Company Reports

Higher interest rates have boosted investment income and have had a material positive impact on overall returns for our domestic property-casualty insurance coverage. While insurers with low fixed-income duration have seen the largest impact, the effect has flowed through our coverage. Interest rates and investment income are only part of the story for insurers, but the outlook for underwriting is strong as well, in our view. Following a few years of solid price increases, commercial insurers have seen underwriting margins stabilize at an attractive level. Personal auto insurers have endured some difficulties recently, but strong pricing increases have improved combined ratios. With both sides of the profit picture already strong or improving, we expect our P&C insurers to generate unusually attractive results in the near term. However, we believe the market has overreacted to these tailwinds, and we see our coverage as generally overvalued. Investigating historical underwriting results for a P&C insurance peer group strongly suggests that underwriting results adjust over time to changes in interest rates, and underwriting margins have improved over the past few decades as interest rates fell. If interest rates stay high, we expect underwriting margins will compress, and returns will normalize. Our fair value estimates hinge on the idea that returns for our coverage will ultimately return to a level roughly in line with historical averages. If the industry does mean-revert over the next few years, investors will pay an overly rich price today for most of our coverage.

Markel's first-quarter results showed the company making progress in addressing its underwriting issues and benefiting from a favorable capital markets environment. We will maintain our $1,430 fair value estimate for the no-moat company and see shares as about fairly valued.

Markel has built a reputation as a "mini-Berkshire," and while we think it has developed a solid franchise, we believe the premium the market has at times awarded the company based on this narrative is not fully justified.

Markel finished a difficult year on a very mixed note. Underwriting results have been the company's Achilles' heel this past year, and while that issue only got worse in the fourth quarter, strong investment results acted as an offset. Overall, we are more concerned about the poor underwriting results, as we expect the investment side to be volatile quarter to quarter and think the company's relative investing advantage may be mooted going forward if interest rates remain high. We will maintain our $1,310 fair value estimate for the no-moat company and see the shares as roughly fairly valued at the moment.

P&C insurers have had substantial pricing increases across lines recently, but otherwise, commercial and personal insurers are in very different places. For commercial insurers, an extended period of strong price increases has them in a hard market and realizing attractive underwriting margins. Underlying combined ratios have flattened out recently, and we don't expect any significant improvement. Still, this should leave commercial insurers in a strong position over the next couple of years. Personal auto insurers have endured a difficult period in the wake of the pandemic, due to a variety of negative claims trends, and have been pushing pricing to catch up. While they are not out of trouble yet, we think the third quarter could mark the start of a turn toward more normalized underwriting results.

Markel has built a reputation as a "mini-Berkshire," and while we think it has developed a solid franchise, we believe the premium the market has at times awarded the company based on this narrative is not fully justified.

Markel’s third-quarter results were a little disappointing, specifically in regard to underwriting. On the investment side, results were mixed with a weaker equity market partially offset by higher interest rates. Overall, though, we remain comfortable with our $1,310 fair value estimate for the no-moat company and see shares as mildly overvalued.

We think Markel is a solid franchise with a number of attractive qualities, but the "mini-Berkshire" narrative that surrounds the company is misleading. We will maintain our $1,310 fair value estimate and no-moat rating. Starting with the positives: CEO Tom Gayner has a record of outperforming the S&P 500 using an investing philosophy similar to that employed by Morningstar and Berkshire Hathaway's Warren Buffett. Through Markel Ventures, the company appears to be acquiring moaty noninsurance operations at good prices. Finally, the company has materially outperformed the overall industry in terms of underwriting profitability.

Markel produced a solid overall second quarter. While the company appears to be lagging its peers on the underwriting side, a relatively aggressive investing approach paid off this quarter. Overall, though, we don’t see anything that materially alters our long-term view and will maintain our $1,310 fair value estimate for the no-moat company. We see shares as slightly overvalued.

Markel has built a reputation as a "mini-Berkshire," and while we think it has developed a solid franchise, we believe the premium the market has at times awarded the company based on this narrative is not fully justified.

Markel produced a solid first quarter. While underwriting results were not impressive, in our view, given current market dynamics, the company had a good showing on the investment side. We will maintain our $1,250 per share fair value estimate for the no-moat company and see the shares as being about fairly valued.

Markel saw a bit of a bounceback on the investing side in the fourth quarter, but the strength there was offset by weaker underwriting results. For the full year, book value per share declined 10%, due mainly to investment losses. Overall, we see nothing in the quarter that materially alters our long-term view, and we will maintain our $1,250 fair value estimate and no-moat rating.

Markel has built a reputation as a "mini-Berkshire," and while we think it has developed a solid franchise, we believe the premium the market has at times awarded the company based on this narrative is not fully justified.

Negative marks on the investment portfolio weighed on Markel in the third quarter, and we think results this year support our view that Markel's investment approach carries some risk. However, the company's underwriting performance was solid. We will maintain our $1,203 fair value estimate and no moat rating.

Given the differing states of the pricing cycle across lines and recent capital market movements, property and casualty insurers have a variety of tailwinds and headwinds at the moment. Commercial line insurers have seen strong pricing increases over the past few years, and we think the outlook for that area is relatively bright, as attractive underlying combined ratios create a solid base for strong profitability. Conversely, following a burst of abnormally high profitability in the early stage of the pandemic, personal auto insurers have struggled with a number of headwinds more recently, which has pushed most players into significant underwriting losses. Higher interest rates have reduced carrying value for fixed-income investments but offer the possibility of better investment income going forward. Finally, the bear market creates issues for insurers with an equity-heavy investment approach.

Markel had a solid quarter from an underwriting perspective, but the investment side pushed the company to a $934 million loss for the second quarter. We will maintain our $1,203 per share fair value estimate and no-moat rating.

Markel has built a reputation as a "mini-Berkshire," and while we think it has developed a solid franchise, we believe the premium the market has historically awarded the company based on this narrative is not fully justified.

While Markel had a good quarter on the underwriting side, investment losses pushed the company to a net loss of $53 million in the quarter. We will maintain our $1,179 fair value estimate and no-moat rating.

Markel has built a reputation as a "mini-Berkshire," and while we think it has developed a solid franchise, we believe the premium the market has historically awarded the company based on this narrative is not fully justified.

Markel closed out a fairly strong year on a solid note, with the company continuing to see traction on the underwriting side, and we think favorable industry conditions will remain a tailwind for the company as it enters 2022. This, in combination with attractive investment results this year, led to book value per share growth of 17% this year. We will maintain our $1,171 fair value estimate and no-moat rating.