Markel Group Inc. Q4 FY2025 Earnings Call

Good morning, and welcome to the Markel Group Fourth Quarter and Year-End 2025 Conference Call. During the call today, we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They are based on current assumptions and opinions concerning a variety of known and unknown risks. Actual results may differ materially from those contained in or suggested by such forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements is included in the press release from our 2025 results as well as our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the captions Safe Harbor and Cautionary Statement and Risk Factors. We may also discuss certain non-GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and reconciliation to GAAP for these measures in the press release for our 2025 results. The press release for our 2025 results as well as our Form 10-K and Form 10-Q can be found on our website at www.mklgroup.com in the Investor Relations section. Please note, this event is being recorded. I would now like to turn the conference over to Tom Gayner, Chief Executive Officer. Please go ahead.

Thank you, Rebecca, and good morning, and welcome. Thank you for joining this call. I'm delighted to be here with my colleagues, Brian Costanzo, our CFO; Simon Wilson, CFO of Markel Insurance as well as Mike Heaton, our COO, who will be available for the Q&A session. At Markel Group, our purpose is to be a long-term home for exceptional leaders and businesses, and to relentlessly compound your capital at attractive rates of return over decades, all while staying true to our culture as we describe it in the Markel style. 2025 was a year that reinforced the power of that model. Every reportable segment made a positive contribution, and the company advanced both quantitatively and qualitatively. Let me begin with Markel Insurance, where we took a series of decisive long-term actions this year. These were not easy, but they were necessary. And I want to thank the entire team for a year marked by tough decisions and genuine progress. In 2025, we exited underperforming businesses, most notably reinsurance, made key leadership changes, including appointing Simon Wilson as the new CEO of Markel Insurance, and we made structural improvements to simplify the business and reinforce accountability. The full impact of these changes will play out over years as is the case with all long-term compounding. Last quarter, I described the results as a green shoot. This quarter, all adjusted to the plural. We are now seeing green shoots. In the fourth quarter, Markel Insurance generated a 92.9% combined ratio and contributed $399 million of adjusted operating income. For the full year, the segment delivered $1.4 billion in adjusted operating income, up from $1.2 billion in the prior year. And 2025 marked the 21st consecutive year of favorable reserve development, a testament to our conservative posture and financial integrity. Within Markel Insurance, the headline is simple. We're doing more of what works and less of what doesn't with a focus on simplification, better execution and improved returns on equity. As Simon will discuss later, we believe the foundation is now set, but it's early days. Importantly, Markel Insurance is only one part of a broader, more diverse ecosystem of high-quality cash flows, which are central to the Markel Group story. Our Financial, Industrial and Consumer and Other segments also delivered positive results in 2025, each benefiting from the autonomy and accountability we give leaders to make the best long-term decisions for their businesses. The Financial segment, which includes State National and Nephila had a tremendous year, generating $327 million in adjusted operating income, up 25% from 2024. The Industrial segment earned $343 million, slightly below last year's level. This was a strong result given the softening in certain end markets, and it reflects the skills of the amazing leaders of those businesses and the room and space we give them to serve their customers with a long-term mindset. Consumer and Other delivered $175 million of adjusted operating income, up from $145 million last year with our acquisition of EPI driving most of the increase. Our public equity portfolio returned 10.5%, generating $156 million in dividend income and ending the year with a market value of $13 billion with an unrealized gain of $8.9 billion. These equity holdings, diversified, high quality and held with a long-term mindset remain an important driver of compounding. All of our streams of adjusted operating income convert well into cash, producing durable, resilient and diverse inflows that give us the flexibility to allocate capital to its highest and best use wherever that may be across the group. To that end, cash flow from our operations grew to $2.8 billion in 2025, and we put that cash to work with discipline. To give you a sense of that, we deployed some of that cash to $1.4 billion in fixed maturity net purchases, $207 million in new property and equipment. We bought $143 million of net public equity securities and invested $170 million in bolt-on acquisitions and increases in our ownership stakes in our existing majority-owned businesses. We also redeemed $600 million in preferred shares and repurchased $430 million of our own common shares, all while weighing every dollar invested against its next best alternative. Even with all that investment and return of cash to shareholders, our cash balance increased by $411 million, and we paid down a little bit of our long-term debt. That combination, high-quality cash inflows with a 360-degree set of opportunities to deploy it continues to fuel what we often describe as a perpetual motion machine of shareholder value creation. In any given year, results can and will be volatile. But over 5-year periods and beyond, the trend has been up and to the right. That's the power of long-term compounding. It is a joy to serve you alongside such a great team. We are energized for the year to come, and we thank you for your ongoing engagement and support. With that, I'll turn it over to Brian.

Thank you, Tom. Good morning, everyone. As a reminder, last quarter, we released significant enhancements to our financial disclosures, along with the reporting changes guide available on our IR site. We made these changes to help investors better understand the company and its performance. To review the major changes we made were changing the presentation of investment gains and losses to be included outside of revenues, establishing new reportable segments of Markel Insurance, Industrial, Financial, and Consumer and Other, while collapsing our former investment segment results into these new segments and reporting of new metrics, including adjusted operating income for all segments that excludes investment gains and amortization expense and segment level KPIs such as organic growth and return on equity for insurance. With that, let's cover the results for the period, starting with our consolidated results. Markel Group's consolidated operating revenues, which exclude net investment gains, were up 8% for the quarter and 5% for the year. Operating income for the quarter was $795 million, up from $595 million in the comparable period last year and $3.2 billion for the year versus $3.7 billion in 2024. As a reminder, operating income includes net investment gains, which can be volatile from period to period. Net investment gains were $212 million in the quarter compared with $117 million in the fourth quarter last year and $1.1 billion for the year versus $1.8 billion in 2024. Adjusted operating income, which excludes net investment gains and amortization expense, totaled $626 million for the quarter, up 19% versus the same period last year. Adjusted operating income was $2.3 billion in 2025 compared to $2.1 billion in 2024 or up 10%. The increase in adjusted operating income was primarily driven by improvements in our insurance business and strong performance within our Financial segment. Operating cash flow was $2.8 billion in 2025 versus $2.6 billion in 2024 and comprehensive income to shareholders totaled $606 million in the quarter and $2.6 billion for the year. Turning now to our operating segments, starting with Markel Insurance. The return on equity for Markel Insurance for 2025 was 14% and the trailing 5-year period return on equity was 13%. We view the 5-year average return on equity as our primary KPI within insurance, measuring our commitment to generating consistent profitability within both our underwriting and investment operations and remaining efficient with our use of capital. Markel Insurance underwriting gross written premiums increased 3% for the quarter and 4% for the full year, driven by personal lines in the U.S. and growth across several product classes in our International division. At a divisional level within Markel Insurance, within our International division, gross written premium grew by 14% for the year with the division growing in every market. Our International division continued its recent track record of fantastic results, posting an 83% combined ratio for the year. Programs and Solutions gross written premium grew by 8% for the year, driven by our personal lines and delegated programs units. For our Wholesale and Specialty division, gross written premium declined 4% for the year. Excluding the impact from exiting our U.S. risk managed professional liability book earlier this year, premium growth was flat across the division. In Global Reinsurance, which we exited in 2025, gross written premium declined 10% for the year. Overall, underwriting gross written premium volume, excluding the impact of exiting our Global Reinsurance and U.S. risk managed professional lines grew by 7% for the year. One additional note on premium volume relative to our 2026 reporting. Our underwriting premium volume next year will be impacted by 2 significant items. First, the exit of our $1 billion gross written premium Global Reinsurance business; and second, the transition effective January 1, 2026, of our partnership with Hagerty to a pure fronting model. Hagerty premium will be included in our results going forward as fronted gross written premium versus underwriting gross written premium. This change was a natural next step in our long-term evolution of our partnership with Hagerty, continuing to retain greater amounts of underwriting risk. In 2025, Markel only retained 20% of the Hagerty gross written premium volume, so the impact on our net earned premium volume will be significantly less. Together, these 2 changes will decrease underwriting gross written premiums for 2026 by approximately $2 billion, but we expect these changes over the long term to benefit our combined ratio, adjusted operating income and return on equity. Turning back to insurance profitability. Adjusted operating income for Markel Insurance was $399 million for the quarter, up 31% from last year. The combined ratio for the quarter was 92.9% compared to 95.9% in the same quarter last year. This 3-point improvement was driven by lower losses from our CPI product and within our U.S. casualty lines, partially offset by higher attritional losses in our U.S. personal umbrella product and large losses incurred in the fourth quarter within our U.S. surety line. Our surety portfolio has been highly profitable for us since our acquisition of SureTec in 2017. For the year, Markel Insurance finished with $1.4 billion in adjusted operating income and a combined ratio of 94.6%, a 1 point improvement from last year. We had 6 points of favorable prior year loss development for both the quarter and year-to-date periods, and our balance sheet position for reserves remains strong. Turning next to our investment portfolio. Our net investment income was $258 million in the quarter and $970 million for the year, up 6% for the quarter and 5% year-to-date due to higher interest rates and increased holdings in fixed income securities. Our fixed income portfolio yield was 3.6% for the fourth quarter. We reinvested new money into securities at an average yield of 4% in the quarter versus 3.1% on average across our net maturities. Within our public equity portfolio, during 2025, we made $143 million of net purchases of securities. Our public equity portfolio returned 10.5% for the year, bringing the value of our public equity portfolio at the end of the year to $13 billion with a total unrealized gain of $8.9 billion. Over the trailing 5-year period, the equity portfolio's annual return was 12% compared with 15% for the S&P 500. Our net equity purchases declined year-over-year, reflecting rising and less attractive valuations and better opportunities elsewhere for incremental investments. Moving to our Industrial segment. Revenues were $1 billion for the quarter and $3.9 billion for the full year, up 4% for both the quarter and for the year. Organic revenue growth was 2% for the year. Revenue growth for the year was impacted by our acquisition of Valor and organic growth was driven by our equipment leasing business and our businesses that serve commercial and residential construction markets, partially offset by lower revenues in our transportation products businesses. Adjusted operating income was $80 million for the quarter, down 26% from $108 million in the same period last year. Adjusted operating income was $343 million for the year or down 6% versus 2024. The decline in adjusted operating income was driven by lower revenues in our transportation products businesses and tightening margins due to higher materials and labor costs within our other products businesses. For our Consumer and Other segment, revenues were $274 million in the quarter and $1.4 billion for the full year or up 4% for both the quarter and year-to-date periods. Organic revenue growth was 1% for the year. Adjusted operating income was $23 million in the quarter, up 35% versus $17 million in the same quarter 1 year ago. Adjusted operating income was $175 million for 2025 or up 20% versus 2024, driven primarily by our acquisition of EPI and higher sales volume of ornamental plants. Next, within our Financial segment, revenues were $224 million or up 41% for the quarter versus the same period 1 year ago and $737 million for 2025, up 24% versus 2024. Organic revenue growth was 17% for the year. The increase in revenues for the year was due primarily to increased performance fees and a higher management fee rate within ILS, along with higher premium volumes within our program services product. Year-to-date revenues were impacted by a $41 million gain on the sale of our remaining minority interest in Velocity earlier this year. The increases in revenue drove adjusted operating income up 58% to $107 million for the quarter versus the comparable period 1 year ago and up 25% for 2025 to $327 million. The year-to-date adjusted operating income change was also impacted by $58 million of favorable loss development related to Markel CATCo recognized in 2024. Finally, regarding capital allocation. For the year, we repurchased shares totaling $430 million, reducing our share count to 12.6 million shares from 12.8 million shares at the end of last year. We also redeemed our $600 million preferred stock issue earlier this year, making total capital returned to shareholders over $1 billion.

Thank you, Brian, and good morning, everyone. I'm pleased to be with you and share some further insight on the progress at Markel Insurance. First off, some numbers. The quarter produced a combined ratio of 92.9%, 3 percentage points better than the same quarter in 2024. The prior year reserve release of 6 points in the quarter was broad-based and reflective of the stable position of our reserves. We achieved 3% growth in GWP and 7% growth in net earned premium despite our withdrawal from the Global Reinsurance business. Improving underwriting results were an important factor in achieving a 14% return on equity for Markel Insurance in 2025. Our underwriting and reorganization actions over recent years are beginning to pay dividends. We are now far better able to focus on the key areas where we have a right to win. The combined ratio of our 3 ongoing business divisions for Q4 2025, which excludes the impact from Global Reinsurance and CPI was 91%. This figure would have been even stronger, but was impacted by heavier-than-expected losses in a large personal umbrella program and our surety business, where we were hit by 3 discrete losses in the period. Every decision that we made during 2025 was designed to simplify our business and create clarity around P&L ownership. Ultimately, these decisions will drive more consistency and better execution around the key financial metrics of combined ratio and return on equity over the long term. The 2026 business planning process completed in the quarter was a key test of a new structure and gives me confidence that the overall organization will benefit from the changes we made in 2025. Five key indicators that underpin this confidence are: number one, a revamped portfolio mix with a refreshed focus on bottom line results and a wide range of profitable growth opportunities; number two, ambitious and measured investment plans for our high-performing businesses with clear growth opportunities such as environmental, energy, healthcare, financial institutions, personal lines and workers' comp in the U.S. and our key regional businesses in the London market, European Union, Asia Pacific, Canada and the U.K.; number three, P&L owners are challenging expenses harder than I've seen in a long time. It's been interesting to watch the way behavior changes when costs are clearly attributable to a business unit. I fully expect and encourage this behavior to continue. The planned doubling of investment of our technology stack this year versus last is the fourth area. These decisions are now driven by the business rather than the corporate center. For example, we have a complete system overhaul in the high-performing personal lines business, the continued transformation of our data and core operating systems across the International division and a commitment to increasing decision-making speed and response times in our core U.S. wholesale and specialty division. AI will be a central component of all these investments. We are fully aware that speed is a critical success factor in our business, and we are focused on improving it. And finally, number five, a renewed sense of ownership across our leadership group. A founder's mentality is returning to the fray. Our business model is designed to be driven by many, not few. We have set clear expectations for every area of our business for 2026. Our job is now to execute. Further, the overall improvement in operations is built upon the continued strength of our balance sheet. The overall reserve release for 2025 was 6 points or $484 million. We're able to make these releases while increasing our margin of safety and overall strength of the balance sheet. We have a continued commitment to setting reserves that are more likely redundant than deficient. A strong margin of safety will be important in the coming years. There is no doubt that market conditions in many areas of the specialty insurance industry have softened. Profitability has been high. Competition has increased and prices are under pressure in several key lines of business. However, competition drives progress and our customers and brokers continue to value clear appetite, market-leading expertise, high-quality service and speed of decision-making. Our job is to continue building a business that meets these needs, all while staying true to the Markel style. Businesses and teams that focus on their customers remain well organized and have a strong sense of purpose for those best positioned to succeed in any market conditions. As the comedian Billy Connolly once quipped, there is no such thing as bad weather, only the wrong clothes. I'm pleased with our new wardrobe and look forward to sharing the results with you on the 2026 catwalk. With that, I pass it back to Tom.

Thank you, Simon. Rebecca, we'd love to open the floor for questions. Thank you.

The first question comes from Andrew Kligerman with TD Cowen.

I'd like to start off in the property casualty segment. Back in early January when you hosted an investor meeting, Simon, you mentioned wanting to stabilize at a 93% combined ratio. Fortunately, you're focusing more on casualty. So I want to know if you think the current pricing in casualty, along with some rising loss cost trends, can help you maintain that 93%. You did achieve a 92.9% this quarter, so do you feel you can sustain that? Additionally, regarding Program and Solutions, which came in at 101.9%, I would like to know what factors contributed to that and what strategies you might employ to lower that figure. On the other hand, International performed exceptionally well at 80.5%. I'm curious about the factors behind such a strong combined ratio and whether you expect trends to increase that ratio in the future.

That's about everything I wanted to cover. I appreciate the interest in those figures. For quite some time, I've emphasized that to achieve our return on equity goals, maintaining a combined ratio in the low 90s is crucial. This is definitely my aim and the priority for our organization, and we are committed to reaching that consistently. Regarding your observation about our focus on casualty, I would actually contest that notion. We have a well-diversified portfolio of specialty products. While we do have U.S. casualty, our London market business includes various segments like marine, energy, and professional lines globally. I can't provide exact figures on the casualty contribution to our book, but I can confidently say it's less than 50%. The strength of our diversification gives us confidence in reaching our ambitious combined ratio target over time. If you're asking whether we can meet those targets, everything we are implementing is aimed at that, and we'll see how it unfolds. The diversification within our portfolio and the various factors you mentioned will ultimately influence our results. I'm optimistic about this. Specifically regarding Programs and Solutions, I noted an increase this quarter, and both Brian and I addressed two factors that impacted that. Since a quarter is a brief period, occasional fluctuations occur. One area is our programs business where we handle delegated underwriting, specifically for a personal umbrella account. We noticed a rise in claims trends there, and our philosophy at Markel is to proactively adjust our loss reserves. The combined ratio and loss ratio for the personal umbrella program largely result from preemptively increasing our reserves to ensure we have sufficient funds for potential claims. The second factor stems from our surety business, which honestly took us by surprise because it has been a consistent profit generator for the last decade since acquiring SureTec. In our industry, occasional large losses happen, and we faced three significant losses this quarter for which we've reserved and paid claims. Despite this, I would choose to take the surety trade every day, given that three large losses this year are on the heels of ten years of strong profitability. Moving forward to 2026, after reviewing our entire book, we feel very confident about the results and how they align with our combined ratio and return on equity goals. I believe the Programs and Solutions segment is impacted by these two specific issues. The remainder of that segment, including our personal lines, Bermuda, and workers' comp businesses, performed exceptionally well overall. Regarding international performance, I have a positive outlook as they have consistently delivered strong results over the years. Back in 2017 and 2018, we conducted a thorough portfolio review and scaled back on areas where we felt we wouldn't be profitable long-term. Since then, we have focused on growing in segments where we do have a competitive edge. What we are seeing now is a result of decisions made five to six years ago, along with investments in our new business model. Last year, we saw considerable growth in strategic areas: over 30% in Asia Pacific, 20% in our European Union business, and 13% in our London market business. These areas have been priorities for our long-term strategic investments, leading to favorable market conditions and focused efforts. While I cannot promise that we will achieve low 80s combined ratios across the board for the next decade, I can say we are taking cues from the international results and incorporating those successful techniques throughout the rest of our operations. This gives me confidence in our overall direction, and I genuinely look forward to our progress in 2026.

If I may, Andrew, just to finish up, to translate Simon's English accent to the American idiom, we will do the best we can, and that's not so bad.

No, it's not. Super helpful response. Maybe shifting over to Industrial and Consumer. And by the way, thank you for the new reporting structure. It's very helpful. The Industrial organic revenue was up 2.5%. I think you just mentioned equipment leasing was good, and it was offset by transportation. Wondering if you could share a little color on how that's likely to trend going forward. And then in the Consumer, you had organic growth of about 1%. I think you mentioned ornamental plants was a positive. But how do you think that's going to trend going forward as well?

Yes, Andrew, it's Tom. We are delighted with the collection of businesses that we own. We've got first-class people running them. They're producing good returns on capital. We run those with a focus on good returns on capital over long periods of time. Each and any one of those businesses in any quarter has volatility and normal cyclicality and seasonality. So frankly, the answer to your question is we don't think about it that much. As long as those businesses are being well run and doing what they should do, well, then the outside forces are what they are. But when we totted up the numbers of them for a long period of time. As you can more clearly see in the way we're presenting the financial disclosures and data these days, we are happy. We were happy 6 months ago. We're happy right now. We would anticipate continuing to be happy with the way those businesses are performing.

Your next question comes from the line of Andrew Andersen with Jefferies.

Maybe just on the Insurance segment. How are you kind of viewing the insurance pricing environment into '26? Are you still seeing rate increases in certain areas? And maybe how does that differ between U.S. Wholesale and the International segment?

Thank you, Andrew, for your question. There's a general trend where we're seeing softening rating conditions, particularly in the U.S. property market, which is currently facing significant competition. While we've experienced notable profitability, this is reflective of broader industry conditions. Many accounts are seeing reductions in their property rates, with decreases around 10% to possibly 20% being reported. However, it's important to note that not every property risk is experiencing double-digit drops. We are observing changes in the structure of risks, especially in layered and structured risks, where the primary layer is underwriting larger lines and the excess layers face either removal or increased competition. This results in more pronounced price reductions in the second or third excess layers compared to the primary levels. Overall, the property market is soft, but we are also noticing variations based on the specific segments involved. Many players are discussing not only rate reductions but also the adequacy of rates. This is crucial because the property market had seen steep increases during past catastrophic events, and the current sentiment indicates that pricing is barely adequate. Companies must carefully consider their risk appetite and pricing strategies. On the other hand, the casualty market continues to see rate increases, particularly in auto, habitational, and construction risks, driven by strong claims trends. In this sector, navigating the complicated litigation landscape in the U.S. is critical, so we have to be selective about the segments we engage with. Internationally, we see some softness, particularly in the London market, where brokers are increasingly seeking price reductions in marine, energy, and property lines. However, the professional lines seem to be stabilizing after a period of softening, and we are focusing on areas where our expertise brings value. Outside of London, in our regional offices, we target the smaller end of the risk market, where price competition is less fierce. While softening is occurring, it remains within single-digit limits and often revolves around minimum premiums, allowing for positive rate adequacy. Consequently, our strategy is to strengthen our non-London business to enhance our portfolio with stickier, smaller risks that face less price competition. In summary, the rating environment is mixed; property remains competitive, casualty is firming, London is challenging, and the non-London international segment is performing well. This context should give you some insight into our current situation, and we feel optimistic about navigating these conditions with our underwriting team.

Very comprehensive. Perhaps we could shift to AI and the expense ratio. Where is it being deployed within insurance? What are some returns or examples you’ve seen so far, and what are the focus areas for deployment in '26 and '27?

I'll ask Brian to take the first stab at that...

Sure. With the new model we have and the current organizational structure, it is now in the hands of the business leaders. We aim to equip them with the right tools and make them aware of available resources. We've seen significant successes in areas where large documents need to be processed. For example, in transaction liability and financial institutions, AI can quickly analyze data rooms filled with extensive information that would otherwise require significant human effort. This capability not only reduces the human investment needed but also enables access to larger accounts that would have been too costly to pursue traditionally. Another area seeing substantial AI utilization is data ingestion. With delegated underwriting arrangements and incoming business, AI helps integrate data into our systems efficiently, minimizing the costly human effort involved in data management. This allows our resources to focus on analysis, identifying trends, and improving overall performance.

I'll add to what Brian said, as you highlighted some really important points. I’m completely focused on operations and really interested in this area. Efficient and high-quality operations that enhance our response speed are at the forefront of my thoughts right now. I'm enthusiastic about our AI initiatives; we have some exciting projects currently underway. Brian mentioned a few of them. The changes made in 2025 have helped streamline our organizational structure, enabling us to concentrate on specific aspects of the business. This allows us to implement AI in a much more effective manner compared to our previous broad approach. We are doing some really interesting things that I believe will soon affect our productivity and efficiency. I plan to push forward with AI and operations particularly in this quarter and the next, to sharpen our focus in this area. I anticipate that these efforts will have a significantly positive impact over the next six to twelve months. We’ve made a solid start, but the strategic work we need to undertake has only just begun.

And maybe I'll add that Markel will discuss expense ratios in more detail. If you look at the portfolio, the areas where we are growing and have been very profitable include segments in International, our European business, our Asian business in the U.S., and our personal lines business. These are all strong businesses with low combined ratios, but they operate with higher expense ratios. They have an inverted expense ratio to loss ratio profile compared to other parts of the business. In contrast, areas where we have faced significant challenges, such as our Global Reinsurance business and the risk-managed professional liability product we exited, were among the lowest expense ratio businesses in our portfolio. Therefore, we are highly focused on combined ratio and return on equity. We certainly want to capitalize on efficiencies, AI, or any other operational improvements. But our primary emphasis remains on the combined ratio.

Your next question comes from the line of Mark Hughes with Truist.

In the Financial segment, earnings very strong this quarter. You talked about better fees, I think assets under management. How much of that was product of just the light cat season this year? And how much of that should we think ought to carry forward into 2026?

Yes, I'll start, and I'll turn it to Brian. Yes, clearly, the light cat environment helps.

Yes, the light catastrophe environment at Nephila resulted in some performance fees being earned in the fourth quarter. As we’ve mentioned previously, the results come together in the fourth quarter after assessing the full year and observing how the catastrophe season unfolds. In this case, a low catastrophe season allowed us to benefit. Additionally, the State National business has shown consistent growth year-over-year, with increases in both the premium base and the fee income generated. This business has high margins, so much of that growth directly contributes to the bottom line.

On State National, have you noticed any increase in your risk retention? Or yes, I'll stop there.

Yes, it's Tom again. Yes, that's a feature of the market. State National has been a leader, they do well and leaders attract competition.

Very good. And then Tom, the AI trade, when you allude to your equity portfolio, a lot of discussion of software companies or tech companies that may be at risk from AI and obviously, opportunity, but then it's quite a volatile area. So how are you looking at that from your equity portfolio standpoint?

Well, I appreciate the question. One of my great friends and mentors and teachers and long-time Markel shareholder who passed recently, a guy named Chhadrow down in Texas, and I learned so much from him over the years. And one of the things he used to say was that in the investment business at any given point in time, you look either smarter or dumber than you really are. And 2025 was a year, I would say we looked dumber and we probably really are. If you look at our long-term record, very proud of it, very pleased with the discipline and the way we do things. But clearly, the AI headlines that you read had a lot to do with investment returns and probably a bit less with what happened at Markel. As we turn the quarter into 2026, the swirl that's out there, let's hold our fire and see how that works out. But clearly, the disciplines and the tools and the principles we've used to manage and select equity investments over the years on any given day will look better or worse than they truly are and I stand by what we do.

Very good. And if I could squeeze in one more on the personal umbrella. You put up strong reserves. What underwriting actions have you taken? Price increases, stricter terms and conditions, just curious.

We've taken two significant actions. First, we've substantially raised rates, which requires state-by-state approval. Currently, about a dozen states have approved this increase, allowing us to charge higher prices in those areas. Second, we've stopped underwriting second homes in Florida, which has contributed to many of our losses. Additionally, we've raised the attachment point from $250,000 to $500,000 in the states where we've implemented rate increases. We believe these changes will reduce a large portion of the losses we've been experiencing, primarily from auto claims in those states. We are closely monitoring the claims trends moving forward and have set aside reserves this quarter to give us some flexibility while we assess the situation. If these underwriting measures do not yield positive results, we may consider withdrawing from that segment of the business, although it's too early to determine that. There has been a strong focus on this issue from our team members recently.

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

Thank you very much for joining us. We appreciate your support and your interest, and we're delighted to be able to report the results of the rational focus and the rational actions that we are indeed committed to and starting to see the green shoots from those activities. We look forward to connecting back with you next quarter. Be well.

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