MARKEL GROUP INC. (MKL)

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included under Item 1 Financial Statements and our 2025 Annual Report on Form 10-K. The accompanying consolidated financial statements and related notes have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) and include the accounts of our holding company, Markel Group Inc. (Markel Group), and its consolidated subsidiaries, as well as any variable interest entities that meet the requirements for consolidation (the Company). This section is divided into the following sections:

•Business Overview

•Results of Operations

•Financial Condition

•Non-GAAP Financial Measures

•Critical Accounting Estimates

•Safe Harbor and Cautionary Statement

Business Overview

Markel Group is a holding company that owns independently operated businesses across a range of industries. The cornerstone business, Markel Insurance, provides specialized insurance products that are not typically available through the standard insurance market. This insurance business sits at the center of the Company's strategy. It generates and holds capital used to support growth and investment across Markel Group. The other majority-owned businesses operate in diverse end markets, from industrial bakery equipment to ornamental plants to precast concrete. Markel Group also owns shares in publicly traded companies, which are primarily held within its insurance operations.

Markel Group supports each business by empowering leaders to make the best long-term decisions for their businesses. Customers, associates, and shareholders each benefit from this approach, given how it allows businesses to pursue opportunities that require time, stability, and trust. We believe this approach is difficult to replicate and makes Markel Group a distinctive home for businesses. The Company's long-term orientation and decision-making is rooted in the Company's culture, known as The Markel Style, which serves as a shared set of values that foster excellence and consistency across independent businesses, all while allowing each business to retain its entrepreneurial spirit.

A key principle of The Markel Style is building the value of the Company for shareholders. The design of Markel Group supports this goal by owning businesses that generate positive cash flows and redeploying those cash flows for additional growth. Markel Group has developed the skill and capability to redeploy capital efficiently, with low friction, across a large and diverse opportunity set, which includes reinvesting in existing businesses, acquiring majority-owned businesses, investing in publicly traded companies, and repurchasing Markel Group shares. Markel Group's unique company design and set of shared values have enabled it to compound shareholder capital at attractive rates over many decades.

Markel Group reports its business operations in four segments: Markel Insurance, Industrial, Financial, and Consumer and Other. See note 2 of the notes to consolidated financial statements for details regarding our reportable segments.

Results of Operations

The following table presents operating revenues by segment.

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The following table presents consolidated operating income and a reconciliation to consolidated adjusted operating income, as well as adjusted operating income by segment. Consolidated adjusted operating income is a non-GAAP measure. See "Non-GAAP Financial Measures" for additional details.

Net investment gains and losses have caused, and are expected to continue to cause, significant volatility in our periodic operating income, net income, and comprehensive income. Net investment gains and losses are predominantly derived from our investments in publicly traded equity securities and typically include significant unrealized gains and losses from market value movements. We believe that net investment gains and losses, whether realized from sales or unrealized from market value movements, are distortive in understanding the short-term operating performance of our businesses. As such, we exclude net investment gains and losses from adjusted operating income. We believe adjusted operating income, both consolidated and by segment, is generally an accurate representation of the operating performance of our businesses in our periodic results.

The following table presents the components of comprehensive income to shareholders.

Markel Insurance

Markel Insurance is our core specialty insurance business comprised of empowered local leaders underwriting hard-to-place risks across the globe in service of their customers' needs. Markel Insurance generates income primarily through its core underwriting activities and by investing the capital held by its underwriting subsidiaries, as well as through other insurance-related activities, which includes fronting and strategic minority investments. Markel Insurance is primarily comprised of its U.S. Wholesale and Specialty, Program and Solutions, International, and Global Reinsurance divisions. Markel Insurance also includes the run-off of the discontinued intellectual property collateral protection insurance (IP CPI) product line, life and annuity reinsurance business, and certain asbestos and environmental exposures, none of which is managed through its divisions.

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We measure the operating performance of our Markel Insurance segment by its operating revenues and adjusted operating income, which represents operating income before net investment gains and amortization of acquired intangible assets. The following table summarizes the results of operations for our Markel Insurance segment.

The 40% and 35% increase in adjusted operating income for the quarter and six months ended June 30, 2026, respectively, was driven by higher underwriting profits and net investment income. For further details of Markel Insurance's investment performance, see "Consolidated Investment Results."

Recent Developments

Middle East Conflict

In February 2026, a regional military conflict emerged in the Middle East following U.S. and Israeli airstrikes on Iran. For the quarter and six months ended June 30, 2026, net losses and loss adjustment expenses related to the Middle East conflict were $41.0 million and $76.0 million, respectively, or two points on both the quarter-to-date and year-to-date combined ratios. Our losses and loss adjustment expenses from the Middle East conflict were primarily attributed to terrorism, energy, and marine war coverages written by the International division.

Loss estimates related to the Middle East conflict represent our best estimate as of June 30, 2026 based upon information currently available. Our estimates for these losses are based on known losses and reported claims, as well as an analysis of our ceded reinsurance contracts. Due to the inherent uncertainty associated with the assumptions surrounding the Middle East conflict, these estimates are subject to a wide range of variability. While we believe our reserves for losses and loss adjustment expenses related to the Middle East conflict as of June 30, 2026 are adequate based on information currently available, we continue to closely monitor reported claims, ceded reinsurance contract attachment, government actions, and areas impacted by the conflict and may adjust our loss estimates as new information becomes available.

Additionally, as the Middle East conflict is ongoing, additional losses may be incurred in subsequent periods, and such losses may be material to our results of operations, financial condition, and cash flows. Covering these types of risks is core to our expertise as a global specialty insurer, and we continue to underwrite risks in this region on a case by case basi

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Item 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis includes discussion of changes in our results of operations and financial condition from 2024 to 2025 and from 2023 to 2024 and should be read in conjunction with the consolidated financial statements and related notes included under Item 8, Item 1 Business, Item 1A Risk Factors, and "Safe Harbor and Cautionary Statement". The accompanying consolidated financial statements and related notes have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) and include the accounts of our holding company, Markel Group Inc. (Markel Group), and its consolidated subsidiaries, as well as any variable interest entities that meet the requirements for consolidation (the Company). For a discussion of our significant accounting policies, see note 1 of the notes to consolidated financial statements included under Item 8. Item 7 is divided into the following sections:

•Capital Performance

•Results of Operations

•Liquidity and Capital Resources

•Non-GAAP Financial Measures

•Critical Accounting Estimates

•Safe Harbor and Cautionary Statement

In 2025, we made notable changes to our financial reporting, including the re-segmentation of our businesses, the expansion of both consolidated and segment financial metrics, and the addition of detail regarding our business strategy, among others. See note 2 of the notes to consolidated financial statements for additional details on the changes to our reportable segments.

Capital Performance

Markel Group is a dynamic system that strives to relentlessly compound shareholder capital at attractive rates across decades. We are responsible for capital allocation across our businesses and use a variety of metrics for each part of the Markel Group system, among other factors, to help inform these activities. Our capital allocation decisions are made with a long-term perspective that considers an array of qualitative and quantitative factors in the context of our capital allocation framework. See Item 1 Business "Relentlessly Compounding Shareholder Capital" for details of our capital allocation options and investment principles.

We believe that our capital performance metrics are best viewed over longer periods of time. To better align with this long-term perspective, we use five-year time periods to assess capital performance.

The five-year compound annual growth rate (CAGR) of intrinsic value per share is one of the ways by which we monitor the success of our capital allocation decisions and overall returns from the consolidated Markel Group system.

For our Markel Insurance business, we measure capital efficiency using return on equity, with a focus on the five-year average annual return on equity.

For our Industrial, Financial, and Consumer and Other segments, we look at a variety of capital efficiency metrics given the diverse businesses within these segments.

Intrinsic Value Per Share Growth

As a diverse holding company, we use growth in intrinsic value per share as a measure to help us evaluate the value created by our businesses over five-year periods of time. While intrinsic value does not represent a precise valuation of our business, we believe growth in intrinsic value per share, considered among an array of other qualitative and quantitative factors, offers a useful tool to investors and management in understanding long-term value creation trends. A straightforward methodology can be used to measure intrinsic value per share growth using data from our financial statements.

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First, we take an adjusted earnings metric and apply a consistent multiple to arrive at an earnings valuation. We exclude certain non-cash items from our adjusted earnings metric, such as amortization, as well as income attributed to our public equity portfolio and income from our cash and short-term investments, which are valued separately in our calculation. Using a three-year average of earnings in our calculation helps mitigate the impact of cyclicality and non-recurring items in the earnings valuation.

We consider a range of multiples in our earnings valuation calculation that reflects the diversity of our sources of cash flows, with 12x as the midpoint. Regardless of the multiple used, we believe using a consistent multiple for each year in the calculation is important when assessing the five-year compound annual growth rate in intrinsic value per share.

Second, we add certain items from our balance sheet that are not included in the earnings valuation. The balance sheet component of the valuation consists of adding cash, short-term investments, and equity securities, then subtracting debt, preferred stock, and noncontrolling interests.

The sum of the earnings and balance sheet valuations divided by the number of shares outstanding represents our estimate of intrinsic value per share from which to calculate growth.

Our simplified intrinsic value per share growth calculation may differ from calculations that others may perform, and our stock price growth may vary significantly from our intrinsic value growth calculation. We believe that the key with any calculation is applying a consistent methodology to measure the compound annual growth in intrinsic value per share over five-year periods, which is aligned with our long-term aim of relentlessly compounding shareholder capital.

The following table shows the calculation of adjusted earnings used for our earnings valuation.

The following table shows the components of our balance sheet valuation and common shares outstanding.

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Markel Insurance Return on Equity

We believe return on equity is an important metric to evaluate the overall performance of Markel Insurance. This metric is representative of the total return generated by the business on the capital that it holds and provides a metric by which to evaluate Markel Insurance's capital efficiency.

Although we do not consider net investment gains and losses when assessing the periodic performance of our Markel Insurance segment, we believe it is important to consider the full contribution of the publicly traded equity securities held by Markel Insurance subsidiaries when evaluating the capital efficiency of the business.

Over the five-year period ended December 31, 2025, the average return on equity from Markel Insurance was 13%. The following table summarizes the calculation of return on equity for Markel Insurance.

(1)    Interest expense on our senior notes is attributed to the return on Markel Insurance.

(2)    Income tax expense is based on a 22% tax rate, which is representative of our typical effective rate, however, it does not represent actual income tax expense at Markel Insurance. Income taxes are managed on a consolidated basis across the Markel Group and are only attributed to the Markel Insurance segment when assessing its return on equity.

Capital Reconciliation

The following table summarizes the capital held by each of our segments, as well as a reconciliation to consolidated capital of Markel Group. Total capital is comprised of total equity, redeemable noncontrolling interests, total debt, and obligations for finance leases. Eliminations relate to intercompany loans to and from a corporate subsidiary, which are eliminated in consolidation.

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