ph) and we would like to have something like 200 million at all times. So, I look at that and say, here is about 450 million at the holding company that we can do other things with and Steve, I'll, leave that rest of it up to you.

Okay. Thank you, Richard. But I think the summary is that, we have more than enough capital in the insurance companies and the regulating companies to meet our operating plan and in our expectation, we're which is still fairly bullish about, our expectations that we'll achieve pricing increases and fee obtain these (ph) for additional premium growth and develop new product lines in the insurance business. So, we have enough capital to take advantage of those opportunities as they come along. We also have, as Tom pointed out earlier, a high amount of liquidity which is a little bit different from capital per say, but because we have a high degree of liquidity, we are... and I think Tom referenced this as well, starting to move from some of the shorter term investments into for more permanent portfolio positions and so, we'll do that gradually because we don't know exactly when we might be at the bottom or whether we are already there. And so, we'll gradually start reinvesting some of that excess of liquidity at the insurance companies. The excess capital at the holding companies, is raw powder for future opportunities. We believe we'll see them. We are quite willing to make a decision when we see them. But so far it hasn't happened and for some that hasn't happened this year or it doesn't seem on the immediate horizon, but we fully expect to find some opportunities and get the money invested in our principal insurance business. Or if sufficient time to go by that did not happen or our view, that it might not happen occur and we certainly would be more than willing to use excess capital to repurchase shares. But today, I think we are still very, very bullish about the specialty probably cash (ph) insurance industry and fully believe we are going to have an opportunity to invest it in our business.

Okay. Just two other quick questions, can you comment on the One Markel initiative in terms of whether the self annuity (ph) will result in a reduction in the expense ratio or will ultimately expand you plan to reinvest the savings into new initiatives of growth?

We do expect it overtime will allow us to operate more efficiently and therefore part of that will translate into a lower expense ratio. Probably not in 2009, but certainly as we go into 2010 and in the future, we believe our systems and our operations and our efficiency and all the things will be more efficient and effective. And so, we would expect a better combined ratio. I'm not sure how, how that interrelates with the second half of your question. I think, in terms of growth and acquisitions, we'll try to do that irrespective of the One Markel.

Okay. And the last thing is, what percentage of your equity portfolio's in financials and what types of financial investments are you thinking about making this as, or made already?

Tom, I'll let you pick that one up.

Yes. The total number that would be, in the category of finance, will be roughly 30%, half of that is what you are half away, which some people call the financial, some people call the collaborate. You can make your own conclusion about that. And about 1% or less is in the banking area which is the area that must be why they are most concerned about.

Thank you.

And next question is coming from John Fox with Fenimore Asset Management. Please state your question.

Hey, good morning everyone, I have a number of questions. First for Richie, do you have the breakdown, fixed incomes versus equities, versus short-term et cetera?

We do.

Well I know that you do.

Yeah, of course John, you know that. Hold on, we are just looking around for paper, we have got plenty of it, just need the right piece. Fixed income at the end of the year, 4.6 billion, equity securities 1.1 billion, short-term 500 million, investments in affiliates 93 million, cash and cash equivalents 600 million.

Okay, thank you. And I guess last one for Richie, I know investment income seasonally goes down in the fourth quarter. Also, I think I picked up there was a little bit of the credit default swap running through there, but could you just talk about the amount and what a good run rate for 2009 might be in investment income, because it did look a little bit low to me?

I guess you are telling me what rates are going to do, John when we reinvested the 1.1 billon, it will tell you what investment income would look like. It's kind of tough right now. John, I'd also add, that as I've mentioned because we're going to make the conscious decision to keep our duration short than what would naturally be the case, I'm willing to accept the opportunity cost of lower run rate investment income for the next quarter or two, because I wanted to have the opportunity to invest and be on the offence when the market changes within any inflection points, in inflation or statistics like that.

Okay that's fine. Though ... I do want have to confirm, those maybe 3 million of credit default sway run through there in the quarter. Is that...?

Wait a SEC, $2 million in the quarter, John.

$2 million. Okay. And Tom, somebody mentioned, I guess you took a OTTI on GE, I am curious did you saw that or you just felt the prices down so much that it wanted a write-down?

No, we did that because of the price decline, we have not sold it, at this point, I'll just describe that and a couple of other things that has reached their long term equity option position that in five years, some five, 10 years from now, GE is probably either a distant and painful memory or a $100 stock. So at this point, we'll keep the lead in place, given the percentage that it represents in the portfolio.

Okay, that's fine and then two for Paul. Paul you mentioned, if I got your words correct, higher than expected hurricane losses and certainly if you look through '04, '05 I kind of expected hurricane losses every year, but did you mean to say that you loss more than you thought you would given the size of the storms or could you just clarify that, please?

I think certainly much higher in 2008 than what we had in either 2006, 2007. I don't have the number right handy, but I think it's just a combination of the two, is right at a $100 million.

Right.

About 100, $95 million and '06 and '07, we virtually scaled in through loss free. So they were higher relative to prior years.

Okay.

So, I was trying to explain the difference in the results from 2008 from the prior two.

Okay, so it wasn't higher than you expected given the type of storm we had, it was just versus last year?

Yeah. John I think 95 million, if the number stays around that range, I think given how big Ike was, I think we feel that that's about right. I wouldn't say we got it perfect and we're still doing work in terms of our management of catastrophe exposure, but that doesn't seem outside or what we experienced this year.

Okay, and then the last one, Paul mentioned in '99 combined and you vowed to significantly improve it this year. And I am just curious, how'd you get there? Obviously, there is rate increases, it sounds like it's flip through and may have prior reserve releases, but maybe if you could just talk about the formula so to speak?

Sure. We don't focus a lot on prior reserve releases, that sort of a frosting on the cake, if you will.

Okay.

But we clearly are focused on the front-end pricing of our business and we think the pricing environment has improved significantly in the last 30 to 60 days and we hope to leave the charge in the marketplace to take advantage of that wherever we can. We also think we have some issues that we've dealt with in the past that will not be recurring again in 2009. I commented briefly on some of our issues with smart division at Markel Re. We believe we have those loss reserves that are not only adequate, but with a margin of safety to deal with any issues there. We've dealt with our issues with the Italian Medical Malpractice, problems that we incurred in the middle of 2008 and we've dealt with an unprofitable segment of our business at Markel Global Marine and Energy. We think all three of those issues are firmly behind us and when you overlay that with the improvement in the pricing environment, we think the stage is set for a pretty good year as we begin to look forward.

Okay. Thank you.

Our next question is coming from Meyer Shields of Stifel Nicolaus. Please state your question.

Thanks, good morning everyone. First, another question for Paul if I can. Over the past couple of quarters, the Excess and Surplus Lines have had the largest drop in gross written premiums. Is any of that a manifestation of moving to One Markel and should we expect that to turn around for coming 2009?

I think the pricing environment that we faced throughout the year Meyer, was what resulted in a vast majority of the premium decreases. We were off in that segment about 10%, 2008 versus 2007. The competition was extremely, extremely difficult, especially for larger accounts, anything that's six figures or more. There were lots and lots of competitors that were eager and hungry through most of last year. And it takes just a whole bunch of new business at $4,000 or $5,000 are popped to make up when you loose one at $400,000 or $500,000. The One Markel strategy clearly is a long term growth strategy. The loss and premium volume doesn't have anything to do in '08 and in fact we think if early signs are as we believe they are in Plano, we'll see a nice uptick. We know the activity will be there, it's just whether or not the marketplace will sustain a lot of pricing bubbles.

Okay, that's helpful. Can you talk a little bit about the pop in specialty admitted gross written premium in the quarter, is there anything underlying that?

We've got some of program business, Meyer, that renews in the ... in the fourth quarter. So, there's going to be a little more seasonality to their numbers going forward as long as we write those programs. But they tend to ... they renew in the fourth quarter and so it's about right in the fourth quarter with those programs.

Okay. So that's something that we are likely to continue steadily over in 2009?

Well, as long as we write those programs, they'll be renewing in the fourth quarter every year. Yes, you'll see that flat now for next year when they're renewed, when you compare it year-to-year.

Okay, that's helpful. And lastly, I guess, maybe a key question. The net to gross ratio in the London market was 97% in the quarter. Is anything going on there?

That is reception and reinstatement premium. Since we reduced our Hurricane reserves, we also reduced our reinstatement premiums to our reinsures as we seeded less loss to them. And that pumps up the retention ratio in the quarter.

Okay. Can you say how much it was?

$4 million.

Four?

Yes, four.

Okay great. Thanks so much.

Our next question is coming from Jay Cohen with Banc of America. Please state your question.

This is Banc of America, Merrill Lynch, to be fair. Holding on to some old brand names there. Hey, can you talk about your exposure on the liability side to financial institutions, I know you are like you are (ph) too much but are you seeing kind of stake up in claims there?

The largest single area would be commercial DNO (ph) in the U.S. to financial institutions and we have none in that arena whatsoever. We write some commercial DNO business through our Markel International Operations in London, the vast majority of which is located either in the U.K. or on the European continent. But in terms of exposure to financial institutions per se, on the underwriting side here in U.S. it's negligible.

To be fair Jay, we have seen a little bit of activity (inaudible) by financial institutions outside the U.S. and obviously some of that institutions are dabbled in the U.S. market. So, there has been a little bit of sort of second order affect where we are seeing a little activity. Its still be seen whether those claims are covered under the policy, but we're seeing some activity there. It's not significant.

Great, and then Steve you had mentioned that in a weak economy you tend to see claims go up but where would you be able to find data on that but I don't... is that what you're saying? Obviously you've seen weaker economic conditions in the past. In 2008, clearly the economy got worse as the year progressed. Did you in fact see as the year progress an increase frequency in claims, because I am not hearing it from others frankly?

No. I mean I don't think we have specific evidence on that portfolio in 2008 either. But I don't have any trouble believing that when times are tough, insurance claims are higher.

Okay, so we'll obviously stay tuned and I guess you'd rather still are being conservative as you think about loss frequency anyway?

Absolutely. And it'll probably worsen in personal lines areas than some of the commercial. But even commercial, the number of... one of the key underwriting elements in any insurance contract is underwriting the moral hazard and the moral hazard is much worse in times of financial distress. Almost universally, you want to know the financials status of your insured and if that financial status gets worse, the claim to experience is likely to gets worse. Businesses that start not paying as much attention to safety or something like that is another example of the way that it unfolds. So, I can't point to and haven't tried to run details statistics on it, but we are being cautious and we believe it's going to happen and we're building it into our rating models.

Great, and then last question; I think Paul may have mentioned, someone mentioned that the costs for the One Markel in '09 be roughly 50 million, if Richie did, it was at 18 million in '08 and that's what I guess point and a half or actually a little bit less than that on the expense ratio. Is there an off-set that will allow the expense ratio to maybe be flat in '09?

Jay we are obviously, like all businesses, looking very, very hard in our expenses. But there is no way we'll be able to overcome all of that. So you are right. It is probably an additional point and a half, over the 18 we have this year. 2009 is sort of a big build year in terms of system... parts of it and so forth and we'll be moving our associates around to different locations. I mean this is the big spin of the year, but we'll overcome some of it but not all of it.

Got it, got it, great. Thanks for the answers.

Thank you, Jay.

Our next question is coming from Wes Malone with Wonderate (ph) Securities. Please state your question.

Hey, thank you. Could you just clarify a little bit, I wasn't sure I understood the tax impact on the investment losses that it was a much higher tax rate in... 35%?

Yeah Wes, I'll do my best. We had a pre-tax net loss for the year and the statutory rate is 35%, correct. There are items in our pre-tax book loss such as municipal investment income that are not tax, not subject to tax. So the pre-tax taxable loss is larger than our book loss and when you apply the federal rate to that, you... it actually pictures 35% rate up. And so, we have a 64% rate, the majority of the difference is the benefit of not being passed on that municipal income. So in other words, our taxable loss, pretax loss is bigger.

And $0.80. (ph).

I tried.

Okay. Well, that's helpful, yes. Thank you. And then about the Markel One strategy, so far it sounds like it was better than expected. And I'm just curious, what were the decisions or what were the factors that drove you to make a decision to start that process now as opposed, if it's so great, why didn't you do it two years ago?

The planning process that started, every bit a two years ago, and probably longer than that, that we've been sort of looking at the organization and thinking about how to best structure things. And the planning process was well under way. The timing in part was driven by a sense of the time was right with our own organizational structure and staff. The time was right with our agency force. And then likewise, the time was right in the marketplace. We felt that launching this sort of initiative in the worst part of a soft market with the best time to do it, and so spending a large part of 2009, gearing up for this thing and going into 2010. When the market was fairly soft, anyway we thought was the time we think to do. But it's just a question of building consensus and moving forward and these things unfortunately do take a long time because there is a meaningful amount of systems work associated with them and a whole lot of moving people around which is been going around throughout the year.

Well, is it often... was this driven by in the size Markel is today compared to, say five years ago?

Certainly, size and complexity had to lot to do with this. There were literally hundreds of factors. One of the important factors, you may recall that from, I think its now three years ago, we did a survey of all of our associates and asked our associates what they like best and what they would like to see improved at Markel. And while we feel like we got extremely high ratings among the associates in many, many categories, the one thing that people seemed to be most concerned about was the lack of ability to see a progression through the organization. And in the silos that we were organized in before, it was very complicated for an employee to move from one area to another area, or from one company to another company. And one of the key elements of the One Markel structure is that it creates a much more transparent opportunity for employees to move back and forth from marketing and sales to product line management or from one product to another product, or to focus on selling multiple products and creating opportunities for associates to move from one region to another region. And, we think that one of the key advantages of this is going to be to create a whole lot of new opportunities for employee growth and development.

Okay. And then does this have an impact on the kinds of merger and acquisition opportunities that you look at?

Undoubtedly, it might. But at this point in time, I really don't know how that might impact things. Clearly, with the specialty product focus, marketing it through our five regions I think, in any respects we may be in a better position to look at some acquisitions. But to be real honest to that I haven't kind of given that a huge amount of thought at this point in time. I think it might depend a lot on what type of acquisition it was. There are probably some that will be a lot easier and would fit in more easily with our new Markel structure and then maybe others, but it would become more complicated.

And in terms of M&A, do you see them... are sellers having more reasonable approach to the pricing they're thinking about? Or what do you see in the activity?

Rather than too many transactions to look at so, I'm not sure that's happened yet. But clearly, prices have come down. My sense is that, sellers probably have still... they probably are reluctant unless they have to sell or I must say, have to raise additional capital. And there are certainly some of those around and I expect after the fourth quarter is announced, there will be a whole lot more of those around. But sellers who are in good financial position and don't have to sell probably are denying that they would wait for better times. But I think we'll see a whole lot more distressed circumstances in the marketplace and I guess you could you could describe the transactions that have occurred in the last several months as being distressed in one form or another.

Are you all looking at any of the AIG businesses?

We're really haven't at this point of time.

Okay, alright. Well, thank you.

Our next question is coming from Scott Honiac (ph) with RBC Capital. Please state your question.

Yes, good morning. Question on the decision of shutdown of the Global Marine and Energy unit. I'm just wondering is that strictly based on higher loss activity or is... or do you want to reduce catastrophe exposure or don't want to buy the reinsurance coverage or is it just a combination of all those or something else or just wondering if you could talk about that?

I'll make a quick comment Paul and I'll let you pick up on it. But I think the major factor isn't that product line, it was important because of the size of the limits that the insurers required, that we built a fairly significant critical mass and we found that it was tough for us in the pricing environment to achieve that critical mass because, and we are not going to write the businesses at inadequate prices. Paul, do you want to pick up on that?

No, I think... I made... in my additional comments. I said that that our losses were somewhat larger than expected, both onshore and offshore from that unit relative through its size and writings, but Steve's exactly right. As the marketplace began to change in 2006 and 2007, it became pretty apparent to us that we had to have significantly higher limits than what we were offering in most of the three or four products there, and even with reinsurance pricing being what it was, we just didn't feel comfortable putting up those sorts of gross limits on those products. It was a part of those things, when we look at what the opportunities were for improvement for this year, we didn't see a whole lot and combined that with at least on some of the products, we were seeing some of the business either through our international operations where we have established marine and energy division or through some of our haul and cargo operations already through our existing regions. So that's what let us to say the decision.

Okay, makes sense. Just one last question, so this is the first time, I guess, in several calls you haven't mentioned, the market carriers, I know they are still out there, but could you comment on what you are seeing there? Any change in behavior there? Do you think it's still too early for the in-market carriers to go back to running in the business?

Well, I think that there is no doubt in one of the earlier questions about the decline in premium volume and the E&S sector for Markel is that the admitted carriers are continuing to be fairly aggressive in the non-admitted markets and writing specialty business. And sort of redefining the landscape and that's the constant ebb and flow of where the line between the admitted and non-admitted between standard and excess and surplus lies. And clearly the pendulum has been the E&S business into the standard markets for the last several years. I have not seen that pendulum start to swing in the other direction yet. But undoubtedly as if the admitted markets see their losses creep up, not only will they increase prices which is just half of the equation, but the other half is they need to tighten underwriting terms and decide that are bars and taverns (ph) are no longer rough terms (ph).

It's interesting to see what happens after the fourth quarter results are reported?

And it think that's going to be an important element. I just think the size that we offer to some of the larger admitted carriers, it just takes a little bit longer for the message to filter down and the numbers to be discussed and disclosed.

Thanks.

Our next question is coming from Jim Akal (ph) with Millennium Partners. Please state your question.

Hi, guys. This is Craig Rothman (ph). Can you just, going back to the loss trends, and your thoughts on the economic impact. Are you talking about more on property lines or casualty lines too?

Well it clearly it shows a first and probably easier to identify on property lines, but I am sure the same thing applies on casualty line, so people are something just more likely to make claims and be unhappy in bad economic environment and so the expectation is that they'll... they'll look for deep pockets and insurance companies are deep pockets.

So what kind of (inaudible) assumptions are you pricing in?

It's a very subjective kind of thing and it varies with our product lines. Paul mentioned important practices liability. Someone's unhappy in this job and there are 15 jobs available for them. And they leave and get another job, it's very unlikely that they go make a claim that their employers didn't treat them fairly. Whether it's an age discrimination or sex discrimination or whatever the underlying complaint might be. If on the other hand someone leaves their job and there is no other job, there is... the possibility of them making a claim is increases. And this sort of common sense kind of stuff that you just have to factored in this, there is not enough data to tell you that its 3.6% when the unemployment rate goes from 5 to 8. But there is some number and you just to have a make a judgment and it's ... you need to do it both from underwriting standards as well as from pricing.

Yeah. And I think what you are saying makes a lot of sense but it doesn't seem like other companies are anticipating, just I'm wondering, other, your competition, are they pricing this?

Probably not and the question really is more relevantly should be asked to them, why not?

Yes. So do you think that the pricing, the improved pricing that you are talking about is enough to more than offset the potential loss trend increase?

From our perspective, that's our intent in setting our prices. And whether we're going to be successful or not, you can read our forward-looking statement and Safe Harbor stuff, we don't know. But we sure as heck are going to do charge for the right amount because underwriting profits are the absolute key to making the model work. There is no point in being in the property specialty and insurance business and losing money, that's not what we are here for.

Okay. And then what are some of the conversations like, where it maybe you're starting to charge like a 5 to 10% higher price on clients that seen the profits of their business drop like 50%, and they really starting, I mean are you having success in passing through their price increase or is that going to be a problem with the weak economic environment?

Well it could be challenge, there is no doubt about that. So far though, it sounds preposterous and Paul gave fairly significant number of examples of that and we will do our very best and we will... our insurers understand, I mean nobody bites price increases, it's simple. But an insurance policy is no more than promise pay in the future and if we're not making money, our promise isn't very useful, and I think most intelligent insurers want a long-term relationship with a financial solvent carrier, at least the insurance that we see do. And it's not only a recession causing higher claims, it's also the impact of having price reductions for the last several years that have been occurring. It's a low interest rate environment where there is very little opportunity to invest the float in higher rates today, the interest rate yields that we can expect to get on our bond portfolios are fairly modest, I mean it's a combination of all of those things. And we have putting capital at risk and we are entitled to earn a descent return on that capital. And we... as long as our insurers understand that we're being honest and straight with them and clearly they go look for the best yield but they want a long-term relationship, we'll win that discussion.

Okay. And I'm sorry if I miss this before, but did you talk about your reinsurance cost to pricing there?

We continued about less reinsurance, because our overall goal is to retain as much of the business as possible and so the impact of increase in reinsurance clause is fairly modest on our model. Clearly it has an effect but not a huge effect, and we don't... our reinsurance renewals are sort of scattered around the year, so this doesn't typically have a major impact at one point in time. Paul you're probably closer to some of the reinsurance pricing issues as there... we haven't had any, what sort of increases have you seen in the most recent renewals?

Most of our international reinsurance treaties renewed on the first of the year and for the most part they were flat to moderately up. By moderately I mean maybe 5% to 7%. Most of our domestic treaties, and as Steve said with the few exceptions such as; property catastrophe, we are holding most of our capacity business net these days. So we haven't had anything significant at this point renew in 2009.

Okay. Thanks a lot guys.

Our next question is coming from Amit Kumar with Fox-Pitt Kelton. Please state your question.

Thanks. I'd just sort of staying on that discussion on pricing; in terms of the discipline apart from issues at AGN (ph) some of the larger carriers, do you still see that discipline in your peer group or do you see, when you are going out and talking about the price increases, there are some carriers who are in fact, trying to undercut you.

Unfortunately, Amit, I think there are more people swimming in a different direction than we are at this point in time. But I am very comfortable that we are doing the right thing and it's the rest of the market will catch up with us in due time.

I guess my fear is, are there several carriers out there who might just end up derailing the change that we have been talking about?

I mean, they can derail it in the short run. But at the end of the day, we get to choose whether we ride a few to (ph) business and not riding it is better than riding it at a loss. If our volume, we do not expect it to happen, that's if our volume were to drop from $2.2 billion which we wrote this year, to so some other number much less. That's not a problem. I would rather write $2 billion worth of profitable business than hang on to $2.2 billion and have an underwriting offs. I makes absolutely no sense to write business that you don't make a decent margin off. And the rest of the world sooner or later will understand the same thing.

That's helpful. I guess, if you sort of flip the situation and the market continue to harden and all is been equal, competition is disciplined, is there some sort of a feeling in your mind as to how far can you go in terms of premium to equity ratios?

Up or down. Or up.

Up.

Our weekly drills, I don't think we have... we were writing $3 billion instead of 2.2. I don't think we would have any trouble figuring on how to finance that. May be Richard you are blanching as I comment but...

We look forward to that. We look forward to that problem.

Just type this (ph) and just think about it. If you are writing business at a 99% combined ratio and you need $1 billion worth of capital and you can write the same business at a 20% higher rate, how much more capital should you put in the business. I accept the fact that for rating agencies and for regulatory things, those ratios matter. But in the real world, if you can write the same business at 20% or more, you don't need anymore capital.

All right. That's very helpful, thanks so much.

And so, in that sort of the mindset, we'll find a way to make sure the numbers, we have the right capital and we allocate in the right places.

Okay. Thanks.

There are no further questions at this time. I would like to turn this call back over to management for closing comments.

Thank you very much operator, and I'd like to thank all of our participants today for joining us and I would like to thank, thank you for your support and encouragement over the years and should you have any further questions for comments, we would absolutely love to hear from you.

This does conclude today's teleconference. You may disconnect your lines at this time. And we thank you for your participation.