Markel Corporation (NYSE:MKL) just reported first-quarter 2015 results. As usual, investors should be pleased as ever with the specialty insurer.
Markel's quarterly operating revenue climbed 5% year over year to just over $1.3 billion, which resulted in net income that more than doubled year over year to $13.49 per diluted share. Analysts, on average, were expecting earnings of only $5.88 per share on slightly higher revenue of $1.31 billion.
Growth where it counts
But as a financial holding company, Markel's primary measure of success is its book value per share, which grew to $564.29 per share by the end of the quarter. That's up 3.7% sequentially from $543.96 last quarter, and a 14.2% increase from $493.96 this time one year ago.
Shares of Markel closed at $749 per share on Wednesday, which means the stock is trading at around 1.33 times book value -- again, not terribly expensive, but still a touch above Markel's five-year average price-to-book ratio of 1.21.
One of the most effective ways for Markel to achieve growth in book value per share is through effective underwriting in its insurance businesses. Markel's consolidated combined ratio came in at an impressive 83% in Q1 -- which means it earned $17 for every $100 in premiums it wrote -- including 84% at its U.S Insurance segment, 73% at International Insurance, and 89% from its Reinsurance operations. For perspective, Markel's consolidated combined ratio was 95% both last quarter and in the same year-ago period. The improvement, according to Markel, came from a combination of a lower current accident year loss ratio, a lower expense ratio compared with last year, and a "more favorable development of prior years' loss reserves."
Markel CEO Alan Kirshner elaborated, "During the quarter, we ceded a significant portion of our asbestos and environmental reserves to a third party, which eliminated the uncertainty around these exposures and gives us flexibility regarding capital allocation."
Markel's investment operations also added roughly $263 million of pre-tax investment return to the quarter's results, and net investment income rose 7.1% year over year to $92.9 million. Total invested assets remained flat from last quarter at roughly $18.6 billion, including $4.3 billion of equity securities. That's up from $4.1 billion last quarter, and equities now represent around 23% of total invested assets, up from 22% last quarter. In addition, net unrealized gains on investments rose to $1.9 billion from $1.8 billion last quarter -- and remember, Markel's decision to hold these positions for the long term rather than selling helps avoid an unnecessary tax burden, further compounding shareholders' returns.
Finally, don't forget Markel's non-insurance businesses operating under the wing of Markel Ventures. Thanks both to last year's acquisition of auto transport trailer maker Cottrell and a strong showing from its manufacturing businesses, Markel Ventures' operating revenue grew 43% year over year to $245.4 million. Ventures' net income also skyrocketed from to $10.5 million from $1.1 million over the same period, while adjusted earnings before interest, taxes, depreciation, and amortization more than doubled year over year to $33.59 million.
In the end -- and though it's hardly the first time -- I simply can't find anything not to like about Markel's latest quarterly report. So even though shares are trading slightly above typical valuations and still within spitting distance of all-time highs, I plan to continue holding on tight to my own shares.