With inflation still rising and the Federal Reserve jacking up interest rates, many economists maintain that a recession is likely. Most recently, analysts at Bank of America (BAC 0.09%) called for a "mild recession" last week.

While economic downturns are not great for many stocks, there are some companies that are more recession-proof than others. One of them is Markel Corp. (MKL 1.81%), an insurance company that is also a holding company for two investment businesses. Here's why Markel should thrive during a recession.

Markel's insurance business shows significant growth

Markel is technically an insurance company, as it offers specialty insurance and reinsurance. But it is also more than that. 

As an insurer, Markel sells excess and surplus (E&S) insurance, providing insurance for smaller companies as well as higher-risk businesses that most insurers avoid. Because of the risk, the rates are typically higher, but Markel is a market leader in this segment and employs a disciplined approach to underwriting, helping it mitigate risks. And in its reinsurance business, it basically provides insurance for insurance companies in case they are hit with heavy and unforeseen claims.

Insurance companies tend to do well during a recession because they offer something that people need whether the economy is good or bad. Case in point, Markel saw earned premiums increase 17% year-over-year in the first quarter to $1.7 billion. Meanwhile, retention of gross written premiums was down only one basis point year-over-year in the first quarter to 86%.

Further, the combined ratio, which measures premiums taken in versus claims paid out, dropped to 89% in the first quarter, compared to 94% a year ago. Anything lower than 100 means the insurer is taking in more in premiums than it's paying out in claims, so the lower the better.

Also, because of its disciplined underwriting and reputation as a market leader, Markel has been able to increase rates to stay ahead of inflation, as co-Chief Executive Officer Richie Whitt said on the first-quarter earnings call. He believes "rate increases remain ahead of claims inflation." 

"Baby Berkshire" sees gains from other ventures, too

Markel is different from other insurers in that it has a major investment arm, like Berkshire Hathaway (BRK.A 0.61%) (BRK.B 0.79%). In fact, its business model is similar to that of the company run by Warren Buffett to the extent that it is often referred to as a "baby Berkshire."

The earned premiums from the insurance business are invested in an $8.5 billion portfolio of some 125 stocks, which includes Berkshire Hathaway. While the portfolio has posted excellent long-term returns, it was down last quarter because of the bear market. But then there is a third business called Markel Ventures, which takes ownership stakes in private companies, that has been firing on all cylinders.

Markel Ventures saw revenue jump 35% year-over-year in the first quarter to about $950 million. The gains reflect solid organic growth across its businesses, led by its companies in the construction and consulting businesses. It also added some new acquisitions that contributed strong revenue. Overall, Markel looks to invest in profitable companies that it thinks are undervalued and should perform in various market cycles.

Engines firing

"The first quarter is a short 90-day view of Markel," Co-Chief Executive Officer Tom Gayner said on the first-quarter earnings call. "We enjoyed three engines of Insurance, Markel Ventures, and investments. While it is lovely when all three engines provide positive thrust, Markel is designed to succeed even if not all three are firing. In one dimension, i.e., that of the last 90 days, you can accurately say that only two of our three engines fired."

That, in a nutshell, explains why Markel is built to weather any recession and generate positive long-term returns. Of course, it also comes down to its expertise in its markets, with strong underwriting and investment savvy. Its excellent management is one reason Buffett added Markel to Berkshire Hathawayʻs portfolio in the first quarter.

Markel finished the first six months of the year up 4.8%, while the S&P 500 was down 20% through June 30. As of July 19, the stock price remains up 3% year to date and up 4.7% over the past 12 months. It has shown that it can outperform in a down market, and that should continue through whatever comes next.