BERKLEY W R CORP – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

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

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

  The Company's profitability is also affected by its investment income and
investment gains. The Company's invested assets are invested principally in
fixed maturity securities. The return on fixed maturity securities is affected
primarily by general interest rates, as well as the credit quality and duration
of the securities. Returns available on fixed maturity investments have been at
low levels for an extended period.

  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 25, 2022, the Company announced that its Board of Directors approved
a 3-for-2 common stock split which was paid in the form of a stock dividend to
holders of record as of March 9, 2022. The additional shares were issued on
March 23, 2022. Shares outstanding and per share amounts in this Form 10-Q
reflect such 3-for-2 common stock split.

On March 7, 2022, the Company sold a real estate investment consisting of an
office building located in London for £718 million. The Company realized a
pretax gain of $317 million in the first quarter of 2022, before transaction
expenses and the impact of foreign currency, including the reversal of the
currency translation adjustment. The gain was $251 million after such
adjustments.

On April 1, 2022, the Company entered into a senior unsecured revolving credit
facility that provides for revolving, unsecured borrowings up to an aggregate of
$300 million. Borrowings under the facility may be used for working capital and
other general corporate purposes and must be repaid by April 1, 2027. Our
ability to utilize the facility is conditioned on the satisfaction of
representations, warranties and covenants that are customary for facilities of
this type. As of the date of this report, there were no borrowings outstanding
under the facility.

The COVID-19 pandemic, including the related impact on the U.S. and global
economies, continued to adversely affect our results of operations. For the
three months ended on March 31, 2022, the Company recorded approximately $1
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.


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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 premiums and
allowance for expected credit losses on investments. Management believes these
policies and estimates are the most critical to its operations and require the
most difficult, subjective and complex judgments.

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

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

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

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

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

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

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

  Loss frequency and severity are measures of loss activity that are considered
in determining the key assumptions described in our discussion of loss and loss
expense reserves, including expected loss ratios, rate of loss cost inflation
and reported and paid loss emergence patterns. Loss frequency is a measure of
the number of claims per unit of insured exposure, and loss severity is a
measure of the average size of claims. Factors affecting loss frequency include
the effectiveness of loss 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)                 Frequency (+/-)
                   Severity (+/-)        1%            5%             10%
                   1%                $ 98,916      $ 297,732      $  546,252
                   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 $13.2 billion
as of March 31, 2022 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
March 31, 2022 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
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frequently but tend to be larger than primary claims, which increases claim
variability. In the case of assumed reinsurance our loss reserve estimates are
based, in part, upon information received from ceding companies. If information
received from ceding companies is not timely or correct, the Company's estimate
of ultimate losses may not be accurate. Furthermore, due to delayed reporting of
claim information by ceding companies, the claim settlement tail for assumed
reinsurance is also extended. Management considers the impact of delayed
reporting and the extended tail in its selection of loss development factors for
these lines of business.

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

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

                                                      March 31,        December 31,
      (In thousands)                                     2022              2021
      Insurance                                     $ 10,336,512      $ 10,060,420
      Reinsurance & Monoline Excess                    2,842,831         

2,787,942

Net reserves for losses and loss expenses 13,179,343 12,848,362

Ceded reserves for losses and loss expenses 2,543,546 2,542,526

Gross reserves for losses and loss expenses $ 15,722,889 $ 15,390,888

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

                                           Reported Case       Incurred But         Total
(In thousands)                                Reserves         Not Reported
March 31, 2022
Other liability                           $    1,719,685      $  3,470,054      $  5,189,739
Workers' compensation (1)                      1,033,303           937,468         1,970,771
Professional liability                           478,809         1,048,942         1,527,751
Commercial automobile                            525,903           446,277           972,180
Short-tail lines (2)                             304,813           371,258           676,071
Total Insurance                                4,062,513         6,273,999        10,336,512

Reinsurance & Monoline Excess (1) (3) 1,496,676 1,346,155

       2,842,831
Total                                     $    5,559,189      $  7,620,154      $ 13,179,343

December 31, 2021
Other liability                           $    1,724,907      $  3,319,665      $  5,044,572
Workers' compensation (1)                      1,016,014           903,448         1,919,462
Professional liability                           468,680         1,019,344         1,488,024
Commercial automobile                            504,821           424,382           929,203
Short-tail lines (2)                             322,917           356,242           679,159
Total Insurance                                4,037,339         6,023,081        10,060,420

Reinsurance & Monoline Excess (1) (3) 1,475,623 1,312,319

       2,787,942
Total                                     $    5,512,962      $  7,335,400      $ 12,848,362


___________

(1) Reserves for workers' compensation and Reinsurance & Monoline Excess are net
of an aggregate net discount of $444 million and $452 million as of March 31,
2022 and December 31, 2021, 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.

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(3) Reinsurance & Monoline Excess includes property and casualty reinsurance, as
well as operations that solely retain risk on an excess basis.

  The Company evaluates reserves for losses and loss adjustment expenses on a
quarterly basis. Changes in estimates of prior year losses are reported when
such changes are made. The changes in prior year loss reserve estimates are
generally the result of ongoing analysis of recent loss development trends.
Original estimates are increased or decreased as additional information becomes
known regarding individual claims and aggregate claim trends.

  Certain of the Company's insurance and reinsurance contracts are
retrospectively rated, whereby the Company collects more or less premiums based
on the level of loss activity. For those contracts, changes in loss and loss
adjustment expenses for prior years may be fully or partially offset by
additional or return premiums.

  Net prior year development (i.e., the sum of prior year reserve changes and
prior year earned premiums changes) for the three months ended March 31, 2022
and 2021 are as follows:

       (In thousands)                                           2022         2021

Net (increase) decrease in prior year loss reserves $ (3,761) $ 859

       Increase in prior year earned premiums                   4,407       

2,595

       Net favorable prior year development                  $    646     

$ 3,454

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, 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 March 31, 2022, the Company had recognized losses for COVID-19-related
claims activity, net of reinsurance, of approximately $290 million, of which
$246 million relates to the Insurance segment and $44 million relates to the
Reinsurance & Monoline Excess segment. Such $290 million of COVID-19-related
losses included $268 million of reported losses and $22 million of IBNR. For the
three months ended March 31, 2022, the Company recognized current accident year
losses for COVID-19-related claims activity, net of reinsurance, of
approximately $1 million, which relates to the Insurance segment.

During the three months ended March 31, 2022, favorable prior year development
(net of additional and return premiums) of $1 million included $6 million of
favorable development for the Insurance segment, largely offset by $5 million of
adverse development for the Reinsurance & Monoline Excess segment.

The overall favorable development for the Insurance segment was primarily
attributable to favorable development on the 2021 accident year, largely offset
by adverse development on the 2015 through 2019 accident years. The favorable
development on the 2021 accident year was concentrated in the commercial auto
liability, other liability and accident and health (employer stop loss) lines of
business. The Company continued to experience lower reported claim frequency in
commercial auto and other liability in 2021 relative to historical averages, and
lower reported incurred losses relative to our expectations. These trends began
in 2020, and were likely caused by the impacts of the COVID-19 pandemic,
including, for example,

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lockdowns, reduced driving/traffic, significant work from home, court closures,
and similar reduced activities and travel. While reported claim frequency in
these lines increased in 2021 relative to 2020, it remained below the historical
levels pre- the start of the COVID-19 pandemic. Due to the ongoing uncertainty
regarding the ultimate impacts of the COVID-19 pandemic on accident year 2021
incurred losses, the Company remains cautious in factoring in these trends in
setting its initial loss ratio picks for this year. As accident year 2021 has
begun to mature, we have recognized some of the favorable reported experience in
our ultimate loss picks made as of March 31, 2022. The adverse development on
the 2015 through 2019 accident years is concentrated in the other liability line
of business, and to a lesser degree professional liability and commercial auto
liability. The development is driven by a larger than expected number of large
losses reported. The large losses particularly impacted the excess and surplus
lines casualty classes of business.

The overall adverse development for the Reinsurance & Monoline Excess segment
was driven mainly by adverse development in the non-proportional reinsurance
assumed liability and professional liability lines of business, largely offset
by favorable development in excess workers' compensation. Both the adverse and
favorable development was spread across many prior accident years. The adverse
development was associated primarily with our U.S. assumed reinsurance business,
and related to accounts insuring construction projects and professional
liability exposures. The favorable excess workers' compensation development was
driven by continued lower claim frequency and reported losses relative to our
expectations and to favorable claim settlements.

During the three months ended March 31, 2021, favorable prior year development
(net of additional and return premiums) of $3 million included $6 million of
favorable development for the Insurance segment, partially offset by $3 million
of adverse development for the Reinsurance & Monoline Excess segment.

The overall favorable development for the Insurance segment was primarily
attributable to favorable development on the 2020 accident year, partially
offset by adverse development on the 2016 through 2018 accident years. The
favorable development on the 2020 accident year was largely concentrated in the
commercial auto liability and other liability lines of business. During 2020,
the Company achieved larger rate increases in these lines of business than were
contemplated in its budget and initial loss ratio selections. The Company also
experienced significantly lower reported claim frequency in these lines in 2020
relative to historical averages, and lower reported incurred losses relative to
our expectations. We believe that the lower claim frequency and lower reported
incurred losses were caused by the impacts of the COVID-19 pandemic, including
for example, lockdowns, reduced driving and traffic, work from home, court
closures, etc.; however, due to the ongoing uncertainty regarding the ultimate
impacts of the pandemic on accident year 2020 incurred losses, the Company did
not adjust its reserves based on these lower trends during 2020. As of March 31,
2021, we began to recognize some of the favorable accident year 2020 experience
in certain lines in our ultimate loss picks. The adverse development on the 2016
through 2018 accident years is concentrated in the other liability line of
business, and is driven by a higher than expected number of large losses
reported. The large losses particularly impacted directors and officers
liability and excess and surplus lines casualty classes of business.

Prior year reserve development for the Reinsurance & Monoline Excess segment was
less significant during the first quarter of 2021, and consisted of small
adverse or favorable movements across many lines of business, which largely
offset each other. The largest contributor to the slight overall adverse
development for the segment was non-proportional reinsurance assumed property
business, which was impacted by higher than expected reported losses on property
per risk treaties written in the U.S. and U.K. related to accident year 2020.

Reserve Discount. The Company discounts its liabilities for certain workers'
compensation reserves. The amount of workers' compensation reserves that were
discounted was $1,336 million and $1,387 million at March 31, 2022 and
December 31, 2021, respectively. The aggregate net discount for those reserves,
after reflecting the effects of ceded reinsurance, was $444 million and $452
million at March 31, 2022 and December 31, 2021, respectively. At March 31,
2022, discount rates by year ranged from 0.7% to 6.5%, with a weighted average
discount rate of 3.4%.

  Substantially all of the workers' compensation discount (97% of total
discounted reserves at March 31, 2022) relates to excess workers' compensation
reserves. In order to properly match loss expenses with income earned on
investment securities supporting the liabilities, reserves for excess workers'
compensation business are discounted using risk-free discount rates determined
by reference to the U.S. Treasury yield curve. These rates are determined
annually based on the weighted average rate for the period. Once established, no
adjustments are made to the discount rate for that period, and any increases or
decreases in loss reserves in subsequent years are discounted at the same rate,
without regard to when any such adjustments are recognized. The expected loss
and loss expense payout patterns subject to discounting are derived from the
Company's loss payout experience.

  The Company also discounts reserves for certain other long-duration workers'
compensation reserves (representing approximately 3% of total discounted
reserves at March 31, 2022), including reserves for quota share reinsurance and
reserves related to losses regarding occupational lung disease. These reserves
are discounted at statutory rates permitted by the Department of Insurance of
the State of Delaware.
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  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
$59 million at March 31, 2022 and $60 million at December 31, 2021. The assumed
premium estimates are based upon terms set forth in reinsurance agreements,
information received from ceding companies during the underwriting and
negotiation of agreements, reports received from ceding companies and
discussions and correspondence with reinsurance intermediaries. The Company also
considers its own view of market conditions, economic trends and experience with
similar lines of business. These premium estimates represent management's best
estimate of the ultimate amount of premiums to be received under its assumed
reinsurance agreements.

Allowance for Expected Credit Losses on Investments.

  Fixed Maturity Securities - For fixed maturity securities in an unrealized
loss position where the Company intends to sell, or it is more likely than not
that it will be required to sell the security before recovery in value, the
amortized cost basis is written down to fair value through net investment gains
(losses). For fixed maturity securities in an unrealized loss position where the
Company does not intend to sell, or it is more likely than not that it will not
be required to sell the security before recovery in value, the Company evaluates
whether the decline in fair value has resulted from credit losses or all other
factors (non-credit factors). In making this assessment, the Company considers
the extent to which fair value is less than amortized cost, changes to the
rating of the security by a rating agency, and adverse conditions specifically
related to the security, among other factors. If this assessment indicates that
a credit loss exists, the present value of cash flows expected to be collected
from the security are compared to the amortized cost basis of the security. If
the present value of cash flows expected to be collected is less than the
amortized cost basis, an allowance for expected credit losses is recorded for
the credit loss through net investment gains (losses), limited by the amount
that the fair value is less than the amortized cost basis. 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 March 31, 2022 is presented in the table
below:
                        Number of        Aggregate
($ in thousands)        Securities       Fair Value       Gross Unrealized Loss
Foreign government          37          $  132,306      $                30,753
Corporate                   12              30,071                        3,158
State and municipal          1              13,583                        1,422
Mortgage-backed              7               1,785                           48
Asset-backed                 1                  37                            5
Total                       58          $  177,782      $                35,386


  As of March 31, 2022, the Company has recorded an allowance for expected
credit losses on fixed maturity securities of $27 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.

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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 $1 million and $2 million as of March 31, 2022 and
December 31, 2021, respectively.

  Fair Value Measurements. The Company's fixed maturity available for sale
securities, equity securities, and its arbitrage trading account securities are
carried at fair value. Fair value is defined as "the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date." The Company
utilizes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. Level 1 inputs
are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date. Level 2 inputs are inputs other than quoted prices included
within Level 1 that are observable for similar assets in active markets. Level 3
inputs are unobservable inputs for the asset or liability. Unobservable inputs
may only be used to measure fair value to the extent that observable inputs are
not available. The fair value of the vast majority of the Company's portfolio is
based on observable data (other than quoted prices) and, accordingly, is
classified as Level 2.

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

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

The following is a summary of pricing sources for the Company's fixed maturity
securities available for sale as of March 31, 2022:

                                       Carrying        Percent
($ in thousands)                        Value          of Total

Pricing source:
Independent pricing services $ 16,031,112 98.1 %
Syndicate manager

                         56,231          0.3
Directly by the Company based on:
Observable data                          264,611          1.6

Total                               $ 16,351,954        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 March 31, 2022, the Company did not make any
                                       36
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adjustments to the prices provided by the pricing services. Based upon the
Company's review of the methodologies used by the independent pricing services,
these securities were classified as Level 2.

  Syndicate manager - The Company has a 15% participation in a Lloyd's
syndicate, and the Company's share of the securities owned by the syndicate is
priced by the syndicate's manager. The majority of the securities are liquid,
short duration fixed maturity securities. The Company reviews the syndicate
manager's pricing methodology and audited financial statements and holds
discussions with the syndicate manager as necessary to confirm its understanding
and agreement with security prices. Based upon the Company's review of the
methodologies used by the syndicate manager, these securities were classified as
Level 2.

  Observable data - If independent pricing is not available, the Company prices
the securities directly. Prices are based on observable market data where
available, including current trading levels for similar securities and
non-binding quotations from brokers. The Company generally requests two or more
quotes. If more than one quote is received, the Company sets a price within the
range of quotes received based on its assessment of the credibility of the quote
and its own evaluation of the security. The Company generally does not adjust
quotes obtained from brokers. Since these securities were priced based on
observable data, they were classified as Level 2.

  Cash flow model - If the above methodologies are not available, the Company
prices securities using a discounted cash flow model based upon assumptions as
to prevailing credit spreads, interest rates and interest rate volatility, time
to maturity and subordination levels. Discount rates are adjusted to reflect
illiquidity where appropriate. These securities were classified as Level 3.


                                       37
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Results of Operations for the Three Months Ended March 31, 2022 and 2021

Business Segment Results

Following is a summary of gross and net premiums written, net premiums earned,
loss ratios (losses and loss expenses incurred expressed as a percentage of net
premiums earned), expense ratios (underwriting expenses expressed as a
percentage of net premiums earned) and GAAP combined ratios (sum of loss ratio
and expense ratio) for each of our business segments for the three months ended
March 31, 2022 and 2021. 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)                       2022              2021
            Insurance:
            Gross premiums written            $ 2,484,799       $ 2,140,013
            Net premiums written                2,073,291         1,739,824
            Net premiums earned                 1,962,835         1,604,979
            Loss ratio                               59.5  %           61.3  %
            Expense ratio                            28.1  %           29.3  %
            GAAP combined ratio                      87.6  %           90.6  %
            Reinsurance & Monoline Excess:
            Gross premiums written            $   375,038       $   344,699
            Net premiums written                  339,963           310,214
            Net premiums earned                   286,252           244,977
            Loss ratio                               59.9  %           56.5  %
            Expense ratio                            29.5  %           30.9  %
            GAAP combined ratio                      89.4  %           87.4  %
            Consolidated:
            Gross premiums written            $ 2,859,837       $ 2,484,712
            Net premiums written                2,413,254         2,050,038
            Net premiums earned                 2,249,087         1,849,956
            Loss ratio                               59.5  %           60.6  %
            Expense ratio                            28.3  %           29.5  %
            GAAP combined ratio                      87.8  %           90.1  %


  Net Income to Common Stockholders. The following table presents the Company's
net income to common stockholders and net income per diluted share for the three
months ended March 31, 2022 and 2021:

           (In thousands, except per share data)        2022           2021
           Net income to common stockholders         $ 590,638      $ 229,525
           Weighted average diluted shares             279,157        280,245
           Net income per diluted share              $    2.12      $    0.82


  The Company reported net income to common stockholders of $591 million in 2022
compared to $230 million in 2021. The $361 million increase in net income was
primarily due to an after-tax increase in net investment gains of $268 million
primarily due to sale of a real estate investment in London, an after-tax
increase in underwriting income of $74 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 a lower expense ratio driven by net earned premium
growth outpacing expense growth, an after-tax increase in net investment income
of $12 million primarily due to investment funds, a reduction of $8 million in
tax expense due to a change in the effective tax rate, an after-tax reduction on
debt extinguishment expense of $3 million for debt redeemed in March 2021, an
after-tax increase in profits from non-insurance businesses of $1 million, an
after-tax reduction in interest expenses of $1 million due to debt repayments at
maturity and refinancings, a less than $1 million after-tax increase of other
income and a less than $1 million after-tax increase in insurance service
income, partially offset by an after-tax increase in corporate expenses of $7
million mainly due to increased incentive compensation costs and an after-tax
decrease in foreign currency gains of $1 million. The number of weighted average
diluted shares decreased by 1.1 million for 2022 compared to 2021, mainly
reflecting shares repurchased in 2021.


                                       38
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  Premiums. Gross premiums written were $2,860 million in 2022, an increase of
15% from $2,485 million in 2021. The increase was due to a $345 million increase
in the Insurance segment and a $30 million increase in the Reinsurance &
Monoline Excess segment. Approximately 82% of premiums expiring in 2022 were
renewed, and 81% of premiums expiring in 2021 were renewed.

Average renewal premium rates for insurance and facultative reinsurance
increased 7.2% in 2022 when adjusted for changes in exposures, and increased
8.3% excluding workers' compensation.

A summary of gross premiums written in 2022 compared with 2021 by line of
business within each business segment follows:

•Insurance - gross premiums increased 16% to $2,485 million in 2022 from $2,140
million in 2021. Gross premiums increased $158 million (20%) for other
liability, $84 million (17%) for short-tail lines, $51 million (16%) for
professional liability, $34 million (13%) for commercial auto and $18 million
(6%) for workers' compensation.

•Reinsurance & Monoline Excess - gross premiums increased 9% to $375 million in
2022 from $345 million in 2021. Gross premiums increased $25 million (13%) for
casualty reinsurance and $6 million (6%) for monoline excess and decreased by
less than $1 million (1%) for property reinsurance.

Net premiums written were $2,413 million in 2022, an increase of 18% from
$2,050 million in 2021 due in part to our decision to retain more business.
Ceded reinsurance premiums as a percentage of gross written premiums were 16% in
2022 and 17% in 2021.

  Premiums earned increased 22% to $2,249 million in 2022 from $1,850 million in
2021. 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 2022 are related to
business written during both 2022 and 2021. Audit premiums were $70 million in
2022 compared with $35 million in 2021.

Net Investment Income. Following is a summary of net investment income for the
three months ended March 31, 2022 and 2021:

                                                                                                   Average Annualized
                                                          Amount                                         Yield
($ in thousands)                                  2022               2021                      2022                       2021
Fixed maturity securities, including cash and
cash equivalents and loans receivable         $ 101,284          $  94,677                              2.2  %                2.2  %
Investment funds                                 52,012             38,935                             13.7                  11.6
Arbitrage trading account                         9,187             19,074                              3.1                  16.1
Equity securities                                10,856              6,180                              4.7                   4.7
Real estate                                       2,146              1,161                              0.5                   0.2
Gross investment income                         175,485            160,027                              3.0                   3.0
Investment expenses                              (1,973)            (1,450)                               -                     -
Total                                         $ 173,512          $ 158,577                              2.9  %                3.0  %


  Net investment income increased 9% to $174 million in 2022 from $159 million
in 2021 due primarily to a $13 million increase in income from investment funds
primarily from financial services and real estate funds, a $7 million increase
in income from fixed maturity securities mainly driven by increased investment
in bonds, a $5 million increase from equity securities and a $1 million increase
in real estate, partially offset by a $10 million decrease from the arbitrage
trading account and a $1 million increase in investment expenses. The Company
maintained the short 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 $23.7 billion in 2022 and $21.3 billion in 2021.

  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 $28 million in 2022 from $26 million in 2021, mainly due to the
business recovery from the pandemic.

  Net Realized and Unrealized Gains (Losses) on Investments. The Company buys
and sells securities and other investment assets on a regular basis in order to
maximize its total return on investments. Decisions to sell securities and other
investment assets are based on management's view of the underlying fundamentals
of specific investments as well as
                                       39
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management's expectations regarding interest rates, credit spreads, currency
values and general economic conditions. Net realized and unrealized gains on
investments were $370 million in 2022 compared with net gains of $52 million in
2021. The gains of $370 million in 2022 reflected net realized gains on
investments of $277 million (primarily a $251 million net gain from the sale of
a real estate investment in London after transaction expenses and the foreign
currency impact, including the reversal of the currency translation adjustment),
and an increase in unrealized gains on equity securities of $93 million. In
2021, the net gains of $52 million reflected net realized gains on investment
sales of $76 million (primarily due to the sale of certain real estate assets
and the disposition of an investment fund) and an increase in unrealized losses
on equity securities of $24 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
three months ended March 31, 2022, the pre-tax change in allowance for expected
credit losses on investments increased by $4 million ($3 million after-tax),
which is reflected in net investment gains (losses), primarily due to change in
estimate. For the three months ended March 31, 2021, the pre-tax change in
allowance for expected credit losses on investments decreased by $17 million
($13 million after-tax), which is reflected in net investment gains (losses),
primarily related to foreign government securities which did not previously have
an allowance.

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 $98 million in
2022 and $87 million in 2021. The increase mainly relates to the business
recovery from COVID-19 on promotional merchandise and textile businesses.

  Losses and Loss Expenses. Losses and loss expenses increased to $1,339 million
in 2022 from $1,122 million in 2021. The consolidated loss ratio was 59.5% in
2022 and 60.6% in 2021. Catastrophe losses, net of reinsurance recoveries, were
$29 million (including current accident year losses of approximately $1 million
related to COVID-19) in 2022 and $36 million (including losses of approximately
$15 million related to COVID-19) in 2021. Favorable prior year reserve
development (net of premium offsets) was $1 million in 2022 and $3 million in
2021. The loss ratio excluding catastrophe losses and prior year reserve
development was 58.3% in 2022 and 58.9% in 2021.

A summary of loss ratios in 2022 compared with 2021 by business segment
follows:

•Insurance - The loss ratio was 59.5% in 2022 and 61.3% in 2021. Catastrophe
losses were $11 million in 2022 compared with $33 million in 2021. The Company
reflected a best estimate (net of reinsurance) based upon available information
for current accident year COVID-19-related losses of approximately $1 million.
Favorable prior year reserve development was $6 million in both 2022 and 2021.
The loss ratio excluding catastrophe losses and prior year reserve development
was 59.3% in 2022 and 59.7% in 2021.

•Reinsurance & Monoline Excess - The loss ratio was 59.9% in 2022 and 56.5% in
2021. Catastrophe losses were $18 million in 2022 compared with $3 million in
2021. Adverse prior year reserve development was $5 million in 2022 and $3
million in 2021. The loss ratio excluding catastrophe losses and prior year
reserve development decreased 2.6 points to 51.7% in 2022 from 54.3% in 2021.

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

     ($ in thousands)                                         2022           2021

Policy acquisition and insurance operating expenses $ 635,453 $ 545,750

     Insurance service expenses                               22,466       

20,786

     Net foreign currency gains                               (4,168)      

(5,594)

     Debt extinguishment costs                                     -       

3,617

     Other costs and expenses                                 60,148       

 51,709
     Total                                                 $ 713,899      $ 616,268


  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 16% and net premiums earned increased 22% from 2021. The expense ratio
(underwriting expenses expressed as a percentage of net premiums earned) was
28.3% in 2022 and 29.5% in 2021. The improvement is primarily attributable to
higher net premiums earned outpacing compensation expense growth. However, to
the extent our net premiums earned decrease or
                                       40
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travel and entertainment expenses increase, due to the impact of the COVID-19
pandemic or otherwise, our expense ratio would be expected to increase.

Service expenses, which represent the costs associated with the fee-based
businesses, were $22 million in 2022 and $21 million in 2021.

  Net foreign currency gains result from transactions denominated in a currency
other than a company's operating functional currency. Net foreign currency gains
were $4 million in 2022 compared to $6 million in 2021. The reduction in gains
is primarily related to less strengthening of U.S. dollar compared to the
Argentine peso and U.K. sterling in 2022 versus 2021.

Debt extinguishment costs of $4 million in 2021 related to the redemption of
subordinated debentures that were due in 2056.

  Other costs and expenses represent general and administrative expenses of the
parent company and other expenses not allocated to business segments, including
the cost of certain long-term incentive plans and new business ventures. Other
costs and expenses increased to $60 million in 2022 from $52 million in 2021,
primarily due to the increase in performance-based compensation costs in 2022.

  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 $95 million in 2022 compared to $86
million in 2021. The increase mainly relates to the business recovery from
COVID-19 on promotional merchandise and textile businesses.

Interest Expense. Interest expense was $35 million in 2022 and $37 million in
2021. 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.

In the first quarter of 2022, the Company repaid at maturity its $77 million
aggregate principal amount of 8.7% senior notes in January and its $350 million
aggregate principal amount of 4.625% senior notes in March. The above
redemptions during the three months ended March 31, 2021 resulted in debt
extinguishment costs of $4 million. 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 maturity and redemption of senior notes and debentures and issuance of
additional senior notes and debentures in 2022 and 2021 are expected to decrease
interest expense in 2022 and forward.

Income Taxes. The effective income tax rate was 19.0% and 21.7% for the three
months ended March 31, 2022 and 2021, respectively. The lower effective income
tax rate for the three months ended March 31, 2022, compared to the year earlier
period, was primarily due to a net reduction to the Company's valuation
allowance against foreign tax credits and foreign net operating losses.

The Company has not provided U.S. deferred income taxes on the undistributed
earnings of approximately $120.6 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.

                                       41

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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
average duration of the investment portfolio and the approximate duration of its
liabilities (i.e., policy claims and debt obligations). The average duration of
the fixed maturity portfolio, including cash and cash equivalents, was 2.4 years
at both March 31, 2022 and December 31, 2021. The Company's fixed maturity
investment portfolio and investment-related assets as of March 31, 2022 were as
follows:

                                                         Carrying        Percent
($ in thousands)                                          Value          of Total
Fixed maturity securities:
U.S. government and government agencies               $    818,848          3.5  %
State and municipal:
Special revenue                                          1,935,528          8.2
State general obligation                                   424,590          1.8
Local general obligation                                   416,167          1.8
Pre-refunded (1)                                           177,371          0.8
Corporate backed                                           172,005          0.7
Total state and municipal                                3,125,661         13.3
Mortgage-backed:
Agency                                                     874,067          3.7
Commercial                                                 263,501          1.1
Residential-Prime                                          246,852          1.0
Residential-Alt A                                            4,771            -
Total mortgage-backed                                    1,389,191          5.8
Asset-backed                                             4,257,421         18.0
Corporate:
Industrial                                               3,270,804         13.8
Financial                                                1,706,732          7.2
Utilities                                                  409,726          1.7
Other                                                      201,245          0.9
Total corporate                                          5,588,507         23.6

Foreign government and foreign government agencies 1,246,568 5.3
Total fixed maturity securities

                         16,426,196         69.5
Equity securities:
Common stocks                                              883,317          3.7
Preferred stocks                                           243,174          1.0
Total equity securities                                  1,126,491          4.7
Cash and cash equivalents (2)                            1,980,346          8.4
Investment funds                                         1,544,856          6.5
Real estate                                              1,276,157          5.4
Arbitrage trading account                                1,188,910          5.0
Loans receivable                                           115,097          0.5
Total investments                                     $ 23,658,053        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.
(2) Cash and cash equivalents includes trading accounts receivable from brokers
and clearing organizations, trading account securities sold but not yet
purchased and unsettled purchases.


                                       42
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Fixed Maturity Securities. The Company's investment policy with respect to fixed
maturity securities is generally to purchase instruments with the expectation of
holding them to their maturity. However, management of the available for sale
portfolio is considered necessary to maintain an approximate matching of assets
and liabilities as well as to adjust the portfolio as a result of changes in
financial market conditions and tax considerations.

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

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

Investment Funds. At March 31, 2022, the carrying value of investment funds was
$1,546 million, including investments in financial services funds of $455
million, transportation funds of $341 million, real estate funds of $284
million, other funds of $330 million (which includes a deferred compensation
trust asset of $32 million) and energy funds of $136 million. Investment funds
are generally reported on a one-quarter lag.

Real Estate. Real estate is directly owned property held for investment. At
March 31, 2022, real estate properties in operation included a long-term ground
lease in Washington D.C., an office complex in New York City 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. As described above, during
the first quarter of 2022, the Company sold an office building in London.

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

Loans Receivable. Loans receivable, which are carried at amortized cost (net of
allowance for expected credit losses), had an amortized cost of $115 million and
an aggregate fair value of $116 million at March 31, 2022. The amortized cost of
loans receivable is net of an allowance for expected credit losses of $1 million
as of March 31, 2022. 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.

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 March 31, 2022 and December 31,
2021.

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.

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Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities increased to $478
million in the first three months of 2022 from $311 million in the first three
months of 2021, primarily due to an increase in premium receipts partially
offset by higher loss and loss expense payments.

  The Company's insurance subsidiaries' principal sources of cash are premiums,
investment income, service fees and proceeds from sales and maturities of
portfolio investments. The principal uses of cash are payments for claims,
taxes, operating expenses and dividends. The Company expects its insurance
subsidiaries to fund the payment of losses with cash received from premiums,
investment income and fees. The Company generally targets an average duration
for its investment portfolio that is within 1.5 years of the average duration of
its liabilities so that portions of its investment portfolio mature throughout
the claim cycle and are available for the payment of claims if necessary. In the
event operating cash flow and proceeds from maturities and prepayments of fixed
income securities are not sufficient to fund claim payments and other cash
requirements, the remainder of the Company's cash and investments is available
to pay claims and other obligations as they become due. The Company's investment
portfolio is highly liquid, with approximately 77.9% invested in cash, cash
equivalents and marketable fixed maturity securities as of March 31, 2022. 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 March 31, 2022, the Company had senior notes, subordinated debentures
and other debt outstanding with a carrying value of $2,842 million and a face
amount of $2,867 million. In the first quarter 2022, the Company repaid at
maturity its $77 million aggregate principal amount of 8.7% senior notes in
January and its $350 million aggregate principal amount of 4.625% senior notes
in March. The maturities of the outstanding debt are $7 million in 2024, $5
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.

On April 1, 2022, the Company entered into a senior unsecured revolving credit
facility that provides for revolving, unsecured borrowings up to an aggregate of
$300 million with a $50 million sublimit for letters of credit. The Company may
increase the amount available under the facility to a maximum of $500 million
subject to obtaining lender commitments for the increase and other customary
conditions. Borrowings under the facility may be used for working capital and
other general corporate purposes. All borrowings under the facility must be
repaid by April 1, 2027, except that letters of credit outstanding on that date
may remain outstanding until April 1, 2028 (or such later date approved by all
lenders). Our ability to utilize the facility is conditioned on the satisfaction
of representations, warranties and covenants that are customary for facilities
of this type. As of the date of this report, there were no borrowings
outstanding under the facility.

  Equity. At March 31, 2022, total common stockholders' equity was $6.9 billion,
common shares outstanding were 265,186,251 and stockholders' equity per
outstanding share was $25.89. During the three months ended March 31, 2022, the
Company did not repurchase any shares of its common stock. In the first quarter
of 2022, the board of directors of the Company declared a regular quarterly cash
dividend of $0.09 cents per share. The number of common shares outstanding
excludes shares held in a grantor trust established by the Company for delivery
upon settlement of vested but mandatorily deferred RSUs.

  Total Capital. Total capitalization (equity, debt and subordinated debentures)
was $9.7 billion at March 31, 2022. The percentage of the Company's capital
attributable to senior notes, subordinated debentures and other debt was 29% at
March 31, 2022, down from 33% at December 31, 2021.


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