UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2004

or

¨ 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	54-1959284
(State or other jurisdiction of incorporation or organization)	(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 for 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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Number of shares of the registrant’s common stock outstanding at October 29, 2004: 9,847,253

Markel Corporation

Form 10-Q

Index

		Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
	Consolidated Balance Sheets— September 30, 2004 and December 31, 2003	3
	Consolidated Statements of Operations and Comprehensive Income (Loss)— Quarters and Nine Months Ended September 30, 2004 and 2003	4
	Consolidated Statements of Changes in Shareholders’ Equity— Nine Months Ended September 30, 2004 and 2003	5
	Consolidated Statements of Cash Flows— Nine Months Ended September 30, 2004 and 2003	6
	Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
	Critical Accounting Policies	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		19
Item 4. Controls and Procedures		20
Safe Harbor and Cautionary Statement		20
PART II. OTHER INFORMATION
Item 6. Exhibits		21
Signatures		22
Exhibit Index		23

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

	September 30, 2004			December 31, 2003
	(dollars in thousands)
ASSETS
Investments, available-for-sale, at estimated fair value:
Fixed maturities (amortized cost of $4,171,190 in 2004 and $3,840,339 in 2003)	$	4,267,467		$	3,926,652
Equity securities (cost of $755,752 in 2004 and $638,445 in 2003)		1,088,883			968,777
Short-term investments (estimated fair value approximates cost)		205,533			82,012
Total Investments, Available-For-Sale		5,561,883			4,977,441
Cash and cash equivalents		356,623			372,511
Receivables		464,458			450,920
Reinsurance recoverable on unpaid losses		1,618,605			1,614,114
Reinsurance recoverable on paid losses		112,637			156,493
Deferred policy acquisition costs		211,887			200,284
Prepaid reinsurance premiums		182,589			213,403
Intangible assets		342,617			357,317
Other assets		243,204			189,750
Total Assets	$	9,094,503		$	8,532,233
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unpaid losses and loss adjustment expenses	$	5,347,851		$	4,929,713
Unearned premiums		1,069,305			1,060,188
Payables to insurance companies		94,654			150,159
Convertible notes payable (estimated fair value of $111,000 in 2004 and $99,000 in 2003)		93,829			90,601
Senior long-term debt (estimated fair value of $660,000 in 2004 and $562,000 in 2003)		609,761			521,510
Junior Subordinated Deferrable Interest Debentures (estimated fair value of $165,000 in 2004 and $153,000 in 2003)		150,000			150,000
Other liabilities		223,153			247,783
Total Liabilities		7,588,553			7,149,954
Shareholders’ equity:
Common stock		741,978			737,356
Retained earnings		486,794			375,041
Accumulated other comprehensive income
Net unrealized holding gains on fixed maturities and equity securities, net of tax expense of $150,293 in 2004 and $145,826 in 2003		279,115			270,819
Cumulative translation adjustments, net of tax benefit of $1,043 in 2004 and $505 in 2003		(1,937	)		(937	)
Total Shareholders’ Equity		1,505,950			1,382,279
Commitments and contingencies
Total Liabilities and Shareholders’ Equity	$	9,094,503		$	8,532,233

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,
	2004			2003			2004			2003
	(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums	$	521,985		$	475,995		$	1,542,803		$	1,347,221
Net investment income		51,222			46,379			147,910			137,079
Net realized gains (losses) from investment sales		(253	)		(7,360	)		6,937			35,843
Total Operating Revenues		572,954			515,014			1,697,650			1,520,143
OPERATING EXPENSES
Losses and loss adjustment expenses		381,802			378,868			1,009,930			938,820
Underwriting, acquisition and insurance expenses		169,255			147,102			491,012			420,895
Amortization of intangible assets		—			—			—			4,127
Total Operating Expenses		551,057			525,970			1,500,942			1,363,842
Operating Income (Loss)		21,897			(10,956	)		196,708			156,301
Interest expense		14,495			13,720			40,317			38,756
Income (Loss) Before Income Taxes		7,402			(24,676	)		156,391			117,545
Income tax expense (benefit)		(6,423	)		(8,143	)		41,253			38,790
Net Income (Loss)	$	13,825		$	(16,533	)	$	115,138		$	78,755
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on securities, net of taxes:
Net holding gains (losses) arising during the period	$	56,133		$	(13,224	)	$	12,805		$	82,705
Less reclassification adjustments for gains (losses) included in net income (loss)		165			4,784			(4,509	)		(23,298	)
Net unrealized gains (losses)		56,298			(8,440	)		8,296			59,407
Currency translation adjustments, net of taxes		(289	)		(2,750	)		(1,000	)		3,975
Total Other Comprehensive Income (Loss)		56,009			(11,190	)		7,296			63,382
Comprehensive Income (Loss)	$	69,834		$	(27,723	)	$	122,434		$	142,137
NET INCOME (LOSS) PER SHARE
Basic	$	1.40		$	(1.68	)	$	11.69		$	8.00
Diluted	$	1.40		$	(1.68	)	$	11.68		$	7.99

See accompanying notes to consolidated financial statements.

4

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

	Nine Months Ended September 30,
	2004			2003
	(dollars in thousands)
COMMON STOCK
Balance at beginning of period	$	737,356		$	736,246
Issuance of common stock and other equity transactions		4,622			798
Balance at end of period	$	741,978		$	737,044
RETAINED EARNINGS
Balance at beginning of period	$	375,041		$	251,568
Net income		115,138			78,755
Repurchase of common stock		(3,385	)		(1	)
Balance at end of period	$	486,794		$	330,322
ACCUMULATED OTHER COMPREHENSIVE INCOME
Unrealized gains:
Balance at beginning of period	$	270,819		$	179,170
Net unrealized holding gains arising during the period, net of taxes		8,296			59,407
Balance at end of period		279,115			238,577
Cumulative translation adjustments:
Balance at beginning of period		(937	)		(7,873	)
Currency translation adjustments, net of taxes		(1,000	)		3,975
Balance at end of period		(1,937	)		(3,898	)
Balance at end of period	$	277,178		$	234,679
SHAREHOLDERS’ EQUITY AT END OF PERIOD	$	1,505,950		$	1,302,045

See accompanying notes to consolidated financial statements.

5

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2004			2003
	(dollars in thousands)
OPERATING ACTIVITIES
Net Income	$	115,138		$	78,755
Adjustments to reconcile net income to net cash provided by operating activities		378,747			371,997
Net Cash Provided By Operating Activities		493,885			450,752
INVESTING ACTIVITIES
Proceeds from sales of fixed maturities and equity securities		2,066,299			3,398,346
Proceeds from maturities, calls and prepayments of fixed maturities		158,575			185,442
Cost of fixed maturities and equity securities purchased		(2,690,032	)		(4,141,915	)
Net change in short-term investments		(123,521	)		(36,212	)
Other		(5,447	)		(3,294	)
Net Cash Used By Investing Activities		(594,126	)		(597,633	)
FINANCING ACTIVITIES
Additions to senior long-term debt		196,816			247,282
Repayments and repurchases of senior long-term debt		(110,000	)		(175,000	)
Repurchase of common stock		(3,385	)		(1	)
Other		922			798
Net Cash Provided By Financing Activities		84,353			73,079
Decrease in cash and cash equivalents		(15,888	)		(73,802	)
Cash and cash equivalents at beginning of period		372,511			444,236
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	356,623		$	370,434

See accompanying notes to consolidated financial statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Principles of Consolidation

The consolidated balance sheet as of September 30, 2004, the related consolidated statements of operations and comprehensive income (loss) for the quarters and nine months ended September 30, 2004 and 2003, the consolidated statements of changes in shareholders’ equity and the consolidated statements of cash flows for the nine months ended September 30, 2004 and 2003, are unaudited. In the opinion of management, all adjustments necessary for 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, 2003 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 2003 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 2004 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,
	2004		2003			2004		2003
Net income (loss), as reported (basic and diluted)	$	13,825	$	(16,533	)	$	115,138	$	78,755
Average common shares outstanding		9,847		9,845			9,850		9,841
Dilutive potential common shares		7		—			5		18
Average diluted shares outstanding		9,854		9,845			9,855		9,859

3. Stock Compensation Plans

The Company applies the intrinsic value recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for stock-based compensation plans. The Company has adopted the disclosure-only provisions of Financial Accounting Standards Board Statement (Statement) No. 123, Accounting for Stock-Based Compensation, as amended.

Stock-based compensation cost, net of taxes, included in net income (loss) under APB Opinion No. 25 was $0.2 million and $0.9 million, respectively, for the quarter and nine months ended September 30, 2004 and $0.1 million and $0.5 million, respectively, for the same periods in 2003. Under the fair value method principles of Statement No. 123, pro forma stock-based compensation cost, net of taxes, and pro forma net income (loss) would not have differed from reported amounts for the quarters and nine months ended September 30, 2004 and 2003.

7

4. Reinsurance

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

	Quarter Ended September 30,
	2004						2003
	Written			Earned			Written			Earned
Direct	$	617,669		$	605,395		$	645,600		$	595,705
Assumed		22,102			38,413			25,834			29,578
Ceded		(114,366	)		(121,823	)		(147,650	)		(149,288	)
Net premiums	$	525,405		$	521,985		$	523,784		$	475,995
	Nine Months Ended September 30,
	2004						2003
	Written			Earned			Written			Earned
Direct	$	1,796,525		$	1,811,796		$	1,814,409		$	1,707,705
Assumed		140,880			117,506			120,616			92,379
Ceded		(356,068	)		(386,499	)		(460,407	)		(452,863	)
Net premiums	$	1,581,337		$	1,542,803		$	1,474,618		$	1,347,221

Incurred losses and loss adjustment expenses are net of reinsurance recoverables (ceded incurred losses and loss adjustment expenses) of $102.1 million and $56.3 million, respectively, for the quarters ended September 30, 2004 and 2003 and $246.2 million and $156.4 million, respectively, for the nine months ended September 30, 2004 and 2003.

5. Junior Subordinated Deferrable Interest Debentures (8.71% Junior Subordinated Debentures)

On January 8, 1997, the Company arranged the sale of $150 million of Company-Obligated Mandatorily Redeemable Preferred Capital Securities (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 the Company’s 8.71% Junior Subordinated Debentures due January 1, 2046, issued to the Trust under an indenture dated January 13, 1997 (the Indenture). The 8.71% Junior Subordinated Debentures are the sole assets of the Trust. The Company has the right to defer interest payments on the 8.71% Junior Subordinated Debentures for up to five years. The 8.71% Capital Securities and related 8.71% Junior Subordinated 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. No other subsidiary of the Company guarantees the 8.71% Junior Subordinated Debentures or the 8.71% Capital Securities. In the event of default under the Indenture, the Trust may not make distributions on, or repurchases of, the Trust’s common securities. During a period in which the Company elects to defer interest payments or in the event of default under the Indenture, the Company may not make distributions on, or repurchases of, the Company’s capital stock or debt securities ranking equal or junior to the 8.71% Junior Subordinated Debentures.

8

6. 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.

The Company’s potential obligation to accrue contingent additional principal terminated in accordance with the terms of the LYONs on June 5, 2004.

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 and accrued original issue discount of 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. The shares that would be issued if the LYONs were converted are not included in the Company’s calculation of diluted earnings per share for the quarter and nine months ended September 30, 2004 and 2003, as none of the conversion events had occurred. See Note 13 for discussion of a recently issued accounting pronouncement regarding contingently convertible instruments.

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

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.

7. Unsecured Senior Notes

On August 13, 2004, the Company issued $200 million of 7.35% unsecured senior notes due August 15, 2034. The unsecured senior notes were issued under an existing shelf registration statement. Net proceeds to the Company were $196.8 million and were primarily used to repay $110.0 million outstanding under the Company’s revolving credit facility.

9

8. Comprehensive Income (Loss)

Other comprehensive income (loss) is primarily composed of net holding gains (losses) on securities arising during the period less reclassification adjustments for gains (losses) included in net income (loss). Other comprehensive income (loss) also includes foreign currency translation adjustments. The related tax expense (benefit) on net holding gains (losses) on securities arising during the period was $30.2 million and $6.9 million, respectively, for the quarter and nine months ended September 30, 2004 and $(7.1) million and $44.5 million, respectively, for the same periods in 2003. The related tax expense (benefit) on the reclassification adjustments for gains (losses) included in net income (loss) was $(0.1) million and $2.4 million, respectively, for the quarter and nine months ended September 30, 2004 and $(2.6) million and $12.5 million, respectively, for the same periods in 2003. The related tax expense (benefit) on foreign currency translation adjustments was $(0.2) million and $(0.5) million, respectively, for the quarter and nine months ended September 30, 2004 and $(1.5) million and $2.1 million, respectively, for the same periods in 2003.

9. Segment Reporting Disclosures

The Company operates in three segments of the specialty insurance marketplace: the Excess and Surplus Lines, the Specialty Admitted and the London markets.

All investing activities are included in the Investing segment. Discontinued programs and non-strategic insurance subsidiaries are included in Other 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 each of the Company’s operating segments 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. Underwriting profit or (loss) provides a basis for management to evaluate the Company’s underwriting performance. Segment profit for the Investing segment is measured by net investment income and net realized gains or losses.

The Company does not allocate assets to the Excess and Surplus Lines, Specialty Admitted and London Insurance Market operating segments for management reporting purposes. The total investment portfolio, cash and cash equivalents are allocated to the Investing segment. The Company does not allocate capital expenditures for long-lived assets to any of its operating segments for management reporting purposes.

10

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

Quarter Ended September 30, 2004

	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Investing			Other			Consolidated
Gross premium volume	$	374,137		$	89,953		$	170,467		$	—		$	5,214		$	639,771
Net premiums written		292,134			85,312			142,906			—			5,053			525,405
Earned premiums	$	290,842		$	68,632		$	152,145		$	—		$	10,366		$	521,985
Losses and loss adjustment expenses		180,972			41,865			148,304			—			10,661			381,802
Underwriting, acquisition and insurance expenses		84,839			18,855			61,849			—			3,712			169,255
Underwriting profit (loss)		25,031			7,912			(58,008	)		—			(4,007	)		(29,072	)
Net investment income		—			—			—			51,222			—			51,222
Net realized losses from investment sales		—			—			—			(253	)		—			(253	)
Segment profit (loss)	$	25,031		$	7,912		$	(58,008	)	$	50,969		$	(4,007	)	$	21,897
Interest expense																	14,495
Income before income taxes																$	7,402
U.S. GAAP combined ratio*		91	%		89	%		138	%		—			139	%		106	%

Quarter Ended September 30, 2003

	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Investing			Other			Consolidated
Gross premium volume	$	398,581		$	81,095		$	183,184		$	—		$	8,574		$	671,434
Net premiums written		291,435			76,991			150,257			—			5,101			523,784
Earned premiums	$	266,800		$	60,467		$	140,538		$	—		$	8,190		$	475,995
Losses and loss adjustment expenses		185,107			37,892			93,137			—			62,732			378,868
Underwriting, acquisition and insurance expenses		80,191			16,494			49,046			—			1,371			147,102
Underwriting profit (loss)		1,502			6,081			(1,645	)		—			(55,913	)		(49,975	)
Net investment income		—			—			—			46,379			—			46,379
Net realized losses from investment sales		—			—			—			(7,360	)		—			(7,360	)
Segment profit (loss)	$	1,502		$	6,081		$	(1,645	)	$	39,019		$	(55,913	)	$	(10,956	)
Interest expense																	13,720
Loss before income taxes																$	(24,676	)
U.S. GAAP combined ratio*		99	%		90	%		101	%		—			783	%		110	%

11

Nine Months Ended September 30, 2004

	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Investing		Other			Consolidated
Gross premium volume	$	1,114,808		$	235,728		$	548,139		$	—	$	38,730		$	1,937,405
Net premiums written		870,499			222,527			457,018			—		31,293			1,581,337
Earned premiums	$	857,512		$	196,373		$	465,517		$	—	$	23,401		$	1,542,803
Losses and loss adjustment expenses		489,152			114,193			383,417			—		23,168			1,009,930
Underwriting, acquisition and insurance expenses		249,402			59,578			171,243			—		10,788			491,011
Underwriting profit (loss)		118,958			22,601			(89,143	)		—		(10,555	)		41,861
Net investment income		—			—			—			147,910		—			147,910
Net realized gains from investment sales		—			—			—			6,937		—			6,937
Segment profit (loss)	$	118,958		$	22,601		$	(89,143	)	$	154,847	$	(10,555	)	$	196,708
Interest expense																40,317
Income before income taxes															$	156,391
U.S. GAAP combined ratio*		86	%		88	%		119	%		—		145	%		97	%

Nine Months Ended September 30, 2003

	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Investing		Other			Consolidated
Gross premium volume	$	1,135,992		$	212,533		$	548,762		$	—	$	37,738		$	1,935,025
Net premiums written		812,910			199,778			435,846			—		26,084			1,474,618
Earned premiums	$	750,716		$	172,541		$	404,753		$	—	$	19,211		$	1,347,221
Losses and loss adjustment expenses		480,667			105,824			268,742			—		83,587			938,820
Underwriting, acquisition and insurance expenses		211,878			54,908			143,977			—		10,132			420,895
Underwriting profit (loss)		58,171			11,809			(7,966	)		—		(74,508	)		(12,494	)
Net investment income		—			—			—			137,079		—			137,079
Net realized gains from investment sales		—			—			—			35,843		—			35,843
Segment profit (loss)	$	58,171		$	11,809		$	(7,966	)	$	172,922	$	(74,508	)	$	160,428
Amortization of intangible assets																4,127
Interest expense																38,756
Income before income taxes															$	117,545
U.S. GAAP combined ratio*		92	%		93	%		102	%		—		488	%		101	%

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

12

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

	As of
	September 30, 2004		December 31, 2003
Segment Assets
Investing	$	5,918,506	$	5,349,952
Other		3,175,997		3,182,281
Total Assets	$	9,094,503	$	8,532,233

10. Income Taxes

During the quarter ended September 30, 2004, the Company’s 2000 federal income tax year was closed. As a result, management determined that tax liabilities were $22.5 million less than previously estimated. The Company recognized a nonrecurring tax benefit of $4.1 million, reduced goodwill related to the Markel International acquisition by $14.7 million and increased additional paid in capital related to closed stock option plans by $3.7 million.

11. Goodwill and Other Intangible Assets

Statement No. 142, Goodwill and Other Intangible Assets, requires goodwill to be tested at least annually for impairment. The Company completes its annual test during the fourth quarter of each year based upon the results of operations through September 30. There was no indication of goodwill impairment as of September 30, 2004 or December 31, 2003.

Intangible assets other than goodwill were fully amortized as of June 30, 2003. The amortization expense for intangible assets was $4.1 million for the nine months ended September 30, 2003.

The carrying amounts of goodwill by reporting unit at September 30, 2004 were as follows: Excess and Surplus Lines, $81.8 million, and London Insurance Market, $260.8 million. The carrying amounts of goodwill by reporting unit at December 31, 2003 were as follows: Excess and Surplus Lines, $81.8 million, and London Insurance Market, $275.5 million. The carrying amount of goodwill for the London Insurance Market was reduced in the third quarter of 2004 by $14.7 million as discussed in Note 10.

12. 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 by Palladium Insurance Limited and Bank of America, N.A. seeking approximately $27 million plus exemplary damages in connection with alleged reinsurance agreements. The discovery phase of this matter recently ended. The case is not expected to be ready for trial before 2005. The Company believes it has numerous defenses to this claim, including the defense that the alleged reinsurance agreements and insurance policies were not valid. The Company intends to vigorously defend this matter.

This and other contingencies arise in the normal conduct of the Company’s 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.

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13. Recently Issued Accounting Pronouncement

In September 2004, the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 04-8 (Issue No. 04-8) which addresses the effect of contingently convertible instruments on diluted earnings per share. The Company’s convertible notes payable are considered to be a contingently convertible instrument based upon the criteria established by Issue No. 04-8. When Issue No. 04-8 becomes effective, the Company will be required to restate previously reported diluted earnings per share. It is anticipated this rule will take effect during the fourth quarter of 2004. If the proposed accounting treatment for the convertible notes payable had been in effect at the end of the third quarter, the Company’s diluted earnings per share for the nine months ended September 30, 2004 would be further diluted by approximately 2%.

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

The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of Markel Corporation and all subsidiaries (the Company).

Critical Accounting Policies

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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates, by necessity, are based on assumptions about numerous factors.

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

Readers are urged to review the Company’s 2003 annual report on Form 10-K for a more complete description of the Company’s critical accounting policies.

The Company

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 competes in three segments of the specialty insurance marketplace: the Excess & Surplus Lines, the Specialty Admitted and the London markets. The Excess and Surplus Lines segment is comprised of five underwriting units, the Specialty Admitted segment consists of two underwriting units and the London Insurance Market segment is comprised of the ongoing operations of Markel International.

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The Excess and Surplus Lines segment writes property and casualty insurance for non-standard 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. The underwriting units in this segment write specialty program insurance for well-defined niche markets and personal and commercial property and liability coverages.

The Company participates in the London market through Markel Capital Limited and Markel International Insurance Company Limited, two wholly-owned subsidiaries. Markel Capital Limited is the corporate capital provider for Markel Syndicate 3000 at Lloyd’s. Markel Syndicate Management Limited, a wholly-owned subsidiary, manages the Company’s Lloyd’s operations. The London Insurance Market segment writes specialty property, casualty, marine and aviation insurance and reinsurance.

Discontinued lines of business and non-strategic insurance subsidiaries are included in Other for segment reporting purposes. Other consisted primarily of discontinued Markel International programs and Corifrance, a wholly-owned subsidiary, for the quarters and nine months ended September 30, 2004 and 2003.

Results of Operations

The following information presents results of operations for the quarter and nine months ended September 30, 2004 compared to the quarter and nine months ended September 30, 2003.

Underwriting Results

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

	Quarter Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Gross premium volume	$	639,771		$	671,434		$	1,937,405		$	1,935,025
Net premiums written		525,405			523,784			1,581,337			1,474,618
Net retention		82	%		78	%		82	%		76	%
Earned premiums		521,985			475,995			1,542,803			1,347,221
Losses and loss adjustment expenses		381,802			378,868			1,009,930			938,820
Underwriting, acquisition and insurance expenses		169,255			147,102			491,011			420,895
Underwriting profit (loss)*		(29,072	)		(49,975	)		41,861			(12,494	)
U.S. GAAP Combined Ratios
Excess and Surplus Lines		91	%		99	%		86	%		92	%
Specialty Admitted		89	%		90	%		88	%		93	%
London Insurance Market		138	%		101	%		119	%		102	%
Other		139	%		783	%		145	%		488	%
Markel Corporation (Consolidated)		106	%		110	%		97	%		101	%

* See note 9 of the notes to consolidated financial statements for a discussion of underwriting profit or (loss) and a reconciliation of this amount to income (loss) before income taxes. The property and casualty insurance

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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 U.S. GAAP as a measure of profitability.

Underwriting profits are a key component of the Company’s strategy to grow book value per share. The Company believes that the ability to achieve consistent underwriting profits demonstrates knowledge and expertise, commitment to superior customer service and the ability to manage insurance risk. The Company uses underwriting profit or (loss) as a basis of evaluating its underwriting performance.

The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition and insurance expenses to earned premiums. A combined ratio of less than 100% indicates an underwriting profit, while a combined ratio of greater than 100% reflects an underwriting loss.

The Company reported a combined ratio of 106% and 97%, respectively, for the quarter and nine months ended September 30, 2004 compared to a combined ratio of 110% and 101%, respectively, for the same periods in 2003. For the quarter and nine months ended September 30, 2004, the improved underwriting performance for the Excess and Surplus Lines and Specialty Admitted segments was partially offset by loss development in the London Insurance Market segment. The third quarter and nine month results for 2004 reflected approximately $80 million of pre-tax net losses related to Hurricanes Charley, Frances, Ivan and Jeanne.

The combined ratios for the Excess and Surplus Lines segment improved for both the quarter and nine months ended September 30, 2004 and included approximately $26 million of net losses related to the 2004 hurricanes. The improvement for both periods was due to more favorable development of prior years’ loss reserves in 2004 compared to 2003. In 2003, underwriting results included a $50 million increase in prior years’ loss reserves at the Investors Brokered Excess and Surplus Lines unit.

The Specialty Admitted segment produced improved underwriting results for the quarter and nine months ended September 30, 2004 compared to the same periods of 2003. The combined ratios for the quarter and nine months ended September 30, 2004 included approximately $9 million of net losses from the 2004 hurricanes. The Specialty Admitted segment continues to benefit from lower current year losses, more favorable development of prior years’ loss reserves and lower expense ratios.

The London Insurance Market segment’s combined ratios for the quarter and nine months ended September 30, 2004 included approximately $45.0 million of net losses for the 2004 hurricanes and an $8.0 million provision for dispute resolution. The underwriting loss for the nine months ended September 30, 2004 also included $30.0 million of loss reserve increases reported during the first quarter of 2004.

The underwriting loss from Other was $4.0 million for the quarter ended September 30, 2004 compared to $55.9 million for 2003. The Other underwriting loss for the nine months ended September 30, 2004 was $10.6 million compared to $74.5 million for the same period of 2003. During the third quarter of 2004, the Company completed a review of asbestos and environmental exposures in both its U.S. and international operations. While the legal environment and process for resolving asbestos and environmental claims continues to be adverse, no adjustments to loss reserves resulted from this review. The third quarter of 2003 included $55.0 million of reserve increases for asbestos and environmental exposures. Asbestos and environmental reserves are subject to significant uncertainty due to potential loss severity and frequency resulting from the uncertain and

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unfavorable legal climate. The Company seeks to establish appropriate reserve levels for asbestos and environmental exposures; however, these reserves could be subject to increases in the future.

Premiums

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

Gross Premium Volume

Quarter Ended September 30,					Nine Months Ended September 30,
2004		2003		(dollars in thousands)	2004		2003
$	374,137	$	398,581	Excess and Surplus Lines	$	1,114,808	$	1,135,992
	89,953		81,095	Specialty Admitted		235,728		212,533
	170,467		183,184	London Insurance Market		548,139		548,762
	5,214		8,574	Other		38,730		37,738
$	639,771	$	671,434	Total	$	1,937,405	$	1,935,025

Gross written premium for the third quarter of 2004 declined 5% compared to the same period of 2003. For the nine months ended September 30, 2004, gross written premium was flat compared to 2003. The Company has experienced some market pressure to reduce prices in select lines of business on both new and renewal accounts. When the Company believes the prevailing market rates will not support its underwriting profit targets, the business is not written. The Company will not sacrifice underwriting profits to achieve top line growth and expects 2004 gross premium volume to be flat or slightly down compared to 2003.

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

Earned Premiums

Quarter Ended September 30,					Nine Months Ended September 30,
2004		2003		(dollars in thousands)	2004		2003
$	290,842	$	266,800	Excess and Surplus Lines	$	857,512	$	750,716
	68,632		60,467	Specialty Admitted		196,373		172,541
	152,145		140,538	London Insurance Market		465,517		404,753
	10,366		8,190	Other		23,401		19,211
$	521,985	$	475,995	Total	$	1,542,803	$	1,347,221

Earned premium for the third quarter and nine months ended September 30, 2004 increased 10% and 15%, respectively, compared to the same periods of 2003. This increase in both periods of 2004 is due to higher gross premium volume over the past two years and higher retentions compared to 2003 in all segments.

Net Retention

The Company purchases reinsurance in order to reduce its retention on individual risks and to enable it to write policies with sufficient limits to meet policyholder needs. The Company’s underwriting philosophy seeks to offer products with limits that do not require significant amounts of reinsurance. Net written premium was $525.4 million for the third quarter of 2004 compared to $523.8 million for the same period of 2003. For the nine months ended September 30, 2004, net written premium was $1.6 billion compared to $1.5 billion in 2003. Net retention of gross written premium has increased, consistent with the Company’s strategy to retain more of its underwriting profits. Net retention of gross written premium for the third quarter of 2004 was 82% compared to 78% for 2003. For the nine months ended September 30, 2004 net retention of gross written premium was 82% compared to 76% for the same period of 2003. The increase was primarily due to changes in the mix of premium writings and purchasing less reinsurance in both the Excess and Surplus Lines and the London Insurance Market segments during 2004 compared to 2003.

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Investment Results

Third quarter 2004 net investment income was $51.2 million compared to $46.4 million in the prior year. Net investment income for the nine months ended September 30, 2004 was $147.9 million compared to $137.1 million in 2003. In both periods of 2004, a larger investment portfolio offset lower investment yields.

Net realized losses for the quarter ended September 30, 2004 were $0.3 million compared to $7.4 million in 2003. For the nine months ended September 30, 2004, net realized gains were $6.9 million compared to $35.8 million for the same period last year. Variability in the timing of realized and unrealized investment gains and losses is to be expected.

Net realized losses for the quarter ended September 30, 2004 included $1.5 million of realized losses resulting from the write down of two equity securities. For the nine months ended September 30, 2004, net realized gains were partially offset by $3.2 million of realized losses resulting from the write down of three equity securities to their estimated fair value. These securities were deemed by management to have a decline in value that was other than temporary. For the quarter ended September 30, 2003, management determined there were no securities with a decline in value that was other than temporary. For the nine months ended September 30, 2003, net realized gains were partially offset by $15.0 million of realized losses resulting from the write down of one fixed income security and five equity securities to their estimated fair value. At September 30, 2004, the Company held securities with gross unrealized losses of approximately $14.1 million, or significantly less than 1% of the Company’s total investments, cash and cash equivalents. At September 30, 2004, all of these securities were reviewed and the Company believes there were no indications of other than temporary impairment.

Other Expenses

During the quarter ended September 30, 2004, the Company’s 2000 federal income tax year was closed. As a result, management determined that tax liabilities were $22.5 million less than previously estimated. The Company recognized a nonrecurring tax benefit of $4.1 million, reduced goodwill related to the Markel International acquisition by $14.7 million and increased additional paid in capital related to closed stock option plans by $3.7 million. Without regard to the nonrecurring benefit, the Company’s estimated annual effective tax rate was 29% for the nine months ended September 30, 2004 compared to 33% for the same period in 2003. The Company’s estimated annual effective rate differs from the statutory tax rate of 35% primarily as a result of tax exempt investment income.

Comprehensive Income (Loss)

Comprehensive income was $69.8 million for the third quarter of 2004 compared to comprehensive loss of $27.7 million for the same period of 2003. The improvement was primarily due to an increase in the market value of the Company’s investment portfolio and higher net income as a result of improved underwriting performance in the third quarter of 2004 compared to the same period of 2003. For the nine months ended September 30, 2004, comprehensive income was $122.4 million compared to $142.1 million in 2003. The decrease in comprehensive income was due to lower unrealized gains on the investment portfolio for the nine months ended September 30, 2004 compared to the same period of 2003 partially offset by higher net income as a result of a return to consolidated underwriting profits in 2004. Comprehensive income for the third quarter of 2004 includes a $0.3 million loss from currency translation adjustments, net of taxes, compared to a loss of $2.8 million for the same period of 2003. For the nine months ended September 30, 2004, the loss from currency translation adjustments, net of taxes, was $1.0 million compared to a gain of $4.0 million for the same period in 2003. The Company attempts to match assets and liabilities in original currencies to mitigate the impact of currency volatility.

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Financial Condition

At September 30, 2004, the Company’s investment portfolio increased approximately 11% to $5.9 billion from $5.3 billion at December 31, 2003. The Company reported net unrealized gains, net of taxes, on its fixed maturity and equity investments of $279.1 million at September 30, 2004 compared to $270.8 million at December 31, 2003. The fair market values of equity securities were $1.1 billion and $968.8 million, respectively, and represented 18% of the total investment portfolio at both September 30, 2004 and December 31, 2003.

Net cash provided by operating activities was $493.9 million for the nine months ended September 30, 2004 compared to $450.8 million for the same period in 2003. The increase was primarily due to increased cash flows from the Company’s international operations for the nine months ended September 30, 2004 compared to same period of 2003.

For the nine months ended September 30, 2004, the Company reported net cash provided by financing activities of $84.4 million compared to $73.1 million in 2003. The net cash provided by financing activities during the nine months ended September 30, 2004 was primarily due to a debt issuance during the third quarter, partially offset by the repayment of the outstanding balance under the Company’s revolving credit facility and the repurchase of 12,000 shares of the Company’s common stock. These repurchases were made in anticipation of the future issuance of the Company’s common stock to satisfy grants of Restricted Stock Units made to directors and officers under the Markel Corporation Omnibus Incentive Plan. The net cash provided by financing activities during the nine months ended September 30, 2003 was primarily the result of debt issuances during the first and second quarters of 2003, partially offset by the repayment of the outstanding balance under the Company’s revolving credit facility.

Prior to December 31, 2004, the Company expects to reallocate capital and liabilities among and between certain wholly-owned subsidiaries of Markel International by means of commutation and reinsurance agreements between the subsidiaries. The Company anticipates this transaction may require a capital contribution to Markel International of approximately $70 million.

The Company has access to various liquidity sources including dividends from its insurance subsidiaries, holding company investments and cash, undrawn capacity under its revolving credit facility and access to the debt and equity capital markets. Management believes that the Company has sufficient liquidity to meet its needs.

Shareholders’ equity at September 30, 2004 was $1.5 billion compared to $1.4 billion at December 31, 2003. Book value increased 9% to $152.93 per share primarily as a result of $115.1 million of net income for the nine months ended September 30, 2004.

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.

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The Company’s consolidated balance sheets include assets and liabilities with estimated fair values which 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 for its international operations. 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.

The Company’s market risks at September 30, 2004 have not materially changed from those identified at December 31, 2003.

Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chairman and 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-15 (Disclosure Controls).

The Company’s management, including the CEO and CFO, does not expect that its Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon the Company’s controls evaluation, the CEO and CFO have concluded that the Company’s Disclosure Controls provide reasonable assurance that the information required to be disclosed by the Company in its periodic reports is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

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Future actual results may materially differ from those in these statements because of many factors. Among other things:

• The impact of the events of September 11, 2001 will depend on the number of insureds and reinsureds affected by the events, the amount and timing of losses incurred and reported and questions of how coverage applies;

• The occurrence of additional terrorist activities could have a material impact on the Company and the insurance industry;

• The Company’s anticipated premium volume is based on current knowledge and assumes no significant man-made or natural catastrophes, no significant changes in products or personnel and no adverse changes in market conditions;

• The Company is legally required to offer terrorism insurance and has attempted to manage its exposure; however, in the event of a covered terrorist attack, the Company could sustain material losses;

• Changing legal and social trends and inherent uncertainties, including but not limited to those uncertainties associated with the Company’s asbestos and environmental reserves, in the loss estimation process can adversely impact the adequacy of loss reserves and the allowance for reinsurance recoverables;

• 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; and

• Economic conditions, interest rates and foreign exchange rate volatility and concentration of investments can have a significant impact on the market value of fixed maturity and equity investments, as well as the carrying value of other assets and liabilities.

The Company’s premium volume, 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 6. Exhibits

See Exhibit Index for a list of Exhibits filed as part of this report.

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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 3^rd day of November, 2004.

The Company
By	/s/ Alan I. Kirshner
	Alan I. Kirshner
	Chairman and 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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Exhibit Index

Number	Description
3(i)	Amended and Restated Articles of Incorporation, as amended (3(i))a
3(ii)	Bylaws, as amended (4.2)b
4	Credit Agreement dated September 30, 2003, among Markel Corporation, the lenders named therein and SunTrust Bank, as Administrative Agent (4)c
	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, 2004 and the respective Notes thereto, included in the Quarterly Report on Form 10-Q.
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)*
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)*
32.1	Certification of Principal Executive Officer furnished Pursuant to 18 U.S.C. Section 1350*
32.2	Certification of Principal Financial Officer furnished Pursuant to 18 U.S.C. Section 1350*

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-8 Registration Statement No. 333-107661, dated

August 5, 2003.

c. 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 September 30, 2003.

* Filed with this report.

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