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).