Our In-Depth Thesis on Markel Corp.

The following in-depth research report is authored by Rory Gillen, founder and managing director of GillenMarkets, based in Dublin, Ireland.

Markel operates as a specialist (niche) insurance underwriter and has distinguished itself by pricing insurance risk properly over several decades — with an average underwriting profit of 3.7% since 1986 — an unusual feat in the insurance world.

By growing the insurance business and operating consistently at an underwriting profit Markel earns both insurance underwriting profits and risk-free interest income from its huge and growing insurance float (now $12.2 billion). With $24.8 billion of gross assets and just $9.1 billion of shareholders’ funds, the float, in effect, leverages the group’s earnings. Shareholders’ funds are invested in a listed equity portfolio ($5.7 billion) and wholly-owned businesses and management has a track record of generating well above average returns from these assets. The group’s strategy of diversifying and specialising means it has developed several uncorrelated earnings streams that significantly reduce risk for investors.

The group’s long-term track record is excellent, having grown book value per share by 15.3% per annum since 1995 and well ahead of the FTSE World Index (8.1%) over the same timeline. Unusually, however, the shares have modestly lagged the FTSE World Index over 3- and 1-year timelines. A second consecutive year of record industry-wide losses in catastrophe insurance in 2018 caused particular problems at Markel’s subsidiary, Catco, but the issue was minor in a group context. More likely, perhaps, is that investors have reacted to the retreat in US interest rates, which lowers returns the group’s $12.2 billion insurance float can generate.

On a look-through earnings basis and an adjusted balance sheet basis we estimate Markel’s intrinsic value per share to be between $1,222-1,335 a share…

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Disclosure: This document is subject to updating, revision and amendment and should not be relied upon as individual investment advice. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. GillenMarkets allows employees to own shares in companies they issue recommendations on, subject to strict compliance with our internal rules governing own-account trading by staff members.