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Dear Mr. Berko:

N.R., Bend, Ore.

Dear N.R.:

Markel Corp. (MKL-$465) is home ported in Glen Allen, Va. This bucolic thorp of 13,000 Americans sounds like a good place to be one of the 2,000 MKL employees, raise a family, own a house with a white picket fence, bring a covered dish to the annual American Legion picnic, celebrate the Fourth of July and march in the Labor Day parade.

MKL has been in the specialty insurance business since 1930, went public in 1986 at $10 and has never split its stock. It first broke the $100 price barrier in 1997, and in the past dozen months its stock price ranged between $395 and $555 a share. There are only 10 million shares outstanding, so MKL is considered a mid-cap stock with a market capitalization of $4.6 billion.

The company underwrites specialty insurance products and programs for almost every specialty and niche market. MKL sells coverage for risks that competitors are reluctant to insure.

For example, its excess and surplus lines (58 percent of premiums) insure bars, skating rinks, restaurants, product liability, public toilets, animal shelters, fitness centers, private schools, movie theaters and professional liability (physicians, dentists, lawyers, architects, engineers, etc.). The specialty admitted market (13 percent of premiums) writes property and casualty insurance on yachts, summer camps, sports camps, snowmobiles, earthquake losses, horse farms, floods, motorcycles, parades, etc. And MKL writes business on both direct and subscription basis in the London market, which accounts for 29 percent of premiums.

Management seeks small markets with low annual premiums and avoids competing with the big boys. MKL’s unique success stems from an extensive “specific knowledge” database enabling the company to underwrite unusual risks that are unattractive to the giants. MKL has quite an impressive proprietary database on myriad risk scenarios that the competition would be hard-pressed to duplicate.

Meanwhile, management continues to build its presence in the London market, which is the second-largest insurance market in the world, and from which it expects to earn significant revenue growth over the next dozen years.

MKL believes it earned $34.50 per share in 2007 and due to an expected flat premium market in 2008, MKL expects its earnings will come in a bit lower at about $33.25 a share.

Book value has increased in 15 of the past 17 years, and this year’s book is expected to come in at $290 a share, up from 2007’s $260. Most specialty insurers usually trade at two times book. KeyBanc Capital Markets rates MKL a “buy” with a price target of $600 in the next 12 months.

The company also has impressive successes in its private equity investments. It owns interests in various small businesses and will continue to acquire well-researched, independent companies for its private equity portfolio. MKL will provide private capital when necessary and allow current management to continue its successful ways.

I don’t have a single objection to a 30-share purchase providing you intend to keep MKL for at least 10 years. Since going public at $10 per share in 1986, Markel stock has outperformed the Dow by almost 100 percent, with an average annual return of 21 percent. If the past is prologue, this might give you some dandy returns by 2018.