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… until February everything went well… but then…

May 1st, 2020

Markel Corp. (NYSE:MKL) the specialty insurer and investment company released Q1 2020 Earnings

… until February everything went well… but then…

As Co-Ceo Thomas S.Gayner put it:

„At the beginning of the year, we started with excellent operational momentum in our diversified insurance, investment and ventures operations. We entered the year with a conservative balance sheet, marked by high-quality fixed income holdings, no near-term debt maturities and a publicly traded equity portfolio that stood at 69% of shareholders’ equity. Those equity securities had a cost basis of $3.3 billion and a market capitalization of $7.6 billion at that time.“

Starting with the top line things are not looking so bad:
gross written premiums were $1.9 billion for the quarter compared to $1.7 billion in 2019, an increase of 13%. This increase is almost entirely due to our insurance segment, which reported gross written premiums of $1.4 billion, an increase of 19% compared to the 2019 period.

But then the picture changes:
the consolidated combined ratio for Q1 2020 was 118% compared to 95% in Q1 2019.

During the quarter, Markel recognized their best estimate of pre-tax net losses and loss adjustment expenses of $325 million for COVID-19. These COVID-19 losses increased the consolidated combined ratio by 24 points. This means that without the effects of COVID-19 the combined ratio would be 94%.

Net investment losses for the quarter were $1.7 billion compared to net investment gains of $612 million last year, a year-over-year decline of $2.3 billion.
Essentially all of the net investment losses in 2020 were attributable to the decrease in the fair value of our equity portfolio during the period as COVID-19 caused unprecedented volatility in the capital markets as they explained on the conference call.

Revenues from Markel Ventures their investment arm increased by 12% to $511 million for 2020 compared to $455 million last year.
The increase in revenues was primarily related to an acquisition in 2019 and, to a lesser extent, an overall increase in the consumer and building products businesses.

Markel reported a net loss to shareholders of $1.4 billion for 2020 compared to net income to shareholders of $576 million a year ago.

Book value per common share outstanding was $705.68 at March 31, 2020, 12% less than $802.59 at December 31, 2019.

After the earnings release the market reaction was positive and the share price went up.
Knowing the management and the sound traditions of Markel we can assume that they put all the estimated loss into the reserves of the first quarter.

So if this crisis will not worsen we do not have to expect further increases in loss reserves.

On the other side as the Federal Reserve lowered interest rates to near zero there will be very low investment returns to earn on the short term fixed income side.
Luckely Markel still has about 58% of shareholder’s equity invested in stocks.

At yesterday’s closing price of $ 865.84 Markel has a price/book per share ratio of 1.2
It is a good price to buy but don’t expect quick returns on this one!

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