Markel 2012 Annual Report

The Markel (MKL) results have been out, but I just noticed that the annual report is out too (I don't check so it may have been out for a while).  The MKL annual report is a very good read of you have the time to check it out.

We know this from the earnings release, but MKL grew book value a nice +14.7% in 2012 (despite Sandy) and had a 97% combined ratio.   They had a $399 million reserve release last year, but that's because they tend to be conservative in their reserving (they explain it in the annual report).  Some may complain that the combined ratio in recent years is phoney due to these releases, but that's like saying AIG isn't really as bad as it looks because they are just taking hits on past policies they wrote that were bad.  If we can penalize some for under-reserving, why should we penalize others for being conservative?

Anyway, the investment portfolio at Markel did quite well too with the equity portfolio rising +20% and fixed income portfolio earning 5%.

There was a nice explanation in the report about their approach to equity investing.  Their equity portfolio has returned +9%/year in the past ten years (versus +7%/year for the S&P 500 index) and +10%/year in the past twenty years (versus +8%/year for the S&P 500 index).  I wonder if there are any mutual funds or even hedge funds out there with 20 year returns like this?   Probably not too many.

The book value per share (BPS) at MKL also increased nicely over the long term rising +13%/year over  ten years (versus +7%/year for the S&P 500 index) and +16%/year over twenty years (versus +8%/year for the S&P 500 index).

This is how they explained what they do in their equity portfolio (this should be boringly familiar to regular readers here):

MKL's underwriting continues to do well (MKL combined ratio):

And here is an updated table on their investment portfolio:

There's a lot more in the annual report so check it out.  

Anyway, all of these five, ten and twenty year figures got me curious.  I do follow a lot of these "Berkshire-like" entities and have been updating their performance so I figured, why not put all of this stuff into a table?   The annual reports of these entities are starting to dribble out (Y and FRFHF are out too).  How are these guys doing compared to the S&P 500 index and Berkshire Hathaway over time?  

                          2012           5 year          10 year        20 year
MKL                +14.7%        +8.8%         +13.1%      +16.1%   
Y                     +10.8%          +6.1%           +8.8%            na
FRFHF              +6.5%       +10.6%          +11.6%      +16.2%
L                        +5.1%         +9.6%         +10.0%        +11.2%        
LUK                  +9.6%          +2.0%        +12.4%        +10.6%
GLRE                +1.9%          +5.8%

BRK                 +14.4%        +7.9%         +10.6%       +14.4%
S&P 500          +16.0%        +1.6%           +7.1%         +8.2%

(All of the above include dividends except LUK and FRFHF.  FRFHF 2012 return includes dividends, but historical BPS growth does not)

What's pretty amazing is that not only did MKL beat the S&P 500 index in most time periods, it also beat BRK in all of the above time periods.  Of course, it's not in the nature of the MKL folks to mention that in their annual report, but there it is.

MKL is trading now at $504/share versus 2012 year-end BPS of $403.85/share, around 1.3x book.  MKL is certainly not dirt cheap but with performance figures like the above it may well be worth the premium.    

(Update after the fact:  The above $403.85/share BPS doesn't take into account the Alterra merger which will be about 4% accretive to BPS.  Plus a strong stock market, up 10%, would push up pro-forma BPS by another 3% or so, so the BPS would be 7% higher (the equity portfolio would be 30% or so of pro-forma shareholders' equity))