Good morning. And welcome to the Markel Corporation’s First Quarter 2022 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 these projected -- from those projected in the forward-looking statements is included in our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the captions Risk Factors and Safe Harbor and Cautionary Statement. 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 our most recent Form 10-Q. Our Form 10-K and Form 10-Q can be found on our website at www.markel.com in the For Investors 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, Andrea. Good morning. This is indeed Tom Gayner and it is my pleasure to welcome you to the first quarter Markel Corporation conference call. I am joined today by our Co-CEO, Richie Whitt; and our CFO, Jeremy Noble. As always, our objective is to share the news from some of our most recent financial statements, and more importantly, answer any questions you might have about Markel and the circumstances of your company. We always look forward to your thoughtful questions. In addition to this call, we have got two other events coming up that have offered up as chances to spend meaningful time with management. First, this weekend, we will be heading back to Omaha to attend the Berkshire Hathaway Annual Meeting as we have done for decades. We will be hosting our annual Sunday brunch at 10 a.m. at the Marriott next to the convention center and if you can join us, we would love to see you. We take questions for a couple of hours that day and we absolutely love the chance to spend time with fellow long-term investors in Omaha during Berkshire weekend. Second, the Markel Annual Meeting will be at 2 p.m. on Wednesday, May 11th, at the Virginia Credit Union LIVE! Concert Arena at the Richmond Raceway. We invite you all to attend and we would welcome the chance to spend time with you at our upcoming annual meeting. As to the financial results of the first quarter, I am very pleased with our performance and I hope you share our sense of accomplishment and optimism. The first quarter is a short 90-day view of Markel. We enjoyed three engines of Insurance, Markel Ventures and investments. While it is lovely that all three engines provide positive thrust, Markel is designed to succeed,…

Thank you, Tom, and good morning, everyone. Tom mentioned, the first quarter of 2022 highlights the benefits that come from our diversified three-engine architecture at Markel. Volatility within the public equity markets and the effects of rising interest rates on our bond portfolio while weighing down our investment returns during the quarter were somewhat mitigated by strong operating results within our Insurance and Markel Ventures operations. Looking at our underwriting results, gross written premiums were $2.5 billion for the first quarter of 2022, compared to $2.2 billion in 2021, an increase of 16%. Our increased premium volume reflects new business volume, more favorable rates and expanded product offerings across many of our product lines, with the most notable growth coming from our professional liability and general liability product lines, both our Insurance and Reinsurance segments. Retention of gross written premiums was 86% in 2022, which is down 1 point from the same period last year. Our consolidated combined ratio for the first quarter of 2022 was an 89%, which included $35 million or 2 points of net losses in loss adjustment expenses and $12.3 million of ceded reinstatement premiums attributed to the Russia-Ukraine conflict. This compares to a 94% combined ratio for the same period last year, which included $64 million or 4 points of losses attributable to Winter Storm Uri and $19 million or 1 point of adverse development arising from a change in our estimate of COVID-19 ultimate losses a year ago. Excluding these loss impacts from both years, our consolidated combined ratio for the first quarter of 2022 was an 87%, compared to an 88% for the same period of 2021. This improvement reflects a lower attritional loss ratio within our Insurance segment and a lower expense ratio, partially offset by less favorable development on prior year…

Thanks, Jeremy, and good morning, everyone. I am excited today to discuss with you our Insurance engine’s first quarter results. Obviously, it’s only 90 days into the year, but we are off to a strong start to the year. Many of the trends that we discussed throughout last year continued in the first quarter. The pricing environment continues to hold up well and organic growth remains strong. As Jeremy said, we achieved an 89% combined ratio for the period despite 2 points of losses from the Russia-Ukraine conflict. Business production continues to be robust, with 16% growth in our underwriting operations, with gross written premium surpassing $2.5 billion for the quarter and that that’s the first time we have done that and 17% growth within our program services operations. While we continue to benefit from a favorable pricing environment, we are also seeing new business growth across most of our product lines, in particular within our professional and general liability products. As Jeremy mentioned, we also had an active quarter in the ILS space, completing the sale of our majority interest in the Velocity MGA operations and announcing the sale of our Volante MGA operations, which we expect to close some time later this year. Both of these transactions unlock significant value from our Nephila acquisition in 2018 and also allowed Nephila to devote full attention to the opportunities they see in the cat arena right now. Now I will discuss our first quarter results within our Insurance engine, which include our underwriting operations, state and national program services operations, and Nephila Insurance-linked securities operations. So I will kick it off with the Insurance segment. Gross written premiums in the Insurance segment were up 19% in the quarter, with just under $2 billion in premium ridings, while earned premiums were…

Thank you, Richie. The people of Markel Ventures continue to make me grateful and amazed. Their absolute dedication to the -- to their customers and to their colleagues continues to show up month-after-month, quarter-after-quarter and year-after-year. Today’s numbers that Jeremy shared speaks volumes as to how the human values of Markel continue to manifest themselves in our financial results. The current environment remains challenging in finding people and supplies, but our managers continue to demonstrate their resilience and creativity. I find their results to be inspiring. On the acquisition front and adding new businesses to Markel Ventures, we continue to see elevated prices as a general statement. As such, I would not expect to add a new platform to Markel Ventures this year. For reference, I felt the same thing during the first quarter of the last several years. Despite that, attractive situations came up and we added wonderful businesses in each of the last several years. We will see how 2022 develops. Our managers and CEOs running the Markel Ventures businesses also continue to pursue opportunities to add to our existing businesses and I would expect some fruitful developments as a consequence. Also, fortunately, our existing array of businesses continue to perform well, generate cash, grow, and provide resilience and diversification to Markel. In our investment operations, the change in the value of our fixed income portfolio was due entirely to the increase in the overall level of interest rates. There were no credit losses in the portfolio and that continues a multiyear record of pristine results from fixed income. Reinvestment rates on maturities and in current cash flows continue to increase and that should yield increases in recurring investment income in upcoming quarters. We generally hold our fixed income securities to maturity and unrealized gains or losses, all tend to revert back to zero in the fullness of time. In our equity portfolio, our ratio of publicly-traded equities to our shareholders equity stood at 61% at the end of the first quarter. That’s a conservative ratio. Given our Insurance profitability, capital position, ventures profitability, durability of recurring investment income and attractive purchase prices, we are continuing to buy common stocks and repurchase our own stock. We are also ready, willing and able to consider attractive acquisitions in the Insurance or ventures worlds. I’d like to thank you again for your ongoing commitment to Markel. We can’t build one of the world’s great companies without fellow long-term owners who have the same goal. We believe that our win, win, win architecture of serving our customers and our fellow employees creates wonderful returns for our shareholders as well. We are delighted to connect with you to update you following these first quarter results and we look forward to seeing you at one of our upcoming events shortly. With that, Andrea, if you would be so kind as to open the floor for questions.

[Operator Instructions] And our first question will come from Jeff Schmitt of William Blair. Please go ahead.

Hi. Good morning, everyone. Could you talk about the loss environment, what do you see loss costs trends running at? And then any detail that you could provide on maybe the components, how much is related to social inflation versus CPI inflation? And I know social inflation can be tough to sort of isolate, but just curious, had CPI inflation sort of taken over or is that additive on loss cost, how are they running now?

Jeff, this is Richie. I will take a shot and I will see if Jeremy or Tom want to add in. I think you got to start with recognizing that you are not seeing much in terms of the data at this point. When we talk to our claims folks, they are really not seeing a whole lot of claims inflation showing up in our numbers yet. However, we know with all the things that are going on out in the environment, both CPI inflation, litigation, finance, toward the erosion of tort reform over the years. We know that claims inflation is running higher than it historically has. I can’t give you a precise number, and obviously, we write, as I said earlier, on the order of 100 different lines of business and so it would be different in each of those lines of business. But I do think it’s more than what we have historically seen. But I still believe, when you look at the rate increases that we are still achieving, we are in the high-single digits in terms of rate increases. I still believe there’s a margin on that versus what claims inflation is running at right now.

Got it. Got it. Okay. And then, on the competitive environment, obviously, it’s holding up really well. I guess are you surprised that it’s this disciplined after price, call three years rate [ph] increases, some people got in 30-plus percent cumulative rate increase. They are still holding up. I understand the cost pressures, whether it’s been tough, interest rates are low. But are you surprised, are you starting to see some competitors start to get more aggressive on price, on terms and conditions, are you seeing any indication of that or is it staying pretty rational?

I would say it is staying pretty rational. But, yes, I mean, clearly, we are seeing more competition as the rate of increase has decelerated. So I think some of the new entrants, both company and MGA, I think, they have had some impact on the margin. I do think, after three years and in some cases four years of rate increases, people’s assessment of rate adequacy changes and so their appetite changes. So this market -- the cycle is no different than past cycles. We are probably past the peak of this cycle. But it is coming off very gradually and I think, I said in my comments, probably more gradually than I would have predicted a few quarters ago and I think it’s some of the things that have been developing, the war, inflation, interest rates, you name it. I think there’s enough things out there that give people pause and so it’s been a very gradual gentle glide on the rates as opposed to maybe something faster that I might have predicted a few quarters ago.

Got it. That’s helpful. If I could just one last one on the fixed income securities, I just wonder if you could discuss your philosophy there. They are all -- they are held as available to sale. You are saying you hold to maturity anyway, though. I am just wondering if there’s any contemplating -- any changes with that strategy in this rising interest rate environment. I mean, can you switch those to hold the maturity and not have the mark-to-market changes or what are your thoughts on that?

Well, it’s like Abraham Lincoln once said, how many legs does the dog have if you call a tail a leg? The answer is four. So calling the tail a leg doesn’t make it a leg, whether the accounting terms are available for sale or held to maturity, whichever one you use, the mark-to-market value is a real economic number that’s out there. We think about things in real economic terms. So we really don’t expect to have any changes in what we are doing or the way that we label the accounting. Now there’s another sort of accounting nuance that’s very important to remember is that. The philosophy on fixed income is that we buy fixed income to match against the reserves of what we expect to pay out in claims and expenses of running the business. And the reason we buy fixed income securities that have a duration of between four years and five years is, because that matches the duration of what we expect to pay out the claims over. So when interest rates rise and you see a mark-to-market decrease in the fixed income portfolio, if you were really doing the net present value of the reserves, you would see an equal and offsetting reduction in the amount of the reserves. Now as an accounting matter, we don’t discount our reserves to their net present value. So economically what we are doing is we are hedging and matching and saying straight up either way because one of the things that we fully believe is that we have no idea how to predict accurately what interest rates are going to do. So either way, whether they go up or whether they go down, we are hedged, we are matched. We are making a spread of return between the positive yields on a bond portfolio and the negative cost of flow that we get through underwriting profitability, and as long as we keep that spread positive number, things add up to the good over time.

That’s very helpful. Thanks for the answers.

Thank you.

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

Yeah. Thank you. Good morning.

Good morning, Mark.

The cat losses were pretty low in the quarter, couldn’t get much lower. How much -- other than the Russia-Ukraine, but how much is that your underwriting versus the backdrop, just a more favorable cat backdrop in 1Q? And any thoughts on kind of implications when we think about future trajectory on cat losses, is it signaling something important to us?

It was a relatively light first quarter in terms of cat, Mark, excluding Russia-Ukraine. And so, I would say, it’s a combination. I would say it was a relatively light first quarter in terms of where we write cat exposed business. But also, I mean, I think, it is showing up the fact that we have been derisking in terms of cat over the last several years. And so, whereas we would have budgeted probably 3 or so points of cat losses the last year or two, our budget for cat losses in 2022, I think, is around 1%. Is that right, Jeremy? So, it’s a combination of both, a relatively light first quarter and the fact that we have been diligently working to reduce cat exposure in the portfolio. So, that’s that.

And Mark, it’s Jeremy. I’d like to just add one other point. We typically only call out large, significant named events…

Yes.

… within our cat. So we don’t tend to sort of get all of that sort of cat activity and disclose that when they are smaller amounts. So there’s always a little bit of, if you will, almost like attritional cat. We sort of embed in our underlying results. But then to Richie’s point, our modeled average annual losses have come down significantly in recent years, as we have addressed reducing the volatility in our book associated with catastrophes.

That’s helpful. Thank you. And then on the expense ratio, any one-time benefits in the quarter or is that just efficiency and leverage?

Yeah. It’s more -- it’s Jeremy again. It’s more efficiency and leverage, right? We continue to enjoy growth -- significant growth on the topline and we are able to sort of not see the direct and controllable expenses on that base grow at the same rate. So we continue to benefit in that, that way. So nothing significant besides that, I would really call out.

Yeah. No. I think you have touched on this, but kind of your latest thoughts around the workers’ comp market. You renewed a treaty, I think, in the Reinsurance book. How are you looking at that business both on the primary and Reinsurance?

Yeah. That’s the market -- that is the one part of the market that has resisted hardening and rates have continued to gently drift down, yeah, 2% to 3%. As a result, I mean, we still think there’s margin in the primary side of the business and so we continue to write business there, but we recognize that the margin is smaller in workers’ comp right now. When we got to looking at that Reinsurance deal and with the cumulative rate decreases that have happened over the last few years, we didn’t believe it stacked up and so we stepped away.

When you say the margin is smaller, are you saying -- are you thinking relative to other lines that you are writing your preferred categories or are you talking about relative to what you might have written in comp last year or the year before?

Right. Relative to workers’ comp, over the last few years. Workers’ comp has been a great line of business for several years now, which that helps explain why people have been competitive in it. There have been good results. But I just wouldn’t expect the kinds of results we have had -- we have enjoyed in workers’ comp over the last several years, in the next few years, unless something changes in terms of the pricing dynamic.

Thank you.

[Operator Instructions] And our next question will come from Mark Dwelle of RBC. Please go ahead.

Yeah. Good morning. A few questions. First maybe for, Jeremy, on the Hagerty mark-to-market, I guess, for the equity investment accounting. Is there a way that you can help us understand, like, kind of how to track that number? I mean, I knew that Hagerty shares had declined in the quarter and so I expected there would be some adjustment for that? But the amount that you adjusted by was different in both percentage terms, and obviously, in dollar terms than what the stock price performance was. So is there a way that we can kind of think about that or get our arms around it?

Sure. Mark, it’s Jeremy. I will take a stab at that and Richie or Tom can join in as well. With regards to where we provide what the approximation to the fair value might be based on the traded A shares, you can rough think of Markel having about 23% ownership in Hagerty. And so just think of that in terms of their sort of market capitalization at a certain point in time. That’s a little bit of that fair value proxy. As far as what’s recorded in our books, it’s more a function of us taking our proportionate share of Hagerty’s underlying earnings and any other capital sort of transactions. We do have to record that, however, on a quarter lag, because obviously Hagerty is a publicly traded company. We don’t have access to the information on top. It’s not significant period-over-period. So, just thinking of the relationship between the two figures that we report on and a little bit of how to think about that that sort of fair value proxy that we put in.

It’s probably worth talking about the warrants and how they impact.

Yeah. Sure. So one of the things that will create a little bit of underlying volatility with regards to our held to what we hold on the actual Markel balance sheet and other assets. We will see a little bit of volatility relative to the mark-to-market that Hagerty has relative to their warrants. So if you think of the warrant activity because of the move in the Hagerty stock price through the end of the year that creates sort of a liability and an expense that we reflected it as part of the reduction we would have seen at 03/31 versus 12/31. So that creates a little bit more volatility. As a kind of more of a one-off, they also in either year-end results would have had the transaction costs associated with going public. But that’s really a one-time event.

So the primary thing that we are picking up there is their earnings results. It’s not really the movement in the stock price that…

Yeah. What -- yeah. What we hold on the balance sheet is just a function of their underlying -- our proportionate share of their underlying earnings and any other capital transactions. But it’s not the movement in the fair value of their stock.

Got it. That’s very helpful. Second question, this one is maybe for Tom or Jeremy. Could you just provide -- you talked already at length about kind of how you think about your investment portfolio and duration matching and so forth. Could you just provide a couple of maybe general statistics in terms of what the portfolio duration is right now, kind of what the book yield is and where new money yields are relative to that?

Yeah. I don’t have precise numbers at my fingertips, but it would -- the duration would be roughly four and a quarter four and a third, something like that. The new money rates are a little bit higher than what the existing yields are. So when we are investing new money, we are at the point of over the last couple of months with rates having gone up, that the new money investment rates are higher than the embedded yield.

Okay. Yeah. That’s fine. And then the other question I had. Obviously, you have sold the Volante and Velocity over the last couple of quarters here. Could you just talk about strategically why it’s better to be out of those as compared to retaining them? They really -- I mean, they don’t have a lot of capital associated with them and they seem to make money. So, I guess, the question would be why not keep them as compared to realize a little bit of cash flow at the moment?

Sure. Mark, well, both of those organizations were acquired obviously as part of the Nephila acquisition and they were investments, quite honestly, that Nephila had made in those two operations. We have looked at it two ways. In both cases, management had ownership, had partial ownership of those businesses. And so they had an interest in realizing the value of those organizations at some point. And that had been sort of memorialized through the deals that Nephila put together with management in both cases. So we wanted to be fair to the management of those two operations and allowed them to realize the part of the value that they had created there. Obviously, we were able to unlock significant value for Nephila and Markel Corporation. And honestly, great businesses, great people, but there is quite a bit of time that is spent in terms of managing those operations that now we can fully devote to the core business, which is, fund management for cap risk and climate risk and we think the opportunity right now in the cat arena is significant. And so all of those things play into it, but really just getting super focused on our core business is probably the driver.

Okay. That’s helpful. And then, one last question, if I may. In terms of the Russia and Ukraine exposures, I mean, you had reasonably good disclosure of that in the Q. But could you just talk about in terms of how many -- it will probably be in fairly broad terms. I mean, do you have considerable more exposure that could arise there or have you already been impacted on most of the accounts or transactions that you would expect to be impacted or just -- I am trying to get a sense of like how much of this is the tip of the iceberg and how much of it is the whole iceberg?

To be just blunt, Mark, very -- we have very little information at this point coming out of the conflict. Obviously, as we all know, the war is still ongoing, and so it’s not like you are able to send adjusters in and see what the status is on the ground. So we tried to make a good faith estimate of what could potentially be our exposure. I would tell you what we have put up, it is 100% IBNR at this point and really sort of thinking about what our net retentions could be and how our Reinsurance worked. Trying to put up something that we felt like was a very best estimate of what could happen, obviously the longer it goes on, both from a humanitarian standpoint and just economic damages standpoint, things get worse. But we do not write that much business in Ukraine or in Russia for that matter, timing in respects to our overall book of business. But, obviously, when you start adding up policy limits, you can get to some big numbers. But we really don’t believe it is a material issue to Markel Corporation. But, again, the longer it goes, the worse it gets from a humanitarian situation, as well as an economic situation.

Understood. That’s helpful. Thanks. That’s all my questions.

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

Thank you very much. We enjoyed being with you. We hope to see you either in Omaha or Richmond soon. Be well.

The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.