12/21/2010
I love the insurance racket, here's how you price insurance. Probability of failure x cost of replacement/repair + profit margin = price of policy. Which, on average, means no one needs insurance and anyone who buys insurance is getting fleeced. While the reality is that you should have insurance on anything you can't afford to replace, if you CAN afford to replace it or aren't dependent on it you should not insure it. Those life insurance policies on your children (who's income you don't need) and on your Parents (who aren't financially supporting you) are HUGE financial mistakes.
"Markel Corporation markets and underwrites specialty insurance products and programs. The Company operates in three segments of the specialty insurance marketplace:
1) Excess and Surplus Lines: property and casualty insurance outside of the standard market for hard-to-place risks, including catastrophe-exposed property, professional liability, products liability, general liability, commercial umbrella and other coverages tailored for exposures.
2) Specialty Admitted: writes risks that must remain with an admitted insurance company for marketing and regulatory reasons.
3) London Insurance Market segment writes specialty property, casualty, professional liability, equine and marine insurance and reinsurance."
Current price: 380.75
Valuation Ratios
Price/Earnings (TTM) . . . . . 16.89x
Price/Sales (TTM) . . . . . . . 1.7x
Price/Book (MRQ) . . . . . . . 1.21x
Price/Cash Flow (TTM) . . . . 15.65x
Historically Markel trades at 2.0x book, so it's currently at a considerable discount. Quite likely because other insurance companies are making riskier underwrittings to boost cash intake and cutting into Markel's bread and butter during these tough financial times meaning that Markel's own earnings are down.
What this really is about, for me, is the time between taking in the money as an insurance premium and paying a claim - fairly long. That balloon of cash is called the "float" and is generally invested to increase returns on it, hopefully intelligently invested so a major Hurricanes/catastrophes don't leave them unable to cover their claims. In this way insurance companies have it better than banks since they know with a certain level of confidence what the probability is that I'll wreck my Jet boat in a given period of time, while the bank has no idea that I'm considering buying another one so my buddies can race it (I do not own a Jet boat). But their ability to make solid returns on the float is the sole responsibility of their investment officer, he's not quite Warren Buffet, but Tom Gayner is a great stand in.
Most insurance companies actually use the money they make from investment operations to lower premiums, so are forced to invest in high quality low risk investments. So if your insurance company pays out $1.02 in claims for every $1 they take in, they need to make up that 1% and their actual profit margin in the market just to break even. Markel on the other hand spends $0.93 to $0.95 for ever $1 it brings in. That 3 to 7 cents it gets to hold onto for a long term portfolio. That is 3 to 7 cents are owed to investors in Markel for ever dollar Markel receives in premiums from clients, until the end of time.
Benjamim . . . . . . . . . . . 4.2:, Target price 435.72
Thomas. . . . . . . . . . . . . 3/5
Marcel . . . . . . . . . . . . . 4/5
Saxon . . . . . . . . . . . . . 4.25
Insiders . . . . . . . . . . . . Lots of insider support around 340, Lots of Markel family sells from September to December, mostly appears to be year end sells from non-market acquisitions.
This stock is not going to double, lets just be clear about that, but it's not going to go to zero either. Markel looks at it's company on the generational scale, three generations in and the family are still highly involved in the business. They know the market will fluctuate, they realize this will improve over time. Their long term portfolio is intelligently managed. If you pick up this stock, as I plan to, realize that this is one that you'll likely never sell. It will sit there in your portfolio for the next 150 years. It's trading at a discount right now, and it will likely never be popular while likely always solvent. With that in mind I'm allocating 5% of my portfolio, but you could probably buy 10% and sell off the other 5% if you needed to later when it is higher valued. Depending on your level of commitment, I'd suggest a starting price from ~$352 to $380. You might even be able to get it around 335, but expect to wait at least 6 months in that scenario (use a limit order). This is because earnings growth is negative and the market, since it's near sighted, is valuing it slightly lower. It might be wise to pick up 2.5% now, and 2.5% or more in about 3-6 months. My 5% order is at 375.85, good until canceled, plan to hold forever. I expect there's about a 30% chance that you can pick it up around 340 in the next 6 months.
I love the insurance racket, here's how you price insurance. Probability of failure x cost of replacement/repair + profit margin = price of policy. Which, on average, means no one needs insurance and anyone who buys insurance is getting fleeced. While the reality is that you should have insurance on anything you can't afford to replace, if you CAN afford to replace it or aren't dependent on it you should not insure it. Those life insurance policies on your children (who's income you don't need) and on your Parents (who aren't financially supporting you) are HUGE financial mistakes.
"Markel Corporation markets and underwrites specialty insurance products and programs. The Company operates in three segments of the specialty insurance marketplace:
1) Excess and Surplus Lines: property and casualty insurance outside of the standard market for hard-to-place risks, including catastrophe-exposed property, professional liability, products liability, general liability, commercial umbrella and other coverages tailored for exposures.
2) Specialty Admitted: writes risks that must remain with an admitted insurance company for marketing and regulatory reasons.
3) London Insurance Market segment writes specialty property, casualty, professional liability, equine and marine insurance and reinsurance."
Current price: 380.75
Valuation Ratios
Price/Earnings (TTM) . . . . . 16.89x
Price/Sales (TTM) . . . . . . . 1.7x
Price/Book (MRQ) . . . . . . . 1.21x
Price/Cash Flow (TTM) . . . . 15.65x
Historically Markel trades at 2.0x book, so it's currently at a considerable discount. Quite likely because other insurance companies are making riskier underwrittings to boost cash intake and cutting into Markel's bread and butter during these tough financial times meaning that Markel's own earnings are down.
What this really is about, for me, is the time between taking in the money as an insurance premium and paying a claim - fairly long. That balloon of cash is called the "float" and is generally invested to increase returns on it, hopefully intelligently invested so a major Hurricanes/catastrophes don't leave them unable to cover their claims. In this way insurance companies have it better than banks since they know with a certain level of confidence what the probability is that I'll wreck my Jet boat in a given period of time, while the bank has no idea that I'm considering buying another one so my buddies can race it (I do not own a Jet boat). But their ability to make solid returns on the float is the sole responsibility of their investment officer, he's not quite Warren Buffet, but Tom Gayner is a great stand in.
Most insurance companies actually use the money they make from investment operations to lower premiums, so are forced to invest in high quality low risk investments. So if your insurance company pays out $1.02 in claims for every $1 they take in, they need to make up that 1% and their actual profit margin in the market just to break even. Markel on the other hand spends $0.93 to $0.95 for ever $1 it brings in. That 3 to 7 cents it gets to hold onto for a long term portfolio. That is 3 to 7 cents are owed to investors in Markel for ever dollar Markel receives in premiums from clients, until the end of time.
Benjamim . . . . . . . . . . . 4.2:, Target price 435.72
Thomas. . . . . . . . . . . . . 3/5
Marcel . . . . . . . . . . . . . 4/5
Saxon . . . . . . . . . . . . . 4.25
Insiders . . . . . . . . . . . . Lots of insider support around 340, Lots of Markel family sells from September to December, mostly appears to be year end sells from non-market acquisitions.
This stock is not going to double, lets just be clear about that, but it's not going to go to zero either. Markel looks at it's company on the generational scale, three generations in and the family are still highly involved in the business. They know the market will fluctuate, they realize this will improve over time. Their long term portfolio is intelligently managed. If you pick up this stock, as I plan to, realize that this is one that you'll likely never sell. It will sit there in your portfolio for the next 150 years. It's trading at a discount right now, and it will likely never be popular while likely always solvent. With that in mind I'm allocating 5% of my portfolio, but you could probably buy 10% and sell off the other 5% if you needed to later when it is higher valued. Depending on your level of commitment, I'd suggest a starting price from ~$352 to $380. You might even be able to get it around 335, but expect to wait at least 6 months in that scenario (use a limit order). This is because earnings growth is negative and the market, since it's near sighted, is valuing it slightly lower. It might be wise to pick up 2.5% now, and 2.5% or more in about 3-6 months. My 5% order is at 375.85, good until canceled, plan to hold forever. I expect there's about a 30% chance that you can pick it up around 340 in the next 6 months.
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