Good morning and welcome to Markel Corporation Third Quarter 2020 Conference Call. All participants will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. 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 statement is included under the captions Risk Factors and Safe Harbor and Cautionary Statement in our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We may also discuss certain non-GAAP financial measures in the call today. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in our most recent Form 10-Q, which can be found on our website. Please note, this event is being recorded. I would now like to turn the conference over to Tom Gayner, Co-Chief Executive Officer. Please go ahead.

Thank you, Emily. Good morning and welcome. We apologize for the delay in starting the call this morning. We understand that one of the numbers that was distributed was incorrect and connected you to the replay which of course has not happened yet. This is the actual call. We have sent out an email with the correct number and we see a roster has been assembled and something of a slowed fashion. We apologize for that error on our part. We hope others are able to join us in process and that the replay will work as functioned and we are grateful that you are here this morning. So, good morning and welcome. As is stated, this is Tom Gayner, I am here today with our Co-CEO, Richie Whitt and our CFO, Jeremy Noble. We are glad you have joined us and we look forward to briefing you on current conditions as well as answering your questions. I'm not telling you anything you don't know when I say that 2020 remains unlike any other year. The systemic challenges of the COVID-19 pandemic and all that follow in its wake remain immense and unrelenting. That said, I could not be more proud of the efforts of everyone in this organization to truly serve our customers, our associates, and our shareholders in the face of adversity. We've provided claims and financial assistance to our policyholder customers to cover substantial losses and economic costs. Those losses stem not just from the things you see in the headlines regarding the pandemic but also a spate of natural catastrophes such as more hurricanes than hurricane memes, wildfires, a major derecho, and ongoing and recurring events and circumstances that we see regularly in our insurance operations. We continue to provide necessary and desirable products and services throughout our Markel ventures operations. That includes building the machines that bake bread, things don’t get much more basic or necessary than that, and since man does not live by bread alone, we also produce and provide everything from medical services, housing, houseplants to brighten your day, and trailers to convey everything from industrial gases to the car you drive. We make truck floors to keep the products you need from falling out of the bottom of the trailer, technology consulting services to manage and keep track of it all, and many other items as well. And by the way, we also provide fire suppression services to keep it all from catching on fire. We're doing our best to keep our associates safe and gainfully employed throughout these trying times. We're also working to produce financial results which create the capital we need to be able to serve our customers and associates. Over many years and as displayed to the first nine months of 2020, we've built a system at Markel to be a resilient and robust company. We work to serve and dependably honor the promises we make. We've built a diversified three-engine machine consisting of our insurance, investment, and Markel Ventures operations. Those components work together to fulfill our purpose each and every day. We're delighted to be able to report our 2020 year-to-date progress in doing so this morning. Clearly, work remains to be done while our insurance operations remain mildly in the red year-to-date, we've recovered dramatically since the first quarter shock losses we recognized at the onset of the COVID-19 pandemic. We've accelerated our pace of making tough but necessary decisions to increase the durability and quality of our insurance operations, which will be measured by improved profitability and our investment operations for reporting profitable results for the first nine months. While that is always too short a time frame to draw conclusions about investing, those results continue a multi-year pattern of conservative and profitable investing. Our investments protect our balance sheet and stand behind the promises we make and they also produce appropriate returns. At our ventures operations we produced outstanding results so far in 2020. The leaders of the ventures businesses adapted and figured out ways to surmount unprecedented conditions and circumstances. I am grateful and amazed for their work and accomplishments. The performance of our three engines demonstrates the resilience and the spirit of Markel to fulfill our purpose of serving our customers, our associates, and our shareholders. We believe in a win-win-win as the fundamental architecture underlying Markel, and we're pleased to be able to share how that played out in the unprecedented conditions of 2020 today. Even more importantly, we hope this update provides you with a shared optimism of how we will continue to evolve and build even more resilience and sustainability going forward. At this point, I'll turn the call over to Jeremy to review the financial details of the year-to-date. Richard will then follow with some commentary on our insurance and insurance-linked securities operations and then I will speak briefly about our ventures and investment engines. Following that, we will take the questions. With that, Jeremy.

Thank you, Tom and good morning everyone. Our underwriting, investing and Markel Ventures results continue to be heavily influenced by the effects of the COVID-19 pandemic. But fortunately we saw positive contributions from each of our three engines during the third quarter. Our insurance operations produced an underwriting profit despite elevated levels of natural catastrophe losses, as well as increases to reserves related to the pandemic reflecting the strong underlying performance of our business. Our Markel Ventures operations delivered meaningful profits demonstrating their resilience despite economic uncertainty and our investment portfolio also saw gains in mid-volatile market conditions. Looking at our underwriting results, gross written premiums were $5.4 billion for the first nine months of 2020, compared to $4.9 billion in 2019, an increase of 10%. This increase was attributable to our insurance segment, which reported gross written premiums of $4.5 billion, an increase of 13% compared to the 2019 period. This premium growth is attributable to both our growth in our and more favorable rates within our professional liability and general liability product lines, as well as growth in our personal product lines. Gross written premiums within our reinsurance segment were consistent with the 2019 period at roughly $960 million. Year-to-date retention of gross written premiums was 83% in 2020, which is down 1 point from 84% in 2019, and our premiums for the first nine months increased 10% to 4.1 billion in 2020, primarily due to higher written premium volume in our insurance segment. Our consolidated combined ratio for the first nine months of 2020 was a 101 compared to a 95 in 2019. For the third quarter of 2020, we reported a 97 combined ratio compared to a 94 a year ago. Our 2020 combined ratio included nine points of underwriting losses attributed to COVID-19 for the nine-month period, compared to three points for the quarter. As I've discussed for the past two quarters, we recognized $325 million of pretax net losses and loss adjustment expenses during the first quarter of this year for those policies and contracts where COVID-19 was identified as the proximate direct cause of loss. During the third quarter, we increased our loss estimates on these coverages by $32 million and also recognized $15 million of losses on our trade credit product line arising from the economic uncertainty resulting from the pandemic. As a reminder, our losses for COVID-19 are primarily attributed to business written within our international insurance operations and are primarily associated with coverages for event cancellations and business interruption losses and policies where no specific pandemic exclusions exist. Due to the inherent uncertainty associated with our assumptions surrounding COVID-19 which, among other things includes assumptions around coverages, liability, reinsurance, protection, duration, and loss mitigation factors, as well as the fact that the economic impacts of a pandemic continue to evolve, our estimates continue to be subject to a wide range of variability. During the third quarter, a test case of a sample of business interruption coverages for policies written in the United Kingdom was completed with the court's judgment finding mostly in favor of policyholders. This ruling was most impactful to certain estimates in our reinsurance segment, where we increased our estimate of losses and loss adjustment expenses of certain treaties following an increase in estimated losses. Within our insurance segment, the ruling did not meaningfully impact the reserves previously established for business interruption coverage, given the assumptions we initially made in our policy terms and conditions. Our estimates at September 30, 2020 also reflect additional data gathered through increased claims reporting and changes in our expected duration of the pandemic, which was most impactful to our event cancellation coverages. In addition to the explicit provision of losses recognized during the quarter on a trade credit product line as the overall effects of the pandemic continue to evolve, further losses indirectly related to the COVID-19 pandemic are possible and may also emerge within our professional liability and worker’s compensation product lines, among others including our reinsurance product lines. To date we've not seen any other evidence of significant incurred losses increasing for these secondary exposures. Our underwriting results for the first nine months of 2020 and 2019 also reflect losses attributable to natural catastrophes. Our 2020 combined ratio included $101 million or two points of underwriting losses from Hurricane Laura, Sally, Isaias, as well as the Midwest derecho and wildfires in the Western U.S. Compared to our 2019 combined ratio which included $43 million or one point of underwriting losses from Hurricane Dorian and Typhoon Faxai. With regards to prior year loss reserve development, consistent with our reserve philosophy, prior year loss reserves developed favorably $235 million in the first nine months of 2020 compared to favorable prior year development of $337 million in 2019. Turning to our investment results, following the significant declines in the fair value of our equity portfolio during the first quarter, we have seen meaningful recoveries in the second and third quarters. Net investment losses for the first nine months of 2020 were $231 million, compared to net investment gains of $1.1 billion last year with year-over-year decline of $1.3 billion. As I have mentioned in prior calls, given our long-term focus, variability and the timing of investment gains and losses is to be expected and we may continue to see volatility in equity markets due in part to the economic uncertainty caused by the pandemic. With regards to net investment income we reported $274 million for the first nine months of 2020 compared to $339 million a year ago. The decline is largely due to lower short-term interest rates and lower holdings of fixed maturity securities in 2020. Net unrealized investment gains increased $298 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 nine months of the year. Now to cover the results of our Markel Ventures segment, revenues from Markel Ventures surpassed $2 billion through the first nine months of 2020 compared to $1.6 billion last year. This increase reflects the contribution of revenues from our recent 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. Excluding the contributions of Lansing and VSC in 2020 operating revenues in our Markel Ventures operations decreased compared to 2019 as a result of decreased demand attributed to the economic and social disruption caused by the COVID-19 pandemic. EBITDA for Markel Ventures was $284 million for the first nine months of 2020 compared to $219 million last year, reflecting the contribution of Lansing and VSC, as well as growth and improved operating results in certain of our businesses. Looking at our consolidated results for the year, our effective tax rate for the first nine months of 2020 was not meaningful to the small pre-tax loss in the period. The effective tax rate was 22% for the nine months ended September 30, 2019, and the estimated annual effective tax rate for both periods was 21%. We reported a net loss to common shareholders of $31 million for the first nine months of 2020, compared to net income to shareholders of $1.3 billion a year ago. And when combined with the contribution of the increase in net unrealized gains on our fixed maturity portfolio, comprehensive income to shareholders for the first nine months of 2020 was $260 million compared to $1.6 billion a year ago. Finally, I'll make a few comments on cash flows, capital, and our balance sheet. Net cash provided by operating activities was $1.3 billion for the first nine months of 2020 compared to $712 million in 2019. Operating cash flows for 2020 reflected higher premium collections as we've seen strong growth in our insurance segment over the past several quarters. Invested assets of our holding company was $3.8 billion at the end of September compared to $4 million at the end of 2019. A change in holding company invested assets reflects funds used to acquire Lansing, as well as a decrease in the fair value of our equity portfolio, both of which were partially offset by proceeds from our May 2020 preferred shares offering. Total shareholders’ equity stood at $11.9 billion at the end of September, compared to $11.1 billion at year end. We continue to maintain a fixed maturity portfolio comprised of high credit quality investment grade securities with an average rating of AA, our debt to total capital ratio at the end of September was 23%, down slightly from 24% at year-end. We have no unsecured senior notes maturing until July 2022. We believe we are well positioned to meet our ongoing capital liquidity needs, including supporting the growth in our insurance operations as we expect to continue to see attractive opportunities in the specialty insurance marketplace. With that I will turn it over to Richie, to talk more about our insurance businesses.

Thanks, Jeremy, and good morning everyone. As Tom has already said, the year has been and we saw the continuation of the unpredictable rollercoaster year that is 2020 in the third quarter. Despite all that, our insurance operations continued to grow nicely, and we obtained meaningful rate increases in almost all our lines. Our third quarter was also impacted by a series of small and medium-sized catastrophe losses as Jeremy mentioned, for which we recorded an aggregate $101 million of underwriting losses in the quarter, and those were related to multiple hurricanes Laura, Sally, Isaias, the derecho, and the Western wildfires. As regards COVID-19 losses in the third quarter of 2020, we increased that provision to $374 million, that was up from our original $325 million provision that we established in the first quarter. While we have revised many of our original assumptions with the availability of additional information and some of those have been positive, some of those have been negative, the largest driver for the increase in our direct estimates this quarter related to the UK High Court ruling on the FCA business interruption test case that the impact of that ruling impacted our estimates within our reinsurance segment. There were also some increases required, as we now expect the impact of COVID-19 to be felt into the first half of 2021 that specifically impacts event cancellation business. As part of the third quarter COVID-19 provision, we also recorded $15 million of estimated losses in our trade credit product line within our insurance operations, and those claims were related to the indirect economic impact from COVID-19. We're not a but-for company at Markel. Cat losses over the past four years, including 2020 COVID-19 losses have significantly impacted all of our insurance, reinsurance, and ILS businesses. As a consequence, we have missed our underwriting profitability goals over that four-year period and as a result, we've implemented many key strategic changes over the last several quarters designed to reduce the number of but-for items that could potentially impact our future results. We believe the changes we have made and will continue to make will reduce the volatility of our insurance business results going forward. Given the strength of the current market and pricing trends and the unique capabilities we have assembled, we're bullish about our opportunity to perform and put more points on the board moving forward. Make no mistake, we're realists and this is insurance and but-for events are going to happen. Our goal is to lessen their impact and deliver stronger underwriting results to account for the inevitable events that will occur. Now, I'd like to discuss our insurance operations, which include our underwriting operations, state national program services operations, and insurance-linked securities operations. So I'll kick off with the insurance segment. Gross written premiums for the quarter were up $96 million or 7% compared to the third quarter of 2019. For the nine months, premiums were up $503 million or 13%. Premium growth for both the quarter and nine months was driven by continued organic growth and rate increases in our professional liability and general liability products, along with growth in our personal line product lines. For the quarter ended September 30th, these increases were partially offset by lower gross written premiums within certain of our specialty programs due to lower economic activity related to COVID-19 and due to active portfolio management, where we have discontinued writing certain underperforming lines and programs. We're taking the opportunity in this market to remix our portfolio to our most profitable lines of business. The combined ratio for the insurance segment was 94 for the third quarter of 2020, compared to 92 last year. That two point increase in the combined ratio was driven by a five point increase in the impact of catastrophe losses and one point of losses attributed to COVID-19 exposures, partially offset by lower attritional loss ratio and a lower expense ratio. The decrease in the attritional loss ratio was due to decreases in our general liability and property product lines driven again by premium rate increases. The insurance segment combined ratio for the first nine months was 100% versus 94% for the same period a year ago. The six point increase in the combined ratio was driven primarily by nine points of loss attributed to COVID-19 exposures and a two point increase from the impact of catastrophe losses. These impacts were partially offset by an increase in favorable development on prior accident years losses primarily in our professional liability and property product lines, and a lower attritional loss ratio across several product lines due in part to premium rate increases and lower expense ratio. Higher earned premiums for both the quarter and year-to-date within our insurance segment had a favorable impact on our expense ratio and an unfavorable impact on the prior year’s loss ratio. Moving to the reinsurance segment, a few weeks ago we announced that we are creating one center of expertise for the global property catastrophe reinsurance market by closing our Markel global property cat unit and having Nephila become Markel’s single point of entry for serving the property catastrophe reinsurance market. This move allows us to more fully leverage Nephila’s market-leading competitive position while also generating operational efficiencies. We believe that the companies that will win in the future are those who most efficiently connect risk with capital, and this strategic move is going to help us do that in the property catastrophe market. Going forward Markel global REIT will increase its focus on underwriting and growing its casualty and specialty lines under the continued leadership of Jed Rhoads, President and Chief Underwriting Officer. Gross written premiums for both the quarter and year decreased slightly compared to the same periods in 2019. In the quarter, we saw higher gross premiums in our general liability lines due primarily to new business written and higher rates on that business, offset by lower premiums in our workers' compensation and property lines due to lower premium adjustments and lower renewal premiums within workers' compensation. And the unfavorable impact of renewal timing within property. As mentioned previously, 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 116 for the third quarter compared to 103 last year. That 13 point increase in the combined ratio was driven by a three point increase from the impact of catastrophe losses and a 15 point increase due to losses attributed to COVID-19, partially offset by more favorable development on prior accident year loss reserves. The increase in favorable prior year loss development was due to favorable development in our professional liability and workers' compensation product lines this year versus adverse development that was experienced last year. The reinsurance segment combined ratio for the first nine months was 106 versus 99 for the same period a year ago. A seven point increase in the combined ratio was driven by a one point increase from the impact of cat losses and a 10 point increase due to losses attributed to COVID-19. This was partially offset by a lower expense ratio and more favorable development on prior accident year loss reserves. The increase in favorable prior year loss development is due to more favorable development in our property product line partially offset by adverse development on our public entity product line in 2020. Next, I'm going to touch on program services and our ILS operations. As a reminder, amounts from our program services in ILS operations are reported within services and other revenues expenses within our operating results. So starting with State National, gross written premium volume for State National’s program service operations were down in both the quarter and year-to-date basis that was driven by the runoff of one large program and the end in force cancellation of another large program, which resulted in a one-time unfavorable premium adjustment in the first quarter of this year. While gross written premium is down as a result of these two programs, we've seen encouraging new business activity and we have found a number of new programs that are coming online as we move forward. As a reminder, almost all of the gross written premium in our program services division is ceded. Ceding fee revenues were also down for both the quarter and the year due to the lower gross written premium volume over the past few quarters. Moving to our insurance-linked securities operations, our combined ILS operations have roughly $10.6 billion in net assets under management as of September 30th. Revenues from our ILS operations decreased 29% from the prior year’s quarter and 8% for the nine-month period. Both the quarter and year-to-date periods were impacted by lower management fees at CATCo due to lower AUM from winding down the operations and reduction in management fees charged during the wind down. Nephila revenues were down for the quarter due to lower investment management fees as a result of some redemptions in 2020 and an increase in side pocket assets on which management fees are deferred until released. Obviously, with the catastrophes that occurred in the third quarter, we had to set up loss reserves for those as well as side pockets, and that impacted management fee income. For the year Nephila revenues are up with the decrease of Nephila investment management fees more than offset by higher revenues from their NGA operations. Operating expenses from our ILS operations increased for both the quarter and year-to-date compared to the prior year due to the impact of the legal settlement in the CATCo operations. Higher operating expenses associated with the growth in our Nephila NGA operations and startup costs associated with our large line operation. I'll finish with a little bit of market commentary and obviously happy to pick that up when we get to questions. The trends that we've been discussing in the previous quarters continued in the third quarter. We see continued price momentum in almost all lines, and we believe that this pricing momentum will continue as a multitude of factors, such as low interest rates, elevated catastrophe activity, social inflation, COVID-19 losses, and economic uncertainty are all likely to persist throughout 2021. We also believe our businesses will benefit as the economy recovers from the impact of COVID-19. While large and medium-sized businesses have shown resiliency to the economic disruption, small businesses which are a meaningful part of our portfolio, have definitely been adversely impacted. To sum it up, after a brutal start to the year with COVID-19 losses, we now have an opportunity to finish 2020 with an underwriting profit. We're going to need to push hard over these last nine weeks to achieve that goal. I want to thank all of our marketing employees who've worked so hard under difficult conditions to give us this opportunity. I want to thank you for your time today and now I'd like to turn it over to Tom.

Thank you, Richard. In our investing operations we earned 0.8% on our equity portfolio and 5.4% on our fixed income holdings for a total return of 3.8% after all allocated expenses and FX effects. I am pleased with positive returns in the current environment. Strategically, I believe that the most important role for investments at this point is to preserve and protect the balance sheet of Markel. Given our views about the general level of trade-offs between risk and return on offer today, we believe that our current focus on high quality and liquidity preserve options to make different investment decisions in a different environment. The opportunity cost of our stance seems very low to me. We don't think that we would get paid appropriately for taking meaningful credit, duration, or many other types of risk right now. As such, we will stay relatively liquid and ready and able to deploy cash more aggressively when we see the opportunity to earn appropriate returns and compensation for doing so. In our ventures operations, I want to be clear, the news is excellent. The managers and teams of the ventures businesses continue to respond superbly to rapidly changing and disrupted business conditions. I am grateful and amazed at their skills, professionalism, and dedication to their associates and their customers. For the first nine months, revenues of ventures grew 28% to just over $2 billion, compared to $1.56 billion a year ago. EBITDA for the nine months increased 29% to $284 million, compared to $219 million a year ago. This record-setting financial performance was broad-based. While this is the first full quarter of results from our most recent acquisition of Lansing Building Products, the entire group demonstrated resiliency and the value of diversification. We operate an array of different industrial and service businesses that are market leaders in what they do. They serve a wide variety of customers and experience economic cyclicality and variability from many factors. We would normally expect volatility from their results, not unlike what we experience from our investment portfolio when we look at short-term timeframes. That said, I think this year's results stand as a dramatic validation of the value of Markel Ventures to the overall purpose and future of the Markel Corporation. For your reference, I checked my notes from the third quarter year-to-date conference call from five years ago in 2015, and that year we reported revenues from Markel Ventures of $784 million for the first nine months and EBITDA of $76 billion. I don't remember the exact economic circumstances and conditions of 2015, but I'm pretty sure it didn't include dealing with a worldwide pandemic. Our efforts to build an enduring and resilient system at Markel continue to unfold. I'm hopeful that the evidence we've offered you this morning about our short-term and long-term progress provides you with some confidence in our win-win-win mindset as we seek to build one of the world's great companies. With that, Emily, if you'd be so kind as to open the floor, we'd love to answer some of your questions.

The first question comes from Phil Stefano from Deutsche Bank. Please go ahead.

Yeah, thanks and good morning. Just going back to the insurance business and the premium volume, I guess I was surprised that the growth had decelerated from the second quarter and it feels like part of the explanation is that we're taking the opportunity in the market to remix some lines of business. Maybe you can help us think about the extent to which this pressured top line growth, how long may this remixing take and look just given the opportunity in the market and the extent of pricing, what are your early thoughts on 2021, why would we not see double-digit growth next year?

Thanks, Bill. In the third quarter, various factors influenced our performance, but a key focus was on enhancing our most profitable segments, which we refer to as our green classes. This year, we've made significant efforts to pivot away from less profitable business lines and shut down programs that weren't yielding desired results. The cumulative effect of these actions impacted our third quarter results. July 1 marked an important date for us, and we experienced a successful July. However, August and September typically see lower volume, which continued to be the case this year. Overall, I'm quite satisfied with our third quarter growth, considering all the variables at play. It's also important to note that economic challenges have hit small businesses harder than larger ones. The substantial stimulus provided at the beginning of the year was not present in the third quarter, and some businesses used that funding to cover premiums in the earlier months. We did notice some effects in the third quarter, but I'm not overly worried about it. Preliminary figures for October look very strong, and we aim to achieve double-digit growth in 2021.

Okay, got it. And sticking with insurance and understand and appreciate that you're not a but-for company. But when I look at the underlying loss ratio, but for cat losses in COVID, there was a pretty good improvement in that attritional performance. Can you help us thinking about the potential contributions of rate versus trend, any COVID frequency benefit from a lack of economic development, and the remix in the business, presumably that's going to have a benefit as well? So, if you can just kind of bifurcate all these moving pieces to help us understand what's going on here?

I'll do the best I can. We've gotten to a point where our year-to-date rate increases are double digits, low double digits at this point. So, rate is certainly a part of it. The remixing is also a part of it. We are growing the most in the lines of business that we again call our green classes, which are our most profitable classes. We are shrinking classes and you saw that some in the third quarter that we haven't seen the profitability that we would like to see. So, all those things are at play. And yes, we saw a very nice decrease in the attritional loss ratio so far in the year. And the goal is to make sure but for events, don't stop that from being, you know, what the result looks like as we go into 2021. So, unfortunately for the last four years, there's been a lot of catastrophe events that have prevented what has been some pretty nice underlying performance, has prevented that from showing up in our combined ratio. And so, we've been taking a lot of steps to mitigate and hopefully reduce the number of those but-for events.

Okay, and last one for me and then I will re-queue. I was just hoping you could provide a little context on your appetite to grow reinsurance in the potential outlook for 411?

Well, obviously now Markel’s global reach is going to be focused on casualty and specialty lines, and we do think there is an opportunity in the casualty and specialty lines to grow. We're seeing rate increases. I talked about we're seeing increases in our general liability reinsurance programs. And some of that or some of that is obviously new business. We're writing, but some of that increase is also just underlying rate increases in the primary business. We're going to be cautious then. We haven't seen the profitability we have wanted to see in those two areas over the last couple of years. So first and foremost is making sure it's profitable and once we're convinced it's profitable, we'll look to grow it in this environment.

Our next speaker is Jeff Schmitt from William Blair. Please go ahead.

Hi, good morning. Could you speak to the M&A environment for Markel Ventures, I guess I'm wondering if the tough economic conditions are just sort of creating opportunities where some targets may be temporarily impaired, looking for a partner. I don't know if you do those types of situations or other opportunities popping up here in this environment?

Thanks, Jeff. This is Tom. I would say there's a lot of M&A being done, but not at prices that we're going to do it. Frankly, over the last three or four years, we've not made a lot of outgoing calls or solicited things, but some businesses have been attracted to the long-term nature of Markel, so we have grown almost in spite of ourselves. We observe a lot of transactions and we're scratching our heads looking at the valuation. So I think the circumstances you lay out will probably happen someday but we're kind of watching the parade go by.

Okay, and then on the Lansing acquisition, obviously revenue is up a ton from that deal, but profits in Markel Ventures were up a lot too, is that from Lansing I guess it was building products or is that struggling now so we could see profitability pick up?

I want to emphasize that profitability is evident across all areas. Everyone has felt the impacts of COVID in some way, but I must commend the managers and staff at Markel Ventures for their hard work. I'm truly grateful and impressed by their efforts. The improvement in revenue is significant for Lansing, as it operates in a distribution sector where revenues are notably higher relative to EBITDA compared to our other businesses in Markel Ventures. While the returns on capital may be similar, the overall performance of the group is strong.

Okay, and just one more on the insurance segment, I guess the reference, I think you referenced in the Q that a program was put in to run off there I think affected the retention amount. What program was that, what was the size of that program?

Well, we put a handful of programs and lines of business into runoff that were not performing. The particular one that I think that was mentioned there was being referred to was a program. It was a program for municipals and it had a heavy property exposure in it that had really not performed well. And so we chose to walk away from that. I think the impact in the quarter was $20 million, $30 million if I am not mistaken.

Not so much to gross yet. I mean, I think for a period of time so that program transitions we're sort of serving in the front end capacity. So it influences the net retention versus what we've seen so far on the gross written premium.

Yeah, Jeremy's right. We're still fronting that for the next carrier at this moment. So, it hasn't impacted our growth that much at this point, but we're not retaining it net. So over time that will come through as well.

And that's a good example where I think we will find the opportunity to kind of make up for that premium reduction by focusing on the profitable classes that we're seeing opportunities.

Our next question comes from Mark Dwelle from RBC Capital Markets. Please go ahead.

Good morning. A couple of questions, the reorganization or change in the property reinsurance business that's going to Nephila, just talk about that in a little more detail in particular I guess what I'm curious about is, is that effective for 1-1, is it effective immediately and in general terms about how many millions of premiums are impacted, kind of maybe using this year, year-to-date as a run rate or something like that?

Sure, sure, Mark. It's effective 1-1 so no 11 business will be renewed on Markel's books. And if those clients are interested, Nephila will offer renewal quotes on that business. It's about $200 million of premium. It's obviously cat driven premium that to the extent it is renewed, it will renew within the Nephila funds. Obviously, what that does for us in terms of Markel's balance sheet is it removes that volatility from Markel's balance sheet and as we go forward to the extent we want to take cat risk, it's a cleaner option, I think, to do it within the Nephila funds, to invest in the Nephila funds. It shows alignment with our investors, it's very easy to calculate how much capital I'm allocating to cat, whatever the investment is, makes that math simple. And then obviously Nephila with its management of roughly $10 billion of AUM, they have market presence, market clout that we just were never going to be able to achieve at Markel Re. So, the logic just made too much sense in terms of making that move.

Thanks for that and the logic did seem to make quite a bit of sense. On that same topic or generally in that same topic, with the legal settlement you've now achieved in CATCo, does that accelerate or change any of the timeline on finalizing the runoff there?

No, the runoff is really dictated by the settlement of the contracts with the cedes and the team there has made terrific progress settling the ceding. I think we're down to about $1.2 billion of AUM which I think is, I don't know, $1.2 billion or so down from the beginning of the year. So they've made great progress. As is always the case, you know, that last bit takes a while. So they're working really hard to do it but that settlement really is unrelated to how long it will take to return all assets to the investors.

Okay, and then the other question that I had, you provided a very helpful table in the Q related to the various COVID related charges that you took. There are a few items within that table though, where it showed effectively a negative charge. Were those just reclassifications between the insurance and reinsurance segments or was there some actual release of reserves or takedown of reserves associated?

Hey Mark, it is Jeremy. There were a few pockets actually where we reduced our reserves from initial expectation. Some of that we saw in our U.S. property relative to our initial sort of reserves. Also within our international book in the UK relative to business interruption, we commented about the contrast between putting some reserves up in our reinsurance line associated with the FCA test case. But we really haven't seen the frequency of claims reporting for some of the business interruption relative to our initial expectations there. So there were a couple of situations where we reduced reserves netting against those increases.

And Mark, I tried to kind of allude to that in my comments. I mean, obviously we took our best shot back in the first quarter coming up with reserves for COVID. Obviously, since then, we've learned a lot more and my guess is we'll continue to learn as we get through this because we've never seen this situation before. As a result of those learnings in some areas, we felt the reserves could come down. In other areas, we felt reserves needed to go up. And my guess is that that will probably continue as we go forward. We'll continue to adjust as we learn.

Of the total bucket of sort of $375ish million, is most of that still in IB&R at this point or has there been significant pay downs relative to that for certainly some of the event claims, I would think I have paid at this point?

Certainly, Mark, I'm not entirely sure if you're correct, but I believe that more than half of that is still in IB&R. We have observed an increase in claims reporting and some settlement activity, but a substantial portion of that remains in IB&R. This is a clear illustration of the amounts that were reported in the third quarter, which are primarily all in IB&R.

Our next question comes from John Fox from Fenimore Asset Management. Please go ahead.

Thank you. Good morning, everyone. Richie, I'm curious what your expectation is for State National. You mentioned some new programs coming out. When do you expect that would start growing again?

I believe it will. We had significant programs that concluded in the first quarter, and we've discussed this before. One of these programs was quite opportunistic, and once that company upgraded their ratings, they no longer required State National's program services. As a result, that program will cease. The other program's termination was somewhat unexpected, primarily in how it was cut off and the premium transferring completely to the new carrier. However, we've noticed several new programs emerging. Sadly, none of them are as substantial as the two that ended, but we expect to see premiums increase from these new programs. More importantly, we are pleased with the activity we are observing. The current market conditions are interesting and exciting, with several new players attempting to establish themselves to take advantage of these circumstances. Providing running services is a compelling way to start quickly, leading to a surge in inquiries we are receiving.

Okay, great. And you mentioned probably not a quote, but you have not met your underwriting goals over the last few years due to the catastrophe losses and that you're remixing the business. So I'm assuming you're aspiring to a higher underwriting profit, can you share like what you were thinking about in terms of when you're mixing the business and what type of combined ratio, or is it premature for that?

You know, John, given the rate increases we are seeing, given the interest rate environment that Tom and the team are having to contend with, we need to be around the 90 combined. And I'd love to see it lower. But I think it's got to be something around the 90 because we just can't put the pressure on Tom and the team to generate returns in this low to no interest rate environment.

Right. Okay, great, thank you. And then I understand there was a settlement in the lawsuit, so maybe you can't talk about some of this, but to the extent that you can, what is the run rate expenses of profitability at ILS investment management side?

I had a conversation with Mr. Noble recently, and unfortunately, I haven't seen a good run-rate quarter yet. There's been a lot of disruption lately. However, as for the current situation, we've successfully attracted new assets under management set to come on board for 2021. The two main factors that influence our ability to achieve returns in ILS are the amount of assets under management and the number of losses we experience. While we can't control the number of losses, it's worth noting that the past four years have been particularly tough. On the positive side, rates are increasing significantly, which will improve pricing for this business. This gives us a better chance to earn returns for our investors and subsequently earn fees. So far, we haven't had a solid run-rate quarter, but as we head into 2021, I believe we have some positive momentum, with the rate increases boosting the profitability of our business and more investors looking to invest in our funds.

And John, if I could tag on to Richard's answer, because there's one very, very important nuance that I think often gets lost in the communication of how this business works and its newness to Markel. So when Richard talked about the losses that occur in the old days, when we were writing that business on our balance sheet, that would be dollar for dollar our capital that would have a loss and would show up in the combined ratio, the business we write. This is where we're managing other people's capital. So the loss ratio really has a profound but indirect effect on the management and performance fees. So there's exponential returns on our capital when industry losses come in more at a lower level than would have been the last couple of years. And to Richie's point about we haven't seen a normal run rate, we've not been in an environment where you start to see kind of what your normalized expectation of management and performance fees that Nephila has indeed earned over many years and we would expect to normally describe the business.

Okay, this brings up another question. When I consider traditional asset management, which I believe everyone on the call is familiar with, I would take the average fee value, and by doing so, I estimate that Nephila's annualized revenue would be about 140 basis points. Based on that, I would calculate expenses, profit margins, and investment margins to be around 30% on average. However, it seems there is also a third aspect to consider, which is the amount of catastrophic losses.

Well, here's the thing. So like traditional asset management, if you were talking about a company that manages mutual funds where performance fees have historically not been part of it, your math is exactly that. It's assets under management times the management fee minus the expenses doing shakalaka. There's your profitability. In the 2.0 version of investment managers and there's plenty of them out there that's only part of the equation. Then there's another variable of performance fees based on how well you did for your investors. And that's the aspect that I'm just highlighting here.

Yeah, okay, so it's three dimensions, not two.

Correct. So John, obviously, given the last four years there hasn't been a lot of performance fees earned because there's been pretty above normal or above previous normal catastrophe activity. So that's impacted it. And also, there is this business is highly leverageable. At $10 billion of assets under management, it would look very different under $12 billion or $13 billion or $14 billion of assets under management because we really don't need to add a lot of additional cost to manage that. We can scale the business pretty substantially.

Right, okay, thank you. That's good clarification.

Our next question comes from Phil Stefano at Deutsche Bank. Please go ahead.

Yeah, thanks for the follow-up. Richie on the 90% combined ratio goal that you had talked about, I assume that that's a reported number that includes cats and all the but-for?

Yes, it has to include cats and but-for. Yeah, we need to get to that sort of level I think, given the interest rate environment.

And how do you think about the dynamics of pricing versus where you stand today and getting there over the next couple of years?

You know, I feel very bullish about that. I think we talked with the first set of questions about the improvement in the underlying attritional. So, I think there's more room for that to improve. And we've obviously been working very hard to reduce volatility from cat losses. So, I'm bullish as we go into 2021.

Okay, and the last one is a numbers question on ventures, can you help us frame the contribution that Lansing could have over the next couple of quarters or what we could expect maybe there's some seasonality to the business as we think about the revenue growth into mid-2021?

Yeah, I think when you look at the quarter, given current business conditions, that's a reasonable run-rate kind of revenue thoughts that you should have. Typically, seasonality building products tend to slow down a little bit in the wintertime. We're not seeing that right now. Just things housing-related are white hot, but we'll see how it goes. And we've not owned it long enough to give you any seasonal pattern other than common sense would tell you that construction tends to be more warm weather than cold weather.

I didn't see a standalone Lansing number, is that something you have at your fingertips for the benefit in the quarter?

No.

Alright, thank you.

Part of Markel Ventures, Nasdaq and the whole thing.

Our next question comes from Charles Gold from Truist. Please go ahead.

Hello, gentlemen. I have a suggestion instead of a criticism. Given the challenging conditions we face, whether from fires, storms, or COVID, it's important to maintain the company's equity during these tough times. Throughout my decades in this industry, I've observed companies with share repurchase plans that failed to buy when prices were low and instead purchased when prices were high. I understand that you carefully consider value when making these decisions, but while the situation may not be ideal right now, it appears you anticipate better times ahead. The pricing looks favorable, Ventures is performing well, and you seem confident in the insurance segments. Why not reconsider your stance on buying back shares today? You have considerable cash reserves, around $4.5 billion, which is an impressive ratio to the company's value in your history. Why wait for everything to be perfect before making a move? You don't have to act in the last quarter of the year, but signaling to the market that you're ready to utilize this option would be beneficial.

Right. Charles, this is Tom, thanks for the question. And really the long 10 in the poll from my point of view, is the regulatory and rating agency environment that we continue to need to be sensitive to. So in the environment, which we continue to be in, the current growth rate of what we're experiencing in our insurance business has regulators and rating agencies being very particular about the amount of capital we have and the form in which it is held. So we continue to work with them to try to make them as comfortable as we possibly can. And at the point where the growth rate slows down a little bit, that will actually free up sort of the regulatory capital and rating agency capital that we need to be sensitive to for the insurance business. But other than that, I agree with everything you say.

Well, then the other signal would be insiders consider doing heavy buying since they see things going so well?

From your mouth to God's ear.

And our next question comes from Bob Farnam at Boenning & Scattergood. Please go ahead.

Yeah, hi there. Good morning. Just maybe one more question for Ritchie on the reinsurance segment. Obviously, if you included the cat losses I think I looked at last night, you had a cumulative loss over the last 10 years or so, I suppose. But for cat and ventures it is pretty sizable. It seems to me that by consolidating the property catastrophe business through Nephila you are going to be reducing a lot of the volatility in that segment. So my question is more, if it's going to be looking more like casualty and specialty going forward, how has that performed and how far away from that 90% combined ratio are those pieces?

It hasn't performed as well as needed, but we're focused on growth and ensuring we have the right pricing and profitability. We're seeing good rate increases on the primary side, although not all of that has yet affected reinsurance. We'll be monitoring this closely. I'm optimistic about our potential to return to respectable profitability, but currently, reinsurance is lagging behind primary. We'll continue to work on it, and once we feel confident, we will pursue growth.

Okay, so my point is, alright so reinsurance that we take 200 million of the property cat out, maybe take a lot of the catastrophe losses out so that is kind of a way to back into what the other pieces have obviously performed I think. Obviously the COVID, you probably consider that casualty and specialty or is that cat, how are you looking at it?

That's mostly coming out of the property policy. Not entirely, but mostly.

Okay, alright, good. So is that the right way to think about it and remove a lot of the cat exposure, the cat losses, taking the premium out, and maybe give you a run rate of the reinsurance sector going forward?

Yes. What I want to convey is that if you calculate the combined ratio, it hasn't been sufficient and the market has been weakening for approximately 8 to 10 years. We have seen rising rates for at least the last two years, and I believe it's progressing in the right direction, but it's still not at the primary level. This is why we haven't experienced growth yet. There are opportunities for growth, but we're not willing to pursue them until we are completely confident in the profitability.

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

Thank you very much for joining us. Thank you for your long-term support. We look forward to connecting with you again next quarter. Thank you, be well.

This conference call has now concluded. Thank you for attending today’s presentation. You may now disconnect.