What to Expect When Markel Corporation Reports

The specialty insurer is still riding high after an exceptional Q1. Here's what to look for this time around.

Steve Symington
Steve Symington
Aug 3, 2015 at 6:38PM

Markel Corporation (NYSE:MKL) is set to release second-quarter 2015 results later this week, so now is a great time to review what to expect from the specialty insurer.

Analysts, for their part, anticipate that Markel's consolidated revenue will increase a modest 2.1% year over year to $1.28 billion, while net income is expected jump to $6.28 per share, up from $2.66 per diluted share in the same year-ago period.

The most important metric
But as a diversified financial holding company, Markel can have its success best gauged by looking at its growth in book value per share. That's why Markel begins each of its quarterly press releases by immediately noting changes in the key metric. Last quarter, for example, Markel's book value per share climbed 3.7% sequentially and 14.2% year over year to $564.29. Investors should also note that because Markel management's compensation is in part determined by the five-year rolling average of growth in book value per share, their financial interests are firmly aligned with those of shareholders.

Underwriting results
Next, Markel will provide underwriting results from its insurance businesses, including combined ratios from the U.S. Insurance, International Insurance, and Reinsurance operations.

On a consolidated basis last quarter, Markel's combined ratio came in at a stunning 83% -- which meant it earned $17 for every $100 in premiums it wrote -- an improvement over the much more typical 95% it achieved in both the previous quarter and the same year-ago period. For that, Markel credited "more favorable development of prior years' loss reserves," a lower accident loss ratio, and reduced expenses. To be fair, though, investors shouldn't expect this exceptional performance to be sustained over the long term. Though the expense side can be maintained to an extent, the absence of accident losses and release of prior-year reserves are both almost certainly temporary.

Guided by the steady investing hands of its renowned CIO and president, Tom Gayner, Markel should also provide an update on the performance of its investment operations.

Specifically, Markel will outline pre-tax investment returns ($263 million last quarter), net investment income (up 7.1% year over year to $92.9 million in Q1), and total invested assets at quarter's end ($18.6 billion last quarter, including $4.3 billion in equity securities). As of last quarter, equities represented around 23% of Markel's total invested assets in Q1, up from 22% the previous quarter. And most encouraging for long-term investors, Markel should detail net unrealized gains, which most recently rose to $1.9 billion. By holding its equity positions for long periods without selling, Markel can avoid incurring an unnecessary tax bill and further compound shareholders' gains.

A growing influence
Finally, don't forget about Markel's steadily growing non-insurance businesses, namely those acquired and held through Markel Ventures.

Markel Ventures has remained quiet on the acquisitions front since its purchases almost a year ago of baking-equipment maker Vanderpol & Den Boer and a majority stake in car-carrier manufacturer Cottrell. As I noted at the time, however, Cottrell is Markel Ventures' single largest transaction to date at $130 million, so it's hard to blame the company for taking a breather to scout out other high-quality companies to bring into the fold. Unless Markel has a surprise acquisition to unveil or adds to an existing stake, updates on Ventures will probably be limited to operating revenue (up 43% to $245.4 million in Q1), adjusted EBITDA ($33.59 million last quarter), and net income ($10.5 million).

Barring any big surprises one way or the other -- something that's quite rare for Markel given its shareholder-friendly tendencies -- I suspect this will be another solid report from an exceptional company as it expands its reach around the globe. In any case, feel free to check back here to see how Markel fared after its report hits the wires.