Earnings Call: Q4 2015

Feb 11, 2016

Good morning, and welcome to the Martell Corporation 4th Quarter 2015 Conference Call. All participants will be in listen only mode. 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 under the captions Risk Factors and Safe Harbor and Cautionary Statement in our most recent annual report on Form 10 ks and quarterly report on Form 10 Q. We may also discuss certain non GAAP financial measures in the call today. You may find a reconciliation to GAAP of these measures in the press release, which can be found on our website atwww.markelcorp.com in the Investor Information section. Please note this event is being recorded. I would now like to turn the conference over to Tom Gaynor, Co Chief Executive Officer. Please go ahead, sir. Thank you, Denise, and good morning. Welcome to the Q4 of 2015 conference call for the Markel Corporation. My name is Tom Gayner, and I'm joined by my colleagues, Ann Wilevski, Mike Crowley and Richie Whim. Ann will brief you on the financial results, Mike and Richie will discuss our insurance operations, and then I'll return with some comments on our investment results in Markel Ventures. As always, we thank you for your interest and support of Markel, and we look forward to your questions. With that, Anne? Thank you, Tom, and good morning, everyone. I'm happy to report that 20 15 was an outstanding year for our underwriting operations, which contributed more than $400,000,000 to pre tax profits. We saw improved combined ratios in all three of our ongoing insurance segments. The favorable impact from underwriting was muted by our investing results, which were adversely affected by volatility in the equity markets. We celebrated the 10 year anniversary of our Markel Ventures operation this year, which surpassed $1,000,000,000 in revenues for the first time. We continue to pursue growth opportunities in both our insurance and MarkTel Ventures operations. We are excited about our recent acquisitions of CATCo, which expands our presence in the insurance linked securities market and CapTek, a leading management and IT consulting firm providing services to a wide array of customers. We are proud of our 2015 results and our record of building shareholder value over the last 30 years as a public company. I want to thank our associates for their contributions in achieving these results. Our total operating revenues grew 4.6%, coming in at $5,400,000,000 in 20.15 from $5,100,000,000 in 2014. The increase is driven by higher revenues from Markel Ventures. Other revenues, which include revenues from Markel Ventures, were up 23% to $1,100,000,000 from $884,000,000 last year, primarily due to our acquisition of Cottrell in July 2014 and to higher revenues from other manufacturing affiliates. Moving to the underwriting results. Gross written premiums were $4,600,000,000 for 20.15 compared to $4,800,000,000 in 2014, a decrease of 4% driven by a decline within our Reinsurance segment. During 2014, we ceased writing auto reinsurance in the U. K. And we also decreased our non standard U. S. Auto reinsurance business. Foreign currency exchange rates also had an unfavorable impact on the year over year change in gross written premiums. However, even at a constant rate of exchange, gross premium volume declined 2%. Market conditions continue to be very competitive, especially within the Property and Marine and Energy product lines. Consistent with our historical practices, we will not rate business when we believe prevailing market rates will not support our underwriting profit targets. Net written premiums were $3,800,000,000 down 2% from the prior year, while our net retention was in line with prior year at an 82%. Earned premiums were $3,800,000,000 for 20.15 and decreased slightly compared to prior year. At a constant rate of exchange, earned premiums for 2015 would have increased 2% compared to the same period a year ago. During the period, we saw organic growth in several Specialty division product lines within our U. S. Insurance segment, which was offset by a decline in earned premiums for the Reinsurance segment. Our consolidated combined ratio for 2015 was an 89% compared to a 95% a year ago. The decrease in the consolidated combined ratio was driven by more favorable development on prior year's loss reserves in each of our underwriting segments in 2015 compared to 14 as well as a lower current accident year loss ratio in 2015 compared to 2014. The 2015 combined ratio included $628,000,000 of favorable development on prior year loss reserves compared to $436,000,000 in 2014. The increase in prior year redundancies in 2015 compared to 2014 was due in part to a decrease in the estimated volatility of our consolidated net reserves for unpaid losses and loss adjustment expenses as a result of ceding a significant portion of our asbestos and environmental exposures to a third party during the 1st and 4th quarters of 2015. As a result of this decrease in the estimated volatility, our level of confidence in our net reserves for unpaid losses and loss adjustment expenses increased. As a result, we reduced prior year loss reserves by $83,000,000 or approximately 2 points on a consolidated combined ratio in order to maintain a consolidated confidence level in a range consistent with our historic levels. This reduction in prior year loss reserves occurred across all three of our ongoing underwriting segments. In addition to the impact of these reinsurance transactions, we experienced more favorable prior year loss reserve development driven by our U. S. And International Insurance segments. The more favorable development in the U. S. Insurance segment is primarily due to experiencing favorable development on our inland marine product in our Global Insurance division for 2015 compared to adverse development in 2014. The more favorable development in the International segment in 2015 is driven by lower than expected claims activity on prior accident years and favorable claim settlements on our general liability and marine and energy lines of business. Now I'll discuss the results of Markel Ventures. 2015 revenues from Markel Ventures were $1,000,000,000 compared to $838,000,000 in the same period a year ago. Net income to shareholders from Markel Ventures for 20.15 was $11,000,000 compared to just under $10,000,000 in 2014. EBITDA was 91,000,000 dollars in 2015 compared to $81,000,000 in 2014. The increase in revenues from our Markel Ventures operations during 2015 was primarily due to our acquisition of Petrel in July of 2014. Additionally, we have experienced higher revenues within our other manufacturing manufacturing operations due in part to higher sales volume in 2015 compared to 2014. Net income to shareholders and EBITDA from our Markel Ventures operations increased slightly in 2015 compared to 2014 due to more favorable results in our manufacturing operations in 2015, partially offset by less favorable results in our non manufacturing operations. The increase in net income to shareholders and EBITDA in our manufacturing operations in 2015 was due to increased revenues, partially offset by an increase in our estimate of the contingent consideration obligation related to the acquisition of Cottrell and to the write off of goodwill at Diamond Healthcare. A portion of the purchase consideration for Cottrell is based on Cottrell's post acquisition earnings through 2015 as defined in the purchase agreement. During 2015, our estimate of Cottrell's 2015 earnings increased beyond our initial projection. As a result, our estimate of the contingent consideration increased by $31,000,000 during 2015. The decrease in net income to shareholders and EBITDA in our non manufacturing operations was primarily attributable to increased expenses at certain of our non manufacturing operations. Net income to shareholders and EBITDA in our non manufacturing operations was net of a goodwill impairment charge of $15,000,000 in the Q4 of 2015 related to Diamond Healthcare. There was a similar goodwill impairment charge in 2014. There is no remaining goodwill on our books for Diamond Healthcare. Turning to our investment results. Net investment income for 2015 was down slightly coming in at $353,000,000 as compared to $363,000,000 in 2014. Net realized investment gains for 2015 were $106,000,000 compared to $46,000,000 in 2014. Net realized investment gains for 2015 include $44,000,000 of write downs for other than temporary declines in the estimated fair value of investments compared to $5,000,000 of write downs in 2014. The 2015 write downs were all attributable to equity securities. Net realized gains from the sale of equity securities in 2015 were $156,000,000 compared to $51,000,000 in 2014. During 2015, we liquidated certain equity securities in our portfolio in light of our outlook on the competitive environment facing this company. Net unrealized investment gains decreased $320,000,000 for 20.15 compared to an increase of $662,000,000 for the same period last year. The decline in net unrealized investment gains this year was attributable to decreases in the fair value of our equity and fixed maturity portfolios compared to prior year end. Given our long term focus, variability in the timing of realized and unrealized gains and losses is to be expected. Our effective tax rate was 21% in 2015 compared to 26% a year ago. The decrease in the tax rate in 20 15 was driven by foreign tax credits for foreign taxes paid. Prior to this year, taxes paid in foreign jurisdictions were not available for use as tax credits against our U. S. Provision for income taxes. In 2015, a sufficient amount of earnings from our foreign operations will be taxable in the U. S, allowing us to recognize the benefit of these foreign tax credits against our U. S. Provision for income taxes. A similar benefit may not be available in future years. Net income to shareholders was $583,000,000 in 20 and set a record for us. This compares to $321,000,000 a year ago. Comprehensive income for the year, however, was down to $233,000,000 from $936,000,000 a year ago due to the decline in the fair value of the investment portfolio. Book value per share as at the end of 2015 was $5.61 an increase of 3% since the end of 2014, due primarily to our 2015 comprehensive income. Net cash provided by operating activities was 651,000,000 dollars in 2015 compared to $717,000,000 in 2014. Net cash provided by operating activities in 2015 20.15 includes cash payments totaling $156,000,000 made in connection with 2 reinsurance transactions completed in 2015 in which we ceded 2 portfolios of liabilities arising from asbestos and environmental exposures to a third party. Net cash provided by operating activities in 20 15 also includes a $29,000,000 cash payment made to transfer our obligations under a reinsurance contract for life and annuity benefits to a 3rd party. Also in 2015, higher cash flows attributable to our Markel Ventures operations were partially offset by higher payments for income taxes compared to the same period of 2014. Finally, invested assets at the holding company were $1,600,000,000 at the end of 2015 compared to $1,500,000,000 at the end of 2014. With that, I will turn it over to Mike to talk about our U. S. Insurance segment. Thanks, Anne. Good morning. As we stated in the past, the U. S. Insurance segment comprises all direct business written on our U. S. Insurance companies and includes all of the underwriting results of our Wholesale and Specialty divisions as well as certain products written by our global insurance team. Gross written premiums for the U. S. Insurance segment were flat compared to prior year at $614,000,000 for the quarter $2,500,000,000 for the year. Throughout 2015, we experienced continued growth in our Hagerty Classic Car Program and our workers' comp product lines, both within our Specialty division, as well as in our wholesale division, casualty lines. Growth in these product lines was almost entirely offset by declines in our wholesale excess and umbrella, environmental and property lines. These trends continued in the 4th quarter as well. The combined ratio for the 4th quarter was 87% compared to 90% for the same period a year ago. The combined ratio for the year was 89% compared to 95% for 2014. The decrease in the combined ratio for both the year and the quarter is primarily driven by more favorable development of prior accident years loss reserves as well as a lower expense ratio. Prior year losses were favorable by over 2 points for the quarter and nearly 4 points for the year compared to 2014. As Anne discussed, this was driven by higher prior year takedowns across the segment due to the reduction in the estimated volatility of our net loss reserves, which accounted for 3 points of the favorable movement in the quarter and 2 points for the year. Additionally, on a year to date basis, we experienced favorable prior year development in our Global Insurance division in 2015, primarily on our inland marine product line compared to adverse development in 2014. The decrease in our expense ratio was primarily due to higher earned premiums driven by premium growth in the Specialty division, which I mentioned earlier, as well as lower general expenses. Operationally, with regards to the Specialty division, we announced a new organizational structure in the 4th quarter. This new structure combines the management and operations of Markel First Comp and our Markel Specialty Program business and will allow for better strategic decision making across the combined unit, which will increase efficiencies. Our E and S operation capped off an excellent year with a strong 4th quarter performance. Gross written premium was slightly below prior year due to the exiting of certain lines of business and the re underwriting of other lines. The Markel online portal remains a game changer for us and for our producers. We had 3,400 unique users utilize the system and we look to grow that number as we expand the portal's capabilities. Because of this portal, we experienced significant growth in our binding business. In the Global division, despite very soft market conditions, which depressed top line growth, we had a successful year for all product lines due to improving loss picks and prior year development that was better than originally expected. Our product line leadership, under the leadership of Jerry Albanese, is committed to maintaining our pricing integrity in the face of the soft market and steady competition. Large accounts in any cat exposed property are under a very high level of competition. For the year, on smaller accounts, we continued to achieve modest single digit increases. Looking back, it was a very successful underwriting year for all of our divisions. Our focus in 2016 is on profitable growth and the divisions have very detailed initiatives underway with our key agents and producers to achieve our goals. We clearly recognize the challenges that market conditions present and we're prepared to meet those challenges. Like Anne, I want to take this opportunity to thank all of our Markel associates for their outstanding efforts in making 2015 a success. I'll now turn the call over to Richie. Thanks, Mike. Good morning, everybody. Today, I'm going to focus my comments on our underwriting results for both for the year for both International Insurance and Reinsurance segments. Both segments finished the year strong and produced outstanding underwriting results in 2015. First, I'll start with the International Insurance segment, which includes business written by our Markel International division as well as certain products written by our Global Insurance division. Gross written premiums decreased 8% in the quarter and 3% for the year as compared to 2014. We finished the year at just under $1,200,000,000 of gross written premium. As we've been discussing for the past few quarters, the decrease in premium writings is primarily due to the continued impact of the strong U. S. Dollar. Excluding currency impacts, gross written premium volume only decreased 3% for the quarter and actually increased 2% for the year. The increase on a year to date basis is due to continued growth in our professional liability product lines in both divisions as well as growth across multiple product lines in the Markel International division. The decrease in the 4th quarter is primarily due to the continued decline in our global insurance property book, which is also impacting our year to date results. The 4th quarter combined ratio was an 83 compared to 86 in 2014. The year to date combined ratio was 86 compared to 93 last year. The lower segment combined ratio for both the 4th quarter and the year was primarily driven by more favorable prior year takedowns, partially offset by a higher expense ratio. Prior year losses were favorable by 4 points for the quarter and 10 points for the year as compared to 14. This favorability is driven by higher redundancies in both divisions across multiple product lines. The segment also saw benefit related to the increase the decrease, excuse me, in the estimated volatility of our loss reserves, which Anne and Mike talked about. This contributed 7 points of favorability in the quarter and 4 points of the overall decrease for the year. Finally, the year to date expense ratio increased 3 points due to higher profit sharing costs, higher general expenses and lower earned premium this year compared to 14. For the Q4, the expense ratio was 1 point higher than last year, due primarily to higher commission rates in both divisions driven by mix of business. Next, I'll discuss the results of the Reinsurance segment, which include treaty reinsurance programs written by our Global Reinsurance division as well as those written by our Markel International division. For the 4th quarter, gross written premiums for this segment are down 21% to $90,000,000 compared to 2014. I will point out, 4th quarter is our slowest quarter in terms of premium writings for reinsurance. For the year, writings are down 13% to $965,000,000 down from $1,100,000,000 a year ago. Although this segment is also seeing the effects of the strong U. S. Dollar, even at a constant rate of exchange, gross written premium volume declined 9% for the year. As Anne said, we made the decision in the end of 2014 to see if it's writing U. K. Motor business and to take much smaller line sizes on our U. S. Non standard auto book. This is now impacting our year over year comparison gross written premium volume and it's the primary driver of the decrease in 2015. For the quarter, we also saw a meaningful decrease in our general liability book due to the non renewal for pricing reasons of a large excess casualty reinsurance program. The combined ratio for the Reinsurance segment was 83 quarter as compared to 93% in 2014. The combined ratio for the year was 90% compared to 96% last year. The reduction in the combined ratio for both periods of 2015 was driven by a decrease in our loss ratio. The decline in the loss ratio is comprised of both a lower current accident year loss ratio due to lower attritional losses across most product lines as well as more favorable development on prior year loss reserves across both divisions. The prior ratio includes 8 points of favorable movement in the quarter and 2 points for the year due to the decrease in estimated volatility mentioned earlier. We continue to write a well balanced book of reinsurance. Casualty business continues to be our largest line by gross written premium, but the profits from property and specialty reinsurance continue to drive earnings as the frequency and severity of reinsurance losses remained unusually low yet another year. In regards to pricing during the Q4 and at the oneone renewals, quite honestly, nothing terribly surprising or different happened. The international insurance market was generally very competitive with a few positive signs of professional liability where for lines like financial advisors and construction related professions, we're seeing rate increases of 5 plus percent. That being said, these areas have experienced losses and need rate increases. The pricing of our national market business, the term we use for our international retail operations, is patchy depending on territory and product, but is overall relatively flat. These policies tend to be smaller and are slightly less price sensitive. Reinsurance pricing was off 5% to 10% plus and conditions continue to be very challenging. However, the rate of price decrease slowed significantly during 2015 and at the January 1 renewals. In all areas of our business, we're maintaining our underwriting discipline and committing to our core clients. At the same time, we've tried to deemphasize our exposure to non core clients and poorly priced risk. We want to steer clear of situations where it's just a trade and low price wins. Finally, in December, we closed the acquisition of CATCo with a new based insurance linked security asset and asset manager that generates management and performance fee income on its assets under management. In 2015, CATCo managed approximately $2,700,000,000 of retrocession and traditional reinsurance portfolios for clients around the world. For 2016, trading under the name Markel CATCo, we expect assets under management to comfortably exceed $3,000,000,000 as we've seen continued strong interest from both investors and seeds. Petco's pricing for its January 1 renewals was relatively flat. I'd like to add my thanks to all the Markel associates. It was an absolutely fabulous year. And with that, I'd like to turn it over to Tom. Thank you, Richie. Last Sunday, during the Super Bowl, we got to witness the importance of a great defense. And I don't profess to be a football expert, but I think it is fair to say that the defense of the Denver Broncos was spectacular and that they wouldn't have won the game without it. In 2015, we emphasized defense in our investment operations as well. We did so through the following specific actions. First, we maintained our high credit quality profile in our fixed income operations. Secondly, we kept our equity exposure at the low end of our range for equity investments over the last 25 years. Thirdly, we maintained a strong and highly liquid balance sheet in order to be ready to actively deploy the funds when conditions weren't doing so. These primary actions, along with other decisions, allow us to be in a great position to play 1st class defense and make sure that we are fully prepared to take advantage of investment opportunities and Markel Ventures additions as available. As to the specific numbers, despite the challenges presented by very low interest rates and investment returns, we reported an overall return in local currency of 0.5%. In our equity portfolio, we were down 2.9% and our fixed income portfolio, we were up 1.6%. After a 1.2% drag from the foreign currency effects, the net return is a negative 0.7%. As a reminder, we do our best to match our foreign currency insurance liabilities to foreign currency denominated assets. As such, the explicit costs you see in the investment returns is largely offset by an equal and opposite benefit in the underwriting results. 20 fifteen's equity markets featured a very small list of stocks that went up massively and a very long list of stocks that declined to greater and lesser degrees. In general, I think the direction of those moves got it right in terms of long term business prospects, but the magnitude in both directions was perhaps a bit overdone. In response, we maintained a higher than normal percentage of the investment portfolio in fixed income and cash with equities, as I mentioned, at the low end of our historical range. I anticipate that as is usually the case, the extreme dispersions of outcomes that we witnessed in 2015 will moderate over time, and we are well prepared with cash from hand to take advantage of that circumstance as it unfolds. I'm also pleased with the aggregate results of Markel Ventures. We enjoyed particularly strong results in our cyclical transportation related businesses and satisfactory results for most of the rest of our operations. We continue to face challenges in our health care related businesses, and we continue to change and adapt in those areas to improve results. Overall, for Markel Ventures, we reported revenues of a little over $1,000,000,000 compared to $838,000,000 a year ago and EBITDA of $91,000,000 compared to $81,000,000 a year ago. This year's EBITDA includes a charge of $31,000,000 related to the earn out provisions for the better than expected performance at our Cottrell acquisition. We reported on this to you for the last several quarters. It also includes a goodwill impairment charge of $15,000,000 related to Diamond Healthcare. Ironically, the good news at Cottrell and the challenging news at Diamond got reported the same way as a reduction in EBITDA. As we entered 2016, the slate is clean on both fronts. The earn out period of Contreras is completed and the goodwill balance to Diamond stands at 0. As such, 20 sixteen's results will not be affected by the same factors again. Also, in December, we announced the acquisition of a minority interest in CapTech Consulting, a management consulting firm with an emphasis on information Technology Services. We've known many of the people and much about the work of CapTec for many years, and we are pleased that they are joining Markel Ventures. We expect ongoing excellent financial results at the firm, and we also believe that Markel will benefit from direct exposure to the technology skills within CapTec. As we begin 2016, we remain optimistic at Markel. Our underwriting operations continue to produce underwriting profits and cash flow to be invested. Our fixed income portfolio is of the highest quality we can find. Our equity portfolio is comprised of a set of companies that meet our long standing 4 part test of profitable businesses run by honest and talented managers with reinvestment opportunities and capital discipline at fair prices. Our Markel Ventures Companies represent a robust and diversified set of businesses with a decade long record of producing cash. And finally, we have a strong and liquid balance sheet that anchors our position to market turbulence and serves as the base for deploying capital as opportunities present themselves. That's a good position from which to operate in 2016 and beyond, and we look forward to making the most of it. With that, we look forward to your questions. Today's review, be so kind as to open up the floor. Thank you, sir. We will now begin the question and answer session. And our first question will come from Mark Dwelle of RBC Capital Markets. Please go ahead. Hey, good morning. A few questions. Can I start with the asbestos reinsurance transaction? You commented in the press release that you recorded a $10,000,000 charge in the quarter, which I think you told us about last quarter out. Then the release went on to say that there was a $15,000,000 addition to loss reserves. Are those things 1 and the same? Or should I think of that as a $25,000,000 impact in the quarter collectively? Well, it's a $25,000,000 impact in the quarter related to 2 separate entries, if you will, although they are related. Once we did the second transaction and the portfolio that we retained was smaller, we went back and looked at what was left in the portfolio and the actuarial term that they needed to make an adjustment to the reserves. So just to clarify, there was a 10,000,000 dollars loss related specifically to the transaction itself. And then there was a $15,000,000 add to reserves within that unit, but then you enjoyed reserve benefits in the other units related to reduced volatility? That's correct. Correct. Okay. I think that's got it. The second question, and I think, Tom, you probably addressed generally. I just want to clarify my understanding. Within Markel Ventures, there is $15,000,000 of goodwill impairment on Diamond Health. What portion, if any, of the Cottrell adjustment of the $35,000,000 or $31,000,000 rather was within the 4th quarter as compared to for the full year? 4th quarter, 4 or 5. We started talking about that in the second quarter. So we've had of the $31,000,000 it was spread out 2nd, 3rd and 4th quarter 4 ish in the 4th. 4 ish. Okay. Okay. The second question that I had related to investments was you took a substantial realized gain in the quarter, probably the largest one I can ever recall. Was that spread out over a number of securities? Or was it just a particular 1 or 2 that you may have exited? Well, A, I was very happy to have that game to be there. So that's a good thing, and we do indeed like to see the unrealized depreciation there. The timing to realize gains, as we've talked about, that it is the largest one we've ever had. The spread out of our number of securities will be filing our 13 F, I think, on Friday. So you'll see it, but there's more than one name. Okay. That's I knew the filings would be along before too long. I'm not particularly worried about exactly which one. I was just concerned whether it was one giant exit or whether it was, I'll say, somewhat tactical in terms of trimming across the number of areas, sounds like more the latter. The last question I have relates to the expense ratio. For both the quarter and for the year, it was a little bit elevated. I think it was mostly in the international segment, but I was wondering if somebody could provide just a little more detail related to that. I think probably the biggest driver across the board was incentive comp accrual. As you can see by the results, we had a very good year and we share that good result with all of our associates into the big driver in the increase in the expense ratios and the incentive comp accrual. Yes. And Mark, this is Richie. Maybe I'll elaborate a little bit there. As you know, our underwriting pools, our underwriting bonus plans are paid out over a number of years. So we can see how things develop to make sure we're fair to both the individual and to the company. Obviously, as you can see from our releases, we had a very large prior year release this year. When that happens, we have to put up additional bonus accruals that sort of to some extent offset those releases. So some of that wonderful news we have on the loss side, we need to put something up on the expense side for it. So when you look at the increase in the expense ratios, it is mostly related to that. So it's a good thing if you can believe it or not. I think the other items that you mentioned the International segment was that due to the changes that we made in the Reinsurance portfolio, the International segment's earned volume came down some as well. So they sort of get it from both sides. And our next question will come from Mark Hughes of Lafayette Investments. Good morning, everyone. Good morning, Mark. Good morning. Probably for you, at least part of it. A 2 part question related to interest rates, if I might. You've been dealing with low interest rates for many years now, and interest rates have turned negative in parts of the world. Can you talk about how this affects how you invest your considerable cash and fixed income investments, some of which must be in countries with negative rates? And while the math of rates moving, say, from positive 0.5% to 0, maybe similar to the math of moving from 0 to negative 0.5%, psychologically, it does feel different. Are you doing anything different? And related to this subject, are negative rates affecting the insurance side of the operation at all? With fixed income returns so abysmal, are you seeing any signs that insurers are changing pricing to try and make up for this lost investment income? I'm not seeing a lot of signs of that yet. Are you seeing anything different? Right. Well, I appreciate the question. And I think you asked a couple of different questions, which is the appropriate way to do it because there are a lot of different strands and aspects to fulsomely answering the questions that you're asking about. So first off, given the overall low interest rate environment that exists no matter where you are, the need for underwriting profitability to earn any sort of return at all goes up. You saw excellent underwriting results around the last year. And the targets that would be set, the hurdle rates for people to earn incentive compensation that they've earned, those have been coming down over the last several years to reflect the business environment that we operate in. So there is that need for increased underwriting profitability. And that's not a unique situation for Markel. That's any insurance mechanism at all. And while conditions are hyper competitive in the insurance market as well as pretty much every other business I look at, there is a reasonably rational basis of competition out there. You're not seeing, wild cowboys that are operating with huge underwriting losses thinking they can make it up on investment income because that nobody, I think, is under that delusion. And that is indeed different than what might have been the case 10, 20 years ago. I think those interest rates are a symptom of the excess capital that exists, again, not just in the insurance business, but in general. There's just a bunch of capital everywhere. So the central banks may have opinions about what interest rates should be, but there's also the fundamental laws of supply demand. And interest rates are hugely influenced by market factors as much as what central banks might do. Specifically, what we can do as a result of that, as we've spoken on the insurance side, we need to make sure that we're operating in a very disciplined fashion and make probably more rather than less in the realm of underwriting profits. And on the investment side, for a while, for a couple of years, we had been having a shorter maturity of the investment portfolio than our insurance liabilities because I was worried about interest rates going up. About midyear last year, I decided that I was wrong and that as the phrase goes, rates are likely lower for longer, and we started to extend the maturity of the bond portfolio a bit. And in this environment, until further notice, we'll operate in a more matched way than we were a couple of years before that. Now once you go out further on the curve, it's not like you make a lot of money, but you can at least chase away the negative interest rate going in, but not a whole lot of fun. Thank you. Our next question will come from David West of Davenport and Company. Please go ahead. Good morning. Good morning, Dave. Good morning. Anne, first one for you. In the commentary in the press release, you noted the tax rate benefited about 8% from the use of foreign tax credits, not likely to repeat itself to the same degree in 2016. Could you maybe I guess the question gets to what are your expectations for an effective tax rate in 20 16? I think our expectations for 2016 would be similar to where we've been the last few years in the mid-20s, mid- to high-20s. Okay. Very good. So you may still get some benefit from foreign tax credits, just not to the same degree? Well, it's not clear today whether we'll get that benefit or not. And given some of what's going on relative to potential changes in tax laws, it's also not entirely clear today what 2016 will look like. So taking our usual conservative stance, we're just reverting to what we know from history and assuming it will be sort of mid-20s. All right, great. Thank you for that. Richie, if I turn to you on the reinsurance side and this the CATCo acquisition, I know they're not a a their asset management unit, not an underwriting unit, but I would certainly think their expertise could potentially benefit the reinsurance operations. Could you talk a little bit about the potential synergies with CATCo? And is that going to remain in the other reporting segment? Sure, Dave. Yes, I think there clearly are synergies there. CATCo and our reinsurance operation share many of the same clients. When the clients have needs at times for traditional reinsurance and other times they may decide a capital market solution is a better fit for what they're trying to achieve. So having the ability to write both traditional products as well as the capital market backed products, especially CATCo with its it has a rather unique product structure. I think that just helps us better serve the clients that are out there. Actually, since the acquisition or after the announcement of the acquisition, we've seen interest from people who were not previously clients of CATCo. So there's going to be opportunities for our guys on the reinsurance side and our CATCo guys to work together to make sure we're serving those client needs. It's been a busy both those teams are really consumed at oneone with renewals. It's a big time of year for them. So as soon as the dust clears from that, we'll be getting together to talk about new product opportunities and we do think there'll be some good new product opportunities. I guess the last thing I would just say is we've been very pleased to see growth in assets under management right out of the gate. We quite honestly, we're not expecting that, but there's been quite a bit of investor interest as well as additional seed demand and that was good news for us as we get off to a start here in 2016. Very, very helpful. Tom, could maybe you talk a little bit about the non manufacturing activities at Ventures and your outlook for that in 20? Yes. Like I say, the weak results of the nonmanufacturing side were dominated by health care, and we've written off the goodwill associated with Diamond. So the slate is clean. The rest of those operations in the nonmanufacturing had a nice steady year as expected. So I would, at this point, expect a better year in 2016 and 'fifteen in reported results. And at this time, ladies and gentlemen, we will conclude the question and answer session. I would like to hand the conference back over to Tom Gayner for his closing remarks. Thank you very much for joining us. We look forward to chatting with you again as the year goes on. Thank you. Bye bye. Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.