The Real Reason to Buy Markel Stock

Markel Corp (NYSE: MKL  ) is an insurance holding company with a wide variety of products. Since its founding in 1930, the company has grown tremendously and continues to do so. What makes Markel different than the rest, and is it a good fit for your portfolio?

An insurance business like no other
What makes Markel different than most insurance companies is the sheer diversity and uniqueness of its product line.

The company's wholesale division provides insurance solutions for common purposes like commercial property and casualty as well as medical malpractice. However, Markel prides itself for its non-standard offerings like its DataBreach and professional liability insurance products, just to name a couple.

Markel's Specialty Commercial division offers even more unusual solutions, and specializes in quantifying risks that are tough to determine. For example, the company provides bicycle insurance policies, as well as solutions to insure camps and recreation programs, child care centers, health clubs, farms, investment advisors, and pest control providers.

A full list of their unique specialty commercial programs is available here, and is a very interesting and thought-provoking read. After all, how many other companies have more than 50 years of experience insuring show horses?

There is also an extensive list of personal products Markel provides. Want to specifically insure your karate classes? Want insurance in case your parents' anniversary party needs to be cancelled? You've found the right company.

Impressive growth
One of the reasons Markel has such an enormous array of products is its long history of acquisitions. Since the 1980's, Markel has acquired 15 separate companies, many of which were highly specialized, like a summer camp insurer and a trucking insurance specialist.

Most recently, Markel acquired Alterra Capital, a deal which nearly doubled its insurance portfolio, but even excluding that, the growth is impressive. Markel's portfolio of insurance premiums written has averaged an impressive 18% annual growth rate over the past two decades.

However, aside from the acquisitions, Markel has grown rapidly because it's very good at what it does – offering a unique product to consumers at a price that attracts business. It is also very good at judging risk, and has done a very good job of taking in more in premiums than it pays out.

Over the past decade, Markel's combined ratio (that is, the amount it pays out relative to the premiums it collects) has only been around 100% twice, and just barely, at 101% and 102%. During the past decade as a whole, Markel has averaged a combined ratio of just under 96%, meaning it is doing a very good job of approximating the risk their policies are taking on.

On top of this, Markel receives income from its investments while it holds the collected premiums in its accounts (this is actually how insurance companies make the bulk of their profits).

In fact, over the past 20 years, Markel's insurance portfolio per share has grown at an average annual rate of 13%.

It's relatively easy to quantify Markel's overall performance over the past few decades. The company doesn't pay a dividend, and instead feels its money is better spent reinvested into its business (sounds kind of like Warren Buffett). Over the past 20 years, shares have risen from $39 to about $647 as of this writing, for an average annual return of more than 15%. With returns like that, I'm inclined to agree with management on the no-dividend policy.

The bottom line
Markel is the kind of company any long-term investor should love, because it has a distinct competitive advantage in its extremely diverse and unique product portfolio.

Finally, one of the most compelling reasons to love Markel is its shareholder-friendly management. In the company's 2013 letter to shareholders, the company's board members wrote:

"This is your company. We as managers are stewards of your capital. You've entrusted us with the authority to run this business, and this annual report functions as our report card to you."

The management has delivered for its shareholders year after year.

If only every company's management thought like that...

Is this stock a better investment than Markel?
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

Read/Post Comments (4) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 12, 2014, at 5:46 PM, GETRICHSLOW2 wrote:

    Where's the dividend?

  • Report this Comment On June 17, 2014, at 11:24 AM, hymanm wrote:

    I would also like to see at least a small dividend.

  • Report this Comment On June 17, 2014, at 1:20 PM, psyclone101 wrote:

    Why would you want to see a dividend when MKL has done such an outstanding job of compounding retained earnings internally? that's the whole point of investing. This reminds me of the endless requests for Berkshire to pay a dividend. How many can compound capital better than Buffett? Almost no one. The same is true of Gayner. These comments are baffling when the long term performance of the company is considered. There are plenty of examples of companies that squander shareholder resources where a case could be made that a dividend would have been in the interest of shareholders. This isn't one of them. It is astonishing how hidden and misunderstood this company remains. I hope it stays that way.

  • Report this Comment On July 13, 2014, at 9:42 PM, AdamGalas wrote:

    Here's an interesting thought I had:

    Buy 50% Prospect Capital with its 12.8% yield.

    Buy 50% Markel

    Portfolio yield, 6.4%

    OptionsHouse offers 4% margin accounts.

    Using 1.5:1 leverage, gross yield climbs to 9.6%, 7.6% after accounting for interest expense.

    Benefit is that you know own Markel, but significantly leveraged yet still at a safe level, (Buffet's average leverage is 1.6), to generate likely 20.5% annual returns over the long-term (15% annually*1.5 -2% interest cost).

    If you can get $2 million together, borrow $1 million from Optionhouse, then they'll lend you that million at 1.5% and this strategy will yield 8.95% yield + market earning 21.75% annual long-term returns.

    It's an idea I've been tossing around for awhile, combination of solid income and growth.

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Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

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8/27/2015 4:02 PM
MKL $828.57 Up +22.61 +2.81%
Markel CAPS Rating: *****