Executive Summary / Key Takeaways

• Strategic Transformation Underway: Markel Group is undergoing a significant strategic transformation, simplifying its insurance operations, decentralizing accountability, and exiting underperforming businesses like Global Reinsurance and certain D&O lines to refocus on core specialty markets and profitable growth.
• Improved Insurance Profitability: Early results from these actions are evident in the Markel Insurance segment, which achieved a 93% combined ratio in Q3 2025, a notable improvement from 97% in the prior year, driven by higher underwriting profits and lower catastrophe activity.
• Diversified Cash Flow Engines: Beyond insurance, Markel's Industrial, Financial, and Consumer & Other segments consistently contribute positive operating income and cash flow, providing resilience and flexibility for capital allocation, even amidst "normal oscillation" in market demand.
• Disciplined Capital Allocation: Markel maintains a "safety-first" investment approach, with 96% of its fixed income portfolio rated AA or better, while actively repurchasing shares. Share count has been reduced from 13.8 million to 12.6 million since 2020, with further reductions anticipated.
• Technological Edge and Future Outlook: Significant investments in data analytics, AI, and a new Guidewire claims module are enhancing underwriting, efficiency, and customer experience, positioning Markel for improved attritional combined ratios in late 2025 and continued growth into 2026 and beyond.

A Legacy of Compounding: Markel's Evolving Blueprint

Markel Group Inc., founded in 1930 as a specialty insurer, has meticulously built a diversified enterprise with its insurance operations at the core. This journey, marked by its 1986 IPO, has seen Markel evolve into a "relentlessly compounding machine" , driven by a unique "three-engine" model encompassing specialty insurance, diversified ventures, and a strategic investment portfolio. The company's enduring "Markel Style" culture, rooted in principles of fairness, integrity, and a long-term winning mindset, guides its decentralized leadership and capital allocation decisions.

A critical strategic pivot occurred post-2016, addressing challenges in focus and accountability that emerged from a transitional co-CEO structure. By 2022, Markel embarked on a series of decisive actions to redefine its purpose, appoint a sole CEO, and emphasize profitability and returns. This transformation has been particularly pronounced in its insurance business, where underperforming products were targeted for re-underwriting and exits. The company's long-standing practice of establishing conservative loss reserves, consistently producing favorable development for over two decades, underpins its financial integrity and ability to meet future commitments.

Competitive Arena: Specialty Focus Amidst Giants

Markel Group operates in a highly competitive landscape, facing both large, diversified insurers and nimble, specialized players. Direct competitors like Chubb Limited (CB), American International Group (AIG), and The Travelers Companies (TRV) offer broad property and casualty insurance, often with greater global scale or operational efficiency. Berkshire Hathaway (BRK.B), with its vast financial resources and diversified holdings, presents a formidable rival, sharing a similar long-term, value-oriented approach.

Markel's competitive strategy centers on its specialized underwriting expertise, particularly in hard-to-place risks, and its diversified business model. While larger competitors like Chubb leverage extensive global footprints and AIG benefits from a broad network, Markel differentiates itself through a focused approach in niche markets. For instance, in the U.S. E&S (Excess and Surplus) market, Markel benefits from a "structural shift and tailwinds" , with the market growing significantly as customers demand tailored, specialty offerings over vanilla solutions. This allows Markel to maintain pricing power, particularly in the casualty market, where it has achieved "double-digit rate increases" in 2024 and Q1 2025, staying "slightly ahead of trend" despite elevated loss costs.

In fronting services, its State National business, a pioneer in the market, faces increased competition from new entrants. Markel maintains its discipline by adhering to strict underwriting standards and capital requirements, even as competitors may relax terms. The company's ability to remain rational in its underwriting and investment decisions, supported by diverse income streams from its ventures and investment portfolio, provides a distinct advantage over competitors solely reliant on insurance cycles.

Technological Edge: Driving Efficiency and Insight

Markel Group recognizes technology as a fundamental and critical area for competitive advantage. The company is making significant investments to enhance its capabilities in data analytics, artificial intelligence (AI), and core technology infrastructure. This strategic focus aims to improve pricing, accelerate response times, and deliver products faster to customers.

In its international operations, Markel has substantially increased its investment in data and analytics, growing its dedicated team fivefold over the last three years. This team builds models and data warehouses, integrating APIs to provide deeper business insights, which are increasingly utilized by the underwriting community. AI technology is being deployed for tasks like data ingestion, automating processes to free up underwriters' time for more complex work and customer service. Markel also partners with external specialists for certain AI-driven processes.

A notable technological advancement is the implementation of the Guidewire (GWRE) claims module. This system consolidates multiple independent claims operations onto a single, cloud-based platform, which is expected to drive "productivity and efficiency over time" and enhance the quality of claims handling. These investments, while contributing to a slightly elevated expense ratio in the short term, are crucial for making "better decisions, find insights faster, and improve efficiency" , ultimately strengthening Markel's competitive moat and long-term financial performance.

Markel Insurance: Re-underwriting for Profitability

The Markel Insurance segment, the cornerstone of Markel Group, is undergoing a profound transformation to enhance profitability and strategic focus. Recent organizational changes, including the appointment of Simon Wilson as CEO of Markel Insurance, have simplified the structure into four distinct operating divisions: U.S. Wholesale and Specialty, Programs and Solutions, International, and Global Reinsurance (now in run-off). This restructuring decentralizes decision-making, empowering leaders with clear P&L accountability and fostering a "customer-focused" approach.

The impact of these changes is already visible. For the third quarter of 2025, Markel Insurance achieved a combined ratio of 93%, a 4-point improvement from 97% in the comparable period of 2024. This improvement was primarily driven by higher underwriting profits and a lighter catastrophe season, with lower losses from the discontinued Collateral Protection Insurance (CPI) product contributing one point. The run-off of the Global Reinsurance division, which previously added two points to the combined ratio, is expected to reduce this drag over time.

Specific portfolio actions have been instrumental in this turnaround. Markel has exited underperforming lines such as U.S. and European risk-managed D&O professional liability, which added $127 million in losses (6 points to the combined ratio) in Q2 2025. The Global Reinsurance business, which was "loss-making for several years" and contributed $50 million in adverse development (2 points) in Q2 2025, had its renewal rights sold in August 2025, with the division entering run-off. Management expects losses from the discontinued IP CPI product line to decrease in 2026 compared to 2025.

Outside these "three specific pockets of pain" , the ongoing insurance business is "performing strongly with an underlying combined ratio below 90%" . The International division is a standout performer, achieving a sub-80% combined ratio in Q2 2025 and 84% year-to-date Q3 2025. Growth in underwriting gross premium volume for Q3 2025 was 11% year-over-year, fueled by rate increases and new business in personal lines and general liability, as well as international professional liability. The Programs and Solutions division is also experiencing significant growth, particularly in personal lines and the broader program space.

The expense ratio, at 35.9% year-to-date Q3 2025, is acknowledged as elevated. However, management is focused on reducing "controllable expenses" and expects "a couple points of improvement" over a three-to-five-year horizon, driven by technology investments and operational efficiencies. The 5-year average annual return on equity for Markel Insurance (2020-2024) was 12%, reflecting the total return generated on capital.

Diversified Engines: Ventures and Financial Services

Markel Group's diversified ventures and financial services segments provide robust, complementary income streams and strategic flexibility. These businesses operate with a high degree of autonomy, contributing to the overall resilience and cash flow generation of the Markel Group system.

The Industrial segment comprises businesses in building products, fire protection, manufacturing (e.g., precast concrete, car haulers), and environmental services. For the nine months ended September 30, 2025, operating revenues grew 4% to $2.90 million, with adjusted operating income increasing 2% to $263.58 million. Organic revenue growth was 2%, driven by demand in wind energy, construction, and building products, partially offset by softening in the transportation market. Management views this as "normal oscillation" , acknowledging the cyclical nature of some businesses while benefiting from a long-term, high-equity capital approach.

The Financial segment includes insurance services (State National) and investment management (Nephila). Operating revenues for the nine months ended September 30, 2025, surged 18% to $512.83 million, with adjusted operating income up 13% to $219.44 million. This growth was primarily due to higher premium volumes in program and lender services, a higher effective management fee rate for ILS investment management services, and income from a minority investment in Velocity. State National, a pioneer in fronting services, maintains its disciplined underwriting amidst increasing competition. Nephila's fronting business, reported within Markel Insurance, saw significant growth in property catastrophe programs due to attractive market rates.

The Consumer and Other segment includes businesses ranging from ornamental plants (Costa Farms) and homebuilding to IT consulting (CapTech) and international teacher sponsorship (EPI). Operating revenues for the nine months ended September 30, 2025, increased 4% to $1.11 million, with adjusted operating income rising 18% to $151.28 million. This growth was largely driven by the contribution from the EPI acquisition in 2025 and higher sales volume of ornamental plants.

Investment Acumen and Capital Allocation: The Compounding Engine

Markel's investment operations are a critical component of its compounding strategy, managed with a dual focus on capital preservation and long-term value creation. The majority of investments are held by Markel Insurance subsidiaries to support underwriting activities.

For the nine months ended September 30, 2025, consolidated net investment income increased, driven by higher interest income on fixed maturity securities due to a higher yield (3.5% book yield ) and increased average holdings. New fixed income investments are being added at higher yields, approximating 4.2% compared to maturing bonds at 3.4%. A conservative approach is paramount, with 96% of the fixed income portfolio rated AA or better, aiming to match the duration and currency of loss reserves.

The public equity portfolio, while subject to short-term volatility, is designed for long-term returns. For the first nine months of 2025, Markel earned 8.4% on its equity investments. The company's intrinsic value compounded at 18.3% over the last five years, demonstrating the effectiveness of its capital allocation.

Capital allocation is a 360-degree process, deploying cash into reinvesting in existing businesses, acquiring new businesses, investing in public equities, and repurchasing shares. Share repurchases have been a primary use of capital, with approximately $1.9 billion returned to shareholders from the end of 2020 through Q3 2025, reducing the share count from 13.8 million to 12.6 million. The company remains "price sensitive" in its repurchases, aiming to buy more when the stock price is low. Management anticipates the next 10% reduction in share count could occur within "3 to 5 years."

Outlook and Guidance: A Clearer Path Ahead

Markel Group's outlook is characterized by a commitment to continuous improvement and profitable growth, particularly within its insurance operations. Management expects the re-underwriting actions of 2023 and 2024 to "drive an improved attritional combined ratio in the back half of 2025 and continued improvement into 2026." The underlying combined ratio of the ongoing insurance business is already performing "below 90%" when excluding run-off products.

The expense ratio, while currently elevated, is targeted for reduction, with management aiming for "a couple points of improvement" over the next three to five years. This will be achieved through operational efficiencies, technology investments, and the earned premium catching up with growth initiatives. Top-line premium growth in insurance is expected to see "some acceleration during the second half" of 2025, with initiatives set in motion this year projected to "pay dividends in '26 and beyond." Growth will be concentrated in high-performing areas like International, Personal Lines, and Programs, while maintaining discipline in competitive markets like U.S. property and professional liability.

In the ventures segments, performance is expected to continue its "normal oscillation" , with acquisitions like EPI and Valor contributing to revenue. The investment portfolio is anticipated to continue compounding capital at attractive rates over the long term, though management "don't expect these returns to be repeated in the next five years" at the same pace as recent strong periods.

Risks and Challenges

Despite a clear strategic direction, Markel Group faces several pertinent risks. Market volatility, particularly in equity markets, can significantly impact net investment gains, which historically have been a large contributor to operating income. Interest rate fluctuations affect the fair value of fixed maturity securities, though Markel typically holds these to maturity, mitigating some impact. Foreign currency exchange rate movements can also affect results, especially given Markel's international operations and foreign currency-denominated reserves.

Underwriting risks remain, particularly from adverse development on run-off lines like risk-managed D&O and Global Reinsurance, which have historically impacted results. While management has taken aggressive reserving actions, these estimates are subject to change. Catastrophe events, such as the California Wildfires, can also impact underwriting results, though Markel has actively managed its exposure. Competition in the fronting market and certain property lines could pressure pricing and profitability. Furthermore, broader economic conditions, including potential tariffs and inflation, could affect demand for ventures businesses and increase operating costs.

Conclusion

Markel Group Inc. is at a pivotal juncture, executing a comprehensive strategic transformation to streamline its operations, enhance profitability, and reinforce its long-term compounding machine. The company's disciplined approach to specialty insurance, coupled with its diversified ventures and astute investment management, forms a resilient model designed to generate consistent cash flows and shareholder value. Early results from the insurance segment's re-underwriting and organizational changes are encouraging, with improved combined ratios and a clear path to further efficiencies and profitable growth.

Markel's commitment to technological innovation, particularly in data analytics, AI, and claims processing, is foundational to its competitive positioning, enabling better underwriting decisions and operational effectiveness. While facing inherent industry risks and competitive pressures, Markel's "Markel Style" culture, conservative reserving, and strategic capital allocation, including active share repurchases, provide a robust framework for navigating future challenges. Investors can anticipate continued progress in profitability and efficiency, driven by focused execution and a relentless pursuit of excellence across all segments, solidifying Markel's standing as a differentiated and compelling long-term investment.