Good morning, and welcome to the Markel Corporation Fourth 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 in the forward-looking statements is included in the press release for our 2022 results, as well as our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the caption Safe Harbor and Cautionary Statement and Risk Factors. We may also discuss certain non-GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in the press release for our 2022 results. The press release for our 2022 results as well as 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, Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning, everyone. As Brian-Doyle Murray said in Groundhog Day, “rise and shine, campers, don’t forget your booties because it’s coooold outside.” Happy Groundhog Day from Richmond, Virginia, where we’re getting our first snow of the season, doesn’t happen very often around here. So, I just couldn’t let the occasion pass without saying something. This is Tom Gayner, not Brian-Doyle Murray. I’m your CEO, and it’s my pleasure to welcome you to the Markel Corporation year-end conference call. I’m joined today by Brian Costanzo, our Chief Accounting Officer; and Jeremy Noble, the President of our Insurance operations. On today’s call, Brian will give you a rundown on the financial results we just reported and Jeremy will follow with some comments on our insurance operations. I’ll come back after them with a few thoughts about our ventures and investment operations, and then we will open the floor for any questions you might have. As a public company, the cadence of these calls is every 90 days. Each quarter, we share our financial results with you as we hold this call. While we update you one quarter at a time, let me assure you that is not the cadence we follow in managing Markel. Our North Star remains the dual time horizon of forever and right now. We believe that the combination of the long-term time horizon embodied by the concept of forever, coupled with the discipline and urgency of the right now provides a balance that serves us well. Quarters are like the rings inside the trunk of a mighty sequoia tree that give you a useful piece of information about one small chapter in the life of the tree, but any given ring is just one in a sequence of many. Given our long-term focus, one of the…

Thank you, Tom, and good morning, everyone. I’m happy to be with you all this morning to report the numbers from our 2022 results. Our insurance and Markel Ventures operations delivered strong operating results while navigating a complex macroeconomic environment, and we’re pleased with the steady growth we’re seeing in the investment income generated on the investment portfolio. While the volatility in the equity and bond markets created unrealized losses in the portfolio this year, we remain focused on long-term investment performance, which better reflects the quality and durability of our investment portfolio. Starting off with our underwriting operations. Gross written premiums surpassed $9.8 billion for the year compared to $8.5 billion in 2021, an increase of 16%. Our increased premium volume reflects new business volume, strong policy retention levels, continued increases in rates and expanded product offerings. Our professional liability and general liability product lines continue to lead the way, but we’ve also achieved meaningful growth across many of our other product lines. Our consolidated combined ratio was 92% in 2022, which included $46 million of net losses attributed to Hurricane Ian and $36 million of net losses attributed to the Russia-Ukraine conflict for a combined 1 point impact to the combined ratio. In the fourth quarter, we reduced our initial estimate for losses attributed to Hurricane Ian by $24 million. Our estimate for net losses attributed to the Russia-Ukraine conflict were recognized in the first quarter and remain unchanged throughout the year. In 2021, our consolidated combined ratio was 90%, which included $195 million or 3 points of losses on natural catastrophes. Excluding these event losses from both years, our consolidated combined ratio in 2022 was 91% compared to an 87% for 2021. The increase reflects the impact of less favorable development on prior accident year loss reserves…

Thanks, Brian, and good morning, everyone. It’s great to be with you this morning to recap our 2022 insurance engine results. In short, we had a tremendous year, premium production in our underwriting divisions totaling just under $10 billion for the year and total revenues within the insurance engine eclipsing $8 billion. Although our combined ratio of 92% is slightly higher than our goal at the start of the year, overall, I am very pleased given the events and the economic uncertainties that played out over the course of the last year and continue today. Now, I’ll discuss our full year results across our collection of insurance businesses, which include our insurance and reinsurance underwriting operations, State National program services operations and Nephila insurance-linked securities operations. Looking first at our Insurance segment. Within our insurance operations, we produced a combined ratio of a 92%, while growing gross written premiums by 19%. Growth in premium production has remained strong in the fourth quarter and we continue to take advantage of new business opportunities in the specialty insurance marketplace as well as maintaining strong premium retention levels and capturing rate. We set out at the beginning of 2021 with our 10-5-1 goal within our global insurance underwriting operations to deliver $10 billion in annual gross written premiums in five years, targeting $1 billion in annual underwriting profits, or simplistically speaking, achieving a 90% or better combined ratio. We are well on our way. From a production standpoint, we have capitalized on strong market conditions to significantly grow our premium base in our preferred product classes. While our 2022 combined ratio was slightly above our target, the primary reason for this was related to prior accident year loss development from the softer years of the last insurance cycle. Despite these trends, we were…

Thank you, Jeremy. As Brian reported earlier, reported revenues of $4.8 billion at Markel Ventures, up from $3.6 billion a year ago, and EBITDA reached a new record of $506 million, up from $403 million. I am delighted with the accomplishments of the team at Markel Ventures, and I hope you are as well. Between the ongoing pressures and strains of supply chain issues, tight labor markets, inflation and every other sort of challenge you can imagine, the people of Markel Ventures continue to serve their customers and each other and produce excellent financial results. We continue to diligently search for additional opportunities to grow by acquisition at Markel Ventures, but we did not add any new platform companies in 2022. I hope you see this as an example of the discipline with which we allocate capital. The rise in interest rates and the disruption in the equity and fixed income markets has caused the number of inbound calls we’re receiving to start to go up as 2022 progressed, and I’m hopeful that we will find attractive opportunities in 2023 and beyond. Rest assured, we will remain disciplined as we see new opportunities and only deploy capital when we expect to earn attractive returns doing so. Our array of businesses at Markel Ventures gives us interesting insights and observation points about general economic conditions. Supply chain and inflation issues remain, and they continue to present challenges. I hope you share my sense that the results of 2022 provide yet another year of evidence that we have a talented team on the field and that they will continue to operate the businesses of Markel Ventures with excellence. In our investment operations, you can see the effects of higher interest rates and lower equity prices and the results that Brian reported to…

Thank you. [Operator Instructions] And we’ll go first to Mark Hughes at Truist.

Yes. Thank you. Good morning. You suggested in the insurance business, most lines have maintained the pricing level that you’d seen for most of the year. Could you maybe provide some specific, where do you see pricing, and how does that compare to loss cost increases?

Yes. Sure, Mark, it’s Jeremy. So, a few comments on that maybe to build off what I shared. So, I would say that in the fourth quarter across the total portfolio, the level of rate increases would have slightly dipped below the level of the trend that we’re applying. So that was a development. But driven by some of the lines that I called out specifically, like public D&O, like financial institutions, like risk-managed excess casualty, those sorts of lines. Many of the trends that have been talked about, say, for example, workers’ compensation, have been pretty consistent with regards to sort of modest levels of sort of price decreases. And many other areas of the portfolio have broadly held on to the rate, property and certainly one that’s been improving. So, we’re starting to see different cycles and patterns, if you will, across each of our products. And while I think that is an interesting unfoldment of point to look at level of rate increases and to look at sort of how we’re thinking about trend in those product lines, I think what we are most focused on within each of our product lines is where we are with regards to rate adequacy. And that’s sort of what we incorporate into our thinking with regards to how we come into 2023 and operate throughout this year. And we’ll see. I mean, I think with regards to take casualty, more broadly speaking, I think that’s one for the industry to watch very carefully. I think we should be very sensitive to what’s happening with regards to rate and trend in that space.

When you say dip below the trend that you’re applying, the inflation trend, is that what you’re saying that pricing is below loss cost trend?

Yes. Yes, exactly. So level of rate increase relative to loss cost trend.

Okay.

And those two things were moving the opposite direction. Over the course of 2022 loss cost trends, we were incorporating were increasing over the course of 2020, broadly speaking, and again, we write over 100 major product lines. The levels of rate increases were declining a little bit.

And then, the adverse you saw in 2015 through 2019, do you think -- I assume that’s a broader issue. You seem to be maybe a little more at the forefront in recognizing that. Do you think others will follow suit? What’s your sense on how you sit compared to your peers?

Well, I can’t possibly comment on what others may see. And what I would say for us -- two stories, right? So, if we take general liability with NGL, we had a specific look at our brokerage contractors primary casualty book. Last few quarters, we were seeing actual claims experience exceed what we expected in our models, and we’ve been reacting along the way. And we decided to take a deeper look in the fourth quarter given there seems to be that trend emerging. Our main takeaway is that the ultimate claims reporting pattern may be a little bit longer than we initially anticipated. I think -- some of those causes can be the growth in the book that we experienced over the past 10 years. There’s some larger project work in that book. And ultimately, that may take longer to settle. And then there’s no doubt that the court closures with the pandemic length in the tail. Those factors get exacerbated by the unfavorable legal environment that we face and a rising cost of inflation. And that is not going to be unique to us, but I can’t speak to what others are sort of doing in that space. We were very cautious. We put up additional IBNR across those maturing accident years. We’ll see how things play out over time. In Professional, we’re speaking to our large risk-managed E&O and D&O accounts in the U.S. where we offer larger limits. We tend to play in an excess position in the years in question. We would often be in high access positions. What we’ve begun to have some concern around is an emergence of a pattern where it may be more likely that our layers get implicated than we previously anticipated. And we’re seeing some of that already. We’ve…

Yes, sure. But on the reinsurance side, what’s your appetite to grow as you see pricing here in your target line?

Well, I think that’s the part. It’s a little bit down to the appetite. So, we certainly have the ability to grow and the capital to deploy supporting growth if we’re happy with the pricing and the terms and condition and the environment. I mean it is the case that while property got a lot of the headlines around 1/1, casualty, professional specialty lines where we play, definitely were firmer acting as a more disciplined market and we will see improvements with regards to coverage attachment and pricing in our portfolio as we move this year. We will opportunistically take advantage where it makes sense in that space.

We’ll move next to Scott Heleniak at RBC Capital Markets.

Yes. Good morning. I just had a few quick ones here. I wanted to ask about the other services unit that had higher revenues than normal. And I don’t know if there’s anything related to ILS or performance fees or anything in there. So, it was higher revenue and then higher operating income. Just trying to kind of break down what’s going on there, just to look at what’s -- any kind of unusual or non-recurring type items to get kind of a run rate there, if you have any additional color on that?

Sure. And there’s tables that will sort of break some of that detail out, Scott. So I mean, the -- I probably touched on some of the more unusual one-off nonrecurring items, like gains from the disposition of businesses or like -- moves. On the core operating earnings, driven more by our State National program services side and that’s linked to just the profitability of that business. On the fund management side, I commented on sort of expenses -- revenue trends with regards to the sale of MGAs being in the period last year versus this year. Broadly speaking, our fund management operations are slightly profitable on the cat side -- property cat side, offset by being slightly unprofitable where we’re investing in sort of the climate and specialty space. But most of what you’re seeing in that space is coming through the strong performance on our program services side.

Okay. And then the -- you mentioned the property rate increases, which is everyone’s been talking about that that’s improving. So, I know on the reinsurance side, but on the insurance side, is that something you’re going to have a significant appetite to start ramping up? How are you feeling about the property side of it, given where pricing is now?

Yes. We worked really hard in the last few years to reduce -- so property has multiple stories to it, right? I mean there’s obviously the catastrophe side and sort of the non-catastrophe side. We worked really hard over the last few years to manage our total aggregate exposure to natural catastrophes, our PMLs in that space. And I don’t think we’re going to change or revisit that position to any great extent. But we do play in that space. We do have a meaningful property portfolio. We will benefit from the rate increases in our property portfolio, where we deploy capacity without a doubt. We can see and strategically grow in that area a little bit. And I think we’ll also benefit from even on the attritional side, it’s what’s happening in the rate increases. So, we’re really focused on sort of managing our aggregate exposure. We’ll opportunistically use this as a time to optimize our portfolio. I would not anticipate or expect any significant change in our underlying strategy with regards to property.

Okay. That’s what I figured, but I also figured I’d ask. The other question is switching gears a little bit, just on the venture side, pretty strong quarter in terms of revenue and bottom line. Any areas of strength you can call? I think you had mentioned construction in there, but anything else you can call out? And then, also in terms of just -- it seemed like the profitability was much better than it had been in the past few quarters, and I don’t know if there’s anything that drove that just kind of rate increases and maybe cost manager or anything else that’s kind of played out there?

Well, what I would call out is try to get a restaurant reservation, try to get a flight, try to get a hotel room, try to buy a car. And the economy is doing pretty well. The demand is out there. And I just think our managers do a very good job of running their businesses. And fortunately, no, it’s not some cost-cutting program or regime or big layoffs or anything like that. We don’t have that going on. We have people who run their businesses every day, and they’re pretty good at it.

Just one last one, too, just on the expense ratio. You made significant improvement in 2022. And should you think we should expect any further improvement on that, or is it -- do you think it’s sort of leveled out there? I know a lot of that is driven by premium leverage.

Yes, you nailed it right there at the end, Scott. You’ll have to see and observe it as we go through the year, it will depend on sort of the trend, I think, with regards to net earned premium, which will follow the trend with regards to how we see gross written premium play out. And a lot of that story for 2023 is going to be looking at kind of the pricing environment and the trend that we were talking about before. So, we are really pleased with the progress that we’ve been making in the expense ratio, focused on productivity and the ability to scale off our expense base as we’ve grown. I think we can continue to do that. I don’t know it will be at the rate that we’ve seen in the last couple of years.

And we’ll take a follow-up from Mark Hughes at Truist.

Yes. Thank you. I wonder, any thoughts on the 2020 and 2021 accident years, how those -- have those been subject to the same forces? I know the initial frequency and severity was low as a result of COVID, or I assume you would see it that way? I’m just sort of curious whether they are also developing adversely maybe from a much better position to start with.

A couple of things I’d point to, Mark. So, when you start talking about in the longer tail lines, accident years like 2020 and 2021, and then clearly, the current one with regards to ‘22, right? It takes a while to see an emergence of claims activity. So, we’re not kind of at that sort of seasoning yet. So, we’re not seeing unexpected claims activity. Additionally, as I mentioned before, the improvement in the broader sort of specialty insurance marketplace, with regards to pricing, terms and conditions, underwriting actions, right, that’s a contrast with the hardening and the improvement in the insurance market that started to take place in 2019 and carried through 2022. So, that creates, I think, a different dynamic on the more recent years in the past year. What I would suggest, and even sort of what we talked about this year with regards to the current accident year loss ratio, we’re taking a very cautious view, right, given the sort of the economic backdrop. We’re not seeing anything that’s unexpected or unpleasant on the most recent years.

Understood. And then what was the impact of your Hagerty investment on the P&L in the quarter?

Not very much.

Okay. Your total equities at the end of the quarter was at $4.6 billion?

No, that’s cumulative unrealized gain. Yes. That’s what we bought -- $4.6 billion more than we paid for it.

Yes, yes. What was the total balance on your equities at the end of the quarter?

Looks like 7.6 publicly traded equities.

And 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 for joining us. We look forward to hearing from you on the next call and seeing you in Richmond at our annual meeting on May 17th. Thank you so much. Bye, bye.

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