Markel Group (NYSE:MKL) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Summary
Markel Group reported Q1 2026 operating revenues of $3.6 billion, flat compared to Q1 2025, with adjusted operating income up 4% to $498 million due to improved underwriting performance.
The company emphasized strategic exits from the global reinsurance and Hagerty programs, which impacted gross written premiums but are expected to benefit profitability and return on equity long-term.
Markel Group continues to focus on share repurchases as a primary capital allocation strategy, having reduced its share count by 10% over the past five years, with plans to accelerate this pace.
Management highlighted the importance of operational excellence, particularly through AI and technology advancements, to improve efficiency and underwriting accuracy.
Future outlook remains positive with expectations of continued growth and healthy returns across all business segments, despite current cyclical pressures in certain end markets.
Full Transcript
OPERATOR
Good morning and welcome to the Markel Group first quarter 2026 conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question you may press star, then one on your touchtone phone. To withdraw your question, please press star then one again during the call today we may make forward looking statements within the meaning of the Private Securities Litigation Reform act of 1995. They are based on current assumptions and opinions concerning a variety of known and unknown risks. Actual results may differ materially from those contained in or suggested by such forward looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward looking statements is included in the press release for our first quarter 2026 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 statements and risk factors. We may also discuss certain non GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in the press release for our first quarter 2026 results or in our most recent Form 10-Q. The press release for our first quarter 2026 results as well as our Form 10-K and Form 10-Q can be found on our website at www.markelgroup.com in the Investor Relations section. Please note this event is being recorded. I would now like to turn the conference over to Tom Gaynor, Chief Executive Officer. Please go ahead.
Tom Gaynor (Chief Executive Officer)
Thank you so much. Good morning, Billy, and good morning to all. Alright, this is indeed Tom Gaynor and I’m joined this morning by my teammates, Brian Costanzo, our Chief Financial Officer, and Simon Wilson, the CEO of our insurance operations and Executive Vice President of the Markel Group Group. Andrew Crowley, the President of Markel Group Ventures and Executive Vice President of the Markel Group Group, is also with us and available for questions. Thank you all for joining us today. Our headline is that we continue to do more of what’s working and less of what’s not. I’m deeply grateful to my colleagues who continue to adapt and improve our operations throughout Markel Group Group. We all look forward to sharing our progress with you this morning. We’re also delighted to take your thoughtful questions and for your ongoing interest in Markel Group. First, I’ll make a few opening comments, then Brian will run through the financial results. Following Brian’s comments will turn the bulk of the call over to Simon who will address our ongoing actions in our insurance operations and our progress to date. Insurance is our largest business and the one where the most change continues to be underway. As such, it’s appropriate to focus and allocate the most time there. Following Simon’s comments, we will open the floor for questions. Continuing to do more of what works and constantly learning and iterating it’s not a new idea at Markel Group. It’s been a hallmark of the company for nearly 100 years. As we state in our cultural statement that we call the Markel Group style. We look for a better way to do things. That means being creative, adapting to changes in technology, up to and including those being brought about by the development of AI and every other form of change and progress underway. Internally, we control what we can control. We’ve taken extensive steps to focus on serving our customers, improve efficiency, develop new products and services, expand our geographical reach by opening and developing new markets and continuously improving and refining our operations in every nook and cranny throughout the company. I’m beyond grateful to my teammates for their unrelenting actions to continuously learn and improve our financial results show that our actions are working. Brian will give you details and explain some of the nuances from one off events and business mix changes from last year. But net net we’re confident that we are making progress and that it is showing up in our results externally. Outside our four walls we continue to see cyclical pressures and softness in some end markets. For example, property related insurance coverages and certain industrial end markets like transportation equipment and residential construction continue to show normal signs of cyclicality. Longer term, those markets provide ample opportunity for good returns on our capital and continued growth. But they do not do so in straight upward line curves are involved both up and down and that is normal. In aggregate, our businesses continue to produce healthy amounts of adjusted operating income, cash and long term growth. Your company contains diverse, resilient, high quality businesses designed to produce all weather returns and cash flows. That is the design of the Markel Group Group. With these cash flows we enjoy a 360 degree set of reinvestment opportunities to put that cash to work. We continue to deploy that cash with patience and discipline. Each incremental dollar goes to the highest and best use available. Sometimes that means funding incremental growth in one of our existing businesses. Sometimes that means adding to our investment portfolio publicly traded securities. Sometimes that means acquiring new businesses and sometimes that means repurchasing our own shares. Sometimes that also means building up our liquidity and optionality for future opportunities Something we’ve been emphasizing of late. We maintain a strong balance sheet. We believe balance sheet strength will provide timely and unique advantages to grow and long term stability to our operations. As we observe the broader investment landscape and participate in conversations, we are observing more data points about global conflict, supply chain disruptions, low consumer sentiment and softening job markets. Despite those factors, the animal spirits in the financial market seems largely unfazed. As such, the number of external opportunities that appear attractive to us remain limited. Fortunately, as we’ve demonstrated over the last several years, we can and are continuing to repurchase our own shares. In 2023, we repurchased 445 million of our own stock. In 2024, we made 573 million of repurchases. In 2025, we did $430 million in share repurchases, as well as redeeming $600 million of preferred stock. We’ve done that largely with cash from operations and not by levering the balance sheet. So far in 2026, we’ve repurchased 134 million of our own shares and we remain highly attentive to opportunities to continue to do so. At this point, we’ve reduced our share count by roughly 10% from the peak of nearly $14 million. It’s taken slightly more than five years for that 10% reduction to occur. At current prices, I would expect it to take us less than 5 years to purchase the next 10% of the share count. The math suggests that repurchasing our own shares makes sense as our number one on the list of capital allocation choices right now. We remain disciplined and methodical as we do so. That should help us to persist through thick and thin. And we think that that consistent behavior will serve our owners well. We also continue to have a balance sheet which keeps us in good shape to pursue opportunities when it makes sense to do so. We enjoy a strong degree of optionality. We maintain the flexibility and ability to play offense in a wide variety of environments, not just the one we see today. While we are reporting our quarterly results to Youth Day, we manage this business with a longer time frame. Looking out over the next five years, I think it’s reasonable to expect that our insurance operations will grow and earn healthy returns on equity. I expect the same from our industrial, consumer and financial operations. I expect our public equity portfolio to compound at healthy rates and for our fixed income operations to provide appropriate interest income while protecting and preserving our capital. All of our businesses will face natural ups and downs, but I am confident in the direction of travel. Those increasing amounts of earnings and cash flows should end up being divided by fewer share. We think that you as our fellow owners will be well rewarded with those results. In our equity operations, we continue to invest with discipline and patience, keeping with a long standing four part investment discipline. We invest in profitable businesses, good returns on capital and not too much debt run by people with equal measures of talent and integrity, with reinvestment opportunities and capital discipline at fair prices. There are no changes to that process in fixed income markets. Interest rates increased during the quarter. The good news is that we remain matched in currency and duration to our insurance liabilities and largely hold our fixed income securities to maturity. The other good news is that amidst rising concerns about credit quality, our portfolio remains as high quality and pristine as we know how to make it. There were no credit losses in our fixed income portfolio in the quarter and I do not expect any going forward. Our public equity portfolio declined 5.2% in the first quarter compared to a 4.4% decline in the S&P 500amid broader market volatility. Our approach is designed to withstand equity market volatility. We believe our public equities portfolio will continue to produce strong returns for our shareholders over the long term. In many ways, we’ve gone through a healthy amount of change in recent years at Markel. At our core, though we remain unchanged in the enduring things that matter, we remain dedicated to relentlessly compounding your capital. Our specialization and diversification, which we talked about in our very first annual report as a public company in 1986, remains just as relevant today as it was then and as time has shown, it works. I believe that will continue to be the case. Our values build value. With that, I’ll turn it over to Brian.
Brian Costanzo (Chief Financial Officer)
Thank you, Tom, and good morning everyone. Before reviewing our first quarter results, I want to briefly remind listeners of the reporting and disclosure enhancements we implemented beginning in the third quarter of 2025. These changes were designed to improve transparency and better align our reporting with how we manage the business. We now present operating revenues and adjusted operating income as key performance metrics, both of which exclude unrealized investment gains and losses as well as amortization expenses. We also now report our results across four operating segments, Markel Insurance, Industrial, Financial and Consumer and Other, while providing a divisional view of our insurance businesses, organic growth for our industrial, financial and consumer businesses, and annually providing capital metrics for all segments. With that, let’s turn to the results. Starting off with Markel Group consolidated results for the first quarter of 2026. Operating revenues, which exclude net investment gains, were 3.6 billion or flat when compared to Q1 20. Operating income, which includes unrealized gains and losses, was a loss of 273 million compared to income of 283 million in Q1 2025. Net investment losses were 728 million compared to net investment losses of 149 million in the first quarter of 2025. Adjusted operating income, which excludes net investment gains and amortization expenses totaled 498 million, a 4% increase versus the first quarter of 2025 driven primarily by improved underwriting performance in Markel Insurance offset by the non recurrence of a gain from our investment in velocity in the financial statement in the first quarter of 2025 and to a lesser extent lower margins in the industrial segment. Operating cash flow for the quarter was 16 million versus 376 million in Q1 2025. Operating cash flows for the quarter were net of payments totaling 108 million made to reinsure our exposures on our Hagerty business as part of the transition of that business to full fronting and also reflect lower premium collections resulting from the runoff of our global reinsurance business along with higher payments for income taxes. Comprehensive loss to shareholders was $340 million versus comprehensive income of 348 million in Q1 2025, driven largely by unrealized movements in our investment portfolio moving to Markel Insurance. Adjusted operating income for Markel Insurance in the first quarter 2026 was 369 million compared to 282 million in the first quarter 2025. Markel Insurance underwriting gross written premiums were 2.2 billion, a decrease of 21% for the for the quarter versus the first quarter 2025. This was driven by the expected impact from our exit of global REIT and the transition of our Hagerty program to a fronting model which together totaled 797 million in underwriting premiums in the first quarter of last year compared to just 23 million this year. As I mentioned on last quarter’s call, the exit of our $1 billion gross written premium global reinsurance business and the transition effective 1-1-2026 of our partnership with Hagerty to a pure fronting model will decrease underwriting gross written premiums for the full year 2026 by approximately $2 billion. A significant portion of the global reinsurance premiums were written in the first quarter of last year. We expect these changes over the long term to benefit our combined ratio adjusted operating income and our returns on equity adjusted underwriting. Gross written premiums which excludes the impact of the exit of Global RE and the Hagerty transition grew by 10% in the first quarter versus Q1 2025. This increase was driven by our International Division division within our Professional Liability and Marine and Energy products and our Programs & Solutions division driven by growth in personal lines and programs partially offset by a decrease in premium volume in our wholesale and specialty division due to declines in property driven by a softening rate environment and in general liability due to our continued underwriting actions and remixing of the casualty portfolio. Earned premium decreased 2% to just under 2 billion in the first quarter of 2026. The combined ratio for Markel Insurance was 93% compared to 96% in Q1 2025. The improvement in the combined ratio was driven by improvements in our current accident year loss ratio. First, we had lower catastrophe losses this year with 35 million or 2 points of losses from the Middle east conflict this year versus 66 million or 3 points of losses from the California wildfires in the first quarter of 2025. Second, we had a 4 point improvement in our attritional loss ratio driven by no losses on our CPI product line this year, a lower loss ratio within our International Division division and our US Property and general liability lines and the exit last year of our risk managed D and O book within our wholesale and specialty division. The Global REIT division reported a combined ratio in the first quarter of 114%. As we continue to build margins and solidify reserves. The results from the runoff of our Global Reinsurance division unfavorably impacted the insurance Segment’s combined ratio by 2 points. Prior year releases were 5 points in the current quarter versus 7 points in the first quarter of last year, down slightly due to lower takedowns this quarter within our international professional liability lines. At a divisional level within Markel Insurance starting with international gross written premium of 861 million was was up 28% versus Q1 2025. We grew across the international division driven by strong growth in professional liability. Cyber combined ratio of 90% compares to 89% in the first quarter of 2025 with the first quarter this year including 6 points of losses from the Middle east conflict and the first quarter of last year including six points of losses from the California Wildfires within our wholesale and specialty division. Gross written premium of 673 million declined 9% versus Q1 2025 driven by a softer property and marine premium rate environment and decreases in binding contractors and casualty combined ratio improved to 93% in Q1 26 versus 100% in Q1 2025 with the largest impact coming from lower loss ratios due to our underwriting actions and the exit of the risk managed DNO book last year. Within our Programs & Solutions division Gross written premium was 656 million in Q1 2026 versus 806 million in Q1 2025. The 19% reduction was driven by the previously announced shift of our Hagerty program to a full fronting arrangement which reduced gross written premium by 220 million. Excluding this impact, the Programs & Solutions division gross written premium was up 12% driven by personalized property programs and growth in our Bermuda platform. Our programs and solution combined ratio improved to 91% compared to 97% in Q1 2025 due to improved loss ratios, primarily due to three points of impact from the California wildfires in the first quarter of last year and more favorable development on prior year loss reserves. Moving now to the consolidated investment portfolio, net Investment income for Q1 2025 totaled 256 million, up 8% from Q1 of last year. This reflects higher interest income on fixed maturity securities and higher dividend income on equity securities due to higher yields and higher average holdings in 2026 compared to 2025. These increases were partially offset by lower interest income on cash and cash equivalents driven by lower average cash and cash equivalent holdings and lower short term interest rates in 2026 compared to 2025. Fixed income portfolio yield during the quarter was 3.7% and reinvestment yields averaged 4.1%. Within the public equity portfolio, losses totaled 728 million versus 149 million last year. We made net purchases of 28 million during the quarter. The portfolio ended the quarter with a market value of 12.3 billion and and pre tax unrealized gains of 8.2 billion. Moving to the industrial segment, industrial segment revenues for the quarter …
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