<PAGE>

                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, 1999

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

4521 Highwoods Parkway, Glen Allen, Virginia 23060-6148 (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
amendment to this Form 10-K . [ ]

The aggregate market value of the shares of the registrant's Common Stock held
by non-affiliates as of January 31, 2000 was approximately $657,842,048.

The number of shares of the registrant's Common Stock outstanding at January 31,
2000: 5,597,789.

                       Documents Incorporated By Reference

The portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on May 24, 2000, referred to in Part III.

               Index and Cross References-Form 10-K Annual Report
Item No.                                                                 Page

Part I
1.  Business                                                            10-21
1a. Executive Officers of the Registrant                                   66
2.  Properties (note 5)                                                 33-34
3.  Legal Proceedings (note 15)                                            42
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                                 65
6.  Selected Financial Data                                             22-23
7.  Management's Discussion and Analysis
    of Financial Condition and Results of
    Operations                                                          51-64
7a. Qualitative and Quantitative
    Disclosures About  Market Risk                                      60-63
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*

* Items Number 10,11,12, and 13 will be incorporated by reference from the
Registrant's 2000 Proxy Statement pursuant to instructions G(1) and G(3) of the
General Instructions to Form 10-K.

Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    a. Documents filed as part of this Form 10-K
<PAGE>

Markel Corporation & Subsidiaries
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Item No.                                                                 Page

     (1) Financial Statements

         Consolidated Balance Sheets at
         December 31, 1999 and 1998                                        24
         Consolidated Statements of Income
         and Comprehensive Income for the
         Years Ended December 31, 1999,
         1998, and 1997                                                    25
         Consolidated Statements of
         Changes in Shareholders' Equity
         for the Years Ended December 31,
         1999, 1998, and 1997                                              26
         Consolidated Statements of Cash
         Flows for the Years Ended
         December  31, 1999, 1998,
         and 1997                                                          27
         Notes to Consolidated Financial
         Statements for the Years Ended
         December 31, 1999, 1998, and 1997                              28-48
         Independent Auditors' Report                                      49
     (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) See Index to Exhibits for a list of
         Exhibits filed as part of this report

b.   Reports on Form 8-K. On November 16, 1999, the Company filed an amended
     report on Form 8-K/A, reporting under Item 2 and Item 7 the acquisition of
     Gryphon Holdings, Inc. and subsidiaries.

     The following financial statements of Gryphon Holdings, Inc. were filed as
     part of the Form 8-K/A:

     Independent Auditors' Report
     Consolidated Balance Sheets as of December 31, 1997 and 1996

     Consolidated Statements of Income for the Years Ended December 31, 1997,
     1996 and 1995

     Consolidated Statements of Stockholders' Equity for the Years Ended
     December 31, 1997, 1996 and 1995

     Consolidated Statements of Cash Flows for the Years Ended December 31,
     1997, 1996 and 1995

     Notes to Consolidated Financial Statements

     Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997
     (Unaudited)

     Consolidated Statements of Income for the Nine Months Ended September 30,
     1998 and 1997 (Unaudited)

     Consolidated Statements of Cash Flows for the Nine Months Ended
     September 30, 1998 and 1997 (Unaudited)

     Notes to Consolidated Financial Statements (Unaudited)

c.   See Index to Exhibits and Item 14a(3)
d.   See Index to Financial Statements and Item 14a(2)

2
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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.

                                                                               3
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                               [LOGO OF MARKEL]


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                                     1999


TO OUR BUSINESS PARTNERS

     We measure our success in building shareholder value by focusing on growth
in book value per share over the long term. Book value per share declined 11% to
$68.59 due to disappointing investment results. In spite of that, 1999 was a
very good year overall. Our core underwriting results remained exceptionally
good at virtually every operating division in the Company. This is a real
tribute to our underwriters given the very difficult market conditions they
faced. Additionally, we should remember that over the past five years we
compounded book value per share at a 22% annual rate. While it would be pleasant
to report consistently improving results, it would be unrealistic given the
nature of our business. Insurance and financial markets are volatile by nature
and the volatility itself creates significant business opportunities for Markel.

     The year also included the acquisition and amalgamation of Gryphon as well
as the announcement of the plan to acquire Terra Nova (Bermuda) Holdings, Ltd.
and the agreement to acquire the renewal rights to Acceptance Insurance
Companies' Scottsdale business. Despite the setback in our book value growth
during 1999, we believe we continued to build the intrinsic value of the company
and positioned ourselves to take advantage of even more opportunities in the
future.

1999 Financial Review

     After several years of very modest growth, operating revenues increased 23%
to $524 million in 1999. While the acquisition of Gryphon was responsible for
the largest part of this increase, in the closing months of the year we saw
significant increases in written premiums in virtually every line of business.
In the fourth quarter, excluding the Gryphon acquisition, written premiums
increased 26%. This is a very positive sign and we are certainly hopeful it will
continue.

     Earned premiums increased 31% to $437 million and we had a small
underwriting loss with a combined ratio of 101%. This was the result of
excellent performance from almost every operating division enabling us to
partially offset the costs associated with acquiring Gryphon. Our core business
units enjoyed a combined ratio of 96% exclusive of the Gryphon business. This is
truly excellent performance and compares favorably to our 1998 combined ratio of
98%.

     Net investment income increased 23% to $88 million primarily due to the
growth in the investment portfolio as a result of the Gryphon acquisition. In
the fourth quarter, to create tax savings, we realized $10 million in investment
losses. At the same time we replaced the bonds sold with bonds of similar
quality and duration. As a result, we reported $1 million in net losses from the
sale of investments in 1999 as compared to $21 million in realized gains in
1998.

4
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HIGHLIGHTS

FINANCIAL HIGHLIGHTS
(in millions, except per share data)          1999         1998        1997
-------------------------------------------------------------------------------

Gross premium volume                        $   595      $   437     $   423
Net written premiums                            428          344         330
Earned premiums                                 437          333         333
Net income                                       41           57          50
Comprehensive income (loss)                     (40)          68          92
GAAP combined ratio                             101%          98%         99%

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

Total investments                           $ 1,623      $ 1,481     $ 1,408
Total assets                                  2,455        1,921       1,870
Long-term debt                                  168           93          93
8.71% Capital Securities                        150          150         150
Shareholders' equity                            383          425         357
Debt to total capital                            35%          25%         28%

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

PER SHARE DATA
Common shares outstanding (in thousands)      5,590        5,522       5,474
Net income (diluted)                        $  7.20      $ 10.17     $  8.92
Total investments                           $290.36      $268.22     $257.27
Book value                                  $ 68.59      $ 77.02     $ 65.18
Growth in book value                            (11%)         18%         33%

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


OPERATING HIGHLIGHTS

 .    Combined ratio of 96% in core underwriting units, consolidated combined
     ratio of 101% due to Gryphon discontinued programs

 .    Book value per share decreased 11% to $68.59, five year compound annual
     growth rate of 22%

 .    Successful integration of Gryphon continuing programs into core
     underwriting units

 .    Announced planned acquisition of Terra Nova (Bermuda) Holdings, Ltd.


                                    [GRAPH]

     Net Income               Total Investments        Book Value Per Share

1989    1994    1999        1989    1994    1999       1989    1994    1999
----    ----    ----        ----    ----    ----       ----    ----    ----
   $ in millions               $ in millions              $ per share

 14      19      41          66      612    1,623      11.69   25.71   68.59

                                                                              69
<PAGE>

                 The brightest spot of the year was the outstanding underwriting
                         performance of our core insurance company subsidiaries.


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

     Net income was $41 million compared to $57 million last year. Earnings per
share were $7.20 on a diluted basis compared to $10.17 last year. As a result of
the reduction in the market value of our invested assets, we had a comprehensive
loss of $40 million compared to comprehensive income last year of $68 million.
Shareholders' equity declined 11% to $383 million, or $68.59 per share.

Excellent Results From Core Underwriting Businesses

     The brightest spot of the year was the outstanding underwriting performance
of our core insurance company subsidiaries, which produced an enviable 96%
combined ratio in spite of another year of intense, irrational competition. This
is clear testimony to our straightforward and continuous focus on underwriting
profits and the unwavering dedication of our associates to that goal.

     The Excess and Surplus Lines units, Essex (Excess and Surplus Lines),
Evanston (Professional and Products Liability) and Investors (Brokerage Excess
and Surplus Lines) generated a 94% combined ratio while showing some solid,
well-controlled growth.

     Essex volume grew to $186 million from $122 million as a result of the
smooth assumption of the Gryphon DIC property book and moderate increases in
their other core lines--property, casualty, inland marine and ocean marine.
Steve Vaccaro, President of Essex, and his troops continue to produce results
that are the envy of the industry.

     Evanston, led by continued increases in its Employment Practices Liability
volume, along with the addition of a book of Errors and Omissions business
acquired as a part of the Gryphon transaction, grew to $154 million from $124
million. In addition, they successfully experimented with some creative new
production sources. At year end, Mike Rozenberg accepted sole responsibility for
this subsidiary, as a result of Paul Springman's promotion to President,
Markel--North America. Mike has been Paul's partner in the management of
Evanston for over eight years, so the transition will be completely seamless.

     In October, Jeremy Cooke, President of Investors, accepted the Chief
Operating Officer role of Terra Nova, passing the mantle of leadership on to Rod
Ayer, previously Senior Vice President. Under the combined leadership of Jeremy
and Rod, Investors put impressive numbers together exhibiting both a volume
increase ($85 million from $65 million) and a gratifying underwriting profit.

     The Specialty Admitted subsidiaries, Markel Insurance Company (Specialty
Programs) and Markel American Insurance Company (Specialty Personal and
Commercial Lines), made notable strides in both size and profitability during
1999 as the combined ratio improved to 101% from 102% in 1998 and 110% in 1997.

     Markel Insurance Company, which has historically produced outstanding loss
ratios, aggressively attacked its expense ratio through a combination of
significant expense reductions, a new corporate structure with emphasis on sales
and marketing, and some creative new product experimentation. We are comfortable
that Britt Glisson and his energized staff will significantly contribute to the
underwriting profits this year and for many years to come.

     Markel American Insurance Company, now led by Timberlee Grove, who was
promoted to President in August 1999, also had an outstanding year of growth and
profitability. Their operation, bolstered by the acquisition in April 1999 of a
book of yacht business, grew to $50 million in volume. They also completed the
transition to a completely autonomous unit with all product underwriting and
support services under the same roof in Pewaukee, Wisconsin.

     As important as acquisitions have been, and will continue to be, we could
not expand our horizons without the knowledge and comfort that our core
operations are well managed and will continue to produce the outstanding results
that we have come to expect. We are fortunate and extremely grateful to have
this talented, motivated group of associates.

Investment Philosophy and Results

     Our fixed income portfolio, the largest part of our investment portfolio,
has a duration that ranges between 4 and 5 years. At the beginning of 1999 we
were earning a tax equivalent yield of approximately 6.1%. By year-end, this
yield increased to 7.1%. This rise in yield caused a decline in the value of our
portfolio. Unrealized gains

                                                                               5
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                               [LOGO OF MARKEL]

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                                    1999


declined $67.3 million and we realized losses of $13.7 million. This market
value decline was about 6% and almost completely offset our return from the
investment income of 6.9%, resulting in a total return on our fixed income
portfolio of only .9%.

     Changes in interest rates cause changes in book value, which can be extreme
in any particular year. However, over a longer period of time, the fluctuations
in value related to interest rate movements tend to have only a modest impact on
our results. This is why we prefer to measure our performance over five year
periods. Additionally, the duration of our fixed income portfolio is
conservatively matched to the duration of our liabilities and is well within a
reasonable tolerance for interest rate risk.

     We believe that in the long term we can significantly enhance shareholder
value by allocating significant investment funds to common equities. We do not
think about risk in the context of short-term volatility but rather in the
context of a permanent loss of capital. We buy shares of companies where we
believe the business will earn good returns on capital and which are being run
by honest and talented, shareholder oriented managers who are building the value
of the enterprise. We expect to share in the increased value of the business
over the long term. (We hope you, as a shareholder of Markel, have a similar
view with regard to your investment.) Our result in equity investing was
disappointing in 1999. In most cases we are pleased with the companies we have
selected and believe the business fundamentals are sound even though stock
market prices have suffered.

     We concentrate our equity portfolio in relatively few securities. At
year-end our top five positions represented over 32% of our portfolio and the
top 20 represented 71%. While diversification might reduce short-term
volatility, we do not believe it maximizes long-term total return. We believe we
can earn the best returns by concentrating our focus and our portfolio in
promising areas where we have the best understanding and knowledge. In 1999 our
concentration in other insurance stocks contributed to our disappointing
results, and our failure to invest in the red hot portions of the NASDAQ market
prevented us from enjoying the well advertised, but narrowly based, returns of
the bull market.

     In 1999 our total return on equity investing was a loss of 10%. This
compares very unfavorably to the major indexes, which include the Dow Jones
Industrial Average (up 25%), the S&P 500 (up 20%) and the NASDAQ Index (up 86%).
Over the past five years our performance in equities was up an average of 14%,
and for the past ten years 13%. These results are obviously much better than
1999 and are

6
<PAGE>

                                                 We invest with a serious regard
                                                        for the risks we assume.


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results which we believe will in fact be more like our long-term performance in
the future. In managing equity investments, we do not seek to match or beat any
specific market index. In addition to selecting individual businesses with good
returns on capital as well as honest and talented management, we seek to invest
at prices that allow for some margin of safety for our inevitable mistakes in
judgement about those attributes. Our goal as investors, rather than traders, is
to earn returns similar to those intrinsically earned by the companies
themselves in the course of conducting their business. We invest in the equity
markets because over time we expect to earn more than we would earn by investing
in the fixed income market, always attempting to do so without taking on
significant risks of permanent loss of capital.

     We have avoided the technology sector due to our view that many of the
businesses represented by the stocks that might be exciting trading vehicles
were not clearly businesses with sufficiently durable returns on capital,
management attributes, and reinvestment opportunities to qualify for what we
seek in equity investments. While you as a shareholder may be justifiably
unhappy about the opportunities that have passed us by so far, we think you may
also someday appreciate the fact that we have not put any of your capital at
risk in stocks with valuations that make ownership an extremely high risk
proposition. The seesaw of risk versus reward has been all focused on the reward
side with too little regard for risk. We invest with a serious regard for the
risks we assume.

Acquisition of Gryphon

     In January 1999 we completed the acquisition of Gryphon. This purchase was
intended to provide profitable premium volume as well as investment
opportunities at a reasonable cost. In the first year of this transaction we
believe we are very much "on schedule as planned," however it remains too early
to proclaim the deal a success.

     Our first goal was to acquire profitable premium volume. We completed our
re-underwriting and currently expect the acquired business to contribute about
$70 million in gross written premium in the year 2000. We also expect this
business to generate underwriting profits. This premium forecast is slightly
short of our original goal of $80 to $100 million.

     A second goal was to re-underwrite and discontinue the unprofitable lines
of business as quickly as possible. We completed this very effectively as we
eliminated all of the business that we believed caused problems for Gryphon. The
underwriting loss on this run-off business was somewhat higher than we
originally estimated, however, this cost is now behind us.

     Another goal was to increase our investment leverage. With the addition of
$300 million to our portfolio, this goal was achieved. Because interest rates
increased throughout the year, we did not earn the returns we anticipated on
this portfolio, however the investments are productive and will be with us for
years to come.

     The acquisition price of Gryphon was $146 million. Because a majority of
the business is being transferred to other Markel business units, we have sold
as licensed shells some of our insurance companies to recapture as much of our
capital investment as possible. We sold the Calvert Insurance Company for $22
million in August 1999 and although not directly related to Gryphon, sold
Investors Insurance Company as a shell for $54 million in January 2000. These
transactions effectively enable us to re-allocate $76 million in capital. In
addition, the gain on Calvert reduced goodwill by $6 million and the sale of
Investors will represent a gain of $8 million.

     Our final objective is to manage the claims process in an effective manner
and to maintain appropriate loss reserves for our outstanding exposures. In last
year's report we said that we believed the Gryphon reserves were adequate but
not with the margin of safety we would prefer. To date we have made a great deal
of progress in evaluating, reserving and settling the outstanding claims. As
might be expected, there have been some areas where we have had good news and
some where we have been disappointed. Unfortunately, we had to deal with several
lines of business where Gryphon did an extremely poor job of managing its risk.
As a result we have continued to strengthen Gryphon loss reserves but are still
slightly short of our desired margin of safety.

                                                                               7
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                               [LOGO OF MARKEL]

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                                    1999

     The process of merging the Gryphon organization into Markel involved a
great deal of work by numerous associates throughout the organization. To the
extent that this has prevented us from doing other things, it certainly
represents an additional cost. However, we learned a great deal from this
experience and developed new skills. We appreciate the extraordinary efforts of
so many of our associates to make the Gryphon acquisition successful.

Planned Acquisition of Terra Nova

     In August 1999 we announced an agreement to acquire Terra Nova (Bermuda)
Holdings, Ltd. Terra Nova is a specialty property and casualty insurance and
reinsurance company with headquarters in Bermuda and principal operations in
London. The Terra Nova business is split between direct insurance and
reinsurance; the London market and Lloyd's; and marine and non-marine. It
largely writes short tail business.

     Throughout the fall we worked with Terra Nova to begin the integration
process and to complete the transaction. Unexpectedly, Terra Nova reported
significant losses for the fourth quarter and for the year. As a result, in
January we renegotiated this transaction and agreed to revised terms. The
transaction is currently expected to close on March 24, 2000.

     In purchasing Terra Nova we believe we will acquire a high quality
international insurance business at a fair price. While the company suffered
from some recent problems and will probably finish the year 2000 with a combined
ratio in excess of 100%, we believe that its people will embrace the Markel
Style and return their focus to consistently earning underwriting profits.

     The total purchase price will be approximately $660 million. Approximately
half is being paid in cash and half in securities. We expect to issue
approximately 1.8 million common shares to complete this transaction. In
addition, we will issue contingent value rights which are intended to increase
the likelihood that a Terra Nova shareholder will be able to realize a minimum
value of $185 for each share of Markel received. While the potential cost is
very real, the contingent value rights will become worthless if our stock
consistently trades over $185 in the next 30 months. We are always thoughtful
about the cost of issuing stock and believe the contingent value rights were an
effective way to complete this transaction and minimize the number of shares we
would need to issue.

     Terra Nova is slightly larger than Markel. In 1999 its gross written
premium was $865 million, and at December 31, 1999 its investment

8
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                                         One of our strengths is that we have an
                                      experienced, talented and motivated staff.


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portfolio was $1.5 billion and its shareholders' equity was $439 million. Terra
Nova has 698 associates in its organization. Acquiring Terra Nova gives Markel
shareholders significant increases in premium volume and investment portfolio
per share as shown on the following table. We believe this additional operating
and financial leverage will add value to the company, although it will only do
so when we achieve underwriting profitability. Book value per share also
increases substantially, however, this is simply because we are issuing
additional Markel stock at a price in excess of our book value.


                        MARKEL AND TERRA NOVA COMBINED
                        SELECTED PRO FORMA INFORMATION
                               DECEMBER 31, 1999
                     (in millions, except per share data)

                                                                Pro Forma
                                                    Markel      Combined
--------------------------------------------------------------------------------
Premium Volume                                      $  595       $1,460
Per Share                                           $  106       $  186

Investment Portfolio                                $1,623       $3,003
Per Share                                           $  290       $  409

Shareholders' Equity                                $  383       $  677
Per Share                                           $   69       $   92
--------------------------------------------------------------------------------
Investment Leverage                               4.2 to 1     4.4 to 1
================================================================================


The transaction will also add a significant amount of goodwill to our balance
sheet. This will be amortized over 20 years so we will have an additional
non-cash annual amortization charge. Goodwill on any balance sheet should be
viewed with caution and only future results can truly validate its real value.
We believe the premium volume, investments, business relationships and
experienced staff will more than justify the goodwill.

     Since the transaction was announced in August, we have been working very
closely with the Terra Nova organization to make the transition as seamless as
possible. In most respects we share similar values and as a result we believe
the transition will be smooth. The Markel Style and our "Commitment to Success"
is being shared throughout the Terra Nova organization.

Expanding the Board and Management Team

     The acquisition also gives us the opportunity to strengthen our Board of
Directors and our management team. We are particularly pleased that Nigel
Rogers, Jack Byrne and Mark Byrne will be joining our Board of Directors. Nigel
Rogers has been President and Chief Executive Officer of Terra Nova since May
1998 and has been working in the London insurance market for over 20 years.
Nigel will continue to run our international operations following the
transaction. Jack Byrne is a director and large shareholder of Terra Nova. He is
also Chairman and Chief Executive Officer of White Mountains Insurance Group, a
Bermuda-based reinsurance holding company. Jack has enjoyed a long and
illustrious career in the insurance industry having previously served as a
senior executive of both Fireman's Fund and GEICO. Mark Byrne is Jack's son and
is also a director and shareholder of Terra Nova. Mark is Chairman and President
of West End Capital Management (Bermuda) Limited, a Bermuda-based investment
management company. Mark was previously a Managing Director, Global Fixed Income
Arbitrage, for Credit Suisse First Boston.

     One of our strengths is that we have an experienced, talented and motivated
staff. An unexpected benefit of acquiring Terra Nova is that it has created new
opportunities for our associates. With our expanding organization we promoted
Paul Springman to President of our North American operations. Paul previously
served as President and Chief Operating Officer of one of our largest operating
units, Shand/Evanston. Paul has over 20 years of experience in the insurance
industry and is a past President of the National Association of Professional
Surplus Lines Offices (NAPSLO). We are confident that Paul will help us continue
to meet our performance objectives in our U.S. operations. Another change made
possible by the acquisition is the transfer of Jeremy Cooke to Chief Operating
Officer of Terra Nova in London. Jeremy previously served as President and Chief
Executive Officer of our Investors

                                                                               9
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                               [LOGO OF MARKEL]

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                                    1999


Insurance Group. Jeremy began his career at Lloyd's over 25 years ago, then
founded and built his own brokerage business which he sold in 1986. Jeremy is
also a past President of NAPSLO. We are extremely pleased that Jeremy will be
working with Nigel and his team in London.

     We are proud of the depth of the team we have built and our bench strength.

Quality Balance Sheet and Loss Reserves

     We have often stated that maintaining a quality balance sheet with a strong
loss reserve position is a fundamental principle of our Company. In the past
year many insurance companies had to fix balance sheet problems and acknowledge
their corresponding underwriting problems. Our approach is to seek to maintain a
high degree of confidence in the quality of our loss reserve provisions and to
do so without being influenced by the desire to achieve short-term earnings
goals. We continue to believe that our strong balance sheet means more than our
quarterly earnings statement.

     This philosophy, coupled with our disciplined underwriting standards, puts
us in a position to take advantage of volatility and market opportunities. Many
others today are suffering from poor underwriting and in many cases, worse
accounting. The economic reality created by these events is now manifesting
itself. Our discipline, both in underwriting and in managing our balance sheet,
is creating real business opportunities and value for our shareholders.

Acceptance Business

     In late December we were able to reach an agreement with Acceptance
Insurance Companies to purchase the renewal rights to their excess and surplus
business produced from their Scottsdale office. As a result we formed Markel
Southwest Underwriters and staffed it with former associates of Acceptance. The
business we retain will be priced and underwritten to our standards.

     In this transaction we are assuming none of the existing business. We will
administer the runoff on behalf of Acceptance and may offer renewals in one of
our companies based on our underwriting and pricing guidelines. Our goal is to
manage this process to achieve an underwriting profit. We will be administering
the runoff of approximately $100 million and expect to walk away from half or
more of this business. As Paul Springman wrote to our new associates, "We fully
expect that premium volume (at Markel Southwest) will fall this year, and will
fall significantly! That's not only expected, it's OK! When we look at our
numbers at the end of this year, the only meaningful barometer will

10
<PAGE>

            We believe we have the people, the capital, and the business culture
              to respond quickly and efficiently to opportunities in the market.


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

be the combined ratio, not the top line. No one should be concerned about market
share. Our focus needs to be on underwriting profits."

     Paul's comments are a good example of our culture of focusing on
underwriting results. This philosophy extends throughout our organization and is
a major reason for our success.

Trends in the Market

     Beginning late in 1999 and continuing into this year we are seeing many
more opportunities to write business on our terms and conditions. There are many
examples of areas where companies are exiting classes of business that have
proven to be difficult to write profitably. Additionally, many are looking to
get rate increases. While it is far too early to call this a change in the
market cycle, it represents the first time in many years that the insurance
market environment showed any signs of improvement. There remains too much
capacity in the industry, however, it is clear that the industry's return on
this capital has been dismal. Maybe the time is coming when the industry will
run its affairs to earn reasonable returns.

     We believe we have the people, the capital, and the business culture to
respond quickly and efficiently to opportunities in the market.

Markel Associates

     As we enjoy the success of the past and look forward to our bright future,
we are especially thankful for the hard work and zealous pursuit of excellence
demonstrated by our 883 associates, nearly all of whom are also shareholders.
Our greatest pleasure stems from the fact that we are building an outstanding
organization. Our results depend on each associate making important
contributions and achieving individual goals every day. These individuals
working as a team make our success possible. They share a vision and a passion
for what our Company represents and we are confident that they will help us
continue that success into the future.

     On behalf of all our associates, we appreciate our shareholder partners,
whose long-term confidence and support helps us achieve our goals.


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

/s/ Anthony F. Markel
Anthony F. Markel
President and Chief Operating Officer

/s/ Steven A. Markel
Steven A. Markel
Vice Chairman

/s/ Darrell D. Martin
Darrell D. Martin
Executive Vice President and Chief Financial Officer

[PHOTO]
From left to right: Anthony F. Markel, Darrell D. Martin,
Steven A. Markel, Alan I. Kirshner

                                                                              11
<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 significantly from the standard
     market. In the standard market, 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 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 its chosen markets.
     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. See note 18 in the notes to consolidated financial
     statements for additional segment reporting disclosures.

     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 1998 the E&S market represented approximately $10
     billion, or 3%, of the entire $297 billion property and casualty (P&C)
     industry.*

     The Company is the sixth 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 1999, on a consolidated basis, the Company controlled $462 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 1998 the specialty admitted market represented $9 billion, or
     3%, 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.

     Two of the Company's underwriting units, Specialty Program Insurance, and
     Specialty Personal and Commercial Lines, write in the specialty admitted
     market. In 1999, on a consolidated basis, the Company controlled $133
     million of specialty admitted business.

     *According to the 1999 A.M. Best Company Special Report, Annual Review of
     the Excess and Surplus Lines Industry.

12
<PAGE>

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


Competition
================================================================================

     The Company's underwriting operations compete with numerous insurance
     companies, risk retention groups, insurance buying groups, risk
     securitization programs 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 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.

Acquisitions
================================================================================

     GRYPHON. On January 15, 1999, as the result of the completion of a public
     tender offer, the Company acquired Gryphon Holdings, Inc. (Gryphon), a
     specialty property and casualty insurance group. The Company's results of
     operations reflect Gryphon's results since the acquisition date. Total
     consideration paid for Gryphon was approximately $145.7 million. In
     addition the Company assumed $55 million of Gryphon's debt.

     The Gryphon acquisition provided the Company with specialty insurance
     business that complements existing products and can produce underwriting
     profits. In addition at the date of acquisition, approximately $300 million
     of high quality fixed income investments were added to the Company's
     investment portfolio.

     In 1998 Gryphon strengthened loss reserves by approximately $25 million in
     response to development in environmental and asbestos claims and
     construction defect claims. The Company recognized the underwriting
     difficulties that Gryphon was experiencing prior to the acquisition and
     determined that Gryphon's operations would require significant
     reorganization to meet the Company's financial objectives. The Company
     moved quickly after the acquisition to discontinue all Gryphon programs
     that had historically produced underwriting losses (Gryphon discontinued
     programs). In 1999 the Company reduced Gryphon's gross premium volume by
     approximately 48% percent to $104.1 million. The Company expects to retain
     and further develop approximately $70 million of Gryphon's 1999 gross
     premium volume (Gryphon continuing programs). The Company believes that
     these programs can earn underwriting profits in the future. The Company has
     transferred the Gryphon continuing programs to its three E&S underwriting
     units in order to realize operating efficiencies and to leverage the
     Company's underwriting talent. A dedicated runoff unit has been established
     to aggressively manage the Gryphon discontinued programs.

                                                                              13
<PAGE>

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


BUSINESS OVERVIEW (continued)

     TERRA NOVA. The Company originally announced an agreement to purchase Terra
     Nova (Bermuda) Holdings Ltd. (Terra Nova) in August of 1999. On January 26,
     2000, subsequent to the Company's year end, the Company announced revised
     terms for the acquisition of Terra Nova. The new agreement was reached
     after preliminary information indicated that Terra Nova would report a loss
     for the year ended December 31, 1999.

     Pursuant to the revised terms of the merger agreement, purchase
     consideration will consist of approximately $325 million of cash, 1.8
     million Markel common shares and 1.8 million Markel contingent value rights
     (CVR). The CVR's are intended to increase the likelihood that a Terra Nova
     shareholder will be able to realize a minimum value of $185 for each Markel
     share received. In addition, $175 million of Terra Nova debt will remain
     outstanding. The transaction which is subject to approval by the
     shareholders of both Markel and Terra Nova, the receipt of necessary
     regulatory approvals and other customary closing conditions is scheduled to
     close on March 24, 2000.

     Terra Nova writes specialty property, casualty, marine and aviation
     insurance on a direct and reinsurance basis. Business is written worldwide
     with the majority coming from the United Kingdom and United States. Terra
     Nova has a significant presence in the London Market through its
     subsidiaries, Terra Nova Insurance Company Limited, and its participation
     through Terra Nova Capital Limited in six Lloyd's syndicates managed by
     Octavian Syndicate Management Limited. Other Terra Nova subsidiaries
     include Terra Nova (Bermuda) Insurance Company Ltd., a specialty property
     and casualty insurance and reinsurance company operating in the Bermuda
     Market, and Compagnie de Reassurance D'Ile de France, a French reinsurance
     company based in Paris that transacts specialty treaty and facultative
     property reinsurance business internationally.

     Terra Nova's underwriting philosophy and corporate culture are similar to
     the Company's philosophy which will facilitate Terra Nova's integration
     into the Company. The acquisition of Terra Nova will provide the Company
     with additional opportunities to grow profitably in specialty insurance
     markets on a worldwide basis. In 1999 Terra Nova had gross premium volume
     of $865 million and at December 31, 1999, Terra Nova held an investment
     portfolio of $1.5 billion. After completion of the Terra Nova acquisition,
     the Company will realign its operations. Terra Nova will become the
     Company's international division (Markel International) and the Company's
     current domestic operations will be the United States division (Markel
     North America).

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. In 1999 the Company's combined ratio was 101%. When Gryphon was
     acquired, the Company expected underwriting losses in Gryphon's
     discontinued programs. The Company's 1999 underwriting loss was the result
     of the Gryphon discontinued programs. This represented the second time in
     the past fourteen years that the Company's combined ratio exceeded 100%.
     Excluding Gryphon, the Company's 1999 combined ratio was 96%. The Company
     is aggressively managing the runoff of the Gryphon discontinued programs
     and remains committed to underwriting profits as the key component of its
     financial strategy.

14
<PAGE>

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


     The following graph shows Markel's GAAP combined ratio as compared to the
     P&C industry for the past five years:


     COMBINED RATIOS

                                    [GRAPH]

                         1995   1996  1997  1998  1999*
                         ----   ----  ----  ----  ----

Markel Corporation        99%   100%   99%   98%  101%
Industry Average         107%   106%  102%  105%  108%

     * Source A.M. Best Co., Inc.
       Industry Average is estimated for 1999.



The Underwriting Units

     The Company has five core 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. Specialty Program Insurance and Specialty
     Personal and Commercial Lines write business in the specialty admitted
     market. During 1999 Gryphon continuing programs were moved to the Company's
     three E&S underwriting units. Gross premium volume from Gryphon
     discontinued programs will decline significantly in 2000 and will be
     administered by a runoff unit.

     TOTAL GROSS PREMIUM VOLUME ($595 million)

                                    [GRAPH]

                 Gryphon Discontinued Programs              7%
                 Specialty Personal and Commercial Lines    8%
                 Specialty Program Insurance               14%
                 Brokered Excess and Surplus Lines         14%
                 Professional/Products Liability           26%
                 Excess and Surplus Lines                  31%


     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. In addition the E&S unit offers coverages
     for heavier property risks, including earthquake, through its Essex special
     property (ESP) division. These risks are typically larger and are of a low
     frequency/high severity nature.

                                                                              15
<PAGE>

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


BUSINESS OVERVIEW (continued)

     The E&S unit's inland marine facility provides coverages for risks that
     include motor truck cargo, logging equipment, warehouseman's legal
     liability, builder's risk, contractor's equipment and oil and gas rigs. The
     ocean marine facility writes risks that include marinas, hull coverage,
     cargo and builder's risk for yacht manufacturers.

     The E&S unit also includes several programs from Gryphon continuing lines.
     The largest of these programs is an earthquake-exposed California
     commercial property book. These programs contributed $46.3 million of gross
     premium volume to the E&S unit in 1999.

     Most of the E&S unit's business is generated by approximately 145
     professional surplus lines general agents who have limited quoting and
     binding authority. ESP, brokerage inland marine and ocean marine produce
     business on a brokerage basis through approximately 80 wholesale brokers.
     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 ($186 million)

                                    [GRAPH]

                         Other                     8%
                         Inland Marine             8%
                         Property                 10%
                         Casualty                 27%
                         Essex Special Property   47%


     Professional/Products Liability

     The Professional/Products Liability unit markets specialty professional
     liability coverages, including medical malpractice for physicians and
     specialized medical coverages, professional liability for lawyers,
     architects and engineers, insurance companies, agents and brokers, and
     management consultants. Errors and omissions coverage is targeted to
     emerging technology in the life science and information systems fields.
     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.

     The Professional/Products Liability unit was one of the first to enter 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.

     The Professional/Products Liability unit also includes admitted
     professional liability programs from Gryphon continuing lines for directors
     and officers, architects, engineers and lawyers. These programs contributed
     $14.1 million of gross premium volume to the Professional/Products
     Liability unit in 1999.

16
<PAGE>

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


     Business is written nationwide and is developed through approximately 325
     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. Admitted programs for these coverages are
     written in Deerfield Insurance Company (DIC).

     PROFESSIONAL/PRODUCTS LIABILITY
     GROSS PREMIUM VOLUME ($156 million)

                                    [GRAPH]

                Financial Institutions                       6%
                Architects and Engineers                     8%
                Other                                       11%
                Specified Professions                       16%
                Special Risks                               18%
                Employment Practices Liability              19%
                Medical Malpractice and Specified Medical   22%


     Brokered Excess And Surplus Lines

     The Brokered E&S unit is comprised of the following divisions: primary
     casualty, property and excess and umbrella. The primary casualty division's
     areas of expertise are hard to place, large general liability and products
     liability accounts. The majority of the general liability book of business
     is comprised of coverages for commercial and residential contractors. The
     division also specializes in writing manufacturing accounts with heavy
     products liability exposures. Examples include sporting goods
     manufacturers, toy manufacturers, truck trailer manufacturers and vitamin
     supply manufacturers. The property division focuses on monoline property
     and package coverages for mercantile, industrial, habitational and
     builder's risk exposures. The excess and umbrella division provides
     umbrella and excess coverages primarily for small commercial insureds.

     The Brokered E&S unit also includes a loan guarantee program from Gryphon
     continuing lines. This program contributed $7.3 million of gross premium
     volume in 1999.

     The unit operates through approximately 110 wholesale brokers and wrote the
     majority of its business in Investors Insurance Company of America (IICA)
     in 1999. On January 1, 2000, the Company sold IICA for the value of its
     insurance licenses and statutory surplus. The Company retained all of the
     Brokered E&S unit's loss reserves and in the future these programs will be
     written using the Company's other insurance subsidiaries.

     BROKERED EXCESS AND SURPLUS LINES
     GROSS PREMIUM VOLUME ($85 million)

                                    [GRAPH]

                           Loan Guarantee         8%
                           Property              18%
                           Excess and Umbrella   22%
                           Casualty              52%

                                                                              17
<PAGE>

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


BUSINESS OVERVIEW (continued)

     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 five product
     areas, which concentrate on particular markets and customer groups.
     Specialty Program Insurance writes commercial coverages for youth and
     recreation oriented organizations, such as children's summer camps,
     conference centers and youth organizations such as YM/YWCA's, Boys' and
     Girls' Clubs, child care centers, nursery and Montessori schools, gymnastic
     schools and martial arts and dance schools. 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 contract surety bond division provides
     surety bonds for small and transitional commercial building contractors.
     The recently added Markel Risk Solutions facility develops customized
     insurance products for a variety of commercial insureds.

     The majority of Specialty Program Insurance business is produced by
     approximately 3,600 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 its domicile state of Illinois, and the District of Columbia.

     SPECIALTY PROGRAM INSURANCE
     GROSS PREMIUM VOLUME ($83 MILLION)

                                    [GRAPH]

                 Other                                     6%
                 Child Care                                7%
                 Surety                                    7%
                 Health and Fitness                        9%
                 Sports Liability, Accident and Medical   23%
                 Camp and Youth Recreation                23%
                 Agriculture                              25%

18
<PAGE>

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


     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,
     yacht, motorcycle and property coverages. The watercraft program markets
     personal lines insurance coverage for personal watercraft, older boats and
     high performance boats; while small fishing ventures and small boat rentals
     are the focus of the commercial marine program. The yacht program is
     designed for experienced owners of moderately priced yachts. The motorcycle
     program's target market is mature riders of high value bikes. The property
     program provides coverage for dwellings which do not qualify for standard
     homeowners coverage.

     Specialty Personal and Commercial Lines products are characterized by high
     numbers of transactions, low average premiums and creative solutions for
     under-served and emerging markets. The unit distributes the watercraft,
     yacht and property products through wholesale and retail producers. The
     motorcycle program is marketed directly to the consumer, using direct mail,
     internet 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 46 states, including its state of domicile, Virginia, and the District
     of Columbia.

     SPECIALTY PERSONAL AND COMMERCIAL LINES
     GROSS PREMIUM VOLUME ($50 million)

                                    [GRAPH]

                                Other        3%
                                Property    12%
                                Motorcycle  16%
                                Watercraft  31%
                                Yacht       38%

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 gradually increasing retentions on its
     profitable books of business.

     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
     minimum 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).

                                                                              19
<PAGE>

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


BUSINESS OVERVIEW (continued)

     The following table shows Markel's top ten active reinsurers at
     December 31, 1999. These ten reinsurers represent 50% of Markel's $421.9
     million reinsurance recoverable.

<TABLE>
<CAPTION>

Reinsurers                                 A.M. Best Rating       Reinsurance Recoverable
-------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                                        <C>                    <C>
American Re-Insurance Company                     A++                  $   44,030
Odyssey America Reinsurance Corporation           A                        30,863
GE Reinsurance Corporation                        A++                      30,047
Zurich Reinsurance (North America) Inc.           A+                       17,876
St. Paul Fire and Marine Insurance Company        A+                       16,971
Trenwick America Reinsurance Corporation          A                        16,146
Folksamerica Reinsurance Company                  A                        14,277
Odyssey Reinsurance Corporation                   A-                       14,066
NAC Reinsurance Corporation                       A+                       13,813
Swiss Reinsurance America Corporation             A+                       13,279

Other reinsurers                                 --                       210,501
-------------------------------------------------------------------------------------------
Total reinsurance recoverable on paid and unpaid losses                 $ 421,869
===========================================================================================
</TABLE>

     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.

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. Officers of the Company manage the
     investment portfolio.

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

20
<PAGE>

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


     The ultimate success of the Company's investment strategy can be analyzed
     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
                                1995    1996     1997    1998   1999     Return     Return
     --------------------------------------------------------------------------------------
     <S>                       <C>     <C>      <C>     <C>    <C>      <C>        <C>
     Equities                  29.7%   26.9%    31.4%   13.3%  (10.3%)    13.9%      13.1%
     Fixed maturities          13.9%    4.8%     9.2%    7.6%    0.9%      6.5%       6.9%
     Total portfolio           15.7%    7.5%    12.8%    8.9%   (1.3%)     7.5%       7.7%
     --------------------------------------------------------------------------------------
     Ending portfolio
     balance (in millions)    $ 909  $1,131   $1,408  $1,481  $1,623
     ======================================================================================
</TABLE>

     The Company's 1999 investment performance was impacted by the decline in
     market value of its fixed maturity and equity portfolios. The fixed
     maturity portfolio's market value declined primarily as a result of higher
     interest rates in 1999. The equity portfolio's market value decline was
     primarily a result of a concentration in the financial services sector. The
     Company's disciplined, value-oriented investment approach has generated
     solid results over a long period of time. The Company remains committed to
     its investment philosophy.

     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
     87% rated "A" or better by at least one nationally recognized rating
     organization. The Company's policy is to invest in securities which are
     rated investment grade and to minimize its investments in fixed maturity
     securities that are unrated or rated below investment grade.

     The following chart shows the Company's fixed maturity portfolio, at
     estimated fair value, by rating category at December 31, 1999:

     CREDIT QUALITY OF FIXED MATURITY PORTFOLIO ($1,177 million)

                                    [GRAPH]

                        Other                   3%
                        BBB                    10%
                        A                      29%
                        AAA/AA                 58%

                                                                              21
<PAGE>

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


BUSINESS OVERVIEW (continued)

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. For the year ended December 31,
     1999, book value declined 11% due to the decline in market value of the
     Company's investment portfolio. Over the past five years, the Company has
     grown book value per share at a compound annual rate of 22%. The following
     graph presents Markel's book value per share for the past five years:

                                    [GRAPH]

                              BOOK VALUE PER SHARE

                1995      1996      1997      1998      1999
                ----      ----      ----      ----      ----
                                 $ per share

                39.37     49.16     65.18     77.02     68.59


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 prior approval of changes in control of an insurer or
     an insurance holding company. Generally, "control" for these purposes is
     defined as ownership or voting power of 10% or more of a company's shares.

     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, 1999, the Company's insurance
     subsidiaries could pay up to $60.9 million during the following twelve
     months under the ordinary dividend regulations without prior regulatory
     approval.

22
<PAGE>

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


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 independent 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.
     S&P's financial strength ratings and Duff & Phelps' 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 financial strength ratings range
     from "AAA" (extremely strong financial security) to "CC" (extremely weak
     financial security). The Duff & Phelps CPA rating categories range from
     "AAA" (risk factors are negligible) to "DD" (under order of liquidation).

     Best has assigned the Company's insurance subsidiaries a group rating of
     "A" (excellent) with the exception of Associated International Insurance
     Company (AIIC) and Deerfield Insurance Company (DIC), which were acquired
     in the Gryphon transaction. AIIC and DIC are rated "A-" (excellent) by
     Best. In addition the Company's insurance subsidiaries with the exception
     of AIIC, are rated "A+" (strong financial security) by S&P and "A+" (high
     claims paying ability) by Duff & Phelps.

     The Company's ratings are currently under review as a result of the pending
     acquisition of Terra Nova.

Associates
================================================================================

     At December 31, 1999, the Company and its consolidated subsidiaries
     employed 883 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
     interest financing partially subsidized by the Company. Under Markel's
     incentive compensation plans, associates may earn a meaningful bonus based
     on individual and Company performance. At December 31, 1999, the Company
     estimated associates' ownership, including executive officers and
     directors, at approximately 32% 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)

                                              ----------------------------------
                                                1999         1998         1997
                                              ----------------------------------
RESULTS OF OPERATIONS (1)
--------------------------------------------------------------------------------
Earned premiums                               $   437      $   333      $   333
Net investment income                              88           71           69
Total operating revenues                          524          426          419
Net income                                         41           57           50
Comprehensive income (loss)                       (40)          68           92
--------------------------------------------------------------------------------

FINANCIAL POSITION (1)(2)(3)
--------------------------------------------------------------------------------
Total investments                             $ 1,623      $ 1,481      $ 1,408
Total assets                                    2,455        1,921        1,870
Unpaid losses and loss adjustment expenses      1,344          934          971
Long-term debt                                    168           93           93
8.71% Capital Securities                          150          150          150
Shareholders' equity                              383          425          357
--------------------------------------------------------------------------------

OTHER OPERATING DATA PER DILUTED SHARE (4)
--------------------------------------------------------------------------------
Core operations                               $  8.17      $  8.10      $  7.43
Net realized gains (losses)                     (0.10)        2.37         1.82
Nonrecurring items                                 --           --           --
Amortization expense                            (0.87)       (0.30)       (0.33)
Net income                                    $  7.20      $ 10.17      $  8.92
--------------------------------------------------------------------------------

PER SHARE DATA
--------------------------------------------------------------------------------
Common shares outstanding (in thousands)        5,590        5,522        5,474
Total investments                             $290.36      $268.22      $257.27
Book value                                    $ 68.59      $ 77.02      $ 65.18
Growth in book value                              (11%)         18%          33%
5-Year CAGR in book value (5)                      22%          23%          26%
Closing stock price                           $155.00      $181.00      $156.13
--------------------------------------------------------------------------------

RATIO ANALYSIS
--------------------------------------------------------------------------------
GAAP combined ratio                               101%          98%          99%
Investment yield (6)                                5%           5%           5%
Total return (7)                                   (2%)          7%          11%
Debt to total capital (8)                          35%          25%          28%
--------------------------------------------------------------------------------


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

24
<PAGE>

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
     1996           1995           1994           1993           1992          1991           1990        10-Year CAGR (5)
----------------------------------------------------------------------------------------------------------------------------
<S>               <C>            <C>            <C>            <C>            <C>            <C>          <C>
   $   307        $   285        $   243        $   193        $   153        $   152        $    33             34%
        51             43             29             24             27             31              7             33%
       367            344            280            235            206            223             73             27%
        47             34             19             24             26             14              6             11%
        56             75            (10)            34             26             39              5             --
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
   $ 1,131        $   909        $   612        $   597        $   434        $   415        $   360             38%
     1,605          1,315          1,103          1,135          1,129            700            670             29%
       936            734            653            688            733            346            302             --
       115            107            101             78            101             94            127             --
        --             --             --             --             --             --             --             --
       268            213            139            151            109             83             55             20%
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
   $  6.03        $  5.15        $  3.77        $  3.31        $  3.03        $  2.63        $  1.76             20%
      0.58           1.39           0.45           1.83           0.89           0.94           0.13             --
      2.05             --             --             --           1.90           0.28          (0.41)            --
     (0.36)         (0.39)         (0.89)         (0.91)         (1.18)         (1.15)         (0.43)            --
   $  8.30        $  6.15        $  3.33        $  4.23        $  4.64        $  2.70        $  1.05             11%
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
     5,458          5,422          5,387          5,414          5,403          5,332          5,323             --
   $207.18        $167.57        $113.55        $110.27        $ 80.27        $ 77.91        $ 67.59             37%
   $ 49.16        $ 39.37        $ 25.71        $ 27.83        $ 20.24        $ 15.59        $ 10.27             19%
        25%            53%            (8%)           38%            30%            52%           (12%)           --
        26%            31%            17%            25%            34%            35%            --             --
   $ 90.00        $ 75.50        $ 41.50        $ 39.38        $ 31.25        $ 22.00        $ 11.75             --
----------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------
       100%            99%            97%            97%            97%           106%            81%            --
         5%             6%             5%             5%             6%             7%            10%            --
         8%            15%            (2%)           11%             7%            16%             8%            --
        30%            33%            42%            34%            48%            53%            70%            --
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
(4)  In evaluating its operating performance, the Company focuses on core
     underwriting and investing results (core operations) before considering net
     gains or losses from the sale of investments, amortization expense and any
     nonrecurring items. These measures do not replace operating income or net
     income computed in accordance with generally accepted accounting principles
     as a measure of profitability.
(5)  CAGR--compound annual growth rate.
(6)  Investment yield reflects net investment income as a percent of average
     invested assets.
(7)  Total return includes net investment income, net realized investment gains
     or losses and the change in market value of the investment portfolio during
     the period as a percent of average invested assets.
(8)  The 8.71% Capital Securities contain equity-like features including the
     Company's option to defer interest payments for five years and a forty-nine
     year term. Due to these unique features, the Company considers the 8.71%
     Capital Securities as 50% debt and 50% equity for calculation
     purposes.

                                                                              25
<PAGE>

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


CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                           --------------------------
                                                                                              1999            1998
---------------------------------------------------------------------------------------------------------------------
                                                                                             (dollars in thousands)
<S>                                                                                        <C>             <C>
ASSETS
Investments, available-for-sale, at estimated fair value
     Fixed maturities (cost of $1,214,603 in 1999 and $1,041,155 in 1998)                  $1,177,151      $1,070,978
     Equity securities (cost of $243,145 in 1999 and $200,004 in 1998)                        304,241         317,887
     Short-term investments (estimated fair value approximates cost)                          141,747          92,228
---------------------------------------------------------------------------------------------------------------------
     TOTAL INVESTMENTS, AVAILABLE-FOR-SALE                                                  1,623,139       1,481,093
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                                       1,813           1,527
Receivables                                                                                    98,681          68,138
Reinsurance recoverable on unpaid losses                                                      378,738         198,288
Reinsurance recoverable on paid losses                                                         43,131          21,205
Deferred policy acquisition costs                                                              50,800          40,471
Prepaid reinsurance premiums                                                                   69,591          42,241
Intangible assets                                                                              92,314          35,298
Other assets                                                                                   97,098          33,003
---------------------------------------------------------------------------------------------------------------------
     TOTAL ASSETS                                                                          $2,455,305      $1,921,264
=====================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses                                                 $1,343,616      $  933,830
Unearned premiums                                                                             276,910         205,908
Payables to insurance companies                                                                60,706          22,715
Long-term debt (estimated fair value of $163,881 in 1999 and $96,931 in 1998)                 167,984          93,219
Other liabilities                                                                              72,670          90,291
Company-Obligated Mandatorily Redeemable Preferred Capital Securities
     of Subsidiary Trust Holding Solely Junior Subordinated Deferrable
     Interest Debentures of Markel Corporation (estimated fair value
     of $124,500 in 1999 and $144,453 in 1998)                                                150,000         150,000
---------------------------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES                                                                      2,071,886       1,495,963
---------------------------------------------------------------------------------------------------------------------
Shareholders' equity
     Common stock                                                                              25,625          25,415
     Retained earnings                                                                        342,426         303,878
     Accumulated other comprehensive income
         Net unrealized holding gains on fixed maturities and equity securities,
         net of taxes of $8,276 in 1999 and $51,698 in 1998                                    15,368          96,008
---------------------------------------------------------------------------------------------------------------------
     TOTAL SHAREHOLDERS' EQUITY                                                               383,419         425,301
Commitments and contingencies
---------------------------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                            $2,455,305      $1,921,264
=====================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

26
<PAGE>

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


CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                               ---------------------------------------------
                                                                  1999           1998            1997
------------------------------------------------------------------------------------------------------------
                                                             (dollars in thousands, except per share data)
<S>                                                            <C>             <C>             <C>
OPERATING REVENUES
Earned premiums                                                $ 437,196       $ 333,267       $ 332,878
Net investment income                                             87,681          71,046          68,653
Net realized gains (losses) from investment sales                   (897)         20,558          15,834
Other                                                                341           1,130           1,682

------------------------------------------------------------------------------------------------------------
     TOTAL OPERATING REVENUES                                    524,321         426,001         419,047
============================================================================================================

OPERATING EXPENSES
Losses and loss adjustment expenses                              283,630         203,336         210,061
Underwriting, acquisition and insurance expenses                 156,703         124,841         120,076
Amortization of intangible assets                                  5,398           2,033           2,435
------------------------------------------------------------------------------------------------------------
     TOTAL OPERATING EXPENSES                                    445,731         330,210         332,572
------------------------------------------------------------------------------------------------------------
     OPERATING INCOME                                             78,590          95,791          86,475
============================================================================================================
Interest expense                                                  25,150          20,406          20,124
------------------------------------------------------------------------------------------------------------
     INCOME BEFORE INCOME TAXES                                   53,440          75,385          66,351
Income tax expense                                                12,826          18,092          15,924
------------------------------------------------------------------------------------------------------------
     NET INCOME                                                $  40,614       $  57,293       $  50,427
============================================================================================================

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on securities, net of taxes
     Net holding gains (losses) arising during the period      $ (81,223)      $  24,112       $  51,800
     Less reclassification adjustments for gains (losses)
         included in net income                                      583         (13,363)        (10,292)
------------------------------------------------------------------------------------------------------------
     TOTAL OTHER COMPREHENSIVE INCOME (LOSS)                     (80,640)         10,749          41,508
------------------------------------------------------------------------------------------------------------
     COMPREHENSIVE INCOME (LOSS)                               $ (40,026)      $  68,042       $  91,935
============================================================================================================
NET INCOME PER SHARE
     Basic                                                     $    7.27       $   10.41       $    9.20
     Diluted                                                   $    7.20       $   10.17       $    8.92
============================================================================================================
</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>          <C>            <C>          <C>                <C>
Shareholders' Equity at January 1, 1997                   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
     Net income                                              --              --         57,293              --          57,293
     Net unrealized holding gains
         arising during the period, net of taxes             --              --             --          10,749          10,749
--------------------------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                                                           68,042
     Issuance of common stock                                50             755             --              --             755
     Repurchase of common stock                              (2)             --           (300)             --            (300)
--------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity at December 31, 1998                 5,522          25,415        303,878          96,008         425,301
     Net income                                              --              --         40,614              --          40,614
     Net unrealized holding losses
         arising during the period, net of taxes             --              --             --         (80,640)        (80,640)
--------------------------------------------------------------------------------------------------------------------------------
         Comprehensive loss                                                                                            (40,026)
     Issuance of common stock                                81             210             --              --             210
     Repurchase of common stock                             (13)             --         (2,066)             --          (2,066)
--------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY AT DECEMBER 31, 1999                 5,590       $  25,625      $ 342,426       $  15,368       $ 383,419
================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

28
<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                                Years Ended December 31,
                                                                                 ---------------------------------------------------
                                                                                     1999              1998              1997
------------------------------------------------------------------------------------------------------------------------------------

                                                                                             (dollars in thousands)
<S>                                                                              <C>               <C>               <C>
OPERATING ACTIVITIES
Net income                                                                       $    40,614       $    57,293       $    50,427
Adjustments to reconcile net income to net cash provided
   by operating activities
     Deferred income tax expense (benefit)                                             9,477             6,950              (557)
     Depreciation and amortization                                                    12,855             7,296             7,307
     Net realized (gains) losses from investment sales                                   897           (20,558)          (15,834)
     Decrease (increase) in receivables                                               (2,461)            5,758            (2,669)
     Decrease (increase) in deferred policy acquisition costs                             66            (3,655)            1,163
     Increase (decrease) in unpaid losses and loss adjustment expenses, net          (34,238)          (15,885)           16,789
     Increase (decrease) in unearned premiums, net                                    (9,192)           10,610            (2,914)
     Increase (decrease) in payables to insurance companies                            8,174            (6,433)            5,278
     Increase (decrease) in current income taxes                                      (6,819)            3,084             4,313
     Other                                                                           (18,815)           (4,516)            5,340
------------------------------------------------------------------------------------------------------------------------------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES                                       558            39,944            68,643
====================================================================================================================================


INVESTING ACTIVITIES
Proceeds from sales of fixed maturities and equity securities                      1,069,006           405,561           636,212
Proceeds from maturities of fixed maturities                                          52,708           127,526            55,722
Cost of fixed maturities and equity securities purchased                            (945,927)         (574,310)         (863,785)
Net change in short-term investments                                                 (49,519)             (484)          (40,237)
Sales (acquisition) of insurance companies, net of cash                             (129,960)            4,689             9,230
Net proceeds from sale of building                                                        --                --             6,500
Additions to property and equipment                                                   (4,026)           (2,717)           (4,612)
Other                                                                                 (6,797)             (446)             (177)
------------------------------------------------------------------------------------------------------------------------------------
         NET CASH USED BY INVESTING ACTIVITIES                                       (14,515)          (40,181)         (201,147)
====================================================================================================================================


FINANCING ACTIVITIES
Net proceeds from issuance of Company-Obligated Mandatorily
     Redeemable Preferred Capital Securities                                              --                --           148,123
Additions to long-term debt                                                          115,000                --                --
Repayments and repurchases of long-term debt                                         (95,288)               --           (21,577)
Other                                                                                 (5,469)              455            (3,787)
------------------------------------------------------------------------------------------------------------------------------------
         NET CASH PROVIDED BY FINANCING ACTIVITIES                                    14,243               455           122,759
====================================================================================================================================


Increase (decrease) in cash and cash equivalents                                         286               218            (9,745)
Cash and cash equivalents at beginning of year                                         1,527             1,309            11,054
------------------------------------------------------------------------------------------------------------------------------------
         CASH AND CASH EQUIVALENTS AT END OF YEAR                                $     1,813       $     1,527       $     1,309
====================================================================================================================================

</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/products liability, brokered excess and surplus lines, specialty
programs and specialty personal and commercial 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.

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 or
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. The Company does not consider anticipated investment income in
determining whether a premium deficiency exists.

e) PROPERTY AND EQUIPMENT. Owned property and equipment are stated at cost less
accumulated depreciation. Depreciation and amortization of property and
equipment are calculated using the straight-line method over the estimated
useful 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 over three to ten years. Goodwill is amortized
using the straight-line method, generally from 20 to 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. The cost of reinsurance is initially
recorded as prepaid reinsurance premiums and is amortized over the reinsurance
contract period in proportion to the amount of insurance protection provided.
Profit-sharing commissions from reinsurers are recognized when earned and are
netted against policy acquisition costs. The Company estimates reinsurance
profit commissions earned based on reserve development studies. Premiums ceded
are netted against premiums written.

30
<PAGE>

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

1. Summary of Significant Accounting Policies (continued)


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 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. Basic earnings per share (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 and dilutive
potential common shares outstanding during the year.

k) STOCK COMPENSATION PLANS. The Company applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for stock-based compensation plans. The Company
has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock
Based Compensation.

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 asset. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.

m) COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) represents all
changes in equity of an enterprise that result from recognized transactions and
other economic events of the period. Other comprehensive income (loss) refers to
revenues, expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income (loss) but excluded from net
income, such as unrealized gains or losses on certain investments in debt and
equity securities and foreign currency items.

n) DERIVATIVES. The Company occasionally 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, 1999 and 1998 were immaterial.

o) RECLASSIFICATIONS. Certain reclassifications of prior years' amounts have
been made to conform with 1999 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, 1999
                                                   --------------------------------------------------------------
                                                                     Gross           Gross           Estimated
                                                   Amortized      Unrealized      Unrealized           Fair
                                                      Cost           Gains           Losses            Value
-----------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>              <C>
Fixed maturities
     U.S. Treasury securities and obligations
         of U.S. government agencies               $  189,157      $      127      $   (4,697)      $  184,587
     Obligations of states, municipalities
         and political subdivisions                   426,497           1,147         (11,305)         416,339
     Public utilities                                  81,457              --          (5,793)          75,664
     Convertibles and bonds with warrants              14,864             371            (534)          14,701
     All other corporate bonds                        502,628             350         (17,118)         485,860
-----------------------------------------------------------------------------------------------------------------
     Total fixed maturities                         1,214,603           1,995         (39,447)       1,177,151
Equity securities
     Banks, trusts and insurance companies             91,342          35,383          (6,550)         120,175
     Industrial, miscellaneous and all other          151,171          45,032         (12,225)         183,978
     Nonredeemable preferred stock                        632              --            (544)              88
-----------------------------------------------------------------------------------------------------------------
     Total equity securities                          243,145          80,415         (19,319)         304,241
Short-term investments                                141,747              --              --          141,747
-----------------------------------------------------------------------------------------------------------------
     TOTAL INVESTMENTS                             $1,599,495      $   82,410      $  (58,766)      $1,623,139
=================================================================================================================

<CAPTION>

                                                                       December 31, 1998
                                                   --------------------------------------------------------------
                                                                     Gross           Gross           Estimated
                                                   Amortized      Unrealized      Unrealized           Fair
                                                      Cost           Gains           Losses            Value
-----------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>              <C>
Fixed maturities
     U.S. Treasury securities and obligations
         of U.S. government agencies               $  199,655      $    4,376      $     (937)      $  203,094
     Obligations of states, municipalities
         and political subdivisions                   425,904          13,584            (207)         439,281
     Public utilities                                  37,086           1,030             (37)          38,079
     Convertibles and bonds with warrants              12,528             442            (151)          12,819
     All other corporate bonds                        365,982          13,219          (1,496)         377,705
-----------------------------------------------------------------------------------------------------------------
     Total fixed maturities                         1,041,155          32,651          (2,828)       1,070,978
Equity securities
     Banks, trusts and insurance companies             86,526          61,898            (454)         147,970
     Industrial, miscellaneous and all other          112,780          60,917          (5,259)         168,438
     Nonredeemable preferred stock                        698             794             (13)           1,479
-----------------------------------------------------------------------------------------------------------------
     Total equity securities                          200,004         123,609          (5,726)         317,887
Short-term investments                                 92,228              --              --           92,228
-----------------------------------------------------------------------------------------------------------------
     TOTAL INVESTMENTS                             $1,333,387      $  156,260      $   (8,554)      $1,481,093
=================================================================================================================
</TABLE>

32
<PAGE>

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

2. Investments (continued)

b) The amortized cost and estimated fair value of fixed maturities
at December 31, 1999 are shown below by contractual maturity (dollars in
thousands):

                                                                     Estimated
                                                  Amortized            Fair
                                                    Cost               Value
--------------------------------------------------------------------------------
Due in one year or less                         $   33,992          $   33,922
Due after one year through five years              192,974             190,926
Due after five years through ten years             381,698             373,240
Due after ten years                                605,939             579,063
--------------------------------------------------------------------------------
     TOTAL                                      $1,214,603          $1,177,151
================================================================================

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 4.7 years.

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

                                                   Years Ended December 31,
                                             -----------------------------------
                                               1999          1998          1997
--------------------------------------------------------------------------------
Interest
     Municipal bonds (tax-exempt)            $21,708       $20,169       $16,130
     Taxable bonds                            54,157        42,560        43,051
     Short-term investments, including
         overnight deposits                    2,995         2,389         3,986
Dividends on equity securities                11,922         9,602         8,670
--------------------------------------------------------------------------------
                                              90,782        74,720        71,837
Less Investment expenses                       3,101         3,674         3,184
--------------------------------------------------------------------------------
     NET INVESTMENT INCOME                   $87,681       $71,046       $68,653
================================================================================

                                                                              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,
                                            ------------------------------------
                                               1999         1998         1997
--------------------------------------------------------------------------------
Realized gains
     Fixed maturities                       $   6,586    $   6,201    $   9,454
     Equity securities                         19,578       19,168       12,568
--------------------------------------------------------------------------------
                                               26,164       25,369       22,022
--------------------------------------------------------------------------------
Realized losses
     Fixed maturities                         (20,240)      (1,376)      (4,615)
     Equity securities                         (6,821)      (3,435)      (1,573)
--------------------------------------------------------------------------------
                                              (27,061)      (4,811)      (6,188)
--------------------------------------------------------------------------------
     NET REALIZED GAINS (LOSSES)
       From Investment Sales                $    (897)   $  20,558    $  15,834
================================================================================
Change in gross unrealized gains (losses)
     Fixed maturities                       $ (67,275)   $   4,439    $  18,911
     Equity securities                        (56,787)      12,099       44,947
--------------------------------------------------------------------------------
     NET INCREASE (DECREASE)                $(124,062)   $  16,538    $  63,858
================================================================================

e) Investments with a carrying value of $41.7 million and $28.9 million were on
deposit with regulatory authorities at December 31, 1999 and 1998, respectively.

f) At December 31, 1999, there were no investments in any one issuer that
exceeded 10% of shareholders' equity.

================================================================================

3. Receivables

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

                                                                December 31,
                                                           ---------------------
                                                             1999         1998
--------------------------------------------------------------------------------
Agents' balances and premiums in course of collection      $84,794      $52,507
Less Allowance for doubtful receivables                      3,283        3,113
--------------------------------------------------------------------------------
                                                            81,511       49,394
Other                                                       17,170       18,744
--------------------------------------------------------------------------------
     RECEIVABLES                                           $98,681      $68,138
================================================================================

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,
                                            ------------------------------------
                                               1999         1998         1997
--------------------------------------------------------------------------------
Balance, beginning of year                  $  40,471    $  36,816    $  37,979
Policy acquisition costs deferred             104,861       85,041       79,356
Amortization charged to expense               (94,532)     (81,386)     (80,519)
--------------------------------------------------------------------------------
     DEFERRED POLICY ACQUISITION COSTS      $  50,800    $  40,471    $  36,816
================================================================================

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

                                                  Years Ended December 31,
                                            ------------------------------------
                                               1999         1998         1997
--------------------------------------------------------------------------------
Amortization of policy acquisition costs    $  94,532    $  81,386    $  80,519
Other operating expenses                       62,171       43,455       39,557
--------------------------------------------------------------------------------
     UNDERWRITING, ACQUISITION AND
         INSURANCE EXPENSES                 $ 156,703    $ 124,841    $ 120,076
================================================================================

5. Property and Equipment

Following are the components of property and equipment which are included in
other assets on the consolidated balance sheets (dollars in thousands):

                                                             December 31,
                                                      --------------------------
                                                         1999            1998
--------------------------------------------------------------------------------
Land                                                   $    --         $ 1,066
Leasehold improvements                                   3,010             995
Furniture and equipment                                 31,699          26,292
Other                                                       96             121
--------------------------------------------------------------------------------
                                                        34,805          28,474
Less Accumulated depreciation and amortization          24,894          20,493
--------------------------------------------------------------------------------
     PROPERTY AND EQUIPMENT                            $ 9,911         $ 7,981
================================================================================

Depreciation and amortization expense of property and equipment was $4.0
million, $4.1 million and $3.5 million for the years ended December 31, 1999,
1998 and 1997, respectively.

Total rental expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $5.8 million, $4.9 million and $4.2 million, respectively.


                                                                              35
<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


5. Property and Equipment (continued)


The Company has facilities and furniture and equipment under operating leases
with remaining terms ranging from 1 month to 120 months.

Minimum annual rental commitments for noncancelable operating leases at
December 31, 1999 are as follows (dollars in thousands):

Years Ending December 31,
--------------------------------------------------------------------------------
     2000                                                 $  6,817
     2001                                                    7,004
     2002                                                    6,885
     2003                                                    6,620
     2004                                                    6,774
     2005 and thereafter                                    28,053
--------------------------------------------------------------------------------
     TOTAL                                                $ 62,153
================================================================================

6. Intangible Assets

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

                                                              December 31,
                                                       -------------------------
                                                          1999           1998
--------------------------------------------------------------------------------
Goodwill                                               $ 89,864       $ 34,587
Policy renewal rights                                     2,450            711
--------------------------------------------------------------------------------
     INTANGIBLE ASSETS                                 $ 92,314       $ 35,298
================================================================================

Accumulated amortization related to intangible assets was $27.0 million and
$21.6 million at December 31, 1999 and 1998, respectively.

================================================================================

7. Income Taxes


Income tax expense on income before income taxes, substantially all of which was
federal tax expense, consists of (dollars in thousands):

                                              Years Ended December 31,
                                        ----------------------------------------
                                          1999           1998          1997
--------------------------------------------------------------------------------
Current                                 $ 3,349        $11,142       $16,481
Deferred                                  9,477          6,950          (557)
--------------------------------------------------------------------------------
     INCOME TAX EXPENSE                 $12,826        $18,092       $15,924
================================================================================

The Company made income tax payments of $13.3 million in 1999, $8.1 million in
1998 and $12.2 million in 1997. At December 31, 1999, current income taxes
recoverable were $6.7 million. At December 31, 1998, current income taxes
payable were $4.0 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,
                                                  ------------------------------
                                                   1999        1998        1997
--------------------------------------------------------------------------------
U.S. corporate tax rate                             35%         35%         35%
Tax-exempt investment income                       (15)         (9)         (9)
Amortization of intangible assets                    3          --          --
Differences between financial reporting and
     tax bases of assets acquired                   --          (3)         (3)
Other                                                1           1           1
--------------------------------------------------------------------------------
     EFFECTIVE TAX RATE                             24%         24%         24%
================================================================================

The components of the net deferred tax asset (liability) are as follows (dollars
in thousands):

                                                               December 31,
                                                            --------------------
                                                              1999       1998
--------------------------------------------------------------------------------
Assets
     Income reported in different periods for
         financial reporting and tax purposes               $ 15,117   $  8,840
     Unpaid losses and loss adjustment expenses,
         nondeductible portion for income tax purposes        59,255     46,814
     Unearned premiums, adjustment for income tax purposes    14,512     11,457
     Other                                                       723        976
--------------------------------------------------------------------------------
     Total gross deferred tax assets                          89,607     68,087
--------------------------------------------------------------------------------
Liabilities
     Property and equipment, depreciation                        540        620
     Deferred policy acquisition costs                        17,780     14,165
     Investments, net unrealized gains                         8,276     51,698
     Differences between financial reporting and
         tax bases of assets acquired                         14,000     12,126
     Other                                                       758      1,896
--------------------------------------------------------------------------------
     Total gross deferred tax liabilities                     41,354     80,505
--------------------------------------------------------------------------------
     NET DEFERRED TAX ASSET (LIABILITY)                     $ 48,253   $(12,418)
================================================================================

The net deferred tax asset at December 31, 1999 is included in other assets on
the consolidated balance sheets. The net deferred tax liability at December 31,
1998 is included in other liabilities on the consolidated balance sheets.

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,
1999 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.

The Company's federal tax years through December 31, 1995 are closed to
examination.

                                                                              37
<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


8. Unpaid Losses And Loss Adjustment Expenses


a) The following table sets forth a reconciliation of consolidated beginning and
ending reserves for losses and loss adjustment expenses (dollars in thousands):

<TABLE>
<CAPTION>

                                                             Years Ended December 31,
                                                   ---------------------------------------------
                                                       1999            1998           1997
------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>
NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT
     EXPENSES, BEGINNING OF YEAR                   $   735,542     $   745,752     $   725,064
     Commutations and other                              1,636            (798)            745
     Reserves for losses and loss adjustment
       expenses of acquired insurance companies        258,472              --              --
------------------------------------------------------------------------------------------------
RESTATED NET RESERVES FOR LOSSES
     AND LOSS ADJUSTMENT EXPENSES,
     BEGINNING OF YEAR                             $   995,650     $   744,954     $   725,809

Incurred losses and loss adjustment expenses
     Current year                                      322,122         240,732         236,037
     Prior years                                       (38,492)        (37,396)        (25,976)
------------------------------------------------------------------------------------------------
TOTAL INCURRED LOSSES AND
     LOSS ADJUSTMENT EXPENSES                          283,630         203,336         210,061
------------------------------------------------------------------------------------------------
Payments
     Current year                                       65,723          51,695          44,382
     Prior years                                       248,679         161,053         145,736
------------------------------------------------------------------------------------------------
TOTAL PAYMENTS                                         314,402         212,748         190,118
------------------------------------------------------------------------------------------------
NET RESERVES FOR LOSSES AND LOSS
     ADJUSTMENT EXPENSES, END OF YEAR                  964,878         735,542         745,752
------------------------------------------------------------------------------------------------
Reinsurance recoverable on unpaid losses               378,738         198,288         225,405
------------------------------------------------------------------------------------------------
GROSS RESERVES FOR LOSSES AND LOSS
     ADJUSTMENT EXPENSES, END OF YEAR              $ 1,343,616     $   933,830     $   971,157
================================================================================================
</TABLE>

The provision for prior years decreased in 1999, 1998 and 1997. 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.

Management continually attempts to improve its loss estimation process by
refining its ability to analyze loss development patterns, claim 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 and asbestos exposures, are adequate. The Company
has shown cumulative redundancies for thirteen consecutive years.

38
<PAGE>

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

8. Unpaid Losses And Loss Adjustment Expenses (continued)


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 aggregate statutory net reserves for losses and loss
adjustment expenses.

b) All of the Company's exposure to environmental and asbestos (E&A) claims
resulted from policies written by Shand/Evanston, Lincoln Insurance Company and
Gryphon Holdings, Inc. before their acquisitions by the Company. The Company's
exposure to E&A claims originated from umbrella, excess, commercial general
liability (CGL) insurance and reinsurance assumed that was written on an
occurrence basis from the 1970's to mid-1980's. Exposure also originated from
claims made policies written by Shand/Evanston that were designed to cover
environmental risks (EIL policies) provided that all other terms and conditions
of the policy were met.

E&A claims include property damage and clean-up costs related to pollution, as
well as personal injury allegedly arising from exposure to hazardous materials.
After 1986 the Company began underwriting CGL coverage with pollution exclusions
and in some lines of business, the Company began using a claims made form. These
developments significantly reduced the Company's exposure to future E&A
claims.

The following table provides a reconciliation of beginning and ending E&A
reserves for losses and loss adjustment expenses, which are a component of
consolidated reserves for losses and loss adjustment expenses (dollars in
thousands):

                                                     Years Ended December 31,
                                                  ------------------------------
                                                    1999        1998      1997
--------------------------------------------------------------------------------
NET RESERVES FOR E&A LOSSES AND LOSS ADJUSTMENT
     EXPENSES, BEGINNING OF YEAR                  $ 82,631   $ 81,364   $ 62,382
     Commutations                                       --          3      1,009
     Reserves for E&A losses and
         loss adjustment expenses of
         acquired insurance companies               38,913         --         --
--------------------------------------------------------------------------------
RESTATED NET RESERVES FOR
     E&A LOSSES AND LOSS ADJUSTMENT
     EXPENSES, BEGINNING OF YEAR                  $121,544   $ 81,367   $ 63,391

Incurred losses and loss adjustment expenses         5,082     10,576     29,050

Payments                                            28,850      9,312     11,077
--------------------------------------------------------------------------------
NET RESERVES FOR E&A LOSSES AND LOSS
     ADJUSTMENT EXPENSES, END OF YEAR               97,776     82,631     81,364
--------------------------------------------------------------------------------
Reinsurance recoverable on unpaid  losses           70,758     11,925     14,018
--------------------------------------------------------------------------------
GROSS RESERVES FOR E&A LOSSES AND LOSS
     ADJUSTMENT EXPENSES, END OF YEAR             $168,534   $ 94,556   $ 95,382
================================================================================

The increase in 1999 net and gross E&A reserves was due to the acquisition of
Gryphon in January 1999.

Inception to date net paid losses and loss adjustment expenses for E&A related
exposures totaled $184.8 million at December 31, 1999, of which approximately
$16.4 million was litigation related expense.

                                                                              39
<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


8. Unpaid Losses And Loss Adjustment Expenses (continued)


There were 304 open claims related to E&A at December 31, 1999, compared to 205
at December 31, 1998 and 234 at December 31, 1997. Of the open claims at
December 31, 1999, approximately 13% were products liability asbestos or related
claims. The 1999 increase in open claims was due to the acquisition of Gryphon.
Management believes future exposure to valid EIL claims is limited because
coverage was afforded on a claims made basis.

The Company's reserves for losses and loss adjustment expenses related to E&A
exposures represent management's best estimate of ultimate settlement values.
E&A reserves are continually monitored by management, and the Company's
statistical analysis of these reserves is reviewed by independent consulting
actuaries. E&A exposures are generally subject to significant uncertainty due to
potential severity and an uncertain legal climate. E&A reserves 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.

================================================================================

9. Long-Term Debt


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

<TABLE>
<CAPTION>

                                                                            December 31,
                                                                      -----------------------
                                                                        1999         1998
---------------------------------------------------------------------------------------------
<S>                                                                   <C>          <C>
Unsecured borrowings under $250 million revolving credit facility
     at an average rate of 7.0%, due April 23, 2003                   $ 75,000     $     --
7.25% unsecured notes, due November 1, 2003, interest payable
     semi-annually, net of unamortized discount of
     $178 in 1999 and $231 in 1998                                      92,984       93,219
---------------------------------------------------------------------------------------------
   Long-Term Debt                                                     $167,984     $ 93,219
=============================================================================================
</TABLE>

The $250 million revolving credit facility is available 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 .10% on the unused portion of the facility.

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 1999 the
Company repurchased $0.3 million of its 7.25% notes.

The estimated fair values of the Company's long-term debt were $163.9 million
and $96.9 million at December 31, 1999 and 1998, respectively, and were based on
quoted market prices at the reporting dates.

The $168.0 million of future principal payments on long-term debt are due in
2003.

The Company paid $11.9 million, $7.3 million and $7.6 million in interest during
the years ended December 31, 1999, 1998 and 1997, respectively.

40
<PAGE>

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

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
8.71% 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.
The Company paid $13.1 million, $19.6 million and $6.1 million in interest on
the 8.71% Capital Securities during the years ended December 31, 1999, 1998 and
1997, respectively. The estimated fair values of the Company's 8.71% Capital
Securities were $124.5 million and $144.5 million at December 31, 1999 and 1998,
respectively, and were based on quoted market prices at the reporting dates.

================================================================================

11. Shareholders' Equity


a) The Company has 15,000,000 shares of no par value common stock authorized, of
which 5,590,118 and 5,522,437 shares were outstanding at December 31, 1999 and
1998, 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.

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 which expired on December 31,1998
and the 1993 Incentive Stock Plan. At December 31, 1999, there were 64,579
shares and 100,000 shares reserved for issuance under the 1986 plan and the 1993
plan, respectively. At December 31, 1999, all options granted under the 1989
plan had been exercised. 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 award of incentive stock options, stock appreciation rights or
incentive stock awards to employees of the Company. 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, 1999, the
Company had 97,500 options, stock appreciation rights or incentive stock awards
available for grant under the 1993 plan.

                                                                              41
<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


11. Shareholders' Equity (continued)


Stock option transactions are summarized below:

<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                 ----------------------------------------------------------------------------
                                              Weighted                  Weighted                   Weighted
                                               Average                   Average                    Average
                                              Exercise                  Exercise                   Exercise
                                  1999          Price         1998        Price         1997         Price
-------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>           <C>          <C>           <C>          <C>
Options outstanding
     at January 1                160,439      $     31      217,279      $     29      264,250      $     26
Granted                               --            --           --            --        2,500           144
Exercised                        (93,360)           26      (56,260)           23      (48,031)           17
Canceled                              --            --         (580)           39       (1,440)           39
-------------------------------------------------------------------------------------------------------------
Options outstanding
     at December 31               67,079      $     38      160,439      $     31      217,279      $     29
=============================================================================================================
Options exercisable
     at December 31               60,079                    139,807                    180,283
Options available for grant
     at December 31               97,500                     97,500                    133,500
=============================================================================================================
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1999:

<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>            <C>                  <C>           <C>           <C>
 $ 11 to 12       12,459           1.0 year          $   12         12,459       $   12
   18 to 21        9,350           1.6                   20          9,350           20
   26              4,500           2.4                   26          4,500           26
   36 to 42       33,270           3.8                   38         31,270           38
   87              5,000           6.8                   87          2,000           87
  144              2,500           7.8                  144            500          144
------------------------------------------------------------------------------------------
 $11 to 144       67,079           3.3 year          $   38         60,079       $   31
==========================================================================================
</TABLE>

The pro forma impact of stock options granted after 1995 had no effect on basic
or diluted net income per share.

42
<PAGE>

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

11. Shareholders' Equity (continued)


c) Net income per share is determined by dividing net income, as adjusted below,
by the applicable shares outstanding (in thousands):

                                                  Years Ended December 31,
                                             -----------------------------------
                                                1999         1998         1997
--------------------------------------------------------------------------------
Net income as reported                       $ 40,614     $ 57,293     $ 50,427
Dividends on redeemable preferred stock            --           --           (8)
--------------------------------------------------------------------------------
     Basic and diluted income                $ 40,614     $ 57,293     $ 50,419
================================================================================
Average common shares outstanding               5,585        5,506        5,483
Dilutive potential common shares                   53          130          169
--------------------------------------------------------------------------------
     Average diluted shares outstanding         5,638        5,636        5,652
================================================================================

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

================================================================================

12. Comprehensive Income (Loss)


Other comprehensive income (loss) is composed of net holding gains (losses) on
securities arising during the period less reclassification adjustments for gains
(losses) included in net income. The related tax expense (benefit) on net
holding gains (losses) on securities arising during the period was $(43.7)
million, $13.0 million and $27.9 million for 1999, 1998 and 1997, respectively.
The related tax expense (benefit) on the reclassification adjustments for gains
(losses) included in net income was $(0.3) million for 1999, $7.2 million for
1998 and $5.5 million for 1997.

================================================================================

13. 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 $3.3 million, $2.9
million and $2.6 million in 1999, 1998 and 1997, respectively.

================================================================================

14. 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.

A credit risk exists with reinsurance ceded to the extent that any reinsurer is
unable to meet the obligations assumed under the reinsurance agreements.
Allowances are established for amounts deemed uncollectible. The Company
evaluates the financial condition of its reinsurers and monitors concentration
of credit risk arising from its exposure to individual reinsurers. At December
31, 1999 and 1998, the Company's top ten reinsurers represented 50% and 74%,
respectively, of the reinsurance recoverable on paid and unpaid losses.

                                                                              43
<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. Reinsurance (continued)


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

<TABLE>
<CAPTION>

                                             Years Ended December 31,
                ---------------------------------------------------------------------------------
                          1999                        1998                       1997
-------------------------------------------------------------------------------------------------
                 Written        Earned       Written        Earned       Written        Earned
<S>             <C>           <C>           <C>           <C>           <C>           <C>
Direct          $ 564,749     $ 567,117     $ 432,094     $ 413,752     $ 413,252     $ 422,574
Assumed            27,784        25,529         4,933         5,313         7,395         6,938
Ceded            (164,529)     (155,450)      (93,150)      (85,798)      (90,684)      (96,634)
-------------------------------------------------------------------------------------------------
Net Premiums    $ 428,004     $ 437,196     $ 343,877     $ 333,267     $ 329,963     $ 332,878
=================================================================================================
</TABLE>

Incurred losses and loss adjustment expenses are net of reinsurance recoveries
of $102.2 million, $55.8 million and $82.0 million for the years ended December
31, 1999, 1998 and 1997, respectively.

The percentage of assumed earned premiums to net earned premiums for the years
ended December 31, 1999, 1998 and 1997 was approximately 6%, 2% and 2%,
respectively.

================================================================================

15. 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
or results of operations.

================================================================================

16. Related Party Transactions


The Company pays commissions for business produced by Gary Markel & Associates,
Inc. and Gary Markel Surplus Lines Brokerage, Inc., entities owned by a Director
of the Company. The commissions paid were $0.4 million, $0.4 million and $0.5
million for the years ended December 31, 1999, 1998 and 1997, respectively.

================================================================================

17. 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,
                                      ------------------------------------------
                                         1999             1998            1997
--------------------------------------------------------------------------------
Net income                            $ 60,938         $ 48,357         $ 50,427
--------------------------------------------------------------------------------
Statutory capital and surplus         $435,071         $372,872         $334,025
================================================================================

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, 1999, the Company's insurance subsidiaries could pay up to $60.9
million during the following twelve months under the ordinary dividend
regulations without prior regulatory approval. As of December 31, 1999, $374.2
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 holding gains or losses in shareholders' equity
relating to fixed maturities. The Company does not use any permitted statutory
accounting practices which are different from prescribed statutory accounting
practices.

44
<PAGE>

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

18. Segment Reporting Disclosures


The Company has five core underwriting units focused on specific niches within
the Excess and Surplus Lines and Specialty Admitted markets. Excess and Surplus
Lines, Professional/Products Liability and Brokered Excess and Surplus Lines
write business in the Excess and Surplus Lines market and for purposes of
segment reporting are aggregated as one operating segment. Specialty Program
Insurance and Specialty Personal and Commercial Lines write business in the
Specialty Admitted market and for purposes of segment reporting are aggregated
as one operating segment. All investing activities are included in the Investing
operating segment.

The Company has significantly restructured Gryphon's operations, and Gryphon's
premium volume has decreased by approximately 50% from preacquisition levels.
Gryphon continuing programs are administered by underwriting units in the Excess
and Surplus Lines operating segment. Gryphon discontinued programs are included
in Other for purposes of segment reporting.

The Company considers many factors, including the nature of the underwriting
units' insurance products, production sources, distribution strategies and
regulatory environment in determining how to aggregate operating segments.

Segment profit or loss for the Excess and Surplus Lines and the Specialty
Admitted operating segments is measured by underwriting profit or loss. Segment
profit for the Investing operating segment is measured by net investment income
and net realized gains or losses.

The Company does not allocate assets to the Excess and Surplus Lines or the
Specialty Admitted operating segments for management reporting purposes. The
total investment portfolio is allocated to the Investing operating segment. The
Company does not allocate capital expenditures for long-lived assets to any of
its operating segments for management reporting purposes.

a)  Following is a summary of segment disclosures (dollars in thousands):

<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                   ---------------------------------------------
                                      1999              1998              1997
--------------------------------------------------------------------------------
<S>                                <C>               <C>               <C>
Segment Revenues
     Excess & Surplus Lines        $ 286,449         $ 229,541         $ 216,478
     Specialty Admitted              114,567           103,726           116,400
     Investing                        86,784            91,604            84,487
     Other                            36,180                --                --
--------------------------------------------------------------------------------
     Segment Revenues              $ 523,980         $ 424,871         $ 417,365
================================================================================
Segment Profit (Loss)
     Excess & Surplus Lines        $  15,846         $   6,878         $  14,032
     Specialty Admitted                 (890)           (1,788)          (11,291)
     Investing                        86,784            91,604            84,487
     Other                           (18,093)               --                --
--------------------------------------------------------------------------------
     SEGMENT PROFIT                $  83,647         $  96,694         $  87,228
================================================================================
</TABLE>

                                                                              45
<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


18. Segment Reporting Disclosures (continued)


                                             Years Ended December 31,
                                  ----------------------------------------------
                                      1999             1998            1997
--------------------------------------------------------------------------------
Segment Assets
     Excess & Surplus Lines       $       --       $       --       $       --
     Specialty Admitted                   --               --               --
     Investing                     1,623,139        1,481,093        1,408,320
     Other                           832,166          440,171          461,780
--------------------------------------------------------------------------------
     SEGMENT ASSETS               $2,455,305       $1,921,264       $1,870,100
================================================================================
Combined Ratio
     Excess & Surplus Lines               94%              97%              94%
     Specialty Admitted                  101%             102%             110%
     Investing                            --               --               --
     Other                               150%              --               --
--------------------------------------------------------------------------------
     COMBINED RATIO                      101%              98%              99%
================================================================================

b) The following summary reconciles significant segment items to the Company's
consolidated financial statements (dollars in thousands):

                                             Years Ended December 31,
                                  ----------------------------------------------
                                      1999             1998            1997
--------------------------------------------------------------------------------
Operating Revenues
     Earned premiums              $  437,196       $  333,267       $  332,878
     Investing results                86,784           91,604           84,487
     Other                               341            1,130            1,682
--------------------------------------------------------------------------------
     TOTAL OPERATING REVENUES     $  524,321       $  426,001       $  419,047
================================================================================
Income Before Income Taxes
     Segment profit               $   83,647       $   96,694       $   87,228
     Unallocated amounts
         Amortization expense         (5,398)          (2,033)          (2,435)
         Interest expense            (25,150)         (20,406)         (20,124)
         Other                           341            1,130            1,682
--------------------------------------------------------------------------------
     INCOME BEFORE INCOME TAXES   $   53,440       $   75,385       $   66,351
================================================================================

46
<PAGE>

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

19. Acquisition


On January 15, 1999, the Company acquired Gryphon Holdings, Inc. and its
subsidiaries (Gryphon) as the result of the completion of a public tender offer.
The Company's results for the year ended December 31, 1999 include Gryphon since
the date of acquisition. The acquisition was accounted for using the purchase
method of accounting. Total consideration paid for Gryphon was approximately
$145.7 million. The excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets acquired was recorded as goodwill
and is being amortized using the straight-line method over 20 years. The Company
funded the transaction with available cash of approximately $95.7 million and
borrowings of approximately $50 million. In addition the Company refinanced
$55.0 million of Gryphon's long-term debt.

The table below summarizes, on a pro forma basis, the Company's consolidated
results of operations as if the purchase of Gryphon had taken place as of
January 1, 1998 (dollars in thousands, except per share amounts):

                                                                 Year Ended
                                                              December 31, 1998
--------------------------------------------------------------------------------
Total operating revenues                                          $549,201
Net income                                                          28,489
--------------------------------------------------------------------------------
Net income per share
     Basic                                                        $   5.17
     Diluted                                                          5.05
================================================================================
Gryphon's results had a dilutive effect on the Company's pro forma results of
operations in 1998 due to significant loss reserve strengthening at Gryphon.

================================================================================

20. Subsequent Event


The Company originally announced an agreement to purchase Terra Nova (Bermuda)
Holdings Ltd. (Terra Nova) in August 1999. On January 26, 2000, subsequent to
the Company's year end, the Company announced revised terms for its acquisition
of Terra Nova. The new agreement was reached after preliminary information
indicated that Terra Nova would report a loss for the year ended December 31,
1999.

Pursuant to the revised terms of the merger agreement, purchase consideration
will consist of approximately $325 million in cash, 1.8 million Markel common
shares and 1.8 million Markel contingent value rights (CVR). The CVR's are
intended to increase the likelihood that a Terra Nova shareholder will be able
to realize a minimum value of $185 for each Markel share received. In addition,
$175 million of Terra Nova debt will remain outstanding. The acquisition will be
accounted for as a purchase transaction. The excess of the purchase price over
the fair value of the net tangible and identifiable intangible assets acquired
will be recorded as goodwill and will be amortized using the straight-line
method over 20 years. The transaction which is subject to approval by the
Company's and Terra Nova's shareholders, the receipt of necessary regulatory
approvals and other customary closing conditions is scheduled to close on
March 24, 2000.

                                                                              47
<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


21. Markel Corporation (Parent Company Only) Financial Information

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS

                                                                                 December 31,
                                                                           -------------------------
                                                                             1999          1998
----------------------------------------------------------------------------------------------------
                                                                            (dollars in thousands)
<S>                                                                        <C>            <C>
ASSETS
Investments, available-for-sale, at estimated fair value
     Fixed maturities (cost of $37,041 in 1999 and $86,669 in 1998)        $ 36,246       $ 87,267
     Equity securities (cost of $54,011 in 1999 and $48,007 in 1998)         55,822         50,637
     Short-term investments (estimated fair value approximates cost)         28,053         58,726
----------------------------------------------------------------------------------------------------
     TOTAL INVESTMENTS, AVAILABLE-FOR-SALE                                  120,121        196,630
----------------------------------------------------------------------------------------------------

Cash and cash equivalents                                                       853            624
Investments in consolidated subsidiaries                                    549,432        431,836
Notes receivable due from subsidiaries                                       38,864         52,764
Current income taxes recoverable                                                 --            200
Other assets                                                                 30,289         25,328
----------------------------------------------------------------------------------------------------
     TOTAL ASSETS                                                          $739,559       $707,382
====================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current income taxes payable                                               $    752       $     --
Deferred income taxes                                                         4,906          6,570
Long-term debt                                                              167,984         93,219
Other liabilities                                                            27,858         27,652
8.71% Junior Subordinated Deferrable Interest Debentures                    154,640        154,640
----------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES                                                      356,140        282,081
----------------------------------------------------------------------------------------------------
     TOTAL SHAREHOLDERS' EQUITY                                             383,419        425,301
----------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                            $739,559       $707,382
====================================================================================================
</TABLE>

48
<PAGE>

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

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


CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>

                                                                             Years Ended December 31,
                                                                    ------------------------------------------
                                                                      1999            1998            1997
--------------------------------------------------------------------------------------------------------------
                                                                            (dollars in thousands)
<S>                                                                 <C>             <C>             <C>
REVENUES
Net investment income                                               $ 10,390        $ 12,900        $ 11,816
Cash dividends on common stock of
     consolidated subsidiaries                                        48,851          35,637          29,125
Net realized gains (losses) from investment sales                     (5,767)          3,980           1,036
Other                                                                    147               6              15
--------------------------------------------------------------------------------------------------------------
     TOTAL REVENUES                                                   53,621          52,523          41,992
==============================================================================================================

EXPENSES
Interest                                                              23,845          20,167          20,306
Other                                                                  1,124           1,001             644
--------------------------------------------------------------------------------------------------------------
     TOTAL EXPENSES                                                   24,969          21,168          20,950
==============================================================================================================

     INCOME BEFORE EQUITY IN UNDISTRIBUTED
         EARNINGS OF CONSOLIDATED SUBSIDIARIES
         AND INCOME TAXES                                             28,652          31,355          21,042
Equity in undistributed earnings of
     consolidated subsidiaries                                         8,345          19,734          23,666
Income tax benefit                                                    (3,617)         (6,204)         (5,719)
--------------------------------------------------------------------------------------------------------------
     NET INCOME                                                     $ 40,614        $ 57,293        $ 50,427
==============================================================================================================

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on securities, net of taxes
     Net holding gains (losses) arising
         during the period                                          $ (5,186)       $  2,881        $  2,477
     Consolidated subsidiaries' net holding
         gains (losses) arising during the period                    (76,037)         21,231          49,323
--------------------------------------------------------------------------------------------------------------
                                                                     (81,223)         24,112          51,800
--------------------------------------------------------------------------------------------------------------

     Less reclassification adjustments for gains (losses)
         included in net income                                        3,749          (2,587)           (673)
     Less consolidated subsidiaries' reclassification
         adjustments for gains included in net income                 (3,166)        (10,776)         (9,619)
--------------------------------------------------------------------------------------------------------------
                                                                         583         (13,363)        (10,292)
--------------------------------------------------------------------------------------------------------------
     TOTAL OTHER COMPREHENSIVE INCOME (LOSS)                         (80,640)         10,749          41,508
--------------------------------------------------------------------------------------------------------------
     COMPREHENSIVE INCOME (LOSS)                                    $(40,026)       $ 68,042        $ 91,935
==============================================================================================================
</TABLE>


                                                                              49
<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


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


CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                                       ---------------------------------------------
                                                          1999             1998             1997
----------------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                                                    <C>              <C>              <C>
OPERATING ACTIVITIES
Net income                                             $  40,614        $  57,293        $  50,427
Adjustments to reconcile net income to net cash
     provided by operating activities                      7,448          (34,186)         (15,471)
----------------------------------------------------------------------------------------------------
     NET CASH PROVIDED BY OPERATING ACTIVITIES            48,062           23,107           34,956
====================================================================================================

INVESTING ACTIVITIES
Proceeds from sales of fixed maturities
     and equity securities                                80,751           15,410            5,918
Proceeds from maturities of fixed maturities              16,442           82,846            2,047
Cost of fixed maturities and equity
     securities purchased                                (56,691)         (92,991)        (152,551)
Net change in short-term investments                      30,673          (23,232)         (17,876)
Decrease (increase) in notes receivable due
     from subsidiaries                                    13,900           (4,538)           1,468
Capital contribution to subsidiaries                     (14,000)              --           (4,640)
Sales (acquisition) of insurance companies              (124,318)              --           15,791
Other                                                     (8,833)          (1,082)          (1,424)
----------------------------------------------------------------------------------------------------
     NET CASH USED BY INVESTING ACTIVITIES               (62,076)         (23,587)        (151,267)
====================================================================================================

FINANCING ACTIVITIES
Net proceeds from issuance of 8.71% Junior
     Subordinate Deferrable Interest Debentures               --               --          152,763
Dividends to subsidiaries                                     --               --              (51)
Additions to long-term debt                              115,000               --               --
Repayments and repurchases of long-term debt             (95,288)              --          (21,527)
Repurchase of preferred stock from subsidiaries               --               --          (12,000)
Other                                                     (5,469)             455           (3,787)
----------------------------------------------------------------------------------------------------
     NET CASH PROVIDED BY FINANCING ACTIVITIES            14,243              455          115,398
====================================================================================================
Increase (decrease) in cash and cash equivalents             229              (25)            (913)
Cash and cash equivalents at beginning of year               624              649            1,562

----------------------------------------------------------------------------------------------------
     CASH AND CASH EQUIVALENTS AT END OF YEAR          $     853        $     624        $     649
====================================================================================================
</TABLE>

50
<PAGE>

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

Independent Auditors' Report


[LOGO OF KPMG]


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, 1999 and 1998, 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, 1999. 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 subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.


/s/ KPMG LLP


Richmond, Virginia
February 1, 2000

                                                                              51
<PAGE>

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


QUARTERLY INFORMATION

The following table presents the quarterly results of consolidated operations
for 1999, 1998 and 1997 (dollars in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                      Mar. 31         June 30          Sept. 30         Dec. 31
-------------------------------------------------------------------------------------------------
<S>                                 <C>              <C>              <C>              <C>
1999
   Operating revenues               $ 138,110        $ 132,155        $ 132,622        $ 121,434
   Income before income taxes          19,308           15,664           11,559            6,909
   Net income                          14,674           11,905            8,784            5,251
   Comprehensive loss                  (7,787)          (3,741)         (27,956)            (542)
   Net income per share
       Basic                        $    2.64        $    2.13        $    1.57        $    0.94
       Diluted                           2.61             2.10             1.55             0.93
   Common stock price ranges
       High                         $     184 1/2    $     192        $     191 1/2    $     180 1/2
       Low                                166 1/2          176 1/2          174              145

1998
   Operating revenues               $ 100,083        $ 108,148        $ 105,094        $ 112,676
   Income before income taxes          16,896           19,653           15,914           22,922
   Net income                          12,841           14,936           12,095           17,421
   Comprehensive income                31,874           11,764            3,151           21,253
   Net income per share
       Basic                        $    2.34        $    2.71        $    2.20        $    3.16
       Diluted                           2.27             2.64             2.14             3.09
   Common stock price ranges
       High                         $     177 1/2    $     180 1/2    $     185        $     183 3/4
       Low                                150              158 1/2          141              132 3/4

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

</TABLE>

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.

52
<PAGE>

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

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

Results of Operations
--------------------------------------------------------------------------------

     In 1999 gross premium volume totaled $594.9 million compared to $437.5
     million in 1998 and $423.3 million in 1997. The 1999 growth was primarily
     the result of the acquisition of Gryphon which added $104.1 million to the
     Company's gross premium volume. During 1999, $67.7 million of Gryphon gross
     premiums that the Company expects to retain and further develop (Gryphon
     continuing programs) were moved to the Company's three Excess & Surplus
     lines units. After the acquisition, the Company identified and discontinued
     all Gryphon programs that had historically produced underwriting losses
     (Gryphon discontinued programs). Gryphon discontinued programs totaled
     $36.4 million of gross premiums in 1999. Gross premiums from the Company's
     core underwriting units, before consideration of Gryphon, increased 12% in
     1999. Following is a comparison of gross premium volume by significant
     underwriting unit (dollars in thousands):

                                                    Years Ended December 31,
     ---------------------------------------------------------------------------
     GROSS PREMIUM VOLUME                         1999        1998        1997
     ---------------------------------------------------------------------------

     Excess and Surplus Lines                  $ 185,526   $ 121,959   $ 130,028
     Professional/Products Liability             153,523     123,607     113,704
     Brokered Excess and Surplus Lines            84,549      65,257      45,795
     Specialty Program Insurance                  82,501      83,562      85,645
     Specialty Personal and Commercial Lines      50,388      39,770      44,871
     Gryphon Discontinued Programs                36,374          --          --
     Other                                         2,087       3,323       3,300

     ---------------------------------------------------------------------------
        TOTAL                                  $ 594,948   $ 437,478   $ 423,343
     ===========================================================================

     Excess and Surplus Lines premiums totaled $185.5 million in 1999 compared
     to $122.0 million in 1998 and $130.0 million in 1997. The 1999 growth was
     primarily due to the addition of $46.3 million of Gryphon continuing
     programs, principally consisting of earthquake-exposed California
     commercial property business. Before considering volume added by the
     Gryphon acquisition,1999 premiums from Excess and Surplus Lines grew 14% to
     $139.2 million due to increased production in the casualty, Essex special
     property and inland marine programs. In 1998 continued growth in the inland
     marine program was more than offset by lower production in the casualty and
     Essex special property programs. Both years were affected by intense
     competition in the excess and surplus lines market.

     Premiums from Professional/Products Liability rose 24% to $153.5 million in
     1999 from $123.6 million in 1998 and $113.7 million in 1997. The 1999
     growth was partially due to the addition of $14.1 million of Gryphon
     continuing programs, consisting of directors and officers, architects,
     engineers and lawyers programs. Before considering volume added by the
     Gryphon acquisition, premiums from Professional/Products Liability rose 13%
     to $139.5 million during 1999. This increase was due to growth in the
     employment practices liability, specified professions and special risks
     programs that was partially offset by lower production from the medical
     malpractice and lawyers programs. In 1998 growth in the employment
     practices and specified professions product lines was partially offset by
     lower production from other lines, including scaffolding, financial
     institutions and the directors and officers programs. Both years were
     affected by continued aggressive competition in the professional liability
     markets and changes in risk selection in certain programs.

                                    [GRAPH]

                                    Premiums

                                      1997           1998           1999
                                      ----           ----           ----
                                                 $ in millions

       gross premium volume           $423           $437           $595
       net premiums written           $330           $344           $428


     Premiums from Brokered Excess and Surplus Lines increased 30% to $84.5
     million in 1999 from $65.3 million in 1998 and $45.8 million in 1997. The
     increase in 1999 was due in part to the addition of a $7.3 million loan
     guarantee program from the Gryphon acquisition. Before considering

                                                                              53
<PAGE>

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


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

     volume added by the Gryphon acquisition, premiums from Brokered Excess and
     Surplus Lines grew 18% to $77.3 million due to growth in the excess and
     umbrella, casualty and property programs. The 1998 increase was due to
     growth in the casualty and excess and umbrella programs.

     Premiums from Specialty Program Insurance totaled $82.5 million in 1999
     compared to $83.6 million in 1998 and $85.6 million in 1997. The 1999
     decrease was due to increased competition in the youth and recreation
     program and a change in risk selection in a portion of the agribusiness
     program. The decrease in these lines was partially offset by continued
     growth in the sports liability, accident and medical (SLAM) and surety
     programs. In 1998 growth in the agriculture, SLAM and surety programs was
     more than offset by declines in the camp and youth recreation and health
     and fitness programs.

     Specialty Personal and Commercial Lines premiums rose 27% to $50.4 million
     in 1999 from $39.8 million in 1998 and $44.9 million in 1997. The 1999
     increase was due to the acquisition of a yacht program that added $19.3
     million in gross premium, including $7.3 million of unearned premiums at
     the date of acquisition. This growth was partially offset by the
     discontinuance of portions of the unit's property programs. The decrease in
     1998 was primarily due to the restructuring of the property programs and
     aggressive competition.

     Gross premium volume for the Gryphon discontinued programs was $36.4
     million in 1999. The Company reviewed all of Gryphon's programs at the time
     of the acquisition and determined that certain programs were unprofitable
     and presented little opportunity to generate future underwriting profits.
     The Company has discontinued these programs and has established a runoff
     unit to aggressively manage their resolution.

     Other gross premium volume was $2.1 million in 1999 and $3.3 million in
     both 1998 and 1997. Other gross premium volume primarily consisted of
     facultative reinsurance placed by the Professional/Products Liability unit.

     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. 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
     decreased to 72% in 1999 compared to 79% in 1998 and 78% in 1997. The
     decrease in 1999 was primarily due to lower retentions on the Gryphon
     California property program that was added to the Excess and Surplus Lines
     underwriting unit. The 1998 increase was primarily due to a new reinsurance
     treaty structure in the Specialty Program Insurance unit and higher
     retentions in the Professional/Products Liability unit.

     Total operating revenues were $524.3 million in 1999 compared to $426.0
     million in 1998 and $419.0 million in 1997. In 1999 growth in earned
     premiums and higher net investment income, primarily as a result of the
     Gryphon acquisition, more than offset the recognition of net realized
     losses from investment sales. In 1998 the increase was due to substantially
     higher realized gains and an increase in net investment income.

54
<PAGE>

     Earned premiums increased 31% to $437.2 million in 1999 from $333.3 million
     in 1998 and $332.9 million in 1997. Gryphon continuing and discontinued
     programs contributed $31.1 million and $36.2 million of earned premiums,
     respectively. Before considering earned premiums added by the Gryphon
     acquisition, earned premiums from the Company's core underwriting units
     increased 11% in 1999. Following is a comparison of earned premiums by
     significant underwriting unit (dollars in thousands):

                                                    Years Ended December 31,
                                               ---------------------------------
     EARNED PREMIUMS                              1999       1998       1997
     ---------------------------------------------------------------------------

     Excess and Surplus Lines                  $ 103,602  $  86,439  $  84,244
     Professional/Products Liability             128,941    105,177    102,075
     Brokered Excess and Surplus Lines            53,906     37,911     30,170
     Specialty Program Insurance                  67,785     63,438     67,778
     Specialty Personal and Commercial Lines      46,782     40,288     48,622
     Gryphon Discontinued Programs                36,180         --         --
     Other                                            --         14        (11)

     ---------------------------------------------------------------------------
        TOTAL                                  $ 437,196  $ 333,267  $ 332,878
     ===========================================================================

     Excess and Surplus Lines earned premiums rose in 1999 to $103.6 million and
     in 1998 to $86.4 million from $84.2 million in 1997. The growth in 1999 was
     primarily due to the addition of $13.2 million of earned premium from
     Gryphon continuing programs. Before considering earned premiums added by
     the Gryphon acquisition, higher gross premium volume over the past several
     years accounted for earned premium growth in 1999 and 1998 of 5% and 3%,
     respectively.

     Premiums earned from Professional/Products Liability increased in 1999 to
     $128.9 million and in 1998 to $105.2 million from $102.1 million in 1997.
     The growth in 1999 was partially due to the addition of $10.6 million of
     earned premiums from Gryphon continuing programs. Before considering earned
     premiums added by the Gryphon acquisition, higher gross premium volume over
     the past several years accounted for earned premium growth in 1999 and 1998
     of 13% and 3%, respectively.

     Premiums earned from Brokered Excess and Surplus Lines increased in 1999 to
     $53.9 million and to $37.9 million in 1998 from $30.2 million in 1997. The
     increase in 1999 was partially due to $7.3 million of earned premiums from
     Gryphon continuing programs. Before considering earned premiums added by
     the Gryphon acquisition, the increase in both 1999 and 1998 was due to
     gross premium growth.

     Specialty Program Insurance earned premiums increased 7% to $67.8 million
     in 1999 and decreased 6% to $63.4 million in 1998 from $67.8 million in
     1997. The increase in 1999 was primarily due to steadily increasing net
     retentions over the past several years partially offset by lower gross
     premium volume. The decline in 1998 was due to lower gross premium volume.

     Specialty Personal and Commercial Lines earned premiums increased 16% in
     1999 to $46.8 million and decreased 17% in 1998 to $40.3 million from $48.6
     million in 1997. The increase in 1999 was primarily due to the acquisition
     of a yacht program, which contributed $11.4 million of earned premiums
     during 1999. The 1998 decrease was due to declining gross premium
     production in 1998 and 1997.

                                                                              55
<PAGE>

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

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


                                    [GRAPH]

                              Investment Earnings

                                           1997         1998         1999
                                           ----         ----         ----
                                                   $ in millions

    net realized gains (losses)             16           21           (1)
    net investment income                   69           71           88
    --------------------------------------------------------------------
                Total                       85           92           87

     Net investment income increased 23% in 1999 to $87.7 million and 3% in 1998
     to $71.0 million from $68.7 million in 1997. The 1999 increase was
     primarily the result of the Gryphon acquisition, which added approximately
     $300 million to the Company's investment portfolio in January 1999. The
     1998 increase was the result of operating cash flows which added to the
     Company's investment portfolio, partially offset by lower interest rates.
     Invested assets grew 10% in 1999 to $1.6 billion and 5% in 1998 to $1.5
     billion from $1.4 billion in 1997.

     The Company recognized $0.9 million of net realized losses from investment
     sales in 1999 compared to $20.6 million of net realized gains in 1998 and
     $15.8 million of net realized gains in 1997. As part of its tax planning
     strategy, the Company made the decision in 1999 to sell fixed income
     securities with unrealized losses and realize the associated tax savings.
     Proceeds were reinvested in high quality fixed income securities at higher
     yields. Over the past three years, the Company has experienced variability
     in its realized and unrealized investment gains and losses. 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 or losses from one period to the next.

     Total operating expenses, which include losses and loss adjustment
     expenses, underwriting, acquisition and insurance expenses and amortization
     of intangible assets, were $445.7 million in 1999 compared to $330.2
     million in 1998 and $332.6 million in 1997. The 1999 increase resulted
     primarily from the Gryphon acquisition. In 1998 lower operating expenses
     were primarily due to continued favorable loss reserve development.

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

<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                                         -------------------------------------
                                                            1999          1998        1997
     -----------------------------------------------------------------------------------------
     <S>                                                 <C>           <C>          <C>
     Gross premium volume                                $ 594,948     $ 437,478    $ 423,343
     Net premiums written                                $ 428,004     $ 343,877    $ 329,963
     Net retention                                              72%           79%          78%
     Earned premiums                                     $ 437,196     $ 333,267    $ 332,878
     Losses and loss adjustment expenses                 $ 283,630     $ 203,336    $ 210,061
     Underwriting, acquisition and insurance expenses    $ 156,703     $ 124,841    $ 120,076
     Underwriting profit (loss)*                         $  (3,137)    $   5,090    $   2,741

     GAAP RATIOS
     Loss ratio                                                 65%           61%          63%
     Expense ratio                                              36%           37%          36%

     -----------------------------------------------------------------------------------------
           COMBINED RATIO                                      101%           98%          99%
     =========================================================================================
</TABLE>

     *The property and casualty insurance industry commonly defines underwriting
     profit or loss as earned premiums net of losses and loss adjustment
     expenses and underwriting, acquisition and insurance expenses. Underwriting
     profit or loss does not replace operating income or net income computed in
     accordance with generally accepted accounting principles (GAAP) as a
     measure of profitability.

     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 1999 increased to 65% from 61% in 1998
     and from 63% in 1997. In 1999 favorable loss development in the Excess and
     Surplus Lines operating segment was more than offset by the higher loss
     ratio on Gryphon

56
<PAGE>

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

     discontinued programs. The 1998 loss ratio compared favorably to 1997 due
     to continued favorable loss reserve development and favorable results from
     corrective actions taken in certain lines of business. The expense ratio
     was 36% in 1999 compared to 37% in 1998 and 36% in 1997. The decrease in
     the 1999 expense ratio was primarily due to lower overhead costs in the
     Specialty Admitted operating segment and higher earned premiums. The
     increase in the 1998 expense ratio was due to higher acquisition costs,
     primarily producer commissions, and lower contingent profit commissions
     from reinsurers compared to 1997.

     The Company's five core underwriting units focus on specific niches within
     the Excess and Surplus Lines and Specialty Admitted markets. Excess and
     Surplus Lines, Professional/Products Liability and Brokered Excess and
     Surplus Lines write business in the Excess and Surplus Lines market and for
     purposes of segment reporting are aggregated as one operating segment.
     Specialty Program Insurance and Specialty Personal and Commercial Lines
     write business in the Specialty Admitted market and for purposes of segment
     reporting are aggregated as one operating segment.

     The combined ratio for the Excess and Surplus Lines segment decreased to
     94% in 1999 compared to 97% in 1998 and 94% in 1997. The 1999 improvement
     was due to continued favorable loss reserve development across most lines
     of business. The increase in the 1998 combined ratio was primarily due to
     reserve strengthening for toxic tort and environmental impairment claims,
     partially offset by favorable development in other lines of business. The
     1998 increase was also due to higher producer commissions and lower
     contingent profit commissions from reinsurers compared to 1997.

     The combined ratio for the Specialty Admitted segment decreased to 101% in
     1999 compared to 102% in 1998 and 110% in 1997. The 1999 improvement was
     due to lower overhead costs. The improvement in 1998 was the result of
     improving loss ratios, partially offset by higher acquisition costs.

     Interest expense was $25.2 million in 1999 compared to $20.4 million in
     1998 and $20.1 million in 1997. The 1999 increase was due to additional
     borrowings to finance a portion of the Gryphon acquisition.

     In evaluating its operating performance, the Company focuses on
     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 (earnings from
     core operations). Although earnings from core operations does not replace
     operating income or net income computed in accordance with GAAP as a
     measure of profitability, management focuses on this performance measure
     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. Earnings from core operations
     were $46.1 million in 1999 compared to $45.6 million in 1998 and $42.0
     million in 1997. The 1999 increase was primarily due to higher net
     investment income generated from the Gryphon investment portfolio and
     underwriting profits in the Company's core underwriting units, partially
     offset by underwriting losses in Gryphon discontinued programs. The 1998
     increase was due to underwriting profitability and higher net investment
     income, resulting primarily from larger investment portfolios.

                                    [GRAPH]

                         Earnings from Core Operations

                         1997         1998        1999
                         ----         ----        ----
                              $ per diluted share

                         7.43         8.10        8.17

     Net income was $40.6 million in 1999 compared to $57.3 million in 1998 and
     $50.4 million in 1997. The decrease in 1999 was primarily the result of net
     realized losses from sales of investments compared to net realized gains in
     1998. The 1998 increase was due to increased realized investment gains and
     higher underwriting profitability.

                                                                              57
<PAGE>

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

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


     The Company reported a comprehensive loss of $40.0 million in 1999 compared
     to $68.0 million of comprehensive income in 1998 and $91.9 million of
     comprehensive income in 1997. The comprehensive loss in 1999 was due to
     unrealized holding losses on equity and fixed maturity securities and lower
     net income compared to 1998. The decrease in 1998 comprehensive income was
     due to smaller increases in unrealized holding gains on equity and fixed
     maturity securities compared to 1997, partially offset by higher net
     income.

Claims And Reserves
================================================================================

     The Company maintains reserves for specific claims incurred and reported,
     reserves for claims incurred but not reported 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.

     The first line of the following 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 1994 liability for losses and
     loss adjustment expenses at the end of 1994 for 1994 and all prior years,
     adjusted for commutations, acquisitions and other, was originally estimated
     to be $715.4 million. Five years later, as of December 31, 1999, this
     amount was re-estimated to be $642.5 million, of which $403.7 million had
     been paid, leaving a reserve of $238.8 million for losses and loss
     adjustment expenses for 1994 and prior years remaining unpaid as of
     December 31, 1999.

58
<PAGE>

     The following table represents the development of the Company's balance
     sheet reserves for the period 1989 through 1999 (in thousands):

<TABLE>
<CAPTION>

                         1989      1990      1991      1992      1993      1994      1995      1996      1997      1998      1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>        <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Net reserves restated
for commutations,
acquisitions and other $559,213   566,744   618,534   638,199   675,937   715,407   790,943   876,063   947,240   995,650   964,878
-----------------------------------------------------------------------------------------------------------------------------------

Paid (cumulative)
as of:
One year later           65,810    52,545    83,720    95,084   151,413   135,947   124,467   145,736   161,103   248,679
Two years later         116,418   107,209   156,256   217,180   253,418   219,133   227,640   266,248   345,124
Three years later       154,798   160,808   253,424   297,034   307,831   286,926   305,217   399,473
Four years later        194,199   242,670   318,298   331,709   353,325   337,712   399,714
Five years later        258,412   297,914   346,009   361,214   387,224   403,727
Six years later         310,448   320,766   367,636   385,347   439,425
Seven years later       331,842   337,735   386,721   426,419
Eight years later       346,213   353,380   426,028
Nine years later        360,575   389,897
Ten years later         394,335

Reserves
re-estimated as of:
One year later          553,747   562,366   608,945   631,960   638,738   706,614   766,826   850,087   909,844   957,158
Two years later         551,658   550,488   603,883   604,928   660,001   681,923   740,053   826,064   873,646
Three years later       544,311   546,491   583,354   606,374   642,360   658,964   723,029   795,375
Four years later        537,501   533,764   574,963   590,375   636,738   654,501   707,564
Five years later        525,932   519,869   562,134   592,780   637,844   642,468
Six years later         509,960   508,561   568,574   598,358   632,003
Seven years later       499,448   519,826   577,779   595,926
Eight years later       512,074   529,022   577,527
Nine years later        522,498   529,886
Ten years later         524,391

Net cumulative
redundancy             $ 34,822    36,858    41,007    42,273    43,934    72,939    83,379    80,688    73,594    38,492
===================================================================================================================================

Cumulative %                  6%        7%        7%        7%        6%       10%       11%        9%        8%        4%

Gross liability, end of year, restated
   for acquisitions and other                      $1,048,373 1,034,791 1,006,860 1,097,475 1,211,381 1,333,520 1,403,954 1,343,616
Reinsurance recoverable, restated for
   commutations, acquisitions and other               410,174   358,854   291,453   306,532   335,318   386,280   408,304   378,738
-----------------------------------------------------------------------------------------------------------------------------------
Net liability, end of year, restated for
   commutations, acquisitions and other            $  638,199   675,937   715,407   790,943   876,063   947,240   995,650   964,878
===================================================================================================================================
Gross re-estimated liability                        1,015,103   969,953   924,406 1,018,230 1,147,523 1,251,106 1,357,606
Re-estimated recoverable                              419,177   337,950   281,938   310,666   352,148   377,460   400,448
-----------------------------------------------------------------------------------------------------------------------------------
Net re-estimated liability                         $  595,926   632,003   642,468   707,564   795,375   873,646   957,158
===================================================================================================================================
Gross cumulative redundancy                        $   33,270    64,838    82,454    79,245    63,858    82,414    46,348
===================================================================================================================================
</TABLE>

                                                                              59
<PAGE>

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

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


     Net cumulative redundancy represents the change in the estimate from the
     original balance sheet date to the date of the current estimate. For
     example, the 1994 liability for losses and loss adjustment expenses
     developed a $72.9 million redundancy from December 31, 1994 to December 31,
     1999, 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 for 1998 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.

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, 1999, the Company's
     debt to total capital ratio was 35% compared to 25% in 1998. The increase
     was due to borrowings used to fund a portion of the Gryphon acquisition.
     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 calculating its debt to total capital ratio, the Company considers the
     8.71% Capital Securities as one-half debt and one-half equity due to the
     equity-like features of these instruments. The Company has the option to
     defer interest payments for up to five years, and the 8.71% Capital
     Securities have a 49-year term.

     In order to maintain strong liquidity, the Company seeks to maintain
     minimum cash and investments of approximately two times annual interest
     expense at its holding company (Markel Corporation). At December 31, 1999,
     $121.0 million of cash and investments were held at Markel Corporation
     which approximated 4.8 times annual interest expense.

     The Company's insurance operations collect premiums and pay current claims,
     reinsurance costs and operating expenses. Premiums collected and positive
     cash flows 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.

     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, 1999, the Company's insurance subsidiaries could pay
     dividends of $60.9 million without prior regulatory approval.

     Net cash provided by operating activities decreased to $0.6 million in 1999
     compared to $39.9 million in 1998. The decrease in 1999 was due to $58.8
     million of operating cash flows used at Gryphon to fund claim payments and
     underwriting losses, primarily in discontinued programs. Gryphon
     discontinued lines are anticipated to produce negative operating cash flows
     in 2000 which will partially offset cash flows generated by the Company's
     core underwriting units.

60
<PAGE>


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

                                    [GRAPH]

                                Invested Assets

                            1997      1998     1999
                            ----      ----     ----
                                 $ in millions

                           $1,408    $1,481   $1,623


     The Company's invested assets increased to $1.6 billion at December 31,
     1999 from $1.5 billion at December 31, 1998. The increase in invested
     assets was due to the addition of approximately $300 million of investments
     to the portfolio from the Gryphon acquisition, partially offset by a
     decrease in the market value of the Company's fixed maturity and equity
     investments. Proceeds from sales of fixed maturities and equity securities
     were $1.1 billion in 1999 compared to $405.6 million in 1998. The cost of
     fixed maturities and equity securities purchased was $945.9 million in 1999
     compared to $574.3 million in 1998. Both increases were primarily due to
     the reallocation of the Gryphon portfolio from short-term investments into
     fixed maturities after the acquisition.

     Long-term debt was $168.0 million and $93.2 million at December 31, 1999
     and 1998, respectively. In January 1999 the Company borrowed $105 million
     under its $250 million revolving credit facility to fund a portion of the
     Gryphon purchase price and repay $55 million of Gryphon's long-term debt.
     During 1999, the Company made net repayments of $30 million on its credit
     facility. As of December 31, 1999 there was $75 million outstanding under
     the $250 million revolving credit facility. There were no balances
     outstanding under the Company's revolving credit facility at December 31,
     1998.

     In January 1997 the Company arranged the sale of $150 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 8.71%
     Capital Securities were used to purchase the Company's 8.71% Junior
     Subordinated Deferrable Interest Debentures due January 1, 2046. The 8.71%
     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, 1999 of each of the
     Company's insurance subsidiaries was above the minimum regulatory
     threshold.

     On January 26, 2000, the Company announced revised terms for its
     acquisition of Terra Nova (Bermuda) Holdings Ltd. (NYSE: TNA). The new
     agreement was reached after preliminary information indicated that Terra
     Nova would report a loss for the fourth quarter and for the full year of
     1999 and after taking into account the decline in the market price of
     Markel shares since the merger agreement was signed in August 1999. Under
     the revised agreement, Terra Nova shareholders will receive for each
     ordinary share, $13.00 in cash, 0.07027 of a Markel common share and
     0.07027 of a Markel contingent value right (CVR). The CVR is intended to
     increase the likelihood that a Terra Nova shareholder will be able to
     realize a minimum value of $185 for each Markel share received.

     Pursuant to the revised terms of the merger agreement, the consideration
     will consist of approximately $325 million in cash, 1.8 million Markel
     common shares and 1.8 million Markel CVR's. In addition, $175 million of
     Terra Nova debt will remain outstanding. The acquisition will be accounted
     for as a purchase transaction. The transaction, which is subject to
     approval by the shareholders of both Markel and Terra Nova, the receipt of
     necessary regulatory approvals and other customary closing conditions is
     scheduled to close on March 24, 2000.

     The Company has arranged for a five year $500 million revolving credit
     facility which is expected to replace its existing $250 million revolving
     credit facility upon closing of the Terra Nova acquisition. Due to the
     revised terms of the Terra Nova merger agreement, the Company is seeking
     amendments to the $500 million revolving credit facility. Alternatively,
     the Company has the ability to finance the transaction through the use of
     its existing credit facility and internal funding.

                                                                              61
<PAGE>

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


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

Year 2000
================================================================================

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

     In 1997 the Company created a Year 2000 team involving associates from all
     areas of the organization and charged them with implementing the Company's
     Year 2000 project. The project's scope included designing and implementing
     a plan to prevent year 2000-related problems in all information technology
     (IT) systems and in dealings with all material business partners (vendors,
     producers, customers and issuers in the Company's investment portfolio).
     The project also included an assessment of the Company's underwriting
     exposure as a result of the insurance products written by the Company's
     underwriting units.

     The Company completed the Year 2000 project in late 1999 at a total project
     cost of less than $1.0 million. Subsequent to the change of the century,
     the Company has not experienced any significant Year 2000-related problems
     in its IT systems. Also the Company has not experienced any significant
     disruptions as a result of noncompliance by its material business partners.
     The Company will continue to monitor both its IT systems and business
     partners for the next several months.

     The Company conducted a comprehensive review of its underwriting guidelines
     and made the decision to exclude Year 2000 exposures from virtually all
     insurance policies. The Company began adding exclusions to policies in
     early 1998. Additionally it is the Company's position that Year 2000
     exposures are not fortuitous losses and thus are not covered under
     insurance policies even without specific exclusions. For these reasons, the
     Company believes that its exposure to Year 2000 claims will not be
     material. However, as was the case with environmental exposures, changing
     social and legal trends may create unintended coverage for exposures by
     reinterpreting insurance contracts and exclusions. It is impossible to
     predict what, if any, exposure insurance companies may ultimately have for
     Year 2000 claims whether coverage for the issue is specifically excluded or
     included.

Market Risk Disclosures
================================================================================

     Market risk is the risk of economic losses due to adverse changes in the
     estimated fair value of a financial instrument as the result of changes in
     equity prices, interest rates, foreign exchange rates and commodity prices.
     The Company's consolidated balance sheets include assets and liabilities
     whose estimated fair values are subject to market risk. The primary market
     risks to the Company are equity price risk associated with investments in
     equity securities and interest rate risk associated with investments in
     fixed maturities. The Company has no material commodity or foreign exchange
     risk.

62
<PAGE>

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

Equity Price Risk

     The estimated fair value of the Company's investment portfolio at December
     31, 1999 was $1.6 billion, 81% of which was invested in fixed maturities
     and short-term investments, and 19% of which was invested in equity
     securities. The Company invests shareholder funds in equity securities
     which have historically, over long periods of time, produced higher returns
     relative to fixed income investments. The Company seeks to invest at
     reasonable prices in companies with solid business plans and capable and
     honest management. The Company intends to hold these investments over the
     long term. This focus on long-term total investment returns may result in
     variability in the level of unrealized investment gains or losses from one
     period to the next. The changes in the estimated fair value of the equity
     portfolio are presented as a component of shareholders' equity in
     accumulated other comprehensive income, net of taxes.

     At December 31, 1999, the Company's equity portfolio was concentrated in
     terms of the number of issuers and industries. At December 31, 1999, the
     Company's top ten equity holdings represented $168.2 million or 55% of the
     equity portfolio. Investments in the property and casualty insurance
     industry represented $145.0 million, or 48%, of the equity portfolio at
     December 31, 1999. Such concentration can lead to higher levels of
     short-term price volatility. Due to its long-term investment focus, the
     Company is not as concerned with short-term market volatility as long as
     its insurance subsidiaries' ability to write business is not impaired. The
     Company has investment guidelines that set limits on the amount of equities
     its insurance subsidiaries can hold.

     The table below summarizes the Company's equity price risk and shows the
     effect of a hypothetical 20% increase or decrease in market prices as of
     December 31, 1999. The selected hypothetical changes do not indicate what
     could be the potential best or worst case scenarios (dollars in thousands):

<TABLE>
<CAPTION>

                                                              Estimated          Hypothetical
                           Estimated                      Fair Value after    Percentage Increase
                          Fair Value at     Hypothetical     Hypothetical        (Decrease) in
                        December 31, 1999   Price Change   Change in Prices   Shareholders' Equity
     ---------------------------------------------------------------------------------------------
     <S>                <C>                 <C>           <C>                 <C>
     Equity Securities     $ 304,241        20% increase      $ 365,089             10.3%
                                            20% decrease      $ 243,393            (10.3%)

</TABLE>

                                                                              63
<PAGE>

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


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

Interest Rate Risk

     The Company's fixed maturity investments and borrowings are subject to
     interest rate risk. Increases and decreases in interest rates typically
     result in decreases and increases in the fair value of these financial
     instruments.

     Approximately three-quarters of the Company's investable assets come from
     premiums paid by policyholders. These funds are invested predominately in
     high quality corporate, government and municipal bonds with relatively
     short durations. The fixed maturity portfolio, including short-term
     investments, has an average duration of 4.2 years and an average rating of
     "AA." The fixed maturity portfolio is exposed to interest rate
     fluctuations; as interest rates rise, fair values decline and as interest
     rates fall, fair values rise. The changes in the fair value of the fixed
     maturity portfolio are presented as a component of shareholders' equity in
     accumulated other comprehensive income, net of taxes.

     The Company works to manage the impact of interest rate fluctuations on its
     fixed maturity portfolio. The effective duration of the fixed maturity
     portfolio is managed with consideration given to the estimated duration of
     the Company's liabilities. The Company has investment policies which limit
     the maximum duration and maturity of the fixed maturity portfolio.

     The Company utilizes bonds with embedded put options to manage the effect
     of changing interest rates on the fixed maturity portfolio. At December 31,
     1999, the Company held $276.7 million of corporate bonds with embedded put
     options. These put bonds were issued with long maturity dates, generally 30
     years, with shorter put dates, generally 10 years. Put bonds provide the
     holder the option to force redemption of the bonds on the put dates. These
     bonds are assumed to outperform in price should interest rates decline
     while performing like a shorter dated security, if interest rates rise.
     This asymmetrical price performance is shown in the following table by
     greater price appreciation in the fixed maturity portfolio if rates decline
     by 200 basis points than price depreciation if rates increase by 200 basis
     points.

     The Company utilizes a commonly used model to estimate the effect of
     interest rate risk on the fair values of its fixed maturity portfolio and
     borrowings. The model estimates the impact of interest rate changes on a
     wide range of factors, including duration, prepayment, put options and call
     options. Fair values are estimated based on the net present value of cash
     flows, using a representative set of possible future interest rate
     scenarios. The model requires that numerous assumptions be made about the
     future. To the extent that any of the assumptions are invalid, incorrect
     estimates could result. The usefulness of a single-point in time model is
     limited, as it is unable to accurately incorporate the full complexity of
     market interactions.

64
<PAGE>

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

The table below summarizes the Company's interest rate risk and shows the effect
of hypothetical changes in interest rates as of December 31, 1999. The selected
hypothetical changes do not indicate what could be the potential best or worst
case scenarios (dollars in thousands):

<TABLE>
<CAPTION>


                                                                                         Hypothetical Percentage
                                                  Estimated           Estimated           Increase (Decrease) in
                              Estimated           Change in       Fair Value after    ----------------------------------
                             Fair Value at     Interest Rates    Hypothetical Change    Market Value    Shareholders'
                           December 31, 1999  (bp=basis points)   in Interest Rates   Fixed Maturities      Equity
------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                <C>                <C>                  <C>               <C>
FIXED MATURITY
 INVESTMENTS
------------------------------------------------------------------------------------------------------------------------

U.S. Treasury securities and    $ 129,036      200 bp decrease        $  138,172             0.7              1.5
     obligations of U.S.                       100 bp decrease           133,268             0.3              0.7
     government agencies                       100 bp increase           125,112            (0.3)            (0.7)
                                               200 bp increase           121,313            (0.6)            (1.3)
------------------------------------------------------------------------------------------------------------------------

Obligations of states,          $ 416,339      200 bp decrease        $  471,502             4.2              9.4
     municipalities and                        100 bp decrease           443,069             2.0              4.5
     political subdivisions                    100 bp increase           391,238            (1.9)            (4.3)
                                               200 bp increase           367,739            (3.7)            (8.2)
------------------------------------------------------------------------------------------------------------------------

Collateralized mortgage         $  55,551      200 bp decrease        $   59,196             0.3              0.6
     obligations                               100 bp decrease            57,522             0.1              0.3
                                               100 bp increase            53,478            (0.2)            (0.4)
                                               200 bp increase            51,444            (0.3)            (0.7)
------------------------------------------------------------------------------------------------------------------------

Corporate bonds (including      $ 717,972      200 bp decrease        $  787,404             5.3             11.8
     short-term investments)                   100 bp decrease           748,168             2.3              5.1
                                               100 bp increase           693,149            (1.9)            (4.2)
                                               200 bp increase           671,379            (3.5)            (7.9)
------------------------------------------------------------------------------------------------------------------------

TOTAL FIXED MATURITY            $1,318,898     200 bp decrease        $1,456,274            10.4             23.3
     INVESTMENTS (INCLUDING                    100 bp decrease         1,382,027             4.8             10.7
     SHORT-TERM INVESTMENTS)                   100 bp increase         1,262,977            (4.2)            (9.5)
                                               200 bp increase         1,211,875            (8.1)           (18.1)
========================================================================================================================
LIABILITIES * *
------------------------------------------------------------------------------------------------------------------------

7.25% Long-term debt            $  88,881      200 bp decrease        $   94,923                                *
                                               100 bp decrease            91,841                                *
                                               100 bp increase            86,037                                *
                                               200 bp increase            83,304                                *
------------------------------------------------------------------------------------------------------------------------

8.71% Capital Securities        $ 124,500      200 bp decrease        $  152,625                                *
                                               100 bp decrease           137,508                                *
                                               100 bp increase           113,688                                *
                                               200 bp increase           104,579                                *
========================================================================================================================
</TABLE>

 * Changes in estimated fair value have no impact on shareholders' equity.

** Balances outstanding under the Company's $250 million revolving credit
   facility are not included in the above table. Interest rates on the amounts
   outstanding under this facility reset every 30 days, and in some cases daily,
   which limits the impact of changing interest rates.

                                                                              65
<PAGE>

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


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

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 1998 the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
     Instruments and Hedging Activities. This statement, as amended, is
     effective for years beginning after June 15, 2000. The standard requires
     that all derivatives be recorded as an asset or liability, at estimated
     fair value, regardless of the purpose or intent for holding the derivative.
     If a derivative is not utilized as a hedge, all gains or losses from the
     change in the derivative's estimated fair value are recognized in earnings.
     The gains or losses from the change in estimated fair value of certain
     derivatives utilized as hedges are recognized in earnings or other
     comprehensive income depending on the type of hedge relationship. Due to
     the Company's limited use of derivatives, the Company expects that adoption
     of SFAS No. 133 will not have a material impact on the Company's
     consolidated financial position and results of operations.

Safe Harbor Statement
================================================================================

     This is a Safe Harbor statement under the Private Securities Litigation
     Reform Act of 1995. Certain statements contained herein are forward-looking
     statements that involve risks and uncertainties. Future actual results may
     materially differ from those in these statements because of many factors.
     The completion of the Terra Nova transaction is subject to the absence of
     material adverse changes in the buyer's or seller's financial condition and
     receipt of all necessary regulatory and shareholder approvals. Insurance
     industry price competition has made it more difficult to attract and retain
     adequately priced business. Changing legal and social trends and inherent
     uncertainties in the loss estimation process can adversely impact the
     adequacy of loss reserves. The Company's potential underwriting exposure to
     Year 2000 claims are difficult to predict with any certainty. State
     regulatory actions can impede the Company's ability to charge adequate
     rates and efficiently allocate capital. The frequency and severity of
     natural catastrophes are highly variable. Economic conditions and interest
     rate volatility can have significant impacts on the market value of fixed
     maturity and equity investments. Accordingly, the Company's premium growth,
     underwriting and investment results have been and will continue to be
     potentially materially affected by these factors.

66
<PAGE>

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

OTHER INFORMATION


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, 2000 was 496. The
     total number of shareholders, including those holding shares in "street
     name" or in brokerage accounts is estimated to be in excess of 3,800. 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.

     High and low closing sales prices as reported on the New York Stock
     Exchange composite tape for 1999 were $192 and $145, respectively. See
     "Quarterly Information" on page 50 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 of
     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 24, 2000.

Transfer Agent
================================================================================

     First Union National Bank
     Corporate Trust Department
     Finance Group -NC 1196
     1525 West W.T. Harris Boulevard 3C3
     Charlotte, North Carolina 28288-1196
     (800) 829-8432

Corporate Offices
================================================================================

     Markel Corporation
     4521 Highwoods Parkway
     Glen Allen, Virginia 23060-6148
     (804) 747-0136
     (800) 446-6671

                                                                              67
<PAGE>

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


DIRECTORS AND EXECUTIVE OFFICERS


Directors
================================================================================

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

     Thomas S. Gayner
     Vice President of Equity Investments

     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

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 64.

     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 58.

     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 51.

     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 51.

68
<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 67 and 68 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 22 and 23 of the printed document, i.e. the
     Selected Financial Data has been repositioned over 2 consecutive pages of
     the electronic document for ease of use. The footnotes to the Selected
     Financial Data are meant to apply to all two pages of the electronic
     document.

70
<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:  /s/ Steven A. Markel
                                            -------------------------------
                                            Steven A. Markel
                                            Vice Chairman
March 15, 2000

     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                     Date
        ----------                      -----                     ----

/s/ Alan I. Kirshner         Chief Executive Officer and     March 15, 2000
-------------------------      Chairman of the Board of
Alan I. Kirshner,*             Directors

/s/ Anthony F. Markel        President, Chief Operating      March 15, 2000
-------------------------      Officer and Director
Anthony F. Markel,*

/s/ Steven A. Markel         Vice Chairman and Director      March 15, 2000
-------------------------
Steven A. Markel,*

/s/ Darrell D. Martin        Executive Vice President,       March 15, 2000
-------------------------      Chief Financial Officer
Darrell D. Martin,*            and Director (Principal
                               Accounting Officer)

/s/ Thomas S. Gayner         Director                        March 15, 2000
--------------------------
Thomas S. Gayner,*

/s/ Leslie A. Grandis        Director                        March 15, 2000
--------------------------
Leslie A. Grandis,*

/s/ Stewart M. Kasen         Director                        March 15, 2000
--------------------------
Stewart M. Kasen,*

/s/ Gary L. Markel           Director                        March 15, 2000
--------------------------
Gary L. Markel,*

*Signed as of March 15, 2000

                                                                              71
<PAGE>

                               Index to Exhibits

2 Agreement and Plan of Merger and Scheme of Arrangement dated August 15, 1999,
among Markel Corporation and Terra Nova (Bermuda) Holdings, Ltd., as amended a

3(i)   Amended and Restated Articles of Incorporation, as amended (3.1)b

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

4 (i) Credit Agreement dated April 23,1998 among Markel Corporation, the lenders
referred to therein and First Union National Bank, as Agent (4)d

4 (ii) Credit Agreement dated December 21, 1999, as amended, among Markel
Corporation, the lenders referred to therein and First Union National Bank, as
Agent (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, 1999, 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 and 1989 Stock Option Plans as amended (4(d))e

10.2 Trust and amendment Under Markel Corporation 1989 Non-Employee Directors
Stock Option Plan **

10.3 Markel Corporation 1993 Incentive Stock Plan (10.3)f

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

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

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

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

10.8 Agreement and Plan of Merger dated as of November 25, 1998 among Markel
Corporation, MG Acquisition Corp., and Gryphon Holdings Inc. (g6) h

21 Subsidiaries of Markel Corporation**

23 Consents of independent auditors to incorporation by reference of certain
reports into the Registrant's Registration Statements on Forms S-8 and S-4**

27 Financial Data Schedule**

**filed with this report

a. Incorporated by reference from Appendix A to the Revised Proxy Statement/
Prospectus dated February 10, 2000

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

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

d. Incorporated by reference from the exhibit shown in parentheses filed with
the commission in the Registrant's Report on Form 10-Q for the quarter ended
March 31, 1998

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

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

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

h. Incorporated by reference from the exhibit shown in parentheses filed with
the Commission in the Registrant's Amendment No. 7 to Schedule 14D-1 filed
November 25, 1998