Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: Crip1 on November 11, 2010, 12:55:52 PM

Title: MKL - Markel Corp
Post by: Crip1 on November 11, 2010, 12:55:52 PM
OK, this is not anything really new for the members of this board, but it bears asking when was the last time MKL traded at a mere 15% premium to BV?

-Crip
Title: Re: MKL - Markel Corp
Post by: misterstockwell on November 11, 2010, 12:57:58 PM
When was the last time they did anything impressive enough to trade at ANY premium to book value?
Title: Re: MKL - Markel Corp
Post by: Partner24 on November 11, 2010, 01:48:22 PM
Crip, as far as I know, it's been cheaper than that just a few years ago, and in the beginnings of the 90's. That being said, their historical average multiple has been far higher than that.

Are you still a shareholder?

Cheers!
Title: Re: MKL - Markel Corp
Post by: Parsad on November 11, 2010, 01:58:24 PM
When was the last time they did anything impressive enough to trade at ANY premium to book value?

I would carefully watch what they do with Markel Ventures.  It is getting bigger, and they will put more capital into acquiring private businesses for a long time to come.  People ask about companies that do what Buffett does...well here is one that has, and they continue to evolve the process.  They have the expertise, investment acumen and operational skills to pull it off.  They also have the correct fundamentals in all of their actions.  The large premiums to book weren't appropriate in the past based solely on the insurance business, but it will be warranted over time as more quality, private businesses come under the fold.  Cheers!
Title: Re: MKL - Markel Corp
Post by: dealraker on November 11, 2010, 02:10:01 PM
Parsad,

I've been a Markel shareholder for 18 years and have personally met the Markel's.  When you say they have the expertise, who specifically are you thinking has this?  Thanks if you can reply.
Title: Re: MKL - Markel Corp
Post by: Crip1 on November 11, 2010, 03:02:24 PM
When was the last time they did anything impressive enough to trade at ANY premium to book value?

That could be taken as kind of an inflamitory response, but perhaps not.

Well, of course, that depends on what one would call "impressive".

Markel has acheived a 13% average growth in BV/Share for the past 5 years (assuming BV remains flat through the end of 2010) which is not bad, certainly. But it's more impressive considering that the past 5 years has included a global financial meltdown and a protracted soft pricing market. This 13% is on the low end of what this company has been acheiving over the past 20 or so years. The question begs to be asked whether this means that their average growth in BV is at a cyclical low or whether we are looking at something akin to mean reversion.

-Crip
Title: Re: MKL - Markel Corp
Post by: Viking on November 11, 2010, 04:33:27 PM
I have been thinking more about insurers lately; market looks interesting given it is trading at a multi-year low.

It looks to me that BV for all insurers is inflated today; with bond yields at historic lows, BV growth has been boosted in recent years and I think this multi-year benefit is done. Top line growth will be nonexistant given the crazy amount of capital that exists in the industry. Interest and dividend income will be under pressure as investments roll over and lower yielding securities are purchased. Current year CR appears to be 100 for well run p&c insurers; one has to wonder how long prior year reserve releases can continue to keep reported CR's under 100. And most well run companies are trading dirt cheap based on historical valuation metrics; the best part is the best run companies are not trading at much of a premium to the poorly run companies.

On the flip side, should bond yields increase insurers will see interest and div income increase (offsetting BV issues). Should the economy improve, top line should improve. Many insurers are using excess capital to re-purchase crazy amounts of cheap stock (particularly the re-insurers); some are taking out 10 to 15% of their float (and I expect this to continue into 2011). Assuming underwriting standards have not been relaxed top quality insurers should continue to report pretty decent reserve releases.

When I weave it all together, I really like the best run companies in the insurance/re-insurance space. Many look to remain reasonably profitable in 2011. Right now it is easy to see the issues and what I have learned is there will be positive surprises (we just can't see them right now). And yes, this is insurance so we could also get some nasty surprises as well.  

Regarding Markel, my read is it is a longer term play than most insurers (it will take a little longer for value proposition to play out).
Title: Re: MKL - Markel Corp
Post by: Parsad on November 11, 2010, 07:14:00 PM
Parsad,

I've been a Markel shareholder for 18 years and have personally met the Markel's.  When you say they have the expertise, who specifically are you thinking has this?  Thanks if you can reply.


Forget Steve, Tony, and Tom...they built it and they can run it fantastic themselves.  But take a look at the promotions they've made over the last few years.  Listen to the conference call and hear the terrific people they've brought on board.  Their team is smaller than Fairfax's or Berkshire's, but they are talented and it seems as though they've been given the opportunity to learn about all aspects of Markel, not just any specific area.  I'm surprised by the depth of knowledge of everyone on their team.  Cheers!
Title: Re: MKL - Markel Corp
Post by: dealraker on November 12, 2010, 04:06:11 AM
"That could be taken as kind of an inflamitory response, but perhaps not."

This writer responds:

Those on this board may find it interesting how long this poster has been invested with those considered hero's on this board.  I'll bet longer than anyone else by years.

And Parsad is a resource I'm courting so leave out the judgement and body guarding. 

I'm listening to the conference call.
Title: Re: MKL - Markel Corp
Post by: stahleyp on November 13, 2010, 08:16:30 AM
"That could be taken as kind of an inflamitory response, but perhaps not."

 I'll bet longer than anyone else by years.





are you like 100 or something? :P
Title: Re: MKL - Markel Corp
Post by: Liberty on February 02, 2011, 01:57:35 PM
Markel Reports 2010 Financial Results

http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-newsArticle&ID=1523502&highlight=
Title: Re: MKL - Markel Corp
Post by: Parsad on February 02, 2011, 03:15:54 PM
Good report.  Nothing surprising.  Cheers!
Title: Re: MKL - Markel Corp
Post by: Liberty on February 03, 2011, 07:22:05 AM
The MKL conf call begins in 10 minutes (10:30 ET):


http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-irhome
Title: Re: MKL - Markel Corp
Post by: Liberty on February 28, 2011, 05:24:09 PM
2010 annual report is out:

http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-reportsAnnual

Update:

I thought this was a good observation:

Quote
Finally, one of the many perverse features of the
insurance industry is the mislabeling of riskiness and
capital adequacy. Right now, prices are falling and
premium to surplus ratios are declining. This makes it
look like the industry is more overcapitalized and less
risky as it charges lower prices to assume the same risks.

When prices start to rise, premium to surplus ratios will
rise and rating agencies, regulators and analysts will
state that the industry is becoming riskier and less
capital adequate as it charges higher prices to assume
the same risks.

In short, this is idiotic.
Title: Re: MKL - Markel Corp
Post by: zippy1 on March 01, 2011, 06:06:49 AM
Quote
Finally, one of the many perverse features of the
insurance industry is the mislabeling of riskiness and
capital adequacy. Right now, prices are falling and
premium to surplus ratios are declining. This makes it
look like the industry is more overcapitalized and less
risky as it charges lower prices to assume the same risks.

When prices start to rise, premium to surplus ratios will
rise and rating agencies, regulators and analysts will
state that the industry is becoming riskier and less
capital adequate as it charges higher prices to assume
the same risks.

In short, this is idiotic.

This is a very interesting.  I always thought that in the soft market, an insurance company should write less.  However, from the above, I can't be more wrong. An insurance company could be taking on more risk, same risk or less risk even though the premium written is lower.

What would be a practical way to tell whether a company is intentionally writing less to take less risk or just writing for less, when the written premium is down?

Title: Re: MKL - Markel Corp
Post by: Bronco on March 01, 2011, 06:27:40 AM
Anyone have an IV on MKL?
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on March 01, 2011, 07:57:58 PM
Once again an interesting read. This letter, with the discussion about the way they evaluate their IV, the discussion about Markel Venture, is quite similar to the last Buffett letter. They are really trying to build a mini-Berkshire here and let's hope they are successful.
Title: Re: MKL - Markel Corp
Post by: stahleyp on March 02, 2011, 06:13:29 AM
anyone know why steven markel is always unloading a ton of his shares?
Title: Re: MKL - Markel Corp
Post by: Liberty on March 08, 2011, 07:47:08 AM
Gurufocus has an overview of MKL:

http://www.gurufocus.com/news.php?id=124999

No big insights. Most people here probably know all this. But if you are new to MKL, this might give you an idea of what they're doing.
Title: Re: MKL - Markel Corp
Post by: Liberty on March 22, 2011, 09:39:41 AM
http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-newsArticle&ID=1541682&highlight=


Quote
Markel Announces Ellicott Acquisition of Rohr
RICHMOND, Va., March 22, 2011 /PRNewswire via COMTEX/ --

Markel Corporation (NYSE: MKL) announced today that Ellicott Dredge Enterprises, LLC, a Markel Ventures company, has acquired the European and U.S. operations of Rohr Bagger GmbH and its affiliates. Terms of the transaction were not disclosed.

The Rohr companies are leading manufacturers of automated floating clamshell and bucket ladder dredge systems for the sand and gravel and aggregates industries.

Ellicott is a world leader in the portable dredge design and manufacturing industry with customers in over 80 countries.

Markel Corporation is a diverse financial holding company serving a variety of niche markets. In each of these markets, Markel seeks to provide quality products and excellent customer service so that it can be a market leader. The financial goals of the Company are to earn consistent underwriting and operating profits and superior investment returns to build shareholder value.
Title: Re: MKL - Markel Corp
Post by: Liberty on May 05, 2011, 02:11:42 PM
http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-newsArticle&ID=1560572&highlight=

Quote
Markel Corporation (NYSE: MKL) reported diluted net income per share of $0.85 for the quarter ended March 31, 2011 compared to $4.33 for the first quarter of 2010. The combined ratio for the first quarter of 2011 was 112% compared to 101% for the first quarter of 2010. The combined ratio for the first quarter of 2011 included $69 million, or 15 points, of underwriting loss related to the Australian floods, the New Zealand earthquake and the earthquake and subsequent tsunami in Japan. The combined ratio for the first quarter of 2010 included $17 million, or 4 points, of underwriting loss on the Chilean earthquakes. Book value per common share outstanding increased 1% to $329.09 at March 31, 2011 from $326.36 at December 31, 2010.
Title: Re: MKL - Markel Corp
Post by: biaggio on May 06, 2011, 03:50:18 PM
Markel CEO Discusses Q1 2011 Results - Earnings Call Transcript

http://seekingalpha.com/article/268523-markel-ceo-discusses-q1-2011-results-earnings-call-transcript?source=yahoo
Title: Re: MKL - Markel Corp
Post by: Liberty on May 12, 2011, 11:09:53 AM
Writeup about Markel's acquisition of FirstComp:

http://www.fool.com/investing/general/2011/05/12/markel-and-firstcomp-a-marriage-made-in-heaven.aspx
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on May 14, 2011, 04:28:01 PM
Markel Breakfast at Omaha : interesting notes.

http://www.scribd.com/doc/55159075/Markel-Breakfast-2011-Notes
Title: Re: MKL - Markel Corp
Post by: Liberty on May 14, 2011, 11:39:04 PM
Thanks Jeff!
Title: Re: MKL - Markel Corp
Post by: Liberty on May 25, 2011, 03:09:56 PM
Quote
Markel Corporation (NYSE: MKL) (the "Company") announced today that it has priced a public offering of $250 million aggregate principal amount of 5.35% senior notes due 2021. The net proceeds will be used for general corporate purposes, including acquisitions. In addition, proceeds may be used to repurchase other of the Company's outstanding debt securities. Citigroup Global Markets Inc. and Wells Fargo Securities, LLC are the Joint Book-Running Managers for the offering, which is expected to close on or about June 1, 2011.
Title: Re: MKL - Markel Corp
Post by: Liberty on July 14, 2011, 11:09:19 AM
http://www.prnewswire.com/news-releases/markel-announces-transaction-with-partnermd-125519693.html

Quote
Markel Corporation (NYSE: MKL) announces today that PartnerMD, LLC, has become a subsidiary of Markel Ventures.  PartnerMD, headquartered in Richmond, Virginia, runs concierge medical and executive health programs focused on disease prevention, health maintenance, and unique one-on-one doctor/patient relationships.
Title: Re: MKL - Markel Corp
Post by: Liberty on August 08, 2011, 01:37:13 PM
http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-newsArticle&ID=1594402&highlight=

Quote
Markel Corporation (NYSE: MKL) reported diluted net income per share of $3.11 for the quarter ended June 30, 2011 compared to $2.12 for the second quarter of 2010. Diluted net income per share was $3.95 for the six months ended June 30, 2011 compared to $6.46 for the same period of 2010. The combined ratio was 103% for the second quarter of both 2011 and 2010. The combined ratio was 107% for the six months ended June 30, 2011 compared to 102% for the same period of 2010. The combined ratio for the six months ended June 30, 2011 included $99 million, or 10 points, of underwriting loss related to the U.S. storms, Australian floods, New Zealand earthquake and Japanese earthquake and subsequent tsunami. For the six months ended June 30, 2010, the combined ratio included $17 million, or 2 points, of underwriting loss related to the Chilean earthquake. Book value per common share outstanding increased 4% to $338.66 at June 30, 2011 from $326.36 at December 31, 2010.
Title: Re: MKL - Markel Corp
Post by: berkshiremystery on August 16, 2011, 11:24:58 PM
Great video interview with Tony Markel & Paul Springman about the history of MKL.

Cheers!


http://www.insurancejournal.tv/videos/1460/ (http://www.insurancejournal.tv/videos/1460/)


and


The Markel Style
The specialty powerhouse marks 75 years of know-how and teamwork

http://www.roughnotes.com/rnmagazine/2005/december05/12p054.htm (http://www.roughnotes.com/rnmagazine/2005/december05/12p054.htm)
Title: Re: MKL - Markel Corp
Post by: berkshiremystery on August 16, 2011, 11:31:28 PM


Markel International - Case Study I
2011-04-13
http://www.youtube.com/watch?v=x_5gc6an6-w (http://www.youtube.com/watch?v=x_5gc6an6-w)

(http://img2.videos.com/thumb/yt/w/ytx_5gc6an6-w.jpg)


Markel International - Case Study II
2011-04-13
http://www.youtube.com/watch?v=6GtjZqPSKmU&feature=related

(http://img2.videos.com/thumb/yt/u/yt6GtjZqPSKmU.jpg)
Title: Re: MKL - Markel Corp
Post by: berkshiremystery on August 22, 2011, 11:49:35 AM
Here's a good read about Tom Gayner @ MKL,... BRK & FFH.

Cheers!

Tom Gayner Entrusts a Quarter of Markel's Equity Portfolio to 3 Brilliant Capital Allocators
August 18, 2011
http://seekingalpha.com/article/288226-tom-gayner-entrusts-a-quarter-of-markel-s-equity-portfolio-to-3-brilliant-capital-allocators?source=yahoo (http://seekingalpha.com/article/288226-tom-gayner-entrusts-a-quarter-of-markel-s-equity-portfolio-to-3-brilliant-capital-allocators?source=yahoo)
Title: Re: MKL - Markel Corp
Post by: Liberty on October 19, 2011, 07:07:12 AM
http://www.prnewswire.com/news-releases/markel-announces-acquisition-of-weldship-132138293.html

Quote
RICHMOND, Va., Oct. 19, 2011 /PRNewswire/ -- Markel Corporation (NYSE: MKL) announces today that its subsidiary, Markel Ventures, has acquired a majority interest in WI Holdings Inc. ("Weldship"), a privately held company headquartered in Bethlehem, PA, with a division, Texas Trailer Corporation, in Gainesville, TX, from RAF Industries, Inc.  Weldship manufactures, leases and sells high pressure tube trailers, certified ISO containers and other gas and liquid containers to industrial gas manufacturers, independent distributors, specialty chemical companies and the United States Government for use in the domestic and international compressed gas, electronic gas and specialty chemical industries.

Robert Arcieri, CEO and President of Weldship, stated, "We are very excited about our new relationship with Markel.  With the added strength Markel provides as our permanent business partner, we anticipate our business will continue its consistent growth pattern, providing security for our employees and support for our customers."

Thomas S. Gayner, President of Markel Ventures, added, "We are pleased to welcome Weldship to the Markel Ventures family.  Weldship is an established leader within their specialized industry segment and will be a great addition to our group of businesses."
Title: Re: MKL - Markel Corp
Post by: Liberty on November 07, 2011, 01:49:41 PM
http://www.marketwatch.com/story/markel-reports-third-quarter-and-nine-month-results-2011-11-07
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on November 07, 2011, 03:50:59 PM
Some comments about Markel Ventures purchases :

http://www2.timesdispatch.com/business/2011/nov/07/tdmbiz12-markel-builds-the-next-berkshire-hathaway-ar-1439609/
Title: Re: MKL - Markel Corp
Post by: Liberty on December 07, 2011, 09:34:34 AM
http://www.prnewswire.com/news-releases/markel-announces-agreement-to-acquire-thomco-135161588.html

 
Quote
Markel Corporation (NYSE: MKL) and Thompson Insurance Enterprises, LLC (dba THOMCO) announced today that they have entered into a definitive agreement for Markel to acquire THOMCO, a privately held Program Administrator underwriting multi-line, industry-focused insurance programs. Headquartered in Kennesaw, Georgia, THOMCO manages over 20 national programs including Medical Transportation, Senior Living, Childcare Centers, Fitness Clubs, Pest Control Operators, Tanning Salons and Inflatable Rental Operators, among others.

THOMCO expects to underwrite in excess of $170,000,000 in gross written premium in 2011. The firm produces business through a network of 4,500 producers and has 108 employees, with the majority located at the home office in Kennesaw in addition to branch offices in Kansas City and Denver.

THOMCO will continue to operate as a separate business unit with Greg Thompson and Bob Heaphey, THOMCO's current Chairman and President, respectively, leading the operation. The operating unit will be a part of Markel Specialty.

The transaction has been approved by all THOMCO's members. Completion of the transaction is subject to customary closing conditions, including Hart-Scott-Rodino clearance, and is expected to occur in the first quarter of 2012. Terms of the transaction were not disclosed.

"We are very compatible organizations," commented Greg Thompson, THOMCO's Chairman. "Both companies have built an excellent reputation for integrity, customer service and underwriting discipline. Markel prides itself on providing an atmosphere in which people can reach their personal potential, and we whole-heartedly embrace that value. Our product innovation, niche expertise, distribution network and technology complement Markel's outstanding Claims Department and financial strength.  We will be able to better serve our customers while offering greater opportunity to our staff. This transaction should be a winner for both parties."

Mike Crowley, Markel's President and Co-Chief Operating Officer, added: "With the acquisition of THOMCO, we are witnessing the combination of two companies that share a similar history. Both were founded by families that maintain leadership positions in their respective firms and who share similar cultures and values."
Title: Re: MKL - Markel Corp
Post by: biaggio on February 02, 2012, 04:54:59 PM
year end reported yesterday:

http://finance.yahoo.com/news/Markel-Reports-2011-Financial-prnews-3505575215.html?x=0

Conference call today:

http://seekingalpha.com/article/337691-markel-s-ceo-discusses-q4-2011-results-earnings-call-transcript?source=yahoo

Any comments from those holding MKL.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on February 02, 2012, 06:33:20 PM
Thanks biaggio!

A year impacted by the large number of natural catastrophes, so income are cut in half, but still they manage to grow book value by 8%. Not that bad for such a year. So far, Markel Ventures is growing quite fast in terms of revenue, but still only contributing to 7M in earning..quite disappointing , no?

I'm happy to see that they don't have a lot of exposure to Europe and looking forward for a better year in 2012 with less catastrophe (and a hard market?) and more non-insurance income. Happy to see some share repurchases a little over book value. Finally, one thing I always like with them is that they don't hesitate to reduce volume if it can improve profitability.
Title: Re: MKL - Markel Corp
Post by: Liberty on February 28, 2012, 12:59:15 PM
2011 Annual report is out.

Edit: Well, I got a email saying it, but apparently the link on their website points to the wrong place. Should be fixed soon..
Title: Re: MKL - Markel Corp
Post by: hellsten on February 28, 2012, 02:31:12 PM
Markel's 2011 annual report and 10-K:
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDU2OTczfENoaWxkSUQ9NDgzOTEyfFR5cGU9MQ==&t=1

My notes:

   •   Combined ratio of 102% included eight points of underwriting loss from natural catastrophes
   •   Book value per share increased to $352.10, representing a compound annual growth rate for the one-year and five-year periods of 8% and 9%, respectively
   •   Revenues from Markel Ventures exceeded $315 million, and we acquired four new businesses in 2011
   •   Portfolio per share: $907.2
   •   other revenues, which primarily represent the Markel Ventures companies, rose 89%
   •   Our total investment return in 2011 was 6.5%. In our fixed income operations, we earned 7.6% and in our equity portfolio, we earned 3.8%.
   •   At December 31, 2011, we held fixed maturities of $53.9 million, or less than 1% of invested assets, from sovereign and non-sovereign issuers domiciled in Portugal, Ireland, Italy, Greece or Spain
   •   At December 31, 2011, the Company’s ten largest equity holdings represented $955.5 million, or 51%, of the equity portfolio. Investments in the property and casualty insurance industry represented $397.3 million, or 21%, of the equity portfolio at December 31, 2011. Investments in the property and casualty insurance industry included a $221.2 million investment in the common stock of Berkshire Hathaway Inc.
   •   5-Year CAGR in book value per share: 9%
   •   $150.9 million of estimated net losses related to natural disasters. Almost $50 million from Japan.
   •   The Company’s Board of Directors has approved the repurchase of up to $200 million of common stock under a share repurchase program…As of December 31, 2011, the Company had repurchased 118,056 shares of common stock at a cost of $44.6 million under the Program.
   •   Net income to shareholders for 2011 decreased 47% compared to 2010 primarily due to a deterioration in underwriting results, which was driven by higher losses from natural catastrophes compared to 2010.
   •   In the current market environment, we have chosen to take a more defensive posture, earning slightly lower investment yields in order to maintain a high level of liquidity and have flexibility in how we allocate capital.
   •   our holding company (Markel Corporation) held $1,158.7 million of invested assets, which approximated 15 times annual interest expense of the holding company
   •   The estimated fair value of our investment portfolio at December 31, 2011 was $8.7 billion, 79%
of which was invested in fixed maturities, short-term investments and cash and cash equivalents and 21% of which was invested in equity securities.

Title: Re: MKL - Markel Corp
Post by: ShahKhezri on April 19, 2012, 10:49:10 PM
Another acquisition:
http://finance.yahoo.com/news/markel-announces-acquisition-havco-210000484.html

Odd group of companies in Markel Ventures, but it's a group nonetheless...the more they do, the more credibility and better opportunities in the future.

I own MKL. 
Title: Re: MKL - Markel Corp
Post by: Liberty on April 20, 2012, 12:15:24 PM
Nice to see that they keep adding to Markel Ventures. That company looks kind of like a play on the US economy picking up too.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on April 20, 2012, 12:59:31 PM
I think these companies are found through their insurance business..probably for part of them, long term clients which they know pretty well. Keep up the good work Markel, your Ventures division will provide a steady stream of income in the future compared to insurance.
Title: Re: MKL - Markel Corp
Post by: Liberty on May 10, 2012, 08:00:51 AM
Quote
Markel Corporation (NYSE: MKL) reported diluted net income per share of $5.92 for the quarter ended March 31, 2012 compared to $0.85 for the first quarter of 2011.  The combined ratio for the first quarter of 2012 was 100% compared to 112% for the first quarter of 2011.  The combined ratio for the first quarter of 2012 included $20 million, or 4 points, of underwriting, acquisition and insurance expenses related to the Company's prospective adoption of Financial Accounting Standards Board Accounting Standard Update No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.  The combined ratio for the first quarter of 2011 included $69 million, or 15 points, of underwriting loss related to the Australian floods, the New Zealand earthquake and the Japanese earthquake and tsunami.  Book value per common share outstanding increased 6% to $373.20 at March 31, 2012 from $352.10 at December 31, 2011.

Alan I. Kirshner, Chairman and Chief Executive Officer, commented, "Business conditions are improving as we are seeing more opportunities and achieving better prices. In our insurance operations, we saw a 10% increase in premium volume and improved underwriting performance. Our acquisition activity continued in 2012 and we are excited about our two most recent acquisitions – the THOMCO insurance business and the Markel Ventures acquisition of Havco.  Our book value per share achieved an all time high driven by favorable investment returns."
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on May 11, 2012, 08:50:24 PM
http://seekingalpha.com/article/578501-markel-s-management-discusses-q1-2012-results-earnings-call-transcript

They are doing well..seems like they are still quite prudent toward the pricing for the moment.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on May 11, 2012, 08:55:18 PM
On the Markel breakfast :

http://www.dailyfinance.com/2012/05/08/meet-hipster-berkshire-the-markel-annual-breakfast/

Steve Markel thinks the business is worth 1.5-2 times book value.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on May 14, 2012, 02:05:27 PM
With all the respect I have for Markel and what they have done so far, and I'm still long Markel, there is one thing I don't understand.

Why is that that Tom Gayner take so tiny position in so many different titles? I understand he is not Buffett, and that it is not so typical except for Berkshire to have such a large equity portfolio as an insurance company...but still. They are invested in 101 stock right now! YUM Brands position is only 200K $...And just this last quarter, there was activity (buy or sell) in at least 50 different positions..that is a lot!

I wish Tom Gayner would reduce their number of position and reduce insignifiant volume trading..it doesn't seem to make much sense..is it really better than buying an index? Any thoughts?

http://www.dataroma.com/m/holdings.php?m=MKL
Title: Re: MKL - Markel Corp
Post by: beerbaron on May 14, 2012, 02:51:51 PM
Graham had lots of stocks in it's portfolio and he did not do so bad...

BeerBaron
Title: Re: MKL - Markel Corp
Post by: Shane on May 14, 2012, 02:52:53 PM
He still has 6-8% positions, far from closet indexing.  You may want to focus on concentration in the top 10 positions instead of # of stocks in the portfolio.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on May 14, 2012, 03:16:44 PM
Shane, you're right about concentration in the top positions! Still, it seems to me that the smaller positions are meaningless considering the size of the portfolio. Anyway, he has a good track record and he is being conservative to preserve Markel financial strength, so who am I to criticize Tom Gayner? :)
Title: Re: MKL - Markel Corp
Post by: rranjan on May 14, 2012, 03:48:47 PM
Taking a tiny position help them to track the business better. Remember from one of the interviews but I might be wrong.
Title: Re: MKL - Markel Corp
Post by: Myth465 on May 14, 2012, 06:34:41 PM
Taking a tiny position help them to track the business better. Remember from one of the interviews but I might be wrong.
Title: Re: MKL - Markel Corp
Post by: WarrenWatsa on May 15, 2012, 07:03:15 AM
Taking a tiny position help them to track the business better. Remember from one of the interviews but I might be wrong.

If true:
1. There are other value investors who do the same.
2. In this case, one could argue the little tiny positions add up, though.
3. Personally, if true, I see it as an excuse for laziness.

-MKL shareholder

edit: added to it this morning below $440
Title: Re: MKL - Markel Corp
Post by: bookie71 on May 15, 2012, 07:29:02 AM
No, it's a good way to get the yearly and quarterly info without the hassle.  And what's wrong with being lazy, as my Dad used to say, "Work smarter, not harder."
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on May 16, 2012, 05:43:18 AM
On the Markel breakfast :

http://www.dailyfinance.com/2012/05/08/meet-hipster-berkshire-the-markel-annual-breakfast/

Steve Markel thinks the business is worth 1.5-2 times book value.

That is the norm for Markel's valuation. See pre-finaincial-crisis P/B values for Markel.

http://ycharts.com/companies/MKL/price_to_book_value#series=type:company,id:MKL,calc:price_to_book_value&zoom=10&startDate=&endDate=&format=real&recessions=true
Title: Re: MKL - Markel Corp
Post by: DCG on May 16, 2012, 06:24:47 AM
2. In this case, one could argue the little tiny positions add up, though.

yeah, but why not just by an index fund?
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on May 16, 2012, 06:59:22 AM
Taking a tiny position help them to track the business better. Remember from one of the interviews but I might be wrong.

If true:
1. There are other value investors who do the same.
2. In this case, one could argue the little tiny positions add up, though.
3. Personally, if true, I see it as an excuse for laziness.

-MKL shareholder

edit: added to it this morning below $440

I came across Gayner saying that in the interview too. He said that it helps him pay more attention to a company when he holds a few units. I agree that it is somewhat lazy, but he knows his own psyche and is doing this to keep himself honest.

Also, a position of 200K is a tiny one for Markel. As private investors we tend to get sticker shock when looking at those amounts. To provide perspective, if you were managing a $100,000 of your own money, this would be akin to you buying a stock for $9 just so you can track it. Small price to pay, wouldn't you think?

- Long term Markel shareholder
Title: Re: MKL - Markel Corp
Post by: rmitz on May 16, 2012, 10:16:39 AM
Taking a tiny position help them to track the business better. Remember from one of the interviews but I might be wrong.

If true:
1. There are other value investors who do the same.
2. In this case, one could argue the little tiny positions add up, though.
3. Personally, if true, I see it as an excuse for laziness.

-MKL shareholder

edit: added to it this morning below $440

I came across Gayner saying that in the interview too. He said that it helps him pay more attention to a company when he holds a few units. I agree that it is somewhat lazy, but he knows his own psyche and is doing this to keep himself honest.

Also, a position of 200K is a tiny one for Markel. As private investors we tend to get sticker shock when looking at those amounts. To provide perspective, if you were managing a $100,000 of your own money, this would be akin to you buying a stock for $9 just so you can track it. Small price to pay, wouldn't you think?

- Long term Markel shareholder

That reflects a certain lack of discipline you would expect from a professional investor, don't you think?
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on May 16, 2012, 02:22:15 PM

I came across Gayner saying that in the interview too. He said that it helps him pay more attention to a company when he holds a few units. I agree that it is somewhat lazy, but he knows his own psyche and is doing this to keep himself honest.

Also, a position of 200K is a tiny one for Markel. As private investors we tend to get sticker shock when looking at those amounts. To provide perspective, if you were managing a $100,000 of your own money, this would be akin to you buying a stock for $9 just so you can track it. Small price to pay, wouldn't you think?

- Long term Markel shareholder

That reflects a certain lack of discipline you would expect from a professional investor, don't you think?

I'd agree with you there.

But, I can also relate because I suffer from the same attention deficit problem. I cannot by buying $9 worth of stocks just to have them on my watchlist.

I simply use a watchlist and monitor it manually.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on July 04, 2012, 07:26:45 PM
Markel keeps adding business through Markel Ventures :

http://finance.yahoo.com/news/markel-ventures-announces-ellicott-dredge-211600954.html

From memory, it's the first time they buy (outside of insurance) in Europe , or am I wrong?
Title: Re: MKL - Markel Corp
Post by: twacowfca on July 04, 2012, 08:15:28 PM
Markel keeps adding business through Markel Ventures :

http://finance.yahoo.com/news/markel-ventures-announces-ellicott-dredge-211600954.html

From memory, it's the first time they buy (outside of insurance) in Europe , or am I wrong?

Buying in Europe appears to be incidental, not intentional. 

Tom Gaynor had an informative answer to a question from David Winters at the 2011 AGM about their acquisition of Elllicott Dredge.  Ellicott Dredge is a family business that has been around forever.  They dredge their own moat.  They dominate a niche for a special type of dredge, and have no specialized competition that knows that market as well as they do.  Whenever a company infrequently needs that type of dredge, they go to Ellicott.

I suspect that their recent acquisition is a similar business that dominates a similar niche in Europe.
Title: Re: MKL - Markel Corp
Post by: Ross812 on July 05, 2012, 10:36:56 AM
Here are the private companies owned through Markel Ventures:

http://www.markelcorp.com/Markel%20Companies/Pages/MarkelVentures.aspx

Ellicott Dredges seems to be a great acquisition of a high moat business. I would like to see them buy a stone quary as well. Another high moat business that is typically privatley owned.
Title: Re: MKL - Markel Corp
Post by: Liberty on July 09, 2012, 01:39:13 PM
Another sub making an acquisition:

http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-newsArticle&ID=1712877&highlight=

Quote
RICHMOND, Va., July 9, 2012 /PRNewswire/ -- Markel Ventures, Inc. announced today that its subsidiary AMF Bakery Systems has completed the acquisition of Tromp Bakery Equipment B.V. and affiliated entities ("Tromp"), a global supplier of baking equipment based in Gorinchem, The Netherlands.  Tromp designs and manufactures sheeting lines for pizza, pastry, pie and bread bakers worldwide.  Terms of the transaction were not disclosed.

"We are excited to join forces with Tromp," stated Ken Newsome, president of AMF.  "This strategic addition enables us to leverage our position as a global leader in high-speed bread and bun bakery systems and expand our offering into the growing specialty bakery sector."

Bas Tromp, the company's founder, will continue as president.  Mr. Tromp stated, "As I thought about the future of my company, I wanted to find a partner with similar values who would continue to build on our previous accomplishments.  AMF, with its affiliation with Markel, is very unique, and I think this organization will best serve our customers and the people who helped build this company." 
Title: Re: MKL - Markel Corp
Post by: twacowfca on July 10, 2012, 11:08:19 AM
Another sub making an acquisition:

http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-newsArticle&ID=1712877&highlight=

Quote
RICHMOND, Va., July 9, 2012 /PRNewswire/ -- Markel Ventures, Inc. announced today that its subsidiary AMF Bakery Systems has completed the acquisition of Tromp Bakery Equipment B.V. and affiliated entities ("Tromp"), a global supplier of baking equipment based in Gorinchem, The Netherlands.  Tromp designs and manufactures sheeting lines for pizza, pastry, pie and bread bakers worldwide.  Terms of the transaction were not disclosed.

"We are excited to join forces with Tromp," stated Ken Newsome, president of AMF.  "This strategic addition enables us to leverage our position as a global leader in high-speed bread and bun bakery systems and expand our offering into the growing specialty bakery sector."

Bas Tromp, the company's founder, will continue as president.  Mr. Tromp stated, "As I thought about the future of my company, I wanted to find a partner with similar values who would continue to build on our previous accomplishments.  AMF, with its affiliation with Markel, is very unique, and I think this organization will best serve our customers and the people who helped build this company." 


Three observations:

1) Some of their best opportunities now may be in Europe.

2) Markel seems to be getting a reputation like that long enjoyed by BRK as a preferred acquirer of family owned businesses that will maintain the family ownership values.

3) Markel Ventures track record was spotty initially with some of their acquisitions doing well and some not.  Now, with their successful ventures making related acquisitions in other businesses they understand, Markel's batting average for success should go through the roof.  :)
Title: Re: MKL - Markel Corp
Post by: Liberty on October 17, 2012, 07:37:33 AM
Quote
Markel Announces Planned Acquisition of Essentia Insurance Company
RICHMOND, Va., Oct. 17, 2012 /PRNewswire/ -- Markel Corporation (NYSE: MKL) announced today that it has entered into a definitive agreement to acquire Essentia Insurance Company from OneBeacon Insurance Group LLC.

Completion of the transaction is subject to customary closing conditions, including regulatory approval of the change of control of Essentia, and is expected to occur in January 2013. Terms of the transaction were not disclosed.

Essentia Insurance Company will continue to underwrite insurance exclusively for Hagerty Insurance Agency and Hagerty Classic Marine Insurance Agency throughout the United States. Hagerty is the leading insurance provider for classic vehicles in the world and host to the largest network of classic car owners.  Hagerty offers insurance for classic cars, vintage boats, motorcycles and related automotive collectibles.  Hagerty remains a privately-owned, family business.

The transition is intended to be seamless for existing Hagerty customers and agents.  Both groups will continue to enjoy the same specialized products, service offerings and claim handling.  Insurance agents will continue to work with Hagerty as they traditionally have.

"Our new relationship with Markel is a natural fit because we are both exclusively focused on specialty and niche insurance markets and are dedicated to providing the best protection to all types of collector vehicles," said McKeel Hagerty, CEO of Hagerty Insurance.  "This new relationship will allow us to continue to grow and develop new efficiencies to benefit our clients."

Mike Crowley, Markel's President & Co-Chief Operating Officer, added, "We are looking forward to this new partnership.  Hagerty is built on first-class service and enthusiasm for new ideas and products.  We are pleased to become their partner. Together, we are confident we can continue their innovative approach to servicing collectors of classic cars and boats."
Title: Re: MKL - Markel Corp
Post by: jay21 on December 14, 2012, 05:36:45 AM
Has anyone dug into the Ventures businesses?  I believe Gaynor has said they are not capital intensive with high EBITDA margins.  This would be great for a company as small as MKL because they do not need to lay out capital to fund growth.  Compare this with BRK who has so much capital that they need capital intensive business to soak it all up.

Also, does anyone have any insight on the potential for float growth?
Title: Re: MKL - Markel Corp
Post by: masseyrock on December 14, 2012, 06:48:05 AM
Based on my understanding, low capital intensity and high EBITDA margins aren't requirements but attractive incremental returns on invested capital and a minimum 10% cash-on-cash return from the acquisition price are.  I don't think MKL avoids laying out additional capital to fund an affiliate's growth opportunities.  They would embrace it if the returns are higher than other capital outlay opportunities - witness the acquisitions that AMF Bakery, for example, has done over the last year or so (not sure if they were funded with additional MKL capital or internal funds).

I do struggle to see the 'compounding machine' opportunities of HAVCO or Weldship - they have attractive market share, play an important role in their value-chains but the capital intensity, scalability and cyclicality of the businesses don't seem to fit with how MKL approaches their publicly-traded stock portfolio.  For Weldship, I love the Praxair/AirProduct business model but to be the distributor, there doesn't seem to be that much leverage on your invested capital.

Maybe the share gains, pricing power, margins, all lead to a long tailwind of share gains and margin expansion.

Bottom line, I don't see where they have their 'See's Candies' compounding machine yet (not that they are exclusively looking for that).

On float, growth depends on the underwriting opportunities.  Float has decelerated over the last seven years - 5yr CAGR is down to low-sd, IIRC.  If/when the market hardens, MKL's investments in THOMCO, Essentia, FirstComp, etc. should lead to very strong premium, float, investment portfolio and book value growth.
Title: Re: MKL - Markel Corp
Post by: dcollon on December 19, 2012, 05:35:56 AM
Markel to Acquire Alterra for Approximately $31 Per Share in Stock and Cash
Wednesday, December 19, 2012 01:00:00 PM (GMT)


RICHMOND, Va., Dec. 19, 2012 /PRNewswire/ -- Markel Corporation ("Markel") (NYSE: MKL) and Alterra Capital Holdings Limited ("Alterra") (NASDAQ: ALTE; BSX: ALTE.BH) announced today that their respective boards of directors have each unanimously approved a definitive merger agreement. Under the terms of the agreement, the aggregate consideration for Alterra is approximately $3.13 billion, based on a closing price of $486.05 for Markel common stock on December 18, 2012.

At closing, each Alterra common share will be converted into the right to receive 0.04315 Markel common shares (with cash paid for fractional shares) plus a cash payment of $10. Following the merger, Markel's existing shareholders will own approximately 69% of the combined company on a fully diluted basis, with Alterra's shareholders owning approximately 31%. Completion of the transaction is contingent upon customary closing conditions, including shareholder and regulatory approvals, and it is expected to close in the first half of 2013.

Upon closing, two directors designated by Alterra's current board will be added to the board of directors of Markel.

Steven A. Markel, Vice Chairman of Markel, commented: "We are very pleased to have reached this agreement to acquire Alterra, an impressive company with proven worldwide underwriting operations in product lines that we believe are highly complementary to Markel's existing lines. In particular, the addition of Alterra's reinsurance and large account insurance portfolios will serve to diversify and strengthen Markel's current book of specialty insurance business. We look forward to welcoming Alterra's talented underwriting teams to Markel – with their help and the benefit of approximately $6 billion in combined shareholders' equity, we believe we will be well positioned to take advantage of a wide range of profitable opportunities."

W. Marston (Marty) Becker, President and Chief Executive Officer of Alterra, who is expected to leave the company following the close of the transaction, said: "The combination of Alterra with Markel will create an incredibly strong company in global specialty insurance and investments.  The demonstrated track record of underwriting discipline in niche market segments by both companies, along with Markel's proven asset management strengths, should benefit all stakeholders. I am confident that Alterra's shareholders, clients and other business partners will continue to be well served when Alterra's underwriting operations join forces with Markel's, and all should benefit from the superior financial strength, expanded capabilities and synergies created by the combined entity."

Strategic and financial attributes associated with the combination of Markel and Alterra:

The combination of Markel and Alterra is expected to create significant benefits for the shareholders of both companies, and to provide a robust foundation for strong financial performance going forward.

Enhanced size and scale: Following the close of the transaction, Markel is expected to write annual gross premiums of approximately $4.4 billion and to have approximately $6 billion in equity with capital flexibility to support future growth.

Strong and well diversified franchise: Complementary business profiles provide important diversification of risk, with Markel adding reinsurance and large-account insurance to its specialty insurance portfolio. Following the close of the transaction, Markel's business is expected to be approximately 50% short-tail, 50% long tail; 67% insurance and 33% reinsurance.

Common cultures of underwriting discipline: The merger brings together seasoned and accomplished underwriting teams with limited overlap in diverse specialty insurance and reinsurance lines.

Strong investment performance: Markel brings a long and successful track record of investment outperformance. This expertise can now be applied to the combined entity's investment portfolio of over $16 billion.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on December 19, 2012, 06:42:21 AM
Thanks for the news dcollon.

I don't know Alterra, does someone have any insight about this company?

It's a big transaction for Markel (its biggest ever?), and so far the market doesn't like it (down by more than 6% this morning).

Title: Re: MKL - Markel Corp
Post by: orion on December 19, 2012, 07:14:01 AM
Investor Presentation: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTY1NjA4fENoaWxkSUQ9LTF8VHlwZT0z&t=1
Title: Re: MKL - Markel Corp
Post by: Liberty on December 19, 2012, 07:19:44 AM
Wow, that's huge. Reminds me of LUK + Jeff size wise (except Mr. Market doesn't seem to like it for MKL so far).
Title: Re: MKL - Markel Corp
Post by: fuluvu on December 19, 2012, 07:31:28 AM
Some key points for the merger:
1. Purchase is at 1x book value of Alterra.
2. Total investment portfolio doubles from $8.2 b to 16.4 b
3. Current equity portion of MKL portfolio is 25%. Alterra's investment portfolio is all fixed-income. The equity portion of the combined portfolio will be 14%. If MKL increases the equity portion of the combined portfolio to 25%, about $2 billion can be used to purchase equities. Based on MKL's historical investment performance, the value will be created.
Title: Re: MKL - Markel Corp
Post by: fareastwarriors on December 19, 2012, 07:56:58 AM
I would love for this thing to be sub 400 again. Hopefully some irrational players drop out.
Title: Re: MKL - Markel Corp
Post by: Parsad on December 19, 2012, 08:08:06 AM
Wow, that's huge. Reminds me of LUK + Jeff size wise (except Mr. Market doesn't seem to like it for MKL so far).

Except Markel used overvalued stock in the deal, and both LUK & JEF were undervalued relatively the same.  Cheers! 
Title: Re: MKL - Markel Corp
Post by: jay21 on December 19, 2012, 08:09:06 AM
Quickly glanced at the presentation and will do some digging later.  I thought one slide showed that they don't really add value through investments (except that they invest in equities).  They could just as easily invest in the indexes.  I wish Gaynor would hire someone to be more aggressive with the equity portfolio for times like 2008-2009.
Title: Re: MKL - Markel Corp
Post by: berkshiremystery on December 19, 2012, 08:09:32 AM
Thanks for the news dcollon.

I don't know Alterra, does someone have any insight about this company?

It's a big transaction for Markel (its biggest ever?), and so far the market doesn't like it (down by more than 6% this morning).

Alterra was formed in 2010 through the merger of Louis Moore Bacon’s Max Capital Group Ltd. and Harbor Point Ltd.

Max Capital Group Ltd was formerly known as Max Re Capital Ltd, and was founded by hedge fund manager Louis Moore Bacon. It was a similar good and small reinsurance company like Greenlight Re.

Hope this helps.
Title: Re: MKL - Markel Corp
Post by: ap1234 on December 19, 2012, 08:43:42 AM
"Except Markel used overvalued stock in the deal, and both LUK & JEF were undervalued relatively the same.  Cheers!" 

Parsad, can you provide some additional color on your comments re: Markel being overvalued. I'd love to hear your thoughts on this as you've followed these businesses for a long time and I'm new to the space.

I only recently started looking at Markel. However, from my initial cursory analysis, it appears that Markel was not significantly overvalued.

-The company has historically been able to grow BVPS in well in excess of 10%/year over a fully business cycle.
-It's a rare insurance business that seems to generate meaningful profitability from both underwriting and investing.
-The company is increasing their equity weight in their investment portfolio
-The P&C insurance market has been in a hard market since '05. Similar with US housing, it appears to be a question of when and not if the insurance market ultimately hardens. According to management, they will perform even better than the industry average during a hard market given their particular insurance lines. 
-At last year's Markel breakfast in Omaha I recall mgmt. stating that they believed the company was worth between 1.5x-2xBV over a full cycle.
-On a side note, over time I imagine BV will become less meaningul of a proxy for value as Markel Ventures increases in size.
   
As of Q3 2012, Markel had a BVPS of $395. Based upon a closing price of $486 yesterday, the company was trading at 1.2x BV.

Why do you think 1.2xBV for Markel is overvalued? What is a fair price for the business?


Title: Re: MKL - Markel Corp
Post by: racemize on December 19, 2012, 09:29:52 AM

Why do you think 1.2xBV for Markel is overvalued? What is a fair price for the business?

I think he just means overvalued relative to LUK's issuance, which was below book value and has a similar compounding record.
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 19, 2012, 09:51:40 AM
Why do you think 1.2xBV for Markel is overvalued? What is a fair price for the business?

ap1234,
I clearly cannot speak for Parsad, but, if I might guess, I would suggest that “overvalued” means MKL purchased all Alterra shares at book value, using its own shares that were trading at 1.2 x book value. So they were “overvalued”, if compared to what MKL was able to buy with them.
Parsad, please forgive me, if I am way off the mark!
MKL actually increased BV per share at a 17% CAGR since 1991 (21 years). Nothing that compounds BV per share at 17% is overvalued, I mean in “absolute” terms, selling at 1.2 x BV.
Furthermore, with the Q4 2012 end of the year rally in stocks, and with a low exposure of MKL to Sandy, I wouldn’t be surprised to see its BV per share at $405 by year end, that’s to say 10 days from now.
Today I bought a small position, that I plan to significantly increase in the future, at $445: $445 / $405 = 1.1 x BV. Or Buffett’s (former) threshold to buyback BRK shares.
MKL is a very good business and I like the Alterra deal (at least for what I could see on its presentation).
I look forward to averaging down aggressively in the future.

giofranchi
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 19, 2012, 09:56:16 AM

Why do you think 1.2xBV for Markel is overvalued? What is a fair price for the business?

I think he just means overvalued relative to LUK's issuance, which was below book value and has a similar compounding record.

racemize,
sorry! I hand't read your post yet! ;)

giofranchi
Title: Re: MKL - Markel Corp
Post by: masseyrock on December 19, 2012, 10:08:54 AM
I'm not jumping up and down with excitement that they paid just over 1x BV for a business where comps are averaging <0.9x but the opportunity to recast the investment portfolio and add $1.5-2.0b to Gayner's portfolio should create value.  It doesn't seem Alterra was necessarily shopping themselves around either so I'm a bit perplexed as to why / where MKL sees such a value opportunity.

By my math, BV after the deal closes (and including 4Q12 portfolio gains / Sandy losses) should be ~$420 depending on purchase accounting adjustments and the inevitable reserves that will be added.  So I think we are below 1.1x today.  Risk has increased given the size of the deal and the inevitable hiccups (hopefully this is another Terra Nova).

Back of the envelope earnings multiple on the investment portfolio: $1,150 / share x 5% after-tax return = $58 or 7.7x.  This of course excludes any earnings from underwriting.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on December 19, 2012, 03:47:14 PM
Some key points for the merger:
1. Purchase is at 1x book value of Alterra.
2. Total investment portfolio doubles from $8.2 b to 16.4 b
3. Current equity portion of MKL portfolio is 25%. Alterra's investment portfolio is all fixed-income. The equity portion of the combined portfolio will be 14%. If MKL increases the equity portion of the combined portfolio to 25%, about $2 billion can be used to purchase equities. Based on MKL's historical investment performance, the value will be created.

True, and about your third point, they will also have the possibility to put more money to work into Markel Ventures.
Title: Re: MKL - Markel Corp
Post by: berkshiremystery on December 19, 2012, 04:00:05 PM
Why do you think 1.2xBV for Markel is overvalued? What is a fair price for the business?

ap1234,
I clearly cannot speak for Parsad, but, if I might guess, I would suggest that “overvalued” means MKL purchased all Alterra shares at book value, using its own shares that were trading at 1.2 x book value. So they were “overvalued”, if compared to what MKL was able to buy with them.
Parsad, please forgive me, if I am way off the mark!
MKL actually increased BV per share at a 17% CAGR since 1991 (21 years). Nothing that compounds BV per share at 17% is overvalued, I mean in “absolute” terms, selling at 1.2 x BV.
Furthermore, with the Q4 2012 end of the year rally in stocks, and with a low exposure of MKL to Sandy, I wouldn’t be surprised to see its BV per share at $405 by year end, that’s to say 10 days from now.
Today I bought a small position, that I plan to significantly increase in the future, at $445: $445 / $405 = 1.1 x BV. Or Buffett’s (former) threshold to buyback BRK shares.
MKL is a very good business and I like the Alterra deal (at least for what I could see on its presentation).
I look forward to averaging down aggressively in the future.

giofranchi

Gio,...

I had admired Markel for probably over a decade, since I ever heard of them the first time. And I have religiously studied their annual reports, which are a master piece of integrity. They are in my opinion in the crown league of owner run insurance companies/i.e. jockey stocks (BRK, FFH, MKL, LUK). I purchased MKL shares after the financial crises and owned them til last year,... but redeployed my MKL funds into much cheaper BAC. So, I would agree with Sanjeev, that MKL is currently in my opinion not extremely cheap. But their current deal is good, because they do the purchase with some nicely valued stock.

Title: Re: MKL - Markel Corp
Post by: ShahKhezri on December 19, 2012, 04:17:22 PM
Perfect example of this is Y/TRH last year.  Y sold off about 10% post announcement and it happened around this time last year.  If you listen to the CC, you can tell this is not another Terra Nova 1) if they learned their lesson and 2) looks like they don't believe loss reserves are at-risk. 

I bought Y last year and sold last month for a decent gain.  I already own a position in MKL, bought last year at $350, still have no opinion on this transaction, but might add when I form an opinion.  If you think Gaynor is a decent investor and that the equity markets are reasonably valued, it will work. 

I happen to think Gaynor is good for MKL and specially this type of equity environment.

Jay Cohen
Q
Great. Let's see, I guess when I think about the costs associated with the cash, I think it's relatively low. You
wouldn't have to raise any debt for this $1 billion plus cash payment. Is that correct?

A
No, we don't need to raise any debt for this.

Jay Cohen

Q
Okay.

A
We'll give up the yields on those three month treasury bonds.
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on December 19, 2012, 05:40:33 PM
Based on Pro-forma book value per share of $424, after today's drop MKL is trading at 1.03xBook.

This is an intriguingly low multiple if the deal goes through.

It is an incredible steal if the ALTE deal doesn't go through because MKL was trading 1.22xBook yesterday, before the deal was announced...
Title: Re: MKL - Markel Corp
Post by: Crip1 on December 19, 2012, 08:21:47 PM
Well...this clears everything up quite nicely.

http://www.fool.com/investing/general/2012/12/19/a-brutal-beating-for-baby-berkshire.aspx

It's not that I think he's right or wrong, but it's just that the individual in the video shows nothing more than the most superficial knowledge of what the he** he's talking about.

-Crip
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 19, 2012, 11:35:59 PM
Why do you think 1.2xBV for Markel is overvalued? What is a fair price for the business?

ap1234,
I clearly cannot speak for Parsad, but, if I might guess, I would suggest that “overvalued” means MKL purchased all Alterra shares at book value, using its own shares that were trading at 1.2 x book value. So they were “overvalued”, if compared to what MKL was able to buy with them.
Parsad, please forgive me, if I am way off the mark!
MKL actually increased BV per share at a 17% CAGR since 1991 (21 years). Nothing that compounds BV per share at 17% is overvalued, I mean in “absolute” terms, selling at 1.2 x BV.
Furthermore, with the Q4 2012 end of the year rally in stocks, and with a low exposure of MKL to Sandy, I wouldn’t be surprised to see its BV per share at $405 by year end, that’s to say 10 days from now.
Today I bought a small position, that I plan to significantly increase in the future, at $445: $445 / $405 = 1.1 x BV. Or Buffett’s (former) threshold to buyback BRK shares.
MKL is a very good business and I like the Alterra deal (at least for what I could see on its presentation).
I look forward to averaging down aggressively in the future.

giofranchi

Gio,...

I had admired Markel for probably over a decade, since I ever heard of them the first time. And I have religiously studied their annual reports, which are a master piece of integrity. They are in my opinion in the crown league of owner run insurance companies/i.e. jockey stocks (BRK, FFH, MKL, LUK). I purchased MKL shares after the financial crises and owned them til last year,... but redeployed my MKL funds into much cheaper BAC. So, I would agree with Sanjeev, that MKL is currently in my opinion not extremely cheap. But their current deal is good, because they do the purchase with some nicely valued stock.

Hi berkshiremystery,
I have absolutely no doubt that BAC right now is much more undervalued that MKL (or at least it was a few days ago: congratulations to all of you for the very nice rise in BAC stock price!). But you also know that I just don’t jump from an undervalued stock to another. I know and understand well it is a very sound way to make a lot of money, but I just don’t enjoy the process… Instead, what I like is running businesses, which generate some free cash flow, and use that cash to buy other businesses, that become parts of my own firm (or, at least, I like to think about them that way! Call me delusional…). Therefore, I wait for the right price, I buy, and then I very seldom sell. From this it immediately follows the great emphasis I put on knowing the management very well, on understanding what they are doing (how and why), and on trusting them 100%. I never start a project, within the two businesses that I personally run, if I don’t have the right people in place. Why should I invest differently?
I know that striving to maximize the fcf I can extract from my businesses, using it to purchase owner/operators at good prices, stick with them, and constantly increasing my firm ownership of those businesses over time, will surely turn out to be a much slower way to accumulate wealth, than jumping opportunistically from one undervalued stock to another. But that’s what I like to do! And I literally “tap-dance” to work every morning: why should I change something that makes me feel so good?! :)
Just for the sake of completeness, it is not true that I never sell: but, when in fact I do sell, it is to adjust my firm’s portfolio to the overall market exposure I want it to maintain. As I have already said, Sir John Templeton’s “Yale Plan” still makes great sense to me, and I try to follow it as best as I can. Look, with the exception of the two businesses I fully control, my firm’s other investments are all listed in some stock exchange: to believe they are not subject to market risk is dangerous and simply not true.

Finally, I would really like to know what twacowfca thinks about Markel and their new deal with Alterra: very few people are as knowledgeable as twacowfca about the insurance industry, so his opinion would be greatly appreciated!
Thank you,

giofranchi
Title: Re: MKL - Markel Corp
Post by: steph on December 20, 2012, 12:37:31 AM
This is a very smart move from Markel.  I have been surprised that there hasn't been more m&a activity in this sector with so many companies trading with large discounts to book.
Buying cheap insurance stocks today makes a lot of sense for every investor, but makes even more sense for a player like Markel since they can extract synergies out of this deal.
Title: Re: MKL - Markel Corp
Post by: twacowfca on December 20, 2012, 04:27:28 AM
Why do you think 1.2xBV for Markel is overvalued? What is a fair price for the business?

ap1234,
I clearly cannot speak for Parsad, but, if I might guess, I would suggest that “overvalued” means MKL purchased all Alterra shares at book value, using its own shares that were trading at 1.2 x book value. So they were “overvalued”, if compared to what MKL was able to buy with them.
Parsad, please forgive me, if I am way off the mark!
MKL actually increased BV per share at a 17% CAGR since 1991 (21 years). Nothing that compounds BV per share at 17% is overvalued, I mean in “absolute” terms, selling at 1.2 x BV.
Furthermore, with the Q4 2012 end of the year rally in stocks, and with a low exposure of MKL to Sandy, I wouldn’t be surprised to see its BV per share at $405 by year end, that’s to say 10 days from now.
Today I bought a small position, that I plan to significantly increase in the future, at $445: $445 / $405 = 1.1 x BV. Or Buffett’s (former) threshold to buyback BRK shares.
MKL is a very good business and I like the Alterra deal (at least for what I could see on its presentation).
I look forward to averaging down aggressively in the future.

giofranchi

Gio,...

I had admired Markel for probably over a decade, since I ever heard of them the first time. And I have religiously studied their annual reports, which are a master piece of integrity. They are in my opinion in the crown league of owner run insurance companies/i.e. jockey stocks (BRK, FFH, MKL, LUK). I purchased MKL shares after the financial crises and owned them til last year,... but redeployed my MKL funds into much cheaper BAC. So, I would agree with Sanjeev, that MKL is currently in my opinion not extremely cheap. But their current deal is good, because they do the purchase with some nicely valued stock.

Hi berkshiremystery,
I have absolutely no doubt that BAC right now is much more undervalued that MKL (or at least it was a few days ago: congratulations to all of you for the very nice rise in BAC stock price!). But you also know that I just don’t jump from an undervalued stock to another. I know and understand well it is a very sound way to make a lot of money, but I just don’t enjoy the process… Instead, what I like is running businesses, which generate some free cash flow, and use that cash to buy other businesses, that become parts of my own firm (or, at least, I like to think about them that way! Call me delusional…). Therefore, I wait for the right price, I buy, and then I very seldom sell. From this it immediately follows the great emphasis I put on knowing the management very well, on understanding what they are doing (how and why), and on trusting them 100%. I never start a project, within the two businesses that I personally run, if I don’t have the right people in place. Why should I invest differently?
I know that striving to maximize the fcf I can extract from my businesses, using it to purchase owner/operators at good prices, stick with them, and constantly increasing my firm ownership of those businesses over time, will surely turn out to be a much slower way to accumulate wealth, than jumping opportunistically from one undervalued stock to another. But that’s what I like to do! And I literally “tap-dance” to work every morning: why should I change something that makes me feel so good?! :)
Just for the sake of completeness, it is not true that I never sell: but, when in fact I do sell, it is to adjust my firm’s portfolio to the overall market exposure I want it to maintain. As I have already said, Sir John Templeton’s “Yale Plan” still makes great sense to me, and I try to follow it as best as I can. Look, with the exception of the two businesses I fully control, my firm’s other investments are all listed in some stock exchange: to believe they are not subject to market risk is dangerous and simply not true.

Finally, I would really like to know what twacowfca thinks about Markel and their new deal with Alterra: very few people are as knowledgeable as twacowfca about the insurance industry, so his opinion would be greatly appreciated!
Thank you,

giofranchi

Thank you Giofranchi for your kind remarks.  We also like to buy great owner operator companies and hold them as long as they are not overpriced.  However we occasionally speculate in value situations, even if we don't particularly like a company or their situation.

We have been and out of BAC with a very large position entered in March, 2009 almost exactly at the bottom and then sold a few months later for a double because I didn't like their situation of becoming a TBTF ward of the government.  We bought BAC B warrants last year when the price of their stock was one day off their low at the point of maximum pessimism, and then sold it a few months later for a three bagger.  Unfortunately, the second BAC buy turned out to be a micro position through strange circumstances, and we sold it early because I didn't like holding it with high implied volatility.  Congratulations to all the others on the board who had the courage of their convictions to buy and hold a lot of BAC. 

That said, I don't like big banks for many reasons as a long term hold through the credit cycle.

Markel is a great company in all respects.  They  are in  the same league  as FFH, and BRK and LUK. They are very good equity investors.  I think that buying Alterra at BV gives them almost twice as much low cost float and assets to invest.  It's a great move, and Markel is now attractively priced for purchase.  :)
Title: Re: MKL - Markel Corp
Post by: jay21 on December 20, 2012, 05:33:57 AM
Markel is a great company in all respects.  They  are in  the same league  as FFH, and BRK and LUK. They are very good equity investors.  I think that buying Alterra at BV gives them almost twice as much low cost float and assets to invest.  It's a great move, and Markel is now attractively priced for purchase.  :)

I hate being faced with such a tough decision of which insurance company that has a normalized teens ROE would I like to buy at (or around) BV   ;)
Title: Re: MKL - Markel Corp
Post by: twacowfca on December 20, 2012, 07:26:45 AM
Markel is a great company in all respects.  They  are in  the same league  as FFH, and BRK and LUK. They are very good equity investors.  I think that buying Alterra at BV gives them almost twice as much low cost float and assets to invest.  It's a great move, and Markel is now attractively priced for purchase.  :)

I hate being faced with such a tough decision of which insurance company that has a normalized teens ROE would I like to buy at (or around) BV   ;)

These are easy choices to make depending on your view of the future market.  FFH is a good choice if you are bearish.  Markel is a good choice if you're bullish or neutral.  BRK is a good choice if you're bullish, bearish or neutral.  All three should do well long term regardless of Mr. Market's moods.  :)
Title: Re: MKL - Markel Corp
Post by: racemize on December 20, 2012, 07:55:23 AM
Does anyone have a PDF of their annuals up to 2005 (or present)?  I'd like to read through them from the beginning.

Thanks!
Title: Re: MKL - Markel Corp
Post by: masseyrock on December 20, 2012, 08:03:47 AM
http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=letters
Title: Re: MKL - Markel Corp
Post by: racemize on December 20, 2012, 08:07:31 AM
http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=letters

Ah, thanks, I just noticed it as well--I was looking at the annuals section instead of the letters.
Title: Re: MKL - Markel Corp
Post by: fareastwarriors on December 20, 2012, 08:08:11 AM
http://beta.fool.com/symie5/2012/12/19/markel-bags-whale-now-time-buy/19399/ (http://beta.fool.com/symie5/2012/12/19/markel-bags-whale-now-time-buy/19399/)


Markel Bags a Whale: Is Now the Time to Buy?
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 20, 2012, 08:08:59 AM
These are easy choices to make depending on your view of the future market.  FFH is a good choice if you are bearish.  Markel is a good choice if you're bullish or neutral.  BRK is a good choice if you're bullish, bearish or neutral.  All three should do well long term regardless of Mr. Market's moods.  :)

twacowfca,
don’t you think it is always a good idea to invest in something that could benefit from short-term volatility/disorder, still retaining the potential to “do well long term regardless of Mr. Market’s moods”?
Ok, maybe not such a good idea at the beginning of a secular bull, but what about now? When general stock market prices are high and a bundle of still un-restructured debt plague the whole developed world?
That’s why I have loaded the boat with FFH.

giofranchi
Title: Re: MKL - Markel Corp
Post by: twacowfca on December 20, 2012, 09:10:32 AM
These are easy choices to make depending on your view of the future market.  FFH is a good choice if you are bearish.  Markel is a good choice if you're bullish or neutral.  BRK is a good choice if you're bullish, bearish or neutral.  All three should do well long term regardless of Mr. Market's moods.  :)

twacowfca,
don’t you think it is always a good idea to invest in something that could benefit from short-term volatility/disorder, still retaining the potential to “do well long term regardless of Mr. Market’s moods”?
Ok, maybe not such a good idea at the beginning of a secular bull, but what about now? When general stock market prices are high and a bundle of still un-restructured debt plague the whole developed world?
That’s why I have loaded the boat with FFH.

giofranchi

FFH is definitely the one to benefit from down volatility.
Title: Re: MKL - Markel Corp
Post by: ShahKhezri on December 21, 2012, 08:46:46 PM
Good article from The Brooklyn Investor:

http://brooklyninvestor.blogspot.com/2012/12/markel-alterra-merger.html

Based on pro-forma book value of $424, you can buy MKL today at book.  I'll wait a little more, but thinking of doubling my position that I purchased last year. 
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 22, 2012, 02:38:58 AM
That said, I don't like big banks for many reasons as a long term hold through the credit cycle.

Quote
If you list the businesses that have generated the most wealth in history, you would see that they all have optionality. ... the largest generators of wealth in America historically have been, first, real estate (investors have the option at the expense of the banks), and, second, technology (which relies almost completely on trial and error). Further, businesses with negative optionality (that is, the opposite of having optionality) such as banking have had a horrible performance through history: banks lose periodically every penny made in their  history thanks to blowups.
"Antifragile", by Mr. Taleb

giofranchi
Title: Re: MKL - Markel Corp
Post by: hellsten on December 22, 2012, 03:09:14 AM
Quote
the largest generators of wealth in America historically have been, first, real estate (investors have the option at the expense of the banks), and, second, technology (which relies almost completely on trial and error).

I find this hard to believe without further context. Without technology we would live in trees. Is the quote from the book "Antifragile"?
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 22, 2012, 03:24:11 AM
Quote
the largest generators of wealth in America historically have been, first, real estate (investors have the option at the expense of the banks), and, second, technology (which relies almost completely on trial and error).

I find this hard to believe without further context. Without technology we would live in trees. Is the quote from the book "Antifragile"?

Yes! From the paragraph “Life Is Long Gamma”, page 185 of the hardcover version of the book.

Anyway, I don’t know if he is right about real estate and technology. I believe, though, he is quite right about banks! ;)

giofranchi
Title: Re: MKL - Markel Corp
Post by: hellsten on December 22, 2012, 03:30:26 AM
Quote
the largest generators of wealth in America historically have been, first, real estate (investors have the option at the expense of the banks), and, second, technology (which relies almost completely on trial and error).

I find this hard to believe without further context. Without technology we would live in trees. Is the quote from the book "Antifragile"?

Yes! From the paragraph “Life Is Long Gamma”, page 185 of the hardcover version of the book.

Anyway, I don’t know if he is right about real estate and technology. I believe, though, he is quite right about banks! ;)

giofranchi

Yes, I agree about the banks. But I still own a few of them as they just recently blew up. With the help of randomness they might blow up again very soon :)

http://www.empiricalzeal.com/2012/12/21/what-does-randomness-look-like/
Title: Re: MKL - Markel Corp
Post by: bargainman on December 22, 2012, 08:50:01 AM
years ago I read a book or article on the richest people in the US.  At that time it basically said that the majority of millionaires made their money via realestate, and then the rest made it through running their own businesses.  It makes sense given the optionality and the high amount an individual can leverage themselves.  I think I read this book before the 90s tech boom though, so I'm sure some things have changed.
Title: Re: MKL - Markel Corp
Post by: Junto on December 23, 2012, 05:21:17 AM
Quote
the largest generators of wealth in America historically have been, first, real estate (investors have the option at the expense of the banks), and, second, technology (which relies almost completely on trial and error).

I find this hard to believe without further context. Without technology we would live in trees. Is the quote from the book "Antifragile"?

Yes! From the paragraph “Life Is Long Gamma”, page 185 of the hardcover version of the book.

Anyway, I don’t know if he is right about real estate and technology. I believe, though, he is quite right about banks! ;)

giofranchi

you would be very wrong then, as it relates to banks. It is flashy to say that and if you look across the spectrum, but on an individual bank level massive amounts of wealth have been created in the banking sector by prudent and solid operators.
Title: Re: MKL - Markel Corp
Post by: jay21 on December 23, 2012, 11:49:56 AM
At first glance, this deal appears really good.  ALTE may even be a better underwriter than MKL so ALTE with MKL's investing may be more valuable than stand alone MKL.  Anyone done any digging on the underwriting?
Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on December 23, 2012, 03:38:52 PM
At first glance, this deal appears really good.  ALTE may even be a better underwriter than MKL so ALTE with MKL's investing may be more valuable than stand alone MKL.  Anyone done any digging on the underwriting?

I had a little look at ALTE's underwriting, though not finished yet.

Max Capital (Alterra's predecessor) was only set up in 1999 or so, so we only have a little over a decade of numbers.  It naturally took Max Capital a number of years to ramp up.  I don't have the figures in front of me now, but I think it was 2003/04 before NPE started to kind of level off.  So from 2000 to 2003/04, combined ratios were well north of 100% as operating expenses were spread over too-few policies ratio.  I didn't get a chance to see how the expense ratio behaved in those early years, but what I'm trying to say is that we don't have a lot of years to judge Alterra's success, especially given the nature of the insurance they write (60% reinsurance, 40% long-tailed).  Anyone disagree?

I looked at the reserve development over the years.  They had mostly reserve deficiencies up until 2005 or so, and mainly reserve redundancies since then.  Perhaps there's a reason for this particular pattern, but it's similar to many companies I look at.  Overall, adding up all the deficiencies / redundancies since 2000, they've had net redundancies.  Then again, given their deficiencies came at a time when their premiums written were small, that's what you would expect.  In conclusion, their reserving looks ok, but I wouldn't have thought in the same league as Markel (or Fairfax).  That's more or less what was said on the conference call.

Markel have undoubtedly done their homework on Alterra's underwriting and reserving, presumably they're very happy.  In underwriting, the devil is in the detail: the policy terms and conditions, levels of customer service etc.  I trust the guys at Markel to be honest and competent in their analysis and valuation of Alterra.  I'd still like to know more about why this deal happened.  Why Alterra? Is there something really special about the company?  Did Markel look seriously at other companies and did Alterra talk to any other suitors?  Did Markel feel they needed more scale / a broader scope?  Or was this opportunistic, a reflection of the insurance sector's cheapness?

Anyone anything else to add?

Title: Re: MKL - Markel Corp
Post by: twacowfca on December 23, 2012, 06:48:58 PM
At first glance, this deal appears really good.  ALTE may even be a better underwriter than MKL so ALTE with MKL's investing may be more valuable than stand alone MKL.  Anyone done any digging on the underwriting?

I had a little look at ALTE's underwriting, though not finished yet.

Max Capital (Alterra's predecessor) was only set up in 1999 or so, so we only have a little over a decade of numbers.  It naturally took Max Capital a number of years to ramp up.  I don't have the figures in front of me now, but I think it was 2003/04 before NPE started to kind of level off.  So from 2000 to 2003/04, combined ratios were well north of 100% as operating expenses were spread over too-few policies ratio.  I didn't get a chance to see how the expense ratio behaved in those early years, but what I'm trying to say is that we don't have a lot of years to judge Alterra's success, especially given the nature of the insurance they write (60% reinsurance, 40% long-tailed).  Anyone disagree?

I looked at the reserve development over the years.  They had mostly reserve deficiencies up until 2005 or so, and mainly reserve redundancies since then.  Perhaps there's a reason for this particular pattern, but it's similar to many companies I look at.  Overall, adding up all the deficiencies / redundancies since 2000, they've had net redundancies.  Then again, given their deficiencies came at a time when their premiums written were small, that's what you would expect.  In conclusion, their reserving looks ok, but I wouldn't have thought in the same league as Markel (or Fairfax).  That's more or less what was said on the conference call.

Markel have undoubtedly done their homework on Alterra's underwriting and reserving, presumably they're very happy.  In underwriting, the devil is in the detail: the policy terms and conditions, levels of customer service etc.  I trust the guys at Markel to be honest and competent in their analysis and valuation of Alterra.  I'd still like to know more about why this deal happened.  Why Alterra? Is there something really special about the company?  Did Markel look seriously at other companies and did Alterra talk to any other suitors?  Did Markel feel they needed more scale / a broader scope?  Or was this opportunistic, a reflection of the insurance sector's cheapness?

Anyone anything else to add?

I think some of their long tail reserves may need strengthening. But that's often the nature of the beast with things like A&E, workers comp etc.  A&E losses industry wide are flatlining instead of declining as some courts are starting to allow claims by people who MIGHT sufferin the future from asbestos exposure many decades ago.  I suppose the next phase will be cases where plantiffs will claim damages because their chromosomes were exposed to asbestos in utero as a result of their parents exposure to asbestos decades before they were born. 

Evidently, Markel thinks the reserving issues are manageable and not a big deal compared to what they can do by revamping Altera's portfolio to include stocks in their asset mix.  They hinted on their recent conference call that Alterra is going to follow Markel's guidance and begin that asset makeover even before the acquisition is completed.  The acquisition is almost certain to go through.  No one appears likely to top Markel's offer.  I think it's a good deal for Markel, assuming that reserving issues are minor.
Title: Re: MKL - Markel Corp
Post by: ShahKhezri on December 23, 2012, 07:23:51 PM
I'd really like to see when it becomes available, if anyone else was interest in ALTE as well.  I don't doubt MKL's dd.  I read the transcript, the presentations and the William Blair review of the transaction (nothing earth shattering).

Valuations for the P&C group is bifurcated right now, you have CB, RLI, MKL, HCC, WRB, RNR, ESGR, TRV , ACGL, ACE (barely) trading above P/B and and all of the others at .5-.8x. 

I think about Lynch and what he said about Exxon in One Up on Wall Street.  You have BRK buying shares at <1.20x.  Y and TRH last year, MKL and ALTE, FSR recently, I wouldn't be surprised if there is more consolidation.  MRH went up 6% as a result of this news.  1.  You take out capacity, 2.  If you think you have superior investment acumen and you can repair a portfolio from a sub 2-3% total return to 4-6% the math starts to make sense. 

The Company doubled it's size overnight and if you think exposure is growing and pricing per unit of exposure is stabilizing...it's a no-brainer.  WRB would be my next guess to acquire. 

I'll be selling my positions in AAP and BBY over the next 30 days to double my position in MKL. 
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 24, 2012, 12:55:34 AM
Quote
the largest generators of wealth in America historically have been, first, real estate (investors have the option at the expense of the banks), and, second, technology (which relies almost completely on trial and error).

I find this hard to believe without further context. Without technology we would live in trees. Is the quote from the book "Antifragile"?

Yes! From the paragraph “Life Is Long Gamma”, page 185 of the hardcover version of the book.

Anyway, I don’t know if he is right about real estate and technology. I believe, though, he is quite right about banks! ;)

giofranchi

you would be very wrong then, as it relates to banks. It is flashy to say that and if you look across the spectrum, but on an individual bank level massive amounts of wealth have been created in the banking sector by prudent and solid operators.

Thank you Junto, you really stirred my curiosity! If you have read some posts of mine, you know what I look for while investing my firm’s fcf. And I am always on the lookout to find other investments that might match my criteria. And I would be much grateful, if you could provide some suggestions in the banking sector! Maybe starting a new thread titled: “Owner-operators with an outstanding track-record in the banking sector”. Or something like that… I guess it could interest almost everybody on this board!  :)

giofranchi
Title: Re: MKL - Markel Corp
Post by: frith2012 on December 24, 2012, 03:55:44 AM
The banking owner operator at Buffett always discusses in Omaha is Bob Wilmers of M &T bank. If nothing else, his annual letter is always worth a read.
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 25, 2012, 01:57:59 AM
The banking owner operator at Buffett always discusses in Omaha is Bob Wilmers of M &T bank. If nothing else, his annual letter is always worth a read.

Thank you frith2012, I will surely check it out!

giofranchi

Title: Re: MKL - Markel Corp
Post by: twacowfca on December 25, 2012, 03:24:14 AM
Quote
the largest generators of wealth in America historically have been, first, real estate (investors have the option at the expense of the banks), and, second, technology (which relies almost completely on trial and error).

I find this hard to believe without further context. Without technology we would live in trees. Is the quote from the book "Antifragile"?

Yes! From the paragraph “Life Is Long Gamma”, page 185 of the hardcover version of the book.

Anyway, I don’t know if he is right about real estate and technology. I believe, though, he is quite right about banks! ;)

giofranchi

you would be very wrong then, as it relates to banks. It is flashy to say that and if you look across the spectrum, but on an individual bank level massive amounts of wealth have been created in the banking sector by prudent and solid operators.

Thank you Junto, you really stirred my curiosity! If you have read some posts of mine, you know what I look for while investing my firm’s fcf. And I am always on the lookout to find other investments that might match my criteria. And I would be much grateful, if you could provide some suggestions in the banking sector! Maybe starting a new thread titled: “Owner-operators with an outstanding track-record in the banking sector”. Or something like that… I guess it could interest almost everybody on this board!  :)

giofranchi


That would be a very short list indeed.  I have a deceased relative, a great uncle who lived to be over one hundred years old  who would be on it, but that's it.  Family lore was that he wouldn't make a loan unless you could prove that you didn't need it.  My father, who had been a bank examiner in his 20's and I, along with my sister, invested in a local start up bank at an opportune time in the 1980's. It became a ten bagger after it was acquired, and we sold our shares in 2000.  Later the acquirer got caught up in the 2008 meltdown and lost most of their equity.

There is a book, 100 to 1 in the Stock Market, that describes hundreds of companies that increased their market value 100 times or more during rolling periods from the 1930's through the 1970's.  There are a number of insurance companies in that elite group, but not one bank.

Here's how the deck is stacked against bankers.  I have an acquaintance who owns a few small banks in a mostly rural or small town state.  His banks were well run with few bad loans and none of the toxic mortgages that caused the meltdown.  The FDIC increased his required contribution to the FDIC insurance pool by $1.5M, ten times his former rate, to pay for all the banks that went broke.  Then, he had to come up with $15M out of his own pocket to strengthen the capital of his banks even though there was nothing wrong with his balance sheet and his loans were performing satisfactorily.

And the beat goes on.  That's why I like (some) insurance companies better than banks, despite our family's modest history of investing in banks.
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 25, 2012, 03:42:18 AM
Family lore was that he wouldn't make a loan unless you could prove that you didn't need it. 

twacowfca,
that quote of yours is a wonderful Xmas present!  ;)

There is a book, 100 to 1 in the Stock Market, that describes hundreds of companies that increased their market value 100 times or more during rolling periods from the 1930's through the 1970's.  There are a number of insurance companies in that elite group, but not one bank.

I will purchase that book right away, and read it asap!

I have a deceased relative, a great uncle who lived to be over one hundred years old 

May you follow in your great uncle’s footsteps!  :)

giofranchi


Title: Re: MKL - Markel Corp
Post by: Green King on December 25, 2012, 04:04:24 AM
Quote
Family lore was that he wouldn't make a loan unless you could prove that you didn't need it.

I too think this is a great rule to live by and one that is as solid as it gets.

Quote
Here's how the deck is stacked against bankers.  I have an acquaintance who owns a few small banks in a mostly rural or small town state.  His banks were well run with few bad loans and none of the toxic mortgages that caused the meltdown.  The FDIC increased his required contribution to the FDIC insurance pool by $1.5M, ten times his former rate, to pay for all the banks that went broke.  Then, he had to come up with $15M out of his own pocket to strengthen the capital of his banks even though there was nothing wrong with his balance sheet and his loans were performing satisfactorily.

Interesting maybe there is a opportunity open for major consolidation of these great small community operated banks but Berkshire or Leucadia National Corp. or a good firm value firm seeing partial ownership and create a holding company to make it more efficient. (correct me if i am wrong i know nothing this is only instinct.)

Merry Xmas twacowfca
I've learned a great deal from your high quality posts.
Title: Re: MKL - Markel Corp
Post by: Green King on December 25, 2012, 04:57:09 AM
There seems to be misuse between aggregate and individual return over time for stock, companies and money managers.

Umm something to add in as a guard to watch for when other are trying give certainty statistics.

There seems to be a confusion between
IV determines prices But Price dose not determine IV as shown in other posts

twacowfca
Can one say
Occurrence of event determine Aggregate statistical results

But Aggregate statistical results dose not determine occurrence of results

In the social world.

Or should it be

But Aggregate statistical results dose not always determine occurrence of results
So be careful

Which one should be the exception and which the rule ?
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 25, 2012, 05:55:02 AM
Article on Seeking Alpha:

http://seekingalpha.com/article/1080301-markel-bargain-opportunity-presented-by-arbitrageurs?source=feed

giofranchi
Title: Re: MKL - Markel Corp
Post by: twacowfca on December 25, 2012, 07:52:39 AM
There seems to be misuse between aggregate and individual return over time for stock, companies and money managers.

Umm something to add in as a guard to watch for when other are trying give certainty statistics.

There seems to be a confusion between
IV determines prices But Price dose not determine IV as shown in other posts

twacowfca
Can one say
Occurrence of event determine Aggregate statistical results

But Aggregate statistical results dose not determine occurrence of results

In the social world.

Or should it be

But Aggregate statistical results dose not always determine occurrence of results
So be careful

Which one should be the exception and which the rule ?

Causality is presumed to be unidirectional with the arrow of time, although not necessarily so in math models.  You might enjoy "A World Without Time", The Forgotten Legacy of Godel and Einstein" by Palle Yourgrau.

Practically, there are sometimes logical reasons that indicate which came first, the chicken or the egg.  :)
Title: Re: MKL - Markel Corp
Post by: HJ on December 25, 2012, 08:36:13 AM

Family lore was that he wouldn't make a loan unless you could prove that you didn't need it. 
Reminds me of the line by Mark Twain:

"A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain."

Is this acquisition also a back door way for Markel to get a Bermuda entity, and therefore can conduct some serious tax arbitrage going forward?

Title: Re: MKL - Markel Corp
Post by: rimm_never_sleeps on December 25, 2012, 10:03:41 AM
I think it's pretty simple. insurance stocks are cheap. the smart players are growing Aum (alleghany markel). the underwriting cycle is favorable. and interest rates are going to go higher eventually.
Title: Re: MKL - Markel Corp
Post by: twacowfca on December 25, 2012, 10:04:38 AM

Family lore was that he wouldn't make a loan unless you could prove that you didn't need it. 
Reminds me of the line by Mark Twain:

"A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain."

Is this acquisition also a back door way for Markel to get a Bermuda entity, and therefore can conduct some serious tax arbitrage going forward?
   


Not really, Tom Gaynor stated in their conference call that they may consolidate some of the merged companies operations in the US.  I think their Lloyd's operations will merge and have more clout with greater size.  Markel is definitely not going to redomicile offshore.  :)
Title: Re: MKL - Markel Corp
Post by: ap1234 on December 25, 2012, 11:11:31 AM
"Family lore was that he wouldn't make a loan unless you could prove that you didn't need it."

"I too think this is a great rule to live by and one that is as solid as it gets."

I have really been enjoying reading this thread on Markel. In particular, I was fascinated by the recent discussion on banks/insurance co's and what is an acceptable levels of risk for the business.

I actually have a diffferent interpretation on Buffett's view of risk/return. If he was running a bank, I do NOT believe he would only extend loans to customers who didn't need them. In fact, I would guess that Buffett would say that a bank that takes no risk is not a better bank than one that does. I think the question that Buffett the banker would ask himself before extending a loan was: "are you getting paid for the risk?" If you are being compensated for the risk AND you can make many of these loans, it is ok to lose your principal on any individual loan.

Anyways, this is just my interpretation and I could be completely offbase. I actually had a very similar discussion with a friend of mine a few years ago on a related topic. I have copied and posted my response to my friend below. I'd be interested to hear everyone else's thoughts on this topic.
------------------------------------------------------------------------------------------------------------------------------

"You reminded me of a section in The Snowball which describes Buffet's investment in National Indemnity. I believe the previous owner of the insurance company (Jack Ringwalt) had an expression that went along the lines of "there is no such thing as a bad risk, only bad rates." This became the basis for Buffett's insurance philosophy (i.e. nothing wrong with insuring high risk events if you are compensated for it). I guess the exact same thing is true when it comes to investing in any asset (stocks included). Higher risk investments (i.e. higher probability of permanent impairment of capital) are fine just get paid for it.
 
Now that I think about it, Buffett's insurance philosophy and "current" investment philosophy are somewhat opposed (although both are extremely successful in their own right). In insurance, he makes asymetric bets, buys a basket and is more then compensated for the individual losers by the overall total return from the winners. Perhaps an analogy is to think about his insurance business like a portfolio of stocks with each individual insurance policy being a single position. I presume in high risk re-insurance, you are guarenteed to 'lose' money on any individual insurance contract. However, if you get attractive premiums and you write a lot of insurance contracts, the asymetric returns from the collection of insurance policies outweight the losses from any individual insurance policy that might lose money (i.e. you have to payout the claim) . In other words, you are almost guarenteed to lose your entire 'principal' on any individual contract but as a basket of them, your total return is attractive.
 
This seems to be a good investment approach: look at risk/returns, handicap probabilities and if you do decide to accept high risk bets - make a lot of them and get paid for it. However, in Buffet's investment portfolio, he seems to follow his Rule # 1: Never lose money. Today, my sense is that he is unwilling to suffer permanent impairment of capital on any individual stock and as such turns away mispriced bets if he feels there is even a reasonable chance he could lose capital. Also, I'm sure size restrictions, etc. have have had huge impacts on his current investment approach.
 
Actually, all this discussion reminds me of this exchange of letters between Buffett and a Microsoft executive that I came across recently. In the late 1990s (time of the letter), there is clearly no way that Buffett would invest in Microsoft given the lofty valuation multiples. However, after reading the letter, I got the sense that Buffett would not invest in Microsoft at any price. It doesn't seem to be because of his lack of understanding of technology businesses (it sounds like quite the opposite). The following quote really stood out.
 
"I feel 100% sure (perhaps mistakenly) that I know the odds of this continuing-again 100% as long as cola doesn't cause cancer. Bill (Gates) has an even better royalty- one which I would never bet against but i dont feel i am capable of assessing probabilities about, except to the extent that with a gun to my head and forced to make a guess, I would go with it rather than against. But to calibrate whether my certainty is 80% or 55%, say, for a 20-year run would be folly. if I had to make such decisions, i would do my best but I prefer to structure investing as a no-called-strikes game and just wait for the fat one."
 
I guess Buffett's ultimate holding period is forever and he would not own a wonderful royalty business if he knew that at some point in the future this business could not survive. This has been a fabulously successful strategy for him but I'm not sure I would be as stringent with this for my own personal investments. After all, I agree with your recent decision to buy X stock during the financial crisis even if there was a higher chance of permanent impairment of capital although this seemed like a low probability event and the risks appeared to outweigh the rewards."
 
Title: Re: MKL - Markel Corp
Post by: HJ on December 25, 2012, 11:28:37 AM
Not really, Tom Gaynor stated in their conference call that they may consolidate some of the merged companies operations in the US.  I think their Lloyd's operations will merge and have more clout with greater size.  Markel is definitely not going to redomicile offshore.  :)

Wasn't thinking of re-domicile per se.  I haven't heard the conference call, so don't know if they touched on it, but suppose they re-insure a lot more to the Bermuda entity, and result in paying lower tax on the reinsurance profits in Bermuda?  I don't know the details of what kind of exercise tax this might trip up.  I do remember hearing Berkley complaining of the uneven playing field of the Bermuda insurers vs. the onshore ones forever.  Interesting to note that as successful as Markel has been, they never went to Bermuda.

Title: Re: MKL - Markel Corp
Post by: twacowfca on December 25, 2012, 11:57:38 AM
Not really, Tom Gaynor stated in their conference call that they may consolidate some of the merged companies operations in the US.  I think their Lloyd's operations will merge and have more clout with greater size.  Markel is definitely not going to redomicile offshore.  :)

Wasn't thinking of re-domicile per se.  I haven't heard the conference call, so don't know if they touched on it, but suppose they re-insure a lot more to the Bermuda entity, and result in paying lower tax on the reinsurance profits in Bermuda?  I don't know the details of what kind of exercise tax this might trip up.  I do remember hearing Berkley complaining of the uneven playing field of the Bermuda insurers vs. the onshore ones forever.  Interesting to note that as successful as Markel has been, they never went to Bermuda.
Title: Re: MKL - Markel Corp
Post by: twacowfca on December 25, 2012, 11:58:49 AM
"Family lore was that he wouldn't make a loan unless you could prove that you didn't need it."

"I too think this is a great rule to live by and one that is as solid as it gets."

I have really been enjoying reading this thread on Markel. In particular, I was fascinated by the recent discussion on banks/insurance co's and what is an acceptable levels of risk for the business.

I actually have a diffferent interpretation on Buffett's view of risk/return. If he was running a bank, I do NOT believe he would only extend loans to customers who didn't need them. In fact, I would guess that Buffett would say that a bank that takes no risk is not a better bank than one that does. I think the question that Buffett the banker would ask himself before extending a loan was: "are you getting paid for the risk?" If you are being compensated for the risk AND you can make many of these loans, it is ok to lose your principal on any individual loan.

Anyways, this is just my interpretation and I could be completely offbase. I actually had a very similar discussion with a friend of mine a few years ago on a related topic. I have copied and posted my response to my friend below. I'd be interested to hear everyone else's thoughts on this topic.
------------------------------------------------------------------------------------------------------------------------------

"You reminded me of a section in The Snowball which describes Buffet's investment in National Indemnity. I believe the previous owner of the insurance company (Jack Ringwalt) had an expression that went along the lines of "there is no such thing as a bad risk, only bad rates." This became the basis for Buffett's insurance philosophy (i.e. nothing wrong with insuring high risk events if you are compensated for it). I guess the exact same thing is true when it comes to investing in any asset (stocks included). Higher risk investments (i.e. higher probability of permanent impairment of capital) are fine just get paid for it.
 
Now that I think about it, Buffett's insurance philosophy and "current" investment philosophy are somewhat opposed (although both are extremely successful in their own right). In insurance, he makes asymetric bets, buys a basket and is more then compensated for the individual losers by the overall total return from the winners. Perhaps an analogy is to think about his insurance business like a portfolio of stocks with each individual insurance policy being a single position. I presume in high risk re-insurance, you are guarenteed to 'lose' money on any individual insurance contract. However, if you get attractive premiums and you write a lot of insurance contracts, the asymetric returns from the collection of insurance policies outweight the losses from any individual insurance policy that might lose money (i.e. you have to payout the claim) . In other words, you are almost guarenteed to lose your entire 'principal' on any individual contract but as a basket of them, your total return is attractive.
 
This seems to be a good investment approach: look at risk/returns, handicap probabilities and if you do decide to accept high risk bets - make a lot of them and get paid for it. However, in Buffet's investment portfolio, he seems to follow his Rule # 1: Never lose money. Today, my sense is that he is unwilling to suffer permanent impairment of capital on any individual stock and as such turns away mispriced bets if he feels there is even a reasonable chance he could lose capital. Also, I'm sure size restrictions, etc. have have had huge impacts on his current investment approach.
 
Actually, all this discussion reminds me of this exchange of letters between Buffett and a Microsoft executive that I came across recently. In the late 1990s (time of the letter), there is clearly no way that Buffett would invest in Microsoft given the lofty valuation multiples. However, after reading the letter, I got the sense that Buffett would not invest in Microsoft at any price. It doesn't seem to be because of his lack of understanding of technology businesses (it sounds like quite the opposite). The following quote really stood out.
 
"I feel 100% sure (perhaps mistakenly) that I know the odds of this continuing-again 100% as long as cola doesn't cause cancer. Bill (Gates) has an even better royalty- one which I would never bet against but i dont feel i am capable of assessing probabilities about, except to the extent that with a gun to my head and forced to make a guess, I would go with it rather than against. But to calibrate whether my certainty is 80% or 55%, say, for a 20-year run would be folly. if I had to make such decisions, i would do my best but I prefer to structure investing as a no-called-strikes game and just wait for the fat one."
 
I guess Buffett's ultimate holding period is forever and he would not own a wonderful royalty business if he knew that at some point in the future this business could not survive. This has been a fabulously successful strategy for him but I'm not sure I would be as stringent with this for my own personal investments. After all, I agree with your recent decision to buy X stock during the financial crisis even if there was a higher chance of permanent impairment of capital although this seemed like a low probability event and the risks appeared to outweigh the rewards."

Banking, as opposed to investment banking, is traditionally about avoiding risks and making a small profit on the spread.  Credit card lending with  often high rates to compensate for much increased risk of default is a new development that is dominated by mega banks with the resources to accept that challenge.
Title: Re: MKL - Markel Corp
Post by: jay21 on December 25, 2012, 12:13:02 PM
I actually have a diffferent interpretation on Buffett's view of risk/return. If he was running a bank, I do NOT believe he would only extend loans to customers who didn't need them. In fact, I would guess that Buffett would say that a bank that takes no risk is not a better bank than one that does. I think the question that Buffett the banker would ask himself before extending a loan was: "are you getting paid for the risk?" If you are being compensated for the risk AND you can make many of these loans, it is ok to lose your principal on any individual loan.


Right.  He would run a bank like WFC or MTB.  Maintain your competitive advantage (low cost through operations and a deposit base) and strong underwriting. You can lose on any individual loan because you have thousands.  You couldn't invest in distressed loans with higher returns or equities because there is uncertainty in the timing of payments.  If you have high quality/well underwritten loans, your competitive advantage will give you extraordinary returns on growing capital.

"You reminded me of a section in The Snowball which describes Buffet's investment in National Indemnity. I believe the previous owner of the insurance company (Jack Ringwalt) had an expression that went along the lines of "there is no such thing as a bad risk, only bad rates." This became the basis for Buffett's insurance philosophy (i.e. nothing wrong with insuring high risk events if you are compensated for it). I guess the exact same thing is true when it comes to investing in any asset (stocks included). Higher risk investments (i.e. higher probability of permanent impairment of capital) are fine just get paid for it.

I disagree here.  There are bad risks.  If you risk your entire capital base, it is a bad risk regardless of price received.  Also, I think he is fine with concentrating in insurance if he can find good deals.  He just won't risk all his capital.

Title: Re: MKL - Markel Corp
Post by: ItsAValueTrap on December 25, 2012, 06:50:53 PM
Quote
I guess Buffett's ultimate holding period is forever and he would not own a wonderful royalty business if he knew that at some point in the future this business could not survive. This has been a fabulously successful strategy for him but I'm not sure I would be as stringent with this for my own personal investments.
I don't think his ultimate holding period is forever.  He will screw around with other things.
- At one point in time, he hoarded physical silver.  Because this trade has no yield, clearly this is a trade where you asset flip.
- He sold out of Fannie Mae and Freddie Mac.  And he has sold out of other stocks before.
- He's done some stuff where he has sold credit default swaps.

- He wants to own businesses that a fool can run because eventually a fool *will* run that business.  Unfortunately... sometimes he has to sell stock or fire the CEO.  Some CEOs are just that awful.
- A lot of the businesses that he has owned have not survived the test of time.  Blue chip stamps, textiles mills, the World Book Encyclopedia, etc.

On the other hand, maybe Microsoft is not as safe as people may think.  IBM's OS/2 foray, Java, and open source software are all things that Microsoft really worried about.  (The quick rise of the Internet is another one.)

In many other industries, you aren't constantly paranoid about inflection points.  If you run a restaurant for example, you are less paranoid about seismic shifts in your industry because they rarely occur. 

Berkshire's size and high tax rate favours buying private businesses.  Almost as good is buying publicly-traded companies and holding them for very long periods of time.  Flipping in and out of stocks is difficult due to Berkshire's size and taxes.

I guess nowadays if Warren had only $1 million, he would trade quality companies.  (He did trade stocks while running his hedge fund.)  Buying a mediocre company like Berkshire Hathaway (trading below liquidation value) would be a mistake and something he would avoid.

Quote
After all, I agree with your recent decision to buy X stock during the financial crisis even if there was a higher chance of permanent impairment of capital although this seemed like a low probability event and the risks appeared to outweigh the rewards."
Buffett has made investments which have gone to 0 I believe... e.g. he invested in Irish banks.

Title: Re: MKL - Markel Corp
Post by: ItsAValueTrap on December 25, 2012, 07:00:22 PM
Quote
If you have high quality/well underwritten loans, your competitive advantage will give you extraordinary returns on growing capital.
I don't understand banks too well, but I think Buffett commented that he was surprised at the fees bank customers put up with.

-Regarding "free" chequing accounts... banks give these out and make their money back on overdraft fees. 
-Forex... there are nice juicy margins here.
-You have high net worth?  The bank will call you up and try to get them to manage it.  Fees for financial advice, mutual funds, etc. are very lucrative.
Title: Re: MKL - Markel Corp
Post by: Green King on December 25, 2012, 08:21:04 PM
There seems to be misuse between aggregate and individual return over time for stock, companies and money managers.

Umm something to add in as a guard to watch for when other are trying give certainty statistics.

There seems to be a confusion between
IV determines prices But Price dose not determine IV as shown in other posts

twacowfca
Can one say
Occurrence of event determine Aggregate statistical results

But Aggregate statistical results dose not determine occurrence of results

In the social world.

Or should it be

But Aggregate statistical results dose not always determine occurrence of results
So be careful

Which one should be the exception and which the rule ?

Causality is presumed to be unidirectional with the arrow of time, although not necessarily so in math models.  You might enjoy "A World Without Time", The Forgotten Legacy of Godel and Einstein" by Palle Yourgrau.

Practically, there are sometimes logical reasons that indicate which came first, the chicken or the egg.  :)

Just brought it. Thanks But expect questions if i don't understand it.  ;D
Title: Re: MKL - Markel Corp
Post by: treasurehunt on December 25, 2012, 09:10:31 PM
Quote
I guess Buffett's ultimate holding period is forever and he would not own a wonderful royalty business if he knew that at some point in the future this business could not survive. This has been a fabulously successful strategy for him but I'm not sure I would be as stringent with this for my own personal investments.
I don't think his ultimate holding period is forever.  He will screw around with other things.
- At one point in time, he hoarded physical silver.  Because this trade has no yield, clearly this is a trade where you asset flip.
- He sold out of Fannie Mae and Freddie Mac.  And he has sold out of other stocks before.
- He's done some stuff where he has sold credit default swaps.
Buffett has made investments which have gone to 0 I believe... e.g. he invested in Irish banks.
Here's the actual quote from Buffett: "In fact, when we own portions  of outstanding businesses with outstanding managements, our favorite holding period is forever." You can find the quote in the 1988 letter to shareholders: http://www.berkshirehathaway.com/letters/1988.html.

Clearly there are a lot of qualifications attached to holding stocks forever. Even an outstanding business can become less attractive in time and outstanding management can certainly be replaced by incompetent management, in which case I assume Buffett won't be averse to selling. One thing I have gotten out of this quote is that it is valuable to try and find stocks that I am willing to hold forever at the time of investment. I think this filter has helped me avoid value traps.
Title: Re: MKL - Markel Corp
Post by: Liberty on January 02, 2013, 02:10:44 PM
http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=irol-newsArticle&ID=1770631&highlight=

Quote
ICHMOND, Va., Jan. 2, 2013 /PRNewswire/ -- Markel Corporation (NYSE: MKL) announced today that it has completed the previously announced acquisition of Essentia Insurance Company from OneBeacon Insurance Group, LLC.

Essentia Insurance Company will continue to underwrite insurance exclusively for Hagerty Insurance Agency and Hagerty Classic Marine Insurance Agency throughout the United States.  Hagerty is the leading insurance provider for classic vehicles in the world and host to the largest network of classic car owners.  Hagerty offers insurance for classic cars, vintage boats, motorcycles and related automotive collectibles.  Hagerty remains a privately-owned, family business.

The transition is intended to be seamless for existing Hagerty customers and agents.  Both groups will continue to enjoy the same specialized products, service offerings and claim handling.  Insurance agents will continue to work with Hagerty as they traditionally have.
Title: Re: MKL - Markel Corp
Post by: compoundinglife on January 03, 2013, 11:32:24 PM
Gayner and other insiders did some buying: http://www.dataroma.com/m/ins/ins.php?t=y&&sym=MKL&o=fd&d=d
Title: Re: MKL - Markel Corp
Post by: Crip1 on January 10, 2013, 08:24:58 AM
Nice run-up recently has seen MKL recover about 60% of what was lost in the days after the Alterra announcement.

-Crip
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on January 10, 2013, 10:35:34 AM
Nice run-up recently has seen MKL recover about 60% of what was lost in the days after the Alterra announcement.

-Crip

I hope everyone got a chance to buy some more, even though it didn't quite fall quite enough to be highly attractive. It didn't even fall a cent below the pro-rata book value of ~$424.
Title: Re: MKL - Markel Corp
Post by: ShahKhezri on January 10, 2013, 10:51:08 AM
I increased my position by 150%.  I thought it was a no-brainer (if there is such a thing).  I sold Y $335 which I bought at $280 last year when they did an equity transaction to add to my MKL position.  No I just need FFH to do an equity transaction in the next 12 months to continue this streak.  JK, FFH is already at 30%.
Title: Re: MKL - Markel Corp
Post by: Partner24 on January 10, 2013, 11:16:23 AM
Doh!

No, I didn't have time to do it, because I'm starting few new positions, but still MKL is cheap enough. I'll cross my fingers that it will stay at that level or so over the next few years, but who knows...
Title: Re: MKL - Markel Corp
Post by: Junto on January 10, 2013, 11:28:01 AM
Doh!

No, I didn't have time to do it, because I'm starting few new positions, but still MKL is cheap enough. I'll cross my fingers that it will stay at that level or so over the next few years, but who knows...

I certainly hope it doesn't! Opened my first position in the name both ALTE and MKL. Long-term hold and I expect to see returns.
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on January 10, 2013, 11:36:35 AM
I was only able to increase my position in Markel by 7.7%. My next bid was below $424, which never happened. I was hoping for a fiscal cliff to make Mr. Market swoon into some short term despair.

It is certainly nice to have average cost well below book value per share for a such a well managed business.

I see MKL as one of my core holdings for the long term.
Title: Re: MKL - Markel Corp
Post by: Partner24 on January 10, 2013, 12:50:35 PM
I certainly hope it doesn't! Opened my first position in the name both ALTE and MKL. Long-term hold and I expect to see returns.

Well, as long as you are a buyer, you hope to buy cheap and sell expensive. Ask Costco and Walmart managers about their customers ;-) So that's why if you plan to keep adding to your position, you hope that intrinsic value goes up and price stay the same or better yet, go down.

Cheers!
Title: Re: MKL - Markel Corp
Post by: racemize on January 21, 2013, 08:51:03 AM
I'm trying to find info on the annual meeting this year--is it going to be in Omaha after BRK?  I emailed IR, but they haven't responded.

Thanks!
Title: Re: MKL - Markel Corp
Post by: BRK IN MKE on January 21, 2013, 02:00:43 PM
I'm trying to find info on the annual meeting this year--is it going to be in Omaha after BRK?  I emailed IR, but they haven't responded.

Thanks!

I am pretty sure there annual meeting is always in Virginia. Markel does have a brunch every year on Sunday after the Berkshire shareholder meeting. Last year it was at the Hilton Omaha Hotel. I have attached my invite from last year. I would recommend emailing Myra Hey mhey@markel.com if you are planning on attending. I believe she is Tom Gaynor's secretary. I would highly recommend this event. I look forward to it as much (if not more) than Berkshire shareholder meeting.

Title: Re: MKL - Markel Corp
Post by: racemize on January 21, 2013, 02:10:44 PM
I'm trying to find info on the annual meeting this year--is it going to be in Omaha after BRK?  I emailed IR, but they haven't responded.

Thanks!

I am pretty sure there annual meeting is always in Virginia. Markel does have a brunch every year on Sunday after the Berkshire shareholder meeting. Last year it was at the Hilton Omaha Hotel. I have attached my invite from last year. I would recommend emailing Myra Hey mhey@markel.com if you are planning on attending. I believe she is Tom Gaynor's secretary. I would highly recommend this event. I look forward to it as much (if not more) than Berkshire shareholder meeting.

This is exactly what I was looking for--thanks so much!  I hadn't realized it was just a brunch, but I'm looking forward to it.
Title: Re: MKL - Markel Corp
Post by: twacowfca on January 21, 2013, 02:27:46 PM
I'm trying to find info on the annual meeting this year--is it going to be in Omaha after BRK?  I emailed IR, but they haven't responded.

Thanks!

I am pretty sure there annual meeting is always in Virginia. Markel does have a brunch every year on Sunday after the Berkshire shareholder meeting. Last year it was at the Hilton Omaha Hotel. I have attached my invite from last year. I would recommend emailing Myra Hey mhey@markel.com if you are planning on attending. I believe she is Tom Gaynor's secretary. I would highly recommend this event. I look forward to it as much (if not more) than Berkshire shareholder meeting.

This is exactly what I was looking for--thanks so much!  I hadn't realized it was just a brunch, but I'm looking forward to it.

Yes.  Thank you very much.  We missed it last year at the Marriott.  Didn't realize they had moved it. 
Title: Re: MKL - Markel Corp
Post by: Liberty on January 29, 2013, 01:17:35 PM
Quote
RICHMOND, Va.--(BUSINESS WIRE)--Jan. 29, 2013-- Markel Corporation (NYSE: MKL) announced today it will hold a conference call on Tuesday, February 5, 2013 beginning at 10:30 am (Eastern Standard Time) to discuss quarterly and year-end results and business developments.

Any person interested in listening to the call should contact Markel's Investor Relations Department at 804-747-0136. Investors, analysts and the general public also may listen to the call free over the Internet through Markel Corporation's web site, www.markelcorp.com. There will be no replay of the call.
Title: Re: MKL - Markel Corp
Post by: Parsad on January 29, 2013, 01:21:49 PM
I wonder why no replay?  Does Markel normally replay quarterly calls?  Cheers!
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on January 29, 2013, 01:27:54 PM
I wonder why no replay?  Does Markel normally replay quarterly calls?  Cheers!

Going through their previous press releases-- Yes, they do. Maybe this is just a way to save some money. It is probably relatively cheap to host it online.

I am not sure how many people bother with calling in to hear the replay, anyway.
Title: Re: MKL - Markel Corp
Post by: Parsad on January 29, 2013, 01:34:00 PM
I wonder why no replay?  Does Markel normally replay quarterly calls?  Cheers!

Going through their previous press releases-- Yes, they do. Maybe this is just a way to save some money. It is probably relatively cheap to host it online.

I am not sure how many people bother with calling in to hear the replay, anyway.

How much would they save by having no replay...a few hundred dollars?  No, I think they are trying to get more people to attend this call, as they probably deem the information to be important with the deal.  Cheers! 
Title: Re: MKL - Markel Corp
Post by: zippy1 on February 04, 2013, 02:07:20 PM
2012 Earning is out.
http://finance.yahoo.com/news/markel-reports-2012-financial-results-214600986.html (http://finance.yahoo.com/news/markel-reports-2012-financial-results-214600986.html)
Quote
RICHMOND, Va., Feb. 4, 2013 /PRNewswire/ -- Markel Corporation (MKL) reported diluted net income per share of $25.89 for the year ended December 31, 2012 compared to $14.60 in 2011.  The 2012 combined ratio was 97% compared to 102% in 2011.  Book value per common share outstanding increased 15% to $403.85 at December 31, 2012 from $352.10 at December 31, 2011.  Over the five-year period ended December 31, 2012, compound annual growth in book value per common share outstanding was 9%.
Title: Re: MKL - Markel Corp
Post by: racemize on February 04, 2013, 03:13:05 PM
2012 Earning is out.
http://finance.yahoo.com/news/markel-reports-2012-financial-results-214600986.html (http://finance.yahoo.com/news/markel-reports-2012-financial-results-214600986.html)
Quote
RICHMOND, Va., Feb. 4, 2013 /PRNewswire/ -- Markel Corporation (MKL) reported diluted net income per share of $25.89 for the year ended December 31, 2012 compared to $14.60 in 2011.  The 2012 combined ratio was 97% compared to 102% in 2011.  Book value per common share outstanding increased 15% to $403.85 at December 31, 2012 from $352.10 at December 31, 2011.  Over the five-year period ended December 31, 2012, compound annual growth in book value per common share outstanding was 9%.

I wonder what that yields for pro-forma book value after the merge?
Title: Re: MKL - Markel Corp
Post by: jay21 on February 04, 2013, 04:01:13 PM
2012 Earning is out.
http://finance.yahoo.com/news/markel-reports-2012-financial-results-214600986.html (http://finance.yahoo.com/news/markel-reports-2012-financial-results-214600986.html)
Quote
RICHMOND, Va., Feb. 4, 2013 /PRNewswire/ -- Markel Corporation (MKL) reported diluted net income per share of $25.89 for the year ended December 31, 2012 compared to $14.60 in 2011.  The 2012 combined ratio was 97% compared to 102% in 2011.  Book value per common share outstanding increased 15% to $403.85 at December 31, 2012 from $352.10 at December 31, 2011.  Over the five-year period ended December 31, 2012, compound annual growth in book value per common share outstanding was 9%.

No bonuses again.  I'm disappointed.
Title: Re: MKL - Markel Corp
Post by: racemize on February 04, 2013, 04:10:27 PM
no bonuses?
Title: Re: MKL - Markel Corp
Post by: masseyrock on February 04, 2013, 04:26:13 PM
By my math:

Current diluted BV: $403
Estimated BV w/ Alterra: $426 (6% accretion)

Current Portfolio / Share: $966
Estimated with Alterra: $1,197 (24% accretion)

Title: Re: MKL - Markel Corp
Post by: masseyrock on February 04, 2013, 04:30:39 PM
On bonuses: they will almost certainly qualify as we exit 2013 since 2008 starts to roll off the 5yr CAGR. 
Title: Re: MKL - Markel Corp
Post by: racemize on February 04, 2013, 04:31:04 PM
By my math:

Current diluted BV: $403
Estimated BV w/ Alterra: $426 (6% accretion)

Current Portfolio / Share: $966
Estimated with Alterra: $1,197 (24% accretion)

Thank you!  Just using the merger SEC filing for the calculation?
Title: Re: MKL - Markel Corp
Post by: masseyrock on February 04, 2013, 04:41:20 PM
Hopefully this attaches correctly.  I think the math is right here - please correct if I'm off.
Title: Re: MKL - Markel Corp
Post by: giofranchi on February 05, 2013, 12:51:14 AM
Furthermore, with the Q4 2012 end of the year rally in stocks, and with a low exposure of MKL to Sandy, I wouldn’t be surprised to see its BV per share at $405 by year end, that’s to say 10 days from now.
Today I bought a small position, that I plan to significantly increase in the future, at $445: $445 / $405 = 1.1 x BV. Or Buffett’s (former) threshold to buyback BRK shares.

Yesterday Markel announced a 2012 year end BV per share of $403.85… I missed a little, but not much!!  ;D

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Title: Re: MKL - Markel Corp
Post by: ourkid8 on February 05, 2013, 03:57:31 AM
Very good call!!! I bought a small position as well during the selloff which has done very well. I am looking to add significantly in the future.

S

Furthermore, with the Q4 2012 end of the year rally in stocks, and with a low exposure of MKL to Sandy, I wouldn’t be surprised to see its BV per share at $405 by year end, that’s to say 10 days from now.
Today I bought a small position, that I plan to significantly increase in the future, at $445: $445 / $405 = 1.1 x BV. Or Buffett’s (former) threshold to buyback BRK shares.

Yesterday Markel announced a 2012 year end BV per share of $403.85… I missed a little, but not much!!  ;D

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Title: Re: MKL - Markel Corp
Post by: racemize on February 05, 2013, 08:19:50 AM
Notes from the call (since there is no replay):

General:
General Recap of results, as already reported yesterday.

Rate increases across all segments (~8% I think).

NA:
High growth of rates in NA (>10%)

every line of business had increased rates.

International:
Price increases moderated over the year.

Rate increases were stable or increased modestly, except for P&C which was 20%(?)

Alterra:

Been very busy since announcement.  Getting regulatory approvals (some already underway).  Transaction may close by April.  Generally upbeat

Tom Gayner
recap of history + optimism going forward

Investment returns - no negatives for the year
returns were 9% overall, 19% equity, 5% fixed
Interest rates are too low! - keep bond horizon short
building cash and fixed income
barbell shape should not last forever, cash provides option for future opportunities

markel ventures quiet due to acquisition of alterra, but still looking for opportunities
cheesy toolbox analogy about hammers...

Questions:
Total Sandy was 107 million

Essentia Gross Revenue Opportunity - base at 170million, should grow from there

fixed income duration is < 3 years (90 days shorter than 3rd quarter)

property has the largest pricing increases, more modest in the casualty, on average mid-single digits (maybe all lines?)

vision for Alterra portfolio - recast into Markel model over time, barbell distribution is tactical, not long term strategy, want to get more into equities over time

not reaching for yield, but ready to go wherever makes sense

in inflationary environment, determine rates each day, are not victims of long duration liabilities (did not catch all of this discussion very well)

regulations are moving along pretty nicely for merger

streamline opportunities for combination (e.g., release cash due to overlap)?  They'll do what makes sense!  Over the next year, capital and corporate structure should be streamlined/simplified.

One syndicate/managing agent for Lloyds on combination.

call cut out a lot for me at this point.  Someone's executing on plan!  They hit their targets!  (Still don't know who this is).  Maybe thomco?

Loss trends in NA, benign?  Not seeing anything signficiant, more benign than expected over the last several years.  Still need price increases to deal with underlying trend--whole market needs to increase to get to a good level. 











Title: Re: MKL - Markel Corp
Post by: Liberty on February 05, 2013, 09:00:07 AM
Thanks for the notes, racemize.
Title: Re: MKL - Markel Corp
Post by: Crip1 on February 05, 2013, 10:16:20 AM
Yes, Racemize...thanks for the synopsis.

The London Insurance Market results really jumped out at me. This segment accounted for nearly half (48%) of the company's positive development of prior years' losses...not bad for the area which had underwriting losses during much of the last decade.

Jury is out on the Alterra acquisition (though it looks good). Nothing in here which compels me to sell a single share.

-Crip

Title: Re: MKL - Markel Corp
Post by: Crip1 on February 06, 2013, 06:56:26 AM


Full Conf Call transcript.


http://seekingalpha.com/article/1158131-markel-corporation-s-ceo-discusses-q4-2012-results-earnings-call-transcript?source=yahoo
Title: Re: MKL - Markel Corp
Post by: Liberty on February 06, 2013, 08:22:56 AM
Thanks Crip!
Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on February 06, 2013, 01:48:34 PM
Here's a recent presentation on Markel given at ValueX, Klosters (Switzerland).  A good summary of the company and the investment case.

http://www.scribd.com/doc/123873695/Josh-Tarasoff-Markel-Insurance?goback=%2Enmp_*1_*1_*1_*1_*1_*1_*1_*1_*1
Title: Re: MKL - Markel Corp
Post by: giofranchi on February 07, 2013, 12:18:45 AM
Here's a recent presentation on Markel given at ValueX, Klosters (Switzerland).  A good summary of the company and the investment case.

http://www.scribd.com/doc/123873695/Josh-Tarasoff-Markel-Insurance?goback=%2Enmp_*1_*1_*1_*1_*1_*1_*1_*1_*1

Thank you for posting the presentation.
Much appreciated!

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Title: Re: MKL - Markel Corp
Post by: jay21 on February 09, 2013, 05:21:53 PM
Found it interesting that the bond portfolio's duration is the lowest ever at under 3 years.  Pretty contrarian given that high grade debt is at the highest duration ever at 6+ years.  Anyone know some companies with longer duration unhedged bond books?
Title: Re: MKL - Markel Corp
Post by: ap1234 on February 18, 2013, 02:03:49 PM
I’m really enjoying the Markel thread. The upside scenario from the Markel-Alterra merger seems intriguing. However, I’m having trouble understanding the Alterra merger from the perspective of the insurance side of the business. I’d be interested to hear your thoughts on the following questions:

1. Does anyone have a view on the ‘strategic’ fit between Markel and Alterra on the insurance side of the business? I understand the financial implications of the transaction (i.e. accretive on BV/share, larger investment portfolio, re-weight towards equities, expense synergies, hardening of P&C markets, etc.). However, I’m having trouble trying to understand the benefit of acquiring Alterra’s insurance book of business?

Markel and Alterra have some overlap in the E&S and London insurance businesses. Is their any advantage to Markel in acquiring Alterra’s insurance mix (i.e. acquiring expertise in a particular type of insurance, new growth opportunities in certain lines, etc.)? In addition, Alterra has significant exposure to global insurance/re-insurance. How does Markel benefit from this new exposure? I don’t really understand the argument for increased diversification. It appears that Markel has generated an impressive underwriting track record for many decades without taking on excess risk and needing any additional diversification.

In other words, was there something attractive about Alterra’s particular insurance mix or would Markel have acquired any profitable insurance business if they could buy it at 1x BV and benefit from re-weighting the investment portfolio from bonds to equitieis?

2. Does Alterra have any competitive advantages on the underwriting side? I’ve never looked at this business before and am trying to understand their underwriting edge.

3. Markel is acquiring a large re-insurance book from Alterra. Is this a good business to be in? Would Alterra be competing directly against BRK? How do you get comfortable with Markel’s new exposure to longer tail lines like re-insurance.

Thanks in advance for sharing your thoughts on the Markel-Alterra merger.
Title: Re: MKL - Markel Corp
Post by: jay21 on February 18, 2013, 02:10:02 PM

3. Markel is acquiring a large re-insurance book from Alterra. Is this a good business to be in? Would Alterra be competing directly against BRK? How do you get comfortable with Markel’s new exposure to longer tail lines like re-insurance.

Thanks in advance for sharing your thoughts on the Markel-Alterra merger.

Reinsurance isn't necessarily long tail.  Also, MKL does a very good job at writing long tail insurance.  I think they highlighted that this deal will actually increase the amount of short tail business they write.

The limited work I have done on Alterra shows they are good underwriters.  Just by MKL taking over that book and investing in equities the ROE of the company and BV goes up.  The way I look at it is that MKL spent $1b buying a company at BV that is probably worth 1.5 to 2 times book when MKL starts investing for them.  So a very good deal imo.
Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on February 23, 2013, 12:11:37 PM
1. Does anyone have a view on the ‘strategic’ fit between Markel and Alterra on the insurance side of the business? I understand the financial implications of the transaction (i.e. accretive on BV/share, larger investment portfolio, re-weight towards equities, expense synergies, hardening of P&C markets, etc.). However, I’m having trouble trying to understand the benefit of acquiring Alterra’s insurance book of business?

Markel and Alterra have some overlap in the E&S and London insurance businesses. Is their any advantage to Markel in acquiring Alterra’s insurance mix (i.e. acquiring expertise in a particular type of insurance, new growth opportunities in certain lines, etc.)? In addition, Alterra has significant exposure to global insurance/re-insurance. How does Markel benefit from this new exposure? I don’t really understand the argument for increased diversification. It appears that Markel has generated an impressive underwriting track record for many decades without taking on excess risk and needing any additional diversification.

In other words, was there something attractive about Alterra’s particular insurance mix or would Markel have acquired any profitable insurance business if they could buy it at 1x BV and benefit from re-weighting the investment portfolio from bonds to equitieis?

Hi ap1234,

I think that's an important question too: why Alterra?

Alterra has been on Markel’s radar for 5-10 years (although there are many such insurers on Markel's radar).  Also, Alterra has an office in Richmond, VA., which is headed up by some ex. Markel guys.  So Markel management believes it has a good feel for the calibre and culture of the Alterra people.  That said, there are probably a few other insurers of which the above could be said. 

Most importantly though, Alterra management was looking to sell.  And it was looking for a buyer that wouldn’t result in job losses for the rank and file employees.  Incidentally, Markel doesn’t expect top management of Alterra to stick around – the underwriters and the ‘field marshalls’, the relationship guys, that’s what they’re really after.  Markel as a buyer was suitable to Alterra -- not a lot of overlap between the two companies and secondly a good cultural fit.

For Markel, Alterra was trading on a discount to book and had significant capital relative to levels of insurance underwritten.  And as mentioned above, management believes Alterra should be a good cultural fit.  Alterra has the same underwriting discipline, so they don’t expect legacy underwriting issues.  Alterra is expected by management to be much better cultural fit than their last major acquisition (2001?), Terra Nova, which had legacy issues (and in addition, I think that the Terra Nova management team stayed around, which may have added to the integration issues).

The deal expands Markel’s lineup into larger clients.  Breadth and depth and size of Markel is expanded, which allows the enlarged group greater access to opportunities to grow into areas with fewer players / less competition / better profitability.

Markel writes very little reinsurance itself.  Therefore the Alterra reinsurance guys will continue to run the reinsurance division.  In my opinion this introduces a new dimension of risk into the Markel equation.  Reinsurance has the potential to be a risky business.  It is new to Markel and is being run by people who the Markel leadership likely doesn't know very well yet.  According to the company, the risk profile of the enlarged group will not change, but I can't help being a little concerned.  An interesting aside is that, as a reinsurer, Markel will get to have a look at the books of many primary insurers, its competitors.

Hope this helps.
Title: Re: MKL - Markel Corp
Post by: giofranchi on February 24, 2013, 02:42:47 AM
3. Markel is acquiring a large re-insurance book from Alterra. Is this a good business to be in? Would Alterra be competing directly against BRK? How do you get comfortable with Markel’s new exposure to longer tail lines like re-insurance.

I don’t think the reinsurance business is inherently more or less risky than the insurance business. Look at, for instance, FFH: OdysseyRe has historically enjoyed much lower CRs than any other insurance company inside the FFH family. Imo, it all depends on people: do they understand risk? Do they posses the discipline to act accordingly? And, therefore, do they behave opportunistically? If it is so, they will be successful both as insurance underwriters and as reinsurance underwriters. As an aside, that’s why I truly believe that the appointment of Mr. Barnard as President and Chief Operating Officer of the Fairfax Insurance Group bodes well for future results.
The same good results I expect from MKL’s newly established reinsurance operations in the future.

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Title: Re: MKL - Markel Corp
Post by: Liberty on February 26, 2013, 08:29:30 AM
Quote
RICHMOND, Va. and HAMILTON, Bermuda, Feb. 26, 2013 /PRNewswire/ -- Markel Corporation (NYSE: MKL) ("Markel") and Alterra Capital Holdings Limited (NASDAQ: ALTE; BSX: ALTE.BH) ("Alterra") today announced that their respective shareholders have voted in favor of all proposals necessary for the acquisition of Alterra by Markel. Completion of the transaction remains subject to receipt of regulatory approvals and other customary closing conditions and is expected to occur in the second quarter of 2013.

Under the terms of the merger agreement, each Alterra common share (other than any shares as to which appraisal rights are exercised or restricted shares that do not vest in connection with the transaction) is converted into the right to receive 0.04315 Markel common shares (with cash paid for fractional shares), plus a cash payment of $10.
Title: Re: MKL - Markel Corp
Post by: Liberty on February 26, 2013, 01:16:17 PM
For those who have an account, there's a new writeup on Markel on the VIC.
Title: Re: MKL - Markel Corp
Post by: LC on February 26, 2013, 01:42:14 PM
For those who have an account, there's a new writeup on Markel on the VIC.
Must be nice :P
Title: Re: MKL - Markel Corp
Post by: jay21 on February 26, 2013, 01:51:23 PM
For those who have an account, there's a new writeup on Markel on the VIC.
Must be nice :P

Anyone can sign up in order to access this write-up.  IIRC, it wasn't too insightful.
Title: Re: MKL - Markel Corp
Post by: valueinvesting101 on March 11, 2013, 12:30:22 PM
Letter to shareholders:

http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=letters (http://phx.corporate-ir.net/phoenix.zhtml?c=104364&p=letters)
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on March 11, 2013, 05:04:44 PM
Thank you! The letter is great this year. Markel is really an outstanding insurance company.
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on March 12, 2013, 07:54:23 AM
This part in the letter perked up my ears:

Quote
The fantastic news is that the opportunity costs from
taking this approach are as low right now as they have
ever been given the low level of interest rates. As we see
the “whites of their eyes” in investment markets we have
more ammo to expend than ever before. This is a tough
concept to quantify but it represents one of the most
dramatic capital allocation and value opportunities that
has ever existed at Markel.

I am reading this as:

Sounds like Markel is taking the same approach as Berkshire, and building cash reserves.

Fairfax Financial is doing the same, but also actively shorting, as equity and CPI hedges.

Rather different approaches, but Fairfax's approach has a higher risk of going wrong.
Title: Re: MKL - Markel Corp
Post by: jay21 on March 12, 2013, 08:03:34 AM
I thought MKL's comments were more about bond prices than equities.  But they also did note that the expect to make less Ventures acquisitions because of inflated prices.  So it will be interesting to watch what they do with the new portfolio.  Hopefully, they are more opportunistic when the next cycle hits.  That is my only criticism of the company; the CIO is merely good as opposed to extraordinary like Buffet.

Also, I it was nice to hear that they don't expect to have to strengthen Alterra's reserves.   
Title: Re: MKL - Markel Corp
Post by: racemize on March 12, 2013, 08:09:10 AM
I was also not sure what that paragraph was indicating, but your interpretation makes sense. 
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on March 12, 2013, 08:28:40 AM
I suppose those comments don't have to be limited to public equities; but could be expanded to private businesses and fixed equities.

I assume they are looking for cheaper prices out there.

I agree that Gayner (CIO) hasn't been as adroit in the equities market as I would prefer.
Title: Re: MKL - Markel Corp
Post by: Partner24 on March 12, 2013, 09:01:50 AM
I've been a shareholder of MKL since a few years. I really like their attitude and the way they manage the company.

They take the "silver medal", less risky approach to investing. Unlike FFH, they do not make macro bets. That "silver medal" in equities investing produced a 2 percentage points outperformance to the S&P 500 over the last 5 years. It is good, but not as good as I would have expected. They have the benefit of permanent capital, so it maximize their flexibility. I may sound too demanding, but I would expect that these competitive advantages produce higher returns than that. 4-5 percentage points outperformance over the long term would be more satisfactory.

Cheers!
Title: Re: MKL - Markel Corp
Post by: racemize on March 12, 2013, 09:03:55 AM
I've been a shareholder of MKL since a few years. I really like their attitude and the way they manage the company.

They take the "silver medal", less risky approach to investing. Unlike FFH, they do not make macro bets. That "silver medal" in equities investing produced a 2 percentage points outperformance to the S&P 500 over the last 5 years. It is good, but not as good as I would have expected. They have the benefit of permanent capital, so it maximize their flexibility. I may sound too demanding, but I would expect that these competitive advantages produce higher returns than that. 4-5 percentage points outperformance over the long term would be more satisfactory.

Cheers!

I agree, particularly given the leverage of the float.  That being said, I do like their current position in the "conglomerate evolution" versus the very large size of BRK.  MKL is only a 5% position for me though.
Title: Re: MKL - Markel Corp
Post by: jay21 on March 12, 2013, 09:09:31 AM
I've been a shareholder of MKL since a few years. I really like their attitude and the way they manage the company.

They take the "silver medal", less risky approach to investing. Unlike FFH, they do not make macro bets. That "silver medal" in equities investing produced a 2 percentage points outperformance to the S&P 500 over the last 5 years. It is good, but not as good as I would have expected. They have the benefit of permanent capital, so it maximize their flexibility. I may sound too demanding, but I would expect that these competitive advantages produce higher returns than that. 4-5 percentage points outperformance over the long term would be more satisfactory.

Cheers!

I agree, particularly given the leverage of the float.  That being said, I do like their current position in the "conglomerate evolution" versus the very large size of BRK.  MKL is only a 5% position for me though.

The 2% advantage is their equity portfolio vs the S&P, so it doesn't take into account float. 
Title: Re: MKL - Markel Corp
Post by: racemize on March 12, 2013, 09:18:19 AM
Oh sorry, of course you are right.  I was thinking of the recent 9% BV growth (rolling 5 year average) rather than equity performance.
Title: Re: MKL - Markel Corp
Post by: giofranchi on March 15, 2013, 12:41:14 AM
The Brooklyn Investor on MKL 2012 AR.

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Title: Re: MKL - Markel Corp
Post by: original mungerville on March 15, 2013, 12:53:09 AM
giofranchi,

I really enjoy your posts/thoughts and your rather passive investment strategy which is quite efficient. I think its hard to do poorly with your strategy which is very sound.

I even like you 10% silver position and your hedge!

I think my portfolio is structured largely the same way however I have more concentration, more leverage, more of a hedge and more silver (including options on silver, silver miners) - so my portfolio bounces around a lot more, but at its core it is very similar to yours. 

Keep posting I'm reading!

Cheers
Title: Re: MKL - Markel Corp
Post by: giofranchi on March 15, 2013, 02:07:08 AM
giofranchi,

I really enjoy your posts/thoughts and your rather passive investment strategy which is quite efficient. I think its hard to do poorly with your strategy which is very sound.

I even like you 10% silver position and your hedge!

I think my portfolio is structured largely the same way however I have more concentration, more leverage, more of a hedge and more silver (including options on silver, silver miners) - so my portfolio bounces around a lot more, but at its core it is very similar to yours. 

Keep posting I'm reading!

Cheers

original mungerville,
what can I say? Thank you very much for your kind words!  :)

Truth be told, the way I have structured my firm has a great weakness: I do both the strategic planning (capital allocation) and the following of day by day operations. And, believe me, those operations are time consuming! In other words, I lack a sort of operating officer, that would take care of the enhancing of the businesses my firm controls. This weakness without any doubt subtracts much from my ability to structure a portfolio of investments that would match your own (I would gladly accept more bouncing around, with higher long term returns! But I cannot get comfortable with options and leverage… so, that is a game I won’t play!), or the portfolio of Parsad, twacowfca, Eric, PlanMaestro, racemize, valueInv, Paker16, beerbaron, moore_capital, and other great investors on this board.

As far as a passive strategy is concerned, I love the quote from WEB, LC chose to use as signature: “Lethargy bordering on sloth remains the cornerstone of our investment style.”  ;D
Because also of the weakness above, the businesses I can claim to truly understand and I truly can be comfortable to invest in are still very few… so, I just stick with them, as long as their price makes sense.

Cheers!

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Title: Re: MKL - Markel Corp
Post by: buylowersellhigh on March 15, 2013, 08:04:19 AM
giofranchi,

I really enjoy your posts/thoughts and your rather passive investment strategy which is quite efficient. I think its hard to do poorly with your strategy which is very sound.

I even like you 10% silver position and your hedge!

I think my portfolio is structured largely the same way however I have more concentration, more leverage, more of a hedge and more silver (including options on silver, silver miners) - so my portfolio bounces around a lot more, but at its core it is very similar to yours. 

Keep posting I'm reading!

Cheers

original mungerville,
what can I say? Thank you very much for your kind words!  :)

Truth be told, the way I have structured my firm has a great weakness: I do both the strategic planning (capital allocation) and the following of day by day operations. And, believe me, those operations are time consuming! In other words, I lack a sort of operating officer, that would take care of the enhancing of the businesses my firm controls. This weakness without any doubt subtracts much from my ability to structure a portfolio of investments that would match your own (I would gladly accept more bouncing around, with higher long term returns! But I cannot get comfortable with options and leverage… so, that is a game I won’t play!), or the portfolio of Parsad, twacowfca, Eric, PlanMaestro, racemize, valueInv, Paker16, beerbaron, moore_capital, and other great investors on this board.

As far as a passive strategy is concerned, I love the quote from WEB, LC chose to use as signature: “Lethargy bordering on sloth remains the cornerstone of our investment style.”  ;D
Because also of the weakness above, the businesses I can claim to truly understand and I truly can be comfortable to invest in are still very few… so, I just stick with them, as long as their price makes sense.

Cheers!

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

giofranchi,

Is there somewhere where you have elaborated on your investment strategy/holdings?

TIA.
Title: Re: MKL - Markel Corp
Post by: giofranchi on March 15, 2013, 09:40:48 AM

giofranchi,

Is there somewhere where you have elaborated on your investment strategy/holdings?

TIA.

buylowersellhigh,
I just post on the board, when I happen to read something that I reckon to be interesting, or to take part in a good conversation. I don’t think I have really ever elaborated on my investment strategy...
But, a paragraph from Mr. Klarman’s latest letter to shareholders is titled “High Bar”, and, if I had to venture what I think my investing strategy is, it would be the following:

To set a very high bar, before accepting any business inside my circle of competence. And, if those very few businesses inside my circle of competence aren’t great bargains, to just hold cash and/or hedges, and to concentrate on maximizing the fcf I can extract from the businesses my firm controls. I focus first on my circle of competence, later on price. Stubbornly refusing to look at its stock price, if I am not sure I can put my whole confidence in a business, I almost always end up having the so-called “scarcest of business commodities”: conviction. (Very useful, if you believe in averaging down! In fact, I am a great believer!  :) ). Beside this, I am also allergic to “opportunity cost”: I really need to minimize it as much as possible! That’s why I always want to have some ready liquidity at hand, no matter what!

Ok, now why did you ask?! It’s clearly boring and it clearly leads to leaving lots of fish on the table 8 years out of 10! So, who cares?!  ;D

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Title: Re: MKL - Markel Corp
Post by: Liberty on March 15, 2013, 08:17:22 PM
http://brooklyninvestor.blogspot.ca/2013/03/markel-2012-annual-report.html
Title: Re: MKL - Markel Corp
Post by: CorpRaider on March 27, 2013, 03:16:24 PM
N/M better book value growth appears to be largely a function of smaller base and superb insurance operation.  I do find the ventures aspect intriguing though.  It is potentially a real competitive advantage in that high quality companies looking for patient capital and low levels of interference sometimes have few options and its growing fast.
Title: Re: MKL - Markel Corp
Post by: robface on March 28, 2013, 09:06:58 PM
Regarding the Markel event the in Omaha, what is the criteria? Just reply with an email to the organizer or do I need to be a shareholder?

Thanks!
Title: Re: MKL - Markel Corp
Post by: Liberty on April 24, 2013, 02:06:17 PM
Quote
ICHMOND, Va.--(BUSINESS WIRE)--Apr. 24, 2013-- Markel Corporation (NYSE:MKL) announced today it will hold a conference call on Wednesday, May 1, 2013 beginning at 9:30 am (Eastern Daylight Time) to discuss quarterly results and business developments.

Any person interested in listening to the call or a replay of the call, which will be available from approximately two hours after the conclusion of the call until May 13, 2013, should contact Markel’s Investor Relations Department at 804-747-0136. Investors, analysts and the general public may also listen to the call free over the Internet through Markel Corporation's corporate web site, www.markelcorp.com. A replay of the call will also be available on the web site until May 13, 2013.
Title: Re: MKL - Markel Corp
Post by: jay21 on April 30, 2013, 01:42:09 PM
10Q is out:  http://www.sec.gov/Archives/edgar/data/1096343/000109634313000008/mkl0331201310-q.htm


Wow!  The debt market is crazy right now:

On February 15, 2013, the Company repaid its 6.80% unsecured senior notes ($246.7 million principal amount outstanding at December 31, 2012).

On March 8, 2013, the Company issued $250 million of 3.625% unsecured senior notes due March 30, 2023 and $250 million of 5.0% unsecured senior notes due March 30, 2043. Net proceeds to the Company were approximately $491.2 million, which will be used for general corporate purposes.
Title: Re: MKL - Markel Corp
Post by: jay21 on April 30, 2013, 02:08:11 PM
Anyone know what the bolded means?

On December 18, 2012, our board of directors and the board of directors of Alterra Capital Holdings Limited (Alterra) each approved an agreement providing for the merger of Alterra with one of our subsidiaries. As a result of the transaction, Alterra will become our wholly-owned subsidiary and each issued and outstanding share of Alterra common stock (other than restricted shares that do not vest in connection with the transaction) will be converted into the right to receive (1) 0.04315 shares of our common stock and (2) $10.00 in cash. Based on our closing stock price on December 18, 2012 ($486.05 per share), the day the agreement was entered into, the aggregate consideration payable to Alterra shareholders would be approximately $3.1 billion, which includes aggregate cash payments of approximately $1.0 billion. It is a condition of closing that Alterra have no less than $500 million in immediately available unrestricted funds. We anticipate using these funds, along with cash on hand at Markel Corporation, to make the payments to shareholders. Following the transaction, we estimate that our current shareholders would own approximately 69% of the combined company and Alterra shareholders would own approximately 31%. The transaction has been approved by shareholders of both companies. Closing is expected to occur on May 1, 2013.
Title: Re: MKL - Markel Corp
Post by: racemize on April 30, 2013, 02:11:09 PM
Anyone know what the bolded means?

On December 18, 2012, our board of directors and the board of directors of Alterra Capital Holdings Limited (Alterra) each approved an agreement providing for the merger of Alterra with one of our subsidiaries. As a result of the transaction, Alterra will become our wholly-owned subsidiary and each issued and outstanding share of Alterra common stock (other than restricted shares that do not vest in connection with the transaction) will be converted into the right to receive (1) 0.04315 shares of our common stock and (2) $10.00 in cash. Based on our closing stock price on December 18, 2012 ($486.05 per share), the day the agreement was entered into, the aggregate consideration payable to Alterra shareholders would be approximately $3.1 billion, which includes aggregate cash payments of approximately $1.0 billion. It is a condition of closing that Alterra have no less than $500 million in immediately available unrestricted funds. We anticipate using these funds, along with cash on hand at Markel Corporation, to make the payments to shareholders. Following the transaction, we estimate that our current shareholders would own approximately 69% of the combined company and Alterra shareholders would own approximately 31%. The transaction has been approved by shareholders of both companies. Closing is expected to occur on May 1, 2013.

isn't that for the cash going to the alterra shareholders upon merge?
Title: Re: MKL - Markel Corp
Post by: jay21 on April 30, 2013, 02:12:32 PM
Anyone know what the bolded means?

On December 18, 2012, our board of directors and the board of directors of Alterra Capital Holdings Limited (Alterra) each approved an agreement providing for the merger of Alterra with one of our subsidiaries. As a result of the transaction, Alterra will become our wholly-owned subsidiary and each issued and outstanding share of Alterra common stock (other than restricted shares that do not vest in connection with the transaction) will be converted into the right to receive (1) 0.04315 shares of our common stock and (2) $10.00 in cash. Based on our closing stock price on December 18, 2012 ($486.05 per share), the day the agreement was entered into, the aggregate consideration payable to Alterra shareholders would be approximately $3.1 billion, which includes aggregate cash payments of approximately $1.0 billion. It is a condition of closing that Alterra have no less than $500 million in immediately available unrestricted funds. We anticipate using these funds, along with cash on hand at Markel Corporation, to make the payments to shareholders. Following the transaction, we estimate that our current shareholders would own approximately 69% of the combined company and Alterra shareholders would own approximately 31%. The transaction has been approved by shareholders of both companies. Closing is expected to occur on May 1, 2013.

isn't that for the cash going to the alterra shareholders upon merge?

That makes perfect sense.  I was reading it as MKL shareholders.
Title: Re: MKL - Markel Corp
Post by: tengen on April 30, 2013, 03:20:57 PM
Latest results look pretty solid. Combined ratio 91%, book value increases 7% from the previous quarter to $431.10 per share.
Title: Re: MKL - Markel Corp
Post by: masseyrock on April 30, 2013, 03:31:26 PM
As of tomorrow, BV will be more like $463 / share so we are trading at 1.16x BV (but probably more like 1.14x netting out that crazy trade at the end of the day).  Not bad for a company that is putting up mid-teens BV growth recently.

Investment / share goes up to $1,177 (16% accretion) and with only 42% of BV invested in equities, Gayner has a fat kitty of $2.1b to reallocate towards public equities or MKL Ventures. 

In the final tally, MKL ended up paying 16% premium to ALTE's book.

The deal analysis with ALTE's final numbers, also released today, is attached.



Title: Re: MKL - Markel Corp
Post by: Palantir on April 30, 2013, 04:17:16 PM
What premium over book do you think it should get? It seems that they've grown BVPS at about 12% annually, so to get a good (>10%) return, it doesnt seem it would deserve a multiple more than 1.15BV....or am I mistaken?
Title: Re: MKL - Markel Corp
Post by: racemize on April 30, 2013, 04:40:13 PM
What premium over book do you think it should get? It seems that they've grown BVPS at about 12% annually, so to get a good (>10%) return, it doesnt seem it would deserve a multiple more than 1.15BV....or am I mistaken?

over a longer history, they are in the 20% compounding range.  I'm happy giving them a 15% estimate, so ~1.2 BVPS (or maybe slightly higher) seems appropriate to me.
Title: Re: MKL - Markel Corp
Post by: masseyrock on April 30, 2013, 04:47:47 PM
On average and over time, I think they compound intrinsic value ~12-15%.  Assumptions upon assumptions to get there but 4-5% pre-tax portfolio returns, 5% premium growth, 97% combined ratio and low-teens EBITDA growth for MKL Ventures gets you to that range.

I look at P/BV as a result of the value, not the driver, but I think ~1.3x is appropriate.  If I sell in 10yrs at 1.0x BV, they can compound at 12-15% and I'd still get ~10% return.  But, like BRK, their BV will increasingly underestimate MKL's true worth so assuming 1.0x in 10yrs is probably conservative.

Based on the SOTP (value of insurance + portfolio returns + MKL Ventures), I think the stock is worth ~$600 but a wide range.  That would also coincide with 1.3x BV.

I don't think MKL is a $1 for 50c here but I do think my capital will have more purchasing power in 10yrs by owning MKL than most other areas of today's market.  And it compounds tax efficiently.

Finally, I like the optionality of the steady stream of excess capital going into Gayner's able hands. 

On that note, I hope to leave Omaha with a better understanding of the compounding opportunities in the MKL Ventures portfolio - is there a 100:1 return in there?  AMF seems to be doing several acquisitions and they cited it as having a terrific quarter.
Title: Re: MKL - Markel Corp
Post by: racemize on April 30, 2013, 04:53:17 PM
I like your answer quite a bit--would you mind elaborating on what you mean by your 12-15% estimation?  e.g., do you mean that's what you expect going forward or that they were 12-15% in the past?  I guess I'm trying to reconcile the previous high BVPS growth with the 12-15%, if you are intending to cover the past performance too.

On average and over time, I think they compound intrinsic value ~12-15%.  Assumptions upon assumptions to get there but 4-5% pre-tax portfolio returns, 5% premium growth, 97% combined ratio and low-teens EBITDA growth for MKL Ventures gets you to that range.

I'm also planning on going to the Berkshire meeting and the Sunday Markel brunch--I presume you are going to that?

Title: Re: MKL - Markel Corp
Post by: masseyrock on April 30, 2013, 05:07:27 PM
I think the years of 20% CAGR over anything >3yrs is probably behind them unless we get a really hard market.  The 17% CAGR since '91 is heavily weighted towards those early years.  As they work off 2008 from the 5yr CAGR, it does look like that stat will be 15-17% by YE (knock on wood).  Bonus time for employees again at MKL.

I'm basing my assumptions more off the math of premium/float growth, 'on average' underwriting margins, portfolio returns and MKL Venture growth.  Lots of different scenarios but they generally point to low-mid teens as a prudent estimation.

As a bull scenario, 15% ROE/BV growth and a 10% required rate of return = 1.5x BV = $690.  I wouldn't want to base my investment on that scenario but that isn't a crazy outcome if premiums can grow with 5-10% underwriting margins. 

**EDIT - yes, I will be attending the breakfast.
Title: Re: MKL - Markel Corp
Post by: vinod1 on April 30, 2013, 06:04:51 PM
Since MKL is heavily exposed to stock market returns and arguably we are closer to the top of the cycle in terms of stock market, I would think book value is a bit overstated compared to a mid-cycle normalized scenario. A 30% drop in stock markets would easily reduce MKL book value by about 20% (65% of shareholder equity allocation to stocks would do that). Similarly the bond market also seems to be pretty expensively priced.

Do you guys try to make any adjustment to IV via a lower multiple to BV or reduce BV to normalize to a more mid cycle value? I understand if we are looking 10 years out we can ignore such short term considerations but I am trying to figure out the downside and it seems pretty considerable.

All this is just a long winded way of saying that I think MKL seems to be trading closer to IV.

Vinod
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on April 30, 2013, 06:55:01 PM
A 30% drop in stock markets would easily reduce MKL book value by about 20% (65% of shareholder equity allocation to stocks would do that).

I think at a 28% tax rate the drop in BV would be 14%.  Not sure what the right tax rate is but it's just an example..
Title: Re: MKL - Markel Corp
Post by: masseyrock on April 30, 2013, 08:09:03 PM
On Page 99 of the 2012 10K - 35% decrease in value of the equity portfolio = 15% decrease in BV.

And don't forget that as of tomorrow, the equity portfolio will only be 42% of BV, not 65%.  So a 30% drop in the equity markets would hit BV by <10%.  It will probably take some time (I'm guessing 2+yrs) for the equity portfolio to be recast to 60%+ of BV.

I agree that the fixed income portfolio is unlikely to achieve the types of returns they've enjoyed historically.  But it looks like their duration has shortened even further from the 2.7yrs from year end.

Also, my 4-5% total pre-tax return assumption assumes 3% fixed income and 7-8% equity returns.  Might be too optimistic for both asset categories - but if it is, I still like the 0.50-0.75 downside beta.

As long as they can underwrite and invest prudently, MKL should compound at better than average rates.  Structural alpha!


Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on May 01, 2013, 02:34:34 AM
Do you guys try to make any adjustment to IV via a lower multiple to BV or reduce BV to normalize to a more mid cycle value? I understand if we are looking 10 years out we can ignore such short term considerations but I am trying to figure out the downside and it seems pretty considerable.

All this is just a long winded way of saying that I think MKL seems to be trading closer to IV.

Vinod

Some downside mark-to-market "risk" here, it's true, but longer term I think their equity positions will do more than ok.

Offsetting this, I also keep in mind that Markel aims to be over-reserved for claims outstanding (this is not the case for Alterra, which aims just to be adequately reserved; be aware that Markel management will bring Alterra's reserving standards up to Markel's).

A quick look at the loss triangle (page 93 in 2012 AR) shows that past releases have been significant! For example, net reserves for all outstanding claims as at 2006 was $4,297m; six years later (year end 2012) this number was revised down to $3,360m. 

Is it possible that Markel is currently over-reserved to the tune of $500-1,000m, or 12-24% of Q1:13 equity (i.e. pre Alterra)?  Seems so to me.  But the insurance buffs among you likely know much more about this than me.  I'd be interested to know if anyone thinks I'm wrong on this.
Title: Re: MKL - Markel Corp
Post by: giofranchi on May 01, 2013, 02:36:14 AM
On average and over time, I think they compound intrinsic value ~12-15%.  Assumptions upon assumptions to get there but 4-5% pre-tax portfolio returns, 5% premium growth, 97% combined ratio and low-teens EBITDA growth for MKL Ventures gets you to that range.

I look at P/BV as a result of the value, not the driver, but I think ~1.3x is appropriate.  If I sell in 10yrs at 1.0x BV, they can compound at 12-15% and I'd still get ~10% return.  But, like BRK, their BV will increasingly underestimate MKL's true worth so assuming 1.0x in 10yrs is probably conservative.

Based on the SOTP (value of insurance + portfolio returns + MKL Ventures), I think the stock is worth ~$600 but a wide range.  That would also coincide with 1.3x BV.

I don't think MKL is a $1 for 50c here but I do think my capital will have more purchasing power in 10yrs by owning MKL than most other areas of today's market.  And it compounds tax efficiently.

Finally, I like the optionality of the steady stream of excess capital going into Gayner's able hands. 

On that note, I hope to leave Omaha with a better understanding of the compounding opportunities in the MKL Ventures portfolio - is there a 100:1 return in there?  AMF seems to be doing several acquisitions and they cited it as having a terrific quarter.

masseyrock,
if you believe MKL can compound BV per share at 15% annual for the next 10 years, than liquidate the business and distribute the proceeds to shareholders, a simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 1.75 x BV. If you assume a discount rate of 9%, FV for MKL today is 1.88 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.38 x BV; with a discount rate of 9%, discounted value of equity equal to 1.48 x BV.

On the other hand, if you believe MKL can compound BV per share at 15% annual for the next 20 years, like I do, than liquidate the business and distribute the proceeds to shareholders, the same simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 2.62 x BV. If you assume a discount rate of 9%, FV for MKL today is 3.09 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.62 x BV; with a discount rate of 9%, discounted value of equity equal to 1.89 x BV.

Given its still relatively modest size, I believe MKL can go on compounding at very high rates of return, let’s say 12% annual, for the next 20 years. And I think the proper discount rate for such an outstanding business should be no higher than 9%. If on top of that you believe that MKL will still deserve a residual value 20 years from now, that is to say that 20 years from now MKL will still be worthier alive than dead (it would still be able to compound a bit above the minimum required rate of return, which we have assumed to be 9%), I get to a FV of more or less 2 x BV.

That’s why, imo, it is so difficult to value properly an outstanding business.

giofranchi
Title: Re: MKL - Markel Corp
Post by: giofranchi on May 01, 2013, 03:03:22 AM
On average and over time, I think they compound intrinsic value ~12-15%.  Assumptions upon assumptions to get there but 4-5% pre-tax portfolio returns, 5% premium growth, 97% combined ratio and low-teens EBITDA growth for MKL Ventures gets you to that range.

I look at P/BV as a result of the value, not the driver, but I think ~1.3x is appropriate.  If I sell in 10yrs at 1.0x BV, they can compound at 12-15% and I'd still get ~10% return.  But, like BRK, their BV will increasingly underestimate MKL's true worth so assuming 1.0x in 10yrs is probably conservative.

Based on the SOTP (value of insurance + portfolio returns + MKL Ventures), I think the stock is worth ~$600 but a wide range.  That would also coincide with 1.3x BV.

I don't think MKL is a $1 for 50c here but I do think my capital will have more purchasing power in 10yrs by owning MKL than most other areas of today's market.  And it compounds tax efficiently.

Finally, I like the optionality of the steady stream of excess capital going into Gayner's able hands. 

On that note, I hope to leave Omaha with a better understanding of the compounding opportunities in the MKL Ventures portfolio - is there a 100:1 return in there?  AMF seems to be doing several acquisitions and they cited it as having a terrific quarter.

masseyrock,
if you believe MKL can compound BV per share at 15% annual for the next 10 years, than liquidate the business and distribute the proceeds to shareholders, a simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 1.75 x BV. If you assume a discount rate of 9%, FV for MKL today is 1.88 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.38 x BV; with a discount rate of 9%, discounted value of equity equal to 1.48 x BV.

On the other hand, if you believe MKL can compound BV per share at 15% annual for the next 20 years, like I do, than liquidate the business and distribute the proceeds to shareholders, the same simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 2.62 x BV. If you assume a discount rate of 9%, FV for MKL today is 3.09 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.62 x BV; with a discount rate of 9%, discounted value of equity equal to 1.89 x BV.

Given its still relatively modest size, I believe MKL can go on compounding at very high rates of return, let’s say 12% annual, for the next 20 years. And I think the proper discount rate for such an outstanding business should be no higher than 9%. If on top of that you believe that MKL will still deserve a residual value 20 years from now, that is to say that 20 years from now MKL will still be worthier alive than dead (it would still be able to compound a bit above the minimum required rate of return, which we have assumed to be 9%), I get to a FV of more or less 2 x BV.

That’s why, imo, it is so difficult to value properly an outstanding business.

giofranchi

Of course, put in other assumptions and you get completely different results… like they say: “garbage in, garbage out”! ;)
That’s why what I call “business judgment” is so important.

giofranchi
Title: Re: MKL - Markel Corp
Post by: jay21 on May 01, 2013, 05:39:37 AM
On average and over time, I think they compound intrinsic value ~12-15%.  Assumptions upon assumptions to get there but 4-5% pre-tax portfolio returns, 5% premium growth, 97% combined ratio and low-teens EBITDA growth for MKL Ventures gets you to that range.

I look at P/BV as a result of the value, not the driver, but I think ~1.3x is appropriate.  If I sell in 10yrs at 1.0x BV, they can compound at 12-15% and I'd still get ~10% return.  But, like BRK, their BV will increasingly underestimate MKL's true worth so assuming 1.0x in 10yrs is probably conservative.

Based on the SOTP (value of insurance + portfolio returns + MKL Ventures), I think the stock is worth ~$600 but a wide range.  That would also coincide with 1.3x BV.

I don't think MKL is a $1 for 50c here but I do think my capital will have more purchasing power in 10yrs by owning MKL than most other areas of today's market.  And it compounds tax efficiently.

Finally, I like the optionality of the steady stream of excess capital going into Gayner's able hands. 

On that note, I hope to leave Omaha with a better understanding of the compounding opportunities in the MKL Ventures portfolio - is there a 100:1 return in there?  AMF seems to be doing several acquisitions and they cited it as having a terrific quarter.

masseyrock,
if you believe MKL can compound BV per share at 15% annual for the next 10 years, than liquidate the business and distribute the proceeds to shareholders, a simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 1.75 x BV. If you assume a discount rate of 9%, FV for MKL today is 1.88 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.38 x BV; with a discount rate of 9%, discounted value of equity equal to 1.48 x BV.

On the other hand, if you believe MKL can compound BV per share at 15% annual for the next 20 years, like I do, than liquidate the business and distribute the proceeds to shareholders, the same simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 2.62 x BV. If you assume a discount rate of 9%, FV for MKL today is 3.09 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.62 x BV; with a discount rate of 9%, discounted value of equity equal to 1.89 x BV.

Given its still relatively modest size, I believe MKL can go on compounding at very high rates of return, let’s say 12% annual, for the next 20 years. And I think the proper discount rate for such an outstanding business should be no higher than 9%. If on top of that you believe that MKL will still deserve a residual value 20 years from now, that is to say that 20 years from now MKL will still be worthier alive than dead (it would still be able to compound a bit above the minimum required rate of return, which we have assumed to be 9%), I get to a FV of more or less 2 x BV.

That’s why, imo, it is so difficult to value properly an outstanding business.

giofranchi

Thanks for this gio.  If you can earn greater than average business results, the premium on the business should be pretty high.

What premium over book do you think it should get? It seems that they've grown BVPS at about 12% annually, so to get a good (>10%) return, it doesnt seem it would deserve a multiple more than 1.15BV....or am I mistaken?

It's higher than that as others have mentioned.  I think they can do 15%ish primarily due to float growth (which has been proven to be at least no cost over cycles).  Their large equity positions in very good companies and Ventures are extra kickers.  So, for myself,  I'm probably going to stop adding somewhere between 1.5x to 1.8x BV and probably won't sell until >2x BV. 
Title: Re: MKL - Markel Corp
Post by: ap1234 on May 01, 2013, 05:49:58 AM
I have attended the last several Markel breakfasts in Omaha. Tom Gayner has made a few comments in the past re: the current discussion:

-Over time, P/BV will become a less meaningful measure as Markel Ventures becomes a larger part of the intrinsic value of the business
-Markel will never invest in anything unless they can earn double digit returns on capital (that is their internal hurdle rate)
-Over the long-term, Markel should grow BV/share at mid-teens rate. It will be lower than in the past because the returns on the bond portfolio are diminished and underwriting level (premiums/capital) and margins are worse than they were in the past.
-Tom believes that the fair value of Markel is between 1.5-2x BV.
-In the old environment, the company generated 20% BV/share growth in a 7% risk free rate environment. Today, the RFR is 2-3%. Markel is generated mid-teens BV/share growth. In other words, historically they generated 2.5x higher return (20/7). Today, they are generating 5+x higher returns (15%/3).

I'm curious to know what people think Markel will generate on the investment portfolio? I noticed some people suggested 5% pre-tax. Given the mix of the investment portfolio, how do you get to 5% (i.e. what is the return on the 3 components - cash, bonds and stocks) given where int. rates are today?

Looking at historical returns on the equity portfolio seem to be a reasonable guage of the future. However, I'm not sure how Markel's bond returns (which will always be the majority of the portfolio given the 3-4x investment leverage) will be anything like they have been in the past.

Disclosure: I am a MKL shareholder.
Title: Re: MKL - Markel Corp
Post by: ap1234 on May 01, 2013, 05:53:56 AM
Jay21 said:

It's higher than that as others have mentioned.  I think they can do 15%ish primarily due to float growth (which has been proven to be at least no cost over cycles).  Their large equity positions in very good companies and Ventures are extra kickers.  So, for myself,  I'm probably going to stop adding somewhere between 1.5x to 1.8x BV and probably won't sell until >2x BV. 

I'm curious to know how you factor in float growth when modelling the business. For example, let's say I was doing a quick back of the envelope valuation of Markel looking at BV/share growth over the next 5-10 years. How do you incorporate the growth of the investment portfolio driven by the growth in premiums (i.e. more premiums = more float = more investment assets). In other words, for every $1 of premiums added how much does that contribute to the growth in the investment assets?
Title: Re: MKL - Markel Corp
Post by: jay21 on May 01, 2013, 05:56:47 AM
Do you guys try to make any adjustment to IV via a lower multiple to BV or reduce BV to normalize to a more mid cycle value? I understand if we are looking 10 years out we can ignore such short term considerations but I am trying to figure out the downside and it seems pretty considerable.

All this is just a long winded way of saying that I think MKL seems to be trading closer to IV.

Vinod

Some downside mark-to-market "risk" here, it's true, but longer term I think their equity positions will do more than ok.

Exactly, it's just a MTM loss imo.  The businesses they own are not at risk of impairment, agian imo.

Also, let's take a look at Ventures for the Q:

EBITDA: 19,360
Net Income: 3,644
Amortization:  (4,259)

I'll let you determine what multiples and metrics you want to use, but if we assume those are run rate numbers, that's a minimum $200m in "equity value" imo.
Title: Re: MKL - Markel Corp
Post by: Palantir on May 01, 2013, 06:32:15 AM
masseyrock,
if you believe MKL can compound BV per share at 15% annual for the next 10 years, than liquidate the business and distribute the proceeds to shareholders, a simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 1.75 x BV. If you assume a discount rate of 9%, FV for MKL today is 1.88 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.38 x BV; with a discount rate of 9%, discounted value of equity equal to 1.48 x BV.

On the other hand, if you believe MKL can compound BV per share at 15% annual for the next 20 years, like I do, than liquidate the business and distribute the proceeds to shareholders, the same simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 2.62 x BV. If you assume a discount rate of 9%, FV for MKL today is 3.09 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.62 x BV; with a discount rate of 9%, discounted value of equity equal to 1.89 x BV.

Hey when you calculate the future value in ten years, are you just compounding BV*(1+g)^10 = FV? If so, are you discounting by 1/(1.1^10)? Just curious, as my nos. come out diff.
Title: Re: MKL - Markel Corp
Post by: vinod1 on May 01, 2013, 06:55:50 AM
Eric & masseyrock,

You are correct, I need to adjust for the tax rate.

WhoIsWarren,

Good point about adjusting for the reserves. MKL is probably slightly over reserved so it makes sense to adjust for it.

Vinod
Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on May 01, 2013, 07:44:14 AM
The other way to look at Markel's valuation is to add the value of the float to (adjusted) tangible book value.  I'll put some rough numbers on this and others can chip in if I'm way off.

Tangible (common) equity $3.1bn
Add back over-reserving for claims (say) $0.5bn
Size of float $4.9bn
10-yr combined ratio 96%
Investment returns (pre tax) 6%
Cost of equity 10%
Value of float (no growth) $4.4bn

Fair value (no growth) $8.0bn
Fair value (no growth) $775 per share
Fair value P/B (no growth) 1.9x

I think the cost of equity of 10% is probably a bit too high. But it's a nice round number to start with.  Also, not all the intangibles relates to insurance -- should add this back.  On the other hand, perhaps extrapolating the 96% 10-year CR is too aggressive, though I don't think so.

You can add on some growth factor if you like.  I just noticed that Markel's NPE has been more or less flat over 10 years, which I hadn't really thought much about before.  However, I know that the weaker economic environment has hurt them (e.g. housing contractors) so it's likely the numbers understate the underlying run rate.

Anyway, even though I'm putting down these numbers, I won't likely be a seller of Markel at $775 per share (perhaps not even at $1000).  Companies like this are rare and even if it gets a little expensive it'll grow into the valuation and your likely downside is it'll deliver a couple of years of subpar investment returns. 

An alternative scenario is you sell Markel and buy a subpar business that implodes!
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 01, 2013, 08:21:07 AM
I'm lurking around this name.  Do you guys foresee much integration risk with the acquisition of Alterra?
Title: Re: MKL - Markel Corp
Post by: giofranchi on May 01, 2013, 08:52:39 AM
masseyrock,
if you believe MKL can compound BV per share at 15% annual for the next 10 years, than liquidate the business and distribute the proceeds to shareholders, a simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 1.75 x BV. If you assume a discount rate of 9%, FV for MKL today is 1.88 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.38 x BV; with a discount rate of 9%, discounted value of equity equal to 1.48 x BV.

On the other hand, if you believe MKL can compound BV per share at 15% annual for the next 20 years, like I do, than liquidate the business and distribute the proceeds to shareholders, the same simple discounted value of equity analysis, assuming a discount rate of 10%, will show that FV for MKL today is 2.62 x BV. If you assume a discount rate of 9%, FV for MKL today is 3.09 x BV.
Use, instead, a compound rate of 12% annual, and what you get is: with a discount rate of 10%, discounted value of equity equal to 1.62 x BV; with a discount rate of 9%, discounted value of equity equal to 1.89 x BV.

Hey when you calculate the future value in ten years, are you just compounding BV*(1+g)^10 = FV? If so, are you discounting by 1/(1.1^10)? Just curious, as my nos. come out diff.

Sorry Palantir,
I was in a hurry this morning and I guess I made some mistakes… I attach a file with my calculations of the discounted value of equity. And the hypothesis you find is the one I have described as my basic assumption for MKL. Now I get to a discounted value of equity (VOE) that is 1.72 x BV, instead of 1.89 x BV.
Anyway, please consider this: starting from an equity base of $4 billion today, if MKL compounds equity at 12% annual for the next 20 years, by then it will have accumulated an equity of $38.6 billion. And it will still be a relatively “small” company… if compared, for instance, to the $191 billion of equity that BRK had accumulated by the end of 2012! It is just too conservative to think that 20 years from now MKL will be liquidated and the proceeds will be distributed among the shareholders! To me it simply makes no sense.
So, I stick to my 2 x BV estimate of intrinsic value today. :)

giofranchi

PS
Please, let me know if my numbers are the same as yours now. Thank you!
Title: Re: MKL - Markel Corp
Post by: giofranchi on May 01, 2013, 09:09:31 AM
Q1 2013 Conference Call Transcript

giofranchi
Title: Re: MKL - Markel Corp
Post by: jay21 on May 01, 2013, 09:31:22 AM
I'm lurking around this name.  Do you guys foresee much integration risk with the acquisition of Alterra?

Not really.  Good quote from the call today:

Yeah, what I'd say there is when we did our due diligence at Alterra, we felt comfortable with the reserve levels that there was a redundancy probably not at the same level as our reserving standard but solid reserve and that was very reassuring when we got through the due diligence. Obviously we've been spending a lot of time with the Alterra folks over the last four months and we haven't seen anything that would change our opinion of what we saw the due diligence and you know similar to other acquisitions that we've done in the past, it will be a you know Tom talked about methodical process, it will be a methodical process to bring them into line with Markel’s reserve and standards as we go forward.

And probably the best thing I would tell you in terms of purchase adjustments if you will is to look at the performance that were part of our debt issuance back in March. That would give you an idea of what we are talking about or thinking about doing, and I think that's pretty much in line with where our thinking is today.
Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on May 01, 2013, 09:38:32 AM
I'm lurking around this name.  Do you guys foresee much integration risk with the acquisition of Alterra?

Not really.  Good quote from the call today:

Yeah, what I'd say there is when we did our due diligence at Alterra, we felt comfortable with the reserve levels that there was a redundancy probably not at the same level as our reserving standard but solid reserve and that was very reassuring when we got through the due diligence. Obviously we've been spending a lot of time with the Alterra folks over the last four months and we haven't seen anything that would change our opinion of what we saw the due diligence and you know similar to other acquisitions that we've done in the past, it will be a you know Tom talked about methodical process, it will be a methodical process to bring them into line with Markel’s reserve and standards as we go forward.

And probably the best thing I would tell you in terms of purchase adjustments if you will is to look at the performance that were part of our debt issuance back in March. That would give you an idea of what we are talking about or thinking about doing, and I think that's pretty much in line with where our thinking is today.

One risk from my point of view is that Alterra writes a chunk of reinsurance (almost half of total premiums), whereas Markel does not (only tiny amount).  In effect this is a new business for Markel and it'll be run by the Alterra guys.  Even with oversight from HQ, will Markel management be sensitive enough to the risks being run?

I'm long MKL in fair size, so obviously I don't think it's a show stopper.  But it's certainly one I'll be keeping a watch on.
Title: Re: MKL - Markel Corp
Post by: vinod1 on May 01, 2013, 09:40:05 AM
I think most would agree with IV being in the 1.5 to 2.0 BV range. What I do not understand is why there is no adjustment being made to the book value to account for the market cycle. Since BV is levered to the investment portfolio, I would think such an adjustment is important (Howard Marks "Know where you are in the cycle" comes to mind). Otherwise, at the top of the cycle the IV would seem to be much higher compared to the IV at the bottom of the cycle.

Vinod
Title: Re: MKL - Markel Corp
Post by: giofranchi on May 01, 2013, 09:42:18 AM
-Tom believes that the fair value of Markel is between 1.5-2x BV.

Then, either I am a bit too optimistic, or he is a bit too conservative…  :)

giofranchi

Title: Re: MKL - Markel Corp
Post by: giofranchi on May 01, 2013, 09:51:51 AM
I think most would agree with IV being in the 1.5 to 2.0 BV range. What I do not understand is why there is no adjustment being made to the book value to account for the market cycle. Since BV is levered to the investment portfolio, I would think such an adjustment is important (Howard Marks "Know where you are in the cycle" comes to mind). Otherwise, at the top of the cycle the IV would seem to be much higher compared to the IV at the bottom of the cycle.

Vinod

Vinod,
first of all during the next 20 years we will have many cycles, and, as I firmly believe, even 20 years are not enough to calculate MKL intrinsic value. But you already know this very well.
Second, probably you already know this too, but you might have missed it, Mr. Gayner in the 2012 Letter to Shareholders made it very clear that their “opportunity cost” right now is extremely low, thanks to the acquisition of Alterra, that provides a lot of funds, held in cash or short term bonds, to be redeployed into stocks, when the cycle finally turns. That was perhaps the best piece of news in the Letter, at least imo! :)

giofranchi
Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on May 01, 2013, 09:54:47 AM
I think most would agree with IV being in the 1.5 to 2.0 BV range. What I do not understand is why there is no adjustment being made to the book value to account for the market cycle. Since BV is levered to the investment portfolio, I would think such an adjustment is important (Howard Marks "Know where you are in the cycle" comes to mind). Otherwise, at the top of the cycle the IV would seem to be much higher compared to the IV at the bottom of the cycle.

Vinod

What you're saying makes sense, but I'm just not that concerned right now as I look at their equity portfolio and I think there's a lot to like (thinking longer term, rather than relying on moody Mr. Market).

I would also say that while their equity investments are valued higher than they were a year or two ago, the insurance business is still operating well below potential.  Not just in terms of their financial capacity (measured by NPE / Surplus, which has been hovering at around 0.5-0.6x the last few years; it reached 1.3x in 2002), but in terms of their operational capacity (underwriters, assessors, claims handling etc.).  I wouldn't doubt they could double their premiums without too much growing pains.
Title: Re: MKL - Markel Corp
Post by: vinod1 on May 01, 2013, 11:16:40 AM

Vinod,
first of all during the next 20 years we will have many cycles, and, as I firmly believe, even 20 years are not enough to calculate MKL intrinsic value. But you already know this very well.
Second, probably you already know this too, but you might have missed it, Mr. Gayner in the 2012 Letter to Shareholders made it very clear that their “opportunity cost” right now is extremely low, thanks to the acquisition of Alterra, that provides a lot of funds, held in cash or short term bonds, to be redeployed into stocks, when the cycle finally turns. That was perhaps the best piece of news in the Letter, at least imo! :)

giofranchi

1. I am probably not conveying my point clearly. I agree we can never put a precise number on IV. What I am trying to get is at market lows, MKL book value would be marked down below normal level (normal market level defined as a level that produces historically generated returns of around 9%). For example, at market lows in 2008 I think MKL book value got around to $220 or so per share compared to around $280 or so when the market is at a peak a few months earlier. Applying any multiple to the reported book value number would mislead us to underestimate the IV at a market bottom and overestimate IV at market top. It results in about a 20-25% change to one's estimate of IV.

2. That comment surprised me. It was like a mutual fund manager saying he got a lot of money from investors at the top of the cycle to increase his percentage of portfolio in cash. Apart from tax considerations, MKL could have had the same result by reducing its stock portfolio. If he thinks he can take advantage of the opportunities and it is better to wait for the portfolio that he getting via acquisition, I do not see how it makes sense to sit with 65% of shareholders equity in stocks.

Vinod
Title: Re: MKL - Markel Corp
Post by: vinod1 on May 01, 2013, 11:29:15 AM

What you're saying makes sense, but I'm just not that concerned right now as I look at their equity portfolio and I think there's a lot to like (thinking longer term, rather than relying on moody Mr. Market).

I would also say that while their equity investments are valued higher than they were a year or two ago, the insurance business is still operating well below potential.  Not just in terms of their financial capacity (measured by NPE / Surplus, which has been hovering at around 0.5-0.6x the last few years; it reached 1.3x in 2002), but in terms of their operational capacity (underwriters, assessors, claims handling etc.).  I wouldn't doubt they could double their premiums without too much growing pains.

1. Regarding equity portfolio I am not talking just about a temporary market fluctuation. S&P is expected to return 3-4% per most estimates over 7-10 years. An alpha of 2% puts expected returns at 5-6%.  So I do not see the attraction.

2. Agree they can ramp up big time on the insurance business. Only caveat is that the underwriting profits add only I think about 1.5-2.0% ROE to MKL so would not be a big driver.

Vinod

Vinod
Title: Re: MKL - Markel Corp
Post by: masseyrock on May 01, 2013, 11:48:39 AM
I'm really enjoying all the analysis and thinking that goes on in this forum...

Re: 1.5-2.0x BV - from your computer to God's ears!  I do think if all goes well over time (mid-sd float growth, decent underwriting profits, high sd equity returns, low sd fixed income returns) then 15%+ BV growth is very reasonable.  With some assumed growth, a 1.5-2.0x BV is supportable and is also consistent to where they have traded historically.

However, I'm a pathological skeptic who wants my investment thesis to be based on: "all this stuff can be poor to mediocre and I STILL increase my purchasing power".  So, I weight my various scenarios to come up with a narrower range of intrinsic value.  What if the pricing environment remains anemic and MKL doesn't grow float and underwriting profits don't add much to book value?  What if low sd portfolio returns are the reality over the next five years?  What can MKL grow and what is the downside to valuation?

There is still a big enough range of outcomes that I'm not comfortable basing my thesis on a more optimistic $690-$920 current fair value (1.5-2.0x).

Another way I look at it, what is my downside if Vinod's scenario is right - stocks go down 30%.  Not just stock 'downside' but true 'permanent loss of capital'.  We can estimate with decent accuracy what happens to BV but I do feel comfortable that my capital in MKL will be well protected in this scenario.  Gayner can get his newly found cash to work at higher expected returns. 

From that viewpoint, MKL is truly 'anti-fragile' - they'll get stronger and grow long-term intrinsic value faster if the market sells off by 30%.

An investment profile that is 0.5 beta in a down market and 1.0+ in an up market is a terrific proposition.  (And I don't mean stock volatility beta but beta of intrinsic value, if that makes sense).
Title: Re: MKL - Markel Corp
Post by: giofranchi on May 01, 2013, 11:12:34 PM
1. I am probably not conveying my point clearly. I agree we can never put a precise number on IV. What I am trying to get is at market lows, MKL book value would be marked down below normal level (normal market level defined as a level that produces historically generated returns of around 9%). For example, at market lows in 2008 I think MKL book value got around to $220 or so per share compared to around $280 or so when the market is at a peak a few months earlier. Applying any multiple to the reported book value number would mislead us to underestimate the IV at a market bottom and overestimate IV at market top. It results in about a 20-25% change to one's estimate of IV.

2. That comment surprised me. It was like a mutual fund manager saying he got a lot of money from investors at the top of the cycle to increase his percentage of portfolio in cash. Apart from tax considerations, MKL could have had the same result by reducing its stock portfolio. If he thinks he can take advantage of the opportunities and it is better to wait for the portfolio that he getting via acquisition, I do not see how it makes sense to sit with 65% of shareholders equity in stocks.

Vinod

Vinod,

1. On the contrary, I had understood what you meant. Probably, I didn’t explain myself properly. Let’s answer this way: if I thought MKL’s BV to be “undervalued”, like it was the case at the beginning of 2009, I would factor in my calculations of IV a CAGR of BVPS in between 17% and 20% (like I actually did back in 2008). Vice versa, if I thought MKL’s BV to be “fairly valued”, I would factor in my calculations of IV a CAGR of BVPS of 15%. Finally, if I thought MKL’s BV to be “slightly overvalued”, I would factor in my calculations of IV a CAGR of BVPS of 12%. That’s exactly what I am doing right now. Why just “slightly overvalued”, and not “very much overvalued”, like I think the market right now is? Two reasons: a) I don’t see Mr. Gayner to keep investments in overvalued stocks, so what applies to the market in general, hardly applies to MKL’s stock portfolio; b) with the acquisition of Alterra, much of MKL’s BV is in cash or short term bonds… it follows it cannot be that much overvalued!

2. From an interview a few days ago:
Interviewer: “So, Mr. Zell, are you investing in the stock market right now?”
Mr. Sam Zell: “We are always invested in the stock market.”
Interviewer: “So, you are putting new money to work!”
Mr. Sam Zell: “No. We are building cash.”

 :)

giofranchi
Title: Re: MKL - Markel Corp
Post by: Junto on May 05, 2013, 09:13:25 AM
1. I am probably not conveying my point clearly. I agree we can never put a precise number on IV. What I am trying to get is at market lows, MKL book value would be marked down below normal level (normal market level defined as a level that produces historically generated returns of around 9%). For example, at market lows in 2008 I think MKL book value got around to $220 or so per share compared to around $280 or so when the market is at a peak a few months earlier. Applying any multiple to the reported book value number would mislead us to underestimate the IV at a market bottom and overestimate IV at market top. It results in about a 20-25% change to one's estimate of IV.

2. That comment surprised me. It was like a mutual fund manager saying he got a lot of money from investors at the top of the cycle to increase his percentage of portfolio in cash. Apart from tax considerations, MKL could have had the same result by reducing its stock portfolio. If he thinks he can take advantage of the opportunities and it is better to wait for the portfolio that he getting via acquisition, I do not see how it makes sense to sit with 65% of shareholders equity in stocks.

Vinod

Vinod,

1. On the contrary, I had understood what you meant. Probably, I didn’t explain myself properly. Let’s answer this way: if I thought MKL’s BV to be “undervalued”, like it was the case at the beginning of 2009, I would factor in my calculations of IV a CAGR of BVPS in between 17% and 20% (like I actually did back in 2008). Vice versa, if I thought MKL’s BV to be “fairly valued”, I would factor in my calculations of IV a CAGR of BVPS of 15%. Finally, if I thought MKL’s BV to be “slightly overvalued”, I would factor in my calculations of IV a CAGR of BVPS of 12%. That’s exactly what I am doing right now. Why just “slightly overvalued”, and not “very much overvalued”, like I think the market right now is? Two reasons: a) I don’t see Mr. Gayner to keep investments in overvalued stocks, so what applies to the market in general, hardly applies to MKL’s stock portfolio; b) with the acquisition of Alterra, much of MKL’s BV is in cash or short term bonds… it follows it cannot be that much overvalued!

2. From an interview a few days ago:
Interviewer: “So, Mr. Zell, are you investing in the stock market right now?”
Mr. Sam Zell: “We are always invested in the stock market.”
Interviewer: “So, you are putting new money to work!”
Mr. Sam Zell: “No. We are building cash.”

 :)

giofranchi

probably good to provide link to interview if you are going to quote one... or specifics (who, what, when, and where).
Title: Re: MKL - Markel Corp
Post by: giofranchi on May 05, 2013, 09:30:34 AM
probably good to provide link to interview if you are going to quote one... or specifics (who, what, when, and where).

Junto,
what I wrote was actually just to paraphrase what Mr. Zell had said. I absolutely didn’t mean to quote his words or the interviewer’s! To me what was important is just the general meaning of Mr. Zell’s words, not his exact words. Actually, now that I have listened again to the interview, I realize Mr. Zell hadn’t said he was “building cash”, he just said he wasn’t increasing his positions in the stock market. Therefore, I inferred he was building cash…
Anyway, here is the link to the interview:

http://www.zerohedge.com/news/2013-04-10/sam-zell-stock-market-feels-housing-market-2006

giofranchi
Title: Re: MKL - Markel Corp
Post by: Saidal on May 06, 2013, 06:38:20 AM
Did anyone head to the breakfast yesterday? If so, how was it?
Title: Re: MKL - Markel Corp
Post by: woltac on May 06, 2013, 07:08:41 PM
Did anyone head to the breakfast yesterday? If so, how was it?
I thought the quality of the questions and answers was excellent.  Unfortunately, I took no notes and cannot provide any details. 

This was my first Markel meeting and I thoroughly enjoyed it.  After ten years of attending the BRK meeting, the Q&A has become somewhat repetitive. 
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 15, 2013, 06:58:01 AM
Did they discuss any particular investments?  I'm looking at Synalloy; one they own and recently had to announce a ~ 7% passive stake in.  Chuck Royce owns ~8% as well. 
Title: Re: MKL - Markel Corp
Post by: jay21 on May 15, 2013, 07:02:13 AM
Did anyone head to the breakfast yesterday? If so, how was it?
I thought the quality of the questions and answers was excellent.  Unfortunately, I took no notes and cannot provide any details. 

This was my first Markel meeting and I thoroughly enjoyed it.  After ten years of attending the BRK meeting, the Q&A has become somewhat repetitive. 

Did anyone see any notes posted anywhere?
Title: Re: MKL - Markel Corp
Post by: alpha23 on May 15, 2013, 07:21:55 AM
http://covestreetcapital.com/Blog/wp-content/uploads/2013/05/2013-Markel-Breakfast-Notes.pdf

Very good notes. I just read them this morning.
Title: Re: MKL - Markel Corp
Post by: giofranchi on May 15, 2013, 07:24:01 AM
http://covestreetcapital.com/Blog/wp-content/uploads/2013/05/2013-Markel-Breakfast-Notes.pdf

Very good notes. I just read them this morning.

Thank you very much! :)

giofranchi
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 15, 2013, 05:16:27 PM
Thanks for sharing.  Sounds like there could be a buying opportunity on some integration turbulence with Alterra.  Not really sure how "we'll shrink it until it is profitable" jibes with "we paid full value for this one".
Title: Re: MKL - Markel Corp
Post by: jay21 on May 16, 2013, 05:44:47 AM
Appreciate the notes


Thanks for sharing.  Sounds like there could be a buying opportunity on some integration turbulence with Alterra.  Not really sure how "we'll shrink it until it is profitable" jibes with "we paid full value for this one".

I think we are missing some context here by only reading the notes.  Based upon the other bullets surrounding this indicate to me that people were discussing the competitiveness of reinsurance.  And basically they were saying, "We aren't going to try to match rates and write unprofitable business.  Profitable underwriting comes first and if we have to shrink the business to remain profitable, we will." 

This quote should also be comforting to you and supports my take:

"This is a scalable business and you can take a few people and write a lot on insurance. They are going to wait for their spots and are not keep
tons of people around"  So shrink when rates are competitive and grow massively when the market is hardening.


I thought the more interesting note was on growing the sidecar and cat bond side of ALT's business.
Title: Re: MKL - Markel Corp
Post by: Kiltacular on May 16, 2013, 10:15:12 PM
Quote
I think we are missing some context here by only reading the notes.  Based upon the other bullets surrounding this indicate to me that people were discussing the competitiveness of reinsurance.  And basically they were saying, "We aren't going to try to match rates and write unprofitable business.  Profitable underwriting comes first and if we have to shrink the business to remain profitable, we will." 

This quote should also be comforting to you and supports my take:

"This is a scalable business and you can take a few people and write a lot on insurance. They are going to wait for their spots and are not keep
tons of people around"  So shrink when rates are competitive and grow massively when the market is hardening.


I thought the more interesting note was on growing the sidecar and cat bond side of ALT's business.

jay21,

Nice color...very helpful delineation...thanks!!

And, thanks to the OP for the link to the notes.
Title: Re: MKL - Markel Corp
Post by: giofranchi on June 05, 2013, 09:57:38 AM
http://www.marketwatch.com/story/like-berkshire-markel-thrives-on-buy-and-hold-2013-06-05?siteid=yhoof2

giofranchi
Title: Re: MKL - Markel Corp
Post by: jay21 on August 09, 2013, 06:13:23 AM
MKL's portfolio activity is even more boring than BRK's:

http://www.dataroma.com/m/holdings.php?m=MKL

Title: Re: MKL - Markel Corp
Post by: james22 on August 14, 2013, 11:26:29 PM
Markel is a value buy based on its current P/B ratio of 1.17.

http://www.insidermonkey.com/blog/markel-corporation-mkl-is-this-forever-stock-the-next-berkshire-hathaway-inc-brk-a-221462/?singlepage=1
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on August 16, 2013, 06:28:42 AM
Another Markel venture purchase. Acquisition number 14, to be precise.

Quote
Markel Ventures Acquires the Eagle Companies

RICHMOND, Va., Aug. 16, 2013 /PRNewswire/ -- Markel Ventures, Inc. ("Markel") and Eagle Construction of VA, LLC ("Eagle"), announced today that Markel has acquired Eagle Construction and its affiliated entities. The terms of the transaction were not disclosed.

Founded in 1984 by Bryan Kornblau and Bud Ohly, Eagle primarily engages in the construction of single family residential homes in Virginia.  Through its subsidiaries Eagle Realty, Eagle Commercial Construction and NAI Eagle, Eagle also provides residential realty, commercial construction and commercial realty services.

The transaction marks the second investment Markel has made into Eagle's platform. Markel|Eagle Partners, a leading real estate asset manager in the region, is a joint venture formed between Markel and principals of Eagle in 2010.

"Eagle's longstanding relationship with Markel gave us the assurance that they share our deep commitment to our customers, trade partners and dedicated team of employees," said Robert "Bud" Ohly, Jr., President of Eagle Construction. "Our new partnership positions the Eagle Companies to build on our experience and further our evolution into one of the premier diversified real estate firms in Central Virginia and beyond."

"We like Markel's strategy," said Jeffrey Kornblau, the Chief Operating Officer of Eagle Construction and part of the third generation of leadership at Eagle Construction. "They provide permanent capital for their partners and expect you to continue to run your business based on the values that attracted them to you in the first place."

Thomas S. Gayner, President and Chief Investment Officer of Markel Ventures observed that, "Homebuilding is an integral part of our society, promoting economic development and, more importantly, strengthening our communities.  As a leading homebuilder in Virginia, Eagle has a 29 year history of providing customers with quality products and outstanding customer service, a hallmark of our Markel Ventures companies."

Eagle will be the fourteenth company in the Markel Ventures family of companies.  Consistent with all previous Markel Ventures transactions, Eagle's current leadership team and associates will remain in place.
Title: Re: MKL - Markel Corp
Post by: klarmanite on September 03, 2013, 04:05:55 AM
I have a question for the forum that I am hoping to get some feedback on:

Assessing MKLs post merger with Alterra value on a SOTP basis, I am encountering some practical problems. I think (an appropriate multiple on the insurance business earnings ex investment income + an appropriate multiple of mkl ventures earnings + net investments less debt ) / shares outstanding should be theoretically correct.

1. How to properly assess value of the insurance business ex investments?
2. What is the optimal metric to use when valuing Markel ventures (EBIT, EPS, OE?)
3. What debt value should be subtracted?

Any thoughts from MKL aficionados would be much appreciated.
Title: Re: MKL - Markel Corp
Post by: bmathews03 on September 12, 2013, 05:32:31 PM
I have a question for the forum that I am hoping to get some feedback on:

Assessing MKLs post merger with Alterra value on a SOTP basis, I am encountering some practical problems. I think (an appropriate multiple on the insurance business earnings ex investment income + an appropriate multiple of mkl ventures earnings + net investments less debt ) / shares outstanding should be theoretically correct.

1. How to properly assess value of the insurance business ex investments?
2. What is the optimal metric to use when valuing Markel ventures (EBIT, EPS, OE?)
3. What debt value should be subtracted?

Any thoughts from MKL aficionados would be much appreciated.

Hi klmaranite -

I don't think you're starting with the right formula.  Here's my alternative suggestion:

Add up the following three things:
1) Underwriting profits (premiums times combined ratio)
2) Investment income (total investments times expected rate of return)
3) Pre-tax profits Markel Ventures (you're probably need to estimate this, I don't Markel shares many details)

To that sum, apply a reasonable tax rate. 

That will leave you with comprehensive income.

Divide comprehensive income by market cap.

That will give you the return you can expect to achieve by owning Markel stock.

I have model that does this automatically and updates with CapIQ data.  The answer for Markel is 7%.

If you're happy earning 7% annually, then the stock is perfectly priced.  If you're greedy and want to earn 14% every year, then the stock is 2x too expensive. If like to set your sights low, say 3.5% per year, then you're in luck -- the stock is at a 50% discount to its fair value.

So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.  Otherwise, how else would you know what to do?
Title: Re: MKL - Markel Corp
Post by: giofranchi on September 12, 2013, 10:48:54 PM
I have a question for the forum that I am hoping to get some feedback on:

Assessing MKLs post merger with Alterra value on a SOTP basis, I am encountering some practical problems. I think (an appropriate multiple on the insurance business earnings ex investment income + an appropriate multiple of mkl ventures earnings + net investments less debt ) / shares outstanding should be theoretically correct.

1. How to properly assess value of the insurance business ex investments?
2. What is the optimal metric to use when valuing Markel ventures (EBIT, EPS, OE?)
3. What debt value should be subtracted?

Any thoughts from MKL aficionados would be much appreciated.

Hi klmaranite -

I don't think you're starting with the right formula.  Here's my alternative suggestion:

Add up the following three things:
1) Underwriting profits (premiums times combined ratio)
2) Investment income (total investments times expected rate of return)
3) Pre-tax profits Markel Ventures (you're probably need to estimate this, I don't Markel shares many details)

To that sum, apply a reasonable tax rate. 

That will leave you with comprehensive income.

Divide comprehensive income by market cap.

That will give you the return you can expect to achieve by owning Markel stock.

I have model that does this automatically and updates with CapIQ data.  The answer for Markel is 7%.

If you're happy earning 7% annually, then the stock is perfectly priced.  If you're greedy and want to earn 14% every year, then the stock is 2x too expensive. If like to set your sights low, say 3.5% per year, then you're in luck -- the stock is at a 50% discount to its fair value.

So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.  Otherwise, how else would you know what to do?

And where do you put growth?
The problem with not taking into consideration growth is that in investing you don’t want to be either an optimist nor a pessimist: instead, you just want to be right.
And, if you don’t consider growth in valuing MKL, you will most probably be wrong.
MKL has an history of increasing BVPS at a CAGR of 17%. I just cannot see why it should fail to go on increasing BVPS at around 15% annual. Now it is selling for 519 / 451 = 1.15 x BVPS. If it compounds BVPS at 15% annual and in 10 years it is still trading at 1.15 x BVPS, the CAGR of your capital invested today in MKL will be 15%.
So, if you don’t consider growth, you get to a 7% annual: you probably won’t invest. Instead, if you consider growth, you get to a 15% annual: you probably will invest. One of the two must be right, and the other wrong. It is up to each of us to decide. :)

giofranchi
Title: Re: MKL - Markel Corp
Post by: klarmanite on September 13, 2013, 07:15:15 AM
I chose to go with 3 different methods to arrive at a fair value for Markel, which I will withold for now (I'd rather post my thesis when it's all done) except to say that I completely disagree that the company is overvalued  :D

 One is a SOTP based on Buffett's letters to shareholders in the past (not similar to my pathetic outline above) and Tom Gayner's thoughts on the subject, the other two are implied valuations from different ROE scenarios which lead to certain P/E multiples, and the third is a normalized price/book multiple. I'm happy with these methods for now.
Title: Re: MKL - Markel Corp
Post by: giofranchi on September 13, 2013, 07:40:50 AM
I chose to go with 3 different methods to arrive at a fair value for Markel, which I will withold for now (I'd rather post my thesis when it's all done) except to say that I completely disagree that the company is overvalued  :D

Well, who says MKL is overvalued?!?! Cannot really believe that!! Is this serious?!

giofranchi
Title: Re: MKL - Markel Corp
Post by: klarmanite on September 18, 2013, 12:22:20 PM
I am wondering what MKLs vulnerability to regulatory changes could be (in terms of effectively reducing their investable capital because of any increased capital requirements and thus ROE). Thoughts?
Title: Re: MKL - Markel Corp
Post by: JBird on September 18, 2013, 05:54:41 PM
I have a quick question myself: In the 2012 annual they wrote, "Our insurance operations require capital to support premium writings, and we remain committed to maintaining adequate
capital and surplus at each of our insurance subsidiaries. The National Association of Insurance Commissioners (NAIC) developed amodel law and risk-based capital formula designed to help regulators identify domestic property and casualty insurers that may be inadequately capitalized. Under the NAIC’s requirements, a domestic insurer must maintain total capital and surplus above a calculated threshold or face varying levels of regulatory action. At December 31, 2012, the capital and surplus of each of our domestic insurance subsidiaries was above the minimum regulatory thresholds."

Does anyone know quantitatively how much Markel's capital exceeds minimum regulatory capital? Thanks
Title: Re: MKL - Markel Corp
Post by: giofranchi on September 19, 2013, 03:15:59 AM
I have a quick question myself: In the 2012 annual they wrote, "Our insurance operations require capital to support premium writings, and we remain committed to maintaining adequate
capital and surplus at each of our insurance subsidiaries. The National Association of Insurance Commissioners (NAIC) developed amodel law and risk-based capital formula designed to help regulators identify domestic property and casualty insurers that may be inadequately capitalized. Under the NAIC’s requirements, a domestic insurer must maintain total capital and surplus above a calculated threshold or face varying levels of regulatory action. At December 31, 2012, the capital and surplus of each of our domestic insurance subsidiaries was above the minimum regulatory thresholds."

Does anyone know quantitatively how much Markel's capital exceeds minimum regulatory capital? Thanks

I couldn’t find any further information on the subject about MKL.
FFH, instead, provides more detailed information. I quote it below, because I wouldn’t be much surprised, if similar numbers apply (more or less) to MKL as well:
Quote
In the U.S., the National Association of Insurance Commissioners (“NAIC”) has developed a model law and risk based capital (“RBC”) formula designed to help regulators identify property and casualty insurers that may be inadequately capitalized. Under the NAIC’s requirements, an insurer must maintain total capital and surplus above a calculated threshold or face varying levels of regulatory action. The threshold is based on a formula that attempts to quantify the risk of a company’s insurance and reinsurance, investment and other business activities.
At December 31, 2012, the U.S. insurance, reinsurance and runoff subsidiaries had capital and surplus in excess of the regulatory minimum requirement of two times the authorized control level – each subsidiary had capital and surplus in excess of 3.6 times (3.7 times at December 31, 2011) the authorized control level, except for TIG which had 2.3 times (2.3 times at December 31, 2011).
--FFH 2012 AR


giofranchi
Title: Re: MKL - Markel Corp
Post by: james22 on September 19, 2013, 11:32:50 PM
As it stands, Markel shares are priced to deliver 4% on its investment portfolio and break even on an underwriting basis -- in perpetuity. That's silly.

http://www.fool.com/investing/value/2013/09/19/why-im-buying-markel.aspx
Title: Re: MKL - Markel Corp
Post by: bmathews03 on September 20, 2013, 01:08:45 PM
I chose to go with 3 different methods to arrive at a fair value for Markel, which I will withold for now (I'd rather post my thesis when it's all done) except to say that I completely disagree that the company is overvalued  :D

Well, who says MKL is overvalued?!?! Cannot really believe that!! Is this serious?!

giofranchi

I certainly didn't say Markel is overvalued. I like it and own shares, I was just pointing out that you might not get the right answer out of a model. My farce of a comment was meant as a criticism against modeling in general. Not Markel.
Title: Re: MKL - Markel Corp
Post by: bmathews03 on September 20, 2013, 01:25:42 PM
I have a question for the forum that I am hoping to get some feedback on:

Assessing MKLs post merger with Alterra value on a SOTP basis, I am encountering some practical problems. I think (an appropriate multiple on the insurance business earnings ex investment income + an appropriate multiple of mkl ventures earnings + net investments less debt ) / shares outstanding should be theoretically correct.

1. How to properly assess value of the insurance business ex investments?
2. What is the optimal metric to use when valuing Markel ventures (EBIT, EPS, OE?)
3. What debt value should be subtracted?

Any thoughts from MKL aficionados would be much appreciated.

Hi klmaranite -

I don't think you're starting with the right formula.  Here's my alternative suggestion:

Add up the following three things:
1) Underwriting profits (premiums times combined ratio)
2) Investment income (total investments times expected rate of return)
3) Pre-tax profits Markel Ventures (you're probably need to estimate this, I don't Markel shares many details)

To that sum, apply a reasonable tax rate. 

That will leave you with comprehensive income.

Divide comprehensive income by market cap.

That will give you the return you can expect to achieve by owning Markel stock.

I have model that does this automatically and updates with CapIQ data.  The answer for Markel is 7%.

If you're happy earning 7% annually, then the stock is perfectly priced.  If you're greedy and want to earn 14% every year, then the stock is 2x too expensive. If like to set your sights low, say 3.5% per year, then you're in luck -- the stock is at a 50% discount to its fair value.

So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.  Otherwise, how else would you know what to do?

And where do you put growth?
The problem with not taking into consideration growth is that in investing you don’t want to be either an optimist nor a pessimist: instead, you just want to be right.
And, if you don’t consider growth in valuing MKL, you will most probably be wrong.
MKL has an history of increasing BVPS at a CAGR of 17%. I just cannot see why it should fail to go on increasing BVPS at around 15% annual. Now it is selling for 519 / 451 = 1.15 x BVPS. If it compounds BVPS at 15% annual and in 10 years it is still trading at 1.15 x BVPS, the CAGR of your capital invested today in MKL will be 15%.
So, if you don’t consider growth, you get to a 7% annual: you probably won’t invest. Instead, if you consider growth, you get to a 15% annual: you probably will invest. One of the two must be right, and the other wrong. It is up to each of us to decide. :)

giofranchi

g = ROE * (1 - payout ratio).

I'd say for MKL, you could replace the 'E' in earnings with 'CI' comprehensive income.  Anyway, the point is that Markel requires capital to grow, that's the nature of the business. So it retains its capital, reinvests it, and fuels growth. I have no problem with that policy, as Markel reinvests at good rates, generally. A few MKL Ventures companies might be able to grow without capital, but that's a rounding error.

Anyway, the framework/model that I set out is absolutely correct. If you wanted to criticize it or disagree, growth isn't the right argument. You could have pointed out that earnings are understated because of conservative reserving. That would've been a good argument.

So, my larger point stands, the key is to decide first whether you want to invest, then back-fill the valuation to suit your needs. I prefer using a correct model and adjusting the inputs to suit my bias. I suppose using an incorrect model is also an option that achieves the same goal, but I'd be too embarrassed to do it publicly.  Of course, I'm being (mostly) sarcastic.

I like Markel (and own it). Tom Gayner has sold me his snake oil. If you own shares for a long period, you'll probably do very well.
Title: Re: MKL - Markel Corp
Post by: tengen on September 20, 2013, 01:34:47 PM
So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.  Otherwise, how else would you know what to do?

I laughed and then I winced.
Title: Re: MKL - Markel Corp
Post by: bmathews03 on September 20, 2013, 02:50:05 PM
So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.  Otherwise, how else would you know what to do?

I laughed and then I winced.

Yes - that is one of my most brilliant insights as an investor. As Charlie Munger says, you must always invert. So, I've inverted the valuation process.
Title: Re: MKL - Markel Corp
Post by: JBird on September 20, 2013, 03:29:40 PM
So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.

Were you saying this ironically?
Title: Re: MKL - Markel Corp
Post by: bmathews03 on September 20, 2013, 04:28:52 PM
So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.

Were you saying this ironically?

I don't want to give up the joke, but yes -- it was mostly ironic. I wouldn't suggest doing that, unfortunately, it is done by even great, successful investors.
Title: Re: MKL - Markel Corp
Post by: JBird on September 20, 2013, 05:19:49 PM
So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.

Were you saying this ironically?

I don't want to give up the joke, but yes -- it was mostly ironic. I wouldn't suggest doing that, unfortunately, it is done by even great, successful investors.

Then this is one of my favorite comments on the entire board. Can I quote you?
Title: Re: MKL - Markel Corp
Post by: bmathews03 on September 20, 2013, 06:00:20 PM
So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.

Were you saying this ironically?

I don't want to give up the joke, but yes -- it was mostly ironic. I wouldn't suggest doing that, unfortunately, it is done by even great, successful investors.

Then this is one of my favorite comments on the entire board. Can I quote you?

Thanks for the nice compliment. I'm glad that someone gets my sense of humor. I was starting to think I'm actually not funny. Quote away -- I'd be honored.
Title: Re: MKL - Markel Corp
Post by: klarmanite on September 21, 2013, 03:21:28 PM
Definitely funny. and true for many...I know I catch myself doing this subconciously from time to time
Title: Re: MKL - Markel Corp
Post by: Libs on September 22, 2013, 09:19:17 AM
So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.  Otherwise, how else would you know what to do?

This is great. Reminds of a bad poker player, who after each revealed card, adjusts his 'read' of his opponent's hand to whatever fits his agenda. Truly an 'lol' comment.
Title: Re: MKL - Markel Corp
Post by: twacowfca on September 24, 2013, 11:48:45 PM
I have a question for the forum that I am hoping to get some feedback on:

Assessing MKLs post merger with Alterra value on a SOTP basis, I am encountering some practical problems. I think (an appropriate multiple on the insurance business earnings ex investment income + an appropriate multiple of mkl ventures earnings + net investments less debt ) / shares outstanding should be theoretically correct.

1. How to properly assess value of the insurance business ex investments?
2. What is the optimal metric to use when valuing Markel ventures (EBIT, EPS, OE?)
3. What debt value should be subtracted?

Any thoughts from MKL aficionados would be much appreciated.

Hi klmaranite -

I don't think you're starting with the right formula.  Here's my alternative suggestion:

Add up the following three things:
1) Underwriting profits (premiums times combined ratio)
2) Investment income (total investments times expected rate of return)
3) Pre-tax profits Markel Ventures (you're probably need to estimate this, I don't Markel shares many details)

To that sum, apply a reasonable tax rate. 

That will leave you with comprehensive income.

Divide comprehensive income by market cap.

That will give you the return you can expect to achieve by owning Markel stock.

I have model that does this automatically and updates with CapIQ data.  The answer for Markel is 7%.

If you're happy earning 7% annually, then the stock is perfectly priced.  If you're greedy and want to earn 14% every year, then the stock is 2x too expensive. If like to set your sights low, say 3.5% per year, then you're in luck -- the stock is at a 50% discount to its fair value.

So that's it... oh, except I forgot the first step. Before doing your valuation, you should decide if you want to buy the stock.  That way, if you don't like the answer that you're getting, you know which way to change the estimates to achieve the proper result.  Otherwise, how else would you know what to do?

"So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one has a mind to do."

     -- B. Franklin. :)
Title: Re: MKL - Markel Corp
Post by: giofranchi on October 24, 2013, 07:26:45 AM
Markel Baby Berkshire Is On Sale

http://seekingalpha.com/article/1762702-markel-baby-berkshire-is-on-sale?source=email_rt_article_readmore


giofranchi
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on October 25, 2013, 08:27:43 AM
Gio,
Thanks for reminding me to look at MKL again-- I hadn't been looking at anything lately because everything seems to be making new highs.

I increased my position by ~50% today. <grin>

PS: In my opinion, that seeking alpha article is unreasonably bullish; but in spite of that, MKL is very cheap at these prices.
Title: Re: MKL - Markel Corp
Post by: Qu1nt3ss0n on October 25, 2013, 06:14:47 PM
Gio,
Thanks for reminding me to look at MKL again-- I hadn't been looking at anything lately because everything seems to be making new highs.

I increased my position by ~50% today. <grin>

PS: In my opinion, that seeking alpha article is unreasonably bullish; but in spite of that, MKL is very cheap at these prices.

+1
Title: Re: MKL - Markel Corp
Post by: giofranchi on October 26, 2013, 03:08:44 AM
Gio,
Thanks for reminding me to look at MKL again-- I hadn't been looking at anything lately because everything seems to be making new highs.

I increased my position by ~50% today. <grin>

PS: In my opinion, that seeking alpha article is unreasonably bullish; but in spite of that, MKL is very cheap at these prices.

I agree. :)

Cheers!

giofranchi
Title: Re: MKL - Markel Corp
Post by: BRK IN MKE on October 28, 2013, 07:27:12 PM
Not sure if this was already posted on Markel, but I noticed it in the comments section of the recent seeking alpha article http://bit.ly/1allwoi. Like the SA piece, I find the linked article from Islamorada Investment Management to be too optimistic. With that said, I often think of the following Buffett quote when I think about investing in Markel.

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price" -WEB

IMO Markel is a wonderful company selling at a fair price. I think current shareholders will be very happy with their investment in MKL 10+ years from now.
Title: Re: MKL - Markel Corp
Post by: klarmanite on October 29, 2013, 09:00:32 AM
I enjoyed Cale's write-up very much, and I think his focus is on the right drivers going forward. His valuation section was more upbeat than my own ended up being, but I think there is a lot of upside in MKL - a large margin of safety even at 525 or whatever it is right now.

Where I differ from Cale is mainly in that I arrive at somewhat lower normalized ROE estimates than he does after modeling the ROE contribution from normalized investment returns, normalized insurance contributions and the effects of increased float post-Alterra. I also think some adjustments should be made for any impact of new solvency rules (granted, that must be speculative as these rules are not clear by any means).  But even with fairly conservative assumptions, I get a fair value a fair bit above today's stock price (about 750 USD).

While that's "only" 40 ish % upside, considering the quality of this organization, the company should be considered cheap IMO.

Would be interested in seeing what other people think MKLs "new normal" ROE is likely to be and how you arrive at that number/range.

Title: Re: MKL - Markel Corp
Post by: steph on October 29, 2013, 09:17:00 AM
In these somewhat more expensive markets I believe that Markel is an excellent proposition. You don't need a miracle for book value to grow +10% on average and you can reasonably expect the market to pay at some point a larger premium to book, which today is rather at the low end of its historical multiple.
Title: Re: MKL - Markel Corp
Post by: mcliu on October 29, 2013, 10:53:26 AM
Isn't 750, 2x BV? What kind of BV growth are you projecting?

I mean with FFH trading at 1.3x BV.. why MKL?
Title: Re: MKL - Markel Corp
Post by: klarmanite on October 29, 2013, 02:38:55 PM
No, about 1.65 x. (BV is 459).
Title: Re: MKL - Markel Corp
Post by: mcliu on October 29, 2013, 05:24:05 PM
Oh okay, nvm! So it's trading at ~1.2x. Fair enough.
Title: Re: MKL - Markel Corp
Post by: returnonmycapital on October 30, 2013, 09:58:40 AM
Assuming: 35% tax rate, $3.6 billion in earned premiums and a 98% combined ratio post-Alterra.
For comprehensive earnings to get to $53 per share (10% of current stock price), I get a required rate of return on the investment portfolio of 7% pre-tax.
My concern with attaining this hurdle is that less than 50% of book value is in equity investments (currently around 44%, down from 70% in 2007).

Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on October 30, 2013, 10:09:23 AM
Lack of dividend at MKL is a positive. 

The FFH dividend for example would cost me about 75 bps of compounding (lost to the tax collector).  Over time that adds up.  Destroys 7.7% of the investment after 10 years.
Title: Re: MKL - Markel Corp
Post by: no_free_lunch on October 30, 2013, 05:16:24 PM
returnonmycapital,

There is also the private equity piece (Markel Ventures), which while small currently, should grow at a fast pace.
Title: Re: MKL - Markel Corp
Post by: jeffmori7 on October 30, 2013, 05:27:08 PM
Assuming: 35% tax rate, $3.6 billion in earned premiums and a 98% combined ratio post-Alterra.
For comprehensive earnings to get to $53 per share (10% of current stock price), I get a required rate of return on the investment portfolio of 7% pre-tax.
My concern with attaining this hurdle is that less than 50% of book value is in equity investments (currently around 44%, down from 70% in 2007).

Equity investments is down because of Alterra acqusition I think..it should raise again while they convert the former Alterra portfolio.
Title: Re: MKL - Markel Corp
Post by: returnonmycapital on October 31, 2013, 06:36:41 AM
Assuming: 35% tax rate, $3.6 billion in earned premiums and a 98% combined ratio post-Alterra.
For comprehensive earnings to get to $53 per share (10% of current stock price), I get a required rate of return on the investment portfolio of 7% pre-tax.
My concern with attaining this hurdle is that less than 50% of book value is in equity investments (currently around 44%, down from 70% in 2007).

Equity investments is down because of Alterra acqusition I think..it should raise again while they convert the former Alterra portfolio.

I include Markel Ventures in investments.

Last year, from what I can gather from the annual report, Ventures produced about $13.5 million of net income (about $21 million pre-statutory-tax) on a year end value of assets of $891 million (about $786 million of net assets). That isn't very close to 7%. This year looks better, year-to-date but still a ways from 7% pre-tax.
Title: Re: MKL - Markel Corp
Post by: returnonmycapital on October 31, 2013, 06:44:53 AM
Assuming: 35% tax rate, $3.6 billion in earned premiums and a 98% combined ratio post-Alterra.
For comprehensive earnings to get to $53 per share (10% of current stock price), I get a required rate of return on the investment portfolio of 7% pre-tax.
My concern with attaining this hurdle is that less than 50% of book value is in equity investments (currently around 44%, down from 70% in 2007).

Equity investments is down because of Alterra acqusition I think..it should raise again while they convert the former Alterra portfolio.

My calculations of Equity investments as a percentage of Book Value:

2007 70%
2008 49%
2009 49%
2010 54%
2011 55%
2012 48%
2013 Q2 44%

2008's investment return (-34% in equities, if memory serves) probably has something to do with the decline. And the growth in Markel Ventures too. Returns on Ventures investments need to improve in order to help with the overall 7% pre-tax hurdle rate.
Title: Re: MKL - Markel Corp
Post by: klarmanite on November 01, 2013, 05:24:09 AM
My basic ROE scenarios are attached. Note that "current climate" assumes what I think are reasonable estimates given the current economic climate, not what the exact numbers are today.

The other scenarios take into account increased leverage, higher interest rates and growth in investments. I assume an overall combined ratio of 96% in line with the long term historical average of MKL.

Title: Re: MKL - Markel Corp
Post by: klarmanite on November 01, 2013, 05:39:42 AM
Assuming shareholder equity increases in line with the 5yr avg towards 2015, I think these are reasonable estimates of fair value today (see attachment). As you can see, whether MKL is fairly valued or undervalued depends on the ROE you think they are able to achieve. Obviously, I'm in the camp that thinks MKL can improve ROE toward the 14% area in the long term. I tried think in terms of probabilities in this case, and you may disagree with me on the various weightings as well as other parts of this analysis. But anyway, this is how I arrive at my FV estimate of 760 USD.

I think it's reasonable, other people may not.
Title: Re: MKL - Markel Corp
Post by: giofranchi on November 01, 2013, 07:23:40 AM
https://sumzero.com/headlines/financials_and_insurance/MKL/201-odds-of-a-double-very-high-for-mini-berkshire-markel


giofranchi
Title: Re: MKL - Markel Corp
Post by: hellsten on November 01, 2013, 10:59:23 AM
http://www.scribd.com/doc/123873695/Josh-Tarasoff-Markel-Insurance

Quote
Current MKL stock price of $440 represents ~105% of pro-forma book value per share
one of its lowest valuations ever. MKL is priced not merely for mean-reversion, but for an immediate end to its ability to generate high returns on capital

(as of 01/04/13)
Title: Re: MKL - Markel Corp
Post by: returnonmycapital on November 07, 2013, 08:11:59 AM
As at September 30:

Net investments per share (including cash & Markel Ventures net assets) = $1,088
Per-share Q3 premiums earned (annualized) = $262

Assuming 35% statutory tax rate & 2% underwriting profit, the pre-tax return on net investments required to earn comprehensive earnings of 10% of present market value is approx. 7.2%:

Comprehensive earnings per share equal to 10% of present market value = $54
Underwriting: $262 * .02 = $5.24 * .65 = $3.41
Investments: $54 - $3.41 = $50.59 / .65 = $77.83 / $1088 = 7.2%

Equities together with Markel Ventures net assets currently at 59% of book value.
Title: Re: MKL - Markel Corp
Post by: link01 on November 07, 2013, 08:44:01 AM
http://www.scribd.com/doc/123873695/Josh-Tarasoff-Markel-Insurance

Quote
Current MKL stock price of $440 represents ~105% of pro-forma book value per share
one of its lowest valuations ever. MKL is priced not merely for mean-reversion, but for an immediate end to its ability to generate high returns on capital

(as of 01/04/13)

I was wondering why the name josh tarasoff sounded familiar; he made a bull case for amzn that was also posted on this board. he's not your avg value investor type, it seems
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 07, 2013, 08:55:19 AM
What is the P/E of MKL if you take the look-through earnings of it's equity holdings?

I can understand a somewhat lighter valuation for MKL given where we are with general equity prices.  Less upside to book value if markets don't keep rising.  So if you take out rising equities from the equation and just look at how much they actually earn on a look-through basis, how much would the forward 12 months earnings contribute to today's book value, expressed as a percentage of book?
Title: Re: MKL - Markel Corp
Post by: CorpRaider on November 07, 2013, 09:00:12 AM
Yeah, and isn't another possible explanation for the seemingly compelling valuation the merger?  How much of that book value is attributable to the acquired operations yet to be integrated?  I know that is why I'm not buying right now.  The last time they did a big acquisition it didn't go so well, most mergers destroy value and it arguably ups the risks until we see how it goes.
Title: Re: MKL - Markel Corp
Post by: muscleman on November 07, 2013, 09:03:51 AM
As at September 30:

Net investments per share (including cash & Markel Ventures net assets) = $1,088
Per-share Q3 premiums earned (annualized) = $262

Assuming 35% statutory tax rate & 2% underwriting profit, the pre-tax return on net investments required to earn comprehensive earnings of 10% of present market value is approx. 7.2%:

Comprehensive earnings per share equal to 10% of present market value = $54
Underwriting: $262 * .02 = $5.24 * .65 = $3.41
Investments: $54 - $3.41 = $50.59 / .65 = $77.83 / $1088 = 7.2%

Equities together with Markel Ventures net assets currently at 59% of book value.

Sorry I am confused.
Just a few posts above, another member said:
"Current MKL stock price of $440 represents ~105% of pro-forma book value per share
one of its lowest valuations ever. MKL is priced not merely for mean-reversion, but for an immediate end to its ability to generate high returns on capital"

But you just said "Equities together with Markel Ventures net assets currently at 59% of book value."
So what is the right way to view the book value? ::)
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 07, 2013, 09:11:00 AM
Compared to "historical valuation", the float is worth less today because of the interest rates. 

A 2.6% 10 yr Treasury bond taxed at 30% only generates 1.82% after tax.

My view of a lot of these insurers is that they would be most attractive if purchased at the peak of the interest rate cycle, not at the bottom!

So that's also worth somewhat of a discount compared to historical P/B trading levels.

Title: Re: MKL - Markel Corp
Post by: returnonmycapital on November 07, 2013, 10:04:42 AM
Compared to "historical valuation", the float is worth less today because of the interest rates. 

A 2.6% 10 yr Treasury bond taxed at 30% only generates 1.82% after tax.

My view of a lot of these insurers is that they would be most attractive if purchased at the peak of the interest rate cycle, not at the bottom!

So that's also worth somewhat of a discount compared to historical P/B trading levels.

Yes, it would probably still work, despite the sloppy underwriting assured at higher yields.
And MKL has almost $2.3 billion in debt at interest rate costs of 6%, on average. That is a lot higher than the overall yield on their fixed income portfolio. Float might be costless, but it ain't worth 100 cents on the dollar.
Title: Re: MKL - Markel Corp
Post by: muscleman on November 07, 2013, 11:04:20 AM
Compared to "historical valuation", the float is worth less today because of the interest rates. 

A 2.6% 10 yr Treasury bond taxed at 30% only generates 1.82% after tax.

My view of a lot of these insurers is that they would be most attractive if purchased at the peak of the interest rate cycle, not at the bottom!

So that's also worth somewhat of a discount compared to historical P/B trading levels.

Yes, it would probably still work, despite the sloppy underwriting assured at higher yields.
And MKL has almost $2.3 billion in debt at interest rate costs of 6%, on average. That is a lot higher than the overall yield on their fixed income portfolio. Float might be costless, but it ain't worth 100 cents on the dollar.

Could you please tell me what is Pro-forma net investments per share? Is that book value per share?
I think I saw similar presentations mentioning Pro-forma net investments per share about why BRK.B is undervalued by Whitney Tilson, but I don't understand what it is.
Title: Re: MKL - Markel Corp
Post by: thepupil on November 07, 2013, 11:10:28 AM
liquid investment securities / shares outstanding. it is not book value because book takes into account liabilities like float. investments/share is thrown around for berkshire and markel. the thought process is if underwriting profits are 0 or greater, the deduction of float liability from book can be ignored and equity holders effectively receive all the benefits of those securities even if they have an insurance claim against them.

it's aggressive, but as long as you believe in the endurance of the underwriting capability, not out of line.
Title: Re: MKL - Markel Corp
Post by: zippy1 on November 07, 2013, 12:31:38 PM
Q3 results
http://finance.yahoo.com/news/markel-reports-third-quarter-nine-213800678.html
Quote
Markel Corporation (MKL) reported diluted net income per share of $4.67 for the quarter ended September 30, 2013 compared to $5.32 for the third quarter of 2012.  Diluted net income per share was $15.33 for the nine months ended September 30, 2013 compared to $19.67 for the same period of 2012. The combined ratio was 96% for the third quarter of 2013 compared to 101% for the third quarter of 2012. The combined ratio was 97% for the nine months ended September 30, 2013 compared to 96% for the same period of 2012.
Title: Re: MKL - Markel Corp
Post by: nestorius on November 07, 2013, 01:45:34 PM
FYI, Markel taking down $100M of the BB deb issue.

The buyers of the debs are listed in a 13D filed for BB

FFH $250M
Mackenzie Financial $200M
Canso Investment $300M
Markel $100M
BAM $50M
Qatar Holding $100M
Total $1,000

See Schedule A: http://www.sec.gov/Archives/edgar/data/915191/000119312513432720/d622931dex3.htm
Title: Re: MKL - Markel Corp
Post by: muscleman on November 08, 2013, 08:57:19 AM
As at September 30:

Net investments per share (including cash & Markel Ventures net assets) = $1,088
Per-share Q3 premiums earned (annualized) = $262

Assuming 35% statutory tax rate & 2% underwriting profit, the pre-tax return on net investments required to earn comprehensive earnings of 10% of present market value is approx. 7.2%:

Comprehensive earnings per share equal to 10% of present market value = $54
Underwriting: $262 * .02 = $5.24 * .65 = $3.41
Investments: $54 - $3.41 = $50.59 / .65 = $77.83 / $1088 = 7.2%

Equities together with Markel Ventures net assets currently at 59% of book value.

Could you please tell me how to get the net investment per share figure? From Whitney Tilson's BRK.B presentation, he uses net investment per share + operating subsidiaries' income per share * 8 to get his per share intrinsic value, which makes sense, so I am trying to do a similar exercise here. :)
Title: Re: MKL - Markel Corp
Post by: returnonmycapital on November 12, 2013, 10:38:42 AM
As at September 30:

Net investments per share (including cash & Markel Ventures net assets) = $1,088
Per-share Q3 premiums earned (annualized) = $262

Assuming 35% statutory tax rate & 2% underwriting profit, the pre-tax return on net investments required to earn comprehensive earnings of 10% of present market value is approx. 7.2%:

Comprehensive earnings per share equal to 10% of present market value = $54
Underwriting: $262 * .02 = $5.24 * .65 = $3.41
Investments: $54 - $3.41 = $50.59 / .65 = $77.83 / $1088 = 7.2%

Equities together with Markel Ventures net assets currently at 59% of book value.

Could you please tell me how to get the net investment per share figure? From Whitney Tilson's BRK.B presentation, he uses net investment per share + operating subsidiaries' income per share * 8 to get his per share intrinsic value, which makes sense, so I am trying to do a similar exercise here. :)

From the 09/30/13 10Q:

Add "Investments"
Total investments = $14,461,010
Cash = $2,115,322
Non-insurance operations = $903,795

Subtract Debt = $2,250,479

Equals Net investments = $15,229,648

Divide by Shares outstanding = 14,001

Equals Net investments per share = $1,087.75
Title: Re: MKL - Markel Corp
Post by: muscleman on November 15, 2013, 01:07:59 PM
Compared to "historical valuation", the float is worth less today because of the interest rates. 

A 2.6% 10 yr Treasury bond taxed at 30% only generates 1.82% after tax.

My view of a lot of these insurers is that they would be most attractive if purchased at the peak of the interest rate cycle, not at the bottom!

So that's also worth somewhat of a discount compared to historical P/B trading levels.

I always enjoy your acute views.
So I am thinking, if we would like to bet that interest rate will go up in the next 5 years, will MKL be a decent instrument to do that? If we lose this bet, we will probably make 10% a year. If we are right, then the market will assign a good value to its float, and we will make a lot of money. It will be a win-win bet. What do you think?
Title: Re: MKL - Markel Corp
Post by: jay21 on November 15, 2013, 01:18:06 PM
Compared to "historical valuation", the float is worth less today because of the interest rates. 

A 2.6% 10 yr Treasury bond taxed at 30% only generates 1.82% after tax.

My view of a lot of these insurers is that they would be most attractive if purchased at the peak of the interest rate cycle, not at the bottom!

So that's also worth somewhat of a discount compared to historical P/B trading levels.

The market seems to lower the P/B at the bottom of the cycle and raise it at the top.  I think the bottom is the place to be.

Pricing is a little less competitive due to low rates as well because it would need to improve in order for insurers to hit acceptable ROEs.  If ROEs are low, capital exits.
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 15, 2013, 01:26:51 PM
Compared to "historical valuation", the float is worth less today because of the interest rates. 

A 2.6% 10 yr Treasury bond taxed at 30% only generates 1.82% after tax.

My view of a lot of these insurers is that they would be most attractive if purchased at the peak of the interest rate cycle, not at the bottom!

So that's also worth somewhat of a discount compared to historical P/B trading levels.

The market seems to lower the P/B at the bottom of the cycle and raise it at the top.  I think the bottom is the place to be.

Pricing is a little less competitive due to low rates as well because it would need to improve in order for insurers to hit acceptable ROEs.  If ROEs are low, capital exits.

Doesn't the bottom drop out of the book value in a rising interest rate environment that is both punishing to their stocks and their bonds?

So, I suppose, is the stock trading at a bigger premium to book than it looks if you re-price their book based upon a 5% 10 yr rate environment.  I know for example that a 10yr bond earning 3% suffers a 20% loss if it is re-priced to a 5% yield.
Title: Re: MKL - Markel Corp
Post by: cayale on November 15, 2013, 01:31:15 PM
Compared to "historical valuation", the float is worth less today because of the interest rates. 

A 2.6% 10 yr Treasury bond taxed at 30% only generates 1.82% after tax.

My view of a lot of these insurers is that they would be most attractive if purchased at the peak of the interest rate cycle, not at the bottom!

So that's also worth somewhat of a discount compared to historical P/B trading levels.

The market seems to lower the P/B at the bottom of the cycle and raise it at the top.  I think the bottom is the place to be.

Pricing is a little less competitive due to low rates as well because it would need to improve in order for insurers to hit acceptable ROEs.  If ROEs are low, capital exits.

Doesn't the bottom drop out of the book value in a rising interest rate environment that is both punishing to their stocks and their bonds?

So, I suppose, is the stock trading at a bigger premium to book than it looks if you re-price their book based upon a 5% 10 yr rate environment.  I know for example that a 10yr bond earning 3% suffers a 20% loss if it is re-priced to a 5% yield.

If I remember correctly, their bond portfolio is awfully short.  They are sitting in a lot of cash as a result of the acquisition.  They have a lot of dry powder at this moment.
Title: Re: MKL - Markel Corp
Post by: jay21 on November 15, 2013, 01:37:51 PM
Yeah, they were at a <3 year duration last time i've seen it disclosed.  They have a ton of cash from hedge fund redemption and are redeeming more in the near future.
Title: Re: MKL - Markel Corp
Post by: zippy1 on November 15, 2013, 02:21:50 PM
On page 55 of Q3 10-Q, there is an interest rate sensitivity table. Attached below
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 15, 2013, 02:37:00 PM
On page 55 of Q3 10-Q, there is an interest rate sensitivity table. Attached below


So an 8.27% decline in shareholder equity from a 200 bps rise.  In the meantime, how much book value boost annually does the current level of interest income contribute, after tax? 

The harder part is knowing how long these low rates will last -- each year it continues, it leads to less BVPS growth.  I imagine it's worth somewhat of a discount given that it leads to slower BVPS growth, but how do you come up with that discount without knowing how long rates will be low for?  So perhaps the market is making an assumption of 5 more years.  In that case, and if the low rates are retarding growth in book by 3% annualized, that would be worth an additional 15% discount, roughly.  But I pulled that 3% number out of my butt -- does anyone know what the real number is?
Title: Re: MKL - Markel Corp
Post by: cayale on November 15, 2013, 02:49:46 PM
On page 55 of Q3 10-Q, there is an interest rate sensitivity table. Attached below


So an 8.27% decline in shareholder equity from a 200 bps rise.  In the meantime, how much book value boost annually does the current level of interest income contribute, after tax? 

The harder part is knowing how long these low rates will last -- each year it continues, it leads to less BVPS growth.  I imagine it's worth somewhat of a discount given that it leads to slower BVPS growth, but how do you come up with that discount without knowing how long rates will be low for?  So perhaps the market is making an assumption of 5 more years.  In that case, and if the low rates are retarding growth in book by 3% annualized, that would be worth an additional 15% discount, roughly.  But I pulled that 3% number out of my butt -- does anyone know what the real number is?

They'll shorten the bond portfolio.  I am guessing a lot of the lengthening came from Alterra.

That said, I think you raise a great point regarding book value growth.  a) Can they get away with allocating more to stocks and private companies to grow book value; b) is that prudent?.  I suppose a potential antidote to that is that the market hardens because carrier shareholders won't ultimately accept shoddy returns on equity.  Also, Alterra is getting into greater syndication of deals where they receive a fee for writing business but allow somebody else to risk the capital.  MKL trades at a discount to some other decent insurance companies but it would seem to me the problem is industrywide.
Title: Re: MKL - Markel Corp
Post by: zippy1 on November 15, 2013, 03:01:25 PM
Eric,

      Their fixed-income maturity table is like this below. I suppose the less than 1-year part will get benefit fairly quickly. Unfortunately, they categorize as >1year and less than 5 year, so I am not sure what to guess.

       There is about 900m in less than 1 year category.

Title: Re: MKL - Markel Corp
Post by: zippy1 on November 15, 2013, 03:06:02 PM
They really increased weighting on the fixed-income a lot by the acquition. They really need to lower down the fixed-income and increase stock. On the last conference call, they were saying that they are letting the bond "rolling-off" to buy stock.  I suppose there are not so many cheap stock either.

Title: Re: MKL - Markel Corp
Post by: vinod1 on November 15, 2013, 05:01:25 PM
Once Markel deploys all the fixed income from the acquisition into their target stock/bond ratio, we would be getting an exposure of something like $0.7 in stocks and $1.8 in bonds for every $1 of shareholders equity. A CR of 95% is needed just to cover operating expenses and interest expenses.

Even if we can buy at 1x book value, I am not too enthusiastic about being levered 1.8x to the bond market and 0.7x to stock market, given the low interest rates and high overall stock market valuation.

Vinod
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on November 15, 2013, 07:19:16 PM
Yeah, they were at a <3 year duration last time i've seen it disclosed.  They have a ton of cash from hedge fund redemption and are redeeming more in the near future.

See attached chart of bond maturities. It shows Q1 numbers, that are pre-alterra.

Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 15, 2013, 10:38:38 PM
I am not too enthusiastic about being levered 1.8x to the bond market and 0.7x to stock market, given the low interest rates and high overall stock market valuation.

Vinod

Precisely.
Title: Re: MKL - Markel Corp
Post by: skanjete on November 16, 2013, 01:58:42 AM
If intrest rates rise, book value per share will be negatively affected as the table shows. At the same time however, the value of the float will clearly rise, because they will be able to invest their cash and cash flow at better conditions.

So BVPS will go lower somewhat (if not compensated by other profits (underwriting, venture)), but the market should value the BVPS at a somewhat higher premium. One effect will partly compensate the other. So that mitigates the risk. On the other hand, if one is looking for a "lollapalooza effect", you aren't going to find it here. 

Conclusion : it all boils down to the operating and capital allocations skills of the management to generate value over time, compared to their competition. I think Markel will do just fine over time, in any kind of environment.

PS. The longer the low intrest rates continue, the better they will digest the Alterra takeover. It gives them time to restructure the investments in a benign environment. Also the hurricane season this year was a big positive for their Alterra takeover. The low losses allow them to strenghten the loss reserves without too much of a negative effect to their book value.
Title: Re: MKL - Markel Corp
Post by: jay21 on November 16, 2013, 11:51:10 AM
If you are going to MTM the assets, I think you should MTM the liabilities.  The way I think of it is that MKL earns a spread between their float and fixed income.  If they duration match, this spread shouldn't change.

Also, rising rates will take a lot of capital out insurers due to MTM.  This could potentially create a hard market.  Insurers like MKL who are trying to lower their duration will benefit b/c they will take less of a hit than higher duration insurers and they will have the capital to underwrite.
Title: Re: MKL - Markel Corp
Post by: muscleman on November 17, 2013, 01:35:59 PM
As at September 30:

Net investments per share (including cash & Markel Ventures net assets) = $1,088
Per-share Q3 premiums earned (annualized) = $262

Assuming 35% statutory tax rate & 2% underwriting profit, the pre-tax return on net investments required to earn comprehensive earnings of 10% of present market value is approx. 7.2%:

Comprehensive earnings per share equal to 10% of present market value = $54
Underwriting: $262 * .02 = $5.24 * .65 = $3.41
Investments: $54 - $3.41 = $50.59 / .65 = $77.83 / $1088 = 7.2%

Equities together with Markel Ventures net assets currently at 59% of book value.

Could you please tell me how to get the net investment per share figure? From Whitney Tilson's BRK.B presentation, he uses net investment per share + operating subsidiaries' income per share * 8 to get his per share intrinsic value, which makes sense, so I am trying to do a similar exercise here. :)

From the 09/30/13 10Q:

Add "Investments"
Total investments = $14,461,010
Cash = $2,115,322
Non-insurance operations = $903,795

Subtract Debt = $2,250,479

Equals Net investments = $15,229,648

Divide by Shares outstanding = 14,001

Equals Net investments per share = $1,087.75

Thank you!
I am reading Buffet's 2010 letter and other letters in order to understand how to value insurance companies.
I think right now MKL's non-insurance operations (Markel venture) hasn't generated enough earnings, so the primary valuation of MKL would be simply based on the net investments per share.
http://www.berkshirehathaway.com/letters/2010ltr.pdf
"When, in 1996, we bought the 50% of GEICO we didn’t already
own, it cost us about $2.3 billion. That price implied a value of $4.6 billion for 100%. GEICO then had tangible
net worth of $1.9 billion."

So it does seems like Buffet believed that if the combined ratio is lower than 100%, it is ok to value the company at the insurance float plus book value.
Title: Re: MKL - Markel Corp
Post by: muscleman on November 17, 2013, 09:09:00 PM
As at September 30:

Net investments per share (including cash & Markel Ventures net assets) = $1,088
Per-share Q3 premiums earned (annualized) = $262

Assuming 35% statutory tax rate & 2% underwriting profit, the pre-tax return on net investments required to earn comprehensive earnings of 10% of present market value is approx. 7.2%:

Comprehensive earnings per share equal to 10% of present market value = $54
Underwriting: $262 * .02 = $5.24 * .65 = $3.41
Investments: $54 - $3.41 = $50.59 / .65 = $77.83 / $1088 = 7.2%

Equities together with Markel Ventures net assets currently at 59% of book value.

Could you please tell me how to get the net investment per share figure? From Whitney Tilson's BRK.B presentation, he uses net investment per share + operating subsidiaries' income per share * 8 to get his per share intrinsic value, which makes sense, so I am trying to do a similar exercise here. :)

From the 09/30/13 10Q:

Add "Investments"
Total investments = $14,461,010
Cash = $2,115,322
Non-insurance operations = $903,795

Subtract Debt = $2,250,479

Equals Net investments = $15,229,648

Divide by Shares outstanding = 14,001

Equals Net investments per share = $1,087.75

Thank you! I compared these numbers with BRK, and I found that BRK has most of its insurance float invested in equity, but MKL has much more invested in fixed income securities.
Is there any regulation that prevents MKL from doing so?
I think if current low interest rate environment continues, it will be hard for MKL to compound the book at 20% per year from now on.
Title: Re: MKL - Markel Corp
Post by: jay21 on November 18, 2013, 06:27:05 AM
On page 55 of Q3 10-Q, there is an interest rate sensitivity table. Attached below


So an 8.27% decline in shareholder equity from a 200 bps rise.  In the meantime, how much book value boost annually does the current level of interest income contribute, after tax? 

The harder part is knowing how long these low rates will last -- each year it continues, it leads to less BVPS growth.  I imagine it's worth somewhat of a discount given that it leads to slower BVPS growth, but how do you come up with that discount without knowing how long rates will be low for?  So perhaps the market is making an assumption of 5 more years.  In that case, and if the low rates are retarding growth in book by 3% annualized, that would be worth an additional 15% discount, roughly.  But I pulled that 3% number out of my butt -- does anyone know what the real number is?

Eric, let me know if I have any flawed thinking here on the impact of a rate rise.

Let's say MKL (or ExampleCo) is currently doing a 10% ROE and priced at 1 P/B at $100 a share.  Then there is a 200 bps rate rise and let's say BV goes down 15% (greater than what's shown above) for a BV of $85 a share.  However, because investments are levered by 2 - 3x the 200bps rate rise results in ~5% increase in ROE.  So now they are at 15% ROE and the market re-rates to 1.5 P/B.  This would be a price of $127.5.

So we would want to buy at the bottom of the cycle as long as the price is low and the tradeoff between their decrease in BV vs. increase in ROE is there.

Owning at the top of the cycle is the polar opposite.  You have an increase in BV, but a lower multiple due to a decrease in ROE.
Title: Re: MKL - Markel Corp
Post by: racemize on November 18, 2013, 06:33:32 AM
Thank you! I compared these numbers with BRK, and I found that BRK has most of its insurance float invested in equity, but MKL has much more invested in fixed income securities.
Is there any regulation that prevents MKL from doing so?
I think if current low interest rate environment continues, it will be hard for MKL to compound the book at 20% per year from now on.

Well, some of that has to do with the Alterra acquisition--they've indicated that they will slowly get it back to their normal equity:fixed income percentage, but they will do it over a few years.  They have also been defensively postured, waiting for interest rates to rise.  If you go read a few transcripts from conference calls over the last 4-6 quarters, they talk about this.

It seems to me to be the right thing to do in the current environment (as Marks would say, "move forward, but with caution").

I also would not expect them to go forward at 20% book value compounding--I imagine in the shorter run it will be ~7% and in the longer term ~15%, unless something bad happens to them.  For a lot of investors here, that is too low.  I like to use these types of companies as my foundation positions (e.g., the first 30-50%) of the portfolio.
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 18, 2013, 08:58:23 AM
On page 55 of Q3 10-Q, there is an interest rate sensitivity table. Attached below


So an 8.27% decline in shareholder equity from a 200 bps rise.  In the meantime, how much book value boost annually does the current level of interest income contribute, after tax? 

The harder part is knowing how long these low rates will last -- each year it continues, it leads to less BVPS growth.  I imagine it's worth somewhat of a discount given that it leads to slower BVPS growth, but how do you come up with that discount without knowing how long rates will be low for?  So perhaps the market is making an assumption of 5 more years.  In that case, and if the low rates are retarding growth in book by 3% annualized, that would be worth an additional 15% discount, roughly.  But I pulled that 3% number out of my butt -- does anyone know what the real number is?

Eric, let me know if I have any flawed thinking here on the impact of a rate rise.

Let's say MKL (or ExampleCo) is currently doing a 10% ROE and priced at 1 P/B at $100 a share.  Then there is a 200 bps rate rise and let's say BV goes down 15% (greater than what's shown above) for a BV of $85 a share.  However, because investments are levered by 2 - 3x the 200bps rate rise results in ~5% increase in ROE.  So now they are at 15% ROE and the market re-rates to 1.5 P/B.  This would be a price of $127.5.

So we would want to buy at the bottom of the cycle as long as the price is low and the tradeoff between their decrease in BV vs. increase in ROE is there.

Owning at the top of the cycle is the polar opposite.  You have an increase in BV, but a lower multiple due to a decrease in ROE.

I see your point that the rising interest rates will help the stock earnings (and thus stock price) more than it will hurt the balance sheet.  The earnings though seem weak until it happens.  It's similar to how I view BAC -- rising rates will help it more than hurt it, but in the meantime that stock trades at a much better earnings yield than MKL -- so you still do great if rates don't rise for a long time.  So that's the weakness I see with MKL -- it is too dependent on rising rates.

MKL is competing for a spot in my portfolio, against BAC -- that's why I pit one against the other.
Title: Re: MKL - Markel Corp
Post by: racemize on November 18, 2013, 09:23:56 AM
I see your point that the rising interest rates will help the stock earnings (and thus stock price) more than it will hurt the balance sheet.  The earnings though seem weak until it happens.  It's similar to how I view BAC -- rising rates will help it more than hurt it, but in the meantime that stock trades at a much better earnings yield than MKL -- so you still do great if rates don't rise for a long time.  So that's the weakness I see with MKL -- it is too dependent on rising rates.

MKL is competing for a spot in my portfolio, against BAC -- that's why I pit one against the other.

That makes sense, for the rest of us that have more than one position, it is a bit easier...   ;)
Title: Re: MKL - Markel Corp
Post by: JPerez on November 18, 2013, 01:16:17 PM
Hi I'm new to the board and I hope I can contribute to the discussion.
I have the attached management projections from the merger proxy for the separate entities before the merger and I have put them together adjusted for the cash payment in the merger and the new amount of shares outstanding.
Based on those projections management was expecting to compound at a CAGR of 9.5% in the next 4 years.
Alterra had a lower tax rate but you would expect better investment results with the Markel management.
It is interesting how Alterra management was expecting a combined ratio of 90% and increasing slightly over time and Markel was expecting a combined ratio of 95% and trending slightly down.
In respect to earnings in the last quarter they earned 4.67$ per share but to those earnings some items should be added
-Prior year reserve releases for Alterra of  48.1 million that were used to bring the reserves to the very conservative Markel standards
- Acquisition costs of 8.5 million
- Amortization expense as a result of establishing a new amortized cost for Alterra's fixed maturity securities of 22.6 million
- Amortization of intangible assets 16.8 million
In total that would add 96 million pre tax and at a 30% tax rate 73 Million or 5.27$ per share extra so close to 10$ per share in real earnings for the quarter or 40$ anualized which is close to 9% increase in book value per year before other comprehensive income.

I don't worry about the stock investments losing value in a market crash due to high valuations because the investment in equities as a percentage of book value are very low at the moment after the Alterra merger. They have a lot of cash that could be deployed if the market would crash and the management has  the patience to wait until the right opportunity comes along.
Title: Re: MKL - Markel Corp
Post by: zippy1 on November 18, 2013, 02:00:40 PM
Hi I'm new to the board and I hope I can contribute to the discussion.
I have the attached management projections from the merger proxy for the separate entities before the merger and I have put them together adjusted for the cash payment in the merger and the new amount of shares outstanding.
Based on those projections management was expecting to compound at a CAGR of 9.5% in the next 4 years.
Welcome to the board, JPerez! Thanks for putting this projection together.
One quick question, there is a "-1000" in the calculation of book value. Can you explain what it is?
Title: Re: MKL - Markel Corp
Post by: JPerez on November 18, 2013, 02:23:40 PM
They paid 1 billion in cash for Alterra plus the stock so the combined book value is the combination of the 2 book values minus the cash consideration.
In reality the combined book value is a bit more because they paid  a bit over book value for alterra and that went into goodwill and intangibles but i ignored that in the calculation.
Because of the exchange of x shares of alterra for every x shares of Markel the higher the shares of Markel where at the closing date the higher above book value they would pay according to GAAP so at the end the premium over book value was a random number based on markel share price the day of the closing.
Title: Re: MKL - Markel Corp
Post by: zippy1 on November 18, 2013, 02:28:27 PM
They paid 1 billion in cash for Alterra plus the stock so the combined book value is the combination of the 2 book values minus the cash consideration.
In reality the combined book value is a bit more because they paid  a bit over book value for alterra and that went into goodwill and intangibles but i ignored that in the calculation.
Because of the exchange of x shares of alterra for every x shares of Markel the higher the shares of Markel where at the closing date the higher above book value they would pay according to GAAP so at the end the premium over book value was a random number based on markel share price the day of the closing.
JPerez,
Thanks a lot.  Again, welcome to the board!

Zippy
Title: Re: MKL - Markel Corp
Post by: CorpRaider on November 18, 2013, 02:41:04 PM
W/R/T the rate fluctuation impacts on book value, I think it is probably wise to anticipate that the market will discount that fact.  I humbly submit, however, that so long as they do a good job of matching the duration of fixed income assets with the expected claims and maintain adequate liquidity, it will simply be a non-cash accounting "noise" event.

To quote WEB from Berkshire's 1975 annual letter:

We have continued to maintain a strong, liquid position in our insurance
companies. In last year’s annual report, we explained how variations of 1/10
of 1% in interest rates result in million dollar swings in the market value of
our bonds. We consider such market fluctuation of minor importance, as our
liquidity and general financial strength make it highly improbable that
bonds will have to be sold at times other than those of our choosing.
Title: Re: MKL - Markel Corp
Post by: Kiltacular on November 18, 2013, 06:15:29 PM
Hi I'm new to the board and I hope I can contribute to the discussion.
I have the attached management projections from the merger proxy for the separate entities before the merger and I have put them together adjusted for the cash payment in the merger and the new amount of shares outstanding.
Based on those projections management was expecting to compound at a CAGR of 9.5% in the next 4 years.
Alterra had a lower tax rate but you would expect better investment results with the Markel management.
It is interesting how Alterra management was expecting a combined ratio of 90% and increasing slightly over time and Markel was expecting a combined ratio of 95% and trending slightly down.
In respect to earnings in the last quarter they earned 4.67$ per share but to those earnings some items should be added
-Prior year reserve releases for Alterra of  48.1 million that were used to bring the reserves to the very conservative Markel standards
- Acquisition costs of 8.5 million
- Amortization expense as a result of establishing a new amortized cost for Alterra's fixed maturity securities of 22.6 million
- Amortization of intangible assets 16.8 million
In total that would add 96 million pre tax and at a 30% tax rate 73 Million or 5.27$ per share extra so close to 10$ per share in real earnings for the quarter or 40$ anualized which is close to 9% increase in book value per year before other comprehensive income.

I don't worry about the stock investments losing value in a market crash due to high valuations because the investment in equities as a percentage of book value are very low at the moment after the Alterra merger. They have a lot of cash that could be deployed if the market would crash and the management has  the patience to wait until the right opportunity comes along.

Good post and important points about how the merger / GAAP is obscuring some of the owner earnings.  This was pointed out in the conf. call and it seems like the market may now understand this.

Markel is attractive though it is hard to disagree with 'copoly that BAC is cheaper. 
Title: Re: MKL - Markel Corp
Post by: james22 on November 18, 2013, 08:27:07 PM
MKL is competing for a spot in my portfolio...

As a MKL owner, I find that about as encouraging as anything else I've read.
Title: Re: MKL - Markel Corp
Post by: muscleman on November 19, 2013, 08:45:18 PM


MKL is competing for a spot in my portfolio, against BAC -- that's why I pit one against the other.

How about BPOP? It is quite similar to BAC but I think it has a higher upside.
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 20, 2013, 07:20:06 PM


MKL is competing for a spot in my portfolio, against BAC -- that's why I pit one against the other.

How about BPOP? It is quite similar to BAC but I think it has a higher upside.

I haven't been looking.  I know there must be better opportunities out there, but I'm sitting tight and aside from a couple of good calls I'm a fairly below-average investor in terms of spotting a good company from a bad one.  I don't want to go back into the jungle, too much tiger in the jungle -- I just want to stay with the boat.
Title: Re: MKL - Markel Corp
Post by: muscleman on November 20, 2013, 08:11:44 PM


MKL is competing for a spot in my portfolio, against BAC -- that's why I pit one against the other.

How about BPOP? It is quite similar to BAC but I think it has a higher upside.

I haven't been looking.  I know there must be better opportunities out there, but I'm sitting tight and aside from a couple of good calls I'm a fairly below-average investor in terms of spotting a good company from a bad one.  I don't want to go back into the jungle, too much tiger in the jungle -- I just want to stay with the boat.

How about TPRE then? It is a similar model compared with MKL, except that it is younger and all assets are invested in Dan Leob's hedge fund.
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 20, 2013, 08:22:50 PM


MKL is competing for a spot in my portfolio, against BAC -- that's why I pit one against the other.

How about BPOP? It is quite similar to BAC but I think it has a higher upside.

I haven't been looking.  I know there must be better opportunities out there, but I'm sitting tight and aside from a couple of good calls I'm a fairly below-average investor in terms of spotting a good company from a bad one.  I don't want to go back into the jungle, too much tiger in the jungle -- I just want to stay with the boat.

How about TPRE then? It is a similar model compared with MKL, except that it is younger and all assets are invested in Dan Leob's hedge fund.

It's once again a problem -- I have only ever done really well when I cherry picked ideas from others.  On my own, I can't really sort out one investment from another.  First I need the rubber stamp from some investment legend... like for example when Buffett invested in BAC... then from there I build up confidence if the investment makes sense to me after I spend a lot of time looking at it.

So I hardly even know who Dan Loeb is, and I don't know how good he is at reinsurance.  I remember when Montpelier Re lost 70% of shareholder equity in a single quarter -- I don't want that kind of result.
Title: Re: MKL - Markel Corp
Post by: muscleman on November 20, 2013, 08:32:26 PM


MKL is competing for a spot in my portfolio, against BAC -- that's why I pit one against the other.

How about BPOP? It is quite similar to BAC but I think it has a higher upside.

I haven't been looking.  I know there must be better opportunities out there, but I'm sitting tight and aside from a couple of good calls I'm a fairly below-average investor in terms of spotting a good company from a bad one.  I don't want to go back into the jungle, too much tiger in the jungle -- I just want to stay with the boat.

How about TPRE then? It is a similar model compared with MKL, except that it is younger and all assets are invested in Dan Leob's hedge fund.

It's once again a problem -- I have only ever done really well when I cherry picked ideas from others.  On my own, I can't really sort out one investment from another.  First I need the rubber stamp from some investment legend... like for example when Buffett invested in BAC... then from there I build up confidence if the investment makes sense to me after I spend a lot of time looking at it.

So I hardly even know who Dan Loeb is, and I don't know how good he is at reinsurance.  I remember when Montpelier Re lost 70% of shareholder equity in a single quarter -- I don't want that kind of result.


Thank you for your insight!
Title: Re: MKL - Markel Corp
Post by: giofranchi on November 21, 2013, 12:32:37 AM
So I hardly even know who Dan Loeb is, and I don't know how good he is at reinsurance.  I remember when Montpelier Re lost 70% of shareholder equity in a single quarter -- I don't want that kind of result.

Well, I know a lot of engineering firms which have failed, yet I don’t necessarily think mine is bound to repeat their results… Success and failure are always just the natural outcomes that proceed from very real and tangible, if not always self-evident, reasons. I know exactly WHY those engineering companies have failed, and I know mine is not repeating those same mistakes. And this give me confidence we won’t follow in their steps.
Similarly, it would be reasonable to worry about TPRE, only if you know exactly why Montpelier Re failed, and you see TPRE is making the same mistakes.

For what I know (and unfortunately I know very little about Montpelier Re!), Mr. Loeb is not involved in the reinsurance operations. Instead, he manages the investments part of the business (with a track-record of 21% net annualized since 1995). For the reinsurance operations, instead, he has chosen (wisely imo) Mr. Berger, who has an excellent track-record over more than 30 years.
What you have here is the combination of a “master investment professional” with a “master reinsurance professional”.

If you lack any more specific details about what they are doing and why they are supposedly following in Montpelier Re's steps, replicating Montpelier Re's errors, chances are very much in favor of the fact Mr. Loeb and Mr. Berger will keep on replicating their past track-records, instead of Montpelier Re’s.

Gio
Title: Re: MKL - Markel Corp
Post by: tombgrt on November 21, 2013, 01:57:15 AM
You are deducting too much out of the failure and success of others IMO. There are many more possible mistakes and unknowns that make it extremely hard to determine who will eventually survive. The line between failure and success can be quite thin and often it is a matter of luck. I assume Eric wants to avoid "bad luck" even though no obvious mistakes are being made that are obvious NOW. In hindsight it's easy to point out the mistakes and why they happened.

Title: Re: MKL - Markel Corp
Post by: jouni1 on November 21, 2013, 02:18:55 AM
montpelier blew up because it was too much like TPRE is now (generalizing a lot sorry). after blowing up they started investing with way less risk and have done fine (i think? haven't looked at them in a while) since. i was reading their reports then and i think they went almost 100% fixed income. but it was the risky investment profile + nature of reinsurance business that almost took them down.

i guess it's been long enough since the big catastrophes for some people to make the same mistake again. and probably get rich while doing so.
Title: Re: MKL - Markel Corp
Post by: giofranchi on November 21, 2013, 02:31:43 AM
You are deducting too much out of the failure and success of others IMO. There are many more possible mistakes and unknowns that make it extremely hard to determine who will eventually survive. The line between failure and success can be quite thin and often it is a matter of luck. I assume Eric wants to avoid "bad luck" even though no obvious mistakes are being made that are obvious NOW. In hindsight it's easy to point out the mistakes and why they happened.

Well, you just cannot do business that way. At least, I don’t see how… When you do business, you want to concentrate on ideas, review them carefully and thoroughly, and then, when you have finally made up your mind they have some merits, to proceed implementing them, committing as few mistakes as you can. That's all you can really do...
And that’s imo what Mr. Loeb is doing. Therefore, I like what I see… even if I cannot exclude bad luck from happening!
Trading, maybe, could be different… I don’t know… I don’t trade… A good trader might be successful in controlling even bad luck… But I don’t see how a good entrepreneur could. If you are looking for something that is "bad luck shielded", just forget about running a business! ;)

Gio
Title: Re: MKL - Markel Corp
Post by: giofranchi on November 21, 2013, 02:37:15 AM
montpelier blew up because it was too much like TPRE is now (generalizing a lot sorry). after blowing up they started investing with way less risk and have done fine (i think? haven't looked at them in a while) since. i was reading their reports then and i think they went almost 100% fixed income. but it was the risky investment profile + nature of reinsurance business that almost took them down.

i guess it's been long enough since the big catastrophes for some people to make the same mistake again. and probably get rich while doing so.

Well, I am not really worried about the reinsurance side of the business: Mr. Berger has a wonderful track-record, and it went through many catastrophic events without being tarnished a bit! Of course, as I have just pointed out, bad luck might always happen…
On the investment side, instead, I am a bit more worried… Though Mr. Loeb has a wonderful track record, he did poorly in 2008 and he is way too aggressive now for my tastes… That’s basically why TPRE is a very small position in my firm’s portfolio right now.
Yet, once again, I like what I see. :)

Gio
Title: Re: MKL - Markel Corp
Post by: jouni1 on November 21, 2013, 02:49:49 AM
Well, I am not really worried about the reinsurance side of the business: Mr. Berger has a wonderful track-record, and it went through many catastrophic events without being tarnished a bit! Of course, as I have just pointed out, bad luck might always happen…
On the investment side, instead, I am a bit more worried… Though Mr. Loeb has a wonderful track record, he did poorly in 2008 and he is way too aggressive now for my tastes… That’s basically why TPRE is a very small position in my firm’s portfolio right now.
Yet, once again, I like what I see. :)

Gio

yep, this certainly isn't something what i'd put 2/3 of my net worth in. however, if they stay sensible, they can have nice returns over time. just not my cup of tea.
Title: Re: MKL - Markel Corp
Post by: tombgrt on November 21, 2013, 02:59:59 AM
"Bad luck" probably was a bad choice of words. Take Mr. Berger. It can be entirely luck that he has avoided all those cats and damage to his reputation. I've learned not to put too much wait on such factors. Likewise it's not because you avoid certain mistakes that you will do fine, too much uncertainty. But as you mentioned, no way to avoid such possibilities in doing business..
Title: Re: MKL - Markel Corp
Post by: giofranchi on November 21, 2013, 03:09:41 AM
Take Mr. Berger. It can be entirely luck that he has avoided all those cats and damage to his reputation.

For 30 years?! Hey! I am very well aware of the fact that there’s “randomness”, but I also believe in “process”, and “discipline”, and “focus”.
I look for someone “focused” on the right “process” (at least a process I can understand and agree with), and who shows the “discipline” to follow it.
If I can find 10 to 15 people like that… I guess I might even succeed in coping with “randomness” fairly well! ;)

Gio
Title: Re: MKL - Markel Corp
Post by: CorpRaider on November 21, 2013, 05:12:13 AM
Wasn't loeb down less than MKL's equity portfolio was in 2008?  I thought he was down ~40% and MKL was down ~50%.  To me that was one reason why guys like him are looking for "permanent capital" so they don't get forced to sell via redemptions at the bottom of the market.
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on November 21, 2013, 05:38:46 AM
Hmm... I think that came off the wrong way.  I was trying to put emphasis on my not having the right toolset to evaluate the winners from the losers in the reinsurance space.  Thus, I would be just as likely to pick another MRE because I don't know what to watch out for when reading the 10-Qs.

I wasn't trying to infer that I see anything wrong with Dan Loeb's company -- rather... I don't know where to look to find such bad things, and that's what makes me nervous.

Somebody asked me what I thought of it, TPRE, and I just pointed out that I'm not the guy to ask.
Title: Re: MKL - Markel Corp
Post by: Liberty on November 21, 2013, 01:40:09 PM
Quote
RICHMOND, Va., Nov. 21, 2013 /PRNewswire/ -- Markel Corporation (NYSE: MKL) announced today that its board of directors has authorized a new share repurchase program covering purchases up to $300 million. The program replaces a similar program initially authorized in November 2010 under which approximately $101 million of the Company's common stock was repurchased over the last three years. Under the new program, as under the previous program, management has the discretion to purchase shares at prices that are deemed reasonable in light of circumstances at the time of purchase. Purchases are generally expected to be made through open market transactions.
Title: Re: MKL - Markel Corp
Post by: phil_Buffett on November 22, 2013, 04:51:39 AM
Quote
RICHMOND, Va., Nov. 21, 2013 /PRNewswire/ -- Markel Corporation (NYSE: MKL) announced today that its board of directors has authorized a new share repurchase program covering purchases up to $300 million. The program replaces a similar program initially authorized in November 2010 under which approximately $101 million of the Company's common stock was repurchased over the last three years. Under the new program, as under the previous program, management has the discretion to purchase shares at prices that are deemed reasonable in light of circumstances at the time of purchase. Purchases are generally expected to be made through open market transactions.

nice thank you liberty.

so Tom sees value right now in the stock. good Investment the own Company right now at this low book  valuation
Title: Re: MKL - Markel Corp
Post by: ap1234 on November 25, 2013, 06:44:26 PM
Hi JPerez,

Welcome to the board! Thank you for sharing your thoughts on Markel.

I have two questions for you:

1. Where did you find the merger projections from Markel and Alterra that you used in the attached spreadsheet. Do you have the filing where I can find those #’s?

2. I agree that US GAAP earnings are distorted by non-cash charges that likely depress the current ROE of the business (it clearly is BV/share growth not ROE that matters). However, I am curious to get a sense for why you think the amortization of Alterra’s bond portfolio is not a real expense? I assume Markel acquired a bond portfolio from Alterra that was trading above par. If Markel holds the bonds to maturities, wouldn’t they take a hit as the bonds revert back to par? In other words, is it fair to say that the amortization of bonds trading at a premium is a real cost (it would either decrease earnings in the form of amortization or result it in a hit to BV over time as the bonds mature at par)?

Thanks for sharing your thoughts!
Title: Re: MKL - Markel Corp
Post by: twacowfca on November 26, 2013, 10:38:16 AM
So I hardly even know who Dan Loeb is, and I don't know how good he is at reinsurance.  I remember when Montpelier Re lost 70% of shareholder equity in a single quarter -- I don't want that kind of result.

Well, I know a lot of engineering firms which have failed, yet I don’t necessarily think mine is bound to repeat their results… Success and failure are always just the natural outcomes that proceed from very real and tangible, if not always self-evident, reasons. I know exactly WHY those engineering companies have failed, and I know mine is not repeating those same mistakes. And this give me confidence we won’t follow in their steps.
Similarly, it would be reasonable to worry about TPRE, only if you know exactly why Montpelier Re failed, and you see TPRE is making the same mistakes.

For what I know (and unfortunately I know very little about Montpelier Re!), Mr. Loeb is not involved in the reinsurance operations. Instead, he manages the investments part of the business (with a track-record of 21% net annualized since 1995). For the reinsurance operations, instead, he has chosen (wisely imo) Mr. Berger, who has an excellent track-record over more than 30 years.
What you have here is the combination of a “master investment professional” with a “master reinsurance professional”.

If you lack any more specific details about what they are doing and why they are supposedly following in Montpelier Re's steps, replicating Montpelier Re's errors, chances are very much in favor of the fact Mr. Loeb and Mr. Berger will keep on replicating their past track-records, instead of Montpelier Re’s.

Gio

Montpelier Re would have failed had they not immediately realized how serious their situation was after first Katrina and then Rita And Wilma. They executed quick stock sales to recapitalize and saved the company.  They got in trouble because the dynamics of those three hurricanes led to a negative feedback loop like the LMX spiral.  After KRW most reinsurers are much more protected against such a spiral now.

Mr Berger is a respected insurance executive.  However his results in recent years are mediocre.

Mr Loeb is an outstanding fund manager.  However, he gets 20% and 2% as payment for his expertise ,and the CR for Mr Berger's insurance results may continue to be sub par.
Title: Re: MKL - Markel Corp
Post by: JPerez on November 26, 2013, 11:58:23 AM
Hi JPerez,

Welcome to the board! Thank you for sharing your thoughts on Markel.

I have two questions for you:

1. Where did you find the merger projections from Markel and Alterra that you used in the attached spreadsheet. Do you have the filing where I can find those #’s?

2. I agree that US GAAP earnings are distorted by non-cash charges that likely depress the current ROE of the business (it clearly is BV/share growth not ROE that matters). However, I am curious to get a sense for why you think the amortization of Alterra’s bond portfolio is not a real expense? I assume Markel acquired a bond portfolio from Alterra that was trading above par. If Markel holds the bonds to maturities, wouldn’t they take a hit as the bonds revert back to par? In other words, is it fair to say that the amortization of bonds trading at a premium is a real cost (it would either decrease earnings in the form of amortization or result it in a hit to BV over time as the bonds mature at par)?

Thanks for sharing your thoughts!

Hi Ap1234,
The numbers are projections done by the management of both companies pre-merger, you can find them at the bottom of this document:
http://www.sec.gov/Archives/edgar/data/1096343/000119312513063168/d488112dex991.htm

About the amortization of the difference between the price they bought them for and par value, you are right. I am not implying for a moment that it is not a real charge.
My point here is that normally the variation of the market price of the bonds goes straight into other comprehensive income (markel always marks its holdings to market) but because of the merger now it goes through P&L and it is a non-cash item.
So as I see it to look at the real earnings of the company i would add that amortization back. (It is a non-recurrent item that will disappear once the merger is digested).
Of course as you say what matters is BV as a proxy for intrinsic value.
In a normal year the increase in book value would be the earnings + the variation of price of the securities.
The way I see it by merging with Alterra they have achieve 2 things:
1. They have increased their potential in the earnings part so that they can increase 8-9% the BV without major increases in the price of securities (admittedly this earnings will be very lumpy with the reinsurance but in the long term they should even out)
2. Adquire Alterra's float at close to book, this float was mainly in fix income and alternative investments (they are winding down the hedge fund part). Now they have a lot of cash and bonds that can be  redeploy in equity investments when the opportunity arises. In the short term it would be a drag in earnings but if the stock market would crash tomorrow they would be in a strong position to buy cheap equities.
I have a big chunk of my investments in Markel stock so I hope I am right. For me is the track record that make me feel comfortable with the investment.
I just hope that they keep adding business to Markel Ventures so that more of their earnings would come from non-insurance businesses. That would make them a much safer company in the berkshire style.
Title: Re: MKL - Markel Corp
Post by: ap1234 on November 28, 2013, 08:09:46 AM
Thank you JPerez. I really appreciate your insights!! You seem to be very knowledgeable about the business and quite detail oriented. Given that you have a significant % of your net worth tied up in Markel, I would love to hear your thoughts on the following question.

I apologize in advance for a long-winded post but I want to provide some color to help in the discussion. I should also mention that I am a MKL shareholder so my only goal is a constructive dialogue about the business and its prospects. If you think I am overlooking anything, I would be very interested to know what I am missing in my analysis.

Question: What is your expectation for Markel’s BV/share growth over the next 5+ years? I don’t care about the next 1 or 2 years. I want to know what you think they can grow BV over an investment time horizon? More importantly, I’m curious to hear your thought process. For example, if you expect 12% BV/share growth, how do you get to 12%? If you expect 15% BV/share growth, how do you arrive at 15.

The primary drivers of BV/share growth are below:

Insurance: $3.5-4B in net premiums – what is your expectation for premium growth and a normalized CR?

Investments: $16-17B in investments – what is a reasonable asset mix for cash, bonds and equities? Markel is underweight equities today which will go up over time but they are also restricted in how much they will need to have in bonds (regulated insurance entity). 

Given you normalized asset mix above (cash, bonds, stocks), what is your return expectation for each asset class? For example, if int. rates stay low, do you think the bond portfolio can do more than 3%/year over the next 5 years?

Ventures: $64 million YTD. What multiple do you assign to this business?

Putting this all together, how do you get to your BV/share growth assumptions over the next 5 years?

Why am I asking this? The difficulty I have is that most discussions about Markel seem to be high level and backward looking. Investors will say things like: “Markel has an enviable track record compounding BV/share at 17% for 2 decades.” Or “Markel is trading at the lowest P/B in 2 decades.” All the company has to do is compound at 15% or even 12% and you will get outsized returns. It sounds like a bargain!

I can’t argue with Markel’s track record. The company’s past is remarkable. The business is a rare combination of a high quality insurer and capital allocator. And I have tremendous respect for Tom Gayner (I have been to the Markel breakfast many times). If Markel can continue to compound BV/share in the double digits per annum, shareholders will be delighted.

My issue is that none of this has to do with the future. A discussion of the past should include a discussion of WHY they got the returns they did. The insurance operations are great. But the real source of returns is not from insurance (the premiums to equity ratio is only 0.6x). The primary driver of BV/share growth is the investment returns (investments to equity ratio of 2-3x). My primary concern with Markel is as follows:

1. The VAST majority of Markel’s investment portfolio has been in bonds
2. As an insurance company, Markel will always need to have a material % of their investments in bonds (after all they are using policy holder money to invest). Even if you think they will transition to Berkshire’s model of private businesses, it could take years before this becomes the majority of the investment portfolio. 
3. Since going public in 1986, interest rates have been in a secular decline. They have operated in only one environment, a secular bond BULL market.
4. Since 1986, corporate bonds have delievered an annual return of 8%!!
5. Given where int. rates are today, they can’t come close to getting the same returns in bonds over the next 5+ years. As such, BV/share growth will likely be much lower in the future. 

Nobody today would look at a bond manager and say “Wow. You did 8% per annum over the past 30 years. And you took on very little risk. Sounds fantastic. Where do I sign up?” Investors will instead say, “Congratulations. 8% per annum on bonds is great. But what do you think we can earn over the next 5-10 years?”

Markel doesn’t have unlimited flexibility. They can’t invest 100% of their investment portfolio in equities as they are using policyholder’s money. So at their core, they are still a bond manager that will allocate more to equities (public and private over time).


Title: Re: MKL - Markel Corp
Post by: racemize on November 28, 2013, 08:51:57 AM
ap1234, I know you directed your question to JPerez, but I'll go ahead and give it a shot.  This is how I think of it:

For the reasons you listed below, it seems pretty clear to me that they will have difficulty returning double digits in BVPS in the near term.  However, we do know that MKL is using a good model, and it is one that has shown a good record over a long period of time, through many cycles.  In my opinion, as long as we trust the model and the people, we should let it operate as it does, and the long-term future expectation of growth should be similar, but lower due to size, than the past.  This is actually my main point, everything after is really just confirmations of this, including:

1) They are good underwriters, which should keep us moving positively;
2) They are good investors (though not Buffett, obviously);
3) Given the current environment, their actions seem very appropriate to me.  Bond yields are low, so they have kept a shortened duration (although the Alterra acquisition lengthened it again).  Value investors are becoming skittish in the equities market, so they have not deployed a lot of bonds into equities or maintained their historic equities allocation.  Perhaps they should be doing something different, but I'm not sure what it would be.
4) In the event of a significant correction, increase in bond yields, and/or a hard insurance market, they should be ready to act and get significant returns.

Future Returns
Given 1-4, above, at some point, they should be able to return to a normal operating environment, which will transition us from mid-high single digit growth to hopefully mid double digit growth.  Perhaps they will be able to have large returns on some large correction that will make up for the single digit growth. 

Thus, combining your shorter term analysis, and my long term analysis, we might expect something like 6-10% BVPS growth for 3-5 years, and then 12+% BVPS growth thereafter.  Averaging this over a very long period of time, I'm hopeful for 12+% BVPS growth over 10-20 years. 

Changes in Price to Book given those assumptions
So now, using the assumptions above, what would we expect from P/B values?  It seems clear to me that MKL is trading at the low end of P/B values now because of the lower growth prospects that you have identified.  However, we should consider what would happen to P/B when the lower growth prospects are raised to higher or even historic levels.  Looking at historic P/B levels for FFH/BRK/MKL when they were growing at double digit clips, they seem to be north of 1.4 (sometimes over 2x book).  Thus, my expectation is that when growth prospects return, the P/B will have expanded a fair amount from the current ~1.2 of book to a higher number, perhaps 1.5 (or even Gayner's 1.7 "fair" value, I think he has said).  So, over the period of time of investment, you get 25% in gains in P/B expansion as well as the underlying growth in BVPS.  Given the current environment, this seems like a pretty fair deal.  However, if you have a >15% discount rate, you probably can't invest in it with a margin of safety. 


I would appreciate any faults in the above thinking.  Incidentally, I have similar views for FFH, except that it is even more positioned for a downturn, so the near term expectations are even lower.  However, with its leverage and exposure to very profitable asian insurance, I could see them having 15-20% growth if it ever uncoiled/unhedged.  They are trickier, however, and there is a ton of discussion on that topic in other threads.

Here's a listing of P/B ratios from the Brooklyn Investor, as well as a good discussion:
http://brooklyninvestor.blogspot.com/2011/10/markel-at-book.html


Title: Re: MKL - Markel Corp
Post by: gary17 on November 28, 2013, 08:58:16 AM
I think looking at Japan and the competitive landscape of world economies, interest rate will likely stay low for a very, very long time. It could start to rise from current levels, but I doubt by much and if any will be very slow. 
Title: Re: MKL - Markel Corp
Post by: giofranchi on November 28, 2013, 09:05:21 AM
ap1234, I know you directed your question to JPerez, but I'll go ahead and give it a shot.  This is how I think of it:

For the reasons you listed below, it seems pretty clear to me that they will have difficulty returning double digits in BVPS in the near term.  However, we do know that MKL is using a good model, and it is one that has shown a good record over a long period of time, through many cycles.  In my opinion, as long as we trust the model and the people, we should let it operate as it does, and the long-term future expectation of growth should be similar, but lower due to size, than the past.  This is actually my main point, everything after is really just confirmations of this, including:

1) They are good underwriters, which should keep us moving positively;
2) They are good investors (though not Buffett, obviously);
3) Given the current environment, their actions seem very appropriate to me.  Bond yields are low, so they have kept a shortened duration (although the Alterra acquisition lengthened it again).  Value investors are becoming skittish in the equities market, so they have not deployed a lot of bonds into equities or maintained their historic equities allocation.  Perhaps they should be doing something different, but I'm not sure what it would be.
4) In the event of a significant correction, increase in bond yields, and/or a hard insurance market, they should be ready to act and get significant returns.

Future Returns
Given 1-4, above, at some point, they should be able to return to a normal operating environment, which will transition us from mid-high single digit growth to hopefully mid double digit growth.  Perhaps they will be able to have large returns on some large correction that will make up for the single digit growth. 

Thus, combining your shorter term analysis, and my long term analysis, we might expect something like 6-10% BVPS growth for 3-5 years, and then 12+% BVPS growth thereafter.  Averaging this over a very long period of time, I'm hopeful for 12+% BVPS growth over 10-20 years. 

Changes in Price to Book given those assumptions
So now, using the assumptions above, what would we expect from P/B values?  It seems clear to me that MKL is trading at the low end of P/B values now because of the lower growth prospects that you have identified.  However, we should consider what would happen to P/B when the lower growth prospects are raised to higher or even historic levels.  Looking at historic P/B levels for FFH/BRK/MKL when they were growing at double digit clips, they seem to be north of 1.4 (sometimes over 2x book).  Thus, my expectation is that when growth prospects return, the P/B will have expanded a fair amount from the current ~1.2 of book to a higher number, perhaps 1.5 (or even Gayner's 1.7 "fair" value, I think he has said).  So, over the period of time of investment, you get 25% in gains in P/B expansion as well as the underlying growth in BVPS.  Given the current environment, this seems like a pretty fair deal.  However, if you have a >15% discount rate, you probably can't invest in it with a margin of safety. 


I would appreciate any faults in the above thinking.  Incidentally, I have similar views for FFH, except that it is even more positioned for a downturn, so the near term expectations are even lower.  However, with its leverage and exposure to very profitable asian insurance, I could see them having 15-20% growth if it ever uncoiled/unhedged.  They are trickier, however, and there is a ton of discussion on that topic in other threads.

Here's a listing of P/B ratios from the Brooklyn Investor, as well as a good discussion:
http://brooklyninvestor.blogspot.com/2011/10/markel-at-book.html

Joel,
great post! :)

I am not really comfortable with insurance and reinsurance regulations… So, I ask you a question: if, like ap1234 suggests, MKL cannot invest wherever it finds value (because is obliged to always invest in bonds), how could it be so much different for a reinsurance company like GLRE? For what I know, in fact, GLRE has no capital invested in bonds.

Thank you,

Gio
Title: Re: MKL - Markel Corp
Post by: skanjete on November 28, 2013, 09:16:37 AM
If I may add something :

- it is exactly because of the lower expectations for BVPS growth that the P/BW ratio is historically low. With a different outlook/expectations, you'll have a different P/BW

- there are more ways to grow BVPS than premiums or investment results. Look at their Alterra takeover which was beneficial to their BVPS (granted, partly because they issued shares at a premium above book)

- opportunities present themselves in all environments. I think the Markel management is alert enough to recognise them as such and profit from them.     
Title: Re: MKL - Markel Corp
Post by: racemize on November 28, 2013, 09:24:39 AM
I do not know the statutory requirements all that well.  Assuming Brooklyn investor got his numbers right in this post:
http://brooklyninvestor.blogspot.com/2011/12/so-what-is-berkshire-hathaway-really.html

it appears that float is generally invested in cash and bonds--I presume this is due to regulation/requirements.  Thus, the end of the long-bond bull is definitely a headwind for all of these insurers.  It seems like it could be offset with:

1) higher underwriting profits
2) higher levels of underwriting/higher leverage (need a hard market)
3) higher equity returns
4) higher interest rates (essentially removing the headwind)

MKL is already fairly good at 1), so I wouldn't think we'd see a huge increase there.  2) is unpreditcable to me.  3) requires a significant down-turn.  4) could take a long time, depending on what macro model you are using.

My assumption is that one or more of the above will change in the next 5 years.  I don't know which ones or how though.
Title: Re: MKL - Markel Corp
Post by: racemize on November 28, 2013, 09:28:01 AM
Although, I wonder, does the bond-bull really matter for these insurers?  I presume they were holding to maturity, so then the only thing that would matter is the yield, not the fact that it was worth more over the time held (since all they got was the investment + coupons).  Thus, it would still be a head wind that yields are now very low, but not in the sense that it can't go lower.
Title: Re: MKL - Markel Corp
Post by: twacowfca on November 28, 2013, 05:10:14 PM
ap1234, I know you directed your question to JPerez, but I'll go ahead and give it a shot.  This is how I think of it:

For the reasons you listed below, it seems pretty clear to me that they will have difficulty returning double digits in BVPS in the near term.  However, we do know that MKL is using a good model, and it is one that has shown a good record over a long period of time, through many cycles.  In my opinion, as long as we trust the model and the people, we should let it operate as it does, and the long-term future expectation of growth should be similar, but lower due to size, than the past.  This is actually my main point, everything after is really just confirmations of this, including:

1) They are good underwriters, which should keep us moving positively;
2) They are good investors (though not Buffett, obviously);
3) Given the current environment, their actions seem very appropriate to me.  Bond yields are low, so they have kept a shortened duration (although the Alterra acquisition lengthened it again).  Value investors are becoming skittish in the equities market, so they have not deployed a lot of bonds into equities or maintained their historic equities allocation.  Perhaps they should be doing something different, but I'm not sure what it would be.
4) In the event of a significant correction, increase in bond yields, and/or a hard insurance market, they should be ready to act and get significant returns.

Future Returns
Given 1-4, above, at some point, they should be able to return to a normal operating environment, which will transition us from mid-high single digit growth to hopefully mid double digit growth.  Perhaps they will be able to have large returns on some large correction that will make up for the single digit growth. 

Thus, combining your shorter term analysis, and my long term analysis, we might expect something like 6-10% BVPS growth for 3-5 years, and then 12+% BVPS growth thereafter.  Averaging this over a very long period of time, I'm hopeful for 12+% BVPS growth over 10-20 years. 

Changes in Price to Book given those assumptions
So now, using the assumptions above, what would we expect from P/B values?  It seems clear to me that MKL is trading at the low end of P/B values now because of the lower growth prospects that you have identified.  However, we should consider what would happen to P/B when the lower growth prospects are raised to higher or even historic levels.  Looking at historic P/B levels for FFH/BRK/MKL when they were growing at double digit clips, they seem to be north of 1.4 (sometimes over 2x book).  Thus, my expectation is that when growth prospects return, the P/B will have expanded a fair amount from the current ~1.2 of book to a higher number, perhaps 1.5 (or even Gayner's 1.7 "fair" value, I think he has said).  So, over the period of time of investment, you get 25% in gains in P/B expansion as well as the underlying growth in BVPS.  Given the current environment, this seems like a pretty fair deal.  However, if you have a >15% discount rate, you probably can't invest in it with a margin of safety. 


I would appreciate any faults in the above thinking.  Incidentally, I have similar views for FFH, except that it is even more positioned for a downturn, so the near term expectations are even lower.  However, with its leverage and exposure to very profitable asian insurance, I could see them having 15-20% growth if it ever uncoiled/unhedged.  They are trickier, however, and there is a ton of discussion on that topic in other threads.

Here's a listing of P/B ratios from the Brooklyn Investor, as well as a good discussion:
http://brooklyninvestor.blogspot.com/2011/10/markel-at-book.html

Joel,
great post! :)

I am not really comfortable with insurance and reinsurance regulations… So, I ask you a question: if, like ap1234 suggests, MKL cannot invest wherever it finds value (because is obliged to always invest in bonds), how could it be so much different for a reinsurance company like GLRE? For what I know, in fact, GLRE has no capital invested in bonds.

Thank you,

Gio

By conventional wisdom, GLRE intends to write business that isn't expected to have volatile results.  Then, rating agencies should allow them to invest in securities (stocks ) that are volatile .
Title: Re: MKL - Markel Corp
Post by: no_free_lunch on November 28, 2013, 05:30:56 PM
Quote
Although, I wonder, does the bond-bull really matter for these insurers?

As the bond prices rise, even if it is unrealized, does that not allow them to shift a greater proportion over to equities?
Title: Re: MKL - Markel Corp
Post by: ap1234 on December 01, 2013, 01:38:48 PM
Thank you racemize and skanjete!! Very interesting insights.

Overall, I agree that Markel’s management is very astute and their current investment positioning is very sensible. At the end of the day, Markel has several levers at their disposal to grow BV/share (certainly more levers than a traditional insurer). And I trust that management over time will not run the business statically but rather opportunistically take advantage of opportunities both on the underwriting and investment side of the business.

That said, the one part that I still struggle with is your assumption that the “long-term future expectation of growth should be similar, but lower due to size, than the past.” I personally disagree. I don’t think the company’s biggest headwind is size. Markel is still small enough that they could compound BV/share at 10-15%/annum. I think the biggest headwind is that Markel derives most of their BV growth from investing, the investment portfolio has and will likely have a significant allocation to bonds, and lower bond returns are a near certainty when compared to historic results. This is a HUGE headwind that hasn’t been there over the past 20 years. If int. rates stay low for the next 5+ years, this will be a material drag on the company's growth prospects.

Anyways, the fact that Markel’s growth might be lower than the past isn’t such a bad thing when you consider that the entry price today is much lower than other times in history.
 
Title: Re: MKL - Markel Corp
Post by: JPerez on December 01, 2013, 02:04:00 PM
Thank you JPerez. I really appreciate your insights!! You seem to be very knowledgeable about the business and quite detail oriented. Given that you have a significant % of your net worth tied up in Markel, I would love to hear your thoughts on the following question.

I apologize in advance for a long-winded post but I want to provide some color to help in the discussion. I should also mention that I am a MKL shareholder so my only goal is a constructive dialogue about the business and its prospects. If you think I am overlooking anything, I would be very interested to know what I am missing in my analysis.

Question: What is your expectation for Markel’s BV/share growth over the next 5+ years? I don’t care about the next 1 or 2 years. I want to know what you think they can grow BV over an investment time horizon? More importantly, I’m curious to hear your thought process. For example, if you expect 12% BV/share growth, how do you get to 12%? If you expect 15% BV/share growth, how do you arrive at 15.

The primary drivers of BV/share growth are below:

Insurance: $3.5-4B in net premiums – what is your expectation for premium growth and a normalized CR?

Investments: $16-17B in investments – what is a reasonable asset mix for cash, bonds and equities? Markel is underweight equities today which will go up over time but they are also restricted in how much they will need to have in bonds (regulated insurance entity). 

Given you normalized asset mix above (cash, bonds, stocks), what is your return expectation for each asset class? For example, if int. rates stay low, do you think the bond portfolio can do more than 3%/year over the next 5 years?

Ventures: $64 million YTD. What multiple do you assign to this business?

Putting this all together, how do you get to your BV/share growth assumptions over the next 5 years?

Why am I asking this? The difficulty I have is that most discussions about Markel seem to be high level and backward looking. Investors will say things like: “Markel has an enviable track record compounding BV/share at 17% for 2 decades.” Or “Markel is trading at the lowest P/B in 2 decades.” All the company has to do is compound at 15% or even 12% and you will get outsized returns. It sounds like a bargain!

I can’t argue with Markel’s track record. The company’s past is remarkable. The business is a rare combination of a high quality insurer and capital allocator. And I have tremendous respect for Tom Gayner (I have been to the Markel breakfast many times). If Markel can continue to compound BV/share in the double digits per annum, shareholders will be delighted.

My issue is that none of this has to do with the future. A discussion of the past should include a discussion of WHY they got the returns they did. The insurance operations are great. But the real source of returns is not from insurance (the premiums to equity ratio is only 0.6x). The primary driver of BV/share growth is the investment returns (investments to equity ratio of 2-3x). My primary concern with Markel is as follows:

1. The VAST majority of Markel’s investment portfolio has been in bonds
2. As an insurance company, Markel will always need to have a material % of their investments in bonds (after all they are using policy holder money to invest). Even if you think they will transition to Berkshire’s model of private businesses, it could take years before this becomes the majority of the investment portfolio. 
3. Since going public in 1986, interest rates have been in a secular decline. They have operated in only one environment, a secular bond BULL market.
4. Since 1986, corporate bonds have delievered an annual return of 8%!!
5. Given where int. rates are today, they can’t come close to getting the same returns in bonds over the next 5+ years. As such, BV/share growth will likely be much lower in the future. 

Nobody today would look at a bond manager and say “Wow. You did 8% per annum over the past 30 years. And you took on very little risk. Sounds fantastic. Where do I sign up?” Investors will instead say, “Congratulations. 8% per annum on bonds is great. But what do you think we can earn over the next 5-10 years?”

Markel doesn’t have unlimited flexibility. They can’t invest 100% of their investment portfolio in equities as they are using policyholder’s money. So at their core, they are still a bond manager that will allocate more to equities (public and private over time).
Hello ap1234,
brk and mkl are the core of my portfolio and my thinking here is not to look for huge returns but to compound at a rate of around 9-10% per year with little risk on those 2 companies and then try to increase the returns with other investments. I am in the process of looking for more of those other investments as I try to build a more balance portfolio.
About expectations in 5 years or so, it depends on so many factors like soft/hard insurance market, stock market, bond market, significant acquisitions, buy-backs, etc. that it would be too hard for me to say. I could have a go but with so many factors at play my guess would be pretty meaningless.
I think as things stand today they could have a combined ratio of 93% as the reinsurance business should have a better average combined ratio than the old markel. That would give us around 280 million yearly profit pretax. (I might be a little aggressive here but I based the number on management expectations)
Investments are having a run rate of 110 million per quarter  before amortization so 440 million yearly profit pretax.
And finally ventures my guess is a run rate of 65 million annual profit pretax and before amortization of intangibles.
All of the parts should add 785 million pretax or 550 million after tax at a 30 % tax rate.
That is a 8.5% increase in BV per share if they keep the same rates next year and that does not include any other comprehensive income.
At the moment they have investments in equities of close to 3 billion and giving them a reasonable return of 6% give us 180 million pretax and 117 million after tax (35% rate) so that would add another 1.8% so that gives me a 10.3 % increase in BV per year.
Obviously I think they can do better than that, they should increase their equity investments to get closer to 75% of book value and equity returns will hopefully be better than 6%. Also my hope is that they add to markel ventures becoming a bigger part of the company.
Something around this 9-10% is my base case and anything above is just gravy.
Obviously as you say they can not increase their equity investments recklessly.
There was a good few insurance companies that were on the brink of bankruptcy at the turn of the century because of having too many equity investments, an insurance company has to keep their float in solid investments like cash and bonds to be able to pay their claims. If they would have a big percentage of their investments in equities and you get a 50% crash in the market you would need to raise capital and that could destroy the company or put you back 10 years in bv per share.
Do you all think my expectations are reasonable? Am I missing anything in the numbers?

Title: Re: MKL - Markel Corp
Post by: ap1234 on December 01, 2013, 03:00:45 PM
Thank you Jperez! It's very interesting to hear your perspective. I have a couple questions/observations on your #'s:

1. How do you get comfortable with a 93% CR for the combined entity? Markel has historically generated a 96-97% CR. To arrive at a consolidated 93% CR implies Alterra will operate at a a 90% CR.

I  know that these are the #'s that were used in the merger document that you referenced earlier. However, I'm just curious to know if you have analyzed Alterra's CR track record as a public company? Did they generate a CR of 90% over their history? Is this a reasonable assumption going forward?

2. You did not include interest expense on Markel's corporate debt. If you're going to add up all the income sources (underwriting and investing), I assume you have to substract the interest expense as well as any corporate overhead not included in the CR.

3. I know it makes sense to add back bond amortization to arrive at the normalized pre-tax investment income.' Amortization from Alterra's bond portfolio is not a real 'cash charge.' That said, will the amortization expense not have an impact on BV/share growth over the next several years (i.e. if we are trying to get a sense for what the actual BV/share will be 3 or 5 years out)? In other words, if you're going to add the 6% of capital gains from equities that flow through OCI, should we not hit the company's BV over the next few years from the amortization charges? After all, I assume BV/share will be lower because NI is reduced each year by the amortization charges?
Title: Re: MKL - Markel Corp
Post by: JPerez on December 01, 2013, 04:03:34 PM
Thank you Jperez! It's very interesting to hear your perspective. I have a couple questions/observations on your #'s:

1. How do you get comfortable with a 93% CR for the combined entity? Markel has historically generated a 96-97% CR. To arrive at a consolidated 93% CR implies Alterra will operate at a a 90% CR.

I  know that these are the #'s that were used in the merger document that you referenced earlier. However, I'm just curious to know if you have analyzed Alterra's CR track record as a public company? Did they generate a CR of 90% over their history? Is this a reasonable assumption going forward?

2. You did not include interest expense on Markel's corporate debt. If you're going to add up all the income sources (underwriting and investing), I assume you have to substract the interest expense as well as any corporate overhead not included in the CR.

3. I know it makes sense to add back bond amortization to arrive at the normalized pre-tax investment income.' Amortization from Alterra's bond portfolio is not a real 'cash charge.' That said, will the amortization expense not have an impact on BV/share growth over the next several years (i.e. if we are trying to get a sense for what the actual BV/share will be 3 or 5 years out)? In other words, if you're going to add the 6% of capital gains from equities that flow through OCI, should we not hit the company's BV over the next few years from the amortization charges? After all, I assume BV/share will be lower because NI is reduced each year by the amortization charges?
Thank you for your comments.
Alterra combined ratio from 2007-2011 was 91.9%, in any case to make the case more conservative we can say the combined ratio for the new markel is 95% so we can subtract 80 million from pre tax profits.
You are absolutely right about interest expense which is quite an oversight, it will subtract 120 million pretax so if we take 200 million pretax that would mean 160 million less after tax so that is 2.5% of BV so that would give us an increase of close to 8% per year.
About the amortization of intangibles and fixed investments they should be subtracted to get to BV according to GAAP but they should be included for the calculation of the increase of intrinsic value in a given year because they are non cash items.
We can look at it like if the BV has been artificially increased in a one-off as per the day of the acquisition and from there on it is amortized. For me a more realistic look at the company would be achieved if we deduct that amount that the bonds are marked in the books above par from BV and we add the amortization of the bonds back into income every quarter.
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 01, 2013, 11:51:12 PM
That said, the one part that I still struggle with is your assumption that the “long-term future expectation of growth should be similar, but lower due to size, than the past.” I personally disagree. I don’t think the company’s biggest headwind is size. Markel is still small enough that they could compound BV/share at 10-15%/annum. I think the biggest headwind is that Markel derives most of their BV growth from investing, the investment portfolio has and will likely have a significant allocation to bonds, and lower bond returns are a near certainty when compared to historic results. This is a HUGE headwind that hasn’t been there over the past 20 years. If int. rates stay low for the next 5+ years, this will be a material drag on the company's growth prospects.

Hi ap1234,
we have already talked about your worry of a secular bear in bonds, and you know that generally I agree with you. Anyway, this is exactly what great entrepreneurs do: to shift resources from low yielding assets with poor future prospects into higher yielding assets with much better future prospects. How? Well, it is very difficult to say… Chances are you will never know their businesses as well as they do, and therefore it is very difficult to predict what their next move might be… let alone their next two, three, four, etc. moves! Yet, the value of those companies is the combination of all their future moves discounted to the present! Think of FFH and its acquisition of Thomas Cook: from there they might go on acquiring some of the best businesses in a nation of 1.2 billion people, whose median age is just 27! Can you imagine the potential for growth that is built in there? How do you take that potential into consideration, while trying to value FFH? Once again I repeat what I am doing: I look for great entrepreneurs, whose process I understand and agree with, who already have an outstanding track-record, and who are still young enough to go on building wealth for a very long time. I suppose returns that are in line with those achieved in the past, or somewhat less. If the price is low enough to make possible a 15% compounded annual return for years to come, I invest and stay with them. In a diversified portfolio (10 to 15 names) some will surprise on the downside, some on the upside, but overall I guess I will get where I want to go. :)

And, by the way, at Q3 2013 end on BRK’s balance sheet there were assets of “Insurance and Others” worth $302 billion, of which only $29 billion were invested in bonds: 9.3%. While Total Assets were $458 billion, therefore bonds represented only 6.55% of Total Assets.
Why cannot MKL and FFH follow suit?

Gio
Title: Re: MKL - Markel Corp
Post by: skanjete on December 02, 2013, 01:44:40 AM
In my view 8% compounding seems a little low.

It's true that their bonds will perform terrible if rates stay as low as they are. But, if rates stay as low as they are, it's fair to assume that stocks are still relatively undervalued, and so their stock portfolio will outperfom and thus at least partly compensate for the bond portfolio.

But rate can't stay low forever, thus at some point in the future, I guess they will go up again.

If intrest rates go up, it will be a drag on the short-term performance of their bonds, but at the same time, the value of their float goes up. And at that moment, the value of the Alterra acquisition will out itself, because with the acquisition they grew the float per share considerably.

One can also look at it this way : suppose they have an equity portfolio of 75% of book value. If Gayner can get 12% a year on his stock portfolio, that alone translates itself into 9% compounding (pre-tax). 12% a year doesn't seem unrealistic for Gayner, especially if intrest stay as low as they are.
One has to take into account some taxes of course, but on the other hand the bonds, the underwriting performance and ventures will contribute something as well.

Title: Re: MKL - Markel Corp
Post by: skanjete on December 02, 2013, 02:00:50 AM
Another thing I forgot to mention : it is important to consider the situation not in a static, but dynamic way.

If one makes an extrapolation of the current circumstances, 15% growth of BVPS doesn't seem not easy to get.

But if one is trying to estimate the BV over 5 years, it is unrealistic to think that things (intrest rates, premium rates,  disaster/casualty rate, stock market dynamics) will stay static or even move in a straight way. Situations and circumstances wil be volatile. This volatility is a big risk for less able management, but creates big opportunities for capable managements.

I think that the quality of Markel's management alone in combination with the fact that opportunities present themselves, will guarantee some extra percentage points of growth. So from this point of view 15% doesn't seem to be that unrealistic. If I remember correctly, I think that Gayner also suggested a growth figure of something like 15%.

A simple illustration of the above fact is the effect of dollar cost averaging. Even if an index is exactly the same at the end of a period as it was at the beginning, one can have a positive investment result by taking advantage of the volatility through dollar cost averaging.
Title: Re: MKL - Markel Corp
Post by: ap1234 on December 02, 2013, 07:19:55 AM
Gio and skanjete, thank you for sharing your thoughts! It is very interesting to hear how you think about the business. I agree with the core of your thesis – Markel has MANY levers at its disposal AND the management team runs the business opportunistically as opposed to statically. This is why I own MKL stock.

I just happen to think that getting to a 15% BV/share growth is A LOT harder than you do. After all, they generated 17% BV/share growth over the past 2 decades when the business was much smaller AND more importantly bonds as an asset class were in a secular bull market. I am hoping that one of you will convince me I am wrong.

Gio, I agree with your overall thesis but I have a few points of clarification to your post:

1. Racemize already showed a chart from Brooklyn Investor which highlighted that 100% of Berkshire’s float is invested in cash & bonds. Why do you think Markel will be allowed to invest more than 100% of their BV in equities & private businesses? After all, the majority of Markel’s investment portfolio is ‘borrowed money’ as oppose to their own capital. As an aside, Markel has said several times in the past that their LT goal is holdings equities at 80% of BV.

2. I agree that Markel management (especially Tom Gayner) fits the category of a great entrepreneur. But MOST businesses have complete flexibility to allocate capital WHEREVER they want. My entire point is not that Gayner is not a very astute capital allocator. He is. It is that his business model restricts him from investing the money in whatever asset class he chooses.You can’t get the benefit of borrowed money AND then invest in whatever  way you want. If you want float, you need to set aside some money in cash & bonds.

3. You reference bonds as a % of assets and highlight that they are low. I think the more appropriate metric is to include cash + bonds. After all, in a low rate. environment, cash does not earn anything.

4. More importantly, I don’t think the correct metric is bonds (and cash) as a % of assets. The appropriate metric is cash + bonds as a % of book value. If we are talking about ROE or BV/share growth, then we should look at the investment portfolio as a % of BV.

Skanjete, I agree with your investment this. But I am less convinced about the direction of int. rates or equity markets.

1. If int. rates gradually go up over the next 5 year, Markel will benefit tremendously. However, when I invest in a business, I assume that the ROE has to be adequate even if rates never go up. I don’t want to rely on something that is outside my control. And I have no view on the direction of rates (other than it’s more likely to go up than down).

2. Getting a 12% equity return is a very difficult feat. I happen to think US equities as an asset class will deliver 7-8% over the next 10-20 years (I could be way too conservative). For Markel to get to 12% will be a remarkable feat in that environment. As an aside, I believe the reason that Markel is underweight equities today is not simply that they acquired Alterra’s bond portfolio. Tell me if you have a different opinion. But it seems to me if Tom Gayner thought he could do 12%/year in equities from current levels, I suspect he would have moved up the equities weights much faster especially given the paltry returns on bonds.
Title: Re: MKL - Markel Corp
Post by: benhacker on December 02, 2013, 08:18:54 AM
Ap, excellent post.  I feel similarly on most of your points above.

Ben
Title: Re: MKL - Markel Corp
Post by: skanjete on December 02, 2013, 08:19:53 AM

Skanjete, I agree with your investment this. But I am less convinced about the direction of int. rates or equity markets.

1. If int. rates gradually go up over the next 5 year, Markel will benefit tremendously. However, when I invest in a business, I assume that the ROE has to be adequate even if rates never go up. I don’t want to rely on something that is outside my control. And I have no view on the direction of rates (other than it’s more likely to go up than down).

2. Getting a 12% equity return is a very difficult feat. I happen to think US equities as an asset class will deliver 7-8% over the next 10-20 years (I could be way too conservative). For Markel to get to 12% will be a remarkable feat in that environment. As an aside, I believe the reason that Markel is underweight equities today is not simply that they acquired Alterra’s bond portfolio. Tell me if you have a different opinion. But it seems to me if Tom Gayner thought he could do 12%/year in equities from current levels, I suspect he would have moved up the equities weights much faster especially given the paltry returns on bonds.


You're correct : the current figures don't warrant a BVPS growth of 15%. That's why their book value is priced relatively low in the market.
If a BVPS growth of 15% or higher would be obvious, the market would price the share a lot higher of course. In the second half of the 90 the market price was about 2x - 2,5x book value.

Take 1998 for example. The market priced book value at 2,35 times. Apparently, things looked very bright back then. The track record at that point was also quite fenomenal : in the preceding decade, book value had compounded at 23,6%!

However, lots of thing happened since then. A difficult acquisition, disasters (2001, 2005,2011), stock market crashes with sub par stock returns...
Result : in the ensuing 15 years, BVPS compounded "only" at 12,7%/year.
Today, the market is obviously less enamored with Markel (or Fairfax, or BRK, for that matter), resulting in a premium of only 20% on book value.
So although book value grew at 12,7% a year for 15 years, the share price only grew at 7,8% a year.

So what counts is not the prospects (were very good in 1998), but the valuation of the prospects. The prospects at this point aren't brilliant, but the valuation is a lot more reasonable than say 15 years ago.

PS. I didn't express any opinion on the future of the stock market or intrest rates. I only said that if you assume that these low intrest rates are here to stay for a long time, the stock market valuation isn't excessive at all.

Title: Re: MKL - Markel Corp
Post by: giofranchi on December 02, 2013, 08:33:24 AM
Gio, I agree with your overall thesis but I have a few points of clarification to your post:

1. Racemize already showed a chart from Brooklyn Investor which highlighted that 100% of Berkshire’s float is invested in cash & bonds. Why do you think Markel will be allowed to invest more than 100% of their BV in equities & private businesses? After all, the majority of Markel’s investment portfolio is ‘borrowed money’ as oppose to their own capital. As an aside, Markel has said several times in the past that their LT goal is holdings equities at 80% of BV.

2. I agree that Markel management (especially Tom Gayner) fits the category of a great entrepreneur. But MOST businesses have complete flexibility to allocate capital WHEREVER they want. My entire point is not that Gayner is not a very astute capital allocator. He is. It is that his business model restricts him from investing the money in whatever asset class he chooses.You can’t get the benefit of borrowed money AND then invest in whatever  way you want. If you want float, you need to set aside some money in cash & bonds.

3. You reference bonds as a % of assets and highlight that they are low. I think the more appropriate metric is to include cash + bonds. After all, in a low rate. environment, cash does not earn anything.

4. More importantly, I don’t think the correct metric is bonds (and cash) as a % of assets. The appropriate metric is cash + bonds as a % of book value. If we are talking about ROE or BV/share growth, then we should look at the investment portfolio as a % of BV.

Hi ap1234,
why bonds as a % of BV? Total assets is what matter imo. I mean: BRK is leveraged 2.5x, while FFH is leveraged 4.5x, and total assets give me the idea of how them both used not only their own capital but also “borrowed money”. They both have put to use their own capital plus “borrowed money”, and what they earn on their own capital plus “borrowed money” is for them to keep, and goes to increase BV.
I agree that what matters is bonds + cash, but I don’t see why the sum must be always the same as a percentage of float… once again, for the man with only a hammer, or better, with only two hammers: stocks and bonds, that percentage should be constant indeed… But what about BRK, which buys entire businesses, and probably today relies more on this type of capital allocation that the other two? The earnings of entire businesses are much less volatile than stock prices, and BRK can count on a steady stream of cash, that certainly helps it to face any unexpected insurance or reinsurance claim which might arise. I mean, we know that BRK’s risk profile today is different than FFH’s or MKL’s, therefore why should they keep the same % of float in bonds + cash?
For BKR, in fact, even if you add cash to bonds you get to $64 billion, while equity securities + other investments are worth $129 billion.
I am not saying that FFH or MKL won’t be subject to regulation… They most surely will be! I am only saying that they have many “hammers”, or “levers” as you call them, and they are led by people who will constantly recognize which lever to use at any time, given the surrounding circumstances.

Gio
Title: Re: MKL - Markel Corp
Post by: ap1234 on December 02, 2013, 11:22:56 AM
Hi Gio, I will try to answer your questions below:

1. How should we think about Berkshire’s leverage relative to Fairfax and Markel?

Berkshire operates with significantly LESS leverage relative to Fairfax and Markel. In simplest terms, the size of the investment portfolio is a function of book value + float + debt. Markel has $2.5 of investments for $1 of book value. Fairfax has $3.5 of investments for $1 of book value.

Since 1994, Berkshire has had an annual investment leverage of 1.2x and float is just 40% of BV.  Compare this to Fairfax. At the end of 2012, Fairfax had investment leverage of 3.4x and float was 200% of BV!! 

There is a table from Greg Speicher’s post which highlights Berkshire’s historical levearge:

http://gregspeicher.com/?p=2247

2. Does Berkshire need to set aside cash + bonds or can they operate with 100% of their portfolio invested in high quality private businesses that generate stable cash flows?

Brooklyn Investor’s blog did this analysis. From 1997-2010, cash & bonds was approx. 100% of Berkshire’s float. In other words, Berkshire was only willing to invest their BV in equities NOT their entire investment portfolio. All of their float (borrowed money) was invested in cash & bonds.

http://brooklyninvestor.blogspot.ca/2011/12/so-what-is-berkshire-hathaway-really.html
 
3. Why look at bonds as a % of BV as opposed to assets?

Because the entire discussion has been focused on gauging the company’s ‘normalized’ ROE or BV/share growth over the next 5-10 years. If we are talking about ROE, we need to put every number in relation to BOOK VALUE (not assets).

When an insurer is levered 2-3x (investments divided by BV), looking at investments as a % of asset understates the impact to BV. For example, Markel has $17 billion in investments, $6.5 billion in BV and $24 billion in assets. If you look at investments as a % of assets, it looks like the leverage is low. But if you look at investments as a % of BV, you can see how small changes in the return assumptions for bonds or equities has a huge impact on BV (which is what the discussion is trying to capture).

4. What is the impact of leverage on BV/share growth? And how do low int. rates impact BV/share growth?

P&C insurers have 2 types of leverage: underwriting leverage (premiums/equity ratio) and investment leverage (investments/equity ratio). Given that the majority of the leverage comes from investment leverage, this has been the focus of the discussion.

It’s easiest to illustrate with an example. Let’s take Markel. If we did this analysis for Fairfax, you would see that Fairfax has even more investment leverage.

BV = $6.5 billion
Net premiums = $4 billion
Investment portfolio = $17.2 billion
Cash + bonds  = $14 billion
Equities = $3 billion

Markel has a premiums/equity ratio of 0.6x. For every 1 point improvement in their CR, they only increase the ROE by 0.6% pre-tax. In contrast, Markel has an investment/equity ratio of 2.6x. For every, 1% increase in the total return, Markel increases their ROE by 2.6% pre-tax. Changes to investment returns have a HUGE impact on the BV/share growth of the business because of this leverage.

Why do we care about bond returns?

Because the cash + bonds/equity ratio is 2.2x today. So if we think the cash + bonds will earn 3%, we will get a pre-tax ROE of 6.6%. If historically cash + bonds generated 5%, they generated a pre-tax ROE of 11%. This is a 400 bps difference to the ROE. Simply by having lower int. rates (assuming nothing else in the business changed), we just lost 400 bps of ROE per annum.

But what happens if Markel went back to their long-term asset mix?

You might argue that I’m overstating the impact of low int. rates as Markel currently is overweight bonds and underweight equities. Let’s assume that Markel re-weights their equity portfolio to 75% of BV. Equities would increase from $3B to $5B and cash + bonds would decline to $12B. At $12B, cash + bonds/equity ratio would be 1.85x. So every 1%  decline in int. rates still has a 1.8% impact on the ROE of the business.

I hope this helps.
Title: Re: MKL - Markel Corp
Post by: vinod1 on December 02, 2013, 11:56:39 AM
ap1234,

Good post! This is pretty much in line with my thinking as well.

A minor quibble on a few items.

Since 1994, Berkshire has had an annual investment leverage of 1.2x and float is just 40% of BV.

IMHO, Berkshire's insurance subsidiaries should really be thought of as independent standalone units. This is because the statutory surplus that is used to support the insurance business for regulatory purposes is segregated from say the Railroad or Utilities business units. Insurance subsidiaries have about $80 billion in statutory surplus (roughly shareholders equity) supporting them and we need to measure leverage, etc based on this number.

Does Berkshire need to set aside cash + bonds or can they operate with 100% of their portfolio invested in high quality private businesses that generate stable cash flows?

To continue on from my comments above, the private businesses are held outside of the insurance subsidiaries. So there is really no requirement from a regulatory perspective. The benefit of this is that should insurance segments be wiped out in some unfortunate scenario, Berkshire would still have its other subs that retain value.

Please let me know if my understanding is incorrect.

Vinod

Title: Re: MKL - Markel Corp
Post by: giofranchi on December 02, 2013, 01:11:37 PM
Hi ap1234,

first of all we should never forget that float is just a kind of “cheap and safe” (if you know what you are doing!) leverage. And a good investor should be able to compound at high rates of return (mid teens) unlevered! Therefore, no matter how you look at it, I don’t think float will ever become a drag on performance. Instead, it will always be an aid... maybe, not as much of an aid as it was before!

Second, to calculate ROE, we use the following formula:
Return ROE = (P/E) * (100%-CR) + (IA/E) * (IR)
where:
P = Earned Premium
E = Equity
CR = Combined Ratio
IA = Invested Assets
IR = Investment Return
Where Investment Return is the return on Invested Assets, or the return on (capital + float).
That’s why imo what matters are Invested Assets.

Third, I think the answer lies in BRK’s balance sheet: I don’t think it is very useful to look at FFH’s and MKL’s balance sheet today, instead BRK’s balance sheet today is how FFH’s and MKL’s balance sheet might look like 10 years from now. And I think a glance at BRK’s balance sheet today is enough to understand how little bonds count. As they go on investing in private businesses, which generate earnings to increase BV, float will become less and less relevant.
FFH and MKL have enjoyed huge success being very different from BRK, and they could have never followed suit. But, as you have pointed out, a secular bear in bonds will force them down that path, if they want to keep compounding capital at high rates of return. Or else you are right and their performance will be hampered.

Now I have a question: BRK has Total Assets of $458 billion, Equity of $211 billion, and bonds + cash of $64 billion: $458 - $211 - $64 = $183 billion of assets, that must correspond to an equal amount of liabilities… If float truly is 100% invested in bonds + cash, to which kind of liabilities do those $183 billion correspond to?

Finally, and most importantly, I would never bet against those people… We say “never bet against America”, right? Well, those people are America on steroids! ;)

Gio
Title: Re: MKL - Markel Corp
Post by: ap1234 on December 02, 2013, 05:09:02 PM
Thank you JPerez. A couple quick follow-up questions:

1. What would Markel’s BV be today if they didn’t get the one-time bump up from acquiring Alterra’s investment portfolio? If we are going to add back the amortization, I assume we should adjust the BV/share downward. As you suggest, we should deduct the amount that bonds are marked in the books above par from BV.

2. Do you know where I can find a breakdown of Markel’s AOCI? I’d be curious to know how much of the unrealized gains on the balance sheet are from equities vs. bonds?

I am not worried about the unrealized gains on equities. The unrealized gains on bonds will presumably go to zero over time if they hold the bonds to maturity.
Title: Re: MKL - Markel Corp
Post by: ap1234 on December 02, 2013, 05:10:21 PM
Thanks vinod1! Interesting observation.
Title: Re: MKL - Markel Corp
Post by: Kiltacular on December 02, 2013, 07:30:23 PM
ap1234,

Good post! This is pretty much in line with my thinking as well.

A minor quibble on a few items.

Since 1994, Berkshire has had an annual investment leverage of 1.2x and float is just 40% of BV.

IMHO, Berkshire's insurance subsidiaries should really be thought of as independent standalone units. This is because the statutory surplus that is used to support the insurance business for regulatory purposes is segregated from say the Railroad or Utilities business units. Insurance subsidiaries have about $80 billion in statutory surplus (roughly shareholders equity) supporting them and we need to measure leverage, etc based on this number.

Does Berkshire need to set aside cash + bonds or can they operate with 100% of their portfolio invested in high quality private businesses that generate stable cash flows?

To continue on from my comments above, the private businesses are held outside of the insurance subsidiaries. So there is really no requirement from a regulatory perspective. The benefit of this is that should insurance segments be wiped out in some unfortunate scenario, Berkshire would still have its other subs that retain value.

Please let me know if my understanding is incorrect.

Vinod

Vinod.  Good points and I don't disagree with them but I think that Burlington Northern is actually held by National Indemnity. 

If correct, I believe Buffett did this because he lacked flexibility during the crash as his financials -- AXP and WFC -- were getting destroyed. 

Anyone know for sure -- globalfinanceparnters, you out there?
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 02, 2013, 11:25:12 PM
Another observation I think is important: to have invested float in bonds during the last 30 years had a very clear meaning, that was to invest “money we hold, but do not own” SAFELY. Am I right?
Now, of course, we are worried about a secular bear in bonds… And a secular bear in bonds means the probability to lose money investing in bonds for the next 20 years will be much higher! Therefore, can someone explain easily what’s the point of going on investing float in bonds?! If it gets to be as risky an investment policy as investing in equities? And probably riskier than investing in private businesses?
I don’t understand.
Imho, it is not enough to look at what happened in the past… especially in a period of transition between a secular bull and a secular bear in bonds, like the one we are living through.

Gio
Title: Re: MKL - Markel Corp
Post by: skanjete on December 03, 2013, 12:46:02 AM
Gio,
You state correctly that float is money you hold, but don't own. This means that it can be called for. The problem is you don't know when you'll have to pay it. This means there's a big liquidity/volatility risk.

Indeed, stocks and private businesses offer a lot less risk on the long term. But there is a big caveat : you have to be sure that nobody comes asking you for that money when you need it the most. You don't want to be hurt by the inherent volatility of the stock market or an illiquid private equity market.

So an insurer has to be sure that the float money is available when claims have to be paid. That makes it difficult to expose oneself to the stock market volatility or the illiquidity of private businesses.

That's also why Markel only invests a portion of it's book value into stocks.
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 03, 2013, 12:57:16 AM
Gio,
You state correctly that float is money you hold, but don't own. This means that it can be called for. The problem is you don't know when you'll have to pay it. This means there's a big liquidity/volatility risk.

Indeed, stocks and private businesses offer a lot less risk on the long term. But there is a big caveat : you have to be sure that nobody comes asking you for that money when you need it the most. You don't want to be hurt by the inherent volatility of the stock market or an illiquid private equity market.

So an insurer has to be sure that the float money is available when claims have to be paid. That makes it difficult to expose oneself to the stock market volatility or the illiquidity of private businesses.

That's also why Markel only invests a portion of it's book value into stocks.

Hi skanjete,
Your reasoning is correct, but once again from a “secular bull market in bonds” point of view! In a secular bear for bonds things look much different! In an environment of rising interest rates, who wants to be the one to predict how and when those rates will rise?! Not me! Think about the ‘70s: you would have lost a lot of money investing in bonds back then! And I think in a rather unpredictable way!
I think also Mr. Buffett wrote in a letter of his (I don’t remember exactly if it is a partenrship letter or a BRK letter, I will check) about the danger of investing in bonds in the wrong climate.
Just look at what happened recently: in a matter of weeks bond yields moved up more than 100 basis points: which means that bonds with a duration of 10 years declined in value more than 10%… In a long secular bear for bonds do you really want to have your float invested that way?!

Gio
Title: Re: MKL - Markel Corp
Post by: skanjete on December 03, 2013, 01:42:56 AM
Gio,
You state correctly that float is money you hold, but don't own. This means that it can be called for. The problem is you don't know when you'll have to pay it. This means there's a big liquidity/volatility risk.

Indeed, stocks and private businesses offer a lot less risk on the long term. But there is a big caveat : you have to be sure that nobody comes asking you for that money when you need it the most. You don't want to be hurt by the inherent volatility of the stock market or an illiquid private equity market.

So an insurer has to be sure that the float money is available when claims have to be paid. That makes it difficult to expose oneself to the stock market volatility or the illiquidity of private businesses.

That's also why Markel only invests a portion of it's book value into stocks.

Hi skanjete,
Your reasoning is correct, but once again from a “secular bull market in bonds” point of view! In a secular bear for bonds things look much different! In an environment of rising interest rates, who wants to be the one to predict how and when those rates will rise?! Not me! Think about the ‘70s: you would have lost a lot of money investing in bonds back then! And I think in a rather unpredictable way!
I think also Mr. Buffett wrote in a letter of his (I don’t remember exactly if it is a partenrship letter or a BRK letter, I will check) about the danger of investing in bonds in the wrong climate.
Just look at what happened recently: in a matter of weeks bond yields moved up more than 100 basis points: which means that bonds with a duration of 10 years declined in value more than 10%… In a long secular bear for bonds do you really want to have your float invested that way?!

Gio

The investment in bonds and cash is not primarily for the return. The first concern (up to a certain point of course) for the insurer is to have access to his money when he needs it to fund claims. The important thing is not return on your money, but return of your money when you need it. You remember the quote from Buffett about cash/liquidity being as oxygen : when there's plenty around, you don't think about it, until you're short of it, and then it's the only thing you can think about.

Of course the extent of the liquidity needs varies from business to business, depending on the type of business the insurer writes (long tail- short tail f.e.), but in my view, liquidity (again, up to a certain point) is more important than return on the invested money. That's why a prudent insurer will always have a sufficient source of liquidity.

You mention the bond bear market of the '70. Indeed a terrible climate for bonds. Of course, not all bonds are equal. Long term bonds fared a lot worse than short term bonds.
I remember a comical anecdote of Buffett in this context. It went along these lines : Buffett was concerned about the 30y bonds in the portfolio of Geico. He gently tried to make Byrne aware of the risk of these bonds during a golf game, but Byrne apparently wasn't focused and didn't get the clue. At one of the last holes Buffett got so frustrated that he, in a very un-Buffetteque way, blurted out that you should be an idiot to hold 30y bonds in the Geico investment portfolio...

So bonds as an investment category aren't good at the moment, but for most insurers a necessity. But there's a world of difference between short duration bonds and long term bonds. That's why it is very wise of Markel to have shortened it's bond maturity profile so much. They give up some return, but they limit risks and create a lot of optionality.

Title: Re: MKL - Markel Corp
Post by: giofranchi on December 03, 2013, 02:49:11 AM
The investment in bonds and cash is not primarily for the return. The first concern (up to a certain point of course) for the insurer is to have access to his money when he needs it to fund claims. The important thing is not return on your money, but return of your money when you need it. You remember the quote from Buffett about cash/liquidity being as oxygen : when there's plenty around, you don't think about it, until you're short of it, and then it's the only thing you can think about.

Of course the extent of the liquidity needs varies from business to business, depending on the type of business the insurer writes (long tail- short tail f.e.), but in my view, liquidity (again, up to a certain point) is more important than return on the invested money. That's why a prudent insurer will always have a sufficient source of liquidity.

You mention the bond bear market of the '70. Indeed a terrible climate for bonds. Of course, not all bonds are equal. Long term bonds fared a lot worse than short term bonds.
I remember a comical anecdote of Buffett in this context. It went along these lines : Buffett was concerned about the 30y bonds in the portfolio of Geico. He gently tried to make Byrne aware of the risk of these bonds during a golf game, but Byrne apparently wasn't focused and didn't get the clue. At one of the last holes Buffett got so frustrated that he, in a very un-Buffetteque way, blurted out that you should be an idiot to hold 30y bonds in the Geico investment portfolio...

So bonds as an investment category aren't good at the moment, but for most insurers a necessity. But there's a world of difference between short duration bonds and long term bonds. That's why it is very wise of Markel to have shortened it's bond maturity profile so much. They give up some return, but they limit risks and create a lot of optionality.

Well, I agree that the problem is return OF capital… But, if you hold 10yr bonds, you now have less than 90% of what your capital was barely 8 months ago… That is not exactly my idea of “return of capital”… And we are not yet in a secular bear for bonds! Instead, a low rates environment will probably still persist for some more years!
Of course, you could decrease the duration of your bonds portfolio, but the shorter the duration the more similar bonds become to cash… Therefore, why to keep gathering float, if I cannot use it anyway?! It makes no sense… I assume the risk of making some mistakes in writing insurance contracts, without the benefit of using float as a lever… No, thank you!
Instead, float invested in a combination of ready cash for emergencies and free cash flow generating, wholly owned businesses, which each month spawn new cash to be added to the cash reserve, makes a lot of sense to me. It might not be conventional wisdom… but it is 30 years now that a secular bear market for bonds has disappeared from the face of the earth… And conventional wisdom might not be of great help, when a secular bear in bonds finally starts!
If you want, as a comparison think about what happened to bond investments in Europe in 2011, when interest rates for Spain and Italy spiked up… Float invested that way is not safe at all! And “return of capital” is not guaranteed at all! I would much prefer to hold a substantial cash pile for any unexpected event, and to buy something like Ferrero, which generates tons of cash each month, than to invest in Italian bonds… wouldn’t you?!

Gio
Title: Re: MKL - Markel Corp
Post by: jay21 on December 03, 2013, 04:54:00 AM
Gio, think of it this way:

I know I need to pay out a claim for $100 ten years from now. I buy a $100 10 yr, which will return my $100 after 10 years (plus I get interest along the way).  It doesn't matter how much rates move, at the end of the period I am guaranteed to have my $100 back.

If I put the $100 in stocks for 10 years, who knows what it will be worth when I need the $100 10 years from now.
Title: Re: MKL - Markel Corp
Post by: giofranchi on December 03, 2013, 06:03:51 AM
Gio, think of it this way:

I know I need to pay out a claim for $100 ten years from now. I buy a $100 10 yr, which will return my $100 after 10 years (plus I get interest along the way).  It doesn't matter how much rates move, at the end of the period I am guaranteed to have my $100 back.

If I put the $100 in stocks for 10 years, who knows what it will be worth when I need the $100 10 years from now.

jay,
I don’t see it that way… It is volatility you have to protect yourself against, when you write insurance policies… Because you never know when unexpected accidents might occur, and therefore when you'd need to have cash at hand to cover claims.
If it weren’t so, and all that really mattered were the “long term”, I guess a much higher percentage of capital + float would be invested in stocks by both FFH and MKL!

Gio
Title: Re: MKL - Markel Corp
Post by: vinod1 on December 03, 2013, 06:41:24 PM

Vinod.  Good points and I don't disagree with them but I think that Burlington Northern is actually held by National Indemnity. 

If correct, I believe Buffett did this because he lacked flexibility during the crash as his financials -- AXP and WFC -- were getting destroyed. 

Anyone know for sure -- globalfinanceparnters, you out there?

Kiltacular,

Thanks for pointing it out. You are right. BNSF 2009 10-K mentions the following:

"100% of the membership interests of Burlington Northern Santa Fe, LLC are outstanding as of May 3, 2010, and held by National
Indemnity Company, an indirect, wholly owned subsidiary of Berkshire Hathaway Inc."


An additional reason why it is held here could be that the initial investment in BNSF shares are held by National Indemnity.

Vinod
Title: Re: MKL - Markel Corp
Post by: james22 on December 25, 2013, 10:27:18 PM
Though shares have ticked up from my original purchase price at 1.2 times book value, Markel shares look cheaper than my first purchase, as imminent catalysts lie in wait: A savvy management team’s poised to capitalize on hardening underwriting markets and interest rates turning higher. And yet, the market’s still pricing Markel shares as if its best days are past. I don’t think that’s the case. That’s why I’m adding...

http://www.nextiphonenews.com/2013/12/why-im-buying-markel-corporation-mkl-again/
Title: Re: MKL - Markel Corp
Post by: zippy1 on February 10, 2014, 02:09:02 PM
2013 annual result out.
Quote
RICHMOND, Va., Feb. 10, 2014 /PRNewswire/ -- Markel Corporation (MKL) reported diluted net income per share of $22.48 for the year ended December 31, 2013 compared to $25.89 in 2012.  The combined ratio was 97% in both 2013 and 2012.  Book value per common share outstanding increased 18% to $477.16 at December 31, 2013 from $403.85 at December 31, 2012.  Over the five-year period ended December 31, 2013, compound annual growth in book value per common share outstanding was 17%.

http://finance.yahoo.com/news/markel-reports-2013-financial-results-213600115.html
Title: Re: MKL - Markel Corp
Post by: skanjete on February 11, 2014, 12:32:30 AM
A very nice set of results.
A part of the rise in book value of course is due to the acquisition (and share issue) of Alterra. But that doesn't matter.

C.R. Alterra segment : 118%. Seems that they have been reserve strengthening the Alterra business. Part of it will be due to transaction costs as well of course.

I'm looking forward to the conference call.
Title: Re: MKL - Markel Corp
Post by: klarmanite on February 11, 2014, 06:06:02 AM
CR of 97%, in line with the historical median since 1986 (the avg is 96%). I noticed Morningstar states the following in their MKL analysis ("no moat" rating):

"we require an insurance company to have consistently profitable underwriting results, as measured by the combined ratio, in order to have an economic moat. While Markel has effectively lowered claims, the expenses it incurs in order to do this prevent it from strong insurance profitability in aggregate. As a consequence, its average combined ratios are in the lower half of the P&C insurers we cover, which indicates it does not have a durable competitive advantage. "

Odd when you consider the industry as a whole has an average combined ratio of 105 since 1986.

I wonder what average they are referring to.
Title: Re: MKL - Markel Corp
Post by: skanjete on February 11, 2014, 06:31:43 AM
CR of 97%, in line with the historical median since 1986 (the avg is 96%). I noticed Morningstar states the following in their MKL analysis ("no moat" rating):

"we require an insurance company to have consistently profitable underwriting results, as measured by the combined ratio, in order to have an economic moat. While Markel has effectively lowered claims, the expenses it incurs in order to do this prevent it from strong insurance profitability in aggregate. As a consequence, its average combined ratios are in the lower half of the P&C insurers we cover, which indicates it does not have a durable competitive advantage. "

Odd when you consider the industry as a whole has an average combined ratio of 105 since 1986.

I wonder what average they are referring to.

From what I remember, in the years that Markel had a C.R. higher than 100, it was generally due to acquisitions of inferior insurers that they subsequently repaired by reserve strengthening.

I didn't make the exercise explicitly, but I think that if one calculated the C.R. for their operations that they have owned for at least, say 5 years, that a C.R. higher than 100 would be very exceptional.

In my view, their conservative reserving is definitely a competitive advantage.
Just look at their book of business : in 2012 they wrote as much business as in the years 2004 or 2006, and that is despite several acquisitions from 2004-2012. In 2013 they wrote some more, mainly because of the Alterra acquisition. But this illustrates clearly that they write for profit, not for volume.
Just imagine what could happen if for some reason, there are a couple of years with a real hard insurance market. You will see their premium volume (& underwriting profit) explode.
Title: Re: MKL - Markel Corp
Post by: jay21 on March 23, 2014, 04:30:58 PM
The letter was out.  Also, Plan tweeted this link/infographic: https://twitter.com/PlanMaestro/status/447789563222556672/photo/1/large

Notice where Alterra is.
Title: Re: MKL - Markel Corp
Post by: Liberty on March 24, 2014, 02:07:12 PM
http://brooklyninvestor.blogspot.ca/2014/03/markel-2013-annual-report.html
Title: Re: MKL - Markel Corp
Post by: writser on April 03, 2014, 01:44:25 PM
http://basehitinvesting.com/markel-mkl-a-compounding-machine/

Another compelling write-up. I'm having a hard time choosing my favorite insurance stock. I have owned Berkshire for a long time. A friend of mine once told me that whenever he made a stupid investment decision he forced himself to buy more Berkshire. A mechanism to avoid self-destruction and to keep your ego in check. I thought it was a good idea and ended up buying quite some BKR-B over the years. Now I'm a bit attached to it - it's a reminder not to overestimate myself.

Nevertheless I think they're just getting too big. At this point their equity holdings pretty much start to represent the S&P 500. I'm considering switching into Markel; a similar company culture but more room for growth. Lancashire looks attractive as well. So far sloth has kept me from doing anything.
Title: Re: MKL - Markel Corp
Post by: Liberty on April 03, 2014, 02:27:27 PM
http://basehitinvesting.com/markel-mkl-a-compounding-machine/

Another compelling write-up. I'm having a hard time choosing my favorite insurance stock. I have owned Berkshire for a long time. A friend of mine once told me that whenever he made a stupid investment decision he forced himself to buy more Berkshire. A mechanism to avoid self-destruction and to keep your ego in check. I thought it was a good idea and ended up buying quite some BKR-B over the years. Now I'm a bit attached to it - it's a reminder not to overestimate myself.

Nevertheless I think they're just getting too big. At this point their equity holdings pretty much start to represent the S&P 500. I'm considering switching into Markel; a similar company culture but more room for growth. Lancashire looks attractive as well. So far sloth has kept me from doing anything.

Thanks for the link.

I agree about Markel being very similar to Berkshire, but earlier in its development, which should be a good thing. The fact that their float has been cost-free on average for a long time and that they have tons of spare capacity to write premiums if the market goes hard is a big plus IMO. I'm excited about the potential for deploying the Alterra investments into more equities and (hopefully) better-performing bonds, and for Markel Ventures to keep growing. I like this quote by Gaynor from the last call:

Quote
The second thing I would like to point out is sort of a secondary effect of the Alterra acquisition is that the size of deal we would look at in Markel Ventures is aided and improved and increased by the total size of the Markel balance sheet. And we are just getting to look at better quality, larger more substantial companies that have more runways than would have been the case in the past. That also comes about because Markel Ventures in and of itself is going down the learning curve and we learn and there are things that in retrospect I wish I would have done differently or lessons that we take, but there is just no way to get from here today without making some mistakes and going down learning curves, but I am very pleased with the way that that process is going. And it has been accelerated by the Alterra acquisition.

I own only two insurance companies, and they are AIG (warrants) and Markel. I wish I could also own Fairfax, but as much as I love their culture and track record and they are an inspiration in many ways, I don't feel comfortable enough with their recent strategy. Maybe someday I'll be able to add them as a long-term holding... I kind of own Berkshire; They are Markel's biggest equity holding, and I've bought some for my wife's account.
Title: Re: MKL - Markel Corp
Post by: jay21 on April 15, 2014, 07:37:08 AM
I'm still trying to get a handle on Ventures, because I think at this stage you can find more See's Candy type business, where you can see phenomenal results.  The additional disclosure and commentary this year was much appreciated.

A few stand out things:

Net Income of ~24m and most likely an uneconomic amortization of ~17m for roughly ~41m of adjusted earnings

Operating CF of ~76m and depreciation of ~19m.  Assuming depreciation equates to maintenance capex, ~57m FCF

EBITDA of ~84m and ~217m of debt.

Equity of ~500m and equity minus goodwill is ~309m.  There is plenty of intangible as well that could probably be backed out.

Also disclosed in the 10-K: "With the exception of the Markel Ventures Diamond Healthcare reporting unit, we believe the fair value of each of our reporting units exceeded their respective carrying amounts as of October 1, 2013 and December 31, 2013. Additionally, we do not believe we are at risk of failing Step 1 at any of our reporting units with the result being a material impairment of goodwill.

However, as of October 1, 2013 and December 31, 2013, we believe that the carrying value of the Diamond Healthcare reporting unit approximates fair value and we believe we are at risk of failing Step 1 at our Diamond Healthcare reporting unit in future periods. At December 31, 2013, goodwill associated with this reporting unit was approximately $29 million."

So, I give them the benefit of the doubt and would floor my valuation at $500m. 
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 17, 2014, 04:04:58 PM
Quote
I own only two insurance companies, and they are AIG (warrants) and Markel.

What are your thoughts on the size of bond holdings on Markel balance sheet? At the end of 2013, the balance sheet shows bonds of $10.14B, which come to 150% of book value of $6.7B. It seems that their portfolio & book value will be quite sensitive to interest rates.
Title: Re: MKL - Markel Corp
Post by: stevevri on April 17, 2014, 04:33:20 PM
What are your thoughts on the size of bond holdings on Markel balance sheet? At the end of 2013, the balance sheet shows bonds of $10.14B, which come to 150% of book value of $6.7B. It seems that their portfolio & book value will be quite sensitive to interest rates.

From Markel's 2013 annual report:

Quote
In our fixed income operations we earned a total return of zero percent. Going into 2013 we worried that interest rates were unnaturally low and that the risks of owning longer-term bonds outweighed the returns available from doing so. We worried about that in 2012 and earlier
as well.
We knew that we couldn't forecast when interest rates would go up with precision. Therefore, we simply let our fixed income securities mature and we built up our balances of cash and shorter term bonds.
Starting in the second quarter of 2013, interest rates finally did begin to rise. Our total return this year was diminished by the market values of our existing bond holdings falling. The very good news is that we are extremely liquid and now able to reinvest our cash balances at rates which make more sense to us.
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 17, 2014, 04:44:56 PM
A large portion (68%) of the bonds mature in 5-30 years, so they are still sensitive to changes in long term rates.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on April 17, 2014, 04:48:46 PM
I think there's a lot of discussion about this earlier in the thread, is there not?  Something about the matching of the duration of the assets and liabilities.
Title: Re: MKL - Markel Corp
Post by: no_free_lunch on April 17, 2014, 06:17:39 PM
For what it's worth, interest rates went down to rock-bottom levels in the early 30's and stayed there until the mid 50's.  Japan has been low for 25 years as well.   That's not a prediction that they will stay low but just an observation that they don't have to rise anytime soon.
Title: Re: MKL - Markel Corp
Post by: Liberty on April 18, 2014, 07:05:36 AM
Quote
I own only two insurance companies, and they are AIG (warrants) and Markel.

What are your thoughts on the size of bond holdings on Markel balance sheet? At the end of 2013, the balance sheet shows bonds of $10.14B, which come to 150% of book value of $6.7B. It seems that their portfolio & book value will be quite sensitive to interest rates.

Others have given good replies, but I'll add that I indeed think being a kind of leveraged bond fund is definitely a headwind, but it is one for the whole industry, and I think Markel is higher quality than the vast majority of the industry and has more levers to pull to compensate (a conservative value approach that keeps them out of trouble, a bigger but high-quality equity portfolio, better at bond investing than average, a history of underwriting profit, Markel Ventures starting to really take off). Management has been asked about this (I don't remember where I saw this, maybe in notes from a recent AGM?), and they didn't seem to be too worried. They've been positioning themselves for this for a while, so it shouldn't catch them flat-footed.

So I wouldn't pay 2x book with interest rates this low, but I think that between 1.1-1.2 is pretty reasonable for a business of this quality that should keep compounding nicely between 10-15% for years. I don't think it's priced and positioned to give the 20%+ returns that many are looking for, but I also see it as one of the safest companies I own, and that's worth something.

There's also always the possibility of a good hard market to rev up the machine, but who knows when that would happen...
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 18, 2014, 10:10:51 AM
If interest rates stay low for an extended period of time, there will not be any significant MTM losses arising from the bond portfolio, but investment income earned will be low and P/B will likely stay at the lower end of historical range. If interest rates go up gradually, Markel will do fine (perhaps best case scenario for Markel?). However if the rates (especially long term rates) go up quickly, there is possibility for a significant drop in book value and this drop may not be accompanied by an increase in P/B ratio as one of the posters conjectured. And impairment from long dated bonds may be permanent in this case. Essentially Markel investors are betting that rates will not go up quickly and that Gaynor will successfully reduce the duration of bond portfolio significantly before such an event happens (if it materializes).
Title: Re: MKL - Markel Corp
Post by: Liberty on April 18, 2014, 10:17:56 AM
If interest rates stay low for an extended period of time, there will not be any significant MTM losses arising from the bond portfolio, but investment income earned will be low and P/B will likely stay at the lower end of historical range. If interest rates go up gradually, Markel will do fine (perhaps best case scenario for Markel?). However if the rates (especially long term rates) go up quickly, there is possibility for a significant drop in book value and this drop may not be accompanied by an increase in P/B ratio as one of the posters conjectured. And impairment from long dated bonds may be permanent in this case. Essentially Markel investors are betting that rates will not go up quickly and that Gaynor will successfully reduce the duration of bond portfolio significantly before such an event happens (if it materializes).

I wonder if a rapid increase in interest rates could help create a hard market by removing capital from the insurance industry and forcing higher rates. Does anyone know if this has happened in the past?
Title: Re: MKL - Markel Corp
Post by: DCG on April 18, 2014, 10:30:17 AM
A lot of insider selling in the last few months.
Title: Re: MKL - Markel Corp
Post by: Liberty on April 18, 2014, 10:42:07 AM
A lot of insider selling in the last few months.

I'm not sure if I would agree it's "a lot".

According to Yahoo finance, insiders own 2.02 million shares, and in the past 6 months they've sold 1,051 shares (they also purchased 1,455, but these were not in the public market, though a bunch of directors purchased shares for $583.30 last month).

As they say, there's a thousand reasons to sell some stock, but there's only one for buying, so of course I'd rather see insiders buy in the public market. But small sales don't need to be a negative sign; maybe someone has a basement to renovate or something.
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 18, 2014, 11:13:27 AM
Quote
I wonder if a rapid increase in interest rates could help create a hard market by removing capital from the insurance industry and forcing higher rates. Does anyone know if this has happened in the past?

Perhaps. But right now, Markel is way more levered to the investment portfolio than the insurance premiums written. Premiums written ~ 0.6xBook, and investments ~ 2.6xBook.
Title: Re: MKL - Markel Corp
Post by: Liberty on April 18, 2014, 11:14:39 AM
Quote
I wonder if a rapid increase in interest rates could help create a hard market by removing capital from the insurance industry and forcing higher rates. Does anyone know if this has happened in the past?

Perhaps. But right now, Markel is way more levered to the investment portfolio than the insurance premiums written. Premiums written ~ 0.6xBook, and investments ~ 2.6xBook.

But wouldn't premiums written go up significantly (and very profitably) in a hard market?
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 18, 2014, 11:17:05 AM
Yes they could, but there is a limitation imposed by regulators how much premiums can be written in relation to book value. Thus the companies that can write profitably in tough times are the ones that protected their book before the hard times.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on April 18, 2014, 11:19:31 AM
Not to dismiss the legitimate questions about the impact of rates on the book value over the shorter term, but to quote WEB from Berkshire's 1975 annual letter:

We have continued to maintain a strong, liquid position in our insurance
companies. In last year’s annual report, we explained how variations of 1/10
of 1% in interest rates result in million dollar swings in the market value of
our bonds. We consider such market fluctuation of minor importance, as our
liquidity and general financial strength make it highly improbable that
bonds will have to be sold at times other than those of our choosing.
Title: Re: MKL - Markel Corp
Post by: Liberty on April 18, 2014, 11:29:25 AM
Yes they could, but there is a limitation imposed by regulators how much premiums can be written in relation to book value. Thus the companies that can write profitably in tough times are the ones that protected their book before the hard times.

Agreed. And I think Markel is doing a good job of that. They shortened their durations a lot, have lots of cash, have a lot of equity in solid companies, and cash coming in from ventures. But maybe you disagree and think they should have done something else?
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 18, 2014, 11:55:30 AM
Quote
They shortened their durations a lot, have lots of cash, have a lot of equity in solid companies, and cash coming in from ventures. But maybe you disagree and think they should have done something else?

I think Markel is a good company, and it may do quite well. My main concern is the portion of long term bonds they hold. I know they are talking about reducing the duration of bond portfolio, but at year end 2013, they still had 68% of bond portfolio in long dated paper (> 5 years). I like to see them reduce this % significantly. Of course, this comes with a penalty of putting up with some near term loss in investment income. Just for comparison, Berkshire holds 4% of their book value in bonds with duration > 5 Years. I like Markel Ventues, but it is early and a bit difficult to judge how well it is doing since they don't seem to provide much color into it.

Regarding hardening insurance markets, Peter Eastwood, Berkshire executive hired recently from AIG said a few weeks ago that the hard premium insurance cycle has gotten much shorter than in the past. He thinks it is due to "alternate" capital from pension funds, hedge funds, etc. looking for returns.

One final thing: Markel has been a public company since 1986 IIRC. From 1982-2013, there has have been a secular bull market in bonds. So, it is just an unknown how Markel will perform in a potential secular bear market in bonds in the next 10-20 years.

In summary, I like Markel, and it may indeed produce higher returns (although by no means it is assured), but I think it is significantly riskier than Berkshire.
Title: Re: MKL - Markel Corp
Post by: Liberty on April 18, 2014, 12:22:48 PM
I'd need to look again to confirm and I don't have my notes here, but I think that Markel has inherited a lot of longer-duration bonds from Alterra. It is likely not their preference to have that much of those and they are probably in the process of adjusting the portfolio, which can take some time. Unless there's a big interest spike soon, I think they should have time to further optimize things.

But this is from memory, I could be wrong about this.
Title: Re: MKL - Markel Corp
Post by: stevevri on April 18, 2014, 02:08:15 PM
I'd need to look again to confirm and I don't have my notes here, but I think that Markel has inherited a lot of longer-duration bonds from Alterra. It is likely not their preference to have that much of those and they are probably in the process of adjusting the portfolio, which can take some time. Unless there's a big interest spike soon, I think they should have time to further optimize things.

But this is from memory, I could be wrong about this.

I read the same in their annual report, and deeper in this thread. Alterra lengthened the duration of their bond portfolio. Part of the upside from the Alterra acquisition was the fact they could strategically reconfigure Alterra's investment portfolio by increasing equities, losing the hedge funds and getting the durations more in line.
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 18, 2014, 02:21:43 PM
From 2012 AR (prior to Alterra acquisition), total bond portfolio was $4.3B in December 2012 out of which $1.5B are maturities < 5 Years. Long duration bonds made up 66% of bond portfolio at the end of 2012.
Title: Re: MKL - Markel Corp
Post by: stevevri on April 18, 2014, 02:39:36 PM
From 2012 AR (prior to Alterra acquisition), total bond portfolio was $4.3B in December 2012 out of which $1.5B are maturities < 5 Years. Long duration bonds made up 66% of bond portfolio at the end of 2012.

Have you looked at how the duration matches their liabilities? At quick glance I see nearly $1.6B in liabilities longer then 5 year duration for Life Insurance and Annuities and around $3B in estimates losses with a duration greater then 5 years.

Also on page 137 of the 2013 report you see what happens with interest rates rising, and also interest rates declining on both the bond portfolio and liabilities. Notice the liabilities also decrease when rates go up.
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 18, 2014, 03:00:44 PM
From page 137 of 2013 AR, if rates increase 200bp, they lose $1B in bond portfolio and gain $300M due to their debt, for a net loss of $700M. The shareholder equity drops by 10% as they show.
Title: Re: MKL - Markel Corp
Post by: jay21 on April 18, 2014, 03:54:47 PM
From page 137 of 2013 AR, if rates increase 200bp, they lose $1B in bond portfolio and gain $300M due to their debt, for a net loss of $700M. The shareholder equity drops by 10% as they show.

That's a parallel shift I believe, which is highly unlikely.  You note their debt FV will drop, which is not MTM, but do you make any adjustments to the FV of their float?

From 2012 AR (prior to Alterra acquisition), total bond portfolio was $4.3B in December 2012 out of which $1.5B are maturities < 5 Years. Long duration bonds made up 66% of bond portfolio at the end of 2012.

Do you count cash and short term investments in this % calc?
Title: Re: MKL - Markel Corp
Post by: Munger_Disciple on April 18, 2014, 04:13:42 PM
I am just pointing what they say on page 137. If they do not MTM the debt, book value will drop by more than 10% (more like 14%).

I am looking only at the bond portfolio and the ratio of long term bonds as a % of total bonds.
Title: Re: MKL - Markel Corp
Post by: stevevri on April 18, 2014, 06:18:31 PM
I am just pointing what they say on page 137. If they do not MTM the debt, book value will drop by more than 10% (more like 14%).

I am looking only at the bond portfolio and the ratio of long term bonds as a % of total bonds.

They indicate change in Shareholders Equity for the change in interest rates in Total Fixed Maturities Securities, which would cover book value. So the -9.8% would seem right for 200 bps.  Which would be fairly substantial change in the short term and yes not be good.

It would also seem there is a GAAP accounting effect at play where the bonds losses would be included immediately in Other Comprehensive income and the decrease in related liabilities would lag.

I'm just learning here too but the 1980 Berkshire Letter seems to be an awesome read on a quick rate rising environment and the choices faced by insurers. It can get ugly.
Title: Re: MKL - Markel Corp
Post by: ScottHall on April 18, 2014, 11:37:00 PM
You all are really over thinking this thing...
Title: Re: MKL - Markel Corp
Post by: Liberty on April 19, 2014, 08:37:16 AM
You all are really over thinking this thing...

How are you thinking about it?
Title: Re: MKL - Markel Corp
Post by: ScottHall on April 24, 2014, 01:54:49 AM
You all are really over thinking this thing...

How are you thinking about it?

Figure out a reasonable estimate of long-term growth in BV per share and value it based off that. I use a justified P/B model, personally, but you can crack that nut however you want. A 10% decrease in BV brings it to $429 per share. At today's prices, it'd be at a 1.43x multiple at that point. That, for a company that has grown BVPS at ~11% annually over the past decade despite the biggest market crash since the depression. The long run track record's a lot better than that; about 16.8% since 1990, and in the mid-teens pretty consistently until the crash.

Obviously you need to determine for yourself whether the future will look like the past or if the company's best days are behind it, how long the company can keep up its excellent performance, etc. But focusing on a one-off like the impact of a 200 basis point increase in interest rates isn't going to help much one way or the other. I think the stock is a bargain at today's prices or if interest rates knock BV down 10%, but that's just me.

We could go deeper in to this, but the five second version is to not overweight a one-off problem vs. the core drivers and economics of the business. People do this all the time, usually to their detriment.

Best wishes.
Title: Re: MKL - Markel Corp
Post by: Liberty on April 24, 2014, 06:39:12 AM
Thanks Scott.

That's kind of like how I think about it too. I want to make sure that there's not a predictable single event that could be catastrophic for the company, and I don't think the rate hike that was discussed is, so once that's out of the way, I look at the long-term track record, the quality of the assets, quality of management, and the overall strategy, and it made me very confident that the company was worth more than 1.2x book (what I paid) and should be able to keep compounding nicely for years (if not decades) to come.
Title: Re: MKL - Markel Corp
Post by: Liberty on May 04, 2014, 10:47:08 AM
For those who aren't lucky enough to be at the Markel meeting, @HardcoreValue has been live-blogging parts of it on Twitter:

https://mobile.twitter.com/HardcoreValue
Title: Re: MKL - Markel Corp
Post by: zippy1 on May 07, 2014, 02:09:05 PM
Q1 results out
http://finance.yahoo.com/news/markel-reports-first-quarter-2014-205800458.html
Quote
RICHMOND, Va., May 7, 2014 /PRNewswire/ -- Markel Corporation (MKL) reported book value per common share outstanding of $493.96 at March 31, 2014, up 4% from $477.16 at December 31, 2013. Comprehensive income to shareholders was $230.3 million for the quarter ended March 31, 2014 compared to $257.7 million for the first quarter of 2013. The combined ratio was 95% for the first quarter of 2014 compared to 91% for the first quarter of 2013. Diluted net income per share was $6.25 for the quarter ended March 31, 2014 compared to $9.50 for the first quarter of 2013.   
Title: Re: MKL - Markel Corp
Post by: bmathews03 on June 14, 2014, 06:01:04 PM
You all are really over thinking this thing...

A very astute comment.
Title: Re: MKL - Markel Corp
Post by: Liberty on July 23, 2014, 03:47:45 PM
One more business for Markel Ventures:

https://www.markelcorp.com/About-Markel/NewsRoom/Reuters1950509

Quote
Markel Ventures, Inc. ("Markel") announced today the acquisition of a majority interest in Cottrell, Inc. and affiliated entities ("Cottrell").  Headquartered in Gainesville, Georgia, Cottrell is a global leader in the design, manufacture and delivery of over-the-road automobile transport equipment. Terms of the transaction were not disclosed.

Danny Zink, Cottrell's President and CEO, stated, "We wanted to find a partner that understood the way we do business and that would support us as we continue down the path we started on over 35 years ago. Markel is clearly that partner."

Thomas S. Gayner, President of Markel Ventures, added, "For 35 years Cottrell has found success by staying close to its customers and by responding rapidly to their needs.  Our approach allows Cottrell to continue doing exactly that as a permanent member of the Markel Ventures group of companies."
Title: Re: MKL - Markel Corp
Post by: Evolveus on July 23, 2014, 09:22:00 PM
Forgive my ignorance, but what is "over-the-road" auto transport?  Are they referring to the 18wheelers and special trailers used to haul cars from auction to dealer and such?  Curious to get more insight as to what Markel Ventures considers a great business and why.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on July 24, 2014, 06:57:53 AM
http://www.cottrelltrailers.com/
Title: Re: MKL - Markel Corp
Post by: Evolveus on July 24, 2014, 07:25:33 AM
Thanks Corp raider - I guess i could haven just googled it - it was late...I was on my iphone etc...so thank you.  The Ventures group is an interesting group of companies.  Not doubting Gayner, just a lot of businesses that I hadn't thought about as being competitively advantaged in a buffett-esque moat sense.  Bakery machinery, dredging, paneling, car haul trainlers, AMF bowling.  Admittedly I have not studied these induvidual companies in detail, simply stating these are a bit off the beaten path, but maybe there is more to learn from Gayner by examining the unique attributes of these purchases.

long: MKL
Title: Re: MKL - Markel Corp
Post by: Scudbucket on July 24, 2014, 05:47:55 PM
Any idea why Markel doesn't talk about Goodhaven on their ventures site?
Title: Re: MKL - Markel Corp
Post by: Liberty on July 26, 2014, 11:06:46 AM
http://www.fool.com/investing/general/2014/07/25/an-interview-with-markels-tom-gayner.aspx

20-minute video interview with Tom Gayner.
Title: Re: MKL - Markel Corp
Post by: Ian L on August 06, 2014, 03:02:57 PM
2nd quarter results: https://www.markelcorp.com/About-Markel/NewsRoom/Reuters1956173

BVPS $511, up from $477 at the end of 2013 and up from $494 at end of Q1.

Alan I. Kirshner, Chairman and Chief Executive Officer, commented, "We are pleased with our growth in book value for 2014, which was driven by strong performance in our equity and fixed income investment portfolios. Our underwriting results in 2014 included unfavorable development on our asbestos and environmental exposures, which have continued to adversely impact the property and casualty insurance industry. We continue to expand our non-insurance operations and are excited about our most recent acquisition of Cottrell in July 2014."

Title: Re: MKL - Markel Corp
Post by: saltybit on August 07, 2014, 02:18:26 PM
Quote
Charles Gold - Scott & Stringfellow
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?

Tom Gayner - President and CIO
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.

http://seekingalpha.com/article/2397175-markel-mkl-q2-2014-results-earnings-call-transcript?page=6&p=qanda&l=last
Title: Re: MKL - Markel Corp
Post by: Liberty on August 18, 2014, 11:24:41 AM
Found this on twitter:

http://www.andvariassociates.com/markel-mkl-still-undervalued-still-deserves-to-be-in-your-portfolio/

(link to the report in first paragraph)

Some nice charts showing historical data on things like the combined ratio, prior loss reserves, gross premiums, etc.
Title: Re: MKL - Markel Corp
Post by: Phaceliacapital on August 18, 2014, 11:39:38 AM
Thanks!
Title: Re: MKL - Markel Corp
Post by: Liberty on August 29, 2014, 01:55:51 PM
http://money.cnn.com/news/newsfeeds/articles/prnewswire/PH00962.htm

Quote
RICHMOND, Va., Aug. 29, 2014 /PRNewswire/ -- Markel Ventures, Inc. announced today that its subsidiary, AMF/Tromp B.V., has completed the acquisition of Tromp-Pol Baking Equipment B.V. ("Vanderpol") and Den Boer Baking Systems B.V. ("Den Boer"). Vanderpol and Den Boer design and manufacture waffle equipment, handling equipment, and ovens for bakers worldwide. Both companies are headquartered in the Netherlands.
Following the acquisition, Vanderpol and Den Boer will be combined with the previously acquired Tromp Bakery Equipment to form Tromp Group, a member of the Markel Bakery Group family of companies.
"We are excited to complete the union of Vanderpol and Den Boer with Tromp," stated Ken Newsome, Chief Executive Officer of Markel Bakery Group.  "These three companies have worked together for years in a strategic alliance, and now, through this transaction, their customers will be better served by a fully integrated group that can deliver the entire production line.
With AMF (pan bread and bun), Reading (baked snacks), and now Tromp Group (waffles, specialty breads, pizza, cake & pie, and cookie), we cover virtually the entire spectrum of baking equipment.  We have offices in the United States, Canada, the United Kingdom, the Netherlands, Mexico, the United Arab Emirates, Singapore, and China, making our company a truly global enterprise with vast resources to serve the needs of industrial bakers worldwide."
Robert Van Heukelum of Vanderpol and Den Boer will serve as President of Tromp Group.  Robert commented, "We are happy to be aligned under the Markel Bakery Group banner.  This gives us added stability and resources and the opportunity to partner with trusted, established brands in the baking industry."

I did some work on Middleby a little while ago, and that bakery stuff can have great ROIC if done right. Hopefully that's what the Markel subs are like.
Title: Re: MKL - Markel Corp
Post by: Liberty on December 02, 2014, 06:38:01 AM
http://basehitinvesting.com/some-thoughts-on-markels-intrinsic-value/

More about valuation in general than about markel, but he uses the company as an example so I'll post it here.
Title: Re: MKL - Markel Corp
Post by: 100 Shares on February 09, 2015, 03:14:20 PM
Markel filed their Q4 13F. http://www.dataroma.com/m/holdings.php?m=MKL

Quick calculation based on Q4 ending prices was they net sold about 2% of their portfolio (obviously this is excluding shares that do not need to be on the 13F)

Also reduced their BRK.A position substantially likely resulting in a big tax bill.
Title: Re: MKL - Markel Corp
Post by: zippy1 on February 11, 2015, 02:22:31 PM
http://finance.yahoo.com/news/markel-reports-2014-financial-results-213400854.html
Quote
RICHMOND, Va., Feb. 11, 2015 /PRNewswire/ -- Markel Corporation (MKL) reported book value per common share outstanding of $543.96 at December 31, 2014, up 14% from $477.16 at December 31, 2013. Over the five-year period ended December 31, 2014, compound annual growth in book value per common share outstanding was 14%. Comprehensive income to shareholders was $935.9 million for the year ended December 31, 2014 compared to $459.5 million in 2013. The combined ratio was 95% in 2014 compared to 97% in 2013. Diluted net income per share was $22.27 for the year ended December 31, 2014 compared to $22.48 in 2013.
Title: Re: MKL - Markel Corp
Post by: Scudbucket on February 11, 2015, 04:50:01 PM
Anyone going to the Markel brunch during the Berkshire meeting or their annual meeting?
Title: Re: MKL - Markel Corp
Post by: berkshire101 on February 11, 2015, 06:38:14 PM
Anyone going to the Markel brunch during the Berkshire meeting or their annual meeting?

Yep, I am!  It should be fun.  I already registered for the brunch.  Hope to see everyone there!   :)
Title: Re: MKL - Markel Corp
Post by: matts on February 13, 2015, 03:18:05 AM
Anyone going to the Markel brunch during the Berkshire meeting or their annual meeting?

Yep, I am!  It should be fun.  I already registered for the brunch.  Hope to see everyone there!   :)

Where can you register?
Title: Re: MKL - Markel Corp
Post by: cubsfan on February 13, 2015, 05:56:08 AM
Anyone going to the Markel brunch during the Berkshire meeting or their annual meeting?

Yep, I am!  It should be fun.  I already registered for the brunch.  Hope to see everyone there!   :)

Where can you register?

You can call Markel Investor relations - they will give you a name to send an email to.
Title: Re: MKL - Markel Corp
Post by: berkshire101 on February 13, 2015, 07:54:09 AM
Anyone going to the Markel brunch during the Berkshire meeting or their annual meeting?

Yep, I am!  It should be fun.  I already registered for the brunch.  Hope to see everyone there!   :)

Where can you register?

You can call Markel Investor relations - they will give you a name to send an email to.

Here is the link: http://markelbrunch2015.markelcorp.com/?em=537

Click on the RSVP button to register.
Title: Re: MKL - Markel Corp
Post by: 100 Shares on February 28, 2015, 03:21:33 PM
Markel filed their 10-K yesterday. Its on their website (https://www.markelcorp.com/about-markel/investor-relations) under SEC filings. No annual report or letter yet.
Title: Re: MKL - Markel Corp
Post by: Partner24 on March 20, 2015, 02:56:58 PM
The annual report is available: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mjc2MTQ1fENoaWxkSUQ9LTF8VHlwZT0z&t=1

What a great business Markel is. That's the kind of business that you can go on an island for 10 years and not worry too much about what will the business will look like when you'll come back. The "energizer bunny" will have kept walking...

Title: Re: MKL - Markel Corp
Post by: twacowfca on March 20, 2015, 07:44:59 PM
The annual report is available: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mjc2MTQ1fENoaWxkSUQ9LTF8VHlwZT0z&t=1

What a great business Markel is. That's the kind of business that you can go on an island for 10 years and not worry too much about what will the business will look like when you'll come back. The "energizer bunny" will have kept walking...
Title: Re: MKL - Markel Corp
Post by: Liberty on March 23, 2015, 04:09:33 PM
http://brooklyninvestor.blogspot.ca/2015/03/markel-2014-annual-report.html

http://brooklyninvestor.blogspot.ca/2015/03/markel-ventures.html?spref=tw
Title: Re: MKL - Markel Corp
Post by: 100 Shares on April 07, 2015, 03:31:30 PM
I'm still new to investing (about 2 years) and I was looking for feedback on my calculation of Markel's economic earnings. Let me know if you think I am missing anything or anything of the sort.

Net Earnings [321M]
- Investment and derivative gains/losses [46M]
+ Look Through Earnings of Stocks [231M]
- Dividends from Stocks (Included in Net Earnings and Look Through Earnings, so don't want to double count) [65M]
+ Amortization of Intangibles [58m]
Real Earnings [499M]

Thus with Markel at a market cap of 10.8B, it is trading at a multiple of about 22x


Title: Re: MKL - Markel Corp
Post by: ScottHall on April 10, 2015, 05:32:29 AM
I'm still new to investing (about 2 years) and I was looking for feedback on my calculation of Markel's economic earnings. Let me know if you think I am missing anything or anything of the sort.

Net Earnings [321M]
- Investment and derivative gains/losses [46M]
+ Look Through Earnings of Stocks [231M]
- Dividends from Stocks (Included in Net Earnings and Look Through Earnings, so don't want to double count) [65M]
+ Amortization of Intangibles [58m]
Real Earnings [499M]

Thus with Markel at a market cap of 10.8B, it is trading at a multiple of about 22x

This probably isn't the best way to look at things for an insurer. Insurance underwriting profitability, for all but short-tail insurers, can be gamed. Markel does pretty consistently over reserves for its losses, so reported profitability is not terribly accurate.

For a more accurate approach, and to avoid year-to-year gyrations, I would also take a look at the company's investment portfolio and try to figure out what it can earn on those assets over the long haul. That, combined with an estimate of normalized underwriting profitability, should get you in the ballpark.
Title: Re: MKL - Markel Corp
Post by: 100 Shares on April 10, 2015, 03:47:48 PM
Thank you for the response. I guess I should give some background on why I want to do this. I was reading the Giverny letters that were discussed recently on these boards and I really liked how he calculates earnings growth year to year as a measure of intrinsic value growth. It really helps you stay focused on business results and not price fluctuation. So I wanted to do the same for my portfolio and I was thinking of a way to measure Markel. With the background, I wonder if your thoughts might change or stay the same.

I did give some thought to trying to normalize insurance profitability from year to year. But in the end I felt that it just smoothed out the numbers and would be good for evaluating the earnings power of the business but over the long term it made more sense to look at the numbers as they are and not play with them a little to give smooth results.

As far as return on assets for the investment portfolio, I shied away from doing that because once again it takes the speculative approach and also it is very sensitive to inputs. Whereas, if you look at the underlying earnings power of the stocks in the portfolio, it is the growth of this over time that really matters to create the best earnings in 10 years per dollar invested today.

When looking at buying Markel, I think one should do all the above: look at it with underwriting profitability normalized and as it is, look at look through earnings, look at potential return on portfolios, look at book value growth, etc. For this I am trying to find the best way to evaluate Markel as a business once you own it. Not sure if this changes your feedback or not, but I do appreciate the comments.
Title: Re: MKL - Markel Corp
Post by: Liberty on May 04, 2015, 10:15:25 AM
http://boards.fool.com/markels-silver-year-31739090.aspx

Notes from the Markel dinner.
Title: Re: MKL - Markel Corp
Post by: petey2720 on May 04, 2015, 10:50:55 AM
Thanks for posting.
Title: Re: MKL - Markel Corp
Post by: Scudbucket on May 04, 2015, 08:10:06 PM
Thanks for posting.  I was also at the Markel brunch.

Only comment I'll add is that in regards to a potential partner like 3G, Gaynor caveated his response saying that it's not impossible to have someone like that later on down the road if the opportunity were right.

What do you think the chances are that Markel gets bought out?
Title: Re: MKL - Markel Corp
Post by: rpadebet on May 06, 2015, 02:21:27 PM
http://www.prnewswire.com/news-releases/markel-reports-first-quarter-2015-results-300079020.html (http://www.prnewswire.com/news-releases/markel-reports-first-quarter-2015-results-300079020.html)

Book Value @ 564. Stk @749. P/B at 1.33
Title: Re: MKL - Markel Corp
Post by: ScottHall on May 06, 2015, 05:57:40 PM
What do you think the chances are that Markel gets bought out?

That would make me sick. This company is too good and has such a great runway ahead of it for value creation.
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on May 06, 2015, 07:29:21 PM
That would make me feel sick too. It is still a good question to ponder.

At what multiple would you tender your shares? 3xBook? 4x?
Title: Re: MKL - Markel Corp
Post by: Scudbucket on May 06, 2015, 07:34:20 PM
I don't think I would.  These companies/management teams don't come along too often.
Title: Re: MKL - Markel Corp
Post by: gary17 on May 07, 2015, 08:58:25 AM
Good morning
I wonder if anyone has considered what could happen to MKL's business if and when the interest rate starts to rise? 
Sorry if this is a repeat question couple pages back... I didn't see !
Gary
Title: Re: MKL - Markel Corp
Post by: gfp on May 11, 2015, 10:10:43 AM
Looks like Fairfax was the counterparty for the pre-92 legacy stuff that Merkel offloaded. 

http://www.insuranceinsider.com/?page_id=1254832&utm_source=Insider-Publishing&utm_medium=Email&utm_content=Untitled43&utm_campaign=Welcome+to+the+latest+issue+of+The+Insurance+Insider&utm_cid=16968
Title: Re: MKL - Markel Corp
Post by: Liberty on June 19, 2015, 05:52:33 AM
http://www.rationalwalk.com/?p=13786
Title: Re: MKL - Markel Corp
Post by: Scudbucket on June 21, 2015, 07:09:41 PM
Thanks.  Has anyone come across blogs saying why Markel isn't a good company/investment?
Title: Re: MKL - Markel Corp
Post by: CorpRaider on June 21, 2015, 07:30:54 PM
If asked for an opinion about Markel, it seems likely that 90%+ of financial blog authors and financial talking head types would look at you with a glazed look and say "never heard of her."
Title: Re: MKL - Markel Corp
Post by: racemize on June 21, 2015, 07:39:08 PM
value line thinks that MKL won't improve price-wise for the next 3 years.  I was a bit surprised.
Title: Re: MKL - Markel Corp
Post by: Mephistopheles on June 22, 2015, 09:23:08 AM
If asked for an opinion about Markel, it seems likely that 90%+ of financial blog authors and financial talking head types would look at you with a glazed look and say "never heard of her."

The other 10% would say "she's a good Chancellor but needs to be tougher on the Greeks"
Title: Re: MKL - Markel Corp
Post by: Jurgis on June 22, 2015, 10:13:19 AM
If asked for an opinion about Markel, it seems likely that 90%+ of financial blog authors and financial talking head types would look at you with a glazed look and say "never heard of her."

The other 10% would say "she's a good Chancellor but needs to be tougher on the Greeks"

LOL. Good one. :)
Title: Re: MKL - Markel Corp
Post by: CorpRaider on June 22, 2015, 10:37:16 AM
Haha! 
Title: Re: MKL - Markel Corp
Post by: giofranchi on June 30, 2015, 12:27:27 AM
Tom Gayner | The Evolution of a Value Investor

http://linkis.com/www.youtube.com/suS6i


Cheers,

Gio
Title: Re: MKL - Markel Corp
Post by: VersaillesinNY on June 30, 2015, 07:39:04 AM
Thanks for sharing Gio!
Title: Re: MKL - Markel Corp
Post by: notorious546 on June 30, 2015, 11:44:16 AM
Tom Gayner | The Evolution of a Value Investor

http://linkis.com/www.youtube.com/suS6i


Cheers,

Gio

Thanks!
Title: Re: MKL - Markel Corp
Post by: klarmanite on July 01, 2015, 04:50:57 AM
Chubb taken out at 1.75x book. Any reason why MKL or FFH shouldn't trade at that valuation now...?
Title: Re: MKL - Markel Corp
Post by: ScottHall on July 01, 2015, 05:30:53 AM
Chubb taken out at 1.75x book. Any reason why MKL or FFH shouldn't trade at that valuation now...?

Depending on what you think BVPS growth looks like for the long run, the stock could be worth a hell of a lot more than 1.75x.
Title: Re: MKL - Markel Corp
Post by: klarmanite on July 01, 2015, 05:40:46 AM
That's true.
Title: Re: MKL - Markel Corp
Post by: giofranchi on July 01, 2015, 05:48:06 AM
Chubb taken out at 1.75x book. Any reason why MKL or FFH shouldn't trade at that valuation now...?

Depending on what you think BVPS growth looks like for the long run, the stock could be worth a hell of a lot more than 1.75x.

I agree! ;)

Cheers,

Gio
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on July 01, 2015, 06:31:53 AM
Chubb taken out at 1.75x book. Any reason why MKL or FFH shouldn't trade at that valuation now...?

It's probably the combined ratio of Chubb that earned them that premium.
Title: Re: MKL - Markel Corp
Post by: klarmanite on July 01, 2015, 06:45:24 AM
Yeah, pretty damn strong at 89.13% on avg for 2008-2014. But Gayner doesn't work for Chubb and neither does Watsa :)
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on July 01, 2015, 06:50:39 AM
Yeah, pretty damn strong at 89.13% on avg for 2008-2014. But Gayner doesn't work for Chubb and neither does Watsa :)

You cannot buy and sell men, only business operations.  Speculating on what they're worth on the slave market isn't really going to help in figuring out what multiple ACE would offer for MKL or FFH.
Title: Re: MKL - Markel Corp
Post by: klarmanite on July 01, 2015, 06:53:54 AM
You cannot take that last post of mine literallly, either.
Title: Re: MKL - Markel Corp
Post by: tombgrt on July 01, 2015, 06:58:17 AM
Chubb taken out at 1.75x book. Any reason why MKL or FFH shouldn't trade at that valuation now...?

Really? MKL sure, but Fairfax? Might as well pay 2% fees on a fund that holds 50% in cash for hedging purposes. I know Fairfax has a business to protect but as an investor I can't see how it is attractive currently given the way it is set up with the hedges etc.

Yeah, pretty damn strong at 89.13% on avg for 2008-2014. But Gayner doesn't work for Chubb and neither does Watsa :)

You cannot buy and sell men, only business operations.  Speculating on what they're worth on the slave market isn't really going to help in figuring out what multiple ACE would offer for MKL or FFH.


Haha!!


Wait... As a slave that really hurt me.  :'(
Title: Re: MKL - Markel Corp
Post by: fareastwarriors on July 01, 2015, 09:08:53 AM
Evan Greenberg (son of Maurice “Hank” Greenberg)

Is he recreating the next AIG? What do you guys think of Evan? Is he as good as his dad?
Title: Re: MKL - Markel Corp
Post by: Crip1 on September 10, 2015, 08:47:48 PM
Would be interested in the perspectives of those familiar with CATCo


https://finance.yahoo.com/news/markel-acquire-assets-catco-investment-060000063.html


-Crip
Title: Re: MKL - Markel Corp
Post by: racemize on November 04, 2015, 05:07:03 PM
Q3 out!

http://finance.yahoo.com/news/markel-reports-third-quarter-nine-231300495.html
Title: Re: MKL - Markel Corp
Post by: racemize on November 06, 2015, 06:33:51 AM
I thought this portion of the call was good to hear:

James Davis - Silver Point Capital
Hi guys. Thanks for taking my question and congrats on a long track record of great performance.

Tom Gayner - President and Chief Investment Officer
Thank you.

James Davis - Silver Point Capital
The 15% compound book value growth track record is what caused us to take a look at the company. And as we have been doing our diligence, we have noticed some changes in the company that suggests that book value growth is likely to be meaningfully lower in the future, but we wanted to get your thoughts to make sure we are thinking about this the right way? The two big changes that seem to have taken place at the company are, first, investment leverage has declined meaningfully. 10 to 20 years ago, investments were about four times your book value, but today this is only about half that, 2.1 times your book value. And second, investment yields have declined meaningfully. 10 to 20 years ago, portfolio yields were in the 5% range versus to 2.2% today. So, our math suggests these two factors combine to create a pre-tax ROE drag of about 15% relative to previous periods, making it tough to get that double-digit ROE without a significant rally in the equity market? And we seem to be seeing this play out this year as a relatively minor hiccup in the equity markets has resulted in flat book value growth for the year. Are we missing something or have these changes made historical returns very tough to meet going forward?

Tom Gayner - President and Chief Investment Officer
Yes, this is Tom. I will try to take those. Compared to 10 or 20 years ago, I think you are correct. I mean, the amount of premium leverage we can get relative to our equity capital is lower. Now, specifically what we can do in the face of that is that we can increase the allocation to higher total returns theories, because the reason we would have the fixed income portfolio is predominantly to over-collateralize the insurance liabilities and the claim spends that we expect to make. So, if we have less leverage and we are writing less business, what that means is we can allocate a higher percentage of the portfolio to equities, where we would expect to pickup higher return.

The second pool you mentioned is the lower overall investment yields. I would agree with that. I would also suggest that that the higher yields occurred during a period of higher inflation. So nominal yields are lower, but real yields have not decreased as much. So nominally, it’s a lower return environment, that’s correct. But in a real sense, if we make high single-digit, low double-digit returns in a zero interest rate world, both the nominal yields and the inflation circumstance that we faced that will be a spectacular economic outcome. And we are optimistic about our ability to do so.

James Davis - Silver Point Capital
Okay, got it. Got it. That makes sense. And then with the equities, as you mentioned previously on the call, you are currently at kind of 54% of book value versus the historical range of 50% to 80%. So, in terms of the opportunity to increase to higher return assets, we are not necessarily seeing that right now. Is there an intention to increase that allocation to try to makeup for that difference is the first question? Then I guess on the second question, makes perfect sense, lower inflation, lower nominal yields. I guess, are we right to think that, that just translates into lower nominal ROEs as well, going forward relative to what we have seen in the past?

Tom Gayner - President and Chief Investment Officer
Yes. I mean, that’s the math of lower nominal ROEs. But in real terms, as I said, we are going to try and do the best we can. And in real terms we have generated excellent returns for a long time and hope we have the formula in place to continue to do so. In terms of the additional allocations to the equity portfolio, whisper some good ideas to me after the call and we will put it to work. But just like the acquisition question, we work all day everyday looking for things. At the moment, we are driving down the road tapping the brakes a little bit just as a function of being picky about what we buy. But as we see things and we hunt for them everyday, we do have the capital to put money into the equity portfolio and we would love to do so when we see it.

James Davis - Silver Point Capital
It makes perfect sense. And so did I hear correctly that in the current environment the view is the kind of high single moving into the low double-digit would be a great outcome?

Mike Crowley - President and Co-Chief Operating Officer
Yes. We don’t make forward-looking forecasts or any expectations of that sort, but when you penciled out the math that you did, I don’t think you are doing that incorrectly.

James Davis - Silver Point Capital
Got it. And then just final question, we have always admired the discipline at the company. And like you said, there is a lot of headwinds in the market right now, the investment leverage and rates, which we talked about. But like you pointed out, pricing is weakening, equity markets are a little more difficult trading in elevated multiples on above trend margins. The private acquisitions are certainly tougher, given the prices out there today. And in terms of your core business, like you said, accretive acquisitions are tougher, as it seems like there’s an M&A premium kind of built into everything that’s trading out there. Is the right way to think about Markel right now that it’s a tough environment, you have reduced leverage, you are kind of retrenching and will have a period of lower returns, but as the market changed, there will be the ability to play more offense and move to higher returns at some point in the future?

Mike Crowley - President and Co-Chief Operating Officer
Well, let me split that. And I think Richie alluded to this a bit in his discussion of CATCo. It’s always tough. Markets are always competitive. So I don’t think there’s anything new about that than what has been the case during all of the time that the record you speak so kindly of looks great, it’s always tough. But break capital into two forms. There is financial capital and there’s intellectual capital. Financial capital is what a lot of people have a lot of. I mean, there’s a lot of money flashing around everything, and that leads to the comments about it turns into too pricey an acquisition pricing, things of that nature. But intellectual capital, that’s scarce and that’s where the returns really can be generated. So just like Richie was talking about the creativity behind the folks at CATCo and what they are doing, a good portion of the returns they generate is because they thought of stuff. They were creative and they applied intellectual capital. That is similarly the case in the Markel Ventures operations. We are looking at businesses that have the markets they have and have the customers they have because they creatively have found a way to take care of their customers. And they tend to operate in markets that are not distorted by big gobs of financial capital. Similarly, you look at the historical set of businesses that Markel underwrites in our insurance world, we need expertise. We need creativity. We need people who know what they are doing in different and unique lines of business. And there is really nothing about that that changes. And I think creativity intellectual capital will always be able to earn a return.

Richie Whitt - President and Co-Chief Operating Officer
The other opportunity that we have and that’s been proven out in the past with acquisitions like Com-Co and FirstComp and others is that there are a number of private industries out there that would fit with Markel, and the principles of those industries don’t necessarily sell to the highest price. We were successful in some of those acquisitions because the principles were looking for a long-term place and a good fit for their employees and for themselves and for patient capital for the long term to continue doing what they were doing rather than be gobbled up and chopped up and stripped and flipped and whatever. So I think those opportunities still exist and will present themselves to us over the next few years as well. We weren’t the highest price in some of those deals.

James Davis - Silver Point Capital
Got it. That’s a huge advantage. And we compete against the same gobs of capital, so we understand exactly what you are going through. Appreciate your answering the questions. I guess our last thought is just when we look at the current valuation of the stock, it seems like the market is expecting the same future returns as what they have seen in the past in terms of the stock trading at 1.5 times book value. And that’s kind of the root of the questions. We think the franchise is very valuable. The opportunity is very valuable. We are just trying to figure out right now kind of what price makes sense? Thanks so much.

Mike Crowley - President and Co-Chief Operating Officer
And we don’t comment on valuation, but we interest in your questions. Thank you.
Title: Re: MKL - Markel Corp
Post by: rpadebet on November 06, 2015, 08:17:03 AM
I thought this portion of the call was good to hear:

James Davis - Silver Point Capital
Hi guys. Thanks for taking my question and congrats on a long track record of great performance.

Tom Gayner - President and Chief Investment Officer
Thank you.
-
-
-
-

Mike Crowley - President and Co-Chief Operating Officer
And we don’t comment on valuation, but we interest in your questions. Thank you.

Very Interesting. thanks for this.

I was thinking along the same lines wrt current BV multiple of 1.6ish.

Wasn't MKL trading between 2 -2.5 during the golden days of high nominal ROE? If so doesn't the current multiple make sense relatively speaking? It is still a small company, so the runway is big, so some sort of growth premium is typically warranted for such companies anyway.

Current Fixed Income yields are low historically speaking, so clearly nominal ROE is depressed. I think assuming rates are cyclical and we are currently close to the bottom means the current ROE is cyclically depressed. To get to fair valuation on cyclical earnings, I would imagine, we should typically apply a larger than average multiple at trough earnings and lower than average multiple at peak earnings.

Current valuation makes sense thinking of it this way. I am looking for thoughts from others..
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 06, 2015, 08:39:56 AM
Wasn't MKL trading between 2 -2.5 during the golden days of high nominal ROE? If so doesn't the current multiple make sense relatively speaking? It is still a small company, so the runway is big, so some sort of growth premium is typically warranted for such companies anyway.

No, it doesn't. ;)

Well, sure you can argue that it does. Obviously Mr. Market is arguing that.

For me, MKL was cheaper recently, so that's one data point.
Also, there are all the other usual suspects of valuing (re)insurers: no big cats for couple years running, very low bond yields (great bond bull has been a great place for insurers who did not play games), high stock prices.

Or let's look at it another way: would you pay 1.5x NAV for a mutual fund that's guaranteed to outperform index by 1-2% a year? Or let's ask it differently: what outperformance would justify 1.5x NAV?

Sure, yeah, you can argue that MKL is not a mutual fund, that there's leverage (which may enhance or subtract returns), that it's partially bonds, not pure stocks (but that's more of an argument for lower multiple on NAV, not higher).

Anyway, just my opinion. I hold some MKL. But I don't think I'll buy more here. And I expect subpar returns going forward from this price. I would likely to buy more if it drops to 1.2x or so.

YMMV. :)
Title: Re: MKL - Markel Corp
Post by: ScottHall on November 06, 2015, 09:38:13 AM
Wasn't MKL trading between 2 -2.5 during the golden days of high nominal ROE? If so doesn't the current multiple make sense relatively speaking? It is still a small company, so the runway is big, so some sort of growth premium is typically warranted for such companies anyway.

No, it doesn't. ;)

Well, sure you can argue that it does. Obviously Mr. Market is arguing that.

For me, MKL was cheaper recently, so that's one data point.
Also, there are all the other usual suspects of valuing (re)insurers: no big cats for couple years running, very low bond yields (great bond bull has been a great place for insurers who did not play games), high stock prices.

Or let's look at it another way: would you pay 1.5x NAV for a mutual fund that's guaranteed to outperform index by 1-2% a year? Or let's ask it differently: what outperformance would justify 1.5x NAV?

Sure, yeah, you can argue that MKL is not a mutual fund, that there's leverage (which may enhance or subtract returns), that it's partially bonds, not pure stocks (but that's more of an argument for lower multiple on NAV, not higher).

Anyway, just my opinion. I hold some MKL. But I don't think I'll buy more here. And I expect subpar returns going forward from this price. I would likely to buy more if it drops to 1.2x or so.

YMMV. :)

Guaranteed to? Yes, I would. Over a lifetime, you'd end up with far more buying the 1.5x NAV index+2% grower than the index at 1x. Even assuming the price eventually returns to NAV.

For example, over 40 years you end up with the following scenarios. Let's assume 8% for the index and 10% for the fund, just for some reasonable inputs.

Index

$1 NAV at start, $1 market price. Over 40 years at 8%, that $1 grows to $21.72, roughly. A CAGR of 8%.

Guaranteed +2% Grower

$1 NAV at start, $1.50 market price. Over 40 years at 10%, that $1 grows to $45.26, roughly. But we paid $1.50, so the denominator is a bit different. $45.26 / $1.50 = 30.17 or so. 30.17 ^ (1 / 40) = 8.89% CAGR. Even though you paid more to start, you still outperform over a lifetime of investing.

If it stays at 1.5x NAV, you end up earning the 10% per year.

Just IMO.
Title: Re: MKL - Markel Corp
Post by: TwoCitiesCapital on November 06, 2015, 10:05:52 AM
Wasn't MKL trading between 2 -2.5 during the golden days of high nominal ROE? If so doesn't the current multiple make sense relatively speaking? It is still a small company, so the runway is big, so some sort of growth premium is typically warranted for such companies anyway.

No, it doesn't. ;)

Well, sure you can argue that it does. Obviously Mr. Market is arguing that.


For me, MKL was cheaper recently, so that's one data point.
Also, there are all the other usual suspects of valuing (re)insurers: no big cats for couple years running, very low bond yields (great bond bull has been a great place for insurers who did not play games), high stock prices.

Or let's look at it another way: would you pay 1.5x NAV for a mutual fund that's guaranteed to outperform index by 1-2% a year? Or let's ask it differently: what outperformance would justify 1.5x NAV?

Sure, yeah, you can argue that MKL is not a mutual fund, that there's leverage (which may enhance or subtract returns), that it's partially bonds, not pure stocks (but that's more of an argument for lower multiple on NAV, not higher).

Anyway, just my opinion. I hold some MKL. But I don't think I'll buy more here. And I expect subpar returns going forward from this price. I would likely to buy more if it drops to 1.2x or so.

YMMV. :)

Guaranteed to? Yes, I would. Over a lifetime, you'd end up with far more buying the 1.5x NAV index+2% grower than the index at 1x. Even assuming the price eventually returns to NAV.

For example, over 40 years you end up with the following scenarios. Let's assume 8% for the index and 10% for the fund, just for some reasonable inputs.

Index

$1 NAV at start, $1 market price. Over 40 years at 8%, that $1 grows to $21.72, roughly. A CAGR of 8%.

Guaranteed +2% Grower

$1 NAV at start, $1.50 market price. Over 40 years at 10%, that $1 grows to $45.26, roughly. But we paid $1.50, so the denominator is a bit different. $45.26 / $1.50 = 30.17 or so. 30.17 ^ (1 / 40) = 8.89% CAGR. Even though you paid more to start, you still outperform over a lifetime of investing.

If it stays at 1.5x NAV, you end up earning the 10% per year.

Just IMO.

Sure, 89 bps over the course of 40 years, assuming nothing goes wrong, would end up increasing your returns a lot. But in any given year, 89 bps is hardly compensation for the risk that you take of them falling short of such a long-term goal IMO.

If they fall short of 2% per year over 40 years, and instead hit 1% (still very admirable), you actually end up underperforming by 10 bps a year for 40 years. 

It doesn't even have to be a mistake that results from the investment side of their business. Maybe there's a massive, unforeseen catastrophe that hits the balance sheet pretty hard one year and it takes two years or so to recover from fully. Maybe one of their larger non-insurance businesses gets wiped out by technological change etc. Maybe the current management team retires and the new management isn't quite as strong in performance.

I guess my point is, unless if you think that book value is fundamentally understated by a large margin 1.5x is a steep price to pay due to all of the unforeseen risks that could occur. All you have to do to "lose" money is market perform.
Title: Re: MKL - Markel Corp
Post by: Williams406 on November 06, 2015, 10:41:56 AM
I've owned Markel since 2002 and generally feel pretty comfortable owning the good underwriters. When you see 2x, 2.5x book multiples for WR Berkley, Markel, etc. that's typically been during hard markets when book value growth is mid 20%. Everyone gets excited, extrapolates those returns farther out than they should and...

There is your fair value estimate, then there's your margin of safety. Both will be different for everyone. My approach is to not pay much of a premium to book at all. In 2010, WR Berkley could be had right at book value. I figured without a hard market, I'd likely earn high single-digits returns under most scenarios. Markel traded close to book in 2012. Once or twice a decade I'll get a chance to add to my holdings at low multiples. I really like how Markel operates, but by p/b measures, won't pay a big premium for them up front. This thinking has shot me in the foot with RLI (having never owned it), though, so maybe it isn't that smart. 
Title: Re: MKL - Markel Corp
Post by: gary17 on November 06, 2015, 10:46:39 AM
Hi William
did you ever look at AWH?  Any idea why it always trades just shy of book value ?
Title: Re: MKL - Markel Corp
Post by: notorious546 on November 06, 2015, 11:33:17 AM
Wasn't MKL trading between 2 -2.5 during the golden days of high nominal ROE? If so doesn't the current multiple make sense relatively speaking? It is still a small company, so the runway is big, so some sort of growth premium is typically warranted for such companies anyway.

No, it doesn't. ;)

Well, sure you can argue that it does. Obviously Mr. Market is arguing that.

For me, MKL was cheaper recently, so that's one data point.
Also, there are all the other usual suspects of valuing (re)insurers: no big cats for couple years running, very low bond yields (great bond bull has been a great place for insurers who did not play games), high stock prices.

Or let's look at it another way: would you pay 1.5x NAV for a mutual fund that's guaranteed to outperform index by 1-2% a year? Or let's ask it differently: what outperformance would justify 1.5x NAV?

Sure, yeah, you can argue that MKL is not a mutual fund, that there's leverage (which may enhance or subtract returns), that it's partially bonds, not pure stocks (but that's more of an argument for lower multiple on NAV, not higher).

Anyway, just my opinion. I hold some MKL. But I don't think I'll buy more here. And I expect subpar returns going forward from this price. I would likely to buy more if it drops to 1.2x or so.

YMMV. :)

Guaranteed to? Yes, I would. Over a lifetime, you'd end up with far more buying the 1.5x NAV index+2% grower than the index at 1x. Even assuming the price eventually returns to NAV.

For example, over 40 years you end up with the following scenarios. Let's assume 8% for the index and 10% for the fund, just for some reasonable inputs.

Index

$1 NAV at start, $1 market price. Over 40 years at 8%, that $1 grows to $21.72, roughly. A CAGR of 8%.

Guaranteed +2% Grower

$1 NAV at start, $1.50 market price. Over 40 years at 10%, that $1 grows to $45.26, roughly. But we paid $1.50, so the denominator is a bit different. $45.26 / $1.50 = 30.17 or so. 30.17 ^ (1 / 40) = 8.89% CAGR. Even though you paid more to start, you still outperform over a lifetime of investing.

If it stays at 1.5x NAV, you end up earning the 10% per year.

Just IMO.

i like your thinking scott.
Title: Re: MKL - Markel Corp
Post by: Crip1 on November 06, 2015, 12:08:03 PM
IMHO, MKL is not properly compared to a mutual fund: MKL’s capital is far more “sticky” in that they do not need to worry about redemptions of their equity funds nearly to the extent that a mutual fund does, nor do they need to worry about window dressing for year end, etc. Furthermore, MKL has a very solid operating business with underwriting profits as well as MKL Ventures which will increasingly add to earnings. Operations will continue to add to the returns of their investment portfolio the majority of years. All considered, IMHO, MKL at 1.5x BV is a more attractive investment then an Index fund at 1X. I am not sure that would be the case if MKL was selling at 2x but am VERY sure that would be the case if MKL was selling at 1x BV. 
Speaking of valuation, I don’t recall MKL getting much above 2x BV, certainly not to 2.5x but I could be wrong. While I hate the idea of selling very good companies, I made the decision a while ago that if MKL ever got close to 2x BV again, I would sell half of my position and then would buy back as many shares that were sold, or more, if it got close to 1x BV. This strategy would fall short of being “High-Frequency Trading” since in the 20 years I’ve owned MKL, I do not recall seeing those valuations more than 2 times respectively. As the company grows, it may make sense to reduce those numbers to 1.8 and 1.2 or so. After the post-earnings run-up, we’re close to 1.6x BV.
 
-Crip
Title: Re: MKL - Markel Corp
Post by: Williams406 on November 06, 2015, 12:57:03 PM
Crip,  Regarding p/b multiples I was painting with broad brush strokes. WR Berkley has, I think traded at near 2.5x book and Markel may have done it briefly in the mid-2000's, not sure. It's a slippery slope from 20-year holding periods to HFT--don't go crazy. Markel is getting big and I think you're right to note that may impact future multiples. We shall see. 

Gary, I'm not familiar with AWH beyond hearing the name a few times.
Title: Re: MKL - Markel Corp
Post by: Crip1 on November 18, 2015, 11:15:58 AM
Crip,  Regarding p/b multiples I was painting with broad brush strokes. WR Berkley has, I think traded at near 2.5x book and Markel may have done it briefly in the mid-2000's, not sure. It's a slippery slope from 20-year holding periods to HFT--don't go crazy. Markel is getting big and I think you're right to note that may impact future multiples. We shall see. 

Gary, I'm not familiar with AWH beyond hearing the name a few times.


Williams,
Not looking to turn this into a HFT deal by any stretch but, your "don't go crazy" advice is correct. The market overshoots to the upside and downside without respect to the company. When one sees it overshoot to the upside, the urge to sell is compelling. Today it hit a new intra-day high of $900 which is starting to look frothy. No sell orders put in as of yet, but I'd be surprised if I could not buy in again at $800 or so in the next 12-18 months.


That damned crystal ball is broken, again.


-Crip

Title: Re: MKL - Markel Corp
Post by: obtuse_investor on November 20, 2015, 06:58:29 PM
Friday night 8-K... Markel has Co-CEOs now.

Here is a snipplet of the filing:

Quote
On November 19, 2015, Markel Corporation (the “Company”) announced that, effective January 1, 2016, Thomas S. Gayner, President and Chief Investment Officer, and Richard R. Whitt, III, President and Co-Chief Operating Officer, will serve as Co-Chief Executive Officers of the Company. In addition, F. Michael Crowley, President and Co-Chief Operating Officer, will serve as the sole President of the Company as of the same date. Each of Messrs. Crowley, Gayner and Whitt will continue to report to Alan I. Kirshner, who will serve as the Company’s Executive Chairman of the Board.

Full filing: http://www.sec.gov/Archives/edgar/data/1096343/000109634315000101/a8-knovember2015document.htm
Title: Re: MKL - Markel Corp
Post by: CorpRaider on November 21, 2015, 04:29:20 AM
I saw that.  It seems a good confirmation that capital allocation is the chief long-term focus.  Congrats to Mr. Gayner! 
Title: Re: MKL - Markel Corp
Post by: Shooter MacGavin on November 24, 2015, 12:55:01 PM
anyone else getting nervous on the valuation here?  I don't get why the market is rallying on the appointment of Gayner/Whitt as Co-CEOs...Alan did a phenomenal job.  As an investor do you really want the chief investment officer and chief underwriter to go out and have to deal with the SEC, shareholders, state regulators, on top of their day jobs etc etc?

seems like an irrational "Gayner" celebrity premium to me or am I missing something?

If you're paying 1.7x book, then for you to earn an 10% return (call this the market required rate or discount rate), you think they'll compound at 17% per year.  However, its a stretch for them to do that at this point.  Tom admitted this in the 3Q earnings call.   I think they are aspiring to high single digits (from memory).  Really you should be paying around book to a little over book to earn a 10% rate of return and a little more to earn a little less...(what they compound book value at should be a function of the investment book returns * the asset leverage) plus the value of markel ventures.

I've owned this stock for a bit but I'm getting nervous that i may not get as juicy a bid a few months out so tempted to sell. I hope they issue stock and do another Alterra style acquisition.
Title: Re: MKL - Markel Corp
Post by: TwoCitiesCapital on November 24, 2015, 01:23:32 PM
anyone else getting nervous on the valuation here?  I don't get why the market is rallying on the appointment of Gayner/Whitt as Co-CEOs...Alan did a phenomenal job.  As an investor do you really want the chief investment officer and chief underwriter to go out and have to deal with the SEC, shareholders, state regulators, on top of their day jobs etc etc?

seems like an irrational "Gayner" celebrity premium to me or am I missing something?

If you're paying 1.7x book, then for you to earn an 10% return (call this the market required rate or discount rate), you think they'll compound at 17% per year.  However, its a stretch for them to do that at this point.  Tom admitted this in the 3Q earnings call.   I think they are aspiring to high single digits (from memory).  Really you should be paying around book to a little over book to earn a 10% rate of return and a little more to earn a little less...(what they compound book value at should be a function of the investment book returns * the asset leverage) plus the value of markel ventures.

I've owned this stock for a bit but I'm getting nervous that i may not get as juicy a bid a few months out so tempted to sell. I hope they issue stock and do another Alterra style acquisition.

I got nervous around $800-$850 and exited my position there. Great company, but if you pay up for growth, you may never realize the benefits of it.
Title: Re: MKL - Markel Corp
Post by: 100 Shares on November 24, 2015, 01:25:01 PM
anyone else getting nervous on the valuation here?  I don't get why the market is rallying on the appointment of Gayner/Whitt as Co-CEOs...Alan did a phenomenal job.  As an investor do you really want the chief investment officer and chief underwriter to go out and have to deal with the SEC, shareholders, state regulators, on top of their day jobs etc etc?

seems like an irrational "Gayner" celebrity premium to me or am I missing something?

If you're paying 1.7x book, then for you to earn an 10% return (call this the market required rate or discount rate), you think they'll compound at 17% per year.  However, its a stretch for them to do that at this point.  Tom admitted this in the 3Q earnings call.   I think they are aspiring to high single digits (from memory).  Really you should be paying around book to a little over book to earn a 10% rate of return and a little more to earn a little less...(what they compound book value at should be a function of the investment book returns * the asset leverage) plus the value of markel ventures.

I've owned this stock for a bit but I'm getting nervous that i may not get as juicy a bid a few months out so tempted to sell. I hope they issue stock and do another Alterra style acquisition.

what would you do if you sold, keep cash or reinvest in another opportunity?

If it's the latter, that's pretty straightforward if you  think you have better opportunity move the money to that.

If it's the former, would you rather have cash or Markel? Are you trying to get good returns over the next year or do you have a ten year horizon? I think back to Phil fisher, if you have a phenomenal company don't sell it with the hope to buy back in cheaper, you hardly ever get to and do you have the discipline to buy it later, are the taxes worth it, is maybe buying it 10% cheaper, worth never replenishing the shares you sold?

Also I disagree on your return being a function of earnings yield. If you hold this for the long term it will correlate to Return on capital not original earning yield
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 24, 2015, 01:48:12 PM
If I had a very large position, I'd probably cut it here. As it is, I continue to hold. I do not expect a great return from current prices though.

As I mentioned in other places, I couldn't have guessed the huge divergence of MKL vs. FRFHF/BRK performance this year. I can't explain it fully post factum either.
Title: Re: MKL - Markel Corp
Post by: Grey512 on November 24, 2015, 01:52:46 PM
Optically expensive until you consider what happens to earnings power in an environment where interest rates are 200bps higher.
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 24, 2015, 02:03:09 PM
Optically expensive until you consider what happens to earnings power in an environment where interest rates are 200bps higher.

OK, let's say I agree. But that would apply to (m)any (re)insurance cos. Not many (any?) trade at 1.7 book.

Edit: Y not Y then? Or RE? I somewhat stopped following a bunch of other (re)ins, but with time I can probably find bunch more candidates.
Edit 2: FRFHF would probably qualify too, no?
Title: Re: MKL - Markel Corp
Post by: TwoCitiesCapital on November 24, 2015, 02:13:05 PM
Optically expensive until you consider what happens to earnings power in an environment where interest rates are 200bps higher.

You also need to consider the probability of that happening and the timeline for it to happen. As it stands right now, it'd likely be 2-3 years before the back-end was 200 bps higher assuming the Fed, who has been wildly optimistic this entire time, is correct. So there's your optimistic timeline.

Then you have to consider the likelihood - there has not been a single country since 2008 who has successfully gotten off the 0-bound for interest rates. Canada, Israel, Switzerland, Japan, and the Eurozone have all raised rates since 2008 and all were forced to back-track and now sit at rates lower than when they started (with the exception of Canda which is just 25 bps higher). So, how likely is it that the U.S. economy will be able to do something that no other developed economies have been able to do, the first time, while the global economy is weaker than when they attempted it? I mean, I guess it's possible, but I don't think it's near as likely as everyone else seems to think.


So, you have a timeline of 3 years (optimistically) for the Fed to succeed at something that every other country that has attempted has failed to do, to justify today's price with earnings 3 years from now. That's not really a bet that I'm willing to take.

But you're right - if a miracle occurs, Markel is only optically expensive.
Title: Re: MKL - Markel Corp
Post by: ScottHall on November 25, 2015, 01:13:15 AM
anyone else getting nervous on the valuation here?  I don't get why the market is rallying on the appointment of Gayner/Whitt as Co-CEOs...Alan did a phenomenal job.  As an investor do you really want the chief investment officer and chief underwriter to go out and have to deal with the SEC, shareholders, state regulators, on top of their day jobs etc etc?

seems like an irrational "Gayner" celebrity premium to me or am I missing something?

If you're paying 1.7x book, then for you to earn an 10% return (call this the market required rate or discount rate), you think they'll compound at 17% per year. However, its a stretch for them to do that at this point.  Tom admitted this in the 3Q earnings call.   I think they are aspiring to high single digits (from memory).  Really you should be paying around book to a little over book to earn a 10% rate of return and a little more to earn a little less...(what they compound book value at should be a function of the investment book returns * the asset leverage) plus the value of markel ventures.

I've owned this stock for a bit but I'm getting nervous that i may not get as juicy a bid a few months out so tempted to sell. I hope they issue stock and do another Alterra style acquisition.

I'm sorry, can you please explain your rationale here? That's only really true if they can't reinvest at high rates... if Markel earned 17% on equity and paid it all out, you'd earn 10% annually buying at 1.7x book. If it could reinvest at a high rate for a long period then your return would be much better. A company that can compound BVPS at 17% per year for a long period of time would be worth many, many multiples of book value.

Assuming a 10% discount rate, in any case.
Title: Re: MKL - Markel Corp
Post by: TwoCitiesCapital on November 25, 2015, 06:45:37 AM
http://seekingalpha.com/article/3713236-why-markel-will-fall-short (http://seekingalpha.com/article/3713236-why-markel-will-fall-short)

Bearish article on SA.
Title: Re: MKL - Markel Corp
Post by: jay21 on November 25, 2015, 07:30:46 AM
If I had a very large position, I'd probably cut it here. As it is, I continue to hold. I do not expect a great return from current prices though.

As I mentioned in other places, I couldn't have guessed the huge divergence of MKL vs. FRFHF/BRK performance this year. I can't explain it fully post factum either.

For BRK: a lot of railroads sold off
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 25, 2015, 08:02:45 AM
If I had a very large position, I'd probably cut it here. As it is, I continue to hold. I do not expect a great return from current prices though.

As I mentioned in other places, I couldn't have guessed the huge divergence of MKL vs. FRFHF/BRK performance this year. I can't explain it fully post factum either.

For BRK: a lot of railroads sold off

Yes. And also IBM/AXP underperformed.

But look at MKL: it's a (re)insurance company in soft pricing environment, at a time where we haven't had supercat for 3+ years, at a time when the equity valuations of market (and their portfolio) are elevated and it's trading at elevated P/book. Not only it's at high P/book, its book is possibly "too high" due to elevated equity valuations. So possibly double whammy coming.

Would you seriously say that MKL is/was more attractive than BRK/FRFHF now or in the beginning of this year (Jan 1, 2015)?

The only attractiveness I see is that MKL is smaller and its CIO is way younger. Not sure I'd pay 1.5-1.7 p/b for that.
Title: Re: MKL - Markel Corp
Post by: ourkid8 on November 25, 2015, 08:07:35 AM
Fairfax has a smaller Marketcap then Markel. 

The only attractiveness I see is that MKL is smaller and its CIO is way younger. Not sure I'd pay 1.5-1.7 p/b for that.
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 25, 2015, 08:09:21 AM
Fairfax has a smaller Marketcap then Markel. 

The only attractiveness I see is that MKL is smaller and its CIO is way younger. Not sure I'd pay 1.5-1.7 p/b for that.

Right. I shouldn't try to compare against two companies in one sentence. :)
Title: Re: MKL - Markel Corp
Post by: ourkid8 on November 25, 2015, 08:14:43 AM
I got your point  :) 

Fairfax has a smaller Marketcap then Markel. 

The only attractiveness I see is that MKL is smaller and its CIO is way younger. Not sure I'd pay 1.5-1.7 p/b for that.

Right. I shouldn't try to compare against two companies in one sentence. :)
Title: Re: MKL - Markel Corp
Post by: Shooter MacGavin on November 25, 2015, 08:49:34 AM
anyone else getting nervous on the valuation here?  I don't get why the market is rallying on the appointment of Gayner/Whitt as Co-CEOs...Alan did a phenomenal job.  As an investor do you really want the chief investment officer and chief underwriter to go out and have to deal with the SEC, shareholders, state regulators, on top of their day jobs etc etc?

seems like an irrational "Gayner" celebrity premium to me or am I missing something?

If you're paying 1.7x book, then for you to earn an 10% return (call this the market required rate or discount rate), you think they'll compound at 17% per year. However, its a stretch for them to do that at this point.  Tom admitted this in the 3Q earnings call.   I think they are aspiring to high single digits (from memory).  Really you should be paying around book to a little over book to earn a 10% rate of return and a little more to earn a little less...(what they compound book value at should be a function of the investment book returns * the asset leverage) plus the value of markel ventures.

I've owned this stock for a bit but I'm getting nervous that i may not get as juicy a bid a few months out so tempted to sell. I hope they issue stock and do another Alterra style acquisition.

I'm sorry, can you please explain your rationale here? That's only really true if they can't reinvest at high rates... if Markel earned 17% on equity and paid it all out, you'd earn 10% annually buying at 1.7x book. If it could reinvest at a high rate for a long period then your return would be much better. A company that can compound BVPS at 17% per year for a long period of time would be worth many, many multiples of book value.

Assuming a 10% discount rate, in any case.

sure let's do the math. (I'm ignoring markel ventures to keep it simple, since its impact is small)

If you start with 1.7x book, and they earn 17% per year, reinvest 100% and keep earning incremental 17% per year, and then you exit at 1.7x book...then you capture 17%, per year sure.  I'd love to do that.

If you start with 1.7x book and they earn high return high single digits, low double digits and you exit with 1.7x book, then you earn high high single / low double (Tom's words, not mine...from 3Q earnings calls)

That's correct. But in a real sense, if we make high single-digit, low double-digit returns in a zero interest rate world, both the nominal yield and the inflation circumstance that we face, that would be a spectacular economic outcome. And we're optimistic about our ability to do so.

But if you're earning low double digits, then certainly the exit multiple in year 10 can't be 1.7x book can it?  it should be more like 1.1 or 1.2x -1.3x if the prospective investor at that point needs to earn at least 9-10%...

so if you start with 1.7x book, earn say 12% and then exit with 1.2x book, your return is much worse than 12% per year....over a 10 year stretch you'll have earned 8% per year. 

so then it begs the question well what kind of returns can they earn? 

The investment to equity leverage at this point is 2.0x.  Their investment book is 75% fixed income and 25% equities (as of 9/30/15, and climbing more towards equities in a very, very slow manner).  When you have a portfolio like that, what kind of returns can you do?  well if you can do the historic 6%, then you'll do 12% growth in book value (6%*2).  But remember over the last 6 years they've had the tailwind of not only a strong equities market, but also a declining interest rate environment, which was helping their fixed income book total return.  Then we had our current year in equities, and their equities book is down 5.3%  Nine months to date, they're down -1.2% (and flattish ex-fx).

From a go forward perspective, I'm not sure.  Maybe they continue to do 6-7%, and therefore earn 12%-14%.  But if the growth in float is not commensurate with the growth in their investment book, then the investment leverage has to keep coming down.  In a flattish premium writing environment, that is happening more and more. 

I'm not saying this isn't a great business and a great management team.  They may do a great deal.  They may find way to eek out more premiums faster and take up that leverage.  They'll over time, invest more in equities and hopefully squeeze out a point or more in the overall investment return book. In fact, I'd love to see them issue stock and do another Alterra like deal.  I'm just saying that when you pay 1.7x at the outset, you're setting yourself up for a drag on the multiple compression in a modest (10-12%) incremental return environment.  In other words, valuation matters.  They always say its harder to sell than to buy and I'm finding that to be the case here, but I'm getting tempted with a $925 quote.
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 25, 2015, 08:58:29 AM
I'm not saying this isn't a great business and a great management team.  In fact, I'd love to see them issue stock and do another Alterra like deal.  I'm just saying that when you pay 1.7x at the outset, you're setting yourself up for a drag on the multiple compression in a modest (10-12%) incremental return environment.  Valuation matters.  It's not a knock on the company.  It's a judgment on the certainty you have in compounding your own capital.

This.
Title: Re: MKL - Markel Corp
Post by: rishig on November 25, 2015, 09:16:42 AM
anyone else getting nervous on the valuation here?  I don't get why the market is rallying on the appointment of Gayner/Whitt as Co-CEOs...Alan did a phenomenal job.  As an investor do you really want the chief investment officer and chief underwriter to go out and have to deal with the SEC, shareholders, state regulators, on top of their day jobs etc etc?

seems like an irrational "Gayner" celebrity premium to me or am I missing something?

If you're paying 1.7x book, then for you to earn an 10% return (call this the market required rate or discount rate), you think they'll compound at 17% per year. However, its a stretch for them to do that at this point.  Tom admitted this in the 3Q earnings call.   I think they are aspiring to high single digits (from memory).  Really you should be paying around book to a little over book to earn a 10% rate of return and a little more to earn a little less...(what they compound book value at should be a function of the investment book returns * the asset leverage) plus the value of markel ventures.

I've owned this stock for a bit but I'm getting nervous that i may not get as juicy a bid a few months out so tempted to sell. I hope they issue stock and do another Alterra style acquisition.

I'm sorry, can you please explain your rationale here? That's only really true if they can't reinvest at high rates... if Markel earned 17% on equity and paid it all out, you'd earn 10% annually buying at 1.7x book. If it could reinvest at a high rate for a long period then your return would be much better. A company that can compound BVPS at 17% per year for a long period of time would be worth many, many multiples of book value.

Assuming a 10% discount rate, in any case.

sure let's do the math. (I'm ignoring markel ventures to keep it simple, since its impact is small)

If you start with 1.7x book, and they earn 17% per year, reinvest 100% and keep earning incremental 17% per year, and then you exit at 1.7x book...then you capture 17%, per year sure.  I'd love to do that.

If you start with 1.7x book and they earn high return high single digits, low double digits and you exit with 1.7x book, then you earn high high single / low double (Tom's words, not mine...from 3Q earnings calls)

That's correct. But in a real sense, if we make high single-digit, low double-digit returns in a zero interest rate world, both the nominal yield and the inflation circumstance that we face, that would be a spectacular economic outcome. And we're optimistic about our ability to do so.

But if you're earning low double digits, then certainly the exit multiple in year 10 can't be 1.7x book can it?  it should be more like 1.1 or 1.2x -1.3x if the prospective investor at that point needs to earn at least 9-10%...

so if you start with 1.7x book, earn say 12% and then exit with 1.2x book, your return is much worse than 12% per year....over a 10 year stretch you'll have earned 8% per year. 

so then it begs the question well what kind of returns can they earn? 

The investment to equity leverage at this point is 2.0x.  Their investment book is 75% fixed income and 25% equities (as of 9/30/15, and climbing more towards equities in a very, very slow manner).  When you have a portfolio like that, what kind of returns can you do?  well if you can do the historic 6%, then you'll do 12% growth in book value (6%*2).  But remember over the last 6 years they've had the tailwind of not only a strong equities market, but also a declining interest rate environment, which was helping their fixed income book total return.  Then we had our current year in equities, and their equities book is down 5.3%  Nine months to date, they're down -1.2% (and flattish ex-fx).

From a go forward perspective, I'm not sure.  Maybe they continue to do 6-7%, and therefore earn 12%-14%.  But if the growth in float is not commensurate with the growth in their investment book, then the investment leverage has to keep coming down.  In a flattish premium writing environment, that is happening more and more. 

I'm not saying this isn't a great business and a great management team.  They may do a great deal.  They may find way to eek out more premiums faster and take up that leverage.  They'll over time, invest more in equities and hopefully squeeze out a point or more in the overall investment return book. In fact, I'd love to see them issue stock and do another Alterra like deal.  I'm just saying that when you pay 1.7x at the outset, you're setting yourself up for a drag on the multiple compression in a modest (10-12%) incremental return environment.  In other words, valuation matters.  They always say its harder to sell than to buy and I'm finding that to be the case here, but I'm getting tempted with a $925 quote.

Its not a binary decision - buy or sell - for me in cases like this. I sell shares to take my initial investment out, effectively reducing the position size. If they continue to amaze with their superior performance, you still have a non-zero position to participate in the upside. If like most businesses, they falter somewhere down the road for temporary reasons, you increase the position size.

Position sizing is not a science and what I suggesting works for me. Not to say this is the only way to do things.
Title: Re: MKL - Markel Corp
Post by: ScottHall on November 25, 2015, 06:50:52 PM
anyone else getting nervous on the valuation here?  I don't get why the market is rallying on the appointment of Gayner/Whitt as Co-CEOs...Alan did a phenomenal job.  As an investor do you really want the chief investment officer and chief underwriter to go out and have to deal with the SEC, shareholders, state regulators, on top of their day jobs etc etc?

seems like an irrational "Gayner" celebrity premium to me or am I missing something?

If you're paying 1.7x book, then for you to earn an 10% return (call this the market required rate or discount rate), you think they'll compound at 17% per year. However, its a stretch for them to do that at this point.  Tom admitted this in the 3Q earnings call.   I think they are aspiring to high single digits (from memory).  Really you should be paying around book to a little over book to earn a 10% rate of return and a little more to earn a little less...(what they compound book value at should be a function of the investment book returns * the asset leverage) plus the value of markel ventures.

I've owned this stock for a bit but I'm getting nervous that i may not get as juicy a bid a few months out so tempted to sell. I hope they issue stock and do another Alterra style acquisition.

I'm sorry, can you please explain your rationale here? That's only really true if they can't reinvest at high rates... if Markel earned 17% on equity and paid it all out, you'd earn 10% annually buying at 1.7x book. If it could reinvest at a high rate for a long period then your return would be much better. A company that can compound BVPS at 17% per year for a long period of time would be worth many, many multiples of book value.

Assuming a 10% discount rate, in any case.

sure let's do the math. (I'm ignoring markel ventures to keep it simple, since its impact is small)

If you start with 1.7x book, and they earn 17% per year, reinvest 100% and keep earning incremental 17% per year, and then you exit at 1.7x book...then you capture 17%, per year sure.  I'd love to do that.

If you start with 1.7x book and they earn high return high single digits, low double digits and you exit with 1.7x book, then you earn high high single / low double (Tom's words, not mine...from 3Q earnings calls)

That's correct. But in a real sense, if we make high single-digit, low double-digit returns in a zero interest rate world, both the nominal yield and the inflation circumstance that we face, that would be a spectacular economic outcome. And we're optimistic about our ability to do so.

But if you're earning low double digits, then certainly the exit multiple in year 10 can't be 1.7x book can it?  it should be more like 1.1 or 1.2x -1.3x if the prospective investor at that point needs to earn at least 9-10%...

so if you start with 1.7x book, earn say 12% and then exit with 1.2x book, your return is much worse than 12% per year....over a 10 year stretch you'll have earned 8% per year. 

so then it begs the question well what kind of returns can they earn? 

The investment to equity leverage at this point is 2.0x.  Their investment book is 75% fixed income and 25% equities (as of 9/30/15, and climbing more towards equities in a very, very slow manner).  When you have a portfolio like that, what kind of returns can you do?  well if you can do the historic 6%, then you'll do 12% growth in book value (6%*2).  But remember over the last 6 years they've had the tailwind of not only a strong equities market, but also a declining interest rate environment, which was helping their fixed income book total return.  Then we had our current year in equities, and their equities book is down 5.3%  Nine months to date, they're down -1.2% (and flattish ex-fx).

From a go forward perspective, I'm not sure.  Maybe they continue to do 6-7%, and therefore earn 12%-14%.  But if the growth in float is not commensurate with the growth in their investment book, then the investment leverage has to keep coming down.  In a flattish premium writing environment, that is happening more and more. 

I'm not saying this isn't a great business and a great management team.  They may do a great deal.  They may find way to eek out more premiums faster and take up that leverage.  They'll over time, invest more in equities and hopefully squeeze out a point or more in the overall investment return book. In fact, I'd love to see them issue stock and do another Alterra like deal.  I'm just saying that when you pay 1.7x at the outset, you're setting yourself up for a drag on the multiple compression in a modest (10-12%) incremental return environment.  In other words, valuation matters.  They always say its harder to sell than to buy and I'm finding that to be the case here, but I'm getting tempted with a $925 quote.

I didn't say anything about Markel's relative valuation right now. It's higher than it has ever been since I've owned it, and I'm not adding.

The only thing I was attempting to point out is that your idea of returns given certain compounding rates are off base, even using a simple justified P/B model. Paying 1.7x for a 17% compounder would be a massive steal; the returns would be meaningfully higher than 10% given any reasonable length of time.
Title: Re: MKL - Markel Corp
Post by: Shooter MacGavin on November 27, 2015, 07:08:31 AM
yeah that's fair.  that valuation shortcut was wrong. 
Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on November 27, 2015, 09:41:32 AM
Thanks all for taking the time to put down your thoughts on Markel.  Thoughtful stuff and really appreciated.

To the discussion I would throw in my view that Markel's reserves are on the high side of what they'll end up paying out.  This of course cannot be taken as a given, but it's their stated objective to over-reserve upfront, release after.

You can see that their accident year combined ratios are regularly above 100%, whereas the overall CR (which includes prior year reserve releases) is around 10 points lower (last 10 years, average numbers).  The 2014 accident year CR was 106%......overall CR was 95%.

Thus, reserve releases tend to be quite chunky.  If we take reported net reserves at year end 2010 as an example, they were initially estimated at $4.6bn and as of year end 2014 had been re-estimated at $3.5bn.  History would suggest this number may fall modestly from here, but even ignoring that, this reduction in net reserves of $1.1bn equates to around one-third of 2010 shareholders' equity ($3.2bn).  In other words, sitting there in March 2010 with a freshly printed 10-K and perfect knowledge of the over-reserving tail-wind to come, Markel was really trading on a Price-to-Book ratio of 0.9x ($4bn market cap, shareholders' equity of $3.2bn + $1.1bn) and not the stated 1.25x.

So what does this mean? Perhaps nothing! Perhaps I'm reaching......but if I was to bet one way or the other I'd say that the current net reserves estimate of $7.2bn is over-cooked -- certainly relative to other insurers out there.

The current equity base is around $7.7bn......you can do you own "what ifs".

The other thing to consider is the value of their float, which is around $10bn.  Again you can do your own "what ifs", but assuming no growth in the float, modest after tax investment returns from here (say 4%) a cost of float (perhaps -3%??) and a required rate of return of 10% and you can more or less justify the current stated 1.7x P/B.  Add in growth of float and you get a higher warranted valuation still.

These are the positives. 

The clear potential negative is the valuation of their investment assets.  Markel has c.$4bn of equity securities.  Also, they say they are buying only the best quality bonds, but if yields back up their bonds will fall in value (modestly, but still could be impactful on equity).  Then again, backing up of yields gives Markel the opportunity to get higher investment returns going forward.

So in summary, of course I'd like Markel to be trading cheaper and investment prospects to be higher, but it ain't so.  I think Markel is a great company with a long future of growth ahead of it, better than the market is currently pricing.  I just have to accept that my future return will be a bit lower.

And I ask you: Where are the really cheap companies with trustworthy managements and robust business models??

(On this subject I would point to you the LUK discussion, where I am also long.  Benhacker has done a good job of outlining the investment case).

P.S. I hope I've done all my numbers / calculations correct.....I'm kind of rushing out the door.  Please let me know of any errors.
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 27, 2015, 09:45:15 AM
And I ask you: Where are the really cheap companies with trustworthy managements and robust business models??

BRK. FFH. Y. Perhaps RE.

Disclosure: I own positions in MKL, BRK, FFH. No current positions in Y and RE.
Title: Re: MKL - Markel Corp
Post by: WhoIsWarren on November 27, 2015, 01:51:43 PM
And I ask you: Where are the really cheap companies with trustworthy managements and robust business models??

BRK. FFH. Y. Perhaps RE.

Disclosure: I own positions in MKL, BRK, FFH. No current positions in Y and RE.

Hi Jurgis, yes indeed BRK and FFH.  I own both.  Though it's not like these businesses are trading on their valuation knees.....both trading on around 1.4x book off the top of my head.  And it's got to be asked: is FFH's insurance business as good as Markel's?  I wouldn't be confident enough to say so (though as time goes on I'm getting more relaxed on that front).  Also some of the things Fairfax have been doing in the last few years.....well......let's just say the P/B discount to Markel is not that unreasonable.

I don't know Alleghany much.

I know Everest Re (RE) reasonably well as I held it for a number of years before selling a couple of months ago.  The undemanding headline P/B (around 1x or so) is enticing.  However I worried about the relatively new management team that has grown pretty strongly in the last number of years, into new geographies and into insurance.  Given the falling pricing / competitive insurance environment out there I worried they were overstretching -- probably unnecessarily so, but there you go.
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 27, 2015, 01:59:50 PM
@WhoIsWarren: What you say makes sense. I don't have anything more to add at this time. :)
Title: Re: MKL - Markel Corp
Post by: james22 on February 10, 2016, 11:52:02 PM
Markel (NYSE:MKL): Q4 EPS of $14.14 beats by $6.93.

Revenue of $1.42B (+6.0% Y/Y) beats by $90M.


http://seekingalpha.com/news/3098416-markel-beats-6_93-beats-revenue

Nice.


Title: Re: MKL - Markel Corp
Post by: giofranchi on February 11, 2016, 02:35:58 AM
Markel (NYSE:MKL): Q4 EPS of $14.14 beats by $6.93.

Revenue of $1.42B (+6.0% Y/Y) beats by $90M.


http://seekingalpha.com/news/3098416-markel-beats-6_93-beats-revenue

Nice.

Yes! Very nice.

It is selling at 1.5xBVPS though, and I think in this market I'll wait for a lower multiple.

Cheers,

Gio
Title: Re: MKL - Markel Corp
Post by: fareastwarriors on February 11, 2016, 08:49:23 AM
I'm watching this and hopefully it goes down some more so I can scoop in for some shares.
 ;)
Title: Re: MKL - Markel Corp
Post by: notorious546 on February 11, 2016, 09:23:13 AM
anyone going to Markel Brunch, i just signed up the other day.
Title: Re: MKL - Markel Corp
Post by: Scudbucket on February 11, 2016, 05:36:33 PM
Can't make it this year.  But please take notes for us!
Title: Re: MKL - Markel Corp
Post by: Crip1 on February 11, 2016, 07:04:08 PM
Tom Gayner from the Q4 2015 Conference Call Transcript:


"In 2015, we emphasized defense in our investment operations as well. We did so through the following specific actions. First, we maintained our high credit quality profile in our fixed income operations. Secondly, we kept our equity exposure at the low end of our range for equity investments over the last 25 years. Thirdly, we maintained a strong and highly liquid balance sheet in order to be ready to actively deploy the funds when conditions warrant doing so.

These primary actions along with other decisions allow us to be in a great position to play first-class defense and make sure that we are fully prepared to take advantage of investment opportunities and Markel Ventures' additions as available."


Wondering if and, if so, how they are deploying cash in light of recent market declines. MKL sold a few holdings which should show up on the 13F due out Friday the 12th. I do like the idea of Gayner having some dry powder.


-Crip
Title: Re: MKL - Markel Corp
Post by: james22 on February 13, 2016, 12:48:41 AM
http://www.rationalwalk.com/?p=14086
Title: Re: MKL - Markel Corp
Post by: ECCO on February 13, 2016, 09:30:34 AM
anyone going to Markel Brunch, i just signed up the other day.

Would like to assist too, can you tell me where you signed up?
Title: Re: MKL - Markel Corp
Post by: notorious546 on February 13, 2016, 02:08:02 PM
http://markelbrunch2016.markelcorp.com/
Title: Re: MKL - Markel Corp
Post by: ECCO on February 13, 2016, 02:58:35 PM
http://markelbrunch2016.markelcorp.com/

Great! Thanks !!!
Title: Re: MKL - Markel Corp
Post by: cleonard12 on March 30, 2016, 08:08:18 AM
2015 Annual Letter is up on the website: https://www.markelcorp.com/~/media/investor%20relations/letters%20to%20shareholders/2015.pdf?la=en

Title: Re: MKL - Markel Corp
Post by: roark33 on March 30, 2016, 11:37:24 AM
I read their annual report today.  They mentioned the following:

"As we followed this bottom up approach during the year we sold several longstanding holdings. We became concerned that the changing landscape of competitive conditions diminished our expectation for fundamental levels of profitability."

I was curious what they sold, so I compared year end 2014 with year end 2015 13-f and here are the positions that were either sold out or decrease materially. 

Cisco
Expeditors International
Fairfax
Federated Investors
General Electric
Intel
LGI Homes
McDonalds
Wal-Mart
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 02, 2016, 10:42:44 AM
Does anyone go to their annual meeting in Richmond?  Not planning on going this time, but you know...east coast.
Title: Re: MKL - Markel Corp
Post by: EricSchleien on May 02, 2016, 01:48:03 PM
I'll be there :)
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 02, 2016, 04:03:08 PM
Neat.  Do they have all three co-ceo's, the ceo and both Markels (vice chairmen?) hold forth or does Gayner get to do the bulk of the talking?
Title: Re: MKL - Markel Corp
Post by: EricSchleien on May 02, 2016, 05:46:53 PM
No clue! This will be my first.
Title: Re: MKL - Markel Corp
Post by: Own The Rails on May 02, 2016, 07:27:40 PM
Neat.  Do they have all three co-ceo's, the ceo and both Markels (vice chairmen?) hold forth or does Gayner get to do the bulk of the talking?

If it's anything like the meeting they had in Omaha, they'll all be there. Gayner takes most of the questions, though.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 03, 2016, 08:37:33 AM
Neat.  Hope you guys all enjoy.   Hope to join you in the future.
Title: Re: MKL - Markel Corp
Post by: fareastwarriors on May 03, 2016, 09:15:19 AM
Please share some notes if you're taking some. Thank you!
Title: Re: MKL - Markel Corp
Post by: Own The Rails on May 03, 2016, 03:46:34 PM
Please share some notes if you're taking some. Thank you!

Didn't take heavy notes, but a few quotes/thoughts from Tom Gayner in Omaha (apologies if these aren't verbatim):

"You get good judgment by learning from mistakes, which comes from bad judgment."

"A pancake, no matter how thin, has two sides" (regarding Buffett and Munger's comments that reinsurance will be a tougher business these next 10 years than it was over the past 10).

"Markel is a private company that happens to be publicly traded" (regarding their culture, the feel of the firm, their interaction with managers; very BRK-esque).

Spoke highly of companies with similar business models, and noted they have positions in a number of them: BRK, Y, RLI, FFH

"You don't go to church every week to learn something new–you go to reinforce what you already know (and sometimes you pick up a few new things)" (regarding making the pilgrimage to Omaha every year).

Spent a while talking about reinvestment opportunities over the long-haul. Basically said you should pay a different multiple for a company that's able to reinvest its earnings at a good rate of return than you should for a company that will end up resorting to buybacks/dividends to create value (mainly due to its size). I think this was in regards to BRK (a large position for them) being so big, as well as AAPL slowing down. A simple topic, but like he said, it always helps to reinforce these ideas. Church dismissed!
Title: Re: MKL - Markel Corp
Post by: winjitsu on May 03, 2016, 11:37:14 PM
By the way, Gayner did another interview on VII:

http://www.valueinvestorinsight.com/pdfs/TrialAPR2016.PDF

I would download while you can :)
Title: Re: MKL - Markel Corp
Post by: Agrippa07 on May 04, 2016, 02:20:30 AM
I didn't take full notes either, however here are some other things that were mentioned and stood out:

On their experience with acquiring companies:
'When acquiring companies, acquiring one that is fully operating and running is easier/better than acquiring a growth company with lots of potential as it's hard to expand (growth pains).'

BRK Reinsurance business:
'Reinsurance niche for BRK has been getting smaller and more competitive, current margin is now for e.g. 1.5x instead of 2x.

The importance of recognizing the difference between commission and omission mistakes.

Book Recommendation:
Creativity inc - Ed Catmull
Title: Re: MKL - Markel Corp
Post by: merkhet on May 04, 2016, 05:36:23 AM
I really enjoyed his explanation of how they got comfortable with the economics of Amazon, Facebook, etc. "We guess!"
Title: Re: MKL - Markel Corp
Post by: racemize on May 04, 2016, 07:11:22 AM
I really enjoyed his explanation of how they got comfortable with the economics of Amazon, Facebook, etc. "We guess!"

Can you give some context on it?  Did I miss a post?
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 04, 2016, 07:18:18 AM
What does the reinsurance pancake metaphor mean?  They are buying RE coverage rather than writing it?
Title: Re: MKL - Markel Corp
Post by: jtvalue on May 04, 2016, 07:42:20 AM
By the way, Gayner did another interview on VII:

http://www.valueinvestorinsight.com/pdfs/TrialAPR2016.PDF

I would download while you can :)

Wow - according to interview he recently initiated core positions in AMZN, GOOG, and FB. Not sure how I feel about that
Title: Re: MKL - Markel Corp
Post by: AJDelphi on May 04, 2016, 10:59:31 AM
I understood the pancake comment to mean that reinsurance might be a tougher business in the next 10 years, but it is probably still a REALLY good business for Berkshire. Buffett just isn't going to come out and say that. You don't really want to tell anyone how good it is.
Title: Re: MKL - Markel Corp
Post by: merkhet on May 04, 2016, 12:32:58 PM
I really enjoyed his explanation of how they got comfortable with the economics of Amazon, Facebook, etc. "We guess!"

Can you give some context on it?  Did I miss a post?

One attendant asked a question about how they value companies, and Tom Gayner said one way to do that is to look over the last ten years and decide how similar things are to the next ten years. The next attendant asked "How do you do that for companies that have fewer than ten years' history like some of the tech companies?" His response is that they sort of have to guess at the economics of these businesses. Over time, as you get more information, you use Bayes Theorem and adjust your views accordingly.

I like it because I found it refreshingly honest. You see a lot of people come up with these intricate measures of Facebook's or Amazon's intrinsic value based on margins predicated on assumptions that, frankly, are guesses. This isn't necessarily a terrible way to do things, but it would behoove people to remind themselves that, they are, at best, still guesses.
Title: Re: MKL - Markel Corp
Post by: Poor Charlie on May 04, 2016, 12:37:56 PM
Link to MKL Omaha meeting notes - https://www.dropbox.com/s/7gh3j9g02l398gp/Phil%20Weiss'%202016%20Markel%20Omaha%20Meeting%20Notes.pdf?dl=0
Title: Re: MKL - Markel Corp
Post by: LongTermView on May 04, 2016, 01:09:01 PM
I recall Gayner mentioning something about certain parts of tech being winner take all and some tech companies having young leadership that should stay in place for years to come.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 04, 2016, 03:21:49 PM
Yeah I don't know about buying those tech names here.  To me, if you are just a value investor/finance guy, not a tech guy with some special competency and you weren't smart enough to buy MSFT back when you saw lotus 123 bite the dust, you may not know wtf you are doing now. 

I don't see any Y in their portfolio as of last time they filed...

I wish one of these Berk-alikes would just use the S&P 500 or something for their equity allocation and then just make sure to focus on doing a good job in insurance and benefitting from the float and uncorrelated insurance and investment returns and ability to allocate capital based on the opportunities.  I know RLI allocates there, but my understanding is that they don't really grow and maintain the float/leverage with the portfolio appreciation.

One of you guys start that up or get those lancashire former guys to do it.  None of this hedge fund or stock picking BS.
Title: Re: MKL - Markel Corp
Post by: Jurgis on May 04, 2016, 04:10:38 PM
Not a bad thought.

Could even be coupled with MKL's Graham-y variations of 50% to 80% of equity allocation in their equity slice. Or not. Both should be pretty good perhaps.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 04, 2016, 04:21:05 PM
You mean scale up the equity exposure or down given market valuations versus fixed income or insurance opportunities?   Yeah that could work, it would give them something to talk about at least...

Yeah I'm surprised no one has done it (or even a CEF with some preferred/leverage of like 1.3x an index, pimco has on that does futures and a fundamental index but it always trades at insane premium to book).  Didn't AQR claim that the float was the source of Buffett's alpha?  I don't buy that but it still might be a damn sight better than most things post Buffett.  Much preferred by this guy to Einhorn or Loeb's re-insurers.  One of you rich guys take over RLI or LRE.L and make it happen.
Title: Re: MKL - Markel Corp
Post by: vinod1 on May 04, 2016, 04:48:02 PM

I wish one of these Berk-alikes would just use the S&P 500 or something for their equity allocation and then just make sure to focus on doing a good job in insurance and benefitting from the float and uncorrelated insurance and investment returns and ability to allocate capital based on the opportunities.  I know RLI allocates there, but my understanding is that they don't really grow and maintain the float/leverage with the portfolio appreciation.


Good point.

Even Fairfax with their outstanding investment track record, only added 1.38% by my calculations over the entire period from 1986 to 2014, excluding the CDS gains. Their portfolio as a whole (stock, bonds, cash) grew at 6.12% compared to 4.74% if invested in an appropriate index.

Vinod
Title: Re: MKL - Markel Corp
Post by: Jurgis on May 04, 2016, 09:47:10 PM
You mean scale up the equity exposure or down given market valuations versus fixed income or insurance opportunities?   Yeah that could work, it would give them something to talk about at least...

Yep.
Title: Re: MKL - Markel Corp
Post by: ERICOPOLY on May 05, 2016, 04:31:28 AM

I wish one of these Berk-alikes would just use the S&P 500 or something for their equity allocation and then just make sure to focus on doing a good job in insurance and benefitting from the float and uncorrelated insurance and investment returns and ability to allocate capital based on the opportunities.  I know RLI allocates there, but my understanding is that they don't really grow and maintain the float/leverage with the portfolio appreciation.


Good point.

Even Fairfax with their outstanding investment track record, only added 1.38% by my calculations over the entire period from 1986 to 2014, excluding the CDS gains. Their portfolio as a whole (stock, bonds, cash) grew at 6.12% compared to 4.74% if invested in an appropriate index.

Vinod

6.12% is 29% higher than 4.74%.  It's not 100% higher, but 29% is not meaningless.  It may be that they can't repeat it going forward, or perhaps they will do worse than markets going forward, but so far it appears to have been worth it.

It is unclear going forward that their underwriting would improve if their float were invested in index funds.  Fire HWIC and the underwriting gets way better as a result?  I thought the people involved in underwriting were different from the HWIC people, so how does that work?


Title: Re: MKL - Markel Corp
Post by: TwoCitiesCapital on May 05, 2016, 06:22:57 AM

I wish one of these Berk-alikes would just use the S&P 500 or something for their equity allocation and then just make sure to focus on doing a good job in insurance and benefitting from the float and uncorrelated insurance and investment returns and ability to allocate capital based on the opportunities.  I know RLI allocates there, but my understanding is that they don't really grow and maintain the float/leverage with the portfolio appreciation.


Good point.

Even Fairfax with their outstanding investment track record, only added 1.38% by my calculations over the entire period from 1986 to 2014, excluding the CDS gains. Their portfolio as a whole (stock, bonds, cash) grew at 6.12% compared to 4.74% if invested in an appropriate index.

Vinod

6.12% is 29% higher than 4.74%.  It's not 100% higher, but 29% is not meaningless.  It may be that they can't repeat it going forward, or perhaps they will do worse than markets going forward, but so far it appears to have been worth it.

It is unclear going forward that their underwriting would improve if their float were invested in index funds.  Fire HWIC and the underwriting gets way better as a result?  I thought the people involved in underwriting were different from the HWIC people, so how does that work?

Only 1.38% per year for 30 years? What do you mean only? That makes a massive difference.

$10,000 compounded at 4.74% for 30 years is $40,121
The same amount compounded at 6.12% is $59,417 - a near 50% difference in your ending amount. That's a massive difference - anyone who thinks otherwise is welcome to remit 1/3 of your final retirement savings to me if you don't think that extra 1.38% for 30 years is significant.

Title: Re: MKL - Markel Corp
Post by: Broeb22 on May 05, 2016, 06:26:58 AM
CorpRaider,

Such a company exists. The company's name is W.R. Berkley. A significant portion of their investments are an allocation to indices.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on May 05, 2016, 06:39:26 AM
It is a significant outperformance but with the passive option you don't have the risk someone blows their record up going to FB, making macro bets on deflation, just gets old and looses "it", the brains of the operation dies and they go off the rails (like Sequoia), etc... 

I didn't meant to imply it would have an impact on the underwriting side, just would want to be paired with that capability to get "negative interest" leverage.  I guess you could argue you need a non-insurance guy to rationally allocate the capital to writing insurance or buying equities.  I wonder if the 1.38% holds up compared to a simple value index?  Sounds like that is in the range of Fama's value "anomaly."  Just thinking if you take the investing excellence/talent out of the equation you have to be good/exceptional/rational in at least one less area. 

Thought that the question was just sort of begged by Buffett's "Sermon on the Dais."  Sorry to muck up the MKL thread.

Thanks Broeb.  They seem to be bragging about the P/E and "alternatives" exposure in recent Chairman's letter, but I will check it out.
Title: Re: MKL - Markel Corp
Post by: Broeb22 on May 05, 2016, 07:34:47 AM
Corp Raider,

I apologize. I misspoke with re: WRB.

I too have thought that index investing inside an insurance company might be the most sensible way to run the equity portfolio. It's low cost and tax-efficient.
Title: Re: MKL - Markel Corp
Post by: vinod1 on May 05, 2016, 04:02:02 PM

I wish one of these Berk-alikes would just use the S&P 500 or something for their equity allocation and then just make sure to focus on doing a good job in insurance and benefitting from the float and uncorrelated insurance and investment returns and ability to allocate capital based on the opportunities.  I know RLI allocates there, but my understanding is that they don't really grow and maintain the float/leverage with the portfolio appreciation.


Good point.

Even Fairfax with their outstanding investment track record, only added 1.38% by my calculations over the entire period from 1986 to 2014, excluding the CDS gains. Their portfolio as a whole (stock, bonds, cash) grew at 6.12% compared to 4.74% if invested in an appropriate index.

Vinod

6.12% is 29% higher than 4.74%.  It's not 100% higher, but 29% is not meaningless.  It may be that they can't repeat it going forward, or perhaps they will do worse than markets going forward, but so far it appears to have been worth it.

It is unclear going forward that their underwriting would improve if their float were invested in index funds.  Fire HWIC and the underwriting gets way better as a result?  I thought the people involved in underwriting were different from the HWIC people, so how does that work?

I do not disagree. What I was trying to say

1. Most P&C companies that are trying to copy the BRK model of investing part of shareholder capital in equities would have achieved good results by just indexing. Even without the skill of HWIC, investing this way would have resulted in them compounding book value at most 1% or 2% annually below what Fairfax has achieved.

2. Fairfax has been better off due to HWIC, but it was surprising to me how small that advantage was when compared to their actual returns on stock and bond portfolios separately. So a lot of their returns have been eaten up by hedging and asset allocation changes.

3. But even for Fairfax, the advantage is small enough that a couple of years of bad returns can wipe out this advantage. This can cut both ways and arguably it is more likely that the recent under performance is likely to be corrected in their favor so the advantage at this point is understated.

4. You are correct of course that HWIC is separate from the underwriting team. What I was thinking is that, Prem could conceivably better spent his time trying to buy companies with great underwriting track records rather than trying to buy so and so companies and trying to fix them.

Vinod
Title: Re: MKL - Markel Corp
Post by: vinod1 on May 05, 2016, 04:08:50 PM

I wish one of these Berk-alikes would just use the S&P 500 or something for their equity allocation and then just make sure to focus on doing a good job in insurance and benefitting from the float and uncorrelated insurance and investment returns and ability to allocate capital based on the opportunities.  I know RLI allocates there, but my understanding is that they don't really grow and maintain the float/leverage with the portfolio appreciation.


Good point.

Even Fairfax with their outstanding investment track record, only added 1.38% by my calculations over the entire period from 1986 to 2014, excluding the CDS gains. Their portfolio as a whole (stock, bonds, cash) grew at 6.12% compared to 4.74% if invested in an appropriate index.

Vinod

6.12% is 29% higher than 4.74%.  It's not 100% higher, but 29% is not meaningless.  It may be that they can't repeat it going forward, or perhaps they will do worse than markets going forward, but so far it appears to have been worth it.

It is unclear going forward that their underwriting would improve if their float were invested in index funds.  Fire HWIC and the underwriting gets way better as a result?  I thought the people involved in underwriting were different from the HWIC people, so how does that work?

Only 1.38% per year for 30 years? What do you mean only? That makes a massive difference.

$10,000 compounded at 4.74% for 30 years is $40,121
The same amount compounded at 6.12% is $59,417 - a near 50% difference in your ending amount. That's a massive difference - anyone who thinks otherwise is welcome to remit 1/3 of your final retirement savings to me if you don't think that extra 1.38% for 30 years is significant.

I do not disagree with the point you are trying to make. That is very valid.

There are risks to active management too and their recent returns show. They can underperform too and that 1.38% could have been with a negative sign. Given their overall returns if you take out the value nirvana period of 2000 to 2002 they would have underperformed.

I am not trying to take anything away from HWIC performance. That period's performance is just as valid, but my point was the advantage was so narrow that taking away a couple of years would have resulted in underperformance.

Given that Indexing does not seem so outrageous and idea.

Vinod
Title: Re: MKL - Markel Corp
Post by: valuebull on June 19, 2016, 09:16:12 PM
Markel got added to the Fortune 500 for the first time.

Markel is ranked at #476 with $5.37 billion dollars in 2015 revenue. 

Markel barely missed being on the Fortune 500 list last year, coming in at 504.

Congratulations Markel !!!

(Source:  Fortune Magazine, 6/15/16 edition)
Title: Re: MKL - Markel Corp
Post by: CorpRaider on June 20, 2016, 07:37:32 AM
I also saw their advertisement.  Seemed a bit promotional to me, but I suppose if it is their first time on the list that explains it.
Title: Re: MKL - Markel Corp
Post by: zippy1 on August 03, 2016, 06:22:36 AM
Q2 cResults out
Quote
GLEN ALLEN, Va. (AP) _ Markel Corp. (MKL) on Tuesday reported second-quarter net income of $78.8 million.

On a per-share basis, the Glen Allen, Virginia-based company said it had profit of $5.41.

The insurer posted revenue of $1.36 billion in the period.

Markel shares have risen 7 percent since the beginning of the year. In the final minutes of trading on Tuesday, shares hit $947, a rise of 6 percent in the last 12 months.
http://finance.yahoo.com/news/markel-posts-2q-profit-210103808.html
Title: Re: MKL - Markel Corp
Post by: zippy1 on August 03, 2016, 06:23:42 AM
Quote
RICHMOND, Va., Aug. 2, 2016 /PRNewswire/ -- Markel Corporation (MKL) reported book value per common share outstanding of $603.13 at June 30, 2016, up 7% from $561.23 at December 31, 2015. Comprehensive income to shareholders was $209.9 million for the second quarter of 2016 compared to a comprehensive loss to shareholders of $132.9 million for the second quarter of 2015. Comprehensive income to shareholders was $606.9 million for the six months ended June 30, 2016 compared to $148.9 million for the same period of 2015. The combined ratio was 93% for the second quarter of 2016 compared to 96% for the second quarter of 2015. The combined ratio was 90% for the six months ended June 30, 2016 and 2015. Diluted net income per share was $5.41 for the quarter ended June 30, 2016 compared to $6.72 for the second quarter of 2015. Diluted net income per share was $16.55 for the six months ended June 30, 2016 compared to $20.21 for the same period of 2015.

Alan I. Kirshner, Executive Chairman, commented, "The second quarter of 2016 results continued to reflect strong performance from our underwriting, investing and Markel Ventures operations. We were pleased with our underwriting results which had minimal impact from the industry-wide large loss events that occurred during the quarter. Our investment portfolio benefited from favorable movements in the debt and equity markets and our Markel Ventures operations reported another quarter of year over year growth in operating revenue, EBITDA and net income."

The Company also announced today it has filed its Form 10-Q for the quarter ended June 30, 2016 with the Securities and Exchange Commission. A copy of the Form 10-Q is available on the Company's website at www.markelcorp.com or on the SEC website at www.sec.gov.  Readers are urged to review the Form 10-Q for a more complete discussion of the Company's financial performance.  The Company's quarterly conference call, which will involve discussion of the Company's financial results and business developments and may include forward-looking information, will be held Wednesday, August 3, 2016, beginning at 9:30 a.m. (Eastern Time).  Any person interested in listening to the call should contact Markel's Investor Relations Department at 804-747-0136. Investors, analysts and the general public also may listen to the call free over the Internet through the Company's website, www.markelcorp.com.  A replay of the call also will be available from approximately one hour after the conclusion of the call until Monday, August 15, 2016.
http://finance.yahoo.com/news/markel-reports-second-quarter-six-205000542.html
Title: Re: MKL - Markel Corp
Post by: james22 on August 04, 2016, 05:24:54 AM
Quote
Markel Corporation (MKL) reported book value per common share outstanding of $603.13 at June 30, 2016 ...

Can I not trust Gurufocus?

Markel Corp's Book Value per Share for the quarter that ended in Jun. 2016 was $598.98.

http://www.gurufocus.com/term/pb/mkl/P%252FB%2BRatio/Markel%2BCorp
Title: Re: MKL - Markel Corp
Post by: zippy1 on November 01, 2016, 03:34:17 PM
Markel Reports Third Quarter And Nine Month Results
RICHMOND, Va., Nov. 1, 2016 /PRNewswire/ -- Markel Corporation (MKL) reported book value per common share outstanding of $609.48 at September 30, 2016, up 9% from $561.23 at December 31, 2015. Comprehensive income to shareholders was $89.2 million for the third quarter of 2016 compared to a comprehensive loss to shareholders of $51.1 million for the third quarter of 2015. Comprehensive income to shareholders was $696.1 million for the nine months ended September 30, 2016 compared to $97.7 million for the same period of 2015. The combined ratio was 98% for the third quarter of 2016 compared to 88% for the third quarter of 2015. The combined ratio was 93% for the nine months ended September 30, 2016 compared to 89% for the same period of 2015. Diluted net income per share was $5.60 for the quarter ended September 30, 2016 compared to $7.39 for the third quarter of 2015. Diluted net income per share was $22.16 for the nine months ended September 30, 2016 compared to $27.60 for the same period of 2015.

Alan I. Kirshner, Executive Chairman, commented, "All three of our operating engines have made substantial contributions to our results in 2016. While our underwriting results for the quarter were adversely impacted by unfavorable development on our medical malpractice and specified medical product lines, we continue to exercise underwriting discipline and our results for the nine months are in line with our expectations. Growth in book value per share was also driven by strong performance in both our equity and fixed income investment portfolios. Contributions from our Markel Ventures operations reflect both organic growth and the recent acquisition of CapTech."

http://finance.yahoo.com/news/markel-reports-third-quarter-nine-210100949.html
Title: Re: MKL - Markel Corp
Post by: james22 on November 03, 2016, 01:59:40 AM
Dip-buyers alert

With today's loss, Markel (MKL -4.3%) is now lower by a full 15% from a 52-week high hit in May. Somebody may want to run the numbers, but it's a pretty good guess that buyers of Tom Gayner and company on 15% moves down have profited nicely over the last 25 years.


http://seekingalpha.com/news/3219812-dip-buyers-alert-markel-downturn-continues-big-earnings-miss
Title: Re: MKL - Markel Corp
Post by: accutronman on November 03, 2016, 10:04:28 AM
Dip too tempting to pass up. Bought back in after being on the sidelines waiting for a drop.
Title: Re: MKL - Markel Corp
Post by: Jurgis on November 03, 2016, 10:50:42 AM
Might add if it drops below $800 or so and/or if I have money from somewhere else.

Was thinking of selling when it ran up to $9XX, but my position wasn't that big, so decided to see if I get 2x book price for lightening.
Title: Re: MKL - Markel Corp
Post by: Crip1 on November 03, 2016, 11:06:44 AM
As of today's market price MKL is selling at a 37% premium to BV. That's at the low end of their historic range which has been from 1x to 2x BV. As it gets bigger, I tend to think that it will move in the range of 1.2X to about 1.8x BV. If I'm right and if they can grow at a pace close to their historic norms, then now is a pretty good time to jump in. I'm very tempted but as it is my one of my two top holdings along with FFH, I think I'll wait until it is a screaming buy rather than a "pretty good time".


-Crip
Title: Re: MKL - Markel Corp
Post by: TBW on November 03, 2016, 11:08:34 AM
I think at 1.6x book its approx fv.  I agree at 2x probably would look to lighten.

I think its a great company and cheapish at these levels.  I already own enough otherwise I would be adding. 

Below 1.2x I think would be a great deal.
Title: Re: MKL - Markel Corp
Post by: chrispy on December 22, 2016, 05:18:27 AM
During the Q3 call they were still unsure of the total claims amount for Hurricane Matthew.  I havent been able to find much updated information on this.  Is this a case where no news is good news?  Anyone have some information on this?
Title: Re: MKL - Markel Corp
Post by: Crip1 on February 02, 2017, 12:25:08 PM
https://finance.yahoo.com/news/markel-acquire-suretec-financial-corp-214500503.html (https://finance.yahoo.com/news/markel-acquire-suretec-financial-corp-214500503.html)


Would greatly appreciate anyone with knowledge of SureTec weighing in.


-Crip
Title: Re: MKL - Markel Corp
Post by: racemize on February 02, 2017, 01:59:12 PM
Apparently it is from Austin, TX.  I found this on Bloomberg.

SureTec Financial Corp. specializes in underwriting small-to-midsize contract bonds and commercial surety through independent agents and professional surety producers in the United States. It underwrites commercial bonds, including license and permit, judicial and court, MVD, public official, state professional license, notary, tax, excess weight, and lost instrument bonds. The company also provides SureQuick, an online bonding system that allows the client to quote, issue, track, renew, and amend a bond. It serves construction and surety industries. The company was founded in 1998 and is based in Austin, Texas.

Title: Re: MKL - Markel Corp
Post by: james22 on February 09, 2017, 12:54:38 AM
Markel (NYSE:MKL): Q4 EPS of $9.11 beats by $3.88.

Revenue of $1.43B (+0.7% Y/Y) beats by $60M.


http://seekingalpha.com/pr/16737351-markel-reports-2016-financial-results
Title: Re: MKL - Markel Corp
Post by: giofranchi on February 09, 2017, 04:49:35 AM
Markel (NYSE:MKL): Q4 EPS of $9.11 beats by $3.88.

Revenue of $1.43B (+0.7% Y/Y) beats by $60M.


http://seekingalpha.com/pr/16737351-markel-reports-2016-financial-results

CR 92%, BVPS +8%, CAGR in BVPS last 5 years 11%, P/B = 1.51.
I continue to hold MKL comfortably enough.

Gio
Title: Re: MKL - Markel Corp
Post by: chrispy on February 09, 2017, 05:17:28 AM
They continue to have very nice, stable results and their strategy is very clear.  I sleep well at night with this management!
Title: Re: MKL - Markel Corp
Post by: WEB-CM on February 10, 2017, 07:22:28 AM
May be anybody can explain how it is possible that the BV of MKL decreased in the 4th Qu.2016 from 609 to 606 USD, while the CR was well below 100, Investment returns were positive (shares as well as bonds etc.), MKL-Ventures brought in a profit and the S&P 500 was up? Is this all owed to the fact that interest rates went up a little (mark to market) ?  As I understand it, MKL has a relatively short duration in their portfolio. Any enlightning appreciated!

Title: Re: MKL - Markel Corp
Post by: racemize on February 10, 2017, 07:36:13 AM
Yeah, I wish they had spelled that out.  I'm assuming it is an OCI charge on MTM from bonds.  Most financials are having BV go down this Q.
Title: Re: MKL - Markel Corp
Post by: Schwab711 on February 10, 2017, 07:46:08 AM
Other Comprehensive Income section of PR. It probably was unrealized losses in bonds.
Title: Re: MKL - Markel Corp
Post by: WEB-CM on February 10, 2017, 08:05:59 AM
Yes, this was the only explanation I had as well. But still - I am somewhat shocked by the huge effect this relatively small absolute change in interest rates had on an insurer who was particularly careful about this phenomenon (even expressing that for this risk they stay only with short term bonds).
Sorry if I can not express myself in proper words (English not mother tongue and not financially officially educated).
Title: Re: MKL - Markel Corp
Post by: Crip1 on February 10, 2017, 08:10:32 AM
The Q4 move in interest rates was actually pretty significant. My day job involves hedging a mortgage loan portfolio and the month of November was as dramatic a change as I've seen in the past few years.


-Crip
Title: Re: MKL - Markel Corp
Post by: gjangal on February 10, 2017, 08:12:13 AM
Last i read their 10q they have about 10b fixed income book. maturities greater than 5 years around 6b . cmbs and residential around 1.8b. Their total investment portfolio is around 18b
Title: Re: MKL - Markel Corp
Post by: scorpioncapital on February 10, 2017, 08:29:46 AM
It's about 'time'. I read that in the 80s, inflation was 15% and government bonds were 13%. So you had a negative 2% real return. That may not seem that bad on a temporary basis if it doesn't last forever, but imagine that the ramp up to 13% took a few years. If you have a long duration portfolio, even 5 years, and the average inflation over that time is say 5-6% per year, that's quite a loss in purchasing power until you can roll over into the new, higher maturities. Expected inflation is somewhat manageable, it's unexpected inflation that can have huge impact on insurer's piggy bank. Being large ships, they can't move very fast.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on February 10, 2017, 08:45:06 AM
Interesting that TG talked about beating S&P 500 by 100 basis points over the period and also over the long term.  I wonder if a 1.6 levered midcap index would perform similarly/better.
Title: Re: MKL - Markel Corp
Post by: racemize on February 10, 2017, 08:59:01 AM
Probably would have, but the leverage of insurance companies is mostly applied to bonds not equities.  TG isn't Buffett, obviously, but 1% outperformance is significant over the years.
Title: Re: MKL - Markel Corp
Post by: JBTC on February 11, 2017, 07:25:45 PM
Interesting discussion. I have a small position in MKL. I have been enamored by MKL and hope to be able to buy more. My concern is about the possibility of slowing book value growth in a rising rate environment.

Take 4Q16. BPS fell because MKL booked profit of $133mn, which was more than offset by a net holding loss of $136mn, resulting in a negative comprehensive income. Given both underwriting and Venture profits were strong, clearly the impact from higher rates on MKL's bond portfolio were not small.

I understand rates had a large move in 4Q, otherwise book value may not decline. The question for me is if I assume future rate rises are slow and steady, how much book value can grow?

In 2005-15, MKL's average return from its fixed income portfolio was 4.6% per year. In the future this should likely be lower.

In 2005-16, combined ratio averaged 95%. So the 89-92% combined ratio in the past two years were above average. So underwriting profit may also decline in the future (not saying it must).

Of course, even if both bond returns and underwriting profits decline, in theory MKL could post large returns from its stock portfolio to offset those and grow book value. That was what happened in 2013 when its return from bonds was 0%, but stocks were up 30%+.

There seem two ways to look at MKL. The optimistic view is the co has a long track record, and BPS grew 11% in the past five years, which was good. The pessimistic view is MKL's entire track record coincided with the bull market in bonds, and as the bond bull market came to an end, its future growth could be lower, possibly as evidenced by its BPS growth of just 5.5% on average in the past two years.

Shares are now trading at 1.6x P/B. Appreciate any thoughts on what future book value growth is now in the price - 10%+ or 5% or somewhere in between?
Title: Re: MKL - Markel Corp
Post by: racemize on February 11, 2017, 07:40:02 PM
Well, Gayner is on record in saying that 8-9% would be good returns in the current environment, and I probably agree with him.

Anyway, while rising interest rates are painful in the short term, they help get longer returns up--we need higher reinvestment of float, and these low rates will kill future growth of BVPS.  So, I'd much rather take write-downs on the bonds to get higher interest rates, all things being equal.
Title: Re: MKL - Markel Corp
Post by: Schwab711 on February 12, 2017, 08:50:36 AM
Interesting discussion. I have a small position in MKL. I have been enamored by MKL and hope to be able to buy more. My concern is about the possibility of slowing book value growth in a rising rate environment.

Take 4Q16. BPS fell because MKL booked profit of $133mn, which was more than offset by a net holding loss of $136mn, resulting in a negative comprehensive income. Given both underwriting and Venture profits were strong, clearly the impact from higher rates on MKL's bond portfolio were not small.

I understand rates had a large move in 4Q, otherwise book value may not decline. The question for me is if I assume future rate rises are slow and steady, how much book value can grow?

In 2005-15, MKL's average return from its fixed income portfolio was 4.6% per year. In the future this should likely be lower.

In 2005-16, combined ratio averaged 95%. So the 89-92% combined ratio in the past two years were above average. So underwriting profit may also decline in the future (not saying it must).

Of course, even if both bond returns and underwriting profits decline, in theory MKL could post large returns from its stock portfolio to offset those and grow book value. That was what happened in 2013 when its return from bonds was 0%, but stocks were up 30%+.

There seem two ways to look at MKL. The optimistic view is the co has a long track record, and BPS grew 11% in the past five years, which was good. The pessimistic view is MKL's entire track record coincided with the bull market in bonds, and as the bond bull market came to an end, its future growth could be lower, possibly as evidenced by its BPS growth of just 5.5% on average in the past two years.

Shares are now trading at 1.6x P/B. Appreciate any thoughts on what future book value growth is now in the price - 10%+ or 5% or somewhere in between?

If they plan to be a going concern then it probably doesn't matter. If your scenario is true then BV remains stagnate but earnings power (and thus ROE) increase. Higher excess ROE implies higher P/BV multiple, all else equal. Some of the concerns with rising rates might be temporary increased liquidity risk and potential for inflation to exceed increase in investment yield. In the past, localized inflation (to an industry or region), especially if >> CPI, has destroyed insurers (I think auto inflation almost wiped out GEICO). The latter risk has been essentially zero for almost a decade.
Title: Re: MKL - Markel Corp
Post by: StevieV on February 12, 2017, 02:15:33 PM
Shares are now trading at 1.6x P/B. Appreciate any thoughts on what future book value growth is now in the price - 10%+ or 5% or somewhere in between?

I don't know.

I like and own MKL.  When I first started a position, I thought that most of the potential for the multiple was on the upside.  From a return perspective, I figured:  growth in BVPS + some multiple expansion.  I mostly thought of the multiple expansion as a possible kicker.

Going forward, I expect to be able to get around this multiple for my shares at times in the future.  However, I am no longer expecting multiple expansion.  Perhaps, but I think it would require some greater growth from MKL.  I think something like 2.0 would be pretty rich for MKL at this stage.

I am not sure what the market is pricing in.  If MKL grows BVPS by about 5%/year for a while, one would certainly expect the multiple to contract.

IMO, an increase in interest rates has to be good for MKL, even if it suprresses book value in the near term.  The bonds pay the coupons they pay.  If interest rates increase, they'll be able to buy higher yielding bonds than if rates don't increase.  Just the mark-to-market of the bonds they own goes down.
Title: Re: MKL - Markel Corp
Post by: TBW on February 12, 2017, 05:42:20 PM
I like MKL and own but it's fully valued here imo.  I am not selling though

As for rates it's a question I have been wondering myself.  I think rates and combined ratio are a dynamic relationship.  So combined ratio should go higher as rates go up as insurers become more aggressive, offset by higher investment yields.  Basically, as insurers target 10% ROE's if yields are low as they are now, combined ratios have to go lower to compensate.  That likely reverses.  Hopefully combined ratios stay stickier as yields rise and insurers could do quite well in that case.

As for book value impacts I think it depends if they are under or overweight interest rate risk relative to its liabilities.  Given they raised 30yr debt at 5% recently I would think they are underweight and thus should do well as rates rise.  I also recall them talking in the past at the annual meeting how they were sceptical of low rates.  So I would imagine the book is positioned for higher rates.  So I am not that concerned but there certainly could be some noisy quarters in the future.

What concerns me more in terms of noise is their equity portfolio.  Given Gaynor's style they own high quality companies.  Given low rates those companies stocks are quite expensive here.  Looking at their holdings from WhaleWisdom the weighted average PE is 24.5.  Let's say there is a mkt correction and these stocks still trade at a premium to the market (as they are higher quality companies) and trade at 17 - that would wipe 1.25bil off of book value.  That would be a loss of 15%. 

They have cash to re-invest at a clip of 600mil per year the loss isn't that material.

So with that potential stock loss at the same time of a book value impact due to its bond portfolio I wonder how that could affect the stock?

In 2009, they did very well by having plenty of cash to invest and the correction was an opportunity for them.  In that instance their bond portfolio did offset some equity losses.  Also bonds could be sold for a gain to invest in stocks.  That may not be the case this time.

All that said I am trying to take a long-term view.  These guys are great operators and should continue to compound through the cycles.  But I do think this it will be hard to see this multiple expanding and more likely see multiple compression.
Title: Re: MKL - Markel Corp
Post by: JBTC on February 12, 2017, 11:42:33 PM
Chuck Akre has owned MKL for more than 20 years, and he values MKL by comparing the stock price to the growth in BPS (in his words the real economic earnings).

In a 2014 interview on WealthTrack, he argued that MKL was cheap because it traded at less than 10x its growth in BPS in 2013.

In 2016 the growth in BPS was $45. So on this basis MKL is now trading at 21x.

I suppose there's no reason to buy at this level.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on March 02, 2017, 11:15:05 AM
Hey, so are you guys working with investments per share of ~ $1,340?
Title: Re: MKL - Markel Corp
Post by: John Hjorth on March 21, 2017, 01:43:24 PM
 Reactions: Tony Markel reflects on 50 years of service [06.03.2017] (https://reactionsnet.com/articles/3589280/tony-markel-reflects-on-50-years-of-service).
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on March 21, 2017, 05:20:02 PM
For those following Markel and wondering about valuation.
http://www.rationalwalk.com/?p=15972
I have followed for a long time.
My take is that Markel is a good long term investment at present levels.
Expectations of return should rest perhaps mostly on their capacity to maintain trajectory.
Multiple expansion is probably not in the cards.
Title: Re: MKL - Markel Corp
Post by: Nebraska on May 08, 2017, 03:56:02 PM
Went to the Markel breakfast yesterday in Omaha and have to say I was impressed by what I heard. Unfortunately I didn't take anything to write with and I'm not the best at quotes so don't really have any insights to share.

I'm really excited to hold them over the longterm, unfortunately the current price makes it hard to pull the trigger to add more at present.
Title: Re: MKL - Markel Corp
Post by: ScottHall on May 08, 2017, 05:25:17 PM
Went to the Markel breakfast yesterday in Omaha and have to say I was impressed by what I heard. Unfortunately I didn't take anything to write with and I'm not the best at quotes so don't really have any insights to share.

I'm really excited to hold them over the longterm, unfortunately the current price makes it hard to pull the trigger to add more at present.

I feel the same way. I am going to continue to hold my MKL shares and wait for a pullback in multiple to buy more, if that happens.
Title: Re: MKL - Markel Corp
Post by: matthylland on May 08, 2017, 06:45:59 PM
Went to the Markel breakfast yesterday in Omaha and have to say I was impressed by what I heard. Unfortunately I didn't take anything to write with and I'm not the best at quotes so don't really have any insights to share.

I'm really excited to hold them over the longterm, unfortunately the current price makes it hard to pull the trigger to add more at present.

Always a fun event. I'm sure there were more than a few CoBF readers there.

I dont think i have come up with any "big takeaways" at this event, it is like the Bekshire meeting in a way, you almost know what they are going to say most of the time, but it's still fun. The insight from the CarMax guy was a surprise and something new I guess.

I added an additional 5% of my portfolio to MKL a couple months ago, partially as a rebalance and partially because there are so few stocks that I can hold today that don't keep me up at night (that is becoming a much more attractive quality to me anymore).
Title: Re: MKL - Markel Corp
Post by: Kiltacular on May 15, 2017, 11:14:49 AM
Went to the Markel breakfast yesterday in Omaha and have to say I was impressed by what I heard. Unfortunately I didn't take anything to write with and I'm not the best at quotes so don't really have any insights to share.

I'm really excited to hold them over the longterm, unfortunately the current price makes it hard to pull the trigger to add more at present.

Always a fun event. I'm sure there were more than a few CoBF readers there.

I dont think i have come up with any "big takeaways" at this event, it is like the Bekshire meeting in a way, you almost know what they are going to say most of the time, but it's still fun. The insight from the CarMax guy was a surprise and something new I guess.

I added an additional 5% of my portfolio to MKL a couple months ago, partially as a rebalance and partially because there are so few stocks that I can hold today that don't keep me up at night (that is becoming a much more attractive quality to me anymore).

Would you expand on CarMax comments?  Thanks

Anyone have notes or links to same, please post.  Thanks
Title: Re: MKL - Markel Corp
Post by: wolverine890 on May 31, 2017, 01:06:55 PM

Would you expand on CarMax comments?  Thanks

Anyone have notes or links to same, please post.  Thanks

First time posting. Sorry if the formatting is off.

Austin Ligon, co-founder of CarMax, was asked to come up and share his thoughts on the advent of autonomous cars.
Ligon essentially said this is his main concern and it keeps him up at night. However, he has found hope in Japan. He said something to the extent, ‘in Japan many people don’t need cars. Yet, every family has at least one.” If I remember correctly, his takeaway from this was that self-driving cars are coming, but it will take a long time before the trends of car ownership change.

He also reiterated that CarMax and their people understand this as a threat to their business; they are doing everything they can to figure out how to make the best business given the highly probable future of self-driving cars. 
Title: Re: MKL - Markel Corp
Post by: John Hjorth on May 31, 2017, 04:50:59 PM
wolverine890,

Thank you for your post, and welcome to CoBF! : - )
Title: Re: MKL - Markel Corp
Post by: chrispy on June 01, 2017, 05:25:30 AM
wolverine,

Thank you for that interesting piece.

The example of how the Japanese are behaving makes quite a bit of sense to me.  Owning a car is so ingrained in american culture that not owning one if you can afford it would be a little taboo. 

I know many people who live in Washington DC, commute to work by walking, bike, or metro, yet they still own a car for the handful of times they have to drive a few hours to visit family or get away for the weekend.  I have a hard time seeing that situation change.

Car purchasing frequency could decrease significantly though.
Title: Re: MKL - Markel Corp
Post by: wolverine890 on June 01, 2017, 06:44:37 AM

I know many people who live in Washington DC, commute to work by walking, bike, or metro, yet they still own a car for the handful of times they have to drive a few hours to visit family or get away for the weekend.  I have a hard time seeing that situation change.

Car purchasing frequency could decrease significantly though.

Spot on!I believe this was Ligon's main point. However, he thinks that the decrease in frequency of purchase will effect the big car dealers more than the resale market. But this could also just be my opinion being imposed on Ligon.

Also, i am one of the guilty that walk and bike everywhere; yet I still own a car.
Title: Re: MKL - Markel Corp
Post by: Liberty on June 02, 2017, 01:29:18 PM
Good presentation about markel:

http://valueseekerinvestments.blogspot.ca/2017/06/markel-corp-mkl-brief-overview-38.html
Title: Re: MKL - Markel Corp
Post by: chrispy on June 04, 2017, 06:45:55 AM
Liberty, very informative slide deck, than you for sharing. 

My thoughts on simplified possibilities for markel in the near term:

Current rate environment, no major cat:  mid single digit growth
Major cat and/or market correction: short term pain in stock price and book value but that will be used as an opportunity for greater future growth
Interest rates increase quickly: short term pain in stock price and book value but that will be used as an opportunity for greater future growth

I am having trouble seeing significant growth in BVPS or expansion of multiple in today's environment.  It seems that in order to have any greater increase in BVPS, first some kind of pullback in stock price will be required... 
Title: Re: MKL - Markel Corp
Post by: racemize on June 04, 2017, 07:23:15 AM
We had a very similar discussion a few years ago, and all concluded that BVPS couldn't increase that quickly due to the low fixed income returns.  Bolstering this conclusion, in the google talk, Gayner indicated that 9% growth would be a strong outcome in the current interest rate environment. 

However, returns and BVPS growth were pretty decent since that time.  So maybe they can continue to do pretty ok.  Clearly, neither BVPS nor share price growth will be spectacular, but I don't know of many spectacular opportunities around.
Title: Re: MKL - Markel Corp
Post by: ScottHall on June 30, 2017, 05:52:18 AM
For me this is a long term hold in my taxable account. I am not a buyer at today's valuation... but I will never sell as BVPS now exceeds my cost basis and I suppose Markel can at least come close to market returns. It's a steady, tax-efficient grower that has given me good returns in the past. I would like to buy again at 1.2x 1-3x book.
Title: Re: MKL - Markel Corp
Post by: eggbriar on July 21, 2017, 04:57:28 PM
An article on Markel from the Insurance Journal regarding a talk from Anthony Markel at a recent insurer conference:

http://www.insurancejournal.com/news/national/2017/07/21/458261.htm

"Markel told the story of the Markel Corp., a company that he helped grow from a small long-haul trucking wholesale specialty agency with a net worth of about $6 million, into a global holding company for insurance, reinsurance and investment operations with total revenue of more than $14 billion today."

“You take in some money, you spend some money and you lose some money, and God willing, you have some left at the end of the day,” according to Anthony (Tony) Markel..."
Title: Re: MKL - Markel Corp
Post by: Crip1 on July 26, 2017, 06:18:23 AM

Is anyone familiar with the company? I'm not, despite the fact that they're located less than 20 miles from my office.

https://finance.yahoo.com/news/markel-acquire-state-national-124700054.html


-Crip


Title: Re: MKL - Markel Corp
Post by: muscleman on July 26, 2017, 06:44:53 AM
http://www.marketwatch.com/story/state-national-to-be-acquired-by-markel-in-deal-valuing-the-insurer-at-nearly-890-million-2017-07-26

I hate this... $21 cash per share? I am losing all future potential upside on SNC.  :(
Title: Re: MKL - Markel Corp
Post by: Liberty on July 26, 2017, 01:51:23 PM
Going into farming too:

https://www.markelcorp.com/About-Markel/NewsRoom/Reuters2289141
Title: Re: MKL - Markel Corp
Post by: Liberty on July 26, 2017, 02:12:41 PM
Q2: https://www.markelcorp.com/About-Markel/NewsRoom/Reuters2289153


Quote
Markel Corporation (NYSE:MKL) reported book value per common share outstanding of $643.37 at June 30, 2017, up 6% from $606.30 at December 31, 2016. Comprehensive income to shareholders was $342.4 million for the second quarter of 2017 compared to $209.9 million for the same period of 2016. Comprehensive income to shareholders was $565.6 million for the six months ended June 30, 2017 compared to $606.9 million for the same period of 2016. The combined ratio was 89% for the second quarter of 2017 compared to 93% for the second quarter of 2016. The combined ratio was 95% for the six months ended June 30, 2017 compared to 90% for the same period of 2016. The combined ratio for the six months ended June 30, 2017 included $85.0 million, or four points on the combined ratio, of previously reported adverse development on prior years' loss reserves resulting from the decrease in the Ogden rate, which is used to calculate lump sum awards in U.K. bodily injury cases. Diluted net income per share was $10.31 for the quarter ended June 30, 2017 compared to $5.41 for the second quarter of 2016. Diluted net income per share was $14.20 for the six months ended June 30, 2017 compared to $16.55 for the same period of 2016.
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on July 26, 2017, 05:24:05 PM
I own SNC and am disappointed with the $21/share offer. This is a remarkable business that deserves a lot higher valuation. The insurer broker is a low risk toll collection business while the general insurer is exceptional with a mid 80s combined ratio. Markel is buying this for a song. I hope there's a higher offer or a counter bid. I don't see how any of the shareholders would be happy with what Markel is offering.

I don't know anything about SNC. If what you say is true, then as a MKL owner, I am quite glad. But then I also wonder what's wrong with SNC that the management valued themselves at a low valuation. Perhaps, it isn't such a good deal for Markel after all. (just speculating here)

Title: Re: MKL - Markel Corp
Post by: Txvestor on July 26, 2017, 10:29:30 PM
Devils_shadow,
Agree it is a growing insurer, but MKL is paying over 3x BV here. Can you explain why you beleive that is cheap?
Title: Re: MKL - Markel Corp
Post by: Txvestor on July 27, 2017, 06:43:34 AM
http://ir.statenational.com/phoenix.zhtml?c=253762&p=irol-newsArticle&ID=2272043

From their last quarterly statement up to Mar 31st, BV is $307M. Eps for FY 2017 guided to 1.18-1.26. I do not think MKL would have gone too much higher, and I think part of the motivation of the seller, is to find a home in a high quality organization.
Title: Re: MKL - Markel Corp
Post by: Crip1 on July 27, 2017, 09:54:08 AM
That's why half a dozen law firms are seeking to file a class action against this miserable offer. If it's such an average business why bother buying at all. And if it's as good as it seems, pay up.


Doesn't that happen with the vast majority of proposed acquisitions? Law firms are not business owners, but they can generate revenue by claiming they're "defending the rights" of business owners. And...the shareholders get to vote on it, don't they?


-Crip
Title: Re: MKL - Markel Corp
Post by: Crip1 on July 27, 2017, 10:37:07 AM
An offer 7% above the last close. Are they kidding? This is not some drab business about to go bust that is desperate to find a home. It is an ouststanding well run business. I am sure the shareholder vote from the 63% minorities will reflect the angst properly. I'm sure nobody loves being screwed like that.


So be it if that's how they vote. I just did not get how the alleged class action suits were relevant.


-Crip
Title: Re: MKL - Markel Corp
Post by: LightWhale on July 27, 2017, 10:49:43 AM
If it's such an average business why bother buying at all. And if it's as good as it seems, pay up.

But they have paid up. This is from Markel's press release:
"The agreement, which has been unanimously approved by both companies' board of directors, represents a 38% premium to State National's 30-day volume-weighted average stock price as of May 18, 2017, the last trading day prior to published market speculation regarding a potential sale of State National"
Title: Re: MKL - Markel Corp
Post by: Txvestor on July 27, 2017, 03:57:38 PM
These are quite clearly parasitic lawyers filing frivolous lawsuits. They happen in virtually every acquisition. Quoting those as a reason why this is undervalued is frankly laighable. I am not necessarily commneting on whether this is over or under valued here, but the evidence presented ie. 6 lawsuits is not anything worthy.
Title: Re: MKL - Markel Corp
Post by: rkbabang on July 28, 2017, 05:35:04 AM
A 7% premium over recent close is enough evidence. The PE multiple is enough evidence. The rest as they say is willful blindness to ignore facts. The lawsuits may or may not be useless but to think this is in anyway a fair offer is just delusional

If that is the case that it isn't a sufficient offer then SNC shareholders will not approve the deal.  I never understood these type of lawsuits.  If the majority of shares approve a deal then there is nothing to argue about.
Title: Re: MKL - Markel Corp
Post by: KJP on July 28, 2017, 07:06:27 AM
A 7% premium over recent close is enough evidence. The PE multiple is enough evidence. The rest as they say is willful blindness to ignore facts. The lawsuits may or may not be useless but to think this is in anyway a fair offer is just delusional

If that is the case that it isn't a sufficient offer then SNC shareholders will not approve the deal.  I never understood these type of lawsuits.  If the majority of shares approve a deal then there is nothing to argue about.

Based on earlier posts in this thread, the controlling family is going to stick around and manage the company, and thus presumably enjoin a portion of the future upside in the business, which other shareholders will not enjoy.  That creates a potential conflict between the people who structured the transaction (i.e., management) and outside shareholders, because management could funnel a portion of the money that should have gone pro rata to all shareholders to themselves via their new compensation arrangements with Markel.

Part of what plaintiffs' lawyers do is make sure potential conflicts like this are fully aired and shareholders have all relevant facts before they vote.  I would also note that based on the press release it appears that the potentially conflicted insiders control 37% of the vote.  They could have required the deal to be approved by a majority of the other shareholders, but they chose not to do so.  I also could not tell from a quick read of the release whether the board created a committee independent of the continuing insiders to shop the company.  All of those facts (or the lack of them) raise potential issues about the process that I would think are worth investigating.
Title: Re: MKL - Markel Corp
Post by: rkbabang on July 28, 2017, 07:55:35 AM
A 7% premium over recent close is enough evidence. The PE multiple is enough evidence. The rest as they say is willful blindness to ignore facts. The lawsuits may or may not be useless but to think this is in anyway a fair offer is just delusional

If that is the case that it isn't a sufficient offer then SNC shareholders will not approve the deal.  I never understood these type of lawsuits.  If the majority of shares approve a deal then there is nothing to argue about.

Based on earlier posts in this thread, the controlling family is going to stick around and manage the company, and thus presumably enjoin a portion of the future upside in the business, which other shareholders will not enjoy.  That creates a potential conflict between the people who structured the transaction (i.e., management) and outside shareholders, because management could funnel a portion of the money that should have gone pro rata to all shareholders to themselves via their new compensation arrangements with Markel.

Part of what plaintiffs' lawyers do is make sure potential conflicts like this are fully aired and shareholders have all relevant facts before they vote.  I would also note that based on the press release it appears that the potentially conflicted insiders control 37% of the vote.  They could have required the deal to be approved by a majority of the other shareholders, but they chose not to do so.  I also could not tell from a quick read of the release whether the board created a committee independent of the continuing insiders to shop the company.  All of those facts (or the lack of them) raise potential issues about the process that I would think are worth investigating.

What would be the point of owning 37% of a business if you didn't control 37% of the vote on decisions like this?  Isn't that just the risk you take as a minority shareholder when you buy a company with large inside ownership?  This strikes me as wanting to use the legal system to control a company without putting up the capital to buy 51% of the company.
Title: Re: MKL - Markel Corp
Post by: villainx on July 28, 2017, 08:27:43 AM
There's different fiduciary responsibilities depending on your role, right?  Acting as shareholder, management, and directors are all different. 

There are some safeguards that they can put in place, majority of non insider shareholders, independent committee, etc. So ... not all conflict of interest is frivolous.  Even if this one ends up being frivolous.
Title: Re: MKL - Markel Corp
Post by: educatedidiot on August 01, 2017, 06:25:19 AM
Markel filed their Q2 13-F on Friday: http://www.rocketfinancial.com/Holdings.aspx?id=2419&fC=1

Not many major changes in it.  They bought small positions in CHH, UA, GE, BER, and HRL.  And pretty much sold out of SLB.
Title: Re: MKL - Markel Corp
Post by: fareastwarriors on August 28, 2017, 08:35:27 AM
SNC is trading a bit down lately. Why? Shouldn't the price be narrowing to the buyout price?
Title: Re: MKL - Markel Corp
Post by: zippy1 on October 25, 2017, 03:17:36 PM
Quote
Markel Reports Third Quarter And Nine-Months Results

arkel Corporation (MKL) reported book value per common share outstanding of $641.20 at September 30, 2017, up 6% from $606.30 at December 31, 2016. Comprehensive loss to shareholders was $19.9 million for the third quarter of 2017 compared to comprehensive income of $89.2 million for the same period of 2016. Comprehensive income to shareholders was $545.7 million for the nine months ended September 30, 2017 compared to $696.1 million for the same period of 2016. The combined ratio was 134% for the third quarter of 2017 compared to 98% for the third quarter of 2016. The combined ratio was 108% for the nine months ended September 30, 2017 compared to 93% for the same period of 2016. The combined ratio for the quarter and nine months ended September 30, 2017 included $503.0 million, or 46 points and 16 points, respectively, of underwriting losses, net of reinstatement premiums, from Hurricanes Harvey, Irma and Maria as well as the earthquakes in Mexico. The combined ratio for the nine months ended September 30, 2017 also included $85.0 million, or three points on the combined ratio, of previously reported adverse development on prior years' loss reserves resulting from the decrease in the Ogden rate, which is used to calculate lump sum awards in U.K. bodily injury cases. Diluted net loss per share was $18.82 for the quarter ended September 30, 2017 compared to diluted net income of $5.60 for the third quarter of 2016. Diluted net loss per share was $4.52 for the nine months ended September 30, 2017 compared to diluted net income of $22.16 for the same period of 2016.



https://finance.yahoo.com/news/markel-reports-third-quarter-nine-204600674.html
Title: Re: MKL - Markel Corp
Post by: wolverine890 on October 25, 2017, 03:48:31 PM
This quarter was worse than expected for MKL. But, was anyone else especially off put by the 183% combo ratio on reinsurance? It kind of echoes what Buffett has been saying for the last two years? Seems to me like it would be okay if they were using that float to growing their capital faster than the rest of the market in other places (MV or investments); but their results are okay at best.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on October 25, 2017, 04:13:55 PM
This quarter was worse than expected for MKL. But, was anyone else especially off put by the 183% combo ratio on reinsurance? It kind of echoes what Buffett has been saying for the last two years? Seems to me like it would be okay if they were using that float to growing their capital faster than the rest of the market in other places (MV or investments); but their results are okay at best.

Yeah, I've mulled this over a bit.  Several of these berk-a-like/outfits seem to parrot Buffett to investors but seem to ignore his views with respect to their operations.
Title: Re: MKL - Markel Corp
Post by: racemize on October 25, 2017, 04:35:31 PM
This quarter was worse than expected for MKL. But, was anyone else especially off put by the 183% combo ratio on reinsurance? It kind of echoes what Buffett has been saying for the last two years? Seems to me like it would be okay if they were using that float to growing their capital faster than the rest of the market in other places (MV or investments); but their results are okay at best.

Yeah, I've mulled this over a bit.  Several of these berk-a-like/outfits seem to parrot Buffett to investors but seem to ignore his views with respect to their operations.

Seems a bit harsh--Book value barely changed in a quarter with huge hurricanes and an earthquake.  Berkshire is going to take a hit too this Q I would imagine.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on October 26, 2017, 05:53:23 AM
Yeah, sorry I was thinking more broadly not really concerning MKLs quarter (or just Markel).  Just thinking about the ones that make large macro bets or acquire or massively charge into reinsurance while their supposed mentor/idol is decrying the inadequate premiums and likely large future losses.  Just routine calibration on the bullshit detector.
Title: Re: MKL - Markel Corp
Post by: Crip1 on December 15, 2017, 05:18:51 PM
I've been a MKL shareholder for longer than I can remember (having a father-in-law who worked at a company MKL bought years ago helped!) and they've been the single biggest, in dollar terms, investment gain in my life. That said. I'm considering selling some. The recent run up has them right now at close to 1.8x BV and, though I love the company, that's pretty rich.

I want to say that they got as low as 1.2x-1.3x BV a couple of years ago and I did add a teenie bit to my position. In hindsight, it showed to be effective to sell when the company was trading at 2x BV and buy closer to 1x. I think the days of MKL trading 2x or 1x BV are gone forever, so 1.2x and 1.8x may be the entry/exit points.


Just thinking out loud here.


-Crip
Title: Re: MKL - Markel Corp
Post by: petey2720 on December 15, 2017, 05:55:06 PM
Look man, I don't post that often, so listen up.  Hold onto your Markel.  Find something else to think about.  If you sell, you will pay taxes and possibly do something dumb with the money.  If you keep holding you be got a world class company whose interests are aligned with yours and if the market cracks they will be opportunistic and add assets at low prices.  Nobody ever said they are relieved to have sold their Brk shares.
Title: Re: MKL - Markel Corp
Post by: villainx on December 15, 2017, 10:21:29 PM
I want to say that they got as low as 1.2x-1.3x BV a couple of years ago and I did add a teenie bit to my position. In hindsight, it showed to be effective to sell when the company was trading at 2x BV and buy closer to 1x. I think the days of MKL trading 2x or 1x BV are gone forever, so 1.2x and 1.8x may be the entry/exit points.

I think if that's what you were thinking of doing, might as well wait until it does get closer to 2x to sell, when things are a little more outrageous. 
Title: Re: MKL - Markel Corp
Post by: rolling on December 16, 2017, 02:42:23 AM
Look man, I don't post that often, so listen up.  Hold onto your Markel.  Find something else to think about.  If you sell, you will pay taxes and possibly do something dumb with the money.  If you keep holding you be got a world class company whose interests are aligned with yours and if the market cracks they will be opportunistic and add assets at low prices.  Nobody ever said they are relieved to have sold their Brk shares.
I am relieved I sold my Brk shares :) (sorry, had to say it)
But you are right. It all comes down to what you do with the resulting money and if it is worth the taxes.
Title: Re: MKL - Markel Corp
Post by: no_free_lunch on December 16, 2017, 05:57:02 AM
Asset prices in general are high.  Relative to the market I don't think it's that bad.   I would wait a bit longer to sell.  I agree, closer to 2x, wait for the market to get really crazy.

If you sold, what would you do with the funds?
Title: Re: MKL - Markel Corp
Post by: Spekulatius on December 16, 2017, 06:25:30 AM
Look man, I don't post that often, so listen up.  Hold onto your Markel.  Find something else to think about.  If you sell, you will pay taxes and possibly do something dumb with the money.  If you keep holding you be got a world class company whose interests are aligned with yours and if the market cracks they will be opportunistic and add assets at low prices.  Nobody ever said they are relieved to have sold their Brk shares.

I would say for 1.8x book, dump MKL, especially if held in a tax free account. 1.8x book is too rich, IMO. Buy some RE, AXS, Y trading at around book from the proceeds. MKL is better than those, but it isn’t 80% better.

Somewhere down the road, MKL can be had again for 1.2x book.
Title: Re: MKL - Markel Corp
Post by: Partner24 on December 16, 2017, 06:47:52 AM
Hi Crip,

Been a shareholder too over more than 10 years and still happy with the way they manage the business. To me, the price is fair. I could sell, I could keep. Both are ok choices to me. If you sell, it depends on what you will buy with it.

By the way, remember Brian Joffe from Bidvest? He has started a company that has a similar business model. Long4life. I may buy some shares.

Cheers!
Title: Re: MKL - Markel Corp
Post by: rogermunibond on December 16, 2017, 07:11:10 AM
What's happened to WTM?  There was a time that WTM was thought of in the same high quality insurer/reinsurance group as MKL, Y, etc

Would anyone put ACGL in that group?
Title: Re: MKL - Markel Corp
Post by: CLM5 on December 16, 2017, 08:52:12 AM
What's happened to WTM?  There was a time that WTM was thought of in the same high quality insurer/reinsurance group as MKL, Y, etc

Would anyone put ACGL in that group?

White mountain is a completely different company than its been for the past few decades. Their management team is entirely gone, their longetime CEO Ray Barrette resigned in 2017 along with the CFO I believe. They were replaced by long-standing executives who should most likely have the same values, but still... different management team. They have exited all of their insurance operations, most recently selling their stake in One Beacon. What's left is essentially a pile of cash, a few small businesses, and a new management team. So it is no longer the same company as it was when it was thought of as a high quality insurer. It is trading around BV though I believe.
Title: Re: MKL - Markel Corp
Post by: Valuehalla on December 16, 2017, 08:54:43 AM
I m longtime in WTM. Yes WTM is trading at BV right now, so cheap (?)...
But I am not in the details and it would be great if someone publish an opinion on it here.
Title: Re: MKL - Markel Corp
Post by: no_free_lunch on December 16, 2017, 09:44:55 AM
I have a position in WTM but yes it is hard to justify much of a premium over book.  Basically a SPAC at this point.   I am in there due to the dearth of opportunities and I see it as a decent cash alternative.  I am hoping some of their culture rubbed off on new management.  It is not a big position for me.
Title: Re: MKL - Markel Corp
Post by: Valuehalla on December 16, 2017, 10:25:23 AM
Folks, i suggest we continue the WTM discussion in WTH chapter. I have copied already your messeges there.
Title: Re: MKL - Markel Corp
Post by: TBW on December 16, 2017, 01:28:02 PM
I sold my MKL a couple months back after holding for years.  The premium to book felt too high to me as well, relative to future available returns.  Also, it should be said that recent combined ratio's are quite poor.

While nothing I said there was anything new, here is a point I would like to make.  MKL has been a huge beneficiary of the twin effect of lower rates and higher stocks.  My concern with MKL is what happens if the world changes to one of higher rates and lower equities?  That is the scenario where things get ugly and the one I try to think about.

Hard to know exactly how bad this would be for MKL.  I don't have my notes in front of me, but I recall seeing MKL take a large hit to equity in the range of 25 to 35% in a very bad scenario.  Not fatal by any stretch, but that would be painful for an investor at these valuation levels.
Title: Re: MKL - Markel Corp
Post by: skanjete on December 17, 2017, 10:23:46 AM
I sold my MKL a couple months back after holding for years.  The premium to book felt too high to me as well, relative to future available returns.  Also, it should be said that recent combined ratio's are quite poor.

While nothing I said there was anything new, here is a point I would like to make.  MKL has been a huge beneficiary of the twin effect of lower rates and higher stocks.  My concern with MKL is what happens if the world changes to one of higher rates and lower equities?  That is the scenario where things get ugly and the one I try to think about.

Hard to know exactly how bad this would be for MKL.  I don't have my notes in front of me, but I recall seeing MKL take a large hit to equity in the range of 25 to 35% in a very bad scenario.  Not fatal by any stretch, but that would be painful for an investor at these valuation levels.

I agree completely.

Title: Re: MKL - Markel Corp
Post by: thepupil on December 17, 2017, 12:48:08 PM
I admittedly don't follow it incredibly closely but would like to hear from those buying / holding here regarding the quick math below.

For $16B what do you get

A ~$6B portfolio of mostly domestic equities with a median market cap of $65B. I'll go on a limb and say this will return S&P +-2% in most years. Let's say 6% total return over the next 10 years = $360mm of pre-tax earnings power

A ~$10B fixed income portfolio that is high quality and high duration with a heavy tilt to muni's. 45% is longer than 10 years, 60% is longer than 5 years. This probably yields ~2.5%, so $250mm of pre-tax earnings power

$2B of cash...Let's say 1.5% = $30mm of pre-tax earnings power.

Markel Ventures: ? it looks like it makes like $200mm pre-tax?

So before I get to underwriting income, I see like $850mm to $900mm of pre-tax earnigns power today for a 5.6% pre-tax yield on the current price.

Seems low, right?

To the uneducated man (me) Markel just looks like a nicely levered (with insurance float) bearer of equity and duration risk. Not something I'd want to be at 1.8x given where equities/rates are.

When I do the same math for Berkshire

For $487B I get

$118B of cash & short term = $1.18B of earnings power
$166B of equities                = $9.96B of earnigns power (just using the same 6% as above)
Non insurance                    = ~$20B of pre-tax annualized earnigns for 2017
$30B of pre-tax earnings power
~6% yield on equity before underwriting gains/losses, but it's much less dependent on securities gains / yield since 2/3 of that $30B is coming from non-insurance/non investments and Berkshire's fixed income portfolio has basically no duration and equally low credit risk.

So to me picking Markel over Berkshire is a bet on the sustainability of Markel's underwriting profits/advantage. I think the equity portfolios won't perform all that differently. the curve is pretty flat so Markel isn't making that much more money on the fixed income side even though it's taking more duration risk. Markel Ventures (to me untrained eye) doesn't seem that important. Berkshire seems to have more dry powder as a percentage of equity/market cap/assets etc.

I've looked at MArkel a few times and always conclude Berkshire is the better risk reward. On a 5 year basis, that hasn't been a terrible view (17% berkshire versus 18.9% MKL), on a 3 year it's been awful (10% vs 19%).

Title: Re: MKL - Markel Corp
Post by: thepupil on December 17, 2017, 01:16:23 PM
just going upthread a bit I found this, which is obviously far more rigorous and builds out a nice base case BVPS growth of 7-8%.

The assumptions include underwriting profits and a compliant equity market.

https://drive.google.com/file/d/0BzG5iyelNfWfdVZ2WHJ0eEFFOUk/view

It seems negatively assymetric to pay $16B for a business that's in a reasonable base case earning ~$350mm of net income +~$250mm of projected OCI from equity gains = $600mm of OCI = 26x.

Also tax reform won't be that big of a one-time gain in book value since DTL is only equal to about 4% of book. Berkshire's DTL is ~28% of book value. So on 9/30 BV Berkshire is at 1.6x, MKL is at 1.8x, Berkshire will be more like 1.4-1.5x on tax reform, whereas MKL won't be that much different.
Title: Re: MKL - Markel Corp
Post by: EricSchleien on December 18, 2017, 10:46:45 AM
just going upthread a bit I found this, which is obviously far more rigorous and builds out a nice base case BVPS growth of 7-8%.

The assumptions include underwriting profits and a compliant equity market.

https://drive.google.com/file/d/0BzG5iyelNfWfdVZ2WHJ0eEFFOUk/view

It seems negatively assymetric to pay $16B for a business that's in a reasonable base case earning ~$350mm of net income +~$250mm of projected OCI from equity gains = $600mm of OCI = 26x.

Also tax reform won't be that big of a one-time gain in book value since DTL is only equal to about 4% of book. Berkshire's DTL is ~28% of book value. So on 9/30 BV Berkshire is at 1.6x, MKL is at 1.8x, Berkshire will be more like 1.4-1.5x on tax reform, whereas MKL won't be that much different.

Couldn't agree more. This has gone from a 15-30% position depending on the account down to about a 5% position. Hope to get back in at lower valuations one day.
Title: Re: MKL - Markel Corp
Post by: Crip1 on December 28, 2017, 09:50:53 AM
Hi Crip,

Been a shareholder too over more than 10 years and still happy with the way they manage the business. To me, the price is fair. I could sell, I could keep. Both are ok choices to me. If you sell, it depends on what you will buy with it.

By the way, remember Brian Joffe from Bidvest? He has started a company that has a similar business model. Long4life. I may buy some shares.

Cheers!


Phillipe,
 
I still believe that MKL’s a company I want to own but really do think that the price has shot up a little faster than the value, and that’s not going to go on forever. Over the years I’ve considered cutting my positions in my “Big 3” (Markel, Berkshire and Fairfax) when I thought they were over-valued but ended up doing very little cutting. Back when I added a few years back when MKL was at about 1.25x BV, I told  myself to sell some when we got to 1.8x…and we’re pretty close now. I’ve got nothing out there screaming for me to buy so I’d look to keep this in cash and buy back in once valuations were closer to 1.25x.
 
I’ve not paid any attention to BidVest for years. What were the circumstances that compelled him to leave?
 
-Crip
Title: Re: MKL - Markel Corp
Post by: Partner24 on December 29, 2017, 11:52:32 AM
Crip,

I’ve got nothing out there screaming for me to buy so I’d look to keep this in cash and buy back in once valuations were closer to 1.25x.
 
That's an option too. But since MKL price is fair to me, unless I find something more attractive for the long term, I'll keep. At this price, MKL is still more attractive than cash to me. I found other businesses, but these are very small and not like the MKL, BRK, etc.

Regarding Brian Joffe, as far as I know, I don't know why he left. What I can tell is that he was not warm at all to the idea of cutting Bidvest into pieces. He had pressure from the media to do so...maybe from other people too (just a guess here). But there is a coincidence. When he left, I saw Bidvest take the fragmentation way.

Just like Markel, I've red as many shareholders reports that I could find (in the case of Markel, got some by mail too), I've red as many articles and interviews available on the Internet that I could find, saw his compensation, wrote to him, etc. and in the end, he went to the "highly trusted indiduals" bin and I stopped searching for all that information on a regular basis. There's been a lot of interesting material on him lately, so if you Google him, you should be able to find useful information in order to make your own opinion. But since we share a lot of similar investment criteria, I would suggest you to do so.

I will be interested to hear from you regarding him or any other company that you'll find interesting.

Cheers!

Title: Re: MKL - Markel Corp
Post by: rishig on January 25, 2018, 05:43:52 PM
http://www.markelcorp.com/About-Markel/NewsRoom/Reuters2328559
Title: Re: MKL - Markel Corp
Post by: villainx on January 25, 2018, 08:13:54 PM
http://www.markelcorp.com/About-Markel/NewsRoom/Reuters2328559

Thanks!  I saw this somewhere else but didn't paid too close attention. But I looked at it a little more closely with your post ... Senior Data Scientist at Google -> Managing Director, Investments.  Interesting to say the least.  Markel has a significant stake in Alphabet/Google, from my last memory.  Sort of the main tech outlier (aside form the the fact that most companies have a strong online presence and tech is obviously big part of operations).
Title: Re: MKL - Markel Corp
Post by: LightWhale on January 26, 2018, 05:29:22 AM
Funny, that's the guy who hosted Gayner for the Google Talks event:
https://www.youtube.com/watch?v=2sG91e1Wh4I&list=PLGGpadyh0wS53HdovgrEgRwEqHcWrJwgP&index=20
Title: Re: MKL - Markel Corp
Post by: Liberty on January 26, 2018, 05:47:54 AM
Funny, that's the guy who hosted Gayner for the Google Talks event:
https://www.youtube.com/watch?v=2sG91e1Wh4I&list=PLGGpadyh0wS53HdovgrEgRwEqHcWrJwgP&index=20

You can follow him on Twitter here, if interested:

https://twitter.com/saurabh_madaan
Title: Re: MKL - Markel Corp
Post by: CorpRaider on January 26, 2018, 10:25:16 AM
I followed him.  Pretty neat. 
Title: Re: MKL - Markel Corp
Post by: york on January 28, 2018, 08:42:37 PM
Good for him! Seems like a great guy.
Title: Re: MKL - Markel Corp
Post by: Crip1 on February 06, 2018, 03:01:11 PM
Earnings out: https://finance.yahoo.com/news/markel-reports-2017-financial-results-214500286.html


Selling at 1.6x bv.


-Crip
Title: Re: MKL - Markel Corp
Post by: woltac on February 06, 2018, 06:48:50 PM
http://www.markelcorp.com/About-Markel/NewsRoom/Reuters2330770

Combined Ratio Analysis
                                    2017   2016
U.S. Insurance                95%     93%
International Insurance  104%     94%
Reinsurance                  132%     87%
Consolidated                 105%     92%

Underwriting results in 2017 included $565.3 million, or 13 points, of underwriting loss from Hurricanes Harvey, Irma, Maria and Nate as well as the earthquakes in Mexico and wildfires in California (2017 Catastrophes). The underwriting loss on the 2017 Catastrophes was comprised of $585.4 million of estimated net losses and $20.1 million of net assumed reinstatement premiums. The 2016 consolidated combined ratio included $68.7 million of underwriting loss, or two points on the consolidated combined ratio, related to Hurricane Matthew and the Canadian wildfires (2016 Catastrophes).

BRK.A has not been active in the Super Cat market due to the risk/reward relationship and this year that was a good thing.  MKL . . . 

There is a table that describes the Super Cat effect on specific MKL insurance segments in the press release, but I could not get the formatting to copy into the post.
Title: Re: MKL - Markel Corp
Post by: chrispy on February 07, 2018, 04:20:02 AM
Without the acquisition and tax act, markel ventures did not do to well in 2017
Title: Re: MKL - Markel Corp
Post by: racemize on February 07, 2018, 09:55:29 AM
Without the acquisition and tax act, markel ventures did not do to well in 2017

They've said that the results from last year were cyclically high, so I think it makes sense from that point of view.
Title: Re: MKL - Markel Corp
Post by: Txvestor on February 07, 2018, 09:10:33 PM
What is your valuation of MKL ventures? After the addition of Costa farms, and given current market valuations, quality of their businesses, and with their current growth rates. I would say that 15x EBITDA multiple is probably reasonable. I think once costa gets incorporated into the accounting fully in the next 1-2Qs, an annual $200M run rate EBITDA is possible, so $3B perhaps?
Gaynor said a few interesting things on the Q call. The company overall is roughly 30% larger over 2017 and they actually did that while slightly reducimg the outstanding share count.
He is also confident that they will keep finding such valie accretive MKL Ventures and insurance acquisitions. I think one would find it hard to argue with their recent acquisition track record and they sure were busy in 2017.
As an example of MKL ventures high octane fueled growth, he mentioned these data points.
2012 Rev:489m EBITDA 60m
2017 Rev:1.2B  EBITDA 178m
All while hundreds of millions of cash flow was sent up to the mothership holdco as dividends.
Title: Re: MKL - Markel Corp
Post by: wolverine890 on February 08, 2018, 07:43:59 AM
Quote
What is your valuation of MKL ventures?

Personally, I look at MV as a type of call option. I don't think it is currently worth much to shareholders of the insurance company as net income is barely keeping up with amortization, net interest and deprecation (Think about it this way, had Gayner used this capital to purchase public equities would shareholders have a higher or lower book value? Most likely higher). In order for MV to work, we need to see higher growth rates from current companies or net income that is resistant to the business cyclical with longevity; the latter is their strategy. Berkshire paid a premium (higher amortization/deprecation vs growth) for See's but BRK's competitive advantage is longevity. See's is still producing net income for BRK long after they amortized their premium purchase price. Will Costa Farms be around in 20 years selling flowers to the entire east cost? Will Florida continue to attract retirees who want to garden so that the population grows at a disproportionate rate to the rest of the country? How will Costa Farms respond to climate change? If Costa Farms is around in 20 years will be a success! If not, let's hope another one of the investment works out to offset the bad ones.

But maybe i am missing something.
Title: Re: MKL - Markel Corp
Post by: voyager on February 09, 2018, 04:18:18 PM
Markel Ventures has some real value.

The group of food equipment businesses are good ones, albeit without a ton of reinvestment opportunity or growth.  There is a nice moat and amount of durability if you read about the industry, such as ITW and Welbilt.   

Costa Farms is a very good business that has a ton of reinvestment ability.  If people stop planting flowers in the next 20 years, it probably means that a lot of the investments people are making now aren't going work out to well either. 

The other businesses are mostly average, with health care being tough. 

Quote
What is your valuation of MKL ventures?

Personally, I look at MV as a type of call option. I don't think it is currently worth much to shareholders of the insurance company as net income is barely keeping up with amortization, net interest and deprecation (This about it this way, had Gayner used this capital to purchase public equities would shareholders have a higher or lower book value? Most likely higher). In order for MV to work, we need to see higher growth rates from current companies or net income that is resistant to the business cyclical with longevity; the latter is their strategy. Berkshire paid a premium (higher amortization/deprecation vs growth) for See's but BRK's competitive advantage is longevity. See's is still producing net income for BRK long after they amortized their premium purchase price. Will Costa Farms be around in 20 years selling flowers to the entire east cost? Will Florida continue to attract retirees who want to garden so that the population grows at a disproportionate rate to the rest of the country? How will Costa Farms respond to climate change? If Costa Farms is around in 20 years will be a success! If not, let's hope another one of the investment works out to offset the bad ones.

But maybe i am missing something.
Title: Re: MKL - Markel Corp
Post by: nickenumbers on March 10, 2018, 04:42:14 AM
Guys,

I don't know much of anything about Markel.  I understands that they are somewhat following the BRK path, and they are at a much smaller scale, so they are more nimble and they can consider opportunities that would be too small for BRK.

I also understand that they have a good historical return.

With that, I can't get over a current PE of 44.

Other then the basic arithmetic to derive the PE, I get that, what is the narrative to justify the PE?
I get that someone thinks that their future growth is going to out pace their EPS, but a 44..
What am I missing?


I am going to pass on it and move my attention elsewhere, but I wanted to learn a little bit more about Markel before I hit the road on them.
Title: Re: MKL - Markel Corp
Post by: ScottHall on March 10, 2018, 04:51:05 AM
Comprehensive income. EPS has historically not captured increases in the value of the company's investments, but that is changing b/c of the new accounting rules. BVPS and long term growth in that number was more important than P/E for Markel b/c Markel's "earnings" didn't account for a major component of shareholder value.

http://www.markelcorp.com/About-Markel/NewsRoom/Reuters2330770
Title: Re: MKL - Markel Corp
Post by: Liberty on March 10, 2018, 05:22:39 AM
Existing thread:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/mkl-markel-corp/

I suggest you read Buffett's letters to become more familiar with insurance companies. They are generally not valued on P/E.
Title: Re: MKL - Markel Corp
Post by: StevieV on March 10, 2018, 06:33:21 AM
I agree that it is best not to value MKL on a PE basis.

In my view, MKL is a bit expensive here.  The factors that allowed them to grow book value so quickly in the early years are not as prevalent today.  Three main things:  (1) bond yields are lower (even though they have moved up a bit); (2) equity valuations are high; and (3) the percentage of float is lower, creating lower investing leverage.

I don't think anyone should expect anything similar to their historical returns.  My problem with MKL here is the price/book is somewhat high, and the return a little uncertain, if you are looking at high single to low double digit returns.
Title: Re: MKL - Markel Corp
Post by: chrispy on March 10, 2018, 09:08:16 AM
MKL is going to grow book value slowly until either there is a market downturn or yields increase substantially. Both would cause MKL share price to fall beforehand.  We can all purchase MKL at a better price (and probably should)
Title: Re: MKL - Markel Corp
Post by: racemize on March 10, 2018, 11:28:26 AM
I agree that it is best not to value MKL on a PE basis.

In my view, MKL is a bit expensive here.  The factors that allowed them to grow book value so quickly in the early years are not as prevalent today.  Three main things:  (1) bond yields are lower (even though they have moved up a bit); (2) equity valuations are high; and (3) the percentage of float is lower, creating lower investing leverage.

I don't think anyone should expect anything similar to their historical returns.  My problem with MKL here is the price/book is somewhat high, and the return a little uncertain, if you are looking at high single to low double digit returns.

We made the same arguments several years ago, and they still pulled off decent underlying returns.
Title: Re: MKL - Markel Corp
Post by: StevieV on March 10, 2018, 11:57:29 AM
I still think the analysis is valid.

They used to do 20% BVPS growth.  Now they are around 10%, depending on what time frame you want to use.  I think the 10% is going to get more difficult at today's equity prices.  Rates will also have short term hit on book.

I believe that MKL has mentioned 9 or 10% being pretty good going forward from here.  1.7 book is, IMHO, expensive for 9-10% BVPS growth.

When I first bought MKL, I figured I would get at least book value growth, and probably some multiple expansion at some point.  Now, I think the risk is the other way.  I think there is risk the multiple could contract.  I tend to think that book growth is the most you'll get, and there is risk that you'll get less.  So, risk on the 9-10% not being hit and then risk on the multiple.

I really like MKL as a company.  I just don't like the price here.
Title: Re: MKL - Markel Corp
Post by: StevieV on March 17, 2018, 08:39:52 AM
I agree that it is best not to value MKL on a PE basis.

In my view, MKL is a bit expensive here.  The factors that allowed them to grow book value so quickly in the early years are not as prevalent today.  Three main things:  (1) bond yields are lower (even though they have moved up a bit); (2) equity valuations are high; and (3) the percentage of float is lower, creating lower investing leverage.

I don't think anyone should expect anything similar to their historical returns.  My problem with MKL here is the price/book is somewhat high, and the return a little uncertain, if you are looking at high single to low double digit returns.

We made the same arguments several years ago, and they still pulled off decent underlying returns.

https://twitter.com/Find_Me_Value/status/974347926498676737

Came across this thread on twitter discussing the new Markel bonus structure.  The comments mostly seem interested in whether the compensation is too high.  That's not what stands out to me.

I think the key point is, MKL now thinks that 8% BVPS growth/year is outperformance.  They believe 10% is big outperformance.  IMHO, 1.7 book is expensive for BVPS 8% growth.
Title: Re: MKL - Markel Corp
Post by: eclecticvalue on March 17, 2018, 09:32:10 AM
I think this is happening among investment managers. Because they sense the returns will be lower in the future. So they think it is a good idea to move the goal posts.
Title: Re: MKL - Markel Corp
Post by: scorpioncapital on March 17, 2018, 12:37:06 PM
Are these BVPS growth targets indexed to inflation? Is that 8% real growth or nominal. Huge difference if the environment changes.
Title: Re: MKL - Markel Corp
Post by: maxthetrade on March 17, 2018, 04:06:45 PM
My opportunity cost is owning Berkshire, I think it's highly likely that Berkshire compounds at 8%+. To own MKL at todays price one would have to make a very good case that MKL can compound at a significantly higher rates which I think is unlikely. Don't get me wrong, I like MKL and owned it in the past but today is pretty expensive, so I sold and moved on. I'll be back at a lower valuation.

 
Title: Re: MKL - Markel Corp
Post by: netnet on March 19, 2018, 02:38:02 PM
My opportunity cost is owning Berkshire, I think it's highly likely that Berkshire compounds at 8%+. To own MKL at todays price one would have to make a very good case that MKL can compound at a significantly higher rates which I think is unlikely. Don't get me wrong, I like MKL and owned it in the past but today is pretty expensive, so I sold and moved on. I'll be back at a lower valuation.
Excellent point here. How can Markel at 1.7 X BVPS be a better bet than BRK sub 1.4X, given that BRK has much, much more earning power and liquidity?
Title: Re: MKL - Markel Corp
Post by: Jurgis on March 19, 2018, 02:45:11 PM
My opportunity cost is owning Berkshire, I think it's highly likely that Berkshire compounds at 8%+. To own MKL at todays price one would have to make a very good case that MKL can compound at a significantly higher rates which I think is unlikely. Don't get me wrong, I like MKL and owned it in the past but today is pretty expensive, so I sold and moved on. I'll be back at a lower valuation.
Excellent point here. How can Markel at 1.7 X BVPS be a better bet than BRK sub 1.4X, given that BRK has much, much more earning power and liquidity?

BRK is much larger than MKL which comes with its own set of issues. And BRK has a huge key man problem that is getting worse with every year.

I'm not saying I prefer MKL at current prices. But it's not as clear cut as you say. ;)
Title: Re: MKL - Markel Corp
Post by: netnet on March 19, 2018, 03:53:01 PM
BRK is much larger than MKL true which comes with its own set of issues. And BRK has a huge key man men problem true that is getting worse with every year.

I'm not saying I prefer MKL at current prices. But it's not as clear cut as you say. ;)
But BRK has a deeper bench ,by far, and more momentum in the operating subs and it's cheaper.
Title: Re: MKL - Markel Corp
Post by: John Hjorth on March 19, 2018, 04:24:53 PM
Leaving succession issues aside, to me, comparing Berkshire with Markel has been for now many years like comparing apples to oranges. Markel is still basically an insurance company [Markel Ventures does not matter much], while Berkshire has become a full blown conglomerate.
Title: Re: MKL - Markel Corp
Post by: voyager on March 19, 2018, 06:40:49 PM
Leaving succession issues aside, to me, comparing Berkshire with Markel has been for now many years like comparing apples to oranges. Markel is still basically an insurance company [Markel Ventures does not matter much], while Berkshire has become a full blown conglomerate.

That's very accurate... Markel Ventures is worth something in the ball park of $1.5B probably.... Only about 10% of the EV.  It's not insignificant, although it won't move the needle a whole lot for the time being. 

In the long run, it's likely that ventures will become larger and larger as Markel reinvests more of their capital into markel ventures acquisitions.     
Title: Re: MKL - Markel Corp
Post by: Crip1 on March 20, 2018, 06:54:50 AM
After several messages of MKL being a good, but over-valued, company, it opens 2.5% higher this morning?


I've got a list of companies that I'd like you all to comment upon in similar fashion this morning, if you're not too busy.


-Crip
Title: Re: MKL - Markel Corp
Post by: maxthetrade on March 20, 2018, 07:01:12 AM
Leaving succession issues aside, to me, comparing Berkshire with Markel has been for now many years like comparing apples to oranges. Markel is still basically an insurance company [Markel Ventures does not matter much], while Berkshire has become a full blown conglomerate.

I have no preference with regards to my financial diet, if apples are cheaper I'll buy apples and if oranges are cheaper it's oranges on the plate  ;D

It's true that Markels' portfolio is a lot smaller but it doesn't show up in the performance. Gayner once said that if you look in the mirror and don't see Warren Buffett then don't invest like him and that's what he's prudently doing and it's showing up in the results.
Further I'm not convinced that Markel Ventures will be a great success, there is so much competition out there even for small companies. One simply can not compare MKL to a smaller Berkshire of the past, times are very different. 
Title: Re: MKL - Markel Corp
Post by: StevieV on March 20, 2018, 07:33:12 AM
After several messages of MKL being a good, but over-valued, company, it opens 2.5% higher this morning?


I've got a list of companies that I'd like you all to comment upon in similar fashion this morning, if you're not too busy.


-Crip

I would be happy to help, but I am afraid that you misunderstand the source of MKL's outperformance this morning.  I exited the last of MKL position last week, due to the "good, but over-valued" opinion I expressed upthread.  Unfortunately, I am quite sure my exit, not mere posts, is what moved the stock.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on March 20, 2018, 05:41:44 PM
A couple of thoughts spring to mind:

1) 105% combined ratio

2) Hurdle for comp was raised in 2009, right?
Title: Re: MKL - Markel Corp
Post by: wolverine890 on April 25, 2018, 07:00:03 AM
Markel Corporation (NYSE: MKL) reported book value per common share outstanding of $671.05 at March 31, 2018, down 2% from $683.55 at December 31, 2017. Comprehensive loss to shareholders was $174.8 million for the first quarter of 2018 compared to comprehensive income of $223.2 million for the first quarter of 2017. The combined ratio was 90% for the first quarter of 2018 compared to 100% for the first quarter of 2017. Diluted net loss per share was $4.25 for the quarter ended March 31, 2018 compared to diluted net income per share of $3.90 for the first quarter of 2017.

Net loss to shareholders was unfavorably impacted by the adoption of ASU No. 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Liabilities, effective January 1, 2018. As required by the new accounting standard, the Company recognized a pre-tax loss of $122.1 million ($101.3 million net of taxes) as a result of the decline in the fair value of its equity securities since December 31, 2017. Prior to the adoption of ASU No. 2016-01, changes in the fair value of the Company's equity securities were included in other comprehensive income on an after-tax basis.

Additionally, net loss to shareholders for the quarter ended March 31, 2018 included a pre-tax foreign currency loss of $22.1 million ($17.5 million net of taxes) and a non-recurring tax expense of $99.5 million.

http://www.markelcorp.com/About-Markel/NewsRoom/Reuters2344372
Title: Re: MKL - Markel Corp
Post by: Crip1 on August 31, 2018, 10:44:39 AM
Curious to any board members who have knowledge of insurance-linked securities management or Nephila in particular, I'd appreciate any thoughts.


https://finance.yahoo.com/news/markel-acquire-nephila-holdings-limited-125900629.html


-Crip
Title: Re: MKL - Markel Corp
Post by: walkie518 on August 31, 2018, 11:02:54 AM
Curious to any board members who have knowledge of insurance-linked securities management or Nephila in particular, I'd appreciate any thoughts.


https://finance.yahoo.com/news/markel-acquire-nephila-holdings-limited-125900629.html


-Crip
ILS have brought a lot of liquidity that previously never existed to carriers--this is the logical extension of the Lloyd's platform bringing transparency and standardization to an otherwise deal-by-deal market. 

I can only think of two kinds of companies that might provide insight into this transaction: buyers of runoff (Enstar) and perhaps more directly asset managers focusing on insurance and reinsurance (Blue Capital).  Blue Capital might be a more direct comp on a far, far smaller scale and not remotely as successful but it's public (BCRH) and its filings might be an interesting place to look.

Hope this helps
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on August 31, 2018, 02:50:44 PM
Curious to any board members who have knowledge of insurance-linked securities management or Nephila in particular, I'd appreciate any thoughts.

https://finance.yahoo.com/news/markel-acquire-nephila-holdings-limited-125900629.html

-Crip

Hi Crip,
Not sure where you want the conversation to go but here is some basic info which may help?

Nephila has a long history and, as reported, is a large player in its field.
I understand that they started out mainly in the catastrophe area and have gradually diversified into various "climate" risks, renewable energy risk management and others.

Apart from the basic primers easily available, I've found that the Artemis site is good to follow what happens in the ILS market.
Few relevant samples for Nephila:
The playing field:
http://www.artemis.bm/ils_fund_managers/
An early "landmark" deal:
http://www.artemis.bm/deal_directory/kelvin-ltd/
Another interesting example:
http://www.artemis.bm/blog/2016/11/15/microsoft-benefits-from-allianz-nephila-wind-farm-revenue-swap/

The field is fascinating but conceptually is simply an outgrowth of the convergence between capital markets and risk management.
Title: Re: MKL - Markel Corp
Post by: plusalpha on October 29, 2018, 12:53:18 PM
Tom Gayner talk in India
https://www.moneycontrol.com/news/business/markets/coffee-can-investing-tom-gayner-reveals-how-he-became-a-successful-investor-3096591.html
Title: Re: MKL - Markel Corp
Post by: james22 on October 30, 2018, 06:58:16 AM
Pretty significant drop over the last month.

Anyone buying?
Title: Re: MKL - Markel Corp
Post by: walkie518 on October 30, 2018, 07:04:24 AM
Pretty significant drop over the last month.

Anyone buying?
1.5x book seems a little exp when BRK is trading at 1.4x?
Title: Re: MKL - Markel Corp
Post by: mwtorock on October 30, 2018, 07:35:08 AM
Pretty significant drop over the last month.

Anyone buying?
1.5x book seems a little exp when BRK is trading at 1.4x?

Not to mention that there is a safety net in BRK that the old man set for buybacks.
Title: Re: MKL - Markel Corp
Post by: dwy000 on December 06, 2018, 04:30:48 PM
https://www.marketwatch.com/story/markel-stock-drops-after-hours-on-regulatory-inquiries-2018-12-06?mod=newsviewer_click

Bermuda regulators questioning reserves.
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on December 07, 2018, 03:53:10 AM
https://www.marketwatch.com/story/markel-stock-drops-after-hours-on-regulatory-inquiries-2018-12-06?mod=newsviewer_click

Bermuda regulators questioning reserves.
Looks like an event in the ordinary course of business.
http://news.ambest.com/presscontent.aspx?refnum=27417&altsrc=9
Title: Re: MKL - Markel Corp
Post by: dwy000 on December 07, 2018, 08:24:25 AM
https://www.marketwatch.com/story/markel-stock-drops-after-hours-on-regulatory-inquiries-2018-12-06?mod=newsviewer_click

Bermuda regulators questioning reserves.
Looks like an event in the ordinary course of business.
http://news.ambest.com/presscontent.aspx?refnum=27417&altsrc=9

What makes you say ordinary course?  The link above and the company's press release don't indicate that - just that the company is cooperating and has no further comment.  Not saying it isn't ordinary course but I haven't seen one for Markel before (especially that resulted in a press release reply) and the stock is down.
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on December 07, 2018, 11:47:05 AM
What makes you say ordinary course?  The link above and the company's press release don't indicate that - just that the company is cooperating and has no further comment.  Not saying it isn't ordinary course but I haven't seen one for Markel before (especially that resulted in a press release reply) and the stock is down.
Short answer: I don't know.

By ordinary course, it was meant that one has to decide if 1-this is manipulation, poor reserving or simply a "mistake" and 2-this is localized in one sub or systemic or "cultural".
FWIW I think this is likely to be a localized "mistake" in CATCo.

Why?
-In a way, the ILS market, especially in the collateralised reinsurance or retrocession instruments, is "learning" how to deal with loss picks and loss creep.
-Interestingly, the ILS market has been more transparent and timely versus reserve develoment public disclosure compared to the traditional reinsurance segment.
-CATCo relies on loss information from cedants so development is based on others' models.
-CATCo is a large player and a relevant target for regulators.
-This is not typical for the "culture" at MKL.


A concern exists as to what extent the development is beyond reasonable expectations but IMO this does not seem to be the first of several cockroaches.

Other point: The evolving pain recognized due to successive "events" and the associated trapped collateral suggests that the alternative market pricing mechanism may be insufficicent in the context of transactions looking more and more like traditional reinsurance and retrocession transactions.

Hope this helps and please show me how this line of thinking is wrong as the market does not seem to agree.
Title: Re: MKL - Markel Corp
Post by: compoundsnowly83 on December 07, 2018, 12:31:15 PM
I believe the exposure for Markel is small and the market is not pricing this risk correctly.  It is my understanding (but am open to a different interpretation) that the Markel exposure to Markel Catco is limited to the income from the management fees / performance fees of operating these entities which was $28.7mm in 2017, the investment of $20.5mm in the funds as of 2017, as well as the goodwill of $91.9mm as of 12/31/2017 and intangibles of $113mm that were added to the balance sheet at the time of the acquisition when the company acquired Catco for $205.7mm in December 2015. For a point of comparison, the total book value is just over $9.9bn

Below are some of the lines from the most recent annual report:

"Our other operations also include our Markel CATCo operations, which are conducted through Markel CATCO Investment Management Ltd. (MCIM). MCIM is a leading insurance-linked securities investment fund manager and reinsurance manager headquartered in Bermuda focused on building and managing highly diversified, collateralized retrocession and reinsurance portfolios covering global property catastrophe risks. MCIM receives management fees for its investment and insurance management services, as well as performance fees based on the annual performance of the investment funds that it manages. Total revenues attributed to MCIM for the year ended December 31, 2017 were $28.7 million. As of December 31, 2017, MCIM's total investment and insurance assets under management were $6.2 billion, which includes $6.0 billion for unconsolidated variable interest entities."

"The Company also holds an investment in CATCo Reinsurance Opportunities Fund Ltd. (CROF), a limited liability closed-end fund listed on the London and Bermuda Stock Exchanges, which is not a VIE. This investment is included in equity securities (available-for-sale) on the Company's consolidated balance sheet. CROF is managed by MCIM and invests substantially all of its assets in one of the unconsolidated Funds. At December 31, 2017 and 2016, the fair value of the Company's investment in CROF was $20.5 million and $26.3 million, respectively."
Title: Re: MKL - Markel Corp
Post by: dwy000 on December 07, 2018, 12:42:29 PM
I think that's right.  And I hope that the company (or the regulator) comes out with more details.  The concern (I would think) is that if this entity has under reserved or been overly aggressive in reserving, does that possibility prevail beyond this contained entity? 

Given the high degree of integrity I've always put on Markel (close to Berkshire) I'm more worried about that "halo" disappearing than the $ at risk from this little entity.
Title: Re: MKL - Markel Corp
Post by: theLiberties on December 09, 2018, 01:36:51 PM
I think there is a decent probability that they under reserved deliberately.
On the closed-end funds market, there were two vehicles to invest in Cat bonds/ILS : Catco and Blue Capital Alternative Income. Last year, after all the events, BCAI was very quick to take a significant loss. That led to the shares trading much below NAV and an activist fund took a position to force the winding down of the fund. Catco was much slower to book losses. With the new year they even pitched for a new vehicle (with the usual spiel "those catastrophes will lead to improved pricing" that anybody reading artemis blog knew was not true). That's only after the new vehicle ended its sucessful fundraising that the old vehicle started to book significant losses. This behaviour smells of foul play.
Sources :
https://www.theinsurer.com/news/markel-didnt-invest-in-catcos-23bn-reload-/2329.article (https://www.theinsurer.com/news/markel-didnt-invest-in-catcos-23bn-reload-/2329.article) (free access once registered)
https://citywire.co.uk/investment-trust-insider/news/catco-ill-wind-turns-fair-as-reinsurance-fund-raises-400m/a1073590?section=investment-trust-insider (https://citywire.co.uk/investment-trust-insider/news/catco-ill-wind-turns-fair-as-reinsurance-fund-raises-400m/a1073590?section=investment-trust-insider)
https://www.investegate.co.uk/staude-capital-ltd/rns/staude--calls-for-orderly-windup-of-blue-capital/201804300700184675M/ (https://www.investegate.co.uk/staude-capital-ltd/rns/staude--calls-for-orderly-windup-of-blue-capital/201804300700184675M/)
+file attached
Title: Re: MKL - Markel Corp
Post by: John Hjorth on December 09, 2018, 02:05:48 PM
Welcome to CoBF, theLiberties! [ : - ) ],

I'm surprised by reading your post. I hope you wouldn't mind sharing a link to your source, thank you in advance.
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on December 09, 2018, 05:00:15 PM
I think there is a decent probability that they under reserved deliberately.
On the closed-end funds market, there were two vehicles to invest in Cat bonds/ILS : Catco and Blue Capital Alternative Income. Last year, after all the events, BCAI was very quick to take a significant loss. That led to the shares trading much below NAV and an activist fund took a position to force the winding down of the fund. Catco was much slower to book losses. With the new year they even pitched for a new vehicle (with the usual spiel "those catastrophes will lead to improved pricing" that anybody reading artemis blog knew was not true). That's only after the new vehicle ended its sucessful fundraising that the old vehicle started to book significant losses. This behaviour smells of foul play.
Interesting take theLiberties.
Would be interested also in your factual or reasoning process.

-When looking at the loss creep for Hurricane Irma for instance, most participants have disclosed progressively higher losses in relation to what cedants report.
-The ILS market has been incredibly competitive with only temporary and mild price increases for Florida wind (despite Irma's poor development patterns) early in 2018 followed by essentially flat prices, suggesting that there is competitive pressure that could impact underwriting discipline or conservatism.
-Poor discipline is worrisome but different from what you describe and obviously requires a different approach from head office. Deliberate fudging can be explained (but not justified) when the firm faces survival issues but why would one deliberately use wrong assumptions only for temporary benefits in terms of market share as investors will invariably switch ILS funds or even go back to traditional channels when poor results show up?
Title: Re: MKL - Markel Corp
Post by: Spekulatius on December 09, 2018, 07:44:20 PM
MKL without the halo would just be another reinsurance company trading at 1.1-1.2x  book? That seems to be the downside case.
Title: Re: MKL - Markel Corp
Post by: Gregmal on January 19, 2019, 09:30:53 AM
https://seekingalpha.com/pr/17385447-markel-issues-statement-markel-catco

It's amazing how many people piss away great jobs or just generally speaking make irrational decisions because they can't keep their genitals covered. Bezos dumping his wife and half the Amazon empire for a grade A Hollywood skank is the big story right now, but stuff like this happens all the time and it's mind boggling. That said the supply of young to middle aged single women in Bermuda is rather limited...
Title: Re: MKL - Markel Corp
Post by: thowed on January 21, 2019, 03:16:01 AM
Thanks for this, Gregmal.

I'd briefly looked at Catco (closed-end fund listed in London) when it was acquired by Markel, on the basis of trust in Markel.  This is a good reminder about how careful you have to be with trusting the 'jockey' at different levels.
Title: Re: MKL - Markel Corp
Post by: compoundsnowly83 on February 06, 2019, 07:32:20 AM
Any interesting takeaways from the 4th quarter results?   I am surprised that Markel Ventures wasn't a larger contributor to the bottom line.  I also didn't see any discussion of share buybacks but could have missed it.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on February 06, 2019, 08:17:22 AM
Interesting mention on the buybacks.  I haven't looked in while, but my recollection was that they have been sort of steadily buying back stock over the last several years, seemingly regardless of valuation, perhaps to offset dilution from compensation.  It sounds like you been tracking this.  I wonder, do you know offhand if my recollection is correct?
Title: Re: MKL - Markel Corp
Post by: woltac on February 06, 2019, 08:33:44 AM
My takeaway is a question: In light of the following passages from the press release, what is the exposure to Markel of the CATCo mess?

My first impression is their exposure may go well beyond the goodwill write off.


• the pending governmental inquiries into loss reserves recorded at an entity managed by Markel CATCo in late 2017 and early 2018 (the Markel CATCo Inquiries) may have an adverse impact on the operations of Markel CATCo and may result in adverse findings, reputational damage, the imposition of sanctions, increased costs, litigation and other negative consequences;

• the ongoing internal review into loss reserves recorded in late 2017 and early 2018 at an entity managed by Markel CATCo may result in adverse findings;

• the Markel CATCo Inquiries and Markel CATCo Departures, as well as certain redemption rights that are now being offered to investors in ILS Funds managed by Markel CATCo, will adversely impact Markel CATCo’s ability to maintain or raise capital.



Title: Re: MKL - Markel Corp
Post by: compoundsnowly83 on February 06, 2019, 08:59:44 AM
I actually believe that the incremental exposure to Markel Catco is limited as they took the pain this quarter and completely wrote off all of the goodwill. The remaining exposure appears to be the small investment that Markel owns in the Catco funds which was only $58M at the end of 2018.

The share buybacks were $111M in 2017 and was $31MM through the first nine months of 2018.  I would have expected to see some talk of the buyback on the conference call with the stock's poor performance but that did not take place.  The cash flow was not provided in the disclosures so we will have to wait for the K to see the total number.
Title: Re: MKL - Markel Corp
Post by: woltac on February 06, 2019, 09:14:57 AM
From the 3q report:

The Company's exposure to risk from the unconsolidated Funds and the reinsurance company is generally limited to its investment and any earned but uncollected fees. The Company has not issued any investment performance guarantees to these VIEs or their investors. As of September 30, 2018, total investment and insurance assets under management of MCIM for unconsolidated VIEs were $6.6 billion, which includes funds held that will be used to settle claims for incurred losses.

At least $2.1 billion of the $6.6 billion was added since June 2017.  The investors who put money in recently will be anxiously awaiting the results of the loss reserve investigations.
Title: Re: MKL - Markel Corp
Post by: GregS on February 06, 2019, 11:34:16 AM
They called out $33.5m expense at Ventures for investigation and remediation for a manufacturing product.  This popped up earlier in 2018.  Did they ever say what unit or product this relates to?  I can't seem to find any further detail.
Title: Re: MKL - Markel Corp
Post by: Liberty on February 13, 2019, 03:26:00 AM
https://concentratedcompounding.com/some-thoughts-on-markel-after-a-tough-year/
Title: Re: MKL - Markel Corp
Post by: Spekulatius on February 13, 2019, 03:51:30 AM
I don’t own MKL, but have had a significant position in two insurance stocks - AXS and RE which I sold out. The reason was that  they haven’t been able to generwtenvianle returns on equity at least since 2015. It appears to me that this soft market lasts longer than prior ones and it could well be that the hybrid capital (catastrophe bonds etc) has permanently changed the market and reduced the returns in this segment. I also note that some specialty insurers like WRB still seem to be doing well.

FWIW, both AXS and RE had a history of producing underwriting earnings with 90-95% combined ratios,  but they don’t juice the returns  with an equity component like MKL or BRK does,  Both of them trade at about 1.1x tangible book, but they are been as low as 0.8x tangible book before. If the current return on equity persists, I don’t think they are even worth tangible book.
Title: Re: MKL - Markel Corp
Post by: scorpioncapital on February 13, 2019, 12:14:16 PM
Do I understand correct that a negative float represents the equivalent of a positive interest rate on leverage? I.e. if combine ratio is 105 or 107, it represents an interest rate of 5% or 7% on the float leverage. And if it's 98% or 95%, you're getting paid to use leverage by 2 to 5% a year. But I wonder when most companies who are not in insurance borrow money at 5 to 7% (true high end is more junky) to buy real estate or finance other business assets, isn't it at least equivalent? On the other side of the equation, insurance companies earn money on the leveraged fixed income and equity portfolio. Should this not in itself still be a net positive, even if combined ratio is positive and there is a cost of borrow for a time? On average it may still end up being say 100% or zero cost.
Title: Re: MKL - Markel Corp
Post by: John Hjorth on February 13, 2019, 02:02:22 PM
Combined ratio is defined as:

CRn = [ILn + IEn] / EPn,

where:

CRn = Combined ratio in period n,
ILn = Insurance losses in period n,
IEn = Insurance operating expenses [costs] in period n, &
EPn = Earned insurance premiums in period n.

Float is defined as:

Fn= LRn + LAERn + UPRn - PACn - DFCAARn,

where:

Fn = Float end of period n,
LRn = Loss reserves end of period n,
LAERn= Loss adjustment expense reserves end of period n,
UPRn = Unearned premium reserves end of period n,
PACn = Prepaid acquisition costs end of period n, &
DFCAARn = Deferred charges applicable to assumed reinsurance end of period n.

Insurance operations loss is defined as,

IOLn = ILn + IEn

where :

ILn and IEn are defined above.

Cost of float is defined as :

COFn = IOLn / Fn

where:

ILn and Fn are defined above.

- - - o 0 o - - -

Insert & combine the formulas with each other, reduce merged formula, and isolate either CRn or COFn expressed as function of the other variables, among them the opposite of the chosen one of CRn and COFn, and there you go.

- - - o 0 o - - -

Source: Berkshire Hathaway 1991 Letter & Motley Fool : "What is Combined Ratio?", here (https://www.fool.com/knowledge-center/what-is-combined-ratio.aspx).
Title: Re: MKL - Markel Corp
Post by: Broeb22 on February 13, 2019, 02:02:49 PM
Do I understand correct that a negative float represents the equivalent of a positive interest rate on leverage? I.e. if combine ratio is 105 or 107, it represents an interest rate of 5% or 7% on the float leverage. And if it's 98% or 95%, you're getting paid to use leverage by 2 to 5% a year. But I wonder when most companies who are not in insurance borrow money at 5 to 7% (true high end is more junky) to buy real estate or finance other business assets, isn't it at least equivalent? On the other side of the equation, insurance companies earn money on the leveraged fixed income and equity portfolio. Should this not in itself still be a net positive, even if combined ratio is positive and there is a cost of borrow for a time? On average it may still end up being say 100% or zero cost.

If your question is...doesn't the fixed income interest income contribute to a negative cost of borrowing? I would say that the fixed income is there for the purposes of matching assets to liabilities. In other words, the fixed income should be set up to offset any inflation in legal costs/claims that the insurance portfolio would be subject to over time.

If you think about a workers comp policy that has a long-tail claim, i.e. someone gets hurt and is out of work for years, then the principal + income from your fixed income portfolio needs to be sufficient to meet those future claims.

So I would not consider income from a fixed income portfolio to be contributing to a "negative interest rate" of borrowing.
Title: Re: MKL - Markel Corp
Post by: John Hjorth on February 13, 2019, 02:19:21 PM
In short, combined ratio is an efficiency measure, based on the denominator insurance premiums earned, while cost of float is an efficiency measure based on the the amount of float held. The difference between the two is the latter one takes into consideration the durability of the float held related to the actual insurance operation.
Title: Re: MKL - Markel Corp
Post by: scorpioncapital on February 14, 2019, 02:03:59 AM
I think I see the problem.

Low rates and low equity held is insufficient to counter underwriting loss . But if rates rise Or equity exposure increases, results should get much better.

The one question is all things being equal, does underwriting combined ratios of an average run insurer go up as rates rise? The above premise is based on the idea that it is only financial repression holding earnings and roic back, even for poorly run companies with poor combined ratios. If cr can be held at no more than 105 , even a one or two percent rate rise should work wonders.
Are inflation expectations of long tail (or short tail for special insurers) backed into insurance loss reserves? I believe most companies say they don't expect inflation to be material or they use models in setting their reserves..don't quite trust this of course but is the idea that asset return in higher rate environment should move faster to the bottom line then Increase in liability revaluation?
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on February 14, 2019, 04:22:19 AM
Since Stephen Markel parted ways with Fairfax (in a friendly way) in 1990, Markel has done a good job at long term growth of book value by using a disciplined growth strategy in premiums keeping the CR around 95% and realizing superior investment returns.

With abundant capital flowing into reinsurance and indirectly permeating throughout the insurance channels, MKL has adapted by 1-maintaining a relatively high equity exposures in its float portfolio, 2-investing in Ventures and 3-actually participating in the alternative capital insurance market. The long term story while maintaining a strong culture caused the market to give a premium to its valuation, a rare accomplishment in the insurance world but the strategy now used by MKL is not without risks.

Note on the "permanent" change related to the easy-money capital: permanent it could be but it could also mean that the hard market that will eventually come will be stronger and longer lasting.

Note on the possibility of making up poor underwriting by growing and compensating: historically, this has been the norm but it has not resulted in rewarding results especially in insurance firms operating at high operating leverages.

From Mr. Buffett:
"Unfortunately, the wish of all insurers to achieve this happy result creates intense competition, so vigorous in most years that it causes the P/C industry as a whole to operate a significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. For example, State Farm, by far the country’s largest insurer and a well-managed company besides, incurred an underwriting loss in nine of the twelve years ending in 2012… Competitive dynamics almost guarantee that the insurance industry—despite the float income all companies enjoy—will continue its dismal record of earning subnormal returns as compared to other businesses."

An interesting way to dissect the ROE can be found on page 8 of the following document and indicates how hard it can be to obtain a satisfactory ROE when underwriting profits are not forthcoming.
https://www.swissre.com/dam/jcr:2bc0a0e4-ead0-4c29-8a55-0ee9329c38b4/sigma4_2018_en.pdf
Title: Re: MKL - Markel Corp
Post by: Broeb22 on February 14, 2019, 05:19:56 AM
I think I see the problem.

Low rates and low equity held is insufficient to counter underwriting loss . But if rates rise Or equity exposure increases, results should get much better.

The one question is all things being equal, does underwriting combined ratios of an average run insurer go up as rates rise? The above premise is based on the idea that it is only financial repression holding earnings and roic back, even for poorly run companies with poor combined ratios. If cr can be held at no more than 105 , even a one or two percent rate rise should work wonders.
Are inflation expectations of long tail (or short tail for special insurers) backed into insurance loss reserves? I believe most companies say they don't expect inflation to be material or they use models in setting their reserves..don't quite trust this of course but is the idea that asset return in higher rate environment should move faster to the bottom line then Increase in liability revaluation?

https://www.google.com/search?q=historical+combined+ratio+1970s&rlz=1C1CAFC_enUS825US825&tbm=isch&source=iu&ictx=1&fir=vlx1HuDXXF12yM%253A%252C75w4qUCK231NwM%252C_&usg=AI4_-kSwu0iGed4X6n-WPf0UuyG05uv9vg&sa=X&ved=2ahUKEwiY8LmeprvgAhVmnuAKHVXJDNkQ9QEwBHoECAUQBA#imgrc=vlx1HuDXXF12yM: (https://www.google.com/search?q=historical+combined+ratio+1970s&rlz=1C1CAFC_enUS825US825&tbm=isch&source=iu&ictx=1&fir=vlx1HuDXXF12yM%253A%252C75w4qUCK231NwM%252C_&usg=AI4_-kSwu0iGed4X6n-WPf0UuyG05uv9vg&sa=X&ved=2ahUKEwiY8LmeprvgAhVmnuAKHVXJDNkQ9QEwBHoECAUQBA#imgrc=vlx1HuDXXF12yM:)

I would point you to this visual of industry combined ratios over time 1970-2008, and based on a cursory look, there was not a huge relationship between interest rates and combined ratios but I would leave that up to you to decide.

In general, I would not expect there to be a very significant relationship between combined ratios and interest rates for a few reasons: 1) as interest rates rise, interest income on bond portfolios rises so float becomes more valuable which is a negative for insurance pricing; and 2) insurance risk is somewhat uncorrelated to interest rates because disasters happen at random and unexpected times, mostly independent of what is happening in any economoy. So if there is a soft market going into a disaster or heavy loss year, then the resulting hard market would be somewhat independent of what is happening in the economy.
Title: Re: MKL - Markel Corp
Post by: scorpioncapital on February 14, 2019, 01:47:33 PM
I read a report that it is not expected or rising inflation that causes insurers to go belly up but unexpected large changes in inflation. This makes sense. If suddenly your policyholders are making claims at a much higher cost in a short period of time, you won't have made enough on your asset side to pay the claims. You could delay I suppose by agreement.
Would reinusrance combined ratio dynamics be the same as principle p/c? I would think reinsurance is potentially even more risky or volatile.
Title: Re: MKL - Markel Corp
Post by: walkie518 on February 15, 2019, 02:29:53 PM
I read a report that it is not expected or rising inflation that causes insurers to go belly up but unexpected large changes in inflation. This makes sense. If suddenly your policyholders are making claims at a much higher cost in a short period of time, you won't have made enough on your asset side to pay the claims. You could delay I suppose by agreement.
Would reinusrance combined ratio dynamics be the same as principle p/c? I would think reinsurance is potentially even more risky or volatile.
I would add here it will be policy dependent.

Chubb might pay you the day after an adjuster shows up your place to assess damage from a leaking toilet.

A policy that might be syndicated or any kind of commercial policy might take months to pay out

and depending on the policy, you might see an entire quarter of payments in one go that has been deferred by a quarter...
Title: Re: MKL - Markel Corp
Post by: Adam Value on March 05, 2019, 12:36:16 PM
How should we view the divergence from the s&p since January? Can it be explained as simply multiple compression? If so where do we see fair value?
Title: Re: MKL - Markel Corp
Post by: Spekulatius on March 05, 2019, 01:23:33 PM
How should we view the divergence from the s&p since January? Can it be explained as simply multiple compression? If so where do we see fair value?
I believe part of MKL’s halo has disappeared, due to recent missteps ( Reinsurance writeoff, annual loss - both are related) and hence the premium to other insurers in term of P/ B is shrinking. Fair value is in the eye of the beholder, but if this P/ B shrinks to the level of Y, AXS or RE then MKL has another~20% to go. MKL deserves to trade at a premium to above group imo, but I felt it was larger than deserved until recently. I feel that the price is getting interesting, but I haven’t put much work in it.
Title: Re: MKL - Markel Corp
Post by: obtuse_investor on March 05, 2019, 04:48:50 PM
I mainly view the recent price decline as a much overdue multiple contraction. As of this writing, MKL is exactly it's 5yr average P/B ratio: https://ycharts.com/companies/MKL/price_to_book_value
Title: Re: MKL - Markel Corp
Post by: khturbo on March 06, 2019, 07:23:18 AM
I did a couple of writeups on Markel if anyone is interested. The first one just goes through and adds up all the different buckets of value:

https://concentratedcompounding.com/some-thoughts-on-markel-after-a-tough-year/

Looks roughly fairly valued to me.

The second one looks at how they've done with their ventures investments and why the intrinsic value hasn't compounded much over the last few years:

https://concentratedcompounding.com/markel2/

IMO the intrinsic value growth should be better than it was the last few years over time but unless they really get going on the insurance side I don't think it compounds more than maybe 10% or so per year. At that point, I'd prefer BRK over MKL.

Would be interested to get people's thoughts.
Title: Re: MKL - Markel Corp
Post by: CorpRaider on March 06, 2019, 08:06:01 AM
I will check out your posts perhaps this evening.  Thanks for sharing.  Does anyone have the current/MRQ investments per share figure handy?

I also want to heat check the buybacks over the last couple of years.  Kind of using that as a bs barometer with this one. 
Title: Re: MKL - Markel Corp
Post by: Spekulatius on March 06, 2019, 04:55:16 PM
I will check out your posts perhaps this evening.  Thanks for sharing.  Does anyone have the current/MRQ investments per share figure handy?

I also want to heat check the buybacks over the last couple of years.  Kind of using that as a bs barometer with this one.

The analysis seems sound to me. Note that it comes essentially to the same conclusion, than the ychart P/B chart indicating that MKL trades at about its average valuation. I think the stock would be interesting at around $900 to me. That would be an about 10% discount to fair value. I think P/B still works well for MKL, because it is still basically an insurance company, unlike BRK, which generates the majority of its  earnings from business other than insurance.
Title: Re: MKL - Markel Corp
Post by: scorpioncapital on March 07, 2019, 02:13:29 AM
How has Markel been investing its float? I remember they held a large amount of Berkshire stock. I think over time , the smart investment of the float is key to outperformance. Really insurers offer one key benefit - low, zero, or negative cost leverage. If this criteria is not met, there is no point for the structure to exist versus say a mutual, hedge, or investment conglomerate using shareholder equity or some small amount of paid debt to operate. If this criteria is met, then zero cost leverage + intelligent portfolio allocation = outperformance. I would also add another element which is the human desire to stray from the core and start doing extra, fancy things to accelerate things. This can be starting new startups that don't work and waste money and time.
Title: Re: MKL - Markel Corp
Post by: Liberty on March 14, 2019, 11:44:59 AM
2018 letter:

http://www.markelcorp.com/-/media/investor-relations/letters-to-shareholders/2018.pdf
Title: Re: MKL - Markel Corp
Post by: chrispy on March 17, 2019, 11:26:31 AM
Nice letter and the ILS example is very informative on how the industry works.

During the Google talk, gayner mentions he likes reading John Wooden's books. Well, I bought and read one last week. After reading this annual letter it is clear that Wooden has been influential on Tom and his writing style
Title: Re: MKL - Markel Corp
Post by: notorious546 on March 19, 2019, 01:31:07 PM
how do you actually value this thing now

stock portfolio + bond portfolio + multiple on wholly owned businesses less debt less capital gains on stocks owned?
Title: Re: MKL - Markel Corp
Post by: cherzeca on March 19, 2019, 04:15:12 PM
do you net out unrealized gains on brk?
Title: Re: MKL - Markel Corp
Post by: Partner24 on March 20, 2019, 06:44:17 AM
Didn't like the letter. Too much "bla bla bla". Results have been so so over the last years. It was better before...more results, less words.
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on March 20, 2019, 08:01:45 AM
how do you actually value this thing now

stock portfolio + bond portfolio + multiple on wholly owned businesses less debt less capital gains on stocks owned?
I assume you mean "...less debt less {tax-related} capital gains on stocks owned…?

The valuation method you refer to then is fine, is some kind of a two-column approach which can be useful and rapidly computed from reported numbers but rests on significant underlying assumptions. You need to assume that MKL will continue to earn consistent underwriting profits, superior investment results (bonds, publicly-traded equities and ventures) and to continue astute capital allocation.

Another simple way to value MKL is to use a band of P/B (from 1,5 to 1,7 for instance) again assuming that the future will continue to rhyme with the past.

Chuck Akre and John Huber (Base Hit Investing) periodically come up with assessments that help to determine the drivers behind the return on capital for MKL. Here's an example:
http://basehitinvesting.com/markel-mkl-a-compounding-machine/
Title: Re: MKL - Markel Corp
Post by: CorpRaider on March 20, 2019, 10:39:38 AM
Didn't like the letter. Too much "bla bla bla". Results have been so so over the last years. It was better before...more results, less words.

Yeah, I kind of agree.  Also bothers me that they keep buying back stock (apparently no matter the price).  Even offsetting the equity comp and/or other issuance to shrink the float a little. I know they have a brunch function in Omaha and everything, but that seems more like Apple "we like our stock at any price" than BRK. 
Title: Re: MKL - Markel Corp
Post by: Liberty on April 10, 2019, 06:11:05 PM
https://twitter.com/yesandnotyes/status/1116143040270426113?s=21
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on April 11, 2019, 04:49:20 AM
Two interesting perspectives here.
Whatever company policy documents available during the relevant time period, the personal relationship obviously raised a potential for significant conflicts of interest on many levels.
Markel is not a moral watchdog but why did the relationship remain undisclosed?

The amount of the monetary settlement will be related to the outcome of the internal review and outside financial investigation.
There is no "right" way to deal with this difficult situation but, so far with the evidence revealed, it seems to me that Markel did the right thing to contain the issue.
Title: Re: MKL - Markel Corp
Post by: Broeb22 on April 11, 2019, 05:45:59 AM
It is surprising that anyone would think it is appropriate for two senior executives at any company to engage in an undisclosed personal relationship. Even if there was no "code of conduct" expressly prohibiting conducting a personal relationship on the job, Markel in my opinion would be justified in firing two senior executives over this conduct.

There is a lot going on in the document, some of which seems shady on Markel's part, but ultimately it is improper for two executives to have a personal relationship, in my opinion.

Title: Re: MKL - Markel Corp
Post by: Spekulatius on April 11, 2019, 05:47:25 AM
Two interesting perspectives here.
Whatever company policy documents available during the relevant time period, the personal relationship obviously raised a potential for significant conflicts of interest on many levels.
Markel is not a moral watchdog but why did the relationship remain undisclosed?

The amount of the monetary settlement will be related to the outcome of the internal review and outside financial investigation.
There is no "right" way to deal with this difficult situation but, so far with the evidence revealed, it seems to me that Markel did the right thing to contain the issue.

How they went about this ( changing ethics code retroactively, obtaining personal phone records) doesn’t seem that great to me. Of course the above link is the plaintiffs perspective.
Title: Re: MKL - Markel Corp
Post by: Shane on April 11, 2019, 06:28:43 AM
Of course he is going to come up with a litany of ways to justify why he deserves the payout.  As an outsider, I don't know how I would gain much from this without hearing Markel's response.

Title: Re: MKL - Markel Corp
Post by: LongTermView on April 11, 2019, 09:19:56 AM
Of course he is going to come up with a litany of ways to justify why he deserves the payout.  As an outsider, I don't know how I would gain much from this without hearing Markel's response.

Agreed, I don't want to come to conclusions until I hear Markel's response.
Title: Re: MKL - Markel Corp
Post by: reader on April 15, 2019, 12:29:18 AM
Markel Issues Statement on Markel CATCo
RICHMOND, Va., April 14, 2019 /PRNewswire/ -- Markel Corporation (NYSE: MKL) (the "Company") previously reported that the U.S. Department of Justice, U.S. Securities and Exchange Commission and Bermuda Monetary Authority (together, the "Governmental Authorities") are conducting inquiries into loss reserves recorded in late 2017 and early 2018 at Markel CATCo Investment Management Ltd. and its subsidiaries (together, "CATCo"). These inquiries are limited to CATCo and do not involve the Company or its other subsidiaries.
As the Company previously disclosed, it retained outside counsel to conduct an internal review of CATCo's loss reserving in late 2017 and early 2018. The internal review has recently been completed.  The internal review conducted by outside counsel found no evidence that CATCo personnel acted in bad faith in exercising business judgment in the setting of reserves and making related disclosures during late 2017 and early 2018.  The Company's outside counsel has met with the Governmental Authorities and reported the findings from the internal review.

The Governmental Authorities' inquiries are ongoing and the Company continues to fully cooperate with them.  The Company cannot currently predict the duration, scope or result of the Governmental Authorities' inquiries.

https://www.markelcorp.com/About-Markel/NewsRoom/Reuters2394437
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on April 29, 2019, 09:49:06 AM
Markel teams up with Tesla through a fronting arrangement.
https://www.reinsurancene.ws/tesla-insurance-product-to-be-fronted-by-markels-state-national/
Title: Re: MKL - Markel Corp
Post by: CorpRaider on April 30, 2019, 09:41:16 AM
Would be very interested if someone asked about this at the brunch; i.e., did they do some DD about risks.  "Any concerns/due dilligence about the turnover in the c-suite or reputational harm by association?" 

I have to wonder if Saurabh hooked this up/highlighted potential for pipeline into how better data and analytics might disrupt the industry.  Pretty damned interesting.
Title: Re: MKL - Markel Corp
Post by: ValueMaven on July 12, 2019, 06:06:40 AM
Does anyone have any interesting SOTP valuation approachs to valuing this?  It seems like the overhang from CatCo accounting issues is now gone?!  In retrospect -- this thing trading down to the mid-$900s was a bargin for the LT investor
Title: Re: MKL - Markel Corp
Post by: Astrea on July 12, 2019, 07:41:30 AM
The video of the Markel Brunch 2019 is available here

https://www.youtube.com/watch?v=JewU4-cOl6g

Title: Re: MKL - Markel Corp
Post by: Cigarbutt on July 17, 2019, 08:39:26 PM
It looks like the dust is settling on a personal level.
https://www.insurancejournal.com/news/national/2019/07/16/532453.htm
For the unusual reserves development, Markel found 'no bad faith' but still waiting for the government enquiry (inquiry?).
Title: Re: MKL - Markel Corp
Post by: reader on September 27, 2019, 01:26:20 AM

https://www.artemis.bm/news/nephila-climate-takes-weather-risk-to-assist-scout-wind-farm-financing/#more-61504

"Nephila Climate, the weather, climate risk, and reinsurance focused unit of the largest ILS fund manager Nephila Capital, has participated in another wind farm financing transaction, taking the weather risk out of the equation for operators and investors in the renewables project."
Title: Re: MKL - Markel Corp
Post by: Cigarbutt on September 27, 2019, 05:18:15 AM

https://www.artemis.bm/news/nephila-climate-takes-weather-risk-to-assist-scout-wind-farm-financing/#more-61504

"Nephila Climate, the weather, climate risk, and reinsurance focused unit of the largest ILS fund manager Nephila Capital, has participated in another wind farm financing transaction, taking the weather risk out of the equation for operators and investors in the renewables project."
Nephila appears to be a leader in that growing space and, through transaction fees and/or actual risk transfer participations, could make reasonable profits in exchange for the smoothing of operational results. This (contracts related to intermittent or variable sources of energy) is a growing market and 'new' issues are being defined that are really a redefinition of 'fuel' risks traditionally associated with PPAs. A way to classify the risks and potential profit opportunities for risk transfers of wind projects are 1-volume risk: actual volume of energy delivered is less than what was contracted for over a certain period of time, 2-shape risk: the actual energy quantity delivery, which is irregular and hard to predict, although sufficient in volume overall, does not 'fit' energy demand and 3-covariance risk: weather conditions may result in a situation where solar energy and wind energy both reach high levels resulting in lower energy prices in the interim.
This field of financial engineering is promising and, interestingly, Microsoft is becoming a leader in providing more global solutions such as Proxy Generation Swap transactions and may ask for specialized agents such as Nephila to act as an intermediate to the reinsurance (traditional or ILS) world for the Volume Firming Agreements aspect.
If interested in this fascinating and developing market:
https://s3.amazonaws.com/cdn.orrick.com/files/PFIPPAArticle.pdf
https://www.artemis.bm/news/nephila-helps-microsoft-hedge-renewable-weather-risk-in-three-deals/