tom gayner

Markel Event – Tom Gayner & Steve Markel

Markel Corporation (NYSE:MKL)

Questions

  • David Winters – what are regulatory limits of wholly owned subs vs publically traded stocks?  Impact of markel to market?
    • Markel has $2BN to equities – wholly owned comes from holding co.  No regulator limit at holding.  Only at insurance sub.
    • BRK – National Indemnity – has regulatory trade-off.
  • Excess liquidity to feel safe? For Berkshire Hathaway it is$20Bn
  • $600MM to $1 billion have
  • Min of $400MM

 

  • Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is largest holding – Buffett talking about discount of intrinsic value
  • CarMax, Inc (NYSE:KMX) is major holding – compound and growth expected
  • Fairfax Financial Holdings Limited (TSE:FFH) , Brookfield Asset Management Inc. (NYSE:BAM), Diageo plc (NYSE:DEO), Wal-Mart Stores, Inc. (NYSE:WMT), – demonstrate shareholding value wheather via dividends, growth , etc
  • Line of business – hardness of pricing vs softness of pricing?
  • Across board – relative improvement – “breeze more at back than in face”
  • International businesses better – Oil and gas and Cat business pricing stronger
  • Long Term liability business not as robust (pricing)
  • Workers comp “improving”
  • Grep Smicher – repurchase of own shares? Multiple of book value per share to repurchase?
  • Generally – like to see shares continually declining – restricted stock is used in comp plan .
  • Want to repuraches enough stock to offset share issuance.
  • No stated number (such as 1.1x book)
  • Valuation closer to right valuation more consistently than BRK.A
  • Unlikely to try to buy back a meaningful amount of stock –
  • Restricted stock more clear – stock options mirage of real cost – how much spent on comp?  Unsure.  Restricted stock is clear. Dollar for dollar – treated as expense which flows through business.  Markel exemplar of senior execs – 5 years before qualified to earn aand then 5 year vesting period – 10 year window reinforces LT thinking.
  • Market Ventures flow of opportunities – dog catching car?
  • First reference was 2005 – LBOs had to much leverage and to short of a time horizon.
  • AMF Bakery Equipment – guts of commercial equipment.
  • Knew Chairman did deal
  • 2006 and 2007 did no deals as rest of world was bidding up companies.  But got a call from lawyer – Network effects created strong deal flow – pricing on all deals.  Half had no investment banker.
  • Low interest rates – ramp up capital to Markel Ventures?
  • Yes but can’t force deals – 2006 & 2007 they did nothing .
  • Troubled business – offered for free – said no.  Evidence of discipline.
  • Substantial FI portfolio to match and collateralize insurance liabilities.  See more than 100% of offsetting liabilities in fixed income.
  • How do you think about risk in fixed income?  Bonds as investments?
  • “Bonds offer return free risk.” Buffett quote yesterday
  • Match because they have to – insurance liability is 4 years and bond portfolio is 3.25 years.
  • “not concerned about stretching for yield –inflation big risk”
  • Growth of intrinsic value of Markel over time?
  • Investment leverage is 3x capital base – so growth is underwriting profit + growth on
  • Growth of just under 20% per share since IPO due to underwriting profits, and gains from investments.
  • Underwriting margins have been thin – growth on pricing is coming and
  • Expect to earn strong double digit returns on capital.
  • BV per share is good proxy
  • Most important factor is “Markel style”
  • Feast and famine relative to the rest of the industry? Historic cycles in insurance business?
  • Example – difference is standard and excess insurance markets.
  • Generalize diff from commodity business and specialty
  • 20% specialty and 8% commodity
  • Bars and taverns become restaurants in soft markets.  When market gets hard, back to bars and taverns
  • Specialty lines grow faster in hard markets.
  • “Underwriting and investing are similar business”  Both driven by people’s behavior – no fear that bull and bear markets will continue.”
  • Reinsurance vs insurance?
  • Geico – auto – “consumer brand” with franchise
  • Gen Re – catastrophic
  • National Indemnity – large unusual account (Ajit Jain of Berkshire Hathaway) – reinsurance
  • Markel – does some re-insurance but not enough
  • Direct business better than reinsurance.
  • Right after an event prices spike up – can write big limits at right rates.
  • Markel doesn’t play in that market
  • How do you build culture to drive LT underwriting culture?
  • Create incentives
  • Talk about underwriting profit
  • Corporate incentives in over 5 year rolling averages
  • Need to discuss things in ranges
  • Underwriting targets based on amount of float.