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Markel Reports 19% Increase in Book Value

RICHMOND, Va., Jan 28, 2004 /PRNewswire-FirstCall via COMTEX/ -- Markel Corporation (NYSE: MKL) reported net income of $4.53 per diluted share for the quarter ended December 31, 2003 compared to net income of $2.67 per diluted share for the same period of 2002. Net income for the year ended December 31, 2003 was $12.52 per diluted share compared to $7.65 per diluted share in 2002. The combined ratio was 96% and 99%, respectively, for the quarter and year ended December 31, 2003. Good underwriting results combined with exceptional investment returns resulted in a 19% increase in book value per common share during 2003. Alan I. Kirshner, Chairman and Chief Executive Officer, commented, "We are pleased to report record earnings and strong growth in book value for 2003 despite losses recognized for legacy issues. More importantly, we have returned to underwriting profitability for the first time since we acquired Markel International and Gryphon. We are well positioned to continue producing strong underwriting and investment results in 2004."

In evaluating its operating performance, the Company focuses on core underwriting and investing results (core operations) before consideration of realized gains or losses and amortization expenses (these measures do not replace operating income (loss) or net income (loss) computed in accordance with generally accepted accounting principles as a measure of profitability). The Company believes that this measure provides meaningful information about the performance of its core underwriting and investing activities. The Company's definition of core operations may not be comparable to that used by other companies. Following is a comparison of 2003 and 2002 results on a per diluted share basis, except for book value per common share outstanding (shares in thousands).


                                   Quarter Ended              Year Ended
                                    December 31,              December 31,

                                 2003         2002         2003         2002
    Core operations             $3.93        $2.31        $9.82        $4.98
    Realized gains               0.60         0.53         2.97         3.37
    Amortization expense            -         (.17)       (0.27)        (.70)
    Diluted net income          $4.53        $2.67       $12.52        $7.65
    Weighted average
     diluted shares             9,862        9,857        9,861        9,852


                            December 31,  December 31,
                                 2003         2002
    Book value per common
     share outstanding        $140.38      $117.89
    Common shares
     outstanding                9,847        9,832

Fourth quarter income from core operations was $3.93 per share in 2003 compared to $2.31 per share for 2002. The increase was primarily due to significantly higher underwriting profits in the Excess and Surplus Lines (E&S) and Specialty Admitted segments partially offset by higher underwriting losses in the London Insurance Market and Other segments. For the year ended December 31, 2003, income from core operations was $9.82 per share compared to income from core operations of $4.98 per share for the same period of 2002. This improvement was primarily due to higher underwriting profits in the E&S segment, a return to underwriting profitability in the Specialty Admitted segment and improved underwriting results in the London Insurance Market segment.

Book value per share increased 19% to $140.38 primarily as a result of $123.5 million of net income and $91.6 million of increases in net unrealized investment gains, net of taxes, for the year ended December 31, 2003.

Comprehensive income was $79.9 million for the fourth quarter of 2003 compared to $24.0 million for the same period of 2002. For the year ended December 31, 2003, comprehensive income was $222.1 million compared to $73.3 million in 2002. The improvement in both periods of 2003 was primarily due to higher net income and a significant increase in the market value of the Company's investment portfolio compared to 2002. Comprehensive income for the fourth quarter of 2003 includes $3.0 million of gains from currency translation adjustments, net of taxes, compared to gains of $1.5 million for the same period of 2002. For the year ended December 31, 2003, gains from currency translation adjustments, net of taxes, were $6.9 million compared to losses of $7.2 million in 2002. The Company attempts to match assets and liabilities in original currencies to mitigate the impact of currency volatility.


                                       -Combined Ratio Analysis-
                                   Quarter Ended            Year Ended
                                    December 31,           December 31,
                                  2003        2002      2003         2002
    Excess and Surplus Lines       82%         92%       90%          93%
    Specialty Admitted             82%         98%       90%         100%
    London Insurance Market       110%        104%      104%         107%
    Other                         820%        194%      533%         292%
    Consolidated                   96%         99%       99%         103%

The improvement in the Excess and Surplus Lines combined ratio for the quarter and year ended December 31, 2003 was primarily due to an improved loss ratio for most underwriting units in this segment compared to the same periods of 2002. During the fourth quarter of 2003, the Company completed its previously announced internal claims review at the Investors Brokered Excess and Surplus Lines unit. During 2003, aggregate adverse development of prior years' loss reserves at the unit was approximately $90 million, primarily for the 1997 to 2001 accident years. This adverse development was partially offset by favorable development of prior years' loss reserves at other operating units in this segment.

The Specialty Admitted segment produced improved underwriting results for the quarter and the year ended December 31, 2003 compared to the same periods of 2002. The significant improvement in both periods of 2003 was primarily due to lower current year losses, favorable development of prior years' loss reserves and lower expenses as a percentage of earned premiums.

During the fourth quarter of 2003, the Company's international operations experienced approximately $35 million of adverse development on prior years' loss reserves. This adverse development was related to a number of items including loss reserve increases for directors' and officers' liability, financial institution risks, medical malpractice and general liability exposures as well as provisions for coverage disputes with insureds. As certain of these exposures were written by continuing underwriting divisions at Markel International, approximately $15 million of the increase in prior years' loss reserves was attributed to programs within the London Insurance Market segment and the remaining $20 million was attributed to discontinued programs included in the Other segment.

The underwriting loss for the London Insurance Market segment for the fourth quarter of 2003 was primarily due to loss reserve strengthening for 1997 to 2001 U.S. casualty reinsurance programs. Markel International has rapidly reduced its U.S. casualty reinsurance exposure since its acquisition by the Company in 2000. For the year ended December 31, 2003, the combined ratio for the London Insurance Market segment decreased to 104% from 107% in 2002. The improved underwriting performance for the year ended December 31, 2003 was due to more disciplined underwriting, increased pricing and expense control partially offset by the increases in prior years' loss reserves during the fourth quarter of 2003.

The Other underwriting loss for the year ended December 31, 2003 was $96.1 million compared to $68.9 million for the same period of 2002. In addition to the fourth quarter loss reserves increases, the underwriting loss for the year ended December 31, 2003 included reserve increases for asbestos and environmental exposures in the third quarter and allowances for reinsurance costs and collection issues.


                                           -Premium Analysis-
                                       Quarter Ended December 31,
                                         (Dollars in thousands)
                           Gross Written Premiums         Earned Premiums
                                 2003        2002           2003        2002
    Excess and Surplus
     Lines                   $384,616    $360,192       $280,936    $228,400
    Specialty Admitted         58,114      53,228         62,734      53,773
    London Insurance Market   189,681     154,877        170,363     165,226
    Other                       4,795       3,625          2,997      10,549
         Total               $637,206    $571,922       $517,030    $457,948


                                           -Premium Analysis-
                                        Year Ended December 31,
                                         (Dollars in thousands)
                           Gross Written Premiums         Earned Premiums
                                 2003        2002            2003       2002
    Excess and Surplus
     Lines                 $1,520,608  $1,316,575      $1,031,652   $768,563
    Specialty Admitted        270,647     235,598         235,275    185,933
    London Insurance Market   738,443     622,081         575,116    558,534
    Other                      42,533      43,437          22,208     35,986
         Total             $2,572,231  $2,217,691      $1,864,251 $1,549,016

The Company anticipates that all segments of the specialty insurance marketplace in which it competes will continue to provide a favorable environment for its operations. While most of the Company's insurance operations continue to achieve rate increases compared to the prior year, rate increases have begun to slow and have declined in certain lines of business. Lines of business which have experienced rate declines include large direct and reinsurance property accounts, aviation and marine war accounts. The Company believes that the rates being obtained on these books of business are at levels that support its underwriting profit targets. For 2004 planning purposes, the Company is anticipating gross premium growth of 5% to 10%. While it is not anticipated that rates will continue to increase at the same pace the property and casualty industry has experienced during the past three years, the Company is committed to maintaining adequate pricing and will not sacrifice its goal of underwriting profitability in order to maintain premium growth.

Fourth quarter 2003 net investment income was $45.5 million compared to $43.2 million in the prior year. Net investment income for the year ended December 31, 2003 was $182.6 million compared to $170.1 million in 2002. In both periods of 2003, a larger investment portfolio offset lower investment yields.

In the fourth quarter of 2003, the Company recognized $9.2 million of net realized gains compared to $8.0 million of net realized gains in 2002. For the year ended December 31, 2003, net realized gains were $45.0 million compared to net realized gains of $51.0 million for the same period last year. Variability in the timing of realized and unrealized investment gains and losses is to be expected.

Intangible assets, other than goodwill, were fully amortized as of June 30, 2003. For the year ended December 31, 2003, amortization of intangible assets was $4.1 million compared to $10.7 million for the same period of 2002. During the fourth quarter of 2003, the Company completed its annual goodwill impairment test and determined that there was no indication of impairment.

Interest expense was $13.2 million for the fourth quarter of 2003 compared to $10.1 million for the same period of 2002. For the year ended December 31, 2003, interest expense was $52.0 million compared to $40.1 million for the prior year. The increase in both periods is primarily due to the Company's 2003 issuance of $250 million of 6.80% unsecured senior notes, due February 15, 2013.

For the fourth quarter and year ended December 31, 2003, the Company's effective tax rate was 30% and 32%, respectively, compared to 36% for both periods of 2002. The decrease for both periods was due to the elimination of nondeductible interest expense in mid 2002 and to lower amortization of nondeductible intangible assets in 2003 compared to 2002.

At December 31, 2003, the Company's investment portfolio increased 24% to $5.3 billion from $4.3 billion at December 31, 2002. The Company reported net unrealized gains, net of taxes, on its fixed maturity and equity investments of $270.8 million at December 31, 2003 compared to $179.2 million at December 31, 2002. Equity securities were $968.8 million, or 18% of the total investment portfolio, at December 31, 2003 compared to $550.9 million, or 13%, at December 31, 2002. Net cash provided by operating activities was approximately $630 million for the year ended December 31, 2003 compared to approximately $500 million for the same period in 2002.

This is a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. It also contains general cautionary statements regarding the Company's business, estimates and management assumptions. Future actual results may materially differ from those in these statements because of many factors. Among other things, the impact of the events of September 11, 2001 will depend on the number of insureds and reinsureds affected by the events, the amount and timing of losses incurred and reported and questions of how coverage applies. The occurrence of additional terrorist activities could have a material impact on the Company and the insurance industry. The Company's anticipated premium growth is based on current knowledge and assumes no significant man-made or natural catastrophes, no significant changes in products or personnel and no adverse changes in market conditions. The Company is legally required to offer terrorism insurance and has attempted to manage its exposure. However, in the event of a covered terrorist attack, the Company could sustain material losses. Changing legal and social trends and inherent uncertainties (including but not limited to those uncertainties associated with the Company's asbestos and environmental reserves) in the loss estimation process can adversely impact the adequacy of loss reserves and the allowance for reinsurance recoverables. In addition, industry and economic conditions can affect the ability and/or willingness of reinsurers to pay balances due. The Company recently completed a review of claims processes at the Investors Brokered Excess and Surplus Line unit. The Company continues to closely monitor this unit and discontinued lines and related reinsurance programs and exposures. Adverse experience in these areas could lead to additional charges. Regulatory actions can impede the Company's ability to charge adequate rates and efficiently allocate capital. Economic conditions, interest rates and foreign exchange rate volatility can have a significant impact on the market value of fixed maturity and equity investments as well as the carrying value of other assets and liabilities. The Company's premium growth, underwriting and investment results have been and will continue to be potentially materially affected by these factors. Additional factors, which could affect the Company, are discussed in the Company's reports on Forms 8-K, 10-Q and 10-K. By making these forward looking statements, the Company is not intending to become obligated to publicly update or revise any forward looking statements whether as a result of new information, future events or other changes. Readers are cautioned not to place undue reliance on any forward looking statements, which speak only as at their dates.

The quarterly conference call, which will involve discussion of the quarter and year end financial results and may include forward-looking information, will be held Thursday, January 29, 2004 at approximately 10:30 a.m. Eastern time. Any person interested in listening to the call, or a replay of the call, which will be available approximately two hours after the conclusion of the call until February 6, 2004, should contact Markel's Investor Relations Department at 804-747-0136. Investors, analysts and the general public may also listen to the call free over the Internet through Markel Corporation's corporate web site, www.markelcorp.com. A replay of the call will also be available on this web site until February 6, 2004.

The webcast, the conference call and the content and permitted replays or rebroadcasts thereof, are the exclusive copyrighted property of Markel Corporation and may not be copied, taped, rebroadcast, or published in whole or in part without the express written consent of Markel Corporation.

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


                       MARKEL CORPORATION AND SUBSIDIARIES

          Consolidated Statements of Operations and Comprehensive Income

                                    Quarter Ended            Year Ended
                                     December 31,           December 31,
                                   2003       2002        2003         2002
                                (dollars in thousands, except per share data)
    OPERATING REVENUES
    Earned premiums              $517,030   $457,948  $1,864,251   $1,549,016
    Net investment income          45,529     43,244     182,608      170,137
    Net realized gains from
     investment sales               9,202      7,965      45,045       51,042
          Total Operating
           Revenues               571,761    509,157   2,091,904    1,770,195

    OPERATING EXPENSES
    Losses and loss adjustment
     expenses                     330,702    316,448   1,269,522    1,114,610
    Underwriting, acquisition
     and insurance expenses       163,815    138,847     584,710      487,108
    Amortization of intangible
     assets                             -      2,629       4,127       10,684
          Total Operating
           Expenses               494,517    457,924   1,858,359    1,612,402
          Operating Income         77,244     51,233     233,545      157,793
    Interest expense               13,205     10,069      51,961       40,100
          Income Before Income
           Taxes                   64,039     41,164     181,584      117,693
    Income tax expense             19,317     14,818      58,107       42,369
           Net Income             $44,722    $26,346    $123,477      $75,324

    OTHER COMPREHENSIVE INCOME (LOSS)
    Unrealized gains (losses) on
     securities, net of taxes
           Net holding gains
            arising during the
            period                $38,223     $1,281    $120,928      $38,419
           Less reclassification
            adjustments for
            gains included in
            net income             (5,981)    (5,177)    (29,279)     (33,177)
           Net unrealized gains
            (losses)               32,242     (3,896)     91,649        5,242
    Currency translation
     adjustments, net of taxes      2,961      1,549       6,936       (7,232)
           Total Other
            Comprehensive Income
            (Loss)                 35,203     (2,347)     98,585       (1,990)
           Comprehensive Income   $79,925    $23,999    $222,062      $73,334

    NET INCOME PER SHARE
         Basic                      $4.54      $2.68      $12.55        $7.67
         Diluted                    $4.53      $2.67      $12.52        $7.65


    Selected Data                               December 31,      December 31,
    (dollars and shares in thousands,              2003              2002
     except per share data)
    Total investments and cash                   $5,349,952        $4,314,152
    Reinsurance recoverable on paid and
     unpaid losses                                1,770,607         1,730,879
    Intangible assets                               357,317           361,444
    Total assets                                  8,532,233         7,408,560
    Unpaid losses and loss adjustment
     expenses                                     4,929,713         4,366,803
    Unearned premiums                             1,060,188           937,364
    Convertible notes payable                        90,601            86,109
    Senior long-term debt                           521,510           404,384
    8.71% Junior Subordinated Debentures            150,000           150,000
    Total shareholders' equity                    1,382,279         1,159,111
    Book value per share                            $140.38           $117.89
    Common shares outstanding                         9,847             9,832


                              Markel Corporation
                        Segment Reporting Disclosures
               For the Quarter and Year Ended December 31, 2003

                        Segment Gross Written Premium

    Quarter Ended December 31,                         Year Ended December 31,
      2003       2002          (dollars in thousands)      2003         2002
    $384,616   $360,192      Excess and Surplus Lines  $1,520,608   $1,316,575
      58,114     53,228      Specialty Admitted           270,647      235,598
     189,681    154,877      London Insurance Market      738,443      622,081
       4,795      3,625      Other                         42,533       43,437
    $637,206   $571,922            Consolidated        $2,572,231   $2,217,691

                         Segment Net Written Premium

    Quarter Ended December 31,                         Year Ended December 31,
      2003       2002          (dollars in thousands)      2003         2002
    $293,818   $253,023      Excess and Surplus Lines  $1,106,728     $902,396
      54,368     48,120      Specialty Admitted           254,146      218,171
     156,000    132,299      London Insurance Market      591,846      460,484
      (3,565)     1,690      Other                         22,519       36,137
    $500,621   $435,132            Consolidated        $1,975,239   $1,617,188

                               Segment Revenues

    Quarter Ended December 31,                         Year Ended December 31,
      2003       2002          (dollars in thousands)      2003         2002
    $280,936   $228,400      Excess and Surplus Lines  $1,031,652     $768,563
      62,734     53,773      Specialty Admitted           235,275      185,933
     170,363    165,226      London Insurance Market      575,116      558,534
      54,731     51,209      Investing                    227,653      221,179
       2,997     10,549      Other                         22,208       35,986
    $571,761   $509,157            Consolidated        $2,091,904   $1,770,195

                   Reconciliation of Segment Profit (Loss)
                       to Consolidated Operating Income

    Quarter Ended December 31,                         Year Ended December 31,
      2003       2002          (dollars in thousands)      2003         2002
     $50,007    $18,459      Excess and Surplus Lines    $108,178     $53,275
      11,283        952      Specialty Admitted            23,092        (485)
     (17,185)    (6,880)     London Insurance Market      (25,151)    (36,575)
      54,731     51,209      Investing                    227,653     221,179
     (21,592)    (9,878)     Other                        (96,100)    (68,917)
         -       (2,629)     Amortization of Intangible    (4,127)    (10,684)
                                      Assets
     $77,244    $51,233            Consolidated          $233,545    $157,793

                               Combined Ratios

    Quarter Ended December 31,                         Year Ended December 31,
      2003       2002                                      2003         2002
         82%        92%      Excess and Surplus Lines         90%          93%
         82%        98%      Specialty Admitted               90%         100%
        110%       104%      London Insurance Market         104%         107%
        820%       194%      Other                           533%         292%
         96%        99%            Consolidated               99%         103%

SOURCE Markel Corporation

Bruce Kay of Markel Corporation, +1-804-747-0136
http://www.markelcorp.com