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Here's Why Markel Plunged 10% on Monday

By Matthew Frankel, CFP® - Updated Mar 9, 2020 at 4:39PM

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The "baby Berkshire" insurance company is having a rough day

What happened

The stock market experienced its worst day in several years on Monday, with the Dow Jones Industrial Average and S&P 500 closing more than 7% lower.

Many stocks did even worse, especially in the financial sector, which was the second-worst performer in the market. Only energy stocks (oil triggered today's fall) had a worse day. Specialty insurer Markel (MKL 1.75%) was no exception, finishing the day 10% lower.

A man types on his laptop and looks shocked

Image source: Getty Images.

So what

For starters, insurance stocks across the board had a rough day. For example, American International Group (NYSE: AIG) fell 13% and Prudential (NYSE: PRU) dropped by 17% to name a couple. By comparison, Markel actually got off easy.

One major catalyst is interest rates. To say that Treasury yields "fell" would be a massive understatement. The 10-year Treasury yield fell to an all-time low of less than 0.5% -- that's about one-fourth of what it was yielding just a few months ago. Insurance companies rely on investment income to produce profits, and most invest in fixed-income securities.

Markel, on the other hand, has a considerable portfolio of common stocks as well, which is why it often gets the nickname of "baby Berkshire," for its business model similarities to Warren Buffett-led Berkshire Hathaway. After today's market action, it's fair to assume that most of Markel's stock holdings have fallen.

Now what

There's no way to know whether this will be a short-lived market plunge or whether it will be a drawn-out bear market. However, Markel remains a well-run insurance business with a unique investment approach, and long-term investors should be just fine.

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