Markel (MKL) 2009 Annual Meeting

Disclaimer: These notes were taken in real time at the Markel Annual Meeting in Omaha, Nebraska on Sunday May2

, 2009 without the use of a recorder. The goal was to get the gist of the questions and as much of the answer as possible. Please excuse any mistakes or omissions.

Introductory Remarks- EVP/CIO Tom Gayner:

MKL has focused on liquidity over the last few years and has kept a lot of cash on handi.This is what they have been doing with shareholder money recently b.Gayner mentioned the question that Buffett brought up at the Berkshire (BRK) annual meeting theday beforei.What would he and Steve Markel do differently if MKL was a private company?1.There should never be an actual answer to this questiona.The answer should be nothing

Businesses should not be run any other wayc.MKL likes companies that have survivabilityi.Companies that are ready, willing and able to answer the bell for the next roundii.Want companies that in 20 years you will still be talking about1.The example he brought up was Marriot (MAR)2.Introductory Remarks: CEO Steve Markela.2008 was not an easy year to assessi.They need more time to properly assess the full impact and results of 2008

ii.

Looking back at it, 2008 was an historic year iii.They are happy with themselves on a relative basis1.But, they prefer to have done better

In any case they are extremely optimistic about the long-term future of MKL

Believe that we all need to look at MKL and all companies with a longterm time horizon b.They understand that the current crisis will lead to many changes in theworld but they feel MKL is ready to adapt as needediv.Long term values are very important1.Companies have to build a set of lasting principles to operate under a.More importantly companies have to stick with these principlesregardless of the operating environment2.Throughout the organization they have identified core principles and have stuck to thema.In areas in which they felt they had issues they have re-examined their processes and made the necessary changes3.Q&A Sectiona.Questioner: David Winters (The Wintergreen Fund)

Are AIG and its current practices hurting the industry as a whole?1.Markel

Yes, a little bit. But not as badly as some people have been suggesting b.Clients of AIG are asking a lot of questions and there is extremedisruption in the marketc.AIG is cutting the heart out of some of their policies, especially uponrenewals so that they can keep the business

i.About 5% of the time (Markel’s estimate) AIG is doing verystupid things when it comes to renewalsii.The bigger problem is that the competitors are using AIG’s problems and lack of pricing discipline not to raise their own prices1.This is solely Markel’s opinion but he believes thatthe insurance companies are going to have toreinvigorate and re-discipline their troopsd.There is a lot of resistance to price increases (partially as a result of AIG)i.Q1 2008-Q3 2008: MKL’s renewals were 5-7% below previous rates1.Q4 2008: Renewals were only 1-2% below previousrates as they started pushing through price increasesin Q42.Takes some time to get the price increases througha.Q1 2009 should actually have a positive pricing impact based on some non-renewalsand some price increases b.Questioner: What business lines are the toughest to pass through increases?i.Markel1.Easy: Oil rigs on the Gulf Coast, hurricane property and casualty, umbrella policies, European policies2.Tough: Excess/surplus liability, commercial contractors, California earthquakec.Questioner: How is the One Markel Program progressing?i.MKL used to be segregated by products with certain specialists located in specific officesaround the country

ii.

Felt that they were missing opportunities to cross sell and were not serving clients wellenough1.Clients did not even know about other products MKL was offeringiii.Now have moved to 5 regional offices where they have experts in each office1.This has turned the organization sideways2.Started in 2008 in Dallas and now have rolled it out countrywide

iv.

Things are going well despite a little noise and little chaosd.Questioner: Can you discuss the investment case for Brookfield Asset Mgmt (BAM)?i.Gayner 1.MKL has a long term relationship with BAMa.CFO’s mother used to work at MKL2.BAM has made some tremendous capital allocation decisionsa.Natural resources: timber, paper mills, hydroelectric dams b.Have realized that the forest is a better investment than the millc.Try to buy minimal capital expenditure requiring assets that will go upin value over timei.Thus they own better assets over time3.Like and trust the people who run BAM4.Believe it is priced attractively and expect to own it for the long run5.Will protect against inflation due to the hard asset focuse.Questioner: Can you discuss the Fannie Mae (FNM) and Freddie Mac (FRE) positions?

i.Gayner

They own senior debt as well as some preferred stock a.Believe that they are both permanently impaired b.In the future would like to have as little FRE/FNM exposure as possiblef.Questioner: Are there conditions for economic expansion out there right now?i.Gayner 1.Every business is making decisions faster and sorting things out faster a.Can’t put off hard decisions any longer b.Net effect of this rationalization creates the seeds of growth2.Feels like the 1970’s to them when there were a number of great companiescreateda.Entrepreneurialism was rampant then because it had to bei.This is the case nowg.Questioner: What inning are we in when it comes to this rationalization? Are the changes permanent?i.Gayner 1.Quoting Jeremy Grantham he indicated that over cycles we learn nothinga.Only short term lessons stick in people’s minds b.In the long term we make the same mistakes over and over 2.Business is cyclical and circular so the changes are not likely to be permanent3.Felt that we still had a ways to go in this rationalizationh.Questioner: What lessons were learned in 2008?i.Gayner 1.Leverage is a killer a.Even if you are fundamentally right you may not be able to play outyour hand due to leverage b.This includes explicit and implicit leverage

Collateral/contagion damage from the macro level can be justas devastating as on balance sheet leverage1.Being levered to the system is dangerous also2.Don’t learn the wrong lessona.It’s easy to make generalizations about this period that will be harmfulfor the future and may not even be accurate b.2008 was a real rattlesnakei.But in the future you have to be able to discern between thereal snakes and the fake snakes1.You can’t operate as if you are constantly afraid of finding snakes2.Have to be able to dust yourself off and get back inthe ring3.Believe their skill levels are higher after going through such a tough period

Questioner: In the new One Markel m odel, who has the underwriting pen?i.Markel1.Underwriting profit is the absolute most important thing for MKL as a company2.They are taking experts from specialist areas and are deploying them around thecountry in the 5 regional offices to make sure there are experienced peoplewriting policies