SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q

x Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002

or

o Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____

Commission File Number 001-15811

MARKEL CORPORATION
(Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction of incorporation or organization) 54-1959284
(I.R.S. employer identification number)

4521 Highwoods Parkway, Glen Allen, Virginia  23060-6148
(Address of principal executive offices)
(Zip code)

(804) 747-0136
(Registrant’s telephone number, including area code)

NONE
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Number of shares of the registrant’s common stock outstanding at November 1, 2002: 9,831,768

Markel Corporation
Form 10-Q

Index

			Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
		Consolidated Balance Sheets— September 30, 2002 and December 31, 2001	3
		Consolidated Statements of Operations and Comprehensive Income (Loss)— Quarters and Nine Months Ended September 30, 2002 and 2001	4
		Consolidated Statements of Changes in Shareholders’ Equity — Nine Months Ended September 30, 2002 and 2001	5
		Consolidated Statements of Cash Flows— Nine Months Ended September 30, 2002 and 2001	6
		Notes to Consolidated Financial Statements— September 30, 2002	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
		Critical Accounting Policies	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		24
PART II. OTHER INFORMATION
Item 2.	Changes in Securities and Use of Proceeds		25
Item 6.	Exhibits and Reports on Form 8-K		25
Signatures			26
Section 302 Certification of the Chief Executive Officer			27
Section 302 Certification of the Chief Financial Officer			28
Exhibit Index			29

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

			September 30, 2002			December 31, 2001
			(dollars in thousands)
ASSETS
Investments, available-for-sale, at estimated fair value
	Fixed maturities (cost of $2,753,762 in 2002 and $2,620,418 in 2001)		$	2,899,865		$	2,686,076
	Equity securities (cost of $378,820 in 2002 and $341,631 in 2001)			514,356			543,554
	Short-term investments (estimated fair value approximates cost)			192,071			64,791
	Total Investments, Available-For-Sale			3,606,292			3,294,421
Cash and cash equivalents				415,605			296,781
Receivables				328,296			372,076
Reinsurance recoverable on unpaid losses				1,513,381			1,397,202
Reinsurance recoverable on paid losses				159,874			171,810
Deferred policy acquisition costs				162,694			140,707
Prepaid reinsurance premiums				255,263			170,246
Intangible assets				364,073			372,128
Other assets				216,883			225,257
	Total Assets		$	7,022,361		$	6,440,628
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unpaid losses and loss adjustment expenses			$	4,055,529		$	3,699,973
Unearned premiums				994,299			806,922
Payables to insurance companies				136,715			169,570
Convertible notes payable (estimated fair value of $88,000 in 2002 and $117,000 in 2001)				85,011			116,022
Long-term debt (estimated fair value of $313,000 in 2002 and $262,000 in 2001)				298,980			264,998
Other liabilities				166,721			148,035
Company-Obligated Mandatorily Redeemable Preferred Capital Securities of Subsidiary     Trust Holding Solely Junior Subordinated Deferrable Interest Debentures of Markel     Corporation (estimated fair value of $116,000 in 2002 and $108,000 in 2001)				150,000			150,000
	Total Liabilities			5,887,255			5,355,520
Shareholders’ equity
	Common stock			736,238			735,569
	Retained earnings			225,224			176,252
	Accumulated other comprehensive income
		Net unrealized holding gains on fixed maturities and equity securities, net of tax expense of  $98,573 in 2002 and $93,653 in 2001		183,066			173,928
		Cumulative translation adjustments, net of tax benefit of $5,073 in 2002 and $345 in 2001		(9,422	)		(641	)
	Total Shareholders’ Equity			1,135,106			1,085,108
Commitments and contingencies
	Total Liabilities and Shareholders’ Equity		$	7,022,361		$	6,440,628

See accompanying notes to consolidated financial statements.

3

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

		Quarter Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
		(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums		$	417,253		$	327,522		$	1,091,068		$	866,856
Net investment income			42,853			42,243			126,893			127,937
Net realized gains from investment sales			25,982			8,508			43,077			16,278
	Total Operating Revenues		486,088			378,273			1,261,038			1,011,071
OPERATING EXPENSES
Losses and loss adjustment expenses			324,438			370,419			798,162			752,950
Underwriting, acquisition and insurance expenses			135,343			117,933			348,261			311,713
Amortization of intangible assets			2,629			7,712			8,055			23,096
	Total Operating Expenses		462,410			496,064			1,154,478			1,087,759
	Operating Income (Loss)		23,678			(117,791	)		106,560			(76,688	)
Interest expense			10,078			11,782			30,031			37,811
	Income (Loss) Before Income Taxes		13,600			(129,573	)		76,529			(114,499	)
Income tax expense (benefit)			4,896			(38,548	)		27,551			(32,518	)
	Net Income (Loss)	$	8,704		$	(91,025	)	$	48,978		$	(81,981	)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains on securities, net of taxes
	Net holding gains arising during the period	$	27,627		$	21,920		$	37,138		$	51,384
	Less reclassification adjustments for gains included in net income (loss)		(16,888	)		(5,530	)		(28,000	)		(10,581	)
	Net unrealized gains		10,739			16,390			9,138			40,803
Translation adjustments, net of taxes			(12,066	)		(656	)		(8,781	)		(372	)
	Total Other Comprehensive Income (Loss)		(1,327	)		15,734			357			40,431
	Comprehensive Income (Loss)	$	7,377		$	(75,291	)	$	49,335		$	(41,550	)
NET INCOME (LOSS) PER SHARE
	Basic	$	0.89		$	(10.58	)	$	4.99		$	(9.85	)
	Diluted	$	0.88		$	(10.58	)	$	4.97		$	(9.85	)

See accompanying notes to consolidated financial statements.

4

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

		Nine Months Ended September 30,
		2002			2001
		(dollars in thousands)
Common Stock
Balance at beginning of period		$	735,569		$	325,914
Issuance of common stock and other equity transactions			669			199,863
Balance at end of period		$	736,238		$	525,777
Retained Earnings
Balance at beginning of period		$	176,252		$	302,000
Net income (loss)			48,978			(81,981	)
Repurchase of common stock			(6	)		(20	)
Balance at end of period		$	225,224		$	219,999
Accumulated Other Comprehensive Income
Unrealized gains
	Balance at beginning of period	$	173,928		$	124,236
	Net unrealized holding gains arising during the period, net of taxes		9,138			40,803
	Balance at end of period		183,066			165,039
Cumulative translation adjustments
	Balance at beginning of period		(641	)		222
	Translation adjustments, net of taxes		(8,781	)		(372	)
	Balance at end of period		(9,422	)		(150	)
Balance at end of period		$	173,644		$	164,889
Shareholders’ Equity at End of Period		$	1,135,106		$	910,665

See accompanying notes to consolidated financial statements.

5

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

		Nine Months Ended September 30,
		2002			2001
		(dollars in thousands)
OPERATING ACTIVITIES
Net Income (Loss)		$	48,978		$	(81,981	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities			314,053			169,266
	Net Cash Provided By Operating Activities		363,031			87,285
INVESTING ACTIVITIES
Proceeds from sales of fixed maturities and equity securities			1,510,373			616,654
Proceeds from maturities, calls and prepayments of fixed maturities			68,252			102,116
Cost of fixed maturities and equity securities purchased			(1,683,467	)		(874,611	)
Net change in short-term investments			(127,280	)		12,264
Other			(9,409	)		(8,500	)
	Net Cash Used By Investing Activities		(241,531	)		(152,077	)
FINANCING ACTIVITIES
Additions to long-term debt and convertible notes payable			165,000			147,943
Repayments and repurchases of long-term debt and convertible notes payable			(167,833	)		(332,236	)
Issuance of common stock			—			197,991
Other			157			(201	)
	Net Cash Provided (Used) By Financing Activities		(2,676	)		13,497
Increase (decrease) in cash and cash equivalents			118,824			(51,295	)
Cash and cash equivalents at beginning of period			296,781			250,320
Cash And Cash Equivalents At End Of Period		$	415,605		$	199,025

See accompanying notes to consolidated financial statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - September 30, 2002

1.  Principles of Consolidation

The consolidated balance sheet as of September 30, 2002, the related consolidated statements of operations and comprehensive income (loss) for the quarters and nine months ended September 30, 2002 and 2001, the consolidated statements of changes in shareholders’ equity and the consolidated statements of cash flows for the nine months ended September 30, 2002 and 2001, are unaudited.  In the opinion of management, all adjustments necessary for a fair presentation of such consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results of operations for the full year.   The consolidated balance sheet as of December 31, 2001 was derived from the Company’s audited annual consolidated financial statements.

The consolidated financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the Company’s annual consolidated financial statements and notes.  Readers are urged to review the Company’s 2001 annual report on Form 10-K for a more complete description of the Company’s business and accounting policies.

Certain reclassifications of prior year’s amounts have been made to conform with 2002 presentations.

2.  Net Income (Loss) per share

Net income (loss) per share was determined by dividing net income (loss) by the applicable shares outstanding (in thousands):

		Quarter Ended September 30,					Nine Months Ended September 30,
		2002		2001			2002		2001
Net income (loss), as reported (basic and diluted)		$	8,704	$	(91,025	)	$	48,978	$	(81,981	)
Average common shares outstanding			9,828		8,605			9,822		8,327
Dilutive potential common shares			28		—			30		—
	Average diluted shares outstanding		9,856		8,605			9,852		8,327

3.  Reinsurance

The table below summarizes the effect of reinsurance on premiums written and earned (dollars in thousands):

		Quarter Ended September 30,
		2002						2001
		Written			Earned			Written			Earned
Direct		$	566,432		$	494,009		$	413,329		$	418,321
Assumed			36,976			35,599			31,456			47,679
Ceded			(198,640	)		(112,355	)		(138,674	)		(138,478	)
	Net premiums	$	404,768		$	417,253		$	306,111		$	327,522

7

3.  Reinsurance (continued)

		Nine Months Ended September 30,
		2002						2001
		Written			Earned			Written			Earned
Direct		$	1,523,563		$	1,344,546		$	1,147,044		$	1,061,871
Assumed			122,206			72,377			132,027			123,375
Ceded			(463,713	)		(325,855	)		(351,157	)		(318,390	)
	Net premiums	$	1,182,056		$	1,091,068		$	927,914		$	866,856

Incurred losses and loss adjustment expenses are net of reinsurance recoverables (ceded incurred losses and loss adjustment expenses) of $149.0 million and $420.2 million, respectively, for the quarters ended September 30, 2002 and 2001 and $307.9 million and $732.8 million, respectively, for the nine months ended September 30, 2002 and 2001.  Reinsurance recoverables for the third quarter and nine months ended September 30, 2001 included approximately $250 million related to the terrorist attacks of September 11, 2001 (WTC).  Excluding the effects of WTC in the prior year, the decrease in ceded incurred losses and loss adjustment expenses for both periods of 2002 was primarily due to Markel International’s lower policy limits and fewer losses affecting the reinsurance protections purchased in 2002 compared to 2001.

4.  Company Obligated Mandatorily Redeemable Preferred Securities (8.71% Capital Securities)

On January 8, 1997, the Company arranged the sale of $150 million of 8.71% Capital Securities issued under an Amended and Restated Declaration of Trust dated January 13, 1997 (the Declaration) by Markel Capital Trust I (the Trust), a statutory business trust sponsored and wholly-owned by the Company.  Proceeds from the sale of the 8.71% Capital Securities were used to purchase $154,640,000 aggregate principal amount of the Company’s 8.71% Junior Subordinated Deferrable Interest Debentures (the Debentures) due January 1, 2046, issued to the Trust under an indenture dated January 13, 1997 (the Indenture).  The Debentures are the sole assets of the Trust.  The Company has the right to defer interest payments on the Debentures for up to five years. The 8.71% Capital Securities and related Debentures are redeemable by the Company on or after January 1, 2007.  Taken together, the Company’s obligations under the Debentures, the Indenture, the Declaration and a guarantee made by the Company provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of distributions and other amounts due on the 8.71% Capital Securities.

5.  Convertible Notes Payable

During 2001, the Company issued $408.0 million principal amount at maturity, $112.9 million net proceeds, of Liquid Yield Option Notes™ (LYONs).  The LYONs are zero coupon senior notes convertible into the Company’s common shares under certain conditions, with an initial conversion price of $243.53 per common share.  The issue price of $283.19 per LYON represented a yield to maturity of 4.25%.  The LYONs mature on June 5, 2031.  The Company uses the effective yield method to recognize the accretion of discount from the issue price to the face amount of the LYONs at maturity.  The accretion of discount is included in interest expense.

On June 5, 2004, if the price of the Company’s common stock is at or below specified thresholds based on a measurement period prior to that date, contingent additional principal will accrue on the LYONs at a rate of either 0.50% or 1.00% per year for a period of two years, depending on the price of the Company’s common shares.  No contingent additional principal will accrue after June 5, 2006.

8

5.  Convertible Notes Payable (continued)

The Company will pay contingent cash interest to the holders of the LYONs during the six-month period commencing June 5, 2006 and during any six-month period thereafter if the average market price of a LYON for a specified period equals or exceeds 120% of the sum of the issue price, accrued original issue discount and contingent additional principal, if any, for the LYON.

Each LYON will be convertible into 1.1629 shares of common stock upon the occurrence of any of the following events: if the closing price of the Company’s common shares on the New York Stock Exchange exceeds specified levels, if the credit rating of the LYONs is reduced below specified levels, if the Company calls the LYONs for redemption, or if the Company is party to certain mergers or consolidations.  

LYONs holders have the right to require the Company to repurchase the LYONs on June 5^th of 2004, 2006, 2011, 2016, 2021 and 2026 at their accreted value on these dates as follows:

June 5, 2004	$	321.27
June 5, 2006	$	349.46
June 5, 2011	$	431.24
June 5, 2016	$	532.16
June 5, 2021	$	656.69
June 5, 2026	$	810.36

The Company may choose to pay the purchase price for such repurchases in cash or common shares of the Company.  The Company may redeem the LYONs for cash on or after June 5, 2006 at their accreted value.

On June 5, 2002, certain holders exercised the first put option by requiring the Company to repurchase approximately $119.9 million principal amount at maturity of the LYONs, at their accreted value of $295.35 per LYON.  The Company paid approximately $35.4 million in cash to the holders.

6.  Other Comprehensive Income (Loss)

Other comprehensive income (loss) is composed of net holding gains on securities arising during the period less reclassification adjustments for gains included in net income (loss).  Other comprehensive income (loss) also includes translation adjustments.  The related tax expense on net holding gains on securities arising during the period was $14.9 million and $20.0 million, respectively, for the quarter and nine months ended September 30, 2002 and $11.8 million and $27.7 million, respectively, for the same periods in 2001. The related tax expense on the reclassification adjustments for gains included in net income (loss) was $9.1 million and $15.1 million, respectively, for the quarter and nine months ended September 30, 2002 and $3.0 million and $5.7 million, respectively, for the same periods in 2001.  The related tax benefit on translation adjustments was $6.5 million and $4.7 million, respectively, for the quarter and nine months ended September 30, 2002 and $0.4 million and $0.2 million, respectively, for the same periods in 2001.

9

7.  Segment Reporting Disclosures

The Company operates in three distinct segments of the specialty insurance market: the Excess and Surplus Lines, Specialty Admitted and London Insurance Market segments. Markel North America includes the Excess and Surplus Lines and Specialty Admitted segments. All business conducted in the London Insurance Market is written by Markel International.  Effective January 1, 2002, the Company realigned its Markel International underwriting operations along product lines and customers and combined the operations of four Lloyd’s syndicates into one. As a result of these changes, the Company has the ability to compete in the London Insurance Market without distinction between its London insurance company and its Lloyd’s syndicate.  Certain reclassifications of prior year segment disclosure amounts have been made to conform with 2002 presentations.

All investing activities are included in the Investing operating segment.  Discontinued programs and non-strategic insurance subsidiaries are included in Other (Discontinued Lines) for purposes of segment reporting.

The Company considers many factors, including the nature of the underwriting units’ insurance products, production sources, distribution strategies and regulatory environment in determining how to aggregate operating segments.

Segment profit or (loss) for the Markel North America and Markel International operating divisions is measured by underwriting profit or (loss).  The property and casualty insurance industry commonly defines underwriting profit or (loss) as earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses.  Underwriting profit or (loss) does not replace operating income (loss) or net income (loss) computed in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) as a measure of profitability.  Segment profit for the Investing operating segment is measured by net investment income and net realized gains or losses.

The Company does not allocate assets to the Markel North America or the Markel International operating divisions for management reporting purposes.  The total investment portfolio, cash and cash equivalents are allocated to the Investing operating segment.

The Company does not allocate capital expenditures for long-lived assets to any of its operating segments for management reporting purposes.

a)  Following is a summary of segment disclosures (dollars in thousands):

Segment Revenues

Quarter Ended September 30,					Nine Months Ended September 30,
2002		2001			2002		2001
$	206,376	$	130,189	Excess and Surplus Lines	$	540,163	$	358,158
	49,393		35,345	Specialty Admitted		132,160		99,591
	151,147		135,678	London Insurance Market		393,308		334,079
	68,835		50,751	Investing		169,970		144,215
	10,337		26,310	Other (Discontinued Lines)		25,437		75,028
$	486,088	$	378,273	Total	$	1,261,038	$	1,011,071

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7.  Segment Reporting Disclosures (continued)

Segment Profit (Loss)

Quarter Ended September 30,							Nine Months Ended September 30,
2002			2001				2002			2001
$	15,596		$	(25,625	)	Excess and Surplus Lines	$	34,816		$	(17,193	)
	354			338		Specialty Admitted		(1,437	)		(59	)
	(8,803	)		(88,598	)	London Insurance Market		(29,695	)		(115,568	)
	68,835			50,751		Investing		169,970			144,215
	(49,675	)		(46,945	)	Other (Discontinued Lines)		(59,039	)		(64,987	)
$	26,307		$	(110,079	)	Total	$	114,615		$	(53,592	)

U.S. GAAP Combined Ratios*

Quarter Ended September 30,							Nine Months Ended September 30,
2002			2001				2002			2001
	92	%		120	%	Excess and Surplus Lines		94	%		105	%
	99	%		99	%	Specialty Admitted		101	%		100	%
	106	%		165	%	London Insurance Market		108	%		135	%
	581	%		278	%	Other (Discontinued Lines)		332	%		187	%
	110	%		149	%	Consolidated		105	%		123	%

*  The U.S. GAAP combined ratio measures the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition and insurance expenses to earned premiums.

		As of
		September 30, 2002		December 31, 2001
Segment Assets
	Investing	$	4,021,897	$	3,591,202
	Other		3,000,464		2,849,426
	Total Assets	$	7,022,361	$	6,440,628

b) The following summary reconciles significant segment items to the Company’s consolidated financial statements (dollars in thousands):

			Quarter Ended September 30,						Nine Months Ended September 30,
			2002			2001			2002			2001
Income (loss) before income taxes
	Segment profit (loss)		$	26,307		$	(110,079	)	$	114,615		$	(53,592	)
	Unallocated amounts
		Amortization expense		(2,629	)		(7,712	)		(8,055	)		(23,096	)
		Interest expense		(10,078	)		(11,782	)		(30,031	)		(37,811	)
	Income (Loss) Before Income Taxes		$	13,600		$	(129,573	)	$	76,529		$	(114,499	)

8.  Derivative Financial Instruments

The contingent cash interest and contingent additional principal features of the LYONs are embedded derivatives required to be accounted for separately from the host contract.  Accordingly, the contingent cash

11

8.  Derivative Financial Instruments (continued)

interest and contingent additional principal are recorded at fair value.  The fair value recorded at September 30, 2002 was a liability of $0.1 million compared to a liability of $1.4 million at December 31, 2001.  The change in the fair value since December 31, 2001 was recognized as a reduction in interest expense.

The Company held $106.5 million and $192.9 million, respectively, of corporate bonds with embedded put options as of September 30, 2002 and December 31, 2001.   These embedded derivatives are clearly and closely related to the host contracts and therefore are not accounted for separately.

9.  Goodwill and Other Intangible Assets

The Company adopted Financial Accounting Standards Board Statement (Statement) No. 142, Goodwill and Other Intangible Assets effective January 1, 2002.  Statement No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually.  Statement No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

The Company completed the transitional goodwill impairment test required by Statement No. 142 in the first quarter of 2002 and determined that there was no indication of goodwill impairment.

a)  Acquired Intangible Assets (dollars in thousands):

		As of September 30, 2002
		Gross Carrying Amount				Accumulated Amortization						Net Carrying Amount
Amortized Intangible Assets
Lloyd’s capacity costs		$		31,548		$		(24,792		)		$		6,756
Policy renewal rights				2,847				(2,847		)				––
	Total Amortized Intangible Assets	$		34,395		$		(27,639		)		$		6,756
Unamortized Intangible Assets
Goodwill		$		405,548		$		(48,231		)		$		357,317
			As of December 31, 2001
			Gross Carrying Amount				Accumulated Amortization						Net Carrying Amount
Amortized Intangible Assets
Lloyd’s capacity costs			$		31,548		$		(16,905		)		$		14,643
Policy renewal rights					2,847				(2,679		)				168
	Total Amortized Intangible Assets		$		34,395		$		(19,584		)		$		14,811
Unamortized Intangible Assets
Goodwill			$		405,548		$		(48,231		)		$		357,317

The amortization expense for intangible assets was $2.6 million and $8.1 million, respectively, for the third quarter and nine months ended September 30, 2002 and $7.7 million and $23.1 million, respectively, for the

12

9.  Goodwill and Other Intangible Assets (continued)

same periods in 2001.

Following is a schedule of estimated annual amortization expense for intangibles (dollars in thousands):

Years Ending December 31,
2002	$	10,684
2003		4,127
Thereafter		¾

There were no changes in the carrying amounts of goodwill for the third quarter and nine month period ended September 30, 2002.  The following table shows the carrying amounts of goodwill by reporting unit at September 30, 2002 (dollars in thousands):

	Excess and Surplus Lines		London Insurance Market		Total
Balance as of September 30, 2002	$	81,770	$	275,547	$	357,317

b)  Goodwill and Intangible Assets-Adoption of Statement No. 142

The following table compares net income (loss) and net income (loss) per share for 2001, as adjusted for the adoption of Statement No. 142, with the amounts for 2002 (in thousands, except per share data):

		Quarter Ended September 30,					Nine Months Ended September 30,
		2002		2001			2002		2001
Net Income (Loss)		$	8,704	$	(91,025	)	$	48,978	$	(81,981	)
Add: Goodwill amortization			¾		4,790			¾		14,372
	Adjusted net income (loss)	$	8,704	$	(86,235	)	$	48,978	$	(67,609	)
Adjusted net income (loss) per share:
	Basic	$	0.89	$	(10.02	)	$	4.99	$	(8.12	)
	Diluted	$	0.88	$	(10.02	)	$	4.97	$	(8.12	)
Average shares outstanding:
	Basic		9,828		8,605			9,822		8,327
	Diluted		9,856		8,605			9,852		8,327

10.  Contingencies

On January 31, 2001, the Company received notice of a lawsuit filed in the United States District Court of the Southern District of New York against Terra Nova Insurance Company Limited (Terra Nova) by Palladium Insurance Limited and Bank of America, N.A. seeking approximately $27 million plus exemplary damages in connection with alleged reinsurance agreements.  This matter is still in the discovery phase and is not expected to be ready for trial before 2003.  The Company believes it has numerous defenses to these claims, including the

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10.  Contingencies (continued)

defense that the alleged reinsurance agreements were not valid.  The Company intends to vigorously defend this matter; however, the outcome cannot be predicted at this time.

As previously reported, the Company was involved in a reinsurance collection dispute with several reinsurers, including Reliance Insurance Company, a company in liquidation.  The dispute, which included cross-claims by the various parties against the broker involved in the transaction, began trial in the Commercial Court in London in October 2002.  During October the dispute was successfully settled with no impact to the Company’s results of operations.  As a result of the settlement, the largest portion of the Company’s exposure to Reliance and all disputed items with other reinsurers were resolved.  These matters were considered in the course of assessing the collectability of reinsurance recoverables and the adequacy of the allowance for uncollectable reinsurance.

The Internal Revenue Service (IRS) is examining the Company’s federal income tax returns for 1997, 1998 and 1999.  The examiner has issued an assessment based on alleged overstatements of reserves for unpaid losses and loss adjustment expenses.  The Company intends to protest the assessment.  If the assessment were upheld, federal tax payments would be accelerated; however, there would be no impact on the total provision for income tax expense.  In addition to the acceleration of tax payments, interest charges could be assessed by the IRS.  Management believes the outcome of this matter will not have a material impact on the Company’s financial condition, results of operations or cash flows.

The Company has other contingencies that arise in the normal conduct of its operations.  In the opinion of management, the resolutions of these contingencies are not expected to have a material impact on the Company’s financial condition or results of operations.  However adverse outcomes are possible and could negatively impact the Company’s financial condition or results of operations. 

11.  Exchange Offer

In May 2002 the Company completed an exchange offer and consent solicitation for the 7.0% and 7.2% senior notes of Markel International Limited, a wholly-owned subsidiary.  As a result of the exchange offer and consent solicitation, approximately $171 million of the outstanding notes were exchanged for newly issued 7.0% and 7.2% senior notes of the Company.  The offering had no impact on the amount of the Company’s outstanding indebtedness, as the notes were included in the Company’s consolidated liabilities and the terms of the old Markel International notes and the new Markel Corporation notes were substantially the same.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations
Quarter and Nine Months ended September 30, 2002 compared to Quarter and Nine Months ended September 30, 2001

The Company markets and underwrites specialty insurance products and programs to a variety of niche markets. In each of these markets, the Company seeks to be a market leader.  The financial goals of the Company are to earn consistent underwriting profits and superior investment returns to build shareholder value.

The Company’s operations are aligned between its U.S operations, Markel North America, and its international operations, Markel International.

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Markel North America includes the Excess and Surplus Lines segment which is comprised of four underwriting units and the Specialty Admitted segment which consists of two underwriting units. The Excess and Surplus Lines segment writes property and casualty insurance for nonstandard and hard-to-place risks including catastrophe-exposed property, professional liability, products liability, general liability, commercial umbrella and other coverages tailored for unique exposures.  The Specialty Admitted segment writes risks that are unique and hard-to-place in the standard market but must remain with an admitted insurance company for marketing and regulatory reasons.  These underwriting units write specialty program insurance for well-defined niche markets and personal and commercial property and liability coverages.  

Markel International represents the Company’s London Insurance Market segment. On January 1, 2002, Markel International realigned its underwriting operations along product lines and customers into six underwriting centers. Markel International also combined the operations of four Lloyd’s syndicates into one, Markel Syndicate 3000.  The six underwriting centers have the ability to write business in either Terra Nova Insurance Company Limited or Markel Syndicate 3000.  Prior year segment information has been made to conform with 2002 presentations.  Markel International writes specialty property, casualty, marine and aviation insurance and reinsurance on a worldwide basis. The majority of Markel International’s business comes from the United Kingdom and the United States.

Discontinued lines of business and non-strategic insurance subsidiaries are included in Other (Discontinued Lines) for segment reporting purposes.

Following is a comparison of gross premium volume by significant underwriting segment:

Gross Premium Volume

Quarter Ended September 30,					Nine Months Ended September 30,
2002		2001		(dollars in thousands)	2002		2001
$	371,138	$	205,245	Excess and Surplus Lines	$	956,383	$	581,659
	73,762		53,489	Specialty Admitted		182,370		128,427
	140,219		169,546	London Insurance Market		467,204		535,890
	18,289		16,505	Other (Discontinued Lines)		39,812		33,095
$	603,408	$	444,785	Total	$	1,645,769	$	1,279,071

Third quarter gross premium volume rose 36% to $603.4 million from $444.8 million for the same period in 2001.  For the nine month period, gross premium volume grew 29% to $1.6 billion from $1.3 billion in the prior year.  Markel North America gross written premiums for the third quarter and nine month period increased 72% and 60%, respectively, due to increased submission activity and price increases across all business units.

Excess and Surplus Lines gross premium volume increased 81% to $371.1 million in the third quarter of 2002 from $205.2 million a year ago.  For the nine month period, gross premium volume increased 64% to $956.4 million in 2002 from $581.7 million in 2001.  The growth in both periods was due to increased submission activity and price increases in most programs.  The most significant areas of growth in the third quarter of 2002 were in the Essex Excess and Surplus Lines and the Brokered Excess and Surplus Lines units.  Gross premium volume for the Essex Excess and Surplus Lines unit increased 78% to $145.3 million in the third quarter of 2002 from $81.8 million last year.  Brokered Excess and Surplus Lines gross premium volume grew 119% to $95.8 million in the third quarter of 2002 from $43.7 million for 2001. The most significant areas of growth in the nine month period of 2002 were in the Essex Excess and Surplus Lines and the Professional/Products

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Liability units.  For the nine month period of 2002, premium volume for the Essex Excess and Surplus Lines unit increased 77% to $361.7 million from $204.1 million in the prior year.  For the nine month period of 2002, premium volume for the Professional/Products Liability unit increased 58% to $280.2 million  from $177.8 million in the prior year.  The increase in gross premium volume at the Essex Excess and Surplus unit for both periods of 2002 was primarily due to growth in the Essex special property and casualty programs. The increase in gross premium volume at the Brokered Excess and Surplus Lines unit in the third quarter of 2002 was primarily due to growth in the casualty and property programs.  The increase in gross premium volume at the Professional/Products Liability unit for the nine month period was primarily due to growth in the medical malpractice and specified medical programs.

For the third quarter of 2002, Specialty Admitted Lines gross premium volume increased 38% to $73.8 million compared to $53.5 million in 2001.  For the nine month period of 2002, gross premium volume increased 42% to $182.4 million in 2002 from $128.4 million in the prior year.  The increase in both periods was primarily due to higher submissions, new programs and price increases.

In the third quarter of 2002, Markel International’s gross premium volume decreased 17% to $140.2 million from $169.5 million in 2001. Gross premium volume for the nine months ended September 30, 2002 decreased 13% to $467.2 million compared to $535.9 million for the same period of 2001. Markel International’s third quarter and nine month period writings continued to meet the Company’s expectations both in terms of volume and price increases achieved. Markel International’s gross written premiums for the quarter and nine month period ended September 30, 2002 declined primarily due to stricter underwriting guidelines, reduced policy limits and the reunderwriting of some classes of business.

Discontinued Lines’ gross written premiums consisted of Corifrance’s writings and prior years’ premium increases primarily due to higher actual premium writings than previously estimated.  The increase in both periods of 2002 was primarily due to increased gross premium volume at Corifrance resulting from favorable reinsurance market conditions.

The Company enters into reinsurance agreements in order to reduce its liability on individual risks and enable it to underwrite policies with higher limits.  The Company’s net retention of gross premium volume decreased to 67% in the third quarter of 2002 compared to 69% in the prior year.  The retention rate for the third quarter of 2002 decreased due to higher reinsurance costs than originally estimated on prior years’ premium writings at Markel International.  Before consideration of these additional reinsurance costs, the Company’s retention rate for the third quarter of 2002 was 73%.  The retention rate for the third quarter of 2001 decreased as a result of net reinsurance reinstatement premiums of approximately $15.0 million on WTC exposures.  For the nine month period of 2002, net retention of gross premium volume decreased to 72% from 73% in the prior year.  The decrease in retention rate for the nine month period of 2002 was primarily due to increased reinsurance costs recognized in Markel International’s 2002 Marine and Energy programs and to higher reinsurance costs than originally estimated on prior years’ premium writings at Markel International.  Before consideration of these higher reinsurance costs, the Company’s net retention for the nine month period of 2002 was 75%.

Total operating revenues for the third quarter of 2002 increased to $486.1 million from $378.3 million in the prior year.  For the nine month period, operating revenues rose to $1.3 billion from $1.0 billion in 2001.  The increase in operating revenues for the third quarter and nine month period of 2002 was primarily attributed to higher earned premium resulting from higher gross premium volume and higher realized gains recognized compared to 2001.

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Following is a comparison of earned premiums by significant underwriting segment:

Earned Premiums

Quarter Ended September 30,					Nine Months Ended September 30,
2002		2001		(dollars in thousands)	2002		2001
$	206,376	$	130,189	Excess and Surplus Lines	$	540,163	$	358,158
	49,393		35,345	Specialty Admitted		132,160		99,591
	151,147		135,678	London Insurance Market		393,308		334,079
	10,337		26,310	Other (Discontinued Lines)		25,437		75,028
$	417,253	$	327,522	Total	$	1,091,068	$	866,856

Earned premiums for the third quarter of 2002 increased 27% to $417.3 million from $327.5 million for the same period in 2001.  For the nine month period of 2002, earned premiums grew 26% to $1.1 billion from $866.9 million in the prior year.  Markel North America earned premiums for the third quarter and nine month period increased 55% and 47%, respectively, compared to the same periods of 2001.  The increase for Markel North America in both periods was a result of increased gross written premium primarily in the Excess and Surplus Lines segment.  Earned premiums for Markel International rose 11% and 18%, respectively, in the third quarter and nine month period of 2002 compared to the prior year.  The increase in Markel International’s earned premiums for the third quarter of 2002 was primarily due to higher prior years’ premium writings than previously estimated.  For the nine month period of 2002, Markel International’s earned premiums increased primarily due to higher gross premiums over the last several quarters.  The increase in Markel North America’s and Markel International’s earned premiums in both periods of 2002 was partially offset by lower earned premiums from Discontinued Lines.

Third quarter 2002 net investment income was $42.9 million compared to $42.2 million in the prior year.  Net investment income for the nine month period was $126.9 million compared to $127.9 million in 2001.  In both periods, a larger investment portfolio offset lower investment yields.

In the third quarter, the Company recognized $26.0 million of net realized investment gains compared to $8.5 million of net realized investment gains in 2001.  For the nine month period of 2002, net realized investment gains were $43.1 million compared to net realized investment gains of $16.3 million for the same period last year.  During the second quarter of 2002, the Company consolidated all investment functions.  In the second and third quarters of 2002, Markel International’s portfolio was reallocated, which resulted in gains being realized. Variability in the timing of realized and unrealized investment gains and losses is to be expected.

Total operating expenses for the third quarter of 2002 were $462.4 million compared to $496.1 million in 2001. Total operating expenses for the nine month period of 2002 were $1.2 billion compared to $1.1 billion a year ago. The decrease in the third quarter of 2002 was primarily due to lower loss and loss adjustment expenses compared to the same period of 2001, partially offset by higher underwriting, acquisition and insurance expenses due to higher premium volume.  The increase for the nine month period of 2002 was primarily the result of higher premium volume, partially offset by lower amortization of intangible assets due to the adoption of Statement No. 142.

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Following is a comparison of selected data from the Company’s operations (dollars in thousands):

		Quarter Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
`
Gross premium volume		$	603,408		$	444,785		$	1,645,769		$	1,279,071
Net premiums written		$	404,768		$	306,111		$	1,182,056		$	927,914
Net retention			67	%		69	%		72	%		73	%
Earned premiums		$	417,253		$	327,522		$	1,091,068		$	866,856
Losses and loss adjustment expenses		$	324,438		$	370,419		$	798,162		$	752,950
Underwriting, acquisition and insurance expenses		$	135,343		$	117,933		$	348,261		$	311,713
Underwriting loss*		$	(42,528	)	$	(160,830	)	$	(55,355	)	$	(197,807	)
U.S. GAAP ratios**
Loss ratio			78	%		113	%		73	%		87	%
Expense ratio			32	%		36	%		32	%		36	%
Combined ratio			110	%		149	%		105	%		123	%
*	The property and casualty insurance industry commonly defines underwriting profit or (loss) as earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses.  Underwriting profit or (loss) does not replace operating income (loss) or net income (loss) computed in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) as a measure of profitability.
**	The U.S. GAAP combined ratio measures the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition and insurance expenses to earned premiums.

Underwriting performance is measured by the combined ratio of losses and expenses to earned premiums. The Company reported a combined ratio of 110% in the third quarter of 2002 compared to a combined ratio of 149% in the third quarter of 2001.  For the nine month period of 2002, the Company reported a combined ratio of 105% compared to 123% for the same period of 2001. The third quarter of 2002 included $44.0 million of Discontinued Lines reserve strengthening primarily related to the Company’s increase of reserves for asbestos and environmental exposures.  The third quarter of 2001 included $75.0 million of estimated WTC losses and $68.0 million of prior years’ loss reserve strengthening.

Markel North America continued to produce solid underwriting profits in the third quarter and nine month period ended September 30, 2002.  Markel North America reported a combined ratio of 94% and 95%, respectively, for the third quarter and the nine month period of 2002 compared to 115% and 104%, respectively, for the same periods of 2001.  In 2002 Markel North America benefited from an improved expense ratio due to higher volume and lower commission rates.  The underwriting loss for the third quarter and nine month period of 2001 was primarily the result of $29.0 million of adverse loss development on New York contractors business previously written by the Brokered Excess and Surplus Lines unit.

The combined ratio for Excess and Surplus Lines decreased to 92% and 94%, respectively, for the third quarter and nine month period of 2002 from 120% and 105%, respectively, for the same periods of 2001.  The decrease in the combined ratio for both periods of 2002 was primarily attributed to unfavorable reserve development on the New York contractors program in the third quarter of 2001 and an improved expense ratio due to higher volume and lower commission rates in 2002.  The combined ratio for Specialty Admitted was 99% and 101%, respectively, for the third quarter and nine month period of 2002 compared to combined ratios of 99% and 100%, respectively, for the same periods of 2001.  The increase in the combined ratio for the nine month period of 2002, was due to lower favorable loss reserve development in prior years’ loss reserves partially offset by an

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improved expense ratio due to higher volume.

Markel International’s combined ratio improved for the third quarter and nine month period of 2002 compared to the same periods in the prior year.  Markel International’s combined ratio was 106% and 108%, respectively, for the third quarter and the nine month period of 2002 compared to 165% and 135%, respectively, for the same periods of 2001. Markel International’s 2001 third quarter and nine month period results included $70.8 million of WTC losses.  Markel International also benefited in 2002 from an improved expense ratio due to lower commission rates and lower overhead costs.  The Company is intent on strengthening Markel International’s operating performance and balance sheet through a focus on expense control and underwriting discipline which includes improved risk selection, pricing and the appropriate use of reinsurance.  The Company is confident that Markel International will continue to make steady progress towards underwriting profitability. 

The underwriting loss from Discontinued Lines in the third quarter and nine month period of 2002 was $49.7 million and $59.0 million, respectively, compared to $46.9 million and $65.0 million, respectively, in 2001.  In the third quarter of 2002, Discontinued Lines reserves were strengthened $44.0 million.  The Company strengthened reserves for asbestos and environmental exposures $30.0 million, with the remaining $14.0 million related primarily to reserves for additional reinsurance costs and collection issues.  In the third quarter of 2001, Discontinued Lines underwriting loss included $39.0 million of reserve strengthening primarily in Markel International’s discontinued worldwide motor book of business.

The Company completed its annual review of asbestos and environmental loss reserves during the third quarter of 2002.  Bankruptcies of asbestos defendants coupled with significant increases in the number of claims from exposed, but not ill, individuals have increased the insurance industry’s asbestos exposures.  As a result of the study and these unfavorable litigation trends, the Company determined that it was appropriate to strengthen reserves for asbestos and environmental reserves, including reinsurance bad debt.  The Company strengthened 1986 and prior accident year reserves $30.0 million ($20.0 million in its North American units and $10.0 million at Markel International). Asbestos and environmental exposures are subject to significant uncertainty due to potential severity and an uncertain legal climate.  Asbestos and environmental reserves could be subject to increases in the future.  The Company’s asbestos and environmental reserves are not discounted to present value and are forecasted to pay out over the next 50 years.

While all of the Company’s insurance operations are achieving significant rate increases, the loss ratios for the third quarter and nine month period of 2002 contain minimal benefit from these increases as the Company attempts to establish loss reserves that are more likely redundant than deficient.

Amortization of intangible assets was $2.6 million in the third quarter of 2002 compared to $7.7 million last year.  For the nine month period, amortization of intangible assets was $8.1 million compared to $23.1 million in 2001.  The Company adopted Financial Accounting Standards Board Statement  (Statement) No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002.  The decrease in amortization of intangible assets in 2002 is due to the fact that goodwill is no longer amortized after the adoption of Statement No. 142.  Instead Statement No. 142 requires that goodwill and other intangible assets with indefinite useful lives be tested for impairment annually, in lieu of being amortized.  Intangible assets, other than goodwill, will be fully amortized by the end of the second quarter of 2003.

Interest expense for the third quarter of 2002 was $10.1 million compared to $11.8 million in 2001.  Interest expense was $30.0 million for the nine month period of 2002 compared to $37.8 million last year.  The decrease

19

for the nine month period was primarily due to a reduction in the Company’s outstanding debt since the first quarter of 2001.  Debt was reduced through the use of net proceeds from two 2001 common stock offerings. 

The Company’s provision for income taxes resulted in an effective tax rate of 36% for both the third quarter and nine month period of 2002.  The Company reported effective tax rates of 30% and 28%, respectively, for the third quarter and nine month period of 2001.  The effective tax rate for both periods of 2001 was lower than the expected corporate tax rate of 35% primarily due to nondeductible amortization of intangibles prior to the adoption of Statement No. 142.

In evaluating its operating performance, the Company focuses on core underwriting and investing results before consideration of net realized gains from the sales of investments and expenses related to the amortization of intangible assets and any nonrecurring items (income (loss) from core operations).  Although income (loss) from core operations does not replace operating income (loss) or net income (loss) computed in accordance with accounting principles generally accepted in the United States (U.S. GAAP) as a measure of profitability, management focuses on this performance measure because it reduces the variability in results associated with net realized investment gains and eliminates the impact of accounting conventions which do not reflect current operating costs.  Third quarter loss from core operations was $0.66 per diluted share compared to a loss from core operations of $10.44 per diluted share in 2001.  For the nine months of 2002, income from core operations was $2.66 per diluted share compared to a loss from core operations of $8.71 per diluted share in the prior year. The Company strengthened reserves $44 million in the third quarter of 2002.  The loss from core operations for the third quarter and nine month period of 2001 was due to $75 million of estimated losses related to WTC and $68 million of prior years’ loss development.

Comprehensive income was $0.75 per share for the third quarter of 2002 compared to comprehensive loss of $8.75 per share in 2001.  For the nine month period ended September 30, 2002, comprehensive income was $5.01 per share compared to comprehensive loss of $4.99 per share in 2001.  The increase in both periods was primarily due to higher net income, partially offset by a smaller increase in the market value of the Company’s investment portfolio and an unfavorable movement in currency translation adjustments during 2002.  The Company reported net unrealized gains, net of taxes, on its fixed maturity and equity investments of  $183.1 million at September 30, 2002 compared to $173.9 million at December 31, 2001.

Financial Condition as of September 30, 2002

The Company’s investments, cash and cash equivalents were $4.0 billion at September 30, 2002 compared to $3.6 billion at December 31, 2001.

For the nine month period ended September 30, 2002, the Company reported net cash provided by operating activities of $363.0 million, compared to $87.3 million for the same period in 2001.  The increase was primarily due to increased cash flow at Markel North America due to growth in gross premium volume and continued profitability.

For the nine month period ended September 30, 2002, the Company reported net cash used by investing activities of $241.5 million compared to $152.1 million in 2001.  The increased use of cash for investing activities during 2002 was primarily due to the investment of increased operating cash flows.

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For the nine month period ended September 30, 2002, the Company reported net cash used by financing activities of $2.7 million compared to net cash provided by financing activities of $13.5 million in 2001.  The net cash used by financing activities during the nine month period of 2002 was primarily the result of the repurchase of $2.4 million of Markel International’s 7.0% and 7.2% senior notes prior to our exchange offer.  During the nine months ended September 30, 2001, the Company issued 1,288,940 shares of common stock and used net proceeds of approximately $198 million from the offering along with other cash from operations to repay and retire outstanding debt of approximately $227 million and the Company issued $408 million principal amount at maturity, $113 million net proceeds, of Liquid Yield Option Notes™ (LYONs).  The Company used a portion of the LYONs net proceeds to repay $100 million of balances outstanding under its revolving credit facility.

During the second quarter of 2002, the Company completed an exchange offer and consent solicitation for approximately $171 million of outstanding notes issued by Markel International. The offering had no impact on outstanding indebtedness, as the notes were included in the Company’s consolidated liabilities and the terms of the old Markel International and new Markel Corporation notes were substantially the same.  As a result of the exchange offer, the maturity date of the Company’s revolving credit facility was extended to December 31, 2004.  Also during the second quarter of 2002, certain holders of the Company’s convertible notes payable (LYONs) exercised the first put option by requiring the Company to repurchase approximately $35 million (at their accreted value) of these obligations for cash.

Before the end of the year, capital providers at Lloyd’s are required to post collateral to support their premium writings for the next year.  During the fourth quarter of 2002, the Company anticipates contributing up to $150 million of additional capital to Markel Capital Limited to support Markel Syndicate 3000 premium writings for 2003.  The Company’s domestic insurance operations may also require capital to support 2003 premium writings. Management believes the Company will have sufficient liquidity to meet these potential needs and anticipates additional borrowings under its revolving credit facility of approximately $100 million to $150 million.

Shareholders’ equity at September 30, 2002 was $1,135.1 million compared to $1,085.1 million at December 31, 2001.  Book value per common share was $115.45 at September 30, 2002, compared to $110.50 at December 31, 2001.

In accordance with the requirements of Financial Accounting Standards Board Statement No. 87, Employer’s Accounting for Pensions, the Company may be required to recognize a minimum pension liability (potential liability) on its balance sheet at December 31, 2002.  The potential liability relates to a Markel International defined benefit plan, which covers a portion of its employees and is closed to new participants.  Recent declines in the equity market have reduced the fair value of the pension plan assets. If the fair value of pension plan assets is less than the accumulated benefit obligation at the Company’s annual measurement date of December 31, a non-cash, non-income related adjustment would be necessary.  If this situation occurs, the Company currently estimates that it would be required to record a reduction in shareholders’ equity of approximately $10 to $20 million, net of tax.  The equity would be restored to the balance sheet if, at a subsequent measurement date, the fair value of pension plan assets exceeds the accumulated benefit obligation.  This adjustment would have no effect on income or cash flow, nor would it require any cash contributions to the pension plan.

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Critical Accounting Policies

The accompanying consolidated financial statements have been prepared in accordance U.S. GAAP and include the accounts of Markel Corporation and all subsidiaries.  For a complete discussion of the Company’s accounting policies, see the Company’s 2001 annual report on Form 10-K.

Property and casualty insurance involves the receipt of premiums today for providing coverage for potential future losses that may not be discovered or paid for many years.  Due to these and other factors, management is required to make many critical judgments and assumptions that affect reported amounts.

Critical accounting policies are defined as those that are both important to the portrayal of the Company’s financial condition and results of operations and require management to exercise significant judgment.  The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of material contingent assets and liabilities, including litigation contingencies, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates are necessarily based on assumptions about numerous factors.

The Company accrues liabilities for unpaid losses and loss adjustment expenses based upon estimates of the ultimate amounts payable.  As of any balance sheet date, all claims have not yet been reported and some claims may not be reported for many years.  As a result the liability for unpaid losses and loss adjustment expenses includes significant estimates for incurred but not reported claims. Additionally reported claims are in various stages of the settlement process. Each claim is settled individually based upon its merits and certain claims may take years to settle, especially if legal action is involved.

The Company uses a variety of techniques to establish the liabilities for unpaid losses and loss adjustment expenses, all of which involve significant judgments and assumptions. These techniques include detailed statistical analysis of past claim reporting, settlement activity, claim frequency and severity data, internal loss experience, the experience of clients and industry experience. More judgmental techniques are used in lines when statistical data is insufficient or unavailable. Estimates reflect implicit or explicit assumptions regarding the potential effects of future economic and social inflation, judicial decisions, law changes, and recent trends in these factors.  In some of the Company’s markets, and where the Company acts as a reinsurer, the timing and amount of information reported about underlying claims is in the control of third parties.  This can also affect estimations and cause re-estimation as new information becomes available.

Reinsurance recoverables recorded with respect to insurance losses ceded to reinsurers under reinsurance contracts are similarly subject to estimation error. In addition to the factors cited above, estimates of reinsurance recoverables may prove uncollectable if the reinsurer is unable or unwilling to perform under the contract. Reinsurance contracts do not relieve the ceding company of its obligations to indemnify its own policyholders.

The Company’s consolidated balance sheet includes estimated unpaid losses and loss adjustment expenses of $4.1 billion and reinsurance recoverable on unpaid losses of $1.5 billion at September 30, 2002. Due to the inherent uncertainties in the process of estimating these amounts, the actual ultimate amounts may differ from the recorded amounts. A small percentage change in estimates of this magnitude will result in a material effect on reported earnings. For instance a 5% change in the September 30, 2002 net unpaid losses and loss adjustment expenses would produce a $127 million change to pre-tax earnings. Future effects from changes in these

22

estimates will be recorded as a component of loss and loss adjustment expenses in the period of the change.

The Company records deferred income taxes as assets on its consolidated balance sheet to reflect the net tax effect of the temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and their respective tax bases.  At September 30, 2002 the value of this asset was $68 million, net of a valuation allowance of $46 million.  In recording this deferred tax asset, management has made estimates and judgments that future taxable income will be sufficient to realize the value of the deferred tax asset.

The Company’s consolidated balance sheet as of September 30, 2002 includes goodwill of acquired businesses of approximately $357 million. These amounts have been recorded as a result of prior business acquisitions accounted for under the purchase method of accounting.  Prior to 2002 goodwill from each acquisition was generally amortized as a charge to earnings over periods of 20 to 40 years. Under Statement No. 142, which was adopted by the Company as of January 1, 2002, goodwill is tested for impairment at least annually in lieu of amortization.  The Company will complete the annual test for impairment during the fourth quarter of 2002  based upon results of operations through September 30, 2002.

A significant amount of judgment is required in performing goodwill impairment tests. Such tests include estimating the fair value of the Company’s reporting units. Under Statement No. 142, fair value refers to the amount for which the entire reporting unit may be bought or sold. There are several methods of estimating reporting unit values, including market quotations, asset and liability fair values and other valuation techniques, such as discounted cash flows and multiples of earnings or revenues. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, then individual assets, including identifiable intangible assets and liabilities of the reporting unit are estimated at fair value. Any excess of the estimated fair value of the reporting unit over the estimated fair value of net assets would establish the implied value of goodwill. Any excess of the recorded amount of goodwill over the implied value is charged-off as an impairment loss.

Management periodically reviews its estimates and assumptions including the adequacy of reserves for unpaid losses and loss adjustment expenses, reinsurance allowance for doubtful accounts, as well as the recoverability of deferred tax assets and intangible assets. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in equity prices, interest rates, foreign exchange rates and commodity prices. The Company’s consolidated balance sheets include assets and liabilities whose estimated fair values are subject to market risk.  The primary market risks to the Company are equity price risk associated with investments in equity securities, interest rate risk associated with investments in fixed maturities and foreign exchange risk at Markel International.   The Company has no material commodity risk.

The Company primarily manages foreign exchange risk by matching assets and liabilities in each foreign currency as closely as possible.  Significant estimations and assumptions are required when establishing insurance balances such as reinsurance recoverables and reserves for unpaid losses and loss adjustment expenses. As a result, matching of assets and liabilities by currency is subject to change as actual results emerge.

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During 2002, the United Kingdom Sterling (U.K. Sterling)/United States Dollar exchange rate increased.  As part of the process of matching assets and liabilities by currency, the Company underestimated its U.K. Sterling net liabilities (U.K. Sterling assets less U.K. Sterling liabilities).  The foreign exchange impact of this mismatch was recorded through other comprehensive income as an unrealized foreign currency loss.  The Company continually works to balance its asset and liabilities by major currencies, however, due to the estimates and assumptions required, mismatches by currency are possible in the future. 

The Company’s market risks at September 30, 2002 have not materially changed from those identified at December 31, 2001.

Item 4.   Controls and Procedures

Within the ninety days prior to the date of this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and the Executive Vice President and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures are effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the date the Company carried out this evaluation.

Safe Harbor and Cautionary Statement

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 be materially impacted by 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 man-made or natural catastrophes, no significant changes in products or personnel and no adverse changes in market conditions;

• 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;

• Industry and economic conditions can affect the ability and/or willingness of reinsurers to pay balances due;

• The Company continues to closely monitor Discontinued Lines and 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 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; and

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• Rating agency actions can significantly impact the Company’s ability to write business, access capital markets and maintain continued access to the Company’s existing credit facility.

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.

PART II.   OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.

During the third quarter of 2002, 1,423 Markel common shares were issued pursuant to awards under the Octavian Option Plan to current and former employees of Markel Syndicate Management, a subsidiary of Markel International. These awards were earned by certain employees for their past services to Markel Syndicate Management and were based on profits prior to the date of Markel’s acquisition of Terra Nova (Bermuda) Holdings Ltd. (now known as Markel International). Although the awards are structured as stock options, no consideration is paid by the recipient upon the receipt or exercise of the options. Following a recent review of the circumstances of these grants, the Company has concluded that registration of the underlying shares may have been required under the Securities Act of 1933. The Company intends to promptly file a registration statement with respect to the remaining options granted but not yet exercised under the Octavian Option Plan. The total number of shares issued to date by the Company pursuant to the Octavian Option Plan is 13,010.

During the third quarter of 2002, 500 Markel common shares were issued pursuant to options with an exercise price of $36.25 per share. These options were granted under Markel’s 1986 stock option plan for which a registration statement on Form S-8 was in effect. At the time of the Company’s acquisition of Markel International a new holding company was formed and under applicable rules this new holding company was required to file a replacement registration statement with respect to options previously granted under the 1986 Plan (which plan expired as to new grants in 1996). Through oversight this replacement registration statement was not filed and as a result option exercises under options granted pursuant to the 1986 Plan since March 24, 2000 have occurred without registration or an appropriate exemption from registration. The Company intends to promptly file a registration statement with respect to remaining options granted but not yet exercised under the 1986 Plan. The total number of shares issued since March 24, 2000 pursuant to options granted under the 1986 Plan is 17,465 at exercise prices ranging from $11.625 to $144.30 per share for total proceeds to the Company of approximately $600,000.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

The Exhibits to this Report are listed in the Exhibit Index.

(b)  On August 7, 2002, the Company filed a report on Form 8-K reporting under Item 9 announcing that the Principal Executive Officer, Alan I. Kirshner, and the Principal Financial Officer, Darrell D. Martin, of Markel Corporation (i) submitted to the Securities and Exchange Commission sworn statements pursuant to Securities and Exchange Commission Order No. 4-460 and (ii) signed certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which certifications accompanied the Company’s report on Form 10Q for the quarterly period ended June 30, 2002.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, this 6^th day of November, 2002.

THE COMPANY
By	/s/ ALAN I. KIRSHNER
	Alan I. Kirshner Chief Executive Officer (Principal Executive Officer)
By	/s/ ANTHONY F. MARKEL
	Anthony F. Markel President (Principal Operating Officer)
By	/s/ STEVEN A. MARKEL
	Steven A. Markel Vice Chairman
By	/s/ DARRELL D. MARTIN
	Darrell D. Martin Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Alan I. Kirshner, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Markel Corporation;

2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.  The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:     November 6, 2002	/s/ ALAN I. KIRSHNER
	Alan I. Kirshner Chief Executive Officer

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CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

I, Darrell D. Martin, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Markel Corporation;

2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.  The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:     November 6, 2002	/s/ DARRELL D. MARTIN
	Darrell D. Martin Executive Vice President and Chief Financial Officer

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Exhibit Index

Number		Description
3(i)		Amended and Restated Articles of Incorporation, as amended (3.1)a
3(ii)		Bylaws, as amended (3.2)b
4(i)		Credit Agreement dated December 21, 1999, among Markel Corporation, the lenders named therein and First Union National Bank, as Agent
4(ii)		First Amendment dated February 4, 2000, to Credit Agreement dated December 21, 1999 among Markel Corporation, the lenders named therein and First Union National Bank, as Agent
4(iii)		Second Amendment and Consent dated March 17, 2000, to Credit Agreement dated December 21, 1999 among Markel Corporation, the lenders named therein and First Union National Bank, as Agent
4(iv)		Third Amendment dated August 2, 2000, to Credit Agreement dated December 21, 1999 among Markel Corporation, the lenders named therein and First Union National Bank, as Agent
4(v)		Fourth Amendment dated March 23, 2001, to Credit Agreement dated December 21, 1999 among Markel Corporation, the lenders named therein and First Union National Bank, as Agent
		The registrant hereby agrees to furnish to the Securities and Exchange Commission a copy of all instruments defining the rights of holders of convertible notes payable and long-term debt of the registrant and subsidiaries shown on the Consolidated Balance Sheet of the registrant at September 30, 2002 and the respective Notes thereto, included in the Quarterly Report on Form 10-Q.
99.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
a.	Incorporated by reference from the exhibit shown in parentheses filed with the Commission in the Registrant’s report on Form 10-Q for the quarter ended March 31, 2000.
b.	Incorporated by reference from Exhibit 4.2 to S-4 Registration Statement No. 333-88609, dated October 7, 1999

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