The financial firm outperformed the S&P 500, which fell 21.6% in the first six months of 2022, as well as the Dow Jones Industrial Average, which dropped 15.3% through June 30. It remains up about 5% year to date as of July 11.
Markel is hard to pigeonhole as a company, which is why many investors refer to it as a "baby Berkshire," meaning its business model is a lot like Berkshire Hathaway's (BRK.A 0.41%) (BRK.B 0.11%), the company run by Warren Buffett. Markel is actually the holding company for three businesses: an insurance company, which specializes in reinsurance and specialty insurance; an investment arm that invests in a portfolio of public companies; and Markel Ventures, which invests in private companies.
The insurance industry was one of the few that performed relatively well in the first half of the year, which buoyed Markel as higher interest rates increased the value of its bond portfolio and inflation allowed it to raise its insurance rates.
And the higher rates have not resulted in lost business because Markel has a very rigorous approach to underwriting and a long-established brand within the specialty insurance business. In fact, Markel managed to lower its combined ratio in the first quarter year over year from 94% to 89%. The lower the combined ratio is under 100%, the more the company is earning in premiums versus paying out in claims.
And while its investment portfolio suffered net losses due to the bear market, Markel Ventures saw a 35% increase in revenue in the first quarter due to the growth of the businesses it invests in, particularly its construction and consulting businesses. Overall, Markel looks for profitable companies that are undervalued.
Markel has been an excellent long-term performer, and as co-CEO Tom Gayner said on the first-quarter earnings call, the company is "designed to succeed even if not all three [businesses] are firing." In the first half, two of the three were firing pretty well, which drove the outperformance.
Markel also got a bit of a boost when Warren Buffett himself added this company to his investment portfolio. If you got the attention of the Oracle of Omaha, you are probably doing something right. In a time of market uncertainty, this company, like Berkshire Hathaway, is built to weather the storm.