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Markel's Premium Growth Impresses, Cat Loss Exposure Bothers

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Markel CorporationMKL has successfully conformed to the ever-changing demands and expectations of its clients, building a solid service and product portfolio over time. The company remains focused on maintaining this winning streak to further upgrade the overall results.

On the back of a sustained operational performance, mainly fueled by an improving segmental performance, Markel has been witnessing premium growth over a considerable period of time and the property and casualty (P&C) insurer anticipates delivering higher premiums in the near term as well.

This apart, the company has ramped up its growth profile with the help of strategic acquisitions. To that end, on Nov 17, the company purchased State National under its insurance operations wing, which will enable the P&C insurer to improve its collateral protection insurance coverage capabilities, thereby accelerating overall growth. Hence, we expect this P&C insurer to remain focused on tactical buyouts in the near future that will not only strengthen the company's inorganic portfolio but also solidify its market position.

Moreover, the company has proved its mettle by displaying an exemplary track record of net investment income growth over the years, despite a low interest rate environment and the first nine months of 2017 were no exception. Besides, with the Federal Reserve delivering its promise of three rate hikes this year, the Zacks Rank #3 (Hold) P&C insurer expects to report higher net investment income in the near term.

Also, a robust capital position has helped the company engage in shareholder-friendly moves like share buybacks, which in turn have raised enough optimism among investors.

However, as a P&C insurer, the company is predominantly exposed to catastrophe loss, resulting in weak underwriting results. Markel has been suffering a catastrophe loss over the past few years and the first nine months have not been any different. The fourth quarter too has faced the brunt of wildfires in California and the company estimates to have incurred losses between $40 million and $80 million stemming from the same.

Further, the company has been incurring rising expenses over a considerable period of time and the first nine months were no exception. This in turn has restricted the operating margin expansion and we do not anticipate a turnaround anytime soon.

Nonetheless, there are a few following factors in discussion, which make the stock attractive to investors apart from the abovementioned growth:

Northbound Estimates : Even though the stock has not witnessed any estimate revision for its current-year earnings in the last 60 days, the Zacks Consensus Estimate for 2018 has been revised 13% upward during the period.

Growth Projections : The Zacks Consensus Estimate for earnings per share is pegged at $5.56 on revenues of $5.98 billion for 2017. Although the top line reflects a year-over-year rise of 7.8%, the bottom line represents a noticeable decline of 82.1%. For 2018, the Zacks Consensus Estimate for earnings is pegged at $31.90 on $6.39 billion revenues. While revenues denote 6.9% growth, the bottom line indicates a whopping improvement of 473.7%.

An Outperforme r: Shares of Markel have gained 25.4% year to date, outperforming the industry 's rally of 18.2%. We expect top-line growth, improving premiums, higher net investment income as well as a strong capital position to drive the stock higher in the near term.

Stocks to Consider

Some better-ranked stocks from the same space are CNA Financial Corporation CNA , Infinity Property and Casualty Corporation IPCC and NMI Holdings, Inc. NMIH , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

CNA Financial provides commercial property and casualty insurance products primarily in the United States. The company came up with positive surprises in three of the last four quarters with an average beat of 39.87%. Shares of the company have gained 27.2% year to date.

Infinity Property and Casualty Corporation provides personal automobile insurance products in the United States. The company pulled off positive surprises in three of the last four quarters with an average beat of 300.65%. Shares of the company have grown 20.5% year to date.

NMI Holdings provides private mortgage guaranty insurance services in the United States. The company delivered a four-quarter average positive surprise of 11.75%. Shares of the company have surged 61.1% year to date.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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