Markel expands its scope

Alterra deal extends its presence in reinsurance and the global marketplace

Published November 27, 2013 by Joan Tupponce

Anthony Markel sees the recent acquisition of Bermuda-based Alterra Capital Holdings Ltd. as a good fit for Markel Corp. “Alterra’s book of reinsurance business and its technical talent were intriguing,” says Markel who is vice chairman of the Henrico County-based company founded by his grandfather. “They were in a space we didn’t occupy.”

The $3.3 billion Alterra deal, completed in May, was the largest in the company’s history. “We paid a fair price for it. We didn’t steal it,” Markel says. “We did a thorough due diligence.”

Mark Dwelle, director of insurance equity research at RBC Capital Markets in Richmond, believes the deal broadens the scope of Markel Corp. “It gives them a more global platform and deepens their market share in U.S. markets where they had a presence in U.S. specialty insurance,” he says. “It’s fair to say they added a lot of good people and a number of new products. They extended their reach in the U.S. and London.”

Markel Corp. began making acquisitions in 1980 when the company was valued at $7.5 million. Today’s value is more than $7 billion. The Alterra acquisition helps strengthen and diversify the company’s specialty insurance business, officials say. The deal has spawned two new businesses: Markel Global Reinsurance and Markel Global Insurance, which handles large commercial accounts.

With the exception of a few products such as marine coverage, Markel Corp. has “historically stayed with small to medium accounts,” Markel says.

Alterra’s large accounts, which included Fortune 1000 companies, made it very attractive to Markel Corp. “We were comfortable with Alterra’s toehold and strength,” Markel says. “It had some real meat on the bones and talent.”

Before the Alterra deal, Markel Corp. also only had a small book of reinsurance that it inherited in 2000 after acquiring Terra Nova Holdings Ltd. for more than $600 million. “That was a major deal for us at that time,” Markel says. After the acquisition, Terra Nova was rebranded as Markel International.

The Terra Nova deal also gave Markel Corp. entry to the international marketplace. Terra Nova had branches in the United Kingdom and operated in other foreign countries.

The Alterra acquisition expands Markel’s international presence, bringing into the fold three offices in South America and operations in the Far East in addition to its headquarters in Bermuda.

With the new addition, Markel Corp. has approximately $23 billion in combined assets and $6 billion in shareholders’ equity. “Historically Markel usually takes every acquisition and makes it better over some period of time,” Dwelle says. “Sometimes they work quickly; sometimes it takes longer. The first few quarters are the slowest period for earnings and benefits of the deal.”

Markel Corp. reported diluted earnings per share of $2.24 for the second quarter ended June, down from $8.42 in the same quarter last year. Those results, the first since the Alterra deal was finalized, reflected transactions costs and acquisition-related expenses. Operating revenues rose 48.8 percent to $1.03 billion.

“My initial thought is that it’s a good acquisition. Things are going as planned. Time will tell, though,” says Robert Farnam, senior vice president at Keefe, Bruyette & Woods in New York. “It’s fairly early.”