Author Topic: MKL - Markel Corp  (Read 334063 times)

vinod1

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Re: MKL - Markel Corp
« Reply #780 on: April 30, 2020, 09:30:12 AM »
From Conf Call:

Recognizing the importance of liquidity in times of uncertainty, we've taken several actions, including retaining cash proceeds from the maturity of short-term investments and fixed maturities, pausing our purchases of equity securities and in certain instances selling equity holdings, suspending repurchases of our shares and focusing on expense reductions across the company. We continue to maintain a fixed maturity portfolio comprised of high credit quality investment-grade securities with an average rating of AA.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger


scorpioncapital

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Re: MKL - Markel Corp
« Reply #781 on: April 30, 2020, 12:04:17 PM »
do they mean selling equities that may do badly and buying other ones, or just selling them to raise cash for insurance claims or liquidity? Although they are pretty liquid in general right?

vinod1

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Re: MKL - Markel Corp
« Reply #782 on: April 30, 2020, 12:26:58 PM »
Raising cash based on the statement. They also seem to be bit worried about insurance exposure to business

Recognizing the importance of liquidity in times of uncertainty, we've taken several actions, including retaining cash proceeds from the maturity of short-term investments and fixed maturities, pausing our purchases of equity securities and in certain instances selling equity holdings, suspending repurchases of our shares and focusing on expense reductions across the company. We continue to maintain a fixed maturity portfolio comprised of high credit quality investment-grade securities with an average rating of AA. Our debt to total capital ratio at the end of March was 27%, in line with our target range. We have no unsecured senior debt maturing in the next 24 months. We believe we are well positioned to meet our ongoing capital and liquidity needs, including the cash required to complete our pending acquisition of Lansing Building Products.

Switching to losses. As discussed in our 10-Q and previously on this call by Jeremy, we recorded $325 million of reserves, virtually all of it IBNR, for direct COVID-19 insured losses in the first quarter. These reserves relate primarily to potential U.K. business interruption claims and worldwide event cancellation exposures.
On the workers' compensation front, while we have received very few claims so far, we also expect to see an increase in claims that are directly related to COVID-19.
It is worth noting that all of our U.S. property policies require a physical damage to occur before business interruption coverage is triggered, and almost all of those policies also include a communicable disease or virus exclusion. Here, I'll stop and just say some of our policies have affirmative coverage, often sub limited, that would cover the events of COVID-19 and those are included - our reserve estimates for those are included in our first quarter. Therefore, our U.S. property policies are not expected to respond to COVID-19-related business interruption losses, although we will be investigating each claim on its own merit.
Our reserves were based on a ground-up analysis, but we're also informed by very preliminary industry estimates that suggest, over time, COVID-19 could produce anywhere from a $50 billion to $100 billion insurance industry loss event.
We would also expect to see meaningful losses indirectly related to the COVID-19 pandemic as a result of the disruption in the global economy and financial markets. These could include lines such as D&O, E&O, workers' compensation, trade credit, surety and casualty losses and the possibility of these types of losses impacting reinsurance business that we write.
Similar to the losses that emerged as a result of the 2008 financial crisis, we would expect these losses to - these indirect losses to emerge over the coming quarters. Our underwriters, actuaries and claims personnels will be working to quantify the increases to our loss ratios potentially required by these indirect losses.
Finally, we are prepared for elevated litigation expenses as it relates to COVID-19, particularly as it relates to business interruption claims in both the U.S. and abroad
. Where appropriate, we are taking steps to mitigate future exposure to pandemic losses by raising prices and adding policy terms and conditions, including additional exclusions.



Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

Pedro

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Re: MKL - Markel Corp
« Reply #783 on: April 30, 2020, 12:33:15 PM »
Rate increases coming for MKL policy holders
Hard market is in the early innings.

Xerxes

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Re: MKL - Markel Corp
« Reply #784 on: April 30, 2020, 01:28:58 PM »
This is so interesting, how companies across different industries (not unique to MKL or FFH) cannot do buybacks when it is most deemed required of them.
Because although the value of their share has dropped in absolute terms, their intrinsic value has also dropped at the same rate … and perhaps more.

So, does it really make sense to buyback ones own shares just because the absolute value has gone done dramatically (alongside IV).

For a company to be truly contrarian, it is not enough to preserve cash to that have that option, but to also have the mental capacity to want to bet that their intrinsic value would recover … ahead of the absolute value of their share price.

It is very exhaustive mental exercise, and I think you can only do that if you have a huge cash pile so that you have safety net if you are wrong about your IV recovering.
« Last Edit: April 30, 2020, 01:54:08 PM by Xerxes »

Spekulatius

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Re: MKL - Markel Corp
« Reply #785 on: April 30, 2020, 04:15:25 PM »
This is so interesting, how companies across different industries (not unique to MKL or FFH) cannot do buybacks when it is most deemed required of them.
Because although the value of their share has dropped in absolute terms, their intrinsic value has also dropped at the same rate … and perhaps more.

So, does it really make sense to buyback ones own shares just because the absolute value has gone done dramatically (alongside IV).

For a company to be truly contrarian, it is not enough to preserve cash to that have that option, but to also have the mental capacity to want to bet that their intrinsic value would recover … ahead of the absolute value of their share price.

It is very exhaustive mental exercise, and I think you can only do that if you have a huge cash pile so that you have safety net if you are wrong about your IV recovering.

It’s not a matter of mental capacity, it is the issue that they have no idea  what’s ahead of them. I also don’t think MKL is egregiously cheap right now. Insurers are in the “ trust me” business so a strong balance sheet beyond doubt is paramount. Berkshire very likely has the same issue and while I bet they will be buying back share, the same basic thinking applies and constraints them more than people think.
Life is too short for cheap beer and wine.

Xerxes

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Re: MKL - Markel Corp
« Reply #786 on: April 30, 2020, 06:11:46 PM »
This is so interesting, how companies across different industries (not unique to MKL or FFH) cannot do buybacks when it is most deemed required of them.
Because although the value of their share has dropped in absolute terms, their intrinsic value has also dropped at the same rate … and perhaps more.

So, does it really make sense to buyback ones own shares just because the absolute value has gone done dramatically (alongside IV).

For a company to be truly contrarian, it is not enough to preserve cash to that have that option, but to also have the mental capacity to want to bet that their intrinsic value would recover … ahead of the absolute value of their share price.

It is very exhaustive mental exercise, and I think you can only do that if you have a huge cash pile so that you have safety net if you are wrong about your IV recovering.

It’s not a matter of mental capacity, it is the issue that they have no idea  what’s ahead of them. I also don’t think MKL is egregiously cheap right now. Insurers are in the “ trust me” business so a strong balance sheet beyond doubt is paramount. Berkshire very likely has the same issue and while I bet they will be buying back share, the same basic thinking applies and constraints them more than people think.

Makes perfect sense.
PS: Wish us luck this weekend at the BRK AGM. :)

Txvestor

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Re: MKL - Markel Corp
« Reply #787 on: May 02, 2020, 11:33:54 PM »
Anyone have an idea what level of exposure each of these insurers like MKL, Allegheny and Fairfax have to business I nterruption? Buffett seemed to suggest one of their smaller competitors might be on the hook. I know MKL took a 325M guesstimate of damages, I think Fairfax said 83M and of course Allegheny is get to report but all of heir stocks sold off more than the market and I am wondering if markets pricing in exposire into this risk.

scorpioncapital

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Re: MKL - Markel Corp
« Reply #788 on: May 03, 2020, 04:06:54 AM »
MKL is definitely safer than some reckless insurers I've seen but they did make 65m of net operating income without swings in capital account (as an example Berkshire made 6 billion without the equity swing). So I think BRK > MKL. However MKL is not something you'd feel uncomfortable holding. If you split it up:
Equities - a portfolio of stocks. You can do this on your own.
Insurance float - Equities on leverage of 2:1 at presumably 0% interest rate.
The 2nd part is where it's interesting in this environment. A person can sort of borrow money at around 1.5% at the broker nowadays. So insurance float becomes less valuable in low rate environment. Plus in a catastrophe, rates go down but insurance float cost goes up! (118% for Markel so far)
However when things normalize they will have huge advantage on the leverage part. Your variable rate loan will go up , theirs will stay the same or be zero - even negative. Also your loan is callable, theirs is not. This won't matter if you're prudent but it is a risk.

Spekulatius

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Re: MKL - Markel Corp
« Reply #789 on: May 03, 2020, 06:35:37 AM »
Anyone have an idea what level of exposure each of these insurers like MKL, Allegheny and Fairfax have to business I nterruption? Buffett seemed to suggest one of their smaller competitors might be on the hook. I know MKL took a 325M guesstimate of damages, I think Fairfax said 83M and of course Allegheny is get to report but all of heir stocks sold off more than the market and I am wondering if markets pricing in exposire into this risk.

I assume all these are prudent underwrites, but CINF got the thumbs down and is making new loans, because they make substantial BI insurance with no explicit pandemics exclusion in addition having a substantial equity exposure (book value /share was down ~$10). I actually think they were a good underwriter traditionally,  it may have been caught by this pandemics.

Exclusive pandemics insurance shouldn’t be be necessary in principle, since BI insurance only covers causes due to property damage, but I am sure lawyers will torture this if it isn’t explicitly excluded. Even if it’s is explicitly excluded, lawyers may still go after them, encouraged by some politicians.


I don’t know if CINF is the insurer in question, as there may be others. TRV for example explicitly mentioned in their CC that they have an exclusion for pandemics in most of their contracts.

I think reinsurers May be in trouble here too, depending on how these custom contracts are written.
Life is too short for cheap beer and wine.