Markel (MKL) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Thomas Gayner
• Co-President of the holding company - Simon Wilson
• Co-President of the holding company - Andrew Crowley

TAKEAWAYS

• Adjusted Operating Income -- $707 million, up 14% year over year, excluding the impact of equity portfolio valuation changes and the amortization of acquired intangible assets.
• Combined Ratio -- 91.9%, including 3 percentage points of impact from the Global Re run-off division, compared to 93.6% in the prior-year period.
• Insurance Premiums -- grew 9% excluding Global Re and the Hagerty transition, reflecting profitable growth in an increasingly challenging market.
• Reserve Releases -- $445 million year-to-date, up from $397 million in the first nine months of the previous year, highlighting ongoing strength in the company's reserves.
• Industrial Adjusted Operating Income -- rose 29% for the quarter, supported by 10% organic revenue growth and improved profitability in the fire safety and precast concrete businesses.
• Financial Segment Revenue -- increased 13% for the quarter, driven by higher revenue from insurance-linked securities and lender services businesses.
• Net Investment Income -- $258 million for the quarter, up 5% year over year, benefiting from higher interest rates and increased cash flow.
• Share Repurchases -- $315 million during the third quarter, part of a $685 million year-to-date total that reduced the share count by more than 1% in three months.
• International Premiums -- grew 45% for the quarter, led by marine, structured portfolio solutions, and regional businesses in Europe and Asia Pacific.
• Adverse Development Cover -- provides $1.2 billion of protection above $4.8 billion in covered reserves for legacy exposures and run-off lines, with $2.25 billion in reserves transferred to Enstar.
• Operating Revenues -- $4.2 billion for the quarter, a 6% increase compared to the prior-year period.
• Equity Portfolio -- $13.1 billion at quarter end, containing $9 billion of cumulative pretax unrealized gains.
• Net Income to Common Shareholders -- $259 million or $18.15 per diluted share, down from $751 million or $59.25 per share due to unrealized investment losses compared to gains last year.
• U.S. Wholesale and Specialty Premiums -- decreased 3%, reflecting a deliberate reduction in construction-related casualty and discipline in the property market.
• Programs and Solutions Combined Ratio -- improved to 87.0% from 94.2% in the prior year, driven by steady releases in workers' compensation and Bermuda property.
• Holding Company Invested Assets -- $3.6 billion at the end of the third quarter, providing substantial financial flexibility.
• Industrial Revenue -- rose 13% for the quarter, primarily reflecting growth in precast concrete and fire and life safety businesses.
• Prior-Year Development -- contributed a 5.2 percentage point benefit to the loss ratio, driven largely by first-party lines and workers' compensation.
• Consumer and Other Adjusted Operating Income -- increased 80% for the quarter, despite revenue growth of 2%, as modest profit increases significantly impacted off-peak seasonal periods.
• Fixed Income Portfolio Loss -- $416 million after tax in other comprehensive loss, reflecting the negative impact of higher interest rates on bond market valuations.
• Bolt-on Acquisitions -- totaled $9 million for the quarter, consisting of small transactions within existing business operations.
• Public Equity Sales -- the company was a net seller of $75 million in public equities during the third quarter.

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RISKS

• Wilson stated, "I think the amount of premium that people -- and the rate that people are getting in that marketplace doesn't match the trend that we're seeing," regarding the U.S. construction casualty market.
• Wilson noted that "property does not have the margin that it did a few years ago," as competition in the primary market intensifies following a low-catastrophe storm season.
• Wilson warned that "there's going to be some fairly major loss activity required in order to move that market substantively" as property market conditions continue to soften.

SUMMARY

Markel Group Inc. (NYSE:MKL) reported growth across its insurance and non-insurance operations, supported by an agreement to limit legacy risk exposure through a major reinsurance transaction. Management prioritized capital allocation through significant share repurchases and strategic reinvestment into existing Industrial and Financial businesses. The company simplified its insurance operations while navigating competitive dynamics in property and casualty markets and maintaining a high level of liquidity and equity investment gains.

• The company entered into an adverse development cover agreement with Enstar to provide $1.2 billion of protection for legacy and run-off exposures.
• Wilson noted that the agreement creates greater certainty around run-off divisions, stating, "This deal was done at the time of Markel's choosing and makes strategic and economic sense for the business."
• Gayner highlighted the company's long-term performance, stating, "Over the last 5 years, the quarter ending September 30, 2026, we have compounded 5-year average operating income per share at 16% a year."
• Crowley indicated that the Industrial segment is benefiting from demand for data centers and commercial infrastructure, specifically in the precast concrete and fire safety sectors.
• The company has reduced its total share count by more than 10% over the last five years through its ongoing share repurchase program.
• Management confirmed that no additional bad debt charges were recognized at State National during the third quarter following a comprehensive internal review of credit exposures.
• Wilson reported that the company is deliberately reducing its exposure in construction-related casualty due to claims trends rising in the double digits.

INDUSTRY GLOSSARY

• Adverse Development Cover: A reinsurance contract where the reinsurer agrees to pay for losses that exceed the primary insurer's existing reserves for a specific set of risks.
• Binding Line: An insurance arrangement where an agent or broker has the authority to commit the insurer to a policy immediately.
• Combined Ratio: A measure of underwriting profitability calculated by dividing the sum of incurred losses and expenses by earned premium; a ratio below 100% indicates an underwriting profit.
• Insurance Float: Money held by an insurance company from premiums collected but not yet paid out in claims, which can be invested for the company's benefit.
• Insurance-Linked Securities: Financial instruments whose values are driven by insurance loss events, allowing investors to take on insurance risk in exchange for potential returns.
• Prior-Year Development: Changes in the estimated cost of claims that occurred in previous years compared to the original reserve estimates.
• Run-off: A phase where an insurance company or division stops writing new business but continues to fulfill its obligations under existing policies.

Full Conference Call Transcript

Operator: Good morning, and welcome to the Markel Group Third Quarter 2026 Conference Call. [Operator Instructions] 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 reports 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 today's call. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for those measures in the press release for our third quarter 2026 results or in our most recent Form 10-Q.

The press release for our third quarter 2026 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.

Thomas Gayner: Thank you, Kendra. Good morning. Thank you all for joining us. We're pleased to report a quarter of strong performance across our operating businesses as well as ongoing disciplined capital allocation. As always, our aim is to relentlessly compound your capital over time. Two things drive our ability to do so. First, over decades, we've built an array of resilient, market-leading and growing businesses across industries and geographies. These businesses produce cash, maintain conservative balance sheets and produce low-cost insurance float. They create a foundation that lets us continually learn, iterate and improve.

Second, we reinvest the cash our businesses produce across a full 360-degree set of opportunities, our existing businesses, acquisitions, publicly traded securities and the repurchase of our own shares. We always aim to put capital to its best and highest use. And we do so with cost and tax efficiency. We live by our culture known as the Markel Style, which describes our long-term ownership mindset. This approach, in turn, attracts businesses, leaders and colleagues who share our values and want to win. Given the normal short-term volatility in our operating results, from mark-to-market swings in our publicly traded investment portfolio, we measure progress in the dual time horizons of forever and right now.

For the forever or long term, we look at the growth in 5-year average operating income per share relative to our equity capital base. This 5-year average operating income along with total shareholder return underpins our management team's compensation. Over the last 5 years, the quarter ending September 30, 2026, we have compounded 5-year average operating income per share at 16% a year. For the right now, shorter-term periods like a quarter or a year, we look at adjusted operating income. Adjusted operating income excludes the market value movement in our equity portfolio and the amortization of acquired intangible assets. In the third quarter, adjusted operating income rose 14% to $707 million.

Given our ongoing buyback program, adjusted operating income per share rose 15% in the quarter. We think there are 4 key takeaways from our business performance this quarter. First, we continue to see positive momentum in our Insurance operations. Ongoing underwriting premiums grew 9%. The team continues to find ways to grow its book of business profitably in an increasingly challenging market. The combined ratio improved to 91.9% even after absorbing 3 points from the Global Re run-off. Our 3 ongoing divisions released reserves again, $445 million year-to-date, against $397 million at this point last year. Second, we also saw strength in our businesses outside of Insurance.

Industrial adjusted operating income rose 29% on 10% organic revenue growth, financial rose 30% and Consumer and Other widened their margins. These businesses continued their long track record of generating cash, earning strong returns on capital and providing Markel with durable strength and resilience. Third, higher interest rates produce increased cash flow. Net investment income rose 5% in the quarter to $258 million and 8% year-to-date to $770 million. Fourth, we continue to repurchase Markel shares. We bought back $315 million of our shares in the quarter and $685 million year-to-date. We bought more than 1% of our shares in the third quarter and have now reduced our total share count by more than 10% over the last 5 years.

We've bought back these shares at what we believe are attractive discounts to intrinsic value per share. We believe each repurchased share will increase the compounding of Markel's per share value over the long term. Before I hand things over, I'd like to take a moment to recognize and thank Steve Markel. Steve recently retired as Chairman after more than 50 years with Markel Group. Steve hired me more than 35 years ago when I was a young investor with a lot to learn. For me and many others, he has served as a mentor, he embodies the Markel Style. Steve's analytical rigor and passion have been a cornerstone for Markel and they will have a lasting impact.

Thank you, Steve. As Chair and CEO, I'm fortunate to work with Simon Wilson and Andrew Crowley, who have been named Co-Presidents of the holding company. Their expanded roles and involvement in the Markel Leadership Council, along with our Lead Independent Director, Mike O'Reilly, bring them closer to the center of how we lead and govern the company. At this point, Simon will provide a brief review of our Insurance results as well as an update on the adverse development cover that we just announced. Andrew will follow up with comments on Industrial, Financial and Consumer and Other. Brian will then cover highlights of our consolidated financial results before we open the line for your questions.

As always, we appreciate your support as long-term shareholders of Markel, and we hope you share our enthusiasm for continuing to build the intrinsic value of each share of your company. Simon?

Simon Wilson: Thank you, Tom, and good morning. We continue to make good progress simplifying and improving Markel Insurance. Excluding Global Re and the impact of the Hagerty transition, premiums grew 9% in the quarter. Our combined ratio was 91.9% despite 3 points of impact from our run-off Global Re division. Behind those numbers is disciplined underwriting. We are growing where we see attractive returns and pulling back where we don't. In U.S. Wholesale and Specialty, premiums declined 3% as we deliberately reduced construction-related casualty and remain disciplined in a softer property market. The combined ratio was 89.0%.

International premiums grew 45%, led by marine, structured portfolio solutions and our regional businesses in Europe and Asia Pacific with an 89.9% combined ratio for the quarter. And in Programs and Solutions, the combined ratio improved to 87.0% from 94.2% a year ago. We are also continuing to see strength in our reserves. Our 3 ongoing divisions have released $445 million of reserves year-to-date compared with $397 million at this point last year. At the same time, we are taking decisive action on legacy exposures. The agreement we've reached with Enstar provides $1.2 billion of adverse development protection above the covered reserves across Global Re and certain other exited lines.

This is about creating greater certainty around the run-off and allowing us to focus even more squarely on the ongoing specialty insurance business. The premium for the adverse development cover will be funded by management margin in the reserves and will have an immaterial impact on the underwriting results in the fourth quarter. This deal was done at the time of Markel's choosing and makes strategic and economic sense for the business. Finally, we are managing our business tightly while investing for the future. Each of our 3 ongoing divisions has reduced the expense ratio year-to-date even as we continue to invest in our core systems, data and AI.

Our ambition is to build the preeminent specialty insurer in the world. Strong underwriting profitability, disciplined growth, improving efficiency and decisive action on legacy exposures are all evidence of the progress we're making. There's more to do, but I believe that Markel Insurance enters 2027 from a position of real strength. And with that, I'll hand it to Andrew.

Andrew Crowley: Thank you, Simon. It's a privilege to share an update on our Industrial, Financial and Consumer and Other businesses. In total, for the third quarter, revenue and adjusted operating income for these segments increased 10% and 35%, respectively. I will take the next few minutes to provide additional insight into each segment, including some context around the strength Tom previously mentioned. For our Industrial segment, last quarter, we noted that decreasing profitability and increasing revenue was a trend we did not expect to continue. This quarter, results improved with revenue up 13% and adjusted operating income up 29%.

The quarter-to-quarter change reflects both the natural variability of large-scale construction and capital equipment manufacturing and deliberate actions by our leaders to improve profitability. Quarterly growth was driven primarily by our precast concrete and fire and life safety businesses, which in recent years have invested in facilities, people and selective acquisitions to meet rising demand. Looking forward, backlogs remain strong, reflecting demand for high-quality solutions for the build-out of data centers, and other critical commercial and industrial infrastructure. In the Financial segment, third quarter revenue and adjusted operating income increased 13% and 30%, respectively. Higher revenue from our insurance-linked securities business was the primary driver of the increase with additional strength from our lender services business.

The increase in revenue and profitability from our insurance-linked securities business is another step forward in the multiyear effort by our team to develop innovative solutions for risk transfer at a price and structure that meet investor demand. Short-term results from this effort can and will vary, but our commitment to innovating and stewarding capital will not. Lastly, in Consumer and Other, revenue and adjusted operating income increased 2% and 80% for the quarter, respectively. As a reminder, profitability in this segment is highest in the second quarter given ornamental plant sales are seasonal and peak in the spring.

As a result, modest profit increases in other businesses during the first, third and fourth quarters can have a large impact on the year-over-year percentage change. In summary, our businesses across these segments are navigating complex market dynamics, such as skilled labor shortages, geopolitical uncertainty, technological change and inflationary pressures, all while delivering revenue and profit growth. Strong leaders empowered to respond to the challenges and opportunities they face are core to our long-term approach. Stepping back, as we highlighted during the Reunion in May, we remain focused on long-term earnings growth outpacing capital growth across Markel. The quality of our businesses and leaders is critical to achieving that result as is our capital discipline.

Over the past several years, we've deployed capital into our existing businesses, investing behind proven leaders in essential industries we know well. As we look ahead, we will maintain our relentless search to identify additional opportunities, both within our family and beyond, that meet our long-term criteria. With that, I'll hand it to Brian.

Brian Costanzo: Thank you, Andrew. As a reminder, our press release and 10-Q include full consolidated segment and divisional results. I'll cover some financial highlights of our consolidated results before we open the call to answer your questions. Operating revenues, which exclude net investment gains, rose 6% in the quarter to $4.2 billion and 2% year-to-date to $11.7 billion. Operating income, which includes unrealized net investment gains and losses, was $383 million for the quarter compared with $1 billion a year ago. The difference is the equity market valuation changes, unrealized net investment losses of $281 million this quarter versus unrealized gains of $433 million in the third quarter of 2025.

Adjusted operating income, which excludes net investment gains and losses and amortization of acquired intangible assets rose 14% in the quarter to $707 million from $621 million a year ago. Year-to-date, adjusted operating income was $1.6 billion, compared with $1.7 billion for the first 9 months of 2025. Net income to common shareholders for the third quarter was $259 million or $18.15 per diluted share, compared with $751 million or $59.25 a year ago. Year-to-date, net income to common shareholders was $1.2 billion or $91.90 per diluted share, compared with $1.5 billion or $120.60 in the prior year's comparable period. Our equity portfolio stands at $13.1 billion at quarter end, including $9 billion of cumulative pretax unrealized gains.

Higher interest rates lowered the market value of our bond portfolio, resulting in an other comprehensive loss of $416 million after tax in the quarter. Those bonds move back towards par as they mature, and we are investing new insurance float and bond maturity proceeds at today's higher yields. Net investment income for the year totaled $770 million, up 8% from a year ago. Our holding company ended the quarter with $3.6 billion in invested assets. We funded $315 million in share repurchases in the quarter, bringing our year-to-date total to $685 million. Acquisitions totaled $9 million in the quarter, all bolt-ons within our existing businesses. Within public equities, we were net sellers of $75 million in the quarter.

Finally, regarding the $205 million bad debt charge recognized in the second quarter at State National, we previously shared that we engaged an outside actuarial firm to help assess that exposure and the conclusions of that work were reflected in the charge we recognized, which was conservative and in line with our philosophy of establishing loss reserves that are more likely redundant than deficient. Consistent with this, we have not recognized any additional bad debt charges in the third quarter. We also continued implementing proactive enhancements to State National's processes, completing a comprehensive internal review of the potential impact of further deterioration of loss trends on the entire portfolio. We are confident in the health of our credit exposures.

With that, we will turn it back to Kendra to open it up for your questions.

Operator: [Operator Instructions] Your first question is from the line of Andrew Kligerman with TD Cowen.

Andrew Kligerman: My first question is around the adverse development cover. Wondering if you could share more detail. The details that we -- that I didn't see in the Q and the release were how much of the investment portfolio or reserves rather will be transferred over? What will be the lost net investment income? And ultimately, Simon, I think you mentioned it would be EPS neutral in the fourth quarter. But looking out to next year, what would ultimately be the EPS dilution or accretion? So again, reserves transferred, net investment income and EPS dilution or accretion, all looking at 2027.

Brian Costanzo: Yes. Thanks, Andrew. This is Brian. So the high level of the transaction, the total reserves subject to that are $4.8 billion we transferred $2.25 billion of that to Enstar and keep the remaining portion on our books to run off as normal. In terms -- and then for that, we've got a $1.2 billion adverse development cover on top of that, and we pay $120 million risk premium. So that's kind of the general financial terms of the transaction in the press release. In terms of the net investment income, I think a good proxy for that is around a 4% yield on that pretax on that $2.25 billion that we transfer over to Enstar.

It's a little bit higher than the rate in the Q as these are the more in the tail reserves that we're moving. We pay our piece of the reserves first, Enstar then picks up after that our retention is exhausted. In terms of EPS for next year, we're not going to give any guidance on that. What I would say is, in the fourth quarter, consistent with what Simon said, we have the risk premium coming through. We have additional management margin that we would be releasing in the fourth quarter. We expect those 2 to be relatively neutral.

Andrew Kligerman: Got it. Okay. That was really helpful. So we can do the math on what you provided there. And then looking at the prior-year development, adding 5.2 percentage points benefit to the loss ratio. Could you share a little bit on the geography of that? And what I mean is, is it what proportion of short tail versus long tail? On the long tail side, could you share a little bit about the accident years that you were seeing? And if possible, I mean it's a lot, but where is it coming -- well, actually, we have that in the Q. Whether it's Wholesale or Programs or International. So yes, that's the question.

Brian Costanzo: Sure. Andrew, it's Brian again. So what I would say is in the U.S. It's a fair amount coming from first-party lines, so that's your property, inland marine, personal lines along with workers' compensation. Obviously, the property is going to be your more recent years with it being shorter tail. The workers' comp is more spread out, including in some more of the back years. On your professional and casualty, more neutral, I would say, across those lines. A few pieces going up a little bit, a few pieces going down a little bit, but relatively stable in that space.

And then the last place within the International division, releases within our marine and energy product and then some releases kind of across the portfolio across many of the other products. The one place where we did have some adverse trend is in the Global Re business, and that was specific to transaction liability due to some recent claims that have come our way in the last kind of 3 to 6 months.

Andrew Kligerman: Got it. And when you said professional and casualty were neutral, accident years were pretty much neutral as well, nothing jumping out?

Brian Costanzo: Nothing in the back years. I mean we have our normal kind of roll-on, roll-off of margin that hits the more recent years, but pretty neutral.

Operator: Your next question is from the line of Andrew Andersen with Jefferies.

Andrew Andersen: With the combined ratio running in the low 90s year-to-date, how do you think about the durability of that level of profitability as certain markets soften? And where do you see the biggest offsets from some of the good underwriting actions and portfolio mix that have been helping recent results?

Simon Wilson: Thanks, Andrew, it's Simon. We've been working really hard to get that combined ratio down in the low 90s. You'll have known that from all of the different things we've done over the course of the last 18 months or so. I mean, in terms of what happens going into next year, we're going to be working really, really hard to keep this consistency going. What I would say, I think the portfolio has improved significantly over the last 2 years, just the announcement yesterday with the Global Re, that's been a drag on results for a period of time now. And that -- essentially, that noise goes away as we go into '27.

So I see that as a positive. The other areas where we've been working very hard on portfolio, on the defensive side has been around U.S. casualty. And again, I've mentioned on several of these calls, but that construction casualty, which we've really worked on over the last 18 months, is something which I think will over time benefit the combined ratio. That said, there are headwinds, whether it be in the property market in generally across the world, particularly here in the U.S., whether that be in various of the London market lines, we are seeing softening and that's going to have an impact on the overall economics.

But the good thing, I think, about our portfolio overall is we sell around about -- I think it's about 100 different products around the planet. And a lot of those where we're really focusing on is the small- to medium-sized risk, whether that be in the U.S. space or that good growing European business that I mentioned in my opening comments. That's the type of business which is less impacted by a sort of overall softening behavior across the marketplace.

And I think that's -- when we get good at that, whether it's with technology or with the way in which we're going to market and the products that we're selling there, that's where I think we've got some degree of ballast across the portfolio overall. So I can't say for certain what the results are going to be next year. But I think we're just really strongly positioned from a portfolio perspective to continue this degree of consistency that we've generated over the last sort of 5 or so quarters now.

Andrew Andersen: And could you quantify the capital that you expect the ADC transaction to release? And how should we think about the timing of that release versus allowing the reserves to run off naturally?

Brian Costanzo: Yes. Andrew, it's Brian. I would say a rough estimate is a little under $0.5 billion. One thing to remind there is we don't think of that as capital coming out. The capital that we have in our insurance operations to support kind of what we need to support our business is really held in public equities. So really, that's an opportunity for us down the road. To take that capital, redeploy it into growth opportunities within our existing 3 divisions.

Andrew Andersen: Okay. With that, I guess I'm just wondering, I mean, Markel, you guys have substantial financial flexibility and you've been funding buybacks from internally generated earnings. So how important was an accelerated capital release for the rationale for the transaction versus simply reducing uncertainty around these legacy and run-off reserves?

Thomas Gayner: Yes. It was to -- this is Tom, to reduce the uncertainty and have a forward-looking way to run the business. The good news is we have good, robust capital positions and we have 360 degrees of opportunity, whether it's to invest in our existing business, make acquisitions, to buy publicly traded securities or repurchase our own shares. We have the capital to execute what we want to do. This is about reducing uncertainty.

Andrew Andersen: Okay. And sorry, one more. You mentioned kind of investing into public equity. So I would have thought at this valuation level, that capital release would be going really through buyback. I imagine it's all kind of the same pot, but should we think of some buyback from this capital release as well?

Thomas Gayner: I think the good news is, I mean, money is fungible. So I don't really check whether it's from my left pocket or my right bucket. The good news is pockets have money in them, and we have continued to repurchase shares and have expectations of continuing to do so. When I do the math of what -- of those 360 degrees we should be pointed at, Markel stock seems to be at the top of the list.

Operator: Your next question is from the line of Tracy Benguigui with Wolfe Research.

Tracy Benguigui: Congrats on your ADC. To be sure, I'm assuming that this ADC excludes State National. And if that's the case, do you feel like reserves are adequate there and you didn't have to market an ADC for those liabilities? Or did you try to extend the ADC to State National and you just didn't get an appetite from your counterparty or other counterparties?

Brian Costanzo: Yes. Tracy, it's Brian. The ADC does not include State National. We did not look to include State National in the transaction. This was about the legacy reserves and run-off portfolios that we have within our Insurance business. As I mentioned, we did a lot of work at State National this period in kind of stressing out the reserves, increasing the loss trends above what we're holding considerably and feel good about where that landed from being able to manage the collateral and capital position.

Tracy Benguigui: Okay. And also year-to-date, your favorable prior-year development implies a steep ramp to meet your 2026 $800 million reserve release guide. Do you have a new guide? Or do you get there mechanically since essentially $800 million is implied 5% of your 2025 reserves. So should we simply reduce the reserve base by the $4.8 billion ADC subject to reserves?

Brian Costanzo: I think that's the number -- the range that we put in the K each year of what it could possibly be. I think that's the top end of the range. We consistently release reserves every quarter. Consistent with our reserving philosophy, I would expect the fourth quarter, nothing different to change there.

Tracy Benguigui: Okay. And just real quick on NII. I appreciate the commentary. But is it fair to assume that a counterparty would not want equities, so you'd be giving up fixed income securities and you may need to rebalance your assets after the deal closes?

Brian Costanzo: We did give up -- we will be giving up fixed income securities. That's correct. We match kind of the securities that we're giving up kind of with the payout patterns. So I don't expect any rebalancing to kind of manage our liquidity.

Operator: Your next question is from the line of Maxwell Fritscher with Truist Securities.

Maxwell Fritscher: I'm calling in for Mark Hughes. Just had a couple of questions on 2 specific lines of business. More broadly for general liability, so far, their earnings on average premiums are decelerating and some of your peers are highlighting a moderating price environment. I just wanted to get your observations there. How is competition? Are you finding that pricing is still running ahead of loss costs?

Simon Wilson: Yes. So in that, I specifically talk about the U.S. casualty or the U.S. general liability marketplace. When we talk about that, it's a very, very broad marketplace. And we have primary casualty and we have excess casualty. What we are finding are there are pockets which are very difficult. And several competitors have mentioned this in their calls. I would put those out there as the trucking business, the habitational business and the construction business. We do not and have not done a lot of trucking or habitational business in the past. We did have a reasonable chunk of construction liability on our books. And so I feel more able to comment on that space.

I think in that particular area, we continue to see claims trending higher. People have used the number sort of in the double-digit numbers there, I wouldn't disagree with that. And I think the amount of premium that people -- and the rate that people are getting in that marketplace doesn't match the trend that we're seeing. And that's why we actively reduced our exposure in that particular area. That said, and I think also in the excess casualty marketplace as well. I think that is a difficult part of the market to really get the rate above the trend at the moment. So we're treading cautiously in that area as well.

There are areas of the primary market where I think we have specific expertise. We feel good about our ability to underwrite in that space and our ability to get the premium, which is sufficient for the risk that we're taking on board. So we're kind of doubling down in those areas and making sure that our expertise and our capability of selling in those areas. And for example, the environmental space, health care is another area that we've done quite well and recently. So we're picking our spots and we're also probably trending towards smaller and medium-sized business in that particular area.

But the general commentary that it's a difficult market, I think, is correct, but it's also a very big market. And I think there's places where you can play successfully, and that's what we're doing at the moment and where we have confidence that we can make a good return over a long period of time.

Maxwell Fritscher: Great. And then I guess, switching gears to workers' comp. One competitor highlighted increased claims frequency there, had to pick up loss picks. Any thoughts on pricing there? Is competition still rational? And are you observing any changes in the environment on workers' comp?

Simon Wilson: Again, workers' comp is a big market over here, different states have different behaviors. I think in general, we've seen a fairly flattish rate. It's not a market that's had huge swings in terms of pricing. I mentioned property earlier, which you have seen a very big -- kind of like it steeply went up back in '22, '23 and then has come back down again over the course of the last 12 to 18 months. Workers' comp has been at a much slower trend. And certainly, in our particular part of the market, and we really do focus on the small end of workers' comp, and it's generally monoline workers' comp as well.

We haven't seen a significant drop-off in rate in that particular area. So we remain happy with the book of business that we have, which is a little different than some others that play in the medium to large space in the marketplace. But we haven't seen any dramatic drop off in that particular segment.

Operator: [Operator Instructions] Your next question is from the line of Andrew Kligerman with TD Cowen.

Andrew Kligerman: I was particularly interested in the Industrial segment and the quick turnaround. And I think Andrew mentioned in the opening remarks that there could be some volatility. And then as you kind of fleshed it out a little bit, it sounds like you've got some good exposure to data centers and industrial infrastructure. And then you mentioned a lot of backlog. So what changed from quarter-to-quarter? It was kind of a steep turnaround. And then going forward, it sounds very exciting. And what we saw in the third quarter could be kind of a trend over the next few quarters or so. So maybe a little color on those 2 points.

Andrew Crowley: Andrew, this is Andrew. Appreciate the question and interest in our Industrial businesses. You're right. The change from the first half of the year to the third quarter was marked by a significant profit increase year-over-year in the most recent results. When I step back similar to what Simon said a minute ago, we operate across a variety of markets within that segment, whether it be bakery equipment, precast concrete, fire and life safety, a whole host of others, equipment leasing. And so there's a trend within each, and I highlighted around fire and life safety and precast concrete, which are integral in the build-out of both data centers and commercial and industrial infrastructure.

As to the results, we've got a tremendous amount of talent at the leadership level. We feel great about that. They've taken actions to drive profit. We do have slightly higher revenue growth, which enables a little more operating leverage. So I think you combine those 2 things, and that's what you see in the third quarter. We're excited about the businesses long term. Quarter-to-quarter, there will be some variability, but we're glad to see that the results better reflect the feeling we have around the positioning of our businesses.

Andrew Kligerman: Okay. That's helpful. And then back to Simon. With regard to pricing, on the property side of the equation. Maybe you could share with us what your mix is in the Insurance segment, meaning how much is short tail? How much is long tail? And with regard to the pricing, what are you seeing on the property side of the equation?

Brian Costanzo: Andrew, in terms of mix, it's certainly in the U.S. slanted towards longer tail. So the property business is, call it, 30% of our Wholesale and Specialty division. The rest of that division is made up of kind of casualty, professional and then our binding line, which also includes some property in there. Do you want to talk about the rate environment, Simon?

Simon Wilson: Yes. I suppose on the property bit, so if you take that 30%, which is the actual kind of what we call property and then you get probably take an extra 10% of the 100% from binding in there, there or thereabouts, just kind of 40% of the book overall. I would suggest that property this year is probably off 25% to 30% in our book of business. It is competitive. It was interesting to see the storm season go through. We're not done with the storm season yet. We remember Sandy from 2011. So there -- it's not over until it's over, but it's trending in a way where it's been very low catastrophe this year.

So I would expect we go into a reinsurance renewal season with some very competitive terms being offered there, and that will lead to more competition as we go into next year. It's been very, very significant in structured and layered large property placements. And the competition now, I think, is trending towards smaller and medium-sized property business as well. So for sure, property does not have the margin that it did a few years ago. I don't think we're quite at the point where it's underwater yet. I still think there's profit to be made in that particular area, but we're getting pretty close.

So one would hope and expect as we go through the course of 2027 for that market to kind of flatten out a little bit and then discipline to come back through. But I do think there's going to be some fairly major loss activity required in order to move that market substantively. But I do think it's beginning to flatten out because of the acceleration in the softening that we saw in the first half of the year.

So it's a little bit less, but the storm season this year with the very few landfalls that we've seen in terms of hurricane activity, I can only imagine that we're going to have softer reinsurance, which will lead to softer conditions in the primary market.

Andrew Kligerman: Great color, Simon. And if I could just sneak one last one in, just on Programs and Solutions more specific in your businesses. What were the big pieces of Programs and Solutions? And the underlying combined ratio was about 99%. Did that concern you at all? And then what was in that huge 12 points of favorable release?

Simon Wilson: I'll start this off, and I'm going to hand it over to Brian. So Programs and Solutions is made up of 5 business units. It's Bermuda, it's a programs division that does the delegated underwriting; it's workers' comp and small commercial; Markel personal lines and surety. So there's 5 businesses there that in total aggregate up to about just shy of $3 billion of premium per year. You asked about the 99% combined ratio, actually, the one driver of that, that we're looking at is in that delegated programs business. We've got 2 programs in there, which have caused us a bit of concern. I've mentioned the personal umbrella on previous calls.

That's been something that we've been working hard at. We have taken very significant and deliberate action in that particular space. And I believe why the 99% isn't a major concern for me at the moment, I'd like it to be lower, of course, is because of the action that's been taken and we expect that to improve over the course of 2027. So it's one of those deliberate underwriting discipline actions that we took. I think you mentioned -- the second part of the question, I'll give it to Brian.

Brian Costanzo: Yes. On the prior year release, there's kind of 2 themes there. One, workers' comp is in that unit, all of our workers' comp, which has some steady releases. The other piece is our Bermuda property also had some significant releases in the quarter.

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

Thomas Gayner: I want to thank you all for joining us today. We've been delighted to report on our progress of serving our customers and relentlessly compounding the intrinsic value of Markel Group over the long term. Thank you for your ongoing support and interest, and we look forward to keeping you updated as we continue to build and grow your company. Thank you very much.

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

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