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Markel Reports Third Quarter and Nine Month Period Results

RICHMOND, Va., Oct. 28 /PRNewswire-FirstCall/ -- Markel Corporation (NYSE: MKL) reported a net loss of $1.68 per diluted share for the quarter ended September 30, 2003 compared to net income of $0.88 per diluted share for the quarter ended September 30, 2002. Net income for the nine month period ended September 30, 2003 was $7.99 per diluted share compared to $4.97 per diluted share for the nine month period ended September 30, 2002. The combined ratio was 110% and 101%, respectively, for the quarter and nine months ended September 30, 2003 compared to 110% and 105%, respectively for the quarter and nine months ended September 30, 2002. The Company's third quarter underwriting results reflect $55 million of reserve increases for asbestos and environmental loss exposures and $50 million of prior years' loss reserve increases at the Company's Investors Brokered Excess and Surplus Lines unit. Alan I. Kirshner, Chairman and Chief Executive Officer, commented, "Our goal has always been to establish reserves that are more likely redundant than deficient and the increases during the quarter are consistent with that goal. However, we are disappointed that the reserve increases have overshadowed the outstanding underwriting performance of the balance of our business. We expect a strong finish to 2003 and are well positioned for 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            Nine Months Ended
                                   September 30,             September 30,

                                 2003         2002         2003         2002
    Core operations            $(1.19)       $(.66)       $5.90        $2.66
    Realized gains (losses)      (.49)        1.71         2.36         2.84
    Amortization expense            -         (.17)        (.27)        (.53)
    Diluted net income
     (loss)                    $(1.68)        $.88        $7.99        $4.97
    Weighted average
     diluted shares             9,845        9,856        9,859        9,852



                                          September 30,        December 31,
                                             2003                 2002
    Book value per common share
     outstanding                            $132.24             $117.89

    Common shares outstanding                 9,846               9,832

The third quarter loss from core operations was $1.19 per share in 2003 compared to loss from core operations of $0.66 per share for 2002. The increased loss from core operations compared to the same period of 2002 was primarily due to higher prior years' loss reserve development in the Excess and Surplus Lines (E&S) segment partially offset by improved underwriting results for the Specialty Admitted and London Market segments. For the nine months ended September 30, 2003, income from core operations was $5.90 per share compared to income from core operations of $2.66 per share for the same period of 2002. The improved results for the nine month period ended September 30, 2003 were primarily due to underwriting profitability in the E&S and Specialty Admitted segments as well as improving underwriting results in our London Insurance Market segment partially offset by higher development of prior years' loss reserves in the Other segment compared to 2002.

    Book value per common share outstanding increased to $132.24 at September
30, 2003 from $117.89 at December 31, 2002.  The 2003 increase was primarily
the result of $78.8 million of net income and a $59.4 million increase in net
unrealized investment gains, net of taxes, during the nine months ended
September 30, 2003.



                                           -Premium Analysis-
                                      Quarter Ended September 30,
                                         (Dollars in thousands)
                            Gross Written Premiums          Earned Premiums
                                2003        2002           2003        2002
    Excess and Surplus
     Lines                   $398,581     $371,138      $266,800     $206,376
    Specialty Admitted         81,095       73,762        60,467       49,393
    London Insurance
     Market                   183,184      140,219       140,538      151,147
    Other                       8,574       18,289         8,190       10,337
         Total               $671,434     $603,408      $475,995     $417,253




                                           -Premium Analysis-
                                    Nine Months Ended September 30,
                                         (Dollars in thousands)
                            Gross Written Premiums          Earned Premiums
                                2003        2002           2003        2002
    Excess and Surplus
     Lines                 $1,135,992     $956,383      $750,716     $540,163
    Specialty Admitted        212,533      182,370       172,541      132,160
    London Insurance
     Market                   548,762      467,204       404,753      393,308
    Other                      37,738       39,812        19,211       25,437
         Total             $1,935,025   $1,645,769    $1,347,221   $1,091,068

For the quarter and nine month period ended September 30, 2003, the Company's gross written premiums increased 11% and 18%, respectively, and are on target with the Company's expectations for the full year.



                                           -Combined Ratio Analysis-
                                    Quarter Ended          Nine Months Ended
                                     September 30,            September 30,
                                  2003         2002       2003          2002
    Excess and Surplus             99 %         92 %       92 %          94 %
    Lines
    Specialty Admitted             90 %         99 %       93 %         101 %
    London Insurance              101 %        106 %      102 %         108 %
    Market
    Other                         783 %        581 %      488 %         332 %
    Consolidated                  110 %        110 %      101 %         105 %

The Company regularly reviews the claims processes at its business units. During the third quarter of 2003, a review at the Investors Brokered Excess and Surplus Lines unit was initiated and is ongoing. The review highlighted case reserve estimates which did not meet the Company's standards. As a result, the Company has updated its actuarial assumptions and increased loss and loss adjustment expenses, primarily for the 1997-2001 accident years by $50 million during the quarter ended September 30, 2003. Other underwriting units included in the E&S segment produced favorable development on prior years' loss reserves and strong underwriting profits for the quarter and nine months ended September 30, 2003.

The Specialty Admitted segment produced improved underwriting results for the quarter and the nine months ended September 30, 2003 compared to the same periods of 2002. The significant improvement in both periods of 2003 was primarily due to lower current year losses and favorable development of prior years' loss reserves compared to both periods of 2002.

The combined ratio for the London Insurance Market improved for the quarter and nine months ended September 30, 2003 compared to the same periods of 2002. This improvement has resulted from a combination of lower loss ratios due to improved risk selection, pricing and the appropriate use of reinsurance and lower expense ratios due to lower commissions and expense control. The third quarter 2003 combined ratio of 101% decreased from 103% and 102%, respectively, in the first and second quarters of 2003. The London Insurance Market segment combined ratio has steadily improved and the London underwriting units continue to work towards their goal of underwriting profitability.

The underwriting loss from Other, which includes discontinued lines of business, was $55.9 million for the third quarter ended September 30, 2003 compared to an underwriting loss of $49.7 million in 2002. The Other underwriting loss for the nine month period ended September 30, 2003 was $74.5 million compared to $59.0 million for the same period of 2002. Both periods of 2003 included $55.0 million of reserve increases for asbestos and environmental exposures. Both periods of 2002 included $35.0 million of reserve increases due to asbestos and environmental exposures and related allowances for reinsurance bad debt and $9.0 million of reserve increases for reinsurance costs and collections issues for discontinued programs at Markel International.

The increase in prior years' loss reserves for asbestos and environmental exposures is being made in response to the Company's annual review of these exposures in both U.S. and international operations. The increase reflects a higher than expected incidence of new claims and recent adverse appellate and bankruptcy court decisions. The need to increase reserves for asbestos and environmental exposures in both 2002 and 2003 demonstrates that these reserves are subject to significant uncertainty due to potential loss severity and frequency resulting from the uncertain and unfavorable legal climate. The Company seeks to establish appropriate reserve levels for asbestos and environmental exposures; however, these reserves could be subject to increases in the future. The Company has established asbestos and environmental reserves without regard to the potential passage of asbestos reform legislation. These reserves are not discounted to present value and are forecasted to pay out over the next 50 years.

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. Gross premium growth remains on target to meet the Company's expectations for the full year. While all of the Company's insurance operations continue to achieve rate increases compared to the prior year, rate increases have begun to slow or decline in certain lines of business. These 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 our underwriting profit targets.

Third quarter 2003 net investment income was $46.4 million compared to $42.9 million in the prior year. Net investment income for the nine month period ended September 30, 2003 was $137.1 million compared to $126.9 million in 2002. In both periods of 2003, a larger investment portfolio offset lower investment yields.

In the third quarter of 2003, the Company recognized $7.4 million of net realized losses compared to $26.0 million of net realized gains in 2002. For the nine month period ended September 30, 2003, net realized gains were $35.8 million compared to net realized gains of $43.1 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 nine months ended September 30, 2003, amortization of intangible assets was $4.1 million compared to $8.1 million for the same period of 2002.

Interest expense was $13.7 million for the third quarter of 2003 compared to $10.1 million for the same period of 2002. For the nine month period ended September 30, 2003, interest expense was $38.8 million compared to $30.0 million for the same period last 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. A portion of the net proceeds was used to repay $175 million outstanding under the Company's $300 million revolving credit facility. During the third quarter of 2003, the Company replaced the existing facility with a $220 million revolving credit facility expiring December 2006.

For the third quarter and nine months ended September 30, 2003, the Company's effective tax rate was 33% compared to 36% for the third quarter and nine months ended September 30, 2002. The decrease was due to the elimination during 2002 of nondeductible interest expense and the 2003 increase in investment allocations to tax-exempt securities.

Comprehensive loss was $27.7 million for the third quarter of 2003 compared to comprehensive income of $7.4 million for the same period of 2002. The comprehensive loss for the third quarter of 2003 was primarily due to lower net income as a result of reserve increases and a decrease in the market value of the Company's investment portfolio partially offset by more favorable currency translation adjustments compared to 2002. For the nine months ended September 30, 2003, comprehensive income was $142.1 million compared to $49.3 million in 2002. The improvement was primarily due to a significant increase in the market value of the Company's investment portfolio and higher net income for the nine months ended September 30, 2003 compared to 2002. Comprehensive loss for the third quarter of 2003 includes $2.8 million of losses from currency translation adjustments, net of taxes, compared to losses of $12.1 million for the same period of 2002. For the nine months ended September 30, 2003, gains from currency translation adjustments, net of taxes, were $4.0 million compared to losses of $8.8 million for the same period of 2002. The Company attempts to match assets and liabilities in original currencies to mitigate the impact of currency volatility.

At September 30, 2003, the Company's investment portfolio increased 16% to $5.0 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 $238.6 million at September 30, 2003 compared to $179.2 million at December 31, 2002. Equity securities were $805.1 million, or 16% of the total investment portfolio, at September 30, 2003 compared to $550.9 million, or 13%, at December 31, 2002. Net cash provided by operating activities was approximately $450 million for the first nine months of 2003 compared to approximately $360 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 and anticipated improvements in underwriting profitability are 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 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's review of claims processes at the Investors Brokered Excess and Surplus Line unit is ongoing. The Company continues to closely monitor 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 to date financial results and may include forward-looking information, will be held Wednesday, October 29, 2003 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 Friday, November 7, 2003, 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 Friday, November 7, 2003.

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 (Loss)

                                    Quarter Ended        Nine Months Ended
                                    September 30,          September 30,
                                   2003       2002       2003         2002
                                (dollars in thousands, except per share data)
    OPERATING REVENUES
    Earned premiums              $475,995   $417,253  $1,347,221   $1,091,068
    Net investment income          46,379     42,853     137,079      126,893
    Net realized gains (losses)
     from investment sales         (7,360)    25,982      35,843       43,077
       Total Operating Revenues   515,014    486,088   1,520,143    1,261,038

    OPERATING EXPENSES
    Losses and loss adjustment
     expenses                     378,868    324,438     938,820      798,162
    Underwriting, acquisition
     and insurance expenses       147,102    135,343     420,895      348,261
    Amortization of intangible
     assets                             -      2,629       4,127        8,055
       Total Operating Expenses   525,970    462,410   1,363,842    1,154,478
       Operating Income (Loss)    (10,956)    23,678     156,301      106,560
    Interest expense               13,720     10,078      38,756       30,031
       Income (Loss) Before
        Income Taxes              (24,676)    13,600     117,545       76,529
    Income tax expense (benefit)   (8,143)     4,896      38,790       27,551
       Net Income (Loss)         $(16,533)    $8,704     $78,755      $48,978

    OTHER COMPREHENSIVE INCOME
     (LOSS)
    Unrealized gains (losses) on
     securities, net of taxes
       Net holding gains
        (losses) arising during
        the period               $(13,224)   $27,627     $82,705      $37,138
       Less reclassification
        adjustments for gains
        (losses) included in net
        income (loss)               4,784    (16,888)    (23,298)     (28,000)
       Net unrealized gains
        (losses)                   (8,440)    10,739      59,407        9,138
    Currency translation
     adjustments, net of taxes     (2,750)   (12,066)      3,975       (8,781)
       Total Other Comprehensive
        Income (Loss)             (11,190)    (1,327)     63,382          357
       Comprehensive Income
        (Loss)                   $(27,723)    $7,377    $142,137      $49,335

    NET INCOME (LOSS) PER SHARE
      Basic                        $(1.68)     $0.89       $8.00        $4.99
      Diluted                      $(1.68)     $0.88       $7.99        $4.97


    Selected Data                                   September 30, December 31,
    (dollars and shares in                              2003          2002
     thousands, except per share
     data)
    Total investments and cash                        $4,993,685   $4,314,152
    Reinsurance recoverable on
     paid and unpaid losses                            1,651,493    1,730,879
    Intangible assets                                    357,317      361,444
    Total assets                                       8,061,412    7,408,560
    Unpaid losses and loss
     adjustment expenses                               4,647,026    4,366,803
    Unearned premiums                                  1,079,790      937,364
    Convertible notes payable                             89,466       86,109
    Long-term debt                                       478,049      404,384
    8.71% Capital Securities                             150,000      150,000
    Total shareholders' equity                         1,302,045    1,159,111
    Book value per share                                 $132.24      $117.89
    Common shares outstanding                              9,846        9,832


                              Markel Corporation
                        Segment Reporting Disclosures
           For the Quarter and Nine Months Ended September 30, 2003

                        Segment Gross Written Premium

    Quarter Ended September 30,                Nine Months Ended September 30,
      2003      2002     (dollars in thousands)           2003         2002
    $398,581  $371,138  Excess and Surplus Lines       $1,135,992    $956,383
      81,095    73,762  Specialty Admitted                212,533     182,370
     183,184   140,219  London Insurance Market           548,762     467,204
       8,574    18,289  Other                              37,738      39,812
    $671,434  $603,408        Consolidated             $1,935,025  $1,645,769

                         Segment Net Written Premium

    Quarter Ended September 30,                Nine Months Ended September 30,
      2003      2002     (dollars in thousands)           2003         2002
    $291,435  $251,600  Excess and Surplus Lines         $812,910    $649,373
      76,991    68,846  Specialty Admitted                199,778     170,051
     150,257    72,923  London Insurance Market           435,846     328,185
       5,101    11,399  Other                              26,084      34,447
    $523,784  $404,768        Consolidated             $1,474,618  $1,182,056

                               Segment Revenues

    Quarter Ended September 30,                Nine Months Ended September 30,
      2003      2002     (dollars in thousands)           2003         2002
    $266,800  $206,376  Excess and Surplus Lines         $750,716    $540,163
      60,467    49,393  Specialty Admitted                172,541     132,160
     140,538   151,147  London Insurance Market           404,753     393,308
      39,019    68,835  Investing                         172,922     169,970
       8,190    10,337  Other                              19,211      25,437
    $515,014  $486,088        Consolidated             $1,520,143  $1,261,038

                   Reconciliation of Segment Profit (Loss)
                   to Consolidated Operating Income (Loss)

    Quarter Ended September 30,                Nine Months Ended September 30,
      2003      2002     (dollars in thousands)           2003         2002
      $1,502   $15,596  Excess and Surplus Lines          $58,171     $34,816
       6,081       354  Specialty Admitted                 11,809      (1,437)
      (1,645)   (8,803) London Insurance Market            (7,966)    (29,695)
      39,019    68,835  Investing                         172,922     169,970
     (55,913)  (49,675) Other                             (74,508)    (59,039)
           -    (2,629) Amortization of Intangible Assets  (4,127)     (8,055)
    $(10,956)  $23,678         Consolidated              $156,301    $106,560

                               Combined Ratios
    Quarter Ended September 30,                Nine Months Ended September 30,
      2003      2002                                      2003         2002
         99%       92%  Excess and Surplus Lines              92%         94%
         90%       99%  Specialty Admitted                    93%        101%
        101%      106%  London Insurance Market              102%        108%
        783%      581%  Other                                488%        332%
        110%      110%         Consolidated                  101%        105%
SOURCE  Markel Corporation
    -0-                             10/28/2003
    /CONTACT:  Bruce Kay of Markel Corporation, +1-804-747-0136/
    /Web site:  http://www.markelcorp.com/
    (MKL)

CO:  Markel Corporation
ST:  Virginia
IN:  INS
SU:  ERN CCA

RJ-JA 
-- DCTU078 --
9559 10/28/2003 18:13 EST http://www.prnewswire.com