BERKLEY W R CORP (Form: 10-K, Received: 03/01/2007 13:55:35)

Signature

/s/ Eugene G. Ballard

Eugene G. Ballard

Senior Vice President, Chief Financial
Officer and Treasurer
(Principal accounting officer)

March 1, 2007

/s/ Clement P. Patafio

Clement P. Patafio

Vice President, Corporate Controller

March 1, 2007

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2006
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number 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 Number)
475 Steamboat Road, Greenwich, CT (Address of principal executive offices)		06830 (Zip Code)

Registrant’s telephone number, including area code: (203) 629-3000

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


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, par value $.20 per share		New York Stock Exchange
Rights to purchase Series A Junior Participating Preferred Stock		New York Stock Exchange
6.75% Trust Originated Preferred Securities		New York Stock Exchange

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates (computed by reference to the price at which the common stock was last sold) as of the last business day of the Registrant’s most recently completed second fiscal quarter was $5,734,489,801.

Number of shares of common stock, $.20 par value, outstanding as of February 23, 2007: 192,839,255.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s 2006 Annual Report to Stockholders for the year ended December 31, 2006 are incorporated herein by reference in Part II, and portions of the registrant’s definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2006, are incorporated herein by reference in Part III.

W. R. BERKLEY CORPORATION

ANNUAL REPORT ON FORM 10-K

December 31, 2006


		Page

SAFE HARBOR STATEMENT			3

PART I
ITEM 1.	BUSINESS		4
ITEM 1A.	RISK FACTORS		22
ITEM 1B.	UNRESOLVED STAFF COMMENTS		28
ITEM 2.	PROPERTIES		28
ITEM 3.	LEGAL PROCEEDINGS		28
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		28

PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		29
ITEM 6.	SELECTED FINANCIAL DATA		30
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		30
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		30
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		31
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		31
ITEM 9A.	CONTROLS AND PROCEDURES		31
ITEM 9B.	OTHER INFORMATION		31

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		31
ITEM 11.	EXECUTIVE COMPENSATION		31
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		31
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		32
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		32

PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES		32
EX-4.7: FIFTH SUPPLEMENTAL INDENTURE
EX-13: PORTIONS OF 2006 ANNUAL REPORT TO STOCKHOLDERS
EX-23: CONSENT OF KPMG LLP
EX-31.1: CERITIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION

SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “potential,” “continued,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. Any forward-looking statements contained herein including statements related to our outlook for the industry and for our performance for the year 2007 and beyond, are based upon our 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 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 cyclical nature of the property casualty 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;

	•	the uncertain nature of damage theories and loss amounts;

	•	natural and man-made catastrophic losses, including as a result of terrorist activities;

	•	the impact of competition;

	•	the success of our new ventures or acquisitions and the availability of other opportunities;

	•	the availability of reinsurance;

	•	exposure as to coverage for terrorist acts and our retention under The Terrorism Risk Insurance Act of 2002, as amended (“TRIA”), and the potential expiration of TRIA;

	•	the ability of our reinsurers to pay reinsurance recoverables owed to us;

	•	investment risks, including those of our portfolio of fixed income securities and investments in equity securities, including merger arbitrage investments;

	•	exchange rate and political risks relating to our international operations;

	•	legislative and regulatory developments, including those related to alleged anti-competitive or other improper business practices in the insurance industry;

	•	changes in the ratings assigned to us by rating agencies;

	•	availability of dividends from our insurance company subsidiaries;

	•	our ability to attract and retain qualified employees; and

	•	other risks detailed from time to time in this Form 10-K and in our filings with the Securities and Exchange Commission.

We describe these risks and uncertainties in greater detail in Item 1A, Risk Factors. These risks and uncertainties could cause our actual results for the year 2007 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our net premiums written and management fees would not necessarily result in commensurate levels of underwriting and operating profits. Our future financial performance is dependent upon factors discussed elsewhere in this Form 10-K and our other SEC filings. Forward-looking statements speak only as of the date on which they are made.

PART I


ITEM 1.	*BUSINESS*

W. R. Berkley Corporation, a Delaware corporation, is an insurance holding company that is among the largest commercial lines writers in the United States and operates in five segments of the property casualty insurance business:


	•	Specialty lines of insurance, including excess and surplus lines, premises operations, professional liability and commercial automobile

	•	Regional commercial property casualty insurance

	•	Alternative markets, including workers’ compensation and the management of self-insurance programs

	•	Reinsurance, including treaty, facultative and Lloyd’s business

	•	International

Our holding company structure provides us with the flexibility to respond 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. Our structure allows us to capitalize on the benefits of economies of scale through centralized capital, investment and reinsurance management, and actuarial, financial and corporate legal staff support.

Unless otherwise indicated, all references in this Form 10-K to “W. R. Berkley,” “we,” “us,” “our,” the “Company” or similar terms refer to W. R. Berkley Corporation together with its subsidiaries.

Our specialty insurance and reinsurance operations are conducted nationwide. Regional insurance operations are conducted primarily in the Midwest, Northeast, Southern (excluding Florida and Louisiana) and Mid Atlantic regions of the United States. Alternative markets operations are conducted throughout the United States. International operations are conducted in Europe, South America and the Philippines.

Net premiums written, as reported based on United States generally accepted accounting principles (“GAAP”), for each of the past five years were as follows:


	Year Ended December 31,
	2006			2005			2004			2003			2002
	(Amounts in thousands)

Net premiums written:
Specialty	$	1,814,479		$	1,827,865		$	1,497,567		$	1,258,273		$	987,305
Regional		1,235,302			1,196,487			1,128,800			963,988			776,577
Alternative markets		651,255			669,774			640,491			505,830			309,566
Reinsurance		892,769			719,540			823,772			832,634			550,384
International		225,188			190,908			175,731			109,790			79,313
Discontinued business(1)		—			—			—			—			7,345

Total	$	4,818,993		$	4,604,574		$	4,266,361		$	3,670,515		$	2,710,490

Percentage of net premiums written:
Specialty		37.7	%		39.8	%		35.1	%		34.2	%		36.4	%
Regional		25.6			26.0			26.5			26.3			28.7
Alternative markets		13.5			14.5			15.0			13.8			11.4
Reinsurance		18.5			15.6			19.3			22.7			20.3
International		4.7			4.1			4.1			3.0			2.9
Discontinued business(1)		—			—			—			—			0.3

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%


(1)		Represents personal lines and certain reinsurance lines that were discontinued in 2001.

The following sections describe our insurance segments and their operating units. These operating units underwrite on behalf of one or more affiliated insurance companies within the group pursuant to underwriting management agreements. Certain operating units are identified by us for descriptive purposes only and are not legal entities.

Five of our insurance company subsidiaries, Admiral Insurance Company, Nautilus Insurance Company, Admiral Indemnity Company, Great Divide Insurance Company, and Clermont Insurance Company, have A.M. Best Company, Inc. (“A.M. Best”) ratings of “A+ (Superior)” which is A.M. Best’s second highest rating. All of our other domestic insurance and company subsidiaries and W. R. Berkley Insurance (Europe), Limited have A.M. Best ratings of “A (Excellent)” which is the third highest rating out of 15 possible ratings by A.M. Best. A.M. Best’s ratings are based upon factors of concern to policyholders, insurance agents and brokers and are not directed toward the protection of investors. A.M. Best states: “While Best’s Financial Strength Ratings reflect [its] opinion as to a company’s financial strength and ability to meet its ongoing obligations to policyholders, they are not a warranty, nor are they a recommendation of a specific policy form, contract, rate or claim practice.” A.M. Best reviews its ratings on a periodic basis, and ratings of the Company’s subsidiaries are therefore subject to change.

SPECIALTY

Our specialty segment underwrites complex and sophisticated third-party liability risks, principally within excess and surplus lines. Excess and surplus lines differ from standard market lines in that excess and surplus lines are generally free of rate and form regulation and provide coverage for more complex and hard-to-place risks. The primary specialty lines of business are premises operations, professional liability, commercial automobile, products liability and property lines. The specialty business is conducted through nine operating units. The companies within the segment are divided along the different customer bases and product lines that they serve. The specialty units

deliver their products through a variety of distribution channels depending on the customer base and particular risks insured. The customers in this segment are highly diverse.

Admiral Insurance Company (“Admiral”) provides excess and surplus lines coverage that generally involves a moderate to high degree of hazard due to the nature of the class of coverage or type of business insured. Admiral concentrates on general liability, professional liability, property, and excess and umbrella liability lines of business. Admiral products are distributed by wholesale brokers. The average annual premium per policy was approximately $35,000 in 2006.

Nautilus Insurance Company (“Nautilus”) insures excess and surplus risks for small to medium-sized commercial risks with low to moderate susceptibility to loss. Admitted business is also written through an affiliate, Great Divide Insurance Company. A substantial portion of Nautilus’ business is written on a binding authority basis, subject to certain contractual limitations. The average annual premium per policy was approximately $3,700 in 2006.

Carolina Casualty Insurance Company (“Carolina”) provides commercial insurance products and services to the transportation industry with an emphasis on intermediate and long-haul trucking and various classes of business and public auto. Carolina operates as an admitted carrier in all states.

Vela Insurance Services, LLC (“Vela”) underwriters excess and surplus lines casualty business with a primary focus on contractors. Vela has offices in Chicago, Illinois and Solvang, California and underwrites a variety of classes nationwide through a network of appointed excess and surplus lines brokers. Vela also underwrites wrap-up policies for large residential projects, primarily in California, through a managing general agency. The average annual premium per policy was approximately $76,000 in 2006.

Berkley Specialty Underwriting Managers, LLC (“Berkley Specialty”) has three underwriting divisions. The specialty casualty division underwrites excess and surplus lines general liability coverage with an emphasis on products liability. The entertainment and sports division underwrites property casualty insurance products, both on an admitted and non-admitted basis, for the entertainment industry and sports-related organizations. The environmental division underwrites specialty insurance products to environmental customers such as contractors, consultants and owners of sites and facilities.

Monitor Liability Managers, Inc. (“Monitor”) specializes in professional liability insurance, including directors’ and officers’ liability, employment practices liability, lawyers’ professional liability, management liability and non-profit directors’ and officers’ liability.

Berkley Underwriting Partners, LLC (“Berkley Underwriting Partners”) underwrites specialty insurance products through program administrators and managing general underwriters. Berkley Underwriting Partners underwrites business nationwide on an admitted and non-admitted basis.

Clermont Specialty Managers, Ltd. (“Clermont”) underwrites package insurance programs, including workers’ compensation, for luxury condominium, cooperative and rental apartment buildings and restaurants in the New York City and Chicago metropolitan areas.

Berkley Aviation, LLC (“Aviation”) , which began operations in December 2005, underwrites general and specialty aviation insurance. It underwrites coverage for airlines, helicopters, miscellaneous general aviation operations, non-owned aircraft, fixed-base operations, control towers, airports, financial institutions, and related businesses.

The following table sets forth the percentage of gross premiums written by specialty unit:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Admiral		28.5	%		27.8	%		32.2	%		33.3	%		33.9	%
Nautilus		17.3			17.1			18.7			18.3			15.9
Carolina		14.3			13.6			16.0			14.8			16.1
Vela		11.9			14.1			9.6			10.0			8.0
Berkley Specialty		9.0			8.6			3.3			—			—
Monitor		7.1			8.0			11.1			13.2			13.7
Berkley Underwriting Partners		6.2			7.9			5.9			5.8			7.7
Clermont		3.0			2.8			3.2			3.4			3.7
Aviation		2.7			0.1			—			—			—
Surety(1)		—			—			—			1.2			1.0

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%


(1)		Surety was transferred to the regional segment in 2004.

The following table sets forth the percentages of gross premiums written, by line, by our specialty insurance operations:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Premises operations		42.2	%		43.7	%		40.2	%		40.4	%		34.8	%
Commercial automobile		15.0			15.0			17.0			17.3			20.0
Products liability		13.1			13.8			14.0			9.1			10.6
Property		12.2			9.1			9.5			10.1			11.5
Professional liability		8.9			9.9			12.9			15.1			14.3
Other		8.6			8.5			6.4			8.0			8.8

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

REGIONAL

Our regional companies provide commercial insurance products to customers primarily in 42 states and the District of Columbia. Key clients of this segment are small-to-mid-sized businesses and state and local governmental entities. The regional business is sold through a network of non-exclusive independent agents who are compensated on a commission basis. The regional companies are organized geographically in order to provide them with the flexibility to adapt quickly to local market conditions.

Continental Western Group (“Continental Western Group”) is based in Des Moines, Iowa and operates in 18 states in the Midwest and Pacific Northwest.

Acadia Insurance Company (“Acadia”) is based in Westbrook, Maine and operates in 8 states in the Northeast.

Union Standard Insurance Group (“Union Standard”) is based in Irving, Texas and operates in 9 states in southern states other than Florida and Louisiana.

Berkley Mid Atlantic Group is based in Glen Allen, Virginia and operates in 7 states in the Mid Atlantic region and District of Columbia.

Berkley Surety Group, Inc. (“Berkley Surety”), offers surety bonds on a nationwide basis through a network of ten regional and branch offices.

Berkley Regional Specialty Insurance Company (“BRSIC”) offers excess and surplus lines products through independent agents in our regional territories.

The following table sets forth the percentage of gross premiums written by each region:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Continental Western Group		33.1	%		34.3	%		35.2	%		36.3	%		36.4	%
Acadia		25.1			25.7			26.4			27.1			26.3
Union Standard		16.6			15.2			15.0			15.1			15.4
Berkley Mid Atlantic Group		15.5			14.6			13.8			12.8			13.6
Berkley Surety		2.0			2.0			2.2			—			—
BRSIC		0.5			—			—			—			—
Assigned risk plans(1)		7.2			8.2			7.4			8.7			8.3

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%


(1)		Assigned risk premiums are written on behalf of assigned risk plans managed by the Company and 100% reinsured by the respective state-sponsored assigned risk pools.

The following table sets forth the percentages of gross premiums written, by line, by our regional insurance operations:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Commercial Multi-Peril		35.5	%		35.8	%		36.6	%		36.6	%		35.2	%
Automobile		25.3			25.4			26.0			25.9			25.8
Workers’ Compensation		17.9			17.6			17.1			17.5			17.2
Assigned risk plans(1)		7.2			8.2			7.4			8.7			8.3
Other		14.1			13.0			12.9			11.3			13.5

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

The following table sets forth the percentages of direct premiums written, by state, by our regional insurance operations:


	Year Ended December 31,
	2006			2005			2004			2003			2002

State
Massachusetts		7.0	%		7.5	%		7.6	%		7.7	%		7.2	%
Kansas		6.8			6.7			7.5			7.9			8.3
Texas		6.2			6.0			6.1			6.4			6.2
Pennsylvania		5.6			5.5			5.1			4.2			3.9
New Hampshire		5.3			5.4			5.9			6.2			6.9
Maine		5.1			5.3			5.7			6.2			7.5
Iowa		4.6			4.8			4.7			4.7			4.6
Nebraska		4.0			4.0			4.2			4.5			4.8
Vermont		3.5			3.6			3.6			3.8			4.1
Minnesota		3.4			3.9			4.0			3.8			3.5
Missouri		3.3			3.4			3.6			3.5			3.2
Colorado		3.3			3.1			3.0			3.0			3.3
North Carolina		3.2			3.1			3.1			3.2			4.0
Connecticut		2.9			2.9			2.8			1.7			0.9
Arkansas		2.8			2.6			2.4			1.9			1.9
Wisconsin		2.7			2.9			3.1			2.8			2.7
South Dakota		2.6			3.0			3.3			3.6			3.6
Virginia		2.6			2.8			2.8			2.7			2.7
Mississippi		2.4			2.0			2.0			2.1			2.1
Washington		2.3			2.0			1.8			1.7			0.9
Maryland		2.1			1.7			1.5			1.2			1.0
Illinois		2.0			1.8			2.0			2.0			2.2
New York		1.8			1.9			1.7			0.8			1.2
Tennessee		1.7			1.7			1.8			4.1			1.8
Oklahoma		1.6			1.6			1.5			1.5			1.5
Idaho		1.2			1.2			1.2			1.5			1.5
Other		10.0			9.6			8.0			7.3			8.5

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

ALTERNATIVE MARKETS

Our alternative markets operations specialize in insuring, reinsuring and administering self-insurance programs and other alternative risk transfer mechanisms. Our clients include employers, employer groups, insurers, and other groups seeking alternative ways to manage their exposure to risks. Often, this results in our customers choosing to retain more of this risk than they might otherwise retain in the traditional insurance market. In addition to providing insurance, the alternative markets segment also provides a wide variety of fee-based services, including claims, administrative and consulting services.

Midwest Employers Casualty Company (“MECC”) provides excess workers’ compensation coverage and risk management services to self-insured employers and groups. Excess workers compensation is coverage above an amount retained, or self-insured, by the employer or group and includes large deductible and reinsurance programs.

Key Risk Insurance Company (“Key Risk”) offers primary workers’ compensation insurance principally in North Carolina. Key Risk focuses on middle-market accounts in specialty niches and on larger self-insured entities, with a special emphasis on managed care services. An affiliate, Key Risk Management Services, Inc., provides third party administration of self-insured workers’ compensation programs.

Preferred Employers Insurance Company (“Preferred Employers”) offers workers’ compensation insurance in California with an emphasis on owner-managed small employers.

Berkley Risk Administrators Company, LLC (“BRAC”) underwrites property casualty insurance primarily for human services and not-for profit entities and provides risk management services to business, governmental entities, assigned risk plans, non-profit entities and insurance companies. BRAC’s services include third-party administration, claims adjustment and management, risk management, employee benefit consulting, accounting services, loss control and safety consulting, management information systems, regulatory compliance and alternative markets program management.

Berkley Medical Excess Underwriters, LLC, (“Medical Excess”) underwrites medical malpractice excess insurance and reinsurance coverage and services to hospitals and hospital associations.

Berkley Net Underwriters, LLC , (“Net”), which was formed in December 2005, uses a web-based system to allow producers to quote, bind and service insurance policies. Its initial focus is on the workers’ compensation market.

Berkley Accident and Health, LLC , (“A&H”), which was formed in December 2005, underwrites accident and health insurance and reinsurance products.

The following table sets forth the percentages of gross premiums written by each alternative markets unit:


	Year Ended December 31,
	2006			2005			2004			2003			2002

MECC		44.6	%		41.6	%		36.9	%		37.8	%		48.3	%
Key Risk		16.8			15.4			13.6			12.9			16.4
Preferred Employers		16.0			20.9			26.4			27.4			24.4
BRAC		7.0			7.6			7.1			8.2			7.4
Medical Excess		5.4			6.2			6.4			8.0			2.4
Net		0.8			—			—			—			—
A&H		0.4			—			—			—			—
Assigned risk plans(1)		9.0			8.3			9.6			5.7			1.1

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%


(1)		Assigned risk premiums are written on behalf of assigned risk plans managed by the Company and 100% reinsured by the respective state-sponsored assigned risk pools.

The following table sets forth services fees for insurance services business conducted by BRAC and Key Risk (amounts in thousands):


	Year Ended December 31,
	2006		2005		2004		2003		2002

Services fees	$	104,812	$	110,697	$	109,344	$	101,715	$	86,095

REINSURANCE

Our reinsurance operations consist of seven operating units, which specialize in underwriting property casualty reinsurance on both a treaty and a facultative basis on behalf of Berkley Insurance Company. Treaty reinsurance is the reinsurance of all or a specified portion or category of risks underwritten by the ceding company during the term of the agreement. Facultative reinsurance is the reinsurance of individual risks whereby a reinsurer generally has the opportunity to analyze and separately underwrite a risk prior to agreeing to be bound.

Signet Star Re, LLC (“Treaty”) focuses on underwriting specialty lines of business, including professional liability, umbrella, workers’ compensation, commercial automobile and trucking. Signet Star emphasizes casualty excess of loss treaties and seeks significant participations in order to have greater influence over the terms and conditions of coverage. Signet Star business is produced through reinsurance brokers or intermediaries as opposed to direct relationships with the ceding companies.

Facultative ReSources, Inc. (“Fac Re”) specializes in underwriting individual certificate and program facultative business developed through brokers. Its experienced underwriters seek to offset the underwriting and pricing cycles in the underlying insurance business by working closely with ceding company clients to develop appropriate underwriting criteria and through superior risk selection.

Lloyd’s of London (“Lloyd’s”) represents a broad range of mainly short-tail classes of business, which are written through Lloyd’s.

B F Re Underwriters, LLC. (“BF Re”) is a direct facultative casualty reinsurance underwriting manager that serves clients through a nationwide network of regional offices. B F Re’s primary lines of business are professional liability, excess and surplus, umbrella and medical malpractice.

Berkley Risk Solutions, Inc. (“Berkley Risk Solutions”) underwrites insurance and reinsurance-based financial solutions to insurance companies and self-insured entities. It also underwrites traditional treaty reinsurance of domestic medical malpractice insurers.

Watch Hill Fac Management, LLC , (“Watch Hill”), which commenced operations in 2005, underwrites business on an excess of loss basis or, in the case of umbrella business, on a contributing excess basis, for most commercial casualty lines of business with an emphasis on general liability, products liability, construction risks, automobile liability and umbrella.

Berkley Insurance Company — Hong Kong Branch (“Hong Kong”), which was formed in 2006, provides most major classes of general insurance business in the Asia Pacific region with an initial focus on property facultative reinsurance.

The following table sets forth the percentages of gross premiums written by each reinsurance unit:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Treaty		36.1	%		42.2	%		38.8	%		37.5	%		41.5	%
Fac Re		16.2			23.1			27.3			30.4			27.3
Lloyd’s		18.7			21.6			24.4			25.9			31.2
BF Re		9.6			12.3			9.1			6.2			—
Berkley Risk Solutions		16.6			0.8			0.4			—			—
Watch Hill		2.7			—			—			—			—
Hong Kong		0.1			—			—			—			—

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

The following table sets forth the percentages of gross premiums written, by property versus casualty business, by our reinsurance operations:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Casualty		83.2	%		81.2	%		79.4	%		79.4	%		73.4	%
Property		16.8			18.8			20.6			20.6			26.6

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

INTERNATIONAL

Our international segment has operations in Argentina, the United Kingdom, Spain, Brazil and the Philippines. We apply the same long-term strategies that that we use in our domestic operations — decentralized structures with products and services tailored to the local environments.

W. R. Berkley Insurance (Europe), Limited (“Berkley Europe”) which is owned 80% by W. R. Berkley Corporation and 20% by Kiln plc, is a London-based specialty casualty insurer that writes professional indemnity, directors’ and officers’ liability, medical malpractice, general liability and personal accident and travel business, primarily in the United Kingdom. In 2005, Berkley Europe began offering medical malpractice and professional indemnity coverage in Spain through its branch offices in Madrid and Barcelona.

South America provides commercial and personal property casualty insurance primarily in Argentina and surety business in Brazil.

Philippines provide savings and life products to customers in the Philippines.

The following table set forth the percentages of direct premiums for our international operations:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Berkley Europe		53.1	%		56.5	%		58.1	%		40.7	%		—	%
South America		42.5			39.5			38.9			54.7			82.3
Philippines		4.4			4.0			3.0			4.6			17.7

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Results by Industry Segment

Summary financial information about our operating segments is presented on a GAAP basis in the following table:


	Year Ended December 31,
	2006			2005			2004			2003			2002
	(Amounts in thousands)

Specialty
Revenue	$	1,952,928		$	1,816,483		$	1,491,104		$	1,204,746		$	849,690
Income before income taxes	$	479,105		$	345,896		$	275,689		$	200,428		$	137,307
Regional
Revenue	$	1,289,869		$	1,230,793		$	1,112,801		$	923,965		$	749,750
Income before income taxes	$	201,417		$	216,495		$	184,152		$	153,292		$	104,085
Alternative Markets
Revenue	$	878,531		$	856,792		$	774,397		$	569,463		$	360,670
Income before income taxes	$	291,416		$	238,462		$	133,438		$	88,742		$	60,481
Reinsurance
Revenue	$	993,120		$	849,207		$	915,276		$	763,861		$	417,627
Income before income taxes	$	135,424		$	63,606		$	85,995		$	58,201		$	16,008
International
Revenue	$	248,894		$	208,836		$	167,849		$	85,145		$	94,609
Income (loss) before income taxes	$	34,447		$	20,890		$	18,790		$	3,242		$	(1,757	)
Discontinued
Revenue		—			—			—			—		$	55,774
Loss before income taxes		—			—			—			—		$	(10,682	)
Other(1)
Revenue	$	31,489		$	34,728		$	50,808		$	82,928		$	37,964
Loss before income taxes	$	(153,164	)	$	(114,812	)	$	(59,551	)	$	(14,601	)	$	(46,009	)
Total
Revenue	$	5,394,831		$	4,996,839		$	4,512,235		$	3,630,108		$	2,566,084
Income before income tax	$	988,645		$	770,537		$	638,513		$	489,304		$	259,433


(1)		Represents corporate revenues, corporate expenses and realized investment gains and losses, which are not allocated to business segments.

The table below represents summary underwriting ratios, on a GAAP accounting basis for our insurance segments. The combined ratio represents a measure of underwriting profitability, excluding investment income. A number in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Specialty
Loss ratio		59.1	%		62.4	%		61.7	%		63.3	%		64.1	%
Expense ratio		25.0			25.1			25.6			25.1			25.7

Combined ratio		84.1	%		87.5	%		87.3	%		88.4	%		89.8	%

Regional
Loss ratio		59.7	%		55.8	%		55.7	%		56.3	%		59.1	%
Expense ratio		30.6			30.6			31.2			31.2			32.4

Combined ratio		90.3	%		86.4	%		86.9	%		87.5	%		91.5	%

Alternative Markets
Loss ratio		53.5	%		59.4	%		70.6	%		68.7	%		66.8	%
Expense ratio		22.1			20.1			21.2			24.2			30.5

Combined ratio		75.6	%		79.5	%		91.8	%		92.9	%		97.3	%

Reinsurance
Loss ratio		72.0	%		74.1	%		69.5	%		69.6	%		74.9	%
Expense ratio		27.8			30.1			29.1			29.4			31.4

Combined ratio		99.8	%		104.2	%		98.6	%		99.0	%		106.3	%

International
Loss ratio		64.2	%		66.5	%		61.0	%		58.7	%		54.4	%
Expense ratio		32.0			29.6			30.0			38.8			50.1

Combined ratio		96.2	%		96.1	%		91.0	%		97.5	%		104.5	%

Discontinued Business(1)
Loss ratio		—			—			—			—			98.7	%
Expense ratio		—			—			—			—			30.8

Combined ratio		—			—			—			—			129.5	%

Total
Loss ratio		61.0	%		62.4	%		63.0	%		63.4	%		65.0	%
Expense ratio		27.0			26.9			27.4			28.0			30.4

Combined ratio		88.0	%		89.3	%		90.4	%		91.4	%		95.4	%


(1)		Represents personal lines and certain reinsurance lines that were discontinued in 2001.

Investments

Investment results, before income taxes, were as follows:


	Year Ended December 31,
	2006			2005			2004			2003			2002
	(Amounts in thousands)

Average investments, at cost	$	11,062,491		$	9,221,710		$	7,176,955		$	5,326,621		$	3,881,121

Investment income, before expenses	$	587,976		$	406,935		$	293,866		$	244,347		$	210,900

Percent earned on average investments		5.3	%		4.4	%		4.1	%		4.6	%		5.4	%

Realized investment gains	$	9,648		$	17,209		$	48,268		$	81,692		$	37,070

Change in unrealized investment gains (losses)(1)	$	113,539		$	(118,934	)	$	(4,424	)	$	7,493		$	113,529


(1)		Represents the change in unrealized investment gains (losses) for available for sale securities and investment in partnerships and affiliates.

For comparison, the following are the coupon returns for selected bond indices and the dividend returns for the S&P 500 ^® Index:


	Year Ended December 31,
	2006			2005			2004			2003			2002

Lehman Brothers U.S. Aggregate Bond Index		5.3	%		4.9	%		5.0	%		5.3	%		6.0	%
Lehman Brothers Municipal Bond Index		4.8	%		4.7	%		4.8	%		4.8	%		5.1	%
S&P 500 ^® Index		2.2	%		1.8	%		1.9	%		2.3	%		1.3	%

The percentages of the fixed maturity portfolio categorized by contractual maturity, based on fair value, on the dates indicated, are set forth below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay certain obligations.


	2006			2005			2004			2003			2002

1 year or less		11.2	%		10.6	%		10.8	%		1.6	%		3.1	%
Over 1 year through 5 years		17.5			13.1			15.8			21.1			16.9
Over 5 years through 10 years		26.3			26.6			19.0			19.0			25.4
Over 10 years		22.8			32.1			36.4			36.8			27.8
Mortgage-backed securities		22.2			17.6			18.0			21.5			26.8

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Loss and Loss Adjustment Expense Reserves

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. 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 addition to the economic value of losses. These factors include 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 necessarily 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 the reserves are well tested over time, some of the major assumptions about anticipated loss emergence patterns are subject to unanticipated fluctuation. These estimates, which generally involve actuarial projections, are based on management’s assessment of facts and circumstances then known, as well as estimates of future 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 internal and external events, such as inflation and economic volatility, judicial and litigation trends, reinsurance coverage and legislative changes, 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 assure that its current reserves will prove adequate in light of subsequent events.

We discount our liabilities for excess workers’ compensation business and the workers’ compensation portion of our reinsurance business because of the long period of time over which losses are paid. Discounting is intended to appropriately match losses and loss expenses to income earned on investment securities supporting the liabilities. The expected losses and loss expense payout pattern subject to discounting was derived from the Company’s loss payout experience and is supplemented with data compiled from insurance companies writing similar business. The liabilities for losses and loss expenses have been discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve for non-proportional business, and at the statutory rate for proportional business. The discount rates range from 2.7% to 6.5% with a weighted average rate of 4.7%. The aggregate net discount, after reflecting the effects of ceded reinsurance, is $699,883,000, $575,485,000 and $502,874,000 at December 31, 2006, 2005 and 2004, respectively. The increase in the aggregate discount from 2005 to 2006 and from 2004 to 2005 resulted from the increase in workers’ compensation gross reserves.

To date, known asbestos and environmental claims at our insurance company subsidiaries have not had a material impact on our operations. Environmental claims have not materially impacted us because these subsidiaries generally did not insure the larger industrial companies which are subject to significant environmental exposures.

Our net reserves for losses and loss adjustment expenses relating to asbestos and environmental claims were $37,473,000 and $37,453,000 at December 31, 2006 and 2005, respectively. The Company’s gross reserves for losses and loss adjustment expenses relating to asbestos and environmental claims were $49,937,000 and $53,731,000 at December 31, 2006 and 2005, respectively. Net incurred losses and loss expenses for reported asbestos and environmental claims were approximately $3,000,000, $1,853,000 and $9,194,000 in 2006, 2005 and 2004, respectively. Net paid losses and loss expenses for reported asbestos and environmental claims were approximately $2,980,000, $2,658,000 and $2,802,000 in 2006, 2005 and 2004, respectively. The estimation of these liabilities is subject to significantly greater than normal variation and uncertainty because it is difficult to make a reasonable actuarial estimate of these liabilities due to the absence of a generally accepted actuarial methodology for these exposures and the potential affect of significant unresolved legal matters, including coverage issues as well as the cost of litigating the legal issues. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties are highly uncertain.

The table below provides a reconciliation of the beginning of year and end of year property casualty reserves for the indicated years(amounts in thousands):


	2006		2005		2004

Net reserves at beginning of year	$	5,867,290	$	4,722,842	$	3,505,295
Net provision for losses and loss expenses(a):
Claims occurring during the current year(b)		2,791,500		2,531,655		2,236,860
Increase in estimates for claims occurring in prior years(c)		26,663		186,728		294,931
Decrease in discount for prior years		39,507		57,790		24,220

		2,857,670		2,776,173		2,556,011

Net payments for claims:
Current year		456,073		447,018		409,776
Prior years		1,321,290		1,184,707		928,688

		1,777,363		1,631,725		1,338,464

Net reserves at end of year		6,947,597		5,867,290		4,722,842
Ceded reserves at end of year		836,672		844,470		726,769

Gross reserves at end of year	$	7,784,269	$	6,711,760	$	5,449,611


(a)		Net provision for loss and loss expenses excludes $6,828, $5,629, and $3,299 in 2006, 2005 and 2004, respectively, relating to the policyholder benefits incurred on life insurance that are included in the statement of income.

(b)		Claims occurring during the current year are net of discount of $133,965, $103,558, and $107,282 in 2006, 2005 and 2004, respectively.

(c)		The increase in estimates for claims occurring in prior years is net of discount of $29,940, $26,845 and $26,658 in 2006, 2005 and 2004 respectively. The increase in estimates for claims occurring in prior years before discount is $56,603, $213,573 and $321,589 in 2006, 2005 and 2004 respectively.

Also, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information regarding the increase in estimates for claims occurring in prior years.

A reconciliation between the reserves as of December 31, 2006 as reported in the accompanying consolidated GAAP financial statements and those reported on the basis of statutory accounting principles (“SAP”) is as follows (amounts in thousands):


Net reserves reported on a SAP basis	$	6,948,562
Additions (deductions) to statutory reserves:
International property & casualty reserves		240,670
Loss reserve discounting(1)		(241,601	)
Other		(34	)

Net reserves reported on a GAAP basis		6,947,597
Ceded reserves reclassified as assets		836,672

Gross reserves reported on a GAAP basis	$	7,784,269


(1)		For statutory purposes, we use a discount rate of 2.4% for non-proportional business as permitted by the Department of Insurance of the State of Delaware.

The following table presents the development of net reserves for 1996 through 2006. The top line of the table shows the estimated reserves for unpaid losses and loss expenses recorded at the balance sheet date for each of the indicated years. This represents the estimated amount of losses and loss expenses for claims arising in all prior years that are unpaid at the balance sheet date, including losses that had been incurred but not reported to us. The upper portion of the table shows the re-estimated amount of the previously recorded reserves based on experience as of the end of each succeeding year. The estimate changes as more information becomes known about the frequency and severity of claims for individual years.

The “cumulative redundancy (deficiency)” represents the aggregate change in the estimates over all prior years. For example, the 1996 reserves have developed a $214 million redundancy over ten years. That amount has been reflected in income over the ten years. The impact on the results of operations of the past three years of changes in reserve estimates is shown in the reconciliation tables above. It should be noted that the table presents a “run off” of balance sheet reserves, rather than accident or policy year loss development. Therefore, each amount in the table includes the effects of changes in reserves for all prior years. For example, assume a claim that occurred in 1996 is reserved for $2,000 as of December 31, 1996. Assuming this claim estimate was changed in 2006 to $2,300, and was settled for $2,300 in 2006, the $300 deficiency would appear as a deficiency in each year from 1996 through 2006.


Year Ended December 31,	1996		1997		1998			1999			2000			2001			2002			2003			2004			2005			2006
	(Amounts in millions)

Net reserves, discounted	$	1,333	$	1,433	$	1,583		$	1,724		$	1,818		$	2,033		$	2,323		$	3,505		$	4,723		$	5,867		$	6,948
Reserve discount		172		190		187			196			223			243			293			393			503			575			700

Net reserve, undiscounted	$	1,505	$	1,623	$	1,770		$	1,920		$	2,041		$	2,276		$	2,616		$	3,898		$	5,226		$	6,442		$	7,648

Net Re-estimated as of:
One year later	$	1,481	$	1,580	$	1,798		$	1,934		$	2,252		$	2,450		$	2,889		$	4,220		$	5,440		$	6,499
Two years later		1,406		1,566		1,735			2,082			2,397			2,671			3,242			4,552			5,588
Three years later		1,356		1,446		1,805			2,203			2,520			2,932			3,611			4,720
Four years later		1,239		1,463		1,856			2,260			2,634			3,233			3,769
Five years later		1,248		1,494		1,859			2,330			2,841			3,339
Six years later		1,271		1,488		1,886			2,449			2,889
Seven years later		1,265		1,495		1,955			2,460
Eight years later		1,266		1,539		1,958
Nine years later		1,291		1,537
Ten years later		1,291
Cumulative redundancy (deficiency), undiscounted	$	214	$	86	$	(188	)	$	(540	)	$	(848	)	$	(1,063	)	$	(1,153	)	$	(822	)	$	(362	)	$	(57	)

Cumulative amount of net liability paid through:
One year later	$	332	$	365	$	496		$	584		$	702		$	794		$	599		$	929		$	1,185		$	1,768
Two years later		523		574		795			1,011			1,255			1,191			1,216			1,749			2,107
Three years later		635		737		1,032			1,426			1,501			1,594			1,792			2,388
Four years later		714		852		1,306			1,567			1,722			1,971			2,223
Five years later		782		1,033		1,387			1,699			1,964			2,245
Six years later		903		1,068		1,448			1,831			2,138
Seven years later		935		1,112		1,522			1,934
Eight years later		966		1,163		1,583
Nine years later		1,000		1,208
Ten years later		1,033

The following table presents the development of gross reserves for 1996 through 2006.


Year Ended December 31,	1996		1997		1998		1999			2000			2001			2002			2003			2004			2005			2006
	(Amounts in millions)

Net reserves, discounted	$	1,333	$	1,433	$	1,583	$	1,724		$	1,818		$	2,033		$	2,323		$	3,505		$	4,723		$	5,867		$	6,947
Ceded Reserves		450		477		538		617			658			731			845			687			727			845			837

Gross reserves, discounted		1,783		1,910		2,121		2,341			2,476			2,764			3,168			4,192			5,450			6,712			7,784
Reserve discount		216		241		248		250			286			324			384			462			573			654			761

Gross reserve-undiscounted	$	1,999	$	2,151	$	2,369	$	2,591		$	2,762		$	3,088		$	3,552		$	4,654		$	6,023		$	7,366		$	8,545

Gross Re-estimated as of:
One year later	$	1,965	$	2,132	$	2,390	$	2,653		$	2,827		$	3,153		$	3,957		$	5,030		$	6,241			7,406
Two years later		1,959		2,096		2,389		2,556			2,730			3,461			4,353			5,380			6,382
Three years later		1,909		2,010		2,218		2,385			2,900			3,777			4,744			5,546
Four years later		1,823		1,871		2,079		2,465			3,054			4,103			4,885
Five years later		1,739		1,787		2,102		2,564			3,267			4,192
Six years later		1,688		1,795		2,139		2,684			3,296
Seven years later		1,692		1,805		2,212		2,682
Eight years later		1,692		1,857		2,198
Nine years later		1,723		1,842
Ten Years later		1,710
Gross cumulative redundancy (deficiency) (deficiency) undiscounted	$	289	$	309	$	171	$	(91	)	$	(534	)	$	(1,104	)	$	(1,333	)	$	(892	)	$	(359	)	$	(40	)

Reinsurance

We follow a common industry practice of reinsuring a portion of our exposures and paying to reinsurers a part of the premiums received on the policies that we write. Reinsurance is purchased principally to reduce net liability on individual risks and to protect against catastrophic losses. Although reinsurance does not legally discharge an insurer from its primary liability for the full amount of the policies, it does make the assuming reinsurer liable to the insurer to the extent of the reinsurance coverage. We monitor the financial condition of our reinsurers and attempt to place our coverages only with substantial, financially sound carriers. As a result, generally the reinsurers who reinsure our casualty insurance must have an A.M. Best rating of “A (Excellent)” or better with at least $500 million in policyholder surplus and the reinsurers who cover our property insurance must have an A.M. Best rating of “A-(Excellent)” or better with at least $250 million in policyholder surplus.

Regulation

Our insurance subsidiaries are subject to varying degrees of regulation and supervision in the jurisdictions in which they do business, and the Company believes that it is in compliance in all material respects with such regulations. They are subject to statutes which delegate regulatory, supervisory and administrative powers to state insurance commissioners. This regulation relates to such matters as the standards of solvency which must be met and maintained; the licensing of insurers and their agents; the nature of and limitations on investments; deposits of securities for the benefit of policyholders; approval of certain policy forms and premium rates; periodic examination of the affairs of insurance companies; annual and other reports required to be filed on the financial condition of insurers or for other purposes; establishment and maintenance of reserves for unearned premiums and losses; and requirements regarding numerous other matters. Our property casualty subsidiaries, other than excess and surplus and reinsurance subsidiaries, must generally file all rates with the insurance department of each state in which they operate. Our excess and surplus and reinsurance subsidiaries generally operate free of rate and form regulation.

In addition to regulatory supervision of our insurance subsidiaries, we are subject to state statutes governing insurance holding company systems. Typically, such statutes require that we periodically file information with the appropriate state insurance commissioner, including information concerning our capital structure, ownership,

financial condition and general business operations. Under the terms of applicable state statutes, any person or entity desiring to purchase more than a specified percentage (commonly 10%) of our outstanding voting securities would be required to obtain regulatory approval of the purchase. Under Florida law, which is applicable to us due to our ownership of Carolina Casualty Insurance Company, a Florida domiciled insurer, the acquisition of more than 5% of our capital stock must receive regulatory approval. Further, state insurance statutes typically place limitations on the amount of dividends or other distributions payable by insurance companies in order to protect their solvency. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”

Various state and federal organizations, including Congressional committees and the National Association of Insurance Commissioners (“NAIC”), have been conducting reviews into various aspects of the insurance business. No assurance can be given that future legislative or regulatory changes resulting from such activity will not adversely affect our insurance subsidiaries.

The NAIC utilizes a Risk Based Capital (“RBC”) formula that is designed to measure the adequacy of an insurer’s statutory surplus in relation to the risks inherent in its business. The RBC formula develops a risk adjusted target level of adjusted statutory capital by applying certain factors to various asset, premium and reserve items. The RBC Model Law provides for four incremental levels of regulatory attention for insurers whose surplus is below the calculated RBC target. These levels of attention range in severity from requiring the insurer to submit a plan for corrective action to actually placing the insurer under regulatory control. The RBC of each of our domestic insurance subsidiaries was above the authorized RBC control level as of December 31, 2006.

The Gramm-Leach-Bliley Act, or Financial Services Modernization Act of 1999 (the “Act”), was enacted in 1999 and significantly affects the financial services industry, including insurance companies, banks and securities firms. The Act modifies federal law to permit the creation of financial holding companies, which, as regulated by the Act, can maintain cross-holdings in insurance companies, banks and securities firms to an extent not previously allowed. The Act also permits or facilitates certain types of combinations or affiliations for financial holding companies. The Act establishes a functional regulatory scheme under which state insurance departments will maintain primary regulation over insurance activities, subject to provisions for certain federal preemptions.

Our insurance company subsidiaries are also subject to assessment by state guaranty funds when an insurer in a particular jurisdiction has been judicially declared insolvent and insufficient funds are available from the liquidated company to pay policyholders and claimants. The protection afforded under a state’s guaranty fund to policyholders of the insolvent insurer varies from state to state. Generally, all licensed property casualty insurers are considered to be members of the fund, and assessments are based upon their pro rata share of direct written premiums. The NAIC Model Post-Assessment Guaranty Fund Act, which many states have adopted, limits assessments to an insurer to 2% of its subject premium and permits recoupment of assessments through rate setting. Likewise, several states (or underwriting organizations of which our insurance subsidiaries are required to be members) have limited assessment authority with regard to deficits in certain lines of business.

We receive funds from our insurance company subsidiaries in the form of dividends and management fees for certain management services. Annual dividends in excess of maximum amounts prescribed by state statutes may not be paid without the approval of the insurance commissioner of the state in which an insurance subsidiary is domiciled.

The Terrorism Risk Insurance Act of 2002 became effective November 26, 2002 and was amended on December 22, 2005 by the Terrorism Risk Insurance Extension Act of 2005 (together, “TRIA”). TRIA establishe a temporary Federal program that provides for a system of shared public and private compensation for insured losses resulting from acts of terrorism. The program is scheduled to terminate on December 31, 2007. TRIA is applicable to almost all commercial lines of property and casualty insurance but excludes commercial auto, burglary and theft, surety, professional liability and farm owners multi-peril insurance. Insurers with direct commercial property and casualty insurance exposure in the United States are required to participate in the program and make available coverage for certified acts of terrorism. Federal participation will be triggered under TRIA when the Secretary of Treasury certifies an act of terrorism. Under the program, the federal government will pay 85% in 2007 of an insurer’s covered losses in excess of the insurer’s applicable deductible. The insurer’s deductible is based on a percent of earned premium for covered lines of commercial property and casualty insurance: for 2007 it will be 20%

of 2006 premium. Based on our 2006 earned premiums, our deductible under TRIA during 2007 will increase to approximately $618 million. As of 2007, the federal program will not pay losses for certified acts unless such losses exceed $100 million. TRIA limits the federal government’s share of losses at $100 billion for a program year. In addition, an insurer that has satisfied its deductible is not liable for the payment of losses in excess of the $100 billion cap. After December 31, 2007, there will not be a federal program available for terrorism losses unless TRIA is further extended or replaced. At such time, the Company will have the option to exclude terrorism losses from coverage, except for any lines of insurance or jurisdictions where exclusions are not permitted.

The insurance industry recently has become the subject of increasing scrutiny with respect to insurance broker and agent compensation arrangements and sales practices. The New York State Attorney General and other state and federal regulators have commenced investigations and other proceedings relating to compensation and bidding arrangements between producers and issuers of insurance products, and alleged unsuitable sales practices by producers on behalf of either the issuer or the purchaser. The practices currently under investigation include, among other things, allegations that so-called contingent commission arrangements may conflict with a broker’s duties to its customers and that certain brokers and insurers may have engaged in anti-competitive practices in connection with insurance premium quotes. The New York State Attorney General has entered into settlement agreements with several large insurance brokers and insurance companies. These investigations and proceedings are expected to continue, and new investigative proceedings may be commenced, in the future. These investigations and proceedings could result in legal precedents and new industry-wide practices or legislation, rules or regulations that could significantly affect the insurance industry and the Company. Following the public disclosure of the New York State Attorney General’s investigation, the Company commenced an internal review with the assistance of outside counsel that focused on the Company’s relationships with its distribution channels. As a result of its investigation, the Company uncovered at a single insurance operating unit certain limited instances of conduct that could be characterized as involving inappropriate solicitation practices. That operating unit has reached an agreement with its domiciliary insurance regulator resolving all issues pertaining to such regulator’s inquiry without penalty.

Competition

The property casualty insurance and reinsurance businesses are competitive, with over 2,000 insurance companies transacting business in the United States. We compete directly with a large number of these companies. Our strategy in this highly fragmented industry is to seek specialized areas or geographic regions where our insurance subsidiaries can gain a competitive advantage by responding quickly to changing market conditions. Our subsidiaries establish their own pricing practices. Such practices are based upon a Company-wide philosophy to price products with the intent of making an underwriting profit. Competition in the industry generally changes with profitability.

Competition for specialty and alternative markets business comes from other specialty insurers, regional carriers, large national multi-line companies and reinsurers. Under certain market conditions, standard carriers also compete for excess and surplus business.

Competition for the reinsurance business comes from domestic and foreign reinsurers, which produce their business either on a direct basis or through the broker market. These competitors include Berkshire Hathaway, Swiss Re, Transatlantic Reinsurance and Everest Reinsurance.

The regional property casualty subsidiaries compete with mutual and other regional stock companies as well as national carriers. Direct writers of property casualty insurance compete with the regional subsidiaries by writing insurance through their salaried employees, generally at a lower cost than through independent agents such as those used by the Company.

The international operations compete with native insurance operations both large and small, which may be related to government entities, as well as with branch or local subsidiaries of multinational companies.

Competition from Bermuda and other tax advantaged jurisdictions has increased over the last several years, including from domestic based subsidiaries of foreign based entities.

Employees

As of February 14, 2007, we employed 5,429 persons. Of this number, our subsidiaries employed 5,354 persons, of whom 3,610 were executive and administrative personnel and 1,744 were clerical personnel. We employed the remaining 75 persons at the parent company and in investment operations, of whom 60 were executive and administrative personnel and 15 were clerical personnel.

Other Information about the Company’s business

We maintain an interest in the acquisition or start up of complementary businesses and continue to evaluate possible acquisitions and new ventures on an ongoing basis. In addition, our insurance subsidiaries develop new coverages or lines of business to meet the needs of insureds.

Seasonal weather variations and other events affect the severity and frequency of losses sustained by the insurance and reinsurance subsidiaries. Although the effect on our business of such catastrophes as tornadoes, hurricanes, hailstorms, earthquakes and terrorist acts may be mitigated by reinsurance, they nevertheless can have a significant impact on the results of any one or more reporting periods.

We have no customer which accounts for 10 percent or more of our consolidated revenues.

Compliance by W. R. Berkley and its subsidiaries with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to protection of the environment has not had a material effect upon our capital expenditures, earnings or competitive position.

The Company’s internet address is www.wrberkley.com. The information on our website is not incorporated by reference in this annual report on Form 10-K. The Corporation’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are accessible free of charge through this website as soon as reasonably practicable after they have been electronically filed with or furnished to the Securities and Exchange Commission.


ITEM 1A.	*RISK FACTORS*

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Our business faces significant risks. If any of the events or circumstances described as risks below actually occurs, our business, results of operations or financial condition could be materially and adversely affected.

Risks Relating to Our Industry

Our results may fluctuate as a result of many factors, including cyclical changes in the insurance and reinsurance industry.

The results of companies in the property casualty insurance industry historically have been subject to significant fluctuations and uncertainties. The demand for insurance is influenced primarily by general economic conditions, while the supply of insurance is directly related to available capacity. The adequacy of premium rates is affected mainly by the severity and frequency of claims, which are influenced by many factors, including natural disasters, regulatory measures and court decisions that define and expand the extent of coverage and the effects of economic inflation on the amount of compensation due for injuries or losses. In addition, investment rates of return may impact policy rates. These factors can have a significant impact on ultimate profitability because a property casualty insurance policy is priced before its costs are known, as premiums usually are determined long before claims are reported. These factors could produce results that would have a negative impact on our results of operations and financial condition.

Our actual claims losses may exceed our reserves for claims, which may require us to establish additional reserves.

Our gross reserves for losses and loss expenses were approximately $7.8 billion as of December 31, 2006. Our loss reserves reflect our best estimates of the cost of settling all claims and related expenses with respect to insured events that have occurred.

Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what management expects the ultimate settlement and claims administration will cost for claims that have occurred, whether known or unknown. The major assumptions about anticipated loss emergence patterns are subject to unanticipated fluctuation. These estimates, which generally involve actuarial projections, are based on management’s assessment of facts and circumstances then known, as well as estimates of future trends in claims severity and frequency, inflation, judicial theories of liability, reinsurance coverage, legislative changes and other factors, including the actions of third parties which are beyond our control.

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 and settlement is reached. In periods with increased economic volatility, it becomes more difficult to accurately predict claim costs. Reserve estimates are continually refined in an ongoing process as experience develops and further claims are reported and settled. Adjustments to reserves are reflected in the results of the periods in which such estimates are changed. Because setting reserves is inherently uncertain, we cannot assure that our current reserves will prove adequate in light of subsequent events. Should we need to increase our reserves, our pre-tax income for the period would decrease by a corresponding amount.

We increased our estimates for claims occurring in prior years by $27 million in 2006, $187 million in 2005 and $295 million in 2004. We, along with the property casualty insurance industry in general, have experienced higher than expected losses for certain types of business written from 1998 to 2001. Although our reserves reflect our best estimate of the costs of settling claims, we cannot assure you that our claim estimates will not need to be increased in the future.

We discount our reserves for excess and assumed workers’ compensation business because of the long period of time over which losses are paid. Discounting is intended to appropriately match losses and loss expenses to income earned on investment securities supporting liabilities. The expected loss and loss expense payout pattern subject to discounting is derived from our loss payout experience and is supplemented with data compiled from insurance companies writing similar business. Changes in the loss and loss expense payout pattern are recorded in the period they are determined. If the actual loss payout pattern is shorter than anticipated, the discount will be reduced and pre-tax income will decrease by a corresponding amount.

As a property casualty insurer, we face losses from natural and man-made catastrophes.

Property casualty insurers are subject to claims arising out of catastrophes that may have a significant effect on their results of operations, liquidity and financial condition. Catastrophe losses have had a significant impact on our results. In addition, through our recent quota share arrangements with certain Lloyd’s syndicates, we have additional exposure to catastrophic losses. For example, weather-related losses were $39 million in 2006, $99 million in 2005 and $60 million in 2004.

Catastrophes can be caused by various events, including hurricanes, windstorms, earthquakes, hailstorms, explosions, severe winter weather and fires, as well as terrorist activities. The incidence and severity of catastrophes are inherently unpredictable but have increased in recent years. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Some catastrophes are restricted to small geographic areas; however, hurricanes and earthquakes may produce significant damage in large, heavily populated areas. Catastrophes can cause losses in a variety of our property casualty lines, and most of our past catastrophe-related claims have resulted from severe storms. Seasonal weather variations may affect the severity and frequency of our losses. Insurance companies are not permitted to reserve for a catastrophe until it has occurred. It is therefore possible that a catastrophic event or multiple catastrophic events could produce significant losses and have a material adverse effect on our results of operations and financial condition.

We face significant competitive pressures in our businesses, which may reduce premium rates and prevent us from pricing our products at attractive rates.

We compete with a large number of other companies in our selected lines of business. We compete, and will continue to compete, with major U.S. and non-U.S. insurers and reinsurers, other regional companies, as well as mutual companies, specialty insurance companies, underwriting agencies and diversified financial services companies. Competition in our businesses is based on many factors, including the perceived financial strength of the company, premium charges, other terms and conditions offered, services provided, commissions paid to producers, ratings assigned by independent rating agencies, speed of claims payment and reputation and experience in the lines to be written.

Some of our competitors, particularly in the reinsurance business, have greater financial and marketing resources than we do. These competitors within the reinsurance segment include Berkshire Hathaway, Swiss Re, Transatlantic Reinsurance and Everest Reinsurance Company. We expect that perceived financial strength, in particular, will become more important as customers seek high quality reinsurers. Certain of our competitors operate from tax advantaged or less regulated jurisdictions that may provide them with competitive advantages.

New competition could cause the supply and/or demand for insurance or reinsurance to change, which could affect our ability to price our products at attractive rates.

We, as a primary insurer, may have significant exposure for terrorist acts.

To the extent an act of terrorism is certified by the Secretary of Treasury, we may be covered under the Terrorism Risk Insurance Act of 2002, as amended on December 22, 2005 (“TRIA”), for up to 90% in 2006 85% in 2007 of our losses for certain property/casualty lines of insurance. However, any such coverage would be subject to a mandatory deductible based on a percent of earned premium for the covered lines of commercial property and casualty insurance. Based on our 2006 earned premiums, our deductible under TRIA during 2007 will increase to approximately $618 million which is a result of an increase in premium and an increase in the applicable deductible percentage from 17.5% in 2006 to 20.0% in 2007. In addition, even the coverage provided under TRIA is scheduled to terminate on December 31, 2007 unless extended or replaced by a similar program. This coverage provided under TRIA does not apply to reinsurance that we write.

We are subject to extensive governmental regulation, which increases our costs and could restrict the conduct of our business.

We are subject to extensive governmental regulation and supervision. Most insurance regulations are designed to protect the interests of policyholders rather than stockholders and other investors. This system of regulation, generally administered by a department of insurance in each state in which we do business, relates to, among other things:


	•	standards of solvency, including risk-based capital measurements;

	•	restrictions on the nature, quality and concentration of investments;

	•	requiring certain methods of accounting;

	•	rate and form regulation pertaining to certain of our insurance businesses; and

	•	potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies.

State insurance departments conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to the financial condition of insurance companies, holding company issues and other matters. Recently adopted federal financial services modernization legislation may lead to additional federal regulation of the insurance industry in the coming years. Also, foreign governments regulate our international operations.

and federal regulators have commenced investigations and other proceedings relating to compensation and bidding arrangements between producers and issuers of insurance products, and alleged unsuitable sales practices by producers on behalf of either the issuer or the purchaser. The practices currently under investigation include, among other things, allegations that contingent commission arrangements may conflict with a broker’s duties to its customers and that certain brokers and insurers may have engaged in anti-competitive practices in connection with insurance premium quotes. The New York State Attorney General has entered into settlement agreements with several large insurance brokers and insurance companies. These investigations and proceedings are expected to continue, and new investigative proceedings may be commenced, in the future. These investigations and proceedings could result in legal precedents and new industry-wide practices or legislation, rules or regulations that could significantly affect the insurance industry and the Company. For example, following the public disclosure of the New York State Attorney General’s investigation, the Company commenced an internal review with the assistance of outside counsel that focused on the Company’s relationships with its distribution channels. As a result of its investigation, the Company uncovered at a single insurance operating unit certain limited instances of conduct that could be characterized as involving inappropriate solicitation practices. That operating unit has reached an agreement with its domiciliary insurance regulator resolving all issues pertaining to such regulator’s inquiry without penalty. We cannot assure you that regulators will not make further inquiries in the future.

We may be unable to maintain all required licenses and approvals and our business may not fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations. Also, some regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. Also, changes in the level of regulation of the insurance industry, whether federal, state or foreign, or changes in laws or regulations themselves or interpretations by regulatory authorities, restrict the conduct of our business.

In certain of our insurance businesses, the rates we charge our policyholders are subject to regulatory approval. Certain lines of business are subject to a greater degree of regulatory scrutiny then others. For example, the workers’ compensation business is highly regulated. During 2006, approximately 19% of our net premiums written represented primary workers’ compensation business. Of our net premiums written, approximately 3% represented primary workers’ compensation business written in the State of California, where the impact of workers compensation reform has resulted in significant reductions.

Risks Relating to Our Business

We cannot guarantee that our reinsurers will pay in a timely fashion, if at all, and, as a result, we could experience losses.

We purchase reinsurance by transferring part of the risk that we have assumed, known as ceding, to a reinsurance company in exchange for part of the premium we receive in connection with the risk. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us, the reinsured, of our liability to our policyholders. Our reinsurers may not pay the reinsurance recoverables that they owe to us or they may not pay such recoverables on a timely basis. Accordingly, we bear credit risk with respect to our reinsurers, and if our reinsurers fail to pay us, our financial results would be adversely affected. Underwriting results and investment returns of some of our reinsurers may affect their future ability to pay claims. As of December 31, 2006, the amount due from our reinsurers was $928 million, including amounts due from state funds and industry pools. Certain of these amounts due from reinsurers are secured by letters of credit or by funds held in trust on our behalf.

We are rated by A.M. Best, Standard & Poor’s, and Moody’s, and a decline in these ratings could affect our standing in the insurance industry and cause our sales and earnings to decrease.

Ratings have become an increasingly important factor in establishing the competitive position of insurance companies. Certain of our insurance company subsidiaries are rated by A.M. Best, Standard & Poor’s and Moody’s Investors Services. While A.M. Best, Standard & Poor’s and Moody’s ratings reflect their opinions as to a

company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders, they are not evaluations directed to investors and are not recommendations to buy, sell or hold our securities. Our ratings are subject to periodic review, and we cannot assure you that we will be able to retain those ratings. Five of our insurance subsidiaries, Admiral Insurance Company, Nautilus Insurance Company, Admiral Indemnity Company, Great Divide Insurance Company and Clermont Insurance Company, have A.M. Best ratings of “A+ (Superior)”, which is A.M. Best’s second highest rating. All of our other domestic insurance subsidiaries and W. R. Berkley Insurance (Europe), Limited have A.M. Best ratings of “A (Excellent)”, which is the third highest rating out of 15 possible ratings by A. M. Best. The Standard & Poor’s financial strength rating for our domestic insurance subsidiaries is A+ (the seventh highest rating out of twenty-seven possible ratings). Our Moody’s rating is A2 for Berkley Insurance Company (the sixth highest rating out of twenty-one possible ratings).

If our ratings are reduced from their current levels by A.M. Best, Standard & Poor’s or Moody’s, our competitive position in the insurance industry could suffer and it would be more difficult for us to market our products. A significant downgrade could result in a substantial loss of business as policyholders move to other companies with higher claims-paying and financial strength ratings.

If market conditions cause reinsurance to be more costly or unavailable, we may be required to bear increased risks or reduce the level of our underwriting commitments.

As part of our overall risk and capacity management strategy, we purchase reinsurance for certain amounts of risk underwritten by our insurance company subsidiaries, especially catastrophe risks. We also purchase reinsurance on risks underwritten by others which we reinsure. Market conditions beyond our control determine the availability and cost of the reinsurance protection we purchase, which may affect the level of our business and profitability. Our reinsurance facilities are generally subject to annual renewal. We may be unable to maintain our current reinsurance facilities or to obtain other reinsurance facilities in adequate amounts and at favorable rates. If we are unable to renew our expiring facilities or to obtain new reinsurance facilities, either our net exposures would increase or, if we are unwilling to bear an increase in net exposures, we would have to reduce the level of our underwriting commitments, especially catastrophe exposed risks.

Our international operations expose us to investment, political and economic risks.

Our international operations expose us to investment, political and economic risks, including foreign currency and credit risk. Changes in the value of the U.S. dollar relative to other currencies could have an adverse effect on our results of operations and financial condition.

We may not find suitable acquisition candidates or new insurance ventures and even if we do, we may not successfully integrate any such acquired companies or successfully invest in such ventures.

As part of our present strategy, we continue to evaluate possible acquisition transactions and the start-up of complementary businesses on an ongoing basis, and at any given time, we may be engaged in discussions with respect to possible acquisitions and new ventures. We cannot assure that we will be able to identify suitable acquisition transactions or insurance ventures, that such transactions will be financed and completed on acceptable terms or that our future acquisitions or ventures will be successful. The process of integrating any companies we do acquire or investing in new ventures may have a material adverse effect on our results of operations and financial condition.

We may be unable to attract and retain qualified employees.

We depend on our ability to attract and retain experienced underwriting talent and other skilled employees who are knowledgeable about our business. If the quality of our underwriting team and other personnel decreases, we may be unable to maintain our current competitive position in the specialized markets in which we operate, and be unable to expand our operations into new markets.

Risks Relating to Our Investments

A significant amount of our assets is invested in fixed income securities and is subject to market fluctuations.

Our investment portfolio consists substantially of fixed income securities. As of December 31, 2006, our investment in fixed income securities was approximately $9.2 billion, or 82% of our total investment portfolio.

The fair market value of these assets and the investment income from these assets fluctuate depending on general economic and market conditions. The fair market value of fixed income securities generally decreases as interest rates rise. Conversely, if interest rates decline, investment income earned from future investments in fixed income securities will be lower. In addition, some fixed income securities, such as mortgage-backed and other asset-backed securities, carry prepayment risk as a result of interest rate fluctuations. Based upon the composition and duration of our investment portfolio at December 31, 2006, a 100 basis point increase in interest rates would result in a decrease in the fair value of our investments of approximately $300 million.

The value of investments in fixed income securities, and particularly our investments in high-yield securities, is subject to impairment as a result of deterioration in the credit worthiness of the issuer or increases in market interest rates. Although we attempt to manage this risk by diversifying our portfolio and emphasizing preservation of principal, our investments are subject to losses as a result of a general decrease in commercial and economic activity for an industry sector in which we invest, as well as risks inherent in particular securities.

We invest some of our assets in equity securities, including merger arbitrage investments and real estate securities, which may decline in value.

We invest a portion of our investment portfolio in equity securities, including merger arbitrage investments and investments in affiliates. At December 31, 2006, our investments in equity securities were approximately $2.0 billion, or 18% of our investment portfolio. We reported provisions for other than temporary impairments in the value of our equity securities provisions in the amounts of $0.1 million in 2006, $1.6 million in 2005 and $2.8 million in 2004.

Merger and convertible arbitrage trading securities represented 33% of our equity securities at December 31, 2006. Merger arbitrage is the business of investing in the securities of publicly held companies that are the targets in announced tender offers and mergers. Merger arbitrage differs from other types of investments 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. Our merger arbitrage positions are exposed to the risk associated with the completion of announced deals, which are subject to regulatory as well as political and other risks. If there is reduced activity in the merger and acquisitions area, we may not be able achieve the returns that we have enjoyed in the past.

Included in our equity security portfolio are investments in publicly traded real estate investment trusts (“REITs”) and private real estate investment funds, real estate limited partnerships and venture capital investments. At December 31, 2006 our investments in these securities were approximately $549 million, or 28% of our equity portfolio. The values of our real estate investments are subject to fluctuations based on changes in the economy in general and real estate valuations in particular. In addition, the real estate investment funds, limited partnerships, and venture capital investments in which we invest are less liquid than our other investments.

Risks Relating to Purchasing Our Securities

We are an insurance holding company and may not be able to receive dividends in needed amounts.

As an insurance holding company, our principal assets are the shares of capital stock of our insurance company subsidiaries. We have to rely on dividends from our insurance company subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations and for paying dividends to stockholders and corporate expenses. The payment of dividends by our insurance company subsidiaries is subject to regulatory restrictions and will depend on the surplus and future earnings of these subsidiaries, as well as the regulatory restrictions. During 2007, the maximum amount of dividends that can be paid without regulatory approval is approximately $603

million. As a result, in the future we may not be able to receive dividends from these subsidiaries at times and in amounts necessary to meet our obligations or pay dividends.

We are subject to certain provisions that may have the effect of hindering, delaying or preventing third party takeovers, which may prevent our shareholders from receiving premium prices for their shares in an unsolicited takeover and make it more difficult for third parties to replace our current management.

Provisions of our certificate of incorporation and by-laws, as well as our rights agreement and state insurance statutes, may hinder, delay or prevent unsolicited acquisitions or changes of our control. These provisions may also have the effect of making it more difficult for third parties to cause the replacement of our current management without the concurrence of our board of directors.

These provisions include:


	•	our classified board of directors and the ability of our board to increase its size and to appoint directors to fill newly created directorships;

	•	the requirement that 80% of our stockholders must approve mergers and other transactions between us and the holder of 5% or more of our shares, unless the transaction was approved by our board of directors prior to such holder’s acquisition of 5% of our shares;

	•	the need for advance notice in order to raise business or make nominations at stockholders’ meetings;

	•	our rights agreement which subject persons (other than William R. Berkley) who acquire beneficial ownership of 15% or more of our common stock without board approval to substantial dilution; and

	•	state insurance statutes that restrict the acquisition of control (generally defined as 5 — 10% of the outstanding shares) of an insurance company without regulatory approval.


ITEM 1B.	*UNRESOLVED STAFF COMMENTS*

There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934.


ITEM 2.	*PROPERTIES*

W. R. Berkley and its subsidiaries own or lease office buildings or office space suitable to conduct their operations. At December 31, 2006, the Company had aggregate office space of 1,574,000 square feet, of which 635,000 were owned and 939,000 were leased.

Rental expense was approximately $19,348,000, $17,429,000 and $16,783,000 for 2006, 2005 and 2004 respectively. Future minimum lease payments (without provision for sublease income) are $18,279,000 in 2007, $16,687,000 in 2008 and $49,137,000 thereafter.


ITEM 3.	*LEGAL PROCEEDINGS*

The Company’s subsidiaries are subject to disputes, including litigation and arbitration, arising in the ordinary course of their insurance and reinsurance businesses. The Company’s estimates of the costs of settling such matters are reflected in its aggregate reserves for losses and loss expenses, and the Company does not believe that the ultimate outcome of such matters will have a material adverse effect on its financial condition or results of operations.


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*

No matters were submitted during the fourth quarter of 2006 to a vote of holders of the Company’s Common Stock.

PART II


ITEM 5.	*MARKET FOR THE REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES*

The common stock of the Company is traded on the New York Stock Exchange under the symbol “BER”. All amounts have been adjusted to reflect the 3-for-2 common stock split effected on April 4, 2006.


					Common
	Price Range				Dividends Declared
	High		Low		per Share

2006:
Fourth Quarter	$	37.72	$	34.34	$	.04
Third Quarter		37.25		32.26		.04
Second Quarter		40.95		30.61		.04
First Quarter		40.15		31.87		.04
2005:
Fourth Quarter	$	32.86	$	24.33	$	.03
Third Quarter		26.45		23.18		.03
Second Quarter		24.50		21.46		.03
First Quarter		23.91		20.58		.03

The closing price of the Common Stock on February 23, 2007, as reported on the New York Stock Exchange, was $33.93 per share. The approximate number of record holders of the Common Stock on February 23, 2007 was 522.

Set forth below is a summary of the shares repurchased by the Company during the fourth quarter of 2006 and the remaining number of shares authorized for purchase by the Company.

Total Number of

Maximum Number of

Shares Purchased as

Shares that may yet

Announced Plans

be Purchased Under

Total Number of

Average Price

Part of Publicly

the Plans or

Shares Purchased

Paid per Share

or Programs

Programs(1)

October 2006

—

None

22,624,688

November 2006

—

None

22,624,688

December 2006

—

None

22,624,688


(1)		Remaining shares available for repurchase under the Company’s repurchase authorization of 22,000,000 shares that was approved by the Board of Directors on November 1, 2006.

ITEM 6. SELECTED FINANCIAL DATA


	Year Ended December 31,
	2006			2005			2004			2003			2002
				(Amounts in thousands, except per share data)

Premiums written	$	4,818,993		$	4,604,574		$	4,266,361		$	3,670,515		$	2,710,490
Net premiums earned		4,692,622			4,460,935			4,061,092			3,234,610			2,252,527
Net investment income		586,175			403,962			291,295			210,056			187,875
Service fees		104,812			110,697			109,344			101,715			86,095
Realized investment gains		9,648			17,209			48,268			81,692			37,070
Total revenues		5,394,831			4,996,839			4,512,235			3,630,108			2,566,084
Interest expense		92,522			85,926			66,423			54,733			45,475
Income before income taxes		988,645			770,537			638,513			489,304			259,433
Income tax expense		(286,398	)		(222,521	)		(196,235	)		(150,626	)		(84,139	)
Minority interest		(2,729	)		(3,124	)		(3,446	)		(1,458	)		(249	)
Income before change in accounting		699,518			544,892			438,832			337,220			175,045
Cumulative effect of change in accounting		—			—			(727	)		—			—
Net income		699,518			544,892			438,105			337,220			175,045
Data per common share:
Net income per basic share		3.65			2.86			2.32			1.81			1.02
Net income per diluted share		3.46			2.72			2.21			1.72			.98
Stockholders’ equity		17.30			13.42			11.13			8.95			7.17
Cash dividends declared		.16			.12			.12			.12			.11
Weighted average shares outstanding:
Basic		191,809			190,533			188,912			187,029			171,738
Diluted		201,961			200,426			198,408			195,893			178,617
Investments	$	11,114,364		$	9,810,225		$	7,303,889		$	5,068,670		$	4,521,906
Total assets		15,656,489			13,896,287			11,451,033			9,334,685			7,031,323
Reserves for losses and loss expenses		7,784,269			6,711,760			5,449,611			4,192,091			3,167,925
Junior subordinated debentures		241,953			450,634			208,286			193,336			198,251
Senior notes and other debt		869,187			967,818			808,264			659,208			362,985
Stockholders’ equity		3,335,159			2,567,077			2,109,702			1,682,562			1,335,199


ITEM 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

Reference is made to the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which will be contained in the registrant’s 2006 Annual Report to Stockholders (attached hereto as Exhibit 13), which information is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the information under “Market Risk” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which will be contained in the registrant’s 2006 Annual Report to Stockholders (attached hereto as Exhibit 13), which information is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the registrant which will be contained in the registrant’s 2006 Annual Report to Stockholders (attached hereto as Exhibit 13) are incorporated herein by reference.


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

None.

ITEM 9A. CONTROLS AND PROCEDURES


*(a)*	*Evaluation Of Disclosure Controls And Procedures*

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this annual 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 Exchange Act and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.


*(b)*	*Management’s Report On Internal Control Over Financial Reporting*

Management has conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. See pages 20 and 21 of Exhibit 13 of this Form 10-K for management’s report and the related attestation by KPMG LLP, an independent registered public accounting firm.


*(c)*	*Change In Internal Control*

During the quarter ended December 31, 2006, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Reference is made to the registrant’s definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2006, and which is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION


ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*


*(a)*	*Security ownership of certain beneficial owners*


*(b)*	*Security ownership of management*


*(c)*	*Changes in control*


ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE*

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


*(a)*	*Index to Financial Statements*

The Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s financial statements, together with the reports on the financial statements, and management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the effectiveness of internal control over financial reporting of KPMG LLP, appear in the Company’s 2006 Annual Report to Stockholders (attached hereto as exhibit 13) and are incorporated by reference in this Annual Report on Form 10-K. With the exception of the aforementioned information, the 2006 Annual Report to Stockholders is not deemed to be filed as part of this report. The schedules to the financial statements listed below should be read in conjunction with the financial statements in such 2006 Annual Report to Stockholders. Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or required information is shown in the financial statements or notes thereto.


Index to Financial Statement Schedules	Page

Independent Registered Public Accountants’ Report on Schedules		38
Schedule II — Condensed Financial Information of Registrant		39
Schedule III — Supplementary Insurance Information		43
Schedule IV — Reinsurance		44
Schedule V — Valuation and Qualifying Accounts		45
Schedule VI — Supplementary Information concerning		46
Property — Casualty Insurance Operations


*(b)*	*Exhibits*

The exhibits filed as part of this report are listed on pages 45, 46, 47 and 48 hereof.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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


	By:	/s/ William R. Berkley

William R. Berkley,

Chairman of the Board and

Chief Executive Officer

March 1, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ William R. Berkley William R. Berkley	Chairman of the Board and Chief Executive Officer (Principal executive officer)	March 1, 2007

/s/ W. Robert Berkley, Jr. W. Robert Berkley, Jr.	Director	March 1, 2007

/s/ Philip J. Ablove Philip J. Ablove	Director	March 1, 2007

/s/ Ronald E. Blaylock Ronald E. Blaylock	Director	March 1, 2007

/s/ Mark E. Brockbank Mark E. Brockbank	Director	March 1, 2007

/s/ George G. Daly George G. Daly	Director	March 1, 2007

/s/ Mary C. Farrell Mary C. Farrell	Director	March 1, 2007

/s/ Rodney A. Hawes, Jr. Rodney A. Hawes, Jr.	Director	March 1, 2007

/s/ Jack H. Nusbaum Jack H. Nusbaum	Director	March 1, 2007

/s/ Mark L. Shapiro Mark L. Shapiro	Director	March 1, 2007

ITEM 15. (b) EXHIBITS


Number

	(3	.1)	The Company’s Restated Certificate of Incorporation, as amended through May 10, 2004 (incorporated by reference to Exhibits 3.1 and 3.2 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 6, 2003).
	(3	.2)	Amendment, dated May 11, 2004, to the Company’s Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly report on Form 10-Q (File No. 1-15202) filed with the Commission on August 5, 2004).
	(3	.3)	Amendment, dated May 16, 2006, to the Company’s Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on May 17, 2006).
	(3	.4)	Amended and Restated By-Laws (incorporated by reference to Exhibit 3(ii) of the Company’s Current Report on Form 8-K (File No. 0-7849) filed with the Commission on May 11, 1999).
	(4	.1)	Rights Agreement, dated as of May 11, 1999, between the Company and Wells Fargo Bank N.A. (as successor to ChaseMellon Shareholder Services, LLC), as Rights Agent (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K (File No. 0-7849) filed with the Commission on May 11, 1999).
	(4	.2)	Indenture, dated as of February 14, 2003, between the Company and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission of March 31, 2003).
	(4	.3)	First Supplemental Indenture, dated February 14, 2003, between the Company and The Bank of New York, as trustees, relating to $200,000,000 principal amount of the Company’s 5.875% Senior Notes due 2013, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission of March 31, 2003).
	(4	.4)	Second Supplemental Indenture, dated as of September 12, 2003, between the Company and The Bank of New York, as Trustee, relating to $150,000,000 principal amount of the Company’s 5.125% Senior Notes due 2010, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.2 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on November 14, 2003).
	(4	.5)	Third Supplemental Indenture, dated as of August 24, 2004, between the Company and The Bank of New York, as Trustee, relating to $150,000,000 principal amount of the Company’s 6.150% Senior Notes due 2019, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.4 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission on March 14, 2005).
	(4	.6)	Fourth Supplemental Indenture, dated as of May 9, 2005, between the Company and The Bank of New York, as Trustee, relating to $200,000,000 principal amount of the Company’s 5.60% Senior Notes due 2015, including form of the Notes as Exhibit A.
	(4	.7)	Fifth Supplemental Indenture, dated as of February 9, 2007, between the Company and The Bank of New York, as Trustee, relating to $250,000,000 principal amount of the Company’s 6.25% Senior Notes due 2037, including form of the Notes as Exhibit A.
	(4	.8)	Amended and Restated Trust Agreement of W. R. Berkley Capital Trust II, dated as of July 26, 2005 (incorporated by reference to Exhibit 4.3 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 2, 2005).
	(4	.9)	Subordinated Indenture between W. R. Berkley Corporation and The Bank of New York, as Trustee, dated as of July 26, 2005 (incorporated by reference to Exhibit 4.4 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 2, 2005).
	(4	.10)	Supplemental Indenture No. 1 to the Subordinated Indenture between W. R. Berkley Corporation and The Bank of New York, as Trustee, dated as of July 26, 2005, relating to 6.750% Subordinated Debentures Due 2045 (incorporated by reference to Exhibit 4.6 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 2, 2005).


Number

	(4	.11)	Preferred Securities Guarantee Agreement between W. R. Berkley Corporation, as Guarantor, and The Bank of New York, as Preferred Guarantee Trustee, dated as of July 26, 2005, relating to W. R. Berkley Capital Trust II. (incorporated by reference to Exhibit 4.6 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 2, 2005).
	(4	.12)	The instruments defining the rights of holders of the other long term debt securities of the Company are omitted pursuant to Section(b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company agrees to furnish supplementally copies of these instruments to the Commission upon request.
	(10	.1)	W. R. Berkley Corporation 2003 Stock Incentive Plan (incorporated by reference to Annex A of the Company’s 2003 Proxy Statement (File No. 1-15202) filed with the Commission on April 14, 2003).
	(10	.2)	Form of Restricted Stock Unit Agreement under the W. R. Berkley Corporation 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on May 3, 2005).
	(10	.3)	Form of Restricted Stock Unit Agreement for grant of April 4, 2003 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 6, 2003).
	(10	.4)	W. R. Berkley Corporation Deferred Compensation Plan for Officers as amended January 1, 1991 (incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on Form 10-K (File No. 0-7849) filed with the Commission on March 26, 1996).
	(10	.5)	W. R. Berkley Corporation Deferred Compensation Plan for Directors as adopted May 3, 2005 (incorporated by reference to Exhibit 4 of the Company’s Registration Statement on Form S-3 (File No. 333-127598) filed with the Commission on August 6, 2005).
	(10	.6)	W. R. Berkley Corporation 2007 Annual Incentive Compensation Plan (incorporated by reference to Annex A of the Company’s 2006 Proxy Statement (File No. 1-15202) filed with the Commission on April 18, 2006).
	(10	.7)	W. R. Berkley Corporation Annual Incentive Compensation Plan (incorporated by reference to Annex A of the Company’s 2002 Proxy Statement (File No. 1-15202) filed with the Commission on April 5, 2002).
	(10	.8)	W. R. Berkley 2004 Long-Term Incentive Plan (incorporated by reference to Annex B from the Company’s 2004 Proxy Statement (File No. 1-15202) filed with the Commission on April 12, 2004).
	(10	.9)	Form of Performance Unit Award Agreement under the W. R. Berkley Corporation 2004 Long-Term Incentive Plan (incorporated by reference to Exhibit 101. of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) file with the Commission on May 3, 2005).
	(10	.10)	W. R. Berkley Corporation 1997 Directors Stock Plan, effective as of May 13, 1997, amended as of May 11, 1999, and amended and restated as of May 3, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 2, 2005).
	(10	.11)	Supplemental Benefits Agreement between William R. Berkley and the Company dated August 19, 2004 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly report on Form 10-Q (File No. 1-15202) filed with the Commission on November 8, 2004).
	(13)		Portions of the 2006 Annual Report to Stockholders of W. R. Berkley Corporation that are incorporated by reference in this Report on Form 10-K.
	(14)		Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission on March 14, 2005).


Number

	(21)	Following is a list of the Company’s significant subsidiaries and other operating entities. Subsidiaries of subsidiaries are indented and the parent of each such corporation owns 100% of the outstanding voting securities of such corporation except as noted below.


			Percentage
	Jurisdiction of		Owned
	Incorporation		by the Company(1)

Berkley International, LLC(2)		New York		100	%
Carolina Casualty Insurance Company		Florida		100	%
Clermont Specialty Managers, Ltd.		New Jersey		100	%
J/I Holding Corporation:		Delaware		100	%
Admiral Insurance Company:		Delaware		100	%
Admiral Indemnity Company		Delaware		100	%
Berkley London Holdings, Inc.(3)		Delaware		100	%
W. R. Berkley London Finance, Limited		United Kingdom		80	%
W. R. Berkley London Holdings, Limited		United Kingdom		80	%
W. R. Berkley Insurance (Europe), Limited		United Kingdom		80	%
Berkley Risk Administrators Company, LLC		Minnesota		100	%
Nautilus Insurance Company:		Arizona		100	%
Great Divide Insurance Company		North Dakota		100	%
Key Risk Management Services, Inc.		North Carolina		100	%
Monitor Liability Managers, Inc.		Delaware		100	%
Berkley Surety Group, Inc.		Delaware		100	%
Signet Star Holdings, Inc.:		Delaware		100	%
Berkley Insurance Company		Delaware		100	%
Berkley Regional Insurance Company		Delaware		100	%
Acadia Insurance Company		Maine		100	%
Berkley Regional Specialty Insurance Company		Maine		100	%
Continental Western Insurance Company		Iowa		100	%
Firemen’s Insurance Company of Washington, D.C.		Delaware		100	%
Tri-State Insurance Company of Minnesota		Minnesota		100	%
Union Insurance Company		Iowa		100	%
Union Standard Insurance Company		Oklahoma		100	%
Key Risk Insurance Company		North Carolina		100	%
Midwest Employers Casualty Company:		Delaware		100	%
Preferred Employers Insurance Company		California		100	%
Facultative ReSources, Inc.		Connecticut		100	%
Gemini Insurance Company		Delaware		100	%
Riverport Insurance Company		Minnesota		100	%
StarNet Insurance Company		Delaware		100	%


1)		W. R. Berkley Corporation is the ultimate parent. The subsidiary of a direct parent in indicated by an indentation, and its percentage ownership is as indicated in this column.

2)		Berkley International, LLC is held by W. R. Berkley Corporation and its subsidiaries as follows: W. R. Berkley Corporation (2%), Admiral Insurance Company (35%), Berkley Regional Insurance Company (14%), Nautilus Insurance Company (14%) and Berkley Insurance Company (35%).

3)		Held by Admiral Insurance Company (66.67%) and Berkley Insurance Company (33.33%)

(23)		Consent of Independent Registered Public Accounting Firm

(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.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

W. R. Berkley Corporation:

Under date of March 1, 2007, we reported on the consolidated balance sheets of W. R. Berkley Corporation and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2006, as contained in the 2006 Annual Report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the December 31, 2006 Annual Report on Form 10-K for the year 2006. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules. These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

KPMG LLP

New York, New York

March 1, 2007

Schedule II

W. R. Berkley Corporation
Condensed Financial Information of Registrant

Balance Sheets (Parent Company)


	December 31,
	2006			2005
	(Amounts in thousands)

Cash and cash equivalents	$	84,188		$	210,428
Fixed maturity securities available for sale at fair value (cost $66,280 and $185,410)		66,289			184,855
Equity securities available for sale, at fair value (cost $310 and $310)		32,089			310
Investment in affiliate		1,846			—
Investments in subsidiaries		4,294,197			3,624,994
Deferred Federal income taxes		145,675			138,128
Real estate, furniture & equipment at cost, less accumulated depreciation		5,866			6,201
Other assets		1,274			18,121

	$	4,631,424		$	4,183,037

Liabilities, Debt and Stockholders’ Equity
Liabilities:
Due to Subsidiaries	$	79,800		$	122,672
Other liabilities		117,067			86,583
Junior subordinated debentures		241,954			450,634
Senior notes		857,444			956,071

		1,296,265			1,615,960

Stockholders’ equity:
Preferred stock		—			—
Common stock		47,024			47,024
Additional paid-in capital		859,787			821,050
Retained earnings (including accumulated undistributed net income of subsidiaries of $2,680,731, and $2,113,323 in 2006 and 2005, respectively)		2,542,744			1,873,953
Accumulated other comprehensive income		111,613			24,903
Treasury stock, at cost		(226,009	)		(199,853	)

		3,335,159			2,567,077

	$	4,631,424		$	4,183,037

See note to condensed financial statements.

Schedule II, Continued

W. R. Berkley Corporation
Condensed Financial Information of Registrant — (Continued)

Statements of Income (Parent Company)


	Years Ended December 31,
	2006			2005			2004
	(Amounts in thousands)

Management fees and investment income including dividends from subsidiaries of $244,066, $17,870 and $29,048 for 2006, 2005 and 2004	$	263,166		$	24,813		$	36,236
Realized investment gains (losses)		(3	)		54			(185	)
Other income		186			9,159			2,079

Total revenues		263,349			34,026			38,130
Operating costs and expense		86,986			62,550			49,548
Interest expense		91,498			84,925			65,638

Income (loss) before Federal income taxes		84,865			(113,449	)		(77,056	)

Federal income taxes:
Federal income taxes provided by subsidiaries on a separate return Basis		324,190			181,392			229,356
Federal income tax expense on a consolidated return basis		(276,945	)		(214,214	)		(186,663	)

Net benefit (expense)		47,245			(32,822	)		42,693

Income (loss) before undistributed equity in net income of subsidiaries		132,110			(146,271	)		(34,363	)
Equity in undistributed net income of subsidiaries		567,408			691,163			473,195

Net income before change in accounting principle		699,518			544,892			438,832
Cumulative effect of change in accounting principle, net of taxes		—			—			(727	)

Net income	$	699,518		$	544,892		$	438,105

See note to condensed financial statements.

Schedule II, Continued

W. R. Berkley Corporation
Condensed Financial Information of Registrant — (Continued)

Statements of Cash Flows (Parent Company)


	Years Ended December 31,
	2006			2005			2004

Cash flows from operating activities:
Net income before change in accounting principle	$	699,518		$	544,892		$	438,105
Adjustments to reconcile net income to net cash from operating activities:
Cumulative effect of change in accounting principle		—			—			727
Realized investment losses (gains)		3			(54	)		185
Depreciation and amortization		4,804			3,144			2,438
Equity in undistributed earnings of subsidiaries		(567,408	)		(691,163	)		(473,195	)
Tax payments received from subsidiaries		307,677			244,373			303,462
Federal income taxes provided by subsidiaries on a separate return bases		(324,190	)		(181,392	)		(229,356	)
Stock Incentive Plans		17,861			8,852			5,342
Change in:
Federal income taxes		(9,055	)		21,715			(62,837	)
Other assets		43,008			(104,156	)		(32,311	)
Other liabilities		(24,736	)		122,963			24,669
Accrued investment income		1,400			(1,316	)		(91	)
Equity securities, trading		—			952			(32	)

Net cash from operating activities		148,882			(31,190	)		(22,894	)

Cash from investing activities:
Proceeds from sales of fixed maturity securities		29,997			129,114			52,835
Proceeds from maturities and prepayments of fixed maturity securities		157,802			—			—
Cost of purchases fixed maturity securities		(69,978	)		(246,474	)		(107,050	)
Investments in affiliate		(1,846	)		—			—
Investments in and advances to subsidiaries, net		(25,541	)		(76,145	)		(84,211	)
Net additions to real estate, furniture & equipment		(469	)		(343	)		435

Net cash from investing activities		89,965			(193,848	)		(137,991	)

Cash from financing activities
Net proceeds from issuance of junior subordinated debentures		—			241,655			—
Net proceeds from issuance of senior notes		—			198,142			147,864
Net proceeds from stock options exercised		19,405			11,250			11,129
Retirement of junior subordinated notes		(210,000	)		—			—
Repayment of senior notes		(100,000	)		(40,000	)		—
Purchase of common treasury shares		(45,062	)		(636	)		(337	)
Cash dividends to common stockholders		(29,430	)		(19,055	)		(23,527	)
Other, net		—			2			—

Net cash from financing activities		(365,087	)		391,358			135,129

Net increase (decrease) in cash and cash equivalents		(126,240	)		166,320			(25,756	)
Cash and cash equivalents at beginning of year		210,428			44,108			69,864

Cash and cash equivalents at end of year	$	84,188		$	210,428		$	44,108

See note to condensed financial statements.

Schedule II, Continued

W. R. Berkley Corporation
Condensed Financial Information of Registrant — (Continued)

December 31, 2006

Note to Condensed Financial Statements (Parent Company)

The accompanying condensed financial statements should be read in conjunction with the notes to consolidated financial statements included elsewhere herein. Reclassifications have been made in the 2005 and 2004 financial statements as originally reported to conform them to the presentation of the 2006 financial statements.

The Company files a consolidated federal tax return with the results of its domestic insurance subsidiaries included on a statutory basis. Under present Company policy, Federal income taxes payable by subsidiary companies on a separate-return basis are paid to W. R. Berkley Corporation, and the Company pays the tax due on a consolidated return basis.

Schedule III

W. R. Berkley Corporation and Subsidiaries

Supplementary Insurance Information

December 31, 2006, 2005 and 2004


													Amortization
	Deferred												of Deferred		Other
	Policy		Reserve for						Net				Policy		Operating		Net
	Acquisition		Losses and		Unearned		Premiums		Investment		Loss and Loss		Acquisition		Cost &		Premiums
	Cost		Loss Expenses		Premiums		Earned		Income		Expenses		Cost		Expenses		Written
			(Amounts in thousands)

December 31, 2006
Specialty	$	172,938	$	2,660,880	$	949,545	$	1,752,507	$	200,421	$	1,035,090	$	336,633	$	102,100	$	1,814,479
Regional		145,327		1,350,948		639,163		1,205,912		83,957		719,764		309,356		59,332		1,235,302
Alternative markets		34,277		1,632,120		274,932		658,805		114,914		352,693		91,261		143,161		651,255
Reinsurance		90,780		1,876,712		358,698		859,411		133,709		618,627		185,986		53,083		892,769
International		45,921		263,609		91,944		215,987		32,907		138,324		54,793		21,330		225,188
Corporate and adjustments		—		—		—		—		20,267		—		—		92,131		—

Total	$	489,243	$	7,784,269	$	2,314,282	$	4,692,622	$	586,175	$	2,864,498	$	978,029	$	471,137	$	4,818,993

December 31, 2005
Specialty	$	164,609	$	2,259,162	$	889,265	$	1,682,193	$	134,290	$	1,048,927	$	329,386	$	92,274	$	1,827,865
Regional		140,538		1,160,171		615,141		1,173,174		57,619		655,027		304,537		54,734		1,196,487
Alternative markets		36,161		1,452,578		284,572		663,478		82,617		393,783		86,696		137,851		669,774
Reinsurance		78,285		1,667,475		327,844		754,097		95,110		558,950		182,566		44,085		719,540
International		40,180		172,374		72,179		187,993		20,749		125,115		56,395		6,436		190,908
Corporate and adjustments		—		—		—		—		13,577		—		—		63,614		—

Total	$	459,773	$	6,711,760	$	2,189,001	$	4,460,935	$	403,962	$	2,781,802	$	959,580	$	398,994	$	4,604,574

December 31, 2004
Specialty	$	145,829	$	1,760,383	$	749,101	$	1,391,652	$	99,452	$	858,862	$	294,202	$	62,352	$	1,497,567
Regional		138,289		952,833		588,479		1,068,552		44,249		594,811		282,653		51,185		1,128,800
Alternative markets		35,311		1,193,925		284,655		605,996		59,057		427,801		89,394		123,767		640,491
Reinsurance		83,577		1,435,768		366,764		841,451		73,825		584,495		194,123		50,660		823,772
International		39,478		106,702		75,520		153,441		14,201		93,341		49,040		6,677		175,731
Corporate and adjustments		—		—		—		—		511		—		—		43,936		—

Total	$	442,484	$	5,449,611	$	2,064,519	$	4,061,092	$	291,295	$	2,559,310	$	909,412	$	338,577	$	4,266,361

Schedule IV

W. R. Berkley Corporation and Subsidiaries

Reinsurance

Years ended December 31, 2006, 2005 and 2004


									Percentage
			Ceded to		Assumed				of Amount
	Direct		Other		from Other				Assumed
	Amount		Companies		Companies		Net Amount		to Net
	(Amounts in thousands)

Year ended December 31, 2006:
Specialty	$	1,898,741	$	104,042	$	19,780	$	1,814,479		1.1	%
Regional		1,394,526		180,009		20,785		1,235,302		1.7
Alternative markets		657,964		96,425		89,716		651,255		13.8
Reinsurance		3,057		48,028		937,740		892,769		105.0
International		254,605		29,417		—		225,188		—

Total	$	4,208,893	$	457,921	$	1,068,021	$	4,818,993		22.2	%

Year ended December 31, 2005:
Specialty	$	1,911,309	$	104,956	$	21,512	$	1,827,865		1.2	%
Regional		1,358,304		188,087		26,270		1,196,487		2.2
Alternative markets		696,917		111,637		84,494		669,774		12.6
Reinsurance		370		51,241		770,411		719,540		107.1
International		218,396		27,488		—		190,908		—

Total	$	4,185,296	$	483,409	$	902,687	$	4,604,574		19.6	%

Year ended December 31, 2004:
Specialty	$	1,587,046	$	110,407	$	20,928	$	1,497,567		1.4	%
Regional		1,268,384		166,859		27,275		1,128,800		2.4
Alternative markets		685,153		115,858		71,196		640,491		11.1
Reinsurance		461		44,436		867,747		823,772		105.3
International		195,938		20,207		—		175,731		—

Total	$	3,736,982	$	457,767	$	987,146	$	4,266,361		23.1	%

Schedule V

W. R. Berkley Corporation and Subsidiaries

Valuation and Qualifying Accounts

Years ended December 31, 2006, 2005 and 2004


			Additions -		Deduction-
	Opening		Charged to		Amounts			Ending
	Balance		Expense		Written Off			Balance
	(Amounts in thousands)

Year ended December 31, 2006:
Premiums and fees receivable	$	19,460	$	8,756	$	(7,758	)	$	20,458
Due from reinsurers		2,402		402		(273	)		2,531
Deferred federal and foreign income taxes		6,575		3,046		—			9,621

Total	$	28,437	$	12,204	$	(8,031	)	$	32,610

Year ended December 31, 2005:
Premiums and fees received	$	14,687	$	12,684	$	(7,911	)	$	19,460
Due from reinsurers		2,457		48		(103	)		2,402
Deferred federal and foreign income taxes		4,813		1,762		—			6,575

Total	$	21,957	$	14,494	$	(8,014	)	$	28,437

Year ended December 31, 2004:
Premiums and fees received	$	9,620	$	10,345	$	(5,278	)	$	14,687
Due from reinsurers		1,920		800		(263	)		2,457
Deferred federal and foreign income taxes		4,223		590		—			4,813

Total	$	15,763	$	11,735	$	(5,541	)	$	21,957

Schedule VI

W. R. Berkley Corporation and Subsidiaries

Supplementary Information Concerning Property-Casualty Insurance Operations

December 31, 2006, 2005 and 2004


	2006		2005		2004
	(Amounts in thousands)

Deferred policy acquisition costs	$	489,243	$	459,773	$	442,484
Reserves for losses and loss expenses		7,784,269		6,711,760		5,449,611
Unearned premium		2,314,282		2,189,001		2,064,519
Premiums earned		4,692,622		4,460,935		4,061,092
Net investment income		586,175		403,962		291,295
Losses and loss expenses incurred:
Current Year		2,791,500		2,531,655		2,236,860
Prior Years		26,663		186,728		294,931
Decrease in discount for prior years		39,507		57,790		24,220
Amortization of deferred policy acquisition costs		978,029		959,580		909,412
Paid losses and loss expenses		1,777,363		1,631,725		1,338,464
Net premiums written		4,818,993		4,604,574		4,266,361

EXHIBIT 4.7

W.R. BERKLEY CORPORATION

THE BANK OF NEW YORK, as Trustee

FIFTH SUPPLEMENTAL INDENTURE TO
INDENTURE DATED FEBRUARY 14, 2003
(SENIOR DEBT SECURITIES)

Dated as of February 14, 2007

6.250% Senior Notes due 2037

TABLE OF CONTENTS

                                                                                                  Page
                                                                                                  ----
                                    ARTICLE I

                       Relation to Indenture; Definitions

Section 1.1.    RELATION TO INDENTURE..........................................................   1
Section 1.2.    DEFINITIONS....................................................................   1

                                   ARTICLE II

                            The Series of Securities

Section 2.1.    TITLE OF THE SECURITIES........................................................   2
Section 2.2.    LIMITATION ON AGGREGATE PRINCIPAL AMOUNT.......................................   2
Section 2.3.    PRINCIPAL PAYMENT DATE.........................................................   2
Section 2.4.    INTEREST AND INTEREST RATES....................................................   2
Section 2.5.    PLACE OF PAYMENT...............................................................   3
Section 2.6.    REDEMPTION.....................................................................   3
Section 2.7.    DENOMINATION...................................................................   5
Section 2.8.    CURRENCY.......................................................................   5
Section 2.9.    FORM OF NOTES..................................................................   5
Section 2.10.   REGISTRAR AND PAYING AGENT FOR THE NOTES.......................................   5
Section 2.11.   SINKING FUND OBLIGATIONS.......................................................   5
Section 2.12.   DEFEASANCE AND COVENANT DEFEASANCE.............................................   5
Section 2.13.   PAYMENT OF TAXES...............................................................   5
Section 2.14.   LIMITATION ON LIENS ON STOCK OF PRINCIPAL SUBSIDIARIES.........................   5
Section 2.15.   LIMITATIONS ON ISSUE OR DISPOSITION OF COMMON STOCK OF PRINCIPAL SUBSIDIARIES..   6
Section 2.16.   IMMEDIATELY AVAILABLE FUNDS....................................................   6

                                   ARTICLE III

                            Miscellaneous Provisions

Section 3.1.    TRUSTEE NOT RESPONSIBLE FOR RECITALS...........................................   6
Section 3.2.    PAYMENT OF EXPENSES UPON RESIGNATION OR REMOVAL................................   7
Section 3.3.    ADOPTION, RATIFICATION AND CONFIRMATION........................................   7
Section 3.4.    COUNTERPARTS...................................................................   7
Section 3.5.    GOVERNING LAW..................................................................   7

W. R. BERKLEY CORPORATION

FIFTH SUPPLEMENTAL INDENTURE TO
INDENTURE DATED FEBRUARY 14, 2003
(SENIOR DEBT SECURITIES)

$250,000,000

6.250% Senior Notes due 2037

FIFTH SUPPLEMENTAL INDENTURE, dated as of February 14, 2007 between W. R. BERKLEY CORPORATION, a Delaware corporation (the "Company"), and THE BANK OF NEW YORK, a banking corporation organized under the laws of the State of New York, as Trustee (the "Trustee").

RECITALS

The Company has heretofore executed and delivered to the Trustee an indenture for senior debt securities, dated as of February 14, 2003 (the "Indenture"), providing for the issuance from time to time of series of the Company's Securities.

Section 3.1 of the Indenture provides for various matters with respect to any series of Securities issued under the Indenture to be established in an indenture supplemental to the Indenture.

Section 9.1(4) of the Indenture provides for the Company and the Trustee to enter into an indenture supplemental to the Indenture to establish the form or terms of Securities of any series as provided by Sections 2.1 and 3.1 of the Indenture.

NOW, THEREFORE, THIS FIFTH SUPPLEMENTAL INDENTURE WITNESSETH:

For and in consideration of the premises and the issuance of the series of Securities provided for herein, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities of such series, as follows:

ARTICLE I

RELATION TO INDENTURE; DEFINITIONS

Section 1.1. RELATION TO INDENTURE. This Fifth Supplemental Indenture constitutes an integral part of the Indenture.

Section 1.2. DEFINITIONS. For all purposes of this Fifth Supplemental Indenture:

(a) Capitalized terms used herein without definition shall have the meanings specified in the Indenture;

(b) All references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Fifth Supplemental Indenture; and

(c) The terms "herein," "hereof," "hereunder" and other words of similar import refer to this Fifth Supplemental Indenture.

(d) "Fair Value," when used with respect to Common Stock, means the fair value thereof as determined in good faith by the Board of Directors.

ARTICLE II

THE SERIES OF SECURITIES

Section 2.1. TITLE OF THE SECURITIES. There shall be a series of Securities designated the "6.250% Senior Notes due 2037" (the "Notes").

Section 2.2. LIMITATION ON AGGREGATE PRINCIPAL AMOUNT. The aggregate principal amount of the Notes shall initially be limited to $250,000,000. The Company may, without the consent of the Holders of the Notes, issue additional Securities having the same interest rate, maturity date and other terms as described in the related prospectus supplement and prospectus. Any additional Securities, together with the Notes offered by the related prospectus supplement, will constitute a single series of Securities under the Indenture. No additional Securities may be issued if an Event of Default under the Indenture has occurred and is continuing with respect to the Securities.

Section 2.3. PRINCIPAL PAYMENT DATE. The principal amount of the Notes outstanding (together with any accrued and unpaid interest) shall be payable in a single installment on February 15, 2037, which date shall be the Stated Maturity of the Notes Outstanding.

Section 2.4. INTEREST AND INTEREST RATES. The rate of interest on each Note shall be 6.250% per annum, accruing from February 14, 2007, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, payable semiannually in arrears on February 15 and August 15 of each year commencing August 15, 2007 until the principal thereof shall have become due and payable, and until the principal thereof is paid or duly provided for or made available for payment. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any partial period shall be computed on the basis of the actual number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on any Note is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay). The interest installment so payable in respect of any Note, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to

the person in whose name such Note (or one or more Predecessor Securities) is registered at the close of business on February 1 or August 1 prior to such Interest Payment Date. Any such interest installment not punctually paid or duly provided for in respect of any Note shall forthwith cease to be payable to the registered Holder on such Regular Record Date and may either be paid to the Person in whose name such Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date to be fixed by the Company and the Trustee for the payment of such Defaulted Interest, notice whereof shall be given to the Holders of the Notes not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.

Section 2.5. PLACE OF PAYMENT. The Place of Payment where the Notes may be presented or surrendered for payment, where the Notes may be surrendered for registration of transfer or exchange and where notices and demand to or upon the Company in respect of the Notes and the Indenture may be served shall be the Corporate Trust Office of the Trustee.

Section 2.6. REDEMPTION.

(a) The Company may redeem the Notes, in whole or in part, at any time at a Redemption Price equal to the greater of (i) 100% of the principal amount of such Securities to be redeemed or (ii) an amount, as determined by an Independent Investment Banker, equal to the sum of the present values of the remaining scheduled payments of principal of and interest on the securities to be redeemed (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus 25 basis points, plus, in either of the above cases, accrued and unpaid interest thereon to, but not including, the Redemption Date.

(b) For the purposes of this Section 2.6,

"Adjusted Treasury Rate" means, with respect to any Redemption Date:

- the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15(519)" published by the Board of Governors of the Federal Reserve System (or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity) under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue. If no maturity is within three months before or after the Remaining Life, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Adjusted Treasury Rate shall be interpolated or

extrapolated from such yields on a straight line basis, rounding to the nearest month; or

- if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date.

The Adjusted Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date.

"Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such securities ("Remaining Life").

"Comparable Treasury Price" means (i) the average of three Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (ii) if the Independent Investment Banker obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such quotations.

"Independent Investment Banker" means one of the Reference Treasury Dealers appointed by us.

"Reference Treasury Dealer" means:

- each of Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC and their respective successors; provided that, if any of the foregoing ceases to be a primary U.S. Government securities dealer in the United States (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer; and

- any other Primary Treasury Dealer selected by the Company.

"Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker at 5:00
p.m., New York City Time, on the third Business Day preceding such Redemption Date.

The Company will mail a notice of redemption at least 30 days but not more than 60 days before the Redemption Date to each holder of the notes to be redeemed. If less than all

of the notes are to be redeemed, the trustee will select, by such method as it will deem fair and appropriate, including pro rata or by lot, the notes to be redeemed in whole or in part.

Unless the Company defaults in payment of the Redemption Price, on and after the Redemption Date, interest will cease to accrue on the notes or portions thereof called for redemption.

Section 2.7. DENOMINATION. The Notes shall be issuable only in registered form without coupons and in denominations of $1,000 and integral multiples thereof.

Section 2.8. CURRENCY. Principal and interest on the Notes shall be payable in such coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts.

Section 2.9. FORM OF NOTES. The Notes shall be substantially in the form attached as EXHIBIT A hereto.

Section 2.10. REGISTRAR AND PAYING AGENT FOR THE NOTES. The Trustee shall serve initially as Registrar and Paying Agent for the Notes.

Section 2.11. SINKING FUND OBLIGATIONS. The Company has no obligation to redeem or purchase any Notes pursuant to any sinking fund or analogous requirement or upon the happening of a specified event or at the option of a Holder thereof.

Section 2.12. DEFEASANCE AND COVENANT DEFEASANCE. The Company has elected to have both Section 4.2(2) of the Indenture (relating to defeasance) and
Section 4.2(3) (relating to covenant defeasance) applied to the Notes.

Section 2.13. PAYMENT OF TAXES. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment or governmental charge whose amount, applicability or validity is being contested in good faith by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.

Section 2.14. LIMITATION ON LIENS ON STOCK OF PRINCIPAL SUBSIDIARIES. The Company will not, and it will not permit any Subsidiary of the Company to, at any time directly or indirectly create, assume, incur or permit to exist any Indebtedness secured by a pledge, lien or other encumbrance (any pledge, lien or other encumbrance being hereinafter in this Section referred to as a "lien") on the voting securities of Principal Subsidiaries, or the voting securities of a Subsidiary that owns, directly or indirectly, the voting securities of any of the Principal Subsidiaries without making effective provision whereby the Notes then Outstanding (and, if the Company so elects, any other Indebtedness of the Company

that is not subordinate to the Notes and with respect to which the governing instruments require, or pursuant to which the Company is otherwise obligated or required, to provide such security) shall be equally and ratably secured with such secured Indebtedness so long as such other Indebtedness shall be secured. For purposes of this Section 2.14 only, "Indebtedness", in addition to those items specified in Section 1.1 of the Indenture, shall include any obligation of, or any such obligation guaranteed by, any Person for the payment of amounts due under a swap agreement or other similar instrument or agreement or foreign currency hedge exchange or similar instrument or agreement.

If the Company shall hereafter be required to secure the Notes equally and ratably with any other Indebtedness pursuant to this Section, (i) the Company will promptly deliver to the Trustee an Officer's Certificate stating that the foregoing covenant has been complied with, and an Opinion of Counsel stating that in the opinion of such counsel the foregoing covenant has been complied with and that any instruments executed by the Company or any Subsidiary of the Company in the performance of the foregoing covenant comply with the requirements of the foregoing covenant and (ii) the Trustee is hereby authorized to enter into an indenture or agreement supplemental hereto and to take such action, if any, as it may deem advisable to enable it to enforce the rights of the holders of the Notes so secured.

Section 2.15. LIMITATIONS ON ISSUE OR DISPOSITION OF COMMON STOCK OF PRINCIPAL SUBSIDIARIES. As long as any of the Notes remain outstanding, the Company will not, and will not permit any Subsidiary to, issue, sell, assign, transfer or otherwise dispose of, directly or indirectly, any of the Common Stock of any Principal Subsidiary (except to the Company or to one or more Subsidiaries or for the purpose of qualifying directors); provided, however, that this covenant shall not apply if (i) the issuance, sale, assignment, transfer or other disposition is required to comply with the order of a court or regulatory authority of competent jurisdiction, other than an order issued at the request of the Company or of one of its Subsidiaries; (ii) the entire Common Stock of a Principal Subsidiary then owned by the Company or by its Subsidiaries is disposed of in a single transaction or in a series of related transactions, for consideration consisting of cash or other property which is at least equal to the Fair Value of such Common Stock; or (iii) after giving effect to the issuance, sale, assignment, transfer or other disposition, the Company and its Subsidiaries would own directly or indirectly at least 80% of the issued and outstanding Common Stock of such Principal Subsidiary and such issuance, sale, assignment, transfer or other disposition is made for consideration consisting of cash or other property which is at least equal to the Fair Value of such Common Stock.

Section 2.16. IMMEDIATELY AVAILABLE FUNDS. All payments of principal and interest shall be made in immediately available funds.

ARTICLE III

MISCELLANEOUS PROVISIONS

Section 3.1. TRUSTEE NOT RESPONSIBLE FOR RECITALS. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no

responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Fifth Supplemental Indenture.

Section 3.2. PAYMENT OF EXPENSES UPON RESIGNATION OR REMOVAL. Upon termination of this Fifth Supplemental Indenture or the Indenture or the removal or resignation of the Trustee, unless otherwise stated, the Company shall pay to the Trustee all amounts accrued to the date of such termination, removal or resignation.

Section 3.3. ADOPTION, RATIFICATION AND CONFIRMATION. The Indenture, as supplemented and amended by this Fifth Supplemental Indenture, is in all respects hereby adopted, ratified and confirmed.

Section 3.4. COUNTERPARTS. This Fifth Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.

Section 3.5. GOVERNING LAW. THIS FIFTH SUPPLEMENTAL INDENTURE AND EACH NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.

IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental Indenture to be duly executed on the day and year first above written.

W. R. BERKLEY CORPORATION

By: /s/ Eugene G. Ballard
    ----------------------------
    Name:  Eugene G. Ballard
    Title: Senior Vice President

THE BANK OF NEW YORK, as Trustee

By: /s/ Geovanni Barris
    ----------------------------
   Name:  Geovanni Barris
   Title: Vice President

EXHIBIT A

(FORM OF FACE OF NOTE)

This Note is a global Note within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depository or a nominee of a Depository. This Note is exchangeable for Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Note (other than a transfer of this Note as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances.

Unless this Note is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.

Certificate No. 5                                                   $250,000,000
Dated: February 14, 2007                                     CUSIP No. 084423AP7
                                                           ISIN No. US084423AP79

W. R. BERKLEY CORPORATION

6.250% Senior Notes due 2037

W. R. BERKLEY CORPORATION, a Delaware corporation (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of TWO HUNDRED AND FIFTY MILLION DOLLARS AND NO CENTS ($250,000,000.00) on February 15, 2037. The Company further promises to pay interest on said principal sum outstanding from February 14, 2007, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, semiannually (subject to deferral as set forth herein) in arrears on February 15 and August 15 of each year commencing August 15, 2007 at the rate of 6.250% per annum, until the principal hereof shall have become due and payable and, until the principal hereof is paid or duly provided for or made available for payment. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any partial period shall be computed on the basis of the number of actual days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Note is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay). A "Business Day," with respect to any Place of

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Payment or other location, shall mean any day other than a Saturday, Sunday or other day on which banking institutions in such Place of Payment or other location are authorized or obligated by law, regulation or executive order to close. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on February 1 or August 1 prior to such Interest Payment Date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holder on such Regular Record Date and may either be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date to be fixed by the Trustee for the payment of such Defaulted Interest, notice whereof shall be given to the Holder of this Note not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which this Note may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.

The principal of (and premium, if any) and the interest on this Note shall be payable at the office or agency of the Company maintained for that purpose in the United States in such coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; PROVIDED, HOWEVER, that payment of interest may be made at the option of the Company by check mailed to the registered Holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the Holder of this Note is Cede & Co., the payment of the principal of (and premium, if any) and interest on this Note will be made at such place and to such account as may be designated by Cede & Co. All payments of principal and interest hereunder shall be made in immediately available funds.

Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid for any purpose.

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IN WITNESS WHEREOF, the Company has caused this instrument to be executed.

W. R. BERKLEY CORPORATION

By:_______________________________
Name:
Title:

CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture.

Dated: February 14, 2007

THE BANK OF NEW YORK,
as Trustee

By:_____________________________
Authorized Signatory

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(FORM OF REVERSE OF NOTE)

This Note is one of a duly authorized issue of securities of the Company, designated as its 6.250% Senior Notes due 2037 (herein referred to as the "Securities"), issued under and pursuant to an Indenture, dated as of February 14, 2003 between the Company and The Bank of New York, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), as supplemented by the Fifth Supplemental Indenture dated as of February 14, 2007, between the Company and the Trustee (the Indenture as so supplemented, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered.

All terms used in this Note that are defined in the Indenture shall have the meanings assigned to them in the Indenture.

The Company may redeem the Securities, in whole or in part, at any time at a Redemption Price equal to the greater of (i) 100% of the principal amount of such Securities to be redeemed or (ii) an amount, as determined by an Independent Investment Banker, the sum of the present values of the remaining scheduled payments of principal of and interest thereon on the securities to be redeemed (not including any portion of such payments of interest accrued to the date of redemption) discounted to the Redemption Date on a semiannual basis assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus 25 basis points, plus, in either of the above cases, accrued and unpaid interest thereon to the Redemption Date.

"Adjusted Treasury Rate" means, with respect to any Redemption Date:

- if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semiannual equivalent yield to maturity of the

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Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date.

The Adjusted Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date.

"Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the securities to be redeemed that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such securities ("Remaining Life").

"Independent Investment Banker" means one of the Reference Treasury Dealers appointed by us.

"Reference Treasury Dealer" means:

- each of Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in the United States (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer; and

- any other Primary Treasury Dealer selected by the Company.

The Company will mail a notice of redemption at least 30 days but not more than 60 days before the Redemption Date to each holder of the securities to be redeemed. If less than all of the securities are to be redeemed, the Trustee will select, by such method as it will deem fair and appropriate, including pro rata or by lot, the securities to be redeemed in whole or in part.

Unless we default in payment of the Redemption Price, on and after the Redemption Date, interest will cease to accrue on the securities or portions thereof called for redemption.

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If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner, with the effect and subject to the conditions provided in the Indenture.

The Indenture contains provisions for satisfaction, discharge and defeasance at any time of the entire indebtedness of this Note upon compliance by the Company with certain conditions set forth in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities of each series at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture (other than
Section 4.2 of the Indenture) shall alter or impair the obligation of the Company to pay the principal and interest on the Note at the times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable in the Security Register, upon surrender of this Note for registration of transfer at the office or agency of the Company maintained under Section 10.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer, in form satisfactory to the Company and the Security Registrar, duly executed by the Holder hereof or his or her attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

This global Note is exchangeable for Securities in definitive form only under certain limited circumstances set forth in the Indenture. Securities of this series so issued are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations herein and

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therein set forth, Securities of this series so issued are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.

The Company and, by its acceptance of this Note or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Note agree that for United States federal, state and local tax purposes it is intended that this Note constitute indebtedness.

THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND

THE SECURITIES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF.

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.
.

FINANCIAL DATA
(Amounts in thousands, except per share data)

YEARS ENDED DECEMBER 31,                      2006           2005         2004           2003         2002
-----------------------------------------  -----------   -----------   -----------   -----------   -----------
Net premiums written                       $ 4,818,993   $ 4,604,574   $ 4,266,361   $ 3,670,515   $ 2,710,490
Net premiums earned                          4,692,622     4,460,935     4,061,092     3,234,610     2,252,527
Net investment income                          586,175       403,962       291,295       210,056       187,875
Service fees                                   104,812       110,697       109,344       101,715        86,095
Realized investment gains                        9,648        17,209        48,268        81,692        37,070
Total revenues                               5,394,831     4,996,839     4,512,235     3,630,108     2,566,084
Interest expense                                92,522        85,926        66,423        54,733        45,475
Income before income taxes                     988,645       770,537       638,513       489,304       259,433
Income tax expense                            (286,398)     (222,521)     (196,235)     (150,626)      (84,139)
Minority interest                               (2,729)       (3,124)       (3,446)       (1,458)         (249)
Income before change in accounting             699,518       544,892       438,832       337,220       175,045
Cumulative effect of change in accounting           --            --          (727)           --            --
Net income                                     699,518       544,892       438,105       337,220       175,045
Data per common share:
  Net income per basic share                      3.65          2.86          2.32          1.81          1.02
  Net income per diluted share                    3.46          2.72          2.21          1.72           .98
  Stockholders' equity                           17.30         13.42         11.13          8.95          7.17
  Cash dividends declared                          .16           .12           .12           .12           .11
Weighted average shares outstanding:
  Basic                                        191,809       190,533       188,912       187,029       171,738
  Diluted                                      201,961       200,426       198,408       195,893       178,617

Balance sheet data:
Investments                                $11,114,364   $ 9,810,225   $ 7,303,889   $ 5,068,670   $ 4,521,906
Total assets                                15,656,489    13,896,287    11,451,033     9,334,685     7,031,323
Reserves for losses and loss expenses        7,784,269     6,711,760     5,449,611     4,192,091     3,167,925
Junior subordinated debentures                 241,953       450,634       208,286       193,336       198,251
Senior notes and other debt                    869,187       967,818       808,264       659,208       362,985
Stockholders' equity                         3,335,159     2,567,077     2,109,702     1,682,562     1,335,199

PAST PRICES OF COMMON STOCK

The common stock of the Company is traded on the New York Stock Exchange under the symbol "BER". All amounts have been adjusted to reflect the 3-for-2 common stock split effected on April 4, 2006.

                      PRICE RANGE       COMMON DIVIDENDS
                  ----------------------------------------
                    HIGH       LOW      DECLARED PER SHARE
                  -------    -------    ------------------
2006
Fourth Quarter    $ 37.72    $ 34.34    $            .04
Third Quarter       37.25      32.26                 .04
Second Quarter      40.95      30.61                 .04
First Quarter       40.15      31.87                 .04

2005
Fourth Quarter    $ 32.86    $ 24.33    $            .03
Third Quarter       26.45      23.18                 .03
Second Quarter      24.50      21.46                 .03
First Quarter       23.91      20.58                 .03

ITEM 7. 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 in five business segments: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international. The Company's primary sources of revenues and earnings are insurance and investments.

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 a property casualty 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 due for injuries or losses. General insurance prices are also influenced by available insurance capacity, i.e., the level of policyholders' surplus employed in the industry, and the industry's willingness to deploy that capital.

The Company's profitability is also affected by its investment income. The Company's invested assets, which are derived from its own capital and cash flow from its insurance business, are invested principally in fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates and the credit quality and duration of the securities. The Company also invests in equity securities, including equity securities related to merger arbitrage and convertible arbitrage strategies.

CRITICAL ACCOUNTING ESTIMATES

The following presents a discussion of accounting policies and estimates relating to reserves for losses and loss expenses and assumed premiums. 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. 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 addition to the economic value of losses. These factors include 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 necessarily 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.

generally involve actuarial projections, are based on management's assessment of facts and circumstances then known, as well as estimates of future 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 internal and external events, such as inflation and economic volatility, judicial and litigation trends, reinsurance coverage and legislative changes, 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 assure 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 increases, 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.

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, commercial multi-peril business, 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 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. For example, as of December 31, 2006, initial loss estimates for accident years 1997 through 2005 were increased by an average of 5% for lines with short reporting lags and by an average of 20% for lines with long reporting lags. For the latest accident year ended December 31, 2006, initial loss estimates were $1.6 billion for lines with short reporting lags and $1.3 billion for lines with long reporting lags.

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 historical changes, current trends and other factors observed. For example, in 2006 loss reserves for our commercial automobile business were increased to reflect an observed trend of higher severity losses, and in 2006 loss reserves for our California workers' compensation business were decreased to reflect an observed trend of lower severity losses following the enactment of legislative reforms.

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 on our loss estimate for claims occurring in 2006 (dollars in thousands):

                            FREQUENCY (+/-)
                  ------------------------------
SEVERITY (+/-)       1%         5%        10%
                  --------   --------   --------
1%                $ 56,109   $168,886   $309,857
5%                 168,886    286,129    432,683
10%                309,857    432,683    586,215

Our net reserves for losses and loss expenses of $6.9 billion as of December 31, 2006 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.

Approximately $1.8 billion, or 25%, of the Company's net loss reserves relate to assumed reinsurance business. There is a higher degree of uncertainty and greater variability regarding estimates of assumed loss reserves because those 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 extended. Management considers the impact of delayed reporting in its selection of assumed loss development factors.

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 as of December 31, 2006 and 2005 (dollars in thousands):

                                                  2006          2005
                                               -----------   -----------
Specialty                                      $ 2,498,030   $ 2,103,542
Regional                                         1,071,607       913,768
Alternative Markets                              1,372,517     1,198,389
Reinsurance                                      1,764,767     1,496,455
International                                      240,676       155,136
                                               -----------   -----------
Net reserves for losses and loss expenses        6,947,597     5,867,290
Ceded reserves for losses and loss expenses        836,672       844,470
                                               -----------   -----------
Gross reserves for losses and loss expenses    $ 7,784,269   $ 6,711,760
                                               ===========   ===========

Following is a summary of the Company's net reserves for losses and loss expenses by major line of business as of December 31, 2006 and 2005 (dollars in thousands):

                            REPORTED CASE   INCURRED BUT NOT
                              RESERVES          REPORTED         TOTAL
                            -------------   ----------------   -----------
DECEMBER 31, 2006
   General liability        $     696,074   $      1,824,395   $ 2,520,469
   Workers' compensation          687,127            909,076     1,596,203
   Commercial automobile          354,841            193,995       548,836
   International                   78,489            162,187       240,676
   Other                           98,368            178,278       276,646
                            -------------   ----------------   -----------
      Total primary             1,914,899          3,267,931     5,182,830
   Reinsurance                    680,272          1,084,495     1,764,767
                            -------------   ----------------   -----------
        Total               $   2,595,171   $      4,352,426   $ 6,947,597
                            =============   ================   ===========

DECEMBER 31, 2005
   General liability        $     644,278   $      1,410,008   $ 2,054,286
   Workers' compensation          602,855            808,207     1,411,062
   Commercial automobile          326,827            175,320       502,147
   International                   52,144            102,992       155,136
   Other                          104,803            143,401       248,204
                            -------------   ----------------   -----------
      Total primary             1,730,907          2,639,928     4,370,835
   Reinsurance                    686,551            809,904     1,496,455
                            -------------   ----------------   -----------
        Total               $   2,417,458   $      3,449,832   $ 5,867,290
                            =============   ================   ===========

For the year ended December 31, 2006, the Company reported losses and loss expenses of $2.9 billion, of which $27 million represented an increase in estimates for claims occurring in prior years. The estimates for claims occurring in prior years were increased by $69 million for assumed reinsurance and decreased by $42 million for primary business. On an accident year basis, the change in prior year reserves is comprised of an increase in estimates for claims occurring in accident years 1998 through 2002 of $143 million and a decrease in estimates for claims occurring in accident years 2004 and 2005 of $116 million.

Case reserves for primary business increased 11% to $1.9 billion as a result of a 3% increase in the number of outstanding claims and a 8% increase in the average case reserve per claim. Reserves for incurred but not reported losses for primary business increased 24% to $3.3 billion at December 31, 2006 from $2.6 billion at December 31, 2005. By segment, prior year reserves decreased by $48 million for alternative markets, $6 million for specialty and $4 million for international and increased by $16 million for regional. By line of business, prior year reserves decreased by $45 million for workers' compensation, $2 million for commercial automobile lines and $10 million for other lines and increased by $15 million for general liability. The decrease in workers' compensation prior year reserves reflects the favorable impact of workers' compensation reforms in California on loss cost trends.

Case reserves for reinsurance business decreased 1% to $680 million at December 31, 2006 from $687 million at December 31, 2005. Reserves for incurred but not reported losses for reinsurance business increased 34% to $1,084 million at December 31, 2006 from $810 million at December 31, 2005. Prior year reserves increased $69 million as losses reported by ceding companies for those years were higher than expected. The Company sets its initial loss estimates based principally upon information obtained during the underwriting process and adjusts these estimates as losses are reported by ceding companies and additional information becomes available.

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 premium, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $139 million and $90 million at December 31, 2006 and 2005, respectively. The assumed premium estimates are based upon terms set forth in the reinsurance agreement, information received from ceding companies during the underwriting and negotiation of the agreement, 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 premiums to be received under its assumed reinsurance agreements.

BUSINESS SEGMENT RESULTS

Following is a summary of gross and net premiums written, 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 combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the years ended December 31, 2006 and 2005. The combined ratio represents a measure of underwriting profitability, excluding investment income. A combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.

(DOLLARS IN THOUSANDS)        2006            2005
----------------------    ------------    ------------
SPECIALTY
Gross premiums written    $  1,918,521    $  1,932,821
Net premiums written         1,814,479       1,827,865
Premiums earned              1,752,507       1,682,193
Loss ratio                        59.1%           62.4%
Expense ratio                     25.0%           25.1%
Combined ratio                    84.1%           87.5%
                          ------------    ------------
REGIONAL
Gross premiums written    $  1,415,311    $  1,384,574
Net premiums written         1,235,302       1,196,487
Premiums earned              1,205,912       1,173,174
Loss ratio                        59.7%           55.8%
Expense ratio                     30.6%           30.6%
Combined ratio                    90.3%           86.4%
                          ------------    ------------
ALTERNATIVE MARKETS
Gross premiums written    $    747,680    $    781,411
Net premiums written           651,255         669,774
Premiums earned                658,805         663,478
Loss ratio                        53.5%           59.4%
Expense ratio                     22.1%           20.1%
Combined ratio                    75.6%           79.5%
                          ------------    ------------
REINSURANCE
Gross premiums written    $    940,797    $    770,781
Net premiums written           892,769         719,540
Premiums earned                859,411         754,097
Loss ratio                        72.0%           74.1%
Expense ratio                     27.8%           30.1%
Combined ratio                    99.8%          104.2%
                          ------------    ------------
INTERNATIONAL
Gross premiums written    $    254,605    $    218,396
Net premiums written           225,188         190,908
Premiums earned                215,987         187,993
Loss ratio                        64.2%           66.5%
Expense ratio                     32.0%           29.6%
Combined ratio                    96.2%           96.1%
                          ------------    ------------
CONSOLIDATED
Gross premiums written    $  5,276,914    $  5,087,983
Net premiums written         4,818,993       4,604,574
Premiums earned              4,692,622       4,460,935
Loss ratio                        61.0%           62.4%
Expense ratio                     27.0%           26.9%
Combined ratio                    88.0%           89.3%

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006 AND 2005

The following table presents the Company's net income and net income per share for the years ended December 31, 2006 and 2005 (amounts in thousands, except per share data):

                                     2006       2005
                                   --------   --------
Net income                         $699,518   $544,892
Weighted average diluted shares     201,961    200,426
Net income per diluted share       $   3.46   $   2.72

The increase in net income in 2006 compared with 2005 reflects higher investment income and higher profits from underwriting activity. The increase in investment income was the result of an increase in average invested assets as well as an increase in the average yield on investments. The improvement in underwriting results was primarily attributable to lower prior year loss reserve development and to lower weather-related losses.

GROSS PREMIUMS WRITTEN. Gross premiums written were $5.3 billion in 2006, up 4% from 2005. While prices increased significantly in 2002 and 2003, the Company experienced an increased level of price competition beginning in 2004. This trend continued in 2005 and 2006 with price levels for renewal business declining approximately 2% as compared with the prior year period.

Gross premiums include approximately $94 million of premiums written by new businesses units established in December 2005. In 2005, the Company developed sufficient information to begin recognizing unbilled audit premiums as such premiums are earned. The accrual for earned but unbilled audit premiums increased premiums written and earned by $22 million in 2006 and $57 million in 2005. Gross premiums for the regional and alternative markets segments include premiums written on behalf of assigned risk plans managed by the Company. The assigned risk business is fully reinsured by the respective state-sponsored assigned risk plans.

A summary of gross premiums written in 2006 compared with 2005 by business segment follows:

- Specialty gross premiums decreased by 1% to $1,919 million in 2006 from $1,933 million in 2005. The number of new and renewal policies issued in 2006, net of policy cancellations, increased 1%. Average prices for renewal policies, adjusted for changes in exposure, decreased 4%. Gross premiums written decreased 11% for professional liability, 6% for products liability, 4% for premises operations and 1% for commercial automobile. Gross premiums written increased 34% for property lines.

- Regional gross premiums increased by 2% to $1,415 million in 2006 from $1,385 million in 2005. The number of new and renewal policies issued in 2006, net of policy cancellations, decreased 1%. Average prices for renewal policies, adjusted for changes in exposure, decreased 2%. Gross premiums written increased 4% for workers' compensation, 2% for commercial automobile and 1% for commercial multiple peril. Gross premiums include assigned risk premiums of $102 million in 2006 and $114 million in 2005.

- Alternative markets gross premiums decreased by 4% to $748 million in 2006 from $781 million in 2005. The number of new and renewal policies issued in 2006, net of policy cancellations, was essentially unchanged. Average prices for renewal policies, adjusted for changes in exposure, decreased 5%. Gross premiums written decreased 10% for primary workers' compensation and increased 2% for excess workers' compensation. The decline in premiums for primary workers' compensation was primarily due to rate decreases in California. Gross premiums include assigned risk premiums of $67 million in 2006 and $76 million in 2005.

- Reinsurance gross premiums increased by 22% to $941 million in 2006 from $771 million in 2005. Average prices for renewal business increased 3%. Casualty gross premiums written increased 25% to $783 million, and property gross premiums written increased 9% to $158 million. The 2006 premiums include $131 million related to two new medical malpractice reinsurance agreements. While these agreements contain limits on the potential amount of losses to be paid by the Company, they also contain limits on the potential amount of profit that may be earned by the Company.

- International gross premiums increased by 17% to $255 million in 2006 from $218 million in 2005 due to growth in Europe and Argentina.

NET PREMIUMS EARNED. Net premiums earned increased 5% to $4.7 billion from $4.5 billion in 2005. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2006 are related to business written during both 2006 and 2005. The 5% growth rate for 2006 earned premiums reflects the underlying growth in net premiums written in those years.

NET INVESTMENT INCOME. Following is a summary of net investment income for the years ended December 31, 2006 and 2005

                                                                   AVERAGE ANNUALIZED
(DOLLARS IN THOUSANDS)                             AMOUNT                YIELD
------------------------------------------   -------------------   ------------------
                                              2006       2005        2006      2005
                                             --------   --------   -------   --------
Fixed maturity securities, including cash    $440,987   $336,126       4.7%       4.2%
Arbitrage trading account                      74,551     28,095      10.4%       6.2%
Investments in partnerships and affiliates     37,145     18,545       9.5%       6.8%
Equity securities available for sale           35,662     25,529       6.8%       6.3%
Other                                            (369)    (1,360)
                                             --------   --------
  Gross investment income                     587,976    406,935       5.3%       4.4%
Investment expenses                            (1,801)    (2,973)
                                             --------   --------
       Total                                 $586,175   $403,962
                                             --------   --------

Net investment income increased 45% to $586 million in 2006 from $404 million in 2005. Average invested assets (including cash and cash equivalents) increased 20% to $11 billion in 2006 from $9 billion in 2005 as a result of cash flow from operations. The average annualized gross yield on investments increased to 5.3% in 2006 from 4.4% in 2005 due to higher short-term interest rates and higher returns from the arbitrage trading account.

SERVICE FEES. The alternative markets segment offers fee-based services to help clients develop and administer self-insurance programs, primarily for workers' compensation coverage. Service fees were $105 million in 2006, down from $111 million in 2005, primarily as a result of a decline in fees for managing state-sponsored assigned risk plans.

REALIZED INVESTMENT GAINS. Realized investment gains result primarily from sales of securities, as well as from provisions for other than temporary impairment in securities. Realized investment gains were $10 million in 2006 compared with $17 million in 2005. Charges for impairment of investments were $0.1 million in 2006 and $1.6 million in 2005. The Company buys and sells securities on a regular basis in order to maximize the total return on investments. Decisions to sell securities are based on management's view of the underlying fundamentals of specific securities as well as management's expectations regarding interest rates, credit spreads, currency values and general economic conditions.

LOSSES AND LOSS EXPENSES. Losses and loss expenses increased 3% to $2.9 billion in 2006 from $2.8 billion in 2005 primarily due to increased premium volume. The consolidated loss ratio was 61.0% in 2006 compared with 62.4% in 2005. The 2006 loss ratio reflects lower prior year loss reserve development ($27 million in 2006 compared with $187 million in 2005) and lower storm losses ($39 million in 2006 compared with $99 million in 2005). These improvements were partially offset by an increase in the expected loss ratio for accident year 2006 as a result of a decline in average prices. A summary of loss ratios in 2006 compared with 2005 by business segment follows:

- Specialty's loss ratio decreased to 59.1% in 2006 from 62.4% in 2005 principally due to the impact of prior year loss reserve development (favorable loss reserve development of $6 million in 2006 compared with unfavorable loss reserve development of $91 million in 2005).

- The regional loss ratio increased to 59.7% in 2006 from 55.8% in 2005. The 2006 loss ratio reflects an increase in the expected loss ratio for accident year 2006 as a result of a decline in average prices. Weather-related losses were $39 million in 2006 compared with $35 million in 2005.

- Alternative market's loss ratio decreased to 53.5% from 59.4% primarily as a result of continued favorable reserve development related to workers' compensation business in California.

- The reinsurance loss ratio decreased to 72.0% in 2006 from 74.1% in 2005. The decrease reflects the impact of lower weather-related losses (with no weather-related losses in 2006 compared with $49 million in 2005) and lower prior year loss reserve development. These were partially offset by relatively higher loss ratios for the new medical malpractice reinsurance agreements referred to above.

- The international loss ratio decreased to 64.2% in 2006 from 66.5% in 2005 primarily as a result of favorable reserve development related to professional indemnity business written in the United Kingdom.

OTHER OPERATING COSTS AND EXPENSES. Following is a summary of other operating costs and expenses for the years ended December 31, 2006 and 2005 (dollars in thousands):

                               2006          2005
                           -----------   -----------
Underwriting expenses      $ 1,267,217   $ 1,202,043
Service expenses                88,961        91,134
Other costs and expenses        92,988        65,397
                           -----------   -----------
     Total                 $ 1,449,166   $ 1,358,574
                           ===========   ===========

Underwriting expenses increased 5% primarily as a result of higher premium volume. Underwriting expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 27.0% in 2006 compared with 26.9% in 2005.

Service expenses, which represent the costs associated with the alternative market's fee-based business, decreased 2% to $89 million primarily as a result of a decrease in costs associated with the servicing of assigned risk plan business.

Other costs and expenses, which represent general and administrative expenses for the parent company, increased 42% to $93 million primarily as a result of higher costs for incentive compensation programs.

INTEREST EXPENSE. Interest expense increased 8% to $93 million as a result of interest expense related to $200 million of 5.6% senior notes issued in May 2005 and $250 million of 6.75% junior subordinated debentures issued in July 2005. This was partially offset by a reduction in interest expense as a result of the repayment of $100 million 6.25% senior notes in January 2006 and the repayment of $210 million 8.197% junior subordinate notes in December 2006. In February 2007, the Company issued $250 million of 6.25% senior notes due February 15, 2037.

INCOME TAXES. The effective income tax rate was 29% in 2006 and 2005. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.

BUSINESS SEGMENT RESULTS

Following is a summary of gross and net premiums written, 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 combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the years ended December 31, 2005 and 2004. The combined ratio represents a measure of underwriting profitability, excluding investment income. A combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.

(DOLLARS IN THOUSANDS)         2005           2004
-----------------------     -----------    -----------
SPECIALTY
Gross premiums written      $ 1,932,821    $ 1,607,974
Net premiums written          1,827,865      1,497,567
Premiums earned               1,682,193      1,391,652
Loss ratio                         62.4%          61.7%
Expense ratio                      25.1%          25.6%
Combined ratio                     87.5%          87.3%
                            -----------    -----------
REGIONAL
Gross premiums written      $ 1,384,574    $ 1,295,659
Net premiums written          1,196,487      1,128,800
Premiums earned               1,173,174      1,068,552
Loss ratio                         55.8%          55.7%
Expense ratio                      30.6%          31.2%
Combined ratio                     86.4%          86.9%
                            -----------    -----------
ALTERNATIVE MARKETS
Gross premiums written      $   781,411    $   756,349
Net premiums written            669,774        640,491
Premiums earned                 663,478        605,996
Loss ratio                         59.4%          70.6%
Expense ratio                      20.1%          21.2%
Combined ratio                     79.5%          91.8%
                            -----------    -----------
REINSURANCE
Gross premiums written      $   770,781    $   868,208
Net premiums written            719,540        823,772
Premiums earned                 754,097        841,451
Loss ratio                         74.1%          69.5%
Expense ratio                      30.1%          29.1%
Combined ratio                    104.2%          98.6%
                            -----------    -----------
INTERNATIONAL
Gross premiums written      $   218,396    $   195,938
Net premiums written            190,908        175,731
Premiums earned                 187,993        153,441
Loss ratio                         66.5%          61.0%
Expense ratio                      29.6%          30.0%
Combined ratio                     96.1%          91.0%
                            -----------    -----------
CONSOLIDATED
Gross premiums written      $ 5,087,983    $ 4,724,128
Net premiums written          4,604,574      4,266,361
Premiums earned               4,460,935      4,061,092
Loss ratio                         62.4%          63.0%
Expense ratio                      26.9%          27.4%
Combined ratio                     89.3%          90.4%

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005 AND 2004

The following table presents the Company's net income and net income per share for the year ended December 31, 2005 and 2004 (amounts in thousands, except per share data):

                                    2005         2004
                                   --------    ---------
Net income                         $544,892    $ 438,105
Weighted average diluted shares     200,426      198,408
Net income per diluted share       $   2.72    $    2.21

The increase in net income in 2005 compared with 2004 reflects higher investment income and higher profits from underwriting activity. The increase in investment income was the result of a 28% increase in average invested assets arising from cash flow provided by operating and financing activity. The improvement in underwriting results is attributable to a 10% increase in earned premiums, a 0.6 percentage point decrease in the loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned), and a 0.5 percentage point decrease in the expense ratio (underwriting expenses expressed as a percentage of premiums earned). Weather-related losses were $99 million in 2005 and $60 million in 2004, and included hurricane losses of $74 million and $34 million, respectively.

GROSS PREMIUMS WRITTEN. Gross premiums written were $5.1 billion in 2005, up 8% from 2004. Prior to 2005, audit premiums were not considered to be reliably determinable until such audits were completed and billed. In 2005, the Company developed sufficient information to begin recognizing unbilled audit premiums as such premiums are earned. The accrual for earned but unbilled audit premiums increased premiums written and earned by $57 million and income before income taxes by $11 million in 2005.

Gross premiums for the regional and alternative markets segments include premiums written on behalf of assigned risk plans managed by the Company. The assigned risk business is fully reinsured by the respective state-sponsored assigned risk plans.

A summary of gross premiums written in 2005 compared with 2004 by business segment follows:

- Specialty gross premiums increased by 20% to $1.9 billion in 2005 from $1.6 billion in 2004. Gross premiums for Berkley Specialty Underwriting Managers, LLC, which began in July 2004, were $166 million in 2005 compared to $52 million in 2004. The number of new and renewal policies issued in 2005, net of policy cancellations, increased 13%. Average prices for renewal policies, adjusted for changes in exposure, decreased 2%. Gross premiums written increased 31% for premises operations, 18% for products liability, 15% for property lines and 6% for automobile. Gross premiums written decreased 8% for professional liability lines.

- Regional gross premiums increased by 7% to $1.4 billion in 2005 from $1.3 billion in 2004. The number of new and renewal policies issued in 2005, net of policy cancellations, decreased 5%. Average prices for renewal policies, adjusted for changes in exposure, decreased 1%. Gross premiums written increased 10% for workers' compensation, 4% for commercial automobile and 4% for commercial multiple peril. Gross premiums include assigned risk premiums of $114 million in 2005 and $95 million in 2004.

- Alternative markets gross premiums increased by 3% to $781 million in 2005 from $756 million in 2004. The number of new and renewal policies issued in 2005, net of policy cancellations decreased 1%. Average prices for renewal policies, adjusted for changes in exposure, decreased 2%. Gross premiums written decreased 1% for primary workers' compensation and increased 15% for excess workers' compensation. The decline in premiums for primary workers' compensation was primarily due to rate decreases in California. Gross premiums include gross premiums for assigned risk plans of $65 million in 2005 and $73 million in 2004.

- Reinsurance gross premiums decreased by 11% to $771 million in 2005 from $868 million in 2004. The decrease in business written includes a planned decline of $93 million in reinsurance written through Lloyd's and a decrease of $56 million as a result of the discontinuance of a facultative relationship with a particular ceding company. Casualty gross premiums written decreased 9% to $626 million, and property gross premiums written decreased 19% to $145 million.

- International gross premiums increased by 11% to $218 million in 2005 from $196 million in 2004 due to growth in Europe and Argentina.

NET PREMIUMS EARNED. Net premiums earned increased 10% to $4.5 billion from $4.1 billion in 2004. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2005 are related to business written during both 2005 and 2004. The 10% growth rate for 2005 earned premiums reflects the underlying growth in net premiums written in those years. The increase in earned premiums in 2005 also reflects the accrual for earned but unbilled audit premiums of $57 million referred to above.

NET INVESTMENT INCOME. Following is a summary of net investment income for the years ended December 31, 2005 and 2004 (dollars in thousands):

                                                                      AVERAGE ANNUALIZED
                                                      AMOUNT                YIELD
                                              ---------------------   ------------------
                                                 2005        2004       2005      2004
                                              ---------   ---------   --------   -------
Fixed maturity securities, including cash     $ 336,126   $ 242,270        4.2%      3.9%
Arbitrage trading account                        28,095      13,743        6.2%      3.7%
Investments in partnerships and affiliates       18,545      16,906        6.8%      9.1%
Equity securities available for sale             25,529      21,005        6.3%      5.8%
Other                                            (1,360)        (58)
                                              ---------   ---------
  Gross investment income                       406,935     293,866        4.4%      4.1%
Investment expenses and interest                 (2,973)     (2,571)
                                              ---------   ---------
       Total                                  $ 403,962   $ 291,295
                                              =========   =========

Net investment income increased 39% to $404 million in 2005 from $291 million in 2004. Average invested assets (including cash and cash equivalents) increased 28% to $9.2 billion in 2005 from $7.2 billion in 2004 as a result of cash flow from operations. The average annualized gross yield on investments increased to 4.4% in 2005 from 4.1% in 2004 due to higher short-term interest rates and higher returns from the arbitrage trading account.

REALIZED INVESTMENT GAINS. Realized investment gains result primarily from sales of securities, as well as from provisions for other than temporary impairment in securities. Realized investment gains were $17 million in 2005 compared with $48 million in 2004. Charges for impairment of investments were $1.6 million in 2005 and $2.8 million in 2004. The Company buys and sells securities on a regular basis in order to maximize the total return on investments. Decisions to sell securities are based on management's view of the underlying fundamentals of specific securities as well as management's expectations regarding interest rates, credit spreads, currency values and general economic conditions.

LOSSES AND LOSS EXPENSES. Losses and loss expenses increased 9% to $2.8 billion in 2005 from $2.6 billion in 2004 due to increased premium volume. The consolidated loss ratio was 62.4% in 2005 compared with 63.0% in 2004. The 2005 loss ratio reflects lower prior year loss reserve development ($187 million in 2005 compared with $295 million in 2004). Weather-related losses, including losses attributable to Hurricanes Katrina, Rita and Wilma, were $99 million in 2005 compared with $60 million in 2004. A summary of loss ratios in 2005 compared with 2004 by business segment follows:

- Specialty's loss ratio increased to 62.4% in 2005 from 61.7% in 2004 principally due to an increase in estimated losses for commercial transportation business.

- The regional loss ratio increased to 55.8% in 2005 from 55.7% in 2004. Weather-related losses were $35 million in 2005 compared with $28 million in 2004.

- Alternative market's loss ratio decreased to 59.4% from 70.6% primarily as a result of the favorable reserve development related to workers' compensation business in California.

- The reinsurance loss ratio increased to 74.1% in 2005 from 69.5% in 2004 primarily as a result of higher weather-related losses ($49 million in 2005 compared with $27 million in 2004).

- The international loss ratio increased to 66.5% in 2005 from 61.0% in 2004 primarily as a result of an increase in losses for business written in Argentina and Europe.

OTHER OPERATING COSTS AND EXPENSES. Following is a summary of other operating costs and expenses for the years ended December 31, 2005 and 2004 (dollars in thousands):

                                2005         2004
                            -----------   -----------
Underwriting expenses       $ 1,202,043   $ 1,114,750
Service expenses                 91,134        84,404
Other costs and expenses         65,397        48,835
                            -----------   -----------
     Total                  $ 1,358,574   $ 1,247,989
                            ===========   ===========

Underwriting expenses increased 8% primarily as a result of higher premium volume. Underwriting expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 26.9% in 2005 compared with 27.4% in 2004.

Service expenses, which represent the costs associated with the alternative market's fee-based business, increased 8% to $91 million primarily as a result of a increase in costs associated with the servicing of assigned risk plan business as well as higher compensation costs.

Other costs and expenses, which represent general and administrative expenses for the parent company, increased 34% to $65 million primarily as a result of higher incentive compensation costs.

INTEREST EXPENSE. Interest expense increased 29% to $86 million as a result of interest expense related to $150 million of 6.15% senior notes issued in August 2004, $200 million of 5.6% senior notes issued in May 2005 and $250 million of 6.75% junior subordinated debentures issued in July 2005.

INCOME TAXES. The effective income tax rate was 29% in 2005 and 31% in 2004. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.

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 adequate to meet payment obligations. 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 carrying value of the Company's investment portfolio and investment-related assets as of December 31, 2006 and 2005 were as follows (dollars in thousands):

                                                             2006          2005
                                                         ------------   ------------
Fixed maturity securities                                $  9,158,607   $  8,485,104
Equity securities available for sale                          866,422        435,699
Equity securities trading account                             639,481        567,760
Investments in partnerships and affiliates                    449,854        321,662
                                                         ------------   ------------
      Total investments                                    11,114,364      9,810,225

Cash and cash equivalents                                     754,247        672,941
Trading account receivables                                   312,220         98,229
Trading account securities sold but not yet purchased        (170,075)      (198,426)
Unsettled sales (purchases)                                     1,542         (4,719)
                                                         ------------   ------------
      Total                                              $ 12,012,298   $ 10,378,250
                                                         ============   ============

FIXED MATURITIES. 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. At December 31, 2006 (as compared to December 31, 2005), the fixed maturities portfolio mix was as follows: U.S. Government securities were 15% (15% in 2005); state and municipal securities were 50% (55% in 2005); corporate securities were 9% (9% in 2005); mortgage-backed securities were 22% (18% in 2005); and foreign bonds were 4% (3% in 2005).

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 market 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 AVAILABLE FOR SALE. Equity securities available for sale primarily represent investments in common and preferred stocks of publicly traded real estate investment trusts, banks and utilities.

EQUITY SECURITIES TRADING ACCOUNT. The trading account is comprised of direct investments in arbitrage securities and investments in arbitrage-related limited partnerships that specialize in merger arbitrage and convertible arbitrage strategies. Merger arbitrage is the business of investing in the securities of publicly held companies that are the targets in announced tender offers and mergers. Convertible arbitrage is the business of investing in convertible securities with the goal of capitalizing on price differentials between these securities and their underlying equities.

INVESTMENTS IN PARTNERSHIPS AND AFFILIATES. At December 31, 2006 (as compared to December 31, 2005), investments in partnerships and affiliates were as follows:
equity in Kiln plc was $96 million ($74 million in 2005); real estate funds were $275 million ($160 million in 2005); and other investments were $79 million ($88 million in 2005).

SECURITIES IN AN UNREALIZED LOSS POSITION. The following table summarizes all securities in an unrealized loss position at December 31, 2006 and 2005 by the length of time those securities have been continuously in an unrealized loss position:

                                          NUMBER OF    AGGREGATE        GROSS
       (Dollars in thousands)            SECURITIES    FAIR VALUE   UNREALIZED LOSS
-------------------------------------    ----------   -----------   ---------------
December 31, 2006

Fixed maturities:
  0 - 6 months                                  100   $   802,595   $         2,309
  7- 12 months                                   62       645,331             4,445
  Over 12 months                                269     2,843,721            44,389
                                         ----------   -----------   ---------------
     Total                                      431   $ 4,291,647   $        51,143
                                         ----------   -----------   ---------------

Equity securities available for sale:
  0 - 6 months                                    8   $    75,568   $           320
  7- 12 months                                    9        60,853               250
  Over 12 months                                 16       105,085             1,583
                                         ----------   -----------   ---------------
     Total                                       33   $   241,506   $         2,153
                                         ==========   ===========   ===============

December 31, 2005

Fixed maturities:
  0 - 6 months                                  237   $ 2,921,830   $        29,928
  7- 12 months                                   65       878,549            12,124
  Over 12 months                                 96       847,400            17,410
                                         ----------   -----------   ---------------
     Total                                      398   $ 4,647,779   $        59,462
                                         ----------   -----------   ---------------

Equity securities available for sale:
  0 - 6 months                                   38   $    45,443   $         1,221
  7- 12 months                                   15       106,979             2,571
  Over 12 months                                  4        11,364               609
                                         ----------   -----------   ---------------
     Total                                       57   $   163,786   $         4,401
                                         ==========   ===========   ===============

At December 31, 2006, gross unrealized gains were $230 million, or 2% of total investments, and gross unrealized losses were $53 million, or 0.4% of total investments. There were 356 securities that have been continuously in an unrealized loss position for more than six months. Those securities had an aggregate fair value of $3.7 billion and an aggregate unrealized loss of $51 million. The decline in market value for these securities is primarily due to an increase in market interest rates.

Management regularly reviews all securities that have a fair value less than cost to determine whether an other than temporary impairment has occurred. In determining whether a decline in fair value is other than temporary, management assesses whether the fair value is expected to recover and whether the Company has the intent to hold the investment until it recovers. The Company's assessment of its intent to hold an investment until it recovers is based on conditions at the time the assessment is made, including general market conditions, the Company's overall investment strategy and management's view of the underlying value of an investment relative to its current price. If a decline in value is considered other than temporary, the Company reduces the carrying value of the security and reports a realized loss on its statement of income.

The following table shows the composition by Standard & Poor's ("S&P") and Moody's ratings of the fixed maturity securities in our portfolio with gross unrealized losses at December 31, 2006. Not all of the securities are rated by S&P and/or Moody's (dollars in thousands).

                                      UNREALIZED LOSS                   FAIR VALUE
                                ----------------------------   -------------------------------
 S&P RATING    MOODY'S RATING    AMOUNT     PERCENT TO TOTAL      AMOUNT      PERCENT TO TOTAL
------------   --------------   ---------   ----------------   ------------   ----------------
  AAA/AA/A        Aaa/Aa/A      $  47,087               92.1%  $  4,067,017               94.8%
     BBB            Baa             3,604                7.1        194,625                4.5
     BB             Ba                 71                0.1         14,258                0.3
      B              B                381                0.7         15,747                0.4
CCC or Lower   Caa or lower            --                 --             --                 --
     N/A             N/A               --                 --             --                 --
               --------------   ---------   ----------------   ------------   ----------------
                   Total        $  51,143              100.0%   $ 4,291,647              100.0%
               ==============   =========   ================   ============   ================

The scheduled maturity dates for fixed maturity securities in an unrealized loss position at December 31, 2006 are shown in the following table (dollars in thousands):

                                                UNREALIZED LOSS                  FAIR VALUE
                                          ---------------------------   ------------------------------
                                           AMOUNT    PERCENT TO TOTAL      AMOUNT     PERCENT TO TOTAL
                                          --------   ----------------   -----------   ----------------
Due in one year or less                   $  3,388                6.6%  $   662,115               15.4%
Due after one year through five years       12,453               24.3       758,441               17.7
Due after five years through ten years      11,655               22.8     1,152,358               26.9
Due after ten years                          9,885               19.4       550,184               12.8
Mortgage and asset-backed securities        13,762               26.9     1,168,549               27.2
                                          --------   ----------------   -----------   ----------------
  Total fixed income securities           $ 51,143              100.0%  $ 4,291,647              100.0%
                                          ========   ================   ===========   ================

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Due to the periodic repayment of principal, the mortgage and asset-backed securities are estimated to have an effective maturity of approximately 2.4 years.

MARKET RISK. The Company's market risk generally represents the risk of gain or loss that may result from the potential change in the fair value of the Company's investment portfolio as a result of fluctuations in credit quality and interest rates. The Company uses various models and stress test scenarios to monitor and manage interest rate risk. In addition, the Company's international businesses and securities are subject to currency exchange rate risk. As discussed above, the Company attempts to manage its interest rate risk by maintaining 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. In response to interest rate changes and management's expectations regarding future interest rates, the Company shortened the duration for the fixed income portfolio from 3.8 years to 3.3 years during 2006.

The following table outlines the groups of fixed maturity securities and the components of the interest rate risk at December 31, 2006:

                               EFFECTIVE
                                DURATION    FAIR VALUE
                                (YEARS)      (000S)
                               ---------   -----------
Cash and cash equivalents            0.1   $   754,247
U. S. Government securities          3.2     1,391,921
State and municipal                  5.4     4,570,297
Corporate                            3.1       806,447
Foreign                              3.9       369,428
Mortgage-backed securities           2.4     2,034,361
                               ---------   -----------
Total                                3.3   $ 9,926,701
                               =========   ===========

Duration is a common gauge of the price sensitivity of a fixed income portfolio to a change in interest rates. The Company determines the estimated change in fair value of the fixed maturity securities, assuming immediate parallel shifts in the treasury yield curve while keeping spreads between individual securities and treasury securities static. The fair value at specified levels at December 31, 2006 would be as follows:

                            ESTIMATED FAIR VALUE OF    ESTIMATED CHANGE IN FAIR
                           FIXED MATURITY SECURITIES             VALUE
                           -------------------------   ------------------------
CHANGE IN INTEREST RATES            (000S)                      (000S)
300 basis point rise       $               9,026,883   $               (899,818)
200 basis point rise                       9,326,823                   (599,878)
100 basis point rise                       9,626,762                   (299,939)
Base scenario                              9,926,701                         --
100 basis point decline                   10,219,302                    292,601
200 basis point decline                   10,511,904                    585,203
300 basis point decline                   10,804,505                    877,804

Arbitrage investing differs from other types of investments in that its focus is 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 believes that this makes arbitrage investments less vulnerable to changes in general stock market conditions. Potential changes in market conditions are also mitigated by the implementation of hedging strategies, including short sales. Additionally, the arbitrage positions are generally hedged against market declines by purchasing put options, selling call options or entering into swap contracts. The Company's merger arbitrage securities are primarily exposed to the risk of completion of announced deals, which are subject to regulatory as well as transactional and other risks.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW. Cash flow provided from operating activities was $1.6 billion in 2006, $1.7 billion in 2005 and $1.6 billion in 2004. The levels of cash flow provided by operating activities over these years, which are high by historical measures in relation to both earned premiums and net income, are a result of strong growth in premiums and investment income and relatively low paid losses. Cash flow provided by operating activities in 2006, 2005 and 2004 is net of cash transfers to the arbitrage trading account of $225 million, $80 million and $73 million, respectively. The decrease in operating cash flow in 2006 compared with 2005 was primarily due to cash transfers to the arbitrage trading account.

As a holding company, the Company derives cash from its subsidiaries in the form of dividends, tax payments and management fees. Maximum amounts of dividends that can be paid without regulatory approval are prescribed by statute. During 2007, the maximum amount of dividends which can be paid without regulatory approval is approximately $603 million. The ability of the holding company to service its debt obligations is limited by the ability of the insurance subsidiaries to pay dividends. In the event dividends, tax payments and management fees available to the holding company were inadequate to service its debt obligations, the Company would need to raise capital, sell assets or restructure its debt obligations.

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 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 83% invested in cash, cash equivalents and marketable fixed income securities as of December 31, 2006. If the sale of fixed income 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.

FINANCING ACTIVITY. In June 2006, the Company repurchased 1.4 million shares of its common stock for $44.4 million. On November 1, 2006, the Board of Directors increased the Company's repurchase authorization to permit the Company to repurchase up to 22.6 million shares.

At December 31, 2006, the Company had senior notes, junior subordinated debentures and other debt outstanding with a carrying value of $1,111 million and a face amount of $1,127 million. The maturities of the outstanding debt are $89 million in 2008, $150 million in 2010, $200 million in 2013, $200 million in 2015, $150 million in 2019, $76 million in 2022, $12 million in 2023 and $250 million in 2045 (prepayable in 2010).

The Company repaid $100 million of 6.25% senior notes at their maturity in January 2006. The Company repaid $210 million of junior subordinated debentures on December 15, 2006 contemporaneously with the redemption of $210 million of 8.197% trust preferred securities by the W. R. Berkley Capital Trust. This amount included preferred securities already repurchased by the Company. In addition, in February 2007, the Company issued $250 million of 6.25% senior notes due February 15, 2037.

At December 31, 2006, stockholders' equity was $3.3 billion and total capitalization (stockholders' equity, senior notes, junior subordinated debentures and other debt) was $4.4 billion. The percentage of the Company's capital attributable to senior notes and other debt and junior subordinated debentures was 25% at December 31, 2006, compared with 36% at December 31, 2005.

FEDERAL AND FOREIGN INCOME TAXES

The Company files a consolidated income tax return in the U. S. and foreign tax returns in each of the countries in which it has overseas operations. At December 31, 2006, the Company had a deferred tax asset, net of valuation allowance, of $406 million (which primarily relates to loss and loss expense reserves and unearned premium reserves) and a deferred tax liability of $263 million (which primarily relates to deferred policy acquisition costs, unrealized investment gains and intangible assets). The realization of the deferred tax asset is dependent upon the Company's ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset.

REINSURANCE

The Company follows customary industry practice of reinsuring a portion of its exposures, paying reinsurers a part of the premiums received on the policies it writes. Reinsurance is purchased by the Company principally to reduce its net liability on individual risks and to protect it against catastrophic losses. Although reinsurance does not legally discharge an insurer from its primary liability for the full amount of the policies, it does make the assuming reinsurer liable to the insurer to the extent of the reinsurance coverage. The Company monitors the financial condition of its reinsurers and attempts to place its coverages only with substantial and financially sound carriers.

For 2007, the Company's property catastrophe reinsurance provides protection for 97% of the net loss between $10 million and $85 million, and its casualty contingency agreement provides protection for 100% of the net loss between $2 million and $25 million. The catastrophe and casualty contingency reinsurance agreements are subject to certain limits, exclusions and reinstatement premiums. For business written through Lloyd's, the Company has separate catastrophe excess of loss and quota share agreements secured through its Lloyd's general agents.

CONTRACTUAL OBLIGATIONS

Following is a summary of the Company's contractual obligations as of December 31, 2006 (amounts in thousands):

ESTIMATED PAYMENTS BY PERIODS       2007           2008          2009         2010        2011      THEREAFTER
------------------------------   -----------   -----------   -----------   ----------   ---------   ----------
Gross reserves for losses        $ 2,035,349   $ 1,436,378   $ 1,100,839   $  862,016   $ 615,972   $2,494,908
Policyholders account balances        31,509        21,044        16,297       13,194      11,016       13,867
Operating lease obligations           18,279        16,687        13,382       11,301       7,739       16,715
Purchase obligation                   21,103        19,752           489          489         400           --
Junior subordinated debentures            --            --            --           --          --      250,000
Senior notes                              --        88,800            --      150,000          --      638,250
Other long-term liabilities           31,317        18,035        14,949        7,762       2,148        5,591
                                 -----------   -----------   -----------   ----------   ---------   ----------
    Total                        $ 2,137,557   $ 1,600,696   $ 1,145,956   $1,044,762   $ 637,275   $3,419,331
                                 ===========   ===========   ===========   ==========   =========   ==========

The estimated payments for reserves for losses and loss expenses in the above table represent the projected payments for gross loss and loss expense reserves related to losses incurred as of December 31, 2006. The estimated payments in the above table do not consider payments for losses to be incurred in futures periods. These amounts include reserves for reported losses and reserves for incurred but not reported losses. Estimated amounts recoverable from reinsurers are not reflected. The estimated payments by year are based on historical loss payment patterns. The actual payments may differ from the estimated amounts due to changes in ultimate loss reserves and in the timing of the settlement of those reserves.

The Company utilizes letters of credit to back certain reinsurance payments and obligations. Outstanding letters of credit were $63 million as of December 31, 2006. The Company has made certain guarantees to state regulators that the statutory capital of certain subsidiaries will be maintained above certain minimum levels. In addition, the Company has commitments to invest up to $242 million in certain investment funds.

OFF-BALANCE SHEET ARRANGEMENTS

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or
(4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging or research and development arrangements with the Company. The Company has no arrangements of these types that management believes may have a material current or future effect on our financial condition, liquidity or results of operations.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Our management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
W. R. Berkley Corporation:

We have audited management's assessment, included in the accompanying Report of Management on Internal Control Over Financial Reporting, that W. R. Berkley Corporation (the Company) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders' equity, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated March 1, 2007 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

New York, New York
March 1, 2007

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
W. R. Berkley Corporation:

We have audited the accompanying consolidated balance sheets of W. R. Berkley Corporation and subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of income, stockholders' equity, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2006, based on the criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2007 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP

New York, New York
March 1, 2007

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

YEARS ENDED DECEMBER 31,                                                    2006          2005           2004
------------------------                                                -----------    -----------    -----------
Revenues:

  Net premiums written                                                  $ 4,818,993    $ 4,604,574    $ 4,266,361
  Change in net unearned premiums                                          (126,371)      (143,639)      (205,269)
                                                                        -----------    -----------    -----------
      Premiums earned                                                     4,692,622      4,460,935      4,061,092
  Net investment income                                                     586,175        403,962        291,295
  Service fees                                                              104,812        110,697        109,344
  Realized investment gains                                                   9,648         17,209         48,268
  Other income                                                                1,574          4,036          2,236
                                                                        -----------    -----------    -----------
      Total revenues                                                    $ 5,394,831    $ 4,996,839    $ 4,512,235
                                                                        -----------    -----------    -----------

Operating costs and expenses:
  Losses and loss expenses                                                2,864,498      2,781,802      2,559,310
  Other operating costs and expenses                                      1,449,166      1,358,574      1,247,989
  Interest expense                                                           92,522         85,926         66,423
                                                                        -----------    -----------    -----------
      Total expenses                                                    $ 4,406,186    $ 4,226,302    $ 3,873,722
                                                                        -----------    -----------    -----------

      Income before income taxes and minority interest                      988,645        770,537        638,513
Income tax expense                                                         (286,398)      (222,521)      (196,235)
Minority interest                                                            (2,729)        (3,124)        (3,446)
                                                                        -----------    -----------    -----------

      Income before change in accounting principle                          699,518        544,892        438,832
Cumulative effect of change in accounting principle, net of taxes                --             --           (727)
                                                                        -----------    -----------    -----------
      Net income                                                        $   699,518    $   544,892    $   438,105
                                                                        ===========    ===========    ===========
Earnings per share:
  Basic:
    Income before change in accounting principle                        $      3.65    $      2.86    $      2.33
    Cumulative effect of change in accounting principle, net of taxes            --             --           (.01)
                                                                        -----------    -----------    -----------
      Net income                                                        $      3.65    $      2.86    $      2.32
                                                                        ===========    ===========    ===========

  Diluted:
    Income before change in accounting principle                        $      3.46    $      2.72    $      2.22
    Cumulative effect of change in accounting principle, net of taxes            --             --           (.01)
                                                                        -----------    -----------    -----------
      Net income                                                        $      3.46    $      2.72    $      2.21
                                                                        ===========    ===========    ===========

See accompanying notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

YEARS ENDED DECEMBER 31,                                                                   2006           2005
------------------------                                                               ------------   ------------
ASSETS

Investments:

  Fixed maturity securities                                                            $  9,158,607   $  8,485,104
  Equity securities available for sale                                                      866,422        435,699
  Equity securities trading account                                                         639,481        567,760
  Investments in partnerships and affiliates                                                449,854        321,662
                                                                                       ------------   ------------
      Total Investments                                                                  11,114,364      9,810,225
                                                                                       ------------   ------------

Cash and cash equivalents                                                                   754,247        672,941
Premiums and fees receivable                                                              1,245,661      1,106,677
Due from reinsurers                                                                         928,258        954,066
Accrued investment income                                                                   118,045        101,751
Prepaid reinsurance premiums                                                                169,965        178,621
Deferred policy acquisition costs                                                           489,243        459,773
Real estate, furniture and equipment                                                        183,249        169,472
Deferred Federal and foreign income taxes                                                   142,634        132,059
Goodwill                                                                                     67,962         67,962
Trading account receivable from brokers and clearing organizations                          312,220         98,229
Other assets                                                                                130,641        144,511
                                                                                       ------------   ------------
      Total Assets                                                                     $ 15,656,489   $ 13,896,287
                                                                                       ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Reserves for losses and loss expenses                                                $  7,784,269   $  6,711,760
  Unearned premiums                                                                       2,314,282      2,189,001
  Due to reinsurers                                                                         149,427         87,652
  Trading account securities sold but not yet purchased                                     170,075        198,426
  Policyholders' account balances                                                           106,926         83,893
  Other liabilities                                                                         654,596        618,712
  Junior subordinated debentures                                                            241,953        450,634
  Senior notes and other debt                                                               869,187        967,818
                                                                                       ------------   ------------
      Total Liabilities                                                                  12,290,715     11,307,896
                                                                                       ------------   ------------

Minority interest                                                                            30,615         21,314

Stockholders' equity:
  Preferred stock, par value $.10 per share:
    Authorized 5,000,000 shares, issued and outstanding - none                                   --             --
  Common stock, par value $.20 per share:
    Authorized 500,000,000 shares, issued and outstanding, net of
      treasury shares, 192,771,889 and 191,264,346 shares                                    47,024         47,024
  Additional paid-in capital                                                                859,787        821,050
  Retained earnings                                                                       2,542,744      1,873,953
  Accumulated other comprehensive income                                                    111,613         24,903
  Treasury stock, at cost, 42,346,029 and 43,858,056  shares                               (226,009)      (199,853)
                                                                                       ------------   ------------
      Total Stockholders' Equity                                                          3,335,159      2,567,077
                                                                                       ------------   ------------
      Total Liabilities and Stockholders' Equity                                       $ 15,656,489   $ 13,896,287
                                                                                       ============   ============

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)

                                                                                 YEARS ENDED DECEMBER 31,
                                                                        ------------------------------------------
                                                                            2006           2005           2004
                                                                        -----------    ------------   ------------
COMMON STOCK:
   Beginning of period                                                  $    47,024    $     47,024   $     47,024
   Stock issued                                                                  --              --             --
                                                                        -----------    ------------   ------------
   End of period                                                             47,024    $     47,024   $     47,024
                                                                        ===========    ============   ============

ADDITIONAL PAID IN CAPITAL:
   Beginning of period                                                  $   821,050    $    805,240   $    794,265
   Stock options exercised, including tax benefits                           20,965           7,038          5,656
   Restricted stock units expensed                                           15,323           8,413          5,152
   Stock options expensed                                                     1,755             134            122
   Stock issued                                                                 694             225             45
                                                                        -----------    ------------   ------------
   End of period                                                            859,787    $    821,050   $    805,240
                                                                        ===========    ============   ============

RETAINED EARNINGS:
   Beginning of period                                                  $ 1,873,953    $  1,354,489   $    939,911
   Net income                                                               699,518         544,892        438,105
   Dividends                                                                (30,727)        (25,428)       (23,527)
                                                                        -----------    ------------   ------------
   End of period                                                        $ 2,542,744    $  1,873,953   $  1,354,489
                                                                        ===========    ============   ============

ACCUMULATED OTHER COMPREHENSIVE INCOME:
   Unrealized investment gains:
     Beginning of period                                                $    40,746    $    109,699   $    120,807
     Net change in period                                                    81,215         (68,953)       (11,108)
                                                                        -----------    ------------   ------------
     End of period                                                          121,961          40,746        109,699
                                                                        -----------    ------------   ------------

   Currency translation adjustments:
     Beginning of period                                                    (15,843)          2,356           (830)
     Net change in period                                                    19,591         (18,199)         3,186
                                                                        -----------    ------------   ------------
     End of period                                                            3,748         (15,843)         2,356
                                                                        -----------    ------------   ------------

   Adjustment to initially apply FASB Statement No. 158, net of tax         (14,096)             --             --

                                                                        ===========    ============   ============
   Total accumulated other comprehensive income                         $   111,613    $     24,903   $    112,055
                                                                        ===========    ============   ============

TREASURY STOCK:
   Beginning of period                                                  $  (199,853)   $   (209,106)  $   (218,615)
   Stock options exercised                                                   18,816           9,343          9,823
   Stock issued to directors                                                     89              80             23
   Stock repurchased                                                        (45,061)           (170)          (337)
                                                                        -----------    ------------   ------------
   End of period                                                        $  (226,009)   $   (199,853)  $   (209,106)
                                                                        ===========    ============   ============

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)

                                                                                      YEARS ENDED DECEMBER 31,
                                                                              -----------------------------------------
                                                                                  2006           2005          2004
                                                                              -----------    -----------    -----------
Net income                                                                    $   699,518    $   544,892    $   438,105
                                                                              -----------    -----------    -----------
  Unrealized holding gains (losses) on investment securities arising
   during the period, net of income taxes                                          88,329        (57,950)        20,198
  Reclassification adjustment for realized gains included
   in net income, net of income taxes                                              (7,114)       (11,003)       (31,306)
  Change in unrealized foreign exchange gains (losses)                             19,591        (18,199)         3,186
                                                                              -----------    -----------    -----------
  Other comprehensive income (loss)                                               100,806        (87,152)        (7,922)
                                                                              -----------    -----------    -----------
  Comprehensive income                                                        $   800,324    $   457,740    $   430,183
                                                                              ===========    ===========    ===========

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

YEARS ENDED DECEMBER 31,                                                          2006          2005           2004
------------------------                                                      -----------    -----------    -----------
Cash from operating activities:
  Net income                                                                  $   699,518    $   544,892    $   438,105
  Adjustments to reconcile net income to net cash flows
   From operating activities:
    Cumulative effect of change in accounting principle                                --             --            727
    Realized investment gains                                                      (9,648)       (17,209)       (48,268)
    Depreciation and amortization                                                  65,674         63,052         54,829
    Minority interest                                                               2,729          3,124          3,446
    Equity in undistributed earnings of affiliates                                (26,986)       (13,288)       (14,951)
    Stock incentive plans                                                          17,888          8,852          5,342
    Change in:
         Fixed and equity securities trading account                              (48,235)      (307,390)        44,873
          Premiums and fees receivable                                           (133,504)       (77,261)       (80,383)
         Trading account receivable from brokers and clearing organizations      (213,991)        88,250        (84,222)
         Trading account securities sold but not yet purchased                    (28,351)       127,759        (48,433)
         Due from reinsurers                                                       27,839       (104,336)       (45,680)
         Accrued investment income                                                (15,383)       (32,549)       (15,178)
         Prepaid reinsurance premiums                                               9,671         11,847          2,840
         Deferred policy acquisition cost                                         (25,848)       (17,444)       (36,437)
         Deferred income taxes                                                    (35,554)           220        (48,064)
         Other assets                                                               4,661        (18,116)       (44,537)
         Reserves for losses and loss expenses                                  1,051,816      1,274,495      1,254,044
         Unearned premiums                                                        117,176        131,031        202,436
         Due to reinsurers                                                         60,450        (31,873)        (6,972)
         Policyholders' account balances                                           (1,021)          (893)          (758)
         Other liabilities                                                         45,113        101,196         81,523
                                                                              -----------    -----------    -----------
    Net cash from operating activities                                          1,564,014      1,734,359      1,614,282
                                                                              -----------    -----------    -----------
Cash flows from investing activities:
  Proceeds from sales, excluding trading account:
    Fixed maturity securities                                                     922,442      1,155,244      1,179,614
    Equity securities                                                             200,950        196,201        108,236
    Investments in partnerships and affiliates                                     52,181         15,307         20,212
  Proceeds from maturities and prepayments of fixed maturity securities         1,322,277      1,303,342        560,652
  Cost of purchases, excluding trading account:
    Fixed maturity securities                                                  (2,927,839)    (4,667,308)    (3,808,521)
    Equity securities                                                            (543,041)      (241,881)      (193,184)
    Investments in partnerships and affiliates                                   (143,772)       (88,436)      (116,914)
  Net additions to real estate, furniture and equipment                           (42,593)       (32,564)       (41,556)
  Other, net                                                                       (6,025)        (5,119)         6,268
                                                                              -----------    -----------    -----------
      Net cash from investing activities                                       (1,165,420)    (2,365,214)    (2,285,193)
                                                                              -----------    -----------    -----------
Cash flows from financing activities:
  Net proceeds from issuance of junior subordinated debenture                          --        241,655             --
  Net proceeds from issuance of senior notes                                           --        198,142        147,864
  Receipts credited to policyholders' account balances                             17,613         15,671         14,138
  Return of policyholders' account balances                                          (865)          (499)          (236)
  Bank deposits received                                                           10,211          9,577         11,352
  Advances from federal home loan bank                                             (7,375)         6,875          1,265
  Net proceeds from stock options exercised                                        19,405         11,250         11,129
  Purchase of junior subordinated debentures                                     (210,000)            --             --
  Repayment of senior notes                                                      (100,000)       (40,000)            --
  Cash dividends to common stockholders                                           (29,430)       (19,055)       (23,527)
  Purchase of common treasury shares                                              (45,062)          (636)          (337)
  Proceeds from (purchase of) minority shareholders                                 2,762        (33,117)           109
  Other, net                                                                           --             --         (2,331)
                                                                              -----------    -----------    -----------
       Net cash from financing activities                                        (342,741)       389,863        159,426
                                                                              -----------    -----------    -----------
Net impact on cash due to change in foreign exchange rates                         25,453        (18,146)        12,098
                                                                              -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents                               81,306       (259,138)      (499,387)
Cash and cash equivalents at beginning of year                                    672,941        932,079      1,431,466
                                                                              -----------    -----------    -----------
Cash and cash equivalents at end of year                                      $   754,247    $   672,941    $   932,079
                                                                              ===========    ===========    ===========

Supplemental disclosure of cash flow information:
  Interest paid on debt                                                       $    93,580    $    78,363    $    61,260
  Federal income taxes paid                                                   $   295,823    $   201,703    $   254,640
                                                                              ===========    ===========    ===========

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2006, 2005 and 2004

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Principles of consolidation and basis of presentation

The consolidated financial statements, which include the accounts of W. R. Berkley Corporation and its subsidiaries (the "Company"), have been prepared on the basis of accounting principles generally accepted in the United States of America ("GAAP"). All significant intercompany transactions and balances have been eliminated. Reclassifications have been made in the 2005 and 2004 financial statements to conform them to the presentation of the 2006 financial statements. 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. Actual results could differ from those estimates.

(B) Revenue recognition

Premiums written are recorded at the inception of the policy. Reinsurance premiums written are estimated based upon information received from ceding companies and subsequent differences arising on such estimates are recorded in the period they are determined. Insurance premiums are earned ratably over the policy term. Fees for services are earned over the period that services are provided.

Audit premiums are recognized when they are reliably determinable. Prior to 2005, audit premiums were not considered to be reliably determinable until such audits were completed and billed. In 2005, the Company developed sufficient information to begin recognizing unbilled audit premiums as such premiums are earned. The accrual for earned but unbilled audit premiums increased net premiums written and premiums earned by $22 million in 2006 and $57 million in 2005.

For investment contracts, premiums collected from policyholders are not reported as revenues but are included in the liability for policyholders' account balances. Policy charges for policy administration, cost of insurance and surrender charges are assessed against policyholders' account balances and are recognized as premium income in the period in which services are provided.

Cash equivalents consist of funds invested in money market accounts and investments with an effective maturity of three months or less when purchased.

(D) Investments

The Company classifies its investments into four categories. Securities that the Company has the positive intent and ability to hold to maturity are classified as "held to maturity" and reported at amortized cost. Securities that the Company purchased with the intent to sell in the near-term are classified as "trading" and are reported at estimated fair value, with unrealized gains and losses reflected in net investment income on the statement of income. Investments in partnerships and affiliates are carried under the "equity method of accounting", whereby the Company reports its share of the income or loss from such investments as net investment income. The Company's share of the earnings of affiliates is generally reported on a one-quarter lag in order to facilitate the timely completion of the Company's financial statements. The remaining securities are classified as "available for sale" and are carried at estimated fair value, with unrealized gains and losses, net of applicable income taxes, excluded from earnings and reported as a component of comprehensive income and a separate component of stockholders' equity. Fair value is generally determined based on either quoted market prices or values obtained from independent pricing services.

Realized gains or losses represent the difference between the cost of securities sold and the proceeds realized upon sale. The cost of securities is adjusted where appropriate to include a provision for decline in value which is considered to be other than temporary. An other than temporary decline is considered to occur in investments where there has been a sustained reduction in market value and where the Company does not expect the fair value to recover prior to the time of sale or maturity. The Company uses the specific identification method where possible, and the first-in, first-out method in other instances, to determine the cost of securities sold. Realized gains or losses, including any provision for decline in value, are included in the statement of income.

(E) Trading account

Direct investments in arbitrage securities and investments in arbitrage-related limited partnerships are classified as trading account securities. Long portfolio positions and partnership interests are presented in the balance sheet as equity securities trading account. Short sales and short call options are presented as trading securities sold but not yet purchased. Unsettled trades and the net margin balances held by the clearing broker are presented as trading account receivable from brokers and clearing organizations. The Company's trading account portfolio is recorded at fair value. Realized and unrealized gains and losses from trading activity are reported as net investment income.

(F) Per share data

The Company presents both basic and diluted earnings per share ("EPS") amounts. Basic EPS is calculated by dividing net income by weighted average number of common shares outstanding during the year. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the year 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. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation. All share data has been retroactively adjusted to reflect the three-for-two common stock split that was effected on April 4, 2006.

(G) Deferred policy acquisition costs

Acquisition costs (primarily commissions and premium taxes) incurred in writing insurance and reinsurance business are deferred and amortized ratably over the terms of the related contracts. Deferred policy acquisition costs are limited to the amounts estimated to be recoverable from the applicable unearned premiums and the related anticipated investment income after giving effect to anticipated losses, loss adjustment expenses and expenses necessary to maintain the contracts in force.

(H) Reserves for losses and loss expenses

Reserves for losses and loss expenses are an accumulation of amounts determined on the basis of (1) evaluation of claims for business written directly by the Company; (2) estimates received from other companies for reinsurance assumed by the Company; and (3) estimates for losses incurred but not reported (based on Company and industry experience). These estimates are periodically reviewed and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments are reflected in the statement of income in the period in which they are determined. The Company discounts its reserves for excess and assumed workers' compensation claims using a risk-free or statutory rate. (See Note 8 of Notes to Consolidated Financial Statements.)

(I) Reinsurance ceded

The unearned portion of premiums ceded to reinsurers is reported as prepaid reinsurance premiums. 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 reserves for estimated uncollectible reinsurance.

(J) Deposit Accounting

Contracts that do not meet the risk transfer provisions of FAS 113, "Accounting and Reporting for Reinsurance of Short Duration and Long Duration Contracts", are accounted for using the deposit accounting method. Under this method, an asset or liability is recognized at the inception of the contract based on consideration paid or received. The amount of the deposit asset or liability is adjusted at subsequent reporting dates using the interest method with a corresponding credit or charge to interest income or expense. Deposit liabilities for assumed reinsurance contracts were $45 million and $47 million at December 31, 2006 and 2005, respectively.

(K) Federal and foreign income taxes

The Company files a consolidated income tax return in the U.S. and foreign tax returns in each of the countries in which it has its overseas operations. The Company's method of accounting for income taxes is the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are measured using tax rates currently in effect or expected to apply in the years in which those temporary differences are expected to reverse.

(L) Foreign currency

Gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's functional currency) are included in the statement of income. Unrealized gains or losses resulting from translating the results of non-U.S. dollar denominated operations are reported as accumulated other comprehensive income. Revenues and expenses denominated in currencies other than U.S. dollars are translated at the weighted average exchange rate during the year. Assets and liabilities are translated at the rate of exchange in effect at the balance sheet date.

(M) Real estate, furniture and equipment

Real estate, furniture and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the estimated useful lives of the respective assets. Depreciation expense was $29,614,000, $26,346,000 and $22,722,000 for 2006, 2005 and 2004, respectively.

(N) Comprehensive income

Comprehensive income encompasses all changes in stockholders' equity (except those arising from transactions with stockholders) and includes net income, net unrealized holding gains or losses on available-for-sale securities and unrealized foreign currency translation adjustments.

(O) Goodwill and other intangible assets

Goodwill and other intangibles assets are tested for impairment on an annual basis. The Company's impairment test as of December 31, 2006 indicated that there were no impairment losses related to goodwill and other intangible assets.

In 2005, the Company purchased all the minority interest in its subsidiary, Berkley International, LLC. The purchase price was $28,000,000, of which approximately $6,738,000 represented goodwill.

(P) Stock options

The Company adopted FAS 123R, "Share-Based Payment," on January 1, 2006. Under FAS 123R, the cost resulting from all share-based payment transactions with employees are recognized in the financial statements using a fair-value-based measurement method. The adoption of FAS 123R resulted in an increase in pre-tax stock based compensation expense of $1.8 million for the year ended December 31, 2006.

The following table illustrates the pro forma effect on net income and earnings per share as if FAS 123R had been adopted on January 1, of the respective year (dollars in thousands, except per share data).

                                                                          2005         2004
                                                                        ---------    ---------
Net income as reported                                                  $ 544,892    $ 438,105
Add: Stock-based employee compensation expense
   included in reported net income, net of tax                              5,555        3,429
Deduct: Total stock-based employee compensation expense
  under fair value based method for all awards, net of tax                 (7,462)      (6,251)
                                                                        ---------    ---------
Pro forma net income                                                    $ 542,985    $ 435,283
                                                                        =========    =========

Earnings per share:
    Basic-as reported                                                   $    2.86    $    2.32
    Basic-pro forma                                                          2.85         2.30
    Diluted-as reported                                                      2.72         2.21
    Diluted-pro forma                                                        2.71         2.19
                                                                        ---------    ---------

The fair value of the options granted in 2004 were estimated on the grant dates using the Black-Scholes option pricing model with the following weighted average assumptions: average risk free interest rate - 4.6%, expected years until exercise - six years, expected stock volatility - 23% and dividend yield - 0.6%. There were no options were granted in 2006 or 2005.

(Q) Change in Accounting

In September 2006, the Financial Accounting Standards Board ("FASB") issued FAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," which requires an employer to recognize the over-funded or under-funded status of defined benefit and other post-retirement plans as an asset or liability on its consolidated balance sheet. The Company adopted FAS 158 as of December 31, 2006. The adoption of FAS 158 resulted in a decrease in stockholders' equity of $14 million as of that date and had no impact on the Company's results of operations.

The Company adopted the consolidation provisions of FASB Interpretation 46, "Consolidation of Variable Interest Entities" ("FIN 46") in 2004. As a result of adopting those provisions, the Company de-consolidated the W. R. Berkley Capital Trust, effective January 1, 2004 (See Note 11 of these Notes to Consolidated Financial Statements).

(R)Recent Accounting Pronouncements

In February 2006, the FASB issued FAS 155 "Accounting for Certain Hybrid Financial Instruments, an amendment of FAS No. 133 and 140," which will become effective in 2007. FAS 155 requires that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or hybrid instruments containing embedded derivatives that would require bifurcation. The Company does not expect the adoption of FIN 155 to have a material impact on the Company's financial condition or results of operations.

In June 2006, the FASB issued Interpretation 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes" which establishes a new accounting model for income tax reserves and contingencies. FIN 48 will become effective in 2007. The Company does not expect the adoption of FIN 48 to have a material impact on the Company's financial condition or results of operations.

In September 2006, the FASB issued FAS 157 "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 will become effective in 2008. The Company does not expect the adoption of FAS 157 to have a material impact on the Company's financial condition or results of operations.

(2) INVESTMENTS IN FIXED MATURITY SECURITIES

At December 31, 2006 and 2005, investments in fixed maturity securities were as follows:

                                                                  GROSS        GROSS
(DOLLARS IN THOUSANDS)                             AMORTIZED    UNREALIZED   UNREALIZED       FAIR       CARRYING
TYPE OF INVESTMENT                                    COST        GAINS        LOSSES         VALUE        VALUE
---------------------                              ----------   ----------   ----------    ----------   ----------
December 31, 2006
Held to maturity:
  State and municipal                              $   78,019   $   11,209   $      (53)   $   89,175   $   78,019
  Mortgage backed securities                           64,017        2,329          (60)       66,286       64,017
  Corporate                                             4,992          422           --         5,414        4,992
                                                   ----------   ----------   ----------    ----------   ----------
    Total held to maturity                            147,028       13,960         (113)      160,875      147,028
                                                   ----------   ----------   ----------    ----------   ----------

Available for sale:
  United States Government and government agency    1,390,082        9,447       (7,608)    1,391,921    1,391,921
  State and municipal                               4,452,494       48,577      (19,949)    4,481,122    4,481,122
  Mortgage-backed securities                        1,974,270        7,508      (13,703)    1,968,075    1,968,075
  Corporate                                           804,875        3,020       (6,862)      801,033      801,033
  Foreign                                             345,315       27,021       (2,908)      369,428      369,428
                                                   ----------   ----------   ----------    ----------   ----------
    Total available for sale                        8,967,036       95,573      (51,030)    9,011,579    9,011,579
                                                   ----------   ----------   ----------    ----------   ----------

Total investment in fixed maturity securities      $9,114,064   $  109,533   $  (51,143)   $9,172,454   $9,158,607
                                                   ==========   ==========   ==========    ==========   ==========

December 31, 2005
Held to maturity:
  State and municipal                              $   89,044   $    1,932   $       --    $   90,976   $   89,044
  Mortgage backed securities                           74,335        4,518          (86)       78,767       74,335
  Corporate                                            84,943       10,175          (60)       95,058       84,943
                                                   ----------   ----------   ----------    ----------   ----------
    Total held to maturity                            248,322       16,625         (146)      264,801      248,322
                                                   ----------   ----------   ----------    ----------   ----------

Available for sale:
  United States Government and government agency    1,253,203        8,238      (11,780)    1,249,661    1,249,661
  State and municipal                               4,530,766       45,065      (23,669)    4,552,162    4,552,162
  Mortgage-backed securities                        1,426,515        6,178      (15,150)    1,417,543    1,417,543
  Corporate                                           716,437        9,199       (6,363)      719,273      719,273
  Foreign                                             276,118       24,379       (2,354)      298,143      298,143
                                                   ----------   ----------   ----------    ----------   ----------
    Total available for sale                        8,203,039       93,059      (59,316)    8,236,782    8,236,782
                                                   ----------   ----------   ----------    ----------   ----------

Total investment in fixed maturity securities      $8,451,361   $  109,684   $  (59,462)   $8,501,583   $8,485,104
                                                   ==========   ==========   ==========    ==========   ==========

The amortized cost and fair value of fixed maturity securities at December 31, 2006, 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:

                                                            2006
                                                  -------------------------
                                                   AMORTIZED
(DOLLARS IN THOUSANDS)                                COST      FAIR VALUE
----------------------                            -----------   -----------
Due in one year or less                           $ 1,030,817   $ 1,028,373
Due after one year through five years               1,585,878     1,602,744
Due after five years through ten years              2,399,856     2,414,425
Due after ten years                                 2,059,226     2,092,551
Mortgage-backed securities                          2,038,287     2,034,361
                                                  -----------   -----------
Total                                             $ 9,114,064   $ 9,172,454
                                                  ===========   ===========

At December 31, 2006 and 2005, there were no investments, other than investments in United States government and government agency securities, which exceeded 10% of stockholders' equity. At December 31, 2006, investments with a carrying value of $183 million were on deposit in trust accounts established as security for certain policyholders and reinsurance clients, investments with a carrying value of $60 million were on deposit with Lloyd's in support of the Company's underwriting activities at Lloyd's, investments with a carrying value of $531 million were on deposit with state insurance departments and investments of $63 million were held on deposit in trust accounts as security for letters of credit issued in support of the Company's reinsurance operations.

(3) INVESTMENTS IN EQUITY SECURITIES AVAILABLE FOR SALE

At December 31, 2006 and 2005, investments in equity securities were as follows:

                                                                  GROSS        GROSS
(DOLLARS IN THOUSANDS)                                          UNREALIZED   UNREALIZED       FAIR       CARRYING
TYPE OF INVESTMENT                                    COST        GAINS        LOSSES         VALUE        VALUE
---------------------                              ----------   ----------   ----------    ----------   ----------
December 31, 2006
  Common stocks                                    $  200,826   $  112,302   $     (353)   $  312,775   $  312,775
  Preferred stocks                                    546,758        8,689       (1,800)      553,647      553,647
                                                   ----------   ----------   ----------    ----------   ----------
    Total                                          $  747,584   $  120,991   $   (2,153)   $  866,422   $  866,422
                                                   ==========   ==========   ==========    ==========   ==========

December 31, 2005
  Common stocks                                    $  112,654   $   24,699   $     (560)   $  136,793   $  136,793
  Preferred stocks                                    297,337        5,410       (3,841)      298,906      298,906
                                                   ----------   ----------   ----------    ----------   ----------
    Total                                          $  409,991   $   30,109   $   (4,401)   $  435,699   $  435,699
                                                   ==========   ==========   ==========    ==========   ==========

(4) TRADING ACCOUNT

At December 31, 2006 and 2005, the fair value and carrying value of the arbitrage trading account and related assets and liabilities were as follows:

(DOLLARS IN THOUSANDS)                        2006         2005
----------------------                      ---------    ---------
Direct equity securities                    $ 450,629    $ 431,456
Arbitrage-related partnerships                188,852      136,304
                                            ---------    ---------
  Total equity securities trading account     639,481      567,760
                                            =========    =========

Related assets and liabilities:
  Receivables from brokers                    312,220       98,229
  Securities sold but not yet purchased      (170,075)    (198,426)

The primary focus of the trading account is merger and convertible 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. Convertible arbitrage is the business of investing in convertible securities with the goal of capitalizing on price differences between these securities and their underlying equities. 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 believes that this makes arbitrage investments less vulnerable to changes in general financial market conditions.

Potential changes in market conditions are mitigated by the use of put options, call options and swap contracts, all of which are reported at fair value. As of December 31, 2006, the fair value of long option contracts outstanding was $1,863,000 (notional amount of $13,525,000) and the fair value of short option contracts outstanding was $1,719,000 (notional amount of $50,353,000). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.

(5) INVESTMENTS IN PARTNERSHIPS AND AFFILIATES

Investments in partnerships and affiliates include the following:

                                          CARRYING VALUE AS OF DECEMBER 31,                         INVESTMENT INCOME
                                     ------------------------------------------         --------------------------------------
(DOLLARS IN THOUSANDS)                  2006           2005            2004               2006           2005          2004
----------------------               ----------     -----------     -----------         -----------    ------------  ---------
Real estate funds                    $  275,188     $   160,154     $   132,609         $    23,421    $     15,299  $  10,227
Kiln plc                                 95,750          73,723          51,137              15,883           3,853      9,009
Kern Energy Partners                     15,993           7,245              --               2,014           1,686         --
Other                                    62,923          80,540          57,119              (4,173)         (2,293)    (2,330)
                                     ----------     -----------     -----------         -----------    ------------  ---------
   Total                             $  449,854     $   321,662     $   240,865         $    37,145    $     18,545  $  16,906
                                     ==========     ===========     ===========         ===========    ============  =========

The Company's has a 20.1% interest in Kiln plc, which is based in the U.K. and conducts international insurance and reinsurance underwriting through Lloyd's. The Company also participates directly in Lloyd's business managed by Kiln plc. Net premiums of $25 million, $41 million and $96 million in 2006, 2005 and 2004, respectively, were written under agreements with Kiln plc.

(6) INVESTMENT INCOME

Investment income consists of the following:

(DOLLARS IN THOUSANDS)                             2006        2005         2004
----------------------                          ---------    ---------    ---------
Investment income earned on:
    Fixed maturity securities                   $ 396,652    $ 305,739    $ 225,564
    Equity securities available for sale           35,662       25,529       21,005
    Equity securities trading account (a)          74,551       28,095       13,743
    Investment in partnerships and affiliates      37,145       18,545       16,906
    Cash and cash equivalents                      44,335       30,387       16,706
    Other                                            (369)      (1,360)         (58)
                                                ---------    ---------    ---------
        Gross investment income                   587,976      406,935      293,866
    Investment expense                             (1,801)      (2,973)      (2,571)
                                                ---------    ---------    ---------
        Net investment income                   $ 586,175    $ 403,962    $ 291,295
                                                =========    =========    =========

(a) Investment income earned from net trading account activity includes unrealized trading gains of $250,000 in 2006, $3,816,000 in 2005 and $1,790,000 in 2004.

(7) REALIZED AND UNREALIZED INVESTMENT GAINS AND LOSSES

Realized and unrealized investment gains and losses before applicable income taxes are as follows:

(DOLLARS IN THOUSANDS)                                                        2006        2005         2004
----------------------                                                     ---------    ---------    ---------
Realized investment gains and losses:
    Fixed maturity securities:
        Gains                                                              $  14,562    $  13,591    $  31,752
        Losses                                                               (10,250)      (3,026)      (5,812)
    Equity securities available for sale                                       4,537        8,414       25,129
    Provision for other than temporary impairments                              (100)      (1,645)      (2,777)
    Other gains (losses)                                                         899         (125)         (24)
                                                                           ---------    ---------    ---------
       Total realized investment gains                                         9,648       17,209       48,268
    Income taxes and minority interest                                        (2,534)      (6,206)     (16,962)
                                                                           ---------    ---------    ---------
                                                                           $   7,114    $  11,003    $  31,306
                                                                           =========    =========    =========

Change in unrealized gains and losses of available for sales securities:
      Fixed maturity securities                                            $  10,800    $ (91,316)   $ (25,008)
      Equity securities available for sale                                    93,130      (21,951)      11,691
      Investment in partnerships and affiliates                                9,608       (5,711)       8,893
      Cash and cash equivalents                                                    1           44           --
                                                                           ---------    ---------    ---------
         Total change in unrealized gains and losses                         113,539     (118,934)      (4,424)
      Income taxes                                                           (33,498)      41,304        1,931
      Minority interest                                                        1,174        8,677       (8,615)
                                                                           ---------    ---------    ---------
                                                                           $  81,215    $ (68,953)   $ (11,108)
                                                                           =========    =========    =========

The following table summarizes, for all securities in an unrealized loss position at December 31, 2006 and 2005, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position:

                                                                 2006                                       2005
                                               ---------------------------------------     ----------------------------------------
                                                                               GROSS                                        GROSS
                                                NUMBER OF                   UNREALIZED     NUMBER OF                     UNREALIZED
(DOLLARS IN THOUSANDS)                         SECURITIES     FAIR VALUE       LOSS        SECURITIES    FAIR VALUE         LOSS
----------------------                         ----------     ----------    ----------     ----------    ----------      ----------
Fixed maturities:
 0 - 6 months                                        100      $  802,595    $    2,309            237    $2,921,830      $   29,928
 7 - 12 months                                        62         645,331         4,445             65       878,549          12,124
  Over 12 months                                     269       2,843,721        44,389             96       847,400          17,410
                                               ---------      ----------    ----------     ----------    ----------      ----------
     Total                                           431      $4,291,647    $   51,143            398    $4,647,779      $   59,462
                                               =========      ==========    ==========     ==========    ==========      ==========

Equities securities available for sale:
 0 - 6 months                                          8      $   75,568    $      320             38    $   45,443      $    1,221
 7 - 12 months                                         9          60,853           250             15       106,979           2,571
  Over 12 months                                      16         105,085         1,583              4        11,364             609
                                               ---------      ----------    ----------     ----------    ----------      ----------
     Total                                            33      $  241,506    $    2,153             57    $  163,786      $    4,401
                                               =========      ==========    ==========     ==========    ==========      ==========

(8) RESERVES FOR LOSSES AND LOSS EXPENSES

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

(DOLLARS IN THOUSANDS)                                                2006         2005         2004
----------------------                                             ----------   ----------   ----------
Net reserves at beginning of year                                  $5,867,290   $4,722,842   $3,505,295
                                                                   ----------   ----------   ----------
Net provision for losses and loss expenses (a):
  Claims occurring during the current year (b)                      2,791,500    2,531,655    2,236,860
  Increase  in estimates for claims occurring in prior years (c)       26,663      186,728      294,931
  Loss reserve discount accretion                                      39,507       57,790       24,220
                                                                   ----------   ----------   ----------
                                                                    2,857,670    2,776,173    2,556,011
                                                                   ----------   ----------   ----------

Net payments for claims:
  Current year                                                        456,073      447,018      409,776
  Prior years                                                       1,321,290    1,184,707      928,688
                                                                   ----------   ----------   ----------
                                                                    1,777,363    1,631,725    1,338,464
                                                                   ----------   ----------   ----------
Net reserves at end of year                                         6,947,597    5,867,290    4,722,842
Ceded reserves at end of year                                         836,672      844,470      726,769
                                                                   ----------   ----------   ----------
Gross reserves at end of year                                      $7,784,269   $6,711,760   $5,449,611
                                                                   ==========   ==========   ==========

(a) Net provision for loss and loss expenses excludes $6,828, $5,629 and $3,299 in 2006, 2005 and 2004, respectively, relating to the policyholder benefits incurred on life insurance that are included in the statement of income.

(b) Claims occurring during the current year are net of loss reserve discounts of $133,965, $103,558 and $107,282 in 2006, 2005 and 2004, respectively.

(c) The increase in estimates for claims occurring in prior years is net of loss reserve discounts of $29,940, $26,845 and $26,658 in 2006, 2005 and 2004, respectively. On an undiscounted basis, the increase in estimates for claims occurring in prior years is $56,603, $213,573 and $321,589 in 2006, 2005 and 2004, respectively.

Environmental and asbestos - To date, known environmental and asbestos claims have not had a material impact on the Company's operations. These claims have not materially impacted the Company because its subsidiaries generally did not insure large industrial companies that are subject to significant environmental and asbestos exposures.

The Company's net reserves for losses and loss adjustment expenses relating to asbestos and environmental claims were $37,473,000 and $37,453,000 at December 31, 2006 and 2005, respectively. The Company's gross reserves for losses and loss adjustment expenses relating to asbestos and environmental claims were $49,937,000 and $53,731,000 at December 31, 2006 and 2005, respectively. Net incurred losses and loss expenses for reported asbestos and environmental claims were approximately $3,000,000, $1,853,000 and $9,194,000 in 2006, 2005 and 2004, respectively. Net paid losses and loss expenses for asbestos and environmental claims were

approximately $2,980,000, $2,658,000 and $2,802,000 in 2006, 2005 and 2004, respectively. The estimation of these liabilities is subject to significantly greater than normal variation and uncertainty because it is difficult to make an actuarial estimate of these liabilities due to the absence of a generally accepted actuarial methodology for these exposures and the potential effect of significant unresolved legal matters, including coverage issues as well as the cost of litigating the legal issues. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties are highly uncertain.

Discounting - The Company discounts its liabilities for excess and assumed workers' compensation business because of the long period of time over which losses are paid. Discounting is intended to appropriately match losses and loss expenses to income earned on investment securities supporting the liabilities. The expected losses and loss expense payout pattern subject to discounting was derived from the Company's loss payout experience and is supplemented with data compiled from insurance companies writing similar business. For non-proportional business, reserves for losses and loss expenses have been discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. For proportional business, reserves for losses and loss expenses have been discounted at the statutory rate permitted by the Department of Insurance of the State of Delaware of 2.4%. The discount rates range from 2.7% to 6.5% with a weighted average discount rate of 4.7%. The aggregate net discount, after reflecting the effects of ceded reinsurance, is $699,883,000, $575,485,000 and $502,874,000 at December 31, 2006, 2005 and 2004, respectively. The increase in the aggregate discount from 2005 to 2006 and from 2004 to 2005 resulted from the increase in excess and assumed workers' compensation gross reserves.

(9) REINSURANCE CEDED

The Company reinsures a portion of its exposures principally to reduce its net liability on individual risks and to protect against catastrophic losses. Estimated amounts due from reinsurers are reported net of reserves for uncollectible reinsurance of $2,531,000, $2,402,000 and $2,457,000 as of December 31, 2006, 2005 and 2004, respectively. The following amounts arising under reinsurance ceded contracts have been deducted in arriving at the amounts reflected in the statement of income:

(DOLLARS IN THOUSANDS)                           2006              2005          2004
----------------------                         ----------       ----------    ----------
Ceded premiums earned                          $  469,315       $  495,931    $  461,005
Ceded losses incurred                          $  276,347       $  404,793    $  317,367

(10) SENIOR NOTES AND OTHER DEBT

Senior notes and other debt consists of the following (the difference between the face value and the carrying value is unamortized discount):

(DOLLARS IN THOUSANDS)                                                                  2006                           2005
----------------------                                                       ------------------------------        --------------
DESCRIPTION                 RATE               MATURITY                      FACE VALUE      CARRYING VALUE        CARRYING VALUE
-----------               --------         -------------------               ----------      --------------        --------------
Senior Notes                 6.25%         January 15, 2006                   $      --        $      --                 99,987
Senior Notes                9.875%         May 15, 2008                          88,800            88,242                87,885
Senior Notes                5.125%         September 30, 2010                   150,000           148,809               148,488
Senior Notes                5.875%         February 15, 2013                    200,000           197,968               197,637
Senior Notes                 5.60%         May 15, 2015                         200,000           198,443               198,257
Senior Notes                 6.15%         August 15, 2019                      150,000           148,202               148,060
Senior Notes                 8.70%         January 1, 2022                       76,503            75,776                75,757
Subsidiary Debt              7.65%         June 30, 2023                         11,747            11,747                11,747
                                                                             ----------        ----------          ------------
  Total debt                                                                 $  877,050        $  869,187          $    967,818
                                                                             ==========        ==========          ============

(11) JUNIOR SUBORDINATED DEBENTURES

In 2005, the Company issued $250,000,000 aggregate principal amount of 6.75% Junior Subordinated Debentures due July 26, 2045 (the "6.75% Junior Subordinated Debentures") to W. R. Berkley Capital Trust II (the "Trust II"). The Trust II simultaneously issued an equal amount of 6.75% mandatorily redeemable preferred securities (the "6.75% Trust Preferred Securities"), which are fully and unconditionally guaranteed by the Company to the extent the Trust II has funds available for repayment of distributions. The 6.75% Trust Preferred Securities are subject to mandatory redemption in a like amount (i) in whole but not in part upon repayment of the 6.75% Junior Subordinated Debentures at maturity,
(ii) in whole but not in part, at any time contemporaneously with the optional prepayment of the 6.75% Junior Subordinated Debentures by the Company upon the occurrence and continuation of certain events and (iii) in whole or in part, on or after July 26, 2010, contemporaneously with the optional prepayment by the Company of the 6.75% Junior Subordinated Debentures.

In 1996, the Company issued $210,000,000 aggregate principal amount of 8.197% Junior Subordinated Debentures due December 15, 2045 (the "8.197% Junior Subordinated Debentures") to W. R. Berkley Capital Trust (the "Trust"). The Trust simultaneously issued an equal amount of 8.197% mandatorily redeemable preferred securities (the "8.197% Trust Preferred Securities"), which were fully and unconditionally guaranteed by the Company to the extent the Trust has funds available for repayment of distributions. The 8.197% Trust Preferred Securities were redeemed on December 15, 2006, contemporaneously with the prepayment by the Company of the 8.197% Junior Subordinated Debentures.

(12) INCOME TAXES

Income tax expense consists of:

(DOLLARS IN THOUSANDS)                                     2006             2005              2004
----------------------                                  ------------      ----------      ------------
Current expense                                         $    321,950      $  222,612      $    244,294
Deferred benefit                                             (35,552)            (91)          (48,059)
                                                        ------------      ----------      ------------
     Total expense                                      $    286,398      $  222,521      $    196,235
                                                        ============      ==========      ============

A reconciliation of the income tax expense and the amounts computed by applying the Federal and foreign income tax rate of 35% to pre-tax income are as follows:

(DOLLARS IN THOUSANDS)                                     2006             2005              2004
----------------------                                  ------------      ----------      ------------
Computed "expected" tax expense                         $    344,666      $  268,767      $    223,604
Tax-exempt investment income                                 (63,358)        (49,546)          (30,945)
Change in valuation allowance                                  3,046           1,762               590
Other, net                                                     2,044           1,538             2,986
                                                        ------------      ----------      ------------
     Total expense                                      $    286,398      $  222,521      $    196,235
                                                        ============      ==========      ============

At December 31, 2006 and 2005, the tax effects of differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows:

(DOLLARS IN THOUSANDS)                            2006         2005
----------------------                          ---------    ---------
Deferred tax asset

Loss reserve discounting                        $ 188,658    $ 169,624
Life reserve                                       10,685        8,906
Unearned premiums                                 144,600      136,360
Net operating loss carry forward                    9,650        5,437
Other                                              62,098       31,128
                                                ---------    ---------
    Gross deferred tax asset                      415,691      351,455
Less valuation allowance                           (9,621)      (6,575)
                                                ---------    ---------
    Deferred tax asset                            406,070      344,880
                                                ---------    ---------
Deferred tax liability
Amortization of intangibles                         8,098        7,966
Deferred policy acquisition costs                 163,657      154,755
Deferred taxes on unrealized investment gains      54,059       22,486
Other                                              37,622       27,614
                                                ---------    ---------
    Deferred tax liability                        263,436      212,821
                                                ---------    ---------

                                                =========    =========
    Net deferred tax asset                      $ 142,634    $ 132,059
                                                =========    =========

The Company had a current income tax payable of $9,700,000 and $5,230,000 at December 31, 2006 and 2005. At December 31, 2006, the Company had foreign net operating loss carry forwards of $27,571,000, which expire from 2007 to 2011. The net change in the valuation allowance is primarily related to foreign net operating loss carry forwards and to certain foreign subsidiaries net deferred tax assets. In addition, the Company has a net foreign tax credit carryforward for U.S. income tax purposes in the amount of $1,076,000 which expires in 2012. The Company has provided a valuation allowance against this amount. The statute of limitations has closed for the Company's tax returns through December 31, 2002.

The realization of the deferred tax asset is dependent upon the Company's ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future current operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset.

(13) DIVIDENDS FROM SUBSIDIARIES AND STATUTORY FINANCIAL INFORMATION

The Company's insurance subsidiaries are restricted by law as to the amount of dividends they may pay without the approval of regulatory authorities. During 2007, the maximum amount of dividends which can be paid without such approval is approximately $603 million. Combined net income and policyholders' surplus of the Company's consolidated insurance subsidiaries, as determined in accordance with statutory accounting practices, are as follows:

(DOLLARS IN THOUSANDS)           2006              2005              2004
----------------------           ----           ------------     ------------
Net income                       $   625,305    $    463,067     $    394,300
Policyholders' surplus           $ 3,535,398    $  2,939,503     $  2,424,364
                                 -----------    ------------     ------------

The significant variances between statutory accounting practices and GAAP are that for statutory purposes bonds are carried at amortized cost, acquisition costs are charged to income as incurred, deferred Federal income taxes are subject to limitations, excess and assumed workers' compensation reserves are discounted at different discount rates and certain assets designated as "non-admitted assets" are charged against surplus.

The NAIC has risk-based capital ("RBC") requirements that require insurance companies to calculate and report information under a risk-based formula which measures statutory capital and surplus needs based on a regulatory definition of risk in a company's mix of products and its balance sheet. All of the Company's insurance subsidiaries have an RBC amount above the authorized control level RBC, as defined by the NAIC. The Company has certain guarantees that provide that RBC levels of certain subsidiaries will remain above their authorized control levels.

(14) STOCKHOLDERS' EQUITY

COMMON EQUITY The weighted average number of shares used in the computation of basic earnings per share was 191,809,000, 190,533,000 and 188,912,000 for 2006, 2005 and 2004, respectively. The weighted average number of shares used in the computations of diluted earnings per share was 201,961,000, 200,426,000 and 198,408,000, for 2006, 2005 and 2004, respectively. Treasury shares have been excluded from average outstanding shares from the date of acquisition. The difference in calculating basic and diluted earnings per share is attributable entirely to the dilutive effect of stock-based compensation plans.

Changes in shares of common stock outstanding, net of treasury shares, are as follows:

(AMOUNTS IN THOUSANDS)          2006       2005            2004
----------------------        -------     -------         -------
Balance, beginning of year    191,264     189,613         187,961
Shares issued                   2,925       1,671           1,670
Shares repurchased             (1,417)        (20)            (18)
----------------------        -------     -------         -------
Balance, end of year          192,772     191,264         189,613
                              =======     =======         =======

On May 11, 1999, the Company declared a dividend distribution of one Right for each outstanding share of common stock. Each Right entitles the holder to purchase a unit consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock at a purchase price of $120 per unit (subject to adjustment) upon the occurrence of certain events relating to potential changes in control of the Company. The Rights expire on May 11, 2009, unless earlier redeemed by the Company as provided in the Rights Agreement.

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2006 and 2005:

                                                2006                           2005
                                    -----------------------------     ------------------------
                                      CARRYING                         CARRYING
(DOLLARS IN THOUSANDS)                 AMOUNT         FAIR VALUE        AMOUNT      FAIR VALUE
----------------------              ------------     ------------     ----------   -----------
Investments                         $ 11,114,364     $ 11,128,211     $9,810,225   $ 9,826,704
Junior subordinated debentures           241,953          251,500        450,634       462,130
Senior notes and other debt              869,187          897,261        967,818     1,016,671
                                    ------------     ------------     ----------   -----------

The estimated fair value of investments is generally based on quoted market prices as of the respective reporting dates. The fair value of the senior notes and other debt and the junior subordinated debentures are based on rates available for borrowings similar to the Company's outstanding debt as of the respective reporting dates.

(16) LEASE OBLIGATIONS

The Company and its subsidiaries use office space and equipment under leases expiring at various dates. These leases are considered operating leases for financial reporting purposes. Some of these leases have options to extend the length of the leases and contain clauses for cost of living, operating expense and real estate tax adjustments. Rental expense was $19,348,000, $17,429,000, and $16,783,000 for 2006 2005 and 2004 respectively. Future minimum lease payments (without provision for sublease income) are: $18,279,000 in 2007; $16,687,000 in 2008; $13,382,000 in 2009; $11,301,000 in 2010; $7,739,000 in 2011 and $16,715,000 thereafter.

(17) COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES

The Company's subsidiaries are subject to disputes, including litigation and arbitration, arising in the ordinary course of their insurance and reinsurance businesses. The Company's estimates of the costs of settling such matters are reflected in its aggregate reserves for losses and loss expenses, and the Company does not believe that the ultimate outcome of such matters will have a material adverse effect on its financial condition or results of operations.

At December 31, 2006, the Company has commitments to invest up to $242 million in certain investment funds and a subsidiary of the Company has commitments to extend credit under future loan agreements and unused lines of credit up to $3 million.

At December 31, 2006, investments with a carrying value of $183 million were on deposit in trust accounts established as security for certain policyholders and reinsurance clients, investments with a carrying value of $60 million were on deposit with Lloyd's in support of the Company's underwriting activities at Lloyd's, investments with a carrying value of $531 million were on deposit with state insurance departments and investments of $63 million were held on deposit in trust accounts as security for letters of credit issued in support of the Company's reinsurance operations.

(18) STOCK INCENTIVE PLAN

The Company has a stock incentive plan (the "Stock Incentive Plan") under which 36,070,313 shares of Common Stock were reserved for issuance. Pursuant to the Stock Incentive Plan, stock options may be granted at prices determined by the Board of Directors but not less than fair market value on the date of grant. Stock options vest according to a graded schedule of 25%, 50% 75% and 100% on the third, fourth, fifth and sixth year anniversary of grant date. Stock options expire on the tenth year anniversary of the grant date.

The following table summarizes stock option information:

                                                2006                            2005                      2004
                                       --------------------           ----------------------     ---------------------
                                         SHARES     PRICE(A)            SHARES      PRICE(A)       SHARES     PRICE(A)
                                       ----------   -------           ----------   ---------     ----------   --------
Outstanding at beginning of year       15,160,182   $  7.99           17,041,535   $    7.88     19,061,597   $   7.79
Granted                                        --        --                   --          --          3,375      17.62
Exercised                               2,909,916      6.67            1,663,341        6.76      1,668,555       6.67
Canceled                                  162,003      9.58              218,012        8.30        354,882       8.85
                                       ----------   -------           ----------   ---------     ----------   --------
Outstanding at end of year             12,088,263   $  8.29           15,160,182   $    7.99     17,041,535   $   7.88
                                       ----------   -------           ----------   ---------     ----------   --------
Options exercisable at year end         9,494,263   $  7.67            9,975,159   $    7.28      9,103,170   $   6.99
                                       ----------   -------           ----------   ---------     ----------   --------
Stock available for future grant (b)    5,778,540                      6,289,347                  7,011,386
                                       ----------                     ----------                 ----------

(a) Weighted average exercise price. (b) Includes restricted stock units outstanding.

The following table summarizes information about stock options outstanding at December 31, 2006:

                                               OPTIONS OUTSTANDING                                  OPTIONS EXERCISABLE
                             -----------------------------------------------------            -----------------------------
                                                     WEIGHTED                                                      WEIGHTED
RANGE OF                                            REMAINING             WEIGHTED                                  AVERAGE
EXERCISE                        NUMBER             CONTRACTUAL            AVERAGE               NUMBER             EXERCISE
PRICES                       OUTSTANDING         LIFE (IN YEARS)           PRICE              EXERCISABLE            PRICE
--------                     -----------         --------------           --------            -----------          --------
December 31, 2006
$0 to $5                       1,876,626                   3.26           $   3.63              1,876,626          $   3.63
$5.01 to $9.3                  2,997,597                   0.50               6.77              2,975,127              6.76
$9.40 to $17.62                7,214,040                   4.30              10.13              4,642,870              9.88
                             -----------                   ----           --------             ----------          --------
             Total            12,088,263                   3.20           $   8.29              9,494,623          $   7.67
                             ===========                   ====           ========             ==========          ========

Pursuant to the Stock Incentive Plan, the Company may also issue Restricted Stock Units (RSUs) to officers of the Company and its subsidiaries. The RSUs generally vest five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. The following table summarizes RSU information for the three years ended December 31, 2006:

(DOLLARS IN THOUSANDS)                                  2006        2005           2004
----------------------                               ----------   ----------   ----------
RSUs granted:
       Units                                            727,950      965,250    1,472,625
       Market value at grant date                    $   24,798   $   30,094   $   26,851

RSUs canceled:
       Units                                             83,580       25,200        5,625
       Market value at grant date                    $    3,782   $      465   $      113

RSUs outstanding at end of period:
       Units                                          4,077,420    3,433,050    2,493,000
       Market value at grant date                    $   90,370   $   69,354   $   39,725
                                                     ----------   ----------   ----------

The market value of RSUs at the date of grant are recorded as unearned compensation, a component of stockholders' equity, and charged to expense over the vesting period. Following is a summary of changes in unearned compensation for the three years ended December 31, 2006:

(DOLLARS IN THOUSANDS)                           2006                2005              2004
----------------------                       -----------           --------         ---------
Unearned compensation at beginning of year   $    53,862           $ 32,646         $  11,060
RSU's granted, net of cancellations               21,016             29,629            26,738
RSUs amortized                                   (15,323)            (8,413)           (5,152)
                                             -----------           --------         ---------
   Unearned compensation at end of year      $    59,555           $ 53,862         $  32,646
                                             ===========           ========         =========

(19) COMPENSATION PLANS

The Company and its subsidiaries have profit sharing plans in which substantially all employees participate. The plans provide for minimum annual contributions of 5% of eligible compensation; contributions above the minimum are discretionary and vary with each participating subsidiary's profitability. Employees become eligible to participate in the profit sharing plans on the first day of the month following the first full three months in which they are employed. The plans provide that 40% of the contributions vest immediately and that the remaining 60% vest at varying percentages based upon years of service. Profit sharing expense amounted to $24,864,000, $21,955,000 and $20,663,000 for 2006, 2005 and 2004, respectively.

The Company has a Long-Term Incentive Compensation Plan ("LTIP") that provides for incentive compensation to key executives based on the growth in the Company's book value per share. Key employees are awarded participation units ("Units") that vest five years from the award date or upon achievement of the maximum value of the award, whichever occurs first. In 2004, the Company awarded 100,000 Units with a maximum value of $25,000,000. Compensation expense related to the 2004 grant was $8,015,000, $6,587,000 and $5,325,000, respectively in 2006, 2005 and 2004. In 2006, the Company awarded 130,000 units with a maximum value of $32,500,000. Compensation expense related to the 2006 grant was $8,599,000 in 2006.

(20) RETIREMENT BENEFITS

The Company has an unfunded noncontributory defined benefit plan that covers its chief executive officer and chairman of the board. The key actuarial assumptions used to derive the projected benefit obligation and related retirement expenses are 1) discount rates of 6.0% in 2006 and 5.50% in 2005 and 2) a retirement age of 72. Following is a summary of the projected benefit obligation as of December 31, 2006 and 2005:

(DOLLARS IN THOUSANDS)                          2006      2005
----------------------                         -------   -------
Projected benefit obligation:
   Beginning of year                           $25,021   $19,162
   Interest cost                                 1,640     1,310
   Actuarial loss                                2,114     4,549
                                               -------   -------
     End of year                               $28,775   $25,021
                                               =======   =======

The components of net periodic pension benefit cost are as follows:

(DOLLARS IN THOUSANDS)                        2006       2005       2004
----------------------                       ------     ------     ------
Components of net periodic benefit cost:
   Interest cost                             $1,640     $1,311     $  383
   Amortization of unrecognized:
     Prior service costs                     $1,266     $1,266     $  465
     Net actuarial loss                      $  593     $  165     $   --
                                             ------     ------     ------
     Net periodic pension cost               $3,499     $2,742     $  848
                                             ======     ======     ======

Effective on December 31, 2006, the Company adopted FASB Statement No. 158 (FAS 158), "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," which requires an employer to recognize the over-funded or under-funded status of defined benefit plans as an asset or liability on its consolidated balance sheet. The impact of adopting FAS 158 is presented below.

                                                       DECEMBER 31, 2006
                                          BEFORE                              AFTER
                                        APPLICATION                        APPLICATION
(DOLLARS IN THOUSANDS)                  OF FAS 158       ADJUSTMENTS       OF FAS 158
----------------------                  -----------      -----------       -----------
       Other assets                     $  145,669      $  (15,028)        $  130,641
   Deferred income taxes                   135,044           7,590            142,634
     Other liabilities                     647,938           6,658            654,596
Total stockholder's equity              $3,349,255      $  (14,096)        $3,335,159
                                        ----------      ----------         ----------

(21) SUPPLEMENTAL FINANCIAL STATEMENT DATA

Other operating costs and expenses consist of the following:

(DOLLARS IN THOUSANDS)                                    2006            2005            2004
----------------------                                 ----------      ----------      ----------
Amortization of deferred policy acquisition costs      $  978,029      $  959,580      $  909,412
Other underwriting expenses                               289,188         242,463         205,338
Service company expenses                                   88,961          91,134          84,404
Other costs and expenses                                   92,988          65,397          48,835
                                                       ----------      ----------      ----------
Total                                                  $1,449,166      $1,358,574      $1,247,989
                                                       ==========      ==========      ==========

(22) INDUSTRY SEGMENTS

The Company's operations are presently conducted in five segments of the insurance business: specialty lines of insurance, regional property casualty insurance, alternative markets, reinsurance and international.

Our specialty segment underwrites complex and sophisticated third-party liability risks, principally within the excess and surplus lines. The primary lines of business are premises operations, professional liability, commercial automobile, products liability and property lines. The specialty business is conducted through nine operating units. The companies within the segment are divided along the different customer bases and product lines that they serve. The specialty units deliver their products through a variety of distribution channels depending on the customer base and particular risks insured. The customers in this segment are highly diverse.

Our regional segments provide commercial insurance products to customers primarily in 42 states. Key clients of this segment are small-to-mid-sized businesses and state and local governmental entities. The regional subsidiaries are organized geographically, which provides them with the flexibility to adapt to local market conditions, while enjoying the superior administrative capabilities and financial strength of the Company. The regional operations are conducted through four geographic regions based on markets served: Midwest, New England, Southern (excluding Florida) and Mid Atlantic.

Our alternative markets operations specialize in developing, insuring, reinsuring and administering self-insurance programs and other alternative risk transfer mechanisms. Our clients include employers, employer groups, insurers, and alternative market funds seeking less costly, more efficient ways to manage exposure to risks. In addition to providing insurance, the alternative markets segment also provides a wide variety of fee-based services, including consulting and administrative services.

Our reinsurance operations specialize in underwriting property casualty reinsurance on both a treaty and a facultative basis. The principal reinsurance units are facultative reinsurance, which writes individual certificates and program facultative business, treaty reinsurance, which functions as a traditional reinsurer in specialty and standard reinsurance lines, and Lloyd's reinsurance, which writes property and casualty reinsurance through Lloyd's.

Our international segment offers professional indemnity and other lines in the U.K. and Spain, commercial and personal property casualty insurance in Argentina and Brazil and savings and endowment policies to pre-fund education costs in the Philippines.

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 operating segments is presented in the following table. Income (loss) before income taxes by segment consists of revenues less expenses related to the respective segment's operations, including allocated investment income. Identifiable assets by segment are those assets used in or allocated to the operation of each segment.

                                                                     REVENUES
                                               ------------------------------------------------    PRE-TAX         NET
                                                EARNED     INVESTMENT                              INCOME         INCOME
(DOLLARS IN THOUSANDS)                         PREMIUMS     INCOME        OTHER        TOTAL       (LOSS)         (LOSS)
----------------------                        ----------   ----------   ----------   ----------   ----------    ----------
December 31, 2006:
12 Months
  Specialty                                   $1,752,507   $  200,421   $       --   $1,952,928   $  479,105    $  332,462
  Regional                                     1,205,912       83,957           --    1,289,869      201,417       139,737
  Alternative Markets                            658,805      114,914      104,812      878,531      291,416       201,486
  Reinsurance                                    859,411      133,709           --      993,120      135,424       102,065
  International                                  215,987       32,907           --      248,894       34,447        24,550
  Corporate, other and eliminations (1)               --       20,267        1,574       21,841     (162,812)     (107,896)
  Realized investment gains                           --           --        9,648        9,648        9,648         7,114
                                              ----------   ----------   ----------   ----------   ----------    ----------
  Consolidated                                $4,692,622   $  586,175   $  116,034   $5,394,831   $  988,645    $  699,518
                                              ==========   ==========   ==========   ==========   ==========    ==========
December 31, 2005:
12 Months
  Specialty                                   $1,682,193   $  134,290   $       --   $1,816,483   $  345,896    $  241,619
  Regional                                     1,173,174       57,619           --    1,230,793      216,495       147,924
  Alternative Markets                            663,478       82,617      110,697      856,792      238,462       165,327
  Reinsurance                                    754,097       95,110           --      849,207       63,606        53,233
  International                                  187,993       20,749           94      208,836       20,890        13,782
  Corporate, other and eliminations (1)               --       13,577        3,942       17,519     (132,021)      (87,996)
  Realized investment gains                           --           --       17,209       17,209       17,209        11,003
                                              ----------   ----------   ----------   ----------   ----------    ----------
  Consolidated                                $4,460,935   $  403,962   $  131,942   $4,996,839   $  770,537    $  544,892
                                              ==========   ==========   ==========   ==========   ==========    ==========
December 31, 2004:
12 Months
  Specialty                                   $1,391,652   $   99,452   $       --   $1,491,104   $  275,689    $  188,646
  Regional                                     1,068,552       44,249           --    1,112,801      184,152       123,902
  Alternative Markets                            605,996       59,057      109,344      774,397      133,438        92,345
  Reinsurance                                    841,451       73,825           --      915,276       85,995        62,910
  International                                  153,441       14,201          207      167,849       18,790        10,036
  Corporate, other and eliminations (1)               --          511        2,029        2,540     (107,819)      (70,313)
  Realized investment gains                           --           --       48,268       48,268       48,268        31,306
  Cumulative effect of change in accounting
   principle                                          --           --           --           --           --          (727)
                                              ----------   ----------   ----------   ----------   ----------    ----------
  Consolidated                                $4,061,092   $  291,295   $  159,848   $4,512,235   $  638,513    $  438,105
                                              ==========   ==========   ==========   ==========   ==========    ==========

Identifiable assets by segment are as follows (dollars in thousands):

YEARS ENDED DECEMBER 31,                    2006            2005
------------------------                ------------    ------------
Specialty                               $  5,387,934    $  4,731,062
Regional                                   2,796,225       2,652,556
Alternative Markets                        2,700,782       2,374,967
Reinsurance                                5,231,317       4,506,796
International                                811,662         613,634
Corporate, other and eliminations (1)     (1,271,431)       (982,728)
                                        ------------    ------------
Consolidated                            $ 15,656,489    $ 13,896,287
                                        ============    ============

(1) Corporate and other eliminations represent corporate revenues and expenses, realized investment gains and losses and other items that are not allocated to business segments.

Net premiums earned by major line of business are as follows (dollars in thousands):

                                          2006         2005         2004
                                       ----------   ----------   ----------
SPECIALTY
  Premises operations                  $  744,351   $  701,456   $  586,476
  Commercial automobile                   267,091      265,227      232,820
  Products liability                      257,992      258,163      172,848
  Property                                164,784      137,643      124,610
  Professional liability                  158,124      183,220      196,710
  Other                                   160,165      136,484       78,188
                                       ----------   ----------   ----------
      Total specialty                  $1,752,507   $1,682,193   $1,391,652
                                       ----------   ----------   ----------
REGIONAL
  Commercial multiple peril               468,978      469,033      430,762
  Commercial automobile                   348,126      339,832      310,872
  Workers' compensation                   246,151      235,748      213,538
  Other                                   142,657      128,561      113,380
                                       ----------   ----------   ----------
      Total regional                   $1,205,912   $1,173,174   $1,068,552
                                       ----------   ----------   ----------
ALTERNATIVE MARKETS
  Excess workers' compensation            308,290      291,852      256,095
  Primary workers' compensation           270,193      301,619      283,546
  Other                                    80,322       70,007       66,355
                                       ----------   ----------   ----------
      Total alternative markets        $  658,805   $  663,478   $  605,996
                                       ----------   ----------   ----------
REINSURANCE
  Casualty                                758,635      621,887      624,659
  Property                                100,776      132,210      216,792
                                       ----------   ----------   ----------
      Total reinsurance                $  859,411   $  754,097   $  841,451
                                       ----------   ----------   ----------
INTERNATIONAL                          $  215,987   $  187,993   $  153,441
                                       ----------   ----------   ----------
      Total                            $4,692,622   $4,460,935   $4,061,092
                                       ==========   ==========   ==========

(23) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of quarterly financial data (in thousands except per share data):

                                                                       THREE MONTHS ENDED
                            ------------------------------------------------------------------------------------------------------
                                     MARCH 31,                 JUNE 30,               SEPTEMBER 30,              DECEMBER 31,
                                2006         2005         2006         2005         2006         2005        2006         2005
                            ------------------------------------------------------------------------------------------------------
Revenues                    $ 1,307,534  $ 1,159,988  $ 1,358,346  $ 1,220,784  $ 1,368,508  $ 1,272,177  $1,360,443  $ 1,343,890
Net income                      161,702      120,871      165,452      134,079      174,308      122,518     198,056      167,424
Net income per share (a):
  Basic                             .84          .64          .86          .70          .91          .64        1.03          .88
  Diluted                           .80          .61          .82          .67          .87          .61         .98          .83

(a) Earnings per share (EPS) in each quarter is computed using the weighted-average number of shares outstanding during that quarter while EPS for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters EPS does not necessarily equal the full-year EPS.

(24) SUBSEQUENT EVENT

On February 14, 2007, the Company issued $250 million of 6.25% senior notes due February 15, 2037.

Exhibit 23

Consent of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

W. R. Berkley Corporation:

We consent to the incorporation by reference in the registration statements (No. 333-109621), (No. 333-00459) and (No. 333-128546) on Form S-3 and (No. 333-33935), (No. 33-88640), (No. 33-55726) and (No. 333-127598) on Form S-8 of W. R. Berkley Corporation of our reports dated March 1, 2007 with respect to the consolidated balance sheets of W. R. Berkley Corporation as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2006, and all related financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear or are incorporated by reference in the December 31, 2006 Annual Report on Form 10-K of W. R. Berkley Corporation.

KPMG LLP


New York, New York	March 1, 2007

Exhibit 31.1

CERTIFICATIONS

I, William R. Berkley, Chairman of the Board and Chief Executive Officer of W. R. Berkley Corporation (the “registrant”), certify that:

1. I have reviewed this annual report on Form 10-K 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: March 1, 2007

/s/ William R. Berkley

William R. Berkley

Chairman of the Board and

Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Eugene G. Ballard, Senior Vice President, Chief Financial Officer and Treasurer of W. R. Berkley Corporation (the “registrant”), certify that:

1. I have reviewed this annual report on Form 10-K 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: March 1, 2007

/s/ Eugene G. Ballard

Eugene G. Ballard

Senior 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 Annual Report of W. R. Berkley Corporation (the “Company”) on Form 10-K for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, William R. Berkley, Chairman of the Board and Chief Executive Officer of the Company, and Eugene G. Ballard, 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/ William R. Berkley

William R. Berkley

Chairman of the Board and Chief Executive Officer

/s/ Eugene G. Ballard

Senior Vice President —
Chief Financial Officer and Treasurer

March 1, 2007

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.