Q4 2024 Markel Group Inc Earnings Call
Good morning, and welcome to the Markel group fourth quarter and year end 'twenty 'twenty four conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then one again.
During the call today, we may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
They are based on current assumptions and opinions concerning a variety of known and unknown risks.
Actual results may differ materially from those contained in or suggested by such forward looking statements.
Additional information about factors that could cause actual results to differ materially from those projected in the forward. Looking statements is included in the press release for 2024 results as well as our most recent annual report on Form 10-K, and quarterly report on Form 10-Q <unk>.
Including under the caption Safe Harbor, and cautionary statement and risk factors.
We may also discuss certain non-GAAP financial measures during the call today, you may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in the press release for our 2024 results.
The press release for our 2024 results as well as our Form 10-K and Form 10-Q can be found on our website at www Dot M. K L group Dot com in the Investor Relations section.
Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Tom Gayner, Chief Executive Officer. Please go ahead.
Speaker Change: Thank you Arthur and good morning Dana.
Speaker Change: Despite it being passed that Larry David Cutoff happy new year at all.
Dana: <unk> is a natural time to express gratitude.
Speaker Change: It's a time to look forward to playing.
Dana: Priorities.
Dana: Some self examination and.
We commit to important values. It's also time to share our 2024 results with you and to talk about our plan for 2025 and beyond first let me start by saying Thank you to the special people at the Mark.
Dana: I'm Lucky to come to work with the people of the Mark help group every day.
Dana: We're 22000, <unk> Hearts, who joined US one to conduct our business with humanity and do things for people not to people working.
Dana: Working at Markel group is a team sport.
Dana: We focus on creating a win win win world, where customers associates and shareholders, all with a world where we grow the pie together.
Dana: I'm proud of and grateful for our leaders and associates, they embraced our culture and make it real they seek to improve constantly and to serve our customers and shareholders holders. All day every day. Thank you all for what you do.
Dana: In 2020 for this team of leaders and associates achieved operating income and returns above our targets.
Dana: In any given year our results are like those of our crew boat from ROA at one down the line the number right, including the Cox.
Dana: Every year like every race is a slightly different story when it comes to how the horse I wrote.
Dana: In 2020 for the public equity portfolio, whereas our boats stern payer setting the pace with strong returns.
Dana: In the middle of the boat for this Ron we saw mixed results from our insurance business, many areas performed well, including the international state National and much of the U S specially.
Dana: Underwriting income in reinsurance as well as some of the areas within U S specialty were below our expectations.
Dana: Finally, our ventures businesses continued to generate strong profitability and exceeded our target returns driven by strong performance in our consumer and building products businesses.
Dana: <unk> found a strong steady pace in 2024 from the Bal.
Dana: Together, our rowers produced an outstanding year of returns in 2024, which is part of the beauty of the design.
Dana: But there's still the opportunity for better operating performance and for every GOR to drive to its full potential and in unison with every stroke later, we will share more about what we were doing to get there but.
Dana: But first some context is important.
Dana: The insurance underperformance has not been a one year thing.
Dana: Some of the seeds were sown during a transitional period that began when Mark Hell pass the baton to next generation of leaders, which began formally in 2016.
Dana: By 2022, it became clear that the initial structure put in on the front end, which included a co CEO approach, thus, causing challenges in terms of focus and accountability.
Dana: At that time and with that realization, we implemented a series of actions to drive improved performance at the company, including more on defining the purpose and function of Markel group to organizing around that purpose, including appointing a sole CEO and making additional key changes in leadership three creating a clearer does.
Dana: <unk> framework.
Dana: Respect to capital allocation and for placing greater emphasis on profitability and returns.
Dana: The combination of these changes has helped restore greater accountability and focus.
Dana: <unk> has already been accomplished from making these changes in particular within in our insurance business.
Dana: There we began to address underperforming products through specific portfolio actions exiting several unprofitable lines re underwriting others and growing in the areas of strength.
Dana: Jeremy will provide an update on these actions shortly.
Dana: Looking back from where we stand today, we have much to be proud of Markel is earning good returns.
Dana: Main committed to our customers we see these green shoots in our insurance business from the steps we have taken there.
Dana: The Markel style continues to guide us.
Dana: Overall, the Mark Calgroup system is stronger and much of the groundwork for the road ahead has been late.
Dana: But our aspiration is not just to be a good company or even a great company, but can be one of the world's great companies that means more consistent excellence across all our operations all the time as required.
Dana: Chartering such of course requires continuous self examination and a never ending zealous pursuit of excellence.
Dana: In 2025 and beyond we will continue to improve the foundation of our business.
Dana: Yesterday, we announced a board led review that will include evaluating where we can continue to improve our church organization.
Dana: As part of the review, we will consider ways to simplify our structure find greater efficiency optimize our approach to capital allocation and enhance our disclosures external consultants and advisors, who will assist with the review.
Dana: We look forward to updating our shareholders when that work is completed.
Dana: Before moving forward I want to mention that we will not be taking questions of the board led review at this time and we'll focus on questions relating to our business.
Dana: Our pursuit of becoming one of the world's great companies and Markel has always come from providing an atmosphere in which people can reach their potential we want to ensure that our associates are invigorated and about we went to reward the best performing crew members and hold every crew member in the boat accountable.
Dana: Your feedback will be incorporated into our work.
Dana: As the author Ken Blanchard once said feedback as the breakfast of champions.
Dana: One theme that emerged from our recent conversations with shareholders is that you see early progress in insurance, but also would like more information on what success looks like path to get there and sign posts to track along the way in a similar vein investors also asked for increased clarity with respect to certain aspects of venture.
Dana: Performance is it doesn't seem to be fully appreciate it we.
Dana: We will do better to provide you with this information.
Dana: Beyond all that I, just mentioned on the capital allocation front, we have been repurchasing more shares over the last two years in.
Dana: In 2022, I believe the trend in our stock price started to significantly diverged from that of Markel groups intrinsic value.
Dana: In 2022, we repurchased $291 million of our shares. This was I began speaking more openly about the business's intrinsic value growth. It's my duty to explain to our shareholders why we're using more of their capital for share repurchases.
Dana: We repurchased more shares in 'twenty, three and 'twenty four.
Dana: $445 million and $573 million respectively.
Dana: And 24, our board authorized an additional $2 billion of share repurchases several board members managers.
Dana: I have also bought shares personally.
Dana: But what will ultimately close the gap between our stock price and intrinsic value as we see it.
Dana: We will continue to focus on everything within our control, we will run our businesses at the highest levels and invest behind our winters, where we're falling short we will learn.
Dana: We will also strive to communicate more clearly as.
Dana: That's the great. Dr. Seuss, one said, sometimes the questions are complicated and the answers are simple.
Dana: To that end, we simplified our intrinsic value calculation.
Dana: At last year's annual letter to shareholders I discussed the building blocks of Markel groups intrinsic value.
Dana: The framework, we provided in our press release. This morning, it takes those principles and simplifies them further.
Dana: We provide this not as a fixed number but to show how we begin to think about the intrinsic value growth of Markel group, It's a starting point.
Dana: I'd also encourage placing less stock in the precise number and more in the rate of change you can see over time when you calculate this consistently year after year.
Dana: The record will show that the number has compounded at high rates over the last five years and since our IPO in 1986 are.
Dana: Our recent growth benefited from a period of above average returns in our equity portfolio we have.
Dana: Must improve our insurance results to reach our full potential in the next five years, we must also live our values serve our customers and communicate with our long term partners, who trust us with their capital I am confident we will do just that.
Dana: Just as the Cox and calls out when it's time for the rowers to give it everything they've got.
Dana: No that it's time for us to make those hands fly.
Brian: Before I turn it over to Brian I would like to welcome some new team members in 2024, we welcomed two new businesses and their leaders valor and epi to our team.
Brian: Valor environmental joined the family in June Valor founded by J J Mcdonald Kirk Foster offers erosion control and storm water management services.
Brian: These are required for anyone moving dirt.
Speaker Change: And what are in the U S with JJ and Kirk we've had common ground and our shared values and focus on customer service.
Speaker Change: We also welcome Debra Martin and her team of Epi family in September.
Speaker Change: However, we could not formally and publicly welcome them at that time.
Speaker Change: Due to the pending nature of certain final regulatory approvals that were just recently received we were happy to make things official in January after a career as an educator.
Speaker Change: Deborah founded Epi.
Speaker Change: Which sponsors and exchange visitor program for teachers and serve school districts in the southeast and mid Atlantic U S States welcome to Valor and Epi.
Speaker Change: With that I'll turn the call over to Brian will go through some of our financial numbers from 2024. He will then turn it over to Jeremy who will talk about performance in the insurance business Brian.
Speaker Change: Thank you Tom Good morning, everyone I will first review key metrics at the Mark held group level, then I will share performance numbers for our insurance and ventures businesses plus our investment results.
Speaker Change: At the group level, let me begin by talking a bit more in a bit more detail about the intrinsic value that Tom mentioned before getting into the specific numbers I'll offer you a surgeon general's warning for our simple approach.
Speaker Change: Tom suggested we intentionally left our calculation at the 100 course level simple and easy to follow designed for ease of use and interpretation. It should be used with an awareness of limitations such as.
Speaker Change: Determining an appropriate multiple involves considering many factors, including the nature of the various cash flow streams. We just picked one that seemed reasonably conservative.
Speaker Change: 12 times is not the multiple we would pay for business nor would we consider buying a business for less than 12 times to be automatically accretive to intrinsic value.
Items that are onetime in nature have not been adjusted for such as disposal gains or losses, all good things for an analyst to consider.
Speaker Change: The value of equities is a snapshot in time as of the end of each year and the world is dynamic.
Speaker Change: Like commercials that you would see for medications using this formula as a precise measure could cause dizziness, headache tunnel vision or other side effects.
Speaker Change: Get the point and I could go on and on with those like they tend to at the end of those commercials and actually spend more time with that and what that what the purpose of the calculation, yes, but I think that makes the illustration.
Speaker Change: Recognizing these limitations of the approach we believe that our simplified method provides an annual insight into how we think about value creation when viewed over longer time periods.
Details of our intrinsic value calculation can be found in the back of this morning's press release.
Speaker Change: Using our intrinsic value calculation and taking a five year view Marc held groups intrinsic value compounds at 18, 3% over the last five years. This is compared to total shareholder return over the same period growing at eight 6% highlighting the gap that Tom mentioned previously.
Speaker Change: Beginning at the end.
Speaker Change: At the beginning of 2024, we began reporting our operating income for investments venture's insurance and on a consolidated basis.
Speaker Change: Operating income is a key driver of intrinsic value and our long term incentives. If you must pick one metric for our scorecard operating income is a good place to start.
Speaker Change: Marc held groups operating income was $3 7 billion in 2024 up from $2 9 billion in 2023 as Tom noted the largest contributor to operating income was unrealized gains in our equity portfolio.
Speaker Change: Breaking down our operating income by engine insurance operating income was $601 million for the year and $143 million in the fourth quarter insurance operating income includes our global underwriting profits along with fee based income from the filler and state national.
Speaker Change: Investments operating income was $2 8 billion for the year and $367 million in the fourth quarter. Our annual investment operating income further breaks down at $913 million of recurring net investment income $1 8 billion of net investment gains largely from the mark on our equity portfolio.
Speaker Change: And $52 million of earnings from equity method investments.
Speaker Change: <unk> operating income across our 21 businesses was $520 million for the year and $132 million in the fourth quarter.
Speaker Change: The beauty of the Markel groups system lies in the fact that these diversified streams produce a river of cash flow operating income is generally convertible into cash that can be redeployed growth in insurance premiums and the time lag of paying reserves also generates cash further fueling reinvestment this growth.
Speaker Change: Generates future operating cash flows all in a cost and tax efficient manner.
Speaker Change: Our total cash flows from operating activities in 2024 totaled $2 6 billion driven largely by our insurance engine.
Speaker Change: Moving to our insurance operations and insurance, we serve our customers through specialized underwriting building lasting partnerships with our distribution partners focusing on the long term, our strong balance sheet and maximizing our people powered culture.
Speaker Change: First a comment about the natural catastrophe losses.
Speaker Change: During 2024, we incurred $71 million or just under one point of losses related to Hurricane Helene and Hurricane Milton These losses have come down from our original estimates and are well within our expectations for events of their sites.
Speaker Change: Further while it is still early days for the California wildfires, we disclosed an estimated 90 million to $130 million impact on our first quarter 2025 results. This estimate is inclusive of losses and reinstatement premiums across our global underwriting operations. This.
Speaker Change: Range includes no provision for potential salvage and subrogation recoveries and we have minimal premiums subject to the California Fair plant, while several of our first party product lines will have losses, our largest impact is in our international Fine Arts and DC book.
Speaker Change: Overall, our underwriting teams have done an excellent job of minimizing our exposure to wildfire losses.
Speaker Change: Moving to our segment results, starting with our insurance segment, which largely represents our specialty and international divisions.
Speaker Change: Gross written premium was $9 4 billion and net earned premium was $7 4 billion in 2024, each representing a 2% increase from a year ago.
Speaker Change: Insurance premiums grew despite numerous portfolio actions that reduced premiums in our U S casualty and risk managed professional lines taken to improve the balance of the portfolio.
Speaker Change: The combined ratio was 94, 3% versus 97, 8% in 2023, an improvement of three five points drew.
Speaker Change: Driven by higher prior accident year loss take downs, and our underwriting actions starting to earn through with more benefits from these actions expected in 2025 and beyond.
Speaker Change: Our current accident year loss ratio was 64, 4% in both 2024 and 2023.
Speaker Change: Prior year loss development was six one points favorable in 2024 versus one four points favorable in 2023 due to actions taken in 2023 to strengthen reserves in our casualty portfolio and prior higher prior year loss tick down this year in our international portfolio.
Speaker Change: The expense ratio was 36% in 2024 versus 35% in 2023 with the one point increase driven by the decline in earned premiums in the U S from the underwriting actions and changes in our professional liability reinsurance structure.
And higher operating and higher operating expense ratio and our international operations to support investment in growth initiatives.
Speaker Change: Our exited collateral protection insurance product line or CPI added two three points on the insurance segment results. This year versus one three points last year, we expect the impact of CPA CPI losses on our results to decrease in 2025.
Speaker Change: Jeremy will speak later about what we've done this past year and a further doing in 2025 to improve the long term results within our U S specialty business.
Speaker Change: Moving to our reinsurance segment.
Speaker Change: Reinsurance underwriting profit continues to trail our targets with a combined ratio of 101 for the year.
Speaker Change: Higher attritional loss ratios in our professional and general liability products drove this we also had some large individual losses within our credit and surety products.
Speaker Change: Our prior year loss ratio was slightly favorable this year, and we had $34 million or three points of adverse development. This year from our recently discontinued public entity product line.
Speaker Change: Turning next to our program services and ILS businesses, AK, a state national and the filler.
Speaker Change: In 2024 state National had strong consistent performance with operating profit of $122 million and to fill up produced operating income of $41 million a bit lower than last year. However, the 2023 results included $31 million in one time fee income related to <unk>.
Speaker Change: Releasing capital from side pockets.
Speaker Change: Turning next to our results from Markel ventures.
Speaker Change: In ventures, our operating businesses are autonomous and accountable, we use equity capital to acquire our family of businesses, while promoting a long term focus and our shared set of values.
Speaker Change: We see companies with lasting competitive advantages that provide strong steady returns on capital across economic cycles.
Speaker Change: Within certain of our businesses cycles will and do occur we priced that into our underwriting.
Speaker Change: <unk> 2024 revenues total revenues exceeded $5 billion for the first time in our history experiencing year over year growth of 3%, our consumer and building products businesses drove the majority of ventures growth, while transportation related businesses took a step back.
Speaker Change: As context transportation related demand has been very strong since the first half of 2020, providing a tailwind for our market leading businesses in this sector the past few years.
Speaker Change: Historically these businesses typically experienced five to 10 year cycles with the rising need for transportation equipment and predictable replacement cycles fueling growth from one cycle to the next so while revenues have come down from the high points of the cycle. These are businesses that particularly benefit from our long term.
Speaker Change: Term high equity capital approach.
Speaker Change: Additionally, our construction services businesses, our largest grouping by total revenues saw a deceleration in growth this year compared to last with flat year over year revenue growth when excluding the addition of valor in June.
Speaker Change: <unk> transportation related markets demand for construction services was particularly strong post COVID-19, although elevated interest rates present, a challenge for construction activity in this economic climate, we consider flat reoccurring revenue revenue growth to be a solid result for this group.
Speaker Change: <unk> operating income was $520 million for the year within both our our equipment manufacturing and consumer and building products businesses strong revenue growth drove even stronger operating income growth over the past two years.
Speaker Change: Although we noted net revenues across all of our construction services businesses were flat excluding valor. The construction services operating margins did decline slightly.
Speaker Change: Now moving over to our investments through our public equity portfolio, we own interest in many of the best businesses in the world, we seek out profitable businesses with good returns on capital management teams with integrity and talent and companies that have attractive reinvestment opportunities and our available at reasonable.
Speaker Change: Valuations.
Speaker Change: Our equity portfolio earned a 21% return with $1 8 billion in net investment gains included in our 2020 for operating income.
Speaker Change: The equity portfolio averaged a compound annual growth rate of 14, 3% over the last five years. We don't expect these returns to be repeated in the next five years, but we're pleased with our portfolio. It has and should compound capital at attractive rates over long periods.
Speaker Change: Net investment income was $920 million in 2024 versus $735 million last year for 2020 for our fixed income book yield was three 2% in the fourth quarter. We continued to add new fixed income investments at higher yields approximately four 4%.
Speaker Change: <unk> versus maturing bonds and approximately three 6%.
Speaker Change: 98% of our bond portfolio was held in fixed income securities that are rated double a or better.
Jeremy: Now I will turn it over to Jeremy who will provide more commentary on insurance.
Jeremy: Great, Thanks, Brian and Hello, everyone.
Jeremy: I'd like to begin by adding my thanks to the efforts of my teammates in 2024.
Jeremy: As mentioned earlier, we have many areas across the business that are performing exceptionally well. This year. We saw continued strong performance in our international and state National operations, both grew while achieving profitability levels above our targets. We are investing in these businesses to support their law.
Jeremy: Term growth.
Jeremy: Within our specialty business, our personal lines property Marine health care environmental programs commercial professional liability products and most of our small commercial offering also exceeded our targets. We continue to drive profitable growth in these areas. These lives represented over half of our.
Jeremy: Gross written premiums in 2024.
As we've noted underperformance in our U S casualty and risk managed professional liability books weighed on our results and as a result, our overall U S specialty business fell short of our expectations.
Jeremy: We've taken numerous actions during 2024.
Jeremy: <unk> early last year, we exited several product lines, including primary casualty retail business owners policy risk managed excess construction mismanaged architects and engineers and collateral protection insurance.
Jeremy: These exits were accretive to our 2024 results and will be further accretive in 2025.
Jeremy: Second we took more than 100 underwriting actions across our portfolio, including meaningfully reducing the construction mix in our casualty portfolio changing terms and conditions to eliminate certain exposures to subcontractors, reducing limits on excess lines and implementing premium caps and challenging states.
Jeremy: Achieving double digit rate increases across the casualty portfolio, while walking away from risks that we're not adequately priced and terminating certain underperforming programs.
Jeremy: And risk managed professional liability products, non renewing business contracting limits and improving portfolio mix through segmentation.
Jeremy: And our most challenged class U S public D&O, we recently announced further actions to move to a single access point for public D&O and large financial institutions coverage based in Bermuda.
Jeremy: In total these actions in addition to the exits mentioned in my first point resulted in a reduction to gross written premiums of over $350 million in 2024, but it should be accretive to net income.
Jeremy: Third we bolstered our reserves by increasing our overall level of conservatism on the current accident year by approximately two points, which roughly offset the benefits from our underwriting actions earned in 2024 <unk>.
Jeremy: By adding a margin of safety to our current reserves, we can increase the likelihood of greater prior year redundancies in future periods.
Jeremy: Fourth we refreshed the leadership team.
Over the past 14 months, we appointed a new president of our specialty Division and added a new divisional chief underwriting officer.
Jeremy: Whoa.
Jeremy: <unk> and CFO to complement our product and field leaders and fifth we made progress on our multiyear effort to improve our technology, we are investing heavily to make it easier and more exciting to do business with us and improve the customer experience by enhancing our underwriting and claims processes.
Jeremy: We will give our underwriting claims and actuarial teams Richard that these investments will help us make better decisions find insights faster and improve efficiency.
Jeremy: As Tom alluded to earlier with tangible sign posts can you track along the way to measure our progress.
Jeremy: And what success looks like and how long it would take.
Jeremy: While we strive to provide perspective on these important questions as we progress let me say today, our combined ratio of 95, two is still higher than it should be.
Jeremy: Our actions to drive the underlying combined ratio lower than 25, and even more so beyond.
Jeremy: Prior year takedowns in 2024 or five 4%.
Jeremy: Great improvement, but still not at our longer term average six to eight points.
Jeremy: Finally, we recently announced the go live for our Guidewire claims module and an important next step in the modern and the modernizing of our U S based technology architecture, which will significantly improve our claims handling experience and over time, our operating efficiency.
This is progress, but we're not stopping there we acknowledge that we still have work to do with underwriting actions technology investments and operating efficiency in the handsets.
Jeremy: We are committed to long term success.
Jeremy: Before concluding I'd be remiss, if I didn't highlight the excellent performance of Markel International which in 2024 delivered a sub 80 combined ratio with strong growth, while making notable investments in new products and markets.
Well done team.
Jeremy: Thank you to the entire insurance team for improving our business in 2024 are the fruits of all of our labors are not yet fully manifested in our results to that I would say stay tuned.
Jeremy: We are excited by our long term prospects.
Jeremy: Forward updating you on our progress in the coming quarters and years with that I'll pass it back to Tom. Thank you Jeremy to conclude in 2024, our calgroup exceeded our return targets with strong returns from our public equity portfolio continued growth in ventures and notable performance in many.
Tom: Areas of our insurance business, all while staying true to our values and striving for excellence.
Tom: For the past two years Mark held group has made significant strides as we continue to build on this progress we are committed to enhancing our insurance operating performance and driving profitable growth across our family of businesses. We're excited for 2025 and the work ahead and to continue winning for shareholders customers and associates.
Keaton: With that we'll open up for questions and answers my Keaton the COO of <unk>.
Speaker Change: Our group will also join me, Jeremy and Brian in the room to take your questions operator.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then one again.
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Mark Hughes: We will take our first question from Mark Hughes at two months.
Speaker Change: Yeah.
Mark Hughes: Yes. Thank you good morning.
Mark Hughes: Just maybe venture into forbidden territory, but just sort of curious on the feedback you received on the.
Mark Hughes: <unk> business.
Mark Hughes: Do you feel like with the structure.
All the different components of what you do as opposed to execution.
Mark Hughes: Successful you've been on.
Mark Hughes: On operating in that structure.
Mark Hughes: Yeah, Mark it's really a mix of both so I think in terms of the structure of the issue is sometimes people have suggested that they can't understand the clarity is not what it should be and they would like things to be presented in a different way and more clarity and I think the press release that we put out today.
Mark Hughes: In the fourth quarter result.
Mark Hughes: Just the whole package is our first pass at trying to address that secondly in terms of execution. We have publicly said for a while now that we've had some challenges, particularly in the insurance business and there are areas, where we can and should do better.
Mark Hughes: So we're continuing that theme of continuing to do the hard work of delivering and executing on those businesses, but it is a combination of both.
Mark Hughes: Oh.
Mark Hughes: Understood when we think about the intrinsic value calculation for Markel ventures, how does that compare to the carrying value then I apologize.
Mark Hughes: I can pull it out of the relief.
Mark Hughes: I'm curious.
Mark Hughes: You can get a sense.
Mark Hughes: Yes in very general terms that would be more.
Mark Hughes: So again part of the way in which we are.
Mark Hughes: Playing out some of the pieces of the intrinsic value is again.
Mark Hughes: To address the rate of change and value that happens over time. So it's not a single point estimate it's having the methodology that you can repeat do year after year after year after year and because GAAP accounting.
Mark Hughes: Has sort of different approaches of how it would recognize things that happen inside of financial business, such as insurance compared to our nonfinancial business such as those that comprise ventures. This is this is the way that high as a fellow owner of Mark out think about the economic progress of the Mark Calgroup overtime.
Mark Hughes: And we could talk to this is not new we've been talking about this in the annual report.
Mark Hughes: The last couple of years, so it's not about the point estimate it's about having a consistent methodology that you do year by year by year to try to amplify and clarify with GAAP accounting might suggest in order to get the real economics of what's happening in the businesses is also not a good way.
Mark Hughes: Yes.
Michael is also not a bi component metric, it's really just taken the whole thing as a whole. So your question about venture specifically I mean in fact, what you've got is a bit of a blended multiple of many different streams of cash flows. So we can think about it separately.
Mark Hughes: Yes.
Mark Hughes: And then.
Mark Hughes: When we think about offline opportunities within the insurance segment.
Mark Hughes: You've made a lot of progress in your underwriting.
Mark Hughes: You had some favorable development.
Mark Hughes: On 2024 within some of the casualty lines maybe geo.
Mark Hughes: Properly.
Mark Hughes: Is it time to start.
Speaker Change: <unk> growing again in 2025 or is there opportunity to grow the top line and how should we think about the outlook here, yes, I'll, let I'll, let Brian comment about the specifics of the numbers there, but in terms of growth when we execute our business will growth seems to follow and profitable growth is what we're emphasizing.
Speaker Change: Around here that that's that's first and foremost and again, we think in longer term time frames around here five years at a time is the way we calculate our incentive compensation for instance, at the highest levels and there hasnt been any five year period that I'm aware of that we were doing less business than what we did five year chunk before that right.
Speaker Change: Yeah.
Speaker Change: Jeremy I'll add to that just to say the key for US is it's Tom was alluding to is just getting on the other side of it as corrective actions as we kind of mentioned in some of the prepared remarks, we have been seeing and we are growing across a number of product areas. Both in the U S and internationally, but the good news is as we manage to.
Speaker Change: <unk> offset all of the reductions in premium volume that we experienced over the year. Those continued reductions where we're taking underwriting actions that continue to play out a little bit in 'twenty, five and we should get to.
Speaker Change: More normalized growth levels over time once we get on the other side of that corrective action.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: We'll go next to Andrew Klingerman at TD Securities.
Andrew Klingerman: Hey, good morning.
Speaker Change: Kind of curious you had five two.
Speaker Change: Percentage points of favorable prior year development could you share with us.
Speaker Change: The geography of that prior year development and I'm most interested in the casualty side, because I know that's been a rough line for you.
Speaker Change: Could you talk about whether that piece casualty was favorable or unfavorable and to what degree and what underwriting years.
Speaker Change: I'll, let Brian and Jeremy chime in on the specific way to answer that question, but I did want to reiterate and getting back to the fundamental principles and the fundamental values of the Mark Calgroup. We have from day, one always wanted our reserves to be more likely to be redundant than deficient.
Speaker Change: So you can just randomly ask any person in this building and any more Cal office anywhere in the world and they would tell you that almost world word for work that is drilled into our our culture. So we're glad to be back this year reporting something that is way more redundancy than it did last year and it's getting back to our historical level of concern.
Speaker Change: Where does it conservativism in reserve development in a positive way, yeah, I would say generally speaking.
Speaker Change: Last year, we hit the casualty really hard so if you look at year over year adverse development in casualty this year fairly flat in the casualty on a net basis. So those actions have largely held up throughout the year on a net basis within professional it's kind of a mixed story on the international side we.
Speaker Change: Had we had takedowns or that business is a lot different than the business. We were talking about in the U S. So that was a catalyst to take downs. This year. We did have some adverse development on the U S. D&O lines the risk manage lines that we were talking about earlier, but overall the five points.
Speaker Change: Like Jeremy said, that's closer to our normal run rate with kind of a way in which we do reserving. So we have kind of a natural embedded kind of take down in the way, we do our reserving and thats kind of what youre seeing come through the results this year.
Speaker Change: Got it.
Speaker Change: Casualty.
Speaker Change: And any of the negative adverse casualty recent underwriting years.
Speaker Change: Yeah. So what I would say there is we kept a close eye on that we have been increasing slightly there on a gross basis, we have a reinsurance program that kind of limits the downside on a net basis. There. So overall, it's relatively flat.
Speaker Change: Got it that's super helpful.
Speaker Change: He is kind of interesting youre kind of.
Speaker Change: It seems like Youre moving your mix more to short tail lines, So last year.
Speaker Change: Net earned premium general liability was 29% and professional last year, meaning 2023 and.
Speaker Change: And professional was 25%.
Speaker Change: Has that mix changed is it materially more short tail as GL.
Speaker Change: Professional come down a fair amount for 2024.
Speaker Change: Hey, Andrew it's Jeremy I would not say the mix has changed materially we as you pointed two we've historically been.
Speaker Change: More concentrated and longer tail lines, and even with taking some corrective actions in areas like our U S general liability and professional liability spaces.
Speaker Change: The weighted more in that in that space.
Speaker Change: Were trying in each of our over 100 major product lines to right in the market. It's most attractive where we feel we can deploy capital and earn appropriate returns and we don't necessarily think about it just long tail versus shorter tail. So it's a little bit of a mixed story in that space, but nothing material.
Speaker Change: Got it I'll hop back into the queue. So others can ask questions.
Well go next to Andrew Anderson at Jefferies.
Andrew Anderson: Hey, good morning, it sounds like some pretty strong results on the international side of the house can you just remind us what percentage of the insurance segment is that and I guess the reason I'm asking is if we look at some large account skewed surveys it seems to indicate international pricing is kind of going negative perhaps.
Andrew Anderson: So you could talk about what youre seeing in your international business in terms of rate.
Andrew Anderson: Yeah, Hey, Andy its Jeremy.
Andrew Anderson: International rough rough call. It a third and two thirds would be sort of the U S insurance youre right in pointing out that in the international space and again, if you think about that we've got a large London market wholesale business, where we run a lot of specialty lines and then we really have our regional presence, Canada UK across Continental Europe.
Andrew Anderson: Asia, Pacific's, so trends and dynamics in those local markets can change a little bit in the London market space to your point, it's a it's been a little bit of a transitioning market prices are.
Andrew Anderson: Coming off of where they've been and in some places they're modestly flat to down or only up slightly however, that's off a very attractive level I think of rate adequacy. So we're monitoring that but that business is.
Andrew Anderson: Warming very strong to your point in recent years.
Speaker Change: Thanks, and then maybe just keeping on pricing I think I heard you say double digit rate increases across casualty portfolio I'm, assuming that's U S casualty.
Speaker Change: But maybe you could just give us some more color on what the U S portion is seeing in terms of rate and whether thats above loss trend.
Speaker Change: Yeah sure again, it's Jeremy and Youre right to casualty pricing has been one of the stronger areas in the portfolio and really we saw the pricing being pretty strong over the course of 'twenty for that continued to be in.
Speaker Change: The case in the fourth quarter, that's across the portfolio and there is a number of classes and lines, so but across the portfolio double digit rate increases that would be staying slightly ahead of ahead of trend and I don't see any reason why that pricing environment shouldn't persist as we go into 'twenty.
Speaker Change: Five we talked about and then obviously is pretty widely understood across the industry given inflationary drivers elevated loss cost market dynamics I would expect to continue to see pricing momentum in that space.
Speaker Change: Thank you.
Speaker Change: Yes.
Next we'll move to John Fox of Fenimore asset management.
John Fox: Yes, good morning, everyone.
Speaker Change: Good question.
John Fox: Two questions.
John Fox: First Tom you mentioned.
John Fox: More disclosure in the format.
Speaker Change: Which I noticed in this release and I appreciate it so that's a nice job.
Tommy: First question Tommy.
Tommy: You mentioned in the first sentence of this.
Tommy: He leaves about your targets, which were exceeded this year.
Tommy: Well, maybe not longer term in the <unk>.
Tommy: Conference call. So can you express.
Tommy: What are those targets.
Tommy: Thinking about.
Tommy: Well the main ones that would have the most tangible impact of yours truly as well as the people sitting around the table is the compensation calculations that you find in the proxy statement and at double digit rates of return and operating income and market price per share.
Tommy: We start getting paid nice incentives so.
Tommy: You can start there and work backwards.
Speaker Change: Okay, Great and then I just have a question on.
Tommy: How do you think about the intrinsic value per share.
Tommy: Looking at the table I think youre using gross equity securities to 11 eight.
Tommy: 8 billion.
Tommy: Some amount of growth that's.
Tommy: <unk>.
Tommy: Offsetting liability all your policyholders $26 billion, which.
Tommy: Which of course, we pay it out over time.
Tommy: So it.
Tommy: It hasn't valued less than that but.
Tommy: How do you think about using gross investments.
Tommy: The intrinsic value with a lot there is a liability that those investments are going to go out the door at some point. So how do you think about that thank you again sure and I invite you to think about it. However, you want to and I can assure you that there were growth partly discussions and points of view that had some differences from the people in this room and the real point is.
Tommy: You can do it any way you want but do it consistently so.
Tommy: One extreme way of thinking about the question you've asked.
Tommy: Buffett really deserves the credit for being the.
Tommy: First person who realize this build a business around it is that if you have insurance liabilities and you make an underwriting profit on them and they don't go down over time.
Tommy: Net present value of that liability is zero debt.
Tommy: That yields a rather extreme answer which my colleagues cautiously away from okay. So we've applied some haircuts are some conservativism, but that that is theoretically within the realm of possibility.
Tommy: You can you can get a pretty big dispersion of numbers, depending on your method. The thing that really is worthy and doesn't have much dispersion to it is the rate of change over time and the longer the timeframe you use the tighter the dispersion no matter what your method and the more accurate it becomes.
Tommy: That's the way, we think about intrinsic value per share.
Okay. Thank you.
Speaker Change: Again, if you would like to ask a question. Please press Star then one.
Speaker Change: Take our next question from Scott <unk> at RBC capital markets.
Yes, good morning.
Speaker Change: Is there anything notable share at the January one renewals bolt on your reinsurance book and just from a buyer of reinsurance standpoint anything you can talk to there.
The secondary question on the reinsurance side is the.
Speaker Change: Exited a public entity is that can you remind me when that that happened is that is that pretty much close to being anniversaried.
Speaker Change: Yeah.
Speaker Change: Yes, Scott this is Jeremy I'll take the second one first with regards to accident public entity, we announce that right at the beginning of the fourth quarter. So I think we touched upon that a quarter ago that really went into effect this past fourth quarter.
Speaker Change: And public entity, probably contribute about four points to the reinsurance combined ratio in the year. So that will wear off risk now that that happened in the fourth quarter and that the benefit of that will earn over the course of the next several quarters with regards to one one.
Speaker Change: Let me talk first to your point about our outwards reinsurance, where we buy reinsurance overall pretty pleased I mean, I would call the market orderly.
Speaker Change: Some pockets such as property and I'd say, our marine and energy out of London.
Speaker Change: Favorable terms favorable pricing good support in.
Speaker Change: And it's certainly a good outcome.
Speaker Change: Improvement year over year, our professional which we place late in the year was kind of flat on pricing. We kept structure. The same casualty probably no surprise, there a little bit of an uptick in pricing, but all in all good. Good result, good supports pleased with the structure, we have in place not a lot of change.
Speaker Change: Year over year as far as the overall pricing conditions and marketplace going into the year. We're not we're not massive necessarily on one wanted and obviously, we have a more modest totals for reinsurance book.
Speaker Change: I would say most of the pricing trends either I touched upon earlier of the generally heard across the marketplace quite true for us as well.
Speaker Change: Okay, No thats just really good detail and then just you referenced the increase in it spending in the fourth quarter and you mentioned as well in the third quarter is there any more detail that you can you can share on those investments and do you expect that kind of run rate to continue in 2025 or you do you feel like a lot of the heavy lifting is done I know it is.
Speaker Change: Spending is never done but.
Speaker Change: Just because you had mentioned at the last couple of quarters any context, you can give on any of that.
Speaker Change: Sure sure good question.
Speaker Change: I mean.
Speaker Change: Really we've been pretty hard at work I would say, making incremental investments in our technology modernization initiatives, both in our U S and international insurance businesses, let's call. It over the last couple of years, but really accelerating this past year and more so it's coming year I won't specifically.
Speaker Change: <unk> the level of investment, but it is incrementally adding at.
Speaker Change: At least a half a point to the expense ratio.
Speaker Change: And those benefits will start to come over over time. So I gave an example, you know with regards to claims modernization in the U S and here pretty shortly will be we'll be transacting new claims on a new cloud based modernized platform that will drive productivity and efficiency over time, but we've got a number of initiatives taking place both in the U S.
Speaker Change: And internationally.
Speaker Change: Okay, Great. That's helpful and just the last one just on U S professional liability D&O that's been.
Speaker Change: A more competitive market, you've seen softening pricing just market wide it and I know Thats an area, where you guys had started to pull back.
Speaker Change: Probably a year or more.
Speaker Change: Are you seeing stabilization in that do you expect to.
Speaker Change: Europe returned to growth in that for 2025 or is it still highly competitive and you still may not want to grow in that given what's happening now.
Jeremy: Yes, it's Jeremy again.
Jeremy: The latter I would say is the case it continues to be a very challenging sector.
Jeremy: Pricing.
Jeremy: Is not I think in levels of rate adequacy, we have scaled back this past year and that will continue to be the case as we go into 'twenty five it's just it's not an area of emphasis for US right now because the marketplace is not supportive.
Speaker Change: Great I appreciate all the answers.
Speaker Change: We will go to a follow up from Andrew Klingerman at TD Securities.
Speaker Change: Great. Thanks for the follow up.
Speaker Change: Just following up on the expense ratio. So it was at 37, 1% about 170 basis points above last years. When you just pointed out 50 basis points from investments in technology being improvements over time.
Speaker Change: And of course earlier, you mentioned scale is an issue as it decreased earned premium a little bit changes in reinsurance.
Speaker Change: As I think about it where would you like to see this expense ratio maybe three five years from now are there any initiatives to get that down.
Speaker Change: Just be the efficiencies from your technology investing right now could there be more initiatives, maybe a little color on.
Speaker Change: What else is occurring and where you'd like to see it maybe suite five years from now.
Jeremy: Yeah, Thanks, Andrew it's Jeremy.
Jeremy: Couple of things there. So first off I think with regards to the fourth quarter and that expense ratio being elevated.
Jeremy: That is really because of a spike in the period that will not recur it was associated with catching up on recognizing some contingent commissions in both our international and specialty divisions on profitable lines of business, where we have been growing so first I'd say think of our sort of full year expense ratio, maybe it's a <unk>.
Jeremy: <unk> indicator of where we are the second point, you're acknowledging is we would acknowledge that expense ratio is elevated to where our longer term objectives would be and we are taking actions I would tell you. If you thought of our expense ratio for the full year.
Jeremy: In the U S that expense ratio is up about half a point in our international operations. It's up about two five points and that is really because as I mentioned sub 80 combined higher profit sharing costs, we're actually investing significantly in the business. So we've been growing geographically.
Jeremy: Opening new offices in locations in new countries.
Australia is a good example of App and making investments across Asia Pacific in the Continental Europe.
Jeremy: Added product capabilities. So we're writing international casualty, we've added power towards sustainable energy platform. So we're investing in that business and thats, having a bigger impact on the expense ratio, but wonderful results.
Jeremy: And that in that business in the U S. The half a point is impacted by the portfolio corrective actions. We've taken and then also the <unk>.
Jeremy: Since we're making of technologies, so as we stabilize get on the other side of corrective actions to get back to more normalized levels of growth and as we start to receive the benefits of the investments, we're making in product growth and geographic expansion internationally as well as the technology modernization, we're going to see that come down what does that look like on their search.
Jeremy: Really over you said three to five years or so so I can I can that can be a little bit more open there.
Jeremy: A couple of points of improvement is certainly something that would be an objective of ours.
Jeremy: Yes, that's very helpful. Thanks for that detail I guess, one more on the intrinsic value.
The press.
Jeremy: Disney and some headaches I have to say I've got a little bit of that.
Speaker Change: Tom You mentioned.
Speaker Change: Incentive comp and I'd like a little more clarity.
Speaker Change: And how that's measured visit over a five year period, because as I looked at the chart that you provided in the second page of your release, you started with 2020 or your intrinsic value, which is which is the COVID-19 year.
Speaker Change: You earned about $1 3 million in operating income versus 2021, which was $3 2 million or $3. Three and then if I look back even at 2019 you earned.
Speaker Change: Two 5 billion and then if I look at the insurance.
Speaker Change: If I look at 2021, you earned $718 million.
Speaker Change: And this year it was 601, so I guess.
Speaker Change: My key questions around incentive comp is at a five year basis. So that if we had you have that COVID-19 year in 2020 is that demand.
Speaker Change: Generate a lot of compensation when when they were really some.
Speaker Change: Difficult circumstances that year.
Speaker Change: Yeah. This is Tom it is over a five year rolling average so all of those years get added in to come up with the five year number.
Speaker Change: I remind you that 2020 subtracted from our comprehensive conversation for a couple of years. So it does it does roll off and mature and Theres some smiles around the faces.
Speaker Change: As we do get pasty pre Covid post COVID-19 comparisons, but I would refer you to our proxy statement. We tried to lay it out was clear as we possibly can we've been consistent in the calculation method for many years and a 38 year history as a public company. We have made very few changes.
Speaker Change: Every number of years that there might be some update into the calculation and the hurdle rates that are involved but the basic structure of the basic theory of paper.
Speaker Change: Pay for performance and making sure that our shareholders get paid first.
Speaker Change: That's been consistent since day, one and we will be going forward.
Speaker Change: That sounds very sure okay. Thanks, a lot.
Speaker Change: Okay.
John Fox: And next we'll move to John Fox at Panama asset management.
Hey, good morning, I have a follow up for Jeremy.
Speaker Change: I was a little bit surprised to see the growth.
Net written premium volume growth in reinsurance.
Speaker Change: That it's been a poor underwriting.
Speaker Change: Over time, so could.
Speaker Change: Could you just maybe talk about why that was growing.
Sure John It's Jeremy.
Speaker Change: Ultimately its a little bit about sort of mix within the portfolio, So where we have seen a little bit of growth year over year in places like our marine and energy offerings out of the London market places like Workers' comp, maybe transnational liability, which kind of came back a little bit stronger.
Speaker Change: As far as premium volume in the overall marketplace and 24 versus 23, where we have been more challenged traditional areas of professional liability like D&O are in the casualty we've been contracting in those spaces.
Speaker Change: Some of that growth would come from how we might increase our participation or see growth in exposure or be taking advantage of maybe some new business.
Speaker Change: In our lines that we believe are performing and have performed better, but they're smaller aspects of the overall portfolio.
Speaker Change: Okay.
Speaker Change: Implication would be better combined ratio in the future.
Speaker Change: Europe, we are sure sure working hard at that.
Speaker Change: The combined ratio and reinsurance is not it has not been an acceptable level. So it's got to be better.
Speaker Change: Absolutely, Okay, we'll keep an eye on that thank you.
Speaker Change: Thank you.
Speaker Change: And this concludes our question and answer session I would like to turn the conference back over to Tom Gayner for any closing remarks.
Speaker Change: Thank you. Thank you for joining us. Thank you for your support we look forward to reporting our progress to you as the year goes by have a great day.
Speaker Change: The conference call has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: