Good morning, and welcome to the Markel Corporation Second Quarter 2018 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 under the captions Risk Factors and Safe Harbor and Cautionary Statement in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. We may also discuss certain non-GAAP financial measures in the call today. You may find a reconciliation to GAAP of these measures in the Form 10-Q which can be found on our website at www.markelcorp.com in the Investor Information section. Please note this event is being recorded. I would now like to turn the conference over to Tom Gayner, Co-Chief Executive Officer. Please go ahead, sir.

Good morning and thank you Denise. This is Tom Gayner. It is my pleasure to welcome you to the Markel second quarter conference call. I'm joined this morning by my colleagues Anne Waleski, our CFO; and Richie Whitt, our Co-CEO. The purpose of these calls is to share our financial results with you. To provide you with some commentary about the numbers and what they mean in terms of the economic progress of your company and to answer your questions. The headlines for the first half of 2018 of the revenues grew 23% from $2.9 billion to $3.5 billion. Operating income grew 13% from $367 million to $416 million. Net income declined 2.7% from $219 million to $213 million and comprehensive income declined from $565 million to a negative $10.5 million a year-ago. When you look at that series of numbers, a reasonable first question might be, well how is Markel doing? The answer is that we're doing well. It's complicated to take the steps necessary to understand that answer, but we'll do our best to provide commentary as to why we have confidence in saying so. In short Markel grew revenues are 20% compared to a year-ago. We deploy capital and made acquisitions to increase our revenue base and the size, scale, and abilities of your company. At the same time, we competed, adopted, worked hard and learned more about how to grow throughout all of our existing and new operations. In our Insurance business we increased our written premiums 14% from $2 billion to $2.3 billion. We did so profitably but the combined ratio of 91 compared to 95 for the first six months of 2017. We also often continue to increase the range of our Insurance related capabilities. Richie will update you on our conditions and circumstances…

Thank you, Tom and good morning everyone. I'm happy to report our performance for the first half of 2018 was strong. Our underwriting Markel Ventures operations have made substantial contribution to our results during 2018 largely attributable to profitable growth from acquisitions made in 2017. Our Investment returns were slight unfavorable market movements and our fixed maturity portfolio due to rising interest rates. However, we continue to maintain a long-term focus with our investment strategy. Total operating revenues grew 23% to approximately $3.6 billion in 2018. The increase was primarily attributable to a 14% increase in earned premiums and a 62% increase in revenues from our Markel Ventures. The increase in earned premiums and other revenues was partially offset by net investment losses for the first six months of 2018 compared to net investment gains last year. Starting with our underwriting results, gross written premiums were $3 billion for the first half of 2018, compared to $2.8 billion in 2017, an increase of 7%. The increase in gross premium volume was attributable to the contribution of premium from our new surety business, which we acquired in May 2017 and our collateral protection business which we acquired in November of last year. We also saw organic growth across most lines within our Insurance segment. Retention of gross written premiums decreased from 85% in 2017 to 83% in 2018. This decrease was driven by lower retention on our classic car business within the Insurance segment and on our property product lines within the Reinsurance segment. Earned premiums increased 14% to $2.3 billion for the first half of 2018 due to higher written premiums in our Insurance segment and higher earnings in our Reinsurance segment related to increased premiums volume 2017. Our consolidated combined ratio for the first six months of 2018 was…

Thanks, Anne, and good morning, everyone. Today, I'll focus my comments on underwriting operations and also provide a brief updates on State National and Markel CATCo. So, first I'll start with the Insurance segment. As a reminder, starting in the first quarter of this year, we have consolidated the operating results of our previously reported U.S. Insurance and International Insurance segment into a new single Insurance segment. All results from prior periods from the two separate segments have been combined, so you can compare those. Gross written premiums for the quarter are up $125 million or 11% compared to the second quarter of 2017. On a year-to-date basis, writings were up $305 million or 15%. The acquisitions of Markel Surety and the State National collateral protection line, added $51 million in premium in the quarter and $118 million in the premium on a year-to-date basis. Premium growth for both the quarter and on a year-to-date basis, excluding the newly acquired product lines was driven by organic growth in our general liability, professional liability, and personal lines product lines. Earned premiums for the segment are up 14% for the quarter and 17% on a year-to-date basis, due to similar reasons as the gross written premium increases. The combined ratio for the Insurance segment was 92% for the second quarter of 2018, compared to 91% for the same period a year-ago. The one-point increase in the combined ratio was driven by the impact of higher earned premiums, which reduce the impact of the prior year's loss reserve releases on the combined ratio. The benefit of higher earned premiums on the expense ratio was offset by an increase in G&A expenses from the newly acquired Surety and Lender Services businesses. Those two businesses have a lower loss ratio, but a higher expense ratio…

Thank you, Richie. Investment results during the first half reflected a normal pattern of short-term volatility. In our equity portfolio, we were up a modest 1.5% during the first half. Of the last 5.5 years, we are up 222% cumulatively. Over that time frame, we've been up as much as 33% in a single year and down as much as 2.5% a year. I would happily find out for those results for the next 5.5 years and we continue to invest each day with that same discipline that it produces such outstanding long-term results. Publicly traded equity stood at 64% of shareholders' equity at June 30 compared to 62% a year end. We continue to modestly and steadily add to our equity portfolio and we think the recent volatility allows us the chance to purchase wonderful long-term businesses at attractive prices. That is exactly what we are doing. In our fixed income operation, we were down 0.3% during the first half. In the last 5.5 years, we are up 14.2% cumulatively. The best year in those five was up 6.5% and the worst was flat. I think this longer-term comparison highlights why we allocate so much of our investment portfolio to equities. I would also sign up right now for these types of fixed income results over the next 5.5 years since they reflect the underlying actions of buying the highest credit quality securities that we can find roughly matching the duration of our bonds to that of our insurance liabilities and minimizing frictional costs along the way. I'll also point out that the net investment income from an interest income and dividends totaled $213 million during the first half, compared to a $199 million a year ago, an increase of roughly 7%. This higher recurring portion of our total…

Thank you, sir. [Operator Instructions] And your first question this morning will come from Mark Hughes of SunTrust. Please go ahead.

Thank you. Good morning.

Good morning.

The step up sequentially in the Markel Ventures revenue, I think you were at $439 million in terms of other revenue in the first quarter of the $628 million. How much of that was seasonality versus underlying growth?

Yes, it's a mix of both and cost which we refer to several times. Second quarter will be one of the biggest seasons of the year. Third quarter will be not quite that in fourth and first quarter are the lowest. So there is a seasonality factor involved.

You look at - I think you're organic growth in the Insurance segment, you'd mention mentioned general liabilities and professional liability as a stand up there? Can you talk about maybe the price or rate that you're seeing there in any particular updates on Medical and Professional Liability?

I would say of those areas, we're seeing sort of low single-digit increases in pricing. Clearly, we'd love to see more but that's what the market provides at the moment. And with the growth in the economy, I think most of the growth we're seeing into not price. I think we're going to - there's a good economy out there. There's a lot of construction going on. And as a result, we're seeing more businesses. In terms of medical, I would say that still one of the lines that struggling to gain price direction to start going up. I think resulted have been for the most part poor for people in medical in the recent years. But for whatever reason, pricing hasn't responded yet. So that would be one. I said most lines were seeing sort of the single-digit increases. Medical is probably one of the areas where we're still waiting to see some increases.

And then finally, you mentioning Lloyd's that they are doing I think a comprehensive review. Have you seen any behavioral changes in your relevant markets?

I think so. I mean the news as I sort of pointed out, year-ago it seems like everybody was reporting on adding lines of business or adding teens and in the last several months, particularly since the Lloyd's announced their drive to work on sort of the lines of business that were hurting the market. You're seeing people move out of lines of business or teams leaving and so I think reality is starting to set in.

Thank you.

Thank you. The next question will be from Jeff Schmitt of William Blair. Please go ahead.

Hi, good morning everyone. Question on Costa Farms just about the - how is the business doing after the inventory loss by last year? I mean did that have any effect on the quarter or were or was that sort of property grown and had no impact?

Yes, in addition to the seasonality question that Mark asked before that is magnified and stood at a little bit more by the fact that indeed. We are still recovering from the hurricane to a certain amount. So just with growing cycles what they are. Sometimes I think couple of weeks. Sometimes take a couple of months. It takes a while to refill the entire pipeline. So the main gateway I would say is A the business doing well and we are as delighted as we possibly could be - will be affiliation and the cost family and the nature that business. It would be in the State annualized the current year results or latter results if they both have a lot of distortion to it. But remember we have a long-term focus at Markel and when you start look at that thing over years as a market shareholder I think that we're very happy as part of the family.

Okay. And then did I may missed heard a minute to go when you talk about this seasonality of cost farms? Did you say the fourth and first quarters were lower? I would think the fourth would be higher from with Christmas but is that not the case?

Well, I'd like you to see how much it is it cost to buy point say to get it versus some of the others that would buy different points from the year. Correct there's a plan but it tend to be something that there's a price promotion by the retailers and won that and so to speak but the second and third quarter so highest parts of their business.

Okay. Is there anything more you can say on the investigation charge in the goodwill impairment? I mean is there potential for that to - for there to be more charges?

Well, we'd up our best estimate what we think the total expenses involved are and that's the same process and philosophy and way was what insurance reserve and deal with uncertainty in life and we have a history of conservative candidate doing our very best to recognize things quickly and at the incident we know - you know what is in there after responsible.

Okay. And then last one you'd mentioned some pressure on losses from toward activity? Is that are you saying that anecdotally or can you quantify that in anyway?

Hard to quantify, but things in the world and work in cycles and a few years back there was a lot of effort at reform and ever since then planted bar has been sort of chipping away at that. And you continue to see that I mean in States like Florida, Texas, California you know there's been significant erosion and toward reform in those areas and start to show up in the loss cost, I think quantify it for you, but it's just kind of what happens as markets change.

Are there any lines in particular that they are seeing the most aggressiveness?

Probably one of the areas and this has been talked about a lot on calls - probably the last years in auto. You're seeing really eye watering verdicts in some of the auto claims, particularly like trucking, things of that sort. Commercial auto in particular where it really looks like judgments are more to punish then to make people whole.

Okay. Thank you.

The next question will be from Bob Farnam of Boenning & Scattergood. Please go ahead.

Yes. Hi, good morning. I have a question on the expense ratio in the insurance operations. So consolidated expense ratio is by 39% in the second quarter, gradually trending down over the last five years or so from the low 40s to the high 30s. I understand the surety and the collateral protection business is going to put some upward pressure on that, but I'm just curious where do you see that expense ratio going over time? Can we expect that to come down?

Bob, I'll take this, and you guys are welcome to jump in. I mean that is absolutely our goal for that to continue to trend down, Bob. By adding surety and the lender services business - cloud protections, sorry, we've kind of gone the other direction in terms of mix. That probably adds a point just in terms of mix of business, but in our underlying sort of G&A cost and everything, we've done a nice job of reducing those. So as long as businesses generates sufficient underwriting profits, we will be indifferent as to the loss ratio components and the expense ratio component, but sort of the headline number gets pushed up as a result of adding those businesses. The other thing that tends to happen throughout the year is our bonus accruals tend to bounce around and add some volatility. And I think you see a little bit of that in the second quarter as well. So we still believe the underlying trend is reduction to the expense ratio, it just didn't show up as well with the no rates right now.

Right. And as you say, it's probably more important combined ratio basis than looking at expenses ratio versus loss ratio. Actually another question for you. So there is substantial growth in the program services business, gross written premium in the second quarter relative to the first quarter. Is there any seasonality to that state national book?

No there's no seasonality, but much like we talk about there can be big transactions in our reinsurance segment. In the State National funding programs, those can be big programs, and when they come on, they move the numbers rather quickly. So I think it's more a factor of when new programs come online and how big those programs are. So there's probably going to be a little more volatility in that than some of that are on the lines of business.

So should we look at maybe the first six months and use that more of a trend going forward? Is that…

Yes. I mean we're certainly experiencing growth in the lender services business. It can be bumpy from quarter-to-quarter, but the underlying trend is growth.

Okay. And the last question for me is it looks like you received your license to reinsure business in India. I don't know much about the market in India. What's the opportunity there in your mind?

Well I think the opportunity is one of the most populated countries in the world with a rapidly growing middle class or rapidly growing GDP. It's been a very close market to insurance companies outside of the country. That's been changing gradually over the last few years and has change to the point where we're willing to invest in the company in a small way - in the country in a small way. I wouldn't expect to be talking about huge writings in India on the next several calls. We want to get there. We want to learn about the culture and how the business works and hopefully grow as that economy grows.

And likely reinsuring domestic writers is that likely…

Correct. Which we've done historically, we've just done it from Singapore or we've done it from London. So they are hoping us to have the feet on the ground, people there have relationships and know the culture and that's the step we've taken now.

Okay. Very good. Thanks for that.

The next question will be from Mark Dwelle of RBC Capital Markets. Please go ahead.

Hi, good morning. A lot of my questions already been covered, but a couple for Tom. Within Markel Ventures, a lot of those businesses use steel, for lack of a better description. Are you seeing any cost pressures yet? And any anticipation of cost pressures or your ability to pass that cost along? Should it occur to customers as a result of tariffs and whatnot?

In a word, yes and it's not just cost. It's availability. So just getting your hands on steel to run the business is more of a challenge today than it was a year-ago. Now everybody works hard and figures that out but yes, that's up item these days.

Okay. Secondly, I mean you've made some comments already about the charge in the quarter and the goodwill impairment there. Was that item or that issue as subject to litigation? It appeared in the contingency section, it wasn't clear from that placement whether that was a litigation item or just something that you guys were investigating?

That's an internal and we have to put contingencies like what we did in a standard business practice.

That's fine, thanks. And I guess the last question that I had, again it relates to the tax rate, I'm still struggling to get my arms around this - this quarter seem to be a little bit higher than the first quarter. I didn't know and if you have any kind of guidance or way of thinking about that tax rate to try to help us kind of pin that down a little bit more exactly?

No, I mean I think it was slightly higher than the first quarter, 20% versus 19%. So I mean I think something in low 20s, high-teens is probably a fair guess. As we've talked about though whether it UK tax selection that we made earlier or it the movement in the equity portfolio that tax rate is going to move around some. But I would think that that effect is annual tax rate of 20-ish is probably a fair enough estimate for your purposes.

Right, okay. That's kind of what I thought as well. I think those are all my questions and most of the guys had to be already covered the other ones I have. Thanks.

Thank you.

And the next question will be a follow-up from Mark Hughes of SunTrust. Please go ahead.

Tom, I just had a general question. Your view on the strength of the economy, the sustainability of kind of this GDP we've seen lately and if there is inflation on the way, how are you thinking about the equity portfolio?

Yes, I'll take that and there is two different parts to estimate strength and sustainability. In terms of strength, I mean it's blooming times out there. So whenever you want to look count a construction cranes trying to hire somebody looking at labor markets, trying to get a hold. Was there any one of those measures that you want to look at? The conditions are about running as hot as I could remember in a long, long time. Sustainability, your guess is as good as mine. That crystal ball stuff and we don't know. I don't really have anything to add on that. In terms of the equity portfolio itself and the insurance pricing risk that Richie referred to. This is the kind of stuff that he and I talked about on a regular basis to keep one another informed on both side as to what we're seeing and thinking about and trying to make sure we're communicating throughout the organization to do the best we can. We've always been very cognitive of sort of real pricing power in the business as we invest in now and we've also always had a pretty high proportion of activity securities. We are - those are dynamic businesses that we even live and move and change and adapt to whatever circumstances they find themselves. And so part of the answer to your question and protecting Markel is to increase the allocation to equities in a prudent and reasonable way because those are inflation protected in a better way than a bond would be by definition.

Thanks for that.

You bet.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Tom Gayner for his closing remarks.

Thank you very much. We'll talk to you next quarter.