Markel Group Inc. 2026 Q3 Earnings Call

Good morning. Thank you all for joining us. We are pleased to report a quarter of strong performance across our operating businesses, as well as ongoing disciplined capital allocation. As always, our aim is to relentlessly compound your capital over time. Two things drive our ability to do so. First, over decades, we have built an array of resilient, market-leading, and growing businesses across industries and geographies. These businesses produce cash, maintain conservative balance sheets, and produce low-cost insurance float. They create a foundation that lets us continually learn, iterate, and improve. Second, we reinvest the cash our businesses produce across a full 360-degree set of opportunities. Our existing businesses, acquisitions, publicly traded securities, and the repurchase of our own shares. We always aim to put capital to its best and highest use, and we do so with cost and tax efficiency.

We live by our culture known as the Markel Style, which describes our long-term ownership mindset. This approach, in turn, attracts businesses, leaders, and colleagues who share our values and want to win. Given the normal short-term volatility in our operating results from mark-to-market swings in our publicly traded investment portfolio, we measure progress in the dual time horizons of forever and right now. For the forever or long term, we look at the growth in five-year average operating income per share relative to our equity capital base. This five-year average operating income, along with total shareholder return, underpins our management team's compensation. Over the last five years, the quarter ending September 30, 2026, we have compounded five-year average operating income per share at 16% a year. For the right now, shorter term periods like a quarter or a year, we look at adjusted operating income.

Adjusted operating income excludes the market value movement in our equity portfolio and the amortization of acquired intangible assets. In the third quarter, adjusted operating income rose 14% to $707 million. Given our ongoing buyback program, adjusted operating income per share rose 15% in the quarter. We think there are four key takeaways from our business performance this quarter. First, we continue to see positive momentum in our insurance operations. Ongoing underwriting premiums grew 9%. The team continues to find ways to grow its book of business profitably in an increasingly challenging market. The combined ratio improved to 91.9%, even after absorbing three points from the Global Re run-off. Our three ongoing divisions released reserves again, $445 million year to date against $397 million at this point last year. Second, we also saw strength in our businesses outside insurance. Industrial adjusted operating income rose 29% on 10% organic revenue growth.

Financial rose 30%, and consumer and other widened their margins. These businesses continued their long track record of generating cash, earning strong returns on capital, and providing Markel with durable strength and resilience. Third, higher interest rates produce increased cash flow. Net investment income rose 5% in the quarter to $258 million and 8% year to date to $770 million. Fourth, we continued to repurchase Markel shares. We bought back $315 million of our shares in the quarter and $685 million year to date. We bought more than 1% of our shares in the third quarter and have now reduced our total share count by more than 10% over the last five years.

We've bought back these shares at what we believe are attractive discounts to intrinsic value per share. We believe each repurchased share will increase the compounding of Markel's per share value over the long term. Before I hand things over, I'd like to take a moment to recognize and thank Steve Markel. Steve recently retired as Chairman after more than 50 years with Markel Group. Steve hired me more than 35 years ago when I was a young investor with a lot to learn. For me and many others, he has served as a mentor. He embodies the Markel Style. Steve's analytical rigor and passion have been a cornerstone for Markel, and they will have a lasting impact. Thank you, Steve. As Chair and CEO, I'm fortunate to work with Simon Wilson and Andrew Crowley, who have been named Co-Presidents of the holding company.

Their expanded roles and involvement in the Markel Leadership Council, along with our lead independent director, Mike O'Reilly, bring them closer to the center of how we lead and govern the company. At this point, Simon will provide a brief review of our insurance results, as well as an update on the adverse development cover that we just announced. Andrew will follow with comments on industrial, financial, and consumer and other. Brian will then cover highlights of our consolidated financial results before we open the line for your questions. As always, we appreciate your support as long-term shareholders of Markel, and we hope you share our enthusiasm for continuing to build the intrinsic value of each share of your company.

Simon? Thank you, Tom, and good morning.

We continue to make good progress simplifying and improving Markel Insurance. Excluding Global Re and the impact of the Hagerty transition, premiums grew 9% in the quarter. Our combined ratio was 91.9%, despite three points of impact from our run-off Global Re division. Behind those numbers is disciplined underwriting. We are growing where we see attractive returns and pulling back where we don't. In U.S. Wholesale and Specialty, premiums declined 3% as we deliberately reduced construction-related casualty and remained disciplined in a softer property market. The combined ratio was 89.0%. International premiums grew 45%, led by Marine, Structured Portfolio Solutions, and our regional businesses in Europe and Asia Pacific, with an 89.9% combined ratio for the quarter. In Programs and Solutions, the combined ratio improved to 87.0% from 94.2% a year ago. We are also continuing to see strength in our reserves.

Our three ongoing divisions have released $445 million reserves year to date, compared with $397 million at this point last year. At the same time, we are taking decisive action on legacy exposures. The agreement we've reached with Enstar provides $1.2 billion of adverse development protection above the covered reserves across Global Re and certain other exited lines. This is about creating greater certainty around the run-off and allowing us to focus even more squarely on the ongoing specialty insurance business. The premium for the adverse development cover will be funded by management margin in the reserves and will have an immaterial impact on the underwriting results in the fourth quarter. This deal was done at the time of Markel's choosing and makes strategic and economic sense for the business. Finally, we are managing our business tightly while investing for the future.

Each of our three ongoing divisions has reduced its expense ratio year to date, even as we continue to invest in our core systems, data, and AI. Our ambition is to build the preeminent specialty insurer in the world. Strong underwriting profitability, disciplined growth, improving efficiency, and decisive action on legacy exposures are all evidence of the progress we're making. There's more to do, but I believe that Markel Insurance enters 2027 from a position of real strength. With that, I'll hand it to Andrew.

Thank you, Simon. It is a privilege to share an update on our industrial, financial, and consumer and other businesses. In total, for the third quarter, revenue and adjusted operating income for these segments increased 10% and 35% respectively. I will take the next few minutes to provide additional insight into each segment, including some context around the strength Tom previously mentioned. For our industrial segment, last quarter, we noted that decreasing profitability and increasing revenue was a trend we did not expect to continue. This quarter, results improved, with revenue up 13% and adjusted operating income up 29%. The quarter-to-quarter change reflects both the natural variability of large-scale construction and capital equipment manufacturing and deliberate actions by our leaders to improve profitability.