UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)



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

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~2020



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

For the Transition Period from to .

~~Commission File Number~~


Commission File Number			1-15202

W. R. BERKLEY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

22-1867895

(State or other jurisdiction of

~~(I.R.S. Employer~~

incorporation or organization)

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

475 Steamboat Road ~~Greenwich, Connecticut~~

Greenwich

Connecticut

06830

(Address of principal executive offices)

(Zip Code)



(203)			~~(203)~~ 629-3000

(Registrant’s telephone number, including area code)

~~(Registrant’s telephone number, including area code)~~None

~~None~~

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

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


Title	Trading Symbol	Name

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 29, 2020: 178,003,807

TABLE OF CONTENTS



Part I — FINANCIAL INFORMATION
			Item 1. Financial Statements
			Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
			Item 3. Quantitative and Qualitative Disclosure About Market Risk
			Item 4. Controls and Procedures
PART II — OTHER INFORMATION
			Item 1. Legal Proceedings
			Item 1A. Risk Factors
			Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
			Item 6. Exhibits
SIGNATURES
~~EX-10.1~~
~~EX-31.1~~ EX-10.1
~~EX-31.2~~ EX-31.1
~~EX-32.1~~ EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I — FINANCIAL INFORMATION


Item 1. Financial Statements ~~Item 1.~~	~~Financial Statements~~

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30, 2017			December 31, 2016				June 30, 2020		December 31, 2019
	(Unaudited)			(Audited)				(Unaudited)		(Audited)
Assets							Assets
Investments:							Investments:
Fixed maturity securities	$	13,873,690		$	13,190,668
Fixed maturity securities (amortized cost of $13,019,378 and $13,976,647; allowance for expected credit losses of $46,441 at June 30, 2020)							Fixed maturity securities (amortized cost of $13,019,378 and $13,976,647; allowance for expected credit losses of $46,441 at June 30, 2020)	$	13,281,085	$	14,180,961
Real estate							Real estate	2,072,772		2,105,950
Investment funds	1,119,907			1,198,146			Investment funds	1,159,237		1,213,535
Real estate	1,391,274			1,184,981
Arbitrage trading account	488,238			299,999			Arbitrage trading account	580,950		400,809
Equity securities available for sale	614,025			669,200
Loans receivable	74,229			106,798
Equity securities							Equity securities	362,265		480,620
Loans receivable (net of allowance for expected credit losses of $8,719 at June 30, 2020)							Loans receivable (net of allowance for expected credit losses of $8,719 at June 30, 2020)	82,134		91,799

Total investments	17,561,363			16,649,792			Total investments	17,538,443		18,473,674
Cash and cash equivalents	773,997			795,285			Cash and cash equivalents	2,430,826		1,023,710
Premiums and fees receivable	1,818,836			1,701,854
Due from reinsurers	1,739,835			1,743,980
Premiums and fees receivable (net of allowance for expected credit losses of $22,106 at June 30, 2020)							Premiums and fees receivable (net of allowance for expected credit losses of $22,106 at June 30, 2020)	2,186,964		1,997,186
Due from reinsurers (net of allowance for expected credit losses of $7,175 at June 30, 2020)							Due from reinsurers (net of allowance for expected credit losses of $7,175 at June 30, 2020)	2,273,638		2,133,683
Deferred policy acquisition costs	534,091			537,890			Deferred policy acquisition costs	547,958		517,364
Prepaid reinsurance premiums	473,766			413,140			Prepaid reinsurance premiums	608,913		567,595
Trading account receivables from brokers and clearing organizations	297,208			484,593			Trading account receivables from brokers and clearing organizations	254,230		423,543
Property, furniture and equipment	399,924			349,432			Property, furniture and equipment	414,335		422,091
Goodwill	173,422			144,513			Goodwill	169,652		169,652
Accrued investment income	139,864			127,047			Accrued investment income	128,616		138,789

Other assets	423,770			402,550			Other assets	769,717		762,743
Total assets	$	24,336,076		$	23,350,076		Total assets	$	27,323,292	$	26,630,030

Liabilities and Equity							Liabilities and Equity
Liabilities:							Liabilities:
Reserves for losses and loss expenses	$	11,654,346		$	11,197,195		Reserves for losses and loss expenses	$	13,088,904	$	12,583,249
Unearned premiums	3,409,628			3,283,300			Unearned premiums	3,902,913		3,656,507
Due to reinsurers	228,539			213,128			Due to reinsurers	424,806		360,314
Trading account securities sold but not yet purchased	44,937			51,179			Trading account securities sold but not yet purchased	20,814		36,143
Federal and foreign income taxes	116,608			119,597			Federal and foreign income taxes	10,921		4,308
Other liabilities	923,369			916,318			Other liabilities	1,104,896		1,244,888
Senior notes and other debt	1,759,929			1,760,595			Senior notes and other debt	1,725,449		1,427,575
Subordinated debentures	728,071			727,630			Subordinated debentures	1,199,198		1,198,704
Total liabilities	18,865,427			18,268,942			Total liabilities	21,477,901		20,511,688
Equity:							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
Preferred stock, par value $0.10 per share:							Preferred stock, par value $0.10 per share:
Authorized 5,000,000 shares; issued and outstanding - NaN							Authorized 5,000,000 shares; issued and outstanding - NaN	—		—
Common stock, par value $0.20 per share:							Common stock, par value $0.20 per share:
Authorized 750,000,000 shares, issued and outstanding, net of treasury shares, 177,930,502 and 183,411,907 shares, respectively							Authorized 750,000,000 shares, issued and outstanding, net of treasury shares, 177,930,502 and 183,411,907 shares, respectively	70,535		70,535
Additional paid-in capital	1,040,575			1,037,446			Additional paid-in capital	1,076,043		1,056,042
Retained earnings	6,880,062			6,595,987			Retained earnings	7,927,280		7,932,372
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							Accumulated other comprehensive loss	(249,350)		(257,299)
Treasury stock, at cost, 174,745,998 and 169,264,857 shares, respectively							Treasury stock, at cost, 174,745,998 and 169,264,857 shares, respectively	(3,023,392)		(2,726,711)
Total stockholders’ equity	5,430,536			5,047,208			Total stockholders’ equity	5,801,116		6,074,939
Noncontrolling interests	40,113			33,926			Noncontrolling interests	44,275		43,403
Total equity	5,470,649			5,081,134			Total equity	5,845,391		6,118,342
Total liabilities and equity	$	24,336,076		$	23,350,076		Total liabilities and equity	$	27,323,292	$	26,630,030

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)


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

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

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


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

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

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
REVENUES:
Net premiums written $ 1,571,183
$ 1,607,365
$ 4,782,272
$ 4,913,656
Change in net unearned premiums 10,317
(21,421 ) (62,028 ) (240,584 )
Net premiums earned 1,581,500
1,585,944
4,720,244
4,673,072
Net investment income 142,479
145,668
426,601
404,850
Net realized investment gains 183,959
175,738
276,760
207,508
Other-than-temporary impairments —
—
—
(18,114 )
Revenues from non-insurance businesses 89,786
80,242
225,033
305,787
Insurance service fees 33,612
32,135
100,475
109,437
Other income 6
—
695
—
Total revenues 2,031,342
2,019,727
5,749,808
5,682,540
OPERATING COSTS AND EXPENSES:
Losses and loss expenses 1,081,174
965,856
3,025,475
2,852,339
Other operating costs and expenses 600,822
606,348
1,821,155
1,770,450
Expenses from non-insurance businesses 86,412
78,865
221,389
291,127
Interest expense 36,821
37,043
110,419
104,019
Total operating costs and expenses 1,805,229
1,688,112
5,178,438
5,017,935
Income before income taxes 226,113
331,615
571,370
664,605
Income tax expense (63,295 ) (110,952 ) (174,305 ) (214,789 )
Net income before noncontrolling interests 162,818
220,663
397,065
449,816
Noncontrolling interests (764 ) (13 ) (2,560 ) (689 )
Net income to common stockholders $ 162,054
$ 220,650
$ 394,505
$ 449,127

NET INCOME PER SHARE:
Basic $ 1.29
$ 1.80
$ 3.17
$ 3.66
Diluted $ 1.26
$ 1.72
$ 3.05
$ 3.50

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)


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

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

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

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
Net income before noncontrolling interests $ 162,818
$ 220,663
$ 397,065
$ 449,816
Other comprehensive income (loss):
Change in unrealized currency translation adjustments 28,592
(19,470 ) 71,574
(77,389 )
Change in unrealized investment gains (losses), net of taxes (8,168 ) (47,676 ) 26,598
134,213
Other comprehensive income (loss): 20,424
(67,146 ) 98,172
56,824
Comprehensive income 183,242
153,517
495,237
506,640
Noncontrolling interests (731 ) 44
(2,541 ) (623 )
Comprehensive income to common stockholders $ 182,511
$ 153,561
$ 492,696
$ 506,017

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In ~~thousands)~~thousands, except per share data)


	For the Nine Months							For the Three Months Ended June 30,						For the Six Months Ended June 30,
	Ended September 30,
	2017			2016				2020		2019		2020				2019
COMMON STOCK:							COMMON STOCK:
Beginning and end of period	$	47,024		$	47,024		Beginning and end of period	$	70,535	$	70,535	$	70,535	$	70,535
ADDITIONAL PAID-IN CAPITAL:							ADDITIONAL PAID-IN CAPITAL:
Beginning of period	$	1,037,446		$	1,005,455		Beginning of period	$	1,063,084	$	1,053,372	$	1,056,042	$	1,039,633
Restricted stock units issued	(27,047		)	(3,421		)	Restricted stock units issued	1,204		(2,049)		(3,386)		(2,504)
Restricted stock units expensed	30,176			25,431			Restricted stock units expensed	11,755		7,093		23,387		21,287

End of period	$	1,040,575		$	1,027,465		End of period	$	1,076,043	$	1,058,416	$	1,076,043	$	1,058,416
RETAINED EARNINGS:							RETAINED EARNINGS:
Beginning of period	$	6,595,987		$	6,178,070		Beginning of period	$	7,877,371	$	7,721,039	$	7,932,372	$	7,558,619
Cumulative effect adjustment resulting from changes in accounting principles							Cumulative effect adjustment resulting from changes in accounting principles	—		—		(30,514)		—
Net income to common stockholders	394,505			449,127			Net income to common stockholders	71,260		216,709		66,842		397,431
Dividends	(110,430		)	(107,661		)
Dividends ($0.12, $0.61, $0.23 and $0.71 per share, respectively)							Dividends ($0.12, $0.61, $0.23 and $0.71 per share, respectively)	(21,351)		(111,733)		(41,420)		(130,035)
End of period	$	6,880,062		$	6,519,536		End of period	$	7,927,280	$	7,826,015	$	7,927,280	$	7,826,015
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized investment gains:
ACCUMULATED OTHER COMPREHENSIVE LOSS:							ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrealized investment gains (losses):							Unrealized investment gains (losses):
Beginning of period	$	427,154		$	180,695		Beginning of period	$	(109,514)	$	34,236	$	124,514	$	(91,491)
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							Cumulative effect adjustment resulting from changes in accounting principles	—		—		24,952		—
Change in unrealized gains on securities without an allowance for expected credit losses							Change in unrealized gains on securities without an allowance for expected credit losses	295,274		118,597		34,753		244,393
Change in unrealized gains on securities with an allowance for expected credit losses							Change in unrealized gains on securities with an allowance for expected credit losses	23,450		82		24,991		13
End of period	453,771			314,974			End of period	209,210		152,915		209,210		152,915
Currency translation adjustments:							Currency translation adjustments:
Beginning of period	(371,586		)	(247,393		)	Beginning of period	(480,007)		(399,219)		(381,813)		(418,979)
Net change in period	71,574			(77,389		)	Net change in period	21,447		(14,492)		(76,747)		5,268
End of period	(300,012		)	(324,782		)	End of period	(458,560)		(413,711)		(458,560)		(413,711)
Total accumulated other comprehensive income (loss)	$	153,759		$	(9,808	)

Total accumulated other comprehensive loss							Total accumulated other comprehensive loss	$	(249,350)	$	(260,796)	$	(249,350)	$	(260,796)
TREASURY STOCK:							TREASURY STOCK:
Beginning of period	$	(2,688,817	)	$	(2,563,605	)	Beginning of period	$	(2,927,994)	$	(2,720,011)	$	(2,726,711)	$	(2,720,466)
Stock exercised/vested	25,584			5,023			Stock exercised/vested	883		2,601		2,221		3,056
Stock repurchased	(28,378		)	(99,870		)	Stock repurchased	(96,281)		—		(298,902)		—
Stock incentive plans expensed	727			—

End of period	$	(2,690,884	)	$	(2,658,452	)	End of period	$	(3,023,392)	$	(2,717,410)	$	(3,023,392)	$	(2,717,410)
NONCONTROLLING INTERESTS:							NONCONTROLLING INTERESTS:
Beginning of period	$	33,926		$	32,962		Beginning of period	$	44,069	$	42,844	$	43,403	$	41,947
Contributions	3,646			2,474
Distributions							Distributions	(189)		(274)		(417)		(221)
Net income	2,560			689			Net income	396		718		1,288		1,610
Other comprehensive loss, net of tax	(19		)	(66		)
Other comprehensive (loss) income, net of tax							Other comprehensive (loss) income, net of tax	(1)		30		1		(18)
End of period	$	40,113		$	36,059		End of period	$	44,275	$	43,318	$	44,275	$	43,318

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	For the Nine Months							For the Six Months Ended June 30,
	Ended September 30,
	2017			2016				2020		2019
CASH FROM OPERATING ACTIVITIES:							CASH FROM OPERATING ACTIVITIES:
Net income to common stockholders	$	394,505		$	449,127		Net income to common stockholders	$	66,842	$	397,431
Adjustments to reconcile net income to net cash from operating activities:							Adjustments to reconcile net income to net cash from operating activities:
Net investment gains	(276,760		)	(189,394		)
Net investment losses (gains)							Net investment losses (gains)	99,289		(142,226)
Depreciation and amortization	78,137			69,153			Depreciation and amortization	64,065		51,289
Noncontrolling interests	2,560			689			Noncontrolling interests	1,288		1,610
Investment funds	(51,907		)	(60,387		)	Investment funds	16,975		(58,251)
Stock incentive plans	31,883			27,033			Stock incentive plans	25,731		27,340
Change in:							Change in:
Arbitrage trading account	(2,835		)	(4,777		)	Arbitrage trading account	(26,158)		(14,797)
Premiums and fees receivable	(112,420		)	(92,372		)	Premiums and fees receivable	(204,203)		(223,771)
Reinsurance accounts	(42,319		)	(154,939		)	Reinsurance accounts	(118,849)		(112,681)
Deferred policy acquisition costs	4,483			(51,795		)	Deferred policy acquisition costs	(31,478)		(23,632)
Income taxes	(15,451		)	89,007			Income taxes	9,387		2,759

Reserves for losses and loss expenses	422,657			440,486			Reserves for losses and loss expenses	525,785		350,981
Unearned premiums	121,583			269,287			Unearned premiums	259,237		254,010
Other	(32,258		)	(64,608		)	Other	(108,060)		(107,416)
Net cash from operating activities	521,858			726,510			Net cash from operating activities	579,851		402,646
CASH USED IN INVESTING ACTIVITIES:
CASH FROM INVESTING ACTIVITIES:							CASH FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities	3,081,619			1,074,630			Proceeds from sale of fixed maturity securities	3,194,333		1,320,079
Proceeds from sale of equity securities	137,062			123,187			Proceeds from sale of equity securities	67,122		39,103
Distributions from investment funds	265,371			5,630
Distributions from (contributions to) investment funds							Distributions from (contributions to) investment funds	67,234		(2,896)
Proceeds from maturities and prepayments of fixed maturity securities	2,860,678			2,189,365			Proceeds from maturities and prepayments of fixed maturity securities	1,859,392		1,490,772
Purchase of fixed maturity securities	(6,530,466		)	(4,280,457		)	Purchase of fixed maturity securities	(4,189,664)		(2,633,251)
Purchase of equity securities	(17,049		)	(127,303		)	Purchase of equity securities	(35,591)		(41,849)
Real estate purchased	(159,006		)	(207,829		)	Real estate purchased	(30,178)		(117,773)

Change in loans receivable	32,574			159,128			Change in loans receivable	963		140
Net additions to property, furniture and equipment	(74,268		)	(37,895		)
Net purchases of property, furniture and equipment							Net purchases of property, furniture and equipment	(23,006)		(10,804)
Change in balances due to security brokers	39,978			102,981			Change in balances due to security brokers	(24,382)		19,096
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		)
CASH (USED IN) FROM FINANCING ACTIVITIES:

Other							Other	85		—
Net cash from investing activities							Net cash from investing activities	886,308		62,617
CASH USED IN FINANCING ACTIVITIES:							CASH USED IN FINANCING ACTIVITIES:
Repayment of senior notes and other debt	(1,788		)	(70,567		)	Repayment of senior notes and other debt	(1,160)		—

Net proceeds from issuance of debt	—			386,848			Net proceeds from issuance of debt	298,447		—
Cash dividends to common stockholders	(93,371		)	(30,654		)	Cash dividends to common stockholders	(41,420)		(18,302)
Purchase of common treasury shares	(28,378		)	(99,870		)	Purchase of common treasury shares	(298,902)		—
Other, net	(3,835		)	(1,376		)	Other, net	(4,140)		(5,548)
Net cash (used in) from financing activities	(127,372		)	184,381
Net cash used in financing activities							Net cash used in financing activities	(47,175)		(23,850)
Net impact on cash due to change in foreign exchange rates	18,303			413			Net impact on cash due to change in foreign exchange rates	(11,868)		(841)
Net change in cash and cash equivalents	(21,288		)	109,433			Net change in cash and cash equivalents	1,407,116		440,572
Cash and cash equivalents at beginning of year	795,285			763,631			Cash and cash equivalents at beginning of year	1,023,710		817,602
Cash and cash equivalents at end of period	$	773,997		$	873,064		Cash and cash equivalents at end of period	$	2,430,826	$	1,258,174

See accompanying notes to interim consolidated financial statements.

W. R. Berkley Corporation and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) General

The unaudited consolidated financial statements, which include the accounts of W. R. Berkley Corporation and its subsidiaries (the “Company”), have been prepared on the basis of U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for annual financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly the Company’s financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected during the reporting period. For further information related to ~~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. Reclassifications have been made in the 2016 financial statements as originally reported to conform to the presentation of the 2017 financial statements.~~2019.

The income tax provision has been computed based on the Company’s estimated annual effective tax rate. The effective income tax rate ~~for the quarter~~ differs from the federal income tax rate of ~~35%~~21% principally because foreign jurisdictions were limited on the utilization of losses at different tax rates, which was partially offset by tax-exempt investment income ~~as well as the new requirement in 2017 to recognize~~and tax benefits ~~for stock compensation in income tax expense.~~related to equity-based compensation.

(2) Per Share Data

The Company presents both basic and diluted net income per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period (including ~~4,087,731~~7,575,168 and 7,389,781 common shares held in a grantor trust ~~established in March 2017)~~as of June 30, 2020 and 2019, respectively). The common shares held in the grantor trust are for delivery upon settlement of vested but mandatorily deferred restricted stock units ("RSUs"). Shares held by the grantor trust do not affect diluted shares outstanding since the shares deliverable under vested RSUs were already included in diluted shares outstanding. Diluted EPS is based upon the weighted average number of basic and common equivalent shares outstanding during the period and is calculated using the treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

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


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

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

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

and Accounting Policies

Recently adopted accounting pronouncements:

In ~~May 2015,~~June 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 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 is effective for reporting periods beginning after December 15, 2018, and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied. The Company is currently evaluating the impact that the adoption of this guidance will have on its results of operations, financial position and liquidity.

~~In June 2016, the FASB issued ASU~~ 2016-13, Financial Instruments - Credit Losses, which ~~amends~~amended the accounting guidance for credit losses on financial instruments. The updated guidance ~~amends~~amended the current other-than-temporary impairment model for ~~available-for-sale~~available for sale debt securities by requiring the recognition of impairments relating to expected credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. This guidance also applies a new current expected credit loss model for determining credit-related impairments for financial instruments measured at amortized ~~cost.~~cost, such as reinsurance recoverables. The updated guidance iswas 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~~on January 1, 2020 resulted in the recognition of an allowance for expected credit losses in connection with operating assets (premiums and fees receivable and due from reinsurers) of $5.7 million (net of tax) and a corresponding cumulative effect adjustment that decreased common stockholders' equity. Certain investments (primarily fixed

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

All other accounting and reporting standards that have become effective in 2020 were either not applicable to the Company or their adoption did not have a material impact on ~~its results of operations, financial position or liquidity until~~ the ~~year the guidance becomes effective.~~Company.

Accounting and reporting standards that are not yet 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.

Accounting policies:

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

Revenue recognition (related to premiums and fees receivable)

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

~~(4) Acquisitions/Disposition~~Reinsurance ceded (related to due from reinsurers)

~~In March 2017,~~ The unearned portion of premiums ceded to reinsurers is reported as prepaid reinsurance premiums and earned ratably over the policy term. The estimated amounts of reinsurance recoverable on unpaid losses are reported as due from reinsurers. To the extent any reinsurer does not meet its obligations under reinsurance agreements, the Company ~~acquired~~must discharge its liability. Amounts due from reinsurers are reflected net of funds held where the right of offset is present. The Company has provided an ~~89.5% ownership interest~~allowance for ~~$73.3 million~~expected credit losses for estimated uncollectible reinsurance. The allowance is estimated based on the composition of the recoverable balance, considering reinsurer credit ratings, collateral received from financial institutions and funds withheld arrangements, length of collection periods, probability of default methodology, and specific identification of collectability concerns. Changes in the allowance are reported within losses and loss expenses.

Investments

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

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

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

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

~~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)~~(4) Consolidated ~~Statement~~Statements of Comprehensive Income

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


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


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


(In thousands)	Unrealized Investment Gains (Losses)				Currency Translation Adjustments			Accumulated Other Comprehensive Income
As of and for the nine months ended September 30, 2017:
As of and for the six months ended June 30, 2019											As of and for the six months ended June 30, 2019
Changes in AOCI	Changes in AOCI										Changes in AOCI
Beginning of period	$	427,154			$	(371,586	)	$	55,568		Beginning of period	$	(91,491)		$	(418,979)	$	(510,470)
Other comprehensive income before reclassifications	109,277				71,574			180,851

Other comprehensive gain before reclassifications											Other comprehensive gain before reclassifications	245,615			5,268		250,883
Amounts reclassified from AOCI	(82,679		)		—			(82,679		)	Amounts reclassified from AOCI	(1,191)			—		(1,191)
Other comprehensive income	26,598				71,574			98,172
Unrealized investment loss related to non-controlling interest	19				—			19
Other comprehensive gain											Other comprehensive gain	244,424			5,268		249,692
Unrealized investment gain related to noncontrolling interest											Unrealized investment gain related to noncontrolling interest	(18)			—		(18)
End of period	$	453,771			$	(300,012	)	$	153,759		End of period	$	152,915		$	(413,711)	$	(260,796)
Amounts reclassified from AOCI											Amounts reclassified from AOCI
Pre-tax	$	(127,198	)	(1)	$	—		$	(127,198	)	Pre-tax	$	(1,508)	(1)	$	—	$	(1,508)
Tax effect	44,519			(2)	—			44,519			Tax effect	317		(2)	—		317
After-tax amounts reclassified	$	(82,679	)		$	—		$	(82,679	)	After-tax amounts reclassified	$	(1,191)		$	—	$	(1,191)
Other comprehensive income											Other comprehensive income
Pre-tax	$	50,148			$	71,574		$	121,722		Pre-tax	$	316,331		$	5,268	$	321,599
Tax effect	(23,550		)		—			(23,550		)	Tax effect	(71,907)			—		(71,907)
Other comprehensive income	$	26,598			$	71,574		$	98,172		Other comprehensive income	$	244,424		$	5,268	$	249,692

As of and for the three months ended September 30, 2017:
As of and for the three months ended June 30, 2019											As of and for the three months ended June 30, 2019
Changes in AOCI	Changes in AOCI										Changes in AOCI
Beginning of period	$	461,906			$	(328,604	)	$	133,302		Beginning of period	$	34,236		$	(399,219)	$	(364,983)
Other comprehensive income before reclassifications	19,968				28,592			48,560

Other comprehensive income (loss) before reclassifications											Other comprehensive income (loss) before reclassifications	118,475			(14,492)		103,983
Amounts reclassified from AOCI	(28,136		)		—			(28,136		)	Amounts reclassified from AOCI	174			—		174
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
Other comprehensive income (loss)											Other comprehensive income (loss)	118,649			(14,492)		104,157
Unrealized investment loss related to noncontrolling interest											Unrealized investment loss related to noncontrolling interest	30			—		30
Ending balance											Ending balance	$	152,915		$	(413,711)	$	(260,796)
Amounts reclassified from AOCI											Amounts reclassified from AOCI
Pre-tax	$	(43,286	)	(1)	$	—		$	(43,286	)	Pre-tax	$	220	(1)	$	—	$	220
Tax effect	15,150			(2)	—			15,150			Tax effect	(46)		(2)	—		(46)
After-tax amounts reclassified	$	(28,136	)		$	—		$	(28,136	)	After-tax amounts reclassified	$	174		$	—	$	174
Other comprehensive (loss) income
Other comprehensive income (loss)											Other comprehensive income (loss)
Pre-tax	$	(8,563	)		$	28,592		$	20,029		Pre-tax	$	147,072		$	(14,492)	$	132,580
Tax effect	395				—			395			Tax effect	(28,423)			—		(28,423)
Other comprehensive (loss) income	$	(8,168	)		$	28,592		$	20,424

Other comprehensive income (loss)											Other comprehensive income (loss)	$	118,649		$	(14,492)	$	104,157

~~_________________________~~

⁽¹⁾ ~~Net investment gains 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)
As of and for the nine months ended September 30, 2016:
Changes in AOCI
Beginning of period $ 180,695
$ (247,393 ) $ (66,698 )
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
Other comprehensive loss before reclassifications (20,968 ) (19,470 ) (40,438 )
Amounts reclassified from AOCI (26,708 ) —
(26,708 )
Other comprehensive loss (47,676 ) (19,470 ) (67,146 )
Unrealized investment loss related to non-controlling interest 57
—
57
End of period $ 314,974
$ (324,782 ) $ (9,808 )
Amounts reclassified from AOCI
Pre-tax $ (41,090 ) (1) $ —
$ (41,090 )
Tax effect 14,382
(2) —
14,382
After-tax amounts reclassified $ (26,708 ) $ —
$ (26,708 )
Other comprehensive loss
Pre-tax $ (72,188 ) $ (19,470 ) $ (91,658 )
Tax effect 24,512
—
24,512
Other comprehensive loss $ (47,676 ) $ (19,470 ) $ (67,146 )

~~_______________~~____________

(1) Net investment gains (losses) 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~~$73,056,000 and ~~$124,791,000 and income taxes paid were $182,487,000 and $99,161,000 in~~$77,672,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~,2019, respectively. NaN income tax was paid for the six months ended June 30, 2020 and $82,800,000 was paid for the six months ended June 30, 2019.

~~(7)~~

(6) Investments in Fixed Maturity Securities

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, investments in fixed maturity securities were as follows:

(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		(In thousands)	Amortized Cost		Allowance for Expected Credit Losses (1)		Gross Unrealized							Fair Value		Carrying Value
			Gains		Losses																		Gains				Losses
December 31, 2016
June 30, 2020												June 30, 2020
Held to maturity:												Held to maturity:
State and municipal	$	72,582	$	12,453	$	—		$	85,035	$	72,582	State and municipal	$	71,640	$	(948)	$	14,137	$	—	$	84,829		$	70,692
Residential mortgage-backed	15,944		1,693		—			17,637		15,944		Residential mortgage-backed	7,385		—		1,176		—		8,561			7,385
Total held to maturity	88,526		14,146		—			102,672		88,526		Total held to maturity	79,025		(948)		15,313		—		93,390			78,077
Available for sale:												Available for sale:
U.S. government and government agency	496,187		20,208		(2,593		)	513,802		513,802		U.S. government and government agency	670,032		—		23,784		(49)		693,767			693,767
State and municipal:												State and municipal:
Special revenue	2,791,211		58,559		(26,315		)	2,823,455		2,823,455		Special revenue	2,153,909		—		82,603		(1,551)		2,234,961			2,234,961
State general obligation	524,682		16,964		(5,139		)	536,507		536,507		State general obligation	350,228		—		31,192		(810)		380,610			380,610
Pre-refunded	356,535		19,181		(165		)	375,551		375,551		Pre-refunded	299,333		—		20,944		(130)		320,147			320,147
Corporate backed	410,933		6,172		(6,452		)	410,653		410,653		Corporate backed	224,649		—		8,581		(500)		232,730			232,730
Local general obligation	360,022		15,682		(2,367		)	373,337		373,337		Local general obligation	394,105		—		42,393		(251)		436,247			436,247
Total state and municipal	4,443,383		116,558		(40,438		)	4,519,503		4,519,503		Total state and municipal	3,422,224		—		185,713		(3,242)		3,604,695			3,604,695
Mortgage-backed securities:												Mortgage-backed securities:
Residential (1)	1,034,301		15,431		(12,950		)	1,036,782		1,036,782
Residential												Residential	913,065		—		32,241		(1,019)		944,287			944,287
Commercial	155,540		304		(2,981		)	152,863		152,863		Commercial	211,987		—		6,370		(799)		217,558			217,558
Total mortgage-backed securities	1,189,841		15,735		(15,931		)	1,189,645		1,189,645		Total mortgage-backed securities	1,125,052		—		38,611		(1,818)		1,161,845			1,161,845
Asset-backed	1,913,830		5,971		(11,941		)	1,907,860		1,907,860		Asset-backed	3,170,931		—		10,539		(83,272)		3,098,198			3,098,198
Corporate:												Corporate:
Industrial	2,315,567		71,007		(7,174		)	2,379,400		2,379,400		Industrial	1,922,336		(724)		101,976		(24,466)		1,999,122			1,999,122
Financial	1,369,001		39,543		(11,270		)	1,397,274		1,397,274		Financial	1,399,238		—		49,596		(17,130)		1,431,704			1,431,704
Utilities	229,154		10,801		(2,411		)	237,544		237,544		Utilities	293,279		—		29,582		(146)		322,715			322,715
Other	54,073		299		(63		)	54,309		54,309		Other	18,655		—		385		—		19,040			19,040
Total corporate	3,967,795		121,650		(20,918		)	4,068,527		4,068,527		Total corporate	3,633,508		(724)		181,539		(41,742)		3,772,581			3,772,581
Foreign	858,773		46,794		(2,762		)	902,805		902,805
Foreign government												Foreign government	918,606		(44,769)		31,028		(32,943)		871,922			871,922
Total available for sale	12,869,809		326,916		(94,583		)	13,102,142		13,102,142		Total available for sale	12,940,353		(45,493)		471,214		(163,066)		13,203,008			13,203,008
Total investments in fixed maturity securities	$	12,958,335	$	341,062	$	(94,583	)	$	13,204,814	$	13,190,668	Total investments in fixed maturity securities	$	13,019,378	$	(46,441)	$	486,527	$	(163,066)	$	13,296,398		$	13,281,085

____________

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


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

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

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


~~(1)~~	~~Gross unrealized gains~~State and ~~(losses)~~Municipal
(In thousands)
Allowance for ~~residential mortgage-backed securities include $85,907 and $(818,691) as of~~ ~~September~~expected credit losses at January 1, 2020	$	—
Cumulative effect adjustment resulting from changes in accounting principles	69
Provision for expected credit losses	879
Allowance for expected credit losses at June 30, ~~2017~~ ~~and~~ ~~December 31, 2016, respectively, related to securities with the non-credit portion of other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income.~~2020	$	948

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


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

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


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

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


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

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

The amortized cost and fair value of fixed maturity securities at ~~September~~June 30, ~~2017~~,2020, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay obligations.



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

(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
________________

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

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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~~2020 and December 31, ~~2016~~,2019, investments in equity securities were as follows:


(In thousands)	Cost		Gross Unrealized					Fair Value		Carrying Value		(In thousands)	Cost		Gross Unrealized								Fair Value		Carrying Value
			Gains		Losses														Gains			Losses
September 30, 2017
June 30, 2020												June 30, 2020
Common stocks	$	83,709	$	339,297	$	(3,486	)	$	419,520	$	419,520	Common stocks	$	144,674	$	5,739	$	(33,445)		$	116,968		$	116,968
Preferred stocks	125,076		71,147		(1,718		)	194,505		194,505		Preferred stocks	174,621		79,440		(8,764)			245,297			245,297
Total	$	208,785	$	410,444	$	(5,204	)	$	614,025	$	614,025	Total	$	319,295	$	85,179	$	(42,209)		$	362,265		$	362,265
December 31, 2016

December 31, 2019												December 31, 2019
Common stocks	$	94,998	$	351,906	$	(1,046	)	$	445,858	$	445,858	Common stocks	$	175,928	$	16,967	$	(26,090)		$	166,805		$	166,805
Preferred stocks	125,589		101,392		(3,639		)	223,342		223,342		Preferred stocks	169,171		148,243		(3,599)			313,815			313,815
Total	$	220,587	$	453,298	$	(4,685	)	$	669,200	$	669,200	Total	$	345,099	$	165,210	$	(29,689)		$	480,620		$	480,620

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

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, the fair and carrying values of the arbitrage trading account were ~~$488~~$581 million and ~~$300~~$401 million, respectively. The primary focus of the trading account is merger arbitrage. Merger arbitrage is the business of investing in the securities of publicly held companies which are the targets in announced tender offers and mergers. Arbitrage investing differs from other types of investing in its focus on transactions and events believed likely to bring about a change in value over a relatively short time period (usually four months or less).

The Company uses put options and call options ~~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,~~2020, the fair value of long option contracts outstanding was ~~$1 million~~$202 thousand (notional amount of ~~$33~~$5.2 million) and the fair value of short option contracts outstanding was ~~$1 million~~$88 thousand (notional amount of ~~$54~~$3.9 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~~consisted of the following:


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

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

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

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~~$145 million as of ~~September~~June 30, ~~2017.~~2020.

Investment funds consisted of the following:


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

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

~~(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)	2020		2019
Properties in operation	$	1,623,579	$	1,351,249
Properties under development	449,193		754,701
Total	$	2,072,772	$	2,105,950

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,~~ As of June 30, 2020, 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, an office building in London, and the completed portion of a mixed-use project in Washington D.C.. Properties in operation are net of accumulated depreciation and amortization of ~~$20,378,000~~$72,036,000 and ~~$14,996,000~~$59,832,000 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. Related depreciation expense was ~~$5,382,000~~$13,776,000 and ~~$4,117,000~~$8,931,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, 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 in 2019, $29,415,103~~$39,127,419 in 2020, ~~$30,054,813~~$81,060,656 in 2021, ~~$29,966,679~~$81,637,432 in 2022, $75,278,181 in 2023, $73,040,940 in 2024, $69,300,988 in 2025 and ~~$467,192,215~~$660,961,934 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, which is reflected within senior notes and other debt on the Company's consolidated balance sheet.

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

~~(13)~~(12) Loans Receivable

~~Loans~~

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

(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 million and $5.4 million as of September 30, 2017 and December 31, 2016, respectively.~~

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.


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

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

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

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

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


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

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


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

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 30, 2017, and accordingly, the Company determined that a specific valuation allowance was not required.

~~(14) Realized and Unrealized~~

(13) Net Investment Gains (Losses)

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


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

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

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

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 change in unrealized gain or loss resulting from mark-to-market adjustments on equity securities still held.

(2) For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

~~(2) Other~~2020, net investment losses on real estate includes ~~a gain~~an allowance 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.~~

$8 million.

(3) ~~There were no other than temporary impairments (OTTI)~~The inclusion of the allowance for expected credit losses on investments commenced January 1, 2020 due to the ~~three and nine months ended September 30, 2017, or~~adoption of ASU 2016-13. See Note 3 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.~~more details.

~~(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~~2020 and December 31, ~~2016~~2019 by the length of time those securities have been continuously in an unrealized loss position:


	Less Than 12 Months				12 Months or Greater				Total					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		(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2017
June 30, 2020													June 30, 2020
U.S. government and government agency	$	118,066	$	1,048	$	48,880	$	1,076	$	166,946	$	2,124	U.S. government and government agency	$	42,279	$	49	$	20	$	—	$	42,299	$	49
State and municipal	650,353		5,797		119,087		1,440		769,440		7,237		State and municipal	237,515		2,444		24,899		798		262,414		3,242
Mortgage-backed securities	527,034		5,000		221,923		5,310		748,957		10,310		Mortgage-backed securities	55,367		1,458		57,184		360		112,551		1,818
Asset-backed securities	1,116,878		8,033		130,734		2,372		1,247,612		10,405		Asset-backed securities	1,290,764		32,060		653,128		51,212		1,943,892		83,272
Corporate	651,373		5,395		57,557		3,118		708,930		8,513		Corporate	531,733		34,588		49,806		7,154		581,539		41,742
Foreign government	220,860		2,072		1,599		16		222,459		2,088		Foreign government	78,803		5,786		38,726		27,157		117,529		32,943
Fixed maturity securities	3,284,564		27,345		579,780		13,332		3,864,344		40,677		Fixed maturity securities	$	2,236,461	$	76,385	$	823,763	$	86,681	$	3,060,224	$	163,066
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, 2019													December 31, 2019
U.S. government and government agency	$	112,709	$	1,252	$	35,450	$	1,341	$	148,159	$	2,593	U.S. government and government agency	$	83,837	$	618	$	53,089	$	857	$	136,926	$	1,475
State and municipal	1,562,614		35,553		133,034		4,885		1,695,648		40,438		State and municipal	365,184		4,245		127,210		1,682		492,394		5,927
Mortgage-backed securities	625,903		11,103		109,066		4,828		734,969		15,931		Mortgage-backed securities	301,358		2,281		180,148		3,220		481,506		5,501
Asset-backed securities	1,010,836		5,340		201,693		6,601		1,212,529		11,941		Asset-backed securities	755,259		2,307		774,508		19,183		1,529,767		21,490
Corporate	1,035,245		13,448		65,147		7,470		1,100,392		20,918		Corporate	307,367		3,148		121,470		5,172		428,837		8,320
Foreign government	213,246		1,985		24,820		777		238,066		2,762		Foreign government	164,536		32,028		107,266		61,645		271,802		93,673
Fixed maturity securities	4,560,553		68,681		569,210		25,902		5,129,763		94,583		Fixed maturity securities	$	1,977,541	$	44,627	$	1,363,691	$	91,759	$	3,341,232	$	136,386
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

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

~~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~~2020 is presented in the table below:


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

Total	46	$	106,157	$	42,095

($ 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.~~due.

~~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~~2020 and December 31, ~~2016~~2019 by level:


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


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

(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~~2020 and for the year ended December 31, ~~2016,~~2019:


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

Six Months Ended June 30, 2020
Assets:




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





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

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

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

~~(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			(In thousands)	2020		2019
Net reserves at beginning of year	$	9,590,265		$	9,244,872
Net reserves at beginning of period							Net reserves at beginning of period	$	10,697,998	$	10,248,883
Cumulative effect adjustment resulting from changes in accounting principles							Cumulative effect adjustment resulting from changes in accounting principles	5,927		—
Restated net reserves at beginning of period							Restated net reserves at beginning of period	10,703,925		10,248,883
Net provision for losses and loss expenses:							Net provision for losses and loss expenses:
Claims occurring during the current year (1)	2,998,687			2,838,777			Claims occurring during the current year (1)	2,222,671		1,980,138
Decrease in estimates for claims occurring in prior years (2) (3)	(7,648		)	(23,518		)
Increase in estimates for claims occurring in prior years (2) (3)							Increase in estimates for claims occurring in prior years (2) (3)	2,050		16,764
Loss reserve discount accretion	34,436			37,080			Loss reserve discount accretion	17,658		20,577
Total	3,025,475			2,852,339			Total	2,242,379		2,017,479
Net payments for claims:							Net payments for claims:
Current year	628,078			612,615			Current year	289,154		548,589
Prior year	1,996,977			1,931,454
Prior years							Prior years	1,545,471		1,200,906
Total	2,625,055			2,544,069			Total	1,834,625		1,749,495
Foreign currency translation	57,789			(6,266		)	Foreign currency translation	(45,572)		(2,228)
Net reserves at end of period	10,048,474			9,546,876			Net reserves at end of period	11,066,107		10,514,639
Ceded reserve at end of period	1,605,872			1,550,954
Ceded reserves at end of period							Ceded reserves at end of period	2,022,797		1,805,639
Gross reserves at end of period	$	11,654,346		$	11,097,830		Gross reserves at end of period	$	13,088,904	$	12,320,278


~~(1)~~	~~Claims occurring during the current year are net of loss reserve discounts of $16,787,000 and $12,085,000 for the nine months ended September 30, 2017 and 2016,~~ (1) Claims occurring during the current year are net of loss reserve discounts of $5 million and $11 million for the six months ended June 30, 2020 and 2019, respectively.


~~(2)~~	The 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.

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

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

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

The Company has estimated the potential COVID-19 impact to its workers’ compensation, contingency and event cancellation, and other lines of business under a number of possible scenarios, however, due to COVID-19’s evolving impact and the limited amount of available data, there is a high degree of uncertainty around the Company’s COVID-19 reserves. In ~~2017,~~addition, several states (and international jurisdictions), through regulation, legislation and/or judicial action, continue to seek to expand policy coverage terms beyond the policy’s intended coverage, including, for example, but not limited to, property coverages, where there are attempts to extend business interruption coverage where there is no physical damage or loss to property, and attempts to disregard policy exclusions for communicable disease. Accordingly, losses arising from these actions, and the other factors described above, could exceed the Company’s reserves established for those related policies.

For the six months ended June 30, 2020, the Company has recognized losses for COVID-19-related claims activity, net of reinsurance, of approximately $143 million, of which $102 million relates to the Insurance segment and $41 million

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

During the six months ended June 30, 2020, favorable prior year development (net of additional and return premiums) of ~~$31~~$7.0 million included ~~$62~~$11.9 million of favorable development for the Insurance segment, partially offset by ~~$31~~$4.9 million of adverse development for the Reinsurance & Monoline Excess segment.

The overall favorable development for the Insurance segment was primarily attributable to ~~workers'~~favorable development on workers’ compensation business, ~~(including excess workers' compensation).~~partially offset by adverse development on professional liability business. The favorable ~~workers'~~workers’ compensation development was spread across many accident years, including prior to ~~2008,~~2010, but was ~~most~~especially significant in accident ~~years 2014 and 2015.~~year 2019. The favorable ~~workers'~~workers’ compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). Our ongoing workers’ compensation claims management efforts, including active medical case management and use of networks and specialty vendors to control medical and pharmaceutical benefit costs, have also added to the favorable workers’ compensation prior year development. The adverse professional liability development was concentrated in accident years 2016 through 2018 and predominately resulted from a greater than expected number of large losses being reported in the period in two niches of our professional liability business.

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

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

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

The adverse development for the Reinsurance & Monoline Excess segment was ~~due to reserve strengthening associated with claims impacted~~mainly driven by ~~the change in the Ogden discount rate in the U.K., as well as adverse development in the~~ U.S. casualty 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~~2009 and ~~2015; it reflects claims frequency trends (i.e., number of reported claims per unit of exposure) that continue~~prior related 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~~construction projects.

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.

~~(18)~~(17) Fair Value of Financial Instruments

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


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

September 30, 2017 December 31, 2016
(In thousands) Carrying Value Fair Value Carrying Value Fair Value
Assets:
Fixed maturity securities $ 13,873,690
$ 13,890,354
$ 13,190,668
$ 13,204,814
Equity securities available for sale 614,025
614,025
669,200
669,200
Arbitrage trading account 488,238
488,238
299,999
299,999
Loans receivable 74,229
76,615
106,798
108,299
Cash and cash equivalents 773,997
773,997
795,285
795,285
Trading account receivables from brokers and clearing organizations 297,208
297,208
484,593
484,593
Liabilities:
Due to broker 58,973
58,973
19,416
19,416
Trading account securities sold but not yet purchased 44,937
44,937
51,179
51,179
Subordinated debentures 728,071
728,291
727,630
687,504
Senior notes and other debt 1,759,929
1,946,700
1,760,595
1,914,727

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.

~~(19)~~(18) Premiums and Reinsurance Related Information

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


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

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

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

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

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


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

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


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

The Company reinsures a portion of its insurance exposures in order to reduce its net liability on individual risks and catastrophe losses. The Company also cedes premiums to state assigned risk plans and captive insurance companies. Estimated

amounts due from reinsurers are reported net of ~~reserves~~an allowance for ~~uncollectible reinsurance~~expected credit losses. The following table presents the rollforward of ~~$1 million as~~the allowance for expected credit losses associated with due from reinsurers for the six months ended June 30, 2020:


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

The following table presents the rollforward of ~~September~~the allowance for expected credit losses associated with due from reinsurers for the three months ended June 30, ~~2017~~ ~~and~~ ~~December 31, 2016~~.2020:


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

~~(20)~~

(19) Restricted Stock Units

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~~$23 million and ~~$25~~$25 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~,2019, respectively. A summary of RSUs issued in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 follows:


($ in thousands)	Units	Fair Value

2020	724	$	57
2019	5,141	$	308

($ in thousands) Units Fair Value
2017 855,051
$ 58,712
2016 990,487
$ 57,959

~~(21)~~(20) Litigation and Contingent Liabilities

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

(21) Leases

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

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

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


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

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


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

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


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

(22) Business Segments

The Company’s reportable segments include the following ~~two~~2 business segments, plus a corporate segment:

•Insurance - ~~primarily~~predominantly commercial insurance business, including excess and surplus lines, ~~and~~ admitted lines inand 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; 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.~~

Africa, as well as operations that solely retain risk on an excess basis.

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.

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

_________________

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

(2) Revenues for Insurance from foreign countries for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were ~~$166~~$149 million and ~~$187~~$179 million, respectively, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were ~~$513~~$317 million and ~~$546~~$349 million, respectively. Revenues for Reinsurance & Monoline Excess from foreign countries for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were ~~$49~~$65 million and ~~$48~~$62 million, respectively, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were ~~$150~~$134 million and ~~$153~~$121 million, respectively.

~~(2)~~(3) Corporate, other and eliminations represent corporate revenues and expenses that are not allocated to business segments.

Identifiable Assets


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

(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				For the Nine Months					For the Three Months Ended June 30,						For the Six Months Ended June 30,
	Ended September 30,				Ended September 30,
(In thousands)	2017		2016		2017		2016		(In thousands)	2020		2019		2020		2019
Insurance:									Insurance:
Other liability	$	466,616	$	455,841	$	1,378,505	$	1,302,841	Other liability	$	544,465	$	505,621	$	1,091,594	$	996,282
Workers’ compensation	378,529		354,185		1,106,616		1,042,503
Short-tail lines (1)	287,860		312,865		887,791		962,435		Short-tail lines (1)	295,968		305,852		591,446		594,943
Workers' compensation									Workers' compensation	278,699		330,510		580,299		657,186
Commercial automobile	163,277		164,540		482,929		481,249		Commercial automobile	190,335		188,278		379,978		369,203
Professional liability	137,447		136,204		406,644		391,957		Professional liability	155,577		144,923		306,682		284,604
Total Insurance	1,433,729		1,423,635		4,262,485		4,180,985		Total Insurance	1,465,044		1,475,184		2,949,999		2,902,218

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

Total	$	1,581,500	$	1,585,944	$	4,720,244	$	4,673,072	Total	$	1,676,915	$	1,646,841	$	3,368,333	$	3,239,697

______________

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

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

SAFE HARBOR STATEMENT

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year ~~2017~~2020 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies; the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist ~~activities;~~activities, epidemics or pandemics, such as COVID-19; the impact of climate change, which may increase the frequency and severity of catastrophe events; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's ~~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~~2020 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Our future financial performance is dependent upon factors discussed in our Annual Report on Form 10-K, elsewhere in this Form 10-Q and our other SEC filings. Forward-looking statements speak only as of the date on which they are made. Except to the extent required by applicable laws, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.


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

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. A portion of the Company’s fixed maturity securities include investments in collateralized loan obligations with exposure to a diverse group of industries. As of June 30, 2020, approximately 97% of the Company’s collateralized loan obligation portfolio has an average rating of “AA” or higher. As a result, the Company believes that its collateralized loan obligation portfolio is well-positioned despite the current market environment.

The Company also invests in equity securities, merger arbitrage securities, investment funds, ~~(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. The Company's share of the earnings or losses from investment funds is generally reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements.

~~During~~Effective January 1, 2020, the ~~third quarter~~Company adopted new accounting standard ASU 2016-13 Financial Instruments - Credit Losses. Refer to Note 3 in the financial statements for further information on the accounting guidance and impact of ~~2017, catastrophe~~its adoption on the Company's results and financial position.

The ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies, has materially and adversely affected our results of operations. For the six months ended June 30, 2020, the Company recorded approximately $143 million for COVID-19-related losses, ~~were $119 million, including $107 million related~~net of reinsurance, and reinstatement premiums of approximately $21 million. The ultimate impact of COVID-19 on the economy and on the Company’s results of operations, financial position and liquidity is uncertain and not within the Company’s control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 continue to ~~Hurricanes Harvey, Irma,~~evolve in ways that are difficult or impossible to anticipate. In addition, because COVID-19 did not begin to affect the Company's operations and ~~Maria and two earthquakes~~financial position until late in ~~Mexico.~~

~~Commencing with~~ the first quarter of ~~2017,~~2020, its impact on the ~~Company reclassified two businesses from~~Company’s first six months of 2020 is not necessarily indicative of its impact for the ~~Insurance segment~~remainder of 2020 or beyond. Despite the effects of COVID-19 to date, the ~~Reinsurance segment. Reclassifications~~Company’s financial position and liquidity improved during the second quarter.

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

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

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

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

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

Premium Volumes May Be Negatively Impacted. Reduced economic activity relating to the ~~Company's 2016~~COVID-19 pandemic will likely decrease demand for our insurance products and services. In addition, we may alter our view on the insurance coverages that are appropriate to offer in various jurisdictions, which could further negatively impact our premium volumes.

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

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

Critical Accounting Estimates

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

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

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

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

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

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

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

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

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

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:~~2019:


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

(In thousands) Frequency (+/-)
Severity (+/-) 1% 5% 10%
1% $ 76,915
$ 231,511
$ 424,755
5% 231,511
392,229
593,126
10% 424,755
593,126
803,590

Our net reserves for losses and loss expenses of approximately ~~$10.0~~$11.1 billion as of ~~September~~June 30, ~~2017~~2020 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above. The impact of such changes would likely be manifested gradually over the course of many years, as the magnitude of the changes became evident.

Approximately ~~$1.8~~$2.5 billion, or ~~17%~~23%, of the Company’s net loss reserves as of ~~September~~June 30, ~~2017~~2020 relate to the Reinsurance & Monoline Excess segment. There is a higher degree of uncertainty and greater variability regarding estimates of excess workers' compensation and assumed reinsurance loss ~~reserves 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)	June 30, 2020		December 31, 2019
Insurance	$	8,522,064	$	8,193,381
Reinsurance & Monoline Excess	2,544,043		2,504,617
Net reserves for losses and loss expenses	11,066,107		10,697,998
Ceded reserves for losses and loss expenses	2,022,797		1,885,251
Gross reserves for losses and loss expenses	$	13,088,904	$	12,583,249

(In thousands) September 30, 2017 December 31, 2016
Insurance $ 8,291,708
$ 7,913,074
Reinsurance 1,756,766
1,677,191
Net reserves for losses and loss expenses 10,048,474
9,590,265
Ceded reserves for losses and loss expenses 1,605,872
1,606,930
Gross reserves for losses and loss expenses $ 11,654,346
$ 11,197,195

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		(In thousands)	Reported Case Reserves		Incurred But Not Reported		Total
September 30, 2017
June 30, 2020							June 30, 2020
Other liability	$	1,243,208	$	2,162,031	$	3,405,239	Other liability	$	1,447,134	$	2,672,756	$	4,119,890
Workers’ compensation (1)	1,530,194		1,246,084		2,776,278		Workers’ compensation (1)	950,242		938,083		1,888,325
Professional liability	299,418		584,606		884,024		Professional liability	410,806		761,104		1,171,910
Commercial automobile	341,998		267,136		609,134		Commercial automobile	409,928		326,454		736,382
Short-tail lines (2)	309,692		307,341		617,033		Short-tail lines (2)	269,752		335,805		605,557
Total Insurance	3,724,510		4,567,198		8,291,708		Total Insurance	3,487,862		5,034,202		8,522,064
Reinsurance (1)	909,690		847,076		1,756,766
Reinsurance & Monoline Excess (1) (3)							Reinsurance & Monoline Excess (1) (3)	1,443,618		1,100,425		2,544,043
Total	$	4,634,200	$	5,414,274	$	10,048,474	Total	$	4,931,480	$	6,134,627	$	11,066,107

December 31, 2016
December 31, 2019							December 31, 2019
Other liability	$	1,159,082	$	2,061,966	$	3,221,048	Other liability	$	1,421,378	$	2,522,957	$	3,944,335
Workers’ compensation (1)	1,453,318		1,228,774		2,682,092		Workers’ compensation (1)	918,619		964,102		1,882,721
Professional liability	264,188		542,539		806,727		Professional liability	399,411		713,433		1,112,844
Commercial automobile	344,143		252,978		597,121		Commercial automobile	412,036		300,339		712,375
Short-tail lines (2)	322,872		283,214		606,086		Short-tail lines (2)	271,192		269,914		541,106
Total Insurance	3,543,603		4,369,471		7,913,074		Total Insurance	3,422,636		4,770,745		8,193,381
Reinsurance (1)	823,516		853,675		1,677,191
Reinsurance & Monoline Excess (1) (3)							Reinsurance & Monoline Excess (1) (3)	1,469,363		1,035,254		2,504,617
Total	$	4,367,119	$	5,223,146	$	9,590,265	Total	$	4,891,999	$	5,805,999	$	10,697,998

___________

(1) Reserves for workers’ compensation and ~~reinsurance~~Reinsurance & Monoline Excess are net of an aggregate net discount of ~~$599~~$506 million and ~~$640~~

$530 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

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

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

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

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

Net prior year development (i.e., the sum of prior year reserve changes and prior year earned premiums changes) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 are as follows:


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

(In thousands) 2017 2016
Net decrease in prior year loss reserves $ 7,648
$ 23,518
Increase in prior year earned premiums 22,940
18,039
Net favorable prior year development $ 30,588
$ 41,557
The ongoing COVID-19 global pandemic has impacted, and will likely continue to impact, the Company’s results through its effect on claim frequency and severity. Loss cost trends have been impacted and will likely be further impacted by COVID-19-related claims in certain lines of business, as well as by other effects of COVID-19 associated with economic conditions, inflation, and social distancing and work from home rules, for example. Although it is still too early to determine, to date, it appears that the losses incurred due to COVID-19-related claims have been partially offset by lower claim frequency in certain lines of our businesses, including commercial auto. However, given the continuing nature of the pandemic, the impact of COVID-19 could ultimately increase or decrease overall loss cost trends and is likely to have differing impacts on the Company's different lines of business. For certain lines of business, such as contingency and event cancellation, the Company has received reported claims related to COVID-19, and it expects additional claims to be reported in the future. The Company has also received claims for other short-tailed lines related to business interruption and film production delays. Further, for workers’ compensation, nearly one-third of the states have enacted rules, legislation or administrative orders creating a presumption that certain “essential” workers who contract COVID-19 did so through the course of their employment. Several other states are considering similar actions, including with varying definitions of “essential” workers. While the ultimate impact of these presumptions are unknown at this time, the Company believes that such state actions will likely increase workers’ compensation claims with respect to workers deemed “essential,” although this impact may be partially offset by lower workers’ compensation claim frequency with respect to non-essential workers.

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

~~In 2017,~~For the six months ended June 30, 2020, the Company has recognized losses for COVID-19-related claims activity, net of reinsurance, of approximately $143 million, of which $102 million relates to the Insurance segment and $41 million relates to the Reinsurance & Monoline Excess segment. Of the $143 million of COVID-19-related losses, $37 million are reported losses and $106 million is booked as IBNR.

The adverse development for the Reinsurance & Monoline Excess segment was ~~due to reserve strengthening associated with claims impacted~~mainly driven by ~~the change in~~

~~the Ogden discount rate in the U.K., as well as adverse development on the~~ U.S. casualty 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.~~

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~~2009 and ~~2015; it reflects claims frequency trends (i.e., number of reported claims per unit of exposure) that continue~~prior related 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.construction projects.

Reserve Discount. The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was ~~$1,849~~$1,687 million and ~~$1,907~~$1,731 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was ~~$599~~$506 million and ~~$640~~$530 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. At ~~September~~June 30, ~~2017,~~2020, discount rates by year ranged from ~~2.0%~~0.7% to 6.5%, with a weighted average discount rate of ~~3.8%~~3.6%.

Substantially all of the workers’ compensation discount (97% of total discounted reserves at ~~September~~June 30, ~~2017)~~2020) relates to excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience.

The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at ~~September~~June 30, ~~2017)~~2020), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware.

Assumed Reinsurance Premiums. The Company estimates the amount of assumed reinsurance premiums that it will receive under treaty reinsurance agreements at the inception of the contracts. These premium estimates are revised as the actual amount of assumed premiums is reported to the Company by the ceding companies. As estimates of assumed premiums are made or revised, the related amount of earned premiums, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately ~~$56~~$44 million at ~~September~~June 30, ~~2017~~2020 and ~~$68~~$43 million at December 31, ~~2016.~~2019. The assumed premium estimates are based upon terms set forth in reinsurance agreements, information received from ceding companies during the underwriting and negotiation of agreements, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate amount of premiums to be received under its assumed reinsurance agreements.

~~Other-Than-Temporary Impairments (OTTI) of~~Allowance for Expected Credit Losses on Investments. ~~The cost of~~

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

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

The Company’s credit assessment of allowance for expected credit losses uses a third party model for available for sale and held to maturity securities, as well as loans receivable. The allowance for expected credit losses is generally based on the performance of the underlying collateral under various economic and default scenarios that involve subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default rates, the nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and performance factors. A discounted cash flow analysis is used to ascertain the amount of the allowance for expected credit losses, if any. In general, the model reverts to the ~~time~~rating-level long-term average marginal default rates based on 10 years of ~~sale or maturity. Since equity securities do not have a contractual cash flow or maturity,~~historical data, beyond the ~~Company considers whether~~forecast period. For other inputs, the ~~price of an equity security is expected~~model in most cases reverts to ~~recover within a reasonable period of time.~~the baseline long-term assumptions linearly over 5 years beyond the forecast period. The long-term assumptions are based on the historical averages.

The Company classifies its fixed maturity securities ~~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 30, 2017:~~

($ in thousands)
Number of
Securities

Aggregate
Fair Value

Gross Unrealized
Loss
Unrealized loss less than 20% of amortized cost 592
$ 3,864,164
$ 40,565
Unrealized loss of 20% or greater of amortized cost:
Twelve months and longer 3
180
112
Total 595
$ 3,864,344
$ 40,677

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at ~~September~~June 30, ~~2017~~2020 is presented in the table below:


($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss		($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	9	$	55,292	$	462	Foreign government	14	$	52,126	$	32,429
Corporate						Corporate	18	47,404		9,320
Mortgage-backed securities	6	5,975		150		Mortgage-backed securities	12	6,348		340
Corporate	3	2,852		211
Asset-backed securities	3	1,331		115		Asset-backed securities	2	279		6

Total	21	$	65,450	$	938	Total	46	$	106,157	$	42,095

As of June 30, 2020, the Company has recorded an allowance for expected credit losses on fixed maturity securities of $46 million. The Company has evaluated ~~its~~the remaining fixed maturity securities in an unrealized loss position and believes the unrealized ~~loss is~~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~~due.

Loans Receivable – For loans receivable, the Company estimates an allowance for expected credit losses based on relevant information about past events, including historical loss experience, current conditions and ~~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~~forecasts that affect the expected collectability of the ~~underlying value~~amortized cost of the ~~security, the Company does not consider the equity security~~financial asset. The allowance for expected credit losses is presented as a reduction 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 viewamortized cost of the ~~underlying value of these securities,~~financial asset in the ~~Company does not consider these equity securities~~consolidated balance sheet and changes to ~~be OTTI. There was no OTTI of common stocks~~the estimate 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.expected credit losses are recognized through net investment gains (losses). Loans receivable are reported net of ~~a valuation reserve~~an allowance for expected credit losses of $3$9 million ~~at both September~~and $2 million as of June 30, ~~2017~~2020 and December 31, ~~2016.~~2019, 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:~~

2020:


($ in thousands)	Carrying Value		Percent of Total		($ in thousands)	Carrying Value		Percent of Total
Pricing source:					Pricing source:
Independent pricing services	$	13,570,457	98.4	%	Independent pricing services	$	13,002,127	98.5	%
Syndicate manager	43,196		0.3		Syndicate manager	39,913		0.3
Directly by the Company based on:					Directly by the Company based on:
Observable data	180,467		1.3		Observable data	160,968		1.2
Cash flow model	174		—

Total	$	13,794,294	100.0	%	Total	$	13,203,008	100.0	%

Independent pricing services – Substantially all of the Company’s fixed maturity securities available for sale were priced by independent pricing services (generally one U.S. pricing service plus additional pricing services with respect to a limited number of foreign securities held by the Company). The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness based upon current trading levels for

similar securities. If the prices appear unusual to the Company, they are re-examined and the value is either confirmed or revised. In addition, the Company periodically performs independent price tests of a sample of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of ~~September~~June 30, ~~2017,~~2020, the Company did not make any adjustments to the prices provided by the pricing services. Based upon the Company’s review of the methodologies used by the independent pricing services, these securities were classified as Level 2.

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

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

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

Results of Operations for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~

2019

Business Segment Results

Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and ~~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~~2020 and ~~2016.~~2019. The GAAP combined ratio represents a measure of underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.


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

($ in thousands) 2017 2016
Insurance:
Gross premiums written $ 5,233,692
$ 5,184,033
Net premiums written 4,364,638
4,386,944
Net premiums earned 4,262,485
4,180,985
Loss ratio 61.7 % 61.1 %
Expense ratio 32.8 % 32.3 %
GAAP combined ratio 94.5 % 93.4 %
Reinsurance:
Gross premiums written $ 463,825
$ 579,878
Net premiums written 417,634
526,712
Net premiums earned 457,759
492,087
Loss ratio 86.1 % 60.5 %
Expense ratio 37.1 % 39.1 %
GAAP combined ratio 123.2 % 99.6 %
Consolidated:
Gross premiums written $ 5,697,517
$ 5,763,911
Net premiums written 4,782,272
4,913,656
Net premiums earned 4,720,244
4,673,072
Loss ratio 64.1 % 61.0 %
Expense ratio 33.2 % 33.1 %
GAAP combined ratio 97.3 % 94.1 %

Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:


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

(In thousands, except per share data) 2017 2016
Net income to common stockholders $ 394,505
$ 449,127
Weighted average diluted shares 129,289
128,501
Net income per diluted share $ 3.05
$ 3.50

The Company reported net income to common stockholders of ~~$395~~$67 million in ~~2017~~2020 compared to ~~$449~~$397 million in ~~2016.~~2019. The ~~12%~~$330 million decrease in net income was primarily due to an after-tax decrease in net investment gains of $191 million (primarily resulting from disruption in global financial markets related to COVID-19, and the adoption of the new credit loss accounting standard set forth in ASU 2016-13), an after-tax decrease in underwriting income of ~~$97~~$91 million ~~mainly driven by increased catastrophe~~primarily from COVID-19-related losses, an after-tax decrease in net investment income of $68 million primarily due to losses from ~~Hurricanes Harvey, Irma~~investment funds, reduced investment yields in fixed maturity securities and ~~Maria, as well as two earthquakes in Mexico,~~repositioning a larger portion of the investment portfolio to cash and cash equivalents, an ~~after-tax~~ increase in ~~net foreign currency losses~~tax expense of ~~$17~~$12 million due to a change in the effective tax rate, and an after-tax decrease in ~~income~~profits from non-insurance businesses of $7$3 million, partially offset by an after-tax increase in ~~after-tax net investment~~foreign currency gains of ~~$57~~$18 million from the strengthening U.S. dollar, an after-tax decrease in corporate expenses of $7 million, an after-tax decrease in interest expense of $5 million, and an after-tax increase in ~~investment income~~profit from insurance service businesses of ~~$14~~$5 million. The number of weighted average diluted shares ~~remained relatively unchanged~~decreased by approximately 3 million for the ~~nine~~the six months ended ~~September~~June 30, ~~2017 and 2016.~~2020 compared to six months ended June 30, 2019 mainly reflecting shares repurchased in the first six months of 2020.

Premiums. Gross premiums written were ~~$5,698~~$4,364 million in ~~2017, a decrease~~2020, an increase of 1%6% from ~~$5,764~~$4,136 million in ~~2016.~~2019. The ~~decrease~~increase was due to a ~~decrease in the Reinsurance segment of $116~~$144 million ~~partially offset by an~~ increase in the Insurance segment and a $84 million increase in the Reinsurance & Monoline Excess segment. Approximately 79% of ~~$50 million. Approximately 77.7% of policies~~premiums expiring in ~~2017~~2020 were renewed, ~~compared with a 77.8% renewal retention rate for policies~~and 80% of premiums expiring in ~~2016.~~2019 were renewed.

Average renewal premium rates for insurance and facultative reinsurance increased ~~1.0%~~10.0% in ~~2017~~2020 when adjusted for ~~change~~changes in ~~exposures.~~exposures, and increased 12.3% excluding workers' compensation.

A summary of gross premiums written in ~~2017~~2020 compared with ~~2016~~2019 by line of business within each business segment follows:

•Insurance - gross premiums increased 1%4% to ~~$5,234~~$3,860 million in ~~2017~~2020 from ~~$5,184~~$3,716 million in ~~2016.~~2019. Gross premiums increased ~~$25~~$126 million ~~(5%~~(10%) for other liability, $69 million (15%) for professional liability, ~~$19~~and $55 million ~~(4%~~(6%) for ~~commercial auto, $8~~short-tail lines, and decreased $104 million ~~(1%~~(15%) for workers' compensation and $2 million (less than 1%) for ~~short-tail lines and decreased $4 million (less than 1%) for other liability.~~commercial auto.

•Reinsurance & Monoline Excess - gross premiums ~~decreased~~increased 20% to ~~$464~~$504 million in ~~2017~~2020 from ~~$580~~$420 million in ~~2016.~~2019. Gross premiums ~~decreased $87~~increased $67 million ~~(35%~~(30%) for casualty reinsurance, $13 million (14%) for property ~~lines~~reinsurance and ~~$29~~$4 million ~~(9%~~(3%) for ~~casualty lines.~~monoline excess.

Net premiums written were ~~$4,782~~$3,586 million in ~~2017, a decrease~~2020, an increase of 3%4% from ~~$4,914~~$3,453 million in ~~2016.~~2019. Ceded reinsurance premiums as a percentage of gross written premiums were ~~16%~~18% in ~~2017~~2020 and ~~15%~~17% in ~~2016.~~2019. The cession rate increased primarily because of reinstatement premiums associated with COVID-19 related claims activity.

Premiums earned increased 1%4% to ~~$4,720~~$3,368 million in ~~2017~~2020 from ~~$4,673~~$3,240 million in ~~2016.~~2019. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly, recent rate increases will be earned over the upcoming quarters. Premiums earned in ~~2017~~2020 are related to business written during both ~~2017~~2020 and ~~2016.~~2019. Audit premiums were ~~$137~~$83 million in ~~2017~~2020 compared with ~~$116~~$100 million in ~~2016.~~2019.

Net ~~investment~~Investment Income. Following is a summary of net investment income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:


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

Amount
Average Annualized
Yield
($ in thousands) 2017 2016 2017 2016
Fixed maturity securities, including cash and cash equivalents and loans receivable $ 347,976
$ 331,448
3.3 % 3.3 %
Investment funds 50,744
60,385
5.5
6.6
Arbitrage trading account 16,235
12,883
4.0
4.4
Real estate 14,894
4,552
1.6
0.6
Equity securities available for sale 1,845
3,217
1.2
2.2
Gross investment income 431,694
412,485
3.3
3.3
Investment expenses (5,093 ) (7,635 )
Total $ 426,601
$ 404,850
3.3 % 3.3 %

Net investment income ~~increased 5%~~decreased 25% to ~~$427~~$260 million in ~~2017~~2020 from ~~$405~~$347 million in ~~2016~~2019 due primarily to a ~~$16~~$75 million ~~increase~~decrease in income from investment funds (as a result of the impact of the disruption in global financial markets associated with COVID-19 during the first quarter of 2020, as investment funds are reported on a one-quarter lag), a $27 million decrease in income from fixed maturity securities mainly driven by lower investment yields and repositioning a ~~$10~~larger portion of the investment portfolio to cash and cash equivalents, and a $2 million increase ~~from real estate,~~in investment expense, partially offset by a $3$15 million increase from the arbitrage trading account, a $1 million increase in real estate and a ~~reduction~~$1 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~~$19.5 billion in ~~2017~~2020 and ~~$16.6~~$19.0 billion in ~~2016.~~2019.

Insurance Service Fees. The Company earns fees from an insurance distribution business, a third-party administrator and as a servicing carrier of workers' compensation assigned risk plans for certain states. ~~Service~~Insurance service fees decreased to ~~$100~~$46 million in ~~2017~~2020 from ~~$109~~$48 million in ~~2016.~~2019. The decrease is primarily due to a reduction of assigned risk plan business.

Net Realized and Unrealized Gains (Losses) 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 losses on investments were $82 million in 2020 compared with net gains of $142 million in 2019. The losses of $82 million in 2020 reflect net realized gains on ~~investment sales were $277~~investments of $11 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.

~~Losses and Loss Expenses~~. Losses and loss expenses increased to $3,025 million in 2017 from $2,852 million in 2016. The consolidated loss ratio was 64.1% in 2017 and 61.0% in 2016. Catastrophe losses, net of reinsurance recoveries and reinstatement premiums, were $167 million in 2017 and $68 million in 2016. Hurricanes Harvey, Irma and Maria, along with two earthquakes in Mexico, resulted in catastrophe losses of $107 million. Favorable prior year reserve development (net of premium offsets) was $31 million in 2017 and $42 million in 2016. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.8 points to 61.2% in 2017 from 60.4% in 2016.

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

Insurance - The loss ratio was 61.7% in 2017 and 61.1% in 2016. Catastrophe losses were $94 million in 2017 compared with $58 million in 2016. Favorable prior year reserve development was $62 million in 2017 and $38 million in 2016. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.4 points to 61.0% in 2017 from 60.6% in 2016.

~~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~~unrealized losses on equity securities of ~~1%. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 33.2% and 33.1% for~~$93 million driven by the ~~nine months ended September 30, 2017 and 2016, respectively.~~

~~Service expenses, which represent the costs~~disruption in global financial markets associated with COVID-19 during 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 tofirst six months of 2020. In 2019, the 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 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. 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~~

~~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”) 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

million benefit related to stock compensation tax benefits being recognized within income tax expense starting in 2017 and an after-tax increase in net investment gains of $5 million. The number of weighted average diluted shares remained relatively unchanged for the three months ended September 30, 2017 and 2016.

~~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:~~

Insurance - gross premiums increased 2% to $1,719 million in 2017 from $1,689 million in 2016. Gross premiums increased $13 million (3%) for short tail lines, $12 million (3%) for workers' compensation, $6 million (3%) for commercial auto and $4 million (2%) for professional liability and decreased $5 million (1%) for other liability.

Reinsurance - gross premiums decreased 14% to $156 million in 2017 from $180 million in 2016. Gross premiums decreased $26 million (34%) for property lines and increased $2 million (2%) for casualty lines.

~~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:~~

Amount
Average Annualized
Yield
($ in thousands) 2017 2016 2017 2016
Fixed maturity securities, including cash and cash equivalents and loans receivable $ 118,834
$ 114,271
3.4 % 3.3 %
Investment funds 15,200
25,293
5.2
8.1
Arbitrage trading account 4,418
6,441
3.5
5.6
Real estate 5,042
585
1.5
0.2
Equity securities available for sale 604
1,069
1.2
2.0
Gross investment income 144,098
147,659
3.3
3.5
Investment expenses (1,619 ) (1,991 )
Total $ 142,479
$ 145,668
3.2 % 3.4 %

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. Net realized gains on investment sales ~~were $184~~of $31 million and an increase in ~~2017 compared with $176~~unrealized gains on equity securities of $111 million.

loss relative to amortized cost by security, changes in ~~2016. The three~~rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. For the six months ended ~~September~~June 30, ~~2017 include a gain of $124~~2020, the pre-tax change in allowance for expected credit losses on investments increased by $18 million ~~from the sale of an~~($14 million after-tax), which is reflected in net investment ~~in an office building located in Washington D.C. The three months ended~~gains (losses).

~~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~~$169 million in ~~2017~~2020 and ~~$80~~$181 million in ~~2016.~~2019. The ~~increase was primarily related~~decrease mainly relates to a reduction in revenues from the ~~textile business purchased in March 2017.~~aviation-related businesses impacted by COVID-19.

Losses and Loss Expenses. Losses and loss expenses increased to ~~$1,081~~$2,242 million in ~~2017~~2020 from ~~$966~~$2,017 million in ~~2016.~~2019. The consolidated loss ratio was ~~68.4%~~66.6% in ~~2017~~2020 and ~~60.9%~~62.2% in ~~2016.~~2019. Catastrophe losses, net of reinsurance recoveries, were $225 million (including losses of approximately $143 million related to COVID-19 primarily comprised of IBNR) in 2020 and ~~reinstatement premiums, were $119~~$38 million in ~~2017 and $12 million in 2016. Hurricanes Harvey, Irma and Maria, along with two earthquakes in Mexico, resulted in catastrophe losses of $107 million.~~2019. Favorable prior year reserve development (net of premium offsets) was $7 million in ~~2017~~2020 and ~~$13~~$14 million in ~~2016.~~2019. The loss ratio excluding catastrophe losses and prior year reserve development i~~ncreased 0.4~~ ~~points to 61.3%~~was 60.1% in ~~2017 from 60.9%~~2020 and 61.5% in ~~2016.~~2019.

A summary of loss ratios in ~~2017~~2020 compared with ~~2016~~2019 by business segment follows:

•Insurance - The loss ratio ~~of 63.2%~~was 66.1% in ~~2017 was 2.3 points higher than the loss ratio of 60.9%~~2020 and 62.5% in ~~2016.~~2019. Catastrophe losses were ~~$47~~$171 million in ~~2017 and $9~~2020 compared with $38 million in ~~2016.~~2019. The Company reflected a best estimate (net of reinsurance) based upon available information for COVID-19-related losses of approximately $102 million, which was included in catastrophe losses and primarily related to contingency and event cancellation coverage, workers’ compensation and short-tail lines. Favorable prior year reserve development was ~~$13~~$12 million in ~~both 2017~~2020 and ~~2016.~~$17 million in 2019. The loss ratio excluding catastrophe losses and prior year reserve development decreased ~~0.4~~1.2 points to ~~60.8%~~60.6% in ~~2017~~2020 from ~~61.2%~~61.8% in ~~2016.~~2019.

•Reinsurance & Monoline Excess - The loss ratio ~~of 118.7%~~was 70.3% in ~~2017 was 57.4 points higher than the loss ratio of 61.3%~~2020 and 60.0% in ~~2016.~~2019. Catastrophe losses were ~~$72~~$54 million in ~~2017~~2020 compared with $3$0.1 million in ~~2016.~~2019. The Company reflected a best estimate (net of reinsurance) based upon available information for COVID-19-related losses of approximately $41 million, which was included in catastrophe losses and primarily related to excess workers’ compensation and short-tail lines. Adverse prior year reserve development was $6$5 million in ~~2017 compared with favorable prior year reserve development of $0.2~~2020 and $3 million in ~~2016.~~2019. The loss ratio excluding catastrophe losses and prior year reserve development ~~increased 6.9~~decreased 2.7 points to ~~66.1%~~56.2% in ~~2017~~2020 from ~~59.2%~~58.9% in ~~2016 largely due to increased attritional losses.~~2019.

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


(In thousands)	2017		2016
Policy acquisition and operating insurance expenses	$	516,243	$	523,254
($ in thousands)						($ in thousands)	2020		2019
Policy acquisition and insurance operating expenses						Policy acquisition and insurance operating expenses	$	1,051,158	$	1,031,951
Insurance service expenses	32,451		32,441			Insurance service expenses	42,995		51,343
Net foreign currency (gains) losses	1,779		(2,193		)
Net foreign currency gains						Net foreign currency gains	(28,923)		(6,494)
Other costs and expenses	50,349		52,846			Other costs and expenses	93,943		103,116
Total	$	600,822	$	606,348		Total	$	1,159,173	$	1,179,916

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~~increased 2% and net premiums earned ~~of less than 1%.~~increased 4% from 2019. The expense ratio (underwriting expenses expressed as a

percentage of premiums earned) ~~decreased~~was 31.2% in 2020 and 31.9% in 2019. The improvement is primarily attributable to ~~32.6% from 33.0% in 2016.~~higher net premiums earned and lower travel and entertainment expenses due to the global pandemic. However, to the extent our net premiums earned decrease, due to the impact of the COVID-19 pandemic or otherwise, our expense ratio would be expected to increase.

Service expenses, which represent the costs associated with the fee-based businesses, ~~remained flat at $32~~decreased to $43 million ~~for 2017 and 2016.~~in 2020 from $51 million in 2019. The decrease is primarily due to a reduction of assigned risk plan business.

Net foreign currency ~~(gains) losses~~gains result from transactions denominated in a currency other than a company's operating functional currency. Net foreign currency ~~losses~~gains were $2$29 million in ~~2017~~2020 compared to gains of $2$6 million in ~~2016.~~2019, mainly resulting from the continued strengthening of the U.S. dollar in relation to the Argentine peso and U.K sterling in 2020.

Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs and expenses decreased to ~~$50~~$94 million in ~~2017~~2020 from ~~$53~~$103 million in ~~2016.~~2019, primarily due to a reduction in non-recurring performance-based compensation costs which occurred in 2019.

expenses. Expenses from non-insurance businesses were ~~$86~~$171 million in ~~2017~~2020 compared to ~~$79~~$178 million in ~~2016.~~2019. The ~~increase was primarily related~~decrease mainly relates to ~~the textile~~a reduction of aviation-related business ~~purchased~~impacted by COVID-19 in ~~March 2017.~~2020.

Interest Expense. Interest expense was ~~$37~~$75 million in ~~both 2017 and 2016.~~2020 compared with $81 million in 2019. During ~~2017,~~2019, the Company repaid $2at maturity $489 million aggregate principal amount of senior notes and other debt. In December 2019, the Company issued $300 million aggregate principal amount of 5.10% subordinated debentures due 2059. In May 2020, the Company issued $300 million aggregate principal amount of 4.00% senior notes due 2050. Accordingly, the timing of the debt repayment in 2019 and issuance in 2020 led to the decrease in interest expense for the six months ended June 30, 2020 compared to ~~$83 million~~the same period in ~~2016, mainly in connection with the sale of Aero Precision Industries.~~2019.

Income ~~Taxes~~.Taxes. The effective income tax rate was ~~28%~~31.2% in ~~2017~~2020 and ~~33%~~20.7% in ~~2016.~~2019. The effective income tax rate differs from the federal income tax rate of ~~35% primarily~~21% principally because foreign jurisdictions were limited on the utilization of losses at different tax rates, which was partially offset by tax-exempt investment income ~~as well as the new requirement in 2017 to recognize~~and tax benefits ~~for stock compensation in income tax expense.~~related to equity-based compensation.

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately ~~$40~~$96 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, 2020 and 2019

Business Segment Results

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


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

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


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

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

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

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

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

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

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

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

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

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


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

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

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

Net Realized and Unrealized Gains (Losses) on Investments. The Company buys and sells securities and other investment assets on a regular basis in order to maximize its total return on investments. Decisions to sell securities and other investment assets are based on management’s view of the underlying fundamentals of specific investments as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net realized and unrealized gains on investments were $62 million in 2020 compared with $74 million in 2019. The gains of $62

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

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

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

Losses and Loss Expenses. Losses and loss expenses increased to $1,135 million in 2020 from $1,029 million in 2019. The consolidated loss ratio was 67.7% in 2020 and 62.4% in 2019. Catastrophe losses, net of reinsurance recoveries, were $146 million in 2020 (including losses of approximately $4$86 million ~~assuming all tax credits~~related to COVID-19 primarily comprised of IBNR) and $26 million in 2019. Favorable prior year reserve development (net of premium offsets) was $3 million in 2020 and $7 million in 2019. The loss ratio excluding catastrophe losses and prior year reserve development was 59.2% in 2020 and 61.3% in 2019.

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

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

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

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


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

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

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

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

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

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

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

The Company has not provided U.S. deferred income taxes on the undistributed earnings ~~and would be reflected in the tax provision for the year in which~~of approximately $96 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.

Investments

As part of its investment strategy, the Company establishes a level of cash and highly liquid short-term and intermediate-term securities that, combined with expected cash flow, it believes is adequate to meet its payment obligations. Due to the ~~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~~2.4 years at ~~September~~June 30, ~~2017~~,2020 down from ~~3.1~~2.8 years at December 31, ~~2016.~~2019, as the Company repositioned a larger portion of its investment portfolio to cash and cash equivalents. The Company’s fixed maturity investment portfolio and investment-related assets as of ~~September~~June 30, ~~2017~~2020 were as follows:

($ in thousands)
Carrying
Value

Percent
of Total
Fixed maturity securities:
U.S. government and government agency $ 411,605
2.2 %
State and municipal:
Special revenue 2,829,795
15.4
State general obligation 537,537
2.9
Local general obligation 415,635
2.3
Corporate backed 391,627
2.1
Pre-refunded (1) 303,947
1.8
Total state and municipal 4,478,541
24.4
Mortgage-backed securities:
Agency 832,993
4.5
Commercial 251,578
1.4
Residential-Prime 226,274
1.2
Residential-Alt A 23,298
0.2
Total mortgage-backed securities 1,334,143
7.2
Asset-backed securities 2,388,618
13.0
Corporate:
Industrial 2,636,885
14.4
Financial 1,374,021
7.5
Utilities 267,331
1.5
Other 42,137
0.2
Total corporate 4,320,374
23.6
Foreign government and foreign government agencies 940,409
5.1
Total fixed maturity securities 13,873,690
75.7
Equity securities available for sale:
Common stocks 419,520
2.3
Preferred stocks 194,505
1.1
Total equity securities available for sale 614,025
3.4
Real estate 1,391,274
7.5
Investment funds 1,119,907
6.0
Cash and cash equivalents 773,997
4.2
Arbitrage trading account 488,238
2.7
Loans receivable 74,229
0.5
Total investments $ 18,335,360
100.0 %

~~________________________~~


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

________________________

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

Fixed Maturity Securities. The Company’s investment policy with respect to fixed maturity securities is generally to purchase instruments with the expectation of holding them to their maturity. However, management of the available for sale

portfolio is considered necessary to maintain an approximate matching of assets and liabilities as well as to adjust the portfolio as a result of changes in financial market conditions and tax considerations.

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

~~At September 30, 2017, investments in foreign government fixed maturity securities (which are generally held by the Company's foreign operations) were as follows:~~

(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

~~________~~

~~(1) Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction and Development.~~

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.

Investment Funds. At ~~September~~June 30, ~~2017,~~2020, the carrying value of investment funds was ~~$1,120~~$1,159 million, including investments in real estate funds of ~~$615~~$314 million, financial services funds of $345 million, energy funds of ~~$86~~$129 million, transportation funds of $143 million and other funds of ~~$419~~$228 million. Investment funds are generally reported on a one-quarter lag. Accordingly, losses from investment funds for the second quarter of 2020 reflects the adverse impact from the disruption in global financial markets associated with COVID-19 during the first quarter of 2020.

Real Estate. Real estate is directly owned property held for investment. At ~~September~~June 30, ~~2017,~~2020, real estate 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. In addition, there are two properties under development:~~Florida, an office building in London, and the completed portion of a mixed-use project in Washington D.C. In addition, part of the previously mentioned mixed-use project in Washington D.C. is under development. The Company expects to fund further development costs for ~~these projects~~the project with a combination of its own funds and external financing.

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

Loans Receivable. Loans receivable, which are carried at amortized cost, ~~had an aggregate cost~~net of ~~$74~~allowance for expected credit losses, of $82 million and an aggregate fair value of ~~$77~~$86 million at ~~September~~June 30, ~~2017.~~2020. The amortized cost of loans receivable is net of ~~a valuation~~an allowance for expected credit losses of $3$9 million as of ~~September~~June 30, ~~2017~~.2020. Loans receivable include real estate loans of ~~$59~~$50 million that are secured by commercial real estate located primarily in New York. Real estate loans receivable generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. Loans receivable include commercial loans of ~~$15~~$32 million that are secured by business assets and have fixed interest rates and floating LIBOR-based interest rates with varying maturities not exceeding 10 years.

Market Risk. The fair value of the Company’s investments is subject to risks of fluctuations in credit quality and interest rates. The Company uses various models and stress test scenarios to monitor and manage interest rate risk. The Company attempts to manage its interest rate risk by maintaining an appropriate relationship between the effective duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The effective duration for the fixed maturity portfolio (including cash and cash equivalents) was ~~2.9~~2.4 years at ~~September~~June 30, ~~2017~~,2020 down from ~~3.1~~2.8 years at December 31, ~~2016~~.2019.

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

Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities ~~decreased~~ ~~to $522~~was $580 million in the first ~~nine~~six months of ~~2017~~2020 as compared to $403 million from ~~$727 million~~operating activities in the ~~comparable period in 2016,~~first six months of 2019. The increase is primarily due to a benefit under the ~~timing~~Coronavirus Aid, Relief, and Economic Security Act relating to the deferral of ~~loss and loss expense~~tax payments ~~and payments to taxing authorities.~~until July 15, 2020.

The Company's insurance subsidiaries' principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company generally targets an average duration for its investment portfolio that is within one year of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed income securities are not sufficient to fund claim payments and other cash requirements, the remainder of the Company's cash and investments is available to pay claims and other obligations as they become due. The Company's investment portfolio is highly liquid, with approximately ~~80%~~79% invested in cash, cash equivalents and marketable fixed maturity securities as of ~~September~~June 30, ~~2017.~~2020. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized.

~~Debt~~. At ~~September~~June 30, ~~2017,~~2020, the Company held more than $1.5 billion of cash and liquid investments at the holding company.

Debt. At June 30, 2020, the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of ~~$2,488~~$2,925 million and a face amount of ~~$2,521 million.~~$2,973 million, including $300 million aggregate principal amount of its 4.00% senior notes due 2050 issued in May 2020. The maturities of the outstanding debt are ~~$442 million in 2019, $302~~$300 million in 2020, $4 million in 2021, $427 million in 2022, $5 million in 2025, $102 million in 2028, $250 million in 2037, $350 million in 2044, $300 million in 2050, $350 million in 2053, ~~and~~ $400 million in ~~2056.~~2056, $185 million in 2058 and $300 million in 2059.

In February 2016, the Company issued $110 million aggregate principal amount of its 5.9% subordinated debentures due 2056, and 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.

Equity. At ~~September~~June 30, ~~2017~~,2020, total common stockholders’ equity was ~~$5.4~~$5.8 billion, common shares outstanding were ~~121,769,109~~177,930,502 and stockholders’ equity per outstanding share was ~~$44.60. The Company repurchased 441,119 common shares for $28.4 million during~~$32.60. During the three months ended ~~September~~June 30, ~~2017.~~2020, the Company repurchased 1,953,344 shares of its common stock for $96 million. During the six months ended June 30, 2020, the Company repurchased 5,604,103 shares of its common stock for $299 million. The number of common shares outstanding excludes shares held in a grantor trust established by the Company for delivery upon settlement of vested but mandatorily deferred RSUs.

Total Capital.Total capitalization (equity, debt and subordinated debentures) was ~~$7.9~~$8.7 billion at ~~September~~June 30, ~~2017~~.2020. The percentage of the Company’s capital attributable to senior notes, subordinated debentures and other debt was ~~31%~~34% at ~~September~~June 30, ~~2017~~2020 and ~~33%~~30% at December 31, ~~2016.~~2019.

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~~,2020, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

Please see Note 2120 to the notes to the interim consolidated financial statements.

Item 1A.Risk Factors

~~There~~Other than as set forth below, there have been no material changes from the risk factors previously disclosed in the ~~Company's~~Company’s annual report on ~~From~~Form 10-K for the fiscal year ended December 31, ~~2016.~~2019.

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

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

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

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

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

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

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

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

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

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

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

Set forth below is a summary of the shares repurchased by the Company during the three months ended ~~September~~June 30, ~~2017~~2020, and the number of shares remaining authorized for purchase by the Company:


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



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

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


~~Number~~

(10.1)						Form of ~~2017 Performance-Based Restricted Stock~~2020 Performance Unit Award Agreement ~~Under~~under the W. R. Berkley Corporation ~~2012 Stock~~2019 Long-Term Incentive Plan

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

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

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

SIGNATURES

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



		W. R. BERKLEY CORPORATION
Date:	~~November 8, 2017~~August 3, 2020	/s/ W. Robert Berkley, Jr.
		W. Robert Berkley, Jr.
		President and Chief Executive Officer

Date:	~~November 8, 2017~~August 3, 2020	/s/ Richard M. Baio
		Richard M. Baio
		~~Senior~~Executive Vice President - Chief Financial Officer and Treasurer



	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



	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



(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