Good morning and welcome to the Markel Group Fourth Quarter 2023 Conference Call. [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 2023 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 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 the press release for our 2023 results. The press release for our 2023 results as well as 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, sir.

Good morning and welcome to the Markel Group 2023 year end conference call. This is indeed Tom Gayner and I serve as your CEO. I am joined today by Jeremy Noble, the President of our Insurance Operations; and Brian Costanzo, our Chief Financial Officer. Our plan this morning is to make just a few comments and then open the floor for your questions. Many years ago, I remember the great football coach, John McKay, saying the most exciting place you can be is in the locker room at halftime when you are down 10 points. I’ll make no mistake about it. We are down 10 points, almost literally and figuratively from where we’d like to be in our insurance operations. Just like a good football team though, winning remains the goal, but we need to do better. We share your disappointment in those results. We are also committed to taking the necessary actions to make them better. We are in the locker room right now. We are adjusting our game plans. We are clear-eyed about where we stand on the scoreboard and where we fell short. We are taking active steps to improve our position. Jeremy will speak to our insurance engine in just a moment and his team continue to be hard at the task of understanding and quantifying areas of weakness as well as strengths and taking the necessary steps to improve results. We have made several significant management changes in the past year and taking actions such as withdrawing or reducing certain lines of business, reducing line sizes, increasing accountability, modifying incentive compensation arrangements, increasing the scope and scale for some of the proven winners in our insurance operations and decreasing or eliminating pockets with disappointing performance. The transition year of 2023 produced results well below our…

Thank you, Tom and good morning everyone. I am happy to be with you all this morning to discuss our 2023 results. As Tom mentioned, 2023 illustrated the diversity of our three-engine system. While our combined ratio result for the year is disappointing, our ventures and investment engines had terrific years with EBITDA from Markel Ventures, the value of our investments and our net investment income hitting record highs. With that, let’s jump into the results. Starting out with our consolidated results. We reported net income to common shareholders of $2 billion in 2023 versus the net loss to common shareholders of $253 million in 2022, with the change largely attributed to the year-over-year swing in our public equity portfolio valuation. Comprehensive income to shareholders in 2023 was $2.3 billion versus a comprehensive loss to shareholders of $1.2 billion in 2022, driven most notably by the favorable swings in our fixed maturity and public equity portfolios. Net cash provided by operating activities was $2.8 billion in 2023 versus $2.7 billion in 2022, reflecting strong cash flows from each of our three operating engines. Total shareholders’ equity stood at $15 billion at the end of 2023. As Tom mentioned earlier, we repurchased $445 million of Markel Group common stock this year under our outstanding share repurchase program compared to $291 million last year. Turning over to our underwriting operations. Gross written premiums within our underwriting operations grew 4% to $10.3 billion in 2023 compared to $9.8 billion in 2022, reflecting new business and more favorable rates across many product lines within our insurance segment, most notably our personal and property product lines. We saw lower premium volume within select domestic professional liability and general liability product lines where we adjusted writings in reaction to changes in market conditions and downward pressure…

Thanks, Brian and good morning, everyone. As Tom and Brian alluded to, we experienced mixed results within our insurance operations in 2023. An overall 98% combined ratio for the year is disappointing and below our long-term goals. I assume the reins of our insurance platform last year and the reality is that 2023 was not the year I anticipated. I think it’s important for me to take a few minutes and explain what’s happened, what we are doing about it as well as to highlight what is going well. Our result for the year was heavily influenced by the recent loss trends within select product lines within our North American casualty and professional liability books and to a lesser extent, some tough lessons within our intellectual property CPI product line. Before I touch upon the adverse development this quarter, let me first highlight some of the best performing parts of our business. Our International division had an outstanding year in 2023, achieving both double-digit top line growth and a combined ratio below 90. Our international team’s portfolio management over the last few years is starting to show in the results. In 2023, we expanded our international operations into Australia and within Europe. We added to our product capabilities, further diversifying and growing our platform. We see more opportunities to grow internationally in the years ahead. Both of our non-underwriting businesses, State National and Nephila had fantastic years. State National continues to grow, maintain exemplary discipline around reinsurer credit management and produce exceptional operating margins. Nephila demonstrated itself as a market leader, delivering high-quality data and insight-driven portfolio construction, while deploying innovative strategies to maximize returns for investors. Through meaningful improvements in pricing adequacy in the property cat market, Nephila is well positioned going into 2024 and beyond. Note, some of…

Thank you, Jeremy. And Auger [ph] we will open the floor for questions, if you’d be so kind.

Thank you. [Operator Instructions] And we will take our first question from Charlie Lederer at Citi.

Great. Good morning. Can you expand on some of the underwriting and incentive compensation changes you mentioned you’re making and how long of a process do you anticipate that being – is this something we should think about impacting your appetite or growth just given GL and professional liability are your largest products.

Yes. Thanks for the question. So a couple of things. First off, with regards to both our general liability and professional liability portfolios, there is a lot of business within those portfolios. And actually, some of the segments within them, if we look at casualty and we think about environmental, if we think about healthcare, we think about our binding operations, they are performing very well. In professional, if we think about commercial D&O and E&O is performing very well, financial advisers. So we have segments within those portfolios that we can continue to grow internationally as well on both the casualty and professional side. So pockets of the portfolio, we are growing. We can continue to grow. They are meeting our profitability targets in the classes that are more challenged in that space, even in the fourth quarter alone, we shed over $100 million of premium in those classes and still sort of grew our top line within the insurance results. So we are remixing the portfolio. We’ve seen and reported over the last – over the course of 2023, a more moderated pace of top line growth. And we’re focused on bottom line profitability that may continue to be the case, and we will continue to remix the portfolio. But we’ve been doing some of that already. As far as changes in underwriting, practices, if you will, we really are taking a very targeted view within each of our product areas and it’s a tailored approach with regards to what we’re doing. So we have some classes. That are all in segments within our portfolios that we’re going to exit or we have exited altogether. We’ve got areas where we will take subclasses or sub-segments and reduce our writings. Clearly, we will push rate. Clearly, we will address wordings in terms and conditions. We’re looking at attachment points. We’re looking at limits profiles. We’re looking at geography mix. A lot of what we’re doing is going to be about portfolio balance and overall portfolio management. So a lot that’s happening across the insurance operation right now.

Got it, thanks. That’s helpful. I guess just given those mix changes, should we expect the current accident year margins, I guess, to kind of look very different next year? Or I guess they have moved around each quarter? Should the remixing be a help or kind of more flattish or like we’ve seen looking at…

Yes, more difficult to talk about a trend. As Tom mentioned, it takes a while for things to earn through in insurance, right? So heading into a year, the portfolio an earned premium basis is already sort of on risk and working its way through. So any actions that we have taken recently or we take here shortly, it will take a little while to earn through. That being said, everything that we are doing right now is focused on being accretive to earnings as we move forward. So I expect that over time, what we will see is an improved profitability and improved margins on the current portfolio.

Got it. Thanks. Just one quick one. On the credit losses from intellectual property, exposure. Is that in the loss ratio or the expense ratio in insurance?

That’s in the loss ratio.

Okay. Thanks.

We will move next to Mark Hughes at Truist Securities.

Yes. Thank you, good morning. Is there a, say, an interim combined ratio target for 2024 that you might be willing to share, understanding that it takes a while to fully implement these steps and make progress. But is there an interim target?

Yes, Mark, it’s Tom. Better

Can you quantify it better?

No.

I like better. any numbers? Yes?

Let’s get better and then we will talk about it.

Yes. Understood. And then you talked about the GL and you focus on the construction issue. Are you seeing some inflation or lengthening of tail outside of construction? Is it a broader issue in GL?

Well, I think that the part associated with the lengthening of the tail is a bit specific to the construction defect portion within our contractors on both the primary and excess basis. So that’s a pretty specific point there. With regards to the effects more widely around inflation, be it economic inflation or social inflation, that happens across, particularly in U.S. logs. That happens in a number of areas as we’ve been talking about. But again, more pronounced in the general liability and professional liability lines that we’ve been speaking to over the course of the year.

You mentioned that you’re having success in pushing for rate where you need it. Is that to say pricing in those lines is accelerating? Do you see that across the board? Or maybe just within your own book.

We will see sort of obviously have the year trends in development, and we very much have the intention in those pockets, particularly in the casualty that I’m mentioning the rate is needed, and we’ve had success in pushing rate. I don’t think we get all the way there overnight. And I think it has to be something that is sustained. I also don’t think that, that is unique to sort of Markel circumstances. I think casualty is getting a lot of coverage around the sort of trends and the pervasive nature of social inflation and some of what we’ve experienced ourselves, I think, is being shared in the industry. So I would expect that it will continue to be – will continue to be the opportunity to push on rate within casualty lines in ‘24.

Yes. And then when you think about some of these inflation factors, could you maybe assume that they would get better? And since they didn’t, you had some adverse – or did they actually deteriorate just thinking about the kind of broader reported inflation. Supposedly, that’s key. But does that – is that having a delayed impact on your own loss trends as you’re seeing them?

Yes. I mean, look, inflation is a component as a broad statement, Mark. But what I would suggest is that in the fourth quarter, we really took a far more extensive review, right? And we got our leaders across underwriting and claims and actuarial. We aided ourselves with third-party experts gaining insights and broader industry data for purposes of comparability, and we did a much more data-intensive exercise. So we are doing a deeper review into our underlying books and trends to get better insights around the causes of the adverse development. So as a kind of an example, Ron mentioned, we start segmenting out our contractors portions of our books. We then further segment construction defect claims trends and data from non-construction defect. We looked at practice exposures versus project exposures. We looked at wording, claims handling practices, various assumptions we’re making. So, all that to give you a sense of the depth and the robustness of the review that we had. Undoubtedly, the rising level of cost to settle and adjust claims is linked to inflation in all exports. So we’re seeing that. But there are other aspects that give us that led to some of the reserve adjustments we made in the fourth quarter, but also, I think, importantly, lead us to have a lot more confidence that we understand the recent experience and that we’re in a position now to put that adverse loss experience and trend behind us as we move forward.

And let me jump in. This is Tom. And Mark, and this is really for everybody. I want to make sure we’re not driving by looking at the hood ornament. And we keep our eyes on the horizon a bit here. So obviously, we’re talking a lot about the insurance results. This is a Markel Group conference call. It’s Martel Group that is – what you own shares in the book value per share, which, again, is dinged by amortization, and it’s dinged by the unrealized losses in the bond portfolio, both of which I would argue were not real. It was up 17% last year. It’s up 11% over the last 5 years. And the actions that I think if our roles were reversed and you were managing this business, where you would be directing capital when we have directed capital towards investments that show the fruits of that. We have directed capital towards ventures, which show the fruits of that. We have paired and pruned inside the insurance engine. And I think you will see the fruits of that in the fullness of time. And we are dividing that pie by fewer shares. So, that’s – remain somewhat aware of the horizon as well as the hood ornament.

Appreciate that. Thank you.

We will take our next question from Andrew Andersen at Jefferies.

Good morning. Could you provide a bit more color on to what loss trend you are looking to in some of these casualty lines? And if that’s going to be higher in 2024 versus how 2023 shaked-out? I am just trying to think about the confidence in the more recent accident years, which also faced some pressure in the opportunity for growth here.

Sure. So, I mean as far as sort of trend assumptions heading into ‘24, I think if anything, trend either holds up or moderate slightly, relative to ‘23 assumptions. We have a very broad portfolio. We are 100 major product lines. We write lots of different segments and classes all across the globe. So, there is no sort of simple way to break through the trend assumptions down. But in – as you would expect in longer tail cash-driven oriented lines, 5%, 6% to 8% is not an uncommon trend assumption. And in each of the cases, we look at our portfolios with regards to rate adequacy. We look at the pricing that we are obtaining relative to that trend. And we all level that into our loss selections.

Okay. And just backing up on the reserves, you had a charge fourth quarter of last year, movement on nine months ‘23, another charge fourth quarter of this year. Has the team evaluated doing an LPT in the past to create some finality to this?

We have not done anything with regards to LPT or adverse development covers, and I won’t sort of comment more broadly than that.

Okay. And maybe a few more questions here. Can you just – you mentioned litigation finance and casualty lines and how it’s affected the loss trends where you raised your reserves. You have did kind of just mention perhaps trend moderates slightly in ‘24, but are you kind of thinking of the litigation finance environment slows down in the coming years, or do you see that accelerating?

Generally speaking, I think a lot of what we have been talking about in our challenge with regards to recent social inflation trends. So, the cost to adjust and settle claims, prevalence of litigation funding, the aggressiveness of the plaintiffs for the sentiment of juries, all those sort of things, I don’t necessarily have a reason to believe that, that abates anytime in the near-term. So, what we have to do is appropriately price our portfolio and ensure that we have got enough diversification and resiliency in the portfolios to stay a step ahead. And that’s part of what mentioning the fact that we have taken a more cautious view on the more recent years to build in to attempt to build in a greater margin of safety around those concerns in line with our core philosophy of being more likely redundant than deficient. So, we will see how that plays out. But we have to be cautious in the sort of claims and litigation environment.

Okay. And maybe what’s a good way to think about the reserves and the charges over the last couple of years. Has this – the bulk of this been on discontinued business for the Insurance segment, or is it kind of a mix of continuing, but we are making changes to attachments, pricing, etcetera?

It’s a mix. So, we had an example within reinsurance that Brian alluded to, it’s associated with public entity business that we wrote in 2019 and prior that we discontinued at that time. We have aspects of our portfolio that are ongoing that we are trimming and rehabbing and trying to get right. We have got aspects within the portfolio that we are exiting either classes or sub-segments. So, I mean it’s a bit of everything across the portfolio.

Thank you.

We will move next to Scott Heleniak at RBC.

Yes. Good morning. Just to follow-up a little bit on that – on some of the classes you have exited so far. I am just curious how much of that you think you will be able to fix with rate – with higher rates and improving terms and conditions versus actually exiting or reducing exposure a lot. I don’t know if you can get any color or any sense on that, just charging higher rates and changing terms and conditions versus having to exit or pair [ph] significantly?

Yes. I mean I can’t put any specifics or quantification around that. I gave you an example earlier to say, suggest in the fourth quarter and some of the lines at a larger sort of product line level that we shed over $100 million of premium in those lines that were more challenged where we were concerned about rate adequacy. And obviously, we grew more than that across everything else in the portfolio. We will continue to do that. So, we are focused within every facet of our insurance operations of ensuring that we are – have a healthy portfolio. That it’s rate adequate and that we are earning appropriate returns on capital. And I will report to you each and every 90 days of how we are making progress in that space. But I can’t sort of simplistically say, this is how it will break down. We are working hard.

That’s fair. And then on the insurance side, you called out personal lines and property being a growth area. Can you talk about the kind of what the growth rates there were last couple of quarters and particularly Q4. And whether is that – are you running that business mostly E&S admitted where you are seeing the opportunity, or is it a mix?

It is a mix across the various segments of our portfolio where we are growing. So, I had mentioned personal lines. I mentioned property, inland marine, programs business, our binding operations, workers’ comp, surety, a number of lines in our professional space. So, you have got U.S., you have got international, you have got alternative retail and wholesale or admitted and non-admitted business, it’s a mix. But in the spaces like, for example, property, marine, personal lines, those will be more weighted towards E&S binding, more weighted towards E&S.

Yes. Okay. And then just one for Tom here, on Markel Ventures, you mentioned acquisition Costa made one in January. So, that’s definitely nice to see. Can you talk about the pipeline there for Markel Ventures and whether you expect to see more deal activity this year?

I would guess, since the deal activity last year was zero, the odds have been more than that are pretty good. Our phone is starting to ring. I mean there have been some disruptions in financial markets from time-to-time. The fact that interest rates exist, changes the financing market for other folks out there. So, we are getting more inbound phone calls than we did any time in the last 12 months or 18 months.

Okay. Thanks.

[Operator Instructions] We will move next to Josh Hill at CapTrust Financial Advisors.

Good morning. Thank you for taking my call. First off, great job with ventures and investments. Just a quick question on insurance, curious to get your opinion on whether or not the target laid out in the 2020 shareholder letter of 1051, so that $10 billion target for premiums, if any of that target is kind of what’s coming back to causing some of these issues. Thanks.

Yes. Thanks for the question. I don’t believe that that’s the case. The – when we talked about 1051 is an idea within our global insurance operations. It’s roughly to suggest what would need to be true if we were to aspire to double the size of our insurance platform at that time across all facets and do so at a level that was contributing meaningfully to the bottom line profits. The suggested growth rate there really isn’t different than the growth rate that we had experienced over the past several decades as an organization. So, I don’t think that, that put an unhealthy expectation around growth. I do think linked to that, we said what would need to be true with regards to product, talent, technology, to data, to geography, to various offerings, our trading relationships. So, there are a lot of aspects of what would need to be true to be that sort of insurance organization. And we continue to work very hard at building out the breadth of specialization and diversification across the platform. I think you will have gotten a sense from the call today. There is a lot of things that we have done, and we have done very well. Fortunately, there are some things that have come back over the course of 10 years. I mean a lot of the ‘19 and prior, that portfolio already existed prior to us making reference to 10.51 objective. We could not have contemplated at that time a pandemic and how sort of inflation, what would occur on the inflation side, both social and economic. So, the world moved out a little bit since we had that target. But our idea is around what we aspire to be and being ambitious as an organization to be better for our customers, to be better for our employees to create winning outcomes for our shareholders, those ideas remain.

And let me jump in here. This is Tom. I want to make one factual statement about that. Nobody’s incentive compensation was tied to the 10, nobody, not mine, not Jeremy, it’s not anybody in the organization. Every bit of incentive compensation is tied to profitability over time rather than growth without profitability. So, I know there has been some heartburn in the investment community about that. We hear you, but I do want to – at least state the fact that no incentive compensation was designed to do the 10.

Very good. I appreciate the candor and look forward to many more years. Keep it going.

Thank you.

We will go next to Drew Estes at Banyan Capital.

Hi there. Thanks for taking the question. This one is for Tom. A great attribute of Markel is its optionality and capital allocation. So, given the performance in insurance, but the strength in ventures, how are you thinking about investing the incremental dollar? Do you prefer an investment in ventures right now until you can get insurance performing better? Thank you.

Drew, I appreciate the question, and I do think that speaks to one of the underlying strengths of Markel. And again, everybody is here working hard and fashion [ph] of teeth going on about some stuff. Economically, it was a pretty good year for Markel for exactly the reasons you speak of. Every incremental dollar is invested with the thought of, where will it best be treated, where will we get the highest return. So, we look at insurance, we look at investments. We look at Markel Ventures, and we start with a blank sheet of paper that would – and we also look at our own shares and say, where will that capital be treated best. And that’s consistently been the case, and we will continue to be that way.

Thank you.

Appreciate it.

We will take a follow-up from Charlie Lederer at Citi.

Hey. Thanks. Just one follow-up. Since you took the charges on the reinsurance side to reflect your insurance experience, could you talk about your conversations with your CMs? Have they reflected some of these changes, or do you anticipate that being a story for them or maybe the industry near-term?

Yes, that’s a good point, Charlie. So, in the fourth quarter, the increase in reserves that we took, particularly in the general liability space within our Reinsurance segment was not driven by underlying ceding reporting and incurred activity, but more so in part because of the findings and observations that we had within our insurance book and in contemplation of the risk that some of those things could exist within the underlying ceding reporting and incurred loss activity in time. So, again, I would say that was kind of a cautious approach to ensure that we are building an appropriate margin of safety be more likely redundant than deficient within the reinsurance book versus specific claims reporting activity in the period.

Got it. Thank you.

And we will move next to Andrew Andersen at Jefferies.

Hey. Thanks for taking the follow-up. On the insurance underlying loss ratio a little bit of noise this year between Vesttoo, some of the collateral protection I think in the first quarter, you had moved some picks related to bank activity. So, if I put it all together, relative to the reported underlying of $64 million, perhaps two points of one-time noise, is that a fair way to think about it?

Yes. I think you are thinking about it right. There was – there is definitely some noise like you said. The intellectual property CPI and the credit losses we experienced there, specific banking losses we recognized in the first quarter, those sort of one-offs did contribute between one or two points to that trend. And then clearly, as we talked about throughout the year, higher attritional loss ratios across the cash, the general liability and professional liability lines being another driver.

And I suppose, business being written for the longer tail lines right now is already reflecting your increased view of loss trend for 2024.

That’s right.

Thank you.

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 appreciate your support. We look forward to checking in with you in 90 days. Be well.

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