Markel Corp.

4521 Highwoods Parkway

Glen Allen, Virginia 23060-6148
(804) 747-0136
www.markelcorp.com

Sales

$2.1 billion

Business Description 
We sell specialty insurance products and programs to a variety of niche markets and believe that our specialty product focus and niche market strategy enable us to develop expertise and specialized market knowledge. We seek to differentiate ourselves from competitors by reason of our expertise, service, continuity and other value-based considerations. We compete in three segments of the specialty insurance marketplace: the Excess and Surplus Lines, the Specialty Admitted and the London markets. Our financial goals are to earn consistent underwriting profits and superior investment returns to build shareholder value.

Specialty Insurance

The specialty insurance market differs significantly from the standard market. In the standard market, insurance rates and forms are highly regulated, products and coverages are largely uniform with relatively predictable exposures and companies tend to compete for customers on the basis of price. In contrast, the specialty market provides coverage for hard-to-place risks that do not fit the underwriting criteria of the standard carriers. For example, United States insurance regulations generally require an Excess and Surplus Lines (E&S) risk to be declined by three admitted carriers before an E&S company may write the risk. Hard-to-place risks written in the Specialty Admitted Market include insureds engaged in similar, but highly specialized activities, who require a total insurance program not otherwise available from standard insurers or insurance products that are overlooked by large admitted carriers. Hard-to-place risks in the London Market are generally distinguishable from standard risks due to the complexity or significant size of the risk.

Competition in the specialty insurance market tends to focus less on price and more on availability, service and other value-based considerations. While specialty market exposures may have higher perceived insurance risks than their standard market counterparts, we manage these risks to achieve higher financial returns. To reach our financial and operational goals, we must have extensive knowledge and expertise in our chosen markets. Most of our risks are considered on an individual basis where customized forms and tailored solutions are employed.

By focusing on the distinctive risk characteristics of our insureds, we have been able to identify a variety of niche markets where we can add value with our specialty product offerings. Examples of niche markets that we have targeted include: wind and earthquake exposed commercial properties, liability coverage for highly specialized professionals, horse mortality and other horse related risks, personal watercraft, high-value motorcycles, aviation and energy related activities. Our market strategy in each of these areas of specialization is tailored to the unique nature of the risk, coverage and services required by insureds. In each of our niche markets, we assign teams of experienced underwriters and claims specialists who provide a full range of insurance services.

Markets

Our eight underwriting units are focused on three specialty market segments. We have five underwriting units that compete in the E&S Market, two that compete in the Specialty Admitted Market and one that competes in the London Market. See note 18 of the notes to consolidated financial statements for additional segment reporting disclosures.

The E&S Market focuses on hard-to-place risks and risks that admitted insurers specifically refuse to write. E&S eligibility allows our insurance subsidiaries to underwrite unique risks with more flexible policy forms and unregulated premium rates. This typically results in coverages that are more restrictive and more expensive than coverages in the standard admitted market. In 2002, the E&S Market represented approximately $26 billion, or 6% of the $407 billion United States property and casualty (P&C) industry.(1)

We are the third largest domestic E&S writer in the United States as measured by direct premium writings.(1) Five of our underwriting units, Essex Excess and Surplus Lines, Shand Professional/Products Liability, Investors Brokered Excess and Surplus Lines, Markel Southwest Underwriters and Markel Re (formed January 1, 2003) write in the E&S Market. In 2003, we wrote $1.5 billion of E&S business in our Excess and Surplus Lines segment.

We also write business in the Specialty Admitted Market. Most of these risks are unique and hard-to-place in the standard market, but for marketing and regulatory reasons, must remain with an admitted insurance company. We estimate that the Specialty Admitted Market is comparable in size to the E&S Market. The Specialty Admitted Market is subject to more state regulation than the E&S Market, particularly with regard to rate and form filing requirements, restrictions on the ability to exit lines of business, premium tax payments and membership in various state associations, such as state guaranty funds and assigned risk plans.

Two of our underwriting units, Markel Specialty Program Insurance and Markel American Specialty Personal and Commercial Lines, write in the Specialty Admitted Market. In 2003, we wrote $271 million of specialty admitted business.

The London Market, which produced approximately $37 billion of gross written premium in 2002, is the largest insurance market in Europe and third largest in the world.(2) The London Market is known for its ability to provide innovative, tailored coverage and capacity for unique and hard-to-place risks. It is primarily a broker market, which means that insurance brokers bring most of the business to the market. The London Market is also largely a subscription market, which means that risks brought into the market are typically insured by more than one insurance company or Lloyd’s syndicate, often due to the high limits of insurance coverage required. We write business on both a direct and subscription basis in the London Market. When we write business in the subscription market, we prefer to participate primarily as lead underwriter in order to control underwriting terms and conditions.

Gross premium written through Lloyd’s accounts for approximately one-half of the London Market’s international insurance business, making Lloyd’s the world’s second largest commercial insurer and sixth largest reinsurer.(3) Beginning with the 1994 year of account, Lloyd’s began to allow corporate entities to become capital providers. This source of capital has grown steadily and represented approximately 87% of total underwriting capacity in 2003.(4) Corporate capital providers often provide a majority of all of a syndicate’s capacity and also often own or control the syndicate’s managing agent. This structure permits the capital provider to exert greater influence on, and demand greater accountability for, underwriting results.

We participate in the London Market through Markel International which includes Markel Capital Limited (Markel Capital) and Markel International Insurance Company Limited (MIICL). Markel Syndicate Management Limited (Markel Syndicate Management) manages our syndicate at Lloyd’s, Markel Syndicate 3000. In 2003, we wrote $738 million of business in the London Market.

Approximately 25% of our 2003 premium writings were foreign risks (i.e., coverage for risks located outside of the United States). Approximately 40% of our 2003 premium writings from foreign risks were from the United Kingdom. In 2002, approximately 23% of our premium writings were foreign risks, of which approximately 39% related to the United Kingdom. For 2001, approximately 32% of our

(1) Excess & Surplus 2003, A.M. Best Special Report (September 2003).

(2) International Financial Markets in the UK, International Financial Services of London (November 2003).

(3) The Lloyd’s Market in 2003, Guy Carpenter & Company Ltd.

(4) Standard & Poor’s Ratings of the Lloyd’s Market, Standard & Poor’s (September 2003).

premium writings were foreign risks, of which approximately 40% related to the United Kingdom. In each of these years, the United Kingdom was the only individual foreign country from which premium writings were material. Premium writings are attributed to individual countries based upon location of risk.

Competition

We compete with numerous domestic and international insurance companies and reinsurers, Lloyd’s syndicates, risk retention groups, insurance buying groups, risk securitization programs and alternative self-insurance mechanisms. Competition may take the form of lower prices, broader coverages, greater product flexibility, higher quality services or higher ratings by independent rating agencies. In all of our markets, we compete by developing specialty products to satisfy well-defined market needs and by maintaining relationships with brokers and insureds who rely on our expertise. This expertise is our principal means of competition. We offer over 90 major product lines. Each of these products has its own distinct competitive environment. With each of our products, we seek to compete with innovative ideas, appropriate pricing, expense control and quality service to policyholders, agents and brokers.

Few barriers exist to prevent insurers from entering our segments of the P&C industry, but many of the larger P&C insurance companies have historically been unwilling to write specialty coverages. For many years, the P&C industry experienced a soft market due to what was perceived by many as excessive amounts of capital in the industry. In an attempt to utilize their capital, many insurance companies often sought to write additional premiums without appropriate regard for its ultimate profitability.

During 2000, the Company began to experience what is commonly referred to within the insurance industry as a hard market. A hard insurance market is characterized by stricter coverage terms, higher prices and lower underwriting capacity. Premium rates continued to increase as a result of significant insured losses from the terrorist attacks of September 11, 2001. During 2003, we continued to achieve rate increases in most product lines compared to the prior year; however, rate increases have begun to slow and, in certain lines of business, rates have declined. Lines of business that have experienced rate declines include large direct and reinsurance property accounts, aviation and marine war accounts. While it is not anticipated that rates will continue to increase at the same pace the P&C industry has experienced during the last three years, we are committed to maintaining adequate pricing and will not sacrifice our goal of underwriting profitability in order to maintain premium growth. As a result, premium volume may vary when we alter our product offerings to maintain or improve underwriting profitability.