Warren Buffett's holding company, Berkshire Hathaway, took a few new positions in the 2022 first quarter, including insurance company Markel (MKL -1.47%). That's an interesting partnership since Markel is often referred to as a "baby Berkshire," meaning it's reminiscent of Berkshire Hathaway itself. But it should evoke more interest than just being a Buffett pick since it's beating the market so far in 2022. In fact, it's actually up 12% in 2022, while the S&P 500 is down 16%. So should you be like Buffett and invest in Markel?
Another Berkshire Hathaway in the making?
Markel has been around for a long time, since its humble beginnings as an alternative insurer in 1930. That has remained its core business, and it offers "unique coverages" as well as reinsurance. These are riskier insurance types, but also more profitable. Some of the coverages include specialty property, horse and farm, and events and weddings. If you find these through your standard insurance company, it's very possible that your policy is underwritten by Markel. And since Markel has been doing it for nearly 100 years, it has the expertise to price appropriately and post high profits.
Its other businesses are investments and venture capital. It uses the funds it receives for underwriting policies from its insurance business to invest both in other companies and a large portfolio of stocks. It's this array of services that invokes the comparison with Berkshire Hathaway, and Markel itself has an investment in Berkshire Hathaway of nearly $1 billion. It also has holdings in some of the same stocks as Berkshire Hathaway, such as Activision Blizzard, Amazon, and American Express. In its ventures division, it owns companies such as Brahmin luxury handbags and Eagle home builders. It owns 19 whole subsidiaries, making for an even more striking comparison with the Berkshire Hathaway model.
Markel calls its business approach "win-win-win," aiming to benefit employees, customers, and shareholders. It has achieved high growth over the past few years through this model, focusing on identifying robust business opportunities that fit into its ideal.
Healthy growth in a secure space
In the 2022 first quarter, earned premiums increased 16% over last year, and the combined ratio was 89%, a five-point decrease year over year. Since it underwrites its own policies, anything below 100% is money earned. So last year, with a 94% combined ratio, it took in 6% of earned premiums, which jumped to 11% this year. The ventures segment increased 35% over last year, including organic growth and acquisitions. The stock portfolio demonstrated a loss as the market tanked in the first quarter, but management isn't worried. It said, "We maintain our focus on the long-term performance of our investment portfolio, which has been quite strong." As of March 31, the equity portfolio had grown from $5 billion to $8.7 billion over five years, or a gain of 74%, including the losses in the first quarter.
That's a value that aligns well with Berkshire Hathaway's philosophy as well. Moreover, its stock also appears to be undervalued relative to its prospects, an important Buffett quality. Even as it beats the market this year, at a time when even many value stocks are showing year-to-date declines, its stock is trading at a low 11 times trailing-12-month earnings. Between its diversified businesses, it's also a resilient stock that offers growth in challenging markets.
There's plenty of room in this space as the company keeps making money and investing in stocks and ventures. It's an open runway, and the company is operating a tried-and-true model that should keep making money for many years. It's beating the market in 2022, and investors may want to consider being like Buffett and adding shares to their individual portfolios.