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We know there are many Berkshire fans who also follow Markel, so we thought some members might benefit from some of the things Markel's management, particularly CIO Thomas Gayner, had to say at the company's annual meeting last week.

Last Tuesday, Buck Hartzell (TMFBuck) and I drove down to Richmond to attend Markel's 2008 Annual Meeting of Shareholders. Below are some of the key takeaways from the meeting, along with our full notes from the proceedings.

Key Takeaways:

(1) Chief Investment Officer Thomas Gayner called the current environment the best he's seen in his 18 years at Markel for buying best-of-breed companies at a discount. Pretty strong words from him there.

(2) Steve Markel thinks Markel should be valued at 2x Book Value. At the current book value (as of 3/31) of $263 Book value, that puts shares at $526.

(3) The culture at Markel is extremely strong. The employee owners (we call them that because they actually buy shares on the open market) are bought in to what Markel is doing. That is an incredible advantage for an insurer, or any business.

(4) Thomas Gayner thanked the underwriting side of the business when he first got up, saying he understands how hard it is to have such discipline and generate the money (float) that his team gets to invest. Their top investing priority is not to lose it.

(5) Thomas Gayner also said that bad times will always come and go. There have been many times in the past when people have predicted the worst (food and energy crises, runaway inflation, economic depression). It usually doesn't happen. :-)

Below are our full notes from the meeting, including the shareholder Q&A and some fantastic quotes from Thomas Gayner:

Markel Corp. 2008 Annual Meeting of Shareholders
Richmond, VA
May 13, 2008, 4:30pm

General Notes

The Markel Annual Meeting took place at the fancy Jefferson Hotel in Richmond, VA. The actual meeting took place in one of the hotel's elaborate ballrooms. Buck Hartzell (TMFBuck) and I might have been the only attendees in jeans, as the place was dominated with suits. There were two large screens on either side of the room.

Near the beginning of Chairman Alan Kirshner's remarks he asked all Markel employees to stand up. Of the 400 or so people in attendance, we estimated that about 90% of them were Markel employees. These are clearly people who have bought in to the company -- this is more to them than just a place they go to work at every day.

We got a chance to speak briefly with a nice woman who works in the IT department at Markel. She seemed very enthusiastic and was delighted to hear that we were down from the Fool. Buck and I told her that we were also shareholders and she was quick to say that she was as well and that all employees of Markel are shareholders. Great to hear!

Opening Remarks - Alan I. Kirshner, Chairman & CEO

• The big question: How do we perpetuate the Markel style with now almost 2,000 employees?
• There was then a video featuring a number of Markel managers and employees (associates) talking about various aspects of the Markel style
• Markel style is a living, breathing document that all employees use as a model -- this can be found at the beginning of every Markel annual report
• Constantly looking for better ways to do things
• Honesty and fairness in all endeavors
• Long-term thinking
• A disdain for bureaucracy
• Always with a sense of humor
• Back to Kirshner: It takes a life-time to build a reputation, half a second to lose it
• We support our local communities
• We want all of our employees to dive in and contribute at all levels; employees are encouraged to challenge management; "the best ideas come from the troops”
• Winning, winning, winning
• We are building this company to last, focus on long-term results
• Kirshner then introduced each member of the management team: Richard R. Whitt III (Senior VP & CFO), Thomas S. Gayner (CIO), Anthony F. Markel (Vice Chairman), Paul W. Springman (President & COO), and Steven A. Markel (Vice Chairman)

Financial Review - Richard R. Whitt, III, Senior Vice President & Chief Financial Officer

• Recap of 1Q 2008 results
• Underwriting is off to a great start, but lower premiums due to extreme competition in most markets
• Purchasing less resinsurance
• Focusing on customer retention in all lines
• Total investment return was a loss of 0.3% in 1Q, not too shabby given market conditions; there were several large equity writedowns, including Citigroup
• Long term (5-year and 10-year) results still very solid
• Book value declined 1% from year-end 2007 to $263.16 per share
• Over the last 5-years, book value has grown at an 18% annual rate; focus will always be on the long-term

Investment Overview - Thomas S. Gayner, Chief Investment Officer

• Begins by giving thanks to the insurance side for maintaining great discipline in all underwriting endeavors and of course for providing the capital with which to invest
• Markets are volatile and turbulent
• Our fixed income investments avoided complicated mortgage securities, CDOs, etc.; fixed income focused on quality
• The coupon yield is what we achieved in 2007 – and that is exactly what should happen; we should invest at the maturity yield, and not try to stretch into other areas in search of yield; we're buying bonds first for safety, then return
• Over entire history of fixed income investing (18 years), we’ve only experienced one default
• Equity side didn’t fare very well, but outperformed S&P 500 in 1Q 2008
• We take a four-part focus to equity investing: (1) Returns on capital, (2) management team (equal parts: integrity and talent), (3) reinvestment opportunities, and (4) reasonable prices
• Save money on transactions and taxes by reducing active management; buy great businesses and hold onto them
• References famous author Kurt Vonnegut (nice!); Vonnegut's secret to success: “get yourself a gang!” this is good advice, Markel has a great investment portfolio (investment gang); our portfolio contains the strong, swift, and agile – a perfect gang for all situations
• Companies owned are continuingly becoming global enterprises
• News is full of bad stuff…inflation, catastrophes, food shortages, energy shortages….this is nothing new….think back to 1789; the Club of Rome published a book that year calling for the end of the world; now go to 1972, the Club of Rome again predicted massive inflation, high unemployment, economic catastrophe; yet another update in 1993; then again in 2004....stay tuned for more updates! (laughter) These were all great times to invest!
• In a bull market, time horizons become longer and longer; in a bear market, they become shorter and shorter
• Despite what the media says, "temporary" (problems) doesn’t mean "forever"
• Unusual time of opportunity; great companies are trading at a discount to what we think they're truly worth
• “The gods cannot help those who do not seize opportunities” , said Confucius, "perhaps during the subprime crisis of 500BC" (laughter); trust me, Markel is seizing opportunities

Introduction of Business Partners - Anthony F. Markel, Vice Chairman

• Very funny man
• Introduces 16 wholesale partners/brokers at meeting that are responsible for 35% of Markel's U.S. insurance production and 20% of Markel’s worldwide production 
• AmWINS Brokerage
• Atlantic Specialty Lines
• Burns & Wilcox
• Colemont Brokerage Group (Dallas, TX)
• CRC Insurance Service (Birmingham, AL)
• Crump Group (Dallas, TX)
• Gresham & Associates (Stockridge, GA)
• Hull & Company, Inc. (Ft. Lauderdale, FL)
• Jimcor Agencies (Montvale, NJ)
• LoVullo Associates, Inc. (Buffalo, NY)
• Partners Specialty Group (Philadelphia, PA)
• Peachtree Special Risk Brokers (Stockridge, GA)
• Risk Placement Services (Illinois)
• U.S. Risk Insurance Group (TX)
• Westrope (Kansas City, KS)
• Worldwide Facilities, Inc. (Los Angeles, CA)

Operations Overview - Paul W. Springman, President & COO

• Atlas – major undertaking to increase internal efficiency, and enhance avenues for customers to shop services
• Atlas initiative aims to address: (1) Bring down barriers to cross-selling from a broker perspective, (2) Need to better manage expenses; cut down on operating redundancies, (3) Improve processes through Markel, (4) Expand opportunities for associates
• Establish regional PPG business model that serves producers and gives access to all available products  everything Markel available at a single office (One Markel), rather than a host of offices with varying responsibilities and expertise
• Get closer to our brokers and our customers
• 5 separate regional offices serving: West, Northeast, Southeast, MidWest, MidSouth
• Dallas, TX will be the first regional office
• Target Business Model is to focus on profitable growth and underwriting rigor
• Full model implementation by 2010
• Long-term growth strategy, but benefits can be felt in the short-term
• Change is a fundamental part of the Markel style, but this change will not take us away from the Markel style

Closing Remarks and Q&A - Steven A. Markel, Vice Chairman

• Gives thanks to producers, associates, and shareholders
• Opens Q&A session

Q&A session

Q: Do you have any thoughts on splitting the stock? (This is from a shareholder who claims to have bought the stock at $11 per share!)

A: Our attitude will not change. We are very happy with our current group of shareholders. Many of the new shareholders that would come in after a split would not be long-term minded. No economic benefit to split. Doesn’t matter how many times you split a pizza. The size of the pizza won’t change. We want a stable shareholder base.

Q: How much of your previous $200 million share repurchase (agreed on a few years back) is still available?

A: Still have $120 million available. We have bought a bit since the end of 1Q. At these price levels, we are more inclined to buy more shares back. However, general troubles in insurance industry have created opportunities to invest outside of Markel, so we remain cautious on being too aggressive with buybacks. No thoughts right now on increasing our share buyback allocation.

Q: Disconcerting to hear that Goldman Sachs downgraded the stock over valuation concerns. Any thoughts? (GS went from Neutral to Sell last week)

A: Obviously, the stock price is out of our control. What we do control is the intrinsic value. We think 2x book value is a good benchmark for Markel stock. Reasonable trading range probably between $450 - $550, but these are just thoughts. Goldman Sachs insurance analyst is a good one…he also downgraded AIG. We’re in good company! (laughter) But now Markel, due to its size (small to mid-cap), is being rated by a more junior Goldman Sachs analyst who just did a simple ranking, probably on valuation (top 20 get buys, middle 20 get holds, etc.)...for some reason, we got put near bottom of the list.

Q: Any thoughts on expanding operations in emerging markets?

A: We have expanded…Markel International recently opened offices in Madrid, Spain and Singapore and Stockholm. These locations give us windows into those emerging markets. Just got back from Shanghai, China….market is a bit young and risky for Markel. Little too complicated right now. We certainly see the opportunities, but are proceeding cautiously. Springman: We do see many opportunities through the Singapore window. We have a work group looking into Eastern Europe, Brazil, and India.

Q: What is equity portfolio looking like in 2Q and rest of the year? Berkshire, in particular, your largest holding (15%), has been under some pressure.

A: Berkshire is our largest holding simply because we have extreme confidence in the company and of course its management. Incredibly strong balance sheet. Gayner: First, we don’t think from quarter-to-quarter. Gayner shares a funny story about Berkshire. Back in 1983, Gayner read his first Berkshire annual report…and then went to his boss and asked “who is this Warren Buffet" (pronouncing it "buffet"). Boss called him an idiot. He looked into Berkshire and had an opportunity to buy it at $384…but held off, thinking "how could this little company in Omaha be valued so high." Unfortunately, held off on purchasing it. Years later, Tom bought Berkshire for Steven Markel at a price of $5,700 per share. Will hold forever – best business “two ways to Sunday.” Very confident in rest of portfolio – we own some of the best companies at the best prices we’ve seen in years. Extremely confident going forward.

Q: I was upset to hear about Goldman Sachs. But ValueLine says buy? What should I do?
A: Listen to ValueLine! (laughter)

That was the end of the brief Q&A. With that, shareholders were then treated to what Steven Markel referred to as Markel's once-a-year "dividend": a nice spread of o'dourves and an open bar! While indulging, shareholders got a chance to look at presentations by various segments of the company and pick up some cool souvenirs!
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