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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
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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.
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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
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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
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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.
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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
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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
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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
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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 Berkley 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
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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 Berkley 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
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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 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
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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 Union 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
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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
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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
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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
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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 represent 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.
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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 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.
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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
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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 and 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
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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 related 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
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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 November 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.
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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 Competition
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.
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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 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.
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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 Our 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.
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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 Catastrophes 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
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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 systemically 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
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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 EU 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.
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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 As 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
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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 guidelines 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.
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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 We 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.
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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 Certain 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.
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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 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.
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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 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.
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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 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
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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 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
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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 Critical Accounting Estimates
The following presents a discussion of accounting policies and estimates relating to reserves for losses and loss expenses, assumed premiums and other-
than-temporary impairments of investments. Management believes these policies and estimates are the most critical to its operations and require the most difficult,
subjective and complex judgments.
Reserves for Losses and Loss Expenses . To recognize liabilities for unpaid losses, either known or unknown, insurers establish reserves, which is a
balance sheet account representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred.
Estimates and assumptions relating to reserves for losses and loss expenses are based on complex and subjective judgments, often including the interplay of
specific uncertainties with related accounting and actuarial measurements. Such estimates are also susceptible to change as significant periods of time may elapse
between the occurrence of an insured loss, the report of the loss to the insurer, the ultimate determination of the cost of the loss and the insurer’s payment of that
loss.
In general, when a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment based upon known
information about the claim at that time. The estimate represents an informed judgment based on general reserving practices and reflects the experience and
knowledge of the claims personnel regarding the nature and value of the specific type of claim. Reserves are also established on an aggregate basis to provide for
losses incurred but not reported (“IBNR”) to the insurer, potential inadequacy of case reserves and the estimated expenses of settling claims, including legal and
other fees and general expenses of administrating the claims adjustment process. Reserves are established based upon the then current legal interpretation of
coverage provided.
In examining reserve adequacy, several factors are considered in estimating the ultimate economic value of losses. These factors include, among other
things, historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. The actuarial process relies on
the basic assumption that past experience, adjusted judgmentally for the effects of current developments and anticipated trends, is an appropriate basis for
predicting future outcomes. Reserve amounts are based on management’s informed estimates and judgments using currently available data. As additional
experience and other data become available and are reviewed, these estimates and judgments may be revised. This may result in reserve increases or decreases that
would be reflected in our results in periods in which such estimates and assumptions are changed.
Reserves do not represent 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.
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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 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.
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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 Information received from ceding companies is used to set initial expected loss ratios, to establish case reserves and to estimate reserves for incurred but not
reported losses on assumed reinsurance business. This information, which is generally provided through reinsurance intermediaries, is gathered through the
underwriting process and from periodic claim reports and other correspondence with ceding companies. The Company performs underwriting and claim audits of
selected ceding companies to determine the accuracy and completeness of information provided to the Company. The information received from the ceding
companies is supplemented by the Company’s own loss development experience with similar lines of business as well as industry loss trends and loss development
benchmarks.
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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 Following 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
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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 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.
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
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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 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.
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.
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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 Fixed Maturity Securities – For securities that we intend to sell or, more likely than not, would be required to sell, a decline in value below amortized cost
is considered to be OTTI. The amount of OTTI is equal to the difference between amortized cost and fair value at the balance sheet date. For securities that we do
not intend to sell or expect to be required to sell, a decline in value below amortized cost is considered to be an OTTI if we do not expect to recover the entire
amortized cost basis of a security (i.e., the present value of cash flows expected to be collected is less than the amortized cost basis of the security).
The portion of the decline in value considered to be a credit loss (i.e., the difference between the present value of cash flows expected to be collected and
the amortized cost basis of the security) is recognized in earnings. The portion of the decline in value not considered to be a credit loss (i.e., the difference in the
present value of cash flows expected to be collected and the fair value of the security) is recognized in other comprehensive income.
Impairment assessments for structured securities, including mortgage-backed securities and asset-backed securities, collateralized debt obligations and
corporate debt, are generally evaluated based on the performance of the underlying collateral under various economic and default scenarios that may involve
subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default rates, the nature and realizable
value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and performance factors. If
an OTTI determination is made, a discounted cash flow analysis is used to ascertain the amount of the credit impairment.
The following table provides a summary of fixed maturity securities in an unrealized loss position as of 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.
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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 Loans Receivable – The Company monitors the performance of its loans receivable, including current market conditions for each loan and the ability to
collect principal and interest. For loans where the Company determines it is probable that the contractual terms will not be met, an analysis is performed and a
valuation reserve is established, if necessary, with a charge to earnings. Loans receivable are reported net of a valuation reserve of $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
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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 valuation 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
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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 Results 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
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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 Average 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.
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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 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. 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.
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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 Expenses from Non-Insurance Businesses . Expenses from non-insurance businesses represent costs associated with businesses engaged in the
distribution of promotional merchandise, world-wide textile solutions, and aviation-related businesses that include (i) cost of goods sold related to aircraft and
products sold and services provided, and (ii) general and administrative expenses. Expenses from non-insurance businesses were $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
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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 Results 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.
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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 A 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.
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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 Revenues 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
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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 Investments
As part of its investment strategy, the Company establishes a level of cash and highly liquid short-term and intermediate-term securities that, combined with
expected cash flow, it believes is adequate to meet its payment obligations. Due to the 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
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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 Fixed Maturity Securities . The Company’s investment policy with respect to fixed maturity securities is generally to purchase instruments with the
expectation of holding them to their maturity. However, management of the available for sale portfolio is considered necessary to maintain an approximate
matching of assets and liabilities as well as to adjust the portfolio as a result of changes in financial market conditions and tax considerations.
The Company’s philosophy related to holding or selling fixed maturity securities is based on its objective of maximizing total return. The key factors that
management considers in its investment decisions as to whether to hold or sell fixed maturity securities are its view of the underlying fundamentals of specific
securities as well as its expectations regarding interest rates, credit spreads and currency values. In a period in which management expects interest rates to rise, the
Company may sell longer duration securities in order to mitigate the impact of an interest rate rise on the fair value of the portfolio. Similarly, in a period in which
management expects credit spreads to widen, the Company may sell lower quality securities, and in a period in which management expects certain foreign
currencies to decline in value, the Company may sell securities denominated in those foreign currencies. The sale of fixed maturity securities in order to achieve
the objective of maximizing total return may result in realized gains; however, there is no reason to expect these gains to continue in future periods.
At 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
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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 Liquidity 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
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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
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 .
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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 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.
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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
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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.
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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
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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.
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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 W. 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
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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
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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 W. 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
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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 W. 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
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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 W. 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.
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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 Equity 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
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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.
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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
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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 based payment awards for tax purposes that exceed the compensation cost recognized for financial reporting purposes) are reported within the income tax expense
financial statement line item. Previously, excess tax benefits were reported within additional paid in capital. The Company adopted this updated guidance on
January 1, 2017 prospectively. The adoption of this guidance did not have a material impact on the Company's financial condition or results of operations.
All other accounting and reporting standards that became effective in 2017 were either not applicable to the Company or their adoption did not have a
material impact on the Company.
Accounting and reporting standards that are not yet effective:
In May 2014, the FASB issued ASU 2014-09, Revenue from Customers. ASU 2014-09 clarifies the principles for recognizing revenue. While insurance
contracts are not within the scope of this updated guidance, the Company’s insurance service fee revenue and non-insurance business revenue will be subject to
this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised
goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The updated guidance, as
amended by ASU 2015-14, is effective for public business entities for annual and interim reporting periods beginning after December 15, 2017. The 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.
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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.
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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
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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
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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 U.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.
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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
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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.
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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
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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
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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
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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 For 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
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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 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
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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 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
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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
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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 damages 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
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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 Insurance
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
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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 Primary 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 12.0000 Excess 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 12.0000 Professional 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 12.0000 Commercial 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 12.0000 Short-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 12.0000 Reinsurance
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 12.0000 Property
(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 12.0000 The 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 12.0000 The 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 12.0000 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.
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.
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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.
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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.
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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 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 .
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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
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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 At 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.
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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.
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(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.
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(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
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(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
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(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
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(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
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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.
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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
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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
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None.
105
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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.
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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
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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
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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
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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
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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 Pursuant 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
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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 W. 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
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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 W. 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
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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 W. 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
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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 W. 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
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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 W. 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
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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 W. 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
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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
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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 W. 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
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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 Operating 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.