Tom Gayner - President and CIO Anne Waleski - Chief Financial Officer Richie Whitt - Co-President.

Rob Myers - SunTrust Jay Cohen - Bank of America Merrill Lynch Mark Dwelle - RBC Capital Markets Charles Gold - Scott & Stringfellow David West - Davenport.

Greetings, and welcome to the Markel Corporation’s Second Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Tom Gayner; President and Chief Investment Officer from Markel Corporation. Thank you, Mr. Gayner. You may begin..

Thank you so much. Good morning, and welcome everybody to the Markel Corporation second quarter conference call. I’m glad that you are here with us and we look forward discussing our results from the first half of 2014 as well as our thoughts about the business.

Joining me this morning is Anne Waleski, our Chief Financial Officer who will review the overall financial results for the Corporation. Mike Crowley is unable to be with us this morning so my Co-President Richie Whitt will cover all of the insurance operations. Then I'll return to discuss our investments and Markel Ventures activities.

Before we get started with the business of call we will proceed with the (inaudible) known as the Safe Harbor statement. 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 included under the captions Risk Factors and Safe Harbor and Cautionary Statements in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q.

We may also discuss certain non-GAAP financial measures in the call today. You may find a reconciliation of GAAP these measures in Form 10-Q. With that let me turn it over to Anne..

Thank you Tom. And good morning everyone. We had a solid first half of the year. I think the numbers speak for themselves (inaudible) into the results. Our total operating revenues grew 35% to $2.5 billion in 2014 compared to $1.9 billion in the first half of 2013.

The increase is due to the inclusion of six months of underwriting revenues from legacy Alterra 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 15% to $380 million from $330 million of last year, primarily due to revenue growth within Markel Ventures.

Moving into the underwriting results, gross written premiums were $2.7 billion for the first half of 2014 compared to $1.8 billion in 2013, an increase of 47% due to including six months of premiums from legacy Alterra products in 2014 versus two months of legacy Alterra premium in 2013.

Net written premiums were $2.2 billion in the first six months of 2014, up 40% from the prior year and earned premiums increased 42% to $1.9 billion for the same reasons I just mentioned. Net retention was down in 2014 at 82% compared to 86% in 2013.

The decrease which is in line with our expectations is primarily due to higher use of reinsurance on certain insurance products previously underwritten by Alterra. Our consolidated combined ratio for the first six months was 98% for both 2014 and 2013.

However, as a reminder, the 2013 combined ratio included transaction and other acquisition related costs of approximately $62 million or almost five points related to the acquisition of Alterra. The combined ratio in 2013 also included approximately $25 million or two points of catastrophe losses.

Excluding the impact of catastrophes and transaction and acquisition related costs from the 2013 combined ratio, the combined ratio for 2014 increased six points compared to last year.

The increase was primarily due to less favorable development on prior year loss reserves in 2014 compared to 2013, less favorable development of prior year loss reserves is primarily attributable to our U.S. insurance segment due in part to adverse development on our architects and engineers and brokers, excess and umbrella product line.

Additionally prior year losses for the six months ended June 30, 2014 include $27 million of unfavorable development on asbestos and environmental exposures within our Other Insurance Discontinued Lines segment. There was no unfavorable development during the six months ended June 30, 2013.

The consolidated combined ratio for the first six months of 2014 included approximately $167 million of favorable development from prior year loss reserves compared to $204 million of favorable development for the same period in 2013.

The benefit of the favorable development on prior year loss reserves had less of an impact on the combined ratio in 2014 than in 2013 due to higher earned premium volumes in 2014. I will take a minute now and discuss our on asbestos and environmental reserve review which we completed in the second quarter for 2014.

Typically, we complete an annual review of asbestos and environmental exposures during the third quarter of the year unless circumstances suggest an earlier review if appropriate. This year, we saw unexpected activity on a small number of claims early in the year which we believe warranted accelerating our annual review.

During this year’s review, we increased our expectation of the severity of the outcome of certain claims subject to litigation and as a result, increased prior year loss reserves by $27 million.

During our 2013 annual review which was completed during the third quarter of last year, our expectation of the severity of the outcome of claims known at such time also increased. As a result prior year loss reserves asbestos and environmental exposures increased by $28 million during the third quarter of 2013.

The need to increase the asbestos and environmental losses in each of the past three years, demonstrate that these reserves are subject to significant uncertainty and volatility resulting from an unpredictable and unfavorable legal climate.

Excluding the impact of transaction and acquisition related costs from 2013 decreased in the consolidated expense ratio in the first half of 2014 was driven by higher earned premiums in each of our ongoing operating segments compared to a year ago. Now I'll talk about the reserves of Markel Ventures.

During the first six months of 2014, revenues from Markel Ventures were $355 million compared to $314 million a year ago. Net income to shareholders from Markel Ventures was just over $5 million in 2014 compared to $10.5 million for the same period in 2013. EBITDA was $35 million in 2014 compared to $40 million in 2013.

For the six months ended June 30, 2014 higher revenues attributable to our acquisition of Eagle Construction were partially offset by a decrease in revenues from our manufacturing operations, as a result of fewer shipments and orders in the first half of 2014 compared to 2013.

Net income to shareholders and EBITDA from our Markel Ventures operations decreased for the first six months of 2014 compared to the same period of 2013, primarily due to less favorable results in our manufacturing operations partially offset by favorable impact from our acquisition of Eagle Construction. Turning to our investment results.

Investment income was $179 million for the first half of 2014 compared to $143 million in the same period last year. Net investment income for 2014 was net of $33 million in amortization expense from adjusting Alterra’s fixed maturity securities to a new amortized cost basis at the acquisition date.

The benefit of holding a larger portfolio was partially offset by lower yields. Net realized investment gains for the period were $26 million compared to $34 million a year ago, included within net realized gains for $1 million of other than temporary impairments as compared to $4.6 million in 2013.

Looking at our total results for the year our projected expected tax rate was 24% in the first half of 2014 compared to 28% a year ago. The decrease in the effective tax rate in 2014 is due to anticipating a larger tax benefit related to tax exempt investment income in 2014 as compared to 2013.

We reported net income to shareholders of $128 million in the first half of 2014 compared to $117 million a year ago. Comprehensive income was $481 million for the first six months of 2014 compared to $109 million a year ago. And as a result book value per share as of the end of June 2014 was $511.28, an increase of 7% since the end of 2013.

Finally I will make a couple of comments about cash flows and the balance sheet.

Net cash provided by operating activities was $237 million for the first six months of 2014 compared to $240 million for the same period of 2013, the decrease is due to higher tax payments for our international operations partially offset by higher cash flows from underwriting and investing activities due to the inclusion of Alterra.

With that I will turn it over to Ritchie to talk about the insurance operations..

Thanks Anne. Good morning everyone. I am going to talk about our U.S. Insurance, International Insurance and Reinsurance segments today. As discussed last quarter, U.S. Insurance segment comprised of all direct business and [faculty and] places written on our U.S.

insurance companies and include all of the underwriting results of our wholesale and specialty divisions as well as certain products written by our global insurance division. Year-to-date gross written premiums in the U.S. Insurance segment have increased 19% as of the prior year.

The increase was due in large part to Alterra lines of business that are now included in this segment. Excluding these lines premium volume is approximately 5%, mainly driven by higher volumes from the Hagerty business which was mainly 2013.

In addition to growth in our casualty environmental and other lines which more than offset decreases in our brokerage property writings. The combined ratio for the first six months of 2014 was 98% compared to 92% in 2013.

As Anne said, the increase in the segment combined ratio was driven by less favorable development on prior exited year loss reserves due impart to adverse development in the architects and engineers and on excess and umbrella lines of business. Partially offsetting this impact was a lower year-over-year expense ratio.

The improvement in the expense ratio was primarily due to higher earned premiums from including the legacy Alterra product as well as the Hagerty product lines in 2014 versus 2013.

Market conditions remain competitive for the wholesale and specialty divisions, however we continue to achieve rate increases during the second quarter in the 2% to 3% range which was actually slightly up from the first quarter. Market conditions in the global insurance division remained extremely challenging with rate decreases in most classes.

Property business and large casualty accounts are the most competitive and they're showing the largest rate decreases in our global insurance division.

Both our wholesale and specialty divisions continue to work to reduce their overall producer base, allowing our underwriter and staff to focus on those producers that are giving us the best opportunities to write profitable business.

In a competitive market such of this, it's important to code our best opportunities and not spend time practice coding. Moving on to International Insurance, the segment includes all direct and facultative business written on our non-U.S.

insurance companies and comprises the insurance underwriting results of our Markel international division, as well as that portion of our global insurance division underwriting results written on our non-U.S. insurance companies.

During the first half of 2014, gross written premiums in the International Insurance segment increased 20% to 653 million and the combined ratio improved 5 points coming into the 93.

The increase in premium writing is primarily due to the global insurance division which was created after our acquisition of Alterra and contributed six months of business in 2014 compared to the two months that were contributed in 2013.

The improvement in the segment’s combined ratio was driven by 6 points improvement in expense ratio and the lower current accident year loss ratio partially offset by less favorable development of prior exit year loss reserve.

As a reminder, last year’s expense ratio for the first six months included approximately 3 points of costs associated with the Alterra acquisition. Additionally, the 2014 expense ratio was favorably impacted by higher earned premiums from the global insurance line of business which carry the lower expense ratio due to lower acquisition costs.

The impact of higher earned premiums from the global insurance division however had an unfavorable impact on our current exit year loss ratio since the global insurance product offering generally have a higher attritional loss ratio than the other products in the international segment.

To finish up I would like to discuss the results for our reinsurance segment which includes all 3D reinsurance programs written across our company either by our global reinsurance division or the Markel International division.

Gross written premiums for this segment were 793 million for the first six months of ‘14 which is up from 241 million a year ago. The increase in premium writings was primarily due again to including six months of writings of products previously written by Alterra in 2014 compared to only two months of writings included in our 2013 results.

The combined ratio for this segment for the first months was 97 compared to 118 last year, last year combined ratio include approximately 12 points of catastrophe losses there is really no significant catastrophe losses in this year’s results and approximately 19 points of cost associated with the acquisition of Alterra.

Excluding these two items, the increase in the segment’s combined ratio in ‘14 is due to higher contributions of premiums from products previously written by Alterra. Alterra’s reinsurance portfolio included a significant portion of casualty reinsurance while the legacy Markel portfolio was largely property reinsurance.

Casualty reinsurance by its nature is inherently more volatile and there is a long tail product and as such the impact of applying Markel’s more conservative loss reserving philosophy had a more significant impact on ‘14 compared to the ‘13 numbers.

Reinsurance market conditions are without a doubt the most challenging of any areas of the insurance marketplace. Pricing is down in most reinsurance lines of business. And this is clearly being led by property reinsurance where rates are down anywhere from 10% to 30% in some cases.

Summing up all the results of Markel’s insurance operations, we had a good start to the year, a good first half of the year.

Despite competitive market conditions, we believe the Markel brand, our strong balance sheet and more meaningful market position has produced and will continue to produce additional profitable underwriting opportunities for Markel. At this point, I will turn it over to Tom..

One, we got to run our existing businesses through best of our ability and earn good returns on the capital; Second, we’ve got to make good capital allocation decisions with the money we make from doing job one. I am pleased to report that we're producing good results for you on both fronts and we look forward to challenge of continuing to do so.

With that, we’re delighted to take your questions..

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Mark Hughes from SunTrust. Please proceed with your question..

Hey, good morning everyone. This is Rob Myers on for Mark Hughes. Two questions, one is just in favorable prior year loss development we saw in the quarter.

Is that kind of a blip or is this something we should expect to continue going forward?.

Mark, I think we've said in years past that history does not dictate the future particularly in this arena. So creating an expectation around prior year reserves based on history is not something we typically encourage. That said, what we would expect for this year is something that will slightly less than last year or but not dramatically less.

So I think some of the adverse developments that you saw this quarter we're hoping that we have taken care of this quarter and won't repeat..

Okay. Thank you, that's very helpful.

And then lastly just wondering if you guys had an update on pricing competition loss trends in med mal workers comp space?.

This is Ritchie, Rob. In terms of med mal now still a pretty tough market right now. Just looking at our most recent rate monitoring and we're slugging it out and giving a couple of percentage points price increase on that business, but it's incredibly competitive.

In terms of workers comp that's probably the strongest part of the market and I didn't mention that in my comments. But in workers comp or sort of probably mid-single-digits in terms of increases on workers comp business and in California that should be significantly more depending on the class and depending on the geography in California.

So those two markets are sort of better end of the scale of where various products are in the industry..

Okay, thank you very much for taking my questions..

Our next question comes from the line of Jay Cohen from Bank of America Merrill Lynch. Please proceed with your question..

Thank you. A couple of questions, I guess the first one is on the reinsurance segment and you guys have been very upfront about moving the old Alterra business on to your reserving methodology and that’s put some near-term upward pressure on loss ratio that’s seen that with past deals, so it’s not surprising.

I guess looking forward in that business, maybe we had potential opposing forces, one is the market conditions all else being equal which suggest loss ratio get worse, at the same time as you kind have already moved this business or at some point moved this business into your own reserving methodology to expect to see some improvement down the line.

My question is do you think you can hold those margins flat or will the pricing dynamics kind of overwhelm whatever changes you are making on the reserve side?.

Jay obviously reinsurance is incredibly competitive right now, to the extent we are still writing accounts we believe the pricing supports the margins we want to produce on the business.

And honestly at this point I am not particularly I am pleased with the business we have put on the books this year, the big question to me what’s going to happen next year January 1 and forward.

If people are looking for price concessions next year, I am not sure that it’s there, I think this market should be quite honestly at the bottom where people are being disciplined about what they are doing. So, I feel very good about the business we’ve put on the books this year, I feel good about what we believe the margins are going to be.

As you know, as you say we've been putting Markel's sort of level of conservatism and margin of safety on the reserves.

So everything, I feel good about everything this year, the unknowable is where does the market go from here, I believe we re-ensure that given all we can give, it will be interesting to see what the competition is willing to do as we go into ‘15?.

Let's hope we find some sort of floor. The other question I had was regarding the comment about I guess calling to some extent the producer base within wholesale and specialty.

What’s the outcome of that, I mean should we expect because of that action top line growth to slow down?.

No, when we - you are always managing the producer base and we're always trying to it's sort of 80-20 role it's interesting that top 20% of your producers probably give you 80% of your business.

And then you've got to decide with that, the rest of the group, do they have potential to move into that other group or do you need to move on and spend your time elsewhere. So, you are always managing the producer base. Our in the past what we've seen is when we focused more on the people who truly are producing the business for us, volume goes up.

We don't tend to take a step back, we tend to continue to move forward and in fact we are seeing when you back out what's happening on the property book, we are pricing, where we had to reduce, because of pricing.

We're up in most of the other lines of business in wholesale and in the lines where we're not in some sort of pricing actions on specialty, again we’re seeing decent growth. So no, I think it’s just a healthy thing that we’re always doing and I think we’ll continue to see modest growth as we go forward..

That’s helpful. And thank you..

Our next question comes from the line of Mark Dwelle from RBC Capital Markets. Please proceed with your question..

Hey good morning.

Couple of questions, did you have any losses that you’re identifying as catastrophe losses in the quarter?.

Nothing to note..

Any even uptick at all in weather related or non-cap losses that is worth highlighting?.

Nothing at all worth highlighting..

Nothing that we -- you have a threshold for a name catastrophe Mark and really we did not have anything that would have hit threshold for any of the named cats. So, it was a very quite first half for the year, no it’s not that we didn’t have some attritional losses, we certainly did, but nothing that rose to a level of significance..

Okay.

A question for Tom, it is just nothing able to hear and write quickly enough question, in the context of Markel Ventures, you said that something is now at a $1 billion rate or amount, what was that thing?.

The revenue lines going forward of the entire Markel Ventures group..

Got it. Thank you.

And my last question now that we’ve -- now that you’ve had Alterra for a full year, the amount of premium that you retained from that franchise, how does that compare relative to your very initial expectations? From my perspective it seems like relatively more premium which retains and then maybe was initially expected, but interested in your thoughts?.

Mark, this is Richie. Yes, I’d agree with you. I would say we've retained more of the premium than we would have expected initially.

I think if you look at our 10-Q, we have a pro forma gross written premium numbers in there for the quarter and year-to-date and I think actually in the quarter we were ahead of that pro forma number and for the six months we were basically flat to that number which -- some of that is growth in legacy Markel products, but I have been very pleased with the amount of premium we held on to from the acquired products of Alterra..

Would you say that the underlying quality of the book has been better than initial expectations or it's just the way the market conditions have developed, allowed you to retain perhaps more than you might would have initially judged?.

I think the quality has been about what we thought when we went into the deal. I think the most important thing in any acquisition and I think I’ve said this before on the call is being able to keep the talent, keep the people. And we have done a very nice job there, people have stayed.

And I think I contribute the success we have had to the fact that the talent has stayed with us. I think the quality of the business is about what we assume..

Mark, I would add one point to that. And that is the marketplace acceptance of Markel which is a bigger balance sheet that has the talent that Richie spoke of that has gone well.

We didn't exactly know how the pencil and paper that going into it, but we certainly believe that the current entity will be more abstracted as an insurance partners (inaudible) world and that's really to be the case..

Yes, that's a really good point that Tom makes. People like to talk about synergies and acquisitions and we try to take away from those words.

But it is fair to say, we’ve seen a number of large accounts, particularly on the reinsurance side and then the global insurance side where the Markel brand and the balance sheet strength and the relationship that Markel has throughout the industry has made a difference in terms of business coming to us. So clearly that has happened..

Okay. Thanks very much for the insights. Good quarter, thanks..

(Operator Instructions). Our next question comes from the line of Charles Gold from Scott & Stringfellow. Please proceed with your question..

Tom, hoping you would go through an exercise with me and get out to the back of an envelope and it's a Markel venture question. Now the run rate and revenue is $1 billion dollars, looking at the 2015 let’s say, if the -- and also factoring in that the metrics you were looking at when you bought companies was roughly six to seven times EBITDA.

So the assumptions I would use on the back of my envelope would be next year’s revenue funds in acquisition $1.1 billion that the companies we bought may not have lived up to the six or seven times EBITDA, so I use eight times.

So I multiply the 1.1 times, 12.5 and get $137.5 million of EBITDA and bringing half of that to the bottom line in net income and get just under $5 per share in earnings on an annual basis.

Is that in the right ballpark or am I thinking incorrect?.

I think I will go home and say 2015 is done. Your back of the envelope and thought process is directionally correct. The thing that we can’t take for granted is that these things are always easier to say than they are to do, so there will be immense amount of work to make that happen.

But those sort of rough, rough back of the envelope calculations are directionally correct..

Thank you, sir..

Our next question comes from the line of Jay Cohen from Bank of America Merrill Lynch. Please proceed with your question..

Yes, I guess just maybe a follow-up on Markel Ventures. I am looking at simple calculation, just the margin on a non-manufacturing businesses.

And they went down fairly dramatically from first half ‘13 to first half ‘14 and I don’t know if that’s a business mix issue, some of the different businesses, but I am wondering if there is a reason why they went down so much?.

Right. On the non-manufacturing margins, I don’t have the numbers in front of me but directionally what will be happening is probably biggest swing is in our healthcare area. And there are two things going on there.

One, the immense changes that are happening in the healthcare area have proven to be tougher challenges than what I would have expected to begin with. We are addressing them; we are making the best we can of it. But let’s just say that that has been a more of a challenge than what I expected.

Second, within the healthcare, there are things that we are doing where we are funding and we have our foot on the gas to grow rather quickly. And we are expensing new office openings, this is specifically the [realm of partner MD] incurring front-end expense that we think produces wonderful returns on investment.

But we’re spending that money right now. And realistically, I would say it’s this time next year, before we just start to see whether those initiatives are indeed bearing the fruit that we expect from them.

And the bottom-line, just like in the insurance business, either they will be bearing the fruit that we expect or will stop doing it, one or the other..

Got it. And then the question on the reserves.

So, the adverse development and the architect and engineers book and the excess and umbrella lines, what were some of the key underlying trends that you were seeing that drove that change? Is this a severity issue? And so, one, what were the trends? And two, were there any particular classes of business within the excess and umbrella area?.

In terms of -- I’ll start with architect. It’s a relative small line of business for us.

And I think if you were to go around and look at the industry, everybody has been struggling a little bit with the architect probably since 2008 with the credit crisis; architects and engineers got pulled into a lot of new and different ways of seeking recovery, post 2008.

So, it’s then when we’ve been chasing a little bit and the bottom-line is we’ll lead it, get it right, or we’re going to write a whole lot less architects in starting and we don't write a whole lot to start with, but it could be a whole lot less, if we don't feel like we're getting the right rate for it.

On excess and umbrella, that class has been a terrific class for quite a while, we’ve seen a little bit early developments recently and we’ve probably seen some auto losses, which is not surprising and we intend to see some heavy auto in excess number. But we’ve seen a little bit of auto losses and we’ve seen a little bit early losses.

The team again is on top of it and we’re making some changes to address it, and again we need to get it straight or premium volume will decrease..

Okay, great.

And I think you’re pretty proactive in that book?.

We try to be..

Thank you..

Thanks..

Our next question comes from the line of David West from Davenport. Please proceed with your question. .

Good morning. In the other revenue other expense tables on the insurance side, have your MGA operations and then the line item life and annuity, and I thought most of the Alterra life and annuity within discontinued operations.

Can you dig down and tell me what that life and annuity line is associated with?.

David it is in discontinued. And it is related to the Alterra discontinued life and annuity book. It’s just not underwriting..

Okay..

Right. Right. And I guess on the revenue side I don’t have the schedule in front of me, but revenue side would just be some small premium adjustments, I think it’s a relatively small number, that tax goes, it will be a few thousand dollars each quarter, they always are constantly adjusting premiums.

And then on the expense side that’s just the amortization, the accretion of the discount on those life and annuity reserves. So, that will be a feature which shows up from now for the next 50 years on a decreasing basis..

Got it, okay. Decreasing basis, that’s encouraging..

Right, right. It’s just that ….

All right. Thanks very much..

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments..

Thank you very much. We appreciate to joining us. We look forward to chatting with you next question. Take care..

Ladies and gentlemen, this does concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day..