On Monday May 13th, about 1,500 people gathered in the Altria theater in Richmond Virginia. The annual gathering, of mostly Markel (NYSE: MKL) employees, is a great example of transparency, humility, and long-term thinking. Markel is a get-rich-slow type of investment, which embodies just about all the characteristics of a permanent hold that you could ask for.
Here are the highlights from this year’s annual meeting.
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New CFO Jeremy Noble went over some quick metrics. Yes, book value per share increased from $653 at the end of December 2018 to $707 at the end of March 2019. But his bigger point was to pay attention to trends and performance over much longer terms. In this year’s annual letter, co-CEO Tom Gayner explained how the stock increased 79% in the past five years. In that same five years, Markel Ventures revenues totaled $6.4 billion compared to $1.7 billion in the previous five years. Equity investments compounded at 9.7% per year while fixed income earned on average 3% over the past five years. Gross written premiums from insurance businesses totaled $27.6 billion over the past five years compared to $12.6 billion in the previous five-year period.
Talking long-term is one thing, but acting long term is more difficult. Markel rewards its executives over five year rolling periods. This helps align their behaviors with the long-term perspective of their shareholders.
Co-CEO Tom Gayner also took time to praise his alma mater’s basketball team for winning the national championship. He went on to describe how the pillars for success for UVA basketball (humility, passion, unity, servitude, and thankfulness) are alive and well at Markel too. He likened their first-round exit in the previous year’s NCAA tournament to the CATCo troubles of this past year at Markel. He praised Vice Chairman Steven Markel for pioneering the acquisition strategies at Markel. Mr. Gayner has attended every Markel annual meeting since they began in 1987 and he’s been an employee for most of those years. He added some perspective around their history of acquisitions. It turns out that each acquisition comes with some surprises. In CATCo, Markel found a dud and had to write off the entire investment. Mistakes happen and they are part of growth and learning. UVA learned from their early exit in the tournament and got better. At Markel, Gayner said, “If we stop making mistakes, it means we’ve stopped trying.”
Speaking of mistakes. Despite their struggles at CatCo, they are confident in the future prospects of the Insurance Linked Securities (ILS) business. They are now a leading provider, thanks to the acquisitions of State National and Nephila. Markel management believes the importance and size of this market will grow significantly over time and Markel should benefit commensurately.
Markel is an appealing investment on a few different fronts. In the past year their book value per share and share price both declined, while the business made new acquisitions and reduced their shares outstanding. Parts of Markel’s business will benefit in a rising rate environment. Approximately half of their investable assets are in fixed rate investments, earning very low yields of around 2%. As interest rates and yields rise, they should benefit. Their diverse streams of revenues means they will have capital to invest in all markets. Their insurance businesses provide ample cash when the stock market is taking a hit while their various ventures businesses provide cash during difficult insurance years. Markel is run by honest and capable capital allocators. Co-CEOs Gayner and Whitt have many options to deploy their incoming capital. They can buy new insurance businesses, make bolt-on acquisitions to their existing ventures businesses, make passive investments in equities, or repurchase their own stock. While results at Markel won’t go up in a straight line, long term investors stand a good chance to outperform the market over the next ten years and beyond. Now that’s something to be thankful for.