UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

x

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

EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June~~September 30, 2011

¨

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934.

For the Transition Period fromto.

Commission File Number 1-15202

W. R. BERKLEY CORPORATION

(Exact name of registrant as specified in its charter)



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

475 Steamboat Road, Greenwich, Connecticut		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.~~



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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xþ No ¨o

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



Large accelerated filerþ	x		Accelerated filero	Non-accelerated filer o	¨ Smaller reporting company o

~~Non-accelerated filer~~	¨	(Do not check if a smaller reporting company)	~~Smaller reporting company~~		¨

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

Number of shares of common stock, $.20 par value, outstanding as of ~~July 29, 2011: 140,132,364~~

November 1, 2011: 137,102,059

Table of Contents

TABLE OF CONTENTS



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

Table of Contents

Part I –— FINANCIAL INFORMATION

~~Item 1. Financial Statements~~


Item 1.	Financial Statements

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

   June 30,
2011 December 31,
2010
   (Unaudited)
Assets

Investments:

Fixed maturity securities
   $ 11,279,509    $ 11,209,154
Equity securities available for sale
   511,052    561,053
Arbitrage trading account
   474,787    359,192
Investment in arbitrage funds
   59,728    60,660
Investment funds
   606,291    451,751
Loans receivable
   311,663    353,583
Real estate
   117,873    —


Total investments
   13,360,903    12,995,393


Cash and cash equivalents
   794,881    642,952
Premiums and fees receivable
   1,241,298    1,087,208
Due from reinsurers
   1,130,040    1,070,256
Accrued investment income
   139,994    138,384
Prepaid reinsurance premiums
   275,826    215,816
Deferred policy acquisition costs
   440,644    405,942
Real estate, furniture and equipment
   254,792    254,720
Deferred federal and foreign income taxes
   14,957    65,492
Goodwill
   90,581    90,581
Trading account receivables from brokers and clearing organizations
   242,720    339,235
Current federal and foreign income taxes
   15,630    23,605
Other assets
   192,858    198,963


Total assets
   $ 18,195,124    $ 17,528,547


Liabilities and Equity

Liabilities:

Reserves for losses and loss expenses
   $ 9,195,675    $ 9,016,549
Unearned premiums
   2,166,032    1,953,721
Due to reinsurers
   264,929    215,723
Trading account securities sold but not yet purchased
   68,255    53,494
Other liabilities
   835,529    836,001
Junior subordinated debentures
   242,893    242,784
Senior notes and other debt
   1,501,739    1,500,419


Total liabilities
   14,275,052    13,818,691


Equity:

Preferred stock, par value $.10 per share:

Authorized 5,000,000 shares; issued and outstanding - none
   —      —
Common stock, par value $.20 per share:

Authorized 500,000,000 shares, issued and outstanding, net of treasury shares, 140,911,472 and 141,009,834 shares
   47,024    47,024
Additional paid-in capital
   923,995    935,099
Retained earnings
   4,372,978    4,194,684
Accumulated other comprehensive income
   340,743    276,563
Treasury stock, at cost, 94,206,446 and 94,108,084 shares
   (1,771,933 ) (1,750,494 )


Total stockholders’ equity
   3,912,807    3,702,876
Noncontrolling interests
   7,265    6,980


Total equity
   3,920,072    3,709,856


Total liabilities and equity
   $ 18,195,124    $ 17,528,547



	September 30, 2011			December 31, 2010
	(Unaudited)
Assets
Investments:
Fixed maturity securities	$	11,230,770		$	11,209,154
Equity securities available for sale	438,465			561,053
Arbitrage trading account	327,883			359,192
Investment in arbitrage funds	56,606			60,660
Investment funds	610,513			451,751
Loans receivable	283,560			353,583
Real estate	346,015			—
Total investments	13,293,812			12,995,393
Cash and cash equivalents	866,130			642,952
Premiums and fees receivable	1,195,018			1,087,208
Due from reinsurers	1,187,344			1,070,256
Accrued investment income	133,940			138,384
Prepaid reinsurance premiums	275,479			215,816
Deferred policy acquisition costs	450,552			405,942
Real estate, furniture and equipment	263,689			254,720
Deferred federal and foreign income taxes	—			65,492
Goodwill	90,581			90,581
Trading account receivables from brokers and clearing organizations	380,887			339,235
Current federal and foreign income taxes	2,863			23,605
Other assets	190,526			198,963
Total assets	$	18,330,821		$	17,528,547
Liabilities and Equity
Liabilities:
Reserves for losses and loss expenses	$	9,261,584		$	9,016,549
Unearned premiums	2,214,954			1,953,721
Due to reinsurers	254,117			215,723
Trading account securities sold but not yet purchased	60,973			53,494
Other liabilities	924,667			836,001
Junior subordinated debentures	242,945			242,784
Senior notes and other debt	1,501,773			1,500,419
Total liabilities	14,461,013			13,818,691
Equity:
Preferred stock, par value $.10 per share:
Authorized 5,000,000 shares; issued and outstanding - none	—			—
Common stock, par value $.20 per share:
Authorized 500,000,000 shares, issued and outstanding, net of treasury shares, 137,082,096 and 141,009,834 shares	47,024			47,024
Additional paid-in capital	927,348			935,099
Retained earnings	4,439,287			4,194,684
Accumulated other comprehensive income	335,741			276,563
Treasury stock, at cost, 98,035,822 and 94,108,084 shares	(1,887,007		)	(1,750,494		)
Total stockholders’ equity	3,862,393			3,702,876
Noncontrolling interests	7,415			6,980
Total equity	3,869,808			3,709,856
Total liabilities and equity	$	18,330,821		$	17,528,547

See accompanying notes to interim consolidated financial statements.

Table of Contents

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

   2011 2010 2011 2010
REVENUES:

Net premiums written
   $ 1,057,415    $ 961,354    $ 2,140,718    $ 1,945,304
Change in net unearned premiums
   (40,171 ) (13,226 ) (140,977 ) (66,615 )


Net premiums earned
   1,017,244    948,128    1,999,741    1,878,689
Net investment income
   149,072    129,731    295,198    273,292
Insurance service fees
   25,035    20,390    47,208    41,875
Net investment gains (losses):

Net realized gains on investment sales
   23,290    11,534    52,574    20,028
Other-than-temporary impairments
   (400 ) —      (400 ) (2,582 )


Net investment gains
   22,890    11,534    52,174    17,446


Revenues from wholly-owned investees
   56,134    52,929    110,021    104,505
Other income
   574    356    958    808


Total revenues
   1,270,949    1,163,068    2,505,300    2,316,615


OPERATING COSTS AND EXPENSES:

Losses and loss expenses
   674,276    570,475    1,281,371    1,120,448
Other operating costs and expenses
   402,359    370,823    787,190    738,790
Expenses from wholly-owned investees
   55,855    49,934    109,671    98,908
Interest expense
   28,132    26,014    56,249    52,055


Total operating costs and expenses
   1,160,622    1,017,246    2,234,481    2,010,201


Income before income taxes
   110,327    145,822    270,819    306,414
Income tax expense
   (27,309 ) (35,598 ) (71,309 ) (77,409 )


Net income before noncontrolling interests
   83,018    110,224    199,510    229,005
Noncontrolling interests
   64    (17 ) 59    (188 )


Net income to common stockholders
   $ 83,082    $ 110,207    $ 199,569    $ 228,817


NET INCOME PER SHARE:

Basic
   $ 0.59    $ 0.73    $ 1.41    $ 1.50
Diluted
   $ 0.56    $ 0.70    $ 1.35    $ 1.44



	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
REVENUES:
Net premiums written	$	1,126,139		$	986,706		$	3,266,857		$	2,932,010
Change in net unearned premiums	(70,316		)	(19,409		)	(211,293		)	(86,024		)
Net premiums earned	1,055,823			967,297			3,055,564			2,845,986
Net investment income	114,063			119,143			409,261			392,435
Insurance service fees	22,279			22,175			69,487			64,050
Net investment gains (losses):
Net realized gains on investment sales	21,238			6,327			73,812			26,355
Other-than-temporary impairments	—			(1,123		)	(400		)	(3,705		)
Net investment gains	21,238			5,204			73,412			22,650
Revenues from wholly-owned investees	65,922			61,983			175,943			166,488
Other income	406			310			1,364			1,118
Total revenues	1,279,731			1,176,112			3,785,031			3,492,727
OPERATING COSTS AND EXPENSES:
Losses and loss expenses	683,980			597,907			1,965,351			1,718,355
Other operating costs and expenses	405,850			369,217			1,193,040			1,108,007
Expenses from wholly-owned investees	64,388			60,963			174,059			159,871
Interest expense	28,068			26,725			84,317			78,780
Total operating costs and expenses	1,182,286			1,054,812			3,416,767			3,065,013
Income before income taxes	97,445			121,300			368,264			427,714
Income tax expense	(20,176		)	(27,631		)	(91,485		)	(105,040		)
Net income before noncontrolling interests	77,269			93,669			276,779			322,674
Noncontrolling interests	39			(50		)	98			(238		)
Net income to common stockholders	$	77,308		$	93,619		$	276,877		$	322,436
NET INCOME PER SHARE:
Basic	$	0.56		$	0.64		$	1.97		$	2.14
Diluted	0.53			0.61			1.89			2.05

See accompanying notes to interim consolidated financial statements.

Table of Contents

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands)

   For the Six Months Ended June 30,
   2011 2010
COMMON STOCK:

Beginning and end of period
   $ 47,024    $ 47,024


ADDITIONAL PAID-IN CAPITAL:

Beginning of period
   $ 935,099    $ 926,359
Stock options exercised and restricted units issued, net of tax
   (23,936 ) (11,168 )
Restricted stock units expensed
   12,524    11,017
Stock issued to directors
   308    198


End of period
   $ 923,995    $ 926,406


RETAINED EARNINGS:

Beginning of period
   $ 4,194,684    $ 3,785,187
Net income to common stockholders
   199,569    228,817
Dividends
   (21,275 ) (19,638 )


End of period
   $ 4,372,978    $ 3,994,366


ACCUMULATED OTHER COMPREHENSIVE INCOME:

Unrealized investment gains (losses):

Beginning of period
   $ 334,747    $ 219,394
Unrealized gains on securities not other-than-temporarily impaired
   53,342    108,305
Unrealized gains (losses) on other-than-temporarily impaired securities
   (426 ) 974


End of period
   387,663    328,673


Currency translation adjustments:

Beginning of period
   (42,488 ) (40,371 )
Net change in period
   9,853    (17,220 )


End of period
   (32,635 ) (57,591 )


Net pension asset:

Beginning of period
   (15,696 ) (15,816 )
Net change in period
   1,411    1,120


End of period
   (14,285 ) (14,696 )


Total accumulated other comprehensive income
   $ 340,743    $ 256,386


TREASURY STOCK:

Beginning of period
   $ (1,750,494 ) $ (1,325,710 )
Stock exercised/vested
   37,156    15,058
Stock repurchased
   (59,159 ) (231,704 )
Stock issued to directors
   564    536


End of period
   $ (1,771,933 ) $ (1,541,820 )


NONCONTROLLING INTERESTS:

Beginning of period
   $ 6,980    $ 5,879
Contributions
   332    373
Net income (loss)
   (59 ) 188
Other comprehensive income, net of tax
   12    8


End of period
   $ 7,265    $ 6,448



	For the Nine Months Ended
	September 30,
	2011			2010
COMMON STOCK:
Beginning and end of period	$	47,024		$	47,024
ADDITIONAL PAID-IN CAPITAL:
Beginning of period	$	935,099		$	926,359
Stock options exercised and restricted units issued, net of tax	(26,914		)	(12,239		)
Restricted stock units expensed	18,855			18,772
Stock issued to directors	308			198
End of period	$	927,348		$	933,090
RETAINED EARNINGS:
Beginning of period	$	4,194,684		$	3,785,187
Net income to common stockholders	276,877			322,436
Dividends	(32,274		)	(29,826		)
End of period	$	4,439,287		$	4,077,797
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Unrealized investment gains (losses):
Beginning of period	$	334,747		$	219,394
Unrealized gains on securities not other-than-temporarily impaired	79,435			230,804
Unrealized gains (losses) on other-than-temporarily impaired securities	(1,271		)	437
End of period	412,911			450,635
Currency translation adjustments:
Beginning of period	(42,488		)	(40,371		)
Net change in period	(21,104		)	765
End of period	(63,592		)	(39,606		)
Net pension asset:
Beginning of period	(15,696		)	(15,816		)
Net change in period	2,118			1,681
End of period	(13,578		)	(14,135		)
Total accumulated other comprehensive income	$	335,741		$	396,894
TREASURY STOCK:
Beginning of period	$	(1,750,494	)	$	(1,325,710	)
Stock exercised/vested	40,571			17,054
Stock repurchased	(177,648		)	(319,293		)
Stock issued to directors	564			536
End of period	$	(1,887,007	)	$	(1,627,413	)
NONCONTROLLING INTERESTS:
Beginning of period	$	6,980		$	5,879
Contributions	522			581
Net income (loss)	(98		)	238
Other comprehensive income, net of tax	11			11
End of period	$	7,415		$	6,709

See accompanying notes to interim consolidated financial statements.

Table of Contents

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)

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

   2011 2010 2011 2010
Net income before noncontrolling interests
   $ 83,018    $ 110,224    $ 199,510    $ 229,005
Other comprehensive income:

Change in unrealized foreign exchange gains (losses)
   (1,007 ) (4,941 ) 9,853    (17,220 )
Unrealized holding gains on investment securities arising during the period, net of taxes
   92,271    76,667    86,054    120,579
Reclassification adjustment for net investment losses included in net income, net of taxes
   (14,336 ) (7,449 ) (33,126 ) (11,292 )
Change in unrecognized pension obligation, net of taxes
   707    561    1,411    1,120


Other comprehensive income
   77,635    64,838    64,192    93,187


Comprehensive income
   160,653    175,062    263,702    322,192
Comprehensive income (loss) to the noncontrolling interests
   (4 ) (19 ) 47    (196 )


Comprehensive income to common stockholders
   $ 160,649    $ 175,043    $ 263,749    $ 321,996



	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income before noncontrolling interests	$	77,269		$	93,669		$	276,779		$	322,674
Other comprehensive income (loss):
Change in unrealized foreign exchange gains (losses)	(30,957		)	17,985			(21,104		)	765
Unrealized holding gains on investment securities arising during the period, net of taxes	39,031			125,329			125,085			245,908
Reclassification adjustment for net investment losses included in net income, net of taxes	(13,784		)	(3,364		)	(46,910		)	(14,656		)
Change in unrecognized pension obligation, net of taxes	707			561			2,118			1,681
Other comprehensive income (loss)	(5,003		)	140,511			59,189			233,698
Comprehensive income	72,266			234,180			335,968			556,372
Comprehensive income (loss) to the noncontrolling interest	40			(53		)	87			(249		)
Comprehensive income to common stockholders	$	72,306		$	234,127		$	336,055		$	556,123

See accompanying notes to interim consolidated financial statements.

Table of Contents

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

For the Six Months
Ended June 30,

   2011 2010
CASH FROM OPERATING ACTIVITIES:

Net income to common stockholders
   $ 199,569    $ 228,817
Adjustments to reconcile net income to net cash from operating activities:

Net investment gains
   (52,174 ) (17,446 )
Depreciation and amortization
   33,179    42,468
Noncontrolling interests
   (59 ) 188
Investment funds
   (26,150 ) 22,197
Stock incentive plans
   13,026    12,367
Change in:

Securities trading account
   (115,595 ) (32,585 )
Investment in arbitrage funds
   932    24,856
Trading account receivables from brokers and clearing organizations
   96,515    126,867
Trading account securities sold but not yet purchased
   14,761    (95,049 )
Premiums and fees receivable
   (148,144 ) (69,028 )
Due from reinsurers
   (59,061 ) (41,365 )
Accrued investment income
   (1,307 ) (4,531 )
Prepaid reinsurance premiums
   (60,010 ) 10,697
Deferred policy acquisition costs
   (32,852 ) (19,793 )
Deferred income taxes
   21,839    14,195
Other assets
   11,205    (12,191 )
Reserves for losses and loss expenses
   163,604    5,748
Unearned premiums
   203,515    53,049
Due to reinsurers
   47,184    13,845
Other liabilities
   (93,585 ) (76,636 )


Cash from operating activities
   216,392    186,670


CASH FROM (USED IN) INVESTING ACTIVITIES:

Proceeds from sales, excluding trading account:

Fixed maturity securities
   707,598    1,016,514
Equity securities
   100,837    64,962
Return of capital from investment funds
   30,921    37,235
Proceeds from maturities and prepayments of fixed maturity securities
   774,127    628,898
Cost of purchases, excluding trading account:

Fixed maturity securities
   (1,419,857 ) (1,341,503 )
Equity securities
   (44,736 ) (31,262 )
Real estate
   (117,893 )
Contributions to investment funds
   (155,122 ) (60,675 )
Change in loans receivable
   43,700    6,161
Net additions to real estate, furniture and equipment
   (18,679 ) (20,307 )
Change in balances due to security brokers
   73,311    55,446
Payment for business purchased, net of cash acquired
   (8,579 ) —


Cash from (used in) investing activities
   (34,372 ) 355,469


CASH USED IN FINANCING ACTIVITIES:

Purchase of common treasury shares
   (59,159 ) (231,704 )
Cash dividends to common stockholders
   (21,273 ) (29,196 )
Bank deposits received
   22,779    9,715
Repayments to federal home loan bank
   (500 ) (7,500 )
Net proceeds from stock options exercised
   13,217    3,821
Debt proceeds (repayment)
   624    (10,775 )
Other, net
   356    (232 )


Cash used in financing activities
   (43,956 ) (265,871 )


Change in foreign exchange rates
   13,865    (10,235 )


Increase in cash and cash equivalents
   151,929    266,033
Cash and cash equivalents at beginning of year
   642,952    515,430


Cash and cash equivalents at end of period
   $ 794,881    $ 781,463



	For the Nine Months Ended
	September 30,
	2011			2010
CASH FROM OPERATING ACTIVITIES:
Net income to common stockholders	$	276,877		$	322,436
Adjustments to reconcile net income to net cash from operating activities:
Net investment gains	(73,412		)	(22,650		)
Depreciation and amortization	57,332			64,063
Noncontrolling interests	(98		)	238
Investment funds	(15,290		)	30,879
Stock incentive plans	19,727			20,357
Change in:
Securities trading account	31,309			(6,426		)
Investment in arbitrage funds	4,054			23,293
Trading account receivables from brokers and clearing organizations	(41,626		)	71,036
Trading account securities sold but not yet purchased	7,477			(78,009		)
Premiums and fees receivable	(111,411		)	(21,559		)
Due from reinsurers	(117,685		)	(44,694		)
Accrued investment income	4,265			(12,303		)
Prepaid reinsurance premiums	(59,663		)	16,780
Deferred policy acquisition costs	(45,531		)	(20,819		)
Deferred income taxes	27,137			19,655
Other assets	13,516			(19,716		)
Reserves for losses and loss expenses	250,393			7,371
Unearned premiums	264,681			72,580
Due to reinsurers	40,156			2,630
Other liabilities	(46,965		)	(34,425		)
Net cash from operating activities	485,243			390,717
CASH FROM INVESTING ACTIVITIES:
Proceeds from sales, excluding trading account:
Fixed maturity securities	1,129,377			1,264,497
Equity securities	112,760			79,344
Return of capital from investment funds	31,585			26,643
Proceeds from maturities and prepayments of fixed maturity securities	1,190,751			922,453
Cost of purchases, excluding trading account:
Fixed maturity securities	(2,118,556		)	(1,944,374		)
Equity securities	(49,932		)	(123,623		)
Real estate	(347,602		)	—
Contributions to investment funds	(180,122		)	(45,151		)
Change in loans receivable	71,803			22,251
Net additions to real estate, furniture and equipment	(37,405		)	(36,688		)
Change in balances due to security brokers	122,447			56,129
Payment for business purchased, net of cash acquired	(8,579		)	—
Net cash from investing activities	(83,473		)	221,481
CASH FROM FINANCING ACTIVITIES:
Purchase of common treasury shares	(177,648		)	(319,293		)
Net proceeds from issuance of debt	309			305,637
Cash dividends to common stockholders	(32,272		)	(30,947		)
Bank deposits received	16,858			8,649
Repayments to federal home loan bank	(600		)	(8,300		)
Net proceeds from stock options exercised	13,757			4,720
Repayment of debt	—			(165,160		)
Other, net	558			(236		)
Net cash from financing activities	(179,038		)	(204,930		)
Net impact on cash due to change in foreign exchange rates	446			(500		)
Net change in cash and cash equivalents	223,178			406,768
Cash and cash equivalents at beginning of year	642,952			515,430
Cash and cash equivalents at end of period	$	866,130		$	922,198

See accompanying notes to interim consolidated financial statements.

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W. R. Berkley Corporation and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS ~~(UNAUDITED)~~(UNAUDITED

)

(1) General

The accompanying unaudited consolidated financial statements of W. R. Berkley Corporation and its subsidiaries (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for annual financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly the Company’s financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements requires the use of management estimates. For further information related to a description of areas of judgment and estimates and other information necessary to understand the Company’s financial position and results of operations, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Reclassifications have been made in the 2010 financial statements as originally reported to conform to the presentation of the 2011 financial statements.

The income tax provision has been computed based on the Company’s estimated annual effective tax rate. The effective tax rate for the quarter differs from the federal income tax rate of 35% principally because of tax-exempt investment income.

Real estate held for investment purposes is initially recorded at the purchase price, which is generally fair value, and is subsequently reported at cost less accumulated depreciation. Buildings are depreciated on a straight-line basis over the estimated useful lives of the building. Rental income is recognized on a straight-line basis over the lease term and is reported, net of rental expenses, as net investment income. The carrying value of real estate is reviewed for impairment and an impairment loss is recognized if the estimated undiscounted cash flows from the use and disposition of the property are less than the carrying value of the property. Future minimum rental income expected on operating leases relating to real estate held for investment is ~~$1,343,366 in~~$350,964 for the remainder of 2011, ~~$1,421,405~~$1,421,405 in 2012, ~~$1,464,104~~$1,464,047 in 2013, ~~$1,507,969~~$1,507,969 in 2014, $ ~~$1,553,208~~1,553,208 in 2015 and ~~$340,365,393~~$340,365,393 thereafter.

In January 2011, the Company acquired an inactive insurance company for ~~$23~~$23 million in cash. The acquired company had cash and investments of ~~$21~~$21 million and no net loss reserves. Approximately $2$2 million of the purchase price was allocated to intangible assets.

Acquisition costs incurred in writing insurance and reinsurance business (primarily commissions and premium taxes) are deferred and amortized ratably over the terms of the related contracts. Ceding commissions received on reinsurance contracts are netted against acquisition costs and are recognized ratably over the life of the contract. Deferred policy acquisition costs are presented net of unearned ceding commissions. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income and, if not, are charged to expense. The recoverability of deferred policy acquisition costs is evaluated separately by each of our operating companies for each of their major lines of business. Future investment income is taken into account in measuring the recoverability of deferred policy acquisition costs.

Loans receivable represent commercial real estate mortgage loans and bank loans and are carried at amortized cost. The Company monitors the performance of its loans receivable and establishes an allowance for loan losses for loans where the Company determines it is probable that the contractual terms will not be met, with a corresponding charge to earnings. For loans that are evaluated individually and deemed to be impaired, the Company establishes a specific allowance based on a discounted cash flow analysis and comparable cost and sales methodologies, if appropriate. Individual loans that are not considered impaired and smaller-balance homogeneous loans are evaluated collectively and a general allowance is established if it is considered probable that a loss has been incurred.

The accrual of interest on loans receivable is discontinued if the loan is 90 days past due based on contractual terms of the loan, unless the loan is adequately secured and in process of collection. In general, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. Interest on these loans is accounted for on a cash-basis until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are ~~reasonable~~reasonably assured.

(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. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the period and is calculated using the

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treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation.

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

   For the Three Months
Ended June 30,    For the Six Months
Ended June 30,
   2011    2010    2011    2010
Basic
   141,637       151,215       141,408       152,324
Diluted
   147,677       157,461       147,614       158,539



	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2011	2010	2011	2010
Basic	138,816	147,079	140,535	150,556
Diluted	144,538	154,160	146,553	157,054

(3) Recent Accounting Pronouncements

In October 2010, the FASB issued guidance regarding the treatment of costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of the types of costs that can be capitalized and specifies that the costs must be directly related to the successful acquisition of a new or renewed insurance contract. This guidance is effective for periods beginning after December 15, 2011. The Company is evaluating the impact of the adoption of this guidance isand does not ~~expected~~expect it to have a material impact on the Company’s results of operations or financial position.

In April 2011, the FASB issued updated guidance to clarify whether a modification or restructuring of a receivable is considered a troubled debt ~~restructuring (“TDR”).~~restructuring. A modification or restructuring that is considered a troubled debt restructuring will ~~result in~~require the creditor ~~having~~ to account for the receivable as being impaired and will also ~~result in~~require additional disclosure of the creditors’ troubled debt restructuring activities. The updated guidance was effective July 1, 2011. The adoption of this guidance did not have a material impact on the Company’s results of operations or financial position.

In May 2011, the FASB issued updated guidance that changes the wording used to describe the requirements in U.S. GAAP for measuring fair value and disclosing information about fair value measurements to improve consistency in the application and description of fair value between GAAP and International Financial Reporting Standards (“IFRS”). The updated guidance does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it already is required or permitted under IFRS or U.S. GAAP. This guidance is effective prospectively for ~~the first~~ interim ~~period~~and annual periods beginning ~~on or~~ after ~~June~~December 15, 2011 with early adoption permitted. For purposes of TDR disclosures, this ASU applies retrospectively to restructurings occurring on or after the beginning of the annual period of adoption. However, any changes in the method used to measure impairment apply prospectively.2011. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or current financial position.

In June 2011, the FASB issued updated guidance to increase the prominence of items reported in other comprehensive income by eliminating the option of presenting components of comprehensive income as part of the statement of changes in stockholders' equity. The updated guidance requires that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is to be applied retrospectively and is effective for interim and annual periods beginning after December 15, 2011. This guidance will not result in a change in the presentation of the Company’s financial statements and will not have any impact on the Company’s results of operations or current financial position.

In September 2011, the FASB issued updated guidance that modifies the manner in which the two-step impairment test of goodwill is applied. Under the updated guidance, an entity may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if the entity concludes otherwise, then it is required to perform the quantitative impairment test. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or current financial position.

(4) Statements of Cash Flow

Interest payments were ~~$56,171,000~~$100,840,000 and ~~$51,347,000~~$92,531,000 and income taxes paid were ~~$37,516,000~~$42,797,000 and ~~$94,389,000~~$80,113,000 in the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, respectively.

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(5) Investments in Fixed Maturity Securities

At ~~June~~September 30, 2011 and December 31, 2010, investments in fixed maturity securities were as follows:

(Dollars in thousands)
   Amortized
Cost    Gross Unrealized Fair
Value    Carrying
Value
      Gains    Losses
June 30, 2011

Held to maturity:

State and municipal
   $ 74,086       $ 6,272       $ —      $ 80,358       $ 74,086
Residential mortgage-backed
   37,151       5,577       —      42,728       37,151
Corporate
   4,995       728       —      5,723       4,995








Total held to maturity
   116,232       12,577       —      128,809       116,232








Available for sale:

U.S. government and government agency
   1,115,586       62,294       (591 ) 1,177,289       1,177,289
State and municipal
   5,178,823       233,040       (25,249 ) 5,386,614       5,386,614
Mortgage-backed securities:

Residential (1)
   1,339,725       56,022       (12,258 ) 1,383,489       1,383,489
Commercial
   54,076       2,208       (186 ) 56,098       56,098
Corporate
   2,524,002       109,208       (23,925 ) 2,609,285       2,609,285
Foreign
   521,681       29,102       (281 ) 550,502       550,502








Total available for sale
   10,733,893       491,874       (62,490 ) 11,163,277       11,163,277








Total investments in fixed maturity securities
   $ 10,850,125       $ 504,451       $ (62,490 ) $ 11,292,086       $ 11,279,509








December 31, 2010

Held to maturity:

State and municipal
   $ 71,998       $ 3,440       $ (1,129 ) $ 74,309       $ 71,998
Residential mortgage-backed
   39,002       3,667       —      42,669       39,002
Corporate
   4,995       185       —      5,180       4,995








Total held to maturity
   115,995       7,292       (1,129 ) 122,158       115,995








Available for sale:

U.S. government and government agency
   1,289,669       58,658       (452 ) 1,347,875       1,347,875
State and municipal
   5,302,513       203,221       (44,288 ) 5,461,446       5,461,446
Mortgage-backed securities:

Residential (1)
   1,319,289       52,165       (13,278 ) 1,358,176       1,358,176
Commercial
   57,057       2,207       (5,594 ) 53,670       53,670
Corporate
   2,307,987       102,306       (30,031 ) 2,380,262       2,380,262
Foreign
   460,683       31,283       (236 ) 491,730       491,730








Total available for sale
   10,737,198       449,840       (93,879 ) 11,093,159       11,093,159








Total investments in fixed maturity securities
   $ 10,853,193       $ 457,132       $ (95,008 ) $ 11,215,317       $ 11,209,154



(Dollars in thousands)	Amortized Cost		Gross Unrealized					Fair Value		Carrying Value
			Gains		Losses
September 30, 2011
Held to maturity:
State and municipal	$	73,282	$	10,920	$	—		$	84,202	$	73,282
Residential mortgage-backed	36,500		6,061		—			42,561		36,500
Corporate	4,996		746		—			5,742		4,996
Total held to maturity	114,778		17,727		—			132,505		114,778
Available for sale:
U.S. government and government agency	995,463		78,618		(344		)	1,073,737		1,073,737
State and municipal	5,019,033		286,782		(19,277		)	5,286,538		5,286,538
Mortgage-backed securities:
Residential (1)	1,383,414		77,663		(14,067		)	1,447,010		1,447,010
Commercial	53,966		2,791		(1,480		)	55,277		55,277
Corporate	2,613,879		136,728		(35,156		)	2,715,451		2,715,451
Foreign	512,708		27,520		(2,249		)	537,979		537,979
Total available for sale	10,578,463		610,102		(72,573		)	11,115,992		11,115,992
Total investments in fixed maturity securities	$	10,693,241	$	627,829	$	(72,573	)	$	11,248,497	$	11,230,770
December 31, 2010
Held to maturity:
State and municipal	$	71,998	$	3,440	$	(1,129	)	$	74,309	$	71,998
Residential mortgage-backed	39,002		3,667		—			42,669		39,002
Corporate	4,995		185		—			5,180		4,995
Total held to maturity	115,995		7,292		(1,129		)	122,158		115,995
Available for sale:
U.S. government and government agency	1,289,669		58,658		(452		)	1,347,875		1,347,875
State and municipal	5,302,513		203,221		(44,288		)	5,461,446		5,461,446
Mortgage-backed securities:
Residential (1)	1,319,289		52,165		(13,278		)	1,358,176		1,358,176
Commercial	57,057		2,207		(5,594		)	53,670		53,670
Corporate	2,307,987		102,306		(30,031		)	2,380,262		2,380,262
Foreign	460,683		31,283		(236		)	491,730		491,730
Total available for sale	10,737,198		449,840		(93,879		)	11,093,159		11,093,159
Total investments in fixed maturity securities	$	10,853,193	$	457,132	$	(95,008	)	$	11,215,317	$	11,209,154

___________


(1)	Gross unrealized losses for residential mortgage-backed securities include ~~$4,720,000~~$6,020,000 and ~~$4,064,000~~$4,064,000 as of ~~June~~September 30, 2011 and December 31, 2010, respectively, related to the non-credit portion of other-than-temporary impairments (“OTTI”) recognized in other comprehensive income.

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The amortized cost and fair value of fixed maturity securities at ~~June~~September 30, 2011, 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:

(Dollars in thousands)
   Amortized
Cost    Fair Value
Due in one year or less
   $ 730,457       $ 741,743
Due after one year through five years
   3,144,418       3,295,379
Due after five years through ten years
   2,750,416       2,911,151
Due after ten years
   2,793,882       2,861,498
Mortgage-backed securities
   1,430,952       1,482,315




Total
   $ 10,850,125       $ 11,292,086



(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	707,725	$	718,688
Due after one year through five years	3,220,365		3,373,391
Due after five years through ten years	2,552,147		2,748,995
Due after ten years	2,739,124		2,862,575
Mortgage-backed securities	1,473,880		1,544,848
Total	$	10,693,241	$	11,248,497

At ~~June~~September 30, 2011, there were no investments, other than investments in United States government and government agency securities, which exceeded 10% of common stockholders’ equity.

(6) Investments in Equity Securities Available for Sale

At ~~June~~September 30, 2011 and December 31, 2010, investments in equity securities available for sale were as follows:

(Dollars in thousands)
   Cost    Gross Unrealized Fair
Value    Carrying
Value
      Gains    Losses
June 30, 2011

Common stocks
   $ 202,928       $ 147,115       $ (1,784 ) $ 348,259       $ 348,259
Preferred stocks
   145,205       24,747       (7,159 ) 162,793       162,793








Total
   $ 348,133       $ 171,862       $ (8,943 ) $ 511,052       $ 511,052








December 31, 2010

Common stocks
   $ 188,949       $ 128,096       $ (989 ) $ 316,056       $ 316,056
Preferred stocks
   215,286       40,386       (10,675 ) 244,997       244,997








Total
   $ 404,235       $ 168,482       $ (11,664 ) $ 561,053       $ 561,053



(Dollars in thousands)	Cost		Gross Unrealized					Fair Value		Carrying Value
(Dollars in thousands)	Cost		Gains		Losses			Fair Value		Carrying Value
September 30, 2011
Common stocks	$	203,435	$	119,804	$	(12,301	)	$	310,938	$	310,938
Preferred stocks	137,972		4,605		(15,050		)	127,527		127,527
Total	$	341,407	$	124,409	$	(27,351	)	$	438,465	$	438,465
December 31, 2010
Common stocks	$	188,949	$	128,096	$	(989	)	$	316,056	$	316,056
Preferred stocks	215,286		40,386		(10,675		)	244,997		244,997
Total	$	404,235	$	168,482	$	(11,664	)	$	561,053	$	561,053

(7) Arbitrage Trading Account and Arbitrage Funds

The fair value and carrying value of the arbitrage trading account and arbitrage funds and related assets and liabilities were as follows:

(Dollars in thousands)
   June 30,
2011 December 31,
2010
Arbitrage trading account
   $ 474,787    $ 359,192
Investment in arbitrage funds
   59,728    60,660
Related assets and liabilities:

Receivables from brokers
   242,720    339,235
Securities sold but not yet purchased
   (68,255 ) (53,494 )



(Dollars in thousands)	September 30, 2011			December 31, 2010
Arbitrage trading account	$	327,883		$	359,192
Investment in arbitrage funds	56,606			60,660
Related assets and liabilities:
Receivables from brokers	380,887			339,235
Securities sold but not yet purchased	(60,973		)	(53,494		)

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(8) Net Investment Income

Net investment income consists of the following:

   For the Three Months
Ended June 30, For the Six Months
Ended June 30,
(Dollars in thousands)
   2011 2010 2011 2010
Investment income earned on:

Fixed maturity securities, including cash
   $ 125,344    $ 125,649    $ 247,457    $ 250,758
Equity securities available for sale
   3,485    2,628    6,749    5,993
Investment funds
   17,028    1,540    31,535    6,258
Arbitrage trading account
   4,301    1,131    11,396    12,354


Gross investment income
   150,158    130,948    297,137    275,363
Investment expense
   (1,086 ) (1,217 ) (1,939 ) (2,071 )


Net investment income
   $ 149,072    $ 129,731    $ 295,198    $ 273,292



	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2011			2010			2011			2010
Investment income earned on:
Fixed maturity securities, including cash and cash equivalents, loans receivable and real estate	$	123,100		$	122,617		$	370,557		$	373,375
Equity securities available for sale	2,795			2,723			9,544			8,716
Investment funds	(7,699		)	(19,044		)	23,836			(12,786		)
Arbitrage trading account and funds	(3,467		)	13,651			7,929			26,005
Gross investment income	114,729			119,947			411,866			395,310

Investment expense	(666		)	(804		)	(2,605		)	(2,875		)
Net investment income	$	114,063		$	119,143		$	409,261		$	392,435

(9) Loans Receivable

~~The amortized cost of loans~~

Loans receivable was $312 million and $354 million at June 30, 2011 and December 31, 2010, respectively. Amortized cost is net of a valuation allowance of $20 million for the stated periods. The eight largest loans have an aggregate amortized cost of $233 million and an aggregate fair value of $205 million and are secured by commercial real estate. These loans earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) between August 2011 and June 2014. The loans are secured by office buildings (90%) and hotels (10%), with properties located primarilyas follows (dollars in ~~New York City, California, Hawaii, Boston and Philadelphia.~~

thousands):



	September 30, 2011			December 31, 2010
Loans receivable, at cost	$	283,560		$	353,583
Loans receivable in nonaccrual status, at cost	4,079			4,985
Loans receivable with a specific valuation allowance, at cost	29,268			31,855
Specific valuation allowance	18,797			18,865

Three months ended September 30,	2011			2010
Decrease in valuation allowance	$	(9	)	$	—
Loans receivable charged off	9			—

Nine months ended September 30,	2011			2010
Increase in valuation allowance	$	541		$	6,090
Loans receivable charged off	9			—

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

Interest on loans that are 90 days past due is discontinued.

The Company's seven largest loans receivable, which have an aggregate amortized cost of $208 million and an aggregate fair value of $188 million at September 30, 2011, are secured by commercial real estate located primarily in New York City, California, Hawaii and Boston. These loans earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through March 2016. As part of the evaluation process, the Company reviews certain credit quality indicators for these loans. The primary credit quality indicator is the debt service coverage ratio, which compares a property's net operating income to the borrower's principal and interest payments on the Company's loan and senior loans, if any. At September 30, 2011, the debt service coverage ratio for each of these loans was 1.5 times or greater.

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(10) Realized and Unrealized Investment Gains

(Losses)

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

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

(Dollars in thousands)
   2011 2010 2011 2010
Realized investment gains:

Fixed maturity securities:

Gains
   $ 8,957    $ 12,342    $ 14,837    $ 21,850
Losses
   (1,016 ) (2,165 ) (2,509 ) (3,258 )
Equity securities available for sale
   14,289    637    38,221    791
Other
   —      224    —      224
Sales of investment funds
   1,060    496    2,025    421
Provision for OTTI
   (400 ) —      (400 ) (2,582 )
Less investment impairments recognized in other comprehensive income
   —      —      —      —


Total net investment gains before income taxes
   22,890    11,534    52,174    17,446
Income tax expense
   (8,554 ) (4,085 ) (19,048 ) (6,154 )


Total net investment gains
   $ 14,336    $ 7,449    $ 33,126    $ 11,292


Change in unrealized gains (losses) of available for sale securities:

Fixed maturity securities
   $ 101,205    $ 124,287    $ 71,918    $ 178,322
Less non-credit portion of OTTI recognized in other comprehensive income
   (900 ) 789    (656 ) 1,499
Equity securities available for sale
   18,486    (15,538 ) 6,101    (12,270 )
Investment funds
   816    (3,358 ) 4,190    299


Total change in unrealized gains (losses) before income taxes and noncontrolling interests
   119,607    106,180    81,553    167,850
Income tax (expense) benefit
   (41,672 ) (36,962 ) (28,625 ) (58,563 )
Noncontrolling interests
   (68 ) (2 ) (12 ) (8 )


Total change in unrealized gains
   $ 77,867    $ 69,216    $ 52,916    $ 109,279



	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2011			2010			2011			2010
Realized investment gains:
Fixed maturity securities:
Gains	$	10,212		$	5,669		$	25,049		$	27,519
Losses	(2,207		)	(2,956		)	(4,716		)	(6,214		)
Equity securities available for sale	12,318			2,974			50,539			3,765
Other	—			—			—			224
Sales of investment funds	915			640			2,940			1,061
Provision for OTTI	—			(1,123		)	(400		)	(3,705		)
Less investment impairments recognized in other comprehensive income	—			—			—			—
Total net investment gains before income taxes	21,238			5,204			73,412			22,650
Income tax expense	(7,454		)	(1,840		)	(26,502		)	(7,994		)
Total net investment gains	$	13,784		$	3,364		$	46,910		$	14,656



Change in unrealized gains (losses) of available for sale securities:
Fixed maturity securities	$	115,933		$	163,180		$	187,851		$	341,502
Less non-credit portion of OTTI recognized in other comprehensive income	(1,300		)	(826		)	(1,956		)	673
Equity securities available for sale	(65,861		)	23,570			(59,760		)	11,300
Investment funds	(9,257		)	1,707			(5,067		)	2,006
Total change in unrealized gains (losses) before income taxes and noncontrolling interests	39,515			187,631			121,068			355,481
Income tax expense	(14,268		)	(65,666		)	(42,893		)	(124,229		)
Noncontrolling interests	1			(3		)	(11		)	(11		)
Total change in unrealized gains	$	25,248		$	121,962		$	78,164		$	231,241

Table of Contents

(11) Securities in an Unrealized Loss Position

The following table summarizes all securities in an unrealized loss position at ~~June~~September 30, 2011 and December 31, 2010 by the length of time those securities have been continuously in an unrealized loss position:

      Less Than 12 Months    12 Months or Greater    Total
(Dollars in thousands)
   Fair Value    Gross
Unrealized
Losses    Fair Value    Gross
Unrealized
Losses    Fair Value    Gross
Unrealized
Losses
June 30, 2011

U.S. government and agency
   $ 41,724       $ 584       $ 6,804       $ 7       $ 48,528       $ 591
State and municipal
   518,152       9,036       175,520       16,213       693,672       25,249
Mortgage-backed securities
   158,616       3,174       105,793       9,270       264,409       12,444
Corporate
   386,850       5,804       124,011       18,121       510,861       23,925
Foreign
   18,354       281       —         —         18,354       281

Fixed maturity securities
   1,123,696       18,879       412,128       43,611       1,535,824       62,490
Common stocks
   33,219       1,784       —         —         33,219       1,784
Preferred stocks
   12,585       415       57,885       6,744       70,470       7,159

Equity securities
   45,804       2,199       57,885       6,744       103,689       8,943

Total
   $ 1,169,500       $ 21,078       $ 470,013       $ 50,355       $ 1,639,513       $ 71,433

December 31, 2010

U.S. government and agency
   $ 60,228       $ 420       $ 6,973       $ 32       $ 67,201       $ 452
State and municipal
   951,119       26,577       156,617       18,840       1,107,736       45,417
Mortgage-backed securities
   116,194       2,809       174,163       16,063       290,357       18,872
Corporate
   409,604       7,233       155,259       22,798       564,863       30,031
Foreign
   43,514       236       —         —         43,514       236

Fixed maturity securities
   1,580,659       37,275       493,012       57,733       2,073,671       95,008
Common stocks
   58,979       989       —         —         58,979       989
Preferred stocks
   27,010       2,368       76,890       8,307       103,900       10,675

Equity securities
   85,989       3,357       76,890       8,307       162,879       11,664

Total
   $ 1,666,648       $ 40,632       $ 569,902       $ 66,040       $ 2,236,550       $ 106,672



	Less Than 12 Months				12 Months or Greater				Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2011
U.S. government and agency	$	19,422	$	262	$	5,108	$	82	$	24,530	$	344
State and municipal	195,770		2,279		218,058		16,998		413,828		19,277
Mortgage-backed securities	96,672		2,343		94,319		13,204		190,991		15,547
Corporate	573,666		11,944		122,770		23,212		696,436		35,156
Foreign	61,939		2,249		—		—		61,939		2,249
Fixed maturity securities	947,469		19,077		440,255		53,496		1,387,724		72,573
Common stocks	87,614		12,301		—		—		87,614		12,301
Preferred stocks	13,339		855		45,859		14,195		59,198		15,050
Equity securities	100,953		13,156		45,859		14,195		146,812		27,351
Total	$	1,048,422	$	32,233	$	486,114	$	67,691	$	1,534,536	$	99,924

December 31, 2010
U.S. government and agency	$	60,228	$	420	$	6,973	$	32	$	67,201	$	452
State and municipal	951,119		26,577		156,617		18,840		1,107,736		45,417
Mortgage-backed securities	116,194		2,809		174,163		16,063		290,357		18,872
Corporate	409,604		7,233		155,259		22,798		564,863		30,031
Foreign	43,514		236		—		—		43,514		236
Fixed maturity securities	1,580,659		37,275		493,012		57,733		2,073,671		95,008
Common stocks	58,979		989		—		—		58,979		989
Preferred stocks	27,010		2,368		76,890		8,307		103,900		10,675
Equity securities	85,989		3,357		76,890		8,307		162,879		11,664
Total	$	1,666,648	$	40,632	$	569,902	$	66,040	$	2,236,550	$	106,672

Fixed Maturity Securities – A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at ~~June~~September 30, 2011 is presented in the table below. ~~There were no securities with an unrealized loss greater than $5 million at~~



(Dollars in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Unrealized loss less than $5 million:
Mortgage-backed securities	14	$	104,165	$	6,369
Corporate	15	65,293		3,537
State and municipal	4	31,736		4,830
Foreign	4	8,953		165
Unrealized loss $5 million or more:
Mortgage-backed securitiy (1)	1	17,365		5,549
Total	38	$	227,512	$	20,450

_______________

(1) This investment is a residential mortgage-backed security that ~~date.~~was evaluated based on the performance of the underlying collateral under various economic and default scenarios. The security has met its contractual obligations and the

(Dollars in thousands)
   Number of
Securities    Aggregate
Fair Value    Gross
Unrealized
Loss
Mortgage-backed securities
   16       $ 119,296       $ 8,370
Corporate
   10       73,135       3,778
State and municipal
   4       37,552       3,590

Total
   30       $ 229,983       $ 15,738

Company expects that it will continue to meet those contractual payment obligations as they become due. Based on this evaluation, the Company does not consider the investment to be OTTI.

Table of Contents

For OTTI of fixed maturity securities that management does not intend to sell or, more likely than not, would not be required to sell, the portion of the decline in value considered to be due to credit factors is recognized in earnings and the portion of the decline in value considered to be due to non-credit factors is recognized in other comprehensive income. The table below provides a roll-forward of the portion of impairments recognized in earnings for those securities that have been impaired due to both credit factors and non-credit factors.

   For the Three
Months Ended
June 30,    For the Six
Months Ended
June 30,
(Dollars in thousands)
   2011    2010    2011    2010
Beginning balance of amounts related to credit losses
   $ 4,261       $ 5,661       $ 4,261       $ 5,661
Additions for amounts related to credit losses
   —         —         —         —








Ending balance of amounts related to credit losses
   $ 4,261       $ 5,661       $ 4,261       $ 5,661



	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2011		2010		2011		2010
Beginning balance of amounts related to credit losses	$	4,261	$	5,661	$	4,261	$	5,661
Additions for amounts related to credit losses	—		—		—		—
Ending balance of amounts related to credit losses	$	4,261	$	5,661	$	4,261	$	5,661

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

Preferred Stocks – At ~~June~~September 30, 2011, there were ~~five~~six preferred stocks in an unrealized loss position, with an aggregate fair value of ~~$70~~$59 million and a gross unrealized loss of ~~$7 million. One~~$15 million. Three of those preferred stocks with an aggregate fair value of ~~$12~~$13 million and a gross unrealized loss of $2$5 million is were rated non-investment grade. Based upon management’s view of the underlying value of these securities, the Company does not consider any of the preferred stocks to be OTTI.

Common Stocks– At ~~June~~September 30, 2011, the Company owned ~~four~~eleven common stocks in an unrealized loss position with an aggregate fair value of ~~$33~~$88 million and an aggregate unrealized loss of ~~$2 million.~~$12 million. The Company does not consider these common stocks to be OTTI.

Loans Receivable – The Company monitors the performance of its loans receivable, including current market conditions for each loan and the ability to collect principal and interest. For loans where the Company determines it is probable that the contractual terms will not be met, an analysis is performed and a valuation reserve is established, if necessary, with a charge to ~~net investment losses.~~earnings. (See note 9, Loans ~~receivable are reported net of a valuation reserve of $20 million at June 30, 2011 and December 31, 2010.~~Receivable).

(12)Fair Value Measurements

The Company’s fixed maturity and equity securities available for sale and its 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.

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, 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 projections, credit quality and business developments of the issuer and other relevant information.

Table of Contents

The following tables present the assets and liabilities measured at fair value, on a recurring basis, as of ~~June~~September 30, 2011 and December 31, 2010 by level:

(Dollars in thousands)
   Total    Level 1    Level 2    Level 3
June 30, 2011

Assets:

Fixed maturity securities available for sale:

U.S. government and agency
   $ 1,177,289       $ —         $ 1,177,289       $ —
State and municipal
   5,386,614       —         5,386,614       —
Mortgage-backed securities
   1,439,587       —         1,439,587       —
Corporate
   2,609,285       —         2,534,716       74,569
Foreign
   550,502       —         550,502       —








Total fixed maturity securities available for sale
   11,163,277       —         11,088,708       74,569








Equity securities available for sale:

Common stocks
   348,259       290,956       55,744       1,559
Preferred stocks
   162,793       —         136,594       26,199








Total equity securities available for sale
   511,052       290,956       192,338       27,758








Arbitrage trading account
   474,787       231,120       242,569       1,098








Total
   $ 12,149,116       $ 522,076       $ 11,523,615       $ 103,425








Liabilities:

Securities sold but not yet purchased
   $ 68,255       $ 48,759       $ 19,495       $ 1








December 31, 2010

Assets:

Fixed maturity securities available for sale:

U.S. government and agency
   $ 1,347,875       $ —         $ 1,347,875       $ —
State and municipal
   5,461,446       —         5,461,446       —
Mortgage-backed securities
   1,411,846       —         1,411,846       —
Corporate
   2,380,262       —         2,292,199       88,063
Foreign
   491,730       —         491,730       —








Total fixed maturity securities available for sale
   11,093,159       —         11,005,096       88,063








Equity securities available for sale:

Common stocks
   316,056       204,749       109,748       1,559
Preferred stocks
   244,997       —         155,551       89,446








Total equity securities available for sale
   561,053       204,749       265,299       91,005








Arbitrage trading account
   359,192       162,292       193,713       3,187








Total
   $ 12,013,404       $ 367,041       $ 11,464,108       $ 182,255








Liabilities:

Securities sold but not yet purchased
   $ 53,494       $ 51,672       $ 1,822       $ —



(Dollars in thousands)	Total		Level 1		Level 2		Level 3
September 30, 2011
Assets:
Fixed maturity securities available for sale:
U.S. government and agency	$	1,073,737	$	—	$	1,073,737	$	—
State and municipal	5,286,538		—		5,286,538		—
Mortgage-backed securities	1,502,287		—		1,502,287		—
Corporate	2,715,451		—		2,640,447		75,004
Foreign	537,979		—		537,979		—
Total fixed maturity securities available for sale	11,115,992		—		11,040,988		75,004
Equity securities available for sale:
Common stocks	310,938		253,396		55,983		1,559
Preferred stocks	127,527		—		109,437		18,090
Total equity securities available for sale	438,465		253,396		165,420		19,649
Arbitrage trading account	327,883		133,939		192,927		1,017
Total	$	11,882,340	$	387,335	$	11,399,335	$	95,670
Liabilities:
Securities sold but not yet purchased	$	60,973	$	60,941	$	12	$	20
December 31, 2010
Assets:
Fixed maturity securities available for sale:
U.S. government and agency	$	1,347,875	$	—	$	1,347,875	$	—
State and municipal	5,461,446		—		5,461,446		—
Mortgage-backed securities	1,411,846		—		1,411,846		—
Corporate	2,380,262		—		2,292,199		88,063
Foreign	491,730		—		491,730		—
Total fixed maturity securities available for sale	11,093,159		—		11,005,096		88,063
Equity securities available for sale:
Common stocks	316,056		204,749		109,748		1,559
Preferred stocks	244,997		—		155,551		89,446
Total equity securities available for sale	561,053		204,749		265,299		91,005
Arbitrage trading account	359,192		162,292		193,713		3,187
Total	$	12,013,404	$	367,041	$	11,464,108	$	182,255
Liabilities:
Securities sold but not yet purchased	$	53,494	$	51,672	$	1,822	$	—

There were no significant transfers between Levels 1 and 2 during the three or ~~six~~nine months ended ~~June~~September 30, 2011, or during the year ended December 31, ~~2010.~~

2010.

Table of Contents

The following tables summarize changes in Level 3 assets for the ~~six~~nine months ended ~~June~~September 30, 2011 and for the year ended December 31, ~~2010:~~

         Gains (Losses) Included in
(Dollars in thousands)
   Beginning
Balance    Earnings Other
Comprehensive
Income Purchases    (Sales) Maturities Transfer out Ending
Balance
For the six months ended June 30, 2011

Fixed maturity securities available for sale:

Corporate
   $ 88,063       $ (41 ) $ 1,255    $ 180       $ (952 ) $ (13,936 ) $ —      $ 74,569






Total
   88,063       (41 ) 1,255    180       (952 ) (13,936 ) —      74,569






Equity securities available for sale:

Common stocks
   1,559       —      —      —         —      —      —      1,559
Preferred stocks
   89,446       26,165    (23,917 ) —         (65,495 ) —      —      26,199






Total
   91,005       26,165    (23,917 ) —         (65,495 ) —      —      27,758






Arbitrage trading account
   3,187       850    —      267       (3,206 ) —      —      1,098






Total
   $ 182,255       $ 26,974    $ (22,662 ) $ 447       $ (69,653 ) $ (13,936 ) $ —      $ 103,425






For the year ended December 31, 2010

Fixed maturity securities available for sale:

Mortgage-backed securities
   $ 25,900       $ —      $ —      $ —         $ —      $ —      $ (25,900 ) $ —
Corporate
   90,160       (850 ) 1,558    19,632       (5,324 ) (17,113 ) —      88,063






Total
   116,060       (850 ) 1,558    19,632       (5,324 ) (17,113 ) (25,900 ) 88,063






Equity securities available for sale:

Common stocks
   1,559       —      —      —         —      —      —      1,559
Preferred stocks
   54,713       23,535    31,633    19,542       (39,977 ) —      —      89,446






Total
   56,272       23,535    31,633    19,542       (39,977 ) —      —      91,005






Arbitrage trading account
   353       (353 ) —      3,187       —      —      —      3,187






Total
   $ 172,685       $ 22,332    $ 33,191    $ 42,361       $ (45,301 ) $ (17,113 ) $ (25,900 ) $ 182,255

2010:



			Gains (Losses) Included in
(Dollars in thousands)	Beginning Balance		Earnings			Other Comprehensive Income				Purchases			(Sales)			Maturities			Transfer out			Ending Balance
For the nine months ended September 30, 2011:
Fixed maturity securities available for sale:
Corporate	$	88,063	$	20		$	(386	)		$	8,195		$	(3,952	)	$	(16,936	)	$	—		$	75,004
Total	88,063		20			(386		)		8,195			(3,952		)	(16,936		)	—			75,004
Equity securities available for sale:
Common stocks	1,559		—			—				—			—			—			—			1,559
Preferred stocks	89,446		27,338			(29,641		)		—			(69,053		)	—			—			18,090
Total	91,005		27,338			(29,641		)		—			(69,053		)	—			—			19,649
Arbitrage trading account	3,187		795			—			—	269		—	(3,234		)	—			—			1,017
Total	$	182,255	$	28,153		$	(30,027	)		$	8,464		$	(76,239	)	$	(16,936	)	$	—		$	95,670

For the year ended December 31, 2010
Fixed maturity securities available for sale:
Mortgage-backed securities	$	25,900	$	—		$	—			$	—		$	—		$	—		$	(25,900	)	$	—
Corporate	90,160		(850		)	1,558				19,632			(5,324		)	(17,113		)	—			88,063
Total	116,060		(850		)	1,558				19,632			(5,324		)	(17,113		)	(25,900		)	88,063
Equity securities available for sale:
Common stocks	1,559		—			—				—			—			—			—			1,559
Preferred stocks	54,713		23,535			31,633				19,542			(39,977		)	—			—			89,446
Total	56,272		23,535			31,633				19,542			(39,977		)	—			—			91,005
Arbitrage trading account	353		(353		)	—				3,187			—			—			—			3,187
Total	$	172,685	$	22,332		$	33,191			$	42,361		$	(45,301	)	$	(17,113	)	$	(25,900	)	$	182,255

During the year ended December 31, 2010, a mortgage-backed security was transferred from Level 3 to Level 2 as the Company was able to obtain a quotation from a third party broker dealer.

Table of Contents

(13) Reinsurance

The following is a summary of reinsurance financial information:

      For the Three Months
Ended June 30, For the Six Months
Ended June 30,
(Dollars in thousands)
   2011 2010 2011 2010
Written premiums:

Direct
   $ 1,094,879    $ 953,755    $ 2,171,726    $ 1,892,079
Assumed
   150,397    159,714    343,408    347,510
Ceded
   (187,861 ) (152,115 ) (374,416 ) (294,285 )


Total net premiums written
   $ 1,057,415    $ 961,354    $ 2,140,718    $ 1,945,304


Earned premiums:

Direct
   $ 1,020,606    $ 926,387    $ 1,993,131    $ 1,831,730
Assumed
   161,942    160,459    323,812    319,845
Ceded
   (165,304 ) (138,718 ) (317,202 ) (272,886 )


Total net premiums earned
   $ 1,017,244    $ 948,128    $ 1,999,741    $ 1,878,689


Ceded losses incurred
   $ 80,287    $ 135,245    $ 195,112    $ 226,652



	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2011			2010			2011			2010
Written premiums:
Direct	$	1,114,494		$	962,872		$	3,286,220		$	2,854,951
Assumed	191,806			158,523			535,214			506,033
Ceded	(180,161		)	(134,689		)	(554,577		)	(428,974		)
Total net premiums written	$	1,126,139		$	986,706		$	3,266,857		$	2,932,010

Earned premiums:
Direct	$	1,070,279		$	947,314		$	3,063,410		$	2,779,044
Assumed	165,208			162,783			489,020			482,628
Ceded	(179,664		)	(142,800		)	(496,866		)	(415,686		)
Total net premiums earned	$	1,055,823		$	967,297		$	3,055,564		$	2,845,986

Ceded losses incurred	$	134,027		$	88,928		$	329,139		$	315,580

The Company reinsures a portion of its exposures principally to reduce its net liability on individual risks and to protect against catastrophic losses. Estimated amounts due from reinsurers are reported net of reserves for uncollectible reinsurance of $3$3 million as of ~~June~~September 30, 2011 and December 31, ~~2010.~~

2010.

(14) Fair Value of Financial Instruments

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

      June 30, 2011    December 31, 2010
(Dollars in thousands)
   Carrying Value    Fair Value    Carrying Value    Fair Value
Assets:

Fixed maturity securities
   $ 11,279,509       $ 11,292,086       $ 11,209,154       $ 11,215,317
Equity securities available for sale
   511,052       511,052       561,053       561,053
Arbitrage trading account
   474,787       474,787       359,192       359,192
Investment in arbitrage funds
   59,728       59,728       60,660       60,660
Loans receivable
   311,663       284,666       353,583       312,515
Cash and cash equivalents
   794,881       794,881       642,952       642,952
Trading account receivables from brokers
and clearing organizations
   242,720       242,720       339,235       339,235
Liabilities:

Trading account securities sold but not yet purchased
   68,255       68,255       53,494       53,494
Due to broker
   78,629       78,629       5,318       5,318
Junior subordinated debentures
   242,893       250,800       242,784       249,900
Senior notes and other debt
   1,501,739       1,631,197       1,500,419       1,570,057



	September 30, 2011				December 31, 2010
(Dollars in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	11,230,770	$	11,248,497	$	11,209,154	$	11,215,317
Equity securities available for sale	438,465		438,465		561,053		561,053
Arbitrage trading account	327,883		327,883		359,192		359,192
Investment in arbitrage funds	56,606		56,606		60,660		60,660
Loans receivable	283,560		265,998		353,583		312,515
Cash and cash equivalents	866,130		866,130		642,952		642,952
Trading account receivables from brokers and clearing organizations	380,887		380,887		339,235		339,235
Liabilities:
Trading account securities sold but not yet purchased	60,973		60,973		53,494		53,494
Due to broker	127,792		127,792		5,318		5,318
Junior subordinated debentures	242,945		249,900		242,784		249,900
Senior notes and other debt	1,501,773		1,616,634		1,500,419		1,570,057

The estimated fair values of the Company’s fixed maturity securities, equity securities available for sale and arbitrage trading account securities are based on various valuation techniques, as described in note 12 above. 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 loans receivable are estimated by using current institutional purchaser yield requirements for loans with similar credit characteristics. The fair value of the senior

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notes and other debt and the junior subordinated debentures is based on spreads for similar securities.

(15) Restricted Stock Units

Pursuant to its stock incentive plan, the Company may issue restricted stock units (RSUs) to officers of the Company and its subsidiaries. The RSUs generally vest five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. Grants of RSUs are made periodically, generally twice within a five-year period. A summary of RSUs issued in 2011 and 2010 follows (dollars in thousands):

   Units    Fair Value
Six months ended June 30:

2011
   42,000       $ 1,328
2010
   754,500       $ 19,693

(16) Industry Segments

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

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

Our regional segment provides commercial insurance products to customers primarily in 45 states. Key clients of this segment are small-to-mid-sized businesses and state and local governmental entities. The regional subsidiaries are organized geographically based on markets served, which provides them with the flexibility to adapt to local market conditions, while enjoying the superior administrative capabilities and financial strength of the Company. ~~The regional operations are organized geographically based on markets served.~~

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

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

Lloyd’s of London.

Our international segment offers personal and commercial property casualty insurance in South America; commercial property casualty insurance in the United Kingdom, Norway and Continental Europe; and reinsurance in Australia, Southeast Asia and Canada.

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~~or benefit is calculated based upon the Company’s overall effective tax rate.

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Summary financial information about the Company’s operating segments is presented in the following table. Income before income taxes by segment consists of revenues, less expenses, related to the respective segment’s operations, including allocated investment income. Identifiable assets by segment are those assets used in or allocated to the operation of each segment.



	Revenues
(Dollars in thousands)	Earned Premiums		Investment Income		Other		Total		Pre-Tax Income (Loss)			Net Income (Loss)
For the three months ended September 30, 2011:
Specialty	$	367,417	$	37,438	$	664	$	405,519	$	71,046		$	51,502
Regional	267,142		16,099		1,207		284,448		(10,700		)	(4,669		)
Alternative markets	156,820		25,931		20,408		203,159		33,076			25,185
Reinsurance	103,906		18,641		—		122,547		16,134			13,165
International	160,538		10,741		—		171,279		14,182			9,874
Corporate and eliminations (1)	—		5,213		66,328		71,541		(47,531		)	(31,533		)
Net investment gains	—		—		21,238		21,238		21,238			13,784
Consolidated	$	1,055,823	$	114,063	$	109,845	$	1,279,731	$	97,445		$	77,308
For the three months ended September 30, 2010:
Specialty	$	326,239	$	40,814	$	765	$	367,818	$	61,989		$	45,268
Regional	268,089		18,413		782		287,284		22,946			17,159
Alternative markets	148,830		28,136		20,631		197,597		42,007			30,734
Reinsurance	103,126		19,779		—		122,905		26,508			19,641
International	121,013		8,722		—		129,735		12,712			8,217
Corporate and eliminations (1)	—		3,279		62,290		65,569		(50,066		)	(30,764		)
Net investment gains	—		—		5,204		5,204		5,204			3,364
Consolidated	$	967,297	$	119,143	$	89,672	$	1,176,112	$	121,300		$	93,619
For the nine months ended September 30, 2011:
Specialty	$	1,047,567	$	138,868	$	2,065	$	1,188,500	$	238,979		$	171,806
Regional	795,423		59,459		3,377		858,259		(1,381		)	6,154
Alternative markets	454,156		96,072		64,049		614,277		116,285			86,979
Reinsurance	315,220		72,230		—		387,450		66,857			52,024
International	443,198		32,692		—		475,890		28,208			18,925
Corporate and eliminations (1)	—		9,940		177,303		187,243		(154,096		)	(105,921		)
Net investment gains	—		—		73,412		73,412		73,412			46,910
Consolidated	$	3,055,564	$	409,261	$	320,206	$	3,785,031	$	368,264		$	276,877
For the nine months ended September 30, 2010:
Specialty	$	955,705	$	133,027	$	2,383	$	1,091,115	$	212,836		$	154,559
Regional	798,387		60,995		2,448		861,830		90,415			66,205
Alternative markets	458,842		90,658		59,228		608,728		138,563			101,117
Reinsurance	308,316		75,210		—		383,526		91,085			68,373
International	324,736		25,105		—		349,841		19,671			13,631
Corporate and eliminations (1)	—		7,440		167,597		175,037		(147,506		)	(96,105		)
Net investment gains	—		—		22,650		22,650		22,650			14,656
Consolidated	$	2,845,986	$	392,435	$	254,306	$	3,492,727	$	427,714		$	322,436

      Revenues
(Dollars in thousands)
   Earned
Premiums    Investment
Income and
Funds    Other    Total    Pre-Tax
Income
(Loss) Net
Income
(Loss)
For the three months ended June 30, 2011:

Specialty
   $ 349,943       $ 51,144       $ 691       $ 401,778       $ 77,564    $ 56,013
Regional
   266,764       21,853       1,149       289,766       (15,579 ) (7,735 )
Alternative markets
   148,999       35,386       23,196       207,581       41,579    30,898
Reinsurance
   105,836       26,311       —         132,147       25,361    19,362
International
   145,702       11,393       —         157,095       11,511    6,966
Corporate, other and eliminations (1)
   —         2,985       56,707       59,692       (52,999 ) (36,758 )
Net investment gains
   —         —         22,890       22,890       22,890    14,336










Consolidated
   $ 1,017,244       $ 149,072       $ 104,633       $ 1,270,949       $ 110,327    $ 83,082










For the three months ended June 30, 2010:

Specialty
   $ 316,513       $ 42,979       $ 820       $ 360,312       $ 75,177    $ 54,138
Regional
   266,629       19,641       739       287,009       25,505    18,989
Alternative markets
   155,227       29,675       18,834       203,736       45,571    33,262
Reinsurance
   105,632       26,838       —         132,470       30,157    22,894
International
   104,127       9,286       —         113,413       6,586    1,761
Corporate, other and eliminations (1)
   —         1,312       53,282       54,594       (48,708 ) (28,286 )
Net investment gains
   —         —         11,534       11,534       11,534    7,449










Consolidated
   $ 948,128       $ 129,731       $ 85,209       $ 1,163,068       $ 145,822    $ 110,207










For the six months ended June 30, 2011:

Specialty
   $ 680,150       $ 101,430       $ 1,401       $ 782,981       $ 167,933    $ 120,304
Regional
   528,281       43,360       2,170       573,811       9,319    10,823
Alternative markets
   297,336       70,141       43,641       411,118       83,209    61,794
Reinsurance
   211,314       53,589       —         264,903       50,723    38,859
International
   282,660       21,951       —         304,611       14,026    9,051
Corporate, other and eliminations (1)
   —         4,727       110,975       115,702       (106,565 ) (74,388 )
Net investment gains
   —         —         52,174       52,174       52,174    33,126










Consolidated
   $ 1,999,741       $ 295,198       $ 210,361       $ 2,505,300       $ 270,819    $ 199,569










For the six months ended June 30, 2010:

Specialty
   $ 629,466       $ 92,213       $ 1,618       $ 723,297       $ 150,847    $ 109,291
Regional
   530,298       42,582       1,666       574,546       67,469    49,046
Alternative markets
   310,012       62,522       38,597       411,131       96,556    70,383
Reinsurance
   205,190       55,431       —         260,621       64,577    48,732
International
   203,723       16,383       —         220,106       6,959    5,414
Corporate, other and eliminations (1)
   —         4,161       105,307       109,468       (97,440 ) (65,341 )
Net investment gains
   —         —         17,446       17,446       17,446    11,292










Consolidated
   $ 1,878,689       $ 273,292       $ 164,634       $ 2,316,615       $ 306,414    $ 228,817

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Identifiable assets by segment are as follows:

(Dollars in thousands)
   June 30,
2011    December 31,
2010
Specialty
   $ 6,036,066       $ 5,854,256
Regional
   2,637,212       2,616,238
Alternative markets
   3,946,019       3,801,597
Reinsurance
   2,967,140       2,972,988
International
   1,493,235       1,391,604
Corporate, other and eliminations (1)
   1,115,452       891,864




Consolidated
   $ 18,195,124       $ 17,528,547

~~(1)~~

~~Corporate, other and eliminations represent corporate revenues and expenses, net investment gains and losses and other items that are not allocated to business segments.~~



(Dollars in thousands)	September 30, 2011		December 31, 2010
Specialty	$	6,025,982	$	5,854,256
Regional	2,571,864		2,616,238
Alternative markets	4,039,786		3,801,597
Reinsurance	2,856,670		2,972,988
International	1,518,326		1,391,604
Corporate, other and eliminations (1)	1,318,193		891,864
Consolidated	$	18,330,821	$	17,528,547

___________

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

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

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

(Dollars in thousands)
   2011    2010    2011    2010
Specialty

Premises operations
   $ 110,651       $ 99,819       $ 211,961       $ 187,759
Property
   60,718       49,143       115,112       99,922
Professional liability
   55,497       48,442       109,009       95,037
Commercial automobile
   34,168       32,647       65,615       68,628
Products liability
   23,500       24,449       46,902       63,236
Other
   65,409       62,013       131,551       114,884

Total specialty
   349,943       316,513       680,150       629,466

Regional

Commercial multiple peril
   97,123       97,043       193,830       193,113
Commercial automobile
   72,355       75,672       144,484       151,637
Workers’ compensation
   54,902       53,707       108,469       106,678
Other
   42,384       40,207       81,498       78,870

Total regional
   266,764       266,629       528,281       530,298

Alternative Markets

Primary workers’ compensation
   65,421       65,054       129,596       127,972
Excess workers’ compensation
   43,169       57,723       86,902       116,051
Other
   40,409       32,450       80,838       65,989

Total alternative markets
   148,999       155,227       297,336       310,012

Reinsurance

Casualty
   75,926       76,222       152,612       148,145
Property
   29,910       29,410       58,702       57,045

Total reinsurance
   105,836       105,632       211,314       205,190

International

Professional liability
   21,591       19,624       44,893       43,771
Property
   35,943       17,086       67,586       28,812
Reinsurance
   21,622       16,020       42,449       30,900
Automobile
   17,028       17,293       34,997       34,683
Workers’ compensation
   18,258       13,482       35,596       27,051
Other liability
   14,156       10,989       25,462       20,046
Other
   17,104       9,633       31,677       18,460

Total international
   145,702       104,127       282,660       203,723

Total
   $ 1,017,244       $ 948,128       $ 1,999,741       $ 1,878,689



	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2011		2010		2011		2010
Specialty
Premises operations	$	119,496	$	98,699	$	331,457	$	286,458
Property	59,578		56,525		174,690		156,447
Professional liability	58,739		52,092		167,748		147,129
Commercial automobile	36,440		30,056		102,055		98,684
Products liability	24,954		23,870		71,856		87,106
Other	68,210		64,997		199,761		179,881
Total specialty	367,417		326,239		1,047,567		955,705
Regional
Commercial multiple peril	98,200		97,642		292,030		290,755
Commercial automobile	72,537		75,082		217,021		226,719
Workers’ compensation	55,133		53,788		163,602		160,466
Other	41,272		41,577		122,770		120,447
Total regional	267,142		268,089		795,423		798,387
Alternative Markets
Primary workers’ compensation	70,172		64,421		199,768		192,393
Excess workers’ compensation	40,038		53,485		126,940		169,536
Other	46,610		30,924		127,448		96,913
Total alternative markets	156,820		148,830		454,156		458,842
Reinsurance
Casualty	75,917		82,273		228,529		230,418
Property	27,989		20,853		86,691		77,898
Total reinsurance	103,906		103,126		315,220		308,316
International
Professional liability	24,982		20,207		69,875		63,978
Property	38,452		24,189		106,038		53,001
Reinsurance	26,330		20,791		68,779		51,691
Automobile	18,428		18,313		53,425		52,996
Workers’ compensation	18,884		14,555		54,480		41,606
Other liability	16,323		10,822		41,785		30,868
Other	17,139		12,136		48,816		30,596
Total international	160,538		121,013		443,198		324,736
Total	$	1,055,823	$	967,297	$	3,055,564	$	2,845,986

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(17) Commitments, Litigation and Contingent Liabilities

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

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SAFE HARBOR STATEMENT

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking words such as ~~‘believes,~~"believes,” “expects,” “potential,” “continued,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of those words or other comparable words. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2011 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information is not and should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the 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, real estate, merger arbitrage and private equity investments; the impact of significant competition; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates and volatility in the credit and capital markets; the impact of the economic downturn, and the potential effect of any legislative, regulatory, accounting or other initiatives taken in response to it, on our results and financial condition; 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 2007; the ability of our reinsurers to pay reinsurance recoverables owed to us; foreign currency and political risks relating to our international operations; other legislative and regulatory developments, including those related to business practices in the insurance industry; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; our ability to attract and retain key personnel and qualified employees; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”). These risks and uncertainties could cause our actual results for the year 2011 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our ~~net premiums written and management fees~~revenues would not necessarily result in commensurate levels of ~~underwriting and operating profits.~~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.

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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 in five business segments: specialty, regional, alternative markets, reinsurance and international. Our decentralized structure provides us with the flexibility to respond to local or specific market conditions and to pursue specialty business niches. It also allows us to be closer to our customers in order to better understand their individual needs and risk characteristics. 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 and reinsurance 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.

Twenty-one of our operating units have been formed since 2006 to capitalize on various business opportunities. These newer units are focused on important parts of the economy in the U.S., including healthcare, energy and agriculture, and on growing international markets, including Norway, Australia, Southeast Asia and South America.

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

Beginning in 2005, the property casualty insurance market became more competitive and insurance rates decreased across most business lines. Increased competition and the impact of the current economic downturn also put pressure on policy terms and conditions. While prices began to increase ~~slightly~~ in 2011, loss costs are also increasing and current market price levels for certain lines of business remain below the prices required for the Company to achieve its return objectives. Price changes are reflected in the Company’s results over time as premiums are earned.

The Company’s profitability is also affected by its investment income. The Company’s invested assets, which are derived from its own capital and cash flow from its insurance business, are invested principally in fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates, which are at historically low levels, as well as the credit quality and duration of the securities. The Company also invests in equity securities, merger arbitrage, private equity investments, investment funds and real ~~estate related investments.~~

estate.

Critical Accounting Estimates

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

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

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

In examining reserve adequacy, several factors are considered in addition to the economic value of losses. These factors include historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. The actuarial process relies on the basic assumption that past experience, adjusted judgmentally for the effects of current developments and anticipated trends, is an appropriate basis for predicting future outcomes. Reserve amounts are based

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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.

The risk and complexity of estimating loss reserves have increased under the current financial market conditions. It is especially difficult to estimate the impact of inflation on loss reserves given the current economic environment and related government actions. Whereas a slowing economy would generally lead to lower inflation or even deflation, increased government spending would generally lead to higher inflation. A change in our assumptions regarding inflation would result in reserve increases or decreases that would be reflected in our operations in periods in which such 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 unanticipated fluctuation. These estimates, which generally involve actuarial projections, are based on management’s assessment of facts and circumstances then known, as well as estimates of future trends in claims severity and frequency, judicial theories of liability and other factors, including the actions of third parties which are beyond the Company’s control. These variables are affected by external and internal events, such as inflation and economic volatility, judicial and litigation trends, reinsurance coverage, legislative changes and claim handling and reserving practices, which make it more difficult to accurately predict claim costs. The inherent uncertainties of estimating reserves are greater for certain types of liabilities where long periods of time elapse before a definitive determination of liability is made. Because setting reserves is inherently uncertain, the Company cannot provide assurance that its current reserves will prove adequate in light of subsequent events.

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

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

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

estimate of the ultimate cost of settling claims and related expenses with respect to insured events which have occurred; however, different assumptions and variables could lead to significantly different reserve estimates.

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

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controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations.

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

The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect historical changes, current trends and other factors observed. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on our loss estimate for claims occurring in 2010, the most recent full year of loss data (dollars in thousands):



	Frequency (+/-)
Severity (+/-)	1%	5%	10%
1%	50,450	151,851	278,603
5%	151,851	257,268	389,040
10%	278,603	389,040	527,086

Our net reserves for losses and loss expenses of approximately $8.1 billion as of ~~June~~September 30, 2011, relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above.

Approximately $1.5 billion, or 18%, of the Company’s net loss reserves as of ~~June~~September 30, 2011 relate to our reinsurance segment. There is a higher degree of uncertainty and greater variability regarding estimates of assumed loss reserves because those estimates are based, in part, upon information received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be accurate. Furthermore, due to delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is extended. Management considers the impact of delayed reporting in its selection of assumed loss development factors.

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

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Following is a summary of the Company’s reserves for losses and loss expenses by business segment as of ~~June~~September 30, 2011 and December 31, 2010:

(Dollars in thousands)
   June 30,
2011    December 31,
2010
Specialty
   $ 2,878,529       $ 2,883,823
Regional
   1,288,393       1,285,004
Alternative markets
   1,945,033       1,867,470
Reinsurance
   1,473,877       1,507,353
International
   530,125       455,871




Net reserves for losses and loss expenses
   8,115,957       7,999,521
Ceded reserves for losses and loss expenses
   1,079,718       1,017,028




Gross reserves for losses and loss expenses
   $ 9,195,675       $ 9,016,549



(Dollars in thousands)	September 30, 2011		December 31, 2010
Specialty	$	2,883,638	$	2,883,823
Regional	1,299,937		1,285,004
Alternative markets	1,964,666		1,867,470
Reinsurance	1,455,184		1,507,353
International	525,974		455,871
Net reserves for losses and loss expenses	8,129,399		7,999,521
Ceded reserves for losses and loss expenses	1,132,185		1,017,028
Gross reserves for losses and loss expenses	$	9,261,584	$	9,016,549

Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of ~~June~~September 30, 2011 and December 31, 2010:

(Dollars in thousands)
   Reported Case
Reserves    Incurred But
Not Reported    Total
June 30, 2011

General liability
   $ 867,430       $ 2,020,981       $ 2,888,411
Workers’ compensation
   1,295,287       978,889       2,274,176
Commercial automobile
   279,775       186,293       466,068
International
   254,615       275,510       530,125
Other
   195,634       287,666       483,300






Total primary
   2,892,741       3,749,339       6,642,080
Reinsurance
   609,840       864,037       1,473,877






Total
   $ 3,502,581       $ 4,613,376       $ 8,115,957






December 31, 2010

General liability
   $ 873,553       $ 2,038,814       $ 2,912,367
Workers’ compensation
   1,188,117       1,022,331       2,210,448
Commercial automobile
   325,686       173,247       498,933
International
   195,981       259,890       455,871
Other
   158,794       255,755       414,549






Total primary
   2,742,131       3,750,037       6,492,168
Reinsurance
   639,997       867,356       1,507,353






Total
   $ 3,382,128       $ 4,617,393       $ 7,999,521



(Dollars in thousands)	Reported Case Reserves		Incurred But Not Reported		Total
September 30, 2011
General liability	$	884,810	$	2,001,597	$	2,886,407
Workers’ compensation	1,308,728		988,649		2,297,377
Commercial automobile	272,792		183,726		456,518
International	275,383		250,591		525,974
Other	220,987		286,952		507,939
Total primary	2,962,700		3,711,515		6,674,215
Reinsurance	604,251		850,933		1,455,184
Total	$	3,566,951	$	4,562,448	$	8,129,399
December 31, 2010
General liability	$	873,553	$	2,038,814	$	2,912,367
Workers’ compensation	1,188,117		1,022,331		2,210,448
Commercial automobile	325,686		173,247		498,933
International	195,981		259,890		455,871
Other	158,794		255,755		414,549
Total primary	2,742,131		3,750,037		6,492,168
Reinsurance	639,997		867,356		1,507,353
Total	$	3,382,128	$	4,617,393	$	7,999,521

Reserves for primary and excess workers’ compensation business are net of an aggregate net discount of ~~$916~~$902 million and $898 million as of ~~June~~September 30, 2011 and December 31, 2010, respectively.

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The following table presents development in our estimate of claims occurring in prior years:

   For the Three Months
Ended June 30, For the Six Months
Ended June 30,
(Dollars in thousands)
   2011 2010 2011 2010
Favorable (adverse) reserve development:

Specialty
   $ 22,792    $ 31,827    $ 61,136    $ 57,050
Regional
   5,948    29,560    15,009    49,628
Alternative markets
   (3,537 ) 5,481    (7,145 ) 10,554
Reinsurance
   9,289    8,880    14,362    30,395
International
   460    864    2,902    3,487


Total favorable reserve development
   34,952    76,612    86,264    151,114


Premium offsets (1):

Specialty
   114    (2,205 ) 245    (2,314 )
Alternative markets
   459    279    (156 ) (424 )
Reinsurance
   —      (7,311 ) —      (19,033 )


Net development
   $ 35,525    $ 67,375    $ 86,353    $ 129,343



	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
(Dollars in thousands)	2011		2010			2011			2010
Favorable (adverse) reserve development:
Specialty	$	35,489	$	13,461		$	96,625		$	70,511
Regional	10,268		19,264			25,277			68,892
Alternative markets	5,057		6,931			(2,088		)	17,485
Reinsurance	4,312		8,852			18,674			39,247
International	709		(661		)	3,611			2,826
Total favorable reserve development	55,835		47,847			142,099			198,961
Premium offsets (1):
Specialty	76		2,525			321			211
Alternative markets	136		499			(20		)	75
Reinsurance	—		(330		)	—			(19,363		)
Net development	$	56,047	$	50,541		$	142,400		$	179,884

_____________


(1)	Represents portion of reserve development offset by premium adjustments.

For the ~~six~~nine months ended ~~June~~September 30, 2011 estimates for claims occurring in prior years decreased by ~~$86~~$142 million. The favorable reserve development in 2011 was primarily attributable to accident years 2007 through ~~2009, partially offset by unfavorable reserve development in 2000 and prior years.~~2009. 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.

Specialty - The majority of the favorable reserve development for the specialty segment during the first nine months of 2011 and 2010 was associated with excess and surplus (“E&S”) business. E&S insurers are free from rate and form regulation and generally charge higher rates for business than those that are charged in the “standard” market. Beginning in 2003, the E&S business began to experience improved claim frequency (i.e., a lower number of reported claims per unit of exposure). One reason for the lower number of claims was the Company’s introduction of more restrictive policy language which included additional exclusions that eliminated claims that would have previously been covered, particularly for the Company’s building contractor business. In addition, as standard carriers tightened their underwriting criteria, the Company benefited from an influx of accounts from the standard market to the E&S market during these years. The more restrictive policy language and the influx of standard market business resulted in an improved risk profile within the E&S business and a reduction in loss costs that was not expected at the time loss reserves were initially established. We began to recognize those trends in 2007 and have continued to reduce our estimates of ultimate claim costs since then as the magnitude of the frequency trends has become more evident. The favorable reserve development in 2011 was primarily attributable to accident years 2007 through 2009.

Regional - The favorable reserve development for the regional segment during the first nine months of 2011 was primarily related to the general liability portion of commercial multi-peril business and to commercial automobile liability business. The favorable reserve development resulted mainly from lower loss emergence on known case reserves relative to historical levels. The favorable reserve development was primarily attributable to accident years 2007 through 2009.

Alternative Markets - The unfavorable reserve development for the alternative markets segment during the first nine months of 2011 was related to an increase in prior year reserves for excess workers’ compensation business, partially offset by a decrease in prior year reserves for primary workers’ compensation business and for medical excess business. The increase in loss reserves for excess workers’ compensation business was related primarily to increased medical and pharmaceutical costs associated with certain long-term disability claims. The majority of favorable reserve development for primary workers’ compensation was related to California business, where the impact of legislative reforms continues to be reflected in improved loss trends.

Reinsurance - The favorable development for the reinsurance segment during the first nine months of 2011 was primarily related to certain facultative program business and to business written through Lloyd’s of London. The favorable development for the segment was spread across underwriting years 2005 through 2010 and resulted from lower than expected reported losses.

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Loss Reserve Discount - The Company discounts its liabilities for excess and assumed workers’ compensation business because of the long period of time over which losses are paid. Discounting is intended to appropriately match losses and loss expenses to income earned on investment securities supporting the liabilities. The expected losses and loss expense payout pattern subject to discounting was derived from the Company’s loss payout experience. For non-proportional business, reserves for losses and loss expenses have been discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. For proportional business, reserves for losses and loss expenses have been discounted at the statutory rate permitted by the Department of Insurance of the State of Delaware of 2.5%. As of ~~June~~September 30, 2011, the aggregate blended discount rates ranged from 2.5% to 6.5%, with a weighted average discount rate of 4.3%. The aggregate net discount, after reflecting the effects of ceded reinsurance, was ~~$916~~$902 million and $898 million as of ~~June~~September 30, 2011 and December 31, 2010, respectively.

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 ~~$69~~$70 million and $58 million at ~~June~~September 30, 2011 and December 31, 2010, respectively. The assumed premium estimates are based upon terms set forth in ~~the~~ reinsurance ~~agreement,~~agreements, information received from ceding companies during the underwriting and negotiation of ~~the agreement,~~agreements, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate amount of premiums to be received under its assumed reinsurance agreements.

Other-Than-Temporary Impairments (OTTI) of Investments. The cost of securities is adjusted where appropriate to include a provision for decline in value which is considered to be other-than-temporary. An other-than-temporary decline is considered to occur in investments where there has been a sustained reduction in fair value and where the Company does not expect the fair value to recover prior to the time of sale or maturity. Since equity securities do not have a contractual cash flow or maturity, the Company considers whether the price of an equity security is expected to recover within a reasonable period of time.

The Company classifies its fixed maturity securities and preferred stocks by credit rating, primarily based on ratings assigned by credit rating agencies. For purposes of classifying securities with different ratings, the Company uses the lower rating if two ratings were assigned and the middle rating if three ratings were assigned, unless the Company’s own analysis indicates that the lower rating is more appropriate. Securities that are not rated by a rating agency are evaluated and classified by the Company on a case-by-case basis.

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

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

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

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The following table provides a summary of all fixed maturity securities in an unrealized loss position as of ~~June~~September 30, ~~2011:~~

(Dollars in thousands)
   Number of
Securities    Aggregate
Fair Value    Unrealized
Loss
Unrealized loss less than 20% of amortized cost
   172       $ 1,498,433       $ 48,215
Unrealized loss of 20% or greater:

Twelve months and longer
   7       37,391       14,275






Total
   179       $ 1,535,824       $ 62,490

2011:



(Dollars in thousands)	Number of Securities	Aggregate Fair Value		Unrealized Loss
Unrealized loss less than 20% of amortized cost	184	$	1,337,317	$	51,803
Unrealized loss of 20% or greater of amortized cost:
Twelve months and longer	11	50,407		20,770
Total	195	$	1,387,724	$	72,573

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at ~~June~~September 30, 2011 is presented in the table below. ~~There were no securities with an unrealized loss greater than $5 million at~~



(Dollars in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Unrealized loss less than $5 million:
Mortgage-backed securities	14	$	104,165	$	6,369
Corporate	15	65,293		3,537
State and municipal	4	31,736		4,830
Foreign	4	8,953		165
Unrealized loss $5 million or more
Mortgage-backed security (1)	1	17,365		5,549
Total	38	$	227,512	$	20,450

_______________

(1) This investment is a residential mortgage-backed security that ~~date.~~

was evaluated based on the performance of the underlying collateral under various economic and default scenarios. The security has met its contractual obligations and the Company expects that it will continue to meet those contractual payment obligations as they become due. Based on this evaluation, the Company does not consider the investment to be OTTI.

Preferred Stocks – At ~~June~~September 30, 2011, there were ~~five~~six preferred stocks in an unrealized loss position, with an aggregate fair value of ~~$70~~$59 million and a gross unrealized loss of $7$15 million. ~~One~~Three of those preferred stocks with an aggregate fair value of ~~$12~~$13 million and a gross unrealized loss of $2$5 million isare rated non-investment grade. Based upon management’s view of the underlying value of these securities, the Company does not consider any of the preferred stocks to be OTTI.

Common Stocks– At ~~June~~September 30, 2011, the Company owned ~~four~~eleven common stocks in an unrealized loss position with an aggregate fair value of ~~$33~~$88 million and an aggregate unrealized loss of $2$12 million. The Company does not consider these common stocks to be OTTI.

Loans Receivable – The Company monitors the performance of its loans receivable, including current market conditions for each loan and the ability to collect principal and interest. For loans where the Company determines it is probable that the contractual terms will not be met, an analysis is performed and a valuation reserve is established, if necessary, with a charge to ~~net investment losses.~~earnings. Loans receivable are reported net of a valuation reserve of $20 million at ~~June~~September 30, 2011 and December 31, 2010.

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Fair Value ~~Measurements.~~Measurements.The Company’s fixed maturity and equity securities available for sale and its 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, 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 table summarizes pricing methods for fixed maturity securities available for sale as of ~~June~~September 30, 2011 (dollars in thousands):

   Carrying
Value    Percent
of Total
Pricing source:

Independent pricing services
   $ 10,590,563       94.9 %
Syndicate manager
   115,342       1.0 %
Directly by the Company based on:

Observable data
   382,803       3.4 %
Cash flow model
   74,569       0.7 %




Total
   $ 11,163,277       100.0 %



	Carrying Value		Percent of Total
Pricing source:
Independent pricing services	$	10,527,923	94.7	%
Syndicate manager	104,766		0.9	%
Directly by the Company based on:
Observable data	409,299		3.7	%
Cash flow model	74,004		0.7	%
Total	$	11,115,992	100.0	%

Independent pricing services - The vast majority 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~~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 ~~June~~September 30, 2011, 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.

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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.

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Results of Operations for the ~~Six~~Nine Months Ended ~~June~~September 30, 2011 and 2010

Business Segment Results

Following is a summary of gross and net premiums written, premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and United States Generally Accepted Accounting Principles (“GAAP”) combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010. 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.

(Dollars in thousands)
   2011 2010
Specialty

Gross premiums written
   $ 889,579    $ 747,339
Net premiums written
   763,550    644,203
Premiums earned
   680,150    629,466
Loss ratio
   57.5 % 57.6 %
Expense ratio
   32.8 % 33.2 %
GAAP combined ratio
   90.3 % 90.8 %


Regional

Gross premiums written
   $ 579,682    $ 589,352
Net premiums written
   540,203    530,575
Premiums earned
   528,281    530,298
Loss ratio
   70.1 % 59.7 %
Expense ratio
   36.2 % 35.5 %
GAAP combined ratio
   106.3 % 95.2 %


Alternative Markets

Gross premiums written
   $ 433,639    $ 387,950
Net premiums written
   322,373    327,497
Premiums earned
   297,336    310,012
Loss ratio
   72.4 % 64.9 %
Expense ratio
   26.7 % 25.8 %
GAAP combined ratio
   99.1 % 90.7 %


Reinsurance

Gross premiums written
   $ 219,430    $ 221,015
Net premiums written
   205,904    206,404
Premiums earned
   211,314    205,190
Loss ratio
   60.7 % 53.1 %
Expense ratio
   40.6 % 42.4 %
GAAP combined ratio
   101.3 % 95.5 %


International

Gross premiums written
   $ 392,804    $ 293,933
Net premiums written
   308,688    236,625
Premiums earned
   282,660    203,723
Loss ratio
   62.5 % 64.4 %
Expense ratio
   40.1 % 42.4 %
GAAP combined ratio
   102.6 % 106.8 %


Consolidated

Gross premiums written
   $ 2,515,134    $ 2,239,589
Net premiums written
   2,140,718    1,945,304
Premiums earned
   1,999,741    1,878,689
Loss ratio
   64.1 % 59.6 %
Expense ratio
   34.7 % 34.6 %
GAAP combined ratio
   98.8 % 94.2 %



(Dollars in thousands)	2011			2010
Specialty
Gross premiums written	$	1,344,139		$	1,131,216
Net premiums written	1,146,091			975,188
Premiums earned	1,047,567			955,705
Loss ratio	57.8		%	59.0		%
Expense ratio	32.7		%	32.7		%
GAAP combined ratio	90.5		%	91.7		%
Regional
Gross premiums written	$	881,224		$	889,362
Net premiums written	817,380			802,691
Premiums earned	795,423			798,387
Loss ratio	71.5		%	60.7		%
Expense ratio	36.0		%	35.5		%
GAAP combined ratio	107.5		%	96.2		%
Alternative Markets
Gross premiums written	$	656,062		$	572,518
Net premiums written	497,117			479,565
Premiums earned	454,156			458,842
Loss ratio	71.9		%	65.9		%
Expense ratio	26.7		%	25.8		%
GAAP combined ratio	98.6		%	91.7		%
Reinsurance
Gross premiums written	$	337,696		$	323,800
Net premiums written	319,524			304,832
Premiums earned	315,220			308,316
Loss ratio	60.9		%	53.3		%
Expense ratio	40.7		%	41.4		%
GAAP combined ratio	101.6		%	94.7		%
International
Gross premiums written	$	602,313		$	444,088
Net premiums written	486,745			369,734
Premiums earned	443,198			324,736
Loss ratio	61.6		%	62.8		%
Expense ratio	39.7		%	40.9		%
GAAP combined ratio	101.3		%	103.7		%
Consolidated
Gross premiums written	$	3,821,434		$	3,360,984
Net premiums written	3,266,857			2,932,010
Premiums earned	3,055,564			2,845,986
Loss ratio	64.3		%	60.4		%
Expense ratio	34.5		%	34.3		%
GAAP combined ratio	98.8		%	94.7		%

Table of Contents

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 ~~six~~nine months ended ~~June~~September 30, 2011 and 2010 (amounts in thousands, except per share data):

   2011    2010
Net income to common stockholders
   $ 199,569       $ 228,817
Weighted average diluted shares
   147,614       158,539
Net income per diluted share
   $ 1.35       $ 1.44



	2011		2010
Net income to common stockholders	$	276,877	$	322,436
Weighted average diluted shares	146,553		157,054
Net income per diluted share	$	1.89	$	2.05

The Company reported net income of ~~$200~~$277 million in 2011 compared to ~~$229~~$322 million in 2010. The decrease in net income was primarily due to a decline in underwriting income, partially offset by an increase in investment income and net investment gains. The number of weighted average diluted shares decreased as a result of the Company’s repurchases of its common stock in 2010 and 2011.

Premiums~~.Gross~~. Gross premiums written were ~~$2,515~~$3,821 million in 2011, an increase of ~~12%~~14% from ~~$2,240~~$3,361 million in 2010. The increase in gross premiums written was primarily due to growth in our specialty and international business segments as a result of expansion into new markets. Approximately 80% of policies expiring in the first ~~six~~nine months of 2011 were renewed, compared with a ~~78%~~77% renewal retention rate for policies expiring in full year 2010. The average rate (i.e., average premium adjusted for change in exposures) for policies that renewed in 2011 increased by ~~1.2%~~1.7%.

Beginning in 2005, the property casualty insurance market became more competitive and insurance rates decreased across most business lines. While prices ~~began to increase slightly~~increased in 2011, loss costs are also increasing and current market price levels for certain lines of business remain below the prices required for the Company to achieve its return objectives. A summary of gross premiums written in 2011 compared with 2010 by line of business within each business segment follows:

Specialty gross premiums increased by 19% to ~~$890~~$1,344 million in 2011 from ~~$747~~$1,131 million in 2010 primarily due to increased business in the energy and environmental markets. Gross premiums written increased ~~32%~~29% for commercial automobile ~~28% for~~and other liability, ~~23%~~21% for property lines, 8%11% for products liability and 9% for professional ~~liability and 8% for products~~ liability.

Regional gross premiums decreased ~~by 2%~~1% to ~~$580~~$881 million in 2011 from ~~$589~~$889 million in 2010. Gross premiums written decreased 2% for commercial automobile, and increased 5%6% for workers’ compensation and 1%3% for commercial multiple peril. Gross premiums written in 2010 ~~include $19~~included $27 million of assigned risk premiums that were transferred to the alternative markets segment in 2011 (see below).

Alternative markets gross premiums increased ~~by 12%~~15% to ~~$434~~$656 million in 2011 from ~~$388~~$573 million in 2010. The increase was primarily due to an increase in assigned risk premiums, including assigned risk premiums transferred from the regional segment as described above. Gross premiums for assigned risk plans, which are fully reinsured, were ~~$82~~$114 million in 2011 and ~~$36~~$51 million in 2010. For the remainder of the alternative markets segment, gross premiums written ~~decreased~~increased 4% to $542 million in 2011 from $522 million in 2010. This includes increases of 70% for accident and health products and 10% for primary workers’ compensation and a decrease of 22% for excess workers’ ~~compensation and increased by 9% for primary workers’~~ compensation.

Reinsurance gross premiums ~~decreased by 1%~~increased 4% to ~~$219~~$338 million in 2011 from ~~$221~~$324 million in 2010. Gross premiums written ~~were unchanged at $149~~increased 19% to $106 million for property business and decreased 1% to $232 million for casualty ~~business and decreased 2% to $70 million for property~~ business.

International gross premiums increased ~~by 34%~~36% to ~~$393~~$602 million in 2011 from ~~$294~~$444 million in 2010. The increase is primarily due to an increase in business written by our Lloyd’s operation, our companies in South America, and new insurance branches in Germany, Norway and Canada. Gross premiums written increased ~~57%~~62% for property lines, ~~74%~~57% for liability lines, ~~31%~~30% for workers’ compensation, ~~14%~~31% for reinsurance assumed, 6%8% for ~~auto~~automobile and ~~28%~~32% for professional liability.

In addition, three percentage points of the 36% increase in gross premiums written resulted from changes in foreign exchange rates.

Net premiums written were ~~$2,141~~$3,267 million in 2011, an increase of ~~10%~~11% from ~~$1,945~~$2,932 million in 2010. Ceded reinsurance premiums as a percentage of gross written premiums increased to 15% in 2011 from 13% in 2010. The increase in the percentage of ~~gross premiums~~business ceded ~~is primarily related~~was due to the increase in premiums ~~ceded~~written by new companies, which cede a higher portion of their gross premiums, and to growth in premiums written by assigned risk ~~pools, as described above.~~

plans, which cede 100% of their gross premiums.

Premiums earned increased 6%7% to ~~$2,000~~$3,056 million in 2011 from ~~$1,879~~$2,846 million in 2010. Insurance premiums are ~~primarily~~generally earned ~~on a pro rata basis ratably~~evenly over the policy term, and premiums earned in 2011 are related to business written during both 2011 and 2010.

Table of Contents

Net Investment Income~~.Following~~. Following is a summary of net investment income for 2011 and 2010:

   Amount Average Annualized
Yield
(Dollars in thousands)
   2011 2010 2011 2010
Fixed maturity securities, including cash
   $ 247,457    $ 250,758    4.1 % 4.1 %
Investment funds
   31,535    6,258    12.4 % 3.0 %
Arbitrage trading account and funds
   11,396    12,354    5.4 % 5.3 %
Equity securities available for sale
   6,749    5,993    3.6 % 3.9 %


Gross investment income
   297,137    275,363    4.4 % 4.1 %
Investment expenses
   (1,939 ) (2,071 )


Total
   $ 295,198    $ 273,292    4.4 % 4.1 %



	Amount						Average Annualized Yield
(Dollars in thousands)	2011			2010			2011		2010
Fixed maturity securities, including cash and cash equivalents, loans receivable and real estate	$	370,557		$	373,375		4.0	%	4.1	%
Investment funds	23,836			(12,786		)	6.1	%	(4.0	)%
Arbitrage trading account and funds	7,929			26,005			2.6	%	7.3	%
Equity securities available for sale	9,544			8,716			3.5	%	3.7	%
Gross investment income	411,866			395,310			4.0	%	4.0	%
Investment expenses	(2,605		)	(2,875		)
Total	$	409,261		$	392,435		4.0	%	3.9	%

Net investment income increased 8%4% to ~~$295~~$409 million in 2011 from ~~$273~~$392 million in 2010. The increase in investment income iswas due to an increase in income from investment funds, partially offset by a decrease in investment income from arbitrage. The increase in investment income from investment funds, which are reported on a one-quarter ~~lag. The increase in investment income from investment funds is~~lag, was primarily due to higher income from energy and real estate funds. Average invested assets, at cost (including cash and cash equivalents) were ~~$13.5~~$13.6 billion in 2011 and $13.3 billion in 2010.

Insurance Service Fees~~.Insurance~~. Insurance service fees consist of fee-based services to help clients develop and administer self-insurance programs, primarily for workers’ compensation coverage. Service fees increased to ~~$47~~$69 million in 2011 from ~~$42~~$64 million in 2010 due to an increase in fees received for administering assigned risk plans.

Net Investment Gains. The Company buys and sells securities on a regular basis in order to maximize its total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, values and general economic conditions. Net realized gains on investment sales were ~~$53~~$74 million in 2011 compared with ~~$20~~$26 million in 2010.

Other-Than-Temporary ~~Impairments.~~Impairments. The cost of securities is adjusted where appropriate to include a provision for decline in value which is considered to be other-than-temporary. Other-than-temporary impairments were $0.4 million in 2011 compared with $3$4 million in 2010.

Revenues from Wholly-Owned Investees. ~~Revenues from wholly-owned investees were $110 million in 2011 compared with $105 million in 2010.~~ These revenues were derived from aviation-related businesses that provide services to the general aviation market, including fuel and line service, aircraft sales and maintenance, avionics and engineering services and parts fabrication. Revenues from wholly-owned investees were $176 million in 2011 compared with $166 million in 2010 due to increased aircraft sales.

Losses and Loss Expenses. Losses and loss expenses increased to ~~$1,281~~$1,965 million in 2011 from ~~$1,120~~$1,718 million in 2010. The consolidated loss ratio ~~was 64.1%~~of 64.3% in 2011 ~~and 59.6% in 2010. The increase in~~was 3.9 points higher than the loss ratio of 4.5 points was primarily due to a decrease of 2.6 points in favorable prior year reserve development and an increase of 1.6 points in catastrophe losses. Favorable prior year reserve development was $86 million compared with $129 million60.4% in 2010. Catastrophe losses, ~~were $88 million in 2011 compared with $53 million in 2010. Catastrophe losses in 2011~~which were primarily ~~related to a series of~~from hurricanes and severe ~~tornadoes~~wind and hail storms in the United States and the Japanese earthquake, were $139 million in ~~April and May as well as from the earthquake~~2011 compared with $75 million in ~~Japan~~2010, an increase of 1.9 loss ratio points. Favorable prior year reserve development was $142 million in ~~March.~~2011 compared with $180 million in 2010, a difference of 1.7 loss ratio points. The loss ratio excluding catastrophe losses and favorable prior year reserve development increased 0.3 points to ~~64.0%~~64.4% in 2011 from ~~63.7%~~64.1% in 2010. A summary of loss ratios in 2011 compared with 2010 by business segment follows:

~~Specialty’s~~Specialty - The loss ratio of 57.8% in 2011 was ~~57.5%~~1.2 points lower than the loss ratio of 59.0% in 2010. Catastrophe losses were $16 million in 2011 compared with ~~57.6%~~none in 2010, an increase of 1.5 loss ratio points. Favorable prior year reserve development was $97 million in 2011 compared with $71 million in 2010, a difference of 1.9 loss ratio points. The loss ratio excluding catastrophe losses and favorable prior year reserve development decreased 0.8 points to 65.6% in 2011 from 66.4% in 2010.

Regional - The loss ratio of 71.5% in 2011 was 10.8 points higher than the loss ratio of 60.7% in 2010. Catastrophe losses were $85 million in 2011 compared with $67 million in 2010, an increase of 2.3 loss ratio points. Favorable prior year reserve development was $25 million in 2011 compared with $69 million in 2010, a difference of 5.5 loss ratio points. The loss ratio excluding catastrophe losses and favorable prior year reserve development increased 3.0 points to 64.0% in 2011 from 61.0% in 2010 due to earned pricing and loss cost trends.

Table of Contents

Alternative markets - The loss ratio of 71.9% in 2011 was 6.0 points higher than the loss ratio of 65.9% in 2010. Catastrophe losses were $1.5 million in 2011 compared with none in 2010, an increase of 0.3 loss ratio points. Prior year reserves increased by $2 million in 2011 compared with a decrease of $17 million in 2010, a difference of 4.3 loss ratio points. The loss ratio excluding catastrophe losses and prior year reserve development increased 1.4 points to 71.1% in 2011 from 69.7 in 2010.

Reinsurance - The loss ratio of 60.9% in 2011 was 7.6 points higher than the loss ratio of 53.3% in 2010. Catastrophe losses were $18 million in 2011 compared with $4 million in 2010, an increase of 4.3 loss ratio points. Favorable prior year reserve development was $19 million in 2011 and $20 million in 2010, a difference of 0.5 loss ratio points. The loss ratio excluding catastrophe losses and favorable prior year reserve development increased 2.7 points to 61.2% in 2011 from 58.5% in 2010.

International - The loss ratio was 61.6% in 2011 was 1.2 points lower than the loss ratio of 62.8% in 2010. Catastrophe losses were $19 million in 2011 compared with $4 million in 2010, and increase of 3.0 loss ratio points. Favorable prior year reserve development was $3 million in 2011 and $3 million in 2010. The loss ratio excluding catastrophe losses and favorable prior year reserve development decreased ~~1.1~~4.2 points to ~~65.2%~~58.2% in 2011 from ~~66.3% in 2010. Catastrophe losses were $9.2 million in 2011 compared with none in 2010. Favorable prior year reserve development was $61 million in 2011 compared with $55 million in 2010.~~

62.4%.

Regional’s loss ratio was 70.1% in 2011 compared with 59.7% in 2010. The increase of 10.4 points was due primarily to a decrease of 6.5 points in favorable reserve development and an increase of 1.6 points in catastrophe losses. Favorable prior year reserve development was $15 million in 2011 compared with $50 million in 2010. Catastrophe losses were $53 million in 2011 compared with $45 million in 2010. The loss ratio excluding catastrophe losses and favorable prior year reserve development increased 2.3 points to 62.9% in 2011 from 60.6% in 2010.

Alternative markets’ loss ratio was 72.4% in 2011 compared with 64.9% in 2010. The increase of 7.5 points was due primarily to a 5.7 point change in the impact of prior year reserve development. Prior year reserves increased by $7

million in 2011 compared with a decrease of $10 million in 2010. Catastrophe losses were $0.4 million in 2011 compared with none in 2010. The loss ratio excluding catastrophe losses and favorable prior year reserve development increased 1.6 points to 69.8% in 2011 from 68.2% in 2010.

Reinsurance’s loss ratio was 60.7% in 2011 compared with 53.1% in 2010. The loss ratio excluding catastrophe losses and favorable prior year reserve development increased 5.5 points to 62.2% in 2011 from 56.7% in 2010 due to changes in the mix of business and to changes in reinsurance contract structures that included a partially offsetting decrease in ceding commissions paid to reinsured companies. Catastrophe losses were $11 million in 2011 compared with $4 million in 2010. Favorable prior year reserve development was $14 million in 2011 and $11 million in 2010.

International’s loss ratio was 62.5% in 2011 compared with 64.4% in 2010. The loss ratio excluding catastrophe losses and favorable prior year reserve development decreased 5.4 points to 58.7% in 2011 from 64.1 in 2010 due to growth in earned premiums and improving profitability of our new Lloyd’s syndicate as well as our business in Australia. Catastrophe losses were $14 million in 2011 compared with $4 million in 2010. Favorable prior year reserve development was $3 million in 2011 and in 2010.

Other Operating Costs and ~~Expenses.~~Expenses. Following is a summary of other operating costs and expenses for 2011 and 2010:

(Dollars in thousands)
   2011    2010
Underwriting expenses
   $ 692,999       $ 650,202
Service expenses
   36,891       36,955
Net foreign currency (gains) losses
   529       (3,711 )
Other costs and expenses
   56,771       55,344




Total
   $ 787,190       $ 738,790



(Dollars in thousands)	2011			2010
Underwriting expenses	$	1,055,589		$	975,542
Service expenses	55,764			54,442
Net foreign currency gains	(2,171		)	(5,627		)
Other costs and expenses	83,858			83,650
Total	$	1,193,040		$	1,108,007

Underwriting expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) increased to ~~34.7%~~34.5% in 2011 from ~~34.6%~~34.3% in 2010.

Service expenses, which represent the costs associated with the fee-based businesses, were ~~unchanged at $37 million.~~

$56 million in 2011 and $54 million in 2010.

Net foreign currency ~~(gains) losses~~gains result from transactions denominated in a currency other than the operating unit’s functional currency. The ~~gain in 2010 was~~gains were primarily attributable to foreign operating units holding assets denominated in U.S. dollars.

Other costs and expenses, which represent corporate expenses, ~~increased 3% to $57~~were $84 million ~~due to an increase~~ in ~~general~~2011 and ~~administrative costs.~~

2010.

Expenses from Wholly-Owned Investees. ~~Expenses from wholly-owned investees were $110 million in 2011 compared to $99 million in 2010, due to an increase in aircraft sold.~~ These expenses represent costs associated with aviation-related businesses that include cost of goods sold related to aircraft and other sales sales, labor and equipment costs related to repairs and other services and general and administrative expenses. Expenses from wholly-owned investees were $174 million in 2011 compared to $160 million in 2010, due to an increase in aircraft sales and related cost of goods sold.

Interest Expense. Interest expense increased 8%7% to ~~$56~~$84 million primarily due to the issuance of $300 million of 5.375% senior notes in September 2010, partially offset by the repayment of $150 million of 5.125% senior notes in September 2010.

Income Taxes. The effective income tax rate was ~~26%~~25% in 2011 ~~as compared to 25%~~and in 2010. The effective income tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income. ~~Tax exempt investment income comprised a smaller portion~~

Table of ~~the 2011 pre-tax income and as such had a lower impact on the effective tax rate for 2011 compared with 2010.~~

Contents

Results of Operations for the Three Months Ended ~~June~~September 30, 2011 and 2010

Business Segment Results

Following is a summary of gross and net premiums written, premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the three months ended ~~June~~September 30, 2011 and 2010. 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.

(Dollars in thousands)
   2011 2010
Specialty

Gross premiums written
   $ 473,849    $ 404,407
Net premiums written
   405,433    342,275
Premiums earned
   349,943    316,513
Loss ratio
   60.6 % 57.2 %
Expense ratio
   31.9 % 32.7 %
GAAP combined ratio
   92.5 % 89.9 %


Regional

Gross premiums written
   $ 280,841    $ 286,711
Net premiums written
   260,579    258,543
Premiums earned
   266,764    266,629
Loss ratio
   77.6 % 62.2 %
Expense ratio
   36.3 % 35.5 %
GAAP combined ratio
   113.9 % 97.7 %


Alternative Markets

Gross premiums written
   $ 178,792    $ 146,599
Net premiums written
   121,819    117,092
Premiums earned
   148,999    155,227
Loss ratio
   72.2 % 65.2 %
Expense ratio
   27.4 % 26.0 %
GAAP combined ratio
   99.6 % 91.2 %


Reinsurance

Gross premiums written
   $ 106,866    $ 114,646
Net premiums written
   99,550    107,633
Premiums earned
   105,836    105,632
Loss ratio
   58.8 % 55.7 %
Expense ratio
   42.0 % 41.0 %
GAAP combined ratio
   100.8 % 96.7 %


International

Gross premiums written
   $ 204,928    $ 161,106
Net premiums written
   170,034    135,811
Premiums earned
   145,702    104,127
Loss ratio
   58.7 % 61.1 %
Expense ratio
   41.1 % 41.2 %
GAAP combined ratio
   99.8 % 102.3 %


Consolidated

Gross premiums written
   $ 1,245,276    $ 1,113,469
Net premiums written
   1,057,415    961,354
Premiums earned
   1,017,244    948,128
Loss ratio
   66.3 % 60.2 %
Expense ratio
   34.8 % 34.2 %
GAAP combined ratio
   101.1 % 94.4 %



(Dollars in thousands)	2011			2010
Specialty
Gross premiums written	$	454,560		$	383,877
Net premiums written	382,541			330,985
Premiums earned	367,417			326,239
Loss ratio	58.3		%	61.6		%
Expense ratio	32.7		%	32.0		%
GAAP combined ratio	91.0		%	93.6		%
Regional
Gross premiums written	$	301,542		$	300,010
Net premiums written	277,177			272,116
Premiums earned	267,142			268,089
Loss ratio	74.2		%	62.6		%
Expense ratio	35.7		%	35.6		%
GAAP combined ratio	109.9		%	98.2		%
Alternative Markets
Gross premiums written	$	222,423		$	184,568
Net premiums written	174,744			152,068
Premiums earned	156,820			148,830
Loss ratio	70.9		%	68.0		%
Expense ratio	26.7		%	26.0		%
GAAP combined ratio	97.6		%	94.0		%
Reinsurance
Gross premiums written	$	118,266		$	102,785
Net premiums written	113,620			98,428
Premiums earned	103,906			103,126
Loss ratio	61.5		%	53.7		%
Expense ratio	40.9		%	39.5		%
GAAP combined ratio	102.4		%	93.2		%
International
Gross premiums written	$	209,509		$	150,155
Net premiums written	178,057			133,109
Premiums earned	160,538			121,013
Loss ratio	60.0		%	60.1		%
Expense ratio	38.9		%	38.3		%
GAAP combined ratio	98.9		%	98.4		%
Consolidated
Gross premiums written	$	1,306,300		$	1,121,395
Net premiums written	1,126,139			986,706
Premiums earned	1,055,823			967,297
Loss ratio	64.8		%	61.8		%
Expense ratio	34.3		%	33.6		%
GAAP combined ratio	99.1		%	95.4		%

Table of Contents

Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share for the three months ended ~~June~~September 30, 2011 and 2010 (amounts in thousands, except per share data):

   2011    2010
Net income to common stockholders
   $ 83,082       $ 110,207
Weighted average diluted shares
   147,677       157,461
Net income per diluted share
   $ 0.56       $ 0.70



	2011		2010
Net income to common stockholders	$	77,308	$	93,619
Weighted average diluted shares	144,538		154,160
Net income per diluted share	$	0.53	$	0.61

The Company reported net income of ~~$83~~$77 million in 2011 compared to ~~$110~~$94 million in 2010. The decrease in net income was primarily due to a decline in underwriting ~~income, partially offset by an increase in investment income and net investment gains.~~income. The number of weighted average diluted shares decreased as a result of the Company’s repurchases of its common stock in 2010 and 2011.

Premiums~~.Gross~~. Gross premiums written were ~~$1,245~~$1,306 million in 2011, an increase of ~~12%~~16% from ~~$1,113~~$1,121 million in 2010. The increase in gross premiums written was primarily due to growth in our specialty and international business segments as a result of expansion into new markets. Approximately ~~81%~~79% of policies expiring in the ~~first three months~~third quarter of 2011 were renewed, compared with a ~~78%~~77% renewal retention rate for policies expiring in full year 2010. The average rate (i.e., average premium adjusted for change in exposures) for policies that renewed in 2011 increased by approximately 2%3%.

Specialty gross premiums increased ~~by 17%~~18% to ~~$474~~$455 million in 2011 from ~~$404~~$384 million in 2010 primarily due to increased business in the energy and environmental markets. Gross premiums written increased ~~22%~~25% for commercial automobile, ~~28%~~31% for other liability, ~~20%~~17% for property lines, 7%9% for professional liability and ~~13%~~19% for products liability.

Regional gross premiums ~~decreased by 2%~~increased 1% to ~~$281~~$302 million in 2011 from ~~$287~~$300 million in 2010. Gross premiums written ~~decreased 4% for commercial automobile,~~ increased 3%7% for workers’ compensation and ~~was unchanged~~6% for commercial multiple ~~peril.~~peril and decreased 2% for commercial automobile. Gross premiums written in 2010 ~~include $9~~included $8 million of assigned risk plan premiums that were transferred to the alternative markets segment in 2011 (see below).

Alternative markets gross premiums increased ~~by 22%~~21% to ~~$179~~$222 million in 2011 from ~~$147~~$185 million in 2010. The increase was primarily due to an increase in assigned risk premiums, including assigned risk premiums transferred from the regional segment as described above. Gross premiums for assigned risk plans, which are fully reinsured, were ~~$44~~$31 million in 2011 and ~~$20~~$15 million in 2010. For the remainder of the alternative markets segment, gross premiums increased 7%12% to ~~$135~~$191 million in 2011 from ~~$127~~$170 million in 2010. This includes increases of ~~65%~~84% for accident and health products and 9%11% for primary workers’ compensation ~~partially offset~~and decreased by ~~a decrease of 25%~~22% for excess workers’ compensation.

Reinsurance gross premiums ~~decreased by 7%~~increased 15% to ~~$107~~$118 million in 2011 from ~~$115~~$103 million in 2010. Gross premiums written decreased 7%3% to ~~$70~~$82 million for casualty business and ~~decreased 7%~~increased 105% to ~~$37~~$36 million for property business.

International gross premiums increased ~~by 27%~~40% to ~~$205~~$210 million in 2011 from ~~$161~~$150 million in 2010. The increase iswas primarily due to an increase in business written by our Lloyd’s operation, our companies in South America, and new insurance branches in Germany and Norway. Gross premiums written increased ~~50%~~75% for property lines, ~~40%~~21% for liability lines, ~~34%~~29% for workers’ compensation, ~~14%~~52% for reinsurance assumed, 7%11% for ~~auto~~automobile and ~~14%~~41% for professional liability.

In addition, three percentage points of the 40% increase in gross premiums written resulted from changes in foreign exchange rates.

Net premiums written were ~~$1,057~~$1,126 million in 2011, an increase of ~~10%~~14% from ~~$961~~$987 million in 2010. Ceded reinsurance premiums as a percentage of gross written premiums increased to ~~15%~~14% in 2011 from ~~14%~~12% in 2010. The increase in the percentage of ~~gross premiums~~business ceded ~~is primarily related~~was due to the increase in premiums ~~ceded~~written by new companies, which cede a higher portion of their gross premiums, and to growth in premiums written by assigned risk ~~pools, as described above.~~

plans, which cede 100% of their gross premiums.

Premiums earned increased 7%9% to ~~$1,017~~$1,056 million in 2011 from ~~$948~~$967 million in 2010. Insurance premiums are ~~primarily~~generally earned ~~on a pro rata basis ratably~~evenly over the policy term, and premiums earned in 2011 are related to business written during both 2011 and 2010.

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Net Investment Income~~.Following~~. Following is a summary of net investment income for 2011 and 2010:

   Amount Average Annualized
Yield
(Dollars in thousands)
   2011 2010 2011 2010
Fixed maturity securities, including cash
   $ 125,344    $ 125,649    4.1 % 4.2 %
Investment funds
   17,028    1,540    12.9 % 1.5 %
Arbitrage trading account and funds
   4,301    1,131    3.9 % 0.9 %
Equity securities available for sale
   3,485    2,628    3.9 % 3.5 %


Gross investment income
   150,158    130,948    4.4 % 3.9 %
Investment expenses
   (1,086 ) (1,217 )


Total
   $ 149,072    $ 129,731    4.4 % 3.9 %



	Amount						Average Annualized Yield
(Dollars in thousands)	2011			2010			2011		2010
Fixed maturity securities, including cash and cash equivalents, loans receivable and real estate	$	123,100		$	122,617		4.0	%	4.0	%
Investment funds	(7,699		)	(19,044		)	(5.6	)%	(18.3	)%
Arbitrage trading account and funds	(3,467		)	13,651			(3.5	)%	11.2	%
Equity securities available for sale	2,795			2,723			3.2	%	3.4	%
Gross investment income	114,729			119,947			3.4	%	3.6	%
Investment expenses	(666		)	(804		)
Total	$	114,063		$	119,143		3.3	%	3.6	%

Net investment income ~~increased 15%~~decreased 4% to ~~$149~~$114 million in 2011 from ~~$130~~$119 million in 2010. The ~~increase~~decrease in investment income was due to ~~an increase~~a decrease in income from ~~investment funds, which are reported on~~arbitrage was partially offset by a ~~one-quarter lag. The increase~~decrease in ~~income~~losses from investment ~~funds was primarily due to higher income from energy and real estate~~ funds. Average invested assets, at cost (including cash and cash equivalents) were ~~$13.6~~$13.7 billion in 2011 and ~~$13.3~~$13.4 billion in 2010.

Insurance Service Fees~~.Insurance~~. Insurance service fees consist of fee-based services to help clients develop and administer self-insurance programs, primarily for workers’ compensation coverage. Service fees ~~increased to $25~~were $22 million in 2011 ~~from $20 million in 2010 due to an increase in fees received for administering assigned risk plans.~~and 2010.

Net Investment Gains. The Company buys and sells securities on a regular basis in order to maximize its total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net realized gains on investment sales were ~~$23~~$21 million in 2011 compared with ~~$12~~$6 million in 2010.

Other-Than-Temporary Impairments. The cost of securities is adjusted where appropriate to include a provision for decline in value which is considered to be other-than-temporary. ~~Other-than-temporary~~There were no other-than-temporary impairments ~~were $0.4 million~~ in 2011 compared with ~~none~~$1 million in 2010.

Revenues from Wholly-Owned Investees. ~~Revenues from wholly-owned investees were $56 million in 2011 compared with $53 million in 2010.~~ These revenues were derived from aviation-related businesses that provide services to the general aviation market, including fuel and line service, aircraft sales and maintenance, avionics and engineering services and parts fabrication. Revenues from wholly-owned investees were $66 million in 2011 compared with $62 million in 2010.

Losses and Loss Expenses. Losses and loss expenses increased to ~~$674~~$684 million in 2011 from ~~$570~~$598 million in 2010. The consolidated loss ratio ~~was 66.3%~~of 64.8% in 2011 ~~compared with 60.2% in 2010. The increase of 6.1~~was 3.0 points inhigher than the loss ratio ~~was due to an increase~~ of ~~3.1 points in catastrophe losses and a decrease of 3.6 points in favorable reserve development. Catastrophe losses were $63 million in 2011 compared with $30 million~~61.8% in 2010. Catastrophe losses, ~~in 2011~~which were primarily ~~related to a series of~~from hurricanes and severe ~~tornadoes~~wind and hail storms in the United States, were $51 million in ~~April and May.~~2011 compared with $22 million in 2010, an increase of 2.6 loss ratio points. Favorable prior year reserve development was ~~$36~~$56 million in 2011 compared with ~~$67~~$51 million in 2010. The loss ratio excluding catastrophe losses and favorable prior year reserve development ~~decreased~~increased 0.6 points to ~~63.6%~~65.3% in 2011 from ~~64.2%~~64.7% in 2010. A summary of loss ratios in 2011 compared with 2010 by business segment follows:

~~Specialty’s~~Specialty - The loss ratio ~~was 60.6%~~of 58.3% in 2011 ~~compared with 57.2% in 2010. The increase of 3.4~~was 3.3 points inlower than the loss ratio ~~was due to an increase~~ of ~~2.6 points~~61.6% in ~~the catastrophe losses and a decrease of 2.8 points in favorable reserve development.~~2010. Catastrophe losses were $9$6 million in 2011 compared with none in ~~2010.~~2010, an increase of 1.7 loss ratio points. Favorable prior year reserve development was ~~$23~~$36 million in 2011 compared with ~~$30~~$16 million in ~~2010.~~2010, a difference of 4.8 loss ratio points. The loss ratio excluding catastrophe losses and favorable prior year reserve development decreased ~~2.1~~0.3 points to ~~64.5%~~66.2% in 2011 from ~~66.6%~~66.5% in 2010.

~~Regional’s~~Regional - The loss ratio was ~~77.6%~~74.2% in 2011 ~~compared with 62.2% in 2010. The increase of 15.4~~was 11.6 points inhigher than the loss ratio ~~was due to an increase~~ of ~~5.5 points~~62.6% in ~~catastrophe losses and a decrease of 8.9 points in favorable reserve development.~~2010. Catastrophe losses were ~~$44~~$32 million in 2011 compared with ~~$30~~$22 million in ~~2010.~~2010, an increase of 3.8 loss ratio points. Favorable prior year reserve development was $6$10 million in 2011 compared with ~~$30~~$19 million in ~~2010.~~2010, a difference of 3.3 loss ratio points. The loss ratio excluding catastrophe losses and favorable prior year reserve development increased ~~1.0 point~~4.5 points to ~~63.2%~~66.1% in 2011 from ~~62.2%~~61.6% in ~~2010.~~

2010 due to earned pricing and loss cost trends.

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Alternative ~~markets’~~markets - The loss ratio ~~was 72.2%~~of 70.9% in 2011 ~~compared with 65.2% in 2010. The increase of 7.0~~was 2.9 points inhigher than the loss ratio ~~was due to a 5.7 point change~~ of 68.0% in ~~the impact of prior year reserve development and an increase of 0.3 points in catastrophe losses. Prior year reserves increased by $3~~2010. Catastrophe losses were $1.2 million in 2011 compared with ~~a decrease~~none in 2010, an increase of $60.7 loss ratio points. Prior year reserves decreased by $5 million in ~~2010.~~2011 compared with $8 million in 2010, a difference of 1.7 loss ratio points. The loss ratio excluding catastrophe losses and favorable prior year reserve development increased ~~1.0~~0.5 point to ~~69.9%~~73.5% in 2011 from ~~68.9%~~73.0% in 2010.

~~Reinsurance’s loss ratio was 58.8% in 2011 compared with 55.7% in 2010.~~Reinsurance - The loss ratio ~~excluding catastrophe losses and favorable prior year reserve development increased 4.0 points to 61.2%~~of 61.5% in 2011 ~~from 57.2%~~was 7.8 points higher than the loss ratio of 53.7% in ~~2010 due to changes in the mix of business.~~2010. Catastrophe losses were $7$6 million in 2011 compared with none in ~~2010.~~2010, an increase of 6.1 loss ratio points. Prior year reserves decreased by $9$4 million in 2011 compared with $1$9 million in ~~2010.~~

~~International’s~~2010, a difference of 4.1 loss ratio ~~was 58.7% in 2011 compared with 61.1% in 2010.~~points. The loss ratio excluding catastrophe losses and favorable prior year reserve development decreased ~~4.9~~2.5 points to 59.5% in 2011 from 62.0% in 2010.

International - The loss ratio of 60.0% in 2011 was 0.1 points lower than the loss ratio of 60.1% in 2010. Catastrophe losses were $5 million in 2011 compared with none in 2010, an increase of 3.2 loss ratio points. Prior year reserves were $1 million in 2011 and in 2010, a difference of 1.0 loss ratio points. The loss ratio excluding catastrophe losses and favorable prior year reserve development decreased 2.4 points to 57.2% in 2011 from ~~61.9%~~59.6% in 2010 due to improved profitability for our businesses in South America and Australia. ~~Catastrophe losses were $3 million in 2011 compared with none in 2010. Prior year reserves decreased by $0.5 million in 2011 and $0.9 million in 2010.~~

Other Operating Costs and Expenses.Following is a summary of other operating costs and expenses for 2011 and 2010:

(Dollars in thousands)
   2011    2010
Underwriting expenses
   $ 353,814       $ 324,599
Service expenses
   19,562       18,411
Net foreign currency losses
   9       1,316
Other costs and expenses
   28,974       26,497




Total
   $ 402,359       $ 370,823



(Dollars in thousands)	2011			2010
Underwriting expenses	$	362,590		$	325,340
Service expenses	18,873			17,487
Net foreign currency gains	(2,700		)	(1,916		)
Other costs and expenses	27,087			28,306
Total	$	405,850		$	369,217

Underwriting expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. The expense ratio (underwriting expenses expressed as a percentage of premiums earned) was ~~34.8%~~34.3% in 2011 compared with ~~34.2%~~33.6% in ~~2010.~~

2010 due to increases in internal underwriting costs.

Service expenses, which represent the costs associated with the fee-based businesses, increased 6%8% to ~~$20~~$19 million. The increase was due to an increase in general and administrative expenses.

Net foreign currency ~~losses~~gains result from transactions denominated in a currency other than the operating unit’s functional currency.

Other costs and expenses, which represent corporate expenses ~~increased 9% to $29 million due to an increase in general and administrative costs.~~

~~Expenses from Wholly-Owned Investees. Expenses from wholly-owned investees~~ were ~~$56~~$27 million in 2011 compared ~~to $50~~with $28 million in 2010.

Expenses from Wholly-Owned Investees. These expenses represent costs associated with aviation-related businesses that include cost of goods sold related to aircraft and other sales, labor and equipment costs related to repairs and other services and general and administrative expenses. Expenses from wholly-owned investees were $64 million in 2011 compared to $61 million in 2010.

Interest Expense. Interest expense ~~increased 8% to~~was $28 million ~~primarily due to the issuance of $300~~in 2011 compared with $27 million ~~of 5.375% senior notes~~ in ~~September 2010, partially offset by the repayment of $150 million of 5.125% senior notes in September~~ 2010.

Income Taxes. The effective income tax rate was ~~25%~~21% in 2011 as compared to ~~24%~~23% in 2010. The effective income tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income. Tax exempt investment income comprised a ~~smaller~~higher portion of the 2011 pre-tax income and as such had a ~~lower~~higher impact on the effective tax rate for 2011 compared with 2010.

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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.

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~~. The average duration of ~~its~~the investment portfolio was 3.5 years at ~~June~~September 30, 2011 and 3.6 years at December 31, 2010. The Company’s investment portfolio and investment-related assets as of ~~June~~September 30, 2011 were as follows:

(Dollars in thousands)
   Carrying
Value    Percent
of Total
Fixed maturity securities:

U.S. government and government agencies
   $ 1,177,289       8.8 %
State and municipal:

Special revenue
   2,129,715       15.9 %
Pre-refunded (1)
   1,419,472       10.6 %
State general obligation
   996,628       7.5 %
Local general obligation
   415,706       3.1 %
Corporate backed
   499,179       3.7 %




Total state and municipal
   5,460,700       40.9 %




Mortgage-backed securities:

Agency
   1,104,024       8.3 %
Residential-Prime
   266,080       2.0 %
Residential-Alt A
   50,536       0.4 %
Commercial
   56,098       0.4 %




Total mortgage-backed securities
   1,476,738       11.1 %




Corporate:

Industrial
   1,211,591       9.1 %
Financial
   775,776       5.8 %
Utilities
   205,924       1.5 %
Asset-backed
   308,666       2.3 %
Other
   112,323       0.9 %




Total corporate
   2,614,280       19.7 %




Foreign government and foreign government agencies
   550,502       4.1 %




Total fixed maturity securities
   11,279,509       84.4 %




Equity securities available for sale:

Preferred stocks
   162,793       1.2 %
Common stocks
   348,259       2.6 %




Total equity securities available for sale
   511,052       3.8 %




Arbitrage trading account
   474,787       3.6 %
Investment in arbitrage funds
   59,728       0.4 %
Investment funds
   606,291       4.5 %
Loans receivable
   311,663       2.3 %
Real estate
   117,873       0.9 %




Total investments
   $ 13,360,903       100.0 %



(Dollars in thousands)	Carrying Value			Percent of Total
Fixed maturity securities:
U.S. government and government agencies	$	1,073,737		8	%
State and municipal:
Special revenue	2,114,164			16	%
Pre-refunded (1)	1,361,871			10	%
State general obligation	965,393			7	%
Corporate backed	480,074			4	%
Local general obligation	438,318			3	%
Total state and municipal	5,359,820			40	%
Mortgage-backed securities:
Agency	1,155,843			9	%
Residential-Prime	243,817			2	%
Residential-Alt A	83,850			1	%
Commercial	55,277			—	%
Total mortgage-backed securities	1,538,787			12	%
Corporate:
Industrial	1,281,946			10	%
Financial	810,086			6	%
Asset-backed	323,099			2	%
Utilities	198,627		��	1	%
Other	106,689			1	%
Total corporate	2,720,447			20	%
Foreign government and foreign government agencies	537,979			4	%
Total fixed maturity securities	11,230,770			84	%
Equity securities available for sale:
Common stocks	310,938			2	%
Preferred stocks	127,527			1	%
Total equity securities available for sale	438,465			3	%

Investment funds	610,513			5	%
Real estate	346,015			3	%
Arbitrage trading account	327,883			2	%
Loans receivable	283,560			2	%
Investment in arbitrage funds	56,606			—	%
Total investments	$	13,293,812		100	%

______________


(1)	~~Pre-funded~~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 ~~comprised of~~with U.S. Treasury and U.S. government agency securities.

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Fixed Maturity Securities~~.The~~. 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 Available for Sale. Equity securities available for sale primarily represent investments in high-dividend yielding common and preferred stocks issued by large market capitalization companies.

Investment Funds. At September 30, 2011, the carrying value of investment funds was $611 million, including investments in real estate funds of $364 million and investments in energy funds of $111 million.

Real Estate. Real estate investments are comprised of an operating commercial office building in London, a commercial land lease in Washington D.C. and a commercial property under development in London.

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, have an aggregate cost of $284 million and an aggregate fair value of $266 million at September 30, 2011. Amortized cost of these loans is net of a valuation allowance of $20 million as of September 30, 2011. The seven largest loans have an aggregate amortized cost of $208 million and an aggregate fair value of $188 million as of such date and are secured by commercial real estate. These loans earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through March 2016. The loans are secured by office buildings (89%) and hotels (11%) located primarily in New York City, California, Hawaii and Boston.

Investment in Arbitrage Funds. Investment in arbitrage funds represents investments in limited partnerships that specialize in merger arbitrage and relative value arbitrage. Relative value arbitrage is the business of investing primarily in equity securities with the goal of capitalizing on perceived differences in fundamental values between pairs of companies in similar industries.

~~Investment Funds~~. At June 30, 2011 and December 31, 2010, the Company’s carrying value in investment funds was $606 million and $452 million, respectively, including investments in real estate funds of $350 million and $230 million, respectively, and investments in energy funds of $126 million and $97 million, respectively.

~~Loans Receivable~~. Loans receivable, which are carried at amortized cost, have an aggregate cost of $312 million and an aggregate fair value of $285 million at June 30, 2011. Amortized cost of these loans is net of a valuation allowance of $20 million as of June 30, 2011. The eight largest loans have an aggregate amortized cost of $233 million and an aggregate fair value of $205 million and are secured by commercial real estate. These loans earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) between August 2011 and June 2014. The loans are secured by office buildings (90%) and hotels (10%) located primarily in New York City, California, Hawaii, Boston and Philadelphia.

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. As noted above, the Company attempts to manage its interest rate risk by maintaining an appropriate relationship between the average duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The average duration for the fixed maturity portfolio was 3.5 years at ~~June~~September 30, 2011 and 3.6 years at December 31, 2010. In addition, the fair value of the Company’s international investments is subject to currency risk. The Company attempts to manage its currency risk by matching its foreign currency assets and liabilities where considered appropriate.

Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities was ~~$216~~$485 million and ~~$187~~$391 million for the ~~six~~nine months ended ~~June~~September 30, 2011 and 2010, respectively. The increase in cash flow was due primarily to an increase in premium collections and a decrease in income taxes paid, partially offset by a increase in underwriting expenses and paid claims.

The Company’s insurance subsidiaries’ principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company targets an average duration for its investment portfolio that is within one year of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed income securities are not sufficient to fund claim payments and other cash requirements,

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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 ~~85%~~84% invested in cash, cash equivalents and marketable fixed maturity securities as of ~~June~~September 30, 2011. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized.

~~Debt.~~Debt. At ~~June~~September 30, 2011, the Company had senior notes, junior subordinated debentures and other debt outstanding with a carrying value of ~~$1,744~~$1,745 million and a face amount of ~~$1,763~~$1,762 million. The maturities of the outstanding debt are $9$6 million in 2011, ~~$25~~$2 million in 2012, $200 million in 2013, $25 million in 2014, $200 million in 2015, $2 million in 2016, $450 million in 2019, $300 million in 2020, $76 million in 2022, $1 million in 2023, $250 million in 2037 and $250 million in 2045.

~~Equity.~~Equity. At ~~June~~September 30, 2011, total common stockholders’ equity was $3.9 billion, common shares outstanding were ~~140,911,472,~~137,082,096, and stockholders’ equity per outstanding share was ~~$27.77.~~$28.18.

Total Capital.Total capitalization (equity, senior notes and other debt and junior subordinated debentures) was ~~$5.7~~$5.6 billion at ~~June~~September 30, ~~2011.~~2011. The percentage of the Company’s capital attributable to senior notes, junior subordinated debentures and other debt was 31% at ~~June~~September 30, 2011 and 32% at December 31, 2010.


Item 3.	Quantitative and Qualitative Disclosure About Market Risk

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

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 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 ~~June~~September 30, 2011, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II –— OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings~~

Item 1.Legal Proceedings

~~Item 1A.~~

~~Risk Factors~~

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, 2010.

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

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 ~~quarter~~three months ended September 30, 2011 and the number of shares remaining authorized for purchase by the Company.

   Total number
of shares
purchased    Average price
paid per share    Total number of shares purchased
as part of publicly announced
plans
or programs    Maximum number of
shares that may yet be
purchased under the
plans or programs
April 2011
   —         —         —         10,000,000 (1)
May 2011
   24,137       $ 32.00       —         9,975,863
June 2011
   1,103,427       $ 31.80       —         8,872,436

~~(1)~~

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	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 2011	826,000	$	31.20	826,000	8,046,438
August 2011	2,735,829	29.43		2,735,829	5,310,609
September 2011	428,106	$	28.47	428,106	4,882,503

The Company’s repurchase authorization was increased to 10,000,000 shares by its ~~board of directors on February 25, 2011.~~

~~Item 5.~~

~~Other Information~~

~~On August 2, 2011, the~~ board of directors ~~of the Company amended certain provisions of the Company’s Amended and Restated By-Laws as follows:~~

Article II, Section 1: moving the place where meetings of the stockholders for the election of directors shall be held from the “. . . City of New York, State of New York, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting.” to the “. . . Town of Greenwich, State of Connecticut, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting.”;

~~Article II, Section 2: changing the date and time that the annual meeting of stockholders shall be held from “. . .~~ on the first day of April if not a legal holiday, and if a legal holiday, then on the next secular day following, at 2:00 p.m., or at such other date and time as shall be designated from time to time by the board of directors . . .” to “. . . on the first day of May if not a legal holiday, then on the next secular day following, at 1:00 p.m., or at such other date and time as shall be designated from time to time by the board of directors. . .”;

Article IV, Section 1: modifying the permissible additional methods of giving notices to directors from “Notice to directors may also be given by telegram.” to “Notices to directors may also be given by facsimile, overnight delivery or electronically.”; and

Article V, Section 2: revising the officers to be chosen annually by the board from “The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice-presidents, a secretary and a treasurer.” to “The board of directors shall annually choose a president, one or more vice-presidents, a secretary, a treasurer and such other officers as they may determine.”

~~The Amended and Restated By-Laws, as amended as indicated above, are attached hereto as Exhibit~~November 3, ~~and are incorporated by reference herein.~~

2011.

Item 6.Exhibits

~~Item 6.~~

~~Exhibits~~


	~~Number~~

Number	~~(3)~~	~~Amended and Restated By-Laws as of August 2, 2011.~~

	(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 ~~Office~~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.

	~~(101.INS)~~	~~XBRL Instance Document~~

	~~(101.SCH)~~	~~XBRL Taxonomy Extension Schema Document~~

	~~(101.CAL)~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~

	~~(101.DEF)~~	~~XBRL Taxonomy Extension Definition Linkbase~~

	~~(101.LAB)~~	~~XBRL Taxonomy Extension Label Linkbase Document~~

	~~(101.PRE)~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

Table of Contents

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~~

		W. R. BERKLEY CORPORATION
Date: ~~August 5,~~	November 7, 2011			/s/ William R. Berkley
			William R. Berkley
			Chairman of the Board and Chief Executive Officer


Date: ~~August 5,~~	November 7, 2011			/s/ Eugene G. Ballard
			Eugene G. Ballard
			Senior Vice President - Chief Financial Officer


	June 30, 2011			December 31, 2010
	(Unaudited)
Assets
Investments:
Fixed maturity securities	$	11,279,509		$	11,209,154
Equity securities available for sale		511,052			561,053
Arbitrage trading account		474,787			359,192
Investment in arbitrage funds		59,728			60,660
Investment funds		606,291			451,751
Loans receivable		311,663			353,583
Real estate		117,873			—

Total investments		13,360,903			12,995,393

Cash and cash equivalents		794,881			642,952
Premiums and fees receivable		1,241,298			1,087,208
Due from reinsurers		1,130,040			1,070,256
Accrued investment income		139,994			138,384
Prepaid reinsurance premiums		275,826			215,816
Deferred policy acquisition costs		440,644			405,942
Real estate, furniture and equipment		254,792			254,720
Deferred federal and foreign income taxes		14,957			65,492
Goodwill		90,581			90,581
Trading account receivables from brokers and clearing organizations		242,720			339,235
Current federal and foreign income taxes		15,630			23,605
Other assets		192,858			198,963

Total assets	$	18,195,124		$	17,528,547

Liabilities and Equity
Liabilities:
Reserves for losses and loss expenses	$	9,195,675		$	9,016,549
Unearned premiums		2,166,032			1,953,721
Due to reinsurers		264,929			215,723
Trading account securities sold but not yet purchased		68,255			53,494
Other liabilities		835,529			836,001
Junior subordinated debentures		242,893			242,784
Senior notes and other debt		1,501,739			1,500,419

Total liabilities		14,275,052			13,818,691

Equity:
Preferred stock, par value $.10 per share:
Authorized 5,000,000 shares; issued and outstanding - none		—			—
Common stock, par value $.20 per share:
Authorized 500,000,000 shares, issued and outstanding, net of treasury shares, 140,911,472 and 141,009,834 shares		47,024			47,024
Additional paid-in capital		923,995			935,099
Retained earnings		4,372,978			4,194,684
Accumulated other comprehensive income		340,743			276,563
Treasury stock, at cost, 94,206,446 and 94,108,084 shares		(1,771,933	)		(1,750,494	)

Total stockholders’ equity		3,912,807			3,702,876
Noncontrolling interests		7,265			6,980

Total equity		3,920,072			3,709,856

Total liabilities and equity	$	18,195,124		$	17,528,547


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
REVENUES:
Net premiums written	$	1,057,415		$	961,354		$	2,140,718		$	1,945,304
Change in net unearned premiums		(40,171	)		(13,226	)		(140,977	)		(66,615	)

Net premiums earned		1,017,244			948,128			1,999,741			1,878,689
Net investment income		149,072			129,731			295,198			273,292
Insurance service fees		25,035			20,390			47,208			41,875
Net investment gains (losses):
Net realized gains on investment sales		23,290			11,534			52,574			20,028
Other-than-temporary impairments		(400	)		—			(400	)		(2,582	)

Net investment gains		22,890			11,534			52,174			17,446

Revenues from wholly-owned investees		56,134			52,929			110,021			104,505
Other income		574			356			958			808

Total revenues		1,270,949			1,163,068			2,505,300			2,316,615

OPERATING COSTS AND EXPENSES:
Losses and loss expenses		674,276			570,475			1,281,371			1,120,448
Other operating costs and expenses		402,359			370,823			787,190			738,790
Expenses from wholly-owned investees		55,855			49,934			109,671			98,908
Interest expense		28,132			26,014			56,249			52,055

Total operating costs and expenses		1,160,622			1,017,246			2,234,481			2,010,201

Income before income taxes		110,327			145,822			270,819			306,414
Income tax expense		(27,309	)		(35,598	)		(71,309	)		(77,409	)

Net income before noncontrolling interests		83,018			110,224			199,510			229,005
Noncontrolling interests		64			(17	)		59			(188	)

Net income to common stockholders	$	83,082		$	110,207		$	199,569		$	228,817

NET INCOME PER SHARE:
Basic	$	0.59		$	0.73		$	1.41		$	1.50
Diluted	$	0.56		$	0.70		$	1.35		$	1.44


	For the Six Months Ended June 30,
	2011			2010
COMMON STOCK:
Beginning and end of period	$	47,024		$	47,024

ADDITIONAL PAID-IN CAPITAL:
Beginning of period	$	935,099		$	926,359
Stock options exercised and restricted units issued, net of tax		(23,936	)		(11,168	)
Restricted stock units expensed		12,524			11,017
Stock issued to directors		308			198

End of period	$	923,995		$	926,406

RETAINED EARNINGS:
Beginning of period	$	4,194,684		$	3,785,187
Net income to common stockholders		199,569			228,817
Dividends		(21,275	)		(19,638	)

End of period	$	4,372,978		$	3,994,366

ACCUMULATED OTHER COMPREHENSIVE INCOME:
Unrealized investment gains (losses):
Beginning of period	$	334,747		$	219,394
Unrealized gains on securities not other-than-temporarily impaired		53,342			108,305
Unrealized gains (losses) on other-than-temporarily impaired securities		(426	)		974

End of period		387,663			328,673

Currency translation adjustments:
Beginning of period		(42,488	)		(40,371	)
Net change in period		9,853			(17,220	)

End of period		(32,635	)		(57,591	)

Net pension asset:
Beginning of period		(15,696	)		(15,816	)
Net change in period		1,411			1,120

End of period		(14,285	)		(14,696	)

Total accumulated other comprehensive income	$	340,743		$	256,386

TREASURY STOCK:
Beginning of period	$	(1,750,494	)	$	(1,325,710	)
Stock exercised/vested		37,156			15,058
Stock repurchased		(59,159	)		(231,704	)
Stock issued to directors		564			536

End of period	$	(1,771,933	)	$	(1,541,820	)

NONCONTROLLING INTERESTS:
Beginning of period	$	6,980		$	5,879
Contributions		332			373
Net income (loss)		(59	)		188
Other comprehensive income, net of tax		12			8

End of period	$	7,265		$	6,448


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(Dollars in thousands)	2011		2010		2011		2010
Beginning balance of amounts related to credit losses	$	4,261	$	5,661	$	4,261	$	5,661
Additions for amounts related to credit losses		—		—		—		—

Ending balance of amounts related to credit losses	$	4,261	$	5,661	$	4,261	$	5,661


	June 30, 2011				December 31, 2010
(Dollars in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	11,279,509	$	11,292,086	$	11,209,154	$	11,215,317
Equity securities available for sale		511,052		511,052		561,053		561,053
Arbitrage trading account		474,787		474,787		359,192		359,192
Investment in arbitrage funds		59,728		59,728		60,660		60,660
Loans receivable		311,663		284,666		353,583		312,515
Cash and cash equivalents		794,881		794,881		642,952		642,952
Trading account receivables from brokers and clearing organizations		242,720		242,720		339,235		339,235
Liabilities:
Trading account securities sold but not yet purchased		68,255		68,255		53,494		53,494
Due to broker		78,629		78,629		5,318		5,318
Junior subordinated debentures		242,893		250,800		242,784		249,900
Senior notes and other debt		1,501,739		1,631,197		1,500,419		1,570,057


	Units		Fair Value
Six months ended June 30:
2011		42,000	$	1,328
2010		754,500	$	19,693

Fair Value

Nine months ended September 30: