Markel’s future results will be influenced by a rising interest environment!
Markel Corp. (NYSE: MKL) FY and Q4 results were certainly good, but do not appear sensational.
But at a second glance Markel is the excellent speciality insurer and investment company it always was!
Book value/share only increased 8% to $606.30 compared to $561.23 at December 31, 2015.
The combined ratio increased 3% to 92% in the year over year comparison, but this is still very good in a competitive and difficult insurance market.
Markel Ventures the private equity division of Markel also reported very good results:
Revenue increased by 20% to $1.2 billion and EBITDA increased by an astonishing 81% to $165 million, very good indeed!
Perhaps the most interesting remarks on the conference call came from CIO Tom Gayner regarding the investment results:
“First, we earned 13% on our equity investments during the year, which exceeded the S&P 500 return to 12%, 500 basis points.”
The fixed income portfolio for all of 2016 earned 2.4% in local currency terms.
But wait! This is the number that will improve over time in a rising interest environment:
“While the mark-to-market price of that portfolio dropped a bit in the fourth quarter, with rising interest rates, the reinvestment of new funds took place at higher rates.”
Markel stock trades at 1.5 times book value. This is not cheap but a reasonable price for a long term investment in a high quality company!