BERKLEY W R CORP (Form: 10-Q, Received: 08/03/2020 16:18:01)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the Transition Period from to .


Commission File Number			1-15202

W. R. BERKLEY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

22-1867895

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

475 Steamboat Road

Greenwich

Connecticut

06830

(Address of principal executive offices)

(Zip Code)


(203)			629-3000

(Registrant’s telephone number, including area code)

None

Former name, former address and former fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:


Title	Trading Symbol	Name

Common Stock, par value $.20 per share	WRB	New York Stock Exchange
5.625% Subordinated Debentures due 2053	WRB-PB	New York Stock Exchange
5.90% Subordinated Debentures due 2056	WRB-PC	New York Stock Exchange
5.75% Subordinated Debentures due 2056	WRB-PD	New York Stock Exchange
5.70% Subordinated Debentures due 2058	WRB-PE	New York Stock Exchange
5.10% Subordinated Debentures due 2059	WRB-PF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock, $.20 par value, outstanding as of July 29, 2020: 178,003,807

TABLE OF CONTENTS


Part I — FINANCIAL INFORMATION
			Item 1. Financial Statements
			Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
			Item 3. Quantitative and Qualitative Disclosure About Market Risk
			Item 4. Controls and Procedures
PART II — OTHER INFORMATION
			Item 1. Legal Proceedings
			Item 1A. Risk Factors
			Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
			Item 6. Exhibits
SIGNATURES

EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	June 30, 2020		December 31, 2019
	(Unaudited)		(Audited)
Assets
Investments:
Fixed maturity securities (amortized cost of $13,019,378 and $13,976,647; allowance for expected credit losses of $46,441 at June 30, 2020)	$	13,281,085	$	14,180,961
Real estate	2,072,772		2,105,950
Investment funds	1,159,237		1,213,535
Arbitrage trading account	580,950		400,809
Equity securities	362,265		480,620
Loans receivable (net of allowance for expected credit losses of $8,719 at June 30, 2020)	82,134		91,799

Total investments	17,538,443		18,473,674
Cash and cash equivalents	2,430,826		1,023,710
Premiums and fees receivable (net of allowance for expected credit losses of $22,106 at June 30, 2020)	2,186,964		1,997,186
Due from reinsurers (net of allowance for expected credit losses of $7,175 at June 30, 2020)	2,273,638		2,133,683
Deferred policy acquisition costs	547,958		517,364
Prepaid reinsurance premiums	608,913		567,595
Trading account receivables from brokers and clearing organizations	254,230		423,543
Property, furniture and equipment	414,335		422,091
Goodwill	169,652		169,652
Accrued investment income	128,616		138,789

Other assets	769,717		762,743
Total assets	$	27,323,292	$	26,630,030

Liabilities and Equity
Liabilities:
Reserves for losses and loss expenses	$	13,088,904	$	12,583,249
Unearned premiums	3,902,913		3,656,507
Due to reinsurers	424,806		360,314
Trading account securities sold but not yet purchased	20,814		36,143
Federal and foreign income taxes	10,921		4,308
Other liabilities	1,104,896		1,244,888
Senior notes and other debt	1,725,449		1,427,575
Subordinated debentures	1,199,198		1,198,704
Total liabilities	21,477,901		20,511,688
Equity:
Preferred stock, par value $0.10 per share:
Authorized 5,000,000 shares; issued and outstanding - none	—		—
Common stock, par value $0.20 per share:
Authorized 750,000,000 shares, issued and outstanding, net of treasury shares, 177,930,502 and 183,411,907 shares, respectively	70,535		70,535
Additional paid-in capital	1,076,043		1,056,042
Retained earnings	7,927,280		7,932,372
Accumulated other comprehensive loss	(249,350)		(257,299)
Treasury stock, at cost, 174,745,998 and 169,264,857 shares, respectively	(3,023,392)		(2,726,711)
Total stockholders’ equity	5,801,116		6,074,939
Noncontrolling interests	44,275		43,403
Total equity	5,845,391		6,118,342
Total liabilities and equity	$	27,323,292	$	26,630,030

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,

	2020		2019		2020		2019
REVENUES:
Net premiums written	$	1,739,818	$	1,743,464	$	3,585,664	$	3,453,065
Change in net unearned premiums	(62,903)		(96,623)		(217,331)		(213,368)
Net premiums earned	1,676,915		1,646,841		3,368,333		3,239,697
Net investment income	85,431		188,333		260,194		346,587
Net investment gains (losses):
Net realized and unrealized gains (losses) on investments	61,653		73,574		(81,632)		142,226

Change in allowance for expected credit losses on investments	16,232		—		(17,657)		—
Net investment gains (losses)	77,885		73,574		(99,289)		142,226
Revenues from non-insurance businesses	75,742		89,297		169,471		181,124
Insurance service fees	19,870		22,446		45,621		47,759
Other income	183		2,893		2,305		3,013
Total revenues	1,936,026		2,023,384		3,746,635		3,960,406


OPERATING COSTS AND EXPENSES:
Losses and loss expenses	1,135,126		1,028,830		2,242,379		2,017,479
Other operating costs and expenses	580,840		591,828		1,159,173		1,179,916
Expenses from non-insurance businesses	76,238		88,272		170,996		178,397
Interest expense	38,373		40,718		75,105		81,439
Total operating costs and expenses	1,830,577		1,749,648		3,647,653		3,457,231
Income before income taxes	105,449		273,736		98,982		503,175
Income tax expense	(33,793)		(56,309)		(30,852)		(104,134)
Net income before noncontrolling interests	71,656		217,427		68,130		399,041
Noncontrolling interests	(396)		(718)		(1,288)		(1,610)
Net income to common stockholders	$	71,260	$	216,709	$	66,842	$	397,431

NET INCOME PER SHARE:
Basic	$	0.38	$	1.14	$	0.36	$	2.09
Diluted	$	0.38	$	1.12	$	0.35	$	2.06

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,

	2020		2019		2020		2019
Net income before noncontrolling interests	$	71,656	$	217,427	$	68,130	$	399,041
Other comprehensive income (loss):
Change in unrealized currency translation adjustments	21,447		(14,492)		(76,747)		5,268
Change in unrealized investment gains, net of taxes	318,725		118,649		59,743		244,424

Other comprehensive income (loss)	340,172		104,157		(17,004)		249,692
Comprehensive income	411,828		321,584		51,126		648,733
Noncontrolling interests	(395)		(748)		(1,289)		(1,592)
Comprehensive income to common stockholders	$	411,433	$	320,836	$	49,837	$	647,141

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except per share data)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,

	2020		2019		2020		2019
COMMON STOCK:
Beginning and end of period	$	70,535	$	70,535	$	70,535	$	70,535
ADDITIONAL PAID-IN CAPITAL:
Beginning of period	$	1,063,084	$	1,053,372	$	1,056,042	$	1,039,633
Restricted stock units issued	1,204		(2,049)		(3,386)		(2,504)
Restricted stock units expensed	11,755		7,093		23,387		21,287

End of period	$	1,076,043	$	1,058,416	$	1,076,043	$	1,058,416
RETAINED EARNINGS:
Beginning of period	$	7,877,371	$	7,721,039	$	7,932,372	$	7,558,619
Cumulative effect adjustment resulting from changes in accounting principles	—		—		(30,514)		—
Net income to common stockholders	71,260		216,709		66,842		397,431
Dividends ($0.12, $0.61, $0.23 and $0.71 per share, respectively)	(21,351)		(111,733)		(41,420)		(130,035)
End of period	$	7,927,280	$	7,826,015	$	7,927,280	$	7,826,015
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrealized investment gains (losses):
Beginning of period	$	(109,514)	$	34,236	$	124,514	$	(91,491)
Cumulative effect adjustment resulting from changes in accounting principles	—		—		24,952		—
Change in unrealized gains on securities without an allowance for expected credit losses	295,274		118,597		34,753		244,393
Change in unrealized gains on securities with an allowance for expected credit losses	23,450		82		24,991		13
End of period	209,210		152,915		209,210		152,915
Currency translation adjustments:
Beginning of period	(480,007)		(399,219)		(381,813)		(418,979)
Net change in period	21,447		(14,492)		(76,747)		5,268
End of period	(458,560)		(413,711)		(458,560)		(413,711)




Total accumulated other comprehensive loss	$	(249,350)	$	(260,796)	$	(249,350)	$	(260,796)
TREASURY STOCK:
Beginning of period	$	(2,927,994)	$	(2,720,011)	$	(2,726,711)	$	(2,720,466)
Stock exercised/vested	883		2,601		2,221		3,056
Stock repurchased	(96,281)		—		(298,902)		—

End of period	$	(3,023,392)	$	(2,717,410)	$	(3,023,392)	$	(2,717,410)
NONCONTROLLING INTERESTS:
Beginning of period	$	44,069	$	42,844	$	43,403	$	41,947
Distributions	(189)		(274)		(417)		(221)
Net income	396		718		1,288		1,610
Other comprehensive (loss) income, net of tax	(1)		30		1		(18)
End of period	$	44,275	$	43,318	$	44,275	$	43,318

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	For the Six Months Ended June 30,

	2020		2019
CASH FROM OPERATING ACTIVITIES:
Net income to common stockholders	$	66,842	$	397,431
Adjustments to reconcile net income to net cash from operating activities:
Net investment losses (gains)	99,289		(142,226)
Depreciation and amortization	64,065		51,289
Noncontrolling interests	1,288		1,610
Investment funds	16,975		(58,251)
Stock incentive plans	25,731		27,340
Change in:
Arbitrage trading account	(26,158)		(14,797)
Premiums and fees receivable	(204,203)		(223,771)
Reinsurance accounts	(118,849)		(112,681)
Deferred policy acquisition costs	(31,478)		(23,632)
Income taxes	9,387		2,759

Reserves for losses and loss expenses	525,785		350,981
Unearned premiums	259,237		254,010
Other	(108,060)		(107,416)
Net cash from operating activities	579,851		402,646
CASH FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities	3,194,333		1,320,079
Proceeds from sale of equity securities	67,122		39,103
Distributions from (contributions to) investment funds	67,234		(2,896)
Proceeds from maturities and prepayments of fixed maturity securities	1,859,392		1,490,772
Purchase of fixed maturity securities	(4,189,664)		(2,633,251)
Purchase of equity securities	(35,591)		(41,849)
Real estate purchased	(30,178)		(117,773)

Change in loans receivable	963		140
Net purchases of property, furniture and equipment	(23,006)		(10,804)
Change in balances due to security brokers	(24,382)		19,096


Other	85		—
Net cash from investing activities	886,308		62,617
CASH USED IN FINANCING ACTIVITIES:
Repayment of senior notes and other debt	(1,160)		—

Net proceeds from issuance of debt	298,447		—
Cash dividends to common stockholders	(41,420)		(18,302)
Purchase of common treasury shares	(298,902)		—
Other, net	(4,140)		(5,548)
Net cash used in financing activities	(47,175)		(23,850)
Net impact on cash due to change in foreign exchange rates	(11,868)		(841)
Net change in cash and cash equivalents	1,407,116		440,572
Cash and cash equivalents at beginning of year	1,023,710		817,602
Cash and cash equivalents at end of period	$	2,430,826	$	1,258,174

See accompanying notes to interim consolidated financial statements.

W. R. Berkley Corporation and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) General

The unaudited consolidated financial statements, which include the accounts of W. R. Berkley Corporation and its subsidiaries (the “Company”), have been prepared on the basis of U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for annual financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly the Company’s financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected during the reporting period. For further information related to areas of judgment and estimates and other information necessary to understand the Company’s financial position and results of operations, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The income tax provision has been computed based on the Company’s estimated annual effective tax rate. The effective income tax rate differs from the federal income tax rate of 21% principally because foreign jurisdictions were limited on the utilization of losses at different tax rates, which was partially offset by tax-exempt investment income and tax benefits related to equity-based compensation.

(2) Per Share Data

The Company presents both basic and diluted net income per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period (including 7,575,168 and 7,389,781 common shares held in a grantor trust as of June 30, 2020 and 2019, respectively). The common shares held in the grantor trust are for delivery upon settlement of vested but mandatorily deferred restricted stock units ("RSUs"). Shares held by the grantor trust do not affect diluted shares outstanding since the shares deliverable under vested RSUs were already included in diluted shares outstanding. Diluted EPS is based upon the weighted average number of basic and common equivalent shares outstanding during the period and is calculated using the treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

The weighted average number of common shares used in the computation of basic and diluted earnings per share was as follows:


	For the Three Months Ended June 30,			For the Six Months Ended June 30,

(In thousands)	2020	2019	2020	2019
Basic	185,979	190,512	188,133	190,456
Diluted	187,862	193,059	190,078	192,804

(3) Recent Accounting Pronouncements and Accounting Policies

Recently adopted accounting pronouncements:

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses, which amended the accounting guidance for credit losses on financial instruments. The updated guidance amended the current other-than-temporary impairment model for available for sale debt securities by requiring the recognition of impairments relating to expected credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. This guidance also applies a new current expected credit loss model for determining credit-related impairments for financial instruments measured at amortized cost, such as reinsurance recoverables. The updated guidance was effective for reporting periods beginning after December 15, 2019.

The adoption of this guidance on January 1, 2020 resulted in the recognition of an allowance for expected credit losses in connection with operating assets (premiums and fees receivable and due from reinsurers) of $5.7 million (net of tax) and a corresponding cumulative effect adjustment that decreased common stockholders' equity. Certain investments (primarily fixed

maturity securities available for sale) established an allowance for expected credit loss of $24.8 million (net of tax), with a cumulative effect adjustment decreasing retained earnings by $24.8 million (net of tax) and increasing accumulated other comprehensive (loss) income ("AOCI") by $25.0 million (net of tax), resulting in $0.2 million net impact to total common stockholders' equity.

All other accounting and reporting standards that have become effective in 2020 were either not applicable to the Company or their adoption did not have a material impact on the Company.

Accounting and reporting standards that are not yet effective:

All recently issued but not yet effective accounting and reporting standards are either not applicable to the Company or are not expected to have a material impact on the Company.

Accounting policies:

The following accounting policies have been updated to reflect the Company's adoption of Financial Instruments - Credit Losses as described above.

Revenue recognition (related to premiums and fees receivable)

Insurance premiums are recognized as written at the inception of the policy. Reinsurance premiums are estimated based upon information received from ceding companies, and subsequent differences from such estimates are recorded in the period they are determined. Insurance and reinsurance premiums are primarily earned on a pro rata basis over the policy term. Fees for services are earned over the period that the services are provided. Premiums and fees receivable are reported net of an allowance for expected credit losses with the allowance being estimated based on current and future expected conditions, historical loss data and specific identification of collectability concerns where applicable. Changes in the allowance are reported within other operating costs and expenses.

Reinsurance ceded (related to due from reinsurers)

The unearned portion of premiums ceded to reinsurers is reported as prepaid reinsurance premiums and earned ratably over the policy term. The estimated amounts of reinsurance recoverable on unpaid losses are reported as due from reinsurers. To the extent any reinsurer does not meet its obligations under reinsurance agreements, the Company must discharge its liability. Amounts due from reinsurers are reflected net of funds held where the right of offset is present. The Company has provided an allowance for expected credit losses for estimated uncollectible reinsurance. The allowance is estimated based on the composition of the recoverable balance, considering reinsurer credit ratings, collateral received from financial institutions and funds withheld arrangements, length of collection periods, probability of default methodology, and specific identification of collectability concerns. Changes in the allowance are reported within losses and loss expenses.

Investments

For available for sale securities in an unrealized loss position where the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery in value, the amortized cost basis is written down to fair value through net investment gains. For available for sale securities in an unrealized loss position where the Company does not intend to sell, or it is more likely than not that it will not be required to sell the security before recovery in value, the Company evaluates whether the decline in fair value has resulted from credit losses or all other factors (non-credit factors). In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for expected credit losses is recorded for the credit loss through net investment gains, limited by the amount that the fair value is less than the amortized cost basis. The allowance is adjusted for any change in expected credit losses and subsequent recoveries through net investment gains. The impairment related to non-credit factors is recognized in other comprehensive income.

For financial assets carried at amortized cost, which includes held to maturity securities and loans receivable, the Company estimates an allowance for expected credit losses based on relevant information about past events, including historical loss experience, current conditions and forecasts that affect the expected collectability of the amortized cost of the financial asset. The allowance for expected credit losses is presented as a reduction to amortized cost of the financial asset in the consolidated balance sheet and changes to the estimate for expected credit losses are recognized through net investment gains.

and estimates by management. Modeling these securities involves various factors, such as projected default rates, the nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and performance factors. A discounted cash flow analysis is used to ascertain the amount of the allowance for expected credit losses, if any. In general, the model reverts to the rating-level long-term average marginal default rates based on 10 years of historical data, beyond the forecast period. For other inputs, the model in most cases reverts to the baseline long-term assumptions linearly over 5 years beyond the forecast period. The long-term assumptions are based on the historical averages.

The Company reports accrued investment income separately from fixed maturity securities, and has elected not to measure an allowance for expected credit losses for accrued investment income. Accrued investment income is written off through net investment income at the time the issuer of the bond defaults or is expected to default on payments.

(4) Consolidated Statements of Comprehensive Income

The following table presents the components of the changes in accumulated other comprehensive (loss) income ("AOCI"):


(In thousands)	Unrealized Investment Gains			Currency Translation Adjustments		Accumulated Other Comprehensive (Loss) Income
As of and for the six months ended June 30, 2020
Changes in AOCI
Beginning of period	$	124,514		$	(381,813)	$	(257,299)
Cumulative effect adjustment resulting from changes in accounting principles	24,952			—		24,952
Restated beginning of period	149,466			(381,813)		(232,347)
Other comprehensive income (loss) before reclassifications	36,986			(76,747)		(39,761)
Amounts reclassified from AOCI	22,757			—		22,757
Other comprehensive income (loss)	59,743			(76,747)		(17,004)
Unrealized investment loss related to noncontrolling interest	1			—		1
End of period	$	209,210		$	(458,560)	$	(249,350)
Amounts reclassified from AOCI
Pre-tax	$	28,806	(1)	$	—	$	28,806
Tax effect	(6,049)		(2)	—		(6,049)
After-tax amounts reclassified	$	22,757		$	—	$	22,757
Other comprehensive income (loss)
Pre-tax	$	62,777		$	(76,747)	$	(13,970)
Tax effect	(3,034)			—		(3,034)
Other comprehensive income (loss)	$	59,743		$	(76,747)	$	(17,004)
As of and for the three months ended June 30, 2020
Changes in AOCI
Beginning of period	$	(109,514)		$	(480,007)	$	(589,521)


Other comprehensive income before reclassifications	335,518			21,447		356,965
Amounts reclassified from AOCI	(16,793)			—		(16,793)
Other comprehensive income	318,725			21,447		340,172
Unrealized investment gain related to noncontrolling interest	(1)			—		(1)
Ending balance	$	209,210		$	(458,560)	$	(249,350)
Amounts reclassified from AOCI
Pre-tax	$	(21,257)	(1)	$	—	$	(21,257)
Tax effect	4,464		(2)	—		4,464
After-tax amounts reclassified	$	(16,793)		$	—	$	(16,793)
Other comprehensive income
Pre-tax	$	395,624		$	21,447	$	417,071
Tax effect	(76,899)			—		(76,899)
Other comprehensive income	$	318,725		$	21,447	$	340,172



As of and for the six months ended June 30, 2019
Changes in AOCI
Beginning of period	$	(91,491)		$	(418,979)	$	(510,470)


Other comprehensive gain before reclassifications	245,615			5,268		250,883
Amounts reclassified from AOCI	(1,191)			—		(1,191)
Other comprehensive gain	244,424			5,268		249,692
Unrealized investment gain related to noncontrolling interest	(18)			—		(18)
End of period	$	152,915		$	(413,711)	$	(260,796)
Amounts reclassified from AOCI
Pre-tax	$	(1,508)	(1)	$	—	$	(1,508)
Tax effect	317		(2)	—		317
After-tax amounts reclassified	$	(1,191)		$	—	$	(1,191)
Other comprehensive income
Pre-tax	$	316,331		$	5,268	$	321,599
Tax effect	(71,907)			—		(71,907)
Other comprehensive income	$	244,424		$	5,268	$	249,692
As of and for the three months ended June 30, 2019
Changes in AOCI
Beginning of period	$	34,236		$	(399,219)	$	(364,983)


Other comprehensive income (loss) before reclassifications	118,475			(14,492)		103,983
Amounts reclassified from AOCI	174			—		174
Other comprehensive income (loss)	118,649			(14,492)		104,157
Unrealized investment loss related to noncontrolling interest	30			—		30
Ending balance	$	152,915		$	(413,711)	$	(260,796)
Amounts reclassified from AOCI
Pre-tax	$	220	(1)	$	—	$	220
Tax effect	(46)		(2)	—		(46)
After-tax amounts reclassified	$	174		$	—	$	174
Other comprehensive income (loss)
Pre-tax	$	147,072		$	(14,492)	$	132,580
Tax effect	(28,423)			—		(28,423)
Other comprehensive income (loss)	$	118,649		$	(14,492)	$	104,157

____________

(1) Net investment gains (losses) in the consolidated statements of income.

(2) Income tax expense in the consolidated statements of income.

(5) Statements of Cash Flows

Interest payments were $73,056,000 and $77,672,000 for the six months ended June 30, 2020 and 2019, respectively. No income tax was paid for the six months ended June 30, 2020 and $82,800,000 was paid for the six months ended June 30, 2019.

(6) Investments in Fixed Maturity Securities

At June 30, 2020 and December 31, 2019, investments in fixed maturity securities were as follows:


(In thousands)	Amortized Cost		Allowance for Expected Credit Losses (1)		Gross Unrealized							Fair Value		Carrying Value
											Gains				Losses
June 30, 2020
Held to maturity:
State and municipal	$	71,640	$	(948)	$	14,137	$	—	$	84,829		$	70,692
Residential mortgage-backed	7,385		—		1,176		—		8,561			7,385
Total held to maturity	79,025		(948)		15,313		—		93,390			78,077
Available for sale:
U.S. government and government agency	670,032		—		23,784		(49)		693,767			693,767
State and municipal:
Special revenue	2,153,909		—		82,603		(1,551)		2,234,961			2,234,961
State general obligation	350,228		—		31,192		(810)		380,610			380,610
Pre-refunded	299,333		—		20,944		(130)		320,147			320,147
Corporate backed	224,649		—		8,581		(500)		232,730			232,730
Local general obligation	394,105		—		42,393		(251)		436,247			436,247
Total state and municipal	3,422,224		—		185,713		(3,242)		3,604,695			3,604,695
Mortgage-backed securities:
Residential	913,065		—		32,241		(1,019)		944,287			944,287
Commercial	211,987		—		6,370		(799)		217,558			217,558
Total mortgage-backed securities	1,125,052		—		38,611		(1,818)		1,161,845			1,161,845
Asset-backed	3,170,931		—		10,539		(83,272)		3,098,198			3,098,198
Corporate:
Industrial	1,922,336		(724)		101,976		(24,466)		1,999,122			1,999,122
Financial	1,399,238		—		49,596		(17,130)		1,431,704			1,431,704
Utilities	293,279		—		29,582		(146)		322,715			322,715
Other	18,655		—		385		—		19,040			19,040
Total corporate	3,633,508		(724)		181,539		(41,742)		3,772,581			3,772,581
Foreign government	918,606		(44,769)		31,028		(32,943)		871,922			871,922
Total available for sale	12,940,353		(45,493)		471,214		(163,066)		13,203,008			13,203,008
Total investments in fixed maturity securities	$	13,019,378	$	(46,441)	$	486,527	$	(163,066)	$	13,296,398		$	13,281,085

____________

(1) Represents the amount of impairment that has resulted from credit-related factors. The change in the allowance for expected credit losses, excluding the cumulative effect adjustment resulting from changes in accounting principles, is recognized in the consolidated statements of income. Amount excludes unrealized losses relating to non-credit factors.


(In thousands)	Amortized Cost		Gross Unrealized							Fair Value		Carrying Value
							Gains						Losses
December 31, 2019
Held to maturity:
State and municipal	$	70,312	$	13,000	$	—		$	83,312	$	70,312
Residential mortgage-backed	8,371		994		—			9,365		8,371

Total held to maturity	78,683		13,994		—			92,677		78,683
Available for sale:
U.S. government and government agency	775,157		13,249		(1,475)			786,931		786,931
State and municipal:
Special revenue	2,343,209		64,586		(4,152)			2,403,643		2,403,643
State general obligation	359,298		22,074		(97)			381,275		381,275
Pre-refunded	364,571		20,342		(128)			384,785		384,785
Corporate backed	255,230		7,232		(903)			261,559		261,559
Local general obligation	432,333		32,684		(647)			464,370		464,370
Total state and municipal	3,754,641		146,918		(5,927)			3,895,632		3,895,632
Mortgage-backed securities:
Residential	1,298,145		23,230		(5,155)			1,316,220		1,316,220
Commercial	304,506		5,214		(346)			309,374		309,374
Total mortgage-backed securities	1,602,651		28,444		(5,501)			1,625,594		1,625,594
Asset-backed	2,802,588		9,532		(21,490)			2,790,630		2,790,630
Corporate:
Industrial	2,260,073		72,900		(3,800)			2,329,173		2,329,173
Financial	1,447,589		37,681		(4,118)			1,481,152		1,481,152
Utilities	325,762		15,281		(402)			340,641		340,641
Other	5,219		230		—			5,449		5,449
Total corporate	4,038,643		126,092		(8,320)			4,156,415		4,156,415
Foreign government	924,284		16,465		(93,673)			847,076		847,076
Total available for sale	13,897,964		340,700		(136,386)			14,102,278		14,102,278
Total investments in fixed maturity securities	$	13,976,647	$	354,694	$	(136,386)		$	14,194,955	$	14,180,961

The following table presents the rollforward of the allowance for expected credit losses for held to maturity securities for the six months ended June 30, 2020:


	State and Municipal
(In thousands)
Allowance for expected credit losses at January 1, 2020	$	—
Cumulative effect adjustment resulting from changes in accounting principles	69
Provision for expected credit losses	879
Allowance for expected credit losses at June 30, 2020	$	948

The following table presents the rollforward of the allowance for expected credit losses for held to maturity securities for the three months ended June 30, 2020:


	State and Municipal
(In thousands)
Allowance for expected credit losses at April 1, 2020	$	107
Provision for expected credit losses	841
Allowance for expected credit losses at June 30, 2020	$	948

The following table presents the rollforward of the allowance for expected credit losses for available for sale securities for the six months ended June 30, 2020:


	Foreign Government		Corporate		Total
(In thousands)
Allowance for expected credit losses at January 1, 2020	$	—	$	—	$	—
Cumulative effect adjustment resulting from changes in accounting principles	35,645		—		35,645
Expected credit losses on securities for which credit losses were not previously recorded	12,494		6,797		19,291
Expected credit losses on securities for which credit losses were previously recorded	547		(3,758)		(3,211)
Reduction due to disposals	(3,917)		(2,315)		(6,232)
Allowance for expected credit losses at June 30, 2020	$	44,769	$	724	$	45,493

The following table presents the rollforward of the allowance for expected credit losses for available for sale securities for the three months ended June 30, 2020:


	Foreign Government		Corporate		Total
(In thousands)
Allowance for expected credit losses at April 1, 2020	$	60,920	$	6,436	$	67,356
Expected credit losses on securities for which credit losses were not previously recorded	—		361		361
Expected credit losses on securities for which credit losses were previously recorded	(15,822)		(3,758)		(19,580)
Reduction due to disposals	(329)		(2,315)		(2,644)
Allowance for expected credit losses at June 30, 2020	$	44,769	$	724	$	45,493

During the six months ended June 30, 2020, the Company increased the allowance for expected credit losses utilizing its credit loss assessment process and inputs used in its credit loss model, primarily due to the negative impact to the financial markets caused by COVID-19. As a result, the Company recognized an initial allowance for expected credit losses on securities that previously did not have an allowance, and increased the allowance for expected credit losses on existing securities due to higher default rate and lower recovery rate assumptions. Improved market pricing and credit ratings at June 30, 2020 compared to March 31, 2020 led to a decrease in the allowance for expected credit losses during the three months ended June 30, 2020.

The amortized cost and fair value of fixed maturity securities at June 30, 2020, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay obligations.



(In thousands)	Amortized Cost (1)		Fair Value
Due in one year or less	$	852,249	$	832,105
Due after one year through five years	5,021,482		5,151,442
Due after five years through ten years	3,148,884		3,297,837
Due after ten years	2,863,378		2,844,608
Mortgage-backed securities	1,132,437		1,170,406
Total	$	13,018,430	$	13,296,398

________________

(1) Amortized cost is reduced by the allowance for expected credit losses of $948 thousand related to held to maturity securities.

At June 30, 2020 and December 31, 2019, there were no investments that exceeded 10% of common stockholders' equity, other than investments in United States government and government agency securities.

(7) Investments in Equity Securities

At June 30, 2020 and December 31, 2019, investments in equity securities were as follows:


(In thousands)	Cost		Gross Unrealized								Fair Value		Carrying Value
							Gains			Losses
June 30, 2020
Common stocks	$	144,674	$	5,739	$	(33,445)		$	116,968		$	116,968
Preferred stocks	174,621		79,440		(8,764)			245,297			245,297
Total	$	319,295	$	85,179	$	(42,209)		$	362,265		$	362,265

December 31, 2019
Common stocks	$	175,928	$	16,967	$	(26,090)		$	166,805		$	166,805
Preferred stocks	169,171		148,243		(3,599)			313,815			313,815
Total	$	345,099	$	165,210	$	(29,689)		$	480,620		$	480,620

(8) Arbitrage Trading Account

At June 30, 2020 and December 31, 2019, the fair and carrying values of the arbitrage trading account were $581 million and $401 million, respectively. The primary focus of the trading account is merger arbitrage. Merger arbitrage is the business of investing in the securities of publicly held companies which are the targets in announced tender offers and mergers. Arbitrage investing differs from other types of investing in its focus on transactions and events believed likely to bring about a change in value over a relatively short time period (usually four months or less).

The Company uses put options and call options in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading account. These options are reported at fair value. As of June 30, 2020, the fair value of long option contracts outstanding was $202 thousand (notional amount of $5.2 million) and the fair value of short option contracts outstanding was $88 thousand (notional amount of $3.9 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.

(9) Net Investment Income

Net investment income consisted of the following:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,

(In thousands)	2020		2019		2020		2019
Investment income (losses) earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	105,843	$	128,903	$	233,861	$	261,022
Investment funds	(57,552)		46,840		(16,975)		58,251
Arbitrage trading account	31,304		7,199		32,442		17,784
Real estate	5,045		5,174		11,141		9,481
Equity securities	2,726		1,303		4,288		2,591

Gross investment income	87,366		189,419		264,757		349,129
Investment expense	(1,935)		(1,086)		(4,563)		(2,542)
Net investment income	$	85,431	$	188,333	$	260,194	$	346,587

(10) Investment Funds

The Company evaluates whether it is an investor in a variable interest entity ("VIE"). Such entities do not have sufficient equity at risk to finance their activities without additional subordinated financial support, or the equity investors, as a group, do not have the characteristics of a controlling financial interest (primary beneficiary). The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE's capital structure, contractual terms, nature of the VIE's operations and purpose, and the Company's relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE and on an ongoing basis. The Company is not the primary beneficiary in any of its investment funds, and accordingly, carries its interests in investment funds under the equity method of accounting.

The Company’s maximum exposure to loss with respect to these investments is limited to the carrying amount reported on the Company’s consolidated balance sheet and its unfunded commitments, which were $145 million as of June 30, 2020.

Investment funds consisted of the following:


	Carrying Value as of						Income (Loss) from Investment Funds
	June 30,		December 31,		For the Six Months Ended June 30,
(In thousands)	2020		2019		2020		2019
Real estate	$	313,781	$	412,275	$	4,021	$	13,078
Financial services	345,175		280,705		(6,881)		23,297
Energy	129,031		156,869		(20,968)		(6,422)
Transportation	142,840		147,034		(4,627)		9,536
Other funds	228,410		216,652		11,480		18,762
Total	$	1,159,237	$	1,213,535	$	(16,975)	$	58,251

The Company's share of the earnings or losses from investment funds is generally reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements. Accordingly, losses from investment funds for the second quarter of 2020 reflects the adverse impact from the disruption in global financial markets associated with COVID-19 during the first quarter of 2020.

(11) Real Estate

Investment in real estate represents directly owned property held for investment, as follows:


	Carrying Value
	June 30,		December 31,
(In thousands)	2020		2019
Properties in operation	$	1,623,579	$	1,351,249
Properties under development	449,193		754,701
Total	$	2,072,772	$	2,105,950

As of June 30, 2020, properties in operation included a long-term ground lease in Washington, D.C., a hotel in Memphis, Tennessee, two office complexes in New York City, office buildings in West Palm Beach and Palm Beach, Florida, an office building in London, and the completed portion of a mixed-use project in Washington D.C.. Properties in operation are net of accumulated depreciation and amortization of $72,036,000 and $59,832,000 as of June 30, 2020 and December 31, 2019, respectively. Related depreciation expense was $13,776,000 and $8,931,000 for the six months ended June 30, 2020 and 2019, respectively. Future minimum rental income expected on operating leases relating to properties in operation is $39,127,419 in 2020, $81,060,656 in 2021, $81,637,432 in 2022, $75,278,181 in 2023, $73,040,940 in 2024, $69,300,988 in 2025 and $660,961,934 thereafter.

The Company borrowed $101,750,000 through a non-recourse loan secured by the West Palm Beach office building in 2018. The loan matures in November 2028 and carries a fixed interest rate of 4.21%. The carrying value does not reflect the outstanding financing, which is reflected within senior notes and other debt on the Company's consolidated balance sheet.

A mixed-use project in Washington, D.C. has been under development in 2020 and 2019, with the completed portion reported in properties in operation as of June 30, 2020.

(12) Loans Receivable

At June 30, 2020 and December 31, 2019, loans receivable are as follows:


(In thousands)	June 30, 2020		December 31, 2019
Amortized cost (net of allowance for expected credit losses):
Real estate loans	$	49,770	$	58,541
Commercial loans	32,364		33,258
Total	$	82,134	$	91,799

Fair value:
Real estate loans	$	54,088	$	59,853
Commercial loans	32,364		34,760
Total	$	86,452	$	94,613

The real estate loans are secured by commercial real estate primarily located in New York. These loans generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. The commercial loans are with small business owners who have secured the related financing with the assets of the business. Commercial loans primarily earn interest on a fixed basis and have varying maturities generally not exceeding 10 years.

Loans receivable in non-accrual status were both $0.2 million as of June 30, 2020 and December 31, 2019.

The following table presents the rollforward of the allowance for expected credit losses for loans receivable for the six months ended June 30, 2020:


	Real Estate Loans		Commercial Loans		Total
(In thousands)
Allowance for expected credit losses at January 1, 2020	$	1,502	$	644	$	2,146
Cumulative effect adjustment resulting from changes in accounting principles	(905)		548		(357)
Provision for expected credit losses	3,721		3,209		6,930
Allowance for expected credit losses at June 30, 2020	$	4,318	$	4,401	$	8,719

The following table presents the rollforward of the allowance for expected credit losses for loans receivable for the three months ended June 30, 2020:


	Real Estate Loans		Commercial Loans		Total
(In thousands)
Allowance for expected credit losses at April 1, 2020	$	1,435	$	2,493	$	3,928
Provision for expected credit losses	2,883		1,908		4,791
Allowance for expected credit losses at June 30, 2020	$	4,318	$	4,401	$	8,719

The Company monitors the performance of its loans receivable and assesses the ability of the borrower to pay principal and interest based upon loan structure, underlying property values, cash flow and related financial and operating performance of the property and market conditions.

In evaluating the real estate loans, the Company considers their credit quality indicators, including loan to value ratios, which compare the outstanding loan amount to the estimated value of the property, the borrower’s financial condition and performance with respect to loan terms, the position in the capital structure, the overall leverage in the capital structure and other market conditions.

(13) Net Investment Gains (Losses)

Net investment gains (losses) are as follows:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2020		2019		2020		2019
Net investment gains (losses):
Fixed maturity securities:
Gains	$	14,844	$	3,157	$	19,775	$	8,403
Losses	(9,234)		(3,377)		(14,081)		(6,895)
Equity securities (1):
Net realized gains (losses) on investment sales	5,727		(6)		5,727		23,339
Change in unrealized gains (losses)	61,914		69,418		(92,552)		111,496
Investment funds	913		41		31,096		58
Real estate (2)	(7,137)		3,021		(7,824)		5,767
Loans receivable	—		—		—		(970)
Other	(5,374)		1,320		(23,773)		1,028
Net realized and unrealized gains (losses) on investments in earnings before allowance for expected credit losses	61,653		73,574		(81,632)		142,226
Change in allowance for expected credit losses on investments (3):
Fixed maturity securities	21,023		—		(10,727)		—
Loans receivable	(4,791)		—		(6,930)		—
Change in allowance for expected credit losses on investments	16,232		—		(17,657)		—
Net investment gains (losses)	77,885		73,574		(99,289)		142,226
Income tax (expense) benefit	(18,098)		(15,451)		22,476		(29,867)
After-tax net investment gains (losses)	$	59,787	$	58,123	$	(76,813)	$	112,359


Change in unrealized investment gains on available for sale securities:
Fixed maturity securities without allowance for expected credit losses	$	369,615	$	146,629	$	43,199	$	321,123
Fixed maturity securities with allowance for expected credit losses	23,450		81		24,991		12

Investment funds	4,212		5,762		(3,434)		7,552
Other	(1,653)		(5,401)		(1,979)		(12,356)
Total change in unrealized investment gains	395,624		147,071		62,777		316,331
Income tax expense	(76,899)		(28,422)		(3,034)		(71,907)
Noncontrolling interests	(1)		30		1		(18)
After-tax change in unrealized investment gains of available for sale securities	$	318,724	$	118,679	$	59,744	$	244,406

______________________

(1) The net realized gains or losses on investment sales represent the total gains or losses from the purchase dates of the equity securities. The change in unrealized gains consists of two components: (i) the reversal of the gain or loss recognized in previous periods on equity securities sold and (ii) the change in unrealized gain or loss resulting from mark-to-market adjustments on equity securities still held.

(2) For the three and six months ended June 30, 2020, net investment losses on real estate includes an allowance of $8 million.

(3) The inclusion of the allowance for expected credit losses on investments commenced January 1, 2020 due to the adoption of ASU 2016-13. See Note 3 for more details.

(14) Fixed Maturity Securities in an Unrealized Loss Position

The following tables summarize all fixed maturity securities in an unrealized loss position at June 30, 2020 and December 31, 2019 by the length of time those securities have been continuously in an unrealized loss position:


	Less Than 12 Months						12 Months or Greater						Total
(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
June 30, 2020
U.S. government and government agency	$	42,279	$	49	$	20	$	—	$	42,299	$	49
State and municipal	237,515		2,444		24,899		798		262,414		3,242
Mortgage-backed securities	55,367		1,458		57,184		360		112,551		1,818
Asset-backed securities	1,290,764		32,060		653,128		51,212		1,943,892		83,272
Corporate	531,733		34,588		49,806		7,154		581,539		41,742
Foreign government	78,803		5,786		38,726		27,157		117,529		32,943
Fixed maturity securities	$	2,236,461	$	76,385	$	823,763	$	86,681	$	3,060,224	$	163,066





December 31, 2019
U.S. government and government agency	$	83,837	$	618	$	53,089	$	857	$	136,926	$	1,475
State and municipal	365,184		4,245		127,210		1,682		492,394		5,927
Mortgage-backed securities	301,358		2,281		180,148		3,220		481,506		5,501
Asset-backed securities	755,259		2,307		774,508		19,183		1,529,767		21,490
Corporate	307,367		3,148		121,470		5,172		428,837		8,320
Foreign government	164,536		32,028		107,266		61,645		271,802		93,673
Fixed maturity securities	$	1,977,541	$	44,627	$	1,363,691	$	91,759	$	3,341,232	$	136,386

Substantially all of the securities in an unrealized loss position are rated investment grade, except for the securities in the foreign government classification. In general, fair value in all classifications were negatively affected by market disruptions caused by COVID-19. A significant amount of the unrealized loss on foreign government securities is the result of changes in currency exchange rates.

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at June 30, 2020 is presented in the table below:


($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	14	$	52,126	$	32,429
Corporate	18	47,404		9,320
Mortgage-backed securities	12	6,348		340
Asset-backed securities	2	279		6

Total	46	$	106,157	$	42,095

For fixed maturity securities that management does not intend to sell or to be required to sell, the portion of the decline in value that is considered to be due to credit factors is recognized in earnings, and the portion of the decline in value that is considered to be due to non-credit factors is recognized in other comprehensive income.

The Company has evaluated its fixed maturity securities in an unrealized loss position and believes the unrealized losses are due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due.

(15) Fair Value Measurements

The Company’s fixed maturity available for sale securities, equity securities and its arbitrage trading account securities are carried at fair value. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Quoted prices for similar assets or valuations based on inputs that are observable.

Level 3 - Estimates of fair value based on internal pricing methodologies using unobservable inputs. Unobservable inputs are only used to measure fair value to the extent that observable inputs are not available.

Substantially all of the Company’s fixed maturity securities were priced by independent pricing services. The prices provided by the independent pricing services are estimated based on observable market data in active markets utilizing pricing models and processes, which may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, sector groupings, matrix pricing and reference data. The pricing services may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs are available for each security evaluation on any given day. The pricing services used by the Company have indicated that they will only produce an estimate of fair value if objectively verifiable information is available. The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness and periodically performs independent price tests of a sample of securities to ensure proper valuation.

If prices from independent pricing services are not available for fixed maturity securities, the Company estimates the fair value. For Level 2 securities, the Company utilizes pricing models and processes which may include benchmark yields, sector groupings, matrix pricing, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, bids, offers and reference data. Where broker quotes are used, the Company generally requests two or more quotes and sets a price within the range of quotes received based on its assessment of the credibility of the quote and its own evaluation of the security. The Company generally does not adjust quotes received from brokers. For securities traded only in private negotiations, the Company determines fair value based primarily on the cost of such securities, which is adjusted to reflect prices of recent placements of securities of the same issuer, financial projections, credit quality and business developments of the issuer and other relevant information.

For Level 3 securities, the Company generally uses a discounted cash flow model to estimate the fair value of fixed maturity securities. The cash flow models are based upon assumptions as to prevailing credit spreads, interest rate and interest rate volatility, time to maturity and subordination levels. Projected cash flows are discounted at rates that are adjusted to reflect illiquidity, where appropriate.

The following tables present the assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 by level:


(In thousands)	Total		Level 1		Level 2		Level 3
June 30, 2020
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	693,767	$	—	$	693,767	$	—
State and municipal	3,604,695		—		3,604,695		—
Mortgage-backed securities	1,161,845		—		1,161,845		—
Asset-backed securities	3,098,198		—		3,098,198		—
Corporate	3,772,581		—		3,772,581		—
Foreign government	871,922		—		871,922		—
Total fixed maturity securities available for sale	13,203,008		—		13,203,008		—
Equity securities:
Common stocks	116,968		110,072		—		6,896
Preferred stocks	245,297		—		238,792		6,505
Total equity securities	362,265		110,072		238,792		13,401
Arbitrage trading account	580,950		393,067		187,883		—
Total	$	14,146,223	$	503,139	$	13,629,683	$	13,401
Liabilities:
Trading account securities sold but not yet purchased	$	20,814	$	20,814	$	—	$	—


December 31, 2019
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	786,931	$	—	$	786,931	$	—
State and municipal	3,895,632		—		3,895,632		—
Mortgage-backed securities	1,625,594		—		1,625,594		—
Asset-backed securities	2,790,630		—		2,790,630		—
Corporate	4,156,415		—		4,156,415		—
Foreign government	847,076		—		847,076		—
Total fixed maturity securities available for sale	14,102,278		—		14,102,278		—
Equity securities:
Common stocks	166,805		157,752		—		9,053
Preferred stocks	313,815		—		307,310		6,505
Total equity securities	480,620		157,752		307,310		15,558
Arbitrage trading account	400,809		381,061		19,748		—
Total	$	14,983,707	$	538,813	$	14,429,336	$	15,558
Liabilities:
Trading account securities sold but not yet purchased	$	36,143	$	36,143	$	—	$	—

The following tables summarize changes in Level 3 assets and liabilities for the six months ended June 30, 2020 and for the year ended December 31, 2019:


	Gains (Losses) Included in:
(In thousands)	Beginning Balance		Earnings (Losses)		Other Comprehensive Income		Impairments		Purchases		(Sales)		Paydowns / Maturities		Transfers In / (Out)		Ending Balance

Six Months Ended June 30, 2020
Assets:




Equity securities:
Common stocks	$	9,053	$	(1,091)	$	—	$	—	$	—	$	(1,066)	$	—	$	—	$	6,896
Preferred stocks	6,505		—		—		—		—		—		—		—		6,505
Total	$	15,558	$	(1,091)	$	—	$	—	$	—	$	(1,066)	$	—	$	—	$	13,401





Year Ended December 31, 2019
Assets:
Fixed maturities securities available for sale:
Asset-backed securities	$	99	$	(26)	$	61	$	—	$	—	$	(134)	$	—	$	—	$	—

Total	99		(26)		61		—		—		(134)		—		—		—
Equity securities:
Common stocks	8,596		2,005				—		—		(1,548)		—		—		9,053
Preferred stocks	3,945		(42)		—		—		2,602		—		—		—		6,505
Total	12,541		1,963		—		—		2,602		(1,548)		—		—		15,558
Arbitrage trading account	17,308		(8,731)		—		—		14,767		(38,233)		—		14,889		—
Total	$	29,948	$	(6,794)	$	61	$	—	$	17,369	$	(39,915)	$	—	$	14,889	$	15,558
Liabilities:
Trading account securities sold but not yet purchased	$	793	$	133	$	—	$	—	$	7,609	$	(8,535)	$	—	$	—	$	—

For the quarter ended June 30, 2020, there were no securities transferred into or out of Level 3. For the year ended December 31, 2019, there were two common stocks transferred into Level 3 in the arbitrage trading account where publicly traded prices were no longer available, and both were sold by year end.

(16) Reserves for Loss and Loss Expenses

The Company's reserves for losses and loss expenses are comprised of case reserves and incurred but not reported liabilities ("IBNR"). When a claim is reported, a case reserve is established for the estimated ultimate payment based upon known information about the claim. As more information about the claim becomes available over time, case reserves are adjusted up or down as appropriate. Reserves are also established on an aggregate basis to provide for IBNR liabilities and expected loss reserve development on reported claims.

Loss reserves included in the Company’s financial statements represent management’s best estimates based upon an actuarially derived point estimate and other considerations. The Company uses a variety of actuarial techniques and methods to derive an actuarial point estimate for each operating unit. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. In circumstances where one actuarial method is considered more credible than the others, that method is used to set the point estimate. The actuarial point estimate may also be based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” in areas where the Company’s own data is limited. The actuarial data is analyzed by line of business, coverage and accident or policy year, as appropriate, for each operating unit.

The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is priced and written, before any actual claims experience has emerged. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each operating unit. Expected loss cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns.

Loss frequency and severity are measures of loss activity that are considered in determining the key assumptions described in our discussion of loss and loss expense reserves, including expected loss ratios, rate of loss cost inflation and reported and paid loss emergence patterns. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations.

Another factor affecting estimates of loss frequency and severity is the loss reporting lag, which is the period of time between the occurrence of a loss and the date the loss is reported to the Company. The length of the loss reporting lag affects our ability to accurately predict loss frequency (loss frequencies are more predictable for lines with short reporting lags) as well as the amount of reserves needed for incurred but not reported losses (less IBNR is required for lines with short reporting lags). As a result, loss reserves for lines with short reporting lags are likely to have less variation from initial loss estimates. For lines with short reporting lags, which include commercial automobile, primary workers’ compensation, other liability (claims-made) and property business, the key assumption is the loss emergence pattern used to project ultimate loss estimates from known losses paid or reported to date. For lines of business with long reporting lags, which include other liability (occurrence), products liability, excess workers’ compensation and liability reinsurance, the key assumption is the expected loss ratio since there is often little paid or incurred loss data to consider. Historically, the Company has experienced less variation from its initial loss estimates for lines of businesses with short reporting lags than for lines of business with long reporting lags.

The table below provides a reconciliation of the beginning and ending reserve balances:


	June 30,
(In thousands)	2020		2019
Net reserves at beginning of period	$	10,697,998	$	10,248,883
Cumulative effect adjustment resulting from changes in accounting principles	5,927		—
Restated net reserves at beginning of period	10,703,925		10,248,883
Net provision for losses and loss expenses:
Claims occurring during the current year (1)	2,222,671		1,980,138
Increase in estimates for claims occurring in prior years (2) (3)	2,050		16,764
Loss reserve discount accretion	17,658		20,577
Total	2,242,379		2,017,479
Net payments for claims:
Current year	289,154		548,589
Prior years	1,545,471		1,200,906
Total	1,834,625		1,749,495
Foreign currency translation	(45,572)		(2,228)
Net reserves at end of period	11,066,107		10,514,639
Ceded reserves at end of period	2,022,797		1,805,639
Gross reserves at end of period	$	13,088,904	$	12,320,278

_______________________________________

(1) Claims occurring during the current year are net of loss reserve discounts of $5 million and $11 million for the six months ended June 30, 2020 and 2019, respectively.

(2) The change in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior years decreased by $8 million and increased by $9 million for the six months ended June 30, 2020 and 2019, respectively.

(3) For certain retrospectively rated insurance policies and reinsurance agreements, reserve development is offset by additional or return premiums. Favorable development, net of additional and return premiums, was $7 million and $14 million for the six months ended June 30, 2020 and 2019, respectively.

The ongoing COVID-19 global pandemic has impacted, and will likely continue to impact, the Company’s results through its effect on claim frequency and severity. Loss cost trends have been impacted and will likely be further impacted by COVID-19-related claims in certain lines of business, as well as by other effects of COVID-19 associated with economic conditions, inflation, and social distancing and work from home rules, for example. Although it is still too early to determine, to date, it appears that the losses incurred due to COVID-19-related claims have been partially offset by lower claim frequency in certain lines of our businesses, including commercial auto. However, given the continuing nature of the pandemic, the impact of COVID-19 could ultimately increase or decrease overall loss cost trends and is likely to have differing impacts on the Company's different lines of business. For certain lines of business, such as contingency and event cancellation, the Company has received reported claims related to COVID-19, and it expects additional claims to be reported in the future. The Company has also received claims for other short-tailed lines related to business interruption and film production delays. Further, for workers’ compensation, nearly one-third of the states have enacted rules, legislation or administrative orders creating a presumption that certain “essential” workers who contract COVID-19 did so through the course of their employment. Several other states are considering similar actions, including with varying definitions of “essential” workers. While the ultimate impact of these presumptions are unknown at this time, the Company believes that such state actions will likely increase workers’ compensation claims with respect to workers deemed “essential,” although this impact may be partially offset by lower workers’ compensation claim frequency with respect to non-essential workers.

The Company has estimated the potential COVID-19 impact to its workers’ compensation, contingency and event cancellation, and other lines of business under a number of possible scenarios, however, due to COVID-19’s evolving impact and the limited amount of available data, there is a high degree of uncertainty around the Company’s COVID-19 reserves. In addition, several states (and international jurisdictions), through regulation, legislation and/or judicial action, continue to seek to expand policy coverage terms beyond the policy’s intended coverage, including, for example, but not limited to, property coverages, where there are attempts to extend business interruption coverage where there is no physical damage or loss to property, and attempts to disregard policy exclusions for communicable disease. Accordingly, losses arising from these actions, and the other factors described above, could exceed the Company’s reserves established for those related policies.

relates to the Reinsurance & Monoline Excess segment. Of the $143 million of COVID-19-related losses, $37 million are reported losses and $106 million is booked as IBNR.

During the six months ended June 30, 2020, favorable prior year development (net of additional and return premiums) of $7.0 million included $11.9 million of favorable development for the Insurance segment, partially offset by $4.9 million of adverse development for the Reinsurance & Monoline Excess segment.

The overall favorable development for the Insurance segment was primarily attributable to favorable development on workers’ compensation business, partially offset by adverse development on professional liability business. The favorable workers’ compensation development was spread across many accident years, including prior to 2010, but was especially significant in accident year 2019. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). Our ongoing workers’ compensation claims management efforts, including active medical case management and use of networks and specialty vendors to control medical and pharmaceutical benefit costs, have also added to the favorable workers’ compensation prior year development. The adverse professional liability development was concentrated in accident years 2016 through 2018 and predominately resulted from a greater than expected number of large losses being reported in the period in two niches of our professional liability business.

The adverse development for the Reinsurance & Monoline Excess segment was mainly driven by non-proportional reinsurance assumed liability business written in the U.K., primarily from accident years 2014 through 2018. The development was driven by a greater than expected number of reported large losses during the period.

During the six months ended June 30, 2019, favorable prior year development (net of additional and return premiums) of $13.6 million included $17.2 million of favorable development for the Insurance segment, offset by $3.6 million of adverse development for the Reinsurance & Monoline Excess segment.

The overall favorable development for the Insurance segment was primarily attributable to favorable development on workers’ compensation business, partially offset by adverse development on other liability business, commercial auto liability business, and medical malpractice business. The favorable workers’compensation development was spread across many accident years, including prior to 2009, but was most significant in accident years 2015 through 2018. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The adverse other liability development was mainly related to accident years 2014 through 2016. It was driven by a higher than expected number of large losses being reported in the period, including both general liability and professional liability losses. The adverse commercial auto liability development was primarily related to accident year 2018, and was driven by a greater than expected number of large losses during the period. The adverse medical malpractice development was primarily related to accident years 2013 through 2016, and stemmed from a discontinued book of business at one of our operating units.

The adverse development for the Reinsurance & Monoline Excess segment was mainly driven by U.S. casualty facultative business from accident years 2009 and prior related to construction projects.

(17) Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:


	June 30, 2020						December 31, 2019
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	13,281,085	$	13,296,398	$	14,180,961	$	14,194,955
Equity securities	362,265		362,265		480,620		480,620
Arbitrage trading account	580,950		580,950		400,809		400,809
Loans receivable	82,134		86,452		91,799		94,613
Cash and cash equivalents	2,430,826		2,430,826		1,023,710		1,023,710
Trading account receivables from brokers and clearing organizations	254,230		254,230		423,543		423,543
Due from broker	993		993		—		—
Liabilities:
Due to broker	—		—		27,116		27,116
Trading account securities sold but not yet purchased	20,814		20,814		36,143		36,143
Subordinated debentures	1,199,198		1,219,704		1,198,704		1,274,088
Senior notes and other debt	1,725,449		1,935,507		1,427,575		1,582,290

The estimated fair values of the Company’s fixed maturity securities, equity securities and arbitrage trading account securities are based on various valuation techniques that rely on fair value measurements as described in Note 15. The fair value of loans receivable are estimated by using current institutional purchaser yield requirements for loans with similar credit characteristics, which is considered a Level 2 input. The fair value of the senior notes and other debt and the subordinated debentures is based on spreads for similar securities, which is considered a Level 2 input.

(18) Premiums and Reinsurance Related Information

The following is a summary of insurance and reinsurance financial information:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,

(In thousands)	2020		2019		2020		2019
Written premiums:
Direct	$	1,892,359	$	1,883,032	$	3,856,848	$	3,712,847
Assumed	239,887		206,828		506,769		423,243
Ceded	(392,428)		(346,396)		(777,953)		(683,025)
Total net premiums written	$	1,739,818	$	1,743,464	$	3,585,664	$	3,453,065

Earned premiums:
Direct	$	1,804,844	$	1,773,437	$	3,634,558	$	3,497,047
Assumed	232,996		198,661		461,210		386,852
Ceded	(360,925)		(325,257)		(727,435)		(644,202)
Total net premiums earned	$	1,676,915	$	1,646,841	$	3,368,333	$	3,239,697

Ceded losses and loss expenses incurred	$	232,873	$	239,267	$	468,055	$	412,314
Ceded commissions earned	$	85,593	$	73,092	$	166,638	$	144,109

The following table presents the rollforward of the allowance for expected credit losses for premiums and fees receivable for the six months ended June 30, 2020:


(In thousands)
Allowance for expected credit losses at January 1, 2020	$	19,823
Cumulative effect adjustment resulting from changes in accounting principles	1,270
Provision for expected credit losses	1,013
Allowance for expected credit losses at June 30, 2020	$	22,106

The following table presents the rollforward of the allowance for expected credit losses for premiums and fees receivable for the three months ended June 30, 2020:


(In thousands)
Allowance for expected credit losses at April 1, 2020	$	21,524
Provision for expected credit losses	582
Allowance for expected credit losses at June 30, 2020	$	22,106

The Company reinsures a portion of its insurance exposures in order to reduce its net liability on individual risks and catastrophe losses. The Company also cedes premiums to state assigned risk plans and captive insurance companies. Estimated amounts due from reinsurers are reported net of an allowance for expected credit losses. The following table presents the rollforward of the allowance for expected credit losses associated with due from reinsurers for the six months ended June 30, 2020:


(In thousands)
Allowance for expected credit losses at January 1, 2020	$	690
Cumulative effect adjustment resulting from changes in accounting principles	5,927
Provision for expected credit losses	558
Allowance for expected credit losses at June 30, 2020	$	7,175

The following table presents the rollforward of the allowance for expected credit losses associated with due from reinsurers for the three months ended June 30, 2020:


(In thousands)
Allowance for expected credit losses at April 1, 2020	$	6,800
Provision for expected credit losses	375
Allowance for expected credit losses at June 30, 2020	$	7,175

(19) Restricted Stock Units

Pursuant to its stock incentive plan, the Company may issue restricted stock units ("RSUs") to employees of the Company and its subsidiaries. The RSUs generally vest three to five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. RSUs are expensed pro-ratably over the vesting period. RSU expenses were $23 million and $25 million for the six months ended June 30, 2020 and 2019, respectively. A summary of RSUs issued in the six months ended June 30, 2020 and 2019 follows:


($ in thousands)	Units	Fair Value

2020	724	$	57
2019	5,141	$	308

(20) Litigation and Contingent Liabilities

In the ordinary course of business, the Company is subject to disputes, litigation and arbitration arising from its insurance and reinsurance businesses. These matters are generally related to insurance and reinsurance claims and are considered in the establishment of loss and loss expense reserves. In addition, the Company may also become involved in legal actions which seek extra-contractual damages, punitive damages or penalties, including claims alleging bad faith in handling of insurance claims. The Company expects its ultimate liability with respect to such matters will not be material to its financial condition. However, adverse outcomes on such matters are possible, from time to time, and could be material to the Company’s results of operations in any particular financial reporting period.

(21) Leases

Lessees are required to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months on the balance sheet. All leases disclosed within this footnote are classified as operating leases. Recognized right-of-use asset and lease liability are reported within other assets and other liabilities, respectively, in the consolidated balance sheet. Lease expense is reported in other operating costs and expenses in the consolidated statement of income and accounted for on a straight-line basis over the lease term.

To determine the discount rate used to calculate present value of future minimum lease payments, the Company uses its incremental borrowing rate during the lease commencement period in line with the respective lease duration. In certain cases, the Company has the option to renew the lease. Lease renewal future payments are included in the present value of the future minimum lease payments when the Company determines it is reasonably certain to renew.

The main leases entered into by the Company are for office space used by the Company’s operating units across the world. Additionally, the Company, to a lesser extent, has equipment leases mainly for office equipment. Further information relating to operating lease expense and other operating lease information are as follows:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,

(In thousands)	2020		2019		2020		2019
Leases:
Lease cost	$	10,878	$	10,680	$	22,114	$	22,235
Cash paid for amounts included in the measurement of lease liabilities reported in operating cash flows	$	11,479	$	11,132	$	22,309	$	22,789
Right-of-use assets obtained in exchange for new lease liabilities	$	2,682	$	2,918	$	4,294	$	7,884


	As of June 30,
($ in thousands)	2020			2019
Right-of-use assets	$	180,011		$	179,984
Lease liabilities	$	219,444		$	209,107
Weighted-average remaining lease term	6.8 years			6.6 years
Weighted-average discount rate	5.94		%	5.97		%

Contractual maturities of the Company’s future minimum lease payments are as follows:


(In thousands)	June 30, 2020
Contractual Maturities:
2020	$	24,525
2021	45,891
2022	41,509
2023	37,649
2024	31,401
Thereafter	78,745
Total undiscounted future minimum lease payments	259,720
Less: Discount impact	(40,276)
Total lease liability	$	219,444

(22) Business Segments

The Company’s reportable segments include the following two business segments, plus a corporate segment:

•Insurance - predominantly commercial insurance business, including excess and surplus lines, admitted lines and specialty personal lines throughout the United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia.

•Reinsurance & Monoline Excess - reinsurance business on a facultative and treaty basis, primarily in the United States, the United Kingdom, Continental Europe, Australia, the Asia-Pacific Region and South Africa, as well as operations that solely retain risk on an excess basis.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Income tax expense and benefits are calculated based upon the Company's overall effective tax rate.

Summary financial information about the Company's reporting segments is presented in the following tables. Income (loss) before income taxes by segment includes allocated investment income. Identifiable assets by segment are those assets used in or allocated to the operation of each segment.


	Revenues
(In thousands)	Earned Premiums (1)		Investment Income		Other		Total (2)		Pre-Tax Income (Loss)		Net Income (Loss) to Common Stockholders
Three months ended June 30, 2020
Insurance	$	1,465,044	$	44,105	$	8,018	$	1,517,167	$	76,546	$	48,607
Reinsurance & Monoline Excess	211,871		23,461		—		235,332		12,566		10,689
Corporate, other and eliminations (3)	—		17,865		87,777		105,642		(61,548)		(47,823)
Net investment gains	—		—		77,885		77,885		77,885		59,787
Total	$	1,676,915	$	85,431	$	173,680	$	1,936,026	$	105,449	$	71,260
Three months ended June 30, 2019
Insurance	$	1,475,184	$	132,403	$	13,687	$	1,621,274	$	225,871	$	179,241
Reinsurance & Monoline Excess	171,657		44,449		—		216,106		52,635		41,864
Corporate, other and eliminations (3)	—		11,481		100,949		112,430		(78,344)		(62,519)
Net investment gains	—		—		73,574		73,574		73,574		58,123
Total	$	1,646,841	$	188,333	$	188,210	$	2,023,384	$	273,736	$	216,709
Six months ended June 30, 2020
Insurance	$	2,949,999	$	167,564	$	16,490	$	3,134,053	$	252,493	$	185,467
Reinsurance & Monoline Excess	418,334		61,171		—		479,505		49,080		39,877
Corporate, other and eliminations (3)	—		31,459		200,907		232,366		(103,302)		(81,689)
Net investment losses	—		—		(99,289)		(99,289)		(99,289)		(76,813)
Total	$	3,368,333	$	260,194	$	118,108	$	3,746,635	$	98,982	$	66,842
Six Months Ended June 30, 2019
Insurance	$	2,902,218	$	232,444	$	26,931	$	3,161,593	$	410,387	$	325,234
Reinsurance & Monoline Excess	337,479		84,023		—		421,502		97,490		77,389
Corporate, other and eliminations (3)	—		30,120		204,965		235,085		(146,928)		(117,551)
Net investment gains	—		—		142,226		142,226		142,226		112,359
Total	$	3,239,697	$	346,587	$	374,122	$	3,960,406	$	503,175	$	397,431

_________________

(1) Certain amounts included in earned premiums of each segment are related to inter-segment transactions.

(2) Revenues for Insurance from foreign countries for the three months ended June 30, 2020 and 2019 were $149 million and $179 million, respectively, and for the six months ended June 30, 2020 and 2019 were $317 million and $349 million, respectively. Revenues for Reinsurance & Monoline Excess from foreign countries for the three months ended June 30, 2020 and 2019 were $65 million and $62 million, respectively, and for the six months ended June 30, 2020 and 2019 were $134 million and $121 million, respectively.

(3) Corporate, other and eliminations represent corporate revenues and expenses that are not allocated to business segments.

Identifiable Assets


(In thousands)	June 30, 2020		December 31, 2019
Insurance	$	20,422,642	$	20,005,802
Reinsurance & Monoline Excess	4,559,313		4,710,819
Corporate, other and eliminations	2,341,337		1,913,409
Consolidated	$	27,323,292	$	26,630,030

Net premiums earned by major line of business are as follows:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,

(In thousands)	2020		2019		2020		2019
Insurance:
Other liability	$	544,465	$	505,621	$	1,091,594	$	996,282
Short-tail lines (1)	295,968		305,852		591,446		594,943
Workers' compensation	278,699		330,510		580,299		657,186
Commercial automobile	190,335		188,278		379,978		369,203
Professional liability	155,577		144,923		306,682		284,604
Total Insurance	1,465,044		1,475,184		2,949,999		2,902,218

Reinsurance & Monoline Excess:
Casualty reinsurance	130,459		95,109		253,190		185,939
Monoline excess (2)	41,062		39,400		83,224		78,381
Property reinsurance	40,350		37,148		81,920		73,159
Total Reinsurance & Monoline Excess	211,871		171,657		418,334		337,479

Total	$	1,676,915	$	1,646,841	$	3,368,333	$	3,239,697

______________

(1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.

(2) Monoline excess includes operations that solely retain risk on an excess basis.

SAFE HARBOR STATEMENT

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2020 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies; the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities, epidemics or pandemics, such as COVID-19; the impact of climate change, which may increase the frequency and severity of catastrophe events; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2015; the ability or willingness of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or cyber security issues; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

These risks and uncertainties could cause our actual results for the year 2020 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Our future financial performance is dependent upon factors discussed in our Annual Report on Form 10-K, elsewhere in this Form 10-Q and our other SEC filings. Forward-looking statements speak only as of the date on which they are made. Except to the extent required by applicable laws, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

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

Overview

W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in two segments of the property and casualty business: Insurance and Reinsurance & Monoline Excess. Our decentralized structure provides us with the flexibility to respond quickly and efficiently to local or specific market conditions and to pursue specialty business niches. It also allows us to be closer to our customers in order to better understand their individual needs and risk characteristics. While providing our business units with certain operating autonomy, our structure allows us to capitalize on the benefits of economies of scale through centralized capital, investment, reinsurance, enterprise risk management, and actuarial, financial and corporate legal staff support. The Company’s primary sources of revenues and earnings are its insurance operations and its investments.

An important part of our strategy is to form new operating units to capitalize on various business opportunities. Over the years, the Company has formed numerous operating units that are focused on important parts of the economy in the U.S., including healthcare, cyber security, energy and agriculture, and on growing international markets, including the Asia-Pacific region, South America and Mexico.

The profitability of the Company’s insurance business is affected primarily by the adequacy of premium rates. The ultimate adequacy of premium rates is not known with certainty at the time an insurance policy is issued because premiums are determined before claims are reported. The ultimate adequacy of premium rates is affected mainly by the severity and frequency of claims, which are influenced by many factors, including natural and other disasters, regulatory measures and court decisions that define and change the extent of coverage and the effects of economic inflation on the amount of compensation for injuries or losses. General insurance prices are also influenced by available insurance capacity, i.e., the level of capital employed in the industry, and the industry’s willingness to deploy that capital.

The Company’s profitability is also affected by its investment income and investment gains. The Company’s invested assets are invested principally in fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates, as well as the credit quality and duration of the securities. Returns available on fixed maturity investments have been at low levels for an extended period. A portion of the Company’s fixed maturity securities include investments in collateralized loan obligations with exposure to a diverse group of industries. As of June 30, 2020, approximately 97% of the Company’s collateralized loan obligation portfolio has an average rating of “AA” or higher. As a result, the Company believes that its collateralized loan obligation portfolio is well-positioned despite the current market environment.

The Company also invests in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. The Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income. The Company's share of the earnings or losses from investment funds is generally reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements.

Effective January 1, 2020, the Company adopted new accounting standard ASU 2016-13 Financial Instruments - Credit Losses. Refer to Note 3 in the financial statements for further information on the accounting guidance and impact of its adoption on the Company's results and financial position.

The ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies, has materially and adversely affected our results of operations. For the six months ended June 30, 2020, the Company recorded approximately $143 million for COVID-19-related losses, net of reinsurance, and reinstatement premiums of approximately $21 million. The ultimate impact of COVID-19 on the economy and on the Company’s results of operations, financial position and liquidity is uncertain and not within the Company’s control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 continue to evolve in ways that are difficult or impossible to anticipate. In addition, because COVID-19 did not begin to affect the Company's operations and financial position until late in the first quarter of 2020, its impact on the Company’s first six months of 2020 is not necessarily indicative of its impact for the remainder of 2020 or beyond. Despite the effects of COVID-19 to date, the Company’s financial position and liquidity improved during the second quarter.

The impact of the COVID-19 pandemic on our results of operations, financial position and liquidity is expected to include, among others:

Adverse Legislative and Regulatory Action. Legislative and regulatory initiatives taken or that may be taken in response to COVID-19, such as those that seek to retroactively mandate or provide a presumption of coverage for losses which our insurance policies would not otherwise cover and were not priced to cover, may adversely affect us, particularly in our workers’ compensation and property coverages businesses.

Claim Losses Related to COVID-19 May Exceed Reserves. Given the great uncertainties associated with COVID-19 and its impact and the limited information upon which our current assumptions and assessments have been made, our reserves and underlying estimated level of claim losses and costs arising from COVID-19 may materially change.

Claim Losses and Adjustment Expenses May Increase. As the effects of COVID-19 on industry practices and economic, legal, judicial, social and other environmental conditions continue to evolve, unexpected and unintended issues related to claims and coverages may emerge (including in the area of property coverages where physical damage requirements and communicable disease exclusions are currently being challenged).

Reinsurance. Reinsurers may dispute the applicability of reinsurance to COVID-19 related losses (including the application of reinsurance reinstatements) and, as a result, our reinsurers may refuse to pay reinsurance recoverables related thereto or they may not pay them on a timely basis. In addition, we may be unable to renew our current reinsurance coverages or purchase new coverages with respect to certain exposures under our policies, including COVID-19-related exposures.

Premium Volumes May Be Negatively Impacted. Reduced economic activity relating to the COVID-19 pandemic will likely decrease demand for our insurance products and services. In addition, we may alter our view on the insurance coverages that are appropriate to offer in various jurisdictions, which could further negatively impact our premium volumes.

Credit Risk. As credit risk is generally a function of the economy, we face greater credit risk from our policyholders, independent agents and brokers in connection with the payment and remittance of premiums as a result of the economic conditions caused by COVID-19. Similarly, our credit risk related to the reimbursement of deductibles from policyholders and in connection with reinsurance recoverables has increased.

For additional information on the risks posed by COVID-19, see “The COVID-19 pandemic has materially and adversely affected our results of operations, and is expected to continue and therefore may materially and adversely affect, our results of operations, financial position and liquidity” included in “Part II-Item 1A-Risk Factors” in this Quarterly Report on Form 10-Q.

Critical Accounting Estimates

The following presents a discussion of accounting policies and estimates relating to reserves for losses and loss expenses, assumed premiums and allowance for expected credit losses on investments. Management believes these policies and estimates are the most critical to its operations and require the most difficult, subjective and complex judgments.

Reserves for Losses and Loss Expenses. To recognize liabilities for unpaid losses, either known or unknown, insurers establish reserves, which is a balance sheet account representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred. Estimates and assumptions relating to reserves for losses and loss expenses are based on complex and subjective judgments, often including the interplay of specific uncertainties with related accounting and actuarial measurements. Such estimates are also susceptible to change as significant periods of time may elapse between the occurrence of an insured loss, the report of the loss to the insurer, the ultimate determination of the cost of the loss and the insurer’s payment of that loss.

In general, when a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment based upon known information about the claim at that time. The estimate represents an informed judgment based on general reserving practices and reflects the experience and knowledge of the claims personnel regarding the nature and value of the specific type of claim. Reserves are also established on an aggregate basis to provide for losses incurred but not reported (“IBNR”) to the insurer, potential inadequacy of case reserves and the estimated expenses of settling claims, including legal and other fees and general expenses of administrating the claims adjustment process. Reserves are established based upon the then current legal interpretation of coverage provided.

In examining reserve adequacy, several factors are considered in estimating the ultimate economic value of losses. These factors include, among other things, historical data, legal developments, changes in social attitudes and economic

conditions, including the effects of inflation. The actuarial process relies on the basic assumption that past experience, adjusted judgmentally for the effects of current developments and anticipated trends, is an appropriate basis for predicting future outcomes. Reserve amounts are based on management’s informed estimates and judgments using currently available data. As additional experience and other data become available and are reviewed, these estimates and judgments may be revised. This may result in reserve increases or decreases that would be reflected in our results in periods in which such estimates and assumptions are changed.

Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what management expects the ultimate settlement and claim administration will cost. While the methods for establishing reserves are well tested over time, some of the major assumptions about anticipated loss emergence patterns are subject to uncertainty. These estimates, which generally involve actuarial projections, are based on management’s assessment of facts and circumstances then known, as well as estimates of trends in claims severity and frequency, judicial theories of liability and other factors, including the actions of third parties which are beyond the Company’s control. These variables are affected by external and internal events, such as inflation and economic volatility, judicial and litigation trends, reinsurance coverage, legislative changes and claim handling and reserving practices, which make it more difficult to accurately predict claim costs. The inherent uncertainties of estimating reserves are greater for certain types of liabilities where long periods of time elapse before a definitive determination of liability is made. Because setting reserves is inherently uncertain, the Company cannot provide assurance that its current reserves will prove adequate in light of subsequent events.

Loss reserves included in the Company’s financial statements represent management’s best estimates based upon an actuarially derived point estimate and other considerations. The Company uses a variety of actuarial techniques and methods to derive an actuarial point estimate for each operating unit. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. In circumstances where one actuarial method is considered more credible than the others, that method is used to set the point estimate. For example, the paid loss and incurred loss development methods rely on historical paid and incurred loss data. For new lines of business, where there is insufficient history of paid and incurred claims data, or in circumstances where there have been significant changes in claim practices, the paid and incurred loss development methods would be less credible than other actuarial methods. The actuarial point estimate may also be based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” and in areas where the Company’s own data is limited. The actuarial data is analyzed by line of business, coverage and accident or policy year, as appropriate, for each operating unit.

The establishment of the actuarially derived loss reserve point estimate also includes consideration of qualitative factors that may affect the ultimate losses. These qualitative considerations include, among others, the impact of re-underwriting initiatives, changes in the mix of business, changes in distribution sources and changes in policy terms and conditions. Examples of changes in terms and conditions that can have a significant impact on reserve levels are the use of aggregate policy limits, the expansion of coverage exclusions, whether or not defense costs are within policy limits, and changes in deductibles and attachment points.

The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is written, before any actual claims experience has emerged. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each operating unit. Expected loss cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns. Management believes the estimates and assumptions it makes in the reserving process provide the best estimate of the ultimate cost of settling claims and related expenses with respect to insured events which have occurred; however, different assumptions and variables could lead to significantly different reserve estimates.

The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect the latest reported loss data, current trends and other factors observed. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity, relative to our assumptions, on our loss estimate for claims occurring in 2019:


(In thousands)	Frequency (+/-)
Severity (+/-)	1%		5%		10%
1%	$	81,566	$	245,508	$	450,437
5%	245,508		415,944		628,988
10%	450,437		628,988		852,178

Our net reserves for losses and loss expenses of approximately $11.1 billion as of June 30, 2020 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above. The impact of such changes would likely be manifested gradually over the course of many years, as the magnitude of the changes became evident.

Approximately $2.5 billion, or 23%, of the Company’s net loss reserves as of June 30, 2020 relate to the Reinsurance & Monoline Excess segment. There is a higher degree of uncertainty and greater variability regarding estimates of excess workers' compensation and assumed reinsurance loss reserves. In the case of excess workers’ compensation, our policies generally attach at $1 million or higher. The claims which reach our layer therefore tend to involve the most serious injuries and many remain open for the lifetime of the claimant, which extends the claim settlement tail. These claims also occur less frequently but tend to be larger than primary claims, which increases claim variability. In the case of assumed reinsurance our loss reserve estimates are based, in part, upon information received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be accurate. Furthermore, due to delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is also extended. Management considers the impact of delayed reporting and the extended tail in its selection of loss development factors for these lines of business.

Information received from ceding companies is used to set initial expected loss ratios, to establish case reserves and to estimate reserves for incurred but not reported losses on assumed reinsurance business. This information, which is generally provided through reinsurance intermediaries, is gathered through the underwriting process and from periodic claim reports and other correspondence with ceding companies. The Company performs underwriting and claim audits of selected ceding companies to determine the accuracy and completeness of information provided to the Company. The information received from the ceding companies is supplemented by the Company’s own loss development experience with similar lines of business as well as industry loss trends and loss development benchmarks.

Following is a summary of the Company’s reserves for losses and loss expenses by business segment:


(In thousands)	June 30, 2020		December 31, 2019
Insurance	$	8,522,064	$	8,193,381
Reinsurance & Monoline Excess	2,544,043		2,504,617
Net reserves for losses and loss expenses	11,066,107		10,697,998
Ceded reserves for losses and loss expenses	2,022,797		1,885,251
Gross reserves for losses and loss expenses	$	13,088,904	$	12,583,249

Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business:


(In thousands)	Reported Case Reserves		Incurred But Not Reported		Total
June 30, 2020
Other liability	$	1,447,134	$	2,672,756	$	4,119,890
Workers’ compensation (1)	950,242		938,083		1,888,325
Professional liability	410,806		761,104		1,171,910
Commercial automobile	409,928		326,454		736,382
Short-tail lines (2)	269,752		335,805		605,557
Total Insurance	3,487,862		5,034,202		8,522,064
Reinsurance & Monoline Excess (1) (3)	1,443,618		1,100,425		2,544,043
Total	$	4,931,480	$	6,134,627	$	11,066,107

December 31, 2019
Other liability	$	1,421,378	$	2,522,957	$	3,944,335
Workers’ compensation (1)	918,619		964,102		1,882,721
Professional liability	399,411		713,433		1,112,844
Commercial automobile	412,036		300,339		712,375
Short-tail lines (2)	271,192		269,914		541,106
Total Insurance	3,422,636		4,770,745		8,193,381
Reinsurance & Monoline Excess (1) (3)	1,469,363		1,035,254		2,504,617
Total	$	4,891,999	$	5,805,999	$	10,697,998

___________

(1) Reserves for workers’ compensation and Reinsurance & Monoline Excess are net of an aggregate net discount of $506 million and $530 million as of June 30, 2020 and December 31, 2019, respectively.

(2) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.

(3) Reinsurance & Monoline Excess includes property and casualty reinsurance, as well as operations that solely retain risk on an excess basis.

The Company evaluates reserves for losses and loss adjustment expenses on a quarterly basis. Changes in estimates of prior year losses are reported when such changes are made. The changes in prior year loss reserve estimates are generally the result of ongoing analysis of recent loss development trends. Original estimates are increased or decreased as additional information becomes known regarding individual claims and aggregate claim trends.

Certain of the Company's insurance and reinsurance contracts are retrospectively rated, whereby the Company collects more or less premiums based on the level of loss activity. For those contracts, changes in loss and loss adjustment expenses for prior years may be fully or partially offset by additional or return premiums.

Net prior year development (i.e., the sum of prior year reserve changes and prior year earned premiums changes) for the six months ended June 30, 2020 and 2019 are as follows:


(In thousands)	2020		2019
Net increase in prior year loss reserves	$	(2,050)	$	(16,764)
Increase in prior year earned premiums	9,077		30,323
Net favorable prior year development	$	7,027	$	13,559

For the six months ended June 30, 2020, the Company has recognized losses for COVID-19-related claims activity, net of reinsurance, of approximately $143 million, of which $102 million relates to the Insurance segment and $41 million relates to the Reinsurance & Monoline Excess segment. Of the $143 million of COVID-19-related losses, $37 million are reported losses and $106 million is booked as IBNR.

The overall favorable development for the Insurance segment was primarily attributable to favorable development on workers’ compensation business, partially offset by adverse development on other liability business, commercial auto liability business, and medical malpractice business. The favorable workers’compensation development was spread across many accident years, including prior to 2009, but was most significant in accident years 2015 through 2018. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The adverse other liability development was mainly related to accident years 2014 through 2016. It was driven by a higher than expected number of large losses being reported in the period, including both general liability and professional liability losses. The adverse commercial auto liability development was primarily related to accident year 2018, and was driven by a greater than expected number of large losses during the period. The adverse medical malpractice development was primarily related to accident years 2013 through 2016, and stemmed from a discontinued book of business at one of our operating units.

The adverse development for the Reinsurance & Monoline Excess segment was mainly driven by U.S. casualty facultative business from accident years 2009 and prior related to construction projects.

Reserve Discount. The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $1,687 million and $1,731 million at June 30, 2020 and December 31, 2019, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $506 million and $530 million at June 30, 2020 and December 31, 2019, respectively. At June 30, 2020, discount rates by year ranged from 0.7% to 6.5%, with a weighted average discount rate of 3.6%.

Substantially all of the workers’ compensation discount (97% of total discounted reserves at June 30, 2020) relates to excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience.

The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at June 30, 2020), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware.

Assumed Reinsurance Premiums. The Company estimates the amount of assumed reinsurance premiums that it will receive under treaty reinsurance agreements at the inception of the contracts. These premium estimates are revised as the actual amount of assumed premiums is reported to the Company by the ceding companies. As estimates of assumed premiums are made or revised, the related amount of earned premiums, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $44 million at June 30, 2020 and $43 million at December 31, 2019. The assumed premium estimates are based upon terms set forth in reinsurance agreements, information received from ceding companies during the underwriting and negotiation of agreements, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate amount of premiums to be received under its assumed reinsurance agreements.

Allowance for Expected Credit Losses on Investments.

Fixed Maturity Securities – For fixed maturity securities in an unrealized loss position where the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery in value, the amortized cost basis is written down to fair value through net investment gains (losses). For fixed maturity securities in an unrealized loss position where the Company does not intend to sell, or it is more likely than not that it will not be required to sell the security before recovery in value, the Company evaluates whether the decline in fair value has resulted from credit losses or all other factors (non-credit factors). In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for expected credit losses is recorded for the credit loss through net investment gains (losses), limited by the amount that the fair value is less than the amortized cost basis. Effective January 1,

2020, the allowance is adjusted for any change in expected credit losses and subsequent recoveries through net investment gains (losses). The impairment related to non-credit factors is recognized in other comprehensive income (loss) .

The Company’s credit assessment of allowance for expected credit losses uses a third party model for available for sale and held to maturity securities, as well as loans receivable. The allowance for expected credit losses is generally based on the performance of the underlying collateral under various economic and default scenarios that involve subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default rates, the nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and performance factors. A discounted cash flow analysis is used to ascertain the amount of the allowance for expected credit losses, if any. In general, the model reverts to the rating-level long-term average marginal default rates based on 10 years of historical data, beyond the forecast period. For other inputs, the model in most cases reverts to the baseline long-term assumptions linearly over 5 years beyond the forecast period. The long-term assumptions are based on the historical averages.

The Company classifies its fixed maturity securities by credit rating, primarily based on ratings assigned by credit rating agencies. For purposes of classifying securities with different ratings, the Company uses the average of the credit ratings assigned, unless in limited situations the Company’s own analysis indicates an internal rating is more appropriate. Securities that are not rated by a rating agency are evaluated and classified by the Company on a case-by-case basis.

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at June 30, 2020 is presented in the table below:


($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	14	$	52,126	$	32,429
Corporate	18	47,404		9,320
Mortgage-backed securities	12	6,348		340
Asset-backed securities	2	279		6

Total	46	$	106,157	$	42,095

As of June 30, 2020, the Company has recorded an allowance for expected credit losses on fixed maturity securities of $46 million. The Company has evaluated the remaining fixed maturity securities in an unrealized loss position and believes the unrealized losses are due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due.

Loans Receivable – For loans receivable, the Company estimates an allowance for expected credit losses based on relevant information about past events, including historical loss experience, current conditions and forecasts that affect the expected collectability of the amortized cost of the financial asset. The allowance for expected credit losses is presented as a reduction to amortized cost of the financial asset in the consolidated balance sheet and changes to the estimate for expected credit losses are recognized through net investment gains (losses). Loans receivable are reported net of an allowance for expected credit losses of $9 million and $2 million as of June 30, 2020 and December 31, 2019, respectively.

Fair Value Measurements. The Company’s fixed maturity available for sale securities, equity securities, and its arbitrage trading account securities are carried at fair value. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for similar assets in active markets. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs may only be used to measure fair value to the extent that observable inputs are not available. The fair value of the vast majority of the Company’s portfolio is based on observable data (other than quoted prices) and, accordingly, is classified as Level 2.

In classifying particular financial securities in the fair value hierarchy, the Company uses its judgment to determine whether the market for a security is active and whether significant pricing inputs are observable. The Company determines the existence of an active market by assessing whether transactions occur with sufficient frequency and volume to provide reliable pricing information. The Company determines whether inputs are observable based on the use of such information by pricing services and external investment managers, the uninterrupted availability of such inputs, the need to make significant

adjustments to such inputs and the volatility of such inputs over time. If the market for a security is determined to be inactive or if significant inputs used to price a security are determined to be unobservable, the security is categorized in Level 3 of the fair value hierarchy.

Because many fixed maturity securities do not trade on a daily basis, the Company utilizes pricing models and processes which may include benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Market inputs used to evaluate securities include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Quoted prices are often unavailable for recently issued securities that are infrequently traded or securities that are only traded in private transactions. For publicly traded securities for which quoted prices are unavailable, the Company determines fair value based on independent broker quotations and other observable market data. For securities traded only in private negotiations, the Company determines fair value based primarily on the cost of such securities, which is adjusted to reflect prices of recent placements of securities of the same issuer, financial data, projections and business developments of the issuer and other relevant information.

The following is a summary of pricing sources for the Company's fixed maturity securities available for sale as of June 30, 2020:


($ in thousands)	Carrying Value		Percent of Total
Pricing source:
Independent pricing services	$	13,002,127	98.5	%
Syndicate manager	39,913		0.3
Directly by the Company based on:
Observable data	160,968		1.2

Total	$	13,203,008	100.0	%

Independent pricing services – Substantially all of the Company’s fixed maturity securities available for sale were priced by independent pricing services (generally one U.S. pricing service plus additional pricing services with respect to a limited number of foreign securities held by the Company). The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness based upon current trading levels for similar securities. If the prices appear unusual to the Company, they are re-examined and the value is either confirmed or revised. In addition, the Company periodically performs independent price tests of a sample of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of June 30, 2020, the Company did not make any adjustments to the prices provided by the pricing services. Based upon the Company’s review of the methodologies used by the independent pricing services, these securities were classified as Level 2.

Syndicate manager – The Company has a 15% participation in a Lloyd’s syndicate, and the Company’s share of the securities owned by the syndicate is priced by the syndicate’s manager. The majority of the securities are liquid, short duration fixed maturity securities. The Company reviews the syndicate manager’s pricing methodology and audited financial statements and holds discussions with the syndicate manager as necessary to confirm its understanding and agreement with security prices. Based upon the Company’s review of the methodologies used by the syndicate manager, these securities were classified as Level 2.

Observable data – If independent pricing is not available, the Company prices the securities directly. Prices are based on observable market data where available, including current trading levels for similar securities and non-binding quotations from brokers. The Company generally requests two or more quotes. If more than one quote is received, the Company sets a price within the range of quotes received based on its assessment of the credibility of the quote and its own evaluation of the security. The Company generally does not adjust quotes obtained from brokers. Since these securities were priced based on observable data, they were classified as Level 2.

Cash flow model – If the above methodologies are not available, the Company prices securities using a discounted cash flow model based upon assumptions as to prevailing credit spreads, interest rates and interest rate volatility, time to maturity and subordination levels. Discount rates are adjusted to reflect illiquidity where appropriate. These securities were classified as Level 3.

Results of Operations for the Six Months Ended June 30, 2020 and 2019

Business Segment Results

Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the six months ended June 30, 2020 and 2019. The GAAP combined ratio represents a measure of underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.


($ in thousands)	2020			2019
Insurance:
Gross premiums written	$	3,859,511		$	3,715,850
Net premiums written	3,126,475			3,071,964
Net premiums earned	2,949,999			2,902,218
Loss ratio	66.1		%	62.5		%
Expense ratio	31.0		%	31.4		%
GAAP combined ratio	97.1		%	93.9		%
Reinsurance & Monoline Excess:
Gross premiums written	$	504,107		$	420,240
Net premiums written	459,189			381,101
Net premiums earned	418,334			337,479
Loss ratio	70.3		%	60.0		%
Expense ratio	32.6		%	36.0		%
GAAP combined ratio	102.9		%	96.0		%
Consolidated:
Gross premiums written	$	4,363,618		$	4,136,090
Net premiums written	3,585,664			3,453,065
Net premiums earned	3,368,333			3,239,697
Loss ratio	66.6		%	62.2		%
Expense ratio	31.2		%	31.9		%
GAAP combined ratio	97.8		%	94.1		%

Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share for the six months ended June 30, 2020 and 2019:


(In thousands, except per share data)	2020		2019
Net income to common stockholders	$	66,842	$	397,431
Weighted average diluted shares	190,078		192,804
Net income per diluted share	$	0.35	$	2.06

The Company reported net income to common stockholders of $67 million in 2020 compared to $397 million in 2019. The $330 million decrease in net income was primarily due to an after-tax decrease in net investment gains of $191 million (primarily resulting from disruption in global financial markets related to COVID-19, and the adoption of the new credit loss accounting standard set forth in ASU 2016-13), an after-tax decrease in underwriting income of $91 million primarily from COVID-19-related losses, an after-tax decrease in net investment income of $68 million primarily due to losses from investment funds, reduced investment yields in fixed maturity securities and repositioning a larger portion of the investment portfolio to cash and cash equivalents, an increase in tax expense of $12 million due to a change in the effective tax rate, and an after-tax decrease in profits from non-insurance businesses of $3 million, partially offset by an after-tax increase in foreign currency gains of $18 million from the strengthening U.S. dollar, an after-tax decrease in corporate expenses of $7 million, an after-tax decrease in interest expense of $5 million, and an after-tax increase in profit from insurance service businesses of $5 million. The number of weighted average diluted shares decreased by approximately 3 million for the the six months ended June 30, 2020 compared to six months ended June 30, 2019 mainly reflecting shares repurchased in the first six months of 2020.

Premiums. Gross premiums written were $4,364 million in 2020, an increase of 6% from $4,136 million in 2019. The increase was due to a $144 million increase in the Insurance segment and a $84 million increase in the Reinsurance & Monoline Excess segment. Approximately 79% of premiums expiring in 2020 were renewed, and 80% of premiums expiring in 2019 were renewed.

Average renewal premium rates for insurance and facultative reinsurance increased 10.0% in 2020 when adjusted for changes in exposures, and increased 12.3% excluding workers' compensation.

A summary of gross premiums written in 2020 compared with 2019 by line of business within each business segment follows:

•Insurance - gross premiums increased 4% to $3,860 million in 2020 from $3,716 million in 2019. Gross premiums increased $126 million (10%) for other liability, $69 million (15%) for professional liability, and $55 million (6%) for short-tail lines, and decreased $104 million (15%) for workers' compensation and $2 million (less than 1%) for commercial auto.

•Reinsurance & Monoline Excess - gross premiums increased 20% to $504 million in 2020 from $420 million in 2019. Gross premiums increased $67 million (30%) for casualty reinsurance, $13 million (14%) for property reinsurance and $4 million (3%) for monoline excess.

Net premiums written were $3,586 million in 2020, an increase of 4% from $3,453 million in 2019. Ceded reinsurance premiums as a percentage of gross written premiums were 18% in 2020 and 17% in 2019. The cession rate increased primarily because of reinstatement premiums associated with COVID-19 related claims activity.

Premiums earned increased 4% to $3,368 million in 2020 from $3,240 million in 2019. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly, recent rate increases will be earned over the upcoming quarters. Premiums earned in 2020 are related to business written during both 2020 and 2019. Audit premiums were $83 million in 2020 compared with $100 million in 2019.

Net Investment Income. Following is a summary of net investment income for the six months ended June 30, 2020 and 2019:


	Amount						Average Annualized Yield
($ in thousands)	2020		2019		2020		2019
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	233,861	$	261,022	3.1	%	3.5	%
Investment funds	(16,975)		58,251		(2.8)		8.4
Arbitrage trading account	32,442		17,784		11.6		8.5
Real estate	11,141		9,481		1.1		0.9
Equity securities	4,288		2,591		2.4		2.1
Gross investment income	264,757		349,129		2.7		3.7
Investment expenses	(4,563)		(2,542)		—		—
Total	$	260,194	$	346,587	2.7	%	3.6	%

Net investment income decreased 25% to $260 million in 2020 from $347 million in 2019 due primarily to a $75 million decrease in income from investment funds (as a result of the impact of the disruption in global financial markets associated with COVID-19 during the first quarter of 2020, as investment funds are reported on a one-quarter lag), a $27 million decrease in income from fixed maturity securities mainly driven by lower investment yields and repositioning a larger portion of the investment portfolio to cash and cash equivalents, and a $2 million increase in investment expense, partially offset by a $15 million increase from the arbitrage trading account, a $1 million increase in real estate and a $1 million increase from equity securities. The Company has maintained a shortened duration of its fixed maturity security portfolio. This has reduced the potential impact of mark-to-market on the portfolio and positioned the Company to react quickly to changes in the current environment. Average invested assets, at cost (including cash and cash equivalents), were $19.5 billion in 2020 and $19.0 billion in 2019.

Insurance Service Fees. The Company earns fees from an insurance distribution business, a third-party administrator and as a servicing carrier of workers' compensation assigned risk plans for certain states. Insurance service fees decreased to $46 million in 2020 from $48 million in 2019. The decrease is primarily due to a reduction of assigned risk plan business.

Net Realized and Unrealized Gains (Losses) on Investments. The Company buys and sells securities and other investment assets on a regular basis in order to maximize its total return on investments. Decisions to sell securities and other investment assets are based on management’s view of the underlying fundamentals of specific investments as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net realized and unrealized losses on investments were $82 million in 2020 compared with net gains of $142 million in 2019. The losses of $82 million in 2020 reflect net realized gains on investments of $11 million and an increase in unrealized losses on equity securities of $93 million driven by the disruption in global financial markets associated with COVID-19 during the first six months of 2020. In 2019, the gains of $142 million reflected net realized gains on investment sales of $31 million and an increase in unrealized gains on equity securities of $111 million.

loss relative to amortized cost by security, changes in rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. For the six months ended June 30, 2020, the pre-tax change in allowance for expected credit losses on investments increased by $18 million ($14 million after-tax), which is reflected in net investment gains (losses).

Revenues from Non-Insurance Businesses. Revenues from non-insurance businesses were derived from businesses engaged in the distribution of promotional merchandise, world-wide textile solutions and aviation-related businesses that provide services to aviation markets, including (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenues from non-insurance businesses were $169 million in 2020 and $181 million in 2019. The decrease mainly relates to a reduction in revenues from the aviation-related businesses impacted by COVID-19.

Losses and Loss Expenses. Losses and loss expenses increased to $2,242 million in 2020 from $2,017 million in 2019. The consolidated loss ratio was 66.6% in 2020 and 62.2% in 2019. Catastrophe losses, net of reinsurance recoveries, were $225 million (including losses of approximately $143 million related to COVID-19 primarily comprised of IBNR) in 2020 and $38 million in 2019. Favorable prior year reserve development (net of premium offsets) was $7 million in 2020 and $14 million in 2019. The loss ratio excluding catastrophe losses and prior year reserve development was 60.1% in 2020 and 61.5% in 2019.

A summary of loss ratios in 2020 compared with 2019 by business segment follows:

•Insurance - The loss ratio was 66.1% in 2020 and 62.5% in 2019. Catastrophe losses were $171 million in 2020 compared with $38 million in 2019. The Company reflected a best estimate (net of reinsurance) based upon available information for COVID-19-related losses of approximately $102 million, which was included in catastrophe losses and primarily related to contingency and event cancellation coverage, workers’ compensation and short-tail lines. Favorable prior year reserve development was $12 million in 2020 and $17 million in 2019. The loss ratio excluding catastrophe losses and prior year reserve development decreased 1.2 points to 60.6% in 2020 from 61.8% in 2019.

•Reinsurance & Monoline Excess - The loss ratio was 70.3% in 2020 and 60.0% in 2019. Catastrophe losses were $54 million in 2020 compared with $0.1 million in 2019. The Company reflected a best estimate (net of reinsurance) based upon available information for COVID-19-related losses of approximately $41 million, which was included in catastrophe losses and primarily related to excess workers’ compensation and short-tail lines. Adverse prior year reserve development was $5 million in 2020 and $3 million in 2019. The loss ratio excluding catastrophe losses and prior year reserve development decreased 2.7 points to 56.2% in 2020 from 58.9% in 2019.

Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses:


($ in thousands)	2020		2019
Policy acquisition and insurance operating expenses	$	1,051,158	$	1,031,951
Insurance service expenses	42,995		51,343
Net foreign currency gains	(28,923)		(6,494)
Other costs and expenses	93,943		103,116
Total	$	1,159,173	$	1,179,916

percentage of premiums earned) was 31.2% in 2020 and 31.9% in 2019. The improvement is primarily attributable to higher net premiums earned and lower travel and entertainment expenses due to the global pandemic. However, to the extent our net premiums earned decrease, due to the impact of the COVID-19 pandemic or otherwise, our expense ratio would be expected to increase.

Service expenses, which represent the costs associated with the fee-based businesses, decreased to $43 million in 2020 from $51 million in 2019. The decrease is primarily due to a reduction of assigned risk plan business.

Net foreign currency gains result from transactions denominated in a currency other than a company's operating functional currency. Net foreign currency gains were $29 million in 2020 compared to gains of $6 million in 2019, mainly resulting from the continued strengthening of the U.S. dollar in relation to the Argentine peso and U.K sterling in 2020.

Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs and expenses decreased to $94 million in 2020 from $103 million in 2019, primarily due to a reduction in non-recurring performance-based compensation costs which occurred in 2019.

Expenses from Non-Insurance Businesses. Expenses from non-insurance businesses represent costs associated with businesses engaged in the distribution of promotional merchandise, world-wide textile solutions and aviation-related businesses that include (i) cost of goods sold related to aircraft and products sold and services provided, and (ii) general and administrative expenses. Expenses from non-insurance businesses were $171 million in 2020 compared to $178 million in 2019. The decrease mainly relates to a reduction of aviation-related business impacted by COVID-19 in 2020.

Interest Expense. Interest expense was $75 million in 2020 compared with $81 million in 2019. During 2019, the Company repaid at maturity $489 million aggregate principal amount of senior notes and other debt. In December 2019, the Company issued $300 million aggregate principal amount of 5.10% subordinated debentures due 2059. In May 2020, the Company issued $300 million aggregate principal amount of 4.00% senior notes due 2050. Accordingly, the timing of the debt repayment in 2019 and issuance in 2020 led to the decrease in interest expense for the six months ended June 30, 2020 compared to the same period in 2019.

Income Taxes. The effective income tax rate was 31.2% in 2020 and 20.7% in 2019. The effective income tax rate differs from the federal income tax rate of 21% principally because foreign jurisdictions were limited on the utilization of losses at different tax rates, which was partially offset by tax-exempt investment income and tax benefits related to equity-based compensation.

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $96 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. In the future, if such earnings were distributed the Company projects that the incremental tax, if any, will be immaterial.

Results of Operations for the Three Months Ended June 30, 2020 and 2019

Business Segment Results

Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the three months ended June 30, 2020 and 2019. The GAAP combined ratio represents a measure of underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.


($ in thousands)	2020			2019
Insurance:
Gross premiums written	$	1,917,702		$	1,905,367
Net premiums written	1,543,157			1,574,585
Net premiums earned	1,465,044			1,475,184
Loss ratio	67.0		%	62.9		%
Expense ratio	30.7		%	30.9		%
GAAP combined ratio	97.7		%	93.8		%
Reinsurance & Monoline Excess:
Gross premiums written	$	214,544		$	184,494
Net premiums written	196,661			168,879
Net premiums earned	211,871			171,657
Loss ratio	72.2		%	59.2		%
Expense ratio	32.9		%	36.0		%
GAAP combined ratio	105.1		%	95.2		%
Consolidated:
Gross premiums written	$	2,132,246		$	2,089,861
Net premiums written	1,739,818			1,743,464
Net premiums earned	1,676,915			1,646,841
Loss ratio	67.7		%	62.4		%
Expense ratio	31.0		%	31.5		%
GAAP combined ratio	98.7		%	93.9		%

Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share for the three months ended June 30, 2020 and 2019:


(In thousands, except per share data)	2020		2019
Net income to common stockholders	$	71,260	$	216,709
Weighted average diluted shares	187,862		193,059
Net income per diluted share	$	0.38	$	1.12

The Company reported net income to common stockholders of $71 million in 2020 compared to $217 million in 2019. The $146 million decrease in net income was primarily due to an after-tax decrease in net investment income of $81 million mainly from losses from investment funds, reduced investment yields in fixed maturity securities and repositioning a larger portion of the investment portfolio to cash and cash equivalents, an after-tax decrease in underwriting income of $61 million primarily from COVID-19-related losses, an increase of $13 million in tax expense due to a change in the effective tax rate, an after-tax decrease of $2 million in other income, an after-tax decrease in profits from non-insurance businesses of $1 million, and an after-tax increase in corporate expenses of $1 million, partially offset by an after-tax increase in foreign currency gains of $6 million from the strengthening U.S. dollar, an after-tax increase in net investment gains of $3 million, an after-tax increase in profit from insurance service businesses of $2 million, and an after-tax decrease in interest expense of $2 million. The number of weighted average diluted shares has been reduced by approximately 5 million for the three months ended June 30, 2020 due to the repurchase of common shares in 2020.

Premiums. Gross premiums written were $2,132 million in 2020, an increase of 2% from $2,090 million in 2019. The increase was due to a $12 million increase in the Insurance segment and a $30 million increase in the Reinsurance & Monoline Excess segment. Approximately 78% of premiums expiring in 2020 were renewed, and 81% of premiums expiring in 2019 were renewed.

Average renewal premium rates for insurance and facultative reinsurance increased 10.9% in 2020 when adjusted for changes in exposures, and increased 13.0% excluding workers' compensation.

A summary of gross premiums written in 2020 compared with 2019 by line of business within each business segment follows:

•Insurance - gross premiums increased 1% to $1,918 million in 2020 from $1,905 million in 2019. Gross premiums increased $35 million (14%) for professional liability, $29 million (4%) for other liability, $11 million (2%) for short-tail lines, and $9 million (4%) for commercial auto and decreased $71 million (20%) for workers' compensation.

•Reinsurance & Monoline Excess - gross premiums increased 16% to $215 million in 2020 from $184 million in 2019. Gross premiums increased $28 million (25%) for casualty reinsurance and $7 million (14%) for property reinsurance and decreased $4 million (16%) for monoline excess.

Net premiums written were $1,740 million in 2020, a less then 1% decrease from $1,743 million in 2019. Ceded reinsurance premiums as a percentage of gross written premiums were 18% in 2020 and 17% in 2019. The cession rate increased primarily because of reinstatement premiums associated with COVID-19 related claims activity.

Premiums earned increased 2% to $1,677 million in 2020 from $1,647 million in 2019. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly, recent rate increases will be earned over the upcoming quarters. Premiums earned in 2020 are related to business written during both 2020 and 2019. Audit premiums were $41 million in 2020 and $58 million in 2019.

Net Investment Income. Following is a summary of net investment income for the three months ended June 30, 2020 and 2019:


	Amount						Average Annualized Yield
($ in thousands)	2020		2019		2020		2019
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	105,843	$	128,903	2.7	%	3.4	%
Investment funds	(57,552)		46,840		(19.4)		13.4
Arbitrage trading account	31,304		7,199		20.6		7.0
Real estate	5,045		5,174		1.0		1.0
Equity securities	2,726		1,303		3.1		2.1
Gross investment income	87,366		189,419		1.8		4.0
Investment expenses	(1,935)		(1,086)		—		—
Total	$	85,431	$	188,333	1.7	%	3.9	%

Net investment income decreased 55% to $85 million in 2020 from $188 million in 2019 due primarily to a $104 million decrease in income from investment funds mainly due to losses from energy funds, financial services funds and transportation funds. Investment funds are generally reported on a one-quarter lag, and accordingly, losses from investment funds for the second quarter of 2020 reflects the adverse impact from the disruption in global financial markets associated with COVID-19 during the first quarter of 2020. In addition to this decrease, there was a $23 million decrease in fixed maturity securities as a result of lower investment yields and repositioning a larger portion of the investment portfolio to cash and cash equivalents and a $1 million decrease in investment expenses, offset by a $24 million increase from the arbitrage trading account and a $1 million increase in equity securities. The Company has maintained a shortened duration of its fixed maturity security portfolio. This has reduced the potential impact of mark-to-market on the portfolio and positioned the Company to react quickly to changes in the current environment. Average invested assets, at cost (including cash and cash equivalents), were $19.6 billion in 2020 and $19.1 billion in 2019.

Insurance Service Fees. The Company earns fees from an insurance distribution business, a third-party administrator and as a servicing carrier of workers' compensation assigned risk plans for certain states. Insurance service fees decreased to $20 million in 2020 from $22 million in 2019. The decrease is primarily due to a reduction of assigned risk plan business.

million in 2020 reflected net realized losses on investments of $261 thousand and an increase in unrealized gains on equity securities of $62 million. In 2019, the gains of $74 million reflected net realized gains on investment sales of $4 million and an increase in unrealized gains on equity securities of $70 million.

Change in Allowance for Expected Credit Losses on Investments. Effective January 1, 2020, the Company adopted accounting guidance for credit losses on financial instruments. The cumulative effective adjustment from the change in accounting principle was $25 million after-tax, which decreased opening retained earnings and increased AOCI. Based on credit factors, the allowance for expected credit losses is increased or decreased depending on the percentage of unrealized loss relative to amortized cost by security, changes in rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. For the three months ended June 30, 2020, the pre-tax change in allowance for expected credit losses on investments decreased by $16 million ($13 million after-tax), which is reflected in net investment gains (losses).

Revenues from Non-Insurance Businesses. Revenues from non-insurance businesses were derived from businesses engaged in the distribution of promotional merchandise, world-wide textile solutions and aviation-related businesses that provide services to aviation markets, including (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenues from non-insurance businesses were $76 million in 2020 and $89 million in 2019. The decrease mainly relates to reduction in revenues from the aviation-related businesses impacted by COVID-19.

Losses and Loss Expenses. Losses and loss expenses increased to $1,135 million in 2020 from $1,029 million in 2019. The consolidated loss ratio was 67.7% in 2020 and 62.4% in 2019. Catastrophe losses, net of reinsurance recoveries, were $146 million in 2020 (including losses of approximately $86 million related to COVID-19 primarily comprised of IBNR) and $26 million in 2019. Favorable prior year reserve development (net of premium offsets) was $3 million in 2020 and $7 million in 2019. The loss ratio excluding catastrophe losses and prior year reserve development was 59.2% in 2020 and 61.3% in 2019.

A summary of loss ratios in 2020 compared with 2019 by business segment follows:

•Insurance - The loss ratio was 67.0% in 2020 and 62.9% in 2019. Catastrophe losses were $114 million in 2020 compared with $25 million in 2019. The Company reflected a best estimate (net of reinsurance) based upon available information for COVID-19-related losses of approximately $65 million, which was included in catastrophe losses and primarily related to contingency and event cancellation coverage, workers’ compensation and short-tail lines. Favorable prior year reserve development was $5 million in 2020 and $8 million in 2019. The loss ratio excluding catastrophe losses and prior year reserve development decreased 2.2 points to 59.5% in 2020 from 61.7% in 2019.

•Reinsurance & Monoline Excess - The loss ratio was 72.2% in 2020 and 59.2% in 2019. Catastrophe losses were $32 million in 2020 compared with $0.1 million in 2019. The Company reflected a best estimate (net of reinsurance) based upon available information for COVID-19-related losses of approximately $21 million, which was included in catastrophe losses and primarily related to excess workers’ compensation and short-tail lines. Adverse prior year reserve development was $2 million in 2020 and $1 million in 2019. The loss ratio excluding catastrophe losses and prior year reserve development decreased 2.3 points to 56.4% in 2020 from 58.7% in 2019.

Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses:


($ in thousands)	2020		2019
Policy acquisition and insurance operating expenses	$	519,234	$	518,160
Insurance service expenses	20,423		25,386
Net foreign currency (gains) losses	(7,382)		470
Other costs and expenses	48,565		47,812
Total	$	580,840	$	591,828

Policy acquisition and insurance operating expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Policy acquisition and insurance operating expenses increased less than 1% and net premiums earned increased 2% from 2019. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 31.0% in 2020 and 31.5% in 2019. The improvement is primarily attributable to higher net premiums earned and lower expense growth on a percentage basis mainly attributable to reduced travel and entertainment expenses due to the global pandemic. However, to the extent our net premiums earned decrease, due to the impact of the COVID-19 pandemic or otherwise, our expense ratio would be expected to increase.

Service expenses, which represent the costs associated with the fee-based businesses, decreased to $20 million in 2020 from $25 million in 2019. The decrease is primarily due to a reduction of assigned risk plan business.

Net foreign currency gains (losses) result from transactions denominated in a currency other than a company's operating functional currency. Net foreign currency gains were $7 million in 2020 compared to net losses of $0.5 million in 2019. The gains in 2020 mainly result from the continued strengthening of the U.S. dollar in relation to Argentine peso.

Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs and expenses increased to $49 million in 2020 from $48 million in 2019.

Expenses from Non-Insurance Businesses. Expenses from non-insurance businesses represent costs associated with businesses engaged in the distribution of promotional merchandise, world-wide textile solutions and aviation-related businesses that include (i) cost of goods sold related to aircraft and products sold and services provided, and (ii) general and administrative expenses. Expenses from non-insurance businesses were $76 million in 2020 compared to $88 million in 2019. The decrease mainly relates to a reduction of the aviation-related businesses impacted by COVID-19 in 2020.

Interest Expense. Interest expense was $38 million in 2020 compared with $41 million in 2019. During 2019, the Company repaid at maturity $489 million aggregate principal amount of senior notes and other debt. In December 2019, the Company issued $300 million aggregate principal amount of 5.10% subordinated debentures due 2059. In May 2020, the Company issued $300 million aggregate principal amount of 4.00% senior notes due 2050. Accordingly, the timing of the debt repayment in 2019 and issuance in 2020 led to the decrease in interest expense for the three months ended June 30, 2020 compared to the same period in 2019.

Income Taxes. The effective income tax rate was 32.0% in 2020 and 20.6% in 2019. The effective income tax rate differs from the federal income tax rate of 21% principally because foreign jurisdictions were limited on the utilization of losses at different tax rates, which was partially offset by tax-exempt investment income and tax benefits related to equity-based compensation.

Investments

As part of its investment strategy, the Company establishes a level of cash and highly liquid short-term and intermediate-term securities that, combined with expected cash flow, it believes is adequate to meet its payment obligations. Due to the low fixed maturity investment returns, the Company invests in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. The Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income.

The Company also attempts to maintain an appropriate relationship between the average duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The average duration of the fixed maturity portfolio, including cash and cash equivalents, was 2.4 years at June 30, 2020 down from 2.8 years at December 31, 2019, as the Company repositioned a larger portion of its investment portfolio to cash and cash equivalents. The Company’s fixed maturity investment portfolio and investment-related assets as of June 30, 2020 were as follows:


($ in thousands)	Carrying Value		Percent of Total
Fixed maturity securities:
U.S. government and government agencies	$	693,767	3.5	%
State and municipal:
Special revenue	2,253,542		11.2
Local general obligation	441,919		2.2
State general obligation	421,765		2.1
Pre-refunded (1)	325,431		1.6
Corporate backed	232,730		1.2
Total state and municipal	3,675,387		18.3
Mortgage-backed securities:
Agency	622,965		3.1
Residential-Prime	319,371		1.6
Commercial	217,558		1.1
Residential-Alt A	9,336		—
Total mortgage-backed securities	1,169,230		5.9
Asset-backed securities	3,098,198		15.5
Corporate:
Industrial	1,999,122		10.0
Financial	1,431,704		7.2
Utilities	322,715		1.6
Other	19,040		0.1
Total corporate	3,772,581		18.9
Foreign government and foreign government agencies	871,922		4.4
Total fixed maturity securities	13,281,085		66.5
Equity securities:
Preferred stocks	245,297		1.2
Common stocks	116,968		0.6
Total equity securities	362,265		1.8
Cash and cash equivalents	2,430,826		12.2
Real estate	2,072,772		10.4
Investment funds	1,159,237		5.8
Arbitrage trading account	580,950		2.9
Loans receivable	82,134		0.4
Total investments	$	19,969,269	100.0	%

________________________

(1) Pre-refunded securities are securities for which an escrow account has been established to fund the remaining payments of principal and interest through maturity. Such escrow accounts are funded almost exclusively with U.S. Treasury and U.S. government agency securities.

Fixed Maturity Securities. The Company’s investment policy with respect to fixed maturity securities is generally to purchase instruments with the expectation of holding them to their maturity. However, management of the available for sale portfolio is considered necessary to maintain an approximate matching of assets and liabilities as well as to adjust the portfolio as a result of changes in financial market conditions and tax considerations.

The Company’s philosophy related to holding or selling fixed maturity securities is based on its objective of maximizing total return. The key factors that management considers in its investment decisions as to whether to hold or sell fixed maturity securities are its view of the underlying fundamentals of specific securities as well as its expectations regarding interest rates, credit spreads and currency values. In a period in which management expects interest rates to rise, the Company may sell longer duration securities in order to mitigate the impact of an interest rate rise on the fair value of the portfolio. Similarly, in a period in which management expects credit spreads to widen, the Company may sell lower quality securities, and in a period in which management expects certain foreign currencies to decline in value, the Company may sell securities denominated in those foreign currencies. The sale of fixed maturity securities in order to achieve the objective of maximizing total return may result in realized gains; however, there is no reason to expect these gains to continue in future periods.

Equity Securities. Equity securities primarily represent investments in common and preferred stocks in companies with potential growth opportunities in different sectors, mainly in the financial institutions sector.

Investment Funds. At June 30, 2020, the carrying value of investment funds was $1,159 million, including investments in real estate funds of $314 million, financial services funds of $345 million, energy funds of $129 million, transportation funds of $143 million and other funds of $228 million. Investment funds are generally reported on a one-quarter lag. Accordingly, losses from investment funds for the second quarter of 2020 reflects the adverse impact from the disruption in global financial markets associated with COVID-19 during the first quarter of 2020.

Real Estate. Real estate is directly owned property held for investment. At June 30, 2020, real estate properties in operation included a long-term ground lease in Washington D.C., a hotel in Memphis, Tennessee, two office complexes in New York City, office buildings in West Palm Beach and Palm Beach, Florida, an office building in London, and the completed portion of a mixed-use project in Washington D.C. In addition, part of the previously mentioned mixed-use project in Washington D.C. is under development. The Company expects to fund further development costs for the project with a combination of its own funds and external financing.

Arbitrage Trading Account. The arbitrage trading account is comprised of direct investments in arbitrage securities. Merger arbitrage is the business of investing in the securities of publicly held companies that are the targets in announced tender offers and mergers.

Loans Receivable. Loans receivable, which are carried at amortized cost, net of allowance for expected credit losses, of $82 million and an aggregate fair value of $86 million at June 30, 2020. The amortized cost of loans receivable is net of an allowance for expected credit losses of $9 million as of June 30, 2020. Loans receivable include real estate loans of $50 million that are secured by commercial real estate located primarily in New York. Real estate loans receivable generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. Loans receivable include commercial loans of $32 million that are secured by business assets and have fixed interest rates and floating LIBOR-based interest rates with varying maturities not exceeding 10 years.

Market Risk. The fair value of the Company’s investments is subject to risks of fluctuations in credit quality and interest rates. The Company uses various models and stress test scenarios to monitor and manage interest rate risk. The Company attempts to manage its interest rate risk by maintaining an appropriate relationship between the effective duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The effective duration for the fixed maturity portfolio (including cash and cash equivalents) was 2.4 years at June 30, 2020 down from 2.8 years at December 31, 2019.

In addition, the fair value of the Company’s international investments is subject to currency risk. The Company attempts to manage its currency risk by matching its foreign currency assets and liabilities where considered appropriate.

Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities was $580 million in the first six months of 2020 as compared to $403 million from operating activities in the first six months of 2019. The increase is primarily due to a benefit under the Coronavirus Aid, Relief, and Economic Security Act relating to the deferral of tax payments until July 15, 2020.

The Company's insurance subsidiaries' principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company generally targets an average duration for its investment portfolio that is within one year of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed income securities are not sufficient to fund claim payments and other cash requirements, the remainder of the Company's cash and investments is available to pay claims and other obligations as they become due. The Company's investment portfolio is highly liquid, with approximately 79% invested in cash, cash equivalents and marketable fixed maturity securities as of June 30, 2020. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized.

At June 30, 2020, the Company held more than $1.5 billion of cash and liquid investments at the holding company.

Debt. At June 30, 2020, the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of $2,925 million and a face amount of $2,973 million, including $300 million aggregate principal amount of its 4.00% senior notes due 2050 issued in May 2020. The maturities of the outstanding debt are $300 million in 2020, $4 million in 2021, $427 million in 2022, $5 million in 2025, $102 million in 2028, $250 million in 2037, $350 million in 2044, $300 million in 2050, $350 million in 2053, $400 million in 2056, $185 million in 2058 and $300 million in 2059.

Equity. At June 30, 2020, total common stockholders’ equity was $5.8 billion, common shares outstanding were 177,930,502 and stockholders’ equity per outstanding share was $32.60. During the three months ended June 30, 2020, the Company repurchased 1,953,344 shares of its common stock for $96 million. During the six months ended June 30, 2020, the Company repurchased 5,604,103 shares of its common stock for $299 million. The number of common shares outstanding excludes shares held in a grantor trust established by the Company for delivery upon settlement of vested but mandatorily deferred RSUs.

Total Capital. Total capitalization (equity, debt and subordinated debentures) was $8.7 billion at June 30, 2020. The percentage of the Company’s capital attributable to senior notes, subordinated debentures and other debt was 34% at June 30, 2020 and 30% at December 31, 2019.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Reference is made to the information under “Investments - Market Risk” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q.

Item 4. Controls and Procedures

Disclosure Controls and Procedures. The Company’s management, including its Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14 as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company has in place effective controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting. During the quarter ended June 30, 2020, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Please see Note 20 to the notes to the interim consolidated financial statements.

Item 1A. Risk Factors

Other than as set forth below, there have been no material changes from the risk factors previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019.

The COVID-19 pandemic has materially and adversely affected our results of operations, and is expected to continue and therefore may materially and adversely affect, our results of operations, financial position and liquidity.

The ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies, has materially and adversely affected our results of operations. We expect the pandemic and its impact on our business to continue and potentially even worsen, but we cannot predict the magnitude or duration of its continued impact, particularly given the great uncertainties associated with COVID-19, including regarding the reopening of the U.S. and global economies and the recovery from its devastating economic and other effects. The ultimate impact of COVID-19 on our results of operations, financial position and liquidity is not yet known, and likely will not be known for some time, but includes the following:

Adverse Legislative and Regulatory Action. Legislative and regulatory initiatives taken or which may be taken in response to COVID-19 may adversely affect us, particularly in our workers’ compensation and property coverages businesses. For example, our business may be subject to, certain initiatives, including, but not limited to: legislative and regulatory action that seeks to retroactively mandate coverage for losses that our insurance policies would not otherwise cover and which were not priced to cover; legislative and regulatory action providing for shifting presumptions with respect to the burdens of proof for “essential” workers on workers’ compensation coverages and varying definitions of “essential” workers; actions prohibiting us from cancelling insurance policies in accordance with our policy terms or non-renewing policies at their natural expiration; and/or orders to provide premium refunds, grant extended grace periods for premium payments, and provide extended time to pay past due premiums. Any such action would likely increase both our underwriting losses and our expenses and any legal challenges to any such action could take years to resolve.

Claim Losses Related to COVID-19 May Exceed Reserves. As of June 30, 2020, we recorded approximately $143 million for COVID-19-related losses, net of applicable reinsurance, and reinstatement premiums of approximately $21 million. Of the $143 million of COVID-19-related losses, $37 million are reported losses and $106 million is booked as IBNR. Our reserves do not represent an exact calculation of liability, but represent an estimate of what management expects the ultimate settlement and claims administration will cost for claims that have occurred, whether known or unknown. Given the great uncertainties associated with COVID-19 and its impact and the limited information upon which our current assumptions and assessments have been made, our reserves and the underlying estimated level of claim losses and costs arising from COVID-19 may materially change.

Claim Losses and Adjustment Expenses May Increase. As the effects of COVID-19 on industry practices and economic, legal, judicial, social and other environmental conditions occur, unexpected and unintended issues related to claims and coverages may emerge. These issues may adversely affect our business by extending coverage beyond our underwriting intent (including in the area of property coverages where physical damage requirements and communicable disease exclusions are currently being challenged) or by increasing the number and/or size of claims, each of which could adversely impact our results.

Reinsurance. We purchase reinsurance in order to transfer part of the risk that we have assumed by writing insurance policies to reinsurance companies in exchange for part of the premium we receive in connection with assuming such risk. Although reinsurance makes the reinsurer contractually liable to us to the extent the risk is transferred to the reinsurer, it does not relieve us of our liability to our policyholders. There may be uncertainty surrounding the availability of reinsurance coverage for COVID-19-related losses as our reinsurers may dispute the applicability of reinsurance to such losses (including the application of reinsurance reinstatements) and, as a result, our reinsurers may refuse to pay reinsurance recoverables related thereto or they may not pay them on a timely basis. In addition, we may be unable to renew our current reinsurance coverages or obtain appropriate new reinsurance covers with respect to certain exposures under our policies, including COVID-19-related exposures, and therefore our net exposures could increase, or if we are unwilling to bear such increase in net exposure, we may reduce our level of underwriting commitments.

Premium Volumes May Be Negatively Impacted. The demand for insurance is significantly influenced by general economic conditions. Consequently, reduced economic activity relating to the COVID-19 pandemic is likely to decrease demand for our insurance products and services and negatively impact our premium volumes (and, in certain cases, may result in return of premiums due to a decrease in exposures). This may continue for an indefinite period, with the magnitude of the

impact impossible to predict. In addition, as we continue to evaluate the effects of COVID-19 on the insurance coverages we currently offer, our appetite for providing certain coverages in various jurisdictions may change which could further negatively impact our premium volumes. Any such reduction in our premiums would likely cause our expense ratio to rise.

Investments. Further disruptions in global financial markets due to the continuing impact of COVID-19 could cause us to incur additional unrealized and/or realized investment losses (beyond the investment fund losses incurred to date), including impairments in our fixed maturity portfolio and other investments. In addition, the economic uncertainty resulting from COVID-19 may result in a further decline in interest rates, which may negatively impact our net investment income from future investment activity.

Operational Disruptions and Costs. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our agents, brokers, suppliers or other third party service providers are unable to continue to work because of illness, government directives or otherwise. In addition, our agents, brokers, suppliers and other third party service providers, which we rely on for key aspects of our operations, are subject to risks and uncertainties related to the COVID-19 pandemic, which may interfere with their ability to fulfill their respective commitments and responsibilities to us in a timely manner and in accordance with the agreed-upon terms. In response to the COVID-19 pandemic, we have implemented remote working policies which have resulted in disruptions to our business routines, heightened risk to cybersecurity attacks and data security incidents and a greater dependency on internet and telecommunication access and capabilities.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Set forth below is a summary of the shares repurchased by the Company during the three months ended June 30, 2020, and the number of shares remaining authorized for purchase by the Company:


	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs



April 2020	1,114,255	$	50.241	1,114,255	8,333,009
May 2020	839,089	$	45.017	839,089	7,493,920
June 2020	—	$	—	—	7,493,920

Item 6. Exhibits


Number




(10.1)						Form of 2020 Performance Unit Award Agreement under the W. R. Berkley Corporation 2019 Long-Term Incentive Plan

(31.1)						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/ 15d-14(a).

(31.2)						Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/ 15d-14(a).

(32.1)						Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


		W. R. BERKLEY CORPORATION
Date:	August 3, 2020	/s/ W. Robert Berkley, Jr.
		W. Robert Berkley, Jr.
		President and Chief Executive Officer

Date:	August 3, 2020	/s/ Richard M. Baio
		Richard M. Baio
		Executive Vice President Chief Financial Officer and Treasurer

2020 Performance Unit Award Agreement

Under the W. R. Berkley Corporation 2019 Long-Term Incentive Plan

This 2020 Performance Unit Award Agreement (this “Agreement”), effective January 1, 2020, represents an Award of Performance Units by W. R. Berkley Corporation (the “Company”), to the Participant named below, pursuant to the provisions of the W. R. Berkley Corporation 2019 Long-Term Incentive Plan (the “Plan”). The value of the Performance Units will be determined based on the increase in the Company’s Book Value Per Share during the Performance Period, as determined below.

The Plan provides a complete description of the terms and conditions governing the Performance Units. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. Important jurisdiction-specific modifications to this Agreement are contained in Exhibit A hereto and are incorporated herein by reference.

The parties hereto agree as follows:

1. General Grant Information. The individual named below has been selected to be a Participant in the Plan and receive a grant of Performance Units, as specified below:

(a) Participant:

(b) Number of Performance Units Granted:

(d) Date of Grant: January 1, 2020

(e) Performance Measure: Increase in Book Value Per Share, as set forth in Section 3 below.

2. Performance Period. The Performance Period commences on January 1, 2020, and ends on December 31, 2024; provided, however, that, in the event that the Participant dies or experiences a Qualifying Termination, the Performance Period for such Participant shall be deemed to end on December 31 of the fiscal year immediately prior to the fiscal year in which such death or Qualifying Termination occurred.

3. Value of a Performance Unit. Each Performance Unit shall have a value determined by multiplying the Increase in Book Value Per Share by three and six hundred seventy-three thousandths (3.673), subject to a maximum value of one hundred dollars ($100.00) per Performance Unit.

4. Eligibility for Earned Performance Units. The Participant shall only be eligible for payment of earned Performance Units. Performance Units will be earned only if the Participant’s employment with the Company continues through the end of the Performance Period. Notwithstanding anything herein to the contrary, the Performance Units shall not be earned and shall not become payable unless and until the Participant has complied with the Competitive Action restriction set forth in Section 5(d) below on or prior to the Settlement Date.

5. Payout of Performance Units. (a) Except as set forth in Section 5(b) or 8 below, the aggregate positive value, if any, of the earned Performance Units, based on the value of the earned Performance Units on the last day of the Performance Period as determined in accordance with this Agreement and subject to the maximum value set forth in Section 3 hereof, shall be paid to the Participant in cash following the last day of the Performance Period but in no event later than March 31, 2025 (also referred to as the Settlement Date).

(b) In the event of the death or Qualifying Termination of the Participant, payment of the value, if any, of the earned Performance Units in accordance with the terms of this Agreement shall extinguish the Company’s obligation hereunder, and the Participant shall not be entitled to any further payment or appreciation in the value of the Performance Units. In the event such payment is made due to the Participant’s death, such payment shall be made

to the Participant’s beneficiary (or the Participant’s estate if no beneficiary has been chosen or if such beneficiary has predeceased the Participant). Any payment upon death or any Qualifying Termination shall be made within ninety (90) calendar days following such death or Qualifying Termination; provided, however, that if such ninety (90) day period spans two separate taxable years, such payment shall be made in the later taxable year; provided further, however, that any payment hereunder (calculated as of the end of the fiscal year immediately prior to the fiscal year in which such Qualifying Termination occurred) upon a Qualifying Termination shall be delayed until the earlier of (x) March 31, 2025 and (y) such time as the Participant has also undergone a “separation from service” as defined in Treas. Reg. 1.409A-1(h), at which time such payment shall be made to the Participant according to the schedule set forth in this Section 5(b) as if the Participant had undergone such Qualifying Termination (under the same circumstances), solely for the purpose of the date of payment, on the date of such “separation from service.” Notwithstanding anything herein to the contrary, to the extent the Participant is a “specified employee” as defined in Treas. Reg. 1.409A-1(i), any payment to be made upon the Participant’s “separation from service” shall be delayed until and made upon the earlier of (i) the six (6) month anniversary of the Participant’s “separation from service” and (ii) the Participant’s death.

(c) This Award shall expire and the Company shall have no further obligation to make any payment hereunder once a payment is made pursuant to Section 5(a) or (b) above or Section 8 below.

(d) If prior to the Settlement Date, the Participant engages in a Competitive Action or enters into, or has entered into, an agreement (written, oral or otherwise) to engage in Competitive Action or has engaged in Misconduct, all of the Performance Units, whether earned or unearned, shall be immediately forfeited, and the Participant shall have no further rights with respect to such Performance Units. In the event that the Participant engages in any Competitive Action or enters into, or has entered into, an agreement (written, oral or otherwise) to engage in Competitive Action or engages in Misconduct on or after the Settlement Date (or said Competitive Action or agreement or Misconduct occurs prior to the Settlement Date and is discovered on or after the Settlement Date) but on or prior to the second anniversary of the Settlement Date, the Participant shall pay to the Company, upon demand by the Company, an amount equal to the amount paid to the Participant in respect of the Performance Units on the Settlement Date. The determination as to whether the Participant has engaged in any Competitive Action or Misconduct shall be made by the Committee in its sole and absolute discretion. The Committee has sole and absolute discretion to determine whether, notwithstanding its determination that the Participant has engaged in a Competitive Action or Misconduct, recapture or forfeiture as provided herein shall not occur. The Committee’s exercise or nonexercise of such discretion with respect to any particular event or occurrence by or with respect to the Participant or any other recipient of Performance Units under the Plan shall not in any way reduce or eliminate the authority of the Committee to (i) determine that any event or occurrence by or with respect to the Participant constitutes engaging in Competitive Action or Misconduct, or (ii) determine the related Competitive Action or Misconduct date. The Participant acknowledges that the restriction with respect to engaging in a Competitive Action, in view of the nature of the business in which the Company is engaged, is reasonable in scope (as to both the temporal and geographical limits) and necessary in order to protect the legitimate business interests of the Company. The Participant acknowledges further that engaging in a Competitive Action or Misconduct would result in irreparable injuries to the Company and would cause loss in an amount that cannot be readily quantified. The Participant acknowledges further the amounts required to be paid to the Company pursuant to this provision are reasonable and are not liquidated damages nor shall they be characterized as such.

(e) The Participant’s employment will not be considered to continue if his or her employment has been terminated (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), and unless otherwise expressly provided in this Agreement or determined by the Committee, the Participant’s right to continue to earn pursuant to the Performance Units awarded hereunder, if any, will terminate as of such date and will not be extended by any notice period arising under local law or contract. However, the Participant’s period of service would not include any contractual notice period (except for such period of time the Participant is actively providing substantial services as required by the Company during any notice period) or any period of “garden leave” or similar period arising under employment laws in the jurisdictions where the Participant is employed or the terms of Participant’s employment agreement, if any.

6. Nontransferability. The Performance Units granted hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, or as otherwise provided for in the Plan.

7. Administration. This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be final and binding upon the Participant, including without limitation any determination concerning a Competitive Action. Any inconsistency between the Agreement and the Plan shall be resolved in favor of the Plan. If there is any inconsistency between this Agreement and Exhibit A, Exhibit A shall prevail. The Participant hereby acknowledges that he or she has received a copy of the Plan and understands and agrees to the terms thereof. This Agreement, together with the Plan, constitutes the entire agreement by and between the parties hereto with respect to the subject matter hereof, and this Agreement and the Plan supersede all prior agreements, correspondence and understandings and all prior and contemporaneous oral agreements and understandings, among the parties hereto with regard to the subject matter hereof.

8. Change in Control. In the event of a Change in Control, unless otherwise specifically prohibited under applicable laws or by the rules and regulations of any governing governmental agencies or national securities exchanges:

(a) With respect to each outstanding Performance Unit that is assumed or substituted in connection with a Change in Control, in the event that the Participant’s employment with the Company is terminated (i) by the Company or a Subsidiary or Affiliate, as applicable, without Cause or (ii) by the Participant for Good Reason, in each case during the eighteen (18) month period following such Change in Control, the value of all Performance Units shall be determined and fixed as of the end of the fiscal year immediately preceding the fiscal year in which such termination occurs, and such value shall be paid to the Participant in accordance with, and subject to, the provisions of Sections 4 and 5 hereof. Following such termination, Performance Units shall not accrue any additional value for the fiscal year in which such termination occurs or for any subsequent fiscal years.

(b) With respect to each outstanding Performance Unit that is not assumed or substituted in connection with a Change in Control, immediately upon the occurrence of the Change in Control, which shall be deemed the end of the Performance Period, the value of all Performance Units shall be determined and fixed as of the end of the fiscal year immediately preceding the fiscal year in which such Change in Control occurs, and such value shall be paid to the Participant within ninety (90) calendar days following the date of such Change in Control; provided, however, that if such ninety (90) day period spans two separate taxable years, such payment shall be made in the later taxable year. Following such Change in Control, Performance Units shall not accrue any additional value for the fiscal year in which such Change in Control occurs or for any subsequent fiscal years.

(c) For purposes of this Section 8, a Performance Unit shall be considered assumed or substituted for if, following the Change in Control, the Performance Unit is assumed or substituted for with one of comparable value and remains subject to the same terms and conditions that were applicable to the Performance Units immediately prior to the Change in Control.

(d) For purposes of this Section 8, an event shall only constitute a Change in Control if the event constituting a Change in Control also constitutes “a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company” within the meaning of Section 409A(a)(2)(A)(v) of the Code and the regulations promulgated thereunder.

9. Miscellaneous.

(a) This Agreement shall not confer upon the Participant any right to continuation of employment by the Company, nor shall this Agreement interfere in any way with the Company’s right to terminate the Participant’s employment at any time.

(b) The Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any material way adversely affect the Participant’s rights under this Agreement.

(c) The Company or a Subsidiary or Affiliate, as applicable, shall have the authority to deduct or withhold from any payment hereunder or from any other source of the Participant’s compensation from the Company or a Subsidiary or Affiliate, as applicable, or may require the Participant to remit to the Company or a Subsidiary or Affiliate, as applicable, before payment hereunder, an amount sufficient to satisfy federal, state, and local taxes (including Participant’s FICA obligation) required by law to be withheld with respect to any taxable event arising out of this Agreement.

(d) This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

(e) To the extent not preempted by federal law, this Agreement shall be governed by, interpreted and construed in accordance with, the laws of the State of Delaware, regardless of its conflicts of laws principles. The jurisdiction and venue for any dispute arising under, or any action brought to enforce or otherwise relating to, this Agreement will be exclusively in the courts of the State of Delaware, including the federal courts located in Delaware in the event federal jurisdiction exists. Participant hereby irrevocably consents to the exclusive personal jurisdiction and venue of the federal and State courts of the State of Delaware for the resolution of any disputes arising out of, or relating to, this Agreement and irrevocably waives any claim or argument that the courts of the State of Delaware are an inconvenient forum. In any action arising under or relating to this Agreement, the court shall not have the authority to, and shall not, conduct a de novo review of any determination made by the Committee or the Company but is instead authorized to determine solely whether the determination was the result of fraud or bad faith under Delaware law.

(f) All obligations of the Company under the Plan and this Agreement with respect to the Performance Units shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

(g) The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision or provisions of this Agreement, which shall remain in full force and effect. If any provision of this Agreement is held to be invalid, void or unenforceable in any jurisdiction, any court so holding shall substitute a valid, enforceable provision that preserves, to the maximum lawful extent, the terms and intent of such provisions of this Agreement. If any of the provisions of, or covenants contained in, this Agreement are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the provisions or the enforceability thereof in any other jurisdiction, which shall be given full effect, without regard to the invalidity or unenforceability in such other jurisdiction. Any such holding shall affect such provision of this Agreement, solely as to that jurisdiction, without rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant will be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable.

(h) By accepting this Award or other benefit under the Plan, the Participant and each person claiming under or through the Participant shall be conclusively deemed to have indicated their acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board or the Committee.

(i) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTICIPANT, EVERY PERSON CLAIMING UNDER OR THROUGH THE PARTICIPANT, AND THE COMPANY HEREBY WAIVE AND RELEASE ANY CLAIM UNDER STATE OR FEDERAL LAW THEY MAY HAVE HAD TO A JURY TRIAL WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE PLAN OR THIS AWARD AGREEMENT ISSUED PURSUANT TO THE PLAN.

(j) Definitions. The following terms shall have the meanings ascribed to them when used in this Agreement:

(i) “Beginning Book Value Per Share” means $33.94.

(ii) “Book Value Per Share” as of the end of any fiscal year shall be equal to the quotient of X divided by Z, where X is equal to the sum of A, B, C, D and E minus the sum of F, G and H, and Z is equal to the sum of W plus Y: [((A+B+C+D+E)-(F+G+H)) ÷ (W+Y)]. For purposes of this calculation,

(A) shall be equal to the Company’s total common stockholders’ equity as of the end of such fiscal year, as determined in accordance with generally accepted accounting principles and reported in the Company’s audited financial statements,

(B) shall be equal to the cumulative after-tax expense of the Company from January 1, 2020 through the end of such fiscal year arising from all the Awards made under the Plan,

(C) shall be equal to the cumulative cash dividends on the Company’s common stock declared from January 1, 2020 through the end of such fiscal year,

(D) shall be equal to the cumulative cost of the Company’s common stock repurchased by the Company from January 1, 2020 through the end of such fiscal year,

(E) shall represent imputed interest on the cost of the Company’s common stock repurchased by the Company and the amount of special dividends (any dividend other than the regular quarterly cash dividend) paid by the Company during the Performance Period. Such interest shall be imputed on such repurchases and special dividends from the first day of the quarter following such repurchases and special dividends to the end of the Performance Period. The imputed interest rate shall be equal to the average annual Increase in Book Value Per Share for the Performance Period, before consideration of this subsection E,

(F) shall be equal to the Company’s accumulated other comprehensive income as of the end of such fiscal year,

(G) shall be equal to the cumulative unrealized gains and losses, net of tax, on equity securities (other than securities of consolidated subsidiaries or securities accounted for on the equity method) reported in retained earnings at the end of such fiscal year as a result of Accounting Standards Update 2016-01,

(H) shall be equal to the cumulative allowance for credit losses, net of tax, on applicable assets reported in retained earnings at the end of such fiscal year as a result of Accounting Standards Update 2016-13,

(W) shall be equal to the number of shares of the Company’s common stock issued and outstanding, net of treasury shares, as of the end of such fiscal year, and

(Y) shall be the cumulative number of shares of the Company’s common stock repurchased by the Company from January 1, 2020 through the end of such fiscal year.

Book Value Per Share shall be calculated without taking into account any forward or reverse split of the Company’s common stock or any stock dividend declared on the Company’s common stock and there shall be no adjustment to the number of Performance Units awarded hereunder in either event. Notwithstanding anything herein to the contrary the formula to determine Book Value Per Share may be further modified to take into account any factor set forth in Section 7.2 of the Plan.

(iii) “Cause” means “Cause” as defined in any active employment agreement between the Participant and the Company or any Subsidiary or Affiliate, as applicable, or, in the absence of any such definition, means the occurrence of any one of the following events: (A) fraud, personal dishonesty, embezzlement or acts of gross negligence or gross misconduct on the part of the Participant in the course of his or her employment or services, (B) the Participant’s engagement in conduct that is materially injurious to the Company, a Subsidiary or an Affiliate, (C) the Participant’s conviction by a court of competent jurisdiction of, or pleading “guilty” or “no contest”

to, (x) a felony or (y) any other criminal charge (other than minor traffic violations) which could reasonably be expected to have a material adverse impact on the Company’s or a Subsidiary’s or an Affiliate’s reputation or business; (D) public or consistent drunkenness by the Participant or his or her illegal use of narcotics which is, or could reasonably be expected to become, materially injurious to the reputation or business of the Company, a Subsidiary or an Affiliate or which impairs, or could reasonably be expected to impair, the performance of the Participant’s duties to the Company, a Subsidiary or an Affiliate; (E) willful failure by the Participant to follow the lawful directions of a superior officer; or (F) the Participant’s continued and material failure to fulfill his or her employment obligations to the Company or any Subsidiary or Affiliate.

(iv) “Client” means any insured, agent, producer or other intermediary to or through whom the Company or its Subsidiaries or Affiliates provides insurance or reinsurance or related services.

(v) “Competitive Action” means, either directly or indirectly, whether as an employee, consultant, independent contractor, partner, joint venturer or otherwise, (A) engaging in or directing any business activities, except those which are ministerial or clerical in nature, which are competitive with any business activities conducted by the Company at the relevant time of enforcement in any geographical area (x) where the Participant had a responsibility on behalf of the Company or about which the Participant received Confidential Information and (y) in which the Company is engaged in business at the relevant time of enforcement, (B) on behalf of any person or entity engaged in business activities competitive with the business activities of the Company, soliciting or inducing, or in any manner attempting to solicit or induce, any person employed by, or as an agent or producer of, the Company to terminate such person's employment or agency or producer relationship, as the case may be, with the Company, (C) diverting, or attempting to divert, any Covered Business Partner from doing business with the Company or attempting to induce any Covered Business Partner to cease being a customer of the Company, (D) soliciting a Covered Business Partner to do business with a competitor or prospective competitor of the Company or (E) making use of, or attempting to make use of, the Company’s property or Confidential Information, other than in the course of the performance of services to the Company or at the direction of the Company. References to the Company in this definition and Exhibit A to this Agreement shall include the Company and all Subsidiaries and Affiliates.

(vi) “Confidential Information” means an item of information or a compilation of information, in any form (tangible or intangible), related to the business of the Company or of a subsidiary for whom Participant performs services that the Company/subsidiary has not made public or authorized public disclosure of, and that is not generally known to the public through proper means, including but not limited to:

(A)underwriting premiums or quotes, income and receipts, claims records and levels, renewals, policy wording and terms, reinsurance quotas, profit commission;

(B)operating unit or other business projections and forecasts;

(C)Client lists, brokers lists and price sensitive information;

(D)technical information, reports, interpretations, forecasts, corporate and business plans and accounts, business methods, financial details, projections and targets;

(E)remuneration and personnel details;

(F)planned products, planned services, marketing surveys, research reports, market share and pricing statistics, budgets, fee levels;

(G)computer passwords, the contents of any databases, tables, know how documents or materials;

(H)commissions, commission charges, pricing policies and all information about research and development; and

(I) the Company’s suppliers’, Clients’ or Prospective Clients’ names, addresses (including email addresses), telephone, facsimile or other contact numbers and contact names, the nature of their business operations, their requirements for services supplied by the Company and all confidential aspects of their relationship with the Company.

(vii) “Covered Business Partner” means any person, concern or entity (including, without limitation, any Client) as to which Participant, or persons supervised by Participant, had more than de minimis business-related

contact or received Confidential Information during the most recent two years of Participant’s employment with the Company or its Subsidiaries or Affiliates or such shorter period of time as employed (the “Look Back Period”).

(viii) “Disability” means the inability of the Participant to continue to perform services for the Company or any Subsidiary or Affiliate, as applicable, on account of his or her total and permanent disability as determined by the Committee.

(vi) “Ending Book Value Per Share” means the highest Book Value Per Share determined as of the end of each fiscal year in the Performance Period.

(v) “Good Reason” means “Good Reason” as defined in any active employment agreement between the Participant and the Company or any Subsidiary or Affiliate, as applicable, or, in the absence of any such definition, means the occurrence of any one of the following events, unless the Participant agrees in writing that such event shall not constitute Good Reason: (A) a material reduction in the Participant’s duties or responsibilities from those in effect immediately prior to a Change in Control; (B) a material reduction in the Participant’s base salary below the levels in effect immediately prior to a Change in Control; or (C) relocation of the Participant’s primary place of employment to a location more than fifty (50) miles from its location, and further from the Participant’s primary residence, immediately prior to a Change in Control; provided, however, that with respect to any Good Reason termination, the Company will be given not less than thirty (30) days’ written notice by the Participant (within sixty (60) days of the occurrence of the event constituting Good Reason) of the Participant’s intention to terminate the Participant’s employment for Good Reason, such notice to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Good Reason is based, and such termination shall be effective at the expiration of such thirty (30) day notice period only if the Company has not fully cured such act or acts or failure or failures to act that give rise to Good Reason during such period. Further notwithstanding any provision in this definition to the contrary, in order to constitute a termination for Good Reason, such termination must occur within six (6) months of the initial existence of the applicable condition.

(xi) “Increase in Book Value Per Share” means the amount, if any, by which the Ending Book Value Per Share exceeds Beginning Book Value Per Share for the Performance Period.

(xii) “Misconduct” means the Participant’s engagement, during the Participant’s employment with the Company or any Subsidiary or any Affiliate, in an act which would, in the judgment of the Committee, constitute fraud that could be punishable as a crime, or embezzlement against either the Company, any Subsidiary or any Affiliate.

(xiii) “Prospective Client” means any person, concern or entity (including, without limitation, any potential insured, agent, producer or other intermediary) to or through whom the Company or any of its Subsidiaries or Affiliates has been in negotiations during the Look Back Period to provide insurance or reinsurance or related services.

(xiv) “Qualifying Termination” means the termination of the Participant’s employment with the Company and all Subsidiaries and Affiliates prior to the end of the Performance Period as a result of: (i) Disability or Retirement; (ii) an action by the Company or a Subsidiary or Affiliate, as applicable, for any reason other than Cause; or, (iii) following a Change in Control, an action by the Participant for Good Reason.

(xvi) “Restricted Period” means the period beginning on the date hereof through the second anniversary of the Settlement Date.

(xv) “Retirement” means the Participant’s retirement from service with the Company and all Subsidiaries and Affiliates with the written consent of the Executive Chairman of the Board of the Company or the Committee.

(xvi) “Settlement Date” means the date on which the value of the Performance Units is actually paid to the Participant.

10. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

11. Protected Conduct. Nothing in this Agreement prohibits the Participant from reporting an event that the Participant reasonably and in good faith believes is a violation of law to the relevant law-enforcement agency (such as the Securities and Exchange Commission or Department of Labor), requires notice to or approval from the Company before doing so, or prohibits the Participant from cooperating in an investigation conducted by such a government agency. This may include a disclosure of trade secret information provided that it must comply with the restrictions in the Defend Trade Secrets Act of 2016 (DTSA). The DTSA provides that no individual will be held criminally or civilly liable under Federal or State trade secret law for the disclosure of a trade secret that: (i) is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and made solely for the purpose of reporting or investigating a suspected violation of law; or, (ii) is made in a complaint or other document if such filing is under seal so that it is not made public. Also, the DTSA further provides that an individual who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal, and does not disclose the trade secret, except as permitted by court order. To the extent that the Participant is covered by Section 7 of the National Labor Relations Act (NLRA) because the Participant is not in a supervisor or management role, nothing in this Agreement shall be construed to prohibit the Participant from using information the Participant acquires regarding the wages, benefits, or other terms and conditions of employment at the Company for any purpose protected under the NLRA.

[Signatures to appear on following page]

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of January 1, 2020.

W. R. Berkley Corporation

By: __________________________

Name:

Title:

______________________________

Participant

Please indicate the name of the Participant’s beneficiary:

Name

The Participant may change his or her beneficiary hereunder only by written notice to the Company, which change will become effective only upon receipt by the Company during the Participant’s lifetime.

EXHIBIT A

JURISDICTION SPECIFIC MODIFICATIONS

As used in this Exhibit A, the term “Company” includes W. R. Berkley Corporation and all of its Subsidiaries and Affiliates.

I. States of the United States of America

A. Arkansas, Connecticut, Illinois, Indiana, Maryland, Minnesota, South Carolina, South Dakota, Texas, and Virginia: Section 9(j)(v)(A) is further limited to situations where the Participant is performing services that are the same as or similar in function or purpose to the services the Participant performed for the Company (as appropriate) during the Look Back Period.

B. Arizona. For an Arizona resident, for so long as the Participant resides in Arizona and is subject to the laws of Arizona: (i) the restrictions in Sections 9(j)(v)(A), (C) and (D) will only apply within any geographical area (x) where the Participant had responsibilities on behalf of the Company or about which the Participant received Confidential Information during the Look Back Period and (y) in which the Company is engaged in business; (ii) Sections 9(j)(v)(A) is further limited to situations where the Participant is performing services that are the same as or similar in function or purpose to the services the Participant performed for the Company during the Look Back Period; and (iii) with respect to the Participant’s nondisclosure obligation under Section 9(j)(v)(E), the Participant’s nondisclosure obligation only extends during the Restricted Period (this is not a deviation from the text of the Agreement, but a clarification for the avoidance of any doubt).

C. California. For a resident of California, for so long as the Participant resides in California and is subject to the laws of California: (i) no provision or requirement of this Agreement will be construed or interpreted in a manner contrary to the public policy of the State of California; (ii) the restrictions in Section 9(j)(v)(A) shall not apply; (iii) Sections 9(j)(v)(C) and (D) shall be limited to situations where the Participant is aided in his or her conduct by the Participant’s use or disclosure of trade secrets (as defined by applicable law); and (iv) Section 9(i) shall not apply.

D. Massachusetts. For so long as Massachusetts General Laws Part I Title XXI Chapter 149 Section 24 L applies to the obligations of Participant under this Agreement: (i) the restrictions in Sections 9(j)(v)(A), (C) and (D) will only apply within any geographical area (x) where Participant had responsibilities on behalf of the Company or about which Participant received Confidential Information during the Look Back Period and (y) in which the Company is engaged in business; (ii) Section 9(j)(v)(A) is further limited to situations where Participant is performing services that are the same as or similar in function or purpose to the services Participant performed for the Company (as appropriate) during the Look Back Period; (iii) the second and third sentences of Section 9(e) are amended to replace “Delaware” with “Massachusetts”; (iv) Section 5(d) is amended by inserting after the phrase “but on the second anniversary of the Settlement Date” the following: “and in no event longer than one year after the date the Participant terminates employment with the Company; and (v) this Agreement is amended to add the following new Section 12:

SECTION 12. The Company and Participant agree that the grant of Performance Units to Participant is fair and reasonable consideration for the obligations of Participant in this Agreement. The Company and Participant agree that the grant of Performance Units is consideration for the Participant’s obligations under Section 5(d) and Section 9(j)(v)(A) (as applicable) of this Agreement (as such obligations are modified by Exhibit A hereto) during the duration of such obligations. For the avoidance of doubt, Participant has the right to consult with an attorney prior to accepting this award. Participant acknowledges that Participant has been given at least ten business days to accept this award.

E. Nebraska. For a Nebraska resident, for so long as the Participant resides in Nebraska and is subject to the laws of Nebraska: (i) Section 9(j)(v)(A) shall not apply; and (ii) the definition of “Covered Business Partner” in Section 9(j)(vii) is modified so that it means any persons or entities with which the Participant, or persons supervised by the Participant, did business and had personal business-related contact during the Look Back Period.

F. North Carolina. For a North Carolina resident, for so long as the Participant resides in North Carolina and is subject to the laws of North Carolina: (i) Section 9(j)(v)(Ai) is further limited to situations where the Participant is performing services that are the same as or similar in function or purpose to the services the Participant performed for

the Company during the Look Back Period; and (ii) the Look Back Period shall be calculated looking back two years from the date of enforcement and not from the date employment ends.

G. North Dakota. For a resident of North Dakota, for so long as the Participant resides in and is subject to the laws of North Dakota: (i) no provision or requirement of this Agreement will be construed or interpreted in a manner contrary to the public policy of the State of North Dakota; (ii) the restrictions in Section 9(j)(v)(A) shall not apply; and (iii) Sections 9(j)(v)(C) and (D) shall be limited to situations where the Participant is aided in his or her conduct by the Participant’s use or disclosure of trade secrets (as defined by applicable law).

H. Oklahoma. For an Oklahoma resident, for so long as the Participant resides in Oklahoma and is subject to the laws of Oklahoma: the restrictions in Section 9(j)(v)(A) shall not apply and “Covered Business Partner” of the Company means any individual, company, or business entity (including, without limitation, any Client) with which the Company has transacted business within the Look Back Period and with which the Participant, or persons supervised by the Participant, had material business-related contact or about which the Participant had access to Confidential Information during the Look Back Period.

I. Wisconsin. For a Wisconsin resident, for so long as Participant resides in Wisconsin and is subject to the laws of Wisconsin: (i) Section 9(j)(v)(A) is further limited to situations where the Participant is performing services that are the same as or similar in function or purpose to the services the Participant performed for the Company during the Look Back Period; and (ii) Section 9(j)(v)(B) is rewritten as follows: “participating in soliciting or attempting to solicit any employee of the Company that is in a Sensitive Position to leave the employment of the Company on behalf of (or for the benefit of) a competing business, or knowingly assists a competing business in efforts to hire such an employee away from the Company. An employee in a “Sensitive Position” refers to an employee of the Company who is in a management, supervisory, sales, research and development, underwriting, claims, actuarial, loss control or similar role where the employee is provided Confidential Information or is involved in business dealings with the Company’s customers.”

II. Countries Other than the United States of America

Argentina. For an Argentinian resident, for so long as the Participant resides in Argentina and is subject to the laws of Argentina:

a.Section 9(e) shall be deleted in its entirety and replaced with the following:

“(e) This Agreement shall be construed and interpreted in accordance with the laws of Argentina. The Participant hereby irrevocably consents to the exclusive personal jurisdiction of the Argentine courts for the resolution of any disputes arising out of, or relating, to this Agreement.”

(ii) This Agreement shall not be effective unless the Participant physically signs an original Agreement.

Australia. For an Australian resident, for so long as the Participant resides in Australia and is subject to the laws of Australia:

(i)Section 9(e) shall be deleted in its entirety and replaced with the following:

“(e) This Agreement shall be construed and interpreted in accordance with the laws of the State of New South Wales in Australia. The Participant hereby irrevocably consents to the personal jurisdiction of the federal and state courts of the State of New South Wales in Australia for the resolution of any disputes arising out of, or relating to, this Agreement.”

(ii)The provisions in “Addendum for Australia, Canada, Hong Kong and Singapore” set forth below shall be applicable.

Canada. For a Canadian resident, for so long as the Participant resides in Canada and is subject to the laws of Canada:

The provisions in “Addendum for Australia, Canada, Hong Kong and Singapore” set forth below shall be applicable.

Colombia. For a Colombian resident, for so long as the Participant resides in Colombia and is subject to the laws of Colombia:

The Participant agrees that the Performance Units rights derived from this Agreement are not consideration for the services rendered by the Participant in Colombia. For this Agreement to be effective, the Participant must enter into a local agreement, governed by Colombian laws, with the Participant’s current employer in which the Participant agrees to the statement in the prior sentence.

Hong Kong. For a Hong Kong resident, for so long as the Participant resides in Hong Kong and is subject to the laws of Hong Kong:

(i)Section 6 shall be deleted in its entirety and replaced with the following:

SECTION 6. Non-Transferability. (a) Subject to Section 6(b) below and except as specifically consented to by the Committee, the Participant may not sell, transfer, pledge, or otherwise encumber or dispose of the Performance Units other than by will, the laws of descent and distribution, or as otherwise provided for in the Plan.

(b) Notwithstanding any other provisions of this Agreement, if the Participant resides in, or received this offer in Hong Kong, the Participant shall have no rights or entitlement to sell, transfer or otherwise dispose of the Performance Units, except if such sale, transfer or disposal is permitted pursuant to the Plan and specifically consented to by the Committee.

(ii)The provisions in “Addendum for Australia, Canada, Hong Kong and Singapore” set forth below shall be applicable.

Norway. For a Norwegian resident, for so long as Participant resides in Norway and is subject to the laws of Norway:

(i)In Section 5(d), the words “or Solicitation” shall be added, in each instance after the phrase “Competitive Action”;

(ii)In Section 5(d), in the second sentence, solely with respect to Solicitation the word “second” shall be replaced with “first”;

(iii)In Section 9(j)(v), subsections (C) and (D) shall be deleted and subsection (E) shall be renumbered as subsection (C); and

(iv)In Section 9(j), the following new subsection (xvii) shall be added:

“(xvii) ”Solicitation”. For purposes of this Agreement, the Participant has engaged in "Solicitation" if the Participant from the date hereof through the first anniversary of the Settlement Date, directly or indirectly (i) diverts, or attempts to divert, any person, concern or entity from doing business with the Company or attempts to induce any such person, concern or entity to cease being a customer of the Company, (ii) solicits the business of the Company or (iii) influences customers, suppliers and/or other business associates/contract parties of the Company to limit or terminate their relationship with the Company . With respect to customers, the preceding sentence only applies to customers which the Participant has had contact with and/or responsibility for during the last 12 months prior to the time of the written statement as mentioned below.

(v) In Section 5, a new subsection (f) shall be added:

(f) The Company may, upon the request from the Participant and in connection with termination, summary dismissal or other cessation of employment, decide whether and to what extent the Participant’s obligation to refrain from Solicitation shall be invoked. With respect to customers, the procedure in connection with such a decision shall comply with the mandatory provisions of Chapter 14A in the Norwegian Working Environment Act, including the specification of which customers are covered by the Participant’s obligation to refrain from Solicitation in a written statement.”

Singapore. For a Singaporean resident, for so long as the Participant resides in Singapore and is subject to the laws of the Republic of Singapore:

(i)In second sentence of Section 5(d),the phrase “that, in the Committee’s sole and absolute discretion, reflects the seriousness of the Competitive Action and/or Misconduct; the maximum amount that the Company may demand from the Participant is” shall be added after the words “an amount” ;

(ii) In Section 5(d), in the last sentence, the following phrase shall be deleted:

“and are not liquidated damages nor shall they be characterized as such”;

(iii) Section 9(e) shall be deleted in its entirety and replaced with the following:

“(e) This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware. The Participant hereby irrevocably consents to the personal jurisdiction of the courts of the Republic of Singapore for the resolution of any disputes arising out of, or relating to, this Agreement.”

(iv) The provisions in “Addendum for Australia, Canada, Hong Kong and Singapore” set forth below shall be applicable.

United Kingdom. For a United Kingdom resident, for so long as the Participant resides in the United Kingdom and is subject to the laws of England and Wales or if the Participant is employed under an employment contract which is governed by English law at the time of grant of the Performance Units: (i) in the last sentence of Section 4 the phrase “the Competitive Action restriction set forth in Section 5(d)” shall be deleted and replaced with “the restrictions set forth in Exhibit A II. Countries other than the United States of America: United Kingdom” and (ii) the following

terms and provisions shall amend and supersede the terms and provisions of Section 5(d), Section 9(e), Section 9(j)(iv), Section 9(j)(v), Section 9(j)(vi), Section 9(j)(vii), Section 9(j)(xii) and Section 9(j)(xiii) of this Agreement as follows:

1. TERMINATION OF EMPLOYMENT

With effect from the earlier of the date of termination of the Participant’s employment or the date that the Participant gives or receives notice of termination of the Participant’s employment for any reason, any unsettled Performance Units shall lapse and be forfeited (except as set out in Section 5(b) of this Agreement and subject to the forfeiture provisions in paragraph 3 below) and the Participant shall have no further rights with respect to any such unsettled Performance Units.

2. RESTRICTIVE COVENANTS

2.1 The Participant covenants with the Company and the Group that the Participant will not, save with the prior written consent of the Committee (in its absolute discretion):

2.1.1. during the Restricted Period directly or indirectly be employed, engaged or retained by or otherwise concerned or interested in any Competing Business. For this purpose, the Participant is directly or indirectly employed, engaged or retained by or concerned or interested in a Competing Business if:

(a) the Participant carries it on as principal or agent; or

(b) the Participant is a partner, director, employee, secondee, consultant or agent in, of or to any person who carries on the Competing Business;

(c) the Participant has any direct or indirect financial interest (as shareholder, creditor or otherwise) in any person who carries on the Competing Business; and/or

(d) the Participant is a partner, director, employee, secondee, consultant or agent in, of or to any person who has a direct or indirect financial interest (as shareholder, creditor or otherwise) in any person who carries on the Competing Business,

disregarding any financial interest the Participant may have in securities which are listed or dealt in on a recognised investment exchange if the Participant is interested in securities which amount to less than 3% of the issued securities of that class and which, in all circumstances, carry less than 3% of the voting rights (if any) attaching to the issued securities of that class;

2.1.2 during the Restricted Period and whether directly or indirectly, either alone or with or on behalf of any person, firm, company or entity and whether on his or her own account or as principal, partner, shareholder, director, employee, consultant or in any other capacity whatsoever, have any business dealings with any Client or Prospective Client in relation to or for the benefit of a Competing Business;

2.1.3 during the Restricted Period and whether directly or indirectly, either alone or with or on behalf of any person, firm, company or entity and whether on his or her own account or as principal, partner, shareholder, director, employee, consultant or in any other capacity whatsoever, canvass or solicit business or custom from or seek to entice away any Client or Prospective Client from the Company or any Group Company in relation to or for the benefit of a Competing Business;

2.1.4 during the Restricted Period, directly or indirectly, solicit or endeavour to solicit the employment or engagement of any Key Employee (whether or not such person would thereby breach their contract of employment or engagement);

2.1.5 at any time after the Termination Date represent himself as being in any way connected with (other than as a former employee) or interested in the business of the Company or any Group Company or use any registered names, domain names or trading names the same as or that could reasonably be expected to be confused with any such names used by the Company or any Group Company.

2.1.6 before or after the Termination Date, and except in the proper performance of his or her duties of employment by the Company or any Group Company, directly or indirectly use for his or her own purposes or those of a third party or disclose to any third party any Confidential Information. The Participant will use his or her best endeavours to prevent any unauthorised use or disclosure of Confidential Information. The obligations contained in this clause 2.1.6 will not apply to any disclosures required by law or to any

information or documents which after the Termination Date are in the public domain other than by way of unauthorised disclosure.

2.2 The Participant gives the covenants above to the Company as trustee for itself (and any company forming part of the Group).

2.3 Each restriction contained in this clause 2 is an entirely separate and independent restriction, despite the fact that they may be contained in the same phrase, and if any part is found to be unenforceable the remainder will remain valid and enforceable.

2.4 While the restrictions in this clause 2 are considered by the parties to be fair and reasonable in the circumstances, it is agreed that if any such restriction should be held to be void or ineffective for any reason but would be treated as valid and effective if some part of parts of the restriction were deleted, the restriction in question will apply with such deletion as may be necessary to make it valid and effective.

2.5 If, during the Participant’s employment or any period during which these restrictions apply, any person, firm, company or entity offers the Participant any employment, engagement, arrangement or contract which might or would cause him or her to breach any of the restrictions, he or she will notify that person, firm, company or entity of the terms of these restrictions.

2.6 The period of any restraint on the Participant’s activities after the Termination Date imposed pursuant to clauses 2.1.1 to 2.1.4 shall be reduced pro rata by any period of garden leave served by the Participant pursuant to his or her service agreement with the Company or any Group Company.

2.7 If the Participant breaches any of the covenants contained in clauses 2.1.1 to 2.1.6, then any unsettled Performance Units will lapse with immediate effect and the Participant will be obliged to return all amounts paid to the Participant in respect of the Performance Units within the Restricted Period to the Company within 14 days of being notified by the Company of its discovery of the breach.

2.8 In this clause, the following definitions shall apply:


“Client”			means any person, firm, company or other business entity whom or which during the Relevant Period: (a) to whom the Company or any Group Company provided insurance or reinsurance; or (b) was an insurance intermediary which introduced such insurance or reinsurance business to the Company or any Group Company, and in each case with whom or which during the Relevant Period: i)the Participant (or any person reporting to the Participant) had Material Dealings in relation to Relevant Business; or ii)about whom or which the Participant has had Confidential Information during the course of his or her employment.
“Competing Business”			means any business which at any time is in or which intends to be in competition with any Relevant Business.
“Confidential Information”			means any and all information which is of a confidential nature or which the Company reasonably regards as being confidential or a trade secret concerning the business, business performance or prospective business, financial information or arrangements, plans or internal affairs of the Company, any Group Company or any of their respective Clients or Prospective Clients including without prejudice to the generality of the foregoing all information, records and materials relating to: (1)underwriting premiums or quotes, income and receipts, claims records and levels, renewals, policy wording and terms, reinsurance quotas, profit commission; (2)syndicate or other business projections and forecasts; (3)Client lists, brokers lists and price sensitive information; (4)technical information, reports, interpretations, forecasts, corporate and business plans and accounts, business methods, financial details, projections and targets; (5)remuneration and personnel details; (6)planned products, planned services, marketing surveys, research reports, market share and pricing statistics, budgets, fee levels; (7)computer passwords, the contents of any databases, tables, know how documents or materials; (8)commissions, commission charges, pricing policies and all information about research and development; and (9)the Company’s or any Group Company’s suppliers’, Clients’ or Prospective Clients’ names, addresses (including email addresses), telephone, facsimile or other contact numbers and contact names, the nature of their business operations, their requirements for services supplied by the Company or any Group Company and all confidential aspects of their relationship with the Company or any Group Company.
“directly or indirectly”			means (without prejudice to the generality of the expression) either alone or jointly with or on behalf of any other person and whether on his or her own account or in partnership with another or others or as the holder of any interest in or as officer, employee or agent of or consultant to any other person.
“Group”			means the Company, its subsidiaries or holding companies from time to time and any subsidiary of any holding company from time to time; and “Group Company” means any company within the Group.
“Key Employee”			means any director or officer of the Company or any Group Company and/or any employee (other than administrative or clerical personnel) of the Company or any Group Company, in each case who, at any time during the Relevant Period: i)was employed by the Company or any Group Company; and ii)with whom the Participant has had Material Dealings or exercised control or had management responsibility for; and/or iii)has had access to or has obtained Confidential Information during the Relevant Period.
“Material Dealings”			means receiving orders, instructions or enquiries from, contracting or making preparations to contract with, making sales or presenting to or with, tendering for business from, having responsibility with or for, having personal knowledge of or otherwise having significant other contact.

“Prospective Client”			means any person, firm, company or other business entity who was at any time during the Relevant Period: (a) in negotiations with the Company or any Group Company for the provision of insurance or reinsurance; or (b) an insurance intermediary who may introduce such insurance or reinsurance business to the Company or any Group Company, and in each case with whom or which during the Relevant Period: i)the Participant (or any person reporting to the Participant) had Material Dealings in relation to Relevant Business; or ii)about whom or which the Participant has had Confidential Information during the course of Participant’s employment. Provided that this definition shall not apply to any such person, firm, company or other business entity which has withdrawn from or discontinued such negotiations or discussions, having stated its intention to do so (other than through any unlawful activity by the Participant).
“Relevant Business”			means any class or classes of insurance or reinsurance business which was underwritten in the twelve months immediately prior to the Termination Date by the Company or any Group Company and with which the Participant was directly or indirectly materially concerned or involved or had personal knowledge in the course of Participant’s duties during the Relevant Period.
“Relevant Period”			means (1) during employment, the twelve month period immediately prior to the action or activity that may be in breach of clauses 2.1.1 to 2.1.4 and (2) after termination of employment, the twelve month period immediately prior to the Termination Date.
“Restricted Period”			means the period beginning on the date hereof and ending two years following the Settlemant Date.
“Termination Date”			means the date on which the Participant’s employment or engagement with the Company terminates for any reason.

3. CLAWBACK

3.1 If at any time under the terms of this Agreement the Committee becomes aware of any material wrongdoing, negligence or misconduct on the part of the Participant that would have entitled the Company to terminate the Participant's employment with or without notice for Cause, and (x) if such material wrongdoing, negligence or misconduct occurred prior to the Settlement Date, all Performance Units will lapse with immediate effect or (y) if such material wrongdoing, negligence or misconduct occurred on or after the Settlement Date or occurred prior to the Settlement Date but was not discovered until after the Settlement

Date, the Company will be entitled, in its absolute discretion, to recover from the Participant up to 100% of the amount paid on the Settlement Date to the Participant in respect of the Performance Units (which have been settled within the 2 years prior to such determination by the Committee) to the Company within 14 days of being notified in writing by the Company of its discovery of the material wrongdoing, negligence or misconduct.

3.2 Clause 3.1 is without prejudice to the Company's other remedies for such wrongdoing or any other clawback policy that the Company may adopt from time to time as required by applicable laws or the applicable listing rules of any securities exchange.

3.3 The Committee may review any Performance Units granted to the Participant under the terms of this Agreement, in light of:

a.there being a significant deterioration in the financial health of the Company, the Group or the business area or team in which the Participant worked;

b.the Participant having caused harm to the reputation of the Company or the Group;

c.the Participant having deliberately misled the Company in relation to the financial performance of the Company, the Group or the business area or team in which he or she worked; and/or

d.the Participant’s actions having amounted to gross misconduct, incompetence or negligence.

Following a review, the Committee may, in its sole discretion, (x) if prior to the Settlement Date, determine that up to 100% of any unsettled Performance Units granted under this Agreement will lapse with immediate effect or, (y) if on or after the Settlement Date, the Company will be entitled in its absolute discretion to recover from the Participant up to 100% of the amount paid to the Participant in respect of the Performance Units granted under this Agreement (which have been settled within the 2 years prior to such determination by the Committee).

3.4 The Participant agrees that any sums owed to the Company or any Group Company under this Agreement including any adjustment, forfeiture or repayment may be deducted from any sums due to the Participant from the Company or any Group Company. For the avoidance of doubt, this is without prejudice to any right the Company or the Group may have at any time to recover any sums from the Participant and the Participant agrees that such sums are recoverable by the Company or any Group Company as a debt.

3.5 In this Clause 3, “Cause” means:

a.any serious negligence or gross misconduct by the Participant in connection with or affecting the business or affairs of the Company or any member of the Group;

b.the Participant being convicted of any arrestable offence other than an offence under road traffic legislation in the UK; or

c.the Participant being convicted of an offence under any statutory enactment or regulation relating to insider dealing or market abuse.

4. CHOICE OF LAW

4.1 Any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with this Agreement or its subject matter or formation shall be governed by and construed in accordance with the law of England and Wales.

5. ARBITRATION

5.1 If at any time any dispute or question shall arise between the parties arising out of or in connection with this Agreement or its or their validity, construction or performance then the same shall be referred to and finally resolved by arbitration under the London Court of International Arbitration Rules, which Rules are deemed to be incorporated by reference into this clause.

The number of arbitrators shall be three.

The seat, or legal place, of arbitration shall be London, England.

The language to be used in the arbitral proceedings shall be English.

The governing law of the contract shall be the substantive law of England and Wales.

Addendum for Australia, Canada, Hong Kong and Singapore. For residents of Australia, Canada, Hong Kong or Singapore, for so long as Participant resides in his or her respective country and is subject to the laws of such country, Sections 9(j)(iv), 9(j)(v), 9(j)(vi), 9(j)(vii) and 9(j)(xiii) shall be deleted and the remaining subsections in Section 9(j) shall be renumbered accordingly.

In Section 5 a new subsection (f) shall be added as follows

(f) The Participant covenants with the Company and the Group that the Participant will not, save with the prior written consent of the Committee (in its absolute discretion):

A. during the Restricted Period, directly or indirectly, be employed, engaged or retained by or otherwise concerned or interested in any Competing Business. For this purpose, the Participant is directly or indirectly employed, engaged or retained by or concerned or interested in a Competing Business if:

(i) the Participant carries it on as principal or agent; or

(ii) the Participant is a partner, director, employee, secondee, consultant or agent in, of or to any person who carries on the Competing Business;

(iii) the Participant has any direct or indirect financial interest (as shareholder, creditor or otherwise) in any person who carries on the Competing Business; and/or

(iv) the Participant is a partner, director, employee, secondee, consultant or agent in, of or to any person who has a direct or indirect financial interest (as shareholder, creditor or otherwise) in any person who carries on the Competing Business,

B. during the Restricted Period and whether directly or indirectly, either alone or with or on behalf of any person, firm, company or entity and whether on his or her own account or as principal, partner, shareholder, director, employee, consultant or in any other capacity whatsoever, have any business dealings with any Client or Prospective Client in relation to or for the benefit of a Competing Business;

C. during the Restricted Period and whether directly or indirectly, either alone or with or on behalf of any person, firm, company or entity and whether on his or her own account or as principal, partner, shareholder, director, employee, consultant or in any other capacity whatsoever, canvass or solicit business or custom from or seek to entice away any Client or Prospective Client from the Company or any Group Company in relation to or for the benefit of a Competing Business;

D. during the Restricted Period, directly or indirectly, solicit or endeavour to solicit the employment or engagement of any Key Employee (whether or not such person would thereby breach their contract of employment or engagement);

E. at any time after the Termination Date represent himself or herself as being in any way connected with (other than as a former employee) or interested in the business of the Company or any Group Company or use any registered names, domain names or trading names the same as or that could reasonably be expected to be confused with any such names used by the Company or any Group Company.

F. before or after the Termination Date and except in the proper performance of his or her duties of employment for the Company or Group Company directly or indirectly use for his or her own purposes or those of a third party or disclose to any third party any Confidential Information. The Participant will use his or her best endeavours to prevent any unauthorised use or disclosure of Confidential Information. The obligations contained in this subsection F will not apply to any disclosures required by law or to any information or documents which after the Termination Date are in the public domain other than by way of unauthorised disclosure.

The Participant gives the covenants above to the Company as trustee for itself (and any company forming part of the Group).

Each restriction contained in this Section 5(f) is an entirely separate and independent restriction, despite the fact that they may be contained in the same phrase, and if any part is found to be unenforceable the remainder will remain valid and enforceable.

While the restrictions in this Section 5(f) are considered by the parties to be fair and reasonable in the circumstances, it is agreed that if any such restriction should be held to be void or ineffective for any reason but would be treated as valid and effective if some part of parts of the restriction were deleted, the restriction in question will apply with such deletion as may be necessary to make it valid and effective.

The period of any restraint on the Participant’s activities after the Termination Date imposed pursuant to sub-section A to D of Section 5(f) shall be reduced pro rata by any period of garden leave served by the Participant pursuant to his or her service agreement with the Company or any Group Company.

The determination as to whether the Participant has engaged in a Competitive Action shall be made by the Committee in its sole and absolute discretion. The Committee has sole and absolute discretion to determine whether, notwithstanding its determination that Participant has engaged in a Competitive Action, recapture or forfeiture as provided herein shall not occur. The Committee’s exercise or nonexercise of its discretion with respect to any particular event or occurrence by or with respect to the Participant or any other recipient of restricted stock units shall not in any way reduce or eliminate the authority of the Committee to (i) determine that any event or occurrence by or with respect to the Participant constitutes engaging in a Competitive Action or (ii) determine the related Competitive Action date.

In this Agreement, the following definitions shall apply:


“Client”			means any person, firm, company or other business entity whom or which during the Relevant Period: (a) to whom the Company or any Group Company provided insurance or reinsurance; or (b) was an insurance intermediary which introduced such insurance or reinsurance business to the Company or any Group Company, and in each case with whom or which during the Relevant Period: i)the Participant (or any person reporting to the Participant) had Material Dealings in relation to Relevant Business; or ii)about whom or which the Participant has had Confidential Information during the course of his or her employment.
“Competitive Action”			means any of the activities, individually or in the aggregate, described in sub-sections A through F of Section 5(f).
“Competing Business”			means any business which at any time is in or which intends to be in competition with any Relevant Business.
“Confidential Information”			means any and all information which is of a confidential nature or which the Company reasonably regards as being confidential or a trade secret concerning the business, business performance or prospective business, financial information or arrangements, plans or internal affairs of the Company, any Group Company or any of their respective Clients or Prospective Clients including without prejudice to the generality of the foregoing all information, records and materials relating to: (1)underwriting premiums or quotes, income and receipts, claims records and levels, renewals, policy wording and terms, reinsurance quotas, profit commission; (2)syndicate or other business projections and forecasts; (3)Client lists, brokers lists and price sensitive information; (4)technical information, reports, interpretations, forecasts, corporate and business plans and accounts, business methods, financial details, projections and targets; (5)remuneration and personnel details; (6)planned products, planned services, marketing surveys, research reports, market share and pricing statistics, budgets, fee levels; (7)computer passwords, the contents of any databases, tables, know how documents or materials; (8)commissions, commission charges, pricing policies and all information about research and development; and (9)the Company’s or any Group Company’s suppliers’, Clients’ or Prospective Clients’ names, addresses (including email addresses), telephone, facsimile or other contact numbers and contact names, the nature of their business operations, their requirements for services supplied by the Company or any Group Company and all confidential aspects of their relationship with the Company or any Group Company.
“directly or indirectly”			means (without prejudice to the generality of the expression) either alone or jointly with or on behalf of any other person and whether on his or her own account or in partnership with another or others or as the holder of any interest in or as officer, employee or agent of or consultant to any other person.
“Group”			means the Company, its subsidiaries or holding companies from time to time and any subsidiary of any holding company from time to time; and “Group Company” means any company within the Group.
“Key Employee”			means any director or officer of the Company or any Group Company and/or any employee (other than administrative or clerical personnel) of the Company or any Group Company, in each case who, at any time during the Relevant Period: i)was employed by the Company or any Group Company; and ii)with whom the Participant has had Material Dealings or exercised control or had management responsibility for; and/or iii)has had access to or has obtained Confidential Information during the Relevant Period.
“Material Dealings”			means receiving orders, instructions or enquiries from, contracting or making preparations to contract with, making sales or presenting to or with, tendering for business from, having responsibility with or for, having personal knowledge of or otherwise having significant other contact.
“Prospective Client”			means any person, firm, company or other business entity who was at any time during the Relevant Period: (a) in negotiations with the Company or any Group Company for the provision of insurance or reinsurance; or (b) an insurance intermediary who may introduce such insurance or reinsurance business to the Company or any Group Company, and in each case with whom or which during the Relevant Period: i)the Participant (or any person reporting to the Participant) had Material Dealings in relation to Relevant Business; or ii)about whom or which the Participant has had Confidential Information during the course of Participant’s employment. Provided that this definition shall not apply to any such person, firm, company or other business entity which has withdrawn from or discontinued such negotiations or discussions, having stated its intention to do so (other than through any unlawful activity by the Participant).
“Relevant Business”			means any class or classes of insurance or reinsurance business which was underwritten in the twelve months immediately prior to the Termination Date by the Company or any Group Company and with which the Participant was directly or indirectly materially concerned or involved or had personal knowledge in the course of Participant’s duties during the Relevant Period.
“Relevant Period”			means (1) during employment, the twelve month period immediately prior to the action or activity that may be in breach of clauses A to D of Section 5(f) and (2) after termination of employment, the twelve month period immediately prior to the Termination Date.
“Termination Date”			means the date on which the Participant’s employment or engagement with the Company terminates for any reason.

Exhibit 31.1

CERTIFICATIONS

I, W. Robert Berkley, Jr., President and Chief Executive Officer of W. R. Berkley Corporation (the “registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2020


			/s/ W. Robert Berkley, Jr.
			W. Robert Berkley, Jr.
			President and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Richard M. Baio, Senior Vice President - Chief Financial Officer and Treasurer of W. R. Berkley Corporation (the “registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2020


			/s/ Richard M. Baio
			Richard M. Baio
			Executive Vice President - Chief Financial Officer and Treasurer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of W. R. Berkley Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, W. Robert Berkley, Jr., President and Chief Executive Officer of the Company, and Richard M. Baio, Senior Vice President - Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ W. Robert Berkley, Jr.
W. Robert Berkley, Jr.
President and Chief Executive Officer

/s/ Richard M. Baio
Richard M. Baio
Executive Vice President - Chief Financial Officer and Treasurer

August 3, 2020

A signed original of this written statement required by Section 906 has been provided to W. R. Berkley Corporation (the “Company”) and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.