SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Annual report pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934 for the fiscal year ended December 31, ~~2014~~2017

The response to this item is submitted in Item 15.

We also participate in the reinsurance market in certain classes of reinsurance product ~~offerings, which were expanded in 2013 through the acquisition of Alterra.~~offerings. In the reinsurance market, our clients are other insurance companies, or cedents. We typically write our reinsurance products in the form of treaty reinsurance contracts, which are contractual arrangements that provide for automatic reinsuring of a type or category of risk underwritten by cedents. Generally, we participate on reinsurance treaties with a number of other reinsurers, each with an allocated portion of the treaty, with the terms and conditions of the treaty being substantially the same for each participating reinsurer. With treaty reinsurance contracts, we do not separately evaluate each of the individual risks assumed under the contracts and are largely dependent on the individual underwriting decisions made by the cedent. Accordingly, we review and analyze the cedent's risk management and underwriting practices in deciding whether to provide treaty reinsurance and in pricing of treaty reinsurance contracts.

Our reinsurance products are written on both a quota share and excess of loss basis. Quota share contracts require us to share the losses and expenses in an agreed proportion with the cedent. Excess of loss contracts require us to indemnify the cedent against all or a specified portion of losses and expenses in excess of a specified dollar or percentage amount. In both types of contracts, we may provide a ceding commission to the cedent.

We distinguish ourselves in the reinsurance market by the expertise of our underwriting teams, our access to global reinsurance markets, our ability to offer large lines and our ability to customize reinsurance solutions to fit our client's needs. Our specialty reinsurance product offerings include coverage for general casualty, professional liability, property, ~~automobile~~workers' compensation and credit and surety risks.

Our reinsurance operations, which include our operations based in the United States, the United Kingdom, Latin America and Bermuda, as described above, made us the ~~34th~~37th largest reinsurer in ~~2013,~~2016, as measured by worldwide gross reinsurance premium writings.⁽⁴⁾

With the continued growth and diversification of our business, beginning in 2018, we no longer consider the geographic location of the insurance entity underwriting the risk when monitoring our underwriting operations and will monitor and report our ongoing underwriting operations on a global basis in the following two segments: Insurance and Reinsurance. The Insurance segment will include all direct business and facultative placements written across the Company, which currently are reported in our U.S. Insurance and International Insurance segments. The Reinsurance segment will remain unchanged.

Global Insurance Division

State National Division

Markel International Division

Global Insurance Division

~~Table of Contents~~

In ~~2014, 43%~~2017, 27% of gross premium written in the Reinsurance segment related to foreign risks, of which 31% was from the United Kingdom. In ~~2013, 42%~~2016, 37% of gross premium written in the Reinsurance segment related to foreign risks, of which ~~27%~~25% was from the United Kingdom. In ~~2012, 55%~~2015, 36% of gross premium written in the Reinsurance segment related to foreign risks, of which ~~22%~~32% was from the United Kingdom. In each of these years, there was no other individual foreign country from which premium writings were material.

Our Reinsurance segment reported gross premium volume of $1.1 billion, earned premiums of ~~$908.4~~$934.1 million and an underwriting ~~profit~~loss of ~~$38.9~~$299.2 million in ~~2014.~~2017.

Reinsurance Segment

~~2014~~2017 Gross Premium Volume ($1.1 billion)

Product offerings within the Reinsurance segment fall within the following major product groupings:

Property

Casualty

~~Auto~~

~~Other~~Specialty

~~Table of Contents~~

Property treaty products are offered on an excess of loss and quota share basis for catastrophe, per risk and retrocessional exposures worldwide. Our catastrophe exposures are generally written on an excess of loss basis and target both personal and commercial lines of business providing coverage for losses from natural disasters, including hurricanes, wind storms and earthquakes. We also reinsure individual property risks such as buildings, structures, equipment and contents and provide coverage for both personal lines and commercial property exposures. Our retrocessional products provide coverage for all types of underlying exposures and geographic zones. A significant portion of the property treaty business covers United States exposures, with the remainder coming from international property exposures.

Our casualty treaty reinsurance programs are written on a quota share and excess of loss basis and include general liability, professional liability, workers' compensation, medical malpractice, ~~and~~ environmental impairment liability and auto liability. General liability reinsurance includes umbrella and excess casualty products that are written worldwide. Our professional liability reinsurance programs are offered worldwide and consist of directors and officers liability, including publicly traded, private, and non-profit companies in both commercial and financial institution arenas; lawyers errors and omissions for small, medium and large-sized law firms; accountants errors and omissions for small and medium-sized firms; technology errors and omissions and cyber liability focusing on network security and privacy exposures. Auto reinsurance treaty products include commercial and non standard personal auto exposures predominantly in the United States. Our workers' compensation business includes catastrophe-exposed workers' compensation business. Medical malpractice reinsurance products are offered in the United States and include quota share, excess of loss and stop loss coverage for physician, surgeon, hospital and ~~surgeon~~long term care medical malpractice specialty writers, member-owned hospital writers focusing on small-to-medium size facilities, national hospital writers focused on primary or lower excess layers on medium size facilities and long-term care writers focused on privately held, religious based or state sponsored non-profit programs.writers. Environmental treaty reinsurance provides coverage for pollution legal liability, contractors pollution and professional liability exposures on both a nationwide and regional basis within the United States.

Auto reinsurance treaty products are offered on a quota share and excess of loss basis and include commercial and non standard personal auto exposures predominantly in the United States. Commercial auto coverage is provided to national and regional carriers while non standard personal auto coverage is offered to regional and single state ceding companies. Our auto reinsurance treaty products previously included exposures in the United Kingdom; however, we ceased writing any new auto business in the United Kingdom in 2014.

~~Other~~Specialty treaty reinsurance products offered in the Reinsurance segment ~~include:~~

~~aviation, which includes commercial airline hull and liability coverage as well as general aviation for risks worldwide;~~

include structured and whole turnover credit, political risk, mortgage and contract and commercial surety reinsurance programs covering worldwide ~~exposures;~~

~~onshore and offshore marine and energy risks on a worldwide basis, including hull, cargo and liability;~~

~~agriculture reinsurance for Multi-Peril Crop Insurance, hail and related~~ exposures, ~~covering risks located in the United States and Canada; and~~

public entity reinsurance products, ~~which~~aviation, whole account, accident and health catastrophe coverage, marine and agriculture reinsurance products. Our public entity reinsurance products offer customized programs for government risk solutions, including counties, municipalities, schools, public housing authorities and special districts (e.g. water, sewer, parks) located in the United States. Types of coverage for public entities include general liability, ~~property,~~ environmental impairment liability, ~~data breach,~~ workers' compensation and errors and omissions. Our aviation business includes commercial airline hull and liability coverage as well as general aviation for risks worldwide. Our accident and health catastrophe products cover personal accident, life, medical and workers' compensation coverage. Marine reinsurance products include offshore and onshore marine and energy risks on a worldwide basis, including hull, cargo and liability. Agriculture reinsurance covers Multi-Peril Crop Insurance, hail and related exposures, for risks located in the United States and Canada.

Ceded Reinsurance

WeWithin our underwriting operations, we purchase reinsurance and retrocessional reinsurance to manage our net retention on individual risks and overall exposure to losses, while providing us with the ability to offer policies with sufficient limits to meet policyholder needs. In a reinsurance ~~transaction,~~and retrocession transactions, an insurance or reinsurance company transfers, or cedes, all or part of its exposure in return for a portion of the premium. In a retrocession transaction, a reinsurer transfers, or cedes, all or part of its exposure in return for a portion of the premium. Following the acquisition of Alterra, we have more insurance and reinsurance products that have typically required higher levels of reinsurance than our historical product offerings required. We purchase catastrophe reinsurance coverage for our catastrophe-exposed policies ~~and we seek~~ to ~~manage~~ensure that our ~~exposures under this coverage so that no exposure to any one reinsurer~~net retained catastrophe risk is ~~material to~~within our ~~ongoing business.~~corporate tolerances. Net retention of gross premium volume in our underwriting segments was ~~82%~~84% in ~~2014~~2017 and 83% in ~~2013~~.2016. We do not purchase or sell finite reinsurance products or use other structures that would have the effect of discounting loss reserves.

~~Table of Contents~~

Our ceded reinsurance and retrocessional contracts do not legally discharge us from our primary liability for the full amount of the policies, and we will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance agreement. We attempt to minimize credit exposure to reinsurers through adherence to internal ceded reinsurance guidelines. We manage our exposures so that no exposure to any one reinsurer is material to our ongoing business. To participate in our reinsurance program, prospective companies generally must: (i) maintain an A.M. Best Company (Best) or Standard & Poor's (S&P) rating of "A" (excellent) or better; (ii) maintain minimum capital and surplus of $500 million and (iii) provide collateral for recoverables in excess of an individually established amount. In addition, certain foreign reinsurers for our United States insurance operations must provide collateral equal to 100% of recoverables, with the exception of reinsurers who have been granted certified or authorized status by an insurance company's state of domicile. Our credit exposure to Lloyd's syndicates ~~generally must have a minimum of a "B" rating from Moody's Investors Service (Moody's) to be our reinsurers.~~is managed through individual and aggregate exposure thresholds.

When appropriate, we pursue reinsurance commutations that involve the termination of ceded reinsurance and retrocessional contracts. Our commutation strategy related to ceded reinsurance and retrocessional contracts is to reduce credit exposure and eliminate administrative expenses associated with the run-off of ceded reinsurance placed with certain reinsurers.

The following table displays balances recoverable from our ten largest reinsurers by group from our underwriting operations at December 31, ~~2014.~~2017. The contractual obligations under reinsurance and retrocessional contracts are typically with individual subsidiaries of the group or syndicates at Lloyd's and are not typically guaranteed by other group members or syndicates at Lloyd's. These ten reinsurance groups represent approximately ~~63%~~61% of our ~~$2.0~~$2.6 billion reinsurance recoverable balance attributed to our underwriting operations, before considering allowances for bad debts.

Reinsurers

A.M. Best

Rating

Reinsurance

Recoverable

Reinsurance Group

A.M. Best

Rating

Reinsurance

Recoverable

(dollars in

thousands)

(dollars in

thousands)

Fairfax Financial Group

203,119

262,806

Munich Re Group

A+

200,172

A+

214,441

AXIS Capital Holdings Limited

A+

156,005

A+

184,662

Lloyd's of London

136,340

163,317

Alleghany Corporation

133,683

A+

151,033

Partner Re Group

A+

116,218

Platinum Underwriters Holdings Ltd

110,898

RenaissanceRe Holdings Ltd

136,753

EXOR S.p.A

125,599

Liberty Mututal Holding Company

123,068

Swiss Re Group

A+

83,354

A+

110,377

XL Capital Group

68,609

Arch Insurance Group

A+

68,042

Everest Re Group

A+

94,306

Reinsurance recoverable on paid and unpaid losses for ten largest reinsurers

1,276,440

Reinsurance recoverable on paid and unpaid losses for ten largest reinsurers

1,566,362

Total reinsurance recoverable on paid and unpaid losses

2,030,688

Total reinsurance recoverable on paid and unpaid losses

2,585,823

Reinsurance recoverable balances in the preceding table are shown before consideration of balances owed to reinsurers and any potential rights of offset, any collateral held by us and allowances for bad debts.

Reinsurance and retrocessional treaties are generally purchased on an annual or biennial basis and are subject to ~~yearly renegotiations.~~renegotiations at renewal. In most circumstances, the reinsurer remains responsible for all business produced before termination. Treaties typically contain provisions concerning ceding commissions, required reports to reinsurers, responsibility for taxes, arbitration in the event of a dispute and provisions that allow us to demand that a reinsurer post letters of credit or assets as security if a reinsurer becomes an unauthorized reinsurer under applicable regulations or if its rating falls below an acceptable level.

See note 15 of the notes to consolidated financial statements and Management's Discussion & Analysis of Financial Condition and Results of Operations for additional information about our ceded reinsurance programs and exposures.

~~Table of Contents~~

Investments

Our business strategy recognizes the importance of both consistent underwriting and operating profits and superior investment returns to build shareholder value. We rely on sound underwriting practices to produce investable funds while minimizing underwriting risk. The majority of our investable assets come from premiums paid by policyholders. Policyholder funds are invested predominantly in high-quality corporate, government and municipal bonds ~~with relatively short durations.~~that generally match the duration of our loss reserves. The balance, comprised of shareholder funds, is available to be invested in equity securities, which over the long run, have produced higher returns relative to fixed maturity investments. When purchasing equity securities, we seek to invest in profitable companies, with honest and talented management, that exhibit reinvestment opportunities and capital discipline, at reasonable prices. We intend to hold these investments over the long term. Substantially all of our investment portfolio is managed by company employees.

The investment portfolio acquired through the Alterra acquisition was comprised of hedge funds, equity method investments and fixed maturities that were generally longer duration than our historical fixed maturity portfolio. In order to align the acquired investment portfolio with Markel's investment philosophy and target investment portfolio allocations, we have liquidated substantially all of the hedge fund portfolio and continue to increase our holdings in equity securities and fixed maturity tax-exempt municipal securities.

We evaluate our investment performance by analyzing net investment income and net realized gains (losses) as well as our taxable equivalent total investment ~~return.~~return, which is a non-GAAP financial measure. Taxable equivalent total investment return includes items that impact net income, such as coupon interest on fixed maturities, dividends on equity securities and realized investment gains or losses, as well as changes in unrealized gains or losses, which do not impact net income. Certain items that are included in net investment income have been excluded from the calculation of taxable equivalent total investment return, such as amortization and accretion of premiums and discounts on our fixed maturity portfolio, to provide a comparable basis for measuring our investment return against industry investment returns. The calculation of taxable equivalent total investment return also includes the current tax benefit associated with income on certain investments that is either taxed at a lower rate than the statutory income tax rate or is not fully included in federal taxable income. We believe the taxable equivalent total investment return is a better reflection of the economics of our decision to invest in certain asset classes. See "Investing Results" in Management's Discussion & Analysis of Financial Condition and Results of Operations for further detail regarding the components of taxable equivalent total investment return. In 2014, net investment income was $363.2 million and net realized investment gains were $46.0 million. During the year ended December 31, 2014, net unrealized gains on investments increased by $981.0 million. We do not lower the quality of our investment portfolio in order to enhance or maintain yields. We focus on long-term total investment return, understanding that the level of realized and unrealized investment gains or losses may vary from one period to the next.

The following table summarizes our investment performance.



	Years Ended December 31,
(dollars in thousands)	2017			2016			2015			2014			2013
Net investment income	$	405,709		$	373,230		$	353,213		$	363,230		$	317,373
Net realized investment gains (losses)	$	(5,303	)	$	65,147		$	106,480		$	46,000		$	63,152
Increase (decrease) in net unrealized gains on investments	$	1,125,440		$	342,111		$	(457,584	)	$	981,035		$	261,995
Investment yield ⁽¹⁾	2.6		%	2.4		%	2.3		%	2.4		%	2.6		%


⁽¹⁾	Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.

We believe our investment performance is best analyzed from the review of taxable equivalent total investment return over several years. The following table presents taxable equivalent total investment return before and after the effects of foreign currency movements.

Annual Taxable Equivalent Total Investment Returns


																Weighted Average Five-Year Annual Return			Weighted Average Ten-Year Annual Return																						Five-Year Annual Return		Ten-Year Annual Return
	Years Ended December 31,																	Years Ended December 31,
	2014			2013			2012			2011			2010					2017				2016				2015				2014				2013
Equities	18.6		%	33.3		%	19.6		%	3.8		%	20.8		%		20.4	%				13.4	%	25.5		%		13.5		%		(2.5		)%		18.6		%		33.3		%	17.0	%	10.6	%
Fixed maturities ⁽¹⁾	6.5		%	0.0		%	5.1		%	7.6		%	5.4		%		4.7	%				4.8	%	3.4		%		2.4		%		1.6		%		6.5		%		—		%	2.7	%	4.1	%
Total portfolio, before foreign currency effect	8.9		%	6.9		%	8.6		%	6.7		%	8.1		%	7.9	%		6.5	%	9.2		%		5.0		%		0.5		%		8.9		%		6.9		%		6.1	%	5.7	%
Total portfolio	7.4		%	6.8		%	9.0		%	6.5		%	7.9		%	7.4	%		6.2	%	10.2		%		4.4		%		(0.7		)%		7.4		%		6.8		%		5.5	%	5.3	%
Invested assets, end of year (in millions)	$	18,638		$	17,612		$	9,333		$	8,728		$	8,224							$	20,570			$	19,059			$	18,181			$	18,638			$	17,612

In our program services business, we generally enter into a 100% quota share reinsurance agreement whereby we cede to the capacity provider (reinsurer) substantially all of our gross liability under all policies issued by and on behalf of us by the GA. The capacity provider is generally entitled to 100% of the net premiums received on policies reinsured, less the ceding fee to us, the commission paid to the GA and premium taxes on the policies. In connection with writing this business, we also enter into agency agreements with both the producer (typically GAs) and the capacity provider whereby the producer and capacity provider are generally required to deal directly with each other to develop business structures and terms to implement and maintain the ongoing contractual relationship. In a number of cases, the producer and capacity provider for a program are part of the same organization or are otherwise affiliated. As a result of our contract design, substantially all of the underwriting risk and business risk inherent in the arrangement is borne by the capacity provider. The capacity provider assumes and is liable for substantially all losses incurred in connection with the risks under the reinsurance agreement, including judgments and settlements. Our contracts with capacity providers do not legally discharge us from our primary liability for the full amount of the policies, and we will be required to pay the loss and bear collection risk if the capacity provider fails to meet its obligations under the reinsurance agreement. As a result, we remain exposed to the credit risk of capacity providers, or the risk that one of our capacity providers becomes insolvent or otherwise unable or unwilling to pay policyholder claims. We mitigate this credit risk generally by either selecting well capitalized, highly rated authorized capacity providers or requiring that the capacity provider post substantial collateral to secure the reinsured risks.

Collateral Applied ⁽¹⁾

We historically monitored and assessed the performance of each of our Markel Ventures businesses separately with no single business being individually significant to the operations of the Company as a whole. Following the continued growth in our Markel Ventures operations and its aggregate significance to our financial results, beginning in 2018, we will monitor and report our Markel Ventures operations as a single operating segment, consistent with the way our chief operating decision maker now reviews and assesses Markel Ventures’ performance.

~~Book Value Per Share~~

United States Insurance Regulation

Overview. Our U.S. insurance subsidiaries are subject to varying degrees of regulation and supervision in the jurisdictions in which they do business. Each state has its own regulatory authority for insurance that is generally responsible for the direct regulation of the business of insurance conducted in that state. In addition, the National Association of Insurance Commissioners (NAIC), comprised of the insurance commissioners of each U.S. jurisdiction, develops or amends model statutes and regulations that in turn most states adopt. While the U.S. federal government and its regulatory agencies generally do not directly regulate the business of insurance, there have been recent federal initiatives that impact the business of insurance.

State Insurance Regulation. In the United States, authority for the regulation, supervision and administration of the business of insurance in each state is generally delegated to a state commissioner heading a regulatory body responsible for the business of insurance. Through this authority, state regulatory authorities have broad regulatory, supervisory and administrative powers relating to solvency standards; the licensing of insurers and their agents; the approval of forms and policies used; the nature of, and limitations on, insurers' investments; the form and content of annual statements and other reports on the financial condition of insurers; and the establishment of loss reserves. Our U.S. insurance subsidiaries that operate on an admitted basis are typically subject to regulatory rate and form review, while our U.S. excess and surplus lines insurance subsidiaries generally operate free of rate and form regulation.

Holding Company Statutes. In addition to regulatory supervision of our domestic insurance subsidiaries, we are subject to state statutes governing insurance holding company systems. Typically, such statutes require that we periodically file information with the appropriate state insurance commissioner, including information concerning our capital structure, ownership, financial condition, material transactions with affiliates and general business operations. In addition, these statutes also require approval of changes in control of an insurer or an insurance holding company. Generally, control for these purposes is defined as ownership or voting power of 10% or more of a company's voting shares. Additional requirements include group-level reporting, submission of an annual enterprise risk report by a regulated insurance company's ultimate controlling person and information regarding an insurer's non-insurer affiliates.

Excess and Surplus Lines. The regulation of our U.S. insurance subsidiaries' excess and surplus lines insurance business differs significantly from the regulation of our admitted business. Our surplus lines subsidiaries are subject to the surplus lines regulation and reporting requirements of the jurisdictions in which they are eligible to write surplus lines insurance. Although the surplus lines business is generally less regulated than admitted business, regulations apply to surplus lines placements under the laws of every state.

Dividends. The laws of the domicile states of our U.S. insurance subsidiaries govern the amount of dividends that may be paid to our holding company, Markel Corporation. Generally, statutes in the domicile states of our insurance subsidiaries require prior approval for payment of extraordinary, as opposed to ordinary, dividends. At December 31, ~~2014,~~2017, our United States insurance subsidiaries could pay up to ~~$310.6~~$436.4 million during the following 12 months under the ordinary dividend regulations.

Trade Practices. State insurance laws and regulations include numerous provisions governing trade practices and the marketplace activities of insurers, including provisions governing marketing and sales practices, data security, policyholder services, claims management, anti-fraud controls and complaint handling. State regulatory authorities generally enforce these provisions through periodic market conduct examinations.

Investment Regulation. Investments by our domestic insurance companies must comply with applicable laws and regulations that prescribe the kind, quality and concentration of investments. In general, these laws and regulations permit investments in federal, state and municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate and certain other investments, subject to specified limits and certain other qualifications.

Cybersecurity. The New York Department of Financial Services (NYDFS) has issued Cybersecurity Requirements for Financial Services Companies that require certain of our insurance operations to, among other things, establish and maintain a cybersecurity policy designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry. The regulation went into effect on March 1, 2017 and has transition periods ranging from 180 days to two years. In addition, the NAIC recently adopted the Insurance Data Security Model Law in October 2017. The purpose of the model law is to establish standards for data security and for the investigation and notification of insurance commissioners of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information. It is not clear whether state legislatures will begin adopting the model law, or in what form or when they will do so.

Federal Regulation. ~~Although the~~The federal government and its regulatory agencies generally do not directly regulate the business of insurance, federal initiatives could have an impact on our business in a variety of ways. The Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was enacted in 2010 and effected sweeping changes to financial services regulation in the United States. The Dodd-Frank Act createdinsurance. However, two ~~new~~ federal government bodies, the Federal Insurance Office (FIO) and the Financial Stability Oversight Council (FSOC), ~~which~~each created under The Dodd Frank Wall Street Reform and Consumer Protection Act enacted in 2010, may impact the regulation of insurance. Although the FIO is prohibited from directly regulating the business of insurance, it has authority to represent the United States in international insurance matters and has limited powers to preempt certain types of state insurance laws. The FIO also can recommend to the FSOC that it designate an insurer as an entity posing risks to the United States financial stability in the event of the insurer's material financial distress or failure. We have not been so designated.

United Kingdom Insurance Regulation

Under the Financial Services and Markets Act 2000 (FSMA), it is unlawful to carry on insurance business in the United Kingdom without permission to do so from the relevant regulators. Before April 1, 2013, the Financial Services Authority (FSA) was responsible for supervising all securities, banking and insurance business in the United Kingdom. With the enactment of the Financial Services Act 2012 (which amended FSMA), the FSA was replaced by two regulators:regulators, currently the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). An independent Financial Policy Committee ~~(FPC)~~ at the Bank of England supervises the financial services sector at a macro level, responding to sectoral issues that could threaten economic and financial stability.

~~Since April 1, 2013, when regulatory responsibility for the insurance firms in the United Kingdom was given to the PRA and the FCA,~~ MIICL, ~~and~~ MSM, our Lloyd's managing agent, ~~have been "dual regulated firms"; each firm is~~and E.C. Insurance Company Limited (ECIC), which we acquired in November 2017, are authorized by the PRA and regulated by both the PRA and the FCA. In addition, ~~in January 2014, we completed the acquisition of Abbey Protection plc (Abbey), an integrated specialty~~our United Kingdom insurance ~~and consultancy group headquartered in London. Abbey Protection Group Limited, a wholly-owned subsidiary of Abbey, is an FCA-authorised~~operations include FCA-authorized insurance ~~intermediary~~intermediaries that ~~produces~~produce insurance ~~to both~~for MIICL, Syndicate 3000 and third party insurance ~~carriers in the UK.~~carriers.

The PRA is a subsidiary of the Bank of England and is responsible for the prudential regulation and supervision of banks, building societies, credit unions, major investment firms and insurers, including the Society of Lloyd's and managing agents that participate in the Lloyd's market. The two primary statutory objectives of the PRA are to promote the safety and soundness of the firms it regulates and, specific to insurers, to contribute to securing an appropriate degree of protection for those who are, or may become, policyholders. A secondary objective of the PRA is to facilitate effective competition.

The FCA, which is separate from the Bank of England, is accountable to HM Treasury and ultimately the United Kingdom Parliament. The FCA supervises the day-to-day conduct of insurance firms and other authorized firms operating in the United Kingdom, including those participating in the Lloyd's market and UKU.K. insurance intermediaries. The overarching strategic objective of the FCA is to ensure that the relevant markets function well. The FCA also has three operational objectives: securing an appropriate degree of protection for consumers, protecting and enhancing the integrity of the UKU.K. financial system, and promoting effective competition in the interests of consumers.

The PRA assesses the insurance firms it regulates on a continuous cycle, requiring firms to submit sufficient data of appropriate quality to support their judgments about key risks, through meetings of directors, officers and other employees with PRA supervisors. The PRA also oversees compliance with ~~established periodic auditing and reporting requirements,~~ minimum solvency ~~margins~~ and ~~individual~~ capital ~~assessment~~ requirements under the Solvency II Directive (Solvency II) and imposes dividend ~~restrictions, while both~~restrictions. Both the PRA and the FCA oversee compliance with risk assessment reviews, restrictions governing the appointment of key officers, restrictions governing controlling ownership interests and various other requirements. In addition, both the PRA and FCA have arrangements with Lloyd's for cooperation on supervision and enforcement of the Lloyd's market.

MIICL and ECIC must provide ~~14 days'~~ advance notice to the PRA for any dividends ~~from MIICL.~~and any transaction or proposed transaction with a connected or related person. MSM is required to satisfy the solvency requirements of Lloyd's. In addition, our United Kingdom subsidiaries must comply with the United Kingdom Companies Act of 2006, which provides that dividends may only be paid out of profits available for that purpose.

On June 23, 2016, the United Kingdom voted to exit the European Union (E.U.) (Brexit). For discussion regarding Brexit, see "Brexit Developments" under Management's Discussion & Analysis of Financial Condition and Results of Operations and the Risk Factor titled "The United Kingdom's vote to leave, and the eventual exit of the United Kingdom from, the European Union could adversely affect us."

Bermuda Insurance Regulation

The insurance and reinsurance industry in Bermuda is regulated by the Bermuda Monetary Authority (BMA). Markel Bermuda is regulated by the BMA as a Class 4 general business and Class C long-term business insurer under the Insurance Act 1978 of Bermuda and its related regulations (Bermuda Insurance Act). The Bermuda Insurance Act imposes on Markel Bermuda solvency and liquidity standards, restrictions on the reduction of statutory capital and auditing and reporting ~~requirements on Markel~~requirements. The Bermuda ~~and~~Insurance Act grants to the BMA powers to cancel insurance licenses, supervise, investigate and intervene in the affairs of Bermuda insurance and reinsurance ~~companies.~~companies and, in certain circumstances, share information with foreign regulators. Bermuda's prudential framework for the supervision of insurance and reinsurance companies and groups is deemed to be fully equivalent to the regulatory standards applied to European insurance and reinsurance companies and groups under Solvency II. As a result, Bermuda is considered by European member states as applying an equivalent statutory insurance regime in accordance with the requirements of Solvency II with respect to reinsurance, group solvency calculations and group supervision. The equivalence recognition applies to Bermuda's commercial Class 3A, 3B, 4, Class C, Class D and Class E insurers and reinsurers and groups.

Markel Bermuda is subject to enhanced capital requirements in addition to minimum solvency and liquidity requirements. The enhanced capital requirement is determined by reference to a risk-based capital model that determines a control threshold for statutory capital and surplus by taking into account the risk characteristics of different aspects of the insurer's business. At December 31, ~~2014,~~2017, Markel Bermuda satisfied both the enhanced capital requirements and the minimum solvency and liquidity requirements.

Markel Bermuda also must submit annually to the BMA a Commercial Insurer Solvency Self-Assessment (CISSA) and a Financial Condition Report (FCR). The CISSA is a confidential internal assessment of the material and relevant risks associated with an insurer's current business plan and the sufficiency of capital resources to support those risks. The FCR is an assessment of the insurer's business and performance, governance structure, risk profile, solvency valuation and capital management, and is available to the public upon written request.

Under the Bermuda Insurance Act, Markel Bermuda is prohibited from paying or declaring dividends during a fiscal year if it is in breach of its enhanced capital requirement, solvency margin or minimum liquidity ratio or if the declaration or payment of the dividend would cause a ~~breach.~~breach of those requirements. If an insurer fails to meet its solvency margin or minimum liquidity ratio on the last day of any financial year, it is prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. Further, Markel Bermuda is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus as set forth in its previous year's statutory balance sheet unless at least seven days before payment of those dividends it files with the BMA an affidavit stating that it will continue to meet its solvency margin and minimum liquidity ratio. Markel Bermuda must obtain the BMA's prior approval for a reduction by 15% or more of the total statutory capital as set forth in its previous year's financial statements. In addition, as a Class C long-term insurer, Markel Bermuda may not declare or pay a dividend to any person other than a policyholder unless the value of the assets in its long-term business fund, as certified by Markel Bermuda's approved actuary, exceeds the liabilities of its long-term ~~business by the~~business. The amount of the dividend cannot exceed the aggregate of that excess and ~~at least~~any other funds legally available for the ~~prescribed minimum solvency margin.~~payment of the dividend. At December 31, ~~2014,~~2017, Markel Bermuda could pay up to ~~$472.7~~$443.5 million in dividends during the following 12 months without making any additional filings with the BMA.

Other Insurance Jurisdictions

The NAIC and state insurance regulators, as well as regulators in countries where we have operations, are currently working with the International Association of Insurance Supervisors (IAIS) to develop a global common framework (ComFrame) for the supervision of internationally active insurance groups (IAIGs). If adopted, ComFrame would require the designation of a group-wide supervisor (regulator) for each IAIG and would impose a group capital requirement that would be applied to an IAIG in addition to the current legal entity capital requirements imposed by state insurance regulators. In response to ComFrame, the NAIC revised the model Insurance Holding Company System Regulatory Act to allow state insurance regulators in the U.S. to be designated as group-wide supervisors for U.S. based IAIGs. Additionally, the NAIC is developing a group capital standard that would be applied to U.S. based insurance groups.

Markel Ventures. Our Markel Ventures businesses are subject to a wide variety of U.S. federal, state, and local laws and regulations, as well as foreign laws and regulations applicable to their non-U.S. operations, including:

As of December 31, 2017, we were the beneficiary of letters of credit, trust accounts and funds withheld in the aggregate amount of $2.7 billion, collateralizing $4.7 billion in reinsurance recoverables. The remaining unsecured reinsurance recoverables are ceded to highly-rated, well capitalized reinsurers. Our reinsurance recoverables are based on estimates, and our actual liabilities may exceed the amount we are able to recover from our reinsurers or any collateral securing the liabilities. The failure of a reinsurer to meet its obligations to us, whether due to insolvency, dispute or other unwillingness or inability to pay, or due to our inability to access sufficient collateral to cover our liabilities, could have a material adverse effect on our results of operations and financial condition.

The availability and cost of reinsurance are determined by market conditions beyond our control. There is no guarantee that our desired amounts of reinsurance or retrocessional reinsurance will be available in the marketplace in the future.

Our information technology systems could fail or suffer a security breach, which could adversely affect our business, reputation, results of operations or ~~reputation~~financial condition or result in the loss of sensitive information. Our businesses are dependent upon the ~~successful functioning~~operational effectiveness and security of our ~~computer~~enterprise systems ~~or the computer systems of~~and those maintained by third parties. Among other things, we rely on these systems to interact with producers, insureds, customers, clients, and other third parties, to perform actuarial and other modeling functions, to underwrite business, to prepare policies and process premiums, to process claims and make claims payments, to prepare internal and external financial statements and information, as well as to engage in a wide variety of other business activities. A significant failure of our ~~computer~~enterprise systems, or those of third parties upon which we may rely, whether because of a ~~breakdown,~~ natural disaster, network outage or ~~an attack~~a cyber-attack on our systems, could compromise our personal, confidential and proprietary information as well as that of our customers and business partners, impede or interrupt our business operations and could result in other negative consequences, including remediation costs, loss of revenue, additional regulatory scrutiny and fines, litigation and monetary and reputational damages. Although we have implemented controls and take protective actions to reduce the risk of an enterprise failure and protect against a security breach, such measures may be insufficient to prevent, or mitigate the effects of, a natural disaster, network outage or a cyber-attack on our systems that could result in liability to us, cause our data to be corrupted or stolen and cause us to commit resources, management time and money to prevent or correct those failures.

~~Table~~A ratings downgrade could also adversely affect our liquidity, including the availability of ~~Contents~~our letter of credit facilities, and limit our access to capital markets, increase our cost of borrowing or issuing debt and require us to post collateral.

We depend on a few brokers for a large portion of our revenues and the loss of business provided by any one of them could adversely affect us. We market our insurance and reinsurance worldwide through insurance and reinsurance brokers. For the year ended December 31, ~~2014,~~2017, our top three independent brokers represented ~~approximately 28%~~27% of ~~our~~the gross premiums ~~written.~~written by our underwriting operations. Loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our business.

Employee error and misconduct may be difficult to detect and prevent and may result in significant losses. There have been a number of cases involving misconduct by employees in a broad range of industries in recent years, and we run the risk that employee misconduct could occur. Instances of fraud, illegal acts, errors, failure to document transactions properly or to obtain proper internal authorization, or failure to comply with regulatory requirements or our internal policies may result in losses. It is not always possible to deter or prevent employee errors or misconduct, and the controls that we have in place to prevent and detect this activity may not be effective in all cases.

~~Our businesses and operations~~We are subject to applicable laws and regulations relating to economic and trade sanctions and ~~foreign corrupt practices,~~bribery and corruption, the violation of which could ~~adversely affect our operations.~~have a material adverse effect on us. ~~In our global businesses and operations we~~We are required to comply with the economic and trade sanctions and embargo programs administered by the United States Department of the ~~Treasury’s~~Treasury's Office of Foreign Assets Control ~~(“OFAC”)~~ and similar multi-national bodies and governmental agencies worldwide, as well as applicable anti-corruption laws and regulations of the United States and other jurisdictions where we ~~operate, including the United Kingdom and Europe.~~operate. A violation of a sanction, embargo program, or anti-corruption law, could subject us, and individual employees, to a regulatory enforcement action as well as significant civil and criminal penalties. In addition, a violation could result in defaults under our outstanding indebtedness or credit facilities or damage our businesses ~~and/~~or our reputation. Those penalties or defaults, or damage to our businesses ~~and/~~or reputation, could have a material adverse effect on our results of operations and financial condition. In some cases the requirements and limitations applicable to the global operations of U.S. companies and their affiliates are more restrictive than those applicable to non-U.S. companies and their affiliates, which also could have a material adverse effect on our results of operations and financial condition.

~~Compliance with the~~The legal and regulatory requirements applicable to our businesses isare extensive. ~~Any failure~~Failure to comply could have a material adverse effect on ~~our businesses.~~us. Our businesses are highly dependent on our ability to engage on a daily basis in a large number of financial and operational activities, including among others insurance underwriting, claim processing, ~~and~~ investment activities and the management of third party capital, many of which are highly complex. These activities ~~often~~ are subject to internal guidelines and policies, as well as legal and regulatory standards, including, among others, those related to privacy, anti-corruption, anti-bribery and global finance and insurance matters. Our continued expansion into new businesses and markets has brought about additional requirements. While we believe that we have adopted appropriate risk management and compliance programs, compliance risks will continue to exist, particularly as we ~~adapt~~become subject to new rules and regulations. Failure to comply with, or to obtain, appropriate authorizations and/or exemptions under any applicable laws and regulations could result in restrictions on our ability to do business or undertake activities that are regulated in one or more of the jurisdictions in which we conduct business and could subject us to fines, penalties, equitable relief and changes to our business practices. In addition, a failure to comply could result in defaults under our outstanding indebtedness or credit facilities or damage our businesses ~~and/~~or our reputation. Compliance with applicable laws and regulations is time consuming and personnel-intensive, and changes in these laws and regulations ~~may~~could materially increase our direct and indirect compliance and other expenses of doing business, ~~thus having~~and have a material adverse effect on our results of operations and financial condition.

Regulators may challenge our use of fronting arrangements in states in which our capacity providers are not licensed. Our program services business enters into fronting arrangements with general agents and domestic and foreign insurers that want to access specific U.S. property and casualty insurance business in states in which the capacity providers are not licensed or are not authorized to write particular lines of insurance. Some state insurance regulators may object to these fronting arrangements. In certain states, an insurance commissioner has the authority to prohibit an authorized insurer from acting as an issuing carrier for an unauthorized insurer. In addition, insurance departments in states in which there is no such statutory or regulatory prohibition, could deem the assuming insurer to be transacting insurance business without a license and the issuing carrier to be aiding and abetting the unauthorized sale of insurance.

If regulators in any of the states where we conduct our fronting business were to prohibit or limit those arrangements, we would be prevented or limited from conducting that business for which a capacity provider is not authorized in those states, unless and until the capacity provider is able to obtain the necessary licenses. This could have a material adverse effect on our results of operations and financial condition.

We may be exposed to risk in connection with our management of third party capital. Some ofour operating subsidiaries may owe certain legal duties and obligations to third party investors. A failure to fulfill any such duties or obligations couldresult in significant liabilities, penalties or other losses, and harm our businesses and resultsof operations. In addition, third party investors may decide not to renew their interests in the funds we manage, which could materially impact the financial condition of those funds, and could, in turn, have an adverse impact on our results of operations and financial condition. Moreover, we may not be ableto raise additional third party capital for the funds we manage or for potential new funds and therefore wemay forego existing or potential fee income and other income generating opportunities.

The United Kingdom's vote to leave, and the eventual exit of the United Kingdom from, the European Union could adversely affect us. On June 23, 2016, the U.K. voted to exit the E.U. (Brexit), and on March 29, 2017, the U.K. government delivered formal notice to the other E.U. member countries that it is leaving the E.U. A two-year period has now commenced during which the U.K. and the E.U. will negotiate the future terms of the U.K.'s relationship with the E.U., including the terms of trade between the U.K. and the E.U. Unless this period is extended, the U.K. will automatically exit the E.U., with or without an agreement in place, after two years. During this period the U.K. will remain a part of the E.U. After Brexit terms are agreed, Brexit could be implemented in stages over a multi-year period.

The effects of Brexit will depend in part on any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently. Brexit could impair or end the ability of both MIICL and our Lloyd's syndicate to transact business in E.U. countries from our U.K. offices and MIICL's ability to maintain its current branches in E.U. member countries and in Switzerland. We have started the process to obtain regulatory approval to establish an insurance company in Germany in order to continue transacting E.U. business if U.K. access to E.U. markets ceases or is materially impaired. The Society of Lloyd's has announced that it will be setting up a new European insurance company in Brussels in order to maintain access to E.U. business for Lloyd's syndicates. Access to E.U. markets through a solution devised by the Society of Lloyd's may supplement, or serve as an alternative to, a new E.U.-based insurance carrier for business we transact in the E.U.

The eventual exit of the U.K. from the E.U., and negotiations leading up to that exit, could continue to contribute to instability in global financial markets, including foreign currency markets, and adversely affect European and worldwide economic or market conditions. In addition, no member country has previously left the E.U., and the rules for exit (contained in Article 50 of the Treaty on European Union) are brief. Accordingly, there are significant uncertainties related to the political, monetary and economic impacts of Brexit, including related tax, accounting and financial reporting implications. Brexit could also lead to legal uncertainty and potentially a large number of new and divergent national laws and regulations, including new tax rules, as the U.K. determines which E.U. laws to replace or replicate. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, business opportunities, results of operations, financial condition and cash flows.

Associates

At December 31, ~~2014,~~2017, we had approximately ~~8,600~~15,600 employees, of whom approximately ~~3,600 were employed within our insurance operations and approximately 5,000~~11,400 were employed within our Markel Ventures operations.

~~Table of Contents~~

SELECTED FINANCIAL DATA (dollars in millions, except per share data) ^{(1), (2)}


	2014			2013			2012			2017			2016			2015
Results of Operations
Earned premiums	$	3,841		$	3,232		$	2,147		$	4,248		$	3,866		$	3,824
Net investment income	363			317			282			406			373			353
Total operating revenues	5,134			4,323			3,000			6,062			5,612			5,370
Net income (loss) to shareholders	321			281			253			395			456			583
Comprehensive income (loss) to shareholders	936			459			504			1,175			667			233
Diluted net income (loss) per share	$	22.27		$	22.48		$	25.89		$	25.81		$	31.27		$	41.74
Financial Position
Total investments, cash and cash equivalents and restricted cash and cash equivalents (invested assets)	$	18,638		$	17,612		$	9,333		$	20,570		$	19,059		$	18,181
Total assets	25,200			23,956			12,557			32,805			25,875			24,939
Unpaid losses and loss adjustment expenses	10,404			10,262			5,371			13,584			10,116			10,252
Senior long-term debt and other debt	2,254			2,256			1,493			3,099			2,575			2,239
Shareholders' equity	7,595			6,674			3,889			9,504			8,461			7,834
Common shares outstanding (at year end, in thousands)	13,962			13,986			9,629			13,904			13,955			13,959
OPERATING PERFORMANCE MEASURES ^{(1, 2, 3)}
OPERATING PERFORMANCE MEASURES ^(1,2)
Operating Data
Book value per common share outstanding	$	543.96		$	477.16		$	403.85		$	683.55		$	606.30		$	561.23
Growth (decline) in book value per share	14		%	18		%	15		%	13		%	8		%	3		%
5-Year CAGR in book value per share ⁽⁴⁾⁽³⁾	14		%	17		%	9		%	11		%	11		%	11		%
Closing stock price	$	682.84		$	580.35		$	433.42		$	1,139.13		$	904.50		$	883.35
Ratio Analysis
U.S. GAAP combined ratio ⁽⁵⁾⁽⁴⁾	95		%	97		%	97		%	105		%	92		%	89		%
Investment yield ⁽⁶⁾⁽⁵⁾	2		%	3		%	4		%	3		%	2		%	2		%
Taxable equivalent total investment return ⁽⁷⁾⁽⁶⁾	7		%	7		%	9		%	10		%	4		%	(1		)%
Investment leverage ⁽⁸⁾⁽⁷⁾	2.5			2.6			2.4			2.2			2.3			2.3
Debt to capital	23		%	25		%	28		%	25		%	23		%	22		%


⁽¹⁾	Reflects the acquisition of Alterra Capital Holdings Limited effective May 1, 2013, which included the issuance of equity totaling $2.3 billion.


⁽²⁾	~~Effective January 1, 2012, we prospectively adopted Financial Accounting Standards Board Accounting Standards Update No. 2010-26,~~ ~~Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.~~


⁽³⁾	Operating Performance Measures provide a basis for management to evaluate our performance. The method we use to compute these measures may differ from the methods used by other companies. See further discussion of management's evaluation of these measures in Management's Discussion & Analysis of Financial Condition and Results of Operations.


⁽⁴⁾⁽³⁾	CAGR—compound annual growth rate.


⁽⁵⁾⁽⁴⁾	The U.S. GAAP combined ratio measures the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition and insurance expenses to earned premiums.


⁽⁶⁾⁽⁵⁾	Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.


⁽⁷⁾⁽⁶⁾	See "Investing Results" in Management's Discussion & Analysis of Financial Condition and Results of Operations for detail regarding the calculation of taxable equivalent total investment return.


⁽⁸⁾⁽⁷⁾	Investment leverage represents total invested assets divided by shareholders' equity.



2014			2013			2012			2011			2010			2009			2008			5-Year CAGR ⁽³⁾		10-Year CAGR ⁽³⁾

$	3,841		$	3,232		$	2,147		$	1,979		$	1,731		$	1,816		$	2,022		15	%	7	%
363			317			282			264			273			260			282			8	%	3	%
5,134			4,323			3,000			2,630			2,225			2,069			1,977			15	%	9	%
321			281			253			142			267			202			(59		)	—		—
936			459			504			252			431			591			(403		)	—		—
$	22.27		$	22.48		$	25.89		$	14.60		$	27.27		$	20.52		$	(5.95	)	—		—

$	18,638		$	17,612		$	9,333		$	8,728		$	8,224		$	7,849		$	6,893		17	%	10	%
25,198			23,956			12,557			11,532			10,826			10,242			9,512			21	%	12	%
10,404			10,262			5,371			5,399			5,398			5,427			5,492			20	%	9	%
2,251			2,256			1,493			1,294			1,016			964			694			—		—
7,595			6,674			3,889			3,388			3,172			2,774			2,181			20	%	14	%
13,962			13,986			9,629			9,621			9,718			9,819			9,814			—		—


$	543.96		$	477.16		$	403.85		$	352.10		$	326.36		$	282.55		$	222.20		11	%	10	%
14		%	18		%	15		%	8		%	16		%	27		%	(16		)%	—		—
14		%	17		%	9		%	9		%	13		%	11		%	10		%	—		—
$	682.84		$	580.35		$	433.42		$	414.67		$	378.13		$	340.00		$	299.00		—		—

95		%	97		%	97		%	102		%	97		%	95		%	99		%	—		—
2		%	3		%	4		%	4		%	4		%	4		%	4		%	—		—
7		%	7		%	9		%	7		%	8		%	13		%	(10		)%	—		—
2.5			2.6			2.4			2.6			2.6			2.8			3.2			—		—
23		%	25		%	28		%	28		%	24		%	26		%	24		%	—		—

~~Table~~

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of ~~Contents~~1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

5-Year CAGR ⁽⁴⁾

10-Year CAGR ⁽⁴⁾

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Opinion on Internal Control Over Financial Reporting

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and the related consolidated statements of income and comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and related notes, and our report dated February 23, 2018 expressed an unqualified opinion on those consolidated financial statements.

Management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 Costa Farms and State National Companies (State National), which were acquired in August 2017 and November 2017, respectively. These operations represent 15 percent of assets and 2 percent of operating revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2017. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Costa Farms and State National.

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

~~Table~~Definition and Limitations of ~~Contents~~Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Richmond, Virginia

February 23, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Markel Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Markel Corporation and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income and comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, "the consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2018 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company's auditor since 1980.

Richmond, Virginia

February 23, 2018

MARKEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	December 31,				December 31,
	2014		2013		2017			2016
	(dollars in thousands)				(dollars in thousands)
ASSETS
Investments, available-for-sale, at estimated fair value:
Fixed maturities (amortized cost of $9,929,137 in 2014 and $10,129,141 in 2013)	$	10,422,882	$	10,142,536
Equity securities (cost of $1,951,658 in 2014 and $1,566,553 in 2013)	4,137,576		3,251,798
Fixed maturities (amortized cost of $9,551,153 in 2017 and $9,591,734 in 2016)					$	9,940,670		$	9,891,510
Equity securities (cost of $2,667,661 in 2017 and $2,481,448 in 2016)					5,967,847			4,745,841
Short-term investments (estimated fair value approximates cost)	1,594,849		1,452,288		2,160,974			2,336,151
Total Investments	16,155,307		14,846,622		18,069,491			16,973,502
Cash and cash equivalents	1,960,169		1,978,526		2,198,459			1,738,747
Restricted cash and cash equivalents	522,225		786,926		302,387			346,417
Receivables	1,135,217		1,141,773		1,567,453			1,282,997
Reinsurance recoverable on unpaid losses	1,868,669		1,854,414		4,619,336			2,006,945
Reinsurance recoverable on paid losses	102,206		102,002		126,054			64,892
Deferred policy acquisition costs	353,410		260,967		465,569			392,410
Prepaid reinsurance premiums	365,458		383,559		1,099,757			299,923
Goodwill	1,049,115		967,717		1,777,464			1,142,248
Intangible assets	702,747		565,083		1,355,681			722,542
Other assets	985,834		1,067,922		1,223,365			904,676
Total Assets	$	25,200,357	$	23,955,511	$	32,805,016		$	25,875,299
LIABILITIES AND EQUITY
Unpaid losses and loss adjustment expenses	$	10,404,152	$	10,262,056	$	13,584,281		$	10,115,662
Life and annuity benefits	1,305,818		1,486,574		1,072,112			1,049,654
Unearned premiums	2,245,690		2,127,115		3,308,779			2,263,838
Payables to insurance and reinsurance companies	276,122		295,496		324,304			231,327
Senior long-term debt and other debt (estimated fair value of $2,493,000 in 2014 and $2,372,000 in 2013)	2,253,594		2,256,227
Senior long-term debt and other debt (estimated fair value of $3,351,000 in 2017 and $2,721,000 in 2016)					3,099,230			2,574,529
Other liabilities	1,051,931		777,850		1,748,460			1,099,200
Total Liabilities	17,537,307		17,205,318		23,137,166			17,334,210
Redeemable noncontrolling interests	61,048		72,183		166,269			73,678
Commitments and contingencies
Shareholders' equity:
Common stock	3,308,395		3,288,863		3,381,834			3,368,666
Retained earnings	2,581,866		2,294,909		3,776,743			3,526,395
Accumulated other comprehensive income	1,704,557		1,089,805		2,345,571			1,565,866
Total Shareholders' Equity	7,594,818		6,673,577		9,504,148			8,460,927
Noncontrolling interests	7,184		4,433		(2,567		)	6,484
Total Equity	7,602,002		6,678,010		9,501,581			8,467,411
Total Liabilities and Equity	$	25,200,357	$	23,955,511	$	32,805,016		$	25,875,299

~~Table of Contents~~

MARKEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


	Years Ended December 31,									Years Ended December 31,
	2014			2013			2012			2017			2016			2015
	(dollars in thousands, except per share data)									(dollars in thousands, except per share data)
OPERATING REVENUES
Earned premiums	$	3,840,912		$	3,231,616		$	2,147,128		$	4,247,978		$	3,865,870		$	3,823,532
Net investment income	363,230			317,373			282,107			405,709			373,230			353,213
Net realized investment gains:
Net realized investment gains (losses):
Other-than-temporary impairment losses	(4,784		)	(4,706		)	(12,078		)	(7,589		)	(18,355		)	(44,481		)
Net realized investment gains, excluding other-than-temporary impairment losses	50,784			67,858			43,671			2,286			83,502			150,961
Net realized investment gains	46,000			63,152			31,593
Net realized investment gains (losses)										(5,303		)	65,147			106,480
Other revenues	883,525			710,942			539,284			1,413,275			1,307,779			1,086,758
Total Operating Revenues	5,133,667			4,323,083			3,000,112			6,061,659			5,612,026			5,369,983
OPERATING EXPENSES
Losses and loss adjustment expenses	2,202,467			1,816,273			1,154,068			2,865,761			2,050,744			1,938,745
Underwriting, acquisition and insurance expenses	1,460,882			1,312,312			929,472			1,587,414			1,498,590			1,455,080
Amortization of intangible assets	57,627			55,223			33,512			80,758			68,533			68,947
Other expenses	854,871			663,528			478,248			1,307,980			1,190,243			1,046,805
Total Operating Expenses	4,575,847			3,847,336			2,595,300			5,841,913			4,808,110			4,509,577
Operating Income	557,820			475,747			404,812			219,746			803,916			860,406
Interest expense	117,442			114,004			92,762			132,451			129,896			118,301
Loss on early extinguishment of debt										—			44,100			—
Income Before Income Taxes	440,378			361,743			312,050			87,295			629,920			742,105
Income tax expense	116,690			77,898			53,802
Income tax expense (benefit)										(313,463		)	169,477			152,963
Net Income	$	323,688		$	283,845		$	258,248		$	400,758		$	460,443		$	589,142
Net income attributable to noncontrolling interests	2,506			2,824			4,863			5,489			4,754			6,370
Net Income to Shareholders	$	321,182		$	281,021		$	253,385		$	395,269		$	455,689		$	582,772

OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Change in net unrealized gains on investments, net of taxes:
Net holding gains arising during the period	$	687,735		$	225,545		$	266,425
Net holding gains (losses) arising during the period										$	787,339		$	275,661		$	(240,170	)
Change in unrealized other-than-temporary impairment losses on fixed maturities arising during the period	173			(141		)	(160		)	—			35			160
Reclassification adjustments for net gains included in net income	(26,161		)	(40,830		)	(24,051		)	(24,296		)	(33,528		)	(80,482		)
Change in net unrealized gains on investments, net of taxes	661,747			184,574			242,214			763,043			242,168			(320,492		)
Change in foreign currency translation adjustments, net of taxes	(32,241		)	(10,143		)	1,534			10,449			(11,704		)	(29,278		)
Change in net actuarial pension loss, net of taxes	(14,750		)	4,065			6,664			6,259			(19,100		)	(352		)
Total Other Comprehensive Income	614,756			178,496			250,412
Total Other Comprehensive Income (Loss)										779,751			211,364			(350,122		)
Comprehensive Income	$	938,444		$	462,341		$	508,660		$	1,180,509		$	671,807		$	239,020
Comprehensive income attributable to noncontrolling interests	2,510			2,852			4,858			5,535			4,760			6,297
Comprehensive Income to Shareholders	$	935,934		$	459,489		$	503,802		$	1,174,974		$	667,047		$	232,723

NET INCOME PER SHARE
Basic	$	22.38		$	22.57		$	25.96		$	25.89		$	31.41		$	41.99
Diluted	$	22.27		$	22.48		$	25.89		$	25.81		$	31.27		$	41.74

~~Table of Contents~~

MARKEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


(in thousands)	Common Shares		Common Stock			Retained Earnings			Accumulated Other Comprehensive Income		Total Shareholders' Equity			Noncontrolling Interests			Total Equity			Redeemable Noncontrolling Interests			Common Shares		Common Stock			Retained Earnings			Accumulated Other Comprehensive Income			Total Shareholders' Equity			Noncontrolling Interests			Total Equity			Redeemable Noncontrolling Interests
December 31, 2011	9,621		$	891,507		$	1,835,086		$	660,920	$	3,387,513		$	602		$	3,388,115		$	74,231
December 31, 2014																							13,962		$	3,308,395		$	2,581,866		$	1,704,557		$	7,594,818		$	7,184		$	7,602,002		$	61,048
Net income (loss)						253,385			—		253,385			(262		)	253,123			5,125								582,772			—			582,772			(988		)	581,784			7,358
Other comprehensive income (loss)						—			250,417		250,417			—			250,417			(5		)						—			(350,049		)	(350,049		)	—			(350,049		)	(73		)
Comprehensive Income (Loss)											503,802			(262		)	503,540			5,120														232,723			(988		)	231,735			7,285
Issuance of common stock	47		9,145			—			—		9,145			—			9,145			—			34		4,752			—			—			4,752			—			4,752			—
Repurchase of common stock	(39	)	—			(16,873		)	—		(16,873		)	—			(16,873		)	—			(37	)	—			(31,491		)	—			(31,491		)	—			(31,491		)	—
Restricted stock awards expensed	—		6,462			—			—		6,462			—			6,462			—			—		24,129			—			—			24,129			—			24,129			—
Acquisitions	—		—			—			—		—			—			—			15,055
Acquisition of CapTech																							—		—			—			—			—			—			—			13,817
Adjustment of redeemable noncontrolling interests	—		—			(3,101		)	—		(3,101		)	—			(3,101		)	3,101			—		—			4,144			—			4,144			—			4,144			(4,144		)
Purchase of noncontrolling interest	—		1,430			—			—		1,430			—			1,430			(3,573		)	—		(1,447		)	—			—			(1,447		)	—			(1,447		)	(8,224		)
Other	—		436			(157		)	—		279			20			299			(7,709		)	—		6,528			(6		)	—			6,522			263			6,785			(6,824		)
December 31, 2012	9,629		908,980			2,068,340			911,337		3,888,657			360			3,889,017			86,225
Net income (loss)						281,021			—		281,021			(958		)	280,063			3,782
December 31, 2015																							13,959		3,342,357			3,137,285			1,354,508			7,834,150			6,459			7,840,609			62,958
Net income																												455,689			—			455,689			99			455,788			4,655
Other comprehensive income						—			178,468		178,468			—			178,468			28								—			211,358			211,358			—			211,358			6
Comprehensive Income (Loss)											459,489			(958		)	458,531			3,810
Issuance of common stock	71		24,518			—			—		24,518			—			24,518			—
Repurchase of common stock	(109	)	—			(57,388		)	—		(57,388		)	—			(57,388		)	—
Restricted stock awards expensed	(3	)	25,239			—			—		25,239			—			25,239			—
Acquisition of Alterra	4,398		2,330,199			—			—		2,330,199			—			2,330,199			—
Adjustment of redeemable noncontrolling interests	—		—			1,963			—		1,963			—			1,963			(1,963		)
Purchase of noncontrolling interest	—		(136		)	—			—		(136		)	—			(136		)	(11,716		)
Other	—		63			973			—		1,036			5,031			6,067			(4,173		)
December 31, 2013	13,986		3,288,863			2,294,909			1,089,805		6,673,577			4,433			6,678,010			72,183
Net income (loss)						321,182			—		321,182			(1,981		)	319,201			4,487
Other comprehensive income						—			614,752		614,752			—			614,752			4
Comprehensive Income (Loss)											935,934			(1,981		)	933,953			4,491
Comprehensive Income																																		667,047			99			667,146			4,661
Issuance of common stock	19		5,691			—			—		5,691			—			5,691			—			54		4,623			—						4,623			—			4,623			—
Repurchase of common stock	(43	)	—			(26,053		)	—		(26,053		)	—			(26,053		)	—			(58	)	—			(51,142		)	—			(51,142		)	—			(51,142		)	—
Restricted stock awards expensed	—		22,935			—			—		22,935			—			22,935			—			—		21,336			—			—			21,336			—			21,336			—
Adjustment of redeemable noncontrolling interests	—		—			(8,186		)	—		(8,186		)	—			(8,186		)	8,186			—		—			(15,472		)	—			(15,472		)	—			(15,472		)	15,472
Purchase of noncontrolling interest	—		(10,257		)	—			—		(10,257		)	905			(9,352		)	(18,566		)	—		350			—			—			350			—			350			(3,517		)
Other	—		1,163			14			—		1,177			3,827			5,004			(5,246		)	—		—			35			—			35			(74		)	(39		)	(5,896		)
December 31, 2014	13,962		$	3,308,395		$	2,581,866		$	1,704,557	$	7,594,818		$	7,184		$	7,602,002		$	61,048
December 31, 2016																							13,955		3,368,666			3,526,395			1,565,866			8,460,927			6,484			8,467,411			73,678
Net income (loss)																												395,269			—			395,269			(895		)	394,374			6,384
Other comprehensive income																												—			779,705			779,705			—			779,705			46
Comprehensive Income (loss)																																		1,174,974			(895		)	1,174,079			6,430
Issuance of common stock																							58		552			—			—			552			—			552			—
Repurchase of common stock																							(109	)	—			(110,838		)	—			(110,838		)	—			(110,838		)	—
Restricted stock awards expensed																							—		15,881			—			—			15,881			—			15,881			—
Acquisition of Costa Farms																							—		—			—			—			—			—			—			66,600
Adjustment of redeemable noncontrolling interests																							—		—			(33,738		)	—			(33,738		)	—			(33,738		)	33,738
Purchase of noncontrolling interest																							—		(2,955		)	—			—			(2,955		)	(8,330		)	(11,285		)	(6,179		)
Other																							—		(310		)	(345		)	—			(655		)	174			(481		)	(7,998		)
December 31, 2017																							13,904		$	3,381,834		$	3,776,743		$	2,345,571		$	9,504,148		$	(2,567	)	$	9,501,581		$	166,269

~~Table of Contents~~

MARKEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,									Years Ended December 31,
	2014			2013			2012			2017			2016			2015
	(dollars in thousands)									(dollars in thousands)
OPERATING ACTIVITIES
Net income	$	323,688		$	283,845		$	258,248		$	400,758		$	460,443		$	589,142
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax expense	84,543			4,050			37,648
Deferred income tax expense (benefit)										(324,090		)	63,358			(9,678		)
Depreciation and amortization	203,580			190,066			87,326			203,871			194,147			200,987
Net realized investment gains	(46,000		)	(63,152		)	(31,593		)
Net realized investment (gains) losses										5,303			(65,147		)	(106,480		)
Loss on early extinguishment of debt										—			44,100			—
Decrease (increase) in receivables	21,148			142,065			(36,590		)	(38,259		)	(163,123		)	5,604
Decrease (increase) in deferred policy acquisition costs	(99,387		)	(103,704		)	37,209
Increase in deferred policy acquisition costs										(67,923		)	(41,619		)	(7,360		)
Increase (decrease) in unpaid losses and loss adjustment expenses, net	249,873			290,130			(28,052		)	619,305			(9,429		)	(91,960		)
Decrease in life and annuity benefits	(62,883		)	(40,235		)	—			(55,647		)	(54,580		)	(85,257		)
Increase in unearned premiums, net	147,840			97,249			71,073
Increase (decrease) in unearned premiums, net										197,706			134,593			(4,522		)
Increase (decrease) in payables to insurance and reinsurance companies	(45,204		)	(150,764		)	19,190			(40,761		)	11,582			(31,829		)
Increase (decrease) in income taxes payable	(46,576		)	81,995			(9,909		)	(35,968		)	(16,484		)	27,817
Increase (decrease) in accrued expenses										(71,669		)	67,994			97,273
Increase (decrease) in other liabilities										45,051			(90,571		)	(5,793		)
Other	(13,830		)	13,976			(12,017		)	20,852			(641		)	73,207
Net Cash Provided By Operating Activities	716,792			745,521			392,533			858,529			534,623			651,151
INVESTING ACTIVITIES
Proceeds from sales of fixed maturities and equity securities	1,286,871			879,564			336,548			577,650			365,822			538,978
Proceeds from maturities, calls and prepayments of fixed maturities	1,420,817			1,475,938			510,697			1,129,895			963,165			1,503,616
Cost of fixed maturities and equity securities purchased	(3,153,055		)	(1,651,397		)	(426,439		)	(1,176,281		)	(2,205,939		)	(1,576,254		)
Net change in short-term investments	(129,164		)	(470,423		)	(428,292		)	234,743			(689,194		)	(62,124		)
Proceeds from sales of equity method investments	107,292			313,557			—			3,353			8,790			23,155
Cost of equity method investments	(16,081		)	(38,018		)	(40,650		)	(13,023		)	(8,576		)	(21,849		)
Change in restricted cash and cash equivalents	264,701			(263,014		)	(37,642		)
Additions to property and equipment	(82,132		)	(47,725		)	(45,519		)	(74,652		)	(63,674		)	(79,755		)
Acquisitions, net of cash acquired	(319,086		)	(12,198		)	(243,675		)	(1,431,712		)	(7,527		)	(261,521		)
Other	(2,368		)	1,103			(2,158		)	5,570			(1,348		)	(797		)
Net Cash Provided (Used) By Investing Activities	(622,205		)	187,387			(377,130		)	(744,457		)	(1,638,481		)	63,449
FINANCING ACTIVITIES
Additions to senior long-term debt and other debt	89,480			547,214			492,792			664,657			559,300			69,797
Repayment and retirement of senior long-term debt and other debt	(83,722		)	(321,978		)	(313,790		)
Repayment of senior long-term debt and other debt										(259,972		)	(278,363		)	(88,020		)
Premiums and fees related to early extinguishment of debt										—			(43,691		)	—
Repurchases of common stock	(26,053		)	(57,388		)	(16,873		)	(110,838		)	(51,142		)	(31,491		)
Issuance of common stock	5,691			24,518			9,145			552			4,623			4,752
Purchase of redeemable noncontrolling interests	(25,918		)	(11,852		)	(2,143		)
Payment of contingent consideration										(5,018		)	(14,219		)	(9,263		)
Purchase of noncontrolling interests										(18,334		)	(3,167		)	(12,474		)
Distributions to noncontrolling interests	(5,245		)	(5,124		)	(7,684		)	(7,899		)	(5,949		)	(6,287		)
Other	(21,357		)	(23		)	(19,485		)	(6,833		)	(15,373		)	(1,225		)
Net Cash Provided (Used) By Financing Activities	(67,124		)	175,367			141,962			256,315			152,019			(74,211		)
Effect of foreign currency rate changes on cash and cash equivalents	(45,820		)	6,485			3,142
Increase (decrease) in cash and cash equivalents	(18,357		)	1,114,760			160,507
Cash and cash equivalents at beginning of year	1,978,526			863,766			703,259
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	1,960,169		$	1,978,526		$	863,766
Effect of foreign currency rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents										45,295			(33,138		)	(52,642		)
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents										415,682			(984,977		)	587,747
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year										2,085,164			3,070,141			2,482,394
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS AT END OF YEAR										$	2,500,846		$	2,085,164		$	3,070,141

See accompanying notes to consolidated financial statements.

MARKEL CORPORATION AND SUBSIDIARIES

~~Table of Contents~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Markel Corporation is a diverse financial holding company serving a variety of niche markets. Markel Corporation's principal business markets and underwrites specialty insurance products. Through its ~~wholly-owned~~wholly owned subsidiary, Markel Ventures, Inc. (Markel Ventures), Markel Corporation also owns interests in various ~~industrial and service~~ businesses that operate outside of the specialty insurance marketplace.

~~On May 1, 2013 (the Acquisition Date), Markel Corporation completed the acquisition of 100% of the issued and outstanding common stock of Alterra Capital Holdings Limited (Alterra).~~

a)Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and include the accounts of Markel Corporation and its consolidated subsidiaries, as well as any variable interest entities (VIEs) that meet the requirements for consolidation (the Company). All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements include the results of operations and cash flows of Alterra from the Acquisition Date to December 31, 2014 and not in any prior periods, except with respect to the Supplemental Pro Forma Information included in note 2. The Company consolidates the results of its Markel Ventures subsidiaries on a one-month lag. Certain prior year amounts have been reclassified to conform to the current presentation.

b)Use of Estimates. 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, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Management periodically reviews its estimates and assumptions. Quarterly reviews include evaluating the adequacy of reserves for unpaid losses and loss adjustment expenses, life and annuity reinsurance benefit reserves, litigation contingencies, the reinsurance allowance for doubtful accounts and income tax liabilities, as well as analyzing the recoverability of deferred tax assets, estimating reinsurance premiums written and earned and evaluating the investment portfolio for other-than-temporary declines in estimated fair value. Estimates and assumptions for goodwill and intangible assets are reviewed in conjunction with an acquisition, and goodwill and indefinite-lived intangible assets are reassessed at least annually for impairment. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements.

c)Investments. Available-for-sale investments are recorded at estimated fair value. Unrealized gains and losses on investments, net of ~~deferred~~ income taxes, are included in accumulated other comprehensive income in shareholders' equity. The Company completes a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary.

Premiums and discounts are amortized or accreted over the lives of the related fixed maturities as an adjustment to the yield using the effective interest method. Dividend and interest income are recognized when earned. Realized investment gains or losses are included in earnings. Realized gains or losses from sales of investments are derived using the first-in, first-out method.

The Company also has certain investments in equity securities that are recorded at estimated fair value with changes in unrealized gains and losses recorded in net income. These investments totaled $168.8 million as of December 31, 2017 and are included in equity securities in the consolidated balance sheets.

Investments accounted for under the equity method of accounting are recorded at cost within other assets on the consolidated balance sheets and subsequently increased or decreased by the Company's proportionate share of the net income or loss of the investee. The Company records its proportionate share of net income or loss of the investee in net investment ~~income.~~income (loss). The Company records its proportionate share of other comprehensive income or loss of the investee as a component of other comprehensive ~~income.~~income (loss). Dividends or other equity distributions in excess of the Company's cumulative equity in earnings of the investee are recorded as as a reduction of the investment. The Company reviews equity method investments for impairment when events or circumstances indicate that a decline in the fair value of the investment below its carrying value is other-than-temporary.

d)Cash and Cash Equivalents. The Company considers all investments with original maturities of 90 days or less to be cash equivalents. The carrying value of the Company's cash and cash equivalents and restricted cash and cash equivalents approximates fair value.

~~Table~~e)Restricted Cash and Cash Equivalents. Cash and cash equivalents that are restricted as to withdrawal or use are recorded as restricted cash and cash equivalents. The carrying value of ~~Contents~~the Company’s restricted cash and cash equivalents approximates fair value.

e)f)Receivables. Receivables include amounts receivable from agents, brokers and insureds, which represent premiums that are both currently due and amounts not yet due on insurance and reinsurance policies. Premiums for insurance policies are generally due at inception. Premiums for reinsurance policies generally become due over the period of coverage based on the policy terms. The Company monitors the credit risk associated with premiums receivable, taking into consideration the fact that in certain instances credit risk may be reduced by the Company's right to offset loss obligations or unearned premiums against premiums receivable. Amounts deemed uncollectible are charged to net income in the period they are determined. Changes in the estimate of reinsurance premiums written will result in an adjustment to premiums receivable in the period they are determined.

f)g)Reinsurance Recoverables. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business. Allowances are established for amounts deemed uncollectible and reinsurance recoverables are recorded net of these allowances. The Company evaluates the financial condition of its reinsurers and monitors concentration risk to minimize its exposure to significant losses from individual reinsurers.

g)h)Deferred Policy Acquisition Costs. Costs directly related to the acquisition of insurance premiums are deferred and amortized over the related policy period, generally one year. ~~Concurrent with the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2010-26,~~ ~~Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts,~~ ~~effective January 1, 2012, the~~The Company only defers acquisition costs incurred that are related directly to the successful acquisition of new or renewal insurance contracts, including commissions to agents and brokers and premium taxes. Commissions received related to reinsurance premiums ceded are netted against broker commissions in determining acquisition costs eligible for deferral. To the extent that future policy revenues on existing policies are not adequate to cover related costs and expenses, deferred policy acquisition costs are charged to earnings. The Company does not consider anticipated investment income in determining whether a premium deficiency exists.

h)i)Goodwill and Intangible Assets. Goodwill and intangible assets are recorded as a result of business acquisitions. Goodwill represents the excess of the amount paid to acquire a business over the net fair value of assets acquired and liabilities assumed at the date of acquisition. Indefinite-lived and other intangible assets are recorded at fair value as of the acquisition date. The determination of the fair value of certain assets acquired and liabilities assumed involves significant judgment and the use of valuation models and other estimates, which require assumptions that are inherently subjective. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. The Company completes an annual test during the fourth quarter of each year based upon the results of operations through September 30. Intangible assets with definite lives are amortized using the straight-line method over their estimated useful lives, generally five to 20 years, and are reviewed for impairment when events or circumstances indicate that their carrying value may not be recoverable.

i)j)Property and Equipment. Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are calculated using the straight-line method over the estimated useful lives (generally, the lower of the life of the lease or the estimated useful life for leasehold improvements,ten to 40 years for buildings, seven to 40 years for land improvements, three to ten years for furniture and equipment and three to 25 years for other property and equipment).

j)k)Redeemable Noncontrolling Interests. The Company owns controlling interests in various companies through its Markel Ventures operations. In some cases, the Company has the option to acquire the remaining equity interests, and the remaining equity interests have the option to sell their interests to the Company, in the future. The redemption value of the remaining equity interests is generally based on the respective company's earnings in specified periods preceding the redemption date. The redeemable noncontrolling interests generally become redeemable through ~~2018.~~2022.

The Company recognizes changes in the redemption value that exceed the carrying value of redeemable noncontrolling interests to retained earnings as if the balance sheet date were also the redemption date. Changes in the redemption value also result in an adjustment to net income to shareholders in the calculation of basic and diluted net income per share. The change in the redemption value of redeemable noncontrolling interests in 2017, 2016 and 2015 resulted in an adjustment ~~recorded~~ to retained earnings ~~during 2014, 2013 and 2012 was an increase~~ of ~~$8.2~~a decrease of $33.7 million, a decrease of ~~$2.0~~$15.5 million,, and an increase of ~~$3.1~~$4.1 million,, respectively.

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k)l)Income Taxes. The Company records deferred income taxes to reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. The Company recognizes the tax benefit from an uncertain tax position taken or expected to be taken in income tax returns only if it is more likely than not that the tax position will be sustained upon examination by tax authorities, based on the technical merits of the position. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach, whereby the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement is recognized. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

l)m)Unpaid Losses and Loss Adjustment Expenses. Unpaid losses and loss adjustment expenses on ~~our~~the Company's property and casualty insurance business are based on evaluations of reported claims and estimates for losses and loss adjustment expenses incurred but not reported. Estimates for losses and loss adjustment expenses incurred but not reported are based on reserve development studies, among other things. The Company does not discount reserves for losses and loss adjustment expenses to reflect estimated present value, except for reserves assumed in connection with an acquisition, which are recorded at fair value at the acquisition date. Recorded reserves are estimates, and the ultimate liability may be greater or less than the estimates.

m)n)Life and Annuity Benefits.~~Prior to its acquisition by the~~ The Company ~~Alterra entered into~~previously acquired a block of long duration reinsurance contracts for life and annuity benefits which subject the Company to mortality, longevity and morbidity risks. The assumptions used to determine policy benefit reserves ~~were determined at the Acquisition Date and~~ are generally locked-in for the life of the contract unless an unlocking event occurs. To the extent existing policy reserves, together with the present value of future gross premiums and expected investment income earned thereon, are not adequate to cover the present value of future benefits, settlement and maintenance costs, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings for life and annuity benefits is recognized at that time. Because of the assumptions and estimates used in establishing reserves for life and annuity benefit obligations and the long-term nature of these reinsurance contracts, the ultimate liability may be greater or less than the estimates.

Results attributable to the run-off of life and annuity reinsurance business are included in other revenues and other expenses in the Company's consolidated statements of income and comprehensive income and as part of the Company's Other Insurance (Discontinued Lines) segment.

n)o)Revenue Recognition.

Property and Casualty Premiums

Insurance premiums are generally earned on a pro rata basis over the policy period, typically one year. The cost of reinsurance ceded is initially recorded as prepaid reinsurance premiums and is amortized over the reinsurance contract period in proportion to the amount of insurance protection provided. Premiums ceded are netted against premiums written.

Assumed reinsurance premiums are recorded at the inception of each contract based upon contract terms and information received from cedents and brokers and are earned on a pro rata basis over the coverage period, or for multi-year contracts, in proportion with the underlying risk exposure to the extent there is variability in the exposure through the coverage period. Changes in reinsurance premium estimates are expected and may result in significant adjustments in any period. These estimates change over time as additional information regarding changes in underlying exposures is obtained. Any subsequent differences arising on such estimates are recorded as premiums written in the period they are ~~determined.~~determined and are earned on a pro rata basis over the coverage period. The Company uses the periodic method to account for assumed reinsurance from foreign reinsurers. The Company's foreign reinsurers provide sufficient information to record foreign assumed business in the same manner as the Company records assumed business from United States reinsurers.

Certain contracts that the Company writes provide for reinstatement of coverage. Reinstatement premiums are the premiums for the restoration of the insurance or reinsurance limit of a contract to its full amount after a loss occurrence by the insured or reinsured. The Company accrues for reinstatement premiums resulting from losses recorded. Such accruals are based upon contractual terms and management judgment is involved with respect to the amount of losses recorded. Changes in estimates of losses recorded on contracts with reinstatement premium features will result in changes in reinstatement premiums based on contractual terms. Reinstatement premiums are recognized at the time losses are recorded and are earned on a ~~pro-rata~~pro rata basis over the coverage period.

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Other Revenues

Other revenues primarily relate to the Company's Markel Ventures operations and consist of revenues from the sale of manufactured products and service revenues. Revenues from manufactured products are generally recognized at the time title transfers to the customer, which typically occurs at the point of shipment or delivery to the customer, depending on the terms of the sales arrangement. Revenues from services are generally recognized as the services are performed. Services provided pursuant to a contract are recognized either over the contract period or upon completion of the elements specified in the contract, depending on the terms of the contract.

o)Investment management fee income is recognized over the period in which investment management services are provided and is calculated and billed monthly based on the net asset value of the accounts managed. Performance fee arrangements entitle the Company to participate, on a fixed-percentage basis, in any net income generated in excess of an agreed-upon threshold as established by the underlying investment management agreements. In general, net income is calculated at the end of each calendar year and performance fees are payable annually. Following the preferred method identified in the Accounting Standards Codification (ASC) Topic 605, Revenue Recognition, such performance fee income is recorded at the conclusion of the contractual performance period, when all contingencies are resolved.

Program services fees received in exchange for providing access to the U.S. property and casualty insurance market are based on the gross premiums written on behalf of general agent and capacity provider clients. Program services fees are earned in a manner consistent with the recognition of the gross premiums earned on the underlying insurance policies, generally on a pro rata basis over the terms of the underlying policies reinsured.

p)Program Services. In connection with the program services business, the Company enters into contractual agreements with both the producing general agents and the reinsurers, whereby the general agents and reinsurers are typically obligated to each other for payment of insurance amounts, including premiums, commissions and losses. To the extent these funds are not the obligation of the Company and are settled directly between the general agent and the reinsurer, no receivables or payables are recorded for these amounts. All obligations of the Company's insurance subsidiaries owed to or on behalf of their policyholders are recorded by the Company and, to the extent appropriate, offsetting reinsurance recoverables are recorded.

q)Stock-based Compensation. Stock-based compensation expense is generally recognized as part of underwriting, acquisition and insurance expenses over the requisite service period. Stock-based compensation expense, net of taxes, was ~~$18.7~~$11.9 millionin 2017, $14.3 million in ~~2014~~, ~~$18.4~~2016 and $16.3 million in ~~2013~~ ~~and~~ ~~$4.4 million~~ in ~~2012~~.2015. See note 12.

p)r)Foreign Currency Translation. The functional currencies of the Company's foreign operations are the currencies in which the majority of their business is transacted. Assets and liabilities of foreign operations are translated into the United States Dollar using the exchange rates in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using the average exchange rate for the period. Gains or losses from translating the financial statements of foreign operations denominated in a functional currency are included, net of taxes, in shareholders' equity as a component of accumulated other comprehensive income. Gains and losses arising from transactions denominated in a foreign currency other than a functional currency are included in net income.

The Company manages its exposure to foreign currency risk primarily by matching assets, other than goodwill and intangible assets, and liabilities denominated in the same currency. To the extent that assets and liabilities in foreign currencies are not matched, the Company is exposed to foreign currency risk. For functional currencies, the related exchange rate fluctuations are reflected in other comprehensive income. The cumulative foreign currency translation adjustment, net of taxes, was a loss of ~~$43.5~~$74.0 million and ~~$11.2~~$84.4 million at December 31, ~~2014~~2017 and ~~2013~~,2016, respectively.

q)s)Derivative Financial Instruments. Derivative instruments, including derivative instruments resulting from hedging activities, are measured at fair value and recognized as either assets or liabilities on the consolidated balance sheets. The changes in fair value of derivatives are recognized in earnings unless the derivative is designated as a hedge and qualifies for hedge accounting.

The Company's foreign currency forward contracts are generally designated and qualify as hedges of a net investment in a foreign operation. The effective portion of the change in fair value resulting from these hedges is reported in currency translation adjustments as part of other comprehensive income. The ineffective portion of the change in fair value is recognized in earnings.

r)t)Comprehensive Income. Comprehensive income represents all changes in equity that result from recognized transactions and other economic events during the period. Other comprehensive income refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income but excluded from net income, such as unrealized gains or losses on investments, foreign currency translation adjustments and changes in net actuarial pension loss.

s)u)Net Income Per Share. Basic net income per share is computed by dividing adjusted net income to shareholders by the weighted average number of common shares outstanding during the year. Diluted net income per share is computed by dividing adjusted net income to shareholders by the weighted average number of common shares and dilutive potential common shares outstanding during the year. See note 12(b).

t)v)Variable Interest Entities. The Company determines whether it has relationships with entities defined as VIEs in accordance with ASC Topic 810, Consolidation. Under this guidance, a VIE is consolidated by the variable interest holder that is determined to be the primary beneficiary.

An entity in which the Company holds a variable interest is a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) as a group, the holders of equity investment at risk lack either the direct or indirect ability through voting rights or similar rights to make decisions about an entity's activities that most significantly impact the entity's economic performance or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some investors are disproportionate to their obligation to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity's activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.

The primary beneficiary is defined as the variable interest holder that is determined to have the controlling financial interest as a result of having both (a) the power to direct the activities of a VIE that most significantly impact the economic performance of the VIE and (b) the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company determines whether an entity is a VIE at the inception of its variable interest in the entity and upon the occurrence of certain reconsideration events. The Company continually reassesses whether it is the primary beneficiary of VIEs in which it holds a variable interest.

w)Recent Accounting Pronouncements.

Effective January 1, ~~2014,~~2017, the Company early adopted ~~FASB ASU~~Accounting Standards Update (ASU) No. ~~2013-11,~~2016-15, ~~Presentation~~Statement of ~~an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.~~ Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ASU No. 2013-11 requires that a liability related~~, which is intended to ~~an unrecognized tax benefit be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected~~reduce diversity in practice in how certain transactions are classified in the ~~event~~statement of cash flows. Some of the ~~uncertain tax position is disallowed. In that case,~~topics covered by the ~~liability associated with~~ASU include the ~~unrecognized tax benefit is presented in the financial statements as~~classification of debt prepayment and extinguishment costs, contingent consideration payments made after a reduction to the related deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. Otherwise, the unrecognized tax benefit should be presented in the financial statements as a liabilitybusiness combination and ~~should not be combined with deferred tax assets. The~~distributions from equity method investees. Upon adoption of this ~~guidance~~ASU, the Company made an accounting policy election to use the cumulative earnings approach for presenting distributions received from equity method investees, which is consistent with its existing approach. Under this approach, distributions up to the amount of cumulative equity in earnings recognized will be treated as returns on investment and presented in operating activities and those in excess of that amount will be treated as returns of investment and presented in financing activities. The provisions of ASU No. 2016-15 were adopted on a retrospective basis and did not impact the Company's financial position, results of operations or cash flows.

Effective January 1, 2017, the Company early adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The ASU requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company previously presented changes in restricted cash and restricted cash equivalents on the statements of cash flows as an investing activity. The Company generally describes amounts held in trust or on deposit to support underwriting activities as well as amounts pledged as security for letters of credit as restricted cash or restricted cash equivalents. The provisions of ASU No. 2016-18 were adopted on a retrospective basis and did not impact the Company's financial position, results of operations or total comprehensive income. As a result of adoption of this ASU, investing cash inflows of $93.4 million in 2016 and $62.3 million in 2015 were attributed to the change in restricted cash and were reclassified out of investing activities. The Company's statements of cash flows now include restricted cash and restricted cash equivalents in the beginning-of-period and end-of-period total amounts for cash, cash equivalents, restricted cash and restricted cash equivalents.

Effective January 1, 2017, the Company early adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU eliminates Step 2 of the goodwill impairment test, which is performed by estimating the fair value of individual assets and liabilities of the reporting unit to calculate the implied fair value of goodwill. Instead, an entity will record a goodwill impairment charge based on the excess of a reporting unit's carrying value over its estimated fair value, not to exceed the carrying amount of goodwill. The provisions of ASU No. 2017-04 were adopted on a prospective basis and did not have an impact on the Company's financial position, results of operations or cash flows.

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In May 2014, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which creates a new comprehensive revenue recognition standard that will serve as a single source of revenue guidance for all companies in all industries. The guidance applies to all companies that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards, such as insurance contracts. ASU No. 2014-09's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Several ASUs have also been issued as amendments to ASU No. 2014-09 and will be evaluated and adopted in conjunction with ASU No. 2014-09. ASU No. 2014-09 becomes effective for the Company during the first quarter of ~~2017~~2018 and ~~may~~will be applied ~~retrospectively or under a~~using the modified retrospective method, ~~where~~whereby the cumulative effect isof adoption for ongoing contracts will be recognized as an adjustment to retained earnings at the date of initial application. ~~Early application~~The adjustment to retained earnings at January 1, 2018 will not be material. The adoption of this ASU will not impact the Company's insurance premium revenues or revenues from its investment portfolio, which totaled 77% of consolidated revenues for the year ended December 31, 2017, but will impact certain of the Company's other revenues, which are comprised of a diverse portfolio of contracts across various industries. Based on the Company’s evaluation of the impacted revenue streams, which was completed in 2017, the timing of the recognition of revenue and related costs will change with respect to certain contracts with customers, none of which will have a material effect on the consolidated financial statements. For instance, revenues and costs for certain contracts will be recognized over time rather than when the product or service is delivered, as is the current practice. The Company also will provide additional disclosures in the notes to consolidated financial statements as required under the new guidance.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU significantly changes the income statement impact of equity investments and the recognition of changes in fair value of financial liabilities attributable to an entity's own credit risk when the fair value option is elected. The ASU requires equity instruments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to recognize any changes in fair value in net income rather than other comprehensive income. ASU No. 2016-01 becomes effective for the Company during the first quarter of 2018 and will be applied using a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. As of December 31, 2017, accumulated other comprehensive income included $3.3 billion of net unrealized gains on equity securities, which will be reclassified to retained earnings on January 1, 2018. As of December 31, 2017, accumulated other comprehensive income was net of deferred income taxes on net unrealized gains on equity securities of $1.1 billion. The Company is still assessing the impact of ASU No. 2018-02, as discussed below, on deferred taxes included in accumulated other comprehensive income and has not determined the amount of deferred income taxes on net unrealized gains on equity securities that will be reclassified to retained earnings on January 1, 2018. The provisions related to equity investments without a readily determinable fair value will be applied prospectively to equity investments as of the adoption date. Adoption of this ASU is not expected have a material impact on the Company's financial position, cash flows, or total comprehensive income, but will have a material impact on the Company's results of operations as changes in fair value of equity instruments will be presented in net income rather than other comprehensive income. See note 3(f) for details regarding the change in net unrealized gains on equity securities included in other comprehensive income for the years ended December 31, 2017, 2016 and 2015.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU requires lessees to record most leases on their balance sheets as a lease liability with a corresponding right-of-use asset, but continue to recognize the related leasing expense within net income. ASU No. 2016-02 becomes effective for the Company during the first quarter of 2019 and will be applied using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. See note 16 for details regarding the Company's minimum annual rental commitments payable directly by the Company for noncancelable operating leases at December 31, 2017, which will be subject to this new guidance. The calculation of the lease liability and right-of-use asset requires further analysis of the underlying leases to determine which portions of the underlying lease payments are required to be included in the calculation. Adoption of this standard will impact the Company’s consolidated balance sheets but is not expected to have a material impact on the Company’s results of operations or cash flows. The Company is currently evaluating ASU No. 2016-02 to determine the magnitude of the impact that adopting this standard will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU replaces the current incurred loss model used to measure impairment losses with an expected loss model for trade, reinsurance, and other receivables as well as financial instruments measured at amortized cost. For available-for-sale debt securities, which are measured at fair value, the ASU requires entities to record impairments as an allowance, rather than a reduction of the amortized cost, as is currently required under the other-than-temporary impairment model. ASU No. 2016-13 becomes effective for the Company during the first quarter of 2020 and will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating ASU No. 2016-13 to determine the potential impact that adopting this standard will have on its consolidated financial statements. Application of the new expected loss model for measuring impairment losses will not impact the Company's investment portfolio, all of which is considered available-for-sale, but will impact the Company's other financial assets, including its reinsurance recoverables. Upon adoption of this ASU, any impairment losses on the Company's available-for-sale debt securities will be recorded as an allowance, subject to reversal, rather than as a reduction in amortized cost.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU provides an option to reclassify tax effects that are stranded in accumulated other comprehensive income as a result of enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017, to retained earnings. U.S. GAAP currently requires the effects of changes in tax rates and laws on deferred tax balances to be recorded as a component of income tax expense in the period of enactment, even if the assets and liabilities relate to items of accumulated other comprehensive income. See note 8 for further discussion of the impact of the TCJA recorded in the fourth quarter of 2017. ASU No. 2018-02 becomes effective for the Company during the first quarter of 2019 and can be applied in the period of adoption or retrospectively to each period in which the effect of the TCJA was recognized. Early adoption is permitted. The Company is currently evaluating ASU No. ~~2014-09~~2018-02 to determine the potential impact that adopting this standard will have on its consolidated financial statements.

The following ASU's relate to topics relevant to the Company's operations and were adopted effective January 1, 2017. These ASU's did not have a material impact on the Company’s financial position, results of operations or cash flows:

ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory

ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting

ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control

ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business

The following ASU’s relate to topics relevant to the Company's operations and are not yet effective. These ASU's are not expected to have a material impact on the Company's financial position, results of operations or cash flows:

ASU No. 2016-16, Income Taxes (Topic 740): Intra-entity Transfers of Assets Other Than Inventory

ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

ASU No. 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting

2. Acquisitions

SureTec Acquisition ~~of Alterra~~

a)~~Overview.~~ ~~On May 1, 2013,~~In April 2017, the Company completed the acquisition of ~~100%~~ ~~of the the issued~~SureTec Financial Corp. (SureTec), a Texas-based privately held surety company primarily offering contract, commercial and outstanding common stock of Alterra pursuant to an agreement dated December 18, 2012 (the Merger Agreement) which provided for the merger of Alterra with one of the Company's subsidiaries. Alterra was a Bermuda-headquartered global enterprise providing diversified specialty property and casualty insurance and reinsurance products to corporations, public entities and other property and casualty insurers.court bonds. Results attributable to Alterra's property and casualty insurance and reinsurance business are included in each of the Company's underwriting segments, which were redefined during the first quarter of 2014. Previously, Alterra also offered life and annuity reinsurance products. In 2010, Alterra ceased writing life and annuity reinsurance contracts and placed this ~~business into run-off. Results attributable to the run-off of Alterra's life and annuity reinsurance business~~acquisition are included in the ~~Company's Other~~U.S. Insurance ~~(Discontinued Lines)~~ segment. ~~See note 19 for further discussion of the Company's reportable segments.~~

~~Pursuant to the terms of the Merger Agreement, on the Acquisition Date, equity holders of Alterra received, in exchange~~Total consideration for ~~each share of Alterra common stock held (other than restricted shares that did not vest in connection with the transaction), (1)~~ ~~0.04315~~ ~~shares of the Company's common stock and (2)~~ ~~$10.00~~ ~~in cash. Equity holders of Alterra received total consideration of~~ ~~$3.3 billion, consisting of~~this acquisition was $246.9 million, which included cash consideration of ~~$964.3 million~~ ~~and stock~~$225.6 million. Total consideration also includes the estimated fair value of ~~4.3 million~~ ~~shares of the Company's common stock.~~

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b)~~Purchase Price.~~ ~~The Company's total purchase price for Alterra as of the Acquisition Date was calculated as follows:~~

(in thousands, except per share amounts)
Shares of Alterra common stock outstanding as of the Acquisition Date 96,433
Exchange ratio per the Merger Agreement 0.04315
Markel share issuance to Alterra shareholders 4,161

Shares of Alterra restricted stock outstanding as of the Acquisition Date 2,239
Incentive award ratio per the Merger Agreement 0.06252
Markel restricted stock issuance to Alterra restricted stock holders 140

Multiplied by Markel's weighted average stock price on April 30, 2013 ⁽¹⁾
$ 529.59

Markel share and restricted stock issuance consideration, net of taxes $ 2,267,648

Alterra common shares outstanding as of the Acquisition Date that received cash consideration 96,433
Multiplied by cash price per share component per the Merger Agreement $ 10.00
Markel cash consideration $ 964,330

Fair value of Markel warrant issuance to Alterra warrant holders as of the Acquisition Date $ 73,685
Fair value of Markel stock option issuance to Alterra stock option holders as of the Acquisition Date, net of taxes $ 12,335
Fair value of partially vested Markel restricted stock unit issuance as of the Acquisition Date, net of taxes $ 6,867
Unrecognized compensation on unvested restricted stock and restricted stock units $ (20,572 )
Total acquisition consideration $ 3,304,293


⁽¹⁾	~~The fair value of the shares issued by the Company was calculated as the weighted average price of the Company's stock on April 30, 2013, the day preceding the Acquisition Date.~~

~~As part of the~~contingent consideration the Company ~~issued replacement warrants, options and restricted stock awards~~expects to ~~holders of Alterra warrants, options and restricted stock awards. The acquisition consideration related to~~pay based on SureTec's earnings, as defined in the ~~options, restricted stock and restricted stock units issued was net of income taxes of~~ ~~$1.9 million~~, ~~$10.1 million~~ ~~and~~ ~~$0.7 million, respectively. See note 12~~merger agreement, for ~~additional information about~~ the ~~equity awards issued in connection with the acquisition.~~

c)~~Fair Value of Net Assets Acquired and Liabilities Assumed.~~ years 2017 through 2020. The purchase price was allocated to the acquired assets and liabilities of ~~Alterra~~SureTec based on estimated fair values on the acquisition date. The Company recognized goodwill of $70.4 million, which is primarily attributable to synergies that are expected to result upon integration of SureTec into the Company's insurance operations. None of the goodwill recognized is expected to be deductible for income tax purposes. The Company also recognized other intangible assets of $103.0 million, which includes $92.0 million of agent relationships to be amortized over a weighted average period of 15 years.

State National Acquisition

In November 2017, the Company completed its acquisition of 100% of the issued and outstanding common stock of State National Companies, Inc. (State National), a Texas-based leading specialty provider of property and casualty insurance that includes both fronting services and collateral protection insurance coverage. Results attributable to State National's collateral protection insurance coverages are included in the U.S. Insurance segment. Results attributable to State National's program services (fronting) business are reported with the Company's other operations, which are not included in a reportable segment.

Pursuant to the terms of the merger agreement, State National stockholders received $21.00 cash for each outstanding share of State National common stock (other than certain performance-based restricted shares that did not vest in connection with the transaction). Total consideration for this acquisition was $918.8 million, all of which was cash consideration.

The purchase price was allocated to the acquired assets and liabilities of State National based on estimated fair values at the ~~Acquisition Date.~~acquisition date. The Company preliminarily recognized goodwill of ~~$295.7~~$370.4 million,, none of which is ~~primarily~~expected to be deductible for income tax purposes. The goodwill is attributable to ~~Alterra's~~the Company's ability to achieve future revenue growth from new customers and the continued enhancement of State National's existing technology. Goodwill is also attributable to State National's assembled workforce and synergies that are expected to result upon integration of ~~Alterra~~State National into the Company's insurance operations and investing activities. ~~See note 7 for goodwill recorded by reportable segment.~~ ~~None~~

The Company has not completed the process of determining the fair value of the ~~goodwill that was recorded is deductible for income tax purposes. The Company also recognized indefinite lived intangible~~ assets of ~~$37.5 million~~acquired and ~~other intangible assets of~~ ~~$170.0 million, which~~liabilities assumed. These valuations will be ~~amortized over~~completed within the measurement period, which cannot exceed 12 months from the acquisition date. As a ~~weighted average period of~~ ~~17 years~~.result, the fair value recorded for these items is a provisional estimate and may be subject to adjustment. Once completed, any adjustments resulting from the valuations may impact the individual amounts recorded for assets acquired and liabilities assumed, as well as the residual goodwill.

~~Table of Contents~~

The following table summarizes the provisional fair values of the assets acquired and liabilities assumed at the ~~Acquisition Date.~~acquisition date.


(dollars in thousands)
ASSETS
Investments	$	6,407,841	$	395,940
Cash and cash equivalents	1,036,274		77,302
Restricted cash and cash equivalents	414,497		25,545
Receivables	866,388		147,256
Reinsurance recoverable on unpaid losses	1,169,084
Reinsurance recoverable on paid losses	80,672
Prepaid reinsurance premiums	317,445		808,331
Reinsurance recoverable on paid and unpaid losses			2,075,734
Other assets	859,884		83,721
LIABILITIES
Unpaid losses and loss adjustment expenses	4,719,461		2,086,621
Life and annuity benefits	1,477,482
Unearned premiums	1,075,610		825,529
Payables to insurance and reinsurance companies	342,858		122,203
Senior long-term debt	512,463
Senior long-term debt and other debt			44,500
Other liabilities	223,108		370,551
Net assets	2,801,103		164,425
Goodwill	295,690		370,375
Intangible assets	207,500		384,000
Acquisition date fair value	$	3,304,293	$	918,800

~~An explanation of the significant adjustments for fair value and the related impact on amortization is as follows:~~

~~Investments~~ ~~- Fixed maturity investments acquired include~~Other liabilities includes a ~~net~~provisional increase of ~~$223.1~~$64.5 million to ~~adjust~~reflect the ~~historical carrying amount of Alterra's investments~~risk premium for program services business, which is attributed to ~~their estimated fair value as of~~ the ~~Acquisition Date. The difference in~~net capital charges arising from the ~~historical amortized cost of~~gross and ceded unpaid losses and loss adjustment expenses and unearned premium balances at the ~~fixed maturity investments acquired and their estimated fair value as of the Acquisition Date, $495.5 million, represents incremental premium that~~acquisition date. This adjustment will be amortized to net investment income over the term of the underlying securities. The amount of the unamortized incremental premium as of December 31, 2014 and 2013 was $281.1 million and $398.1 million, respectively. The decrease in the unamortized incremental premium is due to amortization expense of $59.3 million and $58.3 million for the years ended December 31, 2014 and 2013, respectively, and sales of securities.

~~Intangible assets -~~ ~~Establish the estimated fair value of intangible assets related to Alterra (see below for further detail).~~

~~Unearned Premiums -~~ ~~Unearned premiums acquired include a decrease of~~ ~~$176.3 million~~ to adjust the carrying value of Alterra's historical unearned premiums to fair value as of the Acquisition Date. The adjustment consists of the present value of the expected underwriting profit within the unearned premiums liability less costs to service the related policies and a risk premium. This adjustment was amortized to underwriting, acquisition and insuranceother expenses over a weighted average period of ~~approximately~~ ~~one year, as the contracts for business in-force as of the Acquisition Date expired. As of December 31, 2014, this adjustment was fully amortized.~~

~~Unpaid losses and loss adjustment expenses -~~ ~~Unpaid losses and loss adjustment expenses acquired include an increase of~~ ~~$120.8 million~~ to adjust the carrying value of Alterra's historical unpaid losses and loss adjustment expenses, net of related reinsurance recoverable, to fair value as of the Acquisition Date. The estimated fair value consists of the present value of the expected net loss and loss adjustment expense payments plus a risk premium. This adjustment, plus the ~~$26.5 million~~ unamortized fair value adjustment included in Alterra's historical unpaid losses and loss adjustment expenses, will be amortized to losses and loss adjustment expenses over a weighted average period of approximately ~~five~~three years,, based on the estimated payout pattern of net ~~reserves~~unpaid losses and loss adjustment expenses as of the ~~Acquisition Date.~~acquisition date. The amount of the unamortized fair value adjustment included in ~~unpaid losses and loss adjustment expenses~~other liabilities as of December 31, ~~2014 and 2013~~2017 was ~~$114.6~~$57.7 million. Other liabilities also includes a provisional decrease of $28.3 million ~~and $136.5 million, respectively.~~

~~Table of Contents~~

~~Life and Annuity Benefits~~ ~~- Life and annuity benefits acquired include an increase of~~ ~~$329.6 million~~ to adjust the carrying value of ~~Alterra's~~State National's historical ~~life and annuity benefits~~deferred program services fees to fair value as of the ~~Acquisition Date.~~acquisition date. The ~~estimated~~ fair value ~~consists~~ of deferred program services fees is based on the ~~present value~~cost of fulfilling the ~~expected net life and annuity benefit payments~~obligation plus a ~~risk premium. See note 10 for detail regarding accounting for life and annuity benefits.~~

~~Senior long-term debt -~~ ~~Senior long-term debt acquired includes an increase of~~ ~~$71.9 million~~ ~~to adjust the carrying value of Alterra's senior long-term debt to its estimated fair value based on prevailing interest rates and other factors as of the Acquisition Date. This~~normal profit margin. The adjustment will be amortized to ~~interest~~other expense over the ~~term~~life of the ~~notes. See note 11.~~underlying business, which is a weighted average period of one year. The amount of the unamortized ~~premium on the acquired senior long-term debt~~fair value adjustment included in other liabilities as of December 31, ~~2014 and 2013~~2017 was ~~$56.7 million and $66.1 million, respectively.~~

$19.3 million.

The following table summarizes the provisional intangible assets recorded in connection with the ~~acquisition.~~acquisition, and as of December 31, 2017.


(dollars in thousands)	Amount		Economic Useful Life	Amount		Economic Useful Life
Customer relationships	$	132,000	18 years	$	302,000	13 years
Broker relationships	19,000		18 years
Trade names				23,000		13 years
Technology	18,000		Ten years	27,000		Nine years
Trade names	1,000		One year
Lloyd's syndicate capacity	12,000		Indefinite
Insurance licenses	25,500		Indefinite	32,000		Indefinite
Intangible assets as of the Acquisition Date	$	207,500
Intangible assets, before amortization, as of the Acquisition Date				384,000
Amortization (from the Acquisition Date through December 31, 2017)				4,797
Net intangible assets as of December 31, 2017				$	379,203

Customer relationships represent ~~policyholder~~lender relationships, fronting relationships and ~~the network of insurance companies~~other relationships through which ~~Alterra~~State National conducted its operations. The fair value of customer ~~relationships and broker~~ relationships was estimated using the income approach. Critical inputs into the valuation model for customer ~~relationships and broker~~ relationships include estimates of expected premium and attrition rates, and discounting at a weighted average cost of capital. Technology represents ~~the~~ intangible ~~asset~~assets related to ~~Alterra's internally developed software~~State National's proprietary insurance systems and was valued using the income approach.

The fair value of Lloyd's syndicate capacity and insurance licenses was estimated using the market approach. Lloyd's syndicate capacity represents Alterra's authorized premium income limit to write insurance business in the Lloyd's of London (Lloyd's) insurance market. The Lloyd's capacity is renewed annually at no cost to the Company or may be freely purchased or sold, subject to Lloyd's approval. The ability to write insurance business within the syndicate capacity is indefinite with the premium income limit being set annually by the Company, subject to Lloyd's approval.

d)~~Income Taxes.~~ ~~As a result of the acquisition, Alterra and its non-U.S. subsidiaries became controlled foreign corporations subject to U.S. income tax at a statutory rate of~~ ~~35%~~. The acquisition was taxable to U.S. shareholders of Alterra, and Markel has elected to treat it as an asset acquisition under section 338(g) of the U.S. Internal Revenue Code of 1986 (IRC), as amended.

Effective May 1, 2013, the Company made an IRC section 953(d) election with respect to Markel Bermuda Limited (Markel Bermuda, formerly known as Alterra Bermuda Limited), a wholly-owned subsidiary of Alterra. As a result of the 953(d) election, Markel Bermuda is treated as a domestic corporation for U.S. tax purposes and, accordingly, is required to record deferred taxes at the ~~35%~~ ~~statutory U.S. rate.~~

~~As part of the allocation of the purchase price, the Company recorded net deferred tax assets of~~ ~~$310.1 million. Of this amount,~~ ~~$343.9 million~~ ~~represents deferred tax assets related to accrued losses and loss adjustment expenses and life and annuity benefits, which were partially offset by deferred tax liabilities of~~ ~~$64.6 million~~ related to the estimated fair value of the intangible assets recorded. Other net deferred tax assets recorded primarily relate to differences between financial reporting and tax bases of the acquired assets and liabilities as of the Acquisition Date. As of the Acquisition Date, earnings of Alterra's foreign subsidiaries are considered reinvested indefinitely, consistent with the Company's other foreign subsidiaries, and no ~~provision for deferred U.S. income tax was recorded.~~

e)~~Transaction and Acquisition-Related Costs.~~ The following table summarizes transaction and acquisition-related costs incurred by the Company in connection with the acquisition, all of which were included in underwriting, acquisition and insurance expenses in the consolidated statements of income and comprehensive income.

~~Table of Contents~~

(dollars in thousands)
Year Ended
December 31, 2013
Transaction costs $ 15,981
Acquisition-related costs:
Severance costs 31,734
Stay bonuses 14,804
Acceleration of Alterra long-term incentive compensation awards and restricted stock awards 12,621
Total transaction and acquisition-related costs $ 75,140

Transaction costs primarily consist of due diligence, legal and investment banking costs. Per the terms of the Merger Agreement, transaction costs attributable to Alterra were recorded and paid by Alterra prior to the Acquisition Date (~~$23.0 million) and are not included within the Company's consolidated statements of income and comprehensive income.~~

In connection with the acquisition, Alterra instituted a retention plan for certain employees under which Alterra committed to the payment of stay bonuses to such employees one year from the Acquisition Date, provided they remain employed with the Company through that date. Payments may have been accelerated for certain qualifying employment terminations.

Prior to its acquisition by the Company, Alterra granted long term incentive awards to certain employees to be paid in the form of cash on March 1, 2016, provided they remain employed with the Company on that date. Payments may be accelerated prior to March 1, 2016 for certain qualifying employment terminations. Additionally, as part of the purchase consideration, the Company issued replacement restricted stock awards to holders of Alterra restricted stock awards. As a result of separations made in connection with the acquisition, the Company recognized expense totaling $12.6 million related to the acceleration of certain of these awards during the year ended December 31, 2013.

f)~~Financial Results.~~ The following table summarizes the results of Alterra from the Acquisition Date through December 31, 2013 that have been included within the Company's consolidated statements of income and comprehensive income.

(dollars in thousands)
Year Ended
December 31, 2013
Operating revenues $ 912,387
Net loss to shareholders $ (93,074 )

g)~~Supplemental Pro Forma Information (unaudited).~~ Alterra's results have been included in the Company's Consolidated Financial Statements from the Acquisition Date to December 31, 2014. The following table presents unaudited pro forma consolidated information for the years ended December 31, 2013 and 2012 and assumes the Company's acquisition of Alterra occurred on January 1, 2012. The pro forma financial information is presented for informational purposes only and does not necessarily reflect the results that would have occurred had the acquisition taken place on January 1, 2012, nor is it necessarily indicative of future results. Significant adjustments used to determine pro forma results include amortization of intangible assets and amortization of fair value adjustments discussed in c) above, and the corresponding income tax effects. The Company also excluded certain charges from the pro forma results, including transaction costs incurred by the Company (~~$16.0 million~~) and Alterra ($23.0 million) totaling $39.0 million for the year ended December 31, 2013, severance costs attributable to the acquisition totaling $31.7 million for the year ended December 31, 2013, and stay bonuses of $14.8 million for the year ended December 31, 2013. The acceleration of compensation expense during the year ended December 31, 2013 related to Alterra's long-term incentive compensation awards and restricted stock awards was attributable to the acquisition; however, the incremental expense recognized during the period only represents a timing difference in the recognition of expense. Therefore, it was not excluded from the pro forma underwriting results.

~~Table of Contents~~

Unaudited
Consolidated Pro Forma
Years Ended December 31,
(in thousands, except per share amounts) 2013 2012
Earned premiums $ 3,680,220
$ 3,509,834
Operating revenues 4,899,628
4,561,107
Net income to shareholders 422,829
308,496

U.S. GAAP combined ratio ⁽¹⁾
95 % 99 %

Basic net income per share $ 30.33
$ 21.79
Diluted net income per share $ 30.19
$ 21.71

Weighted average common shares outstanding:
Basic 14,007
14,014
Diluted 14,069
14,065


⁽¹⁾	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.

~~Acquisition of Abbey Protection~~

On January 17, 2014, the Company completed its acquisition of 100% of the share capital of Abbey Protection plc (Abbey), an integrated specialty insurance and consultancy group headquartered in London. Abbey's business is focused on the underwriting and sale of insurance products to small and medium-sized enterprises and affinity groups in the United Kingdom providing protection against legal expenses and professional fees incurred as a result of legal actions or investigations by tax authorities, as well as providing a range of complementary legal and professional consulting services. Results attributable to Abbey's insurance operations are included in the International Insurance segment. Results attributable to Abbey's consultancy operations are reported with the Company's non-insurance operations, which are not included in a reportable segment.

Total consideration for this acquisition was $190.7 million, all of which was cash consideration. The purchase price was allocated to the acquired assets and liabilities based on estimated fair values on January 17, 2014. The Company recognized goodwill of $65.8 million, of which $43.0 million was allocated to the International Insurance segment and $22.8 million was allocated to the Company's non-insurance operations. None of the goodwill recognized is expected to be deductible for income tax purposes. The goodwill is primarily attributable to Abbey's assembled workforce and synergies that are expected to result upon integration of Abbey into the Company's insurance operations. The Company also recognized other intangible assets of $113.4 million, including $103.5 million of customer relationships and $9.9 million of trade names. These intangible assets are expected to be amortized over 20 years and 14 years, respectively.

~~Acquisition of Essentia~~

Effective January 1, 2013, the Company completed its acquisition of 100% of the outstanding shares of Essentia Insurance Company, a company that underwrites insurance exclusively for Hagerty Insurance Agency and Hagerty Classic Marine Insurance Agency (collectively, Hagerty) throughout the United States. Hagerty offers insurance for classic cars, vintage boats, motorcycles and related automotive collectibles. The Company recognized intangible assets of $35.4 million associated with this acquisition, which includes $25.0 million of customer relationships to be amortized over a weighted average period of six years. Results attributable to this acquisition are included in the U.S. Insurance segment.

~~Effective January 1, 2014, Hagerty exercised its option to purchase 9.9% of the outstanding shares of Essentia, which reduced the Company's ownership interest in Essentia to 90.1%.~~

~~Table of Contents~~

Markel Ventures Acquisitions

In ~~July 2014,~~August 2017, the Company acquired ~~100%~~81% of Costa Farms, a Florida-based privately held grower of house and garden plants. Under the terms of the ~~outstanding shares~~acquisition agreement, the Company has the option to acquire the remaining equity interests and the remaining equity interests have the option to sell their interests to the Company in the future. The redemption value of ~~Cottrell, Inc. (Cottrell), a privately held company headquartered~~the remaining equity interests is generally based on Costa Farm's earnings in ~~Gainesville, Georgia. Cottrell is a leading manufacturer of over-the-road car hauler equipment and related car hauler parts. In June and August 2014, ParkLand Ventures also completed~~specified periods preceding the ~~acquisition of several manufactured housing communities.~~redemption date. Total consideration for ~~these non-insurance acquisitions~~the purchase was ~~$187.0~~$417.2 million, which ~~primarily consisted~~included cash consideration of ~~cash consideration.~~$387.9 million. Total consideration also includes the estimated fair value of contingent consideration ~~we expect~~the Company expects to pay based on ~~Cottrell's~~Costa Farms' earnings, as defined in the ~~stock~~ purchase agreement, ~~in 2014~~annually through 2021. The purchase price was allocated to the acquired assets and ~~2015.~~liabilities of Costa Farms based on estimated fair values at the acquisition date. The Company recognized goodwill of ~~$38.7~~$186.2 million, ~~related~~which is primarily attributable to ~~these acquisitions, the~~expected future earnings and cash flow potential of Costa Farms. The majority of ~~which we expect~~the goodwill recognized is expected to ~~amortize~~be deductible for income tax purposes. The Company also recognized other intangible assets of ~~$78.7~~$192.0 million, ~~including $53.7~~which includes $161.0 million of customer relationships and ~~$13.0~~$31.0 million of trade names, which are expected to be amortized over a weighted average period of 17 years and 10nine years, respectively. The Company also recognized redeemable non-controlling interests of $66.6 million. Results attributable to ~~these acquisitions~~this acquisition are included with the Company's ~~non-insurance~~other operations, which are not included in a reportable segment.

In December 2015, the Company acquired 80% of the outstanding shares of CapTech Ventures, Inc. (CapTech), a privately held company headquartered in Richmond, Virginia. CapTech is a management and IT consulting firm, providing services and solutions to a wide array of customers. Under the terms of the acquisition agreement for CapTech, the Company has the option to acquire the remaining equity interests and the remaining equity interests have the option to sell their interests to the Company in the future. The redemption value of the remaining equity interests is generally based on CapTech's earnings in specified periods preceding the redemption date.

Total consideration for the CapTech acquisition was $60.6 million. Total consideration included the estimated fair value of contingent consideration we expected to pay based on CapTech's earnings, as defined in the stock purchase agreement, through 2018. The purchase price was preliminarily allocated to the acquired assets and liabilities based on the estimated fair values at the acquisition date. During 2016, the Company completed the process of determining the fair value of the assets and liabilities acquired with CapTech. There were no material adjustments to the provisional estimates recorded as of December 31, 2015. The Company recognized goodwill of $50.6 million related to this acquisition, none of which is expected to be deductible for income tax purposes. The Company also recognized other intangible assets of $49.2 million, primarily related to customer relationships, and redeemable noncontrolling interests of $13.8 million. These intangible assets are expected to be amortized over a weighted average period of 14 years. Results attributable to this acquisition are included with the Company's other operations, which are not included in a reportable segment.

CATCo Investment Management Acquisition

In December 2015, the Company completed the acquisition of substantially all of the assets of CATCo Investment Management Ltd. (CATCo IM) and CATCo-Re Ltd. CATCo IM was a leading insurance-linked securities investment fund manager and reinsurance manager headquartered in Bermuda focused on building and managing highly diversified, collateralized retrocession and reinsurance portfolios covering global property catastrophe risks. Results attributable to Markel CATCo Investment Management Ltd. (MCIM), the wholly owned subsidiary formed in conjunction with this transaction, are included with the Company's other operations, which are not included in a reportable segment.

Total consideration for the acquisition was $205.7 million, all of which was cash. The purchase price was allocated to the acquired assets and liabilities based on estimated fair values at the acquisition date. The Company recognized goodwill of $91.9 million, all of which is expected to be deductible for income tax purposes. The goodwill is primarily attributable to the Company's ability to achieve continued capital growth in excess of that which can be expected for the investment funds previously managed by CATCo IM. The Company also recognized other intangible assets of $113.0 million, primarily related to its investment management agreements. These intangible assets are expected to be amortized over a weighted average period of 14 years.

~~Table~~In connection with the acquisition, the Company instituted performance incentive and retention arrangements for former CATCo employees, whom are now employed by MCIM. Pursuant to these agreements, the Company committed to the payment of ~~Contents~~performance bonuses derived from the results of the business in 2016 through 2018 and retention bonuses that will be paid annually over the three year period following the acquisition. The total amount expected to be paid is currently estimated to be $122 million, of which $38.1 million and $33.2 million was recognized as compensation expense for the years ended December 31, 2017 and 2016, respectively. The balance will be recognized in the consolidated financial statements as post-acquisition compensation expense over the remaining performance period and as services are provided.

3. Investments

a)The following tables summarize the Company's available-for-sale investments. Commercial and residential mortgage-backed securities include securities issued by U.S. government-sponsored enterprises and U.S. government agencies.


	December 31, 2014												December 31, 2017
(dollars in thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Unrealized Other- Than-Temporary Impairment Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Unrealized Other- Than-Temporary Impairment Losses			Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	662,462	$	12,963	$	(2,163	)	$	—		$	673,262
U.S. Treasury securities													$	162,378	$	54	$	(1,819	)	$	—		$	160,613
U.S. government-sponsored enterprises													352,455		11,883		(818		)	—			363,520
Obligations of states, municipalities and political subdivisions	4,075,748		245,158		(3,359		)	—			4,317,547		4,381,358		193,120		(7,916		)	—			4,566,562
Foreign governments	1,458,255		154,707		(1,041		)	—			1,611,921		1,341,628		150,010		(2,410		)	—			1,489,228
Commercial mortgage-backed securities	427,904		5,325		(2,602		)	—			430,627		1,244,777		6,108		(16,559		)	—			1,234,326
Residential mortgage-backed securities	954,263		34,324		(3,482		)	(2,258		)	982,847		846,916		14,115		(4,863		)	—			856,168
Asset-backed securities	100,073		99		(682		)	—			99,490		34,942		8		(222		)	—			34,728
Corporate bonds	2,250,432		69,016		(10,441		)	(1,819		)	2,307,188		1,186,699		51,563		(2,737		)	—			1,235,525
Total fixed maturities	9,929,137		521,592		(23,770		)	(4,077		)	10,422,882		9,551,153		426,861		(37,344		)	—			9,940,670
Equity securities:
Insurance, banks and other financial institutions	523,739		789,717		(1,531		)	—			1,311,925		899,324		1,209,162		(5,453		)	—			2,103,033
Industrial, consumer and all other	1,427,919		1,403,566		(5,834		)	—			2,825,651		1,768,337		2,110,959		(14,482		)	—			3,864,814
Total equity securities	1,951,658		2,193,283		(7,365		)	—			4,137,576		2,667,661		3,320,121		(19,935		)	—			5,967,847
Short-term investments	1,594,819		36		(6		)	—			1,594,849		2,161,017		26		(69		)	—			2,160,974
Investments, available-for-sale	$	13,475,614	$	2,714,911	$	(31,141	)	$	(4,077	)	$	16,155,307	$	14,379,831	$	3,747,008	$	(57,348	)	$	—		$	18,069,491

	December 31, 2013												December 31, 2016
(dollars in thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Unrealized Other- Than-Temporary Impairment Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Unrealized Other- Than-Temporary Impairment Losses			Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	1,215,522	$	9,051	$	(30,342	)	$	—		$	1,194,231
U.S. Treasury securities													$	259,379	$	99	$	(894	)	$	—		$	258,584
U.S. government-sponsored enterprises													418,457		9,083		(4,328		)	—			423,212
Obligations of states, municipalities and political subdivisions	2,986,758		116,341		(27,384		)	—			3,075,715		4,324,332		145,678		(41,805		)	—			4,428,205
Foreign governments	1,484,818		30,647		(54,411		)	—			1,461,054		1,306,324		159,291		(2,153		)	—			1,463,462
Commercial mortgage-backed securities	379,555		62		(11,796		)	—			367,821		1,055,947		3,953		(19,544		)	—			1,040,356
Residential mortgage-backed securities	875,902		13,046		(16,442		)	(2,258		)	870,248		779,503		18,749		(5,048		)	(2,258		)	790,946
Asset-backed securities	189,646		257		(1,614		)	—			188,289		27,494		2		(158		)	—			27,338
Corporate bonds	2,996,940		54,777		(61,650		)	(4,889		)	2,985,178		1,420,298		49,146		(9,364		)	(673		)	1,459,407
Total fixed maturities	10,129,141		224,181		(203,639		)	(7,147		)	10,142,536		9,591,734		386,001		(83,294		)	(2,931		)	9,891,510
Equity securities:
Insurance, banks and other financial institutions	422,975		592,112		(4		)	—			1,015,083		846,343		857,063		(5,596		)	—			1,697,810
Industrial, consumer and all other	1,143,578		1,094,251		(1,114		)	—			2,236,715		1,635,105		1,421,080		(8,154		)	—			3,048,031
Total equity securities	1,566,553		1,686,363		(1,118		)	—			3,251,798		2,481,448		2,278,143		(13,750		)	—			4,745,841
Short-term investments	1,452,270		18		—			—			1,452,288		2,336,100		57		(6		)	—			2,336,151
Investments, available-for-sale	$	13,147,964	$	1,910,562	$	(204,757	)	$	(7,147	)	$	14,846,622	$	14,409,282	$	2,664,201	$	(97,050	)	$	(2,931	)	$	16,973,502

~~Table of Contents~~

b)The following tables summarize gross unrealized investment losses by the length of time that securities have continuously been in an unrealized loss position.


	December 31, 2014															December 31, 2017
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
(dollars in thousands)	Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	108,250	$	(62	)	$	163,359	$	(2,101	)	$	271,609	$	(2,163	)
U.S. Treasury securities																$	78,756	$	(659	)	$	78,298	$	(1,160	)	$	157,054	$	(1,819	)
U.S. government-sponsored enterprises																11,593		(79		)	89,194		(739		)	100,787		(818		)
Obligations of states, municipalities and political subdivisions	58,583		(542		)	92,441		(2,817		)	151,024		(3,359		)	80,654		(789		)	404,814		(7,127		)	485,468		(7,916		)
Foreign governments	18,856		(386		)	56,217		(655		)	75,073		(1,041		)	31,752		(452		)	63,406		(1,958		)	95,158		(2,410		)
Commercial mortgage-backed securities	45,931		(210		)	147,558		(2,392		)	193,489		(2,602		)	253,936		(1,980		)	481,216		(14,579		)	735,152		(16,559		)
Residential mortgage-backed securities	9,613		(2,285		)	207,374		(3,455		)	216,987		(5,740		)	157,508		(1,345		)	148,960		(3,518		)	306,468		(4,863		)
Asset-backed securities	30,448		(20		)	45,160		(662		)	75,608		(682		)	14,263		(123		)	15,165		(99		)	29,428		(222		)
Corporate bonds	141,176		(2,263		)	621,821		(9,997		)	762,997		(12,260		)	149,345		(863		)	187,754		(1,874		)	337,099		(2,737		)
Total fixed maturities	412,857		(5,768		)	1,333,930		(22,079		)	1,746,787		(27,847		)	777,807		(6,290		)	1,468,807		(31,054		)	2,246,614		(37,344		)
Equity securities:
Insurance, banks and other financial institutions	16,219		(1,531		)	—		—			16,219		(1,531		)	60,848		(4,843		)	1,291		(610		)	62,139		(5,453		)
Industrial, consumer and all other	86,062		(5,834		)	—		—			86,062		(5,834		)	78,552		(11,798		)	11,243		(2,684		)	89,795		(14,482		)
Total equity securities	102,281		(7,365		)	—		—			102,281		(7,365		)	139,400		(16,641		)	12,534		(3,294		)	151,934		(19,935		)
Short-term investments	181,964		(6		)	—		—			181,964		(6		)	369,104		(69		)	—		—			369,104		(69		)
Total	$	697,102	$	(13,139	)	$	1,333,930	$	(22,079	)	$	2,031,032	$	(35,218	)	$	1,286,311	$	(23,000	)	$	1,481,341	$	(34,348	)	$	2,767,652	$	(57,348	)

At December 31, ~~2014~~,2017, the Company held ~~552~~739 securities with a total estimated fair value of ~~$2.0~~$2.8 billion and gross unrealized losses of ~~$35.2~~$57.3 million. Of these ~~552~~739 securities, ~~396~~272 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of ~~$1.3~~$1.5 billion and gross unrealized losses of ~~$22.1~~$34.3 million. ~~All 396~~Of these securities, 258 securities were fixed maturities ~~of which 391 represent securities acquired in the Alterra transaction, for which a new amortized cost was established at fair value as of the Acquisition Date.~~and 14 were equity securities. The Company does not intend to sell or believe it will be required to sell these fixed maturities before recovery of their amortized cost. The Company has the ability and intent to hold these equity securities for a period of time sufficient to allow for the anticipated recovery of their fair value.

~~Table of Contents~~


	December 31, 2013															December 31, 2016
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
(dollars in thousands)	Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses			Estimated Fair Value		Gross Unrealized Holding and Other-Than- Temporary Impairment Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	587,929	$	(30,342	)	$	—	$	—		$	587,929	$	(30,342	)
U.S. Treasury securities																$	122,950	$	(894	)	$	—	$	—		$	122,950	$	(894	)
U.S. government-sponsored enterprises																220,333		(4,324		)	7,618		(4		)	227,951		(4,328		)
Obligations of states, municipalities and political subdivisions	513,608		(27,238		)	3,512		(146		)	517,120		(27,384		)	1,004,947		(37,685		)	31,723		(4,120		)	1,036,670		(41,805		)
Foreign governments	950,040		(54,411		)	—		—			950,040		(54,411		)	68,887		(2,145		)	5,005		(8		)	73,892		(2,153		)
Commercial mortgage-backed securities	357,737		(11,796		)	—		—			357,737		(11,796		)	749,889		(19,091		)	29,988		(453		)	779,877		(19,544		)
Residential mortgage-backed securities	437,675		(18,700		)	—		—			437,675		(18,700		)	181,557		(4,987		)	79,936		(2,319		)	261,493		(7,306		)
Asset-backed securities	142,011		(1,614		)	—		—			142,011		(1,614		)	14,501		(106		)	5,869		(52		)	20,370		(158		)
Corporate bonds	1,817,737		(66,539		)	—		—			1,817,737		(66,539		)	494,573		(8,357		)	93,790		(1,680		)	588,363		(10,037		)
Total fixed maturities	4,806,737		(210,640		)	3,512		(146		)	4,810,249		(210,786		)	2,857,637		(77,589		)	253,929		(8,636		)	3,111,566		(86,225		)
Equity securities:
Insurance, banks and other financial institutions	144		(4		)	—		—			144		(4		)	8,808		(410		)	37,973		(5,186		)	46,781		(5,596		)
Industrial, consumer and all other	20,943		(714		)	27,735		(400		)	48,678		(1,114		)	98,406		(4,772		)	29,650		(3,382		)	128,056		(8,154		)
Total equity securities	21,087		(718		)	27,735		(400		)	48,822		(1,118		)	107,214		(5,182		)	67,623		(8,568		)	174,837		(13,750		)
Short-term investments																504,211		(6		)	—		—			504,211		(6		)
Total	$	4,827,824	$	(211,358	)	$	31,247	$	(546	)	$	4,859,071	$	(211,904	)	$	3,469,062	$	(82,777	)	$	321,552	$	(17,204	)	$	3,790,614	$	(99,981	)

At December 31, ~~2013~~2016, the Company held ~~1,364~~654 securities with a total estimated fair value of $~~4.9~~3.8 billion and gross unrealized losses of $~~211.9~~100.0 million. Of these ~~1,364~~654 securities, ~~nine~~109 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $~~31.2~~321.6 million and gross unrealized losses of $~~0.5~~17.2 million. Of these securities, ~~eight~~93 securities were fixed maturities and ~~one~~ ~~was an~~16 were equity ~~security.~~securities.

The Company completes a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. All securities with unrealized losses are reviewed. The Company considers many factors in completing its quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer. For equity securities, the ability and intent to hold the security for a period of time sufficient to allow for anticipated recovery is considered. For fixed maturities, the Company considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due.

For equity securities, a decline in fair value that is considered to be other-than-temporary is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. For fixed maturities where the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment, which is recognized in other comprehensive ~~income.~~income (loss). The discount rate used to calculate the estimated present value of the cash flows expected to be collected is the effective interest rate implicit for the security at the date of purchase.

~~Table of Contents~~

When assessing whether it intends to sell a fixed maturity or if it is likely to be required to sell a fixed maturity before recovery of its amortized cost, the Company evaluates facts and circumstances including decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and, ultimately, current market prices.

c)The amortized cost and estimated fair value of fixed maturities at December 31, ~~2014~~2017 are shown below by contractual maturity.


(dollars in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	747,997	$	752,715	$	288,292	$	289,171
Due after one year through five years	2,007,798		2,059,192		1,297,635		1,334,823
Due after five years through ten years	2,026,628		2,142,582		1,671,171		1,744,280
Due after ten years	3,664,474		3,955,429		4,167,420		4,447,174
	8,446,897		8,909,918		7,424,518		7,815,448
Commercial mortgage-backed securities	427,904		430,627		1,244,777		1,234,326
Residential mortgage-backed securities	954,263		982,847		846,916		856,168
Asset-backed securities	100,073		99,490		34,942		34,728
Total fixed maturities	$	9,929,137	$	10,422,882	$	9,551,153	$	9,940,670

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower. Based on expected maturities, the estimated average duration of fixed maturities at December 31, 2017 was ~~5.8~~6.5 years.

d)The following table presents the components of net investment income.


	Years Ended December 31,									Years Ended December 31,
(dollars in thousands)	2014			2013			2012			2017			2016			2015
Interest:
Municipal bonds (tax-exempt)	$	98,262		$	82,308		$	90,316		$	87,768		$	88,654		$	93,580
Municipal bonds (taxable)	49,345			28,041			22,663			70,771			65,749			57,550
Other taxable bonds	152,789			134,377			107,270			145,085			144,752			138,763
Short-term investments, including overnight deposits	5,959			3,573			2,755			26,772			11,177			5,223
Dividends on equity securities	65,031			48,641			50,416			82,096			70,577			74,705
Change in fair value of credit default swap	2,230			10,460			16,641
Income from equity method investments	4,766			21,898			1,961
Income (loss) from equity method investments										11,076			6,852			(262		)
Other	108			355			(41		)	(828		)	2,676			651
	378,490			329,653			291,981			422,740			390,437			370,210
Investment expenses	(15,260		)	(12,280		)	(9,874		)	(17,031		)	(17,207		)	(16,997		)
Net investment income	$	363,230		$	317,373		$	282,107		$	405,709		$	373,230		$	353,213

e)Cumulative credit losses recognized in net income on fixed maturities where other-than-temporary impairment was identified and a portion of the other-than-temporary impairment was included in other comprehensive income (loss) were ~~$12.7~~$10.7 million at December 31, ~~2014~~2015 and ~~2013~~ ~~and $21.4 million~~2016. There were no such losses included at December 31, ~~2012~~.2017.

~~Table of Contents~~

f)The following table presents net realized investment gains (losses) and the change in net unrealized gains on investments.


	Years Ended December 31,									Years Ended December 31,
(dollars in thousands)	2014			2013			2012			2017			2016			2015
Realized gains:
Sales of fixed maturities	$	8,417		$	13,772		$	18,337		$	5,525		$	5,160		$	3,073
Sales of equity securities	51,356			73,592			29,578			40,113			70,177			156,987
Other	15,205			5,940			749			6,644			1,415			8,103
Total realized gains	74,978			93,304			48,664			52,282			76,752			168,163
Realized losses:
Sales of fixed maturities	(18,136		)	(25,168		)	(563		)	(1,983		)	(704		)	(4,598		)
Sales of equity securities	(802		)	(278		)	(342		)	(1,830		)	(6,988		)	(1,232		)
Other-than-temporary impairments	(4,784		)	(4,706		)	(12,078		)	(7,589		)	(18,355		)	(44,481		)
Other	(5,256		)	—			(4,088		)	(1,295		)	(2,349		)	(486		)
Total realized losses	(28,978		)	(30,152		)	(17,071		)	(12,697		)	(28,396		)	(50,797		)
Net realized investment gains	$	46,000		$	63,152		$	31,593
Change in net unrealized gains on investments:
Gains (losses) on securities measured at fair value through net income										(44,888		)	16,791			(10,886		)
Net realized investment gains (losses)										$	(5,303	)	$	65,147		$	106,480
Change in net unrealized gains on investments included in other comprehensive income (loss):
Fixed maturities	$	480,350		$	(403,610	)	$	51,783		$	89,741		$	(56,534	)	$	(137,435	)
Equity securities	500,673			665,599			302,013			1,035,793			398,752			(320,277		)
Short-term investments	12			6			12			(94		)	(107		)	128
Net increase	$	981,035		$	261,995		$	353,808
Net increase (decrease)										$	1,125,440		$	342,111		$	(457,584	)

~~Other-than-temporary~~g)The following table presents other-than-temporary impairment losses recognized in net income and included in net realized investment gains included losses attributable to equity securities totaling $4.5 million, $2.8 million and $12.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. Other-than-temporary impairment losses recognized in net income and included in net realized(losses) by investment ~~gains included losses attributable to fixed maturities totaling $0.3 million and $1.9 million for the years ended December 31, 2014 and 2013, respectively.~~type.

g)h)The following table presents the components of restricted assets.

h)i)At December 31, ~~2014~~2017 and ~~December 31, 2013~~,2016, investments in securities issued by the U.S. Treasury, ~~securities and obligations of~~ U.S. government agencies and U.S. government-sponsored enterprises were the only investments in any one issuer that exceeded 10% of shareholders' equity.

~~Effective January 1, 2012, the Company prospectively adopted FASB ASU No. 2010-26,~~ ~~Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts~~. At December 31, 2011, deferred policy acquisition costs included $43.1 million of costs that no longer met the criteria for deferral as of January 1, 2012 and were recognized into income during 2012, consistent with policy terms.

December 31, 2014 ⁽²⁾

~~Table~~Following the enactment of ~~Contents~~the TCJA and as a result of the tax on the deemed repatriation of foreign earnings, the Company’s net foreign earnings have now been subjected to tax in the U.S. However, the Company continues to be indefinitely reinvested in its foreign subsidiaries, with the exception of certain Bermuda-based subsidiaries, and no provision for deferred U.S. income taxes has been recorded on the basis differences attributable to those subsidiaries. The Company's largest basis difference is attributable to net unrealized gains on investments held by the Company’s foreign insurance operations, which totaled $630.0 million at December 31, 2017. This amount has not been subjected to the 21% U.S. corporate tax rate.

While the Company's tax expense for the year ended December 31, 2017 is based upon an assertion that it is indefinitely reinvested in its foreign subsidiaries, the Company's plans for its foreign operations may change upon completion of an assessment of the impact of the TCJA on capital in the Company's foreign subsidiaries. A change in the Company's indefinite reinvestment assertion for some or all of its foreign subsidiaries could result in recognition of additional income tax expense.

9. Unpaid Losses and Loss Adjustment Expenses

a)The following table presents a reconciliation of consolidated beginning and ending reserves for losses and loss adjustment expenses.


	Years Ended December 31,									Years Ended December 31,
(dollars in thousands)	2014			2013			2012			2017			2016			2015
Net reserves for losses and loss adjustment expenses, beginning of year	$	8,407,642		$	4,592,652		$	4,607,767		$	8,108,717		$	8,235,288		$	8,535,483
Foreign currency movements, commutations and other	(137,385		)	(780		)	30,359
Foreign currency movements										110,079			(129,692		)	(134,173		)
Adjusted net reserves for losses and loss adjustment expenses, beginning of year	8,270,257			4,591,872			4,638,126			8,218,796			8,105,596			8,401,310
Incurred losses and loss adjustment expenses:
Current year	2,638,012			2,227,402			1,553,070
Prior years	(435,545		)	(411,129		)	(399,002		)
Current accident year										3,367,223			2,555,902			2,566,545
Prior accident years										(497,627		)	(493,495		)	(627,800		)
Total incurred losses and loss adjustment expenses	2,202,467			1,816,273			1,154,068			2,869,596			2,062,407			1,938,745
Payments:
Current year	502,107			670,928			268,745
Prior years	1,436,851			906,302			931,955
Current accident year										671,112			532,140			486,551
Prior accident years										1,513,580			1,529,206			1,423,286
Total payments	1,938,958			1,577,230			1,200,700			2,184,692			2,061,346			1,909,837
Effect of foreign currency rate changes	(19,476		)	(7,915		)	1,158			3,752			2,060			(17,281		)
Net reserves for losses and loss adjustment expenses of acquired insurance companies	21,193			3,584,642			—			57,493			—			—
Reinsurance recoverable on retroactive reinsurance transactions										—			—			(177,649		)
Net reserves for losses and loss adjustment expenses, end of year	8,535,483			8,407,642			4,592,652			8,964,945			8,108,717			8,235,288
Reinsurance recoverable on unpaid losses	1,868,669			1,854,414			778,774			4,619,336			2,006,945			2,016,665
Gross reserves for losses and loss adjustment expenses, end of year	$	10,404,152		$	10,262,056		$	5,371,426		$	13,584,281		$	10,115,662		$	10,251,953

b)The following tables present loss development information, by accident year, for the Company's U.S. Insurance, International Insurance and Reinsurance segments, including cumulative incurred and paid losses and allocated loss adjustment expenses, net of reinsurance, as well as the corresponding amount of IBNR reserves as of December 31, 2017. This level of disaggregation is consistent with how the Company analyzes loss reserves for both internal and external reporting purposes. The loss development information for the years ended December 31, 2012 through 2016 is presented as supplementary information. For the Company's U.S. Insurance segment, the years presented in the tables comprise the majority of the period for which incurred losses typically remain outstanding. Incurred losses in the Company's International Insurance and Reinsurance segments, which generally include a larger proportion of long-tail business than the U.S. Insurance segment, generally remain outstanding more than six years; however, data prior to 2012 is not practically available by segment as a result of a change in the Company's reportable segments in 2014, which was most impactful on these two segments. Additionally, reserves for the Company's international operations within these two segments are determined on a policy year basis and historical data prior to 2012 does not exist by accident year. All amounts included in the tables below related to transactions denominated in a foreign currency have been translated into United States Dollars using the exchange rates in effect at December 31, 2017.

c)The Company's exposure to A&E claims results from policies written by acquired insurance operations before their ~~acquisitions~~acquisition by the Company. The Company's exposure to A&E claims originated from umbrella, excess and commercial general liability (CGL) insurance policies and assumed reinsurance contracts that were written on an occurrence basis from the 1970s to mid-1980s. Exposure also originated from claims-made policies that were designed to cover environmental risks provided that all other terms and conditions of the policy were met.

~~Table of Contents~~

The following table provides a reconciliation of beginning and ending A&E reserves for losses and loss adjustment expenses, which are a component of consolidated unpaid losses and loss adjustment expenses. Amounts included in the following table are presented before consideration of reinsurance allowances.


	Years Ended December 31,									Years Ended December 31,
(dollars in thousands)	2014			2013			2012			2017			2016			2015
Net reserves for A&E losses and loss adjustment expenses, beginning of year	$	272,194		$	260,791		$	244,772		$	111,604		$	132,869		$	287,723
Commutations and other	115			(5,067		)	(897		)	6,827			—			—
Adjusted net reserves for A&E losses and loss adjustment expenses, beginning of year	272,309			255,724			243,875			118,431			132,869			287,723
Incurred losses and loss adjustment expenses	32,840			30,128			38,179			659			(5,277		)	25,415
Payments	(17,426		)	(13,658		)	(21,263		)	(14,429		)	(15,988		)	(20,628		)
Reinsurance recoverable on retroactive reinsurance transactions										—			—			(159,641		)
Net reserves for A&E losses and loss adjustment expenses, end of year	287,723			272,194			260,791			104,661			111,604			132,869
Reinsurance recoverable on unpaid losses	102,719			100,784			100,063			169,866			212,300			253,756
Gross reserves for A&E losses and loss adjustment expenses, end of year	$	390,442		$	372,978		$	360,854		$	274,527		$	323,904		$	386,625

a)The Company had 50,000,000 shares of no par value common stock authorized of which ~~13,961,675~~13,903,526 shares and ~~13,985,620~~13,954,931 shares were issued and outstanding at December 31, ~~2014~~2017 and ~~2013,~~2016, respectively. The Company also has 10,000,000 shares of no par value preferred stock authorized, none of which was issued or outstanding at December 31, ~~2014~~2017 or ~~2013.~~2016.

b)Net income per share was determined by dividing adjusted net income to shareholders by the applicable weighted average shares outstanding. Basic shares outstanding include restricted stock units that are no longer subject to any contingencies for issuance, but for which the corresponding shares have not been issued. Diluted net income per share is computed by dividing adjusted net income to shareholders by the weighted average number of common shares and dilutive potential common shares outstanding during the year. Average closing common stock market prices are used to calculate the dilutive effect attributable to restricted stock.

c)The Company's Employee Stock Purchase and Bonus Plan provides a method for employees and directors to purchase shares of the Company's common stock on the open market. The plan encourages share ownership by providing for the award of bonus shares to participants equal to 10% of the net increase in the number of shares owned under the plan in a given year, excluding shares acquired through the plan's loan program component. Under the loan program, the Company offers subsidized unsecured loans so participants may purchase shares and awards bonus shares equal to 5% of the shares purchased with a loan. In May 2016, the Company adopted the Markel Corporation 2016 Employee Stock Purchase and Bonus Plan which replaced the Company's prior Employee Stock Purchase and Bonus Plan. No shares have been issued under the prior Employee Stock Purchase and Bonus Plan since the effective date of the 2016 Employee Stock Purchase and Bonus Plan. The Company ~~has~~ authorized ~~100,000~~125,000 shares for purchase under ~~this plan,~~the 2016 Employee Stock Purchase and Bonus Plan, of which ~~20,740~~113,690 and ~~33,454~~118,692 shares were available for purchase at as of December 31, ~~2014~~2017 and ~~2013~~,2016, respectively. At December 31, ~~2014~~2017 and ~~2013~~,2016, loans outstanding under the ~~plan,~~plans, which are included in receivables on the consolidated balance sheets, totaled ~~$15.0~~$18.5 million and ~~$12.8~~$20.2 million,, respectively.

d)In ~~April 2012,~~May 2016, the Company adopted the 2016 Equity Incentive Compensation Plan (2016 Compensation Plan), which replaced the 2012 Equity Incentive Compensation Plan (2012 Compensation Plan)~~, which replaced the Markel Corporation Omnibus Incentive Plan (Omnibus Incentive Plan)~~. The ~~2012~~2016 Compensation Plan provides for grants and awards of restricted stock, restricted stock units, performance grants, and other stock based awards to employees and non-employee directors and is administered by the Compensation Committee of the Company's Board of Directors (Compensation Committee). At ~~December 31, 2014, there were 145,253 shares reserved for issuance~~No share-based awards have been issued under the 2012 Compensation Plan after the effective date of the 2016 Compensation Plan. At December 31, 2017, there were 235,137 shares available for future awards under the 2016 Compensation Plan.

e)In May 2013, in connection with the acquisition of Alterra, the Company issued 101,875 replacement options and 154,103 restricted stock awards to holders of Alterra options and restricted stock awards. The replacement options and restricted stock awards were issued under the terms and conditions of the Alterra Capital Holdings Limited 2008 Stock Incentive Plan, the Alterra Capital Holdings Limited 2006 Equity Incentive Plan and the Alterra Capital Holdings Limited 2000 Stock Incentive Plan (collectively, the Alterra Equity Award Plans). No further options or restricted stock awards are available for issuance under the Alterra Equity Award Plans.

~~Table of Contents~~

Investments available-for-sale. Investments available-for-sale are recorded at fair value on a recurring basis and include fixed maturities, equity securities and short-term investments. Short-term investments include certificates of deposit, commercial paper, discount notes and treasury bills with original maturities of one year or less. Fair value for investments available-for-sale is determined by the Company after considering various sources of information, including information provided by a third party pricing service. The pricing service provides prices for substantially all of the Company's fixed maturities and equity securities. In determining fair value, the Company generally does not adjust the prices obtained from the pricing service. The Company obtains an understanding of the pricing service's valuation methodologies and related inputs, which include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows and prepayment speeds. The Company validates prices provided by the pricing service by reviewing prices from other pricing sources and analyzing pricing data in certain instances.

The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Level 1 investments include those traded on an active exchange, such as the New York Stock Exchange. Level 2 investments include U.S. Treasury securities, ~~and obligations of~~ U.S. ~~government agencies,~~government-sponsored enterprises, municipal bonds, foreign government bonds, commercial mortgage-backed securities, residential mortgage-backed securities, asset-backed securities and corporate debt securities. Level 3 investments include the Company's investments in insurance-linked securities funds (the ILS Funds), as further described in note 17, that are not traded on an active exchange and are valued using unobservable inputs.

Fair value for investments available-for-sale is measured based upon quoted prices in active markets, if available. Due to variations in trading volumes and the lack of quoted market prices, fixed maturities are classified as Level 2 investments. The fair value of fixed maturities is normally derived through recent reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable data described above. If there are no recent reported trades, the fair value of fixed maturities may be derived through the use of matrix pricing or model processes, where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Significant inputs used to determine the fair value of obligations of states, municipalities and political subdivisions, corporate bonds and obligations of foreign governments include reported trades, benchmark yields, issuer spreads, bids, offers, credit information and estimated cash flows. Significant inputs used to determine the fair value of commercial mortgage-backed securities, residential mortgage-backed securities and asset-backed securities include the type of underlying assets, benchmark yields, prepayment speeds, collateral information, tranche type and volatility, estimated cash flows, credit information, default rates, recovery rates, issuer spreads and the year of issue.

~~Derivatives.~~ Derivatives are recorded at fair value on a recurring basis and, prior to its scheduled termination in December 2014, included a credit default swap. The fair value of the credit default swap was measured by the Company using an external valuation model with any changes in fair value recorded in net investment income. Due to the significance of unobservable inputs required in measuring the fair value of the ~~credit default swap,~~Company's investments in the ~~credit default swap was~~ILS Funds, these investments are classified as Level 3 within the fair value hierarchy. AsChanges in fair value of ~~December 31, 2013,~~the ILS Funds are included in net realized gains (losses) in net income. The fair value of the securities are derived using their reported net asset value (NAV) as the primary input, as well as other observable and unobservable inputs as deemed necessary by management. Management has obtained an understanding of the inputs, assumptions, process, and controls used to determine NAV, which is calculated by an independent third party. Unobservable inputs to the NAV calculations include assumptions around premium earnings patterns and loss reserve estimates for the underlying securitized reinsurance contracts in which the ILS Funds invest. Significant unobservable inputs used in the valuation of these investments include an adjustment to include the fair value of the ~~credit default swap~~equity that was ~~included~~issued by one of the ILS Funds in ~~other liabilities on the consolidated balance sheet. Net investment income in 2014, 2013 and 2012 included favorable changes~~exchange for notes receivable, rather than cash, which is excluded from NAV. The Company's investments in the ILS Funds are redeemable annually as of January 1^st of each calendar year.

The Company's valuation policies and procedures for Level 3 investments are determined by management. Fair value measurements are analyzed quarterly to ensure the change in fair value from prior periods is reasonable relative to management's understanding of the ~~credit default swap~~underlying investments, recent market trends and external market data, which includes the price of ~~$2.2 million, $10.5 million~~a comparable security and ~~$16.6 million, respectively. The Company had no other material derivative instruments at December 31, 2014 or 2013.~~an insurance-linked security index.

Senior long-term debt and other debt. Senior long-term debt and other debt is carried at amortized cost with the estimated fair value disclosed on the consolidated balance sheets. Senior long-term debt and other debt is classified as Level 2 within the fair value hierarchy due to variations in trading volumes and the lack of quoted market prices. Fair value for senior long-term debt and other debt is generally derived through recent reported trades for identical securities, making adjustments through the reporting date, if necessary, based upon available market observable data including U.S. Treasury securities and implied credit spreads. Significant inputs used to determine the fair value of senior long-term debt and other debt include reported trades, benchmark yields, issuer spreads, bids and offers.

~~Table of Contents~~

The following tables present the balances of assets ~~and liabilities~~ measured at fair value on a recurring basis by level within the fair value hierarchy.


	December 31, 2014								December 31, 2017
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Investments available-for-sale:
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	—	$	673,262	$	—	$	673,262
U.S. Treasury securities									$	—	$	160,613	$	—	$	160,613
U.S. government-sponsored enterprises									—		363,520		—		363,520
Obligations of states, municipalities and political subdivisions	—		4,317,547		—		4,317,547		—		4,566,562		—		4,566,562
Foreign governments	—		1,611,921		—		1,611,921		—		1,489,228		—		1,489,228
Commercial mortgage-backed securities	—		430,627		—		430,627		—		1,234,326		—		1,234,326
Residential mortgage-backed securities	—		982,847		—		982,847		—		856,168		—		856,168
Asset-backed securities	—		99,490		—		99,490		—		34,728		—		34,728
Corporate bonds	—		2,307,188		—		2,307,188		—		1,235,525		—		1,235,525
Total fixed maturities	—		10,422,882		—		10,422,882		—		9,940,670		—		9,940,670
Equity securities:
Insurance, banks and other financial institutions	1,311,925		—		—		1,311,925		1,934,224		—		168,809		2,103,033
Industrial, consumer and all other	2,825,651		—		—		2,825,651		3,864,814		—		—		3,864,814
Total equity securities	4,137,576		—		—		4,137,576		5,799,038		—		168,809		5,967,847
Short-term investments	1,469,975		124,874		—		1,594,849		2,065,749		95,225		—		2,160,974
Total investments available-for-sale	$	5,607,551	$	10,547,756	$	—	$	16,155,307	$	7,864,787	$	10,035,895	$	168,809	$	18,069,491


	December 31, 2013								December 31, 2016
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Investments available-for-sale:
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	—	$	1,194,231	$	—	$	1,194,231
U.S. Treasury securities									$	—	$	258,584	$	—	$	258,584
U.S. government-sponsored enterprises									—		423,212		—		423,212
Obligations of states, municipalities and political subdivisions	—		3,075,715		—		3,075,715		—		4,428,205		—		4,428,205
Foreign governments	—		1,461,054		—		1,461,054		—		1,463,462		—		1,463,462
Commercial mortgage-backed securities	—		367,821		—		367,821		—		1,040,356		—		1,040,356
Residential mortgage-backed securities	—		870,248		—		870,248		—		790,946		—		790,946
Asset-backed securities	—		188,289		—		188,289		—		27,338		—		27,338
Corporate bonds	—		2,985,178		—		2,985,178		—		1,459,407		—		1,459,407
Total fixed maturities	—		10,142,536		—		10,142,536		—		9,891,510		—		9,891,510
Equity securities:
Insurance, banks and other financial institutions	1,015,083		—		—		1,015,083		1,506,607		—		191,203		1,697,810
Industrial, consumer and all other	2,236,715		—		—		2,236,715		3,048,031		—		—		3,048,031
Total equity securities	3,251,798		—		—		3,251,798		4,554,638		—		191,203		4,745,841
Short-term investments	1,312,561		139,727		—		1,452,288		2,255,898		80,253		—		2,336,151
Total investments available-for-sale	$	4,564,359	$	10,282,263	$	—	$	14,846,622	$	6,810,536	$	9,971,763	$	191,203	$	16,973,502
Liabilities:
Derivative contracts	$	—	$	—	$	2,230	$	2,230

⁽¹⁾Included in net realized investment gains (losses) in the consolidated statements of income and comprehensive income.

a)The Company leases substantially all of its facilities and certain furniture and equipment under noncancelable operating leases with remaining terms up to 2017 years.

b)~~Contingencies~~In October 2010, the Company completed its acquisition of Aspen Holdings, Inc. (Aspen). As part of the consideration for that acquisition, Aspen shareholders received contingent value rights (CVRs), which are currently expected to result in the payment of additional cash consideration to CVR holders. Absent the litigation described below, the final amount to be paid to CVR holders would be determined after December 31, 2017, the CVR maturity date, based on, among other things, adjustments for the development of pre-acquisition loss reserves and loss sensitive profit commissions.

At the initial hearing held February 21, 2017, the court stayed the proceedings and ordered the parties to discuss resolving the dispute pursuant to the independent CVR valuation procedure under the CVR agreement. The parties met on April 5, 2017, but were unsuccessful in reaching agreement on a process for resolving the dispute. The Company subsequently filed a motion to stay the litigation and compel arbitration, and, on July 31, 2017, the court issued an order granting that motion. Mr. Yeransian has filed a motion requesting that the court reconsider that order.

Management believes the holder representative’s suit to be without merit and will vigorously defend against it. Further, management believes that any material loss resulting from the holder representative’s suit to be remote and that the contractual contingent consideration payments related to the CVRs will not have a material impact on the Company's liquidity.

In December 2015, the Company formed MCIM, a wholly owned consolidated subsidiary. MCIM is an insurance-linked securities investment fund manager and insurance manager headquartered in Bermuda. Results attributable to MCIM are included with the Company's other operations, which are not included in a reportable segment.

In December 2015, the Company also formed a mutual fund company and reinsurance company, both of which were organized under Bermuda law and are managed by MCIM. The mutual fund company issues multiple classes of nonvoting, redeemable preference shares to investors through its funds (the Funds) and the Funds are primarily invested in nonvoting shares of the reinsurance company. The underwriting results of the reinsurance company are attributed to the Funds through the issuance of nonvoting preference shares.

The Funds and the reinsurance company are considered VIEs, as their preference shareholders have no voting rights. MCIM has the power to direct the activities that most significantly impact the economic performance of these entities, but does not have a variable interest in any of the entities. Except as described below, the Company is not the primary beneficiary of the Funds or the reinsurance company, as the Company's involvement is generally limited to that of an investment or insurance manager, receiving fees that are at market and commensurate with the level of effort required. Investment management fees earned by the Company from unconsolidated Funds were $28.7 million and $56.5 millionfor the years endedDecember 31, 2017 and 2016, respectively. The Company is the sole investor in one of the Funds, the Markel Diversified Fund, and consolidates that fund as its primary beneficiary.

As of December 31, 2017, total assets of the Markel Diversified Fund were $170.3 million and total liabilities were $62.7 million. As of December 31, 2016, total assets of the Markel Diversified Fund were $166.8 million and total liabilities were $64.6 million. The assets of the Markel Diversified Fund are available for use only by the Markel Diversified Fund, and are not available for use by the Company. Total assets of the Markel Diversified Fund include an investment in one of the unconsolidated Funds totaling $168.2 million as of December 31, 2017 and $165.1 million as of December 31, 2016, which represents 7% of the outstanding preference shares of that fund as of December 31, 2017 and 6% as of December 31, 2016. This investment is included in equity securities (available-for-sale) on the Company's consolidated balance sheet. Total liabilities of the Markel Diversified Fund for both periods includes a $62.5 million note payable delivered as part of the consideration provided for its investment. This note payable is included in senior long-term debt and other debt on the Company's consolidated balance sheet. Other than the note payable, any liabilities held by the Markel Diversified Fund have no recourse to the Company's general credit.

The Company also holds an investment in CATCo Reinsurance Opportunities Fund Ltd. (CROF), a limited liability closed-end fund listed on the London and Bermuda Stock Exchanges, which is not a VIE. This investment is included in equity securities (available-for-sale) on the Company's consolidated balance sheet. CROF is managed by MCIM and invests substantially all of its assets in one of the unconsolidated Funds. At December 31, 2017 and 2016, the fair value of the Company's investment in CROF was $20.5 million and $26.3 million, respectively.

The Company's exposure to risk from the unconsolidated Funds and reinsurance company is generally limited to its investment and any earned but uncollected fees. The Company has not issued any investment performance guarantees to these VIEs or their investors. As of December 31, 2017, total investment and insurance assets under management of MCIM for unconsolidated VIEs were $6.0 billion, which includes funds held that will be used to settle claims for incurred losses.

~~Table of Contents~~


Statutory Net Income (Loss)
	Years Ended December 31,							Years Ended December 31,
(dollars in thousands)	2014		2013			2012		2017			2016			2015
United States	$	212,909	$	235,009		$	127,179	$	312,828		$	249,176		$	291,783
United Kingdom	$	70,632	$	109,983		$	82,573	$	(25,785	)	$	78,033		$	74,330
Bermuda	$	162,809	$	249,772		N/A		$	(83,445	)	$	132,442		$	185,289
Other	$	1,271	$	(12,617	)	N/A		$	127		$	(965	)	$	(3,181	)

The Solvency II Directive that governs the calculation of statutory capital and surplus for the Company's United Kingdom insurance subsidiary does not provide requirements for the calculation of net income. Amounts presented in the table above have been calculated in accordance with United Kingdom GAAP.

The Company's United Kingdom insurance subsidiary, Markel International Insurance Company Limited (MIICL), and its Lloyd's managing agent, Markel Syndicate Management Limited (MSM), are authorized by the Prudential Regulation Authority (PRA) and regulated by both the PRA and the Financial Conduct Authority (FCA). The PRA oversees compliance with established periodic auditing and reporting requirements, minimum solvency margins and individual capital assessment requirements under the Solvency II Directive and imposes dividend restrictions, while both the PRA and the FCA oversee compliance with risk assessment reviews and various other requirements. ~~Markel International Insurance Company Limited (MIICL)~~MIICL is required to give ~~14 days~~ advance notice to the PRA for any dividends from ~~MIICL. Markel Syndicate Management Limited, the managing agent of the Company's syndicate at Lloyd's,~~MIICL and any transaction or proposed transaction with a connected or related person. MSM is required to satisfy the solvency requirements of Lloyd's. In addition, the Company's United Kingdom subsidiaries must comply with the United Kingdom Companies Act of 2006, which provides that dividends may only be paid out of profits available for that purpose. As of December 31, ~~2014,~~2017, earnings of the Company's United Kingdom subsidiaries, to the extent not previously taxed in the United States, are considered reinvested indefinitely for U.S. income tax purposes and will not be made available for distributions to the holding company. See note 8 for further discussion of the effect of U.S. income tax regulations on the Company's foreign subsidiaries.

The Company's Bermuda insurance subsidiary, Markel Bermuda Limited (Markel Bermuda), is subject to enhanced capital requirements in addition to minimum solvency and liquidity requirements. The enhanced capital requirement is determined by reference to a risk-based capital model that determines a control threshold for statutory capital and surplus by taking into account the risk characteristics of different aspects of the insurer's business. At December 31, ~~2014~~,2017, Markel Bermuda satisfied both the enhanced capital requirements and the minimum solvency and liquidity requirements.

Under the Bermuda Insurance Act, Markel Bermuda is prohibited from paying or declaring dividends during a fiscal year if it is in breach of its enhanced capital requirement, solvency margin or minimum liquidity ratio or if the declaration or payment of the dividend would cause a ~~breach.~~breach of those requirements. If an insurer fails to meet its solvency margin or minimum liquidity ratio on the last day of any financial year, it is prohibited from declaring or paying any dividends during the next financial year without the approval of the Bermuda Monetary Authority (BMA). Further, Markel Bermuda is prohibited from declaring or paying, in any financial year, dividends of more than 25% of its total statutory capital and surplus as set forth in its previous year's statutory balance sheet unless at least seven days before payment of those dividends it files with the BMA an affidavit stating that it will continue to meet its solvency margin and minimum liquidity ratio. Markel Bermuda must obtain the BMA's prior approval for a reduction by 15% or more of the total statutory capital as set forth in its previous year's financial statements. In addition, as a long-term insurer, Markel Bermuda may not declare or pay a dividend to any person other than a policyholder unless the value of the assets in its long-term business fund, as certified by Markel Bermuda's approved actuary, exceeds the liabilities of its long-term ~~business by the~~business. The amount of the dividend cannot exceed the aggregate of that excess and ~~at least~~any other funds legally available for the ~~prescribed minimum solvency margin.~~payment of the dividend. As of December 31, ~~2014~~,2017, Markel Bermuda could pay up to ~~$472.7~~$443.5 million during the following 12 months without making any additional filings with the BMA.

~~Table of Contents~~

Other Jurisdictions

The Company's other foreign subsidiaries are subject to capital and solvency requirements in their respective jurisdictions of domicile that govern their ability to declare and pay dividends. As of December 31, ~~2014~~,2017, earnings of ~~our~~the Company's foreign subsidiaries, to the extent not previously taxed in the United States, are considered reinvested indefinitely for U.S. income tax purposes and will not be made available for distributions to the holding company.

b) Lloyd's sets the corporate members' required capital annually based on each syndicates' business plans, rating environment, reserving environment and input arising from Lloyd's discussions with, inter alia, regulatory and rating agencies. Such required capital is referred to as Funds at Lloyd's (FAL), and comprises cash and investments. The amount of cash and investments held as FAL as of December 31, ~~2014~~2017 ~~was $784.6~~was $868.0 million. The amount which the Company provides as FAL is not available for distribution to the holding company. The Company's ~~corporate~~corporate members may also be required to maintain funds under the control of Lloyd's in excess of their capital requirements and such funds also may not be available for distribution to the holding company.

~~19.~~

20. Segment Reporting Disclosures

In conjunction with the continued integration of Alterra into the Company's insurance operations, during the first quarter of 2014, the Company changed the way it aggregates and monitors its ongoing underwriting results. Effective January 1, 2014, theThe Company monitors and reports its ongoing underwriting operations in the following three segments: U.S. Insurance, International Insurance and Reinsurance. In determining how to aggregate and monitor its underwriting results, the Company considers many factors, including the geographic location and regulatory environment of the insurance entity underwriting the risk, the nature of the insurance product sold, the type of account written and the type of customer served. The U.S. Insurance segment includes all direct business and facultative reinsurance placements written by the Company's insurance subsidiaries domiciled in the United States. The International Insurance segment includes all direct business and facultative reinsurance placements written by the Company's insurance subsidiaries domiciled outside of the United States, including the Company's syndicate at ~~Lloyd's.~~Lloyd's of London. The Reinsurance segment includes all treaty reinsurance written across the Company. Results for lines of business discontinued prior to, or in conjunction with, acquisitions, including ~~the~~ results attributable to the run-off of life and annuity reinsurance business, ~~previously written by Alterra,~~ are reported in the Other Insurance (Discontinued Lines) segment. All investing activities related to the Company's insurance operations are included in the Investing segment.

~~The Company's~~In addition to it's underwriting operations, the Company also has various other insurance-related and non-insurance operations. These other operations include ~~its~~the Company's Markel Ventures operations, which primarily consist of controlling interests in various ~~industrial and service businesses.~~businesses that operate outside of the specialty insurance marketplace. The Company's ~~non-insurance~~other operations also include the results of the Company's legal and professional consulting services, ~~which were~~and, effective December 8, 2015, the results of the Company's investment management services attributable to MCIM. Effective November 17, 2017, the Company's other operations also include the results of the program services business acquired ~~through~~as part of the ~~acquisition of Abbey in January 2014.~~State National transaction. For purposes of segment reporting, while presented separately in the Company's ~~non-insurance~~segment disclosures, none of these other operations are ~~not~~ considered ~~to be~~ a reportable segment.

The following table summarizes the Company's gross written premiums by country. Gross written premiums are attributed to individual countries based upon location of ~~risk.~~risk or cedent.


	Years Ended December 31,												Years Ended December 31,
(dollars in thousands)	2014		% of Total		2013		% of Total		2012		% of Total		2017		% of Total		2016		% of Total		2015		% of Total
United States	$	3,523,239	73	%	$	2,934,868	75	%	$	1,768,011	70	%	$	4,163,753	79	%	$	3,691,840	77	%	$	3,519,487	76	%
United Kingdom	441,669		9		245,143		6		147,891		6		374,941		7		358,348		7		414,941		9
Canada	125,617		3		128,420		3		120,542		5		132,018		3		125,444		3		115,191		2
Other countries	714,988		15		611,795		16		477,237		19		582,395		11		621,013		13		583,293		13
Total Underwriting													5,253,107		100	%	4,796,645		100	%	4,632,912		100	%
United States - Program Services													253,853				—				—
Total	$	4,805,513	100	%	$	3,920,226	100	%	$	2,513,681	100	%	$	5,506,960			$	4,796,645			$	4,632,912

The following tables summarize the Company's segment disclosures.

U.S. GAAP combined ratio ⁽¹⁾

~~In connection with the acquisition of Alterra, the Company incurred transaction costs of~~ ~~$16.0 million~~ ~~for the year ended December 31, 2013, which primarily consist of due diligence, legal and investment banking costs. Additionally, the Company incurred severance costs of~~ ~~$31.7 million, stay bonuses of~~ ~~$14.8 million~~ ~~and other compensation costs totaling~~ ~~$12.6 million~~ ~~related to the acceleration of certain long-term incentive compensation awards and restricted stock awards that were granted by Alterra prior to the acquisition.~~

~~Table of Contents~~


	Year Ended December 31, 2012																		Year Ended December 31, 2015
(dollars in thousands)	U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)				Investing		Consolidated			U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)				Investing		Other			Consolidated
Gross premium volume	$	1,595,849		$	788,092		$	129,744		$	(4	)		$	—	$	2,513,681		$	2,504,096		$	1,164,866		$	965,374		$	(1,424	)		$	—	$	—		$	4,632,912
Net written premiums	1,418,579			677,344			118,208			(5		)		—		2,214,126			2,106,490			888,214			824,324			265				—		—			3,819,293

Earned premiums	1,360,229			672,405			114,499			(5		)		—		2,147,128			2,105,212			879,426			838,543			351				—		—			3,823,532
Losses and loss adjustment expenses:
Current accident year	(984,018		)	(492,177		)	(76,875		)	—				—		(1,553,070		)	(1,367,159		)	(638,144		)	(561,242		)	—				—		—			(2,566,545		)
Prior accident years	225,870			172,758			21,449			(21,075		)		—		399,002			298,967			248,834			97,860			(17,861		)		—		—			627,800
Prospective adoption of FASB ASU No. 2010-26 ⁽¹⁾	(31,033		)	(10,597		)	(1,463		)	—				—		(43,093		)
Other amortization of policy acquisition costs	(243,466		)	(130,637		)	(10,913		)	—				—		(385,016		)
Amortization of policy acquisition costs																			(420,289		)	(142,657		)	(182,018		)	—				—		—			(744,964		)
Other operating expenses	(327,682		)	(153,545		)	(19,933		)	(203		)		—		(501,363		)	(378,563		)	(221,758		)	(106,863		)	(2,932		)		—		—			(710,116		)
Underwriting profit (loss)	(100		)	58,207			26,764			(21,283		)		—		63,588			238,168			125,701			86,280			(20,442		)		—		—			429,707
Net investment income	—			—			—			—				282,107		282,107			—			—			—			—				353,213		—			353,213
Net realized investment gains	—			—			—			—				31,593		31,593			—			—			—			—				106,480		—			106,480
Other revenues (insurance)	44,968			4,964			—			—				—		49,932
Other expenses (insurance)	(41,425		)	(3,867		)	—			—				—		(45,292		)
Segment profit (loss)	$	3,443		$	59,304		$	26,764		$	(21,283	)		$	313,700	$	381,928
Other revenues (non-insurance)																489,352
Other expenses (non-insurance)																(432,956		)
Other revenues																			3,331			7,790			593			617				—		1,074,427			1,086,758
Other expenses																			(3,902		)	(5,717		)	(1,419		)	(29,057		)		—		(1,006,710		)	(1,046,805		)
Total profit (loss)																			$	237,597		$	127,774		$	85,454		$	(48,882	)		$	459,693	$	67,717		$	929,353
Amortization of intangible assets																(33,512		)																			(68,947		)
Interest expense																(92,762		)																			(118,301		)
Income before income taxes																$	312,050																				$	742,105
U.S. GAAP combined ratio⁽²⁾	100		%	91		%	77		%	NM			⁽³⁾			97		%
U.S. GAAP combined ratio ⁽¹⁾																			89		%	86		%	90		%	NM			⁽²⁾						89		%

b)The following table summarizes deferred policy acquisition costs, unearned premiums and unpaid losses and loss adjustment ~~expenses by segment.~~expenses.

Loss Adjustment Expenses

~~Table of Contents~~

c)The following table summarizes ~~segment~~ earned premiums by major product grouping.


	Years Ended December 31,								Years Ended December 31,
(dollars in thousands)	2014			2013		2012			2017			2016		2015
U.S. Insurance:
General liability	$	491,645		$	431,798	$	354,003		$	642,283		$	563,908	$	522,358
Professional liability	321,005			268,203		216,234			333,758			328,597		324,230
Property	266,019			190,530		141,568			273,735			270,026		264,232
Personal lines	299,442			185,935		86,217			367,073			364,843		325,811
Programs	244,216			205,004		135,037			273,954			263,783		277,829
Workers compensation	263,164			250,790		241,208			319,679			301,126		281,954
Other	137,369			195,506		185,962			153,639			83,049		108,798
Total U.S. Insurance	2,022,860			1,727,766		1,360,229			2,364,121			2,175,332		2,105,212
International Insurance:
General liability	146,178			128,171		102,875			122,673			111,291		124,198
Professional liability	285,300			252,816		174,590			295,120			272,010		268,637
Property	76,691			91,497		48,483			91,778			87,294		85,152
Marine and energy	287,263			287,745		288,605			276,134			242,070		262,307
Other	114,247			73,755		57,852			164,207			140,847		139,132
Total International Insurance	909,679			833,984		672,405			949,912			853,512		879,426
Reinsurance:
Property	270,461			227,394		71,172			321,178			288,771		265,373
Casualty	323,390			244,981		476			351,457			327,383		315,027
Auto	152,645			84,042		21,163			28,700			65,363		102,227
Other	161,889			113,409		21,688			232,779			154,747		155,916
Total Reinsurance	908,385			669,826		114,499			934,114			836,264		838,543
Other Insurance (Discontinued Lines)	(12		)	40		(5		)	(169		)	762		351
Total earned premiums	$	3,840,912		$	3,231,616	$	2,147,128		$	4,247,978		$	3,865,870	$	3,823,532

d)The following table reconciles segment assets to the Company's consolidated balance sheets.

e)Beginning in 2018, the Company will monitor and report its operations in the following four segments: Insurance, Reinsurance, Investing and Markel Ventures. The Insurance segment will include all direct business and facultative placements written on a global basis across the Company, which currently are included in the U.S. Insurance and International Insurance segments. The Reinsurance segment will remain unchanged. Results for lines of business discontinued prior to, or in conjunction with, acquisitions will continue to be excluded from these segments but will no longer be considered a reportable segment. All investing activities related to the Company's insurance operations will continue to be included in the Investing segment. The Markel Ventures segment will include results attributable to the Company's Markel Ventures operations, which previously were not considered a reportable segment. Historically, the Company’s chief operating decision maker monitored and assessed the performance of each Markel Ventures business separately with no single business being individually significant. Following the continued growth in the Company’s Markel Ventures operations, effective in the first quarter of 2018, the chief operating decision maker reviews and assesses Markel Ventures’ performance in the aggregate. The Company’s other operations, which include legal and professional consulting services, investment management services, program services business and the run-off underwriting operations discontinued prior to, or in conjunction with, acquisitions will be monitored and reported separately from the Company’s four reportable segments.

The Company's Markel Ventures operations primarily consist of controlling interests in various ~~industrial and service~~ businesses that operate outside of the specialty insurance marketplace and are viewed by management as separate and distinct from the Company's insurance operations. While each of the ~~companies~~businesses is operated independently from one another, management aggregates financial results into two industry groups: manufacturing and non-manufacturing.

a)The Company maintains defined contribution plans for employees of its United States insurance operations in accordance with Section 401(k) of the ~~IRC.~~U.S. Internal Revenue Code of 1986. Employees of the Company's Markel Ventures subsidiaries are provided post-retirement benefits under separate plans. The Company also provides various defined contribution plans for employees of its international insurance and other operations, which are in line with local market terms and conditions of employment. Expenses relating to the Company's defined contribution plans, including the defined contribution plans of ~~Alterra~~State National effective ~~May 1, 2013,~~November 17, 2017, were ~~$27.2~~$36.7 million, ~~$24.3~~$30.1 million and ~~$19.1~~$27.7 million in ~~2014, 2013~~2017, 2016 and ~~2012,~~2015, respectively.

b)The Terra Nova Pension Plan is a defined benefit plan which covers certain employees in ~~our~~the Company's international insurance operations who meet the eligibility conditions set out in the plan. The plan has been closed to new participants since 2001. The cost of providing pensions for employees is charged to earnings over the average working life of employees according to actuarial recommendations. Final benefits are based on the employee's years of credited service and the higher of pensionable compensation received in the calendar year preceding retirement or the best average pensionable compensation received in any three consecutive years in the ten years preceding retirement. Effective April 1, 2012, employees are no longer accruing benefits for future service in the Terra Nova Pension Plan. The Company uses December 31 as the measurement date for the Terra Nova Pension Plan.

~~Table of Contents~~

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


	Years Ended December 31,									Years Ended December 31,
	2014			2013			2012			2017			2016			2015
	(dollars in thousands)									(dollars in thousands)
REVENUES
Net investment income	$	5,354		$	21,946		$	30,619		$	21,076		$	9,561		$	2,565
Dividends on common stock of consolidated subsidiaries	217,121			806,233			337,585			895,920			349,622			187,496
Net realized investment gains:
Other-than-temporary impairment losses	(120		)	(15		)	(38		)	—			(98		)	(3,455		)
Net realized investment gains, excluding other-than-temporary impairment losses	3,873			67,232			14,926			3,383			1,166			75,000
Net realized investment gains	3,753			67,217			14,888			3,383			1,068			71,545
Other	—			1			3
Total Revenues	226,228			895,397			383,095			920,379			360,251			261,606
EXPENSES
Interest expense	94,097			92,743			87,391			122,151			116,013			95,620
Loss on early extinguishment of debt										—			44,100			—
Other expenses	2,685			2,617			1,166			11,708			13,076			11,287
Total Expenses	96,782			95,360			88,557			133,859			173,189			106,907
Income Before Equity in Undistributed Earnings of Consolidated Subsidiaries and Income Taxes	129,446			800,037			294,538			786,520			187,062			154,699
Equity in undistributed earnings of consolidated subsidiaries	163,341			(520,323		)	(61,663		)	(469,365		)	196,615			407,489
Income tax benefit	(28,395		)	(1,307		)	(20,510		)	(78,114		)	(72,012		)	(20,584		)
Net Income to Shareholders	$	321,182		$	281,021		$	253,385		$	395,269		$	455,689		$	582,772
OTHER COMPREHENSIVE INCOME TO SHAREHOLDERS
OTHER COMPREHENSIVE INCOME (LOSS) TO SHAREHOLDERS
Change in net unrealized gains on investments, net of taxes:
Net holding gains arising during the period	$	32,118		$	66,623		$	10,897
Consolidated subsidiaries' net holding gains arising during the period	655,617			158,922			255,528
Net holding gains (losses) arising during the period										$	52,277		$	37,045		$	(41,861	)
Consolidated subsidiaries' net holding gains (losses) arising during the period										735,062			238,616			(198,309		)
Consolidated subsidiaries' change in unrealized other-than-temporary impairment losses on fixed maturities arising during the period	173			(141		)	(160		)	—			35			160
Reclassification adjustments for net gains (losses) included in net income to shareholders	(1,874		)	(43,220		)	11,847
Consolidated subsidiaries' reclassification adjustments for net gains (losses) included in net income to shareholders	(24,287		)	2,390			(35,898		)
Reclassification adjustments for net gains included in net income to shareholders										(1,513		)	(558		)	(45,273		)
Consolidated subsidiaries' reclassification adjustments for net gains included in net income to shareholders										(22,783		)	(32,970		)	(35,209		)
Change in net unrealized gains on investments, net of taxes	661,747			184,574			242,214			763,043			242,168			(320,492		)
Change in foreign currency translation adjustments, net of taxes	1,949			(2,670		)	(242		)	(2,260		)	(1,326		)	2,970
Consolidated subsidiaries' change in foreign currency translation adjustments, net of taxes	(34,194		)	(7,501		)	1,781			12,663			(10,384		)	(32,175		)
Consolidated subsidiaries' change in net actuarial pension loss, net of taxes	(14,750		)	4,065			6,664			6,259			(19,100		)	(352		)
Total Other Comprehensive Income to Shareholders	614,752			178,468			250,417
Total Other Comprehensive Income (Loss) to Shareholders										779,705			211,358			(350,049		)
Comprehensive Income to Shareholders	$	935,934		$	459,489		$	503,802		$	1,174,974		$	667,047		$	232,723

~~Table of Contents~~

CONDENSED STATEMENTS OF CASH FLOWS


	Years Ended December 31,									Years Ended December 31,
	2014			2013			2012			2017			2016			2015
	(dollars in thousands)									(dollars in thousands)
OPERATING ACTIVITIES
Net income to shareholders	$	321,182		$	281,021		$	253,385		$	395,269		$	455,689		$	582,772
Adjustments to reconcile net income to shareholders to net cash provided by operating activities	(218,396		)	186,574			(153,773		)	(166,132		)	(120,564		)	(464,193		)
Net Cash Provided By Operating Activities	102,786			467,595			99,612			229,137			335,125			118,579
INVESTING ACTIVITIES
Proceeds from sales of fixed maturities and equity securities	9,306			142,259			149,314			20,562			1,831			100,633
Proceeds from maturities, calls and prepayments of fixed maturities	15,710			2,819			64,340			64,705			11,960			24,945
Cost of fixed maturities and equity securities purchased	(687		)	(23,412		)	(139,681		)	(765,602		)	(29,110		)	(55,656		)
Net change in short-term investments	(109,728		)	10,251			(374,801		)	579,261			(970,364		)	9,956
Securities received from subsidiaries as dividends or repayment of notes receivable	89,996			249,996			260,088
Decrease in notes receivable due from subsidiaries	28,506			5,302			66,802
Securities received from subsidiaries as dividends, repayment of notes receivable and return of capital										862,554			238,975			—
Securities provided to subsidiaries for issuance of notes receivable and capital contributions										(99,942		)	—			—
Return of capital from subsidiaries										45,225			21,021			—
Decrease (increase) in notes receivable due from subsidiaries										(58		)	92,530			—
Capital contributions to subsidiaries	(74,788		)	(67,878		)	(198,349		)	(270,623		)	—			(228,578		)
Acquisitions	—			(1,017,988		)	(100,409		)
Acquisitions, net of cash acquired										(1,153,683		)	—			—
Cost of equity method investments	—			(5,291		)	(38,250		)	(10,633		)	(3,100		)	(13,164		)
Change in restricted cash and cash equivalents	51			(348		)	(204		)
Additions to property and equipment	(342		)	(3,653		)	(9,437		)	—			(584		)	(305		)
Other	(2,150		)	3,207			(4,369		)	6,972			(3,207		)	(376		)
Net Cash Used By Investing Activities	(44,126		)	(704,736		)	(324,956		)	(721,262		)	(640,048		)	(162,545		)
FINANCING ACTIVITIES
Additions to senior long-term debt	—			491,235			347,207			592,923			493,149			—
Increase in notes payable to subsidiaries										—			—			285,000
Repayment and retirement of senior long-term debt	—			(246,665		)	(157,359		)	—			(183,343		)	(2,000		)
Premiums and fees related to early extinguishment of debt										—			(43,691		)	—
Repurchases of common stock	(26,053		)	(57,388		)	(16,873		)	(110,838		)	(51,142		)	(31,491		)
Issuance of common stock	5,691			24,518			9,145			552			4,623			4,752
Purchase of noncontrolling interests										(8,970		)	—			—
Other	(1,948		)	(5,023		)	436			(1,430		)	(4,960		)	3,985
Net Cash Provided (Used) By Financing Activities	(22,310		)	206,677			182,556
Increase (decrease) in cash and cash equivalents	36,350			(30,464		)	(42,788		)
Cash and cash equivalents at beginning of year	207,352			237,816			280,604
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	243,702		$	207,352		$	237,816
Net Cash Provided By Financing Activities										472,237			214,636			260,246
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents										(19,888		)	(90,287		)	216,280
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year										370,654			460,941			244,661
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS AT END OF YEAR										$	350,766		$	370,654		$	460,941

We are a diverse financial holding company serving a variety of niche markets. Our principal business markets and underwrites specialty insurance products. We believe that our specialty product focus and niche market strategy enable us to develop expertise and specialized market knowledge. We seek to differentiate ourselves from competitors by our expertise, service, continuity and other value-based considerations. We also own interests in various businesses that operate outside of the specialty insurance marketplace. Our financial goals are to earn consistent underwriting and operating profits and superior investment returns to build shareholder value.

Through December 31, 2017, we monitored and reported our ongoing underwriting operations in the following three segments: U.S. Insurance, International Insurance and Reinsurance. In determining how to aggregate and monitor our underwriting results, management considered many factors, including the geographic location and regulatory environment of the insurance entity underwriting the risk, the nature of the insurance product sold, the type of account written and the type of customer served.

The U.S. Insurance segment includes all direct business and facultative reinsurance placements written by our insurance subsidiaries domiciled in the United States. The International Insurance segment includes all direct business and facultative reinsurance placements written by our insurance subsidiaries domiciled outside of the United States, including our syndicate at Lloyd's of London (Lloyd's). The Reinsurance segment includes all treaty reinsurance written across the Company. Results for lines of business discontinued prior to, or in conjunction with, acquisitions, are reported in the Other Insurance (Discontinued Lines) segment. All investing activities related to our insurance operations are included in the Investing segment.

Our U.S. Insurance segment includes both hard-to-place risks written outside of the standard market on an excess and surplus lines basis and unique and hard-to-place risks that must be written on an admitted basis due to marketing and regulatory reasons. The following products are included in this segment: general liability, professional liability, catastrophe-exposed property, personal property, workers' compensation, specialty program insurance for well-defined niche markets, and liability coverages and other coverages tailored for unique exposures. Business in this segment is written through our Specialty division and our Wholesale and Global Insurance divisions, which were combined effective January 1, 2018 to form the Markel Assurance division. The Specialty division writes program insurance and other specialty coverages for well-defined niche markets, primarily on an admitted basis. The Wholesale division writes commercial risks, primarily on an excess and surplus lines basis, using a network of wholesale brokers managed on a regional basis. The Global Insurance division writes risks outside of the standard market on both an admitted and non-admitted basis. Global Insurance division business written by our U.S. insurance subsidiaries is included in this segment.

In November 2017, we completed the acquisition of State National Companies, Inc. (State National), a leading specialty provider of property and casualty insurance. The acquisition of State National adds a premier fronting platform to our insurance operations through which insurance products can be offered throughout the United States. State National also offers collateral protection insurance (CPI) to credit unions and regional banks. Results attributable to CPI business are included in the U.S. Insurance segment. Results attributable to the program services (fronting) operations are reported within our other operations, which are not included in a reportable segment.

Through our wholly owned subsidiary Markel Ventures, Inc. (Markel Ventures), we own interests in various businesses that operate outside of the specialty insurance marketplace. These businesses are viewed by management as separate and distinct from our insurance operations and are comprised of a diverse portfolio of businesses from various industries. Local management teams oversee the day-to-day operations of these companies, while strategic decisions are made in conjunction with members of our executive management team. While each of these businesses is operated independently, we aggregate their financial results into two industry groups: manufacturing and non-manufacturing. Our manufacturing operations are comprised of manufacturers of transportation and other industrial equipment. Our non-manufacturing operations are comprised of businesses from several industry groups, including consumer goods and services (including healthcare) and business services. Our strategy in making these investments is similar to our strategy for purchasing equity securities. We seek to invest in profitable companies, with honest and talented management, that exhibit reinvestment opportunities and capital discipline, at reasonable prices. We intend to own the businesses acquired for a long period of time.

In December 2015, we acquired 80% of the outstanding shares of CapTech Ventures, Inc. (CapTech), a privately held company headquartered in Richmond, Virginia. CapTech is a management and IT consulting firm, providing services and solutions to a wide array of customers. Results attributable to CapTech are included with our Markel Ventures operations, which are not included in a reportable segment.

Unpaid Losses and Loss Adjustment Expenses

Reserves Held ⁽¹⁾

~~Prior to its acquisition, Alterra entered into~~We previously acquired a block of life and annuity reinsurance contracts which subject us to mortality, longevity and morbidity risks. The related reserves are compiled by our actuaries on a reinsurance contract-by-contract basis and are computed on a discounted basis using standard actuarial techniques and cash flow models. Since the development of our life and annuity reinsurance reserves is based upon cash flow projection models, we must make estimates and assumptions based on cedent experience, industry mortality tables, and expense and investment experience, including a provision for adverse deviation. The assumptions used to determine policy benefit reserves ~~were determined as of the Acquisition Date and~~ are generally locked-in for the life of the contract unless an unlocking event occurs. To the extent existing policy reserves, together with the present value of future gross premiums and expected investment income earned thereon, are not adequate to cover the present value of future benefits, settlement and maintenance costs, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings for life and annuity benefits is recognized at that time. Our consolidated balance sheets at December 31, ~~2014~~2017 and ~~2013~~2016 included reserves for life and annuity benefits of ~~$1.3~~$1.1 billion and ~~$1.5~~$1.0 billion, respectively.

Our assumed reinsurance premiums are recorded at the inception of each contract based upon contract terms and information received from cedents and brokers. For excess of loss contracts, the amount of minimum or deposit premium is usually contractually documented at inception, and variances between this premium and final premium are generally small. An adjustment is made to the minimum or deposit premium, when notified, if there are changes in underlying exposures insured. For quota share contracts, gross premiums written are normally estimated at inception based on information provided by cedents or brokers. We generally record such premiums using the cedent's initial estimates, and then adjust them as more current information becomes available, with such adjustments recorded as premiums written in the period they are determined. We believe that the cedent's estimate of the volume of business they expect to cede to us usually represents the best estimate of gross premium written at the beginning of the contract. As the contract progresses, we monitor actual premium received in conjunction with correspondence from the cedent in order to refine our estimate. Variances from original premium estimates are normally greater for quota share contracts than excess of loss contracts. Premiums are earned on a pro rata basis over the coverage period, or for multi-year contracts, in proportion with the underlying risk exposure to the extent there is variability in the exposure throughout the coverage period. The impact of premium adjustments to net income may be mitigated by related acquisition costs and losses.

Certain contracts we write, particularly property catastrophe reinsurance contracts, provide for reinstatements of coverage. Reinstatement premiums are the premiums for the restoration of the reinsurance limit of a contract to its full amount after a loss occurrence by the reinsured. The purpose of optional and required reinstatements is to permit the reinsured to reinstate the reinsurance coverage at a pre-determined price level once a loss event has penetrated the reinsurance layer. In addition, required reinstatement premiums permit the reinsurer to obtain additional premiums to cover the additional loss limits provided.

We accrue for reinstatement premiums resulting from losses recorded. Such accruals are based upon contractual terms and the only element of management judgment involved is with respect to the amount of losses recorded. Changes in estimates of losses recorded on contracts with reinstatement premium features will result in changes in reinstatement premiums based on contractual terms. Reinstatement premiums are recognized at the time we record losses and are earned on a ~~pro-rata~~pro rata basis over the coverage period.

Ceded Reinsurance Allowance for Doubtful Accounts

Income Taxes and Uncertain Tax Positions

~~Table~~2017 and an increase in intangible assets attributable to acquisitions, partially offset by the remeasurement of ~~Contents~~our net deferred tax liability at the lower enacted U.S. corporate tax rate following the enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017. See further discussion of the impact of the TCJA in note 8 of the notes consolidated financial statements.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. As of December 31, ~~2014,~~2017 and 2016, our deferred tax assets were net of a valuation allowance of ~~$4.8 million. We did not have a valuation allowance on our deferred tax assets at December 31, 2013.~~$25.2 million and $18.8 million, respectively. In evaluating our ability to realize our deferred tax assets and assessing the need for a valuation allowance at December 31, ~~2014~~2017 and ~~2013,~~2016, we made estimates regarding the future taxable income of our ~~foreign~~ subsidiaries and judgments about our ability to pursue prudent and feasible tax planning strategies. A change in any of these estimates and judgments could result in the need to increase our valuation allowance through a charge to earnings. See note 8 of the notes to consolidated financial statements for further discussion of our consolidated income tax provision, uncertain tax positions and net operating losses.

~~Goodwill and Intangible Assets~~Our Business

Our business is comprised of the following types of operations:

Underwriting - our underwriting operations are comprised of our risk-bearing insurance operations, which include the run-off of underwriting operations that were discontinued in conjunction with acquisitions

Investing - our investing activities are primarily related to our underwriting operations

Program Services - our program services business serves as a fronting platform that provides other insurance companies access to the U.S. property and casualty insurance market

Markel CATCo - our Markel CATCo operations include an investment fund manager that offers insurance-linked securities to investors

Markel Ventures - our Markel Ventures operations include our controlling interests in a diverse portfolio of businesses that operate outside of the specialty insurance marketplace

In April 2017, we completed the acquisition of SureTec Financial Corp. (SureTec), a Texas-based privately held surety company primarily offering contract, commercial and court bonds. Results attributable to SureTec are included in the U.S. Insurance segment.

Our International Insurance segment writes risks that are characterized by either the unique nature of the exposure or the high limits of insurance coverage required by the insured. Risks written in the International Insurance segment are written on either a direct basis or a subscription basis, the latter of which means that loss exposures brought into the market are typically insured by more than one insurance company or Lloyd's syndicate. When we write business in the subscription market, we prefer to participate as lead underwriter in order to control underwriting terms, policy conditions and claims handling. Products offered within our International Insurance segment include primary and excess of loss property, excess liability, professional liability, marine and energy and liability coverages and other coverages tailored for unique exposures. Business included in this segment is produced through our Markel International and Global Insurance divisions. The Markel International division writes business worldwide from our London-based platform, which includes our syndicate at Lloyd's. Global Insurance division business written by our non-U.S. insurance subsidiaries, which primarily targets Fortune 1000 accounts, is included in this segment.

Our Reinsurance segment includes property, casualty and specialty treaty reinsurance products offered to other insurance and reinsurance companies globally through the broker market. Our treaty reinsurance offerings include both quota share and excess of loss reinsurance and are typically written on a participation basis, which means each reinsurer shares proportionally in the business ceded under the reinsurance treaty written. Principal lines of business include: property (including catastrophe-exposed property), professional liability, general casualty, credit, surety, auto and workers' compensation. Our reinsurance product offerings are underwritten by our Global Reinsurance division and our Markel International division.

In December 2015, we completed the acquisition of substantially all of the assets of CATCo Investment Management Ltd. (CATCo IM) and CATCo-Re Ltd. CATCo IM was an insurance-linked securities investment fund manager and reinsurance manager headquartered in Bermuda focused on building and managing highly diversified, collateralized retrocession and reinsurance portfolios covering global property catastrophe risks. Following the acquisition, we are operating this business through Markel CATCo Investment Management Ltd. (MCIM). MCIM receives management fees for its investment management and insurance management services, as well as performance fees based on the annual performance of the investment funds that it manages. Results attributable to MCIM are included with our other operations, which are not included in a reportable segment. As of December 31, 2017, MCIM's total investment and insurance assets under management were $6.2 billion, which includes $6.0 billion for unconsolidated variable interest entities.

In August 2017, we acquired 81% of Costa Farms, a Florida-based privately held grower of house and garden plants. Results attributable to Costa Farms are included with our Markel Ventures operations, which are not included in a reportable segment.

For further discussion of our lines of business, principal products offered, distribution channels, competition, underwriting philosophy and our Markel Ventures operations, see the discussion under Business Overview.

Critical Accounting Estimates

Critical accounting estimates are those estimates that both are important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of material contingent assets and liabilities, including litigation contingencies. These estimates, by necessity, are based on assumptions about numerous factors.

We review the following critical accounting estimates and assumptions quarterly: evaluating the adequacy of reserves for unpaid losses and loss adjustment expenses, life and annuity reinsurance benefit reserves, the reinsurance allowance for doubtful accounts and income tax liabilities, as well as analyzing the recoverability of deferred tax assets, estimating reinsurance premiums written and earned and evaluating the investment portfolio for other-than-temporary declines in estimated fair value. Critical accounting estimates and assumptions for goodwill and intangible assets are reviewed in conjunction with an acquisition and goodwill and indefinite-lived intangible assets are reassessed at least annually for impairment. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements.

Unpaid Losses and Loss Adjustment Expenses

Our consolidated balance sheet asincluded estimated unpaid losses and loss adjustment expenses of $13.6 billion and reinsurance recoverable on unpaid losses of $4.6 billion at December 31, ~~2014~~ ~~included goodwill~~2017 compared to $10.1 billion and ~~intangible assets~~$2.0 billion, respectively, at December 31, 2016. Included in the December 31, 2017 balances for both unpaid losses and loss adjustment expenses and reinsurance recoverable on unpaid losses were $2.2 billion attributable to our program services business.

We accrue liabilities for unpaid losses and loss adjustment expenses based upon estimates of ~~approximately $1.8 billion. Goodwill~~the ultimate amounts payable. We maintain reserves for specific claims incurred and ~~intangible assets~~reported (case reserves) and reserves for claims incurred but not reported (IBNR reserves).

Reported claims are in various stages of the settlement process, and the corresponding reserves for reported claims are based upon all information available to us. Case reserves consider our estimate of the ultimate cost to settle the claims, including investigation and defense of lawsuits resulting from the claims, and may be subject to adjustment for differences between costs originally estimated and costs subsequently re-estimated or incurred. Claims are settled based upon their merits, and some claims may take years to settle, especially if legal action is involved.

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.

There is normally a time lag between when a loss event occurs and when it is actually reported to us. The actuarial methods that we use to estimate losses have been designed to address the lag in loss reporting as well as the delay in obtaining information that would allow us to more accurately estimate future payments. There is also often a time lag between cedents establishing case reserves and re-estimating their reserves, and notifying us of the new or revised case reserves. As a result, the reporting lag is more pronounced in our reinsurance contracts than in our insurance contracts due to the reliance on ceding companies to report their claims to us. On reinsurance transactions, the reporting lag will generally be 60 to 90 days after the end of a reporting period, but can be longer in some cases. Based on the experience of our actuaries and management, we select loss development factors and trending techniques to mitigate the difficulties caused by reporting lags. At least annually, we evaluate and update our loss development and trending factor selections using cedent specific and industry data.

U.S. GAAP requires that IBNR reserves be based on the estimated ultimate cost of settling claims, including the effects of inflation and other social and economic factors, using past experience adjusted for current trends and any other factors that would modify past experience. IBNR reserves are generally calculated by subtracting paid losses and case reserves from estimated ultimate losses. IBNR reserves were 64% of total unpaid losses and loss adjustment expenses at December 31, 2017 compared to 67% at December 31, 2016.

Each quarter, our actuaries prepare estimates of the ultimate liability for unpaid losses and loss adjustment expenses based on established actuarial methods. Management reviews these estimates, supplements the actuarial analyses with information provided by claims, underwriting and other operational personnel and determines its best estimate of loss reserves, which is recorded in our consolidated financial statements. Our procedures for determining the adequacy of loss reserves at the end of the year are substantially similar to the procedures applied at the end of each interim period.

Any adjustments to reserves resulting from our interim or year-end reviews, including changes in estimates, are recorded as a component of losses and loss adjustment expenses in the period of the change. Reserve changes that increase previous estimates of ultimate claims cost are referred to as unfavorable or adverse development, or reserve strengthening. Reserve changes that decrease previous estimates of ultimate claims cost are referred to as favorable development.

Program Services

For our program services business, case reserves are generally established based on reports received from the general agents or reinsurers with whom we do business. Our actuaries review the loss reserve data received for sufficiency, consistency with historical data and for consistency with other programs we write that have similar characteristics. If the data is not credible, or where no data is available, the loss reserves are calculated using our experience or industry experience for similar products or lines of business. All of the premium written in our program services business is ceded and net reserves for unpaid losses and loss adjustment expenses as of December 31, 2017 were $2.4 million.

Underwriting

For our insurance operations, we are generally notified of insured losses by our insureds or their brokers. Based on this information, we establish case reserves by estimating the expected ultimate losses from the claim (including any administrative costs associated with settling the claim). Our claims personnel use their knowledge of the specific claim along with internal and external experts, including underwriters, actuaries and legal counsel, to estimate the expected ultimate losses.

For our reinsurance operations, case reserves are generally established based on reports received from ceding companies or their brokers. For excess of loss contracts, we are typically notified of insurance losses on specific contracts and record a case reserve for the estimated expected ultimate losses from the claim. For quota share contracts, we typically receive aggregated claims information and record a case reserve based on that information. As with insurance business, we evaluate this information and estimate the expected ultimate losses.

Our liabilities for unpaid losses and loss adjustment expenses can generally be categorized into two distinct groups, short-tail business and long-tail business. Short-tail business refers to lines of business, such as property, accident and health, automobile, watercraft and marine hull exposures, for which losses are usually known and paid shortly after the loss actually occurs. Long-tail business describes lines of business for which specific losses may not be known and reported for some period and losses take much longer to emerge. Given the time frame over which long-tail exposures are ultimately settled, there is greater uncertainty and volatility in these lines than in short-tail lines of business. Our long-tail coverages consist of most casualty lines, including professional liability, directors' and officers' liability, products liability, general and excess liability and excess and umbrella exposures, as well as workers' compensation insurance. Some factors that contribute to the uncertainty and volatility of long-tail casualty programs, and thus require a significant degree of judgment in the reserving process, include the inherent uncertainty as to the length of reporting and payment development patterns, the possibility of judicial interpretations or legislative changes, including changes in workers' compensation benefit laws, that might impact future loss experience relative to prior loss experience and the potential lack of comparability of the underlying data used in performing loss reserve analyses. For example, we have exposure to auto casualty claims in the United Kingdom (U.K.) through reinsurance contracts written on the 2014 and prior years of account. In the United Kingdom, the calculation of these outstanding claims is informed by the discount rate used in determining lump sum awards in personal injury cases referenced in the Ogden tables. Effective March 20, 2017, the Ogden Rate decreased from plus 2.5% to minus 0.75%, which represents the first rate change since 2001. The reduction in the Ogden Rate increased the expected claims payments on these exposures, and we increased loss reserves accordingly.

Our ultimate liability may be greater or less than current reserves. Changes in our estimated ultimate liability for loss reserves generally occur as a result of ~~business acquisitions. Goodwill represents~~ the emergence of unanticipated loss activity, the completion of specific actuarial or claims studies or changes in internal or external factors. We closely monitor new information on reported claims and use statistical analyses prepared by our actuaries to evaluate the adequacy of our recorded reserves. We are required to exercise considerable judgment when assessing the relative credibility of loss development trends. Our philosophy is to establish loss reserves that are more likely redundant than deficient. This means that we seek to establish loss reserves that will ultimately prove to be adequate. As a result, if new information or trends indicate an increase in frequency or severity of claims in excess of what we initially anticipated, we generally respond quickly and increase loss reserves. If, however, frequency or severity trends are more favorable than initially anticipated, we often wait to reduce our loss reserves until we can evaluate experience in additional periods to confirm the credibility of the trend. In addition, for long-tail lines of business, trends develop over longer periods of time, and as a result, we give credibility to these trends more slowly than for short-tail or less volatile lines of business. As part of our acquisition of underwriting operations, to the extent the reserving philosophy of the acquired business is less conservative than our reserving philosophy, the post-acquisition loss reserves will be strengthened until total loss reserves are consistent with our target level of confidence.

In establishing our liabilities for unpaid losses and loss adjustment expenses, our actuaries estimate an ultimate loss ratio, by accident year or policy year, for each of our product lines with input from our underwriting and claims associates. For product lines in which loss reserves are established on a policy year basis, we have developed a methodology to convert from policy year to accident year for financial reporting purposes. In estimating an ultimate loss ratio for a particular line of business, our actuaries may use one or more actuarial reserving methods and select from these a single point estimate. To varying degrees, these methods include detailed statistical analysis of past claim reporting, settlement activity, claim frequency and severity, policyholder loss experience, industry loss experience and changes in market conditions, policy forms and exposures. The actuarial methods we use include:

Initial Expected Loss Ratio Method – This method multiplies earned premiums by an expected loss ratio. The expected loss ratio is selected utilizing industry data, our historical data, frequency-severity and rate level forecasts and professional judgment.

Paid Loss Development – This method uses historical loss payment patterns to estimate future loss payment patterns. Our actuaries use the historical loss patterns to develop factors that are applied to current paid loss amounts to calculate expected ultimate losses.

Incurred Loss Development – This method uses historical loss reporting patterns to estimate future loss reporting patterns. Our actuaries use the historical loss patterns to develop factors that are applied to current reported losses to calculate expected ultimate losses.

Bornhuetter-Ferguson Paid Loss Development – This method divides the projection of ultimate losses into the portion that has already been paid and the portion that has yet to be paid. The portion that has yet to be paid is estimated as the product of three amounts: the premium earned for the exposure period, the expected loss ratio and the percentage of ultimate losses that are still unpaid. The expected loss ratio is selected by considering historical loss ratios, adjusted for any known changes in pricing, loss trends, adequacy of case reserves, changes in administrative practices and other relevant factors.

Bornhuetter-Ferguson Incurred Loss Development – This method is identical to the Bornhuetter-Ferguson paid loss development method, except that it uses the percentage of ultimate losses that are still unreported, instead of the percentage of ultimate losses that are still unpaid.

Frequency/Severity – Under this method, expected ultimate losses are equal to the product of the expected ultimate number of claims and the expected ultimate average cost per claim. Our actuaries use historical reporting patterns and severity patterns to develop factors that are applied to the current reported amounts to calculate expected ultimate losses.

Outstanding to IBNR Ratio Method – Under this method, IBNR is based on a detailed review of remaining open claims. This method assumes that the estimated future loss development is indicated by the current level of case reserves.

Each actuarial method has its own set of assumptions and its own strengths and limitations, with no one method being better than the others in all situations. Our actuaries select the reserving methods that they believe will produce the most reliable estimate for the class of business being evaluated. Greater judgment may be required when we introduce new product lines or when there have been changes in claims handling practices, as the statistical data available may be insufficient. In these instances, we may rely upon assumptions applied to similar lines of business, rely more heavily on industry experience, take into account changes in underwriting guidelines and risk selection or review the impact of changes in claims reserving practices with claims personnel.

For example, in January 2013, we acquired Essentia Insurance Company, a company that underwrites insurance exclusively for Hagerty Insurance Agency and Hagerty Classic Marine Insurance Agency (collectively, Hagerty). Hagerty offers liability and physical damage insurance for classic cars, vintage boats, motorcycles and related automotive collectibles. Because Markel had limited exposure to such risks in the past, we supplemented our limited data and loss experience with third-party data. Working with Hagerty, we were able to obtain loss development triangles for the business Hagerty had underwritten with their previous carriers. Markel now aggregates that data with our own data for use in the pricing of and reserving for the Hagerty portfolio of business.

A key assumption in most actuarial analyses is that past development patterns will repeat themselves in the future, absent a significant change in internal or external factors that influence the ultimate cost of our unpaid losses and loss adjustment expenses. Our estimates reflect implicit and explicit assumptions regarding the potential effects of external factors, including economic and social inflation, judicial decisions, changes in law, general economic conditions and recent trends in these factors. Our actuarial analyses are based on statistical analysis but also consist of reviewing internal factors that are difficult to analyze statistically, including underwriting and claims handling changes. In some of our markets, and where we act as a reinsurer, the timing and amount of information reported about underlying claims are in the control of third parties. This can also affect estimates and require re-estimation as new information becomes available.

As indicated above, we may use one or more actuarial reserving methods, which incorporate numerous underlying judgments and assumptions, to establish our estimate of ultimate loss reserves. While we use our best judgment in establishing our estimate for loss reserves, applying different assumptions and variables could lead to significantly different loss reserve estimates.

Loss frequency and loss severity are two key measures of loss activity that often result in adjustments to actuarial assumptions relative to ultimate loss reserve estimates. Loss frequency measures the number of claims per unit of insured exposure. When the number of newly reported claims is higher than anticipated, generally speaking, loss reserves are increased. Conversely, loss reserves are generally decreased when fewer claims are reported than expected. Loss severity measures the average size of a claim. When the average severity of reported claims is higher than originally estimated, loss reserves are typically increased. When the average claim size is lower than anticipated, loss reserves are typically decreased. For example, in each of the past three years, we experienced favorable development on prior years' loss reserves in our brokerage products liability product line as a result of decreases in loss severity. During 2016, we experienced unfavorable development on prior years' loss reserves related to our specified medical and medical malpractice product lines as a result of increases in loss frequency.

Changes in prior years' loss reserves, including the trends and factors that impacted loss reserve development, as well as the likelihood that such trends and factors could result in future loss reserve development, are discussed in further detail under "Results of Operations."

Loss reserves are established at management's best estimate, which is generally higher than the corresponding actuarially calculated point estimate. The actuarial point estimate represents our actuaries' estimate of the most likely amount that will ultimately be paid to ~~acquire~~settle the loss reserves we have recorded at a ~~business over~~particular point in time; however, there is inherent uncertainty in the ~~net fair~~point estimate as it is the expected value in a range of ~~assets acquired~~possible reserve estimates. In some cases, actuarial analyses, which are based on statistical analysis, cannot fully incorporate all of the subjective factors that affect development of losses. In other cases, management's perspective of these more subjective factors may differ from the actuarial perspective. Subjective factors where management's perspective may differ from that of the actuaries include: the credibility and ~~liabilities assumed at~~timeliness of claims information received from third parties, economic and social inflation, judicial decisions, changes in law, changes in underwriting or claims handling practices, general economic conditions, the ~~date~~risk of ~~acquisition. Indefinite-lived~~moral hazard and other ~~intangible assets~~current and developing trends within the insurance and reinsurance markets, including the effects of competition. As a result, the actuarially calculated point estimates for each of our lines of business represent starting points for management's quarterly review of loss reserves.

In management's opinion, the actuarially calculated point estimate generally underestimates both the ultimate favorable impact of a hard insurance market and the ultimate adverse impact of a soft insurance market. Therefore, the percentage by which management's best estimate exceeds the actuarial point estimate will generally be higher during a soft market than during a hard market. Additionally, following an acquisition of insurance operations, to the extent the reserving philosophy of the acquired business is less conservative than our reserving philosophy, the percentage by which management's best estimate exceeds the actuarial point estimate will generally be lower until we build total loss reserves that are consistent with our historic level of confidence. Management's best estimate of net reserves for unpaid losses and loss adjustment expenses exceeded the actuarially calculated point estimate by $576.9 million, or 6.9%, at December 31, 2017, compared to $537.4 million, or 7.2%, at December 31, 2016.

The difference between management's best estimate and the actuarially calculated point estimate in both 2017 and 2016 is primarily associated with our long-tail business. Actuarial estimates can underestimate the adverse effects of a soft insurance market because the impact of changes in risk selection and terms and conditions can be difficult to quantify. In addition, the frequency of claims may increase in a recessionary environment. Similarly, the risk an insured will intentionally cause or be indifferent to loss may increase during an economic downturn, and the attention to loss prevention measures may decrease. These subjective factors affect the development of losses and represent instances where management's perspectives may differ from those of our actuaries. As a result, management has attributed less credibility than our actuaries to favorable trends experienced on our long-tail business during softmarket periods and has not incorporated these favorable trends into its best estimate to the same extent as the actuaries.

See note 9 of the notes to consolidated financial statements for further details regarding the historical development of reserves for losses and loss adjustment expenses and changes in methodologies and assumptions used to calculate reserves for unpaid losses and loss adjustment expenses.

Management also considers the range, or variability, of reasonably possible losses determined by our actuaries when establishing its best estimate for loss reserves. The actuarial ranges represent our actuaries' estimate of a likely lowest amount and likely highest amount that will ultimately be paid to settle the loss reserves we have recorded at a particular point in time. The range determinations are based on estimates and actuarial judgments and are intended to encompass reasonably likely changes in one or more of the factors that were used to determine the point estimates. Using statistical models, our actuaries establish high and low ends of a range of reasonable reserve estimates for each of our operating segments.

The following table summarizes our reserves for net unpaid losses and loss adjustment expenses and the actuarially established high and low ends of a range of reasonable reserve estimates at December 31, 2017. As described in note 9 of the notes to consolidated financial statements, unpaid losses and loss adjustment expenses attributable to acquisitions are recorded at fair value as of the acquisition ~~date. The determination~~date, which generally consists of the present value of the expected net loss and loss adjustment expense payments plus a risk premium. The net loss reserves presented in this table represent our estimated future payments for losses and loss adjustment expenses, whereas the reserves for unpaid losses and loss adjustment expenses included in the consolidated balance sheet include the unamortized portion of fair value adjustments recorded in conjunction with an acquisition.



(dollars in millions)	Net Loss Reserves Held		Low End of Actuarial Range⁽¹⁾		High End of Actuarial Range⁽¹⁾
U.S. Insurance	$	3,500.1	$	3,033.5	$	3,786.3
International Insurance	2,261.7		1,805.8		2,520.5
Reinsurance	2,886.1		2,087.3		3,240.7
Other Insurance (Discontinued Lines)	263.0		208.1		426.8


⁽¹⁾	Due to the actuarial methods used to determine the separate ranges for each segment of our business, it is not appropriate to aggregate the high or low ends of the separate ranges to determine the high and low ends of the actuarial range on a consolidated basis.

Undue reliance should not be placed on these ranges of ~~certain assets acquired and liabilities assumed involves significant judgment and the use~~estimates as they are only one of valuation models and other estimates, which require assumptions that are inherently subjective. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. Intangible assets with definite lives are reviewed for impairment when events or circumstances indicate that their carrying valuemany points of reference used by management to determine its best estimate of ultimate losses. Further, actuarial ranges may not be ~~recoverable.~~ a true reflection of the potential variability between loss reserves estimated at the balance sheet date and the ultimate cost of settling claims. Actuarial ranges are developed based on known events as of the valuation date, while ultimate losses are subject to events and circumstances that are unknown as of the valuation date.

We ~~completed~~place less reliance on the range established for our ~~annual test~~Other Insurance (Discontinued Lines) segment than on the ranges established for ~~impairment during~~our other operating segments. The range established for our Other Insurance (Discontinued Lines) segment includes exposures related to acquired lines of business, many of which are no longer being written, that were not subject to our underwriting discipline and controls prior to our acquisition. Additionally, A&E exposures, which are subject to an uncertain and unfavorable legal environment, account for 40% of the ~~fourth quarter~~net loss reserves considered in the range established for our Other Insurance (Discontinued Lines) segment.

Our exposure to A&E claims results from policies written by acquired insurance operations before their acquisitions. The exposure to A&E claims originated from umbrella, excess and commercial general liability (CGL) insurance policies and assumed reinsurance contracts that were written on an occurrence basis from the 1970s to mid-1980s. Exposure also originated from claims-made policies that were designed to cover environmental risks provided that all other terms and conditions of the policy were met. A&E claims include property damage and clean-up costs related to pollution, as well as personal injury allegedly arising from exposure to hazardous materials. After 1986, we began underwriting CGL coverage with pollution exclusions, and in some lines of business we began using a claims-made form. These changes significantly reduced our exposure to future A&E claims on post-1986 business.

There is significant judgment required in estimating the amount of our potential exposure from A&E claims due to the limited and variable historical data on A&E losses as compared to other types of claims, the potential significant reporting delays of claims from insureds to insurance companies and the continuing evolution of laws and judicial interpretations of those laws relative to A&E exposures. Due to these unique aspects of A&E exposures, the ultimate value of loss reserves for A&E claims cannot be estimated using traditional methods and is subject to greater uncertainty than other types of claims. Other factors contributing to the significant uncertainty in estimating A&E reserves include: uncertainty as to the number and identity of insureds with potential exposure; uncertainty as to the number of claims filed by exposed, but not ill, individuals; uncertainty as to the settlement values to be paid; difficulty in properly allocating responsibility and liability for the loss, especially if the claim involves multiple insurance providers or multiple policy periods; growth in the number and significance of bankruptcies of asbestos defendants; uncertainty as to the financial status of companies that insured or reinsured all or part of A&E claims; and inconsistent court decisions and interpretations with respect to underlying policy intent and coverage.

~~2014~~ ~~based upon~~Due to these uncertainties, it is not possible to estimate our ultimate liability for A&E exposures with the same degree of reliability as with other types of exposures. Future development will be affected by the factors mentioned above and could have a material effect on our results of operations, ~~through September 30,~~cash flows and financial position. As of ~~2014~~December 31, 2017. and 2016, our consolidated balance sheets included estimated net reserves for A&E losses and loss adjustment expenses of $104.7 million and $111.6 million, respectively.

~~For some reporting units,~~In March 2015, we ~~elected~~completed a retroactive reinsurance transaction to ~~assess qualitative factors (commonly referred~~cede a portfolio of policies primarily comprised of liabilities arising from A&E exposures that originated before 1992 to a third party. Effective March 31, 2017, the related reserves, which totaled $69.1 million, were formally transferred to the third party by way of a Part VII transfer pursuant to the Financial Services and Markets Act 2000 of the United Kingdom. The Part VII transfer eliminates the uncertainty regarding the potential for adverse development of estimated ultimate liabilities on the underlying policies. In October 2015, we completed a second retroactive reinsurance transaction to cede a portfolio of policies primarily comprised of liabilities arising from A&E exposures that originated before 1987. The transaction provides up to $300 million of coverage for losses in excess of a $97.0 million retention on the ceded policies and 50% coverage on an additional $100 million of losses. After considering our retention on the ceded policies, ceded reserves for unpaid losses and loss adjustment expenses totaled $76.4 million. As of December 31, 2017, our total reinsurance recoverable on unpaid losses for A&E exposures was 62% of our gross reserves for A&E exposures.

We seek to establish appropriate reserve levels for A&E exposures, including A&E exposures ceded to third parties under retroactive reinsurance transactions; however, these reserves could increase in the future. Any future adverse development on reserves subject to retroactive reinsurance contracts will result in increases in our gross reserves for unpaid losses and loss adjustment expenses for A&E exposures and will be recognized in net income in the current period. Any corresponding benefit for ceded losses, however, will be deferred and recognized as ~~"Step 0")~~claims are settled. These reserves are not discounted to present value and are forecasted to pay out over the next 40 to 50 years as claims are settled.

Life and Annuity Benefits

We previously acquired a block of life and annuity reinsurance contracts which subject us to mortality, longevity and morbidity risks. The related reserves are compiled by our actuaries on a reinsurance contract-by-contract basis and are computed on a discounted basis using standard actuarial techniques and cash flow models. Since the development of our life and annuity reinsurance reserves is based upon cash flow projection models, we must make estimates and assumptions based on cedent experience, industry mortality tables, and expense and investment experience, including a provision for adverse deviation. The assumptions used to determine ~~whether~~policy benefit reserves are generally locked-in for the life of the contract unless an unlocking event occurs. To the extent existing policy reserves, together with the present value of future gross premiums and expected investment income earned thereon, are not adequate to cover the present value of future benefits, settlement and maintenance costs, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings for life and annuity benefits is recognized at that time. Our consolidated balance sheets at December 31, 2017 and 2016 included reserves for life and annuity benefits of $1.1 billion and $1.0 billion, respectively.

Because of the assumptions and estimates used in establishing reserves for life and annuity benefit obligations and the long-term nature of these reinsurance contracts, the ultimate liability may be greater or less than the estimates. The average discount rate for the life and annuity benefit reserves was 2.3% as of December 31, 2017.

Reinsurance Premiums

Ceded Reinsurance Allowance for Doubtful Accounts

We evaluate and adjust reserves for uncollectible ceded reinsurance based upon our collection experience, the financial condition of our reinsurers, collateral held and the development of our gross loss reserves. Our consolidated balance sheets at December 31, 2017 and 2016 included a reinsurance allowance for doubtful accounts of $34.0 million and $36.8 million, respectively, all of which is attributable to our underwriting operations. Based on the significant amounts of collateral held on our program services business and historical collection experience, we have not recorded a reinsurance allowance for doubtful accounts on this business.

Reinsurance recoverables recorded on insurance losses ceded under reinsurance contracts are subject to judgments and uncertainties similar to those involved in estimating gross loss reserves. In addition to these uncertainties, our reinsurance recoverables may prove uncollectible if the reinsurers are unable or unwilling to perform under the reinsurance contracts. In establishing our reinsurance allowance for amounts deemed uncollectible, we evaluate the financial condition of our reinsurers and monitor concentration of credit risk arising from our exposure to individual reinsurers. To determine if an allowance is necessary, we consider, among other factors, published financial information, reports from rating agencies, payment history, collateral held and our legal right to offset balances recoverable against balances we may owe. Our ceded reinsurance allowance for doubtful accounts is subject to uncertainty and volatility due to the time lag involved in collecting amounts recoverable from reinsurers. Over the period of time that losses occur, reinsurers are billed and amounts are ultimately collected, economic conditions, as well as the operational and financial performance of particular reinsurers, may change and these changes may affect the reinsurers' willingness and ability to meet their contractual obligation to us. It is also difficult to fully evaluate the impact of major catastrophic events on the financial stability of reinsurers, as well as the access to capital that reinsurers may have when such events occur. The ceding of insurance does not legally discharge us from our primary liability for the full amount of the policies, and we will be required to pay the loss and bear collection risk if the reinsurers fail to meet their obligations under the reinsurance contracts.

Income Taxes and Uncertain Tax Positions

The preparation of our consolidated income tax provision, including the evaluation of tax positions we have taken or expect to take on our income tax returns, requires significant judgment. In evaluating our tax positions, we recognize the tax benefit from an uncertain tax position only if, based on the technical merits of the position, it is more likely than not that the ~~fair value~~tax position will be sustained upon examination by the taxing authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach, whereby the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement is recognized. At December 31, 2017, we did not have any material unrecognized tax benefits. The tax positions that we have taken or expect to take are based upon the application of tax laws and regulations, which are subject to interpretation, judgment and uncertainty. As a ~~reporting unit is less than its carrying amount. This assessment serves~~result, our actual liability for income taxes may differ significantly from our estimates.

We record deferred income taxes as ~~a basis for determining whether it is necessary~~assets or liabilities on our consolidated balance sheets to ~~perform~~reflect the ~~two-step goodwill impairment test. For other reporting units, we elected to bypass Step 0 and perform Step 1~~net tax effect of the ~~goodwill impairment test, which includes determining whether~~temporary differences between the carrying ~~amount~~amounts of aassets and liabilities for financial reporting ~~unit, including goodwill, exceeds its estimated fair value. If~~purposes and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. At December 31, 2017 and 2016, our net deferred tax liability was $505.6 million and $330.5 million, respectively. The increase in our net deferred tax liability in 2017 was primarily driven by the ~~carrying amount exceeds its fair value, then Step 2~~increase in net unrealized gains on investments in 2017 and an increase in intangible assets attributable to acquisitions, partially offset by the remeasurement of our net deferred tax liability at the lower enacted U.S. corporate tax rate following the enactment of the ~~goodwill impairment test is performed by estimating the fair value~~Tax Cuts and Jobs Act (TCJA) in December 2017. See further discussion of individual assets (including identifiable intangible assets) and liabilities of the reporting unit. The 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. The excess of the recorded amount of goodwill over the implied value is charged to net income as an impairment loss.

A significant amount of judgment is required in performing goodwill impairment tests. When using the qualitative approach, we considered macroeconomic factors such as industry and market conditions. We also considered reporting unit-specific events, actual financial performance versus expectations and management's future business expectations. As part of our Step 0 evaluation of reporting units with material goodwill, we considered the fact that many of the businesses had been recently acquired in orderly transactions between market participants, and our purchase price represented fair value at acquisition. There were no events since acquisition which had a significant impact on the fair value of these reporting units. For reporting units which we tested quantitatively, we estimated fair value primarily using an income approach based on a discounted cash flow model. The cash flow projections used in the discounted cash flow model included management's best estimate of future growth and margins. The discount rates used to determine the fair value estimates were developed based on the capital asset pricing model using market-based inputs as well as an assessment of the inherent risk in projected future cash flows.

With the exception of the Markel Ventures Diamond Healthcare reporting unit, we believe the fair value of each of our reporting units exceeded its respective carrying amount as of October 1, 2014 and December 31, 2014. Additionally, we do not believe we are at risk of failing Step 1 at any of our reporting units with the result being a material impairment of goodwill.

During the fourth quarter of 2014, we recorded a non-cash goodwill impairment charge of $13.7 million to other expenses, to reduce the carrying value of the Diamond Healthcare reporting unit's goodwill to its implied fair value. We determined the goodwill for the reporting unit was impaired as a result of lower than expected earnings and lower estimated future earnings. We believe the performance of this reporting unit has been impacted by a decline in general healthcare market conditions, the anticipated impacts of the Patient Protection and Affordable Care Act (the Act), and the impact of the ~~Act on changes to behavioral healthcare services. Diamond Healthcare's operations consist~~TCJA in note 8 of the planning, development and operation of behavioral health services in partnership with healthcare organizations. To determine the value of the impairment loss, we estimated the fair value of the reporting unit primarily using an income approach based on a discounted cash flow model. As described above, the cash flow projections are management's best estimate of future growth and margins. After recording this charge, the Diamond Healthcare reporting unit's goodwill was $14.9 million, which we consider immaterial.

~~Table of Contents~~

~~Investments~~notes consolidated financial statements.

~~We complete~~Deferred tax assets are reduced by a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. All securities with unrealized losses are reviewed. For equity securities, a decline in fair value that is considered to be other-than-temporary is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. For fixed maturities where we intend to sell the security orvaluation allowance when management believes it is more likely than not that ~~we will be required to sell the security before recovery of its amortized cost, a decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value~~some, or all, of the ~~security at the time~~deferred tax assets will not be realized. As of ~~assessment, resulting in a new cost basis for the security. If the decline in fair value~~December 31, 2017 and 2016, our deferred tax assets were net of a ~~fixed maturity below its amortized cost is considered~~valuation allowance of $25.2 million and $18.8 million, respectively. In evaluating our ability to ~~be other-than-temporary based upon other considerations, we compare~~realize our deferred tax assets and assessing the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment, which is recognized in other comprehensive income. The discount rate used to calculate the estimated present value of the cash flows expected to be collected is the effective interest rate implicit for the security at the date of purchase.

We consider many factors in completing our quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer. For equity securities, the ability and intent to hold the securityneed for a ~~period~~valuation allowance at December 31, 2017 and 2016, we made estimates regarding the future taxable income of time sufficient to allow for any anticipated recovery is considered. For fixed maturities, we consider whether we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuerour subsidiaries and ~~the~~judgments about our ability to recover all amounts outstanding when contractually due. When assessing whether we intend to sell a fixed maturity or if it is likely that we will be required to sell a fixed maturity before recovery of its amortized cost, we evaluate factspursue prudent and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing.

Risks and uncertainties are inherent in our other-than-temporary decline in fair value assessment methodology. The risks and uncertainties include, but are not limited to, incorrect or overly optimistic assumptions about the financial condition, liquidity or near-term prospects of an issuer, inadequacy of any underlying collateral, unfavorable changes in economic or social conditions and unfavorable changes in interest rates or credit ratings. Changesfeasible tax planning strategies. A change in any of these ~~assumptions~~estimates and judgments could result in ~~charges~~the need to ~~earnings in future periods.~~

~~Losses from write downs for other-than-temporary declines in the estimated fair value of investments, while potentially significant~~increase our valuation allowance through a charge to net income, do not have an impact on our financial position. Since our investment securities are considered available-for-sale and are recorded at estimated fair value, unrealized losses on investments are already included in accumulated other comprehensive income.earnings. See note ~~3(b)~~8 of the notes to consolidated financial statements for further discussion of our ~~assessment methodology for other-than-temporary declines in the estimated fair value of investments.~~consolidated income tax provision, uncertain tax positions and net operating losses.

Our Business

The following discussion and analysis should be read in conjunction with Selected Financial Data, the consolidated financial statements and related notes and the discussion under Risk Factors, "Critical Accounting Estimates" and "Safe Harbor and Cautionary Statement."

We are a diverse financial holding company serving a variety of niche markets. Our principal business markets and underwrites specialty insurance products. We believe that our specialty product focus and niche market strategy enable us to develop expertise and specialized market knowledge. We seek to differentiate ourselves from competitors by our expertise, service, continuity and other value-based considerations. We also own interests in various ~~industrial and service~~ businesses that operate outside of the specialty insurance marketplace. Our financial goals are to earn consistent underwriting and operating profits and superior investment returns to build shareholder value.

~~Table of Contents~~

~~On May 1, 2013, we completed the acquisition of 100%~~Our business is comprised of the ~~issued and outstanding common stock~~following types of ~~Alterra,~~operations:

Investing - our investing activities are primarily related to our underwriting operations

Program Services - our program services business serves as a ~~Bermuda-headquartered global enterprise providing diversified specialty~~fronting platform that provides other insurance companies access to the U.S. property and casualty insurance market

Markel CATCo - our Markel CATCo operations include an investment fund manager that offers insurance-linked securities to investors

Markel Ventures - our Markel Ventures operations include our controlling interests in a diverse portfolio of businesses that operate outside of the specialty insurance marketplace

Through December 31, 2017, we monitored and reinsurance products to corporations, public entities and other property and casualty insurers. In conjunction with the continued integration of Alterra into our insurance operations, during the first quarter of 2014, we changed the way we aggregate and monitor our ongoing underwriting results. Effective January 1, 2014, we monitor and reportreported our ongoing underwriting operations in the following three segments: U.S. Insurance, International Insurance and Reinsurance. In determining how to aggregate and monitor our underwriting results, management ~~considers~~considered many factors, including the geographic location and regulatory environment of the insurance entity underwriting the risk, the nature of the insurance product sold, the type of account written and the type of customer served. ~~All~~

With the continued growth and diversification of our business, beginning in 2018, we no longer consider the geographic location of the insurance entity underwriting the risk when monitoring our underwriting operations and will monitor and report our ongoing underwriting operations on a global basis in the following two segments: Insurance and Reinsurance. The Insurance segment ~~disclosures for~~will include all direct business and facultative placements written across the ~~prior periods have been revised to be consistent with the new~~Company, which currently are reported in our U.S. Insurance and International Insurance segments. The Reinsurance segment ~~structure.~~will remain unchanged.

The U.S. Insurance segment includes all direct business and facultative reinsurance placements written by our insurance subsidiaries domiciled in the United States. The International Insurance segment includes all direct business and facultative reinsurance placements written by our insurance subsidiaries domiciled outside of the United States, including our syndicate at Lloyd's of London (Lloyd's). The Reinsurance segment includes all treaty reinsurance written across the Company. Results for lines of business discontinued prior to, or in conjunction with, acquisitions, are reported in the Other Insurance (Discontinued Lines) segment. ~~Underwriting results attributable to Alterra are included in each of our underwriting segments effective May 1, 2013.~~ All investing activities related to our insurance operations are included in the Investing segment.

Our U.S. Insurance segment includes both hard-to-place risks written outside of the standard market on an excess and surplus lines basis and unique and hard-to-place risks that must be written on an admitted basis due to marketing and regulatory reasons. The following products are included in this segment: general liability, professional liability, catastrophe-exposed property, ~~professional liability, products liability, general liability, commercial umbrella, marine,~~personal property, workers' compensation, ~~classic automobiles,~~ specialty program insurance for well-defined niche markets, ~~personal property~~ and liability coverages and other coverages tailored for unique exposures. Business in this segment is written through our Specialty division and our Wholesale ~~Specialty~~ and Global Insurance ~~divisions.~~divisions, which were combined effective January 1, 2018 to form the Markel Assurance division. The Specialty division writes program insurance and other specialty coverages for well-defined niche markets, primarily on an admitted basis. The Wholesale division writes commercial risks, primarily on an excess and surplus lines basis, using a network of wholesale brokers managed on a regional basis. The ~~Specialty division writes program insurance and other specialty coverages for well-defined niche markets, primarily on an admitted basis. The~~ Global Insurance division writes risks outside of the standard market on both an admitted and non-admitted ~~basis and is comprised of business previously written by Alterra.~~basis. Global Insurance division business written by our U.S. insurance subsidiaries is included in this segment.

Our International Insurance segment writes risks that are characterized by either the unique nature of the exposure or the high limits of insurance coverage required by the insured. Risks written in the International Insurance segment are written on either a direct basis or a subscription basis, the latter of which means that loss exposures brought into the market are typically insured by more than one insurance company or Lloyd's syndicate. When we write business in the subscription market, we prefer to participate as lead underwriter in order to control underwriting terms, policy conditions and claims handling. Products offered within our International Insurance segment include primary and excess of loss property, ~~casualty,~~ excess liability, professional liability, ~~equine,~~ marine and energy and ~~trade credit insurance.~~liability coverages and other coverages tailored for unique exposures. Business included in this segment is produced through our Markel International and Global Insurance divisions. The Markel International division writes business worldwide from our London-based platform, which includes our syndicate at Lloyd's. Global Insurance division business written by our non-U.S. insurance subsidiaries, which primarily targets Fortune 1000 accounts, is included in this segment.

Our Reinsurance segment includes property, casualty and specialty treaty reinsurance products offered to other insurance and reinsurance companies globally through the broker market. Our treaty reinsurance offerings include both quota share and excess of loss ~~reinsurance.~~reinsurance and are typically written on a participation basis, which means each reinsurer shares proportionally in the business ceded under the reinsurance treaty written. Principal lines of business include: property (including catastrophe-exposed property), ~~auto,~~professional liability, general casualty, credit, surety, auto and workers' ~~compensation, professional liability, and marine and energy.~~compensation. Our reinsurance product offerings are underwritten by our Global Reinsurance division ~~which is primarily comprised of business previously written by Alterra,~~ and our Markel International division.

For purposes of segment reporting, the Other Insurance (Discontinued Lines) segment includes lines of business that have been discontinued prior to, or in conjunction with, acquisitions. The lines were discontinued because we believed some aspect of the product, such as risk profile or competitive environment, would not allow us to earn consistent underwriting profits. Alterra previously offered life and annuity reinsurance products. In 2010, Alterra ceased writing life and annuity reinsurance contracts and placed this business into run-off. Results attributable to the run-off of Alterra's life and annuity reinsurance business are included in theThe Other Insurance (Discontinued Lines) ~~segment. This~~ segment also includes development on asbestos and environmental (A&E) loss reserves ~~none of which are related~~and the results attributable to the ~~acquisition~~run-off of ~~Alterra.~~our life and annuity reinsurance business.

~~Table of Contents~~

In ~~January 2014,~~December 2015, we completed the acquisition of ~~100%~~substantially all of the ~~share capital~~assets of ~~Abbey Protection plc (Abbey),~~CATCo Investment Management Ltd. (CATCo IM) and CATCo-Re Ltd. CATCo IM was an ~~integrated specialty insurance~~insurance-linked securities investment fund manager and ~~consultancy group~~reinsurance manager headquartered in ~~London. Abbey's business is~~Bermuda focused on building and managing highly diversified, collateralized retrocession and reinsurance portfolios covering global property catastrophe risks. Following the ~~underwriting~~acquisition, we are operating this business through Markel CATCo Investment Management Ltd. (MCIM). MCIM receives management fees for its investment management and ~~sale of~~ insurance products to small and medium-sized enterprises and affinity groups in the United Kingdom providing protection against legal expenses and professional fees incurred as a result of legal actions or investigations by tax authorities,management services, as well as ~~providing a range~~performance fees based on the annual performance of ~~complementary legal and professional consulting services.~~the investment funds that it manages. Results attributable to ~~Abbey's insurance operations~~MCIM are included ~~in the International Insurance segment. Results attributable to Abbey's consultancy operations are reported~~ with our ~~non-insurance~~other operations, which are not included in a reportable segment. As of December 31, 2017, MCIM's total investment and insurance assets under management were $6.2 billion, which includes $6.0 billion for unconsolidated variable interest entities.

In January 2013, we acquired Essentia Insurance Company, a company that underwrites insurance exclusively for Hagerty Insurance Agency and Hagerty Classic Marine Insurance Agency (collectively, Hagerty) throughout the United States. Hagerty offers insurance for classic cars, vintage boats, motorcycles and related automotive collectibles. Results attributable to Hagerty are included in the U.S. Insurance segment.

A favorable insurance market is commonly referred to as a "hard market" within the insurance industry and is characterized by stricter coverage terms, higher prices and lower underwriting capacity. Periods of intense competition, which typically include broader coverage terms, lower prices and excess underwriting capacity, are referred to as a "soft market." We have experienced soft insurance market conditions, including price deterioration in virtually all of our product lines, since the mid-2000s. Beginning in 2011, price declines stabilized for most of our product lines and over the past three years we have seen low to mid-single digit favorable rate changes in many of our product lines as market conditions improved and revenues, gross receipts and payrolls of our insureds were favorably impacted by improving economic conditions. However, during the fourth quarter of 2013 and continuing into 2014, we began to experience softening prices on our international catastrophe-exposed property product lines and in our property reinsurance book. Despite stabilization of prices on certain product lines, we still consider the overall property and casualty market to be soft. We will continue to pursue price increases in 2015 when possible; however, when we believe the prevailing market price will not support our underwriting profit targets, the business is not written. As a result of our underwriting discipline, gross premium volume may vary when we alter our product offerings to maintain or improve underwriting profitability.

Through our ~~wholly-owned~~wholly owned subsidiary Markel Ventures, Inc. (Markel Ventures), we own interests in various ~~industrial and service~~ businesses that operate outside of the specialty insurance marketplace. These businesses are viewed by management as separate and distinct from our insurance operations and are comprised of a diverse portfolio of ~~companies~~businesses from ~~different industries, including manufacturing, healthcare, consumer and business and financial services.~~various industries. Local management teams oversee the day-to-day operations of these companies, while strategic decisions are made in conjunction with members of our executive management ~~team, principally our President and Chief Investment Officer.~~team. While each of these ~~companies~~businesses is operated independently, we aggregate their financial results into two industry groups: manufacturing and non-manufacturing. Our manufacturing operations are comprised of manufacturers of transportation and other industrial equipment. Our non-manufacturing operations are comprised of businesses from several industry groups, including consumer goods and services (including healthcare) and business services. Our strategy in making these investments is similar to our strategy for purchasing equity securities. We seek to invest in profitable companies, with honest and talented management, that exhibit reinvestment opportunities and capital discipline, at reasonable prices. We intend to own the businesses acquired for a long period of time.

~~On July 23, 2014,~~In August 2017, we acquired ~~100%~~81% of ~~the outstanding shares of Cottrell, Inc. (Cottrell),~~Costa Farms, a Florida-based privately held ~~company headquartered in Gainesville, Georgia. Cottrell is a leading manufacturer~~grower of ~~over-the-road car hauler equipment~~house and ~~related car hauler parts.~~garden plants. Results attributable to ~~Cottrell~~Costa Farms are included with ~~the Company's non-insurance~~our Markel Ventures operations, which are not included in a reportable segment.

Critical Accounting Estimates

Unpaid Losses and Loss Adjustment Expenses

Our consolidated balance sheet included estimated unpaid losses and loss adjustment expenses of $13.6 billion and reinsurance recoverable on unpaid losses of $4.6 billion at December 31, 2017 compared to $10.1 billion and $2.0 billion, respectively, at December 31, 2016. Included in the December 31, 2017 balances for both unpaid losses and loss adjustment expenses and reinsurance recoverable on unpaid losses were $2.2 billion attributable to our program services business.

We accrue liabilities for unpaid losses and loss adjustment expenses based upon estimates of the ultimate amounts payable. We maintain reserves for specific claims incurred and reported (case reserves) and reserves for claims incurred but not reported (IBNR reserves).

Program Services

Underwriting

Our ultimate liability may be greater or less than current reserves. Changes in our estimated ultimate liability for loss reserves generally occur as a result of the emergence of unanticipated loss activity, the completion of specific actuarial or claims studies or changes in internal or external factors. We closely monitor new information on reported claims and use statistical analyses prepared by our actuaries to evaluate the adequacy of our recorded reserves. We are required to exercise considerable judgment when assessing the relative credibility of loss development trends. Our philosophy is to establish loss reserves that are more likely redundant than deficient. This means that we seek to establish loss reserves that will ultimately prove to be adequate. As a result, if new information or trends indicate an increase in frequency or severity of claims in excess of what we initially anticipated, we generally respond quickly and increase loss reserves. If, however, frequency or severity trends are more favorable than initially anticipated, we often wait to reduce our loss reserves until we can evaluate experience in additional periods to confirm the credibility of the trend. In addition, for long-tail lines of business, trends develop over longer periods of time, and as a result, we give credibility to these trends more slowly than for short-tail or less volatile lines of business. As part of our acquisition of underwriting operations, to the extent the reserving philosophy of the acquired business is less conservative than our reserving philosophy, the post-acquisition loss reserves will be strengthened until total loss reserves are consistent with our target level of confidence.

Loss reserves are established at management's best estimate, which is generally higher than the corresponding actuarially calculated point estimate. The actuarial point estimate represents our actuaries' estimate of the most likely amount that will ultimately be paid to settle the loss reserves we have recorded at a particular point in time; however, there is inherent uncertainty in the point estimate as it is the expected value in a range of possible reserve estimates. In some cases, actuarial analyses, which are based on statistical analysis, cannot fully incorporate all of the subjective factors that affect development of losses. In other cases, management's perspective of these more subjective factors may differ from the actuarial perspective. Subjective factors where management's perspective may differ from that of the actuaries include: the credibility and timeliness of claims information received from third parties, economic and social inflation, judicial decisions, changes in law, changes in underwriting or claims handling practices, general economic conditions, the risk of moral hazard and other current and developing trends within the insurance and reinsurance markets, including the effects of competition. As a result, the actuarially calculated point estimates for each of our lines of business represent starting points for management's quarterly review of loss reserves.

The following table summarizes our reserves for net unpaid losses and loss adjustment expenses and the actuarially established high and low ends of a range of reasonable reserve estimates at December 31, 2017. As described in note 9 of the notes to consolidated financial statements, unpaid losses and loss adjustment expenses attributable to acquisitions are recorded at fair value as of the acquisition date, which generally consists of the present value of the expected net loss and loss adjustment expense payments plus a risk premium. The net loss reserves presented in this table represent our estimated future payments for losses and loss adjustment expenses, whereas the reserves for unpaid losses and loss adjustment expenses included in the consolidated balance sheet include the unamortized portion of fair value adjustments recorded in conjunction with an acquisition.



(dollars in millions)	Net Loss Reserves Held		Low End of Actuarial Range⁽¹⁾		High End of Actuarial Range⁽¹⁾
U.S. Insurance	$	3,500.1	$	3,033.5	$	3,786.3
International Insurance	2,261.7		1,805.8		2,520.5
Reinsurance	2,886.1		2,087.3		3,240.7
Other Insurance (Discontinued Lines)	263.0		208.1		426.8


⁽¹⁾	Due to the actuarial methods used to determine the separate ranges for each segment of our business, it is not appropriate to aggregate the high or low ends of the separate ranges to determine the high and low ends of the actuarial range on a consolidated basis.

Undue reliance should not be placed on these ranges of estimates as they are only one of many points of reference used by management to determine its best estimate of ultimate losses. Further, actuarial ranges may not be a true reflection of the potential variability between loss reserves estimated at the balance sheet date and the ultimate cost of settling claims. Actuarial ranges are developed based on known events as of the valuation date, while ultimate losses are subject to events and circumstances that are unknown as of the valuation date.

We place less reliance on the range established for our Other Insurance (Discontinued Lines) segment than on the ranges established for our other operating segments. The range established for our Other Insurance (Discontinued Lines) segment includes exposures related to acquired lines of business, many of which are no longer being written, that were not subject to our underwriting discipline and controls prior to our acquisition. Additionally, A&E exposures, which are subject to an uncertain and unfavorable legal environment, account for 40% of the net loss reserves considered in the range established for our Other Insurance (Discontinued Lines) segment.

Due to these uncertainties, it is not possible to estimate our ultimate liability for A&E exposures with the same degree of reliability as with other types of exposures. Future development will be affected by the factors mentioned above and could have a material effect on our results of operations, cash flows and financial position. As of December 31, 2017 and 2016, our consolidated balance sheets included estimated net reserves for A&E losses and loss adjustment expenses of $104.7 million and $111.6 million, respectively.

In March 2015, we completed a retroactive reinsurance transaction to cede a portfolio of policies primarily comprised of liabilities arising from A&E exposures that originated before 1992 to a third party. Effective March 31, 2017, the related reserves, which totaled $69.1 million, were formally transferred to the third party by way of a Part VII transfer pursuant to the Financial Services and Markets Act 2000 of the United Kingdom. The Part VII transfer eliminates the uncertainty regarding the potential for adverse development of estimated ultimate liabilities on the underlying policies. In October 2015, we completed a second retroactive reinsurance transaction to cede a portfolio of policies primarily comprised of liabilities arising from A&E exposures that originated before 1987. The transaction provides up to $300 million of coverage for losses in excess of a $97.0 million retention on the ceded policies and 50% coverage on an additional $100 million of losses. After considering our retention on the ceded policies, ceded reserves for unpaid losses and loss adjustment expenses totaled $76.4 million. As of December 31, 2017, our total reinsurance recoverable on unpaid losses for A&E exposures was 62% of our gross reserves for A&E exposures.

We seek to establish appropriate reserve levels for A&E exposures, including A&E exposures ceded to third parties under retroactive reinsurance transactions; however, these reserves could increase in the future. Any future adverse development on reserves subject to retroactive reinsurance contracts will result in increases in our gross reserves for unpaid losses and loss adjustment expenses for A&E exposures and will be recognized in net income in the current period. Any corresponding benefit for ceded losses, however, will be deferred and recognized as claims are settled. These reserves are not discounted to present value and are forecasted to pay out over the next 40 to 50 years as claims are settled.

Life and Annuity Benefits

We previously acquired a block of life and annuity reinsurance contracts which subject us to mortality, longevity and morbidity risks. The related reserves are compiled by our actuaries on a reinsurance contract-by-contract basis and are computed on a discounted basis using standard actuarial techniques and cash flow models. Since the development of our life and annuity reinsurance reserves is based upon cash flow projection models, we must make estimates and assumptions based on cedent experience, industry mortality tables, and expense and investment experience, including a provision for adverse deviation. The assumptions used to determine policy benefit reserves are generally locked-in for the life of the contract unless an unlocking event occurs. To the extent existing policy reserves, together with the present value of future gross premiums and expected investment income earned thereon, are not adequate to cover the present value of future benefits, settlement and maintenance costs, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings for life and annuity benefits is recognized at that time. Our consolidated balance sheets at December 31, 2017 and 2016 included reserves for life and annuity benefits of $1.1 billion and $1.0 billion, respectively.

Reinsurance Premiums

Ceded Reinsurance Allowance for Doubtful Accounts

Income Taxes and Uncertain Tax Positions

The preparation of our consolidated income tax provision, including the evaluation of tax positions we have taken or expect to take on our income tax returns, requires significant judgment. In evaluating our tax positions, we recognize the tax benefit from an uncertain tax position only if, based on the technical merits of the position, it is more likely than not that the tax position will be sustained upon examination by the taxing authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach, whereby the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement is recognized. At December 31, 2017, we did not have any material unrecognized tax benefits. The tax positions that we have taken or expect to take are based upon the application of tax laws and regulations, which are subject to interpretation, judgment and uncertainty. As a result, our actual liability for income taxes may differ significantly from our estimates.

We record deferred income taxes as assets or liabilities on our consolidated balance sheets to reflect the net tax effect of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. At December 31, 2017 and 2016, our net deferred tax liability was $505.6 million and $330.5 million, respectively. The increase in our net deferred tax liability in 2017 was primarily driven by the increase in net unrealized gains on investments in 2017 and an increase in intangible assets attributable to acquisitions, partially offset by the remeasurement of our net deferred tax liability at the lower enacted U.S. corporate tax rate following the enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017. See further discussion of the impact of the TCJA in note 8 of the notes consolidated financial statements.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. As of December 31, 2017 and 2016, our deferred tax assets were net of a valuation allowance of $25.2 million and $18.8 million, respectively. In evaluating our ability to realize our deferred tax assets and assessing the need for a valuation allowance at December 31, 2017 and 2016, we made estimates regarding the future taxable income of our subsidiaries and judgments about our ability to pursue prudent and feasible tax planning strategies. A change in any of these estimates and judgments could result in the need to increase our valuation allowance through a charge to earnings. See note 8 of the notes to consolidated financial statements for further discussion of our consolidated income tax provision, uncertain tax positions and net operating losses.

Goodwill and Intangible Assets

Our consolidated balance sheet as of December 31, 2017 included goodwill and intangible assets of $3.1 billion. Goodwill and intangible assets are recorded as a result of business acquisitions. Goodwill represents the excess of the amount paid to acquire a business over the net fair value of assets acquired and liabilities assumed at the date of acquisition. Indefinite-lived and other intangible assets are recorded at fair value as of the acquisition date. The determination of the fair value of certain assets acquired and liabilities assumed involves significant judgment and the use of valuation models and other estimates, which require assumptions that are inherently subjective. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. Intangible assets with definite lives are reviewed for impairment when events or circumstances indicate that their carrying value may not be recoverable. We completed our annual test for impairment during the fourth quarter of 2017 based upon results of operations through September 30, 2017.

For some reporting units, we assessed qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This assessment serves as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. For other reporting units, we elected to perform the quantitative goodwill impairment test, which includes determining whether the carrying amount of a reporting unit, including goodwill, exceeds its estimated fair value. If the carrying amount of the reporting unit exceeds the fair value, the excess of the recorded amount of goodwill over the fair value is charged to net income as an impairment loss. The impairment loss is limited to the amount of goodwill allocated to that reporting unit.

A significant amount of judgment is required in performing goodwill impairment tests. When using the qualitative approach, we considered macroeconomic factors such as industry and market conditions. We also considered reporting unit-specific events, actual financial performance versus expectations and management's future business expectations. As part of our qualitative evaluation of certain reporting units with material goodwill, we considered the fact that some of the businesses had been recently acquired in orderly transactions between market participants, and our purchase price represented fair value at acquisition. There were no events since acquisition which had a significant impact on the fair value of these reporting units. For reporting units which we tested quantitatively, we estimated fair value primarily using an income approach based on a discounted cash flow model. The cash flow projections used in the discounted cash flow model included management's best estimate of future growth and margins. The discount rates used to determine the fair value estimates were developed based on the capital asset pricing model using market-based inputs as well as an assessment of the inherent risk in projected future cash flows.

We believe the fair value of each of our reporting units exceeded its respective carrying amount as of October 1, 2017 and December 31, 2017.

During the fourth quarter of 2016, we recorded a goodwill impairment charge of $18.7 million to other expenses for one of our Markel Ventures industrial manufacturing reporting units, to reduce the carrying value of its goodwill to its implied fair value. Unfavorable market conditions, specifically declining oil prices from late 2014 through 2016, resulted in lower than expected earnings over a similar time period. The reporting unit's earnings are generally tied to infrastructure spending across global markets, a significant portion of which are influenced by the price of oil. To determine the value of the impairment loss, we estimated the fair value of the reporting unit primarily using an income approach based on a discounted cash flow model that incorporates management's best estimate of future growth and margins. While these cash flow projections yield positive cash flows and earnings in the long-term, they were insufficient to support the current carrying value of the reporting unit due to the unfavorable impact of current market conditions and recent trends on our shorter-term projections. After recording this charge in 2016, the reporting unit's goodwill was reduced to zero.

During the fourth quarter of 2015, we recorded a goodwill impairment charge of $14.9 million to other expenses, for one of our Markel Ventures healthcare reporting units, to reduce the carrying value of its goodwill to its implied fair value. The reporting unit's operations consist of the planning, development and operation of behavioral health services in partnership with healthcare organizations. In 2015, we determined the goodwill for the reporting unit was impaired as a result of lower than expected earnings and lower estimated future earnings. We believe the performance of this reporting unit has been impacted by healthcare legislation, evolving general healthcare market conditions and the need to adapt more quickly to those changes. Additionally, the reporting unit's performance has been impacted by operational costs in excess of projections on new operating facilities where construction began just prior to our acquisition. Although we anticipated a ramp-up period in the initial operations of these facilities, costs have continued to exceed both our initial and revised expectations. To determine the value of the impairment loss, we estimated the fair value of the reporting unit primarily using an income approach based on a discounted cash flow model that incorporates management's best estimate of future growth and margins. After recording this charge in 2015, the reporting unit's goodwill was reduced to zero.

Investments

We complete a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. All securities with unrealized losses are reviewed. For equity securities, a decline in fair value that is considered to be other-than-temporary is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. For fixed maturities where we intend to sell the security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost, a decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity below its amortized cost is considered to be other-than-temporary based upon other considerations, we compare the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment, which is recognized in other comprehensive income (loss). The discount rate used to calculate the estimated present value of the cash flows expected to be collected is the effective interest rate implicit for the security at the date of purchase.

We consider many factors in completing our quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer. For equity securities, the ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery is considered. For fixed maturities, we consider whether we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due. When assessing whether we intend to sell a fixed maturity or if it is likely that we will be required to sell a fixed maturity before recovery of its amortized cost, we evaluate facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing.

Risks and uncertainties are inherent in our other-than-temporary decline in fair value assessment methodology. The risks and uncertainties include, but are not limited to, incorrect or overly optimistic assumptions about the financial condition, liquidity or near-term prospects of an issuer, inadequacy of any underlying collateral, unfavorable changes in economic or social conditions and unfavorable changes in interest rates or credit ratings. Changes in any of these assumptions could result in charges to earnings in future periods.

Losses from write downs for other-than-temporary declines in the estimated fair value of investments, while potentially significant to net income, do not have an impact on our financial position. Since our investment securities are considered available-for-sale and are recorded at estimated fair value, unrealized losses on investments are already included in accumulated other comprehensive income. See note 3(b) of the notes to consolidated financial statements for further discussion of our assessment methodology for other-than-temporary declines in the estimated fair value of investments.

Recent Accounting Pronouncements

The Financial Accounting Standards Board has issued several accounting standards updates (ASUs) that become effective January 1, 2018. These standards were evaluated and we have identified the impacts, if any, to our consolidated financial position, results of operations and cash flows.

Adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), will not have a material impact on our consolidated financial position, results of operations or cash flows.

Upon adoption of ASU No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities, changes in the fair value of equity securities will be recognized in net income rather than other comprehensive income. As of December 31, 2017, accumulated other comprehensive income included $3.3 billion of net unrealized gains on equity securities, which will be reclassified to retained earnings on January 1, 2018. As of December 31, 2017, accumulated other comprehensive income was net of deferred income taxes on net unrealized gains on equity securities of $1.1 billion. We are still assessing the impact of ASU No. 2018-02 following the enactment of the Tax Cuts and Jobs Act in December 2017, on deferred taxes included in accumulated other comprehensive income and have not determined the amount of deferred income taxes on net unrealized gains on equity securities that will be reclassified to retained earnings on January 1, 2018.

Other ASUs that we expect have the most potential to significantly impact our consolidated financial position, results of operations or cash flows upon adoption and are currently evaluating are as follows:

ASU No. 2016-02, Leases (Topic 842)

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

See note 1(w) of the notes to consolidated financial statements for discussion of all of these ASUs and the expected effects on our consolidated financial position, results of operations and cash flows.

~~Key Performance Indicators~~Life and Annuity Benefits

We ~~measure financial success~~previously acquired a block of life and annuity reinsurance contracts which subject us to mortality, longevity and morbidity risks. The related reserves are compiled by our ~~ability to compound growth in book value per share at~~actuaries on a ~~high rate of return over~~reinsurance contract-by-contract basis and are computed on a ~~long period of time. To mitigate~~discounted basis using standard actuarial techniques and cash flow models. Since the ~~effects of short-term volatility, we measure ourselves over a five-year period. We believe that growth in book value per share is the most comprehensive measure~~development of our ~~success because it includes all underwriting, operating~~life and ~~investing results. We measure underwriting results by our underwriting profit or loss~~annuity reinsurance reserves is based upon cash flow projection models, we must make estimates and ~~combined ratio. We measure operating results, which primarily consists~~assumptions based on cedent experience, industry mortality tables, and expense and investment experience, including a provision for adverse deviation. The assumptions used to determine policy benefit reserves are generally locked-in for the life of ~~our Markel Ventures operations, by~~the contract unless an unlocking event occurs. To the extent existing policy reserves, together with the present value of future gross premiums and expected investment income earned thereon, are not adequate to cover the present value of future benefits, settlement and maintenance costs, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings ~~before interest, income taxes, depreciation~~for life and ~~amortization (EBITDA), which~~annuity benefits is ~~a non-GAAP financial measure, in conjunction with U.S. GAAP measures, including revenues~~recognized at that time. Our consolidated balance sheets at December 31, 2017 and ~~net income. Because EBITDA excludes interest, income taxes, depreciation~~2016 included reserves for life and ~~amortization, it provides an indicator~~annuity benefits of ~~economic performance that is useful to both management~~$1.1 billion and investors in evaluating our Markel Ventures businesses as it is not affected by levels of debt, interest rates, effective tax rates or levels of depreciation and amortization resulting from purchase accounting. We measure investing results by our taxable equivalent total investment return. These measures are discussed in greater detail under "Results of Operations."

~~Table of Contents~~

~~Results of Operations~~

$1.0 billion, respectively.

Because of the assumptions and estimates used in establishing reserves for life and annuity benefit obligations and the long-term nature of these reinsurance contracts, the ultimate liability may be greater or less than the estimates. The ~~following table presents~~average discount rate for the ~~components~~life and annuity benefit reserves was 2.3% as of ~~net income to shareholders.~~December 31, 2017.

Years Ended December 31,
(dollars in thousands) 2014 2013 2012
Underwriting profit $ 177,563
$ 103,031
$ 63,588
Net investment income 363,230
317,373
282,107
Net realized investment gains 46,000
63,152
31,593
Other revenues 883,525
710,942
539,284
Amortization of intangible assets (57,627 ) (55,223 ) (33,512 )
Other expenses (854,871 ) (663,528 ) (478,248 )
Interest expense (117,442 ) (114,004 ) (92,762 )
Income tax expense (116,690 ) (77,898 ) (53,802 )
Net income attributable to noncontrolling interests (2,506 ) (2,824 ) (4,863 )
Net income to shareholders $ 321,182
$ 281,021
$ 253,385
Reinsurance Premiums

~~Net income~~Our assumed reinsurance premiums are recorded at the inception of each contract based upon contract terms and information received from cedents and brokers. For excess of loss contracts, the amount of minimum or deposit premium is usually contractually documented at inception, and variances between this premium and final premium are generally small. An adjustment is made to ~~shareholders increased 14% from 2013 to 2014 due to~~the minimum or deposit premium, when notified, if there are changes in underlying exposures insured. For quota share contracts, gross premiums written are normally estimated at inception based on information provided by cedents or brokers. We generally record such premiums using the cedent's initial estimates, and then adjust them as more ~~favorable underwriting results and higher investment income~~current information becomes available, with such adjustments recorded as premiums written in ~~2014, partially offset by higher income tax expense compared to 2013. Net income to shareholders~~

increased 11% from 2012 to 2013 due to more favorable underwriting results and higher investment income in 2013, partially offset by higher income tax expense compared to 2012. The components of net income to shareholdersthe period they are ~~discussed in further detail under "Underwriting Results," "Life and Annuity Benefits," "Investing Results," "Markel Ventures Operations" and "Interest Expense and Income Taxes."~~

~~Underwriting Results~~

~~Underwriting profits are a key component of our strategy to grow book value per share.~~determined. We believe that the ~~ability~~cedent's estimate of the volume of business they expect to ~~achieve consistent underwriting profits demonstrates knowledge~~cede to us usually represents the best estimate of gross premium written at the beginning of the contract. As the contract progresses, we monitor actual premium received in conjunction with correspondence from the cedent in order to refine our estimate. Variances from original premium estimates are normally greater for quota share contracts than excess of loss contracts. Premiums are earned on a pro rata basis over the coverage period, or for multi-year contracts, in proportion with the underlying risk exposure to the extent there is variability in the exposure throughout the coverage period. The impact of premium adjustments to net income may be mitigated by related acquisition costs and ~~expertise, commitment~~losses.

Certain contracts we write, particularly property catastrophe reinsurance contracts, provide for reinstatements of coverage. Reinstatement premiums are the premiums for the restoration of the reinsurance limit of a contract to ~~superior customer service~~its full amount after a loss occurrence by the reinsured. The purpose of optional and required reinstatements is to permit the reinsured to reinstate the reinsurance coverage at a pre-determined price level once a loss event has penetrated the reinsurance layer. In addition, required reinstatement premiums permit the reinsurer to obtain additional premiums to cover the additional loss limits provided.

We accrue for reinstatement premiums resulting from losses recorded. Such accruals are based upon contractual terms and the ~~ability~~only element of management judgment involved is with respect to ~~manage insurance risk. The property and casualty insurance industry commonly defines underwriting profit or loss as earned premiums net~~the amount of losses recorded. Changes in estimates of losses recorded on contracts with reinstatement premium features will result in changes in reinstatement premiums based on contractual terms. Reinstatement premiums are recognized at the time we record losses and ~~loss adjustment expenses and underwriting, acquisition and insurance expenses. We use underwriting profit or loss as~~are earned on a pro rata basis ~~for evaluating our underwriting performance.~~over the coverage period.

Ceded Reinsurance Allowance for Doubtful Accounts

~~Table~~We evaluate and adjust reserves for uncollectible ceded reinsurance based upon our collection experience, the financial condition of ~~Contents~~

~~The following table presents selected data from~~our reinsurers, collateral held and the development of our gross loss reserves. Our consolidated balance sheets at December 31, 2017 and 2016 included a reinsurance allowance for doubtful accounts of $34.0 million and $36.8 million, respectively, all of which is attributable to our underwriting operations. Based on the significant amounts of collateral held on our program services business and historical collection experience, we have not recorded a reinsurance allowance for doubtful accounts on this business.

Years Ended December 31,
(dollars in thousands) 2014 2013 2012
Gross premium volume $ 4,805,513
$ 3,920,226
$ 2,513,681

Net written premiums $ 3,917,015
$ 3,236,683
$ 2,214,126

Net retention 82 % 83 % 88 %
Earned premiums $ 3,840,912
$ 3,231,616
$ 2,147,128

Losses and loss adjustment expenses $ 2,202,467
$ 1,816,273
$ 1,154,068

Underwriting, acquisition and insurance expenses $ 1,460,882
$ 1,312,312
$ 929,472

Underwriting profit $ 177,563
$ 103,031
$ 63,588

U.S. GAAP Combined Ratios ⁽¹⁾

U.S. Insurance 95 % 92 % 100 %
International Insurance 93 % 94 % 91 %
Reinsurance 96 % 109 % 77 %
Other Insurance (Discontinued Lines) NM
⁽²⁾
NM
⁽²⁾
NM
⁽²⁾
Markel Corporation (Consolidated) 95 % 97 % 97 %

⁽¹⁾

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


⁽²⁾	~~NM—Ratio is not meaningful. Further discussion of Other Insurance (Discontinued Lines) underwriting loss follows.~~

The decrease in the consolidated combined ratio from 2013 to 2014 was driven by a lower expense ratio, partially offset by a less favorable prior accident years' loss ratio compared to 2013. Underwriting, acquisitionIncome Taxes and insurance expenses in 2013 included transaction and other acquisition-related costs of $75.1 million attributable to the acquisition of Alterra, or two points on the combined ratio. These costs include transaction costs totaling $16.0 million, which primarily consist of due diligence, legal and investment banking costs, severance costs of $31.7 million, stay bonuses of $14.8 million, and other compensation costs totaling $12.6 million, related to the acceleration of certain long-term incentive compensation awards and restricted stock awards that were granted by Alterra prior to the acquisition. Excluding transaction and other acquisition-related costs incurred in 2013, the 2014 expense ratio was comparable to 2013.Uncertain Tax Positions

The preparation of our consolidated ~~combined ratio was flat~~income tax provision, including the evaluation of tax positions we have taken or expect to take on our income tax returns, requires significant judgment. In evaluating our tax positions, we recognize the tax benefit from ~~2012 to 2013, as a lower current accident year loss ratio and lower expense ratio were offset by a less favorable prior accident years' loss ratio compared to 2012. The decrease in~~an uncertain tax position only if, based on the consolidated current accident year loss ratio in 2013 was due to the impact of catastrophes in 2012 and improved underwriting results within our U.S. Insurance segment in 2013 compared to 2012. This improvement was partially offset by higher attritional losses in our International Insurance and Reinsurance segments, due in part to the contribution of premium from products previously written by Alterra, which generally carry higher loss ratios than the resttechnical merits of the ~~business written in these segments. The 2012 combined ratio included $107.4 million, or five points, of underwriting loss from Hurricane Sandy which occurred during October 2012.~~

~~The decrease in~~position, it is more likely than not that the consolidated expense ratio in 2013 reflected higher earned premiums in each of our operating segments in 2013 compared to 2012, and a favorable impact attributable to the contribution of earnings from Alterra in 2013, primarily in our International Insurance segment. The impact of transaction and other acquisition-related costs in 2013 was offsettax position will be sustained upon examination by the ~~impact~~taxing authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach, whereby the largest amount of ~~prospective adoption~~tax benefit that is greater than 50% likely of ~~Financial Accounting Standards Board Accounting Standards Update No. 2010-26,~~ ~~Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts~~ ~~(ASU No. 2010-26), in 2012.~~being realized upon ultimate settlement is recognized. At December 31, 2017, we did not have any material unrecognized tax benefits. The prospective adoption of ASU No. 2010-26 increased our consolidated underwriting, acquisition and insurance expenses by $43.1 million in 2012, or two points on the combined ratio. Likewise, the 2012 combined ratios of the U.S. Insurance, International Insurance and Reinsurance segments included two points, two points and one point, respectively, of underwriting, acquisition and insurance expenses related to the prospective adoption of ASU No. 2010-26.

~~Table of Contents~~

The 2014 combined ratio included $435.5 million of favorable development on prior years' loss reserves compared to $411.1 million in 2013 and $399.0 million in 2012. The benefit of the favorable development on prior years' loss reserves had less of an impact on the combined ratio in 2014 compared to 2013 and 2013 compared to 2012 due to higher earned premium volume in 2014 and 2013, respectively. Favorable development on prior years' loss reserves in 2013 included $20.8 million of favorable development on Hurricane Sandy. The favorable development on prior years' loss reserves during all three years was primarily due to loss reserve redundancies on our long-tail casualty and professional liability lines within our U.S. Insurance segment and on our professional liability and marine and energy product lines within the International Insurance segment. Redundancies on these product lines totaled $250.4 million in 2014, $255.2 million in 2013 and $292.3 million in 2012.

~~Over the past three years,~~tax positions that we have ~~experienced significant redundancies on prior years' loss reserves despite the soft market conditions we have operated in since 2005. The favorable trend in prior years' loss reserves is due in part~~taken or expect to the adverse impact of the soft market not being as significant as originally anticipated. Given the volatile nature of our long-tail books of business, the ultimate impact of the soft market could not be quantified when we initially established loss reserves for these years. In each of the past three years, actual claims development patterns have been more favorable than we initially anticipated.

In connection with our quarterly reviews of loss reserves, the actuarial methods we used have exhibited a favorable trend for the 2009 to 2013 accident years. This trend was observed using statistical analysis of actual loss experience for those years, particularly with regard to our long-tail books of business within the U.S. Insurance and International Insurance segments, which developed more favorably than we had expectedtake are based upon ~~our historical experience. As actual losses experienced on these accident years have continued~~the application of tax laws and regulations, which are subject to be lower than anticipated, it has become more likely that the underwriting results will prove to be better than originally estimated. Additionally, as most actuarial methods rely upon historical reporting patterns, the favorable trends experienced on earlier accident years have resulted in a re-estimation of our ultimate incurred losses on more recent accident years. When we experience loss frequency or loss severity trends that are more favorable than we initially anticipated, we often evaluate the loss experience over a period of several years in order to assess the relative credibility of loss development trends. In each of the past three years, based upon our evaluations of claims development patterns in our long-tail,interpretation, judgment and ~~often volatile, lines of business, we gave greater credibility to the favorable trend.~~uncertainty. As a result, our ~~actuaries reduced their estimates of ultimate losses, and management incorporated this favorable trend into its best estimate and reduced prior years' loss reserves accordingly.~~actual liability for income taxes may differ significantly from our estimates.

While we believe it is possible that there will be additional redundancies on prior years' loss reserves in 2015, we caution readers not to place undue reliance on this favorable trend. Since 2005, competition has been strong, which resulted in deterioration in pricing through 2010. Further, the ultimate impact that the financial crisis and related economic recession of 2008 and 2009 will haveWe record deferred income taxes as assets or liabilities on our ~~underwriting results is difficult~~consolidated balance sheets to ~~quantify. The impact on our underwriting results from~~reflect the ~~soft insurance market and adverse economic conditions cannot be fully quantified in advance.~~

~~The following discussion provides more detail by segment~~net tax effect of the ~~underwriting results described above. Following this segment-based discussion is a summary table~~temporary differences between the carrying amounts of ~~prior years' loss reserve development.~~

~~U.S. Insurance Segment~~

~~The combined ratio~~assets and liabilities for ~~the U.S. Insurance segment for 2014~~financial reporting purposes and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. At December 31, 2017 and 2016, our net deferred tax liability was ~~95% compared to 92% in 2013~~$505.6 million and ~~100% in 2012 (including four points of underwriting losses related to Hurricane Sandy).~~$330.5 million, respectively. The increase in our net deferred tax liability in 2017 was primarily driven by the ~~2014 combined ratio was due~~increase in net unrealized gains on investments in 2017 and an increase in intangible assets attributable to ~~less favorable development of prior years' loss reserves,~~acquisitions, partially offset by ~~a lower current accident year loss ratio and a lower expense ratio compared to 2013. The U.S. Insurance segment's 2013 current accident year loss ratio included $24.3 million, or one point,~~the remeasurement of unfavorable development on pre-acquisition accident years' loss reserves for Alterra. Excluding the impact of Alterra pre-acquisition loss reserve development in 2013, the current accident year loss ratio for the U.S. Insurance segment was comparable to 2014. The improvement in the 2014 expense ratio reflects the impact of transaction and acquisition-related costs attributable to the acquisition of Alterra in 2013, which added one point to the U.S. Insurance segment's 2013 expense ratio.

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The combined ratio decreased from 2012 to 2013 due to a lower current accident year loss ratio, more favorable development of prior years' loss reserves and a lower expense ratio. The improvement in the current accident year loss ratio in 2013 was driven by the impact of losses related to Hurricane Sandy in 2012. The lower current accident year loss ratio in 2013 also reflected more favorable rates on our workers' compensation business and a higher proportion of non-California workers' compensation business (which carries a lower loss ratio than California workers' compensation business) during 2013 compared to 2012. Also contributing tonet deferred tax liability at the lower ~~current accident year loss ratio in 2013 was~~enacted U.S. corporate tax rate following the ~~contribution of premium from the Hagerty business, which carries a lower loss ratio than the rest~~enactment of the ~~U.S. Insurance segment. The favorable impact~~Tax Cuts and Jobs Act (TCJA) in December 2017. See further discussion of our Hagerty and workers' compensation business on the 2013 current accident year loss ratio was partially offset by $24.3 million of unfavorable development on Alterra pre-acquisition loss reserves that was included in current year losses in 2013, as described above. The improvement in the 2013 expense ratio was due to the impact of the ~~prospective adoption of ASU No. 2010-26~~TCJA in ~~2012 and higher premium volume in 2013 compared to 2012, partially offset by the impact of commission expense on the Hagerty business, which has a higher overall commission rate than the rest~~note 8 of the ~~U.S. Insurance segment. The 2012 combined ratio included $31.0 million, or two points, of underwriting, acquisition and insurance expenses related to the prospective adoption of ASU No. 2010-26.~~notes consolidated financial statements.

The U.S. Insurance segment's 2014 combined ratio included $216.6 million of favorable development on prior years' loss reserves compared to $298.1 million in 2013 and $225.9 million in 2012. The 2013 combined ratio also included $24.3 million of unfavorable development attributable to Alterra pre-acquisition accident yearsDeferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that ~~was included in current year losses in 2013, as described above. In~~some, or all, three years, the redundancies on prior years' loss reserves experienced within the U.S. Insurance segment were primarily on our casualty and professional liability product lines. As the average loss severity or claim frequency estimates on these long-tail books of business have decreased, our actuarial estimates of the ~~ultimate liability for unpaid losses~~deferred tax assets will not be realized. As of December 31, 2017 and ~~loss adjustment expenses~~2016, our deferred tax assets were reduced, and management reduced prior years' loss reserves accordingly. Redundancies on prior years' loss reserves were higher in 2013 than 2014 and 2012 due in part to reductions in our loss estimates on Hurricane Sandy, which occurred during the fourth quarternet of ~~2012. Additionally, during the fourth quarter~~a valuation allowance of ~~2013, we reduced prior years' loss reserves by $27.3 million related to resolution of claims under expired commercial general liability policies.~~

In 2014, favorable development on our professional liability product lines was partially offset by adverse development of $20.2 million on our architects and engineers product line, primarily on the 2008 through 2013 accident years. In 2013, favorable development on our professional liability product lines was partially offset by adverse development of $7.0 million on our architects and engineers product line, primarily on the 2009 and 2010 accident years. The adverse development on this product line was driven by an increase in the frequency of high severity claims. Based on this experience, our actuaries increased their estimates of ultimate losses and management increased prior years' loss reserves accordingly. We took significant corrective actions on our architects and engineers product line during 2014, including exiting certain classes and states and re-underwriting and re-pricing the ongoing business. The favorable development on prior years' loss reserves in the U.S. Insurance segment in 2014 and 2013 also included $25.7$25.2 million and ~~$32.8~~$18.8 million, ~~respectively,~~respectively. In evaluating our ability to realize our deferred tax assets and assessing the need for a valuation allowance at December 31, 2017 and 2016, we made estimates regarding the future taxable income of ~~redundancies at~~ our ~~workers' compensation unit. In 2014, the redundancies~~subsidiaries and judgments about our ability to pursue prudent and feasible tax planning strategies. A change in our workers' compensation unit were most significant on the 2012 and 2013 accident years. In 2013, the redundancies on our workers' compensation unit were most significant on the 2011 and 2012 accident years. Over the last two years, management has gained more confidence in the actuarial projections on this product line, as compared to when we began writing this business in 2010, and reduced prior years' loss reserves accordingly. Favorable development on prior years' loss reserves in the U.S. Insurance segment in 2013 also included $27.9 million of redundancies of prior years' loss reserves at the specialty programs unit, primarily on the 2012 and 2007 through 2009 accident years, due in part to more favorable than expected experience on our general liability product lines.

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In 2014, we experienced $93.4 million of redundancies on various long-tail casualty lines, primarily on the 2007 to 2012 accident years, due in part to lower loss severity than originally anticipated. In 2013, we experienced $136.3 million of redundancies on various long-tail casualty lines, which included $27.3 million of redundancies related to resolution of claims under expired commercial general liability policies. The remaining redundancies on our long-tail casualty lines in 2013 were spread across several accident years, due in part to lower claim frequencies than originally anticipated. In 2012, we experienced $105.1 million of redundancies on various long-tail casualty lines, spread across several accident years, due in part to lower claim frequencies than originally anticipated. Our brokerage casualty business includes product lines that are long-tail and volatile in nature. In 2003, as a result of previous adverse loss experience, we took significant corrective actions within our brokerage casualty operations, including the re-underwriting and re-pricing of the ongoing business. As a resultany of these ~~changes, we have experienced higher redundancies~~estimates and judgments could result in the 2003 and subsequent accident years. During 2014, actual incurred losses and loss adjustment expenses on prior accident years for reported claims on certain long-tail casualty lines were $62.9 million less than we anticipated in our actuarial analyses. During 2013, actual incurred losses and loss adjustment expenses on prior accident years for reported claims on certain long-tail casualty lines were $77.8 million less than we anticipated in our actuarial analyses. During 2012, actual incurred losses and loss adjustment expenses on prior accident years for reported claims on certain long-tail casualty lines were $49.8 million less than we anticipated in our actuarial analyses. As a result, our actuaries reduced their estimates of ultimate losses in 2014, 2013 and 2012, and management assigned greater credibility to this favorable experience and reduced prior years' loss reserves accordingly.

Excluding the adverse development on our architects and engineers product line, as described above, the favorable development of prior years' loss reserves during 2014 included $48.4 million of redundancies on our professional liability programs, of which $25.6 million was on the 2013 accident year. In 2013, excluding the adverse development on our architects and engineers product line, favorable development of prior years' loss reserves included $22.8 million of redundancies on our professional liability programs, of which $20.6 million was on the 2011 and 2012 accident years. The favorable development of prior years' loss reserves during 2012 included $39.1 million of redundancies on our professional liability programs, of which $38.4 million was on the 2009 to 2011 accident years. In all three years, the product line that produced the majority of the redundancy was specified medical, driven by lower loss severity than was originally anticipated. As a result of the decreases in severity, our actuarial estimates of the ultimate liability for unpaid losses and loss adjustment expenses were reduced, and management reduced prior years' loss reserves accordingly.

~~International Insurance Segment~~

The combined ratio for the International Insurance segment was 93% for 2014 compared to 94% for 2013 and 91% for 2012 (including five points of underwriting losses related to Hurricane Sandy). The decrease in the 2014 combined ratio was driven by more favorable development of prior years' loss reserves, partially offset by a higher current accident year loss ratio. The International Insurance segment's 2013 current accident year loss ratio included $11.7 million, or one point, of favorable development on pre-acquisition accident years' loss reserves for Alterra. Excluding the impact of Alterra pre-acquisition loss reserve development in 2013, the 2013 current accident year loss ratio for the International Insurance segment was comparable to 2014. The 2013 expense ratio for the International Insurance segment included $13.4 million, or two points, of transaction and acquisition-related costs attributable to the acquisition of Alterra. Excluding the impact of transaction and acquisition-related costs in 2013, the 2014 expense ratio increased compared to 2013 due to higher general expenses in 2014.

The combined ratio for the International Insurance segment increased from 2012 to 2013 due to a higher attritional losses and less favorable development of prior year losses, partially offset by a lower expense ratio and lower catastrophe losses. The increase in the attritional loss ratio and decrease in the expense ratio was driven by the contribution of earnings from Alterra in 2013. Our general and professional liability product lines within the Global Insurance division generally have higher attritional loss ratios than other products in the International Insurance segment. Additionally, the Global Insurance division uses higher levels of reinsurance than the rest of the International Insurance segment, and the related ceding commissions result in a lower overall commission rate. The impact of underwriting, acquisition and insurance expenses in 2012 related to our prospective adoption of ASU No. 2010-26 was comparable to the impact of transaction and acquisition-related costs in 2013.

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~~Table of Contents~~

The International Insurance segment's 2014 combined ratio included $166.6 million of favorable development on prior years' loss reserves, compared to $130.7 million in 2013 and $172.8 million in 2012. In all three years, the redundancies on prior years loss reserves were most significant on our professional liability and marine and energy product lines, driven by favorable claims settlements on significant loss events and lower than expected claims activity on prior accident years. The redundancies on our professional liability product lines within the International Insurance segment were also due in part to the adverse impact of the disruptions in the financial markets during 2008 and 2009 not being as significant as initially anticipated. Redundancies on prior years' loss reserves in 2014 included $62.7 million of favorable development on our professional liability product lines, compared to $46.8 million in 2013 and $87.1 million in 2012. Favorable development on our marine and energy product lines totaled $45.9 million in 2014, $49.3 million in 2013 and $61.0 million in 2012. In 2014, the redundancies on prior years' loss reserves were most significant on the 2010 to 2012 accident years. In 2013, the redundancies on prior years' loss reserves were most significant on the 2010 and 2011 accident years. In 2012, the redundancies on prior years' loss reserves were most significant on the 2009 and 2010 accident years. The 2013 combined ratio for the International Insurance segment also included $11.7 million of favorable development attributable to Alterra pre-acquisition accident years that was included in current year losses in 2013, as described above.

~~Reinsurance Segment~~

The combined ratio for the Reinsurance segment was 96% for 2014 compared to 109% for 2013 (including four points of underwriting losses related to natural catastrophes) and 77% for 2012 (including 13 points of underwriting losses related to Hurricane Sandy). The 2013 combined ratio for the Reinsurance segment included $49.1 million, or seven points, of transaction and acquisition-related costs attributable to the acquisition of Alterra. Excluding the impact of catastrophe losses and transaction and acquisition-related costs in 2013, the combined ratio decreased in 2014 compared to 2013 due to more favorable development on prior years' loss reserves. In 2013, excluding the impact of transaction and acquisition-related costs in 2013 and catastrophe losses in 2012 and 2013, the combined ratio increased compared to 2012 due to a higher loss ratio and higher expense ratio. The increase in the loss ratio from 2012 to 2013 reflects the contribution of premium from Alterra in 2013, much of which is comprised of long-tail casualty lines of business. We also experienced higher attritional loss ratios within our Markel International division in 2013, due in part to the premium contribution from Alterra product lines, which generally carry higher attritional loss ratios than the rest of the division. The increase in the 2013 expense ratio was due to an increase in the contribution of quota share reinsurance business in 2013, which generally carries a higher commission rate than our excess of loss reinsurance business.

The Reinsurance segment's 2014 combined ratio included $80.0 million of redundancies on prior years' loss reserves compared to $12.9 million of redundancies in 2013 and $21.4 million in 2012. The favorable development on prior years' loss reserves in 2014 occurred in a variety of our product lines, with the largest contribution from our short-tail property lines. The redundancies on prior years' loss reserves in 2014, 2013 and 2012 included $44.7 million, $12.1 million and $18.5 million, respectively, of favorable development on our property lines of business, due in part to lower than expected development on loss events that occurred in prior accident years and lower than expected claims activity on prior accident years. The 2013 combined ratio also included $23.2 million of favorable development attributable to Alterra pre-acquisition accident years that was included in current year losses in 2013. After considering the favorable development attributable to Alterra pre-acquisition accident years in 2013, favorable development on prior years' loss reserves had less of an impact on the combined ratio compared to 2012 due to higher earned premium volume in 2013.

~~Other Insurance (Discontinued Lines) Segment~~

The majority of the losses and loss adjustment expenses and the underwriting, acquisition and insurance expenses for the Other Insurance (Discontinued Lines) segment are associated with A&E exposures or discontinued Alterra and Markel International programs, most of which were discontinued upon acquisition, or shortly thereafter. Given the insignificant amount of premium earned in the Other Insurance (Discontinued Lines) segment, we evaluate this segment's underwriting performance in terms of dollars of underwriting profit or loss instead of its combined ratio.

~~The Other Insurance (Discontinued Lines) segment produced an underwriting loss of $28.0 million in~~ ~~2014~~ ~~compared to an underwriting loss of~~ ~~$30.4 million~~ in ~~2013~~ ~~and an underwriting loss of~~ ~~$21.3 million~~ in ~~2012. The underwriting loss in 2014 included $32.8 million of adverse loss reserve development on A&E exposures, compared to $30.1 million in 2013 and $38.2 million in 2012.~~

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~~Table of Contents~~

We complete an annual review of our A&E exposures during the third quarter of the year unless circumstances suggest an earlier review is appropriate. Based on recent activity on a small number of claims, we accelerated our annual review to the second quarter during 2014. Over the past few years, the number of A&E claims reported each year across the property and casualty industry has been on the decline. However, at the same time, the likelihood of making an indemnity payment has risen, thus increasing the average cost per reported claim. During our 2012 annual review, we reduced our estimate of the ultimate claims count, while increasing our estimate of the number of claims that would ultimately be closed with an indemnity payment. During our 2013 and 2014 annual reviews, we increased our expectation of the severity of the outcome of certain claims subject to litigation. As the ultimate outcome of known claims increases, our expected ultimate closure value on unreported claims also increases. As a result, prior years' loss reserves for A&E exposures were increased by $27.2 million in 2014, $28.4 million in 2013 and $31.1 million in 2012 related to our annual review. The need to increase ~~A&E loss reserves in each of the past three years demonstrates that these reserves are subject~~our valuation allowance through a charge to significant uncertainty due to potential loss severity and frequency resulting from an uncertain and unfavorable legal climate. Adverse development of A&E reserves in 2012 was partially offset by favorable movements in prior years' loss reserves and allowances for reinsurance bad debt related to discontinued lines of business originally written by our Markel International division.

A&E loss reserves are subject to significant uncertainty due to potential loss severity and frequency resulting from an uncertain and unfavorable legal climate. Our A&E reserves are not discounted to present value and are forecasted to pay out over the next 40 to 50 years. We seek to establish appropriate reserve levels for A&E exposures; however, these reserves could be subject to increases in the future.earnings. See note ~~9(b)~~8 of the notes to consolidated financial statements for further discussion of our ~~exposures to A&E claims.~~consolidated income tax provision, uncertain tax positions and net operating losses.

~~The following tables summarize the increases (decreases) in prior years' loss reserves by segment, as discussed above.~~

Year Ended December 31, 2014
(dollars in millions) U.S. Insurance International Insurance Reinsurance
Other
Insurance
(Discontinued
Lines)
Total
U.S. Insurance:
Casualty $ (93.4 ) $ (93.4 )
Professional liability:
Architects and engineers 20.2
20.2
All other (48.4 ) (48.4 )
Workers' compensation (25.7 ) (25.7 )
International Insurance:

Professional liability $ (62.7 ) (62.7 )
Marine and energy (45.9 ) (45.9 )
Reinsurance:

Property $ (44.7 ) (44.7 )
Other Insurance (Discontinued Lines):

A&E exposures $ 32.8
32.8
Net other prior years' redundancy (69.3 ) (58.0 ) (35.3 ) (5.1 ) (167.7 )
Increase (decrease) $ (216.6 ) $ (166.6 ) $ (80.0 ) $ 27.7
$ (435.5 )

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~~Table of Contents~~

Year Ended December 31, 2013
(dollars in millions) U.S. Insurance International Insurance Reinsurance
Other
Insurance
(Discontinued
Lines)
Total
U.S. Insurance:
Casualty $ (136.3 ) $ (136.3 )
Professional liability:
Architects and engineers 7.0
7.0
All other (22.8 ) (22.8 )
Workers' compensation (32.8 ) (32.8 )
Specialty programs (27.9 ) (27.9 )
International Insurance:

Professional liability $ (46.8 ) (46.8 )
Marine and energy (49.3 ) (49.3 )
Reinsurance:

Property $ (12.1 ) (12.1 )
Other Insurance (Discontinued Lines):

A&E exposures $ 30.1
30.1
Net other prior years' redundancy (85.3 ) (34.6 ) (0.8 ) 0.5
(120.2 )
Increase (decrease) $ (298.1 ) $ (130.7 ) $ (12.9 ) $ 30.6
$ (411.1 )

Year Ended December 31, 2012
(dollars in millions) U.S. Insurance International Insurance Reinsurance
Other
Insurance
(Discontinued
Lines)
Total
U.S. Insurance:
Casualty $ (105.1 ) $ (105.1 )
Professional liability (39.1 ) (39.1 )
International Insurance:

Professional liability $ (87.1 ) (87.1 )
Marine and energy (61.0 ) (61.0 )
Reinsurance:

Property $ (18.5 ) (18.5 )
Other Insurance (Discontinued Lines):

A&E exposures $ 38.2
38.2
Net other prior years' redundancy (81.7 ) (24.7 ) (2.9 ) (17.1 ) (126.4 )
Increase (decrease) $ (225.9 ) $ (172.8 ) $ (21.4 ) $ 21.1
$ (399.0 )
Goodwill and Intangible Assets

~~Over~~Our consolidated balance sheet as of December 31, 2017 included goodwill and intangible assets of $3.1 billion. Goodwill and intangible assets are recorded as a result of business acquisitions. Goodwill represents the ~~past three years, we have experienced favorable development on prior years' loss reserves ranging from 5%~~excess of the amount paid to 9%acquire a business over the net fair value of ~~beginning~~assets acquired and liabilities assumed at the date of ~~year net loss reserves. In~~acquisition. Indefinite-lived and other intangible assets are recorded at fair value as of the acquisition date. The determination of the fair value of certain assets acquired and liabilities assumed involves significant judgment and the use of valuation models and other estimates, which require assumptions that are inherently subjective. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. Intangible assets with definite lives are reviewed for impairment when events or circumstances indicate that their carrying value may not be recoverable. We completed our annual test for impairment during the fourth quarter of ~~2014, we experienced favorable development of $435.5 million, or 5% of beginning of year net loss reserves, compared to $411.1 million, or 9% of beginning of year net loss reserves, in~~ ~~2013~~2017 ~~and $399.0 million, or 9%~~based upon results of ~~beginning of year net loss reserves, in~~operations through September 30, ~~2012~~2017.

For some reporting units, we assessed qualitative factors to determine whether it is ~~difficult~~more likely than not that the fair value of a reporting unit is less than its carrying amount. This assessment serves as a basis for ~~management~~determining whether it is necessary to ~~predict~~perform the ~~duration~~quantitative goodwill impairment test. For other reporting units, we elected to perform the quantitative goodwill impairment test, which includes determining whether the carrying amount of a reporting unit, including goodwill, exceeds its estimated fair value. If the carrying amount of the reporting unit exceeds the fair value, the excess of the recorded amount of goodwill over the fair value is charged to net income as an impairment loss. The impairment loss is limited to the amount of goodwill allocated to that reporting unit.

A significant amount of judgment is required in performing goodwill impairment tests. When using the qualitative approach, we considered macroeconomic factors such as industry and ~~magnitude~~market conditions. We also considered reporting unit-specific events, actual financial performance versus expectations and management's future business expectations. As part of our qualitative evaluation of certain reporting units with material goodwill, we considered the fact that some of the businesses had been recently acquired in orderly transactions between market participants, and our purchase price represented fair value at acquisition. There were no events since acquisition which had a significant impact on the fair value of these reporting units. For reporting units which we tested quantitatively, we estimated fair value primarily using an income approach based on a discounted cash flow model. The cash flow projections used in the discounted cash flow model included management's best estimate of future growth and margins. The discount rates used to determine the fair value estimates were developed based on the capital asset pricing model using market-based inputs as well as an assessment of the inherent risk in projected future cash flows.

We believe the fair value of each of our reporting units exceeded its respective carrying amount as of October 1, 2017 and December 31, 2017.

Investments

We consider many factors in completing our quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer. For equity securities, the ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery is considered. For fixed maturities, we consider whether we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due. When assessing whether we intend to sell a fixed maturity or if it is likely that we will be required to sell a fixed maturity before recovery of its amortized cost, we evaluate facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing.

Risks and uncertainties are inherent in our other-than-temporary decline in fair value assessment methodology. The risks and uncertainties include, but are not limited to, incorrect or overly optimistic assumptions about the financial condition, liquidity or near-term prospects of an ~~existing trend~~issuer, inadequacy of any underlying collateral, unfavorable changes in economic or social conditions and unfavorable changes in interest rates or credit ratings. Changes in any of these assumptions could result in charges to earnings in future periods.

Losses from write downs for other-than-temporary declines in the estimated fair value of investments, while potentially significant to net income, do not have an impact on ~~a relative basis, it is even more difficult~~our financial position. Since our investment securities are considered available-for-sale and are recorded at estimated fair value, unrealized losses on investments are already included in accumulated other comprehensive income. See note 3(b) of the notes to ~~predict~~consolidated financial statements for further discussion of our assessment methodology for other-than-temporary declines in the ~~emergence~~estimated fair value of ~~factors or trends~~investments.

Recent Accounting Pronouncements

The Financial Accounting Standards Board has issued several accounting standards updates (ASUs) that ~~are unknown today but may~~become effective January 1, 2018. These standards were evaluated and we have identified the impacts, if any, to our consolidated financial position, results of operations and cash flows.

Adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), will not have a material impact on ~~loss reserve development. In assessing~~our consolidated financial position, results of operations or cash flows.

Upon adoption of ASU No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities, changes in the ~~likelihood~~fair value of ~~whether the above favorable trends~~equity securities will ~~continue and whether~~be recognized in net income rather than other ~~trends may develop, we believe that a reasonably likely movement in prior years' loss reserves during~~ ~~2015~~ ~~would range from a deficiency of less than 1%, or $50 million, to a redundancy of approximately 6%, or $500 million,~~comprehensive income. As of December 31, ~~2014~~2017, accumulated other comprehensive income included $3.3 billion of net ~~loss reserves.~~unrealized gains on equity securities, which will be reclassified to retained earnings on January 1, 2018. As of December 31, 2017, accumulated other comprehensive income was net of deferred income taxes on net unrealized gains on equity securities of $1.1 billion. We are still assessing the impact of ASU No. 2018-02 following the enactment of the Tax Cuts and Jobs Act in December 2017, on deferred taxes included in accumulated other comprehensive income and have not determined the amount of deferred income taxes on net unrealized gains on equity securities that will be reclassified to retained earnings on January 1, 2018.

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~~Table~~Other ASUs that we expect have the most potential to significantly impact our consolidated financial position, results of ~~Contents~~

~~Premiums~~

~~The following table summarizes gross premium volume by segment.~~operations or cash flows upon adoption and are currently evaluating are as follows:

ASU No. 2016-02, Leases (Topic 842)

Gross Premium Volume
Years Ended December 31,
(dollars in thousands) 2014 2013 2012
U.S. Insurance $ 2,493,823
$ 2,252,739
$ 1,595,849
International Insurance 1,200,403
1,101,099
788,092
Reinsurance 1,112,728
566,348
129,744
Other Insurance (Discontinued Lines) (1,441 ) 40
(4 )
Total $ 4,805,513
$ 3,920,226
$ 2,513,681

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

~~Gross premium volume increased 23% in 2014 compared~~See note 1(w) of the notes to ~~2013~~consolidated financial statements for discussion of all of these ASUs and ~~56% in 2013 compared to 2012. The increase in gross premium volume in both periods was primarily due to~~ the inclusion of premiums attributable to Alterra from May 1, 2013, which impacted all three of our ongoing underwriting segments in 2013 and 2014. In 2014, the increase in gross written premiums in our U.S. Insurance segment is also attributable to higher premiums in our Wholesale division, primarilyexpected effects on our ~~casualty product lines,~~consolidated financial position, results of operations and in our Specialty division across various product lines. Additionally, the U.S. Insurance segment included $217.9 million and $194.7 million of gross written premiums from Hagerty in 2014 and 2013, respectively, which we began writing in the first quarter of 2013. The increase in gross written premiums in our Reinsurance segment in 2014 is also attributable to renewals in 2014 on policies previously written by Alterra, which typically occur in the early part of the year and occurred prior to our acquisition in 2013. In our International segment, gross written premiums in 2014 included $46.4 million of premiums attributable to Abbey, which was acquired in January 2014. Foreign currency exchange rate movements did not have a significant impact on gross premium volume in any period presented.cash flows.

~~The following table summarizes net written premiums by segment.~~

Net Written Premiums
Years Ended December 31,
(dollars in thousands) 2014 2013 2012
U.S. Insurance $ 2,071,466
$ 1,915,770
$ 1,418,579
International Insurance 889,336
840,050
677,344
Reinsurance 956,584
480,822
118,208
Other Insurance (Discontinued Lines) (371 ) 41
(5 )
Total $ 3,917,015
$ 3,236,683
$ 2,214,126

~~Net retention of gross premium volume was 82% in~~ ~~2014~~ ~~compared to~~ ~~83%~~ in ~~2013~~ ~~and~~ ~~88%~~ in ~~2012~~. Historically, our products were written with limits that did not require significant reinsurance. Following the acquisition of Alterra, we have certain insurance and reinsurance products that use higher levels of reinsurance. We purchase reinsurance and retrocessional reinsurance in order to manage our net retention on individual risks and enable us to write policies with sufficient limits to meet policyholder needs.

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~~Table of Contents~~

~~The following table summarizes earned premiums by segment.~~

Earned Premiums
Years Ended December 31,
(dollars in thousands) 2014 2013 2012
U.S. Insurance $ 2,022,860
$ 1,727,766
$ 1,360,229
International Insurance 909,679
833,984
672,405
Reinsurance 908,385
669,826
114,499
Other Insurance (Discontinued Lines) (12 ) 40
(5 )
Total $ 3,840,912
$ 3,231,616
$ 2,147,128

Consolidated earned premiums increased 19% in 2014 compared to 2013 and 51% in 2013 compared to 2012. The increase in earned premiums in both periods was driven by the increase in gross written premiums, as described above. The U.S. Insurance segment included $203.4 million of earned premiums from Hagerty in 2014 compared to $97.8 million in 2013. Foreign currency exchange rate movements did not have a significant impact on earned premiums in any period presented.

Life and Annuity Benefits

We previously acquired a block of life and annuity reinsurance contracts which subject us to mortality, longevity and morbidity risks. The related reserves are compiled by our actuaries on a reinsurance contract-by-contract basis and are computed on a discounted basis using standard actuarial techniques and cash flow models. Since the development of our life and annuity reinsurance reserves is based upon cash flow projection models, we must make estimates and assumptions based on cedent experience, industry mortality tables, and expense and investment experience, including a provision for adverse deviation. The assumptions used to determine policy benefit reserves are generally locked-in for the life of the contract unless an unlocking event occurs. To the extent existing policy reserves, together with the present value of future gross premiums and expected investment income earned thereon, are not adequate to cover the present value of future benefits, settlement and maintenance costs, the locked-in assumptions are revised to current best estimate assumptions and a charge to earnings for life and annuity benefits is recognized at that time. Our consolidated balance sheets at December 31, 2017 and 2016 included reserves for life and annuity benefits of $1.1 billion and $1.0 billion, respectively.

Reinsurance Premiums

Ceded Reinsurance Allowance for Doubtful Accounts

Income Taxes and Uncertain Tax Positions

The preparation of our consolidated income tax provision, including the evaluation of tax positions we have taken or expect to take on our income tax returns, requires significant judgment. In evaluating our tax positions, we recognize the tax benefit from an uncertain tax position only if, based on the technical merits of the position, it is more likely than not that the tax position will be sustained upon examination by the taxing authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach, whereby the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement is recognized. At December 31, 2017, we did not have any material unrecognized tax benefits. The tax positions that we have taken or expect to take are based upon the application of tax laws and regulations, which are subject to interpretation, judgment and uncertainty. As a result, our actual liability for income taxes may differ significantly from our estimates.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. As of December 31, 2017 and 2016, our deferred tax assets were net of a valuation allowance of $25.2 million and $18.8 million, respectively. In evaluating our ability to realize our deferred tax assets and assessing the need for a valuation allowance at December 31, 2017 and 2016, we made estimates regarding the future taxable income of our subsidiaries and judgments about our ability to pursue prudent and feasible tax planning strategies. A change in any of these estimates and judgments could result in the need to increase our valuation allowance through a charge to earnings. See note 8 of the notes to consolidated financial statements for further discussion of our consolidated income tax provision, uncertain tax positions and net operating losses.

Goodwill and Intangible Assets

A significant amount of judgment is required in performing goodwill impairment tests. When using the qualitative approach, we considered macroeconomic factors such as industry and market conditions. We also considered reporting unit-specific events, actual financial performance versus expectations and management's future business expectations. As part of our qualitative evaluation of certain reporting units with material goodwill, we considered the fact that some of the businesses had been recently acquired in orderly transactions between market participants, and our purchase price represented fair value at acquisition. There were no events since acquisition which had a significant impact on the fair value of these reporting units. For reporting units which we tested quantitatively, we estimated fair value primarily using an income approach based on a discounted cash flow model. The cash flow projections used in the discounted cash flow model included management's best estimate of future growth and margins. The discount rates used to determine the fair value estimates were developed based on the capital asset pricing model using market-based inputs as well as an assessment of the inherent risk in projected future cash flows.

We believe the fair value of each of our reporting units exceeded its respective carrying amount as of October 1, 2017 and December 31, 2017.

Investments

We consider many factors in completing our quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer. For equity securities, the ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery is considered. For fixed maturities, we consider whether we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due. When assessing whether we intend to sell a fixed maturity or if it is likely that we will be required to sell a fixed maturity before recovery of its amortized cost, we evaluate facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing.

Risks and uncertainties are inherent in our other-than-temporary decline in fair value assessment methodology. The risks and uncertainties include, but are not limited to, incorrect or overly optimistic assumptions about the financial condition, liquidity or near-term prospects of an issuer, inadequacy of any underlying collateral, unfavorable changes in economic or social conditions and unfavorable changes in interest rates or credit ratings. Changes in any of these assumptions could result in charges to earnings in future periods.

Recent Accounting Pronouncements

Adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), will not have a material impact on our consolidated financial position, results of operations or cash flows.

ASU No. 2016-02, Leases (Topic 842)

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Key Performance Indicators

An important measure of our financial success is our ability to grow book value per share at a high rate of return over a long period of time. To mitigate the effects of short-term volatility, we measure ourselves over a five-year period. We believe that growth in book value per share is a comprehensive measure of our success because it includes all underwriting, investing and operating results. We measure underwriting results by our underwriting profit or loss and combined ratio. We measure investing results by our net investment income and net realized gains (losses) as well as our taxable equivalent total investment return. We measure our other operating results, which primarily consist of our Markel Ventures operations, by our revenues and net income (loss), as well as earnings before interest, income taxes, depreciation and amortization (EBITDA). These measures are discussed in greater detail under "Results of Operations." As we continue to expand and diversify our operations beyond underwriting and investing, we recognize that book value per share does not capture all of the economic value in our business, as a growing portion of our operations are not recorded at fair value or otherwise captured in book value. As a result, beginning in 2018, we will also measure our financial success through the growth in the market price of a share of our stock, or total shareholder return. For the year ended December 31, 2017, our share price increased 26%. Over the past five years, our share price increased at a compound annual rate of 21%.

Results of Operations

The following table presents the components of net income to shareholders.



	Years Ended December 31,
(dollars in thousands)	2017			2016			2015
U.S. Insurance segment underwriting profit	$	119,944		$	152,745		$	238,168
International Insurance segment underwriting profit (loss)	(33,598		)	47,205			125,701
Reinsurance segment underwriting profit (loss)	(299,217		)	106,835			86,280
Other Insurance (Discontinued Lines) segment underwriting profit (loss)	7,495			9,751			(20,442		)
Other underwriting profit	179			—			—
Net investment income	405,709			373,230			353,213
Net realized investment gains (losses)	(5,303		)	65,147			106,480
Other revenues	1,413,275			1,307,779			1,086,758
Other expenses	(1,307,980		)	(1,190,243		)	(1,046,805		)
Amortization of intangible assets	(80,758		)	(68,533		)	(68,947		)
Interest expense	(132,451		)	(129,896		)	(118,301		)
Loss on early extinguishment of debt	—			(44,100		)	—
Income tax benefit (expense)	313,463			(169,477		)	(152,963		)
Net income attributable to noncontrolling interests	(5,489		)	(4,754		)	(6,370		)
Net income to shareholders	$	395,269		$	455,689		$	582,772

Net income to shareholders decreased 13% from 2016 to 2017 due to an underwriting loss and net realized investment losses in 2017 compared to an underwriting profit and net realized investment gains in 2016. These decreases were partially offset by recording a one-time tax benefit of $339.9 million in the fourth quarter of 2017, primarily related to the remeasurement of our U.S. net deferred tax liability at the lower enacted U.S. corporate tax rate as a result of the TCJA. See further discussion of the impact of the TCJA in note 8 of the notes to consolidated financial statements. Net income to shareholders decreased 22% from 2015 to 2016 due to less favorable underwriting results, a loss on early extinguishment of debt and lower net realized investment gains, partially offset by more favorable results within our other operations compared to 2015. The components of net income to shareholders are discussed in further detail under "Underwriting Results," "Life and Annuity Benefits," "Investing Results," "Markel Ventures Operations" and "Interest Expense, Loss on Early Extinguishment of Debt and Income Taxes."

Underwriting Results

Underwriting profits are a key component of our strategy to grow book value per share. We believe 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 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. We use underwriting profit or loss as a basis for evaluating our underwriting performance. The 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. The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. The loss ratio represents the relationship of incurred losses and loss adjustment expenses to earned premiums. The expense ratio represents the relationship of underwriting, acquisition and insurance expenses to earned premiums.

The following table presents selected data from our underwriting operations.



	Years Ended December 31,
(dollars in thousands)	2017				2016				2015
Gross premium volume ⁽¹⁾	$	5,253,107			$	4,796,645			$	4,632,912
Net written premiums	$	4,417,787			$	4,001,020			$	3,819,293
Net retention ⁽¹⁾	84		%		83		%		82		%
Earned premiums	$	4,247,978			$	3,865,870			$	3,823,532
Losses and loss adjustment expenses	$	2,865,761			$	2,050,744			$	1,938,745
Underwriting, acquisition and insurance expenses	$	1,587,414			$	1,498,590			$	1,455,080
Underwriting profit (loss)	$	(205,197	)		$	316,536			$	429,707

U.S. GAAP Combined Ratios
U.S. Insurance	95		%		93		%		89		%
International Insurance	104		%		94		%		86		%
Reinsurance	132		%		87		%		90		%
Other Insurance (Discontinued Lines)	NM			⁽²⁾	NM			⁽²⁾	NM			⁽²⁾
Markel Corporation (Consolidated)	105		%		92		%		89		%


(1)	Gross premium volume and net retention for the year ended December 31, 2017 exclude $253.9 million of gross written premium attributable to our program services business, which was 100% ceded.


(2)	NM—Ratio is not meaningful. Further discussion of Other Insurance (Discontinued Lines) underwriting profit (loss) follows.

Underwriting results in 2017 included $565.3 million, or 13 points, of underwriting loss from Hurricanes Harvey, Irma, Maria and Nate as well as the earthquakes in Mexico and wildfires in California (2017 Catastrophes). The underwriting loss on the 2017 Catastrophes was comprised of $585.4 million of estimated net losses and $20.1 million of net assumed reinstatement premiums. The 2016 consolidated combined ratio included $68.7 million of underwriting loss, or two points on the consolidated combined ratio, related to Hurricane Matthew and the Canadian wildfires (2016 Catastrophes).

The following table summarizes, by segment, the components of the underwriting losses related to the 2017 Catastrophes.



	Year Ended December 31, 2017
(dollars in thousands)	U.S. Insurance			International Insurance			Reinsurance			Consolidated
Losses and loss adjustment expenses	$	132,159		$	122,817		$	330,384		$	585,360
Ceded (assumed) reinstatement premiums	9,001			3,390			(32,465		)	(20,074		)
Underwriting loss	$	141,160		$	126,207		$	297,919		$	565,286
Impact on combined ratio	6		%	13		%	32		%	13		%

The estimated net losses and loss adjustment expenses on the 2017 Catastrophes are net of estimated reinsurance recoveries of $490.3 million. Both the gross and net loss estimates on the 2017 Catastrophes represent our best estimate of losses based upon information currently available. Our estimate for these losses is based on claims received to date and detailed policy level reviews, industry loss estimates, output from both industry and proprietary models as well as a review of in-force contracts. The estimate is dependent on broad assumptions about coverage, liability and reinsurance. Due to these factors, we believe our gross and net loss estimates on the 2017 Catastrophes have a high degree of volatility. While we believe our reserves for the 2017 Catastrophes as of December 31, 2017 are adequate, we continue to closely monitor reported claims and will adjust our estimates of gross and net losses as new information becomes available. The net losses for the 2017 Catastrophes were within our risk tolerance for events of this magnitude.

The increase in the consolidated combined ratio from 2017 to 2016 was driven by the impact of the 2017 Catastrophes. Excluding the impact of underwriting losses related to the 2016 Catastrophes and 2017 Catastrophes described above, the combined ratio increased due to a higher current accident year loss ratio and less favorable prior accident year loss ratio, partially offset by a lower expense ratio. The increase in the current accident year loss ratio is primarily due to higher current accident year loss ratios in our International Insurance and Reinsurance segments in 2017 compared to 2016. The decrease in the expense ratio in 2017 compared to 2016 is primarily driven by a favorable impact from higher earned premium volume and a decrease in profit sharing expenses in 2017 compared to 2016. These decreases in the expense ratio were partially offset by an unfavorable impact from changes in the mix of business in our International Insurance and Reinsurance segments. The increase in the consolidated combined ratio from 2015 to 2016 was driven by less favorable development on prior years' loss reserves in 2016 compared to 2015.

The 2017 combined ratio included $501.5 million of favorable development on prior years' loss reserves compared to $505.2 million in 2016. Although favorable development on prior years' loss reserves remained consistent in 2017 compared to 2016, development on prior years' loss reserves had a less favorable impact on the combined ratio in 2017 due to higher earned premium volume in 2017 compared to 2016. In 2017, prior years' loss reserves in our Reinsurance segment included $85.0 million, or two points, of adverse development on prior years' loss reserves resulting from a decrease in the discount rate, known as the Ogden Rate, required in the calculation of lump sum awards in U.K. bodily injury cases. Effective March 20, 2017, the Ogden Rate decreased from plus 2.5% to minus 0.75%, which represents the first rate change since 2001. The effect of the rate change is most impactful to our U.K. auto casualty exposures through reinsurance contracts written in our Reinsurance segment. We ceased writing new U.K. auto business in late 2014. The reduction in the Ogden Rate increased the expected claims payments on these exposures, and management increased loss reserves accordingly. Our estimate of the ultimate cost of settling these claims is based on many factors, and is subject to increase or decrease as the effect of changes in these factors becomes known over time. In 2016, favorable development on prior years' loss reserves in our U.S. Insurance segment was net of $71.2 million, or two points on the consolidated combined ratio, of adverse development on our medical malpractice and specified medical product lines. There was no significant development on these lines in 2017.

The decrease in favorable development on prior years' loss reserves in 2016 compared to 2015 was due in part to the adverse development in our U.S. Insurance segment on our medical malpractice and specified medical product lines, as described above. Favorable development on prior years' loss reserves in 2015 included $82.7 million, or two points on the 2015 consolidated combined ratio, of favorable development attributable to a decrease in the estimated volatility of our consolidated net reserves for unpaid losses and loss adjustment expenses, as a result of ceding a significant portion of our A&E exposures to a third party. As a result of this decrease in estimated volatility, our level of confidence in our net reserves for unpaid losses and loss adjustment expenses increased. Therefore, management reduced prior years' loss reserves in order to maintain a consolidated confidence level in a range consistent with our historic levels. This reduction in prior years' loss reserves occurred across all three of our ongoing underwriting segments. The decrease in favorable development on prior years' loss reserves in 2016 was also attributable to less favorable development on prior years' loss reserves in our International Insurance segment.

In connection with our quarterly reviews of loss reserves, the actuarial methods we used have exhibited a favorable trend for the 2010 to 2016 accident years during 2017. This trend was observed using statistical analysis of actual loss experience for those years, particularly with regard to most of our long-tail books of business within the U.S. Insurance and International Insurance segments, which developed more favorably than we had expected based upon our historical experience. As actual losses experienced on these accident years have continued to be lower than anticipated, it has become more likely that the underwriting results will prove to be better than originally estimated. Additionally, as most actuarial methods rely upon historical reporting patterns, the favorable trends experienced on earlier accident years have resulted in a re-estimation of our ultimate incurred losses on more recent accident years. When we experience loss frequency or loss severity trends that are more favorable than we initially anticipated, we often evaluate the loss experience over a period of several years in order to assess the relative credibility of loss development trends. In each of the past three years, based upon our evaluations of claims development patterns in our long-tail, and often volatile, lines of business, we gave greater credibility to the favorable trend. As a result, our actuaries reduced their estimates of ultimate losses, and management incorporated this favorable trend into its best estimate and reduced prior years' loss reserves accordingly.

While we believe it is possible that there will be additional favorable development on prior years' loss reserves in 2018, we caution readers not to place undue reliance on this favorable trend. Despite stabilization of prices on certain product lines during the last three years, we still consider the overall property and casualty insurance market to be soft. The impact on our underwriting results from the soft insurance market cannot be fully quantified in advance.

The following discussion provides more detail by segment of the underwriting results described above. Following this segment-based discussion is a summary table of prior years' loss reserve development.

U.S. Insurance Segment

The combined ratio for the U.S. Insurance segment for 2017 was 95% (including six points for the underwriting loss on the 2017 Catastrophes) compared to 93% (including one point for the underwriting loss on the 2016 Catastrophes) in 2016 and 89% in 2015. The increase in the 2017 combined ratio was due to the impact of the 2017 Catastrophes, partially offset by more favorable development of prior years' loss reserves. The increase in the 2016 combined ratio was due to less favorable development of prior years' loss reserves.

The U.S. Insurance segment's 2017 combined ratio included $301.9 million of favorable development on prior years' loss reserves compared to $204.9 million in 2016 and $299.0 million in 2015. The increase in favorable development was primarily due to adverse development on our medical malpractice and specified medical product lines in 2016, which totaled $71.2 million or three points on the segment combined ratio. There was no significant development on these product lines in 2017. Also contributing to the increase in favorable development on prior years' loss reserves was favorable development on our specialty programs business in 2017 compared to slightly adverse development on this business in 2016 and more favorable development on our workers' compensation product line in 2017 compared to 2016. These increases in favorable development were partially offset by less favorable development on our property product lines in 2017 compared to 2016. The decrease in favorable development on prior years' loss reserves in 2016 was driven by adverse development on our medical malpractice and specified medical product lines in 2016, as described above, and less favorable development on our property product lines in 2016 compared to 2015. Additionally, favorable development on prior years' loss reserves in 2015 included $35.2 million, or two points on the segment combined ratio, attributable to the decrease in the volatility of our consolidated net reserves for unpaid losses and loss adjustment expenses, as previously discussed. The following is a discussion of the product lines with the most significant development on prior years' loss reserves in the U.S. Insurance segment during the last three years.

In 2017 we experienced $93.9 million of favorable development on various long-tail general and excess liability lines. The favorable development occurred across several accident years, but was most significant on the 2011 to 2016 accident years. In 2016, we experienced $104.0 million of favorable development on various long-tail general and excess liability lines. The favorable development occurred across several accident years, but were most significant on the 2013 to 2015 accident years. In 2015, we experienced $111.3 million of favorable development on various long-tail general and excess liability lines, primarily on the 2011 to 2014 accident years. In 2017, the favorable development was due in part to favorable case incurred loss development on certain of our general liability product lines as well as a decrease in the frequency and severity of claims other general liability product lines. In 2015 and 2016, the favorable development was due in part to lower loss severity than originally anticipated. Our binding and brokerage casualty business includes product lines that are long-tail and volatile in nature. During 2017, 2016 and 2015, actual incurred losses and loss adjustment expenses on prior accident years for reported claims on certain long-tail casualty lines were $52.3 million, $51.8 million, and $40.0 million, respectively, less than we anticipated in our actuarial analyses. As a result, our actuaries reduced their estimates of ultimate losses in 2017, 2016 and 2015, and management assigned greater credibility to this favorable experience and reduced prior years' loss reserves accordingly.

The favorable development on prior years' loss reserves in the U.S. Insurance segment in 2017, 2016 and 2015 also included $65.6 million, $41.1 million, and $36.6 million, respectively, of favorable development in our workers' compensation unit. In 2017, the favorable development was most significant on the 2012 to 2016 accident years. In 2016, the favorable development in our workers' compensation unit was most significant on the 2012 to 2015 accident years. In 2015, the favorable development in our workers' compensation unit was most significant on the 2011 to 2014 accident years. When we acquired this business in 2010, we supplemented our limited data with longer-tailed industry development factors and adopted a more conservative loss reserving position until we had sufficient data to determine how the loss reserves develop. During 2015, our actuaries gave more weight to our own data and placed less reliance on industry data as part of the reserving for this product line. As a result, our actuaries reduced their estimates of ultimate losses in those years. Management assigned greater credibility to this favorable experience and reduced prior years' loss reserves accordingly. During 2016, actual incurred losses and loss adjustment expenses on prior accident years for reported claims was $24.9 million less than we anticipated in our actuarial analysis, due in part to lower loss severity than originally anticipated. As a result, our actuaries reduced their estimates of ultimate losses in 2016 and management assigned greater credibility to this favorable experience and reduced prior years' loss reserves accordingly. During 2017, actual incurred losses and loss adjustment expenses on prior accident years for reported claims was $44.8 million less than we anticipated in our actuarial analysis, due in part to lower loss severity than originally anticipated, and improvement in the claim closure ratios. As a result, our actuaries reduced their estimates of ultimate losses in 2017 and management assigned greater credibility to this favorable experience and reduced prior years' loss reserves accordingly.

In 2017 we experienced $27.4 million of favorable development in our personal lines business, primarily on the 2013 to 2016 accident years. The favorable development occurred across multiple personal lines products and was driven primarily by a decrease in claim severity, as well as claim frequency. As a result, our actuaries reduced their estimates of ultimate losses in 2017 and management assigned greater credibility to this favorable experience and reduced prior years' loss reserves accordingly.

In 2017 and 2016, we also experienced favorable development in certain of our professional liability product lines. In 2017, we experienced $25.5 million of favorable development on our professional liability product lines, primarily on the 2015 to 2016 accident years. In 2017, the favorable development occurred across multiple professional liability lines and was driven primarily by favorable case incurred loss development. Actual case incurred losses were less than expected. As a result of these factors, our actuarial estimates of the ultimate liability for unpaid losses and loss adjustment expenses were reduced, and management reduced prior years' loss reserves accordingly. In 2016, favorable development on our professional liability product lines was more than offset by adverse development of $71.2 million on our medical malpractice and specified medical product lines, primarily on the 2010 through 2015 accident years. The adverse development on both of these product lines was driven by an increase in the proportion of business written on classes with higher claim frequencies relative to other classes of business within these product lines over the last several years, including correctional facilities, locum tenens and contract staffing. Beginning in late 2015, we saw an increase in claim frequencies on these classes, which was inconsistent with the historical trends indicated by our actuarial analyses. In 2016, we continued to see steady increases in claim frequencies, as well as increases in claims payments on these classes of business. As a result, we gave more credibility to this new trend and management increased loss reserves accordingly. In response, we took corrective actions for business written in the affected classes. Excluding the adverse development on our medical malpractice and specified medical product lines, we experienced $38.0 million of favorable development on our other professional liability programs during 2016, primarily on the 2014 and 2015 accident years. The favorable development occurred across multiple professional liability lines and was driven by a combination of factors, including lower loss severity than was originally anticipated and a decrease in the frequency of claims and large losses. As a result of these factors, our actuarial estimates of the ultimate liability for unpaid losses and loss adjustment expenses were reduced, and management reduced prior years' loss reserves accordingly.

In 2016, we experienced favorable development on prior years' loss reserves on our property product lines, primarily our inland marine and brokerage property lines. Favorable development on our inland marine business totaled $20.1 million in 2016, primarily on the 2014 and 2015 accident years. Favorable development totaled $27.5 million in 2015, primarily on the 2013 and 2014 accident years. In both years, the favorable development was attributable to lower than expected frequency of large loss events. Favorable development on our brokerage property product lines totaled $17.9 million in 2016 and was due to lower than expected losses and development on known claims, primarily on the 2012 to 2014 accident years. In 2015, favorable development totaled $35.0 million and was due to lower than expected frequency of large loss events, primarily on the 2013 and 2014 accident years. As a result of these factors, our actuarial estimates of the ultimate liability for unpaid losses and loss adjustment expenses decreased, and management reduced prior years' loss reserves accordingly.

International Insurance Segment

The combined ratio for the International Insurance segment was 104% (including 13 points for the underwriting loss on the 2017 Catastrophes) for 2017 compared to 94% (including one point for the underwriting loss on the 2016 Catastrophes) for 2016 and 86% for 2015. The increase in the 2017 combined ratio was driven by the impact of the 2017 Catastrophes, partially offset by a lower expense ratio and more favorable development of prior years' loss reserves. Excluding the impact of underwriting losses related to the 2016 Catastrophes and 2017 Catastrophes described above, the current accident year loss ratio increased, primarily due to higher attritional losses on our property product lines in 2017 compared to 2016. The decrease in the expense ratio was attributable to the write off of previously capitalized software development costs in 2016 and lower profit sharing in 2017 compared to 2016. These decreases were partially offset by an unfavorable impact from changes in the mix of business in this segment, most notably as the result of higher retentions on products with higher net commission rates in 2017 compared to 2016.

The increase in the 2016 combined ratio was driven by less favorable development of prior years' loss reserves and a higher expense ratio, partially offset by a lower current accident year ratio in 2016 compared to 2015. The 2016 current accident year loss ratio included $12.0 million, or one point on the segment combined ratio, of underwriting loss related to Hurricane Matthew. We also experienced higher attritional and large losses on our marine and energy product lines in 2016. The impact of these losses on the 2016 current accident year loss ratio was more than offset by lower attritional losses in our general liability product lines in 2016 compared to 2015 and a decrease in management's best estimate of ultimate loss ratios on various product lines in 2016, as previously discussed. The increase in the 2016 expense ratio was attributable to higher broker commissions in 2016 compared to 2015 and the write off of previously capitalized software development costs in 2016, partially offset by lower profit sharing costs in 2016 compared to 2015.

The International Insurance segment's 2017 combined ratio included $198.7 million of favorable development on prior years' loss reserves compared to $164.7 million of favorable development in 2016 and $248.8 million of favorable development in 2015. The increase in favorable development in 2017 compared to 2016 was driven by more favorable development on our general liability product lines in 2017. Development on prior years' loss reserves was less favorable in 2016 compared to 2015 driven by less favorable development on our marine and energy and general liability product lines. Additionally, favorable development on prior years' loss reserves in 2015 included $32.3 million, or four points on the segment combined ratio, attributable to the decrease in volatility of our consolidated net reserves for unpaid losses and loss adjustment expenses, as previously discussed. In 2017, 2016 and 2015, favorable development on prior years' loss reserves occurred across several product lines, but was most significant on our professional liability, general liability and marine and energy product lines. In all three years, the favorable development was driven by lower than expected claims activity on prior accident years and favorable claims settlements. Favorable development on our professional liability product lines totaled $74.9 million in 2017 compared to $66.6 million in 2016 and $39.7 million in 2015. Favorable development on our marine and energy product lines totaled $35.5 million in 2017 compared to $39.6 million in 2016 and $64.8 million in 2015. Favorable development on our general liability product lines totaled $50.2 million in 2017 compared to $23.1 million in 2016 and $60.9 million in 2015. In 2017, the favorable development on prior years' loss reserves in the International Insurance segment was most significant on the 2013 to 2015 accident years. In 2016, the favorable development on prior year loss reserves was most significant on the 2013 and 2014 accident years. In 2015, the favorable development on prior years' loss reserves was most significant on the 2012 to 2014 accident years.

Reinsurance Segment

The combined ratio for the Reinsurance segment was 132% (including 32 points for the underwriting loss on the 2017 Catastrophes) for 2017 compared to 87% (including four points for the underwriting loss on the 2016 Catastrophes) for 2016 and 90% for 2015. The increase in the 2017 combined ratio was driven by the impact of the 2017 Catastrophes and adverse development on prior years' loss reserves attributable to the decrease in the Ogden rate in 2017. These increases were partially offset by a lower expense ratio in 2017 compared to 2016. Excluding the impact of underwriting losses related to the 2016 Catastrophes and 2017 Catastrophes described above, the current accident year loss ratio increased, primarily due to more unfavorable premium adjustments in 2017 compared to 2016. The decrease in the expense ratio in 2017 compared to 2016 was primarily due to lower profit sharing expenses and a favorable impact from higher earned premium, including reinstatement premiums related to the 2017 Catastrophes. These decreases in the expense ratio were partially offset by the impact of higher earned premium on our quota share business in 2017 compared to 2016, which carries a higher commission rate than other business in the Reinsurance segment.

The decrease in the combined ratio in 2016 was driven by more favorable development on prior years' loss reserves and a lower current accident year loss ratio, partially offset by a higher expense ratio in 2016 compared to 2015. The 2016 current accident year loss ratio included $18.7 million, or two points on the segment combined ratio, of underwriting loss related to the Canadian wildfires and $16.2 million, or two points on the segment combined ratio, of underwriting loss related to Hurricane Matthew. The impact of these losses on the 2016 current accident year loss ratio was more than offset by lower attritional losses and a decrease in management's best estimate of ultimate loss ratios on various product lines, as previously discussed. The increase in the expense ratio was primarily due to higher profit sharing expenses and broker commissions in 2016 compared to 2015.

The Reinsurance segment's 2017 combined ratio included $7.8 million of adverse development on prior years' loss reserves compared to $125.5 million of favorable development in 2016 and $97.9 million in 2015. The adverse development in 2017 is primarily due to the decrease in the Ogden Rate, as previously discussed, which resulted in $85.0 million of adverse development, or nine points on the Reinsurance segment's combined ratio. We also experienced adverse development in 2017 on our professional liability product line. Largely offsetting this adverse development in 2017 was favorable development on our property product lines. The increase in favorable development in 2016 compared to 2015 was driven by more favorable development on our property product lines. Favorable development on prior years' loss reserves in 2015 included $15.2 million, or two points on the segment combined ratio, attributable to the decrease in volatility of our consolidated net reserves for unpaid losses and loss adjustment expenses, as previously discussed. In 2017 and 2016, favorable development on prior years' loss reserves was most significant on our property product lines, with the remaining favorable development occurring across several product lines. In 2015, favorable development on prior years' loss reserves was most significant on our casualty and property product lines.

Favorable development on prior years' loss reserves on our property lines of business in 2017, 2016 and 2015 were $41.2 million, $67.6 million and $21.1 million, respectively. In 2017 and 2016, the favorable development on prior years' loss reserves on these lines was most significant on the 2013 to 2015 accident years. In 2015, the favorable development on prior years' loss reserves was most significant on the 2012 to 2014 accident years. In all three years, the favorable development on prior years' loss reserves was due in part to lower than expected development on reported events, favorable claims settlements and lower than expected claims activity. As a result of these factors, our actuaries reduced their estimates of ultimate losses, and management reduced prior years' loss reserves accordingly.

Favorable development on our casualty lines in 2015 totaled $27.4 million, and was primarily attributable to our general casualty and professional liability business. During 2015, management gained more confidence in the actuarial projections on these product lines and reduced prior years' loss reserves accordingly.

Other Insurance (Discontinued Lines) Segment

The majority of the losses and loss adjustment expenses and the underwriting, acquisition and insurance expenses for the Other Insurance (Discontinued Lines) segment are associated with A&E exposures or other acquired lines of business that were discontinued in conjunction with the acquisition. Given the insignificant amount of premium earned in the Other Insurance (Discontinued Lines) segment, we evaluate this segment's underwriting performance in terms of dollars of underwriting profit or loss instead of its combined ratio.

The Other Insurance (Discontinued Lines) segment produced an underwriting profit of $7.5 million in 2017 compared to an underwriting profit of $9.8 million in 2016 and an underwriting loss of $20.4 million in 2015. The underwriting profit in 2017 was due in part to the Part VII transaction completed during the period. See note 9 of the notes to consolidated financial statements. The underwriting profit in 2016 was driven by a commutation that was completed during the period. The underwriting loss in 2015 included $25.4 million of adverse loss reserve development on A&E exposures.

In March and October 2015, we completed two retroactive reinsurance transactions through which we ceded a significant portion of our A&E exposures to a third party. At the time of the transactions, reserves for unpaid losses and loss adjustment expenses on the policies ceded totaled $170.5 million. The first transaction resulted in a gain of $5.1 million, which was deferred and is being recognized in earnings in proportion to actual reinsurance recoveries received pursuant to the transaction. The second transaction resulted in an underwriting loss of $10.1 million, including $7.1 million of losses and loss adjustment expenses, all of which was recognized during 2015. Following the October 2015 retroactive reinsurance transaction, our actuaries increased their estimate of the ultimate losses on the remaining A&E claims and management increased prior years' loss reserves by $15.0 million. Without the diversification of a larger portfolio of loss reserves, there is greater uncertainty around the potential outcomes of the remaining claims, and management strengthened reserves accordingly.

We complete an annual review of our A&E exposures during the third quarter of the year unless circumstances suggest an earlier review is appropriate. During our 2015, 2016 and 2017 reviews, we determined that no adjustment to loss reserves was required.

A&E loss reserves are subject to significant uncertainty due to potential loss severity and frequency resulting from an uncertain and unfavorable legal climate. Our A&E reserves are not discounted to present value and are forecasted to pay out over the next 40 to 50 years as claims are settled. We seek to establish appropriate reserve levels for A&E exposures, including A&E exposures ceded to third parties under retroactive reinsurance transactions; however, these reserves could be subject to increases in the future. As of December 31, 2017, our reinsurance recoverable on unpaid losses for A&E exposures was 62% of our gross reserves for A&E exposures. See note 9(c) of the notes to consolidated financial statements for further discussion of our exposures to A&E claims.

The following tables summarize the increases (decreases) in prior years' loss reserves by segment, as discussed above.



	Year Ended December 31, 2017
(dollars in millions)	U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)			Total
U.S. Insurance:
General liability	$	(93.9	)										$	(93.9	)
Workers' compensation	(65.6		)										(65.6		)
Professional liability	(25.5		)										(25.5		)
Personal Lines	(27.4		)										(27.4		)
International Insurance:
Professional liability				$	(74.9	)							(74.9		)
Marine and energy				(35.5		)							(35.5		)
General liability				(50.2		)							(50.2		)
Reinsurance:
Ogden rate decrease							$	85.0					85.0
Property							(41.2		)				(41.2		)
Other Insurance (Discontinued Lines):
A&E and other discontinued lines										$	(8.5	)	(8.5		)
Net other prior years' redundancy	(89.5		)	(38.1		)	(36.0		)	—			(163.6		)
Increase (decrease)	$	(301.9	)	$	(198.7	)	$	7.8		$	(8.5	)	$	(501.3	)

⁽¹⁾


⁽¹⁾	Total decrease in prior years' loss reserves excludes $0.2 million of favorable development on our program services business, which is included in our consolidated underwriting results but is not included in a reportable segment.



	Year Ended December 31, 2016
(dollars in millions)	U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)			Total
U.S. Insurance:
General liability	$	(104.0	)										$	(104.0	)
Workers' compensation	(41.1		)										(41.1		)
Property:
Brokerage property	(17.9		)										(17.9		)
Inland marine	(20.1		)										(20.1		)
Professional liability:
Medical malpractice and specified medical	71.2												71.2
All other	(38.0		)										(38.0		)
International Insurance:
Professional liability				$	(66.6	)							(66.6		)
Marine and energy				(39.6		)							(39.6		)
General liability				(23.1		)							(23.1		)
Reinsurance:
Property							$	(67.6	)				(67.6		)
Other Insurance (Discontinued Lines):
A&E and other discontinued lines										$	(10.1	)	(10.1		)
Net other prior years' redundancy	(55.0		)	(35.4		)	(57.9		)	—			(148.3		)
Decrease	$	(204.9	)	$	(164.7	)	$	(125.5	)	$	(10.1	)	$	(505.2	)



	Year Ended December 31, 2015
(dollars in millions)	U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)			Total
U.S. Insurance:
General liability	$	(111.3	)										$	(111.3	)
Workers' compensation	(36.6		)										(36.6		)
Property:
Brokerage property	(35.0		)										(35.0		)
Inland marine	(27.5		)										(27.5		)
International Insurance:
Marine and energy				$	(64.8	)							(64.8		)
General liability				(60.9		)							(60.9		)
Professional liability				(39.7		)							(39.7		)
Reinsurance:
Casualty							$	(27.4	)				(27.4		)
Property							(21.1		)				(21.1		)
Other Insurance (Discontinued Lines):
Loss on retroactive reinsurance transaction										$	7.1		7.1
Other A&E exposures										18.3			18.3
Impact of retroactive reinsurance transactions on reserve volatility	(35.2		)	(32.3		)	(15.2		)	—			(82.7		)
Net other prior years' redundancy	(53.4		)	(51.1		)	(34.2		)	(7.5		)	(146.2		)
Increase (decrease)	$	(299.0	)	$	(248.8	)	$	(97.9	)	$	17.9		$	(627.8	)

Over the past three years, we have experienced favorable development on prior years' loss reserves ranging from 6% to 7% of beginning of year net loss reserves. In 2017, we experienced favorable development of $501.5 million, or 6% of beginning of year net loss reserves, compared to $505.2 million, or 6% of beginning of year net loss reserves, in 2016 and $627.8 million, or 7% of beginning of year net loss reserves, in 2015.

It is difficult for management to predict the duration and magnitude of an existing trend and, on a relative basis, it is even more difficult to predict the emergence of factors or trends that are unknown today but may have a material impact on loss reserve development. In assessing the likelihood of whether the above favorable trends will continue and whether other trends may develop, we believe that a reasonably likely movement in prior years' loss reserves during 2018 would range from favorable development of less than 1%, or $50 million, to favorable development of approximately 7%, or $650 million, of December 31, 2017 net loss reserves.

Premiums

The following table summarizes gross premium volume.



Gross Premium Volume
	Years Ended December 31,
(dollars in thousands)	2017			2016		2015
U.S. Insurance	$	2,885,279		$	2,635,266	$	2,504,096
International Insurance	1,255,922			1,119,815		1,164,866
Reinsurance	1,112,101			1,041,055		965,374
Other Insurance (Discontinued Lines)	(195		)	509		(1,424		)
Total Underwriting	5,253,107			4,796,645		4,632,912
Program Services	253,853			—		—
Total	$	5,506,960		$	4,796,645	$	4,632,912

We monitor the effect of movements in foreign currency exchange rates on gross premium volume and earned premiums. To the extent there are significant variations in foreign currency exchange rates between the U.S. dollar and the foreign currencies in which our insurance business is transacted, management uses the change in gross premium volume and earned premiums at a constant rate of exchange to evaluate trends in premium volume. The impact of foreign currency translation is excluded, when significant, as the effect of fluctuations in exchange rates could distort the analysis of trends. When excluding the effect of foreign currency translation on changes in premium, management uses the current period average exchange rates to translate both the current period and the prior period foreign currency denominated gross premiums written and earned premiums.

Gross premium volume in our underwriting segments increased 10% in 2017 compared to 2016. The increase in gross premium volume was attributable to an increase in gross premium volume across all three of our ongoing underwriting segments. Also impacting consolidated gross premium volume was $253.9 million of gross premium written through our program services business acquired as part of the State National transaction, which is not included in our underwriting segments. All gross premium written in our program services business was ceded to third parties in 2017.

Gross premium volume in our U.S. Insurance segment increased 9% in 2017 compared to 2016 driven by growth within our general liability product lines, personal lines and specialty programs business as well the contribution of premiums from our new surety and collateral protection product lines which were acquired in 2017. Gross premium volume in our International Insurance segment increased 12% in 2017 compared to 2016 primarily due to higher premium volume within our marine and energy and general liability product lines. Gross premium volume in our Reinsurance segment increased 7% in 2017 compared to 2016 driven by $136.5 million of premium related to two large specialty quota share treaties entered into in the first quarter of 2017, as well as a favorable impact from assumed reinstatement premiums in our property product lines resulting from the 2017 Catastrophes. These increases were partially offset by lower gross premium volume in our auto and general liability product lines. Significant variability in gross premium volume can be expected in our Reinsurance segment due to individually significant deals and multi-year contracts.

Gross premium volume increased 4% in 2016 compared to 2015. The increase in gross premium volume was attributable to the U.S. Insurance and Reinsurance segments, partially offset by lower gross premium volume in our International Insurance segment. Gross premium volume in our U.S. Insurance segment increased 5% in 2016 compared to 2015 driven by higher premium volumes, primarily within our general liability and personal lines of business. The increase was also attributable to an additional week of gross premium volume during the first quarter of 2016 compared to the same period of 2015 based on differences in the timing of our underwriting systems closings. The timing of our underwriting systems closings has a negligible impact on our premium earnings as premiums are earned over the policy period. Gross premium volume in our International Insurance segment decreased 4% in 2016 compared to 2015 primarily due to an unfavorable impact from foreign currency exchange rate movements, as well as lower premium volume within our marine and energy product lines. Gross premium volume in our Reinsurance segment increased 8% in 2016 compared to 2015 driven by our general liability and property lines, due to new business and a favorable impact from the timing of renewals on multi-year contracts in 2016 compared to 2015. These increases were partially offset by lower gross premium volume within our auto, professional liability and credit and surety reinsurance product lines.

We continued to see small price decreases across many of our product lines during 2017, especially in our international business on our property and marine and energy product lines. Our large account business is also subject to more pricing pressure and competition remains strong in the reinsurance market. However, following the high level of natural catastrophes that occurred in the third and fourth quarters of 2017, beginning in first quarter of 2018, we saw more favorable rates, particularly on our catastrophe exposed product lines. We are also seeing more stabilized pricing on our other product lines and continue to see pricing margins in most reinsurance lines of business. Despite stabilization of prices on certain product lines during the last several years, we still consider the overall property and casualty insurance market to be soft. When we believe the prevailing market price will not support our underwriting profit targets, the business is not written. As a result of our underwriting discipline, gross premium volume may vary when we alter our product offerings to maintain or improve underwriting profitability.

The following table summarizes net written premiums.



Net Written Premiums
	Years Ended December 31,
(dollars in thousands)	2017			2016		2015
U.S. Insurance	$	2,432,477		$	2,237,163	$	2,106,490
International Insurance	1,007,319			864,494		888,214
Reinsurance	978,160			898,728		824,324
Other Insurance (Discontinued Lines)	(169		)	635		265
Total	$	4,417,787		$	4,001,020	$	3,819,293

All gross premium written in our program services business was ceded to third parties in 2017, resulting in zero net written premiums. Within our underwriting operations, we purchase reinsurance and retrocessional reinsurance in order to manage our net retention on individual risks and enable us to write policies with sufficient limits to meet policyholder needs. Net retention of gross premium volume for our underwriting operations was 84% in 2017, 83% in 2016 and 82% in 2015. In 2017, higher retention in our International Insurance and Reinsurance segments was partially offset by lower retention in our U.S. Insurance segment. The increase in net retention within the International Insurance segment in 2017 was largely due to higher retention on our professional liability product lines. The increase in net retention within the Reinsurance segment for 2017 was primarily due to changes in the mix of business. Net retention in the U.S. Insurance segment decreased in 2017 compared to 2016 due to lower retention on our specialty programs and personal lines business, partially offset by higher retention on our casualty product lines.

In 2016, retention increased in all three of our ongoing underwriting segments compared to 2015. These increases were largely due to changes in mix of business.

The following table summarizes earned premiums.



Earned Premiums
	Years Ended December 31,
(dollars in thousands)	2017			2016		2015
U.S. Insurance	$	2,364,121		$	2,175,332	$	2,105,212
International Insurance	949,912			853,512		879,426
Reinsurance	934,114			836,264		838,543
Other Insurance (Discontinued Lines)	(169		)	762		351
Total	$	4,247,978		$	3,865,870	$	3,823,532

All gross premium written in our program services business was ceded to third parties in 2017, resulting in zero earned premiums. Consolidated earned premiums for 2017 increased 10% compared to 2016. The increase in earned premiums was attributable to higher earned premiums across all three of our ongoing underwriting segments and the favorable impact of net assumed reinstatement premiums. The increase in earned premiums in our U.S. Insurance segment was primarily due to an increase in gross premium volume and higher retention in our general liability product lines. The increase was also attributable to earned premiums within our new surety and collateral protection product lines, as previously discussed. The increase in earned premiums in our International Insurance segment was attributable to an increase in gross premium volume in our marine and energy product line and an increase in gross premium volume and higher retention in our professional liability product lines. The increase in earned premiums in our Reinsurance segment was primarily due to higher earned premiums in our property product lines due to the favorable impact of reinstatement premiums related to the 2017 Catastrophes, higher earned premium from the two large specialty quota share treaties entered into in the first quarter of 2017, as previously discussed, as well as higher earned premiums in our professional liability and general liability product lines. These increases were partially offset by lower earned premiums in our auto product line.

Consolidated earned premiums for 2016 increased 1% compared to 2015. Higher earned premiums in our U.S. Insurance segment more than offset lower earned premiums in our International Insurance segment. The increase in earned premiums in our U.S. Insurance segment was primarily due to the increases in gross premium volume as previously discussed. The decrease in earned premiums in our International Insurance segment was primarily due to an unfavorable impact from movements in foreign currency exchange rates. Additionally, higher earned premiums in our professional liability product lines were offset by lower earned premiums in our marine and energy product lines within the International Insurance segment.

Life and Annuity Benefits

The Other Insurance (Discontinued Lines) segment included other revenues of ~~$1.6~~$2.0 million and other expenses of ~~$37.1~~$28.2 million for ~~2014 and~~2017, other revenues of ~~$1.1~~$1.9 million and other expenses of ~~$28.1~~$26.5 million for ~~2013,~~2016, and other revenues of $0.6 million and other expenses of $29.1 million for 2015 related to ~~the~~our life and annuity reinsurance ~~business, which was assumed through the acquisition of Alterra on May 1, 2013.~~business. This business is in run-off, and we are not writing any new life and annuity reinsurance contracts. The life and annuity benefit reserves are recorded on a ~~discounted~~net present value basis using assumptions that were determined atwhen the ~~Acquisition Date.~~portfolio of contracts was acquired. The accretion of this discount is recognized in the statement of income ~~and~~and comprehensive income as ~~other~~other expenses. ~~The increase in other expenses in 2014 reflects a full year of accretion in 2014 compared to only eight months in 2013.~~ Invested assets and the related investment income that support the life and annuity reinsurance contracts are reported in the Investing segment. As a result, we expect the results reported in the Other Insurance (Discontinued Lines) segment attributable to our life and annuity business will continue to reflect losses in future periods due to the accretion of the discount on the life and annuity benefit reserves, which are ~~forecasted~~forecast to pay out over the next 40 to 50 years. Other revenues attributable to the life and annuity business included in the Other Insurance (Discontinued Lines) segment represent ongoing premium adjustments on existing contracts.

On April 24, 2015, we completed a novation that transferred our obligations under a reinsurance contract for life and annuity benefit policies to a third party in exchange for cash payments totaling $29.0 million, net of commissions. At the time of the transaction, reserves for life and annuity benefits on the novated reinsurance contract totaled $32.6 million, resulting in a gain of $3.6 million that was recorded as an offset to other expenses.

Investing Results

The following table summarizes our investment performance.



	Years Ended December 31,
(dollars in thousands)	2017			2016			2015
Net investment income	$	405,709		$	373,230		$	353,213
Net realized investment gains (losses)	$	(5,303	)	$	65,147		$	106,480
Change in net unrealized gains on investments	$	1,125,440		$	342,111		$	(457,584	)
Investment yield ⁽¹⁾	2.6		%	2.4		%	2.3		%
Taxable equivalent total investment return, before foreign currency effect	9.2		%	5.0		%	0.5		%
Taxable equivalent total investment return	10.2		%	4.4		%	(0.7		)%
Invested assets, end of year	$	20,570,337		$	19,058,666		$	18,181,345


⁽¹⁾	Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.

Investments, cash and cash equivalents and restricted cash and cash equivalents (invested assets) increased 8% in 2017. The increase in the investment portfolio in 2017 was attributable to an increase in net unrealized gains on investments of $1.1 billion, net proceeds from our net issuance of long-term debt of $592.9 million and cash flows from operations of $858.5 million, partially offset by cash flows used by investing activities of $744.5 million. Invested assets increased 5% in 2016. The increase in the investment portfolio in 2016 was attributable to an increase in net unrealized gains on investments of $342.1 million, net proceeds from our net issuance of long-term debt of $271.7 million and cash flows from operations of $534.6 million.

In 2015, we continued to gradually build liquidity with higher cash balances due to continuing low interest rates and sales of certain securities from our equity portfolio. We increased our holdings of cash and cash equivalents and short-term investments and reduced our holdings of fixed maturities. During 2016, we increased our holdings of equity securities and fixed maturities and decreased our holdings of cash and cash equivalents and short-term investments in order to achieve higher returns and to more closely match the duration of our fixed maturity portfolio with our insurance liabilities. During 2017, we increased our holdings of equity securities in order to achieve higher returns. Additionally, our holdings of cash and cash equivalents increased primarily due to operating cash inflows, the issuance of long-term debt and maturities of fixed maturities held for anticipated claim payments for the 2017 Catastrophes. As of December 31, 2017, we had paid 27% of our estimated losses for the 2017 Catastrophes. Also in 2017, we decreased our holdings of short-term investments to fulfill the cash needed for acquisitions. Short-term investments, cash and cash equivalents and restricted cash and cash equivalents represented 23% of our invested assets at December 31, 2017 and 2016. Fixed maturities represented 48% of our invested assets at December 31, 2017 compared to 52% at December 31, 2016. Equity securities at December 31, 2017 represented 29% of our invested assets compared to 25% at December 31, 2016. The increase in the proportion of equity securities at December 31, 2017 compared to December 31, 2016 is primarily due to an increase in the estimated fair value of our equity portfolio as a result of strong overall equity market performance.

Net investment income increased 9% in 2017 compared to 2016. Net investment income in 2017 included higher short-term investment income compared to 2016, driven by higher short-term interest rates and higher dividend income due to increased equity holdings. Net investment income increased 6% in 2016 compared to 2015. Net investment income in 2016 included higher interest income on our fixed maturity portfolio compared to 2015, primarily due to increased holdings of fixed maturities. An increase in short-term investment income, driven by higher short-term interest rates, was largely offset by lower dividend income in 2016 compared to 2015 as equity securities purchased in 2016 have lower dividend yields than the equity securities sold in late 2015 and early 2016.

Net realized investment losses were $5.3 million in 2017 compared to net realized investment gains of $65.1 million and $106.5 million in 2016 and 2015, respectively. Net realized investment gains (losses) include gains and losses from sales of securities, losses from write downs for other-than-temporary declines in the estimated fair value of investments and gains and losses on securities measured at fair value through net income. See note 3(f) of the notes to consolidated financial statements for further details on the components of net realized investment gains (losses). In 2017, gains on sales of equity securities were more than offset by a $52.0 million loss on our investment in certain insurance-linked securities funds (ILS Funds) as a result of a decrease in the net asset value of the ILS Funds. This decrease was driven by the impact of losses from Hurricanes Harvey, Irma and Maria and the wildfires in California on the underlying reinsurance contracts in which the ILS Funds are invested. In 2016 and 2015, net realized investment gains were related to sales of equity securities and fixed maturities. During 2017, 2016 and 2015, we liquidated certain equity securities in our portfolio in light of our outlook on the economic and competitive environment facing those companies and our decision to reallocate capital to other equity securities with greater potential for long-term investment returns. Given our long-term focus, variability in the timing of realized and unrealized gains and losses is to be expected.

Net realized investment gains (losses) in 2017, 2016 and 2015 included $3.8 million, $7.7 million and $5.8 million, respectively, of realized losses from sales of fixed maturities and equity securities. Proceeds received on securities sold at a loss were $306.1 million in 2017, $138.3 million in 2016 and $154.5 million in 2015.

In 2017, 90% of the gross realized losses related to securities that had been in a continuous unrealized loss position for less than one year. Gross realized losses in 2017 included $7.6 million of write downs for other-than-temporary declines in the estimated fair value of investments. These write downs were made with respect to three equity securities and one fixed maturity security We complete a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. At December 31, 2017, we held securities with gross unrealized losses of $57.3 million, or less than 1% of invested assets. All securities with unrealized losses were reviewed, and we believe that there were no other securities with indications of declines in estimated fair value that were other-than-temporary at December 31, 2017. However, given the volatility in the debt and equity markets, we caution readers that further declines in fair value could be significant and may result in additional other-than-temporary impairment charges in future periods. Variability in the timing of realized and unrealized gains and losses is to be expected. See note 3(b) of the notes to consolidated financial statements for further discussion of unrealized losses.

In 2016, 52% of the gross realized losses related to securities that had been in a continuous unrealized loss position for less than one year. Gross realized losses in 2016 included $18.4 million of write downs for other-than-temporary declines in the estimated fair value of investments. These write downs were made with respect to 22 equity securities.

In 2015, 72% of the gross realized losses related to securities that had been in a continuous unrealized loss position for less than one year. Gross realized losses in 2015 included $44.5 million of write downs for other-than-temporary declines in the estimated fair value of investments. These write downs were made with respect to 21 equity securities.

In 2017, net unrealized gains on investments increased $1.1 billion, primarily due to an increase in the estimated fair value of our equity portfolio as a result of strong overall equity market performance. In 2016, net unrealized gains on investments increased $342.1 million due to an increase in the estimated fair value of our equity portfolio, as a result of strong overall equity market performance, partly offset by a decrease in the fair value of our fixed maturity portfolio, as interest rates increased during 2016. In 2015, net unrealized gains on investments decreased $457.6 million due to a decrease in the estimated fair value of our equity portfolio, as a result of lower overall equity market performance, and our fixed maturity portfolio, as interest rates increased during 2015.

We also evaluate our investment performance by analyzing taxable equivalent total investment ~~return.~~return, which is a non-GAAP financial measure. Taxable equivalent total investment return includes items that impact net income, such as coupon interest on fixed maturities, dividends on equity securities and realized investment gains or losses, as well as changes in unrealized gains or losses, which do not impact net income. Certain items that are included in net investment income have been excluded from the calculation of taxable equivalent total investment return, such as amortization and accretion of premiums and discounts on our fixed maturity portfolio, to provide a comparable basis for measuring our investment return against industry investment returns. The calculation of taxable equivalent total investment return also includes the current tax benefit associated with income on certain investments that is either taxed at a lower rate than the statutory income tax rate or is not fully included in federal taxable income. We believe the taxable equivalent total investment return is a better reflection of the economics of our decision to invest in certain asset classes. We focus on our long-term investment return, understanding that the level of realized and unrealized investment gains or losses may vary from one period to the next.

~~107~~

~~Table of Contents~~

~~The following table summarizes our investment performance.~~

Years Ended December 31,
(dollars in thousands) 2014 2013 2012
Net investment income $ 363,230
$ 317,373
$ 282,107
Net realized investment gains $ 46,000
$ 63,152
$ 31,593
Change in net unrealized gains on investments $ 981,035
$ 261,995
$ 353,808
Investment yield ⁽¹⁾
2.4 % 2.6 % 3.7 %
Taxable equivalent total investment return, before foreign currency effect 8.9 % 6.9 % 8.6 %
Taxable equivalent total investment return 7.4 % 6.8 % 9.0 %
Invested assets, end of year $ 18,637,701
$ 17,612,074
$ 9,332,745


⁽¹⁾	~~Investment yield reflects net investment income as a percentage of monthly average invested assets at amortized cost.~~

The following table reconciles investment yield to taxable equivalent total investment return.


	Years Ended December 31,						Years Ended December 31,
	2014		2013		2012		2017		2016		2015
Investment yield ⁽¹⁾	2.4	%	2.6	%	3.7	%	2.6	%	2.4	%	2.3	%
Adjustment of investment yield from book value to market value	(0.4	)%	(0.3	)%	(0.5	)%
Net amortization of net premium on fixed maturity securities	0.6	%	0.7	%	0.2	%
Net realized investment gains and change in net unrealized gains on investments	5.9	%	2.3	%	4.3	%
Adjustment of investment yield from amortized cost to fair value							(0.5	)%	(0.4	)%	(0.4	)%
Net amortization of net premium on fixed maturities							0.4	%	0.4	%	0.5	%
Net realized investment gains (losses) and change in net unrealized gains on investments							5.9	%	2.3	%	(2.0	)%
Taxable equivalent effect for interest and dividends ⁽²⁾	0.4	%	0.4	%	0.6	%	0.4	%	0.4	%	0.4	%
Other ⁽³⁾	(1.5	)%	1.1	%	0.7	%	1.4	%	(0.7	)%	(1.5	)%
Taxable equivalent total investment return	7.4	%	6.8	%	9.0	%	10.2	%	4.4	%	(0.7	)%

~~Investments, cash and cash equivalents and restricted cash and cash equivalents (invested assets) increased 6% in~~ ~~2014. The increase in the investment portfolio in~~ ~~2014~~ ~~was attributable to an increase in net unrealized gains on investments of $981.0 million and cash flows from operations of $716.8 million. Invested assets increased~~ ~~89%~~ in ~~2013. The increase in the investment portfolio in~~ ~~2013~~ ~~was attributable to the investment portfolio acquired through the Alterra acquisition, as well as an increase in net unrealized gains on investments of~~ ~~$262.0 million~~ ~~and cash flows from operations of~~ ~~$745.5 million~~.

Net investment income increased 14% in 2014, primarily due to higher average invested assets in 2014 compared to 2013 as a result of the acquisition of Alterra. In 2014, net investment income was net of $59.3 million of amortization expense as a result of establishing a new amortized cost for Alterra's fixed maturity securities as of the Acquisition Date, compared to $58.3 million in 2013. Net investment income increased 13% in 2013 compared to 2012, driven by $74.3 million of net investment income attributable to the investment portfolio acquired through the Alterra acquisition. In 2013, net investment income attributable to the investment portfolio acquired through the Alterra acquisition was partially offset by lower investment income on fixed maturities compared to 2012, as we decreased our holdings in fixed maturities and increased our holdings in cash and cash equivalents during 2013. Net investment income in 2014, 2013 and 2012 included favorable changes in the fair value of our credit default swap of $2.2 million, $10.5 million and $16.6 million, respectively. The fair value of the credit default swap, which expired in December 2014, was a liability of $2.2 million at December 31, 2013.

The following table summarizes the cash flows attributable to Markel Ventures for the years ended December 31, ~~2014, 2013~~2017, 2016 and ~~2012.~~2015.

Net cash provided (used) by financing activities ^(1,2)

Net cash provided (used) by financing activities for the years ended December 31, ~~2014,~~ ~~2013~~2017 and ~~2012~~2015 includes capital contributions from our holding company (Markel Corporation) of ~~$64.8 million, $28.7~~$145.0 million and ~~$193.4~~$22.8 million, respectively, which are eliminated in consolidation.

Net cash provided (used) by financing activities for the year ended December 31, ~~2014~~2017 includes net additions to debt of ~~$136.5 million, which are eliminated in consolidation. Net cash used by financing activities for the year ended~~ ~~December 31, 2013~~ ~~includes repayments of debt totaling $5.3~~$265.0 million, which are eliminated in consolidation. Net cash provided (used) by financing activities for the ~~year~~years ended December 31, ~~2012~~2016 and 2015 includes ~~additions to~~net repayments of debt of ~~$8.8~~$5.9 million and $36.0 million, respectively, which are eliminated in consolidation.

~~Table~~The increase in net cash used by investing activities in 2017 compared to 2016 and 2015 was due to cash, net of ~~Contents~~cash acquired, of $408.5 million used for acquisitions during the year ended December 31, 2017. These acquisitions were funded through capital contributions from our holding company (Markel Corporation) and financing from our insurance subsidiaries.

Markel Ventures earnings before ~~goodwill impairment,~~ interest, income taxes, depreciation and amortization ~~(Adjusted EBITDA)~~(EBITDA) is a non-GAAP financial measure. We use Markel Ventures ~~Adjusted~~ EBITDA as an operating performance measure in conjunction with U.S. GAAP measures, including revenues and net income, to monitor and evaluate the performance of our Markel Ventures operations. Because ~~Adjusted~~ EBITDA excludes ~~goodwill impairment,~~ interest, income taxes, depreciation and amortization, it provides an indicator of economic performance that is useful to both management and investors in evaluating our Markel Ventures businesses as it is not affected by levels of debt, interest rates, effective tax rates, levels of depreciation and amortization resulting from purchase ~~accounting, or non-recurring charges.~~accounting. The following table reconciles ~~Adjusted EBITDA of Markel Ventures, net of noncontrolling interests, to~~ consolidated net income to ~~shareholders.~~shareholders, to Markel Ventures EBITDA, net of noncontrolling interests.


	Years Ended December 31,									Years Ended December 31,
(dollars in thousands)	2014			2013			2012			2017			2016			2015
Markel Ventures Adjusted EBITDA - Manufacturing	$	71,133		$	64,415		$	44,963
Markel Ventures Adjusted EBITDA - Non-Manufacturing	23,931			19,372			15,398
Markel Ventures Adjusted EBITDA - Total	95,064			83,787			60,361
Goodwill impairment	(13,737		)	—			—
Net income to shareholders										$	395,269		$	455,689		$	582,772
(Income) Loss before income taxes from other Markel operations										12,450			(532,989		)	(714,067		)
Income tax expense (benefit) from other Markel operations										(304,160		)	133,472			142,322
Markel Ventures net income to shareholders										103,559			56,172			11,027
Interest expense ⁽¹⁾	(12,184		)	(9,283		)	(9,782		)	18,345			14,900			13,287
Income tax expense	(12,848		)	(13,988		)	(7,868		)	(11,494		)	34,502			10,710
Depreciation expense	(24,706		)	(19,313		)	(14,205		)	38,514			32,759			30,478
Amortization of intangible assets	(22,032		)	(17,383		)	(15,031		)	28,691			26,796			25,776
Markel Ventures net income to shareholders	9,557			23,820			13,475
Net income from other Markel operations	311,625			257,201			239,910
Net income to shareholders	$	321,182		$	281,021		$	253,385
Markel Ventures EBITDA - Total										$	177,615		$	165,129		$	91,278

Markel Ventures EBITDA - Manufacturing										$	104,938		$	120,993		$	88,822
Markel Ventures EBITDA - Non-Manufacturing										72,677			44,136			2,456
Markel Ventures EBITDA - Total										$	177,615		$	165,129		$	91,278

Interest expense for the years ended December 31, ~~2014,~~2017, ~~2013~~2016 and ~~2012~~2015 includes intercompany interest expense of ~~$8.7~~$12.3 million, ~~$6.4~~$9.7 million and ~~$6.4~~$9.4 million, respectively.

~~Adjusted EBITDA from our~~

Markel Ventures EBITDA for the years ended December 31, 2017, 2016 and 2015, was impacted by the significant operating expense items previously discussed. Excluding the impact of the significant operating expense items in all three years, EBITDA decreased from 2016 to 2017 and increased from 2015 to 2016. The decrease in 2017 was a result of higher materials costs and lower sales volumes in certain of our manufacturing operations, ~~increased~~partially offset by higher sales volumes in ~~2014~~ ~~compared to 2013~~certain of our non-manufacturing operations, as previously discussed. The increase in 2016 was due to higher sales volumes in one of our ~~acquisition~~transportation-related manufacturing businesses, improved results across our non-manufacturing businesses and the contribution of ~~Cottrell. In~~ ~~2013, adjusted EBITDA~~earnings from ~~our Markel Ventures manufacturing operations increased compared to~~ ~~2012~~ primarily due to our acquisition of Reading and more favorable results at AMF. Adjusted EBITDA from our Markel Ventures non-manufacturing operations increased in 2013 compared to 2012 primarily due to our acquisition of Eagle.CapTech.

Interest Expense and Loss on Early Extinguishment of Debt

On December 22, 2017, the U.S. enacted the TCJA, which made significant modifications to U.S. federal income tax law, most of which are effective January 1, 2018. The TCJA, among other changes, (1) reduces the U.S. corporate tax rate from 35% to 21%, (2) imposes a one-time deemed repatriation tax on unremitted foreign earnings which were not previously subject to U.S. income tax, (3) moves the U.S. from a worldwide tax system towards a territorial tax system and (4) modifies the manner in which property and casualty insurance loss reserves are computed for federal income tax purposes. U.S. GAAP requires companies to recognize the effect of tax law changes in the period of enactment.

See note 8 of the notes to consolidated financial statements for further discussion of the TCJA.

The effective tax rate ~~was 26%~~for the year ended December 31, 2017 is not meaningful as a result of the significant tax benefit resulting from enactment of the TCJA. Therefore, we also analyzed our adjusted effective tax rate, which excludes the impact of the TCJA and is a non-GAAP measure. The following table summarizes our effective tax rate and adjusted effective tax rate for the years ended December 31, 2017 and 2016.

For the ~~year~~years ended December 31, ~~2014,~~2017 and 2016, book value per share increased ~~14%~~13% and 8%, respectively, primarily due to comprehensive income to shareholders, as described above. For the year ended December 31, 2013, book value per share increased 18% primarily due to equity issued in connection with the acquisition of Alterra, which was accretive to book value, and comprehensive income to shareholders, as described above.



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o
~~Large accelerated filer~~ x ~~Accelerated filer~~ ¨ ~~Non-accelerated filer~~ ¨Smaller reporting companyo	Emerging growth company o



Reinsurance Group	A.M. Best Rating	Gross Reinsurance Recoverable		Collateral Applied ⁽¹⁾		Net Reinsurance Recoverable
(dollars in thousands)
Fosun International Holdings Ltd.	B++	$	538,227	$	537,659	$	568
Knight Insurance Company Ltd.	B++	397,070		397,070		—
Lloyd's of London	A	297,494		—		297,494
James River Group Holdings, Ltd.	A	139,507		139,507		—
Tokio Marine Holdings	A++	102,284		1,172		101,112
Enstar Group Limited	A-	75,289		39,349		35,940
State Automobile Mutual Insurance Company	A-	50,886		50,886		—
Greenlight Capital Re, Ltd.	A-	48,833		48,833		—
SOMPO Holdings, Inc.	A+	42,535		—		42,535
Allianz SE	A+	42,534		—		42,534
Reinsurance recoverable on paid and unpaid losses for ten largest gross reinsurers		1,734,659		1,214,476		520,183
Total reinsurance recoverable on paid and unpaid losses		$	2,193,542	$	1,510,671	$	682,871




Alan I. Kirshner				Anne G. Waleski
Executive Chairman				Executive Vice President and Chief Financial Officer
(Principal Executive Officer)				(Principal Financial Officer)

February 23, 2018


	December 31,				December 31,
(dollars in thousands)	2014		2013		2017		2016
Restricted assets held in trust or on deposit to support underwriting activities	$	4,961,061	$	5,161,871	$	4,624,998	$	4,059,336
Investments and cash and cash equivalents pledged as security for letters of credit	635,340		695,072		349,462		355,616
Investments and cash pledged as collateral for credit default swap	—		33,430
Cash held in escrow for Abbey acquisition	—		199,006
Total	$	5,596,401	$	6,089,379	$	4,974,460	$	4,414,952


	December 31,						December 31,
(dollars in thousands)	2014			2013			2017			2016
Amounts receivable from agents, brokers and insureds	$	1,031,519		$	1,058,021		$	1,281,366		$	1,102,538
Trade accounts receivable	97,225			85,203			181,666			123,341
Insurance proceeds receivable							39,196			—
Program services fees receivable							22,767			—
Employee stock loans receivable (see note 12(c))	15,044			12,822			18,499			20,171
Investment management and performance fees receivable							5,796			38,735
Other	8,601			5,420			31,938			10,122
	1,152,389			1,161,466			1,581,228			1,294,907
Allowance for doubtful receivables	(17,172		)	(19,693		)	(13,775		)	(11,910		)
Receivables	$	1,135,217		$	1,141,773		$	1,567,453		$	1,282,997


⁽¹⁾	Includes short-term investments, cash and cash equivalents and restricted cash and cash equivalents.


⁽²⁾	Adjustment to tax-exempt interest and dividend income to reflect a taxable equivalent basis.


⁽³⁾	Adjustment to reflect the impact of changes in foreign currency exchange rates and time-weighting the inputs to the calculation of taxable equivalent total investment return.



(in thousands, except per share amounts)
Shares of Alterra common stock outstanding as of the Acquisition Date	96,433
Exchange ratio per the Merger Agreement	0.04315
Markel share issuance to Alterra shareholders	4,161

Shares of Alterra restricted stock outstanding as of the Acquisition Date	2,239
Incentive award ratio per the Merger Agreement	0.06252
Markel restricted stock issuance to Alterra restricted stock holders	140

Multiplied by Markel's weighted average stock price on April 30, 2013 ⁽¹⁾	$	529.59

Markel share and restricted stock issuance consideration, net of taxes	$	2,267,648

Alterra common shares outstanding as of the Acquisition Date that received cash consideration	96,433
Multiplied by cash price per share component per the Merger Agreement	$	10.00
Markel cash consideration	$	964,330

Fair value of Markel warrant issuance to Alterra warrant holders as of the Acquisition Date	$	73,685
Fair value of Markel stock option issuance to Alterra stock option holders as of the Acquisition Date, net of taxes	$	12,335
Fair value of partially vested Markel restricted stock unit issuance as of the Acquisition Date, net of taxes	$	6,867
Unrecognized compensation on unvested restricted stock and restricted stock units	$	(20,572	)
Total acquisition consideration	$	3,304,293



(dollars in thousands)	Year Ended December 31, 2013
Transaction costs	$	15,981
Acquisition-related costs:
Severance costs	31,734
Stay bonuses	14,804
Acceleration of Alterra long-term incentive compensation awards and restricted stock awards	12,621
Total transaction and acquisition-related costs	$	75,140



	Unaudited
	Consolidated Pro Forma
	Years Ended December 31,
(in thousands, except per share amounts)	2013			2012
Earned premiums	$	3,680,220		$	3,509,834
Operating revenues	4,899,628			4,561,107
Net income to shareholders	422,829			308,496

U.S. GAAP combined ratio ⁽¹⁾	95		%	99		%

Basic net income per share	$	30.33		$	21.79
Diluted net income per share	$	30.19		$	21.71

Weighted average common shares outstanding:
Basic	14,007			14,014
Diluted	14,069			14,065


⁽¹⁾	Amounts included in Other above are related to the Company's ~~non-insurance~~other operations, which are not included in a reportable segment.


⁽²⁾	Goodwill is net of accumulated impairment losses of ~~$13.7~~$47.3 million as of December 31, 2017 and 2016, included in Other.



	Year Ended
(dollars in thousands)	December 31, 2017
Tax rate change on net unrealized gains on investments	$	(401,538	)
Tax rate change on other temporary differences - Markel Ventures (provisional)	(37,129		)
Tax rate change on other temporary differences - Other operations (provisional)	69,268
Tax on deemed repatriation of foreign earnings (provisional)	29,500
Total	$	(339,899	)



	Ultimate Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance												Total of Incurred-but-Not-Reported Liabilities, Net of Reinsurance		Cumulative Number of Reported Claims
	Unaudited										Year Ended December 31,
(in thousands)	Years Ended December 31,
Accident Year	2012		2013		2014		2015		2016		2017		December 31, 2017
2012	$	949,141	$	985,721	$	924,138	$	924,621	$	909,237	$	891,641	$	88,973	107
2013			1,130,681		1,105,927		1,042,100		1,009,438		996,204		124,412		66
2014					1,278,116		1,140,685		1,116,093		1,088,667		193,049		57
2015							1,285,411		1,211,389		1,136,033		305,158		57
2016									1,319,731		1,224,207		476,971		59
2017											1,572,585		911,675		67
Total											$	6,909,337

	Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Unaudited										Year Ended December 31,
	Years Ended December 31,
Accident Year	2012		2013		2014		2015		2016		2017
2012	$	193,708	$	401,773	$	546,635	$	644,658	$	728,802	$	763,455
2013			222,890		443,392		594,558		725,782		799,385
2014					264,697		487,068		650,118		770,490
2015							260,121		514,497		660,699
2016									278,650		523,226
2017											336,553
Total											$	3,853,808
All outstanding liabilities for unpaid losses and loss adjustment expenses before 2012, net of reinsurance											289,191
Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance											$	3,344,720



	Average Annual Percentage Payout of Incurred Losses by Age (in Years), Net of Reinsurance
Unaudited	1		2		3		4		5		6
U.S. Insurance	22.6	%	21.7	%	14.8	%	11.7	%	8.4	%	3.9	%
International Insurance	12.9	%	22.2	%	14.3	%	10.6	%	5.1	%	6.4	%
Reinsurance	12.5	%	13.8	%	12.5	%	10.4	%	8.3	%	7.1	%



(dollars in thousands)	December 31, 2017
Net outstanding liabilities
U.S. Insurance	$	3,344,720
International Insurance	2,235,309
Reinsurance	2,952,094
Other Insurance (Discontinued Lines)	246,365
Program Services	2,441
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance	8,780,929

Reinsurance recoverable on unpaid losses
U.S. Insurance	827,113
International Insurance	1,091,785
Reinsurance	341,168
Other Insurance (Discontinued Lines)	166,281
Program Services	2,192,989
Total reinsurance recoverable on unpaid losses	4,619,336

Unallocated loss adjustment expenses	230,016
Unamortized fair value adjustments	(46,000		)
	184,016
Total gross liability for unpaid losses and loss adjustment expenses	$	13,584,281


Years Ending December 31,	(dollars in thousands)		(dollars in thousands)
2015	$	23,340
2016	21,850
2017	112,942
2018	2,348		$	86,312
2019	352,199		239,765
2020 and thereafter	1,699,044
2020			355,074
2021			277,072
2022			357,245
2023 and thereafter			1,785,340
Total principal payments	$	2,211,723	$	3,100,808
Net unamortized premium	41,871		2,552
Net unamortized debt issuance costs			(4,130		)
Senior long-term debt and other debt	$	2,253,594	$	3,099,230



	Number of Awards		Weighted Average Grant-Date Fair Value
Nonvested awards at January 1, 2014	98,711		$	449.93
Granted	28,280		583.74
Vested	(8,479	)	491.51
Forfeited	(380	)	411.00
Nonvested awards at December 31, 2014	118,132		$	479.11



	Number of Awards		Weighted Average Grant-Date Fair Value
Nonvested awards at January 1, 2017	65,618		$	634.71
Granted	12,888		979.23
Vested	(46,988	)	612.54
Nonvested awards at December 31, 2017	31,518		$	808.63



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Intrinsic Value (in millions)
Outstanding and exercisable, January 1, 2014	35,941	$	412.39
Exercised	13,636	$	413.06
Outstanding and exercisable, December 31, 2014	22,305	$	411.98	1.7	$	6.1


(dollars in thousands)	Unrealized Holding Gains on Available-for- Sale Securities			Foreign Currency			Net Actuarial Pension Loss			Total			Unrealized Holding Gains on Available-for- Sale Securities			Foreign Currency			Net Actuarial Pension Loss			Total
December 31, 2011	$	704,719		$	(2,614	)	$	(41,185	)	$	660,920
December 31, 2014													$	1,793,254		$	(43,491	)	$	(45,206	)	$	1,704,557
Other comprehensive loss before reclassifications													(240,010		)	(29,205		)	(2,482		)	(271,697		)
Amounts reclassified from accumulated other comprehensive income													(80,482		)	—			2,130			(78,352		)
Total other comprehensive loss													(320,492		)	(29,205		)	(352		)	(350,049		)
December 31, 2015													$	1,472,762		$	(72,696	)	$	(45,558	)	$	1,354,508
Other comprehensive income (loss) before reclassifications													275,696			(11,710		)	(20,700		)	243,286
Amounts reclassified from accumulated other comprehensive income													(33,528		)	—			1,600			(31,928		)
Total other comprehensive income (loss)													242,168			(11,710		)	(19,100		)	211,358
December 31, 2016													$	1,714,930		$	(84,406	)	$	(64,658	)	$	1,565,866
Other comprehensive income before reclassifications	266,265			1,539			4,670			272,474			787,339			10,403			3,092			800,834
Amounts reclassified from accumulated other comprehensive income	(24,051		)	—			1,994			(22,057		)	(24,296		)	—			3,167			(21,129		)
Total other comprehensive income	242,214			1,539			6,664			250,417			763,043			10,403			6,259			779,705
December 31, 2012	$	946,933		$	(1,075	)	$	(34,521	)	$	911,337
Other comprehensive income (loss) before reclassifications	225,404			(10,171		)	2,517			217,750
Amounts reclassified from accumulated other comprehensive income	(40,830		)	—			1,548			(39,282		)
Total other comprehensive income (loss)	184,574			(10,171		)	4,065			178,468
December 31, 2013	$	1,131,507		$	(11,246	)	$	(30,456	)	$	1,089,805
Other comprehensive income (loss) before reclassifications	687,908			(32,245		)	(16,516		)	639,147
Amounts reclassified from accumulated other comprehensive income	(26,161		)	—			1,766			(24,395		)
Total other comprehensive income (loss)	661,747			(32,245		)	(14,750		)	614,752
December 31, 2014	$	1,793,254		$	(43,491	)	$	(45,206	)	$	1,704,557
December 31, 2017													$	2,477,973		$	(74,003	)	$	(58,399	)	$	2,345,571


⁽¹⁾	Written premium includes $252.9 million, $1.0 million and $253.9 million of direct, assumed and ceded premium, respectively, in the Company's program services business in 2017. Earned premium includes $291.3 million, $1.4 million and $292.7 million of direct, assumed and ceded premium, respectively, in the Company's program services business in 2017.


Statutory Capital and Surplus

(dollars in thousands)	2014		2013		2017		2016
United States	$	2,619,001	$	2,396,530	$	3,334,303	$	2,761,454
United Kingdom	$	604,564	$	510,426	$	642,418	$	670,030
Bermuda	$	1,890,920	$	1,503,004	$	1,774,012	$	2,189,649
Other	$	177,738	$	172,447	$	24,544	$	24,726


	Year Ended December 31, 2014																		Year Ended December 31, 2017
(dollars in thousands)	U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)				Investing		Consolidated			U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)				Investing			Other				Consolidated
Gross premium volume	$	2,493,823		$	1,200,403		$	1,112,728		$	(1,441	)		$	—	$	4,805,513		$	2,885,279		$	1,255,922		$	1,112,101		$	(195	)		$	—		$	253,853			$	5,506,960
Net written premiums	2,071,466			889,336			956,584			(371		)		—		3,917,015			2,432,477			1,007,319			978,160			(169		)		—			—				4,417,787

Earned premiums	2,022,860			909,679			908,385			(12		)		—		3,840,912			2,364,121			949,912			934,114			(169		)		—			—				4,247,978
Losses and loss adjustment expenses:
Current accident year	(1,340,129		)	(660,409		)	(637,474		)	—				—		(2,638,012		)	(1,648,427		)	(793,917		)	(924,879		)	—				—			—				(3,367,223		)
Prior accident years	216,557			166,615			79,951			(27,578		)		—		435,545			301,939			198,688			(7,803		)	8,459				—			179				501,462
Amortization of policy acquisition costs	(403,233		)	(141,394		)	(110,289		)	—				—		(654,916		)	(502,217		)	(173,253		)	(218,883		)	—				—			—				(894,353		)
Other operating expenses	(396,737		)	(207,175		)	(201,673		)	(381		)		—		(805,966		)	(395,472		)	(215,028		)	(81,766		)	(795		)		—			—				(693,061		)
Underwriting profit (loss)	99,318			67,316			38,900			(27,971		)		—		177,563			119,944			(33,598		)	(299,217		)	7,495				—			179				(205,197		)
Net investment income	—			—			—			—				363,230		363,230			—			—			—			—				405,709			—				405,709
Net realized investment gains	—			—			—			—				46,000		46,000
Other revenues (insurance)	2,478			21,827			2,696			1,631				—		28,632
Other expenses (insurance)	(5,149		)	(18,706		)	(1,847		)	(37,132		)		—		(62,834		)
Segment profit (loss)	$	96,647		$	70,437		$	39,749		$	(63,472	)		$	409,230	$	552,591
Other revenues (non-insurance)																854,893
Other expenses (non-insurance)																(792,037		)
Net realized investment losses																			—			—			—			—				(5,303		)	—				(5,303		)
Other revenues																			3,419			5,886			417			2,022				—			1,401,531				1,413,275
Other expenses																			(1,093		)	(7,388		)	—			(28,218		)		—			(1,271,281		)		(1,307,980		)
Total profit (loss)																			$	122,270		$	(35,100	)	$	(298,800	)	$	(18,701	)		$	400,406		$	130,429			$	300,504
Amortization of intangible assets																(57,627		)																					(80,758		)
Interest expense																(117,442		)																					(132,451		)
Income before income taxes																$	440,378																						$	87,295
U.S. GAAP combined ratio ⁽¹⁾	95		%	93		%	96		%	NM			⁽²⁾			95		%	95		%	104		%	132		%	NM			⁽²⁾				NM			⁽²⁾	105		%


	Year Ended December 31, 2013																		Year Ended December 31, 2016
(dollars in thousands)	U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)				Investing		Consolidated			U.S. Insurance			International Insurance			Reinsurance			Other Insurance (Discontinued Lines)				Investing		Other			Consolidated
Gross premium volume	$	2,252,739		$	1,101,099		$	566,348		$	40			$	—	$	3,920,226		$	2,635,266		$	1,119,815		$	1,041,055		$	509			$	—	$	—		$	4,796,645
Net written premiums	1,915,770			840,050			480,822			41				—		3,236,683			2,237,163			864,494			898,728			635				—		—			4,001,020

Earned premiums	1,727,766			833,984			669,826			40				—		3,231,616			2,175,332			853,512			836,264			762				—		—			3,865,870
Losses and loss adjustment expenses:
Current accident year	(1,173,258		)	(588,759		)	(465,385		)	—				—		(2,227,402		)	(1,403,589		)	(605,837		)	(546,476		)	—				—		—			(2,555,902		)
Prior accident years	298,113			130,660			12,938			(30,582		)		—		411,129			204,881			164,713			125,514			10,050				—		—			505,158
Transaction costs and other acquisition-related expenses ⁽¹⁾	(12,724		)	(13,366		)	(49,050		)	—				—		(75,140		)
Amortization of policy acquisition costs	(287,795		)	(138,626		)	(45,494		)	—				—		(471,915		)	(446,649		)	(146,117		)	(189,455		)	—				—		—			(782,221		)
Other operating expenses	(409,886		)	(171,666		)	(183,817		)	112				—		(765,257		)	(377,230		)	(219,066		)	(119,012		)	(1,061		)		—		—			(716,369		)
Underwriting profit (loss)	142,216			52,227			(60,982		)	(30,430		)		—		103,031
Underwriting profit																			152,745			47,205			106,835			9,751				—		—			316,536
Net investment income	—			—			—			—				317,373		317,373			—			—			—			—				373,230		—			373,230
Net realized investment gains	—			—			—			—				63,152		63,152			—			—			—			—				65,147		—			65,147
Other revenues (insurance)	13,648			4,284			5,432			1,130				—		24,494
Other expenses (insurance)	(17,087		)	(5,065		)	—			(28,126		)		—		(50,278		)
Segment profit (loss)	$	138,777		$	51,446		$	(55,550	)	$	(57,426	)		$	380,525	$	457,772
Other revenues (non-insurance)																686,448
Other expenses (non-insurance)																(613,250		)
Other revenues																			7,143			5,560			—			1,891				—		1,293,185			1,307,779
Other expenses																			(15,407		)	(5,712		)	—			(26,504		)		—		(1,142,620		)	(1,190,243		)
Total profit (loss)																			$	144,481		$	47,053		$	106,835		$	(14,862	)		$	438,377	$	150,565		$	872,449
Amortization of intangible assets																(55,223		)																			(68,533		)
Interest expense																(114,004		)																			(129,896		)
Loss on early extinguishment of debt																																					(44,100		)
Income before income taxes																$	361,743																				$	629,920
U.S. GAAP combined ratio ⁽²⁾	92		%	94		%	109		%	NM			⁽³⁾			97		%
U.S. GAAP combined ratio ⁽¹⁾																			93		%	94		%	87		%	NM			⁽²⁾						92		%


(dollars in thousands)	Deferred Policy Acquisition Costs		Unearned Premiums		Unpaid Losses and Loss Adjustment Expenses		Deferred Policy Acquisition Costs		Unearned Premiums		Unpaid Losses and Loss Adjustment Expenses
December 31, 2014
December 31, 2017
U.S. Insurance							$	212,102	$	1,324,591	$	4,331,541
International Insurance							74,678		530,740		3,379,969
Reinsurance							178,789		690,565		3,248,070
Other Insurance (Discontinued Lines)							—		—		429,270
Total Underwriting							465,569		2,545,896		11,388,850
Program Services							—		762,883		2,195,431
Total							$	465,569	$	3,308,779	$	13,584,281
December 31, 2016
U.S. Insurance	$	165,333	$	1,110,910	$	3,577,166	$	176,348	$	1,166,914	$	3,849,541
International Insurance	47,618		491,708		3,353,417		51,948		445,183		3,062,725
Reinsurance	140,459		643,072		2,818,792		164,114		651,741		2,661,209
Other Insurance (Discontinued Lines)	—		—		654,777		—		—		542,187
Total	$	353,410	$	2,245,690	$	10,404,152	$	392,410	$	2,263,838	$	10,115,662
December 31, 2013
U.S. Insurance	$	151,015	$	1,058,529	$	3,572,667
International Insurance	50,425		516,689		3,399,228
Reinsurance	59,527		551,897		2,811,362
Other Insurance (Discontinued Lines)	—		—		478,799
Total	$	260,967	$	2,127,115	$	10,262,056



	Quarters Ended
(dollars in thousands, except per share amounts)	Mar. 31		June 30			Sept. 30		Dec. 31
2014
Operating revenues	$	1,239,655	$	1,258,971		$	1,299,286	$	1,335,755
Net income	87,501		41,141			76,824		118,222
Net income to shareholders	87,716		40,068			75,803		117,595
Comprehensive income to shareholders	230,273		250,588			36,502		418,571
Net income per share:
Basic	$	6.28	$	2.67		$	5.33	$	8.10
Diluted	6.25		2.66			5.30		8.05
Common stock price ranges:
High	$	596.87	$	655.75		$	666.00	$	707.36
Low	527.17		593.76			623.90		632.65
2013
Operating revenues	$	819,864	$	1,031,769		$	1,191,665	$	1,279,785
Net income	89,263		28,676			66,967		98,939
Net income to shareholders	88,902		27,756			65,599		98,764
Comprehensive income (loss) to shareholders	257,684		(149,054		)	144,409		206,450
Net income per share:
Basic	$	9.53	$	2.24		$	4.69	$	6.98
Diluted	9.50		2.24			4.67		6.95
Common stock price ranges:
High	$	510.05	$	546.94		$	549.09	$	582.59
Low	434.98		501.76			506.64		511.06
2012
Operating revenues	$	733,135	$	693,247		$	765,775	$	807,955
Net income	57,713		90,768			51,674		58,093
Net income to shareholders	57,253		89,687			49,653		56,792
Comprehensive income to shareholders	205,945		73,416			147,454		76,987
Net income per share:
Basic	$	5.94	$	8.44		$	5.33	$	6.25
Diluted	5.92		8.42			5.32		6.23
Common stock price ranges:
High	$	451.90	$	453.50		$	459.90	$	502.20
Low	398.65		421.00			420.00		425.17




~~Alan I. Kirshner~~				~~Anne G. Waleski~~
~~Chief Executive Officer~~				~~Chief Financial Officer~~

~~February 27, 2015~~


(dollars in millions)	Net Loss Reserves Held ⁽¹⁾		Low End of Actuarial Range⁽²⁾		High End of Actuarial Range⁽²⁾		Net Loss Reserves Held		Low End of Actuarial Range⁽¹⁾		High End of Actuarial Range⁽¹⁾
U.S. Insurance	$	2,974.1	$	2,569.4	$	3,051.1	$	3,500.1	$	3,033.5	$	3,786.3
International Insurance	2,330.8		1,870.1		2,464.7		2,261.7		1,805.8		2,520.5
Reinsurance	2,616.2		1,837.2		3,167.6		2,886.1		2,087.3		3,240.7
Other Insurance (Discontinued Lines)	499.7		115.8		1,030.7		263.0		208.1		426.8


⁽¹⁾	Senior long-term debt and other debt as of December 31, ~~2014~~2017 and ~~2013~~2016 included ~~$252.9~~$476.0 million and ~~$116.4~~$211.0 million, respectively, of debt due to other subsidiaries of Markel Corporation, which is eliminated in consolidation.


⁽²⁾	Shareholders' equity includes ~~$498.6~~$663.6 million and ~~$444.1~~$520.7 million as of December 31, ~~2014~~2017 and ~~2013,~~2016, respectively, which represents Markel Corporation's investment in Markel Ventures and is eliminated in consolidation.



(dollars in millions)	2004			2005		2006		2007		2008		2009		2010		2011		2012		2013		2014
Net reserves, end of year, adjusted for commutations, foreign currency movements and other	$	3,830.0		4,187.7		4,288.4		4,338.5		4,551.5		4,534.2		4,595.1		4,605.0		4,542.3		8,270.3		8,535.5
Paid (cumulative) as of:
One year later	717.2			799.5		783.8		727.6		759.5		796.1		898.3		932.0		906.3		1,436.9
Two years later	1,256.5			1,375.4		1,312.1		1,270.8		1,364.8		1,417.0		1,531.0		1,548.7		1,506.7
Three years later	1,667.4			1,752.4		1,689.6		1,686.3		1,841.0		1,881.5		1,918.5		1,937.2
Four years later	1,932.9			2,018.2		1,994.1		1,983.9		2,189.7		2,118.7		2,180.8
Five years later	2,114.0			2,243.3		2,201.5		2,245.4		2,350.9		2,280.4
Six years later	2,293.2			2,406.5		2,396.8		2,353.7		2,471.6
Seven years later	2,418.4			2,581.1		2,473.2		2,438.6
Eight years later	2,545.1			2,642.7		2,543.3
Nine years later	2,587.0			2,699.4
Ten years later	2,626.2
Reserves re-estimated as of:
One year later	3,779.4			4,055.4		4,091.1		4,174.7		4,316.1		4,256.1		4,241.3		4,206.0		4,131.2		7,834.8
Two years later	3,624.7			3,905.0		3,952.1		3,939.3		4,079.3		3,912.9		3,866.1		3,864.0		3,830.7
Three years later	3,540.2			3,801.2		3,764.8		3,724.9		3,814.5		3,620.5		3,611.2		3,660.9
Four years later	3,512.2			3,691.6		3,604.1		3,523.6		3,618.3		3,423.0		3,499.1
Five years later	3,465.9			3,579.6		3,449.8		3,374.7		3,464.6		3,358.2
Six years later	3,383.8			3,465.2		3,351.5		3,260.8		3,426.3
Seven years later	3,300.6			3,399.6		3,280.4		3,229.0
Eight years later	3,253.7			3,350.1		3,266.2
Nine years later	3,219.7			3,347.1
Ten years later	3,216.5
Net cumulative redundancy	$	613.5		840.6		1,022.2		1,109.5		1,125.2		1,176.0		1,096.0		944.1		711.6		435.5
Cumulative %	16		%	20	%	24	%	26	%	25	%	26	%	24	%	21	%	16	%	5	%
Gross reserves, end of year, adjusted for commutations, foreign currency movements and other	$	5,197.5		5,959.7		5,391.8		5,280.1		5,515.5		5,352.5		5,352.7		5,366.6		5,297.6		10,169.9		10,404.2
Reinsurance recoverable, adjusted for commutations, foreign currency movements and other	1,367.5			1,772.0		1,103.4		941.6		964.0		818.3		757.6		761.6		755.3		1,899.6		1,868.7
Net reserves, end of year, adjusted for commutations, foreign currency movements and other	$	3,830.0		4,187.7		4,288.4		4,338.5		4,551.5		4,534.2		4,595.1		4,605.0		4,542.3		8,270.3		8,535.5
Gross re-estimated reserves	4,445.0			4,938.3		4,220.7		4,027.4		4,210.1		4,035.6		4,161.5		4,376.0		4,542.8		9,694.2
Re-estimated recoverable	1,228.5			1,591.2		954.5		798.4		783.8		677.4		662.4		715.1		712.1		1,859.4
Net re-estimated reserves	$	3,216.5		3,347.1		3,266.2		3,229.0		3,426.3		3,358.2		3,499.1		3,660.9		3,830.7		7,834.8
Gross cumulative redundancy	$	752.5		1,021.4		1,171.1		1,252.7		1,305.4		1,316.9		1,191.2		990.6		754.8		475.7


	Payments Due by Period ⁽¹⁾										Payments Due by Period ⁽¹⁾
(dollars in thousands)	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years		Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Senior long-term debt and other debt⁽²⁾	$	3,429,746	$	149,601	$	378,718	$	581,287	$	2,320,140	$	5,080,481	$	241,513	$	876,499	$	831,574	$	3,130,895
Operating leases	282,912		28,434		51,760		51,718		151,000
Unpaid losses and loss adjustment expenses (estimated)	10,289,532		2,386,882		3,192,037		1,881,348		2,829,265		13,630,281		3,203,638		4,598,591		2,565,085		3,262,967
Life and annuity benefits (estimated)	1,837,053		105,891		190,456		166,719		1,373,987		1,423,225		88,828		146,103		135,343		1,052,951
Operating leases											311,722		53,398		81,985		63,924		112,415
Total	$	15,839,243	$	2,670,808	$	3,812,971	$	2,681,072	$	6,674,392	$	20,445,709	$	3,587,377	$	5,703,178	$	3,595,926	$	7,559,228


⁽¹⁾	See notes 9, 10, 11 and 16 of the notes to consolidated financial statements for further discussion of these obligations.