UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)


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

For the Quarterly Period Ended September 30, ~~2020~~2021


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

For the Transition Period from to .


Commission File Number			1-15202

W. R. BERKLEY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

22-1867895

(State or other jurisdiction of
incorporation or organization)

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

475 Steamboat Road

Greenwich

Connecticut

06830

(Address of principal executive offices)

(Zip Code)


(203)			629-3000

(Registrant’s telephone number, including area code)


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

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


Title	Trading Symbol	Name

Common Stock, par value $.20 per share	WRB	New York Stock Exchange
~~5.90% 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
4.25% Subordinated Debentures due 2060	WRB-PG	New York Stock Exchange
4.125% Subordinated Debentures due 2061	WRB-PH	New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Number of shares of common stock, $.20 par value, outstanding as of October 28, ~~2020: 178,220,903~~2021: 176,640,439

TABLE OF CONTENTS


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

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

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		(Unaudited)		(Audited)			(Unaudited)		(Audited)
Assets	Assets					Assets
Investments:	Investments:					Investments:
Fixed maturity securities (amortized cost of $13,536,264 and $13,976,647; allowance for expected credit losses of $2,567 at September 30, 2020)		$	13,893,046	$	14,180,961
Fixed maturity securities (amortized cost of $15,809,028 and $13,755,858; allowance for expected credit losses of $17,283 and $2,580 at September 30, 2021 and December 31, 2020, respectively)						Fixed maturity securities (amortized cost of $15,809,028 and $13,755,858; allowance for expected credit losses of $17,283 and $2,580 at September 30, 2021 and December 31, 2020, respectively)	$	16,073,135	$	14,159,369
Real estate	Real estate	2,106,474		2,105,950		Real estate	1,842,400		1,960,914
Investment funds	Investment funds	1,163,707		1,213,535		Investment funds	1,400,932		1,309,430
Arbitrage trading account	Arbitrage trading account	595,727		400,809		Arbitrage trading account	860,339		341,473
Equity securities	Equity securities	435,303		480,620		Equity securities	818,738		625,667
Loans receivable (net of allowance for expected credit losses of $5,843 at September 30, 2020)		84,771		91,799
Loans receivable (net of allowance for expected credit losses of $1,737 and $5,437 at September 30, 2021 and December 31, 2020, respectively)						Loans receivable (net of allowance for expected credit losses of $1,737 and $5,437 at September 30, 2021 and December 31, 2020, respectively)	115,495		84,913

Total investments	Total investments	18,279,028		18,473,674		Total investments	21,111,039		18,481,766
Cash and cash equivalents	Cash and cash equivalents	2,571,447		1,023,710		Cash and cash equivalents	2,069,029		2,372,366
Premiums and fees receivable (net of allowance for expected credit losses of $23,033 at September 30, 2020)		2,162,192		1,997,186
Due from reinsurers (net of allowance for expected credit losses of $7,741 at September 30, 2020)		2,323,833		2,133,683
Premiums and fees receivable (net of allowance for expected credit losses of $23,676 and $22,883 at September 30, 2021 and December 31, 2020, respectively)						Premiums and fees receivable (net of allowance for expected credit losses of $23,676 and $22,883 at September 30, 2021 and December 31, 2020, respectively)	2,524,109		2,167,799
Due from reinsurers (net of allowance for expected credit losses of $7,277 and $7,801 at September 30, 2021 and December 31, 2020, respectively)						Due from reinsurers (net of allowance for expected credit losses of $7,277 and $7,801 at September 30, 2021 and December 31, 2020, respectively)	2,792,811		2,424,502
Deferred policy acquisition costs	Deferred policy acquisition costs	560,739		517,364		Deferred policy acquisition costs	662,636		556,168
Prepaid reinsurance premiums	Prepaid reinsurance premiums	626,229		567,595		Prepaid reinsurance premiums	670,913		648,376
Trading account receivables from brokers and clearing organizations	Trading account receivables from brokers and clearing organizations	252,223		423,543		Trading account receivables from brokers and clearing organizations	221,165		524,727
Property, furniture and equipment	Property, furniture and equipment	410,228		422,091		Property, furniture and equipment	419,941		405,930
Goodwill	Goodwill	169,652		169,652		Goodwill	169,652		169,652
Accrued investment income	Accrued investment income	128,370		138,789		Accrued investment income	126,245		120,464
Federal and foreign income taxes		30,069		0
Current and deferred federal and foreign income taxes						Current and deferred federal and foreign income taxes	63,654		—

Other assets	Other assets	698,360		762,743		Other assets	713,094		700,215
Total assets	Total assets	$	28,212,370	$	26,630,030	Total assets	$	31,544,288	$	28,571,965

Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Liabilities:	Liabilities:					Liabilities:
Reserves for losses and loss expenses	Reserves for losses and loss expenses	$	13,459,359	$	12,583,249	Reserves for losses and loss expenses	$	14,919,576	$	13,784,430
Unearned premiums	Unearned premiums	4,054,471		3,656,507		Unearned premiums	4,769,313		4,073,191
Due to reinsurers	Due to reinsurers	406,844		360,314		Due to reinsurers	557,478		426,124
Trading account securities sold but not yet purchased	Trading account securities sold but not yet purchased	19,254		36,143		Trading account securities sold but not yet purchased	739		10,048
Federal and foreign income taxes		0		4,308

Current and deferred federal and foreign income taxes						Current and deferred federal and foreign income taxes	—		48,495
Other liabilities	Other liabilities	1,159,957		1,244,888		Other liabilities	1,367,353		1,178,546
Senior notes and other debt	Senior notes and other debt	1,629,077		1,427,575		Senior notes and other debt	2,258,646		1,623,025
Subordinated debentures	Subordinated debentures	1,443,736		1,198,704		Subordinated debentures	1,007,472		1,102,309
Total liabilities	Total liabilities	22,172,698		20,511,688		Total liabilities	24,880,577		22,246,168
Equity:	Equity:					Equity:
Preferred stock, par value $0.10 per share:	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		0		0
Authorized 5,000,000 shares; issued and outstanding - none						Authorized 5,000,000 shares; issued and outstanding - none	—		—
Common stock, par value $0.20 per share:	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, 178,217,537 and 183,411,907 shares, respectively		70,535		70,535
Authorized 750,000,000 shares, issued and outstanding, net of treasury shares, 176,638,884 and 177,825,150 shares, respectively						Authorized 750,000,000 shares, issued and outstanding, net of treasury shares, 176,638,884 and 177,825,150 shares, respectively	70,535		70,535
Additional paid-in capital	Additional paid-in capital	1,064,719		1,056,042		Additional paid-in capital	1,018,300		1,012,483
Retained earnings	Retained earnings	8,057,556		7,932,372		Retained earnings	8,920,334		8,348,381
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(170,886)		(257,299)		Accumulated other comprehensive loss	(190,862)		(62,172)
Treasury stock, at cost, 174,458,963 and 169,264,857 shares, respectively		(3,026,812)		(2,726,711)
Treasury stock, at cost, 176,037,616 and 174,851,350 shares, respectively						Treasury stock, at cost, 176,037,616 and 174,851,350 shares, respectively	(3,169,866)		(3,058,425)
Total stockholders’ equity	Total stockholders’ equity	5,995,112		6,074,939		Total stockholders’ equity	6,648,441		6,310,802
Noncontrolling interests	Noncontrolling interests	44,560		43,403		Noncontrolling interests	15,270		14,995
Total equity	Total equity	6,039,672		6,118,342		Total equity	6,663,711		6,325,797
Total liabilities and equity	Total liabilities and equity	$	28,212,370	$	26,630,030	Total liabilities and equity	$	31,544,288	$	28,571,965

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 September 30,					For the Nine Months Ended September 30,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,

						2020			2019			2020				2019			2021			2020			2021	2020
REVENUES:	REVENUES:												REVENUES:
Net premiums written	Net premiums written	$	1,879,316	$	1,749,906		$	5,464,980		$	5,202,971		Net premiums written	$	2,325,138		$	1,879,316		$	6,587,357		$	5,464,980
Change in net unearned premiums	Change in net unearned premiums	(130,395)		(73,096)			(347,727)			(286,464)			Change in net unearned premiums	(244,120)			(130,395)			(684,759)			(347,727)
Net premiums earned	Net premiums earned	1,748,921		1,676,810			5,117,253			4,916,507			Net premiums earned	2,081,018			1,748,921			5,902,598			5,117,253
Net investment income	Net investment income	142,650		161,692			402,844			508,279			Net investment income	179,851			142,650			506,615			402,844
Net investment gains (losses):	Net investment gains (losses):												Net investment gains (losses):
Net realized and unrealized (losses) gains on investments		(7,772)		1,465			(89,404)			143,691
Net realized and unrealized gains (losses) on investments													Net realized and unrealized gains (losses) on investments	17,187			(7,772)			89,407			(89,404)

Change in allowance for expected credit losses on investments	Change in allowance for expected credit losses on investments	46,750		0			29,093			0			Change in allowance for expected credit losses on investments	2,314			46,750			(11,003)			29,093
Net investment gains (losses)	Net investment gains (losses)	38,978		1,465			(60,311)			143,691			Net investment gains (losses)	19,501			38,978			78,404			(60,311)
Revenues from non-insurance businesses	Revenues from non-insurance businesses	87,495		101,880			256,966			283,005			Revenues from non-insurance businesses	120,374			87,495			316,927			256,966
Insurance service fees	Insurance service fees	21,635		23,681			67,256			71,440			Insurance service fees	21,467			21,635			69,531			67,256
Other income	Other income	140		188			2,446			3,200			Other income	2,072			140			3,163			2,446
Total revenues	Total revenues	2,039,819		1,965,716			5,786,454			5,926,122			Total revenues	2,424,283			2,039,819			6,877,238			5,786,454

OPERATING COSTS AND EXPENSES:	OPERATING COSTS AND EXPENSES:												OPERATING COSTS AND EXPENSES:
Losses and loss expenses	Losses and loss expenses	1,114,632		1,041,471			3,357,011			3,058,950			Losses and loss expenses	1,298,392			1,114,632			3,623,630			3,357,011
Other operating costs and expenses	Other operating costs and expenses	593,969		581,045			1,753,142			1,760,961			Other operating costs and expenses	643,045			593,969			1,907,020			1,753,142
Expenses from non-insurance businesses	Expenses from non-insurance businesses	85,036		101,743			256,032			280,141			Expenses from non-insurance businesses	115,465			85,036			308,453			256,032
Interest expense	Interest expense	39,768		38,475			114,874			119,913			Interest expense	35,100			39,768			109,846			114,874
Total operating costs and expenses	Total operating costs and expenses	1,833,405		1,762,734			5,481,059			5,219,965			Total operating costs and expenses	2,092,002			1,833,405			5,948,949			5,481,059
Income before income taxes	Income before income taxes	206,414		202,982			305,395			706,157			Income before income taxes	332,281			206,414			928,289			305,395
Income tax expense	Income tax expense	(54,048)		(37,831)			(84,900)			(141,965)			Income tax expense	(64,963)			(54,048)			(191,577)			(84,900)
Net income before noncontrolling interests	Net income before noncontrolling interests	152,366		165,151			220,495			564,192			Net income before noncontrolling interests	267,318			152,366			736,712			220,495
Noncontrolling interests	Noncontrolling interests	(688)		57			(1,975)			(1,554)			Noncontrolling interests	(6,021)			(688)			(8,652)			(1,975)
Net income to common stockholders	Net income to common stockholders	$	151,678	$	165,208		$	218,520		$	562,638		Net income to common stockholders	$	261,297		$	151,678		$	728,060		$	218,520

NET INCOME PER SHARE:	NET INCOME PER SHARE:												NET INCOME PER SHARE:
Basic	Basic	$	0.82	$	0.87		$	1.17		$	2.95		Basic	$	1.41		$	0.82		$	3.93		$	1.17
Diluted	Diluted	$	0.81	$	0.85		$	1.15		$	2.91		Diluted	$	1.40		$	0.81		$	3.89		$	1.15

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 September 30,					For the Nine Months Ended September 30,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,

						2020			2019			2020				2019			2021			2020			2021	2020
Net income before noncontrolling interests	Net income before noncontrolling interests	$	152,366	$	165,151		$	220,495		$	564,192		Net income before noncontrolling interests	$	267,318		$	152,366		$	736,712		$	220,495
Other comprehensive income (loss):
Other comprehensive (loss) income:													Other comprehensive (loss) income:
Change in unrealized currency translation adjustments	Change in unrealized currency translation adjustments	40,194		(36,682)			(36,553)			(31,414)			Change in unrealized currency translation adjustments	(32,822)			40,194			(26,235)			(36,553)
Change in unrealized investment gains (losses), net of taxes		38,273		(24,745)			98,016			219,679
Change in unrealized investment (losses) gains, net of taxes													Change in unrealized investment (losses) gains, net of taxes	(35,596)			38,273			(102,454)			98,016

Other comprehensive income (loss)		78,467		(61,427)			61,463			188,265
Other comprehensive (loss) income													Other comprehensive (loss) income	(68,418)			78,467			(128,689)			61,463
Comprehensive income	Comprehensive income	230,833		103,724			281,958			752,457			Comprehensive income	198,900			230,833			608,023			281,958
Noncontrolling interests	Noncontrolling interests	(685)		(66)			(1,973)			(1,659)			Noncontrolling interests	(6,021)			(685)			(8,651)			(1,973)
Comprehensive income to common stockholders	Comprehensive income to common stockholders	$	230,148	$	103,658		$	279,985		$	750,798		Comprehensive income to common stockholders	$	192,879		$	230,148		$	599,372		$	279,985

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except per share data)


		For the Three Months Ended September 30,						For the Nine Months Ended September 30,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,

				2020			2019			2020			2019				2021			2020			2021			2020
COMMON STOCK:	COMMON STOCK:													COMMON STOCK:
Beginning and end of period	Beginning and end of period	$	70,535		$	70,535		$	70,535		$	70,535		Beginning and end of period	$	70,535		$	70,535		$	70,535		$	70,535
ADDITIONAL PAID-IN CAPITAL:	ADDITIONAL PAID-IN CAPITAL:													ADDITIONAL PAID-IN CAPITAL:
Beginning of period	Beginning of period	$	1,076,043		$	1,058,416		$	1,056,042		$	1,039,633		Beginning of period	$	1,035,166		$	1,076,043		$	1,012,482		$	1,056,042
Restricted stock units issued	Restricted stock units issued	(23,387)			(28,155)			(26,773)			(30,659)			Restricted stock units issued	(28,741)			(23,387)			(28,668)			(26,773)
Restricted stock units expensed	Restricted stock units expensed	12,063			15,187			35,450			36,474			Restricted stock units expensed	11,875			12,063			34,486			35,450

End of period	End of period	$	1,064,719		$	1,045,448		$	1,064,719		$	1,045,448		End of period	$	1,018,300		$	1,064,719		$	1,018,300		$	1,064,719
RETAINED EARNINGS:	RETAINED EARNINGS:													RETAINED EARNINGS:
Beginning of period	Beginning of period	$	7,927,280		$	7,826,015		$	7,932,372		$	7,558,619		Beginning of period	$	8,682,088		$	7,927,280		$	8,348,381		$	7,932,372
Cumulative effect adjustment resulting from changes in accounting principles	Cumulative effect adjustment resulting from changes in accounting principles	0			0			(30,514)			0			Cumulative effect adjustment resulting from changes in accounting principles	—			—			—			(30,514)
Net income to common stockholders	Net income to common stockholders	151,678			165,208			218,520			562,638			Net income to common stockholders	261,297			151,678			728,060			218,520
Dividends ($0.12, $0.11, $0.35 and $0.82 per share, respectively)		(21,402)			(20,204)			(62,822)			(150,238)
Dividends ( $0.13, $0.12, $0.88 and $0.35 per share, respectively)														Dividends ( $0.13, $0.12, $0.88 and $0.35 per share, respectively)	(23,051)			(21,402)			(156,107)			(62,822)
End of period	End of period	$	8,057,556		$	7,971,019		$	8,057,556		$	7,971,019		End of period	$	8,920,334		$	8,057,556		$	8,920,334		$	8,057,556
ACCUMULATED OTHER COMPREHENSIVE LOSS:	ACCUMULATED OTHER COMPREHENSIVE LOSS:													ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrealized investment gains (losses):	Unrealized investment gains (losses):													Unrealized investment gains (losses):
Beginning of period	Beginning of period	$	209,210		$	152,915		$	124,514		$	(91,491)		Beginning of period	$	222,855		$	209,210		$	289,714		$	124,514
Cumulative effect adjustment resulting from changes in accounting principles	Cumulative effect adjustment resulting from changes in accounting principles	0			0			24,952			0			Cumulative effect adjustment resulting from changes in accounting principles	—			—			—			24,952
Change in unrealized gains (losses) on securities without an allowance for expected credit losses		35,111			(25,005)			77,537			219,388
Change in unrealized (losses) gains on securities without an allowance for expected credit losses														Change in unrealized (losses) gains on securities without an allowance for expected credit losses	(35,707)			35,111			(112,852)			77,537
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	3,159			383			20,477			396			Change in unrealized gains on securities with an allowance for expected credit losses	111			3,159			10,397			20,477
End of period	End of period	247,480			128,293			247,480			128,293			End of period	187,259			247,480			187,259			247,480
Currency translation adjustments:	Currency translation adjustments:													Currency translation adjustments:
Beginning of period	Beginning of period	(458,560)			(413,711)			(381,813)			(418,979)			Beginning of period	(345,299)			(458,560)			(351,886)			(381,813)
Net change in period	Net change in period	40,194			(36,682)			(36,553)			(31,414)			Net change in period	(32,822)			40,194			(26,235)			(36,553)
End of period	End of period	(418,366)			(450,393)			(418,366)			(450,393)			End of period	(378,121)			(418,366)			(378,121)			(418,366)

Total accumulated other comprehensive loss	Total accumulated other comprehensive loss	$	(170,886)		$	(322,100)		$	(170,886)		$	(322,100)		Total accumulated other comprehensive loss	$	(190,862)		$	(170,886)		$	(190,862)		$	(170,886)
TREASURY STOCK:	TREASURY STOCK:													TREASURY STOCK:
Beginning of period	Beginning of period	$	(3,023,392)		$	(2,717,410)		$	(2,726,711)		$	(2,720,466)		Beginning of period	$	(3,087,069)		$	(3,023,392)		$	(3,058,425)		$	(2,726,711)
Stock exercised/vested	Stock exercised/vested	9,537			8,804			11,758			11,860			Stock exercised/vested	9,946			9,537			10,985			11,758
Stock repurchased	Stock repurchased	(12,957)			0			(311,859)			0			Stock repurchased	(92,743)			(12,957)			(122,426)			(311,859)

End of period	End of period	$	(3,026,812)		$	(2,708,606)		$	(3,026,812)		$	(2,708,606)		End of period	$	(3,169,866)		$	(3,026,812)		$	(3,169,866)		$	(3,026,812)
NONCONTROLLING INTERESTS:	NONCONTROLLING INTERESTS:													NONCONTROLLING INTERESTS:
Beginning of period	Beginning of period	$	44,275		$	43,318		$	43,403		$	41,947		Beginning of period	$	9,678		$	44,275		$	14,995		$	43,403
Distributions	Distributions	(400)			(237)			(816)			(459)			Distributions	(429)			(400)			(8,376)			(816)
Net income	Net income	688			(57)			1,975			1,554			Net income	6,021			688			8,652			1,975
Other comprehensive (loss) income, net of tax		(3)			123			(2)			105
Other comprehensive income (loss), net of tax														Other comprehensive income (loss), net of tax	—			(3)			(1)			(2)
End of period	End of period	$	44,560		$	43,147		$	44,560		$	43,147		End of period	$	15,270		$	44,560		$	15,270		$	44,560

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 Ended September 30,							For the Nine Months Ended September 30,

				2020			2019				2021			2020
CASH FROM OPERATING ACTIVITIES:	CASH FROM OPERATING ACTIVITIES:							CASH FROM OPERATING ACTIVITIES:
Net income to common stockholders	Net income to common stockholders	$	218,520		$	562,638		Net income to common stockholders	$	728,060		$	218,520
Adjustments to reconcile net income to net cash from operating activities:	Adjustments to reconcile net income to net cash from operating activities:							Adjustments to reconcile net income to net cash from operating activities:
Net investment losses (gains)		60,311			(143,691)
Net investment (gains) losses								Net investment (gains) losses	(78,404)			60,311
Depreciation and amortization	Depreciation and amortization	96,195			42,007			Depreciation and amortization	101,330			96,195
Noncontrolling interests	Noncontrolling interests	1,975			1,554			Noncontrolling interests	8,652			1,975
Investment funds	Investment funds	(1,260)			(77,284)			Investment funds	(169,538)			(1,260)
Stock incentive plans	Stock incentive plans	37,842			38,440			Stock incentive plans	36,486			37,842
Change in:	Change in:							Change in:
Arbitrage trading account	Arbitrage trading account	(40,487)			(20,422)			Arbitrage trading account	(224,613)			(40,487)
Premiums and fees receivable	Premiums and fees receivable	(175,636)			(206,867)			Premiums and fees receivable	(365,092)			(175,636)
Reinsurance accounts	Reinsurance accounts	(204,396)			(116,359)			Reinsurance accounts	(255,126)			(204,396)
Deferred policy acquisition costs	Deferred policy acquisition costs	(43,955)			(30,537)			Deferred policy acquisition costs	(108,131)			(43,955)
Income taxes	Income taxes	(56,955)			(16,449)			Income taxes	(81,574)			(56,955)

Reserves for losses and loss expenses	Reserves for losses and loss expenses	879,277			443,454			Reserves for losses and loss expenses	1,164,594			879,277
Unearned premiums	Unearned premiums	407,227			336,664			Unearned premiums	707,658			407,227
Other	Other	(41,713)			(18,104)			Other	60,092			(41,713)
Net cash from operating activities	Net cash from operating activities	1,136,945			795,044			Net cash from operating activities	1,524,394			1,136,945
CASH FROM (USED IN) INVESTING ACTIVITIES:
CASH (USED IN) FROM INVESTING ACTIVITIES:								CASH (USED IN) FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities	Proceeds from sale of fixed maturity securities	3,525,926			1,341,688			Proceeds from sale of fixed maturity securities	1,631,849			3,525,926
Proceeds from sale of equity securities	Proceeds from sale of equity securities	66,850			40,709			Proceeds from sale of equity securities	100,366			66,850
Distributions from investment funds	Distributions from investment funds	83,935			187,321			Distributions from investment funds	124,892			83,935
Proceeds from maturities and prepayments of fixed maturity securities	Proceeds from maturities and prepayments of fixed maturity securities	2,876,642			2,278,264			Proceeds from maturities and prepayments of fixed maturity securities	4,672,562			2,876,642
Purchase of fixed maturity securities	Purchase of fixed maturity securities	(6,074,429)			(3,853,108)			Purchase of fixed maturity securities	(8,442,260)			(6,074,429)
Purchase of equity securities	Purchase of equity securities	(77,840)			(66,305)			Purchase of equity securities	(340,424)			(77,840)
Real estate purchased		(42,405)			(176,538)
Real estate sold (purchased)								Real estate sold (purchased)	182,998			(42,405)

Change in loans receivable	Change in loans receivable	1,202			3,156			Change in loans receivable	(27,764)			1,202
Net purchases of property, furniture and equipment	Net purchases of property, furniture and equipment	(31,047)			(1,802)			Net purchases of property, furniture and equipment	(53,558)			(31,047)
Change in balances due to security brokers	Change in balances due to security brokers	36,561			54,620			Change in balances due to security brokers	110,752			36,561

Other	Other	65			45			Other	14			65
Net cash from (used in) investing activities		365,460			(191,950)
CASH FROM (USED IN) FINANCING ACTIVITIES:
Net cash (used in) from investing activities								Net cash (used in) from investing activities	(2,040,573)			365,460
CASH FROM FINANCING ACTIVITIES:								CASH FROM FINANCING ACTIVITIES:
Repayment of senior notes and other debt	Repayment of senior notes and other debt	(302,453)			(448,409)			Repayment of senior notes and other debt	(503,914)			(302,453)

Net proceeds from issuance of debt	Net proceeds from issuance of debt	747,399			0			Net proceeds from issuance of debt	1,032,404			747,399
Cash dividends to common stockholders	Cash dividends to common stockholders	(62,822)			(130,035)			Cash dividends to common stockholders	(156,107)			(62,822)
Purchase of common treasury shares	Purchase of common treasury shares	(311,859)			0			Purchase of common treasury shares	(122,426)			(311,859)
Other, net	Other, net	(18,465)			(20,750)			Other, net	(27,941)			(18,465)
Net cash from (used in) financing activities		51,800			(599,194)
Net cash from financing activities								Net cash from financing activities	222,016			51,800
Net impact on cash due to change in foreign exchange rates	Net impact on cash due to change in foreign exchange rates	(6,468)			(8,952)			Net impact on cash due to change in foreign exchange rates	(9,174)			(6,468)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	1,547,737			(5,052)			Net change in cash and cash equivalents	(303,337)			1,547,737
Cash and cash equivalents at beginning of year		1,023,710			817,602
Cash and cash equivalents at beginning of period								Cash and cash equivalents at beginning of period	2,372,366			1,023,710
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	2,571,447		$	812,550		Cash and cash equivalents at end of period	$	2,069,029		$	2,571,447

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. Reclassifications have been made in the 2020 financial statements as originally reported to conform to the presentation of the 2021 financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected during the reporting period. For further information related to areas of judgment and estimates and other information necessary to understand the Company’s financial position and results of operations, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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

(2) Per Share Data

The Company presents both basic and diluted net income per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period (including ~~7,575,168~~7,767,874 and ~~7,389,781~~7,575,168 common shares held in a grantor trust as of September 30, ~~2020~~2021 and ~~2019,~~2020, 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 September 30,			For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,

(In thousands)	(In thousands)			2020		2019		2020			2019	(In thousands)	2021		2020		2021	2020
Basic	Basic	185,765	190,862		187,338		190,593		Basic	185,031		185,765		185,127		187,338
Diluted	Diluted	187,717	193,589		189,515		193,557		Diluted	186,742		187,717		187,060		189,515

(3) Recent Accounting Pronouncements and Accounting Policies

Recently adopted accounting pronouncements:

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

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

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

All ~~other~~ accounting and reporting standards that have become effective in ~~2020~~2021 were either not applicable to the Company or their adoption did not have a material impact on the Company.

Accounting and reporting standards that are not yet effective:

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

~~Accounting policies:~~

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

~~Revenue recognition (related to premiums and fees receivable)~~

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

~~Reinsurance ceded (related to due from reinsurers)~~

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

~~Investments~~

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

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

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

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

(4) Consolidated Statements of Comprehensive Income

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


(In thousands)	(In thousands)	Unrealized Investment Gains (Losses)			Currency Translation Adjustments		Accumulated Other Comprehensive (Loss) Income		(In thousands)	Unrealized Investment Gains (Losses)			Currency Translation Adjustments		Accumulated Other Comprehensive (Loss) Income
As of and for the nine months ended September 30, 2020
As of and for the nine months ended September 30, 2021									As of and for the nine months ended September 30, 2021
Changes in AOCI	Changes in AOCI								Changes in AOCI
Beginning of period	Beginning of period	$	124,514		$	(381,813)	$	(257,299)	Beginning of period	$	289,714		$	(351,886)	$	(62,172)
Cumulative effect adjustment resulting from changes in accounting principles		24,952			0		24,952
Restated beginning of period		149,466			(381,813)		(232,347)
Other comprehensive income (loss) before reclassifications		76,474			(36,553)		39,921

Other comprehensive (loss) income before reclassifications									Other comprehensive (loss) income before reclassifications	(120,695)			(26,235)		(146,930)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	21,542			0		21,542		Amounts reclassified from AOCI	18,241			—		18,241
Other comprehensive income (loss)		98,016			(36,553)		61,463
Other comprehensive (loss) income									Other comprehensive (loss) income	(102,454)			(26,235)		(128,689)
Unrealized investment gain related to noncontrolling interest	Unrealized investment gain related to noncontrolling interest	(2)			0		(2)		Unrealized investment gain related to noncontrolling interest	(1)			—		(1)
End of period	End of period	$	247,480		$	(418,366)	$	(170,886)	End of period	$	187,259		$	(378,121)	$	(190,862)
Amounts reclassified from AOCI	Amounts reclassified from AOCI								Amounts reclassified from AOCI
Pre-tax	Pre-tax	$	27,268	(1)	$	0	$	27,268	Pre-tax	$	23,091	(1)	$	—	$	23,091
Tax effect	Tax effect	(5,726)		(2)	0		(5,726)		Tax effect	(4,850)		(2)	—		(4,850)
After-tax amounts reclassified	After-tax amounts reclassified	$	21,542		$	0	$	21,542	After-tax amounts reclassified	$	18,241		$	—	$	18,241
Other comprehensive income (loss)
Other comprehensive (loss) income									Other comprehensive (loss) income
Pre-tax	Pre-tax	$	111,756		$	(36,553)	$	75,203	Pre-tax	$	(130,201)		$	(26,235)	$	(156,436)
Tax effect	Tax effect	(13,740)			0		(13,740)		Tax effect	27,747			—		27,747
Other comprehensive income (loss)		$	98,016		$	(36,553)	$	61,463
As of and for the three months ended September 30, 2020
Other comprehensive (loss) income									Other comprehensive (loss) income	$	(102,454)		$	(26,235)	$	(128,689)
As of and for the three months ended September 30, 2021									As of and for the three months ended September 30, 2021
Changes in AOCI	Changes in AOCI								Changes in AOCI
Beginning of period	Beginning of period	$	209,210		$	(458,560)	$	(249,350)	Beginning of period	$	222,855		$	(345,299)	$	(122,444)

Other comprehensive income before reclassifications		39,488			40,194		79,682
Other comprehensive (loss) income before reclassifications									Other comprehensive (loss) income before reclassifications	(36,249)			(32,822)		(69,071)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	(1,215)			0		(1,215)		Amounts reclassified from AOCI	653			—		653
Other comprehensive income		38,273			40,194		78,467
Other comprehensive (loss) income									Other comprehensive (loss) income	(35,596)			(32,822)		(68,418)
Unrealized investment gain related to noncontrolling interest	Unrealized investment gain related to noncontrolling interest	(3)			0		(3)		Unrealized investment gain related to noncontrolling interest	—			—		—
Ending balance	Ending balance	$	247,480		$	(418,366)	$	(170,886)	Ending balance	$	187,259		$	(378,121)	$	(190,862)
Amounts reclassified from AOCI	Amounts reclassified from AOCI								Amounts reclassified from AOCI
Pre-tax	Pre-tax	$	(1,538)	(1)	$	0	$	(1,538)	Pre-tax	$	827	(1)	$	—	$	827
Tax effect	Tax effect	323		(2)	0		323		Tax effect	(174)		(2)	—		(174)
After-tax amounts reclassified	After-tax amounts reclassified	$	(1,215)		$	0	$	(1,215)	After-tax amounts reclassified	$	653		$	—	$	653
Other comprehensive income
Other comprehensive (loss) income									Other comprehensive (loss) income
Pre-tax	Pre-tax	$	48,980		$	40,194	$	89,174	Pre-tax	$	(45,270)		$	(32,822)	$	(78,092)
Tax effect	Tax effect	(10,707)			0		(10,707)		Tax effect	9,674			—		9,674
Other comprehensive income		$	38,273		$	40,194	$	78,467
Other comprehensive (loss) income									Other comprehensive (loss) income	$	(35,596)		$	(32,822)	$	(68,418)


As of and for the nine months ended September 30, 2019
As of and for the nine months ended September 30, 2020									As of and for the nine months ended September 30, 2020
Changes in AOCI	Changes in AOCI								Changes in AOCI
Beginning of period	Beginning of period	$	(91,491)		$	(418,979)	$	(510,470)	Beginning of period	$	124,514		$	(381,813)	$	(257,299)

Cumulative effect adjustment resulting from changes in accounting principles									Cumulative effect adjustment resulting from changes in accounting principles	24,952			—		24,952
Restated beginning of period									Restated beginning of period	149,466			(381,813)		(232,347)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	218,592			(31,414)		187,178		Other comprehensive income (loss) before reclassifications	76,474			(36,553)		39,921
Amounts reclassified from AOCI	Amounts reclassified from AOCI	1,087			0		1,087		Amounts reclassified from AOCI	21,542			—		21,542
Other comprehensive income (loss)	Other comprehensive income (loss)	219,679			(31,414)		188,265		Other comprehensive income (loss)	98,016			(36,553)		61,463
Unrealized investment loss related to noncontrolling interest		105			0		105
Unrealized investment gain related to noncontrolling interest									Unrealized investment gain related to noncontrolling interest	(2)			—		(2)
End of period	End of period	$	128,293		$	(450,393)	$	(322,100)	End of period	$	247,480		$	(418,366)	$	(170,886)
Amounts reclassified from AOCI	Amounts reclassified from AOCI								Amounts reclassified from AOCI
Pre-tax	Pre-tax	$	1,376	(1)	$	0	$	1,376	Pre-tax	$	27,268	(1)	$	—	$	27,268
Tax effect	Tax effect	(289)		(2)	0		(289)		Tax effect	(5,726)		(2)	—		(5,726)
After-tax amounts reclassified	After-tax amounts reclassified	$	1,087		$	0	$	1,087	After-tax amounts reclassified	$	21,542		$	—	$	21,542
Other comprehensive income (loss)	Other comprehensive income (loss)								Other comprehensive income (loss)
Pre-tax	Pre-tax	$	287,739		$	(31,414)	$	256,325	Pre-tax	$	111,756		$	(36,553)	$	75,203
Tax effect	Tax effect	(68,060)			0		(68,060)		Tax effect	(13,740)			—		(13,740)
Other comprehensive income (loss)	Other comprehensive income (loss)	$	219,679		$	(31,414)	$	188,265	Other comprehensive income (loss)	$	98,016		$	(36,553)	$	61,463
As of and for the three months ended September 30, 2019
As of and for the three months ended September 30, 2020									As of and for the three months ended September 30, 2020
Changes in AOCI	Changes in AOCI								Changes in AOCI
Beginning of period	Beginning of period	$	152,915		$	(413,711)	$	(260,796)	Beginning of period	$	209,210		$	(458,560)	$	(249,350)

Other comprehensive loss before reclassifications		(27,023)			(36,682)		(63,705)
Other comprehensive income (loss) before reclassifications									Other comprehensive income (loss) before reclassifications	39,488			40,194		79,682
Amounts reclassified from AOCI	Amounts reclassified from AOCI	2,278			0		2,278		Amounts reclassified from AOCI	(1,215)			—		(1,215)
Other comprehensive loss		(24,745)			(36,682)		(61,427)
Unrealized investment loss related to noncontrolling interest		123			0		123
Other comprehensive income (loss)									Other comprehensive income (loss)	38,273			40,194		78,467
Unrealized investment gain related to noncontrolling interest									Unrealized investment gain related to noncontrolling interest	(3)			—		(3)
Ending balance	Ending balance	$	128,293		$	(450,393)	$	(322,100)	Ending balance	$	247,480		$	(418,366)	$	(170,886)
Amounts reclassified from AOCI	Amounts reclassified from AOCI								Amounts reclassified from AOCI
Pre-tax	Pre-tax	$	2,884	(1)	$	0	$	2,884	Pre-tax	$	(1,538)	(1)	$	—	$	(1,538)
Tax effect	Tax effect	(606)		(2)	0		(606)		Tax effect	323		(2)	—		323
After-tax amounts reclassified	After-tax amounts reclassified	$	2,278		$	0	$	2,278	After-tax amounts reclassified	$	(1,215)		$	—	$	(1,215)
Other comprehensive loss
Other comprehensive income (loss)									Other comprehensive income (loss)
Pre-tax	Pre-tax	$	(28,592)		$	(36,682)	$	(65,274)	Pre-tax	$	48,980		$	40,194	$	89,174
Tax effect	Tax effect	3,847			0		3,847		Tax effect	(10,707)			—		(10,707)
Other comprehensive loss		$	(24,745)		$	(36,682)	$	(61,427)
Other comprehensive income (loss)									Other comprehensive income (loss)	$	38,273		$	40,194	$	78,467

____________

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

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

(5) Statements of Cash Flows

Interest payments were ~~$126,932,000~~$119,381,000 and ~~$145,930,000~~$126,932,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Income taxes ~~paid~~ were ~~$96,000,000~~$244,029,000 and ~~$127,282,000~~$96,000,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

108

(6) Investments in Fixed Maturity Securities

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, investments in fixed maturity securities were as follows:


(In thousands)	(In thousands)	Amortized Cost		Allowance for Expected Credit Losses (1)		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
September 30, 2020
September 30, 2021														September 30, 2021
Held to maturity:	Held to maturity:													Held to maturity:
State and municipal	State and municipal	$	66,532	$	(871)	$	13,406	$	0	$	79,067	$	65,661	State and municipal	$	68,920	$	(396)	$	10,548	$	—	$	79,072	$	68,524
Residential mortgage-backed	Residential mortgage-backed	6,856		0		1,109		0		7,965		6,856		Residential mortgage-backed	5,250		—		774		—		6,024		5,250
Total held to maturity	Total held to maturity	73,388		(871)		14,515		0		87,032		72,517		Total held to maturity	74,170		(396)		11,322		—		85,096		73,774
Available for sale:	Available for sale:													Available for sale:
U.S. government and government agency	U.S. government and government agency	676,493		0		21,080		(141)		697,432		697,432		U.S. government and government agency	506,703		—		12,137		(507)		518,333		518,333
State and municipal:	State and municipal:													State and municipal:
Special revenue	Special revenue	2,195,851		0		93,278		(2,455)		2,286,674		2,286,674		Special revenue	2,019,757		—		74,682		(2,967)		2,091,472		2,091,472
State general obligation	State general obligation	356,321		0		31,586		0		387,907		387,907		State general obligation	376,534		—		26,967		(629)		402,872		402,872
Pre-refunded	Pre-refunded	257,570		0		22,521		(149)		279,942		279,942		Pre-refunded	209,547		—		16,933		(917)		225,563		225,563
Corporate backed	Corporate backed	223,508		0		9,641		(549)		232,600		232,600		Corporate backed	170,962		—		8,271		(1,317)		177,916		177,916
Local general obligation	Local general obligation	396,831		0		41,975		(534)		438,272		438,272		Local general obligation	400,760		—		31,267		(505)		431,522		431,522
Total state and municipal	Total state and municipal	3,430,081		0		199,001		(3,687)		3,625,395		3,625,395		Total state and municipal	3,177,560		—		158,120		(6,335)		3,329,345		3,329,345
Mortgage-backed securities:
Mortgage-backed:														Mortgage-backed:
Residential	Residential	848,878		0		29,989		(2,513)		876,354		876,354		Residential	835,729		—		14,156		(7,185)		842,700		842,700
Commercial	Commercial	199,217		0		7,168		(360)		206,025		206,025		Commercial	125,768		—		4,979		(110)		130,637		130,637
Total mortgage-backed securities		1,048,095		0		37,157		(2,873)		1,082,379		1,082,379
Total mortgage-backed														Total mortgage-backed	961,497		—		19,135		(7,295)		973,337		973,337
Asset-backed	Asset-backed	3,347,867		0		11,665		(53,093)		3,306,439		3,306,439		Asset-backed	4,660,976		—		8,780		(14,201)		4,655,555		4,655,555
Corporate:	Corporate:													Corporate:
Industrial	Industrial	2,240,914		(606)		104,694		(18,404)		2,326,598		2,326,598		Industrial	3,057,258		(12)		85,049		(9,933)		3,132,362		3,132,362
Financial	Financial	1,471,997		0		55,706		(3,067)		1,524,636		1,524,636		Financial	1,657,059		—		44,534		(1,753)		1,699,840		1,699,840
Utilities	Utilities	325,809		0		30,270		(460)		355,619		355,619		Utilities	402,952		—		17,228		(1,327)		418,853		418,853
Other	Other	32,262		0		445		(20)		32,687		32,687		Other	173,504		—		154		(649)		173,009		173,009
Total corporate	Total corporate	4,070,982		(606)		191,115		(21,951)		4,239,540		4,239,540		Total corporate	5,290,773		(12)		146,965		(13,662)		5,424,064		5,424,064
Foreign government	Foreign government	889,358		(1,090)		26,626		(45,550)		869,344		869,344		Foreign government	1,137,349		(16,875)		12,864		(34,611)		1,098,727		1,098,727
Total available for sale	Total available for sale	13,462,876		(1,696)		486,644		(127,295)		13,820,529		13,820,529		Total available for sale	15,734,858		(16,887)		358,001		(76,611)		15,999,361		15,999,361
Total investments in fixed maturity securities	Total investments in fixed maturity securities	$	13,536,264	$	(2,567)	$	501,159	$	(127,295)	$	13,907,561	$	13,893,046	Total investments in fixed maturity securities	$	15,809,028	$	(17,283)	$	369,323	$	(76,611)	$	16,084,457	$	16,073,135

____________

(1) Represents the amount of impairment that has resulted from credit-related factors. The change in the allowance for expected credit losses is recognized in the consolidated statements of income. Amount excludes unrealized losses relating to non-credit factors.


(In thousands)	Amortized Cost		Allowance for Expected Credit Losses (1)		Gross Unrealized				Fair Value		Carrying Value
					Gains		Losses
December 31, 2020
Held to maturity:
State and municipal	$	67,117	$	(798)	$	13,217	$	—	$	79,536	$	66,319
Residential mortgage-backed	6,455		—		1,043		—		7,498		6,455

Total held to maturity	73,572		(798)		14,260		—		87,034		72,774
Available for sale:
U.S. government and government agency	586,020		—		18,198		(347)		603,871		603,871
State and municipal:
Special revenue	2,137,162		—		96,924		(714)		2,233,372		2,233,372
State general obligation	417,397		—		33,407		—		450,804		450,804
Pre-refunded	250,081		—		21,472		(162)		271,391		271,391
Corporate backed	206,356		—		8,755		(638)		214,473		214,473
Local general obligation	410,583		—		40,596		(555)		450,624		450,624
Total state and municipal	3,421,579		—		201,154		(2,069)		3,620,664		3,620,664
Mortgage-backed:
Residential	813,187		—		24,664		(5,238)		832,613		832,613
Commercial	181,105		—		6,725		(113)		187,717		187,717
Total mortgage-backed securities	994,292		—		31,389		(5,351)		1,020,330		1,020,330
Asset-backed	3,218,048		—		10,035		(33,497)		3,194,586		3,194,586
Corporate:
Industrial	2,456,516		(518)		115,926		(7,449)		2,564,475		2,564,475
Financial	1,513,943		—		62,947		(987)		1,575,903		1,575,903
Utilities	389,267		—		31,931		(33)		421,165		421,165
Other	109,353		—		696		(11)		110,038		110,038
Total corporate	4,469,079		(518)		211,500		(8,480)		4,671,581		4,671,581
Foreign government	993,268		(1,264)		28,007		(44,448)		975,563		975,563
Total available for sale	13,682,286		(1,782)		500,283		(94,192)		14,086,595		14,086,595
Total investments in fixed maturity securities	$	13,755,858	$	(2,580)	$	514,543	$	(94,192)	$	14,173,629	$	14,159,369

____________

(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.

The following table presents the rollforward of the allowance for expected credit losses for state and municipal held to maturity securities for the nine months ended September 30, 2021 and 2020:

(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 $ 0 $ 83,312 $ 70,312
Residential mortgage-backed 8,371 994 0 9,365 8,371
Total held to maturity 78,683 13,994 0 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 0 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


(In thousands)	2021		2020
Allowance for expected credit losses, beginning of period	$	798	$	—
Cumulative effect adjustment resulting from changes in accounting principles	—		69
Provision for expected credit losses	(402)		802
Allowance for expected credit losses, end of period	$	396	$	871

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


	~~State and Municipal~~
~~(In thousands)~~
~~Allowance for expected credit losses at January 1, 2020~~	$	0
~~Cumulative effect adjustment resulting from changes in accounting principles~~	69
~~Provision for expected credit losses~~	~~802~~
~~Allowance for expected credit losses at September 30, 2020~~	$	~~871~~

~~The following table presents the rollforward of the allowance for expected credit losses for~~state and municipal held to maturity securities for the three months ended September 30, 2021 and 2020:


	~~State and Municipal~~
~~(In thousands)~~
~~Allowance for expected credit losses at July 1, 2020~~	$	~~948~~
~~Provision for expected credit losses~~	~~(77)~~
~~Allowance for expected credit losses at September 30, 2020~~	$	~~871~~

1210


(In thousands)	2021		2020
Allowance for expected credit losses, beginning of period	$	453	$	948
Provision for expected credit losses	(57)		(77)
Allowance for expected credit losses, end of period	$	396	$	871

The following table presents the rollforward of the allowance for expected credit losses for available for sale securities for the nine months ended September 30, 2021 and 2020:


		Foreign Government		Corporate					Total			2021						2020
(In thousands)	(In thousands)					(In thousands)		Foreign Government					Corporate		Total		Foreign Government		Corporate		Total
Allowance for expected credit losses at January 1, 2020		$	0			$	0					$	0
Allowance for expected credit losses, beginning of period											Allowance for expected credit losses, beginning of period	$	1,264	$	518	$	1,782	$	—	$	—	$	—
Cumulative effect adjustment resulting from changes in accounting principles	Cumulative effect adjustment resulting from changes in accounting principles	35,645		0					35,645		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	Expected credit losses on securities for which credit losses were not previously recorded	12,494		7,058					19,552		Expected credit losses on securities for which credit losses were not previously recorded	19,072		16		19,088		12,494		7,058		19,552
Expected credit losses on securities for which credit losses were previously recorded	Expected credit losses on securities for which credit losses were previously recorded	295		(3,767)					(3,472)		Expected credit losses on securities for which credit losses were previously recorded	(2,967)		(517)		(3,484)		295		(3,767)		(3,472)
Reduction due to disposals	Reduction due to disposals	(47,344)		(2,685)					(50,029)		Reduction due to disposals	(494)		(5)		(499)		(47,344)		(2,685)		(50,029)
Allowance for expected credit losses at September 30, 2020		$	1,090	$	606				$	1,696
Allowance for expected credit losses, end of period											Allowance for expected credit losses, end of period	$	16,875	$	12	$	16,887	$	1,090	$	606	$	1,696

The following table presents the rollforward of the allowance for expected credit losses for available for sale securities for the three months ended September 30, 2021 and 2020:

Foreign Government Corporate Total
(In thousands)
Allowance for expected credit losses at July 1, 2020 $ 44,769 $ 724 $ 45,493
Expected credit losses on securities for which credit losses were not previously recorded 0 261 261
Expected credit losses on securities for which credit losses were previously recorded (252) (9) (261)
Reduction due to disposals (43,427) (370) (43,797)
Allowance for expected credit losses at September 30, 2020 $ 1,090 $ 606 $ 1,696


	2021						2020
(In thousands)	Foreign Government		Corporate		Total		Foreign Government		Corporate		Total
Allowance for expected credit losses, beginning of period	$	18,899	$	12	$	18,911	$	44,769	$	724	$	45,493
Expected credit losses on securities for which credit losses were not previously recorded	82		—		82		—		261		261
Expected credit losses on securities for which credit losses were previously recorded	(2,106)		—		(2,106)		(252)		(9)		(261)
Reduction due to disposals	—		—		—		(43,427)		(370)		(43,797)
Allowance for expected credit losses, end of period	$	16,875	$	12	$	16,887	$	1,090	$	606	$	1,696

During the ~~three~~nine months ended September 30, 2021, the Company increased the allowance for expected credit losses for available for sale securities utilizing its credit loss assessment process and inputs used in its credit loss model, primarily due

to foreign government securities that had no reserve in prior periods. During the nine months ended September 30, 2020, the Company decreased the allowance for expected credit losses ~~utilizing its credit loss assessment process and inputs used in its credit loss model,~~for available for sale securities primarily due to the disposition of securities which previously had an allowance recorded.

The amortized cost and fair value of fixed maturity securities at September 30, ~~2020,~~2021, 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 $ 1,372,865 $ 1,364,023
Due after one year through five years 5,200,384 5,376,126
Due after five years through ten years 3,313,415 3,461,879
Due after ten years 2,593,778 2,615,189
Mortgage-backed securities 1,054,951 1,090,344
Total $ 13,535,393 $ 13,907,561



(In thousands)	Amortized Cost (1)		Fair Value
Due in one year or less	$	1,620,333	$	1,622,938
Due after one year through five years	6,835,525		6,974,341
Due after five years through ten years	4,183,230		4,263,746
Due after ten years	2,202,797		2,244,071
Mortgage-backed securities	966,747		979,361
Total	$	15,808,632	$	16,084,457

________________

(1) Amortized cost is reduced by the allowance for expected credit losses of ~~$871~~$396 thousand related to held to maturity securities.

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there were no investments that exceeded 10% of common stockholders' equity, other than investments in United States government and government agency securities.

(7) Investments in Equity Securities

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, investments in equity securities were as follows:


(In thousands)	(In thousands)	Cost		Gross Unrealized				Fair Value		Carrying Value		(In thousands)	Cost		Gross Unrealized				Fair Value		Carrying Value
				Gains		Losses									Gains		Losses
September 30, 2020
September 30, 2021												September 30, 2021
Common stocks	Common stocks	$	184,196	$	8,042	$	(31,380)	$	160,858	$	160,858	Common stocks	$	549,015	$	73,087	$	(12,163)	$	609,939	$	609,939
Preferred stocks	Preferred stocks	177,444		100,004		(3,003)		274,445		274,445		Preferred stocks	221,887		8,702		(21,790)		208,799		208,799
Total	Total	$	361,640	$	108,046	$	(34,383)	$	435,303	$	435,303	Total	$	770,902	$	81,789	$	(33,953)	$	818,738	$	818,738

December 31, 2019
December 31, 2020												December 31, 2020
Common stocks	Common stocks	$	175,928	$	16,967	$	(26,090)	$	166,805	$	166,805	Common stocks	$	335,617	$	28,742	$	(14,178)	$	350,181	$	350,181
Preferred stocks	Preferred stocks	169,171		148,243		(3,599)		313,815		313,815		Preferred stocks	180,397		95,581		(492)		275,486		275,486
Total	Total	$	345,099	$	165,210	$	(29,689)	$	480,620	$	480,620	Total	$	516,014	$	124,323	$	(14,670)	$	625,667	$	625,667

(8) Arbitrage Trading Account

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the fair and carrying values of the arbitrage trading account were ~~$596~~$860 million and ~~$401~~$341 million, respectively. The primary focus of the trading account is merger arbitrage. Merger arbitrage is the business of investing in the securities of publicly held companies which are the targets in announced tender offers and mergers. Arbitrage investing differs from other types of investing in its focus on transactions and events believed likely to bring about a change in value over a relatively short time period (usually four months or less).

The Company uses put options and call options in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading account. These options are reported at fair value. As of September 30, ~~2020, the fair value of long option contracts outstanding was $73 thousand (notional amount of $6.4 million) and~~2021, the fair value of short option contracts outstanding was ~~$77~~$(273) thousand (notional amount of ~~$11.4~~$11.3 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.

(9) Net Investment Income

Net investment income consisted of the following:


		For the Three Months Ended September 30,					For the Nine Months Ended September 30,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,

(In thousands)	(In thousands)					2020			2019			2020				2019	(In thousands)		2021			2020			2021	2020
Investment income earned on:	Investment income earned on:												Investment income earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable	Fixed maturity securities, including cash and cash equivalents and loans receivable	$	97,080	$	125,957		$	330,941		$	386,978		Fixed maturity securities, including cash and cash equivalents and loans receivable	$	93,031		$	97,080		$	284,704		$	330,941
Investment funds	Investment funds	18,235		19,033			1,260			77,284			Investment funds	69,292			18,235			169,538			1,260
Arbitrage trading account	Arbitrage trading account	19,543		8,400			51,985			26,184			Arbitrage trading account	7,187			19,543			30,176			51,985
Equity securities													Equity securities	8,462			1,907			21,854			6,194
Real estate	Real estate	7,666		7,987			18,807			17,468			Real estate	3,485			7,666			5,517			18,807
Equity securities		1,907		1,392			6,194			3,984

Gross investment income	Gross investment income	144,430		162,769			409,187			511,898			Gross investment income	181,457			144,430			511,789			409,187
Investment expense	Investment expense	(1,780)		(1,077)			(6,343)			(3,619)			Investment expense	(1,606)			(1,780)			(5,174)			(6,343)
Net investment income	Net investment income	$	142,650	$	161,692		$	402,844		$	508,279		Net investment income	$	179,851		$	142,650		$	506,615		$	402,844

(10) Investment Funds

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

The Company’s maximum exposure to loss with respect to these investments is limited to the carrying amount reported on the Company’s consolidated balance sheet and its unfunded commitments, which were ~~$136~~$458 million as of September 30, ~~2020.~~2021.

Investment funds consisted of the following:


		Carrying Value as of				Income (Loss) from Investment Funds					Carrying Value as of				Income (Loss) from Investment Funds
		September 30,		December 31,		For the Nine Months Ended September 30,					September 30,		December 31,		For the Nine Months Ended September 30,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020		2021		2020
Real estate		$	312,181	$	412,275	$	2,140	$	17,279
Financial services	Financial services	351,695		280,705		3,303		36,516		Financial services	408,630		$	434,437	$	83,455	$	3,303
Transportation										Transportation	340,721		190,125		31,805		(3,521)
Real Estate										Real Estate	263,079		310,783		18,497		2,140
Energy	Energy	136,250		156,869		(13,689)		(10,342)		Energy	150,414		140,935		14,065		(13,689)
Transportation		144,265		147,034		(3,521)		12,222
Other funds	Other funds	219,316		216,652		13,027		21,609		Other funds	238,088		233,150		21,716		13,027
Total	Total	$	1,163,707	$	1,213,535	$	1,260	$	77,284	Total	$	1,400,932	$	1,309,430	$	169,538	$	1,260

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.

Financial services investment funds include the Company’s minority investment in Lifson Re, a Bermuda reinsurance company. Effective January 1, 2021, Lifson Re participates on a fully collateralized basis in a majority of the Company’s reinsurance placements for a 22.5% share of placed amounts. This pertains to all traditional reinsurance/retrocessional placements for both property and casualty business where there is more than one open market reinsurer participating. For the nine months ended September 30, 2021, the Company has ceded approximately $182 million of written premiums to Lifson Re.

(11) Real Estate

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


		Carrying Value					Carrying Value
		September 30,		December 31,			September 30,		December 31,
(In thousands)	(In thousands)	2020		2019		(In thousands)	2021		2020
Properties in operation	Properties in operation	$	1,651,343	$	1,351,249	Properties in operation	$	1,617,524	$	1,738,144
Properties under development	Properties under development	455,131		754,701		Properties under development	224,876		222,770
Total	Total	$	2,106,474	$	2,105,950	Total	$	1,842,400	$	1,960,914

As of September 30, ~~2020,~~2021, properties in operation included a long-term ground lease in Washington, D.C., ~~two~~an office ~~complexes~~complex in New York City, ~~office buildings in West Palm Beach and Palm Beach, Florida,~~ an office building in London, U.K., and the completed portion of a mixed-use project in Washington ~~D.C..~~D.C. Properties in operation are net of accumulated depreciation and amortization of ~~$78,113,000~~$68,026,000 and ~~$59,832,000~~$86,970,000 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Related depreciation expense was ~~$19,818,000~~$14,412,000 and ~~$8,871,000~~$19,818,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Future minimum rental income expected on operating leases relating to properties in operation is ~~$19,629,625 in 2020, $82,022,840~~$14,397,620 in 2021, ~~$83,544,465~~$59,304,963 in 2022, ~~$77,429,542~~$53,608,253 in 2023, ~~$74,828,766~~$52,738,386 in 2024, ~~$71,126,366~~$50,218,665 in 2025, $47,171,116 in 2026 and ~~$672,867,459~~$596,395,513 thereafter.

~~The~~During the second quarter of 2021, the Company ~~borrowed $101,750,000 through a non-recourse loan secured by the~~sold 2 office buildings in Palm Beach and West Palm Beach, ~~office building~~Florida. One of these sales also resulted in ~~2018. The loan matures in November 2028 and carries~~ a ~~fixed interest rate~~$102 million reduction 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.~~non-recourse debt that was supporting the property.

A mixed-use project in Washington, D.C. has been under development in ~~2020~~2021 and ~~2019,~~2020, with the completed portion reported in properties in operation as of September 30, ~~2020.~~2021.

(12) Loans Receivable

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, loans receivable were as follows:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	September 30, 2021		December 31, 2020
Amortized cost (net of allowance for expected credit losses):	Amortized cost (net of allowance for expected credit losses):					Amortized cost (net of allowance for expected credit losses):
Real estate loans	Real estate loans	$	52,089	$	58,541	Real estate loans	$	89,635	$	51,910
Commercial loans	Commercial loans	32,682		33,258		Commercial loans	25,860		33,003
Total	Total	$	84,771	$	91,799	Total	$	115,495	$	84,913

Fair value:	Fair value:					Fair value:
Real estate loans	Real estate loans	$	53,848	$	59,853	Real estate loans	$	91,064	$	53,593
Commercial loans	Commercial loans	32,682		34,760		Commercial loans	25,859		33,003
Total	Total	$	86,530	$	94,613	Total	$	116,923	$	86,596

The real estate loans are secured by commercial and residential real estate primarily located in New York. These loans generally earn interest at ~~floating LIBOR-based~~fixed or stepped interest rates and have maturities ~~(inclusive of extension options)~~ through ~~August 2025.~~2026. 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 September 30, ~~2020~~2021 and December 31, ~~2019.~~

2020.

The following table presents the rollforward of the allowance for expected credit losses for loans receivable for the nine months ended September 30, 2021 and 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 1,162 2,892 4,054
Allowance for expected credit losses at September 30, 2020 $ 1,759 $ 4,084 $ 5,843


	2021						2020
(In thousands)	Real Estate Loans		Commercial Loans		Total		Real Estate Loans		Commercial Loans		Total
Allowance for expected credit losses, beginning of period	$	1,683	$	3,754	$	5,437	$	1,502	$	644	$	2,146
Cumulative effect adjustment resulting from changes in accounting principles	—		—		—		(905)		548		(357)
Provision for expected credit losses	(254)		(3,446)		(3,700)		1,162		2,892		4,054
Allowance for expected credit losses, end of period	$	1,429	$	308	$	1,737	$	1,759	$	4,084	$	5,843

During the nine months ended September 30, 2021, the Company reduced the allowance primarily due to the disposal of certain loans.

The following table presents the rollforward of the allowance for expected credit losses for loans receivable for the three months ended September 30, 2021 and 2020:


		Real Estate Loans		Commercial Loans					Total			2021						2020
(In thousands)	(In thousands)					(In thousands)		Real Estate Loans					Commercial Loans		Total		Real Estate Loans		Commercial Loans		Total
Allowance for expected credit losses at July 1, 2020		$	4,318			$	4,401					$	8,719
Allowance for expected credit losses, beginning of period											Allowance for expected credit losses, beginning of period	$	1,501	$	469	$	1,970	$	4,318	$	4,401	$	8,719
Provision for expected credit losses	Provision for expected credit losses	(2,559)		(317)					(2,876)		Provision for expected credit losses	(72)		(161)		(233)		(2,559)		(317)		(2,876)
Allowance for expected credit losses at September 30, 2020		$	1,759	$	4,084				$	5,843
Allowance for expected credit losses, end of period											Allowance for expected credit losses, end of period	$	1,429	$	308	$	1,737	$	1,759	$	4,084	$	5,843

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

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

1615

(13) Net Investment Gains (Losses)

Net investment gains (losses) were as follows:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020		2021		2020
Net investment gains (losses):	Net investment gains (losses):									Net investment gains (losses):
Fixed maturity securities:	Fixed maturity securities:									Fixed maturity securities:
Gains	Gains	$	3,811	$	2,100	$	23,586	$	10,503	Gains	$	2,943	$	3,811	$	16,623	$	23,586
Losses	Losses	(39,162)		(4,984)		(53,243)		(11,879)		Losses	(1,124)		(39,162)		(5,431)		(53,243)
Equity securities (1):	Equity securities (1):									Equity securities (1):
Net realized (losses) gains on investment sales		(176)		(11)		5,551		23,328
Change in unrealized gains (losses)		30,693		4,226		(61,859)		115,722
Net realized gains on investment sales										Net realized gains on investment sales	2		(176)		14,830		5,551
Change in unrealized (losses) gains										Change in unrealized (losses) gains	(19,244)		30,693		(61,818)		(61,859)
Investment funds	Investment funds	203		(456)		31,299		(398)		Investment funds	2,526		203		49,897		31,299
Real estate	Real estate	3,841		417		(3,983)		6,184		Real estate	33,364		3,841		95,765		(3,983)
Loans receivable	Loans receivable	0		0		0		(970)		Loans receivable	—		—		(881)		—
Other	Other	(6,982)		173		(30,755)		1,201		Other	(1,280)		(6,982)		(19,578)		(30,755)
Net realized and unrealized (losses) gains on investments in earnings before allowance for expected credit losses		(7,772)		1,465		(89,404)		143,691
Change in allowance for expected credit losses on investments (2):
Net realized and unrealized gains (losses) on investments in earnings before allowance for expected credit losses										Net realized and unrealized gains (losses) on investments in earnings before allowance for expected credit losses	17,187		(7,772)		89,407		(89,404)
Change in allowance for expected credit losses on investments:										Change in allowance for expected credit losses on investments:
Fixed maturity securities	Fixed maturity securities	43,874		0		33,147		0		Fixed maturity securities	2,081		43,874		(14,703)		33,147
Loans receivable	Loans receivable	2,876		0		(4,054)		0		Loans receivable	233		2,876		3,700		(4,054)
Change in allowance for expected credit losses on investments	Change in allowance for expected credit losses on investments	46,750		0		29,093		0		Change in allowance for expected credit losses on investments	2,314		46,750		(11,003)		29,093
Net investment gains (losses)	Net investment gains (losses)	38,978		1,465		(60,311)		143,691		Net investment gains (losses)	19,501		38,978		78,404		(60,311)
Income tax (expense) benefit		(8,855)		(308)		13,622		(30,175)
Income tax expense										Income tax expense	(4,266)		(8,855)		(15,417)		13,622
After-tax net investment gains (losses)	After-tax net investment gains (losses)	$	30,123	$	1,157	$	(46,689)	$	113,516	After-tax net investment gains (losses)	$	15,235	$	30,123	$	62,987	$	(46,689)


Change in unrealized investment gains (losses) on available for sale securities:
Change in unrealized investment (losses) gains on available for sale securities:										Change in unrealized investment (losses) gains on available for sale securities:
Fixed maturity securities without allowance for expected credit losses	Fixed maturity securities without allowance for expected credit losses	$	46,164	$	(12,178)	$	89,363	$	308,945	Fixed maturity securities without allowance for expected credit losses	$	(41,041)	$	46,164	$	(135,099)	$	89,363
Fixed maturity securities with allowance for expected credit losses	Fixed maturity securities with allowance for expected credit losses	5,036		384		30,027		396		Fixed maturity securities with allowance for expected credit losses	111		5,036		10,397		30,027

Investment funds	Investment funds	(198)		(2,689)		(3,632)		4,863		Investment funds	(4,098)		(198)		(4,355)		(3,632)
Other	Other	(2,022)		(14,109)		(4,002)		(26,465)		Other	(242)		(2,022)		(1,144)		(4,002)
Total change in unrealized investment gains (losses)		48,980		(28,592)		111,756		287,739
Income tax (expense) benefit		(10,707)		3,847		(13,740)		(68,060)
Total change in unrealized investment (losses) gains										Total change in unrealized investment (losses) gains	(45,270)		48,980		(130,201)		111,756
Income tax benefit (expense)										Income tax benefit (expense)	9,674		(10,707)		27,747		(13,740)
Noncontrolling interests	Noncontrolling interests	(3)		123		(2)		105		Noncontrolling interests	—		(3)		(1)		(2)
After-tax change in unrealized investment gains (losses) of available for sale securities		$	38,270	$	(24,622)	$	98,014	$	219,784
After-tax change in unrealized investment (losses) gains of available for sale securities										After-tax change in unrealized investment (losses) gains of available for sale securities	$	(35,596)	$	38,270	$	(102,455)	$	98,014

______________________

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

~~(2) The inclusion of the allowance for expected credit losses on investments commenced January 1, 2020 due to the adoption of ASU 2016-13. See Note 3 for more details.~~

1716

(14) Fixed Maturity Securities in an Unrealized Loss Position

The following tables summarize all fixed maturity securities in an unrealized loss position at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 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)	(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, 2020
September 30, 2021														September 30, 2021
U.S. government and government agency	U.S. government and government agency	$	115,161	$	141	$	18	$	0	$	115,179	$	141	U.S. government and government agency	$	61,386	$	394	$	17,342	$	113	$	78,728	$	507
State and municipal	State and municipal	204,907		2,809		24,290		878		229,197		3,687		State and municipal	353,630		4,345		28,562		1,990		382,192		6,335
Mortgage-backed securities		116,958		2,673		28,578		200		145,536		2,873
Asset-backed securities		1,443,178		15,094		665,759		37,999		2,108,937		53,093
Mortgage-backed														Mortgage-backed	318,897		4,502		84,883		2,793		403,780		7,295
Asset-backed														Asset-backed	3,373,100		12,389		105,823		1,812		3,478,923		14,201
Corporate	Corporate	636,250		19,158		40,224		2,793		676,474		21,951		Corporate	1,465,027		11,044		54,678		2,618		1,519,705		13,662
Foreign government	Foreign government	127,441		25,088		5,706		20,462		133,147		45,550		Foreign government	371,164		7,249		47,331		27,362		418,495		34,611
Fixed maturity securities	Fixed maturity securities	$	2,643,895	$	64,963	$	764,575	$	62,332	$	3,408,470	$	127,295	Fixed maturity securities	$	5,943,204	$	39,923	$	338,619	$	36,688	$	6,281,823	$	76,611

December 31, 2019
December 31, 2020														December 31, 2020
U.S. government and government agency	U.S. government and government agency	$	83,837	$	618	$	53,089	$	857	$	136,926	$	1,475	U.S. government and government agency	$	47,649	$	347	$	17	$	—	$	47,666	$	347
State and municipal	State and municipal	365,184		4,245		127,210		1,682		492,394		5,927		State and municipal	147,754		1,165		20,528		904		168,282		2,069��
Mortgage-backed securities		301,358		2,281		180,148		3,220		481,506		5,501
Asset-backed securities		755,259		2,307		774,508		19,183		1,529,767		21,490
Mortgage-backed														Mortgage-backed	212,388		5,121		23,943		230		236,331		5,351
Asset-backed														Asset-backed	1,389,133		6,563		656,877		26,934		2,046,010		33,497
Corporate	Corporate	307,367		3,148		121,470		5,172		428,837		8,320		Corporate	612,177		6,721		39,985		1,759		652,162		8,480
Foreign government	Foreign government	164,536		32,028		107,266		61,645		271,802		93,673		Foreign government	143,729		22,871		6,218		21,577		149,947		44,448
Fixed maturity securities	Fixed maturity securities	$	1,977,541	$	44,627	$	1,363,691	$	91,759	$	3,341,232	$	136,386	Fixed maturity securities	$	2,552,830	$	42,788	$	747,568	$	51,404	$	3,300,398	$	94,192

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 affected by market disruptions caused by COVID-19.~~ A significant amount of the unrealized loss on foreign government securities is the result of changes in currency exchange rates.

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at September 30, ~~2020~~2021 is presented in the table below:


($ in thousands)	($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss		($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	Foreign government	22	$	91,413	$	45,247	Foreign government	31	$	119,141	$	32,048
Corporate	Corporate	13	28,816		6,343		Corporate	13	49,623		1,879
Mortgage-backed securities		8	1,659		34

State and municipal							State and municipal	2	39,693		335
Mortgage-backed							Mortgage-backed	4	249		16
Asset-backed							Asset-backed	1	94		3
Total	Total	43	$	121,888	$	51,624	Total	51	$	208,800	$	34,281

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

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

1817

(15) Fair Value Measurements

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

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

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

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

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

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

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

1918

The following tables present the assets and liabilities measured at fair value on a recurring basis as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 by level:


(In thousands)	(In thousands)	Total		Level 1		Level 2		Level 3		(In thousands)	Total		Level 1		Level 2		Level 3
September 30, 2020
September 30, 2021										September 30, 2021
Assets:	Assets:									Assets:
Fixed maturity securities available for sale:	Fixed maturity securities available for sale:									Fixed maturity securities available for sale:
U.S. government and government agency	U.S. government and government agency	$	697,432	$	0	$	697,432	$	0	U.S. government and government agency	$	518,333	$	—	$	518,333	$	—
State and municipal	State and municipal	3,625,395		0		3,625,395		0		State and municipal	3,329,345		—		3,329,345		—
Mortgage-backed securities		1,082,379		0		1,082,379		0
Asset-backed securities		3,306,439		0		3,306,439		0
Mortgage-backed										Mortgage-backed	973,337		—		973,337		—
Asset-backed										Asset-backed	4,655,555		—		4,655,555		—
Corporate	Corporate	4,239,540		0		4,239,540		0		Corporate	5,424,064		—		5,424,064		—
Foreign government	Foreign government	869,344		0		869,344		0		Foreign government	1,098,727		—		1,098,727		—
Total fixed maturity securities available for sale	Total fixed maturity securities available for sale	13,820,529		0		13,820,529		0		Total fixed maturity securities available for sale	15,999,361		—		15,999,361		—
Equity securities:	Equity securities:									Equity securities:
Common stocks	Common stocks	160,858		152,508		0		8,350		Common stocks	609,939		600,672		—		9,267
Preferred stocks	Preferred stocks	274,445		0		265,117		9,328		Preferred stocks	208,799		—		199,466		9,333
Total equity securities	Total equity securities	435,303		152,508		265,117		17,678		Total equity securities	818,738		600,672		199,466		18,600
Arbitrage trading account	Arbitrage trading account	595,727		307,915		287,812		0		Arbitrage trading account	860,339		837,237		23,102		—
Total	Total	$	14,851,559	$	460,423	$	14,373,458	$	17,678	Total	$	17,678,438	$	1,437,909	$	16,221,929	$	18,600
Liabilities:	Liabilities:									Liabilities:
Trading account securities sold but not yet purchased	Trading account securities sold but not yet purchased	$	19,254	$	19,254	$	0	$	0	Trading account securities sold but not yet purchased	$	739	$	739	$	—	$	—

December 31, 2019
December 31, 2020										December 31, 2020
Assets:	Assets:									Assets:
Fixed maturity securities available for sale:	Fixed maturity securities available for sale:									Fixed maturity securities available for sale:
U.S. government and government agency	U.S. government and government agency	$	786,931	$	0	$	786,931	$	0	U.S. government and government agency	$	603,871	$	—	$	603,871	$	—
State and municipal	State and municipal	3,895,632		0		3,895,632		0		State and municipal	3,620,664		—		3,620,664		—
Mortgage-backed securities		1,625,594		0		1,625,594		0
Asset-backed securities		2,790,630		0		2,790,630		0
Mortgage-backed										Mortgage-backed	1,020,330		—		1,020,330		—
Asset-backed										Asset-backed	3,194,586		—		3,194,586		—
Corporate	Corporate	4,156,415		0		4,156,415		0		Corporate	4,671,581		—		4,670,581		1,000
Foreign government	Foreign government	847,076		0		847,076		0		Foreign government	975,563		—		975,563		—
Total fixed maturity securities available for sale	Total fixed maturity securities available for sale	14,102,278		0		14,102,278		0		Total fixed maturity securities available for sale	14,086,595		—		14,085,595		1,000
Equity securities:	Equity securities:									Equity securities:
Common stocks	Common stocks	166,805		157,752		0		9,053		Common stocks	350,181		340,966		—		9,215
Preferred stocks	Preferred stocks	313,815		0		307,310		6,505		Preferred stocks	275,486		—		266,155		9,331
Total equity securities	Total equity securities	480,620		157,752		307,310		15,558		Total equity securities	625,667		340,966		266,155		18,546
Arbitrage trading account	Arbitrage trading account	400,809		381,061		19,748		0		Arbitrage trading account	341,473		298,359		43,114		—
Total	Total	$	14,983,707	$	538,813	$	14,429,336	$	15,558	Total	$	15,053,735	$	639,325	$	14,394,864	$	19,546
Liabilities:	Liabilities:									Liabilities:
Trading account securities sold but not yet purchased	Trading account securities sold but not yet purchased	$	36,143	$	36,143	$	0	$	0	Trading account securities sold but not yet purchased	$	10,048	$	10,048	$	—	$	—

2019

The following tables summarize changes in Level 3 assets and liabilities for the nine months ended September 30, ~~2020~~2021 and for the year ended December 31, ~~2019:~~2020:


		Gains (Losses) Included in:																			Gains (Losses) Included in:
(In thousands)	(In thousands)	Beginning Balance		Earnings (Losses)		Other Comprehensive Income		Impairments		Purchases		(Sales)		Paydowns / Maturities		Transfers In / (Out)		Ending Balance		(In thousands)	Beginning Balance		Earnings (Losses)		Other Comprehensive Income		Impairments		Purchases		(Sales)		Paydowns / Maturities		Transfers In / (Out)		Ending Balance
																																							(In thousands)	Beginning Balance	Earnings (Losses)	Other Comprehensive Income	Impairments	Purchases	(Sales)	Paydowns / Maturities	Transfers In / (Out)	Ending Balance
Nine Months Ended September 30, 2020
Assets:

Equity securities:
Common stocks		$	9,053	$	363	$	0	$	0	$	0	$	(1,066)	$	—	$	0	$	8,350
Preferred stocks		6,505		(177)		0		0		3,000		0		—		0		9,328
Total		$	15,558	$	186	$	0	$	0	$	3,000	$	(1,066)	$	—	$	0	$	17,678

Year Ended December 31, 2019
Nine Months Ended September 30, 2021																				Nine Months Ended September 30, 2021
Assets:	Assets:																			Assets:
Fixed maturities securities available for sale:	Fixed maturities securities available for sale:																			Fixed maturities securities available for sale:
Asset-backed securities	Asset-backed securities	$	99	$	(26)	$	61	$	0	$	0	$	(134)	$	0	$	0	$	0	Asset-backed securities	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Corporate																				Corporate	$	1,000	$	—	$	—	$	—	$	—	$	(1,000)	$	—	$	—	$	—
Total	Total	99		(26)		61		0		0		(134)		—		0		0		Total	1,000		—		—		—		—		(1,000)		—		—		—
Equity securities:	Equity securities:																			Equity securities:
Common stocks	Common stocks	8,596		2,005				0		0		(1,548)		—		0		9,053		Common stocks	$	9,215	$	613	$	—	$	—	$	—	$	(561)	$	—	$	—	$	9,267
Preferred stocks	Preferred stocks	3,945		(42)		0		0		2,602		0		—		0		6,505		Preferred stocks	9,331		2		—		—		—		—		—		—		9,333
Total	Total	12,541		1,963		0		0		2,602		(1,548)		0		0		15,558		Total	18,546		615		—		—		—		(561)		—		—		18,600
Arbitrage trading account	Arbitrage trading account	17,308		(8,731)		0		0		14,767		(38,233)		—		14,889		0		Arbitrage trading account	—		8		—		—		—		(8)		—		—		—
Total	Total	$	29,948	$	(6,794)	$	61	$	0	$	17,369	$	(39,915)	$	—	$	14,889	$	15,558	Total	$	19,546	$	623	$	—	$	—	$	—	$	(1,569)	$	—	$	—	$	18,600
Liabilities:
Trading account securities sold but not yet purchased		$	793	$	133	$	0	$	0	$	7,609	$	(8,535)	$	0	$	0	$	0

Year Ended December 31, 2020																				Year Ended December 31, 2020
Assets:																				Assets:
Fixed maturities securities available for sale:																				Fixed maturities securities available for sale:
Asset-backed securities																				Asset-backed securities	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Corporate																				Corporate	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,000	$	1,000
Total																				Total	—		—		—		—		—		—		—		1,000		1,000
Equity securities:																				Equity securities:
Common stocks																				Common stocks	9,053		1,228		—		—		—		(1,066)		—		—		9,215
Preferred stocks																				Preferred stocks	6,505		(174)		—		—		3,000		—		—		—		9,331
Total																				Total	15,558		1,054		—		—		3,000		(1,066)		—		—		18,546
Arbitrage trading account																				Arbitrage trading account	—		19		—		—		—		(19)		—		—		—
Total																				Total	$	15,558	$	1,073	$	—	$	—	$	3,000	$	(1,085)	$	—	$	1,000	$	19,546

For the nine months ended September 30, ~~2020,~~2021, there were 0no securities transferred into or out of Level 3. For the year ended December 31, ~~2019, there were~~2020, a fixed maturity security was transferred from Level 2 ~~common stocks transferred~~ into Level 3 ~~in the arbitrage trading account where publicly traded prices were~~as a result of observable valuation inputs no longer ~~available, and both were sold by year end.~~being available.

2120

(16) Reserves for Loss and Loss Expenses

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

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

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

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

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

2221

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


		September 30,					September 30,
(In thousands)	(In thousands)	2020		2019		(In thousands)	2021		2020
Net reserves at beginning of period	Net reserves at beginning of period	$	10,697,998	$	10,248,883	Net reserves at beginning of period	$	11,620,393	$	10,697,998
Cumulative effect adjustment resulting from changes in accounting principles	Cumulative effect adjustment resulting from changes in accounting principles	5,927		0		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		Restated net reserves at beginning of period	11,620,393		10,703,925
Net provision for losses and loss expenses:	Net provision for losses and loss expenses:					Net provision for losses and loss expenses:
Claims occurring during the current year (1)	Claims occurring during the current year (1)	3,328,827		3,007,364		Claims occurring during the current year (1)	3,598,969		3,328,827
Increase in estimates for claims occurring in prior years (2) (3)	Increase in estimates for claims occurring in prior years (2) (3)	849		22,340		Increase in estimates for claims occurring in prior years (2) (3)	1,552		849
Loss reserve discount accretion	Loss reserve discount accretion	27,335		29,246		Loss reserve discount accretion	23,109		27,335
Total	Total	3,357,011		3,058,950		Total	3,623,630		3,357,011
Net payments for claims:	Net payments for claims:					Net payments for claims:
Current year	Current year	570,924		767,945		Current year	547,082		570,924
Prior years	Prior years	2,077,945		1,907,979		Prior years	2,161,877		2,077,945
Total	Total	2,648,869		2,675,924		Total	2,708,959		2,648,869
Foreign currency translation	Foreign currency translation	(21,003)		(49,455)		Foreign currency translation	(53,935)		(21,003)
Net reserves at end of period	Net reserves at end of period	11,391,064		10,582,454		Net reserves at end of period	12,481,129		11,391,064
Ceded reserves at end of period	Ceded reserves at end of period	2,068,295		1,814,501		Ceded reserves at end of period	2,438,447		2,068,295
Gross reserves at end of period	Gross reserves at end of period	$	13,459,359	$	12,396,955	Gross reserves at end of period	$	14,919,576	$	13,459,359

(1) Claims occurring during the current year are net of loss reserve discounts of $8$16 million and ~~$15~~$8 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, 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 ~~$19~~$13 million and ~~increased by $12~~$19 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, 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 ~~$12~~$5 million and ~~$17~~$12 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

The ~~ongoing~~ COVID-19 global pandemic has impacted, and ~~will likely continue to~~may further impact, the Company’s results through its effect on claim frequency and severity. Loss cost trends have been impacted and ~~will likely~~may be further impacted by COVID-19-related claims in certain lines of ~~business,~~business. Losses incurred from COVID-19-related claims have been offset, to a certain extent, by lower claim frequency in certain lines of our businesses; however, as ~~well~~the economy and legal systems have reopened, the benefit of lower claim frequency has begun to abate. Although as bypopulations have continued to be vaccinated against the virus and the effects of the pandemic have receded in many jurisdictions, most particularly the United States, it remains too early to determine the ultimate net impact of COVID-19 on the Company. New variants of the COVID-19 virus, including the “Delta” variant, and the slowing of vaccination rates among certain populations continue to create risks with respect to loss costs and the potential for renewed impact of the 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 the net impact, it appears that the losses incurred due to COVID-19-related claims are being offset, to a certain extent, by lower claim frequency in certain lines of our businesses, including commercial auto, workers’ compensation, and other liability. 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.rules.

Most of the COVID-19-related claims reported to the Company to date involve certain short-tailed lines of business, including contingency and event cancellation, business interruption, and film production delay. The Company ~~expects additional claims to be reported for these lines of business. The Company~~ has also received COVID-19-related claims for longer-tailed casualty lines of business such as workers’ compensation and other liability; however, the estimated incurred loss impact for these reported claims ~~appears to be modest~~are not material at this time. Given the continuing uncertainty regarding the pandemic's pervasiveness, ~~and the time needed to develop widespread treatments and vaccines, and the related economic impacts,~~ the future impact that the pandemic may have on claim frequency and severity remains uncertain at this time. In workers’ compensation, for example, nearly two-thirds 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 varying the definition 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.

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.coverage. Accordingly, losses arising from these actions, and the other factors described above, could exceed the Company’s reserves established for those related policies.

the Reinsurance & Monoline Excess segment. Such $256 million of COVID-19-related losses included $219 million of reported losses and $37 million of IBNR. For the nine months ended September 30, 2021, the Company recognized current accident year losses for COVID-19-related claims activity, net of reinsurance, of approximately $46 million, of which $43 million relates to the Insurance segment and $3 million relates to the Reinsurance & Monoline Excess segment. Of

During the ~~$143~~nine months ended September 30, 2021, favorable prior year development (net of additional and return premiums) of $5 million included $8 million of ~~COVID-19-related~~favorable development for the Insurance segment, partially offset by $3 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 the 2020 accident year, partially offset by adverse development on the 2016 through 2019 accident years. The favorable development on the 2020 accident year was largely concentrated in the commercial auto liability and other liability lines of business including commercial multi-peril liability. During 2020 the Company achieved larger rate increases in these lines of business than were contemplated in our budget and in our initial loss ratio selections. The Company also experienced significantly lower reported claim frequency in these lines in 2020 relative to historical averages, and lower reported incurred losses ~~$69 million are~~relative to our expectations. We believe that the lower claim frequency and lower reported incurred losses were caused by the impacts of the COVID-19 pandemic, for example, lockdowns, reduced driving and traffic, work from home, and court closures. However, due to the uncertainty regarding the ultimate impacts of the pandemic on accident year 2020 incurred losses, the Company elected not to react to these lower reported trends during 2020. As more information becomes available and the 2020 accident year continues to mature, during 2021 we have started to recognize favorable accident year 2020 development in response to the continuing favorable reported loss experience relative to our expectations. The adverse development on the 2016 through 2019 accident years is concentrated largely in the other liability line of business including commercial multi-peril liability, but is also seen to a lesser extent in commercial auto liability. The adverse development on these years is driven by a higher than expected number of large losses reported, and particularly impacted the directors and officers liability and excess and surplus lines casualty classes of business. We also believe that increased social inflation is contributing to the increased number of large losses.

The overall adverse development for the Reinsurance & Monoline Excess segment was driven by adverse development in the other liability and non-proportional reinsurance assumed liability lines of business, related primarily to accident years 2017 through 2019, partially offset by favorable development in excess workers’ compensation which was spread across many prior accident years. The adverse development was driven by higher than expected reported losses on excess of loss treaties written in the U.S. and ~~$74 million is booked as IBNR.~~U.K.

During the nine months ended September 30, 2020, favorable prior year development (net of additional and return premiums) of $12 million included $19 million of favorable development for the Insurance segment, partially offset by $7 million of adverse development for the Reinsurance & Monoline Excess segment.

The overall favorable development for the Insurance segment was primarily attributable to favorable development on workers’ compensation business, partially offset by adverse development on professional liability business. The favorable workers’ compensation development was spread across many prior accident years, including prior to 2010, but was especially significant in accident year 2019. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends. 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 mainly concentrated in accident years 2016 through 2018 and was largely driven by higher than expected large losses being reported in the directors and officers and lawyers professional liability lines of 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. for accident years 2016 through 2018, partially offset by favorable development on excess workers’ compensation business. The adverse development was driven by a greater than expected number of reported large losses.

The overall favorable development for the Insurance segment was primarily attributable to favorable development on workers’ compensation business, partially offset by adverse development on general liability, professional liability, and commercial auto liability business. The favorable workers’ compensation development was mainly attributable to accident years 2014 through 2018, and 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 general liability development was mainly related to accident years 2015 through 2017 and was driven by a higher than expected number of large losses being reported in the period. The adverse professional liability development was mainly from accident years 2013 through 2016 and was driven by an increased frequency of large losses relating to lawyers professional and directors and officers liability. The adverse commercial auto liability development was primarily related to accident years 2015 through 2018 (with most in 2018), and was driven by a higher than expected number of large losses.

2423

(17) Fair Value of Financial Instruments

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


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
(In thousands)	(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value		(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:	Assets:									Assets:
Fixed maturity securities	Fixed maturity securities	$	13,893,046	$	13,907,561	$	14,180,961	$	14,194,955	Fixed maturity securities	$	16,073,135	$	16,084,457	$	14,159,369	$	14,173,629
Equity securities	Equity securities	435,303		435,303		480,620		480,620		Equity securities	818,738		818,738		625,667		625,667
Arbitrage trading account	Arbitrage trading account	595,727		595,727		400,809		400,809		Arbitrage trading account	860,339		860,339		341,473		341,473
Loans receivable	Loans receivable	84,771		86,530		91,799		94,613		Loans receivable	115,495		116,923		84,913		86,596
Cash and cash equivalents	Cash and cash equivalents	2,571,447		2,571,447		1,023,710		1,023,710		Cash and cash equivalents	2,069,029		2,069,029		2,372,366		2,372,366
Trading account receivables from brokers and clearing organizations	Trading account receivables from brokers and clearing organizations	252,223		252,223		423,543		423,543		Trading account receivables from brokers and clearing organizations	221,165		221,165		524,727		524,727

Due from broker										Due from broker	—		—		2,585		2,585
Liabilities:	Liabilities:									Liabilities:
Due to broker	Due to broker	58,893		58,893		27,116		27,116		Due to broker	107,435		107,435		—		—
Trading account securities sold but not yet purchased	Trading account securities sold but not yet purchased	19,254		19,254		36,143		36,143		Trading account securities sold but not yet purchased	739		739		10,048		10,048
Senior notes and other debt										Senior notes and other debt	2,258,646		2,502,912		1,623,025		1,892,444
Subordinated debentures	Subordinated debentures	1,443,736		1,530,810		1,198,704		1,274,088		Subordinated debentures	1,007,472		1,104,166		1,102,309		1,202,842
Senior notes and other debt		1,629,077		1,898,483		1,427,575		1,582,290

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

~~In October 2020, the Company redeemed $350 million aggregate principal amount of 5.625% subordinated debentures due 2053.~~

(18) Premiums and Reinsurance Related Information

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


		For the Three Months Ended September 30,					For the Nine Months Ended September 30,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,

(In thousands)	(In thousands)					2020			2019			2020				2019	(In thousands)		2021			2020			2021	2020
Written premiums:	Written premiums:												Written premiums:
Direct	Direct	$	2,018,530	$	1,853,881		$	5,875,379		$	5,566,728		Direct	$	2,490,875		$	2,018,530		$	7,063,151		$	5,875,379
Assumed	Assumed	244,015		239,169			750,784			662,412			Assumed	296,623			244,015			870,295			750,784
Ceded	Ceded	(383,229)		(343,144)			(1,161,183)			(1,026,169)			Ceded	(462,360)			(383,229)			(1,346,089)			(1,161,183)
Total net premiums written	Total net premiums written	$	1,879,316	$	1,749,906		$	5,464,980		$	5,202,971		Total net premiums written	$	2,325,138		$	1,879,316		$	6,587,357		$	5,464,980

Earned premiums:	Earned premiums:												Earned premiums:
Direct	Direct	$	1,877,234	$	1,797,726		$	5,511,791		$	5,294,773		Direct	$	2,276,173		$	1,877,234		$	6,430,957		$	5,511,791
Assumed	Assumed	237,815		209,094			699,025			595,946			Assumed	273,808			237,815			792,515			699,025
Ceded	Ceded	(366,128)		(330,010)			(1,093,563)			(974,212)			Ceded	(468,963)			(366,128)			(1,320,874)			(1,093,563)
Total net premiums earned	Total net premiums earned	$	1,748,921	$	1,676,810		$	5,117,253		$	4,916,507		Total net premiums earned	$	2,081,018		$	1,748,921		$	5,902,598		$	5,117,253

Ceded losses and loss expenses incurred	Ceded losses and loss expenses incurred	$	209,706	$	172,009		$	677,761		$	584,323		Ceded losses and loss expenses incurred	$	318,283		$	209,706		$	872,186		$	677,761
Ceded commissions earned	Ceded commissions earned	$	89,104	$	76,001		$	255,742		$	220,110		Ceded commissions earned	$	113,523		$	89,104		$	322,037		$	255,742

The following table presents the rollforward of the allowance for expected credit losses for premiums and fees receivable for the nine months ended September 30, 2021 and 2020:


(In thousands)	2021		2020
Allowance for expected credit losses, beginning of period	$	22,883	$	19,823
Cumulative effect adjustment resulting from changes in accounting principles	—		1,270
Provision for expected credit losses	793		1,940
Allowance for expected credit losses, end of period	$	23,676	$	23,033


~~(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~~	~~1,940~~
~~Allowance for expected credit losses at September 30, 2020~~	$	~~23,033~~

The following table presents the rollforward of the allowance for expected credit losses for premiums and fees receivable for the three months ended September 30, 2021 and 2020:


(In thousands)	2021		2020
Allowance for expected credit losses, beginning of period	$	24,808	$	22,106
Provision for expected credit losses	(1,132)		927
Allowance for expected credit losses, end of period	$	23,676	$	23,033


~~(In thousands)~~
~~Allowance for expected credit losses at July 1, 2020~~	$	~~22,106~~
~~Provision for expected credit losses~~	~~927~~
~~Allowance for expected credit losses at September 30, 2020~~	$	~~23,033~~

The Company reinsures a portion of its insurance exposures in order to reduce its net liability on individual risks and catastrophe losses. The Company also cedes premiums to state assigned risk plans and captive insurance companies. Estimated amounts due from reinsurers are reported net of an allowance for expected credit losses.

The following table presents the rollforward of the allowance for expected credit losses associated with due from reinsurers for the nine months ended September 30, 2021 and 2020:


(In thousands)	2021		2020
Allowance for expected credit losses, beginning of period	$	7,801	$	690
Cumulative effect adjustment resulting from changes in accounting principles	—		5,927
Provision for expected credit losses	(524)		1,124
Allowance for expected credit losses, end of period	$	7,277	$	7,741


~~(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~~	~~1,124~~
~~Allowance for expected credit losses at September 30, 2020~~	$	~~7,741~~

The following table presents the rollforward of the allowance for expected credit losses associated with due from reinsurers for the three months ended September 30, 2021 and 2020:


~~(In thousands)~~
~~Allowance for expected credit losses at July 1, 2020~~	$	~~7,175~~
~~Provision for expected credit losses~~	~~566~~
~~Allowance for expected credit losses at September 30, 2020~~	$	~~7,741~~


(In thousands)	2021		2020
Allowance for expected credit losses, beginning of period	$	7,283	$	7,175
Provision for expected credit losses	(6)		566
Allowance for expected credit losses, end of period	$	7,277	$	7,741

(19) Restricted Stock Units

Pursuant to its stock incentive plan, the Company may issue restricted stock units ("RSUs") to employees of the Company and its subsidiaries. The RSUs generally vest three to five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. RSUs are expensed pro-ratably over the vesting period. RSU expenses were ~~$35~~$34 million and ~~$36~~$35 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020 respectively. A summary of RSUs issued in the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 follows:


($ in thousands)	($ in thousands)	Units	Fair Value		($ in thousands)	Units	Fair Value

2021					2021	847,119	$	62,981
2020	2020	953,519	$	59,683	2020	953,519	$	59,683
2019		839,263	$	59,435

(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 September 30,						For the Nine Months Ended September 30,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,

(In thousands)	(In thousands)			2020			2019			2020			2019		(In thousands)		2021			2020			2021			2020
Leases:	Leases:													Leases:
Lease cost	Lease cost	$	11,016		$	10,734		$	33,130		$	32,969		Lease cost	$	11,741		$	11,016		$	34,434		$	33,130
Cash paid for amounts included in the measurement of lease liabilities reported in operating cash flows	Cash paid for amounts included in the measurement of lease liabilities reported in operating cash flows	$	11,560		$	11,241		$	33,869		$	34,030		Cash paid for amounts included in the measurement of lease liabilities reported in operating cash flows	$	11,212		$	11,560		$	34,509		$	33,869
Right-of-use assets obtained in exchange for new lease liabilities	Right-of-use assets obtained in exchange for new lease liabilities	$	1,344		$	23,211		$	5,639		$	31,095		Right-of-use assets obtained in exchange for new lease liabilities	$	31,249		$	1,344		$	31,098		$	5,639


		As of September 30,							As of September 30,
($ in thousands)	($ in thousands)	2020			2019			($ in thousands)	2021			2020
Right-of-use assets	Right-of-use assets	$	172,473		$	194,553		Right-of-use assets	$	170,729		$	172,473
Lease liabilities	Lease liabilities	$	211,808		$	226,291		Lease liabilities	$	207,636		$	211,808
Weighted-average remaining lease term	Weighted-average remaining lease term	6.7 years			7.2 years			Weighted-average remaining lease term	7.3 years			6.7 years
Weighted-average discount rate	Weighted-average discount rate	5.93		%	5.97		%	Weighted-average discount rate	4.96		%	5.93		%

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

(In thousands) September 30, 2020
Contractual Maturities:
2020 $ 12,162
2021 46,835
2022 41,637
2023 37,737
2024 31,439
Thereafter 78,806
Total undiscounted future minimum lease payments 248,616
Less: Discount impact (36,808)
Total lease liability $ 211,808


(In thousands)	September 30, 2021
Contractual Maturities:
2021	$	11,387
2022	42,708
2023	41,574
2024	35,935
2025	26,941
Thereafter	86,940
Total undiscounted future minimum lease payments	245,485
Less: Discount impact	(37,849)
Total lease liability	$	207,636

2726

(22) Business Segments

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

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

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

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

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

2827


		Revenues													Revenues
(In thousands)	(In thousands)	Earned Premiums (1)		Investment Income		Other		Total (2)		Pre-Tax Income (Loss)		Net Income (Loss) to Common Stockholders		(In thousands)	Earned Premiums (1)		Investment Income		Other		Total (2)		Pre-Tax Income (Loss)		Net Income (Loss) to Common Stockholders
Three months ended September 30, 2021														Three months ended September 30, 2021
Insurance														Insurance	$	1,819,071	$	118,770	$	7,289	$	1,945,130	$	314,000	$	252,333
Reinsurance & Monoline Excess														Reinsurance & Monoline Excess	261,947		48,504		—		310,451		52,742		41,964
Corporate, other and eliminations (3)														Corporate, other and eliminations (3)	—		12,577		136,624		149,201		(53,962)		(48,235)
Net investment gains														Net investment gains	—		—		19,501		19,501		19,501		15,235
Total														Total	$	2,081,018	$	179,851	$	163,414	$	2,424,283	$	332,281	$	261,297
Three months ended September 30, 2020	Three months ended September 30, 2020													Three months ended September 30, 2020
Insurance	Insurance	$	1,531,093	$	87,828	$	9,463	$	1,628,384	$	178,971	$	130,266	Insurance	$	1,531,093	$	87,828	$	9,463	$	1,628,384	$	178,971	$	130,266
Reinsurance & Monoline Excess	Reinsurance & Monoline Excess	217,828		40,306		0		258,134		61,532		49,070		Reinsurance & Monoline Excess	217,828		40,306		—		258,134		61,532		49,070
Corporate, other and eliminations (3)	Corporate, other and eliminations (3)	0		14,516		99,807		114,323		(73,067)		(57,781)		Corporate, other and eliminations (3)	—		14,516		99,807		114,323		(73,067)		(57,781)
Net investment gains	Net investment gains	0		0		38,978		38,978		38,978		30,123		Net investment gains	—		—		38,978		38,978		38,978		30,123
Total	Total	$	1,748,921	$	142,650	$	148,248	$	2,039,819	$	206,414	$	151,678	Total	$	1,748,921	$	142,650	$	148,248	$	2,039,819	$	206,414	$	151,678
Three months ended September 30, 2019
Nine months ended September 30, 2021														Nine months ended September 30, 2021
Insurance	Insurance	$	1,493,854	$	99,628	$	11,611	$	1,605,093	$	202,390	$	162,994	Insurance	$	5,151,253	$	340,710	$	23,780	$	5,515,743	$	862,399	$	681,354
Reinsurance & Monoline Excess	Reinsurance & Monoline Excess	182,956		43,768		0		226,724		46,863		38,240		Reinsurance & Monoline Excess	751,345		133,092		—		884,437		196,185		155,770
Corporate, other and eliminations (3)	Corporate, other and eliminations (3)	0		18,296		114,138		132,434		(47,736)		(37,184)		Corporate, other and eliminations (3)	—		32,813		365,841		398,654		(208,699)		(172,051)
Net investment gains	Net investment gains	0		0		1,465		1,465		1,465		1,158		Net investment gains	—		—		78,404		78,404		78,404		62,987
Total	Total	$	1,676,810	$	161,692	$	127,214	$	1,965,716	$	202,982	$	165,208	Total	$	5,902,598	$	506,615	$	468,025	$	6,877,238	$	928,289	$	728,060
Nine months ended September 30, 2020	Nine months ended September 30, 2020													Nine months ended September 30, 2020
Insurance	Insurance	$	4,481,092	$	255,392	$	25,953	$	4,762,437	$	431,464	$	315,733	Insurance	$	4,481,092	$	255,392	$	25,953	$	4,762,437	$	431,464	$	315,733
Reinsurance & Monoline Excess	Reinsurance & Monoline Excess	636,161		101,477		0		737,638		110,611		88,947		Reinsurance & Monoline Excess	636,161		101,477		—		737,638		110,611		88,947
Corporate, other and eliminations (3)	Corporate, other and eliminations (3)	0		45,975		300,715		346,690		(176,369)		(139,471)		Corporate, other and eliminations (3)	—		45,975		300,715		346,690		(176,369)		(139,471)
Net investment losses	Net investment losses	0		0		(60,311)		(60,311)		(60,311)		(46,689)		Net investment losses	—		—		(60,311)		(60,311)		(60,311)		(46,689)
Total	Total	$	5,117,253	$	402,844	$	266,357	$	5,786,454	$	305,395	$	218,520	Total	$	5,117,253	$	402,844	$	266,357	$	5,786,454	$	305,395	$	218,520
Nine months ended September 30, 2019
Insurance		$	4,396,071	$	332,072	$	38,542	$	4,766,685	$	612,777	$	488,228
Reinsurance & Monoline Excess		520,436		127,791		0		648,227		144,353		115,630
Corporate, other and eliminations (3)		0		48,416		319,103		367,519		(194,664)		(154,736)
Net investment gains		0		0		143,691		143,691		143,691		113,516
Total		$	4,916,507	$	508,279	$	501,336	$	5,926,122	$	706,157	$	562,638

_________________

(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 30, 2021 and 2020 ~~and 2019~~ were ~~$183~~$220 million and ~~$185~~$183 million, respectively, and for the nine months ended September 30, 2021 and 2020 ~~and 2019~~ were ~~$500~~$638 million and ~~$535~~$500 million, respectively. Revenues for Reinsurance & Monoline Excess from foreign countries for the three months ended September 30, 2021 and 2020 ~~and 2019~~ were ~~$77~~$100 million and ~~$65~~$77 million, respectively, and for the nine months ended September 30, 2021 and 2020 ~~and 2019~~ were ~~$212~~$278 million and ~~$186~~$212 million, respectively.

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

Identifiable Assets


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	September 30, 2021		December 31, 2020
Insurance	Insurance	$	21,060,144	$	20,005,802	Insurance	$	23,745,201	$	21,702,328
Reinsurance & Monoline Excess	Reinsurance & Monoline Excess	4,697,249		4,710,819		Reinsurance & Monoline Excess	4,857,288		4,654,158
Corporate, other and eliminations	Corporate, other and eliminations	2,454,977		1,913,409		Corporate, other and eliminations	2,941,799		2,215,479
Consolidated	Consolidated	$	28,212,370	$	26,630,030	Consolidated	$	31,544,288	$	28,571,965

2928

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


		For the Three Months Ended September 30,					For the Nine Months Ended September 30,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,

(In thousands)	(In thousands)					2020			2019			2020				2019	(In thousands)		2021			2020			2021	2020
Insurance:	Insurance:												Insurance:
Other liability	Other liability	$	561,595	$	527,253		$	1,653,189		$	1,523,534		Other liability	$	682,362		$	561,595		$	1,922,669		$	1,653,189
Short-tail lines (1)	Short-tail lines (1)	326,019		310,423			917,466			905,365			Short-tail lines (1)	347,835			326,019			1,012,465			917,466
Workers' compensation	Workers' compensation	271,802		321,872			852,101			979,059			Workers' compensation	286,474			271,802			845,394			852,101
Commercial automobile	Commercial automobile	203,047		191,136			583,024			560,340			Commercial automobile	257,314			203,047			715,519			583,024
Professional liability	Professional liability	168,630		143,170			475,312			427,773			Professional liability	245,086			168,630			655,206			475,312
Total Insurance	Total Insurance	1,531,093		1,493,854			4,481,092			4,396,071			Total Insurance	1,819,071			1,531,093			5,151,253			4,481,092

Reinsurance & Monoline Excess:	Reinsurance & Monoline Excess:												Reinsurance & Monoline Excess:
Casualty reinsurance	Casualty reinsurance	130,186		106,532			383,375			292,471			Casualty reinsurance	164,095			130,186			466,264			383,375
Monoline excess (2)	Monoline excess (2)	43,577		40,639			126,800			119,020			Monoline excess (2)	52,361			43,577			146,481			126,800
Property reinsurance	Property reinsurance	44,065		35,785			125,986			108,945			Property reinsurance	45,491			44,065			138,600			125,986
Total Reinsurance & Monoline Excess	Total Reinsurance & Monoline Excess	217,828		182,956			636,161			520,436			Total Reinsurance & Monoline Excess	261,947			217,828			751,345			636,161

Total	Total	$	1,748,921	$	1,676,810		$	5,117,253		$	4,916,507		Total	$	2,081,018		$	1,748,921		$	5,902,598		$	5,117,253

______________

(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.

3029

SAFE HARBOR STATEMENT

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year ~~2020~~2021 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, including claims for ~~cybersecurity related~~cybersecurity-related risks; natural and man-made catastrophic losses, including as a result of terrorist ~~activities, epidemics or pandemics, such as COVID-19;~~activities; the ongoing COVID-19 pandemic; the impact of climate change, which may ~~increase~~alter the frequency and increase the severity of catastrophe events; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2019; the ability or willingness of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or cyber security issues; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

These risks and uncertainties could cause our actual results for the year ~~2020~~2021 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Our future financial performance is dependent upon factors discussed in our Annual Report on Form 10-K, elsewhere in this Form 10-Q and our other SEC filings. Forward-looking statements speak only as of the date on which they are made. Except to the extent required by applicable laws, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

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

Overview

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

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

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

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

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

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

The ~~ongoing~~ COVID-19 pandemic, including the related impact on the U.S. and global economies, has ~~materially and~~ adversely affected our results of operations. For the nine months ended September 30, ~~2020,~~2021, the Company recorded approximately ~~$143~~$46 million for current accident year COVID-19-related losses, net of ~~reinsurance,~~reinsurance. At the same time, COVID-19 has led to reduced loss frequency in certain lines of business (which has begun a return to pre-pandemic levels as many economies and ~~reinstatement premiums~~legal systems have reopened as a result of ~~approximately $18 million.~~populations becoming vaccinated). 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.~~ control and unclear due to, among other factors, uncertainty in connection with its claims, reserves and reinsurance recoverables.

The scope, duration and magnitude of the direct and indirect effects of COVID-19 continue to evolve in ways that are difficult or impossible to anticipate. ~~In addition, because~~While many of the potential impacts on the Company have receded as populations have begun to become vaccinated, new variants of the COVID-19 ~~did not begin~~virus, including the “Delta” variant, and the slowing of vaccination rates among certain populations, continue to ~~affect~~create risks to the ~~Company's operations and financial position until late in~~Company. As a result, the ~~first quarter~~impact of ~~2020, its impact~~COVID-19 on the Company’s ~~first~~results of operations for the nine months of ~~2020~~2021 is not necessarily indicative of its impact for the remainder of ~~2020~~2021 or beyond. Despite the effects of COVID-19 to date, the Company’s financial position and liquidity improved ~~commencing in~~for the ~~second quarter.~~

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

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

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

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

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

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

~~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, including impairments in our fixed income portfolio and other investments.

~~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.

~~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 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.nine months ended September 30, 2021.

Critical Accounting Estimates

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

Reserves for Losses and Loss Expenses. To recognize liabilities for unpaid losses, either known or unknown, insurers establish reserves, which is a balance sheet account representing estimates of future amounts needed to pay claims and

related expenses with respect to insured events which have occurred. Estimates and assumptions relating to reserves for losses and loss expenses are based on complex and subjective judgments, often including the interplay of specific uncertainties with related accounting and actuarial measurements. Such estimates are also susceptible to change as significant periods of time may elapse between the occurrence of an insured loss, the report of the loss to the insurer, the ultimate determination of the cost of the loss and the insurer’s payment of that loss.

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

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

may result in reserve increases or decreases that would be reflected in our results in periods in which such estimates and assumptions are changed.

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

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

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

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.

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 key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect the latest reported loss data, current trends and other factors observed. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity, relative to our assumptions, on our loss estimate for claims occurring in ~~2019:~~2020:


(In thousands)	(In thousands)	Frequency (+/-)						(In thousands)	Frequency (+/-)
Severity (+/-)	Severity (+/-)	1%		5%		10%		Severity (+/-)	1%		5%		10%
1%	1%	$	81,566	$	245,508	$	450,437	1%	$	89,102	$	268,193	$	492,056
5%	5%	245,508		415,944		628,988		5%	268,193		454,376		687,105
10%	10%	450,437		628,988		852,178		10%	492,056		687,105		930,917

Our net reserves for losses and loss expenses of approximately ~~$11.4~~$12.5 billion as of September 30, ~~2020~~2021 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above. The impact of such changes would likely be manifested gradually over the course of many years, as the magnitude of the changes became evident.

Approximately ~~$2.6~~$2.7 billion, or ~~23%~~22%, of the Company’s net loss reserves as of September 30, ~~2020~~2021 relate to the Reinsurance & Monoline Excess segment. There is a higher degree of uncertainty and greater variability regarding estimates of excess workers' compensation and assumed reinsurance loss reserves. In the case of excess workers’ compensation, our policies generally attach at $1 million or higher. The claims which reach our layer therefore tend to involve the most serious injuries and many remain open for the lifetime of the claimant, which extends the claim settlement tail. These claims also occur less frequently but tend to be larger than primary claims, which increases claim variability. In the case of assumed reinsurance our loss reserve estimates are based, in part, upon information received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be accurate. Furthermore, due to delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is also extended. Management considers the impact of delayed reporting and the extended tail in its selection of loss development factors for these lines of business.

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

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


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	September 30, 2021		December 31, 2020
Insurance	Insurance	$	8,800,434	$	8,193,381	Insurance	$	9,758,754	$	9,034,969
Reinsurance & Monoline Excess	Reinsurance & Monoline Excess	2,590,630		2,504,617		Reinsurance & Monoline Excess	2,722,375		2,585,424
Net reserves for losses and loss expenses	Net reserves for losses and loss expenses	11,391,064		10,697,998		Net reserves for losses and loss expenses	12,481,129		11,620,393
Ceded reserves for losses and loss expenses	Ceded reserves for losses and loss expenses	2,068,295		1,885,251		Ceded reserves for losses and loss expenses	2,438,447		2,164,037
Gross reserves for losses and loss expenses	Gross reserves for losses and loss expenses	$	13,459,359	$	12,583,249	Gross reserves for losses and loss expenses	$	14,919,576	$	13,784,430

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


(In thousands)	(In thousands)	Reported Case Reserves		Incurred But Not Reported		Total		(In thousands)	Reported Case Reserves		Incurred But Not Reported		Total
September 30, 2020
September 30, 2021								September 30, 2021
Other liability	Other liability	$	1,495,595	$	2,754,905	$	4,250,500	Other liability	$	1,692,098	$	3,079,753	$	4,771,851
Workers’ compensation (1)	Workers’ compensation (1)	956,982		905,652		1,862,634		Workers’ compensation (1)	1,001,955		918,438		1,920,393
Professional liability	Professional liability	417,451		824,648		1,242,099		Professional liability	450,592		1,049,223		1,499,815
Commercial automobile	Commercial automobile	427,154		355,200		782,354		Commercial automobile	473,821		416,273		890,094
Short-tail lines (2)	Short-tail lines (2)	303,236		359,611		662,847		Short-tail lines (2)	317,863		358,738		676,601
Total Insurance	Total Insurance	3,600,418		5,200,016		8,800,434		Total Insurance	3,936,329		5,822,425		9,758,754
Reinsurance & Monoline Excess (1) (3)	Reinsurance & Monoline Excess (1) (3)	1,454,609		1,136,021		2,590,630		Reinsurance & Monoline Excess (1) (3)	1,490,320		1,232,055		2,722,375
Total	Total	$	5,055,027	$	6,336,037	$	11,391,064	Total	$	5,426,649	$	7,054,480	$	12,481,129

December 31, 2019
December 31, 2020								December 31, 2020
Other liability	Other liability	$	1,421,378	$	2,522,957	$	3,944,335	Other liability	$	1,534,514	$	2,864,760	$	4,399,274
Workers’ compensation (1)	Workers’ compensation (1)	918,619		964,102		1,882,721		Workers’ compensation (1)	977,035		873,072		1,850,107
Professional liability	Professional liability	399,411		713,433		1,112,844		Professional liability	414,104		875,163		1,289,267
Commercial automobile	Commercial automobile	412,036		300,339		712,375		Commercial automobile	442,975		398,688		841,663
Short-tail lines (2)	Short-tail lines (2)	271,192		269,914		541,106		Short-tail lines (2)	295,313		359,345		654,658
Total Insurance	Total Insurance	3,422,636		4,770,745		8,193,381		Total Insurance	3,663,941		5,371,028		9,034,969
Reinsurance & Monoline Excess (1) (3)	Reinsurance & Monoline Excess (1) (3)	1,469,363		1,035,254		2,504,617		Reinsurance & Monoline Excess (1) (3)	1,442,099		1,143,325		2,585,424
Total	Total	$	4,891,999	$	5,805,999	$	10,697,998	Total	$	5,106,040	$	6,514,353	$	11,620,393

___________

(1) Reserves for workers’ compensation and Reinsurance & Monoline Excess are net of an aggregate net discount of ~~$490~~$462 million and ~~$530~~$483 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 months ended September 30, ~~2020~~2021 and ~~2019~~2020 are as follows:


(In thousands)	(In thousands)	2020		2019		(In thousands)	2021		2020
Net increase in prior year loss reserves	Net increase in prior year loss reserves	$	(849)	$	(22,340)	Net increase in prior year loss reserves	$	(1,552)	$	(849)
Increase in prior year earned premiums	Increase in prior year earned premiums	12,869		39,567		Increase in prior year earned premiums	6,918		12,869
Net favorable prior year development	Net favorable prior year development	$	12,020	$	17,227	Net favorable prior year development	$	5,366	$	12,020

liability. 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.rules.

The Company has estimated the potential COVID-19 impact to its ~~workers’ compensation,~~ contingency and event cancellation, workers’ compensation, and other lines of business under a number of possible scenarios; however, due to COVID-19’s continued evolving impact, ~~and the still limited amount of available data,~~ there remains a high degree of uncertainty around the Company’s COVID-19 reserves. In addition, ~~several states (and international jurisdictions), through regulation, legislation and/~~should the pandemic continue or ~~judicial action, continue to seek~~worsen as a result of new COVID-19 variants or otherwise, governments in the jurisdictions where we operate may renew their efforts 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.coverage. 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 nine months ended~~As of September 30, ~~2020,~~2021, the Company ~~has~~had recognized losses for COVID-19-related claims activity, net of reinsurance, of approximately ~~$143~~$256 million, of which ~~$121~~$220 million relates to the Insurance segment and ~~$22~~$36 million relates to the Reinsurance & Monoline Excess segment. ~~Of the $143~~Such $256 million of COVID-19-related losses ~~$69~~included $219 million ~~are~~of reported losses and ~~$74~~$37 million of IBNR. For the nine months ended September 30, 2021, the Company recognized current accident year losses for COVID-19-related claims activity, net of reinsurance, of approximately $46 million, of which $43 million relates to the Insurance segment and $3 million relates to the Reinsurance & Monoline Excess segment.

During the nine months ended September 30, 2021, favorable prior year development (net of additional and return premiums) of $5 million included $8 million of favorable development for the Insurance segment, partially offset by $3 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 the 2020 accident year, partially offset by adverse development on the 2016 through 2019 accident years. The favorable development on the 2020 accident year was largely concentrated in the commercial auto liability and other liability lines of business including commercial multi-peril liability. During 2020 the Company achieved larger rate increases in these lines of business than were contemplated in our budget and in our initial loss ratio selections. The Company also experienced significantly lower reported claim frequency in these lines in 2020 relative to historical averages, and lower reported incurred losses relative to our expectations. We believe that the lower claim frequency and lower reported incurred losses were caused by the impacts of the COVID-19 pandemic, for example, lockdowns, reduced driving and traffic, work from home, and court closures. However, due to the uncertainty regarding the ultimate impacts of the pandemic on accident year 2020 incurred losses, the Company elected not to react to these lower reported trends during 2020. As more information becomes available and the 2020 accident year continues to mature, during 2021 we have started to recognize favorable accident year 2020 development in response to the continuing favorable reported loss experience relative to our expectations. The adverse development on the 2016 through 2019 accident years is ~~booked as IBNR.~~concentrated largely in the other liability line of business including commercial multi-peril

liability, but is also seen to a lesser extent in commercial auto liability. The adverse development on these years is driven by a higher than expected number of large losses reported, and particularly impacted the directors and officers liability and excess and surplus lines casualty classes of business. We also believe that increased social inflation is contributing to the increased number of large losses.

During the nine months ended September 30, 2019, favorable prior year development (net of additional and return premiums) of $17 million included $18 million of favorable development for the Insurance segment, offset by $1 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 general liability, professional liability, and commercial auto liability business. The favorable workers’ compensation development was mainly attributable to accident years 2014 through 2018, and 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 general liability development was mainly related to accident years 2015 through 2017 and was driven by a higher than expected number of large losses being reported in the period. The adverse professional liability development was mainly from accident years 2013 through 2016 and was driven by an increased

frequency of large losses relating to lawyers professional and directors and officers liability. The adverse commercial auto liability development was primarily related to accident years 2015 through 2018 (with most in 2018), and was driven by a higher than expected number of large losses.

Reserve Discount. The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was ~~$1,650~~$1,395 million and ~~$1,731~~$1,655 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was ~~$490~~$462 million and ~~$530~~$483 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. At September 30, ~~2020,~~2021, discount rates by year ranged from 0.7% to 6.5%, with a weighted average discount rate of ~~3.6%~~3.4%.

Substantially all of the workers’ compensation discount (97% of total discounted reserves at September 30, ~~2020)~~2021) 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 30, ~~2020)~~2021), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware.

Assumed Reinsurance Premiums. The Company estimates the amount of assumed reinsurance premiums that it will receive under treaty reinsurance agreements at the inception of the contracts. These premium estimates are revised as the actual amount of assumed premiums is reported to the Company by the ceding companies. As estimates of assumed premiums are made or revised, the related amount of earned premiums, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately ~~$44~~$61 million at September 30, ~~2020~~2021 and ~~$43~~$44 million at December 31, ~~2019.~~2020. The assumed premium estimates are based upon terms set forth in reinsurance agreements, information received from ceding companies during the underwriting and negotiation of agreements, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate amount of premiums to be received under its assumed reinsurance agreements.

Allowance for Expected Credit Losses on Investments.

Fixed Maturity Securities – For fixed maturity securities in an unrealized loss position where the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery in value, the amortized cost basis is written down to fair value through net investment gains (losses). For fixed maturity securities in an unrealized loss position where the Company does not intend to sell, or it is more likely than not that it will not be required to sell the security before recovery in value, the Company evaluates whether the decline in fair value has resulted from credit losses or all other factors (non-credit factors). In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for expected credit losses is recorded for the credit loss through net investment gains (losses), limited by the amount that the fair value is less than the amortized cost basis. Effective January 1, 2020, the allowance is adjusted for any change in expected credit losses and subsequent recoveries through net investment gains (losses). The impairment related to non-credit factors is recognized in other comprehensive income (loss).

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

~~term~~long-term assumptions linearly over 5 years beyond the forecast period. The long-term assumptions are based on the historical averages.

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

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at September 30, ~~2020~~2021 is presented in the table below:


($ in thousands)	($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss		($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	Foreign government	22	$	91,413	$	45,247	Foreign government	31	$	119,141	$	32,048
Corporate	Corporate	13	28,816		6,343		Corporate	13	49,623		1,879
Mortgage-backed securities		8	1,659		34

State and municipal							State and municipal	2	39,693		335
Mortgage-backed							Mortgage-backed	4	249		16
Asset-backed							Asset-backed	1	94		3
Total	Total	43	$	121,888	$	51,624	Total	51	$	208,800	$	34,281

As of September 30, ~~2020,~~2021, the Company has recorded an allowance for expected credit losses on fixed maturity securities of $3$17 million. The Company has evaluated the remaining fixed maturity securities in an unrealized loss position and believes the unrealized losses are due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due.

Loans Receivable – For loans receivable, the Company estimates an allowance for expected credit losses based on relevant information about past events, including historical loss experience, current conditions and forecasts that affect the expected collectability of the amortized cost of the financial asset. The allowance for expected credit losses is presented as a reduction to amortized cost of the financial asset in the consolidated balance sheet and changes to the estimate for expected credit losses are recognized through net investment gains (losses). Loans receivable are reported net of an allowance for expected credit losses of $6$2 million and $2$5 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Fair Value Measurements. The Company’s fixed maturity available for sale securities, equity securities, and its arbitrage trading account securities are carried at fair value. Fair value is defined as “the price that would be received to sell an

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

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

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

The following is a summary of pricing sources for the Company's fixed maturity securities available for sale as of September 30, ~~2020:~~2021:


($ in thousands)	($ in thousands)	Carrying Value		Percent of Total		($ in thousands)	Carrying Value		Percent of Total
Pricing source:	Pricing source:					Pricing source:
Independent pricing services	Independent pricing services	$	13,638,784	98.7	%	Independent pricing services	$	15,680,757	98.0	%
Syndicate manager	Syndicate manager	42,383		0.3		Syndicate manager	49,600		0.3
Directly by the Company based on:	Directly by the Company based on:					Directly by the Company based on:
Observable data	Observable data	139,362		1.0		Observable data	269,004		1.7

Total	Total	$	13,820,529	100.0	%	Total	$	15,999,361	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 30, ~~2020,~~2021, 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.

4039

Results of Operations for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

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 net premiums earned), expense ratios (underwriting expenses expressed as a percentage of net premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. 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)	($ in thousands)	2020			2019			($ in thousands)	2021			2020
Insurance:	Insurance:							Insurance:
Gross premiums written	Gross premiums written	$	5,841,328		$	5,565,862		Gross premiums written	$	7,008,617		$	5,841,328
Net premiums written	Net premiums written	4,754,791			4,601,077			Net premiums written	5,741,229			4,754,791
Net premiums earned	Net premiums earned	4,481,092			4,396,071			Net premiums earned	5,151,253			4,481,092
Loss ratio	Loss ratio	65.5		%	62.3		%	Loss ratio	61.4		%	65.5		%
Expense ratio	Expense ratio	30.6		%	31.3		%	Expense ratio	28.5		%	30.6		%
GAAP combined ratio	GAAP combined ratio	96.1		%	93.6		%	GAAP combined ratio	89.9		%	96.1		%
Reinsurance & Monoline Excess:	Reinsurance & Monoline Excess:							Reinsurance & Monoline Excess:
Gross premiums written	Gross premiums written	$	784,835		$	663,279		Gross premiums written	$	924,829		$	784,835
Net premiums written	Net premiums written	710,189			601,894			Net premiums written	846,128			710,189
Net premiums earned	Net premiums earned	636,161			520,436			Net premiums earned	751,345			636,161
Loss ratio	Loss ratio	66.5		%	61.6		%	Loss ratio	61.5		%	66.5		%
Expense ratio	Expense ratio	32.1		%	35.2		%	Expense ratio	30.1		%	32.1		%
GAAP combined ratio	GAAP combined ratio	98.6		%	96.8		%	GAAP combined ratio	91.6		%	98.6		%
Consolidated:	Consolidated:							Consolidated:
Gross premiums written	Gross premiums written	$	6,626,163		$	6,229,141		Gross premiums written	$	7,933,446		$	6,626,163
Net premiums written	Net premiums written	5,464,980			5,202,971			Net premiums written	6,587,357			5,464,980
Net premiums earned	Net premiums earned	5,117,253			4,916,507			Net premiums earned	5,902,598			5,117,253
Loss ratio	Loss ratio	65.6		%	62.2		%	Loss ratio	61.4		%	65.6		%
Expense ratio	Expense ratio	30.8		%	31.7		%	Expense ratio	28.7		%	30.8		%
GAAP combined ratio	GAAP combined ratio	96.4		%	93.9		%	GAAP combined ratio	90.1		%	96.4		%

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 months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


(In thousands, except per share data)	(In thousands, except per share data)	2020		2019		(In thousands, except per share data)	2021		2020
Net income to common stockholders	Net income to common stockholders	$	218,520	$	562,638	Net income to common stockholders	$	728,060	$	218,520
Weighted average diluted shares	Weighted average diluted shares	189,515		193,557		Weighted average diluted shares	187,060		189,515
Net income per diluted share	Net income per diluted share	$	1.15	$	2.91	Net income per diluted share	$	3.89	$	1.15

The Company reported net income to common stockholders of $728 million in 2021 compared to $219 million in ~~2020 compared to $563~~2020. The $509 million ~~in 2019. The $344 million decrease~~increase in net income was primarily due to an after-tax ~~decrease~~increase in underwriting income of $316 million mainly due to the growth in premium rates and exposure as well as reductions in loss ratio partly due to lower catastrophe losses and in expense ratio driven by net earned premium growth outpacing expense growth, an after-tax increase in net investment gains of ~~$161~~$110 million ~~(primarily resulting from disruption in global financial markets related~~primarily due to ~~COVID-19),~~sale of real estate assets, an after-tax ~~decrease in underwriting income of $88 million primarily from COVID-19-related losses and other catastrophe losses, an after-tax decrease~~increase in net investment income of ~~$83~~$82 million primarily due to ~~less income from~~ investment funds, ~~reduced investment yields in fixed maturity securities and repositioning~~ a ~~larger portion~~reduction of ~~the investment portfolio to cash and cash equivalents, an increase~~$22 million in tax expense ~~of $27 million~~ due to a change in the effective tax rate, an after-tax ~~decrease in foreign currency gains of $4 million, an after-tax decrease~~increase in profits from non-insurance businesses of $2$6 million, ~~and~~ an after-tax ~~decrease in other income of $1 million, partially offset by an after-tax decrease in corporate~~savings from interest expenses of ~~$11~~$4 million due to early refinancings, an after-tax increase in profit from insurance service businesses of $2 million and a less than $1 million after-tax increase in other income, partially offset by an after-tax increase in corporate expenses of $23 million which includes an after-tax debt extinguishment expense of $9 million on debt redeemed and increased incentive compensation costs, an after-tax increase of $7 million in minority interest and an after-tax decrease in ~~interest expense~~foreign currency gains of $4 million. The number of weighted average diluted shares decreased by ~~approximately 4~~2.5 million for ~~2020~~2021 compared to ~~2019~~2020 mainly reflecting shares repurchased in ~~2020.~~2020 and 2021.

4140

Premiums. Gross premiums written were $7,933 million in 2021, an increase of 20% from $6,626 million in ~~2020, an increase of 6% from $6,229 million in 2019.~~2020. The increase was due to a ~~$275~~$1,167 million increase in the Insurance segment and a ~~$122~~$140 million increase in the Reinsurance & Monoline Excess segment. Approximately ~~79.0%~~82% of premiums expiring in ~~2020~~2021 were renewed, and ~~79.9%~~79% of premiums expiring in ~~2019~~2020 were renewed.

Average renewal premium rates for insurance and facultative reinsurance increased ~~10.7%~~9.5% in ~~2020~~2021 when adjusted for changes in exposures, and increased ~~13.0%~~10.8% excluding workers' compensation.

A summary of gross premiums written in ~~2020~~2021 compared with ~~2019~~2020 by line of business within each business segment follows:

•Insurance - gross premiums increased 5%20% to $7,009 million in 2021 from $5,841 million in ~~2020 from $5,566 million in 2019.~~2020. Gross premiums increased ~~$195~~$410 million ~~(10%~~(20%) for other liability, ~~$121~~$376 million ~~(17%~~(45%) for professional liability, ~~$79~~$186 million ~~(6%~~(27%) for commercial auto, $175 million (13%) for short-tail lines and ~~$34~~$21 million ~~(5%) for commercial auto, and decreased $153 million (15%~~(2%) for workers' compensation.

•Reinsurance & Monoline Excess - gross premiums increased 18% to $925 million in 2021 from $785 million in ~~2020 from $663 million in 2019.~~2020. Gross premiums increased ~~$79~~$111 million ~~(22%~~(25%) for casualty reinsurance, $27 million ~~(19%~~(16%) for monoline excess and $2 million (1%) for property ~~reinsurance and $16 million (10%) for monoline excess.~~reinsurance.

Net premiums written were $6,587 million in 2021, an increase of 21% from $5,465 million in ~~2020, an increase of 5% from $5,203 million in 2019.~~2020. Ceded reinsurance premiums as a percentage of gross written premiums were 17% in 2021 and 18% in ~~2020 and 16% in 2019. The cession rate increased primarily because of reinstatement premiums associated with COVID-19 related claims activity.~~2020.

Premiums earned increased 4%15% to $5,903 million in 2021 from $5,117 million in ~~2020 from $4,917 million in 2019.~~2020. 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~~2021 are related to business written during both ~~2020~~2021 and ~~2019.~~2020. Audit premiums were $138 million in 2021 compared with $111 million in ~~2020 compared with $149 million in 2019.~~2020.

Net Investment Income. Following is a summary of net investment income for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Amount				Average Annualized Yield					Amount				Average Annualized Yield
($ in thousands)	($ in thousands)	2020		2019		2020		2019		($ in thousands)	2021		2020		2021		2020
Fixed maturity securities, including cash and cash equivalents and loans receivable	Fixed maturity securities, including cash and cash equivalents and loans receivable	$	330,941	$	386,978	2.9	%	3.5	%	Fixed maturity securities, including cash and cash equivalents and loans receivable	$	284,704	$	330,941	2.2	%	2.9	%
Investment funds	Investment funds	1,260		77,284		0.1		7.5		Investment funds	169,538		1,260		16.5		0.1
Arbitrage trading account	Arbitrage trading account	51,985		26,184		12.4		8.0		Arbitrage trading account	30,176		51,985		6.5		12.4
Equity securities										Equity securities	21,854		6,194		5.0		2.4
Real estate	Real estate	18,807		17,468		1.2		1.1		Real estate	5,517		18,807		0.4		1.2
Equity securities		6,194		3,984		2.4		2.1
Gross investment income	Gross investment income	409,187		511,898		2.8		3.6		Gross investment income	511,789		409,187		3.1		2.8
Investment expenses	Investment expenses	(6,343)		(3,619)		—		—		Investment expenses	(5,174)		(6,343)		—		—
Total	Total	$	402,844	$	508,279	2.7	%	3.5	%	Total	$	506,615	$	402,844	3.1	%	2.7	%

Net investment income ~~decreased 21%~~increased 26% to $507 million in 2021 from $403 million in 2020 ~~from $508 million in 2019~~ due primarily to a ~~$76~~$168 million ~~decrease~~increase in income from investment funds ~~(as~~primarily from financial services and transportation funds, a ~~result of the impact of the disruption~~$16 million increase from equity securities and a $1 million decrease in ~~global financial markets associated with COVID-19 during 2020),~~investment expense, partially offset by a ~~$56~~$46 million decrease in income from fixed maturity securities mainly driven by lower investment yields, ~~and repositioning~~ a ~~larger portion of the investment portfolio to cash and cash equivalents, and a $2~~$22 million ~~increase in investment expense, partially offset by a $26 million increase~~decrease from the arbitrage trading account and a $1$13 million ~~increase~~decrease in real ~~estate and a $2 million increase from equity securities.~~estate. The Company shortened the duration of its fixed maturity security portfolio, thereby reducing the potential impact of mark-to-market on the portfolio and positioning the Company to react quickly to changes in the current interest rate environment. Average invested assets, at cost (including cash and cash equivalents), were $21.9 billion in 2021 and $19.8 billion in ~~2020 and $19.1 billion in 2019.~~2020.

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~~increased to $70 million in 2021 from $67 million in 2020, ~~from $71 million in 2019. The decrease is primarily~~mainly due to ~~a reduction of assigned risk plan business.~~the business recovery from the pandemic.

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

realized and unrealized ~~losses~~gains on investments were $89 million in ~~2020~~2021 compared with net ~~gains of $144 million in 2019. The~~ losses of $89 million in 2020. The gains of $89 million in 2021 reflect net realized gains on investments of $151 million (primarily due to the sale of certain real estate assets and the disposition of an investment fund) partially offset by unrealized losses on equity securities of $62 million. In 2020, ~~reflect~~the net losses of $89 million reflected net realized losses on ~~investments~~investment sales of $27 million and an increase in unrealized losses on equity securities of $62 million, ~~driven by the disruption in global financial markets associated with COVID-19 during the first nine months~~which was primarily due to market disruptions as a result of ~~2020. In 2019, the gains of $144 million reflected net realized gains on investment sales of $28 million and an increase in unrealized gains on equity securities of $116 million.~~COVID-19.

Change in Allowance for Expected Credit Losses on ~~Investments.~~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 nine months ended September 30, 2021, the pre-tax change in allowance for expected credit losses on investments increased by $11 million ($9 million after-tax), which is reflected in net investment gains (losses), primarily related to foreign government securities which did not previously have an allowance. For the nine months ended September 30, 2020, the pre-tax change in allowance for expected credit losses on investments decreased by $29 million ($23 million after-tax), which is reflected in net investment gains (losses), primarily due to the disposition of securities which previously had an allowance recorded.

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 $317 million in 2021 and $257 million in ~~2020 and $283 million in 2019.~~2020. The ~~decrease~~increase mainly relates to ~~a reduction in revenues~~the business recovery from ~~the~~COVID-19 on aviation-related ~~businesses impacted by COVID-19.~~and textile businesses.

Losses and Loss Expenses. Losses and loss expenses increased to $3,624 million in 2021 from $3,357 million in ~~2020 from $3,059 million in 2019.~~2020. The consolidated loss ratio was 61.4% in 2021 and 65.6% in ~~2020 and 62.2% in 2019.~~2020. Catastrophe losses, net of reinsurance recoveries, were $154 million (including current accident year losses of approximately $46 million related to COVID-19) in 2021 and $297 million (including losses of approximately $143 million related to COVID-19) in ~~2020 and $70 million in 2019.~~2020. Favorable prior year reserve development (net of premium offsets) was $5 million in 2021 and $12 million in ~~2020 and $17 million in 2019.~~2020. The loss ratio excluding catastrophe losses and prior year reserve development was 58.9% in 2021 and 60.0% in ~~2020 and 61.2% in 2019.~~2020.

A summary of loss ratios in ~~2020~~2021 compared with ~~2019~~2020 by business segment follows:

•Insurance - The loss ratio was 61.4% in 2021 and 65.5% in ~~2020 and 62.3% in 2019.~~2020. Catastrophe losses were $109 million in 2021 compared with $245 million in ~~2020 compared with $54 million in 2019.~~2020. The Company reflected a best estimate (net of reinsurance) based upon available information for current accident year COVID-19-related losses of approximately ~~$121~~$43 million, ~~which was included in catastrophe losses and~~ primarily related to contingency and event cancellation ~~coverage, workers’ compensation and short-tail lines.~~coverage. Favorable prior year reserve development was $8 million in 2021 and $19 million in ~~2020 and $18 million in 2019.~~2020. The loss ratio excluding catastrophe losses and prior year reserve development decreased ~~1.1~~0.9 points to 59.5% in 2021 from 60.4% in ~~2020 from 61.5% in 2019.~~2020.

•Reinsurance & Monoline Excess - The loss ratio was 61.5% in 2021 and 66.5% in ~~2020 and 61.6% in 2019.~~2020. Catastrophe losses were $45 million in 2021 compared with $53 million in ~~2020 compared with $16 million in 2019.~~2020. The Company reflected a best estimate (net of reinsurance) based upon available information for current accident year COVID-19-related losses of approximately ~~$22~~$3 million, ~~which was included in catastrophe losses and~~ primarily related to excess workers’ ~~compensation and short-tail lines.~~compensation. Adverse prior year reserve development was $3 million in 2021 and $7 million in ~~2020 and $1 million in 2019.~~2020. The loss ratio excluding catastrophe losses and prior year reserve development decreased ~~1.1~~2.1 points to 55.1% in 2021 from 57.2% in ~~2020 from 58.3% in 2019.~~2020.

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


($ in thousands)	($ in thousands)	2020		2019		($ in thousands)	2021		2020
Policy acquisition and insurance operating expenses	Policy acquisition and insurance operating expenses	$	1,574,507	$	1,560,350	Policy acquisition and insurance operating expenses	$	1,694,548	$	1,574,507
Insurance service expenses	Insurance service expenses	64,029		77,513		Insurance service expenses	63,817		64,029
Net foreign currency gains	Net foreign currency gains	(23,845)		(29,084)		Net foreign currency gains	(19,216)		(23,845)
Debt extinguishment costs						Debt extinguishment costs	11,521		—
Other costs and expenses	Other costs and expenses	138,451		152,182		Other costs and expenses	156,350		138,451
Total	Total	$	1,753,142	$	1,760,961	Total	$	1,907,020	$	1,753,142

percentage of net premiums earned) was 28.7% in 2021 and 30.8% in ~~2020 and 31.7% in 2019.~~2020. The improvement is primarily attributable to higher

net premiums earned outpacing compensation expense growth and lower travel and entertainment expenses due to the global pandemic. However, to the extent our net premiums earned decrease or travel and entertainment expenses increase, due to the impact of the COVID-19 pandemic or otherwise, our expense ratio would be expected to increase.

Service expenses, which represent the costs associated with the fee-based businesses, ~~decreased to~~were $64 million in ~~2020 from $78 million in 2019. The decrease is primarily due to a reduction of assigned risk plan business.~~both 2021 and 2020.

Net foreign currency gains result from transactions denominated in a currency other than a company's operating functional currency. Net foreign currency gains were $19 million in 2021 compared to $24 million in ~~2020~~2020. The reduction in gains is primarily related to less weakening of the Argentine Peso and U.K. sterling compared to ~~gains of $29 million in 2019, mainly resulting from the continued strengthening of~~ the U.S. dollar in ~~relation~~2021 versus 2020.

Debt extinguishment costs of $12 million related to the ~~Argentine peso~~redemption of $400 million of subordinated debentures in March and ~~U.K sterling~~June 2021 that were due in ~~2020.~~2056.

Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs and expenses ~~decreased~~increased to $156 million in 2021 from $138 million in 2020, ~~from $152 million in 2019,~~ primarily due to ~~a reduction~~the increase in ~~non-recurring~~ performance-based compensation costs ~~which occurred~~ in ~~2019.~~2021.

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 $308 million in 2021 compared to $256 million in ~~2020 compared to $280 million in 2019.~~2020. The ~~decrease~~increase mainly relates to ~~a reduction of~~the business recovery from COVID-19 on aviation-related ~~business impacted by COVID-19 in 2020.~~and textile businesses.

Interest Expense. Interest expense was $110 million in 2021 and $115 million in 2020 compared with $120 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 2059.2020. In May 2020, the Company issued $300 million aggregate principal amount of 4.00% senior notes due 2050. In September 2020, the Company issued an additional $170 million aggregate principal amount of 4.00% senior notes due 2050 and ~~issued~~ $250 million aggregate principal amount of 4.25% subordinated debentures due 2060 and repaid $300 million aggregate principal amount of 5.375% senior notes at maturity. ~~Accordingly, the timing of the debt repayments in 2019 and 2020 and issuances in 2019 and 2020 led to the decrease in interest expense for the nine months ended September 30, 2020 compared to 2019.~~ In October 2020, the Company redeemed $350 million aggregate principal amount of 5.625% subordinated debentures due ~~2053, which we expect will lead to a~~2053. In February 2021, the Company issued $300 million aggregate principal amount of 4.125% subordinated debenture due 2061. In March 2021, the Company issued $400 million aggregate principal amount of 3.55% senior notes due 2052 and redeemed its $110 million aggregate principal amount of 5.90% subordinated debentures due 2056. In June 2021, the Company redeemed the $290 million aggregate principal amount of its 5.75% subordinated debentures due 2056. In September 2021, the Company issued $350 million aggregate principal amount of 3.15% senior notes due 2061. The redemptions resulted in debt extinguishment ~~charge~~costs of ~~pre-tax $8~~$12 million during the nine months ended September 30, 2021. Additionally in the ~~fourth quarter.~~second quarter of 2021, the Company sold a real estate asset which resulted in a $102 million reduction of the Company's non-recourse debt that was supporting the property.

The redemption of debentures and issuance of additional debentures in 2021, as described below in "Liquidity and Capital Resources -- Debt," are expected to decrease interest expense in 2021 and forward.

Income Taxes. The effective income tax rate was 20.6% in 2021 and 27.8% in ~~2020 and 20.1% in 2019. The~~2020. For the nine months ended September 30, 2021, the effective income tax rate differs from the federal income tax rate of 21% principally because ~~the utilization~~ of ~~losses in certain foreign jurisdictions was limited, which was partially offset by~~ tax-exempt investment income and tax benefits related to equity-based ~~compensation.~~compensation, which was partially offset by state and foreign income taxes. The increased effective income tax rate for the nine months ended September 30, 2020 was principally because utilization of losses in certain foreign jurisdictions was limited.

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately ~~$107~~$132.4 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. In the future, if such earnings were distributed the Company projects that the incremental tax, if any, will be immaterial.

4443

Results of Operations for the Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

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 net premiums earned), expense ratios (underwriting expenses expressed as a percentage of net premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the three months ended September 30, ~~2020~~2021 and ~~2019.~~2020. 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)	($ in thousands)	2020			2019			($ in thousands)	2021			2020
Insurance:	Insurance:							Insurance:
Gross premiums written	Gross premiums written	$	1,981,816		$	1,850,012		Gross premiums written	$	2,446,758		$	1,981,816
Net premiums written	Net premiums written	1,628,316			1,529,113			Net premiums written	2,007,194			1,628,316
Net premiums earned	Net premiums earned	1,531,093			1,493,854			Net premiums earned	1,819,071			1,531,093
Loss ratio	Loss ratio	64.4		%	61.8		%	Loss ratio	61.4		%	64.4		%
Expense ratio	Expense ratio	29.7		%	31.2		%	Expense ratio	27.9		%	29.7		%
GAAP combined ratio	GAAP combined ratio	94.1		%	93.0		%	GAAP combined ratio	89.3		%	94.1		%
Reinsurance & Monoline Excess:	Reinsurance & Monoline Excess:							Reinsurance & Monoline Excess:
Gross premiums written	Gross premiums written	$	280,729		$	243,038		Gross premiums written	$	340,740		$	280,729
Net premiums written	Net premiums written	251,000			220,793			Net premiums written	317,945			251,000
Net premiums earned	Net premiums earned	217,828			182,956			Net premiums earned	261,947			217,828
Loss ratio	Loss ratio	59.1		%	64.6		%	Loss ratio	69.3		%	59.1		%
Expense ratio	Expense ratio	31.2		%	33.7		%	Expense ratio	29.1		%	31.2		%
GAAP combined ratio	GAAP combined ratio	90.3		%	98.3		%	GAAP combined ratio	98.4		%	90.3		%
Consolidated:	Consolidated:							Consolidated:
Gross premiums written	Gross premiums written	$	2,262,545		$	2,093,050		Gross premiums written	$	2,787,499		$	2,262,545
Net premiums written	Net premiums written	1,879,316			1,749,906			Net premiums written	2,325,138			1,879,316
Net premiums earned	Net premiums earned	1,748,921			1,676,810			Net premiums earned	2,081,018			1,748,921
Loss ratio	Loss ratio	63.7		%	62.1		%	Loss ratio	62.4		%	63.7		%
Expense ratio	Expense ratio	30.0		%	31.5		%	Expense ratio	28.0		%	30.0		%
GAAP combined ratio	GAAP combined ratio	93.7		%	93.6		%	GAAP combined ratio	90.4		%	93.7		%

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, ~~2020~~2021 and ~~2019:~~2020:


(In thousands, except per share data)	(In thousands, except per share data)	2020		2019		(In thousands, except per share data)	2021		2020
Net income to common stockholders	Net income to common stockholders	$	151,678	$	165,208	Net income to common stockholders	$	261,297	$	151,678
Weighted average diluted shares	Weighted average diluted shares	187,717		193,589		Weighted average diluted shares	186,742		187,717
Net income per diluted share	Net income per diluted share	$	0.81	$	0.85	Net income per diluted share	$	1.40	$	0.81

The Company reported net income to common stockholders of $261 million in 2021 compared to $152 million in ~~2020 compared to $165~~2020. The $109 million ~~in 2019. The $13 million decrease~~increase in net income was primarily due to an after-tax increase in underwriting income of $71 million mainly due to the growth in premium rates and exposure, an after-tax increase in net investment income of $30 million primarily due to investment funds, an after-tax increase in foreign currency ~~losses~~gains of ~~$22~~$14 million ~~from~~as the ~~weakening~~ U.S. dollar ~~compared to certain~~strengthened against other major currencies ~~an increase~~during the quarter, a reduction of ~~$15~~$14 million in tax expense due to a change in the effective tax rate, an after-tax decrease in net investment income of $15 million mainly from reduced investment yields in fixed maturity securities and repositioning a larger portion of the investment portfolio to cash and cash equivalents, and an after-tax increase insaving on interest expense of $1$4 million ~~partially offset by an after-tax increase in net investment gains of $29 million mainly~~ due to unrealized gains related to equity securities, an after-tax decrease in corporate expenses of $4 million, an after-tax increase in underwriting income of $3 million, an after-tax increase in profit from insurance service businesses of $2 million, andearly refinancings, an after-tax increase in profits from non-insurance businesses of $2 ~~million.~~million and a $1 million after-tax increase in other income, partially offset by an after-tax reduction in net investment gains of $16 million, an after-tax increase in corporate expenses of $6 million and an after-tax increase of $5 million in minority interest. The number of weighted average diluted shares ~~was reduced~~decreased by approximately 6one million for ~~the three months ended September 30,~~2021 compared to 2020 mainly ~~due to the repurchase of common~~reflecting shares repurchased in 2020 ~~compared to the three months ended September 30, 2019.~~and 2021.

4544

Premiums. Gross premiums written were $2,787 million in 2021, an increase of 23% from $2,263 million in ~~2020, an increase of 8% from $2,093 million in 2019.~~2020. The increase was due to a ~~$132~~$465 million increase in the Insurance segment and a ~~$38~~$59 million increase in the Reinsurance & Monoline Excess segment. Approximately 81.7% of premiums expiring in 2021 were renewed, and 78.5% of premiums expiring in 2020 ~~were renewed, and 79.7% of premiums expiring in 2019~~ were renewed.

Average renewal premium rates for insurance and facultative reinsurance increased ~~12.1%~~8.8% in ~~2020~~2021 when adjusted for changes in exposures, and increased ~~14.5%~~10.1% excluding workers' compensation.

A summary of gross premiums written in ~~2020~~2021 compared with ~~2019~~2020 by line of business within each business segment follows:

•Insurance - gross premiums increased 7%23% to $2,447 million in 2021 from $1,982 million in ~~2020 from $1,850 million in 2019.~~2020. Gross premiums increased ~~$69~~$162 million ~~(11%~~(23%) for other liability, ~~$51~~$142 million ~~(21%~~(47%) for professional liability, ~~$35~~$74 million ~~(17%~~(16%) for short-tail lines, $67 million (27%) for commercial auto and ~~$25~~$20 million ~~(6%) for short-tail lines, and decreased $48 million (16%~~(8%) for workers' compensation.

•Reinsurance & Monoline Excess - gross premiums increased ~~16%~~21% to $340 million in 2021 from $281 million in ~~2020 from $243 million in 2019.~~2020. Gross premiums increased ~~$14~~$54 million ~~(29%~~(36%) for ~~property~~casualty reinsurance ~~$13~~and $6 million ~~(22%~~(10%) for monoline excess, ~~and $11~~partially offset by a $1 million ~~(8%~~(1%) reduction for ~~casualty~~property reinsurance.

Net premiums written were $2,325 million in 2021, an increase of 24% from $1,879 million in ~~2020, a 7% increase from $1,750 million in 2019.~~2020. Ceded reinsurance premiums as a percentage of gross written premiums were 17% in ~~2020~~both 2021 and ~~16% in 2019.~~2020.

Premiums earned increased 4%19% to $2,081 million in 2021 from $1,749 million in ~~2020 from $1,677 million in 2019.~~2020. 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~~2021 are related to business written during both ~~2020~~2021 and ~~2019.~~2020. Audit premiums were $54 million in 2021 compared with $27 million in ~~2020 and $49 million in 2019.~~2020.

Net Investment Income. Following is a summary of net investment income for the three months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Amount				Average Annualized Yield					Amount				Average Annualized Yield
($ in thousands)	($ in thousands)	2020		2019		2020		2019		($ in thousands)	2021		2020		2021		2020
Fixed maturity securities, including cash and cash equivalents and loans receivable	Fixed maturity securities, including cash and cash equivalents and loans receivable	$	97,080	$	125,957	2.5	%	3.4	%	Fixed maturity securities, including cash and cash equivalents and loans receivable	$	93,031	$	97,080	2.1	%	2.5	%
Investment funds	Investment funds	18,235		19,033		6.2		5.7		Investment funds	69,292		18,235		19.9		6.2
Arbitrage trading account	Arbitrage trading account	19,543		8,400		13.8		7.1		Arbitrage trading account	7,187		19,543		3.8		13.8
Equity securities										Equity securities	8,462		1,907		5.0		2.2
Real estate	Real estate	7,666		7,987		1.5		1.5		Real estate	3,485		7,666		0.8		1.5
Equity securities		1,907		1,392		2.2		2.1
Gross investment income	Gross investment income	144,430		162,769		2.9		3.4		Gross investment income	181,457		144,430		3.2		2.9
Investment expenses	Investment expenses	(1,780)		(1,077)		—		—		Investment expenses	(1,606)		(1,780)		—		—
Total	Total	$	142,650	$	161,692	2.8	%	3.4	%	Total	$	179,851	$	142,650	3.2	%	2.8	%

Net investment income ~~decreased 12%~~increased 26% to $180 million in 2021 from $143 million in 2020 ~~from $162 million in 2019~~ due primarily to a ~~$29~~$51 million increase in income from investment funds primarily from financial services and transportation funds and a $6 million increase from equity securities, partially offset by a $12 million decrease ~~in fixed maturity securities as~~from the arbitrage trading account, a ~~result of lower investment yields and repositioning a larger portion of the investment portfolio to cash and cash equivalents and a $1~~$4 million decrease in income from fixed maturity securities mainly driven by lower investment ~~funds, partially offset by~~yields and a ~~$11~~$4 million ~~increase from the arbitrage trading account.~~decrease in real estate. The Company ~~has maintained a~~ shortened the duration of its fixed maturity security portfolio, ~~that has reduced~~thereby reducing the potential impact of mark-to-market on the portfolio and ~~positioned~~positioning the Company to react quickly to changes in the current interest rate environment. Average invested assets, at cost (including cash and cash equivalents), were $22.5 billion in 2021 and $20.3 billion in ~~2020 and $19.2 billion in 2019.~~2020.

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~~were $21 million in 2021 and $22 million in ~~2020 from $24 million in 2019.~~2020. The decrease is primarily due to a reduction of assigned risk plan business.

4645

realized and unrealized ~~losses~~gains on investments were $8$17 million in ~~2020~~2021 compared with ~~gains of $1 million in 2019. The~~net losses of $8 million in 2020. The gains of $17 million in 2021 reflect net realized gains on investments of $36 million, partially offset by an increase in unrealized losses on equity securities of $19 million. In 2020, the losses of $8 million reflected net realized losses on ~~investments~~investment sales of $39 million and an increase in unrealized gains on equity securities of $31 million. ~~In 2019, the gains of $1 million reflected net realized gains on investment sales of $3 million and an increase in unrealized gains on equity securities of $4 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 September 30, 2021, the pre-tax change in allowance for expected credit losses on investments decreased by $2 million ($1.6 million after-tax), which is reflected in net investment gains (losses). For the three months ended September 30, 2020, the pre-tax change in allowance for expected credit losses on investments decreased by $47 million ($37 million after-tax), which is reflected in net investment gains (losses), primarily due to disposition of securities which previously had an allowance ~~recorded..~~recorded.

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 $120 million in 2021 and $87 million in ~~2020 and $102 million in 2019.~~2020. The ~~decrease~~increase mainly relates to ~~reduction in revenues~~the business recovery from ~~the~~COVID-19 on aviation-related ~~businesses impacted by COVID-19.~~and textile businesses.

Losses and Loss Expenses. Losses and loss expenses increased to $1,298 million in 2021 from $1,115 million in ~~2020 from $1,041 million in 2019.~~2020. The consolidated loss ratio was 62.4% in 2021 and 63.7% in ~~2020 and 62.1% in 2019.~~2020. Catastrophe losses, net of reinsurance recoveries, were $74 million (including current accident year losses of approximately $6 million related to COVID-19) in 2021 and $73 million ~~in 2020 compared to $31 million in 2019. No~~(no additional COVID-19-related losses were recognized in the three months ended September 30, 2020) in 2020. Favorable prior year reserve development (net of premium offsets) was $2 million in 2021 and $5 million in ~~2020 and $4 million in 2019.~~2020. The loss ratio excluding catastrophe losses and prior year reserve development was 58.9% in 2021 and 59.8% in ~~2020 and 60.4% in 2019.~~2020.

A summary of loss ratios in ~~2020~~2021 compared with ~~2019~~2020 by business segment follows:

•Insurance - The loss ratio was 61.4% in 2021 and 64.4% in ~~2020 and 61.8% in 2019.~~2020. Catastrophe losses were $39 million in 2021 compared with $74 million in ~~2020 compared with $15~~2020. The Company reflected a best estimate (net of reinsurance) based upon available information for current accident year COVID-19-related losses of approximately $5 million, primarily related to contingency and event cancellation coverage. Adverse prior year reserve development was $3 million in ~~2019. The increase in catastrophe losses was attributable to heightened hurricanes, tropical storms~~2021 and ~~U.S. wild fires on the west coast. Favorable~~favorable prior year reserve development was $7 million in ~~2020 and $1 million in 2019.~~2020. The loss ratio excluding catastrophe losses and prior year reserve development decreased ~~0.9 points~~1.0 point to 59.0% in 2021 from 60.0% in ~~2020 from 60.9% in 2019.~~2020.

•Reinsurance & Monoline Excess - The loss ratio was 69.3% in 2021 and 59.1% in ~~2020 and 64.6% in 2019.~~2020. Catastrophe losses were $35 million in 2021 compared with ($1) million in ~~2020 compared with $16~~2020. The Company reflected a best estimate (net of reinsurance) based upon available information for current accident year COVID-19-related losses of approximately $1 million, primarily related to excess workers’ compensation. Favorable prior year reserve development was $5 million in ~~2019. The ($1) million was attributable to reclassified COVID-19 related IBNR to the Insurance segment. Adverse~~2021 and adverse prior year reserve development was $2 million in ~~2020 compared to favorable prior year reserve development of $3 million in 2019.~~2020. The loss ratio excluding catastrophe losses and prior year reserve development ~~increased 1.6~~decreased 0.8 points to 58.1% in 2021 from 58.9% in ~~2020 from 57.3% in 2019.~~2020.

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


($ in thousands)	($ in thousands)	2020		2019		($ in thousands)	2021		2020
Policy acquisition and insurance operating expenses	Policy acquisition and insurance operating expenses	$	523,349	$	528,399	Policy acquisition and insurance operating expenses	$	583,065	$	523,349
Insurance service expenses	Insurance service expenses	21,034		26,171		Insurance service expenses	21,243		21,034
Net foreign currency losses (gains)		5,078		(22,590)
Net foreign currency (gains) losses						Net foreign currency (gains) losses	(12,497)		5,078

Other costs and expenses	Other costs and expenses	44,508		49,065		Other costs and expenses	51,235		44,508
Total	Total	$	593,969	$	581,045	Total	$	643,046	$	593,969

Policy acquisition and insurance operating expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Policy acquisition and insurance operating expenses ~~decreased 1%~~increased 11% and net premiums earned increased 4%19% from ~~2019.~~2020. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 28.0% in 2021 and 30.0% in ~~2020 and 31.5% in 2019.~~2020. The improvement is primarily attributable to higher net premiums earned ~~and lower expenses mainly attributable to reduced travel and entertainment expenses due to the global pandemic.~~outpacing compensation expense growth. However, to the extent our net premiums earned decrease or travel and entertainment expenses increase, due to the impact of the COVID-19 pandemic or otherwise, our expense ratio would be expected to increase.

Service expenses, which represent the costs associated with the fee-based businesses, ~~decreased to~~were $21 million in ~~2020 from $26 million in 2019. The decrease is primarily due to a reduction of assigned risk plan business.~~

both 2021 and 2020.

Net foreign currency gains ~~(losses)~~ result from transactions denominated in a currency other than a company's operating functional currency. Net foreign currency gains was $12 million in 2021 compared to losses ~~were~~of $5 million in ~~2020 compared to net foreign currency~~2020. The gains ~~of $23 million~~ in ~~2019. The losses in 2020 mainly result from~~2021 were driven by the ~~weakening of the~~strengthening U.S. dollar against most major currencies in ~~relation to~~ the ~~U.K. sterling, partially offset by the U.S. dollar strengthening to the Argentine peso.~~third quarter of 2021.

Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs and expenses ~~decreased~~increased to $51 million in 2021 from $45 million in 2020, ~~from $49 million~~primarily due to the increase in ~~2019.~~performance-based compensation costs in 2021.

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 $115 million in 2021 compared to $85 million in ~~2020 compared to $102 million in 2019.~~2020. The ~~decrease~~increase mainly relates to ~~a reduction of~~ the business recovery from COVID-19 on aviation-related ~~businesses impacted by COVID-19 in 2020.~~and textile businesses.

Interest Expense. Interest expense was $35 million in 2021 and $40 million in 2020 compared with $38 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 2059.2020. In May 2020, the Company issued $300 million aggregate principal amount of 4.00% senior notes due 2050. In September 2020, the Company issued an additional $170 million aggregate principal amount of 4.00% senior notes due 2050 and ~~issued~~ $250 million aggregate principal amount of 4.25% subordinated debentures due 2060 and repaid $300 million aggregate principal amount of 5.375% senior notes at maturity. Accordingly, the timing of the debt repayments in 2019 and 2020 and issuances in 2019 and 2020 led to the increase in interest expense for the three months ended September 30, 2020 compared to 2019. However, these refinancings of our debt at lower interest rates are expected to reduce our interest expense. In October 2020, the Company redeemed $350 million aggregate principal amount of 5.625% subordinated debentures due ~~2053, which we expect will lead to a debt extinguishment charge~~2053. In February 2021, the Company issued $300 million aggregate principal amount of ~~pre-tax $8~~4.125% subordinated debenture due 2061. In March 2021, the Company issued $400 million aggregate principal amount of 3.55% senior notes due 2052 and redeemed its $110 million aggregate principal amount of 5.90% subordinated debentures due 2056. In June, 2021, the Company redeemed the $290 million aggregate principal amount of its 5.75% subordinated debentures due 2056. In September 2021, the Company issued $350 million aggregate principal amount of 3.15% senior notes due 2061. Additionally in the ~~fourth quarter.~~second quarter of 2021, the Company sold a real estate asset which resulted in a $102 million reduction of the Company's non-recourse debt that was supporting the property.

Income ~~Taxes~~Taxes.. The effective income tax rate was 19.6% in 2021 and 26.2% in ~~2020 and 18.6% in 2019.~~2020. The effective income tax rate

differs from the federal income tax rate of 21% principally because of tax-exempt investment income and tax benefits related to equity-based compensation, which was partially offset by state and foreign income taxes. The increased effective income tax rate for the three months ended September 30, 2020 was principally because the utilization of losses in certain foreign jurisdictions was ~~limited, which was partially offset by tax-exempt investment income and tax benefits related to equity-based compensation.~~limited.

4847

Investments

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

The Company also attempts to maintain an appropriate relationship between the average duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The average duration of the fixed maturity portfolio, including cash and cash equivalents, was 2.3 years at September 30, ~~2020 down from 2.8~~2021 and 2.4 years at December 31, ~~2019, as the Company repositioned a larger portion of its investment portfolio to cash and cash equivalents.~~2020. The Company’s fixed maturity investment portfolio and investment-related assets as of September 30, ~~2020~~2021 were as follows:


($ in thousands)	($ in thousands)	Carrying Value		Percent of Total		($ in thousands)	Carrying Value		Percent of Total
Fixed maturity securities:	Fixed maturity securities:					Fixed maturity securities:
U.S. government and government agencies	U.S. government and government agencies	$	697,432	3.3	%	U.S. government and government agencies	$	518,333	2.2	%
State and municipal:	State and municipal:					State and municipal:
Special revenue	Special revenue	2,305,308		11.0		Special revenue	2,110,271		9.1
State general obligation	State general obligation	429,652		2.1		State general obligation	447,320		1.9
Pre-refunded		285,224		1.4
Local general obligation						Local general obligation	431,522		1.9
Pre-refunded (1)						Pre-refunded (1)	230,840		1.0
Corporate backed	Corporate backed	232,600		1.1		Corporate backed	177,916		0.7
Local general obligation		438,272		2.1
Total state and municipal	Total state and municipal	3,691,056		17.7		Total state and municipal	3,397,869		14.6
Mortgage-backed securities:
Mortgage-backed:						Mortgage-backed:
Agency	Agency	613,680		2.9		Agency	681,798		2.9
Residential-Prime	Residential-Prime	260,362		1.2		Residential-Prime	159,826		0.7
Commercial	Commercial	206,025		1.0		Commercial	130,637		0.6
Residential-Alt A	Residential-Alt A	9,168		—		Residential-Alt A	6,326		—
Total mortgage-backed securities		1,089,235		5.2
Asset-backed securities		3,306,439		15.9
Total mortgage-backed						Total mortgage-backed	978,587		4.2
Asset-backed						Asset-backed	4,655,555		20.0
Corporate:	Corporate:					Corporate:
Industrial	Industrial	2,326,598		11.2		Industrial	3,132,362		13.5
Financial	Financial	1,524,636		7.3		Financial	1,699,840		7.3
Utilities	Utilities	355,619		1.7		Utilities	418,853		1.8
Other	Other	32,687		0.2		Other	173,009		0.7
Total corporate	Total corporate	4,239,540		20.3		Total corporate	5,424,064		23.3
Foreign government and foreign government agencies	Foreign government and foreign government agencies	869,344		4.2		Foreign government and foreign government agencies	1,098,727		4.7
Total fixed maturity securities	Total fixed maturity securities	13,893,046		66.6		Total fixed maturity securities	16,073,135		69.0
Equity securities:	Equity securities:					Equity securities:
Common stocks						Common stocks	609,939		2.6
Preferred stocks	Preferred stocks	274,445		1.3		Preferred stocks	208,799		0.9
Common stocks		160,858		0.8
Total equity securities	Total equity securities	435,303		2.1		Total equity securities	818,738		3.5
Cash and cash equivalents(2)	Cash and cash equivalents(2)	2,571,447		12.3		Cash and cash equivalents(2)	2,182,020		9.4
Real estate	Real estate	2,106,474		10.1		Real estate	1,842,400		7.9
Investment funds	Investment funds	1,163,707		5.6		Investment funds	1,400,140		6.0
Arbitrage trading account	Arbitrage trading account	595,727		2.9		Arbitrage trading account	860,339		3.7
Loans receivable	Loans receivable	84,771		0.4		Loans receivable	115,496		0.5
Total investments	Total investments	$	20,850,475	100.0	%	Total investments	$	23,292,268	100.0	%

~~________________________~~____________________

4948

(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.

(2) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.

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

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

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

Investment Funds. At September 30, ~~2020,~~2021, the carrying value of investment funds was ~~$1,164~~$1,401 million, including investments in financial services funds of $409 million, transportation funds of $341 million, real estate funds of ~~$312~~$263 million, ~~financial services~~other funds of ~~$352~~$238 million and energy funds of ~~$136 million, transportation funds of $144 million and other funds of $220~~$150 million. Investment funds are generally reported on a one-quarter lag.

Real Estate. Real estate is directly owned property held for investment. At September 30, ~~2020,~~2021, real estate properties in operation included a long-term ground lease in Washington D.C., ~~two~~an office ~~complexes~~complex in New York City, ~~office buildings in West Palm Beach and Palm Beach, Florida,~~ an office building in London, and the completed portion of a mixed-use project in Washington D.C. In addition, part of the previously mentioned mixed-use project in Washington D.C. is under development. The Company expects to fund further development costs for the project with a combination of its own funds and external financing.

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

Loans Receivable. Loans receivable, which are carried at amortized cost ~~net~~(net of allowance for expected credit ~~losses,~~losses), had an amortized cost of ~~$85~~$115 million and an aggregate fair value of ~~$87~~$117 million at September 30, ~~2020.~~2021. The amortized cost of loans receivable is net of an allowance for expected credit losses of $6$2 million as of September 30, ~~2020.~~2021. Loans receivable include real estate loans of ~~$52~~$89 million that are secured by commercial and residential real estate located primarily in New York. Real estate loans ~~receivable~~ generally earn interest at ~~floating LIBOR-based~~fixed or stepped interest rates and have maturities ~~(inclusive of extension options)~~ through ~~August 2025.~~2026. Loans receivable include commercial loans of ~~$33~~$26 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 2.3 years at September 30, ~~2020, down from 2.8~~2021 and 2.4 years at December 31, ~~2019.~~2020.

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.

5049

Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities increased to $1,524 million in the first nine months of 2021 from $1,137 million in the first nine months of 2020, ~~from $795 million in the first nine months of 2019,~~ primarily due to an increase in premium receipts, net of reinsurance and commissions settled, ~~and the timing of loss and loss expense payments as well as~~partially offset by an increase in tax ~~payments to tax authorities.~~payments.

The Company's insurance subsidiaries' principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company generally targets an average duration for its investment portfolio that is within 1.5 years of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed income securities are not sufficient to fund claim payments and other cash requirements, the remainder of the Company's cash and investments is available to pay claims and other obligations as they become due. The Company's investment portfolio is highly liquid, with approximately ~~79%~~78.2% invested in cash, cash equivalents and marketable fixed maturity securities as of September 30, ~~2020.~~2021. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized.

~~At September 30, 2020, the Company held more than $1.6 billion of cash and liquid investments at the holding company.~~

Debt. At September 30, ~~2020,~~2021, the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of ~~$3,073~~$3,266 million and a face amount of ~~$3,099~~$3,292 million, including $300 million aggregate principal amount of its ~~4.00% senior notes~~4.125% subordinated debentures due ~~2050~~2061 issued in ~~May 2020 as well as $170~~February 2021, $400 million aggregate principal amount of ~~4.00%~~its 3.55% senior notes due ~~2050~~2052 issued in March 2021 and ~~$250~~$350 million aggregate principal amount of ~~4.25%~~its 3.15% senior notes due 2061 issued in September 2021. The Company redeemed its $110 million aggregate principal amount of 5.90% subordinated debentures due ~~2060 issued~~2056 on March 1, 2021 and its $290 million aggregate principal amount of 5.75% subordinated debentures due 2056 on June 1, 2021. Additionally in ~~September 2020.~~the second quarter of 2021, the Company sold a real estate asset which resulted in a $102 million reduction of the Company's non-recourse debt that was supporting the property. The maturities of the outstanding debt are $4$5 million in 2021, $427 million in 2022, ~~$11~~$5 million in 2025, ~~$102 million in 2028,~~ $250 million in 2037, $350 million in 2044, $470 million in 2050, ~~$350 million in 2053 (which was redeemed in October 2020),~~ $400 million in ~~2056,~~2052, $185 million in 2058, $300 million in 2059, ~~and~~ $250 million in ~~2060.~~2060, and $650 million in 2061.

Equity. At September 30, ~~2020,~~2021, total common stockholders’ equity was ~~$6.0~~$6.6 billion, common shares outstanding were ~~178,217,537~~176,638,884 and stockholders’ equity per outstanding share was ~~$33.64.~~$37.64. During the three months ended September 30, ~~2020,~~2021, the Company repurchased ~~216,764~~1,287,556 shares of its common stock for ~~$13~~$93 million. During the nine months ended September 30, ~~2020,~~2021, the Company repurchased ~~5,820,867~~1,752,619 shares of its common stock for ~~$312~~$122 million. In the third quarter of 2021, the board of directors of the Company declared a regular quarterly cash dividend of $0.13 per share. 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 ~~$9.1~~$9.9 billion at September 30, ~~2020.~~2021. The percentage of the Company’s capital attributable to senior notes, subordinated debentures and other debt was ~~34%~~33% at September 30, ~~2020~~2021 and 30% at December 31, ~~2019.~~2020.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

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

Item 4. Controls and Procedures

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

Changes in Internal Control over Financial Reporting. During the quarter ended September 30, ~~2020,~~2021, 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.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, ~~2019, other than as updated by the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30,~~ 2020.

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 30, ~~2020,~~2021, 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
July 2020 — $ — — 7,493,920
August 2020 84,288 $ 60.133 84,288 7,409,632
September 2020 132,476 $ 59.548 132,476 7,277,156


	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 2021	50,985	$	73.02	50,985	6,218,674
August 2021	496,171	$	72.16	496,171	5,722,503
September 2021	740,400	$	71.73	740,400	4,982,103

Item 6. Exhibits


Number
(10.1)						Form of 2021 Performance Unit Award Agreement under the W. R. Berkley Corporation 2019 Long-Term Incentive Plan.




(~~10.1~~)						~~Form of 2020 Performance-Based Restricted Stock Unit Agreement Under the W. R. Berkley Corporation 2018 Stock Incentive Plan~~

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

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

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

5251

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 ~~5, 2020~~4, 2021	/s/ W. Robert Berkley, Jr.
		W. Robert Berkley, Jr.
		President and Chief Executive Officer

Date:	November ~~5, 2020~~4, 2021	/s/ Richard M. Baio
		Richard M. Baio
		Executive Vice President - Chief Financial Officer ~~and Treasurer~~

5352