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Markel Corp. Message Board

  • richardnealfrank richardnealfrank Nov 23, 1998 7:07 PM Flag

    valuing Markel

    My calculations are stale because I did them some
    time ago and have forgotten the details but the
    priciples should hold.

    1. Markel tends to
    overreserve for losses by about five percent and thus is
    overreserved by about five percent.

    2. Markel, on
    average won't have to pay its losses (on average) for
    about five and a half years. It thus has the use
    of
    about 750 million for approximately five and a half
    years. If Markel can earn 8% on the money one may view
    the present value of the debt as 95 % of 750 000 000
    or 712 500 000.
    Usinng a compond discount rate of
    .92 raised to the five and one half power one gets a
    presentvalue of the losses payable
    as 450 million or 300
    million more than official book.

    Year end book
    was $65 and adding in the 300 million one gets about
    $120 per share. One may do a Berkshire number and
    mentally add in about 25% of the taxes owed of about
    $45million because Markel can use the float on the taxes
    almost indefinitely to invest.

    Adding in
    Markels integrity, its buying discipline, its
    underwriting discipline, its investing discipline and its nose
    for bargins it seems quite underpriced. If we also
    add in that insurance industry has been in an
    extrodinary bear market for a decade Markel is even more
    impressive. Swiming against the current it has done well,
    when the tide terns and industry wide pricing firms
    Markel should fly.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • True, but in this case I happen to know that they
      are not selling due to any upcoming bad news. (That's
      not to say there won't be any bad news in the future
      - nobody can anticipate that. But that is not why
      they sold in May)

    • That is possibly accurate. But keep in mind, these guys have bought shares in the past equal to what they're selling today so I'd wager they don't think the price is cheap.

    • the May filings by the three executives then I
      wouldn't read too much into that. Those shares represent a
      tiny (very tiny in some cases) percentage of their
      respective holdings and the sale was merely for
      diversification/spending purposes.

    • If you are buying today, it is nearly certain you are buying what the upper management is selling. They are selling a load.

    • I haven't heard anything, so I added some shares this AM.

      If it keeps dropping, I'll keep adding!

    • Thanks Led123,

      Float is basically unearned
      premium reserve. Right?

      When I read Buffet's
      letter to the shareholder, he critisized companies who
      booked more reserves than what they needed to
      manuplating the earning growth.

      That's opposite
      philosophy of MKL's.


      -M

    • Anybody heard anything? Volume doesn't look that strange.

    • Float refers to the funds that the company holds
      but does not own. An insurance company has a unique
      business model in that it receives revenues on the front
      end (in the form of insurance premiums) and pays its
      expenses later, sometimes years later (in the form of
      claims). In the meantime, the company can invest this
      float and earn a profit on these investments. Some
      insurance companies will actually sell their policies at a
      loss and make up for it on the float. Fortunately
      Markel makes an underwriting profit as well as an
      investment profit. This is a similar model to the one Warren
      Buffett has been so successful with over the
      years.

      Equity, in this case, refers to book value or Assets
      minus Liabilities. Markel has stated that their goal is
      to have 4 dollars of investments for every one
      dollar of equity. If they earn 5% on their investment
      portfolio, then this will translate into a return of 20% on
      book value. The idea is that the company's intrinsic
      value will track its book value over long periods of
      time. In the short run, of course, anything can
      happen.

      Another nice feature of Markel is their accounting
      conservatism. Insurance companies have to set up reserve
      accounts on their balance sheets since sooner or later
      those claims will hit. In the past, Markel has tended
      to "over reserve." When the future arrives and it is
      not as bad as planned for, those extra reserves can
      be released as earnings and flow through to the
      income statement.

    • I was very impressed when someone compare Buffet with MKL.

      Can someone elaborate it more?

      -M

    • I am new here this board. And I am new at
      Markel.

      I have received 1998 Annual Statement, and read
      some of the articles here.

      There are two
      things that I do not understand.

      What is
      "float"?

      What is "equity" in $4 in bonds and $1 in
      equity.
      Is it a share holder's equity? or Equity (in
      investment in stocks)?

      Thanks.

      -M

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