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This Insurer Is No 'Mini-Berkshire'

Markel has developed a strong reputation as a mini-Berkshire, but the resulting premium on its share price is unwarranted.

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Brett Horn: A number of insurers have drawn comparisons to Berkshire Hathaway over the years. In our view, Markel has developed the strongest reputation as a mini-Berkshire. The shares currently trade at a substantial premium as a result, currently trading at about 2.1 times tangible book. We think this comparison is inaccurate and the premium is unwarranted.

We grant that Tom Gayner has proven himself to be a very good stock-picker, but we estimate that even if he maintains his outperformance going forward, this would add only about 1% annual book-value growth, which suggests that at best investors should pay a modest premium.

Further, we find the company's non-insurance M&A track record to be unimpressive, and we have concerns that its 2013 acquisition of reinsurer Alterra could prove ill-timed given recent negative trends in the reinsurance space.

We would suggest for investors looking at an alternative to consider WR Berkley. It's the closest comp to Markel operationally, and it trades at a much more modest premium of 1.5 times tangible book, which we believe leaves it roughly fairly valued.

Brett Horn does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.