Looking to build your wealth and secure your financial future? Investing in the stock market is one great way to build lasting wealth. With the right investments, you can tap into the potential of a growing economy and benefit from companies with strong economic moats.
Consider Markel (MKL 0.96%), an insurance company often compared to Berkshire Hathaway for its investment approach. You may know that a $100 investment in Berkshire Hathaway in 1965 — when Chief Executive Officer Warren Buffett took the reins — would be worth over $5.5 million today. Could an investment in Markel today set you up for life in a similar way? Let’s dive into the company to find out.
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Markel’s bread-and-butter is providing specialty insurance
Markel provides specialty insurance and operates in a segment of the market known as excess and surplus insurance. This type of insurance covers unique situations that standard policies, such as automotive or property and casualty insurance, do not. Areas of coverage in specialty insurance include liability, malpractice, event cancellation, and other hard-to-insure risks, such as rare collectibles.
Since these risks are more difficult to predict, insurers in this sector rely on their extensive experience and expertise, and often charge higher premiums for their coverage. Markel has built up experience over decades, having been founded in 1930. Its insurance business is an “amalgamation of many teams who specialize in their very particular areas of the marketplace,” according to Simon Wilson, chief executive officer of Markel Insurance.
Markel has a long history of measuring and pricing risks, which investors can observe through its combined ratio. This ratio is a widely recognized measure of underwriting performance in the insurance industry, representing the relationship between incurred losses and expenses and earned premiums. Insurers aim to have this ratio below 100%, with a lower ratio indicating better underwriting performance.
During the past decade, Markel’s combined ratio has averaged 95%. In other words, the company has made $5 in underwriting profit for every $100 in premiums collected, showing its ability to consistently deliver underwriting profit across its specialty offerings.
Markel’s investment philosophy mirrors Berkshire Hathaway’s
While its insurance operations are solid, Markel also focuses on acquiring and operating non-insurance businesses, which is how Markel earned the baby Berkshire nickname. Its investing activities are split into two main segments: An investment segment and a venture segment. The investment segment is dedicated to investing in publicly traded companies, while the venture segment focuses on acquiring and investing in companies.
Its venture segment consists of controlling interests in a diverse portfolio of businesses across various industries, including construction services, consumer and building products, transportation-related products, equipment manufacturing, and consulting services. These businesses operate with a high degree of independence, similar to Berkshire Hathaway.
Recent acquisitions include Valor Environmental in June 2024 for $156 million and a majority interest in Educational Partners International for $168 million.
Its investment segment has also performed well. In the first quarter, its net investment income, which includes interest and dividend earnings from its portfolio, was $236 million, up from last year due to a higher yield on its new investments amid the higher interest rate backdrop. On top of that, its equity portfolio generated an unrealized gain of $7.8 billion in the quarter.
Can buying Markel set you up for life?
Markel is a solid insurer and one of the companies that most closely emulates Berkshire Hathaway. The stock offers stability and exposure to a steadily growing insurance industry that enjoys robust demand, which can also serve as a hedge against inflation.
Can buying Markel today set you up for life? Of course, that depends on how much you invest and how long you plan to hold your investment in the company. For example, if you invest $10,000 in Markel today, and the stock achieves 12% annualized returns — which is what it has done for the past three decades — that position would be worth nearly $300,000 in 30 years. Those are excellent returns, but not enough to retire on.
Markel isn’t going to be an explosive growth stock delivering staggering returns. Instead, it’s a steadily growing stock that can be good for conservative investors or as a stock to include in your diversified portfolio. While Markel alone probably won’t set you up for life, it can be a part of a broader stock portfolio that does.
