UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1997

Commission File Number 1-13051

MARKEL CORPORATION
(Exact name of registrant as specified in its charter)

A Virginia Corporation
IRS Employer Identification No. 54-0292420

4551 Cox Road, Glen Allen, Virginia 23060-3382 (Address of principal executive
offices) (Zip code)

Telephone (804) 747-0136
(Registrant's telephone number including area code)

Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, no par value
New York Stock Exchange
(title and class and name of the exchange on which registered)

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any any
amendment to this Form 10-K. [X]

The aggregate market value of the shares of the registrant's Common Stock held
by non-affiliates as of January 31, 1998 was approximately $662,686,140.

The number of shares of the registrant's Common Stock outstanding at January 31,
1998: 5,497,862.

<PAGE>

                       Documents Incorporated By Reference

The portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on May 19, 1998, referred to in Part III.

              Index and Cross References - Form 10-K Annual Report

Item No.                                                     Page

Part I
1.   Business                                                12-23
1a.  Executive Officers of the Registrant                       63
2.   Properties (note 5)                                     35-36
3.   Legal Proceedings (note 14)                                43
4.   Submission of Matters to a Vote of Security Holders      NONE

Part II
5.  Market for the Registrant's Common Equity and
    Related Stockholder Matters                                 62
6.  Selected Financial Data                                  24-25
7.  Management's Discussion and Analysis of Financial
    Condition and Results of Operations                      50-61
8.  Financial Statements and Supplementary Data
    The response to this item is submitted in Item 14.
9.  Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosures                      NONE

Part III
10. Directors and Executive Officers of the Registrant*
11. Executive Compensation*
12. Security Ownership of Certain Beneficial Owners and
    Management*
13. Certain Relationships and Related Transactions*

Part IV
14. Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K
    a. Documents filed as part of this Form 10-K
    (1) Financial Statements
        Consolidated Balance Sheets at
        December 31, 1997 and 1996                              26

  Consolidated Statements of Income and Comprehensive
  Income for the Year Ended December 31, 1997, 1996,
  and 1995                                                      27
  Consolidated Statements of Changes in Shareholders'
  Equity for the Years Ended December 31, 1997, 1996,
  and 1995                                                      28
  Consolidated Statements of Cash Flows for the Years
  Ended December 31, 1997, 1996, and 1995                       29
  Notes to Consolidated Financial Statements for the
  Years Ended December 31, 1997, 1996, and 1995              30-47

(2) Schedules have been omitted since they either are not required or are
    not applicable,or the information called for is shown in the Consolidated
    Financial Statements.
(3) Index to Exhibits
    b. Reports on Form 8-K. No reports on Form 8-K were filed during the
       fourth quarter of 1997.
    c. See Index to Exhibits and Item    14a(3)
    d. See Index to Financial Statements and Item 14a(2)

*Items Number 10,11,12, and 13 will be incorporated by reference from the
Registrant's 1998 Proxy Statement pursuant to instructions G(1) and G(3) of the
General Instructions to Form 10-K.


<PAGE>





THE CORPORATE PROFILE

         Markel Corporation markets and underwrites specialty insurance products
and programs to a variety of niche markets. In each of these markets, we seek to
provide quality products and excellent customer service so that we can be a
market leader. Our financial goals are to earn consistent underwriting profits
and superior investment returns to build shareholder value.

THE MARKEL STYLE

         Markel has a Commitment to Success.
         We believe in hard work and a zealous pursuit of excellence while
keeping a sense of humor. Our creed is honesty and fairness in all of our
dealings.
         The Markel way is to seek to be a market leader in each of our
pursuits. We seek to know our customers' needs and to provide our customers with
quality products and service.
         Our pledge to our shareholders is that we will build the financial
value of our Company. We respect our relationship with our suppliers and have a
commitment to our communities.
         We are encouraged to look for a better way to do things...to challenge
management. We have the ability to make decisions or alter a course quickly. The
Markel approach is one of spontaneity and flexibility. This requires a respect
for authority but a disdain of bureaucracy.
         At Markel, we hold the individual's right to self-determination in the
highest light, providing an atmosphere in which people can reach their personal
potential. Being results oriented, we are willing to put aside individual
concerns in the spirit of teamwork to achieve success.
         Above all, we enjoy what we are doing. There is excitement at Markel,
one that comes from innovating, creating, striving for a better way, sharing
success with others...winning.



<PAGE>

Highlights

FINANCIAL HIGHLIGHTS
(in millions, except per share data)        1997      1996      1995
--------------------------------------------------------------------
Gross premium volume                       $  423    $  414    $  402
Net written premiums                          330       313       298
Earned premiums                               333       307       285
Net income                                     50        47        34
Comprehensive income                           92        56        75
GAAP combined ratio                            99%      100%       99%

---------------------------------------------------------------------

Total investments                          $1,408    $1,131    $  909
Total assets                                1,870     1,605     1,315
Long-term debt                                 93       115       107
8.71% Capital Securities                      150      --        --
Shareholders' equity                          357       268       213
Debt to total capital                          28%       30%       33%

---------------------------------------------------------------------

PER SHARE DATA
Common shares outstanding (in thousands)    5,474     5,458     5,422
Net income                                $  8.92   $  8.30   $  6.15
Total investments                         $257.27   $207.18   $167.57
Book value                                $ 65.18   $ 49.16   $ 39.37
Growth in book value                           33%       25%       53%

---------------------------------------------------------------------


OPERATING HIGHLIGHTS

o    Underwriting profits for the sixth consecutive year and the eleventh year
     out of the past twelve

o    Investment portfolio increases 25% to $1.4 billion, or $257 per share

o    Book value per share increases to $65.18, a 33% increase for the year and a
     five year compound annual growth rate of 26%

o    Markel Corporation begins trading on the New York Stock Exchange under the
     symbol MKL

o    Over 250 Markel associates and two outside directors participate in a
     Company-sponsored stock loan program, purchasing approximately $6.3 million
     of Markel stock

          Net Income          Total Investments           Book Value Per Share
        ($ in millions)          ($ in millions)             ($ per share)
           [GRAPH]                  [GRAPH]                     [GRAPH]
      1987   1992   1997       1987   1992   1997         1987   1992    1997
       7      26     50         43     434   1,408        4.66   20.24   65.18

<PAGE>


To Our Business Partners:
         Virtually every measurement system involves the element of time. In
this year's letter, we will discuss the relevance of time in measuring results
and how we focus on the value of long-term thinking.
         In December new business was disappointing, but investment returns were
excellent. Financial results in the fourth quarter set company records, and 1997
was an excellent year. This past summer our camp insurance business suffered
more large losses than usual; however, we enjoyed good results among most of our
other lines of business. Since the Northridge earthquake in January 1994, the
earthquake business has been great, yet current prices have declined to levels
which suggest many have forgotten what can happen. The insurance industry has
experienced a cyclical softening of prices since 1987 much longer than any
previous cyclical downturn. Maybe it's not a coincidence that the investment
cycle has enjoyed an equally impressive run in the opposite direction. Monthly,
quarterly and even annual results do not necessarily mean much if your goal is
to build shareholder value over a long period of time. Yes, 1997 was a good
year, but we are especially proud to report that in the past five years, we have
compounded book value per share at a 26% rate, and since our initial public
offering in 1986, we have compounded book value per share at a 31% rate.

<PAGE>

1997 Results
         In spite of a very difficult property and casualty insurance market,
our results in 1997 set records in just about every measure. For the sixth
consecutive year and eleven of the last twelve, we reported underwriting profits
with a combined ratio of 99%. Earned premiums grew only 8% to $332.9 million;
however, investment income increased 34% to $68.7 million. The strong investment
environment also allowed us to realize $15.8 million in investment gains. Total
revenues increased 14% to $419.0 million. Net income was $50.4 million, or $8.92
per diluted share. In addition, the net unrealized appreciation of our
investment portfolio increased $41.5 million, resulting in comprehensive income
of $91.9 million. Also during 1997 we further strengthened an already strong
balance sheet: total investments increased to $1.4 billion; provisions for loss
reserves continued to be, in our opinion, very strong; we raised $150 million in
49 year trust preferred securities and increased shareholders' equity by 33% to
$356.8 million, or $65.18 per share.
         For many years we have spoken of the importance of measuring growth in
book value. This year the accounting profession recognized the same thing by
adopting the concept of comprehensive income. This is a measure of total
performance because it includes both net income and changes in unrealized gains
or losses. Over the past five years, our net income amounted to $173.8 million;
cumulative unrealized gains were $73.1 million; and comprehensive income was
$246.9 million. The variations year to year are shown below:

Comprehensive Income
(dollars in millions)

<TABLE>
<CAPTION>

                                                    Years Ended December 31,
                                      ----------------------------------------------------

                              1993       1994      1995       1996        1997      Total
------------------------------------------------------------------------------------------
<S> <C>
Net income                   $23.6      $18.6     $34.5       $46.7      $50.4     $173.8
Changes in unrealized
  gains (losses)              10.3      (28.7)     40.3         9.7       41.5       73.1
------------------------------------------------------------------------------------------
Comprehensive income
  (loss)                     $33.9     $(10.1)    $74.8       $56.4      $91.9     $246.9
------------------------------------------------------------------------------------------
</TABLE>
                                        3
<PAGE>

         These results point out two significant facts. First, unrealized gains
represent an important part of the value created for shareholders. In the past
five years, almost 30% of our comprehensive income came from this source.
Secondly, and certainly not to be forgotten, changes in unrealized gains from
year to year can be quite unpredictable. Having a long-term view is especially
important when looking at investment results.

New York Stock Exchange
         In June 1997 we were listed on the New York Stock Exchange. While we
were generally pleased with NASDAQ and certainly enjoyed a great deal of support
from NASDAQ market making firms, it was our desire to try to reduce the spread
between the bid and asked prices of our stock. We believe this has occurred and
we are pleased to be a NYSE listed firm. We continue to see no valid reason to
split our shares. (In fact, NYSE fees are based on number of outstanding shares,
so we save money by not splitting.) However we would caution our fellow
shareholders and

                                       4
<PAGE>

potential new shareholders to be thoughtful when buying or selling our stock. If
you see a $2 spread between the bid and asked prices, remember that it
represents only a 1.3% spread on a $160 stock price. Most transactions in other
securities are likely to be more expensive. Additionally, we enjoy a very loyal
base of shareholders and have low share turnover. As a result, the stock price
can move on very little volume so it is wise to be patient when buying or
selling.


Intrinsic Value
         During 1997 our share price increased from $90 to $156, a 73% increase.
As previously mentioned, our business results were the best ever, and book value
grew by 33% per share. Ideally, the growth in share prices and the growth in
intrinsic value should be identical. This rarely happens in the short term but
should occur over long periods of time. We are hopeful that the increase in our
share price in 1997 represents an alignment of our share price with the
long-term growth in our intrinsic value.
         We want to share with you important information about your company so
you can estimate its intrinsic value. We have no desire for our stock to trade
at levels either significantly higher or lower than its intrinsic value.
Unfortunately there is no exact science in determining that number. Today the
stock is priced higher in relationship to many determinants of value than in
previous years; however, we remain committed to building book value at a 20%
annual rate, and we think the Company will continue to be an excellent
investment for those with a long-term view.

Accounting Cycle
         Due to the number of estimates required in the insurance accounting
cycle and management's great leeway in setting those estimates, quarterly and
annual accounting periods do not reflect the complete picture of an insurance
business. Only when viewed over a much longer time period can you begin to
determine accurate results.
         Insurance for property along coastal areas subject to hurricanes is
more at risk during hurricane season, which runs from June to November.
Likewise, hurricane activity varies greatly from year to year. While 1997 was a
very mild season for hurricanes, that certainly doesn't have much meaning when
trying to estimate the risk for the 1998 season. The same applies to insurance
for earth-

                                        5
<PAGE>

quakes. The ground has been relatively still since 1994 when Northridge shook
violently; yet surely another earthquake will occur. Based on the declining
prices for this coverage, you would think the property and casualty insurance
industry has no memory.

         Other insurance products like professional liability coverages require
a long period of time for claims to be reported and paid. Long-tail insurance
represents yet another problem for the annual accounting cycle. While premiums
are collected today, claims are not paid for many years. At the end of each
accounting cycle, estimates are made with regard to outstanding losses. These
estimates are just that, estimates. They may be too high or too low but never
exact. Unfortunately, many companies report lower losses than are actually
occurring in order to inflate current income. This cannot go on forever;
companies can underestimate reserves, but claims are settled in cash.

Loss Reserving
         We have often described our philosophy in setting conservative loss
reserves. Our standard has consistently been to set reserves at a level which we
believe are more likely redundant than deficient. The very nature of the
insurance business is that surprises in loss occurrences will happen from time
to time. Usually surprises represent bad news. Unfortunately, we are not immune

                                        6

<PAGE>

to surprises. But we have been successful in avoiding a negative impact on our
loss reserves from these surprises because we establish reserves to cover that
unpredictable but inevitable event. We seek to allow for that by establishing a
margin of safety in our reserves. This policy again proved sound in 1997 when we
determined that it would be prudent to add an additional $28 million to our
reserves for environmental and toxic tort claims. While our existing reserves
were more than adequate to cover this development, we certainly thought our
previous estimates had been sufficient, and we can say the same today. We think
the specific reserves for environmental and toxic losses are adequate but if
they are not, we have made provisions which give us a margin of safety.

Investments
         Our investment activities continue to be very important to our success
in building shareholder value. In 1997 the stock market was unusually strong and
interest rates trended down which helped us achieve exceptional investment
results. The total returns from equities were 31.4% and from fixed maturity
securities were 9.2%. As a result our portfolio produced a total return of
12.8%. Over the past ten years our total weighted average annual return was
10.3%.
         With the stock market trading at all time highs, we are cautious and
concerned about where the market might be headed; however, we have never tried
to time the market. We focus on individual securities of companies which we
believe will generate good returns, and we invest in these companies at what we
believe to be fair values. Fortunately, we own many good companies which are
building value and we continue to invest in more which we believe will add value
in the future.
         The general decline in interest rates has added to the total return in
our fixed maturity securities. This is certainly a double edged sword as lower
interest rates will make it more difficult to earn high rates of return on this
portfolio in the future. With our fixed income portfolio, we will continue to
invest in very high quality securities with fairly short durations. We will
continue to take advantage of our tax position to invest in tax-exempt
securities where they will add value.

Acquisitions
         Over the past several years, we have developed our business through the
growth of existing businesses as well as through acquisitions. In January 1997
we raised $150 million to help fund future acquisitions, so it seems appropriate
to look back at our acquisition history and evaluate our performance. (Also, an
interested investor asked us to do so.)
         Our most important acquisition was the purchase of Shand Morahan and
Evanston Insurance Company. We initially invested in 1987 and acquired the
remaining interest in 1990. Our total investment was less than $85 million.

                                7

<PAGE>
When we acquired the company, it was suffering from several major problems as a
result of the very competitive professional liability insurance market of the
early 1980s but was well on the way to solving them. Since we purchased the
company, we have received more than $83 million in dividends. In 1997 the
business generated over $100 million in earned premiums at a small underwriting
profit and investment income on a portfolio of almost $650 million. The current
equity in this business is approximately $210 million. We wish we could do many
more transactions just like this.

         In 1989 we acquired a book of business from the Rhulen Agency which
placed program business in an unrelated insurance company. In the years
following this transaction, we transformed the agency business into a full
service insurance company which now trades as Markel Insurance Company. In
addition to the original acquisition, we have contributed an insurance company
to this business for a total investment of approximately $57 million. No
dividends have been received from this investment, although we expect to see
them in the future. In 1997 the business reported earned premiums of $68 million
and an improving, but still unacceptable, underwriting loss. At this point in
time, we believe the difference between our reported underwriting loss and an
underwriting profit is equal to the difference between the actuarial point
estimates and our more conservative margin of safety. The investment portfolio
generated by this business amounts to approximately $178 million. We have not
yet achieved our return on investment objectives with

                                       8
<PAGE>
this business; however, our total return in 1997 was approximately 15%. In spite
of the less than desired return, we believe this business will be a significant
contributor in the future.

         The Lincoln Insurance Company was acquired for $24 million in 1995. Our
purchase anticipated merging selected business into our excess and surplus lines
unit and liquidating the balance of the business. In the short time we owned the
company, we received a total of $35 million in dividends and proceeds from the
sale of the licenses. We continue to manage the runoff of $22 million in claims
liabilities with a like amount of invested assets. In 1997 we enjoyed almost $6
million in premium volume from this acquisition. Our return on this investment
was good, but unfortunately it is nonrecurring.
         Our most recent transaction was the purchase of Investors Insurance
Group in late 1996. This company also had a difficult history and found itself
with several problems. About a year before we acquired the company, they began
their third reorganization in five years. We knew and respected the new
management team and believed it could become an important part of our
organization. The purchase price was $38 million. In 1997 this business
generated approximately $30 million in earned premiums with a combined ratio of
slightly over 100%. Invested assets are approximately $160 million. Total return
on our investment in 1997 was about 18%. At year end 1997 the equity in this
business amounts to $46 million. While it is probably too early to make a
meaningful evaluation of this transaction, we are clearly pleased and excited
about the opportunity that Investors brings to us.
         We continue to believe that future acquisitions will be an important
part of our growth and development. We look at many opportunities but find few
that meet our requirements. We expect an acquisition to have the ability to earn
underwriting profits and contribute to our goal of building book value at a 20%
annual rate. In addition over the years we have developed a strong corporate
culture; one we call The Markel Style. In any acquisition, we expect the people
involved to embrace and be comfortable with our corporate values.

Markel Associates
         The Markel Style is our value system. It describes how we conduct our
business. Among the values we believe in are "a pursuit of excellence, honesty
and fairness in all of our dealings...a respect for authority but a disdain of
bureaucracy." Our organization today includes 830 associates. With such a large
group, it is not easy to build a strong corporate culture; however, it has been
and will con-

                                        9

<PAGE>

tinue to be an important part of our success. One of the primary
reasons for this success is that we have a large group with long tenure. Over
25% (227) of our associates have been with the company for ten years or more.
Over forty associates have been with the company for twenty years or more.
         Another important fact is that all Markel associates own stock in the
Company, and many have very significant investments. Several years ago we
essentially eliminated the use of our stock option plans and instead have
offered our associates stock purchase plans with subsidized interest on loans
used for the purpose of purchasing Company stock. This past year over 250
associates participated in the plan and purchased over $6.3 million in stock.
         Our goal, of course, is for our associates to be and feel like owners
of the Company. We believe this will promote The Markel Style, encourage
everyone to work hard and enjoy what they are doing and focus on building
long-term value.
         We recently lost a much loved associate, Jim Brinson. Affectionately
called "the Governor," Jim began his career at Markel in 1948. Jim was always a
big producer, no matter what we asked him to sell. At age 75 he asked if he
could cut back his work schedule to 30 hours a week. He continued this schedule
until his death at age 82. Jim exemplified The Markel Style. Associates like Jim
who embrace our core values are the reason that we are successful.

                                    10
<PAGE>
Profitable Growth
         In managing our company we have consistently tried to focus on
generating long-term results. We have sought to build shareholder value not just
for the next quarter or year but with a view to the next ten or even twenty
years. In contrast, today's fast paced world is one where almost everyone is
focused on today's activities and results. Typical measures of success are often
oriented to short-term results. The line from a Broadway play, "Instant
gratification just isn't quick enough" typifies this short-term focus. But
today's instant gratification will be long forgotten five years down the road.
         The insurance business continues to be competitive, and profitable
growth is extremely difficult to achieve. Anyone can write more business if they
are willing to meet unrealistic pricing demands and operate at inadequate
returns, or even a loss. Those willing to optimistically estimate loss
experience can even fool themselves for a short while. But in the end, these
strategies do not work. Losses must be both accounted for and ultimately paid.
         While we would prefer to grow quickly, the current environment demands
patience. Those who resist the temptation to write business recklessly will be
rewarded. Ten years from now, we want to be able to tell you, our shareholders,
of additional years of record earnings and exceptional growth in shareholder
value. Underwriting profit, not growth, will continue to be our standard.
         We thank our Markel associates for their hard work, dedication and
commitment to success, and we thank you for your loyal support, encouragement
and confidence in our future.




Alan I. Kirshner
Chairman of the Board and Chief Executive Officer



Anthony F. Markel
President and Chief Operating Officer



Steven A. Markel
Vice Chairman



Darrell D. Martin
Executive Vice President and Chief Financial Officer




<PAGE>

Markel Corporation & Subsidiaries

BUSINESS OVERVIEW

Markel Corporation (the Company), an insurance holding company, writes specialty
insurance products and programs for a variety of niche markets through its
insurance subsidiaries. The Company believes that its specialty product focus
and niche market strategy enable it to develop expertise and specialized market
knowledge.

SPECIALTY INSURANCE
-------------------------------------------------------------------------------

The specialty insurance market differs from the standard market where insurance
rates and forms are highly regulated by state insurance departments, products
and coverages are largely uniform with relatively predictable exposures and
companies tend to compete for customers primarily on the basis of price. In
contrast, the specialty market provides coverage for risks that do not fit the
underwriting criteria of the standard carriers. Competition tends to focus less
on price and more on availability, service and other value-based considerations.
While specialty market exposures may have higher insurance risks than their
standard market counterparts, Markel manages these risks to achieve higher
financial returns. To reach its financial and operational goals, the Company
must have extensive knowledge and expertise in the specialty areas being
marketed and underwritten. Most of the Company's risks are considered on an
individual basis, and restricted limits, deductibles, exclusions and surcharges
are employed in order to respond to distinctive risk characteristics.

MARKETS
-------------------------------------------------------------------------------

The Company competes in two distinct areas of the specialty insurance market;
the excess and surplus lines segment (E&S) and the specialty admitted segment.

The E&S market focuses on hard to place risks and risks that admitted insurers
specifically refuse to write. E&S eligibility allows the Company's insurance
subsidiaries to underwrite nonstandard market risks with more flexible policy
forms and unregulated premium rates. This typically results in coverages that
are more restrictive and more expensive than the standard admitted market. In
1996 the E&S market represented approximately $9.2 billion, or 3.3%, of the
entire $280.0 billion property and casualty (P&C) industry.*

The Company is the fifth largest domestic E&S writer in the United States as
measured by direct premium writings.* Three of the Company's underwriting units,
Excess and Surplus Lines, Professional/Products Liability and Brokered Excess
and Surplus Lines, write in the E&S market. In 1997, on a consolidated basis,
the Company controlled $292.8 million of E&S business.

The Company also writes business in the specialty admitted market. Most of these
risks are unique and hard to place in the standard market, but for marketing and
regulatory reasons,  must remain with an admitted insurance company. In 1996 the
specialty admitted market  represented $5.4 billion,  or 1.9%, of the entire P&C
industry as measured by direct premium  writings.* The specialty admitted market
is subject to more  state  regulation  than the E&S  market,  particularly  with
regard to rate and form filing requirements, restrictions on the ability to exit
lines of  business,  premium  tax  payments  and  membership  in  various  state
associations, such as state guaranty funds and assigned risk plans.

* According to the 1997 A.M. Best Company Special Report,  Solvency Study of the
Excess and Surplus Lines Industry.

12

<PAGE>

Two of the Company's underwriting units, Specialty Program Insurance and
Specialty Personal and Commercial Lines, write in the specialty admitted market.
In 1997, on a consolidated basis, the Company controlled $130.5 million of
specialty admitted business.

COMPETITION
-------------------------------------------------------------------------------

The Company's underwriting operations compete with numerous insurance companies,
risk retention groups, insurance buying groups and alternative self-insurance
mechanisms. Competition may take the form of lower prices, broader coverages,
greater product flexibility, higher quality services or higher ratings by
independent rating agencies. In all of its markets, the Company competes by
developing specialty products to satisfy well-defined market needs and by
maintaining relationships with brokers and insureds who rely on the Company's
expertise. This expertise in offering and underwriting products that are not
readily available is the Company's principal means of competition. The Company
offers over forty major product lines, each with its own distinct competitive
environment. In all of its products, the Company competes with innovative ideas,
appropriate pricing, expense control and quality service to policyholders,
agents and brokers.

Few barriers exist to prevent insurers from entering into the Company's segments
of the P&C industry, but many of the larger P&C insurance companies have
historically been unwilling to write specialty coverages. The P&C industry is
currently experiencing a soft market due to what is perceived by many as
excessive amounts of capital in the industry. In an attempt to utilize their
capital, many insurance companies often seek to write additional premium without
regard for its ultimate profitability. Admitted standard companies are now
writing programs that previously were written almost exclusively in the
specialty admitted or E&S markets. This additional competition from the standard
market has reduced rates and led to broader coverage being offered to many of
the Company's customers. In response to this additional competition, the Company
has maintained its underwriting standards at the expense of growth in premium
volume. The Company does not expect the current soft market conditions to abate
until more rational pricing and capital allocation takes place in the P&C
industry.

13

<PAGE>

Markel Corporation & Subsidiaries

BUSINESS OVERVIEW (continued)

UNDERWRITING PHILOSOPHY
-------------------------------------------------------------------------------

By focusing on market niches where it has underwriting expertise, the Company
seeks to earn consistent underwriting profits. Underwriting profits are a key
component of the Company's strategy. The ability to achieve consistent
underwriting profits demonstrates knowledge and expertise, commitment to
superior customer service and the ability to manage insurance risk. The Company
has earned an underwriting profit in each of the past six years and in eleven of
the past twelve years. The following graph shows Markel's GAAP combined ratio as
compared to the P&C industry for the past five years:


                                Combined Ratios
          (Combined ratios chart appears here. Plot points are below)

Combined Ratios

                              1993      1994      1995       1996     1997
                              ----      ----      -----      ----     ----
Markel Corporation             97%       97%       99%       100%      99%
Industry Average*             116%      107%      109%       106%     102%

               * Source A.M. Best Co., Inc.
               Industry Average is estimated for 1997.


THE UNDERWRITING UNITS
------------------------------------------------------------------------------

The Company has five underwriting units focused on specific niches within the
E&S and specialty admitted markets. Excess and Surplus Lines,
Professional/Products Liability and Brokered Excess and Surplus Lines write
business in the E&S market. The Brokered Excess and Surplus Lines unit was
formed with the purchase of Investors Insurance Holding Corp. (Investors) in
1996. Specialty Program Insurance and Specialty Personal and Commercial Lines
write business in the specialty admitted market.

TOTAL GROSS PREMIUM VOLUME ($423 million)

                        [GRAPH]
Excess and Surplus Lines                31%
Professional/Products Liability         27%
Specialty Program Insurance             20%
Specialty Personal and
 Commercial Lines                       11%
Brokered Excess and Surplus Lines       11%
                                    --------
                                       100%


14

<PAGE>

EXCESS AND SURPLUS LINES

The Excess and Surplus Lines unit (E&S unit) writes a variety of coverages,
focusing on light-to-medium casualty exposures for businesses such as artisan
contractors, habitational risks, restaurants and bars, child and adult care
facilities, vacant properties, office buildings and light manufacturing
operations. The E&S unit also writes property insurance on classes of business
ranging from small, single location risks to large, multi-state, multi-location
risks. Property coverages consist principally of fire and allied lines, such as
windstorm, hail and water damage and more specialized property coverages. The
E&S unit also offers coverages for heavier property risks, including earthquake,
through its Markel special property division (MSP). These risks are typically
larger and are of a low frequency/high severity nature.

During 1997 the E&S unit expanded its inland marine facility with the addition
of a book of business previously underwritten by another carrier. The E&S unit
also established an ocean marine (OM) facility in 1997. Examples of risks that
OM writes are marinas, hull coverage, cargo and builders risk for yacht
manufacturers.

Most of the E&S unit's business is generated by approximately 142 professional
surplus lines general agents who have limited quoting and binding authority. MSP
produces business on a brokerage basis through approximately 40 wholesale
brokers who specialize in heavy property risks. The E&S unit seeks to be a
substantial underwriter for its producers in order to enhance the likelihood of
receiving the most desirable underwriting opportunities. The E&S unit writes the
majority of its business in Essex Insurance Company (Essex). Essex is admitted
in Delaware and is eligible to write E&S insurance in 49 states and the District
of Columbia.

EXCESS AND SURPLUS LINES
GROSS PREMIUM VOLUME ($130 million)

                                    [graph]

Casualty                         40%
Markel Special Property          32%
Property                         14%
Inland Marine                     4%
Other                            10%
                                ----
                                100%


<PAGE>

Markel Corporation & Subsidiaries

BUSINESS OVERVIEW (continued)

PROFESSIONAL/PRODUCTS LIABILITY

The Professional/Products Liability unit markets specialty professional
liability coverages, including medical malpractice and specialized medical
coverages, professional liability for lawyers, architects and engineers, agents
and brokers and management consultants. Errors and omissions coverage is
targeted to mutual fund advisors, investment advisors and insurance companies.
Products liability insurance for manufacturers and distributors is provided
through the special risks program. In addition, directors' and officers'
liability coverage and employment practices liability coverages are offered.

Over the past five years, the Professional/Products Liability unit successfully
entered the emerging employment practices liability insurance (EPLI) market.
EPLI provides coverage for the defense of alleged inappropriate employment
practices not typically covered under traditional business coverages. While
virtually all businesses have a need for this coverage, the unit designed its
EPLI program for middle market firms with 25 to 250 employees, as this niche
appears to be the most underserved by other insurers.

Business is written nationwide and is developed through approximately 300
wholesale brokers. The Professional/Products Liability unit writes the majority
of its business in Evanston Insurance Company (EIC). EIC is admitted in Illinois
and is eligible to write E&S insurance in 48 states and the District of
Columbia.

PROFESSIONAL/PRODUCTS LIABILITY
GROSS PREMIUM VOLUME ($116 million)

                                    [graph]

Medical Malpractice and Specified Medical               29%
Special Risks                                           20%
Specified Professions                                   12%
Financial Institutions E&O                              10%
Employment Practices Liability                          10%
Other                                                   19%
                                                        ----
                                                       100%

BROKERED EXCESS AND SURPLUS LINES

Brokered Excess and Surplus Lines (Brokered E&S) is the most recent addition to
Markel. This unit was created with the purchase of Investors in the Fall of
1996. The Brokered E&S unit's area of expertise is hard to place, large general
liability and products liability accounts. Products liability risks include
sporting goods manufacturers, bicycle manufacturers, discontinued products, toy
manufacturers and importers and automobile parts manufacturers. The unit also
offers special event and other unique coverages and writes property coverages on
mercantile and industrial sites. In 1997 the unit wrote approximately $46
million of gross written premium with 73% produced in its casualty programs and
the remainder generated by the unit's property programs.

The unit operates through approximately 95 wholesale brokers and writes the
majority of its business in Investors Insurance Company of America (IICA). IICA
is eligible to write E&S insurance in 48 states and the District of Columbia and
is admitted in New York and New Jersey.

16

<PAGE>

SPECIALTY PROGRAM INSURANCE

Specialty Program Insurance focuses on providing total insurance programs for
businesses engaged in similar, but highly specialized, activities. These
activities typically do not fit the risk profiles of standard insurers which
makes complete coverage difficult to obtain from a single insurer.

The Specialty Program Insurance operation is organized into six business units,
which concentrate on particular markets and customer groups. The camp and youth
recreation division serves children's summer camps, conference centers and youth
organizations such as YM/YWCA's and Boys' and Girls' Clubs. The agriculture
division specializes in insurance coverages for horse-related risks, such as
horse mortality coverage, and property and liability coverages for horse farms
and boarding, breeding and training facilities. Liability insurance for sports
organizations, and accident and medical insurance for colleges, universities and
private schools are sold through the sports liability, accident and medical
division. The child care division develops and markets insurance programs for
child care centers, nursery schools, Head Start programs, Montessori schools and
private schools. Gymnastic schools, health clubs, and martial arts and dance
schools are serviced by the health and fitness division. The contract surety
bond division provides surety bonds for small and transitional contractors.

The majority of Specialty Program Insurance business is produced by
approximately 4,000 retail insurance agents. Management grants very limited
underwriting authority to carefully selected agents and controls agency business
through regular audits and pre-approvals. Certain products and programs are also
marketed directly to consumers or through wholesale producers. Specialty Program
Insurance is underwritten by Markel Insurance Company (MIC). MIC is licensed to
write P&C insurance in all 50 states, including the domicile state of Illinois,
and the District of Columbia.

SPECIALTY PROGRAM INSURANCE
GROSS PREMIUM VOLUME ($86 million)

                        [graph]

Camp and Youth Recreation               31%
Agriculture                             25%
Accident and Medical                    15%
Health and Fitness                      14%
Child Care                               8%
Other                                    7%
                                       ----
                                       100%


17

<PAGE>

     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

BUSINESS OVERVIEW (continued)

SPECIALTY PERSONAL AND COMMERCIAL LINES

Specialty Personal and Commercial Lines markets and underwrites its insurance
products in niche markets that are overlooked by large admitted carriers. The
recreational products division concentrates on watercraft and motorcycle
coverages. The watercraft program markets personal insurance coverage for yachts
and high performance boats; while small fishing ventures and rentals, such as
jet skis, are the focus of the commercial marine department. The motorcycle
program's target market is mature riders of high value bikes. The property
division provides coverage for mobile homes and dwellings which do not qualify
for standard homeowner's coverage. In addition, the Specialty Personal and
Commercial Lines unit markets a series of insurance products designed to meet
the collateral protection needs of automobile lenders. The special
transportation division insures commercial vehicles including taxi cab fleets
and difficult to place physical damage coverages.

Specialty Personal and Commercial Lines products are characterized by high
numbers of transactions, low average premiums and creative solutions for
underserved and emerging markets. The unit distributes most of its products
through wholesale brokers, retail agents and affinity groups. The motorcycle
program is marketed directly to the consumer, using direct mail and telephone
promotion as well as relationships with various motorcycle manufacturers,
dealers and associations. The Specialty Personal and Commercial Lines unit
writes the majority of its business in Markel American Insurance Company (MAIC).
MAIC is licensed to write P&C business in 47 states, including its state of
domicile, Virginia, and the District of Columbia and is in the process of
applying for licenses in other states.

SPECIALTY PERSONAL AND COMMERCIAL LINES
GROSS PREMIUM VOLUME ($45 million)

          [graph]

Watercraft              41%
Property                35%
Motorcycle              15%
Special
 Transportation          7%
Other                    2%
                        ----
                       100%


18

<PAGE>

REINSURANCE
-----------------------------------------------------------------------------

The Company enters into reinsurance agreements in order to reduce its liability
on individual risks and to enable it to underwrite policies with higher limits.
During the past several years, Markel has reduced its reliance on reinsurance by
steadily increasing retentions on its profitable current book of business and
through commutations with pre-1987 reinsurers of Shand/Evanston.

Markel strives to minimize credit exposure to reinsurers and maintains a margin
of safety through adherence to its internal reinsurance guidelines. To become a
reinsurance partner of Markel, prospective companies generally must: (i)
maintain an A.M. Best rating of "A" (Excellent), (ii) maintain capital and
surplus of $100 million and (iii) provide collateral for recoverables in excess
of an individually established amount (usually $10 million). In addition,
foreign reinsurers must provide collateral equal to 100% of recoverables (with
the exception of Lloyd's syndicates). The following table shows Markel's top ten
active reinsurers at December 31, 1997. These ten reinsurers represent 73% of
Markel's $240.9 million reinsurance recoverable.

Reinsurers                         A.M. Best Rating     Reinsurance Recoverable
-------------------------------------------------------------------------------
American Reinsurance                      A++                 $   38,711
TIG Reinsurance                           A                       34,301
Trenwick America Reinsurance              A+                      21,619
Underwriters Reinsurance                  A+                      17,154
Zurich Reinsurance                        A                       16,929
St. Paul Fire and Marine                  A+                      12,106
Chartwell Reinsurance                     A                       11,384
USF&G                                     A                        8,413
Folksamerica Reinsurance                  A                        7,282
Signet Star Reinsurance                   A                        7,038

Other reinsurers                          --                      65,998
-------------------------------------------------------------------------------
Total reinsurance recoverable on paid and unpaid losses        $ 240,935
-------------------------------------------------------------------------------

Reinsurance treaties are generally subject to cancellation by the Company or the
reinsurers on the anniversary date and are subject to renegotiation annually.
The reinsurer remains responsible for all business produced prior to
termination. Treaties also typically contain provisions concerning ceding
commissions, required reports to the reinsurers, responsibility for taxes,
arbitration in the event of a dispute and provisions allowing the Company to
demand that a reinsurer post letters of credit or assets as security if a
reinsurer becomes an "unapproved" reinsurer under applicable state laws and
regulations.

                                       19

<PAGE>

     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

BUSINESS OVERVIEW (continued)

INVESTMENTS
--------------------------------------------------------------------------------

The Company's business philosophy clearly recognizes the importance of both
underwriting profits and superior investment returns to build shareholder value.
The Company relies on sound underwriting practices to produce investable funds
with minimum underwriting risk. Approximately three quarters of the Company's
investable assets come from premiums paid by policyholders. Policyholder funds
are invested predominately in high quality corporate, government and municipal
bonds with relatively short durations. The balance, comprised of shareholder
funds, is available to be invested in equity securities, which over the long
run, have produced higher returns relative to fixed income investments. The
Company seeks to invest in companies with the potential for appreciation and
hold these investments over the long term.

Total investment returns include items which impact net income, such as net
investment income and realized gains and losses from the sales of investments,
as well as items which do not impact net income, such as changes in unrealized
gains and losses. The Company does not intend to lower the quality of its
investment portfolio in order to enhance or maintain yields. Further, the
Company's focus on long-term total investment returns may result in variability
in the level of realized and unrealized investment gains and losses from one
period to the next.

The ultimate success of the Company's investment strategy is evident from the
review of total investment returns over several years. The following table
presents taxable equivalent total returns for Markel's investment portfolio for
the past five years:

ANNUAL TAXABLE EQUIVALENT TOTAL RETURNS
---------------------------------------
<TABLE>
<CAPTION>

                                                                        5 Year     10 Year       
                                                                       Weighted   Weighted
                                                                       Average     Average       
                                    Years Ended December 31,            Annual     Annual
                              1993   1994    1995    1996     1997      Return     Return
-------------------------------------------------------------------------------------------
 <S> <C>                           
Equities                     28.7%   (3.3)%  29.7%   26.9%    31.4%      24.7%     21.1%
Fixed maturities              9.1%   (0.2)%  13.9%    4.8%     9.2%       7.9%      8.6%
Total portfolio              11.8%   (1.1)%  15.7%    7.5%    12.8%      10.3%     10.3%
                             
-------------------------------------------------------------------------------------------
Ending portfolio  
     balance (in millions)  $ 597   $ 612  $  909 $ 1,131  $ 1,408
-------------------------------------------------------------------------------------------
</TABLE>


The Company's investment performance also benefited from continued growth in the
investment portfolio over the past ten years. The portfolio increased to $1.4
billion at December 31, 1997 from $43.1 million at December 31, 1987.

The Company monitors its portfolio to ensure that credit risk does not exceed
prudent levels. Standard and Poor's Corp. (S&P) and Moody's Investors Service
(Moody's) provide corporate and municipal debt ratings based on their assessment
of the credit quality of an obligor with respect to a specific obligation. S&P's
ratings range from "AAA" (capacity to pay interest and repay principal is
extremely strong) to "D" (debt is in payment default). Securities with ratings
of "BBB" or higher are referred to as "investment grade" securities. Debt rated
"BB" and below is regarded by S&P as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal.
Moody's ratings range from "Aaa" to "C" with ratings of "Baa" or higher
considered "investment grade."

The Company's fixed maturity portfolio has an average rating of "AA", with 88%
rated "A" or better by at least one nationally recognized rating organization.
The Company's policy is to minimize its investments in fixed maturity securities
that are unrated or rated below

                                       20

<PAGE>

                            

investment grade. The following chart shows the Company's
fixed maturity portfolio, at estimated fair value, by rating category at
December 31, 1997:

          CREDIT QUALITY OF FIXED MATURITY PORTFOLIO ($1,063 million)


                        [graph]

                AAA/AA                  69%
                     A                  19%
                   BBB                   9%
                 Other                   3%
                                        ----
                                       100%




Approximately 73% of the investment portfolio is managed directly by officers of
the Company, with the approval of the Boards of Directors of the insurance
companies. Approximately 24% of the Company's cash and investments is managed by
Hamblin Watsa Investment Counsel Ltd., a Canadian investment management firm
which is controlled by V. Prem Watsa, a Director of the Company. The remainder
of the portfolio is managed by other independent portfolio managers.

SHAREHOLDER VALUE
--------------------------------------------------------------------------------

The Company's financial goals are to earn consistent underwriting profits and
superior investment returns to build shareholder value. More specifically, the
Company assesses its effectiveness in building shareholder value through the
measurement of growth in book value per share. The Company believes that growth
in book value per share is the most comprehensive measure of its success due to
the fact that it includes all underwriting and investing results. The Company
has a stated objective to grow book value per share by 20% annually. Over the
past five years, the Company has grown book value per share at a compound annual
rate of 26%. The following graph presents Markel's book value per share for the
past five years:

                              BOOK VALUE PER SHARE
                                 ($ per share)

                       [GRAPH]
    1993    1994     1995     1996     1997
    27.83   25.71    39.37    49.16    65.18


                                       21

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

BUSINESS OVERVIEW (continued)

REGULATORY ENVIRONMENT
--------------------------------------------------------------------------------


The Company's insurance subsidiaries are subject to regulation and supervision
by the insurance regulatory authorities of the various jurisdictions in which
they conduct business. Regulation is intended for the benefit of policyholders
rather than shareholders. Insurance regulatory authorities have broad
regulatory, supervisory and administrative powers relating to solvency
standards, the licensing of insurers and their agents, the approval of forms and
policies used, the nature of, and limitations on, insurers' investments, the
form and content of annual statements and other reports on the financial
condition of such insurers and the establishment of reserves.

The Company is also subject to state laws regulating insurance holding
companies. Under these laws, insurance departments may, at any time, examine the
Company, require disclosure of material transactions by the holding company,
require approval of certain extraordinary transactions, such as extraordinary
dividends from an insurance subsidiary to the holding company, or require
approval of changes in control of an insurer or an insurance holding company.

The laws of the domicile states of the Company's insurance subsidiaries govern
the amount of dividends which may be paid to the Company. Generally, statutes in
the domicile states of the Company's insurance subsidiaries require prior
approval for payment of "extraordinary" as opposed to "ordinary" dividends. At
December 31, 1997, the Company's insurance subsidiaries may pay up to $45.6
million during the following twelve months under the ordinary dividend
regulations without prior regulatory approval.


RATINGS
--------------------------------------------------------------------------------

Financial stability and strength are important purchase considerations of
policyholders and insurance agents and brokers. Because an insurance premium
paid today purchases coverage for losses that might not be paid for many years,
the financial viability of the insurer is of critical concern. Various rating
agencies provide information to assist buyers in their search for financially
sound insurers.

A.M. Best Co., Inc. (Best) publishes Best's Insurance Reports,
Property-Casualty and assigns ratings to P&C insurance companies based on
quantitative criteria, such as profitability, leverage and liquidity as well as
qualitative assessments, such as the spread of risk, the adequacy and soundness
of reinsurance, the quality and estimated market value of assets, the adequacy
of loss reserves and surplus and the competence, experience and integrity of
management. Best's letter ratings range from "A++" (superior) to "F" (in
liquidation). S&P and Duff & Phelps' Credit Rating Co. (Duff & Phelps) provide
analytical and statistical information on the solvency and liquidity of major
U.S. licensed insurance companies. These claims paying ability (CPA) ratings
concern only the likelihood of timely payment of policyholder obligations and
are not intended to refer to the ability of either the rated company or its
parent or subsidiary to pay non-policy obligations such as debt or commercial
paper. The S&P CPA ratings range from "AAA" (superior financial security) to "R"
(regulatory action). The Duff & Phelps CPA rating categories range from "AAA"
(risk factors are negligible) to "DD" (under order of liquidation).



                                       22

<PAGE>


The following table sets forth the various ratings currently assigned to the
Company's insurance subsidiaries:

<TABLE>
<CAPTION>

Company               A.M. Best                  S&P                     Duff & Phelps
--------------------------------------------------------------------------------------------------
<S> <C>
Essex Insurance
Company            A (excellent)   A (good financial security)   A+ (high claims paying ability)

Evanston Insurance
Company            A (excellent)   A (good financial security)   A+ (high claims paying ability)

Investors Insurance
Company of America A-(excellent)   A (good financial security)   A+ (high claims paying ability)

Markel Insurance
Company            A-(excellent)   A (good financial security)   A+ (high claims paying ability)

Markel American
Insurance Company  A (excellent)   A (good financial security)   A+ (high claims paying ability)
---------------------------------------------------------------------------------------------------
</TABLE>



ASSOCIATES
--------------------------------------------------------------------------------

At December 31, 1997, the Company and its consolidated subsidiaries employed 830
persons, four of whom were executive officers.

The Company believes that, as a service organization, its continued
profitability and growth are dependent upon the talent and enthusiasm its
associates bring to their jobs. The Company has structured incentive
compensation plans and stock purchase plans to encourage associates to think and
act like owners. Associates are offered many opportunities to become
shareholders. Every associate eligible to participate in the Company's
retirement program, a 401(k) plan, receives a portion of the Company's
contribution in Markel stock and may purchase stock with their own
contributions. Stock may be acquired through a payroll deduction plan, and
associates have been given the opportunity to purchase stock with low interest
financing partially subsidized by the Company. Under Markel's incentive
compensation plans, associates may earn a meaningful bonus based on individual
performance and the Company's performance. At December 31, 1997, the Company
estimated associates' ownership, including executive officers and directors, at
approximately 33% of the Company. The Company believes that employee stock
ownership and rewarding value-added performance aligns associates' interests
with the interests of non-employee shareholders.



                                       23

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

SELECTED FINANCIAL DATA (dollars in millions, except per share data)

<TABLE>
<CAPTION>

                                                  ----------------------------------------
                                                     1997            1996          1995
                                                  ----------------------------------------

RESULTS OF OPERATIONS (1)
------------------------------------------------------------------------------------------
<S> <C>
Earned premiums                                  $     333       $    307         $   285
Net investment income                                   69             51              43
Total operating revenues                               419            367             344
Net income                                              50             47              34
Comprehensive income                                    92             56              75
-------------------------------------------------------------------------------------------

DILUTED EARNINGS PER SHARE (2)
-------------------------------------------------------------------------------------------
Core operations                                 $     7.43      $    6.03        $   5.15
Net realized gains                                    1.82           0.58            1.39
Nonrecurring items                                     --            2.05              --
Amortization expense                                 (0.33)         (0.36)          (0.39)
Net income                                      $     8.92      $    8.30        $   6.15
-------------------------------------------------------------------------------------------

FINANCIAL POSITION (1)(3)(4)
--------------------------------------------------------------------------------------------
Total investments                               $    1,408      $   1,131       $     909
Total assets                                         1,870          1,605           1,315
Unpaid losses and loss adjustment expenses             971            936             734
Long-term debt                                          93            115             107
8.71% Capital Securities                               150             --              --
Shareholders' equity                                   357            268             213
--------------------------------------------------------------------------------------------

RATIO ANALYSIS
--------------------------------------------------------------------------------------------
GAAP combined ratio                                     99%           100%             99%
Investment yield (5)                                     5%             5%              6%
Total return (6)                                        13%             8%             15%
Debt to total capital (7)                               28%             30%            33%
--------------------------------------------------------------------------------------------

PER SHARE DATA (2)
--------------------------------------------------------------------------------------------
Common shares outstanding (in thousands)             5,474           5,458          5,422
Total investments                                 $ 257.27        $ 207.18       $ 167.57
Book value                                        $  65.18        $  49.16       $  39.37
Growth in book value                                    33%             25%            53%
5-Year CAGR in book value (8)                           26%             26%            31%
Closing stock price                               $ 156.13        $  90.00       $  75.50
--------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(1)In December 1990 the Company acquired the remaining ownership interests of a
     previously unconsolidated subsidiary, Shand/Evanston Group, Inc.
     (Shand/Evanston). Assets and liabilities reflect the consolidation of
     Shand/Evanston beginning in 1990, and income reflects the consolidation of
     the revenues and expenses of Shand/Evanston in 1991 and subsequent years.

(2)  All per share amounts have been restated to reflect a 20% stock dividend in
     1989.

(3)  The change in accounting for net unrealized gains (losses) on fixed
     maturities in accordance with provisions of Statement of Financial
     Accounting Standards No. 115 affects 1993 and subsequent years.

                                       24

<PAGE>


<TABLE>
<CAPTION>
                                              -----------------------------------------------------------------------------
                                                   1994           1993          1992           1991           1990
                                              -----------------------------------------------------------------------------

RESULTS OF OPERATIONS (1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Earned premiums                              $      243     $      193       $    153       $    152      $      33
Net investment income                                29             24             27             31              7
Total operating revenues                            280            235            206            223             73
Net income                                           19             24             26             14              6
Comprehensive income                                (10)            34             26             39              5
---------------------------------------------------------------------------------------------------------------------------

DILUTED EARNINGS PER SHARE (2)
---------------------------------------------------------------------------------------------------------------------------
Core operations                                    $     3.77     $     3.31       $   3.03       $   2.63       $   1.76
Net realized gains                                       0.45           1.83           0.89           0.94           0.13
Nonrecurring items                                         --             --           1.90           0.28          (0.41)
Amortization expense                                    (0.89)         (0.91)         (1.18)         (1.15)         (0.43)
Net income                                         $     3.33     $     4.23       $   4.64       $   2.70       $   1.05
---------------------------------------------------------------------------------------------------------------------------

FINANCIAL POSITION (1)(3)(4)
---------------------------------------------------------------------------------------------------------------------------
Total investments                                  $      612     $      597       $    434      $    415        $    360
Total assets                                            1,103          1,135          1,129           700             670
Unpaid losses and loss adjustment expenses                653            688            733           346             302
Long-term debt                                            101             78            101            94             127
8.71% Capital Securities                                   --             --             --            --              --
Shareholders' equity                                      139            151            109            83              55
---------------------------------------------------------------------------------------------------------------------------

RATIO ANALYSIS
---------------------------------------------------------------------------------------------------------------------------
GAAP combined ratio                                        97%            97%            97%          106%             81%
Investment yield (5)                                        5%             5%             6%            7%             10%
Total return (6)                                           (2%)           11%             7%           16%              8%
Debt to total capital (7)                                  42%            34%            48%           53%             70%
---------------------------------------------------------------------------------------------------------------------------

PER SHARE DATA (2)
---------------------------------------------------------------------------------------------------------------------------
Common shares outstanding (in thousands)                5,387          5,414          5,403         5,332           5,323
Total investments                                    $ 113.55       $ 110.27        $ 80.27       $ 77.91         $ 67.59
Book value                                           $  25.71       $  27.83        $ 20.24       $ 15.59         $ 10.27
Growth in book value                                       (8%)           38%            30%           52%            (12%)
5-Year CAGR in book value (8)                              17%            25%            34%           35%             --
Closing stock price                                  $  41.50       $  39.38        $ 31.25       $ 22.00         $ 11.75
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                              ----------------------------------------------------
                                                        1989           1988       10-Year CAGR(8)
                                              ----------------------------------------------------

RESULTS OF OPERATIONS (1)
--------------------------------------------------------------------------------------------------
<S> <C>
Earned premiums                                      $      24     $       20           38%
Net investment income                                        5              4           42%
Total operating revenues                                    48             37           31%
Net income                                                  14             11           22%
Comprehensive income                                        14             12           29%
-----------------------------------------------------------------------------------------------

DILUTED EARNINGS PER SHARE (2)
-----------------------------------------------------------------------------------------------
Core operations                                       $   1.33       $   1.61           24%
Net realized gains                                        0.89           0.28           --
Nonrecurring items                                        0.65           0.45           --
Amortization expense                                     (0.25)         (0.05)          --
Net income                                            $   2.62       $   2.29           19%
-----------------------------------------------------------------------------------------------

FINANCIAL POSITION (1)(3)(4)
-----------------------------------------------------------------------------------------------
Total investments                                    $      66       $     51           42%
Total assets                                               196            147           34%
Unpaid losses and loss adjustment expenses                  31             27           --
Long-term debt                                              44             24           --
8.71% Capital Securities                                    --             --           --
Shareholders' equity                                        60             45           33%
-----------------------------------------------------------------------------------------------

RATIO ANALYSIS
-----------------------------------------------------------------------------------------------
GAAP combined ratio                                         78%            84%          --
Investment yield (5)                                         8%             8%          --
Total return (6)                                            11%            11%          --
Debt to total capital (7)                                   42%            35%          --
-----------------------------------------------------------------------------------------------

PER SHARE DATA (2)
-----------------------------------------------------------------------------------------------
Common shares outstanding (in thousands)                 5,401          5,220           --
Total investments                                      $ 12.31       $   9.71           38%
Book value                                             $ 11.69       $   9.22           30%
Growth in book value                                        27%            98%          --
5-Year CAGR in book value (8)                               --             --           --
Closing stock price                                    $ 22.50        $ 15.42           --
-----------------------------------------------------------------------------------------------

(4)  The gross reinsurance reporting provisions of Statement of Financial
     Accounting Standards No. 113 affect 1992 and subsequent years.

(5)  Investment yield reflects net investment income as a percent of average
     invested assets.

(6)  Total return includes net investment income, net realized investment gains
     and the change in market value during the period as a percent of average
     invested assets.

(7)  The 8.71% Capital Securities are treated as 50% debt and 50% equity by the
     Company. (8) CAGR - compound annual growth rate

                                       25

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS

</TABLE>
<TABLE>
<CAPTION>


                                                                                                 December 31,
------------------------------------------------------------------------------------------------------------------------------------
                                                                                          1997                   1996

------------------------------------------------------------------------------------------------------------------------------------
<S> <C>                                                                                    (dollars in the thousands)
ASSETS
Investments, available-for-sale, at estimated fair value
     Fixed maturities (cost of $1,037,807 in 1997 and $879,401 in 1996)            $ 1,063,191           $    885,874
     Equity securities (cost of $147,601 in 1997 and $132,558 in 1996)                 253,385                193,395
     Short-term investments (estimated fair value approximates cost)                    91,744                 51,507

------------------------------------------------------------------------------------------------------------------------------------
     TOTAL INVESTMENTS, AVAILABLE-FOR-SALE                                           1,408,320              1,130,776
------------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents                                                                1,309                 11,054
Receivables                                                                             67,573                 58,336
Reinsurance recoverable on unpaid losses                                               225,405                210,518
Reinsurance recoverable on paid losses                                                  15,530                 11,631
Deferred policy acquisition costs                                                       36,816                 37,979
Prepaid reinsurance premiums                                                            39,758                 44,881
Property and equipment                                                                  10,068                 15,434
Intangible assets                                                                       37,331                 39,297
Other assets                                                                            27,990                 45,391

------------------------------------------------------------------------------------------------------------------------------------
     TOTAL ASSETS                                                                  $ 1,870,100            $ 1,605,297
------------------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses                                        $    971,157           $    935,582
Unearned premiums                                                                      192,815                200,852
Payables to insurance companies                                                         29,148                 23,870
Long-term debt (estimated fair value of $96,197 in 1997 and $115,191 in 1996)           93,166                114,691
Other liabilities                                                                       77,010                 61,967
Company-Obligated Mandatorily Redeemable Preferred
     Capital Securities of Subsidiary Trust Holding
     Solely Junior Subordinated Deferrable Interest Debentures
     of Markel Corporation                                                            150,000                     --

------------------------------------------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES                                                              1,513,296              1,336,962
------------------------------------------------------------------------------------------------------------------------------------

Shareholders' equity
     Common stock                                                                      24,660                 24,347
     Retained earnings                                                                246,885                200,237
     Accumulated other comprehensive income
         Net unrealized holding gains on fixed maturities and equity securities,
         net of taxes of $45,909 in 1997 and $23,559 in 1996                           85,259                 43,751

------------------------------------------------------------------------------------------------------------------------------------
     TOTAL SHAREHOLDERS' EQUITY                                                       356,804                268,335
Commitments and contingencies

------------------------------------------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                   $ 1,870,100            $ 1,605,297
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.

                                       26

<PAGE>


CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>



                                                                           Years Ended December 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                   1997              1996            1995

---------------------------------------------------------------------------------------------------------------------------
<S> <C>                                                          (dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums                                                 $ 332,878         $ 307,453        $ 285,146
Net investment income                                              68,653            51,168           42,981
Net realized gains from investment sales                           15,834             5,013           11,952
Other                                                               1,682             3,102            3,496

---------------------------------------------------------------------------------------------------------------------------
     TOTAL OPERATING REVENUES                                     419,047           366,736          343,575
---------------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES
Losses and loss adjustment expenses                               210,061           202,378          186,655
Underwriting, acquisition and insurance expenses                  120,076           105,032           96,113
Other                                                                  --             1,275            1,642
Loss on building                                                       --            10,380               --
Amortization of intangible assets                                   2,435             2,655            2,778
---------------------------------------------------------------------------------------------------------------------------

     TOTAL OPERATING EXPENSES                                     332,572           321,720          287,188
---------------------------------------------------------------------------------------------------------------------------

     OPERATING INCOME                                              86,475            45,016           56,387
---------------------------------------------------------------------------------------------------------------------------

Interest expense                                                   20,124             8,016            8,460
---------------------------------------------------------------------------------------------------------------------------

     INCOME BEFORE INCOME TAXES                                    66,351            37,000           47,927
Income tax expense (benefit)                                       15,924            (9,672)          13,435

---------------------------------------------------------------------------------------------------------------------------
     NET INCOME                                                $   50,427          $ 46,672       $   34,492
---------------------------------------------------------------------------------------------------------------------------

OTHER COMPREHENSIVE INCOME
Unrealized gains on securities
     Unrealized holding gains arising during
         the period, net of taxes of $27,892 in 1997,
         $7,010 in 1996 and $25,872 in 1995                    $   51,800       $    13,018      $    48,046
     Less reclassification adjustments for gains included
         in net income, net of taxes of $5,542 in 1997,
         $1,755 in 1996 and $4,183 in 1995                        (10,292)           (3,258)          (7,769)
---------------------------------------------------------------------------------------------------------------------------

     TOTAL OTHER COMPREHENSIVE INCOME                              41,508             9,760           40,277

---------------------------------------------------------------------------------------------------------------------------
     COMPREHENSIVE INCOME                                      $   91,935       $    56,432      $    74,769
---------------------------------------------------------------------------------------------------------------------------

NET INCOME PER SHARE
     Basic                                                     $     9.20       $      8.58      $      6.38
     Diluted                                                   $     8.92       $      8.30      $      6.15
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       27

<PAGE>


     Markel Corporation & Subsidiaries
     ------------------------------------------------

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>


                                                                                        Accumulated
                                                                                           Other
                                                  Common      Common      Retained     Comprehensive
                                                  Shares       Stock      Earnings        Income       Total

---------------------------------------------------------------------------------------------------------------------------
                                                                        (in thousands)
<S> <C>

Shareholders' Equity at January 1, 1995           5,387      $ 22,929    $ 121,858     $  (6,286)   $ 138,501
     Net income                                      --            --       34,492            --       34,492
     Net unrealized holding gains
         arising during the period, net of taxes     --            --           --        40,277       40,277

---------------------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                                          74,769
     Issuance of common stock                        35           189           --            --          189
     Other                                           --            --          (17)           --          (17)
 .
---------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity at December 31, 1995         5,422        23,118      156,333        33,991      213,442
     Net income                                      --            --       46,672            --       46,672
     Net unrealized holding gains
         arising during the period, net of taxes     --            --           --         9,760        9,760

---------------------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                                          56,432
     Issuance of common stock                        68         1,229           --            --        1,229
     Repurchase of common stock                     (32)           --       (2,751)           --       (2,751)
     Other                                           --            --          (17)           --          (17)

---------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity at December 31, 1996         5,458        24,347      200,237        43,751      268,335
     Net income                                      --            --       50,427            --       50,427
     Net unrealized holding gains
         arising during the period, net of taxes     --            --           --        41,508       41,508

---------------------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                                          91,935
     Issuance of common stock                        41           313           --            --          313
     Repurchase of common stock                     (25)           --       (3,771)           --       (3,771)
     Other                                           --            --           (8)           --           (8)

---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY AT DECEMBER 31, 1997         5,474      $ 24,660    $ 246,885      $ 85,259    $ 356,804
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       28

<PAGE>

     ----------------------------------------------------\
             
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>



                                                                               Years Ended December 31,
---------------------------------------------------------------------------------------------------------------------------
                                                                          1997           1996          1995

---------------------------------------------------------------------------------------------------------------------------
<S> <C>                                                                         (dollars in thousands)
OPERATING ACTIVITIES
Net income                                                           $    50,427   $    46,672    $    34,492
Adjustments to reconcile net income to net cash provided by
   operating activities
     Deferred income tax expense (benefit)                                  (557)      (15,345)         1,374
     Depreciation and amortization                                         7,307        10,934         11,088
     Loss on building                                                         --        10,380             --
     Net realized gains from investment sales                            (15,834)       (5,013)       (11,952)
     Proceeds from reinsurer commutations and other settlements            2,969         6,544         82,637
     Increase in receivables                                              (2,669)       (5,208)          (296)
     Decrease (increase) in deferred policy acquisition costs              1,163        (1,044)        (3,563)
     Increase in unpaid losses and loss
         adjustment expenses, net                                         13,820        40,819         43,133
     Increase (decrease) in unearned premiums, net                        (2,914)        6,009         12,393
     Increase (decrease) in payables to insurance companies                5,278         2,581         (7,270)
     Increase (decrease) in current income taxes                           4,313        (2,702)          (894)
     Other                                                                 5,340          (275)         7,867

---------------------------------------------------------------------------------------------------------------------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES                        68,643        94,352        169,009
---------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Proceeds from sales of fixed maturities and equity securities            636,212       439,072        586,121
Proceeds from maturities of fixed maturities                              55,722        66,512         35,993
Cost of fixed maturities and equity securities purchased                (863,785)     (591,034)      (793,058)
Net change in short-term investments                                     (40,237)       16,675         13,076
Sale (acquisitions) of insurance companies, net of cash                    9,230       (35,049)       (21,747)
Net proceeds from sales of buildings                                       6,500            --         19,068
Additions to property and equipment                                       (4,612)       (3,952)        (4,509)
Other                                                                       (177)         (248)        (1,989)

---------------------------------------------------------------------------------------------------------------------------
         NET CASH USED BY INVESTING ACTIVITIES                          (201,147)     (108,024)      (167,045)
---------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Net proceeds from issuance of Company-Obligated Mandatorily
  Redeemable Preferred Capital Securities                                148,123            --             --
Additions to long-term debt                                                   --        40,500         27,500
Repayments and repurchases of long-term debt                             (21,577)      (32,550)       (21,550)
Other                                                                     (3,787)       (1,539)           172

---------------------------------------------------------------------------------------------------------------------------
         NET CASH PROVIDED BY FINANCING ACTIVITIES                       122,759         6,411          6,122
---------------------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents                          (9,745)       (7,261)         8,086
Cash and cash equivalents at beginning of year                            11,054        18,315         10,229

---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                            $      1,309  $     11,054    $    18,315
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       29

<PAGE>


Markel Corporation & Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of
   Significant
   Accounting
   Policies

The Company underwrites specialty insurance products and programs to niche
markets. Significant areas of underwriting include excess and surplus lines,
professional and products liability, specialty programs, specialty personal and
commercial lines and brokered excess and surplus lines.

a) PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS. Generally accepted
accounting principles require management to make estimates and assumptions when
preparing financial statements. Actual results could differ from those
estimates. The consolidated financial statements include the accounts of Markel
Corporation and all subsidiaries (the Company). All significant intercompany
balances and transactions have been eliminated in consolidation. The Company's
operations comprise one business segment, the property and casualty insurance
industry.

b) INVESTMENTS. All investments are considered available-for-sale and are
recorded at estimated fair value, generally based on quoted market prices. The
net unrealized gains or losses on investments, net of deferred income taxes, are
included in accumulated other comprehensive income in shareholders' equity. A
decline in the fair value of any investment below cost that is deemed other than
temporary is charged to earnings, resulting in a new cost basis for the
security.

Premiums and discounts are amortized or accreted over the lives of the related
fixed maturities as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses are included in earnings and are derived using the first in, first out
method.

c) CASH EQUIVALENTS. The Company considers overnight deposits to be cash
equivalents for purposes of the consolidated statements of cash flows.

d) DEFERRED POLICY ACQUISITION COSTS. Costs directly related to the acquisition
of insurance premiums, such as commissions to agents and brokers, are deferred
and amortized over the related policy period, generally one year. If it is
determined that future policy revenues on existing policies are not adequate to
cover related costs and expenses, deferred policy acquisition costs are charged
to earnings.

e) PROPERTY AND EQUIPMENT. Owned property and equipment are stated at cost less
accumulated depreciation. Depreciation and amortization of buildings and
equipment are calculated using the straight-line method over the respective
estimated service lives.

f) INTANGIBLE ASSETS. Policy renewal rights represent the value attributable to
renewal rights for lines of businesses acquired and are amortized using either
the straight-line or accelerated methods over the estimated lives of the
businesses acquired, generally seven to ten years. Goodwill is amortized using
the straight-line method, generally over 40 years. The Company assesses the
recoverability of goodwill by determining whether the amortization of the
balance over its remaining life can be recovered through the undiscounted future
operating cash flows of the acquired operations.

g) REVENUE RECOGNITION. Insurance premiums are earned on a pro rata basis over
the policy period, generally one year. Profit-sharing commissions from
reinsurers are recognized when earned and are netted against policy acquisition
costs. Reinsurance premiums ceded are netted against premiums written.

h) UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES. Unpaid losses and loss adjustment
expenses are based on evaluations of reported claims and estimates for losses
and loss adjustment expenses incurred but not reported. Estimates for losses and
loss adjustment expenses

                                       30

<PAGE>


1. Summary of
   Significant
   Accounting
   Policies
   (continued)

incurred but not reported are based on reserve development studies.
The reserves recorded are estimates, and the ultimate liability may be
greater than or less than the estimates; however, management believes the
reserves are adequate.

i) INCOME TAXES. Deferred tax assets and liabilities are recorded in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. Under SFAS No. 109 the Company records
deferred income taxes which reflect the net tax effect of the temporary
differences between the carrying amounts of the assets and liabilities for
financial reporting purposes and their respective tax bases.

j) EARNINGS PER SHARE. The Company adopted the provisions of SFAS No. 128,
Earnings Per Share, effective December 31, 1997 and restated all prior years.
Prior to this statement, the Company followed the provisions of Accounting
Principles Board (APB) No. 15, Earnings Per Share. SFAS No. 128 replaces the
presentation of primary earnings per share (EPS) with basic EPS and the
presentation of fully diluted EPS with diluted EPS. Basic EPS is computed by
dividing net income, less required dividends on redeemable preferred stock, by
the weighted average number of common shares outstanding during the year.
Diluted EPS is computed using the weighted average number of common shares
outstanding during the year, including the effect of common equivalent shares
attributable to stock options.

k) STOCK OPTION PLANS. The Company adopted the disclosure provisions of SFAS No.
123, Accounting for Stock-Based Compensation, effective January 1, 1996. SFAS
No. 123 requires entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. As allowed by SFAS
No. 123, the Company has chosen to follow the provisions of APB No. 25. Pro
forma disclosure of net income and EPS is required as if the fair value based
method of SFAS No. 123 had been applied.

l) LONG-LIVED ASSETS. If an asset is considered to be impaired, the impairment
equals the amount by which the carrying amount of the asset exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.

m) COMPREHENSIVE INCOME. As of December 31, 1997, the Company adopted the
provisions of SFAS No. 130, Reporting Comprehensive Income, for all years
presented. This statement establishes standards for reporting and displaying
comprehensive income and its components. The purpose of reporting comprehensive
income is to report all changes in equity of an enterprise that result from
recognized transactions and other economic events of the period. Other
comprehensive income refers to revenues, expenses, gains and losses that under
generally accepted accounting principles are included in comprehensive income
but excluded from net income, such as unrealized gains and losses on certain
investments in debt and equity securities and foreign currency items.

n) DERIVATIVES. From time to time, the Company uses derivative financial
instruments to hedge foreign currency risk and market risk in its investment
portfolio. When held, derivative instruments are matched against specific
securities and their fair values are determined based on current settlement
costs. Derivative positions held by the Company at December 31, 1997 and 1996
were immaterial.

o) RECLASSIFICATIONS. Certain reclassifications of prior years' amounts have
been made to conform with 1997 presentations.

                                       31

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


2. Investments
--------------------------------------------------------------------------------
a)   Following is a summary of investments (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                December 31, 1997
                                                                            
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
                                                                                  Gross        Gross      Estimated
                                                                Amortized      Unrealized    Unrealized     Fair
                                                                  Cost            Gains        Losses       Value
---------------------------------------------------------------------------------------------------------------------------

Fixed maturities
     U.S. Treasury securities and obligations
         of U.S. government agencies                        $    299,546     $     3,344    $    (465)  $    302,425
     Obligations of states, municipalities
         and political subdivisions                              361,688          10,713         (125)       372,276
     Public utilities                                             43,614           1,689          (79)        45,224
     Convertibles and bonds with warrants                          4,799             380          (14)         5,165
     All other corporate bonds                                   328,160          10,442         (501)       338,101

---------------------------------------------------------------------------------------------------------------------------

     Total fixed maturities                                    1,037,807          26,568       (1,184)     1,063,191
Equity securities
     Banks, trusts and insurance companies                        53,918          43,811         (119)        97,610
     Industrial, miscellaneous and all other                      89,969          63,163       (1,454)       151,678
     Nonredeemable preferred stock                                 3,714             405          (22)         4,097

---------------------------------------------------------------------------------------------------------------------------

     Total equity securities                                     147,601         107,379       (1,595)       253,385
Short-term investments                                            91,744              --           --         91,744


---------------------------------------------------------------------------------------------------------------------------
     TOTAL INVESTMENTS                                       $ 1,277,152       $ 133,947     $ (2,779)   $ 1,408,320
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>




                                                                                 December 31, 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
                                                                               Gross          Gross       Estimated
                                                              Amortized      Unrealized     Unrealized      Fair
                                                                 Cost           Gains         Losses        Value
----------------------------------------------------------------------------------------------------------------------------

Fixed maturities
     U.S. Treasury securities and obligations
         of U.S. government agencies                         $    215,550      $   1,634      $ (1,612)  $    215,572
     Obligations of states, municipalities
         and political subdivisions                               218,475          4,004          (692)       221,787
     Public utilities                                              54,845          1,194        (1,004)        55,035
     Convertibles and bonds with warrants                          33,869          2,222          (553)        35,538
     All other corporate bonds                                    356,193          4,402        (3,185)       357,410
     Redeemable preferred stock                                       469             63            --            532

---------------------------------------------------------------------------------------------------------------------------

     Total fixed maturities                                        879,401        13,519        (7,046)       885,874
Equity securities
     Banks, trusts and insurance companies                          46,095        23,537        (1,182)        68,450
     Industrial, miscellaneous and all other                        82,789        39,145          (349)       121,585
     Nonredeemable preferred stock                                   3,674            21          (335)         3,360

---------------------------------------------------------------------------------------------------------------------------

     Total equity securities                                       132,558       62,703         (1,866)       193,395
Short-term investments                                              51,507           --             --         51,507


---------------------------------------------------------------------------------------------------------------------------
     TOTAL INVESTMENTS                                         $ 1,063,466     $ 76,222       $ (8,912)   $ 1,130,776
---------------------------------------------------------------------------------------------------------------------------
</TABLE>




                                       32

<PAGE>


2. Investments
   (continued)

b) The amortized cost and estimated fair value of fixed maturities at December
31, 1997 are shown below by contractual maturity (dollars in thousands):

                                                                      Estimated
                                                        Amortized       Fair
                                                           Cost         Value

--------------------------------------------------------------------------------

Due in one year or less                              $     97,782  $     97,987
Due after one year through five years                     219,123       221,435
Due after five years through ten years                    274,964       282,521
Due after ten years                                       445,938       461,248

--------------------------------------------------------------------------------
     TOTAL                                            $ 1,037,807   $ 1,063,191
--------------------------------------------------------------------------------


Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties, and the lenders may have the right to put the securities 
back to the borrower. Based on expected maturities, the estimated average 
duration of the fixed maturities was 4.5 years.


c) Components of net investment income are as follows (dollars in thousands):

                                                   Years Ended December 31,
--------------------------------------------------------------------------------
                                                1997        1996        1995

--------------------------------------------------------------------------------

Interest
     Municipal bonds (tax-exempt)              $ 16,130   $   8,824  $   6,900
     Taxable bonds                               43,051      36,823     31,042
     Short-term investments, including
         overnight deposits                       3,986       4,447      3,969
     Dividends on equity securities               8,670       4,474      3,675

--------------------------------------------------------------------------------

                                                 71,837      54,568     45,586
Less investment expenses                          3,184       3,400      2,605


--------------------------------------------------------------------------------
     NET INVESTMENT INCOME                     $ 68,653    $ 51,168   $ 42,981
--------------------------------------------------------------------------------



                                       33

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. Investments (continued)

d) The following table presents the Company's realized gains and losses from
investment sales and the change in gross unrealized gains (losses) (dollars in
thousands):


                                                   Years Ended December 31,
                                              ----------------------------------
                                                 1997        1996       1995

--------------------------------------------------------------------------------
Realized gains
     Fixed maturities                        $    9,454  $    5,618   $  13,861
     Equity securities                           12,568       5,480       9,838

--------------------------------------------------------------------------------
                                                 22,022      11,098      23,699
--------------------------------------------------------------------------------
Realized losses
     Fixed maturities                            (4,615)     (5,853)     (9,281)
     Equity securities                           (1,573)       (232)     (2,466)

--------------------------------------------------------------------------------
                                                 (6,188)     (6,085)    (11,747)

--------------------------------------------------------------------------------
     NET REALIZED GAINS FROM INVESTMENT SALES $  15,834  $    5,013   $  11,952
--------------------------------------------------------------------------------

Change in gross unrealized gains (losses)
     Fixed maturities                         $  18,911   $ (16,014)  $  41,356
     Equity securities                           44,947      31,029      20,610

--------------------------------------------------------------------------------
     NET INCREASE                             $  63,858   $  15,015   $  61,966
--------------------------------------------------------------------------------


e) Investments with a carrying value of $33.9 million and $41.9 million were on
deposit with regulatory authorities at December 31, 1997 and 1996, respectively.


f) At December 31, 1997, there were no investments in any one issuer, other than
U.S. Treasury securities, that exceeded 10% of shareholders' equity.

3. Receivables

--------------------------------------------------------------------------------
Following are the components of receivables (dollars in thousands):

                                                                 December 31,
                                                          ----------------------
                                                             1997          1996

--------------------------------------------------------------------------------

Agents' balances and premiums in course of collection     $ 54,759      $ 47,356
Less allowance for doubtful receivables                      2,763         2,694

--------------------------------------------------------------------------------

                                                            51,996        44,662
Other                                                       15,577        13,674

--------------------------------------------------------------------------------
     RECEIVABLES                                          $ 67,573      $ 58,336
--------------------------------------------------------------------------------


                                       34

<PAGE>


4. Deferred
   Policy
   Acquisition
   Costs

The following reflects the amounts of policy costs deferred and amortized
(dollars in thousands):

                                                   Years Ended December 31,
                                               ---------------------------------
                                                 1997        1996        1995

--------------------------------------------------------------------------------

Balance, beginning of year                   $   37,979  $   32,024   $  26,064
Policy acquisition costs deferred                79,356      76,327      72,748
Amortization charged to expense                 (80,519)    (70,372)    (66,788)

--------------------------------------------------------------------------------
     DEFERRED POLICY ACQUISITION COSTS       $   36,816  $   37,979   $  32,024
--------------------------------------------------------------------------------


The following reflects the components of underwriting, acquisition and insurance
expenses (dollars in thousands):

                                                   Years Ended December 31,
                                              ----------------------------------
                                                 1997        1996        1995

--------------------------------------------------------------------------------

Amortization of policy acquisition costs     $ 80,519    $   70,372   $ 66,788
Other operating expenses                       39,557        34,660     29,325

--------------------------------------------------------------------------------
     UNDERWRITING, ACQUISITION AND
     INSURANCE EXPENSES                      $120,076    $  105,032   $ 96,113
--------------------------------------------------------------------------------

5. Property
   and Equipment


Following are the components of property and equipment (dollars in thousands):

                                                         December 31,
--------------------------------------------------------------------------------
                                                        1997        1996

--------------------------------------------------------------------------------

Land                                               $      689     $   2,372
Buildings and building equipment                          375        14,015
Furniture and equipment                                28,154        26,229
Other                                                     140            94

--------------------------------------------------------------------------------

                                                       29,358        42,710
Less accumulated depreciation and amortization         19,290        27,276

--------------------------------------------------------------------------------
     PROPERTY AND EQUIPMENT                          $ 10,068      $ 15,434
--------------------------------------------------------------------------------


Depreciation and amortization expense of property and equipment was $3.5
million, $6.0 million and $6.0 million for the years ended December 31, 1997,
1996 and 1995, respectively.

Total rental expense for the years ended December 31, 1997, 1996 and 1995 was
approximately $4.2 million, $2.7 million and $1.9 million, respectively.

As part of the purchase of Shand/Evanston in 1987, the Company acquired Shand's
headquarters building in Evanston, Illinois. The estimated fair value of the
building had fallen significantly since 1987 due to escalating property taxes
and reduced demand for office space in Evanston. In response to a purchase
offer, the Company decided to dispose of the building and immediately recognized
a $10.4 million ($6.8 million after tax) loss in 1996. The sale of the building
was completed in 1997.


                                       35

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


5. Property and
   Equipment
   (continued)

During 1995 the Company entered into sale-leaseback agreements related to its
home office facilities in Richmond, Virginia. The Company sold the properties
which house its corporate offices and Richmond-based underwriting units for
approximately $19.1 million and concurrently entered into ten to twelve year
lease agreements with the buyers. The Company realized a $4.9 million gain on
the sale of the properties which is being deferred and amortized over the terms
of the operating leases.

In addition, the Company has other office facilities, furniture and equipment
under operating leases with remaining terms ranging from 4 months to 60 months.

Minimum annual rental commitments for noncancelable operating leases at December
31, 1997 are as follows (dollars in thousands):

Years Ending December 31,
--------------------------------------------------------------------------------

     1998                                                 $  4,649
     1999                                                    4,772
     2000                                                    3,970
     2001                                                    3,379
     2002                                                    3,185
     2003 and thereafter                                     8,454

--------------------------------------------------------------------------------
     TOTAL                                                $ 28,409
--------------------------------------------------------------------------------

6. Intangible
   Assets

Following are the components of intangible assets (dollars in thousands):

                                                                December 31,
                                                          ----------------------
                                                              1997       1996
--------------------------------------------------------------------------------

Goodwill                                                    $ 35,668   $ 36,035
Policy renewal rights                                          1,663      3,262

--------------------------------------------------------------------------------
     INTANGIBLE ASSETS                                      $ 37,331   $ 39,297
--------------------------------------------------------------------------------

Accumulated amortization related to intangible assets was $19.6 million and
$17.6 million at December 31, 1997 and 1996, respectively.


--------------------------------------------------------------------------------
7. Income Taxes

Income tax expense (benefit) on income before income taxes, substantially all of
which was federal tax expense, consists of (dollars in thousands):
                                                   Years Ended December 31,
                                           -------------------------------------
                                              1997          1996          1995
--------------------------------------------------------------------------------
Current                                    $ 16,481    $    5,673      $ 12,061
Deferred                                       (557)      (15,345)        1,374

--------------------------------------------------------------------------------
     INCOME TAX EXPENSE (BENEFIT)          $ 15,924    $   (9,672)     $ 13,435
--------------------------------------------------------------------------------

The Company made income tax payments of $12.2 million in 1997, $8.4 million in
1996 and $13.0 million in 1995. Current income taxes payable were $0.9 million
at December 31, 1997. At December 31, 1996, current income taxes recoverable
were $3.4 million.



                                       36

<PAGE>

7. Income Taxes
   (continued)


Reconciliations of the U.S. corporate income tax rate and the effective tax rate
on income before income taxes are as follows:
                                                    Years Ended December 31,
--------------------------------------------------------------------------------
                                                  1997       1996       1995

--------------------------------------------------------------------------------

U.S. corporate tax rate                           35%            35%         35%
Tax-exempt investment income                      (9)            (9)         (6)
Difference between financial reporting and tax
     bases of assets acquired                     --            (53)         --
Other                                             (2)             1          (1)

--------------------------------------------------------------------------------
     EFFECTIVE TAX RATE                           24%           (26%)        28%
--------------------------------------------------------------------------------


The components of the net deferred tax asset are as follows
 (dollars in thousands):  
                                                              December 31,
--------------------------------------------------------------------------------
                                                            1997        1996

--------------------------------------------------------------------------------

Assets
     Income reported in different periods for
         financial reporting and tax purposes              $   9,721    $ 11,793
     Unpaid losses and loss adjustment expenses,
         nondeductible portion for income tax purposes        51,521      51,765
     Unearned premiums, adjustment for income tax purposes    10,714      10,918
     Other                                                     1,573         717

--------------------------------------------------------------------------------
     Total gross deferred tax assets                          73,529      75,193
--------------------------------------------------------------------------------

Liabilities
     Property and equipment, depreciation                        182       1,123
     Deferred policy acquisition costs                        12,886      13,293
     Investments, net unrealized gains                        45,909      23,559
     Differences between financial reporting and
         tax bases of assets acquired                         13,420      13,837
     Other                                                       812       1,267

--------------------------------------------------------------------------------
     Total gross deferred tax liabilities                     73,209      53,079

--------------------------------------------------------------------------------
     NET DEFERRED TAX ASSET                                $     320    $ 22,114
--------------------------------------------------------------------------------


The Company believes that a valuation allowance with respect to the realization
of the total gross deferred tax assets is not necessary. The Company expects to
realize the majority of its gross deferred tax assets existing at December 31,
1997 through the reversal of existing temporary differences and the application
of the carryback provisions of the Internal Revenue Code. The Company expects to
generate future taxable income, excluding the effect of future originating
temporary differences, to realize the remaining gross deferred tax assets.

In 1996 the Internal Revenue Service completed an examination of the 1994 and
prior federal tax returns and made no material adjustments.



                                       37

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


8. Unpaid Losses
   And Loss
   Adjustment
   Expenses

The following table sets forth a reconciliation of beginning and ending reserves
for losses and loss adjustment expenses (dollars in thousands):
                                                      Years Ended December 31,
--------------------------------------------------------------------------------
                                                 1997         1996        1995

--------------------------------------------------------------------------------

NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT
     EXPENSES, BEGINNING OF YEAR              $ 725,064   $ 575,268   $ 471,996
     Commutations and other settlements             745       6,544      54,637
     Reserves for losses and loss adjustment
         expenses of acquired insurance companies    --     117,499      35,233

--------------------------------------------------------------------------------
RESTATED NET RESERVES FOR LOSSES
     AND LOSS ADJUSTMENT EXPENSES,
     BEGINNING OF YEAR                        $ 725,809   $ 699,311   $ 561,866

Incurred losses and loss adjustment expenses
     Current year                               236,037     226,495     195,448
     Prior years                                (25,976)    (24,117)     (8,793)

--------------------------------------------------------------------------------
TOTAL INCURRED LOSSES AND
     LOSS ADJUSTMENT EXPENSES                   210,061     202,378     186,655
--------------------------------------------------------------------------------

Payments
     Current year                                44,382      52,158      42,002
     Prior years                                145,736     124,467     131,251

--------------------------------------------------------------------------------
TOTAL PAYMENTS                                  190,118     176,625     173,253

--------------------------------------------------------------------------------
NET RESERVES FOR LOSSES AND LOSS
     ADJUSTMENT EXPENSES, END OF YEAR           745,752     725,064     575,268
--------------------------------------------------------------------------------

Reinsurance recoverable on unpaid losses        225,405     210,518     159,141

--------------------------------------------------------------------------------
GROSS RESERVES FOR LOSSES AND LOSS
     ADJUSTMENT EXPENSES, END OF YEAR         $ 971,157   $ 935,582   $ 734,409
--------------------------------------------------------------------------------


The provision for prior years decreased in 1997, 1996 and 1995. Inherent in the
Company's reserving practices is the desire to establish reserves that are more
likely redundant than deficient. Furthermore, the Company's philosophy is to
price its insurance products to make an underwriting profit, not to increase
written premiums.


                                       38

<PAGE>


8. Unpaid Losses
   And Loss
   Adjustment
   Expenses
   (continued)

Management continually attempts to improve its loss estimation process by
refining its ability to analyze loss development patterns, claims payments and
other information, but many reasons remain for potential adverse development of
estimated ultimate liabilities. For example, the uncertainties inherent in the
loss estimation process have become increasingly subject to changes in social
and legal trends. In recent years, these trends have expanded the liability of
insureds, established new liabilities and reinterpreted contracts to provide
unanticipated coverage long after the related policies were written. Such
changes from past experience significantly affect the ability of insurers to
estimate reserves for unpaid losses and related expenses.

Management recognizes the higher variability associated with certain exposures
and books of business and considers this factor when establishing loss reserves.
Management currently believes the Company's gross and net reserves, including
the reserves for environmental impairment liability and toxic tort exposures, 
are adequate. The Company has shown cumulative redundancies in 1987 and 
subsequent years.

The net reserves for losses and loss adjustment expenses maintained by the
Company's insurance subsidiaries are equal under both statutory and generally
accepted accounting principles. However, certain reserves for claim handling
expenses are maintained by the Company's underwriting management subsidiaries,
in accordance with the contractual obligations of these subsidiaries. As a
result, the consolidated net reserves for losses and loss adjustment expenses
will be different from the statutory net reserves for losses and loss adjustment
expenses.


--------------------------------------------------------------------------------

9. Long-Term
   Debt

Long-term debt consists of the following (dollars in thousands):

                                                                December 31,
--------------------------------------------------------------------------------
                                                              1997        1996
--------------------------------------------------------------------------------

7.25% notes, due November 1, 2003, interest
    payable semi-annually, net of unamortized
    discount of $284 in 1997 and $359 in 1996              $ 93,166   $  99,641
6.06% borrowings under $150 million revolving
      credit facility                                            --      15,000
Other                                                            --          50

--------------------------------------------------------------------------------
     LONG-TERM DEBT                                        $ 93,166   $ 114,691
--------------------------------------------------------------------------------


The notes due November 1, 2003 are not redeemable or subject to any sinking fund
requirements and have an effective cost of approximately 7.54%. During 1997 the
Company repurchased $6.55 million of its 7.25% notes. The estimated fair value
of the Company's long-term debt is based on quoted market prices at the
reporting date.

In 1996 the Company arranged a syndicated revolving credit facility which
provides up to $150 million for working capital and other general corporate
purposes. The Company may select from various interest rate options for balances
outstanding under the facility. The Company pays a commitment fee of .15% on the
unused portion of the facility. The facility is a revolving credit facility
until October 1, 1998. Any outstanding balances at that date are converted to a
four year term loan.


                                       39

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. Long-Term
   Debt
   (continued)

Following is a schedule of future principal payments due on long-term debt as of
December 31, 1997 (dollars in thousands):

Years Ending December 31,
--------------------------------------------------------------------------------

     1998                                                       --
     1999                                                       --
     2000                                                       --
     2001                                                       --
     2002                                                       --
     2003 and thereafter                                  $ 93,166

--------------------------------------------------------------------------------
     TOTAL                                                $ 93,166
--------------------------------------------------------------------------------

The Company paid $7.6 million, $7.7 million and $8.4 million in interest on
long-term debt during the years ended December 31, 1997, 1996 and 1995,
respectively.


--------------------------------------------------------------------------------
10. Company-Obligated
    Mandatorily
    Redeemable
    Preferred
    Capital
    Securities
    (8.71% Capital
    Securities) 

On January 8, 1997, the Company arranged the sale of $150 million of 8.71%
Capital Securities issued under an Amended and Restated Declaration of Trust
dated January 13, 1997 (The Declaration) by Markel Capital Trust I (the Trust),
a statutory business trust sponsored and wholly-owned by Markel Corporation.
Proceeds from the sale of the 8.71% Capital Securities were used to purchase
$154,640,000 aggregate principal amount of the Company's 8.71% Junior
Subordinated Deferrable Interest Debentures (the Debentures) due January 1,
2046, issued to the Trust under an indenture dated January 13, 1997 (the
Indenture). The Debentures are the sole assets of the Trust. The Company has the
right to defer interest payments on the Debentures for up to five years. The
Capital Securities and related Debentures are redeemable by the Company on or
after January 1, 2007. Taken together, the Company's obligations under the
Debentures, the Indenture, the Declaration and a guarantee made by the Company
provide, in the aggregate, a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the 8.71% Capital Securities.
In 1997 the Company paid $6.1 million in interest on the 8.71% Capital
Securities.


--------------------------------------------------------------------------------
11. Shareholders'
    Equity

a) The Company has 15,000,000 shares of no par value common
stock authorized, of which 5,473,982 and 5,458,077 shares were outstanding at
December 31, 1997 and 1996, respectively. The Company is authorized to issue up
to 2,069,200 shares of preferred stock, $1.00 par value per share, in one or
more series and to fix the powers, designations, preferences and rights of each
series. There were 11,269 shares of Series A redeemable preferred stock
outstanding at December 31, 1996. These shares were included in other
liabilities at a redemption value of $28.50 per share and carried a cumulative
dividend of $1.50 per share, payable semi-annually. During 1997 the Company
repurchased all remaining shares of the Series A redeemable preferred stock.


b) The Company has three stock option or stock award plans for employees and
directors; the 1986 Stock Option Plan which expired on November 3, 1996, the
1989 Non-employee Director Stock Option Plan and the 1993 Incentive Stock Plan.
At December 31, 1997, there were 190,779 shares, 60,000 shares and 100,000
shares reserved for issuance under the 1986 plan, the 1989 plan and the 1993
plan, respectively. The 1986 and the 1993 plans are administered by the
Compensation Committee of the Company's Board of Directors. The 1993 plan
provides for the


                                       40

<PAGE>


11. Shareholders'
    Equity
    (continued)

award of incentive stock options, stock appreciation rights or incentive stock
awards to employees of the Company. The 1989 plan is administered by the
Company's Board of Directors and provides for the award of non-statutory stock
options to the non-employee directors. Options are granted at a price not less
than market price on the date of the grant and are exercisable within a period
established by the Committee or the Board at the time of the grant, but not
earlier than six months from the date of grant. Options expire either five or
ten years from the date of grant. At December 31, 1997, the Company had 36,000
options available for grant under the 1989 plan and 97,500 options, stock
appreciation rights or incentive stock awards available for grant under the 1993
plan. Stock option transactions are summarized below:

<TABLE>
<CAPTION>


                                            Years Ended December 31,
---------------------------------------------------------------------------------------------

                                         Weighted            Weighted            Weighted
                                          Average             Average             Average
                                         Exercise            Exercise            Exercise
                               1997        Price     1996      Price     1995      price

---------------------------------------------------------------------------------------------
<S> <C>
Options outstanding
     at January 1            264,250    $   26      339,582   $ 24      382,421   $ 23
Granted                        2,500       144        5,000     87           --     --
Exercised                    (48,031)       17      (75,332)    22      (40,919)    12
Canceled                      (1,440)       39       (5,000)    22       (1,920)    32

----------------------------------------------------------------------------------------------
Options outstanding
     at December 31          217,279    $   29      264,250   $ 26      339,582   $ 24
----------------------------------------------------------------------------------------------

Options exercisable
     at December 31          180,283                210,735             255,274
Options available for grant
     at December 31          133,500                136,000             151,215
----------------------------------------------------------------------------------------------
</TABLE>


The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>

                          Options Outstanding                   Options Exercisable
----------------------------------------------------   ---------------------------------------

                                  Weighted       Weighted                  Weighted
   Range of                        Average        Average                   Average
   Exercise       Number          Remaining      Exercise      Number      Exercise
    Prices      Outstanding   Contractual Life     Price     Exercisable     Price
----------------------------------------------------------------------------------------------
<S> <C>
$ 10 to 15        48,783            1.7 years   $   13         48,783       $ 13
  16 to 22        77,256            1.8             19         77,256         19
  23 to 33         4,500            4.4             26          3,600         26
  34 to 47        79,240            3.7             41         50,644         41
  87               5,000            8.8             87             --         --
  144              2,500            9.8            144             --         --
   
----------------------------------------------------------------------------------------------
 $ 10 to 144     217,279            2.8 years   $   29        180,283       $ 24
----------------------------------------------------------------------------------------------
</TABLE>


The pro forma impact of stock options granted in 1997 and 1996 had no effect on
basic or diluted earnings per share.

                                       41

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Shareholders' 
    Equity
    (continued)

c) Earnings per share is determined by dividing net income, as adjusted below,
by the applicable shares outstanding (in thousands):
                                                      Years Ended December 31,
--------------------------------------------------------------------------------
                                                   1997        1996       1995

--------------------------------------------------------------------------------

Net income as reported                          $ 50,427    $ 46,672   $ 34,492
Dividends on redeemable preferred stock               (8)        (17)       (17)

--------------------------------------------------------------------------------
     Basic and diluted income                   $ 50,419    $ 46,655   $ 34,475
--------------------------------------------------------------------------------

Average common shares outstanding                  5,483       5,438      5,405
Shares applicable to common stock equivalents        169         185        200

--------------------------------------------------------------------------------
     Average diluted shares outstanding            5,652       5,623      5,605
--------------------------------------------------------------------------------


Basic shares represent average common shares outstanding. Diluted shares include
average common shares outstanding and common equivalent shares attributable to
stock options. Average closing common stock market prices are used to calculate
the dilutive effect attributable to stock options.


--------------------------------------------------------------------------------
12. Employee
    Benefit
    Plan

The Company maintains a defined contribution plan, the Markel Corporation 
Retirement Savings Plan, in accordance with Section 401(k) of the Internal
Revenue Code. The plan requires the Company to contribute, on an annual
basis, 6% of each participating employee's compensation plus a matching
contribution of 100% of the first 2% and 50% of the next 2% of each
participating employee's contribution. Annual expenses relating to this plan
were $2.6 million, $2.2 million and $1.9 million in 1997, 1996 and 1995,
respectively.


--------------------------------------------------------------------------------
13. Reinsurance

The Company enters into reinsurance agreements in order to reduce its liability
on individual risks and enable it to underwrite policies with higher limits. In
a reinsurance transaction, an insurance company transfers, or cedes, all or part
of its exposure in return for a portion of the premium. The ceding of the
insurance does not legally discharge the ceding company from its primary
liability for the full amount of the policies, and the ceding company is
required to pay the loss and bear collection risk if the reinsurer fails to meet
its obligations under the reinsurance agreement.

The table below summarizes the effect of reinsurance on premiums written and
earned (dollars in thousands):
<TABLE>
<CAPTION>

                                        Years Ended December 31,
--------------------------------------------------------------------------------------
                           1997                   1996                     1995

--------------------------------------------------------------------------------------
<S> <C>

                    Written      Earned     Written      Earned    Written    Earned
Direct            $ 413,252   $ 422,574   $ 398,412   $ 391,942   $ 366,739 $ 349,417
Assumed               7,395       6,938       8,058      11,062      23,879    26,158
Ceded               (90,684)    (96,634)    (93,011)    (95,551)    (93,079)  (90,429)

--------------------------------------------------------------------------------------
Net Premiums      $ 329,963   $ 332,878   $ 313,459   $ 307,453   $ 297,539 $ 285,146
--------------------------------------------------------------------------------------
</TABLE>


                                       42

<PAGE>


13. Reinsurance
    (continued)

Incurred losses and loss adjustment expenses are net of reinsurance recoveries
of $82.0 million, $51.2 million and $63.9 million for the years ended December
31, 1997, 1996 and 1995, respectively.

Since 1993 the Company has pursued the commutation, or termination, of contracts
with certain reinsurers of Shand/Evanston's 1987 and prior books of business.
The objectives of the commutations were to reduce credit risks and eliminate
administrative expenses associated with the runoff of reinsurance placed with 
certain inactive reinsurers. Primarily as a result of the commutation program,
during 1997 the Company reassumed exposures for ceded unpaid losses and loss
adjustment expenses in exchange for $3.0 million. In 1996 and 1995 reinsurer
commutations and other settlements totaled $6.5 million and $54.6 million, 
respectively. In all years, pricing for commutations was based on ceded unpaid
losses and loss adjustment expenses at the date of commutation plus other
factors deemed appropriate by management. The recording of commutations had no
effect on the Company's results of operations in 1997, 1996 and 1995.

The percentage of assumed earned premiums to net earned premiums for the years
ended December 31, 1997, 1996 and 1995 was approximately 2%, 4% and 9%,
respectively.


--------------------------------------------------------------------------------
14. Contingencies

The Company has contingencies that arise in the normal conduct of its
operations. In the opinion of management, the resolutions of these contingencies
are not expected to have a material impact on the Company's financial condition.


--------------------------------------------------------------------------------
15. Related
    Party
    Transactions

The Company purchases investment counseling services from Hamblin Watsa
Investment Counsel Ltd., a company in which a director of the Company has a
significant interest. The cost of such services was $705,000, $674,000 and
$618,000 for the years ended December 31, 1997, 1996 and 1995, respectively.

The Company pays commissions to Gary Markel & Associates, Inc. and Gary Markel
Surplus Lines Brokerage, Inc., entities owned by a director of the Company. The
commissions paid were $487,000, $467,000 and $424,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.



                                       43

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


16. Statutory
    Financial
    Information


The following table includes selected information for the Company's wholly-owned
insurance subsidiaries as filed with insurance regulatory authorities (dollars
in thousands):
                                                     Years Ended December 31,
--------------------------------------------------------------------------------
                                                   1997        1996       1995

--------------------------------------------------------------------------------

Net income                                     $  50,427   $  27,424  $  42,181
--------------------------------------------------------------------------------
Statutory capital and surplus                  $ 334,025   $ 282,774  $ 224,833
--------------------------------------------------------------------------------


The Company's insurance company subsidiaries are subject to certain regulatory
restrictions on the payment of dividends or advances to the Company. As of
December 31, 1997, $288.4 million of the insurance subsidiaries' statutory
surplus was so restricted.

In converting from statutory accounting principles to generally accepted
accounting principles, typical adjustments include deferral of policy
acquisition costs, a provision for deferred federal income taxes and the
inclusion of net unrealized gains or losses in shareholders' equity relating to
fixed maturities.


--------------------------------------------------------------------------------
17. Acquisition

On October 31, 1996, the Company acquired Investors Insurance Holding Corp. and
its subsidiaries (Investors). The acquisition was accounted for using the
purchase method of accounting. Total consideration paid to the shareholders of
Investors was $38.1 million which approximated the fair value of the net assets
acquired. The Company funded the transaction with available cash and borrowings
of approximately $15.0 million under existing lines of credit. The acquisition's
effect on the Company's earnings was not significant in 1996.

The table below summarizes, on a pro forma basis, the Company's consolidated
results of operations as if the purchase of Investors had taken place as of
January 1, 1995 (dollars in thousands, except per share amounts):

                                                     Years Ended December 31,
--------------------------------------------------------------------------------
                                                        1996            1995

--------------------------------------------------------------------------------

Total operating revenues                              $ 405,899       $ 389,397
Net income                                               39,469          29,508
--------------------------------------------------------------------------------
Net income per share
     Basic                                            $    7.26       $    5.46
     Diluted                                          $    7.02       $    5.26
--------------------------------------------------------------------------------

Investors' results had a dilutive effect on the Company's pro forma results of
operations in 1996 and 1995 due to significant loss reserve strengthening at
Investors. The Company does not expect that Investors' loss reserves will
require additional strengthening in future years.



                                       44

<PAGE>



18. Markel
    Corporation
    (Parent Company
    Only) Financial
    Information

CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                        December 31,
------------------------------------------------------------------------------------------
                                                                      1997        1996

------------------------------------------------------------------------------------------
                                                                    (dollars in thousands)
<S> <C>
ASSETS
Investments, available-for-sale, at estimated fair value
     Fixed maturities (cost of $129,109 in 1997)                    $ 129,530  $      --
     Equity securities (cost of $13,439 in 1997)                       15,793         --
     Short-term investments (estimated fair value
         approximates cost)                                            35,494     17,618

-------------------------------------------------------------------------------------------
     TOTAL INVESTMENTS, AVAILABLE-FOR-SALE                            180,817     17,618
-------------------------------------------------------------------------------------------


Cash and cash equivalents                                                 649      1,562
Investments in consolidated subsidiaries                              393,174    336,301
Notes receivable due from subsidiaries                                 48,226     49,694
Other assets                                                           20,500     10,757

-------------------------------------------------------------------------------------------
     TOTAL ASSETS                                                   $ 643,366  $ 415,932
-------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current income taxes payable                                        $     810  $     281
Deferred income taxes                                                   6,297     13,070
Long-term debt                                                         93,166    114,641
Other liabilities                                                      31,649     19,605
8.71% Junior Subordinated Deferrable
     Interest Debentures                                              154,640          --

-------------------------------------------------------------------------------------------
     TOTAL LIABILITIES                                                286,562    147,597
-------------------------------------------------------------------------------------------

     TOTAL SHAREHOLDERS' EQUITY                                       356,804    268,335

-------------------------------------------------------------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $ 643,366  $ 415,932
-------------------------------------------------------------------------------------------
</TABLE>

                                       45

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


18. Markel  
    Corporation
    (Parent Company
    Only) Financial
    Information
    (continued)


CONDENSED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME


<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
---------------------------------------------------------------------------------------------------
                                                              1997        1996       1995
---------------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S> <C>
REVENUES
Net investment income                                        $ 11,816   $   2,585  $   3,879
Cash dividends on common stock of
     consolidated subsidiaries                                 29,125      31,841     35,459
Other                                                           1,051       1,471        129

---------------------------------------------------------------------------------------------------
     TOTAL REVENUES                                            41,992      35,897     39,467
---------------------------------------------------------------------------------------------------

EXPENSES
Interest                                                       20,306       8,016      8,460
Other                                                             644         205      3,144

---------------------------------------------------------------------------------------------------
     TOTAL EXPENSES                                            20,950       8,221     11,604
---------------------------------------------------------------------------------------------------

     INCOME BEFORE EQUITY IN UNDISTRIBUTED
         EARNINGS OF CONSOLIDATED SUBSIDIARIES
         AND INCOME TAXES                                      21,042      27,676     27,863
Equity in undistributed earnings of
      consolidated subsidiaries                                23,666      15,655      5,139
Income tax benefit                                              5,719       3,341      1,490

---------------------------------------------------------------------------------------------------
     NET INCOME                                              $ 50,427    $ 46,672   $ 34,492
---------------------------------------------------------------------------------------------------

OTHER COMPREHENSIVE INCOME
Unrealized gains on securities
     Unrealized holding gains arising during the
         period, net of taxes of $1,334 in 1997              $  2,477    $     --   $    --
     Consolidated subsidiaries' unrealized holding gains
         arising during the period, net of taxes of $26,558
         in 1997, $7,010 in 1996 and $25,872 in 1995           49,323      13,018     48,046

---------------------------------------------------------------------------------------------------
                                                               51,800      13,018     48,046
---------------------------------------------------------------------------------------------------
     Less reclassification adjustments for gains included
         in net income, net of taxes of $363 in 1997 and
         $501 in 1996                                            (673)       (931)        --
     Less consolidated subsidiaries' reclassification
         adjustments for gains included in net income,
         net of taxes of $5,179 in 1997, $1,254 in 1996
         and $4,183 in 1995                                    (9,619)     (2,327)    (7,769)

---------------------------------------------------------------------------------------------------
                                                              (10,292)     (3,258)    (7,769)

---------------------------------------------------------------------------------------------------
     TOTAL OTHER COMPREHENSIVE INCOME                          41,508       9,760     40,277
---------------------------------------------------------------------------------------------------

     COMPREHENSIVE INCOME                                    $ 91,935    $ 56,432  $  74,769
---------------------------------------------------------------------------------------------------
</TABLE>

                                       46

<PAGE>



18. Markel
    Corporation
    (Parent Company
    Only) Financial
    Information
    (continued)


CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                Years Ended December 31,
------------------------------------------------------------------------------------------------
                                                             1997        1996       1995

------------------------------------------------------------------------------------------------
<S> <C>
                                                                 (dollars in thousands)
OPERATING ACTIVITIES
Net income                                                $ 50,427    $ 46,672   $ 34,492
Adjustments to reconcile net income to net cash
     provided by operating activities                      (15,471)     (3,608)    (3,181)

------------------------------------------------------------------------------------------------
     NET CASH PROVIDED BY OPERATING ACTIVITIES              34,956      43,064     31,311
------------------------------------------------------------------------------------------------


INVESTING ACTIVITIES
Proceeds from sales of fixed maturities
     and equity securities                                   5,918       1,472      3,147
Proceeds from maturities of fixed maturities                 2,047       2,524      1,516
Cost of fixed maturities and equity
     securities purchased                                 (152,551)     (4,030)    (4,626)
Net change in short-term investments                       (17,876)     (3,878)     1,562
Decrease (increase) in notes receivable due
     from subsidiaries                                       1,468      (4,470)    (4,005)
Capital contribution to subsidiaries                        (4,640)         --     (9,500)
Sale (acquisition) of insurance companies                   15,791     (38,050)   (24,281)
Other                                                       (1,424)     (1,263)       (96)

------------------------------------------------------------------------------------------------
     NET CASH USED BY INVESTING ACTIVITIES                (151,267)    (47,695)   (36,283)
------------------------------------------------------------------------------------------------


FINANCING ACTIVITIES
Net proceeds from issuance of 8.71% Junior
     Subordinated Deferrable Interest Debentures          152,763          --          --
Dividends to subsidiaries                                     (51)     (1,080)     (1,080)
Additions to long-term debt                                    --      40,500      27,500
Repayments and repurchases of long-term debt              (21,527)    (32,500)    (21,500)
Repurchase of preferred stock from subsidiaries           (12,000)         --          --
Other                                                      (3,787)     (1,539)        172

-----------------------------------------------------------------------------------------------
     NET CASH PROVIDED BY FINANCING ACTIVITIES            115,398       5,381       5,092
-----------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents             (913)        750        120
Cash and cash equivalents at beginning of year              1,562         812        692

------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                  $   649     $ 1,562    $   812
------------------------------------------------------------------------------------------------
</TABLE>


                                       47

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

INDEPENDENT AUDITORS' REPORT

[kpmg logo]


The Board of Directors and Shareholders
Markel Corporation:

We have audited the accompanying consolidated balance sheets of Markel
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income and comprehensive income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Markel Corporation
and its subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.



                                                       /s/ KPMG Peat Marwick LLP

Richmond, Virginia
February 3, 1998

                                       48

<PAGE>


QUARTERLY INFORMATION

The following table presents the quarterly results of consolidated operations
for 1997, 1996 and 1995 (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>


                                      Mar. 31      June 30     Sept. 30       Dec. 31
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
1997
     Operating revenues              $ 98,473     $ 101,700    $ 110,612    $ 108,262
     Income before income taxes        11,878        12,476       21,039       20,958
     Net income                         8,790         9,722       15,988       15,927
     Comprehensive income               3,082        37,614       32,742       18,497
     Net income per share
         Basic                       $   1.61     $    1.77   $     2.91    $    2.90
         Diluted                         1.56          1.72         2.82         2.81
     Common stock price ranges
         High                        $ 113 1/2    $  131      $   157 1/2   $  161
         Low                            89           102 1/2      127 1/2      144

1996
     Operating revenues              $ 92,990     $  83,672   $   90,367    $  99,707
     Income before income taxes        10,554        10,117       11,144        5,185
     Net income                         7,810        26,090        8,469        4,303
     Comprehensive income              (3,925)       22,740       14,721       22,896
     Net income per share
         Basic                       $   1.44     $    4.81   $     1.56    $    0.79
         Diluted                         1.38          4.61         1.50         0.76
     Common stock price ranges
         High                        $  91        $   94 1/2   $   93       $   92
         Low                            72 1/2        78           85           83

1995
     Operating revenues              $ 76,525     $  82,565    $  91,543    $   92,942
     Income before income taxes         8,838        11,286       12,835        14,968
     Net income                         6,540         8,352        8,984        10,616
     Comprehensive income              19,755        21,585       14,034        19,395
     Net income per share
         Basic                       $   1.21     $    1.54    $    1.66    $     1.96
         Diluted                         1.17          1.49         1.59          1.88
     Common stock price ranges
         High                        $  48 1/4    $   57       $   75 1/2   $    75 1/2
         Low                            40 3/4        47 1/4       56 1/4        67 1/2

</TABLE>

                                       49

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
--------------------------------------------------------------------------------



In 1997 gross premium volume totaled $423.3 million compared to $413.6 million
in 1996 and $402.1 in 1995. Following is a comparison of gross premium volume by
significant underwriting unit (dollars in thousands):

                                                 Years Ended December 31,
--------------------------------------------------------------------------------
GROSS PREMIUM VOLUME                           1997       1996        1995
--------------------------------------------------------------------------------
Excess and Surplus Lines                    $ 130,028   $ 121,356  $ 104,841
Professional/Products Liability               113,704     118,891    127,245
Specialty Program Insurance                    85,645      92,333    102,336
Specialty Personal and Commercial Lines        44,871      64,706     44,456
Brokered Excess and Surplus Lines              45,795       6,809         --
Other                                           3,300       9,511     23,212

--------------------------------------------------------------------------------
     Total                                  $ 423,343   $ 413,606  $ 402,090
--------------------------------------------------------------------------------



Excess and Surplus Lines premiums grew 7% in 1997 to $130.0 million and 16% in
1996 to $121.4 million from $104.8 million in 1995. The 1997 increase was due to
growth in the inland marine, excess and umbrella and Markel special property
programs. The increase in 1996 was the result of growth in casualty premiums due
to the selective renewal of portions of the Lincoln Insurance Company (LIC) book
of business, growth in the Markel special property program, as well as growth in
the excess and umbrella program and the excess and surplus lines (E&S) property
unit. Growth in both years was achieved despite significant competition in the
E&S market.

Premiums from Professional/Products Liability insurance totaled $113.7 million
in 1997 compared to $118.9 million in 1996 and $127.2 million in 1995. In 1997
growth in the employment practices product line was more than offset by lower
production in the directors' and officers' liability, specified medical,
financial institutions and the medical malpractice programs. In 1996 growth in
the employment practices product line was mitigated by lower production in the
medical malpractice and the special risks programs. The decline in both years
was due to continued aggressive competition in the professional liability
markets and changes in risk selection in certain programs.

Premiums from Specialty Program Insurance totaled $85.6 million in 1997 compared
to $92.3 million in 1996 and $102.3 million in 1995. Lower premium volume due to
intense competition in the camp and youth recreation division accounted for the
majority of the decrease in 1997. Also in 1997 the unit began directly placing
all of its workers' compensation business with another insurance carrier. In
1996 premium volume was adversely affected by intense competition and the
nonrenewal of certain underperforming lines of business.

Specialty Personal and Commercial Lines premiums were $44.9 million in 1997
compared to 1996 premiums of $64.7 million and 1995 premiums of $44.5 million.
During 1997 an improved economy helped increase production in the recreational
products division which was more than offset by the discontinuance of two
unprofitable auto insurance programs and a change in the distribution system of
a third auto program for lenders. New programs added in 1996 and 1995, including
several auto related products and property coverage for mobile homes and
dwellings, contributed $43.2 million to 1996 production.


(Premium chart appears here. Plot points are below).
                  Premiums
                (in millions)


                                       1995    1996     1997

gross premium volume                   $402     $414     $423
net premium volume                     $298     $313     $350


                                       50

<PAGE>


Premiums from Brokered Excess and Surplus Lines increased to $45.8 million in
1997 from $6.8 million in 1996. This new underwriting unit was the result of the
purchase of Investors Insurance Holding Corp. (Investors) on October 31, 1996.

Other gross premium volume was $3.3 million in 1997 compared to $9.5 million in
1996 and $23.2 million in 1995. In 1997 other gross premium volume primarily
consisted of facultative reinsurance placed by the Professional/Products
Liability unit. Prior years also included runoff business related to LIC and the
Company's brokerage unit which was sold in the Fall of 1996.

Currently many of the Company's products are being adversely affected by
increased competition and lower rates in the property and casualty market. The
Company does not intend to relax underwriting standards in order to sustain
premium volume. Further, the volume of premiums written may vary significantly
with the Company's decision to alter its product concentration to maintain or
improve underwriting profitability.

The Company enters into reinsurance agreements in order to reduce its liability
on individual risks and enable it to underwrite policies with higher limits. The
Company's net retention of gross premium volume increased to 78% in 1997
compared to 76% in 1996 and 74% in 1995. The increase in 1997 reflected higher
retentions in the Specialty Personal and Commercial Lines unit. In 1996 the
increase was due to a new reinsurance treaty structure in the Specialty Program
Insurance unit.

Total operating revenues increased 14% to $419.0 million in 1997 from $366.7
million in 1996. Operating revenues in 1996 were 7% above the $343.6 million
reported in 1995. In 1997 growth in earned premiums and substantially higher net
investment income and realized gains accounted for the increase in revenues. In
1996 growth in earned premiums and higher net investment income more than offset
lower realized gains from the sales of investments.

Earned premiums advanced 8% to $332.9 million in 1997 and 8% to $307.5 million
in 1996 from $285.1 million in 1995. Following is a comparison of earned
premiums by significant underwriting unit (dollars in thousands):

                                                    Years Ended December 31,
--------------------------------------------------------------------------------
EARNED PREMIUMS                                   1997        1996       1995
--------------------------------------------------------------------------------

Excess and Surplus Lines                      $   84,244  $   76,089 $   70,160
Professional/Products Liability                  102,075     110,154    112,988
Specialty Program Insurance                       67,778      68,906     64,582
Specialty Personal and Commercial Lines           48,622      45,102     25,181
Brokered Excess and Surplus Lines                 30,170       4,957         --
Other                                                (11)      2,245     12,235

--------------------------------------------------------------------------------
     Total                                     $ 332,878   $ 307,453  $ 285,146
--------------------------------------------------------------------------------

                                       51

<PAGE>

     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Excess and Surplus Lines earned premiums rose 11% in 1997 to $84.2 million and
8% in 1996 to $76.1 million from $70.2 million in 1995. Higher gross premium
volume over the past several years accounted for the increases. Premiums earned
from Professional/Products Liability insurance decreased 7% in 1997 to $102.1
million and decreased 3% in 1996 to $110.2 million from $113.0 million in 1995.
The 1997 and 1996 declines resulted from lower gross premium volume over the
past three years as a result of the extremely competitive professional liability
market. Specialty Program Insurance earned premiums decreased 2% to $67.8
million in 1997 and increased 7% to $68.9 million in 1996 from $64.6 million in
1995. The decline in 1997 was due to lower gross premium volume. The growth in
1996 was caused by increased retentions of gross premium volume over the past
several years and growth in gross premiums in 1995. Specialty Personal and
Commercial Lines earned premiums rose 8% in 1997 to $48.6 million and 79% in
1996 to $45.1 million from $25.2 million in 1995. The increase was due to
significant growth in gross premium volume in 1996 and 1995 from new programs as
well as established programs. Premiums earned from Brokered Excess and Surplus
Lines increased in 1997 to $30.2 million from $5.0 million in 1996.

Net investment income increased 34% in 1997 to $68.7 million and 19% in 1996 to
$51.2 million from $43.0 million in 1995. The increase in 1997 reflected the
impact of significant growth in the Company's investment portfolio due to the
acquisition of Investors, the issuance of $150.0 million of 8.71% Capital
Securities in January 1997 and operating cash flows. The 1996 increase reflected
the impact of significant growth in the investment portfolio due to the purchase
of Investors and operating cash flows. Invested assets grew 25% in 1997 to $1.4
billion and 24% in 1996 to $1.1 billion from $908.6 million in 1995.

Net realized gains from the sales of investments totaled $15.8 million in 1997
compared to $5.0 million in 1996 and $12.0 million in 1995. Over the past three
years, the Company has experienced variability in its realized and unrealized
investment gains. The fluctuations are primarily the result of interest rate
volatility which influences the market values of fixed maturity and equity
investments. The Company's investment strategy seeks to maximize total
investment returns over a long-term period. The Company's focus on long-term
total investment returns may result in variability in the level of realized and
unrealized investment gains and losses from one period to the next.

(Investment Earnings chart appears here. Plot points are below).
             Investment Earnings
                (in millions)


                                       1995    1996     1997
[S] [C]
net realized gains                     $ 12     $  5     $ 16
net investment income                  $ 43     $ 51     $ 69
                                      ------    -----  -------
Investment earnings                    $ 55     $ 56     $ 85


Total operating expenses, which included losses and loss adjustment expenses,
underwriting, acquisition and insurance expenses, other operating expenses,
amortization of intangible assets and a nonrecurring item in 1996, were $332.6
million in 1997 compared to $321.7 million in 1996 and $287.2 million in 1995.
Higher variable expenses associated with higher earned premiums accounted for
the majority of the increase in 1997 and 1996. As part of the purchase of
Shand/Evanston in 1987, the Company acquired Shand's headquarters building in
Evanston, Illinois. The estimated fair value of the building had fallen
significantly since 1987 due to escalating property taxes and reduced demand for
office space in Evanston. In response to a purchase offer, the Company decided
to dispose of the building and immediately recognized a $10.4 million,
nonrecurring, non-cash loss in 1996.



                                       52

<PAGE>


The following is a comparison of selected data from the Company's operations
(dollars in thousands):

<TABLE>
<CAPTION>
                                                          Years Ended December 31,
------------------------------------------------------------------------------------------
                                                        1997        1996       1995
------------------------------------------------------------------------------------------
<S> <C>
Gross premium volume                                 $ 423,343   $ 413,606  $ 402,090
Net premiums written                                 $ 329,963   $ 313,459  $ 297,539
Net retention                                               78%         76%        74%
Earned premiums                                      $ 332,878   $ 307,453  $ 285,146
Losses and loss adjustment expenses                  $ 210,061   $ 202,378  $ 186,655
Underwriting, acquisition and insurance expenses     $ 120,076   $ 105,032  $  96,113
Underwriting profit                                  $   2,741   $      43  $   2,378

GAAP RATIOS
Loss ratio                                                  63%         66%        65%
Expense ratio                                               36%         34%        34%

-------------------------------------------------------------------------------------------
     COMBINED RATIO                                         99%        100%        99%
-------------------------------------------------------------------------------------------
</TABLE>


The combined ratio measures the relationship of incurred losses, loss adjustment
expenses and underwriting, acquisition and insurance expenses to earned
premiums. The loss ratio for 1997 decreased to 63% from 66% in 1996 and from 65%
in 1995. The 1997 loss ratio compared favorably to 1996 due to winter storm and
Hurricane Fran property losses and underwriting losses in the professional
liability book of business in 1996. The storm losses and professional liability
underwriting losses in 1996 were also responsible for the increase in the loss
ratio in 1996 compared to 1995. The expense ratio was 36% in 1997 compared to
34% in 1996 and 1995. The 1997 expense ratio increased due to higher policy
acquisition and overhead expenses which were partially offset by contingent
profit commissions from reinsurers. The 1996 expense ratio benefited from the
recognition of contingent profit commissions which offset higher acquisition
costs in several of the Company's recently added lines of business.

Interest expense increased to $20.1 million in 1997 compared to $8.0 million in
1996 and $8.5 million in 1995. The 1997 increase was due to the issuance of the
8.71% Capital Securities in January 1997. The 1996 decrease was due to the
repayment, late in 1995, of the majority of the debt incurred for the purchase
of LIC.

In evaluating its operating performance, the Company focuses on core
underwriting and investing results before consideration of realized gains or
losses from the sales of investments, expenses related to the amortization of
intangible assets and any nonrecurring items. Management believes this is a
better indicator of the Company's performance because it reduces the variability
in results associated with realized gains or losses and also eliminates the
impact of accounting transactions which do not reflect current operating costs.

Income from core underwriting and investing operations advanced to $42.0 million
in 1997 which represented a 23% increase over 1996. In 1996 income from core
operations rose 17% to $33.9 million from $28.9 million in 1995. The 1997 and
1996 increases were due to continued underwriting profitability and higher net
investment income, resulting primarily from larger investment portfolios.



(Earnings from Core Operations chart appears here. Plot points are below).
                  Earnings from Core Operations
                         (per diluted share)


                      1995    1996     1997

                      $5.15   $6.03   $7.43


                                       53

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Net income was $50.4 million in 1997 compared to $46.7 million in 1996 and $34.5
million in 1995. The growth in 1997 was due to substantial increases in net
investment income and realized investment gains. In 1996 growth in net
investment income was partially offset by a decrease in realized investment
gains. Also during 1996, the Company recognized an $18.4 million nonrecurring
tax benefit which was partially offset by the recognition of the building loss
of $6.8 million, net of taxes.

Comprehensive income was $91.9 million in 1997 compared to $56.4 million in 1996
and $74.8 in 1995. The growth in 1997 was due to higher net income and higher
other comprehensive income as a result of increased unrealized holding gains on
equity and fixed maturity securities. The decrease in comprehensive income in
1996 was due to lower other comprehensive income as a result of lower unrealized
holding gains on equity and fixed maturity securities compared to 1995 mitigated
by higher net income.

CLAIMS AND RESERVES
--------------------------------------------------------------------------------

The Company maintains reserves for specific claims incurred and reported,
reserves for claims incurred but not reported (IBNR) and reserves for
uncollectible reinsurance. Reserves for reported claims are based primarily on
case-by-case evaluations of the claims and their potential for adverse
development. Reserves for reported claims consider the Company's estimate of the
ultimate cost to settle the claims, including investigation and defense of
lawsuits resulting from the claims, and may be subject to adjustment for
differences between costs originally estimated and costs subsequently
re-estimated or incurred.

Generally accepted accounting principles require that reserves for claims
incurred but not reported be based on the estimated ultimate cost of settling
claims, including the effects of inflation and other social and economic
factors, using past experience adjusted for current trends and any other factors
that would modify past experience. The Company also evaluates and adjusts
reserves for uncollectible reinsurance in accordance with its collection
experience and the development of the gross reserves.

Ultimate liability may be greater or less than current reserves. In the
insurance industry there is always the risk that reserves may prove inadequate.
Reserves are continually monitored by the Company using new information on
reported claims and a variety of statistical techniques. Anticipated inflation
is reflected implicitly in the reserving process through analysis of cost trends
and the review of historical development. The Company does not discount its
reserves for losses and loss adjustment expenses to reflect estimated present
value.


                                       54

<PAGE>


The following table represents the development of the Company's balance sheet
reserves for the period 1987 through 1997 (in thousands):
<TABLE>
<CAPTION>

                          1987     1988      1989     1990      1991     1992     1993      1994     1995      1996     1997
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net reserves restated
for commutations,
acquisitions and other  $ 486,197  487,445   508,517  511,186  557,736  569,951   598,681  619,776   671,629  725,247   745,752
------------------------------------------------------------------------------------------------------------------------------------

Paid (cumulative)
as of:
One year later             79,318   54,180    65,810   52,545   83,720   95,084   151,413  135,947   124,467  145,736
Two years later           111,929   89,973   116,418  107,209  156,256  217,180   253,418  219,133   227,640
Three years later         140,161  131,899   154,798  160,808  253,424  297,034   307,831  286,926
Four years later          176,442  160,942   194,199  242,670  318,298  331,709   353,325
Five years later          195,152  199,982   258,412  297,914  346,009  361,214
Six years later           230,109  261,185   310,448  320,766  367,636
Seven years later         285,296  312,210   331,842  337,735
Eight years later         335,971  332,622   346,213
Nine years later          355,460  346,002
Ten years later           368,179

Reserves
re-estimated as of:
One year later            498,624  497,389   503,051  506,808  548,147  563,712   596,455  610,983   647,512  699,271
Two years later           495,890  478,047   500,962  494,930  543,085  553,375   582,745  585,849   620,739
Three years later         477,996  475,171   493,615  490,933  529,882  538,126   564,583  563,333
Four years later          486,622  480,335   486,805  479,933  514,165  521,906   559,482
Five years later          495,106  477,506   475,616  464,311  501,265  524,532
Six years later           492,077  466,916   459,264  452,954  507,776
Seven years later         483,339  449,730   448,751  464,268
Eight years later         465,837  441,298   461,379
Nine years later          457,879  454,972
Ten years later           472,782


Cumulative
redundancy             $   13,415   32,473    47,138   46,918   49,960   45,419    39,199    56,443   50,890   25,976
------------------------------------------------------------------------------------------------------------------------------------

Cumulative %                    3%       7%        9%       9%       9%        8%       7%       9%        8%        4%

Gross liability, end of year, restated for acquisitions and other        852,257   853,201   795,745  863,177  925,861   971,157
Reinsurance recoverable, restated for commutations, acquisitions         282,306   254,520   175,969  191,548  200,614   225,405
    and other
------------------------------------------------------------------------------------------------------------------------------------
Net liability, end of year, restated for commutations, acquisitions      569,951   598,681   619,776  671,629  725,247   745,752
    and other
------------------------------------------------------------------------------------------------------------------------------------

Gross re-estimated liability                                             859,187   812,763   740,093  815,523  926,382
Re-estimated recoverable                                                 334,655   253,281   176,760  194,784  227,111

------------------------------------------------------------------------------------------------------------------------------------
Net re-estimated liability                                               524,532   559,482   563,333  620,739  699,271
------------------------------------------------------------------------------------------------------------------------------------
Gross cumulative redundancy (deficiency)                                  (6,930)   40,438    55,652   47,654     (521)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       55

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

The first line of the table shows net reserves for losses and loss adjustment
expenses restated for reinsurer commutations, acquisitions and other items, and
is the result of adding the reserves for losses and loss adjustment expenses as
originally estimated at the end of each year and all prior years to reserves
reassumed through commutations and other activities, including acquisitions,
completed in recent years.

The upper portion of the table shows the cumulative amount paid with respect to
the previously recorded liability as of the end of each succeeding year. The
lower portion of the table shows the re-estimated amount of the previously
recorded reserves based on experience as of the end of each succeeding year,
including cumulative payments made since the end of the respective year. For
example, the 1992 liability for losses and loss adjustment expenses at the end
of 1992 for 1992 and all prior years, adjusted for commutations, acquisitions
and other, was originally estimated to be $570.0 million. Five years later, as
of December 31, 1997, this amount was re-estimated to be $524.5 million, of
which $361.2 million had been paid, leaving a reserve of $163.3 million for
losses and loss adjustment expenses for 1992 and prior years remaining unpaid as
of December 31, 1997.

Cumulative redundancy represents the change in the estimate from the original
balance sheet date to the date of the current estimate. For example, the 1992
liability for losses and loss adjustment expenses developed a $45.4 million
redundancy from December 31, 1992 to December 31, 1997, five years later.
Conditions and trends that have affected the development of liability in the
past may not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on the
table. The gross cumulative redundancies (deficiencies) for 1996 and prior years
are presented before deductions for reinsurance. Gross deficiencies and
redundancies may be significantly more or less than net deficiencies and
redundancies depending on the nature and extent of applicable reinsurance.

The re-estimated reserves for 1987 and prior increased $14.9 million in 1997.
This development was the result of reserve strengthening by management for
environmental impairment liability (EIL) and toxic tort claims. Inherent
volatility in EIL and toxic tort claims and management's desire to maintain
reserves for all lines of business that are more likely redundant than deficient
necessitated the reserve increases.

ENVIRONMENTAL MATTERS
--------------------------------------------------------------------------------

From 1980 to 1985, Shand/Evanston offered EIL insurance to large companies which
generated or transported toxic wastes. The EIL coverage was designed to fill
gaps in an insured's general liability coverage to the extent a gap would have
existed and was offered as a primary policy with an "Other Insurance" clause. To
the extent that other insurance was not valid and collectible, Shand/Evanston's
EIL policy was intended to perform as primary coverage provided that all other
terms and conditions of the policy were met. To the extent that other insurance
was valid and collectible, the policy was intended to perform as excess
coverage. All EIL policies were underwritten on a claims made basis, and in
almost all instances, with policy limits that included the costs of defense and
related expenses. This book of business was reinsured with numerous reinsurers,
and Shand/Evanston's original retentions were less than 5% of policy limits.
Policy limits ranged from $1 million per impairment with $2 million in the
aggregate to $30 million per impairment with $60 million in the aggregate.


                                       56

<PAGE>
--------------------------------------------------------------------------------

Shand/Evanston's defenses in EIL claims have generally been policy specific and
have included defenses of non-disclosure and misrepresentation on policy
applications, policy exclusions including site limitations, late assertion of
claims and the existence of other valid and collectible insurance.

Following is an analysis of the Company's net outstanding reserves for
Shand/Evanston's EIL exposures. Commutations include reinsurer commutations
completed in 1997 as well as changes in reserves related to reinsurer
commutations occurring in earlier years. (dollars in thousands)

                                                    Years Ended December 31,
--------------------------------------------------------------------------------
                                                  1997        1996       1995

--------------------------------------------------------------------------------

Case reserves                                 $      685   $    665   $    579
Case and IBNR reserves reassumed through
     commutations                                 19,653     14,730     13,125

--------------------------------------------------------------------------------
     TOTAL                                    $   20,338   $ 15,395   $ 13,704
--------------------------------------------------------------------------------

Net paid losses and loss adjustment expenses  $    2,905   $  3,616   $ 14,894
--------------------------------------------------------------------------------


Shand/Evanston carried net EIL case and IBNR reserves for losses and loss
adjustment expenses of $20.3 million at December 31, 1997 compared to $15.4
million at December 31, 1996 and $13.7 million at December 31, 1995. The
Company's goal is to close EIL claims as aggressively as reasonably possible.
The increase in 1997 and 1996 reserves was due to development on existing claims
as well as limited new claim activity.

In some cases, the Company may be entitled to subrogation against other primary
insurers. No specific provision for these potential recoveries is made when
establishing loss and loss adjustment expense reserves for EIL. As of December
31, 1997, Shand/Evanston's net retention of case and IBNR reserves related to
EIL was approximately 81% of gross EIL case and IBNR reserves.

Inception to date net paid losses and loss adjustment expenses for EIL related
exposures totaled $117.9 million at December 31, 1997, of which approximately
$9.9 million was litigation related expense.

There were 10 active site exposures related to EIL at December 31, 1997 and
December 31, 1996 compared to 9 active site exposures at December 31, 1995. The
10 active site exposures at December 31, 1997 represented 10 insureds.
Management believes future exposure to valid claims is limited because coverage
was afforded on a claims made basis.

Shand/Evanston's exposure to toxic tort related claims originated from umbrella,
excess and commercial general liability (CGL) insurance it underwrote on an
occurrence basis from the late 1970's to mid-1980's. The majority of the
policies attach over a self-insured retention, deductible or other insurance.
This book of business was reinsured with numerous reinsurers, and
Shand/Evanston's original retention was less than 5% of policy limits. Policy
limits ranged from $125,000 to $30 million. Toxic tort claims include property
damage and clean-up related to pollution, as well as personal injury allegedly
arising from exposure to hazardous materials. After 1986 Shand/Evanston
underwrote CGL coverage using a claims made form which included a pollution
exclusion that significantly reduced its exposure to toxic tort claims.

                                       57

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


Insurance coverage issues and other uncertainties have made the estimation of
reserves for toxic tort exposures difficult. The outcome of legal actions to
determine general liability coverages related to toxic tort issues has been
inconsistent among the states with respect to whether insurance coverage exists
at all, what policies provide the coverage, when and if an insurer has a duty to
defend, whether the release of contaminants is one or more "occurrence" for
purposes of determining applicable policy limits, how pollution exclusions in
policies should be applied and whether clean-up costs constitute property
damage. Regulatory requirements regarding environmental matters are also
inconsistent and change frequently.

Following is an analysis of the Company's net outstanding reserves for
Shand/Evanston's toxic tort exposures. Commutations include reinsurer
commutations completed in 1997 as well as changes in reserves related to
reinsurer commutations occurring in earlier years. (dollars in thousands)

                                                    Years Ended December 31,
--------------------------------------------------------------------------------
                                                  1997        1996       1995

--------------------------------------------------------------------------------

Case reserves                                    $  1,660    $  1,782   $  2,197
IBNR reserves                                       2,147       1,354      1,589
Case and IBNR reserves reassumed through
     commutations                                  50,280      37,751     44,636

--------------------------------------------------------------------------------
     TOTAL                                       $ 54,087    $ 40,887   $ 48,422
--------------------------------------------------------------------------------

Net paid losses and loss adjustment expenses     $  8,152    $ 10,849   $  1,504
--------------------------------------------------------------------------------


Shand/Evanston carried net toxic tort case and IBNR reserves for losses and loss
adjustment expenses of $54.1 million at December 31, 1997 compared to $40.9
million at December 31, 1996 and $48.4 million at December 31, 1995. The
increase in net toxic tort reserves in 1997 was due to reserve strengthening by
management. The decrease in net toxic tort reserves in 1996 was due to claims
payments partially offset by increases due to commutations with reinsurers and
adverse development in the underlying exposures. As of December 31, 1997,
Shand/Evanston's net retention of case and IBNR reserves related to toxic torts
was approximately 87% of gross toxic tort case and IBNR reserves.

Inception to date net paid losses and loss adjustment expenses for toxic tort
related exposures totaled $27.4 million, of which approximately $2.5 million was
litigation related expense.

During 1997 and 1996 the Company paid $3.8 million and $7.4 million,
respectively, for breast implant product liability claims. The exposure had been
fully reserved in prior years. At December 31, 1997, the Company has either paid
or fully reserved all of its breast implant product liability exposure.

There were 165 open claims related to toxic torts at December 31, 1997 compared
to 210 at December 31, 1996 and 249 at December 31, 1995. Of the toxic tort
claims open at December 31, 1997, approximately 10% were products liability
asbestos or related claims. The average severity of toxic tort claims is
substantially lower than the average severity of EIL claims.

The Company's reserves for losses and loss adjustment expenses related to EIL
and toxic tort exposures represent management's best estimate of ultimate
settlement values. These reserves

                                       58

<PAGE>

--------------------------------------------------------------------------------

are continually monitored by management, and the Company's statistical analysis
of these reserves is reviewed by independent consulting actuaries. In addition,
the Company continues to maintain unallocated IBNR reserves to further mitigate
the impact of adverse development, if any, in these and other reserves.

During 1997 the Company sold LIC with the Company retaining all of LIC's loss
reserves and related assets including LIC's rights to indemnity from the former
owners of LIC.The former owners of LIC have indemnified the Company against
adverse development of losses and loss adjustment expenses and uncollectible
reinsurance, if any, in an amount up to the Company's purchase price for LIC of
approximately $24 million. This indemnification covers all of LIC's reserves,
including environmental matters. At December 31, 1997, case and IBNR reserves
for toxic tort claims attributable to LIC were $6.9 million.

Exposures of these types are generally subject to significant uncertainty due to
potential severity and an uncertain legal climate. Reserves for these types of
claims could be subject to increases in the future; however, these reserves have
been established in accordance with the Company's desire to have reserves of all
types that are more likely redundant than deficient.


LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------

The Company seeks to maintain prudent levels of liquidity and financial leverage
for the protection of its policyholders, creditors and shareholders. The
Company's targeted capital structure is approximately one-third debt to
two-thirds equity. At December 31, 1997, the Company's debt to total capital
ratio was 28%. In calculating its debt to total capital ratio, the Company
treats the 8.71% Capital Securities as one-half debt and one-half equity. From
time to time, the Company's debt to total capital ratio may increase due to
business opportunities that may be financed in the short term with debt.

In order to maintain strong liquidity, the Company seeks to maintain cash,
short-term investments and fixed maturities of approximately two times annual
interest expense at its holding company (Markel Corporation). At December 31,
1997, $165.7 million of cash, short-term investments and fixed maturities were
held at Markel Corporation which approximated 8.2 times annual interest expense.
The Company is holding the proceeds of the 8.71% Capital Securities offering at
the holding company until the funds can be invested for the long term.

The Company's insurance operations collect premiums and pay current claims,
reinsurance costs and operating expenses. Premiums collected and positive cash
flow from the insurance operations are invested primarily in short-term
investments and long-term bonds. Short-term investments held by the Company's
insurance subsidiaries provide liquidity for projected claims, reinsurance costs
and operating expenses.

As a holding company, the Company receives cash from its subsidiaries as
reimbursement for operating and other administrative expenses it incurs. The
reimbursements are executed within the guidelines of various management
agreements between the holding company and its subsidiaries.


                                       59

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


The holding company has historically relied upon dividends from its subsidiaries
to meet debt service obligations. Under the insurance laws of the various states
in which the Company's insurance subsidiaries are incorporated, an insurer is
restricted in the amount of dividends it may pay without prior approval of
regulatory authorities. Pursuant to such laws, at December 31, 1997, the
Company's insurance subsidiaries could pay dividends of $45.6 million without
prior regulatory approval.

The Company's invested assets increased to $1.4 billion at December 31, 1997
from $1.1 billion at December 31, 1996. The increase in invested assets was due
to the issuance of $150.0 million of 8.71% Capital Securities in January 1997,
the increase in the market value of the Company's fixed maturity and equity
investments and operating cash flows.

          (Invested Assets chart appears here. Plot points are below)
                                Invested Assets
                                 (in millions)

                                1995    1996    1997

                                $909   $1,131  $1,408

Long-term debt decreased to $93.2 million at December 31, 1997 from $114.7
million at December 31, 1996. During 1997 the Company repurchased $6.55 million
of its 7.25% notes. In 1996 the Company arranged a revolving credit facility
which provides up to $150.0 million of funds for working capital and other
general corporate purposes. As of December 31, 1997, there was no outstanding
balance under the revolving credit facility as compared to $15.0 million
outstanding at December 31, 1996.

In January 1997 the Company arranged the sale of $150.0 million of 8.71% Capital
Securities issued by Markel Capital Trust I, a statutory business trust
sponsored by Markel Corporation. Proceeds from the sale of the Capital
Securities were used to purchase the Company's 8.71% Junior Subordinated
Deferrable Interest Debentures due January 1, 2046. The Capital Securities and
related Debentures are redeemable by the Company on or after January 1, 2007.

The Company's insurance operations require capital to support premium writings.
The National Association of Insurance Commissioners (NAIC) developed a model law
and risk-based capital formula designed to help regulators identify P&C insurers
that may be inadequately capitalized. Under the NAIC's requirements, an insurer
must maintain total capital and surplus above a calculated threshold or face
varying levels of regulatory action. The capital and surplus at December 31,
1997 of each of the Company's insurance subsidiaries was above the minimum
regulatory threshold.

OTHER MATTERS
--------------------------------------------------------------------------------


The Year 2000 issue affects virtually all companies and organizations. Many
companies have existing computer applications which use only two digits to
identify a year in the date field. These applications were designed and
developed without considering the impact of the change of the century. If not
corrected these computer applications may fail or create erroneous results by
the year 2000.

The majority of the Company's material applications have been developed within
the past several years, and the Company considered the Year 2000 issue during
system development. The Company has implemented a due diligence plan to test all
of its material systems for Year 2000 compliance. It is anticipated that all
systems will be reviewed for compliance, and any necessary modification to
applications will be completed by the end of 1998. In addition the Company is
conducting a comprehensive review of its business practices to limit its
exposure to Year 2000 claims from insureds and protect itself from potential
Year 2000 problems experienced by its business partners. The Company does not
expect the cost of external or


                                         60

<PAGE>


internal resources used to address Year 2000 compliance to be material to the
Company's results of operations or financial position.

IMPACT OF INFLATION
--------------------------------------------------------------------------------

Property and casualty insurance premiums are established before the amount of
losses and loss adjustment expenses, or the extent to which inflation may affect
such expenses, is known. Consequently, in establishing premiums, the Company
attempts to anticipate the potential impact of inflation. Inflation is also
considered by the Company in the determination and review of reserves for losses
and loss adjustment expenses since portions of these reserves are expected to be
paid over extended periods of time. The importance of continually reviewing
reserves is even more pronounced in periods of extreme inflation.

IMPACT OF ACCOUNTING STANDARDS
--------------------------------------------------------------------------------

In June 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 is effective for years
beginning after December 15, 1997. This standard supersedes SFAS No. 14 and
establishes new disclosure requirements about products and services, geographic
areas and major customers on an annual and quarterly basis. The standard
requires companies to disclose qualitative and quantitative segment data on the
basis that is used by management for evaluating segment performance and deciding
how to allocate resources. The Company is currently evaluating what its
meaningful reporting segments will be under SFAS No. 131.



                                       61

<PAGE>


     Markel Corporation & Subsidiaries
     ---------------------------------------------------------------------------

MARKET AND DIVIDEND INFORMATION
--------------------------------------------------------------------------------



Effective June 11, 1997, the Company's common stock began trading on the New
York Stock Exchange under the symbol MKL. Prior to that time, the Company's
stock traded in the NASDAQ stock market under the symbol MAKL. The number of
shareholders of record as of January 31, 1998 was 473. The total number of
shareholders, including those holding shares in "street name" or in brokerage
accounts is estimated to be in excess of 3,500. The Company's current strategy
is to retain earnings, permitting the Company to take advantage of expansion and
acquisition opportunities. Consequently, the Company has never paid a cash
dividend on its common stock.

NASDAQ quotations through June 10, 1997 reflect a high sales price of $124.00
and a low sales price of $89.00. High and low closing sales prices as reported
on the New York Stock Exchange composite tape for the remainder of the year were
$161.00 and $122.00, respectively. See "Quarterly Information" on page 49 for
additional quarterly sales price information.

SHAREHOLDER RELATIONS, FORM 10-K
--------------------------------------------------------------------------------

This document represents Markel Corporation's Annual Report and Form 10-K which
is filed with the Securities and Exchange Commission.

Information about Markel Corporation, including exhibits filed as part of this
Form 10-K, may be obtained by writing Mr. Bruce Kay, Vice President-Investor
Relations, at the corporate offices, or by calling (800) 446-6671.

ANNUAL SHAREHOLDERS' MEETING
--------------------------------------------------------------------------------

Shareholders of Markel Corporation are invited to attend the Annual Meeting to
be held at The Jefferson Hotel, Franklin and Adams Streets, Richmond, Virginia
at 4:30 p.m., May 19, 1998.

TRANSFER AGENT
--------------------------------------------------------------------------------

First Union National Bank
Shareholder Services Group-1153
1525 West W.T. Harris Boulevard 3C3
Charlotte, North Carolina 28288-1153
(800) 829-8432

CORPORATE OFFICES
--------------------------------------------------------------------------------

Markel Corporation
4551 Cox Road
Glen Allen, Virginia 23060
(804) 747-0136
(800) 446-6671

                                       62

<PAGE>


     ---------------------------------------------------------------------------

DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS
--------------------------------------------------------------------------------



Alan I. Kirshner
Chairman of the Board and Chief Executive Officer

Leslie A. Grandis
Partner
McGuire Woods Battle & Boothe, LLP

Stewart M. Kasen
Private Investor

Anthony F. Markel
President and Chief Operating Officer

Gary L. Markel
President
Gary Markel & Associates, Inc.

Steven A. Markel
Vice Chairman

Darrell D. Martin
Executive Vice President and Chief Financial Officer

V. Prem Watsa
Principal
Hamblin Watsa Investment Counsel Ltd.

EXECUTIVE OFFICERS
--------------------------------------------------------------------------------

Alan I. Kirshner
Chairman of the Board and Chief Executive Officer since 1986. He served as
President from 1979 until March of 1992 and has been a Director of the Company
since 1978. Age 62.

Anthony F. Markel
President and Chief Operating Officer since March of 1992. He served as
Executive Vice President from 1979 until March of 1992 and has been a Director
of the Company since 1978.
Age 56.

Steven A. Markel
Vice Chairman since March of 1992. He served as Treasurer from 1986 to August of
1993, and Executive Vice President from 1986 to March of 1992 and has been a
Director of the Company since 1978. Age 49.

Darrell D. Martin
Executive Vice President and Chief Financial Officer since March of 1992. He
served as Chief Financial Officer from 1988 to March of 1992 and has been a
Director of the Company since January 1991. Age 49.

<PAGE>


APPENDIX

MARKEL CORPORATION ANNUAL REPORT ON FORM 10-K
Statement of Differences


1.       The pages in the electronic filing do not correspond to the pages in
         the printed document because there is more material on each page of the
         printed document. The printed Annual Report and Form 10-K also contains
         numerous charts, graphs and pictures not incorporated into the
         electronic Form 10-K.

2.       The information on pages 64 and 65 of the printed document, i.e. the
         10-K cover sheet and Index and Cross References, have been repositioned
         on pages 1 and 2 of the electronic document for ease of reference.

3.       The information on pages 24 and 25 of the printed document, i.e. the
         Selected Financial Data has been repositioned over 3 consecutive pages
         of the electronic document for ease of use. The footnotes to the
         Selected Financial Data are meant to apply to all three pages of the
         electronic document.


<PAGE>





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

MARKEL CORPORATION

By: Steven A. Markel
   -------------------
    Vice Chairman
    March 27, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Signatures            Title

Alan I. Kirshner*,    Chief Executive Officer and Chairman of the
------------------    Board of Directors

Anthony F. Markel*,   President, Chief Operating Officer and
------------------    Director

Steven A. Markel*,    Vice Chairman and Director
-----------------

Darrell D. Martin*,   Executive Vice President, Chief Financial Officer
-----------------     and Director (Principal Accounting Officer)

Leslie A. Grandis*,   Director
------------------

Stewart M. Kasen*,    Director
------------------

Gary L. Markel*,      Director
------------------

V. Prem Watsa*,       Director
------------------

*Signed as of March 27, 1998.


<PAGE>

Index to Exhibits
3 (i) Amended and Restated Articles of Incorporation, as amended (3.1)a

3 (ii) Bylaws, as amended (3.2)b

4 The registrant hereby agrees to furnish to the Securities and Exchange
Commission a copy of all instruments defining the rights of holders of long-term
debt of the registrant and subsidiaries shown on the Consolidated Balance Sheet
of registrant at December 31, 1997, and the respective Notes thereto, included
in this Annual Report on Form 10-K.

Management Contracts or Compensatory Plans required to be filed
(Items 10.1 -- 10.7)

10.1 Markel Corporation 1986 Stock Option Plan as amended (4(d))c

10.2 Markel Corporation 1989 Non-Employee Directors Stock Option Plan (A)d

10.3 Markel Corporation 1993 Incentive Stock Plan (10.3)e

10.4 Executive Employment Agreement between Markel Corporation and Alan I.
Kirshner dated as of October 1, 1991 (10.5)f

10.5 Executive Employment Agreement between Markel Corporation and Anthony F.
Markel dated as of October 1, 1991 (10.6)f

10.6 Executive Employment Agreement between Markel Corporation and Steven A.
Markel dated as of October 1, 1991 (10.7)f

10.7 Executive Employment Agreement between Markel Corporation and Darrell D.
Martin dated as of March 1, 1992 (10.8)f

10.8(a) Lease Agreement dated July 21, 1995 between Prudential Insurance Company
of America and Registrant related to premises located at 4551 Cox Road, Glen
Allen, Virginia (10.9a) g

10.8(b) Lease Agreement dated July 21, 1995 between Prudential Insurance Company
of America and Registrant related to premises located at 4600 Cox Road, Glen
Allen, Virginia (10.9b)g

21 Subsidiaries of Markel Corporation (21)h

23 Consent of independent auditors to incorporation by reference of certain
reports into the Registrant's Registration Statements on Form S-8.

27 Financial Data Schedule

a. Incorporated by reference from the exhibit shown in parentheses filed with
the Commission in the Registrant's 1990 Form 10-K Annual Report

b. Incorporated by reference from the exhibit shown in parentheses filed with
the Commission in the Registrant's 1992 Form 10-K Annual Report

c. Incorporated by reference from the exhibit shown in the parentheses filed
with the Commission on May 25, 1989 in the Registrant's Registration Statement
on Form S-8 (Registration No. 33-28921)

d. Incorporated by reference from the exhibit shown in parentheses filed with
the Commission in the Registrant's Proxy Statement for the Annual Meeting of
Shareholders held on May 15, 1989, as filed with the Commission

e. Incorporated by reference from the exhibit shown in parentheses filed with
the Commission in the Registrant's 1994 Form 10-K Annual Report

f. Incorporated by reference from the exhibit shown in the parentheses filed
with the Commission in the Registrant's 1991 Form 10-K Annual Report

<PAGE>

Markel Corporation & Subsidiaries

g. Incorporated by reference from the exhibit shown in parentheses filed with
the Commission in the Registrant's 1995 Form 10-K Annual Report

h. Incorporated by reference from the exhibit shown in parentheses filed with
the Commission in the Registrant's 1996 Form 10-K Annual Report.