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.







HIGHLIGHTS

<TABLE>
<CAPTION>


(IN MILLIONS, EXCEPT PER SHARE DATA)       1996         1995       1994              

<S>                                      <C>           <C>        <C>
FINANCIAL HIGHLIGHTS
Gross premium volume                       $   414    $   402     $  349
Net written premiums                           313        298        257
Earned premiums                                307        285        243
Net income                                      47         34         19
GAAP combined ratio                            100%        99%        97%
------------------------------------------------------------------------
Total investments                          $ 1,131    $   909     $  612
Total assets                                 1,605      1,315      1,103
Long-term debt                                 115        107        101
Shareholders' equity                           268        213        139
Debt to total capital                           30%        33%        42%
------------------------------------------------------------------------
PER SHARE DATA
Common shares outstanding (IN THOUSANDS)     5,458      5,422      5,387
Net income                                 $  8.30    $  6.15     $ 3.33
Total investments                           207.18     167.57     113.55
Book value                                   49.16      39.37      25.71
Growth in book value                            25%        53%       (8%)
-------------------------------------------------------------------------
</TABLE>


OPERATING HIGHLIGHTS 

(Bullet) Underwriting profits for the fifth consecutive year and the tenth year
         out of the past eleven 

(Bullet) Investment portfolio increases 24% to $1.1 billion, or $207 per share 

(Bullet) Book value per share increases to $49.16, a 25% increase for the year 
         and a five year compound annual growth rate of 26% 

(Bullet) Investors Insurance Holding Corp. becomes our fifth underwriting
         division 

(Bullet) Committed capital resources increase by over $300 million


        Revenue (IN MILLIONS)

(Revenue chart appears here. Plot points are below.)

$450
 400
 350                         367
 300
 250
 200               223
 150
 100
  50      25
   0
         1986      1991      1996

       Net Income (IN MILLIONS)

(Net Income chart appears here. Plot points are below.)
$50
 45                            47
 40
 35
 30
 25
 20
 15                 14
 10
  5        5
  0
         1986      1991      1996



     Invested Assets (IN MILLIONS)

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

$1,300
 1,200                           1,131
 1,100
 1,000
  900
  800
  700
  600
  500
  400                  415
  300
  200
  100         30
   0
             1986     1991      1996


<PAGE>


TO OUR BUSINESS PARTNERS



    We finished 1996 pleased with our achievements and long term success, yet
challenged and committed to do even better in the future. Despite problems in a
few products and storm losses from Hurricane Fran, we were able to achieve our
primary objective of earning an underwriting profit. We closed 1996 with a
combined ratio of slightly less than 100%, achieving our goal by a small margin.
The extraordinary underwriting success of Essex Insurance Company saved the
day. 

    Despite our modest underwriting profit, 1996 proved quite successful
financially. For the year, total operating revenues grew 7% to $366.7 million;
core underwriting and investing results were $33.9 million, up 17% from the
prior year; and net income was $46.7 million, or $8.30 per share, a Company
record. Additionally, we enjoyed a significant increase in the value of our
investment portfolio. Together, these items resulted in an increase in
shareholders' equity per share of 25% to $49.16. 

    In the ten years that we've been a public company, we've enjoyed consistent
success in almost every financial measure. Revenues have increased at a 31%
compound annual growth rate; we have earned underwriting profits in nine out of
the ten years; our investment portfolio has grown at a 44% compound rate and now
totals $1.1 billion


2

<PAGE>



or $207 per share; and most importantly, book value has risen to $49.16 per
share, a compound annual increase of 31% over the past 10 years. 

    We attribute this success to a number of factors. Maybe the most important
factor is a strong corporate culture which has enabled us to build a team
focused on a common goal, building long-term shareholder value. Very much a part
of this culture is the common sense business principle of operating and
decision-making using what Ben Graham described as a margin of safety. 

    Ben Graham is widely recognized as the founding father of modern security
analysis. He developed and taught an investment decision-making framework based
on sound business principles. His primary investment concept was to operate with
a margin of safety. 

    Graham's margin of safety, simply stated, is the attempt to build a safety
net into investment and business decisions. The margin provides a cushion
against errors and unfavorable results. This margin is achieved by acting on
facts rather than emotions, conservatively forecasting outcomes, diversifying
risk and erring on the side of safety when presented with options. Consistently
applied, the concept is a powerful business tool. At Markel we attempt to apply
Graham's concept to all our decisions. 

    Regardless of whether we are dealing with accounting philosophy, loss
reserving, underwriting, or investing, we seek to operate with a margin of
safety. 

ACCOUNTING PHILOSOPHY

    At Markel we believe in conservatively stating our financial picture.
Financial strength is an important component of our success. Our insurance
clients are entitled to the greatest security we can offer, and our shareholders
seek to increase the value of their investment. We believe the best way of
achieving both of these goals is by building book value per share. 


                                                                           3

<PAGE>


    In the insurance business, earnings per share is not the best measure of
financial performance. It is more important to establish adequate loss reserves
and maintain a strong financial position. We value a strong balance sheet more
than current earnings in any single year. Management is rewarded, as are
shareholders, by building book value on a per share basis over long periods of
time. 

    Because we believe in the importance of conservative accounting, we often
make choices which make economic sense but do not always enhance current
earnings. For example, in 1990 we negotiated as part of the purchase price of
Shand/Evanston a non-compete agreement that was amortized over four years rather
than 40 years as goodwill. While this resulted in an annual charge against
earnings of approximately $5.0 million rather than $0.5 million, it was
beneficial in at least two ways. We received significant tax benefits and we
built a stronger and more conservative balance sheet due to the accelerated
amortization. 

    Another recent example of this philosophy is the $18.4 million tax benefit
recognized in the second quarter of this year. Over the past several years, we
conservatively established our financial statement tax reserves. We determined
that our estimated tax liabilities were actually less than previously accrued
and adjusted the tax liability accordingly. 

    Most recently, in order to reduce future expenses, we made the decision to
sell our office building in Evanston, Illinois. This property was acquired as
part of our purchase of Shand/Evanston. Over the years, the commercial office
market in Evanston has declined. Because the expected proceeds will be
significantly less than the carrying value of the building, we immediately
recorded the after tax loss of $6.8 million in 1996. 

LOSS RESERVING 

    Because it is the largest and most difficult to measure, the provision for
unpaid losses and loss


4

<PAGE>


adjustment expenses is the most important account on an insurance company's
financial statement. This is certainly the case for Markel. This account also
best represents our philosophy of conservative accounting and providing a margin
of safety. As we have said many times, our goal is to establish loss reserves at
a level that is more likely to prove redundant than deficient. This standard of
setting loss reserves is somewhat different from other insurers. 

    A.M. Best Co. recently estimated that the Property and Casualty industry is
underreserved by $82.8 billion, or 23% of total reserves. We believe that much
of this shortfall is related to companies' desire to report earnings. 

    This illustrates why we do not stress current earnings. At Markel we seek to
establish loss reserves at a level that anticipates the inevitable surprises
that can and do occur, and to provide for an appropriate margin of safety. 

    We constantly review our businesses and try to make sure the reserves we
provide are adequate to meet future exposures. Getting the loss reserves right
is critical to being able to make an underwriting profit. Current loss estimates
not only affect financial results but also influence many pricing and risk
selection decisions. Each year we try to make sure our margin of safety is as
strong as it was in the prior year. 

    In the insurance business, we sell the product before we know the actual
cost. Claims often take many months or years before they are fully reported and
settled. Obviously, as the underwriting years mature, we are better able to
estimate the ultimate cost. Consequently, we regularly adjust loss reserves as
more information is available. 

    The best way to understand and analyze this process is to review the loss
reserve development schedule shown in Management's Discussion and Analysis on
page 55 of this report. From this schedule you can see that we have consistently


                                                                           5


<PAGE>


benefited from redundant loss reserves. For example, in December of 1991 we
had loss reserve provisions of $557.6 million. This estimate was reduced in 
each of the following years as we became more confident that the actual 
results were better than originally provided. However, in each year we
have attempted to maintain a margin of safety. Five years later we've 
recognized $56.5 million or 10% of the beginning estimate in redundancy.
Looking at 1995 loss reserves you will see the same trend. During 1996
we realized approximately $24.1 million in redundancy from the prior year.
This represents 4% of the original reserve amount. We continue to believe
that the remaining reserves have a margin of safety and hope to see 
continuing positive development.

   The very nature of the insurance business makes it difficult to 
establish loss reserves with certainty. In fact it cannnot be done. But 
what we can do is make provisions with a view that to the extent we're 
wrong, we have erred on the side of safety.

   It is unfortunate that in the world of financial reporting and security
analysis that current earnings receive more attention than the quality
of loss reserves. That does not make it right. We would much prefer to 
be pessimistic when setting loss reserves than optimistic about current
earnings. This philosophy benefits every aspect of our business. It
supports our investment activity; and it helps build our margin of
safety.

UNDERWRITING

    Earned premiums in 1996 amounted to approximately $307.5 million,
spread over more than 40 different product lines in our five 
operating divisions. In the past five years, we have enjoyed 
modest underwriting profits, reporting a combined ratio
from 97% to slightly under 100%. Because this ratio has been 
relatively consistent, one might assume that each of our 
product lines produces


6

<PAGE>




predictably consistent results. This is not the case. Our aggregate combined
ratio is a result of many profitable lines of business balanced against some
which are having difficulty. Each product line has unique characteristics and
different profit objectives. 

    New products often experience a higher than desired combined ratio because
the costs associated with new product development are higher than after the
product is fully established. Occasionally, expectations are not met and
products simply develop more losses than we plan. Some products are exposed to
weather events, and the results will vary accordingly. Fortunately, most of our
businesses do in fact generate underwriting profits so that we enjoy a
sufficient margin of safety to cover underwriting losses which inevitably
occur. 

    During the past few years, our specialty personal and commercial lines unit
entered the mobile home insurance business. Over time, we expect this product to
earn underwriting profits of 10% or more to achieve our return on equity goals.
The business does not generate large amounts of investment income since claims
are paid quickly. Additionally, the results from this line of business can be
volatile because the insured structures are exposed to wind and hail losses.
Unfortunately, 1996 was a bad year for this business as we absorbed
approximately $1.7 million in losses from Hurricane Fran. While the impact was
modest to Markel, this product line suffered an underwriting loss in 1996. In
spite of these problems, we still expect to see combined ratios in the low 90's
over time. 

    Within the same unit, we also provide insurance for motorcycles and personal
watercraft. These products have enjoyed steady growth and consistent
underwriting profits over the past several years, and we expect they will
continue to make a nice contribution to our results in the future. 

    In 1996 we also experienced underwriting losses in our physicians' medical
malpractice area. One problem involved a program providing


                                                                            7


<PAGE>

insurance for a large group of emergency room physicians. This particular
program did not provide enough rate for the exposure. Unfortunately, we were
unable to correct the problem, so we exited the line of business. In another
segment, we found certain classes and territories which needed rate adjustments,
and we acted accordingly. We are now comfortable with this business. 

    The same division also has a variety of programs for other medical
professions. These include coverage for exposures such as ambulance services,
dialysis clinics, home health care agencies and outpatient centers. Also
included is coverage for medical and allied health professionals, such as
emergency medical technicians, x-ray technicians, paramedics and social workers.
These segments of our medical malpractice business have proven to be
consistently profitable over a number of years, and 1996 was no exception. 

    In late 1993 we began a new property program, Markel Special Property, which
provides large commercial coverage with some catastrophe exposure. Fortunately,
the Northridge Earthquake in January 1994 occurred before we had written much
business. While this event hurt our 1994 results, it actually was positive for
us as it expanded our market opportunity as competitors exited the market. The
lack of major catastrophes since then has contributed to our success. In 1996 we
earned substantial underwriting profits in this line of business on increasing
premium volume. 

    Our most consistently profitable product line has been our small, commercial
general liability business written on an excess and surplus lines basis by Essex
Insurance Company. This product line includes a very broad list of categories
including contractors, bars and taverns, offices and habitational risks,
manufacturing and small products coverage. In this area we excel in providing
customer service due to our expertise and responsiveness. As with most of our
businesses, our success is the result of


8

<PAGE>

the efforts of a group of highly talented, seasoned insurance professionals.


INVESTING 

    We believe it is important to manage our investment operation with the same
thought, diligence and margin of safety as our underwriting operations.
Excellent investment results combine with our underwriting profits to produce
superior long-term growth in book value. Our investing philosophy is based on
the goal of achieving the best after tax total return and protecting the
integrity of our insurance operations. We focus on total return rather than
current income. We seek to build value. 

    We allocate our investment dollars by segregating our portfolio based on the
source of the funds. Funds provided by our policyholders are invested in high
quality, short duration, fixed income securities to assure the funds will be
available to meet claims liabilities. Funds provided by shareholders are
generally invested in common stocks of companies we believe will grow and build
long-term value. We try to buy these companies at prices at or below our
estimate of their intrinsic value. This method of allocation and investment
approach helps build a margin of safety. 

    Our fixed income portfolio is managed to minimize interest rate and credit
risk. We therefore have a short duration and high quality portfolio. To maximize
after tax total returns we own tax-exempt municipal securities. We also purchase
bonds with unique "put" features to provide additional returns if interest rates
fall. 

    In our equity portfolio, we try to avoid undue risk of loss by knowing as
much as possible about the companies we purchase. We do extensive research on
the companies, and we visit and talk with their managements. Because of our
knowledge and comfort with the insurance industry, we often buy other insurance
stocks. We are long-term holders. 


                                                                           9


<PAGE>


    We like the idea of building large unrealized capital gains. To the extent
that gains are not realized and taxes are deferred, we can continue to invest
money that would have been used to pay taxes. At December 31, 1996, our
unrealized gain on equity securities amounted to $60.8 million. For accounting
purposes, taxes of $21.3 million have been provided on this unrealized gain.
Among its other virtues, this also creates a margin of safety. When future
markets cause lower stock prices than today, the book value impact will be
cushioned by this tax provision. 

    While we expect to continue to benefit from our investment flexibility, we
are extremely aware that our ability to do so is dependent upon continuing to
conservatively provide for our loss reserves and earning underwriting profits. 

OTHER EVENTS 

    In October 1996 we completed the acquisition of Investors Insurance Holding
Corp. While this company has had a difficult history, the former owners brought
in a new management team and began to develop a sound business plan in 1995. We
liked what we saw and had an opportunity to buy the company at an attractive
price. This acquisition enables us to expand our product offerings in the excess
and surplus lines market. 

    In January 1997 we saw the opportunity to raise $150 million on terms that
we felt were very attractive. Somehow it is always easier to raise capital when
you don't need it. Believing that we would find a sound use for the funds in the
not too distant future, we took advantage of the opportunity. The security we
sold to raise the capital was a trust preferred stock at a cost of 8.71%. The
security matures in 49 years, although we can redeem it in ten years. One unique
feature of this security is that we can defer interest payments for five years.
As a result of the long maturity, the interest deferral and the subordination
provisions, this security has many of the benefits of equity, yet its cost is
like debt. In the short run, we will lose money as a


10


<PAGE>



result of this financing because the proceeds have been invested in short-
term securities earning less than the 8.71% cost. Obviously, in the long run we
think this financing will benefit our total capital structure. 

A LOOK TO THE FUTURE 

    Every year we spend a lot of energy with each of our businesses reviewing
the past and planning for the future. At the corporate level we also analyze our
results and try to figure out how to best take advantage of the opportunities we
face. We approach 1997 with a good plan and expect to achieve continued success.
In spite of our plan, we will face both problems and opportunities that we have
not anticipated. The insurance industry continues its evolution and
reorganization. Markel is stronger and better prepared than ever before. We face
our future with great optimism. 

         Thank you for your loyal support and encouragement. 


/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


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



MARKETS

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


The E&S market focuses on hard to place risks and risks that admitted
insurers specifically refuse to write. The most important function of the E&S
market is this ability to provide insurance capacity. 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 1995 the E&S market represented approximately $9.2 billion
or 3.4% of the entire $273.9 billion property and casualty (P&C) industry.* 


The Company is the fifth largest domestic E&S writer in the United States
as measured by direct premium writings.* Three of the Company's underwriting
units, Excess and Surplus Lines, Professional/Products Liability and Brokered
Excess and Surplus Lines, write in the E&S market. In 1996, on a consolidated
basis, the Company controlled $256.6 million of E&S business. 


The Company also writes business in the specialty admitted market. Most of
these risks are unique or hard to place in the standard market, but for various
reasons remain in this market. In 1995 the specialty admitted market represented
$4.3 billion, or 1.5% 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 guaranty funds
and assigned risk plans.


*According to the 1996 A.M. Best Company Special Report, SOLVENCY STUDY OF
THE EXCESS AND SURPLUS LINES INDUSTRY. 


12


<PAGE>

Two of the Company's underwriting units, Specialty Program Insurance and
Specialty Personal and Commercial Lines, write in the specialty admitted market.
In 1996, on a consolidated basis, the Company controlled $157.0 million of
specialty admitted business.

COMPETITION

The Company's underwriting operations compete with numerous insurance
companies, including many which have significantly greater resources than the
Company. The Company also competes with risk retention groups, insurance buying
groups and alternative self-insurance mechanisms. Competition may take the form
of lower prices, broader coverages, greater product flexibility, higher quality
services or 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 has 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 P&C insurers from entering into the Company's
segments of the P&C industry, but many of the larger P&C insurance companies
have historically been unwilling to write specialty coverages. The P&C industry
is currently experiencing a soft market due to what is perceived by many as
excessive amounts of capital in the industry. In an attempt to utilize their
capital, many insurance companies often seek to write additional premium without
regard for its ultimate profitability. Admitted standard companies are now
writing programs that previously were written almost exclusively in the
specialty admitted or E&S markets. This additional competition from the standard
market has reduced rates and led to broader coverage being offered to many of
the Company's customers. In response to this additional competition, the Company
has maintained its underwriting standards at the expense of growth in premium
volume. The Company does not expect the current soft market conditions to abate
until more rational pricing and capital allocation takes place in the P&C
industry.





                                                       13

<PAGE>


                               Markel Corporation & Subsidiaries


BUSINESS OVERVIEW  (CONTINUED)

UNDERWRITING PHILOSOPHY

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


COMBINED RATIOS

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




                       1992      1993        1994      1995       1996
Markel Corporation      97%       97%         97%       99%       100%
Industry Average*      116%      107%        109%      107%       108%







*Source: A.M. Best Co., Inc.
Industry Average is estimated for 1996.

THE UNDERWRITING UNITS


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


TOTAL GROSS PREMIUM VOLUME
BY UNDERWRITING UNIT ($414 million)

(Total gross premium volume chart appears here. Plot points are below.)



29%  Professional/     22%   Specialty
     Products                Program
     Liability               Insurance



29%  Excess and        16%   Specialty
     Surplus Lines           Personal and
                             Commercial
                             Lines



2%  Other              2%    Brokered Excess
                             and Surplus Lines


14


<PAGE>


EXCESS AND SURPLUS LINES


The Excess and Surplus Lines unit (E&S unit) writes a variety of coverages,
focusing on light-to-medium casualty exposures for businesses such as artisan
contractors, habitational risks, restaurants and bars, child and adult care
facilities, vacant properties, office buildings and light manufacturing
operations. The E&S unit also writes property insurance on classes of business
ranging from small, single location risks to large, multi-state, multi-location
property schedules. Property coverages consist principally of fire and allied
lines, such as windstorm, hail and water damage and more specialized property
coverages. During 1993 the E&S unit began offering coverages for heavier
property risks, including earthquake, through its Markel Special Property
Division (MSP). These risks are typically larger in size and are of a low
frequency/high severity nature. During 1995 the E&S unit established an excess
and umbrella facility called Markel Excess and Umbrella (MEU). This division
writes commercial umbrella and excess liability business on either an occurrence
or claims made form.


Most of the E&S unit's business is generated by approximately 130
professional surplus lines general agents who have limited quoting and binding
authority. MSP and MEU produce business on a brokerage basis through wholesale
brokers who specialize in the lines of business these divisions write. 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.



TOTAL GROSS PREMIUM VOLUME
EXCESS AND SURPLUS LINES ($121 million)


(Total gross premium volume chart appears here. Plot points are below.)




15% Property          33% Markel Special
                          Property

4% Markel Excess        5% Other
and Umbrella


43% Casualty




                                                                   15




<PAGE>


             Markel Corporation & Subsidiaries


BUSINESS OVERVIEW              (CONTINUED)

PROFESSIONAL/PRODUCTS LIABILITY


The Professional/Products Liability unit underwrites and markets specialty
professional liability coverages, including medical malpractice and specialized
medical coverages, professional liability for lawyers, architects and engineers,
agents and brokers and management consultants. In addition, directors' and
officers' liability coverage and employment practices liability coverages are
offered. Errors & omissions coverage is targeted to mutual fund advisors,
investment advisors and insurance companies. The Professional/Products
Liability unit also underwrites products liability insurance for manufacturers
and distributors in its special risks division. Business is written nationwide
and is developed primarily through approximately 350 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.


TOTAL GROSS PREMIUM VOLUME
PROFESSIONAL/PRODUCTS LIABILITY ($119 million)


(Total gross premium volume chart appears here. Plot points are below.)



 19%  Other              31%   Medical Malpractice
                               and Specified
                               Medical



20%   Special Risks       9%   Directors'
                               and
                               Officers'


12%   Financial           9%   Specified
      Institutions             Professions
      E&O



BROKERED EXCESS AND SURPLUS LINES


Brokered Excess and Surplus Lines (Brokered E&S) is the most recent
addition to Markel. This unit was created with the purchase of Investors in the
Fall of 1996. The Brokered E&S unit's area of expertise is hard to place, large
general liability and products liability accounts. Products risks include
sporting goods manufacturers, bicycle manufacturers, discontinued products, toy
manufacturers and importers and automobile parts manufacturers. The unit also
offers special events and other unique coverages and writes property coverages
on mercantile and industrial sites. The unit operates through approximately 115
wholesale brokers. The Brokered E&S unit writes the majority of its business in
Investors Insurance Company of America (IICA). IICA is eligible to write E&S
insurance in 48 states and the Districtof Columbia and is admitted in New York
and New Jersey.


16


<PAGE>




SPECIALTY PROGRAM INSURANCE 


Specialty Program Insurance develops and underwrites insurance programs for
individuals and groups of businesses whose insurance needs are not adequately
met by the broader standard market. Children's summer camps and youth
organizations (YM/YWCA's and Boys and Girls Clubs) comprise the main focus of
the camp and youth recreation division. The child care division focuses on child
care centers, nursery schools, Head Start programs and Montessori schools. The
health and fitness division insures gymnastic schools, health clubs, martial
arts schools, dance schools and studios, and family entertainment centers. The
agriculture division provides horse mortality coverage, property and liability
coverages for horse farms, and boarding, breeding and training facilities. The
college student and special risk accident and health group primarily markets
student health insurance plans to colleges and universities. In 1996 the new
contract surety bond program began offering coverage for small contractors and
transition contractors. Business is produced through approximately 6,000 retail
insurance agents. Management does not grant underwriting authority to agents,
and agency business is controlled through regular audits and pre-approvals.
Specialty Program Insurance writes substantially all of its business in Markel
Insurance Company (MIC). MIC is licensed to write P&C insurance in all 50
states, including the domicile state of Illinois, and the District of Columbia. 


TOTAL GROSS PREMIUM VOLUME
SPECIALTY PROGRAM INSURANCE ($92 million)

(Total gross premium volume chart appears here. Plot points are below.)

9%  Child Care        15%  Health and
                           Fitness

24% Agriculture       12% Accident and
                          Health 

 3% Other             37% Camp and Youth
                          Recreation         





                                                                17

<PAGE>


                      Markel Corporation & Subsidiaries

BUSINESS OVERVIEW  (CONTINUED)

SPECIALTY PERSONAL AND COMMERCIAL LINES 


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


Specialty Personal and Commercial Lines products are characterized by high
numbers of transactions, low average premiums and creative solutions for
underserved and emerging markets. The unit distributes most of its products
through wholesale brokers, retail agents and affinity groups. The motorcycle
program is marketed directly to the consumer, using direct mail and telephone
promotion as well as relationships with various motorcycle manufacturers,
dealers and associations. The Specialty Personal and Commercial Lines unit
writes the majority of its business in Markel American Insurance Company (MAIC).
MAIC is licensed to write P&C business in 42 states, including its state of
domicile, Virginia, and the District of Columbia and is in the process of
applying for licenses in other states.


TOTAL GROSS PREMIUM VOLUME
SPECIALTY PERSONAL AND COMMERCIAL LINES ($65 million)

(Total gross premium volume chart appears here. Plot points are below.)


28% Auto Physical     22%   Property 
    Damage 

 6% Special            12% Other
    Transportation

32% Recreational 
    Products 



 
18

<PAGE>



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. During the past several years, Markel has reduced its reliance on
reinsurance by steadily increasing retentions on its profitable current book of
business and through commutations with pre-1987 reinsurers of Shand/Evanston. 


Markel strives to minimize credit exposure to reinsurers and maintains a
margin of safety through adherence to its internal reinsurance guidelines. To
become a reinsurance partner of Markel, prospective companies must: (i) maintain
an A.M. Best rating of "A" (Excellent), (ii) maintain capital and surplus of
$100 million and (iii) provide collateral for recoverables in excess of $10
million. In addition, foreign reinsurers must provide collateral equal to 100%
of recoverables (with the exception of Lloyd's syndicates). The following table
shows Markel's top ten active reinsurers at December 31, 1996. These ten
reinsurers represent 68% of Markel's $222.1 million reinsurance recoverable. 



<TABLE>
<CAPTION>


Reinsurers                 A.M. Best Rating   Reinsurance Recoverable
<S>                          <C>                   <C>
--------------------------------------------------------------------
TIG Reinsurance                      A                      $29,366
Munich American Reinsurance          A+                      26,709
Trenwick America Reinsurance         A+                      20,342
Zurich Reinsurance                   A                       17,103
Constitution Reinsurance             A+                      11,109
Underwriters Reinsurance             A+                      10,476
Chartwell Reinsurance                A                        9,491
USF&G                                A                        9,272
St. Paul Fire and Marine             A+                       8,914
Signet Star Reinsurance              A                        8,371

Other reinsurers                     -                       70,996
-------------------------------------------------------------------

Total reinsurance recoverable on paid and unpaid losses   $ 222,149
-------------------------------------------------------------------
</TABLE>



    Reinsurance treaties are generally subject to cancellation by the Company or
the reinsurers on the anniversary date upon 90 days prior written notice 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 "unauthorized" or "unapproved" reinsurer
under applicable state laws and regulations. 




                                                                       19

<PAGE>


                               Markel Corporation & Subsidiaries


BUSINESS OVERVIEW  (CONTINUED)


INVESTMENTS

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


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

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


ANNUAL TAXABLE EQUIVALENT TOTAL RETURNS

<TABLE>
<CAPTION>

                                                                            5 Year   10 Year
                                                                          Weighted  Weighted
                                    Years Ended December 31,               Average   Average
                          --------------------------------------------      Annual    Annual
                          1992     1993      1994      1995       1996      Return    Return
<S>                     <C>       <C>       <C>       <C>         <C>       <C>
--------------------------------------------------------------------------------------------
Equities                  13.1%     28.7%    (3.3%)    29.7%      26.9%     19.8%     18.0%
Fixed maturities           7.8%      9.1%    (0.2%)    13.9%       4.8%      7.3%      8.3%
Total portfolio            8.2%     11.8%    (1.1%)    15.7%       7.5%      8.8%      9.5%
--------------------------------------------------------------------------------------------
Ending portfolio
  balance (in millions)  $ 434     $ 597   $  612     $ 909    $ 1,131
--------------------------------------------------------------------------------------------
</TABLE>

The Company's investment performance also benefited from continued growth in
the investment portfolio over the past ten years. The portfolio increased to
$1.1 billion at December 31, 1996 from $43.1 million at December 31, 1987.


The Company monitors its portfolio to ensure that credit risk does not
exceed prudent levels. Standard and Poor's Corp. (S&P) and Moody's Investors
Service provide corporate and municipal debt ratings based on assessments of the
credit worthiness of an obligor with respect to a specific obligation. These
debt 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 the rating agencies as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. It is the Company's policy to minimize its investments in fixed
maturity securities that are unrated or rated below investment grade.


20

<PAGE>


The Company's fixed maturity portfolio has an average rating of "AA", with
90% rated "A" or better by at least one nationally recognized rating
organization. The following chart shows the Company's fixed maturity portfolio,
at estimated fair value, by rating category at December 31, 1996:


CREDIT QUALITY OF FIXED PORTFOLIO ($886 million)
(Credit quality chart appears here. Plot points are below.)


56%  AAA/AA      1% Other 

9%  BBB         34% A




Approximately 70% of the investment portfolio is managed directly by
officers of the Company, with the approval of the Boards of Directors of the
insurance companies. Approximately 26% of the Company's cash and investments is
managed by Hamblin Watsa Investment Counsel Ltd., a Canadian investment
management firm which is controlled by V. Prem Watsa, a Director of the Company.
The remainder of the portfolio is managed by other independent portfolio
managers.


                                                                    21


<PAGE>



                     Markel Corporation & Subsidiaries


BUSINESS OVERVIEW  (CONTINUED)


REGULATORY ENVIRONMENT

The Company's insurance subsidiaries are subject to regulation and
supervision by the insurance regulatory authorities of the various jurisdictions
in which they conduct business. Such regulation is intended for the benefit of
policyholders rather than shareholders. The insurance regulatory authorities
have broad regulatory, supervisory and administrative powers. These powers
relate to the standards of solvency which must be met and maintained; 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 for unearned premiums, losses or
other purposes. 


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


The laws of the domicile states of the Company's insurance subsidiaries
govern the amount of dividends which may be paid by such subsidiaries 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, 1996, the Company's insurance subsidiaries
may pay during the following twelve months up to $32.9 million under the
ordinary dividend regulations without prior regulatory approval.


RATINGS

Financial stability and strength are important purchase considerations of
policyholders and insurance agents and brokers. Because an insurance premium
paid today purchases coverage for losses that might not be paid for many years,
the financial viability of the insurer in such cases is of critical concern.
Various rating agencies provide information to assist prospective 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
prospective policyholders with analytical and statistical information on the
solvency and liquidity of major U.S. licensed insurance companies. These claims
paying ability (CPA) ratings concern only the likelihood of timely payment of
policyholder obligations and are not intended to refer to the ability of either
the rated company, or its parent or subsidiary to pay non-policy obligations
such as debt or commercial paper. The S&P CPA ratings range from "AAA" (superior
financial security) to "R" (regulatory action). The Duff & Phelps CPA rating
categories range from "AAA" (risk factors are negligible) to "DD" (under order
of liquidation). 

22


<PAGE>



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


FINANCIAL RATINGS

<TABLE>
<CAPTION>



                                  A.M. BEST
COMPANY                           RATING                   S&P                           DUFF & PHELPS
<S>                            <C>              <C>                                 <C>
------------------------------------------------------------------------------------------------------------------
Essex Insurance 
Company                        A (excellent)    A (good financial security)        A+ (high claims paying ability) 


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


Investors Insurance 
 Company of America            A-(excellent)                   *                             * 


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


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

 * Investors did not apply for CPA ratings prior to Markel's ownership.


ASSOCIATES

At December 31, 1996, the Company and its consolidated subsidiaries employed
819 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 its associates to think
and act like owners. Under Markel's incentive compensation plans, associates may
earn a meaningful bonus based on individual performance and the Company's
performance. Associates are also offered many opportunities to become
shareholders. Stock may be acquired through a payroll deduction plan, and
associates have been given the opportunity to purchase stock with low interest
financing partially subsidized by the Company. 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. At December 31, 1996, the Company estimated
associates' ownership, including executive officers and directors, at
approximately 32.4% of the Company. The Company believes that rewarding value-
added performance and stock ownership aligns associates' interests with the
interests of non-employee shareholders. 




                                                                       23


<PAGE>



                   Markel Corporation & Subsidiaries


 SELECTED FINANCIAL DATA (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>



                                                 Years Ended December 31,
                                             ----------------------------
                                             1996       1995          1994
                                            ------------------------------
<S>                                        <C>         <C>         <C>
RESULTS OF OPERATIONS (1)
Earned premiums                            $   307     $   285     $   243
Net investment income                           51          43          29
Total operating revenues                       367         344         280
Net income                                      47          34          19
--------------------------------------------------------------------------

PRIMARY EARNINGS PER SHARE (2)
--------------------------------------------------------------------------
Core operations                            $  6.03     $  5.15     $  3.77
Net realized gains                            0.58        1.39        0.45
Nonrecurring items                            2.05           -           -
Amortization expense                         (0.36)      (0.39)      (0.89)
Net income                                 $  8.30     $  6.15     $  3.33
--------------------------------------------------------------------------

FINANCIAL POSITION (1)(3)(4)
--------------------------------------------------------------------------
Total investments                          $ 1,131     $   909     $   612
Total assets                                 1,605       1,315       1,103
Unpaid losses and loss adjustment expenses     936         734         653
Long-term debt                                 115         107         101
Total shareholders' equity                     268         213         139
---------------------------------------------------------------------------

RATIO ANALYSIS
---------------------------------------------------------------------------
GAAP combined ratio                            100%         99%         97%
Investment yield (5)                             5%          6%          5%
Total return (6)                                 8%         15%         (2%)
Debt to total capital                           30%         33%         42%
Return on average shareholders' equity          19%         20%         13%
---------------------------------------------------------------------------

PER SHARE DATA (2)
---------------------------------------------------------------------------
Common shares outstanding (IN THOUSANDS)     5,458       5,422       5,387
Total investments                          $207.18     $167.57     $113.55
Book value                                 $ 49.16     $ 39.37     $ 25.71
Growth in book value                            25%         53%         (8%)
5-Year CAGR in book value (7)                   26%         31%         17%
Closing stock price                        $ 90.00     $ 75.50     $ 41.50
</TABLE>


(1) In December 1990 the Company acquired the remaining ownership interests
    of a previously unconsolidated subsidiary, Shand/Evanston Group, Inc.
    (Shand/Evanston). Assets and liabilities reflect the consolidation of
    Shand/Evanston beginning in 1990, and income reflects the consolidation of
    the revenues and expenses of Shand/Evanston in 1991 and subsequent years.

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

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


24


<PAGE>


<TABLE>
<CAPTION>


 1993       1992       1991         1990        1989       1988         1987   10-YearCAGR(7)
--------------------------------------------------------------------------------------------
<S>       <C>         <C>         <C>         <C>         <C>         <C>         <C>
$ 193     $   153     $   152     $    33     $    24     $    20     $    13      42%
   24          27          31           7           5           4           2      38%
  235         206         223          73          48          37          28      31%
   24          26          14           6          14          11           7      25%


$ 3.31    $  3.03     $  2.61     $  1.76     $  1.33     $  1.61     $  0.86      20%
  1.83       0.89        0.94        0.13        0.89        0.28        0.14      --
    -        1.90        0.28       (0.41)       0.65        0.45        0.51      --
 (0.91)     (1.18)      (1.15)      (0.43)      (0.25)      (0.05)          -      --
$ 4.23    $  4.64     $  2.68     $  1.05     $  2.62     $  2.29     $  1.51      20%
---------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------
$  597     $  434     $   415     $   360     $    66     $    51     $    43      44%
 1,135      1,129         700         670         196         147         104      40%
   688        733         346         302          31          27          22      --
    78        101          94         127          44          24          21      --
   151        109          83          55          60          45          20      34%
---------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------
    97%        97%        106%         81%         78%         84%         85%     --
     5%         6%          7%         10%          8%          8%          8%     --
    11%         7%         16%          8%         11%         11%          6%     --
    34%        48%         53%         70%         42%         35%         52%     --
    18%        27%         21%         10%         26%         33%         38%     --
---------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------
  5,414     5,403       5,332       5,323       5,401       5,220       4,320      --
$110.27   $ 80.27     $ 77.91     $ 67.59     $ 12.31     $  9.71     $  9.97      40%
$ 27.83   $ 20.24     $ 15.59     $ 10.27     $ 11.69     $  9.22     $  4.66      31%
     38%       30%         52%        (12%)        27%         98%         36%     --
     25%       34%         35%         --          --          --          --      --
$ 39.38   $ 31.25     $ 22.00     $ 11.75     $ 22.50     $ 15.42     $ 11.46      --

</TABLE>

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

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

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

(7) CAGR - compound annual growth rate.


                                                                             25

<PAGE>


                        Markel Corporation & Subsidiaries


CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                              1996            1995
                                                                                          ----------------------------
                                                                                              (DOLLARS IN THOUSANDS)

<S>                                                                                   <C>                  <C>
----------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, available-for-sale, at estimated fair value
  Fixed maturities (cost of $879,401 in 1996 and $683,568 in 1995)                        $   885,874        $ 706,055
  Equity securities (cost of $132,558 in 1996 and $104,538 in 1995)                           193,395          134,346
  Short-term investments (estimated fair value approximates cost)                              51,507           68,182
----------------------------------------------------------------------------------------------------------------------
  TOTAL INVESTMENTS, AVAILABLE-FOR-SALE                                                     1,130,776          908,583
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                                      11,054           18,315
Receivables                                                                                    58,336           47,210
Reinsurance recoverable on unpaid losses                                                      210,518          159,141
Reinsurance recoverable on paid losses                                                         11,631           20,404
Deferred policy acquisition costs                                                              37,979           32,024
Prepaid reinsurance premiums                                                                   44,881           39,728
Property and equipment                                                                         15,434           27,729
Intangible assets                                                                              39,297           41,657
Other assets                                                                                   45,391           19,746
----------------------------------------------------------------------------------------------------------------------
  TOTAL ASSETS                                                                           $  1,605,297      $ 1,314,537
----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
                
Unpaid losses and loss adjustment expenses                                               $    935,582      $   734,409
Unearned premiums                                                                             200,852          170,697
Payables to insurance companies                                                                23,870           17,247
Long-term debt (estimated fair value of $115,191 in 1996 and $109,189 in 1995)                114,691          106,689
Other liabilities                                                                              61,967           72,053
----------------------------------------------------------------------------------------------------------------------
  TOTAL LIABILITIES                                                                         1,336,962        1,101,095
----------------------------------------------------------------------------------------------------------------------
Shareholders' equity
 Common stock                                                                                  24,347           23,118
 Retained earnings                                                                            200,237          156,333
 Net unrealized gains on fixed maturities and equity securities,
  net of taxes of $23,559 in 1996 and $18,304 in 1995                                          43,751           33,991
----------------------------------------------------------------------------------------------------------------------
  TOTAL SHAREHOLDERS' EQUITY                                                                  268,335          213,442
Commitments and contingencies
----------------------------------------------------------------------------------------------------------------------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                $1,605,297     $ 1,314,537
----------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.


26




<PAGE>



CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>


                                                      Years Ended December 31,
                                                 --------------------------------
                                                  1996        1995          1994
<S>                                              <C>          <C>         <C>
------------------------------------------------------------------------------------
                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING REVENUES
Earned premiums                                  $307,453     $285,146    $ 243,067
Net investment income                              51,168       42,981       29,110
Net realized gains from investment sales            5,013       11,952        3,870
Other                                               3,102        3,496        3,646
------------------------------------------------------------------------------------

   TOTAL OPERATING REVENUES                       366,736      343,575      279,693
------------------------------------------------------------------------------------

OPERATING EXPENSES
Losses and loss adjustment expenses               202,378      186,655      156,169
Underwriting, acquisition and insurance expenses  105,032       96,113       80,681
Other                                               1,275        1,642        2,386
Loss on building                                   10,380            -            -
Amortization of intangible assets                   2,655        2,778        7,051
------------------------------------------------------------------------------------

   TOTAL OPERATING EXPENSES                       321,720      287,188      246,287
------------------------------------------------------------------------------------

   OPERATING INCOME                                45,016       56,387       33,406
------------------------------------------------------------------------------------

Interest expense                                    8,016        8,460        7,675
------------------------------------------------------------------------------------

   INCOME BEFORE INCOME TAXES                      37,000       47,927       25,731
Income tax expense (benefit)                       (9,672)      13,435        7,142
------------------------------------------------------------------------------------

   NET INCOME                                    $ 46,672     $ 34,492    $  18,589
------------------------------------------------------------------------------------

Earnings per share
   Primary                                       $   8.30     $   6.15    $    3.33
   Fully diluted                                 $   8.29     $   6.12    $    3.33
------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.


                                                                             27

<PAGE>


                                  Markel Corporation & Subsidiaries

CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                       Common    Common   Retained
                                                       Shares    Stock    Earnings       Other      Total
                                                                                     
<S>                                                  <C>     <C>         <C>          <C>           <C>
----------------------------------------------------------------------------------------------------------------
                                                                         (IN THOUSANDS)
Balance at January 1, 1994                            5,414    $  22,805   $   105,461  $  22,412   $  150,678
 Net income                                              --           --        18,589         --       18,589
 Net unrealized depreciation of fixed maturities
   and equity securities, net of taxes                   --           --           --     (28,698)     (28,698)
 Issuance of common stock                                19          124           --         --           124
 Repurchase of common stock                             (46)          --        (2,175)       --        (2,175)
 Other                                                   --           --           (17)       --           (17)
---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994                          5,387       22,929       121,858     (6,286)     138,501
 Net income                                              --           --        34,492        --        34,492
 Net unrealized appreciation of fixed maturities
   and equity securities, net of taxes                   --           --            --     40,277       40,277
 Issuance of common stock                                35          189            --        --           189
 Other                                                   --           --           (17)       --           (17)
---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995                          5,422       23,118       156,333     33,991      213,442
 Net income                                              --           --        46,672        --        46,672
 Net unrealized appreciation of fixed maturities
   and equity securities, net of taxes                   --           --            --      9,760        9,760
 Issuance of common stock                                68        1,229            --        --         1,229
 Repurchase of common stock                             (32)          --        (2,751)       --        (2,751)
 Other                                                   --           --           (17)       --           (17)
---------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996                          5,458    $  24,347     $ 200,237   $ 43,751   $  268,335
---------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.


28


<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                        Years Ended December 31,
                                                                    ------------------------------
                                                                    1996         1995         1994
<S>                                                              <C>          <C>         <C>
---------------------------------------------------------------------------------------------------------

                                                                          (DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net income                                                       $  46,672     $  34,492    $  18,589
Adjustments to reconcile net income to net cash provided by
 operating activities
  Deferred income tax expense (benefit)                            (15,345)        1,374        4,328
  Depreciation and amortization                                     10,934        11,088       15,361
  Loss on building                                                  10,380            -            -
  Net realized gains from investment sales                          (5,013)      (11,952)      (3,870)
  Proceeds from reinsurer commutations and other settlements         6,544        82,637       31,818
  Increase in receivables                                           (5,208)         (296)     (10,261)
  Increase in deferred policy acquisition costs                     (1,044)       (3,563)      (2,513)
  Increase (decrease) in unpaid losses and loss
    adjustment expenses, net                                        40,819        43,133      (21,224)
  Increase in unearned premiums, net                                 6,009        12,393       14,014
  Increase (decrease) in payables to insurance companies             2,581        (7,270)      13,782
  Decrease in current income taxes                                  (2,702)         (894)      (2,344)
  Other                                                               (275)        7,867        3,310
---------------------------------------------------------------------------------------------------------
       NET CASH PROVIDED BY OPERATING ACTIVITIES                    94,352       169,009       60,990
---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
 Proceeds from sales of fixed maturities and equity securities     439,072       586,121      344,433
 Proceeds from maturities of fixed maturities                       66,512        35,993       15,983
 Cost of fixed maturities and equity securities purchased         (591,034)     (793,058)    (400,936)
 Net change in short-term investments                               16,675        13,076      (17,099)
 Acquisitions of insurance companies, net of cash acquired         (35,049)      (21,747)          --
 Net proceeds from sale of buildings                                    --        19,068           --
 Additions to property and equipment                                (3,952)       (4,509)      (7,025)
 Other                                                                (248)       (1,989)       1,469
---------------------------------------------------------------------------------------------------------
   NET CASH USED BY INVESTING ACTIVITIES                          (108,024)      (167,045)    (63,175)
---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
 Additions to long-term debt                                        40,500         27,500      29,280
 Repayments of long-term debt                                      (32,550)       (21,550)     (7,550)
 Retirement of capital lease                                            --             --     (19,584)
 Other                                                              (1,539)           172      (2,118)
---------------------------------------------------------------------------------------------------------
   NET CASH PROVIDED BY FINANCING ACTIVITIES                         6,411          6,122          28
---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                    (7,261)         8,086       (2,157)
Cash and cash equivalents at beginning of year                      18,315         10,229       12,386
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                        $   11,054      $  18,315    $  10,229
---------------------------------------------------------------------------------------------------------

</TABLE>


See accompanying notes to consolidated financial statements.

  
                                                                         29

<PAGE>


                         Markel Corporation & Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of    
 Significant      
 Accounting
 Policies


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


A) PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS. Generally accepted
accounting principles require management to make estimates and assumptions when
preparing financial statements. Actual results could differ from those
estimates. The consolidated financial statements include the accounts of Markel
Corporation and all subsidiaries (the Company). All significant intercompany
balances and transactions have been eliminated in consolidation. 


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 as a separate component of shareholders' equity. A decline in the fair
value of any investment below cost that is deemed other than temporary is
charged to earnings, resulting in a new cost basis for the security. 


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


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


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


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


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


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


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

30

<PAGE>


1. Summary of    
 Significant      
 Accounting    
 Policies
 (CONTINUED)

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 recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period of the enactment date. 


J) EARNINGS PER SHARE. Primary earnings per share 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. The weighted
average number of common shares outstanding includes the weighted average common
equivalent shares attributable to dilutive stock options. Fully diluted earnings
per share is computed using the weighted average common shares outstanding
during the year, including the maximum dilutive effect of common equivalent
shares. 


K) DERIVATIVE FINANCIAL INSTRUMENTS. The Company was not a party to any
derivative financial instruments as defined by Statement of Financial Accounting
Standards (SFAS) No. 119 at December 31, 1996.


L) STOCK OPTION PLANS.Prior to January 1, 1996, the Company accounted for its
stock option plans in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related interpretations. As such, compensation expense is recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. Beginning January 1, 1996, SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, requires entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant, or
alternatively, allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected the latter method.

M) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF.
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of an asset to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If an asset is considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the asset exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.

N) RECLASSIFICATIONS. Certain reclassifications of prior years' amounts
have been made to conform with 1996 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, 1996
                                                    -------------------------------------------------
                                                                   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                   $ 215,550    $  1,634     $  (1,612)    $  215,572
   Obligations of states, municipalities
      and political subdivisions                      218,475       4,004          (692)       221,787
   Public utilities                                    54,845       1,194        (1,004)        55,035
   Convertibles and bonds with warrants                33,869       2,222          (553)        35,538
   All other corporate bonds                          356,193       4,402        (3,185)       357,410
   Redeemable preferred stock                             469          63            --            532
------------------------------------------------------------------------------------------------------
   Total fixed maturities                             879,401      13,519        (7,046)       885,874
Equity securities  
   Banks, trusts and insurance companies               46,095      23,537        (1,182)        68,450
   Industrial, miscellaneous and all other             82,789      39,145          (349)       121,585
   Nonredeemable preferred stock                        3,674          21          (335)         3,360

   Total equity securities                            132,558      62,703        (1,866)       193,395
Short-term investments                                 51,507         --             --         51,507
------------------------------------------------------------------------------------------------------
       TOTAL                                      $ 1,063,466   $  76,222      $ (8,912)    $1,130,776
------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>


                                                           December 31, 1995
                                                 ------------------------------------------
                                                             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                  $ 211,779  $  4,384    $  (212)    $ 215,951
    Obligations of states, municipalities
      and political subdivisions                     109,314     3,674       (177)      112,811
    Public utilities                                  48,542     3,205         --        51,747
    Convertibles and bonds with warrants              18,076       816     (1,052)       17,840
    All other corporate bonds                        293,852    11,948       (242)      305,558
    Redeemable preferred stock                         2,005       143         --         2,148
------------------------------------------------------------------------------------------------------
    Total fixed maturities                           683,568    24,170     (1,683)      706,055
 Equity securities
   Banks, trusts and insurance companies              32,202    11,554     (1,991)       41,765
   Industrial, miscellaneous and all other            68,662    25,430     (5,085)       89,007
   Nonredeemable preferred stock                       3,674        37       (137)        3,574
------------------------------------------------------------------------------------------------------
   Total equity securities                           104,538    37,021     (7,213)      134,346
Short-term investments                                68,182        --         --        68,182
------------------------------------------------------------------------------------------------------
       TOTAL                                      $  856,288 $  61,191    $(8,896)     $908,583
------------------------------------------------------------------------------------------------------

</TABLE>


32


<PAGE>


2. Investments
(CONTINUED)

B) The amortized cost and estimated fair value of fixed maturities at
December 31, 1996 are shown below by contractual maturity (DOLLARS IN
THOUSANDS):

<TABLE>
<CAPTION>

                                                    Estimated
                                        Amortized      Fair
                                          Cost        Value
<S>                                    <C>          <C>
-------------------------------------------------------------

Due in one year or less                $  68,403    $  68,408
Due after one year through five years    206,273      206,309
Due after five years through ten years   284,875      287,092
Due after ten years                      319,850      324,065
--------------------------------------------------------------
      TOTAL                            $ 879,401    $ 885,874
--------------------------------------------------------------
</TABLE>


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 4.3 years. 


C) Components of net investment income were as follows (DOLLARS IN
THOUSANDS):


<TABLE>
<CAPTION>


                                         Years Ended December 31, 
                                         ------------------------
                                       1996      1995         1994
<S>                                  <C>         <C>         <C>
----------------------------------------------------------------------
Interest
   Municipal bonds (tax-exempt)      $  8,824    $  6,900    $  7,784
   Taxable bonds                       36,823      31,042      18,299
   Short-term investments, including
      overnight deposits                4,447       3,969       2,691
   Dividends on equity securities       4,474       3,675       2,804
----------------------------------------------------------------------
                                       54,568      45,586      31,578
Less investment expenses                3,400       2,605       2,468
----------------------------------------------------------------------

   NET INVESTMENT INCOME             $ 51,168    $ 42,981    $ 29,110
----------------------------------------------------------------------

</TABLE>



                                                                          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):

<TABLE>
<CAPTION>



                                                   Years Ended December 31,
                                                 ---------------------------
                                              1996        1995            1994
<S>                                       <C>            <C>          <C>
---------------------------------------------------------------------------------
Realized gains
   Fixed maturities                       $    5,618     $ 13,861     $    8,894
   Equity securities                           5,480        9,838          5,569
---------------------------------------------------------------------------------
                                              11,098       23,699         14,463
---------------------------------------------------------------------------------
Realized losses
   Fixed maturities                           (5,853)      (9,281)        (9,621)
   Equity securities                            (232)      (2,466)          (972)
---------------------------------------------------------------------------------
                                              (6,085)     (11,747)       (10,593)
---------------------------------------------------------------------------------
 NET REALIZED GAINS FROM INVESTMENT SALES $    5,013     $ 11,952     $    3,870
---------------------------------------------------------------------------------

Change in gross unrealized gains (losses)
   Fixed maturities                       $  (16,014)    $ 41,356     $  (31,029)
   Equity securities                          31,029       20,610        (13,121)
---------------------------------------------------------------------------------
 NET INCREASE(DECREASE)                   $   15,015     $ 61,966     $  (44,150)
---------------------------------------------------------------------------------
</TABLE>

E) Investments with a carrying value of $41.9 million and $30.0 million were
on deposit with regulatory authorities at December 31, 1996 and 1995,
respectively.


F) At December 31, 1996, there were no investments in any one issuer, other
than U.S. Treasury securities and obligations of U.S. government agencies, that
exceeded 10% of consolidated shareholders' equity.


3. Receivables 
   
Following are the components of receivables (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>



                                                          December 31,
                                                        ---------------
                                                       1996        1995

<S>                                                   <C>         <C>
---------------------------------------------------------------------------
Agents' balances and premiums in course of collection $ 47,356    $ 39,326
Less allowance for doubtful receivables                  2,694       2,201
---------------------------------------------------------------------------
                                                        44,662      37,125
Other                                                   13,674      10,085
---------------------------------------------------------------------------
   RECEIVABLES                                        $ 58,336    $ 47,210
---------------------------------------------------------------------------
</TABLE>


34


<PAGE>


4. Deferred                  
   Policy                  
   Acquisition                            
   Costs        

The following reflects the amounts of policy costs deferred and amortized
(DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>



                                        Years Ended December 31,

                                     ---------------------------------
                                      1996          1995         1994
<S>                               <C>             <C>         <C>  
-----------------------------------------------------------------------      
Balance, beginning of year           $ 32,024     $ 26,064     $ 23,551
Policy acquisition costs deferred      76,327       72,748       61,299
Amortization charged to expense       (70,372)     (66,788)     (58,786)
----------------------------------------------------------------------- 
  DEFERRED POLICY ACQUISITION COSTS  $ 37,979     $ 32,024     $ 26,064
----------------------------------------------------------------------- 

</TABLE>



The following reflects the components of underwriting, acquisition and insurance
expenses (DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>

                                                 Years Ended December 31,
                                                -------------------------
                                                1996        1995        1994
 <S>                                        <C>          <C>         <C>
-----------------------------------------------------------------------------
Amortization of policy acquisition costs    $  70,372    $ 66,788    $ 58,786
Other operating expenses                       34,660      29,325      21,895
-----------------------------------------------------------------------------
     UNDERWRITING, ACQUISITION AND
     INSURANCE EXPENSES                     $ 105,032    $ 96,113    $ 80,681
-----------------------------------------------------------------------------

</TABLE>



5. Property and       
    Equipment

Following are the components of property and equipment (DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>



                                                                  December 31,
                                                               ----------------
                                                               1996         1995
<S>                                                        <C>         <C>
----------------------------------------------------------------------------------
Land                                                          $  2,372    $  2,372
Buildings and building equipment                                14,015      24,221
Furniture and equipment                                         26,229      22,772
Other                                                               94         130
----------------------------------------------------------------------------------
                                                                42,710      49,495
Less accumulated depreciation and amortization                  27,276      21,766
----------------------------------------------------------------------------------
         PROPERTY AND EQUIPMENT                               $ 15,434    $ 27,729
----------------------------------------------------------------------------------

</TABLE>


Depreciation and amortization expense of property and equipment was $6.0 
million, $6.0 million and $5.0 million for the years ended December 31, 
1996, 1995, 1994 respectively.

Total rental expense for the years ended December 31, 1996, 1995 and 1994
was approximately $2.7 million, $1.9 million and $1.0 million, respectively. 

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



                                                                           35

<PAGE>



                             Markel Corporation & Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)


5. Property and
    Equipment
   (CONTINUED)


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


In addition, the Company has other office facilities, furniture and
equipment under operating leases with remaining terms ranging from 22 months to
46 months. 


Minimum annual rental commitments for noncancelable operating leases at
December 31, 1996 are as follows (DOLLARS IN THOUSANDS):


Years Ending December 31,
----------------------------------------------
       1997                           $  2,924
       1998                              2,969
       1999                              2,899
       2000                              2,932
       2001                              2,651
       2002 and thereafter              10,549
-----------------------------------------------
       Total                          $ 24,924
-----------------------------------------------




6. Intangible
   Assets


Following are the components of intangible assets (DOLLARS IN THOUSANDS):

                         December 31,
                         ------------
                       1996        1995
------------------------------------------
Goodwill              $ 36,035    $ 36,628
Policy renewal rights    3,262       5,029
------------------------------------------
   INTANGIBLE ASSETS  $ 39,297    $ 41,657
------------------------------------------


Accumulated amortization related to intangible assets was $17.6 million and
$14.9 million at December 31, 1996 and 1995, respectively.



7. Income Taxes

Income tax expense (benefit) on income before income taxes, substantially
all of which was federal tax expense, consists of (DOLLARS IN THOUSANDS):



         Current      Deferred      Total
--------------------------------------------
1996    $  5,673    $ (15,345)    $  (9,672)
1995    $ 12,061    $   1,374     $  13,435
1994    $  2,814    $   4,328     $   7,142

The Company made income tax payments of $8.4 million in 1996, $13.0 million
in 1995 and $5.2 million in 1994. Current income taxes recoverable were $3.4
million at December 31, 1996. At December 31, 1995, current income taxes
payable were $0.2 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,
                                               ------------------------
                                                 1996    1995     1994
----------------------------------------------------------------------
U.S. corporate tax rate                           35%     35%      35%
Tax-exempt investment income                      (9)     (6)     (11)
Amortization of intangibles                        1       1        2
Difference between financial reporting and tax
   bases of assets acquired                      (53)     --        -
Other                                              -      (2)       2
----------------------------------------------------------------------
   EFFECTIVE TAX RATE                            (26%)    28%      28%
----------------------------------------------------------------------




The components of the net deferred tax asset (liability) are as follows 
(DOLLARS IN THOUSANDS):


                                                             December 31,
                                                           --------------
                                                          1996        1995
----------------------------------------------------------------------------
Assets
  Income reported in different periods for
   financial reporting and tax purposes                 $  11,793   $ 10,409
  Unpaid losses and loss adjustment expenses,
   nondeductible portion for income tax purposes           51,765     42,558
  Unearned premiums, adjustment for income tax purposes    10,918      9,168
  Other                                                       717        815
----------------------------------------------------------------------------
  Total gross deferred tax assets                          75,193     62,950
----------------------------------------------------------------------------
Liabilities
 Property and equipment, depreciation                       1,123      3,069
 Deferred policy acquisition costs                         13,293     11,208
 Investments, net unrealized gains                         23,559     18,304
 Differences between financial reporting and
   tax bases of assets acquired                            13,837     33,073
 Other                                                      1,267      1,169
----------------------------------------------------------------------------
 Total gross deferred tax liabilities                      53,079     66,823
----------------------------------------------------------------------------
      DEFERRED TAX ASSET (LIABILITY), NET               $  22,114   $ (3,873)
----------------------------------------------------------------------------


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 substantially all of its gross deferred tax assets existing at December
31, 1996 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 Internal Revenue Service completed an examination of the 1994 and prior
federal tax returns and made no material adjustments.


                                                                         37


<PAGE>


                       Markel Corporation & Subsidiaries


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    (CONTINUED)

8. Unpaid Losses    
   And Loss   
   Adjustment     
   Expenses

The following table sets forth a reconciliation of beginning and ending
reserves for losses and loss adjustment expenses (DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>



                                                      Years Ended December 31,
                                                      ------------------------
                                                  1996        1995          1994

<S>                                            <C>           <C>           <C>
--------------------------------------------------------------------------------------
NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT
   EXPENSES, BEGINNING OF YEAR                 $ 575,268     $ 471,996     $ 426,796
   Commutations and other settlements              6,544        54,637        59,818
   Reserves for losses and loss adjustment
      expenses of acquired insurance companies   117,499        35,233            --
--------------------------------------------------------------------------------------
RESTATED NET RESERVES FOR LOSSES
   AND LOSS ADJUSTMENT EXPENSES,
   BEGINNING OF YEAR                           $ 699,311     $ 561,866     $ 486,614
--------------------------------------------------------------------------------------
Incurred losses and loss adjustment expenses
   Current year                                  226,495       195,448       159,730
   Prior years                                   (24,117)       (8,793)       (3,561)
--------------------------------------------------------------------------------------
TOTAL INCURRED LOSSES AND
   LOSS ADJUSTMENT EXPENSES                      202,378       186,655       156,169
--------------------------------------------------------------------------------------
Payments
   Current year                                   52,158        42,002        27,456
   Prior years                                   124,467       131,251       144,376
--------------------------------------------------------------------------------------
TOTAL PAYMENTS                                   176,625       173,253       171,832
--------------------------------------------------------------------------------------
Other                                                  -             -         1,045
--------------------------------------------------------------------------------------
NET RESERVES FOR LOSSES AND LOSS
   ADJUSTMENT EXPENSES, END OF YEAR              725,064       575,268       471,996
--------------------------------------------------------------------------------------
Reinsurance recoverable on unpaid losses         210,518       159,141       180,934
--------------------------------------------------------------------------------------
GROSS RESERVES FOR LOSSES AND LOSS
   ADJUSTMENT EXPENSES, END OF YEAR            $ 935,582     $ 734,409     $ 652,930
--------------------------------------------------------------------------------------
</TABLE>


The provision for prior years decreased in 1996, 1995 and 1994.  Inherent in
the Company's reserving practices is the desire to have reserves more likely to
prove to be redundant than deficient.  Furthermore, the Company's philosophy is
to price its insurance products to make an underwriting profit, not to increase
written premiums.



38


<PAGE>


8. Unpaid Losses    
   And Loss   
   Adjustment     
   Expenses
   (CONTINUED)

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


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


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


9. Long-Term
   Debt


Long-term debt consists of the following (DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>

                                                                  December 31,
                                                                  ------------
                                                                  1996     1995
<S>                                                               <C>     <C>
---------------------------------------------------------------------------------
7.25% notes, due November 1, 2003, interest payable
   semi-annually , net of unamortized discount of
   $359 in 1996 and $411 in 1995                               $  99,641 $ 99,589
6.06% borrowings under $150 million revolving credit
  facility                                                        15,000        -
6.63% borrowings under $40 million revolving credit
  facility, due June 30, 1997                                          -    7,000
Other                                                                 50      100
---------------------------------------------------------------------------------

   LONG-TERM DEBT                                              $ 114,691 $106,689
---------------------------------------------------------------------------------

</TABLE>


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%. The
estimated fair value of the Company's long-term debt is based on quoted market
prices at the reporting date. 


In December 1996 the Company arranged a syndicated revolving credit
facility which provides up to $150.0 million for working capital and other
general corporate purposes. The Company may select from various interest rate
options for balances outstanding under the facility. The Company pays a
commitment fee of .15% on the unused portion of the facility. The facility is a
revolving credit facility until October 1, 1998. Any outstanding balances at
that date are converted to a four year term loan. This facility replaced the
Company's $40.0 million credit facility.


                                                                            39


<PAGE>


                         Markel Corporation & Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)


9. Long-Term
   Debt
   (CONTINUED)


Following is a schedule of future principal payments due on long-term debt as of
December 31, 1996 (DOLLARS IN THOUSANDS):


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

    1997                   $      50
    1998                      15,000
    1999                          --
    2000                          --
    2001                          --
    2002 and thereafter       99,641
-------------------------------------
    Total                  $ 114,691
-------------------------------------


 
The Company paid $7.7 million, $8.4 million and $7.4 million in interest
during the years ended December 31, 1996, 1995 and 1994, respectively.


10. Shareholders'
    Equity




A) The Company has 15,000,000 shares of no par value common stock
authorized, of which 5,458,077 and 5,421,988 shares were outstanding at December
31, 1996 and 1995, respectively. The Company is authorized to issue up to
2,069,200 shares of preferred stock, $1.00 par value per share, in one or more
series and to fix the powers, designations, preferences and rights of each
series.  There were 11,269 shares of Series A redeemable preferred stock
outstanding at December 31, 1996 and 1995. These shares were included in other
liabilities at a redemption value of $28.50 per share and carry a cumulative
dividend of $1.50 per share, payable semi-annually.


B) The Company has three stock option or stock award plans for employees
and directors; the 1986 Stock Option Plan which expired on November 3, 1996, the
1989 Non-employee Director Stock Option Plan and the 1993 Incentive Stock Plan.
At December 31, 1996, there were 240,250 shares, 60,000 shares and 100,000
shares reserved for issuance under the 1986 plan, the 1989 plan and the 1993
plan, respectively. The 1986 and 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. The 1989 plan is administered by the
Company's Board of Directors and provides for the award of non-statutory stock
options to the non-employee directors. Options are granted at a price not less
than market price on the date of the grant and are exercisable within a period
established by the Committee or the Board at the time of the grant, but not
earlier than six months from the date of grant. Options expire either five or
ten years from the date of grant. At December 31, 1996, the Company had 36,000
options available for grant under the 1989 plan and 100,000 options, stock
appreciation rights or incentive stock awards were available for grant under the
1993 plan.



40

<PAGE>

10. Shareholders'
    Equity
   (CONTINUED)

Stock option transactions are summarized below:

<TABLE>
<CAPTION>


                                                         Years Ended December 31,
                                     --------------------------------------------------------------
                                               Weighted               Weighted             Weighted
                                               Average                Average              Average
                                               Exercise               Exercise             Exercise
                                     1996       Price        1995      Price      1994      Price
<S>                                 <C>      <C>          <C>        <C>        <C>      <C>
---------------------------------------------------------------------------------------------------
Options outstanding
   at January 1                       339,582  $    23.85   382,421   $  22.67   383,566 $  19.51
Granted                                 5,000       87.00       --          --    46,000    44.03
Exercised                             (75,332)      22.18   (40,919)     12.38   (44,850)   18.11
Canceled                               (5,000)      21.55    (1,920)     32.16    (2,295)   11.77
---------------------------------------------------------------------------------------------------
Options outstanding
   at December 31                     264,250  $    25.55   339,582   $  23.85   382,421 $  22.67
---------------------------------------------------------------------------------------------------
Options exercisable
    at December 31                    210,735               255,274              273,935
Options available for grant
    at December 31                    136,000               151,215              149,295
---------------------------------------------------------------------------------------------------

</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1996:

<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>
---------------------------------------------------------------------------

$10 to 15     77,209    2.3 years      $ 12.35      77,209          $ 12.35
 16 to 22     87,851    2.8              18.82      85,676            18.80
 23 to 33     10,540    0.4              27.76       8,740            28.07
 34 to 47     83,650    4.8              40.86      39,110            40.66
 87            5,000    9.8              87.00          --               --
---------------------------------------------------------------------------
$10 to 87    264,250    3.3 years      $ 25.55     210,735          $ 20.88
---------------------------------------------------------------------------
</TABLE>


The pro forma impact of stock options granted in 1996 was not material to
the Company's results of operations.



                                                                       41


<PAGE>



                       Markel Corporation & Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     (CONTINUED)


10. Shareholders'
    Equity
    (CONTINUED)

C) Earnings per share is determined by dividing net income, as adjusted
below, by the applicable shares outstanding (IN THOUSANDS):

<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                                    ---------------------------
                                                       1996      1995     1994
<S>                                                 <C>        <C>     <C>
-------------------------------------------------------------------------------
Net income as reported                              $  46,672 $ 34,492 $ 18,589
Dividends on redeemable preferred stock                   (17)     (17)     (17)
-------------------------------------------------------------------------------
Primary and fully diluted income                    $  46,655 $ 34,475 $ 18,572
-------------------------------------------------------------------------------

Average common shares outstanding                       5,438    5,405    5,395
Shares applicable to common stock equivalents             185      200      174
-------------------------------------------------------------------------------
Average primary shares outstanding                      5,623    5,605    5,569
Additional dilution attributable to
  common stock equivalents                                  4       28       --
-------------------------------------------------------------------------------
Average fully diluted shares outstanding                5,627    5,633    5,569
-------------------------------------------------------------------------------
</TABLE>

Average primary and fully diluted shares include common and common
equivalent shares attributable to stock options. Common stock market prices
which produce the maximum dilutive effect are used to calculate fully diluted
shares attributable to stock options.


11. Employee
    Benefit
    Plans

The Company maintains a defined contribution plan, the Markel Corporation
Retirement Savings Plan, in accordance with Section 401(k) of the Internal
Revenue Code. The plan requires the Company to contribute, on an annual basis,
6% of each participating employee's compensation plus a matching contribution
of 100% of the first 2% and 50% of the next 2% of each participating employee's
contribution. Annual expenses relating to this plan were $2.2 million, $1.9
million and $1.9 million in 1996, 1995 and 1994, respectively.


12. Reinsurance

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


The table below summarizes the effect of reinsurance on premiums written
and earned (DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>


                                                Years Ended December 31,
-------------------------------------------------------------------------------------------------------
                          1996                       1995                            1994
-------------------------------------------------------------------------------------------------------

                   Written      Earned       Written       Earned           Written          Earned
 <S>          <C>            <C>          <C>         <C>                <C>              <C>
Direct            $ 398,412   $ 391,942    $ 366,739     $ 349,417         $ 310,748         $ 291,816
Assumed               8,058      11,062       23,879        26,158            29,121            30,618
Ceded               (93,011)    (95,551)     (93,079)      (90,429)          (82,847)          (79,367)
-------------------------------------------------------------------------------------------------------
Net Premiums      $ 313,459   $ 307,453    $ 297,539     $ 285,146         $ 257,022         $ 243,067
-------------------------------------------------------------------------------------------------------
</TABLE>



42


<PAGE>



12. Reinsurance
    (CONTINUED)

Incurred losses and loss adjustment expenses are net of reinsurance
recoveries of $51.2 million, $63.9 million and $67.1 million for the years ended
December 31, 1996, 1995 and 1994, respectively. 


Since 1993 the Company has pursued the commutation, or termination, of
contracts with certain reinsurers of Shand/Evanston's 1987 and prior books of
business. The objectives of the commutations were to reduce credit risks and
eliminate administrative expenses associated with the run-off of reinsurance
placed with certain inactive reinsurers. Primarily as a result of the
commutation program, during 1996 the Company reassumed exposures for ceded
unpaid losses and loss adjustment expenses in exchange for $6.5 million.  In
1995 and 1994 reinsurer commutations and other settlements totaled $54.6 million
and $59.8 million, respectively. In all years, pricing for commutations was
based on ceded unpaid losses and loss adjustment expenses at the date of
commutation plus other factors deemed appropriate by management. The recording
of commutations had no effect on the Company's results of operations in 1996,
1995 and 1994. 


The percentage of assumed earned premiums to net earned premiums for the
years ended December 31, 1996, 1995 and 1994 was approximately 4%, 9% and 13%,
respectively.

13. 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.

14. Related
    Party    
    Transactions

The Company purchases investment counseling services from Hamblin Watsa
Investment Counsel Ltd., a company in which a Director of the Company has a
significant interest. The cost of such services was $674,000, $618,000 and
$512,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 


The Company pays commissions to Gary Markel & Associates, Inc. and Gary
Markel Surplus Lines Brokerage, Inc., entities owned by a Director of the
Company. The commissions paid were $467,000, $424,000 and $344,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.


15. 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,
                                       -----------------------
                                    1996         1995        1994
--------------------------------------------------------------------
Net income                       $  27,424    $  42,181    $  26,816
--------------------------------------------------------------------
Statutory capital and surplus    $ 282,774    $ 224,833    $ 164,650
--------------------------------------------------------------------


1996 amounts include Investors Insurance Holding Corp.'s statutory net loss and
capital and surplus of $6.6 million and $28.7 million, respectively.


                                                                   43

<PAGE>


                      Markel Corporation & Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       (CONTINUED)

15. Statutory
    Financial
    Information
    (CONTINUED)

The Company's insurance subsidiaries are subject to certain regulatory
restrictions on the payment of dividends or advances to the Company. As of
December 31, 1996, $249.9 million of the insurance subsidiaries' statutory
surplus was so restricted.


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

16. Acquisitions

A) On October 31, 1996, the Company acquired Investors Insurance Holding Corp.
and its subsidiaries (Investors). The acquisition was accounted for using the
purchase method of accounting.  Total consideration paid to the shareholders of
Investors was $38.1 million which approximated the fair value of the net assets
acquired. The Company funded the transaction with available cash and borrowings
of approximately $15.0 million under existing lines of credit. Investors had
gross premium volume of $56.9 million in 1996. However, following the
acquisition, the Company expects Investors' gross premium volume to decline as
Investors focuses on its core general liability and property lines of business.
The acquisition's effect on the Company's current earnings was not significant
in 1996. 


The table below summarizes, on a pro forma basis, the Company's consolidated
results of operations as if the purchase of Investors had taken place as of
January 1, 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):


                                 Years Ended December 31,
                                 -----------------------
                                1996                 1995
-------------------------------------------------------------
Total operating revenues     $    405,899        $   389,397
Net income                         39,469             29,508
-------------------------------------------------------------
Earnings per share                                            
    Primary                  $       7.02        $      5.26
    Fully diluted            $       7.01        $      5.24
-------------------------------------------------------------

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



B) On May 30, 1995, the Company acquired the stock of Lincoln Insurance
Company (LIC), an excess and surplus lines company. The acquisition was
accounted for using the purchase method of accounting. The terms of the
transaction provided for the Company to pay total consideration of $24.3 million
which approximated the fair value of the net assets acquired. Additionally, the
seller will provide indemnification against adverse development of reserves for
losses and loss adjustment expenses and uncollectible reinsurance, if any, in an
amount up to the purchase price. The Company funded the transaction with
available cash and borrowings of approximately $17.0 million under existing 
lines of credit. After the acquisition, LIC ceased writing business as soon as
practical. However, certain portions of the business were renewed in Essex
Insurance Company, a subsidiary of the Company. The acquisition's effect on
current earnings, which consists primarily of investment income from LIC's
investment portfolio, was not significant in 1995.


44


<PAGE>


17. Subsequent
    Events

In January 1997 the Company arranged the sale of $150 million of 8.71%
Capital Securities (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 Capital Securities were used
to purchase the Company's 8.71% Junior Subordinated Debentures (the Debentures)
due January 1, 2046, issued to the Trust under an indenture dated January 13,
1997 (the Indenture). The Debentures are the sole assets of the Trust. The
Company has the right to defer interest payments on the Debentures for up to
five years. The Capital Securities and related Debentures are redeemable by the
Company on or after January 1, 2007. Payments of distributions and other amounts
due on the Capital Securities (to the extent the Trust has funds on hand legally
available for the payment of such distributions) are irrevocably guaranteed by
the Company (the Guarantee). Taken together, the Company's obligations under the
Debentures, the Indenture, the Declaration and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
distributions and other amounts due on the Capital Securities.



18. Markel
    Corporation
    (Parent Company
    Only) Financial
    Information

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                            December 31,
                                                        ----------------------
                                                          1996       1995
------------------------------------------------------------------------------
<S>                                                   <C>          <C>
                                                        (DOLLARS IN THOUSANDS)

ASSETS
Investments in consolidated subsidiaries                $  336,301  $ 282,732
Short-term investments at estimated fair value
   (estimated fair value approximates cost)                 17,618     13,740
Cash and cash equivalents                                    1,562        812
Notes receivable from subsidiaries                          49,694     45,224
Other assets                                                10,757     14,598
------------------------------------------------------------------------------
    TOTAL ASSETS                                        $  415,932  $ 357,106
------------------------------------------------------------------------------
LIABILITIES  AND SHAREHOLDERS' EQUITY

Current income taxes payable                            $      281  $      --
Deferred income taxes                                       13,070     10,954
Long-term debt                                             114,641    106,589
Other liabilities                                           19,605     26,121
------------------------------------------------------------------------------
    TOTAL LIABILITIES                                      147,597    143,664
------------------------------------------------------------------------------
Shareholders' equity                                       268,335    213,442
------------------------------------------------------------------------------

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $  415,932  $ 357,106
------------------------------------------------------------------------------

</TABLE>





                                                                           45

<PAGE>


                        Markel Corporation & Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         (CONTINUED)

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


CONDENSED STATEMENTS  OF INCOME

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                                  ------------------------
                                                  1996        1995      1994
<S>                                           <C>          <C>          <C>
---------------------------------------------------------------------------------
                                             (DOLLARS IN THOUSANDS)

REVENUES
Net investment income                           $  2,585   $  3,879    $  3,434
Cash dividends on common stock of
   consolidated subsidiaries                      31,841     35,459      15,380
Other                                              1,471        129         452
---------------------------------------------------------------------------------
    TOTAL REVENUES                                35,897     39,467      19,266
---------------------------------------------------------------------------------

EXPENSES
Interest                                           8,016      8,460       7,675
Other                                                205      3,144       2,064
---------------------------------------------------------------------------------
    TOTAL EXPENSES                                 8,221     11,604       9,739
---------------------------------------------------------------------------------

    INCOME BEFORE EQUITY IN UNDISTRIBUTED
      EARNINGS OF CONSOLIDATED SUBSIDIARIES
      AND INCOME TAXES                            27,676     27,863       9,527
Equity in undistributed earnings of
    consolidated subsidiaries                     15,655      5,139      11,423
Income tax expense (benefit)                      (3,341)    (1,490)      2,361
---------------------------------------------------------------------------------
    NET INCOME                                  $ 46,672   $ 34,492    $ 18,589
---------------------------------------------------------------------------------

</TABLE>



46


<PAGE>


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

CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                       Years Ended December 31,
                                                       ------------------------
                                                   1996          1995        1994

<S>                                               <C>          <C>          <C>
------------------------------------------------------------------------------------
                                                        (DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net income                                        $ 46,672     $ 34,492     $ 18,589
Adjustments to reconcile net income to net cash
   provided by operating activities                 (3,608)      (3,181)         725
------------------------------------------------------------------------------------
   NET CASH PROVIDED BY OPERATING
     ACTIVITIES                                     43,064       31,311       19,314
------------------------------------------------------------------------------------
INVESTING ACTIVITIES
   Cost of investments purchased                    (4,030)      (4,626)     (20,802)
   Proceeds from sales of investments                3,996        4,663       34,525
   Net change in short-term investments             (3,878)       1,562       (6,650)
   Increase in notes receivable from subsidiaries   (4,470)      (4,005)     (18,092)
   Capital contribution to subsidiaries                 --       (9,500)     (27,000)
   Acquisitions of insurance companies             (38,050)     (24,281)          --
   Other                                            (1,263)         (96)         (31)
------------------------------------------------------------------------------------
  NET CASH USED BY INVESTING
    ACTIVITIES                                     (47,695)     (36,283)     (38,050)
------------------------------------------------------------------------------------
FINANCING ACTIVITIES
   Dividends to subsidiaries                        (1,080)      (1,080)      (1,080)
   Additions to long-term debt                      40,500       27,500       29,280
   Repayments of long-term debt                    (32,500)     (21,500)      (7,500)
   Other                                            (1,539)         172       (2,118)
------------------------------------------------------------------------------------
   NET CASH PROVIDED BY FINANCING
     ACTIVITIES                                      5,381        5,092       18,582
------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents       750          120         (154)
Cash and cash equivalents at beginning of year         812          692          846
------------------------------------------------------------------------------------
Cash and cash equivalents at end of year          $  1,562     $    812     $    692
------------------------------------------------------------------------------------
</TABLE>





                                                                    47

<PAGE>

Markel Corporation & Subsidiaries 



INDEPENDENT AUDITORS' REPORT 


(KPMG Peat Marwick LLP logo appears here.)





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, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
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, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles. 


As described in Note 1, in 1996 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.


                    /s/ KPMG PEAT MARWICK LLP

Richmond, Virginia
February 4, 1997




48


<PAGE>


QUARTERLY INFORMATION

The following table presents the quarterly results of consolidated operations
for 1996, 1995 and 1994 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):

<TABLE>
<CAPTION>

                                               Mar. 31   June 30   Sept. 30   Dec. 31
<S>                                          <C>        <C>        <C>       <C>
-------------------------------------------------------------------------------------
1996
  Operating revenues                         $  92,990  $ 83,672   $90,367  $  99,707
  Income before income taxes                    10,554    10,117    11,144      5,185
  Net income                                     7,810    26,090     8,469      4,303
  Earnings per share
    Primary                                   $   1.38  $   4.61   $  1.50  $    0.76
    Fully diluted                                 1.38      4.60      1.50       0.76
  Common stock price ranges
    High                                      $ 91      $ 94 1/2   $    93  $      92
    Low                                         72 1/2    78            85         83

1995
  Operating revenues                          $ 76,525  $ 82,565   $91,543  $  92,942
  Income before income taxes                     8,838    11,286    12,835     14,968
  Net income                                     6,540     8,352     8,984     10,616
  Earnings per share
    Primary                                   $   1.17  $   1.49   $  1.59  $    1.88
    Fully diluted                                 1.17      1.49      1.59       1.88
  Common stock price ranges
    High                                      $ 48 1/4  $ 57       $75 1/2  $  75 1/2
    Low                                         40 3/4    47 1/4    56 1/4     67 1/2

1994
  Operating revenues                          $ 65,468  $ 66,398   $72,414  $  75,413
  Income before income taxes                     7,236     6,388     5,858      6,249
  Net income                                     5,210     4,599     4,218      4,562
  Earnings per share
    Primary                                   $   0.93  $   0.83   $  0.76  $    0.82
    Fully diluted                                 0.93      0.83      0.76       0.82
  Common stock price ranges
    High                                      $ 44 1/2  $ 42 1/2   $    44  $  42 1/4
    Low                                         38 1/2    37 1/2        39     40 1/4
</TABLE>




                                                                           49

<PAGE>
                     Markel Corporation & Subsidiaries


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


RESULTS  OF OPERATIONS


In 1996 gross premium volume totaled $413.6 million compared to $402.1
million in 1995 and $349.3 in 1994. Following is a comparison of gross premium
volume by significant underwriting unit (DOLLARS IN THOUSANDS):


<TABLE>
<CAPTION>

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

GROSS PREMIUM VOLUME                         1996            1995          1994
<S>                                       <C>          <C>               <C>
-----------------------------------------------------------------------------------
Excess and Surplus Lines                  $ 121,356         $ 104,841    $  90,211
Professional/Products Liability             118,891           127,245      128,876
Specialty Program Insurance                  92,333           102,336       94,637
Specialty Personal and Commercial Lines      64,706            44,456       13,924
Brokered Excess and Surplus Lines             6,809                --           --
Other                                         9,511            23,212       21,636
-----------------------------------------------------------------------------------
 Total                                    $ 413,606         $ 402,090    $ 349,284
-----------------------------------------------------------------------------------

</TABLE>

(Premiums chart appears here. Plot points are below.)

                                    PREMIUMS
                                  (in millions)
                                1994    1995    1996

gross premium volume            $349    $402    $414
net premium volume              $257    $298    $313




Excess and Surplus Lines premiums grew 16% in 1996 to $121.4 million and 16%
in 1995 to $104.8 million from $90.2 million in 1994. Growth was achieved
despite significant competition in the E&S market.  The increases in 1996 and
1995 were primarily the result of growth in the Markel Special Property program
(MSP). MSP premiums amounted to $39.9 million in 1996 compared to $34.2 million
in 1995 and $21.6 million in 1994. 1996 also benefited from growth in casualty
premiums, due to a new garage program and the selective renewal of portions of
the Lincoln Insurance Company (LIC) book of business, a new excess and umbrella
program and growth in the E&S property unit. Growth in 1995 production from E&S
product lines, other than MSP, was moderate due to increased competition during
the year.


Premiums from Professional/Products Liability insurance totaled $118.9
million in 1996 compared to $127.2 million in 1995 and $128.9 million in 1994.
In 1996 growth in the employment practices and directors' and officers' product
lines was more than offset by lower production from other lines due to continued
aggressive competition in the professional liability markets. Medical
malpractice and special risk programs production also declined in 1996 due to
changes in risk selection. In 1995 the Company reported growth in the medical
malpractice and specified medical professions product lines. However, 1995
production was adversely affected by increasing competition from the standard
markets, especially in the insurance companies, lawyers and architects and
engineers programs, which more than offset the growth in the medical malpractice
and specified medical professions lines.


Premiums from Specialty Program Insurance totaled $92.3 million in 1996
compared to $102.3 million in 1995 and $94.6 million in 1994. 1996 premiums were
adversely affected by intense competition and the nonrenewal of certain
underperforming lines of business. Higher production in 1995 was prompted by
policy processing improvements and other operating efficiencies. Growth in the
child care program also contributed to the 1995 increase.


50


<PAGE>



Specialty Personal and Commercial Lines premiums rose to $64.7 million in
1996, a 46% increase over prior year premiums of $44.5 million which was a 219%
increase over 1994's premiums of $13.9 million. Due to the loss of a key auto
products agent, the Company does not expect premium growth of this magnitude in
1997. New programs added over the past three years, including several auto
related products and property coverage for mobile homes and dwellings
contributed $43.2 million and $28.5 million to 1996 and 1995 production,
respectively. Also in both years, an improved economy helped increase production
in the recreational products division. 


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


Other gross premium volume was $9.5 million in 1996 compared to $23.2
million in 1995 and $21.6 million in 1994. Other gross premium volume included
facultative reinsurance placed by the Professional/Products Liability unit, run-
off business related to LIC and premiums from the Company's brokerage operation.
The decrease in 1996 was due to the run-off of LIC business and the sale of the
Company's wholesale brokerage operation in September 1996. 


While certain of the Company's products may be adversely affected by the
increased competition and lower rates which characterize a "soft" insurance
market, the Company does not intend to relax underwriting standards or rates in
order to sustain premium volume. Further, the volume of premiums written may
vary significantly with the Company's decision to alter its product
concentration to maintain or improve underwriting profitability. 


Total operating revenues increased 7% to $366.7 million in 1996 from $343.6
million in 1995. Operating revenues in 1995 were 23% above the $279.7 million
reported in 1994. In 1996 moderate growth in earned premiums and higher net
investment income more than offset lower realized gains from the sales of
investments. In 1995 growth in earned premiums and substantially higher net
investment income and realized gains accounted for the increase in revenues.


Earned premiums advanced 8% to $307.5 million in 1996 and 17% to $285.1
million in 1995 from $243.1 million in 1994. Following is a comparison of earned
premiums by significant underwriting unit (DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>


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

EARNED PREMIUMS                              1996                1995         1994
<S>                                     <C>                  <C>           <C>
------------------------------------------------------------------------------------
Excess and Surplus Lines                  $  76,089          $   70,160    $  62,236
Professional/Products Liability             110,154             112,988      107,735
Specialty Program Insurance                  68,906              64,582       56,002
Specialty Personal and Commercial Lines      45,102              25,181       11,180
Brokered Excess and Surplus Lines             4,957                  --           --
Other                                         2,245              12,235        5,914
------------------------------------------------------------------------------------
 Total                                    $ 307,453           $ 285,146    $ 243,067
------------------------------------------------------------------------------------
</TABLE>



                                                                      51
<PAGE>


                        Markel Corporation & Subsidiaries


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




Excess and Surplus Lines earned premiums rose 8% in 1996 to $76.1 million
and 13% in 1995 to $70.2 million from $62.2 million in 1994. Higher gross
premium volume over the past several years accounted for the increases. Premiums
earned from Professional/Products Liability insurance decreased 3% in 1996 to
$110.2 million while increasing 5% in 1995 to $113.0 million from $107.7 million
in 1994. The 1996 decline resulted from lower gross premium volume over the past
two years as a result of the extremely competitive professional liability
market. Specialty Program Insurance earned premiums increased 7% to $68.9
million in 1996 and 15% to $64.6 million in 1995 from $56.0 million in 1994. The
growth was caused by increased retentions of gross premium volume over the past
three years and growth in gross premiums in 1995. Specialty Personal and
Commercial Lines earned premiums rose 79% in 1996 to $45.1 million and 125% in
1995 to $25.2 million from $11.2 million in 1994. The increase was due to
significant growth in gross premium volume from new programs as well as
established programs over the past two years.



      Investment Earnings

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

                              INVESTMENT EARNINGS
                                 (in millions)

                                        1994            1995            1996
                                        ----            ----            ----
Net realized gains                      $ 4             $12             $ 5
Net investment income                    29              43              51
                                        ----            ----            ----
                                        $33             $55             $56


Net investment income increased 19% in 1996 to $51.2 million and 48% in
1995 to $43.0 million from $29.1 million in 1994. The increase in 1996 reflected
the impact of a larger investment portfolio. Higher yields during 1995 enhanced
the impact of the Company's significantly larger investment portfolio. Invested
assets grew 24% in 1996 to $1.1 billion and 49% in 1995 to $908.6 million from
$611.7 million in 1994.


Net realized gains from the sales of investments totaled $5.0 million in
1996 compared to $12.0 million in 1995 and $3.9 million in 1994. Over the past
three years, the Company has experienced variability in its realized and
unrealized investment gains. The fluctuations are primarily the result of
interest rate volatility which influences the market values of fixed maturity
and equity investments. The Company's investment strategy seeks to maximize
total investment returns over a long-term period. The Company's focus on long-
term total investment returns may result in variability in the level of realized
investment gains and losses from one period to the next. 


Total operating expenses, which included losses and loss adjustment
expenses, underwriting, acquisition and insurance expenses, other operating
expenses, amortization of intangible assets and a nonrecurring item in 1996,
were $321.7 million in 1996 compared to $287.2 million in 1995 and $246.3
million in 1994. Higher variable expenses associated with higher earned premiums
accounted for the majority of the increase in 1996 and 1995. As part of the
purchase of Shand/Evanston in 1987, the Company acquired Shand's headquarters
building in Evanston, Illinois. The estimated fair value of the building has
fallen significantly since 1987 due to escalating property taxes and reduced
demand for office space in Evanston. In response to a purchase offer, the
Company decided to dispose of the building and immediately recognized a $10.4
million, nonrecurring, non-cash loss. While Shand/Evanston will remain in the
building in the short-term, the transaction is expected to reduce future
operating expenses at this unit by approximately $1.5 million per year.


52


<PAGE>

The following is a comparison of selected data from the Company's operations
(DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>


                                                               Years Ended December 31,
                                                        -------------------------------------
                                                            1996         1995        1994
<S>                                                    <C>           <C>           <C>
---------------------------------------------------------------------------------------------
Gross premium volume                                    $ 413,606     $ 402,090     $ 349,284
Net premiums written                                    $ 313,459     $ 297,539     $ 257,022
Net retention                                                  76%           74%           74%
Earned premiums                                         $ 307,453     $ 285,146     $ 243,067
Losses and loss adjustment expenses                     $ 202,378     $ 186,655     $ 156,169
Underwriting, acquisition and insurance expenses        $ 105,032     $  96,113     $  80,681

GAAP RATIOS
Loss ratio                                                     66%           65%           64%
Expense ratio                                                  34%           34%           33%
---------------------------------------------------------------------------------------------
 COMBINED RATIO                                               100%           99%           97%
---------------------------------------------------------------------------------------------
</TABLE>


The combined ratio measures the relationship of incurred losses, loss
adjustment expenses and underwriting, acquisition and insurance expenses to
earned premiums. The loss ratio for 1996 increased to 66% from 65% in 1995 and
from 64% in 1994.  Losses in the medical malpractice book of business and
property losses from winter storms and Hurricane Fran prompted the 1996
increase.  In 1995 the loss ratio rose as increased competition and continued
soft market conditions prompted the Company to establish loss reserves for
current business at higher levels relative to the prior years. The expense ratio
was 34% in 1996 and 1995 compared to 33% in 1994.  The 1996 expense ratio
benefited from the recognition of contingent profit commissions which offset
higher acquisition costs in several of the Company's recently added lines of
business. The increase in 1995 is largely the result of investments in new
programs which carry nonrecurring start-up costs, as well as higher commission
expenses.


Non-cash expenses related to the amortization of intangible assets were
$2.7 million in 1996 compared to $2.8 million in 1995 and $7.1 million in 1994.
The decrease in 1995 reflected the expiration of certain noncompete agreements
in December 1994. 


Interest expense amounted to $8.0 million in 1996 compared to $8.5 million
in 1995 and $7.7 million in 1994.  The 1996 decrease was due to the repayment,
late in 1995, of the majority of the debt incurred for the purchase of LIC. 
Interest expense in 1995 increased as a result of the borrowings for the LIC
purchase.



                                                                         53

<PAGE>


                    Markel Corporation & Subsidiaries


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


Earnings from Core Operations

(Earnings from Core Operartions chart appears here. Plot points are below.)

                         Earnings from Core Operations
                             ($ per primary share)

                            1994     1995       1996

                           $3.77    $5.15      $6.03

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


Income from core underwriting and investing operations advanced to $33.9
million in 1996 which represented a 17% increase over 1995. In 1995 income from
core operations rose 38% to $28.9 million from $21.0 million in 1994. The 1996
and 1995 increases were due to continued underwriting profitability and higher
net investment income, resulting primarily from larger investment portfolios. 


Net income was $46.7 million in 1996 compared to $34.5 million in 1995 and
$18.6 million in 1994. In 1996 growth in net investment income was partially
offset by a decrease in realized investment gains.  Also during the year, the
Company recognized an $18.4 million nonrecurring tax benefit which was partially
offset by the recognition of the building loss of $6.8 million, net of taxes.
The increase in 1995 was due to substantial growth in net investment income,
realized investment gains and continued underwriting profits.

CLAIMS AND RESERVES

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

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


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



54


<PAGE>


The following table represents the development of the Company's balance sheet
reserves for the period 1986 through 1996 (IN THOUSANDS): 


<TABLE>
<CAPTION>


                           1986     1987     1988     1989    1990      1991     1992     1993     1994     1995     1996
<S>                    <C>        <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
---------------------------------------------------------------------------------------------------------------------------

NET RESERVES RESTATED
FOR COMMUTATIONS,
ACQUISITIONS AND OTHER   $ 397,906  486,015  487,263  508,335  511,004  557,554  569,769  598,499  619,594  671,447  725,064

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


Paid (cumulative)
as of:
 
One year later              47,547   79,318   54,180   65,810   52,545   83,720  95,084  150,078   135,947  124,467
Two years later             81,915  111,929   89,973  116,418  107,209  156,256 215,845  253,418   219,133
Three years later          104,641  140,161  131,899  154,798  160,808  252,089 297,034  307,831
Four years later           121,961  176,442  160,942  194,199  241,335  318,298 331,709
Five years later           145,136  195,152  199,982  257,077  297,914  346,009
Six years later            158,735  230,109  259,850  310,448  320,766
Seven years later          190,000  283,961  312,210  331,842
Eight years later          241,026  335,971  332,622
Nine years later           291,473  355,460
Ten years later            310,669

Reserves
re-estimated as of:
One year later             424,357  498,442  497,207  502,869  506,626  547,965 563,530  594,938  610,801  647,330
Two years later            421,488  495,708  477,865  500,780  494,748  542,903 551,858  582,563  585,667
Three years later          420,751  477,814  474,989  493,433  490,751  528,365 537,944  564,401
Four years later           411,844  486,440  480,153  486,623  478,416  513,983 521,724
Five years later           429,947  494,924  477,324  474,099  464,129  501,083
Six years later            445,738  491,895  465,399  459,082  452,772
Seven years later          438,150  481,822  449,548  448,569
Eight years later          428,465  465,655  441,116
Nine years later           412,989  457,697
Ten years later            407,492

CUMULATIVE
REDUNDANCY
(DEFICIENCY)              $ (9,586)  28,318   46,147    59,766  58,232   56,471  48,045   34,098   33,927   24,117
---------------------------------------------------------------------------------------------------------------------------

Cumulative %                   (2%)       6%       9%       12%     11%      10%      8%       6%       5%       4%

Gross liability, end of year, restated for acquisitions and other                                 824,044  935,582
Reinsurance recoverable, restated for commutations, acquisitions
and other                                                                                         152,597  210,518
---------------------------------------------------------------------------------------------------------------------------

NET LIABILITY, END OF YEAR, RESTATED FOR COMMUTATIONS,
   ACQUISITIONS AND OTHER                                                                         671,447  725,064
---------------------------------------------------------------------------------------------------------------------------

Gross re-estimated liability-latest                                                               798,491
Re-estimated recoverable-latest                                                                   151,161
---------------------------------------------------------------------------------------------------------------------------

Net re-estimated liability-latest                                                                 647,330
Gross cumulative redundancy                                                                        25,553
---------------------------------------------------------------------------------------------------------------------------

</TABLE>



                                                                           55


<PAGE>




                   Markel Corporation & Subsidiaries


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


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


The upper portion of the table shows the cumulative amount paid with
respect to the previously recorded liability as of the end of each succeeding
year. The lower portion of the table shows the re-estimated amount of the
previously recorded reserves based on experience as of the end of each
succeeding year, including cumulative payments made since the end of the
respective year. For example, the 1991 liability for losses and loss adjustment
expenses at the end of 1991 for 1991 and all prior years, adjusted for
commutations, acquisitions and other, was originally estimated to be $557.6
million. Five years later (as of December 31, 1996), this amount was re-
estimated to be $501.1 million, of which $346.0 million had been paid, leaving a
reserve of $155.1 million for losses and loss adjustment expenses for 1991 and
prior years remaining unpaid as of December 31, 1996. 


"Cumulative redundancy (deficiency)" represents the change in the estimate
from the original balance sheet date to the date of the current estimate. For
example, the 1991 liability for losses and loss adjustment expenses developed a
$56.5 million redundancy from December 31, 1991 to December 31, 1996 (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 redundancy for 1995 and prior is presented before
deductions for reinsurance. Gross deficiencies and redundancies may be
significantly more or less than net deficiencies and redundancies depending on
the nature and extent of applicable reinsurance. 


The deficiencies in net reserves for losses and loss adjustment expenses in
the 1986 and prior years is related primarily to Shand/Evanston's experience
prior to the Company's ownership. From 1987 to 1991, Shand/Evanston increased
reserves for its pre-1987 book of business by approximately $97 million. These
increases were made in response to adverse development related to professional
liability policies with optional extension provisions, environmental impairment
liability (EIL) and toxic tort exposures and potentially uncollectible
reinsurance recoverables. A significant portion of the reserve increases
(approximately $51 million) was ultimately offset by reductions in deferred
purchase price obligations owed to the former owners of Shand/Evanston and
therefore did not affect operating results.



ENVIRONMENTAL MATTERS 


From 1980 to 1985, Shand/Evanston offered EIL insurance to large companies
which generated or transported toxic wastes. The EIL coverage was designed to
fill gaps in an insured's general liability coverage to the extent a gap would
have existed and was offered as a primary policy with an "Other Insurance"
clause. To the extent that other insurance was not valid and collectible,
Shand/Evanston's EIL policy was intended to perform as primary coverage provided
that all other terms and conditions of the policy were met. To the extent that
other insurance was valid and collectible, the policy was intended to perform as
excess coverage. All EIL policies



56


<PAGE>


were underwritten on a claims made basis, and in almost all instances, with
policy limits that included the costs of defense and related expenses. This book
of business was reinsured with numerous reinsurers, and Shand/Evanston's
original retentions were less than 5% of policy limits. Policy limits ranged
from $1 million per impairment with $2 million in the aggregate to $30 million
per impairment with $60 million in the aggregate. 


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


Following is an analysis of the Company's net outstanding reserves for
Shand/Evanston's EIL exposures. Commutations include reinsurer commutations
completed in 1996 as well as changes in reserves related to reinsurer
commutations occurring in earlier years (DOLLARS IN THOUSANDS).

<TABLE>
<CAPTION>




                                                           Years Ended December 31,
                                                     --------------------------------
                                                       1996         1995       1994
<C>                                                  <C>          <C>        <C>
--------------------------------------------------------------------------------------

 
Case reserves                                         $    665    $    579    $  1,130
IBNR reserves                                               --          --          49
Case and IBNR reserves reassumed through
  commutations                                          14,730      13,125      14,008
--------------------------------------------------------------------------------------
  TOTAL                                               $ 15,395    $ 13,704    $ 15,187
--------------------------------------------------------------------------------------
Net paid losses and loss adjustment expenses          $  3,616    $ 14,894    $ 60,755
--------------------------------------------------------------------------------------
</TABLE>


Shand/Evanston carried net EIL case and IBNR reserves for losses and loss
adjustment expenses of $15.4 million at December 31, 1996 compared to $13.7
million at December 31, 1995 and $15.2 million at December 31, 1994. The
Company's goal is to close EIL claims as aggressively as reasonably possible.
The increase in 1996 reserves was due to development on existing claims as well
as limited new claim activity. The decrease in net EIL reserves in 1995 was due
primarily to claims closing efforts. 

In some cases, the Company may be entitled to subrogation against other
primary insurers. No specific provision for these potential recoveries is made
when establishing loss and loss adjustment expense reserves for EIL. As of
December 31, 1996, Shand/Evanston's net retention of case and IBNR reserves
related to EIL was approximately 79% of gross EIL case and IBNR reserves. 

Inception to date net paid losses and loss adjustment expenses for EIL
related exposures totaled $115.0 million at December 31, 1996, of which
approximately $9.3 million was litigation related expense. 

There were 10 active site exposures related to EIL at December 31, 1996
compared to 9 active site exposures at December 31, 1995 and 11 active site
exposures at December 31, 1994. The 10 active site exposures at December 31,
1996 represent 10 insureds. Management believes future exposure to valid claims
is limited because coverage was afforded on a claims made basis.

                                                                          57

<PAGE>

                     Markel Corporation & Subsidiaries


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

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


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


Following is an analysis of the Company's net outstanding reserves for
Shand/Evanston's toxic tort exposures. Commutations include reinsurer
commutations completed in 1996 as well as changes in reserves related to
reinsurer commutations occurring in earlier years (DOLLARS IN THOUSANDS).

<TABLE>
<CAPTION>


                                                         Years Ended December 31,
                                                        -------------------------
                                                          1996    1995     1994
<S>                                                   <C>       <C>       <C>
----------------------------------------------------------------------------------
Case reserves                                          $  1,782 $  2,197  $  2,089
IBNR reserves                                             1,354    1,589     1,032
Case and IBNR reserves reassumed through
  commutations                                           37,751   44,636    24,887
----------------------------------------------------------------------------------
  TOTAL                                                $ 40,887 $ 48,422  $ 28,008
----------------------------------------------------------------------------------
Net paid losses and loss adjustment expenses           $ 10,849 $  1,504  $  3,721
----------------------------------------------------------------------------------
</TABLE>



Shand/Evanston carried net toxic tort case and IBNR reserves for losses and
loss adjustment expenses of $40.9 million at December 31, 1996 compared to
$48.4 million at December 31, 1995 and $28.0 million at December 31, 1994. The
decrease in net toxic tort reserves in 1996 was due to claims payments
partially offset by increases due to commutations with reinsurers and adverse
development in the underlying exposures. The net toxic tort reserves increased
from 1994 to 1995 due to commutations with reinsurers, adverse development in
the underlying exposures and reserve strengthening by management. As of
December 31, 1996, Shand/Evanston's net retention of case and IBNR reserves
related to toxic torts was approximately 87% of gross toxic tort case and IBNR
reserves. 

Inception to date net paid losses and loss adjustment expenses for toxic
tort related exposures totaled $19.3 million, of which approximately $1.7
million was litigation related expense.


58


<PAGE>


During 1996 toxic tort net paid losses increased compared to prior years
due to the payment of $7.4 million of breast implant product liability claims.
The exposure had been fully reserved in prior years. At December 31, 1996, the
Company has either paid or fully reserved all of its breast implant product
liability exposure. 


There were 210 open claims related to toxic torts at December 31, 1996
compared to 249 at December 31, 1995 and 307 at December 31, 1994. Of the toxic
tort claims open at December 31, 1996, less than 10% were products liability
asbestos or related claims. Furthermore, the average severity of toxic tort
claims is substantially lower than the average severity of EIL claims. 


The Company's reserves for losses and loss adjustment expenses related to
EIL and toxic tort exposures represent management's best estimate of ultimate
settlement values. These reserves are continually monitored by management, and
the Company's statistical analysis of these reserves is reviewed by independent
consulting actuaries. In addition, the Company continues to maintain unallocated
IBNR reserves to further mitigate the impact of adverse development, if any, in
these and other reserves. 


At December 31, 1996, LIC held case and IBNR reserves for toxic tort claims
of $6.1 million. The sellers of LIC have indemnified the Company against adverse
development of losses and loss adjustment expenses and uncollectible
reinsurance, if any, in an amount up to the purchase price of approximately
$24.3 million. This indemnification covers all of LIC's reserves, including
environmental matters. 


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

LIQUIDITY AND CAPITAL RESOURCES

The Company seeks to maintain prudent levels of liquidity and financial
leverage for the protection of its policyholders, shareholders and creditors.
The Company's targeted capital structure is approximately one-third debt to two-
thirds equity. At December 31, 1996, the Company's debt to total capital ratio
was 30%. From time to time, the Company's debt to total capital ratio may
increase due to business opportunities that may be financed in the short term
with debt. 


In order to maintain strong liquidity, the Company seeks to maintain cash
and short-term investments at least equal to approximately two times annual
interest expense at its holding company (Markel Corporation). At December 31,
1996, $19.2 million of cash and short-term investments were held at Markel
Corporation which approximated 2.4 times annual interest expense. 


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

                                                                 59

<PAGE>


                    Markel Corporation & Subsidiaries


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



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, 1996,
the Company's insurance subsidiaries could pay dividends of $32.9 million
without prior regulatory approval.



                 Invested Assets

(Invested Assets chart appears here. Plot points are below.)
1,200                               1,131

                      909


          612






         1994         1995          1996
                 $ in millions


The Company's invested assets increased to $1.1 billion at December 31,
1996 from $908.6 million at December 31, 1995. The increase in invested assets
was largely due to the purchase of Investors, operating cash flows, and an
increase in the market value of the Company's fixed maturity and equity
investments.


Long-term debt increased to $114.7 million at December 31, 1996 from $106.7
million at December 31, 1995. In 1996 the Company arranged a revolving credit
facility which provides up to $150.0 million of funds for working capital and
other general corporate purposes. This facility replaced a similar $40.0 million
facility. As of December 31, 1996, $15.0 million was outstanding under the
revolving credit facility. 


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


The insurance companies require capital to support premium writings. The
National Association of Insurance Commissioners (NAIC) developed a model law and
risk-based capital (RBC) 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, 1996 of each of the Company's insurance subsidiaries, with the exception of
Investors, was above the calculated minimum regulatory threshold. 


In 1996 Investors' RBC level fell to the "Company Action Level", requiring
Investors to file a corrective action plan with its state of domicile. The
Company believes that through normal operations the RBC level of Investors can 
be raised above the regulatory threshold within two years. The Company believes
that all of its insurance subsidiaries have sufficient capital to support their
expected near-term writings.

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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 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS 125), ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES.  SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. The Company expects that the adoption
will have no material impact on the Company's consolidated financial position or
results of operations.



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<PAGE>


                 Markel Corporation & Subsidiaries



MARKET AND DIVIDEND INFORMATION

The Company's common stock is traded in the NASDAQ stock market under the
symbol MAKL. The number of shareholders of record as of January 31, 1997 was
492. The total number of shareholders, including those holding shares in
"street name" or in brokerage accounts is estimated to be in excess of 2,400.
The Company's current strategy is to retain earnings, permitting the Company to
take advantage of expansion and acquisition opportunities. Consequently, the
Company has never paid a cash dividend on its common stock.


NASDAQ quotations during 1996 reflect a high sales price of $94.50 and a
low sales price of $72.50. See "Quarterly Information" on page 49 for additional
quarterly sales price information.



SHAREHOLDER RELATIONS, FORM 10-K

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


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

ANNUAL SHAREHOLDERS' MEETING

Shareholders of Markel Corporation are invited to attend the Annual Meeting
to be held at The Jefferson Hotel, Franklin and Adams Streets, Richmond,
Virginia at 4:30 p.m., May 13, 1997.

TRANSFER AGENT

First Union National Bank
Shareholder Services Group
230 South Tryon Street
10th Floor
Charlotte, North Carolina 28288-1154
(800) 829-8432

CORPORATE OFFICES

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


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<PAGE>

             DIRECTORS AND EXECUTIVE OFFICERS



DIRECTORS

Alan I. Kirshner
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER


Leslie A. Grandis
PARTNER
MCGUIRE WOODS BATTLE & BOOTHE, LLP


Stewart M. Kasen
PRIVATE INVESTOR


Anthony F. Markel
PRESIDENT AND CHIEF OPERATING OFFICER


Gary L. Markel
PRESIDENT
GARY MARKEL & ASSOCIATES, INC.


Steven A. Markel
VICE CHAIRMAN


Darrell D. Martin
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER


V. Prem Watsa
PRINCIPAL
HAMBLIN WATSA INVESTMENT COUNSEL LTD.



EXECUTIVE OFFICERS

Alan I. Kirshner

CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER SINCE 1986.  HE HAS ALSO
SERVED AS PRESIDENT FROM 1979 UNTIL MARCH OF 1992 AND HAS BEEN A DIRECTOR OF THE
COMPANY SINCE 1978. AGE 61.


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 55.


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 48.


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 48.


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