Markel 4Q15 Earnings Call Notes

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Thomas S. Gayner – Co-Chief Executive Officer

We emphasized defense in our investment operations last year

“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 warrant doing so.”

Given low interest rates you have to emphasize underwriting profitability

“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 here last year, and the targets that would be set, the hurdle rates for people to earn the 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.”

You’re not seeing wild cowboys operating with huge underwriting losses

“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, nobody, I think, is under that delusion and that is indeed different than what might have been the case 10 years, 20 years ago.”

There’s a bunch of capital everywhere and that’s pressuring rates

“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 and demand, and interest rates are hugely influenced by market factors as much as what central banks might do.”

Been extending maturity of the bond portfolio

“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 mid-year last year, I decided that I was wrong and that as the phrase goes, rates were 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 (39:39) than we were a couple of years before that.”