Markel Corporation Price & Performance (MKL)

Please note this event is being recorded. I would now like to turn the conference over to Tom Gaynor, Chief Executive Officer. Please go ahead. Thank you, Arthur, and good morning.

Tom Gaynor here. Despite it being passed the Larry David cutoff, Happy New Year at all. The New Year is a natural time to express gratitude and say thank you. It's a time to look forward to plan, to set priorities, to do some self examination, and recommit to important values. It's also time to share our 2024 results with you and to talk about our plan for 2025 and beyond. First, let me start by saying thank you to the special people the Markel Group. I'm lucky to come to work with the people of the Markel Group every day For 22,000 beating hearts who join as one, to conduct our business with humanity and do things for people not two people. Working at Markel Group is a team sport. We focus on creating a win win win world where customers, associates and shareholders all win. A world where we grow the pie together. I'm proud of and grateful for our leaders and associates. Embrace our culture and make it real. They seek to improve constantly and to serve our customers and shareholders holders all day every day. Thank you all for what you do. In 2024, this team of leaders and associates achieved operating income and returns above our targets.

In any given year, our results are like those of a crew boat from Rower one down the line to number eight. Putting the coxswain. Every year, like every race, is a slightly different story when it comes to how the boars are rolling. In twenty twenty four, the public equity portfolio setting the pace with strong returns. In the middle of the boat for this run, we saw mixed results from our insurance business. Many areas performed well, including international, state national and much of The U. S. Specialty. Underwriting income and reinsurance as well as some areas within U. S. Specialty below our expectations. Finally, our Ventures businesses continued to generate strong profitability and exceeded our target returns, we driven by strong performance in our Consumer and Building Products businesses. Ventures found a strong, steady pace in 2024 from the valve. Together, our rowers produced an outstanding year of returns at which is part of the beauty of the design. But there's still the opportunity for better operating performance and for every boar to drive to its full potential and in unison with every stroke Later, will share more about what we were doing to get there. But first, some context is important.

The insurance underperformance has not been a one year thing. Some of these seeds were sown during a transitional period to his next generation of leaders which began formally in 2016. By 2022, it became clear that the initial structure put in on the front end which included a co CEO approach was causing challenges. In terms of focus and accountability. At that time and with that realization, we implemented a series of actions to drive improved performance the company, including one, defining the purpose and function of the Markel Group Two, organizing around that purpose, including appointing a sole CEO in making additional key changes in leadership. Three, creating a clearer decision framework with respect to capital allocation and four, placing greater emphasis on profitability and returns. The combination of these changes has helped restore greater accountability and focus. Much has already been accomplished from making these changes. In particular within our insurance business. There, we began to address underperforming products through specific portfolio actions, exiting several unprofitable lines re underwriting others, and growing in areas of strength Jeremy will provide an update on these actions shortly. Looking back from where we stand today, we have much to be proud of.

Markel is earning good returns. We remain committed to our customers. We see these green shoots in our insurance business from the steps we have taken there. The Markel style continues to guide us Overall, the Markel Group system is stronger and much of the groundwork for the road ahead has been laid Our aspiration is not just to be a good company, or even a great company, but to be one of the world's great companies. That means more consistent excellence across all our operations. We all the time is required. Charting such a course requires continuous self examination and a never ending zealous pursuit of excellence. In 2025 and beyond, we will continue to improve the foundation of our business. Yesterday, we announced a Board led review that will include evaluating where we can continue to improve our insurance organization. As part of the review, we will consider ways to simplify our structure, find greater efficiency optimize our approach to capital allocation and enhance our disclosures. External consultants and advisors will assist with the review. We look forward to updating our shareholders when that work is completed. Before moving forward, I want to mention that we will not be taking questions the Board led review at this time.

And we'll focus on questions relating to our business. Our pursuit of becoming one of the world's great companies in Markel has always come from providing an atmosphere which people can reach their potential. We want to ensure that our associates are invigorated and empowered We want to reward the best performing crew members and hold every crew member in the boat [indiscernible] Your feedback will be incorporated into our work. Feedback is the breakfast of champions. One theme that emerged from our recent conversations with shareholders that you see early progress in insurance but also would like more information on what success looks like path to get there and signpost to track along the way. In a similar vein, investors also asked for increased clarity with respect to certain aspects of ventures' performance as it doesn't seem to be fully appreciated. We will do better to provide you with this information. Beyond all that I just mentioned, the capital allocation front, we have been repurchasing more shares over the last two years. In 2022, I believe the trend in our stock price started to significantly diverge from that of Markel Group's intrinsic value. In 2022, we repurchased $291,000,000 of our shares.

This was when I began speaking more openly about the businesses intrinsic value growth. It's my duty to explain to our shareholders why we're using more of their capital for share repurchases. We repurchased more shares in 'twenty three and 'twenty four totaling $445,000,000 and $573,000,000 respectively. In 2024, our Board authorized an additional $2,000,000,000 in share repurchases Several board members, managers, And I have also bought shares personally. But what will ultimately close the gap between our stock price and intrinsic value as we see it We will continue to focus on everything within our control We will run our businesses at the highest levels and invest behind our winners where we are falling short will learn. We will also strive to communicate more clearly. As the great Doctor. Seuss once said, sometimes the questions are complicated and the answers are simple. To that end, we simplified our intrinsic value calculation At last year's annual letter to shareholders, I discussed the building blocks of Markel Group's intrinsic value. The framework we provided in our press release this morning takes those principles and simplifies them further. We provide this not as a fixed number, but to show how we begin to think about intrinsic value growth of Markel Group.

It's a starting I'd also encourage placing less stock in the precise number and more in the rate of change you can see over time when you calculate this consistently year after year, The record will show that the number has compounded at high rates over the last five years and since our IPO in 1986. Our recent growth benefited from a period of above average returns in our equity portfolio. We must improve our insurance results to reach our full potential in the next five years. We must also live our values, serve our customers and communicate with our long term partners who trust us with their capital. I am confident we will do just that. Just as the coxswain calls out, it's time for the rowers give it everything they've got, We know that it's time for us to make those hands fly. Before I turn it over to Brian, I would like to welcome some new team members. In 2024, we welcomed two new businesses and their leaders. Valor and EPI to our team. Valor Environmental joined us annually in June. Valor founded by JJ Mondado and Kirk Foster offers erosion control and stormwater management services These are required for anyone moving dirt and what are in The U. S. With JJ and Kirk, we've had common ground in our shared values and focus on customer service. [indiscernible] and her team at EPI to the family in September.

However, we could not formally and publicly welcome them At that time, due to the pending nature of certain final regulatory approvals, that were just recently received. We were happy to make things official in January. After a career as an educator, Deborah founded EPI, which sponsors and exchange visitor program for teachers. It serves school districts in the Southeast and Mid Atlantic U. S. States. Welcome to Valor and EPI.

With that, turn the call over to Brian We'll go through some of our financial numbers from 2024. We will then turn it over to Jeremy who will talk about performance in the insurance business. [indiscernible] Thank you, Tom. Good morning, everyone. I will first review key metrics at the Markel Group level. Then I will share performance numbers for our Insurance and Ventures businesses plus our investment results. At the group level, let me begin by talking a bit more in a bit more detail about the intrinsic value that Tom mentioned. Before getting into the specific numbers, I'll offer you a Surgeon General's warning for our simple approach. As Tom suggested, we intentionally left our calculation at the 100 course level. Simple and easy to follow, designed for ease of use and interpretation. It should be used with an awareness of its limitations such as determining an appropriate multiple involves considering many factors including the nature of the various cash flow streams, We just picked one that seemed reasonably conservative. 12x is not the multiple we would pay for a business nor would we consider buying a business for less than 12x to be automatically accretive to intrinsic value.

Items that are onetime in nature have not been adjusted for. Such as disposal gains or losses. All good things for an analyst to consider. The value of equities is a snapshot in time as of the end of each year. And the world is dynamic. What commercials that you would see for medications using this formula as a precise measure could cause dizziness, headaches, tunnel vision or other side effects. You get the point and I could go on and on with those like they tend to at the end of those commercials and actually spend more time with that than what the purpose of the calculation is. I think that makes the illustration. Recognizing these limitations of the approach, we believe that our simplified method provides an annual insight into how we think about value creation when viewed over longer time periods. Details of our intrinsic value calculation can be found in the back of this morning's Using our intrinsic value calculation and taking a five year view, Markel Group's intrinsic value compounded at 18.3% over the last five years. This is compared to total shareholder return over the same period growing at 8.6%. Highlighting the gap that Tom mentioned previously.

Beginning at the at the beginning of twenty twenty four, we began reporting our operating income for investments, ventures, insurance and on a consolidated basis. Operating income is a key driver of intrinsic value and our long term incentives. If you must pick one metric for our scorecard, operating income is a good place to start. As Tom noted, the largest contributor to operating income was unrealized gains in our equity portfolio. Breaking down our operating income by engine. Insurance operating income was $6.00 $1,000,000 for the year, and $143,000,000 in the fourth quarter. Insurance operating income includes our global underwriting profits along with fee based income from Nephila and State National. Investments operating income was $2,800,000,000 for the year, $367,000,000 in the fourth quarter. Our annual investment operating income further breaks down at $913,000,000 of recurring net investment income dollars 1,800,000,000.0 of net investment gains, largely from the mark on our equity portfolio and $52,000,000 of earnings from equity method investments. Ventures operating income across our 21 businesses was $520,000,000 for the year and $132,000,000 in the fourth quarter. The beauty of the Martell Group Markel lies in the fact that these diversified streams produce a river of cash flow.

Operating income is generally convertible into cash that can be redeployed. Growth in insurance premiums and the time lag of paying reserves also generates cash. Further fueling reinvestment. This growth generates future operating cash flows all in a cost and tax efficient manner. Our total cash flows from operating activities in 2024 totaled 2,600,000,000.0 driven largely by our insurance engine. Moving to our insurance operations. In insurance, we serve our customers through specialized underwriting, building lasting partnerships with our distribution partners, focusing on the long term our strong balance sheet and maximizing our people powered culture. First, a comment about the natural catastrophe losses. During 2024, incurred $71,000,000 or just under one point of losses related to Hurricane Helene and Hurricane Milton. These losses have come down from our original estimates and are well within our expectations for events of this size. Further, while it is still early days for the California wildfires we disclosed an estimated $90,000,000 to $130,000,000 impact on our first quarter twenty twenty five results. This estimate is inclusive of losses and reinstatement premiums across our global underwriting operations. This range includes no provision for potential salvage and subrogation recoveries and we have minimal premiums subject to the California Fair Plant.

While several of our first party product lines will have losses, our largest impact is in our international fine arts and specie book. Overall, our underwriting teams have done an excellent job of minimizing our exposure to wildfire losses. Moving to our segment results, starting with our insurance segment, which largely represents our Specialty and International divisions. Gross written premium was $9,400,000,000 and net earned premium was was $7,400,000,000 in 2024, each representing a 2% increase from a year ago. Insurance premiums grew despite numerous portfolio actions that reduced premiums in our U. S. Casualty and risk managed professional lines taken to improve the balance of the portfolio. The combined ratio was 94.3% versus 97.8% in 2023. An improvement of 3.5 points. Driven by higher prior accident year loss takedowns and our underwriting actions starting to earn through. With more benefits from these actions expected in 2025 and beyond. Our current accident year loss ratio was 64.4% in both 2024 and 2023. Prior year loss development was 6.1 points favorable versus 1.4 points favorable in 2023 due to actions taken in 2023 to strengthen reserves in our casualty portfolio and prior higher prior year loss takedowns this year in our international portfolio.

The expense ratio was 36% in 2024, versus 35% in 2023. With the one point increase driven by the decline in earned premiums in The U. S. From the underwriting actions and changes in our professional liability reinsurance structure, and higher operating expense ratio in our international operations to support investment and growth initiatives. Our exited collateral protection insurance product line or CPI added 2.3 points on the Insurance segment results this year versus 1.3 points last We expect the impact of CPI losses on our results to decrease in 2025. Jeremy will speak later about what we've done this past year and are further doing in 2025 to improve the long term results within our U. S. Specialty business. Moving to our Reinsurance segment. Reinsurance underwriting profit continues to trail our Markel. With a combined ratio of 101 for the year. Higher attritional loss ratios in our professional and general liability products [indiscernible] We also had some large individual losses within our credit and surety products. Our prior year loss ratio was slightly favorable this year, and we had $34,000,000 or three points of adverse development this year from our recently discontinued public entity product line. Turning next to our program services and ILS business In 2024, State National had strong consistent performance with operating profits of $122,000,000 and Nephila produced operating income of $41,000,000 a bit lower than last year However, 2023 results included $31,000,000 in one time fee income related to releasing capital from SidePockets.

Turning next to our results from Markel Ventures. In Ventures, our operating businesses are autonomous and accountable. We use equity capital to acquire our family of businesses while promoting a long term focus and our shared set of values. We seek companies with lasting competitive advantages to provide strong, steady returns on capital across economic cycles. Within certain of our businesses, cycles will and do occur. We price that into our underwriting. As to our 2024 revenues, total revenues exceeded $5,000,000,000 for the first time in our history, experiencing year over year growth of 3%. Our Consumer and Building Products businesses drove the majority of ventures growth while transportation related businesses took a step back. As context, transportation related demand has been very strong since the first half of twenty twenty, providing a tailwind for our market leading businesses in this sector the past few years. Historically, these businesses typically experienced five to ten year cycles. With the rising need for transportation equipment and predictable replacement cycles fueling growth from one cycle to the next. So while revenues have come down from the high points of the cycle, these are businesses that particularly benefit from our long term high equity capital approach.

Additionally, our construction services businesses our largest grouping by total revenues, saw a deceleration in growth this year compared to last with flat year over year revenue growth when excluding the addition of Valor, in June. Like transportation related markets, demand for construction services was Although elevated interest rates present a challenge for construction activity in this economic climate, we consider flat recurring revenue revenue growth to be a solid result for this group. Ventures operating income was $520,000,000 for the year. Within both our our equipment manufacturing and consumer and building products businesses, strong revenue growth, drove even stronger operating income growth over the past two years. Although we noted that revenues across all of our construction service businesses were flat, excluding Valor, the Construction Services operating margin [indiscernible] Now moving over to our investments. Through our public equity portfolio, we own interest in many of the best businesses in the world, We seek out profitable businesses with good returns on capital, management teams with integrity and talent and companies that have a attractive reinvestment opportunities are available at reasonable valuations. Our equity portfolio earned a 20.1% return with $1,800,000,000 in net investment gains included in our 2024 operating income.

The equity portfolio averaged compound annual growth rate of 14.3% over the last five years. We don't expect these returns to be repeated in the next five years, but we're pleased with our portfolio. It has and should compound capital at attractive rates over long periods. Net investment income was $920,000,000 in 2024 versus $735,000,000 last year. For 2024, our fixed income book yield was 3.2%, In the fourth quarter, we continued to add new fixed income investments at higher yields approximately 4.4% versus maturing bonds at approximately 3.6%. 98% of our bond portfolio was held in fixed income securities that are rated AA or better. Now, I'll turn it over to Jeremy, who will provide more commentary on insurance. Great. Thanks, Brian, and hello, everyone. I'd like to begin by adding my thanks to the efforts of my teammates 2024. [indiscernible] we have many areas across the business that are performing exceptionally well. This year, we saw continued strong performance in our international, and state national operations both grew while achieving profitability levels above our Markel. We are investing in these businesses to support their long term growth. Within our specialty business, our personal lines, property, [indiscernible] healthcare, environmental, programs, commercial professional liability products and most of our small commercial offerings also exceeded our targets.

We continue to drive profitable growth in these areas These lines represented over half of our gross written premiums in 2024. As we have noted, underperformance in our U. S. Casualty and Risk Managed Professional Liability books weighed on our results. And as a result, our overall U. S. Specialty business fell short of our expectations. Have taken numerous actions during 2024. First, early last year, we exited several product lines. Including primary casualty retail, business owners policy, risk managed excess construction, managed architects and engineers, and collateral protection insurance. These exits were accretive to our 2024 results and will be further accretive in 2025. Second, took more than 100 underwriting actions across our portfolio. Including meaningfully reducing the construction mix in our casualty portfolio, changing terms and conditions to eliminate certain exposures to subcontract reducing limits on excess lines and implementing premium caps in challenging states. Achieving double digit rate increases across the casualty portfolio, while walking away from risks that were not adequately priced and terminating certain underperforming programs. In risk managed professional liability products, nonrenewing business, contracting limits, and improving portfolio mix through segmentation. In our most challenged class, U. S. Public D And O, We Recently Announced Further Actions To Move To A Single Access Point Public DNO Large Financial Institutions Coverage Based In Bermuda.

In total, these actions in addition to the ex mentioned in my first point resulted in a reduction to gross written premiums over $350,000,000 in 2024. But it should be accretive to net income. Third, we increasing our overall level of conservatism on the current accident year by approximately two point which roughly offset the benefits from our underwriting actions earned 2024. By adding a margin of safety to our current reserves, we increased the likelihood of greater prior year redundancies in future periods. Fourth, we refreshed the leadership team. Over the past fourteen months, we appointed a new President of our Specialty division and added a new divisional Chief Underwriting Officer, COO CIO and CFO to complement our product and field leaders. And fifth, we made progress on our multiyear effort to improve our technology. We are investing heavily to make it easier and more exciting to do business with us. And improve the customer experience by enhancing our underwriting and claims processes. We will give our underwriting claims and actuarial teams Richard Deia. These investments will help us make better decisions, find insights faster improve efficiency. As Tom alluded to earlier, what tangible signposts can you track along the way to measure our progress?

And what does success look like? How long will it take While we strive to provide perspective on these important questions as we progress, we Let me say today, our combined ratio of 95.2 is still higher than it should be. We expect our actions to drive the underlying combined ratio lower in '25 and even more so beyond. Prior year takedowns in 2024. 5.4% a great improvement but still not at our longer term average of 68 points. Finally, we recently announced the go live from our Guidewire claims module, an important next step in the modernizing of our U. S. Based technology architecture, which will significantly improve our claims handling and over time our operating efficiency. This is progress we Markel not stopping there. We acknowledge that we still have work to do with underwriting actions technology investments and operating efficiency in the instance. We are committed to long term success. Before concluding, I'd be remiss if I didn't highlight the the excellent performance of Markel International. Which in 2024 delivered a sub-eighty combined ratio, with strong growth while making notable investments in new products and Markel. Well done, team. Thank you. To the entire insurance team for improving our business in 2024.

All the fruits of all our labors are not yet fully manifested in our results. To that, I'd say stay tuned. We are excited by our long term prospects look forward to updating you on our progress the coming quarters and years. With that, I'll pass it back to Tom. Thank you, Jeremy. To conclude in 2024, Markel Group exceeded our return targets with strong returns from our public equity portfolio continued growth in ventures and notable performance in many areas of our insurance business, all while staying true to our values and striving for excellence. Over the past two years, Markel Group has made significant strides as we continue to build on this progress we are committed to enhancing our insurance operating performance driving profitable growth across our family of businesses. We are excited for 2025 and to work ahead and to continue winning for shareholders. Customers and associates. With that, we will open up for questions and answers. Mike Heaton, the COO of Markel Group will also join me. Jeremy and Brian in the room to take your questions. Operator? Thank you. We will now begin the question and answer session. We'll take our first question from Mark Hughes at Truist.

Yes, thank you. Good morning. This may venture into forbidden territory, but I'm just sort of curious on the feedback you received on the business how much do you feel like was the structure All the different components of what you do As opposed to execution, just how successful you've been on operating in that structure? Yes, Mark, Markel really a mix of both. So I think in terms of the structure, the issue is sometimes people have suggested they can't understand or the clarity is not what it should be. And they would like things to be presented in a different way and more clarity. And I think the press released we put out today and the fourth quarter result Just the whole package is our first pass and trying to address that. Secondly, in terms of execution, we've publicly said for a while now that we've had some challenges, particularly in the insurance business and there are areas where we can and should do better So we're continuing to that theme and continuing to do the hard work of indeed delivering and executing on those businesses, but it's it's a combination of both. Understood. When we think about the intrinsic value calculation for Markel Ventures, how does that compare to the carrying value And I apologize if it's I can pull it out of the release, but just curious whether can give a sense of that?

Yes. In very general terms, it will be more. So again, part of the way in which we're laying out some of the pieces of the intrinsic value is again to to address the rate of change in value that happens over time. It's not the single point estimate.

It's having a methodology that you can repeat and do year after year after year after year. And because GAAP accounting has sort of different approaches of how it would recognize things that happen, inside a financial business such as insurance compared to a non financial business such as those that comprise ventures. This is the way that I as a fellow owner of MARCEL Markel about the economic progress of the Marquel Group over time. And we've been talking this is not new, been talking about this in the annual report. The last couple of years. So it's not about the point estimate. It's about having a consistent methodology that you do year by year by year to try to amplify and clarify GAAP accounting might suggest order to get the real economics of what's happening in the businesses. [indiscernible] Yes, also not a by component metric. It's really just taking the whole thing as a whole So your question about venture specifically, I mean, in fact, what you've got is a bit of a blended multiple of many different streams of of cash flow. So we didn't think about it separately. [indiscernible] [indiscernible] And then when we think about top line opportunities, say within the insurance segment, you've made a lot of progress in your underwriting I think you had some favorable development on 2024 within some of the casualty lines, maybe GL, if I [indiscernible] Is it time to start growing again in 2025 or is there opportunity to grow the top line?

How should we think about the outlook here? Yes, I'll let Brian comment about the specifics of the numbers there. But in terms of growth, when we execute our business well, growth seems to follow.

And profitable growth is what we're emphasizing around here. That's first and foremost. And again, we think in longer term timeframes around here, five years at a time is the way we calculate our incentive compensation for instance at the highest levels. And there hasn't been any five year period that I'm aware of we were doing less business than what we did with the five year chunk before that. [indiscernible] Yes. It's Jeremy. I'll add to that just to say the key for us as Tom was alluding to is just getting on the other side of this corrective actions. As we kind of mentioned in some of the prepared remarks, we have been seeing and we are growing across a number of product areas both in The U. S. And internationally. The good news is, we've managed to offset all of the reductions in premium volume that we experienced over the year. Those continued reductions where we're taking underwriting actions that will continue to play out a little bit in 2025. We should get to Markel normalized growth levels over time once we get on the other side of that corrective action.

Thank you. We'll go next to Andrew Klingerman at TD Securities.

Hey, good morning. Kind of curious, you had 5.2 percentage points of favorable prior year [indiscernible] the geography of that prior year development? And I'm most interest been a rough line for you.

Could you talk about whether that piece casualty was favorable or unfavorable and to what degree and what underwriting years?

I'll let Brian and Jeremy chime in on the specific way. Answer that question, but I do want to reiterate getting back to the fundamental principles and the fundamental values of the Markel group. We have from day one always wanted our reserves to be more likely to be redundant than deficient. And I think you could just randomly ask any person in this building, in any Markel office anywhere in the world, and they would tell you that almost word for word. That is drilled into our culture. We're glad to be back this year reporting something that has way more redundancy than it did last year and is getting back to our historical level of conservative conservativism and reserve development in a positive way. [indiscernible] I'd say generally speaking, last year we hit the CASB really hard. So if you look at year over year, Adverse developing in casualty this year fairly flat in the casualty on a net basis.

So those actions have largely held up throughout the year. On a net basis. Within professional, it's kind of a mixed story on the international That business is a lot different than the business we were talking about in The U. S. So that was a catalyst of takedown this year. We did have some adverse development on the USDA line the risk managed lines that we were talking about earlier. But overall, the five points Like Jeremy said, that's closer to our normal run rate with kind of the way in which we do reserving. So we have kind of a natural embedded kind of take down in the way we do our reserving and that's kind of what you're seeing come through the results this year. Got it. And any casualty in any of the negative adverse casualty in recent underwriting years? Yes. So what I would say there is we would kept a close eye on that. We have been increasing slightly there on a gross basis. We have a reinsurance net basis there. So overall, it's relatively flat. Got it. That's super helpful. And it is kind of interesting how you're kind of it seems like you're moving your mix more to short tail lines.

So last year, for net earned premium general liability was 29%. And professional and last year meaning 2023. And professional was 25%. Has that mix changed? Is it materially more short tail? Has GL [indiscernible] come down a fair amount for 2024?

Andrew, it's Jeremy.

I would not say the mix has changed materially. We as you pointed to, we've historically been more concentrated in longer tail lines. And even with taking some corrective actions in areas like our U. S. General liability, and professional liability spaces, we're still weighted more in that in that space. So look, we're trying each of our over 100 major product lines to write in the market that's most attractive where we feel we can deploy capital on an appropriate returns. And we don't sort of necessarily think about just long tail versus shorter tail. So it's a little bit of a mixed story. In that space, but nothing material. Got it.

I'll hop back into the queue so others can ask questions.

We'll move next to Andrew Anderson at Jefferies.

Hey, good morning. It sounds like some pretty strong results on the international side of the house. Could you just remind us what percentage of the insurance segment is that And I guess the reason I'm asking is, if we look at some large account skewed surveys, it seems to indicate international pricing is kind of going negative. Perhaps you could talk about what you're seeing in your international [indiscernible] Great.

Yes. Hey, Andy, it's Jeremy.

So international, rough call it a third and two thirds would be sort of The U. S. Insurance. You're right in pointing out that in international space and again, if you think about that, we've got a large London market wholesale business where we write a lot of specialty lines. And then we really have our regional presence Canada, UK, across Continental Europe, Asia Pacific So trends and dynamics in this local markets can change a little bit. In the London market space, to your point, it's been a little bit of a transition [indiscernible] Prices are coming off of where they've been and in some places, they're modestly flat to down or only up slightly. However, that's off a very attractive level, I think, of rate adequacy. So we're monitoring that. But that business is performing very strong to your point in recent years.

Thanks. And then maybe just keeping on pricing, I think I heard you say double digit rate increases across casualty portfolio. I'm assuming that's U. S. Casualty But maybe you could just give us some more color on what The U. S. Seeing in terms of rate and whether that's above loss trend?

Yes, sure. Again, it's Jeremy. And you're right. So casualty pricing has been one of the stronger areas in the portfolio. And really, we saw the pricing being pretty strong over the course of 2024. That continued to be the case in the fourth quarter. That's across the portfolio and there's a number of classes in line. So but across the portfolio double digit rate increases, that would be staying slightly ahead of trend. And I don't see any reason why that pricing environment shouldn't persist as we go into '25. We talked about and obviously it's pretty widely understood across the industry, given inflationary drivers, elevated loss costs, market dynamics, I would expect to continue to see pricing momentum in that space.

Thank you.

Yes. Next, we'll move to John Fox at Centimor Asset Management.

Yes. Good morning, everyone.

Good morning. Two questions.

Two questions.

First, Tom, you mentioned more disclosure in the formatting.

Which I noticed in this release and I appreciate it So that's a nice job.

First question, Tom, you you mentioned in the first sentence of this release about your Markel, which were exceeded this year, and then maybe not longer term in the conference call. So can you express what are those targets that you're thinking about Well, the main ones that would have the most tangible impact on yours truly as well as the people sitting around the table is the compensation calculations that you find in the proxy statement. And at double digit rates of return, In operating income and market price per share We started getting paid nice incentives. So you can start there and work backwards.

Okay, great. And then I just have a question on how you think about the intrinsic value per share Looking at the table, I think you're using gross equity securities dollars $11,780,000,000 and some amount of gross in investments but there's an offsetting liability or your policyholders $26,000,000,000 which of course will be paid out over time.

So probably present value less than that, but how do you think about using gross investments in the intrinsic value with a lot there is a liability that those investments are going to go out the door at some point.

So just how do you think about that? Thank you. Sure. And I invite you to think about it however you want to. And I could assure you that there were roadblock discussions and points of view that had some differences on the people in this room. And the real point is, you can do it any way you want. But do it consistently.

So one extreme way of thinking about the question you've asked and the first and you make an underwriting profit on them and they don't go down over time, I mean the net present value of that liability is zero.

That yields a rather extreme answer which my colleagues caution me away from, Okay. So we've applied some haircuts and some conservatism that is theoretically within the realm of possibility. See, you can get a pretty big dispersion of numbers depending on your method. The thing that really is worthy and doesn't have much dispersion to it is the rate of change over time. And the longer the timeframe you use the tighter the dispersion no matter what your method and the more accurate it becomes. And that's way we think about intrinsic value per share.

Okay.

Thank you. Take our next question from Scott Helniak at RBC Capital Markets Markel.

Yes, good morning. Is there anything notable to share at the January 1 renewals both on your reinsurance book and just from a a buyer reinsurance standpoint, anything you can talk to there and The secondary question on the reinsurance side is exit of public entity, is that can you remind me when that that happened? Is that pretty much close to being anniversaried?

Yes, Scott, it's Jeremy. I'll take the second one first.

With regards to the public entity, we announced that right beginning of the fourth quarter, so I think we touched upon that a quarter ago, that really went into effect this past fourth quarter. And public entity probably contributed about four points to the reinsurance combined ratio in the year. So that will we're off risk now, but that happened in the fourth quarter and that'll the benefit of that will earn over the course of the next several quarters. With regards to oneone, let me talk first to your point about our outward reinsurance, so where we buy reinsurance.

Overall, pretty pleased. I mean, I would call the market orderly, in some pockets, such as property and I'd say our Markel and energy, out of London, favorable terms, favorable pricing, good support and it's certainly a good outcome. That's That's improvement year over year. Our professional, which we have placed late in the year was kind of flat on pricing. We kept the structure the same. Casualty, probably no surprise there, a little bit of an uptick in pricing, but all in all, good result, good support, pleased with the structures we have in place, not a lot of change year over year. As far as the overall pricing conditions and marketplace going into the year, We're not massive necessarily on oneone and obviously we have a more modest total sort of reinsurance book. I would say most of the pricing trends that you touched upon earlier that you've generally heard across the marketplace played true for us as well. Okay. No, that's really good detail. And then just you referenced the increase in IT spending in the fourth quarter and you mentioned as well in the third quarter Is there any more detail that you can share on those investments And do you expect that kind of run rate to continue in 2025 or you feel like a lot of the heavy lifting is done?

I know IT spending is never done, but just because you had mentioned the last couple of quarters, any context you can give on any of that? Yes, sure. Good question. We I mean really we've been pretty hard at work, I would say, making incremental investments in our technology modernization initiatives both in our U. S. And international insurance businesses, Let's call it over the last couple of years, but really accelerating this past year and more so this coming year. I won't specifically quantify the level of investment but it is incrementally adding at least 0.5 to the expense ratio and those benefits will start to come over time. So gave an example with regards to claims modernization in The U. S. And here pretty shortly, we'll be transacting new claims on a new cloud based modernized platform that will drive productivity and and and internationally. Okay, great. That's helpful. And just the last one, just on U. S. Professional liability, do you know that's been a more competitive [indiscernible] you guys had started to pull back probably a year or more.

You seeing stabilization in that? Do you expect to return to growth in that for 2025 or is it still highly competitive and you still may not want to grow and then given what's happening now?

Yes, it's Jeremy again. And the latter, I would say, is the case. It continues to be a very challenging sector. Pricing is not I think at levels of freight adequacy. We have scaled back this past year and that will continue to be the case as we go into 2025. It's just it's not an area of emphasis for us right now because the marketplace is not supportive.

Great. Appreciate all the answers. We'll go to a follow-up from Andrew Kligerman at TD Securities.

Great. Thanks for the follow-up.

Just following up on the expense ratio. So was it 37.1%, about 170 basis points above last year's and you just pointed out 50 basis points from [indiscernible] And of course, earlier you mentioned scale is an decrease earned premium a little bit, changes in reinsurance. But But as I think about it, where would you like to see this ratio maybe three, five years from now? Are there any initiatives to get that down? I mean, will it just be the efficiencies from your technology investing right now? Could there be more initiatives? Maybe a little color on what else is occurring and where you'd like to see it maybe three to five years from now?

Yes. Thanks, Andrew. It's Jeremy. Couple of things here. So first off, I think with regards to the fourth quarter, and that expense ratio being elevated, that is really because of a spike in the period that will not recur. It was a associated with catching up on recognizing some contingent commissions. In both our international and specialty divisions. Is a better indicator of where we are. The second point that you're acknowledging is we would acknowledge that [indiscernible] and we are taking actions. I would tell you if you thought of our expense ratio, if you the full year, In The U. S, that expense ratio is up about 0.5 In our international operations, it's up about 2.5 points. And that is really because as I mentioned, sub-eighty combined, higher profit sharing costs, we're actually investing significantly in the business. So we've been growing geographically opening new offices and locations in new countries. Australia is a good example of that, but making investments across Asia Pacific and the Continental Europe. We've added product capabilities. So we're writing international casualty. We've added power to our sustainable energy platform. So we're investing in that business, and that's having a bigger impact on the expense ratio.

But wonderful results in that business. In The U. S, the half a point is impacted by the portfolio corrective actions we've taken and then also the investments we're making in technology. So as we stabilize, get on the other side of corrective actions, get back to more normalized levels of growth, and as we start to receive the benefits of investments we're making in product growth and geographic expansion internationally as well as the technology modernization. Going to see that come down. What does that look like? I mean, there's certainly over you said three to five years, so I can be a little bit more open there. I mean, a couple of points of improvement is certainly something that would be an objective of ours. Yes, that's very helpful. Thanks for that detail. I guess one more on the intrinsic value. And the precess of dizziness and headaches, I have say I've got a little bit of that and Tom, you mentioned Incentive comp and I'd like a little more clarity on how that measured. Is it over a five year period Because as I looked at the chart that you provided in the second page of your release, we started with 2020 for your intrinsic value, which is which is the COVID year and you earned about $1,300,000 in operating income versus 2021, which was $3,200,000 or $3,300,000 And then if I look back even at 2019, you earned $2,500,000,000 And then if I look at the insurance ops, if I look at twenty twenty one, you earned $718,000,000 and this year it was $6.00 $1,000,000 So I guess my key question is around incentive comp.

Is it a five year basis so that if we had you had that COVID year in 2020, is that going to generate a lot of compensation when there were really some difficult circumstances in that year. Yes, this is Tom. It is over a five year rolling average. So all those years get added in to come up with the five year number.

I might remind you the 2020 subtracted from our compensation for a couple of years. So it does it does roll off and mature and there's some smiles around the faces. As we do get past the pre COVID to post COVID compares But I would refer you to our proxy statement. We try to lay it out as clear as we possibly can We've been consistent in the calculation method for many years and a thirty eight year history as a public company, we've made very few changes. I mean, every number of years that there might be some update into the calculation and the hurdle rates that are involved. But the basic structure and the basic theory of paper form paper performance and making sure that our shareholders get paid first That's been consistent since day one. And will be going forward.

That sounds very fair.

Okay. Thanks a lot. And next, we'll move to John Fox at Fenimore Asset Management.

Hey, good morning. I have a follow-up for Jeremy.

I was a little bit surprised to see the gross and net written premium volume growth in reinsurance. Given that it's been a poor underwriting record over time. So could you just maybe talk about why that was growing? Sure, John. It's Jeremy.

Ultimately, it's a little bit about sort of mix within the portfolio. Portfolios. So where we have seen a little bit of growth year over year is in places like our marine and energy offerings out of the London Markel, places like workers' comp, maybe transactional liability, which kind of came back a little bit stronger. And as far as premium volume in the overall marketplace in 2024 versus 2023, Where we've been more challenged traditional areas of professional liability like D and O or in the casualty, we've been contracting in those spaces. So some of that growth would come from how we might increase our participation or see growth in exposure or be taking advantage of maybe some new business in lines that we believe are performing and have performed better, but they're smaller aspects of the overall Okay. So I mean the implication would be better combined ratio in the future?

We are sure, sure are working hard at that.

Okay.

The combined ratio and reinsurance has not been an acceptable level. So it's got to be better.

Right.

Absolutely.

Okay, we'll keep an eye on that. Thank you. Thank you.

Session. I would like to turn the conference back over to Tom Gaynor for any closing remarks.

Thank you. Thank you for joining us. Thank you for your support. Look forward to reporting our progress to you as the year goes by. Have a great day.