Good morning and welcome to the Markel Corporation Second 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 those projected into 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.

Good morning, and thank you, Andrew. This is Tom Gayner and I'm pleased to welcome you to the Markel Corporation's second quarter 2022 conference call. I'm joined this morning as usual by my co-CEO, Richie Whitt who will update you on our insurance engine and our CFO, Jeremy Noble, who will speak to the overall financial results at Markel. We are pleased with our ongoing economic performance. The first half results in our insurance and ventures engines show continued growth in revenues and earnings. The investment results require a little bit more analysis and thought to see the progress we're making, but I'm pleased with our results and our process. I'll speak more specifically about investments and ventures after Ritchie in a few minutes. We always look forward to sharing our results with you. We continue to focus on building the long-term value of Markel in multiple dimensions. We continue to operate with the win, win, win focus where our customers are better off for having dealt with us. Our associates along with their families and communities are better off for being part of us and our shareholders earn excellent returns on the capital needed to run this business. While these quarterly updates occur every 90 days, we think and act with a much longer time frame. We think about years and decades and generations rather than quarters and we hope you share our long-term goals of building one of the world's great companies. We thank you for your steadfast support of this journey. As the old saying goes Rome wasn't built in a day and neither is Marcel. The people who built Rome worked every day and so do we. This call is our 90-day update on this lifelong project and we look forward to your thoughtful questions and comments. With that I'll turn things over to Jeremy to share our financial results.

Thank you, Tom, and good morning everyone. As Tom's comments suggest, the first half of 2022 continues to highlight the benefits that come from our diversified three-engine architecture here at Markel. While growth in our insurance and Markel Ventures operations drove meaningful contributions to our operating results, the volatility within the public equity markets and the effects of rising interest rates on our bond portfolio significantly impacted our investment results this year. Looking first at our underwriting results. Gross written premiums were $5 billion for the first half of 2022 compared to $4.3 billion in 2021, an increase of 18%. Our increased premium volume reflects new business volume more favorable rates and expanded product offerings and was achieved across many of our product lines. The most notable growth came from our professional liability and general liability product lines in both our insurance and reinsurance segments. Our consolidated combined ratio for the first half of 2022 and 2021 was in 90 [ph]. The 2022 combined ratio included $35 million or 1 point of net loss and loss adjustment expenses and $12.3 million of ceded reinstatement premiums attributed to the Russia-Ukraine conflict. All of this was recognized in the first quarter and our initial estimates associated with this event remain unchanged. This compares to $68 million or two points of losses attributable to Winter Storm Uri and $19 million of adverse development arising from a change in our estimate of COVID-19 ultimate losses included in our 2021 combined ratio. Excluding these loss impacts from both years, our consolidated combined ratio for the first half of 2022 was an 89% compared to 88% for the same period in 2021. The increase reflects the impact of less favorable development on prior accident year loss reserves with our insurance segment this year compared to last…

Thanks, Jeremy, and good morning, everyone. As Jeremy said, I'll be discussing our insurance engine second quarter and year-to-date results. At the halfway point of the year, we are in a position to attain our 2022 goals for both production volume and profitability. Business production continues to be strong. We achieved 18% growth in our underwriting operations with total gross written premiums surpassing $5 billion for the first half of the year. Within our program services and funding operations, we also had continued growth and are seeing expanding opportunities. While we're still benefiting from a generally overall favorable premium rate environment, we have been seeing for the past few quarters some tempering rate increases across certain product classes compared to a year ago. In addition to rate increases, our production growth has been significantly influenced by new business growth, development of new products and the onboarding of new program relationships, all while maintaining our focus on underwriting discipline. Our first half combined ratio of 90% is consistent with our 2022 underwriting profitability targets. Hit our overall target, despite a decrease in our prior accident year loss takedowns in the first half of the year. We are cautiously and consistently applying our conservative reserving philosophy, as we and the entire insurance industry contend with the potential economic impacts of various forms of inflation. Our focus on expense discipline, while we scale our operations, continues to benefit our expense ratio with our first half expense ratio hitting 33%, a 2-point improvement from a year ago. Now I'll discuss our year-to-date results within our insurance engine, which include our underwriting operations, program services and fronting operations and our insurance-linked securities operations. So, getting started with the insurance segment. Gross written premiums in the insurance segment were up 21% for the first half of…

Thank you, Richie, and good morning. For those of you who are on the phone, we have the call that's proceeding as designed to do. We're getting reports that there are problems with the webcast -- we're looking into that, and we are proceeding to get this taped and recorded, and we will do our best to make sure that indeed took place and give a broadcast out as soon as we put Humpty Dumpty back together on that. So with that, Markel Ventures, let me shift back to the planned program. Markel Ventures produced record revenues of $2.3 billion, up from $1.8 billion and, more importantly, record EBITDA of $250 million, compared to $220 million last year. As you all know, we operate a diverse set of businesses that operate in many different industries. The diversification adds to the resilience and long-term success of Markel. I am very proud of our operators who continue to run the Markel Ventures companies, amidst the challenges of continued supply chain tangles, inflation, labor shortages and endless complexity. Every single item on that list is real, and I suspect that will continue to be the case for the indefinite future. I think their performance in the face of these unrelenting challenges speaks volumes about their talent and dedication. No one knew three years ago what it would be like to run a business through wave after wave of disruptions in every aspect of life. Despite the lack of for knowledge and a proven playbook, I can report to you that your team continues to find ways to serve their customers and their associates and report record financial results. I could not be more proud of them. While we always have some businesses with headwinds and some with tailwinds, I find the ongoing results…

[Operator Instructions] And our first question will come from Mark Hughes of Truist. Please go ahead.

Yes. Thank you. Good morning

Good morning…

You're loud and clear on my end, but I dialed in. Your concern about inflation, I wonder if you could -- I think you've kind of touched on this, but I'd be interested if you could expand on it. How much is based on increasing costs that you're actually seeing within your own book or whether it's kind of broader inflationary pressures that are driving it, or whether there are kind of specific categories that you think might impact you overtime that you're focused on that are influencing your more conservative posture here?

Mark, I'll take a shot at this. But I'll throw it open to the table here to see how I do. Yes. I mean we are concerned -- I mean the CPI inflation is one thing and we saw the 9.1% or whatever it was in this most recent month. And that clearly has an impact. The other thing that we have a close eye on and they're starting to become evidence of is the social inflation aspect which really, really addresses probably more of the severity aspect. We're watching both and coming into the year, we were thinking hard about both and we sort of baked more inflation into our claims trend, depending on the line of business. We're doubling down on -- I don't know if we're doubling down on that but we are definitely going to be even more conservative as we go through the rest of the year, just given the signs that we're seeing out in the macro environment. We are probably on average and it depends by line but we're probably on average 6% plus in terms of what we're thinking in terms of trend right now. We haven't really seen current agent years misbehaving. The development that we saw in professional liability in particular E&O and financial institutions that was sort of in the trough of the soft market years the 15 to 19 years. But everything trends forward and so we have to keep an eye on the more current years and we're just going to be more conservative as we approach those years until we have a better sense of things.

And Mark this is Tom. I think to some degree part of your question would reflect is right how much you've seen in actual bills that you're paying in claims today versus what are you putting up there and factors for what we expect to happen in the future? And the answer is it's mix, but we would quantify it. But I think Rich's point and this is the kind of thing that we have communication with our frontline underwriters about all the time. Why are rate increases necessary when we've had these rate increases and our current bills perhaps don't show that quite so much. It's our job senior managers see round the corner a little bit and what we're communicating and working with our frontline underwriters with is look the storm is coming. So, just to make sure we get ahead of it rather than to try to catch up with it after the storm is already there. So, I don't have a quantification for how much is the current year bill versus what we paring to be cautious for going forward, but rest assured it's both. And that's on the insurance side. On the venture side the feedback loops are different. So, we do see current data of what a ton of steel cost is what an hourly wage rate is and we need to make sure that we work hard to preserve the margins to make sure we can continue to serve our customers. Because the whole point of the way this worked is we try to make our customers happy and we try to be there for them the day after that the day after that and the year after that. And in order to do that we need to run a profitable business. So, the timing and feedback loops are different in the insurance business compared to the pension businesses. But the point is this is a top of the page topic on both sides of the house.

Understood. Thanks for that. Can you talk about the rates continuing to gradually moderate in this environment. At the same time submissions new business still up strongly. What drives that? Should -- is that a little bit of a -- should those things be moving in tandem, or why is submission growth being pretty strong even as rates are moderating?

Yes. It's -- I'll be honest it's a little surprising to me, particularly with signs now that the economy is starting to slow down a little bit given what's been happening with rates and the actions I look at it this way. We grew at roughly 20% in the first half of the year. We have the flexibility to -- and we'll be talking -- we are talking to our underwriters about this. 20% that's great, but 15% and getting rate increases is better. And so we're in an enviable position at the moment in that we are growing and we're going to be talking and are talking to our underwriters about really let's talk about rate adequacy rate margin in areas where we have solid rate adequacy and solid rate margin. Let's look to grow in areas where we believe that's getting closer to the sort of Mendoza line, we're going to be cutting back. I said it's a more nuanced part of the market and hard markets you're all out writing. That's not the market we're in now. We're going to be looking at rate adequacy at a very granular level. We'll continue to push forward in areas where we think that's attractive and in areas where we think it's getting too close we're going to be pulling back.

Thank you very much.

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

Yes. Good morning. A few questions. Maybe first kind of building I guess on the last question kind of just talking about some of the nuance in the pricing environment. If the pricing is slowing, are you seeing that as an indicator that pricing has reached a degree of adequacy on a fairly broad basis, or is it that there are beginning to be competitors who are becoming more aggressive in trying to capture share or capture new volumes?

Yes. I think you got to look at it line by line Mark. As I said, there's lines where there's clearly rate adequacy. And yes, certainly there's competition coming in and starting to compete away some of that adequacy, not all lines got to the same level of rate adequacy. If you look at things like commercial auto I would question if it ever got to rate adequacy. So it is going to be a line-by-line sort of analysis. And there's no question just the fact that rates were going up has brought people back into the market either making the assumptions or believing that there's rate adequacy where they're trying to compete. And I would say in some areas yes, there's certainly solid rate adequacy there in other areas. I don't see it and don't understand why people would be increasing competition in those areas.

In Professional Liability where you added a little bit to reserves? Is that a line where rates are still below adequacy or the reserve add was more a byproduct of loss trend accelerating faster than you might have expected?

The years that we saw the development were really the bottom of the soft market and financial institutions was one of the areas we mentioned. I don't know what the cumulative rate change would be on financial institutions from that point in time but it's significant. And I do think financial institutions and there's various classes even within financial institutions. I do believe for the most part that has gotten to rate adequacy. And so I'm not as concerned about the more current accident years but we are going to be watching carefully if rates come off in those areas. D&O. D&O was sort of the poster child for rates going up and rates are starting to soften there and come off in some places. We're going to be extremely careful in D&O to make sure we don't go below rate adequacy on that portfolio.

That's helpful color. I appreciate that. The second question is during the quarter you engaged in some share buybacks. It's not that you've never done those before but it's definitely a little bit less common appearance. Can you just talk about how you're thinking about buybacks, kind of, what prompts you to get into the market? What prompts you to hang back really just a refresher because it's not something that we've seen real lately?

Sure. Mark this is Tom. And you're correct. The pace and amount of share repurchasing, we're doing is more than we've ever done at Markel before. And I'll talk -- again as you say refresh or the capital allocation triage and philosophy here is the first thing we want to do is invest in organic opportunities in the businesses we're already in. If we've got an insurance opportunity or ventures opportunity where we're already there and there's the opportunity to invest capital and grow good returns with proven winners inside the tent. We're going to do that first. The second thing we would look to do is acquisitions of additional ventures or insurance companies. Third thing we would do is to purchase public equity securities. And the fourth thing that we would do is when we look at all those opportunities and Markel stock meets that test of business producing good returns on capital run by management's equal measures of talent and integrity with capital discipline at a fair price, and Markel stock comes up meeting all those four things, we're going to do that too. And we can do all four of those things at the same time. We do them one, two, three, four, but it might be the circumstance where all four are happening simultaneously. And I would say we're in one of those environments right now. So we're just trying to be rational and make rational decisions and what a rational decision leads me to at the moment is to say, we are buying some Markel stock. So we did.

Okay. That's helpful on that. And then one last question. This is I guess particularly for you Tom, and it could well be that the answer will be very similar to what you just said. But you commented for several quarters that the pricing is very high to do acquisitions in the ventures realm. I know you've never sold a ventures unit. But should you consider being a seller? You've had many of these businesses for quite a long time. You bought them well. They've ripened nicely. Is there a time to harvest? Is there any -- is there ever a time to harvest? Maybe you can just talk about how you think about those?

Sure. The great news is harvest happens every day in the ongoing operations of the business and the cash flows they produce. So we're not buying things to turn around and sell them. We're buying things to operate them and build them and see them grow and produce more cash and that's indeed what they're doing. We do not sell the business and we don't look to, because we think one of the features of culture and ethos that we have. And one of the reasons why people want to join Markel is because they share the dream of building something wonderful for a long period of time as well not just trying to ring a bell and then everybody leaves and starts over somewhere else. The building of Markel is meant to be a generational thing, generation after generation. It's been three generations already. We're working on generation 4.0. We look forward 5.0 and 6.0 and that doesn't involve selling, because harvesting doesn't need to happen from selling harvesting happens from running a good business every day and putting the cash in the store house and then applying that cash to further growth opportunities.

Okay. That's helpful. That’s all my question. Thanks.

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

Well, thank you very much. We appreciate you sticking with us through the technical difficulties of the webcast. We'll try to figure out what happened there and get that out in a replay fashion and look forward to connecting with you soon. Thank you so much. Goodbye.

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