MARKEL GROUP INC. (MKL) stock intrinsic value fair value estimate & owner earnings analysis

Markel Group is a specialty insurance company that also owns a collection of whole operating businesses (reported as the Industrial, Financial, and Consumer and Other segments) and a large stock portfolio. The insurance operation writes hard-to-place commercial risks in the United States and through the London and Lloyd's market; the premiums it holds before paying claims are invested, and the cash it generates is used to buy businesses, buy back shares and add to the stock portfolio. At June 30, 2026 that stock portfolio was worth about $13.5 billion, roughly $1,069 per share. How we measure earnings. We start from operating cash flow and strip out the growth in claim reserves and other insurance balances, because an insurer's cash flow rises whenever its reserves grow and that money is owed to policyholders, not earned by shareholders. We then deduct the cost of maintaining (not expanding) the operating businesses' plant and equipment and the share of earnings belonging to minority partners and, until 2025, preferred holders. Share-based pay is not separately disclosed and is small. On this basis earnings per share were $60.22 in 2023, $94.23 in 2024 and $123.24 in 2025. Our starting level is the $94.23 median of those three years. We measure from 2023 because that is when the business took its current shape: Markel stopped writing new reinsurance business and put that book into run-off, and investment income rose from $735 million in 2023 to $970 million in 2025 as the bond portfolio was reinvested at higher yields, which are still in place. The three years include one poor reserving year, one average year and one strong year. Our previous estimate started from $89, the median of 2021-2025, but in 2021 and 2022 investment income was less than half of today's level. Growth. Earnings per share rose 30.8% in 2025. Our base case assumes 4.8% for the first year, well below that, because much of 2025's jump came from $488 million of reserve releases that we don't expect to repeat at that size. The growth we give credit for comes from one repeatable process: Markel reinvests most of what it earns. From 2023 to 2025 it spent about $1.45 billion on buybacks, about 40% of its $3.6 billion of earnings, and kept the other 60% for insurance capital and acquisitions of operating businesses. It earned a median 8.0% on shareholders' equity on our cash measure over those years. Keeping 60% and earning 8% on it gives growth of about 4.8% a year. Because that growth has to be paid for, we count only the 40% that is not reinvested as cash to owners during the first ten years. Growth tapers to 3% by year ten. After that, the case holds earnings flat and counts them all as cash to owners. What keeps them going is the insurance franchise and the owned businesses, supported by reserves that have developed favorably for 21 straight years. We don't count on price increases across the insurance market, a longer hard market, or higher or lower bond yields. The base case also counts Markel's share of the profits its stock holdings keep and reinvest instead of paying as dividends (dividends are already in earnings). We credit this at only 1.5% a year of the portfolio's value after tax, about $12.70 per share a year, well under what large companies typically retain. Known costs in every case. In the second quarter of 2026 Markel took a $205.3 million charge because a partner that took on the risk in its State National fronting business went bankrupt. That business was habitational casualty programs, written from 2012 and stopped in 2021. We deduct about $12.90 per share after tax in year one. The $300 million of 3.50% notes due November 2027 and the $300 million of 3.35% notes due September 2029 are assumed to be refinanced at 6%. That costs about $1 per share a year once both are replaced. Base case: earnings start at $94.23, grow 4.8% a year with the reinvestment described above, taper to 3%, then hold flat. Value: $1,865 per share. Bear case: the specialty insurance market softens and underwriting profit disappears for five years, as it largely did in 2023. The case also carries the problems that are already visible: continued adverse reserve development on U.S. professional liability lines (2023-2025) and the run-off directors-and-officers book (notable in 2025); losses in the reinsurance run-off, which ran a 123.6% combined ratio in the first half of 2026; weaker Industrial results (operating income down 23% in the first half of 2026 on car-hauling equipment and industrial bakery weakness); and a second fronting credit loss the size of the 2026 charge. Earnings are $76 per share for five years, then $88, slightly below the $89 median of 2021-2025, and flat after that. Reinvestment earns only 6% and adds no value, the stock portfolio's retained profits get no credit, and the maturing notes are refinanced at 7%. Value: $1,373 per share. Bull case: underwriting stays near its recent level. In the first half of 2026 the insurance combined ratio was 93% versus 96% a year earlier, and underwriting profit was $284 million versus $143 million. Earnings start at $110, between the 2024 and 2025 results. Reinvestment earns 9%, a little below the 10.3% a year Markel compounded book value per share from 2016 to 2025, so growth is 5.4% tapering to 4%. The stock portfolio's retained profits are credited at 3% a year. Value: $2,483 per share. Debt. Markel is an insurer, so its interest bill is part of the cost of running the business and is already paid out of the earnings above. Its borrowings are therefore already charged and are not subtracted a second time. At June 30, 2026 it owed $4.37 billion. About $4.0 billion of that is holding-company senior notes at fixed rates averaging roughly 4.6%, maturing from 2027 to 2054, and the rest is non-recourse debt of the operating businesses. The debt had a market value of $3.92 billion, about $312 per share. It sits below face value because most of it carries long, low fixed rates. Adding that debt back to show the whole business: in the base case the business is worth about $2,177 per share, it owes about $312, and shareholders' value is $1,865. In the bear case it is about $1,684 less $312, leaving $1,373. In the bull case it is about $2,794 less $312, leaving $2,483. Interest of about $206 million a year is covered more than five times even in the bear case, and no maturity before November 2027 is material. What changed since our last estimate. We previously valued the shares at $1,575 / $3,336 / $5,579 (bear / base / bull). The earlier base case assumed 8% annual growth while also counting all of each year's earnings as cash available to owners, and kept the business growing after year ten. In reality Markel pays for its growth by reinvesting most of what it earns, so those two assumptions can't both hold. We now count only the cash left after that reinvestment and stop assuming growth after year ten. We also added two things that weren't in the earlier estimate: the State National loss and the cost of refinancing the 2027 and 2029 notes. Partly offsetting these, the starting level is higher ($94 vs $89) and the base case now counts some of the stock portfolio's retained profits. The debt treatment itself is unchanged, since interest was already paid out of earnings, but it is now spelled out case by case. Notes. Operating cash flow fell to $445 million in the first half of 2026 from $881 million a year earlier. The filing attributes the drop to working capital and the timing of claim payments, including claims paid on the reinsurance run-off. Our earnings measure removes these swings, and adjusted operating income excluding the State National charge rose. Markel's 2022 net loss came from falls in the market value of its investments, not from its operations. Cash earnings that year were solidly positive. Margin-of-safety price. The business is complex, and its reserves take years to settle. On the other hand, it has a 21-year record of conservative reserving, and its debt is long-dated and fixed. The margin-of-safety price is about $1,300 per share. That is roughly 30% below the base case and slightly below the bear case, and from that price the base case implies a return near the 20% target if the shares move back toward the base value.