Earnings Call: Q4 2014

Feb 12, 2015

Good morning, and welcome to the Martell Corporation 4th Quarter 2014 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. 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 at www dotmartelcorp.com in the Investor Information section. Please note this event is being recorded. I would now like to turn the conference over to Tom Gayner, President and Chief Investment Officer. Please go ahead, sir. Good morning and thank you. Welcome to the 2014 year end conference call for the Markel Corporation. My name is Tom Gayner and I'm joined by Ann Moleski, Mike Crowell and Richie Witt today. We've got some good and fun results to share with you this morning and Ann will jump in with the numbers in just a second. Before we get into the details though, there's one thought I'd like to share with you, namely this. A year ago when we had this call, we and you would have been concerned about competitive conditions in the insurance market with new capital providers continuing to enter the business. We would have all been concerned about interest rates being low and the struggle to earn investment income. We would have been concerned about the lack of premium leverage. We would have been concerned about an equity market that was at all time highs and seemingly bereft of good values. We would have all been concerned about the integration of the Ultera acquisition and we would have all been concerned about global geopolitical issues. We probably would have had a similar list the year before that and a year before that and so on and so on. On. Sometimes it seems like the issues we face at any given point in time sound like the long list of side effects that you hear in the drug commercials on TV. There's always something to be concerned about. But some of those issues led folks to model an outcome that suggested that the Markel Corporation would have a tough time earning more than a single digit return on equity on a comprehensive basis. Despite what the models said, the very good news is that we are reporting a double digit return of 14% in our book value per share this year. Those results came about because of the hard work, creativity and dedication of the people of Markel. We'll also acknowledge and be grateful for the good luck involved in things like the lack of major catastrophes in 2014. All of those concerns I just mentioned at the beginning were valid a year ago and most, if not all of them remain relevant today. When we look back at each year, there always seems to be some reason why things are going to get worse. Fortunately, the people of this organization always seek to find a way to meet the challenges and keep building the value and values of this company. I expect that to continue to be the case over time. With that, it is my pleasure to turn the call over to our Chief Financial Officer, Andrew Leski, to review the numbers and then to Mike Crowley and Richie Witt, who will give you some commentary on our insurance operations. I will then return to briefly discuss Markel Ventures and our investment operations, then we will open the floor for Q and A. Anne? Thank you, Tom, and good morning, everyone. I, too, am happy to report that 2014 has been both an exciting and profitable year here at Markel. We had an excellent finish to the year with our investing, underwriting and Markel Ventures operations all contributing to our success. Our total operating revenues grew 19%, eclipsing $5,000,000,000 for the first time, coming in at $5,100,000,000 in 2014 from $4,300,000,000 in 20 13. The most significant drivers of this increase continue to be the inclusion of a full year of underwriting revenue from legacy Ultera product offerings in 2014, higher revenue from the Hagerty business and higher investment income due to our larger investment portfolio. Also contributing to the increase, other revenues were up 24% to $883,000,000 from $711,000,000 last year, primarily due to revenue growth within Markel Ventures. Moving into the underwriting results. In 2014, gross written premiums were $4,800,000,000 which is an increase of 23% compared to 2013. The increase was driven by the inclusion of a full year of premiums from legacy Altair products in 2014 compared to 8 months in 2013, which impacted all three of our ongoing underwriting segments. We also experienced growth in our segment within the Wholesale division, primarily in our Casualty product lines and in our Specialty division across various product lines. Net written premiums for 2014 were approximately $3,900,000,000 up 21% from the prior year for the same reasons I just discussed. Net retention of gross premium volume was 82% for 2014 83% for 2013. The decrease in net retention was due to 12 months of premium contribution from Alterra in 2014 compared to 8 months in 2013. The slight decrease which is in line with our expectations is primarily due to higher use of reinsurance on certain insurance products previously underwritten by Alterra. Earned premiums for 2014 increased 19% compared to 2013. The increase was primarily driven by the increase in gross written premiums that I just mentioned. Also contributing to the increase in earned premiums was higher earned premiums from our Hegarty business, which we began running in the Q1 of 2013. The U. S. Insurance segment included $203,000,000 of earned premium from Hagerty in 2014 compared to $98,000,000 in 2013. The consolidated combined ratio was 95% in 2014 compared to 97% in 2013. In 2014, a lower expense ratio was partially offset by a less favorable prior accident year's loss ratio compared to 2013. Underwriting acquisition and insurance expenses in 2013 included transaction and other acquisition related costs of $75,000,000 attributable to the acquisition of Alterra or 2 points on the combined ratio. Excluding transaction and other acquisition related costs in 2013, the 2014 expense ratio was comparable to 2013. The 2014 combined ratio included $436,000,000 of favorable development on prior year's loss reserves compared to $411,000,000 in 2013. The benefit of the favorable development on prior year loss reserves had less of an impact on the combined ratio in 2014 compared to 2013 due to higher earned premium volume in 2014. Now we'll talk about the results of Markel Ventures. In 2014, revenues from Markel Ventures were $838,000,000 compared to 6 $86,000,000 in 2013. Revenues from our Markel Ventures operations increased in 2014 compared to 2013, primarily due to the acquisition of Cottrell in July 2014 and the acquisition of Eagle Construction in August 2013. We also experienced higher revenues in our manufacturing operations in 2014, primarily driven by cyclical changes in industry demand for transportation equipment, partially offset by lower revenues in our other manufacturing operations due to fewer orders and shipments in 2014 as compared to 2013. Net income to shareholders from Markel Ventures was slightly less than $10,000,000 in 2014 compared to $24,000,000 in 2013. Net income from our Markel Ventures operations decreased in 2014 as compared to 2013 due to less favorable results in our manufacturing and non manufacturing operations in 2014, which were partially offset by net income attributable to acquisitions. The decrease in net income in our manufacturing operations in 2014 was due in part to the lower revenues I just mentioned. The decrease in net income in our non manufacturing operations was primarily attributable to less favorable results at Diamond Healthcare, driven by a $13,700,000 goodwill impairment charge taken by Markel Ventures in the Q4 of 2014. Markel Ventures adjusted EBITDA, which excludes this charge was $95,000,000 in 2014 compared to $84,000,000 in 2013. The increase in adjusted EBITDA in 2014 is due to acquisitions. Moving on to our investment results. Net investment income for 20 14 was $363,000,000 compared to $317,000,000 in 2013. The increase in net investment income in 2014 is primarily due to a larger investment portfolio in 2014 as a result of the acquisition of Alterra in 2013. Net realized investment gains for 2014 were $46,000,000 compared to $63,000,000 in 2013. Variability in the timing of realized and unrealized investment gains and losses is to be expected. Looking at our total results for the year, we reported net income to shareholders of $321,000,000 compared to $281,000,000 in 2013. The effective tax rate was 26% in 2014 compared to an effective tax rate of 22% in 2013. The increase in the effective tax rate was driven by higher earnings taxed at 35% in 2014 and a smaller benefit from our foreign operations in 2014, which are taxed at a lower rate. Comprehensive income was $936,000,000 for 20.14. I think that's worth repeating. Comprehensive income was $936,000,000 for 2014. That compares to $459,000,000 a year ago. The increase is primarily attributed to net unrealized gains on our investments during the period. As a result of our investing, Montcal Ventures operations, book value per share increased approximately 14%, as Tom said, to $5.44 per share at December 31, 2014 from $4.77 per share at the end of 2013. Finally, I'll make a couple of comments on cash flows and the balance sheet. Net cash provided by operating activities was $717,000,000 for 2014 compared to $746,000,000 for 2013. In 2014, we made higher payments for income taxes compared to 2013. These payments were partially offset by higher cash flows from investment income during 2014, primarily due to having a larger portfolio in 2014 as I previously mentioned. Invested assets at the holding company were $1,500,000,000 at December 31, 2014 compared to $1,300,000,000 at the end of 2013. The increase in invested assets is primarily the result of dividends received from our subsidiaries and an increase in unrealized gains on our investments. With that, I'll turn it over to Mike to discuss operations. Thanks, Ann. Good morning. As stated in previous quarters, 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 specialty divisions as well as certain products written by our global insurance team. For the Q4, gross written premium was up 4% over the prior year. Year to date, gross written premiums have increased 11% over the prior year. This increase was due in large part to the Ultera lines of business that are now included in this segment. Excluding these lines, premium volume is up 6%. Keep in mind that we have been exiting or re underwriting some lines in our Specialty Wholesale divisions and this has impacted growth. The U. S. Insurance segment combined ratio for the quarter was 90% compared to 87% last year. The combined ratio for the year was 95% compared to 92% in 2013. As discussed in previous quarters, the higher U. S. Insurance segment combined ratio was driven by less favorable development of prior year losses due in part to adverse development in the architects and engineers line of business earlier in 2014. While we continue to see favorable development on our CASI lines of business in 2014, these redundancies were less than in 2013. Partially offsetting this impact was a lower year over year expense ratio. The improvement in the expense ratio was primarily due to non reoccurring transaction costs recorded in 2013 associated with the Alkera acquisition. The rate environment remained unchanged in the 4th quarter. We continue to achieve modest single digit rate increases on our small and medium sized accounts consistent with previous quarters. The market for larger global accounts remained very competitive and the rate for most lines remained under pressure. During the Q4 of 2014 and the 1st part of 2015, we announced several management promotions in the U. S. Segment. Rick Glesson was appointed President of Global Insurance. Sid has been with Markel since 1990 serving in a number of management roles including President of Markel Insurance, President of Markel Insurance Company and most recently Chief Administrative Officer of Markel, a position he retains along with his newly delegated responsibilities. Bruno has been working closely with the global team for the past year having spent most of the year in Bermuda. Steve Lutak was named Chief Operating Officer for Global Insurance and Chief Administrative Officer for Bermuda. Steve has been with Markel since 2010, joining us as part of Markel's acquisition of First Comp and was most recently Controller for the Specialty division. He has 30 years experience in the industry and has both his CPA and CPCU designations. Jim Arnold was appointed Chief Administrative Officer for the Wholesale Division. Jim also joined Markel in 2010. He has significant experience in strategic planning and business analytics. Previously, he served as Chief Administrative Officer of 1st Comp, where he was responsible for operations, customer service, legal and compliance teams. When Markel acquired Tomco in 2012, Greg Thompson who built and led Tomco for 33 years stayed with Markel and soon after the acquisition assumed the position of President of the Specialty Division. Greg did so with enthusiasm and a great sense of urgency and commitment. Recently, Greg expressed a desire to step down from this position, but remain with Markel and focus his energy on building programs, which is a real passion of his. Effective April 1, 2015, Matt Parker will take over from Gregg as President of the Specialty Division. Matt most recently served as Nanjing Executive Markel First Comp, where he and his team have consistently improved results every year. Matt has a very strong management background having spent 15 years with Gillette and Procter and Gamble managing businesses out of London and Germany. Since joining Markel, Matt's track record is excellent and we look forward to his leadership in this division. Chad Bertucci has been promoted to Managing Executive for Markel First Comp effective April 1, 2015 replacing Matt Parker. Chad joined First Time in 2006 and has served in several capacities including Vice President of Strategic Planning, Vice President Underwriting Loss Control and Audit. At the beginning of the Q4, we announced the combining of Markel and Altair Claims units into 1 organization for Markel North America and Bermuda. Nick Kocko was appointed Chief Claims Officer and will be responsible for the strategic vision and performance of this department. Nick joined Markel with the Altair acquisition and has more than 25 years experience in the insurance industry, including senior leadership positions with several international brokerage insurance and claims organizations. All of these management promotions clearly illustrate the depth of talent that exists at Markel. Our ability to attract, retain and promote top performers from within this organization supports our belief that we are well positioned for success in the future. I'll now turn the call over to Richie Webb. Thanks Mike. Good morning everybody. Today I'll focus my comments on our 2014 underwriting results for both the International Insurance and Reinsurance segments. You may recall that last quarter I used terms like solid and business as usual to describe the 1st 9 months of the year. Those words equally apply to our full year results for both segments. We had a strong finish to 2014 in both the International Insurance and Reinsurance segments and reported improved 2014 combined ratios in both segments compared to 2013. The International Insurance segment, which includes direct business and facultative placements written by our Markel International division as well as that written by our Global Insurance division performed extremely well in 2014. Growth written premiums in the International Insurance segment increased 9% to $1,200,000,000 for the year. The combined ratio was 90 3 compared to 94 in the prior year. The increase in premium writings in 2014 was primarily due to the Global Insurance division, which was created after the acquisition of Alterra on May 1, 2013. Consequently, it only contributed 8 months of business in 2013. The lower segment combined ratio was driven by more favorable prior year takedowns that was partially offset by a higher accident year loss ratio. The increase in the current accident year loss ratio was primarily driven by favorable development on prior accident years for the Global Insurance division, which was included in the current accident year for reporting purposes in 2013. I know that makes a lot of sense, but analysts plan it if you need to see. Now I'd like to discuss the 2014 results of the Reinsurance segment, which includes reinsurance programs written by our Global Reinsurance division as well as those written by the Markel International division. Gross premiums written for this segment were $1,100,000,000 for 2014, up from $566,000,000 a year ago. The increase in premium writings was primarily due to including the full year of writings for products previously written by Alterra in 2014 compared to 8 months of writing in 2013. Obviously, a much bigger difference than in the international insurance segment. Keep in mind, reinsurance, big dates for renewals on reinsurance are January 1 April 1. So, obviously, those were not included in 2013. The combined ratio for the Reinsurance segment was 96% compared to 109% last year. The reduction in the 2014 combined ratio was driven by more favorable prior year takedowns and the lower expense ratio. The lower expense ratio in 2014 is driven by Alterra acquisition related costs included in 2013. Included in the 2013 current accident year loss ratio was favorable movement on pre acquisition accident years related to the Ultera company. These takedowns totaled approximately $23,000,000 Excluding these takedowns and about 25,000,000 of cat losses in 2013, the current accident year loss ratio is flat period over period. As Mike said, market conditions remain competitive in the Reinsurance segment. We continue to see rate pressure and saw rate decreases during the January 1 renewal process. The International Insurance segment also continues to experience rate pressure with property and marine and energy being the most heavily impacted at this point. And we've stated it many times, we're not going to chase premium when we feel rates are inadequate. We continue to reinforce this message with our underwriters and underwriting teams every day. As a result of current market conditions and our underwriting discipline, organic growth in these segments will be challenging in 2015. So to quickly sum it up and hand it over to Tom, 2014 was a great year for our International Insurance and Reinsurance segments. Given current market conditions, 2015 will be challenging, but sort of similar to Tom's earlier comments, when have we not said that about markets. But we're very confident in our team's ability to navigate tough markets and deliver solid results. Now I'd like to turn it over to Tom to discuss investments in Markel Ventures. Thanks. Thank you, Richie. Well, as everyone here has reported to you, as Frank Sinatra might have saw, it was a very good year. For Markel Ventures, we grew in 2014 both organically and by acquisition. As Dan said, total revenues grew 22% from $686,000,000 dollars to $838,000,000 and our adjusted EBITDA grew from $83,800,000 to $95,000,000 The Ventures Group includes businesses that are performing better than we expected and some that are not. I think this will almost always be the case from a diverse group of companies. In aggregate, I am very pleased with the economic value being created from these operations and I'm optimistic about 2015 from the group. Several of our companies are cyclical and tied to overall levels of economic activity. So far, our order books continue to look good and I expect 2015 to be a good year for Markel Ventures. In our equity portfolio, we earned 18.1% in 2014 compared to the 13.7% return of the S and P 500. I simply could not be happier with this. More important than the returns of any one year though is the fact that over the last 25 years, we've earned over 200 basis points more than the S and P 500. I would sign up for that sort of outperformance for the next 25 years in a New York minute. Our commitment to equities has added immense value to Markel over the decades. We'll do our best and continue to follow our time tested approach to try to keep that going into the future. In our fixed income operations, we earned 6.5% and fulfilled our goal from fixed income investing of earning a positive spread on the insurance funds we hold and protecting the balance sheet against credit losses as well as the possibility of rising interest rates. We continue to keep our duration a bit shorter than our estimates of the duration of our insurance liabilities. The actual foregone investment income from maintaining this approach is small compared to the risk of what would happen if interest rates rose dramatically. We will continue to be defensive as long as rates are low. Again, thank you for your long term interest in Markel. We love what we do here and we love the people we get to work with. 2014 was an intense and fun year and we look forward to meeting the challenges of 2015 and beyond. And with that, we'd now like to take your questions. Thank you. If you could open it up for questions, please. Thank you, Mr. Gaynor. We will now begin the question and answer Our first question will come from Vincent D'Agostino of KBW. Please go ahead. Hi, sir. Good morning, everyone. Good morning. Good morning. Just to start out with a question I guess for the team, no one in particular, but with Tom's opening comments about just modeling out a tougher environment. And so here I'm particularly thinking about the comments around Ultera. And so what I'm wondering is if that might imply that you might have baked in some additional margin of safety or excess margin of safety beyond what was kind of needed? And if that implies that we might begin to see some initial accident year picks coming in and then might also see some favorable development on some of those kind of realignment actions that were kind of taken over the last year? Vincent, this is Richie. I'll give it a shot. We are incredibly consistent in terms of our approach of trying to build reserves that are that are more likely redundant than deficient in building a margin of safety in our reserves. This is something we've done after every single one of our historical acquisitions. And so, I think this is a case where past history is probably a pretty good indicator of what future performance might look like. We're doing very consistent with Alterra as what we did with Altera Nova or First Comp or any other acquisition, building that margin to safety. And once we believe that margin to safety is established, you'll have that ongoing roll on of safety in the 1st year and roll off of margin and safety in the back years. I would hate to try to tell you when exactly I think that will happen, but I think we're on track to accomplish that just like we've done in other acquisitions. Okay. Very good to hear. And then Tom just on Diamond Healthcare, maybe not a good assumption, but I guess I would have thought that just with the healthcare environment that that would have been a favorable kind of tailwind for Diamond. So maybe that's not the case or was there anything from a company standpoint that kind of A, from a revenue side that's impacting it and then B, from the goodwill side that had an impact as well? Right. I'd alluded to some of the marketable interest companies are doing better than what we have hoped to do with some of our more channels. In healthcare, the truth is, we have not covered ourselves in glory. That is a changing industry and while there are tailwinds that you speak of from increasing demand, the change and just the swirl of regulation has caused challenges. Additionally, in our healthcare operations, we're in a rapid growth mode. So we're figuring things out. We are also conservative in our accounting for the way that we would report and describe that to you. So, we're hard at it and I look forward to ultimately reporting better results to you someday on the healthcare arena, but we don't have them for you right now. And one thing I want to tie into some of Mike's comments earlier when he mentioned the list of people who received promotions and have grown in the organization. Every single one of those, I think, except Brit were folks who joined Markel as a result of acquisitions. And every single one of those acquisitions that we spoke of had some J curve associated with it for the Q1 or 2. We might have been concerned that why did we do that. But ultimately, the culture, the value, the system, the process that we embrace here at Markel works. We think that works in healthcare just like we think it works in different forms of insurance, but in different parts of the world. So I look forward to reporting better news in the future to you, but I don't know whether it's in the next quarter or 2. Okay. It sounds like that's going back to the benefits of all the diversification there. So not too concerned. So I guess the last question would be maybe on the workers' comp side. So it just seems like we're hearing that we may be kind of nearing an inflection point where rate increases are still available, but clearly it seems like things are getting a little bit more competitive. And so I'm just curious if you're seeing some of that same type of activity and if there's I guess the same comments on small mid versus large on the account size also applies here. Thank you. Well, this is Mike. We only write small workers' comp and 1st comp and that the results of that organization have improved every year since we acquired 1st comp in 2010. And that was the case in 2014. They have changed their business and I think I've talked about it on prior calls. They have moved in and out of geographies depending on the advantage of being in certain states and out of certain other states. They have dramatically re underwritten and changed their position in California, particularly in Southern California. And they have tiered their business based on the quality of the business in terms of A, B and C type accounts. So, they have managed that book of business extremely well in what isn't necessarily a favorable workers' compensation environment. I don't see that changing going forward. I can't say anything other than they've just done an excellent job outperforming the overall workers' compensation market in the last few years. All right. Thanks very much. Our next question will come from John Fox of Sanomor Asset Management. Please go ahead. Okay. Thank you, everyone. Realizing the overall results are terrific, Thank you for that. I did have a question on an area where it wasn't terrific, which is the old Alterra Life and Annuity. And I'm doing this from memory, but I recall when you closed the deal, you put up a rather large, I guess, charge or reserve against that. I think it was $300,000,000 but I may not remember that correctly. And it's continuing to be a drag of about $30,000,000 a year roughly. So is that something that we're going to live with going forward? Or is that a as kind of Richie was commenting on building a margin and safety realizing it's a discontinued business at this point? Yes. Hey John, Richie. How are you doing? I'm doing well. Thank you. You're going to continue to see that $30 ish million or whatever the number is every year. That's just simply the amortization of the discount on the reserves, because you establish those reserves at a discounted rate. What you're not seeing is the other side, which is what we're earning on the assets that we hold against those liabilities. You don't see that because that's sitting in the investment annuity reserves today. They're doing basically what we expected. And the discount rate we used when we acquired Alterra to set that reserve up was very conservative. And Even with the rather puny returns you can get right now in terms of your investments on fixed income. So it's a little we can and we can get on the phone with you and talk about it, but you'll continue to see that number and what you're not seeing is the return on the portfolio on the side. Right. Of course, that's coming through investment income and unrealized gains and realized gains. Yes. So I mean nothing untoward or different than what our expectations at the beginning has happened quite honestly. Right. Tom was talking about modeling at the beginning of the call and I should think about that and the other line as continuing going forward? Yes. Absolutely. Absolutely. Okay. And for Tom Gayner, I'm looking back 3 years ago, you had less than $2,000,000,000 in equities and now it's $4,000,000,000 And that of course has come from terrific stock market and additional investments that you've made over time. Going forward from here, the market's done fantastically, valuations are higher than they were. What do you see going forward, Tom, do you continue to dollar cost average? Do you take your foot off the gas a little bit? What are your thoughts on equity investing going forward from here? Really, the same as they've always been. And to your answer about dollar cost averaging, that is one of the beauties of being part of Markel is that my insurance colleagues keep making deposits into the account all the time, which facilitates that sort of approach and they very kindly never ask for any money back to make an underwriting profit. So it doesn't get any better than that. There's always uncertainty in the investment markets and while we're talking about new highs as an example, people in the oil patch might not be feeling that way right now. I mean that price has been cut in half and there's also just implications and things that fall out from that in ways that people didn't foresee. And hope you don't hold me to a forecast. I hope you don't hold anybody to a forecast because one of the things about the oil market that has struck me is, I mean, this is the biggest, the most liquid, the most important commodity that's traded in the world. And the fact that it could sell for over $100 and then less than half that within 6 months tells me that nobody knows anything about anything when it comes to the future. So that being said, that was the case 3 years ago. It was the case 30 years ago. It's funded from the work every day because there's something that you did not expect to happen that creates an opportunity. Well, yes, I'm certainly not asking for a forecast of the future, I guess. Just when you look at your investment opportunities, the future returns on equities will not be what they've been over the last 3 years, although they're going to be my prediction is they're going to be better than fixed income. So I was just curious if it was just for the incremental dollar coming from your friends in the insurance business, is the same proportion going into equities less or it sounds like it's going to be the same going forward if I hear you correctly. Yes. And what has happened over the last 3 years is we sort of incrementally have continued to invest in equities. And I've been inappropriately cautious about the equity market. Quite frankly, we satisfied returns, but we didn't optimize them. But that's okay, because that leaves us margin at safety, which is an important part of the culture here. And we'll continue to just plot along as the markets sheer off or have some big reaction, we have the dry powder and the capital to invest more aggressively and we will. Okay. Thank you. Thank you. Thanks, John. The next question will come from David West of Davenport and Company. Please go ahead. Good morning. Good morning, David. Good morning, David. Good. So Mike, I guess first a question for you on a more recent acquisition. Hagerty doubled their earned premium this year. Could you talk about that relationship and how you see do you expect it to continue to expand at a pretty healthy rate? Well, one David, we didn't acquire Hagerty. We are simply the underwriter on their book of business. They are a privately held independent agent and broker that specializes in the collector car business. They grew significantly this year. That marketplace, we were just out with them recently. There's a big marketplace. They obviously are a dominant player and a highly recognized player in that marketplace. I certainly don't expect their premium volume to double in 2015. I think they'll see steady growth as they have in the past. So our relationship with them is very good. We have a long term focus with them. And I think that the relationship today is about as solid as it could be. Okay. Great. And just turning to the international side, Richie, maybe you have a quick update on the AbbVie protection deal? Sure, Dave. Sorry, I didn't mention that. And some of it is probably because it's sort of business as usual. That acquisition has held down nicely, did exactly pretty much exactly what we wanted it to do this year in terms of premium volume and in terms of the fee income that it generates. The things that we're working on right now with the AbbVie folks and our UK retail folks is how we can cross sell some of that retail product. AbbVie's got some really neat products that we think we could sell alongside some of our other commercial products for the retail market. And that is what's been the focus over the last couple of months is really coming up with plans on how we're going to start to take advantage of that in 2015. So hopefully I'll have more to say about that as we go through 2015, but things have gone very well at AbbVie in 2014. Great, great. And then lastly for Tom, you just alluded to all the turmoil in the energy sector. I wondered could you comment on what kind of exposure you had to energy in the fixed income portfolio? I don't have any breakdowns, but nothing that concerns me. We have a policy of 90% of our fixed income portfolio. Our mandate is a pay or better. And we always take the top tier of anything we do, energy included. Okay. Very good. All right. Thanks so much. Thanks, Dave. The next question will come from Mark Dwelle of RBC Capital Markets. Please go ahead. Hey, good morning. A few questions. Let me start with on the international book of business in the Q4, there's obviously some pretty significant reserve releases in there. Adding those back in to get an accident year combined ratio, it looks like the accident year combined ratio year over year was a little bit higher. I was wondering if there was anything unusual in there or a change in business mix. I realize obviously these are always pretty conservatively stated, but I wouldn't have necessarily expected the accident year number to go up. Mark, Ritchie, we're sort of looking at each other here and nothing in particular stands out to us. Anne or Laura or somebody can give you a call and we'll look at it and let you know. But I guess I would say I don't know of anything in particular in current accident year that's a problem. I'm thinking it's probably more of a mix issue. But we'll take a look at that and get back with you. Okay. Second question also kind of related to combined ratios. It looked like at least based on my calculation that the expense ratio for the Q4 was back at about 40% relative to the kind of 37% to 38% you had been reporting. Was there anything that contributed to that? Yes. Mark, that's one of the good expense ratio issues. What contributed to that was having so much in takedowns that increases our bonus accruals around Markel. So there's a lot of happy people looking at the 4th quarter expense ratio at Markel. And it's what you would expect. I mean, we really had a nice year in terms of the loss ratio. Some portion of that comes back on the expense ratio side through bonus accruals. Makes sense. Sure enough. Last question, I guess well, next to last question. Any comments on the January 1 reinsurance renewals? All the market commentary is that rates were fairly substantially down. You guys have normally been very disciplined about as you say not chasing those rates. Anything that you can share as far as what to expect about the January 1 renewal book? Sure. This is again Richie, it's Mark. Yes, it was tough. I mean January 1 was tough. I think everybody expected it to be tough. We're still putting numbers together, but we'll probably be down a little bit on our January 1 renewals just simply because of pricing and the fact that when that starts to happen, some accounts get too close to where we think the line needs to be drawn and we either have to reduce on them or we have to come off of them. So, yes, I would say that the news that you've probably been hearing from other people that 5% to 15% kind of on average is a pretty good number. And we'll wait and see what happens the rest of the year in reinsurance. Part of the beauty of Markel, I love having reinsurance as part of our business. I also love only having it as about 20% of our business. Because of that diversification, we can be a bit more cavalier in terms of our approach to it and be more disciplined. So, we'll see how the rest of the year goes. Okay. And then the last question I have is, you guys have had a buyback authorization in place for a little while now. You've not done a whole lot with it. And I know historically Markel hasn't been overly aggressive in buybacks. But I look at the amount of capital that you're generating, the prospects for growth as described and the valuation of your shares, which really not that distinct from a lot of peers. Kind of curious, which how you're thinking about buybacks and maybe why you're not being a little bit more aggressive at this stage? Sure. Well, thanks, Mark. This is Tom. As we've written for the last several years, the 4 part list and the triage of how we would think about capital that comes in the doors. And first off, let's not understate the importance of capital coming in the door to start with. This is a very high class problem we're talking about here. First thing we like to do is fund organic growth. And the good news is that given the size and scale of this organization and the talent we see in certain pockets, whether that's insurance or non insurance, people seem to be coming up with ideas to deploy capital in a thoughtful way and the best evidence you have that that works is the continuing sort of compound annual growth rate and the book value that we continue to report to. So if we see opportunities to invest organically with people who are already part of this organization and have done well, we're going to do that all day long. So we don't think we've exhausted that list at all. Second thing we look at is acquisitions, both insurance and non insurance entities these days and I think that about covers the possibility. So given the fact that we history and demonstrated the ability to do that, it's a big world out there and we continue to see deals and a lot of flow and a lot of conversations that I think will accrue to the long term benefits of the Markel shareholders. The third thing we have the option of is publicly traded investments. And we look at them in the same way that we would look at any other capital allocation opportunity, have done pretty well on that over the years. So then 4th and final, after we've exhausted those first three opportunities, if we still have money left over and our stock is priced favorably, well then yes, we'll repurchase. But the good news is that for as long as possible to deploy capital offensively in this first three categories, we all of us as Markel shareholders are better off and we'll look to do that as much as possible And share repurchases are item number 4. That being said, we're very rational for Markel shareholders. This is a source of our own personal network. And if it makes sense to be more aggressive on that lever, we would do so. Okay. Thanks for the update on that. I'll drop off. A couple of different questions. Number 1, acquisitions. You've done some acquisitions in the last couple of years, I guess. What's your appetite going forward? And particularly would you consider another large deal again in the next couple of years? Adam, Ritchie. And Tom might kick in on this one as well. We did the Ultera acquisition. It's coming up almost 2 years ago now, which is really kind of hard to believe. But we're in a great position as a result of that. I mean, the Ultera acquisition has gone very well, I think. And in terms of integration, we really don't talk about it anymore. It's pretty much a done deal. So short answer is we're kind of open for business really in terms of looking at insurance acquisitions. In terms of size, we try not to get too hung up on size. We try to think about strategic fit and the opportunity. And of course, at the end of the day, is there a market clearing price we can get to? So, put it this way, given where we are today, there's quite a large number of opportunities that we could look at and potentially take advantage of. And then of course, on Tom's side, lots of opportunities there. And I don't know if you want to talk about it. I have nothing to add. Well, the other thing this is Mike. The only other thing I'll add to that is that I think the culture fit with the Alterra talent in Markel was very good. And I think that's the basis of why we retained most of that talent. And while there are opportunities that will come up and there have been opportunities that we've looked at since the Alterra, there are opportunities that we've looked at since the Altair, they're all different sizes. You can't discount the fact that one of the important things we look at is the culture fit, which benefits us all for the long haul. Yes. And maybe just one last thought on it, Adam. There's been a ton of slew of activity recently. And not to pick on any of those deals, I'm sure all of them had their reasons for moving forward. Strategic fit is critical. Culture is critical to us. There's been some discussion that maybe some of the deals recently have been big to get bigger, big to get bigger. We're not interested in that. It's got to be a good strategic fit. It's got to be a good cultural fit. Okay. Thanks. And then as far as the excess and surplus market, there's always the give and take between the standard market and the E and S market. Which way is the pendulum going now? It's been going towards the E and S market. Is that continuing? Has that slowed down at all? Well, looking back at 2014, all five of our regions in the E and S segment grew in 2015. And if we look at our top 10 or 15 relationships with the larger wholesale firms, brokers, almost all of those grew in 2014. We just had our Wholesale Producer Council meeting in January down in Florida. And the attitude with our customers was very upbeat. And their attitude toward Markel was very upbeat and we're doing some strategic things there. So right now, I see 2015 as more of the same like 2014. Okay. Thank you. And then last more of a detailed question. In U. S. The favorable development, could you just give us I guess some idea which years the most development came from? Is it more recent, more older? Just any ballpark would be helpful. Adam, I don't think we have that level of detail with us, but I'm happy to call you after the call. Okay. That'd be helpful. Thanks a lot. Thank you. The next question will be a follow-up from Vincent D'Agostino of KBW. Please go ahead. Hi. Good morning again and thanks for taking the follow-up. Just one. Tom, it's a bit of a curveball, but from your investment standpoint and going kind of to your point about diving into what no one can possibly know here, kind of curious if you see any situation where a strong dollar can create inflation outside of commodities and imports. So really just U. S. Services and domestic goods where that also simultaneously produces pressure on treasury yields as you have some of that foreign money coming here. Now the way I see that is if that is a possibility of being negative for both the insurance industry reserves and investment portfolio. I mean can anyone have a sense of that or do you have an opinion there? I have a protection I mean I have an opinion that you should be thoughtful about exactly that sort of risk. So it is in the mix of things that we think about and we try consciously to make sure that no matter what sort of curveballs are thrown at us from that standpoint, we can answer the bell for the next round of the fight. And I'm confident that we have not locked ourselves into inflexible positions. That is the key problem in being able to answer the bell for the next round. All right. Best of luck. Thank you. You bet. And I'm showing no additional questions at this time. This will conclude the question and answer session. I would like to hand the conference back over to Tom Gayner for any closing remarks. Thank you very much. We look forward to chatting with you next quarter. Take care. Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect