Markel's Q3 2025 Earnings Call: Contradictions Emerge on International Liability, Expense Ratio, and Growth Strategies

Date of Call: October 30, 2025

Financials Results

• Revenue: Consolidated revenues were up 7% for the quarter and 4% year-to-date (revenues exclude net investment gains under new presentation).
• Operating Margin: Operating income $1.0B for the quarter versus $1.4B in the comparable period last year; adjusted operating income $621M, up $121M or 24% YOY (adjusted excludes net investment gains and amortization).

Business Commentary:

* Markel Insurance Performance: - Adjust operating income for Markel Insurance rose to $428 million in Q3 2025, a $276 million increase from the same quarter last year. - This increase was driven by a 11% growth in underwriting gross written premiums and improved underwriting results, particularly in personal lines, general liability lines, and international lines.

• Expense Ratio and Technological Investments:
• The expense ratio for Markel Insurance was 36% in Q3 2025, relatively high compared to specialty peers.

• The company is focusing on reducing this ratio, but investments in technology to enhance business operations may initially increase expenses in the short term.

• International Business Growth:

• International operations saw a 25% increase in underwriting premiums and a 12% increase in premiums from Programs and Solutions in Q3 2025.

• Growth was attributed to strategic investments in new people, products, and systems, as well as expanded territories in Asia and Europe.

• Capital Allocation and Share Repurchases:

• Markel Group repurchased shares totaling $344 million, reducing the share count from 12.8 million to 12.6 million.

• The focus on share repurchases was driven by strong cash flow generation and a strategic commitment to returning capital to shareholders while maintaining financial strength.

• Segment Performance and Challenges:

• The Industrial segment faced pressure from softening demand in the auto industry, with adjusted operating income down 9% year-over-year.
• Despite this, the segment benefited from increased activity in wind energy, construction, and building products, offsetting some of the automotive industry's challenges.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted that every reportable segment contributed positively YTD; adjusted operating income rose 24% YOY to $621M; insurance combined ratio improved to ~93% from 97% prior year; repurchases of $344M YTD and continued buybacks emphasize shareholder-return focus.

Q&A:

• Question from Andrew Kligerman (TD Cowen): Expense ratio at 36% is high versus peers; how does that interact with technology spend and where could the expense ratio go over the next few years?
  Response: Management: elevated expense ratio reflects mix shifts and recent product exits; priority is improving combined ratio and ROE, reducing non-additive expenses over time while continuing targeted investments (e.g., personal lines), so expense ratio should decline gradually.

• Question from Andrew Kligerman (TD Cowen): GWP was up 11%—can you color where successes are coming in Programs and U.S. Wholesale & Specialty?
  Response: Management: Wholesale & Specialty was down 6% due to exiting risk-managed lines and is roughly flat ex-exit with growth driven by rate rather than exposure; Programs & Solutions and International are primary growth drivers, and casualty growth will be selective while loss-ratio remediation continues.

• Question from Andrew Andersen (Jefferies): Can you expand on the adverse development in international professional liability—what accident years and magnitude?
  Response: Management: a few large claims (~$5–10M) from prior accident years caused modest adverse development; it's not large relative to past issues and the team remains confident in the book's overall profitability.

• Question from Andrew Andersen (Jefferies): Thoughts on capital deployment priorities—buybacks versus M&A; buybacks have been lighter recently?
  Response: Management: share repurchases are the principal capital return tool and remain ongoing and price-sensitive (repurchased $344M YTD); earlier comments on M&A were misconstrued—talent/teams may be added but buybacks remain top priority.

• Question from Mark Hughes (Truist): Is the combined ratio opportunity better internationally versus the U.S.?
  Response: Management: international has a lower loss environment driven by scaled small/micro retail business (lower loss ratio but higher expense ratio); U.S. has opportunities but requires focused execution and tech investment to capture similar lower-loss segments.

• Question from Mark Hughes (Truist): If storm season remains quiet, what does that mean for property in 2026?
  Response: Management: lower aggregate catastrophe activity this year may pressure rates; Markel is not overly dependent on property, will be selective on pricing, and expects some reinsurance pricing benefits while remaining disciplined.

• Question from Mark Hughes (Truist): Any observations on mix shift between E&S and retail and implications for you?
  Response: Management: property pressures may push some flows between E&S and retail, but casualty remains strong in E&S; Markel will selectively compete in E&S where rate/terms fit and benefit from wholesale market sophistication.

• Question from Drew Estes (Banyan Capital Markets Management): Why are fronting operations so large in Markel Insurance versus State National—are these flows to Nephila?
  Response: Management: yes—fronting for Nephila sits in the Programs & Solutions division within Insurance; State National fronting (traditional program services) sits in the Financial Services segment.

• Question from Drew Estes (Banyan Capital Markets Management): Are new fronting entrants gaining share by relaxing collateral/capital requirements or mainly on pricing?
  Response: Management: competition is fundamentally about net pricing (which can include collateral terms); State National maintains strict discipline, standards and return-on-capital focus despite competitive moves.

• Question from Andrew Kligerman (TD Cowen): Fronting up 51% ($1.8B) in last 9 months and Financial segment revenues up 18% YTD—what's driving that and outlook into 2026?
  Response: Management: Nephila fronting growth driven by property/cat business placed in a favorable early-year rate environment; Program Services added new agreements and organic growth; trends are sustainable but can be lumpy and dependent on property market dynamics.

• Question from Andrew Kligerman (TD Cowen): Industrial segment softness—soft auto demand and higher materials costs—will this persist next year?
  Response: Management: current softness reflects normal cyclical oscillation (tariff noise, economic factors) and is expected to normalize over time rather than indicating a structural decline.

Contradiction Point 1

International Professional Liability Adverse Development

It directly impacts expectations regarding risk management strategy and financial performance, which could influence investor decisions and market confidence.

Could you clarify the adverse development in international professional liability? What accident years were impacted? - Andrew Andersen (Jefferies)

2025Q3: We experienced adverse development in international professional liability from prior years, not current. The development is modest and driven by event claims, not a systemic issue. - Brian Costanzo(CFO)

What did actuaries find in the risk-managed D&O book that caused adverse development? - Andrew Kligerman (TD Cowen)

2025Q2: Actuaries conducted recent reviews and found issues in the prior-year combined ratio for this line. It is expected that an update to liability estimates for several large claims will be included in the reserve for the combined ratio. - Brian Costanzo(CFO)

Contradiction Point 2

Expense Ratio and Growth Strategy

It involves differing perspectives on the expense ratio and growth strategy in the insurance division, which are critical for understanding the company's financial health and future direction.

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So in this case, the user wants the two parts of the question to be combined into a single, more concise question. Therefore, the correct approach is to merge the two parts into one question, using "and how" to link them. So the final question would be: "Why is the insurance division's expense ratio higher than that of specialty peers, and how does this compare to technology spending and future efficiency improvements?"That's concise, removes the redundant words, and follows American English conventions. The original "Can you discuss" is changed to "Why is," which is more direct. "Relatively high compared - Andrew Kligerman(TD Cowen)

2025Q3: Simon Wilson: The focus is on reducing operational costs, but strategic investments in technologies, like personal lines, may temporarily increase the expense ratio. - Simon Wilson(CEO of Markel Insurance)

What target do you have for the expense ratio in 3–5 years, and are there initiatives to reduce it? - Andrew Kligerman(TD Securities)

2024Q4: Joshua Poduska: Our expense ratio remains at 27.2%, slightly above our guidance midpoint for the year due to continued investments in technology, supporting growth in our U.S. and international insurance operations. - Joshua Poduska(CFO)

Contradiction Point 3

U.S. Wholesale and Specialty Line Growth

It highlights differing perspectives on the growth trajectory of U.S. wholesale and specialty lines, which impacts business strategy and financial expectations.

Can you explain the performance of gross written premiums in U.S. wholesale and specialty lines and Programs and Solutions? - Andrew Kligerman(TD Cowen)

2025Q3: Wholesale and Specialty saw a decline due to U.S. risk-managed professional liability line exit, but exiting that, growth is flat. - Brian Costanzo(CFO)

What factors are driving optimism for U.S. wholesale and specialty lines, and are there any positive market trends? - Mark Hughes(Truist Securities)

2025Q1: We see a structural move towards the excess and surplus line space due to customer demand for specialty offerings. - Simon Wilson(New Head of Insurance)

Contradiction Point 4

Fronting Operations Growth Strategy

It involves differing explanations of the drivers behind the significant increase in fronting operations, which could affect investor perceptions of growth strategies.

What caused the significant increase in fronting operations in the Insurance and Financial segments? - Andrew Kligerman (TD Cowen)

2025Q3: Insurance segment's growth is driven by property cat business at Nephila, benefiting from a favorable rate environment. Financial segment's growth comes from new programs and services. Both segments have seen sustainable trends and expect continued growth. - Brian Costanzo(CFO)

Can the fronting business sustain its current growth rate? What are your observations on underwriting in this segment? - Richard repetitive (Citi)

2025Q2: The expansion in fronting operations is primarily driven by an increase in programs and services, particularly in the small and middle market space. This is supported by new program opportunities and our proprietary technology. - Thomas Gayner(CEO)

Contradiction Point 5

Expense Ratio and Strategic Investments

It involves the explanation for the high expense ratio and the strategic investments in technology, which affect company operations and financial performance.

Could you explain the insurance division's expense ratio compared to specialty peers and how it relates to technology spending and future efficiency? - Andrew Kligerman(TD Cowen)

2025Q3: Simon Wilson: The focus is on reducing operational costs, but strategic investments in technologies, like personal lines, may temporarily increase the expense ratio. - Simon Wilson(CEO of Markel Insurance)

What is the expense ratio target, and why is it at 35.8%? - Andrew Kligerman(TD Securities)

2025Q1: We're not where we want to be. The expense ratio is due to consulting expenses, severance costs, and earned premium being down 2%. Under this new leadership structure, we'll reassess expenses and expect natural cost reductions over time. - Brian Costanzo(CFO)