Markel Omaha Brunch 2025 transcript

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Markel’s slide deck (Markel Omaha Brunch 2025 transcript)

You can download the slides of the Markel Omaha Brunch 2025 here: here.

Tom Gayner’ s introduction

[00:00:04] Tom Gayner: Kaboom. Yeah. And I hope and pray that’s the only kaboom we’ve got going on today. Good morning and welcome to the Markel 2025, Markel Omaha brunch. Now, I know that all of you are here, probably for another reason, before you come to the Markel Brunch, and I get that, and I understand it. Before we get started with the programme—and I welcome those on the webcast as well—I think it’s appropriate to take a moment to recognise we were part of history yesterday.

[00:00:45] Tom Gayner: So, it’s part of history, and it’s momentous. It’ll be a moment that sticks with me for the rest of my life. And I hope you appreciate the sensations that are involved in being here in Omaha this particular weekend. We’re glad you’re here. I’m going to extend my greeting to all the people who are joining us via the live webcast for the presentation portion of the meeting that we’re doing today.

Background on the MKL Brunch Omaha tradition

[00:01:17] Tom Gayner: I’m Tom Gayner, your CEO, and it’s my pleasure to welcome you to the latest chapter in a tradition that began over 30 years ago with just six people. Today, and believe me, I had this number written down. These are written remarks. I had the number 2400 written, which was the count as of sort of 3:00 or 4:00 yesterday afternoon. I think we’re over 2500, in terms of people who registered for today. So, it’s up to 2500 from six. Welcome.

Normally, I would begin this by introducing my colleagues who made the trip, but we’ve brought a larger group than usual this year, and we have more than usual to cover. So, in the interest of time, I can introduce everybody by name, as has been my custom in previous years. But I would like to ask all of the Markel Group Associates, who were here today, to please stand to be recognised. Thank you very much.

They are indeed the ones who do the work and lead the work, and that 22,000 associates of Markel, too. Also, I’m told that I need to point your attention to the disclosure that should be over my shoulder and a slide coming up if we have that slide. Yes, it’s one of my favourites. One of the things, and I’m sure you’ve seen many of those, I will spare you the idea of reading it, but I think most of you in the investment business probably have a fair amount of familiarity with the forward-looking statements. So, there we go.

Tom Gayner introduces Mike Heaton, Andrew Crowley, and Simon Wilson

[00:02:55] Tom Gayner: So, with that, here’s what’s ahead. In a moment when we turn things over to some key members of my team, they’ll offer a presentation that we hope will give you some helpful context, both for how we run our business and for the Q&A that we’ll follow. I’ll make a few closing remarks, and then we’ll open the floor for your questions.

First, let me introduce my teammates. Mike Heaton, COO of Markel Group, will kick things off. Mike’s office has been next to mine for more than 20 years, and in all that time, he’s been exactly what you would hope for in a partner. I often describe our working relationship using the analogy of a restaurant. One of us runs the front of the house, the other the back. I’ll let you guess who’s who. We complement each other’s strengths, and there’s a steady, ongoing exchange of ideas and perspectives between us. One of the exchanges began a few years ago when Mike spoke up about specific improvements that he felt we needed to make in the business, specifically related to our role serving the operating businesses and the leaders of the Markel Group. Since then, he’s worked in the back of the house with his sleeves up, helping to ensure we’re best positioned as a company to take advantage of our many opportunities. Today, Mike will walk you through the thinking behind that evolution and the work we’ve been doing and how we’ve structured the Markel Group to best serve our businesses and you, our shareholders.

We believe in what we’ve created, but it’s also important to note, it’s paramount that we never rest on our laurels. We continuously test our assumptions and make sure we are the best at serving our shareholders. As we previously announced in recent months, we’ve engaged in a full board-led review of every aspect of the Markel Group, including our structure, operations, marketplace perceptions and results. And that doesn’t mean that our work serving you to the best of our ability ever stops. So, we’ll continue to work and improve as the board review continues to pace.

Next will be Andrew Crowley, president of Markel Ventures. Andrew’s story speaks volumes about our future. He started here as an intern, and from there grew up in Markel, working alongside Mike and me within the ventures part of our operations. If you want to see what happens when raw talent meets the right environment, well, Andrew is your proof point. He’ll share with you some key tangible examples of how our model works and how we aim to reliably and sustainably compound your capital over time.

And finally, you heard from Simon Wilson, the new leader of our insurance business. Insurance underwriting is the cornerstone of Markel, and while we have not been top quartile in recent years, make no mistake, we aim to return to the front ranks. Simon will lay out his vision for what top-tier underwriting looks like in Markel, how that happens best when we empower leaders locally and as close to the customer as possible, and the steps we’re taking to get there.

Finally, our CFO, Brian Costanzo, a Nebraska native, is up on this stage. He will join us for the Q&A that follows the presentation. So, with that, let me turn it over to Mike.

Mike Heaton’s presentation (COO Markel Group)

[00:06:47] Mike Heaton: Wow. Thank you, Tom. Thank you, everyone here. I’m just filled absolutely from head to toe with gratitude. As I look at familiar faces, supporters, our shareholders, it’s just you can’t imagine the privilege it is for us to sit up here today. Tom talked a little bit about our roles. Thank you for that. Tom. He talked about this sort of back-of-the-house, front-of-the-house thing, this is how it’s going to go for the next few minutes.

I’m going to spend a couple of minutes here demonstrating to you why it is that I usually stay in the back of the house. And then I’ll hand it over to Andrew. In all seriousness, Tom also talked about that steady exchange of ideas that happens quite frequently between the two of us. And there’s been a lot of that, a lot of that leading up to this presentation, mostly focused on how to balance two things. And Tom alluded a little bit to that as well.

On the one hand, we’ve been really intentional about how we have set up the company over the past two years, and we’ve got a lot of excitement about the changes that we’ve made. On the other hand, we are still learning and open to change, especially as we go through the review process that Tom mentioned. So, I guess this question that we’ve been asking ourselves over and over again is how do we express today with you both conviction on the one hand, but flexibility at the same time. Here’s what we’ve decided.

Markel Group’s set up

[00:08:33] Mike Heaton: Today, we want to describe the reasoning behind how we’ve set up the company, and that serves two purposes. First, it sets the context for what it is that we’ve been reviewing. Secondly, it begins to address candidly and early the piece of feedback we heard from some of you, even those who sit in this room, which is that we could do a better job of communicating clearly. So, if this morning you walk away with a clear understanding is that the thinking behind the path we’ve been on for the last two years, without getting the impression that we are rigid or unwilling to adapt, well then, we’ve succeeded.

And to that very point, we absolutely welcome your feedback on our thoughts today. Please, they are a welcome part of our learning process.

[00:09:28] Mike Heaton: So, with that, I’m a big believer in simplicity. I love simplicity. In fact, I think it’s vastly underrated. Steve Jobs was probably the master of it, maybe better than anyone else we’ve known. Here’s how he described the power of it: “Simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”-Steve Jobs.

So I’ve learned that power of simplicity from up close. I’ve been so privileged for almost my entire career to be able to work first-hand with many successful businesses and their leaders, some of them within my line of sight here today, just the most admirable people you can imagine. Over and over again, what have I observed from the very best of these, over and over again, they have one thing in common: a simple, powerful idea that everything aligns to. That’s how they get every person rowing in the same direction, and how they create a clear standard.

The vision for the Markel Group structure

[00:10:43] Mike Heaton: So, getting back those conversations that Tom mentioned that he and I started having a few years ago, as opposed to the ones over the last few weeks, these are the ones where we talked a lot about how our business needed to improve. More often than not, those conversations came back to the same idea and our need at various levels of the organisation to rally around simple, clear missions and standards.

We have been working on that for a while. Can I tell you we have been working on that for a while? In 2023, was when we really started to move on this. We reshaped leadership. We reestablished full accountability, and we realigned around a clear strategy. That’s three really important reasons. As to that lattery, I’d like to articulate for you in the simplest terms I can, think kindergarten level of simple here, the foundation of that strategy.

What exactly is Markel Group?

[00:11:47] Mike Heaton: A different way to say that would be, what exactly is the Markel Group?
Well, here it is. Here’s Markel Group. It’s a holding company. The triangle at the top. The holding company plays four roles. We call them culture, capital, leaders and essentials.

Culture means holding up that banner across the whole organisation of over 20,000 people, letting every one of our teammates know, this is what it’s got to look like if you want to be part of Markel Group. Capital means putting capital anywhere in the business where we believe it can earn outstanding returns. Leaders speak to our role in ensuring that we have great leadership running each of the businesses within the group. Essentials include everything else. Everything else that we have to do at the centre. So, that would be things you could probably guess, tax returns, compliance, SEC filings, things of that nature.

Beyond those four things, we seek to be as hands-off as we possibly can with our businesses. So, let’s get back to our illustrations. We’ve got Markel Group at the top. Below the Markel Group, the triangle. We have a row of diamonds. And what does each diamond represent? Each diamond represents a business. That’s really it. Is that simple enough? That’s really it. Markel Group is made up of businesses.

How’s that? So, let’s add a few more important details. We don’t want to overcomplicate it too much, but let’s add a few more here. There are many diamonds, not just a few, and there’s this really special centre diamond that sits at the centre. We call it Markel Insurance. It’s by far our largest business. It’s central to everything we do, and it’s connected to all the rest. It provides and depends on capital from the whole system.

The other diamonds span many industries. On the left, we have a few other insurance-related businesses. We have manufacturing companies, construction companies and more. On the right, our ownership interests in publicly traded businesses are represented. Now, sometimes we like to call these stocks, but as our great teacher, Mr Buffett, put it, he said, “It was Ben Graham who got me thinking that a stock is not something with a ticker symbol that wiggles around. He taught me to look at these as businesses.” Well, we look at them as businesses, too.

Markel Group is a home for businesses

[00:14:31] Mike Heaton: And what about that triangle at the top? What is that triangle at the top? Simply put, the triangle at the top is a home for these businesses. A home with very intentional design and architecture, and I don’t know that we can adequately appreciate the potential that exists inside that little box.

This home is special. It’s designed to grow and grow and grow and grow. And guess what? As that home grows, this pertains to you. Your capital grows and grows and grows. And I promise you it’s going to be kindergarten. In a moment, I’ll turn it over to the smart people to get into a little bit more. Before I do that, if you remember this.

[00:15:31] Mike Heaton: One thing today, if you remember one thing today, let it be this: Markel Group is a home for businesses designed to relentlessly compound shareholder capital across decades.

That’s what we’re here to do. And this is such an important point, we should explore it a little bit deeper, even though we’re trying to keep it simple.

My teammate Andrew Crowley is well qualified to do this. He spent his entire career in the business of compounding capital. He’s going to discuss the design elements of our home that help us compound your capital. Afterwards, I’ll share a few thoughts on how we begin to measure their effectiveness. With that, I turn it over to you, Andrew.

Andrew Crowley (President Markel Ventures)

[00:16:23] Andrew Crowley: No pressure. Smart people, huh, Mike? Thanks. That wasn’t in your rehearsal. So, thanks, everybody. Good morning. You know, both Tom and Mike already said it. You bring us so much joy to be in the room with each of you. I’m not someone who stands still very well. So, I’m going to do my best at the podium, but I did have the chance to walk around and see many familiar faces this morning, and it just made me happy. So, thank you.

As Mike said, Markel Group is a home for businesses designed to relentlessly compound your capital over decades. Easy to say, harder to do.

[00:17:03] Andrew Crowley: Before we go into specifics about how we’ve designed your business, let’s take a moment and honour Charlie Munger by inverting. Asking ourselves what gets in the way of a business’s ability to compound capital over the long term.

A few things immediately come to mind. It lacks quality. Earnings may be strong for a period, but competitive advantages erode over time, and earnings follow suit. It lacks diversity. Too much emphasis is placed on one area, tying the fate of the overall organisation to a single person, product or market. It lacks financial strength. That capital that supports the business becomes a tool for stretching earnings. Not supporting them, introducing fragility. It lacks financial strength. It has friction, an ownership mindset shifts to that of an agent, and drag in the system disrupts the force of compounding. It has no place to reinvest. Optimisation prevails over optionality, limiting a business’s ability to deploy its capital. Return of capital is favoured over return on it.

[00:18:32] Andrew Crowley: Over the next few minutes, we will highlight how your company is built with diversity, with quality, with financial strength, with minimal friction and with ample opportunity to reinvest. We won’t cover everything, but we hope you will walk away with a greater appreciation for what makes your business poised to compound your capital for the long run.

[00:18:59] Andrew Crowley: Now we recognise quality means different things to different people. For us, it means durable competitive advantages, many of which are afforded by strong market positions. This is not new at Markel. The Markel style asks us to seek to be a market leader in each of our pursuits. It is an ambition we’ve pursued since the beginning.

When citing examples in our home, the big diamond, Markel Insurance, is a natural place to start. Our speciality focus places us in the best markets for insurance underwriting in the US and around the world. Within those markets, we aim for leadership positions. Add it all up, and our underwriting operations ranked number four in the US ENS market and amongst the most respected PNC carriers in the world.

But looking across the group, we have similar positions in other markets as well, including the number one US grower of ornamental plants in Costa Farms. The number one US fronting carrier and state national, one of the largest building products distributors in the United States, in Lansing Building Products and an Inc. 5000 Award winner, 15 times over, in CapTech, just to name a few.

And quality does not only apply to our controlled businesses, but to the ownership we have in public companies as well. That portion of our home includes businesses such as the number one credit card provider in Visa, the number one home improvement retailer in Home Depot, and the number one manufacturer of agricultural equipment in John Deere. I think you get the point, and many, many more. But if quality is the first step in compounding, diversity is a natural second step.

Earnings coming from diversified sources

[00:21:00] Andrew Crowley: Looking back over the last five years, one of the ways your business demonstrated its breadth is through the contributions of its various component parts to adjusted operating income.

At first glance, the $7 billion of adjusted operating income earned over the five years came from three areas: Insurance, Investments and Markel Ventures. However, that does not provide a full picture of the breadth of your business. Looking closer at the same data, we see that greater than $1.9 billion came from insurance underwriting operations, $800 million from other insurance-related activities, including State National and Nephila, $1.8 billion from fixed income securities made up of high-quality U.S. Treasuries and municipal bonds, greater than $600 million earned on cash and short-term investments, and $2.1 billion from the 21 companies comprising Markel Ventures.

But adjusted operating income isn’t the only way we show breadth. There are several other ways we do as well.

First, our public equities add both dividend income and long-term appreciation to the compounding of your capital. Over the last five years, that portion of your company has returned 12.8% per year. More equities, more earnings power.

Second, during the same time frame, operating cash flows exceeded operating income by $5 billion. Mostly due to the power of increasing insurance float. More float, more earnings power.

Lastly, when appropriate, we’ll repurchase shares. In fact, over the last two years alone, we’ve repurchased greater than $1 billion. Less shares, more earnings power per share. High-quality and diverse businesses need a solid foundation. The financial strength of a stable and efficient capital base.

[00:23:12] Andrew Crowley: At Markel Group, there are several elements that provide these underpinnings for your company. To provide stability, we apply an appropriate degree of conservatism in everything we do. Strength and flexibility in our balance sheet support long-term decision making. Today, we maintain cash and short-term investments that far exceed the fair value of our debt. High-quality and liquid fixed-income investments with 98% of our portfolio, AA or above. And strong insurance reserves, where our philosophy is and will always be, to be more likely redundant rather than deficient. This has been true for each of the last 20 years.

And in the spirit of efficiency, our public equities serve the dual purpose of capital for our insurance operations and as standalone investments. I think you heard this from Berkshire yesterday as well, allowing those dollars to generate equity returns and underwriting income simultaneously.

Additionally, the diversity of the cash flow from our business positively impacts our financial ratings, reducing the capital required to maintain them. Quality, diversity and financial strength provide a great base for compounding.

[00:24:40] Andrew Crowley: And one way we seek to maximise our potential is to minimise the friction between your capital and the returns it generates. This seemingly small point can be the difference between great and average or average and poor.

We operate with three key features designed to reduce drag in the system.

First, as you also heard yesterday, we do not charge fees to you, our partners, a private fund manager may charge 200 basis points on committed capital and an additional 20% performance fee above a hurdle. As just one example in our family, Markel Ventures operates at 40 basis points per year, including all costs allocated and direct. This means hundreds of millions of your dollars have continued working that could have otherwise been paid out in fees over the last 20 years.

Second, capital in our system works every single day. Much is written about high fees, but far less about the cost of idle capital. We estimate that over a five-year period, committed but not deployed capital can cost you investors up to 400 basis points per year in a private fund structure. Outside of share repurchases, which we view as just another capital allocation option, your capital remains in the home, relentlessly compounding every single day.

Lastly, as full taxpayers, we would rather your capital be working than paid out in taxes, where prudent. Over the past 10 years, we have grown the unrealised gain on our equity portfolio from $2 billion to $8 billion, assuming a 25% tax rate. That $8 billion unrealised gain allows $2 billion of your capital to continue working rather than being paid out in taxes. And we expect that to grow over time.

Reinvesting

[00:26:48] Andrew Crowley: As you can see, we are built with many of the necessary criteria for success. But we need an abundance of reinvestment opportunities to continue deploying your capital at high rates of return to keep going. Few data points that speak to that runway, although Markel Insurance is a leader in speciality insurance around the world, we only have a few percentage points of market share today.

Our equity portfolio stands at roughly $12 billion, most of you would know. That would only represent less than one 100th of a percentage of the total market cap for global equities around the world. And within Markel Ventures are 21 businesses, many of which have significant runway to grow.

As just one example, VSC, led by Tommy Clements, who’s in the room today, is a leading provider of fire and life safety equipment. That market share for VSC is only a few percentage points of the $23 billion market for US Fire Protection today. Since we partnered with VSC, the market is growing at roughly mid-single digits per year. VSC has meaningfully outgrown that as part of our family.

And let’s not forget the thousands of privately held businesses who find our long-term home attractive. Last year alone, we connected with nearly 100 companies who fit our approach and had an interest in Markel, thanks to many of you today for those introductions. Within each of these areas, we not only have the opportunity, we’re uniquely positioned versus the competition. We are able to make long-term investments and see them through, receiving the full benefit over time.

[00:28:34] Andrew Crowley: As yet again, one example. In 2024, we celebrated the opening of our new world-class facility at Cottrell. One that enables our teammates to carry on the company’s success for decades and decades to come.

We have a front row seat to a variety of businesses. This ability to share information across the group provides each business with an advantage, particularly when making long-term decisions. We are not reliant on capital markets for funding. I think Jason’s wife may have written an article this morning talking about this. The timing of flows can significantly decrease investors’ opportunity set and their associated returns. Just one study would highlight the underperformance of mutual fund investors versus the fund itself, noting that they are as much as 20% lower simply due to poor timing of flow.

We have the ability to pivot. Whether due to a weak market or the underperformance of one of our businesses, we can move your capital around with minimal friction. And most importantly, we are a company others want to do business with. Whether customers, suppliers, trading partners, publicly traded companies or privately held ones looking for a home. People want to do business with Markel Group.

Our goal is to be a company where everyone who comes in contact with us is better off for having done so. With high-quality businesses, diverse earnings streams, financial strength, minimal friction and plenty of room to run, our structure enables us to consistently generate earnings, to productively redeploy them and to keep going.

Markel Group is a home for businesses designed to relentlessly compound your capital over decades. Thank you. With that, I’ll hand it back over to Mike.

Mike Heaton welcomed back to the stage (COO Markel Group)

[00:30:50] Mike Heaton: That was fantastic. What a great list of strengths. I hope as you sit and listen to those as shareholders, you appreciate the strength of this company that you’ve supported and allowed us to build over the years. Now that begs one really important question, which is how you get some sense as to whether or not all those things that Andrew talked about our working

[00:31:12] Mike Heaton: Well, let me give you just a really preliminary flyover of how we start to think about how they’re doing. And as a reminder, just to sort of get a sense of target, we’ve long said that we aim to compound shareholder capital of double digit rates over long periods of time, and we believe— just to be a little more specific about that—the compounding within a range of 10 to 15%, 10% being very good, 15% over years and years being about as good as it gets. We believe that to is very achievable with the model that we built.

[00:31:49] Mike Heaton: So, how do we assess that? I’ll give you three primary metrics that you can start with. First, an obvious one, total shareholder return. You’ve seen this chart or some version of it before. Since going public, our stock has compounded over 15% annually, an unbelievable result. At the end of 2024, our five-year compound annual growth rate was 8.6%. That is a result that is below our long-term target range. We can see early indications of progress from the changes of the past two years. And someone on the team, I won’t name names, couldn’t resist looking as the week came to a close. I think if we got the math right, the five-year compound annual growth rate at the end of the week was something like 17% or just over 17%, making progress

[00:32:40] Mike Heaton: The second primary metric is intrinsic value growth. Over long periods of time, our stock price will follow the growth in the intrinsic value of the company. To track progress and intrinsic value, we introduced last quarter an intentionally simple, albeit imperfect proxy. It roughly estimates as of the end of 2024, a five-year compound annual growth rate of 18%.

3-year Adjusted Operating Income

[00:33:09] Mike Heaton: The third primary metric, as you begin to assess how the company is performing, is operating income. Andrew spoke to this. And it’s a key driver of intrinsic value. Operating income is a proxy, in effect, for the earnings of the business. In fact, when we came up with that simple formula, we took the three-year average of operating income from our majority-owned businesses. That would be the big diamond in the centre, and all the diamonds off to the left, the public ones we add in because there’s a mark on them. But take all those, all those businesses for which we are a majority owner.

Here’s what those numbers look like over the past few years: the three-year average. So, 2019, $615 million; 2020, $784 million; then $992 million, $1.2 billion, $1.5 billion, and finally $1.7 billion as a three-year average at the end of 2024.

You know, we’re not perfect, but we feel pretty good about that trend. Operating income grows intrinsic value, and intrinsic value over time will drive stock performance. That’s the beginning point of our assessment framework. As part of the review, we’re working to make disclosures around these metrics and others more easily accessible to you, So, you can better track our use of capital. You can expect changes on this before the end of the year.

Insurance business improvements

[00:34:44] Mike Heaton: Regardless of what metric you look at, there is one thing that is absolutely certain. Our insurance business—That great big orange diamond. I don’t know if you missed it. I think that’s probably obvious enough—the big orange diamond in the centre is central to our future success. Going into our review work, this was our highest priority.

We know that our core insurance business has not reached its full potential. And to deliver on our promise to you, it absolutely must. We began working on this several years ago, and again speaking candidly, we had to begin by mopping up a few messes in the aisleway, so to speak. More recently, we’ve set the path for a future of profitable growth with a new leader or a new focus. We also welcome John Michael to the board to bring fresh insurance expertise. Simon is going to share more in just a minute, and I could not be more confident that you will feel encouraged. So, thanks for listening.

“We are builders.”

[00:35:58] Mike Heaton: I hope you don’t mind if I close with a bit of a personal story, as I said in the conversations that we had coming up to this meeting. We clearly wanted to get sort of the ideas that were in our heads on paper, so that you had an understanding of them and had an understanding of the work to come. But as I sat at my desk a couple of weeks ago, I thought, you know, we really want to share more with you than just the ideas.

Somehow, we wanted to capture for you the sense of the air in the building, so to speak, the sentiment, which really adds a richness to those ideas. And as I sat there at my desk thinking and thinking. Think. I mean, a story popped into my head from my childhood, and my guess this is the kind of story where everyone in this room has their own version of it. And you know, it’s the kind of story that I think we tend to forget sometimes as adults. And it’s the kind of story that we really need to go back and remember.

My story started with my father. And he showed up at the front door after work one day with a couple of giant boxes full of these computer punch cards. Now, there are a bunch of you in this room who have no idea what a computer punch card is. Let me educate you. The Computer Punch card was the predecessor to the 5^1/4-inch floppy disc inch floppy disc. Now there are a bunch of you in this room who do not know what a 5^1/4-inch floppy disc is, the predecessor to the 3½-inch hard disc, and on and on and on.

Let’s just say it was sort of like the prehistoric version of the cloud. The important point is not that. These things were cards, and they were stiff and rigid and really easy to bend and to form into shapes, and in particular blocks that we could use to build. And we loved building with these things all over the house. We were stacking up these houses and apartments and miniature cities and things of the like.

One day, my sister and I sat there playing with these computer cards. I can’t remember which one of us but one of us said, I wonder, I wonder if we could build a tower that went all the way to the ceiling. And I know to us, those little kids, that ceiling in that room felt as high as the ceiling in this room feels to us. We said, let’s do it. So, we started stacking and we built this giant foundation across the entire room and fortified it and layer after layer after layer we built and built and bit and climbed and climbed and climbed and climbed. And there we were, standing on the tops of chairs and tables, and you could just almost reach the ceiling.

And right as we’re about to get there after hours and hours and hours of doing this thing. We heard it. The sound of the door opening and the family dog walking into the room, maybe running into the room. Well, I don’t have to tell you or explain to you the sensation that my sister and I felt in that moment, that joy, that sheer joy of creation and possibility mixed with the reality of potential, some setbacks. That’s something we have all felt, and that is something this team up here over the past few years, as we’ve gone about this work, have felt.

We are so excited, enthusiastic about the potential of your business and the things that we’re building together, but we’re very honest about the fact that we can’t just stack our bricks haphazardly. We need to learn. We need to acknowledge mistakes. We need to adapt. We need to make adjustments along the way if we’re ever going to make it to the ceiling.

By the way, my sister and I we made it. We made it to the ceiling. There is a picture in existence of this tower, and my sister and I called my father to ask him if he would dig it out of the family photo album for today. So, as he flipped through the pages and dug and dug and dug, eventually he did find this picture. He said to me, this is a quote from my own father, “Are you sure you want to use it? Because it looks a little dorky.” I’m not sure it’s that much better today, but the photo stays in the album. I just hope you can trust me that we did make it to the ceiling and the Markel Group, we are going to make it to the ceiling too.

A friend once told me, “God created creators.” I believe that we, the people in this room, we are creators. The people in this room, we are builders. Together with you, not just beside us, with us, we are building something that will grow and endure and be of great value. With that, I’ll hand it over to Simon. Thank you.

Simon Wilson takes the stage (CEO Markel Insurance)

[00:41:22] Simon Wilson: Hello, ladies and gentlemen. I thought that was absolutely exceptional from the group there, and now you’ve got the guy who’s going to talk to you about insurance. So, we’ve got over 2000 people in the room. I can see literally people on the edge of their seats. It’s very exciting for me, and it’s also a little bit weird, but thank you for being here. It’s superb.

I was often called at school. People used to tease me with the nickname Simple Simon. I never knew that was going to get me this job, actually. It was just fantastic. So, there’s a win. You can always come back from defeat, Mike. You know, it’s like one of those things. What are we going to talk about today? I want to give you a sense of my vision, you know, stepped into this role about four or five weeks ago, about what this insurance business at the centre of Markel can bring us.

Now, Mike told us the biggest diamond in the Markel Group. I’m not sure if you haven’t seen Tony Markel’s wife’s engagement ring. Actually, that’s the biggest. But we’re not bad. I’ll take second place from that perspective. Let’s get a sense that the thing I want to share with everybody today is a presentation, which is pretty much a slide-for-slide what we went through as a group of associates in the past week. Thursday last week, which I shared with them.

Markel Insurance

[00:42:37] Simon Wilson: What I wanted to do was level set across the whole group about what we are, what we do, how we win, but also acknowledged the fact that we haven’t performed to the level that I would expect over the last three or four years. So, a bit of a dose of reality. So, I’m going to share that with you today.

[00:42:55] Simon Wilson: I’m going to start in a fictional situation where we’ve got our friend John Smith. John Smith is a customer service agent working for ABC Insurance, somewhere in the middle of America. ABC Insurance is a typical PNC insurer focused on auto, homeowners and small business commercial packages. The phone rings. There’s a Jack on the other end of the phone who says, Hi there. I’d like to buy some insurance. John Smith says, Well, you came to the right place. How can I help you? What do you need insuring? Yeah, well, I’ve got a boat. OK. What kind of a boat is it?

Well, as a container vessel, it’s a fit for about 20,000 containers. The problem is I need to take the boat from Shanghai or is at the moment to the port of Rotterdam, and I want to get there quickly, and if I want to get there quickly, I’ve got to go through the Red Sea, then through the Suez Canal. There’s a bit of a problem in the Red Sea off the coast of Yemen at the moment, these Houthi rebels are kind of pinging rocket-propelled grenades at a few of these boats. I’m worried about that. Could you help me with some insurance?

Now, John Smith goes into his whizzy AI system, and he’s like, can I have some marine war, Yemeni kind of insurance off for a boat. And the system comes back and he said, Well, the nearest thing we’ve got here, Sir, is a high net worth yacht policy, but I’m not sure that’s going to quite do the trick. I have to go and check somewhere else. John’s a bit disappointed. He likes helping customers.

The next. The phone rings again. Hello, this is ABC Insurance. Hi there. I’d like to buy some insurance. You came to the right place. Well, how can I help you? What product do you have? Well, I’m a construction. I’m a construction guy specialising in wind farms. OK, we’ve been doing most of our wind farm development on the shore in the southern parts of Spain, in the mountainous area there. But we’re going to move on. We’re going to do something much bigger. We’ve developed floating wind turbines, and we’re going to go to the on the off coast of South Korea, and we’re going to deploy them there because the sea is so deep. That we can’t actually concretise them into the seabed.

All right. So, John Smith is a little bit worried about the AI machine and what’s going to come back. So, he types, wind farm at sea, floating, South Korea. The machine comes back. Triggers up. John looks at the words, and the machine just comes back and says, absolutely not. At least the AI is working for him. I suppose in some way shape, or form.

Phone rings again, there’s a gentleman from Richmond, VA. What does he have? He’s a gas station owner. He’s got about 10 gas stations in this franchise. He phoned up and asked for his insurance. He says, Look, what I’m really worried about here is the pollution liability that I’ve got. A friend of mine had a bit of an incident. The oil seeps into the Earth. And then I’m, you know, causing massive problems in and around the world. John Smith doesn’t even bother using his AI machine. He’s like, we just can’t help you with that, sir.

It’s been a bad morning for poor old John. So, he puts the phone down, feeling a bit depressed, goes and finds himself a cup of tea, and there he goes he just scratching his head. He goes, who on Earth would ensure stuff like that? Well, the answer is Markel Insurance. This is what we are doing every single day. And it’s interesting. I picked these three examples, and these are real-life examples of things that we were doing over the past weeks.

So, it’s absolutely part of what we do as our DNA. Now we’re doing about 100 products similar to this. So, in the diamond analogy. The way that I see the way Markel Insurance working is a lot like Mike described that house with the diamonds within it. Really, we’ve kind of got 50 or 60 small businesses, small bits of people, books of business operating within this big thing called Markel Insurance.

And it’s important for a number of reasons. So, why do we exist? We are a speciality insurance organisation, and we sell products that are not commonly available on the planet. So, that’s what we focus on. That’s why we exist. That’s why people come to our doorstep. How we win? Expertise. We build teams of experts. We focus on specific customer groups and their needs within that speciality insurance market. And once you’ve hired those teams, and once you’ve put them together, you have to trust them and you have to empower them to get on with it.

[00:47:24] Simon Wilson: The good news in Markel Insurance. Over the last 50 or so years that we’ve been doing stuff like this, we’ve got two really important competitive advantages in the market. Number one, we’ve got lots and lots and lots of teams of people that know what they are doing in these areas and even more important than that, in an industry which is completely based on trust, our customers and our broker distribution partners believe us to be a company in an organisation that consistently does the right things, whether that’s on a claims payment in the way we trade, in giving advice, when we when we give advice, they trust that advice. That is huge. It cannot be replicated by other people overnight in either of those two areas. That’s it. It’s as simple as that. That’s all we’re doing.

Insurance performance

[00:48:16] Simon Wilson: But here’s the issue: we’ve asked you guys, what do you think about our performance over the past few years? And Mike alluded to it by putting absolutely no pressure on me in this job. We have been underperforming. Markel was considered best in class, but its underwriting performance and recent deals appear to have removed the shine. It’s frustrating to see Markel not keep up. There’s an investment required around talent and technology.

I look at it, as I said, I wanted to level set with our team and say, where do we position ourselves in the market? How have we performed financially? Now, the first chart that we showed our performance over the last five years against the average performance in the speciality insurance marketplace.

[00:49:02] Simon Wilson: I looked at that, and my response to it is, I have absolutely no interest in what average people are doing in this marketplace. The only place we want to be is at the very top of the tree. So, let’s look at our performance against what I think are the best players in this part of the market that we’re in.

And if you look at that, and many of you will know, the combined ratio. Combined ratio, it’s like golf, the lower the number, the better. So, one minus this percentage equals your profit margin. Kinsale, a very solid business, is actually based out of Richmond, VA, as well, coming in at mid-70s combined ratio. That’s almost astonishing. I think we heard yesterday it was at the Berkshire meeting that they were celebrating that 80-something combined ratio at GEICO. These Kinsale guys have been doing that over and over again for a long period of time.

RLI, where John Howard has come from, we’re going to learn a lot from him as to how they produce. You can see it. So, we’re looking at a kind of mid-80s performance over that period of time. And then Markel, we’re at mid-90s. So, you’ll be honest about that, right? So, if we’re doing a 95% combined ratio on $10 billion of earned premium and our competition is 10 percentage points margin better than us, that’s a billion dollars in that year of lost profit against the best in the marketplace. There’s a lot to catch up on there. So, this is a big job, and it’s something that we’re really having to focus on.

What’s caused it? Four things. Firstly, we’ve made some underwriting mistakes. We are overweight in the construction business in the US, but that was a misstep that caused a problem when social inflation came upon us, and the law courts in the US started handing out enormous jury verdicts to people who have been injured in the course of work. So, construction was a bit of an issue. Risk managed, D&O, and E&O insurance, again, things that have been running really hot in terms of performance, that’s an issue.

Thirdly, we have to admit the CPI error that we made a couple of years ago. The good news is, in each and every single area where the portfolio has been underperforming from an underwriting perspective, a huge amount of work has been done before I got this job to clean that up. We’ve put the reserves up, we’ve taken our medicine, and that’s what’s been driving some of this on the performance. So, I would expect that the benefit from those decisions we will start to see during the course of this year and the next two years.

But it’s one thing to clean up and mess up, you can’t cut yourself to greatness. We’ve got to start really pushing growth into this business again to get it to the very top of the tree. So, when we look at this as well, I would say that we’ve had a little bit of a misstep in our strategy. So, underwriting is one thing, but core strategy is something that we need to think about. We’ve had a little bit of a grass is greener strategy for a few years. We’ve got this fabulous business at the centre in US E&S, wholesale and speciality. We’ve almost taken them for granted that we’ll just continue to win in that area.

So, we’ve gone after other bits of the market, saying, oh, there’s lots of premium over here. There are a lot of premiums over there. And meanwhile, Kinsale has gone right into that wholesale and speciality E&S market and started making money at a 70-something combined ratio. So, I think we’ve taken our eye off the ball of our bread-and-butter business a little bit strategically.

Second structure, as we’ve grown, we’ve become more and more complex. We’ve fallen into that corporate trap of saying let’s go and do a matrix structure where we’re going to have ahead of a product and ahead of a distribution channel and ahead of geography, and all those people report into slightly different bits of the organisation. And then you say what went wrong. You get that Spiderman picture where three people are saying it’s that person, it’s that person, it’s that person.

So, a matrix structure in this business is very complex, and it slows down decision-making. The other thing that we’ve done is we started to centralise our services that are provided to the various little diamonds that are around, which takes away decision-making power from the business leaders themselves. And I think it’s it pushes costs up over time as well. So, from a structural perspective, we need to clean things up.

And finally, cultural. We are an entrepreneurial organisation that believes in business leaders who can make decisions quickly. Because our strategy has become a little bit confused, and I think because our structure has got a little bit woolly, the ability for our entrepreneurial business leaders to get things done and make decisions has waned. As a result of that, people have lost a little bit of confidence to get things done and drive the business forward.

Steps to improve performance

[00:53:48] Simon Wilson: So, what are we going to do? Three things. Absolute clarity on what we do. I spoke about that earlier. We are a speciality insurer and we’re going to put the hands of our, you know, of the driving of the strategy in the leaders who are closer to the customer and understand how their businesses are run. We’re going to empower those people to get it done.

Second, simplify the structure, We are going to pull out P&Ls across the business, whether it be 60 units or probably slightly less than that. But in those P&Ls, we’re going to have a business leader, a clear set of accounts where you understand, you know what it is that you’re responsible for. And we’re going to hold people to account to make sure that those panels make sense. So, we become literally an amalgam of many of these different businesses with absolute leadership at the top of each one of them.

And the third bit is we’re going to get back to trusting those leaders to go and get the job done. I don’t know about your experience, but in my experience, when you give someone a clear task to go and get done and the tools to go and do it, not if they’re good enough, nine times out of 10, they will get the job done. And that’s what we’re going to be doing.

[00:54:53] Simon Wilson: So, in terms of our structure, we’ve just restructured. So, we’ve invited Wendy Houser, delighted to say she’s in the front row here, to take on our wholesale and speciality crown jewel, bread and butter, the biggest diamond in the insurance business, has gone over to Wendy. Alex Martin, who was previously the head of US Speciality, is now going to run a business, and I’ll outline that in a moment called Programmes and Solutions, both of which those in that $3 billion line. International was the business that I was previously responsible for. Absolutely delighted that Andrew’s doing that now because he’s way better than I am. So, I can trust him on that stuff. He’s an absolutely exceptional individual. And Don Barr continues to run insurance.

[00:55:31] Simon Wilson: Why am I excited about growth in each one of those new business units that we’ve created? This is Wendy’s market. The US E&S market is Markel’s bread and butter. This is where we made our reputation, and this is where we have perceived by brokers to have the greatest strength in terms of what we do.

That market since 2019 has grown at a compound annual growth rate of 20%, but Markel has not. The structural reasons for this growth are that customers who are buying these kinds of special insurance products much prefer to get a tailored product that exists outside of the admitted market where you have to rate and file. They would prefer that, and once they’ve used it, they carry on using it. They tell their friends about it. So, they need in a more complex environment in the US to get tailored insurance solutions going up and up and up and up.

So, that 20% compound. There are way more tailwinds in this going forward. The other element of it is that the brokerages that serve this market have become much more sophisticated and much more capable of making it easy to buy through this. So, think about companies like AMWINS, CRC, RT Specialties, some big businesses there have done superb work during this period of time. So, the opportunity as we look forward to getting a much bigger slice of this is very, significant for us and it’s absolutely in our wheelhouse to go ahead and do that.

00:56:55 Programs and Solutions is a portfolio of businesses with strong positions today

[00:56:55] Simon Wilson: Next, we look at Alex’s business. So, before we had this big matrix structure, we could never really get into these lovely discrete businesses that we’ve purchased in the main, there’s been acquisitions over time.

What could we do? Let’s just look at the workers’ comp section here. Worker’s comp is a massive, massive area of the US speciality market. And it’s actually when you look at a lot of our competitors and where they’ve made their profit, they’ve been able to release reserves from that worker’s comp space, often to subsidise the casualty reserves that they’ve been having to put up. So, being bigger in worker’s comp has certainly been better over the last five years.

We’ve got a lovely business. This is very profitable. But it needs to be bigger, so we’ve now called it. I’m saying, what is the strategy to develop that yet further? Do we need a bigger product? Do we need a broader appetite? Do we need a new technology system? Do we need some more people? Probably a little bit of all of those things. But we will develop a strategy to grow that business way beyond the $480 million that it’s at now. I’d hope for that to be more like a billion in the not-too-distant future.

One other example, Surety. Surety typically runs in the low 70s, early 80s combined. Lovely profitable business, quite difficult to have expertise there. Quite difficult to get hold of the business in the first place. We bought that business, which was called SureTec, six or seven years ago. It was a $70 million business. We’ve managed to get it to $190 million. There’s no reason why that shouldn’t be 500 million in a few years’ time.

I could go through each of those boxes and say, look, if we are focused in that area, we’ve got the right leader sitting on top, we give it a bit of strategic capability. These are places where we can reinvest that capital that Mike and Andrew were talking about earlier.

Markel International

[00:58:40] Simon Wilson: Finally, and this is International. This business has been on a tear, so the problems that we’ve been having in the insurance business have really been on the US insurance side of it, less so in the international side of it. It’s been growing at a 15% compound growth, but underneath it, the underwriting profit is going down from about a 99% combined ratio in 2019. So, absolutely stellar 77%.

I think I can’t say that Andrew’s going to do 77% every year, but it’s very much in that kind of low 80s where absolutely top-end performance is being created. But what is really exciting about this business is, for me, the map element here. You go back 10 years, and we had a London Business and a U.S. business. Now we’ve got people all over the world. As we started to acquire businesses, we’ve built teams in these areas, and they are very, very fast-growing and exciting markets for Markel.

In none of these markets do we have a market share of above 1%. So, the runway for growth in that international business is absolutely significant. So, we’ve put up a target for Andrew to take that business from 2.5 billion to 5 billion by 2030, and he is going to put Markel on the map to another level.

[00:59:58] Simon Wilson: Finally, I talked about this concept of when you get a structure and you start to centralised services, what does that do as a business owner and a business leader, and I’m sure many of you in the room and you know and on the webcast today are business owners and you understand how this works. I always think about allocated expenses. So, if you look at your P&L, there are services that are being done for you by the centre, almost like the government, to some degree.

Back in 2006 to 2008, the proportion of our controllable expenses that were being allocated from the centre was 17%. Last year it was 46%. That is taking away the power to decide on what your business wants to do from the business leaders at the frontline. If we believe in empowering business leaders, and we do, and we want them to run a tight P&L, then 46 nominees to go back down towards that 2006, 2008 average. We’ve got to get back to basics. We’ve got to start pushing businesses and ownership down towards the customer. That’s a big driving factor for me.

[01:01:07] Simon Wilson: So, in conclusion, four things and then one big thing. This remains a quality business. North of $10 billion worth of premium. We’ve stumbled a bit the last few years, but make no odds. Brokers want to do business with us. They think we are superb. They think we do have expertise, and they want to do more with Markel.

The market, we talked about that US ENS segment and the speciality market writ large, that is getting bigger. The world is getting more complex. It needs expertise that Markel can bring. We’re going to simplify the way we trade. We’re going to call out these P&Ls. We’ll put leaders on top of it, and we’re going to get them to run their businesses. In the shared service model that we’ve been building over time, we’re going to federate that back down in the business. So, the business owners can drive the business forward.

But more than anything, this is what I believe: you get the right leaders and you empower them to run those businesses. You do that 60 times, and that diamond is going to get bigger and it’s going to get better. And I think we can do that across the world in many, many areas. So, I’m really confident as I stand here today to be a part of this team and actually start driving even more value through what we do in insurance. Thank you.

[01:02:36] Tom Gayner: Thank you. Thank you. Thank you, Simon. And again, just taking an extract from his presentation. He says International has been on a tear. Any idea why? The leader of our international business, who has put it on a tear, is now in charge of all of Markel Insurance. And I share a lot of confidence about our ability to make some very spectacular progress in that arena. So, thank you, Simon. The leader of our Markel Ventures businesses, which is done spectacularly well is also here with us, and I thank you, Andrew, for your comments this morning and my co leader and the whole thing, Mike Heaton to glue that puts it all together is here, and he explained his portion of that as well. So, thank you all, and what you just heard were your three voices. But one ethos about what the Markel Group is, and what we’ll do.

So, if I can have one last slide to share before we finish up and turn it over to questions. This is a slide that dates back probably to the mid-80s, and we think it sort of relates to some of the materials that were put together at the time of the IPO. And I recognise this is an eye chart. We’ll leave it up. People can look at it in other circumstances and other minutes. I’ll cite just a few key phrases from it.

So, Markel was organised in 1930 and then again to the 1980s, the time of the IPO, 50 years later. I think it’s a meaningful statement. Markel Corporation was formed as a holding company owning Markel Service Inc. and all its subsidiaries. So, I’ll remind you, the holding company concept is not new at the time of the IPO, we had an insurance underwriting business. We had a claims service business, and we had an insurance brokerage business. So, the holding company structure has been there for quite some time.

Each company becomes a separate profit centre. You’ve heard that P&Ls and individual leaders. Markel Corporation plans to grow, which we have done. The expertise of personnel will always be more important than the product itself. People, experts, and leaders who run businesses. Dependence on people emphasising quality over quantity. New products and new services will be developed to meet the ever-changing needs of clients. Innovation will always be a key factor. Increased diversification results in less dependence on any one market segment in a very volatile industry.

So, I’ll leave it out there for you all to read. But the point today and the story we’re telling, and the description of the Markel Group, is not a new idea. That’s how this company was built. So, our insurance business went from a small regional carrier to a leading global speciality insurer. So, Markel Ventures went from an idea 20 years ago to more than $5 billion in revenue and $500 million of operating income last year. And it’s how our public investment portfolio went from just a few million dollars after the IPO to more than $30 billion today.

Empowerment is such an important element of the Markel Group story. It’s the fuel that we will use to relentlessly compound your capital. You heard how Mike clarified that spirit in terms of our structure and design. You heard Andrew make the case for what this structure means financially for you, our shareholders, that we’re an operating model designed to relentlessly and reliably compound your capital over time. And you heard how Simon is applying that spirit anew in our big diamond of insurance underwriting.

So, what’s your role in all this? You’re a key part of how it all works. As any student of Berkshire, as you are, or any student of Charlie Munger, and Warren Buffett as you are, or any disciple of the rule of 72, and the laws of compounding as you no doubt are knows the number one most important thing to compounding is to keep going, keep compounding. You can’t stop the compounding machine, whether that be the compounding of your character, your heart, or your wallet. You’ve got to keep going.

For our system, the Markel Group to work as you heard it outlined today, for it to continue empowering our people all in the service of relentlessly compounding your capital, we need partners, partners who share our time horizon and values. So, thank you. Thank you for being here. Thank you for being our thoughtful engage partners forever and right now.

With that, our live presentation, our live webcast, now concludes. So, thank you all for the webcast, the world has been part of that.

Q&A (Markel Omaha Brunch 2025 transcript)

[01:07:34] Tom Gayner: So, let’s now do as we always do in this room. And it opened it up to your questions. I recognise people have flights to catch, so people will be coming and going. We will try to answer as many of your questions as we possibly can. We do have a tradition of giving someone the privilege of asking the first question, and we’re going to continue that particular tradition today. after that gentleman asked his questions, I would ask you to line up. I think we have two microphones. I can’t see them. We’re a little blind up here, and somebody is standing by one of those up there.

So, Mark Hughes. Our first question here. Mark has been a long-term shareholder of Markel. After Mark, the people in line, if you would let us know your name, where you’re from and if you’re a Markel shareholder and perhaps how long that might have been the case, but with that let’s start off the questions with Mr. Hughes.

The performance of the insurance operations

[01:08:37] Mark Hughes: Thank you, Tom. What a perfect bookend to the weekend for all of us. Thank you for doing this. The presentation is fabulous. Of course, my question would be, what took you so long to do this? But now that you’re here. It was terrific, Mike. Thanks for keeping it simple, you knew the crowd before I asked my question, a young lady to my right here. I asked if you would mention a couple of books that you’ve read in the past year that you thought of. So, somewhere along the line, if you can slip that in, that’d be great.

You mentioned early on in the presentation that the insurance operation wasn’t living up to expectations, and in certain parts of it, not all of it, but there were parts that needed to be improved. And my question is for Simon. And my God, what took you so long to get here? I mean, what a fresh face. The energy. Everything. You know, it just seems to be something that we needed here. And so, thank you for attacking the problem. My question is, we’re on the outside looking in, how are you going to be tracking the progress, whether it’s qualitatively, quantitatively and how, for us on the outside that have sensed that we could, there was room for improvement here, what are what should we be looking at to see that what you’re doing is working? It can’t be just as simple as the combined ratios, improving our revenues. If you were in our shoes, what would you be thinking about, measuring how things are getting back to where we think they can be? Thank you very much.

[01:10:14] Tom Gayner: Thank you. Simon, I think that’s directed at you and feel free to answer the book question along the way.

[01:10:20] Simon Wilson: It was better than that. Mark, thanks so much. It was lovely speaking to you yesterday evening as well, and you know, actually, I would say with this meeting, the ability for us just to interact not just in this space, but other ones as well, that’s fabulous. So, it’s been good to get to know you a little bit. You know, how are we going to look? How do we know if this is an improving business over time?

Think about an insurance organisation. As you know, one of the issues you’ve got is that you write the business today, and you don’t actually know what the cost of goods sold is. You think the claims are going to be over a period of time.

So, the actuaries, to a great degree, are making estimates that set it. So, you only find out if you’ve done really well or not quite so well a few years into the distance. So, there’s a little bit around that way. You won’t see it instantaneously. I think that’s important just to point out. So, what will we look for?

Firstly, I want some qualitative feedback as we go through. So, we are going to start surveying our people in the business and the brokers that we deal with, asking them some pretty simple questions and simple metrics, finding out whether or not we feel as though they’re finding it easier to work for and deliver decision making and to trade with Markel this year.

So, that would just be a qualitative feel about, we are doing the right things? Are we attracting more business into the organisation? Are people feeling good about it? The second thing you should look for is me beginning to describe the business in terms of these P&Ls that we’re setting up. So, we’ll be very discreet about the areas of the business that we’re tracking, we’re measuring. And so, when you go like, well, what’s going well, what’s not going quite so well, I expect to be able to start answering those questions with much more precision than you’ve had until this point in time.

So, I can demonstrate to you in our wider group what’s going well, we’re going to need to start doing some work. And I think the final bit I would look for if I were sitting in this room is some degree of stability. What I don’t want to see is like, oh, it’s a good quarter, poor quarter, a good quarter. It just feels as though we’re sort of relentlessly moving to an improved result that you’ve got quite a lot of faith in.

And I think you’re going to see that as we go through this year, just like the steadiness of the improvement that you just feel. So, it’ll be a feeling of just stability, and the guys are in control. So, those three things are qualitative, the ability for us to describe the business at that P&L level and then finally just the stability and the steady improvement of the result. But maybe Brian, you might have a couple more comments on that.

[01:12:42] Brian Costanzo: Yeah. Thanks, Simon. A few things, you know, we’ve done a lot of work over the last few years on the underwriting side. We’ve talked about that extensively. I think you’ll start to see that slowly come through our first quarter results. You saw that kind of year-over-year kind of underlying combined ratio improvement from where we were first quarter of 2024, the first quarter of 2025. We’re starting to see that come through that really now becomes the springboard for us to grow. And as Simon mentioned earlier, we’re really looking for all those areas across the globe where we can grow and we can grow profitably. So, you’re going to see a lot more of that in the messaging. Simon said a minute ago. That won’t show up immediately. You’ll see it in the top line. The gross written premium first comes through the earned premium, and the results slowly over time.

[01:13:33] Tom Gayner: Great. Thank you.

Growth stocks vs dividenden stocks

[01:13:35] Ken: Hi, Tom, this is Ken. I’m from Taiwan. I’ve been a Markel group shareholder since last year, and you’ve made me really good returns. Thank you. And I just want to say that my friend said that it was the best investment she made. It’s better than buying a Taylor Swift concert ticket. Thank you. Also, my question is, as young investors like myself, do you recommend that we buy growth stocks more, or do you think buying dividend stocks and using dividends to reinvest is a better strategy? Thank you.

[01:14:11] Tom Gayner: Thank you. Thank you for the question. I think some of the categorisations and groups that investment professionals put stocks in are not tools that I would use, and those are labels that I don’t use. It’s almost like labelling people. I don’t like to do that because I like to understand the intrinsic quality and intrinsic value that each individual brings to a particular task.

So, as a younger investor, and frankly, even one who might be criticised as not being quite So, young. What I look for in a company is one that can take the capital they have and compound it and reinvest that thoughtfully over time and earn good returns on that. And that can mean both reinvesting in the business that they’re in. It can mean making acquisitions. It can mean buying their own shares if they think they’re a value. It can include dividends, but I really look to the intrinsic nature of the business itself as opposed to putting a label of growth or value or dividend, or international or domestic or small or big.

All of those are appropriate labels, but they don’t tell me the truth of what it is that I’m looking for. So, I’m just like you’re looking for an individual that you think is going to be better, stronger, faster learning, curious, adaptive over the course of the next three to five to 10 years. That’s really what you look for in a company as well. It’s the same idea. So, that’s what I would do. Thank you.

Gene theraphy

[01:15:46] Tom Nelson: I’m Tom Nelson, a podcaster from Minnesota. In 2023, at the Berkshire meeting. Mike, I asked Charlie Munger if he still thought Americans were “Really massively stupid for not taking untested mRNA COVID gene therapy.” Charlie responded, “Yeah, sure.”

At the Markel meeting the next day, Tom, you were asked about your favourite parts of the Berkshire meeting, and you mentioned my question first, but you didn’t say why that was your favourite. I’m asking you now, do you agree with Munger’s take on that gene therapy? And do you think that those shots should have been mandatory, as Munger suggested? And if so, why?

[01:16:24] Tom Gayner: Well, I’m going to confess, maybe this is where I’m showing my age. I don’t remember that particular response. Now I will say that I did have the vaccine. So, maybe the vaccine caused memory loss, I don’t know. The third thing I’ll say is you’re way beyond my area of expertise. But I do like the fact that people ask Munger questions, and I do appreciate the nature of his answer, which was an answer, but I think it also implied some humility because some yes, sure or no, sure, that’s not a 100% answer. So, the ambiguity that was involved that I think, reflects the complexity of things that were involved. So, thank you for your question.

Index funds & value investing

[01:17:15] Don: Hi Tom. My name is Don. I’m a finance author from Singapore and an accidental Markel shareholder because last year, when you came to Singapore, it was a great thing. So, I’m actually that friend who bought one share just to attend Markel Singapore because I never thought I’d make it here. Thank you for having us and hosting us here. I want to ask your thoughts on a trend that’s happening right now.

So, in Warren Buffett’s 1982 letter, he expressed concerns regarding the potential loss of investing stewardship as well as the detachment from underlying business fundamentals that the rise of index investing and funds could bring. Given that, this is currently the predominant team and in a lot of my investment teachings that I do, I realise that the common answer from many people is they just want a DCA into the S&P 500 and not do anything else. Fewer people are, perhaps, folks like us who are interested in finding the next 10X compounder and holding it forever. So, my question is, what are your views on this rising team, and do you see that it is going to increasingly lead to bigger valuation distortions and will make it harder for us to find these undervalued gems if they don’t make it into the index funds?

[01:18:34] Tom Gayner: Right. Well, thank you for the question. That’s a great question, and thank you for travelling from Singapore to be here, and thank you for being an accidental Markel shareholder. As I said, our doors are wide open. We’ll take all kinds. I think it’s fascinating that question was addressed by Buffett in 1982. That’s what 43 years ago, and frankly, he was as often as the case for people who have such incredible foresight, he was ahead of the curve in discerning the possibility for exactly what you spoke of.

Now, I like to always stay positive and never, you know, as Buffett says, “Praised by specifics and criticised by category.” So, I’m going to indulge in a Buffett technique to do exactly that for a second. So, again, it was ‘84 when I actually started in the investment business myself, and Buffett spoke specifically of his misstep in making investments in the airline industry and how that didn’t work out.

And I remember that and have made some of those mistakes myself along the way. Apparently, I need to learn lessons the hard way as opposed to studying and learning for somebody else. But I used to joke almost from the very early days of that. If you really want to beat the S&P 500, what you should do is buy all 500 stocks and then not buy the airlines. So, you would have S&P 494 or whatever that was. And sort of by definition, I think you would outperform, and I think that’s correct.

So, in terms of investing. If you think it is a contest with the indexes, that’s a legitimate frame of mind that you would have, and I think you are correct in that. So, many people have adopted the practice of hitting the easy button or doing something that has worked spectacularly well. So, you can’t argue against it for so long that perhaps we have lost the underlying sensation of thinking. Why is that true? And why or why not may it continue to be true or not in the future?

So, the valuation discrepancy that has happened among the upper tier of the S&P00, they sell a pretty fancy prices in general, and it might well be that this era that we’ve been through of outperformance or really tough performance setting by the S&P might be very difficult for the S&P to keep up with. I’m not making a prediction, but just doing math and common sense next five, 10,20 years, it may look very different than what it has in the last five, 10, 20 years.

And a friend of mine proposed a thought experiment where he says, imagine two different scenarios. Scenario A or scenario B. Scenario A is one where the S&P 500 goes up. You know it’s flat, it goes 0% for 10 years, just as a thought experiment, but you made 2%. So, you beat the S&P 500 by 2% for 10 years. Pretty good result, right? Scenario B, say the S&P goes up by 12% a year for 10 years, but you only make 10%.

Now, as an individual investor trying to create wealth and fund your retirement, pay for college educations, things like that, which would you take, scenario A or scenario B? You would take B because even though you underperformed. You compounded your capital at 10% a year for 10 years. It’s real money. As an investment professional, the way incentive compensation is designed, you would be hugely tempted to take scenario A because you would have been paid on relative returns where you made 200 basis points as opposed to zero. But your client was not as well off. I think we have created the dynamics where those sorts of forces are in play.

So, the idea of being thoughtful and specifically choosing companies which may or may not be in the index and may or may not be something is going to win a comparison or not. I think there is epic value from doing that, and that’s really what I spend my time doing with my investment: that is to think about each individual business and the characteristics of each individual business. And can I count on them to relentlessly compound their capital like what we’re trying to do at Markel? And I try to think of that as independent of the S&P as I possibly can. Thank you.

Discount to instrinsic value

[01:23:27] Ira Holtzman: Yeah. Hi. My name is Ira Holtzman. I’m from Chicago, and I became a Markel shareholder 3 years ago after attending the brunch. It went a lot and has continued to buy since. My question is in reading the annual report, and you showed up on the screen about 9% compounded annual rate of return with regard to the stock price, yet that you gave us your intrinsic value, and I believe it was about $2600 a share and obviously we’re trading in the 1800 range. Why do you think that there’s a 30% discount on what the actual intrinsic value of the company is? Do you think it’s part of your communication to the general public? I’ll leave that with you.

[01:24:10] Tom Gayner: Thank you. And I’ll invite Mike to speak to this as well. Yes, the communication challenge is one of the things we think we’re trying to address as we go through things. We think what we have some control over is doing the things that relentlessly build shareholder capital, and in acknowledgement of that. Math. A, we’ve made some fundamental changes in the business itself, and B, for the first time in the history of Markel, well, we have repurchased a meaningful number of our shares, and we think that is the best way through our actions. We can indicate to the market that you know we think this is the highest and best use of capital allocation choice that we can we can make right now.

[01:24:54] Mike Heaton: Probably the only thing I’d add to that is a little bit of cautionary note about that tool and you want to, you know, use screwdriver for screws and a hammer for nail. The main point of that, as I said earlier, really overly simplified metric is to gain a sense of a rate of change as opposed to a dollar value. And over time, if the rate of change continues in that range that we want to see, our core belief is that eventually that works out fine for shareholders, and you may get periods of dislocation. And in either direction, by the way. But as long as the rate of change stays at a healthy pace at some point, it works out fine. So, if you wanted to get to a real, specific, exacting dollar valuation for the shares, you know that’s work that you all do day in and day out. And we have our versions of it that would kind of be just a starting point in some sense, if that makes sense.

[01:25:49] Tom Gayner: Yeah. I think Mike’s making a very good point there. It wasn’t the specific point estimate that we hung our hat on. It was the idea that whatever method you choose, however you choose to go about it, if you do it consistently using the same method, you’re going to get a rate of change. And that’s what we were really trying to illustrate. And we put some numbers out there. Just cause it helped people anchor on that, but the rate of changes we’re looking at.

A, the rate of change probably has been diminished by the things that Simon spoke about, where we didn’t execute as well in the insurance business as we would have hoped we would. So, we’re working on that. B, communication. C, the last five years, and again, I’ve been in the investment business for 40 years now. That was a pretty challenging five years, and there was some weirdness about it, given COVID, given everything that happened that made some of the ending point starting point comparisons a little tougher than they would normally be. As Mike alluded to in his comments, now that we’re past the five-year first quarter of COVID kind of stuff.

We think those comparisons are starting to have a little more validity to, and then the last thing I would say about that is you know, for instance, our incentive compensation is tied to five year rolling averages and five year rolling averages I think are longer than most other companies would use to begin with. Secondly, the way we do that consistently year over year means they blend into one another.

So, for instance, I’ve been there 35 years, we have this long-term horizon and sort of measuring and calculating things, as everybody knows. And as Buffett spoke about yesterday, he talked about CEO’s keeping their shares. I don’t have 100% of my net worth in Markel, but I have the vast majority of it in Markel, and that has been true for a long time. So, we are in it together.

[01:27:50] Mike Heaton: Tom, the last two that occur to me that are worth making is we are that it is an important question that remains in front of us. A great question to ask, and we continue to study that the board continues to study that, and as we said earlier, we’re not going to accumulate a long list of ideas and then go wait and do them after the list is complete. As we’re finding good ideas, we’re taking immediate action, and we’re still learning.

Insurance pricing

[01:28:19] Audience: Bel Air, Texas. Thanks for hosting us, Tom. I guess there were some issues with the construction lines. It sounds like you’re going into some areas like, you know, offshore wind construction, which seems like just more complex construction than war risk and Suez and I guess the genesis of the question is, how do you make sure you’re pricing for risk properly and also worker’s comp is generally doing pretty well right now for a lot of people over time. Some people have gone into worker’s comp, some come aggressively, and they get into trouble. How do you make sure that doesn’t happen, and if you get in trouble in the line, like, you know, pollution, how do you make sure that doesn’t stick with you for many, many years?

[01:29:03] Tom Gayner: Right. Fair questions. Let me ask Simon to address that.

[01:29:06] Simon Wilson: Yeah. And you said I think every line of business, I went up there is it’s risky, isn’t it? I think that’s the point that you’re raising. So, whatever we’re doing, we’re going to be taking a risk on. So, whichever line of business you describe, you’ll say, Oh my goodness. Do you really want to be writing that or not?

Now, what I would say, and the lines of business put up there, marine war, offshore winds and the pollution coverage, which is our environmental products, we have been doing all of those areas for many, many years, So, it isn’t just like a let’s go do that today. And in each of the areas, actually, we’ve made good money, very good money over the last few years as well. Why is that the case?

Well, as I said in the presentation, the absolute critical aspect of this is to have expert leaders who spend their time, effort and energy in those very areas that we’re seeking to play, where you really get burned in this industry if you’re a little bit a novice and a little bit amateur and you dip your toe in the water in some of these areas. They’ve got alligators, you know, sort of in the waters, and you get your leg bitten off quite frequently.

So, if you’re going to do it, you have to be committed to it. And the commitment is building teams of people who really know what they’re doing. Pricing is absolutely central to what we do. So, the offshore wind farm, for example, the two things that play there are probably going to be something like a three or $4 billion risk. We’re never, ever going to be writing a three or $4 billion risk. It doesn’t make sense.

So, we’re going to be putting a proportion of Markel capital in a syndicated way, at a price point that we think will, you know, you do enough of it. You’re going to make money time and time again in that particular area of the market. You then go to environmental, you build another pricing model for North American pollution coverage that you’re doing. And you’re saying this is what I’m prepared to underwrite and give you terms and conditions on. This is stuff that we’re not prepared to do, and the people who know that best are absolute experts who are in that field. So, the dedication to these teams of people is absolute.

What you then start to see a claim starting to come in, either from, you know, these things that you tend to find out quite quickly and what you need to be able to do is have a feedback loop from the claims that are coming in back to the pricing and the underwriting capability within the machines. So, the tie-up between claims, underwriting actuarial is really, really critical.

And one point I would make that I didn’t make earlier, I think within the US in particular, there’s bit, there was a little bit of a time where, because we were the structure wasn’t right, we’ve begun to go away from one another in terms of those key disciplines of claims, actuarial underwriting. So, the feedback loop wasn’t as good as it should have been.

So, look, we’re going to take risks in risky spaces. We’ll minimise that risk first by not putting like we’re not going to bet the house in any one of these particular areas, but the most important thing that we do is dedicate ourselves to teams of experts who really know what they’re doing, have a track record of doing it for a long period of time. I’d rather go deep in those things and then anything where we think we’re going to have a, you know, a little dabble in it as I’ve used that word before, we never, ever go into dabbling type things.

Final point of worker’s comp because you brought that up as well. There are some states in the United States which are very, very difficult worker’s comp places. We know where they are, you know, so we are aware of what those worker’s comp problems are. We’ve been running a really profitable shop over there. We typically do the very small worker’s comp, which is our typical thing there. We love that business. I do think we can go into the kind of the middle market a little bit more. So, we’re not going to go from tiny to massive all of this borders on but just accelerating through into the middle market a little bit can definitely transform that whatever it was $450 million or So, in worker’s comp to something nearer to a billion, but I think we can do that with confidence as we take it forward. But Brian, maybe any comments?

[01:32:44] Brian Costanzo: Yeah, maybe, I’ll add two things to what Simon said. I agree with everything he said there, but let’s take construction and worker’s comp and take them as a kind of polarising example. People who were riding the worker’s comp back in 15, 16, 17, 18 and we’ve seen this within our book as well. We were not expecting the level of loss takedowns that were there. What happened was that lost trends, medical inflation actually came down later in the tale than was expected, and we had a lot of releases of reserves across the entire industry. We benefited from that.

In construction, the exact opposite happened there. When we priced that business back in 15, 16, 17, 18, the loss cost trends that were out there were not what the industry was expecting. Things like social inflation reared its ugly head years into the tail, and now you have adverse development going the other way. The point that I think we’re making a little bit is around portfolio management. And so, if you’re really outweighing construction and underweight worker’s comp, you kind of see the dynamic that happened where we had to take the hit here and a little bit of the gravy here. Others were a little more balanced, and that’s a little bit of what we’re working on in terms of the overall portfolio construction.

[01:34:01] Tom Gayner: Thank you. I’ll just conclude that one of the other features that’s built off the feedback loop that Simon mentioned is the fact that insurance is iterative. So, we do our best to have the expertise and to understand what we’re dealing with. But we also have the humility to know that we don’t fully know. So, we try to structure things in such a way that if we are wrong, we could still answer the bell for the next round of the fight, and in answering the bell for the next round of the fight, we incorporate the learning that we had from getting it wrong and the ability to do these things over and over and over again is one of the ways in which that expertise is built and developed.

Capital allocation

[01:34:42] John Norwood: Hey, Tom. Excuse me. John Norwood from West Des Moines, IA. Travelling far away. My question actually was going to be the question you just addressed on risk, I think, around unusual lines of insurance, and so forth. So, thank you for addressing that. Thank you for your annual shareholder’s letters in the presentation today. I really appreciate that. My Plan B question is capital allocation and new ideas, and give us a little bit of a, I guess, your thought process or the process for how that capital gets allocated across the spectrum of possibilities.

[01:35:31 Tom Gayner: Absolutely. And thank you for the question. So, there’s really a sequential process that we would go through when we’re making the capital allocation decision. First off is within the Markel Group itself and our insurance businesses and all the diamonds that might put up there, there’s some people who are doing really well and there are people who not doing quite as well. Guess what? The people who are doing really well if they who raise their hands and say, hey, I have an idea to grow. Those people are first in line, and they get funded first.

So, that’s really the first choice of where we would put capital dollars is to fund people who are already within the house, already within the structure who have a positive idea. And I might add and I would relate this to Mark Hughes first question about Simon and Andrew too and Mike and Brian. That applies to people as well.

So, he asked, you know, Simon, where were you? Well, the great news was that Simon was inside the house, and he had done a great job. So, it was easy to make, in essence, a capital allocation that we want you to do more of it. So, that’s step number one. Step number two, we can make acquisitions of other businesses. And oftentimes, especially as the size and scale of and the breadth of activities that Markel Group is doing. The inside expertise we would have about any particular business that would come across our radar screen is enhanced by all of the businesses that we’re already in.

And Charlie Munger talked about the lattice work of models. So, we have had for 20 years broadly both insurance and non-insurance. And almost for 100 years, in the context of insurance itself and continuing to develop that lattice work of models such that we have an almost instantaneous reaction that, hey, this is a good idea and worth learning and pursuing and figuring out or this is not for us. So, that is very helpful in that particular process.

The third process. The third bucket is we can invest in publicly traded securities and that can be fixed income or publicly traded equities. So, we think about that. We’ve been a long-term buyer of public equities, which I think Mike or Andrews cited in their presentation. I think our unrealized capital gain right now is $8 billion, I think that might be the second biggest unrealized gain of any company in the country.

Now we’re here in Omaha where the biggest one is and we’re not going to catch that anytime real soon. But number two, silver metal. That feels pretty good to me. So, that’s the third thing. And then the fourth thing is if our shares are undervalued in our opinion, that also can be a place where we put capital. And while I listed them as one, two, three, four they can all take place at the same time. And there are some years where we’ve done all four of those things, but those are the traps.

[01:38:25] John Norwood: What about international equity markets? How do you think about that?

[01:38:28] Tom Gayner: Well, a couple of ways. One, many companies that happen to be domiciled in the US, including Markel, have substantial businesses outside the US. If you went back 20 years ago, the percentage of Markel that was outside the US would round to zero and Brian, what would you guess it would round to now? 25?

[01:38:50] Brian Costanzo: Yeah, 25, maybe a little higher.

[01:38:52] Tom Gayner: Yeah, exactly. So, a lot of U.S. companies have substantial global businesses, including Markel. So, that gets you part of the way there. The second thing is and I had the privilege of visiting our Singapore offices this year, first time I’ve ever been to Singapore and getting to know our people that are in other offices. I love doing that. I love listening to them and if they tell me in their markets, these are people who are really running a good business, this is a really good business. I listen, though I think it would be the natural outflow of the fact that we have both insurance and industrial businesses doing more and more business all around the world, that we would become more learned and more sensitive, and allocate capital that way as well. Thank you, John.

The venture portfolio

[01:39:40] Joey Opiken: Hi Tom. My name is Joey Opiken and I’ve been a shareholder since 2019 based in Richmond, VA. My question is addressed to you, Tom and Andrew. Similar to Mark’s first question, what metrics from the outside should we look at to see the organic growth of the venture’s companies unfeathered from new acquisitions, So, the companies that we already own. How do we see them growing and relentlessly building and compounding our capital?

[01:40:15] Tom Gayner: Let me turn that over to Andrew for first response.

[01:40:18] Andrew Crowley: Thanks, Tom.

[01:40:21] Tom Gayner: That didn’t really land sincerely to me, you know, try that again.

[01:40:25] Andrew Crowley: I just cleared my voice. I’ve been sitting here for a while, just enjoying listening to Simon. So, delightful accent he has. Joey, great to see you again, man. Thanks for being out here. You’re a wonderful friend of Markel. And I’ll do my best to answer your question. You know, Mike and Tom both alluded to the process that our board is taking on right now in terms of a review.

Mike talked a lot about simplicity, and in simplicity I think one of the clicks down is into clearer communication. So, Joey, you know I’m blessed to have a lot of the data, right? I get to see it from our company. I think we know that it’s not as easy for you to see. Ultimately, I think if you take long-term trends on the overall Markel Ventures piece, that’s one data point you do have today and I’m going to go off memory here, So, do my best, but if you’re at the last 10 years and you read a bunch of footnotes and asterisks within Markel Ventures, you see that about 1.6 billion of your capital has flowed into Markel Ventures.

That would be contributions from the holding company net of dividends back, that would be loans from insurance organisations net of interest and repayments going back, and you will have seen that our operating income has grown from $80 million to over $520 million in that in that period. That’s not organic growth, but for $1.6 billion taking $80 million to $520 million, I think it’s a pretty impressive record. But I will say we continue to review our communication, we’re super open-minded about what the best way for you guys to understand our businesses, and we look forward to reporting back to you more on that this year.

[01:41:51] Tom Gayner: And the good news, Joey, is that those businesses whether they have a rapid growth year or not, So, rapid growth here, they tend to produce cash throughout the cycles, and that cash is part of what we’ve been able to use to fund Markel share repurchases. And what we think are attractive prices. So, the answer gets mixed between Markel Ventures and Markel Group, but rest assured, we’re doing everything positive to build Markel Group as a whole, which includes the shares that you and I both have. Thank you.

Science under attack in US politics

[01:42:28] Brian Book: Yes, my name is Brian Book. I’ve been an investor in Markel for over 10 years, so on behalf of myself and my family, I would like to thank you for all of your hard work and excellent results over that period of time. Now the purpose of my question is whether an individual and for me to determine whether an individual investor like myself should invest domestically or in foreign capital markets. The question that I have for you is not to agree or disagree with what I’m about to say, but to let me know if, in your honest opinion, I’m being fair to Charlie Munger and Daniel Kahneman. I tried to stand on their shoulders whenever I could, and I know you do as well.

The second part of my question is, I know you read a lot, and that’s why I respect your wisdom. So, if you have any books on this particular subject that you could recommend, I would appreciate that very much as well. Now, again, I’m Brian Book from the Blue City of Dallas and the red State of Texas, one of the greatest thinkers of all time, Albert Einstein said, “Problems of such division in the United States can only be solved by a higher level of consciousness than the level of consciousness that created those problems.”

So, in all humility, I don’t know this higher level of consciousness that Einstein is talking about. However, following the wisdom of Charlie Munger, I’m going to invert, always invert whenever I’m in a situation like that. So, I’ve read a recently I read great book. It’s called The Great Partnership by a philosopher from Cambridge and Oxford, Jonathan Sacks. And in that book, he says, “Science and a higher level of consciousness are compatible.” He also says that “A higher level of consciousness without science is blind.” So, if I am correct in my analysis, and I’m not saying that I am, but if the GOP under Trump is attacking science as Paul Krugman readily admits in his most recent Substack, should I be investing in the United States on a going forward basis?

[01:45:45] Tom Gayner: Let me start by saying I don’t know as quickly as I possibly can. So, first off, I appreciate the question. On that disclaimer side, that slide that we had up, you know, sometimes this past performance is no guarantee of future performance, and this is not meant to be investment advice. I add that to our disclaimer language. So, I really can’t opine on the idea of domestic versus international. I would suggest that we’ve seen this both in the case of Markel, Berkshire, and so many companies, as they become bigger and more successful, tend to become more global over time. So, those things become a hybrid and they blend together.

The only other thing I think I perhaps can add you know Einstein’s level of scientific abilities far surpasses anything that the collective IQ of all of us in the room together could come up with. So, if we’re not that smart, what do we do? And I think you heard much of the answer to that in the presentation today. Following the scientific method, take a big problem and try to break it into its components piece by piece by piece. So, the complexity that Simon addressed and the fact that we have perhaps gotten over complex. Well, do we have an Einstein to work on it? Wish we did, but we’re not. So, what do we do? Break it down into smaller, more discrete pieces in order to tackle smaller problems that we can. Thank you, Sir.

Cylical companies at Markel Ventures

[01:47:22] Michael Buckley: Good morning. I’m Michael Buckley from Fort Worth, TX. And this is related to the Markel Ventures side. Wall Street doesn’t like cyclical companies. And Tom, one time you mentioned that you bought cyclical companies at A5 multiple thinking that if it just survived at this pace for five years, you would get your money back, but basically had an option on things improving. I think this was in response to the dredging company. So, many years later, does the practice square with theory, and does it change the game that you don’t intend to sell these companies and only care about the free cash flow generation and has having Markel as an owner been able to improve these cyclical holdings and how so?

[01:48:04] Tom Gayner: Thank you for the question. And you, are correct, So, for instance, compared to private equity and the way that they would look at a particular business and the fact that they would tend to use a fair amount of leverage typically to buy things means that they sort of need annual, if not quarterly or monthly cash flows in order to service the debt that they have.

If we got to go head-to-head against the buyer like that is willing to use all the tools of leverage. It is pretty unlikely that we’re going to win a business or a bid, especially in an environment such as we’ve been in for the last several years where they’re getting funded pretty well.

So, it has been the case, and we have bought some Markel Ventures companies, which I am delighted with, where we recognised that, hey, you can’t pick quarter by quarter or even year by year what the cash flows are going to be. But you can think about a sort of five-year buckets of time, which we think are very reasonable buckets to think of. And think if I lay out this much capital today, how much capital will I probably get back over the next five years? And we’re willing to absorb the volatility. And in So, doing so, get paid better than we would if we were trying to compete against the, you know, the tougher private equity buyers.

So, we’ve run that play successfully a number of times and the bigger Markel Ventures gets the more different businesses we have that are on slightly different micro trends and in aggregate what may start out if we had only one thing with a lot of volatility, that volatility at the aggregate level gets smoothed down. So, that’s a good thing, and it produces cash, which is a really good thing.

Now, the last part of your question about our long-term time horizon, a couple of points about that. One, I believe that a long-term time horizon helps and supports the people who run the business. A couple of years ago in the annual report, I wrote about the dual time horizons that matter at Markel, and I made reference to it in my comments today, forever and right now. You can talk about forever, but you cannot use it as an excuse to not pay attention to the details and the realities of what you need to deal with right now.

But it has been my observation that in the shorter and shorter time horizons that seem to be out there in the world, sometimes people make the right short-term decision, but at the expense of the long-term. They’re saying to good farmer farms for the next generation, So a good farmer protects the soil and doesn’t necessarily optimise this year’s crop because he’s thinking about the next generation and how he protects the stewardship of the farm itself.

And that really is the mentality of Markel and last point I’ll make Andrew referred to it a little bit. In today’s Wall Street Journal, there’s an article by Jason Zweig. Mike talking about the momentous events that happened at Berkshire yesterday and he talked about one of the two advantages of Berkshire that applied to us as well and we’ve talked about.

One is that we don’t charge fees to the companies. So, they get to run the business without the burden of management fees which helps them and I think it makes them feel better as well as financially perform better and number two, the cash flows that Berkshire has used like that as Markel has come about internally, we’ve generated the cash we use to do these things and compared to most money managers and many of you are, if you get a hot hand oftentimes people push cash at you and say, oh, great, go, go, go, go. And that’s probably coinciding with the time that they shouldn’t be doing that, you know that hot hand gets cold, and if you have a cold hand but you’re thoughtful and disciplined, sometimes people pull money from you. At the time when they should be giving it to you.

So, the fact that our structure in and of itself generates cash flows that are independent of whether somebody wants to give us money or not means we’re not at the whim of marketplace emotions. We’re not at the whim of bankers, and we have steady cash flows that can promote, I think, steady long-term behaviour.

[01:52:31] Mike Heaton: A quick story to illustrate real real-life story. And this speaks to the question that was asked earlier about societally, is there a move towards less interest in actually understanding the fundamentals of business, as Tom was just talking about relative to kind of just investment type metrics.

We were looking at one of these businesses that had some level of cyclicality to it along the lines of what Tom described. And there are some accounting peculiarities that we wanted to make sure we understood. So, we engaged a nationally recognised firm that does that type of work just to make sure we weren’t missing something. You’ll both remember this story, and we really had a singular question, and that was, hey, we think over the next five or so years, as Tom just described. Our sense is this is roughly what the business should make, and as long as it’s going to make that, we feel very happy with the amount that we’re paying for the business. Just tell us if we’re missing something here.

And that firm, which I’m sure does this type of process hundreds and hundreds of times a year for other clients, had no ability to engage on that specific question. They kept coming back to us and saying things like, hey, we’ve looked at the backlog and the forecast and over the next 180 days, here’s kind of what we think the business should do. And we’re not so sure they’re going to hit their 180-day budget, and they’d slide that piece of paper back over the table, and we’d push it back and say that’s not the question.

The question is are our understanding or assessment over the next five years is reasonable, did not compute, which tells me somewhere out there in the marketplace. There are a lot of people worried about what the thing is going to do over the next, I don’t know, 180 days, 100 days, 10 days of whatever. And back to the point of not being an Einstein, so long as that remains true, that creates an immense competitive advantage for us, as Tom described.

The right level of liquidity

[01:54:33] Maria Messerli: Hi everyone. I’m Maria Messerli. I’m a shareholder that held your shares for some years now. I’m coming from Switzerland. So, welcome to Simon. I’m glad you’re here and joining the group and the team, and I have some Swiss chocolate for you to hopefully propel your growth story and the vision you shared with us. And my question touches different subject.

So, Markel has an impressive track record with the nearly $8 billion in unrealised gains on equity portfolio, commendable by any standard. Since 2011, you’ve been a net buyer of equities, and Q1 appears consistent with that trend. We know that some smart people in the town did slightly opposite things. So, with your liquid assets now making up roughly 1/3 of the total assets, how do you think about the right level of liquidity, especially weighing near-term insurance needs versus the opportunity to act on market dislocations and the rising uncertainty with the US economy heading now? I would like to share with you your way of thinking, and has this framework evolved since the downturns we’ve seen in 2008 and ‘22? Thank you.

[01:55:51] Tom Gayner: Well, thank you for the question and thank you for coming again this year. It’s wonderful to see you. I might call on Brian in a bit to confirm what I’m about to say. So, in terms of the fundamental structure of the liquidity that we would have, our insurance reserves, which are amounts that we expect to pay out in the form of claims and expenses of running the company, we match that against our fixed income assets.

So, we always have more than enough to cover what we think are the cash outflows that come about from our insurance business. Moving one step up to the holding company, for instance, and this is something that I wrote to our board about just recently. I wrote to him about it because I liked it. We have one maturity next month of about $600 million for which we already have the cash lined up. That is right there, and we will wire that money, and that will be paid off. I think in ‘27 and ’29, we have two maturities that are about $300 million, and you know we were in the billions of dollars of liquidity of $300 million maturities and two and four years from now.

The next one is sometimes, I think, in 2034, and then we go into the 40s. So, as a component of our thinking and making sure that we are conservative and always able to answer the bell for the next round of the fight, one of the things we’ve done pretty successfully is lock in what I believe to be low-cost fixed-rate financing for decades. And we think that puts us on very good footing. And Brian, do you have anything you want to?

[01:57:30] Brian Costanzo: Yeah, maybe two things. I’ll say that everything Tom said was perfectly on track. On the $600 million, that’s our preferred securities. It’s what he’s referring to there. Those become redeemable here in June. So, there’s been $600 million sitting on the balance sheet for some time related to those. The other point I would make, we are holding a fair amount in short-term investments, and those are short-term treasury-type instruments. We like the yield on those right now. Those are paying good yields. Those are securities that could be in other types of very, very safe. They could be in treasuries, they could be in cash, they could be something like that, that matches the reserves we’re just happening to hold them in those short terms right now because we like the return that we’re getting on them.

[01:58:12] Tom Gayner: Right. And the bit that we’re redeeming in June has a 6% coupon on it. So, there’s a negative carry on that financing right now. So, we’ll eliminate that negative carry and tick, tick, tick, tick 30-ish days from where we are right now.

Expertise

[01:58:29] Bonde: Yeah, Bonde, three years shareholder visiting from London. Thank you for the presentation. I just had a two-part question for Simon’s action. So, in regard to the strategy for implementing experts in the field, could you talk a bit about the execution of that? So, basically the way I synthesise it in my mind is relative to other competitors. You’re essentially trying to get better people than the other guy. Essentially, more experts in the field, if that makes sense.

So, if you could talk a bit about the execution of that and then secondly, how does this differ from what you were doing before? Because, as you mentioned, these are lines of business you’ve been in for many years, like, why was it not the case that they were experts in the field? You know, given the basically the length of time that you’re in the business, if you could talk about that?

[01:59:15] Simon Wilson: Yep, I compliment you on your accent obviously. Thanks for being here. Thanks for travelling all the way over here to be with us; it’s meaningful. So, here’s the thing. Those the expertise that we’ve developed over a period of time that is in the building, it’s not like I’m going to flick a switch tomorrow and suddenly like the experts that we couldn’t find are suddenly with us, I genuinely believe in 90% of instances, the people that we need on the field have been out there.

I think the problem comes from the structural point or the strategic point and the structural point. The strategic bit is we’ve got these experts there, but we hadn’t just said, but that is what we do. We kept looking for other things to make it a little bit more complicated. So, it didn’t become just the simplification of that is what it is, right? These experts, that’s where we should be completely focusing our attention on building those types of teams.

So, what I’m really doing here is just like hopefully the scale is dropping from the eyes and saying, you know what the business was that made us really successful by having those experts in the field? That’s the business. So, we’re going back to the sort of recognition of what it is.

From an execution perspective, what we need to do is give those experts complete transparency and control of running the business that they are responsible for. And I think we’ve gotten away from the last five or so years of giving those experts the literal tools that they need to do. They’ve had an arm behind their back, you know, sort of figuratively, during that period of time.

So, this is not new. In fact, this is what we’ve done when we’ve done this, we’ve been phenomenally successful within the marketplace, genuinely. We’ve got bigger, but I just want it bigger; it doesn’t mean that you have to scale and create matrices and become more complex. You can be big and simple, and that’s what I’m trying to drive, and I think that will create an unlock for the expertise which we already have in the building, and we feel really good about.

[02:01:02] Tom Gayner: Thank you. And while Simon appropriately complimented you on your accent is interesting. So, you said the word differ, but it landed on an American ear, it’s defer. And I would say both of those words are accurate. So, to some degree, the fault is ours for deferring. What we should have been doing for the last couple of years, and I’m sure we are making some mistakes right now. We are humans, but what I pledge to you is that we will be doing our very best to understand and admit when we’re not doing it right and learn such that we can be doing it better. So, we will not defer, but we will differ in acting more quickly.

I recognise we’re past noon, which is our normal historic cut off time. I recognise we used some time for the presentation earlier, So, we’ll stick around for a few more minutes. I recognise people have flights to catch So, I understand if you need to do so, but we will just answer a couple of more questions and then and then dismiss things.

Syneergies between Markel’s businesses

[02:02:05] Ravish: Good afternoon. This is Ravish. I am from India, and I’m a proud shareholder of Markel Group. Thank you for doing this meeting. I have a question specifically on Markel Ventures. So, Andrew would love to hear from you on your long-term strategy for Markel Ventures, and are there any specific sectors or businesses that you think are synergistic to your core insurance business? Are you most bullish on specific sectors? Would love to hear that. Thank you.

[02:02:32] Andrew Crowley: Yeah. I appreciate that. You know, I’ve been here 13 years. We talked about that a lot in terms of, you know, should we proactively identify a sector and go run in the middle of it and see who we can find or really, should we listen to people like you and your great ideas as to where we should be. And more often than not, we’ve done the latter, and what we’ve tried to do is find people like Simon Wilson, people like Danny Zink, people like Ken Newsome, Tommy Clements, Hunter Lansing, and on and on and on and form a partnership with them. And at the end of the day, they’re the ones, much like Simon talked about in insurance. They’re the experts in the business.

So, for us to sort of have a view on a sector and then a view on the players and then identify who is readily available and willing to transact? It is not the process that we’ve followed. But what I would say, we look for every single time, and I think maybe it’s more common in some sectors than others, is cultural alignment and values. I mean for us, we can’t do a good deal from a good partnership with people who don’t live and breathe something like the Markel style every single day.

And you know, a natural question earlier was about international equities. I think another question about what about international opportunities and Markel Ventures. I hope to get there, but look, I grew up in Savannah, GA I’ve lost a little bit of my accent, but if you give me a couple beers, I might start talking Southern again, and we want to do business with people we can know and understand. And the beauty of the breadth of the Markel Group as it grows is that we will know and understand more things and more people over time.

So, I couldn’t point to a specific sector. We do ask ourselves every time you know, is this a business that has the opportunity to be successful 20 years from now? Nobody has the right to, but if we stare at that and we feel uncomfortable, then it’s not a business for us. So, if you got some good ideas, let’s catch up after this and maybe you can channel us in the right direction, So, thank you.

[02:04:30] Tom Gayner: Thank you. I might add, I was looking at the notes that I took during the Berkshire meeting yesterday. The first thing I wrote down was Buffett’s phrase, “Turn every page.”

And boy, the applicability of that thought process is universal, and I’m so glad to have a team that, when I gloss over some pages or skim or read too fast, they appropriately check and balance me to turn every page and slow it down. But the second note I wrote was about investments, and he said, “Things don’t come in orderly fashion.”

And the point he was trying to make is that the fortress balance sheet, which Berkshire maintains and we do to our own abilities, and we can’t have the balance sheet and the size that Berkshire does. But in our own way, speaking to the debt maturities that we talked about, the liquidity, the collateralization, all of those are designed to be able to be reactive when opportunities present themselves and we don’t know when they’re coming, it’s been our experience for, you know, 35 years as a public company that somehow or another, they always seem to show up one way or another.

Mexico

[02:05:40] Louis: Hi, my name is Louise from Guadalajara, Mexico. Second-year student at Northeastern University in Boston. So, as an international student, I’m very interested in taking advantage of these types of opportunities by doing my best. So, thank you for hosting this event. So, I guess my question is, you guys describing yourself as a global company, what’s your outlook on the market, business market or economy like the Mexican one, which is very connected to the US one? Thank you.

[02:06:09] Tom Gayner: I’m a short-term warrior and a long-term optimist. The course of the world has been up and to the right, and I think communication and technology, and the interweaving of the global system is something by which we all benefit, and we can screw that up from time to time and have challenges. But in the long run, I believe that’s what’s best for humanity. And we, as humans, will make that happen.

Culture & acquisitions

[02:06:39] Pavan Sharma: Hi. My name is Pavan Sharma. I’m from Toronto, Canada, and just want to thank you very much for this very, very informative presentation, and all the questions and answers really appreciate it. My question really relates to the culture and leadership slide that was put up front earlier, and just to give you some context behind the question. I used to be with one of the BIG4 audit and consulting firms, and within that context, we acquired a small consulting firm. It was a very successful small consulting firm. We put in place our culture, brought in some of our leaders, put in some of our metrics, etcetera. And in the course of about two years, that small consulting firm, essentially all the people there were left, and the value of the acquisition was not realised, and they were, they were doing well, they’re performing well. There was nothing wrong in terms of values or anything. It’s just a different way of culture that was there.

So, my question really relates to as you think about acquiring businesses, as you think about the cultural piece and leadership piece, there are some pieces that are very important, but other ones that require autonomous independence, how do you think about that? How do you really match those two up to really realise the value of the businesses that you are acquiring?

[02:07:59] Tom Gayner: Well, thank you for the question and thank you for joining us. And I’ll tell you one thing that happened probably four or five years into Markel Ventures. So, our insurance group was having a management meeting for the insurance leadership, and I was there. And because Markel Ventures was becoming a thing and we’ve bought half a dozen companies by this point in time, there was some interest from the insurance business, just, hey, who are these? We call them cousins that are now part of the family, and these Markel Ventures businesses.

So, we did a bet where we had the CEO’s of those businesses just tell their stories of their business and who they were and how they did things and after that meeting was over several people from the insurance business came up to me and said, Tom, how did you teach those people the Markel culture and the Markel style So, quickly? And I said, I was like Columbus in America. I didn’t make it. I bumped into it. You know, the culture was already there. So, what we try to do is not in any way have the false sense that we can make somebody different from who they are.

As the poet Maya Angelo said, when somebody tells you who they are, believe them. So, our job is to find and discern to the best of our ability, who somebody really is, and if they tell us if they show us through their words through their behaviours, through their systems, through their actions that they overlap and fit with the culture that we have at Markel, we believe them.

And similarly, just as important, and this is where Andrew is spectacularly helpful as a Team A, his Spidey sense about discerning when perhaps somebody might present well but not be who they really are. This is an incredibly valuable function of the team to be able to discern that. So, we don’t think we can change people. We do think we can, we can identify people who really want what we have, and we think what we have is so distinctive and not commonly available that it really is attractive to certain people, and that’s the way in which we would go about it.

[02:10:17] Andrew Crowley: So, I’ll just, I’ll just add one example, and I’m risking being really wrong with Hunter Lansing sitting right here. But if you read the Markel style right there, there are a number of words you’ll hear phrases like disdain for bureaucracy, respect for authority, build the financial value of our company, and commitment to our communities. Those are things that we would say if you get Metro Mont precast concrete, they would say, faith, honour, passion.

If you look at Lansing, they would say respect, service. excellence. I got it right. Those have a feel to it, but we don’t change the words on the wall. We don’t tell Hunter Lansing that these need to be your values. He said, it’s respect, service and excellence. Those are great values. What we care is that they live it every day. And so, I think there’s a big difference in the example you gave and what our world is like when we talk about finding common values, it’s their values just lived to the fullest every day, rather than projecting ours onto them.

[02:11:09] Tom Gayner: Thank you. Last question.

Focus vs diversification

[02:11:12] Jin Yun: Good morning. My name is Jin Yun. I’m from Singapore. Thank you, Markel, for hosting us today. I’m very interested in investing in Marquel Group. So, that’s why I’m here. So, thank you. My question is due to a lot of like market changes and dynamics, and technology disruptions. And we have a lot of noise in the market right now, right? So, how do we balance between simplicity and focus versus the risk of over diversification in terms of management of your portfolio and your ability to recruit the right people to invest in the right business at the right value? Thank you.

[02:11:58] Tom Gayner: Thank you, and thank you for making the trip, and thank you for coming. Appreciate the questions that all of you have asked. And I think the, you know, one of the statements you made, I think you used the phrase a little bit of noise in the markets right now. Well, you couldn’t be more right about that. I think the nature of markets is that there is always noise. Some more, some less. The system of Markel, which we talked about, the idea that our business generates cash internally from the array of businesses that we have, that really helps tamp down the noise. I would hope that you, as individuals, would have cash flows, whether it’s from employment, from businesses that you have, that are also positive. And ongoing because then we both have the same advantage.

And as long as we keep the long-term time frame, the path has been up and to the right of the valuation of things in a lot of markets, all around the world. So, as long as we have cash flowing in, we can get on that train, and whether we got on it, stop A, stop B, stop C, stop D, it goes to the good destination at the end.

And to the last part of your question about over-diversification. And this has happened at Markel, and it’s one of the things that we manage every day, the good people and the good businesses that do well, we do more of that and the things where we made mistakes and we were wrong, we learn, and we do less of that.

And what that has that what that has the effect of doing is that over time it concentrates more and more of the forces on the things that are going well and the people that are doing well and less and less on the forces that are not additive. That will never be perfect, but that’s why we go to work every day to sift and to sort and to figure that out.

With that, let me close. Let me thank you again for being here. Thank you for your support. We can’t do it without you. I know it’s early May, but if you want another dose of this with a little different flavour, our annual meeting is May 21st in Richmond, VA. It’ll be at the University of Richmond. You can find details on the website. We would love to have all of you who would be able to join us in Richmond for our annual meeting as well. Thank you very much. Thank you.