W. R. Berkley Corporation
2021 ANNUAL REPORT
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Always Delivering Value
TA B LE OF CONTENTS
02 Financial Highlights
03 Letter to Shareholders
09 Selected Financial Data
10 Always Delivering Value
12 Always Valuing Our People
14 Always Focused on Risk-Adjusted Returns
16 Always Fulfilling Our Commitments
18 W. R. Berkley Corporation Performance vs. S&P 500
19 Relative Stock Price Performance
20 Our Business
21 Our Company
22 Segment Overview
23 Segment Data
24
Investments
25 Form 10-K
131 Businesses
140 Board of Directors & Officers
142 Corporate Information
Always
Delivering
Value
Since our beginning, the consistent values and focus
of the dedicated individuals who comprise the Berkley
team have enabled us to maintain a consistent presence
through all types of economic and market conditions to
meet the needs of our stakeholders and deliver strong
risk-adjusted returns. Always being there consistently,
every day, with valuable products and services that meet
the needs of customers and a culture focused on serving
our many stakeholders has engendered trust and fueled
our success. Through our decentralized businesses, we are
able to respond quickly and effectively to changing market
conditions, address emerging risks and allocate capital to
our best opportunities. It requires us to be aware of and
thoughtful about what is happening in the world around us,
and to always be looking forward.
W. R. Berkley Corporation 2021 Annual Report 1
2021
Financial
Highlights
By taking advantage of challenging opportunities and bringing
together talented people and capital, we feel confident that we will
be able to continue to deliver outstanding long-term returns.
COMBINED RATIO
Averaged 94% over the past
5 years
TOTAL REVENUES
Increased by 23.5% over the past
5 years
89.6% $9.5B
RETURN ON STOCKHOLDERS’ EQUITY
Averaged 12% over the past
5 years
BOOK VALUE PER SHARE
Grew 64% before dividends and share
repurchases over the past 5 years
16.2%
$25.09*
*Reflects the 3-for-2 common stock split effected on March 23, 2022.
2 W. R. Berkley Corporation 2021 Annual Report
To Our
Shareholders
In 2021, the Company delivered an outstanding
risk-adjusted return to its shareholders. We
exceeded our targeted 15% after-tax return
on equity and grew our net premiums written
by over 22%. The low interest rate environment
allowed us to restructure our balance sheet
and extend our debt maturities at substantially
lower rates. All of this was accomplished while
returning over $478 million to shareholders
through dividends and share repurchases
and strengthening our capital base to ensure
our capacity to continue supporting our
future growth.
Our operating results from every perspective
were outstanding.
Overall, underwriting results were the key driver
behind our improved profitability. Not only did
our business grow at a pace far greater than
the industry, but we had a loss ratio of 61.1%
and a combined ratio of under 90% — with
record underwriting income. 2021 was a year
during which we were able to raise prices in
excess of expected increases in loss costs
which, combined with improved risk selection
and a better mix of business, resulted in
improved underwriting margins.
LEFT TO RIGHT:
W. Robert Berkley, Jr.,
President and
Chief Executive Officer
William R. Berkley,
Executive Chairman
W. R. Berkley Corporation 2021 Annual Report 3
TO OUR SHAR EHOLDERS
Always Valuing Our People
For 55 years, our people have been our
greatest asset.
“ A major factor in an organiza-
tion’s ongoing success is its
ability to develop internally
the skilled people necessary
for its expansion and further
development.”
FROM OUR 1979 ANNUAL REPORT
“ Every person in the organization
is important; every task they
accomplish makes a difference
in our results.”
FROM OUR 2005 ANNUAL REPORT
“ The culture of our Company
emphasizes that everything
we do and every person who
participates is important to
our enterprise.”
FROM OUR 2018 ANNUAL REPORT
4 W. R. Berkley Corporation 2021 Annual Report
We continue to be focused on inflation,
both social and economic. This has the
potential of adversely impacting our claims
costs substantially. Social inflation causes
juries to evaluate losses in a manner that
may not be purely based upon the facts but
is overly impacted by society’s current view
of what constitutes justice. Economic inflation
may bring about an increase in the real cost
of losses. These two items together require
a keen focus on establishing adequate loss
reserves. We work diligently to look ahead
and take these factors into consideration,
but in order to be prudent in this environment,
a level of caution is necessary. Our claims
teams continue to work with our actuaries
to ensure we appropriately consider these
trends. It is important that we continue to
increase rates to offset the anticipated
increase in claims costs.
Our outstanding underwriting results were
not just a reflection of our improved loss
ratio, but also of our dramatically improved
expense ratio. The expense ratio improved both
because the scale of our businesses grew and
because we worked diligently to streamline
administrative functions and centralize some
areas of technology to lower our operating
costs. In spite of the additional costs of
operating in the current COVID environment,
we were able to lower our expense ratio by
approximately two points.
We started two new businesses in 2021. One
specializes in small business and the second
focuses on management protection. We have
great expectations that over the next few
years each of these businesses will contribute
substantially to our future growth. Many of
our newer businesses that we started in the
past several years have begun to achieve
scale and contribute to the profitability of
our enterprise. As we build new businesses,
it takes several years for each of them to
achieve profitability. We are pleased that the
hardening market has helped accelerate that
pace. We are optimistic that 2022 will continue
to show improvement in all of our recent
start-ups. Our business strategy has focused
on starting new enterprises rather than buying
other people’s business. We recognize this
slower process has a cost of delayed returns,
but the benefit in return makes it worthwhile.
We continue to believe this is the best
strategy for us.
$7.7
$7.7
$7.9
Investments are a key element in determining
the profitability of an insurance company
and 2021 was a good year for our Company.
During this period of low interest rates, we
took steps to lower our risk by shortening the
duration of our portfolio and maintaining the
quality at AA-. We took these actions because
we were concerned about inflation and the
concomitant risks that it brought to the asset
side of our balance sheet. This decision
reduced investment income in the short
term, but we were convinced the decision
would be the appropriate one.
$9.5
$8.1
$11.7
$12.0
$12.6
Our insurance business generated approxi-
mately $2.2 billion of operating cash flow that
we needed to invest. We invested in real estate
and investment funds, while improving liquidity
with an increasingly cash-like portfolio given
our expectation of an inflationary period. We
had substantial realized gains from the sale
of properties in our real estate portfolio in
Florida and New York, since we felt this was a
good opportunity to take advantage of the
current market. All of our private equity funds
$15.4
$13.8
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
TO OUR SHAREH OLD ERS
Total Revenues
(dollars in billions)
2017
2018
2019
2020
2021
$7.7
$7.7
$7.9
$8.1
$9.5
$22.2
Investments
2017
Market Value (dollars in billions)
2018
2017
2019
2018
2020
2019
2021
2020
2021
$11.7
$12.0
$17.5
$12.6
$17.7
$13.8
$18.5
$18.5
$15.4
$22.2
RECORD GROSS AND NET
PREMIUMS WRITTEN
2017
2018
$5.5
$5.5
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
$17.5
$17.7
$18.5
$18.5
$5.5
$5.5
$6.1
$6.3
$6.7
2019
2020
2021
$6.1
$10.7B
& $8.9B
$6.3
$6.7
W. R. Berkley Corporation 2021 Annual Report 5
TO OUR SHAR EHOLDERS
Always Focused on
Risk-Adjusted Return
Throughout our history, we have run our
business with a real understanding of the
risk being assumed.
“ It is important that any business
be well managed and capable
of providing us with a return on
investment that we consider
appropriate in view of the risk
inherent in the mix of business
written by that company.”
FROM OUR 1976 ANNUAL REPORT
“ The enterprise of insurance is
oriented towards assuming other
businesses’ risk. We try to be sure
that we understand the risks we
are taking. The concern in our
business is never the risks we can
define, but rather the uncertainty
of what we do not know or
understand.”
FROM OUR 2004 ANNUAL REPORT
“ In managing our business each
day, we attempt to examine not
just the profitability, but also the
inherent risk and volatility or
predictability of the business we
underwrite. All returns are not
created equal and one needs to
be conscious of the risk embedded
in achieving those returns.”
FROM OUR 2015 ANNUAL REPORT
6 W. R. Berkley Corporation 2021 Annual Report
continued to deliver more than satisfactory
returns, our merger/arbitrage results for the
year were outstanding and we also had
excellent results from our investment funds.
Overall, our investment income increased
for the year by nearly $88 million. We are
especially pleased that our diverse investment
portfolio with its low-risk structure is able
to provide a consistent return from varying
sources year in and year out. We look forward
to an excellent 2022.
Our business is one that steps in to solve
problems of uncertainty and unpredictability.
Our employees, agents and brokers,
customers and communities in which we
do business faced a myriad of challenges,
making 2021 a year of uncertainty and anxiety.
The constantly changing environment during
COVID, and the varying ways our government
and communities responded, appeared to
create more uncertainty for the population
as a whole. The political disruptions between
the extreme right and extreme left continue
the polarization within many countries
around the world. Our nation and much of the
world have moved away from compromise
and understanding, thus creating further
unpredictability and disruption for everyone.
Fortunately, our business is one that steps
in to solve problems of uncertainty and
unpredictability. This is especially true in
areas of our Company that specialize in
excess and surplus lines and other specialty
lines. So while we watch the turmoil and
uncertainty evolve, we are fortunate that our
Company not only helps our customers and
communities, but continues to prosper in spite
of the environment.
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
$8.1
$7.7
$7.7
$7.9
$9.5
In addition to the current tensions, there is
long-term stress coming about from global
warming. Many people in our society want
instant solutions to complex long-term
problems. We are concerned about global
warming and we consider it a problem for
all of society. We believe we must solve the
problems in the context of doing more good
than the damage being created by many
of the short-term solutions being applied.
This means a balance must exist between
finding solutions to eliminate the adverse
impact of fossil fuels on clean air and water
but not at a pace that prevents people from
maintaining the necessities of life. These are
complex problems. We need real solutions
and they will not come overnight. But, they
need to be fully thought through, considering
and understanding the intended as well as
the unintended consequences. People need
to think about the forests that are cut down
to make wood pellets that replace coal. Are
there really net benefits? We need to make
progress that is thoughtful and does not
cause us to take steps backward rather than
forward. These issues also bring about turmoil
and uncertainty in our day-to-day economic
environment. It is another area where we need
to work together.
$15.4
$13.8
$12.6
$12.0
$11.7
We are fortunate that our business
continues to do well and we have been able
to successfully adjust and adapt.
The most important task for our Company’s
management is managing our human capital.
Every great company is only a reflection of
the quality of its people. We are proud of our
team. We can only do well because of their
performance. This has been a very difficult two
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
$17.5
$17.7
$18.5
$18.5
$5.5
$5.5
$6.1
$6.3
$6.7
2017
2018
2019
2020
2021
$7.7
TO OUR SHAREH OLDE RS
$7.7
$7.9
$8.1
$9.5
$22.2
Reserves for Losses and Loss Expenses
(dollars in billions)
2017
2018
2017
2019
2018
2020
2019
2021
2020
2021
Common Stockholders’ Equity*
(dollars in billions)
2017
2018
2019
2020
2021
$11.7
$12.0
$17.5
$12.6
$17.7
$13.8
$18.5
$18.5
$15.4
$22.2
$5.5
$5.5
$6.1
$6.3
$6.7
* Net of $1.4 billion in special dividends and shares repurchased
from 2017 to 2021
RECORD UNDERWRITING
AND NET INCOME
$845M
& $1.0B
W. R. Berkley Corporation 2021 Annual Report 7
TO OUR SHAR EHOLDERS
Always Fulfilling
Our Commitments
For over five decades, we have been
meeting our responsibilities to stakeholders
with integrity and compassion.
“ We have worked not only to
achieve financial returns, but
to meet the needs of our
customers, and to deliver on
the promise that we make
every day, to be there when
our customers have a need.”
FROM OUR 1995 ANNUAL REPORT
“ The insurance business is all
about trust and fulfilling the
promise of coverage. We do this
while ensuring we continue to
be a valuable contributor to the
society in which we operate.”
FROM OUR 2011 ANNUAL REPORT
“ Through our business and our
charitable works, we contribute
to society in a manner that
makes our world a better and
more humane place.”
FROM OUR 2019 ANNUAL REPORT
8 W. R. Berkley Corporation 2021 Annual Report
years for everyone. The stresses and strains
have been borne in different ways by different
people. Anxiety caused by uncertainty and
fear is something we all have to live with. We
appreciate the fact that the vast majority of
our employees have remained committed
and continue to contribute every day to
helping us fulfill the needs of our customers,
agents, brokers and communities in which we
operate. We are fortunate that our business
continues to do well and we have been able
to successfully adjust and adapt. It is our hope
that we have generally seen the end of COVID.
We want to thank our directors for their
incredible support during these very uncertain
times when there was nothing more impor-
tant than trust. We want to thank all of our
employees who have gone through this
period of time working hand-in-hand to help
us fulfill our commitments to our customers.
We want to thank our agents and brokers who
have produced business that has allowed our
enterprise to continue to prosper. Events such
as COVID make us recognize what a small
world we live in. We all need to maximize our
tolerance and understanding of each other
and recognize that we survive best when there
is the most hope for our future.
William R. Berkley
Executive Chairman
W. Robert Berkley, Jr.
President and
Chief Executive Officer
Selected
Financial Data
In thousands, except per share data
Years ended December 31,
2017
2018
2019
2020
2021
Total revenues
$ 7,684,764 $ 7,691,651 $ 7,902,196 $ 8,098,925 $ 9,455,467
Net premiums written
6,260,508
6,433,227
6,863,499
7,262,437
8,862,867
Net investment income
575,788
674,235
645,614
583,821
671,618
Net realized and unrealized gains
on investments*
335,858
154,488
123,467
103,000
90,632
Insurance service fees
134,729
117,757
92,680
88,777
93,857
Net income to common stockholders
549,093
640,749
681,944
530,670
1,022,490
NET INCOME PER COMMON SHARE
Basic
Diluted
Return on common stockholders’ equity
$ 1.95
$ 2.25
$ 2.38
$ 1.89
1.89
10.9%
2.22
11.8%
2.35
12.5%
1.87
8.7%
$ 3.69
3.66
16.2%
AT YEAR END
Total assets
$ 24,299,917 $ 24,895,977 $ 26,643,428 $ 28,606,913 $ 32,086,414
Total investments
17,450,508
17,723,089
18,473,674
18,481,767
22,171,814
Reserves for losses and loss expenses
11,670,408
11,966,448
12,583,249
13,784,430
15,390,888
Common stockholders’ equity
5,411,344
5,437,851
6,074,939
6,310,802
6,653,011
Common shares outstanding
273,409
274,491
275,118
266,738
265,172
Common stockholders’ equity per share
19.79
19.81
22.08
23.66
25.09
Per share data and common shares outstanding have been adjusted for the 3-for-2 common stock splits effected on April 2, 2019
and March 23, 2022.
* Beginning in 2018, net unrealized gains on equity securities are included within net income due to our adoption of ASU 2016-01 on
January 1, 2018.
W. R. Berkley Corporation 2021 Annual Report 9
Always
Delivering Value
Our commitment to a core set of values that highlight the importance
of people, allocating capital to the best opportunities and fulfilling our
commitments has always set us apart. We are consistently focused
on meeting the needs of our customers, distribution partners, employees
and communities with the utmost integrity and care. We deliver value
to our customers, with appropriate products, in an efficient manner that
addresses their needs, by having specialized knowledge and expertise.
Our guiding principles to always do right, recognize that everything counts
and everyone matters, and act responsibly, allow us to have clarity in
our purpose. In doing so, we are able to anticipate, innovate and respond
to opportunities and challenges, and deliver the best risk-adjusted
returns over the long run.
10 W. R. Berkley Corporation 2021 Annual Report
Always Valuing Our People
Always Focused on
Risk-Adjusted Returns
Always Fulfilling
Our Commitments
W. R. Berkley Corporation 2021 Annual Report 11
Always
Valuing Our People
From the day our Company was founded, our business has been about people.
Our expertise in all that we do and the care in every action that we take make
a difference to our employees, distribution partners, insureds and communities.
We never lose sight of the fact that we are a company of people who serve people.
This knowledge has enabled us to be successful for many decades and will
continue to do so far into the future.
Our employees are our most valuable asset and we
Berkley Financial Solutions utilizes behavioral interviewing
take the utmost care to make each team member feel
techniques and Berkley Re Solutions uses inspired story-
that way. Like many organizations, we maintain robust
telling to include, recognize and inspire all employees
communication, training, leadership and development
in their innovation journey toward meaningful outcomes.
programs. Yet our structure enables us to create core
In addition, our diversity, inclusion and belonging
frameworks that each business can adapt to provide
program encompasses the concept of belonging, or
a tailored experience. Many of our programs have been
how an individual feels when they are included, valued
derived from our unique “Innovation Through People”
and recognized.
program that leads with cultivating the behaviors
required to develop an innovative mindset, providing
benefits in both our professional and personal lives.
For example, Berkley One’s approach to training and
onboarding provides team members with the broadest
possible perspective to demonstrate how everything
fits together, Berkley Oil & Gas offers training to all
employees that teaches critical thinking skills,
Just as importantly, valuing people in our business
means going beyond the internal focus on our
employees to engage our customers and distribution
partners. The experience and expertise of our specialist
underwriters and claims professionals provide an
understanding of risk at a level not normally seen in
the industry. Sharing that knowledge helps everyone
“ 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.”
Claudia H., Major Case Claims Examiner, Preferred Employers Group
12 W. R. Berkley Corporation 2021 Annual Report
123,604
total learning actions (up 31% from 2020)
20.63
average completed learning actions
by employee (up 45% from 2020)
12 hours, 2 minutes
average learning time per employee
manage risk and achieve better outcomes. Programs
such as Union Standard’s mock trials for agents,
Berkley Technology Underwriters’ rapid response
initiative for private equity firms looking to close acqui-
sitions, Berkley Agribusiness’s safety training for its
food team and Berkley Alliance Managers’ design
and construction information series demonstrate
the many ways in which we tailor education to our
specialized distribution and customer bases. We also
work directly with these constituents to find out what is
important to them on the front end. Examples include
the development of a suite of admitted products
based on interviews with customers and brokers at
Berkley Life Sciences and its introduction of industry-
specific training for less experienced brokers in its
target markets, as well as the design of a platform and
products based on information received through a
Listening Lab at Berkley One.
Ultimately, our business plays an important role in our
greater society. We help small businesses get back
on their feet after a claim or workers achieve the best
quality of life after an injury. Our businesses touch
individual lives and each and every one of us has an
important role to play as we develop deep relation -
ships with one another and amongst those that our
business touches.
W. R. Berkley Corporation 2021 Annual Report 13
“ We create an environment that people choose to be a part of because they can lean into strengths, develop new skills and make meaningful contributions to our Company, our industry and our community all at the same time.”Colin L.Senior Vice President of Operations, Berkley Canada Always
Focused on Risk-
Adjusted Returns
For 55 years, we have been focused on obtaining the best returns with a real
understanding of the risk being assumed. We recognize that not all risks are created
equal and evaluate the long-term potential for profitability as well as the inherent
volatility in each risk. Our team members seek to weigh and assess all of the
relevant issues in each opportunity, while supporting the evolution of our business
and the economy. Over the long term, we have achieved industry-leading results
with below-average volatility.
Focusing on risk-adjusted returns requires a constant
In addition, our ability to develop products and services
evaluation of challenges, risks and opportunities. We
to meet the needs of new or growing industries,
direct resources to the best performing parts of our
address emerging markets or risks and societal issues,
business, while pricing, terms and conditions appro-
support underserved markets, or serve customers and
priately reflect risk, even if they cause the market to
distribution in new and better ways has provided us
move away from us for a time. Many of our businesses,
with a sustainable competitive advantage. We regularly
such as Berkley Re UK and Berkley Pro, have the ability
start new businesses to address emerging markets or
to move up or down the risk tower to a position where
risks or increasingly important sectors of the economy,
pricing is more adequate as market conditions change.
one of the most recent being Berkley Small Business
Others, like Berkey Life Sciences, retain the flexibility to
Solutions. In doing so, we structure the business to
write on either an admitted or surplus lines basis. We
achieve the best results and avoid potential legacy
leverage data and technology to become more efficient
issues associated with acquisitions.
in the delivery of our products and services, as Berkley
Fire and Marine has in its Xpress Builders Risk platform,
and effective in the management of claims, as Berkley
One has by using technology to inspect properties
and adjust claims. In certain instances, we may pivot
away from sectors with unfavorable characteristics, as
Berkley Industrial Comp did in exiting coal mines and
expanding its business beyond the mine site to provide
high-quality monoline workers’ compensation coverage
to highly-regulated, high-hazard industries staffed with
highly-skilled workers.
Moreover, our decentralized structure enables our
businesses to remain true to their core missions,
while finding new opportunities when expertise meets
client needs to grow profitably. Examples include
Berkley North Pacific’s development of products for
Delivery Service Partners and Implement Dealers within
its regional footprint; Berkley Risk Solutions’ workplace
violence product that draws upon its capabilities in
insuring emerging risks; Berkley Re Australia’s transition
from reinsurer to direct writer of construction profes-
sional coverage when the standard market withdrew;
14 W. R. Berkley Corporation 2021 Annual Report
Berkley Life Sciences’ underwriting of COVID trials,
vaccines and therapies; Key Risk’s introduction of their
core workers’ compensation expertise to additional
industries through new PEO and specialty construction
programs; and the creation of Berkley Renewable Energy
to bring Berkley Oil & Gas’s knowledge to the growing
alternative energy sector.
Our excess and surplus lines businesses are particu-
larly adept at underwriting risks in emerging industries,
as Admiral Insurance has in the burgeoning virtual
medicine industry, or those market segments being
de-emphasized by the standard market, such as
certain types of medical malpractice, nutraceuticals
and construction risks, while Nautilus excels in insuring
early-stage enterprises. Additionally, collaborations
between our specialty businesses offer additional
opportunities to profitably match expertise with needs.
Berkley Risk Solutions has partnered with Berkley Cyber
Risk Solutions to offer turnkey cyber risk coverages, while
Berkley One works with Berkley Classics, Berkley Fire &
Marine and Berkley Asset Protection to offer classic car,
recreational marine and fine arts coverages to their
high net worth clients.
“ ’ Doing’ gets a lot of credit,
but ‘not doing’ is equally
important. Sometimes our
team delivers the best returns
for our stakeholders when we
opt not to take on suboptimal
exposures or underpriced risks.”
Arthur Davis, President, Vela Insurance Services
2 new businesses
started in 2021
W. R. Berkley Corporation 2021 Annual Report 15
“ Risk-adjusted return is at the core of what we do. Every risk, every opportunity, whether for growth or cost savings, is assessed against the potential to enhance that return. Where the return cannot be supported, we are quick to make decisions and change tack so that we can allocate capital and focus on more rewarding opportunities.”Tony WheatleyPresident, Berkley Insurance Australia Always
Fulfilling Our
Commitments
The culture of a successful business requires many things. Chief among them is a
commitment to care and integrity in the way that we engage with others and a clear
sense of responsibility to our stakeholders. Insurance is a promise to be there for our
policyholders when things go wrong and we are committed to doing the right thing for them,
our distribution partners and our employees. In addition, we always consider how our
business fits into society and its impact on our communities. In the long run, our Company
and its stakeholders benefit when we strive to do what is right for our constituents.
We serve our customers best by bringing expertise
where strong, emotional bonds are formed over time and
specific to the unique needs of each business’s differ-
the manner in which we meet these claim promises has
entiated client base and being there to pay valid claims
made a positive difference during a more difficult time.
as they arise. An in-depth understanding of the risks,
opportunities and economic factors in the businesses
we insure enables us to achieve better outcomes for our
customers and get them back on their feet in a timely
fashion. Berkley Re recognizes the importance of paying
storm claims quickly to help their insurance company
clients with cash flow; Berkley Southeast has a “Back-in-
Business” claim strategy to handle claims quickly while
assuaging customer concerns so they can focus on
their businesses; and Berkley Luxury Group increased the
frequency of audits during the pandemic as restaurants
were hard hit by shutdowns. This is especially true in
Berkley Program Specialists’ equine mortality business,
In addition, we provide valuable risk management
resources tailored to our clients’ businesses. For
example, Acadia Insurance has developed a partnership
with Professional Logging Contractors of Maine; Midwest
Employers Casualty has a long-standing “Total Cost of
Risk” approach that helps clients reduce risks to mitigate
losses; and Berkley Accident & Health relies on its
inno va tive suite of risk management tools called “Berkley
Edge” to provide value-added solutions to customers
that benefit their bottom line. We also provide access to
third-party vendors for value-added services to round
out our offerings to develop a complete solution for
our customers.
“ Midwest Employers Casualty delivers on its promise to clients to be a partner, a team
player and a resource for claims management. Their standards and expectations
are high, all with the desire for a good outcome from which everyone benefits,
from the insurer to the insured worker. The MEC team doesn’t keep its expertise
and knowledge hidden. They share it. This is what sets MEC apart from the rest.”
Cora Beth Hatfield, Fund Administrator for the MS Truck, Food & Fuel SIF, Jackson Mississippi
16 W. R. Berkley Corporation 2021 Annual Report
Our commitments extend beyond our insureds to the
helping to remove financial obstacles to pursuing their
communities in which we operate, both geograph-
educational dreams, has a direct connection to our
ically and professionally. Our operating structure
workers’ compensation business and is supported
enables each decentralized business to develop strong
financially, through leadership participation and through
connections with its local community, where our team
volunteerism at both the corporate level and by many of
members live and work, and often where our clients
our businesses that underwrite workers’ compensation
and distribution partners are located, to focus on what
insurance. Berkley Environmental is active in efforts to
is important to them. Continental Western Group has
restore and protect the environment through its work with
undertaken a “Greater Giving” initiative to increase
Wetlands Mitigation Banks. And because of its personal
its focus on doing more for local charities. Berkley
lines focus, Berkley One has implemented a program
Oil & Gas has created “BOG Cares” to recognize the
called “Moving Families Forward” that supports a myriad
positive contribution that it can make to local commu-
of charities providing assistance to families in need.
nities through varied interactions with local residents,
businesses, schools and not-for-profit organizations,
including fundraising or committing time to volunteer
events. Carolina Casualty is dedicated to supporting
food drives for Feeding Northeast Florida and Berkley
Financial Specialists champions charities in both of
its locations — Hands on Hartford in Connecticut and
Project Place in Baltimore.
In addition, because the nature of our business is
helping people, there is a deep connection between
Our focus on meeting our commitments to our stake-
holders highlights not only how we are all intercon-
nected but also the how doing the right thing makes
our business better.
1,164 meal equivalents
Carolina Casualty donated cash
how our business itself serves the community and our
and 180 pounds of food in a food drive
charitable work. Kids’ Chance, which supports children
affected by a parent’s work-related injury or death by
for Feeding Northeast Florida
W. R. Berkley Corporation 2021 Annual Report 17
“ Community is a big word in our organization, and we try to emphasize that within our day-to-day. We participate in many communities, both within the industry that we serve and in the places where we live and work. Building service into these communities is also an area where we show value to employees — both by exposing people to and recognizing the importance of participating in these communities, and leading by example. Whether it’s spending time working with Kids’ Chance, speaking to risk management insurance programs and local universities, being active in state insurance associations, or simply helping out with a local food drive — employees get value from our community involvement.”Brian DouglasPresident, BerkleyNet W. R. Berkley Corporation
Performance vs. S&P 500®
Annual Percentage Change
In Per-Share Book Value of W. R. Berkley
Corporation with Dividends Included (1)
In S&P 500® with
dividends Included (2)
Relative Results (1)-(2)
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
2018
2019
2020
2021
50%
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%
-5.6%
23.3%
15.4%
12.2%
14.8%
4.8%
14.8%
4.3%
15.7%
10.6%
4.8%
17.1%
8.6%
11.7%
16.6%
84,909%
-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%
21.8%
-4.4%
31.5%
18.4%
28.7%
13.0%
19,031%
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%
31.4%
-3.2%
0.3%
10.1%
-1.2%
-27.6%
1.1%
3.0%
3.7%
-11.2%
9.2%
-14.4%
-9.8%
-17.0%
3.6%
87,689%
15,925%
Average Annual Gain — 1973-2021
Overall Gain — 1973-2021
Overall gain 1973-2021 with dividends compounded = 87,689%
W. R. Berkley Corporation
S&P 500 ®
90,000%
70,000%
50,000%
30,000%
10,000%
1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2021
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.
18 W. R. Berkley Corporation 2021 Annual Report
1974 1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Relative Stock Price
Relative Stock Price
Performance
Performance
Cumulative Growth:
W. R. Berkley Corporation
41,095%
S&P 500®
4,786%
’74 ’75 ’76 ’77 ’78 ’79 ’80 ’81 ’82 ’83 ’84 ’85 ’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 ’18 ’19 ’20 ’21
W. R. Berkley Corporation 2021 Annual Report 19
Our
Business
Today, as with yesterday and tomorrow, the combined expertise of
underwriting, risk management, claims handling and investing will deliver
outstanding risk-adjusted returns.
Insurance
Our Insurance businesses underwrite predomi-
nantly 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, Asia and Mexico.
Reinsurance & Monoline Excess
Our Reinsurance & Monoline Excess businesses
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. Monoline Excess
2021 Results
TOTAL REVENUES
$7.7B
PRE-TAX INCOME
$1.2B
2021 Results
TOTAL REVENUES
$1.2B
units solely retain risk on an excess basis.
PRE-TAX INCOME
$271M
20 W. R. Berkley Corporation 2021 Annual Report
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
businesses 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 decen tral-
ized operations, allowing each of our businesses 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 of
balance sheet, including a high-quality investment
the amount of risk being assumed. Superior risk-adjusted
portfolio, ensures ample resources to grow the business
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 measure
perspective and a clear sense of fiduciary respon-
performance — and, the same standards are used
si bility to shareholders.
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
56 businesses, 49 were developed internally and seven
were acquired.
W. R. Berkley Corporation 2021 Annual Report 21
Segment
Overview
Each of our two business segments — Insurance and Reinsurance &
Monoline Excess — comprises individual businesses 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
sustainable competitive advantage that can only be acquired over
many years with consistent discipline.
22 W. R. Berkley Corporation 2021 Annual Report
2021
Segment
Data
2021 Net Premiums Written by Major Line of Business (in percent)
INSURANCE:
REINSURANCE & MONOLINE EXCESS:
INSURANCE PG33
$7.7B
INSURANCE PG33
REINSURANCE &
MONOLINE EXCESS PG33
REINSURANCE &
MONOLINE EXCESS PG33
$1.1B
BREAKDOWN OF
FIXED-MATURITY SECURITIES PG34
BREAKDOWN OF
FIXED-MATURITY SECURITIES PG34
14
14
38
15
19
Other Liability
Short-tail Lines
Workers’ Compensation
Commercial Automobile
Professional Liability
19
16
65
Casualty
Property
Monoline Excess
2021 Assets and Net Reserves (dollars in billions)
INSURANCE:
Assets
Reserves
$10.1
REINSURANCE & MONOLINE EXCESS:
$24.4
Assets
Reserves
$4.9 assets
$4.9
$2.8
W. R. Berkley Corporation 2021 Annual Report 23
Investments
Over the past few years, we have shortened the duration of our fixed income
portfolio to 2.4 years, while maintaining its high quality with an average
rating of AA-. As a result, there has been less volatility in our book value
from mark-to-market accounting and we are better able to manage the
uncertain interest rate environment.
We manage our portfolio for total return, including capital gains. As
investment income is an important component of our economic model,
we will continue to seek out investment opportunities with above-
average risk-adjusted returns and to position our fixed-maturity portfolio
to manage the yield curve as well as the impact of potential inflation.
INSURANCE PG33
REINSURANCE &
MONOLINE EXCESS PG33
Breakdown of Fixed-Maturity
Securities (including cash) (in percent)
BREAKDOWN OF
FIXED-MATURITY SECURITIES PG34
Investment Data
(dollars in millions)
2020
2021
Cash and Invested Assets
Invested assets
$18,482
$22,172
Cash and cash equivalents
$2,372
$1,569
Total
$20,854
$23,741
Net Investment Income
$584
$672
Net realized and unrealized
gains on investments
$103
$91
5
6
30
7
9
18
25
Corporate Bonds
Asset-backed Securities
State and Municipal Bonds
Cash and Cash Equivalents
Foreign Bonds
Mortgage-backed Securities
U.S. Government and
Government Agency Bonds
24 W. R. Berkley Corporation 2021 Annual Report
W.R. Berkley Corporation
2021 Financial Information
Form
10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
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
(Address of principal executive offices)
Greenwich,
CT
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
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.20 per share
5.700% Subordinated Debentures due 2058
5.100% Subordinated Debentures due 2059
4.250% Subordinated Debentures due 2060
4.125% Subordinated Debentures due 2061
WRB
WRB-PE
WRB-PF
WRB-PG
WRB-PH
New York Stock Exchange
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.
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 ☒ No ☐
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant's common stock held by non-affiliates as of June 30, 2021, the last business day of the registrant’s most recently
completed second fiscal quarter, was $10,893,170,124.
Number of shares of common stock, $.20 par value, outstanding as of February 17, 2022: 176,790,914
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, 2021,
are incorporated herein by reference in Part III.
2
2
3
Page
6
25
36
36
36
37
38
40
60
61
113
113
115
115
116
116
116
116
116
117
121
SAFE HARBOR STATEMENT
PART I
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
ITEM
EX-4.1
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
1.
1A.
1B.
2.
3.
4.
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
5.
6.
7.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
RESERVED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
8.
9.
9A.
9B.
9C.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
10.
11.
12.
13.
14.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
15.
16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
DESCRIPTION OF REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
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
3
3
2
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. This document may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking
words such as “believes,” “expects,” “potential,” “continued,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,”
“anticipates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this report including statements
related to our outlook for the industry and for our performance for the year 2022 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 entrants to the industry;
the long-tail and potentially volatile nature of the insurance and reinsurance business;
product demand and pricing;
claims development and the process of estimating reserves;
investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial
institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and
private equity investments;
the effects of emerging claim and coverage issues;
the uncertain nature of damage theories and loss amounts, including claims for cyber security related risks;
natural and man-made catastrophic losses, including as a result of terrorist activities;
the ongoing COVID-19 pandemic;
the impact of climate change, which may alter the frequency and increase the severity of catastrophe events;
general economic and market activities, including inflation, interest rates and volatility in the credit and capital markets;
the impact of 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 2019 ("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 cyber security issues;
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”).
4
4
5
We describe these risks and uncertainties in greater detail in Item 1A, Risk Factors. These risks and uncertainties could cause our actual results for the
year 2022 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.
5
5
4
PART I
ITEM 1. BUSINESS
W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in
two segments of the property casualty insurance business:
•
•
Insurance - predominantly commercial insurance business, including excess and surplus lines, admitted lines and specialty personal lines throughout the
United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and
Australia.
Reinsurance & Monoline Excess - reinsurance business on a facultative and treaty basis, primarily in the United States, the United Kingdom, Continental
Europe, Australia, the Asia-Pacific region and South Africa, as well as operations that solely retain risk on an excess basis.
Our two reporting segments are each composed of individual businesses that serve a market defined by geography, products, services or industry served. Each of
our businesses is positioned close to its customer base and participates in a niche market requiring specialized knowledge. This strategy of decentralized operations
allows each of our businesses to identify and respond quickly and effectively to changing market conditions and specific 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 56
businesses, 49 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 reporting segments for each of the
past three years were as follows:
(In thousands)
Net premiums written:
Insurance
Reinsurance & Monoline Excess
Total
Percentage of net premiums written:
Insurance
Reinsurance & Monoline Excess
Total
2021
Year Ended December 31,
2020
2019
$
$
7,743,814
1,119,053
8,862,867
$
$
6,347,101
915,336
7,262,437
$
$
87.4 %
12.6
100.0 %
87.4 %
12.6
100.0 %
6,086,009
777,490
6,863,499
88.7 %
11.3
100.0 %
Thirty of our insurance company subsidiaries are rated by A.M. Best Company, Inc. ("A.M. Best") and have financial strength 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: “A Best's Financial Strength Rating (FSR) is an independent opinion of an insurer's financial strength
and ability to meet its ongoing insurance policy and contract obligations. An FSR is not assigned to specific insurance policies or contracts and does 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 financial strength ratings are A1 for Berkley Insurance Company, Berkley Regional Insurance Company and Admiral Insurance Company (the
sixth highest rating out of twenty-one possible ratings).
Our twenty-six insurance company subsidiaries rated by Fitch Ratings ("Fitch") have insurer financial strength ratings of A+ (the seventh highest rating out
of twenty-seven possible ratings).
6
6
7
The following sections describe our reporting segments and their businesses in greater detail. These businesses underwrite on behalf of one or more
affiliated insurance companies within the group. The businesses are identified by us for descriptive purposes only and are not legal entities, but for marketing
purposes may sometimes be referred to individually as "a Berkley company" or collectively as "Berkley companies." Unless otherwise indicated, all references in
this Form 10-K to “Berkley,” “we,” “us,” “our,” the “Company” or similar terms refer to W. R. Berkley Corporation together with its subsidiaries and businesses.
W. R. Berkley Corporation is a Delaware corporation formed in 1970.
Insurance
Our U.S.-based businesses 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 businesses are dedicated to the U.S. excess and surplus lines market. They serve a 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 businesses include premises operations, commercial automobile, property, products liability, general liability and professional
liability lines. Products are generally distributed through wholesale agents and brokers.
Industry Specialty: Certain other businesses 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
business 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 businesses 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 businesses 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 businesses offer standard insurance products and services focused on meeting the specific needs of a geographically differentiated
customer base. Key clients are small-to-midsized businesses. These regionally focused businesses 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 businesses, we write business in more than 60 countries worldwide, with branches or offices in 29 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 businesses also provide a wide variety of fee-based services, including claims, administrative and
consulting services.
Businesses 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, Rhode Island and Vermont. In addition to its general offerings, Acadia has specialized
expertise in insuring regional industries such as construction, service contractors, lumber, 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. In both general liability and professional lines, Admiral has a broad line of products to meet the needs of existing as well as
emerging opportunities. The distribution of products is limited solely to wholesale brokers.
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.
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6
Berkley Agribusiness offers insurance for larger commercial risks across the United States involved in the supply, storage, handling, processing and
distribution of commodities related to the agriculture and food industries.
Berkley Alliance Managers offers tailored insurance coverages and comprehensive risk management solutions designed to enhance profitability and reduce
susceptibility to loss in four target markets - Design Professionals, Construction Professionals, Accounting Professionals and miscellaneous non-medical Service
Professionals.
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, including select
Berkley member company agents.
Berkley Asset Protection provides specialized insurance coverages for fine arts and jewelry exposures to commercial and individual clients.
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 Construction Solutions provides excess liability coverage to residential and commercial contractors on a project or practice basis.
Berkley Custom Insurance focuses on the excess casualty insurance market and offers umbrella and excess liability coverages to clients from the
small/middle market to Fortune 1000 companies in target classes of business including construction, manufacturing, retail/wholesale trade, finance, real estate,
public entities and oil & gas.
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 cyber 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 clients in the entertainment
industry and sports-related organizations.
Berkley Environmental underwrites casualty and specialty environmental products for environmental customers including contractors, consultants, property
owners and facilities operators.
Berkley Financial Specialists serves the insurance needs of companies in the financial services sector and beyond. Its Berkley Crime division provides crime
and fidelity related insurance products for commercial organizations, financial sector businesses and governmental entities on a primary and excess basis. Its
Financial Services segment provides management liability and fidelity products to financial institutions, insurance companies and asset management firms.
Berkley Fire & Marine offers a broad range of preferred inland marine and related property risks and services to customers throughout the United States.
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 underwrites customized, comprehensive insurance solutions for the full spectrum of healthcare providers. Through Berkley Healthcare
Medical Professional, it offers a wide range of medical professional coverages. Through Berkley Healthcare Financial Lines, it offers a comprehensive suite of
financial lines coverages.
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 Industrial specializes in writing workers' compensation insurance for diverse high hazard industries in select states. Its products are distributed by a
select group of independent retail agents.
Berkley Insurance Asia underwrites specialty commercial insurance coverages to clients in North Asia and Southeast Asia through offices in Hong Kong,
Singapore, Labuan and Shanghai.
Berkley Insurance Australia underwrites general insurance business in Australia, including professional indemnity insurance for companies of all sizes.
8
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9
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.
Berkley Life Sciences offers a comprehensive spectrum of property casualty products to the life sciences industry on a global basis, including both primary
and excess product 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 Management Protection offers a modular suite of management liability products for small and middle market companies through a bespoke and
easy to use platform tailored towards independent agents. The management liability coverages they provide include directors and officers, employment practices,
fiduciary, cyber, crime and miscellaneous professional liability.
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 small and 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 Berkley member insurance companies.
Berkley North Pacific offers preferred insurance products and services to a broad range of small to medium size commercial entities. It operates through
independent agents in Idaho, Montana, Oregon, Utah and Washington.
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 all sizes 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 on a worldwide basis. Its liability
coverages include directors and officers, errors and omissions, fiduciary, employment practices, and sponsored insurance agents' errors and omissions. 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 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 for law firms and accounting firms, as well as other professional firms and their
practices. It also offers executive liability products, including directors and officers liability, employment practices and fiduciary liability, to small to middle
market privately held and not for profit customers. Berkley Select provides these insurance products on both an admitted and surplus lines basis.
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8
Berkley Small Business Solutions offers commercial insurance products for small businesses through a modern technology platform that leverages data and
analytics. Its initial product offering focuses on preferred risks in the non-fleet transportation market.
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.
Berkley Surety provides a full spectrum of surety bonds for construction, environmental and commercial surety accounts in the U.S. and Canada, through an
independent agency and broker platform across 20 field locations.
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, including the railroad
industry as well as the trucking, busing and other industries that use rubber-wheeled vehicles for over-the-road use.
Intrepid Direct provides business insurance coverages through a direct distribution model focused on the franchise market, with specialties in the restaurant,
garage and fitness industries.
Key Risk specializes in writing workers' compensation insurance for diverse industries including healthcare, human services, transportation, temporary
staffing, professional employer organizations and contractors requiring coverage under the United States Longshore and Harbor Workers' Compensation Act
(USL&H). Its products are distributed by a select group of independent retail agents and wholesale brokers located throughout the United States.
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 based in California. It serves thousands
of 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 with a focus on the construction, farm/ranch, retail and service industries. It operates 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 Specialty Insurance 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.
W R B Europe is comprised of specialist operating units offering a focused range of insurance products to markets in Continental Europe.
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 and crisis management.
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The following table sets forth the percentage of gross premiums written by each Insurance business:
Acadia Insurance
Admiral Insurance
Berkley Accident and Health
Berkley Agribusiness
Berkley Alliance Managers
Berkley Aspire
Berkley Asset Protection
Berkley Canada
Berkley Construction Solutions
Berkley Custom Insurance
Berkley Cyber Risk Solutions
Berkley Entertainment
Berkley Environmental
Berkley Financial Specialists
Berkley Fire & Marine
Berkley Global Product Recall Management
Berkley Healthcare
Berkley Human Services
Berkley Industrial
Berkley Insurance Asia
Berkley Insurance Australia
Berkley Latinoamérica
Berkley Life Sciences
Berkley Luxury Group
Berkley Management Protection
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
Berkley Select
Berkley Small Business Solutions
Berkley Southeast
Berkley Surety
Berkley Technology Underwriters
Carolina Casualty
Continental Western Group
Gemini Transportation
Intrepid Direct
Key Risk
Nautilus Insurance Group
Preferred Employers Insurance
Union Standard
Vela Insurance Services
Verus Specialty Insurance
WRB Europe
W/R/B Underwriting
Other
Total
2021
5.5%
Year Ended December 31,
2020
6.0%
2019
5.9%
5.6
5.2
1.2
2.8
0.5
0.8
1.1
—
3.5
0.5
2.1
5.4
0.8
0.8
0.4
1.7
1.0
0.8
0.7
1.4
2.8
0.5
1.1
—
1.2
2.2
0.7
1.5
3.2
0.7
4.8
1.7
0.5
0.3
2.4
—
2.3
1.2
0.7
0.6
2.8
3.4
0.9
2.5
4.9
1.9
2.0
2.6
0.7
1.0
4.3
2.3
100.0%
5.9
5.7
1.1
3.0
0.4
0.6
1.0
—
3.1
0.3
2.7
4.9
0.9
0.7
0.5
1.6
0.8
0.9
0.6
1.2
3.6
0.7
1.3
—
1.2
3.0
0.8
1.2
4.1
0.3
2.9
1.1
0.4
0.3
2.8
—
2.0
1.2
0.7
0.7
2.6
2.9
0.5
2.7
4.8
2.4
2.1
2.8
0.8
1.4
3.9
3.0
100.0%
5.9
5.0
0.8
2.8
0.7
0.8
1.2
—
3.2
0.8
1.8
5.2
0.6
0.8
0.4
1.8
1.0
0.8
0.8
1.7
2.7
0.5
0.9
—
1.3
2.1
0.7
1.5
3.0
1.2
7.5
2.0
0.6
0.2
2.0
—
2.3
1.1
0.6
1.3
2.5
3.0
1.1
2.5
4.5
1.5
1.7
2.6
0.8
1.1
4.0
1.6
100.0%
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The following table sets forth percentages of gross premiums written, by line, by our Insurance operations:
Other liability
Short-tail lines (1)
Professional liability
Workers' compensation
Commercial auto
Total
2021
35.2%
22.2
17.7
12.4
12.5
100.0%
Year Ended December 31,
2020
35.5%
23.3
15.1
14.3
11.8
100.0%
2019
33.9%
23.5
13.3
17.8
11.5
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.
Reinsurance & Monoline Excess
We provide other insurance companies and self-insureds with assistance in managing their net risk through reinsurance on either a portfolio basis, through
treaty reinsurance, or on an individual basis, through facultative reinsurance. Our monoline excess operations solely retain risk on an excess basis.
Businesses comprising the Reinsurance & Monoline Excess 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, Melbourne, Sydney, Beijing,
Hong Kong, Labuan 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 and property facultative 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.
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 designed to help its insureds lower their total cost of risk.
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The following table sets forth the percentages of gross premiums written by each Reinsurance & Monoline Excess business:
Berkley Re America
Berkley Re Asia Pacific
Berkley Re Solutions
Berkley Re UK
Lloyd's Syndicate 2791 Participation
Midwest Employers Casualty
Total
2021
Year Ended December 31,
2020
2019
31.2 %
15.4
13.8
13.8
6.8
19.0
100.0 %
31.6 %
13.5
14.4
14.7
6.0
19.8
100.0 %
The following table sets forth the percentages of gross premiums written, by line, by our Reinsurance & Monoline Excess operations:
Casualty
Property
Monoline Excess
Total
Results by Segment
2021
Year Ended December 31,
2020
2019
61.8 %
19.2
19.0
100.0 %
58.1 %
22.1
19.8
100.0 %
Summary financial information about our segments is presented on a GAAP basis in the following table:
(In thousands)
Insurance
Revenue
Income before income taxes
Reinsurance & Monoline Excess
Revenue
Income before income taxes
Other (1)
Revenue
Loss before income taxes
Total
Revenue
Income before income taxes
2021
Year Ended December 31,
2020
2019
$
$
$
7,578,592
1,219,798
$
1,203,647
270,563
673,227
(207,456)
9,455,466
1,282,905
$
$
6,478,834
668,012
$
1,009,203
205,587
610,888
(168,797)
8,098,925
$
704,802 $
34.2 %
12.0
12.2
15.3
4.8
21.5
100.0 %
55.7 %
22.8
21.5
100.0 %
6,397,074
814,862
877,551
189,188
627,571
(151,130)
7,902,196
852,920
_______________________________________
(1) Represents corporate revenues and expenses, net investment gains and losses, and revenues and expenses from non-insurance businesses that are consolidated
for financial reporting purposes.
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13
13
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 & Monoline Excess
Loss ratio
Expense ratio
Combined ratio
Total
Loss ratio
Expense ratio
Combined ratio
Investments
2021
Year Ended December 31,
2020
2019
61.1 %
28.3
89.4 %
61.0 %
29.7
90.7 %
61.1 %
28.5
89.6 %
64.9 %
30.3
95.2 %
61.3 %
31.8
93.1 %
64.5 %
30.4
94.9 %
62.4 %
31.1
93.5 %
61.5 %
35.0
96.5 %
62.3 %
31.5
93.8 %
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 (losses) gains (3)
2021
Year Ended December 31,
2020
2019
$
$
$
$
22,234,975
671,618
3.0 %
90,632
(254,939)
$
$
$
$
20,012,182
583,821
2.9 %
103,000
164,645
$
$
$
$
19,145,567
645,614
3.4 %
120,703
261,970
_______________________________________
(1) Includes investments, cash and cash equivalents, trading accounts receivable (payable) from brokers and clearing organizations, trading account securities sold
but not yet purchased and unsettled purchases.
(2) The inclusion of the allowance for expected credit losses on investments commenced January 1, 2020 due to the adoption of ASU 2016-13. See Note 10 of the
Consolidated Financial Statements for components of net investment gains.
(3) Represents the change in unrealized investment gains (losses) for available for sale securities recognized in stockholders' equity.
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
®
2021
2.3 %
1.8
Year Ended December 31,
2020
2.8 %
1.8
2019
3.2 %
2.3
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.
14
14
15
1 year or less
Over 1 year through 5 years
Over 5 years through 10 years
Over 10 years
Mortgage-backed securities
Total
2021
Year Ended December 31,
2020
2019
9.5 %
46.1
25.2
12.7
6.5
100.0 %
11.4 %
38.9
25.0
17.4
7.3
100.0 %
6.5 %
35.9
24.7
21.4
11.5
100.0 %
At December 31, 2021, the fixed maturity portfolio, including cash and cash equivalents, had an effective duration of 2.4 years, and 2.4 years for 2020
and 2.8 years for 2019.
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 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.
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The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted
was $1,387 million and $1,655 million at December 31, 2021 and 2020, respectively. The aggregate net discount for those reserves, after reflecting the effects of
ceded reinsurance, was $452 million and $483 million at December 31, 2021 and 2020, respectively. At December 31, 2021, discount rates by year ranged from
0.7% to 6.5%, with a weighted average discount rate of 3.4%.
Substantially all discounted workers’ compensation reserves (97% of total discounted reserves at December 31, 2021) 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, 2021), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves
are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware.
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 environmental and asbestos claims on policies written before adoption of the absolute
exclusion was $20 million at December 31, 2021 and $19 million at December 31, 2020. 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.
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
Cumulative effect adjustment resulting from changes in accounting principles (1)
Restated net reserves at beginning of period
Net provision for losses and loss expenses:
Claims occurring during the current year (2)
Increase in estimates for claims occurring in prior years (3)
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:
Increase in estimates for claims occurring in prior years (3)
Retrospective premium adjustments for claims occurring in prior years (4)
Net favorable premium and reserve development on prior years
2021
2020
2019
$
11,620,393
—
11,620,393
$
10,697,998
5,927
10,703,925
4,921,191
863
31,906
4,953,960
887,896
2,777,798
3,665,694
(60,297)
12,848,362
2,542,526
15,390,888
(863)
7,510
6,647
$
$
$
4,432,937
627
35,142
4,468,706
921,054
2,677,595
3,598,649
46,411
11,620,393
2,164,037
13,784,430
(627)
16,807
16,180
$
$
$
10,248,883
—
10,248,883
4,057,989
34,079
39,048
4,131,116
985,599
2,673,803
3,659,402
(22,599)
10,697,998
1,885,251
12,583,249
(34,079)
53,511
19,432
$
$
$
$
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____________________________________
(1) The cumulative effect adjustment resulting from changes in accounting principals relates to the allowance for expected credit losses on reinsurance
recoverables that commenced on January 1, 2020 due to the adoption of ASU 2016-13. See Note 1 for more details.
(2) Claims occurring during the current year are net of loss reserve discounts of $21 million, $10 million and $20 million in 2021, 2020 and 2019, respectively.
(3) The change in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior
years decreased by $19 million in 2021 and $21 million in 2020 and increased by $19 million in 2019, respectively.
(4) For certain retrospectively rated insurance policies 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 13, Reserves for Losses and Loss
Expenses included in our audited consolidated financial statements for further information regarding the changes in estimates for claims occurring in prior years.
A reconciliation between the reserves as of December 31, 2021 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
Allowance for expected credit losses on due from reinsurers
Gross reserves reported in the consolidated GAAP financial statements
$
$
12,339,921
587,002
(85,689)
2,542,526
7,128
15,390,888
_________________________
(1) For statutory purposes, the Company discounts its workers’ compensation reinsurance reserves at 2.5% as prescribed or 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.
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 principally regulated by their domiciliary state insurance departments and are
subject to varying degrees of regulation and supervision in the other U.S. jurisdictions in which they do business. As of January 1, 2022, there are six domiciliary
states related to our U.S. insurance subsidiaries.
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 our excess and surplus lines and reinsurance
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subsidiaries, must generally file all rates with the insurance department of each state in which they operate. Our excess and
surplus lines and reinsurance subsidiaries generally operate free of rate and form regulation.
Legislative and Regulatory Activity Related to the COVID-19 Pandemic. In 2020, U.S. state insurance regulators issued directives and guidance in response
to the economic impacts of the COVID-19 pandemic, which encouraged or directed insurance companies to implement accommodations such as extending grace
periods for premium payments and forbearing on the cancellation or non-renewal of policies due to non-payment of premiums. In addition, there has been industry
and regulatory discussion regarding the appropriate role of pandemic business interruption coverage, and whether insurers should be required to provide such
coverage. In 2020, legislators of several states proposed bills that would mandate retroactive coverage of pandemic-related business interruption losses. To date,
however, none of these proposals has meaningfully progressed or been enacted. There appears to be a broadly held and bipartisan consensus that pandemic risk is
generally uninsurable absent some kind of publicly-funded backstop. At the federal level, there are ongoing discussions regarding a federal response to the risk of
future pandemics, some of which include proposals to create public-private partnerships with insurers. It is too early to determine which proposal, if any, may
ultimately gain the support of Congress, and how any new legislation might affect our business. See “Risk Factors — Risks Related to Our Industry — The
COVID-19 pandemic has materially and adversely affected our results of operations, and is expected to continue and therefore may materially and adversely affect,
our results of operations, financial position and liquidity.”
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.
We must also 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.
In addition, all states have 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. In November 2019, the International Association of Insurance Supervisors (“IAIS”), an international standard
setter, adopted a global framework for the supervision of internationally active insurance groups, as discussed below under “- International Regulation.” This
framework includes a risk-based, group-wide global insurance capital standard (“ICS”), which is undergoing a five-year monitoring period that started in January
2020.
In the United States, the National Association of Insurance Commissioners (the “NAIC”) has developed a group capital calculation tool that uses a risk-
based capital aggregation methodology for all entities in an insurance holding company system. The goal is to provide U.S. regulators with a method to aggregate
the available capital and the minimum capital of each entity in a group in a way that applies to all companies regardless of their structure. In 2020, the NAIC
adopted amendments to the
model holding company act and regulation that implement the group capital calculation by requiring the ultimate controlling person of an insurer subject to holding
company registration to file the group capital calculation with its lead state regulator. The annual filing requirement will become effective once the states have
adopted the NAIC holding company amendments. The NAIC has proposed an accreditation standard for these amendments for a one-year comment period starting
on January 1, 2022.
All states have adopted the NAIC's 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 Report”). The ORSA Report 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 the ORSA Model Act, as enacted by the states, 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 an ORSA Report annually to the Commissioner of Insurance of the State of Delaware (our lead state commissioner).
Cybersecurity Regulations. New York has adopted a cybersecurity regulation for financial services institutions that are authorized by the New York State
Department of Financial Services (the “NYDFS”), which applies to our insurance subsidiaries licensed in New York. The regulation requires these entities to
assess risks associated with their information systems and establish and maintain a cybersecurity program designed to protect consumers’ private data and the
confidentiality,
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integrity and availability of the licensee’s information systems. The NAIC has adopted the Insurance Data Security Model Law (the “Cybersecurity Model Law”)
for consideration by state legislatures, which, when adopted by the states, 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 regulatory burdens intended to protect the confidentiality, integrity and availability of information systems. As of December 31, 2021, the Cybersecurity
Model Law, or a form thereof, had been adopted by several states, including two of our U.S. insurance subsidiaries’ domiciliary states. A drafting note in the
Cybersecurity Model Law states that a licensee’s compliance with the New York cybersecurity regulation is intended to constitute compliance with the
Cybersecurity Model Law, but compliance remains a state-by-state issue and we would need to consider any differences in implementation and enforcement of the
Cybersecurity Model Law as part of our compliance efforts. Additionally, the Federal Trade Commission amended the “Standards for Safeguarding Customer
Information Rules (otherwise known as the “Safeguards Rule”) in 2021 to require covered financial institutions to implement certain data security measures and
practices in their information security programs. Many of the requirements of the amended Safeguards Rule are similar to the New York cybersecurity regulation
and the Cybersecurity Model Law, but there are some differences that may impose increased operational burdens and compliance costs.
Certain states are developing or have developed regulations related to privacy and data security. For example, in 2018 California enacted the California
Consumer Privacy Act (“CCPA”), which broadly regulates the collection, processing and disclosure of California residents’ personal information, imposes limits
on the “sale” of personal information and grants California residents certain rights to, among other things, access and delete data about them in certain
circumstances. CCPA also established a private right of action, with potentially significant statutory damages, whereby businesses that fail to implement
reasonable security measures to protect against breaches of personal information could be liable to affected consumers. CCPA became effective on January 1,
2020. California subsequently enacted the California Privacy Rights Act (“CPRA”), which amends the CCPA to impose additional limitations and obligations with
respect to covered businesses’ use and sharing of certain personal data. The CPRA will come into full effect in January 2023; compliance with CCPA/CPRA
may increase the cost of providing our services in California. Other states have considered – and some states have adopted
- similar proposals. For instance, Virginia and Colorado enacted data privacy laws in 2021 that will come into effect in January 2023 and July 2023, respectively.
These laws establish in those states many of the same data privacy and security requirements as other existing laws, such as the CCPA. We cannot predict the
impact, if any, that any proposed or future cybersecurity regulations or state laws 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,
2021.
Insurance Regulatory Information System. The NAIC also has developed a set of 13 financial ratios for property and casualty insurers 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
Post-Assessment Property and Liability Insurance Guaranty Association Model 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.
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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 2019 (“TRIPRA”), the
program was extended until December 31, 2027.
TRIPRA provides a federal backstop to all U.S. based property and casualty insurers for insurance 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 pay 80% of an insurer's covered losses in excess of the insurer's applicable deductible. 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 2021 earned
premiums, our aggregate deductible under TRIPRA during 2022 will be approximately $1,135 million. The federal program will not pay losses for certified acts
unless such losses exceed $200 million industry-wide for any calendar year after 2020. 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.
Climate Change and Financial Risks. The topic of climate risk has come under increased scrutiny by insurance regulators. In September 2020, the NYDFS
issued a circular letter to New York domestic and foreign authorized insurance companies, which impacts our insurance subsidiaries licensed in New York. The
circular letter states that the NYDFS expects insurers to integrate financial risks related to climate change into their governance frameworks, risk management
processes and business strategies. For example, the letter states that an insurer should designate a board member or board committee, as well as a senior
management function, that oversees the management of the financial risks associated with climate change.
The NYDFS also adopted an amendment to the regulation that governs enterprise risk management, effective as of August 13, 2021, that requires an
insurance group to include certain additional risks, such as climate change risk, in its enterprise risk management function.
In addition, the Federal Insurance Office (the “FIO”) has been instructed by President Biden’s Executive Order on Climate-Related Financial Risk, dated
May 20, 2021, to seek public comment on a series of questions that “will help inform FIO’s assessment of climate-related financial risks for the insurance sector.”
The FIO’s Request for Information notes that it “plans to … take a leadership role in analyzing how the insurance sector may help mitigate climate-related risks
[and to that
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end, it] will engage with the insurance sector to assess how the sector may help achieve national climate-related goals, including mitigation, adaptation and
transition to a lower carbon economy.” The comment period ended in November 2021.
Diversity and Corporate Governance. Insurance regulators are also focused on the topic of race, diversity and inclusion. On March 16, 2021, the NYDFS
issued a circular letter stating that it expects the insurers it regulates, such as our insurance subsidiaries licensed in New York, to make diversity of their leadership
a business priority and a key element of their corporate governance. See “ – Human Capital Resources” below.
Federal Regulation. The federal government and its regulatory agencies generally do not directly regulate the business of insurance, although 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, and created two new federal government bodies, the FIO and the Financial
Stability Oversight Council (the “FSOC”). The FIO does not have general supervisory or regulatory authority over the business of insurance, although it has
preemption authority over state insurance laws that conflict with certain international agreements, as discussed below. 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 Economic Growth, Regulatory Relief and Consumer Protection Act addresses the roles played by federal regulators at international insurance
standard-setting forums, and it directs the Director of the FIO and the Board of Governors of the Federal Reserve to support increased transparency at international
standard-setting regulatory forums (e.g., the IAIS). These federal regulations also instruct the FIO and the Federal Reserve to achieve consensus positions with the
states through the NAIC prior to taking a position on any insurance proposal by a global insurance regulatory forum.
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. The U.S. and the European Union ("EU") signed such a covered agreement (the "EU Covered
Agreement") in September 2017. The EU Covered Agreement addresses three areas of prudential supervision: reinsurance, group supervision and the exchange of
information between the U.S. and EU. Under the EU 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 EU Covered
Agreement establishes group supervision practices that apply only to U.S. and EU insurance groups operating in both territories. For instance, the EU Covered
Agreement states that, provided the U.S. has adopted group supervision including worldwide group governance, solvency, capital and reporting, U.S.-
headquartered insurance groups with operations in the EU will be supervised at the worldwide level only by U.S. insurance regulators precluding EU insurance
supervisors from exercising solvency and capital requirements over the worldwide operations of those insurers.
In December 2018, the U.S. Department of the Treasury and the Office of the U.S. Trade Representative entered
into a covered agreement with the U.K. (the “U.K. Covered Agreement,” and together with the EU Covered Agreement, the “Covered Agreements”) in anticipation
of the U.K.’s exit from the EU. The U.K. Covered Agreement largely reflects the provisions of the EU Covered Agreement and incorporates the same timeframes
within it. Under the Dodd-Frank Act, the FIO has preemption authority over state insurance laws that conflict with the Covered Agreements.
Under the terms of the Covered Agreements, state credit for reinsurance laws that result in non-U.S. reinsurers subject to the Covered Agreements being
treated less favorably than U.S. reinsurers may be preempted by the applicable Covered Agreement beginning on September 1, 2022. Accordingly, in June 2019,
the NAIC adopted amendments to its Credit
for Reinsurance Model Law in order to satisfy the substantive and timing requirements of the Covered Agreements, which amendments have been adopted by our
U.S. insurance subsidiaries’ domiciliary states. These amendments will become an NAIC accreditation standard beginning on September 1, 2022, with
enforcement beginning on January 1, 2023. The amended Credit for Reinsurance Model Law also extends the zero reinsurance collateral provisions in the Covered
Agreements to qualified reinsurers domiciled in U.S. jurisdictions that are accredited by the NAIC and to non-U.S. jurisdictions that have not entered into a
covered agreement with the U.S. but which the NAIC has identified as “reciprocal jurisdictions” pursuant to the NAIC Qualified Jurisdiction Process. We cannot
currently predict the impact of these changes to the law or whether any other covered agreements will be successfully adopted, and cannot currently estimate the
impact of these changes to the law and any such adopted covered agreements on our business, financial condition or operating results.
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” or a “non-bank SIFI.” An insurer so designated by the FSOC will
be subject to Federal Reserve supervision and heightened prudential standards. There are currently no such non-bank SIFIs designated by the FSOC. The FSOC
changed its process for designating non-bank SIFIs, effective in January 2020, by adopting an activities-based approach and moving away from the entities-based
approach.
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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 impact of any future amendments to the Dodd-Frank Act on the U.S. insurance industry is 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/or 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’s 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 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 ("FMA"),
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 Managers and Certification Regime 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.
Following the expiry of the transition period for the United Kingdom’s withdrawal from the EU on December 31, 2020, an insurance company with
authorization to write insurance business in the U.K. is no longer permitted to provide cross-border services on a “passporting” basis in the remaining member
states of the European Economic Area (“EEA”), a group including member states of the EU and Norway, Liechtenstein and Iceland. Instead, U.K. insurance
companies are now required to establish either a subsidiary or a branch in an EEA member state and apply for direct authorization with the local regulator in that
jurisdiction.
EEA insurers have similarly lost their right to provide cross-border services on a “passporting” basis into the U.K. As a result, the U.K. branch of our
Liechtenstein subsidiary has applied for direct authorization to carry on insurance business in the U.K. In the meantime, the branch is currently able to perform
regulated insurance business in the U.K. under the supervision of the PRA/FCA pursuant to the U.K. ‘Temporary Permissions Regime’ while the application is
being considered.
See below “Risks Relating To Our Business-The United Kingdom leaving the EU could adversely affect our business” for more information.
Our insurance business throughout the EU and EEA 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. Following the U.K.’s withdrawal from the EU, and the expiry of the transition period
on December 31, 2020, our Lloyd’s managing agency (and the U.K. branch of our Liechtenstein subsidiary) are now subject to a separate U.K. prudential regime.
This domestic regime is identical to Solvency II from January 1, 2021. However, the two regimes may diverge over time. The U.K. has undertaken a review of
Solvency II and of the regulatory regime applicable to U.K. authorized insurers and reinsurers.
The U.K. has undertaken a review of Solvency II and of the regulatory regime applicable to U.K. authorized insurers and reinsurers. The U.K.’s HM Treasury is
now working alongside the PRA to prepare a package of proposed reforms to the U.K.’s domestic regulatory regime for consultation in early 2022. Similarly, the
European Commission has undertaken its own review of Solvency II and, on September 22, 2021, published a package of proposed legislative reforms for
amending the existing regulatory framework. This proposed legislation is now being discussed by the European Parliament and Council.
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. The PRA will also perform
separate, but
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comparable, supervision of group solvency under the U.K.’s own domestic prudential regime where a U.S. holding company is a parent of a subsidiary U.K.
insurer or reinsurer.
The Liechtenstein financial services regulator, the FMA, is the group supervisor for our European-regulated subsidiaries. However, the Covered
Agreements prohibit any EU supervisor or the PRA (as applicable) 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 EU General Data Protection Regulation (EU) 2016/879) (“GDPR”), which took effect in 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. The Data Protection Act 2018 and the U.K.
General Data Protection Regulation, which is the retained EU law version of the GDPR by virtue of the European Union (Withdrawal) Act 2018 and as amended
by the Data Protection, Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations 2019 (together, “U.K. GDPR”), regulate data protection
for all individuals within the U.K. Both the GDPR and the U.K. GDPR are extraterritorial in that they apply to all businesses in the EU and the U.K. respectively
and any business outside the EU and the U.K. that process EU and/or U.K. personal data of individuals in the EU and/or the U.K. Moreover, there are significant
fines associated with non-compliance. In particular, we need to monitor our compliance with all relevant member states’ laws and regulations, including where
permitted derogations from the GDPR and the U.K. GDPR are introduced. The introduction of the GDPR and the U.K. GDPR, and any resultant changes in EU
member states’ or U.K. national laws and regulations, has increased our compliance obligations and has necessitated the review and implementation of policies and
processes relating to our collection and use of data, and has required us to change our business practices regarding these matters.
In addition, we may become subject to or affected by regulatory policies adopted by the IAIS, an international standard setter consisting of supervisors
and regulators from more than 200 jurisdictions. The IAIS has been working on several initiatives to consider changes to insurer solvency standards and group
supervision of companies in a holding company system in response to the increasing globalization of the insurance sector. In November 2019, the IAIS formally
adopted a global framework for the supervision of internationally active insurance groups (“IAIGs”), which is referred to as the Common Framework for the
Supervision of Internationally Active Insurance Groups, or “ComFrame.” ComFrame is intended to provide a framework of basic standards for IAIGs and a
process for supervisors to cooperate in the supervision of IAIGs. Also in November 2019, the IAIS adopted a risk-based group-wide global insurance capital
standard (“ICS”) that will apply to IAIGs and ultimately form a part of ComFrame. The ICS commenced a five-year monitoring period in January 2020 which is
being used for confidential reporting and discussion in supervisory colleges to provide feedback to the IAIS on the ICS’s design and performance, but will not
trigger any supervisory action. Following this monitoring period, the ICS is expected to be implemented in 2025 as a group-wide prescribed capital requirement for
IAIGs and integrated into the rest of ComFrame. As noted above under “- U.S. Regulation,” it is unclear how the development of the ICS will interact with existing
capital requirements for insurance companies in the United States and the NAIC’s development of the GCC.
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.
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
businesses can gain a competitive advantage by responding quickly to changing market conditions. Our businesses establish their own pricing practices based upon
a Company-wide philosophy to price products with the intent of making an underwriting profit.
Competition for insurance business within the United States comes from other specialty insurers, regional carriers, large national multi-line companies and
reinsurers. Our specialty businesses compete with excess and surplus insurers as well as standard carriers. Our regional businesses compete with mutual and other
regional stock companies as well as national carriers. Additionally, direct writers of property casualty insurance compete with our regional businesses by writing
insurance through their salaried employees, generally at a lower acquisition cost than through independent agents such as those used by the Company. We 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.
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Competition for 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.
Human Capital Resources
As of January 15, 2022, we employed 7,681 individuals. Of this number, our subsidiaries employed 7,545 individuals and the remaining individuals were
employed at the parent company.
We believe that our people are our greatest asset and that our corporate culture is the most important intangible driver of long-term value creation for our
Company and the highest priority for pursuing long-term risk-adjusted returns and growth in stockholder value.
Human Capital Management: The Company fosters a performance culture. We are focused on creating a respectful, rewarding, diverse, and inclusive
work environment that allows our employees to build meaningful and productive careers. The success of these human capital management objectives is essential to
our strategy, as it is our people who drive our success. We invest in their growth as individuals and professionals through training and engagement, as well as in
their well-being through robust health and wellness programs and a commitment to diversity.
The Company provides developmental opportunities for our employees through formal and informal programs that focus on enabling employees to build
skills and thought leadership in specific facets of our business. Our leadership programs cultivate the talent of our high-potential, strong-performing employees as
we strive to deepen, enhance and diversify the Company’s leadership team.
We strive to align employee incentives with the risk and performance frameworks of the Company. The Company’s “pay for performance” philosophy
connects individual, business and Company results to employee compensation, providing employees with opportunities to share in the Company’s overall growth
and success. The Company offers employees a comprehensive benefits package, including health and wellness, financial, educational and life management
benefits. In addition, we support employees in making an impact in their local communities and globally through environmental and social efforts that are
meaningful to them.
Our Board of Directors engages with our senior leadership team, including our senior vice president - human resources, on a periodic basis across a range of
human capital management issues, including succession planning and development, compensation, benefits, talent recruiting and retention, engagement, diversity
and inclusion, and employee feedback.
Culture: The Board of Directors has recognized Accountability, People Oriented Strategy, Responsible Financial Practices, Risk-Adjusted Returns and
Transparency as the elements of corporate culture necessary for the Company to achieve success. Our culture unifies our employees across our decentralized
business model, positions us to serve our diverse clients globally and propels the Company’s continuous evolution.
We are committed to fostering a unifying culture and encouraging innovation across our enterprise. Our culture encompasses the beliefs that (i) specialized
knowledge and having a customer-centric focus are competitive advantages and (ii) an environment that promotes integrity, embraces the commitment to “always
do right,” fosters entrepreneurship and innovation, and values making thoughtful decisions for the long-term benefit of our enterprise. While there is no one
“Berkley” way, each of our businesses has its own culture that embodies a shared set of values that define our enterprise. Our structure, with more than 50 distinct
businesses, facilitates the prompt identification of and appropriate action with respect to addressing individual business or cultural issues arising within a business,
without affecting the larger enterprise. Furthermore, our businesses are overseen by senior corporate business managers and senior corporate functional managers,
including actuarial, claims, underwriting, compliance and finance, providing a governance oversight structure that makes it easier to identify such issues. Because
our Board of Directors diligently exercises its risk management oversight through, among other activities, regular interactions with employees beyond corporate
senior management, our directors have visibility into and receive timely feedback on cultural issues that may affect our business.
As significant owners of our Company who are required to hold their shares until separation from service, each of our directors and senior executives have a
vested interest in cultivating talent and perpetuating a culture that facilitates the execution of our long-term objectives.
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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 businesses 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 businesses. Although the
effect on our business of catastrophes such as tornadoes, hurricanes, hailstorms, wildfires, 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.berkley.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.
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 significant
competition in our business, as a result of new entrants and capital providers, as well as existing insurers seeking to gain or maintain market share. Recently,
premium rates have increased at an accelerating pace for most lines of business, while they have decreased in others, most notably workers' compensation. 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 or social 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 can pressure premium rates in certain areas and could harm our ability to maintain
or increase our profitability and premium volume in some parts of our business.
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, diversified financial
services companies and insurtech 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 consolidation, which may further increase
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competition in some parts of our business and may cause our insurance subsidiaries to incur greater customer retention and acquisition expenses, affecting the
profitability of existing and new business.
Some of our competitors, particularly in the reinsurance business, have greater financial and/or marketing resources than we do. These competitors within
the reinsurance market 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.
The insurance industry continues to attract new capital which leads to increased competition in our business. Recently, insurance prices have generally
increased for most lines of business, excluding workers' compensation. However, loss costs have also increased and the duration and magnitude of the improving
pricing environment remains uncertain. With the low level of interest rates available, current price levels for certain lines of business may remain below the prices
required for us to achieve our long-term return objectives. We expect to continue to face strong competition in some parts of our business.
In recent years, various types of 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 or
access to third-party 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, technology-enabled business models, processes,
platforms or alternate distribution channels that may adversely impact our competitive position in some parts of our business.
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.
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 $15.4 billion as of December 31, 2021. 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. In addition, although
the Company has estimated the potential COVID-19 impact to its contingency and event cancellation, workers’ compensation, and other lines of business under a
number of possible scenarios, due to COVID-19’s continued evolving impact, there remains a high degree of uncertainty around the Company’s COVID-19-related
reserves.
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.
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The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and economic, legal, judicial, social, technological 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:
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judicial expansion of policy coverage and a greater propensity to grant claimants more favorable amounts 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;
social inflation trends, including higher and more frequent claims, more favorable judgments and legislated increases;
• medical developments that link health issues to particular causes, resulting in liability claims;
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claims relating to unanticipated consequences of current or new technologies, including cyber security related risks;
claims relating to potentially changing climate conditions; and
increased claims due to third party funding of litigation.
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 $202
million in 2021 (including COVID-19 related losses), $340 million in 2020 (including COVID-19 related losses), and $90 million in 2019. Similarly, man-made
catastrophes can also have a material impact on our financial results.
Catastrophes can be caused by various events, including hurricanes, windstorms, earthquakes, tsunamis, hailstorms, explosions, severe winter weather and
fires, pandemics, as well as terrorist and other man-made activities, including drilling, mining and other industrial accidents, the bankruptcy of a major company,
war or other military actions, social unrest,
cyber events or terrorist activities. The incidence and severity of catastrophes are inherently unpredictable, and longer-term natural catastrophe trends may be
changing due to climate change causing increased variability and unpredictability. 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.
The COVID-19 pandemic has previously materially and adversely affected our results of operations, and may further materially and adversely affect
our results of operations, financial position and liquidity.
The ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies, had materially and adversely affected our results of
operations. We expect the pandemic and its impact on our business may continue, and potentially even worsen, but we cannot predict the magnitude or duration of
its continued impact, particularly given the great uncertainties associated with COVID-19, including regarding the reopening of the U.S. and global economies and
the recovery from its devastating economic and other effects. The ultimate impact of COVID-19 on our results of operations, financial position and liquidity is not
yet known, and likely will not be known for some time, but includes the following:
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Adverse Legislative and Regulatory Action. Legislative and regulatory initiatives taken or which may be taken in response to COVID-19 may adversely
affect us, particularly in our workers’ compensation and property coverages businesses. For example, our business may be subject to, certain initiatives, including,
but not limited to: legislative and regulatory action that seeks to retroactively mandate coverage for losses that our insurance policies would not otherwise cover
and which were not priced to cover; legislative and regulatory action providing for shifting presumptions with respect to the burdens of proof for “essential”
workers on workers’ compensation coverages and varying definitions of “essential” workers; actions prohibiting us from cancelling insurance policies in
accordance with our policy terms or non-renewing policies at their natural expiration; and/or orders to provide premium refunds, grant extended grace periods for
premium payments, and provide extended time to pay past due premiums. Any such action would likely increase both our underwriting losses and our expenses
and any legal challenges to any such action could take years to resolve.
Claim Losses Related to COVID-19 May Exceed Reserves. As of December 31, 2021, we recorded approximately $274 million for COVID-19-related
losses. Of the $274 million of COVID-19-related losses, $239 million are reported losses and $35 million is booked as IBNR. Our reserves do not represent an
exact calculation of liability, but represent an estimate of what management expects the ultimate settlement and claims administration will cost for claims that have
occurred, whether known or unknown. Given the great uncertainties associated with COVID-19 and its impact and the limited information upon which our current
assumptions and assessments have been made, our reserves and the underlying estimated level of claim losses and costs arising from COVID-19 may materially
change.
Claim Losses and Adjustment Expenses May Increase. As the effects of COVID-19 on industry practices and economic, legal, judicial, social and other
environmental conditions occur, unexpected and unintended issues related to claims and coverages may emerge. These issues may adversely affect our business by
extending coverage beyond our underwriting intent (including in the area of property coverages where physical damage requirements and communicable disease
exclusions are currently being challenged) or by increasing the number and/or size of claims, each of which could adversely impact our results.
Reinsurance. We purchase reinsurance in order to transfer part of the risk that we have assumed by writing insurance policies to reinsurance companies in
exchange for part of the premium we receive in connection with assuming such risk. Although reinsurance makes the reinsurer contractually liable to us to the
extent the risk is transferred to the reinsurer, it does not relieve us of our liability to our policyholders. There may be uncertainty surrounding the availability of
reinsurance coverage for COVID-19-related losses as our reinsurers may dispute the applicability of reinsurance to such losses (including the application of
reinsurance reinstatements) and, as a result, our reinsurers may refuse to pay reinsurance recoverables related thereto or they may not pay them on a timely basis.
In addition, we may be unable to renew our current reinsurance coverages or obtain appropriate new reinsurance covers with respect to certain exposures under our
policies, including COVID-19-related exposures, and therefore our net exposures could increase, or if we are unwilling to bear such increase in net exposure, we
may reduce our level of underwriting commitments.
Premium Volumes May Be Negatively Impacted. The demand for insurance is significantly influenced by general economic conditions. Consequently,
reduced economic activity relating to the COVID-19 pandemic is likely to decrease demand for our insurance products and services and negatively impact our
premium volumes (and, in certain cases, may result in return of premiums due to a decrease in exposures). This may continue for an indefinite period, with the
magnitude of the impact impossible to predict. In addition, as we continue to evaluate the effects of COVID-19 on the insurance coverages we currently offer, our
appetite for providing certain coverages in various jurisdictions may change which could further negatively impact our premium volumes. Any such reduction in
our premiums would likely cause our expense ratio to rise.
Investments. Further disruptions in global financial markets due to the continuing impact of COVID-19 could cause us to incur additional unrealized
and/or realized investment losses (beyond the investment fund losses incurred in prior years), including impairments in our fixed maturity portfolio and other
investments. In addition, the economic uncertainty resulting from COVID-19 may result in a further decline in interest rates, which may negatively impact our net
investment income from future investment activity.
Credit Risk. As credit risk is generally a function of the economy, we face greater credit risk from our policyholders, independent agents and brokers in
connection with the payment and remittance of premiums as a result of the economic conditions caused by COVID-19. Similarly, our credit risk related to the
reimbursement of deductibles from policyholders and in connection with reinsurance recoverables has increased.
Operational Disruptions and Costs. Our operations could be disrupted if key members of our senior management or a significant percentage of our
workforce or the workforce of our agents, brokers, suppliers or other third party service providers are unable to continue to work because of illness, government
directives or otherwise. In addition, our agents, brokers, suppliers and other third party service providers, which we rely on for key aspects of our operations, are
subject to risks and uncertainties
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related to the COVID-19 pandemic, which may interfere with their ability to fulfill their respective commitments and responsibilities to us in a timely manner and
in accordance with the agreed-upon terms. In response to the COVID-19 pandemic, we have in place remote working policies which have resulted in disruptions to
our business routines, heightened risk to cybersecurity attacks and data security incidents and a greater dependency on internet and telecommunication access and
capabilities.
Changing climate conditions may alter the frequency and increase the 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 altering the frequency, severity and/or peril characteristics of catastrophic weather events, such as hurricanes, 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 2019 (“TRIPRA”), for up to 80% of our covered 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 2021 earned premiums, our aggregate deductible under TRIPRA during 2022 is approximately $1,135 million. In addition, the
coverage provided under TRIPRA does not apply to reinsurance that we write. To the extent that our reinsurers have excluded coverage for certain terrorist acts or
have priced this coverage at rates that make purchasing such coverage economically infeasible, we may not have reinsurance protection and could be exposed to
potential losses as a result of any acts of terrorism.
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:
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standards of solvency, including risk-based capital measurements;
restrictions on the nature, quality and concentration of investments;
limitations on the amount of dividends, tax distributions, intercompany loans and other payments that can be made without prior regulatory approval;
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.
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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 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. Our business could be affected by changes, whether as a result of potential changes to the Dodd-Frank Act, 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.
The topic of climate risk has come under increased scrutiny by insurance regulators. In September 2020, the NYDFS issued a circular letter to New York
domestic and foreign authorized insurance companies, which impacts our insurance subsidiaries licensed in New York. The circular letter states that the NYDFS
expects insurers to integrate financial risks related to climate change into their governance frameworks, risk management processes and business strategies. The
NYDFS also adopted an amendment to the regulation that governs enterprise risk management, effective as of August 13, 2021, that requires an insurance group to
include certain additional risks, such as climate change risk, in its enterprise risk management function. In addition, the FIO has been instructed by President
Biden’s Executive Order on Climate-Related Financial Risk, dated May 20, 2021, to seek public comment on a series of questions that “will help inform FIO’s
assessment of climate-related financial risks for the insurance sector.” The FIO’s Request for Information notes that it “plans to … take a leadership role in
analyzing how the insurance sector may help mitigate climate-related risks [and to that end, it] will engage with the insurance sector to assess how the sector may
help achieve national climate-related goals, including mitigation, adaptation and transition to a lower carbon economy.” These measures may subject us to
increased oversight at the state and federal level.
State regulation is the primary form of regulation of insurance and reinsurance in the United States, although Congress has considered various proposals
regarding federal regulation of insurance, in addition to the changes brought about by the Dodd-Frank Act, such as proposals for the creation of an optional federal
charter for insurance companies. We may be subject to potentially increased federal oversight as a financial institution. In addition, the new U.S. 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 particular, the
European Commission has undertaken a review of Solvency II and on September 22, 2021, published a package of proposed legislative reforms for amending the
existing regulatory framework. This proposed legislation is now being discussed by the European Parliament and the European Commission. 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 European 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.
Similarly, following the U.K.’s withdrawal from the EU, and the expiry of the transition period on December 31, 2020, our U.K. subsidiaries are now
subject to a separate U.K. prudential regime, to which the same considerations will apply. The U.K.’s domestic prudential regime is currently identical to Solvency
II, although the two regimes, and their respective requirements, may diverge over time. The U.K. has already declared that it considers the Solvency II regime as
“equivalent” to its own. However, the EU is still determining whether to make “equivalency” declarations in respect of the U.K.’s prudential regime. It is also
possible that any “equivalency” determinations made by either side could be withdrawn in the future, which would adversely affect our capital and compliance
requirements.
If our compliance with Solvency II, the U.K.’s prudential regime or any other regulatory regime is challenged, we may be subject to monetary or other
penalties. In addition, in order to ensure compliance with applicable regulatory requirements or as a result of any investigation, including remediation efforts, we
could be required to incur significant expenses and undertake additional work, which in turn may divert resources from our business.
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
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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 expanding international operations expose us to increased investment, political, legal/regulatory, 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,
South Africa and Australia expose us to increased investment, political, legal/regulatory, 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.
We face additional risks as a result of our international operations which could have an adverse effect on our results of operations and financial condition
including: burdens and costs of compliance with a variety of foreign laws and regulations and the associated risk and costs of non-compliance; exposure to
undeveloped or evolving legal systems, which may result in unpredictable or inconsistent application of laws and regulations; exposure to commercial, political,
legal or regulatory corruption; political, economic or other instability in countries in which we conduct business, including possible terrorist acts; the imposition of
tariffs, trade barriers or other protectionist laws or business practices that favor local competition, increased costs and adverse effects on our business; changes to
visa or immigration policies; diminished ability to enforce our contractual rights; potential increased risk of data breaches; differences in cultural environments;
sociopolitical instability; social, political or economic instability resulting from climate change; changes in regulatory requirements, including changes in
regulatory treatment of certain products or services; exposure to local economic conditions and its impact on our clients’ performance and creditworthiness; and
restrictions on the repatriation of non-U.S. investments and earnings.
The United Kingdom leaving the EU could adversely affect our business.
In accordance with the withdrawal agreement implementing the U.K. leaving the EU (“Brexit”), the U.K. formally left the EU on January 31, 2020. The
agreement provided for a transitional period, which ended on December 31, 2020, during which time the U.K. continued to enjoy the same rights and obligations as
it had as a member state, though without participating in the EU institutions. During the transitional period, the U.K. and the EU negotiated a long-term agreement
covering, among other things, the terms of trade between them, culminating in the execution of the entry into a “Trade and Cooperation Agreement”.
However, notwithstanding the finalization of the Trade and Cooperation Agreement between the U.K. and the EU, uncertainty remains regarding the impact
of Brexit, including the implementation and enforcement of terms and conditions of the agreement, and the U.K.’s future relationship with the EU. Brexit could
also lead to legal uncertainty and differing laws and regulations between the U.K. and the EU. Specifically in relation to financial services, the Trade and
Cooperation Agreement
did not provide for EU and U.K. regulated firms to be able to access each other’s markets via passporting rights. Both EU and U.K. insurers therefore lost their
respective passporting rights from January 1, 2021. It is also unclear whether the EU will make “equivalence” determinations in respect of relevant aspects of U.K.
financial services regulation. As a result, the U.K. branch of our Liechtenstein subsidiary has applied to be directly authorized to perform insurance business in the
U.K., which application remains under consideration.
More generally, barriers to trade resulting from Brexit 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.
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 businesses, 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
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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. This failure to pay or failure to pay on a timely basis may be due to factors such as whether reinsurers,
their affiliates or certain indemnitors have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract.
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, 2021, the amount due from our reinsurers
was approximately $2,923 million, including amounts due from state funds and industry pools where it was intended that we would bear no risk. Certain of these
amounts 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, Moody's, and Fitch, 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, Moody's and Fitch. 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, especially given that rating agencies may change their criteria or increase capital requirements for various rating
levels. For instance, Standard & Poor's has recently proposed changes to its rating model which could impact our rating depending on final changes that are
implemented.
If our ratings are reduced from their current levels by A.M. Best, Standard & Poor's, Moody's or Fitch, 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 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.
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.
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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. Our financial results could be adversely affected by acquired businesses not performing as projected, unforeseen liabilities,
routine and unanticipated transaction-related charges, diversion of management time and resources to acquisition integration challenges or growth strategies, loss
of key employees, challenges in integrating information technology systems of acquired companies with our own, amortization of expenses related to intangibles,
charges for impairment of long-term assets or goodwill and indemnification. 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.
Although we have taken steps intended to protect our data and information technology systems and mitigate the risk of harm caused by cybersecurity
incidents or breaches, no safeguards are perfect and any failure of these safeguards could cause a substantial disruption of our business operations, which could
result in service interruptions, data security compromises, regulatory action, and other similar operational and legal issues, as well as substantial remediation and
other costs. While, to our knowledge, we have not recently experienced any material security incidents, we are constantly managing an influx of attempts and
efforts to infiltrate and compromise our systems and data. 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 effectively protect sensitive personal
and/or proprietary information, whether owing to breaches of our own systems or those of our vendors, could result in significant monetary and reputational
damages, material adverse effects to our financial condition, costly litigation, or other regulatory enforcement
actions. These increased risks, and expanding regulatory requirements regarding data security, including required compliance with the GDPR, CCPA, CPRA and
additional state-specific privacy statutes and regulations, 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.
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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 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.
Tax legislation commonly referred to as the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, fundamentally overhauled the U.S.
tax system by, among other significant changes, reducing the U.S. corporate income tax rate to 21%. In the context of the taxation of U.S. property/casualty
insurance companies such as the Company, the Act also modifies the loss reserve discounting rules and the proration rules that apply to reduce reserve deductions
to reflect the lower corporate income tax rate. 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.
Limitations in risk management and loss limitation methods may adversely impact our business.
We seek to effectively manage risk and limit our losses in a variety of ways including through effective underwriting, tailoring policy terms, and the use of
reinsurance. However, there are certain limitations in these and similar tactics and as a result, loss levels may be higher than modeled or otherwise expected, which
could have a material adverse effect on our business.
Increased scrutiny on social responsibility and the efforts we take to implement related measures, or the failure to take such measures, may adversely
impact our business.
There is increased scrutiny from regulators and investors on the measures companies take to be socially responsible. Although we have made efforts to be
responsible in this manner, for example through our commitment to fostering a unifying culture and encouraging innovation across our operating units, these types
of pressures may nonetheless present challenges and have an adverse impact on our business. In addition, we may be subject to negative publicity based on a
failure or perceived failure to achieve various social responsibility initiatives and goals relating to diversity, equity and inclusion, and commitment to long-term
sustainability we may announce from time to time, or based on an actual or perceived increase in related risks as a result of our or our industry’s business activities.
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, 2021, our investment in fixed maturity securities was
approximately $16.6 billion, or 69.9% 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 (5.2%); state and municipal securities (20.3%); corporate securities (33.7%);
asset-backed securities (27.0%); mortgage-backed securities (6.5%) and foreign government (7.3%).
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 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
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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 then 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 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.
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, 2021, our investment in these assets was approximately $5.6 billion, or 23.5%, of our investment portfolio, including cash and cash
equivalents.
Merger and arbitrage trading securities were $1.2 billion, or 5.0% of our investment portfolio, including cash and cash equivalents at December 31, 2021.
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 9.3% of our investment portfolio,
including cash and cash equivalents, at December 31, 2021. We also invest in real estate, financial services, energy, transportation and other investment funds. The
values of these investments are subject to fluctuation 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 Limitations on Dividends from Subsidiaries and Anti-Takeover Provisions
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 competitive pressures on maintaining financial strength ratings and will depend on the surplus and future earnings of these subsidiaries. During
2022, the maximum amount of dividends that can be paid without regulatory approval is approximately $966 million. Future regulatory actions could further
restrict our insurance subsidiaries’ ability to pay us dividends. 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
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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.
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, 2021, the Company
had aggregate office space of 4,276,456 square feet, of which 1,105,205 were owned and 3,171,251 were leased.
Rental expense for the Company's operations was approximately $44,051,000, $44,291,000 and $44,107,000 for 2021, 2020 and 2019, respectively. Future
minimum lease payments, without provision for sublease income, are $44,962,000 in 2022, $43,674,000 in 2023 and $155,277,000 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.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
In 2021, the Board declared regular quarterly cash dividends of $0.12 per share in the first quarter, and $0.13 per share in each of the remaining three
quarters, and special dividends of $0.50 per share in the second quarter and $1.00 per share in the fourth quarter. Subject to availability, the Board currently
expects to continue such regular quarterly cash dividends.
The approximate number of record holders of the common stock on February 17, 2022 was 302.
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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, 2016, 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 W. R. Berkley Corporation (added Dec. 2019).
W. R. Berkley Corporation
S&P 500 Index - Total Returns
S&P 500 Property and Casualty Insurance Index
Cum $
Cum $
Cum $
2016
100.00
100.00
100.00
2017
110.18
121.83
122.39
2018
115.26
116.48
116.64
2019
165.78
153.15
146.82
2020
160.56
181.30
156.12
2021
204.45
233.29
183.45
Set forth below is a summary of the shares repurchased by the Company during the fourth quarter of 2021 and the remaining number of shares authorized
for purchase by the Company during such period.
October 2021
November 2021 (1)
December 2021
Total Number of
Shares Purchased
Average Price
Paid per Share
—
—
—
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
—
—
—
—
—
—
Maximum Number of Shares that
may yet be Purchased Under the
Plans or Programs
4,982,103
10,000,000
10,000,000
(1) The Company's repurchase authorization was increased to 10,000,000 shares on November 5, 2021.
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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 segments of the property and casualty business: Insurance and Reinsurance & Monoline Excess. Our decentralized structure provides us with the
flexibility to respond quickly and efficiently to local or specific market conditions and to pursue specialty business niches. It also allows us to be closer to our
customers in order to better understand their individual needs and risk characteristics. While providing our business units with certain operating autonomy, our
structure allows us to capitalize on the benefits of economies of scale through centralized capital, investment, reinsurance, enterprise risk management, and
actuarial, financial and corporate legal staff support. The Company’s primary sources of revenues and earnings are its insurance operations and its investments.
An important part of our strategy is to form new businesses to capitalize on various opportunities. Over the years, the Company has formed numerous
businesses 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 or social inflation on the amount of compensation for injuries or
losses. General insurance prices are also influenced by available insurance capacity, i.e., the level of capital employed in the industry, and the industry’s
willingness to deploy that capital.
The Company’s profitability is also affected by its investment income and investment gains. The Company’s invested assets are invested principally in
fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates, as well as the credit quality and duration of the
securities. Returns available on fixed maturity investments have been at low levels for an extended period.
The Company also invests in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. The
Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater
fluctuations in investment income. The Company's share of the earnings or losses from investment funds is generally reported on a one-quarter lag in order to
facilitate the timely completion of the Company's consolidated financial statements.
On February 23, 2022, the Company announced that it has entered into an agreement for the sale of a real estate investment consisting of an office
building located at 52 Lime Street, London, U.K. (known as “The Scalpel”) for £718 million, subject to agreed upon adjustments. The transaction is scheduled to
close on March 7, 2022. The Company estimates that it will realize a pretax gain of more than $300 million in the first quarter of 2022, subject to adjustment for
final transaction expenses and certain items, including the impact of the foreign exchange rate at the date of the close.
The COVID-19 pandemic, including the related impact on the U.S. and global economies, has materially and adversely affected our results of operations.
For the year ended December 31, 2021, the Company recorded approximately $58 million for current accident year COVID-19-related losses, net of reinsurance.
At the same time, COVID-19 has led to reduced loss frequency in certain lines of business (which has begun to return to pre-pandemic levels as many economies
and legal systems have reopened as a result of higher levels of vaccination). The ultimate impact of COVID-19 on the economy and the Company’s results of
operations, financial position and liquidity is not within the Company’s control and remains unclear due to, among other factors, uncertainty in connection with its
claims, reserves and reinsurance recoverables.
The scope, duration and magnitude of the direct and indirect effects of COVID-19 continue to evolve in ways that are difficult or impossible to anticipate.
While many of the potential impacts on the Company have receded as populations have begun to become vaccinated, new variants of the COVID-19 virus,
including the “Omicron” variant, and the slowing of vaccination rates among certain populations, continue to create risks to the Company. As a result, the impact
of COVID-19 on the Company’s results of operations for the year of 2021 is not necessarily indicative of its impact for 2022 or beyond. Despite the effects of
COVID-19 to date, the Company’s financial position and liquidity improved for the year ended December 31, 2021.
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Critical Accounting Estimates
The following presents a discussion of accounting policies and estimates relating to reserves for losses and loss expenses, assumed reinsurance 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 business. 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 business.
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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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 business. 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 2021:
(In thousands)
Severity (+/-)
1%
5%
10%
$
1%
$
98,916
297,732
546,252
Frequency (+/-)
5%
$
297,732
504,422
762,785
10%
546,252
762,785
1,033,450
Our net reserves for losses and loss expenses of approximately $12.8 billion as of December 31, 2021 relate to multiple accident years. Therefore, the
impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above. The impact of such changes
would likely be manifested gradually over the course of many years, as the magnitude of the changes became evident.
Approximately $2.8 billion, or 22%, of the Company’s net loss reserves as of December 31, 2021 relate to the Reinsurance & Monoline Excess segment.
There is a higher degree of uncertainty and greater variability regarding estimates of excess workers' compensation and assumed reinsurance loss reserves. In the
case of excess workers’ compensation, our policies generally attach at $1 million or higher. The claims which reach our layer therefore tend to involve the most
serious injuries and many remain open for the lifetime of the claimant, which extends the claim settlement tail. These claims also occur less frequently but tend to
be larger than primary claims, which increases claim variability. In the case of assumed reinsurance our loss reserve estimates are based, in part, upon information
received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be
accurate. Furthermore, due to
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delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is also extended. Management considers the impact
of delayed reporting and the extended tail in its selection of loss development factors for these lines of business.
Information received from ceding companies is used to set initial expected loss ratios, to establish case reserves and to estimate reserves for incurred but not
reported losses on assumed reinsurance business. This information, which is generally provided through reinsurance intermediaries, is gathered through the
underwriting process and from periodic claim reports and other correspondence with ceding companies. The Company performs underwriting and claim audits of
selected ceding companies to determine the accuracy and completeness of information provided to the Company. The information received from the ceding
companies is supplemented by the Company’s own loss development experience with similar lines of business as well as industry loss trends and loss development
benchmarks.
Following is a summary of the Company’s reserves for losses and loss expenses by business segment as of December 31, 2021 and 2020:
(In thousands)
Insurance
Reinsurance & Monoline Excess
Net reserves for losses and loss expenses
Ceded reserves for losses and loss expenses
Gross reserves for losses and loss expenses
2021
2020
10,060,420
2,787,942
12,848,362
2,542,526
15,390,888
$
$
9,034,969
2,585,424
11,620,393
2,164,037
13,784,430
$
$
Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of December 31, 2021 and 2020:
(In thousands)
December 31, 2021
Other liability
Workers’ compensation (1)
Professional liability
Commercial automobile
Short-tail lines (2)
Total Insurance
Reinsurance & Monoline Excess (1) (3)
Total
December 31, 2020
Other liability
Workers’ compensation (1)
Professional liability
Commercial automobile
Short-tail lines (2)
Total Insurance
Reinsurance & Monoline Excess (1) (3)
Total
Reported Case
Reserves
Incurred But
Not Reported
Total
$
$
$
$
1,724,907
1,016,014
468,680
504,821
322,917
4,037,339
1,475,623
5,512,962
1,534,514
977,035
414,104
442,975
295,313
3,663,941
1,442,099
5,106,040
$
$
$
$
3,319,665
903,448
1,019,344
424,382
356,242
6,023,081
1,312,319
7,335,400
2,968,428
873,072
771,495
398,688
359,345
5,371,028
1,143,325
6,514,353
$
$
$
$
5,044,572
1,919,462
1,488,024
929,203
679,159
10,060,420
2,787,942
12,848,362
4,502,942
1,850,107
1,185,599
841,663
654,658
9,034,969
2,585,424
11,620,393
____________________
(1) Reserves for excess and assumed workers’ compensation business are net of an aggregate net discount of $452 million and $483 million as of December 31,
2021 and 2020, respectively.
(2) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.
(3) Reinsurance & Monoline Excess includes property and casualty reinsurance as well as operations that solely retain risk on an excess basis.
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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)
Increase in prior year loss reserves
Increase in prior year earned premiums
Net favorable prior year development
2021
2020
2019
$
$
(863)
7,510
6,647
$
$
(627)
16,807
16,180
$
$
(34,079)
53,511
19,432
The COVID-19 global pandemic has impacted, and may further impact, the Company’s results through its effect on claim frequency and severity. Loss
cost trends have been impacted and may be further impacted by COVID-19-related claims in certain lines of business. Losses incurred from COVID-19-related
claims have been offset, to a certain extent, by lower claim frequency in certain lines of our businesses; however, as the economy and legal systems have reopened,
the benefit of lower claim frequency has begun to abate. Although as populations have continued to be vaccinated against the virus and the effects of the pandemic
have receded in many jurisdictions, most particularly the United States, it remains too early to determine the ultimate net impact of COVID-19 on the Company.
New variants of the COVID-19 virus, including the “Omicron” variant, and the slowing of vaccination rates among certain populations continue to create risks
with respect to loss costs and the potential for renewed impact of the other effects of COVID-19 associated with economic conditions, inflation, and social
distancing and work from home rules.
Most of the COVID-19-related claims reported to the Company to date involve certain short-tailed lines of business, including contingency and event
cancellation, business interruption, and film production delay. The Company has also received COVID-19-related claims for longer-tailed casualty lines of
business such as workers’ compensation and other liability; however, the estimated incurred loss impact for these reported claims are not material at this time.
Given the continuing uncertainty regarding the pandemic's pervasiveness, the future impact that the pandemic may have on claim frequency and severity remains
uncertain at this time.
The Company has estimated the potential COVID-19 impact to its contingency and event cancellation, workers’ compensation, and other lines of business
under a number of possible scenarios; however, due to COVID-19’s continued evolving impact, there remains a high degree of uncertainty around the Company’s
COVID-19 reserves. In addition, should the pandemic continue or worsen as a result of new COVID-19 variants or otherwise, governments in the jurisdictions
where we operate may renew their efforts to expand policy coverage terms beyond the policy’s intended coverage. Accordingly, losses arising from these actions,
and the other factors described above, could exceed the Company’s reserves established for those related policies.
As of December 31, 2021, the Company had recognized losses for COVID-19-related claims activity, net of reinsurance, of approximately $274 million,
of which $233 million relates to the Insurance segment and $41 million relates to the Reinsurance & Monoline Excess segment. Such $274 million of COVID-19-
related losses included $239 million of reported losses and $35 million of IBNR. For the year ended December 31, 2021, the Company recognized current accident
year losses for COVID-19-related claims activity, net of reinsurance, of approximately $58 million, of which $54 million relates to the Insurance segment and $4
million relates to the Reinsurance & Monoline Excess segment.
Favorable prior year development (net of additional and return premiums) was $7 million in 2021.
Insurance – Reserves for the Insurance segment developed favorably by $20 million in 2021 (net of additional and return premiums). The overall favorable
development in 2021 was attributable to favorable development on the 2020 accident year, partially offset by adverse development on the 2016 through 2019
accident years.
The favorable development on the 2020 accident year was largely concentrated in the commercial auto liability and other liability lines of business,
including commercial multi-peril liability. During 2020 the Company achieved larger rate increases in these lines of business than were contemplated in its budget
and in its initial loss ratio selections. The Company also experienced significantly lower reported claim frequency in these lines in 2020 relative to historical
averages, and lower
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reported incurred losses relative to its expectations. We believe that the lower claim frequency and lower reported incurred losses were caused by the impacts of
the COVID-19 pandemic, for example, lockdowns, reduced driving and traffic, work from home, and court closures. However, due to the uncertainty regarding the
ultimate impacts of the pandemic on accident year 2020 incurred losses, the Company elected not to react to these lower reported trends during 2020. As more
information became available and the 2020 accident year continued to mature, during 2021 the Company started to recognize favorable accident year 2020
development in response to the continuing favorable reported loss experience relative to its expectations.
The adverse development on the 2016 through 2019 accident years is concentrated largely in the other liability line of business, including commercial multi-
peril liability, but is also seen to a lesser extent in commercial auto liability. The adverse development for these accident years is driven by a higher than expected
number of large losses reported, and particularly impacted the directors and officers liability, lawyers professional liability, and excess and surplus lines casualty
classes of business. We also believe that increased social inflation is contributing to the increased number of large losses, for example, higher jury awards on cases
which go to trial, and the corresponding higher demands from plaintiffs and higher values required to reach settlement on cases which do not go to trial.
Reinsurance & Monoline Excess – Reserves for the Reinsurance & Monoline Excess segment developed unfavorably by $13 million in 2021. The
unfavorable development in the segment was driven by the non-proportional reinsurance assumed liability and other liability lines of business, related primarily to
accident years 2017 through 2019, and was partially offset by favorable development in excess workers’ compensation business which was spread across many
prior accident years. The unfavorable non-proportional reinsurance assumed liability and other liability development was associated with our U.S. and U.K.
assumed reinsurance business, and related primarily to accounts insuring construction projects and professional liability exposures.
Favorable prior year development (net of additional and return premiums) was $16 million in 2020.
Insurance - Reserves for the Insurance segment developed favorably by $24 million in 2020 (net of additional and return premiums). Continuing the pattern
seen in recent years, the overall favorable development in 2020 resulted from more significant favorable development on workers’ compensation business, which
was partially offset by unfavorable development on professional liability, including excess professional liability
For workers’ compensation, the favorable development was spread across almost all prior accident years, including prior to 2011, but was most significant
in accident years 2016 through 2019. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during
recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The long term trend of declining workers’
compensation frequency can be attributable to improved workplace safety. Loss severity trends were also aided by our continued investment in claims handling
initiatives such as medical case management services and vendor savings through usage of preferred provider networks and pharmacy benefit managers. Reported
workers’ compensation losses in 2020 continued to be below our expectations at most of our businesses, and were below the assumptions underlying our initial
loss ratio picks and our previous reserve estimates for most prior accident years.
For professional liability business, unfavorable development was driven mainly by large losses reported in the directors and officers (“D&O”), lawyers
professional and excess hospital professional liability lines of business. For these lines of business, we continue to see an increase in the number of large losses
reported and a lengthening of the reporting “tail” beyond historical levels. We believe a contributing cause is rising social inflation in the form of, for example,
higher jury awards on cases that go to trial, and the corresponding higher demands from plaintiffs and higher values required to reach settlement on cases that do
not go to trial. The unfavorable development for professional liability affected mainly accident years 2016 through 2018.
Reinsurance & Monoline Excess – Reserves for the Reinsurance & Monoline Excess segment developed unfavorably by $8 million in 2020. The
unfavorable development in the segment was driven by non-proportional assumed liability business written in both the U.S. and U.K., and was partially offset by
favorable development on excess workers’ compensation business. The unfavorable non-proportional assumed liability development was concentrated in accident
years 2014 through 2018, and related primarily to accounts insuring construction projects and professional liability exposures.
Favorable prior year development (net of additional and return premiums) was $19 million in 2019.
Insurance - Reserves for the Insurance segment developed favorably by $21 million in 2019 (net of additional and return premiums). This overall favorable
development resulted from more significant favorable development on workers’ compensation business, which was partially offset by unfavorable development on
professional liability and general liability business.
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For workers’ compensation, the favorable development was spread across many accident years, including prior to 2010, but was most significant in accident
years 2014 through 2018, and particularly 2017 and 2018. The favorable workers’ compensation development reflects a continuation during 2019 of the benign
loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The long
term trend of declining workers’ compensation frequency can be attributable to improved workplace safety. Loss severity trends were also aided by our continued
investment in claims handling initiatives such as medical case management services and vendor savings through usage of preferred provider networks and
pharmacy benefit managers. Our initial loss ratio “picks” for this line of business over the past few accident years have contemplated an increase in loss cost trends
and reflect decreasing premium rates in the marketplace; reported workers’ compensation losses in 2019 continued to be below our expectations at most of our
operating units, and were below the assumptions underlying our initial loss ratio picks and our previous reserve estimates.
For professional liability business, the unfavorable development was driven mainly by an increase in the number of large losses reported in the lawyers
professional liability and directors and officers (“D&O”) liability lines of business. Many of the lawyers large losses involved claims made against insured law
firms relating to work performed on matters stemming from the 2008 financial crisis. These claims affected mainly accident years 2013 through 2016. In addition,
for both of these lines of business, we have seen evidence of social inflation in the form of higher jury awards on cases that go to trial, and corresponding higher
demands from plaintiffs and higher values required to reach settlement on cases that do not go to trial. The unfavorable development for D&O affected mainly
accident years 2014 through 2017.
For general liability business, most of the unfavorable development emanated from our excess and surplus lines (E&S) businesses, and was driven by an
increase in the number of large losses reported. Many of these large losses were from construction and contracting classes of business, which have also been
impacted by social inflation. The general liability unfavorable development impacted mainly accident years 2015 through 2018.
Reinsurance & Monoline Excess - Reserves for the Reinsurance & Monoline Excess segment developed unfavorably by $2 million in 2019. The
unfavorable development in the segment was driven by non-proportional assumed liability business in both the U.S. and U.K., and was largely offset by favorable
development on excess workers’ compensation business. The unfavorable non-proportional assumed liability development was concentrated in accident years 2015
through 2018, and included an adjustment for the Ogden discount rate in the U.K.
Reserve Discount. The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that
were discounted was $1,387 million and $1,655 million at December 31, 2021 and 2020, respectively. The aggregate net discount for those reserves, after
reflecting the effects of ceded reinsurance, was $452 million and $483 million at December 31, 2021 and 2020, respectively. At December 31, 2021, discount rates
by year ranged from 0.7% to 6.5%, with a weighted average discount rate of 3.4%.
Substantially all discounted workers’ compensation reserves (97% of total discounted reserves at December 31, 2021) 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, 2021), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves
are discounted at statutory rates prescribed or 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 $60 million and $44 million at December 31, 2021 and 2020,
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.
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Allowance for Expected Credit Losses on Investments.
Fixed Maturity Securities – For fixed maturity securities in an unrealized loss position where the Company intends to sell, or it is more likely than not that
it will be required to sell the security before recovery in value, the amortized cost basis is written down to fair value through net investment gains (losses). For
fixed maturity securities in an unrealized loss position where the Company does not intend to sell, or it is more likely than not that it will not be required to sell the
security before recovery in value, the Company evaluates whether the decline in fair value has resulted from credit losses or all other factors (non-credit factors). In
making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency,
and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows
expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less
than the amortized cost basis, an allowance for expected credit losses is recorded for the credit loss through net investment gains (losses), limited by the amount
that the fair value is less than the amortized cost basis. Effective January 1, 2020, the allowance is adjusted for any change in expected credit losses and subsequent
recoveries through net investment gains (losses). The impairment related to non-credit factors is recognized in other comprehensive income (loss) .
The Company’s credit assessment of allowance for expected credit losses uses a third party model for available for sale and held to maturity securities, as well as
loans receivable. The allowance for expected credit losses is generally based on the performance of the underlying collateral under various economic and default
scenarios that involve subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default rates, the
nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and
performance factors. A discounted cash flow analysis is used to ascertain the amount of the allowance for expected credit losses, if any. In general, the model
reverts to the rating-level long-term average marginal default rates based on 10 years of historical data, beyond the forecast period. For other inputs, the model in
most cases reverts to the baseline long-term assumptions linearly over 5 years beyond the forecast period. The long-term assumptions are based on the historical
averages.
The Company classifies its fixed maturity securities by credit rating, primarily based on ratings assigned by credit rating agencies. For purposes of classifying
securities with different ratings, the Company uses the average of the credit ratings assigned, unless in limited situations the Company’s own analysis indicates an
internal rating is more appropriate. Securities that are not rated by a rating agency are evaluated and classified by the Company on a case-by-case basis.
A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at December 31, 2021 is presented
in the table below.
($ in thousands)
Foreign government
Corporate
Mortgage-backed securities
Asset-backed securities
State and municipal
Total
Number of
Securities
Aggregate
Fair Value
Unrealized
Loss
38
8
4
2
1
53
$
$
130,621
26,903
210
154
14,594
172,482
$
$
38,849
1,644
13
14
411
40,931
As of December 31, 2021, the Company has recorded an allowance for expected credit losses on fixed maturity securities of $23 million. The Company
has evaluated the remaining fixed maturity securities in an unrealized loss position and believes the unrealized losses are due primarily to temporary market and
sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment
of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due.
Loans Receivable – For loans receivable, the Company estimates an allowance for expected credit losses based on relevant information about past events,
including historical loss experience, current conditions and forecasts that affect the expected collectability of the amortized cost of the financial asset. The
allowance for expected credit losses is presented as a reduction to amortized cost of the financial asset in the consolidated balance sheet and changes to the estimate
for expected credit losses are recognized through net investment gains (losses). Loans receivable are reported net of an allowance for expected credit losses of $2
million and $5 million as of December 31, 2021 and 2020, respectively.
Fair Value Measurements. The Company’s fixed maturity available for sale securities, equity securities, 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
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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, 2021:
(In thousands)
Pricing source:
Independent pricing services
Syndicate manager
Directly by the Company based on:
Observable data
Total
Carrying
Value
Percent
of Total
$
$
16,261,437
54,508
212,747
16,528,692
98.4 %
0.3
1.3
100.0 %
Independent pricing services - Substantially all of the Company’s fixed maturity securities available for sale were priced by independent pricing services
(generally one U.S. pricing service plus additional pricing services with respect to a limited number of foreign securities held by the Company). The prices
provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for
comparable securities). The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The
Company reviews the prices provided by pricing services for reasonableness based upon current trading levels for similar securities. If the prices appear unusual to
the Company, they are re-examined and the value is either confirmed or revised. In addition, the Company periodically performs independent price tests of a
sample of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of December 31, 2021, the Company did not make
any adjustments to the prices provided by the pricing services. Based upon the Company’s review of the methodologies used by the independent pricing services,
these securities were classified as Level 2.
Syndicate manager – The Company has a 15% participation in a Lloyd’s syndicate, and the Company’s share of the securities owned by the syndicate is
priced by the syndicate’s manager. The majority of the securities are liquid, short duration fixed maturity securities. The Company reviews the syndicate manager’s
pricing methodology and audited financial statements and holds discussions with the syndicate manager as necessary to confirm its understanding and agreement
with security prices. Based upon the Company’s review of the methodologies used by the syndicate manager, these securities were classified as Level 2.
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48
49
Observable data – If independent pricing is not available, the Company prices the securities directly. Prices are based on observable market data where
available, including current trading levels for similar securities and non-binding quotations from brokers. The Company generally requests two or more quotes. If
more than one quote is received, the Company sets a price within the range of quotes received based on its assessment of the credibility of the quote and its own
evaluation of the security. The Company generally does not adjust quotes obtained from brokers. Since these securities were priced based on observable data, they
were classified as Level 2.
Cash flow model – If the above methodologies are not available, the Company prices securities using a discounted cash flow model based upon
assumptions as to prevailing credit spreads, interest rates and interest rate volatility, time to maturity and subordination levels. Discount rates are adjusted to reflect
illiquidity where appropriate. These securities were classified as Level 3.
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Results of Operations for the Years Ended December 31, 2021 and 2020
Business Segment Results
Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage
of net premiums earned), expense ratios (underwriting expenses expressed as a percentage of net premiums earned) and GAAP combined ratios (sum of loss ratio
and expense ratio) for each of our business segments for the years ended December 31, 2021 and 2020. The GAAP combined ratio represents a measure of
underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates
an underwriting profit.
(In thousands)
Insurance
Gross premiums written
Net premiums written
Net premiums earned
Loss ratio
Expense ratio
GAAP combined ratio
Reinsurance & Monoline Excess
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
2021
2020
$
$
$
$
$
$
9,471,667
7,743,814
7,077,708
61.1 %
28.3
89.4
1,228,467
1,119,053
1,028,323
61.0 %
29.7
90.7
10,700,134
8,862,867
8,106,031
61.1 %
28.5
89.6
7,837,496
6,347,101
6,067,669
64.9 %
30.3
95.2
1,010,151
915,336
863,174
61.3 %
31.8
93.1
8,847,647
7,262,437
6,930,843
64.5 %
30.4
94.9
Net Income to Common Stockholders. The following table presents the Company’s net income to common stockholders and net income per diluted share
for the years ended December 31, 2021 and 2020.
(In thousands, except per share data)
Net income to common stockholders
Weighted average diluted shares
Net income per diluted share
2021
2020
$
$
1,022,490
186,499
5.48
$
$
530,670
188,763
2.81
The Company reported net income of $1,022 million in 2021 compared to $531 million in 2020. The $491 million increase in net income was primarily
due to an after-tax increase in underwriting income of $397 million mainly due to the growth in premium rates and exposure as well as reductions in loss ratio
partly due to lower catastrophe losses and in expense ratio driven by net earned premium growth outpacing expense growth, an after-tax increase in net investment
income of $71 million primarily due to investment funds, a reduction of $33 million in tax expense due to a change in the effective tax rate, an after-tax increase in
foreign currency gains of $21 million, an after-tax increase in profits from non-insurance businesses of $9 million due to sales rebounding from the pandemic, an
after-tax increase in profit from insurance service businesses of $4 million, and an after-tax reduction in interest expenses of $3 million due to early refinancings,
partially offset by an after-tax increase in corporate expenses of $31 million mainly due to increased incentive compensation costs, an after-tax reduction in net
investment gains of $10 million primarily due to the sale of real estate in 2020 and an after-tax increase of $6 million in minority interest. The number of weighted
average diluted shares decreased by 2.3 million for 2021 compared to 2020 mainly reflecting shares repurchased in 2020 and 2021.
Premiums. Gross premiums written were $10,700 million in 2021, an increase of 21% from $8,848 million in 2020. The increase was due to the growth in
the Insurance segment of $1,634 million and $218 million in the Reinsurance & Monoline Excess segment. Approximately 82% of premiums expiring in 2021
were renewed, and 79% of premiums expiring in
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50
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2020 were renewed.
Average renewal premium rates for insurance and facultative reinsurance increased 9.1% in 2021 and 11.3% in 2020, when adjusted for changes in
exposures. Average renewal premium rates for insurance and facultative reinsurance excluding workers' compensation increased 10.4% in 2021 and 13.6% in
2020, when adjusted for changes in exposures.
•
•
A summary of gross premiums written in 2021 compared with 2020 by line of business within each business segment follows:
Insurance gross premiums increased 21% to $9,472 million in 2021 from $7,837 million in 2020. Gross premiums increased $557 million (20%) for
other liability, $497 million (42%) for professional liability, $272 million (15%) for short-tail lines, $261 million (28%) for commercial auto, and $48
million (4%) for workers' compensation.
Reinsurance & Monoline Excess gross premiums increased 22% to $1,228 million in 2021 from $1,010 million in 2020. Gross premiums written
increased $173 million (29%) for casualty lines, $33 million (17%) for monoline excess, and $12 million (5%) for property lines.
Net premiums written were $8,863 million in 2021, an increase of 22% from $7,262 million in 2020. Ceded reinsurance premiums as a percentage of
gross written premiums were 17% in 2021 and 18% in 2020.
Premiums earned increased 17% to $8,106 million in 2021 from $6,931 million in 2020. Insurance premiums (including the impact of rate changes) are
generally earned evenly over the policy term, and accordingly recent rate increases will be earned over the upcoming quarters. Premiums earned in 2021 are related
to business written during both 2021 and 2020. Audit premiums were $195 million in 2021 compared with $128 million in 2020.
Net Investment Income. Following is a summary of net investment income for the years ended December 31, 2021 and 2020:
(In thousands)
Fixed maturity securities, including cash and cash equivalents and loans receivable
Investment funds
Arbitrage trading account
Real estate
Equity securities
Gross investment income
Investment expenses
Total
Amount
Average Annualized
Yield
2021
2020
2021
2020
$
$
382,001
220,014
37,676
7,703
32,020
679,414
(7,796)
671,618
$
$
426,563
54,253
77,931
24,027
10,172
592,946
(9,125)
583,821
2.2 %
15.8
5.3
0.4
5.0
3.1
—
3.0 %
2.7 %
4.5
14.6
1.2
2.7
3.0
—
2.9 %
Net investment income increased 15% to $672 million in 2021 from $584 million in 2020 primarily due to a $166 million increase in income from
investment funds, a $22 million increase in equity securities and an $1 million reduction in investment expenses, partially offset by a $45 million reduction in
income from fixed maturity securities driven by lower investment yields, a $40 million reduction in arbitrage trading account and a $16 million reduction from real
estate. Investment funds are reported on a one quarter lag. The average annualized yield for fixed maturity securities was 2.2% in 2021 and 2.7% in 2020. The
effective duration of the fixed maturity portfolio was 2.4 years at both December 31, 2021 and 2020. The Company maintained the shortened duration of its fixed
maturity security portfolio, thereby reducing the potential impact of mark-to-market on the portfolio and positioning the Company to react quickly to changes in
the current interest rate environment. Average invested assets, at cost (including cash and cash equivalents), were $22.2 billion in 2021 and $20.0 billion in 2020.
Insurance Service Fees. The Company earns fees from an insurance distribution business, a third-party administrator, and as a servicing carrier of
workers' compensation assigned risk plans for certain states. Insurance service fees increased to $94 million in 2021 from $89 million in 2020.
Net Realized and Unrealized Gains on Investments. The Company buys and sells securities and other investment assets on a regular basis in order to
maximize its total return on investments. Decisions to sell securities and other investment assets are based on management’s view of the underlying fundamentals
of specific investments as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net
realized and unrealized gains on investments were $107 million in 2021 compared with $74 million in 2020. In 2021, the gains reflected net realized gains on
investments of $145 million were partially offset by a change in unrealized losses on equity securities of $38 million. In 2020,
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50
the gains reflected net realized gains on investments of $99 million, primarily including the sale of a building for a gain of $105 million, partially offset by an
increase in unrealized losses on equity securities of $25 million.
Change in Allowance for Expected Credit Losses on Investments. Based on credit factors, the allowance for expected credit losses is increased or
decreased depending on the percentage of unrealized loss relative to amortized cost by security, changes in rating of the security by a rating agency, and adverse
conditions specifically related to the security, among other factors. For the year ended December 31, 2021, the pre-tax change in allowance for expected credit
losses on investments increased by $16 million ($13 million after-tax), which is reflected in net investment gains, primarily related to foreign government
securities which did not previously have an allowance. For the year ended December 31, 2020, the pre-tax change in allowance for expected credit losses on
investments decreased by $29 million ($23 million after-tax), which is reflected in net investment gains.
Revenues from Non-Insurance Businesses. Revenues from non-insurance businesses were derived from businesses engaged in the distribution of
promotional merchandise, world-wide textile solutions, and aviation-related businesses that provide services to aviation markets, including (i) the distribution,
manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter
services. Revenues from non-insurance businesses were $489 million in 2021 and $390 million in 2020. The increase mainly relates to the business recovery from
COVID-19 on aviation-related and textile businesses.
Losses and Loss Expenses. Losses and loss expenses increased to $4,954 million in 2021 from $4,469 million in 2020. The consolidated loss ratio was
61.1% in 2021 and 64.5% in 2020. Catastrophe losses, net of reinsurance recoveries, were $202 million (including current accident year losses of approximately
$58 million related to COVID-19) in 2021 compared with $340 million in 2020 (including losses of approximately $171 million related to COVID-19). Favorable
prior year reserve development (net of premium offsets) was $7 million in 2021 compared with $16 million in 2020. The loss ratio excluding catastrophe losses
and prior year reserve development decreased 1.1 points to 58.7% in 2021 from 59.8% in 2020.
A summary of loss ratios in 2021 compared with 2020 by business segment follows:
•
Insurance - The loss ratio of 61.1% in 2021 was 3.8 points lower than the loss ratio of 64.9% in 2020. Catastrophe losses were $150 million in 2021
compared with $307 million in 2020. The Company reflected a best estimate (net of reinsurance) based upon available information for current accident
year COVID-19-related losses of approximately $54 million, primarily related to contingency and event cancellation coverage. Favorable prior year
reserve development was $20 million in 2021 compared with $24 million in 2020. The loss ratio excluding catastrophe losses and prior year reserve
development decreased 0.9 points to 59.3% in 2021 from 60.2% in 2020.
•
Reinsurance & Monoline Excess - The loss ratio of 61.0% in 2021 was 0.3 points lower than the loss ratio of 61.3% in 2020. Catastrophe losses were
$52 million in 2021 compared with $33 million in 2020. The Company reflected a best estimate (net of reinsurance) based upon available information
for current accident year COVID-19-related losses of approximately $4 million, primarily related to excess workers' compensation. Adverse prior year
reserve development was $13 million in 2021 compared with $8 million in 2020. The loss ratio excluding catastrophe losses and prior year reserve
development decreased 1.9 points to 54.7% in 2021 from 56.6% in 2020.
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
Debt extinguishment costs
Other costs and expenses
Total
2021
2020
$
$
2,306,727
86,003
(25,725)
11,521
220,744
2,599,270
$
$
2,111,013
85,724
363
8,440
184,852
2,390,392
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 9% from 2020, while net premiums earned increased 17% over that
period. The expense ratio (policy acquisition and insurance operating expenses expressed as a percentage of premiums earned) was 28.5% in 2021 and 30.4% in
2020. The improvement is primarily attributable to higher net premiums earned outpacing compensation expense growth. However, to the extent our net premiums
earned decrease or travel and entertainment expenses increase, due to the impact of the COVID-19 pandemic or otherwise, our expense ratio would be expected to
increase.
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Service expenses, which represent the costs associated with the fee-based businesses, was $86 million in both 2021 and 2020.
Net foreign currency (gains) losses result from transactions denominated in a currency other than a businesses’ functional currency. Net foreign currency
gains was $26 million in 2021 compared to losses of $0.4 million in 2020, mainly due to U.S. dollar strengthening in relation to a wide spectrum of currencies in
2021.
Debt extinguishment costs of $12 million in 2021 related to the redemption of $400 million of subordinated debentures in March and June 2021 that were
due in 2056. Debt extinguishment costs of $8 million in 2020 related to the redemption of subordinated debentures that were due in 2053.
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 $221 million in 2021 from $185 million in
2020, primarily due to the increase in performance-based compensation costs in 2021.
Expenses from Non-Insurance Businesses. Expenses from non-insurance businesses represent costs associated with businesses engaged in the distribution
of promotional merchandise, world-wide textile solutions, and aviation-related businesses that include (i) cost of goods sold related to aircraft and products sold
and services provided and (ii) general and administrative expenses. Expenses from non-insurance businesses were $472 million in 2021 compared to $384 million
in 2020. The increase mainly relates to the business recovery from COVID-19 on aviation-related and textile businesses.
Interest Expense. Interest expense was $147 million in 2021 and $151 million in 2020. In May 2020, the Company issued $300 million aggregate
principal amount of 4.00% senior notes due 2050. In September 2020, the Company issued an additional $170 million aggregate principal amount of 4.00% senior
notes due 2050 and $250 million aggregate principal amount of 4.25% subordinated debentures due 2060 and repaid $300 million aggregate principal amount of
5.375% senior notes at maturity. In October 2020, the Company redeemed $350 million aggregate principal amount of 5.625% subordinated debentures due 2053.
In February 2021, the Company issued $300 million aggregate principal amount of 4.125% subordinated debentures due 2061. In March 2021, the Company issued
$400 million aggregate principal amount of 3.55% senior notes due 2052 and redeemed its $110 million aggregate principal amount of 5.90% subordinated
debentures due 2056. In June 2021, the Company redeemed the $290 million aggregate principal amount of its 5.75% subordinated debentures due 2056. In
September 2021, the Company issued $350 million aggregate principal amount of 3.15% senior notes due 2061. The redemptions resulted in debt extinguishment
costs of $12 million in 2021. Additionally, in the second quarter of 2021, the Company sold a real estate asset which, resulted in a $102 million reduction of the
Company's non-recourse debt that was supporting the property.
The redemption of debentures and issuance of additional debentures in 2021 combined with maturities in 2022, as described below in "Liquidity and
Capital Resources -- Debt," are expected to decrease interest expense in 2022 and forward.
Income Taxes. The effective income tax rate was 19.6% in 2021 and 24.4% in 2020. The effective income tax rate differs from the federal income tax rate
of 21% principally driven by tax benefits attributable to tax-exempt investment income and equity-based compensation. See Note 16 of the Consolidated Financial
Statements for a reconciliation of the income tax expense and the amounts computed by applying the Federal and foreign income tax rate of 21%.
The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $126.7 million of its non-U.S. subsidiaries
since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. In the future, if such earnings were distributed the Company projects
that the incremental tax, if any, will be immaterial.
Results of Operations for the Years Ended December 31, 2020 and 2019
For a comparison of the Company’s results of operations for the year ended December 31, 2020 to the year ended December 31, 2019, see Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2020, which was filed with the Securities and Exchange Commission on February 18, 2021.
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Investments
As part of its investment strategy, the Company establishes a level of cash and highly liquid short-term and intermediate-term securities that, combined with
expected cash flow, it believes is adequate to meet its payment obligations. Due to the low fixed maturity investment returns, the Company invests in equity
securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. The Company's investments in investment funds and its
other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income.
The Company also attempts to maintain an appropriate relationship between the effective duration of the investment portfolio and the approximate duration
of its liabilities (i.e., policy claims and debt obligations). The effective duration of the investment portfolio was 2.4 years at both December 31, 2021 and 2020. The
Company’s investment portfolio and investment-related assets as of December 31, 2021 were as follows:
($ in thousands)
Fixed maturity securities:
U.S. government and government agencies
State and municipal:
Special revenue
State general obligation
Local general obligation
Pre-refunded (1)
Corporate backed
Total state and municipal
Mortgage-backed securities:
Agency
Residential-Prime
Commercial
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
Cash and cash equivalents
Real estate
Investment funds
Arbitrage trading account
Loans receivable
Total investments
Carrying
Value
Percent
of Total
$
855,343
3.6 %
2,092,438
455,323
430,697
222,225
172,602
3,373,285
752,318
186,260
128,756
5,570
1,072,904
4,490,565
3,273,163
1,763,400
406,302
152,810
5,595,675
1,214,901
16,602,673
695,403
245,840
941,243
1,568,843
1,852,508
1,480,612
1,179,606
115,172
23,740,657
$
8.8
1.9
1.8
1.0
0.7
14.2
3.2
0.8
0.5
—
4.5
18.9
13.8
7.4
1.7
0.7
23.6
5.1
69.9
2.9
1.1
4.0
6.6
7.8
6.2
5.0
0.5
100.0 %
______________
(1) Pre-refunded securities are securities for which an escrow account has been established to fund the remaining payments of principal and interest through
maturity. Such escrow accounts are funded almost exclusively with U.S. Treasury and U.S. government agency securities.
Fixed Maturity Securities. The Company’s investment policy with respect to fixed maturity securities is generally to purchase instruments with the
expectation of holding them to their maturity. However, management of the available for sale
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portfolio is considered necessary to maintain an approximate matching of assets and liabilities as well as to adjust the portfolio as a result of changes in financial
market conditions and tax considerations.
The Company’s philosophy related to holding or selling fixed maturity securities is based on its objective of maximizing total return. The key factors that
management considers in its investment decisions as to whether to hold or sell fixed maturity securities are its view of the underlying fundamentals of specific
securities as well as its expectations regarding interest rates, credit spreads and currency values. In a period in which management expects interest rates to rise, the
Company may sell longer duration securities in order to mitigate the impact of an interest rate rise on the fair value of the portfolio. Similarly, in a period in which
management expects credit spreads to widen, the Company may sell lower quality securities, and in a period in which management expects certain foreign
currencies to decline in value, the Company may sell securities denominated in those foreign currencies. The sale of fixed maturity securities in order to achieve
the objective of maximizing total return may result in realized gains; however, there is no reason to expect these gains to continue in future periods.
Equity Securities. Equity securities primarily represent investments in common and preferred stocks in companies with potential growth opportunities in
different sectors, mainly in the financial institutions and energy sectors.
Investment Funds. At December 31, 2021, the carrying value of investment funds was $1,481 million, including investments in financial services funds of
$432 million, transportation funds of $337 million, other funds of $288 million (which includes a deferred compensation trust asset of $34 million), real estate
funds of $274 million, and energy funds of $150 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, 2021, real estate properties in operation included a long-term
ground lease in Washington D.C., an office complex in New York City, an office building in London, and the completed portion of a mixed-use project in
Washington D.C. In addition, part of the previously mentioned mixed-use project in Washington D.C. is under development. The Company expects to fund further
development costs for the project with a combination of its own funds and external financing.
Arbitrage Trading Account. The arbitrage trading account is comprised of direct investments in arbitrage securities. Merger arbitrage is the business of
investing in the securities of publicly held companies that are the targets in announced tender offers and mergers.
Loans Receivable. Loans receivable, which are carried at amortized cost (net of allowance for expected credit losses), had an amortized cost of $115 million
and an aggregate fair value of $117 million at December 31, 2021. The amortized cost of loans receivable is net of an allowance for expected credit losses of $2
million as of December 31, 2021. Loans receivable
include real estate loans of $89 million that are secured by commercial and residential real estate located primarily in New
York. Real estate loans generally earn interest at fixed or stepped interest rates and have maturities through 2026. Loans
receivable include commercial loans of $26 million that are secured by business assets and have fixed interest rates with
varying maturities not exceeding 10 years.
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Liquidity and Capital Resources
Cash Flow. Cash flow provided from operating activities increased to $2,184 million in 2021 from $1,617 million in 2020, primarily due to an increase in
premium receipts, net of reinsurance and commissions settled, partially offset by loss and loss expense payments as well as payments to tax 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 1.5 years of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle
and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed maturity
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 76.6% invested in cash, cash equivalents and
marketable fixed maturity securities as of December 31, 2021. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the
difference between the cost and sales price of securities sold would be recognized.
Debt. At December 31, 2021, the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of $3,267 million
and a face amount of $3,292 million, including $300 million aggregate principal amount of its 4.125% subordinated debentures due 2061 issued in February 2021,
$400 million aggregate principal amount of its 3.55% senior notes due 2052 issued in March 2021 and $350 million aggregate principal amount of its 3.15% senior
notes due 2061 issued in September 2021. The Company redeemed its $110 million aggregate principal amount of 5.90% subordinated debentures due 2056 on
March 1, 2021 and its $290 million aggregate principal amount of 5.75% subordinated debentures due 2056 on June 1, 2021. Additionally, in the second quarter of
2021, the Company sold a real estate asset which resulted in a $102 million reduction of the Company's non-recourse debt that was supporting the property. The
maturities of the outstanding debt are $427 million in 2022, $6 million in 2024, $4 million in 2025, $250 million in 2037, $350 million in 2044, $470 million in
2050, $400 million in 2052, $185 million in 2058, $300 million in 2059, $250 million in 2060, and $650 million in 2061.
Equity. At December 31, 2021, total common stockholders’ equity was $6.7 billion, common shares outstanding were 176,780,588 and stockholders’ equity
per outstanding share was $37.63. The Company repurchased 1,752,619 and 6,363,301 shares of its common stock in 2021 and 2020, respectively. The aggregate
cost of the repurchases was $122 million in 2021 and $346 million in 2020. In 2021, the Board declared regular quarterly cash dividends of $0.12 per share in the
first quarter, and $0.13 per share in each of the remaining three quarters, as well as special dividends of $0.50 per share in the second quarter and $1.00 per share in
the fourth quarter for a total of $356 million in aggregate dividends in 2021.
Total Capital. Total capitalization (equity, debt and subordinated debentures) was $9.9 billion at December 31, 2021. The percentage of the Company’s
capital attributable to senior notes, subordinated debentures and other debt was 33% and 30% at December 31, 2021 and 2020, respectively.
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, 2021, the Company had a gross deferred tax asset of $535 million (which primarily relates to loss and loss expense reserves and unearned premium
reserves). The Company also has a $75 million valuation allowance against the gross deferred tax asset and a gross deferred tax liability of $420 million (which
primarily relates to deferred policy acquisition costs, and various investment funds) resulting in a net deferred tax asset of $40 million. The realization of this 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.
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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 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, 2022: The Company’s property per risk
reinsurance generally covers losses between $2.5 million and $65 million. The Company’s catastrophe excess of loss reinsurance program provides
protection for net losses in excess of between $23.4 million and $40.2 million up to $500 million for the majority of U.S. business written by its
Insurance segment businesses and U.S. and non-U.S. business written by Lloyd's Syndicate, excluding offshore energy; this includes some co-
participation in lower layers. 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, 2022 provides significant protection for losses between $10 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 $5 million and up to $100 million. For losses involving two or more claimants for
primary workers’ compensation business, coverage is generally in place for losses between $10 million and $550 million. For excess workers’
compensation business, such coverage is generally in place for losses between $25 million and $550 million. Our workers’ compensation catastrophe
reinsurance program is a shared cover for both excess and primary workers’ compensation business.
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 business, the Company purchases specific additional reinsurance to supplement the above programs.
Effective January 1, 2022, Lifson Re will continue to be a participant on the majority of the Company’s reinsurance placements for a 22.5% share of the
placed amounts. This pertains to all traditional treaty reinsurance/retrocessional placements for both property and casualty business where there is more
than one open market reinsurer participating. Lifson Re has been capitalized with more than $250 million of equity from a small group of sophisticated
global investors with long-term investment horizons, including a minority participation by the Company. Lifson Re will participate on a fully
collateralized basis.
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
losses discovered 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, 2021:
(In thousands)
Earned premiums
Losses and loss expenses
$
Year Ended December 31,
2020
1,499,948
955,630
$
$
2021
1,805,341
1,236,960
2019
1,328,843
836,831
Ceded earned premiums increased 20.4% in 2021 to $1,805 million. The ceded losses and loss expenses ratio increased 5 points to 69% in 2021 from 64%
in 2020.
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56
The following table presents the credit quality of amounts due from reinsurers as of December 31, 2021. 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:
Munich Re
Lloyd’s of London
Partner Re
Alleghany Group
Swiss Re
Hannover Re Group
Everest Re
Renaissance Re
Berkshire Hathaway
Axis Capital
Liberty Mutual
Arch Capital Group
Korean Re
Fairfax Financial
Axa Insurance
Markel Corp Group
Sompo Holdings Group
Helvetia Holdings Group
Other reinsurers:
Rated A- or better
Secured (2)
All Others
Subtotal
Residual market pools (3)
Allowance for expected credit losses
Total
_________________
Rating
(1)
Amount
AA-
A+
A+
A+
AA-
AA-
A+
A+
AA+
A+
A
A+
A
A-
AA-
A
A+
A+
$
$
$
313,150
308,119
231,251
204,699
203,165
167,906
162,432
138,408
126,806
88,938
85,367
58,156
55,643
43,975
40,014
26,737
24,220
23,986
188,195
200,969
25,365
2,717,501
213,238
(7,713)
2,923,026
(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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Contractual Obligations
Following is a summary of the Company's contractual obligations as of December 31, 2021:
(In thousands)
Estimated Payments By Periods
Gross reserves for losses
Operating lease obligations
Purchase obligations
Subordinated debentures
Senior notes and other debt
Interest payments
Other long-term liabilities
Total
2022
4,077,441 $
44,962
137,509
—
426,503
128,569
2,719
4,817,703 $
2023
2,861,773
43,674
75,875
—
—
123,293
2,446
3,107,061
$
$
$
2024
2,149,219
37,663
46,803
—
6,078
123,293
2,188
2,365,244 $
2025
1,576,905
28,109
46,117
—
4,485
123,293
1,999
1,780,908
$
$
2026
1,113,635
21,486
46,538
—
—
123,293
1,826
1,306,778
$
$
Thereafter
4,079,739
68,019
729
1,035,000
1,820,000
3,212,406
21,421
10,237,314
$
$
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, 2021. 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, 2021, the Company had
commitments to invest up to $621 million and $139 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 $5 million as of
December 31, 2021. 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.
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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 2.4 years at both December 31, 2021 and 2020.
In addition, the fair value of the Company’s international investments is subject to currency risk. The Company attempts to manage its currency risk by
matching its foreign currency assets and liabilities where considered appropriate.
The following table outlines the groups of fixed maturity securities and their effective duration at December 31, 2021:
($ in thousands)
Mortgage-backed securities
State and municipal
Corporate
Foreign government
U.S. government and government agencies
Loans receivable
Asset-backed securities
Cash and cash equivalents
Total
Effective
Duration
(Years)
4.2
3.6
3.1
2.6
1.8
1.6
0.9
0.0
2.4
Fair Value
1,073,536
3,384,098
5,595,675
1,214,901
855,343
116,534
4,490,565
1,568,843
18,299,495
$
$
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, 2021 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
(1,320,105)
$
(894,076)
(449,448)
—
447,138
936,848
1,492,967
16,979,390
17,405,419
17,850,047
18,299,495
18,746,633
19,236,343
19,792,462
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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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
W. R. Berkley Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of W. R. Berkley Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020,
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, 2021, 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, 2021 and 2020, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021, 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 24, 2022 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Reserves for losses and loss expenses
As discussed in Notes 1 and 13 to the consolidated financial statements, the Company estimates the reserves for losses and loss expenses (reserves) using a
variety of actuarial techniques and methods. The key assumptions used to arrive at the best estimate of recorded reserves are expected loss ratios, rate of loss
cost inflation, reported and paid loss emergence patterns, loss frequency and severity, and the loss reporting lag. Such amounts are adjusted for certain
qualitative factors. The reserves as of December 31, 2021 were $15,391 million.
We identified the assessment of the estimate of reserves as a critical audit matter because it involved significant measurement uncertainty, which required
complex auditor judgement. Specialized actuarial skills and knowledge were required to evaluate the actuarial method or methods and assumptions used.
Assumptions included loss development
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60
factors; the weighting of actuarial methods when more than one was used; the impact of qualitative factors; and whether payments are fixed and reliably
determinable for certain reserves subject to discounting.
The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of
certain internal controls over the Company’s reserving process. This included controls over the Company’s process to develop the Company’s best estimate
of reserves based on actuarial methodologies and assumptions employed by the Company’s actuaries. We involved actuarial professionals with specialized
skills and knowledge, who assisted in:
•
•
•
•
•
•
examining the Company’s actuarial methodologies for compliance with Actuarial Standards of Practice;
evaluating the Company’s ability to discount certain reserves by comparing the expected payout pattern of claims paid to actual claims paid;
evaluating the Company’s actuarial point estimate by performing independent actuarial analyses for certain of the larger, more complex businesses;
evaluating the Company’s actuarial point estimate by examining the Company actuaries’ process, and certain key assumptions for the remaining
businesses;
developing an independent range of reserves based on actuarial methodologies and assumptions and comparing to the Company’s recorded reserves;
evaluating the Company’s recorded reserves and year-over-year movements of the Company’s reserves relative to, and within, the independently
developed range of reserves.
We have served as the Company’s auditor since 1972.
New York, New York
February 24, 2022
/S/ KPMG LLP
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63
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
REVENUES:
Net premiums written
Change in net unearned premiums
Net premiums earned
Net investment income
Net investment gains:
Net realized and unrealized gains on investments
Change in allowance for expected credit losses on investments
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
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2020
2019
2021
$
$
$
$
8,862,867
(756,836)
8,106,031
671,618
106,958
(16,326)
90,632
489,151
93,857
4,177
9,455,466
4,953,960
2,599,270
472,151
147,180
8,172,561
1,282,905
(251,890)
1,031,015
(8,525)
1,022,490
5.53
5.48
$
$
$
$
7,262,437
(331,594)
6,930,843
583,821
73,514
29,486
103,000
389,888
88,777
2,596
8,098,925
4,468,706
2,390,392
384,488
150,537
7,394,123
704,802
(171,817)
532,985
(2,315)
530,670
2.84
2.81
$
$
$
$
6,863,499
(230,211)
6,633,288
645,614
120,703
—
120,703
406,541
92,680
3,370
7,902,196
4,131,116
2,362,082
402,669
153,409
7,049,276
852,920
(168,935)
683,985
(2,041)
681,944
3.58
3.52
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62
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income before noncontrolling interests
Other comprehensive (loss) gain.:
Change in unrealized translation adjustments
Change in unrealized investment (losses) gains, net of taxes
Other comprehensive (loss) gain
Comprehensive income
Comprehensive income to the noncontrolling interest
Comprehensive income to common stockholders
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2020
2021
2019
$
1,031,015
$
532,985
$
683,985
(20,969)
(198,812)
(219,781)
811,234
(8,523)
802,711
$
29,927
140,250
170,177
703,162
(2,313)
700,849
$
37,166
215,902
253,068
937,053
(2,144)
934,909
$
64
64
65
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Assets
Investments:
Fixed maturity securities (amortized cost of $16,471,304 and $13,755,858; allowance for expected credit losses of $22,625 and $2,580 at
December 31, 2021 and 2020)
Investment funds
Real estate
Arbitrage trading account
Equity securities
Loans receivable (net of allowance for expected credit losses of $1,718 and $5,437 at December 31, 2021 and 2020)
Total investments
Cash and cash equivalents
Premiums and fees receivable (net of allowance for expected credit losses of $25,218 and $22,883 at December 31, 2021 and 2020)
Due from reinsurers (net of allowance for expected credit losses of $7,713 and $7,801 at December 31, 2021 and 2020)
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
Deferred 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
Trading account payable to brokers and clearing organizations
Current federal and foreign income taxes
Deferred federal and foreign income taxes
Senior notes and other debt
Subordinated debentures
Other liabilities
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 750,000,000 shares, issued and outstanding, net of treasury shares, 176,780,588 and 177,825,150 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 175,895,912 and 174,851,350 shares, respectively
Total common stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
December 31,
2021
2020
$
$
$
16,602,673
1,480,612
1,852,508
1,179,606
941,243
115,172
22,171,814
1,568,843
2,522,972
2,923,026
676,145
676,915
—
419,883
169,652
122,938
23,570
57,425
753,231
32,086,414
15,390,888
4,847,160
514,980
1,169
53,636
21,068
17,470
2,259,416
1,007,652
1,305,245
25,418,684
14,159,369
1,309,430
1,960,914
341,473
625,667
84,913
18,481,766
2,372,366
2,167,799
2,424,502
556,168
648,376
524,727
405,930
169,652
120,464
5,893
29,055
700,215
28,606,913
13,784,430
4,073,191
426,124
10,048
—
41,282
42,161
1,623,025
1,102,309
1,178,546
22,281,116
—
—
70,535
1,016,372
9,015,135
(281,955)
(3,167,076)
6,653,011
14,719
6,667,730
32,086,414
$
70,535
1,012,483
8,348,381
(62,172)
(3,058,425)
6,310,802
14,995
6,325,797
28,606,913
$
$
$
$
64
65
65
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share data)
COMMON STOCK:
Beginning and end of period
ADDITIONAL PAID IN CAPITAL:
Beginning of period
Restricted stock units issued
Restricted stock units expensed
Change in controlling financial interest of a subsidiary
End of period
RETAINED EARNINGS:
Beginning of period
Cumulative effect adjustment resulting from changes in accounting principles
Net income to common stockholders
Dividends ($2.01, $0.47, and $1.68 per share, respectively)
End of period
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrealized investment gains (losses):
Beginning of period
Cumulative effect adjustment resulting from changes in accounting principles
Change in unrealized (losses) gains on securities without an allowance for expected
credit losses
Change in unrealized gains on securities with an allowance for expected credit losses
End of period
Currency translation adjustments:
Beginning of period
Net change in period
End of period
Total accumulated other comprehensive loss
TREASURY STOCK:
Beginning of period
Stock exercised/vested
Stock issued
Stock repurchased
End of period
NONCONTROLLING INTERESTS:
Beginning of period
Distributions
Net income
Other comprehensive (loss) income, net of tax
End of period
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2020
2019
2021
$
$
$
$
$
$
$
$
$
$
$
70,535
1,012,483
(44,041)
47,930
—
1,016,372
8,348,381
—
1,022,490
(355,736)
9,015,135
289,714
—
(208,938)
10,124
90,900
(351,886)
(20,969)
(372,855)
(281,955)
(3,058,425)
13,264
511
(122,426)
(3,167,076)
14,995
(8,799)
8,525
(2)
14,719
$
$
$
$
$
$
$
$
$
$
$
70,535
1,056,042
(38,491)
48,567
(53,635)
1,012,483
7,932,372
(30,514)
530,670
(84,147)
8,348,381
124,514
24,952
108,244
32,004
289,714
(381,813)
29,927
(351,886)
(62,172)
(2,726,711)
13,917
726
(346,357)
(3,058,425)
43,403
(30,721)
2,315
(2)
14,995
$
$
$
$
$
$
$
$
$
$
$
70,535
1,039,633
(32,370)
48,779
—
1,056,042
7,558,619
—
681,944
(308,191)
7,932,372
(91,491)
—
215,636
369
124,514
(418,979)
37,166
(381,813)
(257,299)
(2,720,466)
11,431
549
(18,225)
(2,726,711)
41,947
(688)
2,041
103
43,403
66
66
67
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:
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) FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities
Proceeds from sale of equity securities
Distributions from (contributions to) investment funds
Proceeds from maturities and prepayments of fixed maturity securities
Purchase of fixed maturity securities
Purchase of equity securities
Real estate sold (purchased)
Change in loans receivable
Net additions to property, furniture and equipment
Change in balances due from security brokers
Net cash (used in) from investing activities
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net proceeds from issuance of debt
Repayment and redemption of debt
Cash dividends to common stockholders
Purchase of common treasury shares
Other, net
Net cash from (used in) financing activities
Net impact on cash due to change in foreign exchange rates
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 accompanying notes to consolidated financial statements.
2021
Year Ended December 31,
2020
2019
$
1,022,490
$
530,670
$
681,944
(90,632)
129,682
8,525
(220,015)
46,680
(268,649)
(364,395)
(433,644)
(121,663)
(43,890)
7,630
1,635,774
786,627
89,467
2,183,987
1,842,139
126,980
101,050
6,067,230
(10,716,748)
(464,645)
166,886
(27,421)
(66,634)
(17,983)
(2,989,146)
1,034,107
(504,952)
(355,736)
(122,426)
(45,162)
5,831
(4,195)
(803,523)
2,372,366
1,568,843
$
$
(103,000)
135,065
2,315
(54,253)
49,658
(67,943)
(173,618)
(313,525)
(38,691)
49,021
(34,057)
1,176,049
415,956
43,039
1,616,686
3,832,555
114,763
(3,042)
3,864,327
(7,551,591)
(253,031)
178,934
1,467
(38,171)
(26,515)
119,696
741,637
(652,751)
(84,147)
(346,357)
(56,225)
(397,843)
10,117
1,348,656
1,023,710
2,372,366
$
(120,703)
113,387
2,041
(69,194)
49,274
(26,553)
(189,151)
(165,898)
(20,057)
(12,530)
7,130
612,254
301,355
(19,506)
1,143,793
2,093,271
79,963
194,663
2,933,980
(5,352,886)
(172,978)
(146,752)
3,481
(60,457)
2,844
(424,871)
290,974
(456,360)
(308,191)
(18,225)
(21,391)
(513,193)
379
206,108
817,602
1,023,710
67
67
66
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021, 2020 and 2019
(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 2020 and 2019 financial statements as originally reported to conform to the presentation of the 2021 financial statements.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected
during the reporting period. 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, allowance for expected credit losses on investments, reserves for losses and loss expenses 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. Premiums and fees receivable
are reported net of an allowance for expected credit losses, with the allowance being estimated based on current and future expected conditions, historical loss data
and specific identification of collectability concerns where applicable. Changes in the allowance are reported within other operating costs and expenses.
Audit premiums are recognized when they are reliably determinable. The change in accruals for earned but unbilled audit premiums increased (decreased)
net premiums written and premiums earned by $10 million, $(27) million and $4 million in 2021, 2020 and 2019, respectively.
Revenues from non-insurance businesses are derived from businesses 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 over the completion period 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.
68
68
69
Equity securities with readily determinable fair values are measured at fair value, with changes in the fair value recognized in net income within net
realized and unrealized gains on investments.
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 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 12 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.
For available for sale securities in an unrealized loss position where the Company intends to sell, or it is more likely than not that it will be required to sell
the security before recovery in value, the amortized cost basis is written down to fair value through net investment gains. For available for sale securities in an
unrealized loss position where the Company does not intend to sell, or it is more likely than not that it will not be required to sell the security before recovery in
value, the Company evaluates whether the decline in fair value has resulted from credit losses or all other factors (non-credit factors). In making this assessment,
the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions
specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected
from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost
basis, an allowance for expected credit losses is recorded for the credit loss through net investment gains, limited by the amount that the fair value is less than the
amortized cost basis. The allowance is adjusted for any change in expected credit losses and subsequent recoveries through net investment gains. The impairment
related to non-credit factors is recognized in comprehensive income (loss).
For financial assets carried at amortized cost, which includes held to maturity securities and loans receivable, the Company estimates an allowance for
expected credit losses based on relevant information about past events, including historical loss experience, current conditions and forecasts that affect the expected
collectability of the amortized cost of the financial asset. The allowance for expected credit losses is presented as a reduction to amortized cost of the financial
asset in the consolidated balance sheet and changes to the estimate for expected credit losses are recognized through net investment gains.
The Company’s credit assessment of allowance for expected credit losses uses a third party model for available for sale and held to maturity securities, as
well as loans receivable. The allowance for expected credit losses is generally based on the performance of the underlying collateral under various economic and
default scenarios that involve subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default
rates, the nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant
economic and performance factors. A discounted cash flow analysis is used to ascertain the amount of the allowance for expected credit losses, if any. In general,
the model reverts to the rating-level long-term average marginal default rates based on 10 years of historical data, beyond the forecast period. For other inputs, the
model in most cases reverts to the baseline long-term assumptions linearly over 5 years beyond the forecast period. The long-term assumptions are based on the
historical averages.
69
69
68
The Company reports accrued investment income separately from fixed maturity securities, and has elected not to measure an allowance for expected
credit losses for accrued investment income. Accrued investment income is written off through net investment income at the time the issuer of the bond defaults or
is expected to default on payments.
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 of the building. Minimum rental income is recognized on a straight-line basis over the lease term. Income and
expenses from real estate are reported as net investment income. The carrying value of real estate is reviewed for impairment and an impairment loss is recognized
if the estimated undiscounted cash flows from the use and disposition of the property are less than the carrying value of the property.
(E) Per share data
The Company presents both basic and diluted net income per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by weighted
average number of common shares outstanding during the year (including 7,728,466 common shares held in a grantor trust). 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. 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 13 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 an allowance for expected credit losses for estimated uncollectible reinsurance. The allowance is estimated based on the composition
of the recoverable balance, considering reinsurer credit ratings, collateral received from financial institutions and funds withheld arrangements, length of collection
periods, probability of default methodology, and specific identification of collectability concerns. Changes in the allowance are reported within losses and loss
expenses.
(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
70
70
71
corresponding credit or charge to interest income or expense. Deposit liabilities for assumed reinsurance contracts were $35 million and $38 million at
December 31, 2021 and 2020, 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. The Company believes there are no tax positions that would require disclosure under GAAP. Deferred tax assets are reduced by a valuation allowance if it
is more likely than not that all or a portion of the deferred tax assets will not be realized.
(K) Foreign currency
Gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's functional currency) are
reported on the statements of income as other operating costs and expenses. Unrealized gains or losses resulting from translating the results of non-U.S. dollar
denominated operations are reported in accumulated other comprehensive income. Revenues and expenses denominated in currencies other than U.S. dollars are
generally 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 $52 million, $53 million and $54 million for 2021, 2020 and 2019, 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, 2021 indicated that there were no material impairment losses related to goodwill and other intangible assets. Intangible assets
of $85 million and $93 million are included in other assets as of December 31, 2021 and 2020, 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 $141 million, $155 million and $160 million in 2021, 2020 and 2019, respectively. Income taxes paid were $244 million, $103
million and $125 million in 2021, 2020 and 2019, respectively. Other non-cash items include unrealized investment gains and losses. (See Note 10 of Notes to
Consolidated Financial Statements.)
(Q) Recent accounting pronouncements
Recently adopted accounting pronouncements:
All accounting and reporting standards that became effective in 2021 were either not applicable to the Company or their adoption did not have a material
impact on the Company.
Accounting and reporting standards that are not yet effective:
71
71
70
All recently issued but not yet effective accounting and reporting standards are either not applicable to the Company or are not expected to have a material
impact on the Company.
72
72
73
(2) Consolidated Statements of Comprehensive (Loss) Income
The following tables present the components of the changes in accumulated other comprehensive (loss) income as of and for the years ended
December 31, 2021 and 2020:
(In thousands)
December 31, 2021
Changes in AOCI
Beginning of period
Other comprehensive loss before reclassifications
Amounts reclassified from AOCI
Other comprehensive loss
Unrealized investment loss related to noncontrolling interest
Ending balance
Amounts reclassified from AOCI
Pre-tax
Tax effect
After-tax amounts reclassified
Other comprehensive loss
Pre-tax
Tax effect
Other comprehensive loss
(In thousands)
December 31, 2020
Changes in AOCI
Beginning of period
Cumulative effect adjustment resulting from changes in accounting principles
Restated beginning of period
Other comprehensive income before reclassifications
Amounts reclassified from AOCI
Other comprehensive income
Unrealized investment loss related to non-controlling interest
Ending balance
Amounts reclassified from AOCI
Pre-tax
Tax effect
After-tax amounts reclassified
Other comprehensive income
Pre-tax
Tax effect
Other comprehensive income
_______________
(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 Loss
$
$
$
$
$
$
$
$
$
$
$
$
289,714
(222,359)
23,547
(198,812)
(2)
90,900
29,806
(6,259)
23,547
(1)
(2)
(254,939)
56,127
(198,812)
Unrealized Investment
Gains (Losses)
124,514
24,952
149,466
114,049
26,201
140,250
(2)
289,714
33,166
(6,965)
26,201
(1)
(2)
164,645
(24,395)
140,250
$
$
$
$
$
$
$
$
$
$
$
$
(351,886)
(20,969)
—
(20,969)
—
(372,855)
—
—
—
(20,969)
—
(20,969)
Currency Translation
Adjustments
(381,813)
—
(381,813)
29,927
—
29,927
—
(351,886)
—
—
—
29,927
—
29,927
$
$
$
$
$
$
$
$
$
$
$
$
(62,172)
(243,328)
23,547
(219,781)
(2)
(281,955)
29,806
(6,259)
23,547
(275,908)
56,127
(219,781)
Accumulated Other
Comprehensive Loss
(257,299)
24,952
(232,347)
143,976
26,201
170,177
(2)
(62,172)
33,166
(6,965)
26,201
194,572
(24,395)
170,177
72
73
73
(3) Investments in Fixed Maturity Securities
At December 31, 2021 and 2020, investments in fixed maturity securities were as follows:
(In thousands)
December 31, 2021
Held to maturity:
State and municipal
Residential mortgage-backed
Total held to maturity
Available for sale:
U.S. government and government agency
State and municipal:
Special revenue
State general obligation
Pre-refunded
Corporate backed
Local general obligation
Total state and municipal
Mortgage-backed securities:
Residential
Commercial
Total mortgage-backed securities
Asset-backed securities
Corporate:
Industrial
Financial
Utilities
Other
Total corporate
Foreign government
Total available for sale
Total investments in fixed maturity securities
Amortized
Cost
Allowance for
Expected Credit
Losses (1)
Gross Unrealized
Gains
Losses
Fair
Value
Carrying
Value
$
$
$
69,539
4,829
74,368
$
(387)
—
(387)
$
10,813
632
11,445
$
—
—
—
$
79,965
5,461
85,426
69,152
4,829
73,981
851,128
2,016,382
388,110
202,633
166,943
401,974
3,176,042
940,744
125,709
1,066,453
4,504,950
3,231,520
1,739,282
396,242
154,210
5,521,254
1,277,109
16,396,936
16,471,304
$
—
—
—
—
—
—
—
—
—
—
—
(16)
—
—
—
(16)
(22,222)
(22,238)
(22,625)
$
8,509
62,961
23,152
14,891
7,191
29,455
137,650
9,896
3,388
13,284
4,409
62,751
30,709
13,262
125
106,847
7,508
278,207
289,652
$
(4,294)
(5,706)
(1,015)
(574)
(1,532)
(732)
(9,559)
(11,321)
(341)
(11,662)
(18,794)
(21,092)
(6,591)
(3,202)
(1,525)
(32,410)
(47,494)
(124,213)
(124,213)
$
855,343
855,343
2,073,637
410,247
216,950
172,602
430,697
3,304,133
939,319
128,756
1,068,075
4,490,565
3,273,163
1,763,400
406,302
152,810
5,595,675
1,214,901
16,528,692
16,614,118
$
2,073,637
410,247
216,950
172,602
430,697
3,304,133
939,319
128,756
1,068,075
4,490,565
3,273,163
1,763,400
406,302
152,810
5,595,675
1,214,901
16,528,692
16,602,673
74
74
75
(In thousands)
December 31, 2020
Held to maturity:
State and municipal
Residential mortgage-backed
Total held to maturity
Available for sale:
U.S. government and government agency
State and municipal:
Special revenue
State general obligation
Pre-refunded
Corporate backed
Local general obligation
Total state and municipal
Mortgage-backed securities:
Residential
Commercial
Total mortgage-backed securities
Asset-backed securities
Corporate:
Industrial
Financial
Utilities
Other
Total corporate
Foreign government
Total available for sale
Total investments in fixed maturity securities
$
Amortized
Cost
Allowance for
Expected Credit
Losses (1)
Gross Unrealized
Gains
Losses
Fair
Value
Carrying
Value
$
67,117 $
6,455
73,572
$
(798)
—
(798)
$
13,217
1,043
14,260
18,198
96,924
33,407
21,472
8,755
40,596
201,154
24,664
6,725
31,389
10,035
—
—
—
—
—
—
—
—
—
—
—
(518)
—
—
—
(518)
(1,264)
(1,782)
(2,580)
$
115,926
62,947
31,931
696
211,500
28,007
500,283
514,543 $
—
—
—
$
79,536
7,498
87,034
66,319
6,455
72,774
(347)
603,871
603,871
(714)
—
(162)
(638)
(555)
(2,069)
(5,238)
(113)
(5,351)
(33,497)
(7,449)
(987)
(33)
(11)
(8,480)
(44,448)
(94,192)
(94,192)
$
2,233,372
450,804
271,391
214,473
450,624
3,620,664
832,613
187,717
1,020,330
3,194,586
2,564,475
1,575,903
421,165
110,038
4,671,581
975,563
14,086,595
14,173,629
$
2,233,372
450,804
271,391
214,473
450,624
3,620,664
832,613
187,717
1,020,330
3,194,586
2,564,475
1,575,903
421,165
110,038
4,671,581
975,563
14,086,595
14,159,369
586,020
2,137,162
417,397
250,081
206,356
410,583
3,421,579
813,187
181,105
994,292
3,218,048
2,456,516
1,513,943
389,267
109,353
4,469,079
993,268
13,682,286
13,755,858 $
____________________
(1) Represents the amount of impairment that has resulted from credit-related factors. The change in the allowance for expected credit losses, excluding the
cumulative effect adjustment resulting from changes in accounting principles, is recognized in the consolidated statements of income. Amount excludes unrealized
losses relating to non-credit factors.
The following table presents the rollforward of the allowance for expected credit losses for held to maturity securities for the year ended December 31,
2021 and 2020:
(In thousands)
Allowance for expected credit losses, beginning of the period
Cumulative effect adjustment resulting from changes in accounting principles
Provision for expected credit losses
Allowance for expected credit losses, end of period
State and Municipal
2021
2020
$
$
798 $
—
(411)
387 $
—
69
729
798
The following table presents the rollforward of the allowance for expected credit losses for available for sale securities for the year ended December 31,
2021 and 2020:
75
75
74
(In thousands)
Allowance for expected credit losses, beginning of period
Cumulative effect adjustment resulting from changes in
accounting principles
Expected credit losses on securities for which credit losses were
not previously recorded
Expected credit losses (gains) on securities for which credit losses
were previously recorded
Reduction due to disposals
Allowance for expected credit losses, end of period
$
2021
2020
Foreign
Government
Corporate
Total
Foreign
Government
Corporate
Total
$
1,264
$
518
$
1,782 $
—
$
— $
—
—
19,072
2,438
(552)
22,222
$
—
16
—
19,088
(513)
(5)
16
$
1,925
(557)
22,238 $
35,645
12,590
373
(47,344)
1,264
—
35,645
7,058
19,648
(3,841)
(2,699)
$
518 $
(3,468)
(50,043)
1,782
During the year ended December 31, 2021, the Company increased the allowance for expected credit losses utilizing its credit loss assessment process and
inputs used in its credit loss model, primarily due to foreign government securities that had no reserve in prior periods. During the year ended December 31, 2020,
the Company decreased the allowance for expected credit losses primarily due to the disposition of securities which previously had an allowance recorded.
The amortized cost and fair value of fixed maturity securities at December 31, 2021, by contractual maturity, are shown below. Actual maturities may
differ from contractual maturities because certain issuers may have the right to call or prepay obligations.
(In thousands)
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 (1)
Fair Value
$
$
1,589,823
7,574,884
4,148,118
2,086,810
1,071,282
16,470,917
$
$
1,586,470
7,659,231
4,184,007
2,110,874
1,073,536
16,614,118
________________
(1) Amortized cost is reduced by the allowance for expected credit losses of $387 thousand related to held to maturity securities.
At December 31, 2021 and 2020, 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, 2021, investments with a carrying value of $1,853 million were on deposit in custodial or
trust accounts, of which $1,213 million was on deposit with insurance regulators, $602 million was on deposit in support of the Company’s underwriting activities
at Lloyd’s, $33 million was on deposit as security for reinsurance clients and $5 million was on deposit as security for letters of credit issued in support of the
Company’s reinsurance operations.
76
76
77
(4) Investments in Equity Securities
At December 31, 2021 and 2020, investments in equity securities were as follows:
(In thousands)
December 31, 2021
Common stocks
Preferred stocks
Total
December 31, 2020
Common stocks
Preferred stocks
Total
Cost
Gains
Losses
Gross Unrealized
Fair
Value
Carrying
Value
$
$
$
$
619,896
250,149
870,045
335,617
180,397
516,014
$
$
$
$
92,401
7,874
100,275
28,742
95,581
124,323
$
$
$
$
(16,894)
(12,183)
(29,077)
(14,178)
(492)
(14,670)
$
$
$
$
695,403
245,840
941,243
350,181
275,486
625,667
$
$
$
$
695,403
245,840
941,243
350,181
275,486
625,667
(5) Arbitrage Trading Account
At December 31, 2021 and 2020, the fair value and carrying value of the arbitrage trading account were $1,180 million and $341 million, respectively.
The primary focus of the trading account is merger arbitrage. Merger arbitrage is the business of investing in the securities of publicly held companies which are
the targets in announced tender offers and mergers. Arbitrage investing differs from other types of investing in its focus on transactions and events believed likely
to bring about a change in value over a relatively short time period (usually four months or less).
The Company uses put options and call options in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading
account. These options are reported at fair value. As of December 31, 2021, the fair value of short option contracts outstanding was $574 thousand (notional
amount of $30.3 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.
(6) Net Investment Income
Net investment income consists of the following:
(In thousands)
Investment income earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable
Investment funds
Arbitrage trading account
Real estate
Equity securities
Gross investment income
Investment expense
Net investment income
2021
2020
2019
$
$
382,001
220,014
37,676
7,703
32,020
679,414
(7,796)
671,618
$
$
426,563
54,253
77,931
24,027
10,172
592,946
(9,125)
583,821
$
$
517,925
69,194
34,585
24,218
5,439
651,361
(5,747)
645,614
76
77
77
(7) 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 $621 million as of December 31, 2021.
Investment funds consist of the following:
(In thousands)
Financial services
Real estate
Energy
Transportation
Other funds
Total
Carrying Value
as of December 31,
2021
2020
2021
Income (Losses)
2020
2019
$
$
431,818
273,690
150,224
336,688
288,192
1,480,612
$
$
434,437
310,783
140,935
190,125
233,150
1,309,430
$
$
98,893
29,484
22,118
42,424
27,095
220,014
$
$
34,763
7,543
(11,039)
(616)
23,602
54,253
$
$
29,005
19,154
(18,136)
14,193
24,978
69,194
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.
Financial services investment funds include the Company’s minority investment in Lifson Re, a Bermuda reinsurance company. Effective January 1,
2021, Lifson Re participates on a fully collateralized basis in a majority of the Company’s reinsurance placements for a 22.5% share of placed amounts. This
pertains to all traditional reinsurance/retrocessional placements for both property and casualty business where there is more than one open market reinsurer
participating. For the year ended December 31, 2021, the Company ceded approximately $245 million of written premiums to Lifson Re.
Other funds include deferred compensation trust assets of $34 million and $0 in 2021 and 2020, respectively. These assets support other liabilities
reflected in the balance sheet of an equal amount for employees who have elected to defer a portion of their compensation.
(8) 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,
2021
2020
$
$
1,626,826
225,682
1,852,508
$
$
1,738,144
222,770
1,960,914
In 2021, properties in operation included a long-term ground lease in Washington, D.C., an office complex in New York City, an office building in
London, U.K., and the completed portion of a mixed-use project in Washington D.C. Properties in operation are net of accumulated depreciation and amortization
of $57,391,000 and $86,970,000 as of December 31, 2021 and 2020, respectively. Related depreciation expense was $19,688,000 and $27,090,000 for the years
ended December 31, 2021 and 2020, respectively. Future minimum rental income expected on operating leases relating to properties in operation is $58,772,835 in
2022, $55,749,048 in 2023, $54,826,385 in 2024, $52,251,635 in 2025, $50,176,066 in 2026 and $630,260,741
78
78
79
thereafter.
During the second quarter of 2021, the Company sold two office buildings in Palm Beach and West Palm Beach, Florida. One of these sales also resulted
in a $102 million reduction of the Company's non-recourse debt that was supporting the property.
A mixed-use project in Washington, D.C. has been under development in 2021 and 2020, with the completed portion as noted above reported in
properties in operation as of December 31, 2021.
(9) Loans Receivable
At December 31, 2021 and 2020, loans receivable were as follows:
(In thousands)
Amortized cost (net of allowance for expected credit losses):
Real estate loans
Commercial loans
Total
Fair value:
Real estate loans
Commercial loans
Total
As of December 31,
2021
2020
$
$
$
$
89,431 $
25,741
115,172 $
90,793 $
25,741
116,534 $
51,910
33,003
84,913
53,593
33,003
86,596
The real estate loans are secured by commercial and residential real estate primarily located in New York. These loans generally earn interest at fixed or
stepped interest rates and have maturities through 2026. The commercial loans are with small business owners who have secured the related financing with the
assets of the business. Commercial loans primarily earn interest on a fixed basis and have varying maturities generally not exceeding 10 years.
Loans receivable in non-accrual status was $0.2 million as of December 31, 2021 and 2020.
The following table presents the rollforward of the allowance for expected credit losses for loans receivable for the year ended December 31, 2021 and
2020:
(In thousands)
Allowance for expected credit losses, beginning of period
Cumulative effect adjustment resulting from changes in
accounting principles
Provision for expected credit losses
Allowance for expected credit losses, end of period
$
$
Real Estate
Loans
2021
Commercial
Loans
Total
Real Estate
Loans
2020
Commercial
Loans
Total
1,683 $
3,754
$
5,437 $
1,502 $
644
$
2,146
—
(321)
1,362 $
—
(3,398)
356
$
—
(3,719)
1,718 $
(905)
1,086
1,683 $
548
2,562
3,754
$
(357)
3,648
5,437
The Company monitors the performance of its loans receivable and assesses the ability of the borrower to pay principal and interest based upon loan
structure, underlying property values, cash flow and related financial and operating performance of the property and market conditions.
In evaluating the real estate loans, the Company considers their credit quality indicators, including loan to value ratios, which compare the outstanding
loan amount to the estimated value of the property, the borrower’s financial condition and performance with respect to loan terms, the position in the capital
structure, the overall leverage in the capital structure and other market conditions.
78
79
79
(10) Net Investment Gains
Net investment gains were as follows:
(In thousands)
Net investment gains:
Fixed maturity securities:
Gains
Losses
Equity securities (1):
Net realized gains on investment sales
Change in unrealized (losses) gains
Investment funds
Real estate
Loans receivable
Other
Net realized and unrealized gains on investments in earnings before allowance for expected credit losses
Change in allowance for expected credit losses on investments (2):
Fixed maturity securities
Loans receivable
Change in allowance for expected credit losses on investments
Net investment gains
Income tax expense
After-tax net investment gains
Change in unrealized investment (losses) gains:
Fixed maturity securities without allowance for expected credit losses
Fixed maturity securities with allowance for expected credit losses
Investment funds
Other
Total change in unrealized investment (losses) gains
Income tax benefit (expense)
Noncontrolling interests
After-tax change in unrealized investment (losses) gains
2021
2020
2019
$
$
18,981
(6,975)
27,819
(56,096)
$
16,365
(38,455)
44,778
94,911
(881)
(21,766)
106,958
(20,045)
3,719
(16,326)
90,632
(17,710)
72,922
(262,221)
10,124
(1,270)
(1,572)
(254,939)
56,127
(1)
(198,813)
$
$
$
$
$
$
32,647
(25,868)
31,481
101,554
—
(38,023)
73,514
33,134
(3,648)
29,486
103,000
(21,630)
81,370
134,129
32,004
2,280
(3,768)
164,645
(24,395)
(2)
140,248
$
$
$
23,900
(13,636)
23,306
85,292
(2,825)
5,965
(970)
(329)
120,703
—
—
—
120,703
(25,348)
95,355
271,825
369
(2,299)
(7,925)
261,970
(46,068)
103
216,005
____________________
(1) The net realized gains or losses on investment sales represent the total gains or losses from the purchase dates of the equity securities. The change in unrealized
gains consists of two components: (i) the reversal of the gain or loss recognized in previous periods on equity securities sold and (ii) the change in unrealized gain
or loss resulting from mark-to-market adjustments on equity securities still held.
(2) The inclusion of the allowance for expected credit losses on investments commenced on January 1, 2020 due to the adoption of ASU 2016-13.
80
80
81
(11) Fixed Maturity Securities in an Unrealized Loss Position
The following tables summarize all fixed maturity securities in an unrealized loss position at December 31, 2021 and 2020 by the length of time those
securities have been continuously in an unrealized loss position.
(In thousands)
December 31, 2021
U.S. government and government agency
State and municipal
Mortgage-backed securities
Asset-backed securities
Corporate
Foreign government
Fixed maturity securities
December 31, 2020
U.S. government and government agency
State and municipal
Mortgage-backed securities
Asset-backed securities
Corporate
Foreign government
Fixed maturity securities
Less Than 12 Months
12 Months or Greater
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
$
$
$
$
487,712
502,333
558,751
3,832,944
2,582,860
758,975
8,723,575
47,649
147,754
212,388
1,389,133
612,177
143,729
2,552,830
$
$
$
$
4,026
7,403
6,900
18,503
29,322
15,793
81,947
347
1,165
5,121
6,563
6,721
22,871
42,788
$
$
$
$
17,021
29,547
106,130
75,385
51,095
82,057
361,235
17
20,528
23,943
656,877
39,985
6,218
747,568
$
$
$
$
268
2,156
4,762
291
3,088
31,701
42,266
—
904
230
26,934
1,759
21,577
51,404
$
$
$
$
504,733
531,880
664,881
3,908,329
2,633,955
841,032
9,084,810
47,666
168,282
236,331
2,046,010
652,162
149,947
3,300,398
$
$
$
$
4,294
9,559
11,662
18,794
32,410
47,494
124,213
347
2,069
5,351
33,497
8,480
44,448
94,192
Substantially all of the securities in an unrealized loss position are rated investment grade, except for the securities in the foreign government
classification. A significant amount of the unrealized loss on foreign government securities is the result of changes in currency exchange rates.
Fixed Maturity Securities — A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at
December 31, 2021 is presented in the table below:
($ in thousands)
Foreign government
Corporate
Mortgage-backed securities
Asset-backed securities
State and municipal
Total
Number of
Securities
Aggregate
Fair Value
Gross
Unrealized
Loss
38
8
4
2
1
53
$
$
130,621
26,903
210
154
14,594
172,482
$
$
38,849
1,644
13
14
411
40,931
For fixed maturity securities that management does not intend to sell or to be required to sell, the portion of the decline in value that is considered to be
due to credit factors is recognized in earnings, and the portion of the decline in value that is considered to be due to non-credit factors is recognized in other
comprehensive income.
The Company has evaluated its fixed maturity securities in an unrealized loss position and believes the unrealized losses are due primarily to temporary
market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its
assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due.
80
81
81
(12) 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.
82
82
83
The following tables present the assets and liabilities measured at fair value as of December 31, 2021 and 2020 by level:
(In thousands)
December 31, 2021
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:
Common stocks
Preferred stocks
Total equity securities
Arbitrage trading account
Total
Liabilities:
Trading account securities sold but not yet purchased
December 31, 2020
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:
Common stocks
Preferred stocks
Total equity securities
Arbitrage trading account
Total
Liabilities:
Trading account securities sold but not yet purchased
Total
Level 1
Level 2
Level 3
855,343
3,304,133
1,068,075
4,490,565
5,595,675
1,214,901
16,528,692
695,403
245,840
941,243
1,179,606
18,649,541
$
$
—
—
—
—
—
—
—
684,470
—
684,470
1,153,079
1,837,549
$
$
855,343
3,304,133
1,068,075
4,490,565
5,595,675
1,214,901
16,528,692
1,639
234,544
236,183
26,527
16,791,402
$
$
—
—
—
—
—
—
9,294
11,296
20,590
—
20,590
1,169
$
1,137
$
32
$
—
603,871
3,620,664
1,020,330
3,194,586
4,671,581
975,563
14,086,595
350,181
275,486
625,667
341,473
15,053,735
$
$
—
—
—
—
—
—
—
340,966
—
340,966
298,359
639,325
$
$
603,871
3,620,664
1,020,330
3,194,586
4,670,581
975,563
14,085,595
—
266,155
266,155
43,114
14,394,864
$
$
—
—
—
—
1,000
—
1,000
9,215
9,331
18,546
—
19,546
10,048
$
10,048
$
—
$
—
$
$
$
$
$
$
83
83
82
The following tables summarize changes in Level 3 assets and liabilities for the years ended December 31, 2021 and 2020:
(In thousands)
Year ended December 31, 2021
Assets:
Fixed maturity securities available
for sale:
Corporate
Total
Equity securities:
Common stocks
Preferred stocks
Total
Arbitrage trading account
Total
Liabilities:
Trading account securities sold but
not yet purchased
Year ended December 31, 2020
Assets:
Fixed maturity securities available
for sale:
Corporate
Total
Equity securities:
Common stocks
Preferred stocks
Total
Arbitrage trading account
Total
$
$
$
$
$
Beginning
Balance
Earnings
(Losses)
Other Comprehensive
Income (Losses)
Impairments
Purchases
Sales
Paydowns/Maturities
Transfers In
/ Out
Ending
Balance
Gains (Losses) Included in:
$
1,000
1,000
$
—
—
9,215
9,331
18,546
—
19,546
$
640
(35)
605
8
613
$
—
$
1
$
$
—
—
$
—
—
9,053
6,505
15,558
—
15,558
$
1,228
(174)
1,054
19
1,073
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
—
—
$
(1,000)
(1,000)
—
2,000
2,000
—
2,000
$
(561)
—
(561)
(8)
(1,569)
$
(1)
$
—
$
$
—
—
$
—
—
—
3,000
3,000
—
3,000
$
(1,066)
—
(1,066)
(19)
(1,085)
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
—
—
—
—
—
—
—
$
$
—
—
9,294
11,296
20,590
—
20,590
—
$
—
$
1,000
1,000
1,000
1,000
—
—
—
—
1,000
$
9,215
9,331
18,546
—
19,546
For the year ended December 31, 2021, there were no fixed maturity security transferred into or out of Level 3. For the year ended December 31, 2020,
one fixed maturity security was transferred from Level 2 into Level 3 as a result of observable valuation inputs no longer being available.
84
84
85
(13) 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 business. These methods may
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 business.
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 claims handling procedures, 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 business. 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).
85
85
84
The most commonly used claim count method is by event. Most of the Company's businesses 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 damages arising from a single event, a business 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 & Monoline Excess 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, 2021, 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, 2012 to 2020 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, 2021 exchange rate for all periods.
86
86
87
Insurance
Other Liability
(In thousands)
Loss and Loss Expenses Incurred, Net of Reinsurance
For the Year Ended December 31,
Unaudited
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
As of December 31, 2021
IBNR
Cumulative
Number of
Reported Claims
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
$
692,236 $
700,946 $
750,501
701,634 $
791,016
847,878
707,937 $
783,199
849,690
951,915
711,876 $
783,020
847,719
987,552
1,018,792
722,092 $
803,974
852,171
962,470
1,011,800
1,066,950
716,643 $
810,344
864,965
965,725
1,020,679
1,100,790
1,105,223
714,681 $
804,919
871,130
967,764
1,032,035
1,123,297
1,132,810
1,242,139
712,984 $
809,119
866,292
977,944
1,046,122
1,140,112
1,122,423
1,238,948
1,341,042
$
708,031 $
811,143
864,787
984,528
1,062,023
1,179,982
1,157,499
1,239,419
1,214,463
1,537,062
10,758,937
16,190
29,110
51,651
64,794
117,676
171,499
264,059
440,178
749,747
1,269,718
24
26
28
27
28
27
27
27
21
17
Accident Year
2012
$
57,589 $
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2013
157,389 $
63,322
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
511,933 $
472,142
338,740
211,030
69,532
2015
416,187 $
331,309
191,072
82,763
2014
298,293 $
188,374
79,008
2017
579,062 $
587,822
481,002
382,589
209,118
80,127
2018
621,012 $
648,699
595,187
538,647
390,465
256,176
86,931
2019
651,584 $
694,234
681,278
676,714
558,896
453,790
264,541
88,369
2020
667,147 $
720,773
731,588
758,115
677,852
639,775
436,100
275,680
72,302
$
Reserves for loss and loss adjustment expenses before 2012, net of reinsurance
Reserves for loss and loss adjustment expenses, net of reinsurance $
87
87
86
2021
673,555
741,756
761,143
816,955
767,795
775,705
616,293
471,687
225,344
76,838
5,927,071
117,839
4,949,705
Workers' Compensation
(In thousands)
Loss and Loss Expenses Incurred, Net of Reinsurance
For the Year Ended December 31,
Unaudited
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
As of December 31, 2021
IBNR
Cumulative
Number of
Reported Claims
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
$
501,681 $
501,810 $
552,570
503,956 $
547,295
639,436
503,863 $
546,995
637,307
712,800
509,167 $
543,238
627,767
690,525
702,716
512,707 $
547,000
617,242
650,997
696,339
762,093
508,169 $
542,274
615,435
641,169
684,700
733,505
778,964
506,730 $
541,926
604,030
626,432
660,520
689,622
724,697
784,281
506,827 $
540,322
600,194
620,741
651,278
673,216
715,055
721,018
725,245
$
504,409 $
538,503
602,000
617,478
657,972
683,880
724,056
732,762
716,430
742,687
6,520,177
13,830
17,768
29,314
40,553
46,447
54,759
62,856
89,294
156,496
340,879
48
53
57
58
58
58
56
54
42
42
2012
115,536 $
$
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2013
255,063 $
117,900
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
419,588 $
414,160
412,611
323,744
142,998
2015
387,368 $
363,028
319,743
139,320
2014
339,560 $
277,538
148,405
2017
437,196 $
447,894
471,235
421,734
338,835
153,456
2018
451,991 $
466,580
503,915
477,541
446,072
362,299
171,006
2019
459,119 $
479,104
521,141
512,933
504,850
468,817
397,464
184,715
2020
466,028 $
489,075
531,475
531,512
537,861
525,753
508,546
397,376
172,478
$
Reserves for loss and loss adjustment expenses before 2012, net of reinsurance
Reserves for loss and loss adjustment expenses, net of reinsurance $
88
88
2021
470,850
496,809
538,914
544,849
558,934
559,198
574,889
515,914
380,454
172,730
4,813,541
229,691
1,936,327
89
Professional Liability
(In thousands)
Loss and Loss Expenses Incurred, Net of Reinsurance
For the Year Ended December 31,
Unaudited
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
As of December 31, 2021
IBNR
Cumulative
Number of
Reported Claims
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
$
240,363 $
243,987 $
271,758
267,284 $
249,477
255,364
252,531 $
245,263
248,723
261,238
240,785 $
251,249
261,937
259,868
312,109
247,348 $
273,074
245,768
276,829
326,427
334,509
246,116 $
281,652
241,329
277,962
363,221
333,657
336,524
246,731 $
286,875
260,106
293,558
404,271
339,781
323,759
338,217
249,539 $
284,479
258,937
284,747
441,535
378,640
334,854
334,821
396,508
$
250,231 $
284,610
258,330
285,255
470,950
385,450
360,815
347,585
377,674
528,128
3,549,028
6,098
6,488
13,311
24,656
40,227
70,978
104,215
127,500
243,075
447,919
6
7
7
8
9
10
10
11
11
10
Accident Year
2012
$
21,895 $
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2013
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
191,500 $
178,367
139,340
85,761
28,783
2015
160,044 $
120,081
84,141
20,517
2014
128,924 $
64,245
19,584
87,248 $
24,215
2017
215,952 $
208,123
176,915
140,253
103,108
36,744
2018
225,186 $
250,294
200,319
188,258
202,545
96,818
28,360
2019
233,379 $
259,735
217,322
217,238
256,725
163,454
100,087
31,978
2020
236,216 $
265,007
228,815
234,207
299,198
244,025
155,836
98,260
28,357
$
Reserves for loss and loss adjustment expenses before 2012, net of reinsurance
Reserves for loss and loss adjustment expenses, net of reinsurance $
89
89
88
2021
236,972
271,867
238,121
241,413
359,386
262,273
199,461
148,934
81,026
28,854
2,068,307
24,145
1,504,866
Commercial Automobile
(In thousands)
Loss and Loss Expenses Incurred, Net of Reinsurance
For the Year Ended December 31,
Unaudited
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
As of December 31, 2021
IBNR
Cumulative
Number of
Reported Claims
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
$
314,309 $
326,831 $
327,514
342,588 $
349,136
363,952
355,609 $
368,894
385,302
389,829
364,237 $
377,050
418,639
417,771
432,214
364,483 $
367,456
416,613
423,928
431,939
431,059
366,704 $
367,027
414,105
432,160
443,275
428,988
442,838
365,971 $
366,165
413,953
433,227
444,322
430,782
462,821
483,259
366,128 $
365,100
409,498
431,675
441,122
434,717
479,257
488,562
523,746
$
365,910 $
365,338
408,640
428,813
440,819
440,610
494,623
505,028
428,769
614,424
4,492,974
218
731
394
1,371
3,145
6,890
12,573
36,513
82,221
279,892
41
44
47
53
52
47
46
45
30
34
2012
136,844 $
$
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2013
215,214 $
142,929
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
344,478 $
322,624
328,589
265,766
185,253
2015
312,342 $
267,253
237,723
160,148
2014
273,446 $
218,596
155,596
2017
355,786 $
343,742
365,849
325,697
280,373
181,023
2018
360,842 $
353,623
394,562
370,773
342,437
267,859
180,196
2019
361,919 $
362,358
402,524
398,423
391,396
327,411
281,707
185,378
2020
363,073 $
363,118
405,226
411,898
410,843
372,324
350,368
290,306
142,822
$
Reserves for loss and loss adjustment expenses before 2012, net of reinsurance
Reserves for loss and loss adjustment expenses, net of reinsurance $
90
90
2021
363,034
363,505
406,228
417,721
421,388
402,422
413,150
374,653
228,366
180,863
3,571,330
1,869
923,513
91
Short-tail lines
(In thousands)
Loss and Loss Expenses Incurred, Net of Reinsurance
For the Year Ended December 31,
Unaudited
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
As of December 31, 2021
IBNR
Cumulative
Number of
Reported Claims
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
$
531,725 $
539,963 $
579,486
540,845 $
589,447
710,530
536,151 $
580,445
716,253
744,761
508,139 $
554,736
666,259
733,145
774,764
507,093 $
553,233
664,951
729,326
778,059
754,050
508,988 $
549,728
665,820
727,861
765,044
754,300
761,015
508,058 $
547,806
666,063
719,612
759,531
748,516
750,095
722,118
508,815 $
547,066
668,510
718,104
753,991
747,861
747,393
702,271
901,702
$
507,683 $
546,765
666,738
716,332
756,378
747,453
745,726
692,033
905,441
829,194
7,113,743
801
1,424
1,956
4,505
5,444
9,657
16,064
27,521
56,083
222,879
24
25
30
32
34
42
48
43
37
31
2012
282,573 $
$
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2013
456,559 $
315,019
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
498,826 $
532,472
614,832
613,338
417,882
2015
518,135 $
539,588
602,682
396,128
2014
507,382 $
490,363
373,791
2017
499,978 $
539,324
634,310
669,076
671,886
445,934
2018
504,243 $
540,583
649,632
691,093
713,506
690,502
415,578
2019
504,973 $
541,182
656,913
700,867
728,853
719,434
662,714
405,592
2020
506,095 $
542,378
659,487
706,707
733,951
731,588
709,230
616,757
460,749
$
Reserves for loss and loss adjustment expenses before 2012, net of reinsurance
Reserves for loss and loss adjustment expenses, net of reinsurance $
91
91
90
2021
506,144
543,806
660,031
713,522
740,703
735,430
726,169
646,287
785,227
405,859
6,463,178
2,523
653,088
Reinsurance & Monoline Excess
Casualty
(In thousands)
Accident Year
2012
2013
Loss and Loss Expenses Incurred, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
2017
2015
2014
2018
As of December 31, 2021
2019
2020
2021
IBNR
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
$
333,116 $
337,114 $
320,581
332,252 $
271,557
321,644
325,045 $
274,682
321,504
260,768
333,992 $
284,710
320,902
233,204
242,375
338,118 $
295,143
332,730
231,859
254,415
232,886
336,201 $
300,778
326,964
253,982
246,947
222,888
222,959
332,861 $
305,290
326,496
294,804
269,481
240,900
212,101
238,411
335,933 $
303,563
338,190
304,972
303,385
263,476
232,643
232,709
302,420
$
337,124 $
304,709
339,321
306,358
303,036
283,323
249,019
241,187
295,992
364,611
3,024,680
11,446
14,065
20,465
23,525
29,111
48,441
68,680
104,193
192,023
325,434
Accident Year
2012
$
22,419 $
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2013
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
188,208 $
144,985
116,424
48,628
19,939
2015
153,349 $
110,735
69,248
17,894
2014
112,036 $
63,939
21,340
62,289 $
28,982
2017
220,821 $
178,889
155,908
91,566
61,940
16,490
2018
242,644 $
206,595
199,109
141,855
100,578
40,310
11,144
2019
258,404 $
227,087
228,728
179,308
140,897
69,844
41,213
14,612
2020
277,926 $
243,100
253,573
206,222
172,489
124,265
77,939
39,297
20,803
$
Reserves for loss and loss adjustment expenses before 2012, net of reinsurance
Reserves for loss and loss adjustment expenses, net of reinsurance $
92
92
2021
282,363
255,948
273,024
234,736
206,266
148,128
110,082
64,306
49,871
10,984
1,635,708
385,481
1,774,453
93
Monoline Excess
(In thousands)
Accident Year
2012
2013
Loss and Loss Expenses Incurred, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
2017
2015
2014
2018
As of December 31, 2021
2019
2020
2021
IBNR
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
$
72,366 $
73,230 $
63,995
73,670 $
50,355
63,561
75,274 $
48,143
57,650
69,977
74,061 $
44,162
49,570
57,897
72,657
67,878 $
38,551
45,758
50,099
70,281
76,701
69,361 $
35,120
41,671
45,115
71,404
80,508
77,820
67,205 $
31,752
42,541
39,682
64,957
70,749
72,505
78,929
66,269 $
29,758
42,618
39,781
65,485
71,025
71,448
77,482
84,354
$
65,686 $
25,701
40,652
36,774
65,222
66,795
66,180
76,242
83,468
98,109
624,829
7,617
7,609
10,922
13,941
18,607
23,023
28,214
29,909
43,519
75,305
2021
24,365
8,805
11,938
5,421
9,883
18,375
10,359
12,728
8,699
4,586
115,159
716,077
1,225,747
Accident Year
2012
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
2014
2015
2018
2017
2013
2019
$
1,127 $
6,097 $
647
10,815 $
1,897
377
11,167 $
2,158
1,729
2,069
13,234 $
3,008
3,354
2,481
2,498
15,738 $
3,396
4,175
3,272
4,783
6,282
17,982 $
4,418
5,808
4,099
5,573
12,810
6,141
20,004 $
5,349
7,595
4,416
5,928
15,356
8,230
6,241
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2020
22,528 $
6,476
11,154
5,083
7,685
17,327
9,368
10,884
4,869
$
Reserves for loss and loss adjustment expenses before 2012, net of reinsurance
Reserves for loss and loss adjustment expenses, net of reinsurance $
93
93
92
Property
(In thousands)
Accident Year
2012
2013
Loss and Loss Expenses Incurred, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
2015
2017
2014
2018
As of December 31, 2021
2019
2020
2021
IBNR
$
103,984 $
94,860 $
86,525 $
85,548 $
84,010 $
84,020 $
84,950 $
84,759 $
91,078 $
107,669
99,572
131,342
186,605
198,251
103,386
77,255
114,807
$
2020
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
141,705
112,805
113,373
114,245
96,894
127,387
112,054
97,509
117,724
168,347
112,687
100,255
131,963
174,793
206,795
112,006
99,508
130,553
182,026
200,656
108,436
109,814
99,171
129,668
181,291
199,645
112,243
103,305
Accident Year
2012
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Unaudited
2016
2014
2015
2017
2018
2013
2019
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
$
15,690 $
51,802 $
36,620
64,282 $
74,650
38,919
70,725 $
92,728
67,041
53,508
77,604 $
101,651
82,380
89,251
78,994
79,166 $
104,437
88,561
109,217
133,740
72,160
81,874 $
82,745 $
88,932 $
106,157
91,701
118,733
157,734
141,484
34,116
107,721
93,409
122,763
168,884
171,880
65,313
23,078
104,521
94,893
125,663
176,358
179,997
82,509
54,577
26,599
$
Reserves for loss and loss adjustment expenses before 2012, net of reinsurance
Reserves for loss and loss adjustment expenses, net of reinsurance $
94
94
591
567
1,049
1,157
2,039
2,784
2,904
4,475
6,928
86,160
89,460 $
106,436
97,640
130,933
184,600
192,014
105,447
81,994
118,039
134,134
1,240,697
2021
89,461
104,506
95,523
127,086
178,508
182,799
88,050
68,557
65,718
15,243
1,015,451
2,474
227,720
95
The reconciliation of the net incurred and paid claims development tables to the reserves for losses and loss expenses in the consolidated balance sheet is
as follows:
(In thousands)
Undiscounted reserves for loss and loss expenses, net of reinsurance:
Other liability
Workers' compensation
Professional liability
Commercial automobile
Short-tail lines
Other
Insurance
Casualty
Monoline excess
Property
Total undiscounted reserves for loss and loss expenses, net of reinsurance
Reinsurance & Monoline Excess
(In thousands)
Due from reinsurers on unpaid claims:
Other liability
Workers' compensation
Professional liability
Commercial automobile
Short-tail lines
Other
Insurance
Casualty
Monoline excess
Property
Total due from reinsurers on unpaid claims
Reinsurance & Monoline Excess
December 31, 2021
4,949,705
1,936,327
1,504,866
923,513
653,088
105,259
10,072,758
1,774,453
1,225,747
227,720
3,227,920
13,300,678
December 31, 2021
693,801
247,361
851,485
42,991
426,003
56,660
2,318,301
107,593
40,313
76,319
224,225
2,542,526
$
$
$
$
95
95
94
(In thousands)
Loss reserve discount:
Other liability
Workers' compensation
Professional liability
Commercial automobile
Short-tail lines
Other
Insurance
Casualty
Monoline excess
Property
Reinsurance & Monoline Excess
Total loss reserve discount
Total gross reserves for loss and loss expenses
December 31, 2021
$
$
$
—
(12,338)
—
—
—
—
(12,338)
(97,202)
(342,776)
—
(439,978)
(452,316)
15,390,888
The following is supplementary information regarding average historical claims duration as of December 31, 2021:
Insurance
Years
Other liability
Workers' compensation
Professional liability
Commercial automobile
Short-tail lines
Reinsurance & Monoline Excess
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
1
7.2 %
23.2 %
7.8 %
37.1 %
55.4 %
2
14.1 %
29.5 %
19.1 %
21.0 %
33.0 %
3
17.1 %
15.9 %
18.1 %
15.5 %
6.1 %
4
16.2 %
9.2 %
15.5 %
11.3 %
1.8 %
5
13.0 %
5.6 %
9.3 %
6.5 %
0.4 %
6
7
8
9
10
8.7 %
3.2 %
10.0 %
2.7 %
0.7 %
5.8 %
2.3 %
3.5 %
1.4 %
0.6 %
3.7 %
1.5 %
2.9 %
0.2 %
0.1 %
2.4 %
1.4 %
3.1 %
0.2 %
0.2 %
0.9 %
1.0 %
0.3 %
— %
— %
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
Casualty
Monoline excess
Property
1
6.1 %
5.2 %
30.7 %
2
11.3 %
4.9 %
33.2 %
3
13.3 %
2.9 %
15.5 %
5
10.9 %
2.3 %
3.7 %
6
7
8
9
10
9.5 %
3.5 %
1.7 %
7.5 %
4.2 %
1.8 %
5.2 %
3.1 %
1.5 %
5.0 %
6.5 %
1.2 %
1.3 %
2.8 %
0.9 %
4
13.9 %
1.9 %
6.4 %
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The table below provides a reconciliation of the beginning and ending reserve balances:
(In thousands)
Net reserves at beginning of year
Cumulative effect adjustment resulting from changes in accounting principles (1)
Restated net reserves at beginning of period
Net provision for losses and loss expenses:
Claims occurring during the current year (2)
Increase in estimates for claims occurring in prior years (3)
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
Net change in premiums and losses occurring in prior years:
Increase in estimates for claims occurring in prior years (3)
Retrospective premium adjustments for claims occurring in prior years (4)
Net favorable premium and reserve development on prior years
2021
2020
2019
$
11,620,393 $
—
11,620,393
4,921,191
863
31,906
4,953,960
887,896
2,777,798
3,665,694
(60,297)
12,848,362
2,542,526
15,390,888 $
(863)
7,510
6,647
$
$
$
$
$
$
10,697,998
5,927
10,703,925
4,432,937
627
35,142
4,468,706
921,054
2,677,595
3,598,649
46,411
11,620,393
2,164,037
13,784,430
(627)
16,807
16,180
$
$
$
10,248,883
—
10,248,883
4,057,989
34,079
39,048
4,131,116
985,599
2,673,803
3,659,402
(22,599)
10,697,998
1,885,251
12,583,249
(34,079)
53,511
19,432
_______________________________________
(1) The cumulative effect adjustment resulting from changes in accounting principals relates to the allowance for expected credit losses on reinsurance
recoverables that commenced on January 1, 2020 due to the adoption of ASU 2016-13. See Note 1 for more details.
(2) Claims occurring during the current year are net of loss reserve discounts of $21 million, $10 million and $20 million in 2021, 2020, and 2019, respectively.
(3) The change in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior
years decreased by $19 million in 2021, decreased by $21 million in 2020, and increased by $19 million in 2019, respectively.
(4) 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.
The COVID-19 global pandemic has impacted, and may further impact, the Company’s results through its effect on claim frequency and severity. Loss
cost trends have been impacted and may be further impacted by COVID-19-related claims in certain lines of business. Losses incurred from COVID-19-related
claims have been offset, to a certain extent, by lower claim frequency in certain lines of our businesses; however, as the economy and legal systems have reopened,
the benefit of lower claim frequency has begun to abate. Although as populations have continued to be vaccinated against the virus and the effects of the pandemic
have receded in many jurisdictions, most particularly the United States, it remains too early to determine the ultimate net impact of COVID-19 on the Company.
New variants of the COVID-19 virus, including the “Omicron” variant, and the slowing of vaccination rates among certain populations continue to create risks
with respect to loss costs and the potential for renewed impact of the other effects of COVID-19 associated with economic conditions, inflation, and social
distancing and work from home rules.
Most of the COVID-19-related claims reported to the Company to date involve certain short-tailed lines of business, including contingency and event
cancellation, business interruption, and film production delay. The Company has also received COVID-19-related claims for longer-tailed casualty lines of
business such as workers’ compensation and other liability; however, the estimated incurred loss impact for these reported claims are not material at this time.
Given the continuing
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uncertainty regarding the pandemic's pervasiveness, the future impact that the pandemic may have on claim frequency and severity remains uncertain at this time.
The Company has estimated the potential COVID-19 impact to its contingency and event cancellation, workers’ compensation, and other lines of business
under a number of possible scenarios; however, due to COVID-19’s continued evolving impact, there remains a high degree of uncertainty around the Company’s
COVID-19 reserves. In addition, should the pandemic continue or worsen as a result of new COVID-19 variants or otherwise, governments in the jurisdictions
where we operate may renew their efforts to expand policy coverage terms beyond the policy’s intended coverage. Accordingly, losses arising from these actions,
and the other factors described above, could exceed the Company’s reserves established for those related policies.
As of December 31, 2021, the Company had recognized losses for COVID-19-related claims activity, net of reinsurance, of approximately $274 million,
of which $233 million relates to the Insurance segment and $41 million relates to the Reinsurance & Monoline Excess segment. Such $274 million of COVID-19-
related losses included $239 million of reported losses and $35 million of IBNR. For the year ended December 31, 2021, the Company recognized current accident
year losses for COVID-19-related claims activity, net of reinsurance, of approximately $58 million, of which $54 million relates to the Insurance segment and
$4 million relates to the Reinsurance & Monoline Excess segment.
Favorable prior year development (net of additional and return premiums) was $7 million in 2021.
Insurance – Reserves for the Insurance segment developed favorably by $20 million in 2021 (net of additional and return premiums). The overall favorable
development in 2021 was attributable to favorable development on the 2020 accident year, partially offset by adverse development on the 2016 through 2019
accident years.
The favorable development on the 2020 accident year was largely concentrated in the commercial auto liability and other liability lines of business,
including commercial multi-peril liability. During 2020 the Company achieved larger rate increases in these lines of business than were contemplated in its budget
and in its initial loss ratio selections. The Company also experienced significantly lower reported claim frequency in these lines in 2020 relative to historical
averages, and lower reported incurred losses relative to its expectations. We believe that the lower claim frequency and lower reported incurred losses were caused
by the impacts of the COVID-19 pandemic, for example, lockdowns, reduced driving and traffic, work from home, and court closures. However, due to the
uncertainty regarding the ultimate impacts of the pandemic on accident year 2020 incurred losses, the Company elected not to react to these lower reported trends
during 2020. As more information became available and the 2020 accident year continued to mature, during 2021 the Company started to recognize favorable
accident year 2020 development in response to the continuing favorable reported loss experience relative to its expectations.
The adverse development on the 2016 through 2019 accident years is concentrated largely in the other liability line of business, including commercial multi-
peril liability, but is also seen to a lesser extent in commercial auto liability. The adverse development for these accident years is driven by a higher than expected
number of large losses reported, and particularly impacted the directors and officers liability, lawyers professional liability, and excess and surplus lines casualty
classes of business. We also believe that increased social inflation is contributing to the increased number of large losses, for example, higher jury awards on cases
which go to trial, and the corresponding higher demands from plaintiffs and higher values required to reach settlement on cases which do not go to trial.
Reinsurance & Monoline Excess – Reserves for the Reinsurance & Monoline Excess segment developed unfavorably by $13 million in 2021. The
unfavorable development in the segment was driven by the non-proportional reinsurance assumed liability and other liability lines of business, related primarily to
accident years 2017 through 2019, and was partially offset by favorable development in excess workers’ compensation business which was spread across many
prior accident years. The unfavorable non-proportional reinsurance assumed liability and other liability development was associated with our U.S. and U.K.
assumed reinsurance business, and related primarily to accounts insuring construction projects and professional liability exposures.
Favorable prior year development (net of additional and return premiums) was $16 million in 2020.
Insurance - Reserves for the Insurance segment developed favorably by $24 million in 2020 (net of additional and return premiums). Continuing the pattern
seen in recent years, the overall favorable development in 2020 resulted from more significant favorable development on workers’ compensation business, which
was partially offset by unfavorable development on professional liability, including excess professional liability.
For workers’ compensation, the favorable development was spread across almost all prior accident years, including prior to 2011, but was most significant
in accident years 2016 through 2019. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during
recent years, particularly the favorable claim frequency
98
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trends (i.e., number of reported claims per unit of exposure). The long term trend of declining workers’ compensation frequency can be attributable to improved
workplace safety. Loss severity trends were also aided by our continued investment in claims handling
initiatives such as medical case management services and vendor savings through usage of preferred provider networks and pharmacy benefit managers. Reported
workers’ compensation losses in 2020 continued to be below our expectations at most of our businesses, and were below the assumptions underlying our initial
loss ratio picks and our previous reserve estimates for most prior accident years.
For professional liability business, unfavorable development was driven mainly by large losses reported in the directors and officers (“D&O”), lawyers
professional and excess hospital professional liability lines of business. For these lines of business, we continue to see an increase in the number of large losses
reported and a lengthening of the reporting “tail” beyond historical levels. We believe a contributing cause is rising social inflation in the form of, for example,
higher jury awards on cases that go to trial, and the corresponding higher demands from plaintiffs and higher values required to reach settlement on cases that do
not go to trial. The unfavorable development for professional liability affected mainly accident years 2016 through 2018.
Reinsurance & Monoline Excess - Reserves for the Reinsurance & Monoline Excess segment developed unfavorably by $8 million in 2020. The
unfavorable development in the segment was driven by non-proportional assumed liability business written in both the U.S. and U.K., and was partially offset by
favorable development on excess workers’ compensation business. The unfavorable non-proportional assumed liability development was concentrated in accident
years 2014 through 2018, and related primarily to accounts insuring construction projects and professional liability exposures.
Favorable prior year development (net of additional and return premiums) was $19 million in 2019.
Insurance - Reserves for the Insurance segment developed favorably by $21 million in 2019 (net of additional and return premiums). This overall favorable
development resulted from more significant favorable development on workers’ compensation business, which was partially offset by unfavorable development on
professional liability and general liability business.
For workers’ compensation, the favorable development was spread across many accident years, including prior to 2010, but was most significant in accident
years 2014 through 2018, and particularly 2017 and 2018. The favorable workers’ compensation development reflects a continuation during 2019 of the benign
loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). The long
term trend of declining workers’ compensation frequency can be attributable to improved workplace safety. Loss severity trends were also aided by our continued
investment in claims handling initiatives such as medical case management services and vendor savings through usage of preferred provider networks and
pharmacy benefit managers. Our initial loss ratio “picks” for this line of business over the past few accident years have contemplated an increase in loss cost trends
and reflect decreasing premium rates in the marketplace; reported workers’ compensation losses in 2019 continued to be below our expectations at most of our
businesses, and were below the assumptions underlying our initial loss ratio picks and our previous reserve estimates.
For professional liability business, the unfavorable development was driven mainly by an increase in the number of large losses reported in the lawyers
professional liability and directors and officers (“D&O”) liability lines of business. Many of the lawyers large losses involved claims made against insured law
firms relating to work performed on matters stemming from the 2008 financial crisis. These claims affected mainly accident years 2013 through 2016. In addition,
for both of these lines of business, we have seen evidence of social inflation in the form of higher jury awards on cases that go to trial, and corresponding higher
demands from plaintiffs and higher values required to reach settlement on cases that do not go to trial. The unfavorable development for D&O affected mainly
accident years 2014 through 2017.
For general liability business, most of the unfavorable development emanated from our excess and surplus lines (E&S) businesses, and was driven by an
increase in the number of large losses reported. Many of these large losses were from construction and contracting classes of business, which have also been
impacted by social inflation. The general liability unfavorable development impacted mainly accident years 2015 through 2018.
Reinsurance & Monoline Excess - Reserves for the Reinsurance & Monoline Excess segment developed unfavorably by $2 million in 2019. The
unfavorable development in the segment was driven by non-proportional assumed liability business in both the U.S. and U.K., and was largely offset by favorable
development on excess workers’ compensation business. The unfavorable non-proportional assumed liability development was concentrated in accident years 2015
through 2018, and included an adjustment for the Ogden discount rate in the U.K.
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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 $20 million at December 31, 2021 and $19 million at December 31, 2020. 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.
Discounting — The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were
discounted was $1,387 million and $1,655 million at December 31, 2021 and 2020, respectively. The aggregate net discount for those reserves, after reflecting the
effects of ceded reinsurance, was $452 million and $483 million at December 31, 2021 and 2020, respectively. At December 31, 2021, discount rates by year
ranged from 0.7% to 6.5%, with a weighted average discount rate of 3.4%.
Substantially all discounted workers’ compensation reserves (97% of total discounted reserves at December 31, 2021) 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, 2021), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves
are discounted at statutory rates prescribed or permitted by the Department of Insurance of the State of Delaware.
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(14) Premiums and Reinsurance Related Information
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 business, 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
2021
2020
2019
$
$
$
$
$
$
9,531,050 $
1,169,084
(1,837,267)
8,862,867
$
7,874,050
973,597
(1,585,210)
7,262,437
8,825,568 $
1,085,804
(1,805,341)
8,106,031
$
7,489,470
941,321
(1,499,948)
6,930,843
1,236,960
449,739
$
$
955,630
358,253
$
$
$
$
$
$
7,386,759
875,459
(1,398,719)
6,863,499
7,141,427
820,705
(1,328,844)
6,633,288
836,831
314,191
The following table presents the rollforward of the allowance for expected credit losses for premiums and fees receivable for the years ended
December 31, 2021 and 2020:
(In thousands)
Allowance for expected credit losses, beginning of period
Cumulative effect adjustment resulting from changes in accounting principles
Provision for expected credit losses
Allowance for expected credit losses, end of period
2021
2020
22,883
—
2,335
25,218
$
$
19,823
1,270
1,790
22,883
$
$
Estimated amounts due from reinsurers are reported net of an allowance for expected credit losses of $7,712,903, $7,800,649 and $690,127 as of
December 31, 2021, 2020 and 2019, respectively. The following table presents the rollforward of the allowance for expected credit losses associated with due from
reinsurers for the years ended December 31, 2021 and 2020:
(In thousands)
Allowance for expected credit losses, beginning of period
Cumulative effect adjustment resulting from changes in accounting principles
Provision for expected credit losses
Allowance for expected credit losses, end of period
2021
2020
7,801 $
—
(88)
7,713 $
690
5,927
1,184
7,801
$
$
100
101
101
The following table presents the amounts due from reinsurers as of December 31, 2021:
(In thousands)
Munich Re
Lloyd’s of London
Partner Re
Alleghany Group
Swiss Re
Hannover Re Group
Everest Re
Renaissance Re
Berkshire Hathaway
Axis Capital
Liberty Mutual
Lifson Re
Arch Capital Group
Korean Re
Fairfax Financial
Axa Insurance
Markel Corp Group
Sompo Holdings Group
Helvetia Holdings Group
Other reinsurers less than $20,000
Subtotal
Residual market pools (1)
Allowance for expected credit losses
Total
$
$
313,150
308,119
231,251
204,699
203,165
167,906
162,432
138,408
126,806
88,938
85,367
64,242
58,156
55,643
43,975
40,014
26,737
24,220
23,986
350,287
2,717,501
213,238
(7,713)
2,923,026
(1) 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.
102
102
103
(15) Indebtedness
Indebtedness consisted of the following as of December 31, 2021 (the difference between the face value and the carrying value is unamortized discount
and debt issuance costs):
(In thousands)
Senior notes and other debt due on:
January 1, 2022
March 15, 2022
February 15, 2037
August 1, 2044
May 12, 2050
March 30, 2052 (3)
September 30, 2061 (3)
Subsidiary debt (1) (2)
Total senior notes and other debt
Subordinated debentures due on:
March 1, 2056 (3)
June 1, 2056 (3)
March 30, 2058
December 30, 2059
September 30, 2060
March 30, 2061 (3)
Total subordinated debentures
Interest Rate
Face Value
2021
2020
Carrying Value
8.700%
4.625%
6.250%
4.750%
4.000%
3.550%
3.150%
Various
5.900%
5.750%
5.700%
5.100%
4.250%
4.125%
$
$
$
$
$
$
$
76,503
350,000
250,000
350,000
470,000
400,000
350,000
10,564
2,257,067
—
—
185,000
300,000
250,000
$
$
$
76,503
349,923
248,336
345,836
491,478
394,015
342,761
10,564
2,259,416
—
—
179,166
290,941
244,378
300,000
1,035,000
$
293,167
1,007,652
$
76,419
349,505
248,226
345,652
492,236
—
—
110,987
1,623,025
106,365
282,003
179,006
290,702
244,233
—
1,102,309
________________
(1) Subsidiary debt is due as follows: $6.1 million in 2024 and $4.5 million in 2025.
(2) In the second quarter of 2021, the Company sold a real estate asset which resulted in a $102 million reduction of the Company's non-recourse debt that was
supporting the property. See Note 8, Real Estate, for more details.
(3) In February 2021, the Company issued $300 million aggregate principal amount of 4.125% subordinated debentures due 2061. In March 2021, the Company
issued $400 million aggregate principal amount of 3.550% senior notes due 2052 and redeemed its $110 million aggregate principal amount of 5.900%
subordinated debentures due 2056. In June 2021, the Company redeemed the $290 million aggregate principal amount of its 5.750% subordinated debentures due
2056. In September 2021, the Company issued $350 million aggregate principal amount of 3.150% senior notes due 2061.
103
103
102
(16) Income Taxes
Income tax expense (benefit) consists of:
(In thousands)
December 31, 2021
Domestic
Foreign
Total expense
December 31, 2020
Domestic
Foreign
Total expense (benefit)
December 31, 2019
Domestic
Foreign
Total expense
Current
Expense
Deferred
Expense (Benefit)
Total
$
$
$
$
$
$
239,090
—
239,090
162,305
23,375
185,680
124,231
9,030
133,261
$
$
$
$
$
$
2,752
10,048
12,800
17
(13,880)
(13,863)
27,616
8,058
35,674
$
$
$
$
$
$
241,842
10,048
251,890
162,322
9,495
171,817
151,847
17,088
168,935
Income before income taxes from domestic operations was $1,224 million, $831 million and $739 million for the years ended December 31, 2021, 2020
and 2019, respectively. Income (loss) before income taxes from foreign operations was $59 million, ($126) million and $114 million for the years ended
December 31, 2021, 2020 and 2019, respectively.
A reconciliation of the income tax expense and the amounts computed by applying the Federal and foreign income tax rate of 21% for 2021, 2020 and
2019 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
Other, net
Total expense
2021
2020
2019
$
$
269,410
(11,380)
2,974
(2,368)
4,230
(10,976)
251,890
$
$
148,008
(12,770)
46,238
6,753
2,561
(18,973)
171,817
$
$
179,113
(14,666)
(1,945)
7,700
4,842
(6,109)
168,935
104
104
105
At December 31, 2021 and 2020, 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 & foreign tax credits
Other-than-temporary impairments
Employee compensation plans
Other
Gross deferred tax asset
Less valuation allowance
Deferred tax asset
Deferred tax liability:
Amortization of intangibles
Loss reserve discounting - transition rule
Deferred policy acquisition costs
Unrealized investment gains
Property, furniture and equipment
Investment funds
Other
Deferred tax liability
Net deferred tax asset (liability)
2021
2020
162,636
163,143
88,502
5,176
61,301
54,269
535,027
(75,230)
459,797
12,787
19,796
137,893
36,850
43,186
101,999
67,331
419,842
39,955
$
$
141,877
134,971
90,601
5,973
60,551
59,230
493,203
(79,488)
413,715
12,761
24,747
113,084
100,241
48,235
77,783
49,970
426,821
(13,106)
$
$
The Company had a current tax net receivable of $2.5 million and net payable of $35.4 million at December 31, 2021 and 2020, respectively. At
December 31, 2021, the Company had foreign net operating loss carryforwards of $6.8 million that expire beginning in 2027, and an additional $238.2 million that
have no expiration date. At December 31, 2021, the Company had a valuation allowance of $75.2 million, as compared to $79.5 million at December 31, 2020. The
Company has provided a valuation allowance against the utilization of foreign tax credits and the future net operating loss carryforward benefits of certain foreign
operations. The statute of limitations for the Company’s U.S. Federal income tax returns has closed for all years through December 31, 2017.
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") provided for a reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1,
2018. The U.S. tax law requires insurance reserves to be discounted for tax purposes. The Tax Act modified this computation. The IRS issued revised discount
factors to be applied to the 2017 reserves, which increased the beginning of year 2018 deferred tax asset for loss reserve discounting. Under the related transition
rule, a deferred tax liability was established which will be included in taxable income over the eight year period that began in 2018.
The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $126.7 million of its non-U.S. subsidiaries
since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. In the future, if such earnings were distributed the Company projects
that the incremental tax, if any, will be immaterial.
105
105
104
(17) 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 2022, the
maximum amount of dividends that can be paid by BIC without such approval is approximately $966 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
2021
2020
$
$
1,040,342
6,817,535
$
$
771,990
6,188,121
$
$
2019
601,564
6,013,062
The significant variances between SAP and GAAP are that for statutory purposes bonds are carried at amortized cost, unrealized gains and losses on equity
securities are recorded in surplus, 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 recognize a non-tabular discount on certain 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 $189 million at
December 31, 2021.
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, 2021, BIC’s Total Adjusted Capital of $6.6 billion was 362% of its RBC Authorized Control Level.
See Note 3, Investments in Fixed Maturity Securities, for a description of assets held on deposit as security.
106
106
107
(18) Common Stockholders’ Equity
The weighted average number of shares used in the computation of net income per share was as follows:
(In thousands)
Basic
Diluted
2021
2020
2019
184,953
186,499
186,924
188,763
190,722
193,521
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 7,728,466 common shares held in a grantor trust. 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
2021
2020
2019
177,825,150
708,057
(1,752,619)
176,780,588
183,411,907
776,544
(6,363,301)
177,825,150
182,993,640
687,339
(269,072)
183,411,907
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.
(19) 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, 2021 and 2020:
(In thousands)
Assets:
Fixed maturity securities
Equity securities
Arbitrage trading account
Loans receivable
Cash and cash equivalents
Trading accounts receivable from brokers and clearing organizations
Due from broker
Liabilities:
Due to broker
Trading account securities sold but not yet purchased
Senior notes and other debt
Subordinated debentures
2021
2020
Carrying Value
Fair Value
Carrying Value
Fair Value
$
$
16,602,673
941,243
1,179,606
115,172
1,568,843
—
20,448
$
16,614,118
941,243
1,179,606
116,534
1,568,843
—
20,448
$
14,159,369
625,667
341,473
84,913
2,372,366
524,727
2,585
53,636
1,169
2,259,416
1,007,652
53,636
1,169
2,526,630
1,095,600
—
10,048
1,623,025
1,102,309
14,173,629
625,667
341,473
86,596
2,372,366
524,727
2,585
—
10,048
1,892,444
1,202,842
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 12 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.
106
107
107
(20) 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, 2021, the Company had commitments to invest up to $621 million and $139 million in certain investment funds and real estate construction
projects, respectively.
(21) Leases
Lessees are required to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months on the balance sheet. All leases disclosed
within this note are classified as operating leases. Recognized right-of-use asset and lease liability are reported within other assets and other liabilities, respectively,
in the consolidated balance sheet. Lease expense is reported in other operating costs and expenses in the consolidated statement of income and accounted for on a
straight-line basis over the lease term.
To determine the discount rate used to calculate present value of future minimum lease payments, the Company uses its incremental borrowing rate during the
lease commencement period in line with the respective lease duration. In certain cases, the Company has the option to renew the lease. Lease renewal future
payments are included in the present value of the future minimum lease payments when the Company determines it is reasonably certain to renew.
The main leases entered into by the Company are for office space used by the Company’s operating units across the world. Additionally, the Company, to a
lesser extent, has equipment leases mainly for office equipment. Further information relating to operating lease expense and other operating lease information is as
follows:
44,291
45,348
8,870
164,476
203,643
6.8 years
5.94 %
(In thousands)
Leases:
For the Year Ended December 31,
2021
2020
Lease cost
Cash paid for amounts included in the measurement of lease liabilities reported in
operating cash flows
Right-of-use assets obtained in exchange for new lease liabilities
$
$
$
44,051 $
45,592 $
38,929 $
($ in thousands)
Right-of-use assets
Lease liabilities
Weighted-average remaining lease term
Weighted-average discount rate
As of December 31,
2021
2020
172,180
208,729
$
$
7.2 years
4.83 %
$
$
108
108
109
Contractual maturities of the Company’s future minimum lease payments are as follows:
(In thousands)
Contractual Maturities:
2022
2023
2024
2025
2026
Thereafter
Total undiscounted future minimum lease payments
Less: Discount impact
Total lease liability
(22) Stock Incentive Plan
December 31, 2021
$
$
44,962
43,674
37,663
28,109
21,486
68,019
243,913
35,184
208,729
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, 2021:
RSUs granted and unvested at beginning of period:
Granted
Vested
Canceled
RSUs granted and unvested at end of period:
2021
2020
2019
3,804,336
848,660
(1,015,973)
(207,344)
3,429,679
4,124,260
962,453
(1,111,588)
(170,789)
3,804,336
5,062,661
840,796
(1,447,522)
(331,675)
4,124,260
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, 2021, 7,475,528 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, 2021:
(In thousands)
Unearned compensation at beginning of year
RSUs granted, net of cancellations
RSUs expensed
RSUs forfeitures
Unearned compensation at end of year
2021
2020
2019
$
$
132,310
56,711
(46,441)
(7,045)
135,535
$
$
128,390
54,270
(47,108)
(3,242)
132,310
$
$
129,669
53,583
(47,329)
(7,533)
128,390
109
109
108
(23) 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 businesses'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 $50 million, $48 million and $47 million in 2021, 2020 and
2019, 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, 2021:
2017 grant
2018 grant
2019 grant
2020 grant
2021 grant
Units Outstanding
Maximum Value
192,750 $
197,250
216,500
222,250
227,500
19,275,000 $
19,725,000
21,650,000
22,225,000
22,750,000
Inception to date earned through
December 31, 2021 on outstanding units
18,937,688
15,103,433
10,659,096
7,303,735
4,905,969
The following table summarizes the LTIP expense for each of the three years ended December 31, 2021:
(In thousands)
2014 grant
2015 grant
2016 grant
2017 grant
2018 grant
2019 grant
2020 grant
2021 grant
Total
(24) 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)
Debt extinguishment costs
Other costs and expenses
Total
(25) Industry Segments
2021
2020
2019
—
—
(117)
6,012
5,503
5,309
5,065
4,906
26,678
2021
961,628
1,345,099
86,003
(25,725)
11,521
220,744
2,599,270
$
$
$
$
—
(168)
3,176
2,914
2,776
2,490
2,276
—
13,464
2020
904,955
1,206,058
85,724
363
8,440
184,852
2,390,392
$
$
$
$
(558)
3,319
3,548
3,432
3,310
3,068
—
—
16,119
2019
1,001,611
1,088,690
101,317
(30,715)
—
201,179
2,362,082
$
$
$
$
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.
110
110
111
• Reinsurance & Monoline Excess - 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, as well as operations that solely retain risk on an excess basis.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Income tax expense and
benefits are calculated based upon the Company’s overall effective tax rate.
Summary financial information about the Company’s reporting segments is presented in the following 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)
Year ended December 31, 2021
Insurance
Reinsurance & Monoline Excess
Corporate, other and eliminations (3)
Net investment gains
Consolidated
Year ended December 31, 2020
Insurance
Reinsurance & Monoline Excess
Corporate, other and eliminations (3)
Net investment gains
Consolidated
Year ended December 31, 2019
Insurance
Reinsurance & Monoline Excess
Corporate, other and eliminations (3)
Net investment gains
Consolidated
(In thousands)
Insurance
Reinsurance & Monoline Excess
Corporate, other and eliminations (3)
Consolidated
Revenues
Earned
Premiums (1)
Investment
Income
Other
Total (2)
$
$
$
$
$
$
7,077,708
1,028,323
—
—
8,106,031
6,067,669
863,174
—
—
6,930,843
5,919,819
713,469
—
—
6,633,288
$
$
$
$
$
$
468,821
175,324
27,473
—
671,618
375,554
146,029
62,238
—
583,821
429,405
164,082
52,127
—
645,614
$
$
$
$
$
$
Identifiable Assets
32,063
—
555,122
90,632
677,817
35,611
—
445,650
103,000
584,261
47,850
—
454,741
120,703
623,294
$
$
$
$
$
$
7,578,592
1,203,647
582,595
90,632
9,455,466
6,478,834
1,009,203
507,888
103,000
8,098,925
6,397,074
877,551
506,868
120,703
7,902,196
$
$
$
$
$
$
Pre-Tax
Income
(Loss)
Net
Income
(Loss)
to Common
Stockholders
1,219,798 $
270,563
(298,088)
90,632
1,282,905 $
976,184
215,439
(242,055)
72,922
1,022,490
668,012 $
205,587
(271,797)
103,000
704,802 $
814,862 $
189,188
(271,833)
120,703
852,920 $
487,125
164,655
(214,291)
93,181
530,670
650,510
152,046
(215,967)
95,355
681,944
December 31,
2021
2020
$
$
24,414,305
4,916,894
2,755,215
32,086,414
$
$
21,739,360
4,652,074
2,215,479
28,606,913
_______________________________________
(1) Certain amounts included in earned premiums of each segment are related to inter-segment transactions.
(2) Revenues for Insurance includes $873 million, $692 million, and $725 million in 2021, 2020, and 2019, respectively, from foreign countries. Revenues for
Reinsurance & Monoline Excess includes $380 million, $292 million, and $250 million in 2021, 2020 and 2019, respectively, from foreign countries.
(3) Corporate, other and eliminations represent corporate revenues and expenses and other items that are not allocated to
110
111
111
business segments.
Net premiums earned by major line of business were as follows:
(In thousands)
Insurance
Other liability
Short-tail lines
Workers' compensation
Commercial automobile
Professional liability
Total Insurance
Reinsurance & Monoline Excess
Casualty
Monoline Excess
Property
Total Reinsurance & Monoline Excess
Total
(26) Subsequent Event
2021
2020
2019
$
$
2,639,601 $
1,389,068
1,131,283
990,945
926,811
7,077,708
643,193
201,187
183,943
1,028,323
8,106,031 $
2,237,285 $
1,247,908
1,127,487
794,171
660,818
6,067,669
521,559
171,522
170,093
863,174
6,930,843 $
2,063,401
1,223,902
1,301,980
750,051
580,485
5,919,819
405,063
160,071
148,335
713,469
6,633,288
On February 23, 2022, the Company announced that it has entered into an agreement for the sale of a real estate investment consisting of an office
building located at 52 Lime Street, London, U.K. (known as “The Scalpel”) for £718 million, subject to agreed upon adjustments. The transaction is scheduled to
close on March 7, 2022. The Company estimates that it will realize a pretax gain of more than $300 million in the first quarter of 2022, subject to adjustment for
final transaction expenses and certain items, including the impact of the foreign exchange rate at the date of the close.
112
112
113
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company's management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this annual report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company has in place effective controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act and the rules thereunder, is recorded, processed,
summarized and reported within the time periods specified in the Commission's rules and forms.
During the quarter ended December 31, 2021, 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, 2021.
113
113
112
Report of Independent Registered Public Accounting Firm
To the Stockholders and the 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, 2021, 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, 2021, 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, 2021 and 2020, 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, 2021, and the related notes and financial statement schedules II to VI (collectively, the
consolidated financial statements), and our report dated February 24, 2022 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 Management'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 24, 2022
/S/ KPMG LLP
114
114
115
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
115
114
115
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, 2021, 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, 2021, 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, 2021, 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, 2021, 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, 2021, 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, 2021, 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, 2021, and which is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, New York, NY, Auditor Firm ID: 185.
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, 2021, and which is incorporated herein by reference.
116
116
117
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
Page
123
127
128
129
130
117
116
117
(b) Exhibits
Number
EXHIBITS
(3.1)
(3.2)
(3.3)
(3.4)
(3.5)
(4.1)
(4.2)
(4.3)
(4.4)
(4.5)
(4.6)
(4.7)
(4.8)
(4.9)
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).
Amendment, dated June 12, 2020, to the Company’s Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the
Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on June 16, 2020).
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).
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
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 on March 31, 2003).
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).
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).
Indenture, dated as of May 12, 2020, 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 12, 2020).
First Supplemental Indenture, dated as of May 12, 2020, between the Company and The Bank of New York Mellon, as Trustee, relating to $470,000,000
principal amount of the Company’s 4.00% Senior Notes due 2050, 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 May 12, 2020).
Second Supplemental Indenture, dated as of March 16, 2021, between the Company and The Bank of New York Mellon, as Trustee, relating to $400,000,000
principal amount of the Company’s 3.550% Senior Notes due 2052, 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, 2021).
Third Supplemental Indenture, dated as of September 15, 2021, between the Company and The Bank of New York Mellon, as Trustee, relating to $350,000,000
principal amount of the Company’s 3.150% Senior Notes due 2061, 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 15, 2021).
118
118
119
(4.10)
(4.11)
(4.12)
(4.13)
(4.14)
(4.15)
(10.1)
(10.2)
(10.3)
(10.4)
(10.5)
(10.6)
(10.7)
(10.8)
Subordinated Indenture, dated as of March 26, 2018, 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 26, 2018).
First Supplemental Indenture, dated as of March 26, 2018, between the Company and The Bank of New York Mellon, as Trustee, relating to $185,000,000
principal amount of the Company’s 5.7% Subordinated Debentures due 2058, 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 26, 2018).
Second Supplemental Indenture, dated as of December 16, 2019, between the Company and the Bank of New York Mellon, as Trustee, relating to $300,000,000
principal amount of the Company's 5.10% Subordinated Debentures due 2059, 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 December 16, 2019).
Third Supplemental Indenture, dated as of September 21, 2020, between the Company and The Bank of New York Mellon, as Trustee, relating to $250,000,000
principal amount of the Company’s 4.25% Subordinated Debentures Notes due 2060, including 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 September 21, 2020).
Fourth Supplemental Indenture, dated as of February 10, 2021, between the Company and The Bank of New York Mellon, as Trustee, relating to $300,000,000
principal amount of the Company’s 4.125% Subordinated Debentures Notes due 2061, including 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 February 10, 2021).
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.
W. R. Berkley Corporation 2018 Stock Incentive Plan (incorporated by reference to Annex B of the Company’s 2018 Proxy Statement (File No. 1-15202) filed
with the Commission on April 19, 2018).
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).
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).
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).
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).
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).
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).
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).
118
119
119
(10.9)
(10.10)
(10.11)
(10.12)
(10.13)
(10.14)
(10.15)
(10.16)
(10.17)
(10.18)
(10.19)
(10.20)
(10.21)
(14)
(21)
(23)
(31.1)
(31.2)
Form of 2018 Performance-Based Restricted Stock Unit Agreement Under the W. R. Berkley Corporation 2018 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, 2018).
Form of 2020 Performance-Based Restricted Stock Unit Agreement Under the W. R. Berkley Corporation 2018 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 5, 2020).
W. R. Berkley Corporation Deferred Compensation Plan for Officers as amended and restated effective December 1, 2021 (incorporated by reference to Exhibit
10.1 of the Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on November 12, 2021).
W. R. Berkley Corporation Deferred Compensation Plan for Directors as amended and restated effective December 1, 2021 (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 November 12, 2021).
W. R. Berkley Corporation Amended and Restated Annual Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K (File No. 1-15202) filed with the Commission on February 25, 2019).
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).
Form of 2018 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 7, 2018).
W. R. Berkley Corporation 2019 Long-Term Incentive Plan (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 February 25, 2019).
Form of 2019 Performance Unit Award Agreement under the W. R. Berkley Corporation 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit
10.3 of the Company’s Current Report on Form 8-K (File No. 1-15202) filed with the Commission on February 25, 2019).
Form of 2020 Performance Unit Award Agreement under the W. R. Berkley Corporation 2019 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 August 3, 2020).
Form of 2021 Performance Unit Award Agreement under the W. R. Berkley Corporation 2019 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 November 4, 2021).
W. R. Berkley Corporation 2009 Directors Stock Plan (incorporated by reference to Annex B of the Company’s 2021 Proxy Statement (File No. 1-15202) filed
with the Commission on April 27, 2021).
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).
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).
List of the Company’s 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).
120
120
121
(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.
121
120
121
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
SIGNATURES
behalf by the undersigned, thereunto duly authorized.
W. R. BERKLEY CORPORATION
By
/s/ W. Robert Berkley, Jr.
W. Robert Berkley, Jr.
President and Chief Executive Officer
February 24, 2022
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.
Date
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
Signature
Title
/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/ Leigh Ann Pusey
Leigh Ann Pusey
/s/ Mark L. Shapiro
Mark L. Shapiro
/s/ Jonathan Talisman
Jonathan Talisman
/s/ Richard M. Baio
Richard M. Baio
Executive Chairman
of the Board of Directors
President
Chief Executive Officer and Director
(Principal executive officer)
Director
Director
Director
Director
Director
Director
Director
Director
Executive Vice President
and Chief Financial Officer
(Principal financial officer
and principal accounting officer)
122
122
123
W. R. Berkley Corporation
Condensed Financial Information of Registrant
Balance Sheets (Parent Company)
(In thousands)
Assets:
Cash and cash equivalents
Fixed maturity securities available for sale at fair value (cost $805,211 and $792,752 at December 31, 2021 and 2020, respectively)
Loans receivable (net of allowance for expected credit losses of $647 and $28 at December 31, 2021 and 2020, respectively)
Equity securities, at fair value (cost $3,430 in 2021 and 2020 respectively)
Investment in subsidiaries
Current federal income taxes
Deferred 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 $6,463,882 and $5,700,515 at December 31, 2021 and 2020,
respectively)
Accumulated other comprehensive loss
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 information.
Schedule II
December 31,
2021
2020
$
$
$
$
684,037 $
806,074
93,397
3,430
8,516,916
23,424
11,796
11,916
43,793
10,194,783 $
138,376 $
146,892
—
—
1,007,652
2,248,852
3,541,772
—
70,535
1,016,372
9,015,135
(281,955)
(3,167,076)
6,653,011
10,194,783
$
296,960
800,263
75,789
3,430
7,957,501
—
—
11,412
11,231
9,156,586
77,860
106,064
15,662
31,851
1,102,309
1,512,038
2,845,784
—
70,535
1,012,483
8,348,381
(62,172)
(3,058,425)
6,310,802
9,156,586
123
123
122
Schedule II, Continued
W. R. Berkley Corporation
Condensed Financial Information of Registrant, Continued
Statements of Income (Parent Company)
(In thousands)
Management fees and investment income including dividends from subsidiaries of $520,251, $617,424, and
$416,027 for the years ended December 31, 2021, 2020 and 2019, respectively
Net investment 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 federal income tax expense
Income before undistributed equity in net income of subsidiaries
Equity in undistributed net income of subsidiaries
Net income
________________
See Report of Independent Registered Public Accounting Firm and note to condensed financial information.
Year Ended December 31,
2020
2021
2019
$
$
548,512 $
1,474
1,138
551,124
214,995
144,837
191,292
294,731
(226,900)
67,831
259,123
763,367
1,022,490 $
654,485 $
3,580
568
658,633
166,892
145,417
346,324
188,490
(139,679)
48,811
395,135
135,535
530,670 $
470,773
850
117
471,740
204,812
148,282
118,646
207,647
(141,190)
66,457
185,103
496,841
681,944
124
124
125
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
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
Cost of purchases of fixed maturity securities
Change in loans receivable
Investments in and advances to subsidiaries, net
Change in balance due to security broker
Net additions to real estate, furniture & equipment
Other, net
Net cash (used in) from investing activities
Cash from (used in) financing activities:
Net proceeds from issuance of senior notes
Repayment and redemption of debt
Purchase of common treasury shares
Cash dividends to common stockholders
Other, net
Net cash from (used in) financing activities
Net increase (decrease) 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 information.
Year Ended December 31,
2020
2019
2021
$
1,022,490 $
530,670 $
681,944
(1,474)
18,761
(763,367)
328,851
(294,731)
48,440
(22,017)
(33,319)
(11,758)
755
292,631
402,046
654,134
(1,071,823)
(18,227)
(1,411)
10,487
(1,496)
95
(26,195)
(3,580)
15,133
(135,535)
165,495
(188,489)
49,599
32,069
1,220
3,964
836
471,382
414,802
258,413
(747,713)
(20,023)
(100,704)
(245)
(81)
103
(195,448)
1,029,579
(400,000)
(122,426)
(355,736)
(30,776)
120,641
387,077
296,960
684,037 $
736,609
(650,000)
(346,357)
(84,147)
(24,880)
(368,775)
(92,841)
389,801
296,960 $
$
(850)
7,058
(496,841)
192,407
(207,646)
28,389
11,841
(5,343)
11,866
4,395
227,220
619,334
435,473
(459,418)
(4,250)
(36,170)
245
(112)
142
555,244
290,454
(440,651)
(18,225)
(308,191)
—
(476,613)
305,851
83,950
389,801
125
125
124
W. R. Berkley Corporation
Condensed Financial Information of Registrant, Continued
December 31, 2021
Note to Condensed Financial Information (Parent Company)
The accompanying condensed financial information should be read in conjunction with the notes to consolidated financial statements included elsewhere
herein. Reclassifications have been made in the 2020 and 2019 financial statements as originally reported to conform them to the presentation of the 2021 financial
statements.
The Company files a consolidated federal income 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.
126
126
127
W. R. Berkley Corporation and Subsidiaries
Supplementary Insurance Information
December 31, 2021, 2020 and 2019
Schedule III
(In thousands)
December 31, 2021
Insurance
Reinsurance & Monoline Excess
Corporate, other and eliminations
Total
December 31, 2020
Insurance
Reinsurance & Monoline Excess
Corporate, other and eliminations
Total
December 31, 2019
Insurance
Reinsurance & Monoline Excess
Corporate, other and eliminations
Total
$
$
$
$
$
$
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
566,718 $ 12,379,395 $
109,427
—
3,011,493
—
4,348,171 $
498,989
—
7,077,708 $
1,028,323
—
676,145 $ 15,390,888 $
4,847,160 $
8,106,031 $
468,821 $
175,324
27,473
671,618 $
4,326,403 $
627,557
—
4,953,960 $
830,199 $
131,429
—
961,628 $
1,202,192 $
174,098
261,352
1,637,642 $
7,743,814
1,119,053
—
8,862,867
467,871 $ 10,977,674 $
88,297
—
2,806,756
—
3,660,758 $
412,433
—
6,067,669 $
863,174
—
556,168 $ 13,784,430 $
4,073,191 $
6,930,843 $
375,554 $
146,029
62,238
583,821 $
3,939,759 $
528,947
—
4,468,706 $
734,062 $
170,893
—
904,955 $
1,137,002 $
103,775
244,660
1,485,437 $
6,347,101
915,336
—
7,262,437
438,082 $
79,282
—
9,836,950 $
2,746,299
—
3,304,152 $
352,355
—
5,919,819 $
713,469
—
517,364 $ 12,583,249 $
3,656,507 $
6,633,288 $
429,405 $
164,082
52,127
645,614 $
3,692,551 $
438,565
—
840,333 $
161,278
—
4,131,116 $
1,001,611 $
1,049,328 $
88,520
222,623
1,360,471 $
6,086,009
777,490
—
6,863,499
__________________________
See Report of Independent Registered Public Accounting Firm.
127
127
126
W. R. Berkley Corporation and Subsidiaries
Reinsurance
Years ended December 31, 2021, 2020 and 2019
Premiums Written
Schedule IV
Direct
Amount
Ceded
to Other
Companies
Assumed
from Other
Companies
Net
Amount
Percentage
of Amount
Assumed
to Net
$
$
$
$
$
$
9,220,683
310,367
9,531,050
7,625,981
248,069
7,874,050
7,180,759
206,000
7,386,759
$
$
$
$
$
$
1,727,854
109,413
1,837,267
1,490,395
94,815
1,585,210
1,312,564
86,155
1,398,719
$
$
$
$
$
$
250,985
918,099
1,169,084
211,515
762,082
973,597
217,814
657,645
875,459
$
$
$
$
$
$
7,743,814
1,119,053
8,862,867
6,347,101
915,336
7,262,437
6,086,009
777,490
6,863,499
3.2 %
82.0 %
13.2 %
3.3 %
83.3 %
13.4 %
3.6 %
84.6 %
12.8 %
(In thousands, other than percentages)
Year ended December 31, 2021
Insurance
Reinsurance & Monoline Excess
Total
Year ended December 31, 2020
Insurance
Reinsurance & Monoline Excess
Total
Year ended December 31, 2019
Insurance
Reinsurance & Monoline Excess
Total
___________________________
See Report of Independent Registered Public Accounting Firm.
128
128
129
(In thousands)
Year ended December 31, 2021
Premiums, fees and other receivables
Due from reinsurers
Deferred federal and foreign income taxes
Fixed maturity securities
Loan loss reserves
Total
Year ended December 31, 2020
Premiums, fees and other receivables
Due from reinsurers
Deferred federal and foreign income taxes
Fixed maturity securities
Loan loss reserves
Total
Year ended December 31, 2019
Premiums, fees and other receivables
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, 2021, 2020 and 2019
Cumulative Effect
Adjustment -
CECL
Opening
Balance
Additions-
Charged to
Expense
Deduction-
Amounts
Written Off
Ending
Balance
Schedule V
—
—
—
—
—
—
1,270
5,927
—
35,714
(357)
42,554
—
—
—
—
—
$
$
$
$
$
$
10,807
334
6,011
21,013
—
38,165
6,783
1,187
46,756
16,909
3,648
75,283
(5,549)
—
1,298
—
(4,251)
$
$
$
$
$
$
(7,802)
(422)
(10,269)
(968)
(3,719)
(23,180)
(6,744)
(3)
(518)
(50,043)
—
(57,308)
(6,998)
(257)
(3,243)
(1,237)
(11,735)
$
$
$
$
$
$
30,860
7,713
75,230
22,625
1,718
138,146
27,855
7,801
79,488
2,580
5,437
123,161
26,546
690
33,250
2,146
62,632
$
$
$
$
$
$
27,855
7,801
79,488
2,580
5,437
123,161
26,546
690
33,250
—
2,146
62,632
39,093
947
35,195
3,383
78,618
$
$
$
$
$
$
129
128
129
W. R. Berkley Corporation and Subsidiaries
Supplementary Information Concerning Property-Casualty Insurance Operations
Years Ended December 31, 2021, 2020 and 2019
(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.
130
$
$
2021
676,145
15,390,888
4,847,160
8,106,031
671,618
$
2020
556,168
13,784,430
4,073,191
6,930,843
583,821
4,921,191
863
31,906
961,628
3,665,694
8,862,867
4,432,937
627
35,142
904,955
3,598,649
7,262,437
Schedule VI
2019
517,364
12,583,249
3,656,507
6,633,288
645,614
4,057,989
34,079
39,048
1,001,611
3,659,402
6,863,499
130
130
Businesses
BERKLEY INSURANCE COMPANY
475 Steamboat Road
Greenwich, Connecticut 06830
(203) 542 3800
William R. Berkley, Chairman
W. Robert Berkley, Jr., President and Chief
Executive Officer
Hartford, Connecticut
Kansas City, Kansas
Marlborough, Massachusetts
Minneapolis, Minnesota
New York, New York
Philadelphia, Pennsylvania
San Francisco, California
(860) 380 1190
(913) 515 7374
(908) 415 2711
(303) 667 5198
(212) 822 3333
(908) 415 2711
(623) 208 0556
Insurance
ACADIA INSURANCE
One Acadia Commons
Westbrook, Maine 04092
www.acadiainsurance.com
David J. LeBlanc, President
BERKLEY AGRIBUSINESS
11201 Douglas Avenue
Urbandale, Iowa 50322
www.berkleyag.com
Bradley T. London, President
(800) 773 4300
(866) 382 7314
BERKLEY ALLIANCE MANAGERS
30 South Pearl Street, 6th Floor
Albany, New York 12207
Stephen L. Porcelli, President
(518) 407 0088
BERKLEY CONSTRUCTION PROFESSIONAL
www.berkleycp.com
(405) 805 6635
BERKLEY DESIGN PROFESSIONAL
www.berkleydp.com
(405) 805 6635
BERKLEY SERVICE PROFESSIONALS
BERKLEY MANAGERS INSURANCE SERVICES, LLC
(405) 805 6635
www.berkleysp.com
BERKLEY ASPIRE
14902 North 73rd Street
Scottsdale, Arizona 85260
www.berkleyaspire.com
Brian R. Griffith, President
Scottsdale, Arizona
Charlotte, North Carolina
Glen Allen, Virginia
West Chester, Ohio
(866) 412 7742
(480) 444 5950
(704) 759 7049
(804) 237 5273
(513) 826 4875
Albany, New York
Bedford, New Hampshire
Marlborough, Massachusetts
Rocky Hill, Connecticut
Syracuse, New York
(800) 773 4300
(800) 224 8850
(888) 665 1170
(866) 382 0036
(866) 811 7722
ADM I RAL I NSU RANCE G ROU P
1000 Howard Boulevard, Suite 300
P.O. Box 5430
Mount Laurel, New Jersey 08054 (856) 429 9200
www.admiralins.com
Daniel Smyrl, President and Chief Executive Officer
Atlanta, Georgia
Austin, Texas
Chicago, Illinois
Seattle, Washington
(770) 476 1561
(512) 795 0766
(312) 368 1107
(206) 467 6511
BERKLEY ACCIDENT AND HEALTH
2445 Kuser Road, Suite 201
Hamilton Square, New Jersey 08690 (609) 584 6990
www.berkleyah.com
Brad N. Nieland, President and
Chief Executive Officer
Atlanta, Georgia
Charlotte, North Carolina
Chicago, Illinois
Cleveland, Ohio
Dallas, Texas
Denver, Colorado
Hamilton Square, New Jersey
(678) 387 1824
(727) 415 0759
(847) 946 8406
(440) 728 1805
(972) 849 7406
(303) 667 5198
(908) 415 2711
W. R. Berkley Corporation 2021 Annual Report 131
Businesses
BERKLEY ASSET PROTECTION
757 Third Avenue, 10th Floor
New York, New York 10017
www.berkleyassetpro.com
(212) 497 3700
BERKLEY ENTERTAINMENT
600 Las Colinas Boulevard, Suite 1400
Irving, Texas 75039
www.berkleyentertainment.com
(972) 819 8980
Joseph P. Dowd, President
Cindy Broschart, President
BERKLEY CANADA
145 King Street West, Suite 1000
Toronto, Ontario M5H 1J8
www.berkleycanada.com
1002, Rue Sherbrooke Ouest
Bureau 2220
Montreal, Quebec H3A 3L6
Andrew Steen, President
(416) 304 1178
(514) 842 5587
BERKLEY CONSTRUCTION SOLUTIONS
303 Wyman Street, Suite 300
Waltham, Massachusetts 02451 (617) 610 4980
Andrew Robinson, President
BERKLEY CUSTOM INSURANCE
One Metro Center
1 Station Place, Suite 600
Stamford, Connecticut 06902
www.berkleycustom.com
Michael P. Fujii, President and
Chief Executive Officer
(203) 658 1500
BERKLEY CUSTOM INSURANCE SERVICES, LLC
(213) 417 5431
Los Angeles, California
BXM INSURANCE SERVICES, INC.
Chicago, Illinois
Los Angeles, California
(312) 605 4648
(213) 417 5431
BERKLEY CYBER RISK SOLUTIONS
412 Mount Kemble Avenue, Suite G50
Morristown, New Jersey 07960
www.berkleycyberrisk.com
(973) 775 7494
Tracey Vispoli, President
BERKLEY ENVIRONMENTAL
101 Hudson Street, Suite 2550
Jersey City, New Jersey 07302
www.berkleyenvironmental.com
Kenneth J. Berger, President
Atlanta, Georgia
Boston, Massachusetts
Chicago, Illinois
Irving, Texas
Jersey City, New Jersey
Philadelphia, Pennsylvania
(201) 748 3121
(404) 443 2117
(857) 265 7479
(312) 727 0302
(972) 819 8863
(201) 748 3047
(215) 533 7360
BERKLEY MANAGERS INSURANCE
SERVICES, LLC
Walnut Creek, California
(925) 472 8210
BERKLEY FINANCIAL SPECIALISTS
757 Third Avenue, 10th Floor
New York, New York 10017
www.berkleyfs.com
(866) 539 3995
Michael G. Connor, President
BERKLEY CRIME
29 South Main Street, 3rd Floor
West Hartford, Connecticut 06107 (844) 44 CRIME
www.berkleycrime.com
Towson, Maryland
(866) 539 3995
BERKLEY FIRE & MARINE UNDERWRITERS
425 North Martingale Road, Suite 1520
Schaumburg, Illinois 60173
www.berkleymarine.com
(847) 466 9371
David A. Higley, President
132 W. R. Berkley Corporation 2021 Annual Report
BERKLEY GLOBAL PRODUCT RECALL
MANAGEMENT
80 Broad Street, Suite 3200
New York, New York 10004
www.berkleygpr.com
(212) 413 2499
Louis Lubrano, President
Dallas, Texas
London, United Kingdom
(972) 552 6100
44 (0) 20 7088 1900
BERKLEY MANAGERS INSURANCE SERVICES, LLC
Los Angeles, California
San Francisco, California
(213) 372 1727
(415) 417 5950
BERKLEY INSURANCE ASIA
Room 4407, 44/F Hopewell Centre
183 Queen’s Road East
Wanchai, Hong Kong
www.berkleyasia.com
(852) 3708 5000
18 Cross Street
Unit 09-02, Cross Street Exchange
Singapore 048423
(65) 6902 0601
30th Floor, Shanghai Tower
501 Middle Yincheng Road
Pudong, Shanghai 200120, China 86 (21) 6162 8122
Shasi Nair, Chief Executive Officer
BERKLEY INSURANCE AUSTRALIA
Level 7, 321 Kent Street
Sydney NSW 2000, Australia
www.berkleyinaus.com.au
61 (2) 9275 8500
Tony Wheatley, Chief Executive Officer
Adelaide SA, Australia
Brisbane QLD, Australia
Melbourne VIC, Australia
Perth WA, Australia
61 (8) 8470 9020
61 (7) 3220 9900
61 (3) 8622 2000
61 (8) 6488 0900
BERKLEY HEALTHCARE
16305 Swingley Ridge Road, Suite 450
Chesterfield, Missouri 63017
www.berkleyhealthcare.com
(212) 822 3343
Gregg A. Piltch, President
BERKLEY HEALTHCARE PROFESSIONAL
INSURANCE SERVICES, LLC
Sebastopol, California
(707) 829 4720
BERKLEY MANAGERS INSURANCE SERVICES, LLC
San Diego, California
Sebastopol, California
(858) 812 2935
(707) 829 4720
BERKLEY HUMAN SERVICES
222 South Ninth Street, Suite 2700
Minneapolis, Minnesota 55402
www.berkleyhumanservices.com
Roger M. Nulton, President
(612) 766 3100
BERKLEY INDUSTRIAL COMP
One Metroplex Drive, Suite 500
Birmingham, Alabama 35209
www.berkindcomp.com
(205) 870 3535
Chandler F. Cox, Jr., President and
Chief Executive Officer
Las Vegas, Nevada
Lexington, Kentucky
(855) 425 5800
(888) 886 9006
W. R. Berkley Corporation 2021 Annual Report 133
Businesses
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 54 (11) 4378 8100
www.berkley.com.ar
BERKLEY INTERNATIONAL SEGUROS MÉXICO,
S.A. DE C.V.
Avenida Santa Fe 505, Piso 17, Oficina 1702
Cruz Manca, Cuajimalpa de Morelos
05349, México
www.berkleymex.com
52 (55) 1037 5300
Javier García Ortíz de Zárate, President and
Chief Executive Officer
Bartolomé Mitre 699
S2000COM Rosario, Argentina
Eduardo I. Llobet, President and
Chief Executive Officer
54 (341) 410 4200
BERKLEY INTERNATIONAL DO BRASIL
SEGUROS S.A.
Avenida Presidente Juscelino Kubitschek, 1455
15º andar - cj. 151 Vila Nova Conceição
04543-011 São Paulo, Brazil
www.berkley.com.br
55 (11) 3848 8622
Luciano Calabró Calheiros, President and
Chief Executive Officer
BERKLEY INTERNATIONAL FIANZAS MÉXICO,
S.A. DE C.V.
Avenida Santa Fe 505
Piso 17, Oficina 1702
Cruz Manca, Cuajimalpa de Morelos
05349, México
www.berkleymex.com
52 (55) 1037 5300
Guillermo Espinosa Barragan, President and
Chief Executive Officer
BERKLEY INTERNATIONAL PUERTO RICO, LLC
Metro Office Park
Edificio 17 Calle 2, Suite 500
Guaynabo, Puerto Rico 00968
(787) 466 7466
Eduardo I. Llobet, President
BERKLEY INTERNATIONAL SEGUROS
COLOMBIA S.A.
Carrera 7 # 71 – 21 Torre B, Oficina 1002
110231 Bogotá, Colombia
www.berkley.com.co
57 (1) 357 2727
Sylvia Luz Rincón, President and
Chief Executive Officer
BERKLEY INTERNATIONAL SEGUROS S.A.
(URUGUAY)
Rincón 391, Piso 5
11100 Montevideo, Uruguay
www.berkley.com.uy
(598) 2916 6998
Eduardo I. Llobet, President
BERKLEY LATIN AMERICA AND CARIBBEAN
MANAGERS
600 Brickell Avenue, Suite 3900
Miami, Florida 33131
(305) 921 6200
Eduardo I. Llobet, President and
Chief Executive Officer
BERKLEY INSURANCE COMPANY
REPRESENTATIVE OFFICE IN COLOMBIA
Carrera 7 # 80-49, Oficina 303
Edificio Centro de Negocios El Nogal
Bogotá, Colombia
57 (1) 744 4015
Jaime Aramburo, Director
BERKLEY INSURANCE COMPANY
REPRESENTATIVE OFFICE IN MÉXICO
Avenida Santa Fe 505
Piso 17, Oficina 1702
Cruz Manca, Cuajimalpa de Morelos
05349, México
www.berkleymex.com
52 (55) 1037 5300
Hiram García, Director
BERKLEY LIFE SCIENCES
200 Princeton South Corporate Center, Suite 250
(609) 844 7800
Ewing, New Jersey 08628
www.berkleyls.com
Emily J. Urban, President
Naperville, Illinois
(609) 844 7800
BERKLEY LS INSURANCE SOLUTIONS, LLC
Walnut Creek, California
134 W. R. Berkley Corporation 2021 Annual Report
BERKLEY LUXURY GROUP
301 Route 17 North, Suite 900
Rutherford, New Jersey 07070
www.berkleyluxurygroup.com
(201) 518 2500
BERKLEY NORTH PACIFIC GROUP
660 East Watertower Street
Meridian, Idaho 83642
www.berkleynpac.com
(800) 480 2942
Maureen E. Hackett, President
Carrie H. Cheshier, President
Chicago, Illinois
(312) 881 1456
Bellevue, Washington
(877) 316 9038
BERKLEY FINE DINING SPECIALISTS
www.berkleyfinedining.com
(800) 504 7012
BERKLEY LUXURY REAL ESTATE SPECIALISTS
www.berkleyluxuryrealestate.com (800) 504 7012
BERKLEY MANAGEMENT PROTECTION
433 S. Main Street, Suite 324
West Hartford, Connecticut 06110 (959) 205 5001
www.berkleymp.com
Charles E. Thompson, President
BERKLEY MEDICAL MANAGEMENT SOLUTIONS
5400 West 110th Street, 4th Floor
Overland Park, Kansas 66211
www.berkleymms.com
(855) 444 2667
Eric-Jason Smith, Chief Operating Officer
Boston, Massachusetts
Greensboro, North Carolina
(855) 444 2667
(855) 444 2667
BERKLEY MID-ATLANTIC GROUP
4820 Lake Brook Drive, Suite 300
Glen Allen, Virginia 23060
www.wrbmag.com
(804) 285 2700
Michelle D. Middleton, President
Columbus, Ohio
Glen Allen, Virginia
Harrisburg, Pennsylvania
Pittsburgh, Pennsylvania
(800) 283 1153
(800) 283 1153
(800) 283 1153
(800) 283 1153
BERKLEY NET UNDERWRITERS
9301 Innovation Drive, Suite 200
Manassas, Virginia 20110
www.berkleynet.com
Brian P. Douglas, President
Las Vegas, Nevada
Minneapolis, Minnesota
(877) 497 2637
(877) 497 2637
BERKLEY OFFSHORE UNDERWRITING MANAGERS
757 Third Avenue, 10th Floor
New York, New York 10017
www.berkleyoffshore.com
(212) 618 2950
Frank A. Costa, President
Houston, Texas
(832) 547 2900
BERKLEY OFFSHORE UNDERWRITING
MANAGERS UK, LIMITED
Level 13, 52 Lime Street
London EC3M 7AF, United Kingdom 44 (0) 20 3943 1400
R. Christian Walker, Executive Vice President
BERKLEY OIL & GAS
2107 CityWest Boulevard, 8th Floor
Houston, Texas 77042
www.berkleyoil-gas.com
(877) 972 2264
Linda A. Eppolito, President
BERKLEY RENEWABLE ENERGY
www.berkleyrenewable.com
BERKLEY ONE
412 Mount Kemble Avenue, Suite G50
Morristown, New Jersey 07960
www.berkleyone.com
(203) 542 3301
Kathleen M. Tierney, President
BERKLEY PROFESSIONAL LIABILITY
757 Third Avenue, 10th Floor
New York, New York 10017
www.berkleypro.com
(212) 618 2900
Alpharetta, Georgia
London, United Kingdom
Schaumburg, Illinois
Toronto, Ontario
(470) 769 7312
44 (0) 20 7088 1916
(630) 237 3650
(416) 304 1178
W. R. Berkley Corporation 2021 Annual Report 135
(877) 497 2637
John R. Benedetto, President
Businesses
BERKLEY TRANSACTIONAL
412 Mount Kemble Avenue, Suite G50
Morristown, New Jersey 07960
www.berkleytransactional.com
(973) 775 7499
BERKLEY SMALL BUSINESS SOLUTIONS
433 South Main Street, Suite 300
West Hartford, Connecticut 06110 (855) 272 7555
Jeanne R. Fenster, President
Randolph Hein, President
BERKLEY SOUTHEAST INSURANCE GROUP
1745 North Brown Road, Suite 400
Lawrenceville, Georgia 30043
www.berkleysig.com
(678) 533 3400
Dennis L. Barger, President
Birmingham, Alabama
Charlotte, North Carolina
Lawrenceville, Georgia
Meridian, Mississippi
Nashville, Tennessee
(855) 610 4545
(855) 610 4545
(855) 610 4545
(855) 610 4545
(855) 610 4545
BERKLEY SURETY
412 Mount Kemble Avenue, Suite 310N
Morristown, New Jersey 07960
www.berkleysurety.com
(973) 775 5024
Andrew M. Tuma, President
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
(678) 624 1818
(610) 729 7606
(303) 357 2620
(704) 759 7065
(972) 385 1140
(978) 539 3303
(973) 775 5078
(832) 308 6893
(973) 775 5021
(630) 210 0454
(615) 514 8077
(212) 882 6390
(407) 867 4595
(415) 216 0877
(657) 356 2892
(206) 830 2565
(813) 392 5962
(416) 594 4802
(800) 456 5486
(207) 228 1922
BERKLEY PROGRAM SPECIALISTS
1250 East Diehl Road, Suite 200
Naperville, Illinois 60563
www.berkley-ps.com
(630) 210 0360
Gregory A. Douglas, President
BERKLEY EQUINE & CATTLE DIVISION
www.berkleyequine.com
230 Lexington Green Circle, Suite 215
Lexington, Kentucky 40503
(859) 300 8035
Sheila Gott, Senior Vice President and Manager
BERKLEY PUBLIC ENTITY
200 Princeton South Corporate Center, Suite 280
Ewing, New Jersey 08628
(844) 972 2736
www.berkleypublicentity.com
Scott R. Barraclough, Chief Executive Officer
Ewing, New Jersey
Morristown, New Jersey
(609) 963 3321
(973) 775 7461
BERKLEY RISK
222 South Ninth Street, Suite 2700
Minneapolis, Minnesota 55402
www.berkleyrisk.com
John M. Goodwin, President
Council Bluffs, Iowa
Denver, Colorado
Nashville, Tennessee
Scottsdale, Arizona
St. Paul, Minnesota
(612) 766 3000
(800) 832 0137
(303) 357 2600
(615) 493 7746
(602) 996 8810
(651) 281 1200
BERKLEY SELECT
550 West Jackson Boulevard, Suite 500
Chicago, Illinois 60661
www.berkleyselect.com
(312) 800 6200
Daniel R. Spragg, President
136 W. R. Berkley Corporation 2021 Annual Report
BERKLEY TECHNOLOGY UNDERWRITERS
222 South Ninth Street, Suite 2550
Minneapolis, Minnesota 55402
www.berkley-tech.com
(612) 344 4550
INTREPID DIRECT INSURANCE
5400 West 110th Street, Suite 400
Overland Park, Kansas 66211
www.intrepiddirect.com
(877) 249 7181
Matthew A. Mueller, President
Bill Strout, President
Washington, D.C.
Irvine, California
New York, New York
San Francisco, California
Atlanta, Georgia
Dallas, Texas
(571) 778 6635
(415) 216 2221
(516) 987 5901
(415) 216 2202
(404) 443 2019
(469) 458 8385
KEY RISK INSURANCE
7823 National Service Road
Greensboro, North Carolina 27409 (800) 942 0225
www.keyrisk.com
Scott A. Holbrook, President
CAROLINA CASUALTY
5011 Gate Parkway
Building 200, Suite 200
Jacksonville, Florida 32256
www.carolinacas.com
David R. Lockhart, President
(904) 363 0900
NAUTILUS INSURANCE GROUP
7233 East Butherus Drive
Scottsdale, Arizona 85260
www.nautilusinsgroup.com
Thomas Joyce, President
(480) 951 0905
BERKLEY PRIME TRANSPORTATION
433 South Main Street, Suite 300
West Hartford, Connecticut 06110 (833) 79 PRIME
www.berkleyprimetrans.com
(77463)
PREFERRED EMPLOYERS INSURANCE
9797 Aero Drive, Suite 200
San Diego, California 92123
www.peiwc.com
(888) 472 9001
David R. Lockhart, President
Dennis J. Levesque, President
CONTINENTAL WESTERN GROUP
11201 Douglas Avenue
Urbandale, Iowa 50322
www.cwgins.com
(515) 473 3500
UNION STANDARD INSURANCE GROUP
222 Las Colinas Boulevard W, Suite 1300
Irving, Texas 75039
www.usic.com
(972) 719 2400
Timothy J. Nelligan, President
John Henle, President
Denver, Colorado
Lincoln, Nebraska
Luverne, Minnesota
(800) 235 2942
(800) 235 2942
(800) 235 2942
GEMINI TRANSPORTATION UNDERWRITERS
99 Summer Street, Suite 1800
Boston, Massachusetts 02110
www.geminiunderwriters.com
(617) 310 8200
Jason R. Lewis, President
Albuquerque, New Mexico
Dallas, Texas
Little Rock, Arkansas
Oklahoma City, Oklahoma
Phoenix, Arizona
San Antonio, Texas
(800) 444 0049
(800) 444 0049
(800) 444 0049
(800) 444 0049
(800) 444 0049
(800) 444 0049
W. R. Berkley Corporation 2021 Annual Report 137
Businesses
VELA INSURANCE SERVICES
550 West Jackson Boulevard, Suite 500
Chicago, Illinois 60661
www.vela-ins.com
(877) 835 2467
BERKLEY EUROPEAN UNDERWRITERS AS
Akersgata 35-39
N-0158 Oslo, Norway
47 (0) 23272400
Ivar Pedersen, Chief Executive Officer
(804) 525 1360
BERKLEY RE
www.berkleyre.com
W/R/B UNDERWRITING
SYNDICATE 1967 AT LLOYD’S
W. R. BERKLEY UK LIMITED
Level 14, 52 Lime Street
London EC3M 7AF, United Kingdom 44 (0) 20 3943 1900
www.wrbunderwriting.com
David Brosnan, Chief Executive Officer
James Hastings, President
Reinsurance &
Monoline Excess
BERKLEY RE AMERICA
One Metro Center
1 Station Place, Suite 702
Stamford, Connecticut 06902
Daniel R. Westcott, President
BERKLEY RE AUSTRALIA
Level 7, 321 Kent Street
Sydney NSW 2000, Australia
Level 10, 340 Adelaide Street
Brisbane QLD 4000, Australia
(203) 905 4444
61 (2) 8117 2100
61 (7) 3175 0200
Glen Riddell, Chief Executive Officer,
Australia and New Zealand
Arthur G. Davis, President
Atlanta, Georgia
Chicago, Illinois
Minneapolis, Minnesota
Naperville, Illinois
New York, New York
Omaha, Nebraska
Scottsdale, Arizona
(877) 835 2467
(877) 835 2467
(877) 835 2467
(877) 835 2467
(877) 835 2467
(877) 835 2467
(877) 835 2467
VELA INSURANCE SERVICES, LLC
Los Angeles, California
Walnut Creek, California
(877) 835 2467
(877) 835 2467
VERUS SPECIALTY INSURANCE
4820 Lake Brook Drive, Suite 200
Glen Allen, Virginia 23060
www.verusins.com
Marlo M. Edwards, President
Centennial, Colorado
(303) 357 2640
W. R. BERKLEY EUROPEAN HOLDINGS AG
Genferstrasse 23
8002 Zürich, Switzerland
www.berkleyinsurance.li
Mark Talbot, Managing Director
W. R. BERKLEY EUROPE AG
Städtle 35A, P.O. Box 835
9490 Vaduz, Liechtenstein
423 237 27 47
Hans-Peter Naef, General Manager
Akersgata 35-39
N-0158 Oslo, Norway
Birger Jarlsgatan 22, 4 tr
114 34 Stockholm, Sweden
Christophstrasse 19
50670 Cologne, Germany
47 (0) 23 27 24 00
46 (8) 410 337 00
49 (0) 22199386-0
Paseo de la Castellana, 141-Planta 18
28046 Madrid, Spain
34 (0) 914492646
Level 17, 52 Lime Street
London EC3M 7AF, United Kingdom 44 (0) 2039431000
138 W. R. Berkley Corporation 2021 Annual Report
(630) 210 0360
James G. Shiel, President
BERKLEY RE ASIA
18 Cross Street
Unit 09-04, Cross Street Exchange
Singapore 048423
(65) 6671 2070
Glen Riddell, Chief Executive Officer, Asia
Room 4901, ChinaWorld Tower B
No. 1 Jian Guo MenWai Avenue
Beijing 100004, China
(86) 108 526 4826
BERKLEY RE SOLUTIONS
1250 East Diehl Road, Suite 200
Naperville, Illinois 60563
www.berkleyre.com/solutions
Gregory A. Douglas, President
Johns Creek, Georgia
Lakewood, Ohio
Philadelphia, Pennsylvania
Stamford, Connecticut
(800) 348 4229
(216) 978 1652
(800) 519 6341
(800) 974 5714
BERKLEY RE UK LIMITED
Level 17, 52 Lime Street
London EC3M 7AF, United Kingdom 44 (0) 20 3943 1000
Clare Himmer, Chief Executive Officer
MIDWEST EMPLOYERS CASUALTY
14755 North Outer Forty Drive, Suite 300
Chesterfield, Missouri 63017
www.mecasualty.com
(636) 449 7000
Timothy F. Galvin, President
Service Operations
BERKLEY CAPITAL, LLC
600 Brickell Avenue, 39th Floor
Miami, Florida 33131
Frank T. Medici, President
(786) 450 5510
BERKLEY DEAN & COMPANY, INC.
475 Steamboat Road
Greenwich, Connecticut 06830 (203) 629 3000
BERKLEY TECHNOLOGY SERVICES LLC
101 Bellevue Parkway
Wilmington, Delaware 19809
(302) 439 2000
James B. Gilbert, President
Des Moines, Iowa
(515) 564 2300
W. R. Berkley Corporation’s businesses conduct business through the
following insurance entities: Acadia Insurance Company; Admiral
Indemnity Company; Admiral Insurance Company; Berkley Argentina
de Reaseguros S.A.; Berkley Assurance Company; Berkley Casualty
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 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;
Intrepid Casualty Company; Intrepid Insurance Company; Intrepid
Specialty Insurance Company; Key Risk Insurance Company;
Midwest Employers Casualty Company; Nautilus Insurance
Company; Preferred Employers Insurance Company; Oak Harbor
Reinsurance 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 Corporation 2021 Annual Report 139
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 Officer
XL Brockbank Ltd.
Mary C. Farrell
Chairman, The Howard Gilman Foundation
Retired Managing Director, Chief Investment Strategist
UBS Wealth Management USA
María Luisa Ferré
President and Chief Executive Officer
FRG, LLC
Leigh Ann Pusey
Senior Vice President — Corporate Affairs and Communications
Eli Lilly and Company
Mark L. Shapiro
Private Investor
Jonathan Talisman
Managing Partner
Capitol Tax Partners
140 W. R. Berkley Corporation 2021 Annual Report
Officers
William R. Berkley
Executive Chairman
W. Robert Berkley, Jr.
President and Chief Executive Officer
Richard M. Baio
Executive Vice President —
Chief Financial Officer
James B. Gilbert
Executive Vice President —
Enterprise Technology
Lucille T. Sgaglione
Executive Vice President
James G. Shiel
Executive Vice President —
Investments
Philip S. Welt
Executive Vice President —
General Counsel and Secretary
Jared E. Abbey
Executive Vice President
James P. Bronner
Executive Vice President
Jeffrey M. Hafter
Executive Vice President
Robert C. Hewitt
Executive Vice President
Michael J. Maloney
Executive Vice President
William M. Rohde, Jr.
Executive Vice President
Robert W. Standen
Executive Vice President
Robert D. Stone
Executive Vice President
Joseph L. Sullivan
Executive Vice President
Nelson Tavares
Executive Vice President
Kathleen M. Tierney
Executive Vice President
Trish Conway
Senior Vice President —
Enterprise Risk Management
Melissa M. Emmendorfer
Senior Vice President —
Insurance Risk Management
Michele L. Fleckenstein
Senior Vice President —
Underwriting and Analytics
Paul J. Hancock
Senior Vice President —
Chief Corporate Actuary
Carol J. LaPunzina
Senior Vice President —
Human Resources
Edward F. Linekin
Senior Vice President —
Investments
John M. Littzi
Senior Vice President —
Deputy General Counsel and Assistant Secretary
A. Scott Mansolillo
Senior Vice President —
Chief Compliance Officer
W. R. Berkley Corporation 2021 Annual Report 141
Corporate Information
ANNUAL MEETING
The Annual Meeting of Stockholders of
W. R. Berkley Corporation will be held at 1:30 p.m.
on June 15, 2022 at its executive offices at 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
(800) 468 9716
www.shareowneronline.com
WEBSITE
For additional information, including press
releases, visit our website at: www.berkley.com
Follow us on Twitter @WRBerkleyCorp and LinkedIn.
AUDITORS
KPMG LLP, New York, New York
OUTSIDE COUNSEL
Willkie Farr & Gallagher LLP, New York, New York
142 W. R. Berkley Corporation 2021 Annual Report
Cover Illustration: Magnolia
Artist: Djordje Skendzic
www.skendzicphoto.com
The W. R. Berkley Corporation 2021 Annual Report editorial sections are printed on recycled paper made from
fiber sourced from well-managed forests and other controlled wood sources and are independently certified
to the Forest Stewardship Council® (FSC®) standards.
© Copyright 2022 W. R. Berkley Corporation. All rights reserved.
W. R. BERKLEY CORPORATION
2021 ANNUAL REPORT
“Always do right. This will
gratify some people and
astonish the rest.”
MARK TWAIN
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