UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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



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

(State or other jurisdiction of

incorporation or organization)

(Registrant’s telephone number, including area code)

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

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



Title	Trading Symbol	Name

Common Stock, par value $.20 per share	WRB	New York Stock Exchange
5.625% Subordinated Debentures due 2053	WRB 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

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 filerþ	☒		Accelerated filero	☐
Non-accelerated filero	☐		Smaller reporting companyo	☐
		~~(Do not check if a smaller reporting company)~~	Emerging growth companyo	☐

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☒

Number of shares of common stock, $.20 par value, outstanding as of ~~November 6, 2017: 121,794,758~~July 30, 2019: 183,176,414

TABLE OF CONTENTS



Part I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 6. Exhibits
SIGNATURES
~~EX-10.1~~ EX-31.1
~~EX-31.1~~ EX-31.2
~~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.~~ Item 1. Financial Statements	~~Financial Statements~~

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30, 2017			December 31, 2016			June 30, 2019			December 31, 2018
	(Unaudited)			(Audited)			(Unaudited)			(Audited)
Assets
Investments:
Fixed maturity securities	$	13,873,690		$	13,190,668		$	13,732,800		$	13,606,812
Real estate							2,067,544			1,957,092
Investment funds	1,119,907			1,198,146			1,401,571			1,332,818
Real estate	1,391,274			1,184,981
Arbitrage trading account	488,238			299,999			533,442			452,548
Equity securities available for sale	614,025			669,200
Equity securities							416,588			279,006
Loans receivable	74,229			106,798			94,697			94,813
Total investments	17,561,363			16,649,792			18,246,642			17,723,089
Cash and cash equivalents	773,997			795,285			1,258,174			817,602
Premiums and fees receivable	1,818,836			1,701,854			2,034,036			1,807,762
Due from reinsurers	1,739,835			1,743,980			2,040,250			1,932,291
Deferred policy acquisition costs	534,091			537,890			520,908			497,629
Prepaid reinsurance premiums	473,766			413,140			538,358			498,880
Trading account receivables from brokers and clearing organizations	297,208			484,593			402,361			347,228
Property, furniture and equipment	399,924			349,432			398,885			416,372
Goodwill	173,422			144,513			173,037			173,037
Accrued investment income	139,864			127,047			140,864			144,481
Federal and foreign income taxes							—			36,193
Other assets	423,770			402,550			734,388			501,413
Total assets	$	24,336,076		$	23,350,076		$	26,487,903		$	24,895,977

Liabilities and Equity
Liabilities:
Reserves for losses and loss expenses	$	11,654,346		$	11,197,195		$	12,320,278		$	11,966,448
Unearned premiums	3,409,628			3,283,300			3,614,152			3,359,991
Due to reinsurers	228,539			213,128			294,949			256,917
Trading account securities sold but not yet purchased	44,937			51,179			159,349			38,120
Federal and foreign income taxes	116,608			119,597			38,437			—
Other liabilities	923,369			916,318			1,258,995			1,005,184
Senior notes and other debt	1,759,929			1,760,595			1,873,799			1,882,028
Subordinated debentures	728,071			727,630			907,866			907,491
Total liabilities	18,865,427			18,268,942			20,467,825			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, 121,769,109 and 121,193,599 shares, respectively	47,024			47,024
Authorized 500,000,000 shares, issued and outstanding, net of treasury shares, 183,168,398 and 182,993,640 shares, respectively							70,535			70,535
Additional paid-in capital	1,040,575			1,037,446			1,058,416			1,039,633
Retained earnings	6,880,062			6,595,987			7,826,015			7,558,619
Accumulated other comprehensive income	153,759			55,568
Treasury stock, at cost, 113,348,809 and 113,924,319 shares, respectively	(2,690,884		)	(2,688,817		)
Accumulated other comprehensive loss							(260,796		)	(510,470		)
Treasury stock, at cost, 169,508,366 and 169,683,237 shares, respectively							(2,717,410		)	(2,720,466		)
Total stockholders’ equity	5,430,536			5,047,208			5,976,760			5,437,851
Noncontrolling interests	40,113			33,926			43,318			41,947
Total equity	5,470,649			5,081,134			6,020,078			5,479,798
Total liabilities and equity	$	24,336,076		$	23,350,076		$	26,487,903		$	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						For the Nine Months						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	Ended September 30,						Ended September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
REVENUES:
Net premiums written	$	1,571,183		$	1,607,365		$	4,782,272		$	4,913,656		$	1,743,464		$	1,624,104		$	3,453,065		$	3,289,442
Change in net unearned premiums	10,317			(21,421		)	(62,028		)	(240,584		)	(96,623		)	(43,051		)	(213,368		)	(140,981		)
Net premiums earned	1,581,500			1,585,944			4,720,244			4,673,072			1,646,841			1,581,053			3,239,697			3,148,461
Net investment income	142,479			145,668			426,601			404,850			188,333			153,777			346,587			328,295
Net realized investment gains	183,959			175,738			276,760			207,508
Other-than-temporary impairments	—			—			—			(18,114		)
Net realized and unrealized gains on investments													73,574			69,631			142,226			118,095
Revenues from non-insurance businesses	89,786			80,242			225,033			305,787			89,297			76,698			181,124			146,869
Insurance service fees	33,612			32,135			100,475			109,437			22,446			29,719			47,759			60,393
Other income	6			—			695			—			2,893			38			3,013			50
Total revenues	2,031,342			2,019,727			5,749,808			5,682,540			2,023,384			1,910,916			3,960,406			3,802,163
OPERATING COSTS AND EXPENSES:
Losses and loss expenses	1,081,174			965,856			3,025,475			2,852,339			1,028,830			973,636			2,017,479			1,936,856
Other operating costs and expenses	600,822			606,348			1,821,155			1,770,450			591,828			593,142			1,179,916			1,203,581
Expenses from non-insurance businesses	86,412			78,865			221,389			291,127			88,272			75,191			178,397			144,734
Interest expense	36,821			37,043			110,419			104,019			40,718			39,705			81,439			76,760
Total operating costs and expenses	1,805,229			1,688,112			5,178,438			5,017,935			1,749,648			1,681,674			3,457,231			3,361,931
Income before income taxes	226,113			331,615			571,370			664,605			273,736			229,242			503,175			440,232
Income tax expense	(63,295		)	(110,952		)	(174,305		)	(214,789		)	(56,309		)	(48,464		)	(104,134		)	(91,881		)
Net income before noncontrolling interests	162,818			220,663			397,065			449,816			217,427			180,778			399,041			348,351
Noncontrolling interests	(764		)	(13		)	(2,560		)	(689		)	(718		)	(703		)	(1,610		)	(1,879		)
Net income to common stockholders	$	162,054		$	220,650		$	394,505		$	449,127		$	216,709		$	180,075		$	397,431		$	346,472

NET INCOME PER SHARE:
Basic	$	1.29		$	1.80		$	3.17		$	3.66		$	1.14		$	0.95		$	2.09		$	1.83
Diluted	$	1.26		$	1.72		$	3.05		$	3.50		$	1.12		$	0.93		$	2.06		$	1.80

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						For the Nine Months						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	Ended September 30,						Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Net income before noncontrolling interests	$	162,818		$	220,663		$	397,065		$	449,816		$	217,427		$	180,778		$	399,041		$	348,351
Other comprehensive income (loss):
Change in unrealized currency translation adjustments	28,592			(19,470		)	71,574			(77,389		)	(14,492		)	(104,455		)	5,268			(91,656		)
Change in unrealized investment gains (losses), net of taxes	(8,168		)	(47,676		)	26,598			134,213			118,649			(32,442		)	244,424			(158,214		)
Other comprehensive income (loss):	20,424			(67,146		)	98,172			56,824
Other comprehensive income (loss)													104,157			(136,897		)	249,692			(249,870		)
Comprehensive income	183,242			153,517			495,237			506,640			321,584			43,881			648,733			98,481
Noncontrolling interests	(731		)	44			(2,541		)	(623		)	(748		)	(666		)	(1,592		)	(1,853		)
Comprehensive income to common stockholders	$	182,511		$	153,561		$	492,696		$	506,017		$	320,836		$	43,215		$	647,141		$	96,628

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands)


	For the Nine Months						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2019			2018			2019			2018
COMMON STOCK:
Beginning and end of period	$	47,024		$	47,024		$	70,535		$	70,535		$	70,535		$	70,535
ADDITIONAL PAID-IN CAPITAL:
Beginning of period	$	1,037,446		$	1,005,455		$	1,053,372		$	1,033,718		$	1,039,633		$	1,024,771
Restricted stock units issued	(27,047		)	(3,421		)	(2,049		)	(5,155		)	(2,504		)	(5,642		)
Restricted stock units expensed	30,176			25,431			7,093			8,233			21,287			17,667
End of period	$	1,040,575		$	1,027,465		$	1,058,416		$	1,036,796		$	1,058,416		$	1,036,796
RETAINED EARNINGS:
Beginning of period	$	6,595,987		$	6,178,070		$	7,721,039		$	7,322,201		$	7,558,619		$	6,956,882
Cumulative effect adjustment resulting from changes in accounting principles							—			—			—			215,939
Net income to common stockholders	394,505			449,127			216,709			180,075			397,431			346,472
Dividends	(110,430		)	(107,661		)
Dividends ($0.61, $0.43, $0.71 and $0.53 per share, respectively)							(111,733		)	(79,114		)	(130,035		)	(96,131		)
End of period	$	6,880,062		$	6,519,536		$	7,826,015		$	7,423,162		$	7,826,015		$	7,423,162
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrealized investment gains:
Beginning of period	$	427,154		$	180,695		$	34,236		$	35,099		$	(91,491	)	$	375,421
Unrealized gains on securities not other-than-temporarily impaired	25,712			133,866
Unrealized gains on other-than-temporarily impaired securities	905			413
Cumulative effect adjustment resulting from changes in accounting principles							—			—			—			(214,539		)
Change in unrealized gains (losses) on securities not other-than-temporarily impaired							118,597			(32,403		)	244,393			(158,199		)
Change in unrealized gains (losses) on other-than-temporarily impaired securities							82			(2		)	13			11
End of period	453,771			314,974			152,915			2,694			152,915			2,694
Currency translation adjustments:
Beginning of period	(371,586		)	(247,393		)	(399,219		)	(294,081		)	(418,979		)	(306,880		)
Net change in period	71,574			(77,389		)	(14,492		)	(104,455		)	5,268			(91,656		)
End of period	(300,012		)	(324,782		)	(413,711		)	(398,536		)	(413,711		)	(398,536		)
Total accumulated other comprehensive income (loss)	$	153,759		$	(9,808	)
Total accumulated other comprehensive loss							$	(260,796	)	$	(395,842	)	$	(260,796	)	$	(395,842	)
TREASURY STOCK:
Beginning of period	$	(2,688,817	)	$	(2,563,605	)	$	(2,720,011	)	$	(2,715,697	)	$	(2,720,466	)	$	(2,709,386	)
Stock exercised/vested	25,584			5,023			2,049			6,475			2,504			6,963
Stock repurchased	(28,378		)	(99,870		)	—			—			—			(6,799		)
Stock incentive plans expensed	727			—
Stock issued							552			688			552			688
End of period	$	(2,690,884	)	$	(2,658,452	)	$	(2,717,410	)	$	(2,708,534	)	$	(2,717,410	)	$	(2,708,534	)
NONCONTROLLING INTERESTS:
Beginning of period	$	33,926		$	32,962		$	42,844		$	40,404		$	41,947		$	39,819
Contributions	3,646			2,474
Distributions							(274		)	(1,560		)	(221		)	(2,162		)
Net income	2,560			689			718			703			1,610			1,879
Other comprehensive loss, net of tax	(19		)	(66		)
Other comprehensive income (loss), net of tax							30			(37		)	(18		)	(26		)
End of period	$	40,113		$	36,059		$	43,318		$	39,510		$	43,318		$	39,510

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	For the Nine Months						For the Six Months Ended June 30,
	Ended September 30,
	2017			2016			2019			2018
CASH FROM OPERATING ACTIVITIES:
Net income to common stockholders	$	394,505		$	449,127		$	397,431		$	346,472
Adjustments to reconcile net income to net cash from operating activities:
Net investment gains	(276,760		)	(189,394		)
Adjustments to reconcile net income to net cash from (used in) operating activities:
Net realized and unrealized gains on investments							(142,226		)	(118,095		)
Depreciation and amortization	78,137			69,153			51,289			56,372
Noncontrolling interests	2,560			689			1,610			1,879
Investment funds	(51,907		)	(60,387		)	(58,251		)	(53,070		)
Stock incentive plans	31,883			27,033			27,340			19,722
Change in:
Arbitrage trading account	(2,835		)	(4,777		)	(14,797		)	(7,871		)
Premiums and fees receivable	(112,420		)	(92,372		)	(223,771		)	(152,832		)
Reinsurance accounts	(42,319		)	(154,939		)	(112,681		)	(77,140		)
Deferred policy acquisition costs	4,483			(51,795		)	(23,632		)	(11,152		)
Income taxes	(15,451		)	89,007			2,759			(39,069		)
Reserves for losses and loss expenses	422,657			440,486			350,981			123,582
Unearned premiums	121,583			269,287			254,010			171,468
Other	(32,258		)	(64,608		)	(107,416		)	(140,904		)
Net cash from operating activities	521,858			726,510			402,646			119,362
CASH USED IN INVESTING ACTIVITIES:
CASH FROM (USED IN) INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities	3,081,619			1,074,630			1,320,079			2,773,554
Proceeds from sale of equity securities	137,062			123,187			39,103			284,204
Distributions from investment funds	265,371			5,630
Contributions to investment funds							(2,896		)	(4,996		)
Proceeds from maturities and prepayments of fixed maturity securities	2,860,678			2,189,365			1,490,772			1,305,805
Purchase of fixed maturity securities	(6,530,466		)	(4,280,457		)	(2,633,251		)	(4,062,901		)
Purchase of equity securities	(17,049		)	(127,303		)	(41,849		)	(87,059		)
Real estate purchased	(159,006		)	(207,829		)	(117,773		)	(419,021		)
Change in loans receivable	32,574			159,128			140			(16,310		)
Net additions to property, furniture and equipment	(74,268		)	(37,895		)	(10,804		)	(29,704		)
Change in balances due to security brokers	39,978			102,981			19,096			46,641
Cash received in connection with business disposition	—			250,216
Payment for business purchased net of cash aquired	(70,570		)	(53,524		)
Net cash used in investing activities	(434,077		)	(801,871		)
Payment for business purchased net of cash acquired							—			(6,637		)
Net cash from (used in) investing activities							62,617			(216,424		)
CASH (USED IN) FROM FINANCING ACTIVITIES:
Repayment of senior notes and other debt	(1,788		)	(70,567		)	—			(23		)
Net proceeds from issuance of debt	—			386,848			—			200,838
Cash dividends to common stockholders	(93,371		)	(30,654		)	(18,302		)	(77,873		)
Purchase of common treasury shares	(28,378		)	(99,870		)	—			(6,799		)
Other, net	(3,835		)	(1,376		)	(5,548		)	(1,763		)
Net cash (used in) from financing activities	(127,372		)	184,381			(23,850		)	114,380
Net impact on cash due to change in foreign exchange rates	18,303			413			(841		)	(56,587		)
Net change in cash and cash equivalents	(21,288		)	109,433			440,572			(39,269		)
Cash and cash equivalents at beginning of year	795,285			763,631			817,602			950,471
Cash and cash equivalents at end of period	$	773,997		$	873,064		$	1,258,174		$	911,202

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, ~~2016.~~ 2018.

Reclassifications have been made in the ~~2016~~2018 financial statements as originally reported to conform to the presentation of the ~~2017~~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, 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.

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 ~~35%~~21% principally because of tax-exempt investment income, as well as ~~the new requirement in 2017 to recognize~~ tax ~~benefits for stock compensation in~~on income from foreign jurisdictions with different tax ~~expense.~~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 ~~4,087,731~~7,389,781 and 7,270,954 common shares held in a grantor trust ~~established in March 2017)~~as of June 30, 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 June 30,		For the Six Months Ended June 30,
	For the Three Months Ended June 30,		For the Six Months Ended June 30,
(In thousands)	2019	2018	2019	2018
Basic	190,512	189,776	190,456	189,669
Diluted	193,059	192,509	192,804	192,284

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(In thousands) 2017 2016 2017 2016
Basic 125,818
122,562
124,363
122,652
Diluted 128,944
128,556
129,289
128,501

(3) Recent Accounting Pronouncements

Recently adopted accounting pronouncements:

In ~~May 2015,~~February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-09, Disclosures about Short-Duration Contracts. ASU 2015-09 requires companies that issue short duration insurance contracts to disclose additional information, including: (i) incurred and paid claims development tables; (ii) frequency and severity of claims; and (iii) information about material changes in judgments made in calculating the liability for unpaid claim adjustment expenses, including reasons for the change and the effects on the financial statements. The Company adopted this updated guidance on January 1, 2016 with regard to the annual requirements and on January 1, 2017 with regard to the interim requirements. The amendments in ASU 2015-09 are applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. As the requirements are disclosure only, the adoption of this guidance did not impact our financial condition or results of operations, but did result in additional disclosures.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 includes provisions intended to simplify various previous provisions related to how share-based payments are accounted for and presented in the financial statements. Under the new guidance, excess tax benefits (deductions for share based payment awards for tax purposes that exceed the compensation cost recognized for financial reporting purposes) are reported within the income tax expense financial statement line item. Previously, excess tax benefits were reported within additional paid in capital. The Company adopted this updated guidance on January 1, 2017 prospectively. The adoption of this guidance did not have a material impact on the Company's financial condition or results of operations.

~~All other accounting and reporting standards that became effective in 2017 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 May 2014, the FASB issued ASU 2014-09, Revenue from Customers. ASU 2014-09 clarifies the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company’s insurance service fee revenue and non-insurance business revenue will be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The updated guidance, as amended by ASU 2015-14, is effective for public business entities for annual and interim reporting periods beginning after December 15, 2017. The adoption of this guidance is not expected to have a material effect on the Company’s financial condition or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments. ASU 2016-01 amends the accounting guidance for financial instruments to require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The updated guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017 and interim periods within those years. The adoption of this guidance is not expected to have a material effect on the Company’s financial condition upon adoption, but will impact results of operations after adoption of this guidance as unrealized gains and losses on equity securities will no longer be reported directly in accumulated other comprehensive income (AOCI), but will instead be reported in net income.

~~In February 2016, the FASB issued 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 ~~will~~ 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 ~~will be~~are determined based upon the present value of cash flows. Finance leases ~~will~~ 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 ~~will~~ 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 iswas effective for reporting periods beginning after December 15, ~~2018, and will require that~~2018. As permitted by the ~~earliest comparative period presented include~~rules, the ~~measurement and recognition of existing leases with an adjustment to equity as if~~Company adopted the ~~updated~~new guidance ~~had always been applied.~~prospectively for the quarter ended March 31, 2019. The Company ~~is currently evaluating~~elected to use the ~~impact that~~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 ~~will~~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 ~~its~~the Company's results of operations ~~financial position~~or liquidity.

All other accounting and ~~liquidity.~~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.~~cost, such as reinsurance recoverables. 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) ~~Acquisitions/Disposition~~

In March 2017, the Company acquired an 89.5% ownership interest for $73.3 million in a company engaged in providing textile solutions world-wide. The fair value of the assets acquired and liabilities assumed have been estimated based on a third party valuation.

~~The following table summarizes the estimated fair value of net assets acquired and liabilities assumed for the business combination completed in 2017:~~

(In thousands) 2017

Cash and cash equivalents $ 2,721
Real estate, furniture and equipment 7,042
Goodwill 28,522
Intangible assets 32,395
Other assets 9,862
Total assets acquired 80,542

Other liabilities assumed (2,251 )
Noncontrolling interest (5,000 )
Net assets acquired $ 73,291

~~In February 2016, the Company acquired an 85% ownership interest for $42.3 million in a company engaged in the distribution of promotional merchandise.~~

~~(5)~~ 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 six months ended June 30, 2019
Changes in AOCI
Beginning of period	$	(91,491	)		$	(418,979	)	$	(510,470	)
Other comprehensive income before reclassifications	245,615				5,268			250,883
Amounts reclassified from AOCI	(1,191		)		—			(1,191		)
Other comprehensive income	244,424				5,268			249,692
Unrealized investment loss related to noncontrolling interest	(18		)		—			(18		)
End of period	$	152,915			$	(413,711	)	$	(260,796	)
Amounts reclassified from AOCI
Pre-tax	$	(1,508	)	(1)	$	—		$	(1,508	)
Tax effect	317			(2)	—			317
After-tax amounts reclassified	$	(1,191	)		$	—		$	(1,191	)
Other comprehensive income
Pre-tax	$	316,331			$	5,268		$	321,599
Tax effect	(71,907		)		—			(71,907		)
Other comprehensive income	$	244,424			$	5,268		$	249,692
As of and for the three months ended June 30, 2019
Changes in AOCI
Beginning of period	$	34,236			$	(399,219	)	$	(364,983	)
Other comprehensive income (loss) before reclassifications	118,475				(14,492		)	103,983
Amounts reclassified from AOCI	174				—			174
Other comprehensive income (loss)	118,649				(14,492		)	104,157
Unrealized investment losses related to noncontrolling interest	30				—			30
Ending balance	$	152,915			$	(413,711	)	$	(260,796	)
Amounts reclassified from AOCI
Pre-tax	$	220		(1)	$	—		$	220
Tax effect	(46		)	(2)	—			(46		)
After-tax amounts reclassified	$	174			$	—		$	174
Other comprehensive income (loss)
Pre-tax	$	147,072			$	(14,492	)	$	132,580
Tax effect	(28,423		)		—			(28,423		)
Other comprehensive income (loss)	$	118,649			$	(14,492	)	$	104,157

_________________________

(In thousands) Unrealized Investment Gains (Losses) Currency Translation Adjustments Accumulated Other Comprehensive Income
As of and for the nine months ended September 30, 2017:
Changes in AOCI
Beginning of period $ 427,154
$ (371,586 ) $ 55,568
Other comprehensive income before reclassifications 109,277
71,574
180,851
Amounts reclassified from AOCI (82,679 ) —
(82,679 )
Other comprehensive income 26,598
71,574
98,172
Unrealized investment loss related to non-controlling interest 19
—
19
End of period $ 453,771
$ (300,012 ) $ 153,759
Amounts reclassified from AOCI
Pre-tax $ (127,198 ) (1) $ —
$ (127,198 )
Tax effect 44,519
(2) —
44,519
After-tax amounts reclassified $ (82,679 ) $ —
$ (82,679 )
Other comprehensive income
Pre-tax $ 50,148
$ 71,574
$ 121,722
Tax effect (23,550 ) —
(23,550 )
Other comprehensive income $ 26,598
$ 71,574
$ 98,172

As of and for the three months ended September 30, 2017:
Changes in AOCI
Beginning of period $ 461,906
$ (328,604 ) $ 133,302
Other comprehensive income before reclassifications 19,968
28,592
48,560
Amounts reclassified from AOCI (28,136 ) —
(28,136 )
Other comprehensive (loss) income (8,168 ) 28,592
20,424
Unrealized investment loss related to non-controlling interest 33
—
33
End of period $ 453,771
$ (300,012 ) $ 153,759
Amounts reclassified from AOCI
Pre-tax $ (43,286 ) (1) $ —
$ (43,286 )
Tax effect 15,150
(2) —
15,150
After-tax amounts reclassified $ (28,136 ) $ —
$ (28,136 )
Other comprehensive (loss) income
Pre-tax $ (8,563 ) $ 28,592
$ 20,029
Tax effect 395
—
395
Other comprehensive (loss) income $ (8,168 ) $ 28,592
$ 20,424

~~_________________________~~

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

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


(In thousands)	Unrealized Investment Gains (Losses)				Currency Translation Adjustments			Accumulated Other Comprehensive Income (Loss)			Unrealized Investment Gains (Losses)				Currency Translation Adjustments			Accumulated Other Comprehensive (Loss) Income
As of and for the nine months ended September 30, 2016:
As of and for the six months ended June 30, 2018											As of and for the six months ended June 30, 2018
Changes in AOCI	Changes in AOCI										Changes in AOCI
Beginning of period	$	180,695			$	(247,393	)	$	(66,698	)	$	375,421			$	(306,880	)	$	68,541
Other comprehensive income (loss) before reclassifications	170,824				(77,389		)	93,435
Amounts reclassified from AOCI	(36,611		)		—			(36,611		)
Other comprehensive income (loss)	134,213				(77,389		)	56,824
Unrealized investment loss related to non-controlling interest	66				—			66
End of period	$	314,974			$	(324,782	)	$	(9,808	)
Amounts reclassified from AOCI
Pre-tax	$	(56,325	)	(1)	$	—		$	(56,325	)
Tax effect	19,714			(2)	—			19,714
After-tax amounts reclassified	$	(36,611	)		$	—		$	(36,611	)
Other comprehensive income (loss)
Pre-tax	$	198,808			$	(77,389	)	$	121,419
Tax effect	(64,595		)		—			(64,595		)
Other comprehensive income (loss)	$	134,213			$	(77,389	)	$	56,824

As of and for the three months ended September 30, 2016:
Changes in AOCI
Beginning of period	$	362,593			$	(305,312	)	$	57,281
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 before reclassifications	(20,968		)		(19,470		)	(40,438		)	(147,632		)		(91,656		)	(239,288		)
Amounts reclassified from AOCI	(26,708		)		—			(26,708		)	(10,582		)		—			(10,582		)
Other comprehensive loss	(47,676		)		(19,470		)	(67,146		)	(158,214		)		(91,656		)	(249,870		)
Unrealized investment loss related to non-controlling interest	57				—			57
Unrealized investment loss related to noncontrolling interest											26				—			26
End of period	$	314,974			$	(324,782	)	$	(9,808	)	$	2,694			$	(398,536	)	$	(395,842	)
Amounts reclassified from AOCI
Pre-tax	$	(41,090	)	(1)	$	—		$	(41,090	)	$	(13,395	)	(1)	$	—		$	(13,395	)
Tax effect	14,382			(2)	—			14,382			2,813			(2)	—			2,813
After-tax amounts reclassified	$	(26,708	)		$	—		$	(26,708	)	$	(10,582	)		$	—		$	(10,582	)
Other comprehensive loss
Pre-tax	$	(72,188	)		$	(19,470	)	$	(91,658	)	$	(201,336	)		$	(91,656	)	$	(292,992	)
Tax effect	24,512				—			24,512			43,122				—			43,122
Other comprehensive loss	$	(47,676	)		$	(19,470	)	$	(67,146	)	$	(158,214	)		$	(91,656	)	$	(249,870	)

As of and for the three months ended June 30, 2018
Changes in AOCI											Changes in AOCI
Beginning of period											$	35,099			$	(294,081	)	$	(258,982	)
Other comprehensive loss before reclassifications											(29,443		)		(104,455		)	(133,898		)
Amounts reclassified from AOCI											(2,999		)		—			(2,999		)
Other comprehensive loss											(32,442		)		(104,455		)	(136,897		)
Unrealized investment loss related to noncontrolling interest											37				—			37
Ending balance											$	2,694			$	(398,536	)	$	(395,842	)
Amounts reclassified from AOCI
Pre-tax											$	(3,796	)	(1)	$	—		$	(3,796	)
Tax effect											797			(2)	—			797
After-tax amounts reclassified											$	(2,999	)		$	—		$	(2,999	)
Other comprehensive loss
Pre-tax											$	(40,488	)		$	(104,455	)	$	(144,943	)
Tax effect											8,046				—			8,046
Other comprehensive loss											$	(32,442	)		$	(104,455	)	$	(136,897	)

~~_______________~~_________________________

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

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

~~(6)~~(5) Statements of Cash ~~Flow~~Flows

Interest payments were ~~$134,291,000~~$77,672,000 and ~~$124,791,000~~$72,878,000 and income taxes paid were ~~$182,487,000~~$82,800,000 and ~~$99,161,000 in~~$111,000,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~,2018, respectively.

~~(7)~~(6) Investments in Fixed Maturity Securities

At ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~,2018, investments in fixed maturity securities were as follows:



(In thousands)	Amortized Cost		Gross Unrealized					Fair Value		Carrying Value
			Gains		Losses
June 30, 2019
Held to maturity:
State and municipal	$	69,167	$	13,089	$	—		$	82,256	$	69,167
Residential mortgage-backed	9,380		1,083		—			10,463		9,380
Total held to maturity	78,547		14,172		—			92,719		78,547
Available for sale:
U.S. government and government agency	760,247		18,241		(1,418		)	777,070		777,070
State and municipal:
Special revenue	2,322,750		63,204		(2,674		)	2,383,280		2,383,280
State general obligation	320,338		22,108		(43		)	342,403		342,403
Pre-refunded	298,825		19,876		(122		)	318,579		318,579
Corporate backed	238,319		7,065		(639		)	244,745		244,745
Local general obligation	427,233		32,026		(443		)	458,816		458,816
Total state and municipal	3,607,465		144,279		(3,921		)	3,747,823		3,747,823
Mortgage-backed securities:
Residential (1)	1,242,880		28,521		(5,316		)	1,266,085		1,266,085
Commercial	303,332		6,829		(380		)	309,781		309,781
Total mortgage-backed securities	1,546,212		35,350		(5,696		)	1,575,866		1,575,866
Asset-backed	2,719,618		9,874		(27,707		)	2,701,785		2,701,785
Corporate:
Industrial	2,178,339		59,623		(7,755		)	2,230,207		2,230,207
Financial	1,431,612		27,484		(5,373		)	1,453,723		1,453,723
Utilities	312,200		12,548		(426		)	324,322		324,322
Other	27,027		1,096		(90		)	28,033		28,033
Total corporate	3,949,178		100,751		(13,644		)	4,036,285		4,036,285
Foreign government	818,276		20,507		(23,359		)	815,424		815,424
Total available for sale	13,400,996		329,002		(75,745		)	13,654,253		13,654,253
Total investments in fixed maturity securities	$	13,479,543	$	343,174	$	(75,745	)	$	13,746,972	$	13,732,800

(In thousands)
Amortized
Cost
Gross Unrealized
Fair
Value

Carrying
Value
Gains Losses
September 30, 2017
Held to maturity:
State and municipal $ 65,372
$ 15,212
$ —
$ 80,584
$ 65,372
Residential mortgage-backed 14,024
1,452
—
15,476
14,024
Total held to maturity 79,396
16,664
—
96,060
79,396
Available for sale:
U.S. government and government agency 402,901
10,828
(2,124 ) 411,605
411,605
State and municipal:
Special revenue 2,730,653
80,144
(5,469 ) 2,805,328
2,805,328
State general obligation 481,070
21,377
(565 ) 501,882
501,882
Pre-refunded 282,488
21,052
(173 ) 303,367
303,367
Corporate backed 380,351
11,775
(499 ) 391,627
391,627
Local general obligation 384,930
26,566
(531 ) 410,965
410,965
Total state and municipal 4,259,492
160,914
(7,237 ) 4,413,169
4,413,169
Mortgage-backed securities:
Residential (1) 1,064,705
12,696
(8,860 ) 1,068,541
1,068,541
Commercial 251,387
1,641
(1,450 ) 251,578
251,578
Total mortgage-backed securities 1,316,092
14,337
(10,310 ) 1,320,119
1,320,119
Asset-backed 2,389,187
9,836
(10,405 ) 2,388,618
2,388,618
Corporate:
Industrial 2,569,673
70,054
(2,842 ) 2,636,885
2,636,885
Financial 1,335,101
43,636
(4,716 ) 1,374,021
1,374,021
Utilities 255,478
12,760
(907 ) 267,331
267,331
Other 42,183
2
(48 ) 42,137
42,137
Total corporate 4,202,435
126,452
(8,513 ) 4,320,374
4,320,374
Foreign 909,608
32,889
(2,088 ) 940,409
940,409
Total available for sale 13,479,715
355,256
(40,677 ) 13,794,294
13,794,294
Total investments in fixed maturity securities $ 13,559,111
$ 371,920
$ (40,677 ) $ 13,890,354
$ 13,873,690


(In thousands)	Amortized Cost		Gross Unrealized					Fair Value		Carrying Value		Amortized Cost		Gross Unrealized					Fair Value		Carrying Value
			Gains		Losses									Gains		Losses
December 31, 2016
December 31, 2018
Held to maturity:
State and municipal	$	72,582	$	12,453	$	—		$	85,035	$	72,582	$	67,891	$	11,549	$	—		$	79,440	$	67,891
Residential mortgage-backed	15,944		1,693		—			17,637		15,944		10,744		1,259		—			12,003		10,744
Total held to maturity	88,526		14,146		—			102,672		88,526		78,635		12,808		—			91,443		78,635
Available for sale:
U.S. government and government agency	496,187		20,208		(2,593		)	513,802		513,802		697,931		9,219		(4,910		)	702,240		702,240
State and municipal:
Special revenue	2,791,211		58,559		(26,315		)	2,823,455		2,823,455		2,396,089		30,507		(19,790		)	2,406,806		2,406,806
State general obligation	524,682		16,964		(5,139		)	536,507		536,507		335,626		11,951		(1,103		)	346,474		346,474
Pre-refunded	356,535		19,181		(165		)	375,551		375,551		408,141		16,568		(30		)	424,679		424,679
Corporate backed	410,933		6,172		(6,452		)	410,653		410,653		272,440		4,319		(2,350		)	274,409		274,409
Local general obligation	360,022		15,682		(2,367		)	373,337		373,337		403,219		18,350		(1,339		)	420,230		420,230
Total state and municipal	4,443,383		116,558		(40,438		)	4,519,503		4,519,503		3,815,515		81,695		(24,612		)	3,872,598		3,872,598
Mortgage-backed securities:
Residential (1)	1,034,301		15,431		(12,950		)	1,036,782		1,036,782		1,264,376		7,729		(20,225		)	1,251,880		1,251,880
Commercial	155,540		304		(2,981		)	152,863		152,863		345,070		1,304		(3,708		)	342,666		342,666
Total mortgage-backed securities	1,189,841		15,735		(15,931		)	1,189,645		1,189,645		1,609,446		9,033		(23,933		)	1,594,546		1,594,546
Asset-backed	1,913,830		5,971		(11,941		)	1,907,860		1,907,860		2,462,303		10,131		(33,687		)	2,438,747		2,438,747
Corporate:
Industrial	2,315,567		71,007		(7,174		)	2,379,400		2,379,400		2,295,778		15,355		(53,312		)	2,257,821		2,257,821
Financial	1,369,001		39,543		(11,270		)	1,397,274		1,397,274		1,502,427		7,178		(45,683		)	1,463,922		1,463,922
Utilities	229,154		10,801		(2,411		)	237,544		237,544		330,326		2,997		(4,148		)	329,175		329,175
Other	54,073		299		(63		)	54,309		54,309		60,238		322		(167		)	60,393		60,393
Total corporate	3,967,795		121,650		(20,918		)	4,068,527		4,068,527		4,188,769		25,852		(103,310		)	4,111,311		4,111,311
Foreign	858,773		46,794		(2,762		)	902,805		902,805
Foreign government												822,093		11,753		(25,111		)	808,735		808,735
Total available for sale	12,869,809		326,916		(94,583		)	13,102,142		13,102,142		13,596,057		147,683		(215,563		)	13,528,177		13,528,177
Total investments in fixed maturity securities	$	12,958,335	$	341,062	$	(94,583	)	$	13,204,814	$	13,190,668	$	13,674,692	$	160,491	$	(215,563	)	$	13,619,620	$	13,606,812

____________

~~(1)~~

~~Gross unrealized gains and (losses) for residential mortgage-backed securities include $85,907 and $(818,691) as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~,

(1) Gross unrealized losses for residential mortgage-backed securities include $(42,762) and $(55,090) as of June 30, 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 ~~September~~June 30, ~~2017~~,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	$	1,017,744	$	1,022,427
Due after one year through five years	4,680,578		4,764,795
Due after five years through ten years	3,226,328		3,347,580
Due after ten years	2,999,301		3,025,841
Mortgage-backed securities	1,555,592		1,586,329
Total	$	13,479,543	$	13,746,972

(In thousands)
Amortized
Cost
Fair Value
Due in one year or less $ 745,010
$ 750,479
Due after one year through five years 5,089,768
5,210,268
Due after five years through ten years 3,248,254
3,396,461
Due after ten years 3,145,963
3,197,551
Mortgage-backed securities 1,330,116
1,335,595
Total $ 13,559,111
$ 13,890,354

At ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, there were no investments that exceeded 10% of common stockholders' equity, other than investments in United States government and government agency securities.

~~(8)~~(7) Investments in Equity Securities ~~Available for Sale~~

At ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~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
June 30, 2019
Common stocks	$	153,440	$	8,092	$	(21,306	)	$	140,226	$	140,226
Preferred stocks	101,423		180,316		(5,377		)	276,362		276,362
Total	$	254,863	$	188,408	$	(26,683	)	$	416,588	$	416,588
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

(In thousands) Cost Gross Unrealized
Fair
Value

Carrying
Value
Gains Losses
September 30, 2017
Common stocks $ 83,709
$ 339,297
$ (3,486 ) $ 419,520
$ 419,520
Preferred stocks 125,076
71,147
(1,718 ) 194,505
194,505
Total $ 208,785
$ 410,444
$ (5,204 ) $ 614,025
$ 614,025
December 31, 2016
Common stocks $ 94,998
$ 351,906
$ (1,046 ) $ 445,858
$ 445,858
Preferred stocks 125,589
101,392
(3,639 ) 223,342
223,342
Total $ 220,587
$ 453,298
$ (4,685 ) $ 669,200
$ 669,200

~~(9)~~(8) Arbitrage Trading Account

At ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018, the fair and carrying values of the arbitrage trading account were ~~$488~~$533 million and ~~$300~~$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 ~~September~~June 30, ~~2017,~~2019, the fair value of long option contracts outstanding was ~~$1 million~~$313 thousand (notional amount of ~~$33~~$9.9 million) and the fair value of short option contracts outstanding was ~~$1 million~~$291 thousand (notional amount of ~~$54~~$15.6 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.

~~(10)~~(9) Net Investment Income

Net investment income consists of the following:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Investment income earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	128,903		$	129,665		$	261,022		$	252,911
Investment funds	46,840			12,716			58,251			53,070
Arbitrage trading account	7,199			8,333			17,784			13,524
Real estate	5,174			3,174			9,481			9,742
Equity securities	1,303			559			2,591			1,205
Gross investment income	189,419			154,447			349,129			330,452
Investment expense	(1,086		)	(670		)	(2,542		)	(2,157		)
Net investment income	$	188,333		$	153,777		$	346,587		$	328,295

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(In thousands) 2017 2016 2017 2016
Investment income earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable $ 118,834
$ 114,271
$ 347,976
$ 331,448
Investment funds 15,200
25,293
50,744
60,385
Arbitrage trading account 4,418
6,441
16,235
12,883
Real estate 5,042
585
14,894
4,552
Equity securities available for sale 604
1,069
1,845
3,217
Gross investment income 144,098
147,659
431,694
412,485
Investment expense (1,619 ) (1,991 ) (5,093 ) (7,635 )
Net investment income $ 142,479
$ 145,668
$ 426,601
$ 404,850

~~(11)~~

(10) Investment Funds

The Company evaluates whether it is an investor in a variable interest entity ~~(VIE)~~("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 ~~$442~~$241 million as of ~~September~~June 30, ~~2017.~~2019.

Investment funds consisted of the following:



	Carrying Value as of				Income (Loss) from Investment Funds
	June 30,		December 31,		For the Six Months Ended June 30,
(In thousands)	2019		2018		2019			2018
Real estate	$	654,610	$	642,137	$	13,078		$	35,826
Energy	75,053		75,213		(7,100		)	(1,256		)
Other funds	671,908		615,468		52,273			18,500
Total	$	1,401,571	$	1,332,818	$	58,251		$	53,070

Carrying Value as of Income (Loss) from Investment Funds
September 30, December 31, For the Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Real estate $ 614,508
$ 641,783
$ 30,661
$ 33,028
Energy 85,817
91,448
(12,763 ) 7,174
Hedge equity —
73,913
(1,164 ) 791
Other funds 419,582
391,002
34,010
19,392
Total $ 1,119,907
$ 1,198,146
$ 50,744

$ 60,385

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.

~~(12)~~(11) Real Estate

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



	Carrying Value
	June 30,		December 31,
(In thousands)	2019		2018
Properties in operation	$	1,310,149	$	1,279,584
Properties under development	757,395		677,508
Total	$	2,067,544	$	1,957,092

Carrying Value
September 30, December 31,
(In thousands) 2017 2016
Properties in operation $ 451,669
$ 457,237
Properties under development 939,605
727,744
Total $ 1,391,274
$ 1,184,981

In ~~2017,~~2019, properties in operation included a long-term ground lease in Washington, D.C., a hotel in Memphis, Tennessee, antwo office ~~complex~~complexes in New York City, ~~and~~ office buildings in West Palm Beach and Palm Beach, ~~Florida.~~Florida, and an office building in London. Properties in operation are net of accumulated depreciation and amortization of ~~$20,378,000~~$55,515,000 and ~~$14,996,000~~$46,250,000 as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. Related depreciation expense was ~~$5,382,000~~$8,931,000 and ~~$4,117,000~~$10,784,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. Future minimum rental income expected on operating leases relating to properties in operation is ~~$4,966,133 in 2017, $28,251,980 in 2018, $30,174,146~~$32,963,388 in 2019, ~~$29,415,103~~$66,249,918 in 2020, ~~$30,054,813~~$68,157,589 in 2021, ~~$29,966,679~~$71,308,839 in 2022, $64,897,648 in 2023, $62,673,400 in 2024 and ~~$467,192,215~~$666,203,503 thereafter.

~~Properties under development include an~~The Company borrowed $101,750,000 through a non-recourse loan secured by the West Palm Beach office building in ~~London~~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.

~~(13)~~

(12) Loans Receivable

Loans receivable are as follows:



(In thousands)	June 30, 2019			December 31, 2018
Amortized cost (net of valuation allowance):
Real estate loans	$	61,830		$	62,289
Commercial loans	32,867			32,524
Total	$	94,697		$	94,813

Fair value:
Real estate loans	$	62,536		$	63,047
Commercial loans	34,369			34,026
Total	$	96,905		$	97,073

Valuation allowance:
Specific	$	341		$	1,200
General	1,949			2,183
Total	$	2,290		$	3,383

	For the Three Months Ended June 30,
	For the Three Months Ended June 30,
	2019			2018
Change in valuation allowance	$	(1,093	)	$	—

	For the Six Months Ended June 30,
	For the Six Months Ended June 30,
	2019			2018
Change in valuation allowance	$	(1,093	)	$	—

(In thousands) September 30, 2017 December 31, 2016
Amortized cost (net of valuation allowance):
  Real estate loans $ 59,487
$ 92,415
  Commercial loans 14,742
14,383
  Total $ 74,229
$ 106,798

Fair value:
  Real estate loans $ 60,372
$ 92,415
  Commercial loans 16,243
15,884
  Total $ 76,615
$ 108,299

Valuation allowance:
  Specific $ 1,200
$ 1,200
  General 2,183
2,197
  Total $ 3,383
$ 3,397

For the Three Months Ended September 30,

2017 2016
  Increase in valuation allowance $ —
$ 467

For the Nine Months Ended September 30,

2017 2016
(Decrease) increase in valuation allowance $ (14 ) $ 1,128

Loans receivable in non-accrual status were ~~$4.5~~$0.4 million and ~~$5.4~~$1.2 million as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016, respectively.~~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 ~~September~~June 30, ~~2017,~~2019, and accordingly, the Company determined that a specific valuation allowance was not required.

~~(14)~~

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

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Net realized and unrealized gains (losses) on investments in earnings
Fixed maturity securities:
Gains	$	3,157		$	7,921		$	8,403		$	21,260
Losses	(3,377		)	(4,125		)	(6,895		)	(7,865		)
Equity securities (1):
Net realized (losses) gains on investment sales	(6		)	119,422			23,339			241,743
Change in unrealized gains (losses)	69,418			(54,652		)	111,496			(148,857		)
Investment funds	41			(353		)	58			(234		)
Real estate	3,021			(402		)	5,767			7,596
Loans receivable	—			1			(970		)	2,059
Other	1,320			1,819			1,028			2,393
Net realized and unrealized gains on investments in earnings before OTTI	73,574			69,631			142,226			118,095
Other-than-temporary impairments	—			—			—			—
Net realized and unrealized gains on investments in earnings	73,574			69,631			142,226			118,095
Income tax expense	(15,451		)	(14,623		)	(29,867		)	(24,800		)
After-tax net realized and unrealized gains on investments in earnings	$	58,123		$	55,008		$	112,359		$	93,295

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Realized investment gains (losses):

Fixed maturity securities:

Gains $ 8,763
$ 33,798
$ 21,795
$ 66,972
Losses (197 ) (1,150 ) (4,162 ) (5,570 )
Equity securities available for sale 34,720
8,441
109,566
13,037
Investment funds (1) 124,228
(3,788 ) 125,383
(9,041 )
Real estate 1,956
687
4,892
5,247
Other (2)

14,489
137,750
19,286
136,863
Net realized gains on investments sales 183,959
175,738
276,760
207,508
Other-than-temporary impairments (3) —
—
—
(18,114 )
Net investment gains 183,959
175,738
276,760
189,394
Income tax expense (64,386 ) (61,508 ) (96,866 ) (66,288 )
After-tax net realized investment gains $ 119,573
$ 114,230
$ 179,894
$ 123,106



Change in unrealized investment gains (losses) of available for sale securities:
Fixed maturity securities	$	146,629		$	(36,848	)	$	321,123		$	(196,575	)
Previously impaired fixed maturity securities	81			(2		)	12			11
Investment funds	361			(3,638		)	(4,804		)	(4,772		)
Total change in unrealized investment gains (losses)	147,071			(40,488		)	316,331			(201,336		)
Income tax (expense) benefit	(28,422		)	8,118			(71,907		)	43,194
Noncontrolling interests	30			37			(18		)	26
After-tax change in unrealized investment gains (losses) of available for sale securities	$	118,679		$	(32,333	)	$	244,406		$	(158,116	)

Change in unrealized investment gains of available for sale securities:

Fixed maturity securities $ (10,627 ) $ (45,388 ) $ 84,214
$ 169,933
Previously impaired fixed maturity securities 61
(1,406 ) 905
413
Equity securities available for sale (2,126 ) (28,517 ) (44,812 ) 12,433
Investment funds 4,129
3,143
9,841
16,028
Total change in unrealized investment gains (8,563 ) (72,168 ) 50,148
198,807
Income tax benefit (expense) 423
24,493
(23,550 ) (64,594 )
Noncontrolling interests 5
57
19
66
After-tax change in unrealized investment gains of available for sale securities $ (8,135 ) $ (47,618 ) $ 26,617
$ 134,279

______________________

(1) ~~Investment funds includes a gain of $124.3 million~~The net realized gains or losses on investment sales represent the total gains or losses from the ~~sale~~purchase dates of ~~an investment~~the equity securities. The change in ~~an office building located~~unrealized gains consists of two components: (i) the reversal of the gain or loss recognized in ~~Washington, D.C. for~~previous periods on equity securities sold and (ii) the ~~three and nine months ended September 30, 2017.~~change in unrealized gain or loss resulting from mark-to-market adjustments on equity securities still held.

~~(2) Other includes a gain of $134.9 million from the sale of Aero Precision Industries and certain related aviation services business for the three and nine months ended September 30, 2016.~~

(3) There were no other than temporary impairments (OTTI) for the three and nine months ended September 30, 2017, or for the three months ended September 30, 2016. OTTI for the nine months ended September 30, 2016 of $18.1 million were related to common stock.

~~(15)~~(14) Fixed Maturity Securities in an Unrealized Loss Position

The following tables summarize all fixed maturity securities in an unrealized loss position at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~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				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		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2017
June 30, 2019
U.S. government and government agency	$	118,066	$	1,048	$	48,880	$	1,076	$	166,946	$	2,124	$	6,175	$	37	$	92,729	$	1,381	$	98,904	$	1,418
State and municipal	650,353		5,797		119,087		1,440		769,440		7,237		64,499		838		270,454		3,083		334,953		3,921
Mortgage-backed securities	527,034		5,000		221,923		5,310		748,957		10,310		23,049		112		334,887		5,584		357,936		5,696
Asset-backed securities	1,116,878		8,033		130,734		2,372		1,247,612		10,405		1,010,706		17,410		572,110		10,297		1,582,816		27,707
Corporate	651,373		5,395		57,557		3,118		708,930		8,513		139,627		1,095		328,409		12,549		468,036		13,644
Foreign government	220,860		2,072		1,599		16		222,459		2,088		140,589		18,942		73,967		4,417		214,556		23,359
Fixed maturity securities	3,284,564		27,345		579,780		13,332		3,864,344		40,677		$	1,384,645	$	38,434	$	1,672,556	$	37,311	$	3,057,201	$	75,745
Common stocks	4,678		3,095		9,387		391		14,065		3,486
Preferred stocks	—		—		23,957		1,718		23,957		1,718
Equity securities available for sale	4,678		3,095		33,344		2,109		38,022		5,204
Total	$	3,289,242	$	30,440	$	613,124	$	15,441	$	3,902,366	$	45,881

December 31, 2016
December 31, 2018
U.S. government and government agency	$	112,709	$	1,252	$	35,450	$	1,341	$	148,159	$	2,593	$	195,359	$	933	$	130,815	$	3,977	$	326,174	$	4,910
State and municipal	1,562,614		35,553		133,034		4,885		1,695,648		40,438		701,700		6,874		744,905		17,738		1,446,605		24,612
Mortgage-backed securities	625,903		11,103		109,066		4,828		734,969		15,931		334,063		2,911		712,595		21,022		1,046,658		23,933
Asset-backed securities	1,010,836		5,340		201,693		6,601		1,212,529		11,941		1,687,665		28,965		342,855		4,722		2,030,520		33,687
Corporate	1,035,245		13,448		65,147		7,470		1,100,392		20,918		1,730,513		54,181		954,763		49,129		2,685,276		103,310
Foreign government	213,246		1,985		24,820		777		238,066		2,762		246,273		24,197		80,004		914		326,277		25,111
Fixed maturity securities	4,560,553		68,681		569,210		25,902		5,129,763		94,583		$	4,895,573	$	118,061	$	2,965,937	$	97,502	$	7,861,510	$	215,563
Common stocks	336		22		8,755		1,024		9,091		1,046
Preferred stocks	—		—		22,034		3,639		22,034		3,639
Equity securities available for sale	336		22		30,789		4,663		31,125		4,685
Total	$	4,560,889	$	68,703	$	599,999	$	30,565	$	5,160,888	$	99,268

~~Fixed Maturity Securities~~ – A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at ~~September~~June 30, ~~2017~~2019 is presented in the table below:



($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	12	$	114,714	$	22,719
Corporate	11	65,905		3,278
Asset-backed securities	7	10,412		1,344
Mortgage-backed securities	4	7,170		63
Total	34	$	198,201	$	27,404

($ in thousands)
Number of
Securities

Aggregate
Fair Value

Gross Unrealized
Loss
Foreign government 9
$ 55,292
$ 462
Mortgage-backed securities 6
5,975
150
Corporate 3
2,852
211
Asset-backed securities 3
1,331
115
Total 21
$ 65,450
$ 938

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.

~~Preferred Stocks~~ – At September 30, 2017, there was one preferred stock in an unrealized loss position, with a fair value of $24.0 million and a gross unrealized loss of $1.7 million. Based upon management’s view of the underlying value of the security, the Company does not consider the equity security to be OTTI. For the nine months ended September 30, 2017 and 2016, there was no OTTI for preferred stocks.

~~Common Stocks~~ ~~– At September 30, 2017, there were three~~common stocks in an unrealized loss position, with an aggregate fair value of $14.1 million and a gross unrealized loss of $3.5 million. Based upon management's view of the underlying value of these securities, the Company does not consider these equity securities to be OTTI. There was no OTTI of common stocks for the nine months ended September 30, 2017. For the nine months ended September 30, 2016, OTTI for common stocks was $18.1 million.

~~(16)~~(15)Fair Value Measurements

The Company’s fixed maturity ~~and equity securities classified as~~ 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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 by level:



(In thousands)	Total		Level 1		Level 2		Level 3
June 30, 2019
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	777,070	$	—	$	777,070	$	—
State and municipal	3,747,823		—		3,747,823		—
Mortgage-backed securities	1,575,866		—		1,575,866		—
Asset-backed securities	2,701,785		—		2,701,760		25
Corporate	4,036,285		—		4,036,285		—
Foreign government	815,424		—		815,424		—
Total fixed maturity securities available for sale	13,654,253		—		13,654,228		25
Equity securities:
Common stocks	140,226		131,242		—		8,984
Preferred stocks	276,362		—		272,426		3,936
Total equity securities	416,588		131,242		272,426		12,920
Arbitrage trading account	533,442		424,030		83,206		26,206
Total	$	14,604,283	$	555,272	$	14,009,860	$	39,151
Liabilities:
Trading account securities sold but not yet purchased	$	159,349	$	144,420	$	213	$	14,716


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

(In thousands) Total Level 1 Level 2 Level 3
September 30, 2017
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency $ 411,605
$ —
$ 411,605
$ —
State and municipal 4,413,169
—
4,413,169
—
Mortgage-backed securities 1,320,119
—
1,320,119
—
Asset-backed securities 2,388,618
—
2,388,444
174
Corporate 4,320,374
—
4,320,374
—
Foreign government 940,409
—
940,409
—
Total fixed maturity securities available for sale 13,794,294
—
13,794,120
174
Equity securities available for sale:
Common stocks 419,520
410,133
—
9,387
Preferred stocks 194,505
—
190,649
3,856
Total equity securities available for sale 614,025
410,133
190,649
13,243
Arbitrage trading account 488,238
275,818
212,420
—
Total $ 14,896,557
$ 685,951
$ 14,197,189
$ 13,417
Liabilities:
Trading account securities sold but not yet purchased $ 44,937
$ 44,851
$ 86
$ —

December 31, 2016
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency $ 513,802
$ —
$ 513,802
$ —
State and municipal 4,519,503
—
4,519,503
—
Mortgage-backed securities 1,189,645
—
1,189,645
—
Asset-backed securities 1,907,860
—
1,907,677
183
Corporate 4,068,527
—
4,068,527
—
Foreign government 902,805
—
902,805
—
Total fixed maturity securities available for sale 13,102,142
—
13,101,959
183
Equity securities available for sale:
Common stocks 445,858
429,647
7,457
8,754
Preferred stocks 223,342
—
219,680
3,662
Total equity securities available for sale 669,200
429,647
227,137
12,416
Arbitrage trading account 299,999
224,623
75,376
—
Total $ 14,071,341
$ 654,270
$ 13,404,472
$ 12,599
Liabilities:
Trading account securities sold but not yet purchased $ 51,179
$ 51,089
$ 90
$ —

~~There were no significant transfers between Levels 1 and 2 during the nine months ended~~ ~~September 30, 2017~~ ~~or during the year ended~~ ~~December 31, 2016~~.

The following tables summarize changes in Level 3 assets and liabilities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~ ~~and for the year ended~~ ~~December 31, 2016~~:

Gains (Losses) Included in:
(In thousands)
Beginning
Balance
Earnings (Losses)
Other
Comprehensive
Income (Loss)
Impairments Purchases (Sales) Paydowns / Maturities Transfers
Ending
Balance
In / (Out)
Nine months ended September 30, 2017:
Assets:
Fixed maturities securities available for sale:
Asset-backed securities $ 183
$ 2
$ 32
$ —
$ —
$ (43 ) $ —
$ —
$ 174
Corporate —
—
—
—
—
—
—
—
—
Total 183
2
32
—
—
(43 ) —
—
174
Equity securities available for sale:
Common stocks 8,754
—
633
—
—
—
—
—
9,387
Preferred stocks 3,662
19
—
—
175
—
—
—
3,856
Total 12,416
19
633
—
175
—
—
—
13,243
Arbitrage trading account —
8
—
—
—
(8 ) —
—
—
Total $ 12,599
$ 29
$ 665
$ —
$ 175
$ (51 ) $ —
$ —
$ 13,417

Year ended December 31, 2016:
Assets:
Fixed maturities securities available for sale:
Asset-backed securities $ 199
$ 3
$ 16
$ —
$ —
$ —
$ (35 ) $ —
$ 183
Corporate 154
177
—
—
��
(331 ) —
—
—
Total 353
180
16
—
—
(331 ) (35 ) —
183
Equity securities available for sale:
Common stocks 7,829
—
160
—
765
—
—
—
8,754
Preferred stocks 3,624
38
—
—
—
—
—
—
3,662
Total 11,453
38
160
—
765
—
—
—
12,416
Arbitrage trading account 176
(176 ) —
—
—
—
—
—
—
Total $ 11,982
$ 42
$ 176
$ —
$ 765
$ (331 ) $ (35 ) $ —
$ 12,599

~~During the nine months ended September 30, 2017~~2019 and for the year ended December 31, ~~2016, there were~~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
Six Months Ended June 30, 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		388			—		—		—		—			—		—		8,984
Preferred stocks	3,945		(9		)	—		—		—		—			—		—		3,936
Total	12,541		379			—		—		—		—			—		—		12,920
Arbitrage trading account	17,308		409			—		—		14,672		(21,072		)	—		14,889		26,206
Total	$	29,948	$	790		$	46	$	—	$	14,672	$	(21,194	)	$	—	$	14,889	$	39,151

Liabilities:
Trading account securities sold but not yet purchased	$	793	$	9,320		$	—	$	—	$	7,609	$	(3,006	)	$	—	$	—	$	14,716
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:
Trading account securities sold but not yet purchased	$	—	$	(67	)	$	—	$	—	$	860	$	—		$	—	$	—	$	793

Transfers into Level 3 represent cases where a publicly traded price was no t~~ransfers out of Level 3.~~longer available for a particular investment.

~~(17)~~(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)~~("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:


	September 30,						June 30,
(In thousands)	2017			2016			2019			2018
Net reserves at beginning of year	$	9,590,265		$	9,244,872
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)	2,998,687			2,838,777			1,980,138			1,916,140
Decrease in estimates for claims occurring in prior years (2) (3)	(7,648		)	(23,518		)
Increase (decrease) in estimates for claims occurring in prior years (2) (3)							16,764			(246		)
Loss reserve discount accretion	34,436			37,080			20,577			20,962
Total	3,025,475			2,852,339			2,017,479			1,936,856
Net payments for claims:
Current year	628,078			612,615			548,589			316,567
Prior year	1,996,977			1,931,454
Prior years							1,200,906			1,527,522
Total	2,625,055			2,544,069			1,749,495			1,844,089
Foreign currency translation	57,789			(6,266		)	(2,228		)	(72,351		)
Net reserves at end of period	10,048,474			9,546,876			10,514,639			10,077,330
Ceded reserve at end of period	1,605,872			1,550,954
Ceded reserves at end of period							1,805,639			1,659,245
Gross reserves at end of period	$	11,654,346		$	11,097,830		$	12,320,278		$	11,736,575

(1) Claims occurring during the current year are net of loss reserve discounts of $11 million and $13 million for the six months ended June 30, 2019 and 2018.

~~In 2017,~~(2) The change in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior years increased by $9 million and decreased by $6 million for the six months ended June 30, 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 $14 million and $19 million for the six months ended June 30, 2019 and 2018, respectively.

During the six months ended June 30, 2019, favorable prior year development (net of additional and return premiums) of ~~$31~~$13.6 million included ~~$62~~$17.2 million of favorable development for the Insurance segment, ~~partially~~ offset by ~~$31~~$3.6 million of adverse development for the Reinsurance & Monoline Excess segment.

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

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 six months ended June 30, 2018, favorable prior year development (net of additional and return premiums) of $19.3 million included $18.6 million of favorable development for the Insurance segment, and $0.7 million of favorable development for the Reinsurance & Monoline Excess segment. The favorable development for the Insurance segment was primarily attributable to ~~workers'~~workers’ compensation ~~business (including excess workers' compensation).~~business. The favorable ~~workers'~~workers’ compensation development was spread across many accident years, including prior to 2008, but was most significant in accident years ~~2014 and 2015.~~2015 through 2017. The favorable ~~workers'~~workers’ compensation development reflects a continuation of the benign loss cost trends experienced ~~during 2016,~~in recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The adverse development for the Reinsurance segment was due to reserve strengthening associated with claims impacted by the change in the Ogden discount rate in the U.K., as well as adverse development in the U.S. facultative casualty excess of loss business. The Ogden rate is the discount rate used to calculate lump-sum bodily injury payouts in the U.K., and was reduced by the U.K. Ministry of Justice from +2.5% to -0.75%; the adverse development mostly related to U.K. motor bodily injury claims which we reinsured on an excess of loss basis in accident years 2012 through 2016. The adverse development on U.S. facultative casualty business related to construction-related risks in accident years 2008 and prior.

In 2016, favorable prior year development (net of additional and return premiums) of $42 million included $38 million for the Insurance segment and $4 million for the Reinsurance segment. The favorable development for the Insurance segment was primarily attributable to workers' compensation business, partially offset by adverse development for commercial auto liability and medical and other professional liability. The favorable development for workers' compensation stems from accident years 2003 through 2015, but is concentrated in accident years 2014 and 2015; it reflects claims frequency trends (i.e., number of reported claims per unit of exposure) that continue to be better than we expected. The unfavorable development for commercial auto liability was driven by higher large loss activity than expected in accident years 2014 and 2015, and the

unfavorable development for medical professional liability was primarily in accident years prior to 2013 and stemmed from a class of medical professional liability business that we discontinued writing in 2013.

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



	June 30, 2019				December 31, 2018
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	13,732,800	$	13,746,972	$	13,606,812	$	13,619,620
Equity securities	416,588		416,588		279,006		279,006
Arbitrage trading account	533,442		533,442		452,548		452,548
Loans receivable	94,697		96,905		94,813		97,073
Cash and cash equivalents	1,258,174		1,258,174		817,602		817,602
Trading account receivables from brokers and clearing organizations	402,361		402,361		347,228		347,228
Liabilities:
Due to broker	39,230		39,230		20,144		20,144
Trading account securities sold but not yet purchased	159,349		159,349		38,120		38,120
Subordinated debentures	907,866		969,172		907,491		840,002
Senior notes and other debt	1,873,799		2,019,430		1,882,028		1,968,996

The estimated fair values of the Company’s fixed maturity securities, equity securities ~~available for sale~~ and arbitrage trading account securities are based on various valuation techniques that rely on fair value measurements as described in Note ~~16 above.~~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.

The following is a summary of reinsurance financial information:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Written premiums:
Direct	$	1,883,032		$	1,785,266		$	3,712,847		$	3,572,501
Assumed	206,828			162,808			423,243			354,995
Ceded	(346,396		)	(323,970		)	(683,025		)	(638,054		)
Total net premiums written	$	1,743,464		$	1,624,104		$	3,453,065		$	3,289,442

Earned premiums:
Direct	$	1,773,437		$	1,705,277		$	3,497,047		$	3,379,827
Assumed	198,661			180,509			386,852			369,375
Ceded	(325,257		)	(304,733		)	(644,202		)	(600,741		)
Total net premiums earned	$	1,646,841		$	1,581,053		$	3,239,697		$	3,148,461

Ceded losses and loss expenses incurred	$	239,267		$	161,073		$	412,314		$	400,068
Ceded commissions earned	$	73,092		$	65,922		$	144,109		$	132,278

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(In thousands) 2017 2016 2017 2016
Written premiums:
Direct $ 1,679,389
$ 1,643,870
$ 5,127,465
$ 5,061,646
Assumed 194,769
224,979
570,052
702,265
Ceded (302,975 ) (261,484 ) (915,245 ) (850,255 )
Total net premiums written $ 1,571,183
$ 1,607,365
$ 4,782,272
$ 4,913,656

Earned premiums:
Direct $ 1,692,453
$ 1,647,033
$ 4,972,755
$ 4,824,768
Assumed 202,972
216,758
605,281
635,443
Ceded (313,925 ) (277,847 ) (857,792 ) (787,139 )
Total net premiums earned $ 1,581,500
$ 1,585,944
$ 4,720,244
$ 4,673,072

Ceded losses and loss expenses incurred $ 247,104
$ 213,065
$ 424,905
$ 507,258
Ceded commissions earned $ 63,222
$ 47,315
$ 177,524
$ 143,809

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 ~~September~~both June 30, ~~2017~~2019 and December 31, ~~2016~~2018.

Pursuant to its stock incentive plan, the Company may issue restricted stock units ~~(RSUs)~~("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 ~~$30~~$25 million and $2518 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018, respectively. A summary of RSUs issued in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 follows:



($ in thousands)	Units	Fair Value
2019	5,141	$	308
2018	19,538	$	963

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.

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 are as follows:



	For the Three Months Ended June 30, 2019		For the Six Months Ended June 30, 2019

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



($ in thousands)	June 30, 2019
Right-of-use assets	$	179,984
Lease liabilities	$	209,107
Weighted-average remaining lease term	6.6 years
Weighted-average discount rate	5.97		%

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



(In thousands)	June 30, 2019
Contractual Maturities:
2019	$	24,117
2020	44,461
2021	40,681
2022	35,121
2023	31,556
Thereafter	77,578
Total undiscounted future minimum lease payments	253,514
Less: Discount impact	(44,407		)
Total lease liability	$	209,107

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

~~Insurance~~ - primarily commercial insurance business, including excess and surplus lines and admitted lines in the United States, United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia; and

~~Reinsurance~~ ~~- reinsurance business on a facultative and treaty basis, primarily in the United States, United Kingdom, Continental Europe, Australia, the Asia-Pacific Region and South Africa.~~

Commencing with the first quarter of 2017, the Company reclassified two businesses from the Insurance Segment to the Reinsurance segment. Reclassifications have been made to the Company's 2016 financial information to conform with this presentation.


•	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

Investment
Income
Other Total (1)
Pre-Tax
Income
(Loss)

Net Income
(Loss) to Common Stockholders
Three months ended September 30, 2017
Insurance $ 1,433,729
$ 105,924
$ —
$ 1,539,653
$ 171,478
$ 123,240
Reinsurance 147,771
21,528
—
169,299
(57,643 ) (35,074 )
Corporate, other and eliminations (2) —
15,027
123,404
138,431
(71,681 ) (45,685 )
Net investment gains —
—
183,959
183,959
183,959
119,573
  Total $ 1,581,500
$ 142,479
$ 307,363
$ 2,031,342
$ 226,113
$ 162,054
Three months ended September 30, 2016
Insurance $ 1,423,635
$ 111,300
$ —
$ 1,534,935
$ 210,498
$ 140,730
Reinsurance 162,309
27,567
—
189,876
27,321
18,725
Corporate, other and eliminations (2) —
6,801
112,377
119,178
(81,942 ) (53,035 )
Net investment gains —
—
175,738
175,738
175,738
114,230
  Total $ 1,585,944
$ 145,668
$ 288,115
$ 2,019,727
$ 331,615
$ 220,650
Nine months ended September 30, 2017:
Insurance $ 4,262,485
320,552
$ —
$ 4,583,037
$ 557,605
$ 381,736
Reinsurance 457,759
67,798
—
525,557
(38,279 ) (20,801 )
Corporate, other and eliminations (2) —
38,251
326,203
364,454
(224,716 ) (146,324 )
Net investment gains —
—
276,760
276,760
276,760
179,894
  Total $ 4,720,244
$ 426,601
$ 602,963
$ 5,749,808
$ 571,370
$ 394,505
Nine months ended September 30, 2016:
Insurance $ 4,180,985
$ 304,904
$ —
$ 4,485,889
$ 586,651
$ 394,746
Reinsurance 492,087
77,119
—
569,206
79,215
54,885
Corporate, other and eliminations (2) —
22,827
415,224
438,051
(190,655 ) (123,610 )
Net investment gains —
—
189,394
189,394
189,394
123,106
  Total $ 4,673,072
$ 404,850
$ 604,618
$ 5,682,540
$ 664,605
$ 449,127

~~_________________~~



	Revenues
(In thousands)	Earned Premiums (1)		Investment Income		Other		Total (2)		Pre-Tax Income (Loss)			Net Income (Loss) to Common Stockholders
Three months ended June 30, 2019
Insurance	$	1,475,184	$	132,403	$	13,687	$	1,621,274	$	225,871		$	179,241
Reinsurance & Monoline Excess	171,657		44,449		—		216,106		52,635			41,864
Corporate, other and eliminations (3)	—		11,481		100,949		112,430		(78,344		)	(62,519		)
Net realized and unrealized gains on investments	—		—		73,574		73,574		73,574			58,123
Total	$	1,646,841	$	188,333	$	188,210	$	2,023,384	$	273,736		$	216,709
Three months ended June 30, 2018
Insurance	$	1,415,579	$	94,542	$	18,707	$	1,528,828	$	163,181		$	128,693
Reinsurance & Monoline Excess	165,474		41,914		—		207,388		56,174			44,291
Corporate, other and eliminations (3)	—		17,321		87,748		105,069		(59,744		)	(47,917		)
Net realized and unrealized gains on investments	—		—		69,631		69,631		69,631			55,008
Total	$	1,581,053	$	153,777	$	176,086	$	1,910,916	$	229,242		$	180,075
Six months ended June 30, 2019
Insurance	$	2,902,218	$	232,444	$	26,931	$	3,161,593	$	410,387		$	325,234
Reinsurance & Monoline Excess	337,479		84,023		—		421,502		97,490			77,389
Corporate, other and eliminations (3)	—		30,120		204,965		235,085		(146,928		)	(117,551		)
Net realized and unrealized gains on investments	—		—		142,226		142,226		142,226			112,359
Total	$	3,239,697	$	346,587	$	374,122	$	3,960,406	$	503,175		$	397,431
Six Months Ended June 30, 2018
Insurance	$	2,806,868	$	208,040	$	37,675	$	3,052,583	$	362,109		$	286,426
Reinsurance & Monoline Excess	341,593		88,928		—		430,521		100,866			79,838
Corporate, other and eliminations (3)	—		31,327		169,637		200,964		(140,838		)	(113,087		)
Net realized and unrealized gains on investments	—		—		118,095		118,095		118,095			93,295
Total	$	3,148,461	$	328,295	$	325,407	$	3,802,163	$	440,232		$	346,472

_________________

(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 ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 were ~~$166~~$179 million and ~~$187~~$176 million, ~~respectively,~~ and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 were ~~$513~~$349 million and ~~$546~~$359 million, respectively. Revenues for Reinsurance & Monoline Excess from foreign countries for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 were ~~$49~~$62 million and ~~$48~~$55 million, ~~respectively,~~ and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 were ~~$150~~$121 million and ~~$153~~$112 million, respectively.


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

~~(2) Corporate, other and eliminations represent corporate revenues and expenses that are not allocated to business segments.~~

Identifiable Assets



(In thousands)	June 30, 2019		December 31, 2018
Insurance	$	19,444,475	$	18,214,293
Reinsurance & Monoline Excess	4,573,446		4,371,151
Corporate, other and eliminations	2,469,982		2,310,533
Consolidated	$	26,487,903	$	24,895,977

(In thousands) September 30, 2017 December 31, 2016
Insurance $ 19,136,776
$ 19,137,758
Reinsurance 3,243,610
2,524,338
Corporate, other and eliminations 1,955,690
1,687,980
Consolidated $ 24,336,076
$ 23,350,076

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



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In thousands)	2019		2018		2019		2018
Insurance:
Other liability	$	505,621	$	474,721	$	996,282	$	938,889
Workers’ compensation	330,510		336,996		657,186		661,974
Short-tail lines (1)	305,852		288,320		594,943		583,347
Commercial automobile	188,278		175,812		369,203		351,010
Professional liability	144,923		139,730		284,604		271,648
Total Insurance	1,475,184		1,415,579		2,902,218		2,806,868

Reinsurance & Monoline Excess:
Casualty reinsurance	95,109		86,841		185,939		177,411
Monoline excess (2)	39,400		40,429		78,381		81,477
Property reinsurance	37,148		38,204		73,159		82,705
Total Reinsurance & Monoline Excess	171,657		165,474		337,479		341,593

Total	$	1,646,841	$	1,581,053	$	3,239,697	$	3,148,461

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(In thousands) 2017 2016 2017 2016
Insurance:
Other liability $ 466,616
$ 455,841
$ 1,378,505
$ 1,302,841
Workers’ compensation 378,529
354,185
1,106,616
1,042,503
Short-tail lines (1) 287,860
312,865
887,791
962,435
Commercial automobile 163,277
164,540
482,929
481,249
Professional liability 137,447
136,204
406,644
391,957
Total Insurance 1,433,729
1,423,635
4,262,485
4,180,985

Reinsurance:
Casualty 94,478
97,153
282,430
301,571
Property 53,293
65,156
175,329
190,516
Total Reinsurance 147,771
162,309
457,759
492,087

Total $ 1,581,500
$ 1,585,944
$ 4,720,244
$ 4,673,072

______________

(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 ~~2017~~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 ~~expected~~ 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 ~~data security;~~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 ~~2017~~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~~

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 ~~business segments:~~segments of the property and casualty business: Insurance and ~~Reinsurance.~~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 ~~statutory~~ capital ~~and surplus~~ employed in the industry, and the industry’s willingness to deploy that capital.

The Company’s profitability is also affected by its investment income 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 ~~are~~have been at ~~historically~~ low ~~levels.~~levels for an extended period.

The Company also invests in equity securities, merger arbitrage securities, investment funds, ~~(including energy related 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.

~~During~~On April 2, 2019, a 3-for-2 common stock split was paid in the ~~third quarter~~form of ~~2017, catastrophe losses were $119 million, including $107 million related~~a stock dividend to ~~Hurricanes Harvey, Irma,~~holders of record as of March 14, 2019. Shares outstanding and ~~Maria and two earthquakes~~per share amounts in ~~Mexico.~~this Form 10-Q reflect this 3-for-2 common stock split effected on April 2, 2019.

Commencing with the first quarter of ~~2017,~~2019, the Company renamed the Reinsurance segment to Reinsurance & Monoline Excess, and reclassified ~~two businesses~~the monoline excess business from the Insurance ~~segment to the Reinsurance~~ segment. The reclassified business includes operations that solely retain risk on an excess basis. Reclassifications have been made to the Company's ~~2016~~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.

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.

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 ~~2016:~~2018:


(In thousands)	Frequency (+/-)						Frequency (+/-)
Severity (+/-)	1%		5%		10%		1%		5%		10%
1%	$	76,915	$	231,511	$	424,755	$	78,922	$	237,553	$	435,840
5%	231,511		392,229		593,126		237,553		402,465		608,606
10%	424,755		593,126		803,590		435,840		608,606		824,563

Our net reserves for losses and loss expenses of approximately ~~$10.0~~$10.5 billion as of ~~September~~June 30, ~~2017~~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 ~~$1.8~~$2.5 billion, or ~~17%~~24%, of the Company’s net loss reserves as of ~~September~~June 30, ~~2017~~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 because those~~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 ~~assumed~~ loss development ~~factors.~~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)	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
Insurance	$	8,291,708	$	7,913,074	$	8,007,810	$	7,727,447
Reinsurance	1,756,766		1,677,191
Reinsurance & Monoline Excess					2,506,829		2,521,436
Net reserves for losses and loss expenses	10,048,474		9,590,265		10,514,639		10,248,883
Ceded reserves for losses and loss expenses	1,605,872		1,606,930		1,805,639		1,717,565
Gross reserves for losses and loss expenses	$	11,654,346	$	11,197,195	$	12,320,278	$	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
June 30, 2019
Other liability	$	1,351,833	$	2,423,630	$	3,775,463
Workers’ compensation (1)	948,968		975,454		1,924,422
Professional liability	354,166		687,989		1,042,155
Commercial automobile	382,688		307,393		690,081
Short-tail lines (2)	289,208		286,481		575,689
Total Insurance	3,326,863		4,680,947		8,007,810
Reinsurance & Monoline Excess (1) (3)	1,489,128		1,017,701		2,506,829
Total	$	4,815,991	$	5,698,648	$	10,514,639

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

(In thousands)
Reported Case
Reserves

Incurred But
Not Reported
Total
September 30, 2017
Other liability $ 1,243,208
$ 2,162,031
$ 3,405,239
Workers’ compensation (1) 1,530,194
1,246,084
2,776,278
Professional liability 299,418
584,606
884,024
Commercial automobile 341,998
267,136
609,134
Short-tail lines (2) 309,692
307,341
617,033
Total Insurance 3,724,510
4,567,198
8,291,708
Reinsurance (1) 909,690
847,076
1,756,766
Total $ 4,634,200
$ 5,414,274
$ 10,048,474

December 31, 2016
Other liability $ 1,159,082
$ 2,061,966
$ 3,221,048
Workers’ compensation (1) 1,453,318
1,228,774
2,682,092
Professional liability 264,188
542,539
806,727
Commercial automobile 344,143
252,978
597,121
Short-tail lines (2) 322,872
283,214
606,086
Total Insurance 3,543,603
4,369,471
7,913,074
Reinsurance (1) 823,516
853,675
1,677,191
Total $ 4,367,119
$ 5,223,146
$ 9,590,265

___________

(1) Reserves for workers’ compensation and ~~reinsurance~~Reinsurance & Monoline Excess are net of an aggregate net discount of ~~$599~~$546 million and ~~$640~~

$563 million as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 are as follows:


(In thousands)	2017		2016		2019			2018
Net decrease in prior year loss reserves	$	7,648	$	23,518
Net (increase) decrease in prior year loss reserves					$	(16,764	)	$	246
Increase in prior year earned premiums	22,940		18,039		30,323			19,102
Net favorable prior year development	$	30,588	$	41,557	$	13,559		$	19,348

~~In 2017,~~During the six months ended June 30, 2019, favorable prior year development (net of additional and return premiums) of ~~$31~~$13.6 million included ~~$62~~$17.2 million of favorable development for the Insurance segment, ~~partially~~ offset by ~~$31~~$3.6 million of adverse development for the Reinsurance & Monoline Excess segment.

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.

the Ogden discount rate in the U.K., as well as adverse development on the U.S. facultative casualty excess of loss business. The Ogden rate is the discount rate used to calculate lump-sum bodily injury payouts in the U.K., and was reduced by the U.K. Ministry of Justice from +2.5% to -0.75%; the adverse development mostly related to U.K. motor bodily injury claims which we reinsured on an excess of loss basis in accident years 2012 through 2016. The adverse development on U.S. facultative casualty business was due to construction-related risks in accident years 2008 and prior.

Reserve Discount. The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was ~~$1,849~~$1,762 million and ~~$1,907~~$1,793 million at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was ~~$599~~$546 million and ~~$640~~$563 million at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. At ~~September~~June 30, ~~2017,~~2019, discount rates by year ranged from 2.0% to 6.5%, with a weighted average discount rate of ~~3.8%~~3.7%.

Substantially all of the workers’ compensation discount (97% of total discounted reserves at ~~September~~June 30, ~~2017)~~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 ~~September~~June 30, ~~2017)~~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 ~~$56~~$37 million at ~~September~~June 30, ~~2017~~2019 and ~~$68~~$41 million at December 31, ~~2016.~~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. ~~Since equity securities do not have a contractual cash flow or maturity, the Company considers whether the price of an equity security is expected to recover within a reasonable period of time.~~

The Company classifies its fixed maturity securities ~~and preferred stocks~~ 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 ~~September~~June 30, ~~2017:~~2019:


($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss		Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Unrealized loss less than 20% of amortized cost	592	$	3,864,164	$	40,565	464	$	3,042,808	$	67,954
Unrealized loss of 20% or greater of amortized cost:
Less than twelve months						6	4,520		3,044
Twelve months and longer	3	180		112		6	9,873		4,747
Total	595	$	3,864,344	$	40,677	476	$	3,057,201	$	75,745

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at ~~September~~June 30, ~~2017~~2019 is presented in the table below:

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.

~~Preferred Stocks~~ – At September 30, 2017, there was one preferred stock in an unrealized loss position, with a fair value of $24.0 million and a gross unrealized loss of $1.7 million. Based upon management's view of the underlying value of the security, the Company does not consider the equity security to be OTTI. For the nine months ended September 30, 2017 and 2016, there was no OTTI for preferred stocks.

~~Common Stocks~~ – At September 30, 2017, there were three common stocks in an unrealized loss position, with an aggregate fair value of $14.1 million and a gross unrealized loss of $3.5 million. Based upon management’s view of the underlying value of these securities, the Company does not consider these equity securities to be OTTI. There was no OTTI of common stocks for the nine months ended September 30, 2017. For the nine months ended September 30, 2016, OTTI for common stocks was $18.1 million.

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 $2 million and $3 million ~~at both September~~as of June 30, ~~2017~~2019 and December 31, ~~2016.~~2018, respectively.

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 ~~and equity securities~~ 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 ~~September~~June 30, ~~2017:~~2019:

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 ~~September~~June 30, ~~2017,~~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 ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~

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 ~~United States Generally Accepted Accounting Principles (“GAAP”)~~GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~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)	2017			2016			2019			2018
Insurance:
Gross premiums written	$	5,233,692		$	5,184,033		$	3,715,850		$	3,558,247
Net premiums written	4,364,638			4,386,944			3,071,964			2,964,676
Net premiums earned	4,262,485			4,180,985			2,902,218			2,806,868
Loss ratio	61.7		%	61.1		%	62.5		%	61.7		%
Expense ratio	32.8		%	32.3		%	31.4		%	32.9		%
GAAP combined ratio	94.5		%	93.4		%	93.9		%	94.6		%
Reinsurance:
Reinsurance & Monoline Excess:
Gross premiums written	$	463,825		$	579,878		$	420,240		$	369,248
Net premiums written	417,634			526,712			381,101			324,766
Net premiums earned	457,759			492,087			337,479			341,593
Loss ratio	86.1		%	60.5		%	60.0		%	60.3		%
Expense ratio	37.1		%	39.1		%	36.0		%	36.2		%
GAAP combined ratio	123.2		%	99.6		%	96.0		%	96.5		%
Consolidated:
Gross premiums written	$	5,697,517		$	5,763,911		$	4,136,090		$	3,927,495
Net premiums written	4,782,272			4,913,656			3,453,065			3,289,442
Net premiums earned	4,720,244			4,673,072			3,239,697			3,148,461
Loss ratio	64.1		%	61.0		%	62.2		%	61.5		%
Expense ratio	33.2		%	33.1		%	31.9		%	33.3		%
GAAP combined ratio	97.3		%	94.1		%	94.1		%	94.8		%

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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:

The Company reported net income to common stockholders of ~~$395~~$397 million in ~~2017~~2019 compared to ~~$449~~$346 million in ~~2016.~~2018. The ~~12% decrease~~15% increase in net income was primarily due to an after-tax ~~decrease~~increase in underwriting income of ~~$97~~$20 million, ~~mainly driven by increased catastrophe losses from Hurricanes Harvey, Irma and Maria, as well as two earthquakes in Mexico,~~ an after-tax increase in net investment gains of $19 million, an after-tax increase of $14 million in net investment income, an after-tax increase of $2 million in other income, an after-tax increase in foreign currency ~~losses~~gains of ~~$17~~$1 million, and ~~an after-tax~~a decrease of $1 million in ~~income from non-insurance businesses of $7 million,~~tax expense, partially offset by an after-tax increase in ~~after-tax net investment gains~~corporate expenses of ~~$57~~$4 million and an after-tax increase in ~~investment income~~interest expense of ~~$14~~$4 million. The number of weighted average diluted shares remained relatively unchanged for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018.

Premiums. Gross premiums written were ~~$5,698~~$4,136 million in ~~2017, a decrease~~2019, an increase of 1%5% from ~~$5,764~~$3,927 million in ~~2016.~~2018. The ~~decrease~~increase was due to a ~~decrease in the Reinsurance segment of $116~~$158 million ~~partially offset by an~~ increase in the Insurance segment ~~of $50 million.~~and a $51 million increase in the Reinsurance & Monoline Excess segment. Approximately ~~77.7%~~75.5% of policies expiring in ~~2017~~2019 were renewed, ~~compared with a 77.8% renewal retention rate for~~and 75.9% of policies expiring in ~~2016.~~2018 were renewed.

Average renewal premium rates for insurance and facultative reinsurance increased ~~1.0%~~4.1% in ~~2017~~2019 when adjusted for ~~change~~changes in ~~exposures.~~exposures, and increased 5.9% excluding workers' compensation.

A summary of gross premiums written in ~~2017~~2019 compared with ~~2016~~2018 by line of business within each business segment follows:

Net premiums written were ~~$4,782~~$3,453 million in ~~2017, a decrease~~2019, an increase of 3%5% from ~~$4,914~~$3,289 million in ~~2016.~~2018. Ceded reinsurance premiums as a percentage of gross written premiums were 17% in 2019 and 16% in ~~2017 and 15% in 2016.~~2018.

Premiums earned increased 1%3% to ~~$4,720~~$3,240 million in ~~2017~~2019 from ~~$4,673~~$3,148 million in ~~2016.~~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 ~~2017~~2019 are related to business written during both ~~2017~~2019 and ~~2016.~~2018. Audit premiums were ~~$137~~$100 million in ~~2017~~2019 compared with ~~$116~~$98 million in ~~2016.~~2018.

Net ~~investment~~Investment Income. Following is a summary of net investment income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:

Net investment income increased 5%6% to ~~$427~~$347 million in ~~2017~~2019 from ~~$405~~$328 million in ~~2016~~2018 due primarily to a ~~$16~~$8 million increase in income from fixed maturity securities mainly driven by growth in the fixed maturity security portfolio, a ~~$10~~$5 million increase in income from ~~real estate,~~investment funds, a $3$4 million increase from the arbitrage trading account, and a ~~reduction~~$2 million increase from equity securities. The Company has maintained a shortened duration of ~~investment expenses~~its fixed maturity security portfolio. This has reduced the potential impact of ~~$3 million, partially offset by a $10 million decrease from investment funds.~~mark-to-market on the portfolio and positioned the Company to react quickly to changes in the current environment. Average invested assets, at cost (including cash and cash equivalents), were ~~$17.4~~$19.0 billion in ~~2017~~2019 and ~~$16.6~~$18.1 billion in ~~2016.~~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. ~~Service~~Insurance service fees decreased to ~~$100~~$48 million in ~~2017~~2019 from ~~$109~~$60 million in ~~2016.~~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 ~~Investment Sales~~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 ~~investment sales~~investments were $277 million in 2017 compared with $208 million in 2016. The nine months ended September 30, 2017 include a gain of $124 million from the sale of an investment in an office building located in Washington D.C. The nine months ended September 30, 2016 include a gain of $135 million from the sale of Aero Precision Industries and certain related aviation services business.

~~Other-Than-Temporary Impairments. There were no impairments in 2017. Other-than-temporary impairments of $18.1 million in 2016 related to common stocks.~~

~~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 $225 million in 2017 and $306 million in 2016. The decrease was primarily related to the sale of Aero Precision Industries in August 2016, partially offset by revenues from the textile business purchased in March 2017.

~~A summary of loss ratios in 2017 compared with 2016 by business segment follows:~~

~~Reinsurance - The loss ratio of 86.1% in 2017 was 25.6 points~~ ~~higher~~ than the loss ratio of 60.5% in 2016. Catastrophe losses were $73 million in 2017 compared with $10 million in 2016. Adverse prior year reserve development was $31 million in 2017 largely due to the impact of the change in the Ogden discount rate in the U.K. and adverse development related to the U.S. facultative casualty excess of loss business, compared with favorable prior year development of $4 million in 2016. The loss ratio excluding catastrophe losses and prior year reserve development i~~ncreased 4.1~~ ~~points to 63.3% in 2017 from 59.2% in 2016.~~

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

($ in thousands) 2017 2016
Policy acquisition and operating insurance expenses $ 1,567,359
$ 1,544,792
Insurance service expenses 97,308
103,868
Net foreign currency (gains) losses 14,255
(11,547 )
Other costs and expenses 142,233
133,337
Total $ 1,821,155
$ 1,770,450

Policy acquisition and operating insurance expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Policy acquisition and operating insurance expenses ~~increased 1~~% compared with an increase in net premiums earned of 1%. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 33.2% and 33.1% for the nine months ended September 30, 2017 and 2016, respectively.

~~Service expenses, which represent the costs associated with the fee-based businesses, decreased to $97 million in 2017 from $104 million in 2016.~~

Net foreign currency (gains) losses result from transactions denominated in a currency other than a company's operating functional currency. Net foreign currency losses were $14 million in 2017 compared to gains of $12 million in 2016.

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 $142 million in ~~2017 from $133~~2019 compared with $118 million in ~~2016 primarily because of startup costs for new business ventures.~~

~~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 $221 million in 2017 compared to $291 million in 2016.2018. The ~~decline mainly relates to the sale of Aero Precision Industries in August 2016, partially offset by the expense from the textile business purchased in March 2017.~~

~~Interest Expense. Interest expense was $110 million in 2017 compared with $104 million in 2016. During 2017, the~~ Company repaid $2 million of debt compared to $83 million in 2016, mainly in connection with the sale of Aero Precision Industries. In February 2016, the Company issued $110 million of 5.9% subordinated debentures maturing in 2056, and in May 2016, the Company issued $290 million of 5.75% subordinated debentures maturing in 2056.

~~Income Taxes. The effective income tax rate was 31% in 2017 and 32% in 2016. The effective income tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.~~

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $40 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. However, in the future, if such earnings were distributed to the Company, taxes of approximately $4 million, assuming all tax credits are realized, would be payable on such undistributed earnings and would be reflected in the tax provision for the year in which these earnings are no longer intended to be permanently reinvested in the foreign subsidiary.

~~Results of Operations for the Three Months Ended September 30, 2017 and 2016~~

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 United States Generally Accepted Accounting Principles (“GAAP”) combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the three months ended September 30, 2017 and 2016. 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) 2017 2016
Insurance:
Gross premiums written $ 1,718,552
$ 1,688,712
Net premiums written 1,432,334
1,443,986
Net premiums earned 1,433,729
1,423,635
Loss ratio 63.2 % 60.9 %
Expense ratio 32.4 % 32.3 %
GAAP combined ratio 95.6 % 93.2 %
Reinsurance:
Gross premiums written $ 155,606
$ 180,137
Net premiums written 138,849
163,379
Net premiums earned 147,771
162,309
Loss ratio 118.7 % 61.3 %
Expense ratio 34.9 % 38.9 %
GAAP combined ratio 153.6 % 100.2 %
Consolidated:
Gross premiums written $ 1,874,158
$ 1,868,849
Net premiums written 1,571,183
1,607,365
Net premiums earned 1,581,500
1,585,944
Loss ratio 68.4 % 60.9 %
Expense ratio 32.6 % 33.0 %
GAAP combined ratio 101.0 % 93.9 %

~~Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share for the three months ended September 30, 2017 and 2016:~~

(in thousands, except per share data) 2017 2016
Net income to common stockholders $ 162,054
$ 220,650
Weighted average diluted shares 128,944
128,556
Net income per diluted share $ 1.26
$ 1.72

~~The Company reported net income of $162 million in 2017 compared to~~ ~~$221 million in 2016~~. The 27% decrease in net income was primarily due to an after-tax decrease in underwriting income of $73 million mainly driven by increased catastrophe losses from Hurricanes Harvey, Irma and Maria, as well as two earthquakes in Mexico, partially offset by an $11

~~Premiums~~. Gross premiums written were $1,874 million in 2017, an increase of less than 1% from $1,869 million in 2016. Approximately 77.5% of policies expiring in 2017 were renewed, compared with a 77.7% renewal retention rate for policies expiring in 2016.

~~Average renewal premium rates for insurance and facultative reinsurance increased 0.7% in 2017 when adjusted for change in exposures.~~

~~A summary of gross premiums written in 2017 compared with 2016 by line of business within each business segment follows:~~

~~Net premiums written were $1,571 million in 2017, a decrease of 2% from $1,607 million in 2016. Ceded reinsurance premiums as a percentage of gross written premiums were 16% in 2017 and 14% in 2016.~~

Premiums earned decreased less than 1% to $1,582 million in 2017 from $1,586 million in 2016. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term. Premiums earned in 2017 are related to business written during both 2017 and 2016. Audit premiums were $46 million in 2017 compared with $35 million in 2016.

~~Net Investment Income. Following is a summary of net investment income for the three months ended September 30, 2017 and 2016:~~

~~Net investment income decreased 2% to~~ $142 million in 2017 from $146 million in 2016 due primarily to a $10 million decrease from investment funds and a $2 million decrease from the arbitrage trading account, partially offset by a $4 million increase from fixed maturity securities and an increase of $4 million in income from real estate. Average invested assets, at cost (including cash and cash equivalents), were $17.6 billion in 2017 up from $17.0 billion in 2016.

~~Insurance Service Fees. The Company earns fees from an insurance distribution business and as a servicing carrier of workers' compensation assigned risk plans for certain states. Service fees increased~~ ~~to $34 million in 2017 from $32 million in 2016.~~

~~Net Realized Gains on Investment Sales~~. 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. Net2019 reflect net realized gains on investment sales ~~were $184~~of $31 million and an increase in ~~2017 compared with $176 million in 2016. The three months ended September 30, 2017 include a gain~~unrealized gains on equity securities of ~~$124 million from the sale of an investment in an office building located in Washington D.C. The three months ended~~$111 million.

~~September 30, 2016 include a gain of $135 million from the sale of Aero Precision Industries and certain related aviation services business.~~

~~Other-Than-Temporary Impairments. There were no other-than-temporary impairments during the three months ended September 30, 2017 and 2016.~~

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 ~~$90~~$181 million in ~~2017~~2019 and ~~$80~~$147 million in ~~2016.~~2018. The increase ~~was primarily related~~mainly relates to growth in revenues from the ~~textile~~aviation-related businesses and the purchase of a promotional merchandise business ~~purchased~~ in ~~March 2017.~~the second half of 2018.

Losses and Loss Expenses. Losses and loss expenses increased to ~~$1,081~~$2,017 million in ~~2017~~2019 from ~~$966~~$1,937 million in ~~2016.~~2018. The consolidated loss ratio was ~~68.4%~~62.2% in ~~2017~~2019 and ~~60.9%~~61.5% in ~~2016.~~2018. Catastrophe losses, net of reinsurance recoveries and reinstatement premiums, were ~~$119~~$38 million in ~~2017~~2019 and ~~$12~~$21 million in ~~2016. Hurricanes Harvey, Irma and Maria, along with two earthquakes in Mexico, resulted in catastrophe losses of $107 million.~~2018. Favorable prior year reserve development (net of premium offsets) was $7$14 million in ~~2017~~2019 and ~~$13~~$19 million in ~~2016.~~2018. The loss ratio excluding catastrophe losses and prior year reserve development i~~ncreased 0.4~~ ~~points to 61.3%~~was 61.5% in ~~2017 from 60.9%~~2019 and 61.4% in ~~2016.~~2018.

A summary of loss ratios in ~~2017~~2019 compared with ~~2016~~2018 by business segment follows:

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

Policy acquisition and insurance operating ~~insurance~~ expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Policy acquisition and insurance operating ~~insurance~~ expenses decreased 1% ~~compared with a decrease in~~and net premiums earned ~~of less than 1%.~~increased 3% from 2018. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) ~~decreased~~was 31.9% in 2019 and 33.3% in 2018. The improvement is primarily attributable to ~~32.6% from 33.0% in 2016.~~

higher net premiums earned and lower expenses.

Service expenses, which represent the costs associated with the fee-based businesses, ~~remained flat at $32~~decreased to $51 million ~~for 2017 and 2016.~~in 2019 from $64 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 ~~losses~~gains were $2$6 million in ~~2017~~2019 compared to gains of $2$5 million in ~~2016.~~2018, mainly resulting from the continued strengthening of the 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 ~~decreased~~increased to ~~$50~~$103 million in ~~2017~~2019 from ~~$53~~$98 million in ~~2016.~~2018, primarily due to non-recurring performance-based compensation costs.

expenses. Expenses from non-insurance businesses were ~~$86~~$178 million in ~~2017~~2019 compared to ~~$79~~$145 million in ~~2016.~~2018. The increase ~~was primarily related~~mainly relates to ~~the textile~~expenses from a business purchased in ~~March 2017.~~the second half of 2018.

Interest Expense. Interest expense was ~~$37~~$81 million in ~~both 2017 and 2016. During 2017,~~2019 compared with $77 million in 2018. In March 2018, the Company ~~repaid $2~~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 ~~compared~~of $116 million, which was primarily attributable to ~~$83 million~~a non-recourse mortgage loan on a real estate property in ~~2016, mainly in connection with the sale of Aero Precision Industries.~~Florida.

Income Taxes. The effective income tax rate was ~~28%~~20.7% in ~~2017~~2019 and ~~33%~~20.9% in ~~2016.~~2018. The effective income tax rate differs from the federal income tax rate of ~~35%~~21% primarily because of tax-exempt ~~investment~~ income ~~as well as the new requirement in 2017 to recognize~~and tax ~~benefits for stock compensation in~~on income from foreign jurisdictions with different tax ~~expense.~~rates.

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately ~~$40~~$89 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. ~~However, in~~In the future, if such earnings were distributed the Company projects that the incremental tax, if any, will be immaterial.

Results of Operations for the Three Months Ended June 30, 2019 and 2018

Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the three months ended June 30, 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	$	1,905,367		$	1,798,074
Net premiums written	1,574,585			1,491,432
Net premiums earned	1,475,184			1,415,579
Loss ratio	62.9		%	62.4		%
Expense ratio	30.9		%	32.9		%
GAAP combined ratio	93.8		%	95.3		%
Reinsurance & Monoline Excess:
Gross premiums written	$	184,494		$	150,000
Net premiums written	168,879			132,672
Net premiums earned	171,657			165,474
Loss ratio	59.2		%	54.6		%
Expense ratio	36.0		%	36.8		%
GAAP combined ratio	95.2		%	91.4		%
Consolidated:
Gross premiums written	$	2,089,861		$	1,948,074
Net premiums written	1,743,464			1,624,104
Net premiums earned	1,646,841			1,581,053
Loss ratio	62.4		%	61.6		%
Expense ratio	31.5		%	33.3		%
GAAP combined ratio	93.9		%	94.9		%

Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share for the three months ended June 30, 2019 and 2018:



(In thousands, except per share data)	2019		2018
Net income to common stockholders	$	216,709	$	180,075
Weighted average diluted shares	193,059		192,509
Net income per diluted share	$	1.12	$	0.93

The Company reported net income to common stockholders of $217 million in 2019 compared to $180 million in 2018. The 20% increase in net income was primarily due to an after-tax increase in net investment income of $27 million mainly due to investment funds, an after-tax increase in underwriting income of $15 million, an after-tax decrease in corporate expenses of $5 million, an after-tax increase in net investment gains of $3 million, an after-tax increase in other income of $2 million and a decrease in tax expense of $2 million, partially offset by an after-tax increase in foreign currency losses of $15 million, an after-tax decrease in insurance service fee income of $2 million and an after-tax increase in interest expense of $1 million. The number of weighted average diluted shares remained relatively unchanged for the three months ended June 30, 2019 and 2018.

Premiums. Gross premiums written were $2,090 million in 2019, an increase of 7% from $1,948 million in 2018. The increase was due to a $107 million increase in the Insurance segment and a $35 million increase in the Reinsurance & Monoline Excess segment. Approximately 75.5% of policies expiring in 2019 were renewed, and 76.6% of policies expiring in 2018 were renewed.

Average renewal premium rates for insurance and facultative reinsurance increased 3.5% in 2019 when adjusted for changes in exposures, and increased 5.3% excluding workers' compensation.

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

Net premiums written were $1,743 million in 2019, an increase of 7% from $1,624 million in 2018. Ceded reinsurance premiums as a percentage of gross written premiums were 17% in both 2019 and 2018.

Premiums earned increased 4% to $1,647 million in 2019 from $1,581 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 $58 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 June 30, 2019 and 2018:



	Amount						Average Annualized Yield
($ in thousands)	2019			2018			2019		2018
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	128,903		$	129,665		3.4	%	3.6	%
Investment funds	46,840			12,716			13.4		4.2
Arbitrage trading account	7,199			8,333			7.0		5.0
Real estate	5,174			3,174			1.0		0.7
Equity securities	1,303			559			2.1		1.0
Gross investment income	189,419			154,447			4.0		3.4
Investment expenses	(1,086		)	(670		)	—		—
Total	$	188,333		$	153,777		3.9	%	3.4	%

Net investment income increased 22% to $188 million in 2019 from $154 million in 2018 due primarily to a $34 million increase in income from investment funds, a $2 million increase in real estate and $1 million increase in equity securities, partially offset by a $1 million decrease in income from fixed maturity securities and a $1 million decrease in 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 react quickly to changes in the current environment. Average invested assets, at cost (including cash and cash equivalents), were $19.1 billion in 2019 and $18.2 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 $22 million in 2019 from $30 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 $74 million in 2019 compared with $70 million in 2018. The gains of $74 million in 2019 reflect net realized gains on investment sales of $4 million and an increase in unrealized gains on equity securities of $70 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 $89 million in 2019 and $77 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 $1,029 million in 2019 from $974 million in 2018. The consolidated loss ratio was 62.4% in 2019 and 61.6% in 2018. Catastrophe losses, net of reinsurance recoveries and reinstatement premiums, were $26 million in 2019 and $14 million in 2018. Favorable prior year reserve development (net of premium offsets) was $7 million in both 2019 and 2018. The loss ratio excluding catastrophe losses and prior year reserve development was 61.3% in 2019 and 61.2% in 2018.

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

Policy acquisition and insurance operating expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Policy acquisition and insurance operating expenses decreased 2% and net premiums earned increased 4% from 2018. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 31.5% in 2019 and 33.3% in 2018. The improvement is primarily attributable to higher net premiums earned, lower expenses and a non-recurring benefit of approximately $40.5% in 2019.

Service expenses, which represent the costs associated with the fee-based businesses, decreased to $25 million ~~assuming all~~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 foreign currency (gains) losses result from transactions denominated in a currency other than a company's operating functional currency. Net foreign currency losses were $0.5 million in 2019 compared to gains of $18 million in 2018. The foreign currency gain in 2018 was mainly a result of the strengthening U.S. dollar.

Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs and expenses decreased to $48 million in 2019 from $54 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 $88 million in 2019 compared to $75 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 $40 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 ~~credits are realized, would be payable~~rate was 20.6% in 2019 and 21.1% 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 ~~such~~income from foreign jurisdictions with different tax rates.

The Company has not provided U.S. deferred income taxes on the undistributed earnings ~~and would be reflected in the tax provision for the year in which~~of approximately $89 million of its non-U.S. subsidiaries since these earnings are ~~no longer~~ intended to be permanently reinvested in the ~~foreign subsidiary.~~non-U.S. subsidiaries. In the future, if such earnings were distributed the Company projects that the incremental tax, if any, will be immaterial.

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 ~~historically~~ 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 ~~2.9~~2.6 years at ~~September~~June 30, ~~2017, down from 3.1~~2019 and 2.8 years at December 31, ~~2016.~~2018. The Company’s fixed maturity investment portfolio and investment-related assets as of ~~September~~June 30, ~~2017~~2019 were as follows:


($ in thousands)	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Fixed maturity securities:
U.S. government and government agency	$	411,605	2.2	%
U.S. government and government agencies					$	777,070	3.9	%
State and municipal:
Special revenue	2,829,795		15.4		2,402,349		12.2
Local general obligation					464,109		2.4
State general obligation	537,537		2.9		381,719		2.0
Local general obligation	415,635		2.3
Pre-refunded (1)					324,068		1.7
Corporate backed	391,627		2.1		244,745		1.3
Pre-refunded (1)	303,947		1.8
Total state and municipal	4,478,541		24.4		3,816,990		19.6
Mortgage-backed securities:
Agency	832,993		4.5		902,565		4.6
Residential-Prime					335,938		1.7
Commercial	251,578		1.4		309,781		1.6
Residential-Prime	226,274		1.2
Residential-Alt A	23,298		0.2		36,962		0.2
Total mortgage-backed securities	1,334,143		7.2		1,585,246		8.1
Asset-backed securities	2,388,618		13.0		2,701,785		13.9
Corporate:
Industrial	2,636,885		14.4		2,230,207		11.4
Financial	1,374,021		7.5		1,453,723		7.5
Utilities	267,331		1.5		324,322		1.7
Other	42,137		0.2		28,033		0.1
Total corporate	4,320,374		23.6		4,036,285		20.7
Foreign government and foreign government agencies	940,409		5.1		815,424		4.2
Total fixed maturity securities	13,873,690		75.7		13,732,800		70.4
Equity securities available for sale:
Equity securities:
Preferred stocks					276,362		1.4
Common stocks	419,520		2.3		140,226		0.7
Preferred stocks	194,505		1.1
Total equity securities available for sale	614,025		3.4
Total equity securities					416,588		2.1
Real estate	1,391,274		7.5		2,067,544		10.6
Investment funds	1,119,907		6.0		1,401,571		7.2
Cash and cash equivalents	773,997		4.2		1,258,174		6.5
Arbitrage trading account	488,238		2.7		533,442		2.7
Loans receivable	74,229		0.5		94,697		0.5
Total investments	$	18,335,360	100.0	%	$	19,504,816	100.0	%

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.

(In thousands) Carrying Value
Argentina $ 259,720
Australia 217,397
Canada 175,816
United Kingdom 84,894
Brazil 53,547
Germany 48,794
Supranational (1) 40,591
Singapore 25,326
Norway 9,930
Mexico 9,490
Colombia 7,696
Uruguay 7,208
Total $ 940,409

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

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 ~~2.9~~2.6 years at ~~September~~June 30, ~~2017, down from 3.1~~2019 and 2.8 years at December 31, ~~2016~~.2018.

Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities ~~decreased~~ ~~to $522~~was $403 million in the first ~~nine~~six months of ~~2017~~2019 as compared to $119 million from ~~$727 million~~operating activities in the ~~comparable period in 2016,~~first six months of 2018. The increase is primarily due to ~~the timing of~~an increase in net premium receipts and reduced loss and loss expense ~~payments and payments to taxing authorities.~~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 ~~80%~~77% invested in cash, cash equivalents and marketable fixed maturity securities as of ~~September~~June 30, ~~2017.~~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 ~~September~~June 30, ~~2017,~~2019, the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of ~~$2,488~~$2,782 million and a face amount of ~~$2,521~~$2,817 million. The maturities of the outstanding debt are ~~$442~~$447 million in 2019, ~~$302~~$306 million in 2020, $427 million in 2022, $102 million in 2028, $250 million in 2037, $350 million in 2044, $350 million in 2053, ~~and~~ $400 million in ~~2056.~~

~~In February 2016, the Company issued $110 million aggregate principal amount of its 5.9% subordinated debentures due~~ 2056, and $185 million in May 2016, the Company issued $290 million aggregate principal amount of its 5.75% subordinated debentures due 2056. During 2017, the Company repaid $2 million of debt compared to $83 million of debt in 2016 mainly in connection with the sale of Areo Precision Industries.2058.

Equity. At ~~September~~June 30, ~~2017~~,2019, total common stockholders’ equity was ~~$5.4~~$6.0 billion, common shares outstanding were ~~121,769,109~~183,168,398 and stockholders’ equity per outstanding share was ~~$44.60. The Company repurchased 441,119 common shares for $28.4 million during the three months ended September 30, 2017.~~$32.63. 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 ~~$7.9~~$8.8 billion at ~~September~~June 30, ~~2017~~.2019. The percentage of the Company’s capital attributable to senior notes, subordinated debentures and other debt was ~~31%~~32% at ~~September~~June 30, ~~2017~~2019 and ~~33%~~34% at December 31, ~~2016.~~2018.

Item 3.3. 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~~.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~~.Reporting. During the quarter ended ~~September~~June 30, ~~2017~~,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 2120 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, ~~2016.~~2018.

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

~~Set forth below is a summary~~The Company did not repurchase any of ~~the~~its shares ~~repurchased by the Company~~ during the ~~three~~six months ended ~~September~~June 30, ~~2017~~2019, and accordingly the number of shares ~~remaining~~ authorized for purchase by the ~~Company:~~

Company remains 8,911,397.

Total number
of shares purchased Average price
paid per share Total number of shares purchased
as part of publicly announced plans or programs Maximum number of
shares that may yet be purchased under the plans or programs
July 2017 —
—
—
6,851,086
August 2017 —
—
—

10,000,000 ⁽¹⁾

September 2017 441,119
$ 64.333
441,119
9,558,881

⁽¹⁾ ~~The Company's repurchase authorization was increased to 10,000,000 shares on August 8, 2017.~~

Item 6.Exhibits



Number
(~~10.1~~31.1)		~~Form of 2017 Performance-Based Restricted Stock Unit Agreement Under the W. R. Berkley Corporation 2012 Stock Incentive Plan~~

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

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

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

SIGNATURES

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



		W. R. BERKLEY CORPORATION
Date:	~~November 8, 2017~~August 5, 2019	/s/ W. Robert Berkley, Jr.
		W. Robert Berkley, Jr.
		President and Chief Executive Officer

Date:	~~November 8, 2017~~August 5, 2019	/s/ Richard M. Baio
		Richard M. Baio
		~~Senior~~ Executive Vice President - Chief Financial Officer and Treasurer



Delaware			22-1867895
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer
~~incorporation or organization)~~		Identification No.)

475 Steamboat Road ~~Greenwich, Connecticut~~	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.



	Carrying Value as of				Income (Loss) from Investment Funds
	September 30,		December 31,		For the Nine Months Ended September 30,
(In thousands)	2017		2016		2017			2016
Real estate	$	614,508	$	641,783	$	30,661		$	33,028
Energy	85,817		91,448		(12,763		)	7,174
Hedge equity	—		73,913		(1,164		)	791
Other funds	419,582		391,002		34,010			19,392
Total	$	1,119,907	$	1,198,146	$	50,744		$	60,385



Change in unrealized investment gains of available for sale securities:
Fixed maturity securities	$	(10,627	)	$	(45,388	)	$	84,214		$	169,933
Previously impaired fixed maturity securities	61			(1,406		)	905			413
Equity securities available for sale	(2,126		)	(28,517		)	(44,812		)	12,433
Investment funds	4,129			3,143			9,841			16,028
Total change in unrealized investment gains	(8,563		)	(72,168		)	50,148			198,807
Income tax benefit (expense)	423			24,493			(23,550		)	(64,594		)
Noncontrolling interests	5			57			19			66
After-tax change in unrealized investment gains of available for sale securities	$	(8,135	)	$	(47,618	)	$	26,617		$	134,279


~~(1)~~	~~Claims occurring during the current year are net of loss reserve discounts of $16,787,000 and $12,085,000 for the nine months ended September 30, 2017 and 2016, respectively.~~


~~(2)~~	The 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 decreased by $30,609,000 and $45,813,000 for the nine months ended September 30, 2017 and 2016, 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 $31 million and $42 million for the nine months ended September 30, 2017 and 2016, respectively.



	Revenues
(In thousands)	Earned Premiums		Investment Income		Other		Total (1)		Pre-Tax Income (Loss)			Net Income (Loss) to Common Stockholders
Three months ended September 30, 2017
Insurance	$	1,433,729	$	105,924	$	—	$	1,539,653	$	171,478		$	123,240
Reinsurance	147,771		21,528		—		169,299		(57,643		)	(35,074		)
Corporate, other and eliminations (2)	—		15,027		123,404		138,431		(71,681		)	(45,685		)
Net investment gains	—		—		183,959		183,959		183,959			119,573
Total	$	1,581,500	$	142,479	$	307,363	$	2,031,342	$	226,113		$	162,054
Three months ended September 30, 2016
Insurance	$	1,423,635	$	111,300	$	—	$	1,534,935	$	210,498		$	140,730
Reinsurance	162,309		27,567		—		189,876		27,321			18,725
Corporate, other and eliminations (2)	—		6,801		112,377		119,178		(81,942		)	(53,035		)
Net investment gains	—		—		175,738		175,738		175,738			114,230
Total	$	1,585,944	$	145,668	$	288,115	$	2,019,727	$	331,615		$	220,650
Nine months ended September 30, 2017:
Insurance	$	4,262,485	320,552		$	—	$	4,583,037	$	557,605		$	381,736
Reinsurance	457,759		67,798		—		525,557		(38,279		)	(20,801		)
Corporate, other and eliminations (2)	—		38,251		326,203		364,454		(224,716		)	(146,324		)
Net investment gains	—		—		276,760		276,760		276,760			179,894
Total	$	4,720,244	$	426,601	$	602,963	$	5,749,808	$	571,370		$	394,505
Nine months ended September 30, 2016:
Insurance	$	4,180,985	$	304,904	$	—	$	4,485,889	$	586,651		$	394,746
Reinsurance	492,087		77,119		—		569,206		79,215			54,885
Corporate, other and eliminations (2)	—		22,827		415,224		438,051		(190,655		)	(123,610		)
Net investment gains	—		—		189,394		189,394		189,394			123,106
Total	$	4,673,072	$	404,850	$	604,618	$	5,682,540	$	664,605		$	449,127


•	Insurance - gross premiums increased 4% to $3,716 million in 2019 from $3,558 million in 2018. Gross premiums increased $101 million (9%) for other liability, $69 million (17%) for professional liability, $31 million (4%) for short-tail lines and $18 million (4%) for commercial auto, and decreased $61 million (8%) for workers' compensation.


•	Reinsurance & Monoline Excess - gross premiums increased 14% to $420 million in 2019 from $369 million in 2018. Gross premiums increased $41 million (23%) for casualty reinsurance, $8 million (9%) for property reinsurance and $2 million (2%) for monoline excess.


•	Insurance - The loss ratio was 62.5% in 2019 and 61.7% in 2018. Catastrophe losses were $38 million in 2019 compared with $20 million in 2018. Favorable prior year reserve development was $17 million in 2019 and $26 million in 2018. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.4 points to 61.8% in 2019 from 61.4% in 2018.



Commission File Number	1-15202



(203)	629-3000


•	Reinsurance & Monoline Excess - The loss ratio was 60.0% in 2019 and 60.3% in 2018. Catastrophe losses were $0.1 million in 2019 compared with $1 million in 2018. Adverse prior year reserve development was $3 million in 2019 and $7 million in 2018. The loss ratio excluding catastrophe losses and prior year reserve development decreased 2.5 points to 58.9% in 2019 from 61.4% in 2018.


•	Insurance - gross premiums increased 6% to $1,905 million in 2019 from $1,798 million in 2018. Gross premiums increased $59 million (10%) for other liability, $50 million (25%) for professional liability, $24 million (6%) for short-tail lines, and $15 million (8%) for commercial auto, and decreased $41 million (11%) for workers' compensation.


•	Insurance - The loss ratio was 62.9% in 2019 and 62.4% in 2018. Catastrophe losses were $25 million in 2019 compared with $13 million in 2018. Favorable prior year reserve development was $8 million in 2019 and $10 million in 2018. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.4 points to 61.7% in 2019 from 61.3% in 2018.



(In thousands)	Carrying Value
Argentina	$	259,720
Australia	217,397
Canada	175,816
United Kingdom	84,894
Brazil	53,547
Germany	48,794
Supranational (1)	40,591
Singapore	25,326
Norway	9,930
Mexico	9,490
Colombia	7,696
Uruguay	7,208
Total	$	940,409



	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
July 2017	—	—		—	6,851,086
August 2017	—	—		—	10,000,000 ⁽¹⁾
September 2017	441,119	$	64.333	441,119	9,558,881