Markel Small Group Meeting
Markel Small Group Meeting
Markel Small Group Meeting
com/
1. In the past have even done deals with larger companies that helped
them grow substantially
iii. They are looking to add business and make acquisitions
1. But probably not anyone 2x their size anymore
iv. For example: AIG’s Hartford Steam Boiler
1. MKL was not a preferred buyer but this is an example of what they are
looking for
2. Are more likely to do incremental stuff in terms of investment
allocation
d. Talk about buying common stocks in this market
i. Gayner is buying equities in his personal portfolio each month
1. He is in the position where he makes more than he needs so he can
afford to invest that money in stocks
ii. Take Coca Cola (KO) for example
1. At $42 and a 4% yield it looks very attractive
a. That’s a great price but he can’t guarantee it won’t go to $38
i. MKL wants to be in the position to buy more at lower
prices
ii. When the insurance business is strong they can
shovel the money into the investment portfolio
1. They are not seeing this now so they have to
be judicious in their purchases of equities
iii. You have to ask yourself what kind of insurance company you are
1. Like a 47 year old with a stream of income and capital to invest?
a. When the insurance business is humming you can invest in
slightly riskier securities
2. Or are you like a 78 year old on a fixed income?
a. When the insurance market is soft you have to invest in safer
assets
e. Compensation and bonuses at MKL
i. In the fire line there is a 2 year bonus pool
1. You know pretty quickly if there has been a loss on a fire contract
2. On other longer tail lines the bonus pool is 3-5 years
ii. People in each line are measured by the compounded annual growth of book
value
1. Not based on premiums written or earnings
2. Is that a problem since if book value per share does not increase then
the management team gets no bonuses?
a. What happens if they have to shrink the book for 4 years?
i. Would they go without bonuses the entire time?
1. Thought that the board and shareholders
would be willing to adjust those rules if they
had protected capital prudently
b. If they are right and there is significant inflation and rising
interest rates on the horizon, doesn’t that mean that BV/Share
could be impacted negatively?
i. Yes, if they are directionally right and an interest rate
spike makes all existing fixed income assets less
attractive, BV/Share could go down
1. But they would be better off than everyone
else in the industry due to their short
duration
2. Also, the multiples on their businesses could
contract as the whole world is worth less
when interest rates increase
The Inoculated Investor http://inoculatedinvestor.blogspot.com/