Markel Corporation Stock

Good morning, and welcome to the Markel Group Second Quarter 2026 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 first (sic) [ second ] quarter 2026 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 first (sic) [ second ] quarter 2026 results or in our most recent Form 10-Q. The press release for our first (sic)[ second ] quarter 2026 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.

Thank you, Matt, and good morning, and welcome to our second quarter conference call. We welcome this opportunity to update you on our current and long-term performance and to answer your questions. As we've long stated, at Markel, we operate with the dual time horizon of forever and right now. I believe that the movie Field of Dreams got it right. The central premise of the film stated, if you build it, they will come. We think that is true, and we continue to work on building the system designed to relentlessly compound your capital. We are building the value of Markel and doing so in a way that rewards you, our shareholders, along with our customers and associates. That's the forever scorecard.

The right now performance indicates how the journey continues to progress step by step. To gauge the right now, we look at adjusted operating income, which doesn't include many adjustments. It's simply GAAP operating income, excluding the short-term swings in public equity markets and amortization expenses. Equities often swing wildly quarter-to-quarter. Any short-term metric that includes those swings is noisy and doesn't do a very good job of describing our progress. Over 5-year periods, public equity volatility tends to normalize. So over this time frame, we focus on operating income, which includes our equity returns.

The adjusted operating income of our business plus growth in our public equity portfolio drives intrinsic value. Over time, we believe our stock price should track that intrinsic value. But first, the right now. In the second quarter of this year, our reorganized and refocused insurance business continued to improve profitability, aided by strong underwriting and favorable reserve development. In our ongoing insurance business, excluding Global Re and Hagerty, grew the top line at 10% and posted a combined ratio in the low 90s. We are also seeing early signs of our expense discipline starting to show up in the numbers.

Our consumer businesses also performed well. Our industrial businesses continue to be solidly profitable and cash generative despite the continued softer end market conditions they faced in the first half of 2026, and I'm encouraged that some tailwinds are beginning to emerge now.

Finally, in our financial business, we acknowledged last quarter that within our State National business, we experienced a collateral shortfall relative to our total exposure to a particular capacity provider currently in bankruptcy. This quarter, after extensive actuarial work, including the engagement of an outside third party, we recognized a reserve of $205 million. I believe this event was driven more by a unique and unfortunate confluence of events, including the nature of the business written, the jurisdictions involved and the pace at which losses developed. This particular business involved began in 2012, and we ceased writing on these programs in 2021.

This marks the first substantial credit loss in State National's over 40-year history. Per our practice, we've made what we believe is a conservative estimate of our ultimate liability, consistent with our overall reserving philosophy. As is always the case at Markel, we do our best to recognize and report bad news quickly and let good news develop over time. Today's action is in keeping with that philosophy.

Turning to the forever. We focus on a 5-year time horizon to measure and compensate the senior management team. We think that 5-year time frame matches up with a meaningful measurement of economic progress better than quarterly or annual metrics. For the last 5 years ending in June 2026, average annual operating income was $2.5 billion compared to $1.2 billion in the previous 5-year period for a compound annual growth rate of 15%. We've been repurchasing our stock at an increasing rate and have reduced the total outstanding shares from $13.7 million to $12.4 million, a reduction of just under 10% over the last 5 years.

On a per share basis, average operating income per share was $188.94 for the last 5 years ending in June 2026 compared to $88.99 for the previous 5-year period for a compound annual growth rate of 16%. The average shareholders' equity we used to produce these results grew by only 9% over the same period. That's significant earnings growth delivered in a capital-efficient way on fewer shares.

Our diversification is an important feature and benefit of the Markel Group system, which provides resilience and durability to our earnings and returns. When things go bump in the night and they do, we can absorb it. When opportunities aligned with our values arise, we can pursue them. Our businesses continue to generate cash, which fuels the ongoing capital allocation activities. Over the last few years, the single largest use of capital has been the repurchasing of our own shares.

During the second quarter, we repurchased $237 million of our shares or roughly 1% of all shares outstanding, up from $134 million in the first quarter. We have now repurchased more than $2 billion since the beginning of 2022. We continue to believe that at current prices and relative to the current set of alternatives, Markel shares represent the highest and best use of capital, and we're acting accordingly. I would also point out that we funded these repurchases through earnings. We are not leveraging up or borrowing money to repurchase shares.

We continue to operate with a solid balance sheet, which positions us well to consider acquisition opportunities, make attractive investments and repurchase shares through thick and thin. As these repurchases continue to take place at a discount to our estimate of intrinsic value, that should continue to increase the value of each share of Markel.

Brian will now share some financial highlights and details from the first half of 2026, and then Simon will provide an update about our insurance operations. We will then open the floor for any questions you may have. Andrew Crowley is also here to join us for that.

Thank you again for your ongoing interest and support of Markel. Brian?

Thank you, Tom, and good morning, everyone. First, Markel Group's consolidated results for the second quarter of 2026. Operating revenues, which exclude net investment gains, were $4 billion for the quarter and $7.6 billion for the first 6 months. Both periods were flat to comparable periods a year ago. Operating income, which includes net investment gains, was $1.6 billion for the quarter versus $1.1 billion in the second quarter of 2025. For the first 6 months of 2026, operating income was $1.3 billion versus $1.4 billion a year ago.

Adjusted operating income, which excludes net investment gains and amortization expenses, totaled $436 million for the quarter versus $578 million in the second quarter of 2025. For the first 6 months of 2026, adjusted operating income was $934 million versus $1.1 billion a year ago. The prior 2 quarters served as a good illustration of why we use longer-term views of operating income performance as net investment gains were $1.2 billion for the quarter, more than reversing the investment losses from the first quarter. For the first 6 months of 2026, net investment gains totaled $440 million versus $431 million a year ago.

Net income to common shareholders was $1.2 billion or $93 per diluted share for the quarter versus $631 million or $50 per diluted share a year ago. For the first 6 months of 2026, net income to common shareholders was $957 million or $74 per diluted share versus $753 million or $62 per diluted share a year ago.

Moving now to our Markel Insurance business. Underwriting gross written premiums were $2.4 billion for the quarter versus $2.8 billion in the second quarter of 2025. For the first 6 months of 2026, underwriting gross written premiums were $4.6 billion versus $5.6 billion a year ago. In both periods, growth was 10% when excluding the impact of exiting our global reinsurance division and the transition of our Hagerty program to a fronting model.

Net earned premiums were down 3% for both the quarter and the first 6 months of this year. The combined ratio was 93% for the quarter compared to 97% in the second quarter of 2025. The improvement was driven by more favorable prior year reserve development and a slightly lower expense ratio, partially offset by $41 million or 2 points of current year catastrophe losses related to the Middle East conflict. For the first 6 months of 2026, the combined ratio was 93% versus 96% a year ago and included $76 million or 2 points of Middle East conflict losses, while the prior year period included $61 million or 1.5 points of losses from the California wildfires.

Adjusted operating income was $376 million for the quarter versus $270 million in the second quarter of 2025. For the first 6 months of 2026, adjusted operating income was $746 million versus $552 million a year ago. In both periods, the increases were driven by improved underwriting profits and higher net investment income. Total operating income, which includes net investment gains within our insurance operations for the first half of this year was $1.2 billion, putting us on pace to achieve double-digit return on equity for the full year.

Looking now at the ongoing divisions within our Insurance Operations. Within our International division, gross written premiums were $890 million, up 31% versus the second quarter of 2025, with growth across the division, led by marine and energy, general liability and professional liability lines. The combined ratio was 82% compared to 78% a year ago, with the current quarter including 6 points of losses from the Middle East conflict.

For our U.S. Wholesale and Specialty division, gross written premiums were $799 million, down 4% versus the second quarter of 2025, driven by intentional contraction in binding contractors and casualty lines and a softening property rate environment, partially offset by growth in professional liability lines. The combined ratio improved to 97% from 102% a year ago, reflecting lower loss and expense ratios from our continued underwriting actions.

Within our Programs and Solutions division, underwriting gross written premiums were $717 million, down 27% from the second quarter of 2025. This reduction was driven by the shift of our Hagerty program to a pure fronting model. Excluding that impact, gross written premiums grew by 6%, led by our delegated programs and personal lines businesses. The combined ratio was 94%, up from 91% a year ago, with the increase reflecting a higher current accident year loss ratio in our personal umbrella line and within certain delegated programs.

Turning now to our consolidated investment portfolio. Net investment income totaled $256 million for the quarter, up 11% from the second quarter of 2025, reflecting a higher average book yield and an increase in the average balances within our fixed maturity portfolio. For the first 6 months of 2026, net investment income was $512 million, up 10% from a year ago. The fair value of our public equity holdings increased to $13.5 billion at quarter end, up from $12.3 billion at the end of the first quarter, which represents a 10% increase. For the first 6 months, the portfolio increased by 4%. Our cumulative pretax unrealized gain on our equity holdings at the end of the period was $9.3 billion.

Moving now to our Industrial segment. Revenue was $1 billion for the quarter, a 2% increase versus the second quarter of 2025, driven by the contribution from a bolt-on acquisition in December of 2025. Organic revenue was flat as higher sales volume of our precast concrete products and fire safety services were offset by lower sales volume on our car hauling equipment due to a continued down cycle in demand for that industry. For the first 6 months of 2026, revenue was $1.9 billion, up 4% from a year ago, with organic revenue growth of 2%.

Adjusted operating income was $75 million for the quarter versus $105 million in the second quarter of 2025, primarily reflecting tighter margins along with softer demand within our car hauling equipment business. For the first 6 months of 2026, adjusted operating income was $125 million versus $162 million in the prior year.

Moving to our Financial segment. Revenue was $171 million for the quarter versus $173 million in the second quarter of 2025. For the first 6 months of 2026, revenue was $333 million versus $351 million a year ago, with the 6-month period last year, including nonrecurring gains of $41 million from our investment in Velocity and the sale of its MGA operations. The Financial segment recorded an adjusted operating loss of $149 million for the quarter versus income of $78 million a year ago. For the first 6 months of 2026, the segment recorded an adjusted operating loss of $113 million versus income of $158 million a year ago. Both periods were impacted by the $205 million bad debt charge within our State National Programs unit in the second quarter of this year.

Moving now to the Consumer and Other segment. Revenue was $552 million for the quarter, a 4% increase versus the second quarter of 2025, relating to organic revenue growth in Ornamental plants during the seasonality strongest period of the year. For the first 6 months of 2026, revenue was $832 million, up 2% from a year ago, with organic revenue essentially flat.

Adjusted operating income was $122 million versus $102 million in the second quarter of 2025, primarily attributed to the increased sales volume. For the first 6 months of 2026, adjusted operating income was $162 million versus $134 million a year ago. Finally, regarding capital allocation. As Tom has described many times before, we think about capital allocation as a 360-degree set of opportunities. The cash of our market-leading businesses generate -- the cash that our market-leading businesses generate can be reinvested in growth opportunities within our existing businesses, used to acquire new wholly owned businesses, invested in publicly traded equity securities or used to repurchase our own shares. We direct capital to wherever we see the best long-term return.

Some notes from this quarter. Within public equities, net purchases were nominal, totaling $21 million. Acquisitions totaled $24 million of small downstream deals within our existing companies. We also paid $74 million to increase our ownership stake in our existing businesses. Regarding share repurchases, we repurchased $237 million in shares during the quarter and $371 million year-to-date, reducing our share count at the end of the second quarter to 12.4 million shares.

With that, I will turn the call over to Simon.

Thank you, Brian, and good morning, everyone. This time last year, I reported on a quarter where our combined ratio stood in the high 90s. Today, I'm pleased to report a 93% combined ratio for Markel Insurance for the fourth quarter in a row. Improving our performance and generating greater levels of consistency has been a central focus for the leadership team. The improvement has come on the back of some tough decisions where we've chosen the sanity of bottom line profit over the vanity of top line growth.

Overall, our headline GWP is down for the quarter, but excluding the global re-exit and the transition of the Hagerty book to a service fee basis, we grew 10%. This growth is driven by the business units where we have seen the most success in recent years, especially from our International division. On the surface, reporting 4 quarters in a row of a low 90s combined ratio may appear a little boring. In that regard, long may boring continue. However, under the surface, the level of change that has been implemented to set Markel back on the path of being a leading specialty insurer has been significant.

Two simple principles sit at the core of everything we have done. First, be obsessed with our customers, put our clients at the heart of all we do and make decisions as close to them as possible. Second, create a structure that allows our business leaders to think and act like owners. These 2 defining principles underpin every decision that has been made over the past 18 months.

The outcome of the work done so far is as follows: Markel Insurance now consists of 3 divisions, below which 14 business units, each with a clearly identified leader. Each business unit leader has committed to delivering a financial plan for 2026 and a strategic plan over the next 5 years. The reporting lines of thousands of people, along with all our financial reporting and management information have been aligned to the new structure.

Our results have improved and become more consistent, but even more importantly, our clients now describe our new setup as being simpler to access and quicker to make decisions. The leaders of our business units relish the challenge of building great businesses that will endure over the long term. These are critical foundations, but we are now focused on the next year of progress. At the heart of that focus lies the execution of our financial and strategic plans and the investments that we are making in our operations and technology.

AI provides Markel Insurance with tools that allow us to reimagine how work gets done. We have asked all of our businesses how we can get better products in front of our customers much faster. This involves looking at every aspect of the business process end-to-end and having AI support and augment it. So far, we see the deployment of AI show up at 3 levels.

First, building a new strategic business unit from scratch. Back in March of this year, we partnered with Bain & Co and kicked off a project to reimagine how to underwrite and service hard-to-place U.S. casualty risks with a new business model, where this model would be built with market-leading AI tools that designed and built by Markel and Bain experts. We're able to combine the team's underwriting knowledge gained over decades and the data we have amassed during that time. A new business unit named Cortex was launched within our Wholesale and Specialty division last week, just a few months after we started the process. We have moved quickly, learned a lot and believe that we have created something of genuine value in an area of the market where Markel has a right to win.

Second, rewiring a class of business using Agentic AI. Over the past 12 months, we have comprehensively rewired 6 classes of business across both our U.S. and international operations, totaling over $500 million of existing GWP. We have partnered with Harvey AI to do this and the impact of applying Agentic AI to sophisticated specialty underwriting is significant. For example, the reduction in time to have an initial risk assessment in front of an underwriter has fallen by between 50% and 90%, depending on the line of business and accuracy levels are above 90% in all cases. This frees underwriters to focus on decision-making, negotiation and getting quotes out of the door. The result is higher levels of better quality business with the WI portfolio in London growing by 50% in the year since we deployed Harvey.

Third, introducing AI agents at the business process level. Our AI accelerator fund was launched in February of this year with money made available to the best ideas stemming from the wider business. In total, we chose 9 ideas, all of which were developed and put into production during the single month of April. The ideas range from a new rating engine in our equine business that makes initial quotes available to our equine customers in seconds to an agent that vastly increases our ability to respond to the fast-moving marine war market to the WinSight tool, which analyzes the vast amount of data made available by our brokers on upcoming renewals and prioritizes the opportunities so that we can concentrate on those we are most likely to win.

The accelerator fund promotes ground-up ideas in our decentralized model. We are increasingly confident in our deployment of AI and are committed to utilizing it to transform our business. However, AI is only beneficial if it improves our service to customers while generating returns on capital over time. So it is the business unit leaders who determine how best to deploy the technology. Leadership plays its part by consistently challenging these leaders to think differently and by sharing great ideas from other parts of Markel.

Not all of our technology investment is being made in AI. There are some areas where building strong and durable core infrastructure is a critical step to ensuring we can make the most of AI further down the line. Examples of this work include deploying ClaimCenter across our U.S. operations earlier in 2026. The investment in PolicyCenter is our core system for the Personal lines business unit and the overhaul of our data environment in our international operations over the past 3 years. These investments in our core infrastructure provide the necessary foundation that enables future AI initiatives to enhance our overall offering and will ensure that we can scale Markel Insurance for years to come.

Overall, our underwriting results have improved and become more consistent. We are growing where we have earned the right to win and managing the cycle where rates and terms do not support long-term profitability. I could dwell on market conditions and heightened global risk, but these factors are largely beyond our control. What remains within our control is how effectively we manage the insurance cycle and build an exceptional operation using powerful new tools that fundamentally improve the way we do business. Sadly, football may not be coming home this year, but maybe just maybe specialty insurance is. These are exciting times at Markel Insurance.

And with that, I'll pass you back to Tom.

Thank you, Simon. Indeed, these are exciting times at Markel, and we look forward to answering your questions. Matt, if you'd be so kind to open the floor.

[Operator Instructions] Your first question comes from the line of Tracy Benguigui with Wolfe Research.

When the third-party actuarial team that came in to assess the counterparty credit risk shortfall at the bankrupt reinsurer. It seems like that review was limited to just one counterparty at State National. Or did this third party also review the adequacy of collateral behind all of your unrated reinsurance partners or backing much larger liabilities? And if you could comment on the general health of your collateral backing reinsurance counterparties.

Thank you. I appreciate the question. That specific engagement was for the specific contract where we thought we had some issues, and we wanted to nail that down to the best of our ability. As you might imagine, we, as managers, doing our duty, are looking at everything at the same time, but the specific third party was engaged just for that topic.

Right. So can you comment about your view of the general health of collateral backing all of your reinsurance counterparties, particularly those that are not rated?

Yes, happy to do so. That is the core business of State National for a long time. The charge that we put up is in keeping with our philosophy of having a number up there that is more likely to be redundant than deficient. That's the long-standing reserving philosophy, Markel, and this charge will reflect that. So that implies that we have looked at everything, and we're putting up our best estimate for what we think things are. This is the first loss of this nature in over 40 years of history that State National is operating in this business, and they have demonstrated the ability to handle those kinds of risks for multiple decades. We have every confidence that they are the best-in-class in doing so and continue to believe that's the case.

Okay. Looking at your reserve development, what gave you comfort to release workers' comp reserves for recent accident years? And on the topic of reserves, as we sit here today halfway through the year, is the conclusion of your actual versus expected analysis support your guide of favorable development up to 5% or $800 million during 2026?

Yes. Let me ask Brian to comment on that.

Sure. Yes. Specifically on workers' comp, I mean, that has behaved very well, I think, across the industry in general, but for us, in particular, from an A versus E standpoint, we've been holding a fair amount of margin there for a while. We're starting to release some of that as the A versus E continues to come in and trend favorably. Kind of overall on the reserve side, what you're seeing us do is react to exactly those A versus E trends that we're seeing over multiple periods. And so our releases are concentrated in kind of first-party lines in the U.S., that would be our property, our inland marine and our personal lines E&S homeowners book, along with many lines in our international book that have performed very, very well and behaved very well from a reserving standpoint.

On the casualty side, casualty and professional, that's more hold the line, very modest kind of adverse development. It's kind of been trending as we would have expected on the whole, and that's kind of how we've been reacting there. One other reminder on the casualty side, we do have a stop-loss reinsurance treaty in place for accident years 2019 and forward that impacts kind of our analysis when we set the reserving basis.

Your next question comes from the line of Andrew Andersen with Jefferies.

Maybe back on the State National matter. I just want to make sure I kind of have the sequence of events correct. I think at year-end, this relationship was nearly fully collateralized. In 1Q, you did increase the loss ratio of this business a little bit. At the same time, you engaged a third-party firm who subsequently, I think, significantly increased this loss estimate, almost doubled it. So maybe what did the third-party actuarial firm discover that was beyond what you saw in the first quarter? And why not engage the firm to review reserve adequacy across the broader State National platform?

I'm going to ask Brian to respond to that.

Yes. Andrew, I think your fact pattern is generally correct. As we said at year-end, we had been increasing. We had adequate collateral. There was a small deficiency based on our actuarial view at the end of the first quarter. What we did was we went back and got more granular data on this program that we did not have available. We did our own ground-up actuarial review internally. We engaged the third party. And then we also looked at our kind of insurance book of primary casualty that we have written for a long time, have a lot of credible data there, use all of those data points to kind of analyze the claims trend on what we were seeing in that series of programs, 5 different programs that kind of passed through to this counterparty and then made a judgment based on our historical reserving philosophy to set a level that we believe is more likely redundant than deficient.

Okay. It just seems that this increase this quarter, it is a pretty large percentage of State National surplus, which is, of course, part of the broader Markel Group, which is very well capitalized. I'm just surprised to see such a big change after 1Q. Are you able to share what type of business this was related to or what type of lines?

Yes, it was mostly primary habitational casualty business across these programs. There was a little bit of excess casualty in there, but that was less than 10%, concentrated in a handful of states.

Okay. And maybe on the core book, if I look at total insurance ex-cat, ex PYD loss ratios, it was about 60% in the first quarter and then about 63.5% in the second quarter. Maybe you could help us think about the trajectory throughout the rest of the year and maybe what's the right run rate for the ex cat ex PYD loss ratio?

Yes. I would say where we booked in the second quarter is kind of where we feel things are. The main increase driver was we did increase our loss pick on our personal umbrella line here in the second quarter. When we do that, it applies to 2 quarters of premium. So it becomes a little bit of a larger increase in the quarter. We did that earlier when we started seeing some signs of A versus E that we may typically do later in the year. So try to get out in front of that as early as we were seeing some cracks there.

Okay. And last one. Within the Financial segment on the combined ratio, it does look like accident year losses were up year-over-year. Is that related to the loss pick adjustment that you had just mentioned or something else within the Financial segment accident year combined ratio?

No. The underwriting piece of the Financial segment is related to the collateral protection line that State National writes, so that's their other business. We have seen a little bit of heightened losses there, particularly in the first quarter. Second quarter was significantly better. That is a very, very short tail line. So we have real-time indicators. There's not a lot of IBNR that's held there. So it's really moving on kind of actual incurred losses that are coming through from the repossession of autos.

Your next question comes from the line of Maxwell Fritscher with Truist.

I'm calling in for Mark Hughes. What are your observations around pricing in casualty lines? You mentioned last quarter, claims trending in the low double digits. Where would you say pricing is relative to that? And then have you seen any incremental competition in those lines since last quarter?

I would -- thanks, Maxwell. This is Simon here. I would say in casualty, what we're seeing across the whole U.S. casualty on average is probably claims trending in the low double-digit kind of numbers, maybe 10%, 12%, something of that nature. Rates on average are probably slightly below that. So there's a divergence, I think, between where the average market is getting rate at maybe 9%, I'd say, and then that low double digit on the trend. So that's the average.

What we've been doing is we've been really focused on that book of business in terms of managing the cycle because those average numbers over a period of time just don't work. I mean that's clear to us. So the key actions that we've been taking, and I've mentioned this a couple of times before, we've been reducing our line sizes across different risks where we're on. So what was typically a $10 million line would now be more like a $5 million line, for example. So that's action number one.

The second really important action we've been taking is to reduce our exposure to construction casualty, which has caused a significant chunk of the losses out of average, I would say, in those numbers, and we continue to focus on the areas. The new business unit that I described earlier to focus on the hard-to-place U.S. casualty risk, we feel as though we can underwrite risk in a way that is better quality than the average market in that particular area, which is the reason that we've gone after it. So we've tried to focus our attention in areas where we believe that we can get rate, which is better than trend.

We'll see how that plays out, but that's -- we are more in a defensive mode in that U.S. casualty market at the moment. And we are walking away from areas, which are really causing the majority of losses to our book. And we've probably accelerated that in the first half of this year.

Got it. That's helpful. And then I guess switching gears to property. How do you expect rates to trend in the back half of the year? Of course, it will depend on storm season. But as we stand here now, are you seeing carriers reach a floor and seeing rates stabilize? Or do you expect some incremental pressure there as well?

Well, as you say, the first half of this year, it's been very aggressive with competition in that property segment. Given the results that have been announced thus far during the year, we can see people are making a lot of profit. Some of the reason for that is we haven't had the winds blow or the fires burn just yet. So there is still competition in that sector. I think some of the more disciplined carriers have started to react by walking away because technical rate probably is being reached where we're just not getting enough premium for the technical amount of risk that we're taking on. But generally, I think that the competition in the property market will continue on a downward kind of trajectory up and until we get some significant losses, which if you look at the history of the property market, they crop up every now and then.

I think as a long-term player, our job is to make sure that we pick the right risk areas where we feel that we can add something and we can make money at the technical rate, walk away from those where it isn't there and be around that when the market does start to turn and the capital is valued again to the degree that it needs to be, we'll be there to answer the bell, I guess, at that point in time. So definitely a competitive environment for the second half, but we will see how that storm season goes, as you say.

And Maxwell, you didn't ask this particular question, but I'm going to add some color commentary. Obviously, we've been repurchasing our shares. We've noticed a lot of other companies starting to repurchase stock and return capital. And actually, that's a pretty good sign for the insurance industry at large and the degree of discipline that we're seeing across the board is encouraging to me that fundamentals of supply and demand would cause things to stay on the rails a little bit more than might have been the case in past insurance market cycles. This is a different set of behaviors we're observing this time around. It is for the better.

Understood. And then, Tom, last quarter, you had called out $700 million underwriting profit as a reasonable number. And then as we sit here today, is that still achievable in your view?

I think that it's probably a little lighter than that, but we're very encouraged by the progress so far, and I don't want to put a number on it. But more importantly, what I observed is with Simon's leadership with the people that I talk to, people are leaning in. We've got the Cortex business unit that we're -- is now out there and starting to write business. So again, we're a long-term company, and those kinds of numbers are definitely achievable and the organization is set on the right footing right now.

Your next question comes from the line of Andrew Kligerman with TD Cowen.

I was intrigued by Brian's commentary around the casualty reserve development. He said -- I think, Brian, you said modest adverse development in casualty. And then you mentioned the stop loss. Brian, could you give a little more clarity around the accident years and any numbers would be great. And then with regard to the stop loss, could you give us a little bit of the of the parameters around that?

Sure. Yes. So on the casualty side, continue to see, I would say, very modest adverse development. It's not concentrated in any year. It's kind of sprinkled across. A versus E has been pretty much on in some lines. It's been better in some classes and it's been a little worse than others. So you got to go down another level to kind of get into kind of what we're reacting to. But on the whole, it's been holding up to kind of what we put up a few years ago in the U.S. to strengthen kind of our net position.

The stop-loss treaty, the way that works, there's a bunch of deductibles that apply to that. Ultimately, what happens is once we hit kind of an aggregate deductible and there's a per claim deductible, there's an amount that is now passed on to the reinsurers. That happens on a last in, first out basis. So as we sit here today, all of that amount that we're passing along is in IBNR, where the incurred losses that are happening in the early part of the tail, 100% belong to us. And so those are set based on expected loss ratios when we negotiate the treaty. And then obviously, we've seen kind of since those earlier years, '19, '20, '21 have behaved across the industry worse than I think everyone anticipated that stop-loss treaty has started to kick in and provide IBNR that we are ceding to the treaty.

Got it. And then outside of insurance, I was very curious around both consumer and industrial. So maybe just starting with consumer, 20% adjusted operating income growth on top of 4% revenue. And I think I read in the Q about margin enhancement. Do you think that kind of earnings growth is sustainable for the foreseeable future? I mean, any color on what was going on there because it was an interesting dichotomy between the operating revenue and the adjusted operating income.

I'm going to invite my colleague, Andrew Crowley, to speak to that.

Andrew is here. It's Andrew Crowley. I'll start with the consumer question first. I think when you see 4% on a top line and 20% on a bottom line, it wouldn't be fair to extrapolate those trends into perpetuity. What has driven some of the bottom line is, frankly, the strength of execution of our leaders. As we've mentioned time and time again, we've got great leadership teams. They have an ability to focus on and drive operational efficiency within their markets during pretty good times, and some of them are operating in pretty good times. In addition, there's a variety of business within the segment, some of which have a higher margin profile versus others. We've seen some outsized growth in businesses with higher margins, which is resulting in that number you see. And lastly, as we alluded to, there are some impacts from full period results. EPI was not in the first quarter in its entirety last year. And in the current quarter, we have lift from a downstream acquisition in one of our other businesses.

I'll just add one other point on consumer while we're on it. It's a good reminder, and we called it out in the Q that Q2 is particularly strong for consumer. And if you looked last year, you would see about 60% of our earnings came in that quarter alone and about 40% of the revenue. So just contextualizing this quarter versus what to expect in the coming quarters and compared to the first quarter.

On the industrial side -- go ahead, sorry.

No, that was very helpful. Yes, on the industrial side, and that's my last question. Yes, just kind of curious, it's sort of the opposite of consumer with a 27% decline in operating income versus a 2% gain in revenue. And I don't know, I'm wondering, is this the construction area? Is there a lot of pressure on margins? Just really curious there, Andrew, what's happening.

Yes. Thanks for that question. The good news is similar to the other point, up a bit on revenue and down a meaningful amount on profit is also a trend that we don't expect to continue. Just to highlight a couple of things within that, where we have called out markets that are in cyclical decline, specifically car hauling and industrial bakery equipment, you do lose a bit of operating leverage as you go down. The good news about those businesses, as Tom alluded to in his shareholder letter in 2024 and Brian in prior comments, over long periods of time, we've done well. Our competitive position remains strong, and those end markets are enduring and essential to the economy. So we feel really good about where we are. We're just working through a normal cycle.

In addition, we have a couple of businesses making SG&A investments for the long term. whether it's a branch-based business, opening up a new branch that will generate revenue over time. We continue to want to support our leaders in making those types of long-term investments that will pay off. So we're carrying a little extra cost there as well.

Your next question comes from the line of Drew Estes with Banyan Capital Management.

This is for Tom or Simon. And as you might imagine, this is with regard to State National. I have a few questions. As to the nature of the collateral shortfall, was it that the assets that were posted weren't actually there? Or were they bad assets? Or did losses develop such that the collateral required was just too little. If you could just provide some color on that, that would be great.

Absolutely. It's the latter. The collateral is fine, just that the losses and those are actual estimates of the losses have moved at such a rate that it got ahead of the collateral.

Okay. Next question is just aggregation risk in State National. It's -- I know a lot of these alternative capacity providers tend to play in the same sandboxes. So how does State National think about that and try to manage that risk for the book as a whole?

Yes. I mean that's the normal course of business, and that would be a vector and a thing that would be looked at and managed and thought about all the time. Oftentimes, State National is involved with very specific kinds of risk or very specific products. And I wouldn't say there are industry-wide aggregation events that are as relevant to some of the selections they would make that would be the case sort of for the industry as a whole. But they do have over 40-year history of managing those processes and that kind of risk quite well. State National has been a great investment for us, a great contributor. We paid roughly $900 million for that back in 2017, even including the events of this last quarter, earnings since that time cumulatively are over $1 billion. They are disciplined first-class operators in what they do and managing aggregates is just a daily business for their operations.

Andrew might have one to add.

Drew, just adding one thing, it's Andrew Crowley. When we think about aggregation, I think you do want to look at it 2 ways, one of which is the programs that are originating, the other of which is the reinsurers. And I can confirm that we do look at both. And in fact, as a result of the work we've been doing, it will result in some collateral top-ups for similar lines of business with other reinsurers who are in financially healthy positions, but we will have collateral increases as a result.

Okay. That's good to hear. And just final question. Since a lot of these fronting insurers are pretty thinly capitalized because they cede the risk. I'm curious if this loss will impair State National's ability to do business? And if so, under what conditions would the parent provide support?

Yes. State National is part of the family, and it is well capitalized and continues to be so. We move capital around between different subsidiaries on a regular basis. That's normal course of business. So State National is in good shape and will continue to be so from a capital point of view.

[Operator Instructions] Your next question comes from the line of Mark Hughes with Truist.

Just on State National, I'm just sort of curious what you see in terms of new business opportunities with State National and what it might say about just broader capacity flows within the P&C space? And then I think related to that ongoing discussion, what do you see in terms of, I guess, terms and conditions, capacity providers being eager for risk sharing, that sort of thing. Just how much demand? And then what are the -- what's the competitive environment and the ask on the part of potential partners?

Right. I can't really speak to what others are going to do and industry-wide comments. I can tell you that State National operations that has and will continue to operate with discipline and professionalism and doing their homework and making sure things are buttoned up. And as Simon alluded to earlier, I care about the bottom line more than the top line. They'll continue to operate with that focus as does the rest of Markel, but I can't really speak for the rest of the industry.

Yes. I hear you. Definitely. How about the -- just the flow of business or opportunities? Any kind of reflections on capacity, looking at it through the State National lens?

Andrew has a thought?

Yes. I would put it in the camp of normal course ins and outs. So there are times where programs will naturally sunset and move on and there's times where new opportunities arise. I wouldn't put the trajectory as unusually up or down in that regard. And in fact, if you just go back over a 5-year time horizon, you would see modest growth at State National and some publications would point to industry growth well above that, which is a reflection of State National continuing to pick its spots where its terms and conditions can be met and letting go of spots where it's best suited for another party.

And I do want to pick up on that because I think that speaks to the beauty and the design of the Markel Group system writ large. Every single business that's part of this system is part of the Markel Group family operates with a good balance sheet and a long-term time horizon and the ability to make good long-term decisions and not be under unusual short-term quarterly pressure is really one of the keys and one of the factors that has allowed the double-digit compounding -- relentless compounding that's been going on around here for decades. So obviously, State National is front and center, and it's on everybody's mind right now. But this is the sort of thing that we can absorb, learn from, improve and the Markel Group system and all the individual operating businesses out there are not overreacting. They're making the good long-term decisions that has resulted in a pretty powerful math over a long period of time, and we fully expect that to continue.

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

Thanks so much for joining us. I appreciate your interest and support, and we look forward to connecting with you again soon. Thank you.

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

Good morning, and welcome to the Markel Group First Quarter 2026 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 first quarter 2026 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 first quarter 2026 results or in our most recent Form 10-Q. The press release for our first quarter 2026 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.

Thank you so much. Good morning, Day, and good morning to all. This is indeed Tom Gayner, and I'm joined this morning by my teammates, Brian Costanzo, our Chief Financial Officer; and Simon Wilson, the CEO of our Insurance Operations and Executive Vice President of the Markel Group. Andrew Crowley, the President of Markel Ventures and Executive Vice President of the Markel Group is also with us and available for questions.

Thank you all for joining us today. Our headline is that we continue to do more of what's working and less of what's not. I'm deeply grateful to my colleagues who continue to adapt and improve our operations throughout Markel Group. We all look forward to sharing our progress with you this morning. We're also delighted to take your thoughtful questions and for your ongoing interest in Markel.

First, I'll make a few opening comments. Then Brian will run through the financial results. Following Brian's comments, we'll turn the bulk of the call over to Simon, who will address our ongoing actions in our insurance operations and our progress to date. Insurance is our largest business and the one where the most change continues to be underway. As such, it's appropriate to focus and allocate the most time there. Following Simon's comments, we will open the floor for questions.

Continuing to do more of what works and constantly learning and iterating is not a new idea at Markel. It's been a hallmark of the company for nearly 100 years. As we state in our cultural statement that we call the Markel style, we look for a better way to do things. That means being creative, adapting to changes in technology up to and including those being brought about by the development of AI and every other form of change and progress underway.

Internally, we control what we can control. We've taken extensive steps to focus on serving our customers, improve efficiency, develop new products and services, expand our geographical reach by opening and developing new markets and continuously improving and refining our operations in every nook and cranny throughout the company. I'm beyond grateful to my teammates for their unrelenting actions to continuously learn and improve.

Our financial results show that our actions are working. Brian will give you details and explain some of the nuances from one-off events and business mix changes from last year. But net-net, we're confident that we are making progress and that it is showing up in our results.

Externally, outside our 4 walls, we continue to see cyclical pressures and softness in some end markets. For example, property-related insurance coverages and certain industrial end markets like transportation equipment and residential construction continue to show normal signs of cyclicality. Longer term, those markets provide ample opportunity for good returns on our capital and continued growth, but they do not do so in a straight upward line. Curves are involved, both up and down, and that is normal.

In aggregate, our businesses continue to produce healthy amounts of adjusted operating income, cash and long-term growth. Your company contains diverse, resilient, high-quality businesses designed to produce all-weather returns and cash flows. That is the design of the Markel Group.

With these cash flows, we enjoy a 360-degree set of reinvestment opportunities to put that cash to work. We continue to deploy that cash with patience and discipline. Each incremental dollar goes to the highest and best use available. Sometimes that means funding incremental growth in one of our existing businesses. Sometimes that means adding to our investment portfolio of publicly traded securities. Sometimes that means acquiring new businesses and sometimes that means repurchasing our own shares. Sometimes that also means building up our liquidity and optionality for future opportunities, something we've been emphasizing of late.

We maintain a strong balance sheet. We believe balance sheet strength will provide timely and unique advantages to grow and long-term stability to our operations. As we observe the broader investment landscape and participate in conversations, we are observing more data points about global conflict, supply chain disruptions, low consumer sentiment and softening job markets. Despite those factors, the animal spirits in the financial market seems largely unfasedased. As such, the number of external opportunities that appear attractive to us remain limited.

Fortunately, as we've demonstrated over the last several years, we can and are continuing to repurchase our own shares. In 2023, we repurchased $445 million of our own stock. In 2024, we made $573 million in repurchases. In 2025, we did $430 million in share repurchases as well as redeeming $600 million of preferred stock. We've done that largely with cash from operations and not by levering the balance sheet. So far in 2026, we've repurchased $134 million of our own shares, and we remain highly attentive to opportunities to continue to do so.

At this point, we've reduced our share count by roughly 10% from the peak of nearly 14 million. It's taken slightly more than 5 years for that 10% reduction to occur. At current prices, I would expect it to take us less than 5 years to purchase the next 10% of the share count. The math suggests that repurchasing our own shares makes sense as our #1 on the list of capital allocation choices right now. We remain disciplined and methodical as we do so. That should help us to persist through thick and thin. And we think that, that consistent behavior will serve our owners well.

We also continue to have a balance sheet, which keeps us in good shape to pursue opportunities when it makes sense to do so. We enjoy a strong degree of optionality. We maintain the flexibility and ability to play offense in a wide variety of environments, not just the one we see today.

And while we are reporting our quarterly results to you today, we manage this business with a longer time frame. Looking out over the next 5 years, I think it's reasonable to expect that our insurance operations will grow and earn healthy returns on equity. I expect the same from our industrial consumer and financial operations. I expect our public equity portfolio to compound at healthy rates and for our fixed income operations to provide appropriate interest income while protecting and preserving our capital. All of our businesses will face natural ups and downs, but I am confident in the direction of travel. Those increasing amounts of earnings and cash flows should end up being divided by fewer share. We think that you, as our fellow owners will be well rewarded with those results.

In our equity operations, we continue to invest with discipline and patience in keeping with our long-standing 4-part investment discipline. We invest in profitable businesses with good returns on capital and not too much debt, run by people with equal measures of talent and integrity, with reinvestment opportunities and capital discipline at fair prices. There are no changes to that process.

In fixed income markets, interest rates increased during the quarter. The good news is that we remain matched in currency and duration to our insurance liabilities and largely hold our fixed income securities to maturity. The other good news is that amidst rising concerns about credit quality, our portfolio remains as high quality and pristine as we know how to make it. There were no credit losses in our fixed income portfolio in the quarter, and I do not expect any going forward.

Our public equity portfolio declined 5.2% in the first quarter compared to a 4.4% decline in the S&P 500 with broader market volatility. Our approach is designed to withstand equity market volatility. We believe our public equities portfolio will continue to produce strong returns for our shareholders over the long term.

In many ways, we've gone through a healthy amount of change in recent years at Markel. At our core, though, we remain unchanged in the enduring things that matter. We remain dedicated to relentlessly compounding your capital. Our specialization and diversification, which we talked about in our very first annual report as a public company in 1986, remains just as relevant today as it was then. And as time has shown, it works. I believe that will continue to be the case. Our values build value. With that, I'll turn it over to Brian.

Thank you, Tom, and good morning, everyone. Before reviewing our first quarter results, I want to briefly remind listeners of the reporting and disclosure enhancements we implemented beginning in the third quarter of 2025. These changes were designed to improve transparency and better align our reporting with how we manage the business.

We now present operating revenues and adjusted operating income as key performance metrics, both of which exclude unrealized investment gains and losses as well as amortization expenses. We also now report our results across 4 operating segments: Markel Insurance, Industrial, Financial and Consumer and Other, while providing a divisional view of our insurance businesses, organic growth for our industrial, financial and consumer businesses and annually providing capital metrics for all segments.

With that, let's turn to the results. Starting off with Markel Group's consolidated results for the first quarter of 2026. Operating revenues, which exclude net investment gains, were $3.6 billion or flat when compared to Q1 2025. Operating income, which includes unrealized gains and losses, was a loss of $273 million compared to income of $283 million in Q1 2025. Net investment losses were $728 million compared to net investment losses of $149 million in the first quarter of 2025.

Adjusted operating income, which excludes net investment gains and amortization expenses, totaled $498 million, a 4% increase versus the first quarter of 2025, driven primarily by improved underwriting performance in Markel Insurance offset by the nonrecurrence of a gain from our investment in Velocity in the financial statement in the first quarter of 2025 and to a lesser extent, lower margins in the Industrial segment.

Operating cash flow for the quarter was $16 million versus $376 million in Q1 2025. Operating cash flows for the quarter were net of payments totaling $108 million made to reinsure our exposures on our Hagerty business as part of the transition of that business to full fronting and also reflect lower premium collections resulting from the runoff of our global reinsurance business, along with higher payments for income taxes. Comprehensive loss to shareholders was $340 million versus comprehensive income of $348 million in Q1 2025, driven largely by unrealized movements in our investment portfolio.

Moving to Markel Insurance. Adjusted operating income for Markel Insurance in the first quarter 2026 was $369 million compared to $282 million in the first quarter of 2025. Markel Insurance underwriting gross written premiums were $2.2 billion, a decrease of 21% for the quarter versus the first quarter 2025. This was driven by the expected impact from our exit of Global Re and the transition of our Hagerty program to a fronting model, which together totaled $797 million in underwriting premiums in the first quarter of last year compared to just $23 million this year.

As I mentioned on last quarter's call, the exit of our $1 billion gross written premium global reinsurance business and the transition effective January 1, 2026, of our partnership with Hagerty to a pure fronting model will decrease underwriting gross written premiums for the full year 2026 by approximately $2 billion. A significant portion of the global reinsurance premiums were written in the first quarter of last year. We expect these changes over the long term to benefit our combined ratio, adjusted operating income and our returns on equity.

Adjusted underwriting gross written premiums, which excludes the impact of the exit of Global Re and the Hagerty transition, grew by 10% in the first quarter versus Q1 2025. This increase was driven by our International division within our professional liability and marine and energy products and our Programs and Solutions division, driven by growth in personal lines and programs, partially offset by a decrease in premium volume in our Wholesale and Specialty division due to declines in property driven by a softening rate environment and in general liability due to our continued underwriting actions and remixing of the casualty portfolio. Earned premium decreased 2% to just under $2 billion in the first quarter of 2026.

The combined ratio for Markel Insurance was 93% compared to 96% in Q1 2025. The improvement in the combined ratio was driven by improvements in our current accident year loss ratio. First, we had lower catastrophe losses this year with $35 million or 2 points of losses from the Middle East conflict this year versus $66 million or 3 points of losses from the California wildfires in the first quarter of 2025. Second, we had a 4-point improvement in our attritional loss ratio, driven by no losses on our CPI product line this year, a lower loss ratio within our International division and our U.S. property and general liability lines and the exit last year of our risk-managed D&O book within our Wholesale and Specialty division.

The Global Re division reported a combined ratio in the first quarter of 114% as we continue to build margins and solidify reserves. The results from the runoff of our Global Reinsurance division unfavorably impacted the insurance segment's combined ratio by 2 points. Prior year releases were 5 points in the current quarter versus 7 points in the first quarter of last year, down slightly due to lower takedowns this quarter within our international professional liability lines.

At a divisional level within Markel Insurance, starting with International, gross written premium of $861 million was up 28% versus Q1 2025. We grew across the International division, driven by strong growth in professional liability cyber. The combined ratio of 90% compares to 89% in the first quarter of 2025, with the first quarter of this year, including 6 points of losses from the Middle East conflict and the first quarter of last year, including 6 points of losses from the California wildfires.

Within our Wholesale and Specialty division, gross written premium of $673 million declined 9% versus Q1 2025, driven by a softer property and marine premium rate environment and decreases in binding contractors and casualty. The combined ratio improved to 93% in Q1 '26 versus 100% in Q1 2025, with the largest impact coming from lower loss ratios due to our underwriting actions and the exit of the risk-managed D&O book last year.

Within our Programs and Solutions division, gross written premium was $656 million in Q1 2026 versus $806 million in Q1 2025. The 19% reduction was driven by the previously announced shift of our Hagerty program to a full fronting arrangement, which reduced gross written premium by $220 million. Excluding this impact, the Programs and Solutions division gross written premium was up 12%, driven by personal lines property programs and growth in our Bermuda platform. Our Programs and Solutions combined ratio improved to 91% compared to 97% in Q1 2025 due to improved loss ratios, primarily due to 3 points of impact from the California wildfires in the first quarter of last year and more favorable development on prior year loss reserves.

Moving now to the consolidated investment portfolio. Net investment income for Q1 2025 totaled $256 million, up 8% from Q1 of last year. This reflects higher interest income on fixed maturity securities and higher dividend income on equity securities due to higher yields and higher average holdings in 2026 compared to 2025. These increases were partially offset by lower interest income on cash and cash equivalents, driven by lower average cash and cash equivalent holdings and lower short-term interest rates in 2026 compared to 2025. Fixed income portfolio yield during the quarter was 3.7% and reinvestment yields averaged 4.1%.

Within the public equity portfolio, losses totaled $728 million versus $149 million last year. We made net purchases of $28 million during the quarter. The portfolio ended the quarter with a market value of $12.3 billion and pretax unrealized gains of $8.2 billion.

Moving to the Industrial segment. Industrial segment revenues for the quarter were $883 million, a 6% increase versus Q1 2025, including 4% organic growth driven by increases in sales in precast concrete products, partially offset by lower revenues from sales of car hauling equipment due to softening demand within the auto industry. Adjusted operating income was $49 million, down 16% versus Q1 2025, driven by a lower segment operating margin due to changes in the mix of business.

Turning to our financial segment. Financial segment revenues were $162 million for the quarter, representing a 9% decrease versus Q1 2025, driven primarily by a $31 million contribution in Q1 of last year from a gain related to our minority investment in Velocity offset by an increase in revenue from both higher investment management and program services fees. Organic revenue growth for the segment was 10%. Adjusted operating income totaled $36 million versus $80 million in Q1 2025, reflecting the $31 million onetime contribution from Velocity last year and a $14 million impairment of an equity method investment in an asset management firm in the first quarter of this year.

Further, we're aware of the recent story regarding State National's fronting operations and potential credit exposure to a capacity provider. While we acknowledge a current shortfall in collateral against our total exposure, management is actively pursuing all available recourse options under our contracts to obtain additional collateral. We do not believe this situation will have a material impact on Markel Group's earnings or capital position.

Moving to our Consumer and Other segment. Revenues for the Consumer and Other segment were $281 million for the quarter, a decrease of 3% versus Q1 2025, driven primarily by slower demand for new housing, partially offset by the contribution of our acquisition of EPI. Organic revenue growth for the segment was down 6%. Adjusted operating income was $40 million compared to $32 million in Q1 2025, with the increase driven primarily by the acquisition of EPI.

Finally, regarding capital allocation, during the quarter, we repurchased $134 million of common shares, reducing total shares outstanding to 12.5 million. With that, I will turn the call over to Simon.

Thank you, Brian, and good morning, everyone. It's pleasing to share another solid quarter for Markel Insurance. As Bryan outlined, the overall combined ratio for Q1 '26 was 92.8%, a more than 3-point improvement versus the comparable period and in line with the steady progress we reported in the previous 2 quarters. Our reported 93% combined ratio included a 2-point drag from our now exited Global Re business.

While the combined ratio showed material improvement over last year, GWP growth at first glance looks to have declined significantly. The 2 main drivers of this reduction were the strategic decisions to exit reinsurance and a change to our Hagerty program, where we now provide services for a fee versus taking underwriting risk. Excluding these 2 items, year-over-year GWP growth was 10% in the first quarter.

Our primary financial goals at Markel Insurance remain sustaining underwriting profitability and maximizing our return on equity. The decision to cease writing new business in Global Re is a clear example of this commitment. The old adage that top line is vanity, bottom line is sanity is and will remain a core mantra in this business. Our focus on the bottom line will be challenged in the softer insurance cycle. In more challenging markets, our underwriting teams are giving clear direction, always stay focused on profitability and growing businesses where we have a sustained competitive advantage.

That said, I'd like to think of Henry Ford's famous remark that we should always remember that the airplane takes off against the wind, not with it. We are present in more than 100 product areas and operating in 16 countries. In no market do we have a share greater than 2%. And in most territories, our share is less than 1%. When people ask me, where does the opportunity lie? -- my response is that we have potential everywhere. We need to remain disciplined about which opportunities we take. We are looking forward to the challenge and remain confident we will find areas of profitable growth.

Recent improvements in our financial results are important and provide clear evidence of progress. However, the transformational changes we've made to the organization over the past year will drive our future success. After 1 year into the CEO role, allow me the opportunity to outline how the business is positioned across our 5 core pillars: strategy, structure, oversight, operations and culture.

On strategy. Our goal is simple. We aim to be the preeminent specialty insurer on the planet. We win in the market by focusing on 4 key areas: number one, customer focus. We obsess over the customer. Everything we do must provide something that the standard market does not. Number two, market-leading expertise. We build local expert teams across the globe who deliver deep capability in every product that we sell. Number three, speed. We make decisions and serve customers at speed, all enabled by leading technology and local empowerment. And number four, consistently doing the right thing. We honor long-standing commitments, act with integrity and fairness while providing dependable claim service.

On structure, Competing successfully in many different areas of the specialty insurance industry across many geographies requires us to operate a business of businesses. In this model, specific leaders have clear responsibility for and control over their P&L. Today, we have 14 distinct business units across Markel Insurance, each with a single leader and a discrete P&L. These business units are grouped under our 3 ongoing divisions to ensure proximity to executive leadership.

Clarity of business ownership and simplicity of decision-making sits at the heart of the new structure. Each P&L leader is responsible for selecting their teams, producing their strategy, agreeing to their business plan, designing their product set and overseeing their expenses. Their total compensation is aligned to the long-term profitability. A second key structural change was shifting most resources from the corporate center to the business units themselves, aligning capabilities with business needs and giving leaders greater control over the resources that they use.

On oversight, our new structure empowers P&L leaders to build market-leading businesses with clear accountability. By shifting ownership into the organization, executive management can focus on setting expectations and monitoring performance at both the financial and strategic levels. Our financial reporting and management information now fully align with this structure, giving us much clearer visibility into performance and enabling us to quickly identify and address issues where they arise.

On operations, technology and AI. People often ask me, what are we doing with technology? What does our tech stack look like? And more recently, how are we approaching AI? I want to make 2 things clear. First, I have a great deal of personal interest in this subject. I truly believe that the winners in our industry will be the companies that develop exceptional operational capability and maintain a culture of continuous improvement. Every leader at Markel Insurance is expected to aim for excellence in operations and technology.

Second, within our business of business structure, there's no single answer to what we are doing around technology and AI. Our products span highly diverse markets from excess casualty to workers' comp to global war and terrorism across multiple geographies. A single technology solution for this breadth of business doesn't exist. So what are we doing in operations and technology and AI? A lot.

More specifically, each of our 14 business units have developed a strategic plan outlining how they will invest to become best-in-class in their respective markets. These plans are tailored to distinct customer groups and include core system modernization, enhanced data and analytical capability and AI deployment. We are committed to investing in operational excellence and technological excellence.

Within Markel Insurance, the current state of our technology is mixed. For example, our London market data and analytics capabilities are outstanding. Our growth in U.S. personal lines has been driven by exceptional operational leadership. At the same time, we need to bring our U.S. wholesale and specialty operations up to the required standard.

Our operational investment is occurring at a time where we stand to benefit from rapid advances in AI. Historically, the specialty nature of our businesses made it hard to find a market-leading technology tailored to our needs. Scale was insufficient, forcing us to build bespoke systems or to heavily customize off-the-shelf solutions. Both these types of systems are costly to maintain and typically struggle to keep pace with broader technological advancement.

AI changes that. We can now develop cutting-edge solutions for our specialized businesses far more quickly and at a significantly lower cost. AI is helping us serve our brokers faster and policyholders more effectively. AI is helping us create new value, provide more quotes more quickly, which supports premium growth. We also see AI augmenting underwriting judgment and claims adjudication with the potential to improve loss ratios in selected classes of business. We do not believe AI threatens the core economic value we provide, including risk transfer onto a balance sheet with a customer focus. Instead, it expands our ability to serve our customers and helps us assume more profitable risk.

For example, we deployed Harvey AI into our London Market warranties and indemnities business last year and extended it to our U.S. financial institutions and environmental lines in the first quarter of this year. We also partnered with Cytura to build a data ingestion system for our U.S. Wholesale and Specialty business that will significantly accelerate our underwriting analysis and speed to quote. In parallel, we are building a new operating model from the ground up to revolutionize our competitiveness in the hard-to-place U.S. small and midsized U.S. wholesale market.

Operational excellence is something that I expect from our leaders. We're fully embracing AI across the organization. Our business of businesses model is an asset, allowing individual units and their leaders to deploy AI quickly and locally without having to wait in a centralized prioritization queue. We are on the road to transforming our operational capability.

On culture, the culture that permeates Markel Insurance is one which encourages leaders and their teams to build businesses that will endure over a long period of time. We expect our business leaders to act like owners. We talk about how to win, not doing work. We have a respect for authority, but a distain for bureaucracy. The clarity of our structure and its alignment with the new P&Ls provide a strong degree of transparency and accountability. There is a building sense of excitement for what we can achieve. In short, the Markel style when 40 years ago is alive and well.

In conclusion, for the past year, I've emphasized what we're doing to bring clarity to Markel's insurance strategy while simplifying the structure underpinning it. These changes aim to empower great leaders to go out and build great businesses. Markel Insurance is now positioned to do just that and to return to the very top of the global specialty insurance marketplace. Achieving this goal will take time, but we are on the right path. And with that, I'll pass you back to Tom.

Thank you very much, Simon. And with that, Eiley, we will now open the floor for investor questions.

[Operator Instructions] The first question comes from Mark Hughes with Truist.

A very strong growth in the international insurance business. I think you've talked about professional lines, marine and energy. How sustainable is that? I know you've put some new initiatives in place to drive the top line. How do you think about the longevity of that market opportunity?

Let's have the man who was running that international insurance business speak to that.

Yes. Actually, a lot of things happened just after my tenure as well. So credit to Andrew McMellan over there in London and the rest of the world. It's an important question, Mark. There is a number of specific initiatives and growth areas that we've put in place around about the second -- at the start of the second half of last year. So we bought an MGA called MECO in the first half of last year. That started putting premium on the book from 1st of July forward. We opened up in Italy, which was a new measure. We took part in some structured portfolio solutions, which are like London market facilities, which were new to us during the course of last year. And so a number of things there are new initiatives that have taken off, which is probably new things that will not have as bigger growth increases during the remainder of this year.

There are also a lot of things where we invested in people, in technology, in teams, in new products, which are now coming to critical mass, I suppose. So this time last year, they were still getting going, and now we're seeing some real momentum building behind those. So there is some natural growth underneath there. I think, to be honest, 28%, which we struck this year will be at very much a high point. But I'm pretty confident that we'll see for the duration of the year, you should expect decent growth from international probably in low to mid-teens of the -- sort of from a GWP perspective. But yes, 28% was a terrific start to the year. And we genuinely believe, and this is the most important point, that, that is profitable growth with our international operations because they're finding new places to go and compete with new and high-quality teams that we're bringing into the business.

And a related point, the favorable development in international was very strong. Was there -- I won't say one-timers related to that, but was there anything unusual? Or is that you're just seeing good underwriting performance emerge in that line?

Yes, Mark, this is Brian. I would say this quarter was a pretty quiet quarter on the reserving front. Really no kind of chunky increases, chunky decreases, pretty much our normal kind of just releases of kind of our margin and what we do on a regular quarter-over-quarter basis coming through in the period. Certainly, the one kind of thing year-over-year is we did have some bigger releases a year ago in that international professional book. That book is still holding up very well. It just is not quite as big of a release this year as it was a year ago.

Yes. And then on the other side of the coin, GL, a lot of talk about the kind of re-underwriting declines in GL premium in the U.S. Can you give us an update on that? How much of that is market? How much is maybe inflation, loss inflation? -- how much progress have you made on those initiatives? And when might that return back to positive growth?

Yes. Thanks, Mark. It's Simon. I think from a U.S. GL, we did a lot -- this is the area of the book of business where we've probably done the most work to re-underwrite. And the 2 major things where we've re-underwritten. The first is to lower our average limits quite significantly, probably north of 20%. So if you think you were writing $15 million lines and now $10 million lines, $10 million lines quite often now are $7.5 million or $5 million. So we've spread the portfolio more broadly, and we've lowered the limits per risk that we're taking quite materially, especially in the excess areas of that particular book of business.

What that does is protects us a little bit more from what we call a frequency of severity problem. And what I mean by that is what we're seeing in the U.S. is that when we see cases going to court or being settled, those numbers are often a lot bigger now than they were maybe 8, 9, 10 years ago. People call that social inflation. Well, the way that we and several of our peers have dealt with that is by reducing limits. So if one of our insureds were to have a claim against them, our net loss and gross loss will be lower than it would have been, say, 7, 8, 9 years ago.

Now that takes time to bring that down, but I think we're in a much better shape in terms of our limit profile over the whole book of the business. Now because we're not writing as much limit, that will have a slightly depressing effect on the amount of premium that you take in. So -- but I'll take that trade any day because I think it helps profitability.

The second thing we've done in that book of business, which is material, is reduce the proportion of construction-related business that we're writing from around about, I think it was 40% to 45% of that book of business down to around 20% and maybe slightly below 20% now. We saw a lot of impact on our book. And when we took some of the reserve strengthening a few years ago, it was really that construction part of the book of business that were causing us issues. And we've moved pretty hard and fast to reduce that proportion within our book overall.

Again, that hurts us on the top line but benefits us on the bottom line. And that's absolutely the mantra that we're running. Now that we've gotten into a position where we feel much better about the shape of the book and the way in which it reacts in the circumstances we see ahead of us, we can now start to look for opportunities. There are still opportunities within the U.S. casualty market for us to look into and the way in which we choose to go and underwrite that risk and market to it.

I would signal one note of caution on that, though, in that clearly, the trend -- the claims trend in U.S. casualty business continues to run in probably, we think, the low double digits at the moment. And where we did see very good rate increases probably for the past year or so, we've started to see those rate increases come under a bit of pressure in the last, I would say, 2 to 3 months. And perhaps one of the reasons for that is as the property market has become more competitive, some of those underwriters are now looking for alternative ways to deploy capital and they're moving into the casualty market.

I will say this, and I can't tell you how much I mean it, we will not follow a casualty market down, and we will not lose discipline in that area. It's so critical to us that we keep that casualty portfolio in a position which we've gone into it now and start to go into just be in areas where we feel confident that we can make an underwriting profit over a long period of time.

But casualty, there's been a huge lift credit to the people that have been involved in that. It hasn't been easy at the front line in the market because we've had to say no to a lot of brokers that we used to say yes to. And you can imagine how that might go down from time to time. But the heavy lifting, I think, in many respects has been done and I feel very, very good about where the portfolio is at the moment.

And then one more, if I might. You talked about the collateral issue and your potential exposure. Any numbers you can share related to that situation?

Yes. I mean, as we sit here today, Mark, we acknowledge we've got a shortfall in the collateral. A lot of work is going into that. Weeks ago, we engaged an outside actuarial firm to kind of take a look at this for us at another level, get another opinion in the door. We're not going to share a number today or anything forward, but we certainly believe that, that is not material to our operations and capital position.

And your next question comes from the line of Andrew Klingerman with TD Cowen.

My first question is around book value per share. It sequentially in the quarter came down to $1,553 from $1,566. And it was in part due to a loss on the equity portfolio of about $58. So I'm wondering now with the S&P 500 Q-to-date up, I think, more than 9%, where would that book value be now, assuming that equity gain? Could you help out with that in the equity portfolio?

Yes, Andrew, it's Tom. It will be higher. We wouldn't do mid-period calculations on that, but your math would be correct and the number would be higher. That first quarter equity market volatility is something we've had decades of experience with. That's just normal mark-to-market stuff. Those changes were unrealized gains and losses, not anything realized.

Okay. But I would think materially higher. But anyway, 2 quick housekeeping ones. One, the $14 million impairment on an asset manager, could you clarify what that was? And then on the industrials, 6% revenue growth, but 16% operating income decline due to business mix change. What was that business mix change? So 2 kind of just clarification items.

Yes. I'll ask my partner, Andrew, to chime in as well. On the industrial market, again, almost like the equity markets, that's just normal volatility. It's a relatively soft overall GDP kind of environment out there, the K-shaped economy that people talk about. Well, we've got both pieces of the Ks going on out there, and I think the economist description of that is real. I'll ask Andrew to chime in from that point.

Yes, Andrew, on the financial question first, from time to time, we test business units for impairment around here. That's part of normal GAAP accounting procedures. Sometimes there's triggering events that cause us to do that on a shorter-term basis. In a small business unit within there, we felt like the carrying cost was not appropriate. We tested it for impairment, and we concluded that an impairment was the case.

However, if you step back and you think about the cash earnings potential of that segment, there is no change. That performance was already baked into results you've seen in recent quarters. So I think you need to separate out the noncash charge versus the cash potential of that business going forward.

As it relates to your transportation question, you're right. We mentioned mix in the quarter and the transportation being a drag there. One, I think Tom hit it on it today and just now again. Two, if you recall, 4 or 5 quarters ago, Brian actually laid out a nice narrative around these are cyclical businesses, but they produce great returns on capital over time.

Just to add a little data for you, look, dry van shipments, which is one measure of industry volume, have declined from all-time highs a few years ago to multi-decade lows today. There's a whole host of factors contributing to that oversupply during post-COVID years, weakened freight rates, higher financing costs and now elevated fuel costs, at least temporarily. The good news is this equipment must be replaced over time. And as the economy grows long term, so does the demand for this equipment. Our businesses operating in that segment are market leaders. They operate with no debt. They're led by industry veterans, and they maintain a long time horizon for each investment that they make. And we continue to believe we're still well capitalized -- well positioned to capitalize on growth in the future.

And I'll close Andrew, just one second, Andrew, probably, I appreciate the detail. Let me add one bit of color to your comments about the amplitude of the cycle this time around. So in the immediate aftermath of the onset of COVID, there was a super cycle of demand for these businesses were wonderful and produce sort of above long-term trend line results. We're now in a period where that equipment is out there. It's part of the inventory. It's getting used up. So we're through a soft part, but the size and scale of the amplitude of that wave has been bigger this time around than normally has been the case.

Last thing I'll say about it is if we had the opportunity to buy those businesses again at the price we paid for it, we would do it in a New York minute because they produce wonderful returns on capital measured over meaningful periods of time, and we have every expectation that will continue to be the case, and we would love to find more of them as we can.

Maybe real quick on the impairment, Andrew. It's a little bit different than the normal impairment. So Here, we're talking about a single equity investment that goes through an impairment calculation. That's a little bit different in the accounting world, not to go too deep into that in terms of the evaluation and what's done on an individual security that we hold versus a business impairment. And they run through different parts of the financial. So the impairment on an equity investment, you see that go straight to adjusted operating income and our kind of reoccurring earnings, whereas if you had an impairment on a business unit, it would go into the amortization kind of below the line section. So we're talking about the former here, not the latter in terms of the evaluation we did.

That was very helpful. And just 2 last hopefully, real quick ones. Simon, I love your comment about vanity and sanity. And as we look at the rates from a backdrop in the release, you talked about notable rate increases in personal lines and general liability and notable decreases in property, cyber and energy. Any quick numbers you could share with us? And then I have -- I'm sorry for so many, one more quick one.

I'm turning to Brian's notes on this, you might be able to give you a bit more detail on that.

Yes. So if you look at kind of where we are, I mean, property, as you would expect kind of what we're seeing there from a rate decrease across our portfolio, I'd say, high single digits across the gambit from a decrease standpoint. That varies dramatically depending on the size of accounts. So larger accounts, we're seeing a lot more of that. That's where we're doing probably more judicious underwriting, smaller SME accounts, not as large. So it kind of -- it does vary based on the spectrum.

Maybe the other place I'll go, casualty, Simon talked about that and just kind of what we're seeing, our view on trend in the low double digits. Rates are still in the double digits, but they are weakening a little bit from where we would have been in the low teens a year ago, now into the lower double digits range.

On the personal lines side, I mean, a lot of products in there, but most of that book is in our personal lines property space, not nearly under the same amount of pressure there as the general property market. We write that on an E&S basis. It's very customized in terms of the coverage and what's out there. Those rates are more flattish compared to the broader property market.

Got it. And I guess, lastly, stock looks like it's trading off about 7% this morning. It looked like some pretty stellar property -- I'm sorry, property casualty results, a little mixed elsewhere. What do you gentlemen think it takes to kind of get the stock moving up north from here?

Performance. And I think we've demonstrated a few quarters of doing that. And if the market disagrees with the performance that's happening, we'll continue to repurchase shares. And we are price sensitive in our repurchasing. So when things are -- when the stock price is going down, we buy more.

Your next question comes from the line of Andrew Anderson with Jefferies.

On the collateral discussion, if I look at some statutory data related to this reinsurance relationship at year-end, it looked like the collateral relative to the recoverable was near 100%. So I guess my question is, has there been some loss development on this relationship? Or is the collateral shortfall that you're thinking about in a low single-digit million range?

Yes. Sure, Andrew, it's Brian. So we evaluate loss ratios on all of our programs every quarter. So you're right, if you go to our annual statement, we would have had a loss ratio where the collateral was sufficient. We did increase that loss ratio a little bit here in the first quarter as we react to incurred claims trend. So that is what creates the shortfall that we're looking at today. Like I said, we're getting an independent actuarial review with a third party, bringing in some other data, bringing in more robust data to really refine that estimate a little bit better than what we've got today. So that's kind of our next step in the process, along with the State National team that's done this for a long, long time, continuing to pursue all their avenues under the contract to get additional collateral and offset against where we sit today.

Okay. And Simon, I think I heard you mention underlying claim severity running low double digits. How should we think about your implied reserve margin today? And how much conservatism remains embedded in those carried reserves?

Yes. So when I made those comments, it was a general comment about the industry. So claims trend. If anyone knows what the claims trend is in casualty, if they could tell the industry, that would be fantastic. So I think that is genuinely a -- that is obviously what we get paid to do to try and have a view on that. But coming back to that, how do we feel about the reserves? We have been extremely conservative in our reserving of that GL portfolio because we saw this start to happen 3 and 4 years ago. And I think looking back on that, I would say, Markel were one of the first canaries in the coal mine to really see these trends developing. And therefore, when we've looked at those reserves, over the last, I would say, 18 to 24 months, we haven't had to touch the GL reserves a great deal specifically to strengthen those ones up.

So I feel with the re-underwriting that we've been doing recently and the way in which that the portfolio as a whole has performed against those GL reserves that we've got, look, from what we can see, I feel quite good about that. What we will be watching for, though, is this pricing dynamic, which I mentioned in comments earlier. If people start to get ultracompetitive in U.S. casualty, that is where things go badly wrong in this industry. And I am concerned, and I'll say this on the call, about a number of kind of new entrant MGAs in the space backed by sidecars and private capital effectively, which in some areas being very competitive in areas that we know have caused significant losses in the past. And that is where people might get hurt, certainly financially, I think, over the next few years, we're going to be staying out of those games, and we're going to keep focusing on the areas where we know we can perform and bring some tremendous value.

But from a reserve perspective, from my perspective, everything we've done on that -- doing that conservatively early has put us in a nice position to start producing the results that we've done in the last few quarters. And to Tom's point around performance, that's exactly what we're focused on for the next few quarters as well. But Brian, you might have some extra detail on that.

Yes, I couldn't agree more with what you say, Simon. Maybe one thing I would add on the casualty space specifically, we've talked about this a little bit before, is we do have a reinsurance protection that we started pseudo, call it, 2019 and forward. It's a risk attaching treaty. So it's not perfect to that. But that is a stop-loss treaty in terms of how it functions. So that also gives us a backstop if we were to have to strengthen reserves.

And we've done some nominal strengthening of the gross since we have took our charge in 2023, not very much of that falls down to the net. But overall, as Simon says, we've been able to -- we took a big crack at it over a couple of quarters in '23 and then a big swing at the end of '23. We have not had to do so much with that since that time, which is what we had intended to do when we did all the deep dives, brought in third-party firms, took a really long and hard look at the construction trend, what is that construction defect kind of tail risk factor and longer tail than maybe the industry had projected there. And that's a lot of -- that drove a lot of the re-underwriting actions we were talking earlier about is kind of what we saw coming out of some of those reserving observations and being out in front of that and really adjusting the portfolio to the areas where we feel we can compete and do well from a profitability standpoint.

Your next question comes from the line of Mark Hughes with Truist.

I think you've touched on this, but kind of some sense of what you think the noninsurance business profitability might be in coming quarters. Tom, you pointed out how you're just looking at some cyclical pressures in certain end markets and these businesses have certainly created a lot of value. But when we think about kind of profitability through the balance of the year, it sounds like insurance, good. And then how should we think about those noninsurance businesses?

I think the first quarter gave you a pretty good picture of just the conditions in the economy, and we have 20-some businesses out there array through industrial and consumer. We've got some that are doing very well. We've got some that are setting all-time records, and we have some that are on the softer side of the curve. So I don't really have an aggregate point of view other than that they have always done a pretty good job of coming through. And I'm looking at Andrew, if you want to add a comment to that.

Yes. I agree with what Tom said. I think if you simplify the 3 divisions together, one, adding industrial to consumer and other, you start to see just more flattish. And then within Financial, we called out in our comments both a $31 million gain related to the sale of Velocity last year as well as the $14 million impairment of an equity method investment within. If you take those 2 numbers and you simply appreciate the unique nature and in one case, noncash nature, financial is also flat. So overall, I think when Tom colors the first quarter, we are not a company that adjusts earnings, but I would encourage you to look at it through that lens and marry that with Tom's comments around it's a reasonable representation of the state of affairs.

Yes. And let me conclude just by drawing back to the 80,000-foot level, if you look at Markel Group as a whole. So first quarter is done. As we went into this year, here's the sort of back of the envelope math we were looking at. With the business plans that existed within our insurance operations, that's in round rough numbers, call it, $700-some million of underwriting profits. that we think was a reasonable number. And I think we're on track to hit something like that.

If you add the industrial, commercial, financial businesses, that set of businesses last year made about $850 million, rough, rough, rough. We fully acknowledge that we thought it would be down from that wonderful result last year, but not by major amount. So just in round numbers, so we can do math in our head, call it, $750 million, something like that.

You take the investment income, the recurring interest and dividend income, that's pretty solid. That rounds to $1 billion, and we're on track on that. If you take the equity portfolio and just normalized returns, let's say we're at 8% total return normal expectation that we've got 2% of that through dividends. So 6% of that would be the normal unrealized gain that would take place. That's another $700 million or $800 million. So you add all those numbers together and you get to a number of over $3 billion.

There's a couple of hundred million dollars of interest expense and you have tax expense, some of which is deferred by virtue of the fact that we have the unrealized depreciation taking place in the equity portfolio. You add all those kinds of numbers up even on an after-tax basis, you get to double-digit returns on the capital we have, and we're continuing to divide them by fewer shares. And just to give you some numbers on that, it was interesting because I know the 3 of you who have asked questions, and Mark, I appreciate the fact you've asked a broader question. We oftentimes get compared against insurance company peers and not so much to some of the industrial company peers and the holding companies that I would include. But let's keep it within the yellow lines of insurance.

I was looking this morning. So with our share count at about 12.5 million shares, as I said in my comments, that's down about 10% from the peak of 14 million shares, and it's taken us about 5 years to do that. Going through the list of looking at things, Allstate these days is down about 260 million shares. And basically, you go back 5 years, they bought in 10% of their shares in 5 years as well.

Going in alphabetical order, American Financial Group has about 82 million shares outstanding. If you add 10%, that would be 90 million shares. We have to go all the way back to 2011 to get to where they've taken out 10% of their share count. Go to Arch Capital, a wonderful company, 359 million shares outstanding currently. Again, you go back about 5 years, and they have bought in 10% of their shares as well.

W.R. Berkley, a wonderful company we have a lot of respect for, about 380 million shares. You got to go all the way back to 2014 to see them having 10% more shares than they do right now. Berkshire Hathaway, which obviously we admire and think a great deal of. You got to go back to 2019. So 6 years, it took them to buy 10% of their stock in.

Chubb at 391 million shares, again, about 5 years since they were at a 10% increase to that. So same kind of time frame we've done that. Fairfax currently at 22. Similarly, it would be a 5-year count to go back to get that 10% in. Hanover Insurance Company, 35 million shares. I say you got to go back 7 years for them to have bought in 10%. Kinsale, 23 million shares. They've just recently started buying in some stock, but the stock count has been going up. And if I were them, I would do the same thing, their valuation. You look at us, again, it's taken us 5 years to do it. I think it will take us less than 5 years for the next. Progressive, 586 million shares. You got to go back to 2010 for them to have had 10% more shares outstanding than they do right now. RLI, wonderful company, 91.8 million shares outstanding. You go back over the 17 years of data I'm looking at, they've never bought back a meaningful amount of stock. And again, ROI has been very well valued. So I think that's a correct capital allocation decision on their part. Travelers, 216 million shares. And again, it would be about just a little over 4 years for them to have bought in 10% of their share. So I think we actually stacked up pretty well. And again, someone was asking me about the stock price and I said performance. Well, again, actions speak louder than words. So you're seeing us execute. And even through some of the challenges that we've had over the last couple of years, which we've spoken frankly and honestly about all the way along, we still had enough money buying 10% of the shares and not add to balance sheet leverage to do it. That's been out of cash flows. I think it's a very strong statement. And given the conditions of the business right now, the people we have running it, I'm optimistic about how the next several years play out.

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 participation. We look forward to catching up with you. We've got the reunion coming up on May 20 here in Richmond. We would love to see you there. It's a wonderful way to instead of hearing from 3 or 4 of us to hear from hundreds, if not thousands. So we would love to see you here in Richmond on May 20 for our annual meeting, which we call the reunion. Thank you.

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

Good morning, and welcome to the Markel Group Fourth Quarter and Year-End 2025 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 are 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 from our 2025 results as well as our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the captions Safe Harbor and Cautionary Statement and Risk Factors.

We may also discuss certain non-GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and reconciliation to GAAP for these measures in the press release for our 2025 results, the press release for our 2025 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.

Thank you, Rebecca, and good morning, and welcome. Thank you for joining this call on today's call. I'm delighted to be here with my colleagues, Brian Costanzo, our CFO; Simon Wilson, CFO of Markel Insurance as well as Mike Heaton, our COO, who will be available for the Q&A session.

At Markel Group, our purpose is to be a long-term home for exceptional leaders and businesses, and to relentlessly compound your capital at attractive rates of return over decades, all while staying true to our culture as we describe it in the Markel style. 2025 was a year that reinforced the power of that model. Every reportable segment made a positive contribution, and the company advanced both quantitatively and qualitatively.

Let me begin with Markel Insurance, where we took a series of decisive long-term actions this year. These were not easy, but they were necessary. And I want to thank the entire team for a year marked by tough decisions and genuine progress. In 2025, we exited underperforming businesses, most notably reinsurance, made key leadership changes, including appointing Simon Wilson as the new CEO of Markel Insurance, and we made structural improvements to simplify the business and reinforce accountability. The full impact of these changes will play out over years as is the case with all long-term compounding.

Last quarter, I described the results as a green shoot. This quarter, all adjusted to the plural. We are now seeing green shoots. In the fourth quarter, Markel Insurance generated a 92.9% combined ratio and contributed $399 million of adjusted operating income. For the full year, the segment delivered $1.4 billion in adjusted operating income, up from $1.2 billion in the prior year. And 2025 marked the 21st consecutive year of favorable reserve development, a testament to our conservative posture and financial integrity. Within Markel Insurance, the headline is simple. We're doing more of what works and less of what doesn't with a focus on simplification, better execution and improved returns on equity. As Simon will discuss later, we believe the foundation is now set, but it's early days. Importantly, Markel Insurance is only one part of a broader, more diverse ecosystem of high-quality cash flows, which are central to the Markel Group story.

Our Financial, Industrial and Consumer and Other segments also delivered positive results in 2025, each benefiting from the autonomy and accountability we give leaders to make the best long-term decisions for their businesses.

The Financial segment, which includes State National and Nephila had a tremendous year, generating $327 million in adjusted operating income, up 25% from 2024. The Industrial segment earned $343 million, slightly below last year's level. This was a strong result given the softening in certain end markets, and it reflects the skills of the amazing leaders of those businesses and the room and space we give them to serve their customers with a long-term mindset.

Consumer and Other delivered $175 million of adjusted operating income, up from $145 million last year with our acquisition of EPI driving most of the increase.

Our public equity portfolio returned 10.5%, generating $156 million in dividend income and ending the year with a market value of $13 billion with an unrealized gain of $8.9 billion. These equity holdings, diversified, high quality and held with a long-term mindset remain an important driver of compounding. All of our streams of adjusted operating income convert well into cash, producing durable, resilient and diverse inflows that give us the flexibility to allocate capital to its highest and best use wherever that may be across the group.

To that end, cash flow from our operations grew to $2.8 billion in 2025, and we put that cash to work with discipline. To give you a sense of that, we deployed some of that cash to $1.4 billion in fixed maturity net purchases, $207 million in new property and equipment. We bought $143 million of net public equity securities and invested $170 million in bolt-on acquisitions and increases in our ownership stakes in our existing majority-owned businesses.

We also redeemed $600 million in preferred shares and repurchased $430 million of our own common shares, all while weighing every dollar invested against its next best alternative. Even with all that investment and return of cash to shareholders, our cash balance increased by $411 million, and we paid down a little bit of our long-term debt. That combination, high-quality cash inflows with a 360-degree set of opportunities to deploy it continues to fuel what we often describe as a perpetual motion machine of shareholder value creation. In any given year, results can and will be volatile. But over 5-year periods and beyond, the trend has been up and to the right. That's the power of long-term compounding. It is a joy to serve you alongside such a great team. We are energized for the year to come, and we thank you for your ongoing engagement and support.

With that, I'll turn it over to Brian.

Thank you, Tom. Good morning, everyone. As a reminder, last quarter, we released significant enhancements to our financial disclosures, along with the reporting changes guide available on our IR site. We made these changes to help investors better understand the company and its performance. To review the major changes we made were changing the presentation of investment gains and losses to be included outside of revenues, establishing new reportable segments of Markel Insurance, Industrial, Financial, and Consumer and Other, while collapsing our former investment segment results into these new segments and reporting of new metrics, including adjusted operating income for all segments that excludes investment gains and amortization expense and segment level KPIs such as organic growth and return on equity for insurance. With that, let's cover the results for the period, starting with our consolidated results.

Markel Group's consolidated operating revenues, which exclude net investment gains, were up 8% for the quarter and 5% for the year. Operating income for the quarter was $795 million, up from $595 million in the comparable period last year and $3.2 billion for the year versus $3.7 billion in 2024. As a reminder, operating income includes net investment gains, which can be volatile from period to period.

Net investment gains were $212 million in the quarter compared with $117 million in the fourth quarter last year and $1.1 billion for the year versus $1.8 billion in 2024. Adjusted operating income, which excludes net investment gains and amortization expense, totaled $626 million for the quarter, up 19% versus the same period last year.

Adjusted operating income was $2.3 billion in 2025 compared to $2.1 billion in 2024 or up 10%. The increase in adjusted operating income was primarily driven by improvements in our insurance business and strong performance within our Financial segment.

Operating cash flow was $2.8 billion in 2025 versus $2.6 billion in 2024 and comprehensive income to shareholders totaled $606 million in the quarter and $2.6 billion for the year.

Turning now to our operating segments, starting with Markel Insurance. The return on equity for Markel Insurance for 2025 was 14% and the trailing 5-year period return on equity was 13%. We view the 5-year average return on equity as our primary KPI within insurance, measuring our commitment to generating consistent profitability within both our underwriting and investment operations and remaining efficient with our use of capital.

Markel Insurance underwriting gross written premiums increased 3% for the quarter and 4% for the full year, driven by personal lines in the U.S. and growth across several product classes in our International division. At a divisional level within Markel Insurance, within our International division, gross written premium grew by 14% for the year with the division growing in every market. Our International division continued its recent track record of fantastic results, posting an 83% combined ratio for the year.

Programs and Solutions gross written premium grew by 8% for the year, driven by our personal lines and delegated programs units. For our Wholesale and Specialty division, gross written premium declined 4% for the year. Excluding the impact from exiting our U.S. risk managed professional liability book earlier this year, premium growth was flat across the division.

In Global Reinsurance, which we exited in 2025, gross written premium declined 10% for the year. Overall, underwriting gross written premium volume, excluding the impact of exiting our Global Reinsurance and U.S. risk managed professional lines grew by 7% for the year.

One additional note on premium volume relative to our 2026 reporting. Our underwriting premium volume next year will be impacted by 2 significant items. First, the exit of our $1 billion gross written premium Global Reinsurance business; and second, the transition effective January 1, 2026, of our partnership with Hagerty to a pure fronting model. Hagerty premium will be included in our results going forward as fronted gross written premium versus underwriting gross written premium. This change was a natural next step in our long-term evolution of our partnership with Hagerty, continuing to retain greater amounts of underwriting risk.

In 2025, Markel only retained 20% of the Hagerty gross written premium volume, so the impact on our net earned premium volume will be significantly less. Together, these 2 changes will decrease underwriting gross written premiums for 2026 by approximately $2 billion, but we expect these changes over the long term to benefit our combined ratio, adjusted operating income and return on equity.

Turning back to insurance profitability. Adjusted operating income for Markel Insurance was $399 million for the quarter, up 31% from last year. The combined ratio for the quarter was 92.9% compared to 95.9% in the same quarter last year. This 3-point improvement was driven by lower losses from our CPI product and within our U.S. casualty lines, partially offset by higher attritional losses in our U.S. personal umbrella product and large losses incurred in the fourth quarter within our U.S. surety line. Our surety portfolio has been highly profitable for us since our acquisition of SureTec in 2017.

For the year, Markel Insurance finished with $1.4 billion in adjusted operating income and a combined ratio of 94.6%, a 1 point improvement from last year. We had 6 points of favorable prior year loss development for both the quarter and year-to-date periods, and our balance sheet position for reserves remains strong.

Turning next to our investment portfolio. Our net investment income was $258 million in the quarter and $970 million for the year, up 6% for the quarter and 5% year-to-date due to higher interest rates and increased holdings in fixed income securities. Our fixed income portfolio yield was 3.6% for the fourth quarter. We reinvested new money into securities at an average yield of 4% in the quarter versus 3.1% on average across our net maturities.

Within our public equity portfolio, during 2025, we made $143 million of net purchases of securities. Our public equity portfolio returned 10.5% for the year, bringing the value of our public equity portfolio at the end of the year to $13 billion with a total unrealized gain of $8.9 billion. Over the trailing 5-year period, the equity portfolio's annual return was 12% compared with 15% for the S&P 500. Our net equity purchases declined year-over-year, reflecting rising and less attractive valuations and better opportunities elsewhere for incremental investments.

Moving to our Industrial segment. Revenues were $1 billion for the quarter and $3.9 billion for the full year, up 4% for both the quarter and for the year. Organic revenue growth was 2% for the year. Revenue growth for the year was impacted by our acquisition of Valor and organic growth was driven by our equipment leasing business and our businesses that serve commercial and residential construction markets, partially offset by lower revenues in our transportation products businesses.

Adjusted operating income was $80 million for the quarter, down 26% from $108 million in the same period last year. Adjusted operating income was $343 million for the year or down 6% versus 2024. The decline in adjusted operating income was driven by lower revenues in our transportation products businesses and tightening margins due to higher materials and labor costs within our other products businesses.

For our Consumer and Other segment, revenues were $274 million in the quarter and $1.4 billion for the full year or up 4% for both the quarter and year-to-date periods. Organic revenue growth was 1% for the year. Adjusted operating income was $23 million in the quarter, up 35% versus $17 million in the same quarter 1 year ago. Adjusted operating income was $175 million for 2025 or up 20% versus 2024, driven primarily by our acquisition of EPI and higher sales volume of ornamental plants.

Next, within our Financial segment, revenues were $224 million or up 41% for the quarter versus the same period 1 year ago and $737 million for 2025, up 24% versus 2024. Organic revenue growth was 17% for the year. The increase in revenues for the year was due primarily to increased performance fees and a higher management fee rate within ILS, along with higher premium volumes within our program services product. Year-to-date revenues were impacted by a $41 million gain on the sale of our remaining minority interest in Velocity earlier this year.

The increases in revenue drove adjusted operating income up 58% to $107 million for the quarter versus the comparable period 1 year ago and up 25% for 2025 to $327 million. The year-to-date adjusted operating income change was also impacted by $58 million of favorable loss development related to Markel CATCo recognized in 2024.

Finally, regarding capital allocation. For the year, we repurchased shares totaling $430 million, reducing our share count to 12.6 million shares from 12.8 million shares at the end of last year. We also redeemed our $600 million preferred stock issue earlier this year, making total capital returned to shareholders over $1 billion.

With that, I will pass it over to Simon to discuss Markel Insurance.

Thank you, Brian, and good morning, everyone. I'm pleased to be with you and share some further insight on the progress at Markel Insurance. First off, some numbers. The quarter produced a combined ratio of 92.9%, 3 percentage points better than the same quarter in 2024. The prior year reserve release of 6 points in the quarter was broad-based and reflective of the stable position of our reserves. We achieved 3% growth in GWP and 7% growth in net earned premium despite our withdrawal from the Global Reinsurance business.

Improving underwriting results were an important factor in achieving a 14% return on equity for Markel Insurance in 2025. Our underwriting and reorganization actions over recent years are beginning to pay dividends. We are now far better able to focus on the key areas where we have a right to win. The combined ratio of our 3 ongoing business divisions for Q4 2025, which excludes the impact from Global Reinsurance and CPI was 91%. This figure would have been even stronger, but was impacted by heavier-than-expected losses in a large personal umbrella program and our surety business, where we were hit by 3 discrete losses in the period.

Every decision that we made during 2025 was designed to simplify our business and create clarity around P&L ownership. Ultimately, these decisions will drive more consistency and better execution around the key financial metrics of combined ratio and return on equity over the long term.

The 2026 business planning process completed in the quarter was a key test of a new structure and gives me confidence that the overall organization will benefit from the changes we made in 2025. Five key indicators that underpin this confidence are: number one, a revamped portfolio mix with a refreshed focus on bottom line results and a wide range of profitable growth opportunities; number two, ambitious and measured investment plans for our high-performing businesses with clear growth opportunities such as environmental, energy, healthcare, financial institutions, personal lines and workers' comp in the U.S. and our key regional businesses in the London market, European Union, Asia Pacific, Canada and the U.K.; number three, P&L owners are challenging expenses harder than I've seen in a long time. It's been interesting to watch the way behavior changes when costs are clearly attributable to a business unit. I fully expect and encourage this behavior to continue.

The planned doubling of investment of our technology stack this year versus last is the fourth area. These decisions are now driven by the business rather than the corporate center. For example, we have a complete system overhaul in the high-performing personal lines business, the continued transformation of our data and core operating systems across the International division and a commitment to increasing decision-making speed and response times in our core U.S. wholesale and specialty division. AI will be a central component of all these investments. We are fully aware that speed is a critical success factor in our business, and we are focused on improving it.

And finally, number five, a renewed sense of ownership across our leadership group. A founder's mentality is returning to the fray. Our business model is designed to be driven by many, not few. We have set clear expectations for every area of our business for 2026. Our job is now to execute. Further, the overall improvement in operations is built upon the continued strength of our balance sheet. The overall reserve release for 2025 was 6 points or $484 million. We're able to make these releases while increasing our margin of safety and overall strength of the balance sheet. We have a continued commitment to setting reserves that are more likely redundant than deficient.

A strong margin of safety will be important in the coming years. There is no doubt that market conditions in many areas of the specialty insurance industry have softened. Profitability has been high. Competition has increased and prices are under pressure in several key lines of business. However, competition drives progress and our customers and brokers continue to value clear appetite, market-leading expertise, high-quality service and speed of decision-making. Our job is to continue building a business that meets these needs, all while staying true to the Markel style.

Businesses and teams that focus on their customers remain well organized and have a strong sense of purpose for those best positioned to succeed in any market conditions. As the comedian Billy Connolly once quipped, there is no such thing as bad weather, only the wrong clothes. I'm pleased with our new wardrobe and look forward to sharing the results with you on the 2026 catwalk.

With that, I pass it back to Tom.

Thank you, Simon. Rebecca, we'd love to open the floor for questions. Thank you.

[Operator Instructions] The first question comes from Andrew Kligerman with TD Cowen.

I'd like to start off in the property casualty segment. I think back in early January when you hosted an investor meeting, Simon, you touched on wanting to kind of level out at a 93% combined ratio. And I guess the fortunate part is that you're more focused on casualty. So I want to get a sense, do you feel like the way pricing is in casualty, coupled with some intense loss cost trends, can you -- and you did come in at 92.9%, so right on the number in the quarter.

Do you feel like you can sustain the trends, the 93%? And then underlying that, looking at Program and Solutions, you came in at 101.9%. I'd like to know what drove that and what you might do to kind of get that lower? And then on the flip side, International was fabulous at 80.5%, and I'm wondering what's driving such a terrific combined ratio and whether trends are going to push that up, long question.

Well, that's pretty much everything there.

Yes, [indiscernible] question, sorry.

No, that's fine. And thank you for the interest in those numbers as well. I have said -- and we said for a long time now that to hit our return on equity kind of like aspirations, a low 90s combined ratio is important to us. So that's absolutely my ambition and the focus of our organization to get down to that kind of a number consistently. That's the plan. Part of your question is saying, look, you guys pretty casualty-centric organization. How do you get to a 93% with that backdrop? I'd probably challenge that actually. I don't think we are that heavily casualty oriented. We've got a very diverse book of specialty products.

Yes, we've got U.S. casualty, but our London market business, for example, lots of marine, energy, a lot of professional lines all around the world. So I don't know the exact percentages of our casualty -- the casualty contribution to our book, but it will be less than 50% for sure. And so again, very well balanced across the portfolio. Therefore, I think it's the power of that diversification and us kicking the tires in lots of these specialty business areas that gives us the confidence that we can get towards achieving that ambitious combined ratio target over time.

So if you're asking me, do I think we can approach those targets? Well, everything that we're doing and putting in place is designed to achieve those, but we'll see how that pans out. But the diversification of the portfolio and those different drivers, a couple of those that you just called out that will end up with the result overall. So I'm focused on it, I feel good about it at the moment.

Specifically on Programs and Solutions, you raised that in the quarter, it took a pop. And I did mention in my comments, and I think Brian did in his, there were 2 factors that influence that. And a quarter is a pretty short period of time. So you get the occasional blip. The 2 areas were in our -- what we call our programs business, that's delegated underwriting, where we do a personal umbrella account. And we saw the claims trends beginning to spike in that area. And what we tend to do at Markel and certainly my philosophy is to get ahead of those loss trends and put our reserves up early.

So the combined ratio and the loss ratio within that for the personal umbrella program is really driven by us putting up a big solid reserve against that program so that we've got the money in the bank effectively to pay the claims that may or may not come through, but that's our best guess at the moment and very much focused on that redundant rather than deficient position on our balance sheet. So that's the first area in Programs and Solutions that created that result that came overall.

The second area was actually in our surety business, which I'll be honest, I think we were a little bit surprised, not least because the surety business has been an absolute mainstay of profitability for a decade now since we bought a company called SureTec back in the mid-2000 teens. This -- often in business like the ones that we do, we get the occasional large loss, and in surety, we actually suffered 3 large losses in the quarter, and we've obviously reserved and paid claims against those. That happens.

I will take the trade on surety every day of the week, though. We were -- we had 3 large losses this year, but it's on the back of 10 years of very significant profitability. And as we look forward into 2026, having reviewed that entire book of business, we feel really good about that, the standard result that comes out of that business, absolutely meeting our combined ratio and return on equity targets. So I would consider, and I genuinely think that the Programs and Solutions business suffer from 2 very specific areas. The rest of that area, personal lines business, our Bermuda business and our workers' comp business all performed really well. So on average, I think they did really nicely.

International, I do have fairly good insight into that. They've been producing extremely good results for a number of years now. And what happened there was in the late of probably 2017, '18, we took a big hard look at the portfolio and took out areas of business which we didn't think we were going to be profitable over the long term, areas where we didn't feel we had the right to win. So when we cut back and -- this is 5, 6 years ago, those areas, we then started to grow in areas where we did have the right to win and our regional businesses as well.

So what we're seeing now is the result of decisions that were made 5 and 6 years ago and then investment on that new business model over quite a long period of time. So key growth areas last year were in Asia Pacific, which was up over 30%, our European Union business, which is up 20%; London market business, which is up 13%. They are all areas that we've been strategically investing in for a long period of time. And the result is one of quite good market conditions over the past few years, but absolute focused investment in areas where we think we can win.

And that's what we're trying to do in all the other areas of the business now that we've got this really focused business model across the whole of Markel Insurance. So I can't say that we're going to achieve low 80s combined across the whole thing for the next decade. That's not what I'm going to say here, but we'll take the International results now. And I think what we've seen there and the techniques that were driven to achieve those results is exactly what we're deploying across the rest of the business. And that's what gives me confidence in the thing as a whole. And I look forward genuinely to what we can do in 2026.

If I may, Andrew, just to finish up, to translate Simon's English accent to the American idiom, we will do the best we can, and that's not so bad.

No, it's not. super helpful response. Maybe shifting over to Industrial and Consumer. And by the way, thank you for the new reporting structure. It's very helpful. The Industrial organic revenue was up 2.5%. I think you just mentioned equipment leasing was good, and it was offset by transportation. Wondering if you could share a little color on how that's likely to trend going forward. And then in the Consumer, you had organic growth of about 1%. I think you mentioned ornamental plants was a positive. But how do you think that's going to trend going forward as well?

Yes, Andrew, it's Tom. We are delighted with the collection of businesses that we own. We've got first-class people running them. They're producing good returns on capital. We run those with a focus on good returns on capital over long periods of time. Each and any one of those businesses in any quarter has volatility and normal cyclicality and seasonality. So frankly, the answer to your question is we don't think about it that much. As long as those businesses are being well run and doing what they should do, well, then the outside forces are what they are. But when we totted up the numbers of them for a long period of time. As you can more clearly see in the way we're presenting the financial disclosures and data these days, we are happy. We were happy 6 months ago. We're happy right now. We would anticipate continuing to be happy with the way those businesses are performing.

[Operator Instructions] Your next question comes from the line of Andrew Andersen with Jefferies.

Maybe just on the Insurance segment. How are you kind of viewing the insurance pricing environment into '26? Are you still seeing rate increases in certain areas? And maybe how does that differ between U.S. Wholesale and the International segment?

Thanks, Andrew. Thanks for the question. In -- there's a general trend, I think I mentioned that sort of -- so there's a number of lines that you are seeing softening rating conditions at the moment. In particular, I would say U.S. property would be top of the list on that. We've seen very significant profitability definitely in our book, but that's across the industry. And with that profitability often in the insurance market cycle, you see heavy competition. So we are seeing very significant competition in that U.S. property market. And it depends what the account is, but you're looking at probably at least 10% reductions in many of that -- in that property book and probably up nearer towards 20%, I think, in general terms. And we've seen that reported by several other players as well.

It is a bit more nuanced than that. It's not just to say like every property risk is down double-digit percentages. What we're really seeing in property is the structured and layered risks that come in. There's a change in the structure that's going about. So the primary layer is actually writing larger lines with sort of the initial insurer and some of the -- the layers on top of that, the excess layers are being challenged either by being removed completely or you're seeing an awful lot of competition going around them.

So if you're playing in the second or third excess layer, you're probably seeing more intense price reductions there than maybe you are on the primary side. So property is generally soft, but you're also seeing that nuance a bit where depending on where you play in the program.

A lot of people though in property are talking maybe not just about rate reductions, but rate adequacy. And I think that's really important because there were a lot of sharp rises in the property market when we saw catastrophes kind of 3 and 4 years ago, impacting the cat market and then the non-cat market in property as well. So I think the general sentiment in the industry is that prices are just about remaining adequate at the moment, but you really have to be thoughtful about what your risk appetite is and where your sort of your walkaway price might be. So we're keeping a close eye on that area.

Conversely, the casualty market continues to get rate increases, specifically in auto risks, habitational risks, construction risk. We're seeing that significant rate increases ongoing. And that's important because the claims trends that we're seeing in those areas continue to be fairly strong as well. So the skill in casualty is not just writing everything just because rates are going up, but really being thoughtful about the areas of the casualty market in which we're going to play because the litigation environment in the United States is all very significant as well.

Moving to International briefly. I would suggest that there is softness there. So as a wholesale market in London, you see quite a lot of business that going to London becoming sort of structured and certain brokers are bringing that in and looking for price reductions when they go into London. So certainly, in marine lines, energy lines, property areas, we're seeing that price competition in London as well. I think the professional lines area actually has begun to stabilize after a couple of years of softening. I think that's stabilizing. And again, being really focused on rate adequacy in that area is what we're focused on. And sticking to the bits of the professional lines where we really think we add value to the broker and to the ultimate customer and where we've got expertise, that serves us well, and that's one of the reasons why our combined ratios have been so good in London is because we've chosen our risk pretty well.

Outside of London, in our regional offices, and this is a really important point for people to note, we tend to focus on the small end of the risk market. And the very small end of the risk market, and this is maybe $2,000, $3,000 policies quite often, certainly in the European Union, the U.K. regions and some of our Asia book. In that area, the price competition is less aggressive.

So yes, you might see a bit of softening, but it's very much single digit in there. And often, we're charging minimum premium. So the rate adequacy can be really positive in that area. So less affected outside of our London lines than in London just because the intensity of competition for that small risk segment is just lower. It's harder to get at, and it's stickier. So our strategy within International is to grow our non-London portion relative to London so that we've got more of this kind of smaller, stickier business, which is less exposed to intense price competition going forward. And I think that balance will help us with that overall diversified portfolio over time.

So it's a mixed bag in terms of what's happening in the rating environment. And to very quickly summarize, property is competitive. Casualty actually, we're seeing firming and hardening, but it's not an easy market to underwrite your way through. London is competitive. Non-London International actually is stacking up, continues to stack up pretty well. So hopefully, that gives you a bit of a flavor for what's going on in our world. It's an interesting time, and I like our odds with the underwriters that we've got on the ground to navigate it.

Very comprehensive. And maybe we could just kind of shift to AI and the expense ratio. What kind of -- where is it being deployed within insurance? Maybe what are some returns or examples you've seen so far, and some focus areas into '26 and '27 for deployment?

I'll ask Brian to take the first stab at that and...

Sure. Yes. I mean, I think with the new model that we have and the operating model and the org structure, I mean, now it's really in the hands of the individual business leaders. We're trying to put tools in their toolbox, make them aware of what's out there. We've had some really nice wins in lines where you have large documents and need to digest big amounts of data. So think of things like transaction liability, financial institutions where you can get data rooms filled with all kinds of things that humans have to pour through, the AI can synthesize that down very quickly, pull together the data and allow you to lower the investment of the human side, and that allows you to look at accounts that from a size and premium standpoint, you wouldn't have been able to access just because of the human element and the expense ratio of going after those. Now you've broadened what you can go after from an appetite standpoint. So that's certainly one example.

I think the other place we've seen a lot of AI use is in data ingestion. So when we have delegated underwriting arrangements, when we have [ border ] business coming in, when we need to get data into our systems and use that to make decisions using the AI to transport, bring it in, and that avoids a lot of the human element of what I call data wrangling and data compiling that's expensive, it's non-value add. It shifts those resources now to where the data is there, you can now spend the time doing the analysis, finding the trends, finding where you win and enhancing the book overall.

And I'll just add to Brian, and you picked up some really important spots. I will say this, I am -- Andrew, I'm utterly obsessed with operations. I'm sort of -- I'm pretty geeky around this stuff. I'll admit that much. And efficient and high-quality operations that lead to speed of response are absolutely at the center of my mind now. I'm really excited about where we are on this AI position, right?

We have some really exciting projects ongoing at the moment. Brian alluded to a couple of them there. But what 2025 did to clear the organizational structure so we can really focus on specific areas of the business, allows us to deploy AI in a much, much more effective way than a simple broad brush effect that we did previously.

So I don't think we -- we're doing some really exciting things. I think will begin to impact our productivity and efficiency at the moment. But I'm going to start turning the handle on AI and just operations in particular, during this quarter and next to get our focus in and around that. And I think that will begin to have a much more material impact as we go through the next sort of 6 to 12 months. So we've made a nice start, but the strategic level of what we need to do here is just beginning.

And maybe I'll add, [ Markel ] will talk more generally on expense ratio. If you look at the portfolio, the areas in which we're growing and have been very profitable in some of the segments in International, our European business, our Asian business in the U.S., our personal lines business, those are all great businesses, low combined ratios. They have higher expense ratios to operate.

They have opted inverted expense ratio loss ratio profile to other areas of the business. Areas where we've been very challenged, our Global Reinsurance business, our risk managed professional liability product that we've exited, those are some of the lowest expense ratio businesses that we had in our portfolio. So we are ultra-focused on combined ratio, return on equity. We certainly want to take advantage of efficiencies, AI or whatever they might be from an operations standpoint. But number one is that combined ratio focus that we have.

Your next question comes from the line of Mark Hughes with Truist.

In the Financial segment, earnings very strong this quarter. You talked about better fees, I think assets under management. How much of that was product of just the light cat season this year? And how much of that should we think ought to carry forward into 2026?

Yes, I'll start, and I'll turn it to Brian. Yes, clearly, the light cat environment helps.

Yes. I mean -- so what I'll say is the like cat environment at Nephila, they did earn some performance fees in the fourth quarter based on that. But kind of -- we've talked about this before. Those kind of all matriculate in the fourth quarter. So you wait the full year, you see how the ultimate kind of cat season plays out. And then in the fourth quarter, those crystallize. And with a very low cat season, we saw the benefit coming from that. The other thing going on there is the State National business has just been on a consistent track record year-over-year growth, growth in the premium base, growth in the fee income that they're generating. That's high-margin business when it comes in. So a lot of that growth drops right to the bottom line.

On State National, have you seen any push in your book for more risk retention on your part? Or -- yes, I'll leave it at that.

Yes, it's Tom again. Yes, that's a feature of the market. State National has been a leader, they do well and leaders attract competition.

Very good. And then Tom, the AI trade, when you allude to your equity portfolio, a lot of discussion of software companies or tech companies that may be at risk from AI and obviously, opportunity, but then it's quite a volatile area. So how are you looking at that from your equity portfolio standpoint?

Well, I appreciate the question. One of my great friends and mentors and teachers and long-time Markel shareholder who passed recently, a guy named Chhadrow down in Texas, and I learned so much from him over the years. And one of the things he used to say was that in the investment business at any given point in time, you look either smarter or dummer than you really are. And 2025 was a year, I would say we looked dummer and we probably really are.

If you look at our long-term record, very proud of it, very pleased with the discipline and the way we do things. But clearly, the AI headlines that you read had a lot to do with investment returns and probably a bit less with what happened at Markel. As we turn the quarter into 2026, the swirl that's out there, let's hold our fire and see how that works out. But clearly, the disciplines and the tools and the principles we've used to manage and select equity investments over the years on any given day will look better or worse than they truly are and I stand by what we do.

Very good. And if I could squeeze in one more on the personal umbrella. You put up strong reserves. What underwriting actions have you taken? Price increases, stricter terms and conditions, just curious.

Yes, good question. So we've done 2 major things I would suggest just for this call. The first is to increase rate quite significantly. Now it's an admitted product, so you have to do that state by state, you have to apply for it. So I think we're up to, I mean, a dozen states now that have signed off on that. So we have a material increase in the pricing that we're able to charge in those states now. But we've also taken another key underwriting action, which is to stop underwriting people's second homes in Florida. That was a cause of a lot of these losses. And increase the attachment point from -- it used to be $250,000 where we attached in these states where we've been able to get the rate increase, we've also increased the attachment point to $0.5 million.

And we think that will take away a significant chunk of the losses that we've been being hit with mainly from auto losses actually in those various states. So we've acted decisively, quickly, and we are keeping a very, very close eye on how those claims trends go from here on in. But we do have -- we put the reserve up this quarter to give ourselves breathing space and cushion to watch that play out. And ultimately, if these underwriting actions don't work, then we'll have to think about maybe withdrawing from that particular area of business. We're not there yet, but we'll see. But a very, very big focus in the last couple of months from Alex Martin, Jeff Lamb and their teams.

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

Thank you very much for joining us. We appreciate your support and your interest, and we're delighted to be able to report the results of the rational focus and the rational actions that we are indeed committed to and starting to see the green shoots from those activities. We look forward to connecting back with you next quarter. Be well.

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

Good morning, and welcome to the Markel Group Third Quarter 2025 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 our press release for our third quarter 2025 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 reconciliation to GAAP for these measures in the press release for our third quarter 2025 results or in our most recent Form 10-Q. The press release for our third quarter 2025 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.

Good morning, Kelvin, and thank you very much. Welcome, and thank you for joining us for today's call. I'm delighted to be joined by my colleagues, Brian Costanzo, our CFO; and Simon Wilson, our CEO of Markel Insurance. We're also joined by Mike Heaton, our COO, for the question-and-answer portion of the call.

At Markel Group, we're committed to relentlessly compounding your capital and building shareholder value. I'm happy to report that so far in 2025, we continue to do exactly that. I'm particularly pleased that throughout the first 9 months of 2025, every reportable segment made positive contributions to the value of the Markel Group. They also did so in a capital-efficient way, generating significant cash flows that helped fund our ongoing share repurchases and buildup of liquidity.

The first 9 months of 2025 stand as compelling evidence of how our differentiated model works. Brian will provide more on our detailed financial performance in a minute, and Simon will speak about our ongoing improvements in our insurance business. But before I turn the call over to them, I would like to say a bit more about our progress this year.

First, as you know, our Board and management have been intensely focused on improving our core insurance business. We've taken many decisive actions over the last few years, including: one, exiting underperforming businesses, most notably reinsurance; two, making key leadership changes, including appointing a new insurance company CEO with a proven track record of success; and three, implementing key organizational and structural changes to improve accountability, including shifting most of our overhead directly into the businesses.

I'm pleased to report that these actions are beginning to translate into results as we achieved a combined ratio of 93% within Markel Insurance in the third quarter compared to 97% in the comparable period. While this was aided by light cat activity this year, looking underneath some of the lines we exited, the improvement in our core insurance business is becoming clearer. We believe this is just the beginning. The improvements in insurance profitability so far provide evidence that our actions are starting to drive better results.

I think it's also worthwhile to point out that we have reported favorable reserve development on an annual basis each year for more than 2 decades now. This reflects our inherent conservatism and commitment to financial integrity. Simon will provide more comments on our insurance business, but the headlines are that we're doing more of what works and less of what does not. We are simplifying the business, increasing accountability to front lines and setting the stage for renewed growth and improved profitability.

In all of the businesses we own and oversee, our CEOs have continued to run their businesses with professionalism, long-term focus and extreme skill, navigating through volatile and uncertain economic conditions to deliver strong returns on capital and profitability.

The Markel Group system also continues to generate significant cash flow, offering further evidence of the strength of our model. Over the trailing 5 years ending September 30, 2025, our cumulative operating income was nearly $13 billion. This incoming cash gives us financial strength and offers us flexibility to pursue opportunities we understand with partners we trust while returning capital to our shareholders at the same time.

Our opportunity set is significant. We can reinvest in our existing businesses or expand into new public and private businesses. Much of our growth capital has been deployed in the industrial, consumer and other and financial sectors, where over decades, we have developed a core set of competencies around culture, capital and leaders, each of which adds to our ability to relentlessly compound your capital.

I'll also note that we've earned strong returns on those investments. In the 5-year period of 2020 to 2024, the insurance, industrial, financial and consumer and other segments of Markel Group paid dividends up to the holding company of approximately $2.2 billion. We invested $1.7 billion in acquisitions and additional interest in our existing businesses, primarily in the industrial and consumer sectors, all while supporting substantial growth in insurance.

Regarding share repurchases, from the end of 2020 through the end of Q3 2025, we've returned approximately $1.9 billion of capital to shareholders via repurchases, again, while strengthening the balance sheet. Share count was reduced from 13.8 million to 12.6 million. In our investment operations, we continue to remain focused on preserving and protecting your capital.

We earned 8.4% on our equity investments so far in 2025. The book yield on our fixed income is 3.5%, and our reinvestment yield was 4.2%. We aim to be thoughtful stewards of capital and seek to match our liabilities by investing in only the highest rated fixed income securities. This safety-first approach has served us well. We are then able to utilize the strength of our balance sheet to invest in the areas where we see the best opportunities to deploy capital.

As part of our Board-led review, we also committed to improving our financial disclosures to ensure that you can better see where our earnings come from, how we allocate capital to its highest and best use and how capital has performed overall and in all parts of the Markel Group system.

Last quarter, we enhanced our disclosures for the insurance operations to better align it with the business' strategy and provide more detail for investors. This quarter, as you can see from our 10-Q and the supplemental materials we provided yesterday evening, we have provided additional new disclosures, including now reporting our business results into 4 segments: insurance, industrial, financial and consumer and other.

I'm sure it will take a little time for everyone to process and digest our new disclosure format, but I hope you will find it helpful in how it describes the ways our diversified set of businesses reinforce our overall financial strength and stability and how our significant reinvestment options and highly efficient and low-cost capital allocation all work together to generate steady and diverse cash flows and relentless compounding of your capital over time.

We believe that a key part of our success has always been how our Board and leadership team maintain strong oversight over the company's operational, financial and value performance, always evaluating ways to improve.

With that, I'd like to turn things over to Brian. I look forward to answering your questions after he and Simon provide you with an update. Brian?

Thank you, Tom. Good morning, everyone. As Tom mentioned, after a listening tour with our investors earlier this year, we decided to undertake the effort partnering with our Board and third-party advisers to further enhance our financial disclosures.

Markel Group's evolution created the opportunity to take a fresh look at how we report our financial results to shareholders. We released the first part of these changes in the second quarter to align with our reorganized Markel Insurance segment. Last night, we released the remainder of our changes across Markel Group.

We are excited to hear your feedback. We believe that these changes will help investors both better understand your company and provide improved insights into how both Markel Group as a whole and its family of businesses are performing. While I will reference several of these changes as I walk through our quarterly results, the primary changes to our financial disclosures include changing how we present investment gains and losses to provide investors with a better sense of reoccurring operating results from our businesses through: first, moving the presentation of investment gains and losses to outside of revenues; and second, introducing a new metric for adjusted operating income, which excludes investment gains and amortization expense from our operating results.

We also reorganized our business results into 4 reportable segments: Markel Insurance, Industrial, Financial and Consumer and Other, and shifted to adjusted operating income as our segment performance metric for each of our reportable segments, collapsed our investments segment into the new reportable segments, introduced new consolidated and segment-level KPIs such as organic revenue growth and return on equity for Markel Insurance; and finally, updated business descriptions to help investors more fulsomely understand our family of businesses across the variety of industries in which we operate.

We also created a Reporting Changes Guide for shareholders, along with supplemental recast financial information that aligns with our new segment structure for the trailing 7 quarters. We filed both by an 8-K last night, and they are available to you now on the SEC's website and our Markel Group website. We hope these tools are helpful in navigating through the changes in our financial disclosures.

With that, let's turn to the results for the period, starting with our consolidated results. Consolidated revenues were up 7% for the quarter and 4% year-to-date. Revenues in all periods are conformed based on our updated measurement, which excludes net investment gains from our total revenues. All reportable segments were up year-over-year for both the quarter and year-to-date periods.

Operating income for the quarter was $1 billion versus $1.4 billion in the comparable period last year. Operating income includes net investment gains, which as historically been the case, drove most of the year-over-year variance. Net investment gains were $433 million for the quarter compared to $918 million in the comparable period last year.

Our new metric of adjusted operating income totaled $621 million for the quarter, up $121 million or 24% versus the same period last year. A quick reminder that adjusted operating income excludes net investment gains and amortization expense. We believe this metric will provide better insights on the reoccurring operating performance of our businesses.

Insurance contributed $153 million of the adjusted operating income increase for the quarter and $100 million year-to-date due to improvements in underwriting results and increases in net investment income. The other segments were relatively flat compared to last year for both periods.

Operating cash flows for the first 9 months were $2.1 billion. Comprehensive income to shareholders was $793 million for the quarter and $2 billion for the first 9 months of this year.

Turning now to our operating segments, starting with our Markel Insurance segment. Results from our Markel Insurance segment now include underwriting and insurance activities, along with the results from our investments that are held by Markel Insurance subsidiaries. This change to a balance sheet view let it be clear what the after-tax returns on our insurance capital are on an annual and 5-year average basis. Due to the inclusion of equity securities within our insurance capital, we believe a 5-year average metric is a better gauge of long-term performance. The average after-tax return on equity for Markel Insurance for the 5-year period of 2020 through 2024 was 12%.

Underwriting gross written premiums were up 11% year-over-year for the quarter and 4% year-to-date, driven by growth in our personal lines, general liability lines and our international lines for the year and our reinsurance professional lines in the quarter. The increase in reinsurance professional lines was driven by the timing of 2 large contract renewals that occurred prior to the execution of the renewal rights deal.

Premium volume for the quarter within our Wholesale and Specialty division was down 6% versus last year, due to the exit of our U.S. risk-managed professional liability lines earlier this year and down 1% excluding the 5% impact from these exited lines. Our International and Programs and Solutions divisions both had strong growth in underwriting premiums in the quarter of 25% and 12%, respectively. Earned premium was up 5% for the quarter and 2% year-to-date due to increased growth in more recent quarters. Adjusted operating income for Markel Insurance was $428 million for the quarter, up from $276 million in the same quarter last year.

The combined ratio for the quarter came in at just under 93% compared to 97% last year. The 4-point improvement consisted of lower cat activity, which drove 3 points of the difference with lower losses from CPI contributing another point. For the year, the combined ratio stands at 95% for both periods. The results from our runoff Global Reinsurance division added 2 points to both our current year quarter-to-date and year-to-date combined ratios.

Our International division continues to produce fantastic results for the year, with a year-to-date combined ratio of 84%. The quarter and year-to-date expense ratio of 36% is slightly higher than a year ago. Higher expenses were primarily driven by higher personnel costs, primarily within our international division, and increased third-party professional fees and severance costs. Prior year loss development was consistent at 6 points favorable in both the quarter and year-to-date periods in both years. For our 2025 year-to-date results, favorable development across several product classes across the globe was partially offset by adverse development in our reinsurance casualty lines and in our discontinued risk-managed professional liability lines, both of which were recognized during the first half of this year.

Investment income within our insurance operations was up 10% for the quarter and 9% year-to-date due to higher interest rates and volume of investments held within our fixed income portfolio. As a reminder, 96% of our fixed income portfolio is rated AA or better.

Moving next to beyond our Markel Insurance segment and starting with the Industrial segment. Revenues were $1 billion, up 5% versus the same quarter 1 year ago, driven by increased industrial production activity and demand in the wind energy, construction and building products industries, partially offset by softening demand in the auto industry.

Adjusted operating income was $101 million for the quarter versus $112 million in the same quarter a year ago, down 9% year-over-year driven by softening demand in the auto industry and higher raw material and labor costs across several businesses.

Next, within our Consumer and Other segment, revenues and adjusted operating income within the Consumer and Other segment have a significant seasonal variability due to the timing of sales of ornamental plants, which are heaviest during the second quarter of the year. Revenues were $291 million, up 10% versus the same quarter a year ago. Revenue growth benefited from the acquisition of EPI and higher sales volume of ornamental plants.

Adjusted operating income was $17 million for the quarter versus breakeven in the prior year. The increase year-over-year was driven primarily by the contribution of EPI and increases from operating leverage resulting from the higher sales of ornamental plants.

Next, within our Financial segment. Revenues for the quarter were $162 million, up 16% year-over-year due to higher fronting fees and earned premium within our program and lender services products. Adjusted operating income was $61 million for the quarter, down 23% from the same period last year driven by favorable loss development on the runoff reinsurance contracts for Markel CATCo Re, which were recognized in the third quarter of 2024, all of which was attributable to noncontrolling interest. Excluding that impact, adjusted operating income across our other businesses was up notably in line with the revenue growth.

Finally, regarding capital allocation. For the year, we repurchased shares totaling $344 million, reducing our share count to 12.6 million shares from 12.8 million at the end of last year.

With that, let me pass it over to Simon to discuss more about Markel Insurance.

Thank you, Brian. Good morning, everyone. It's great to be with you on the call today to discuss a solid set of results for Markel Insurance for the quarter with a combined ratio in the low 90s and GWP growth of 11% versus Q3 last year. This growth is mainly being driven by our high-performing international and personal lines divisions, where prior year strategic investments in new people, products and systems are paying off. Where our performance is more challenged or market conditions are less favorable, we are concentrating on improving the portfolio, and as such, growth is muted. Cycle management remains at the forefront of our minds, but we are taking advantage of areas where we have developed competitive advantage.

The team at Markel Insurance couldn't be more aware that we need to demonstrate genuine progress to you. It is good to be started along that path. The coordinated set of recent actions are beginning to have an impact on the organization. Step by step, we're working towards achieving our full potential.

Step 1. The first big step we began in earnest around 2 years ago when we began reshaping our portfolio with a particular focus on casualty and professional classes in the U.S. In both areas, we have made meaningful changes to tighten our risk appetite as well as improving pricing and terms. Where we were unable to achieve the required improvements in specific areas, we made the decision to exit lines. As a result, we've seen tangible benefits. Our year-to-date combined ratio within our recurring business stands in the high 80s.

This factors in 2 items versus our reported combined ratio. First, excluding the 3.5-point impact from exited lines, the largest of which are U.S. and European risk-managed professional lines along with CPI and second, a 2-point drag in the overall combined ratio from the Global Reinsurance division results. We're now seeing improved and more consistent underwriting performance in the divisions where these changes were implemented.

I remain excited by the sequential improvement. It's still early days, but we believe these early outcomes validate the tough decisions we made to set a stronger foundation for future growth.

Step 2. With the portfolio streamlined and greater discipline in place, our next big step began earlier this year, shifting our focus from simply pruning the portfolio and exiting profitable lines to actively pursuing profitable growth. Our strategy is based on a clear go-to-market structure, where we have created a series of distinct P&Ls, each headed by a leader who has full responsibility and accountability for the performance of their unit. This structure pushes decision-making closer to the customer and allow for greater speed and response time.

Specific actions we have taken are as follows: We have collapsed our matrix reporting structure in the U.S. We reorganized into 4 simple and distinct divisions. We removed reporting of State National and Nephila into Markel Group. We aligned our financial reporting to the new structure so that we can clearly see where there is underperformance that needs to be addressed. We can also see where we are having success, enabling us to divert investments to these areas to continue to fuel profitable growth. We moved over 80% of the people that previously worked for the central functions into the new created P&L. This provides transparency over costs for business owners and also ensures that the work of these individuals is fully aligned with business needs. And on our last earnings call, I announced the exit of Global Re.

Every single one of these changes were designed to simplify our business model and enhance our ability to provide market-leading specialty insurance products to brokers and customers around the world. Beyond these organizational changes, we strengthened our margin of safety by increasing reserves, particularly in our Reinsurance division and our risk-managed or large-account U.S. D&O book. This continues Markel's tradition of conservative reserving, which protected our balance sheet through cycles of uncertainty. We've consistently have reserves that are more likely redundant and deficient, demonstrated through 20 consecutive years of favorable prior year loss reserve releases.

Step three. Now that we've made our way through the bulk of the necessary organizational changes, we are turning our focus to execution, including developing bottom-up, customer-focused business plans by our new P&L owners for 2026 and beyond. I'm confident these plans will enhance the experience of our customers, which will in turn grow the business and ultimately increase our profitability. While we are still early in the game, the overall energy and execution I'm witnessing across the business continues to be encouraging.

First, let me share a story about our U.S. personal lines business that illustrates the impact of the changes we have made. As we reorganize the business into distinct P&Ls, 1 business unit that stood out for the right reasons was our personal lines business based out of Wisconsin. This organization has been growing strongly over several years with excellent profitability. Jeff May runs the business and outlined a plan to overhaul the technology stack over the next 2 years. In our previous structure, this investment opportunity hasn't managed to rise sufficiently up the priority list. But now that Jeff sets the priorities for this business, the plan was very much on the table. We took the decision to go ahead with the implementation within days. And Jeff and his team are now implementing a system which will consolidate our position as the market leader in E&S homeowners business in the U.S. with expectations to grow this business to over $1 billion a year in annual GWP.

Second is a story about how we are doing more with less in our core U.S. Wholesale and Specialty business. After taking the helm in late April this year, Wendy Houser set about reorganizing our business, Wendy reduced the total number of regions from 8 to 4, simplifying our go-to-market structure and creating the opportunity to reduce costs. Some tough decisions were made, particularly around people, but we're now operating the business at a lower salary base than before without impacting levels of service. The 4 regions have full P&L responsibility with an excellent line of sight into the financials, and so I expect this recent cost discipline to continue.

Stories like this exist throughout Markel Insurance. The new structure helps bring them to the surface and enables us to do several things at once. If our business leaders have well-thought-out plans, we are ready and willing to support them.

What will success look like a story like this compound? What can you, as investors track to know that things are progressing. Early progress isn't always obvious right away in the numbers, especially in long-tail insurance. It will first show up in the way our people think, the speed at which we move and serve and the trust and credibility we're restoring with our partners and our customers. Some of the sign postal leading indicators we're monitoring include employee engagement source, customer net promoter scores, growth in submission count, increase in our quote rate improvement in our quote-to-bind ratio and growth in new business within our targeted areas. As these indicators start to move in the right direction, the financials should take care of themselves.

The WSIA conference in San Diego last month, Wendy Houser, the President of our Wholesale and Specialty division, said very pointedly to the press that we're back. Our leadership team is confident in the changes we've made. It will take time to show up. But with each passing day, the team is working together in new and better ways.

I'm excited about our position in the marketplace, whether it's in our top quality international operations, our niche business units such as surety and personal lines, or our improving core U.S. wholesale and specialty division, we have plenty of runway to grow and to grow profitably. We'll continue to work hard to make that a reality.

With that, I'll hand you back to Tom.

Thank you, Simon. And with that, Kelvin, we'll open the floor for your questions.

[Operator Instructions] Your first question comes from the line of Andrew Kligerman of TD Cowen.

I'd like to start in the insurance division with the expense ratio at 36%, which is relatively high versus specialty peers. And then kind of contrast it with what you're doing in technology spend and how to try to make the company more efficient. Could you talk on the interaction of those 2 dynamics and where the expense ratio could go over the next few years?

Thank you, Andrew. I'll ask Brian to start off addressing that.

Sure. Let me say a couple of things there. First of all, like where we are this year, we're kind of right where we thought we would be for this year. If you mix in the fact that we've had some product exits, some contraction in a few spots where we needed to shore up the overall underwriting results, that does carry a little bit of a burden on the expense ratio.

The other piece I would say is where we are growing. If you think about those classes, international lines in Europe, expansion in Asia, U.S. surety, those lines are very, very profitable for us, but they do shift the mix between the loss ratio and the expense ratio that are added to the expense ratio overall.

From an investment standpoint, Simon mentioned the investment in the personal line space. Now that we have individual businesses, we have an investment portfolio that's out there. We're looking to make the investments that we need to, to kind of shore up our results overall. While we're focused on expenses and managing those and we expect to bring those down over time, we're really focused on the combined ratio and the overall profitability of the business and in our return on equity, the new metric that we put out there and that overall kind of capital return and the returns that we produces inside of insurance.

Maybe the last thing I'll mention there is we talked about the exit of Global Re in that division. And while that division has poorly performed from a combined ratio perspective and been a drag on the results, 2 points kind of in the quarter and year-to-date, that division does have a lower than kind of normalized expense ratio for us. But as that premium burns off, at around a 28% expense ratio, that will be a little bit of a drag on the overall reported expense ratio as the earned premium remix is back to the insurance side.

Maybe, Brian, I might just add a couple of points on this, Andrew as well. It's Simon. Look, I obsessed with the combined ratio. That's the most important metric that we have overall. Brian talked about the mix between some of our business units, which have been performing incredibly well the last few years. And the odd thing is there that mainly they've had a high expense ratio. Now what I wouldn't say is that a high expense ratio leads to a great combined ratio. That's not the point here.

But what we do need to be very conscious of is as we look to the expense ratio and we look to reduce it, and we very much are focused on that as a strategic imperative, we need to do that in areas where we're actually cutting costs out of the business, which are frictional costs. There are some costs here where there are genuine investments like the personal lines thing, it will probably heighten the expense ratio for a couple of years in that area. But in the long term, that creates a heck of a lot of scale potential within a business like personal lines.

Where I'm really looking for the rubber to hit the road is in these individual P&Ls and looking at individuals who want to invest in the business. That case has to be rock solid because anything which is just sort of fat within the organization, I think that's going to get highlighted a lot more than it has been in previous years now, and we're going to go after that. We're going to go after it hard. So the point I'll make is we have got a focus on the expense ratio. It is in the context of the most important metric that we have is the combined ratio, but we're looking to get rid of expenses that aren't additive to the business. But we're not going to stop investing in areas that I think it's got a great potential to build the franchise over a period of time.

So it might be a bit bumpy over '26 and Brian spoke about Global Re there, but believe me we will be focused on that metric as we go through '26 and into '27, it's an area where we do need to improve.

Very helpful. And then maybe just thinking about gross written premium, which was strong at 11%. And I mean international has been just a really bright spot. But looking at U.S. wholesale and specialty, I think Brian said ex the exit of the risk managed business, the U.S. risk managed business, it was up about 5%, and then in Programs and Solutions, we saw a 17% increase, could you give a little color on where you're seeing the successes in programs and U.S. wholesale and specialty, respectively? .

Yes. Maybe I'll start, Andrew. On the wholesale and specialty, so the reported results was down 6. 5 of that 6 points we were down was the impact of the risk-managed product line exit. So down 1, excluding that, relatively flat.

What I would say there is you think about the 3 products we write there, professional, casualty, property, casualty is up while we're being very selective, but we're getting good rate on that business, low double-digit rate on kind of primary, higher than that on more excess lines. So the growth is not growth in exposure. It's growth driven by rate. Property, we are trying to grow, but there's a little bit of challenge in the rate environment there. Professional has been relatively holding flat. We've been growing a little bit in our management liability lines and some of the commercial professional. But that is an area both in the property and the professional space where growth in the future is where we're targeting.

Yes. And obviously, let's talk about -- we'll talk about wholesale and specialty first. You just mentioned that the sort of the nuts and bolts of that, Brian. That, I would say, Andrew, we've got to get to grips with the loss ratio situation in that business. That's what's been hurting us. That's why we've made those decisions to exit lines in the various areas. And frankly, casualty is a difficult class of business. At the moment to get the price right, we can see that. So selective in terms of our risk appetite, making the right decisions in terms of additional pricing. And those 2 bits in combination should get us to the combined ratio that work for us. But we're not -- we're certainly not putting our foot to the floor in the casualty area even though the rating is pretty attractive, in some respects, just because the exposure there is equally -- probably tricky in terms of where to place your chips in that particular area.

Elsewhere in wholesale and specialty, yes, there's competition in the professional and the property. We think that we've got a really good mouse trap in those 2 areas to attract business into Markel, the clarity of the new structure, I think, is paying dividends with our partners, the broker partners that are out there. And I think that will continue to attract business back into Markel that's within appetite and at the right price. So there will be continued headwinds from the market conditions in those 2 areas.

Programs and solutions, really nice business areas. They're very discrete. I think we've mentioned personal lines where we feel we've got probably a bad product and a really good way of interacting with that particular area. We're also seeing a lot of growth and a lot of growth opportunity in the program space. The business that's run by Jeff Lamb here. That is an area where it's clear that many of the large wholesale brokers are investing a heck of a lot of resource into those -- into that program space. That provides opportunities to us. We are highly, highly selective in that space, but just the number of new opportunities that are coming through. The desk is driving a degree of growth there. And we think we've picked some good programs to be onset, which are growing with in the marketplace.

Finally, I'd probably call out the workers' comp business and the surety business continue to be really solid businesses for us. They've been fairly discrete within the Markel Insurance world. We now called them out that much more. But because they've got those singular leaders on top, they are able to focus on the customers and focus on the actual products that they're getting over the line there. And I think that additional degree of independence is allowing those businesses to grow, and I think that will continue over time.

So program, solutions, I think there are some specific market conditions, which continue to help us. I think the new structure helps those guys. In Wholesale and Specialty, it's loss ratio first alongside the combined ratio. And I think as that stabilizes, as we go into next year, I think our position in the market will help us continue to grow in that particular area in areas that we think we can make profit.

Maybe on the international side, I'll add. That's a place where we've been consciously investing in people some of the driver of the elevated expense ratio is the personnel costs in that division. You're starting to see the fruits of that coming through the top line with growth in kind of expanded territories in Asia and Europe, along with product expansion where we've been rolling out casualty products to more geographic regions. We've invested in people in both of those spaces, seeing that start to come through the top line more pronounced this quarter.

Your next question comes from the line of Andrew Andersen, Jefferies.

Some good favorable reserve development overall. If I were to maybe just pick at 1 thing and a question here is I think you called out some adverse on international professional liability. Can you maybe just expand on that, maybe what accident years? And the reason I ask is I think you were releasing from international professional liability in '23 and '24.

Yes, that is correct. We did have a couple of large claims come in and large claims. I'm talking the 5 million, 10 million-ish site claims from a standpoint to us. While we had adverse development there, it's nothing to the range of the things we've been talking about in the past few years. So it's a fairly modest amount. It just happened to be the driver in the period. We feel really good about overall that book and the profitability.

In terms of the periods, it's more -- it's not in the current year. It's more of the couple back prior years than it is the current year or in years that are more deep into the tail.

Got you. And then just thinking about capital management. Buyback has been maybe a little bit lighter in the last 2 quarters than I would have otherwise thought. So I would love to just hear your thoughts, Tom, on kind of capital deployment priorities, whether it's buyback. And I think there might have been an article earlier this quarter just about insurance M&A perhaps being back on the table. And maybe that was misconstrued, and it was more of a comment around teams and technology for insurance M&A, but I would just love to hear your overall thoughts there.

Well, I think you answered the second part of the question, when you asked it. So I think it was misconstrued. We have successfully added teams and talent over the years, and we look to continue to do that. The first important principle is actions speak louder than words. The #1 use of capital and capital deployment bed for the last couple of years has been buying back our own shares. We're price sensitive when we do so. Unfortunately, market seems to be acknowledging and understanding and appreciating a bit the changes we've made here. And you look year-over-year, the stock price was up at any given point in time, 15% to 20% compared to what it had been last year.

So we respond to that. We're sensitive to that. We continue to buy stock through our program on a daily basis. And you can expect us to continue to do that, and you can expect us to be very rational and buy more if the price is low, and buy less as the price moves up, and our largest single capital allocation choice has been to repurchase shares. In rough, rough numbers over the course of the last 5 years, the share count at Markel at its highest was just a bit shy of 14 million shares. It's now down to 12.6 million. In rough numbers, that's 10% of the shares that have been repurchased. The next 10% reduction, I don't think that will take 5 years, especially at these kind of prices. So that might happen in 3 to 5 years. So 1 10% tranche is done, another 10% tranche underway. So we'll be buying back stock.

Your next question comes from the line of Mark Hughes with Truist.

When we think about international versus the U.S., you talked about some of the expense versus loss ratio dynamics. Is the combined ratio opportunity better internationally? Is there just a -- that's a better loss environment?

Before Simon answers that question, you're talking about international, the U.S. first thing I thought about was the Rider Cup. And the U.S. needs to do better. So we're working on that.

I've been thinking about the Rider Cup a lot lately, but not really thinking about it. So there we are. Thank you for that reference, Tom. That's excellent.

I think there are plenty of places in the U.S. where you can go after business from a loss ratio perspective, which is very, very attractive. They typically are in the, I would say, lower exposed areas, but also almost lower premium type areas. They're kind of the small, micro business.

We, international, have been building that side of our business for probably 10 to 12 years. and the loss ratio, let me tell you, back in '16, '17 in international wasn't that great. But I think as we scale up those retail operations that we've got in places like Europe, Canada, the U.K. regions and increasingly in our Asia Pacific business, the weighting of the business, which is that small, micro business is really -- has grown within that division. And we've seen the loss ratio come down consistently as a result.

Quite a lot of the business that we're backing out, the London operations. I mean, people think about London as kind of large ticket volatile business. Well, quite a lot of the business that we have back there is delegated authority business where the ultimate customer is smaller micros. So there's a very like heavy focus in our international business at a small and micro end of the risk area.

Now that has 2 dynamics. One is typically a relatively low loss ratio, but it does go alongside that higher expense ratio. And frankly, I don't mind paying a little bit more to excess and service business, which is going to consistently perform at a lower loss ratio. I think that's a healthy kind of balance that we've got within the business. We do, of course, have larger ticket risks as well to look at in the energy space, for example, and some of the marine risks. But by and large, we've got a relatively small micro focus with our international operations, and we've been really pleased with that.

That's probably been lacking a little bit in some of our -- in the U.S. portfolio as a whole. So we've been in the mid-market there. And in recent years, and we've had core results actually in many of the areas where we've gone into the very large risk segment. Things like the U.S. large ticket D&O is a perfect example, where we've gone down that route. So I do think over time, 1 of the things that I'd like to bring with increased focus on technology. Some of the teams of people that we're going to be bringing in, in those programs and solutions businesses will be to go after that small micro business within the U.S. to an increasing level. And that will, over time, I think, bring down the loss ratio to a degree. So maybe it won't be exactly in line with international. But I do think there's a ton of opportunity in the U.S. to go after. Maybe it's just not been a huge focus of what we have been doing, but it will be a focus of what we'll be doing in the future and the investments that we'll be making.

At risk of answering a different question than what you asked, so my colleagues caution me on this all the time because this is not going to help you model anything better or make a quantitative point, but it's a qualitative point that really drives the results over time. So this exact discussion is something that Simon and I actually talked about at some length when the 2 of us, along with some other colleagues, walked 130 miles last year from Pittsburgh, Pennsylvania to Cumberland, Maryland on the Great Allegheny Passage. And 1 of the things we talked about was I mean, obviously, insurance is a business where it's never going to be perfect, and you're always going to have losses.

But what does it look like to have a loss? What does the loss mean? What is the way in which you can be compensated fairly for the size and scale of the losses you're taking? And what should your overall profile be to understand and absorb the losses that are just part and parcel of this business? So that effort has been underway for a while. There have been some very thoughtful work done on where we should be and where we shouldn't be. And you're starting to see what I would call the green jute of this quarter where that's starting to pay off. We look forward to green shoots coming in the years to come. But I can assure you a lot of thought and work and thoughtfulness has gone into the way we approach the business.

Appreciate that perspective. Curious to get your thoughts if it looks like storm season, at least domestically is going to end up being pretty quiet. What do you think that means for property in 2026?

Well, as the old saying goes, what you see depends on where you stand. And there are some people in various parts of the world right now that would not think that this was a benign storm season. So our thoughts and prayers are with them. That's real damage. And 1 of the things we hang our hat on and we're proud of in this business is we help people get back on their feet when they've experienced either sudden and dramatic loss or gradual losses over time.

Clearly, again, I think you've answered your own question to some degree, the overall aggregate cat losses were lower this year than what had been expected. And that tends to put pressure on rates. The good news about Markel written large is that we spread of business. So we are not a cat-dependent or exclusively or even majority property-oriented companies. So this is a normal course of business.

Yes. And I'll pick up at an exact point there, Thomas. If I look at the portfolio overall, property plays a relatively small -- a relatively small part of our overall offering. We're more of a casualty professional lines and then sort of nuanced specialties that go alongside it. So probably relatively small.

I do think you've seen insurance cycles before. If you look at the specific cycle within property, there's going to be pressure on reinsurance. As a buyer of reinsurance, that should probably benefit us going into next season, but that will have a knock on in the primary markets where, particularly in the U.S. brokerage property space, I think that's going to come under even more pressure next year than it has done this year. And it definitely is a competitive part of the market at present.

What we're doing in that is very much focused on price adequacy. If it works within the portfolio, the price is adequate, then we'll continue to compete in that area. Once you go over the line and it's not adequate anymore, we don't need to chase that market down. I think the other thing that benefits us a little bit is we also say that our international portfolio is typically small micro. I do think the majority of our U.S. risks are probably medium, medium, small. In that part of the market, it's slightly less competitive in property than it is in the large ticket risk where you've got kind of structured and layered programs, which really are in very much in the competitive space at the moment.

So I think we're pretty well placed. One by virtue of not being overly dependent on the property market. But secondly, the part of the property market that we do play in, I think, it's a little bit more sheltered from this level of competition in other areas. So expect to see more competition, but I like our position in the market overall because of the balance of the portfolio that we've created over time.

And one final point to pick up on that and extended the good news is we don't have to chase it down because we have other things to do. And that's not just within the realm of insurance. We do have an investment portfolio, which has been collapsed into the segments, but it still exists. And it's a pretty big number of recurring dividend and interest income that flows in here. We have a set of industrial, commercial and financial consumer businesses that generates pretty nice returns, too. So the good news is we have the ability to remain rational in ways that people without our structure would not enjoy.

And then finally, any observations on mix shift to and from the E&S market and what that might mean for you all? .

Yes, it's a very dynamic market at the moment. That's for sure. I think you're saying the property question that you asked previously, I think that's probably the most intense area where you're seeing movement between E&S and retail. At the moment, there's a lot of pressure in the E&S space, in particular, in property. So maybe that will drop back into the retail market.

I think in professional lines as well, that happened a little bit earlier where we saw some of that going back into the retail market rather than the wholesale market. So there's a little bit of that, that we definitely see.

So there's nuances between E&S and the admitted market, for sure. One area where -- which is counter to that is casualty. I mean the casualty market is a hard market at the moment for good reason. And we're seeing a lot more opportunity in the E&S space there. Structurally, I would suggest that the wholesale market, we've seen this over a number of years, is a different place now than it was even 5 years ago and certainly a decade ago. So the expectation is that an awful lot of this business that has flowed into the wholesale marketplace will remain there albeit in some areas at slightly more competitive rates. But we're looking at that part of the market now being almost like 25%, I think, of the commercial lines space, maybe a little bit higher than that if you include the Lloyd's market. And as well my sense is that it stays at that level and probably continues to edge up a little bit just because of the sophistication of what we see from the wholesale brokers and retail brokers trying to get into that space as well.

So I like the fact that we play E&S where we can move the rate as we need to. We can change terms and conditions. I also like the fact that there is a pull factor into that marketplace due to the strength of the wholesale marketplace is just materially different than it was a decade ago.

In the spirit of the Rider Cup, I was trying to think of some way to heckle you all, but facts up today. So I guess I'll just not do that. So I appreciate the good answers. Have a great day. .

Your next question comes from the line of Drew Estes of Banyan Capital Markets Management.

I really like the reporting updates. So thank you all for that. I have a couple of questions regarding your fronting operations, which are sizable. One is a housekeeping item and the other one is a more general question.

So first on a housekeeping item. I was surprised that Markel Insurance, it's fronting operations were so large as opposed to State National. Is that mainly business that's flowing through to Nephila?

You got it, Drew. That's right. So we bifurcated kind of where the fronting is reported. So what sits in our programs and solutions division in the insurance segment, that is the business that we front on our Bermuda paper for Nephila. And that's the only thing that sits in there today in that division. The State National business, the traditional program services business, that sits in the Financial Services segment.

Okay. And for the more general question, a lot of alternative capital seem to have flown into the E&S market. And there's a lot of new fronting carriers out there that have clearly taken some share. And I'm curious, are these new entrants gaining share mainly by relaxing collateral and capital requirements? And if so, how do you ensure the State National doesn't relax its standards in an environment like that?

Yes. Thank you, Drew. It's an excellent question. And clearly, State National was at the forefront and the leader in really the timer in developing the market. And when you're the leader in the first actor, you can kind of set terms and conditions in the -- define the field and have it as you like it. In every business in the world that I've ever observed in my lifetime, when somebody does well, competition appears. And the terms and conditions change and set and evolve over time. And fronting and State National work, it is no different whatsoever. The good news is the culture, the long-term discipline, the return on capital discipline that is consistent with everything else we do about Markel, applies at State National as well. And they compete in the world in which they live, but they do so with adherence to standards and values and discipline that's consistent for the rest of the organization.

So we don't get to choose what the external environment is like. We get to choose the discipline we have to face it. And we've got a long history around here of doing exactly that across the organization, no matter where you're talking about.

Yes. I appreciate that, and I'm glad to hear it. But just quickly as a follow-up, is it -- are you seeing the new entrants compete by relaxing collateral and capital requirements? Or are they mainly focused on pricing?

Well, I think -- I mean, that's really all the way of saying pricing. So it's sort of a net price when you define it, as lower collateral, what have you. So it's -- the price is the answer.

Your next question comes from the line of Andrew Kligerman of TD Cowen.

Just following up on the prior question about fronting. In both segments, actually, in insurance, it was up 51%, $1.8 billion in the last 9 months. And I'm kind of wondering, what was driving that? What kind of gave you that upside? And same thing in the financial segment where operating revenues were up 18% in the 9 months to $513 million. I assume a big part of that was fronting. And maybe you could give a little color on where you're seeing that just the outlook in both segments for the fronting business.

Sure, Andrew. It's Brian. So let's take the fronting at Nephila and programs first. There, what we've seen, Nephila had some nice growth in premium. We've used the MBL balance sheet that's allowed them to place more business with the AUM that they have on their books and grow that business at attractive rates that are out there in the property market. If you think back to when they placed a lot of that business, first 4 to 6 months of this year was a very attractive rate environment. That book is going to perform very well on the fronting side, and it's going to perform very well, considering where we are thus far in the year from an investor standpoint with the low level of cat losses that are out there.

So the vast, vast majority of that is property cat business that's fronted in the program space. So with the rate environment, growth aspirations at Nephila, that's really what drives the fronting revenues that we see in the programs and solutions division.

Within program services, it's kind of a mixture. They signed on some new programs as they mass renew and brought in some new business. And then you've just got underlying growth in their kind of wider range of programs. They're hitting kind of all product classes. It's a pretty varied and mixed set of business there across property, casualty, workers' comp lines that they front and they just got natural growth coming from their producers that are partnering with them to front business.

So it sounds like in both segments, these trends are sustainable into 2026. .

Yes. I would say you're looking at -- the property market is certainly going to be a bigger driver on the vision and the Nephila fronting where it's going to be more broader insurance trends and our ability to kind of add on new programs. In the program space, you can have chunky things come in and out. You signed new agreements. People either move on or if you're fronting for them because they're -- they've been downgraded from a rating standpoint, they cure that, that program goes away. So there can be some chunky movements from time to time in that program services business in both directions.

Got it. Okay. And then in the industrial segment, there was a little pressure, I think, Brian. You called out soft auto demand and higher materials costs in the auto area despite good performance in the other segments. Do you see this continuing to play out over the next year or so?

Andrew, it's Tom. Yes, I would describe this quarter and really this 9 months, it's just normal oscillation of the business. So we had some things that were white hot last year that weren't quite as white hot this year. You have the tariff noise and the general economic environment. So there's puts and takes across the line. And I think that's normal for this collection of businesses.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Tom Gayner for any closing remarks. Please go ahead.

Thank you all for joining us. That concludes my closing remarks. See you next quarter. Thank you.

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