Good morning and welcome to Markel Corporation Fourth Quarter 2020 Conference Call. All participants will be in a 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 statement 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 and earnings release filed on Form 8-K. We may also discuss certain non-GAAP financial measures in the call today. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in the earnings press release which can be found on our website at www.markel.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, Co-Chief Executive Officer. Please go ahead.

Thank you and good morning to everyone and thank you is the key and operative word to start off this message. The 18,000 employees of Markel turned in a wonderful performance in every dimension in 2020 and I just want to start off the call on behalf of Richie and Jeremy and everybody thanking the associates of Markel for their work throughout 2020, it was not an easy year. Markel is a holding company and I think the thing that we hold most dear are our ideas and our values of taking care of our customers and our associates. We think that creates a win, win, win architecture where our associates win by being part of Markel, our customers win by doing business with us, and our shareholders win just when we do this first two things, we produce good returns on capital and we think that is the ultimate form of sustainability. All three engines of Markel fired in 2020 and provided positive thrust but it might not have seemed that way at various points of the year especially early on, in the early days of the pandemic. The great philosopher Mike Tyson said everybody has a plan until they get punched in the mouth. Well, we got punched in the mouth in the early days of the pandemic, but our plan is to build Markel in such a way that we can take a hit, we can get in the ring with Mike Tyson, we can take the punch in the mouth and keep on fighting. That's 2020 in a nutshell, Markel is a resilience machine, our three engines withstood the blows from the early days of 2020, and our 18,000 plus associates adapted and figured out how to recalibrate and accomplish our mission of taking care of our customers, our associates, and our shareholders. I am pleased this morning now to spend a little time with you reviewing the results and with that I am going to turn it over first to Jeremy Noble, our CFO to discuss the numbers. Richie will then talk about our insurance operations. I'll hop back on to talk about investments and ventures and then we'll open it up for your questions. With that Jeremy, thank you.

Thank you, Tom and good morning everyone. Following year that reflected significant volatility and widespread impacts attributed to the COVID-19 pandemic, we are proud of the results we delivered across all three of our engines in 2020, which demonstrate the strength and resilience of our businesses. Our underwriting operations delivered an underwriting profit despite elevated levels of catastrophic events and significant losses attributable to the global pandemic as we benefited from achieving meaningful rate increases and growth in new business. Our Markel Ventures operations saw strong top and bottom line performance amid challenging economic conditions and we achieved solid investment returns despite volatile market conditions and historically low interest rates. Looking at our operating results, gross written premiums were $7.2 billion for the year, compared to $6.4 billion in 2019, an increase of 11%. This increase was attributable to our insurance segment, which reported gross written premiums of $6 billion, an increase of 13% compared to a year ago. This premium growth is attributable to both new business and improved pricing within our professional liability and general liability product lines, as well as our personal lines and marine and energy product lines. Gross written premiums with our reinsurance segment were consistent with 2019 at roughly $1.1 billion. Year-to-date retention of gross written premiums was 83% in 2020, which is down one point from 84% a year ago. Earned premiums increased 11% to $5.6 billion in 2020, primarily due to higher written premium volume in our insurance segment. Our consolidated combined ratio for 2020 was a 98 compared to a 94 last year. For the fourth quarter 2020, we reported an 89 combined ratio compared to a 93 a year ago. Our full year 2020 combined ratio included 360 million or six points of underwriting losses attributed to the COVID-19 and…

Thank you, Jeremy and good morning, everyone. As Tom and Jeremy have said, we finished 2020 strong, posting an overall underwriting profit with a 98% combined ratio for the year. While this is not the result we were aiming for as we entered 2020 after recording 360 million of underwriting losses related to the COVID-19 pandemic, followed by natural catastrophe events in the third and fourth quarter adding an additional 169 million in underwriting losses, this is an amazing accomplishment. We finished the year with a fourth quarter in which we recorded a combined ratio of 85% before the effects of COVID and natural catastrophe losses. We achieved strong growth and meaningful rate increases across most of our insurance and reinsurance product lines and saw reductions in our attritional loss ratios across most of our products in the last half of 2020 as the impact of price increases and portfolio management efforts started to materialize. We continue to seek out opportunities to grow and benefit from the positive insurance and reinsurance market environment and to reduce volatility in our underwriting results as we enter 2021. So now I'll discuss our insurance operations, which include our underwriting operations, state national program services operations, and insurance linked securities operations. So starting with the insurance segment, gross written premiums for 2020 were up 709 million or 13% and net earned premiums were up 544 million, also 13%. Gross written premiums were up 15% in the fourth quarter. Premium growth for both the quarter and year was driven by continued strong organic and new business growth, along with the impact of rate increases across several product lines, most notably in our professional liability, general liability, marine and energy, and personal line products. Importantly, virtually all of our growth was in our preferred product offerings,…

Thank you, Richard, I appreciate it. My comments will be extraordinarily brief this morning. Jeremy has given you the numbers, so I look forward to your questions. In the Ventures area, as Jeremy reported, record year, $2.8 billion of revenues, $367 million of EBITDA, and certainly seven points in the year earlier on the only two words that I can use to describe the performance by the Markel Ventures Group of Companies are amazed and grateful. They have just done a spectacular job of figuring out how to operate in the world in which we live and they've produced record results. And as Jeremy alluded to, that's a record level of profitability even without the acquisitions of Lansing and VSC. On the investment side, we first and foremost protected our balance sheet and we produced positive returns at the same time following our consistent, historical, disciplined, and sustainable approach. And net all of this, of what's happening in the insurance related businesses, the venture businesses and the investment operations, is that all of those factors combined to put us in a very strong capital position which will enable us to play both offense and defense as we enter into 2021 and I suspect we'll have the opportunity to have both teams on the field at various points during the year. So we're very optimistic, we're very grateful for the results that the 18,000 plus employees of Markel produced over the years. I just wanted to thank everybody for the efforts in an extraordinary year that we did not have a playbook for as we entered into it. But we're pleased to report these results to you and we now look forward to taking your questions.

[Operator Instructions]. Then to the first question is from Phil Stefano of Deutsche Bank. Please go ahead.

Yeah, thanks and good morning. I was hoping you could talk about the decision to release -- understandably it is a small portion, but release a small portion of the COVID reserves and maybe you can help frame for us what you see as the risk around COVID estimates and I guess I'm just surprised that we're seeing reserves come down already, it feels like industry commentary pretty broadly is that the liability lines will have impact over the next couple of years and of course, the industry always has this mantra of being quick to recognize the bad news and slow to recognize the good news?

Hey, Phil it is Jeremy. I'll start and Rich, you might join in. It was pretty modest reduction and actually we didn't change our gross COVID loss reserve estimates. That is actually a reflection of a little bit of additional benefit from reinsurance. And part of that is associated with our kind of enterprise aggregate covers that we would have in place. It would have been influenced by the fact that we had elevated levels of nat cat losses. So really the only thing we reflected was a pretty modest amount of additional reinsurance recoveries. We didn't change the gross reserves. Rich, I don’t know if you want to comment on it.

Yeah, yeah, exactly. So it really was all about the aggregate cover and some of that benefit from the aggregate cover getting allocated to COVID. So gross reserves were unchanged. Totally agree with you in terms of the uncertainty around COVID reserves. I think in terms of the two areas where we have exposure, debt cancellation, I think -- at this point I think we have a pretty good handle on the debt cancellation. And I don't expect a whole lot of volatility around that. The business interruption in the UK, again, now that we've got the Supreme Court decision, I think most of the areas are laid out and it's a matter of moving to final settlement with the insurers. And I think we feel reasonably comfortable about those reserves. But again, this is first time any of us is seeing this situation. And then in the U.S., I know there's been a couple of verdicts that have probably been adverse, you would say, adverse to the insurance industry. But the reality is the 50, 60 or so verdicts that are out there have been positive for the insurance industry in terms of what constitutes physical damage and upholding of virus exclusions, communicable disease exclusions. So, there's still volatility and potential risk out there. But, we know we're nine months later into it, 10 months later into it, we know more about it today than we did when it all started. And I think we feel as good as we can about the reserves.

Okay, that's an interesting point of clarification on the gross versus the net. And looking at the reinsurance segment, I guess two questions within that. The first, was there any benefit from a profit accrual in the fourth quarter that helped the results? And Richie you had framed thinking about the top line growth in reinsurance in your opening remarks. And it feels like as we got the cat exposed business that comes out and goes through Nephila instead, I mean, it feels like this is going to be a clear headwind, cat exposed business aside is flattish kind of the right way to think about growth for reinsurance in the short run?

Yeah, I think flattish is the right way to think about growth in the short run for reinsurance. Obviously, we've transferred roughly 200 million of catastrophe business over to Nephila. So, all things being equal, you would expect gross written premium to be down a bit this year in terms of our casualty, professional, and specialty portfolios. The one thing that is happening, that could change that a bit is just price increases. We could put the same lines down on treaties but end up with more premium because of the price increases. So I don't expect significant growth, obviously we've got over -- we would have to overcome the 200 million that's coming out. We may not be down the full 200 million. We could be something short of that, just simply because of price increases on treaties. The first part of your question about a profit, I don't -- I'm not real sure what you're talking about there, I'm sorry, Phil.

Yeah. Was there a profit accrual that flowed through the expense ratio or accrued to the benefit of the reinsurance segment in some way, I guess when I was teasing out the quarterly numbers, it's not like there was a slight uptick from what I would have expected?

Yeah, hey Phil. The expense ratio, you're right. In the quarter, the expense ratio in reinsurance was up. It is sort of personnel related expenses. Part of that is the costs associated with our decision to exit out of property within the Markel Global RE division. So, much more personnel costs from that than anything on the kind of the profit side.

Okay, and just one point of clarification, I think that was -- the 90% combined ratio target, was that for all of P&C or just insurance?

That's for all of P&C.

Got it, thank you.

The next question is from Jeff Schmitt of William Blair. Please go ahead.

Hi, good morning. Looking at the growth in the insurance segment, obviously really great rate increases, you had said are sort of averaging in the double-digits. But I was wondering how much of a drag you may be seeing there from low exposures, audit premiums, tightening terms and conditions if you're lowering limits or increasing deductibles. Are those factors -- I mean, is that a couple of point drag for the year or is that maybe not as high?

Yeah, there's no doubt that we talked about small businesses being impacted, obviously a little bit harder by the pandemic. So some of that business was not there to renew and maybe the new business stream is not as strong as a result of that. We are definitely in places shortening our limits as a way to manage the portfolio. And so, you're getting a rate increase, but you might actually have less premium because of the shortening of the limits. We measure the pure rate increase and so it doesn't include things like changing terms and conditions or shortening up limits. So there is some drag there but I can't quantify that for you. The reality is, I mean, we're up over double-digits in terms of our rate increases and we're up 13% in growth for the year. So there's a little bit more growth than there is rate increase. So that suggests to me that net, net, net, there is some new business on top of just the rate increases that we're receiving. But there's no doubt there is some drag there. And then in addition, we're always remixing the portfolio and there was over 100 million of business that we exited during 2020 because it wasn't performing to our return hurdles. So, our growth was net of having to get out of some of that business.

Okay, and just on that repositioning, which -- what areas did you get out of, what areas are you looking to kind of shift to?

Sure. We got out of a couple of programs that were underperforming, one in particular, that was probably 70 million or 80 million. We came off of that program during the year. Some of our smaller program business Camps, as an example, social services, very little opportunity for growth, challenged areas in terms of profitability we have gotten out of. And where we are really focused is professional liability, casualty, property, marine and energy where we're growing nicely and our rate increases are not just double-digits, they're mid to high, 15 to 20 sorts of increases.

One other line would be the personal accident contingency in the international space…

Got out of that as well. Yes.

Got it. Okay, and then just one on the expense ratio in the insurance segment, running at 36%, it's been high 30s over the past few years. I know you even mentioned just earned premium volume being up, but earned premium volume growth did pretty good for a number of years, I guess. Is 36 the right run rate to think about there?

Yeah, we're really continuing to work on the expense ratio. It is a great point that we've seen that come down. Our variable component of the ratio really is pretty unchanged. So most of the benefit you see, year-over-year is us holding the direct and controllable expenses probably flat while sort of in insurance, growing net earned premium 13%. We think that's a trend that we can continue to see as we grow. So we've been really focused on trying to hold it and control the expenses flat and scaling off our operations that are sort of in place. So we've seen that really measured over a period of time. I mean, you can you can go back for a number of years and really see the movement in the expense ratio. So we're going to continue to work on that and I think we can do a bit better than even where it was for 2020.

Got it. Okay, thank you.

The next question is from John Fox of Fenimore. Please go ahead.

Yeah, hi, thank you. I have a number of questions. First of all, very good results, thank you. Richie you mentioned bank cancellation. I've been doing some reading, of course, the Summer Olympics were, I guess, technically postponed and there's some thought that if they're canceled this year, that would be a big insurance industry loss. So could you comment on that point of view and what exposure Markel might have?

We did have a portion of the exposure to the Olympics. We wrote a portion of that. If the Olympics were ultimately canceled, we don't believe it would have much impact to our reserves. We sort of took the position that it very well could be canceled in terms of setting up our reserves. So we wouldn't expect much change to our reserves if, in fact, they ended up having to cancel.

Okay, great. And in your comments, you talked about the reinsurance business, “wanting an acceptable return”. What is that for reinsurance and what type of capital base is that with about 900 million of premium?

You know, I think capital I'd say it's about, one to one in terms of the capital and we need the same 90. We need the same 90 combined on the reinsurance. I mean, actually, I'd like to see it be a little bit lower. I said 90 or better in 2021 and -- now, let me just say, we're coming off some tough performance the last few years. I don't know that our report, put the reserves up at a 90 initially. We will have a margin of safety. But I want to be damn sure it's ultimately going to prove out to a 90 and so that's the goal.

And John, it is Jeremy. It should be a little bit more capital efficient too, I mean that was part of the decision to sort of exit property and sort of focus on doing property sort of through, you know, Nephila’s offering. Obviously nat cat on the property reinsurance side is a much more capital intensive product line.

Right, sure. It makes sense. And Richard, did you give an outlook for program services and you mentioned a couple of accounts that didn't renew, but then the fourth quarter was strong, deep. Do you expect that to grow this year?

Yeah, I did, I do. One of those accounts was one that they received, they were upgraded back to A from A minus and so we knew all along eventually that program would go away. We actually were fortunate to keep it longer than we thought. So that was always going to be one that was going to take a little while to replace. The new business pipeline is full right now. We really have seen a pickup in activity, so I think we'll grow in 2021.

Okay, great. And then just kind of a simple question, but clarification on ILS investment management. So you have 212 of revenue and 231 of expenses for a loss. Does that 231, does that include the amortization of goodwill and intangibles?

No, the amortization would be separate.

Okay, and Richie from your comp -- go ahead.

I was just going to say, but it does also include some pretty significant charges related to CATCo.

Right. I was just going to ask about that. Have you guys quantified that or not at this time?

We did not quantify it. I mean, I think you can go back in the last quarter and probably get a reasonable estimate of it.

Yeah, what I would say, I think Richie commented on this earlier is, full year CATCo expenses were approximately $50 million, pretty significant amount of that would be non-recurring in nature.

Yeah, it's very significant. And did you buy any stock back in the quarter?

We did not. We stopped the repurchase plan back in March.

Okay, great. Thank you.

[Operator Instructions]. The next question is from Mark Dwelle of RBC Capital Markets. Please go ahead.

Hi, good morning. Just a couple that haven't already been addressed. Down in the product services and other segment, there was a $41 million charge related to the Latin America reinsurance segment. Is that a goodwill write off or is that an underwriting loss, the description it wasn't really clear what was happening there?

Yeah, Mark it's Jeremy. Let me try to clarify that. So, going back 2013 when we acquired Altera, we inherited a small, uh, Latin America reinsurance operation, really over the course of the past 24 months, we've been winding down our Latin American operations. And this would be an example as Richard was talking to before, you're not really a core product offering and not really sort of meeting profitability and return targets for us. The last remaining piece of our sort of exit is a sale of a small Brazilian re-insurance company. And we're in sort of active negotiations in that space and hopefully we'd have a transaction, later this year. Because of the intent to sell from an accounting standpoint, we recognize that loss. What's important to reflect is a little bit of the accounting so you'll also see in the quarter, a pretty large CTA gain and other comprehensive income, and the accounting would require us to crystallize the accumulated CTA loss and really classify that into operating income as an operating loss. So we've got that in the reinsurance segment, outside of the combined ratio that 41 million you alluded to, that's largely offset by a corresponding CTA gain because of that reclassification. The actual book loss is pretty small.

Okay, alright. So ultimately it's primarily an accounting. Was there any material amount of premium associated with that, sounds like you had pretty well run it down to a deminimus amount?

Over the last couple of years, it was very deminimus.

Got it. Okay. The second question that I had, you commented on goal of 90 or better combined ratio, which in my recollection is maybe the first time you've ever set such a goal publicly. So, thank you for that. But more specifically, as you contemplate that targeting, would you perceive most of the improvement from here to be primarily loss ratio driven or do you think that there's any meaningful amount of expense ratio savings that can be further generated from here?

Well, both, both. I think there's probably more on the loss ratio side at this point. I made a point of the 85 combined in the fourth quarter, before cat and before COVID. We are hoping there's not another COVID type loss in 2021, and we have significantly reduced our cat exposure by the end of 2020. So I would expect our kind of normalized cat load to be less in 2021. So, I feel like we're there in terms of a run rate to produce 9 or below and then Jeremy spoke about the expense ratio. We continue to scale the business and we're holding the line on our controllable expenses. So, our goal is to drive it lower than the 36 we reported this year.

Got it, thank you. That's very helpful. Last question, we haven't heard enough from Tom yet, so I'm going to ask you a Venture’s question. I mean, obviously this year was a difficult year in a number of senses for the multitude of business units in there. What are the key signposts you're looking for as far as reopening to kind of get the revenues, particularly in the units that saw a revenue declines, to get those back running positively again this year?

Sure. Well, again, amazed and grateful are the words that I would write for what happened in Ventures. When we looked at the economy being shut down in April and May and order books that just disappeared, the recovery that has already taken place is spectacular. And that's a tribute to the management teams that run those businesses and the workforces who just figured out. For instance, HavCo [ph] which makes the wood flooring for trucks, as the gentleman who runs that said you can't make wood floors from home. So that workforce figured out a way to operate safely and make wood floors and capture a pretty good amount of business that started to show up in the second half of the year. The most economically sensitive section of the Ventures Group would be things that are related to transportation and the various trailer businesses. And I can tell you, those businesses are already picking up and the fourth quarter was pretty nice and their order books are way, way better than what they were earlier in the year. So I don't think there's much that I can control about general economic conditions. That'd be like thanking the weatherman for a sunny day, but as the weatherman, I would predict that the conditions are getting better.

Okay. Thank you. That's hopeful and I don’t have any other questions. Thanks.

The next question is from Mark Hughes of Truist. Please go ahead.

Yeah, thank you. Good morning. I wonder if you could talk about kind of frequency and severity as you saw it develop through the year, anything related to COVID and the shutdown, and then maybe social inflation you mentioned that as the continuing driver or rate the momentum, do you think there's some pent up demand, is the maybe courts open in 2021?

Hello everybody. Please hold.

We think frequency is about the same. In terms of severity, that's really where you see -- that's really where you see the social inflation showing up, the nuclear verdicts, things of that sort. That's why that's part of the reason we're shortening limits. That's part of the reason you buy reinsurance, you try to do things to manage that. And we do believe, the rate increases we're achieving now are running in excess of a trend at this point and they need to. I've said that we need to be at a 90 or less to generate appropriate returns on our capital. And so, that margin that we've been generating has been needed. So, I think frequency we're seeing about the same, severity is where we're seeing it go up.

Thank you for that. On the cat exposure, you pointed out how the normalized cat load is than 21. Any other metrics you can share sort of specifics on say premiums related to cat exposure or maximum loss numbers, just to give us a better sense of that change?

I think the best thing I could give you is, each year we sort of work up a cat load in terms of our combined ratio. And Jeremy, keep me honest here was that a bit about three points for 2019, and it's probably less than two, excuse me, for 2020 and it is probably less than two points for 21.

Yeah, for example our Global Re division, that property book I think ended up writing gross maybe $220 million. That's certainly less net, I think that's in the press release. But, that'd be a good example of that a vast majority of that business will not be on the books in 2021.

And then if I might just a couple of specific numbers, and I'm sorry if I didn't back into this properly, the expense ratio or the insurance segment, and then the reinsurance segment for Q4?

Yeah, sure. The insurance expense ratio was about a 35 and for re-insurance I think it was about 36.

Thank you very much.

Thanks, Mark.

And the next question is a follow-up from Phil Stefano of Deutsche Bank. Please go ahead.

Yeah, thanks. A quick one on the 90 combined guidance. I got the impression in response to an earlier question that the right way to think about the 90 is a fully developed number, but of course there could be some level of conservatism to the reserving basis on that. I mean, how should we think about this 90 as a reported versus a fully developed number?

90, I'm thinking in terms of the 90 as reported. So, if we have a margin of six, we obviously will include a margin of safety in both our insurance and re-insurance operations. With that margin of safety I could potentially see us reporting something in excess of the 90 in re-insurance in 2021, and I'm hoping for something less than a 90 in insurance in 2021.

Got it, understood. And with the ILS commentary in AUM update, I didn't hear Lodgepine mentioned in there. I was hoping you can give a quick update on that?

Yeah. Lodgepine, in terms of results Lodgepine had a terrific year in 2020. We talked a lot about small to medium size events. So it was really frequency in 2020 in terms of the cat losses. None of that really got to the retro portfolios. And so they had a terrific year, mid double-digits returns, on the portfolio. The place that we have fallen short is in terms of raising capital. We are little short in terms of our capital raising and we're hoping to now with a year’s track record, I know, years and a lot, but it is a year’s track record, we're hoping that we can get out there and raise some capital here in the first quarter before the Japanese renewals on 401.

Okay. Thank you.

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

Thank you very much for joining us. We're pleased to be able to report the results that we did to you. And we look forward to 2021 and chatting with you again next quarter. Thank you all so much. Bye-bye.

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