Document

($ in thousands)

Fair Value

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)



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

For the Quarterly Period Ended March 31, 2019



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		(I.R.S. Employer
incorporation or organization)		Identification No.)

475 Steamboat Road, Greenwich, Connecticut		06830
(Address of principal executive offices)		(Zip Code)



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

	None
Former name, former address and former fiscal year, if changed since last report.

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

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



Large accelerated filer þ			Accelerated filer o
Non-accelerated filer o			Smaller reporting company o
			Emerging growth company o

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

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

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



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered

Common Stock, par value $.20 per share	WRB	New York Stock Exchange
5.625% Subordinated Debentures due 2053	WRB B	New York Stock Exchange
5.9% Subordinated Debentures due 2056	WRB C	New York Stock Exchange
5.75% Subordinated Debentures due 2056	WRB D	New York Stock Exchange
5.70% Subordinated Debentures due 2058	WRB E	New York Stock Exchange

Number of shares of common stock, $.20 par value, outstanding as of May 6, 2019: 183,118,577

TABLE OF CONTENTS



Part I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 6. Exhibits
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



	March 31, 2019			December 31, 2018
	(Unaudited)			(Audited)
Assets
Investments:
Fixed maturity securities	$	13,640,669		$	13,606,812
Real estate	2,019,123			1,957,092
Investment funds	1,359,908			1,332,818
Arbitrage trading account	504,633			452,548
Equity securities	341,981			279,006
Loans receivable	95,557			94,813
Total investments	17,961,871			17,723,089
Cash and cash equivalents	937,428			817,602
Premiums and fees receivable	1,964,244			1,807,762
Due from reinsurers	1,941,311			1,932,291
Deferred policy acquisition costs	515,595			497,629
Prepaid reinsurance premiums	516,691			498,880
Trading account receivables from brokers and clearing organizations	322,925			347,228
Property, furniture and equipment	406,841			416,372
Goodwill	173,037			173,037
Accrued investment income	150,294			144,481
Federal and foreign income taxes	—			36,193
Other assets	695,023			501,413
Total assets	$	25,585,260		$	24,895,977

Liabilities and Equity
Liabilities:
Reserves for losses and loss expenses	$	12,093,110		$	11,966,448
Unearned premiums	3,496,199			3,359,991
Due to reinsurers	262,781			256,917
Trading account securities sold but not yet purchased	58,148			38,120
Federal and foreign income taxes	43,243			—
Other liabilities	1,046,286			1,005,184
Senior notes and other debt	1,875,018			1,882,028
Subordinated debentures	907,679			907,491
Total liabilities	19,782,464			19,416,179
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, 183,024,006 and 182,993,640 shares, respectively	70,535			70,535
Additional paid-in capital	1,053,372			1,039,633
Retained earnings	7,721,039			7,558,619
Accumulated other comprehensive loss	(364,983		)	(510,470		)
Treasury stock, at cost, 169,652,871 and 169,683,237 shares, respectively	(2,720,011		)	(2,720,466		)
Total stockholders’ equity	5,759,952			5,437,851
Noncontrolling interests	42,844			41,947
Total equity	5,802,796			5,479,798
Total liabilities and equity	$	25,585,260		$	24,895,977

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)



	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
	2019			2018
REVENUES:
Net premiums written	$	1,709,601		$	1,665,338
Change in net unearned premiums	(116,745		)	(97,930		)
Net premiums earned	1,592,856			1,567,408
Net investment income	158,254			174,518
Net realized and unrealized gains on investments	68,653			48,464
Revenues from non-insurance businesses	91,827			70,171
Insurance service fees	25,312			30,675
Other income	120			11
Total revenues	1,937,022			1,891,247
OPERATING COSTS AND EXPENSES:
Losses and loss expenses	988,650			963,219
Other operating costs and expenses	588,087			610,439
Expenses from non-insurance businesses	90,125			69,543
Interest expense	40,721			37,056
Total operating costs and expenses	1,707,583			1,680,257
Income before income taxes	229,439			210,990
Income tax expense	(47,825		)	(43,417		)
Net income before noncontrolling interests	181,614			167,573
Noncontrolling interests	(892		)	(1,177		)
Net income to common stockholders	$	180,722		$	166,396

NET INCOME PER SHARE:
Basic	$	0.95		$	0.88
Diluted	$	0.94		$	0.87

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)



	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
	2019			2018
Net income before noncontrolling interests	$	181,614		$	167,573
Other comprehensive income (losses):
Change in unrealized currency translation adjustments	19,760			12,799
Change in unrealized investment gains (losses), net of taxes	125,774			(125,772		)
Other comprehensive income (losses)	145,534			(112,973		)
Comprehensive income	327,148			54,600
Noncontrolling interests	(845		)	(1,188		)
Comprehensive income to common stockholders	$	326,303		$	53,412

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands)



	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
	2019			2018
COMMON STOCK:
Beginning and end of period	$	70,535		$	70,535
ADDITIONAL PAID-IN CAPITAL:
Beginning of period	$	1,039,633		$	1,024,771
Restricted stock units issued	(455		)	(487		)
Restricted stock units expensed	14,194			9,434
End of period	$	1,053,372		$	1,033,718
RETAINED EARNINGS:
Beginning of period	$	7,558,619		$	6,956,882
Cumulative effect adjustment resulting from changes in accounting principles	—			215,939
Net income to common stockholders	180,722			166,396
Dividends ($0.10 and $0.09 per share, respectively)	(18,302		)	(17,016		)
End of period	$	7,721,039		$	7,322,201
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrealized investment gains:
Beginning of period	$	(91,491	)	$	375,421
Cumulative effect adjustment resulting from changes in accounting principles	—			(214,539		)
Change in unrealized gains (losses) on securities not other-than-temporarily impaired	125,796			(125,796		)
Change in unrealized (losses) gains on other-than-temporarily impaired securities	(69		)	13
End of period	34,236			35,099
Currency translation adjustments:
Beginning of period	(418,979		)	(306,880		)
Net change in period	19,760			12,799
End of period	(399,219		)	(294,081		)
Total accumulated other comprehensive loss	$	(364,983	)	$	(258,982	)
TREASURY STOCK:
Beginning of period	$	(2,720,466	)	$	(2,709,386	)
Stock exercised/vested	455			488
Stock repurchased	—			(6,799		)
End of period	$	(2,720,011	)	$	(2,715,697	)
NONCONTROLLING INTERESTS:
Beginning of period	$	41,947		$	39,819
Contributions (distributions)	52			(603		)
Net income	892			1,177
Other comprehensive (loss) income, net of tax	(47		)	11
End of period	$	42,844		$	40,404

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)



	For the Three Months Ended March 31,

	2019			2018
CASH FROM (USED IN) OPERATING ACTIVITIES:
Net income to common stockholders	$	180,722		$	166,396
Adjustments to reconcile net income to net cash from (used in) operating activities:
Net realized and unrealized gains on investments	(68,653		)	(48,464		)
Depreciation and amortization	27,424			29,027
Noncontrolling interests	892			1,177
Investment funds	(11,411		)	(40,354		)
Stock incentive plans	14,828			9,434
Change in:
Arbitrage trading account	(7,753		)	497
Premiums and fees receivable	(156,450		)	(74,492		)
Reinsurance accounts	(20,272		)	(100,379		)
Deferred policy acquisition costs	(17,732		)	(6,851		)
Income taxes	36,180			50,505
Reserves for losses and loss expenses	119,780			120,063
Unearned premiums	135,184			116,627
Other	(154,409		)	(243,221		)
Net cash from (used in) operating activities	78,330			(20,035		)
CASH FROM (USED IN) INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities	973,626			2,004,008
Proceeds from sale of equity securities	37,762			152,949
(Contributions to) distributions from investment funds	(13,874		)	33,695
Proceeds from maturities and prepayments of fixed maturity securities	686,795			97,911
Purchase of fixed maturity securities	(1,528,267		)	(2,085,683		)
Purchase of equity securities	(35,314		)	(44,219		)
Real estate purchased	(52,901		)	(336,601		)
Change in loans receivable	(726		)	2,058
Net additions to property, furniture and equipment	(3,299		)	(14,102		)
Change in balances due to security brokers	(22,011		)	58,500
Net cash from (used in) investing activities	41,791			(131,484		)
CASH (USED IN) FROM FINANCING ACTIVITIES:
Repayment of senior notes and other debt	—			(23		)
Net proceeds from issuance of debt	—			181,792
Cash dividends to common stockholders	—			(17,016		)
Purchase of common treasury shares	—			(6,799		)
Other, net	(976		)	(544		)
Net cash (used in) from financing activities	(976		)	157,410
Net impact on cash due to change in foreign exchange rates	681			241
Net change in cash and cash equivalents	119,826			6,132
Cash and cash equivalents at beginning of year	817,602			950,471
Cash and cash equivalents at end of period	$	937,428		$	956,603

See accompanying notes to interim consolidated financial statements.

W. R. Berkley Corporation and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) General

The unaudited consolidated financial statements, which include the accounts of W. R. Berkley Corporation and its subsidiaries (the “Company”) have been prepared on the basis of U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for annual financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly the Company’s financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected during the reporting period. For further information related to a description of areas of judgment and estimates and other information necessary to understand the Company’s financial position and results of operations, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Reclassifications have been made in the 2018 financial statements as originally reported to conform to the presentation of the 2019 financial statements. Shares outstanding and per share amounts have been adjusted to reflect the 3-for-2 common stock split effected on April 2, 2019. Additionally, the Company renamed the Reinsurance segment to Reinsurance & Monoline Excess, and reclassified the monoline excess business from the Insurance segment. The reclassified business includes operations that solely retain risk on an excess basis.

The income tax provision has been computed based on the Company’s estimated annual effective tax rate. The effective tax rate for the quarter differs from the federal income tax rate of 21% principally because of tax-exempt investment income, as well as tax on income from foreign jurisdictions with different tax rates.

(2) Per Share Data

The Company presents both basic and diluted net income per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period (including 7,389,781 and 7,270,954 common shares held in a grantor trust as of March 31, 2019 and 2018, respectively). The common shares held in the grantor trust are for delivery upon settlement of vested but mandatorily deferred restricted stock units ("RSUs"). Shares held by the grantor trust do not affect diluted shares outstanding since the shares deliverable under vested RSUs were already included in diluted shares outstanding. Diluted EPS is based upon the weighted average number of basic and common equivalent shares outstanding during the period and is calculated using the treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

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



	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
(In thousands)	2019	2018
Basic	190,400	189,563
Diluted	192,669	192,188

(3) Recent Accounting Pronouncements

Recently adopted accounting pronouncements:

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, which amends the accounting and disclosure guidance for leases. This guidance retains the two classifications of a lease, as either an operating or finance lease, both of which require lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months. The right-of-use asset and the lease liability are determined based upon the present value of cash flows. Finance leases reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-of-use asset. Operating leases recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The accounting

by lessors is not significantly changed by the updated guidance. The updated guidance is effective for reporting periods beginning after December 15, 2018. As permitted by the rules, the Company adopted the new guidance prospectively for the quarter ended March 31, 2019. The Company elected to use the practical expedient permitted by the transition guidance which allowed companies to not reassess existing lease classifications for already effective leases. The adoption of this guidance resulted in the recognition of a right-of-use asset of $185 million and a lease liability of $215 million (prior to adoption the Company had a $30 million deferred rent liability recognized) reported within other assets and other liabilities, respectively, in the consolidated balance sheet. The adoption of this guidance did not have an impact on the Company's results of operations or liquidity.

All other accounting and reporting standards that have become effective in 2019 were either not applicable to the Company or their adoption did not have a material impact on the Company.

Accounting and reporting standards that are not yet effective:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which amends the accounting guidance for credit losses on financial instruments. The updated guidance amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. This guidance also applies a new current expected credit loss model for determining credit-related impairments for financial instruments measured at amortized cost. The updated guidance is effective for reporting periods beginning after December 15, 2019. The Company will not be able to determine the impact the adoption of this guidance will have on its results of operations, financial position or liquidity until the year the guidance becomes effective.

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

(4) Consolidated Statement of Comprehensive Income

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



(In thousands)	Unrealized Investment Gains (Losses)				Currency Translation Adjustments			Accumulated Other Comprehensive (Loss) Income
As of and for the three months ended March 31, 2019
Changes in AOCI
Beginning of period	$	(91,491	)		$	(418,979	)	$	(510,470	)
Other comprehensive income before reclassifications	127,139				19,760			146,899
Amounts reclassified from AOCI	(1,365		)		—			(1,365		)
Other comprehensive income	125,774				19,760			145,534
Unrealized investment gain related to noncontrolling interest	(47		)		—			(47		)
Ending balance	$	34,236			$	(399,219	)	$	(364,983	)
Amounts reclassified from AOCI
Pre-tax	$	(1,728	)	(1)	$	—		$	(1,728	)
Tax effect	363			(2)	—			363
After-tax amounts reclassified	$	(1,365	)		$	—		$	(1,365	)
Other comprehensive income
Pre-tax	$	169,260			$	19,760		$	189,020
Tax effect	(43,486		)		—			(43,486		)
Other comprehensive income	$	125,774			$	19,760		$	145,534



As of and for the three months ended March 31, 2018
Changes in AOCI
Beginning of period	$	375,421			$	(306,880	)	$	68,541
Cumulative effect adjustment resulting from changes in accounting principles	(214,539		)		—			(214,539		)
Restated beginning of period	160,882				(306,880		)	(145,998		)
Other comprehensive (loss) income before reclassifications	(118,189		)		12,799			(105,390		)
Amounts reclassified from AOCI	(7,583		)		—			(7,583		)
Other comprehensive (loss) income	(125,772		)		12,799			(112,973		)
Unrealized investment gain related to noncontrolling interest	(11		)		—			(11		)
End of period	$	35,099			$	(294,081	)	$	(258,982	)
Amounts reclassified from AOCI
Pre-tax	$	(9,599	)	(1)	$	—		$	(9,599	)
Tax effect	2,016			(2)	—			2,016
After-tax amounts reclassified	$	(7,583	)		$	—		$	(7,583	)
Other comprehensive (loss) income
Pre-tax	$	(160,848	)		$	12,799		$	(148,049	)
Tax effect	35,076				—			35,076
Other comprehensive (loss) income	$	(125,772	)		$	12,799		$	(112,973	)

_________________________

⁽¹⁾ Net realized and unrealized gains on investments in the consolidated statements of income.

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

(5) Statements of Cash Flows

Interest payments were $62,981,000 and $61,890,000 for the three months ended March 31, 2019 and 2018, respectively. No income taxes were paid during such periods.

(6) Investments in Fixed Maturity Securities

At March 31, 2019 and December 31, 2018, investments in fixed maturity securities were as follows:



(In thousands)	Amortized Cost		Gross Unrealized					Fair Value		Carrying Value
			Gains		Losses
March 31, 2019
Held to maturity:
State and municipal	$	68,535	$	12,517	$	—		$	81,052	$	68,535
Residential mortgage-backed	10,093		1,151		—			11,244		10,093
Total held to maturity	78,628		13,668		—			92,296		78,628
Available for sale:
U.S. government and government agency	728,606		12,991		(2,934		)	738,663		738,663
State and municipal:
Special revenue	2,392,362		47,293		(6,052		)	2,433,603		2,433,603
State general obligation	334,406		16,158		(168		)	350,396		350,396
Pre-refunded	337,026		18,590		(153		)	355,463		355,463
Corporate backed	252,072		5,851		(1,233		)	256,690		256,690
Local general obligation	406,499		24,710		(498		)	430,711		430,711
Total state and municipal	3,722,365		112,602		(8,104		)	3,826,863		3,826,863
Mortgage-backed securities:
Residential (1)	1,226,647		14,595		(12,591		)	1,228,651		1,228,651
Commercial	351,485		2,514		(1,940		)	352,059		352,059
Total mortgage-backed securities	1,578,132		17,109		(14,531		)	1,580,710		1,580,710
Asset-backed	2,658,355		6,124		(33,680		)	2,630,799		2,630,799
Corporate:
Industrial	2,112,002		32,886		(14,637		)	2,130,251		2,130,251
Financial	1,475,201		15,054		(11,457		)	1,478,798		1,478,798
Utilities	317,341		5,801		(1,751		)	321,391		321,391
Other	42,952		669		(129		)	43,492		43,492
Total corporate	3,947,496		54,410		(27,974		)	3,973,932		3,973,932
Foreign government	820,541		14,465		(23,932		)	811,074		811,074
Total available for sale	13,455,495		217,701		(111,155		)	13,562,041		13,562,041
Total investments in fixed maturity securities	$	13,534,123	$	231,369	$	(111,155	)	$	13,654,337	$	13,640,669



(In thousands)	Amortized Cost		Gross Unrealized					Fair Value		Carrying Value
			Gains		Losses
December 31, 2018
Held to maturity:
State and municipal	$	67,891	$	11,549	$	—		$	79,440	$	67,891
Residential mortgage-backed	10,744		1,259		—			12,003		10,744
Total held to maturity	78,635		12,808		—			91,443		78,635
Available for sale:
U.S. government and government agency	697,931		9,219		(4,910		)	702,240		702,240
State and municipal:
Special revenue	2,396,089		30,507		(19,790		)	2,406,806		2,406,806
State general obligation	335,626		11,951		(1,103		)	346,474		346,474
Pre-refunded	408,141		16,568		(30		)	424,679		424,679
Corporate backed	272,440		4,319		(2,350		)	274,409		274,409
Local general obligation	403,219		18,350		(1,339		)	420,230		420,230
Total state and municipal	3,815,515		81,695		(24,612		)	3,872,598		3,872,598
Mortgage-backed securities:
Residential (1)	1,264,376		7,729		(20,225		)	1,251,880		1,251,880
Commercial	345,070		1,304		(3,708		)	342,666		342,666
Total mortgage-backed securities	1,609,446		9,033		(23,933		)	1,594,546		1,594,546
Asset-backed	2,462,303		10,131		(33,687		)	2,438,747		2,438,747
Corporate:
Industrial	2,295,778		15,355		(53,312		)	2,257,821		2,257,821
Financial	1,502,427		7,178		(45,683		)	1,463,922		1,463,922
Utilities	330,326		2,997		(4,148		)	329,175		329,175
Other	60,238		322		(167		)	60,393		60,393
Total corporate	4,188,769		25,852		(103,310		)	4,111,311		4,111,311
Foreign government	822,093		11,753		(25,111		)	808,735		808,735
Total available for sale	13,596,057		147,683		(215,563		)	13,528,177		13,528,177
Total investments in fixed maturity securities	$	13,674,692	$	160,491	$	(215,563	)	$	13,619,620	$	13,606,812

____________

(1) Gross unrealized losses for residential mortgage-backed securities include $(123,614) and $(55,090) as of March 31, 2019 and December 31, 2018, respectively, related to securities with the non-credit portion of other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income.

The amortized cost and fair value of fixed maturity securities at March 31, 2019, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay obligations.



(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,035,545	$	1,037,210
Due after one year through five years	4,571,361		4,624,168
Due after five years through ten years	3,130,252		3,201,572
Due after ten years	3,208,740		3,199,433
Mortgage-backed securities	1,588,225		1,591,954
Total	$	13,534,123	$	13,654,337

At March 31, 2019 and December 31, 2018, there were no investments that exceeded 10% of common stockholders' equity, other than investments in United States government and government agency securities.

(7) Investments in Equity Securities

At March 31, 2019 and December 31, 2018, investments in equity securities were as follows:



(In thousands)	Cost		Gross Unrealized					Fair Value		Carrying Value
(In thousands)	Cost		Gains		Losses			Fair Value		Carrying Value
March 31, 2019
Common stocks	$	148,242	$	7,052	$	(19,195	)	$	136,099	$	136,099
Preferred stocks	101,432		110,879		(6,429		)	205,882		205,882
Total	$	249,674	$	117,931	$	(25,624	)	$	341,981	$	341,981
December 31, 2018
Common stocks	$	113,576	$	4,335	$	(19,719	)	$	98,192	$	98,192
Preferred stocks	115,201		72,364		(6,751		)	180,814		180,814
Total	$	228,777	$	76,699	$	(26,470	)	$	279,006	$	279,006

(8) Arbitrage Trading Account

At March 31, 2019 and December 31, 2018, the fair and carrying values of the arbitrage trading account were $505 million and $453 million, respectively. The primary focus of the trading account is merger arbitrage. Merger arbitrage is the business of investing in the securities of publicly held companies which are the targets in announced tender offers and mergers. Arbitrage investing differs from other types of investing in its focus on transactions and events believed likely to bring about a change in value over a relatively short time period (usually four months or less).

The Company uses put options, call options and swap contracts in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading account. These options and contracts are reported at fair value. As of March 31, 2019, the fair value of long option contracts outstanding was $1 thousand (notional amount of $0.1 million) and the fair value of short option contracts outstanding was $471 thousand (notional amount of $20.7 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.

(9) Net Investment Income

Net investment income consists of the following:



	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
(In thousands)	2019			2018
Investment income earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	132,119		$	123,246
Investment funds	11,411			40,354
Arbitrage trading account	10,585			5,191
Real estate	4,307			6,568
Equity securities	1,288			646
Gross investment income	159,710			176,005
Investment expense	(1,456		)	(1,487		)
Net investment income	$	158,254		$	174,518

(10) Investment Funds

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

The Company’s maximum exposure to loss with respect to these investments is limited to the carrying amount reported on the Company’s consolidated balance sheet and its unfunded commitments, which were $247 million as of March 31, 2019.

Investment funds consisted of the following:



	Carrying Value as of				Income (Loss) from Investment Funds
	March 31,		December 31,		For the Three Months Ended March 31,
(In thousands)	2019		2018		2019			2018
Real estate	$	651,810	$	642,137	$	10,476		$	26,051
Energy	73,526		75,213		(3,403		)	74
Other funds	634,572		615,468		4,338			14,229
Total	$	1,359,908	$	1,332,818	$	11,411		$	40,354

The Company's share of the earnings or losses of investment funds is generally reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements.

(11) Real Estate

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



	Carrying Value
	March 31,		December 31,
(In thousands)	2019		2018
Properties in operation	$	1,312,715	$	1,279,584
Properties under development	706,408		677,508
Total	$	2,019,123	$	1,957,092

In 2019, properties in operation included a long-term ground lease in Washington, D.C., a hotel in Memphis, Tennessee, two office complexes in New York City, office buildings in West Palm Beach and Palm Beach, Florida, and an office building in London. Properties in operation are net of accumulated depreciation and amortization of $45,835,000 and $44,340,000 as of March 31, 2019 and December 31, 2018, respectively. Related depreciation expense was $3,427,000 and $3,815,000 for the three months ended March 31, 2019 and 2018, respectively. Future minimum rental income expected on operating leases relating to properties in operation is $47,313,124 in 2019, $63,997,726 in 2020, $63,459,383 in 2021, $63,215,702 in 2022, $56,648,437 in 2023, $54,268,495 in 2024 and $567,471,124 thereafter.

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

A mixed-use project in Washington, D.C. has been under development in 2018 and 2019.

(12) Loans Receivable

Loans receivable are as follows:



(In thousands)	March 31, 2019		December 31, 2018
Amortized cost (net of valuation allowance):
Real estate loans	$	62,052	$	62,289
Commercial loans	33,505		32,524
Total	$	95,557	$	94,813

Fair value:
Real estate loans	$	62,783	$	63,047
Commercial loans	35,008		34,026
Total	$	97,791	$	97,073

Valuation allowance:
Specific	$	1,200	$	1,200
General	2,183		2,183
Total	$	3,383	$	3,383

	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
	2019		2018
Change in valuation allowance	$	—	$	—

Loans receivable in non-accrual status were $1.2 million as of both March 31, 2019 and December 31, 2018.

The Company monitors the performance of its loans receivable and assesses the ability of the borrower to pay principal and interest based upon loan structure, underlying property values, cash flow and related financial and operating performance of the property and market conditions. Loans receivable with a potential for default are further assessed using discounted cash flow analysis and comparable cost and sales methodologies, if appropriate.

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

In evaluating the real estate loans, the Company considers their credit quality indicators, including loan to value ratios, which compare the outstanding loan amount to the estimated value of the property, the borrower’s financial condition and performance with respect to loan terms, the position in the capital structure, the overall leverage in the capital structure and other market conditions. Based on these considerations, none of the real estate loans were considered to be impaired at March 31, 2019, and accordingly, the Company determined that a specific valuation allowance was not required.

(13) Net Realized and Unrealized Gains (Losses) on Investments

Net realized and unrealized gains (losses) on investments are as follows:



	For the Three Months Ended March 31,
(In thousands)	2019			2018
Net realized and unrealized gains (losses) on investments in earnings
Fixed maturity securities:
Gains	$	5,246		$	13,339
Losses	(3,518		)	(3,740		)
Equity securities (1):
Net realized gains on investment sales	23,345			122,321
Change in unrealized gains (losses)	42,078			(94,205		)
Investment funds	17			119
Real estate	2,746			7,998
Loans receivable	(970		)	2,058
Other	(291		)	574
Net realized and unrealized gains on investments in earnings before OTTI	68,653			48,464
Other-than-temporary impairments	—			—
Net realized and unrealized gains on investments in earnings	68,653			48,464
Income tax expense	(14,417		)	(10,177		)
After-tax net realized and unrealized gains on investments in earnings	$	54,236		$	38,287



Change in unrealized investment gains (losses) of available for sale securities:
Fixed maturity securities	$	174,494		$	(159,727	)
Previously impaired fixed maturity securities	(69		)	13
Investment funds	(5,165		)	(1,134		)
Total change in unrealized investment gains (losses)	169,260			(160,848		)
Income tax (expense) benefit	(43,486		)	35,076
Noncontrolling interests	(47		)	(11		)
After-tax change in unrealized investment gains (losses) of available for sale securities	$	125,727		$	(125,783	)

______________________

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

(14) Fixed Maturity Securities in an Unrealized Loss Position

The following tables summarize all fixed maturity securities in an unrealized loss position at March 31, 2019 and December 31, 2018 by the length of time those securities have been continuously in an unrealized loss position:



	Less Than 12 Months				12 Months or Greater				Total
(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
March 31, 2019
U.S. government and government agency	$	97,181	$	94	$	113,805	$	2,840	$	210,986	$	2,934
State and municipal	70,022		994		658,166		7,110		728,188		8,104
Mortgage-backed securities	36,125		221		734,163		14,310		770,288		14,531
Asset-backed securities	1,250,397		21,848		598,253		11,832		1,848,650		33,680
Corporate	223,109		3,366		1,293,393		24,608		1,516,502		27,974
Foreign government	192,715		22,558		70,745		1,374		263,460		23,932
Fixed maturity securities	$	1,869,549	$	49,081	$	3,468,525	$	62,074	$	5,338,074	$	111,155

December 31, 2018
U.S. government and government agency	$	195,359	$	933	$	130,815	$	3,977	$	326,174	$	4,910
State and municipal	701,700		6,874		744,905		17,738		1,446,605		24,612
Mortgage-backed securities	334,063		2,911		712,595		21,022		1,046,658		23,933
Asset-backed securities	1,687,665		28,965		342,855		4,722		2,030,520		33,687
Corporate	1,730,513		54,181		954,763		49,129		2,685,276		103,310
Foreign government	246,273		24,197		80,004		914		326,277		25,111
Fixed maturity securities	$	4,895,573	$	118,061	$	2,965,937	$	97,502	$	7,861,510	$	215,563

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at March 31, 2019 is presented in the table below:



($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	16	$	140,425	$	22,639
Corporate	15	83,256		5,137
Asset-backed securities	8	14,098		1,494
Mortgage-backed securities	4	7,656		137
Total	43	$	245,435	$	29,407

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

The Company has evaluated its fixed maturity securities in an unrealized loss position and believes the unrealized losses are due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due and does not consider any of these securities to be OTTI.

(15) Fair Value Measurements

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

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

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

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

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

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

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

The following tables present the assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 by level:



(In thousands)	Total		Level 1		Level 2		Level 3
March 31, 2019
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	738,663	$	—	$	738,663	$	—
State and municipal	3,826,863		—		3,826,863		—
Mortgage-backed securities	1,580,710		—		1,580,710		—
Asset-backed securities	2,630,799		—		2,630,774		25
Corporate	3,973,932		—		3,973,932		—
Foreign government	811,074		—		811,074		—
Total fixed maturity securities available for sale	13,562,041		—		13,562,016		25
Equity securities:
Common stocks	136,099		127,311		—		8,788
Preferred stocks	205,882		—		201,937		3,945
Total equity securities	341,981		127,311		201,937		12,733
Arbitrage trading account	504,633		367,564		133,481		3,588
Total	$	14,408,655	$	494,875	$	13,897,434	$	16,346
Liabilities:
Trading account securities sold but not yet purchased	$	58,148	$	58,148	$	—	$	—


December 31, 2018
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	702,240	$	—	$	702,240	$	—
State and municipal	3,872,598		—		3,872,598		—
Mortgage-backed securities	1,594,546		—		1,594,546		—
Asset-backed securities	2,438,747		—		2,438,648		99
Corporate	4,111,311		—		4,111,311		—
Foreign government	808,735		—		808,735		—
Total fixed maturity securities available for sale	13,528,177		—		13,528,078		99
Equity securities:
Common stocks	98,192		89,596		—		8,596
Preferred stocks	180,814		—		176,869		3,945
Total equity securities	279,006		89,596		176,869		12,541
Arbitrage trading account	452,548		353,335		81,905		17,308
Total	$	14,259,731	$	442,931	$	13,786,852	$	29,948
Liabilities:
Trading account securities sold but not yet purchased	$	38,120	$	37,327	$	—	$	793

The following tables summarize changes in Level 3 assets and liabilities for the three months ended March 31, 2019 and for the year ended December 31, 2018:



	Gains (Losses) Included in:
(In thousands)	Beginning Balance		Earnings (Losses)			Other Comprehensive Income (Loss)		Impairments		Purchases		(Sales)			Paydowns / Maturities		Transfers In / (Out)		Ending Balance
(In thousands)	Beginning Balance		Earnings (Losses)			Other Comprehensive Income (Loss)		Impairments		Purchases		(Sales)			Paydowns / Maturities		Transfers In / (Out)		Ending Balance
Three Months Ended March 31, 2019
Assets:
Fixed maturities securities available for sale:
Asset-backed securities	$	99	$	2		$	46	$	—	$	—	$	(122	)	$	—	$	—	$	25
Total	99		2			46		—		—		(122		)	—		—		25
Equity securities:
Common stocks	8,596		191			—		—		—		—			—		1		8,788
Preferred stocks	3,945		—			—		—		—		—			—		—		3,945
Total	12,541		191			—		—		—		—			—		1		12,733
Arbitrage trading account	17,308		158			—		—		—		(17,386		)	—		3,508		3,588
Total	$	29,948	$	351		$	46	$	—	$	—	$	(17,508	)	$	—	$	3,509	$	16,346

Liabilities:
Trading account securities sold but not yet purchased	$	793	$	60		$	—	$	—	$	2,087	$	(2,940	)	$	—	$	—	$	—
Year Ended December 31, 2018
Assets:
Fixed maturities securities available for sale:
Asset-backed securities	$	172	$	(2	)	$	46	$	—	$	—	$	(117	)	$	—	$	—	$	99
Total	172		(2		)	46		—		—		(117		)	—		—		99
Equity securities:
Common stocks	9,370		(548		)	—		—		—		(227		)	—		1		8,596
Preferred stocks	10,843		100			—		—				(6,998		)	—		—		3,945
Total	20,213		(448		)	—		—		—		(7,225		)	—		1		12,541
Arbitrage trading account	—		(6		)	—		—		11,523		(11		)	—		5,802		17,308
Total	$	20,385	$	(456	)	$	46	$	—	$	11,523	$	(7,353	)	$	—	$	5,803	$	29,948
Liabilities:

Transfers into Level 3 represent cases where a publicly traded price was no longer available or a publicly traded price became available.

(16) Reserves for Loss and Loss Expenses

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

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

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

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

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

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



	March 31,
(In thousands)	2019			2018
Net reserves at beginning of period	$	10,248,883		$	10,056,914
Net provision for losses and loss expenses:
Claims occurring during the current year (1)	971,806			956,181
Increase (decrease) in estimates for claims occurring in prior years (2) (3)	6,481			(3,582		)
Loss reserve discount accretion	10,363			10,620
Total	988,650			963,219
Net payments for claims:
Current year	295,873			111,030
Prior years	567,756			810,709
Total	863,629			921,739
Foreign currency translation	(163		)	2,501
Net reserves at end of period	10,373,741			10,100,895
Ceded reserves at end of period	1,719,369			1,684,000
Gross reserves at end of period	$	12,093,110		$	11,784,895

_______________________________________

(1) Claims occurring during the current year are net of loss reserve discounts of $6 million for both the three months ended March 31, 2019 and 2018.

(2) The increase (decrease) in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior years increased by $3 million and decreased by $7 million for the three months ended March 31, 2019 and 2018, respectively.

(3) For certain retrospectively rated insurance policies and reinsurance agreements, reserve development is offset by additional or return premiums. Favorable development, net of additional and return premiums, was $7 million and $12 million for the three months ended March 31, 2019 and 2018, respectively.

During the three months ended March 31, 2019, favorable prior year development (net of additional and return premiums) of $6.7 million included $9.6 million of favorable development for the Insurance segment, offset by $2.9 million of adverse development for the Reinsurance & Monoline Excess segment. The overall favorable development for the Insurance segment was primarily attributable to favorable development on workers’ compensation business, partially offset by adverse development on other liability business and professional liability business. The favorable workers’ compensation development was spread across many accident years, including prior to 2009, but was most significant in accident years 2015 through 2017. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The adverse other liability development was mainly related to accident years 2014 through 2018. It was driven by a higher than expected number of large losses being reported in the period, including both general liability and professional liability losses. The adverse development for the Reinsurance & Monoline Excess segment was mainly driven by U.S. casualty facultative business from accident years 2009 and prior related to construction projects.

During the three months ended March 31, 2018, favorable prior year development (net of additional and return premiums) of $12.2 million included $16.3 million of favorable development for the Insurance segment, partially offset by $4.1 million of adverse development for the Reinsurance & Monoline Excess segment. The favorable development for the Insurance segment was primarily attributable to workers' compensation business. The favorable workers' compensation development was spread across many accident years, including prior to 2008, but was most significant in accident years 2015 through 2017. The favorable workers' compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The adverse development for the Reinsurance & Monoline Excess segment was mainly driven by U.S. casualty facultative business from accident years 2008 and prior related to construction projects.

(17) Fair Value of Financial Instruments

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



	March 31, 2019				December 31, 2018
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	13,640,669	$	13,654,337	$	13,606,812	$	13,619,620
Equity securities	341,981		341,981		279,006		279,006
Arbitrage trading account	504,633		504,633		452,548		452,548
Loans receivable	95,557		97,791		94,813		97,073
Cash and cash equivalents	937,428		937,428		817,602		817,602
Trading account receivables from brokers and clearing organizations	322,925		322,925		347,228		347,228
Due from broker	1,868		1,868		—		—
Liabilities:
Due to broker	—		—		20,144		20,144
Trading account securities sold but not yet purchased	58,148		58,148		38,120		38,120
Subordinated debentures	907,679		945,746		907,491		840,002
Senior notes and other debt	1,875,018		1,985,431		1,882,028		1,968,996

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

(18) Reinsurance

The following is a summary of reinsurance financial information:



	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
(In thousands)	2019			2018
Written premiums:
Direct	$	1,829,815		$	1,787,235
Assumed	216,415			192,187
Ceded	(336,629		)	(314,084		)
Total net premiums written	$	1,709,601		$	1,665,338

Earned premiums:
Direct	$	1,723,610		$	1,674,550
Assumed	188,191			188,866
Ceded	(318,945		)	(296,008		)
Total net premiums earned	$	1,592,856		$	1,567,408

Ceded losses and loss expenses incurred	$	173,046		$	238,995
Ceded commissions earned	$	71,017		$	66,356

The Company reinsures a portion of its insurance exposures in order to reduce its net liability on individual risks and catastrophe losses. The Company also cedes premiums to state assigned risk plans and captive insurance companies. Estimated amounts due from reinsurers are reported net of reserves for uncollectible reinsurance of $1 million as of both March 31, 2019 and December 31, 2018.

(19) Restricted Stock Units

Pursuant to its stock incentive plan, the Company may issue restricted stock units ("RSUs") to employees of the Company and its subsidiaries. The RSUs generally vest three to five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. RSUs are expensed pro-ratably over the vesting period. RSU expenses were $15 million and $9 million for the three months ended March 31, 2019 and 2018, respectively. A summary of RSUs issued in the three months ended March 31, 2019 and 2018 follows:

(20) Litigation and Contingent Liabilities

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

(21) Leases

As described in note 3, the Company prospectively adopted ASU 2016-02, Leases, for the quarter ended March 31, 2019, which requires lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months on the balance sheet. All leases disclosed within this footnote are classified as operating leases. Recognized right-of-use asset and lease liability are reported within other assets and other liabilities, respectively, in the consolidated balance sheet. Lease expense is reported in other operating costs and expenses in the consolidated statement of income and accounted for on a straight-line basis over the lease term.

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

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



	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
(In thousands)	2019
Leases:
Lease cost	$	11,555
Cash paid for amounts included in the measurement of lease liabilities reported in operating cash flows	$	11,657
Right-of-use assets obtained in exchange for new lease liabilities	$	4,966



($ in thousands)	March 31, 2019
Right-of-use assets	$	185,012
Lease liabilities	$	215,008
Weighted-average remaining lease term	6.8 years
Weighted-average discount rate	5.95		%

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



(In thousands)	March 31, 2019
Contractual Maturities:
2019	$	35,090
2020	44,031
2021	40,185
2022	34,640
2023	31,141
Thereafter	76,480
Total undiscounted future minimum lease payments	261,567
Less: Discount impact	(46,559		)
Total lease liability	$	215,008

(22) Business Segments

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


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


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

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

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



	Revenues
(In thousands)	Earned Premiums (1)		Investment Income		Other		Total (2)		Pre-Tax Income (Loss)			Net Income (Loss) to Common Stockholders
Three months ended March 31, 2019
Insurance	$	1,427,034	$	100,041	$	13,244	$	1,540,319	$	184,516		$	145,993
Reinsurance & Monoline Excess	165,822		39,574		—		205,396		44,855			35,525
Corporate, other and eliminations (3)	—		18,639		104,015		122,654		(68,585		)	(55,032		)
Net realized and unrealized gains on investments	—		—		68,653		68,653		68,653			54,236
Total	$	1,592,856	$	158,254	$	185,912	$	1,937,022	$	229,439		$	180,722
Three months ended March 31, 2018
Insurance	$	1,391,289	$	113,497	$	18,968	$	1,523,754	$	198,929		$	157,733
Reinsurance & Monoline Excess	176,119		47,015		—		223,134		44,691			35,546
Corporate, other and eliminations (3)	—		14,006		81,889		95,895		(81,094		)	(65,170		)
Net realized and unrealized gains on investments	—		—		48,464		48,464		48,464			38,287
Total	$	1,567,408	$	174,518	$	149,321	$	1,891,247	$	210,990		$	166,396

_________________

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

(2)Revenues for Insurance from foreign countries for the three months ended March 31, 2019 and 2018 were $170 million and $183 million, respectively. Revenues for Reinsurance & Monoline Excess from foreign countries for the three months ended March 31, 2019 and 2018 were $59 million and $56 million, respectively.


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

Identifiable Assets



(In thousands)	March 31, 2019		December 31, 2018
Insurance	$	18,591,713	$	18,214,293
Reinsurance & Monoline Excess	4,512,257		4,371,151
Corporate, other and eliminations	2,481,290		2,310,533
Consolidated	$	25,585,260	$	24,895,977

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



	For the Three Months Ended March 31,
	For the Three Months Ended March 31,
(In thousands)	2019		2018
Insurance:
Other liability	$	490,661	$	464,167
Workers’ compensation	326,676		324,978
Short-tail lines (1)	289,091		295,027
Commercial automobile	180,925		175,199
Professional liability	139,681		131,918
Total Insurance	1,427,034		1,391,289

Reinsurance & Monoline Excess:
Casualty reinsurance	90,830		90,570
Monoline excess (2)	38,981		41,048
Property reinsurance	36,011		44,501
Total Reinsurance & Monoline Excess	165,822		176,119

Total	$	1,592,856	$	1,567,408

______________

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

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

SAFE HARBOR STATEMENT

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2019 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; the impact of climate change, which may increase the frequency and severity of catastrophe events; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2015; the ability or willingness of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or cyber security issues; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

These risks and uncertainties could cause our actual results for the year 2019 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Our future financial performance is dependent upon factors discussed in our Annual Report on Form 10-K, elsewhere in this Form 10-Q and our other SEC filings. Forward-looking statements speak only as of the date on which they are made. Except to the extent required by applicable laws, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

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

Overview

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

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

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

The Company’s profitability is also affected by its investment income and investment gains. The Company’s invested assets are invested principally in fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates, as well as the credit quality and duration of the securities. Returns available on fixed maturity investments have been at low levels for an extended period, although recently interest rates have increased.

The Company also invests in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. The Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income.

On February 21, 2019, the Company announced that its Board of Directors approved a 3-for-2 common stock split which was paid in the form of a stock dividend to holders of record as of March 14, 2019. The additional shares were issued on April 2, 2019. Shares outstanding and per share amounts in this Form 10-Q reflect the 3-for-2 common stock split effected on April 2, 2019.

Commencing with the first quarter of 2019, the Company renamed the Reinsurance segment to Reinsurance & Monoline Excess, and reclassified the monoline excess business from the Insurance segment. The reclassified business includes operations that solely retain risk on an excess basis. Reclassifications have been made to the Company's 2018 financial information to conform with this presentation.

Critical Accounting Estimates

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

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

In general, when a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment based upon known information about the claim at that time. The estimate represents an informed judgment

based on general reserving practices and reflects the experience and knowledge of the claims personnel regarding the nature and value of the specific type of claim. Reserves are also established on an aggregate basis to provide for losses incurred but not reported (“IBNR”) to the insurer, potential inadequacy of case reserves and the estimated expenses of settling claims, including legal and other fees and general expenses of administrating the claims adjustment process. Reserves are established based upon the then current legal interpretation of coverage provided.

In examining reserve adequacy, several factors are considered in estimating the ultimate economic value of losses. These factors include, among other things, historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. The actuarial process relies on the basic assumption that past experience, adjusted judgmentally for the effects of current developments and anticipated trends, is an appropriate basis for predicting future outcomes. Reserve amounts are based on management’s informed estimates and judgments using currently available data. As additional experience and other data become available and are reviewed, these estimates and judgments may be revised. This may result in reserve increases or decreases that would be reflected in our results in periods in which such estimates and assumptions are changed.

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

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

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

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

expenses with respect to insured events which have occurred; however, different assumptions and variables could lead to significantly different reserve estimates.

The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect the latest reported loss data, current trends and other factors observed. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity, relative to our assumptions, on our loss estimate for claims occurring in 2018:



(In thousands)	Frequency (+/-)
Severity (+/-)	1%		5%		10%
1%	$	78,922	$	237,553	$	435,840
5%	237,553		402,465		608,606
10%	435,840		608,606		824,563

Our net reserves for losses and loss expenses of approximately $10.4 billion as of March 31, 2019 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above. The impact of such changes would likely be manifested gradually over the course of many years, as the magnitude of the changes became evident.

Approximately $2.5 billion, or 24%, of the Company’s net loss reserves as of March 31, 2019 relate to the Reinsurance & Monoline Excess segment. There is a higher degree of uncertainty and greater variability regarding estimates of excess workers' compensation and assumed reinsurance loss reserves. In the case of excess workers’ compensation, our policies generally attach at $1 million or higher. The claims which reach our layer therefore tend to involve the most serious injuries and many remain open for the lifetime of the claimant, which extends the claim settlement tail. These claims also occur less frequently but tend to be larger than primary claims, which increases claim variability. In the case of assumed reinsurance our loss reserve estimates are based, in part, upon information received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be accurate. Furthermore, due to delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is also extended. Management considers the impact of delayed reporting and the extended tail in its selection of loss development factors for these lines of business.

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

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



(In thousands)	March 31, 2019		December 31, 2018
Insurance	$	7,865,503	$	7,727,447
Reinsurance & Monoline Excess	2,508,238		2,521,436
Net reserves for losses and loss expenses	10,373,741		10,248,883
Ceded reserves for losses and loss expenses	1,719,369		1,717,565
Gross reserves for losses and loss expenses	$	12,093,110	$	11,966,448

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



(In thousands)	Reported Case Reserves		Incurred But Not Reported		Total
March 31, 2019
Other liability	$	1,330,324	$	2,387,473	$	3,717,797
Workers’ compensation (1)	950,813		962,525		1,913,338
Professional liability	317,044		692,710		1,009,754
Commercial automobile	365,122		302,008		667,130
Short-tail lines (2)	280,626		276,858		557,484
Total Insurance	3,243,929		4,621,574		7,865,503
Reinsurance & Monoline Excess (1) (3)	1,483,387		1,024,851		2,508,238
Total	$	4,727,316	$	5,646,425	$	10,373,741

December 31, 2018
Other liability	$	1,307,068	$	2,329,659	$	3,636,727
Workers’ compensation (1)	962,664		955,711		1,918,375
Professional liability	306,018		659,596		965,614
Commercial automobile	365,253		290,217		655,470
Short-tail lines (2)	294,122		257,139		551,261
Total Insurance	3,235,125		4,492,322		7,727,447
Reinsurance & Monoline Excess (1) (3)	1,479,604		1,041,832		2,521,436
Total	$	4,714,729	$	5,534,154	$	10,248,883

___________

(1) Reserves for workers’ compensation and Reinsurance & Monoline Excess are net of an aggregate net discount of $555 million and $563 million as of March 31, 2019 and December 31, 2018, respectively.

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

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

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

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

Net prior year development (i.e., the sum of prior year reserve changes and prior year earned premiums changes) for the three months ended March 31, 2019 and 2018 are as follows:



(In thousands)	2019			2018
Net (increase) decrease in prior year loss reserves	$	(6,481	)	$	3,582
Increase in prior year earned premiums	13,204			8,622
Net favorable prior year development	$	6,723		$	12,204

During the three months ended March 31, 2018, favorable prior year development (net of additional and return premiums) of $12.2 million included $16.3 million of favorable development for the Insurance segment, partially offset by $4.1 million of adverse development for the Reinsurance & Monoline Excess segment. The favorable development for the Insurance segment was primarily attributable to workers' compensation business. The favorable workers' compensation development was spread across many accident years, including prior to 2008, but was most significant in accident years 2015 through 2017. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The adverse development for the Reinsurance & Monoline Excess segment was mainly driven by U.S. casualty facultative business from accident years 2008 and prior related to construction projects.

Reserve Discount. The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $1,778 million and $1,793 million at March 31, 2019 and December 31, 2018, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $555 million and $563 million at March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, discount rates by year ranged from 2.0% to 6.5%, with a weighted average discount rate of 3.7%.

Substantially all of the workers’ compensation discount (97% of total discounted reserves at March 31, 2019) relates to excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience.

The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at March 31, 2019), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware.

Assumed Reinsurance Premiums. The Company estimates the amount of assumed reinsurance premiums that it will receive under treaty reinsurance agreements at the inception of the contracts. These premium estimates are revised as the actual amount of assumed premiums is reported to the Company by the ceding companies. As estimates of assumed premiums are made or revised, the related amount of earned premiums, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $40 million at March 31, 2019 and $41 million at December 31, 2018. The assumed premium estimates are based upon terms set forth in reinsurance agreements, information received from ceding companies during the underwriting and negotiation of agreements, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate amount of premiums to be received under its assumed reinsurance agreements.

Other-Than-Temporary Impairments (OTTI) of Investments. 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 fair value and where the Company does not expect the fair value to recover prior to the time of sale or maturity.

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

Fixed Maturity Securities – For securities that we intend to sell or, more likely than not, would be required to sell, a decline in value below amortized cost is considered to be OTTI. The amount of OTTI is equal to the difference between amortized cost and fair value at the balance sheet date. For securities that we do not intend to sell or expect to be required to sell, a decline in value below amortized cost is considered to be an OTTI if we do not expect to recover the entire amortized cost basis of a security (i.e., the present value of cash flows expected to be collected is less than the amortized cost basis of the security).

The portion of the decline in value considered to be a credit loss (i.e., the difference between the present value of cash flows expected to be collected and the amortized cost basis of the security) is recognized in earnings. The portion of the decline in value not considered to be a credit loss (i.e., the difference in the present value of cash flows expected to be collected and the fair value of the security) is recognized in other comprehensive income.

Impairment assessments for structured securities, including mortgage-backed securities and asset-backed securities, collateralized debt obligations and corporate debt, are generally evaluated based on the performance of the underlying collateral under various economic and default scenarios that may involve subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default rates, the nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and performance factors. If an OTTI determination is made, a discounted cash flow analysis is used to ascertain the amount of the credit impairment.

The following table provides a summary of fixed maturity securities in an unrealized loss position as of March 31, 2019:



($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Unrealized loss less than 20% of amortized cost	738	$	5,323,091	$	104,072
Unrealized loss of 20% or greater of amortized cost:
Less than twelve months	7	12,475		5,854
Twelve months and longer	5	2,508		1,229
Total	750	$	5,338,074	$	111,155

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at March 31, 2019 is presented in the table below:



($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	16	$	140,425	$	22,639
Corporate	15	83,256		5,137
Asset-backed securities	8	14,098		1,494
Mortgage-backed securities	4	7,656		137
Total	43	$	245,435	$	29,407

The Company has evaluated its fixed maturity securities in an unrealized loss position and believes the unrealized loss is due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due and does not consider any of these securities to be OTTI.

Loans Receivable – The Company monitors the performance of its loans receivable, including current market conditions for each loan and the ability to collect principal and interest. For loans where the Company determines it is probable that the contractual terms will not be met, an analysis is performed and a valuation reserve is established, if necessary, with a charge to earnings. Loans receivable are reported net of a valuation reserve of $3 million at both March 31, 2019 and December 31, 2018.

The Company monitors the performance of its loans receivable and assesses the ability of each borrower to pay principal and interest based upon loan structure, underlying property values, cash flow and related financial and operating performance of the property and market conditions. Loans receivable with a potential for default are further assessed using discounted cash flow analysis and comparable cost and sales methodologies, if appropriate.

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

In classifying particular financial securities in the fair value hierarchy, the Company uses its judgment to determine whether the market for a security is active and whether significant pricing inputs are observable. The Company determines the existence of an active market by assessing whether transactions occur with sufficient frequency and volume to provide reliable pricing information. The Company determines whether inputs are observable based on the use of such information by pricing services and external investment managers, the uninterrupted availability of such inputs, the need to make significant adjustments to such inputs and the volatility of such inputs over time. If the market for a security is determined to be inactive or if significant inputs used to price a security are determined to be unobservable, the security is categorized in Level 3 of the fair value hierarchy.

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

The following is a summary of pricing sources for the Company's fixed maturity securities available for sale as of March 31, 2019:



($ in thousands)	Carrying Value		Percent of Total
Pricing source:
Independent pricing services	$	13,436,784	99.1	%
Syndicate manager	32,686		0.2
Directly by the Company based on:
Observable data	92,546		0.7
Cash flow model	25		—
Total	$	13,562,041	100.0	%

Independent pricing services – Substantially all of the Company’s fixed maturity securities available for sale were priced by independent pricing services (generally one U.S. pricing service plus additional pricing services with respect to a limited number of foreign securities held by the Company). The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness based upon current trading levels for similar securities. If the prices appear unusual to the Company, they are re-examined and the value is either confirmed or revised. In addition, the Company periodically performs independent price tests of a sample of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of March 31, 2019, the Company did not make any adjustments to the prices provided by the pricing services. Based upon the Company’s review of the methodologies used by the independent pricing services, these securities were classified as Level 2.

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

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

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

Results of Operations for the Three Months Ended March 31, 2019 and 2018

Business Segment Results

Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the three months ended March 31, 2019 and 2018. The GAAP combined ratio represents a measure of underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.



($ in thousands)	2019			2018
Insurance:
Gross premiums written	$	1,810,483		$	1,760,173
Net premiums written	1,497,378			1,473,244
Net premiums earned	1,427,034			1,391,289
Loss ratio	62.2		%	60.9		%
Expense ratio	31.8		%	32.9		%
GAAP combined ratio	94.0		%	93.8		%
Reinsurance & Monoline Excess:
Gross premiums written	$	235,747		$	219,248
Net premiums written	212,223			192,094
Net premiums earned	165,822			176,119
Loss ratio	60.7		%	65.6		%
Expense ratio	36.1		%	35.7		%
GAAP combined ratio	96.8		%	101.3		%
Consolidated:
Gross premiums written	$	2,046,230		$	1,979,421
Net premiums written	1,709,601			1,665,338
Net premiums earned	1,592,856			1,567,408
Loss ratio	62.0		%	61.4		%
Expense ratio	32.3		%	33.2		%
GAAP combined ratio	94.3		%	94.6		%

Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share for the three months ended March 31, 2019 and 2018:



(In thousands, except per share data)	2019		2018
Net income to common stockholders	$	180,722	$	166,396
Weighted average diluted shares	192,669		192,188
Net income per diluted share	$	0.94	$	0.87

The Company reported net income to common stockholders of $181 million in 2019 compared to $166 million in 2018. The 9% increase in net income was primarily due to an after-tax increase in net investment gains of $16 million, an after-tax increase in foreign currency gains of $16 million, an after-tax increase in underwriting income of $5 million, an after-tax increase in insurance service fee income of $1 million and an after-tax increase in profits from non-insurance businesses of $1 million, partially offset by an after-tax decrease in net investment income due to investment funds of $13 million, an after-tax increase in corporate expenses of $9 million, and an after-tax increase in interest expense of $3 million. The number of weighted average diluted shares remained relatively unchanged for the three months ended March 31, 2019 and 2018.

Premiums. Gross premiums written were $2,046 million in 2019, an increase of 3% from $1,979 million in 2018. The increase was due to a $50 million increase in the Insurance segment and a $17 million increase in the Reinsurance & Monoline Excess segment. Approximately 77.3% of policies expiring in 2019 were renewed, and 78.3% of policies expiring in 2018 were renewed.

Average renewal premium rates for insurance and facultative reinsurance increased 4.6% in 2019 when adjusted for changes in exposures, and increased 6.4% excluding workers' compensation.

A summary of gross premiums written in 2019 compared with 2018 by line of business within each business segment follows:


•	Insurance - gross premiums increased 3% to $1,810 million in 2019 from $1,760 million in 2018. Gross premiums increased $42 million (8%) for other liability, $19 million (9%) for professional liability, $7 million (2%) for short-tail lines, and $2 million (1%) for commercial auto, and decreased $20 million (5%) for workers' compensation.


•	Reinsurance & Monoline Excess - gross premiums increased 8% to $236 million in 2019 from $219 million in 2018. Gross premiums increased $18 million (20%) for casualty reinsurance and decreased $1 million (2%) for property reinsurance and $1 million (1%) for monoline excess.

Net premiums written were $1,710 million in 2019, an increase of 3% from $1,665 million in 2018. Ceded reinsurance premiums as a percentage of gross written premiums were 16% in both 2019 and 2018.

Premiums earned increased 2% to $1,593 million in 2019 from $1,567 million in 2018. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly, recent rate increases will be earned over the upcoming quarters. Premiums earned in 2019 are related to business written during both 2019 and 2018. Audit premiums were $43 million in 2019 compared with $49 million in 2018.

Net Investment Income. Following is a summary of net investment income for the three months ended March 31, 2019 and 2018:



	Amount						Average Annualized Yield
($ in thousands)	2019			2018			2019		2018
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	132,119		$	123,246		3.6	%	3.5	%
Investment funds	11,411			40,354			3.3		13.7
Arbitrage trading account	10,585			5,191			9.8		3.3
Real estate	4,307			6,568			0.9		1.6
Equity securities	1,288			646			2.2		1.2
Gross investment income	159,710			176,005			3.4		3.9
Investment expenses	(1,456		)	(1,487		)	—		—
Total	$	158,254		$	174,518		3.3	%	3.9	%

Net investment income decreased 9% to $158 million in 2019 from $175 million in 2018 due primarily to a $29 million decrease in income from investment funds (mainly real estate and energy funds), and a $2 million decrease in real estate, partially offset by a $9 million increase in income from fixed maturity securities mainly driven by growth in the fixed maturity security portfolio and higher interest rates and a $5 million increase from the arbitrage trading account. The Company has maintained a shortened duration of its fixed maturity security portfolio. This has reduced the potential impact of mark-to-market on the portfolio and positioned the Company to take advantage of rising interest rates. Average invested assets, at cost (including cash and cash equivalents), were $18.9 billion in 2019 and $18.1 billion in 2018.

Insurance Service Fees. The Company earns fees from an insurance distribution business, a third-party administrator and as a servicing carrier of workers' compensation assigned risk plans for certain states. Insurance service fees decreased to $25 million in 2019 from $31 million in 2018. The decrease is primarily due to the sale of a third party administration business in third quarter of 2018.

Net Realized and Unrealized Gains on Investments. The Company buys and sells securities and other investment assets on a regular basis in order to maximize its total return on investments. Decisions to sell securities and other investment assets are based on management’s view of the underlying fundamentals of specific investments as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net realized and unrealized gains on investments were $69 million in 2019 compared with $48 million in 2018. The gains of $69 million in 2019 reflect net realized gains on investment sales of $27 million and an increase in unrealized gains on equity securities of $42 million.

Revenues from Non-Insurance Businesses. Revenues from non-insurance businesses were derived from businesses engaged in the distribution of promotional merchandise, world-wide textile solutions and aviation-related businesses that provide services to aviation markets, including (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenues from non-insurance businesses were $92 million in 2019 and $70 million in 2018. The increase mainly relates to revenues from a business purchased in the second half of 2018.

Losses and Loss Expenses. Losses and loss expenses increased to $989 million in 2019 from $963 million in 2018. The consolidated loss ratio was 62.0% in 2019 and 61.4% in 2018. Catastrophe losses, net of reinsurance recoveries and reinstatement premiums, were $13 million in 2019 and $7 million in 2018. Favorable prior year reserve development (net of premium offsets) was $7 million in 2019 and $12 million in 2018. The loss ratio excluding catastrophe losses and prior year reserve development was 61.6% in 2019 and 61.7% in 2018.

A summary of loss ratios in 2019 compared with 2018 by business segment follows:


•	Insurance - The loss ratio was 62.2% in 2019 and 60.9% in 2018. Catastrophe losses were $13 million in 2019 compared with $7 million in 2018. Favorable prior year reserve development was $10 million in 2019 and $16 million in 2018. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.4 points to 62.0% in 2019 from 61.6% in 2018.

•

Reinsurance & Monoline Excess - The loss ratio of 60.7% in 2019 was 4.9 points lower than the loss ratio of 65.6% in 2018. Catastrophe losses were $42 thousand in 2019 compared with $0.3 million in 2018. Adverse prior year reserve development was $3 million in 2019 and $4 million in 2018. The loss ratio excluding catastrophe losses and prior year reserve development decreased 4.0 points to 59.1% in 2019 from 63.1% in 2018.

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



($ in thousands)	2019			2018
Policy acquisition and insurance operating expenses	$	513,791		$	520,231
Insurance service expenses	25,956			32,712
Net foreign currency (gains) losses	(6,964		)	13,484
Other costs and expenses	55,304			44,012
Total	$	588,087		$	610,439

Policy acquisition and insurance operating expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. The percentage change of policy acquisition and insurance operating expenses decreased 1% and net premiums earned increased 2% from 2018. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 32.3% in 2019 and 33.2% in 2018.

Service expenses, which represent the costs associated with the fee-based businesses, decreased to $26 million in 2019 from $33 million in 2018. The decrease is primarily due to the sale of a third party administration business in third quarter of 2018.

Net foreign currency (gains) losses result from transactions denominated in a currency other than a company's operating functional currency. Net foreign currency gains were $7 million in 2019 compared to losses of $13 million in 2018, mainly resulting from the strengthening U.S. dollar in relation to the Argentine Peso.

Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs and expenses increased to $55 million in 2019 from $44 million in 2018, primarily due to non-recurring performance based compensation costs.

Expenses from Non-Insurance Businesses. Expenses from non-insurance businesses represent costs associated with businesses engaged in the distribution of promotional merchandise, world-wide textile solutions and aviation-related businesses that include (i) cost of goods sold related to aircraft and products sold and services provided, and (ii) general and administrative expenses. Expenses from non-insurance businesses were $90 million in 2019 compared to $70 million in 2018. The increase mainly relates to expenses from a business purchased in the second half of 2018.

Interest Expense. Interest expense was $41 million in 2019 compared with $37 million in 2018. In March 2018, the Company issued $175 million aggregate principal amount of 5.70% subordinated debentures due 2058, and in April 2018, the Company issued another $10 million principal amount of such debentures. Additionally in 2018, the Company issued subsidiary debt of $116 million, which was primarily attributable to a non-recourse mortgage loan on a real estate property in Florida.

Income Taxes. The effective income tax rate was 20.8% in 2019 and 20.6% in 2018. The effective income tax rate differs from the federal income tax rate of 21% primarily because of tax-exempt income and tax on income from foreign jurisdictions with different tax rates.

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $81million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. In the future, if such earnings were distributed the Company projects that the incremental tax, if any, will be immaterial.

Investments

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

The Company also attempts to maintain an appropriate relationship between the average duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The average duration of the fixed maturity portfolio, including cash and cash equivalents, was 2.7 years at March 31, 2019 and 2.8 years at December 31, 2018. The Company’s fixed maturity investment portfolio and investment-related assets as of March 31, 2019 were as follows:



($ in thousands)	Carrying Value		Percent of Total
Fixed maturity securities:
U.S. government and government agencies	$	738,663	3.9	%
State and municipal:
Special revenue	2,452,678		12.9
Local general obligation	435,910		2.3
State general obligation	389,166		2.1
Pre-refunded (1)	360,954		1.9
Corporate backed	256,690		1.4
Total state and municipal	3,895,398		20.6
Mortgage-backed securities:
Agency	889,288		4.7
Commercial	352,059		1.9
Residential-Prime	311,259		1.6
Residential-Alt A	38,197		0.2
Total mortgage-backed securities	1,590,803		8.4
Asset-backed securities	2,630,799		13.9
Corporate:
Industrial	2,130,251		11.3
Financial	1,478,798		7.8
Utilities	321,391		1.7
Other	43,492		0.2
Total corporate	3,973,932		21.0
Foreign government and foreign government agencies	811,074		4.3
Total fixed maturity securities	13,640,669		72.1
Equity securities:
Preferred stocks	205,882		1.1
Common stocks	136,099		0.7
Total equity securities	341,981		1.8
Real estate	2,019,123		10.7
Investment funds	1,359,908		7.2
Cash and cash equivalents	937,428		5.0
Arbitrage trading account	504,633		2.7
Loans receivable	95,557		0.5
Total investments	$	18,899,299	100.0	%

________________________

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

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

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

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

Investment Funds. At March 31, 2019, the carrying value of investment funds was $1,360 million, including investments in real estate funds of $652 million, other funds of $634 million and energy funds of $74 million. Investment funds are generally reported on a one-quarter lag.

Real Estate. Real estate is directly owned property held for investment. At March 31, 2019, real estate properties in operation included a long-term ground lease in Washington D.C., a hotel in Memphis, Tennessee, two office complexes in New York City, office buildings in West Palm Beach and Palm Beach, Florida, and an office building in London. In addition, there is a mixed-use project in Washington D.C. under development. The Company expects to fund further development costs for the project with a combination of its own funds and external financing.

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

Loans Receivable. Loans receivable, which are carried at amortized cost, had an aggregate cost of $96 million and an aggregate fair value of $98 million at March 31, 2019. The amortized cost of loans receivable is net of a valuation allowance of $3 million as of March 31, 2019. Loans receivable include real estate loans of $62 million that are secured by commercial real estate located primarily in New York. Real estate loans receivable generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. Loans receivable include commercial loans of $34 million that are secured by business assets and have fixed interest rates and floating LIBOR-based interest rates with varying maturities not exceeding 10 years.

Market Risk. The fair value of the Company’s investments is subject to risks of fluctuations in credit quality and interest rates. The Company uses various models and stress test scenarios to monitor and manage interest rate risk. The Company attempts to manage its interest rate risk by maintaining an appropriate relationship between the effective duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The effective duration for the fixed maturity portfolio (including cash and cash equivalents) was 2.7 years at March 31, 2019 and 2.8 years at December 31, 2018.

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

Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities was $78 million in the first three months of 2019 as compared to $20 million used in operating activities in the first three months of 2018. The increase is primarily due to reduced loss and loss expense payments and long-term incentive plan payments.

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 77% invested in cash, cash equivalents and marketable fixed maturity securities as of March 31, 2019. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized.

Debt. At March 31, 2019, the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of $2,783 million and a face amount of $2,819 million. The maturities of the outstanding debt are $448 million in 2019, $307 million in 2020, $427 million in 2022, $102 million in 2028, $250 million in 2037, $350 million in 2044, $350 million in 2053, $400 million in 2056, and $185 million in 2058.

Equity. At March 31, 2019, total common stockholders’ equity was $5.8 billion, common shares outstanding were 183,024,006 and stockholders’ equity per outstanding share was $31.47. The number of common shares outstanding excludes shares held in a grantor trust established by the Company for delivery upon settlement of vested but mandatorily deferred RSUs.

Total Capital. Total capitalization (equity, debt and subordinated debentures) was $8.5 billion at March 31, 2019. The percentage of the Company’s capital attributable to senior notes, subordinated debentures and other debt was 33% at March 31, 2019 and 34% at December 31, 2018.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

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

Item 4. Controls and Procedures

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

Changes in Internal Control over Financial Reporting. During the quarter ended March 31, 2019, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company's annual report on From 10-K for the fiscal year ended December 31, 2018.

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

The Company did not repurchase any of its shares during the three months ended March 31, 2019, and accordingly the number of shares authorized for purchase by the Company remains 8,911,397.

Item 6. Exhibits



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

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

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

SIGNATURES

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



		W. R. BERKLEY CORPORATION
Date:	May 8, 2019	/s/ W. Robert Berkley, Jr.
		W. Robert Berkley, Jr.
		President and Chief Executive Officer

Date:	May 8, 2019	/s/ Richard M. Baio
		Richard M. Baio
		Executive Vice President Chief Financial Officer and Treasurer