Good morning, and welcome to the Markel Group. Third Quarter 2023 Conference Call. All participants will be in listen-only mode. [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 our most recent annual report on Form 10-K and quarterly report on Form 10-Q including under the captions, Safe Harbor and Cautionary Statements 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 our most recent Form 10-Q. Our Form 10-K and Form 10-Q can be found on our website at www.mklgroup.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, Chief Executive Officer. Please go ahead.

Thank you, Regina, good morning, and welcome to the Markel Group third quarter conference call for 2023. My name is Tom Gayner, and I'm joined this morning by Teri Gendron, the Chief Financial Officer; and Jeremy Noble, the President of Insurance to brief you on our results as well as to answer your thoughtful questions. At Markel Group, we remain committed to our long-term goal of building one of the world's great companies. We define that as creating a win, win, win culture, where our customers are better off for having done business with us. Our colleagues are better off by being part of the Markel Group and our shareholders are in excellent returns on their capital as a result of the wins by customers and colleagues. Overall, I'm pleased with the performance of the Markel Group through the first nine months of 2023. But we do have a few blemishes to deal with this year. As always, we will be honest and candid in sharing not only what's working well, but what needs improvement. We believe that this honest and candid self-assessment is the best way to maintain the discipline and clear headedness needed to make good decisions going forward. It is also the way to earn your trust as we demonstrate to you that we acknowledge our challenges and face them head on. Teri will provide you with the detailed numbers in just a minute, and Jeremy will follow with his report on our insurance operations. But before we get to that, I wanted to start off with some high level commentary. As Sheryl Crow saying, every day is a winding road. She's right. We've got some great news, some good news and some challenging news this quarter. While we may be on a winding road, we do…

Thank you, Tom, and good morning, everyone. As Tom pointed out, we have a mix of results this quarter, which highlights the importance of our three engine architecture. Using the words of Sheryl Crow, the diversity in our family of business may be helping us to get a little bit closer to feeling fine. Starting off with our underwriting operations. Gross written premiums grew 5% to $7.9 billion for the first nine months of 2023 compared to $7.5 billion in 2022. Our increased premium volume reflects new business and more favorable rates across many of the product launches within our insurance segment. Partially offset by lower premium volume within our professional liability product lines where we're adjusting our writings in reaction to changes in market conditions and downward pressure on rates within certain classes. Our consolidated combined ratio for the first nine months of 2023 was 95% compared to 91% for the same period last year. Our 2023 combined ratio included $46 million or one point of net losses attributed to the Hawaiian wildfires and Hurricane Idalia. Our 2022 combined ratio included $70 million of net losses attributed to Hurricane Ian and $35 million attributed to the Russia-Ukraine conflict, which together added two points to the combined ratio. Excluding these losses from both years, our consolidated combined ratio for the first nine months of '23, was 95% compared to 89% in 2022. The increase was driven by a higher attritional loss ratio in 2023 within our insurance segment, which Jeremy will discuss further. Prior year loss reserves developed favorably by $170 million in the first nine months of 2023 compared to $204 million in the first nine months of 2022. We experienced favorable loss reserve development across multiple product lines in '23. Most notably across our international professional liability product…

Thanks, Teri, and good morning, everyone. It's great to be with you to discuss our insurance engine results for the third quarter. Clearly, our insurance operations performance is not where we want it to be. However, I am confident that we are taking the right actions quickly in the near term to successfully confront what are predominantly industry-wide challenges that set Markel up for long-term success. As I walk you through our financials, you will see our performance is being impacted by a few pockets within our product portfolio that are negatively influencing our underwriting results for the period. This includes the well-documented higher loss cost trends in recent years, which are creating prior adverse reserve development within our risk managed D&O and excess casualty lines, and mid-market excess an umbrella in primary casualty contractors liability books. We are working incredibly hard to evaluate the ultimate cost to set on claims on these meaningful portfolios, examining the maturing accident years from the last soft market cycle, while seeking to gain confidence around margins on more recent accident years that were written in a more favorable market environment. We are also maintaining a higher level of prudence on our current accident year loss picks within these products due to the uncertainty around future loss cost trends. We are acting with a great deal of discipline being more selective around new business, pushing rates and terms and letting business laps that doesn't meet our profitability targets. We are in the process of remixing our portfolio to improve overall profitability. And ensuring our reserves are robust as we move into 2024. In short, Markel has long been a conservative company and one that demonstrates caution when it comes to evaluating adverse claims trends. Let me now share a few further thoughts on our…

Thank you, Jeremy. And with that, Regina, if you would please be so kind as to open the floor for questions.

We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Mark Hughes with Truist. Please go ahead.

Yes, thank you and good morning.

Good morning.

In the contractor book with the GL line, I think you described some challenges there. How long is the tail on that book? Do you think is it a broader issue that perhaps others are not recognizing yet? Or do you think they are and are acting accordingly. Just a little more there would be helpful?

Yes. Great, Mark, it's Jeremy. A couple of things on that. So on that primary casualty contractors liability book, and I think I might have spoken to this last year when we experienced some development in that book in the third or fourth quarter. We would observe that the tail has extended. And some of that would be naturally the result of the court closures and the pandemic effect. We didn't really react to that. But generally speaking, I think tail patterns within primary casualty are growing a little bit longer, and that's part of what we've adjusted within our sort of reserving models moving forward. Some of that is going to be in a re-write a significant amount of construction business. Some of that is also the nature of, as you get into larger projects, the tail is a little bit longer as well. So that is a little bit of what's going on there. I can't speak to what others are or are not recognizing Clearly, there's been a lot of conversations from reinsurers with regards to their elevated levels of concerns around exposures that are growing. And clearly, they've got access to a lot of data from clients to evaluate what that looks like. I can't speak to what's going through others books.

Yes, when you think about your top-line, the written premium in the Insurance segment, as you kind of take steps to adjust to this environment, would you expect the growth rate to be more consistent with this quarter or kind of pop back up to the high single, low double-digits?

Yes, great question, Mark. So I think some of that has worked its way through. So growth in insurance from a rent [indiscernible] standpoint, clearly is moderated compared to recent years, and that was further the case in the third quarter. I think there's kind of two meaningful offsetting stories. So we've got pockets of premium contraction which are, I think, being offset by numerous bright spots of growth. So one, we're a substantial writer of professional and financial lines. It represents north of quarter of our overall writings. And as well been covered, that sector has been hit both by less economic activity from lower M&A and public listing activity as well as a decline in pricing. And the latter of which has meant that we're less comfortable with the risk adjusted funds and rate adequacy. And therefore, we've let some of that business lapse. That's leading to lower renewal retention. We're being less aggressive on new business. So we're seeing contraction there. Internationally, the business is performing well. The premiums are flat. We've also contracted in pockets of the general liability portfolio, which I touched on in my comments. As we look to reshape the portfolio, improve diversification. I think the best example of that is demonstrating more discipline within construction in the big four states. And lastly, in our marine and energy portfolio internationally, we let go one very large facility that wasn't performing, and we're seeing less adjustment premiums in our marine war book given the closure of the Grain Corridor in the Black Sea. We've been able to offset those reductions with meaningful growth across a broad range of products. So property in the marine, binding, personal lines, surety, programs, environmental, insurtech in our U.K., Europe, Asia platforms across other marine energy lines. So I feel we're actually really good about our forward prospects. And about the actions that we've been taking. A lot of that is working its way through the portfolio. But all of those actions collectively, I think that should be accretive to earnings into returns. The one other comment I might make on premium volume kind of pertains to the property marketplace. And we've grown here but that's due in large part to taking meaningful rate versus expanding exposure. And property overall is a smaller component of our portfolio than I think it is for many others. I do believe the risk-adjusted returns on property have been very compelling this year, we've been taking advantage both in insurance as well as our Nephila operations. But that said, I appreciate some have certainly leaned into the market harder this year and use that to fuel overall growth in returns, and it's been a good year through 10 months, no doubt. If the property pricing environment remains constructive, and I think it will, we can further take advantage of that across our platform in '24 as well.

Appreciate that detail. Thank you.

[Operator Instructions] Your next question will come from the line of Andrew Andersen with Jefferies. Please go ahead.

Hey, good morning. Maybe continuing on the property opportunity in insurance. If I look back at '22, I think property and Marine was maybe about 15% of NPE. Is there kind of a ceiling for the amount that you'll write for those two lines? And I'm thinking it carries a higher CAT load, but perhaps a better underlying loss ratio just given the strong rate environment?

Yes and important to recognize, it's Jeremy again. Important too to recognize that we add access and to take advantage of the property market environment and the risk-adjusted return propositions in a couple of different ways. So we can write that through conventional traditional insurance. And we can also take advantage of that and are taking advantage of that through our Nephila insurance-linked securities operations, which is more where the reinsurance would come into play as well. This year has been interesting. So it's fortunately, we're kind of 10 months into the year, we're largely through the wind season, the book has performed. The books have performed across the industry quite well. But it's been a challenging last six years previously. Five of the last six have been aggregate insurance losses for natural catastrophes in excess of $100 billion. So while the risk-adjusted return proposition from a modeled situation looked very compelling this year, there was questions in our mind as to how is the year going to play out. We would benefit if it did play out well. We did grow and took advantage of the rate and pricing environment. And then it was a question of what will it look like going into 2024. Will the pricing environment be sustainable? Or would it sort of change after sort of one year. It does look like we should have stable but firm and constructive market pricing environment. So we have the ability to deploy more capital there should we choose to do so. We'll look at that. I'm not going to put a projection around that, but it's certainly something that we would take a close look at back of a good year.

Yes, and then maybe on the reinsurance side, the book has changed a lot over the years and so is the rate environment. How should we kind of think of like an updated target near to medium term for an ex-CAT, ex-PYD combined ratio? And maybe just with that, can you kind of give us a refresher of the type of GL and professional liability accounts you're writing in this segment?

Sure, so from a sort of a reinsurance platform standpoint, we are, first and foremost, focused on profitability, versus being focused on growth. Now it's happened to be within the professional casualty and specialty lines the last few years, we've been able to take advantage of some pockets of growth opportunistically to offset some of the contraction that the portfolio experienced when we repositioned property through Nephila. From a profitability target standpoint and a combined ratio, we've kind of spoken in the last couple of years, I mean, we want that book to generate meaningful returns on -- meaningful and appropriate returns on capital and pushing it towards the lower 90s or 90 even being a target is something that we are aspiring to sort of achieve. And we're certainly trying to price our deals and portfolio on the most recent underwriting years in that regard. But there's just a lot of noise on the back here. And on long-tail lines within reinsurance, it takes a while to ultimately see where that book gets. We're going to always reserve with an added degree of caution on long-tail professional and liability lines. So that will take a little bit of time. As far as the makeup of the book, it really can kind of change, and it really depends on the underlying clients. We have both quota share and excess of loss structures. These are often broad highly well respected, highly regarded insurance companies where we participate on a subscription basis on the accounts, and it's a wide range of underlying risks. It is more of a U.S. position book, but it does have some international exposure as well.

Okay, thanks for the detail.

Your next question will come from the line of Scott Heleniak with RBC Capital Markets. Please go ahead.

Yes, good morning. Just a question on the intellectual collateral protection line. Just wondering if you feel like you captured most of the impact there from some of the recent events that were in the headlines. And just how comfortable are you with, I guess the exposures there and also some of the changes. I think you touched a little bit on those are some of the changes you made to that book? [Indiscernible] to that book?

Yes, sure. Scott, again Jeremy. So we previously disclosed -- sorry disclosed that our exposure to Vesttoo was in the form of two fraudulent letters of credit, which were provided as reinsurance collateral to our Bermuda-based insurance carrier for intellectual property collateral protection insurance products. One was for $50 million. The other is for just under $78 million. During the third quarter, we had to pay a claim for the $50 million amount. That we otherwise would not have had to pay had the collateral been valid. And that's where we recognized $25 million as far as credit loss. So we're suggesting we believe there's some degree of an ability to mitigate some of that exposure. But that would be a pocket of exposure. We have assessed the likelihood around whether a claim may arise. It's a claims-made product. So on that second exposure, there isn't a claim yet. And just for familiarity on the product, you have to have both a claim. And then it has to be the case that the underlying assets, including the intellectual property, can't -- don't have a value that it could offset against the loan that was in place. And so what we're highlighting there is we have exposure and we're flagging that it's at least reasonably possible that, that could become a claim. And if it were to, we have additional exposure there. Clearly, in that situation, we will take every step that we possibly can to mitigate or remediate against that loss as well. So we're actively pursuing remedies, including within the Vesttoo bankruptcy to reduce any losses that we incurred. On the core product line, this was a relatively new product. It was a new product. It was brought to market I think sort of in 2020. We had -- played an integral role in the inception of a sort of a nascent product. And undoubtedly, we've learned from the early years, if you analogize it to sort of R&D. And we've taken a number of underwriting actions within that book. But we've also contracted our premium writing significantly. And one of the things we've done is we shorten the limits that we issue. And clearly, we're not fronting within that book, anymore either. So we'll watch how the core book performs. But a lot of the exposure that is more meaningful to Markel come to that exposure to Vesttoo, which I covered off.

Okay, and then just another question just on -- you mentioned you're increasing loss picks in certain lines, which I know Markel is a conservative company and has always been a conservative company. But is there any particular areas that you can point to? Or is that just kind of broadly just in casualty, just trying to pick up inflation and severity and those kinds of things? Just anything more to add on that?

Yes. Scott, it is most significantly concentrated within our general liability and professional product lines and more specifically within segments of those classes, but there are large segments and the ones we've underwritten for a long time. We've also grown meaningfully over the years. So again, that primary casualty contractors GL, Excess & Umbrella, D&O, E&O and what I would sort of say there is we feel like there continues to be uncertainty in the current claims environment. And we're dealing with a degree of unknown. And I would just say, generally, that causes our radar to be up. And it doesn't feel like the recent social inflation trends, the cost to adjust and settle claims, the prevalence of litigation funding, the aggressiveness of the plaintiffs' bar, the sentiment of juries and so on is likely to abate in the near-term. So we're planning accordingly. We're building in a margin of safety today to try to get a step ahead of that tomorrow. That's kind of what Markel has always done to your point. We are also responding by, we're pushing rate. We're adjusting terms. We're shortening limits. We're modifying attachment points on a deal-by-deal basis. We're shaping our portfolios, really taking a robust analysis of this underlying claims trends and activities, using segmentation strategies that can impact exposures and locations, subclasses, insureds and so on. And we're trying to build more diversification into our book by challenging areas where we were maybe slightly concentrated in favor of segments where we wanted to grow. So I mentioned earlier the example of sort of thinking of construction or contractors in the four largest states, being sensitive to the weight of the business in those spaces. So each organization, each company is going to sort of take different approaches. Timing is always going to differ largely, I think what I'm speaking to. We view that to be an industry-wide set of circumstances. We've been talking about it for a while. The industry has been grappling with in a while. I would also say that, fortunately, I think it's leading to really good conversations with our trading partners. In the current trading environment, given some of the industry missteps on the year, I mean, more due consideration is given to the quality of the insurance solution, our market-leading claims handling capabilities, I think are really well recognized, and clients are thinking really carefully about who's going to be there for them in five years and 10 years and 20 years. So I think we're kind of trying to go with that from a little bit of a position of strength.

Thanks.

And this concludes our question-and-answer session. I would like to hand the call back over to Tom Gayner for any closing remarks.

Thank you very much for joining us. We look forward to catching up with you 90 days from now. Thank you so much. Bye-bye.

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