W. R. Berkley Annual Report 2017

Plain-text annual report

W . R . B e r k l e y C o r p o r a t i o n 2 0 1 7 A n n u a l R e p o r t W. R. Berkley Corporation 2017 Annual Report TABLE OF CONTENTS Financial Highlights 2 | At A Glance 4 | Our Business 8 | Letter to Our Shareholders 14 | Investments 20 Segment Overview 22 | Form 10-K 27 | Operating Units 165 | Board of Directors & Officers 179 | Corporate Information IBC During the rapid industrialization of the early 20th century, people began to migrate to the burgeoning urban centers of America. It was a time of idealism and optimism, and people were bullish about the future. These trading cards with “go get-em” inspirational language were handed out by industrial companies to their employees like baseball cards. We, too, are optimistic about the future. Our values and principles are not printed on fancy plaques hung on the walls of our offices, but are demonstrated every day at each of our operating units in the way we conduct our business, engage with our team members and give back to our communities. Our people have always been our greatest asset and will continue to be for generations to come. We recognize that the children in our lives represent the future of the culture that make our Company unique, so we invited them to submit original artwork illustrating what their parent, grandparent, aunt or uncle does each day. On the following pages, you will see these values reflected in the artwork of our children. Everything Counts, Everyone Matters® 2017 Financial Highlights By taking advantage of challenging opportunities and bringing together talented people and capital, we feel confident we will be able to continue to deliver outstanding returns. 2 | COMBINED RATIO averaged 94.7% over the past 5 years. 96.7% TOTAL REVENUES increased 32% over the past 5 years. $7.7Billion $44.53 BOOK VALUE PER SHARE grew 41% over the past 5 years. TOTAL RETURN 5-year cumulative growth in stock price plus dividends was 104%. 10.1% SCOTT N. Agribusiness Underwriter Continental Western Group “ Coming to work every day as an Ag Underwriter for Berkley is like going to work at a second home. Berkley is one united family moving forward to support a community. My family sees this support not only in their own lives but also in the communities we service, and it is greatly appreciated.” “ My dad told me he is an Agribusiness Underwriter.” Shelbie—Age 18, Daughter of Scott N., Agribusiness Underwriter page 3 AT A GLANCE TOTAL REVENUES (dollars in billions) INVESTMENTS Market Value (dollars in billions) 7.1 7.2 6.4 7.7 7.7 14.5 15.6 15.4 17.5 16.6 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 RESERVES FOR LOSSES AND LOSS EXPENSES (dollars in billions) COMMON STOCKHOLDERS’ EQUITY* (dollars in billions) 10.1 10.4 10.7 11.2 11.7 4.3 4.6 4.6 5.4 5.0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 * Net of $1.2 billion in special dividends and shares repurchased from 2013-2017 4 | page 4 KAREN H. Vice President, External Financial Communications W. R. Berkley Corporation “ Before I came to Berkley, I got to know the Company and what made it so special as an analyst. After joining over 12 years ago, it has become crystal clear that its unique culture and adherence to core values are key elements to our long-term success. This atmosphere has made quite an impression on my children, and I know that as I prepare to send them out into the world, they go with a greater knowledge of what can be.” “ My mom’s job is to tell everyone how GREAT Berkley is! She’s the company cheerleader.” Angelina—Age 17, Daughter of Karen H., Vice President, External Financial Communications SELECTED FINANCIAL DATA In thousands, except per share data Years ended December 31, Total revenues Net premiums written Net investment income Net realized investment gains Insurance service fees Net income to common stockholders NET INCOME PER COMMON SHARE Basic Diluted Return on common stockholders’ equity AT YEAR END Total assets Total investments Reserves for losses and loss expenses Common stockholders’ equity Common shares outstanding Common stockholders’ equity per share 2013 $6,408,534 5,500,173 544,291 127,586 107,513 499,925 2014 $7,128,928 5,996,947 600,885 254,852 117,443 648,884 2015 2016 2017 $7,206,457 $7,654,184 $7,684,764 6,189,515 512,645 125,663 139,440 503,694 6,423,913 6,260,508 564,163 285,119 138,944 601,916 575,788 335,858 134,729 549,094 3.69 3.55 11.6% 5.07 4.86 15.0% 4.06 3.87 11.0% 4.91 4.68 13.1% 4.40 4.26 10.9% $20,551,796 14,458,630 10,080,941 4,336,035 132,233 32.79 $21,716,691 $21,730,967 $23,364,844 $24,299,917 15,591,824 10,369,701 4,589,945 126,749 36.21 15,351,467 10,669,150 4,600,246 123,308 37.31 16,649,792 17,450,508 11,197,195 11,670,408 5,047,208 5,411,343 121,194 41.65 121,515 44.53 6 | RELATIVE STOCK PRICE PERFORMANCE ■ W. R. Berkley Corporation ■ S&P 500® CUMULATIVE GROWTH 8,231% 1,499% 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 W. R. Berkley Corporation | 2017 Annual Report | 7 Our Business Today, as yesterday and tomorrow, the combined expertise of underwriting, risk management, claims handling and investing will deliver outstanding risk-adjusted returns. 8 | INSURANCE The Insurance units underwrite predominately commercial insurance business, including excess and surplus lines and admitted lines, and specialty personal lines, throughout the United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Scandinavia, Australia and Asia. 2017 RESULTS Total revenues were $6.2billion Pre-tax income was $756million REINSURANCE The Reinsurance units write reinsurance business on a facultative and treaty basis, primarily in the United States, United Kingdom, Continental Europe, Australia, the Asia-Pacific Region and South Africa. 2017 RESULTS Total revenues were Pre-tax loss was $696million $15million LAURA B. EmCap Underwriting Supervisor Berkley Accident and Health “ As a captive underwriter, I get to work closely with our clients to service their needs and provide solutions. Being a part of Berkley, I am able to show my daughters that when we work together through positive teamwork and collaboration, wonderful things can be achieved.” “ I think my mom sits at her desk and reads stories about people with health problems. These people don’t have enough money to pay for it. So my mom helps them. That’s what I think my mom does at work.” Maelyn—Age 8, Daughter of Laura B., EmCap Underwriting Supervisor OUR COMPANY W. R. Berkley Corporation, founded in 1967, is one of the nation’s premier commercial lines property casualty insurance providers. Each of the operating units within Berkley participates in a niche market requiring specialized knowledge about a territory or product. Our competitive advantage lies in our long-term strategy of decentralized operations, allowing each of our units to identify and respond quickly and effectively to changing market conditions and local customer needs. This decentralized structure provides financial accountability and incentives to local management and enables us to attract and retain the highest caliber professionals. We have the expertise and resources to utilize our strengths in the present environment, and the flexibility to anticipate, innovate and respond to whatever opportunities and challenges the future may hold. HOW WE ARE DIFFERENT Risk-Adjusted Returns Management company-wide is focused on obtaining Responsible Financial Practices Risk exposures are managed proactively. A strong the best potential returns with a real understanding balance sheet, including a high-quality investment of the amount of risk being assumed. Superior risk- portfolio, ensures ample resources to grow the business adjusted returns are generated over the insurance cycle. profitably whenever there are opportunities to do so. Accountability The business is operated with an ownership Transparency Consistent and objective standards are used to perspective and a clear sense of fiduciary responsibility measure performance — and, the same standards to shareholders. are used regardless of the environment. People-Oriented Strategy New businesses are started when opportunities are identified and, most importantly, when the right talent is found to lead a business. Of the Company’s 54 operating units, 47 were developed internally and seven were acquired. 10 | CHRISTINA C. Underwriting Manager, Executive Liability Berkley Select “ I started working for Berkley as a junior underwriter in January of 2001. During my time here, I’ve established numerous business relationships, been married, had children, and advanced my career within the company. Quite simply, I grew up here. I want my son to know that hard work and dedication always pay off when you work for a company you believe in.” “ My mom flies to different places to sell insurance policies that protect companies.” Peter—Age 11, Son of Christina C., Underwriting Manager, Executive Liability W. R. BERKLEY CORPORATION’S PERFORMANCE VS. THE S&P 500® ■ W. R. Berkley Corporation ■ S&P 500® 65,000% 40,000% 20,000% 0% 63,815% 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2017 Notes: W. R. Berkley Corporation’s book value per share has been adjusted for stock dividends paid from 1975 to 1983. Stock dividends were 6% in each year from 1975 to 1978, 14% in 1979, and 7% in each year from 1980 to 1983. The Company has paid cash dividends each year since 1976. ANNUAL PERCENTAGE CHANGE In Per-Share Book Value of W. R. Berkley Corporation with Dividends Included (1) 50.0% 12.5% 29.6% 28.6% 24.4% 18.2% 9.4% 14.5% -9.0% -11.6% -16.9% 59.6% 106.8% 23.5% 22.5% 13.2% 7.8% 20.8% 13.5% 16.7% -10.8% 34.5% 7.9% 15.9% 1.9% -18.1% 17.1% 7.6% 31.2% 26.7% 25.6% 21.9% 30.1% 16.3% -4.1% 23.3% 15.4% 12.2% 14.8% 4.8% 14.8% 4.3% 15.7% 10.6% 17.1% 57,900% Year 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Average Annual Gain — 1974–2017 Overall Gain — 1973–2017 Overall gain 1973–2017 with dividends compounded = 63,815% 12 | In S&P 500® with Dividends Included (2) -26.4% 37.2% 23.6% -7.4% 6.4% 18.2% 32.3% -5.0% 21.4% 22.4% 6.1% 31.6% 18.6% 5.1% 16.6% 31.7% -3.1% 30.5% 7.6% 10.1% 1.3% 37.6% 23.0% 33.4% 28.6% 21.0% -9.1% -11.9% -22.1% 28.7% 10.9% 4.9% 15.8% 5.5% -37.0% 26.5% 15.1% 2.1% 16.0% 32.4% 13.7% 1.4% 12.0% 21.3% 12.5% 9,841% Relative Results (1)-(2) 76.4% -24.7% 6.0% 36.0% 18.0% 0.0% -22.9% 19.5% -30.4% -34.0% -23.0% 28.0% 88.2% 18.4% 5.9% -18.5% 10.9% -9.7% 5.9% 6.6% -12.1% -3.1% -15.1% -17.5% -26.7% -39.1% 26.2% 19.5% 53.3% -2.0% 14.7% 17.0% 14.3% 10.8% 32.9% -3.2% 0.3% 10.1% -1.2% -27.6% 1.1% 3.0% 3.7% -10.7% 4.6% MICHAEL N. Corporate Investments W. R. Berkley Corporation “ To me, being part of the Berkley community means seeking improvement every day, and working with leaders that embrace that goal and who are empowered to take action to get there. One important theme in our house is that if you choose to pursue something—a sport, an instrument, building a skill—you go ‘all in’ and you own the outcome. I share anecdotes from my role at Berkley with our kids to reinforce these points, so they see the importance of passion, hard work, and commitment, and I’m proud to work at a company that shares those same values.” “ My dad travels the globe, helps companies grow, and writes on a whiteboard.” Alexandra—Age 10, Daughter of Michael N., Director – Corporate Investments To Our Shareholders W. Robert Berkley, Jr., President and Chief Executive Officer & William R. Berkley, Executive Chairman By most measures, our performance in 2017 was outstanding even though we did not achieve our long-term targeted return on equity of 15%. While many sectors of our industry suffered adverse consequences, we were able to overcome most of those issues and still deliver an excellent 11% risk- adjusted return to our shareholders. Our results were especially noteworthy because they were achieved in the face of low interest rates, high catastrophic losses and substantial competition in the pricing of insurance products. The management of our Company has a total focus on optimizing risk- adjusted returns. This year’s results clearly demonstrated that focus. An annual letter is a reflection of how the Company has done in the most recent year, yet it is important to recognize that results in any given twelve month period can be diminished or enhanced by actions taken to create a better long-term outcome. We always have to consider what we have accomplished in building and improving our enterprise for the long run in order to deliver on our objective of long-term value creation 14 |  (Illustration on the left) “My dad makes farms safer and prevents accidents.” Alexis—Age 13, Daughter of Paul S., Director, Risk Control Technical Services, Berkley Agribusiness “ As a member of the Risk Control team I am able to demonstrate the value that Berkley places on developing innovative approaches to create safe work environments for our customers. Discussing how our efforts impact the lives of others with my children shows them how companies can care about people and corporate results all at the same time.” —Paul S. for shareholders. In addition to managing our volatility and protecting against the unforeseen event, we constantly invest in a better future for our Company by building intellectual capital through technology, new products and new businesses. Many of these endeavors can impact our annual results, but they build more attractive economics over the long run. For example, investing a portion of our portfolio for total return results in us giving up some ordinary investment income but provides us with a potential stream of substantial capital gains. The consequences of this may be less operating income than we otherwise would have, however it can increase our potential for total earnings over the term of the investment. Similarly, starting new companies will result in an increase in expenses for their initial startup period, yet it provides for better returns with less risk once they have reached scale. We always look for high- quality companies to buy. Most of the time, prices and balance sheet or cultural issues make startups a better long-term proposition. We find few great companies available for sale at a rational price. Consequently, understanding the performance of our Company requires a clear conceptual appreciation of all aspects of the property casualty insurance business. We must recognize that we earn profits from underwriting and investing. These are highly variable elements that require expert judgment to implement the appropriate strategy at any moment in time, always requiring a balance of optimism and caution. Both areas require forecasting interest rates and inflation — each of which is necessary for the pricing of our future business and the investment of our funds as we look ahead. With respect to our product pricing, the starting point is always the prior year prices, which include an assumption of adequacy in prior year loss reserves. One then must look forward based on trends, court decisions and medical costs to attempt to forecast the required future pricing level necessary for an adequate return. The uncertainty in investment markets is always self-evident, but recent volatility, taken together with the fact that interest rates are at historically low levels and are just beginning to rise, makes that uncertainty even greater. Combined with concerns about future inflation, these factors altogether result in unprecedented risk and uncertainty. This level of concern is so substantial that we require a higher risk-adjusted return. However, over the last several years, rather than allowing for better margins, the environment has become even more competitive. The industry experienced historic catastrophic losses over the most recent year, yet there continued to be significant price competition. Pricing in most lines of business does not seem to have increased concomitantly to reflect this actual level of risk. While overall the current level of pricing does not fully reflect our expectations for achieving acceptable returns, we still believe that many areas of the business do offer satisfactory returns and we constantly see attractive opportunities. A good example is the high-end personal lines market. We have invested substantially in the establishment of Berkley One as our entry into the high-end personal lines space, building a first class team of people with a strategy to deliver the very best service W. R. Berkley Corporation | 2017 Annual Report | 15 building intellectual capital through technology, new products and new businesses.” “We constantly invest in a better future for our Company by to both our brokers and agents as well as our ultimate customers. This is a market that is service focused. Prices are important, however this group of customers recognizes that prompt, effective claims service is the key to value insurance purchasing. In that overall context, 2017 was an excellent year for both underwriting and investment results, particularly in light of the many headwinds our industry faced. Underwriting results, excluding the losses from the unusual catastrophe activity, were remarkably stable. Our underwriting discipline, with respect to both pricing and risk selection, was enhanced by our decentralized structure that enabled us to focus on the parts of the market where adequate pricing persisted and de- emphasize those sectors with less attractive margins. As a result, we were pleased with the underwriting results for almost all of our domestic specialty businesses and continue to see improvement in our market position, with adequate if not robust pricing. Our regional commercial insurance business had more variation due to the higher level of natural disasters than we have seen in recent times. Overall, several of the companies delivered outstanding results and we anticipate improvement in the others, barring similar catastrophic activity. We believe opportunities in the domestic insurance area will continue, and we stand to gain a larger share of the marketplace as our expertise and outstanding market-facing relationships continue to give us a competitive advantage. Internationally, we continue to seek profitable opportunities. Our Latin American businesses have performed in an outstanding manner, and we built a new enterprise in Mexico. Australia and Asia represented the continued building process towards delivering profitable results, with a first step towards increased penetration in Asia and improvement on the underwriting results in Australia. Europe presented challenges in a number of areas. Pricing was extremely competitive and brokers, especially those serving the U.K. market, seem to have a different view of how gross premiums should be divided. The level of commissions and expenses in Europe makes this market extremely difficult. We expect that our recent realignment in London will bring about substantially improved results. 16 | 2017 RETURN ON STOCKHOLDERS’ EQUITY FIVE YEAR GROWTH IN BOOK VALUE PER SHARE 11% 41% As one would expect, our overall reinsurance business faced challenges with the extraordinary level of industry- wide catastrophic events. Our relative performance was excellent, and while our results were in line with our expectations for such events, in an absolute sense they were certainly disappointing. The reinsurance business, by its very nature, is more volatile than the primary insurance business, and we would expect it to generate better than average returns. However, we along with the rest of the market, have not been so rewarded in recent years. As we look forward, it is difficult to understand why reinsurance prices are not going up more substantially. We expect this to self- correct over time with increasing prices, especially on property catastrophe business. Casualty business is also expected to be impacted. Accumulated profits in the property business, driven by several years of benign catastrophes prior to 2017, have evaporated and can no longer subsidize this market. be competitive. Our business, just like the rest of the financial services industry, is being impacted substantially by technology. Artificial intelligence is having an effect on underwriting across the board, but the least complicated risks will be especially impacted. Expertise has become more important; sorting and organizing data is becoming more and more valuable. Scale of enterprise, and thus the accumulation of data, is in fact, becoming a competitive advantage. It will be difficult for small enterprises to take full advantage of technology that is offered only on a large scale. Technology will not only be important in underwriting decisions and risk selection, but also in data mining and processing. The size of our Company provides us with ample scale to effectively mine and analyze our data, while our structure enables us to utilize it in the most useful way. We continue to invest heavily in these areas, as well as in technology companies that we believe offer products that we, and others in our industry, can use. In spite of our strong results, we recognize that change is constant and we have the responsibility to be certain that our Company is always positioned to Our investment returns were also outstanding in 2017. Our core portfolio delivered growing income with a relatively stable yield and a shortened duration. Our W. R. Berkley Corporation | 2017 Annual Report | 17 YEARS OF CONSECUTIVE DIVIDEND PAYMENTS INDEPENDENT OPERATING UNITS 42 54 alternative investments provided both higher returns and significant realized investment gains. When interest rates began to decline several years ago, we had to search for other ways to get adequate risk-adjusted returns in our overall investment portfolio. Fixed-income securities and cash still represent nearly 80% of our investment portfolio. We have maintained an average duration approximately one year shorter than the duration of our liabilities to minimize the exposure to inflation and to take advantage of the concomitant future increase in interest rates. The risk-adjusted returns in areas such as real estate and private equity investments represented the chance for irregular but higher rates of return. We decided that this was the course for us to take, even though, unfortunately, the gains on some of the most attractive alternatives were not valued equally by security analysts. Modifying our investment strategy to include private equity as well as real estate has generated returns well above those available in fixed- income securities or in the stock market in general. We continue on this course and today approximately 8% of our investments are held in a real estate portfolio that has delivered returns more than double those available from our fixed-income securities. At the same time, a real estate portfolio gives us some level of protection from the risks of inflation, which we find quite attractive given the kinds of inflation risks embedded in our liabilities. Our investments in private equities, with low to no leverage, represent businesses that, in our view, have opportunities to expand or are in industries that are poised for consolidation. As a result, we have generated substantial returns in this area and we expect that as long as we focus on that which we understand better than our competitors, we will be able to continue delivering these outstanding returns. We also have invested in a number of private partnerships that have delivered better than average returns, allowing us to diversify our risk and bring our portfolio into other attractive segments of the market. This year was also important because two major issues occurred on a macro basis. After an eleven-year effort, the playing field was leveled under the U.S. Tax Code for American insurance groups and offshore competition on U.S. generated business. With the support of most 18 | our competitors, we will be able to continue delivering these outstanding returns.” “As long as we focus on that which we understand better than of the domestic insurance industry, we were successful in persuading Federal lawmakers to eliminate an unfair advantage in the Tax Code. Previously, offshore groups were afforded special benefits in writing business through a U.S. subsidiary and moving it to a tax- advantaged locale through an accounting transaction. We thank everyone who joined with us, along with Federal representatives and policymakers, for facilitating this equitable change. In addition, we were fortunate that a substantial change in the federal corporate tax rate reduced our statutory rate from 35% to 21%. W. R. Berkley Corporation continues to focus on optimizing risk-adjusted returns. We believe we can accomplish this by focusing on meeting our customers’ needs and serving them effectively through the appropriate distribution channel. Together, we can be sure the ultimate customer is focused on why they buy insurance — the appropriate and fair settlement of a claim — as the foremost concern. We are optimistic about 2018 and beyond as we anticipate improving returns from both rising insurance prices and increased interest rates. At the same time, the recently enacted corporate tax reform has created improving prospects for a strengthening economy. Our Company is well positioned to benefit from these changes in the environment. W. R. Berkley Corporation could not succeed without our nearly 8,000 committed employees and thousands of brokers and agents who work diligently on our behalf. Our enterprise thrives because of the thoughtful advice of our Board and the many committed people who help make everything work to deliver on our promise to our customers, employees and shareholders. Everyone must win or we all lose. Thank you all. William R. Berkley Executive Chairman W. Robert Berkley, Jr. President and Chief Executive Officer W. R. Berkley Corporation | 2017 Annual Report | 19 Investments Over the past few years, we have shortened the duration of our fixed-income portfolio to 3.0 years to manage the yield curve as well as the impact of potential inflation. These changes have reduced the potential impact of mark-to-market on our portfolio and positioned us to take advantage of rising interest rates. In addition, we have allocated a portion of our portfolio to investments designed to generate capital gains. 20 | BREAKDOWN OF FIXED MATURITY SECURITIES (including cash) 3% 6% 6% 9% 15% 31% 30% ■ State and Municipal Bonds ■ Corporate Bonds ■ Asset-backed Securities ■ Mortgage-backed Securities ■ Foreign Bonds ■ Cash and Cash Equivalents ■ U.S. Government and Government Agency Bonds INVESTMENT DATA (dollars in millions) Cash and invested assets: Invested assets Cash and cash equivalents Total Net investment income Net realized gains on investment sales 2016 2017 $16,650 $795 $17,445 $564 $285 $17,451 $950 $18,401 $576 $336 MATT G. Claims Director Berkley Net “ What makes being part of the Berkley team special for me is every day I get to take on new challenges and resolve issues within a cohesive team environment. As a Claims Director, I oversee several different teams within the Claims Department of Berkley Net. It is rewarding for me to be able to work with, lead, and mentor the people within those teams. I also get to work cross functionally with our underwriting, finance and IT teams, which makes for a more collaborative approach to our internal business needs, as well as our clients’ needs. Berkley Net’s core values are instrumental in both my professional and personal life. My favorite one, “Integrity is non-negotiable,” is something I live by professionally, and one that my wife, Teresa, and I demonstrate to our children on a daily basis.” “ My dad says, we can make this work.” Francesca—Age 9, Daughter of Matt G., Claims Director Segment Overview Each of our business segments — Insurance and Reinsurance — comprises individual operating units that serve a market defined by geography, products, services, or types of customers. Our growth is based on meeting the needs of customers, maintaining a high-quality balance sheet, and allocating capital to our best opportunities. We combine capital with outstanding people and wrap it all in a culture that is focused on optimizing risk-adjusted returns. It creates a permanent competitive advantage that can only be acquired over many years with consistent discipline. 22 | BRYAN S. Assistant Vice President, Corporate Actuary W. R. Berkley Corporation “ The team approach to problem solving at Berkley is a very rewarding process. The combination of advanced analytics, an excellent learning environment, and great people throughout the organization has allowed my role as a corporate actuary to be highly fulfilling.” “ I don’t know. Who knows what Bryan actually does? He’s been my uncle for 11 years and I still don’t know. The job of an actuary is an enigma.” Emma—Age 11, Niece of Bryan S., Assistant Vice President – Corporate Actuary 2017 SEGMENT DATA 2017 NET PREMIUMS EARNED BY MAJOR LINE OF BUSINESS (in percent) Insurance $5.7Billion Reinsurance $605Million 1o% 11% 21% 26% 32% 38% 62% ■ Other Liability ■ Workers’ Compensation ■ Short-tail Lines ■ Commercial Automobile ■ Professional Liability ■ Casualty ■ Property Assets $19.3 Reserves $8.3 2017 ASSETS AND NET RESERVES (dollars in billions) Insurance Reinsurance Assets $3.2 Reserves $1.7 24 | ANI V. Office of the Chairman W. R. Berkley Corporation “ I have the privilege of working for a company that values its employees. As the assistant to the Chairman, I get to witness every day that value put into action.” “Some days mom has no idea how she will do it! But she always gets it done.” Maria Luisa—Age 13, Daughter of Ani V., Office of the Chairman We received drawings from children ranging in age from 3 to 23 in many of our worldwide locations. A few of these wonderful creations are featured throughout this report and all may be viewed at highlights.wrberkley.com/2017artwork. We hope you enjoy them as much as we did. Meghan—Age 22, Daughter of Ed L., Vice President, Investments 26 | SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______. Commission file number 1-15202 W. R. BERKLEY CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 475 Steamboat Road, Greenwich, CT (Address of principal executive offices) 22-1867895 (I.R.S. Employer Identification Number) 06830 (Zip Code) Registrant’s telephone number, including area code: (203) 629-3000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $.20 per share 5.625% Subordinated Debentures due 2053 5.9% Subordinated Debentures due 2056 5.75% Subordinated Debentures due 2056 New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes S No o Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No S 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 S 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. o No o 1012270in_10k.indd 1 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer S Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Emerging growth company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No S The aggregate market value of the voting and non-voting common stock held by non-affiliates (computed by reference to the price at which the common stock was last sold) as of the last business day of the registrant’s most recently completed second fiscal quarter was $ 6,663,402,098 . o Number of shares of common stock, $.20 par value, outstanding as of February 20, 2018 : 121,542,004 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company’s definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , are incorporated herein by reference in Part III. 1012270in_10k.indd 2 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Page 1 17 26 26 26 26 27 29 30 53 54 103 103 105 106 106 106 106 106 107 110 SAFE HARBOR STATEMENT ITEM ITEM ITEM ITEM ITEM ITEM PART I 1. BUSINESS 1A. RISK FACTORS 1B. UNRESOLVED STAFF COMMENTS 2. 3. PROPERTIES LEGAL PROCEEDINGS 4. MINE SAFETY DISCLOSURES PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM EX-21 EX-23 EX-31.1 EX-31.2 EX-32.1 EX-101 EX-101 EX-101 EX-101 EX-101 EX-101 PURCHASES OF EQUITY SECURITIES 6. SELECTED FINANCIAL DATA 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 8. 9. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 9A. CONTROLS AND PROCEDURES 9B. OTHER INFORMATION PART III 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 11. EXECUTIVE COMPENSATION 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 14. PRINCIPAL ACCOUNTING FEES AND SERVICES PART IV 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 16. FORM 10-K SUMMARY LIST OF COMPANIES AND SUBSIDIARIES CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) /15d-14(a) CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) /15d-14(a) CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 INSTANCE DOCUMENT SCHEMA DOCUMENT CALCULATION LINKBASE DOCUMENT LABELS LINKBASE DOCUMENT PRESENTATION LINKBASE DOCUMENT DEFINITION LINKBASE DOCUMENT 1012270in_10k.indd 3 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 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,” “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 in this report including statements related to our outlook for the industry and for our performance for the year 2018 and beyond, are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: • • • • • • • • • • • • • • • • • • • • • • • • • the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates and volatility in the credit and capital markets; the impact of conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response to it, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2015 ("TRIPRA"); the ability or willingness of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk relating to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or data security; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed in this Form 10-K and from time to time in our other filings with the Securities and Exchange Commission (“SEC”). 1012270in_10k.indd 4 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000We describe these risks and uncertainties in greater detail in Item 1A, Risk Factors. These risks and uncertainties could cause our actual results for the year 2018 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Our future financial performance is dependent upon factors discussed elsewhere in this Form 10-K and our other SEC filings. Forward-looking statements speak only as of the date on which they are made. 1012270in_10k.indd 5 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000PART I ITEM 1. BUSINESS W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in two segments of the property casualty insurance business: • • Insurance - predominantly commercial insurance business, including excess and surplus lines, admitted lines and specialty personal lines throughout the United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia. Reinsurance - reinsurance business on a facultative and treaty basis, primarily in the United States, United Kingdom, Continental Europe, Australia, the Asia-Pacific region and South Africa. Commencing with the first quarter of 2017 , the Company reclassified two businesses from the Insurance segment to the Reinsurance segment. Reclassifications have been made to the Company's prior periods financial information to conform with the presentation. Our two reporting segments are composed of individual operating units that serve a market defined by geography, products, services or types of customers. Each of our operating units is positioned close to its customer base and participates in a niche market requiring specialized knowledge about a territory or product. This strategy of decentralized operations allows each of our units to identify and respond quickly and effectively to changing market conditions and local customer needs, while capitalizing on the benefits of centralized capital, investment and reinsurance management, and corporate actuarial, financial, enterprise risk management and legal staff support. Our business approach is focused on meeting the needs of our customers, maintaining a high quality balance sheet, and allocating capital to our best opportunities. New businesses are started when opportunities are identified and when the right talent and expertise are found to lead a business. Of our 54 operating units, 47 have been organized and developed internally and seven have been added through acquisition. Net premiums written, as reported based on United States generally accepted accounting principles (“GAAP”), for each of our operating segments for each of the past five years were as follows: (In thousands) Net premiums written: Insurance Reinsurance Total Percentage of net premiums written: Insurance Reinsurance Total 2017 2016 2015 2014 2013 Year Ended December 31, $ $ 5,715,871 544,637 6,260,508 $ $ 5,743,620 680,293 6,423,913 $ $ 5,555,437 634,078 6,189,515 $ $ 5,302,436 694,511 5,996,947 $ $ 4,734,670 765,503 5,500,173 2017 2016 2015 2014 2013 Year Ended December 31, 91.3% 8.7 100.0% 89.4% 10.6 100.0% 89.8% 10.2 100.0% 88.4% 11.6 100.0% 86.1% 13.9 100.0% Twenty-nine of our insurance company subsidiaries are rated by A.M. Best Company, Inc. ("A.M. Best") and have ratings of A+ (Superior) (the second highest rating out of 15 possible ratings). A.M. Best's ratings are based upon factors of concern to policyholders, insurance agents and brokers and are not directed toward the protection of investors. A.M. Best states: “The Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance obligations. The ratings are not assigned to specific insurance policies or contracts and do not address any other risk.” A.M. Best reviews its ratings on a periodic basis, and its ratings of the Company's subsidiaries are therefore subject to change. Our twenty-four insurance company subsidiaries rated by Standard & Poor's (“S&P”) have financial strength ratings of A+ (the seventh highest rating out of twenty-seven possible ratings). Our Moody's ratings are A2 for Berkley Insurance Company, Berkley Regional Insurance Company and Admiral Insurance Company (the sixth highest rating out of twenty-one possible ratings). 1 1012270in_10k.indd 6 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 The following sections describe our reporting segments and their operating units in greater detail. These operating units underwrite on behalf of one or more affiliated insurance companies within the group. The operating units are identified by us for descriptive purposes only and are not legal entities. Unless otherwise indicated, all references in this Form 10-K to “W. R. Berkley,” “we,” “us,” “our,” the “Company” or similar terms refer to W. R. Berkley Corporation together with its subsidiaries and operating units. W. R. Berkley Corporation is a Delaware corporation formed in 1970. Insurance Our U.S.-based operating units predominantly underwrite commercial insurance business primarily throughout the United States, although many units offer coverage globally, focusing on the following general areas: Excess & Surplus Lines : A number of our operating units are dedicated to the U.S. excess and surplus lines market. They serve a highly diverse group of customers that often have complex risk or unique exposures that typically fall outside the underwriting guidelines of the standard insurance market. Lines of business underwritten by our excess and surplus lines operating units include premises operations, commercial automobile, property, products liability and professional liability lines. Products are generally distributed through wholesale agents and brokers. Industry Specialty : Certain other operating units focus on providing specialty coverages to customers within a particular industry that are best served by underwriters and claims professionals with specialized knowledge of that industry. They offer multiple lines of business with policies tailored to address these unique exposures, often with the flexibility of providing coverages on either an admitted or a non-admitted basis in the U.S., as well as internationally. Each operating unit delivers its products through one or more distribution channels, including retail and wholesale agents, brokers, and managing general agents (MGAs), depending on the customer and the particular risks insured. Product Specialty : Other operating units specialize in providing specific lines of insurance coverage, such as workers’ compensation or professional liability, to a wide range of customers. They offer insurance products, analytical tools and risk management services such as loss control and claims management that enable clients to manage their risk appropriately. Business is typically written on an admitted basis, although some units may offer non-admitted products in the U.S. and offer products internationally. Independent agents and brokers are the primary means of distribution. Regional: Certain operating units offer standard insurance products and services focused on meeting the specific needs of a geographically differentiated customer base. Key clients of these units are small-to-midsized businesses. These regionally focused operating units provide a broad array of commercial insurance products to customers primarily in 45 states and the District of Columbia and have developed expertise in niches that reflect local economies. They are organized geographically in order to provide them with the flexibility to adapt quickly to local market conditions and customer needs. In addition, through our non-U.S. insurance operating units, we write business in more than 60 countries worldwide, with branches or offices in 20 locations outside the United States, including the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia. In each of our operating territories, we have built decentralized structures that allow products and services to be tailored to each regional customer base. Our businesses are managed by teams of professionals with expertise in local markets and knowledge of regional environments. In addition to providing insurance products, certain operating units also provide a wide variety of fee-based services, including claims, administrative and consulting services. Operating units comprising the Insurance segment are as follows: Acadia Insurance is a Northeast regional property casualty underwriter offering a broad portfolio of products exclusively through local independent agents in Connecticut, Maine, Massachusetts, New Hampshire, New York and Vermont. In addition to its general offerings, Acadia has specialized expertise in insuring regional industries such as construction, lumber, fishing and transportation. Admiral Insurance provides excess and surplus lines coverage for commercial risks that generally consist of hard-to- place, specialized risks that involve moderate to high degrees of hazard. Its lines of business include general liability, professional liability, property, and excess and umbrella coverage. Admiral's professional liability and program operations include special coverages for technology, ambulatory surgery centers, chiropractors and concierge physicians. Its products are distributed exclusively by wholesale brokers. American Mining Insurance Group specializes in mono-line workers’ compensation coverage for mining and mining related and high hazard industries in select states. Berkley Accident and Health underwrites accident and health insurance and reinsurance products in four primary areas: medical stop loss, managed care, special risk and group captive. It has a diversified product and service portfolio serving a range of clients from small employers, health care organizations, and membership groups to Fortune 500 companies. 2 1012270in_10k.indd 7 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Berkley Agribusiness Risk Specialists offers insurance for larger commercial risks across the United States involved in the supply, storage, handling, processing and distribution of commodities related to the agriculture and food industries. Berkley Alliance Managers specializes in professional liability for the design professional, construction professional and certified public accounting industries. The Berkley Design Professional division specializes in architects, engineers and consultants. In addition to professional liability, the Berkley Construction Professional division provides pollution liability and protective coverages to contractors and owners across all forms of non-environmental construction. Berkley Aspire provides excess and surplus lines coverage on a national basis to small to medium-sized insureds with low to moderate insurance risk. Its product lines include general liability, liquor liability and some property and inland marine coverage. It serves a limited distribution channel consisting of select W. R. Berkley Corporation member company agents. Berkley Aviation offers a wide range of aviation insurance products on a global basis, including coverage for airlines, airplanes, helicopters, miscellaneous general aviation operations, non-owned aircraft, fixed-base operations, control towers, airports and other specialized niche programs. In the U.S., it places its business on an admitted and non-admitted basis nationwide. Berkley Canada underwrites specialty, casualty and surety lines of business on behalf of the Canadian branch of Berkley Insurance Company. It specializes in commercial casualty and professional liability, and offers a broad portfolio of risk products that include commercial general liability, umbrella, professional liability, directors and officers, commercial property and surety, in addition to niche products for specific industries such as technology, life sciences and travel. Berkley Custom Insurance focuses on the excess casualty insurance market and offers umbrella liability, pollution liability, excess liability, construction wrap-ups and completed operations coverages to wholesalers, retailers, manufacturers, insurance companies, financial institutions and construction companies. Berkley Cyber Risk Solutions focuses on insurance and risk management products that respond to the changing cyber security vulnerabilities of organizations around the world. It offers specialty commercial insurance coverages on a worldwide basis to clients of all sizes. Berkley Entertainment underwrites property casualty insurance products, both on an admitted and non-admitted basis, for the entertainment industry and sports-related organizations. Berkley Environmental underwrites specialty insurance products for environmental customers such as contractors, consultants and owners of sites and facilities. Berkley Europe is comprised of specialist operating units offering a focused range of insurance products to markets in Continental Europe and Nordic countries. Berkley FinSecure serves the insurance needs of companies in the financial services industry. It offers a comprehensive range of property, casualty, professional liability, and specialty lines insurance products. Its Berkley crime division provides crime-related insurance products for commercial organizations, financial institutions and governmental entities. Berkley Fire & Marine offers a broad range of preferred inland marine and related property risks and services to customers throughout the United States, both regionally and nationwide. Products are distributed through independent agents and brokers. Berkley Global Product Recall Management provides worldwide insurance protection and technical assistance to help clients with the prevention, management and indemnification of product recall and contamination events. Berkley Healthcare Professional provides customized, comprehensive professional liability solutions for the full spectrum of healthcare providers. Berkley Human Services provides property casualty insurance coverages to human services organizations, including nonprofit and for-profit organizations, public schools, sports and recreational organizations, and special events. Its product offerings include traditional primary coverages and risk purchasing groups, as well as alternative market solutions for clients who wish to retain a larger share of their risks. Berkley Insurance Asia underwrites specialty commercial insurance coverages to clients in North Asia and Southeast Asia through offices in Hong Kong and Singapore. Berkley Insurance Australia underwrites general insurance business in Australia, including professional indemnity insurance for companies of all sizes. Berkley Latinoamérica is a leading provider of property, casualty, automobile, surety, group life and workers' compensation products and services in its operating territories of Argentina, Brazil, the Caribbean, Colombia, Mexico and Uruguay. 3 1012270in_10k.indd 8 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Berkley Life Sciences offers a comprehensive spectrum of property, casualty, and specialty products such as professional and management liability to the life sciences industry on a global basis, including both primary and excess liability coverages. It serves pharmaceutical and biotech companies, medical device companies, dietary supplement companies, medical and research related software developers, contract research and manufacturing organizations, research institutions and organizations, and other related businesses. Berkley Luxury Group provides commercial package insurance programs for high-end cooperative, condominium, and quality rental apartment buildings and upscale restaurants in the New York, New Jersey, Chicago and Washington, D.C. metropolitan markets, as well as other select markets. Berkley Medical Excess insures healthcare organizations such as hospitals and clinics that retain a portion of their risk exposure through a self-funded mechanism and seek to maximize the effectiveness and efficiency of their excess risk financing program. Berkley Mid-Atlantic Group provides commercial property casualty coverages to a wide variety of businesses in Delaware, the District of Columbia, Maryland, Ohio, Pennsylvania, and Virginia. Focusing on middle market accounts, it complements its standard writings with specialized products in areas such as construction. Berkley Net Underwriters focuses on small and medium-sized commercial risks, using a web-based system to allow producers to quote, bind and service workers' compensation insurance products on behalf of W. R. Berkley Corporation member companies. Berkley Net Underwriters also manages W. R. Berkley's assigned risk servicing carrier operations. Berkley North Pacific provides local underwriting, claims and risk management services for businesses in the Northwest. It operates with a select group of agents in Idaho, Montana, Oregon, Utah and Washington to sell and service property and casualty policies for larger middle-market standard businesses and specialty lines, such as construction, restaurants and manufacturing. Berkley Offshore Underwriting Managers is a specialist global underwriter of energy and marine risks. Its three divisions provide specialty insurance products in the energy upstream, energy liability and marine sectors. Berkley Oil & Gas provides property casualty products and risk services to the United States energy sector. Its customer base includes risks of any size that work in the oil patch, including operators, drillers, geophysical contractors, well-servicing contractors, and manufacturers/distributors of oil field products, as well as those in the renewable energy sector. Berkley One provides a customizable suite of personal lines insurance solutions including home, condo/co-op, auto, liability and collectibles. Berkley One targets high net worth individuals and families with sophisticated risk management needs. Berkley Professional Liability specializes in professional liability insurance for publicly-traded and private entities based on a worldwide basis. Its liability coverages include directors and officers, fiduciary, employment practices, and sponsored insurance agents. Berkley Transactional, a division of Berkley Professional Liability, underwrites a full suite of transactional insurance products, including representations and warranties insurance, tax opinion insurance and contingency liability insurance. Berkley Program Specialists is a program management company offering both admitted and non-admitted insurance support on a nationwide basis for commercial casualty and property program administrators with specialized insurance expertise. Its book is built around blocks of homogeneous business, or programs, allowing for efficient processes, effective oversight of existing programs and sound implementation of new programs. Berkley Public Entity specializes in providing excess coverage and services to individual governmental and scholastic entities and intergovernmental risk sharing groups. Products include general liability, automobile liability, law enforcement liability, public officials and educator's legal liability, employment practices liability, incidental medical, property and crime. Berkley Risk Administrators provides at-risk and alternative risk insurance program management services for a broad range of groups and individuals including public entity pools, professional associations, captives and self-insured clients. As a third party administrator, it manages workers’ compensation, liability and property claims nationwide. Berkley Select specializes in underwriting professional liability insurance on a surplus lines basis for large law and accounting firms through a limited number of brokers and also offers executive and professional liability products to small to middle market customers on both an admitted and surplus lines basis. Berkley Southeast offers a wide array of commercial lines products in six southeastern states: Alabama, Georgia, Mississippi, North Carolina, South Carolina and Tennessee, specializing in small to mid-sized accounts. 4 1012270in_10k.indd 9 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Berkley Surety provides a broad array of surety products for contract and commercial surety risks in the U.S. and Canada, including specialty niches such as environmental and secured credit for small contractors, through an independent agency and broker platform across a network of 18 field offices. Berkley Technology Underwriters provides a broad range of first and third-party insurance programs for technology exposures and technology industries on both a local and global basis. Carolina Casualty is a national provider of primary commercial insurance products and services to the transportation industry. It underwrites on an admitted basis in all 50 states and the District of Columbia. Continental Western Group is a midwest regional property and casualty insurance operation based in Des Moines, Iowa, providing underwriting and risk management services to a broad array of regional businesses in thirteen midwest states. In addition to its generalist portfolio, Continental Western offers specialty underwriting solutions for diversified agriculture, construction, light manufacturing, transportation, volunteer fire departments, rural utilities and public entities. Gemini Transportation is a national provider of excess liability insurance for various domestic surface transportation businesses. It underwrites liability insurance policies for the railroad industry as well as excess liability policies for the trucking, busing and other industries that use rubber-wheeled vehicles for over-the-road use. Intrepid Direct offers business coverages to franchise restaurants on a direct basis. Key Risk is a premier provider of workers' compensation insurance and third party administrative services. It focuses on middle market accounts in several niches that appreciate expertise and exceptional service. The unit operates three business units; one focused on middle market accounts located primarily in the mid-Atlantic and southeastern United States, one focused on national temporary staffing and United States Longshoreman & Harbor Act (USL&H) specialty programs and one focused on self-insured customers. Its products are distributed by a select group of independent retail agents and wholesale brokers located through the United States. Midwest Employers Casualty provides excess workers' compensation insurance products to individual employers, groups and workers' compensation insurance companies across the United States. Its workers' compensation excess of loss products include self-insured excess of loss coverages and large deductible policies. Through its relationship with Berkley Net Underwriters, Midwest Employers Casualty also offers multi-state coverage for group self-insureds. It has developed sophisticated, proprietary analytical tools and risk management services that help its insureds lower their total cost of risk. Nautilus Insurance Group insures excess and surplus lines risks for small to medium-sized commercial risks with low to moderate susceptibility to loss. It writes commercial excess and surplus lines business nationwide and admitted lines commercial business in a limited number of states. A substantial portion of Nautilus' business is written through its close, long-standing network of general agents, who are chosen on a highly selective basis. Preferred Employers Insurance focuses exclusively on workers' compensation products and services for businesses in California. It serves over 12,000 customers covering a broad spectrum of industries throughout the state. Union Standard offers preferred commercial property and casualty insurance products and services to a wide range of small to medium size commercial entities through independent agents in Arizona, Arkansas, New Mexico, Oklahoma and Texas. Vela Insurance Services specializes in commercial casualty insurance on an excess and surplus lines basis. Its primary focus is on general liability insurance for construction, manufacturing and general casualty clients as well as products liability and miscellaneous professional liability coverages distributed through wholesale insurance brokers. Verus Underwriting Managers offers general liability, professional liability and property coverages for small to mid-sized commercial risks in the excess and surplus lines insurance market through a select group of appointed wholesale brokers and agents. W / R / B Underwriting provides a broad range of leading insurance products to the Lloyd's marketplace, with a concentration in specialist classes of business including property, professional indemnity, crisis management, aviation, personal accident and asset protection. 5 1012270in_10k.indd 10 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The following table sets forth the percentage of gross premiums written by each Insurance operating unit: Acadia Insurance Admiral Insurance American Mining Insurance Group Berkley Accident and Health Berkley Agribusiness Risk Specialists Berkley Alliance Managers Berkley Aspire Berkley Aviation Berkley Canada Berkley Custom Insurance Berkley Cyber Risk Solutions Berkley Entertainment Berkley Environmental Berkley Europe Berkley FinSecure Berkley Fire & Marine Berkley Global Product Recall Management Berkley Healthcare Professional Berkley Human Services Berkley Insurance Asia Berkley Insurance Australia Berkley Latinoamérica Berkley Life Sciences Berkley Luxury Group Berkley Medical Excess Berkley Mid-Atlantic Group Berkley Net Underwriters Berkley North Pacific Berkley Offshore Underwriting Managers Berkley Oil & Gas Berkley One Berkley Professional Liability Berkley Program Specialists Berkley Public Entity Berkley Risk Administrators Berkley Select Berkley Southeast Berkley Surety Berkley Technology Underwriters Carolina Casualty Continental Western Group Gemini Transportation Intrepid Direct Key Risk Midwest Employers Casualty Nautilus Insurance Group Preferred Employers Insurance Year Ended December 31, 2017 6.8% 2016 6.8% 2015 6.7% 2014 7.2% 2013 7.0% 5.5 0.7 4.4 1.1 1.5 0.3 1.0 0.8 2.7 — 2.0 4.1 1.7 0.9 0.4 0.2 0.2 0.7 — 1.0 4.2 0.8 1.3 0.8 1.2 8.0 1.5 1.1 2.8 — 1.5 1.2 0.5 0.2 3.9 2.0 1.2 0.6 0.6 4.0 1.8 — 2.6 2.3 5.0 2.6 4.9 0.8 3.7 0.9 0.7 0.3 1.2 0.6 2.9 — 1.9 3.8 1.9 1.0 0.3 — — 0.6 — 0.8 4.7 0.8 1.3 0.9 1.8 4.0 1.7 1.4 3.2 — 1.7 1.2 0.4 4.0 4.0 2.3 1.2 0.5 1.2 4.0 1.1 — 2.9 2.3 4.7 2.5 5.3 0.7 2.9 0.9 0.1 0.4 0.9 0.5 2.4 — 1.8 3.5 2.4 0.7 0.2 — — 0.6 — 1.3 4.6 0.9 1.3 0.8 2.4 3.7 1.6 1.7 3.5 — 1.8 1.2 0.4 3.9 4.0 2.5 1.2 0.4 1.8 3.9 0.9 — 3.0 2.3 4.7 2.1 5.0 0.7 2.6 0.9 — 0.3 0.8 0.7 2.4 — 2.1 3.4 2.5 0.7 — — — 0.6 — 1.4 5.1 0.9 1.3 0.7 3.7 3.4 1.5 1.9 3.3 — 1.1 1.2 0.3 4.1 4.9 — 1.1 0.3 2.1 4.1 0.8 — 2.8 2.2 4.9 1.8 5.7 0.8 4.7 1.2 1.9 0.3 1.1 0.9 2.5 0.1 2.1 4.7 1.7 1.0 0.5 0.3 0.2 0.6 0.2 1.0 4.8 0.8 1.3 0.9 1.1 6.7 1.5 1.1 2.7 — 1.6 1.2 0.5 0.2 3.4 1.9 1.2 0.7 0.4 3.8 2.1 0.1 2.7 2.5 5.1 2.8 6 1012270in_10k.indd 11 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Union Standard Vela Insurance Services Verus Underwriting Managers W/R/B Underwriting Other Total 2.7 3.0 0.9 3.1 0.9 2.6 3.9 0.9 4.0 0.9 2.6 3.3 0.8 5.5 1.0 2.7 3.2 0.8 7.2 — 4.4 3.0 0.8 7.0 0.2 100.0% 100.0% 100.0% 100.0% 100.0% The following table sets forth percentages of gross premiums written, by line, by our Insurance operations: Other liability Workers' compensation Short-tail lines (1) Professional liability Commercial auto Total Year Ended December 31, 2017 30.6% 24.6 23.6 11.0 10.2 2016 30.9% 25.1 23.7 10.5 9.8 2015 28.9% 25.5 25.0 10.0 10.6 2014 28.3% 24.2 26.8 9.9 10.8 2013 28.6% 24.0 26.7 9.2 11.5 100.0% 100.0% 100.0% 100.0% 100.0% ___________________ (1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines. We provide other insurance companies and self-insureds with assistance in managing their net risk through reinsurance on either a portfolio basis, through Reinsurance treaty reinsurance, or on an individual basis, through facultative reinsurance. Operating units comprising the Reinsurance segment are as follows: Berkley Re America provides treaty and facultative reinsurance solutions on a variety of product lines through reinsurance brokers to companies whose primary operations are within the United States and Canada. Berkley Re Asia Pacific provides property and casualty reinsurance to the Asia Pacific marketplace. With offices in Brisbane, Sydney, Hong Kong and Singapore, each branch focuses on excess of loss reinsurance, targeting both property and casualty treaty and facultative contracts, through multiple distribution channels. Berkley Re Solutions is a direct casualty facultative reinsurance underwriter serving clients through a nationwide network of regional offices. Its facultative reinsurance products include automatic, semi-automatic and individual risk assumed reinsurance. It also provides its customers with turnkey products such as cyber, employment practices liability insurance ("EPLI"), and liquor liability insurance to help enhance their clients' product offerings, along with underwriting, claims, and actuarial consultation. Berkley Re UK writes international property casualty treaty accounts. Its territorial scope includes reinsured clients domiciled in the United Kingdom, Europe, Africa, the Middle East and the Caribbean. Lloyd's Syndicate 2791 Participation represents the Company's minority participation in a Lloyd's syndicate that writes a broad range of mainly short-tail classes of business. 7 1012270in_10k.indd 12 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 The following table sets forth the percentages of gross premiums written by each Reinsurance operating unit: Berkley Re America Berkley Re Asia Pacific Berkley Re Solutions Berkley Re UK Lloyd's Syndicate 2791 Participation Other Total Year Ended December 31, 2017 2016 2015 2014 2013 52.0% 64.0% 60.3% 56.2% 51.3% 12.8 15.8 12.6 5.5 1.3 9.2 10.8 10.0 4.4 1.6 8.0 10.1 15.4 5.2 1.0 6.7 10.4 19.9 5.3 1.5 6.4 8.9 24.4 7.0 2.0 100.0% 100.0% 100.0% 100.0% 100.0% The following table sets forth the percentages of gross premiums written by our Reinsurance operations: Casualty Property Total Results by Segment Year Ended December 31, 2017 2016 2015 2014 2013 66.9% 33.1 100.0% 58.7% 41.3 100.0% 65.1% 34.9 100.0% 65.5% 34.5 100.0% 66.3% 33.7 100.0% Summary financial information about our segments is presented on a GAAP basis in the following table: (In thousands) Insurance Revenue 2017 2016 2015 2014 2013 Year Ended December 31, $ 6,229,485 $ 6,148,210 $ 5,876,454 $ 5,586,230 $ 4,971,505 Income before income taxes 756,153 799,139 748,515 786,723 660,567 Reinsurance Revenue (Loss) income before income taxes Other(1) Revenue Income (loss) before income taxes Total Revenue Income before income taxes 696,122 (15,276) 759,157 31,893 777,123 98,277 728,851 (978) 745,325 122,930 584,678 (139,415) 837,901 155,042 704,797 10,431 902,958 155,520 534,071 (117,199) $ $ 7,684,764 772,770 $ $ 7,654,184 896,438 $ $ 7,206,457 732,030 $ $ 7,128,928 952,196 $ $ 6,408,534 698,888 _______________________________________ (1) Represents corporate revenues, corporate expenses, net investment gains and losses, and revenues and expenses from non-insurance businesses that are consolidated for financial reporting purposes. 8 1012270in_10k.indd 13 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 The table below represents summary underwriting ratios on a GAAP basis for our segments. Loss ratio is losses and loss expenses incurred expressed as a percentage of net premiums earned. Expense ratio is underwriting expenses expressed as a percentage of net premiums earned. Underwriting expenses do not include expenses related to insurance services or unallocated corporate expenses. Combined ratio is the sum of the loss ratio and the expense ratio. The combined ratio represents a measure of underwriting profitability, excluding investment income. A number in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit: Insurance Loss ratio Expense ratio Combined ratio Reinsurance Loss ratio Expense ratio Combined ratio Total Loss ratio Expense ratio Combined ratio Investments 2017 2016 2015 2014 2013 Year Ended December 31, 61.6% 32.9 94.5% 80.2% 37.4 117.6% 63.4% 33.3 96.7% 61.0% 32.5 93.5% 61.6% 39.0 100.6% 61.1% 33.2 94.3% 60.8% 32.6 93.4% 58.2% 38.4 96.6% 60.5% 33.2 93.7% 60.8% 32.8 93.6% 60.5% 34.6 95.1% 60.8% 33.0 93.8% 60.8% 33.8 94.6% 63.4% 34.6 98.0% 61.2% 33.9 95.1% Investment results, before income taxes, were as follows: (In thousands) Average investments, at cost(1) Net investment income(1) Percent earned on average investments(1) Net investment gains (2) Change in unrealized investment gains (losses) (3) 2017 17,530,590 575,788 3.3% 335,858 (69,425) $ $ $ $ $ $ $ $ Year Ended December 31, 2016 16,730,964 564,163 3.4% 267,005 371,716 $ $ $ $ 2015 15,970,931 512,645 3.2% 92,324 (192,186) $ $ $ $ 2014 15,560,335 600,885 3.9% 254,852 72,889 $ $ $ $ 2013 14,848,386 544,291 3.7% 121,544 (399,122) _______________________________________ (1) Includes investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases. (2) Represents realized gains on investments not classified as trading account securities. (3) Represents the change in unrealized investment gains (losses) for available for sale securities. For comparison, the following are the coupon returns for the Barclays U.S. Aggregate Bond Index and the dividend returns for the S&P 500 ® Index: Barclays U.S. Aggregate Bond Index S&P 500 ® Index Year Ended December 31, 2017 2016 2015 2014 2013 3.0% 2.4 3.0% 2.4 3.0% 2.1 3.2% 2.1 3.1% 2.4 9 1012270in_10k.indd 14 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 The percentages of the fixed maturity portfolio categorized by contractual maturity, based on fair value, on the dates indicated, are set forth below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay certain obligations. 1 year or less Over 1 year through 5 years Over 5 years through 10 years Over 10 years Mortgage-backed securities Total Year Ended December 31, 2017 2016 2015 2014 2013 5.0% 7.9% 5.8% 7.0% 8.0% 37.2 24.8 23.3 9.7 39.6 24.6 18.8 9.1 33.6 30.5 20.3 9.8 32.4 29.8 20.4 10.4 30.5 27.5 22.3 11.7 100.0% 100.0% 100.0% 100.0% 100.0% At December 31, 2017 , the fixed maturity portfolio had an effective duration of 3.0 years including cash and cash equivalents. Loss and Loss Expense Reserves To recognize liabilities for unpaid losses, either known or unknown, insurers establish reserves, which is a balance sheet account representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred. Estimates and assumptions relating to reserves for losses and loss expenses are based on complex and subjective judgments, often including the interplay of specific uncertainties with related accounting and actuarial measurements. Such estimates are also susceptible to change as significant periods of time may elapse between the occurrence of an insured loss, the report of the loss to the insurer, the ultimate determination of the cost of the loss and the insurer’s payment of that loss. In general, when a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment based upon known information about the claim at that time. The estimate represents an informed judgment based on general reserving practices and reflects the experience and knowledge of the claims personnel regarding the nature and value of the specific type of claim. Reserves are also established on an aggregate basis to provide for losses incurred but not reported (“IBNR”) to the insurer, potential inadequacy of case reserves and the estimated expenses of settling claims, including legal and other fees and general expenses of administrating the claims adjustment process. Reserves are established based upon the then current legal interpretation of coverage provided. In examining reserve adequacy, several factors are considered in estimating the ultimate economic value of losses. These factors include, among others, 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 necessarily based on management’s informed estimates and judgments using currently available data. As additional experience and other data become available and are reviewed, these estimates and judgments may be revised. This may result in reserve increases or decreases that would be reflected in our results in periods in which such estimates and assumptions are changed. The risk and complexity of estimating loss reserves are greater when economic conditions are uncertain. 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 earnings 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 the 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 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. Although the loss reserves included in the Company’s financial statements 10 1012270in_10k.indd 15 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000represent management’s best estimates, setting reserves is inherently uncertain and the Company cannot provide assurance that its current reserves will prove adequate in light of subsequent events. The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $1,855 million and $1,907 million at December 31, 2017 and 2016 , respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $591 million and $640 million at December 31, 2017 and 2016 , respectively. At December 31, 2017 , discount rates by year ranged from 2.0% to 6.5%, with a weighted average discount rate of 3.8%. Substantially all discounted workers’ compensation reserves (97% of total discounted reserves at December 31, 2017 ) are excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience. The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at December 31, 2017 ), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware. To date, known environmental and asbestos claims have not had a material impact on the Company’s operations, because its subsidiaries generally did not insure large industrial companies that are subject to significant environmental or asbestos exposures prior to 1986 when an absolute exclusion was incorporated into standard policy language. The Company’s net reserves for losses and loss expenses relating to asbestos and environmental claims on policies written before adoption of the absolute exclusion was $30 million at December 31, 2017 and $31 million at December 31, 2016 . The estimation of these liabilities is subject to significantly greater than normal variation and uncertainty because it is difficult to make an actuarial estimate of these liabilities due to the absence of a generally accepted actuarial methodology for these exposures and the potential effect of significant unresolved legal matters, including coverage issues, as well as the cost of litigating the legal issues. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties are highly uncertain. 11 1012270in_10k.indd 16 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The table below provides a reconciliation of the beginning of year and end of year property casualty reserves for the indicated years: (In thousands) Net reserves at beginning of year Net provision for losses and loss expenses: Claims occurring during the current year ( 1 ) Decrease in estimates for claims occurring in prior years (2) Loss reserve discount amortization Total Net payments for claims: Current year Prior years Total Foreign currency translation Net reserves at end of year Ceded reserves at end of year Gross reserves at end of year Net change in premiums and losses occurring in prior years: Decrease in estimates for claims occurring in prior years (2) Retrospective premium adjustments for claims occurring in prior years (3) Net favorable premium and reserve development on prior years 2017 $ 9,590,265 $ 2016 9,244,872 $ 2015 8,970,641 3,963,543 3,826,620 3,653,561 (5,165) 43,970 (29,904) 49,084 (46,713) 49,422 4,002,348 3,845,800 3,656,270 1,027,405 2,562,550 3,589,955 54,256 10,056,914 1,613,494 1,052,452 2,401,722 3,454,174 (46,233) 9,590,265 1,606,930 914,637 2,342,378 3,257,015 (125,024) 9,244,872 1,424,278 11,670,408 $ 11,197,195 $ 10,669,150 5,165 32,162 37,327 $ $ 29,904 29,000 58,904 $ $ 46,713 16,730 63,443 $ $ $ ____________________________________ (1) Claims occurring during the current year are net of loss reserve discounts of $22,064,000 , $18,929,000 and $20,357,000 in 2017 , 2016 and 2015 , respectively. (2) The decrease in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior years decreased by $32,132,000 in 2017 , $59,175,000 in 2016 and $64,971,000 in 2015 . (3) For certain retrospectively rated insurance polices and reinsurance agreements, changes in loss and loss expenses for prior years are offset by additional or return premiums. Also, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 14, Reserves for Losses and Loss Expenses included in our audited consolidated financial statements for further information regarding the decrease in estimates for claims occurring in prior years. A reconciliation between the reserves as of December 31, 2017 as reported in the accompanying consolidated GAAP financial statements and those reported on the basis of statutory accounting principles (“SAP”) in the Company’s U.S. regulatory filings is as follows: (In thousands) Net reserves reported in U.S. regulatory filings on a SAP basis Reserves for non-U.S. companies Loss reserve discounting (1) Ceded reserves Gross reserves reported in the consolidated GAAP financial statements $ 9,567,830 580,994 (91,910) 1,613,494 $ 11,670,408 _________________________ (1) For statutory purposes, the Company discounts its workers’ compensation reinsurance reserves at 3.0% as permitted by the Department of Insurance of the State of Delaware. In its GAAP financial statements, the Company discounts excess workers’ compensation reserves at the risk-free rate and assumed workers’ compensation reserves at the statutory rate. 12 1012270in_10k.indd 17 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 Reinsurance We follow a common industry practice of reinsuring a portion of our exposures and paying to reinsurers a portion of the premiums received on the policies that we write. Reinsurance is purchased principally to reduce net liability on individual risks and to protect against catastrophic losses. Although reinsurance does not legally discharge an insurer from its primary liability for the full amount of the policies, it does make the assuming reinsurer contractually liable to the insurer to the extent of the reinsurance coverage. We monitor the financial condition of our reinsurers and attempt to place our coverages only with substantial, financially sound carriers. As a result, generally the reinsurers who reinsure our casualty insurance must have an A.M. Best rating of “A (Excellent)” or better with at least $1 billion in policyholder surplus and the reinsurers who cover our property insurance must have an A.M. Best rating of “A- (Excellent)” or better with at least $1 billion in policyholder surplus. Regulation U.S. Regulation Our U.S. insurance subsidiaries are subject to varying degrees of regulation and supervision in the jurisdictions in which they do business. Overview . Our domestic insurance subsidiaries are subject to statutes which delegate regulatory, supervisory and administrative powers to state insurance commissioners. This regulation relates to such matters as the standards of solvency which must be met and maintained; the licensing of insurers and their agents; the nature of and limitations on investments; deposits of securities for the benefit of policyholders; approval of certain policy forms and premium rates; periodic examination of the affairs of insurance companies; annual and other reports required to be filed on the financial condition of insurers or for other purposes; establishment and maintenance of reserves for unearned premiums, loss expenses and losses; and requirements regarding numerous other matters. Our property casualty subsidiaries, other than excess and surplus and reinsurance subsidiaries, must generally file all rates with the insurance department of each state in which they operate. Our excess and surplus and reinsurance subsidiaries generally operate free of rate and form regulation. Holding Company Statutes . In addition to regulatory supervision of our insurance subsidiaries, we are subject to state statutes governing insurance holding company systems. Under the terms of applicable state statutes, any person or entity desiring to purchase more than a specified percentage (commonly 10%) of our outstanding voting securities would be required to obtain prior regulatory approval of the purchase. Typically, such statutes require that we periodically file information with the appropriate state insurance commissioner, including information concerning our capital structure, ownership, financial condition and general business operations. In addition, we must annually submit to our lead state regulator an “enterprise risk management report” which identifies the activities and circumstances of any affiliated company that might have a material adverse effect on the financial condition of our group or our U.S. licensed insurers. Several states have also adopted changes to the holding company act that authorize U.S. insurance regulators to lead or participate in the group-wide supervision of certain international insurance groups. International standard setters, such as the International Association of Insurance Supervisors, are developing capital standards for international groups, and U.S. insurance regulators are currently working on U.S. group capital standards for insurance groups. The U.S. group capital calculation is expected to incorporate existing risk-based capital standards. It is unclear how the development of group capital measures will interact with existing capital requirements for insurance companies in the United States and with international capital standards. It is possible that we may be required to hold additional capital as a result of these developments. Most states have adopted the National Association of Insurance Commissioners' (“NAIC”) Risk Management and Own Risk and Solvency Assessment Model Act (the “ORSA Model Act”), which requires an insurance holding company system’s chief risk officer to submit annually to its lead state insurance regulator an Own Risk and Solvency Assessment Summary Report (“ORSA”). The ORSA is a confidential internal assessment of the material and relevant risks associated with an insurer’s current business plan and the sufficiency of capital resources to support those risks. Under ORSA, we are required to: • • • regularly, no less than annually, conduct an ORSA to assess the adequacy of our risk management framework, and current and estimated projected future solvency position; internally document the process and results of the assessment; and provide a confidential high-level ORSA Summary Report annually to the Commissioner of Insurance of the State of Delaware (our lead state commissioner). Cybersecurity Regulations. New York’s cybersecurity regulation for financial services institutions that are authorized by the New York State Department of Financial Services ("Part 500"), including our insurance subsidiaries licensed in New York, became effective on March 1, 2017. The regulation, which is being implemented in stages, requires these entities to establish 13 1012270in_10k.indd 18 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000and maintain a cybersecurity program designed to protect consumers’ private data and the confidentiality, integrity and availability of the licensee’s information systems. On October 24, 2017, the NAIC adopted the Insurance Data Security Model Law (the “Cybersecurity Model Law”), which establishes standards for data security, the investigation of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information, and reporting to insurance commissioners. The Cybersecurity Model Law imposes significant new regulatory burdens intended to protect the confidentiality, integrity and availability of information systems. Its implementation will be based on adoption by state legislatures. Importantly, the Cybersecurity Model Law states that a licensee’s compliance with the New York cybersecurity regulation shall constitute compliance with the Cybersecurity Model Law. We made the initial certification as required by Part 500 for licensed entities. We cannot predict the impact, if any, that any proposed or future cybersecurity regulations will have on our business, financial condition or results of operations. Risk Based Capital Requirements . The NAIC utilizes a Risk Based Capital (“RBC”) formula that is designed to measure the adequacy of an insurer's statutory surplus in relation to the risks inherent in its business. The RBC formula develops a risk adjusted target level of adjusted statutory capital by applying certain factors to various asset, premium and reserve items. The NAIC RBC Model Law provides for four incremental levels of regulatory attention for insurers whose surplus is below the calculated RBC target. These levels of attention range in severity from requiring the insurer to submit a plan for corrective action to actually placing the insurer under regulatory control. The RBC of each of our domestic insurance subsidiaries was above any RBC action level as of December 31, 2017 . Insurance Regulatory Information System. The NAIC also has developed a set of 13 financial ratios referred to as the Insurance Regulatory Information System (“IRIS”). On the basis of statutory financial statements filed with state insurance regulators, the NAIC annually calculates these IRIS ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. The NAIC has established an acceptable range for each of the IRIS financial ratios. Guaranty Funds . Our U.S. insurance subsidiaries are also subject to assessment by state guaranty funds when an insurer in a particular jurisdiction has been judicially declared insolvent and the insolvent company's available funds are insufficient to pay policyholders and claimants the amounts to which they are entitled. The protection afforded under a state's guaranty fund to policyholders of the insolvent insurer varies from state to state. Generally, all licensed property casualty insurers are considered to be members of the fund, and assessments are based upon their pro rata share of direct written premiums in that state. The NAIC Model Post-Assessment Guaranty Fund Act, which many states have adopted, limits assessments to an insurer to 2% of its subject premium and permits recoupment of assessments through rate setting. Likewise, several states (or underwriting organizations of which our insurance subsidiaries are required to be members) have limited assessment authority with regard to deficits in certain lines of business. Additionally, state insurance laws and regulations require us to participate in mandatory property-liability “shared market,” “pooling” or similar arrangements that provide certain types of insurance coverage to individuals or others who otherwise are unable to purchase coverage voluntarily provided by private insurers. Shared market mechanisms include assigned risk plans and fair access to insurance requirement or “FAIR” plans. In addition, some states require insurers to participate in reinsurance pools for claims that exceed specified amounts. Our participation in these mandatory shared market or pooling mechanisms generally is related to the amount of our direct writings for the type of coverage written by the specific arrangement in the applicable state. Dividends . We receive funds from our insurance company subsidiaries in the form of dividends and management fees for certain management services. Annual dividends in excess of maximum amounts prescribed by state statutes may not be paid without the approval of the insurance commissioner of the state in which an insurance subsidiary is domiciled. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.” Trade Practices . State insurance laws and regulations include numerous provisions governing trade practices and the marketplace activities of insurers, including provisions governing marketing and sales practices, policyholder services, claims management and complaint handling. State regulatory authorities generally enforce these provisions through periodic market conduct examinations. Investment Regulation. Investments by our domestic insurance companies must comply with applicable laws and regulations which prescribe the kind, quality and concentration of investments. In general, these laws and regulations permit investments in federal, state and municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate and certain other investments, subject to specified limits and certain other qualifications. Investments that do not comply with these limits and qualifications are deducted in our insurance subsidiaries' calculation of their statutory capital and surplus. Terrorism Risk Insurance. The Terrorism Risk Insurance Act of 2002 established a Federal program that provides for a system of shared public and private compensation for insured losses resulting from acts of terrorism. Pursuant to the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”), the program has been extended for a six year period ending on December 31, 2020. TRIPRA provides a federal backstop to all U.S. based property and casualty insurers for insurance 14 1012270in_10k.indd 19 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000related losses resulting from any act of terrorism on U.S. soil or against certain U.S. air carriers, vessels or foreign missions. TRIPRA is applicable to almost all commercial lines of property and casualty insurance but excludes commercial auto, burglary and theft, surety, professional liability and farm owners' multi-peril insurance. Insurers with direct commercial property and casualty insurance exposure in the United States are required to participate in the program and make available coverage for certified acts of terrorism. TRIPRA's definition of certified acts includes domestic terrorism. Federal participation will be triggered under TRIPRA when the Secretary of Treasury certifies an act of terrorism. Under the program, the federal government will currently pay 83% of an insurer's covered losses in excess of the insurer's applicable deductible. This amount will decrease to 80% on a pro-rata basis over five years, which began in 2017. The insurer's deductible is based on 20% of earned premium for the prior year for covered lines of commercial property and casualty insurance. Based on our 2017 earned premiums, our aggregate deductible under TRIPRA during 2018 will be approximately $948 million. The federal program will not pay losses for certified acts unless such losses exceed $160 million industry-wide for calendar year 2018. This threshold will increase to $200 million on a pro-rata basis over five years which began in 2016. TRIPRA limits the federal government's share of losses at $100 billion for a program year. In addition, an insurer that has satisfied its deductible is not liable for the payment of losses in excess of the $100 billion cap. Excess and Surplus Lines . The regulation of our U.S. subsidiaries' excess and surplus lines insurance business differs significantly from the regulation of our admitted business. Our surplus lines subsidiaries are subject to the surplus lines regulation and reporting requirements of the jurisdictions in which they are eligible to write surplus lines insurance. Although the surplus lines business is generally less regulated than admitted business, principally with respect to rates and policy forms, strict regulations apply to surplus lines placements in the laws of every state and the regulation of surplus lines insurance may undergo changes in the future. Federal or state measures may be introduced to increase the oversight of surplus lines insurance in the future. Federal Regulation. Although the federal government and its regulatory agencies generally do not directly regulate the business of insurance, federal initiatives could have an impact on our business in a variety of ways. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) effected sweeping changes to financial services regulation in the United States. The Dodd-Frank Act created two new federal government bodies, the Federal Insurance Office (the “FIO”) and the Financial Stability Oversight Council (the “FSOC”), which may impact the regulation of insurance. Although the FIO has preemption authority over state insurance laws that conflict with certain international agreements, it does not have general supervisory or regulatory authority over the business of insurance. The FIO has authority to represent the United States in international insurance matters and is authorized to monitor the U.S. insurance industry and identify potential regulatory gaps that could contribute to systemic risk. The current administration and the Republican party have expressed their desire to amend the Dodd-Frank Act. On June 8, 2017, the U.S. House of Representatives passed the Financial CHOICE Act of 2017, which proposes to amend or repeal various sections of the Dodd-Frank Act. This proposed legislation is under consideration by the U.S. Senate. The Dodd-Frank Act authorizes the Secretary of the Treasury and U.S. Trade Representative to enter into international agreements of mutual recognition regarding the prudential regulation of insurance or reinsurance (a “Covered Agreement”). On January 13, 2017, the U.S. Department of Treasury and the U.S. Trade Representative announced the completion of Covered Agreement negotiations with the European Union (“EU”) regarding the prudential regulation of insurance and reinsurance and provided the text of the Covered Agreement. The Covered Agreement addresses three areas of prudential supervision: reinsurance, group supervision and the exchange of information between the U.S. and EU. The U.S. and EU signed the Covered Agreement on September 22, 2017, and each party has begun the process of completing its internal requirements and procedures (such as amending or promulgating appropriate statutes and regulations) in order for the Covered Agreement to enter into force. Under the Covered Agreement, reinsurance collateral requirements will no longer apply to qualifying EU reinsurers that sell reinsurance to the U.S. market, and U.S. reinsurers operating in the EU market will no longer be subject to “local presence” requirements. The Covered Agreement establishes group supervision practices that apply only to U.S. and EU insurance groups operating in both territories. For instance, the Covered Agreement provides that U.S. insurance groups with operations in the EU will be supervised at the worldwide level only by U.S. insurance regulators, and precludes EU insurance supervisors from exercising solvency and capital requirements over the worldwide operations of U.S. insurers. U.S. states have five years from the date of signature to remove collateral requirements for EU reinsurers that meet certain standards, while EU member states have two years to revise their “local presence” laws. Under the Dodd-Frank Act, the FIO has preemption authority over state insurance laws that conflict with the Covered Agreement. The FIO is required to report to Congress annually on the insurance industry and any preemption actions regarding any Covered Agreement. The FIO also can recommend to the FSOC that it designate an insurer as an entity posing risks to the United States' financial stability in the event of the insurer's material financial distress or failure, i.e., a "systemically important financial institution." An insurer so designated by FSOC will be subject to Federal Reserve supervision and heightened prudential standards. As of December 31, 2017, one insurance group is subject to this supervision and heightened standards. In 15 1012270in_10k.indd 20 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000November 2017, the U.S. Department of Treasury issued a report recommending certain changes to FSOC’s process for designating nonbank financial companies as systemically significant in order to make the designation process more rigorous, clear and transparent. Any suggested changes ultimately adopted by the FSOC would be implemented by FSOC directly, rather than through legislation. Based upon our current business model and balance sheet, we do not believe that we will be designated by the FSOC as such an institution. Although the potential impacts of the Dodd-Frank Act, its implementing regulations and potential amendments to the Dodd-Frank Act on the U.S. insurance industry are not clear, our business could be affected by changes to the U.S. system of insurance regulation or our designation or the designation of insurers or reinsurers with which we do business as systemically important non-bank financial companies. International Regulation Our insurance subsidiaries based in the United Kingdom are regulated by the Prudential Regulation Authority ("PRA") and the Financial Conduct Authority ("FCA"). The PRA's primary objectives with regard to insurers are to promote the safety and soundness of insurers and to contribute to the securing of an appropriate degree of protection for current and future policyholders, while the FCA has three operational objectives: (i) to secure an appropriate degree of protection for consumers, (ii) to protect and enhance the integrity of the United Kingdom financial system, and (iii) to promote effective competition in the interests of consumers in the financial services markets. The PRA and FCA employ a variety of regulatory tools to achieve their objectives, including periodic auditing and reporting requirements, risk assessment reviews, minimum solvency margins and individual capital assessment requirements, dividend restrictions, in certain cases, approval requirements governing the appointment of key officers, approval requirements governing controlling ownership interests and various other requirements. Our Lloyd's managing agency is also regulated by the PRA, FCA and Lloyd's, and the Lloyd's syndicate business is subject to Lloyd's supervision. Through Lloyd's, we are licensed to write business in various countries throughout the world by virtue of Lloyd's international licenses. In each such country, we are subject to the laws and insurance regulation of that country. Our insurance subsidiary based in Liechtenstein is regulated by the Financial Market Authority of Liechtenstein, which has regulatory tools analogous to those of the U.K. regulators noted above. Additionally, U.K. and Liechtenstein laws and regulations also impact us as “controllers” of our European-regulated subsidiaries, whereby we are required to notify the appropriate authorities about significant events relating to such regulated subsidiaries' controllers (i.e. persons or entities which have certain levels of direct or indirect voting power or economic interests in the regulated entities) as well as changes of control, and to submit annual reports regarding their controllers. The PRA/FCA's Senior Insurance Managers Regime ("SIMR") (and the Senior Managers and Certification Regime which is intended to be extended to insurers, thereby replacing the SIMR in late 2018) and analogous regulation in Liechtenstein further provide regulatory frameworks for standards of fitness and propriety, conduct and accountability for individuals in positions of responsibility at insurers. In addition, certain employees are individually registered at Lloyd's. Our insurance business throughout the European Union is subject to "Solvency II", an insurance regulatory regime governing, among other things, capital adequacy and risk management which became effective on January 1, 2016. Lloyd’s applies a capital adequacy test to all Lloyd’s syndicates, including our syndicate, that is based on Solvency II principles. Solvency II provides for the supervision of group solvency. Under Solvency II, it is possible that the U.S. parent of a European Union subsidiary could be subject to certain Solvency II requirements if the U.S. company is not already subject to regulations deemed “equivalent” to Solvency II. Currently, the U.S. system of insurance regulation relating to group supervision is not deemed "equivalent" to Solvency II by European Union authorities. However, we have received a waiver from the PRA, subject to conditions, with respect to the PRA's supervision of our group, which waives the requirement on us to maintain a group solvency capital requirement as calculated under Solvency II rules. The Covered Agreement also prohibits any EU supervisor from exercising group-wide supervision at any level above the highest company organized in the country of that supervisor. We must also comply with the recently enacted European Union General Data Protection Regulation (“GDPR”). All EU member states must implement GDPR by May 2018. The regulation’s goal is to impose increased individual rights and protections for all personal data located in or originating from the EU. GDPR is extraterritorial in that it applies to all business in the EU and any business outside the EU that process EU personal data of individuals in the EU. Moreover, there are significant fines associated with non-compliance. Our international operations are also subject to varying degrees of regulation in Mexico, Australia and Canada and in certain other countries in Europe, South America, and Southeast Asia. Generally, our subsidiaries must satisfy local regulatory requirements. While each country imposes licensing, solvency, auditing and financial reporting requirements, the type and extent of the requirements differ substantially. Key areas where country regulations may differ include: (i) the type of financial reports to be filed; (ii) a requirement to use local intermediaries; (iii) the amount of reinsurance permissible; (iv) the scope of any regulation of policy forms and rates; and (v) the type and frequency of regulatory examinations. 16 1012270in_10k.indd 21 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Competition The property casualty insurance and reinsurance businesses are highly competitive, with many insurance companies of various sizes, as well as other entities offering risk alternatives such as self-insured retentions or captive programs, transacting business in the United States and internationally. We compete directly with a large number of these companies. Competition in our industry is largely measured by the ability to provide insurance and services at a price and on terms that are reasonable and acceptable to the customer. Our strategy in this highly fragmented industry is to seek specialized areas or geographic regions where our operating units can gain a competitive advantage by responding quickly to changing market conditions. Our operating units establish their own pricing practices based upon a Company-wide philosophy to price products with the intent of making an underwriting profit. Competition for the Insurance business within the United States comes from other specialty insurers, regional carriers, large national multi-line companies and reinsurers. Our specialty operating units compete with excess and surplus insurers as well as standard carriers. Other regional units compete with mutual and other regional stock companies as well as national carriers. Additionally, direct writers of property casualty insurance compete with our regional units by writing insurance through their salaried employees, generally at a lower acquisition cost than through independent agents such as those used by the Company. Our Insurance operations compete internationally with native insurance operations both large and small, which in some cases are related to government entities, as well as with branches or local subsidiaries of multinational companies. Competition for the Reinsurance business, which is especially strong, comes from domestic and foreign reinsurers, which produce their business either on a direct basis or through the broker market. These competitors include Swiss Re, Munich Re, Berkshire Hathaway, Transatlantic Reinsurance, Partner Re and others. In recent years, various institutional investors have increasingly sought to participate in the property and casualty insurance and reinsurance industries. Well-capitalized new entrants to the property and casualty insurance and reinsurance industries, or existing competitors that receive substantial infusions of capital, provide increasing competition, which may adversely impact our business and profitability. Further, an expanded supply of reinsurance capital may lower costs for insurers that rely on reinsurance and, as a consequence, those insurers may be able to price their products more competitively. Employees As of January 31, 2018 , we employed 7,722 individuals. Of this number, our subsidiaries employed 7,576 persons and the remaining persons were employed at the parent company. Other Information about the Company's Business We maintain an interest in the acquisition and startup of complementary businesses and continue to evaluate possible acquisitions and new ventures on an ongoing basis. In addition, our operating units develop new coverages or enter lines of business to meet the needs of insureds. Seasonal weather variations and other events affect the severity and frequency of losses sustained by the insurance and reinsurance operating units. Although the effect on our business of catastrophes such as tornadoes, hurricanes, hailstorms, earthquakes and terrorist acts may be mitigated by reinsurance, they nevertheless can have a significant impact on the results of any one or more reporting periods. We have no customer that accounts for 10 percent or more of our consolidated revenues. Compliance by W. R. Berkley and its subsidiaries with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to protection of the environment, has not had a material effect upon our capital expenditures, earnings or competitive position. The Company's internet address is www.wrberkley.com. The information on our website is not incorporated by reference in this annual report on Form 10- K. The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act and other reports filed by us or with respect to our securities by others are accessible free of charge through this website as soon as reasonably practicable after they have been electronically filed with or furnished to the SEC. 17 1012270in_10k.indd 22 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000ITEM 1A. RISK FACTORS Our businesses face significant risks. If any of the events or circumstances described as risks below occur, our businesses, results of operations and/or financial condition could be materially and adversely affected. In addition to those described below, our businesses may also be adversely affected by risks and uncertainties not currently known to us or that we currently consider immaterial. Risks Relating to Our Industry Our results may fluctuate as a result of many factors, including cyclical changes in the insurance and reinsurance industry. The results of companies in the property casualty insurance industry historically have been subject to significant fluctuations and uncertainties in demand and pricing, causing cyclical changes in the insurance and reinsurance industry. The demand for insurance is influenced primarily by general economic conditions, while the supply of insurance is often directly related to available capacity or the perceived profitability of the business. In recent years, we have faced increased competition in our business, as a result of new entrants and existing insurers seeking to gain market share, resulting in decreased premium rates and less favorable contract terms and conditions for certain lines of business. The adequacy of premium rates is affected mainly by the severity and frequency of claims, which are influenced by many factors, including natural disasters, regulatory measures and court decisions that define and expand the extent of coverage and the effects of economic inflation on the amount of compensation due for injuries or losses. In addition, investment rates of return have impacted rate adequacy, with interest rates remaining at or near historic lows. These factors can have a significant impact on ultimate profitability because a property casualty insurance policy is priced before its costs are known as premiums usually are determined long before claims are reported. These factors could produce results that would have a negative impact on our results of operations and financial condition. We face significant competitive pressures in our businesses, which have reduced premium rates in certain areas and could harm our ability to maintain or increase our profitability and premium volume. We compete with a large number of other companies in our selected lines of business. We compete, and will continue to compete, with major U.S. and non- U.S. insurers and reinsurers, other regional companies, as well as mutual companies, specialty insurance companies, underwriting agencies and diversified financial services companies. Competitiveness in our businesses is based on many factors, including premium charges, ratings assigned by independent rating agencies, commissions paid to producers, the perceived financial strength of the company, other terms and conditions offered, services provided (including ease of doing business over the internet), speed of claims payment and reputation and experience in the lines to be written. In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition. Some of our competitors, particularly in the Reinsurance business, have greater financial and/or marketing resources than we do. These competitors within the reinsurance segment include Swiss Re, Munich Re, Berkshire Hathaway, Transatlantic Reinsurance, and Partner Re. We expect that perceived financial strength, in particular, will become more important as customers seek high quality reinsurers. Over the past several years, we have faced increased competition in our business, as increased supply has led to reduced prices and, at times, less favorable terms and conditions. Our E&S operating units have also encountered competition from admitted companies seeking to increase market share. Although insurance prices have generally increased for most lines of business since 2011, the rate of increase has declined in more recent years. Loss costs have also increased over that period of time. With the low level of interest rates available, current price levels for certain lines of business remain below the prices required for us to achieve our long-term return objectives. We expect to continue to face strong competition in these and our other lines of business and as a result pressure on pricing and policy terms and conditions. In recent years, various institutional investors have increasingly sought to participate in the property and casualty insurance and reinsurance industries. Well-capitalized new entrants to the property and casualty insurance and reinsurance industries, or existing competitors that receive substantial infusions of capital, provide increasing competition, which may adversely impact our business and profitability. Further, an expanded supply of reinsurance capital may lower costs for insurers that rely on reinsurance and, as a consequence, those insurers may be able to price their products more competitively. In addition, technology companies or other third parties have created, and may in the future create, digitally-enabled business models, platforms or alternate distribution channels that may adversely impact our competitive position. This intense competition could cause the supply and/or demand for insurance or reinsurance to change, which affect our ability to price our products at attractive rates and retain existing business or write new products at adequate rates or on terms and conditions acceptable to us. If we are unable to retain existing business or write new business at adequate rates or on terms and conditions acceptable to us, our results of operations could be materially and adversely affected. 18 1012270in_10k.indd 23 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Our actual claims losses may exceed our reserves for claims, which may require us to establish additional reserves. Our gross reserves for losses and loss expenses were approximately $ 11.7 billion as of December 31, 2017 . Our loss reserves reflect our best estimates of the cost of settling claims and related expenses with respect to insured events that have occurred. Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what management expects the ultimate settlement and claims administration will cost for claims that have occurred, whether known or unknown. 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, inflation, judicial theories of liability, reinsurance coverage, legislative changes and other factors, including the actions of third parties, which are beyond our control. 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 and settlement is reached. In periods with increased economic volatility, it becomes more difficult to accurately predict claim costs. It is especially difficult to estimate the impact of inflation on loss reserves given the current economic environment and related government actions. Both inflation overall and medical cost inflation, which has historically been greater than inflation overall, can have an adverse impact. Reserve estimates are continually refined in an ongoing process as experience develops and further claims are reported and settled. Adjustments to reserves are reflected in the results of the periods in which such estimates are changed. Because setting reserves is inherently uncertain, we cannot assure that our current reserves will prove adequate in light of subsequent events. Should we need to increase our reserves, our pre-tax income for the reporting period would decrease by a corresponding amount. We discount our reserves 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 liabilities. The expected loss and loss expense payout pattern subject to discounting is derived from our loss payout experience. Changes in the loss and loss expense payout pattern are recorded in the period they are determined. If the actual loss payout pattern is shorter than anticipated, the discount will be reduced and pre-tax income will decrease by a corresponding amount. The effects of emerging claim and coverage issues on our business are uncertain. As industry practices and economic, legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claim and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. Examples of emerging claims and coverage issues include, but are not limited to: • • judicial expansion of policy coverage and the impact of new theories of liability; plaintiffs targeting property and casualty insurers, including us, in purported class action litigation relating to claims-handling and other practices; • medical developments that link health issues to particular causes, resulting in liability claims; and • claims relating to unanticipated consequences of current or new technologies, including cyber security related risks; changing climate conditions. and claims relating to potentially In some instances, these emerging issues may not become apparent for some time after we have issued the affected insurance policies. As a result, the full extent of liability under our insurance policies may not be known until many years after the policies are issued. In addition, the potential passage of new legislation designed to expand the right to sue, to remove limitations on recovery, to extend the statutes of limitations or otherwise to repeal or weaken tort reforms could have an adverse impact on our business. The effects of these and other unforeseen emerging claim and coverage issues are difficult to predict and could harm our business and materially and adversely affect our results of operations. As a property casualty insurer, we face losses from natural and man-made catastrophes. Property casualty insurers are subject to claims arising out of catastrophes that may have a significant effect on their results of operations, liquidity and financial condition. Catastrophe losses have had a significant impact on our results. For example, catastrophe losses net of reinsurance recoveries were $184 million in 2017 , $105 million in 2016 , $58 million in 2015 , $87 million in 2014 and $65 million in 2013 . Similarly, man-made catastrophes can also have a material impact on our financial results. 19 1012270in_10k.indd 24 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Catastrophes can be caused by various events, including hurricanes, windstorms, earthquakes, tsunamis, hailstorms, explosions, severe winter weather and fires, as well as terrorist and other man-made activities, including drilling, mining and other industrial accidents, cyber events or terrorist activities. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Some catastrophes are restricted to small geographic areas; however, hurricanes, earthquakes, tsunamis and other disasters may produce significant damage in large, heavily populated areas. Catastrophes can cause losses in a variety of our property and casualty lines, and most of our past catastrophe-related claims have resulted from severe storms. Seasonal weather variations or the impact of climate change may affect the severity and frequency of our losses. Insurance companies are not permitted to reserve for a catastrophe until it has occurred. It is therefore possible that a catastrophic event or multiple catastrophic events could produce significant losses and have a material adverse effect on our results of operations and financial condition. Changing climate conditions may increase the frequency and severity of catastrophic events and thereby adversely affect our financial condition and results. Over the past several years, changing weather patterns and climatic conditions, such as global warming, appear to have contributed to the unpredictability, frequency and severity of natural disasters and created additional uncertainty as to future trends and exposures. There is a growing scientific consensus that global warming and other climate change are increasing the frequency and severity of catastrophic weather events, such as hurricanes, tornadoes, windstorms, floods and other natural disasters. Such changes make it more difficult for us to predict and model catastrophic events, reducing our ability to accurately price our exposure to such events and mitigate our risks. Any increase in the frequency or severity of natural disasters may adversely affect our financial condition and results. We, as a primary insurer, may have significant exposure for terrorist acts. To the extent an act of terrorism, whether a domestic or foreign act, is certified by the Secretary of Treasury, we may be covered under the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”), for up to 83% of our losses for certain property/casualty lines of insurance. However, any such coverage would be subject to a mandatory deductible based on 20% of earned premium for the prior year for the covered lines of commercial property and casualty insurance. Based on our 2017 earned premiums, our aggregate deductible under TRIPRA during 2018 is approximately $948 million. TRIPRA is currently in effect through December 31, 2020. In addition, the coverage provided under TRIPRA does not apply to reinsurance that we write. We are subject to extensive governmental regulation, which increases our costs and could restrict the conduct of our business. We are subject to extensive governmental regulation and supervision in both the United States and foreign jurisdictions. Most insurance regulations are designed to protect the interests of policyholders rather than stockholders and other investors. This system of regulation, generally administered in the United States by a department of insurance in each state in which we do business, relates to, among other things: • • • • • • • standards of solvency, including risk-based capital measurements; restrictions on the nature, quality and concentration of investments; requirements pertaining to certain methods of accounting; evaluating enterprise risk to an insurer; rate and form regulation pertaining to certain of our insurance businesses; potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies; and involvement in the payment or adjudication of catastrophe or other claims beyond the terms of the policies. State insurance departments conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to the financial condition of insurance companies, holding company issues and other matters. Our Insurance business internationally is also generally subject to a similar regulatory scheme in each of the jurisdictions where we conduct operations outside the United States. Federal financial services modernization legislation and legislative and regulatory initiatives taken or which may be taken in response to conditions in the financial markets, global insurance supervision and other factors may lead to additional federal regulation of the insurance industry in the coming years. The Dodd-Frank Act effected sweeping changes to financial services regulation in the United States. The Dodd-Frank Act established the Financial Stability Oversight Council (“FSOC”), which is authorized to recommend that certain 20 1012270in_10k.indd 25 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000systemically significant non-bank financial companies, including insurance companies, be regulated by the Board of Governors of the Federal Reserve. The Dodd- Frank Act also established a Federal Insurance Office (“FIO”) which is authorized to study, monitor and report to Congress on the U.S. insurance industry and the significance of global reinsurance to the U.S. insurance market. The FIO also can recommend to the FSOC that it designate an insurer as an entity posing risks to the United States financial stability in the event of the insurer's material financial distress or failure. The potential impact of the Dodd-Frank Act on the U.S. insurance business is not clear. Our business could be affected by changes, whether as a result of the Dodd-Frank Act or otherwise, to the U.S. system of insurance regulation or our designation or the designation of insurers or reinsurers with which we do business as systemically significant non-bank financial companies. One insurance group is subject to Federal Reserve supervision and heightened prudential standards as a systematically significant financial institution. The current administration and the Republican party have expressed their desire to amend the Dodd-Frank Act. On June 8, 2017, the U.S. House of Representatives passed the Financial CHOICE Act of 2017, which proposes to amend or repeal various sections of the Dodd-Frank Act. This proposed legislation is under consideration by the U.S. Senate. We are not able to predict whether any such proposal to amend or repeal certain sections of the Dodd-Frank Act would have a material effect on our business operations and cannot identify the risks, if any, that may be posed to our businesses as a result of changes to, or legislative replacements for, the Dodd-Frank Act. Although state regulation is the primary form of regulation of insurance and reinsurance in the United States, in addition to the changes brought about by the Dodd-Frank Act, Congress has considered various proposals relating to the creation of an optional federal charter, repeal of the insurance company antitrust exemption from the McCarran-Ferguson Act, and tax law changes. We may be subject to potentially increased federal oversight as a financial institution. In addition, the current administration and the volatile political environment may increase the chance of other federal legislative and regulatory changes that could affect us in ways we cannot predict. With respect to international measures, Solvency II, the EU regime concerning the capital adequacy, risk management and regulatory reporting for insurers and reinsurers may affect our insurance businesses. Implementation of Solvency II in EU member states occurred on January 1, 2016, and as the Solvency II regime evolves over time, we may be required to utilize a significant amount of resources to ensure compliance. In addition, despite the waiver of the Solvency II group capital requirements we received, Solvency II may have the effect of increasing the capital requirements of our EU domiciled insurers. Additionally, our capital requirements and compliance requirements may be adversely affected if the EU commission does not deem the insurance regulatory regimes of the jurisdictions outside the EU in which we have insurance or reinsurance companies domiciled to be "equivalent" to Solvency II. We may be unable to maintain all required licenses and approvals and our business may not fully comply with the wide variety of applicable laws and regulations or the relevant authority's interpretation of the laws and regulations. Also, some regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. Also, changes in the level of regulation of the insurance industry, whether federal, state or foreign, or changes in laws or regulations themselves or interpretations by regulatory authorities, may further restrict the conduct of our business. Risks Relating to Our Business Our international operations expose us to investment, political and economic risks, including foreign currency and credit risk. Our expanding international operations in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, the Asia-Pacific region, Africa and Australia expose us to increased investment, political and economic risks, including foreign currency and credit risk. Changes in the value of the U.S. dollar relative to other currencies could have an adverse effect on our results of operations and financial condition. Our investments in non-U.S.-denominated assets are subject to fluctuations in non-U.S. securities and currency markets, and those markets can be volatile. Non-U.S. currency fluctuations also affect the value of any dividends paid by our non-U.S. subsidiaries to their parent companies in the U.S. The United Kingdom leaving the European Union ("EU") could adversely affect our business. The 2016 U.K. referendum on its membership in the EU resulted in a majority of U.K. voters voting in favor of the U.K. leaving the EU (“Brexit”). On March 29, 2017, the U.K. government formally notified the European Council of the U.K.’s intention to withdraw from the EU. The member withdrawal provisions in the EU treaty provide that the U.K. and the EU will negotiate a withdrawal agreement during a maximum two-year period (unless such period is extended by unanimous vote of the 21 1012270in_10k.indd 26 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000EU member states). As part of the sequenced approach to the talks set out by the EU, sufficient progress needs to be made on the withdrawal arrangements before any talks on a future trade deal between the EU and the U.K. can begin. Depending on the terms of the withdrawal agreement, the U.K. could lose access to the single EU market and to free trade deals with several countries that already have agreements with the EU. Such a decline in trade could affect the attractiveness of the U.K. and impact our U.K. business. We also face risks associated with the potential uncertainty and consequences related to Brexit, including with respect to volatility in financial markets, exchange rates and interest rates. These uncertainties could increase the volatility of, or reduce, our investment results in particular periods or over time. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in political institutions and regulatory agencies. Brexit could also lead to legal uncertainty and differing laws and regulations between the U.K. and the EU. Any of these potential effects, and others we cannot anticipate, could adversely affect our results of operations or financial condition. We may be unable to attract and retain key personnel and qualified employees. We depend on our ability to attract and retain key personnel, including our President and CEO, Executive Chairman, senior executive officers, presidents of our operating units, experienced underwriters and other skilled employees who are knowledgeable about our business. If the quality of our underwriting team and other personnel decreases, we may be unable to maintain our current competitive position in the specialized markets in which we operate, and be unable to expand our operations into new products and markets. We cannot guarantee that our reinsurers will pay in a timely fashion, if at all, and, as a result, we could experience losses. We purchase reinsurance by transferring part of the risk that we have assumed, known as ceding, to a reinsurance company in exchange for part of the premium we receive in connection with the risk. Although reinsurance makes the reinsurer contractually liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us, the reinsured, of our liability to our policyholders. Our reinsurers may not pay the reinsurance recoverables that they owe to us or they may not pay such recoverables on a timely basis. Accordingly, we bear credit risk with respect to our reinsurers, and if our reinsurers fail to pay us, our financial results would be adversely affected. Underwriting results and investment returns of some of our reinsurers may affect their future ability to pay claims. As of December 31, 2017 , the amount due from our reinsurers was approximately $1,783 million, including amounts due from state funds and industry pools where it was intended that we would bear no risk. Certain of these amounts due from reinsurers are secured by letters of credit or by funds held in trust on our behalf. We are subject to credit risk relating to our policyholders, independent agents and brokers. In addition to exposure to credit risk related to our reinsurance recoverables and investment portfolio, we are exposed to credit risk in several other areas of our business, including credit risk relating to policyholders, independent agents and brokers. For example our policyholders, independent agents or brokers may not pay a part of or the full amount of premiums owed to us or our brokers or other third party claim administrators may not deliver amounts owed on claims under our insurance and reinsurance contracts for which we have provided funds. As credit risk is generally a function of the economy, we face a greater credit risk in an economic downturn. While we attempt to manage credit risks through underwriting guidelines, collateral requirements and other oversight mechanisms, our efforts may not be successful. For example, to reduce such credit risk, we require certain third parties to post collateral for some or all of their obligations to us. In cases where we receive pledged securities and the applicable counterparty is unable to honor its obligations, we may be exposed to credit risk on the securities pledged and/or the risk that our access to that collateral may be stayed as a result of bankruptcy. In cases where we receive letters of credit from banks as collateral and one of our counterparties is unable to honor its obligations, we are exposed to the credit risk of the banks that issued the letters of credit. We are rated by A.M. Best, Standard & Poor's, and Moody's, and a decline in these ratings could affect our standing in the insurance industry and cause our sales and earnings to decrease. Ratings have become an increasingly important factor in establishing the competitive position of insurance companies. Certain of our insurance company subsidiaries are rated by A.M. Best, Standard & Poor's and Moody's. Our ratings are subject to periodic review, and we cannot assure you that we will be able to retain our current or any future ratings. If our ratings are reduced from their current levels by A.M. Best, Standard & Poor's or Moody's, our competitive position in the insurance industry could suffer and it would be more difficult for us to market our products. A ratings downgrade could also adversely limit our access to capital markets, which may increase the cost of debt. A significant downgrade could result in a substantial loss of business as policyholders move to other companies with higher claims- paying and financial strength ratings. If market conditions cause reinsurance to be more costly or unavailable, we may be required to bear increased risks or reduce the level of our underwriting commitments. 22 1012270in_10k.indd 27 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000As part of our overall risk and capacity management strategy, we purchase reinsurance for certain amounts of risk underwritten by our insurance company subsidiaries, especially catastrophe risks and those risks with relatively high policy limits. We also purchase reinsurance on risks underwritten by others which we reinsure. Market conditions beyond our control determine the availability and cost of the reinsurance protection we seek to purchase, which may affect the level of our business and profitability. Our reinsurance contracts are generally subject to annual renewal, and we may be unable to maintain our current reinsurance contracts or to obtain other reinsurance contracts in adequate amounts and at favorable rates. In addition, we may be unable to obtain reinsurance on terms acceptable to us relating to certain lines of business that we intend to begin writing. If we are unable to renew our expiring contracts or to obtain new reinsurance contracts, either our net exposures would increase or, if we are unwilling to bear an increase in net exposures, we would have to reduce the level of our underwriting commitments, especially catastrophe exposed risks. Depending on conditions in the financial markets and the general economy, we may be unable to raise debt or equity capital if needed. If conditions in the financial markets and the general economy are unfavorable, which may result from disruptions, uncertainty or volatility in the capital and credit markets, we may be unable to access debt or equity capital on acceptable terms if needed, which could have a negative impact on our ability to invest in our insurance company subsidiaries and/or to take advantage of opportunities to expand our business, such as possible acquisitions and the creation of new ventures, and inhibit our ability to refinance our existing indebtedness if we desire to do so, on terms acceptable to us. We may not find suitable acquisition candidates or new insurance ventures and even if we do, we may not successfully integrate any such acquired companies or successfully invest in such ventures. As part of our present strategy, we continue to evaluate possible acquisition transactions and the start-up of complementary businesses on an ongoing basis, and at any given time we may be engaged in discussions with respect to possible acquisitions and new ventures. We cannot assure you that we will be able to identify suitable acquisition targets or insurance ventures, that such transactions will be financed and completed on acceptable terms or that our future acquisitions or start-up ventures will be successful. The process of integrating any companies we do acquire or investing in new ventures may have a material adverse effect on our results of operations and financial condition. If we experience difficulties with our information technology, telecommunications or other computer systems, our ability to conduct our business could be negatively or severely impacted. Our business is highly dependent upon our employees' ability to perform necessary business functions in an efficient and uninterrupted fashion. A shut- down of, or inability to access, one or more of our facilities, a power outage or a failure of one or more of our information technology, telecommunications or other computer systems could significantly impair our employees' ability to perform such functions on a timely basis. In the event of a disaster such as a natural catastrophe, terrorist attack or industrial accident, or the infection of our systems by a malicious computer virus, our systems could be inaccessible for an extended period of time. In addition, because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials or failures of controls if demand for our service exceeds capacity or a third-party system fails or experiences an interruption. If our business continuity plans or system security does not sufficiently address such a business interruption, system failure or service denial, our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions could be significantly impaired and our business could be harmed. Failure to maintain the security of our networks and confidential data may expose us to liability . Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Computer viruses, hackers, employee misconduct and other external hazards could expose our data systems to security breaches. Our electronic transmission of personal, confidential and proprietary information to third parties with whom we have business relationships and our outsourcing of certain technology and business process functions to third parties may expose us to enhanced risk related to data security. While we attempt to develop secure data transmission capabilities with these third-party vendors and others with whom we do business, our vendors and third parties could still suffer data breaches that could result in the exposure of sensitive data and the infiltration of our computer systems. Our failure to protect sensitive personal and our proprietary information, whether owing to breaches of our own systems or those of our vendors, could result in significant monetary and reputational damages. These increased risks, and expanding regulatory requirements regarding data security, could expose us to data loss, monetary and reputational damages and significant increases in compliance costs. As a result, our ability to conduct our business could be materially and adversely affected. We could be adversely affected if our controls to ensure compliance with guidelines, policies and legal and regulatory standards are not effective. Our business is highly dependent on our ability to engage on a daily basis in a large number of insurance underwriting, claim processing and investment activities, many of which are highly complex. These activities often are subject to internal 23 1012270in_10k.indd 28 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000guidelines and policies, as well as legal and regulatory standards, including those related to privacy, anti-corruption, anti-bribery and global finance and insurance matters. Our continued expansion into new international markets has brought about additional requirements. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system's objectives will be met. If our controls are not effective, it could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment risk) or damage to our reputation. We could be adversely affected by recent and future changes in U.S. Federal income tax laws. Recent tax legislation commonly referred to as the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, fundamentally overhauls the U.S. tax system by, among other things, reducing the U.S. corporate income tax rate to 21%, repealing the corporate alternative minimum tax, limiting the deductibility of business interest expense, introducing a base erosion and anti-avoidance tax aimed at cross-border deductible payments to related foreign persons, moving closer to a territorial system of taxing earnings generated through foreign subsidiaries and imposing a one-time deemed repatriation tax on certain post-1986 undistributed earnings of foreign subsidiaries. In the context of the taxation of U.S. property/casualty insurance companies such as the Company, the Act would also modify the loss reserve discounting rules and the proration rules that apply to reduce reserve deductions to reflect the lower corporate income tax rate. Although we believe that the changes introduced by the Act should generally benefit us, we are unable to predict the ultimate impact of the Act and its implementing regulations. In addition, it is possible that other legislation could be introduced and enacted by the current Congress or future Congresses that could have an adverse impact on us. New regulations or pronouncements interpreting or clarifying provisions of the Act may be forthcoming. We cannot predict if, when or in what form such regulations or pronouncements may be provided, whether such guidance will have a retroactive effect or their potential impact on us. Risks Relating to Our Investments A significant amount of our assets is invested in fixed maturity securities and is subject to market fluctuations. Our investment portfolio consists substantially of fixed maturity securities. As of December 31, 2017 , our investment in fixed maturity securities was approximately $13.6 billion, or 73.6% of our total investment portfolio, including cash and cash equivalents. As of that date, our portfolio of fixed maturity securities consisted of the following types of securities: U.S. Government securities (2.8%); state and municipal securities (33.2%); corporate securities (32.4%); asset-backed securities (15.6%); mortgage-backed securities (9.7%) and foreign government (6.3%). The fair value of these assets and the investment income from these assets fluctuate depending on general economic and market conditions. The fair value of fixed maturity securities generally decreases as interest rates rise. If significant inflation or an increase in interest rates were to occur, the fair value of our fixed maturity securities would be negatively impacted. Conversely, if interest rates decline, investment income earned from future investments in fixed maturity securities will be lower. Some fixed maturity securities, such as mortgage-backed and other asset-backed securities, also carry prepayment risk as a result of interest rate fluctuations. Additionally, given the near historically low interest rate environment, we may not be able to successfully reinvest the proceeds from maturing securities at yields commensurate with our target performance goals. The value of investments in fixed maturity securities is subject to impairment as a result of deterioration in the credit worthiness of the issuer, default by the issuer (including states and municipalities) in the performance of its obligations in respect of the securities and/or increases in market interest rates. To a large degree, the credit risk we face is a function of the economy; accordingly, we face a greater risk in an economic downturn or recession. During periods of market disruption, it may be difficult to value certain of our securities, particularly if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, more securities may require additional subjectivity and management judgment. Although the historical rates of default on state and municipal securities have been relatively low, our state and municipal fixed maturity securities could be subject to a higher risk of default or impairment due to declining municipal tax bases and revenue. Many states and municipalities operate under deficits or projected deficits, the severity and duration of which could have an adverse impact on both the valuation of our state and municipal fixed maturity securities and the issuer's ability to perform its obligations thereunder. Additionally, our investments are subject to losses as a result of a general decrease in commercial and economic activity for an industry sector in which we invest, as well as risks inherent in particular securities. Although we attempt to manage these risks through the use of investment guidelines and other oversight mechanisms and by diversifying our portfolio and emphasizing preservation of principal, our efforts may not be successful. Impairments, defaults and/or rate increases could reduce our net investment income and net realized investment gains or result in investment losses. Investment returns are currently, and will likely continue to remain, under pressure due to the continued low inflation, actions by the Federal Reserve, economic uncertainty, more generally, and the shape of the yield curve. As a result, our exposure to the risks described above could materially and adversely affect our results of operations, liquidity and financial condition. 24 1012270in_10k.indd 29 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000We have invested a portion of our assets in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets, which are subject to significant volatility and may decline in value. We invest a portion of our investment portfolio in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. At December 31, 2017 , our investment in these assets was approximately $3.9 billion, or 21.2%, of our investment portfolio, including cash and cash equivalents. Merger and arbitrage trading securities were $618 million, or 3.4% of our investment portfolio, including cash and cash equivalents at December 31, 2017 . Merger arbitrage involves investing in the securities of publicly held companies that are the targets in announced tender offers and mergers. Merger arbitrage differs from other types of investments in its focus on transactions and events believed likely to bring about a change in value over a relatively short time period, usually four months or less. Our merger arbitrage positions are exposed to the risk associated with the completion of announced deals, which are subject to regulatory as well as political and other risks. Real estate related investments, including directly owned, investment funds and loans receivable, were $2.2 billion, or 11.7% of our investment portfolio, including cash and cash equivalents, at December 31, 2017 . We also invest in aviation and rail equipment funds, credit-related funds and energy and other investment funds. The values of these investments are subject to fluctuations based on changes in the economy and interest rates in general and the related asset valuations in particular. In addition, our investments in real estate related assets and other alternative investments are less liquid than our other investments. These investments are subject to significant volatility as a result of the conditions in the financial and commodity markets and the global economy. Risks Relating to Purchasing Our Securities We are an insurance holding company and, therefore, may not be able to receive dividends in needed amounts. As an insurance holding company, our principal assets are the shares of capital stock of our insurance company subsidiaries. We have to rely on dividends from our insurance company subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations, paying dividends to stockholders and repurchasing our shares and paying corporate expenses. The payment of dividends by our insurance company subsidiaries is subject to regulatory restrictions and will depend on the surplus and future earnings of these subsidiaries. During 2018 , the maximum amount of dividends that can be paid without regulatory approval is approximately $699 million. As a result, in the future we may not be able to receive dividends from these subsidiaries at times and in amounts necessary to meet our obligations, pay dividends or repurchase shares. Laws and regulations of the jurisdictions in which we conduct business could delay, deter or prevent an attempt to acquire control of us that stockholders might consider to be desirable, and may restrict a stockholder's ability to purchase our common stock. Generally, United States insurance holding company laws require that, before a person can acquire control of an insurance company, prior written approval must be obtained from the insurance regulatory authorities in the state in which that insurance company is domiciled. Pursuant to applicable laws and regulations, “control” over an insurer is generally presumed to exist if any person, directly or indirectly, owns, controls, holds the power to vote, or holds proxies representing 10% or more of the voting securities of that insurer or any parent company of such insurer. Indirect ownership includes ownership of the shares of our common stock. Thus, the insurance regulatory authorities of the states in which our insurance subsidiaries are domiciled are likely to apply these restrictions on acquisition of control to any proposed acquisition of our common stock. Some states require a person seeking to acquire control of an insurer licensed but not domiciled in that state to make a filing prior to completing an acquisition if the acquirer and its affiliates, on the one hand, and the target insurer and its affiliates, on the other hand, have specified market shares in the same lines of insurance in that state. Additionally, many foreign jurisdictions where we conduct business impose similar restrictions and requirements. These provisions can also lead to the imposition of conditions on an acquisition that could delay or prevent its consummation. These laws may discourage potential acquisition proposals and may delay, deter or prevent a change in control of us through transactions, and in particular unsolicited transactions, that some or all of our stockholders might consider to be desirable. 25 1012270in_10k.indd 30 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Certain provisions in our organizational documents may have the effect of hindering, delaying or preventing third party takeovers and thus may prevent our stockholders from receiving premium prices for their shares in an unsolicited takeover or make it more difficult for third parties to replace our current management. Provisions of our Restated Certificate of Incorporation and By-Laws, as well as state insurance statutes, may hinder, delay or prevent unsolicited acquisitions or changes of our control. These provisions may also have the effect of making it more difficult for third parties to cause the replacement of our current management without the concurrence of our board of directors. These provisions include: • our classified board of directors and the ability of our board to increase its size and to appoint directors to fill newly created directorships; • • the requirement that 80% of our stockholders must approve mergers and other transactions between us and the holder of 5% or more of our shares, unless the transaction was approved by our board of directors prior to such holder's acquisition of 5% of our shares; and the need for advance notice in order to raise business or make nominations at stockholders' meetings. These provisions may discourage potential acquisition proposals and may delay, deter or prevent a change in control of us through transactions, and in particular unsolicited transactions, that some or all of our stockholders might consider to be desirable. ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934. ITEM 2. PROPERTIES W. R. Berkley and its subsidiaries own or lease office buildings or office space suitable to conduct their operations. At December 31, 2017 , the Company had aggregate office space of 3,816,471 square feet, of which 1,096,493 were owned and 2,719,979 were leased. Rental expense for the Company's operations was approximately $52,925,000, $47,453,000 and $46,271,000 for 2017 , 2016 and 2015 , respectively. Future minimum lease payments, without provision for sublease income, are $50,117,000 in 2018 , $41,326,000 in 2019 and $195,509,000 thereafter. ITEM 3. LEGAL PROCEEDINGS 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. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 26 1012270in_10k.indd 31 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of the Company is traded on the New York Stock Exchange under the symbol “WRB”. 2017 Fourth Quarter Third Quarter Second Quarter First Quarter 2016 Fourth Quarter Third Quarter Second Quarter First Quarter _______________________ (1) (2) (3) (4) Includes a special dividend of $0.50 per share paid in December 2017. Includes a special dividend of $0.50 per share paid in July 2017. Includes a special dividend of $0.50 per share paid in November 2016. Includes a special dividend of $0.50 per share paid in October 2016. Price Range High Low Dividends Declared Per Share $ $ $ $ 71.91 72.33 70.96 73.17 66.91 60.08 59.93 56.53 $ $ 65.92 62.00 65.70 65.91 55.55 56.12 54.56 47.57 (1) (2) (3) (4) 0.64 0.14 0.64 0.13 0.63 0.63 0.13 0.12 The closing price of the common stock on February 20, 2018 as reported on the New York Stock Exchange was $68.73 per share. The approximate number of record holders of the common stock on February 20, 2018 was 333. 27 1012270in_10k.indd 32 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The chart below shows a comparison of 5 year cumulative total return. Comparison of 5 Year Cumulative Total Return Assumes initial investment of $100 on January 1, 2013, with dividends reinvested. The S&P 500® Property and Casualty Insurance Index consists of Allstate Corporation, Chubb, Ltd., Cincinnati Financial Corporation, Progressive Corporation, The Travelers Companies, Inc., and XL Group Ltd. Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2018. Index Data: Copyright Standard and Poor's Inc. Used with permission. All rights reserved. W. R. Berkley Corporation S&P 500 Index S&P 500 Property and Casualty Insurance Index Cum $ Cum $ Cum $ 2012 100.00 100.00 100.00 2013 116.03 132.39 138.29 2014 141.11 150.01 160.06 2015 152.06 152.59 175.32 2016 189.69 170.84 202.85 2017 209.00 208.14 248.26 Set forth below is a summary of the shares repurchased by the Company during the fourth quarter of 2017 and the remaining number of shares authorized for purchase by the Company during such period. October 2017 November 2017 December 2017 Total Number of Shares Purchased — 289,884 — Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs — 67.02 — — 289,884 — Maximum Number of Shares that may yet be Purchased Under the Plans or Programs 9,558,881 9,268,997 9,268,997 For equity compensation plan information, see Item 12 of this annual report on Form 10-K. 28 1012270in_10k.indd 33 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share data) Net premiums written Net premiums earned Net investment income Net investment gains Revenues from non-insurance businesses Insurance service fees Total revenues Interest expense Income before income taxes Income tax expense Noncontrolling interests Net income to common stockholders Data per common share: Net income per basic share Net income per diluted share Common stockholders’ equity Cash dividends declared Weighted average shares outstanding: Basic Diluted Investments Total assets Reserves for losses and loss expenses Senior notes and other debt Subordinated debentures Common stockholders’ equity Year Ended December 31, $ 2017 6,260,508 6,311,419 $ 2016 6,423,913 6,293,348 $ 2015 6,189,515 6,040,609 $ 2014 5,996,947 5,744,418 $ 575,788 335,858 326,165 134,729 564,163 267,005 390,348 138,944 512,645 92,324 421,102 139,440 600,885 254,852 410,022 117,443 2013 5,500,173 5,226,537 544,291 121,544 407,623 107,513 7,684,764 7,654,184 7,206,457 7,128,928 6,408,534 147,297 772,770 (219,433) (4,243) 549,094 4.40 4.26 44.53 1.55 124,843 129,018 140,896 896,438 (292,953) (1,569) 601,916 4.91 4.68 41.65 1.51 122,651 128,553 130,946 732,030 (227,923) (413) 503,694 4.06 3.87 37.31 0.47 124,040 130,189 128,174 952,196 (302,593) (719) 648,884 5.07 4.86 36.21 1.43 127,874 133,652 $ 17,450,508 $ 16,649,792 $ 15,351,467 $ 15,591,824 $ 24,299,917 11,670,408 1,769,052 728,218 5,411,344 23,364,844 11,197,195 1,760,595 727,630 5,047,208 21,730,967 10,669,150 1,844,621 340,320 4,600,246 21,716,691 10,369,701 2,115,527 340,060 4,589,945 123,177 698,888 (193,587) (5,376) 499,925 3.69 3.55 32.79 0.39 135,305 140,743 14,548,630 20,551,796 10,080,941 1,692,442 339,800 4,336,035 29 1012270in_10k.indd 34 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in two business segments of the property and casualty business: Insurance and Reinsurance. Our decentralized structure provides us with the flexibility to respond quickly and efficiently to local or specific market conditions and to pursue specialty business niches. It also allows us to be closer to our customers in order to better understand their individual needs and risk characteristics. While providing our business units with certain operating autonomy, our structure allows us to capitalize on the benefits of economies of scale through centralized capital, investment, reinsurance and enterprise risk management, and actuarial, financial and corporate legal staff support. The Company's primary sources of revenues and earnings are its insurance operations and its investments. An important part of our strategy is to form new operating units to capitalize on various business opportunities. Over the years, the Company has formed numerous new operating units that are focused on important parts of the economy in the U.S., including healthcare, cyber security, energy and agriculture, and on growing international markets, including the Asia-Pacific region, South America and Mexico. The profitability of the Company’s insurance business is affected primarily by the adequacy of premium rates. The ultimate adequacy of premium rates is not known with certainty at the time an insurance policy is issued because premiums are determined before claims are reported. The ultimate adequacy of premium rates is affected mainly by the severity and frequency of claims, which are influenced by many factors, including natural and other disasters, regulatory measures and court decisions that define and change the extent of coverage and the effects of economic inflation on the amount of compensation for injuries or losses. General insurance prices are also influenced by available insurance capacity, i.e., the level of statutory capital and surplus employed in the industry, and the industry’s willingness to deploy that capital. The Company’s profitability is also affected by its investment income and investment gains. The Company’s invested assets are invested principally in fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates, as well as the credit quality and duration of the securities. Returns available on fixed maturity investments have been at historically low levels in recent years. The Company also invests in equity securities, merger arbitrage securities, investment funds (including energy related funds), private equity, loans and real estate related assets. The Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income. During 2017, catastrophe losses were $184 million, mainly related to hurricanes Harvey, Irma, and Maria, two earthquakes in Mexico, and wildfires in California. The Tax Cuts and Jobs Act of 2017 (the Tax Act) was enacted on December 22, 2017. The Tax Act provides for a reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also provides for a mandatory repatriation of foreign earnings, which requires companies to pay a one-time tax on the unremitted accumulated earnings of their foreign subsidiaries. The Company has calculated the effects of the Tax Act as of December 31, 2017 and has included in its financial statements provisional estimates of its impact. The Company anticipates further guidance will be forthcoming and will continue to review and refine its calculations as guidance is provided and additional analysis of the Company's information is completed. In 2017, the Company reported a net tax benefit related to the Tax Act in the amount of $20.7 million . This included a tax benefit due to the reduction of the tax rate as applied to the net U.S. deferred tax liability in the amount of $30.5 million . Offsetting this tax benefit, the Company recorded a provisional charge of $9.8 million on the deemed repatriation of earnings and related impact of utilization of foreign losses. The charge may be adjusted as the applicable earnings related to the foreign subsidiaries are finalized for the purpose of the mandatory repatriation inclusion computation. Commencing with the first quarter 2017, the Company reclassified two businesses from the Insurance segment to the Reinsurance segment. Reclassifications have been made to the Company's 2016 and earlier presented financial information to conform with this presentation. 30 1012270in_10k.indd 35 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Critical Accounting Estimates The following presents a discussion of accounting policies and estimates relating to reserves for losses and loss expenses, assumed premiums and other- than-temporary impairments of investments. Management believes these policies and estimates are the most critical to its operations and require the most difficult, subjective and complex judgments. Reserves for Losses and Loss Expenses . To recognize liabilities for unpaid losses, either known or unknown, insurers establish reserves, which is a balance sheet account representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred. Estimates and assumptions relating to reserves for losses and loss expenses are based on complex and subjective judgments, often including the interplay of specific uncertainties with related accounting and actuarial measurements. Such estimates are also susceptible to change as significant periods of time may elapse between the occurrence of an insured loss, the report of the loss to the insurer, the ultimate determination of the cost of the loss and the insurer’s payment of that loss. In general, when a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment based upon known information about the claim at that time. The estimate represents an informed judgment based on general reserving practices and reflects the experience and knowledge of the claims personnel regarding the nature and value of the specific type of claim. Reserves are also established on an aggregate basis to provide for losses incurred but not reported (“IBNR”) to the insurer, potential inadequacy of case reserves and the estimated expenses of settling claims, including legal and other fees and general expenses of administrating the claims adjustment process. Reserves are established based upon the then current legal interpretation of coverage provided. In examining reserve adequacy, several factors are considered in estimating the ultimate economic value of losses. These factors include, among other things, historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. The actuarial process relies on the basic assumption that past experience, adjusted judgmentally for the effects of current developments and anticipated trends, is an appropriate basis for predicting future outcomes. Reserve amounts are based on management’s informed estimates and judgments using currently available data. As additional experience and other data become available and are reviewed, these estimates and judgments may be revised. This may result in reserve increases or decreases that would be reflected in our results in periods in which such estimates and assumptions are changed. Reserves do not represent a certain 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, the major assumptions about anticipated loss emergence patterns are subject to uncertainty. These estimates, which generally involve actuarial projections, are based on management’s assessment of facts and circumstances then known, as well as estimates of trends in claims severity and frequency, judicial theories of liability and other factors, including the actions of third parties which are beyond the Company’s control. These variables are affected by external and internal events, such as inflation and economic volatility, judicial and litigation trends, reinsurance coverage, legislative changes and claim handling and reserving practices, which make it more difficult to accurately predict claim costs. The inherent uncertainties of estimating reserves are greater for certain types of liabilities where long periods of time elapse before a definitive determination of liability is made. Because setting reserves is inherently uncertain, the Company cannot provide assurance that its current reserves will prove adequate in light of subsequent events. Loss reserves included in the Company’s financial statements represent management’s best estimates based upon an actuarially derived point estimate and other considerations. The Company uses a variety of actuarial techniques and methods to derive an actuarial point estimate for each operating unit. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. In circumstances where one actuarial method is considered more credible than the others, that method is used to set the point estimate. For example, the paid loss and incurred loss development methods rely on historical paid and incurred loss data. For new lines of business, where there is insufficient history of paid and incurred claims data, or in circumstances where there have been significant changes in claim practices, the paid and incurred loss development methods would be less credible than other actuarial methods. The actuarial point estimate may also be based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” and in areas where the Company’s own data is limited. The actuarial data is analyzed by line of business, coverage and accident or policy year, as appropriate, for each operating unit. The establishment of the actuarially derived loss reserve point estimate also includes consideration of qualitative factors that may affect the ultimate losses. These qualitative considerations include, among others, the impact of re-underwriting initiatives, changes in the mix of business, changes in distribution sources and changes in policy terms and conditions. Examples of changes in terms and conditions that can have a significant impact on reserve levels are the use of aggregate policy limits, the expansion of coverage exclusions, whether or not defense costs are within policy limits, and changes in deductibles and attachment points. 31 1012270in_10k.indd 36 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is priced and written, before any actual claims experience has emerged. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each operating unit. Expected loss cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns. 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 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 the latest reported loss data, current trends and other factors observed. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity, relative to our assumptions, on our loss estimate for claims occurring in 2017 : (In thousands) Severity (+/-) 1% 5% 10% Frequency (+/-) 1% 5% 10% $ 79,667 $ 239,794 $ 239,794 439,953 406,263 614,349 439,953 614,349 832,344 Our net reserves for losses and loss expenses of approximately $10.1 billion as of December 31, 2017 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above. The impact of such changes would likely be manifested gradually over the course of many years, as the magnitude of the changes became evident. Approximately $1.7 billion, or 17%, of the Company’s net loss reserves as of December 31, 2017 relate to the 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. 32 1012270in_10k.indd 37 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Information 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. 33 1012270in_10k.indd 38 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Following is a summary of the Company’s reserves for losses and loss expenses by business segment as of December 31, 2017 and 2016 : (In thousands) Insurance Reinsurance Net reserves for losses and loss expenses Ceded reserves for losses and loss expenses Gross reserves for losses and loss expenses 2017 2016 8,341,622 $ 1,715,292 10,056,914 1,613,494 7,913,074 1,677,191 9,590,265 1,606,930 11,670,408 $ 11,197,195 $ $ Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of December 31, 2017 and 2016 : (In thousands) December 31, 2017 Other liability Workers’ compensation (1) Professional liability Commercial automobile Short-tail lines (2) Total primary Reinsurance (1) Total December 31, 2016 Other liability Workers’ compensation (1) Professional liability Commercial automobile Short-tail lines (2) Total primary Reinsurance (1) Total Reported Case Reserves Incurred But Not Reported Total $ 1,261,957 $ 2,189,596 $ $ $ 1,543,379 295,269 347,669 315,008 3,763,282 919,497 4,682,779 1,159,082 1,453,318 264,188 344,143 322,872 3,543,603 823,516 $ $ 1,242,501 618,107 263,411 264,725 4,578,340 795,795 5,374,135 2,061,966 1,228,774 542,539 252,978 283,214 4,369,471 853,675 $ $ $ 4,367,119 $ 5,223,146 $ 3,451,553 2,785,880 913,376 611,080 579,733 8,341,622 1,715,292 10,056,914 3,221,048 2,682,092 806,727 597,121 606,086 7,913,074 1,677,191 9,590,265 ____________________ (1) Reserves for excess and assumed workers’ compensation business are net of an aggregate net discount of $591 million and $640 million as of December 31, 2017 and 2016 , respectively. (2) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines. The Company evaluates reserves for losses and loss expenses on a quarterly basis. Changes in estimates of prior year losses are reported when such changes are made. The changes in prior year loss reserve estimates are generally the result of ongoing analysis of recent loss development trends. Original estimates are increased or decreased as additional information becomes known regarding individual claims and aggregate claim trends. Certain of the Company's insurance and reinsurance contracts are retrospectively rated, whereby the Company collects more or less premiums based on the level of loss activity. For those contracts, changes in loss and loss expenses for prior years may be fully or partially offset by additional or return premiums. Net prior year development (i.e, the sum of prior year reserve changes and prior year earned premiums changes) for each of the last three years ended December 31, are as follows: (In thousands) Decrease in prior year loss reserves Increase in prior year earned premiums Net favorable prior year development 2017 2016 2015 $ $ 5,165 32,162 37,327 $ $ 29,904 29,000 58,904 $ $ 46,713 16,730 63,443 34 1012270in_10k.indd 39 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Favorable prior year development (net of additional and return premiums) was $37 million in 2017 . Insurance - Reserves for the Insurance segment developed favorably by $68 million in 2017. The favorable development was primarily attributable to workers' compensation business, and was partially offset by unfavorable development for professional liability business. For workers' compensation, the favorable development was related to both primary and excess business and was spread across many accident years, including those prior to 2008, but was most significant in accident years 2014 through 2016. The favorable workers' compensation development reflects a continuation during 2017 of the generally benign loss cost trends experienced in recent years, particularly the favorable claim frequency trends (i.e. number of reported claims per unit of exposure). Reported workers' compensation losses in 2017 continued to be below our expectations at most of our operating units, and were below the assumptions underlying our previous reserve estimates. The favorable severity trends were also impacted by our continued investment in medical case management services and the higher usage of preferred provider networks. The long term trend of declining workers' compensation frequency can be attributed to improved workplace safety. For professional liability business, adverse development was primarily related to unexpected large directors & officers ("D&O") liability losses at one of our U.S. operating units, and large professional indemnity and D&O losses in the U.K. The adverse development stemmed mainly from accident years 2013 through 2016 in the U.S. and 2011 through 2016 in the U.K. Reinsurance - Reserves for the Reinsurance segment developed unfavorably by $31 million in 2017. This adverse development was due to reserve strengthening associated with claims impacted by the change in the Ogden discount rate in the U.K., as well as adverse development on the U.S. facultative casualty excess of loss business. The Ogden rate is the discount rate used to calculate lump-sum bodily injury payouts in the U.K., and was reduced by the U.K. Ministry of Justice from +2.5% to -0.75% in 2017; the adverse development mostly related to U.K. motor bodily injury claims which we reinsured on an excess of loss basis in accident years 2012 through 2016. The adverse development on U.S. facultative casualty business was due to construction related risks in accident years 2008 and prior. Favorable prior year development (net of additional and return premiums) was $59 million in 2016 . Insurance - Reserves for the Insurance segment developed favorably by $53 million in 2016 . The favorable development was primarily related to workers' compensation business, and was partially offset by unfavorable development for medical professional liability business. For workers' compensation, the favorable development was related to both primary and excess business and to many accident years, including those prior to 2007. During 2016 , reported workers' compensation losses continued to be below our expectations at most of our operating units. Loss frequency and severity trends continued to be better than the assumptions underlying our previous reserve estimates. Loss severity trends also benefited from our continued investment in medical case management services and from our preferred provider networks. The long term trend of declining workers' compensation frequency can be attributed to improved workplace safety. For medical professional liability business, unfavorable development was primarily related to a class of business that has been discontinued. The adverse development for that business stemmed mainly from accident years 2010 through 2015. Reinsurance - Reserves for the Reinsurance segment developed favorably by $6 million in 2016 . The favorable development was primarily related to direct facultative reinsurance business and to accident years 2008 through 2014. Favorable prior year development (net of additional and return premiums) was $63 million in 2015 . Insurance - Reserves for the Insurance segment developed favorably by $52 million in 2015 . The favorable development was primarily related to workers' compensation, other liability business and commercial property, and was partially offset by unfavorable development for commercial automobile liability business and professional indemnity business. For workers' compensation, the favorable development was related to both primary and excess business and to many accident years, including those prior to 2007. In 2015 , reported workers' compensation losses were below our expectations for many of our operating units. In addition, overall loss frequency and severity trends emerged better than the assumptions underlying our previous reserve estimates. The long term trend of declining workers' compensation claim frequency continued in 2015 . The improvement is attributable to better workplace safety and to benign medical severity trends as we continue to invest in medical case management services and higher usage of preferred provider networks. For other liability business, favorable development was concentrated in accident years 2007 through 2013. The favorable development was primarily related to our excess and surplus lines casualty business that has benefited from a persistent improvement in claim frequency trends over the past several years. 35 1012270in_10k.indd 40 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000For commercial property business, favorable development was attributable to accident years 2012 through 2014 and was driven by favorable frequency and severity trends on property business written in Lloyd's. For commercial automobile business, adverse development was primarily related to large losses for long-haul trucking business and to accident years 2011 through 2014. The higher loss cost trends for the commercial automobile industry are attributable, in part, to the increase in miles driven as the economy improved and fuel prices declined over the past several years. For professional indemnity business in the U.K., adverse development was primarily for accident years 2006 through 2013. Reinsurance - Reserves for the Reinsurance segment developed favorably by $11 million in 2015 . The favorable development was primarily related to direct facultative reinsurance business and to accident years 2005 through 2013. Loss reserves developed favorably for umbrella business and for other liability coverage for contractors. Reserve Discount . The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $ 1,855 million and $ 1,907 million at December 31, 2017 and December 31, 2016 , respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $591 million and $640 million at December 31, 2017 and 2016, respectively. At December 31, 2017 , discount rates by year ranged from 2.0% to 6.5% , with a weighted average discount rate of 3.8% . Substantially all discounted workers’ compensation reserves ( 97% of total discounted reserves at December 31, 2017 ) are excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience. The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at December 31, 2017 ), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware. Assumed Reinsurance Premiums . The Company estimates the amount of assumed reinsurance premiums that it will receive under treaty reinsurance agreements at the inception of the contracts. These premium estimates are revised as the actual amount of assumed premiums is reported to the Company by the ceding companies. As estimates of assumed premiums are made or revised, the related amount of earned premiums, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $56 million and $68 million at December 31, 2017 and 2016 , respectively. The assumed premium estimates are based upon terms set forth in reinsurance agreements, information received from ceding companies during the underwriting and negotiation of agreements, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate amount of premiums to be received under its assumed reinsurance agreements. Other-Than-Temporary Impairments (OTTI) of Investments . The cost of securities is adjusted where appropriate to include a provision for decline in value which is considered to be other-than-temporary. An other-than-temporary decline is considered to occur in investments where there has been a sustained reduction in fair value and where the Company does not expect the fair value to recover prior to the time of sale or maturity. Since equity securities do not have a contractual cash flow or maturity, the Company considers whether the price of an equity security is expected to recover within a reasonable period of time. The Company classifies its fixed maturity securities and preferred stocks by credit rating, primarily based on ratings assigned by credit rating agencies. For purposes of classifying securities with different ratings, the Company uses the average of the credit ratings assigned, unless in limited situations the Company's own analysis indicates an internal rating is more appropriate. Securities that are not rated by a rating agency are evaluated and classified by the Company on a case-by-case basis. 36 1012270in_10k.indd 41 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Fixed Maturity Securities – For securities that we intend to sell or, more likely than not, would be required to sell, a decline in value below amortized cost is considered to be OTTI. The amount of OTTI is equal to the difference between amortized cost and fair value at the balance sheet date. For securities that we do not intend to sell or expect to be required to sell, a decline in value below amortized cost is considered to be an OTTI if we do not expect to recover the entire amortized cost basis of a security (i.e., the present value of cash flows expected to be collected is less than the amortized cost basis of the security). The portion of the decline in value considered to be a credit loss (i.e., the difference between the present value of cash flows expected to be collected and the amortized cost basis of the security) is recognized in earnings. The portion of the decline in value not considered to be a credit loss (i.e., the difference in the present value of cash flows expected to be collected and the fair value of the security) is recognized in other comprehensive income. Impairment assessments for structured securities, including mortgage-backed securities and asset-backed securities, collateralized debt obligations and corporate debt, are generally evaluated based on the performance of the underlying collateral under various economic and default scenarios that may involve subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default rates, the nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and performance factors. If an OTTI determination is made, a discounted cash flow analysis is used to ascertain the amount of the credit impairment. The following table provides a summary of fixed maturity securities in an unrealized loss position as of December 31, 2017 : ($ in thousands) Unrealized loss less than 20% of amortized cost Unrealized loss of 20% or greater of amortized cost: Twelve months and longer Total Number of Securities Aggregate Fair Value Unrealized Loss 789 $ 4,939,452 $ 60,118 3 177 792 $ 4,939,629 $ 111 60,229 A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at December 31, 2017 is presented in the table below. ($ in thousands) Foreign government Corporate Mortgage-backed securities State and municipal Asset-backed securities Total Number of Securities Aggregate Fair Value Unrealized Loss 11 $ 96,741 $ 7 6 1 3 54,590 5,368 3,662 441 28 $ 160,802 $ 1,197 2,725 138 1 116 4,177 The Company has evaluated its fixed maturity securities in an unrealized loss position and believes the unrealized loss is due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due and does not consider any of these securities to be OTTI. For the years ended December 31, 2017 and 2016, there were no OTTI for fixed maturity securities recognized in earnings. Preferred Stocks – At December 31, 2017 , there was one preferred stock in an unrealized loss position, with an aggregate fair value of $23.1 million and a gross unrealized loss of $2.6 million . The preferred stock is rated investment grade. Management believes the unrealized loss is due primarily to market and sector related factors and does not consider it to be OTTI. For the years ended December 31, 2017 and 2016, there were no OTTI for preferred stocks. Common Stocks – At December 31, 2017 , there were three common stocks in an unrealized loss position with an aggregate fair value of $18.6 million and a gross unrealized loss of $2.0 million. Based on management's view of these securities, the Company does not consider the common stocks to be OTTI. For the year ended December 31, 2017 , there were no OTTI for common stocks. OTTI for common stocks for the year ended December 31, 2016 were $18.1 million. 37 1012270in_10k.indd 42 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Loans Receivable – The Company monitors the performance of its loans receivable, including current market conditions for each loan and the ability to collect principal and interest. For loans where the Company determines it is probable that the contractual terms will not be met, an analysis is performed and a valuation reserve is established, if necessary, with a charge to earnings. Loans receivable are reported net of a valuation reserve of $3 million for both December 31, 2017 and 2016 . The Company monitors the performance of its loans receivable and assesses the ability of each borrower to pay principal and interest based upon loan structure, underlying property values, cash flow and related financial and operating performance of the property and market conditions. Loans receivable with a potential for default are further assessed using discounted cash flow analysis and comparable cost and sales methodologies, if appropriate. Fair Value Measurements . The Company’s fixed maturity and equity securities available for sale 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 that are infrequently traded or securities that are only traded in private transactions. For publicly traded securities for which quoted prices are unavailable, the Company determines fair value based on independent broker quotations and other observable market data. For securities traded only in private negotiations, the Company determines fair value based primarily on the cost of such securities, which is adjusted to reflect prices of recent placements of securities of the same issuer, financial data, projections and business developments of the issuer and other relevant information. The following is a summary of pricing sources for the Company's fixed maturity securities available for sale as of December 31, 2017 : (In thousands) Pricing source: Independent pricing services Syndicate manager Directly by the Company based on: Observable data Cash flow model Total Carrying Value Percent of Total $ 13,335,030 99.0% 40,255 96,461 172 0.3 0.7 — $ 13,471,918 100.0% Independent pricing services - Substantially all of the Company’s fixed maturity securities available for sale were priced by independent pricing services (generally one U.S. pricing service plus additional pricing services with respect to a limited number of foreign securities held by the Company). The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness based upon current trading levels for similar securities. If the prices appear unusual to the Company, they are re-examined and the value is either confirmed or revised. In addition, the Company periodically performs independent price tests of a sample of securities to ensure proper 38 1012270in_10k.indd 43 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000valuation and to verify our understanding of how securities are priced. As of December 31, 2017 , the Company did not make any adjustments to the prices provided by the pricing services. Based upon the Company’s review of the methodologies used by the independent pricing services, these securities were classified as Level 2. Syndicate manager – The Company has a 15% participation in a Lloyd’s syndicate, and the Company’s share of the securities owned by the syndicate is priced by the syndicate’s manager. The majority of the securities are liquid, short duration fixed maturity securities. The Company reviews the syndicate manager’s pricing methodology and audited financial statements and holds discussions with the syndicate manager as necessary to confirm its understanding and agreement with security prices. Based upon the Company’s review of the methodologies used by the syndicate manager, these securities were classified as Level 2. Observable data – If independent pricing is not available, the Company prices the securities directly. Prices are based on observable market data where available, including current trading levels for similar securities and non-binding quotations from brokers. The Company generally requests two or more quotes. If more than one quote is received, the Company sets a price within the range of quotes received based on its assessment of the credibility of the quote and its own evaluation of the security. The Company generally does not adjust quotes obtained from brokers. Since these securities were priced based on observable data, they were classified as Level 2. Cash flow model – If the above methodologies are not available, the Company prices securities using a discounted cash flow model based upon assumptions as to prevailing credit spreads, interest rates and interest rate volatility, time to maturity and subordination levels. Discount rates are adjusted to reflect illiquidity where appropriate. These securities were classified as Level 3. 39 1012270in_10k.indd 44 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Results of Operations for the Years Ended December 31, 2017 and 2016 Business Segment Results Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of net premiums earned), expense ratios (underwriting expenses expressed as a percentage of net premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the years ended December 31, 2017 and 2016 . The GAAP combined ratio represents a measure of underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit. (In thousands) Insurance Gross premiums written Net premiums written Net premiums earned Loss ratio Expense ratio GAAP combined ratio Reinsurance Gross premiums written Net premiums written Net premiums earned Loss ratio Expense ratio GAAP combined ratio Consolidated Gross premiums written Net premiums written Net premiums earned Loss ratio Expense ratio GAAP combined ratio 2017 2016 $ 6,869,831 $ 5,715,871 5,706,443 61.6% 32.9 94.5 $ 607,132 544,637 604,976 80.2% 37.4 117.6 $ $ 7,476,963 $ 6,260,508 6,311,419 63.4% 33.3 96.7 6,795,506 5,743,620 5,618,842 61.0% 32.5 93.5 748,195 680,293 674,506 61.6% 39.0 100.6 7,543,701 6,423,913 6,293,348 61.1% 33.2 94.3 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 years ended December 31, 2017 and 2016 . (In thousands, except per share data) Net income to common stockholders Weighted average diluted shares Net income per diluted share 2017 2016 549,094 129,018 4.26 $ $ 601,916 128,553 4.68 $ $ The Company reported net income of $549 million in 2017 compared to $602 million in 2016 . The 9% decrease in net income was primarily due to a decrease in after-tax underwriting income of $98 million (mainly driven by increased catastrophe losses from hurricanes Harvey, Irma, and Maria, two earthquakes in Mexico, and wildfires in California), an after-tax increase of $18 million in net foreign currency losses, an after-tax decrease in income from non-insurance businesses of $9 million, an increase in after-tax interest expense of $4 million, and an increase in after-tax other expenses of $7 million, partially offset by an increase in after-tax net investment gains of $45 million, a net benefit from tax reform of $21 million, an increase in after-tax net investment income of $8 million, an after-tax increase of $3 million in service fee income and an increase in income from other various sources of $6 million. The number of weighted average diluted shares remained relatively unchanged for 2017 and 2016 . Premiums . Gross premiums written were $7,477 million in 2017 , a decrease of 1% from $7,544 million in 2016 . The decrease was due to a decrease in the Reinsurance segment of $141 million, partially offset by an increase in the Insurance segment of $74 million. Approximately 79% of policies expiring in 2017 were renewed and 77% of policies expiring in 2016 were renewed. 40 1012270in_10k.indd 45 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Average renewal premium rates (adjusted for change in exposures) increased 0.9% in 2017 , 0.3% in 2016 and 1.2% in 2015 . However, overall 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 long-term return objectives. A summary of gross premiums written in 2017 compared with 2016 by line of business within each business segment follows: • Insurance gross premiums increased 1% to $6,870 million in 2017 from $6,796 million in 2016 . Gross premiums increased $38 million (6%) for commercial auto, $37 million (5%) for professional liability, $6 million (less than 1%) for short-tail lines and $6 million (less than 1%) for other liability, partially offset by a decrease of $13 million (1%) for workers' compensation. • Reinsurance gross premiums decreased 19% to $607 million in 2017 from $748 million in 2016 . Gross premiums written decreased $108 million (35%) for property lines and decreased $33 million (7%) for casualty lines. Net premiums written were $6,261 million in 2017 , a decrease of 3% from $6,424 million in 2016 . Ceded reinsurance premiums as a percentage of gross written premiums were 16% in 2017 and 15% in 2016 . Premiums earned increased less than 1% to $6,311 million in 2017 from $6,293 million in 2016 . Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly recent rate increases will be earned over the upcoming quarters. Premiums earned in 2017 are related to business written during both 2017 and 2016 . Audit premiums were $172 million in 2017 compared with $156 million in 2016 . Net Investment Income . Following is a summary of net investment income for the years ended December 31, 2017 and 2016 : (In thousands) 2017 2016 2017 2016 Fixed maturity securities, including cash and cash equivalents and loans receivable $ 473,101 $ 444,247 3.3% 3.2% Amount Average Annualized Yield Investment funds Real estate Arbitrage trading account Equity securities available for sale Gross investment income Investment expenses Total 68,169 19,975 19,145 2,350 582,740 (6,952) 99,301 7,054 18,693 4,028 573,323 (9,160) 5.7 1.5 3.6 1.1 3.3 — 8.1 0.7 4.8 2.1 3.4 — $ 575,788 $ 564,163 3.3% 3.4% Net investment income increased 2% to $576 million in 2017 from $564 million in 2016 primarily due to an increase in income from fixed maturity securities of $29 million, as well as real estate of $13 million and a decrease in investment expenses of $2 million, partially offset by a decrease in investment funds of $31 million. Investment funds are reported on a one quarter lag. The average annualized yield for fixed maturity securities was 3.3% in 2017 and 3.2% in 2016 ; accordingly the increase in fixed maturity securities income was mainly the result of a larger investment portfolio. The effective duration of the fixed maturity portfolio was 3.0 years at December 31, 2017 , down from 3.1 years at December 31, 2016 . Average invested assets, at cost (including cash and cash equivalents), were $17.5 billion in 2017 and $16.7 billion in 2016 . Insurance Service Fees . The Company earns fees from an insurance distribution business, a third-party administrator, and as a servicing carrier of workers' compensation assigned risk plans for certain states. Insurance service fees were $135 million in 2017 and $139 million in 2016 . Net Realized Gains on Investment Sales . The Company buys and sells securities and other investment assets on a regular basis in order to maximize its total return on investments. Decisions to sell securities and other investment assets are based on management’s view of the underlying fundamentals of specific investments as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net realized gains on investment sales were $336 million in 2017 compared with $285 million in 2016 . In 2017, realized gains were primarily related to the sale of an investment in an office building located in Washington, D.C. and the sale of some shares of a publicly traded common stock. In 2016, realized gains were primarily related to the sale of Aero Precision Industries and the sale of some shares of a publicly traded common stock. 41 1012270in_10k.indd 46 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Other-Than-Temporary Impairments. The cost of securities is adjusted where appropriate to include a provision for a decline in value that is considered to be other-than-temporary. There were no other-than-temporary impairments in 2017 as compared to $18 million in 2016 primarily related to common stocks. Revenues from Non-Insurance Businesses . Revenues from non-insurance businesses were derived from businesses engaged in the distribution of promotional merchandise, world-wide textile solutions, and aviation-related businesses that provide services to aviation markets, including (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenues from non-insurance businesses decreased to $326 million in 2017 from $390 million in 2016 , primarily due to the sale of Aero Precision Industries in August 2016, partially offset by revenues from the textile business purchased in March 2017. Losses and Loss Expenses . Losses and loss expenses increased to $4,002 million in 2017 from $3,846 million in 2016 . The consolidated loss ratio was 63.4% in 2017 and 61.1% in 2016 . Catastrophe losses, net of reinsurance recoveries and reinstatement premiums, were $184 million in 2017 compared with $105 million in 2016 , an increase of 1.2 loss ratio points. Favorable prior year reserve development (net of premium offsets) was $37 million in 2017 compared with $59 million in 2016 , a difference of 0.3 loss ratio points (see "- Critical Accounting Estimates - Reserves for Losses and Loss Expenses"). The loss ratio excluding catastrophe losses and prior year reserve development increased 0.8 points to 61.1% in 2017 from 60.3% in 2016 . A summary of loss ratios in 2017 compared with 2016 by business segment follows: • Insurance - The loss ratio of 61.6% in 2017 was 0.6 points higher than the loss ratio of 61.0% in 2016 . Catastrophe losses were $107 million in 2017 compared with $89 million in 2016 , an increase of 0.4 loss ratio points. Favorable prior year reserve development was $68 million in 2017 compared with $53 million in 2016 , a decrease of 0.3 loss ratio points. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.5 points to 60.9% in 2017 from 60.4% in 2016 . • Reinsurance - The loss ratio of 80.2% in 2017 was 18.6 points higher than the loss ratio of 61.6% in 2016 . Catastrophe losses were $77 million in 2017 compared with $16 million in 2016 , an increase of 10.3 loss ratio points. Adverse prior year reserve development was $31 million in 2017 compared with favorable prior year reserve development of $6 million in 2016 , a difference of 6.0 loss ratio points. Adverse prior year development in 2017 was largely due to the impact of the change in Ogden discount rate in the U.K. and adverse development related to the U.S. facultative excess of loss business. The loss ratio excluding catastrophe losses and prior year reserve development increased 2.3 points to 62.3% in 2017 from 60.0% in 2016 . Other Operating Costs and Expenses . Following is a summary of other operating costs and expenses: (In thousands) Policy acquisition and insurance operating expenses Insurance service expenses Net foreign currency losses (gains) Other costs and expenses Total 2017 2016 2,101,024 $ 2,089,203 129,776 15,267 190,865 138,908 (11,904) 179,412 2,436,932 $ 2,395,619 $ $ Policy acquisition and insurance operating expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Policy acquisition and insurance operating expenses increased less than 1% compared with the increase in net premiums earned of less than 1%. The expense ratio (policy acquisition and insurance operating expenses expressed as a percentage of premiums earned) was 33.3% in 2017 and 33.2% in 2016 . Insurance service expenses, which represent the costs associated with the fee-based businesses, decreased 7% to $130 million from $139 million in 2016. Net foreign currency (gains) losses result from transactions denominated in a currency other than an operating unit’s functional currency. Net foreign currency losses were $15 million in 2017 compared to gains of $12 million in 2016 . Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs and expenses increased to $191 million in 2017 from $179 million in 2016 primarily because of startup costs for new business ventures. 42 1012270in_10k.indd 47 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Expenses from Non-Insurance Businesses . Expenses from non-insurance businesses represent costs associated with businesses engaged in the distribution of promotional merchandise, world-wide textile solutions, and aviation-related businesses that include (i) cost of goods sold related to aircraft and products sold and services provided, and (ii) general and administrative expenses. Expenses from non-insurance businesses were $325 million in 2017 compared to $375 million in 2016 . The decline mainly relates to the sale of Aero Precision Industries in August 2016, partially offset by expenses from the textile business purchased in March 2017. Interest Expense . Interest expense was $147 million in 2017 compared with $141 million in 2016 . During 2016, the Company repaid $83 million of debt mainly in connection with the sale of Aero Precision Industries. In February 2016, the company issued $110 million of 5.9% subordinated debentures maturing in 2056, and in May 2016, the Company issued $290 million of 5.75% subordinated debentures maturing in 2056. During 2017, one of the Company's non-insurance subsidiaries issued $7 million of debt. Income Taxes . The effective income tax rate was 28% in 2017 compared to 33% in 2016 . The lower tax rate in 2017 was due, in part, to tax reform (the Tax Cuts and Jobs Act of 2017) as well as the new requirement under U.S. GAAP in 2017 to recognize tax benefits for stock compensation in income tax expense. The effective income tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income and previously mentioned additional 2017 tax impacts. 43 1012270in_10k.indd 48 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Results of Operations for the Years Ended December 31, 2016 and 2015 Business Segment Results Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of net premiums earned), expense ratios (underwriting expenses expressed as a percentage of net premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the years ended December 31, 2016 and 2015. The GAAP combined ratio represents a measure of underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit. (In thousands) Insurance Gross premiums written Net premiums written Net premiums earned Loss ratio Expense ratio GAAP combined ratio Reinsurance Gross premiums written Net premiums written Net premiums earned Loss ratio Expense ratio GAAP combined ratio Consolidated Gross premiums written Net premiums written Net premiums earned Loss ratio Expense ratio GAAP combined ratio 2016 2015 $ 6,795,506 $ 5,743,620 5,618,842 61.0% 32.5 93.5 $ 748,195 680,293 674,506 61.6% 39.0 100.6 $ $ 7,543,701 $ 6,423,913 6,293,348 61.1% 33.2 94.3 6,565,148 5,555,437 5,393,166 60.8% 32.6 93.4 684,845 634,078 647,443 58.2% 38.4 96.6 7,249,993 6,189,515 6,040,609 60.5% 33.2 93.7 Net Income to Common Stockholders . The following table presents the Company’s net income to common stockholders and net income per diluted share for the years ended December 31, 2016 and 2015. (In thousands, except per share data) Net income to common stockholders Weighted average diluted shares Net income per diluted share 2016 2015 601,916 128,553 4.68 $ $ 503,694 130,189 3.87 $ $ The Company reported net income of $602 million in 2016 compared to $504 million in 2015. The 20% increase in net income was primarily due to increases in after-tax net investment gains of $114 million, after-tax net investment income of $34 million and after-tax foreign currency gains of $8 million, partially offset by a decrease in after-tax underwriting income of $13 million, an increase in after-tax interest expense of $7 million, a decrease in after-tax income from non-insurance businesses of $6 million, a decrease in after-tax service fee income of $8 million and an an increase in after-tax other expenses of $24 million. The number of weighted average diluted shares decreased as a result of the Company’s repurchases of its common stock in 2016 and 2015. Premiums . Gross premiums written were $7,544 million in 2016, an increase of 4% from $7,250 million in 2015. The growth was due to a combination of increased exposures and higher rates. Approximately 77% of policies expiring in 2016 were renewed, the same renewal retention rate as for policies expiring in 2015. Average renewal premium rates (adjusted for change in exposures) increased 3.4% in 2014, 1.2% in 2015 and 0.3% in 2016. However, overall 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 long-term return objectives. 44 1012270in_10k.indd 49 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000A summary of gross premiums written in 2016 compared with 2015 by line of business within each business segment follows: • Insurance gross premiums increased 4% to $6,796 million in 2016 from $6,565 million in 2015. Gross premiums increased $198 million (10%) for other liability, $58 million (9%) for professional liability and $32 million (2%) for workers' compensation, partially offset by decreases of $30 million (4%) for commercial auto and $27 million (2%) for short-tail lines. • Reinsurance gross premiums increased 9% to $748 million in 2016 from $685 million in 2015. Gross premiums written decreased $7 million (2%) for casualty lines and increased $70 million (29%) for property lines. Net premiums written were $6,424 million in 2016, an increase of 4% from $6,190 million in 2015. Ceded reinsurance premiums as a percentage of gross written premiums were 15% in both 2016 and 2015. Premiums earned increased 4% to $6,293 million in 2016 from $6,041 million in 2015. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly recent rate increases will be earned over the upcoming quarters. Premiums earned in 2016 are related to business written during both 2016 and 2015. Audit premiums were $156 million in 2016 compared with $153 million in 2015. Net Investment Income . Following is a summary of net investment income for the years ended December 31, 2016 and 2015: (In thousands) 2016 2015 2016 2015 Fixed maturity securities, including cash and cash equivalents and loans receivable $ 444,247 $ 428,325 3.2% 3.2% Amount Average Annualized Yield Investment funds Arbitrage trading account Real estate Equity securities available for sale Gross investment income Investment expenses Total 99,301 7,054 18,693 4,028 573,323 (9,160) $ 564,163 $ 62,228 16,891 11,294 4,624 523,362 (10,717) 512,645 8.1 0.7 4.8 2.1 3.4 — 5.2 3.3 1.4 2.7 3.3 — 3.4% 3.2% Net investment income increased 10% to $564 million in 2016 from $513 million in 2015 primarily due to an increase in income from investment funds of $37 million and fixed maturity securities of $16 million. Investment funds are reported on a one quarter lag. The average annualized yield for fixed maturity securities was 3.2% in both 2016 and 2015; accordingly the increase in fixed maturity securities income was mainly a result of a larger investment base. The effective duration of the fixed maturity portfolio was 3.1 years at December 31, 2016, down from 3.3 years at December 31, 2015. Average invested assets, at cost (including cash and cash equivalents), were $16.7 billion in 2016 and $16.0 billion in 2015. Insurance Service Fees . The Company earns fees from an insurance distribution business, a third party administrator, and as a servicing carrier of workers' compensation assigned risk plans for certain states. Insurance service fees were $139 million in 2016 and 2015. Net Realized Gains on Investment Sales . 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 $285 million in 2016 compared with $126 million in 2015. In 2016, realized gains were primarily related to the sale of Aero Precision Industries and the sale of some shares of a publicly traded common stock. In 2015, realized gains were primarily related to sale of some shares of a publicly traded common stock held by one of the Company's investment funds. Other-Than-Temporary Impairments . The cost of securities is adjusted where appropriate to include a provision for a decline in value that is considered to be other-than-temporary. Other-than-temporary impairments of $18 million in 2016 were primarily related to common stock. In 2015, other-than-temporary impairments of $33 million were primarily related to equity securities. 45 1012270in_10k.indd 50 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Revenues from Non-Insurance Businesses . Revenues from non-insurance businesses were derived from a business engaged in the distribution of promotional merchandise and aviation-related businesses that provide services to aviation markets, including (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenues from non-insurance businesses decreased to $390 million in 2016 from $421 million in 2015, primarily due to the sale of Aero Precision Industries in August 2016. Losses and Loss Expenses . Losses and loss expenses increased to $3,846 million in 2016 from $3,656 million in 2015. The consolidated loss ratio was 61.1% in 2016 and 60.5% in 2015. Catastrophe losses, net of reinsurance recoveries and reinstatement premiums, were $105 million in 2016 compared with $58 million in 2015, an increase of 0.7 loss ratio points. Favorable prior year reserve development (net of premium offsets) was $59 million in 2016 compared with $63 million in 2015, a difference of 0.2 loss ratio points (see "- Critical Accounting Estimates - Reserves for Losses and Loss Expenses"). The loss ratio excluding catastrophe losses and prior year reserve development decreased 0.3 points to 60.3% in 2016 from 60.6% in 2015. A summary of loss ratios in 2016 compared with 2015 by business segment follows: • Insurance - The loss ratio of 61.0% in 2016 was 0.2 points higher than the loss ratio of 60.8% in 2015. Catastrophe losses were $89 million in 2016 compared with $55 million in 2015, an increase of 0.6 loss ratio points. Favorable prior year reserve development was $53 million in 2016 compared with $52 million in 2015, reflecting no difference of loss ratio points. The loss ratio excluding catastrophe losses and prior year reserve development decreased 0.4 points to 60.4% in 2016 from 60.8% in 2015. • Reinsurance - The loss ratio of 61.6% in 2016 was 3.4 points higher than the loss ratio of 58.2% in 2015. Catastrophe losses were $16 million in 2016 compared with $3 million in 2015, an increase of 2.0 loss ratio points. Favorable prior year reserve development was $6 million in 2016 compared with $11 million in 2015, a difference of 0.9 loss ratio points. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.5 points to 60.2% in 2016 from 59.7% in 2015. Other Operating Costs and Expenses . Following is a summary of other operating costs and expenses: (In thousands) Policy acquisition and insurance operating expenses Insurance service expenses Net foreign currency (gains) losses Other costs and expenses Total 2016 2015 2,089,203 $ 138,908 (11,904) 179,412 2,395,619 $ 2,005,498 127,365 400 156,487 2,289,750 $ $ Policy acquisition and insurance operating expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Policy acquisition and insurance operating expenses increased 4%, the same as the increase in net premiums earned of 4%. The expense ratio (policy acquisition and insurance operating expenses expressed as a percentage of premiums earned) was 33.2% in both 2016 and 2015. Insurance service expenses, which represent the costs associated with the fee-based businesses, increased 9% to $139 million. Net foreign currency (gains) losses result from transactions denominated in a currency other than an operating unit’s functional currency. Net foreign currency gains were $12 million in 2016 compared to losses of $400 thousand in 2015. Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans. Other costs and expenses increased to $179 million in 2016 from $156 million in 2015 due partially to the formation of additional operating units that had not yet commenced operations. Expenses from Non-Insurance Businesses . Expenses from non-insurance businesses represent costs associated with a business engaged in the distribution of promotional merchandise and aviation-related businesses that include (i) cost of goods sold related to aircraft and products sold and services provided, and (ii) general and administrative expenses. Expenses from non-insurance businesses were $375 million in 2016 compared to $397 million in 2015, with the decrease primarily related to the sale of Aero Precision Industries in August 2016. Interest Expense . Interest expense was $141 million in 2016 compared with $131 million in 2015. During 2016, the Company repaid $87 million of debt on various issuances, mainly in connection with the sale of Aero Precision Industries. The Company repaid $200 million of 5.6% senior notes at maturity on May 15, 2015. In February 2016, the Company issued $110 million of 5.9% subordinated debentures maturing in 2056, and in May 2016, the Company issued $290 million of 5.75% subordinated debentures maturing in 2056. Income Taxes . The effective income tax rate was 33% in 2016 compared to 31% in 2015. The higher tax rate in 2016 was due, in part, to higher capital gains and state taxes. The effective income tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income. 46 1012270in_10k.indd 51 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Investments As part of its investment strategy, the Company establishes a level of cash and highly liquid short-term and intermediate-term securities that, combined with expected cash flow, it believes is adequate to meet its payment obligations. Due to the near historically low fixed maturity investment returns, the Company invests in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. The Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income. The Company also attempts to maintain an appropriate relationship between the effective duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The effective duration of the investment portfolio was 3.0 years and 3.1 years at December 31, 2017 and 2016 , respectively. The Company’s investment portfolio and investment-related assets as of December 31, 2017 were as follows: ($ in thousands) Fixed maturity securities: Carrying Value Percent of Total U.S. government and government agencies $ 377,740 2.1% State and municipal: Special revenue State general obligation Pre-refunded (1) Local general obligation Corporate backed Total state and municipal Mortgage-backed securities: Agency Commercial Residential-Prime Residential-Alt A Total mortgage-backed securities Asset-backed securities Corporate: Industrial Financial Utilities Other Total corporate Foreign government Total fixed maturity securities Equity securities available for sale: Common stocks Preferred stocks Total equity securities available for sale Real estate Investment funds Cash and cash equivalents Arbitrage trading account Loans receivable Total investments ______________ 2,725,833 490,890 464,802 444,984 384,467 4,510,976 821,815 260,545 211,363 19,658 1,313,381 2,111,544 2,618,892 1,434,767 294,954 40,499 4,389,112 848,497 13,551,250 352,204 224,443 576,647 1,469,601 1,155,677 950,471 617,649 79,684 14.7 2.7 2.5 2.4 2.1 24.5 4.5 1.4 1.1 0.1 7.1 11.5 14.2 7.8 1.6 0.2 23.8 4.6 73.6 1.9 1.2 3.1 8.0 6.3 5.2 3.4 0.4 $ 18,400,979 100.0% (1) Pre-refunded securities are securities for which an escrow account has been established to fund the remaining payments of principal and interest through maturity. Such escrow accounts are funded almost exclusively with U.S. Treasury and U.S. government agency securities. 47 1012270in_10k.indd 52 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Fixed Maturity Securities . The Company’s investment policy with respect to fixed maturity securities is generally to purchase instruments with the expectation of holding them to their maturity. However, management of the available for sale portfolio is considered necessary to maintain an approximate matching of assets and liabilities as well as to adjust the portfolio as a result of changes in financial market conditions and tax considerations. The Company’s philosophy related to holding or selling fixed maturity securities is based on its objective of maximizing total return. The key factors that management considers in its investment decisions as to whether to hold or sell fixed maturity securities are its view of the underlying fundamentals of specific securities as well as its expectations regarding interest rates, credit spreads and currency values. In a period in which management expects interest rates to rise, the Company may sell longer duration securities in order to mitigate the impact of an interest rate rise on the fair value of the portfolio. Similarly, in a period in which management expects credit spreads to widen, the Company may sell lower quality securities, and in a period in which management expects certain foreign currencies to decline in value, the Company may sell securities denominated in those foreign currencies. The sale of fixed maturity securities in order to achieve the objective of maximizing total return may result in realized gains; however, there is no reason to expect these gains to continue in future periods. At December 31, 2017 , investments in foreign government fixed maturity securities were as follows: (In thousands) Australia Argentina Canada United Kingdom Brazil Germany Singapore Supranational (1) Norway Mexico Colombia Uruguay Total Carrying Value 212,821 $ 179,581 169,222 85,109 60,693 39,520 36,450 31,322 9,589 9,107 7,690 7,393 $ 848,497 _______________ (1) Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development. Equity Securities Available for Sale . Equity securities primarily represent investments in common and preferred stocks in companies with potential growth opportunities in different sectors, including healthcare and financial institutions. Investment Funds . At December 31, 2017 , the carrying value of investment funds was $1,156 million, including investments in real estate funds of $607 million, energy funds of $83 million, and other funds of $466 million. Investment funds are primarily reported on a one-quarter lag. Real Estate . Real estate is directly owned property held for investment. At December 31, 2017 , real estate properties in operation included a long-term ground lease in Washington D.C., a hotel in Memphis, Tennessee, an office complex in New York City and office buildings in West Palm Beach and Palm Beach, Florida. In addition, there are two properties under development: an office building in London and a mixed-use project in Washington D.C. The Company expects to fund further development costs for these projects with a combination of its own funds and external financing. Arbitrage Trading Account . The arbitrage trading account is comprised of direct investments in arbitrage securities. Merger arbitrage is the business of investing in the securities of publicly held companies that are the targets in announced tender offers and mergers. Loans Receivable . Loans receivable, which are carried at amortized cost, had an amortized cost of $80 million and an aggregate fair value of $82 million at December 31, 2017 . The amortized cost of loans receivable is net of a valuation allowance of $3 million as of December 31, 2017 . Loans receivable include real estate loans of $66 million that are secured by commercial real estate located primarily in Georgia and New York. Real estate loans receivable generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. Loans receivable include commercial loans of $14 million that are secured by business assets and have fixed interest rates and varying maturities not exceeding 15 years. 48 1012270in_10k.indd 53 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Liquidity and Capital Resources Cash Flow . Cash flow provided from operating activities decreased to $711 million in 2017 from $848 million in 2016 , primarily due to the timing of loss and loss expense payments and payments to taxing authorities. The Company's insurance subsidiaries' principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company generally targets an average duration for its investment portfolio that is within one year of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed income securities are not sufficient to fund claim payments and other cash requirements, the remainder of the Company's cash and investments is available to pay claims and other obligations as they become due. The Company's investment portfolio is highly liquid, with approximately 80% invested in cash, cash equivalents and marketable fixed maturity securities as of December 31, 2017. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized. Debt . At December 31, 2017 , the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of $2,497 million and a face amount of $2,530 million. The maturities of the outstanding debt are $443 million in 2019, $311 million in 2020, $426 million in 2022, $250 million in 2037, $350 million in 2044, $350 million in 2053 and $400 million in 2056. In February 2016, the Company issued $110 million aggregate principal amount of its 5.9% subordinated debentures due 2056, and in May 2016, the Company issued $290 million aggregate principal amount of its 5.75% subordinated debentures due 2056. During 2016, the Company repaid $83 million of debt on various issuances, mainly in connection with the sale of Aero Precision Industries. During 2017, one of the Company's non-insurance subsidiaries issued $7 million of debt. Equity . The Company repurchased 731,003, 2,395,892 and 4,502,025 shares of its common stock in 2017 , 2016 and 2015 , respectively. The aggregate cost of the repurchases was $48 million in 2017 , $132 million in 2016 and $224 million in 2015 . At December 31, 2017 , total common stockholders’ equity was $5.41 billion, common shares outstanding were 121,514,852 and stockholders’ equity per outstanding share was $44.53. Total Capital . Total capitalization (equity, senior notes and other debt and subordinated debentures) was $7.9 billion at December 31, 2017 . The percentage of the Company’s capital attributable to senior notes, subordinated debentures and other debt was 32% at December 31, 2017 and 33% at December 31, 2016 . Federal and Foreign Income Taxes The Company files a consolidated income tax return in the U.S. and foreign tax returns in each of the countries in which it has overseas operations. At December 31, 2017 , the Company had a gross deferred tax asset (net of valuation allowance) of $314 million (which primarily relates to loss and loss expense reserves and unearned premium reserves) and a gross deferred tax liability of $401 million (which primarily relates to deferred policy acquisition costs and unrealized investment gains). The realization of the deferred tax asset is dependent upon the Company's ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset. As result of the mandatory repatriation provision of the Tax Cuts and Jobs Act of 2017, the Company recognized a tax on the undistributed earnings of its foreign subsidiaries. The Company plans to continue its policy to permanently reinvest the undistributed earnings of its foreign subsidiaries. 49 1012270in_10k.indd 54 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Reinsurance The Company follows customary industry practice of reinsuring a portion of its exposures in exchange for paying reinsurers a part of the premiums received on the policies it writes. Reinsurance is purchased by the Company principally to reduce its net liability on individual risks and to protect it against catastrophic losses. Although reinsurance does not legally discharge an insurer from its primary liability for the full amount of the policies, it does make the assuming reinsurer liable to the insurer to the extent of the reinsurance coverage. The Company monitors the financial condition of its reinsurers and attempts to place its coverages only with financially sound carriers. Reinsurance coverage and retentions vary depending on the line of business, location of the risk and nature of loss. The Company’s reinsurance purchases include the following: • • • • Property reinsurance treaties - The Company purchases property reinsurance to reduce its exposure to large individual property losses and catastrophe events. Following is a summary of significant property reinsurance treaties in effect as of January 1, 2018: The Company’s property per risk reinsurance generally covers losses between $2.5 million and $50 million. The Company’s catastrophe excess of loss reinsurance program provides protection for net losses between $30 million and $355 million for the majority of business written by its U.S. Insurance segment operating units, excluding offshore energy. The Company has separate catastrophe excess of loss reinsurance for business written through its Lloyd’s Syndicate that provides protection for losses between $8.5 million and $52.5 million for events in North America. For North American losses greater than $52.5 million, the business written through the Company's Lloyd's Syndicate is protected within the U.S. program up to $355 million. The Company’s catastrophe reinsurance agreements are subject to certain limits, exclusions and reinstatement premiums. Casualty reinsurance treaties - The Company purchases casualty reinsurance to reduce its exposure to large individual casualty losses, workers’ compensation catastrophe losses and casualty losses involving multiple claimants or insureds for the majority of business written by its U.S. companies. A significant casualty treaty (casualty catastrophe) in effect as of January 1, 2018 provides protection for losses between $5 million and $75 million from single events with claims involving two or more insurable interests or for systemic events involving multiple insureds and/or policy years. The treaty also covers casualty contingency losses in excess of $1 million and up to $111 million. For losses involving two or more claimants for primary workers’ compensation business, coverage is generally in place for losses between $5 million and $220 million. For excess workers’ compensation business, such coverage is generally in place for losses between $25 million and $275 million. Facultative reinsurance - The Company also purchases facultative reinsurance on certain individual policies or risks that are in excess of treaty reinsurance capacity. Other reinsurance - Depending on the operating unit, the Company purchases specific additional reinsurance to supplement the above programs. The Company places a number of its casualty treaties on a “risk attaching” basis. Under risk attaching treaties, all claims from policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. If the Company is unable to renew or replace its existing reinsurance coverage, protection for unexpired policies would remain in place until their expiration. In such case, the Company could revise its underwriting strategy for new business to reflect the absence of reinsurance protection. The casualty catastrophe treaty highlighted above was purchased on a claims made basis. Property catastrophe and workers’ compensation catastrophe reinsurance is generally placed on a “losses occurring basis,” whereby only claims occurring during the period are covered. If the Company is unable to renew or replace these reinsurance coverages, unexpired policies would not be protected, though we frequently have the option to purchase run-off coverage in our treaties. Following is a summary of earned premiums and loss and loss expenses ceded to reinsurers for each of the three years ended December 31, 2017: (In thousands) Earned premiums Losses and loss expenses Year Ended December 31, 2017 2016 2015 $ 1,161,936 $ 1,099,462 $ 1,050,840 601,769 707,336 501,999 Ceded earned premiums increased 5.7% in 2017 to $1,162 million. The ceded losses and loss expenses ratio decreased 12 points to 52% in 2017 from 64% in 2016 . 50 1012270in_10k.indd 55 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The following table presents the credit quality of amounts due from reinsurers as of December 31, 2017 . Amounts due from reinsurers are net of reserves for uncollectible reinsurance of $1 million in the aggregate. (In thousands) Reinsurer Amounts due in excess of $20 million: Rating (1) Amount Munich Re Lloyd’s of London Alleghany Group Swiss Re Partner Re Axis Capital Hannover Re Group Berkshire Hathaway Everest Re Korean Re Chubb Limited Renaissance Re Liberty Mutual Arch Capital Group Other reinsurers: Rated A- or better Secured (2) All Others Subtotal Residual markets pools (3) Total _________________ AA- A+ A+ AA- A+ A+ AA- AA+ A+ A AA AA- A A+ $ $ 156,368 152,934 152,468 129,369 87,491 82,803 64,011 56,892 50,387 44,072 30,977 27,095 22,629 21,310 147,193 124,240 21,701 1,371,940 411,260 1,783,200 (1) S&P rating, or if not rated by S&P, A.M. Best rating. (2) Secured by letters of credit or other forms of collateral. (3) Many states require licensed insurers that provide workers' compensation insurance to participate in programs that provide workers' compensation to employers that cannot procure coverage from an insurer on a voluntary basis. Insurers can fulfill this residual market obligation by participating in pools where results are shared by the participating companies. The Company acts as a servicing carrier for workers' compensation pools in certain states. As a servicing carrier, the Company writes residual market business directly and then cedes 100% of this business to the respective pool. As a servicing carrier, the Company receives fee income for its services. The Company does not retain underwriting risk, and credit risk is limited as ceded balances are jointly shared by all the pool members. 51 1012270in_10k.indd 56 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Contractual Obligations Following is a summary of the Company's contractual obligations as of December 31, 2017 : (In thousands) Estimated Payments By Periods 2018 2019 2020 2021 2022 Thereafter Gross reserves for losses $ 3,055,152 $ 2,090,745 $ 1,541,430 $ 1,120,935 $ 820,851 $ 3,654,114 Operating lease obligations Purchase obligations Subordinated debentures Debt maturities Interest payments Other long-term liabilities Total 50,116 122,402 — — 144,846 3,402 41,326 53,111 — 442,651 144,846 3,095 38,721 43,876 — 311,000 114,071 2,847 34,982 38,577 — — 97,946 2,548 29,720 38,115 — 426,533 94,618 2,244 92,086 17,475 750,000 599,487 1,967,186 29,387 $ 3,375,918 $ 2,775,774 $ 2,051,945 $ 1,294,988 $ 1,412,081 $ 7,109,735 The estimated payments for reserves for losses and loss expenses in the above table represent the projected (undiscounted) payments for gross loss and loss expense reserves related to losses incurred as of December 31, 2017 . The estimated payments in the above table do not consider payments for losses to be incurred in future periods. These amounts include reserves for reported losses and reserves for incurred but not reported losses. Estimated amounts recoverable from reinsurers are not reflected. The estimated payments by year are based on historical loss payment patterns.The actual payments may differ from the estimated amounts due to changes in ultimate loss reserves and in the timing of the settlement of those reserves. In addition, at December 31, 2017 , the Company had commitments to invest up to $406.2 million and $359.7 million in certain investment funds and real estate construction projects, respectively. These amounts are not included in the above table. The Company utilizes letters of credit to back certain reinsurance payments and obligations. Outstanding letters of credit were $4 million as of December 31, 2017 . The Company has made certain guarantees to state regulators that the statutory capital of certain subsidiaries will be maintained above certain minimum levels. Off-Balance Sheet Arrangements An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging or research and development arrangements with the Company. The Company has no arrangements of these types that management believes may have a material current or future effect on our financial condition, liquidity or results of operations. 52 1012270in_10k.indd 57 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk . The fair value of the Company’s investments is subject to risks of fluctuations in credit quality and interest rates. The Company uses various models and stress test scenarios to monitor and manage interest rate risk. The Company attempts to manage its interest rate risk by maintaining an appropriate relationship between the effective duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The effective duration for the fixed maturity portfolio (including cash and cash equivalents) was 3.0 years and 3.1 years at December 31, 2017 and 2016 , respectively. 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. The following table outlines the groups of fixed maturity securities and their effective duration at December 31, 2017 : ($ in thousands) State and municipal Corporate Mortgage-backed securities U.S. government and government agencies Foreign government Loans receivable Asset-backed securities Cash and cash equivalents Total Effective Duration (Years) 4.1 3.7 3.7 3.0 2.1 1.5 0.8 — 3.0 $ Fair Value 4,525,475 4,389,112 1,314,608 377,740 848,497 82,047 2,111,544 950,471 $ 14,599,494 Duration is a common measure of the price sensitivity of fixed maturity securities to changes in interest rates. The Company determines the estimated change in fair value of the fixed maturity securities, assuming parallel shifts in the yield curve for treasury securities while keeping spreads between individual securities and treasury securities static. The estimated fair value at specified levels at December 31, 2017 would be as follows: (In thousands) Change in interest rates: 300 basis point rise 200 basis point rise 100 basis point rise Base scenario 100 basis point decline 200 basis point decline 300 basis point decline Estimated Fair Value Change in Fair Value $ 13,215,440 $ (1,384,054) 13,677,051 14,138,717 14,599,494 15,059,429 15,505,364 15,903,135 (922,443) (460,777) — 459,935 905,870 1,303,641 Arbitrage investing differs from other types of investments in that its focus is on transactions and events believed likely to bring about a change in value over a relatively short time period (usually four months or less). The Company believes that this makes arbitrage investments less vulnerable to changes in general stock market conditions. Potential changes in market conditions are also mitigated by the implementation of hedging strategies, including short sales. Additionally, the arbitrage positions are generally hedged against market declines by purchasing put options, selling call options or entering into swap contracts. The Company's merger arbitrage securities are primarily exposed to the risk of completion of announced deals, which are subject to regulatory as well as transactional and other risks. 53 1012270in_10k.indd 58 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors W. R. Berkley Corporation: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of W. R. Berkley Corporation and Subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2017, and the related notes and financial statement schedules II to VI (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 1972. New York, New York February 23, 2018 / S / KPMG LLP 54 1012270in_10k.indd 59 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. BERKLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) REVENUES: Net premiums written Change in net unearned premiums Net premiums earned Net investment income Net investment gains: Net realized gains on investment sales Other-than-temporary impairments Net investment gains Revenues from non-insurance businesses Insurance service fees Other income Total revenues OPERATING COSTS AND EXPENSES: Losses and loss expenses Other operating costs and expenses Expenses from non-insurance businesses Interest expense Total operating costs and expenses Income before income taxes Income tax expense Net income before noncontrolling interests Noncontrolling interests Net income to common stockholders NET INCOME PER SHARE: Basic Diluted Year Ended December 31, 2017 2016 2015 $ 6,260,508 $ 6,423,913 $ 50,911 6,311,419 575,788 335,858 — 335,858 326,165 134,729 805 (130,565) 6,293,348 564,163 285,119 (18,114) 267,005 390,348 138,944 376 6,189,515 (148,906) 6,040,609 512,645 125,633 (33,309) 92,324 421,102 139,440 337 7,684,764 7,654,184 7,206,457 4,002,348 2,436,932 325,417 147,297 6,911,994 772,770 (219,433) 553,337 (4,243) 549,094 4.40 4.26 $ $ $ 3,845,800 2,395,619 375,431 140,896 6,757,746 896,438 (292,953) 603,485 (1,569) 601,916 4.91 4.68 $ $ $ 3,656,270 2,289,750 397,461 130,946 6,474,427 732,030 (227,923) 504,107 (413) 503,694 4.06 3.87 $ $ $ See accompanying notes to consolidated financial statements. 55 1012270in_10k.indd 60 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. BERKLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Net income before noncontrolling interests Other comprehensive gain (loss): Change in unrealized translation adjustments Change in unrealized investment (losses) gains, net of taxes Other comprehensive gain (loss) Comprehensive income Comprehensive loss (income) to the noncontrolling interest Year Ended December 31, 2017 2016 2015 $ 553,337 $ 603,485 $ 504,107 64,706 (51,752) 12,954 566,291 4,262 (124,193) 246,518 122,325 725,810 1,510 (124,744) (125,542) (250,286) 253,821 (375) 253,446 Comprehensive income to common shareholders $ 570,553 $ 727,320 $ See accompanying notes to consolidated financial statements. 56 1012270in_10k.indd 61 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. BERKLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) Assets Investments: Fixed maturity securities Investment funds Real estate Arbitrage trading account Loans receivable Equity securities available for sale Total investments Cash and cash equivalents Premiums and fees receivable Due from reinsurers Deferred policy acquisition costs Prepaid reinsurance premiums Trading account receivable from brokers and clearing organizations Property, furniture and equipment Goodwill Accrued investment income Current federal and foreign income taxes Other assets Total assets Liabilities and Equity Liabilities: Reserves for losses and loss expenses Unearned premiums Due to reinsurers Trading account securities sold but not yet purchased Current federal and foreign income taxes Deferred federal and foreign income taxes Other liabilities Senior notes and other debt Subordinated debentures Total liabilities Equity: Preferred stock, par value $.10 per share: Authorized 5,000,000 shares; issued and outstanding — none Common stock, par value $.20 per share: Authorized 500,000,000 shares, issued and outstanding, net of treasury shares, 121,514,852 and 121,193,599 shares, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost, 113,603,066 and 113,924,319 shares, respectively Total common stockholders’ equity Noncontrolling interests Total equity Total liabilities and equity December 31, 2017 2016 $ 13,551,250 $ 1,155,677 1,469,601 617,649 79,684 576,647 17,450,508 950,471 1,773,844 1,783,200 507,549 472,009 189,280 422,960 178,945 136,597 — 434,554 13,190,668 1,198,146 1,184,981 299,999 106,798 669,200 16,649,792 795,285 1,701,854 1,743,980 537,890 413,140 484,593 349,432 144,513 127,047 14,768 402,550 $ $ 24,299,917 $ 23,364,844 11,670,408 $ 3,290,180 246,460 64,358 11,327 86,764 981,987 1,769,052 728,218 18,848,754 11,197,195 3,283,300 213,128 51,179 — 134,365 916,318 1,760,595 727,630 18,283,710 — — 47,024 1,048,283 6,956,882 68,541 (2,709,386) 5,411,344 39,819 5,451,163 47,024 1,037,446 6,595,987 55,568 (2,688,817) 5,047,208 33,926 5,081,134 23,364,844 See accompanying notes to consolidated financial statements. $ 24,299,917 $ 57 1012270in_10k.indd 62 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. BERKLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) COMMON STOCK: Beginning and end of period ADDITIONAL PAID IN CAPITAL: Beginning of period Restricted stock units issued Restricted stock units expensed End of period RETAINED EARNINGS: Beginning of period Net income to common stockholders Dividends End of period ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Unrealized investment gains (losses): Beginning of period Unrealized (losses) gains on securities not other-than-temporarily impaired Unrealized gains (losses) on other-than-temporarily impaired securities End of period Currency translation adjustments: Beginning of period Net change in period End of period Total accumulated other comprehensive income (loss) TREASURY STOCK: Beginning of period Stock exercised/vested Stock issued Stock repurchased End of period NONCONTROLLING INTERESTS: Beginning of period Contributions (distributions) Net income Other comprehensive income (loss), net of tax End of period $ $ $ $ $ $ $ $ $ $ $ Year Ended December 31, 2017 2016 2015 $ $ $ $ 47,024 1,037,446 (27,959) 38,796 1,048,283 6,595,987 549,094 (188,199) $ $ $ $ 47,024 1,005,455 (3,594) 35,585 1,037,446 6,178,070 601,916 (183,999) 47,024 991,512 (16,748) 30,691 1,005,455 5,732,410 503,694 (58,034) 6,956,882 $ 6,595,987 $ 6,178,070 427,154 $ 180,695 $ (52,628) 895 375,421 (371,586) 64,706 (306,880) 68,541 (2,688,817) 26,511 727 (47,807) (2,709,386) 33,926 1,631 4,243 19 $ $ $ $ 246,872 (413) 427,154 (247,393) (124,193) (371,586) 55,568 $ 306,199 (125,391) (113) 180,695 (122,649) (124,744) (247,393) (66,698) (2,563,605) $ (2,364,551) 6,495 685 (132,392) 23,975 623 (223,652) (2,688,817) $ (2,563,605) 32,962 $ (546) 1,569 (59) 34,189 (1,602) 413 (38) 39,819 $ 33,926 $ 32,962 See accompanying notes to consolidated financial statements. 58 1012270in_10k.indd 63 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. BERKLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) CASH FROM OPERATING ACTIVITIES: Net income to common stockholders Adjustments to reconcile net income to net cash from operating activities: Year Ended December 31, 2017 2016 2015 $ 549,094 $ 601,916 $ 503,694 Net investment gains Depreciation and amortization Noncontrolling interests Investment funds Stock incentive plans Change in: Arbitrage trading account Premiums and fees receivable Reinsurance accounts Deferred policy acquisition costs Current income taxes Deferred income taxes Reserves for losses and loss expenses Unearned premiums Other Net cash from operating activities CASH FLOWS USED IN INVESTING ACTIVITIES: Proceeds from sale of fixed maturity securities Proceeds from sale of equity securities Distributions from investment funds Proceeds from maturities and prepayments of fixed maturity securities Purchase of fixed maturity securities Purchase of equity securities Real estate purchased Change in loans receivable Net additions to property, furniture and equipment Change in balances due from security brokers Cash received in connection with business disposition Payment for business purchased, net of cash acquired Net cash used in investing activities CASH FLOWS USED IN FINANCING ACTIVITIES: Net proceeds from issuance of debt Repayment of senior notes and other debt Cash dividends to common stockholders Purchase of common treasury shares Other, net Net cash used in financing activities Net impact on cash due to change in foreign exchange rates Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (335,858) 112,956 4,243 (69,333) 40,490 (4,896) (67,752) (66,542) 30,343 25,859 (16,893) 438,530 4,160 66,482 710,883 4,035,162 195,270 247,404 3,556,744 (7,940,957) (27,522) (236,039) 27,135 (115,719) (4,372) — (70,570) (333,464) 6,983 (20) (188,199) (47,807) (6,043) (235,086) 12,853 155,186 795,285 (267,005) 86,051 1,569 (99,301) 37,174 (10,633) (60,403) (235,455) (25,912) 42,632 9,012 572,196 149,683 46,852 848,376 2,440,310 143,042 142,601 2,189,365 (5,541,202) (202,736) (299,123) 166,327 (50,829) 20,992 250,216 (53,451) (794,488) 388,769 (75,487) (183,999) (132,392) (3,823) (6,932) (15,302) 31,654 763,631 $ 950,471 $ 795,285 $ (92,324) 85,139 413 (62,228) 32,123 (7,173) (60,942) (31,930) (29,860) 20,428 47,260 397,685 142,699 (63,680) 881,304 1,388,680 15,833 177,424 2,999,339 (4,455,223) (29,526) (222,659) 48,909 (63,562) (22,666) — (7,312) (170,763) 9,056 (281,086) (58,034) (223,652) (1,602) (555,318) (66,033) 89,190 674,441 763,631 See accompanying notes to consolidated financial statements . 59 1012270in_10k.indd 64 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. BERKLEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2017 , 2016 and 2015 (1) Summary of Significant Accounting Policies (A) Principles of consolidation and basis of presentation The consolidated financial statements, which include the accounts of W. R. Berkley Corporation and its subsidiaries (the "Company"), have been prepared on the basis of U.S. generally accepted accounting principles ("GAAP"). All significant intercompany transactions and balances have been eliminated. Reclassifications have been made in the 2016 and 2015 financial statements to conform to the presentation of the 2017 financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected during the reporting period. The most significant items on our balance sheet that involve a greater degree of accounting estimates that are subject to change in the future are the valuation of investments, other-than-temporary impairments, loss and loss expense reserves and premium estimates. Actual results could differ from those estimates. (B) Revenue recognition Insurance premiums are recognized as written at the inception of the policy. Reinsurance premiums are estimated based upon information received from ceding companies, and subsequent differences from such estimates are recorded in the period they are determined. Insurance and reinsurance premiums are primarily earned on a pro rata basis over the policy term. Fees for services are earned over the period that the services are provided. Audit premiums are recognized when they are reliably determinable. The change in accruals for earned but unbilled audit premiums increased net premiums written and premiums earned by $8 million , $8 million and $3 million in 2017 , 2016 and 2015 , respectively. Revenues from non-insurance businesses are derived from a business engaged in the distribution of promotional merchandise, world-wide textile solutions, and aircraft services provided to the general, commercial and military aviation markets. These aircraft services include (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenue is recognized upon the shipment of products and parts, the delivery of aircraft, the delivery of fuel, and upon completion of services. Insurance service fee revenue represents servicing fees for program administration and claims management services provided by the Company, including workers' compensation assigned risk plans, as well as insurance brokerage and risk management services. Fees for program administration, claims management and risk management services are primarily recognized ratably over the related contract period for which the underlying services are rendered. Commissions for insurance brokerage are generally recognized when the underlying insurance policy is effective. (C) Cash and cash equivalents Cash equivalents consist of funds invested in money market accounts and investments with an effective maturity of three months or less when purchased. (D) Investments Fixed maturity securities classified as available for sale are carried at estimated fair value, with unrealized gains and losses, net of applicable income taxes, excluded from earnings and reported as a component of comprehensive income and a separate component of stockholders' equity. Fixed maturity securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Investment income from fixed maturity securities is recognized based on the constant effective yield method. Premiums and discounts on mortgage-backed securities are adjusted for the effects of actual and anticipated prepayments on a retrospective basis. Equity securities classified as available for sale are carried at estimated fair value, with unrealized gains and losses, net of applicable income taxes, excluded from earnings and reported as a component of comprehensive income and a separate component of stockholders' equity. 60 1012270in_10k.indd 65 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Equity and fixed maturity securities that the Company purchased with the intent to sell in the near-term are classified as trading account securities and are reported at estimated fair value. Realized and unrealized gains and losses from trading activity are reported as net investment income and are recorded at the trade date. Short sales and short call options are presented as trading securities sold but not yet purchased. Unsettled trades and the net margin balances held by the clearing broker are presented as a trading account receivable from brokers and clearing organizations. Investment funds are carried under the equity method of accounting. The Company's share of the earnings or losses of investment funds is primarily reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements. Loans receivable primarily 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 the contractual terms of the loan unless the loan is adequately secured and in process of collection. In general, loans are placed on non-accrual 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 reasonably assured. 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.” Fair value of investments is determined based on a fair value hierarchy that prioritizes the use of observable inputs over the use of unobservable inputs and requires the use of observable inputs when available. (See Note 13 of the Notes to Consolidated Financial Statements.) Realized gains or losses represent the difference between the cost of securities sold and the proceeds realized upon sale and are recorded at the trade date. The Company uses primarily the first-in, first-out method to determine the cost of securities sold. The cost of securities is adjusted where appropriate to include a provision for a 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 to recover the cost basis of the investment prior to the time of sale or maturity. Since equity securities do not have a contractual cash flow or a maturity, the Company considers whether the price of an equity security is expected to recover within a reasonable period of time. For fixed maturity securities that the Company intends to sell or, more likely than not, would be required to sell, a decline in value below amortized cost is considered to be an other-than-temporary impairment (“OTTI”). The amount of OTTI is equal to the difference between amortized cost and fair value at the balance sheet date. For fixed maturity securities that the Company does not intend to sell or believes that it is more likely than not it would not be required to sell, a decline in value below amortized cost is considered to be an OTTI if the Company does 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. 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. Real estate taxes, interest and other costs incurred during development and construction are capitalized. Buildings are depreciated on a straight-line basis over the estimated useful lives 61 1012270in_10k.indd 66 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000of the building. Minimum rental income is recognized on a straight-line basis over the lease term. Income and expenses from real estate are reported 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. (E) 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 weighted average number of common shares outstanding during the year (including 4,847,303 common shares held in a grantor trust established in March 2017). The common shares held in the grantor trust are for delivery upon settlement of vested but mandatorily deferred restricted stock units ("RSUs"). Shares held by the grantor trust do not affect diluted shares outstanding since the shares deliverable under vested RSUs were already included in diluted shares outstanding. Diluted EPS is based upon the weighted average number of basic and common equivalent shares outstanding during the year and is calculated using the treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. (F) Deferred policy acquisition costs Acquisition costs associated with the successful acquisition of new and renewed insurance and reinsurance contracts 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 comprised primarily of commissions, as well as employment-related underwriting costs and premium taxes. 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. (G) Reserves for losses and loss expenses Reserves for losses and loss expenses are an accumulation of amounts determined on the basis of (1) evaluation of claims for business written directly by the Company; (2) estimates received from other companies for reinsurance assumed by the Company; and (3) estimates for losses incurred but not reported (based on Company and industry experience). These estimates are periodically reviewed and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments are reflected in the statements of income in the period in which they are determined. The Company discounts its reserves for excess and assumed workers' compensation claims using a risk-free or statutory rate. (See Note 14 of Notes to Consolidated Financial Statements.) (H) Reinsurance ceded The unearned portion of premiums ceded to reinsurers is reported as prepaid reinsurance premiums and earned ratably over the policy term. The estimated amounts of reinsurance recoverable on unpaid losses are reported as due from reinsurers. To the extent any reinsurer does not meet its obligations under reinsurance agreements, the Company must discharge its liability. Amounts due from reinsurers are reflected net of funds held where the right of offset is present. The Company has provided reserves for estimated uncollectible reinsurance. (I) Deposit accounting Contracts that do not meet the risk transfer requirements of GAAP are accounted for using the deposit accounting method. Under this method, an asset or liability is recognized at the inception of the contract based on consideration paid or received. The amount of the deposit asset or liability is adjusted at subsequent reporting dates using the interest method with a corresponding credit or charge to interest income or expense. Deposit liabilities for assumed reinsurance contracts were $47 million and $51 million at December 31, 2017 and 2016 , respectively. (J) Federal and foreign income taxes The Company files a consolidated income tax return in the U.S. and foreign tax returns in countries where it has overseas operations. The Company's method of accounting for income taxes is the asset and liability method. Under this method, deferred tax assets and liabilities are measured using tax rates currently in effect or expected to apply in the years in which those temporary differences are expected to reverse. Interest and penalties, if any, are reported as income tax expense. 62 1012270in_10k.indd 67 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The Company believes there are no tax positions that would require disclosure under GAAP. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will not be realized. (K) Foreign currency Gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's functional currency) are reported on the statements of income as other operating costs and expenses. Unrealized gains or losses resulting from translating the results of non-U.S. dollar denominated operations are reported in accumulated other comprehensive income. Revenues and expenses denominated in currencies other than U.S. dollars are translated at the weighted average exchange rate during the year. Assets and liabilities are translated at the rate of exchange in effect at the balance sheet date. (L) Property, furniture and equipment Property, furniture and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the estimated useful lives of the respective assets. Depreciation expense was $50 million , $47 million and $45 million for 2017 , 2016 and 2015 , respectively. (M) Comprehensive income Comprehensive income encompasses all changes in stockholders' equity (except those arising from transactions with stockholders) and includes net income, net unrealized holding gains or losses on available for sale securities and unrealized foreign currency translation adjustments. (N) Goodwill and other intangible assets Goodwill and other intangible assets are tested for impairment on an annual basis and at interim periods where circumstances require. The Company's impairment test as of December 31, 2017 indicated that there were no material impairment losses related to goodwill and other intangible assets. Intangible assets of $107 million and $82 million are included in other assets as of December 31, 2017 and 2016 , respectively. (O) Restricted stock units The costs resulting from all share-based payment transactions with employees are recognized in the consolidated financial statements using a fair-value- based measurement method. Compensation cost is recognized for financial reporting purposes over the period in which the employee is required to provide service in exchange for the award (generally the vesting period). (P) Statements of cash flows Interest payments were $145 million , $137 million and $130 million in 2017 , 2016 and 2015 , respectively. Income taxes paid were $207 million , $232 million and $165 million in 2017 , 2016 and 2015 , respectively. Other non-cash items include unrealized investment gains and losses. (See Note 11 of Notes to Consolidated Financial Statements.) (Q) Recent accounting pronouncements Recently adopted accounting pronouncements: In May 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-09, Disclosures about Short- Duration Contracts. ASU 2015-09 requires companies that issue short duration insurance contracts to disclose additional information, including: (i) incurred and paid claims development tables; (ii) frequency and severity of claims; and (iii) information about material changes in judgments made in calculating the liability for unpaid claim adjustment expenses, including reasons for the change and the effects on the financial statements. The Company adopted this updated guidance on January 1, 2016 with regard to the annual requirements and on January 1, 2017 with regard to the interim requirements. The amendments in ASU 2015-09 are applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. As the requirements are disclosure only, the adoption of this guidance did not impact our financial condition or results of operations, but did result in additional disclosures. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 includes provisions intended to simplify various previous provisions related to how share-based payments are accounted for and presented in the financial statements. Under the new guidance, excess tax benefits (deductions for share 63 1012270in_10k.indd 68 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000based payment awards for tax purposes that exceed the compensation cost recognized for financial reporting purposes) are reported within the income tax expense financial statement line item. Previously, excess tax benefits were reported within additional paid in capital. The Company adopted this updated guidance on January 1, 2017 prospectively. The adoption of this guidance did not have a material impact on the Company's financial condition or results of operations. All other accounting and reporting standards that became effective in 2017 were either not applicable to the Company or their adoption did not have a material impact on the Company. Accounting and reporting standards that are not yet effective: In May 2014, the FASB issued ASU 2014-09, Revenue from Customers. ASU 2014-09 clarifies the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company’s insurance service fee revenue and non-insurance business revenue will be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The updated guidance, as amended by ASU 2015-14, is effective for public business entities for annual and interim reporting periods beginning after December 15, 2017. The Company determined that the adoption of this guidance on January 1, 2018 will not have a material effect on the Company’s financial condition or results of operations. In January 2016, the FASB issued ASU 2016-01, Financial Instruments. ASU 2016-01 amends the accounting guidance for financial instruments to require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The updated guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017 and interim periods within those years. The adoption of this guidance is not expected to have a material effect on the Company’s financial condition upon adoption, but will impact results of operations after adoption of this guidance as unrealized gains and losses on equity securities will no longer be reported directly in accumulated other comprehensive income (AOCI), but will instead be reported in net income. In February 2016, the FASB issued ASU 2016-02, Leases, which amends the accounting and disclosure guidance for leases. This guidance retains the two classifications of a lease, as either an operating or finance lease, both of which will require lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months. The right-of-use asset and the lease liability will be determined based upon the present value of cash flows. Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-of-use asset. Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The accounting by lessors is not significantly changed by the updated guidance. The updated guidance is effective for reporting periods beginning after December 15, 2018, and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied. The Company is currently evaluating the impact that the adoption of this guidance will have on its results of operations, financial position and liquidity. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which amends the accounting guidance for credit losses on financial instruments. The updated guidance amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. This guidance also applies a new current expected credit loss model for determining credit-related impairments for financial instruments measured at amortized cost. The updated guidance is effective for reporting periods beginning after December 15, 2019. The Company will not be able to determine the impact the adoption of this guidance will have on its results of operations, financial position or liquidity until the year the guidance becomes effective. In February 2018, the FASB issued ASU 2018-02, Reporting Comprehensive Income, which amends previous guidance to allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Act related to items in AOCI. The updated guidance is effective for reporting periods beginning after December 15, 2018, and is eligible for early adoption. The Company expects to adopt the updated guidance in 2018, which should not impact its results of operations or financial position. All other recently issued but not yet effective accounting and reporting standards are either not applicable to the Company or are not expected to have a material impact on the Company. 64 1012270in_10k.indd 69 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(2) Acquisitions / Dispositions In March 2017, the Company acquired an 89.5% ownership interest for $ 73.3 million in a company engaged in providing textile solutions world-wide. The fair value of the assets acquired and liabilities assumed have been estimated based on a third party valuation. The following table summarizes the estimated fair value of net assets acquired and liabilities assumed for the business combination completed in 2017: (In thousands) Cash and cash equivalents Real estate, furniture and equipment Goodwill Intangible Assets Other assets Total assets acquired Other liabilities assumed Non controlling interest Net assets acquired 2017 2,721 7,042 28,522 32,395 9,862 80,542 (2,251) (5,000) 73,291 $ $ In February 2016, the Company acquired an 85% ownership interest for $42.3 million in a company engaged in the distribution of promotional merchandise. 65 1012270in_10k.indd 70 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(3) Consolidated Statement of Comprehensive Income (Loss) The following tables present the components of the changes in accumulated other comprehensive income (loss) (AOCI) as of and for the years ended December 31, 2017 and 2016 : (In thousands) December 31, 2017 Changes in AOCI Beginning of period Other comprehensive income before reclassifications Amounts reclassified from AOCI Other comprehensive income (loss) Unrealized investment gain related to non-controlling interest Ending balance Amounts reclassified from AOCI Pre-tax Tax effect After-tax amounts reclassified Other comprehensive income (loss) Pre-tax Tax effect Other comprehensive income (loss) (In thousands) December 31, 2016 Changes in AOCI Beginning of period Other comprehensive income (loss) before reclassifications Amounts reclassified from AOCI Other comprehensive income (loss) Unrealized investment gain related to non-controlling interest Ending balance Amounts reclassified from AOCI Pre-tax Tax effect After-tax amounts reclassified Other comprehensive income (loss) Pre-tax Tax effect $ $ $ $ $ Other comprehensive income (loss) _______________ (1) Net investment gains in the consolidated statements of income. (2) Income tax expense in the consolidated statements of income. $ Unrealized investment gains (losses) Currency translation adjustments Accumulated other comprehensive income (loss) $ $ $ $ $ $ 427,154 63,567 (115,319) (51,752) 19 $ (371,586) $ 64,706 — 64,706 — 375,421 $ (306,880) $ (177,414) (1) $ 62,095 (2) (115,319) (69,425) 17,673 (51,752) $ $ $ — $ — $ 64,706 — 64,706 $ $ 55,568 128,273 (115,319) 12,954 19 68,541 (177,414) 62,095 (115,319) (4,719) 17,673 12,954 Unrealized investment gains (losses) Currency translation adjustments Accumulated other comprehensive income (loss) (247,393) $ (124,193) — (124,193) — (371,586) $ — $ — — $ (124,193) — (124,193) $ $ (66,698) 162,541 (40,216) 122,325 (59) 55,568 (61,871) 21,655 (40,216) 255,065 (132,740) 122,325 180,695 286,734 (40,216) 246,518 (59) 427,154 (61,871) (1) 21,655 (2) (40,216) 379,258 (132,740) 246,518 $ $ $ $ $ $ 66 1012270in_10k.indd 71 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 (4) Investments in Fixed Maturity Securities At December 31, 2017 and 2016 , investments in fixed maturity securities were as follows: (In thousands) December 31, 2017 Held to maturity: State and municipal Residential mortgage-backed Total held to maturity Available for sale: Amortized Cost Gross Unrealized Gains Losses Fair Value Carrying Value $ 65,882 $ 14,499 $ — $ 80,381 $ 13,450 79,332 1,227 15,726 — — 14,677 95,058 65,882 13,450 79,332 U.S. government and government agency 372,748 8,824 (3,832) 377,740 377,740 State and municipal: Special revenue State general obligation Pre-refunded Corporate backed Local general obligation Total state and municipal Mortgage-backed securities: Residential (1) Commercial Total mortgage-backed securities Asset-backed securities Corporate: Industrial Financial Utilities Other Total corporate Foreign government Total available for sale 2,663,245 439,358 436,241 375,268 417,955 53,512 16,087 22,701 10,059 23,242 (10,027) 2,706,730 2,706,730 (711) (9) (860) (967) 454,734 458,933 384,467 440,230 454,734 458,933 384,467 440,230 4,332,067 125,601 (12,574) 4,445,094 4,445,094 1,043,629 261,652 1,305,281 2,111,132 2,574,400 1,402,161 284,886 40,560 4,302,007 819,345 13,242,580 9,304 1,521 10,825 11,024 52,210 37,744 11,316 5 101,275 32,018 289,567 (13,547) (2,628) (16,175) (10,612) (7,718) (5,138) (1,248) (66) (14,170) (2,866) (60,229) 1,039,386 260,545 1,299,931 2,111,544 2,618,892 1,434,767 294,954 40,499 4,389,112 848,497 1,039,386 260,545 1,299,931 2,111,544 2,618,892 1,434,767 294,954 40,499 4,389,112 848,497 13,471,918 13,471,918 Total investments in fixed maturity securities $ 13,321,912 $ 305,293 $ (60,229) $ 13,566,976 $ 13,551,250 67 1012270in_10k.indd 72 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000U.S. government and government agency 496,187 (In thousands) December 31, 2016 Held to maturity: State and municipal Residential mortgage-backed Total held to maturity Available for sale: State and municipal: Special revenue State general obligation Pre-refunded Corporate backed Local general obligation Total state and municipal Mortgage-backed securities: Residential (1) Commercial Total mortgage-backed securities Asset-backed securities Corporate: Industrial Financial Utilities Other Total corporate Foreign government Total available for sale Amortized Cost Gross Unrealized Gains Losses Fair Value Carrying Value $ 72,582 15,944 88,526 $ 12,453 $ — $ 85,035 $ — — 17,637 102,672 72,582 15,944 88,526 1,693 14,146 20,208 58,559 16,964 19,181 6,172 15,682 2,791,211 524,682 356,535 410,933 360,022 (2,593) 513,802 513,802 (26,315) 2,823,455 2,823,455 (5,139) (165) (6,452) (2,367) 536,507 375,551 410,653 373,337 536,507 375,551 410,653 373,337 4,443,383 116,558 (40,438) 4,519,503 4,519,503 1,034,301 155,540 1,189,841 1,913,830 2,315,567 1,369,001 229,154 54,073 3,967,795 858,773 12,869,809 15,431 304 15,735 5,971 71,007 39,543 10,801 299 121,650 46,794 326,916 (12,950) (2,981) (15,931) (11,941) (7,174) (11,270) (2,411) (63) (20,918) (2,762) (94,583) 1,036,782 152,863 1,189,645 1,907,860 2,379,400 1,397,274 237,544 54,309 4,068,527 902,805 1,036,782 152,863 1,189,645 1,907,860 2,379,400 1,397,274 237,544 54,309 4,068,527 902,805 13,102,142 13,102,142 Total investments in fixed maturity securities $ 12,958,335 $ 341,062 $ (94,583) $ 13,204,814 $ 13,190,668 ____________________ (1) Gross unrealized gain (losses) for mortgage-backed securities include $76,467 and ($818,691) as of December 31, 2017 and 2016 , respectively, related to the non-credit portion of OTTI recognized in other comprehensive income. The amortized cost and fair value of fixed maturity securities at December 31, 2017 , by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay obligations. (In thousands) Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Total Amortized Cost Fair Value $ 673,946 $ 4,961,661 3,247,109 3,120,465 1,318,731 679,822 5,051,288 3,360,452 3,160,806 1,314,608 $ 13,321,912 $ 13,566,976 At December 31, 2017 and 2016 , there were no investments, other than investments in United States government and government agency securities, which exceeded 10% of common stockholders’ equity. At December 31, 2017 , investments with a carrying value of $1,353 million were on deposit in custodial or trust accounts, of which $995 million was on deposit with state insurance departments, $308 million was on deposit in support of the Company’s underwriting activities at Lloyd’s, $46 million was on deposit as security for reinsurance clients and $4 million was on deposit as security for letters of credit issued in support of the Company’s reinsurance operations. 68 1012270in_10k.indd 73 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(5) Investments in Equity Securities Available for Sale At December 31, 2017 and 2016 , investments in equity securities available for sale were as follows: (In thousands) December 31, 2017 Common stocks Preferred stocks Total December 31, 2016 Common stocks Preferred stocks Total (6) Arbitrage Trading Account Cost 81,855 124,150 206,005 94,998 125,589 220,587 $ $ $ $ $ $ $ $ Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value 272,309 102,890 375,199 351,906 101,392 453,298 $ $ $ $ (1,960) (2,597) (4,557) (1,046) (3,639) (4,685) $ $ $ $ 352,204 224,443 576,647 445,858 223,342 669,200 $ $ $ $ 352,204 224,443 576,647 445,858 223,342 669,200 At December 31, 2017 and 2016 , the fair value and carrying value of the arbitrage trading account were $618 million and $300 million , respectively. The primary focus of the trading account is merger arbitrage. Merger arbitrage is the business of investing in the securities of publicly held companies which are the targets in announced tender offers and mergers. Arbitrage investing differs from other types of investing in its focus on transactions and events believed likely to bring about a change in value over a relatively short time period (usually four months or less). The Company uses put options, call options and swap contracts in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading account. These options and contracts are reported at fair value. As of December 31, 2017 , the fair value of long option contracts outstanding was $1 million (notional amount of $136 million ) and the fair value of short option contracts outstanding was $8 million (notional amount of $135 million ). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives. (7) Net Investment Income Net investment income consists of the following: (In thousands) Investment income earned on: 2017 2016 2015 Fixed maturity securities, including cash and cash equivalents and loans receivable $ 473,101 $ 444,247 $ 428,325 Investment funds Arbitrage trading account Real estate Equity securities available for sale Gross investment income Investment expense Net investment income 68,169 19,145 19,975 2,350 582,740 (6,952) 99,301 18,693 7,054 4,028 573,323 (9,160) 62,228 16,891 11,294 4,624 523,362 (10,717) $ 575,788 $ 564,163 $ 512,645 69 1012270in_10k.indd 74 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(8) Investment Funds The Company evaluates whether it is an investor in a variable interest entity (VIE). Such entities do not have sufficient equity at risk to finance their activities without additional subordinated financial support, or the equity investors, as a group, do not have the characteristics of a controlling financial interest (primary beneficiary). The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE's capital structure, contractual terms, nature of the VIE's operations and purpose, and the Company's relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE and on an ongoing basis. The Company is not the primary beneficiary in any of its investment funds, and accordingly, carries its interests in investments funds under the equity method of accounting. The Company’s maximum exposure to loss with respect to these investments is limited to the carrying amount reported on the Company’s consolidated balance sheet and its unfunded commitments of $406.2 million as of December 31, 2017 . Investment funds consist of the following: (In thousands) Real estate Energy Hedged equity Other funds Total Carrying Value as of December 31, Income (Losses) 2017 2016 2017 2016 2015 $ 606,995 $ 641,783 $ 45,068 $ 50,415 $ 82,882 — 465,800 91,448 73,913 391,002 (15,764) (1,164) 40,029 19,747 3,334 25,805 $ 1,155,677 $ 1,198,146 $ 68,169 $ 99,301 $ 58,032 (37,373) (2,762) 44,331 62,228 The Company's share of the earnings or losses of investment funds is primarily reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements. (9) Real Estate Investment in real estate represents directly owned property held for investment, as follows: (In thousands) Properties in operation Properties under development Total As of December 31, 2017 451,691 1,017,910 1,469,601 $ $ 2016 457,237 727,744 1,184,981 $ $ In 2017 , properties in operation included a long-term ground lease in Washington, D.C., a hotel in Memphis, Tennessee, an office complex in New York City and office buildings in West Palm Beach and Palm Beach, Florida. Properties in operation are net of accumulated depreciation and amortization of $25,646,000 and $16,425,000 as of December 31, 2017 and 2016 , respectively. Related depreciation expense was $9,212,000 and $6,940,000 for the years ended December 31, 2017 and 2016 , respectively. Future minimum rental income expected on operating leases relating to properties in operation is $28,175,755 in 2018 , $33,653,067 in 2019 , $33,435,418 in 2020 , $33,878,321 in 2021 , $33,885,797 in 2022 and $517,372,272 thereafter. Properties under development include an office building in London and a mixed-use project in Washington, D.C. 70 1012270in_10k.indd 75 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 (10) Loans Receivable Loans receivable are as follows: (In thousands) Amortized cost (net of valuation allowance): Real estate loans Commercial loans Total Fair value: Real estate loans Commercial loans Total Valuation allowance: Specific General Total Increase (decrease) in valuation allowance As of December 31, 2017 2016 66,057 13,627 79,684 66,917 15,130 82,047 1,200 2,183 3,383 $ $ $ $ $ $ 92,415 14,383 106,798 92,415 15,884 108,299 1,200 2,197 3,397 For the Year Ended December 31, 2017 2016 (14) $ 1,303 $ $ $ $ $ $ $ Loans receivable in non-accrual status were $ 4.3 million and $ 5.4 million as of December 31, 2017 and 2016 , respectively. The Company monitors the performance of its loans receivable and assesses the ability of the borrower to pay principal and interest based upon loan structure, underlying property values, cash flow and related financial and operating performance of the property and market conditions. Loans receivable with a potential for default are further assessed using discounted cash flow analysis and comparable cost and sales methodologies, if appropriate. The real estate loans are secured by commercial real estate primarily located in Georgia and New York. These loans generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. The commercial loans are with small business owners who have secured the related financing with the assets of the business. Commercial loans generally earn interest on a fixed basis and have varying maturities not exceeding 15 years. In evaluating the real estate loans, the Company considers their credit quality indicators, including loan to value ratios, which compare the outstanding loan amount to the estimated value of the property, the borrower’s financial condition and performance with respect to loan terms, the position in the capital structure, the overall leverage in the capital structure and other market conditions. Based on these considerations, none of the real estate loans were considered to be impaired at December 31, 2017 , and accordingly, the Company determined that a specific valuation allowance was not required. 71 1012270in_10k.indd 76 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(11) Realized and Unrealized Investment Gains (Losses) Realized and unrealized investment gains (losses) are as follows: (In thousands) Realized investment gains (losses): Fixed maturity securities: Gains Losses Equity securities available for sale Investment funds (1) Real estate Other (2) Net realized gains on investments sales Other-than-temporary impairments (3) Net investment gains Income tax expense After-tax realized investment gains Change in unrealized gains (losses) of available for sales securities: Fixed maturity securities Previously impaired fixed maturity securities Equity securities available for sale Investment funds Total change in unrealized investment gains (losses) Income tax benefit (expense) Noncontrolling interests 2017 2016 2015 $ 28,217 $ 72,215 $ (5,342) 154,539 125,423 12,880 20,141 335,858 — 335,858 (117,550) (6,434) 14,201 58,861 7,757 138,519 285,119 (18,114) 267,005 (93,452) 218,308 $ 173,553 $ 23,755 (4,065) 9,639 93,529 — 2,775 125,633 (33,309) 92,324 (32,313) 60,011 $ $ (2,192) $ (107,094) $ (144,445) 895 (77,971) 9,843 (69,425) 17,673 19 451 465,727 12,631 371,715 (125,315) 59 (174) (27,809) (19,758) (192,186) 66,644 38 After-tax change in unrealized investment gains (losses) of available for sale securities $ (51,733) $ 246,459 $ (125,504) ____________________ (1) Investment funds includes a gain of $124.3 million from the sale of an investment in an office building located in Washington, D.C. for the year ended December 31, 2017. (2) Other includes a gain of $ 134.9 million from the sale of Aero Precision Industries and certain related aviation services business for the year ended December 31, 2016. (3) There were no other than temporary impairments (OTTI) for the year ended December 31, 2017. For the year ended December 31, 2016, OTTI related to equity securities was $18.1 million . For the year ended December 31, 2015, OTTI related to equity securities was $ 24.3 million and related to fixed maturity securities was $ 9.0 million . 72 1012270in_10k.indd 77 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(12) Securities in an Unrealized Loss Position The following tables summarize all securities in an unrealized loss position at December 31, 2017 and 2016 by the length of time those securities have been continuously in an unrealized loss position. (In thousands) December 31, 2017 Less Than 12 Months 12 Months or Greater Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. government and government agency $ 92,167 $ State and municipal Mortgage-backed securities Asset-backed securities Corporate Foreign government Fixed maturity securities Common stocks Preferred stocks Equity securities available for sale Total December 31, 2016 State and municipal Mortgage-backed securities Asset-backed securities Corporate Foreign government Fixed maturity securities Common stocks Preferred stocks Equity securities available for sale Total 735,972 480,435 1,127,309 1,103,747 244,139 3,783,769 9,244 — 9,244 1,491 5,944 5,110 8,298 8,224 2,615 31,682 1,211 — 1,211 $ 72,055 $ 345,755 373,956 167,412 170,858 25,824 1,155,860 9,387 23,077 32,464 2,341 6,630 11,065 2,314 5,946 251 28,547 749 2,597 3,346 $ 164,222 $ 1,081,727 854,391 1,294,721 1,274,605 269,963 4,939,629 18,631 23,077 41,708 3,832 12,574 16,175 10,612 14,170 2,866 60,229 1,960 2,597 4,557 $ 3,793,013 $ 32,893 $ 1,188,324 $ 31,893 $ 4,981,337 $ 64,786 1,562,614 625,903 1,010,836 1,035,245 213,246 4,560,553 336 — 336 35,553 11,103 5,340 13,448 1,985 68,681 22 — 22 133,034 109,066 201,693 65,147 24,820 569,210 8,755 22,034 30,789 1,341 4,885 4,828 6,601 7,470 777 25,902 1,024 3,639 4,663 $ 148,159 $ 1,695,648 734,969 1,212,529 1,100,392 238,066 5,129,763 9,091 22,034 31,125 2,593 40,438 15,931 11,941 20,918 2,762 94,583 1,046 3,639 4,685 $ 4,560,889 $ 68,703 $ 599,999 $ 30,565 $ 5,160,888 $ 99,268 U.S. government and government agency $ 112,709 $ 1,252 $ 35,450 $ Fixed Maturity Securities — A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at December 31, 2017 is presented in the table below: ($ in thousands) Foreign government Corporate Mortgage-backed securities State and municipal Asset-backed securities Total Number of Securities Aggregate Fair Value 11 $ 96,741 $ 7 6 1 3 54,590 5,368 3,662 441 Gross Unrealized Loss 1,197 2,725 138 1 116 28 $ 160,802 $ 4,177 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. 73 1012270in_10k.indd 78 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000For the years ended December 31, 2017 and 2016 , there were no OTTI recognized in earnings for fixed maturity securities. 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 on 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 December 31, 2017 , there was one preferred stock in an unrealized loss position, with an aggregate fair value of $23.1 million and a gross unrealized loss of $2.6 million . The preferred stock is rated investment grade. Management believes the unrealized loss is due primarily to market and sector related factors and does not consider it to be OTTI. For the year ended December 31, 2017 and 2016 , there were no OTTI for preferred stocks. Common Stocks – At December 31, 2017 , there were three common stocks in an unrealized loss position, with an aggregate fair value of $18.6 million and a gross unrealized loss of $2.0 million . Based on management's view of these securities, the Company does not consider the common stocks to be OTTI. For the year ended December 31, 2017 , there were no OTTI for common stocks. OTTI for common stocks for the year ended December 31, 2016 were $ 18.1 million . (13) Fair Value Measurements The Company’s fixed maturity and equity securities classified as 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, as follows: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 - Quoted prices for similar assets or valuations based on inputs that are observable. Level 3 - Estimates of fair value based on internal pricing methodologies using unobservable inputs. Unobservable inputs are only used to measure fair value to the extent that observable inputs are not available. Substantially all of the Company’s fixed maturity securities were priced by independent pricing services. The prices provided by the independent pricing services are estimated based on observable market data in active markets utilizing pricing models and processes, which may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, sector groupings, matrix pricing and reference data. The pricing services may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs are available for each security evaluation on any given day. The pricing services used by the Company have indicated that they will only produce an estimate of fair value if objectively verifiable information is available. The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness and periodically performs independent price tests of a sample of securities to ensure proper valuation. If prices from independent pricing services are not available for fixed maturity securities, the Company estimates the fair value. For Level 2 securities, the Company utilizes pricing models and processes which may include benchmark yields, sector groupings, matrix pricing, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, bids, offers and reference data. Where broker quotes are used, the Company generally requests two or more quotes and sets a price within the range of quotes received based on its assessment of the credibility of the quote and its own evaluation of the security. The Company generally does not adjust quotes received from brokers. For securities traded only in private negotiations, the Company determines fair value based primarily on the cost of such securities, which is adjusted to reflect prices of recent placements of securities of the same issuer, financial projections, credit quality and business developments of the issuer and other relevant information. For Level 3 securities, the Company generally uses a discounted cash flow model to estimate the fair value of fixed maturity securities. The cash flow models are based upon assumptions as to prevailing credit spreads, interest rate and interest rate volatility, time to maturity and subordination levels. Projected cash flows are discounted at rates that are adjusted to reflect illiquidity, where appropriate. 74 1012270in_10k.indd 79 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The following tables present the assets and liabilities measured at fair value as of December 31, 2017 and 2016 by level: Total Level 1 Level 2 Level 3 (In thousands) December 31, 2017 Assets: Fixed maturity securities available for sale: U.S. government and government agency State and municipal Mortgage-backed securities Asset-backed securities Corporate Foreign government Total fixed maturity securities available for sale Equity securities available for sale: Common stocks Preferred stocks Total equity securities available for sale Arbitrage trading account Total Liabilities: Trading account securities sold but not yet purchased December 31, 2016 Assets: Fixed maturity securities available for sale: U.S. government and government agency State and municipal Mortgage-backed securities Asset-backed securities Corporate Foreign government Total fixed maturity securities available for sale Equity securities available for sale: Common stocks Preferred stocks Total equity securities available for sale Arbitrage trading account Total Liabilities: Trading account securities sold but not yet purchased $ 377,740 $ — $ 377,740 $ 4,445,094 1,299,931 2,111,544 4,389,112 848,497 13,471,918 352,204 224,443 576,647 617,649 14,666,214 64,358 $ $ — — — — — — 342,834 — 342,834 471,420 814,254 64,358 $ $ 4,445,094 1,299,931 2,111,372 4,389,112 848,497 13,471,746 — 213,600 213,600 146,229 13,831,575 $ — — — 172 — — 172 9,370 10,843 20,213 — 20,385 — $ — 513,802 $ — $ 513,802 $ 4,519,503 1,189,645 1,907,860 4,068,527 902,805 13,102,142 445,858 223,342 669,200 299,999 14,071,341 51,179 $ $ — — — — — — 429,647 — 429,647 224,623 654,270 51,089 $ $ 4,519,503 1,189,645 1,907,677 4,068,527 902,805 13,101,959 7,457 219,680 227,137 75,376 13,404,472 90 $ $ — — — 183 — — 183 8,754 3,662 12,416 — 12,599 — $ $ $ $ $ There were no significant transfers between Levels 1 and 2 for the years ended December 31, 2017 and 2016 . 75 1012270in_10k.indd 80 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The following tables summarize changes in Level 3 assets and liabilities for the years ended December 31, 2017 and 2016 : Beginning Balance Earnings (Losses) Other Comprehensive Income (Losses) Impairments Purchases Sales Paydowns/Maturities Transfers In / Out Ending Balance Gains (Losses) Included in: (In thousands) Year ended December 31, 2017 Assets: Fixed maturity securities available for sale: Asset-backed securities $ 183 $ Corporate Total Equity securities available for sale: Common stocks Preferred stocks Total Arbitrage trading account Total — 183 8,754 3,662 12,416 — $ 3 — 3 — 8 8 8 34 — 34 616 — 616 — $ — $ — $ (48) $ — — — — — — — — — 7,173 7,173 — — (48) — — — (8) $ 12,599 $ 19 $ 650 $ — $ 7,173 $ (56) $ Year ended December 31, 2016 Assets: Fixed maturity securities available for sale: Asset-backed securities $ Corporate Total Equity securities available for sale: Common stocks Preferred stocks Total Arbitrage trading account Total 199 154 353 7,829 3,624 11,453 176 $ 3 $ 177 180 — 38 38 (176) 16 — 16 160 — 160 — $ — $ — $ — $ — — — — — — — — 765 — 765 — (331) (331) — — — — — — — — — — — — (35) — (35) — — — — $ — $ — — — — — — 172 — 172 9,370 10,843 20,213 — $ — $ 20,385 $ — $ — — — — — — 183 — 183 8,754 3,662 12,416 — $ 11,982 $ 42 $ 176 $ — $ 765 $ (331) $ (35) $ — $ 12,599 During the years ended December 31, 2017 and 2016 , there were no securities transferred out of Level 3. 76 1012270in_10k.indd 81 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(14) Reserves for Losses and Loss Expenses The Company's reserves for losses and loss expenses are comprised of case reserves and incurred but not reported liabilities (IBNR). When a claim is reported, a case reserve is established for the estimated ultimate payment based upon known information about the claim. As more information about the claim becomes available over time, case reserves are adjusted up or down as appropriate. Reserves are also established on an aggregate basis to provide for IBNR liabilities and expected loss reserve development on reported claims. Loss reserves included in the Company’s financial statements represent management’s best estimates based upon an actuarially derived point estimate and other considerations. The Company uses a variety of actuarial techniques and methods to derive an actuarial point estimate for each operating unit. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. In circumstances where one actuarial method is considered more credible than the others, that method is used to set the point estimate. The actuarial point estimate may also be based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” in areas where the Company’s own data is limited. The actuarial data is analyzed by line of business, coverage and accident or policy year, as appropriate, for each operating unit. The 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. The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is priced and written, before any actual claims experience has emerged. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each operating unit. Expected loss cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns. Loss frequency and severity are measures of loss activity that are considered in determining the key assumptions described in our discussion of loss and loss expense reserves, including expected loss ratios, rate of loss cost inflation and reported and paid loss emergence patterns. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations. Another factor affecting estimates of loss frequency and severity is the loss reporting lag, which is the period of time between the occurrence of a loss and the date the loss is reported to the Company. The length of the loss reporting lag affects our ability to accurately predict loss frequency (loss frequencies are more predictable for lines with short reporting lags) as well as the amount of reserves needed for incurred but not reported losses (less IBNR is required for lines with short reporting lags). As a result, loss reserves for lines with short reporting lags are likely to have less variation from initial loss estimates. For lines with short reporting lags, which include commercial automobile, primary workers’ compensation, other liability (claims-made) and property business, the key assumption is the loss emergence pattern used to project ultimate loss estimates from known losses paid or reported to date. For lines of business with long reporting lags, which include other liability (occurrence), products liability, excess workers’ compensation and liability reinsurance, the key assumption is the expected loss ratio since there is often little paid or incurred loss data to consider. Historically, the Company has experienced less variation from its initial loss estimates for lines of businesses with short reporting lags than for lines of business with long reporting lags. The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect the latest reported loss data, current trends and other factors observed. A claim may be defined as an event, as a claimant (number of parties claiming damages from an event) or by exposure type (e.g., an event may give rise to two parties, each claiming loss for bodily injury and property damage). The most commonly used claim count method is by event. Most of the Company's operating units use the number of events to define and quantify the number of claims. However, in certain lines of business, where it is common for multiple parties to claim 77 1012270in_10k.indd 82 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000damages arising from a single event, an operating unit may quantify claims on the basis of the number of separate parties involved in an event. This may be the case with businesses writing substantial automobile or transportation exposure. Claim counts for assumed reinsurance will vary based on whether the business is written on a facultative or treaty basis. Further variability as respects treaty claim counts may be reflective of the nature of the treaty, line of business coverage, and type of participation such as quota share or excess of loss contracts. Accordingly, the claim counts have been excluded from the below Reinsurance segment tables due to this variability. The claim count information set forth in the tables presented below may not provide an accurate reflection of ultimate loss payouts by product line. The following tables present undiscounted incurred and paid claims development as of December 31, 2017, net of reinsurance, as well as cumulative claim frequency and the total of incurred but not reported liabilities (IBNR). The information about incurred and paid claims development for the years ended December 31, 2008 to 2016 is presented as supplementary information. To enhance the comparability of the loss development data, the Company has removed the impact of foreign exchange rate movements by using the December 31, 2017 exchange rate for all periods. Beginning with accident year 2012, the Company's U.K. and European insurance business is included in the Insurance segment's tables for Other Liability, Professional Liability, Commercial Automobile and Short-Tail Lines. Prior to 2012, the actuarial analysis for its U.K. and European insurance business was performed on an underwriting year basis and accident year data is not available for those years. 78 1012270in_10k.indd 83 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Insurance Other Liability (In thousands) Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total 26 23 23 23 24 26 27 26 23 18 Loss and Loss Expenses Incurred, Net of Reinsurance As of December 31, 2017 For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR Cumulative Number of Reported Claims $ 830,091 $ 798,785 $ 744,614 $ 707,274 $ 687,619 $ 678,552 $ 651,784 $ 642,430 $ 644,303 $ 638,545 $ 24,822 — — — — — — — — — — — — — — — — — — — — — — — — 689,758 656,915 625,068 598,641 589,618 561,674 557,634 612,630 616,196 590,160 591,042 577,714 575,030 665,768 674,139 660,240 659,214 653,945 — — — — — — — — — — — 688,924 703,226 703,984 710,395 752,373 793,662 786,676 — — — — 848,794 851,216 953,009 — — — 552,954 573,865 649,035 714,301 786,122 849,147 988,661 546,645 571,623 645,149 724,641 807,181 854,008 963,803 — — 1,019,961 — 1,012,783 1,065,756 $ 7,830,134 27,261 39,109 45,208 65,037 101,487 180,513 344,421 545,372 783,578 Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 46,976 $ 133,238 $ 244,557 $ 348,162 $ 436,866 $ 497,134 $ 530,419 $ 559,727 $ 580,845 $ — — — — — — — — — 44,802 122,851 — — — — — — — — 45,196 — — — — — — — 214,500 128,959 48,852 — — — — — — 311,444 246,657 141,225 57,604 — — — — — 384,999 336,249 266,761 158,774 63,754 — — — — 429,062 417,172 379,801 299,938 189,747 79,128 — — — 470,787 461,464 470,886 418,145 333,221 191,385 82,822 — — 486,793 491,098 524,250 513,849 474,304 339,111 211,177 69,414 — 597,586 500,851 508,308 556,043 581,195 590,435 482,059 383,425 209,350 77,941 Reserves for loss and loss adjustment expenses before 2008, net of reinsurance $ 4,487,193 126,966 Reserves for loss and loss adjustment expenses, net of reinsurance $ 3,469,907 79 1012270in_10k.indd 84 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Primary Workers' Compensation (In thousands) Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Loss and Loss Expenses Incurred, Net of Reinsurance As of December 31, 2017 For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR Cumulative Number of Reported Claims $ 377,794 $ 347,423 $ 345,605 $ 345,413 $ 388,558 $ 388,472 $ 389,343 $ 391,788 $ 393,932 $ 396,505 $ 12,292 — — — — — — — — — 327,537 332,303 326,766 386,870 392,791 394,303 392,287 — — — — — — — — 358,734 361,808 409,237 420,604 426,622 429,952 — — — — — — — 419,364 442,550 457,134 470,026 472,087 — — — — — — 499,752 501,810 503,956 503,863 — — — — — 552,570 547,295 546,995 — — — — 639,436 637,307 — — — 712,800 — — 395,288 429,762 474,076 509,167 543,238 627,767 690,525 702,716 — 398,994 427,698 475,729 512,707 547,000 617,242 650,997 696,339 762,094 12,171 19,659 24,400 36,929 48,953 71,042 117,187 175,332 370,138 $ 5,485,305 47 43 45 46 48 53 57 58 57 53 Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 94,385 $ 203,079 $ 261,867 $ 296,667 $ 320,169 $ 335,030 $ 344,892 $ 352,539 $ 360,799 $ — — — — — — — — — 93,647 — — — — — — — — 197,736 107,742 — — — — — — — 257,972 214,034 106,157 — — — — — — 297,079 279,226 234,694 114,998 — — — — — 318,349 320,154 309,509 255,063 117,900 — — — — 333,793 344,631 355,909 339,560 277,538 148,405 — — — 344,771 362,078 385,759 387,368 363,028 319,743 139,320 — — 352,516 374,013 408,304 419,588 414,160 412,611 323,744 142,998 — 366,741 360,289 382,665 420,945 437,196 447,894 471,235 421,734 338,835 153,456 Reserves for loss and loss adjustment expenses before 2008, net of reinsurance $ 3,800,990 157,868 Reserves for loss and loss adjustment expenses, net of reinsurance $ 1,842,183 80 1012270in_10k.indd 85 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Excess Workers' Compensation (In thousands) Loss and Loss Expenses Incurred, Net of Reinsurance As of December 31, 2017 For the Year Ended December 31, Unaudited Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR Cumulative Number of Reported Claims $ 186,116 $ 181,072 $ 154,566 $ 152,830 $ 150,429 $ 150,493 $ 146,093 $ 147,105 $ 140,155 $ 139,869 $ 30,534 — — — — — — — — — 168,762 153,766 153,912 148,223 147,556 138,765 142,768 — — — — — — — — 135,639 123,497 120,272 116,422 100,331 104,732 — — — — — — — 88,650 — — — — — — 93,993 72,366 — — — — — 95,714 71,301 62,767 — — — — 87,064 71,780 48,493 63,465 — — — 85,299 73,653 46,025 57,558 69,977 — — 134,716 100,065 83,850 72,441 42,419 49,478 57,897 72,657 — 129,249 94,986 78,246 67,878 38,551 45,758 50,099 70,281 76,702 $ 791,619 26,998 20,772 23,339 16,278 19,501 27,746 32,693 43,421 48,784 1 1 1 1 1 1 1 — — 1 Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, Unaudited Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 2,213 $ 2,607 $ 5,909 $ 9,111 $ 13,648 $ 19,725 $ 27,350 $ 31,434 $ 36,485 $ — — — — — — — — — 5,060 — — — — — — — — 8,402 2,867 — — — — — — — 11,037 14,138 20,176 4,003 2,593 — — — — — — 5,571 4,848 1,127 — — — — — 6,533 4,759 4,815 249 — — — — 25,272 9,084 12,104 9,480 630 358 — — — 29,150 11,699 15,684 11,167 2,158 1,729 2,069 — — 33,573 14,261 18,638 13,234 3,008 3,354 2,481 2,498 — 41,921 37,817 18,821 20,164 15,738 3,396 4,175 3,272 4,783 6,282 Reserves for loss and loss adjustment expenses before 2008, net of reinsurance 689,657 Reserves for loss and loss adjustment expenses, net of reinsurance $ 1,324,907 $ 156,369 81 1012270in_10k.indd 86 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Professional Liability (In thousands) Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Loss and Loss Expenses Incurred, Net of Reinsurance As of December 31, 2017 For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR Cumulative Number of Reported Claims $ 113,409 $ 120,203 $ 116,836 $ 111,535 $ 110,337 $ 107,829 $ 107,369 $ 109,291 $ 108,554 $ 109,325 $ — — — — — — — — — 135,534 140,038 145,950 149,172 148,318 150,690 151,013 — — — — — — — — 147,301 166,172 179,693 178,381 177,127 172,918 — — — — — — — 180,633 166,044 188,095 191,194 178,071 — — — — — — 242,306 245,732 268,793 253,392 — — — — — 274,510 251,267 246,318 — — — — 257,362 250,131 — — — 262,607 — — 153,673 175,180 174,328 241,616 252,347 263,782 261,500 313,907 — 152,880 178,122 177,622 247,513 270,285 246,980 278,281 328,108 336,325 $ 2,325,441 439 816 1,984 4,735 14,511 29,840 44,937 81,813 150,631 254,118 2 3 4 4 8 8 8 10 11 9 Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 10,002 $ 37,844 $ 66,198 $ 85,623 $ 96,621 $ 97,834 $ 100,399 $ 105,346 $ 106,428 $ — — — — — — — — — 12,613 — — — — — — — — 52,612 14,857 — — — — — — — 85,960 58,980 18,833 — — — — — — 117,802 108,713 62,659 22,234 — — — — — 127,879 129,916 103,404 87,943 24,784 — — — — 139,030 144,645 135,095 129,442 64,525 19,778 — — — 144,109 160,799 151,388 160,493 120,431 84,580 20,616 — — 144,883 165,223 159,555 191,963 178,821 140,094 86,116 28,935 — 108,894 147,768 171,539 167,847 216,476 208,169 179,300 140,660 103,632 36,958 Reserves for loss and loss adjustment expenses before 2008, net of reinsurance Reserves for loss and loss adjustment expenses, net of reinsurance $ 3,100 847,298 $ 1,481,243 82 1012270in_10k.indd 87 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Commercial Automobile (In thousands) Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Loss and Loss Expenses Incurred, Net of Reinsurance As of December 31, 2017 For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR Cumulative Number of Reported Claims $ 432,629 $ 444,941 $ 430,453 $ 426,543 $ 425,600 $ 422,999 $ 422,309 $ 423,258 $ 421,829 $ 422,919 $ — — — — — — — — — 362,302 345,139 340,967 335,851 337,922 336,861 334,654 — — — — — — — — 311,322 320,306 330,432 329,109 333,028 331,865 — — — — — — — 314,028 322,724 330,125 335,024 343,701 — — — — — — 314,309 326,831 342,588 355,609 — — — — — 327,514 349,136 368,894 — — — — 364,018 385,364 — — — 390,101 — — 335,091 330,586 341,200 355,461 366,305 395,013 390,734 388,050 — 334,979 330,297 342,094 355,598 356,664 392,373 395,956 389,025 391,617 $ 3,711,522 313 535 703 1,781 2,391 6,069 13,596 31,536 62,834 131,197 50 39 37 37 34 34 36 38 38 32 Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 175,402 $ 270,421 $ 334,078 $ 377,643 $ 402,882 $ 413,411 $ 417,598 $ 420,553 $ 420,596 $ — — — — — — — — — 136,433 — — — — — — — — 209,553 136,054 — — — — — — — 257,326 208,790 135,350 — — — — — — 291,925 263,639 211,756 136,844 — — — — — 312,903 295,355 262,685 215,214 142,929 — — — — 328,845 313,262 296,370 273,446 218,596 155,630 — — — 331,484 324,997 321,814 312,342 267,253 237,802 160,316 — — 333,144 326,804 333,987 335,805 312,470 306,618 242,185 156,753 — 422,236 333,607 327,240 338,325 346,961 333,420 342,988 300,071 240,395 159,100 Reserves for loss and loss adjustment expenses before 2008, net of reinsurance Reserves for loss and loss adjustment expenses, net of reinsurance $ 2,464 569,643 $ 3,144,343 83 1012270in_10k.indd 88 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Short-tail lines (In thousands) Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Loss and Loss Expenses Incurred, Net of Reinsurance As of December 31, 2017 For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR Cumulative Number of Reported Claims $ 395,651 $ 384,606 $ 377,287 $ 371,053 $ 368,063 $ 368,207 $ 367,802 $ 367,594 $ 368,044 $ 367,969 $ — — — — — — — — — 346,902 335,950 326,460 318,124 318,454 314,914 314,140 — — — — — — — — 385,650 370,134 358,292 355,579 345,866 346,338 — — — — — — — 477,005 470,151 461,561 456,871 455,005 — — — — — — 533,643 542,372 543,923 539,180 — — — — — 582,165 594,296 585,661 — — — — 715,483 722,317 — — — 748,981 — — 314,068 346,700 450,427 519,459 569,888 694,942 764,638 822,176 — 316,279 346,280 449,639 518,398 568,276 692,591 763,735 825,812 796,305 $ 5,645,284 737 1,063 1,105 1,511 4,358 7,802 11,939 28,878 48,073 150,489 23 19 19 21 40 47 53 59 54 42 Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 244,633 $ 338,299 $ 351,580 $ 361,024 $ 360,380 $ 365,069 $ 366,388 $ 366,389 $ 366,953 $ — — — — — — — — — 212,521 — — — — — — — — 291,338 245,042 — — — — — — — 304,648 325,176 303,067 — — — — — — 306,020 337,696 417,818 283,339 — — — — — 309,939 346,630 436,817 458,412 316,603 — — — — 310,453 340,075 441,058 510,142 494,148 375,623 — — — 311,105 342,783 445,356 520,989 544,245 607,174 398,077 — — 311,386 343,909 447,042 509,941 546,651 641,364 640,637 448,522 — 366,991 311,687 344,897 447,647 511,253 553,970 660,618 699,528 715,192 470,935 Reserves for loss and loss adjustment expenses before 2008, net of reinsurance Reserves for loss and loss adjustment expenses, net of reinsurance $ 3,033 565,599 $ 5,082,718 84 1012270in_10k.indd 89 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Reinsurance Casualty (In thousands) Loss and Loss Expenses Incurred, Net of Reinsurance As of December 31, 2017 For the Year Ended December 31, Unaudited 21,314 22,883 24,961 30,716 41,215 47,285 84,802 58,408 119,654 178,718 Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR $ 361,062 $ 346,045 $ 325,890 $ 306,513 $ 295,266 $ 291,214 $ 298,891 $ 299,336 $ 294,775 $ 296,277 $ — — — — — — — — — 336,295 329,565 328,313 310,178 302,380 293,983 282,968 — — — — — — — — 292,363 299,988 289,984 278,155 267,279 255,738 — — — — — — — 293,319 312,388 306,928 302,166 309,707 — — — — — — 335,219 339,253 334,435 327,145 — — — — — 322,691 273,677 276,773 — — — — 323,796 324,199 — — — 262,424 — — 288,634 252,537 306,560 336,407 286,997 323,384 234,938 244,028 — 282,130 250,224 297,910 338,715 295,688 334,922 233,590 256,175 234,749 $ 2,820,380 Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 11,649 $ 37,063 $ 72,647 $ 111,515 $ 144,701 $ 171,747 $ 191,656 $ 207,639 $ 226,964 $ — — — — — — — — — 21,364 — — — — — — — — 53,704 18,121 — — — — — — — 85,860 45,931 17,950 — — — — — — 124,248 77,589 52,544 22,476 — — — — — 155,372 106,937 98,028 62,438 28,982 — — — — 182,225 129,700 134,896 112,445 64,072 21,365 — — — 197,070 150,021 169,147 152,453 109,664 69,422 17,878 — — 211,456 165,773 192,900 187,599 143,904 116,894 48,784 19,962 — 241,572 221,467 181,311 208,935 220,422 177,890 156,564 91,987 62,099 16,509 Reserves for loss and loss adjustment expenses before 2008, net of reinsurance $ 1,578,756 391,051 Reserves for loss and loss adjustment expenses, net of reinsurance $ 1,632,676 85 1012270in_10k.indd 90 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Property (In thousands) Loss and Loss Expenses Incurred, Net of Reinsurance As of December 31, 2017 For the Year Ended December 31, Unaudited 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR $ 56,494 $ 51,978 $ 45,195 $ 44,412 $ 44,733 $ 45,175 $ 44,259 $ 43,803 $ 43,771 $ — — — — — — — — — 48,283 — — — — — — — — 43,508 58,979 — — — — — — — 42,622 55,995 95,697 — — — — — — 38,899 52,866 88,316 104,273 38,327 51,767 85,466 95,094 37,709 51,809 86,876 86,742 37,119 51,296 85,304 85,784 36,462 51,182 85,028 84,212 — — — — — 142,043 113,039 114,430 112,217 — — — — 113,838 97,363 — — — 127,716 — — 97,876 118,016 168,661 — 43,758 35,444 51,007 84,747 84,218 112,855 100,604 132,382 174,989 207,088 $ 1,027,092 369 350 344 455 1,168 1,906 2,697 5,778 14,581 84,116 Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, Unaudited Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 11,280 $ 29,300 $ 34,456 $ 36,773 $ 37,200 $ 38,845 $ 39,193 $ 40,490 $ 42,585 $ — — — — — — — — — 9,823 — — — — — — — — 22,045 23,882 — — — — — — — 28,392 37,996 31,558 — — — — — — 29,612 42,676 59,067 15,705 — — — — — 31,438 44,165 73,612 51,967 36,654 — — — — 31,427 45,102 76,281 64,471 74,732 39,050 — — — 32,730 46,701 78,838 70,924 92,836 67,255 53,496 — — 34,953 49,353 82,040 77,786 101,794 82,651 89,384 79,015 — $ Reserves for loss and loss adjustment expenses before 2008, net of reinsurance Reserves for loss and loss adjustment expenses, net of reinsurance $ 86 43,007 34,172 49,610 82,592 79,349 104,593 88,871 109,393 133,856 72,187 797,630 1,369 230,831 1012270in_10k.indd 91 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The reconciliation of the net incurred and paid claims development tables to the reserves for loss and loss adjustment expenses in the consolidated balance sheet is as follows: (In thousands) Undiscounted reserves for loss and loss expenses, net of reinsurance: Other liability Primary workers' compensation Excess workers' compensation Professional liability Commercial automobile Short-tail lines Other Insurance Casualty Property Reinsurance Total undiscounted reserves for loss and loss expenses, net of reinsurance (In thousands) Due from reinsurers on unpaid claims: Other liability Primary workers' compensation Excess workers' compensation Professional liability Commercial automobile Short-tail lines Other Insurance Casualty Property Reinsurance $ $ $ December 31, 2017 3,469,907 1,842,183 1,324,907 847,298 569,643 565,599 164,433 8,783,970 1,632,774 230,831 1,863,604 10,647,575 December 31, 2017 392,159 434,824 37,088 305,294 6,662 275,607 27,001 1,478,636 113,443 21,415 134,858 Total due from reinsurers on unpaid claims $ 1,613,494 87 1012270in_10k.indd 92 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(In thousands) Loss reserve discount: Other liability Primary workers' compensation Excess workers' compensation Professional liability Commercial automobile Short-tail lines Other Insurance Casualty Property Reinsurance Total loss reserve discount Total gross reserves for loss and loss expenses The following is supplementary information regarding average historical claims duration as of December 31, 2017: December 31, 2017 $ $ $ — — (442,349) — — — — (442,349) (148,312) — (148,312) (590,661) 11,670,408 Insurance Years Other liability Primary workers' compensation Excess workers' compensation Professional liability Commercial automobile Short-tail lines Reinsurance Years Casualty Property Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 1 2 3 4 5 6 7 8 9 10 7.9% 14.1% 18.3% 16.8% 13.9% 8.6% 5.7% 3.5% 2.9% 2.6% 22.5% 27.3% 15.4% 9.4% 6.0% 4.0% 2.7% 2.0% 2.0% 1.5% 3.1% 9.0% 40.3% 60.2% 2.3% 23.9% 21.7% 29.1% 2.7% 22.3% 15.4% 5.9% 3.1% 16.9% 10.4% 1.7% 3.2% 9.6% 6.3% —% 3.7% 6.4% 3.5% 0.6% 3.3% 3.2% 0.9% 0.3% 3.7% 2.9% 0.4% 0.1% 3.4% 2.7% 0.1% 0.1% 3.9% 2.3% 0.4% —% Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 1 7.0% 34.8% 2 12.3% 33.2% 3 14.3% 14.7% 4 12.3% 5.2% 5 10.8% 3.6% 88 6 7 8 9 10 8.9% 2.5% 5.9% 2.6% 5.6% 3.2% 5.0% 1.3% 4.9% 1.0% 1012270in_10k.indd 93 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The table below provides a reconciliation of the beginning and ending reserve balances: (In thousands) Net reserves at beginning of year Net provision for losses and loss expenses: Claims occurring during the current year (1) Decrease in estimates for claims occurring in prior years (2) Loss reserve discount accretion Total Net payments for claims: Current year Prior year Total Foreign currency translation Net reserves at end of year Ceded reserve at end of year Gross reserves at end of year 2017 2016 2015 $ 9,590,265 $ 9,244,872 $ 8,970,641 3,963,543 (5,165) 43,970 4,002,348 1,027,405 2,562,550 3,589,955 54,256 10,056,914 1,613,494 3,826,620 (29,904) 49,084 3,845,800 1,052,452 2,401,722 3,454,174 (46,233) 9,590,265 1,606,930 3,653,561 (46,713) 49,422 3,656,270 914,637 2,342,378 3,257,015 (125,024) 9,244,872 1,424,278 $ 11,670,408 $ 11,197,195 $ 10,669,150 _______________________________________ (1) Claims occurring during the current year are net of loss reserve discounts of $22,064,000 , $18,929,000 and $20,357,000 in 2017 , 2016 , and 2015 , respectively. (2) The decrease in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior years decreased by $32,132,000 , $59,175,000 and $64,971,000 in 2017 , 2016 and 2015 , respectively. Favorable prior year development (net of additional and return premiums) was $37 million in 2017 . Insurance - Reserves for the Insurance segment developed favorably by $68 million in 2017. The favorable development was primarily attributable to workers' compensation business, and was partially offset by unfavorable development for professional liability business. For workers' compensation, the favorable development was related to both primary and excess business and was spread across many accident years, including those prior to 2008, but was most significant in accident years 2014 through 2016. The favorable workers' compensation development reflects a continuation during 2017 of the generally benign loss cost trends experienced in recent years, particularly the favorable claim frequency trends (i.e. number of reported claims per unit of exposure). Reported workers' compensation losses in 2017 continued to be below our expectations at most of our operating units, and were below the assumptions underlying our previous reserve estimates. The favorable severity trends were also impacted by our continued investment in medical case management services and the higher usage of preferred provider networks. The long term trend of declining workers' compensation frequency can be attributed to improved workplace safety. For professional liability business, adverse development was primarily related to unexpected large directors & officers ("D&O") liability losses at one of our U.S. operating units, and large professional indemnity and D&O losses in the U.K. The adverse development stemmed mainly from accident years 2013 through 2016 in the U.S. and 2011 through 2016 in the U.K. Reinsurance - Reserves for the Reinsurance segment developed unfavorably by $31 million in 2017. This adverse development was due to reserve strengthening associated with claims impacted by the change in the Ogden discount rate in the U.K., as well as adverse development on the U.S. facultative casualty excess of loss business. The Ogden rate is the discount rate used to calculate lump-sum bodily injury payouts in the U.K., and was reduced by the U.K. Ministry of Justice from + 2.5% to -0.75% in 2017; the adverse development mostly related to U.K. motor bodily injury claims which we reinsured on an excess of loss basis in accident years 2012 through 2016. The adverse development on U.S. facultative casualty business was due to construction related risks in accident years 2008 and prior. 89 1012270in_10k.indd 94 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Favorable prior year development (net of additional and return premiums) was $59 million in 2016. Insurance - Reserves for the Insurance segment developed favorably by $53 million in 2016 . The favorable development was primarily related to workers' compensation business, and was partially offset by unfavorable development for medical professional liability business. For workers' compensation, the favorable development was related to both primary and excess business and to many accident years, including those prior to 2007. During 2016 , reported workers' compensation losses continued to be below our expectations at most of our operating units. Loss frequency and severity trends continued to be better than the assumptions underlying our previous reserve estimates. Loss severity trends also benefited from our continued investment in medical case management services and from our preferred provider networks. The long term trend of declining workers' compensation frequency can be attributed to improved workplace safety. For medical professional liability business, unfavorable development was primarily related to a class of business that has been discontinued. The adverse development for that business stemmed mainly from accident years 2010 through 2015. Reinsurance - Reserves for the Reinsurance segment developed favorably by 6 million in 2016 . The favorable development was primarily related to direct facultative reinsurance business and to accident years 2008 through 2014. Favorable prior year development (net of additional and return premiums) was $63 million in 2015. Insurance - Reserves for the Insurance segment developed favorably by $52 million in 2015 . The favorable development was primarily related to workers' compensation, other liability business and commercial property, and was partially offset by unfavorable development for commercial automobile liability business and professional indemnity business. For workers' compensation, the favorable development was related to both primary and excess business and to many accident years, including those prior to 2007. In 2015 , reported workers' compensation losses were below our expectations for many of our operating units. In addition, overall loss frequency and severity trends emerged better than the assumptions underlying our previous reserve estimates. The long term trend of declining workers' compensation claim frequency continued in 2015 . The improvement is attributable to better workplace safety and to benign medical severity trends as we continue to invest in medical case management services and higher usage of preferred provider networks. For other liability business, favorable development was concentrated in accident years 2007 through 2013. The favorable development was primarily related to our excess and surplus lines casualty business that has benefited from a persistent improvement in claim frequency trends over the past several years. For commercial property business, favorable development was attributable to accident years 2012 through 2014 and was driven by favorable frequency and severity trends on property business written in Lloyd's. For commercial automobile business, adverse development was primarily related to large losses for long-haul trucking business and to accident years 2011 through 2014. The higher loss cost trends for the commercial automobile industry are attributable, in part, to the increase in miles driven as the economy improved and fuel prices declined over the past several years. For professional indemnity business in the U.K., adverse development was primarily for accident years 2006 through 2013. Reinsurance - Reserves for the Reinsurance segment developed favorably by $11 million in 2015 . The favorable development was primarily related to direct facultative reinsurance business and to accident years 2005 through 2013. Loss reserves developed favorably for umbrella business and for other liability coverage for contractors. Environmental and Asbestos — To date, known environmental and asbestos claims have not had a material impact on the Company’s operations, because its subsidiaries generally did not insure large industrial companies that are subject to significant environmental or asbestos exposures prior to 1986 when an absolute exclusion was incorporated into standard policy language. The Company’s net reserves for losses and loss expenses relating to asbestos and environmental claims on policies written before adoption of the absolute exclusion was $30 million at December 31, 2017 and $31 million at December 31, 2016 . The estimation of these liabilities is subject to significantly greater than normal variation and uncertainty because it is difficult to make an actuarial estimate of these liabilities due to the absence of a generally accepted actuarial methodology for these exposures and the potential effect of significant unresolved legal matters, including coverage issues, as well as the cost of litigating the legal issues. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties are highly uncertain. 90 1012270in_10k.indd 95 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 Discounting — The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $1,855 million and $1,907 million at December 31, 2017 and December 31, 2016 , respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $591 million and $640 million at December 31, 2017 and 2016 , respectively. At December 31, 2017 , discount rates by year ranged from 2.0% to 6.5% , with a weighted average discount rate of 3.8% . Substantially all discounted workers’ compensation reserves ( 97% of total discounted reserves at December 31, 2017 ) are excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience. The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at December 31, 2017 ), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware. 91 1012270in_10k.indd 96 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(15) Reinsurance The Company reinsures a portion of its insurance exposures in order to reduce its net liability on individual risks and catastrophe losses. Reinsurance coverage and retentions vary depending on the line of business, location of the risk and nature of loss. The Company’s reinsurance purchases include the following: property reinsurance treaties that reduce exposure to large individual property losses and catastrophe events; casualty reinsurance treaties that reduce its exposure to large individual casualty losses, workers’ compensation catastrophe losses and casualty losses involving multiple claimants or insureds; and facultative reinsurance that reduces exposure on individual policies or risks for losses that exceed treaty reinsurance capacity. Depending on the operating unit, the Company purchases specific additional reinsurance to supplement the above programs. The following is a summary of reinsurance financial information: (In thousands) Written premiums: Direct Assumed Ceded Total net written premiums Earned premiums: Direct Assumed Ceded Total net earned premiums Ceded losses and loss expenses incurred Ceded commission earned 2017 2016 2015 $ 6,726,029 $ 6,647,600 $ 6,412,533 750,934 896,101 837,460 (1,216,455) (1,119,788) (1,060,478) $ 6,260,508 $ 6,423,913 $ 6,189,515 $ 6,661,046 $ 6,492,240 $ 6,245,714 812,309 900,570 845,735 (1,161,936) (1,099,462) (1,050,840) $ $ $ 6,311,419 601,769 241,983 $ $ $ 6,293,348 707,336 201,957 $ $ $ 6,040,609 501,999 173,288 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 $1,010,000 , $1,049,000 and $1,020,000 as of December 31, 2017 , 2016 and 2015 , respectively. 92 1012270in_10k.indd 97 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000The following table presents the amounts due from reinsurers as of December 31, 2017 : (In thousands) Munich Re Lloyd’s of London Alleghany Group Swiss Re Partner Re Axis Capital Hannover Re Group Berkshire Hathaway Everest Re Korean Re Chubb Limited Renaissance Re Liberty Mutual Arch Capital Group Other reinsurers less than $20,000 Subtotal Residual market pools Total (16) Indebtedness $ $ 156,368 152,934 152,468 129,369 87,491 82,803 64,011 56,892 50,387 44,072 30,977 27,095 22,629 21,310 293,134 1,371,940 411,260 1,783,200 Indebtedness consisted of the following as of December 31, 2017 (the difference between the face value and the carrying value is unamortized discount and debt issuance costs): (In thousands) Senior notes due on: August 15, 2019 September 15, 2019 September 15, 2020 January 1, 2022 March 15, 2022 February 15, 2037 August 1, 2044 Subsidiary debt (1) Total senior notes and other debt Subordinated debentures due on: April 30, 2053 March 1, 2056 June 1, 2056 Total subordinated debentures Interest Rate Face Value 2017 2016 Carrying Value 6.15% 7.375% 5.375% 8.7% 4.625% 6.25% 4.75% Various 5.625% 5.9% 5.75% $ 140,651 $ 140,434 $ 300,000 300,000 76,503 350,000 250,000 350,000 12,517 1,779,671 350,000 110,000 290,000 $ $ 299,562 299,083 76,210 348,252 247,896 345,099 12,516 1,769,052 340,838 106,055 281,325 $ $ 750,000 $ 728,218 $ $ $ $ 140,301 299,308 298,747 76,151 347,834 247,786 344,914 5,554 1,760,595 340,579 105,952 281,099 727,630 ________________ (1) Subsidiary debt is due as follows: $2 million in 2019 , $11 million in 2020 , and $0.03 million in 2022 . 93 1012270in_10k.indd 98 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(17) Income Taxes Income tax expense (benefits) consists of: (In thousands) December 31, 2017 Domestic Foreign Total expense December 31, 2016 Domestic Foreign Total expense December 31, 2015 Domestic Foreign Total expense Current Expense (Benefit) Deferred (Benefit) Expense Total $ $ $ $ $ $ 225,694 8,803 234,497 259,539 23,634 283,173 179,150 (2,318) 176,832 $ $ $ $ $ $ (27,601) $ 12,537 (15,064) $ 198,093 21,340 219,433 3,355 6,425 9,780 31,145 19,946 51,091 $ $ $ $ 262,894 30,059 292,953 210,295 17,628 227,923 Income before income taxes from domestic operations was $797 million , $837 million and $689 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. Income (loss) before income taxes from foreign operations was ($25) million , $59 million and $43 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. A reconciliation of the income tax expense and the amounts computed by applying the Federal and foreign income tax rate of 35% to pre-tax income are as follows: (In thousands) Computed “expected” tax expense Tax-exempt investment income Change in valuation allowance Impact of foreign tax rates State and local taxes Impact of change in U.S. tax rate Other, net Total expense 2017 2016 2015 $ 270,470 $ 313,753 $ (37,209) 11,161 3,508 1,644 (30,531) 390 (37,379) 1,420 1,984 7,748 — 5,427 256,210 (39,283) 2,702 4,447 940 — 2,907 $ 219,433 $ 292,953 $ 227,923 94 1012270in_10k.indd 99 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000At December 31, 2017 and 2016 , the tax effects of differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows: (In thousands) Deferred tax asset: Loss reserve discounting Unearned premiums Net operating losses Other-than-temporary impairments Employee compensation plans Other Gross deferred tax asset Less valuation allowance Deferred tax asset Deferred tax liability: Amortization of intangibles Deferred policy acquisition costs Unrealized investment gains Property, furniture and equipment Investment funds Other Deferred tax liability Net deferred tax liability 2017 2016 $ 70,206 $ 110,854 33,043 8,204 59,037 49,346 330,690 (16,619) 314,071 12,826 100,020 151,162 31,865 41,104 63,858 400,835 $ 86,764 $ 86,659 187,522 6,179 26,139 90,998 79,842 477,339 (5,457) 471,882 21,192 173,481 238,232 34,857 85,075 53,410 606,247 134,365 The Company had a current tax payable of $11,327,000 and a receivable of $14,768,000 at December 31, 2017 and 2016 , respectively. At December 31, 2017 , the Company had foreign net operating loss carryforwards of $6.3 million that expire beginning in 2027, and an additional $156.6 million that have no expiration date. At December 31, 2017 , the Company had a valuation allowance of $16.6 million , as compared to $5.5 million at December 31, 2016 . The Company has provided a valuation allowance against future tax benefits of certain foreign operations. The statute of limitations has closed for the Company’s U.S. Federal tax returns through December 31, 2013. The realization of the deferred tax asset is dependent upon the Company’s ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future current operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset. The Tax Cuts and Jobs Act of 2017 (the Tax Act) was enacted on December 22, 2017. The Tax Act provides for a reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also provides for a mandatory repatriation of foreign earnings, which requires companies to pay a one-time tax on the unremitted accumulated earnings of their foreign subsidiaries. The Company has calculated the effects of the Tax Act as of December 31, 2017 and has included in its financial statements provisional estimates of its impact. The Company anticipates further guidance will be forthcoming and will continue to review and refine its calculations as guidance is provided and additional analysis of the Company's information is completed. In 2017, the Company reported a net tax benefit related to the Tax Act in the amount of $20.7 million . This included a tax benefit due to the reduction of the tax rate as applied to the net U.S. deferred tax liability in the amount of $30.5 million . Offsetting this tax benefit, the Company recorded a provisional charge of $9.8 million on the deemed repatriation of earnings and related impact of utilization of foreign losses. The charge may be adjusted as the applicable earnings related to the foreign subsidiaries are finalized for the purpose of the mandatory repatriation inclusion computation. 95 1012270in_10k.indd 100 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000As noted above, as a result of the mandatory repatriation provision of the Tax Act, the Company recognized a tax on the undistributed earnings of its foreign subsidiaries. The Company intends to continue its policy to permanently reinvest the undistributed earnings of its foreign subsidiaries. The U.S. tax law requires insurance reserves to be discounted and new guidance on the appropriate discount rates required by the Tax Act has not yet been published. The Company has not included a provisional amount for the impact of the Tax Act on the tax deductible insurance reserves. (18) Dividends from Subsidiaries and Statutory Financial Information The Company’s insurance subsidiaries are restricted by law as to the amount of dividends they may pay without the approval of regulatory authorities. The Company’s lead insurer, Berkley Insurance Company (BIC), directly or indirectly owns all of the Company’s other insurance companies. During 2018 , the maximum amount of dividends that can be paid by BIC without such approval is approximately $699 million . BIC’s combined net income and statutory capital and surplus, as determined in accordance with statutory accounting practices (SAP), are as follows: (In thousands) Net income Statutory capital and surplus 2017 2016 $ $ 698,862 5,479,603 $ $ 702,830 5,493,044 $ $ 2015 813,303 5,296,435 The significant variances between SAP and GAAP are that for statutory purposes bonds are carried at amortized cost, acquisition costs are charged to income as incurred, deferred Federal income taxes are subject to limitations, excess and assumed workers’ compensation reserves are discounted at different discount rates and certain assets designated as “non-admitted assets” are charged against surplus. The Commissioner of Insurance of the State of Delaware has allowed BIC to discount non-tabular workers' compensation loss reserves, which is a permitted practice that differs from SAP. The effect of using this permitted practice was an increase to BIC’s statutory capital and surplus by $277 million at December 31, 2017 . The National Association of Insurance Commissioners (“NAIC”) has risk-based capital (“RBC”) requirements that require insurance companies to calculate and report information under a risk-based formula which measures statutory capital and surplus needs based on a regulatory definition of risk in a company’s mix of products and its balance sheet. This guidance is used to calculate two capital measurements: Total Adjusted Capital and RBC Authorized Control Level. Total Adjusted Capital is equal to the Company’s statutory capital and surplus excluding capital and surplus derived from the use of permitted practices that differ from statutory accounting practices. RBC Authorized Control Level is the capital level used by regulatory authorities to determine whether remedial action is required. Generally, no remedial action is required if Total Adjusted Capital is 200% or more of the RBC Authorized Control Level. At December 31, 2017 , BIC’s Total Adjusted Capital of $5.203 billion was 397% of its RBC Authorized Control Level. See Note 4, Investments in Fixed Maturity Securities, for a description of assets held on deposit as security. 96 1012270in_10k.indd 101 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 (19) Common Stockholders’ Equity The weighted average number of shares used in the computation of net income per share was as follows: Basic Diluted 2017 124,843,240 129,017,613 2016 122,650,997 128,552,838 2015 124,040,313 130,188,866 Treasury shares have been excluded from average outstanding shares from the date of acquisition. The weighted average number of basic shares outstanding includes the impact of 4,847,303 common shares held in a grantor trust established in March 2017. The common shares held in the grantor trust are for delivery upon settlement of vested but mandatorily deferred restricted stock units ("RSUs"). Shares held by the grantor trust do not affect diluted shares outstanding since shares deliverable under vested RSUs were already included in diluted shares outstanding. The difference in calculating basic and diluted net income per share is attributable entirely to the dilutive effect of stock-based compensation plans. Changes in shares of common stock outstanding, net of treasury shares, are presented below. Shares of common stock issued and outstanding do not include shares related to unissued restricted stock units (including shares held in the grantor trust). Balance, beginning of year Shares issued Shares repurchased Balance, end of year 2017 2016 2015 121,193,599 123,307,837 1,052,256 (731,003) 281,654 (2,395,892) 121,514,852 121,193,599 126,748,836 1,061,026 (4,502,025) 123,307,837 The amount of dividends paid is dependent upon factors such as the receipt of dividends from our subsidiaries, our results of operations, cash flow, financial condition and business needs, the capital and surplus requirements of our subsidiaries, and applicable insurance regulations that limit the amount of dividends that may be paid by our regulated insurance subsidiaries. (20) Fair Value of Financial Instruments The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of December 31, 2017 and 2016 : (In thousands) Assets: Fixed maturity securities Equity securities available for sale Arbitrage trading account Loans receivable Cash and cash equivalents Trading accounts receivable from brokers and clearing organizations Liabilities: Due to broker Trading account securities sold but not yet purchased Subordinated debentures Senior notes and other debt 2017 2016 Carrying Value Fair Value Carrying Value Fair Value $ 13,551,250 $ 13,566,976 $ 13,190,668 $ 13,204,814 576,647 617,649 79,684 950,471 189,280 15,920 64,358 728,218 1,769,052 576,647 617,649 82,047 950,471 189,280 15,920 64,358 769,060 1,945,313 669,200 299,999 106,798 795,285 484,593 19,416 51,179 727,630 1,760,595 669,200 299,999 108,299 795,285 484,593 19,416 51,179 687,504 1,914,727 The estimated fair values of the Company’s fixed maturity securities, equity securities available for sale and arbitrage trading account securities are based on various valuation techniques that rely on fair value measurements as described in Note 13 above. The fair value of loans receivable is estimated by using current institutional purchaser yield requirements for loans with similar credit characteristics, which is considered a Level 2 input. The fair value of the senior notes and other debt and the subordinated debentures is based on spreads for similar securities, which is considered a Level 2 input. 97 1012270in_10k.indd 102 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 (21) Lease Obligations The Company and its subsidiaries use office space and equipment under leases expiring at various dates. These leases are considered operating leases for financial reporting purposes. Some of these leases have options to extend the length of the leases and contain clauses for cost of living, operating expense and real estate tax adjustments. Future minimum lease payments, without provision for sublease income, are: $ 50,117,000 in 2018 ; $ 41,326,000 in 2019 ; $ 38,721,000 in 2020 ; $34,982,000 in 2021 , 29,720,000 in 2022 and $ 92,086,000 thereafter. Rental expense was $52,925,000 , $ 47,453,000 , and $ 46,271,000 for 2017 , 2016 , and 2015 respectively. (22) Commitments, Litigation and Contingent Liabilities In the ordinary course of business, the Company is subject to disputes, litigation and arbitration arising from its insurance and reinsurance businesses. These matters are generally related to insurance and reinsurance claims and are considered in the establishment of loss and loss expense reserves. In addition, the Company may also become involved in legal actions which seek extra-contractual damages, punitive damages or penalties, including claims alleging bad faith in handling of insurance claims. The Company expects its ultimate liability with respect to such matters will not be material to its financial condition. However, adverse outcomes on such matters are possible, from time to time, and could be material to the Company’s results of operations in any particular financial reporting period. At December 31, 2017 , the Company had commitments to invest up to $406.2 million and $359.7 million in certain investment funds and real estate construction projects, respectively. (23) Stock Incentive Plan Pursuant to the Company's stock incentive plan, the Company may issue restricted stock units (RSUs) to employees of the Company and its subsidiaries. The RSUs generally vest three to five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. The following table summarizes RSU information for the three years ended December 31, 2017 : RSUs granted and unvested at beginning of period: Granted Vested Canceled RSUs granted and unvested at end of period: 2017 4,862,098 855,984 (1,993,507) (246,594) 3,477,981 2016 4,158,325 1,000,559 (77,250) (219,536) 4,862,098 2015 5,330,445 997,522 (1,938,000) (231,642) 4,158,325 Upon vesting, shares of the Company’s common stock equal to the number of vested RSUs are issued or deferred to a later date, depending on the terms of the specific award agreement. As of December 31, 2017 , 5,027,614 RSUs had been deferred. RSUs that have not yet vested and vested RSUs that have been deferred are not considered to be issued and outstanding shares. The fair value of RSUs at the date of grant are recorded as unearned compensation, a component of stockholders’ equity, and expensed over the vesting period. Following is a summary of changes in unearned compensation for the three years ended December 31, 2017 : (In thousands) Unearned compensation at beginning of year RSUs granted, net of cancellations RSUs expensed RSUs forfeitures Unearned compensation at end of year 2017 2016 2015 115,965 $ 103,538 $ 52,897 (38,796) (7,156) 52,697 (35,585) (4,685) 88,015 50,442 (30,691) (4,228) 122,910 $ 115,965 $ 103,538 $ $ 98 1012270in_10k.indd 103 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 (24) Compensation Plans The Company and its subsidiaries have profit sharing plans in which substantially all employees participate. The plans provide for minimum annual contributions of 5% of eligible compensation; contributions above the minimum are discretionary and vary with each participating subsidiary’s profitability. Employees become eligible to participate in the plan on the first day of the calendar quarter following the first full calendar quarter after the employee's date of hire provided the employee has completed 250 hours of service during the calendar quarter. The plans provide that 40% of the contributions vest immediately and that the remaining 60% vest at varying percentages based upon years of service. Profit sharing expense was $42 million , $39 million and $42 million in 2017 , 2016 and 2015 , respectively. The Company has a long-term incentive compensation plan ("LTIP") that provides for compensation to key executives based on the growth in the Company's book value per share over a five year period. The following table summarizes the outstanding LTIP awards as of December 31, 2017 : 2013 grant 2014 grant 2015 grant 2016 grant 2017 grant Units Outstanding Maximum Value Inception to date earned through December 31, 2017 on outstanding units 194,250 $ 48,562,500 $ 207,000 208,500 229,250 227,000 20,700,000 20,850,000 22,925,000 22,700,000 38,958,780 12,916,800 10,800,300 7,581,298 3,162,110 The following table summarizes the LTIP expense for each of the three years ended December 31, 2017 : (In thousands) 2011 grant 2013 grant 2014 grant 2015 grant 2016 grant 2017 grant Total (25) Supplemental Financial Statement Data Other operating costs and expenses consist of the following: (In thousands) Amortization of deferred policy acquisition costs Insurance operating expenses Insurance service expenses Net foreign currency losses (gains) Other costs and expenses Total 99 2017 2016 2015 $ — $ (82) $ 7,667 3,167 3,667 3,601 3,162 8,918 3,503 4,072 4,002 — 7,397 7,336 2,935 3,205 — — $ 21,264 $ 20,413 $ 20,873 2017 2016 2015 $ 1,111,489 $ 1,155,954 $ 1,102,492 989,535 129,776 15,267 190,865 933,249 138,908 (11,904) 179,412 903,006 127,365 400 156,487 $ 2,436,932 $ 2,395,619 $ 2,289,750 1012270in_10k.indd 104 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 (26) Industry Segments The Company’s reportable segments include the following two business segments, plus a corporate segment: Insurance - predominantly commercial insurance business, including excess and surplus lines, admitted lines and specialty personal lines throughout the • United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia. Reinsurance - reinsurance business on a facultative and treaty basis, primarily in the United States, United Kingdom, Continental Europe, Australia, the • Asia-Pacific region and South Africa. Commencing with the first quarter of 2017 , the Company reclassified two businesses from the Insurance segment to the Reinsurance segment. Reclassifications have been made to the Company's prior periods financial information to conform with this presentation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Income tax expense and benefits are calculated based upon the Company’s overall effective tax rate. Summary financial information about the Company’s reporting segments is presented in the following table. Income before income taxes by segment includes allocated investment income. Identifiable assets by segment are those assets used in or allocated to the operation of each segment. (In thousands) December 31, 2017 Insurance (2) Reinsurance Corporate, other and eliminations (3) Net investment gains Consolidated December 31, 2016 Insurance Reinsurance Corporate, other and eliminations (3) Net investment gains Consolidated December 31, 2015 Insurance Reinsurance Corporate, other and eliminations (3) Net investment gains Consolidated Revenues Earned Premiums Investment Income Other Total (1) Pre-Tax Income (Loss) Net Income (Loss) to Common Stockholders $ 5,706,443 $ 436,178 $ 86,864 $ 6,229,485 $ 756,153 $ 604,976 — — 91,146 48,464 — — 374,835 335,858 696,122 423,299 335,858 (15,276) (303,965) 335,858 $ 6,311,419 $ 575,788 $ 797,557 $ 7,684,764 $ 772,770 $ $ 5,618,842 $ 431,489 $ 97,879 $ 6,148,210 $ 799,139 $ 674,506 — — 102,617 30,057 — — 431,789 267,005 777,123 461,846 267,005 98,277 (267,983) 267,005 $ 6,293,348 $ 564,163 $ 796,673 $ 7,654,184 $ 896,438 $ $ 5,393,166 $ 386,801 $ 96,487 $ 5,876,454 $ 748,515 $ 647,443 — — 97,882 27,962 — — 464,392 92,324 745,325 492,354 92,324 122,930 (231,739) 92,324 $ 6,040,609 $ 512,645 $ 653,203 $ 7,206,457 $ 732,030 $ 100 535,186 (5,131) (199,269) 218,308 549,094 534,613 68,400 (174,650) 173,553 601,916 512,426 86,487 (155,230) 60,011 503,694 1012270in_10k.indd 105 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 (In thousands) Insurance Reinsurance Corporate, other and eliminations(2) Consolidated Identifiable Assets December 31, 2017 2016 19,263,193 $ 19,026,658 3,169,731 1,866,993 2,635,438 1,702,748 24,299,917 $ 23,364,844 $ $ _______________________________________ (1) Revenues for Insurance includes $688.2 million , $733.3 million and $786.9 million in 2017, 2016 and 2015, respectively, from foreign countries. Revenues for Reinsurance includes $201.3 million , $200.5 million and $223.4 million in 2017, 2016 and 2015, respectively, from foreign countries. (2) Net income (loss) to common stockholders for 2017 within the Insurance segment includes a net $21 million benefit related to tax reform. (3) Corporate, other and eliminations represent corporate revenues and expenses and other items that are not allocated to business segments. Net premiums earned by major line of business are as follows: (In thousands) Insurance Other liability Workers' compensation Short-tail lines Commercial automobile Professional liability Total Insurance Reinsurance Casualty Property Total Reinsurance Total 2017 2016 2015 $ 1,843,826 $ 1,761,748 $ 1,614,453 1,481,507 1,184,799 650,441 545,870 1,402,611 1,280,091 642,452 531,940 1,355,631 1,277,538 674,078 471,466 5,706,443 5,618,842 5,393,166 377,650 227,326 604,976 405,470 269,036 674,506 438,800 208,643 647,443 $ 6,311,419 $ 6,293,348 $ 6,040,609 101 1012270in_10k.indd 106 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(27) Quarterly Financial Information (Unaudited) The following is a summary of quarterly financial data: (In thousands, except per share data) 2017 Three months ended Revenues Net income Net income per share (1) Basic (2) Diluted Three months ended Revenues Net income Net income per share (1) Basic Diluted March 31 June 30 September 30 December 31 $ 1,870,418 $ 1,848,049 $ 2,031,342 $ 123,447 109,004 162,054 1.01 0.96 0.87 0.85 2016 1.29 1.26 1,934,956 154,589 1.22 1.21 March 31 June 30 September 30 December 31 $ 1,807,211 $ 1,855,914 $ 2,019,727 $ 119,511 108,967 220,650 0.97 0.93 0.89 0.85 1.80 1.72 1,971,333 152,790 1.26 1.20 _______________________________________ (1) Net income per share (“EPS”) in each quarter is computed using the weighted-average number of shares outstanding during that quarter, while EPS for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters EPS does not necessarily equal the full-year EPS. (2) Basic shares outstanding includes shares held in a grantor trust established in March 2017. 102 1012270in_10k.indd 107 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES The Company's management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this annual 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 Exchange Act and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. During the quarter ended December 31, 2017 , there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Management's Report On Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2017. 103 1012270in_10k.indd 108 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors W. R. Berkley Corporation: Opinion on Internal Control Over Financial Reporting We have audited W. R. Berkley Corporation and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedules II to VI (collectively, the "consolidated financial statements”), and our report dated February 23, 2018 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. New York, New York February 23, 2018 /S/ KPMG LLP 104 1012270in_10k.indd 109 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000ITEM 9B. OTHER INFORMATION None. 105 1012270in_10k.indd 110 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Reference is made to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , and which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Reference is made to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , and which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (a) Security ownership of certain beneficial owners Reference is made to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , and which is incorporated herein by reference. (b) Security ownership of management Reference is made to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , and which is incorporated herein by reference. (c) Changes in control Reference is made to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , and which is incorporated herein by reference. (d) Equity compensation plan information Reference is made to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , and which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Reference is made to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , and which is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Reference is made to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2017 , and which is incorporated herein by reference. 106 1012270in_10k.indd 111 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Index to Financial Statements The schedules to the consolidated financial statements listed below should be read in conjunction with the consolidated financial statements included in this Annual Report on Form 10-K. Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or required information is shown in the financial statements or notes thereto. Index to Financial Statement Schedules Schedule II — Condensed Financial Information of Registrant Schedule III — Supplementary Insurance Information Schedule IV — Reinsurance Schedule V — Valuation and Qualifying Accounts Schedule VI — Supplementary Information Concerning Property — Casualty Insurance Operations 107 Page 112 116 117 118 119 1012270in_10k.indd 112 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(b) Exhibits Number ( 3.1 ) ( 3.2 ) ( 3.3 ) ( 3.4 ) ( 4.1 ) ( 4.2 ) ( 4.3 ) ( 4.4 ) ( 4.5 ) ( 4.6 ) ( 4.7 ) ( 4.8 ) ( 4.9 ) EXHIBITS The Company’s Restated Certificate of Incorporation, as amended through May 10, 2004 (incorporated by reference to Exhibits 3.1 and 3.2 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 6, 2003). Amendment, dated May 11, 2004, to the Company’s Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly report on Form 10-Q (File No. 1-15202) filed with the Commission on August 5, 2004). Amendment, dated May 16, 2006, to the Company’s Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on May 17, 2006). Amended and Restated By-Laws (incorporated by reference to Exhibit 3 (ii) of the Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on August 5, 2015). Indenture, dated as of February 14, 2003, between the Company and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission of March 31, 2003). Third Supplemental Indenture, dated as of August 24, 2004, between the Company and The Bank of New York, as Trustee, relating to $150,000,000 principal amount of the Company’s 6.150% Senior Notes due 2019, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.4 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission on March 14, 2005). Fifth Supplemental Indenture, dated as of February 9, 2007, between the Company and The Bank of New York, as Trustee, relating to $250,000,000 principal amount of the Company’s 6.25% Senior Notes due 2037, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.7 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission on March 1, 2007). Sixth Supplemental Indenture, dated as of September 14, 2009, between the Company and The Bank of New York Mellon, as Trustee, relating to $300,000,000 principal amount of the Company’s 7.375% Senior Notes due 2019, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.7 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission on February 26, 2010). Seventh Supplemental Indenture, dated as of September 16, 2010, between the Company and The Bank of New York Mellon, as Trustee, relating to $300,000,000 principal amount of the Company’s 5.375% Senior Notes due 2020, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on September 16, 2010). Eighth Supplemental Indenture, dated as of March 16, 2012, between the Company and The Bank of New York Mellon, as Trustee, relating to $350,000,000 principal amount of the Company’s 4.625% Senior Notes due 2022, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K (File No. 1-15202) filed with the Commission on March 16, 2012). Ninth Supplemental Indenture, dated as of August 6, 2014, between the Company and The Bank of New York Mellon, as Trustee, relating to $350,000,000 principal amount of the Company’s 4.75% Senior Notes due 2044, including form of the Notes as Exhibit A (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K (File No. 1-15202) filed with the Commission on August 6, 2014). Subordinated Indenture, dated as of May 2, 2013, between the Company and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K (File No. 1-15202) filed with the Commission on May 2, 2013). First Supplemental Indenture, dated as of May 2, 2013, between the Company and The Bank of New York Mellon, as Trustee, relating to $350,000,000 principal amount of the Company's 5.625% Subordinated Debentures due 2053, including the form of the Securities as Exhibit A (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K (File No. 1-15202) filed with the Commission on May 2, 2013). 108 1012270in_10k.indd 113 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000( 4.10 ) Subordinated Indenture, dated as of March 1, 2016, between the Company and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K (File No. 1-15202) filed with the Commission on March 1, 2016). ( 4.11 ) ( 4.12 ) First Supplemental Indenture, dated as of March 1, 2016, between the Company and The Bank of New York Mellon, as Trustee, relating to $110,000,000 principal amount of the Company's 5.9% Subordinated Debentures due 2056, including the form of the Securities as Exhibit A (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K (File No. 1-15202) filed with the Commission on March 1, 2016). Second Supplemental Indenture, dated as of May 25, 2016, between the Company and The Bank of New York Mellon, as Trustee, relating to $290,000,000 principal amount of the Company's 5.75% Subordinated Debentures due 2056, including the form of the Securities as Exhibit A (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K (File No. 1-15202) filed with the Commission on May 25, 2016). (4.13) The instruments defining the rights of holders of the other long term debt securities of the Company are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company agrees to furnish supplementally copies of these instruments to the Commission upon request. ( 10.1 ) W. R. Berkley Corporation 2003 Stock Incentive Plan (incorporated by reference to Annex A of the Company’s 2003 Proxy Statement (File No. 1- 15202) filed with the Commission on April 14, 2003). ( 10.2 ) W. R. Berkley Corporation 2012 Stock Incentive Plan (incorporated by reference to Annex A of the Company’s 2015 Proxy Statement (File No. 1- 15202) filed with the Commission on April 20, 2015). ( 10.3 ) Form of 2014 Performance-Based Restricted Stock Unit Agreement under the W. R. Berkley Corporation 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on November 7, 2014). ( 10.4 ) Form of 2015 Performance-Based Restricted Stock Unit Agreement under the W. R. Berkley Corporation 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on November 9, 2015). ( 10.5 ) Form of Restricted Stock Unit Agreement under the W. R. Berkley Corporation 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on November 8, 2012). ( 10.6 ) Form of Restricted Stock Unit Agreement under the W. R. Berkley Corporation 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on May 3, 2005). ( 10.7 ) Form of Restricted Stock Unit Agreement under the W. R. Berkley Corporation 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 6, 2010). ( 10.8 ) Form of Restricted Stock Unit Agreement for grant of April 4, 2003 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 6, 2003). ( 10.9 ) W. R. Berkley Corporation Deferred Compensation Plan for Officers as amended and restated effective December 3, 2007 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on December 19, 2007). ( 10.10 ) W. R. Berkley Corporation Deferred Compensation Plan for Directors as amended and restated effective December 3, 2007 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on December 19, 2007). ( 10.11 ) W. R. Berkley Corporation 2007 Annual Incentive Compensation Plan (incorporated by reference to Annex A of the Company’s 2006 Proxy Statement (File No. 1-15202) filed with the Commission on April 18, 2006). ( 10.12 ) W. R. Berkley Corporation Amended and Restated Annual Incentive Compensation Plan (incorporated by reference to Annex A of the Company's 2016 Proxy Statement (File No. 1-15202) filed with the Commission on April 15, 2016). 109 1012270in_10k.indd 114 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000( 10.13 ) W. R. Berkley Corporation 2009 Long-Term Incentive Plan (incorporated by reference to Annex A of the Company’s 2009 Proxy Statement (File No. 1-15202) filed with the Commission on April 17, 2009). ( 10.14 ) Form of 2011 Performance Unit Award Agreement under the W. R. Berkley Corporation 2009 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K (File No. 1-15202) filed with the Commission on February 28, 2012). ( 10.15 ) W. R. Berkley Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Annex A of the Company’s 2014 Proxy Statement (File No. 1-15202) filed with the Commission on April 7, 2014). ( 10.16 ) Form of 2014 Performance Unit Award Agreement under the W. R. Berkley Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on May 12, 2014). ( 10.17 ) Form of 2015 Performance Unit Award Agreement under the W. R. Berkley Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on May 4, 2015). ( 10.18 ) Form of 2016 Performance Unit Award Agreement under the W. R. Berkley Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on May 10, 2016). ( 10.19 ) W. R. Berkley Corporation 2009 Directors Stock Plan (incorporated by reference to Annex B of the Company’s 2015 Proxy Statement (File No. 1- 15202) filed with the Commission on April 20, 2015). ( 10.20 ) Supplemental Benefits Agreement between William R. Berkley and the Company as amended and restated as of December 21, 2011 (incorporated by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K (File No. 1-15202) filed with the Commission on February 28, 2012). ( 10.21 ) Form of Dividend Equivalent Rights Award Agreement Under the W. R. Berkley Corporation 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on August 7, 2015). ( 10.22 ) Form of 2017 Performance-Based Restricted Stock Unit Agreement Under the W. R. Berkley Corporation 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) filed with the Commission on November 8, 2017). ( 14 ) Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 of the Company’s Annual Report on Form 10-K (File No. 1- 15202) filed with the Commission on March 14, 2005). ( 21 ) List of the Company’s subsidiaries. ( 23 ) Consent of Independent Registered Public Accounting Firm. ( 31.1 ) Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/ 15d-14(a). ( 31.2 ) Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/ 15d-14(a). ( 32.1 ) Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ITEM 16. FORM 10-K Summary None. 110 1012270in_10k.indd 115 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Pursuant to the requirements of Section 13 or 15(d) 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. SIGNATURES W. R. BERKLEY CORPORATION By /s/ W. Robert Berkley, Jr. W. Robert Berkley, Jr., President and Chief Executive Officer February 23, 2018 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ William R. Berkley William R. Berkley /s/ W. Robert Berkley, Jr. W. Robert Berkley, Jr. /s/ Christopher L. Augostini Christopher L. Augostini /s/ Ronald E. Blaylock Ronald E. Blaylock /s/ Mark E. Brockbank Mark E. Brockbank /s/ Mary C. Farrell Mary C. Farrell /s/ María Luisa Ferré María Luisa Ferré /s/ Jack H. Nusbaum Jack H. Nusbaum /s/ Mark L. Shapiro Mark L. Shapiro /s/ Richard M. Baio Richard M. Baio Executive Chairman of the Board of Directors February 23, 2018 President, Chief Executive Officer February 23, 2018 and Director (Principal executive officer) Director February 23, 2018 Director Director Director Director Director Director February 23, 2018 February 23, 2018 February 23, 2018 February 23, 2018 February 23, 2018 February 23, 2018 Senior Vice President, February 23, 2018 Chief Financial Officer and Treasurer (Principal financial officer and principal accounting officer) 111 1012270in_10k.indd 116 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. Berkley Corporation Condensed Financial Information of Registrant Balance Sheets (Parent Company) Schedule II (In thousands) Assets: Cash and cash equivalents Fixed maturity securities available for sale at fair value (cost $1,059,834 and $899,206 at December 31, 2017 and 2016, respectively) Loans receivable Equity securities available for sale, at fair value (cost $3,430 in 2017 and 2016) Investment in subsidiaries Current federal income taxes Property, furniture and equipment at cost, less accumulated depreciation Other assets Total assets Liabilities and stockholders’ equity Liabilities: Due to subsidiaries Other liabilities Current federal income taxes Deferred federal income taxes Subordinated debentures Senior notes Total liabilities Stockholders’ equity: Preferred stock Common stock Additional paid-in capital Retained earnings (including accumulated undistributed net income of subsidiaries of $5,073,268 and $4,850,878 at December 31, 2017 and 2016, respectively) Accumulated other comprehensive income Treasury stock, at cost Total stockholders’ equity Total liabilities and stockholders’ equity ________________ See Report of Independent Registered Public Accounting Firm and note to condensed financial statements. 112 December 31, 2017 2016 $ 45,062 $ 124,803 $ $ 1,052,240 53,019 3,430 894,748 23,419 3,430 7,140,108 6,891,246 — 14,421 10,819 15,455 14,798 7,122 8,319,099 $ 7,975,021 232,756 $ 128,002 10,486 51,757 728,218 1,756,536 2,907,755 — 47,024 234,014 120,160 — 90,966 727,630 1,755,043 2,927,813 — 47,024 1,048,283 1,037,446 6,956,882 68,541 (2,709,386) 5,411,344 $ 8,319,099 $ 6,595,987 55,568 (2,688,817) 5,047,208 7,975,021 1012270in_10k.indd 117 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. Berkley Corporation Condensed Financial Information of Registrant, Continued Statements of Income (Parent Company) Schedule II, Continued (In thousands) Management fees and investment income including dividends from subsidiaries of $694,462, Year Ended December 31, 2017 2016 2015 $700,664 and $642,421 for the years ended December 31, 2017, 2016 and 2015, respectively $ 738,923 $ 726,742 $ 655,318 Net investment (losses) gains Other income Total revenues Operating costs and expense Interest expense Income before federal income taxes Federal income taxes: Federal income taxes provided by subsidiaries on a separate return basis Federal income tax expense on a consolidated return basis Net expense Income before undistributed equity in net income of subsidiaries Equity in undistributed net income of subsidiaries Net income ________________ (4,286) 805 735,442 182,145 146,929 406,368 115,597 (195,261) (79,664) 326,704 222,390 909 376 728,027 171,967 139,216 416,844 327,520 (246,389) 81,131 497,975 103,941 $ 549,094 $ 601,916 $ 696 348 656,362 143,391 128,248 384,723 272,180 (199,322) 72,858 457,581 46,113 503,694 See Report of Independent Registered Public Accounting Firm and note to condensed financial statements. 113 1012270in_10k.indd 118 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. Berkley Corporation Condensed Financial Information of Registrant, Continued Statements of Cash Flows (Parent Company) Schedule II, Continued (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash from operating activities: Net investment gains (losses) Depreciation and amortization Equity in undistributed earnings of subsidiaries Tax payments received from subsidiaries Federal income taxes provided by subsidiaries on a separate return basis Stock incentive plans Change in: Federal income taxes Other assets Other liabilities Accrued investment income Net cash from operating activities Cash (used in) from investing activities: Proceeds from sales of fixed maturity securities Proceeds from maturities and prepayments of fixed maturity securities Proceeds from sales of equity securities Cost of purchases of fixed maturity securities Change in loans receivable Investments in and advances to subsidiaries, net Net additions to real estate, furniture & equipment Net cash (used in) from investing activities Cash (used in) from financing activities: Net proceeds from issuance of senior notes Repayment of senior notes Purchase of common treasury shares Cash dividends to common stockholders Net cash (used in) from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year ________________ See Report of Independent Registered Public Accounting Firm and note to condensed financial statements. 114 Year Ended December 31, 2017 2016 2015 $ 549,094 $ 601,916 $ 503,694 4,286 2,039 (222,390) 98,313 (115,597) 38,075 2,711 (877) 18,661 (2,818) 371,497 849,330 316,611 — 3,649 2,744 (103,941) 414,386 (327,520) 37,174 44,839 1,772 (88,282) (2,743) 583,994 373,252 210,904 — (696) 2,693 (46,113) 311,482 (272,180) 29,725 51,772 301 (92,752) 524 488,450 380,986 123,639 308 (1,329,379) (1,285,101) (432,645) (29,600) (21,139) (1,055) (23,419) 11,471 (3,042) (215,232) (715,935) — — (47,807) (188,199) (236,006) (79,741) 124,803 386,830 (9,353) (132,392) (183,999) 61,086 (70,855) 195,658 $ 45,062 $ 124,803 $ — 30,338 (4,425) 98,201 — (200,000) (223,652) (58,034) (481,686) 104,965 90,693 195,658 1012270in_10k.indd 119 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. Berkley Corporation Condensed Financial Information of Registrant, Continued December 31, 2017 Note to Condensed Financial Statements (Parent Company) The accompanying condensed financial statements should be read in conjunction with the notes to consolidated financial statements included elsewhere herein. Reclassifications have been made in the 2016 and 2015 financial statements as originally reported to conform them to the presentation of the 2017 financial statements. The Company files a consolidated federal tax return with the results of its domestic insurance subsidiaries included on a statutory basis. Under present Company policy, federal income taxes payable by subsidiary companies on a separate-return basis are paid to W. R. Berkley Corporation, and the Company pays the tax due on a consolidated return basis. 115 1012270in_10k.indd 120 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. Berkley Corporation and Subsidiaries Supplementary Insurance Information December 31, 2017 , 2016 and 2015 Schedule III Deferred Policy Acquisition Cost Reserve for Losses and Loss Expenses Unearned Premiums Net Premiums Earned Net Investment Income Loss and Loss Expenses Amortization of Deferred Policy Acquisition Cost Other Operating Costs and Expenses Net Premiums Written $ 435,967 $ 9,820,258 $3,039,343 $5,706,443 $ 436,178 $3,516,996 $ 929,793 $1,026,545 $5,715,871 (In thousands) December 31, 2017 Insurance Reinsurance Total December 31, 2016 Insurance Reinsurance Total December 31, 2015 Insurance Reinsurance Corporate and adjustments — — — — 71,582 1,850,150 250,837 604,976 91,146 48,464 485,352 181,696 — — 44,349 254,549 544,637 — $ 507,549 $11,670,408 $ 3,290,180 $ 6,311,419 $ 575,788 $ 4,002,348 $ 1,111,489 $ 1,325,443 $ 6,260,508 $ 442,317 $ 9,445,210 $ 2,975,060 $ 5,618,842 $ 431,489 $ 3,430,139 $ 964,064 $ 954,858 $ 5,743,620 Corporate and adjustments — — — — 95,573 1,751,985 308,240 674,506 102,617 30,057 415,661 191,890 — — 71,305 213,502 680,293 — $ 537,890 $11,197,195 $ 3,283,300 $ 6,293,348 $ 564,163 $ 3,845,800 $ 1,155,954 $ 1,239,665 $ 6,423,913 $ 426,036 $ 8,857,342 $ 2,834,691 $ 5,393,166 $ 386,801 $ 3,279,219 $ 918,901 $ 927,095 $ 5,555,437 Corporate and adjustments — — — — 87,092 1,811,808 302,442 647,443 97,882 27,962 377,051 183,591 — — 64,477 195,686 634,078 — Total $ 513,128 $10,669,150 $ 3,137,133 $ 6,040,609 $ 512,645 $ 3,656,270 $ 1,102,492 $ 1,187,258 $ 6,189,515 __________________________ See Report of Independent Registered Public Accounting Firm. 116 1012270in_10k.indd 121 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. Berkley Corporation and Subsidiaries Reinsurance Years ended December 31, 2017 , 2016 and 2015 Schedule IV Premiums Written Direct Amount Ceded to Other Companies Assumed from Other Companies Net Amount Percentage of Amount Assumed to Net $ $ $ $ $ $ 6,707,916 18,113 6,726,029 6,634,540 13,060 6,647,600 6,395,806 16,727 6,412,533 $ $ $ $ $ $ 1,153,960 62,495 1,216,455 1,051,887 67,901 1,119,788 1,009,711 50,767 1,060,478 $ $ $ $ $ $ 161,915 589,019 750,934 160,967 735,134 896,101 169,342 668,118 837,460 $ $ $ $ $ $ 5,715,871 544,637 6,260,508 5,743,620 680,293 6,423,913 5,555,437 634,078 6,189,515 2.8% 108.1% 12.0% 2.8% 108.1% 13.9% 3.0% 105.4% 13.5% (In thousands, other than percentages) Year ended December 31, 2017 Insurance Reinsurance Total Year ended December 31, 2016 Insurance Reinsurance Total Year ended December 31, 2015 Insurance Reinsurance Total ___________________________ See Report of Independent Registered Public Accounting Firm. 117 1012270in_10k.indd 122 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000(In thousands) Year ended December 31, 2017 Premiums and fees receivable Due from reinsurers Deferred federal and foreign income taxes Loan loss reserves Total Year ended December 31, 2016 Premiums and fees receivable Due from reinsurers Deferred federal and foreign income taxes Loan loss reserves Total Year ended December 31, 2015 Premiums and fees receivable Due from reinsurers Deferred federal and foreign income taxes Loan loss reserves Total _______________________ See Report of Independent Registered Public Accounting Firm. W. R. Berkley Corporation and Subsidiaries Valuation and Qualifying Accounts Years ended December 31, 2017 , 2016 and 2015 Schedule V Opening Balance Additions- Charged to Expense Deduction- Amounts Written Off Ending Balance 26,569 $ 20,720 $ (7,363) $ 1,049 5,457 3,397 36,472 22,524 1,020 4,037 2,094 29,675 21,446 1,144 1,335 2,486 $ $ $ $ (29) 12,663 (14) 33,340 10,006 20 1,420 1,303 12,749 6,281 (24) 2,702 (392) $ $ $ $ (10) (1,501) — (8,874) $ 39,926 1,010 16,619 3,383 60,938 (5,961) $ 26,569 9 — — 1,049 5,457 3,397 (5,952) $ 36,472 (5,203) $ 22,524 (100) — — 1,020 4,037 2,094 26,411 $ 8,567 $ (5,303) $ 29,675 $ $ $ $ $ $ 118 1012270in_10k.indd 123 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000W. R. Berkley Corporation and Subsidiaries Supplementary Information Concerning Property-Casualty Insurance Operations Years Ended December 31, 2017 , 2016 and 2015 Schedule VI (In thousands) Deferred policy acquisition costs Reserves for losses and loss expenses Unearned premiums Net premiums earned Net investment income Losses and loss expenses incurred: Current year Prior years Loss reserve discount accretion Amortization of deferred policy acquisition costs Paid losses and loss expenses Net premiums written ___________________ See Report of Independent Registered Public Accounting Firm. 119 2017 2016 2015 $ 507,549 $ 537,890 $ 513,128 11,670,408 11,197,195 10,669,150 3,290,180 6,311,419 575,788 3,283,300 6,293,348 564,163 3,137,133 6,040,609 512,645 3,963,543 3,826,620 3,653,561 (5,165) 43,970 1,111,489 3,589,955 6,260,508 (29,904) 49,084 1,155,954 3,454,174 6,423,913 (46,713) 49,422 1,102,492 3,257,015 6,189,515 1012270in_10k.indd 124 3/13/18 6:39 PM Pleasecarefullydoafinalreviewofartandtexttoinsurecorrectnessandaccuracy.Digitalcolorrepresentationmaynotbeaccurate,useactualPantonecolorspecifications.Afterclient’sfinalapprovalisreceived,SandyAlexanderisnotresponsibleforerrorsorlegalcompliance.Anychangesmadeafterreceiptofclient’sfinalapprovalofartandtextisclient’sresponsibility.Dielinesandcall-outsexistonindividuallayerstoberemovedpriortoprocessing.Customer Name:Date:Operator:CSR:JobNumber:FileName:Page Size:File URL:200 Entin Road | Clifton, NewJersey 07014 | p 973.470.8100 | f 973.470.9269 |www.sandyinc.com13-Mar-181012270in_10k_T1012270insanjfs5.sa1.com/Sandy/1012270intmurrayBill RobsonINC Design_941K8.2500 X 12.0000Operating Units BERKLEY INSURANCE COMPANY 475 Steamboat Road Greenwich, Connecticut 06830 Tel: (203) 542 3800 William R. Berkley, Chairman W. Robert Berkley, Jr., President and Chief Executive Officer BERKLEY ACCIDENT AND HEALTH 2445 Kuser Road, Suite 201 Hamilton Square, New Jersey 08690 Tel: (609) 584 6990 www.berkleyah.com Christopher C. Brown, President and Chief Executive Officer INSURANCE ACADIA INSURANCE GROUP One Acadia Commons Westbrook, Maine 04092 Tel: (800) 773 4300 www.acadiainsurance.com Douglas M. Nelson, President Albany, New York Bedford, New Hampshire Colchester, Vermont Marlborough, Massachusetts Rocky Hill, Connecticut Syracuse, New York ADMIRAL INSURANCE GROUP 1000 Howard Boulevard, Suite 300 P. O. Box 5430 Mount Laurel, New Jersey 08054 Tel: (856) 429 9200 www.admiralins.com Scott R. Barraclough, President Tel: (800) 773 4300 Tel: (800) 224 8850 Tel: (800) 224 8847 Tel: (888) 665 1170 Tel: (866) 382 0036 Tel: (866) 811 7722 Atlanta, Georgia Austin, Texas Chicago, Illinois Seattle, Washington Tel: (770) 476 1561 Tel: (512) 795 0766 Tel: (312) 705 1121 Tel: (206) 467 6511 AMERICAN MINING INSURANCE GROUP 3490 Independence Drive Birmingham, Alabama 35209 Tel: (205) 870 3535 www.americanmining.com Chandler F. Cox, Jr., President and Chief Executive Officer Bettendorf, Iowa Las Vegas, Nevada Lexington, Kentucky Tel: (563) 345 6311 Tel: (702) 754 5800 Tel: (859) 971 1955 Atlanta, Georgia Charlotte, North Carolina Chicago, Illinois Cleveland, Ohio Dallas, Texas Denver, Colorado Hamilton Square, New Jersey Hartford, Connecticut Kansas City, Kansas Marlborough, Massachusetts Minneapolis, Minnesota Philadelphia, Pennsylvania San Francisco, California Seattle, Washington Tel: (678) 387 1824 Tel: (980) 214 1353 Tel: (312) 368 1115 Tel: (440) 728 1805 Tel: (972) 849 7406 Tel: (303) 667 5198 Tel: (973) 616 0685 Tel: (860) 380 1190 Tel: (913) 515 7374 Tel: (508) 573 6102 Tel: (303) 667 5198 Tel: (908) 415 2711 Tel: (480) 529 6787 Tel: (425) 401 4246 Berkley Accident & Health Special Risk Division 757 Third Avenue, 10th Floor New York, New York 10017 Tel: (212) 822 3333 Susan M. Clarke, President BERKLEY AGRIBUSINESS 11201 Douglas Avenue Urbandale, Iowa 50322 Tel: (866) 382 7314 www.berkleyag.com Michael Ekiss, President BERKLEY ALLIANCE MANAGERS 30 South Pearl Street, 6th Floor Albany, New York 12138 Tel: (518) 407 0088 Stephen L. Porcelli, President Berkley Construction Professional Tel: (405) 805 6635 www.berkleycp.com Berkley Design Professional Tel: (405) 805 6635 www.berkleydp.com W. R. Berkley Corporation | 2017 Annual Report | 165 Berkley Service Professionals Berkley Managers Insurance Services, LLC San Diego, California Tel: (405) 805 6635 www.berkleysp.com Berkley Custom Insurance Services, LLC Los Angeles, California Tel: (213) 417 5431 BXM Insurance Services, Inc. Chicago, Illinois Los Angeles, California Tel: (312) 605 4660 Tel: (213) 417 5431 Tel: (704) 759 7049 Tel: (804) 237 5273 Tel: (208) 898 5168 Tel: (866) 412 7742 Tel: (678) 987 1755 Tel: (617) 747 4144 Tel: 44 (0) 20 7088 1900 BERKLEY ASPIRE 14902 North 73rd Street Scottsdale, Arizona 85260 Tel: (480) 444 5950 www.berkleyaspire.com Miklos F. Kallo, President Charlotte, North Carolina Glen Allen, Virginia Meridian, Idaho Scottsdale, Arizona BERKLEY AVIATION 1101 Anacapa Street, Suite 200 Santa Barbara, California 93101 Tel: (805) 898 7640 www.berkleyaviation.com Peter Jarrett, President Atlanta, Georgia Boston, Massachusetts London, England BERKLEY CANADA 145 King Street West, Suite 1000 Toronto, Ontario M5H 1J8 Tel: (416) 304 1178 www.berkleycanada.com 1002, Rue Sherbrooke Ouest Bureau 2220 Montreal, Quebec H3A 3L6 Tel: (514) 842 5587 Andrew Steen, President BERKLEY CUSTOM INSURANCE Three Stamford Plaza 301 Tresser Boulevard, 8th Floor Stamford, Connecticut 06901 Tel: (203) 658 1500 www.berkleycustom.com Michael P. Fujii, President and Chief Executive Officer 166 | BERKLEY CYBER RISK SOLUTIONS 412 Mount Kemble Avenue, Suite G50 Morristown, New Jersey 07960 Tel: (973) 775 7491 www.berkleycyberrisk.com Tracey Vispoli, President BERKLEY ENTERTAINMENT 600 East Colinas Boulevard, Suite 1400 Irving, Texas 75039 Tel: (972) 819 8980 www.berkleyentertainment.com Cindy Broschart, President BERKLEY ENVIRONMENTAL 101 Hudson Street, Suite 2550 Jersey City, New Jersey 07302 Tel: (201) 748 3100 www.berkleyenvironmental.com Kenneth J. Berger, President Atlanta, Georgia Boston, Massachusetts Chicago, Illinois Philadelphia, Pennsylvania Irving, Texas Jersey City, New Jersey Tel: (404) 443 2117 Tel: (857) 265 7479 Tel: (404) 443 2082 Tel: (215) 533 7360 Tel: (972) 819 8863 Tel: (201) 748 3047 Berkley Managers Insurance Services, LLC Walnut Creek, California Tel: (925) 472 8210 BERKLEY FINSECURE 849 Fairmount Avenue, Suite 301 Towson, Maryland 21286 Tel: (866) 539 3995 www.berkleyfinsecure.com Michael G. Connor, President Niles, Michigan Berkley Crime 29 South Main Street, 3rd Floor West Hartford, Connecticut 06107 Tel: (844) 44 CRIME www.berkleycrime.com Tel: (866) 539 3995 ext 6325 DARYL G. Senior Claims Advisor Berkley Environmental “ The most rewarding part of my role at Berkley Environmental is getting to help our customers in their time of need. Being a part of Berkley is a rewarding experience as Berkley fosters growth and professional development. The Berkley values that I try to instill in my daughter are integrity, honesty and the value of hard work.” “My dad goes on his laptop and drinks his coffee.” Angelina—Age 11, Daughter of Daryl G., Senior Claims Advisor BERKLEY FIRE & MARINE UNDERWRITERS 425 North Martingale Road, Suite 1520 Schaumburg, Illinois 60173 Tel: (844) 462 3600 www.berkleymarine.com John T. Geary, President BERKLEY INSURANCE AUSTRALIA Level 7, 321 Kent Street Sydney NSW 2000, Australia Tel: 61 (2) 9275 8500 www.berkleyinaus.com.au Tony Wheatley, Chief Executive Officer BERKLEY GLOBAL PRODUCT RECALL MANAGEMENT 80 Broad Street, 32nd Floor New York, New York 10004 Tel: (212) 413 2499 Adelaide SA, Australia Brisbane QLD, Australia Melbourne VIC, Australia Perth WA, Australia Tel: 61 (8) 8232 2767 Tel: 61 (7) 3220 9900 Tel: 61 (3) 8622 2000 Tel: 61 (8) 6488 0900 Louis Lubrano, President Dallas, Texas London, England Tel: (972) 552 6100 Tel: 44 (0) 20 7088 1900 Berkley Managers Insurance Services, LLC Los Angeles, California San Francisco, California Tel: (213) 372 1727 Tel: (415) 417 5950 BERKLEY HEALTHCARE Berkley Healthcare Professional Insurance Services, LLC 220 Petaluma Avenue, Suite A Sebastopol, California 95472 Tel: (707) 829 4740 www.berkleyhpl.com Peter Bergmann, Executive Vice President BERKLEY HUMAN SERVICES 222 South Ninth Street, Suite 2500 Minneapolis, Minnesota 55402 Tel: (612) 766 3100 www.berkleyhumanservices.com Roger M. Nulton, President BERKLEY INSURANCE ASIA www.berkleyasia.com Room 4407, 44/F Hopewell Centre 183 Queen’s Road East Wan Chai, Hong Kong Tel: (852) 3708 5000 18 Cross Street Unit 07-01, China Square Central Singapore 048423 Tel: (65) 6902 0601 30th Floor, Shanghai Tower No. 501 Middle Yincheng Road Pudong, Shanghai 200120 Tel: 86 (0) 21 6162 8122 Shasi N. Gangadharan, Chief Executive Officer 168 | BERKLEY INTERNATIONAL LATINOAMÉRICA Berkley International Seguros S.A. Berkley International Aseguradora de Riesgos del Trabajo S.A. Berkley Argentina de Reaseguros S.A. Carlos Pellegrini 1023, Piso 8 C1009ABU Buenos Aires, Argentina Tel: 54 (11) 4378 8100 www.berkley.com.ar Bartolomé Mitre 699 S2000COM Rosario, Argentina Tel: 54 (34) 1 410 4200 Eduardo I. Llobet, President and Chief Executive Officer Berkley International do Brasil Seguros S.A. Avenida Presidente Juscelino Kubitschek, 1455 15º andar - cj. 151 Vila Nova Conceição 04543-011 São Paulo, Brazil Tel: 55 (11) 3848 8622 www.berkley.com.br José Marcelino Risden, President and Chief Executive Officer Berkley International Fianzas México, S.A. de C.V. Avenida Empresarios 255 Torre Icon 23, Piso 10B Col. Puerta de Hierro, Zapopan, Jal, 45116, México Tel: 52 (33) 3648 7474 www.berkleymex.com Guillermo Espinosa Barragan, President and Chief Executive Officer Berkley International Puerto Rico, LLC Atrium Office Center 530 Avenida de la Constitución San Juan, Puerto Rico 00901 Tel: (787) 289 7846 Eduardo I. Llobet, President Berkley International Seguros Colombia S.A. Carrera 7 # 71 – 21 Torre B, Oficina 1002 110231 Bogotá, Colombia Tel: 57 (1) 357 2727 www.berkley.com.co Sylvia Luz Rincón, President and Chief Executive Officer BRIAN D. Vice President, Marketing & Business Development Berkley Net “ Over the past 12 years, Berkley has given me the chance to help launch a startup and grow it into a thriving, successful company. My experience with Berkley has reinforced many life lessons that I impart as a parent: surround yourself with good people, embrace a healthy mix of ownership and teamwork, and always be ready to adapt.” “Daddy uses his ‘serious voice’ when on the phone!” Parker—Age 10, Daughter of Brian D., Vice President, Marketing & Business Development Berkley International Seguros México, S.A. de C.V. Avenida Santa Fe 505 Piso 17, Oficina 1702 Cruz Manca, Cuajimalpa de Morelos, 05349, México Tel: 52 (55) 1037 5300 www.berkleymex.com Javier García Ortíz de Zárate, President and Chief Executive Officer Berkley International Seguros S.A. (Uruguay) Rincón 391, Piso 5 11100 Montevideo, Uruguay Tel: (598) 2916 6998 www.berkley.com.uy Eduardo I. Llobet, President Berkley Latin America and Caribbean Managers 600 Brickell Avenue, Suite 3900 Miami, Florida 33131 Tel: (305) 921 6200 Eduardo I. Llobet, President and Chief Executive Officer Berkley Insurance Company Representative Office in Colombia Carrera 11 No. 77ª-49/65, Oficina 202 Edificio Semana 110231 Bogotá, Colombia Tel: 57 (1) 744 4015 Jaime Aramburo, Director Representative Office in Mexico Avenida Santa Fe 505 Piso 17, Oficina 1702 Cruz Manca, Cuajimalpa de Morelos, 05349, México Tel: 52 (55) 1037 5300 www.berkleymex.com Hiram García, Director BERKLEY LIFE SCIENCES 200 PrincetonSouth Corporate Center, Suite 250 Ewing, New Jersey 08628 Tel: (609) 844 7800 www.berkleyls.com Jill E. Wadlund, President Naperville, Illinois Tel: (630) 210 0369 Berkley LS Insurance Solutions, LLC Walnut Creek, California Tel: (925) 472 8190 170 | BERKLEY LUXURY GROUP 301 Route 17 North, Suite 900 Rutherford, New Jersey 07070 Tel: (201) 518 2500 www.berkleyluxurygroup.com William J. Johnston, President Chicago, Illinois Tel: (312) 881 1456 Berkley Fine Dining Specialists Tel: (800) 504 7012 www.berkleyfinedining.com Berkley Luxury Real Estate Specialists Tel: (800) 504 7012 www.berkleyluxuryrealestate.com BERKLEY MEDICAL EXCESS UNDERWRITERS 16305 Swingley Ridge Road, Suite 450 Chesterfield, Missouri 63017 Tel: (800) 523 3815 www.berkleymed.com Collin J. Suttie, President Berkley Managers Insurance Services, LLC San Diego, California Tel: (858) 812 2935 BERKLEY MEDICAL MANAGEMENT SOLUTIONS 10851 Mastin Boulevard, Suite 200 Overland Park, Kansas 66210 Tel: (913) 401 2001 www.berkleymms.com Patricia L. Onion, Chief Executive Officer BERKLEY MID-ATLANTIC GROUP 4820 Lake Brook Drive, Suite 300 Glen Allen, Virginia 23060 Tel: (804) 285 2700 www.wrbmag.com John F. Kearns, President Columbus, Ohio Glen Allen, Virginia Harrisburg, Pennsylvania Pittsburgh, Pennsylvania BERKLEY NET UNDERWRITERS 9301 Innovation Drive, Suite 200 Manassas, Virginia 20110 Tel: (877) 497 2637 www.berkleynet.com James B. Gilbert, President Tel: (800) 283 1153 Tel: (800) 283 1153 Tel: (800) 283 1153 Tel: (800) 283 1153 CLAUDIA H. Major Case Claims Examiner Preferred Employers Group “ What makes being a part of the Berkley team special for me is that I am given the ability and the tools to effectively help people during very difficult times in their lives and I get the satisfaction of knowing that I am making a difference by easing some of their concerns and assuring them that I work for a company that genuinely cares. This is something that I am very proud to teach my nephew and I hope one day he chooses a career path with a company that does the same.” “I think that my Nina helps people that get hurt at work.” Kingston—Age 7, Nephew of Claudia H., Major Case Claims Examiner BERKLEY NORTH PACIFIC GROUP 13920 SE Eastgate Way, Suite 120 Bellevue, Washington 98005 Tel: (877) 316 9038 www.berkleynpac.com Christopher R. Rourke, President Meridian, Idaho Portland, Oregon Salt Lake City, Utah Tel: (800) 480 2942 Tel: (800) 480 2942 Tel: (800) 480 2942 BERKLEY OFFSHORE UNDERWRITING MANAGERS 757 Third Avenue, 10th Floor New York, New York 10017 Tel: (212) 618 2950 www.berkleyoffshore.com Frank A. Costa, President Houston, Texas Tel: (832) 547 2900 Berkley Offshore Underwriting Managers UK, Limited 40 Lime Street, 7th Floor London EC3M 7AW, England Tel: 44 (0) 20 7337 1400 R. Christian Walker, Executive Vice President BERKLEY OIL & GAS 2107 CityWest Boulevard, 8th Floor Houston, Texas 77042 Tel: (877) 972 2264 www.berkleyoil-gas.com Carol A. Randall, President Berkley Renewable Energy 230 West Monroe, Suite 220 Chicago, Illinois 60606 Tel: (312) 725 7222 www.berkleyrenewable.com BERKLEY ONE 412 Mount Kemble Avenue, Suite G50 Morristown, New Jersey 07960 Tel: (203) 542 3301 www.berkleyone.com Kathleen M. Tierney, President BERKLEY PROFESSIONAL LIABILITY 757 Third Avenue, 10th Floor New York, New York 10017 Tel: (212) 618 2900 www.berkleypro.com John R. Benedetto, President 172 | London, England Schaumburg, Illinois Toronto, Ontario Tel: 44 (0) 20 7088 1916 Tel: (630) 237 3650 Tel: (416) 304 1178 Berkley Transactional 412 Mount Kemble Avenue, Suite G50 Morristown, New Jersey 07960 Tel: (973) 775 7499 www.berkleytransactional.com Randolph Hein, President BERKLEY PROGRAM SPECIALISTS 1250 East Diehl Road, Suite 200 Naperville, Illinois 60563 Tel: (630) 210 0360 www.berkley-ps.com Gregory A. Douglas, President Berkley Equine & Cattle Division 3655 North Point Parkway, Suite 625 Alpharetta, Georgia 30005 Tel: (866) 298 5525 www.berkleyequine.com BERKLEY PUBLIC ENTITY MANAGERS 30 South 17th Street, Suite 820 Philadelphia, Pennsylvania 19103 Tel: (215) 553 7384 www.bpem.com Richard B. Vincelette, President Minneapolis, Minnesota Morristown, New Jersey New York, New York Tel: (612) 766 3827 Tel: (215) 861 6092 Tel: (212) 922 9458 BERKLEY RISK 222 South Ninth Street, Suite 2700 Minneapolis, Minnesota 55402 Tel: (612) 766 3000 www.berkleyrisk.com John M. Goodwin, President Council Bluffs, Iowa Denver, Colorado Nashville, Tennessee Scottsdale, Arizona St. Paul, Minnesota BERKLEY SELECT 233 South Wacker Drive, Suite 3900 Chicago, Illinois 60606 Tel: (312) 800 6200 www.berkleyselect.com Joseph G. Shores, President Tel: (800) 832 0137 Tel: (303) 357 2600 Tel: (615) 493 7746 Tel: (602) 996 8810 Tel: (651) 281 1200 PEGGY G. Senior Risk Assistant II Vela Insurance Services “ I’ve been with Vela for over 12 years. In that time, I’ve come to appreciate the complexity and importance of the work we do, and hope all 5 of my grandchildren look for quality employers such as Berkley, and learn the importance of commitment and a good work ethic when they enter the work force.” “ My grandma, Peggy, works at Vela. She is an accountant where they help other people with insurance.” Mattei—Age 9, Granddaughter of Peggy G., Senior Risk Assistant II CAROLINA CASUALTY 5011 Gate Parkway Building 200, Suite 200 Jacksonville, Florida 32256 Tel: (904) 363 0900 www.carolinacas.com David A. Dunn, President CONTINENTAL WESTERN GROUP 11201 Douglas Avenue Urbandale, Iowa 50322 Tel: (515) 473 3500 www.cwgins.com Michael A. Lex, President Denver, Colorado Lincoln, Nebraska Luverne, Minnesota Tel: (800) 533 9013 Tel: (800) 456 7688 Tel: (800) 533 0303 GEMINI TRANSPORTATION UNDERWRITERS 99 Summer Street, Suite 1800 Boston, Massachusetts 02110 Tel: (617) 310 8200 www.geminiunderwriters.com David R. Lockhart, President INTREPID DIRECT INSURANCE 10851 Mastin Boulevard, Suite 200 Overland Park, Kansas 66210 Tel: (877) 249 7181 www.intrepiddirect.com Bill Strout, President KEY RISK INSURANCE P.O. Box 49129 Greensboro, North Carolina 27419 Tel: (800) 942 0225 www.keyrisk.com Robert W. Standen, President MIDWEST EMPLOYERS CASUALTY 14755 North Outer Forty Drive, Suite 300 Chesterfield, Missouri 63017 Tel: (636) 449 7000 www.mwecc.com Timothy F. Galvin, President BERKLEY SOUTHEAST INSURANCE GROUP 1745 North Brown Road, Suite 400 Lawrenceville, Georgia 30043 Tel: (678) 533 3400 www.berkleysig.com Dennis L. Barger, President Birmingham, Alabama Charlotte, North Carolina Lawrenceville, Georgia Meridian, Mississippi Brentwood, Tennessee Tel: (855) 610 4545 Tel: (855) 610 4545 Tel: (855) 610 4545 Tel: (855) 610 4545 Tel: (855) 610 4545 BERKLEY SURETY 412 Mount Kemble Avenue, Suite 310N Morristown, New Jersey 07960 Tel: (973) 775 5024 www.berkleysurety.com Andrew M. Tuma, President Arlington, Virginia Atlanta, Georgia Blue Bell, Pennsylvania Centennial, Colorado Charlotte, North Carolina Dallas, Texas Danvers, Massachusetts Fulton, Maryland Houston, Texas Morristown, New Jersey Naperville, Illinois Nashville, Tennessee New York, New York Orlando, Florida San Francisco, California Santa Ana, California Seattle, Washington Tampa, Florida Toronto, Ontario Urbandale, Iowa Westbrook, Maine Tel: (973) 775 5086 Tel: (678) 624 1818 Tel: (973) 775 5096 Tel: (303) 357 2620 Tel: (973) 775 5065 Tel: (972) 385 1140 Tel: (973) 775 5082 Tel: (973) 775 5078 Tel: (973) 775 5233 Tel: (973) 775 5021 Tel: (630) 210 0360 Tel: (629) 999 4010 Tel: (212) 867 2650 Tel: (407) 867 4595 Tel: (415) 216 0877 Tel: (7 14) 338 0860 Tel: (206) 223 5842 Tel: (813) 223 2617 Tel: (416) 304 1178 Tel: (800) 456 5486 Tel: (207) 228 1922 BERKLEY TECHNOLOGY UNDERWRITERS 222 South Ninth Street, Suite 2550 Minneapolis, Minnesota 55402 Tel: (612) 344 4550 www.berkley-tech.com Matthew A. Mueller, President Irvine, California New York, New York San Francisco, California Tel: (714) 215 9322 Tel: (516) 987 5901 Tel: (415) 216 2202 174 | MARY W. Staff Accountant Key Risk Management Services “ The most satisfying thing about working for Key Risk and Berkley is the strong devotion of my co-workers, here and at other Berkley affiliates, to always do the right thing. It is a pleasure to work for a company that values the community and contributes to important charitable causes. I hope to impress these qualities in my grandchildren.” “ My Mimi counts money all day. She reads books about worker’s comp. She really works hard every day.” Caroline—Age 6, Granddaughter of Mary W., Staff Accountant NAUTILUS INSURANCE GROUP 7233 East Butherus Drive Scottsdale, Arizona 85260 Tel: (480) 951 0905 www.nautilusinsgroup.com VERUS UNDERWRITING MANAGERS 4820 Lake Brook Drive, Suite 200 Glen Allen, Virginia 23060 Tel: (804) 525 1360 www.verusins.com Thomas M. Kuzma, President and Chief Executive Officer Dale H. Pilkington, President W. R. BERKLEY EUROPEAN HOLDINGS AG Genferstrasse 23 8002 Zürich, Switzerland Mark Talbot, Managing Director W. R. Berkley Europe AG Städtle 35A, P.O. Box 835 9490 Vaduz, Liechtenstein Tel: 423 237 27 41 Hans-Peter Naef, General Manager Henrik Ibsens Gate 100 0255 Oslo, Norway Tel: 47 (23) 27 24 00 Birger Jarlsgatan 22 114 34 Stockholm, Sweden Tel: 46 (8) 410 337 00 Kaiser-Wilhelm-Ring 27-29 50672 Köln, Germany Tel: 49 (0) 221 99386 102 Paseo de la Castellana, 149-8a 28046 Madrid, Spain Tel: 34 (91) 449 2646 W/R/B UNDERWRITING W. R. Berkley Syndicate Management Limited Syndicate 1967 At Lloyd’s W. R. Berkley UK Limited 2nd Floor, 40 Lime Street London EC3M 7AW, England Tel: 44 (0) 20 7088 1900 www.wrbunderwriting.com Alastair Blades, President and Chief Executive Officer Berkley Asset Protection 757 Third Avenue, 10th Floor New York, New York 10017 Tel: (212) 497 3700 www.berkleyassetpro.com Joseph P. Dowd, President Duluth, Georgia Tel: (480) 951 0905 PREFERRED EMPLOYERS INSURANCE 9797 Aero Drive, Suite 200 San Diego, California 92123 Tel: (888) 472 9001 www.peiwc.com Steven A. Gallacher, President UNION STANDARD INSURANCE GROUP 222 Las Colinas Boulevard W, Suite 1300 Irving, Texas 75039 Tel: (972) 719 2400 www.usic.com Tel: (480) 281 3949 Tel: (972) 719 2431 Tel: (501) 707 6543 Tel: (501) 707 6543 Tel: (480) 281 3949 Tel: (972) 719 2431 B. Keith Mitchell, President Albuquerque, New Mexico Dallas, Texas Little Rock, Arkansas Oklahoma City, Oklahoma Phoenix, Arizona San Antonio, Texas VELA INSURANCE SERVICES 311 South Wacker Drive, Suite 3600 Chicago, Illinois 60606 Tel: (312) 553 4413 www.vela-ins.com David A. Jordan, President and Chief Exective Officer Atlanta, Georgia Chicago, Illinois King of Prussia, Pennsylvania Omaha, Nebraska St. Paul, Minnesota Vela Insurance Services, LLC Los Angeles, California Solvang, California Walnut Creek, California Tel: (678) 987 1701 Tel: (312) 553 4413 Tel: (610) 688 4275 Tel: (402) 492 8352 Tel: (651) 406 5630 Tel: (213) 417 5452 Tel: (805) 693 0839 Tel: (925) 472 8220 176 | ZINA S. Professional Liability Underwriting Manager W/ R/B Underwriting “ I joined Berkley because I wanted to work with people who shared my mores and work ethic. Over the years the Company has become a home away from home. Our values, centred on responsibility, respect and collegiality, translate seamlessly into my family life. Following the birth of my children I never felt that I had to choose between motherhood and my career. I am proud to be able to show my daughters the rewards that can be reaped from education, effort and working with people you respect and admire.” “ My Mummy works in the coolest building in town! She helps people to keep safe if something bad happens.” Roma—Age 6, Daughter of Zina S., Professional Liability Underwriting Manager REINSURANCE BERKLEY RE www.berkleyre.com Berkley Re America Three Stamford Plaza 301 Tresser Boulevard, 7th Floor Stamford, Connecticut 06901 Tel: (203) 905 4444 Joseph L. Sullivan, President Berkley Re Australia Level 7, 321 Kent Street Sydney NSW 2000, Australia Tel: 61 (2) 8117 2100 Level 21, 12 Creek Street Brisbane QLD 4000, Australia Tel: 61 (7) 3175 0200 Level 40, 140 Williams Street Melbourne VIC 3000, Australia Tel: 61 (3) 9607 8404 Tel: (800) 773 4300 Tel: (215) 568 3570 Tel: (925) 472 8030 Marlborough, Massachusetts Philadelphia, Pennsylvania Walnut Creek, California Berkley Re UK Limited 37-39 Lime Street, 2nd Floor London EC3M 7AY, England Tel: 44 (0) 20 7398 1000 Richard Fothergill, Chief Executive Officer SERVICE OPERATIONS BERKLEY CAPITAL, LLC 600 Brickell Avenue, 39th Floor Miami, Florida 33131 Tel: (786) 450 5510 Frank T. Medici, President BERKLEY DEAN & COMPANY, INC. 475 Steamboat Road Greenwich, Connecticut 06830 Tel: (203) 629 3000 Tony Piper, Chief Executive Officer, Australia and New Zealand James G. Shiel, President Berkley Re Beijing Room 4901, China World Tower B No. 1 Jian Guo Men Wai Avenue Beijing 100004, China Tel: (86) 108 526 4826 Berkley Re Hong Kong Room 4407, 44/F Hopewell Centre 183 Queen’s Road East Wan Chai, Hong Kong Tel: (852) 3120 7000 Berkley Re Singapore 18 Cross Street Unit 09-04, China Square Central Singapore 048423 Tel: (65) 6671 2070 Glen Riddell, Chief Executive Officer, Asia Berkley Re Solutions Three Stamford Plaza 301 Tresser Boulevard, 9th Floor Stamford, Connecticut 06901 Tel: (203) 975 7739 Gregory A. Douglas, President Chicago, Illinois Cleveland, Ohio Dublin, Ohio Johns Creek, Georgia 178 | Tel: (312) 553 4707 Tel: (614) 766 4316 Tel: (614) 766 4316 Tel: (770) 814 7531 BERKLEY TECHNOLOGY SERVICES LLC 101 Bellevue Parkway Wilmington, Delaware 19809 Tel: (302) 439 2000 Des Moines, Iowa Tel: (515) 564 2300 W. R. Berkley Corporation’s operating units conduct business through the following insurance entities: Acadia Insurance Company; Admiral Indemnity Company; Admiral Insurance Company; American Mining Insurance Company; Berkley Argentina de Reaseguros S.A.; Berkley Assurance Company; Berkley Insurance Company; Berkley International Aseguradora de Riesgos del Trabajo S.A.; Berkley International do Brasil Seguros S.A.; Berkley International Fianzas México, S.A. de C.V.; Berkley International Seguros Colombia S.A.; Berkley International Seguros México, S.A. de C.V.; Berkley International Seguros S.A.; Berkley International Seguros S.A. (Uruguay); Berkley Life and Health Insurance Company; Berkley National Insurance Company; Berkley Regional Insurance Company; Berkley Regional Specialty Insurance Company; Carolina Casualty Insurance Company; Clermont Insurance Company; Continental Western Insurance Company; East Isles Reinsurance, Ltd.; Firemen’s Insurance Company of Washington, D.C.; Gemini Insurance Company; Great Divide Insurance Company; Greenwich Knight Insurance Company, Ltd.; Intrepid Insurance Company; Key Risk Insurance Company; Midwest Employers Casualty Company; Nautilus Insurance Company; Preferred Employers Insurance Company; Queen’s Island Insurance Company, Ltd.; Riverport Insurance Company; StarNet Insurance Company; Syndicate 1967 at Lloyd’s; Tri-State Insurance Company of Minnesota; Union Insurance Company; Union Standard Lloyds; W. R. Berkley Europe AG; W. R. Berkley Insurance (Europe), SE. DIRECTORS William R. Berkley Executive Chairman W. Robert Berkley, Jr. President and Chief Executive Officer Christopher L. Augostini Executive Vice President - Business Emory University Ronald E. Blaylock Managing Partner GenNx360 Capital Partners Mark E. Brockbank Retired Chief Executive XL Brockbank Ltd. Mary C. Farrell President, The Howard Gilman Foundation Retired Managing Director, Chief Investment Strategist UBS Wealth Management USA María Luisa Ferré President and Chief Executive Officer GFR Services, Inc. Jack H. Nusbaum Senior Partner Willkie Farr & Gallagher LLP Mark L. Shapiro Private Investor OFFICERS William R. Berkley Executive Chairman W. Robert Berkley, Jr. President and Chief Executive Officer Eugene G. Ballard Executive Vice President – Finance Ira S. Lederman Executive Vice President – Secretary Lucille T. Sgaglione Executive Vice President James G. Shiel Executive Vice President – Investments James P. Bronner Executive Vice President John K. Goldwater Executive Vice President Jeffrey M. Hafter Executive Vice President Robert C. Hewitt Executive Vice President William M. Rohde, Jr. Executive Vice President Kenneth P. Sroka Executive Vice President Robert D. Stone Executive Vice President Kathleen M. Tierney Executive Vice President Philip S. Welt Executive Vice President Jared E. Abbey Senior Vice President – Corporate Strategy and Development Richard M. Baio Senior Vice President – Chief Financial Officer and Treasurer Kevin H. Ebers Senior Vice President – Business Shared Services Melissa M. Emmendorfer Senior Vice President – Insurance Risk Management Paul J. Hancock Senior Vice President – Chief Corporate Actuary Gillian James Senior Vice President – Enterprise Risk Management Peter L. Kamford Senior Vice President Carol J. LaPunzina Senior Vice President – Human Resources Mir Mazhar Senior Vice President – Chief Project Officer Matthew M. Ricciardi Senior Vice President – General Counsel Nelson Tavares Senior Vice President – Claims Steven W. Taylor Senior Vice President Terrence M. Walker Senior Vice President – Chief Information Officer Richard K. Altorelli Vice President – Investment Controller Harry J. Berkley Vice President – Information Technology W. R. Berkley Corporation | 2017 Annual Report | 179 Thomas P. Boyle Vice President – Corporate Actuarial Scott A. Siegel Vice President – Taxes Trish Conway Vice President – Enterprise Risk Management Jessica L. Somerfeld Vice President – Corporate Actuary Michele Fleckenstein Vice President – Internal Audit Dana R. Frantz Vice President – Corporate Actuary Laura Goodall Vice President – Insurance Risk Management Karen A. Horvath Vice President – External Financial Communications Andrea C. Kanefsky Vice President – Corporate Controller Joan E. Kapfer Vice President Nicholas R. Lang Vice President – Investments Thomas L. Lee Vice President Jonathan M. Levine Vice President – Chief Marketing Officer Edward F. Linekin Vice President – Investments John M. Littzi Vice President – Senior Counsel James T. McGrath Vice President – Investments Robert L. McPherson Vice President – Analytics Alistair D. Macpherson Vice President – Actuary Steven J. Malawer Vice President – Senior Counsel A. Scott Mansolillo Vice President – Chief Compliance Officer Jane B. Parker Vice President – Senior Counsel Clement P. Patafio Vice President Josephine A. Raimondi Vice President – Senior Counsel and Assistant Secretary Robert E. Sabio Vice President – Corporate Catastrophe Analysis 180 | Jo-Marie St. Martin Vice President – Federal Government Relations Keith D. Wilson Vice President – Chief Information Security Officer Tatiana Connolly Assistant Vice President – Counsel Adam Coppola Assistant Vice President and Director of Operations – Investments Liana M. Fairchild Assistant Vice President – Corporate Actuary Arthur Gurevitch Assistant Vice President – Analytics David D. Hudson Assistant Vice President – Corporate Data Manager Scott E. Jensen Assistant Vice President – Actuarial Analysis Neil R. Keenan Assistant Vice President – Counsel Naomi B. Kinderman Assistant Vice President – Counsel Suzette A. Lemson Assistant Vice President – Office of the Chairman Jamie L. Martin Assistant Vice President – Finance Robert C. Melillo Assistant Vice President – Investments Nancy Micale Assistant Vice President – Human Resources Raymond J. O’Brien Assistant Vice President – Director of Internal Audit Srinivas R. Somayajula Assistant Vice President – Corporate Actuary Bryan V. Spero Assistant Vice President – Corporate Actuary Tracey M. Vizzo Assistant Vice President – Risk Management Bruce I. Weiser Assistant Vice President – Counsel Justin R. Woytowich Assistant Vice President – Finance ANNUAL MEETING The Annual Meeting of Stockholders of W. R. Berkley Corporation will be held at 1:00 p.m. on May 31, 2018 at the offices of W. R. Berkley Corporation, 475 Steamboat Road, Greenwich, Connecticut 06830. SHARES TRADED Common Stock of W. R. Berkley Corporation is traded on the New York Stock Exchange. Symbol: WRB TRANSFER AGENT AND REGISTRAR EQ Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, Minnesota 55120-4100 Tel: (800) 468 9716 www.shareowneronline.com WEBSITE For additional information, including press releases, visit our internet site at: www.wrberkley.com Follow us on Twitter @WRBerkleyCorp AUDITORS KPMG LLP, New York, New York OUTSIDE COUNSEL Willkie Farr & Gallagher LLP, New York, New York The W. R. Berkley Corporation 2017 Annual Report editorial sections are printed on recycled paper made from fiber sourced from well-managed forests and other controlled wood sources and is independently certified to the Forest Stewardship Council™ (FSC®) standards. © Copyright 2018 W. R. Berkley Corporation. All rights reserved. “Always do right. This will gratify some people and astonish the rest.” —Mark Twain— W. R. Berkley Corporation 475 Steamboat Road Greenwich, CT 06830 203.629.3000 www.wrberkley.com @WRBerkleyCorp © Copyright 2018 W. R. Berkley Corporation. All rights reserved.

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