Markel Group Inc (MKL) 2007 Q1 法說會逐字稿

Greeting, ladies and gentlemen, and welcome to the Market Corporation's 1st Quarter 2007 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a remind, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Steve Markel -- Vice Chairman of Markel Corporation. Thank you. Mr. Markel, you may begin.

Thank you, Operator. During our call today, we may make forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements is described under the caption, "Risk Factors in Safe Harbor," and "Cautionary Statements," in our most recently filed Annual Report on Form 10K -- and Quarterly Report on Form 10Q. Our quarterly report on Form 10Q -- which is filed on our website at www.MarkelCorp.com -- also provides a reconciliation to GAAP of certain non-GAAP financial measures, which we may be discussing on the call, today.

Enough with the formalities. I'd like to start with a few comments, and I'll introduce the rest of our cast.

But Markel, as you all know, finished 2006 with great results, and 2007 is off to a wonderful start. We've reported a combined ratio of 87%, very good investment results, net income of $9.88, and book value per share has grown to $238.62 per share.

As you recall, last year was a very quiet hurricane season. And as we approach this year, we have continued to try to be smart, as we've managed both our exposures and our price. When markets go well, we and everyone else tend to do pretty good. When markets get tough, Markel excels.

As the insurance industry today seems flush with cash and positive results, the markets are getting tough. Yet at Markel, we will continue to do everything we can to compete for business -- except, of course, to compromise on any of our principles.

Our meeting this morning, as in the past, will start with Richey reviewing the financial results, Tony talking about our operations, Tom talking about our investment results.

With that, I'd like to turn it over to Richard.

Thank you, Steve. Good morning, everyone. I'm going to follow the same plan as in the past. I'll start with a discussion of our underwriting operations. I'll follow that by a brief discussion of investment results, and then bring the 2 together with a discussion of our total results for the quarter.

Really, as Steve said, the story for the 1st quarter is -- despite a softening market and decreasing prices in many lines -- we're off to a strong start in 2007. Going right into underwriting results, gross written premium volume decreased 4% to approximately 629 million in the 1st quarter of 2007. This was primarily due to competition in our US and International Professional Liability and Casualty lines, as well as certain Property lines.

Net written premiums also decreased 4%, to approximately $546 million. However, retentions were marginally higher, at about 87% in the 1st quarter of '07, compared to 86% last year. We obviously continue to look for opportunities to increase the retention of the profitable business we're writing.

Earned premiums increased 2% compared to 1st quarter 2006. They increased to 531 million. Our combined ratio for the 1st quarter was 87%, compared to 94% in 2006. Our 2007 combined ratio included 8 points or $40 million of prior-year redundancies. These $40 million of prior-year redundancies included 7 million of adverse development on the 2005 storms.

Our 2006 combined ratio included 9 points -- or approximately 50 million of 2005 storm losses. These storm losses in 2006 were completely offset by prior-year redundancies in other areas of our books.

The largest area of prior-year favorable redundancies in both quarters was in our excess and surplus lines segment -- again, specifically in the professional and products liability unit.

Also I want to point out that Markel International has had its 4th consecutive quarter of underwriting profitability -- reporting a 95 combined in the quarter. Over the last 4 quarters, Markel International's combined ratio has been 94%.

Our expense ratio in the 1st quarter increased to 35%, from 34% in 2006. This was primarily due to slowing growth in our operations, and higher compensation costs.

Markel's current accident year combined ratio was 94% in both the first quarter of 2007 and 2006.

Turning our attention to the investment results -- average invested assets increased 14%, to 7.5 billion in the 1st quarter of 2007, compared to 1st quarter 2006. This led to investment income increasing 16%, to 77 million. Realized gains were approximately 10 million, and this was primarily comprised of equity sales. Unrealized gains decreased to approximately 35 million before tax, and this was primarily due to declines in our equity portfolio. A little bit later, Tom will obviously go into further detail on the investment area.

Looking at our total results for the 1st quarter of 2007, we reported a net income of 99 million -- compared to 77 million in 2006, and book value per share increased 4%, to $239 per share at March 31st 2007.

Turning to the cash flow and the balance sheet, I just have a couple comments regarding cash flow. Operating cash flow was 65 million in the 1st quarter of 2007. That compared to cash outflows of 5 million in 2006. The increase in operating cash flow was primarily the result of lower 2005 hurricane payments in the 1st quarter of this year.

A couple other notes regarding the balance sheet. Our re-insurance recoverables continued to decrease in the 1st quarter and fell by over 100 million. And also in January of this year, we retired our junior subordinated debentures. That's really it, at this point.

At this point, I'll turn it over to Tony to talk about operations.

Thank you, Richey. As Richey indicated, we enjoyed another outstanding quarter to start off the new year. The combined ratio of 87% matches the terrific underwriting results achieved in the entire year of '06, and is testimony to our continuing focus on underwriting profits, the continuity and maturity of our staff, and their unwavering understanding of and dedication to our core principles. That's the good news.

The bad news continues to be the marketplace, which is clearly over-heating at an unexpectedly rapid pace. As I've been reporting virtually every quarter since early in '04, rates continue to deteriorate. However, up until the last quarter, the pressure on them has been tolerable in most sectors. And the residual was generally still acceptable. The last 3 or 4 months, however have shown a precipitous acceleration of competition -- as evidenced by the most recent CIAB survey, which reflects an 11.3% average premium decrease on general Property & Casualty rates in the 1st quarter.

As you would expect, given our commitment to underwriting profits and the recognition of walkaway price levels, our volume was impacted -- although moderately -- reflecting a 4% reduction in both gross and net premiums to 629 million and 546 million, respectively, as Richey had indicated.

We continue to combat this environment on several fronts. As reported previously, we have dramatically stepped up our marketing and sales efforts -- both at a corporate level and at every operating subsidiary.

We continue to add talent in both marketing and underwriting, to enhance the message and improve our already outstanding service levels. Our efforts on the acquisition front are moving at a full clip -- although we continue to be as selective as we've always been, with regard to culture, market leadership and potential long-term returns.

However, in that arena, there are a couple of things to report from the first quarter activities. First is the continuing post-acquisition transition occurring at Prairie States -- which we announced last quarter. And effective April the 1st -- last month -- they became a full-fledged member of the family as our percentage of the volume emanating from that subsidiary went from the current 25% to 85%. Although this is currently a relatively modest-sized operation, as I've expressed earlier, we really think this has outstanding long-term potential.

In addition -- and probably the most noteworthy -- we recently announced the acquisition of a $20-plus million book of social services business, from Black & White Associates of Alameda California, maintaining that as a branch. And this really gives us an additional platform to expand our presence in that very broad social service segment of the marketplace.

Last but not least, our international operation plans to open up an underwriting office in both newly-established Lloyds Room in Singapore -- sometime before the end of the year. And interestingly, Gerry Albanese -- the president of Markel International -- just returned from a visit to China with Lloyds chairman, Peter Levine and others laying the groundwork for future initiatives in that fast-growing part of the world.

In summary, it goes without saying that we will continue to deal proactively with the softening environment. Needless to say, we hate to lose profitable volume. But the operative word here is, "profitable." And you can rest assure that we remain focused on shareholder returns and the absolute mandate for profitable underwriting results to achieve them.

With that, I will turn it over to Mr. Gayner.

Thank you, Tony.

It was a relatively uneventful quarter in the 1st quarter on the investment side. Equities declined modestly -- 0.3%. The fixed income portfolio roughly earned its coupon. It was up 1.3%. The total portfolio achieved a total return of 1%.

The most interesting thing that I think exists out there in the market right now is that we're all familiar with the concept of an inverted yield curve. When interest rates at the short end of the curve are higher or flat with interest rates at the long end of the curve.

The thing that I think is out there right now is that we have an inverted quality curve, where the best companies, the best balance sheets, the global enterprises that benefit from the worldwide growth are at the most attractive relative valuations that they've been in decades, and at lower prices and valuations than riskier illiquid securities. That's where I think the opportunity is, and that's what we're taking advantage of.

I think if you look at the long-term record of investments here at Markel, I would say that 30% of our success comes from getting the upside of good things that we see out there, and 70% comes from avoiding collapses and catastrophic losses of unwinding previous [manias].

This is true on the fixed income side, as well. Fixed-income department has done a wonderful job of avoiding the current mess in the sub-prime world, as well as previously missing the messes in telecoms, dot-coms, airlines, overpriced converts and so on.

So to me, the current infatuation with alternative investments looks eerily similar to previous cycles. Real estate a year ago, text-dots or dot-coms 7 or 8 years ago, brand-name companies in pharmaceuticals 10 or 12 years ago, energy stocks 25 years ago, and so on and so on and so on. These are the areas that we're avoiding and not investing in. And I think the long-term record will continue to be achieved in the same way that it has in the past.

We're committing capital to proven great double-digit EPS-growing, 15%-or-better kind of ROEs and dividend drug companies with attractive worldwide business opportunities, and attractive valuations. We've got some dry powder. We have a very strong balance sheet. And buying power to take advantage of these kinds of circumstances.

I think it remains the biggest story of our generation as the rapid progress occurring all over the globe towards modern first-world economies. The pessimists are wrong, and I believe any set-backs in this process will prove to be quite temporary. This is an unstoppable force, and a force for good, at that.

I'm excited about the ability to invest in these kinds of businesses that benefit from these huge tailwinds, at these kind of prices. And I'm confident that we'll be happy with the results in due time.

The marketplace seems to do a wonderful job of growing a new crop of low-hanging fruit every season. And it looks to me like a pretty good crop is coming in right now. I'll be happy to answer your questions later, and with that, let me turn it over to Steve.

Thank you, Tom.

I only have one sort of final wrap-up comment before we open the floor to your questions. As Tony pointed out, and as you all know, in this environment, premium growth may be tough to accomplish in this environment. However, I can assure you that at Markel, we will deliver economic growth. And that's what our focus is all about.

With that, I'd like to open the floor to questions. Operator, can we start with questions?

Yes, ladies and gentlemen -- at this time we will be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. And also, for participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key. One moment please while we poll for questions.

Our first question is coming from Elizabeth Malone with KeyBanc Capital Markets.

Hi. Good morning and congratulations on the quarter!

I may have missed it in your comments, but was there any significant or material favorable reserve development that contributed to the results in the 1st quarter?

Beth, this is Richey. It's pretty similar to the story during 2006. We had about 40 million of favorable development in the 1st quarter. The biggest chunk of that, almost 34 million, is from excess and surplus line segment. And again, the biggest -- by far the majority of that amount -- is in Shand Professional Products Liability.

If you go back and look at the various quarters, this has been a theme that's been going on for the past several quarters.

Okay. So for 2007, you had the 34 million 1st-quarter, which is comparable to what you released in '06.

Yes. On a consolidated basis in the 1st quarter, there was 40 million of favorable prior-year development. 34 million of that was from the excess and surplus lines segment. And the majority of that came from Shand Professional Products Liability.

And then a question for Tony. On the pricing competition -- as I talk to some carriers in the marketplace, and this sounds very familiar to have pastimes. They're talking about, well, they'd write pretty standard risk, but they'd notice that specialty lines are more attractive results, historically. So now they've decided they want to start writing specialty business to give their agents more product, or a lot of different reasons.

It sounds very similar to what's happened in past cycles. And I'm just wondering -- is there any way to quantify or get a sense of how long it takes in the market? What kind of events have to take place in the market for these less-experienced, more naive carriers that have brought capacity to specialty lines to realize that it doesn't really work the way they thought, and they exit.

Beth, it's hard to say. But you know, there are a lot of people that put their foot in the water, and the minute it gets cold, they get the hell out. And I think that we'll see how long they are to stay, in the event that rates prove to be unsatisfactory. And I've suggested that a lot of sectors, the rates have gotten down pretty skinny.

So I think they're picking a pretty difficult time to enter, and I don't know how much resolve they'll have to stay in.

Interestingly enough, on the other side of that issue, in terms of working with our wholesale partners and so forth in a lot of our excess and surplus lines, there are a lot of carriers who frankly are trying to expand their product base beyond their core products -- I'm talking about regional carriers and so forth -- to provide more products for their producer plant, which frankly proves to be opportunity for us. So it's really a 2-headed coin.

We are getting more competition. Obviously the results in our sector have proven intriguing for some new entrants. Their timing might not be particularly good. But we've had that before.

Then one last question, and I'll get back in the queue. It's on the acquisition front. The acquisitions you've commented on are relatively modest, given the size that Markel is, today. Can you explain that strategy? They don't still make a big impact. They don't move the needle, as they say. No. I understand. Our objective is not necessarily to move the needle. Our objective is to continue to add accretive products and underwriting profits.

When you say, "move the needle," we're not really in this thing to make a splay -- a one-time splash. But for a long time, because of our acquisitive nature during the '90s -- and (inaudible) in the early 2000s and so forth -- I think we've been just about on everybody's radar screen with regard to homogenic specialty product opportunities -- Insurance companies, MGAs. So I think there's very little that goes around that doesn't at least cross our desks. That's basically another way of saying that we're indiscriminate.

If we saw the right big deal that we felt would add and that would be culturally consistent with us, we'd do it. But for the most part, more of the opportunities tend to be add-ons, and small new product ventures and so forth. But we look at them all.

As I indicated in my comments, and you know us well enough to know, we're pretty challenging with regard to the hurdles culturally, long-term returns and all that stuff.

So when I talk about our acquisitive efforts full-clip, it more implies we're looking at a heckuva lot of stuff. But a lot of it -- as you can appreciate -- doesn't muster.

Okay. Thank you.

Our next question is coming from Tom Cholnoky with Goldman Sachs.

Yes. I just had a couple of questions, Richey. Thanks for the reserve developments. Just maybe in future quarters, you could go back and include it in your Q, which you've done in the past -- which is very helpful to us.

Just on the other balance of the 6 million that you were talking about -- where is that? In International?

Yes. It's primarily in International.

Okay. Great. And then the second question. You talk about your accident year margins being relatively stable, year-over-year. But given Tony's comments about pricing, why wouldn't we start to see those loss ratio picks start to move up?

Well, Tom, over time, if the market continues to soften, obviously we'll do the best we can to hold pricing integrity. But the reality is, yet, our accident-year margins will start to drift up.

What's really happened at this point is, we're still coming off of years that we're very strong -- that are developing favorably. And we're able to set the current accident-year loss ratio reflecting that favorable development that we've seen since those years were set up.

So we're still flat, at this point. 94 sort of accident-year combined in the 1st quarter compared to 94 last year. But it is very safe to say that if markets continue to deteriorate, that will put pressure on the accident year combined.

Then, Tony, if you can just -- on the market in general -- you talked about pricing. What's happening with terms and conditions? And also, what impact are you seeing from some of the new Bermuda companies that are trying to establish platforms in the US focusing on some of your areas of strength?

Yes. Tom, as it relates to terms and conditions, they go hand-in-glove. It's not all an out-and-out pricing reduction. Clearly, the underwriters are being a little bit more liberal with terms and conditions -- which typically happens in this situation. So it's not only an erosion of price. We've factored it in as sort of a pricing methodology. But part of the reduction is terms, and part of it is true give up of premium.

As it relates to Bermuda, clearly our results of the specialty marketplace have obviously intrigued other to come in. And the net effect is -- and there are 4 or 5 new entrants either through Bermuda or Lloyds syndicates who've chosen to put a stake in the ground over here.

Starting from scratch, they have very few options at their disposal in terms of getting some critical mass. And they obviously, in my estimation, are creating some of the pressure, having to sort of burn their way into the marketplace.

Okay. And then I guess as a follow-up, are you supportive of the Bermuda taxation push that's going on in Washington?

We've had a number of discussions of a very position nature with Mr. [Berkeley].

All right. Thank you.

Our next question's coming from John Fox with Fenimore Asset Management.

Yes. Hi. Good morning. I have a number of questions. Richey, could you go back? You said 40 million favorable, but I hear also there was 7 million from the old hurricanes?

Yes. Within that 40 is 7 million of hurricane adverse development.

So it's 47 good, 7 bad -- net 40.

Yes. Well there's a lot to ups and downs within any number that's net like that. But since we've broken out hurricanes in the past, I'm giving you that number as well, today.

Okay. Thank you.

Can you talk about med investment income, which increased nicely? Is there anything unusual there? Or is that a new kind of run rate?

No, I think it increased inline with how the portfolio was growing. And it actually did slightly better than that, and that was the result of just a slight tick-up in rates. So it's pretty much inline.

The only qualitative thing I would add to that, John, is that the kinds of companies that we're buying these days in the equity portfolio tend to pay higher dividends than what we've historically owned. If you're going to pay a little bit more, the investment return comes through the current income line rather than just appreciation.

Okay. That's great. Can you tell me why you're buying in your stock?

Primary reason was that part of the purchase of one of the agencies Tony mentioned -- Black & White included -- the seller of that agency wanted equity. And so we bought stock to offset the impact of that.

And we also wanted to offset any impact of restricted stock brands that Markel has for some of its incentive compensation plans. So it was really kind of maintaining over the long run the outstanding shares. We don't want to see that number go up. If it's around 10 million, that's a nice round number.

Okay. There's a lot more shares than what you gave out to Black & White, but, okay.

Qualitatively, I would add on to his response that we sort of think it's good price, too.

Okay. Good. I'm glad to hear that.

Can you tell us as much as you can at this point on the Katrina flood in the Louisiana corridor? I understand that the Q, you couldn't put a dollar amount on it. But what are the important cases to monitor? Do you have a sense of timing? And can you give us anything on the dollar amount potential?

Well I think you'll probably hear the same thing from everybody. Everybody's sort of waiting for the 5th circuit to decide what they're going to do in terms of ruling on it or handing it over to the State Supreme Court.

So everything's been consolidated into what's been referred to as the DeVal case. And it's been very quiet.

I think the last I heard is maybe the 5th circuit will rule on it in the June timeframe. But it's really anybody's guess. And it's anybody's guess as to whether they'll take it or send it to the Supreme Court.

I think most people believe the insurance industry's much better for it to stay in the 5th circuit than go into the Louisiana Supreme Court. But bottom line for Markel is, we've tried to look at the exposure. We don't believe it's an end-of-the-world scenario. But clearly, it'll cost us money if when you go and look at each of those policies, the flood exclusion doesn't apply.

And these are commercial policies. It's not re-insurance or anything?

It's commercials policies. We had very, very little in terms of homeowners. It's commercial policies.

Those are my questions. I'd just like to add the balance sheet looks wonderful. So -- appreciate it.

Thanks.

Our next question is coming from David West of Davenport & Company.

Good morning. I think John covered all mine except for one, for Tony. The gross premiums at London did increase year-over-year. And given your comments about pricing, what drove that increase?

Basically, well, a couple of things, David. One is that we've got a pretty solid book of non-US business. And we've shown some nice growth in some of the marine lands that still are achieving increases -- contrary to most of the marketplace. I think it's a maturation of our staff -- the increase of marketing efforts.

But that organization has really done a [spray out]. I can't point to any one particular line, but the fact that a lot of that business is non-US and is not quite under the same pressure that we're feeling here has been beneficial.

Very good. Thank you.

As well as he foreign exchange.

Yes. I will add to that, Dave. There is a little bit of foreign exchange benefit in that.

Okay. Very good. Thanks so much.

Our next question's coming from Meyer Shields with Stifel Nicholaus.

Thanks. Good morning, all. Could you specify which segments the Black & White and Prairie States business is going to be included in?

Yes. Prairie States becomes a subsidiary because of its virtually all-professional liability offerings to the State Farm Agents now. Obviously major potential product expansion down the road, but because it starts off with all professional lines. And by the way, we have been a participant as a reinsurer on that for the last 5 or 6 years. So we know it intimately.

But because it's all professional liability, it's a subsidiary of Shand Morhan -- which, as you know, is our US professional liability platform. And the Black & White is an add-on to Markel Insurance Company, which already has a good base of social service business with a lot of its accounts. So this is an add-on to Markel Insurance Company, which is our admitted program writer.

When I spoke to the carrier that currently underwrites Black & White business, they said that they were going to be able to move it to another broker. I'm not sure I understand what they're trying to do. But are those legitimate concerns?

Well, the other carrier had 2 agencies that basically split the country in the production of this class of business. And when we bought their West Coast operation in Black & White, they responded by appointing the other producer that stayed with them as their entire nationwide representative. They are legally stopped from soliciting any renewals, existing accounts, and that type of thing.

We feel basically that that book is solid. Clearly, they're not going to give up without a fight. But we experience competition on an everyday basis, and the relationships that exist with Black & White are the primary relationships. So we're responding accordingly with their staying in the business. But we don't expect it to dramatically impact our projections.

Okay. Thanks so much.

Our next question's coming from Jay Cohen with Merrill Lynch.

Yes. Just a couple of questions. First, it looked like there was about a $5.3 million gain related to the sale of Corifrance. Can we assume that that's a kind of one-time thing for the corridor?

That, yes. You're right. That is Corifrance. And we sold that subsidiary a couple of years ago. There is an indemnification agreement related to that, that we monitor. And based on sort of the latest reports and due-diligence that we've done around that, we were able to reduce the reserve.

That is going to settle in the next year or so. So if there are any future adjustments to it, it's probably within the next year.

That's helpful. And then in the Q, there was some discussion around the adoption of [Sin48]. There was a bunch of moving pieces. It was hard to tell if it had any impact on either the book value or the earnings of the company. It didn't look like it. But I just wanted to clarify that.

Sure. There is no impact on earnings as a result of [Sin48]. [Sin 48] did increase book value by about 23 million. And there were obviously some other changes around the balance sheet. Probably most notable were other assets, where other assets increased as a result of Sin 48 -- the deferred tax asset increased, and we moved some. As a result of increasing book value, and also as a result of moving some liabilities to the liabilities side of the balance sheet.

And probably the other largest is about a $9 million decrease to goodwill that related to certain past contingencies that had been held, related to the TerraNova -- Now Markel International. So yes, a lot of moving pieces, unfortunately, as a result of [Sin48]. But probably the biggest thing to note is there was a $23 million increase to book value, but no change to earnings.

That would've helped your tangible book quite a bit, then, if goodwill goes down and equity goes up.

Yes, it did.

And then I guess just sort of a follow-up on the acquisition front. Historically at least part of your MO was buying troubled companies, and then essentially fixing them -- partly through (inaudible) premiums. And there were a lot of troubled companies in the '90s, obviously. We obviously focus on the public companies. There aren't that many companies in trouble, at this point. Most companies have excess capital and are showing reserve releases. But there's a lot of the universe that kind of slips below our radar screen.

Are you seeing some non-public companies that are beginning to have difficulties that might be looking for a partner?

I think, Jay, it's probably safe to assume that on the heals of the 2006 year, where virtually everybody's boat rose for the lack of hurricanes or other catastrophes. There are very few companies that at least we're aware of that are particularly stressed.

However, I think it's also safe to assume that if the environment we all think we're entering continues for any length of time, it will be an environment that creates a lot of those types of situations. And we'll certainly keep our eyes and ears open to take advantage of them.

Great. Thank you.

Our next question's coming from Chuck [Akker] with [Akker] Capital Management.

Good morning. A question for Tony. With a combined ratio down in the 80s -- 87, I think you said -- I just wonder whether or not that gives you the opportunity to keep business at lower prices. That is, do you have a target combine that you might use in pricing business in this environment, based on that experience?

Chuck -- we've got sacrosanct combined ratio targets for virtually every one of our products that are really, really sensitive to the tail of the business -- the claims payout pattern. But every one of our subsets, using a capital allocation model and so forth, effectively comes out with a combined ratio target.

And at 87 combined, clearly there is some room. But as I've alluded to -- and I certainly don't want to paint the fact that the entire market is creating walkaway right now. But our people are sophisticated enough and there's enough continuity of staff that they'll give up ground to retain volume within our combined ratio targets. But once it gets to that walkaway price, they are walking away.

But every single one of the products has a specific combined ratio target that varies -- depending on the table and the capital allocated.

Also, I think, Chuck -- as you know -- the current accident year combined ratio of 94% is really in terms of the current pricing models and in terms of the way we sort of measure and monitor the business -- it's really the more relevant number.

And in the aggregate, 94 is very close to that walkaway number. And in fact, a 94 means that we have a few products that are less and a few products that are higher. Those products that are higher, we're needing to push on more price.

Some of the prices that are lower could be CAT-exposed property business, and 94 would not be acceptable for CAT-exposed property business if next year it could be 110.

And so, there's not a lot of room. Where there's room, it's because we may be slightly heavy-handed at setting the current-year reserves because we want to be more likely redundant and efficient. But it's a very, very thing line.

And in any pricing model, the degree of accuracy is not all that perfect. So you need to always maintain and manage some margin of safety in this process.

Thank you.

As a reminder, ladies and gentlemen, if you would like to ask a question, you may press *1 on your telephone keypad at this time.

Our next question's coming from Jay Cohen with Merrill Lynch.

Yes. One question on the investment side.

Tom -- you talked about sort of the characteristics of the companies that you're interested in. I'm wondering if you can talk about certain industries. You name a couple industries you look, at this point -- and a couple of industries that you're really trying to avoid.

Right. I think the poster child -- to pick a name of everything that I'm talking about -- is GE. And we've publicly talked about the fact that we've been buying GE stock fairly regularly for the last several quarters.

There's a lot of people all around the world who're going to be the first in their families ever to own a refrigerator or a toaster or a ride on a jet airplane or drink water that went through water treatment. The list goes on and on and on and on. So if I've got to pick one name, that's my name that describes really what I'm looking for.

In terms of what I'm avoiding, again, it's not so much the industry as the investment structure that surrounds it. A lot of the things that are being talked about and being done are clearly legitimate good businesses that have attractive return characteristics to them.

But if you have excess of leverage and excess of fees around it, the returns that an investor gets to keep -- which is what I care about -- start to look not quite so attractive.

Any comments on the insurance industry since you've done a lot of investing there in the past?

Oh, yes. The one thing I'll say -- if you think about all these people with a refrigerator and ride on an airplane -- they're probably going to buy some insurance, too. This is a GDP-plus growth business. And it's a worldwide business. And Markel is in a completely different position today than it would've been 10 years ago. And the ability to participate in that all around the world -- where it is happening most rapidly -- and probably a little less competitively than what it is in the US.

Great. Thanks, Tom.

Our next question is a follow-up question from Meyer Shields of Stifel Nicolaus.

Thanks. Just being nit-picky. The other discontinued segments showed an uptick in premium. Is that something that's going to last? Or just sort of a fluke in the quarter?

You had a million dollars of premium? I'll tell you, that's just sort of hit-or-miss, at this point, as that runs off. Sometimes a little more comes in. Sometimes a little less. But over time, it will continue to decrease.

Okay. And also, I wanted to ask if you'd repurchased any stock since the end of the 1st quarter?

No. We have not.

Okay. Thanks.

Gentlemen, there are no further questions at this time.

Thank you very much, Operator. And I want to thank all of the participants and all of the Markel shareholders for their support. We have our annual shareholders meeting coming up in a few weeks, and we look forward to seeing you in Richmond at that point in time. One week -- May 14th. Hope you're all well. Take care. We look forward to seeing you soon.

This concludes today's conference. Thank you for your participation.