MKL - Markel Corp

[james22]

Book value CAGR has been closer to 10% the last 5 years.

 

Over the five-year period ended December 31, 2020, the compound annual growth in book value per common share outstanding was 10%.

 

Over the five-year period ended December 31, 2020, our share price increased at a compound annual rate of 3%.

 

https://www.markel.com/about-markel/press-releases/markel-reports-2020-financial-results-16371

[ValueMaven]

Prefer Berkshire hands down to MKL.  These most recent results havent changed my view at all. 

 

In His Image. 

[nwoodman]

Prefer Berkshire hands down to MKL.  These most recent results havent changed my view at all. 

 

In His Image.

 

As the price of each company currently stands I agree.  (MKL ~$1100 and BRK-A 354,000).  The large jump after earnings by MKL was disproportionate to the results and more like a relief rally.  I am hoping that the same doesn’t occur for Berkshire.  A few more years of buying back stock at these levels or less would be greatly appreciated. 

[Ismael]

Highlights from Q4'20 conference call:

 

"The combined ratio for the reinsurance segment was 104% in both 2020 and 2019."

 

"While there are certainly opportunities in the current market to grow our top line and reinsurance, we're going to be very cautious about growth in the near term until we are convinced profitability issues have been resolved by a combination of pricing increases in portfolio management. To illustrate -- illustrate the difference in our strategies in insurance versus reinsurance, over the past three years our insurance gross written premiums have grown at a 13% compound average growth rate versus essentially no growth in reinsurance. Recent results have not been good enough in our reinsurance portfolio and we've not earned our targeted return on capital."

- Going forward they expect continued headwinds with reinsurance.

 

"Moving to our ILS operations. Our combined ILS operations have a little under $11 billion in net assets under management at December 31, 2020. Revenues from our ILS operations decreased 6% for the year, due primarily to the continued orderly winding down of CATCo which continues to return investor capital as quickly as possible. Before considering an amortization expense, the operating loss from our ILS operations in 2020 was wholly attributable to cost to CATCo, the majority which are non-recurring in nature."

 

"Going forward, we feel strongly about the prospects for our ILS operations."

- Hopefully they are mostly past the ILS headwinds

 

"While new entrants and incremental capital raises have had an impact around the edges of the market, we believe that pricing momentum will continue as a multitude of factors, such as low-interest rates, elevated cat activity, social inflation, COVID-19 losses, and economic uncertainty are likely to persist throughout 2021. This hardening market has nothing to do with a shortage of capital."

-They are saying the low interest rates are improving their pricing

 

"And we do believe, you know, the rate increases we're achieving now are running in excess of a trend at this point and they need to. You know, I've -- I've said that we -- we need to be at a 90 or -- or less to -- to generate appropriate returns on our capital."

 

Overall, a future absent these issues isn't crystal clear yet, but at least things seem to be moving in the right direction.  Maybe in another year the issues will be largely behind them. 

[rogermunibond]

Has anyone seen early estimates or articles on the possibility of Winter Storm Uri/Violet as a large loss event for P/C or reinsurance?

[StubbleJumper]

Has anyone seen early estimates or articles on the possibility of Winter Storm Uri/Violet as a large loss event for P/C or reinsurance?

 

 

What sorts of claims do you anticipate?  Property damage from frozen pipes, business interruption, or something else?  Those types of claims can definitely accumulate, but I guess I really hadn't considered the possibility that the property damage would rival a modest hurricane.

 

 

SJ

[racemize]

Has anyone seen early estimates or articles on the possibility of Winter Storm Uri/Violet as a large loss event for P/C or reinsurance?

 

 

What sorts of claims do you anticipate?  Property damage from frozen pipes, business interruption, or something else?  Those types of claims can definitely accumulate, but I guess I really hadn't considered the possibility that the property damage would rival a modest hurricane.

 

 

SJ

 

The amount of damage happening in Texas may be quite large.  I don't know how large relative to a hurricane, but it is all over the state.  In our neighborhood 1/3-1/2 of the tankless water heaters just blew out.  Lots of stories of pipes breaking and ruining entire floors of apartment buildings/houses.  911/firefighters can't respond to those at all for the most part because they are less urgent than whatever else is going on.

[CorpRaider]

Weird, I thought one selling feature of the tankless ones was that you were less likely to get water damage, especially if you have the tank in attic or something.

[Every Banana Counts]

Has anyone seen early estimates or articles on the possibility of Winter Storm Uri/Violet as a large loss event for P/C or reinsurance?

 

 

What sorts of claims do you anticipate?  Property damage from frozen pipes, business interruption, or something else?  Those types of claims can definitely accumulate, but I guess I really hadn't considered the possibility that the property damage would rival a modest hurricane.

 

 

SJ

 

The amount of damage happening in Texas may be quite large.  I don't know how large relative to a hurricane, but it is all over the state.  In our neighborhood 1/3-1/2 of the tankless water heaters just blew out.  Lots of stories of pipes breaking and ruining entire floors of apartment buildings/houses.  911/firefighters can't respond to those at all for the most part because they are less urgent than whatever else is going on.

I live in Houston, and almost everyone I know has no power or water. Most apartment complexes has some sort of damage from broken fire sprinkler pipes. My neighbor was filling up buckets of water from the gutter this morning to flush his toilet. Lots of interesting weather in Houston over the past few years!

[Parsad]

Has anyone seen early estimates or articles on the possibility of Winter Storm Uri/Violet as a large loss event for P/C or reinsurance?

 

 

What sorts of claims do you anticipate?  Property damage from frozen pipes, business interruption, or something else?  Those types of claims can definitely accumulate, but I guess I really hadn't considered the possibility that the property damage would rival a modest hurricane.

 

 

SJ

 

It will only push premium pricing higher and prolong the bull market in reinsurance.  Cheers!

[StubbleJumper]

Has anyone seen early estimates or articles on the possibility of Winter Storm Uri/Violet as a large loss event for P/C or reinsurance?

 

 

What sorts of claims do you anticipate?  Property damage from frozen pipes, business interruption, or something else?  Those types of claims can definitely accumulate, but I guess I really hadn't considered the possibility that the property damage would rival a modest hurricane.

 

 

SJ

 

The amount of damage happening in Texas may be quite large.  I don't know how large relative to a hurricane, but it is all over the state.  In our neighborhood 1/3-1/2 of the tankless water heaters just blew out.  Lots of stories of pipes breaking and ruining entire floors of apartment buildings/houses.  911/firefighters can't respond to those at all for the most part because they are less urgent than whatever else is going on.

 

 

Thanks for the intel.  That sounds more or less like what I had expected.  Frozen pipes are fine as long as they stay frozen, but if they are broken anywhere and then they thaw, you can get a hell of a mess if the water hasn't been turned off at the main.  So, if half of the households in Texas were affected, it sounds to me like there might be up to 5 million households with some level of damage.  Not all of them will carry insurance and some of them will have healthy deductibles, but you could easily hit a couple billion in that kind of situation, which would make it something like a modest hurricane.

 

Let's hope that people were smart and turned off their water at the main.  :(

 

 

SJ

[racemize]

Weird, I thought one selling feature of the tankless ones was that you were less likely to get water damage, especially if you have the tank in attic or something.

 

These were installed outside the house, and they have a anti-freeze feature that works... when there is power.

 

I thought through it ahead of time and dripped both the hot water and the cold water (event though it was obviously not hot) in order to keep the water flowing through the tankless water heater.  Our tenant (in the same neighborhood) did not.  And apparently almost everyone else didn't either.  Ours came back online and works fine, everyone that didn't (we were out of power for > 48 hours with temperatures as low as 7 F) had theirs burst and then when they started thawing, all of them across the neighborhood starting gushing water outside.  It appears most didn't do any interior damage, but we now need something like 25 tankless water heater replacements in the neighorhood.  We are calling one plumber for all of us, but... I'm sure that's not going to go well.  How many of those are available at one moment?  We will find out! 

 

The amount of damage and repairs are very high.  Could be a long time to get stuff fixed here. 

 

Also, food shortage is starting to happen.  Looks like HEB is ready to deliver as soon as we thaw, so only a day or so to go.

 

 

[StubbleJumper]

Weird, I thought one selling feature of the tankless ones was that you were less likely to get water damage, especially if you have the tank in attic or something.

 

These were installed outside the house, and they have a anti-freeze feature that works... when there is power.

 

I thought through it ahead of time and dripped both the hot water and the cold water (event though it was obviously not hot) in order to keep the water flowing through the tankless water heater.  Our tenant (in the same neighborhood) did not.  And apparently almost everyone else didn't either.  Ours came back online and works fine, everyone that didn't (we were out of power for > 48 hours with temperatures as low as 7 F) had theirs burst and then when they started thawing, all of them across the neighborhood starting gushing water outside.  It appears most didn't do any interior damage, but we now need something like 25 tankless water heater replacements in the neighorhood.  We are calling one plumber for all of us, but... I'm sure that's not going to go well.  How many of those are available at one moment?  We will find out! 

 

The amount of damage and repairs are very high.  Could be a long time to get stuff fixed here. 

 

Also, food shortage is starting to happen.  Looks like HEB is ready to deliver as soon as we thaw, so only a day or so to go.

 

 

That's actually not so bad.  Gushing water outside the house is cheap.  Gushing on the top floor of a house, spilling on the floors and running through the drywall to the main floor is expensive.  But, simply needing to plumb in a new water heater outdoors?  That's actually okay.

 

Presumably there will also be cases where a house's plumbing was run through poorly insulated exterior walls.  When those pipes freeze and break, that will get expensive (I know of a case in my social circle where a house froze, the pipes burst, then thawed and the water ran freely for a couple of days.  It cost CAD$40k just for the building materials to repair that damage).

 

 

SJ

[racemize]

Weird, I thought one selling feature of the tankless ones was that you were less likely to get water damage, especially if you have the tank in attic or something.

 

These were installed outside the house, and they have a anti-freeze feature that works... when there is power.

 

I thought through it ahead of time and dripped both the hot water and the cold water (event though it was obviously not hot) in order to keep the water flowing through the tankless water heater.  Our tenant (in the same neighborhood) did not.  And apparently almost everyone else didn't either.  Ours came back online and works fine, everyone that didn't (we were out of power for > 48 hours with temperatures as low as 7 F) had theirs burst and then when they started thawing, all of them across the neighborhood starting gushing water outside.  It appears most didn't do any interior damage, but we now need something like 25 tankless water heater replacements in the neighorhood.  We are calling one plumber for all of us, but... I'm sure that's not going to go well.  How many of those are available at one moment?  We will find out! 

 

The amount of damage and repairs are very high.  Could be a long time to get stuff fixed here. 

 

Also, food shortage is starting to happen.  Looks like HEB is ready to deliver as soon as we thaw, so only a day or so to go.

 

 

That's actually not so bad.  Gushing water outside the house is cheap.  Gushing on the top floor of a house, spilling on the floors and running through the drywall to the main floor is expensive.  But, simply needing to plumb in a new water heater outdoors?  That's actually okay.

 

Presumably there will also be cases where a house's plumbing was run through poorly insulated exterior walls.  When those pipes freeze and break, that will get expensive (I know of a case in my social circle where a house froze, the pipes burst, then thawed and the water ran freely for a couple of days.  It cost CAD$40k just for the building materials to repair that damage).

 

 

SJ

 

Yeah, the damage in our neighborhood should be relatively cheap.  The stories I've read in apartment buildings and for places without good insulation (or on pier and beam, which is common here) are a different story.

[Jurgis]

Sad to hear about the problems and damage in Texas. Hope most of you all are doing OKish.  :-\

[CorpRaider]

Weird, I thought one selling feature of the tankless ones was that you were less likely to get water damage, especially if you have the tank in attic or something.

 

These were installed outside the house, and they have a anti-freeze feature that works... when there is power.

 

I thought through it ahead of time and dripped both the hot water and the cold water (event though it was obviously not hot) in order to keep the water flowing through the tankless water heater.  Our tenant (in the same neighborhood) did not.  And apparently almost everyone else didn't either.  Ours came back online and works fine, everyone that didn't (we were out of power for > 48 hours with temperatures as low as 7 F) had theirs burst and then when they started thawing, all of them across the neighborhood starting gushing water outside.  It appears most didn't do any interior damage, but we now need something like 25 tankless water heater replacements in the neighorhood.  We are calling one plumber for all of us, but... I'm sure that's not going to go well.  How many of those are available at one moment?  We will find out! 

 

The amount of damage and repairs are very high.  Could be a long time to get stuff fixed here. 

 

Also, food shortage is starting to happen.  Looks like HEB is ready to deliver as soon as we thaw, so only a day or so to go.

 

Wow crazy.  Sorry for the trouble.  We've got inclement weather here in NC.  Time to fill the bathtub with coffee...right?

[reader]

 

U.S. Winter Storm Uri Insured Loss To Break Records, May Reach Double-Digit Billions

 

 

shorturl.at/qyKZ2

 

"The ongoing winter storm event in the United States, named winter storm Uri, is thought likely to become the largest winter storm loss on record for the insurance and reinsurance industry.

The Texas insurance regulator said it could have a bigger impact than hurricane Harvey."

 

 

KCC raises US winter storm insurance industry loss estimate to $18bn

 

shorturl.at/jAKR1

 

"Catastrophe risk modelling specialist Karen Clark & Company has updated its estimate for insurance and reinsurance market losses from the ongoing winter storm event in the United States, which has been named winter storm Uri, to $18 billion, reflecting the widespread and severe impacts felt."

[StubbleJumper]

 

U.S. Winter Storm Uri Insured Loss To Break Records, May Reach Double-Digit Billions

 

 

shorturl.at/qyKZ2

 

"The ongoing winter storm event in the United States, named winter storm Uri, is thought likely to become the largest winter storm loss on record for the insurance and reinsurance industry.

The Texas insurance regulator said it could have a bigger impact than hurricane Harvey."

 

 

KCC raises US winter storm insurance industry loss estimate to $18bn

 

shorturl.at/jAKR1

 

"Catastrophe risk modelling specialist Karen Clark & Company has updated its estimate for insurance and reinsurance market losses from the ongoing winter storm event in the United States, which has been named winter storm Uri, to $18 billion, reflecting the widespread and severe impacts felt."

 

 

Your link didn't work for me.  Did they say what types of claims they expected to see?  If it's $18 billion, that's probably much more than just damage to housing.

 

 

SJ

[reader]

 

 

 

Your link didn't work for me.  Did they say what types of claims they expected to see?  If it's $18 billion, that's probably much more than just damage to housing.

 

 

SJ

 

SJ,

 

Home, auto, commercial, industrial, BI, infrastructure.

 

The original links:

 

https://www.artemis.bm/news/kcc-raises-us-winter-storm-insurance-industry-loss-estimate-18-billion/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link

 

 

https://seekingalpha.com/article/4407673-us-winter-storm-uri-insured-loss-to-break-records-may-reach-double-digit-billions?mail_subject=steve-evans-u-s-winter-storm-uri-insured-loss-to-break-records-may-reach-double-digit-billions&utm_campaign=rta-author-article&utm_content=link-0&utm_medium=email&utm_source=seeking_alpha

 

 

[John Hjorth]

 

 

Thank you for making my monday, Tilman! [ : - ) ]

[ValueMaven]

Thanks John! 

 

Not a fan of Markel ventures - but I actively follow the company.  Mr. Gayner is a fairly upstanding individual if you ask me.  This is a great interview.  thank you!

[coc]

 

 

Thank you for making my monday, Tilman! [ : - ) ]

 

Thanks for posting this, and thanks to the interviewer - appreciate it.

[CorpRaider]

Wow, I'm a clown.  I didn't even see they had to issue $600MM 6% preferred during the rona crash/bottom.  Interesting that Gayner discusses the losses as unforeseeable in the above podcast interview, but my impression (basically 100% from Buffett's discussion of the issue and a few other high level articles) was that insurers had to kind of take non-standard risks/write a non-standard policy to get hit (at least by the terms of the policy as written before any judicial "gloss") with business interruption losses due to the pandemic.  Taking that (seemingly foreseeable for most) risk and also structuring your affairs such that you had to issue preferreds (and sell common stonks) during the panic doesn't seem great/Berk-a-like.  Maybe that explains why they are doing the low-key media blitz.

[thepupil]

Wow, I'm a clown.  I didn't even see they had to issue $600MM 6% preferred during the rona crash/bottom.  Interesting that Gayner discusses the losses as unforeseeable in the above podcast interview, but my impression (basically 100% from Buffett's discussion of the issue and a few other high level articles) was that insurers had to kind of take non-standard risks/write a non-standard policy to get hit (at least by the terms of the policy as written before any judicial "gloss") with business interruption losses due to the pandemic.  Taking that (seemingly foreseeable for most) risk and also structuring your affairs such that you had to issue preferreds (and sell common stonks) during the panic doesn't seem great/Berk-a-like.  Maybe that explains why they are doing the low-key media blitz.

 

I doubt this was the reaction you were expecting, but this made me think "I wonder where those pref's trade".

 

I think these very clearly will get called in 2025 because Markel is not a treasuries+566 bps type of credit risk (the coupon is 6% until 2025, then 5 yr govvy +566) and they will be able to raise cheaper capital.

 

so at $108 / 3.75% one earns a 300 bp spread to insure the credit risk of Markel.

 

If they were cumulative, I'd buy some for the bond portfolio, but I can't get past the whole non-cumulative thing. I know why they do the non-cum thing (for regulatory capital purposes) and I think management is ethical to not just "turn off" the prefs and screw me, unless they absolutely have to, but still tough to get past. I guess that's why you're getting almost 4% for a short-ish duration obligation of Markel.

 

 

Any such dividends will accrue on the liquidation preference of $1,000 per share (i) from the date of original issue to, but excluding, June 1, 2025 (the First Call Date) at a fixed rate per annum of 6.000% and (ii) from, and including, the First Call Date, during each reset period, at a rate per annum equal to the Five-year U.S. Treasury Rate as of the most recent reset dividend determination date plus 5.662%.

[ValueMaven]

These guys are damn good underwriters and the results show.  I can see why MKL trades at a premium to Fairfax and Y.  They deserve it.