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Markel Group Inc.
Markel Group Inc. is a holding company consisting of three business engines: insurance, investments and fully owned businesses. The specialty insurance business is the base of the 93 year old corporation that developed into a well diversified holding company over the last decades. The company has been listed on the NYSE since 1986.
Markel Group is a fascinating holding company run by Tom Gayner as CEO who is a brilliant communicator and investor. We can learn a lot about how he thinks about investing in many podcasts and interviews he gave over the years. For years he has been buying Markel stock on the open market which shows that he puts his money where his mouth is and that interests are truly aligned. He is following the Buffett/Munger playbook and Markel Group has been called the ‚Mini-Berkshire‘ for years. I think it’s an accolade to him and how he runs the company that Berkshire actually invested in Markel Group in recent years. And Tom Gayner also has been appointed as Director of the Coca Cola Company in 2023 which shows he is more than well respected.
Let’s have a look at the three business engines in detail.
Insurance
Markel offers specialty insurance for wind farms, cargo ships, sport stadiums and much more. Cyber, D&O insurance as well as a reinsurance business are also part of Markel. You can think of Markel as an insurance company that insures everything that is not standard retail but very specialised.
Gross premiums written more than tripled in the last 10 years to $13 billion in 2022. This is even more remarkable as Markel doesn’t focus on revenue growth but on profitability which management underlines in every investor call and annual general meeting.
Float, the premium paid by customers but not yet paid out until damages occur, and profit from the insurance engine is invested in Ventures and Investments.
Investments
Naturally Markel owns a sizable fixed income portfolio as every insurance operation, around $15 billion. However, on top they also own a well diversified stock portfolio worth more than $8 billion in 2023. Markel owns more than 100 stocks with the top 20 representing 60% of the value. Berkshire Hathaway is the biggest position at 13.6% followed by Alphabet at 4.4%. Tom Gayner often says that he is not a particularly gifted stock picker which is why he diversifies more than others (like Munger). However, his track record makes me feel pretty good about him being on the helm of capital allocation decisions.
The net investment income of that fixed income and stock portfolio will be more than $700 million in 2023.
Ventures
Markel Group’s ventures arm consists of 19 fully owned businesses that on aggregate will produce around $5 billion in revenue in 2023 ($4.8B in 2022) with more than $500 million in operating profit. The companies offer a wide range of products and services: handbags, cranes, plants, car haulers, real estate, floors, food, healthcare and more.
In the years of very low interest rates and high private market valuations it was hard for Markel Group to compete against higher Private Equity offers. Management seems very optimistic that times have changed now with interest levels rising and valuations more in line with what Markel wants to pay so we should probably expect another acquisition in the next few quarters.
Conclusion
What I like about the setup of Markel Group as a well diversified holding company is the flexibility this structure with three separate engines gives management in terms of capital allocation. They can invest in fully owned businesses if growth opportunities arise or make new acquisitions. They can put money into fixed income instruments or invest in the public markets and still be very liquid. Or optionally, if the Markel Group stock price is below intrinsic value, management can buy back stock at favorable prices and increase shareholder value that way. Ultimately, paying out a dividend is also an option even though I would be surprised given all the other options available.
I particularly like the long-term time horizon in everything they do and how they analyse the company. Financial performance is split into 5-year buckets for management compensation but also to show owners the long-term trajectory of the company. Zooming out like this gives us a more realistic overview about how Markel Group is performing. And as we know, in the short term the stock market is a voting machine and only in the long term it becomes a weighing machine.
Markel Group’s goal:
„Build one of the world’s great companies. One person and one interaction at a time.“
„Build one of the world’s great companies. One person and one interaction at a time.“
For more insights into the company I recommend reading the yearly shareholder letters that give great insights into Markel Group. I personally see significant upside potential in the long run and good downside protection due to a strong balance sheet and a well aligned and talented management team. In closing, here’s a deep dive on the mathematical value of $MKL by Nicoper Research from February 2023 for further research.
12. November 2023