Markel : First Quarter 2025 Earnings Call Transcript

Published: 2025-05-07 10:00:10 ET MKL

Published on 05/07/2025 at 10:00

TRANSCRIPT

05 - 01 - 2025

Markel Corp

First Quarter 2025 Earnings

TOTAL PAGES: 19

CORPORATE SPEAKERS:

Tom Gayner

Markel Group; Chief Executive Officer

Brian Costanzo

Markel Group; Chief Financial Officer

Simon Wilson

Markel Insurance; Chief Executive Officer

Mike Heaton

Markel Group; Chief Operating Officer

PARTICIPANTS:

Andrew Kligerman TD Securities; Analyst Mark Hughes Truist; Analyst Andrew Andersen Jefferies; Analyst Charles Gould Truist; Analyst

PRESENTATION:

Good morning, this is Tom Gayner, your CEO. I welcome you to our Markel Group first quarter earnings call. Joining me on the call this morning is Brian Costanzo, our CFO, and Simon Wilson, our new CEO of Markel Insurance.

At Markel Group, we aspire to be the best home in the world for our businesses.

In so doing, we have created the Markel Group, a diverse and resilient family of businesses, with our insurance business at its core. Working together, this system creates a relentless compounding machine.

We're happy to tell you that relentless compounding continued in the first quarter. While we're always happy to report a good quarter, longer time horizons matter more. Our normal five-year measurements also display the relentless compounding we aspire to.

In the first quarter, we also took a few significant, notable organizational steps of progress on our forever footrace.

Specifically, we elevated Simon Wilson as the new leader of our Markel Insurance business. Simon is a proven leader and winner. He has a clear strategic vision for solidifying and growing Markel's market-leading presence in specialty insurance, all while putting the customer first.

We're excited for you to get to know him- and to hear more about his vision and plan.

Under Simon's leadership, our insurance business will continue its path of simplification and growth. We're reducing complexity, making it easier for customers to do business with us, all while improving accountability and increasing our operating efficiency. The re-underwriting of the last two years has created a stronger foundation from which these operational enhancements will build.

Under Simon's leadership, I'm confident we can become even easier to do business with and win market share. We see great potential over the years ahead to significantly improve from what's already a strong base of performance.

While that work is in its early innings and will take time, we're on the path to better.

Further, Simon's appointment and the changes we're making to the insurance business show that while our board continues to make progress on its review of Markel Group, we are not waiting to make changes where we see they're needed. In terms of the board led review, it continues apace, but we won't have any further update on that today.

Stepping back, we enjoy some distinct advantages with our Markel Group system. Markel Group enjoys resilient and robust operating income comprising recurring investment income of dividends and interest, underwriting profits and operating profits from our ventures businesses. Further, this operating profit converts well into a river of operating cash flows given our modest capital expenditures and the negative working capital from our insurance operations.

In the full year 2024 that river of operating cash flow amounted to $2.6 billion. In the first quarter it was $376 million. Our Markel Group architecture allows a 360-degree view of capital allocation opportunities to reinvest that cash, all in a cost and tax efficient way. For the full year 2024 we invested $208 million in acquisitions, $394 million in net equity purchases, $573 million in repurchasing our shares and $204 million of interest cost and $255 million of CapEx.

In the first quarter of 2025 we invested 0 in acquisitions, $57 million in net equity purchases,

$170 million in repurchasing our shares and $52 million in interest cost and $41 million in CapEx.

We believe we're deploying that capital into places where we can earn double-digit returns over time. We've consistently delivered on that goal and we expect to do so going forward as well.

Part of what allows us to do so is our unique cost and tax advantage structure that's positioned to redeploy capital with low friction and in a 24/7/365 day kind of way.

Your money is always working in the Markel Group system. The breadth of opportunity across insurance, ventures, public investments and share repurchases increases the odds we can make favorable capital allocation decisions. All of this amounts to a relentless compounding machine.

It seems like there is a news headline out almost daily these days talking about other companies like Brookfield, KKR, Pershing Square and others trying to create permanent capital vehicles. I'm proud to say we have one and we've been at it, building such a virtuous operating model and system with your partnership since our IPO in 1986.

People often ask me about market developments and specifically in periods like what we experienced in April to which I reply, I don't have a crystal ball. No one knows what will happen in the short term. But the beauty of our system is how it's built for safety and resiliency. It's all weather.

It's built with the idea that we can't and don't know. We've never known with precision what the future holds, but our record indicates that our system flourishes even without perfect foresight. History doesn't repeat, as they say, but it rhymes. There's nothing new under the sun. We manage our balance sheet and business to withstand stress. We have not relied on financial leverage to drive our equity returns.

In times of low interest rates, that has made it difficult to keep up with many who do, but in a period of deleveraging, if that is in fact what we're in now, while it will prove painful for the economy broadly, our model will stand ready to capitalize on its competitive advantages. We will continue serving customers come what may, and I think our conservative and low leverage approach will serve us very well in the period to come.

This morning I'd also like to extend a warm welcome to Jon Michael, who recently joined our board of directors. Jon joined RLI, a specialty insurer we know quite well at Markel in 1982. He was the President and CEO of RLI for 20 years, from 2001 through 2021. RLI is one of the longest duration holdings in our stock portfolio.

We have owned it for over three decades, over which time the business generated tremendous shareholder value. There is much we can all learn from Jon and we are excited for the chance to do so. Jon's arrival also coincided with the conclusion of Tony Markel's over six decades of contributions to the company that bears his name.

We look forward to properly celebrating Tony later this month at our annual meeting, which we now call the reunion on May 21st in Richmond. Tony is a lion of the industry and for this company, his paw prints are all over the Markel Group, and this will continue to be the case for generations to come. Upon his retirement from the board, Tony will continue to serve as Chairman emeritus, marking his outsized contributions to your company.

The only other person to be given such an honor, the late Alan Kirshner. That should tell you what Tony means to us. Thank you, Tony.

Finally, before I turn things over to Brian, in the Q&A, we'll focus on our operating results for the last quarter. I would kindly ask that you keep your questions today focused on those results. We also look forward to being with many of you in Omaha and/or Richmond for our reunion on May 21st.

In Omaha, we intend to share more with you about how we seek to relentlessly compound your capital for the generations to come. We will also take your questions. If you haven't signed up for our reunion, we encourage you to join us and sign up at mklreunion.com. We're excited to welcome over 2,000 shareholders from around the world to our home in Richmond. A reunion for us is our Markel style on display and a chance for you to feel what our home is like.

With that, I will now turn it over to Brian who will walk you through our results for the quarter. After you hear from Brian, Simon Wilson, the new leader of our insurance business, will introduce his vision for that business and the work that lies ahead. Then we will open the floor for your questions. Thank you.

Brian?

Brian Costanzo^ Thank you, Tom. Good morning everyone.

At the start of 2024 we began reporting Markel Group operating income for investments, ventures, insurance and on a consolidated basis. Operating income is a key driver of intrinsic value and our long-term incentives.

If you must pick one metric for our scorecard, operating income is the best place to start. We used five-year periods to best keep that scorecard and over the past four calendar years plus the first quarter of this year, we have accumulated operating income of just over $10 billion. Longer time horizons normalized the expected volatility swings in the mark-to-market of our equity portfolio.

In the first quarter of 2025, consolidated operating income was $283 million versus $1.3 billion in the same period one year ago. The biggest driver of the year-over-year difference was from changes in unrealized gains on the equity portfolio which flows through GAAP revenue and operating income, distorting any signal within quarterly year-over-year comparisons.

First, within insurance, our largest operating business, we locally empower great leaders to serve customers in the markets that they know best, all while focusing on the long-term with the help of our strong balance sheet. Insurance operating income was $145 million for the first quarter of 2025 versus $136 million in the same period one year ago. The slight improvement year-over-year was driven by more favorable prior year loss development and $31 million of income related to our minority investment in Velocity, a former subsidiary of Nephila. These were largely offset by an increase in catastrophe losses.

Disclaimer

Markel Group Inc. published this content on May 07, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 07, 2025 at 13:59 UTC.