Executive Summary / Key Takeaways

• Strategic Reorientation for Profitability: Markel Group is undergoing a significant strategic reshaping of its core insurance operations, exiting underperforming lines like Global Reinsurance and certain D&O products, and reorganizing for enhanced accountability and efficiency. This is expected to drive an improved attritional combined ratio in H2 2025 and into 2026.
• Technology as a Competitive Edge: The company is investing tens of millions in technology, including Guidewire (GWRE), advanced data analytics, and AI, to improve underwriting, claims handling, and operational efficiency, thereby strengthening its competitive moat in specialty insurance.
• Resilient Financial Engines: Markel's diversified "three-engine" model (Insurance, Investments, Markel Ventures) continues to generate robust operating income and cash flow, with strong contributions from its investment portfolio and recent Markel Ventures acquisitions offsetting short-term pressures in insurance.
• Disciplined Capital Allocation: A conservative balance sheet, consistent share repurchases, and strategic acquisitions like EPI and Valor underscore a disciplined approach to capital allocation, aimed at relentlessly compounding intrinsic value over the long term.
• Long-Term Value Proposition: Despite short-term gross premium growth pressures from re-underwriting, Markel's focus on profitable growth, operational simplification, and technological advancement positions it to deliver superior returns and close the gap between its stock price and intrinsic value.

The Markel Flywheel: A Foundation of Specialty and Strategic Evolution

Markel Group Inc. operates as a diversified holding company, with its specialty insurance business serving as the foundational core, complemented by its robust Investments and Markel Ventures segments. This "three-engine" model is designed to relentlessly compound capital over time, creating a virtuous cycle of underwriting profits, investment income, and operating earnings from diverse businesses. The company's history, dating back to its founding in 1930 and its IPO in 1986, has been characterized by a long-term, disciplined approach to capital allocation and a culture emphasizing accountability and partnership.

However, a transitional period post-2016 highlighted challenges in focus and accountability, particularly within certain insurance lines. This prompted a decisive strategic pivot from 2022, aimed at refining its purpose, streamlining leadership, and re-emphasizing profitability. The core of this strategy involves a deep re-underwriting of the insurance portfolio, exiting unprofitable segments, and bolstering reserves to ensure a conservative financial posture. This strategic evolution is not merely reactive; it is a proactive effort to enhance Markel's competitive standing in a dynamic industry landscape.

In the broader insurance industry, the Excess and Surplus (E&S) market in the U.S. has demonstrated significant growth, with a compound annual growth rate of 20% over the past five to six years. This trend reflects a structural shift as customers increasingly demand tailored, specialty offerings that move beyond vanilla solutions. Markel's deep expertise in this space positions it favorably to capitalize on these tailwinds. The casualty market, a key area for Markel, has seen claims trend spikes in recent years, leading to a market-wide response of substantial rate increases. In Q1 2025, rates in this segment were up 13% on top of 10% in 2024, indicating a compounding of upward pricing. This environment allows for more selective underwriting as the size of lines offered in the market shrinks, creating significant opportunities for disciplined specialty insurers like Markel. Conversely, the U.S. professional liability market remains challenging, with pricing not yet at adequate levels, leading Markel to scale back its emphasis in this area.

Technological Edge: Fueling Underwriting and Efficiency

Markel's strategic response to competitive dynamics and its pursuit of operational excellence are deeply intertwined with its significant investments in technology. The company is not merely adopting new tools; it is strategically integrating advanced technological capabilities across its insurance operations to enhance its competitive moat. This includes a multi-year effort to modernize its U.S.-based technology architecture, with tens of millions of dollars being invested.

A core component of this technological differentiation is the implementation of the Guidewire claims module, which went live in Q1 2025. This system is designed to significantly improve claims handling and, over time, enhance operating efficiency by consolidating previously independent systems. Beyond claims, Markel is heavily investing in data analytics, expanding its team fivefold in international operations to build sophisticated models and data warehouses integrated with APIs. This provides richer data to underwriting, claims, and actuarial teams, enabling better decisions and faster insights.

Artificial intelligence (AI) is also being leveraged, particularly for data ingestion to automate processes and free up personnel for higher-value tasks like underwriting and customer service. Markel has expanded its partnership with Cyberwrite to advance underwriting with AI-driven predictive cyber analytics in Europe and is collaborating with Insurate to apply AI and innovative safety scoring to middle-market workers' compensation. These initiatives aim to revolutionize the quality of Markel's operations at the "coal face" and enhance its ability to monitor portfolio performance from a management perspective. The strategic intent is clear: to become easier to do business with, win market share, and drive efficiency, ultimately contributing to improved financial performance and a stronger competitive position.

Financial Performance and Strategic Rebalancing

Markel's financial performance in the first half of 2025 reflects both the strength of its diversified model and the short-term impacts of its strategic rebalancing. Consolidated operating income reached $1.11 billion in Q2 2025 and $1.39 billion for the first six months of 2025. This was primarily driven by favorable unrealized gains on the equity portfolio within the Investing segment.

The Markel Insurance segment, while undergoing significant strategic shifts, reported operating income of $60.3 million in Q2 2025 and $136.6 million for the first half of 2025. The combined ratio stood at 96.9% for Q2 2025 and 96.5% for the first half, an increase from 93.8% and 94.5% respectively in the prior year. This increase was primarily due to less favorable prior year loss development and a higher expense ratio. Management highlighted "three specific pockets of pain" impacting these results:

• Intellectual Property Collateral Protection Insurance (IP CPI): Added $26.4 million in losses in Q2 2025, contributing one point to the combined ratio. Management expects these losses to be less in 2025 than in 2024, indicating stabilization.
• Run-off Risk-Managed D&O (U.S. and Europe-based): Experienced $127.0 million in adverse development in Q2 2025, impacting the combined ratio by six points. This business was put into runoff in February 2025 due to persistent challenges from claims severity and frequency exceeding expectations.
• Global Reinsurance Division: Saw $49.5 million in adverse development in Q2 2025, adding two points to the combined ratio. This division is now entering run-off, with renewal rights sold to Nationwide, as Markel deemed it "subscale" to be a market leader.

Excluding the impact from these run-off products, the Markel Insurance combined ratio for Q2 2025 was in line with long-term targets, with the underlying ongoing business performing strongly at a combined ratio below 90%. The current accident year loss ratio improved due to underwriting actions and a favorable mix of business. However, the expense ratio increased due to higher personnel costs, including severance related to organizational changes, and professional fees. Management is committed to reducing this controllable expense ratio over time.

The Investing segment delivered strong results, with operating income of $822.4 million in Q2 2025 and $904.3 million for the first half. The equity portfolio returned 5.4% in Q2 2025, contributing $597 million in mark-to-market gains. Net investment income increased to $230.0 million in Q2 2025, driven by higher interest income on fixed maturity securities due to increased yields (3.5% book yield) and higher average holdings. The company continues to add new fixed income investments at approximately 4.2% yield, replacing maturing bonds at 3.4%. As of June 30, 2025, 96% of the fixed maturity portfolio was rated AA or better, reflecting a high-quality, conservative investment approach.

The Markel Ventures segment continued its robust performance, with operating income increasing 17% to $207.7 million in Q2 2025 and 10% to $310.2 million for the first half. Revenues were up 7% in Q2 2025. This growth was primarily driven by contributions from recent acquisitions, Educational Partners International (EPI) and Valor Environmental, and increased demand in construction services businesses. EPI, consolidated in Q1 2025, provides stable revenue from multiyear education placement contracts, while Valor operates in cyclical construction markets, benefiting from the growing importance of erosion control. These businesses internally fund their capital expenditures and generate cash for the holding company.

Other Insurance Operations, including State National and Nephila, also contributed positively. State National saw increased operating revenues due to higher earned premiums in lender services and an improved combined ratio. Nephila's operating revenues and income increased due to a higher effective management fee rate.

From a liquidity perspective, Markel maintains a prudent consolidated debt to capital ratio of 20%. The company strategically redeemed its $600 million 6.00% preferred shares in June 2025, eliminating a significant fixed-rate obligation. The share repurchase program remains active, with $1.60 billion available as of June 30, 2025, underscoring management's commitment to returning capital to shareholders when the stock price diverges from intrinsic value.

Outlook, Risks, and the Path Forward

Markel's outlook is firmly rooted in the expectation that its ongoing strategic actions will drive improved profitability and sustained value creation. Management anticipates that the extensive underwriting actions taken over the past 18-24 months will continue to earn their way through the results, leading to an improved attritional combined ratio in the second half of 2025 and continued improvement into 2026. While these actions may exert short-term pressure on gross written premium growth, the impact on earned premiums is expected to reduce in H2 2025, with acceleration anticipated in 2026 and beyond. The company's conservative reserving philosophy is expected to consistently produce prior year loss takedowns.

Key risks include the ongoing impact of run-off product lines like IP CPI, D&O, and Global Reinsurance, though reserves have been strengthened to provide a higher margin of safety. Natural catastrophe events, such as the California wildfires, which incurred $60.9 million in net losses in H1 2025, remain a factor, but Markel's portfolio management actions aim to minimize exposure. Broader economic factors like tariffs could increase inflationary pressure on insured losses. However, the company's diversified investment portfolio, with 96% of fixed maturity securities rated AA or better, and its hedging strategies for foreign currency exposure, mitigate market risks.

The strategic reorganization of Markel Insurance, with its emphasis on decentralized decision-making and clear P&L ownership, is a critical initiative. The federation of corporate and shared service departments into business units, involving over 1,250 personnel in three months, is designed to align costs directly with business performance and enhance efficiency. This internal transformation, coupled with continued investments in technology and a disciplined capital allocation strategy, positions Markel to capitalize on favorable market trends, particularly in the growing U.S. E&S and casualty markets.

Conclusion

Markel Group is executing a deliberate and comprehensive strategic reshaping, designed to enhance its long-term profitability and reinforce its position as a preeminent specialty insurer. The decisive actions taken to exit underperforming insurance lines, coupled with a significant investment in advanced technology and a renewed focus on accountability, are foundational to this transformation. While these initiatives may introduce short-term pressures on top-line growth and expense ratios, management's clear guidance points towards an improved attritional combined ratio and enhanced operational efficiency in the coming periods.

The strength of Markel's diversified "three-engine" model, supported by a conservative balance sheet and disciplined capital allocation, provides a resilient platform for compounding intrinsic value. The ongoing technological advancements, from AI-driven underwriting to modernized claims systems, are not merely incremental improvements but strategic differentiators that will sharpen Markel's competitive edge. For discerning investors, Markel represents a compelling long-term opportunity, as its strategic pivot and commitment to operational excellence are poised to unlock significant value and accelerate returns in the years ahead.