AGM 2020

May 11, 2020

Good afternoon, and welcome. Steve, could you kick off the meeting, please? Yes. Hello, everyone, and thank you for joining us today. I'm Steve Markel, incoming Chairman of the Board of Markel Corporation. I welcome you to the live webcast of Markel's 2020 Annual Shareholders Meeting. We miss being able to see all of you in person, but are very glad to at least be with you remotely. Your health and safety as well as that of your families and our communities are our top priority. The agenda today is that I will make some brief comments and virtual introductions, then I'll conduct the business session of the meeting. Jeremy Noble will then provide you with a financial review. And finally, Richie Witt and Tom Gayner will respond to questions, which were submitted to us by shareholders prior to the meeting. I now call this annual meeting of shareholders to order. Let me introduce you to the rest of our Board of Directors, all of whom are attending this meeting via webcast just like you. Our Board is made up of an extremely talented group of individuals who draw upon a vast array of knowledge and ability obtained from years of experience, which is used to provide the company with valuable advice, guidance and oversight. Members of your Board are Alan Kirschner, Tony Markel, Tom Gayner, Richie Witt, Bruce Cannell, Stuart Kaysen, Diane Leopold, Lem Lewis, Daryl Martin, Harold Morrison, our newest Director who started just this past January. Welcome, Harold. Michael Reilly, Mike Schuhl and Deborah Wilson. Our directors spend a lot time reviewing a huge amount of information and participating in committee and board meetings. It is a very important job, and we appreciate the work that our directors do. As you may be aware, 3 of our directors are not standing for reelection: Mike Schuhl, Deborah Wilson and Alan Kirschmann. Mike has been a member of the Board since 2015. Mike's keen intellect and insight has been of great value. Thank you, Mike, for the many years of committed service and contributions to Markel. It's been a pleasure serving alongside you these past few years. Deborah Wilson has been a member of our Board since 2009, and she's been the Chair of our Compensation Committee since 2017. Many thanks to you, Deborah, for your dedicated service and invaluable guidance as well as your leadership. You will be dearly missed. Next, it is a great honor to say thank you to Alan Kirschner. Alan has been with Markel for over 60 years. He's been a member of the board since 1978 and was Chairman of the Board since we first became a public company in 1986. Alan's been a great leader for Markel. He has, 1st and foremost, been a great coach. He's helped others both succeed in their roles and to prepare them for their future opportunities. Alan's been a visionary. He's a man with a million ideas. And Alan understands how to build a great team, and he has done so. We're very pleased that Alan will assume the role of Honorary Chairman Emeritus at the end of this meeting. Alan will carry on as an active member of the Markel community and a champion of the Markel style. Alan always has and always will represent the spirit of Markel. Thank you, Alan, for all you've done for us. To quickly note, as a result of Mike, Deborah and Alan not standing for reelection, the size of the Board is being reduced from 14 directors to 11. I'd next like to recognize Markel's Executive Officer. Tom Gayner and Richie Witt are Markel's Co Chief Executive Officers Jeremy Noble, Senior Vice President and Chief Financial Officer Bob Cox is the President and Chief Operating Officer of our insurance operations. Brad Cusquaden is the President and Chief Administrative Officer of our insurance operations. Mike Heaton serves as the President of Markel Ventures Richard Grennan is Senior Vice President, Chief Legal Officer and Secretary of Markel Corporation and last but not least, Linda Schreiner is Senior Vice President, Strategic Management. Thank all of you for your service to Markel. I'd like to say a few words to our Markel associates. All of you have done an amazing job over the past year, in particular these past few months. It's not always easy as we balance the needs of our families and friends as well as the company during this difficult period of time. It's incredible how effectively you have been able to adopt this new environment and continue to serve our customers, shareholders, fellow associates and our community. Thank you all for your efforts. We're truly proud to work alongside each of you. And last but not least, I'd like to say thank our shareholders. We very much appreciate your continued support, your patience and your long term perspective. Proceeding now to the business portion of our meeting. Please note that this meeting is being recorded. Notice of the annual meeting was distributed to all of our shareholders as of March 3, 2020. I've been informed that Aquam is present for the purposes of conducting the business of today's meeting. I will now review the matters to be voted on. Under the company's bylaws, the only matters properly before today's meeting of shareholders are those set forth in the annual meeting and proxy statement. The first item on the agenda is the election of directors. The director nominees are Kaye Bruce Cannell, Thomas S. Gaynor, Stuart M. Kaysen, Diane Leopold, Lemuel E. Lewis, Anthony F. Markel, Stephen A. Markel, Gerald D. Martin, Harold L. Morrison, Jr, Michael O'Reilly and Richard R. Witt, III. Your Board has recommended a vote for each of these nominees. Agenda item number 2, gives shareholders the opportunity to approve on an advisory basis executive compensation item number 3 seeks approval of the company's 2020 employee stock purchase plan and finally, agenda item number 4 concerns the ratification of the selection of KPMG LLP by the Audit Committee as the company's independent registered public accounting firm for the year ending December 31, 2020. Your Board has recommended to vote 4 agenda items 2, 3 and 4. This concludes the review of the matters to be voted on. Voting is now closed. Additionally, I can report that Aquarum is President and that based upon preliminary results, sufficient votes have been cast to elect the director nominees to approve on an advisory basis Markel's executive compensation to approve Markel's 2020 employee stock purchase plan and to ratify the selection of KPMG by the Audit Committee of the company's independent registered public accounting firm. The final voting results will be tabulated by the Inspector of Elections and will be reported shortly on a Form 8 ks. All items of business have now been completed, and the annual meeting of shareholders is now adjourned. But with that, I would like to ask Jeremy Noble to present the financial review, which will be followed by Tom and Ritchie's answering of your questions. Jeremy? Thank you, Steve, and good afternoon, everyone. Thank you for taking the time to join us today and for your continued interest and support. My comments today are going to be a little more abbreviated than in past years. While it's important to highlight our recent financial performance, I believe it will be most valuable to hear from Tom and Richie about how we are navigating through the current uncertainty arising from the global pandemic we collectively face. At Markel, we are focused on ensuring that your company is resilient and and that we are benefiting from the investments we have made over time to build a strong, diverse organization. I also want to take a moment to recognize and express gratitude to medical professionals, first responders, frontline workers and public servants who are courageously and tirelessly taking care of our communities. I'm further grateful for our wonderful employees across the globe. I'm inspired by how they are taking care of their families, our customers, distribution partners and each other and collectively serving the interests of our shareholders during these unprecedented times. Before I spend a few minutes looking at our recent financial performance, I would like to point you to our Safe Harbor statement. During my presentation and in the following Q and A, we may make forward looking statements. Actual results may differ materially from those projected. Please refer to the Risk Factors and Safe Harbor statements sections in our 10 ks and most recently filed 10 Q. Non GAAP reconciliations to GAAP can also be found in our most recently filed 10 ks and 10 Q. Let's look first at our operating revenues and I've broken them out by their component parts due in large part to the significant variability introduced by revenues to revenues by the change in the fair value of equity securities. 2019 was a a record year with total operating revenues of $9,500,000,000 up from $6,800,000,000 last year, driven by $1,600,000,000 of net investment gains and 7% growth in both our underwriting and Markel Ventures revenues. We saw continued growth in both our underwriting and Markel Ventures revenues in the Q1 of 2020 of 11% and 12% respectively. Also in the Q1 of 2020, as a result of COVID-nineteen creating volatility in the capital markets, we recorded $1,700,000,000 of net investment losses, essentially reversing our investment gains of 2019. Fortunately, since that time, we have seen some of the equity price declines reverse. As we've shared in the past, given our long term focus on variability and timing of investment gains and losses is to be expected. Other revenues primarily relate to our State National Program Services and Nephila Insurance Linked Securities or ILS operations, which while small to our overall revenues as a group are strategically important and make us a better and more skilled company that can do more for existing and potential customers. Within our underwriting operations, we saw meaningful growth in 2019 as gross written premiums increased 11% to $6,400,000,000 In 2019, Markel continued to increase in size and scale, allowing us to do more for our customers, providing more coverages and creating seamless solutions across multiple classes of insurance risk. In 2019, we also saw improved underwriting profitability, reporting a 94 combined ratio, which reflected lower losses from catastrophes. We carried momentum into the Q1 of 2020, reporting $1,900,000,000 of gross written premiums, 13% higher than a year ago. This increase was due almost entirely to our insurance segment, which reported gross written premiums of $1,400,000,000 an increase of 19% compared to the 2019 period. We also saw improving levels of price increases contributing to higher premium volume, which is encouraging. As we reported in late April, we recognize our best estimate of pretax net losses and loss adjustment expenses of $325,000,000 for COVID-nineteen. These COVID-nineteen losses increased our consolidated combined ratio by 24 points. So if you do the math, the consolidated combined ratio prior to the effects of COVID-nineteen was a 94 compared with the 95 combined ratio we reported a year ago. These reserves were established after detailed policy level reviews as well as a review of our in force inwards and outwards reinsurance contracts. In those instances where we identified COVID-nineteen as the approximate cause of loss, we established loss reserves in the Q1 of 2020. Our losses from COVID-nineteen are primarily attributed to the business written within our international insurance operations and are primarily associated with coverages for event cancellation, business interruption losses and policies where no specific pandemic exclusions exist. Due to the inherent uncertainty associated with our assumptions surrounding COVID-nineteen, which among other things include assumptions related to coverages, liability, reinsurance protection, duration and loss mitigation factors, as well as the fact that the economic impacts of the pandemic continue to evolve, our estimates may be subject to a wide range of variability. Excluding the effects of COVID-nineteen, our current accident year loss ratio is higher year over year due to slightly higher attritional loss ratios in both our insurance and reinsurance segments. We have yet to reflect meaningful benefit from rate increases we've been achieving. With regards to prior year loss reserve development, consistent with our reserving philosophy, prior year loss reserve developed favorably by $104,000,000 in the current quarter compared to favorable prior year development of $70,000,000 in the 1st 3 months of 2019. We continue to be focused on reducing our expense ratio and have seen improvements coming from our efforts around direct and controllable expenses. Looking at our Markel Ventures operations, we ended 2019 with 17 businesses contributed $2,100,000,000 in operating revenues, up 7% from 2018. The growth reflected higher revenues across our products businesses. Earnings before interest, income taxes, depreciation and amortization or EBITDA was $264,000,000 in 20 19, up 55 percent from $170,000,000 in 20 18. Our strong EBITDA in 2019 reflected improved operating results within our consumer and building products businesses. We believe EBITDA provides a meaningful indicator of economic performance that is useful in evaluating our Markel Ventures businesses. As among other things, it is not affected by amortization resulting from purchase accounting. In the Q1 of 2020, operating revenues for Markel Ventures climbed to $511,000,000 an increase of 12%, driven primarily by the acquisition of VSC Fire and Security, which closed during the Q4 of 2019 and to a lesser extent an overall increase in our consumer and building products businesses. We also saw EBITDA grow to $67,000,000 increase of 23% from a year ago, reflecting improved operating results within one of our consumer and building products businesses and greater EBITDA within our transportation related products businesses as well as the acquisition of VSC Fire and Security. COVID-nineteen did not meaningfully impact Markel Ventures results in the Q1 of 2020. We are also pleased to share we have now added an 18th business to Markel Ventures having recently closed on the Lansing Building Products acquisition. Here's where we see the impact of COVID-nineteen on the asset side of our balance sheet. Our investment portfolio stood at $20,500,000,000 at the end of the Q1 of 2020, down from $22,300,000,000 at year end. The decline in invested assets is primarily the result of a decrease in the fair value of equity securities resulting from unfavorable market value movements arising from the COVID-nineteen pandemic. Recognizing the importance of liquidity in times of uncertainty, we have been increasing our allocation to cash by taking several actions, including retaining cash proceeds from the maturity of short term investments and fixed maturities, pausing our purchases of equity securities and certain instances selling equity holdings, spending repurchases of our shares and focusing on expense reductions across the company. We continue to maintain a fixed maturity portfolio comprised of high credit quality investment grade securities with an average rating of AA. We have no unsecured senior notes maturing in the next 24 months. Our debt to total capital ratio is in line with our target range, and we believe we are well positioned to meet our ongoing capital and liquidity needs. At Markel, as we all work every day, we do so in a way that creates wins for our customers, our employees and our shareholders. We do so with a forever mindset and an appreciation for the cumulative result that develops over time. This slide demonstrates what that cumulative result looks like over time. Over the 5 year period ended December 31, 2019, we grew book value per share at a compound annual growth rate of 8% to approximately $803 per share. Over the 20 year period, the compound annual growth rate was 13%. As we have shared in recent past, as we continue to expand our operations beyond underwriting and investing, we recognize that while the trend in book value is an important indicator of our financial performance, it does not capture all of the economic value in our business as a growing portion of our operations are not recorded at fair value or otherwise captured in book value. As a result, we also measure our financial success through the growth in market price of a share of our stock or total shareholder return. Over time, we have seen the divergence of the market price of our stock from book value. This is a trend we believe is likely to continue, in fact, increase over time. Clearly, both our book value and total shareholder return declined meaningfully in the Q1 given the significant levels of volatility in the capital markets caused by COVID-nineteen. We stated in this year's annual letter to shareholders, Markel stands as a resilient company able to adapt and grow in the face of ever changing landscapes. When we penned that statement, we could not have known what was on the horizon. That said, the actions we have taken over the years to build a diverse and resilient organization will help us navigate through the current uncertainty arising from this pandemic. We continue to specialize and diversify to pursue the dual goals of providing the best products and services to our customers and being adaptable to change that is beyond our control. In closing, I would just like to quickly express my gratitude to Alan Kirschner for his contributions to Markel over his 60 years. Alan is an inspiration, but we would not have the wonderful company and culture that we view today were it not for his leadership. Thank you, Alan. And with that, I'll hand it over to Tom. Thank you, Jeremy. Good afternoon. I'd like to add my welcome to the Markel Corporation Annual Meeting. While the purpose of today's meeting is to conduct the procedures of the meeting, I want to start by thanking the people on the front lines. I want to thank the people who are manning hospitals, grocery stores, utilities and countless other essential elements of our lives. I want to thank those who may not be in the headlines, but who are keeping the supply chains working. I want to thank the people who may not have the luxury of working virtually. I want to thank those who are out there in flesh and blood and who are keeping critical systems functioning. In many cases, it's the people of Markel who provide the essential products and services that I speak of and I want to take this opportunity to thank them for doing so. Thank you. My comments this afternoon will be brief. Steve conducted the business of the meeting and Jeremy provides you with some data on our finances. Richie and I will use the bulk of our time this afternoon to address questions that you have sent in. Since our initial public offering in 1986, we've enjoyed the Annual Meeting as a time of gathering. Sometimes that meant enjoying a year of positive financial results and meaningful growth. Sometimes that meant just acknowledging that we made it through a tough year that we were taking actions to make sure we could be more resilient and improve and learn how to be better. As Jeremy's comments pointed out, at the beginning of the year, we started with excellent operational momentum across our diversified insurance, investment and ventures operations. All of our dashboards were various shades of green. In our insurance and insurance linked securities business, we started with growing volumes and better pricing. We entered the year with a conservative balance sheet marked by high quality fixed income holdings, no near term debt maturities and a publicly traded equity portfolio with a cost basis of $3,300,000,000 and a market valuation of 7,600,000,000 Our Ventures operations had just ended a record year and enjoyed strong prospects for the year ahead. In mid March, conditions changed suddenly and dramatically. COVID-nineteen driven shutdowns of the economy started to take place. Since that time, COVID-nineteen has come to dominate just about every aspect of life and Markel is no exception. In insurance, during the Q1 of 2020, we posted an underwriting loss with a combined ratio of 118 with 24 points attributable to our provision for COVID-nineteen related losses. Fortunately, insurance prices are rising and terms and conditions are tightening. That should bode well for the future profitability of our insurance operations. In investments during the Q1, our total portfolio declined 7%. Our equity portfolio declined 22.4%, the biggest decline since 2000 and 8 and 2,009. And our fixed income portfolio rose 1.9% during the quarter as overall interest rates continued to decline. In our investment operations, we continue to follow our long standing discipline of selecting equities by looking for good businesses with good returns on capital and limited debt, run by management teams with equal measures of talent and integrity, with capital discipline and reinvestment opportunities at fair prices. That discipline does not change. In the current environment and the circumstances we expect to persist, we believe that some previously good businesses may be challenged to earn reasonable returns on capital. With this thought in mind, we continue to comb over each and every security we own. We continue to reexamine each holding in light of what has happened and more importantly, changes that we expect to persist for some duration. As we do so, we've adjusted our views on the profitability and outlook for some firms and acted accordingly. We expect that the sum of those actions should serve to both improve our balance sheet and future returns. That same discipline applies to our fixed income operations. Our focus has been and continues to be on the highest rated sectors of the fixed income market. Our portfolio is roughly 89% in various government backed securities and 96% rated double layer better. In our ventures operations, the year started well. As Jeremy reported, our diversified set of businesses produced revenues of $511,000,000 compared to $455,000,000 and EBITDA of $67,000,000 compared to $55,000,000 a year ago. The COVID-nineteen economic shutdown taking place obviously causes current conditions to be different than what was the case in the Q1. We are responding accordingly and working diligently throughout all of our insurance, investment and ventures businesses in light of the new realities. We continue to operate Markel to meet our customers' needs for necessary and desirable products and services. The companies within Markel do things as basic as providing insurance for people and businesses of all types. We make the equipment to bake bread and process food. We make components for trailers used by trucking companies to transport the goods needed for daily life. We provide housing and shelter. We protect against fire. We provide healthcare and many other essential goods and services. We are proud of the work that the people of our insurance, investment and ventures companies do to provide for our customers and our associates. Thank you for your long term support of Markel and your partnership with us. We've built this company over generations. We pledge our utmost efforts to adapt to new circumstances and new conditions. And at this time, Richie and I will start to answer the questions that you've sent in for the meeting. Jeremy, would you be so kind as to begin asking some of the questions we've received? Okay, great. Thanks, Tom. Richie, let's start with the topic that's on everyone's mind, COVID-nineteen, which featured in our Q1 results. It seems like Markel took higher provisions for COVID-nineteen losses than other insurers. Can you please discuss why Should we expect higher provisions going forward? Thanks, Jeremy. First, please let me add my thanks as well to the first responders and essential workers out there. Thanks for all that you guys are doing to keep the rest of us safe. Also, just very quickly, I want to thank our employees. They've done a great job of keeping Markel operational during this tough time and taking care of our customers. So thank you guys as well. In the first quarter, we included management's best estimate of our ultimate direct COVID-nineteen losses. That was about $325,000,000 As we observed other insurers reporting results, it was pretty clear that a variety of approaches were being taken with some companies planning to more fully reflect their direct exposures in the Q2. So as I said, we took our best shot at putting that number into our Q1 results. Obviously, there's a lot of unknowns at this point, but we established those reserves in line with our desire as always to be more likely redundant than deficient. But again, a lot of unknowns as we sit here today. Those reserves related primarily to potential UK business interruption, that was about $92,000,000 and event cancellation insurance, which was about $181,000,000 dollars Given our relative market share in those two areas, we really don't believe our reserves are high relative to other insurers with similar exposure in those markets. Regarding expecting or should we expect higher provisions going forward, We took our best shot at recording our direct exposures. However, we would also expect to see potentially meaningful losses indirectly related to COVID-nineteen as a result of the disruption in the global economy and the financial markets. Examples could include directors and officers insurance, where a firm may go into bankruptcy as a result of the economic disruption and the directors and officers are sued. Another example could potentially be Arrow's and emissions insurance for investment advisors who could potentially be sued as a result of the decline in the financial markets. So we'll be keeping an eye on those potential indirect exposures as we go throughout the rest of the year. Here's another one, Richie, pertaining to a key aspect of coverage. If physical damage was required to trigger losses, even internationally, why did we put up the provisions? Sure. Well, in the U. S, we've established loss reserves in the limited instances where we have granted coverage for business interruption as a result of communicable disease. Sometimes we have granted coverage with sub limits and sometimes depending on the industry specifics such as hospitality, the insurers have purchased business interruption coverage in the event of a communicable disease. That is what we put into our numbers in the Q1 in the U. S. It's also worth pointing out in the U. S, we take a belt and suspenders approach to our policy construction as it relates to business interruption. So first, our policies would require in most in almost all cases, physical damage and that you could consider the belt. We have also added since about 2007 after the SARS outbreak virus exclusions to the great majority of our policies. And so that would be the suspenders in our belt and suspenders approach. Things are a bit different in the UK, where we're a specialist insurer for various types of social service organizations. Subject to policy terms and conditions, we have, in some instances, established business interruption reserves for denial of access to insured's premises by local authorities. It is not usual virus exclusions are not typical or prevalent in the U. K. Market. So we have taken our best estimate of what we think the BI losses would be in both the U. S. And in the UK. Tom, let's switch gears and turn to investments. A couple of questions for you now. The economy seems to be rebooting right now. How does this impact our approach to investing? What are some things we are doing differently? And what sorts of things don't change? Thank you. Well, yes, in the comments I made earlier, I talked about how in response to COVID-nineteen, we're combing through every security that we own, both on the equity and the fixed income side and recognizing that this is a fundamental sea change for many industries. So for instance, the first degree first order effects that you would see in the realm of travel and hospitality and things of that nature, clearly there are some decisions that are pretty straightforward and we would make those decisions and did through the Q1. Secondly, we think about what the second and third order effects are from these sorts of changes in the economy. And we try to make sure we're both on the right and not on the wrong side of that. So, security by security review of the existing portfolio. On the looking forward and what we would invest in on an ongoing basis, the standard and historic discipline of looking for good businesses with good returns on capital run by management teams with equal measures of talent and integrity that don't use too much financial leverage, that have reinvestment opportunities and capital discipline at reasonable prices, that discipline doesn't change at all and that continues to work in both a pre- and post COVID environment. One more time regarding interest rates. How do lower interest rates impact the insurance, investment and ventures operations? Right. Interest rates have been declining really for years and in the course of the last 3 or 4 years, they've gotten to levels that I would characterize as absurdly low and that they begin to have distorting effects through a lot of business. Insurance historically is a business where you collect cash upfront and you invest and earn investment income as part of the economic equation of how insurance works. In this sort of environment, investment income is de minimis at best. So therefore, the pressure to earn underwriting profits in insurance just continues to be the case. Similarly, in an overall sort of statement, the rates of return that you should expect from making investments of any sort are going down. And that's a function of the fact that the risk free rate or what the treasury rate is or the base rate becomes lower and lower and lower. And every rate of return over that when you take risk really still remains pegged to what the risk free rate is. So with that rate going down, it's important to have realistic expectations of what it is that you can earn and the amount of risk you're taking and make sure you don't fall for things that are too good to be true. The number of things that would be fall in that category of too good be true would be increasing in this environment rather than decreasing. So as a fundamental conservative underwriting discipline, we try to be very realistic about what the underlying rates of return of a company or a fixed income or a business proposition can be and we stick to that. And the last thing I would add to that is in many ways, the lower interest rate environment very much helps what we've assembled in Markel Ventures over the years because those businesses and the cash flows that they produce, which are not quite so keenly tied to interest rates as would be the case in a financial business, those cash flows become worth more and more when interest rates are low. Richie, let's turn back to our insurance operations. Can you discuss our insurance linked securities or ILS business and State National and also the tail risks involved in those businesses? Certainly, thanks. First, both businesses are fee earning businesses. In our ILS business, we earn a fee for managing capital for 3rd parties, which today is primarily deployed in writing natural catastrophe risk. Our State National Program Services businesses provides ensuring carrier infrastructure to MGAs and other insurance producers. This is often referred to out there as a fronting model. It's important to understand that any insurer if you simply add it up all the policy limits, you if you simply added up all the policy limits, you could get to a rather large number. The reality is given the diversification of the geographies that you write those policies, at any point in time, you would only expect some percentage of that to be exposed to loss. However, there are extreme circumstances that can happen. And so that difference between all the way out on the extreme end of adding up policy limits and what you might normally expect a loss to be given a certain situation, that's considered tail risk or is called tail risk. State National our State National operation has tail risk to the extent that it fronts property to tax free business for our Nephila operations. Just like we do for our other Markel entities that write property catastrophe risk, We manage the total amount of tail risk we are willing to expose our balance sheet to and we're very conservative in terms of how we look at that. We also will buy reinsurance protections where appropriate to manage that risk. Also, you probably remember in the last couple of months, we mentioned a new product that we developed, the Stratosphere Re product, that is a form of catastrophe bond that we use to manage remote tail risk on our balance sheet and at the same time providing a new investment product to investors that would like to assume or potentially assume that remote tail risk. So we continue to work on this area, and it provides opportunities for us to produce new products as we go forward. Okay. This next question pertains to Fintech or InsurTech operations, Richie. Can you please discuss the competitive environment and how Fintech operations might disrupt the property and category industry and what Markel is doing about it? Sure. While FinTech or InsurTech when it's more closely related to the insurance center Street, while it was initially billed as replacing the traditional insurance model, the way it's really developed at this point is it's been much more of a collaborative model with traditional insurers and insurance producers. We're seeing many examples of traditional insurers either partnering with or even purchasing FinTech, InsurTech Firms to help improve their business models. At Markel, we're doing the same thing. We are working with a number of InsurTech entities out there to produce business and bringing those ideas and concepts back into our business. Our State National business, our fronting business actually helps a number of InsurTech businesses write their products using their infrastructure. So like many others in the industry, we are learning from these people who are coming into the industry with innovative ideas and we are partnering with them, collaborating with them to help them with their business models as they help us improve our business model. All right. One more on insurance, Richie. Can you please discuss the current hardening of the insurance market and how factors like the COVID-nineteen pandemic and economic conditions affect our outlook for insurance rates and perhaps our ability to grow? Yes. Insurance market pricing has been improving or hardening as is often said for at least the last 18 months. During that time, there has been a gradual yet accelerating improvement in pricing. And maybe even more importantly, and Tom mentioned this, terms and conditions, very hard to quantify or put an exact number on the impact of improving terms and conditions, but that has been a big part of what's been happening certainly over the last 18 months plus with terms and conditions also improving. I would absolutely expect the COVID-nineteen crisis to accelerate the hardening or improving of pricing and terms and conditions that we're seeing in the market. And that's a result of a couple of things. The amount of insurance capital has been reduced as a result of dislocation in the financial markets and people having to take put up losses for COVID-nineteen. And also maybe even more importantly, people's risk tolerance has been reduced as a result of what's happened with COVID-nineteen. So what we are seeing is various forms of derisking going on in our industry. When you add all of that up, that's going to reduce the supply of insurance out there and it's going to drive up the pricing. Tom, to turn to our 3rd engine, Markel Ventures. How have the different Markel Ventures businesses been impacted by COVID-nineteen? Thank you. We have an array of roughly 17 different companies to do everything, as I mentioned earlier, for making the equipment that bakes breads, provide housing to protecting against fire, to selling house plants. So we participate really across the diverse set of the economy. All of them to greater and lesser degrees have felt the effects of what's happened in the economy. Sometimes, it happens both on the demand side and how much product they can sell. And it also happens on the supply side, I. E. How efficiently they can run the factories, how the supply chains are working. So the effect has been substantial and that will show up through the course of the year. Fortunately, the Q1 did get off to a good start. In the Q2, We would still expect profitability and we expect to be profitable through the year. We're very encouraged by the steps of the economy starting to reopen in bits and pieces, and we will try to operate our businesses to increase supply in a safe and appropriate manner. And we think that the increased activity out there, what we do, people want and need, and they've done that for years. These are basic goods and services that are attractive in every dimension you can imagine that provide great value to the customer. So we think demand will come back. But clearly, COVID-nineteen is the sort of thing that leaves a mark. Great. Thanks, Tom. Have any of our businesses taken advantage of the various government stimulus loans? No. The loan programs are really designed for small businesses less than 500 employees and that sort of thing is not what we can do at Martell Ventures. There have been some payroll tax credit issues and things of that nature that are available to employers broadly. So we're taking advantage of those, but no loans. All right. One more on Ventures, Tom. Would you please discuss the 2 most recent acquisitions in Ventures, VSC Fire and Security and Lansing, and what was attractive about them to us? Sure. Well, both of those businesses produce good I mean, they meet the 4 part test. They produce good returns on capital without using too much debt. The management teams have equal measures of talent and integrity. We think there are growth opportunities there, I. E, the reinvestment opportunity and we think we bought them at fair prices. To put a little bit of color behind those, both of those companies are headquartered in the Richmond region and both of them have been in business for more than 50 years, Lansing 3 generations, BSE was 2 generations and then non family management coming in. We have known these organizations and known the people that have run it, in some cases for multiple generations and have great respect for the cultures and the way they do things. Now while they're headquartered in Richmond, BSE would have operations throughout the Sunbelt, Lansing, historically through the Sunbelt, a little bit in the Far West. And as part of the Lansing deal, they acquired a similar company in the Northeast. So that's a fairly sizable company at this point. But the hallmark of both of them is that they have been resilient, profitable businesses that earned good returns on tangible capital. They are run by wonderful people who have demonstrated skill and ability and integrity for multiple generations. We think they're a great fit within the Markel family. Okay. We have a handful more questions covering a range of topics. Richie, let's start with you. The insurance industry has had some challenging years lately, first cats and now with COVID-nineteen. What is your sense of the long term outlook for insurance, especially in a low interest rate world like today? Yes. Well, there's absolutely no doubt 2017 and through now 2020 COVID-nineteen have been a tough run for the industry in terms of outsized losses. First, the catastrophe losses, the natural catastrophe losses and now, this tough run has led to insurers this tough run has led to insurers de risking their portfolios. And as I said earlier, we're seeing pricing increasing as a result of that. We obviously believe strongly in the future of the specialty insurance space. It's a product that people need. We are sort of the oil for the economy if you think about it. Without insurance, the economy does not run. And as I said, we're currently seeing an improving pricing environment, improving terms and conditions. And quite honestly believe that the lower interest rate environment and the dislocation caused by COVID-nineteen, it's going to force all insurance companies to focus on underwriting profitability and that in turn will further accelerate rate increases. We believe that as disciplined underwriters, which we are at Markel, we'll be able to distinguish ourselves during this period of time and in this environment. Tom, one for you. A lot of companies have seen CEOs take pay cuts in the current environment. You have any comments on executive compensation at Markel? I do indeed. And speaking for Richie and myself, the bulk of our compensation has been and continues to be from incentives. This was designed long ago before the crisis and it's designed to react to circumstances. Certainly nothing like this that we imagine. But the raw math of the compensation programs that are in place and already in existence, Richie and I would expect our compensation to decline by 80% of this year as we would have 0 in the way of incentive compensation. Back to you, Richie, with another question on our insurance operations. Given the amount of capital needed to support the volatility of the insurance operations, especially property risks, how does Markel view this and get comfortable that it is a good business? Yes. Well, as I said, it's been a tough stretch 2017 to 2019 in terms of property catastrophes. And we weren't sitting back during that period of time. Over those 3 years, we've been constantly modifying our underwriting approach to property cat to deal with that volatility and deal with that severity. We've been improving our property portfolio by increasing pricing, by taking underwriting actions to derisk where appropriate and also where appropriate purchasing additional reinsurance protections. By its very nature, property catastrophe business has volatility and that's what we're being paid to assume is assume that volatility. We do believe that over time, we can earn appropriate returns on our capital that we deploy in catastrophe lines of business. However, we all have to be prepared that cat property will always be a lumpy business due to that volatility. Tom, I think you are probably best positioned for this next one. Why didn't we take advantage of the low prices in March to repurchase Markel's stock or those of other public companies, right? Well, 1st and foremost, when you look at the way in which we allocate capital and where dollars flow, when we write insurance, that creates a liability for insurance claims that we would expect to pay in the future. So when money comes in, the first thing that we do is put money in cash and fixed income securities to protect policyholders' interest and collateralize those sorts of liabilities. In the face of the underwriting results that we're developing through the Q1 and in a positive sense, the increasing rates and prices in the insurance market, We have insurance premium coming in. So the first step in allocating capital is to put that money in cash from fixed income to make sure we're collateralizing those insurance liabilities and that accounted for what we were doing through the Q1 of the year. Okay, guys. You've made it to the final question I have here. I think both of you may want to weigh in on this one. So perhaps I'll start with you, Richie. Can you please discuss management succession planning at the senior levels of the company? Yes. Well, we take succession planning very seriously as one of our top goal is to build 1 of the world's great companies. And part of that pursuit is making sure we have a talented and deep bench. We spend a great deal of time each year evaluating our succession plans and discussing them with Markel's Board. And I'm happy to report that I believe Markel's leadership and management talent is the best we've ever had. We obviously love to promote from within at Markel, so that deep bench is absolutely critical. But we've also added new blood and new talent and perspectives over the years through acquisitions. Talent is probably one of the most important things that we attain when we do acquisitions. So from my perspective, I'd tell you not to worry about me getting hit by the proverbial bus. We work as a team at Markel and the team is ready and would not miss a beat. Tom? Thank you. I would echo Richie's comments by and large. The points I would add is that Markel is a fascinating company. It's grown over the years. It's added new forms of insurance. It does insurance in more parts of the world. We've added different kinds of businesses. And that's an attractive proposition for somebody who's curious, who has high energy, wants to grow, wants to learn. And the history of this company is that those people sometimes they start here at the beginning of their career and they get promoted from within. Sometimes they join mid career as a result of most frequently of acquisitions or external talent brought in. So we are constantly aware we use appropriate management disciplines of looking at organization charts, looking at boxes and names and successors to make sure that we are always resilient and prepared to take the next person up when those circumstances present themselves, which has indeed happened with frequency and regularity through the history of Markel. With that, again, I want to thank you for joining us today and we all very much look forward to being able to see you in person next year.