Berkshire's offer to acquire Alleghany raises interesting questions regarding the possibility of further acquisitions in the insurance industry
Small addition to Markel in Berkshire’s Q2 2022 13-F filed this evening.
In the article, I disclosed the following:
"I have closely followed Markel Corporation for over a decade and owned shares of the company from March 2011 until selling the last shares of my position in March 2022 when the stock advanced significantly in a short period of time."
I suspect that I sold these shares to Mr. Buffett as he built up Berkshire's Markel position and probably caused the run-up. Fortunately, Mr. Market has now allowed me to fully reverse that ill advised move at a lower price than my sale. Although I don't view Markel as necessarily cheap, I shouldn't have exited an eleven year position due to a short-term run-up and I'm fortunate to have been able to reverse it. The fact that Berkshire is now invested in Markel was a factor in my thinking as well.
These articles aren't investment advice, but I feel obligated to disclose my positions when the articles are written or if something changes soon after the article is published. I don't plan to post trade decisions in general, but this seemed appropriate given the recency of the article.
Tom Gayner has been named sole CEO of Markel upon retirement of co-CEO Richie Whitt, to occur sometime before March 31, 2023. Jeremy Noble, the current CFO, will take over insurance operations and report to Tom Gayner. https://www.markel.com/markel-corporation/news-and-press/markel-corporation-announces-richard-r-whitt-to-retire-by-march-31-2023-17346
This is an interesting interview of Tom Gayner at an event in Omaha before the Berkshire annual meeting. Interesting overall, but especially his comments on Allegheny about half way into the video. https://m.youtube.com/watch?v=ZqRTU3UzRkQ
Nice thought process and enlightening comparison. I personally think you’re a little conservative on Markel, not just because of the reasons you highlight in your comment, but also because they have significant amortization expenses in Ventures and they’ve made recent acquisitions not yet reflected in the earnings of Ventures. You might be able to get to a $5 billion or more valuation for the group. But, regardless, I think your analysis shows why Buffett would have made an offer for Allegheny and not Markel and why Allegheny is much more attractive (especially at these prices) to Berkshire. Enjoyed it very much.
Before this report I had no idea Gayner’s performance in equities was this good!
A short addendum to the article with three factors that might suggest Markel has additional value:
1) Markel's "10-5-1" initiative represents a goal of having $10 billion of annual premiums within five years at a 90% or better combined ratio, which would result in $1 billion of annual underwriting profits. If realized, this is substantially more than the $200 million of underwriting profits that I suggested might be "normalized".
2) Markel's 23% stake in Hagerty is worth ~$784 million as of the April 14 quote for Hagerty, but the stake in Hagerty is carried at $257 million on Markel's books because it is accounted for by the equity method, not marked to market with the stock quote. The incremental ~$527 million does not appear anywhere on Markel's balance sheet.
3) I did not assign explicit value to the ILS business, which Markel has made a heavy bet on. There have been issues in this business and I am unsure of its long-term earnings power.
I am not sure that Warren Buffett would assign much value to projections of future underwriting profit or be influenced too much by the Hagerty and ILS items, but I could be wrong.
I view Markel as a very solidly run business that would be a good fit for Berkshire but the economics are challenging to say the least!