2013 – A transformative year for Markel
A transformative year!
That’s the expression Tom Gayner, Chief Investment Officer of Markel Corp. (NYSE: MKL) used in his introduction to the conference call discussing the FY and Q4 2013 results of the company.
But those results are not only “transformative”, they are impressive!
With the acquisition of Alterra Markel roughly doubled the size of the insurance business.
In 2013, gross written premiums increased 56% to $3.9 billion, primarely due to the inclusion of $1 billion of premium from the Alterra segment.
Book Value per share, the most important metric in the insurance business, increased 18% to $477.16 from $403.85 at the end of 2012. Over the last 5 years the compound annual growth in book value per common share outstanding was 17%!
The combined ratio was 97% in both 2013 and 2012. This is more impressive than you might think because the 2013 combined ratio includes Alterra’s 118% combined ratio which itself includes transaction and other acquisition-related costs of $75.1 million, or 9% on the combined ratio and $25.5 million, or 3% of underwriting loss related to catastrophes that occurred during 2013.
Furthermore the combined ratio was unfavorably impacted by applying Markel’s more conservative loss reserving philosophy to Alterra’s loss reserves.
Revenues from Markel Ventures in 2013 were $686 million compared to $489 million in 2012, but the net margin of this segment is still a rather low 3.5%!
Invested assets jumped 89% to $17.6 billion at December 31, 2013 from $9.3 billion at December 31, 2012. Thanks to Alterra this is the new capital available to be invested by Tom Gayner and his team.
The return of their equity portfolio in 2013 was 33.3% similar to the S&P 500 which actually is very good considering the conservative nature of their portfolio.
Markel’s stock yesterday traded at $ 563.06 or 1.2 price/book. Rather cheap for a company which still has integration work to do but given its excellent history of building shareholder value looks a bit “forgotten” by the market.
If the market only would apply a more normalized price/book ratio of 1.5 to Markel the stock would jump to $715, an increase of 27% from today’s level.
This looks like a “strong buy”, doesn’t it?