MKL - Markel Corp

[villainx]

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. 

[rolling]

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.

[no_free_lunch]

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?

[Spekulatius]

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.

[Partner24]

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!

[rogermunibond]

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?

[CLM5]

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.

[Valuehalla]

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.

[no_free_lunch]

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.

[Valuehalla]

Folks, i suggest we continue the WTM discussion in WTH chapter. I have copied already your messeges there.

[TBW]

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.

 

[skanjete]

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.

 

 

[thepupil]

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%).

 

 

[thepupil]

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.

[EricSchleien]

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.

[Crip1]

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

[Partner24]

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!

 

 

[rishig]

http://www.markelcorp.com/About-Markel/NewsRoom/Reuters2328559

[villainx]

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).

[LightWhale]

Funny, that's the guy who hosted Gayner for the Google Talks event:

[Liberty]

Funny, that's the guy who hosted Gayner for the Google Talks event:

 

You can follow him on Twitter here, if interested:

 

https://twitter.com/saurabh_madaan

[CorpRaider]

I followed him.  Pretty neat. 

[york]

Good for him! Seems like a great guy.

[Crip1]

Earnings out: https://finance.yahoo.com/news/markel-reports-2017-financial-results-214500286.html

 

 

Selling at 1.6x bv.

 

 

-Crip

[woltac]

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.