Good morning, and welcome to Markel Corporation's Second Quarter 2020 Conference Call. During the call, we may make forward-looking statements based on our current assumptions and opinions regarding various known and unknown risks. Actual results could differ significantly from those indicated in these forward-looking statements. Additional information about factors that may cause actual results to vary from the projected outcomes is available in our most recent annual report on Form 10-K and quarterly report on Form 10-Q under the sections Risk Factors and Safe Harbor and Cautionary Statement. We may also discuss some non-GAAP financial measures during today's call. The most closely related GAAP measures and their reconciliation can be found in our latest Form 10-Q on our website under the Investor Relations section. Please note, this event is being recorded. I will now turn the conference over to Tom Gayner, Co-Chief Executive Officer. Please go ahead.

Thanks so much. Good morning, and welcome to the Markel Corporation second quarter conference call. This is Tom Gayner, and I'm joined today as usual by my Co-CEO, Richie Whitt, as well as our CFO, Jeremy Noble. That may be the last time we get to use the word 'usual' in this call. It doesn't seem to be much that would fall into the camp of usual these days. In fact, I've commented for the last several months that there is an unprecedented use of the word 'unprecedented.' So far in 2020, 'unprecedented' strikes me as the right word to use. I look forward to the day it becomes an overused cliché, but I don't think we're there yet. Despite the unprecedented conditions that we and everyone else face, we've got good news to report to you this morning. Across Markel, in every business and for every customer, our people exhibited unusual and spectacular adaptability and dedication to serve our customers and each other. Our second quarter results, meaningful growth and profitability in each of the three engines of insurance, investments, and ventures, reflect their efforts. All of the associates of Markel worked unbelievably hard and with great dedication and creativity to find a way forward. Speaking for Richie and Jeremy, I want to extend our thanks to our dedicated associates in the way in which the people of Markel have adapted and persisted to serve our customers in these unprecedented conditions triggered by the Coronavirus. Now while much of today's call will focus on financial measurements and the effects of COVID-19, I want to take a moment to also address another virus we're facing as a society, namely the virus of racism. Let me be clear, we explicitly reject racism and discrimination. We are fully committed to the dignity and worth of each and every individual. During the last few months, Richie and I had the opportunity to listen to many of our associates and hear their voices and stories in new ways. We are listening and learning. I think the difficult conversations are having a very positive effect. We're confronting issues and problems that we haven’t faced before in such a head-on way. The honesty and openness is refreshing and I think it gives us all a chance to learn in a new way and to make real progress. We mean the words to the Markel style. Those words include fairness in all our dealings and providing an atmosphere in which people can reach their personal potential. We cite those core beliefs because they are crucial components behind another statement in the style, namely the question, 'Find a better way to do this.' Count on our consistent commitment to these ideas. At this point, I am going to turn to the financial reports in the second quarter. Jeremy will provide you with an update on the numbers and then Richie will update you on our insurance and insurance-linked securities operations. I will then follow with comments on our investments and ventures operations. After that, we look forward to answering your questions.

Thank you, Tom. Good morning, everyone. Our underwriting and testing in Markel Ventures results for the first half of 2020 were meaningfully impacted by the effect of the COVID-19 pandemic, but encouragingly, we saw positive contributions from each of our three engines during the second quarter. While COVID-19 has and likely will continue to influence both the asset and liability sides of our balance sheet, our financial condition was strong at the end of the second quarter. We are well positioned to take advantage of opportunities that are being presented in the specialty insurance marketplace. Looking at our underwriting results, gross written premiums were $3.7 billion for the first half of 2020 compared to $3.3 billion in 2019, an increase of 12%. This increase was due almost entirely to our insurance segment, which reported gross written premiums of $3 billion, an increase of 16% compared to 2019. This growth related primarily to increased writings within our professional liability, general liability, marine and energy, and personal lines product lines. Gross written premiums within our reinsurance segment were as consistent as in 2019 at roughly $740 million. Year-to-date retention of gross written premiums held at 84% in both 2020 and 2019. Earned premiums increased 12% to $2.7 billion in 2020, primarily due to higher written premium volume in our insurance segment. Our consolidated combined ratio for the first six months of 2020 was 103% compared to 95% in 2019. For the second quarter of 2020, we reported an 88% combined ratio compared to 95% for the year ago. As we discussed a quarter ago, we recognized $325 million of pretax net losses and loss adjustment expenses during the first quarter for those policies where COVID-19 was identified as a proximate cause of loss. There were no changes in our loss estimates during the second quarter. These COVID-19 losses increased our consolidated combined ratio for the first six months of 2020 by 12 points. Our initial estimates of losses directly attributable to COVID-19 at the end of March reflected limited claims reporting. However, after considering the additional data gathered through increased claims reporting activity in the second quarter and while continuing to monitor actual levels of disruption caused by the pandemic, there were no significant changes in our assumptions during the second quarter. As a reminder, our losses from COVID-19 are primarily attributed to business written within our international insurance operations and are primarily associated with coverages for event cancellation and business interruption losses in policies where no specific pandemic exclusions exist. Due to the inherent uncertainty associated with our assumptions surrounding COVID-19, which among other things include assumptions related to coverages, liability, reinsurance protection, duration, and loss mitigation factors, as well as the fact that the economic impacts of the pandemic continue to evolve, our estimates may be subject to a wide range of variability. As the overall pandemic continues to evolve, we expect losses indirectly related to COVID-19 and associated with a broader range of coverages to potentially emerge within our professional liability, trade credit, and Workers' Compensation product lines among others, including our reinsurance product lines. To date, we've not seen significant evidence of incurred losses increasing for these secondary exposures and no explicit provision was made for indirect COVID-19 losses in the second quarter. It is worth noting that any increase in exposure associated with indirect COVID-19 losses will lead to a partial offset of an improving pricing environment. Regarding prior year loss reserve development, consistent with our reserving philosophy, prior year loss reserves developed favorably by $268 million in the first half of 2020 compared to a favorable prior year development of $189 million in 2019. Turning to our investment results, as I mentioned in prior calls, given our long-term focus, variability in the timing of investment gains and losses is to be expected. We continue to see volatility in the equity markets in the second quarter related to the economic uncertainty associated with the COVID-19 pandemic. Following the significant declines in the fair value of our equity portfolio during the first quarter, we saw meaningful recoveries in the second quarter and investment losses for the first half of 2020 were $770 million compared to net investment gains of $1 million last year, a year-over-year decline of $1.8 million. With regards to net investment income, we reported $184 million in the first half of 2020 compared to $226 million in the first half of 2019. This decline is largely due to lower short-term interest rates and lower holdings from fixed maturity securities in 2020. Net unrealized investment gains increased by $237 million net of taxes during 2020, reflecting an increase in the fair value of our fixed maturity portfolio resulting from declines in interest rates during the first half of the year. Now I'll cover the results of the Markel Ventures segment. Revenues from Markel Ventures increased to $1.2 billion for the first half of 2020 compared to $1.1 billion last year. Higher revenues from our services businesses were partially offset by lower revenues within our products businesses. Revenues within our services businesses reflect the contribution of revenues from our acquisition of Lansing Building Products, which we completed in late April, and the acquisition of VSC Fire & Security, which closed during the fourth quarter of 2019. Within our products businesses, the economic and social disruption caused by COVID-19 resulted in decreased demand in many of our businesses during the second quarter. EBITDA from Markel Ventures was $173 million for the first half of 2020 compared to $160 million last year, reflecting the contributions of Lansing and VSC, partially offset by the impact of lower operating revenues in certain of our businesses. Looking at our consolidated results for the year, our effective tax rate was 21% for the first half of 2020 compared to 22% in 2019. We reported a net loss to common shareholders of $484 million for the first half of 2020 compared to net income to common shareholders of $1.1 billion a year ago, driven by the net loss. Comprehensive loss to shareholders for the first half of 2020 was $260 million compared to comprehensive income of $1.4 million in 2019. Finally, I'll make a few comments on cash flows, capital, and our balance sheet. Net cash provided by operating activities was $489 million for the first half of 2020 compared to $249 million for 2019. Operating cash flows for 2020 reflected the effects of lower claims settlement activity in both our insurance and reinsurance segments and higher premium collections as we've seen strong growth in our insurance segment over the past several quarters. Invested assets at the holding company were $3.7 billion at June 30 compared to $4 billion at the end of 2019. The decrease in holding company invested assets was due to funds used to acquire Lansing, as well as the decrease in the fair value of our equity portfolio, again related to the impacts of COVID-19, all of which was partially offset by the proceeds from our preferred shares offering. We recognize the importance of liquidity and a strong balance sheet in times of uncertainty, and we intend to ensure Markel remains resilient for the long term. In addition to the success, we began taking in early March to maintain our ongoing capital and liquidity needs to manage against volatility, in May 2020, we issued $600 million of 6% fixed rate reset noncumulative Series A preferred shares with no par value and a liquidation preference of $1,000 per share for an aggregate net proceeds after expenses of $592 million. We continue to maintain a fixed maturity portfolio comprised of high credit quality and investment-grade securities with an average rating of AA. The debt to total capital ratio at the end of June was 24%, unchanged from the end of 2019, and we have no unsecured senior debt maturing until July 2022. We believe we're well positioned to meet the ongoing capital liquidity needs, including supporting growth in our insurance operations, should we continue to see attractive opportunities in the specialty marketplace. Total shareholders' equity stood at $11.4 billion as of the end of June compared to $11.1 billion at year-end. Much of that a quarter ago, the unprecedented events surrounding COVID-19 certainly impacted our year-to-date results. However, the actions we've taken over the years to build a diverse organization will help us navigate through the current uncertainty arising from this pandemic, and we're well positioned to continue our efforts to build one of the world's greatest companies. With that, I'll turn it over to Richie to talk more about our insurance business.

Thanks, Jeremy, and good morning, everyone. The first half of 2020 has been more eventful and volatile than most full years. We had a fantastic plan and building momentum as we entered 2020. We were executing well until COVID-19 hit with its unprecedented impact on a global scale, affecting every industry, geography, and community. Thanks to our dedicated employees, we took that first quarter hit and quickly adapted, staging a strong comeback in the second quarter. While we recognize there are still significant uncertainties, the 2020 underwriting year is far from lost. We believe that we can make up significant ground over the next six months. This will require staying focused on what we can control and preparing as best as possible for those things not in our control. As Jeremy mentioned, related to the direct COVID-19 loss reserves, we did not adjust our original $325 million provision for direct COVID-19 losses in the second quarter. This is largely due to the fact that we've not seen evidence—either positive or negative—that would require us to change our estimate. Claims are materializing largely as we estimated and are being reserved and settled in line with our original assumptions. Despite the fact that we made no changes to our original estimate, the ongoing nature and uniqueness of the COVID-19 pandemic means the range of potential outcomes is wider than any catastrophe we've ever seen. Now I'll discuss our insurance businesses, which include our underwriting operations, our state national program services operations, and our insurance-linked securities operations. Since starting with the insurance segment, gross written premiums for the quarter were up $185 million, or 14%, compared to the second quarter of 2019. For the first six months, premiums were up $407 million, or 16%. Premium growth for both the quarter and first six months was driven by continued organic new business growth and rate increases in our professional liability and general liability products along with growth this quarter in our marine and energy products. The combined ratio for the insurance segment was 88% for the second quarter of 2020 compared to 95% last year. The seven-point improvement in the combined ratio was driven by more favorable development on prior accident year's loss reserves, a lower expense ratio, and a lower current accident year loss ratio. This is a rare insurance trifecta. The increase in favorable development on prior accident year's losses was primarily driven by our property and general liability lines. The combined ratio for the first six months for the insurance segment was 103% versus 95% for the same period a year ago. The eight-point increase in the combined ratio was driven primarily by $293 million or 13 points of losses attributed to direct COVID-19 exposures recorded in the first quarter. The impact from COVID losses was partially offset by an increase in favorable development on prior accident year losses, primarily in our professional liability and property product lines. Higher earned premiums for both the quarter and six-month within our insurance segment had a favorable impact on our expense ratio and an unfavorable impact on the prior year's loss ratio. Turning to our reinsurance segment, gross written premiums for both the quarter and the year are flat compared to the same periods in 2019. In this quarter, we saw higher gross written premiums in our professional liability line due to favorable timing differences and favorable premium adjustments, offset by lower premiums in our property line aligned with our strategy to reduce natural catastrophe volatility. For the year, we saw higher gross premiums in Workers' Compensation driven by a large relationship, offset by lower premiums in our credit surety line, largely due to the timing of renewals. As we mention each quarter, significant volatility in gross premium volume can be expected in our reinsurance segment due to individually significant deals and the timing of renewals. The combined ratio for the reinsurance segment was 90% for the second quarter compared to 96% last year. The six-point decrease was primarily driven by both a lower loss ratio and expense ratio. The decrease in the loss ratio was primarily driven by improved results on our property product lines. The decrease in expense ratio was driven by the benefit of higher earned premiums, along with lower profit-sharing expense. The combined ratio for the first six months for the reinsurance segment was 102% versus 97% for the same period last year. The five-point increase was driven by a higher current accident year loss ratio due to $32 million or seven points of direct COVID-19 losses recorded in the first quarter, that was partially offset by a lower expense ratio due to lower acquisition costs. Next I'll touch on our program services and ILS operations. As a reminder, amounts for our program services and ILS operations are reported within services and other revenue expenses within our operating results. Starting with state national, gross written premium volume for state national program services operation was down on both a quarter and year-to-date basis, driven by the runoff of one large program and the enforced cancellation of another large program, which resulted in a one-time unfavorable premium adjustment. As a reminder, almost all of state national's gross written premium is ceded. Ceding fee revenue was flat for the quarter and the year. We saw improvement in our operating expenses for the quarter as a result of lower profit-sharing expenses. Turning to our ILS operations, our combined ILS operations have grown 9% from the prior year's quarter and are up 4% for the year-to-date period, which has been driven by growth from our Nephila MGA operations. That growth is being partially offset by a reduction in management fees coming from both CATCo and Nephila, as a result of lower AUM and a reduction in management fees charged on side-pocket. Operating expenses from ILS decreased compared to the prior year, which is primarily due to fewer professional fees associated with the internal review at Markel CATCo, partially offset by continued startup costs associated with our retro ILS fund manager Lodgepine. Nephila expenses were in line with the prior year. I'll finish up with some market commentary. It's very clear that we've entered a hard market for most insurance and reinsurance lines. Some of the factors driving the hard market are concerns around social inflation, historically low interest rates, recent financial market volatility, elevated recent natural catastrophe activity, and significant uncertainties caused by the COVID-19 pandemic. Areas most impacted and where rates are increasing the most include general liability, professional liability, and property lines. However, with the exception of Workers' Compensation, all lines are seeing some form of rate increase and/or improvement in terms. Most of our largest lines are now seeing double-digit rate increases and that momentum appears sustainable. These rate increases are more than offsetting lower premium volume in classes hardest hit by the pandemic. For instance, our Workers' Compensation business and other businesses focused on small businesses, which have been hard hit by the economic closures and disruptions, are under pressure. Despite continued unprecedented uncertainty, we entered the second half of the year with optimism. Thank you for your time today, and now I'd like to turn it over to Tom.

Thank you, Richie. I am pleased to report to you that we experienced a meaningful rebound in our investment portfolio during the second quarter. Equities rebounded 18% during the quarter following the 22% loss in the first quarter and outstanding negative 8.4% for the year-to-date. We continue to earn positive mark-to-market returns on our fixed income portfolio from lower levels of overall interest rates and essentially no credit losses, given our long-standing commitment to very high credit quality. The total investment return for the portfolio after all expenses and foreign exchange effects was negative 0.3% for the 2020 year-to-date. Investments always operate within the overall context of the Markel Corporation. Our investments support the capital base we need to operate our insurance businesses as well as to produce attractive total returns. We think that the current highest and best capital allocation decision we can make right now is to support the growth of our insurance operations. As witnessed in the second quarter results, insurance prices are going up, and we are being paid more per unit of risk. First and foremost, writing more and better-priced insurance business looks to us like the best use of capital at Markel right now. Given the current opportunity to grow our insurance premiums and the tough combination we experienced during the first quarter of negative returns on our equity portfolio and our underwriting operations, as well as the effects of tangible capital from the early days of our acquisitions and ventures and insurance-linked securities businesses, we decided to reduce our exposure to publicly traded equities during the market rally of the second quarter. Those sales, along with the addition of the $600 million of preferred equity we raised, put us in an excellent position to take full advantage of current opportunities to grow our insurance operations amidst levels of uncertainty. Our individual equity purchase and sale decisions continue to be driven by our long-standing four-step process of looking for businesses with good returns on capital, manageable debt, run by managers with equal measures of talent and integrity while maintaining reinvestment opportunities and capital discipline at fair prices. While the world is changing at a rapid pace, we believe those principles remain relevant and durable. We believe that the COVID-19 circumstances of 2020, in many cases, reduced the long-term profitability of several companies. We also think that the infusion of liquidity into financial markets by governments around the world affects our ability to invest at prices that compensate us for the risks involved. In many cases, we concluded that we would rather write insurance at current crisis levels and we acted accordingly. At June 30, following net sales of approximately $1.2 billion, equity stood at $5.7 billion of market cap, which is 50% of our shareholders' equity of $11.4 billion. Our cash, short-term and longer-term fixed maturities stand at $16.6 billion. We expect to continue to build the cash and fixed income balances to reflect the increased inflows of insurance premiums during this period of growth in insurance. That stance should serve to increase our investment options going forward. While uncertainty and volatility will likely continue to dominate the landscape, well-priced insurance risk generates capital and future opportunities for all of Markel as the expected profitability gets recognized over time. We will revisit our allocation as our view of the risk-reward balance changes in insurance, investments, or ventures. For right now, look for us to continue to build our cash and fixed income balances until conditions change. On ventures, I'm extremely proud of the businesses and the way that they have adapted to the unprecedented swift and dramatic changes over the last few months. As Jeremy mentioned earlier, revenues totaled $1.2 billion during the first six months of 2020 compared to $1.1 billion in 2019. EBITDA totaled $173 million compared to $160 million in the previous year. Those results benefited from the inclusion of VSC Fire & Security last year and one month of results from Lansing Building Products. Even without those additions, I am deeply encouraged by the results for Markel Ventures. In many cases, the ventures managers faced extreme conditions as a result of COVID-19 shutdowns and unprecedented changes in customer behavior and ordering patterns. Additionally, keeping our workforce safe and maintaining manufacturing and field service operations continues to require new procedures and challenges. I am incredibly proud of how the people at ventures companies adapted to serve their customers and each other throughout this time. Those challenges all continue and we are by no means out of the woods, but I think the performance of the businesses in 2020 stands as a testament to the value they bring to their customers. We do not anticipate any acquisitions in the Ventures Group in the near term. We continue to think that the best current capital allocation decision is to support the growth and opportunity in our insurance business. We continue to believe that Markel is well-served by our diversified three-engine strategy of building excellent insurance, investment, and venture operations. While COVID-19 created a whirlwind of negative cluster that eliminated the normal benefits of diversification during the first quarter, we're pleased to report rebounds and improvements to you this quarter. We look forward to future years when we get to use the words 'usual' instead of 'unprecedented,' and we appreciate your long-term support and partnership as we get from here to there. With that, thank you very much, and we'd now like to answer your questions. Operator, if you can open the line for questions.

Our first question is from Mark Hughes from SunTrust. Please proceed.

The ILS business, could you give us a sense of your outlook there in terms of assets and overall activity?

Yeah Mark, Richie here. I think the outlook is positive. I think we commented on the call last quarter that as the COVID-19 situation was unfolding, markets were becoming incredibly volatile. I think people's decisions on asset allocation were basically frozen. As things have rebounded and there's been a little more calm in the markets, we have definitely seen an uptick in terms of conversations. People are getting more comfortable with doing their due diligence virtually as opposed to on-site, and so we're very hopeful that we will see additional mandates in terms of AUM in the second half of the year. So it feels very different today than it did back in March-April.

And then in the insurance operation, the GL you described as a very good growth opportunity. There's been, I think you've expressed concerns about social inflation, but you seem to be writing a lot of business and you had a favorable development in the quarter. Is social inflation as much of an issue now in the GL line?

Again, COVID-19 has changed just about every aspect of life, and I think we still have to get some time to see how COVID-19 impacts social inflation. But there's no doubt we were seeing social inflation before COVID-19 started. There were probably some aspects of social inflation going on. How that plays out, I don't know. But given the level of rate increases we're now seeing, I feel pretty comfortable that we are running ahead of whatever we would be seeing in terms of social inflation.

And then finally on Workers' Comp, there has been discussion of maybe that stabilizing at some point in the near future here. How do you see that?

Well, we were seeing some green shoots in May and June, but obviously we had hotspots developing, and some states considering, and in some cases going backwards in terms of opening up. So I think we have to see what impact that has on the Workers' Comp line. What we've seen so far in terms of Workers' Comp is the impact of COVID-19 on the top line, i.e., premium and people either canceling policies or premium being returned. That impact is looking much bigger than the impact on the loss line, i.e., paying for COVID-19 claims. So our Workers' Comp has held up reasonably well, but I think it's going to face headwinds until the COVID-19 situation is better under control.

How about pricing there in comp?

Pricing has been down for several quarters because just the results have been so good in Workers' Comp. I think the pressure on pricing is moderating. It is probably still negative at this point, but I would say that pressure is moderating, but that's being offset to some extent by there is just less business out there, and we, in particular, focus on small businesses, which obviously have been hit pretty hard by COVID-19.

Our next question is from Jeff Schmitt from William Blair. Go ahead.

You had mentioned the rate environment obviously really good, seeing double-digit rate increases in quite a few lines. Could you maybe just provide some more details, some numbers behind that and some of the highest growth lines?

Some of the areas we're seeing the highest rates, I think this is fairly consistent with what you've probably heard on other calls. General liability, casualty and professional liability are probably leading the pack, and we're seeing sort of solid mid-teens in those two areas. Obviously, property is approaching 20% sort of rates. We've been pretty flat in property, which means we've been getting rate increases, but we've actually been reducing exposure and that's been part of our plans is to reduce our net cat volatility. We've always been big writers of professional and casualty, and that is where we're seeing the biggest rate increases, and I think that that's why you're seeing us growing in the first half of the year.

It seems that the EMS, particularly in voice, could be more adversely affected by the pandemic, leading to AIG pulling back. Are you observing further disruptions from the pandemic and more growth opportunities in that area?

Yeah, I think there is clearly dislocation, and in those three areas, probably are the areas where prices are sort of the highest. That suggests that's the area of the highest level of dislocation: casualty, professional and property. It is obviously COVID-19 as part of it, but keep in mind things were moving in this direction even before COVID-19 as a result of social inflation and those other items that I talked about. But without a doubt, we're pretty big players over in London, and we're seeing significant business increases in both of those areas.

Okay. Was there any catastrophe losses in the quarter?

Absolutely, we had catastrophe losses, but we would have termed those sort of an attritional nature, not big enough to call out, but we certainly did have some catastrophe losses. We also had, and I'm just anticipating the question, civil commotion losses; yes, we had some of those as well. At this point again, we see those more in an attritional sort of nature and not big enough to call out specifically in our results.

Our next question is from John Fox from Fenimore Asset Management. Go ahead.

Richie, I was just going to ask you why you didn't have any protest or weather losses in the quarter, but I'll move on. What's the threshold on that materiality? Will you disclose it?

We don’t have any specific number, John, but $10 million to $20 million, we would want to see an event being larger than that before we would break it out in the numbers.

I might interrupt Richie. We would actually not want to see that larger number.

Good point.

Yeah, $10 million to $20 million would need to get to that sort of level before we call it out in the results.

So your accident year numbers include those losses, and that's just kind of being in the insurance business. So you didn’t break it out?

Exactly, it had been those things; it would've been something else.

All the surprises of insurance are negative, like someone once said. Tom, I'm remembering that Markel Ventures reports on a one quarter lag, is that correct? One-month lag, one month.

One-month lag, okay. So I was not correct, and so the economic environment of April and May is in the June quarter.

That's exactly right, and that's what I try to convey. Some of those businesses are day one of stoppages, just that's a major inflection point in their ability to adjust and adapt and recapture some business and get things rolling, I understand it's like the amazement of what some of those managers have done.

Well, that's great. Thank you. I have a bigger picture question. I noticed what you did in the equity portfolio, reading the Q last night, and I noticed in an environment of very strong reinsurance pricing that you're not writing a lot more premium, and so I guess I had the observation; it looks like they're derisking the company. Can you comment on that?

Sure. Well, to a large extent, I think you drove your question. All of those factors play into exactly what's going on. So first off, as reported, you just take the second quarter numbers on a standalone basis. We reported an 88%. Given the ability to write insurance premium, and given an 88% combined ratio, what to do as much of that as we possibly can and cash and fixed income investments of this kind is the flavor of capital that rating agencies and regulators like the most when you're backing that sort of opportunity. So if we can write insurance at 88%, we are spectacularly inclined to do so to the fullest extent possible. Secondly, in terms of the rate per unit of risk, which Richie used that phrase and I would use the exact same thing. When we look at the landscape of things we can do, again the rate per unit of risk right now is best in the insurance world. So when we take the microscope and examine everything that we own, whether it's in equity or fixed-income securities, compared against the opportunity cost and the comparison of the other things we can do, we think logically as we follow that analysis. And then your point about the results of the last years, some volatility, within the insurance book itself, there are some lines which tend to be more volatile and some that tend to be less volatile. If we're able to get an 88% on something that's less volatile rather than more volatile and more uncertain, well, you would want to do the stuff that's less volatile. So I think if the roles are reversed, John, you would go to the same sort of logical change to make the sort of decisions that we're making.

Great. And on $7 billion of tangible capital including the preferred, your writing at $0.50 on the dollar in terms of premium. What's the potential for that to increase? How much premium leverage do you think you could add?

I think we can continue to grow. The market opportunity is there, and I don't think we're restricted in terms of our capital base. I think I've said in my comments, we think it’s hard what we’re seeing in terms of the market is sustainable and our goal is to write as much of it as we possibly can. Bob Cox, who runs our insurance operations, likes to say every day that we get in business is one day closer to the end of the hard market, and we want to make sure we take advantage of every day.

The $6 million of earned at an 8% underwriting profit would be very nice.

So we're shooting for.

Yeah, the expenses there at the level, is that the run rate, or are there still legal expenses in there, or how should we think about that? The picture is still a bit muddied with the legal expenses from CATCo, but I can tell you we are very optimistic in terms of our opportunity to raise capital into the second half of the year. Even more so into '21, and there’s tremendous leverage in that business. As we are able to add AUM, the expense base really does not have to move a lot. A great majority of that should drop to the bottom line, and that’s what we're hoping for over the next 18 or so months.

Our next question is from Mark Dwelle from RBC. Go ahead.

Good morning. I guess I have three questions. First, Richie, you had talked about the COVID-19 charge that you took last quarter and that it had held up well and so forth in terms of the reserving practice. Could you— I guess the question I am going to ask is are you still writing business in areas like event cancellation and some of the other lines that you referred to that were generating charges, and if so, what you might have done as far as terms and conditions etcetera in order to stay in those markets?

We are writing very little event cancellation today. We put a moratorium on writing events when the COVID-19 situation broke. To the extent we write going forward, it would have to have a communicable disease exclusion, but the likelihood is we will write considerably less of that business going forward. It was a fairly small line for us, but it had an outsized loss in this event, and we're trying to avoid those sort of businesses—small businesses that create big losses—that's not what we want.

And second question is for Tom. It mainly relates to ventures. They obviously had a very, very strong quarter, and so I'm going to ask for kind of an unprecedented piece of information from you. Could you share what portion of the revenues in the quarter came from recent acquisitions? I am trying to triangulate kind of what the underlying run rate was on the ongoing businesses, and that's the reason I was asking?

I am looking at Jeremy as I answer the question. I think on a same-store basis, so without Lansing and VSC in there, revenues were down about 14% in the quarter year-over-year, and EBITDA was down about 7%. So that’s the rough.

And then the last question I had when you just commented to the last gentlemen about the strong capital position and the ability to grow, but then you did a preferred offering in the quarter fairly substantial, and I guess I was curious to just talk through why you chose a preferred offering and why you felt you needed capital at this particular point in time?

Hey Mark, it's Jeremy. A couple of thoughts there. So certainly to some extent, that was to improve liquidity and capital position in the short term and adequately respond to some of the uncertainties that were existing in May relative to COVID-19. We saw this playing out in the second quarter, and we thought we would be able to deploy capital into our insurance operations to take advantage of improving market conditions and opportunities that we were beginning to see in the specialty insurance marketplace, and some of that has played out in the second quarter, and obviously Richie was commenting on that a little bit earlier. With regards to the structure, and we’ve looked at hybrid capital in the past. We felt that in May that was a good time to kind of add preferred stock to our capital structure. We recognize a number of peers across our industry had done similar in their capital structure and we like the fact that it's capital for rating agency purposes and accounting purposes. We were comfortable increasing the overall financial leverage, but we were focused on not increasing our debt leverage at the time.

And I might add to Jeremy's point, as we've looked at hybrid capital, in fact, we used hybrid forms of capital several times over the course of the last 30 years. The guiding principle there is often some distinctions between GAAP financial capital and what regulators look at, what rating agencies look at, and we always want to take care of the shareholders and protect their common equity to the extent possible. So you sort of have to respond to the situation, look at what specific securities are available that meet the needs and given the opportunity to refinance that or pay that back in some sort of identifiable timeframe that keeps the common equity and plain shareholders in the best possible position.

Our next question comes from Philip Stefano from Deutsche Bank. Go ahead.

I guess this is probably not on the prior question with the unprecedented information on the acquisition and ventures. Is there a way we could think about the potential forward impact to these acquisitions and lay out what the expectations are for the underlying business versus the benefit that we have from these acquisitions coming online?

In economic senses, we always think that we're going to make double-digit returns on capital when we lay out a dollar of capital in the form of an acquisition. So that's the way we're underwriting and that would lay out there as the longer-term. In the short term, there could be all kinds of volatility around that. I would report to you that so far, again I'm just very impressed and very grateful in the way that the managers of those businesses continue to operate them in wildly fluctuating circumstances. The reports of the first six months where those companies are operating in black, producing cash flows, and just when we wake up to any given day, they're doing pretty well. I would not want to provide a specific model number for the next quarter to do expectations or forward guidance in that sense.

And looking at the underwriting, looking at the underwriting businesses, it feels like there's a growing expectation and maybe at this point even a frustration in some respect that we're getting this headline pricing increases, but it feels like loss cost expectations are increasing as well, and we're just not getting underlying or attritional loss ratio improvement that I think people had been hoping for. How can we think about loss cost trends versus pricing over a period of time and the dynamics we have today versus the dynamic of five years ago and what that could mean for attritional underwriting margin as we look over the next couple of quarters or years?

That's an interesting one. Let me— I'll try it Phil. I've said that it's a little difficult to put your finger on what social inflation is doing right now because of all the COVID issues and what's happened in the economy. I think that that has muddied the waters there. I do believe in terms of pricing that is happening right now, I believe we're starting to create a margin against any sort of reasonable expectation of social inflation. When we start hitting mid-teens in terms of price increases and that's coming on and we're now at a point where that's compounding on some price increases that we received in 2019. I have to believe just based on what we've seen in terms of social inflation in the past, that it's nothing new and that is creating some margin against that. So my hope would be if this is a sustainable market for a while, I think we should be able to create some additional margin against social inflation and hopefully see those attritional loss ratios bump down a bit. Tom likes to say hey this quarter we're—that's one quarter in a row, so we've got one quarter in a row. We're going to see if we can make it two quarters in a row next quarter.

Got it. And then the last one for me, and I apologize if I missed it earlier, any updates on Lodgepine and the fundraising that's going there?

Again, we've done a lot of I’ve kind of said in the first quarter up through about May, I think most investors were pretty frozen trying to kind of assess what had happened to their portfolios. We've seen a significant change in tone and the amount of conversations and the amount of due diligence that's going on. It's picking up. That fund is a one-one fund, largely it's a January 01 fund, and so quite honestly, people aren’t going to make their decisions until probably into the fall as to whether they want to invest. We're having some great conversations, but I think just the way the calendar works, we're not going to have assigned commitments until sometime in the fall.

Our next question is from Mark Hughes from SunTrust. Go ahead.

Just a couple of quick ones. Any comments on the medical professional liability line?

Mark, we used to be a really big part of what we did, and just that market has been challenged for a number of years, and so it's become a much smaller part of what we do. But as I said, most lines are improving, and there is certainly improvement in the health lines, the broader health lines, and we're taking advantage of that. But the base we're starting with is much smaller than it was several years ago because of that challenged environment.

And then when we think about your new business through the quarter, you were up 14% in insurance written premium. Was that more weighted to the back part of the quarter, and is that more of a better run rate on a go-forward basis?

It's been relatively consistent in sort of that mid-teens first and second quarter. Whether we've seen all the impact of COVID-19, your guess is as good as mine. It certainly hurts our smaller businesses, but that's been more than made up for by price increases and more business coming in both ENS in London. So that sort of mid-teens is—that seems to be the run rate through the first six months.

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

Thank you very much for joining us. Thank you for your support. We look forward to talking with you again next quarter. Thank you.

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