Selected Financial Data (dollars in millions, except per share data)

<TABLE>
<CAPTION>


                                                          Years Ended December 31,

                                                     1995           1994         1993
                                                   ------        -------       ------
<S>                                                <C>           <C>           <C>
RESULTS OF OPERATIONS (1)
Earned premiums                                    $  285        $  243        $  193
Net investment income                                  43            29            24
Total operating revenues                              344           280           235
Net income                                             34            19            24

PRIMARY EARNINGS PER SHARE (2)
Core operations                                    $ 5.15        $ 3.77        $ 3.31
Net realized gains                                   1.39          0.45          1.83
Nonrecurring items                                      -             -             -
Amortization expense                                (0.39)        (0.89)        (0.91)
Net income                                         $ 6.15        $ 3.33        $ 4.23

FINANCIAL POSITION (1)(3)(4)
Total investments                                  $  909        $  612        $  597
Total assets                                        1,315         1,103         1,135
Unpaid losses and loss adjustment expenses            734           653           688
Long-term debt                                        107           101            78
Total shareholders' equity                            213           139           151

RATIO ANALYSIS
GAAP combined ratio                                    99%           97%           97%
Investment yield (5)                                    6%            5%            5%
Total return (6)                                       15%           (2%)          11%
Debt to total capital                                  33%           42%           34%
Return on average shareholders' equity                 20%           13%           18%

PER SHARE DATA (2)
Common shares  outstanding (in thousands)           5,422         5.387         5,414
Total investments                                $ 167.57       $113.55       $110.27
Book value                                          39.37       $ 25.71       $ 27.83
Growth in book value                                   53%           (8%)          38%
5-Year CAGR in book value (7)                          31%           17%           25%
Closing stock price                              $  75.50       $ 41.50       $ 39.38

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                     1992          1991       1990       1989        1988       1987       1986   10-Year CAGR(7)
                                   ------        ------      ------     ------      ------     ------      -----  ---------------
<S>                                <C>           <C>         <C>        <C>         <C>        <C>         <C>        <C>
RESULTS OF OPERATIONS (1)
Earned premiums                    $  153        $  152      $   33     $   24      $   20     $   13      $  10      52%
Net investment income                  27            31           7          5           4          2          2      44%
Total operating revenues              206           223          73         48          37         28         25      36%
Net income                             26            14           6         14          11          7          5      42%

PRIMARY EARNINGS PER SHARE (2)
Core operations                    $ 3.03        $ 2.61      $ 1.76     $ 1.33      $ 1.61     $ 0.86      $0.98      32%
Net realized gains                   0.89          0.94        0.13       0.89        0.28       0.14       0.08       -
Nonrecurring items                   1.90          0.28       (0.41)      0.65        0.45       0.51       0.29       -
Amortization expense                (1.18)        (1.15)      (0.43)     (0.25)      (0.05)         -          -
Net income                         $ 4.64        $ 2.68      $ 1.05     $ 2.62      $ 2.29    $  1.51      $1.35      37%

FINANCIAL POSITION (1)(3)(4)
Total investments                  $  434        $  415      $  360     $   66      $   51    $    43      $  30      47%
Total assets                        1,129           700         670        196         147        104         57      43%
Unpaid losses and loss
  adjustment expenses                 733           346         302         31          27         22          6       -
Long-term debt                        101            94         127         44          24         21          3       -
Total shareholders' equity            109            83          55         60          45         20         15      51%

RATIO ANALYSIS
GAAP combined ratio                    97%          106%         81%        78%         84%        85%        78%      -
Investment yield (5)                    6%            7%         10%         8%          8%         8%         8%      -
Total return (6)                        7%           16%          8%        11%         11%         6%        10%      -
Debt to total capital                  48%           53%         70%        42%         35%        52%        15%      -
Return on average
  shareholders' equity                 27%           21%         10%        26%         33%        38%        55%      -

PER SHARE DATA (2)
Common shares  outstanding
  (in thousands)                    5,403         5,332       5,323      5,401       5,220      4,320      4,320       -
Total investments                  $80.27        $77.91      $67.59     $12.31      $ 9.71     $ 9.97      $6.92      41%
Book value                         $20.24        $15.59      $10.27     $11.69      $ 9.22     $ 4.66      $3.42      45%
Growth in book value                   30%           52%        (12%)       27%         98%        36%       268%      -
5-Year CAGR in book value (7)          34%           35%        -           -            -          -          -       -
Closing stock price                $31.25        $22.00      $11.75     $22.50      $15.42     $11.46      $8.13       -

</TABLE>

(1) In December 1990, the Company acquired the remaining 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 affect 1993 and subsequent years.

(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 during the period between estimated fair value and the cost
    of fixed maturities and equity securities as a percent of average invested
    assets.

(7) CAGR - compound annual growth rate.


<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                       1995                1994
                                                                                    ----------          ----------
                                                                                      (dollars in thousands)
ASSETS
Investments, available-for-sale,  at estimated fair value
<S>                                                                                 <C>                 <C>
    Fixed maturities (cost of  $683,568  in 1995 and  $441,983  in 1994)            $  706,055          $  423,114
    Equity  securities  (cost of $104,538 in 1995 and  $98,117 in 1994)                134,346             107,315
    Short-term  investments  (estimated fair value approximates cost)                   68,186              81,258

    Total Investments, Available-For-Sale                                              905,583             611,687
                                                                                    ----------          ----------

Cash and cash equivalents                                                               18,315              10,229
Receivables                                                                             47,210              71,561
Reinsurance  recoverable on unpaid losses                                              159,141             180,934
Reinsurance recoverable on paid losses                                                  20,404              45,163
Deferred policy  acquisition  costs                                                     32,024              26,064
Prepaid  reinsurance  premiums                                                          39,728              37,290
Property and equipment                                                                  27,729              43,288
Intangible assets                                                                       41,657              45,086
Other assets                                                                            19,746              32,186

    Total Assets                                                                    $1,314,537          $1,103,488
                                                                                    ==========          ==========

LIABILITIES AND SHAREHOLDERS'  EQUITY

Unpaid losses and loss adjustment expenses                                          $  734,409          $  652,930
Unearned premiums                                                                      170,697             146,553
Payables to insurance companies                                                         17,247              20,757
Long-term debt (estimated fair value of $109,189 in 1995 and $87,489 in 1994)          106,689             100,686
Other liabilities                                                                       72,053              44,061

    Total Liabilities                                                                1,101,095             964,987
                                                                                    ----------          ----------

Shareholders' equity
    Common stock                                                                        23,118              22,929
    Retained earnings                                                                  156,333             121,858
    Net unrealized  gains (losses) on fixed  maturities and equity  securities,
        net of tax expense of $18,304 in 1995 and tax benefit of $3,385 in 1994         33,991              (6,286)

    TOTAL SHAREHOLDERS' EQUITY                                                         213,442             138,501
                                                                                    ----------          ----------
Commitments and contingencies

    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                                    $1,314,537          $1,103,488
                                                                                    ==========          ==========

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF INCOME

                                                                       Years Ended December 31,
                                                              1995             1994             1993
                                                            --------         --------         --------
                                                            (dollars in thousands, except per share data)


OPERATING REVENUES
<S>                                                         <C>              <C>              <C>
Earned premiums                                             $285,146         $243,067         $192,607
Net investment income                                         42,981           29,110           23,512
Net realized gains from investment sales                      11,952            3,870           15,756
Other                                                          3,496            3,646            3,020

   Total Operating Revenues                                  343,575          279,693          234,895
                                                            --------         --------         --------

OPERATING EXPENSES
Losses and loss adjustment expenses                          186,655          156,169          119,463
Underwriting, acquisition and insurance expenses              96,113           80,681           67,255
Other                                                          1,642            2,386            3,193
Amortization of intangible assets                              2,778            7,051            7,190

   Total Operating Expenses                                  287,188          246,287          197,101
                                                            --------         --------         --------

   Operating Income                                           56,387           33,406           37,794
                                                            --------         --------         --------

Interest Expense                                               8,460            7,675            5,638

   Income Before Income Taxes                                 47,927           25,731           32,156
Income Taxes                                                  13,435            7,142            8,521

   NET INCOME                                               $ 34,492         $ 18,589         $ 23,635
                                                            ========         ========         ========

Earnings per share
   Primary                                                  $   6.15         $   3.33         $   4.23
                                                            ========         ========         ========

   Fully diluted                                            $   6.12         $   3.33          $  4.22
                                                            ========         ========         ========

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


Consolidated Statements of
Changes in Shareholders' Equity


<TABLE>
<CAPTION>
                                                                             Years Ended December 31, 1993, 1994, 1995
                                                                    -----------------------------------------------------------
                                                                    Common       Common      Retained
                                                                    Shares       Stock       Earnings       Other        Total
                                                                    ------       -------     --------      -------     --------
                                                                                        (in thousands)

<S>                                                                  <C>         <C>         <C>           <C>         <C>
Balance at January 1, 1993                                           5,403       $22,636     $ 81,846      $ 4,860     $109,342
     Net income                                                          -             -       23,635            -       23,635
     Implementation of change in accounting
         for investments, net of taxes                                   -             -            -       17,552       17,552
     Issuance of common stock                                           11           169            -            -          169
     Other                                                               -             -          (20)           -          (20)
                                                                    ------       -------     --------      -------     --------

Balance at December 31, 1993                                         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
                                                                    ======       =======     ========      =======     ========

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                  1995              1994           1993
                                                                               ---------         ---------      ---------
                                                                                          (dollars in thousands)

<S>                                                                            <C>               <C>            <C>
OPERATING ACTIVITIES
Net income                                                                     $  34,492         $  18,589      $  23,635
Adjustments to reconcile net income to net cash provided by
 operating activities
         Deferred income tax expense (benefit)                                     1,374             4,328         (1,131)
         Depreciation and amortization                                            11,088            15,361         13,037
         Net realized gains from investment sales                                (11,952)           (3,870)       (15,756)
         Proceeds from reinsurer  commutations and other settlements              82,637            31,818         65,900
         Increase in receivables                                                    (296)          (10,261)       (16,234)
         Increase in deferred  policy  acquisition  costs                         (3,563)           (2,513)        (9,708)
         Increase (decrease) in unpaid losses and loss
            adjustment expenses, net                                              43,133           (21,224)         7,731
         Increase in unearned premiums, net                                       12,393            14,014         29,252
         Increase (decrease) in payables to insurance companies                   (7,270)           13,782         (3,202)
         Increase (decrease) in current income taxes                                (894)           (2,344)         2,469
         Other                                                                     7,867             3,310         (3,981)
                                                                               ---------         ---------      ---------

         NET CASH PROVIDED BY OPERATING ACTIVITIES                               169,009            60,990         92,012
                                                                               =========         =========      =========

INVESTING ACTIVITIES
   Proceeds from sales of fixed maturities and equity  securities                586,121           344,433        454,392
   Proceeds from maturities of fixed maturities                                   35,993            15,983         33,129
   Cost of fixed maturities and equity securities purchased                     (793,058)         (400,936)      (585,396)
   Net change in short-term investments                                           13,076           (17,099)         3,998
   Purchase of Lincoln Insurance Company, net of cash acquired                   (21,747)                -              -
   Net proceeds from sale of buildings                                            19,068                 -              -
   Decrease in funds held in escrow                                                    -                 -         20,055
   Additions to property and equipment                                            (4,509)           (7,025)        (4,644)
   Other                                                                          (1,989)            1,469         (1,452)
                                                                               ---------         ---------      ---------

         NET CASH USED BY INVESTING ACTIVITIES                                  (167,045)          (63,175)       (79,918)
                                                                               =========         =========      =========

FINANCING ACTIVITIES
   Borrowings under credit facility                                               27,500                 -              -
   Net proceeds from issuance of long-term debt                                        -            29,280         83,375
   Repayments of long-term debt and credit facility                              (21,550)           (7,550)      (107,195)
   Retirement of capital lease                                                         -           (19,584)             -
   Other                                                                             172            (2,118)           140

         NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                          6,122                28        (23,320)
                                                                               =========         =========      =========

Increase (decrease) in cash and cash equivalents                                   8,086            (2,157)       (11,226)
Cash and cash equivalents at beginning of year                                    10,229            12,386         23,612

Cash and cash equivalents at end of year                                       $  18,315          $ 10,229      $  12,386
                                                                               =========         =========      =========

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

                 a)   PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS.
                 Generally accepted accounting principles require management to
                 make estimates and assumptions when preparing financial
                 statements. Actual results could differ from those estimates.

                 The consolidated financial statements include the accounts of
                 Markel Corporation and all subsidiaries (the Company).  All
                 significant  intercompany  balances and transactions have been
                 eliminated in consolidation.

                 b)  INVESTMENTS.  All  investments  are  considered
                 available-for-sale  and are recorded at estimated fair value,
                 generally based on quoted market prices.  The net unrealized
                 gains or losses on investments, net of deferred income taxes,
                 are included 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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


1. Summary of    g) UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES. Unpaid losses
   Significant   and loss adjustment expenses are based on  evaluations  of
   Accounting    reported  claims and estimates for losses and loss adjustment
   Policies      expenses incurred but not reported. Estimates for losses and
   (continued)   loss  adjustment  expenses  incurred  but not  reported  are
                 based  on  reserve development  studies.  The  reserves
                 recorded are  estimates,  and the ultimate liability may be
                 greater than or less than the  estimates;  however,  management
                 believes the reserves are adequate.

                 h)   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
                 received and earned and are netted against policy
                 acquisition costs.  Reinsurance premiums ceded are netted
                 against premiums written.

                 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 is not
                 currently a party to any derivative financial instruments as
                 defined by Statement of Financial Accounting Standards No. 119.

                 l)   RECLASSIFICATIONS.  Certain reclassifications of prior
                 years' amounts have been made to conform with 1995
                 presentations.

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



2. Investments

a) Following is a summary of investments (dollars in thousands):

<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 and political
    subdivisions                                     109,314           3,674          (177)       112,811
  Corporate securities                               360,471          15,967        (1,294)       375,144
  Other debt securities                                2,004             145             -          2,149
                                                    ---------      ----------    ----------     ---------

  Total fixed maturities                             683,568          24,170        (1,683)       706,055
Equity securities                                    104,538          40,542       (10,734)       134,346
Short-term investments                                68,182               -             -         68,182

    TOTAL                                           $856,288         $64,712      $(12,417)      $908,538
                                                    =========      ==========    ==========     =========

</TABLE>


<TABLE>
<CAPTION>

                                                                      December 31, 1994
                                                                     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                     $147,042         $     7      $(11,176)      $135,873
  Obligations of states and political
    subdivisions                                     182,252             509        (4,482)       178,279
  Corporate securities                               111,109           2,848        (6,665)       107,292
  Other debt securities                                1,580              90             -          1,670
                                                    ---------      ----------    ----------     ---------

  Total fixed maturities                             441,983           3,454       (22,323)       423,114
Equity securities                                     98,117          23,388       (14,190)       107,315
Short-term investments                                81,258               -             -         81,258

    TOTAL                                           $621,358         $26,842      $(36,513)      $611,687
                                                    =========      ==========    ==========     =========

</TABLE>



b) The amortized cost and estimated  fair value of fixed maturities at December
31, 1995 are shown below by contractual maturity (dollars in thousands):

                                                                       Estimated
                                                     Amortized            Fair
                                                        Cost             Value
                                                     ---------         ---------
Due in one year or less                              $ 19,905          $ 20,000
Due after one year  through  five  years              208,614           212,776
Due after  five years through ten years               247,011           254,113
Due after ten years                                   208,038           219,166
                                                     ---------         ---------

         TOTAL                                       $683,568          $706,055
                                                     =========         =========

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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. Investments (continued)

C)   Components of net investment income were as follows (dollars in thousands):


                                               Years Ended December 31,
                                            1995         1994        1993
                                          -------      -------     -------
Interest
  Municipal bonds (tax-exempt)            $ 6,900      $ 7,784     $ 6,093
  Taxable bonds                            31,042       18,299      15,336
  Short-term investments, including
    overnight deposits                      3,969        2,691       3,062
  Dividends on equity securities            3,675        2,804       2,229
                                          -------      -------     -------

                                           45,586       31,578      26,720
Less investment expenses                    2,605        2,468       3,208
                                          -------      -------     -------

  NET INVESTMENT INCOME                   $42,981      $29,110     $23,512
                                          =======      =======     =======




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


                                                     Years Ended December 31,
                                                   1995       1994        1993
                                                 --------   --------    -------
Realized gains
     Fixed maturities                            $ 13,861   $  8,894    $15,162
     Equity securities                              9,838      5,569      8,070
                                                 --------   --------    -------

                                                   23,699     14,463     23,232

Realized losses
     Fixed maturities                              (9,281)    (9,621)    (5,947)
     Equity securities                             (2,466)      (972)    (1,529)
                                                 --------   --------    -------

                                                  (11,747)   (10,593)    (7,476)
                                                 --------   --------    -------


     Net Realized Gains from Investment Sales    $ 11,952   $  3,870    $15,756
                                                 ========   ========    =======

Change in gross unrealized gains (losses)
     Fixed maturities                            $ 41,356   $(31,029)   $   844
     Equity securities                             20,610    (13,121)    14,955
                                                 --------   --------    -------

     Net Increase (Decrease)                     $ 61,966   $(44,150)   $15,799
                                                 ========   ========    =======


e) Investments  with a carrying value of $30.0 million and $22.9 million were on
deposit with regulatory authorities at December 31, 1995 and 1994, respectively.

f)   At December 31, 1995, 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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Receivables

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

                                                                 December 31,
                                                             1995          1994
                                                           -------       -------
Agents' balances and premiums in course of collection      $39,326       $36,144
Less allowance for doubtful receivables                      2,201         1,725
                                                           -------       -------

                                                            37,125        34,419
Other                                                       10,085        37,142
                                                           -------       -------

     RECEIVABLES                                           $47,210       $71,561
                                                           =======       =======



Included  in other  receivables  at  December  31,  1994 is $28 million due from
Alexander & Alexander, Inc. (A&A) (see Note 13a).



4. Deferred Policy Acquisition Costs

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


                                               Years Ended December 31,
                                              1995        1994       1993
                                           --------     --------   --------

Balance, beginning of year                 $ 26,064     $ 23,551   $ 13,843
Policy acquisition costs deferred            72,748       61,299     54,806
Amortization charged to expense             (66,788)     (58,786)   (45,098)
                                           --------     --------   --------

     DEFERRED POLICY ACQUISITION COSTS     $ 32,024     $ 26,064   $ 23,551
                                           ========     ========   ========

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Property and Equipment

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

                                                         December 31,
                                                      1995        1994
                                                    --------   --------
Land                                                $  2,372   $  3,628
Buildings and building equipment                      24,221     39,771
Furniture and equipment                               22,772     19,182
Other                                                    130        609
                                                    --------   --------

                                                      49,495     63,190
Less accumulated depreciation and amortization        21,766     19,902
                                                    --------   --------

     PROPERTY AND EQUIPMENT                         $ 27,729   $ 43,288
                                                    ========   ========


Depreciation and amortization expense of property and equipment was $6.0
million, $5.0   million and $4.0 million for the years ended December 31, 1995,
1994 and 1993, respectively.

Total rental  expense for the years ended  December 31, 1995,  1994 and 1993 was
approximately $1.9 million, $1.0 million and $0.9 million, respectively.

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 24 months to 68 months.

Minimum annual rental commitments for noncancelable operating leases at December
31, 1995 were as follows (dollars in thousands):

Year Ending December 31,

     1996                      $ 2,692
     1997                        2,837
     1998                        2,675
     1999                        2,577
     2000                        2,581
     2001 and thereafter        12,380
                               -------
     Total                     $26,192
                               =======

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Intangible Assets

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

                                            December 31,
                                         1995        1994
                                       --------     --------
Goodwill                               $ 36,628     $ 38,964
Policy renewal rights                     5,029        6,122
                                       --------     --------

     INTANGIBLE ASSETS                 $ 41,657     $ 45,086
                                       ========     ========


Accumulated amortization related to intangible assets was $14.9 million and
$12.2 million at December 31, 1995 and 1994, 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
             --------        --------        --------
1995         $ 12,061        $  1,374        $ 13,435
1994         $  2,814        $  4,328        $  7,142
1993         $  9,652        $ (1,131)       $  8,521


The Company made income tax payments of $13.0  million in 1995,  $5.2 million in
1994 and $7.2 million in 1993.  Income taxes currently payable were $0.2 million
and $0.9 million at December 31, 1995 and 1994, respectively.

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,
                                                      1995    1994    1993
                                                      ----    ----    ----
U.S. corporate tax rate                                35%     35%     35%
Tax-exempt investment income                           (6)    (11)     (7)
Amortization of intangibles                             1       2       2
Change in tax rate on deferred tax assets
   and liabilities                                      -       -      (1)
Other                                                  (2)      2      (2)
                                                      ----    ----    ----

     EFFECTIVE TAX RATE                                28%     28%     27%
                                                      ====    ====    ====

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Income Taxes (continued)

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

<TABLE>
<CAPTION>

                                                                           December 31,
                                                                      1995             1994
                                                                    --------         --------
<S>                                                                 <C>              <C>
Assets
     Income reported in different periods for
         financial reporting and tax purposes                       $ 10,409         $  4,276
     Unpaid losses and loss adjustment expenses,
         nondeductible portion for income tax purposes                42,558           39,259
     Unearned premiums, adjustment for income tax purposes             9,168            7,648
     Investments, net unrealized losses                                    -            3,385
     Other                                                               815              563
                                                                    --------         --------

     Total gross deferred tax assets                                  62,950           55,131
                                                                    --------         --------

Liabilities
     Property and equipment, depreciation                              3,069            2,361
     Deferred policy acquisition costs                                11,208            9,122
     Safe harbor  leases                                              10,224           11,480
     Investments, net  unrealized  gains                              18,304                -
     Differences between financial reporting and
         tax bases of assets acquired                                 22,849           16,256
     Other                                                             1,169            1,000
                                                                    --------         --------

     Total gross deferred tax liabilities                             66,823           40,219
                                                                    --------         --------

         DEFERRED TAX ASSET (LIABILITY), NET                        $ (3,873)        $ 14,912
                                                                    ========         ========

</TABLE>


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 all of its $63.0 million gross deferred tax assets  existing at December
31, 1995 through the reversal of existing temporary differences  attributable to
the  gross  deferred  tax  liabilities  and  the  application  of the  carryback
provisions of the Internal Revenue Code.

Federal tax returns through 1990 have been examined and are no longer subject to
adjustment by the Internal  Revenue Service (IRS). The IRS has also examined tax
returns for 1991 through  1994.  While the IRS has not issued its final  report,
management  believes  the  outcome of the  examination  will not have a material
adverse effect on consolidated earnings.

<PAGE>


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,
                                                           1995            1994            1993
                                                         --------        --------        --------
<S>                                                      <C>             <C>             <C>
NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT
     EXPENSES, BEGINNING OF YEAR                         $471,996        $426,796        $353,114
     Commutations and other settlements                    54,637          59,818          65,900
     Lincoln Insurance Company reserves for
        losses and loss adjustment expenses at
        acquisition date                                   35,233               -               -
                                                         --------        --------        --------

RESTATED NET RESERVES FOR LOSSES
     AND LOSS ADJUSTMENT EXPENSES,
     BEGINNING OF YEAR                                   $561,866         486,614        $419,014

Incurred losses and loss adjustment expenses
     Current year                                         195,448         159,730         125,454
     Prior years                                           (8,793)         (3,561)         (5,991)
                                                         --------        --------        --------

TOTAL INCURRED LOSSES AND
     LOSS ADJUSTMENT EXPENSES                             186,655         156,169         119,463

Payments
     Current year                                          42,002          27,456          22,253
     Prior years                                          131,251         144,376          93,646
                                                         --------        --------        --------

TOTAL PAYMENTS                                            173,253         171,832         115,899

Other                                                           -           1,045           4,218
                                                         --------        --------        --------

NET RESERVES FOR LOSSES AND LOSS
     ADJUSTMENT EXPENSES, END OF YEAR                     575,268         471,996         426,796
                                                         --------        --------        --------

Reinsurance recoverable on unpaid losses                  159,141         180,934         261,037
                                                         --------        --------        --------

GROSS RESERVES FOR LOSSES AND LOSS
     ADJUSTMENT EXPENSES, END OF YEAR                    $734,409        $652,930        $687,833
                                                         ========        ========        ========

</TABLE>

The provision for prior years decreased in 1995, 1994 and 1993.  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.

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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,  claim 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  (EIL) 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 by those amounts.

9. Long-Term Debt

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

                                                   December 31,
                                                 1995         1994
                                               --------     --------
7.25% notes,  due  November  1,  2003,
    interest  payable  semi-annually,
    net of unamortized discount of $411
    in 1995 and $464 in 1994                   $ 99,589     $ 99,536

9% subordinated debentures, due
    December 19, 1997, interest
    payable annually                                  -        1,000

6.63% borrowings under revolving credit
   facility, due June 30, 1997                    7,000            -
Other                                               100          150
                                               --------     --------

     LONG-TERM DEBT                            $106,689     $100,686
                                               ========     ========

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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. Long-Term Debt (continued)

In 1994, the Company  arranged a revolving  credit facility which provides up to
$40.0  million  for  working  capital  and  other  general  corporate  purposes.
Outstanding  balances  under the revolving  credit  facility bear interest based
either on the prime rate, the London  Interbank  Offered Rate, or the individual
bank's certificate of deposit rate.

Following is a schedule of future principal payments due on long-term debt as of
December 31, 1995 (dollars in thousands):


Years Ending December 31,

       1996                         $   50
       1997                          7,050
       1998                              -
       1999                              -
       2000                              -
       2001 and thereafter          99,589
                                  --------
       Total                      $106,689
                                  ========




The Company paid $8.4 million,  $7.4 million and $5.2 million in interest during
the years ended December 31, 1995, 1994 and 1993, respectively.


10. Shareholders' Equity


A) The Company has 15,000,000 shares of no par value common stock authorized, of
which 5,421,988 and 5,386,996 shares were issued and outstanding at December 31,
1995 and 1994, 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, 1995 and 1994. 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.  There were also 120,000  shares of Series B
redeemable  preferred  stock  outstanding  at December 31, 1995 and 1994.  These
shares have a redemption value of $100 per share, carry a cumulative dividend of
$9.00 per share and are  eliminated in  consolidation  as all shares are held by
the Company's wholly-owned subsidiaries.

B) The  Company has three stock  option or stock award plans for  employees  and
directors;  the 1986 Stock Option Plan,  the 1989  Non-employee  Director  Stock
Option Plan, and the 1993 Incentive Stock Plan. At December 31, 1995, there were
330,797 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 1986 plan provides for the award of incentive stock options, and
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 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,
1995,  the Company had 15,215 and 36,000  options  available for grant under the
1986 and 1989 plans, respectively, and 100,000 options,

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Shareholders' Equity (continued)

stock appreciation rights or incentive stock awards were available for grant
under the 1993 plan. Stock option transactions are summarized below:

<TABLE>
<CAPTION>
                                                                Years Ended December 31,

                                                        1995            1994              1993
                                                      --------        --------          --------
<S>                                                   <C>             <C>               <C>
Options outstanding at January 1                       382,421         383,566           370,056
Granted                                                      -          46,000            41,050
Exercised                                              (40,919)        (44,850)          (11,660)
Canceled                                                (1,920)         (2,295)          (15,880)
                                                      --------        --------          --------

Options outstanding at December 31                     339,582         382,421           383,566
                                                      ========        ========          ========


Option price range at December 31
     Low                                              $  10.53        $  10.53          $  10.53
     High                                             $  47.00        $  47.00          $  39.00
Options exercisable at December 31                     255,274         273,935           230,874
Options available for grant at December 31             151,215         149,295           193,000
                                                      ========        ========          ========

</TABLE>



C) Earnings per share was determined by dividing net income, as adjusted
below, by the applicable shares outstanding (in thousands):

                                                  Years Ended December 31,

                                                1995        1994         1993
                                              -------     -------      -------
                                              $34,492     $18,589      $23,635
Net income as reported
Dividends on redeemable preferred stock           (17)        (17)         (20)
                                              -------     -------      -------

Primary and fully diluted income              $34,475     $18,572      $23,615
                                              =======     =======      =======


Average common shares outstanding               5,405       5,395        5,410
Shares applicable to common stock
   equivalents                                    200         174          179
                                              -------     -------      -------

Average primary shares outstanding              5,605       5,569        5,589
Additional dilution attributable to
     common stock equivalents                      28           -            9
                                              -------     -------      -------

Average fully diluted shares outstanding        5,633       5,569        5,598
                                              =======     =======      =======


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 Plan

The  Company  maintains  a defined  contribution  plan,  the Markel  Corporation
Retirement  Savings  Plan,  in  accordance  with Section  401(k) of the Internal
Revenue Code. The plan requires the Company to  contribute,  on an annual basis,
6% of each participating employee's compensation plus a matching contribution of
100% of the  first  2% and 50% of the next 2% of each  participating  employee's
contribution.  Annual expenses  relating to this plan were $1.9 million in 1995,
1994 and 1993.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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):


                                      Years Ended December 31,

                       1995                1994                    1993
               -------------------  -------------------    --------------------
                Written    Earned    Written    Earned      Written     Earned
               --------   --------  --------   --------    --------    --------
Direct         $366,739   $349,417  $310,748   $291,816    $259,662    $228,568
Assumed          23,879     26,158    29,121     30,618      36,772      31,903
Ceded           (93,079)   (90,429)  (82,847)   (79,367)    (74,545)    (67,864)
               --------   --------  --------   --------    --------    --------

Net Premiums   $297,539   $285,146  $257,022   $243,067    $221,889    $192,607
               ========   ========  ========   ========    ========    ========



Incurred losses and loss adjustment  expenses are net of reinsurance  recoveries
of $63.9  million,  $67.1 million and $92.2 million for the years ended December
31, 1995, 1994 and 1993, 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  risk
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 1995,  the Company  reassumed  exposures for
ceded unpaid losses and loss adjustment expenses in exchange for $54.6 million.
In 1994 and 1993,  reinsurer commutations  and other  settlements  totaled $59.8
million and $65.9  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 1995, 1994 and 1993.

At December 31, 1995, the Company recorded  reinsurance  recoverable on paid and
unpaid claims of $146.0 million from 19 reinsurance companies, which represented
approximately  81% of the  total  reinsurance  recoverable  on paid  and  unpaid
claims. At December 31, 1995, reinsurers had established  irrevocable letters of
credit or trust  accounts  in the  amount  of $37.8  million  for the  Company's
benefit.  Requests for payments of  recoverables  from  reinsurers are often not
made for several years after the inception of a reinsurance agreement,  so it is
possible that the financial  strength of a reinsurer may deteriorate during that
period.  In order to reduce its credit  risk,  the Company  seeks to do business
only with  financially  sound  reinsurance  companies and regularly  reviews the
financial strength of all reinsurers used.

An  allowance  for  uncollectible  reinsurance  recoverable  is  included  as  a
component of reinsurance  recoverable  on paid and unpaid losses.  The allowance
was $3.4 million and $10.8 million at December 31, 1995 and 1994, respectively.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. Contingencies

A) Under the terms of the agreement for the Company's purchase of Shand/Evanston
from Alexander &Alexander, Inc. (A&A), A&A is obligated to indemnify the Company
with respect to certain  liabilities  and actions  pre-dating the acquisition of
Shand/Evanston.  During 1994 and 1995, the Company concluded several  agreements
with  A&A  to  resolve  disputes   regarding  the  scope  and  nature  of  A&A's
indemnification obligations. As a result of these agreements, the Company is now
responsible  for  defending  certain  claims  against  Shand/Evanston  while A&A
remains responsible for other exposures.  A&A is actively performing with
respect to its ongoing indemnification obligations.

A&A further provided indemnification for claims arising out of or related to the
Rehabilitation of Mutual Fire Marine and Inland Marine Insurance Company (Mutual
Fire).  During 1995,  A&A resolved a lawsuit and certain other  disputes with
the Rehabilitator  for Mutual Fire.  This settlement  favorably  resolved a
material contingency   previously  reported  in  the  Company's   consolidated
financial statements.

B) The Company has other contingencies arising 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  $618,000,  $512,000 and
$1,236,000 for the years ended December 31, 1995, 1994 and 1993, 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  $424,000,  $344,000  and  $53,000  for the  years  ended
December 31, 1995, 1994 and 1993, 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,

                                       1995            1994            1993
                                    --------         --------        --------
                                    $ 42,181         $ 26,816        $ 26,271
Net income
Statutory capital and surplus       $224,833         $164,650        $144,379

The Company's  insurance company  subsidiaries are subject to certain regulatory
restrictions  on the payment of  dividends  or advances  to the  Company.  As of
December  31,  1995,  $188.6  million  of the  insurance  company  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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. Acquisition

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 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 will be renewed in Essex Insurance  Company,  a
subsidiary of the Company. The acquisition's  effect on current earnings,  which
consist primarily of investment income from LIC's investment portfolio,  was not
significant in 1995.

<PAGE>

INDEPENDENT AUDITOR'S REPORT

[KPMG Peat Marwick LLP LOGO]

The Board of Directors and Shareholders
Markel Corporation:

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Markel
Corporation  and  subsidiaries as of December 31, 1995 and 1994, 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, 1995.
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,  1995 and 1994,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1995 in  conformity  with  generally  accepted  accounting
principles.

Effective  December 31, 1993,  the Company  changed its method of accounting for
investments  to adopt  the  provisions  of the  Financial  Accounting  Standards
Board's  Statement of Financial  Accounting  Standards No. 115,  Accounting  for
Certain Investments in Debt and Equity Securities.

/s/ KPMG PEAT MARWICK LLP



Richmond, Virginia
February 7, 1996

<PAGE>


QUARTERLY INFORMATION

The following table presents the unaudited quarterly results of consolidated
operations for 1995, 1994 and 1993 (dollare in thousands, except per share
amounts):

<TABLE>
<CAPTION>

                                        Mar. 31         June 30         Sept. 30       Dec. 31
                                        -------         -------         --------       --------
<S>                                     <C>             <C>             <C>            <C>
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

1993
   Operating revenues                   $50,841         $54,689         $61,963         $67,402
   Income before income taxes             7,899           7,680           7,635           8,942
   Net income                             5,687           5,530           5,650           6,768
   Earnings per share
      Primary                           $  1.02         $  0.99         $  1.01         $  1.21
      Fully diluted                        1.02            0.99            1.01            1.21
   Common stock price ranges
      High                              $    36 1/2     $    36 1/2     $    40 1/2     $    40 1/4
      Low                                    30 3/4          32 1/4          36 1/4          37 3/4
</TABLE>

<PAGE>

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

The Company  underwrites  specialty  insurance  products  and  programs to
niche markets.  Significant  areas of underwriting  include  professional and
products liability, excess and surplus lines,  specialty programs and specialty
personal and commercial lines.  Professional liability coverage is offered to
physicians and health professionals, insurance companies, directors and
officers, attorneys and architects and engineers. Products liability insurance
is provided to manufacturers and distributors. Property/casualty insurance for
nonstandard and hard-to-place risks is underwritten on an excess and surplus
lines basis. Specialty program insurance  includes  coverages for camps and
youth recreation, child  care,  health and  fitness  and  agribusiness
organizations,  as well as accident  and health  insurance  for  colleges.
The  Company  also  underwrites personal  and  commercial  property  and
liability  coverages  for  watercraft, motorcycles,  automobiles, mobile homes,
dwellings  and  commercial  freight companies,  and maintains wholesale and
retail brokerage operations that produce business primarily for its
insurance subsidiaries.

The Company relies on sound underwriting practices to produce investable funds
with minimum  underwriting  risk which management can then invest for long-term
total return.  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 duration.  The  balance,  comprised  of  shareholder
funds,  is available to be invested in equity  securities,  which over the long
run, have produced superior returns  relative  to fixed  income  investments.
Confidence  in the ability to produce  consistent  underwriting  profits  and
confidence  in  loss  reserving practices enables the Company to invest for
long-term returns.

RESULTS OF OPERATIONS

In 1995,  gross premium volume totaled $402.1 million compared to $349.3
million in 1994 and $312.9 million in 1993.

Following is a comparison of gross premium  volume by  significant
underwriting area (dollars in thousands):

                                               Years Ended December 31,
                                             1995        1994        1993
                                           --------     --------   --------
GROSS PREMIUM VOLUME
Professional/Products Liability            $127,245     $128,876   $113,337
Excess and Surplus Lines                    104,841       90,211     67,467
Specialty Program Insurance                 102,336       94,637     94,002
Specialty Personal and Commercial Lines      44,456       13,924      9,442
Other                                        23,212       21,636     28,672
                                           --------     --------   --------

     Total                                 $402,090     $349,284   $312,920
                                           ========     ========   ========

Premiums from  professional/products  liability insurance totaled $127.2
million in 1995  compared  to $128.9  million  in 1994 and $113.3  million in
1993.  The Company  reported  growth  in the  medical  malpractice  and
specified  medical professions product lines in both 1995 and 1994.  However,
1995 production from professional  and  products   liability   programs  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. The  gain in 1994 was  also  aided by
higher  production  from  directors'  and officers'   professional  liability
insurance  following  increased  limits  of liability for that program.

<PAGE>

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

Excess and surplus lines  premiums grew 16% in 1995 to $104.8 million and 34%
in 1994 to $90.2 million from $67.5 million in 1993. The increases in 1995 and
1994 were fueled by strong growth in the special property  program.  Special
property premiums amounted to $34.2 million in 1995 compared to $21.6 million
in 1994 and $7.5 million in 1993.  Growth in 1995  production  from other
excess and surplus lines  products  was  moderate  due to  increased
competition  during the year. Production in 1994 also  reflected  growth in
casualty  premiums  primarily from more favorable market conditions.

                               [Graph]

                         Growth in Gross Premium Volume

                         1993         1994         1995
                          2.8%        11.6%        15.1%

Premiums  from  specialty  program  insurance  totaled  $102.3  million  in
1995 compared to $94.6 million in 1994 and $94.0 million in 1993.  Higher
production in 1995 was  prompted  by policy  processing  improvements  and
other  operating efficiencies. Growth in the child care programs also
contributed to the 1995 and 1994 increases.  In 1994,  higher than expected
persistency  with the camps and youth recreation programs resulted in premium
growth which was largely offset by the elimination or restriction of
unprofitable  workers'  compensation  business and intense competition in the
health and fitness markets.

Specialty  personal and commercial lines premiums rose to $44.5 million in
1995, a 219% increase over 1994 production.  In 1994, premiums were $13.9
million, 47% higher  than  1993  premiums  of  $9.4  million.  New  programs
were  primarily responsible for the growth in 1995. These programs,  including
property coverage for mobile homes and low value  dwellings,  liability
coverages for  commercial autos and physical damage coverage for personal
autos, contributed $28.5 million to 1995 production. In 1995 and 1994, focused
marketing  efforts  enhanced production  from the  specialty  motorcycle
program  while an improved  economy helped increase production in the
watercraft program.

Other gross  premium  volume was $23.2 million in 1995 compared to $21.6
million in 1994 and $28.7 million in 1993. Other gross premium volume included
premiums from the  Company's  brokerage  operations  as well as  business
related to the acquisition of LIC in May 1995. Production in both 1995 and 1994
reflected lower premiums from facultative reinsurance related to professional/
products liability programs and a decreased  emphasis on business  underwritten
by managing general agents.

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 23% to $343.6  million in 1995 from
$279.7 million in 1994.  Operating  revenues in 1994 were 19% above the $234.9
million reported in 1993. In 1995,  growth in earned premiums and
substantially  higher net investment income and realized gains accounted for
the increase in revenues. In 1994,  the increase in earned  premiums and net
investment  income more than offset lower realized gains from the sales of
investments.

<PAGE>

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

Earned premiums advanced 17% to $285.1 million in 1995 and 26% to $243.1
million in 1994 from $192.6 million in 1993.

Following is a comparison of earned  premiums by significant  underwriting
area (dollars in thousands):

                                                 Years Ended December 31,
                                               1995         1994        1993
                                             --------     --------    --------
EARNED PREMIUMS
Professional/Products Liability              $112,988     $107,735    $ 83,796
Excess and Surplus Lines                       70,160       62,236      47,526
Specialty Program Insurance                    64,582       56,002      47,413
Specialty Personal and Commercial Lines        25,181       11,180       8,943
Other                                          12,235        5,914       4,929
                                             --------     --------    --------

     TOTAL                                   $285,146     $243,067    $192,607
                                             ========     ========    ========

Premiums earned from  professional/products  liability insurance increased 5% in
1995 to $113.0  million and 29% in 1994 to $107.7  million from $83.8 million in
1993. The growth resulted from slightly higher retention levels in 1995 and 1994
and higher gross premium volume throughout 1994. Excess and surplus lines earned
premiums rose 13% in 1995 to $70.2 million and 31% in 1994 to $62.2 million from
$47.5 million in 1993.  Higher gross premium  volume over the past several years
accounted  for  the  increases.  Specialty  program  insurance  earned  premiums
increased  15% to $64.6  million  in 1995 and 18% to $56.0  million in 1994 from
$47.4  million in 1993.  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 125% in 1995 to
$25.2  million and 25% in 1994 to $11.2  million from $8.9 million in 1993.  The
increase was due to significant growth in gross premium volume from new programs
as well as established programs over the past two years.

Net investment  income increased 48% in 1995 to $43.0 million and 24% in 1994 to
$29.1 million from $23.5 million in 1993. The increases  reflected the impact of
a significantly larger investment portfolio. Invested assets grew 49% in 1995 to
$908.6  million and 2% in 1994 to $611.7  million  from $597.0  million in 1993.
Higher yields during 1995 further enhanced the Company's investment return.

Net realized gains from the sales of  investments  totaled $12.0 million in 1995
compared to $3.9 million in 1994 and $15.8 million in 1993.  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.

                                    [Graph]

                       Investment Earnings (in millions)
                                          1993    1994    1995
                                          ----    ----    ----
                Net realized gains        $ 16    $  4    $ 12
                Net investment income     $ 24    $ 29    $ 43
                                          ----    ----    ----
                                          $ 40    $ 33    $ 55
                                          ====    ====    ====

The Company's  investment  strategy seeks to maximize total  investment  returns
over a long-term  period.  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 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.

<PAGE>

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

Total operating  expenses,  which included losses and loss adjustment  expenses,
underwriting,  acquisition and insurance expenses,  other operating expenses and
amortization  of  intangible  assets,  were $287.2  million in 1995  compared to
$246.3  million in 1994 and $197.1  million in 1993.  Higher  variable  expenses
associated  with  higher  earned  premiums  accounted  for the  majority  of the
increase in 1995 and 1994.

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

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                       1995         1994         1993
                                                    ---------    ---------    ---------
<S>                                                 <C>          <C>          <C>
Gross premium volume                                $ 402,090    $ 349,284    $ 312,920
Net premiums written                                $ 297,539    $ 257,022    $ 221,889
Net retention                                              74%          74%          71%
Earned premiums                                     $ 285,146    $ 243,067    $ 192,607
Losses and loss adjustment expenses                 $ 186,655    $ 156,169    $ 119,463
Underwriting, acquisition and insurance expenses    $  96,113    $  80,681    $  67,255

GAAP RATIOS
Loss ratio                                                 65%          64%          62%
Expense ratio                                              34%          33%          35%
                                                    ---------    ---------    ---------

COMBINED RATIO                                             99%          97%          97%
                                                    =========    =========    =========
</TABLE>

The combined ratio measures the relationship of incurred losses, loss adjustment
expenses and underwriting,  acquisition and insurance expenses to earned premium
revenues. The loss ratio for 1995 increased to 65% from 64% in 1994 and from 62%
in 1993. In 1995 loss ratios 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 increase in 1994 was
due to larger  reserve  redundancies  in 1993 and losses  related to the January
1994  earthquake  in  Northridge,  California.  The 1995  expense  ratio was 34%
compared  to 33% in 1994 and 35% in 1993.  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.  Cost control efforts and higher earned
premiums accounted for the improvement in the expense ratio in 1994.

Non-cash  expenses  related to the  amortization of intangible  assets were $2.8
million in 1995  compared to $7.1 million in 1994 and $7.2 million in 1993.  The
61% decrease in 1995 reflected the expiration of certain  noncompete  agreements
in December 1994.

Interest  expense  amounted to $8.5 million in 1995  compared to $7.7 million in
1994 and $5.6 million in 1993. During 1995, the Company increased  borrowings in
order to facilitate the purchase of LIC, leading to higher interest expense.  In
November 1993 and February 1994,  the Company  issued fixed rate,  10-year bonds
totaling $75 million and $25 million, respectively. The proceeds of the November
issue and cash on hand were used to retire  variable  rate bank debt,  while the
proceeds  of the  February  issue  were used to  retire  certain  capital  lease
obligations.  Interest  expense in 1994  increased due primarily to higher rates
associated   with  the  fixed  rate  bond  issues  and  interest  on  short-term
borrowings.

                                    [Graph]
               Earnings from Core Operations (per primary share)

                                  1993  $3.31
                                  1994  $3.77
                                  1995  $5.15

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 and expenses related to the amortization of
intangible  assets.  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
conventions  which do not  reflect  current  operating  costs.  Income from core
underwriting  and investing  operations  advanced to $29.0 million in 1995 which
represented a 38% increase over 1994. In 1994,  income from core operations rose
14% to $21.0  million from $18.5  million in 1993.  The 1995 and 1994  increases
were due to growth in earned premiums,  continued underwriting profitability and
higher net investment income.

Net income was $34.5 million in 1995 compared to $18.6 million in 1994 and $23.6
million  in 1993.  The  increase  in 1995 was due to  substantial  growth in net
investment income, realized investment gains and continued underwriting profits.
In 1994,  higher  income from core  underwriting  and investing  operations  was
offset by lower realized investment gains.



CLAIMS & 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.

<PAGE>

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

The following table presents the development of the Company's balance sheet
reserves for the period 1985 through 1995 (in thousands):

<TABLE>
<CAPTION>
                                   1985     1986     1987     1988     1989     1990     1991     1992     1993     1994     1995
                                 -------- --------  -------  -------  -------  -------  -------  -------  -------  -------  -------
<S>                              <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Net reserves restated
  for commutations
  and other settlements          $290,468  378,570  462,977  461,250  479,634  480,576  522,100  525,322  535,776  526,633  575,268
                                 -------- --------  -------  -------  -------  -------  -------  -------  -------  -------  -------
Paid (cumulative as of:
One year later                     68,870   77,466   98,107   79,466   87,266   84,509   82,970   93,601  144,376  131,251
Two years later                    83,592  111,834  130,717  115,260  137,874  139,175  155,506  214,362  247,716
Three years later                 101,436  134,560  158,949  157,185  176,254  192,773  251,339  295,551
Four years later                  111,875  151,880  195,230  186,228  215,655  273,300  317,548
Five years later                  121,773  175,055  213,940  225,267  278,533  329,879
Six years later                   132,537  188,654  248,897  285,135  331,904
Seven years later                 138,513  219,919  302,749  337,496
Eight years later                 146,415  270,945  354,759
Nine years later                  189,703  321,392
Ten years later                   236,585

Reserves re-estimated as of:
One year later                    323,003  405,021  475,404  471,194  474,168  476,198  512,512  519,083  532,215  517,840
Two years later                   326,735  402,152  472,670  451,851  472,079  464,321  507,450  507,411  519,840
Three years later                 327,612  401,415  454,776  448,976  464,732  460,324  492,912  493,497
Four years later                  328,658  392,508  463,402  454,140  457,922  447,988  478,529
Five years later                  325,273  410,611  471,886  451,311  445,398  433,701
Six years later                   335,605  426,402  468,857  439,385  430,381
Seven years later                 348,967  418,814  458,784  423,535
Eight years later                 348,439  409,133  442,617
Nine years later                  343,263  393,653
Ten years later                   328,936

Cumulative redundancy            $(38,468) (15,083)  20,360   37,715   49,253   46,875   43,571   31,825   15,936    8,793
  (deficiency)                   -------- --------  -------  -------  -------  -------  -------  -------  -------  -------


Cumulative %                          (13%)     (4%)      4%       8%      10%      10%       8%       6%       3%       2%

Gross liability, end of year                                                                                       652,930  734,409
Reinsurance recoverable,
  restated for commutations                                                                                        126,297  159,141
                                                                                                                   -------  -------
Net liability, end of year,
  restated for commuations                                                                                         526,633  575,268
                                                                                                                   -------  -------

Gross re-estimated liability-latest                                                                                648,006

Re-estimated recoverable-latest                                                                                    130,166
                                                                                                                   -------

Net re-estimated liability-latest                                                                                  517,850
                                                                                                                   =======

Gross cumulative redundancy                                                                                          4,924
                                                                                                                   =======
</TABLE>


<PAGE>

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 and other settlements,  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 completed in 1993, 1994 and
1995.

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 1990 liability for losses and loss adjustment  expenses at the end
of 1990 for 1990 and all prior years, adjusted for commutations,  was originally
estimated to be $480.6 million. Five years later (as of December 31, 1995), this
amount was  re-estimated to be $433.7 million,  of which $329.9 million had been
paid,  leaving a reserve  of  $103.8  million  for  losses  and loss  adjustment
expenses for 1990 and prior years remaining unpaid as of December 31, 1995.

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 1990 liability for losses and loss adjustment expenses developed a
$46.9 million redundancy from December 31, 1990 to December 31, 1995 (five years
later). Conditions and trends that have affected 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. Moreover, as the Company writes or reinsures greater amounts of liability
coverages,  for which reserves are more difficult to estimate accurately,  there
is a greater likelihood that reserve redundancies or deficiencies will develop.

The  gross  cumulative  redundancy  for  1994  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
1985 and 1986 years are 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,  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.

<PAGE>

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

ENVIRONMENTAL MATTERS:  From 1980 to 1985, Shand/Evanston offered EIL insurance
to large  companies  which generated or transported or disposed of toxic wastes.
The EIL coverage was  intended 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.  To  the  extent  that  other  insurance  was  valid  and
collectible, the policy was intended to perform as excess coverage, provided all
other  terms and  conditions  of the  policy  were met.  All EIL  policies  were
underwritten on a claims made basis,  and in most instances,  with policy limits
that  included the costs of defense.  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  1995  as  well  as  changes  in  reserves  related  to  reinsurer
commutations completed in earlier years (dollars in thousands):

                                                          December 31,

                                                  1995        1994       1993
                                                -------     -------     -------
Case reserves                                   $   579     $ 1,130     $ 2,339
Incurred but not reported (IBNR) reserves             -          49       4,663
Case and IBNR reserves reassumed through
     commutations                                13,125      14,008      58,629
                                                -------     -------     -------

     TOTAL                                      $13,704     $15,187     $65,631
                                                =======     =======     =======


Shand/Evanston  carried  net EIL case  and IBNR  reserves  for  losses  and loss
adjustment  expenses  of $13.7  million at December  31, 1995  compared to $15.2
million at December 31, 1994 and $65.6  million at December  31, 1993.  Over the
past three years, the Company has endeavored to close EIL claims as aggressively
as  reasonably  possible.  The decrease in net EIL reserves in 1995 and 1994 was
due primarily to these efforts.  Claim settlements were made within  established
reserves.

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  reserves for losses and loss adjustment  expenses.  As of December
31, 1995,  Shand/Evanston's  net retention of case and IBNR reserves  related to
EIL was approximately 74% of gross EIL case and IBNR reserves.

Inception to date net paid losses and loss  adjustment  expenses for EIL related
exposures  totaled $111.3  million at December 31, 1995, of which  approximately
$8.6 million was litigation related expense.

<PAGE>

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

There were 9 active site exposures  related to EIL at December 31, 1995 compared
to 11 active site  exposures at December 31, 1994 and 109 active site  exposures
at December 31, 1993. The 9 active site exposures at December 31, 1995 represent
9 insureds.  Management  believes  future  exposure  to valid  claims is limited
because coverage was afforded on a claims made basis.

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

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 have 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 1995  as well as  changes  in  reserves  related  to
reinsurer commutations occurring in earlier years (dollars in thousands):


                                                         December 31,

                                                    1995      1994        1993
                                                 -------    -------     -------
Case reserves                                    $ 2,197    $ 2,089     $ 1,198
Incurred but not reported (IBNR) reserves          1,589      1,032       2,320
Case and IBNR reserves reassumed through
     commutations                                 44,636     24,887      16,268
                                                 -------    -------     -------

     TOTAL                                       $48,422     28,008     $19,786
                                                 =======    =======     =======


Shand/Evanston carried net toxic tort case and IBNR reserves for losses and loss
adjustment  expenses  of $48.4  million at December  31, 1995  compared to $28.0
million at December 31, 1994 and $19.8  million at December  31,  1993.  The net
toxic  tort  reserves  increased  from  1993 to 1995  due to  commutations  with
reinsurers,   adverse  development  in  the  underlying  exposures  and  reserve
strengthening  by  management.  As of December  31, 1995,  Shand/Evanston's  net
retention of case and IBNR reserves related to toxic torts was approximately 81%
of gross toxic tort case and IBNR reserves.

<PAGE>

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

Inception  to date net paid losses and loss  adjustment  expenses for toxic tort
related exposures totaled $8.4 million,  of which approximately $0.6 million was
litigation related expense.

There were 249 open claims  related to toxic torts at December 31, 1995 compared
to 307 at  December  31, 1994 and 417 at December  31,  1993.  Of the toxic tort
claims open at December 31, 1995, 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 analyses of these reserves are 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,  1995,  LIC held case  reserves  for toxic tort claims of $0.7
million.  The  sellers  of  LIC  will  indemnify  the  Company  against  adverse
development   of  reserves   for  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 those related to 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's  insurance  operations  collect  premiums and pay current  claims,
reinsurance costs and operating  expenses.  Premiums collected and positive cash
flows  from the  insurance  operations  are  invested  primarily  in  short-term
investments and long-term  bonds.  Short-term  investments held by the Company's
insurance subsidiaries provide liquidity for projected claims, reinsurance costs
and operating expenses.

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

The holding  company also relies 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 or licensed to write
insurance,  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, 1995, the Company's  insurance  subsidiaries could pay dividends of
$36.2 million without prior regulatory approval.

<PAGE>

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

The Company's  invested assets  increased to $908.6 million at December 31, 1995
from $611.7  million at December 31, 1994.  The increase in invested  assets was
largely due to operating  cash flows which  included  cash provided by reinsurer
commutations and other  settlements,  the purchase of LIC and an increase in the
market value of the  Company's  fixed  maturity and equity  investments.  Absent
unusual  circumstances,  the Company expects that the rate of future  investment
portfolio  growth will moderate and result  primarily from normal operating cash
flows.

                                    [Graph]


                         Invested Assets (in millions)

                              1993          $597
                              1994          $612
                              1995          $909

Long-term  debt  increased  to $106.7  million at December  31, 1995 from $100.7
million at December 31, 1994. The increase was due to the purchase of LIC in May
1995. In 1994, the Company  arranged a revolving  credit facility which provides
up to $40.0  million of funds for working  capital and other  general  corporate
purposes.  As of December  31,  1995,  $7.0  million was  outstanding  under the
revolving credit facility.

The  insurance  operations  require  capital to support  premium  writings.  The
National Association of Insurance Commissioners (NAIC) developed a model law and
risk-based    capital   formula    designed   to   help   regulators    identify
property/casualty  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, 1995 of each of the Company's insurance subsidiaries
was above the calculated minimum regulatory threshold. The Company believes that
its insurance  subsidiaries  have  sufficient  capital to support their expected
near-term writings.

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 March 1995, the Financial  Accounting Standards Board (FASB) issued Statement
of  Financial  Accounting  Standards  No.  121 (SFAS  121),  Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Statement requires that long-lived assets and certain  identifiable  intangibles
to be held and used by a company be reviewed for impairment  whenever  events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be recoverable.  In performing the review for  recoverability,  a company should
estimate the future cash flows  expected to result from the use of the asset and
its eventual  disposition.  An impairment loss would be recognized if the sum of
the expected future cash flows,  undiscounted,  is less than the carrying amount
of the asset.  SFAS 121 also  establishes  standards for recording an impairment
loss for certain assets that are subject to disposal.  The Company  expects that
adoption will have no impact on the Company's consolidated financial position or
results of operations.

<PAGE>

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

In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123  (SFAS  123),   Accounting  for  Stock-Based   Compensation.   The  Standard
establishes   financial  accounting  and  reporting  standards  for  stock-based
employee  compensation  plans,  including  stock  option  plans.  While SFAS 123
defines a fair value based method of accounting  for an employee stock option or
similar  equity  instrument,  it also  allows an entity to  continue  to measure
compensation costs for those plans using Accounting Principles Board Opinion No.
25 (APB 25), Accounting for Stock Issued to Employees. The Company has evaluated
SFAS 123 and has elected to  continue  to measure  the costs of its  stock-based
compensation  plans under APB 25.  Accordingly,  the  implementation of SFAS 123
will have no impact on the Company's  consolidated financial position or results
of operations.

<PAGE>

Operating Units

ESSEX INSURANCE COMPANY  Glen Allen, Virginia
Britton L. Glisson, President and Chief Operating Officer

Provides excess and surplus lines property & casualty insurance.

Rated "A" (Excellent) by A.M. Best Company, Inc.

SHAND/EVANSTON GROUP  Evanston, Illinois
Paul W. Springman, President and Chief Operating Officer
Michael A. Rozenberg, Executive Vice President and Chief Administrative Officer

Provides medical  malpractice,  professional,  products,  and errors & omissions
liability  insurance  and  specialty  casualty  coverages  through the  Evanston
Insurance Company.

Rated "A" (Excellent) by A.M. Best Company, Inc.

MARKEL INSURANCE COMPANY  Glen Allen, Virginia
Ronald A. Abram, President and Chief Operating Officer
Michael W. Powell, Executive Vice President

Specializes in insurance for  agribusiness,  camps and youth  recreation,  child
   care, health & fitness, and other types of specialty program business.

Rated "A-" (Excellent) by A.M. Best Company, Inc.

MARKEL AMERICAN INSURANCE COMPANY  Glen Allen, Virginia
Mark J. Rickey, President and Chief Operating Officer
Timberlee T. Grove, Senior Vice President

Underwrites watercraft, motorcycle, mobile homes, dwelling, personal automobile,
commercial trucking and other miscellaneous products.

Rated "A" (Excellent) by A.M. Best Company, Inc.

MARKEL SERVICE, INC.  Glen Allen, Virginia
Robert M. Bryant, Vice President

Serves as wholesale  broker for independent  agents in the  mid-atlantic  states
placing business primarily in Markel-owned companies.

<PAGE>


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, 1996 was 491. The
total number of shareholders, including those holding shares in "street name" or
in  brokerage  accounts is  estimated  to be in excess of 2,000.  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  1995  reflect a high sales price of $75.50 and a low
sales price of $40.75. See quarterly  information for additional quarterly sales
price information.


SHAREHOLDER RELATIONS, FORM 10-K

Information  about Markel  Corporation,  including  the Form 10-K filed with the
Securities and Exchange  Commission,  may be obtained  without charge by writing
Mr. Bruce A. Kay, Vice  President-Investor  Relations, at the corporate offices,
or by calling (800) 446-6671.

ANNUAL SHAREHOLDER'S 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 7, 1996.

<PAGE>

TRANSFER AGENT

First Union National Bank
Shareholder Services Group
Two First Union Center
301 South Tryon Street
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

<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
President and Chief Operating Officer
Best Products Co., Inc.

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

ANTHONY F. MARKEL
President and Chief Operating Officer

STEVEN A. MARKEL
Vice Chairman

DARRELL D. MARTIN
Executive Vice President and Chief Financial Officer

<PAGE>