W. R. Berkley (WRB) 10-Q 2006 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2006

or

o 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	22-1867895
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
475 Steamboat Road, Greenwich, Connecticut	06830
(Address of principal executive offices)	(Zip Code)

(203) 629-3000

(Registrant’s telephone number, including area code)

None

Former name, former address and former fiscal year, if changed since last report.

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.

Yesþ     Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one)

Large accelerated filerþ          Accelerated filero          Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso     Noþ

Number of shares of common stock, $.20 par value, outstanding as of August 1, 2006: 191,350,878.

TABLE OF CONTENTS

Part I — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 4. Submission of Matters To A Vote of Securities Holders
	Item 6. Exhibits
SIGNATURES
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION

Part I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

W. R. Berkley Corporation and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)

	June 30,			December 31,
	2006			2005
	(Unaudited)
Assets
Investments:
Fixed maturity securities	$	8,495,284		$	8,485,104
Equity securities available for sale		552,260			435,699
Equity securities trading account		711,481			567,760
Investments in partnerships and affiliates		385,411			321,662
Total investments		10,144,436			9,810,225
Cash and cash equivalents		783,402			672,941
Premiums and fees receivable		1,268,690			1,106,677
Due from reinsurers		951,732			954,066
Accrued investment income		105,037			101,751
Prepaid reinsurance premiums		197,792			178,621
Deferred policy acquisition costs		490,201			459,773
Real estate, furniture and equipment		183,463			169,472
Deferred Federal and foreign income taxes		193,309			132,059
Goodwill		65,759			65,759
Trading account receivable from brokers and clearing organizations		158,275			98,229
Other assets		149,820			146,714
Total assets	$	14,691,916		$	13,896,287
Liabilities and Stockholders’ Equity
Liabilities:
Reserves for losses and loss expenses	$	7,276,382		$	6,711,760
Unearned premiums		2,374,069			2,189,001
Due to reinsurers		96,686			87,652
Trading account securities sold but not yet purchased		123,737			198,426
Policyholders’ account balances		90,239			83,893
Other liabilities		584,966			618,712
Junior subordinated debentures		451,317			450,634
Senior notes and other debt		868,509			967,818
Total liabilities		11,865,905			11,307,896
Minority interest		25,188			21,314
Stockholders’ equity:
Preferred stock, par value $.10 per share:
Authorized 5,000,000 shares; issued and outstanding — none		—			—
Common stock, par value $.20 per share:
Authorized 500,000,000 shares, issued and outstanding, net of treasury shares, 191,282,355 and 191,264,346 shares		47,024			47,024
Additional paid-in capital		837,535			821,050
Retained earnings		2,185,711			1,873,953
Accumulated other comprehensive income (loss)		(33,027	)		24,903
Treasury stock, at cost, 43,835,563 and 43,858,056 shares		(236,420	)		(199,853	)
Total stockholders’ equity		2,800,823			2,567,077
Total liabilities and stockholders’ equity	$	14,691,916		$	13,896,287

See accompanying notes to interim consolidated financial statements.

1

W. R. Berkley Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(dollars in thousands, except per share data)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2006			2005			2006			2005
Revenues:
Net premiums written	$	1,217,985		$	1,135,011		$	2,496,516		$	2,323,179
Change in unearned premiums		(31,305	)		(43,138	)		(163,459	)		(191,331	)
Premiums earned		1,186,680			1,091,873			2,333,057			2,131,848
Net investment income		145,067			93,622			276,564			183,180
Service fees		26,966			28,662			53,560			58,961
Realized investment gains (losses)		(673	)		6,126			2,002			5,765
Other income		306			501			697			1,018
Total revenues		1,358,346			1,220,784			2,665,880			2,380,772
Expenses:
Losses and loss expenses		742,110			675,326			1,443,308			1,316,472
Other operating expenses		358,926			334,600			714,580			661,405
Interest expense		23,272			19,217			46,741			37,342
Total expenses		1,124,308			1,029,143			2,204,629			2,015,219
Income before income taxes and minority interest		234,038			191,641			461,251			365,553
Income tax expense		(67,883	)		(56,095	)		(132,806	)		(108,824	)
Minority interest		(703	)		(1,467	)		(1,291	)		(1,779	)
Net income	$	165,452		$	134,079		$	327,154		$	254,950
Earnings per share:
Basic	$	.86		$	.70		$	1.70		$	1.34
Diluted	$	.82		$	.67		$	1.62		$	1.28
										��

See accompanying notes to interim consolidated financial statements.

2

W. R. Berkley Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(dollars in thousands)

	For The Six Months
	Ended June 30,
	2006			2005
Common Stock:
Beginning and end of period	$	47,024		$	47,024
Additional paid in capital:
Beginning of period	$	821,050		$	805,240
Stock options exercised, including tax benefits		7,885			2,621
Restricted stock units expensed		7,031			3,942
Stock options expensed		877			67
Stock issued to Directors		692			225
End of period	$	837,535		$	812,095
Retained earnings:
Beginning of period	$	1,873,953		$	1,354,489
Net income		327,154			254,950
Dividends		(15,396	)		(12,686	)
End of period	$	2,185,711		$	1,596,753
Accumulated other comprehensive income (loss):
Unrealized investment gains (losses):
Beginning of period	$	40,746		$	109,699
Net change in period		(64,642	)		7,718
End of period		(23,896	)		117,417
Currency translation adjustments:
Beginning of period	$	(15,843	)	$	2,356
Net change in period		6,712			(10,271	)
End of period		(9,131	)		(7,915	)
Total accumulated other comprehensive income (loss):	$	(33,027	)	$	109,502
Treasury Stock:
Beginning of period	$	(199,853	)	$	(209,106	)
Stock options exercised		8,403			5,088
Stock issued to Directors		89			80
Purchase of common stock		(45,059	)		(170	)
End of period	$	(236,420	)	$	(204,108	)

See accompanying notes to interim consolidated financial statements.

3

W. R. Berkley Corporation and Subsidiaries

Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)

	For the Six Months
	Ended June 30,
	2006			2005
Cash flows provided by operating activities:
Net income	$	327,154		$	254,950
Adjustments to reconcile net income to net cash flows provided by operating activities:
Realized investment gains		(2,002	)		(5,765	)
Depreciation and amortization		33,962			30,832
Minority interest		1,291			1,779
Equity in undistributed earnings of affiliates		(12,194	)		(13,781	)
Stock incentive plans		8,689			4,314
Change in:
Equity securities trading account		(123,079	)		(251,691	)
Premiums and fees receivable		(162,013	)		(84,247	)
Due from reinsurers		2,334			(33,136	)
Accrued investment income		(3,286	)		(13,761	)
Prepaid reinsurance premiums		(19,171	)		(19,255	)
Deferred policy acquisition cost		(30,428	)		(27,760	)
Deferred income taxes		(26,549	)		(9,452	)
Trading account receivable from brokers and clearing organizations		(60,046	)		51,166
Other assets		(3,406	)		(9,158	)
Reserves for losses and loss expenses		564,622			596,079
Unearned premiums		185,068			207,835
Due to reinsurers		9,034			(14,075	)
Trading account securities sold but not yet purchased		(74,689	)		129,432
Policyholders’ account balances		(1,790	)		249
Other liabilities		(51,477	)		(52,561	)
Net cash flows provided by operating activities		562,024			741,994
Cash flows used in investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities		773,409			940,540
Equity securities		77,096			162,153
Maturities and prepayments of fixed maturities securities		473,700			632,442
Investment in affiliates		44,245			11,011
Cost of purchases, excluding trading account:
Fixed maturity securities		(1,428,745	)		(2,742,096	)
Equity securities		(163,842	)		(172,635	)
Investment in affiliates		(90,555	)		(23,936	)
Change in balances due to/from security brokers		29,608			106,831
Net additions to real estate, furniture and equipment		(28,274	)		(15,460	)
Cost of minority interest acquired		—			(28,000	)
Net cash flows used in investing activities		(313,358	)		(1,129,150	)
Cash flows (used in) provided by financing activities:
Net proceeds from issuance of senior notes		—			198,149
Receipts credited to policyholders’ account balances		8,327			7,256
Return of policyholders’ account balances		(191	)		(375	)
Bank deposits received		11,267			7,416
Advances from (repayments to) federal home loan bank		(9,500	)		5,525
Net proceeds from stock options exercised		9,016			5,260
Repayment of senior notes		(100,000	)		(40,000	)
Cash dividends		(21,768	)		(12,686	)
Stock repurchases		(45,059	)		(170	)
Other, net		9,703			(7,343	)
Net cash flows (used in) provided by financing activities		(138,205	)		163,032
Net increase in cash and cash equivalents		110,461			(224,124	)
Cash and cash equivalents at beginning of year	$	672,941		$	932,079
Cash and cash equivalents at end of period	$	783,402		$	707,955
Supplemental disclosure of cash flow information:
Interest paid	$	47,813		$	34,395
Federal income taxes paid	$	150,386		$	114,395

See accompanying notes to interim consolidated financial statements.

4

W. R. Berkley Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (unaudited)

1.GENERAL

     The accompanying consolidated financial statements should be read in conjunction with the following notes and with the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. Reclassifications have been made in the 2005 financial statements as originally reported to conform them to the presentation of the 2006 financial statements.

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

     The Company presents both basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by dividing net income by weighted average number of common shares outstanding during the year. Diluted EPS is based upon the weighted average number of common 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. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation. Per share amounts have been adjusted to reflect the 3-for-2 common stock split effected April 4, 2006.

     In the opinion of management, the financial information reflects all adjustments that are necessary for a fair presentation of financial position and results of operations for the interim periods. Seasonal weather variations and natural and man-made catastrophes can have a significant impact on the results of any one or more reporting periods.

2.RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2006, the Financial Accounting Standards Board (the “FASB”) issued interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. This new interpretation of Statement of Financial Accounting Standards (“FAS”) No. 109 establishes a new accounting model for income tax reserves and contingencies. The adoption of FIN 48 will not have a material impact on the Company’s financial condition or results of operations.

3.COMPREHENSIVE INCOME

     The following is a reconciliation of comprehensive income (dollars in thousands):

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2006			2005			2006			2005
Net income	$	165,452		$	134,079		$	327,154		$	254,950
Other comprehensive income (loss):
Change in unrealized foreign exchange gains (losses)		6,207			(2,568	)		6,712			(10,271	)
Unrealized holding gains (losses) on investment securities arising during the period, net of taxes		(36,847	)		66,115			(63,423	)		11,394
Reclassification adjustment for realized (gains) losses included in net income, net of taxes		534			(3,769	)		(1,219	)		(3,676	)
Other comprehensive income (loss)		(30,106	)		59,778			(57,930	)		(2,553	)
Comprehensive income	$	135,346		$	193,857		$	269,224		$	252,397

5

4.STOCK-BASED COMPENSATION

     Effective January 1, 2003, the Company adopted the fair value recognition provisions of FAS 123, “Accounting for Stock-Based Compensation”. The fair value provisions of FAS 123 were applied prospectively to all employee awards granted, modified, or settled on or after January 1, 2003. In December 2004, the FASB issued FAS 123R, “Share-Based Payment”, which the Company adopted on January 1, 2006. Under FAS 123R, the cost resulting from all share-based payment transactions with employees, including those awarded prior to January 1, 2003, are recognized in the financial statements using a fair-value-based measurement method. The adoption of FAS 123R resulted in an increase in pretax stock based compensation expense of $0.9 million for the six months ended June 30, 2006.

     The following table illustrates the pro forma effect on net income and earnings per share as if FAS 123R had been adopted on January 1, 2005 (dollars in thousands, except per share data).

	For the Three Months			For the Six Months
	Ended June 30,			Ended June 30,
	2005			2005
Net income, as reported	$	134,079		$	254,950
Add: Stock-based compensation expense included in reported net income, net of tax		1,300			2,606
Deduct: Total stock-based compensation expense under fair value based method for all options, net of tax		(1,780	)		(3,562	)
Pro forma net income	$	133,599		$	253,994
Earnings per share:
Basic — as reported	$	.70		$	1.34
Basic — pro forma		.70			1.34
Diluted — as reported		.67			1.28
Diluted — pro forma		.67			1.27

5.INVESTMENTS

     The cost, fair value and carrying value of fixed maturity securities and equity securities are as follows (dollars in thousands):

	Amortized			Fair			Carrying
June 30, 2006	Cost			Value			Value
Fixed maturity securities:
Held to maturity	$	235,539		$	245,477		$	235,539
Available for sale		8,361,403			8,259,745			8,259,745
Total	$	8,596,942		$	8,505,222		$	8,495,284
Equity securities available for sale	$	496,097		$	552,260		$	552,260
Trading Account:
Equity securities	$	705,245		$	711,481		$	711,481
Receivable from broker		158,275			158,275			158,275
Securities sold but not yet purchased		(121,387	)		(123,737	)		(123,737	)
Total trading account	$	742,133		$	746,019		$	746,019

6

5.INVESTMENTS (continued)

	Amortized			Fair			Carrying
December 31, 2005	Cost			Value			Value
Fixed maturity securities:
Held to maturity	$	248,322		$	264,801		$	248,322
Available for sale		8,203,039			8,236,782			8,236,782
Total	$	8,451,361		$	8,501,583		$	8,485,104
Equity securities available for sale	$	409,991		$	435,699		$	435,699
Trading Account:
Equity securities	$	560,397		$	567,760		$	567,760
Receivable from broker		98,229			98,229			98,229
Securities sold but not yet purchased		(194,765	)		(198,426	)		(198,426	)
Total trading account	$	463,861		$	467,563		$	467,563

6.REINSURANCE CEDED

     The Company reinsures a portion of its exposures principally to reduce its net liability on individual risks and to protect against catastrophic losses. Estimated amounts recoverable from reinsurers are net of reserves for uncollectible reinsurance of $2.7 million and $2.4 million as of June 30, 2006 and December 31, 2005, respectively. The following amounts arising under reinsurance ceded contracts have been deducted in arriving at the amounts reflected in the statement of income (dollars in thousands):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2006		2005		2006		2005
Ceded premiums earned	$	121,056	$	124,418	$	236,667	$	249,218
Ceded losses incurred	$	58,096	$	82,706	$	145,087	$	157,710

7.INDUSTRY SEGMENTS

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

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

     Our regional segment provides commercial insurance products to customers primarily in 38 states. Key clients of this segment are small-to-mid-sized businesses and state and local governmental entities. The regional subsidiaries are organized geographically, which provides them with the flexibility to adapt to local market conditions, while enjoying the superior administrative capabilities and financial strength of the Company. The regional operations are conducted through four geographic regions based on markets served: Midwest, New England, Southern (excluding Florida) and Mid Atlantic.

7

7.INDUSTRY SEGMENTS (continued)

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

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

     Our international segment offers professional indemnity and other lines in the U.K. and Spain, commercial and personal property casualty insurance in Argentina and Brazil and savings and endowment policies to pre-fund education costs in the Philippines.

     The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. Income tax expense and benefits are calculated based upon the Company’s effective tax rate.

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

	Revenues
											Income before
											Taxes and
	Earned		Investment								Minority			Net
(dollars in thousands)	Premiums		Income		Other			Total			Interest			Income
For the three months ended June 30, 2006:
Specialty	$	443,212	$	49,555	$	—		$	492,767		$	112,732		$	76,829
Regional		299,613		20,485		—			320,098			43,930			30,009
Alternative Markets		162,028		28,690		26,966			217,684			74,520			50,495
Reinsurance		226,307		33,326		—			259,633			34,037			24,506
International		55,520		8,187		—			63,707			10,820			6,485
Corporate and eliminations		—		4,824		306			5,130			(41,328	)		(22,338	)
Realized investment (losses)		—		—		(673	)		(673	)		(673	)		(534	)
Consolidated	$	1,186,680	$	145,067	$	26,599		$	1,358,346		$	234,038		$	165,452
For the three months ended June 30, 2005:
Specialty	$	406,301	$	31,325	$	—		$	437,626		$	80,533		$	56,577
Regional		292,037		13,611		—			305,648			48,592			33,426
Alternative Markets		161,029		19,591		28,662			209,282			55,060			38,438
Reinsurance		185,914		22,110		—			208,024			25,361			19,481
International		46,592		5,073		42			51,707			6,118			2,332
Corporate and eliminations		—		1,912		459			2,371			(30,149	)		(19,944	)
Realized investment gains		—		—		6,126			6,126			6,126			3,769
Consolidated	$	1,091,873	$	93,622	$	35,289		$	1,220,784		$	191,641		$	134,079

8

7.INDUSTRY SEGMENTS (continued)

	Revenues
									Income Before
									Taxes and
	Earned		Investment						Minority			Net
(dollars in thousands)	Premiums		Income		Other		Total		Interest			Income
For the six months ended June 30, 2006:
Specialty	$	861,457	$	93,988	$	—	$	955,445	$	219,218		$	152,266
Regional		589,575		39,253		—		628,828		98,560			68,146
Alternative Markets		324,769		54,431		53,560		432,760		141,642			97,728
Reinsurance		451,549		63,431		—		514,980		64,096			48,259
International		105,707		15,088		—		120,795		16,732			11,144
Corporate and eliminations		—		10,373		697		11,070		(80,999	)		(51,608	)
Realized investment gains		—		—		2,002		2,002		2,002			1,219
Consolidated	$	2,333,057	$	276,564	$	56,259	$	2,665,880	$	461,251		$	327,154
For the six months ended June 30, 2005:
Specialty	$	778,222	$	60,810	$	—	$	839,032	$	160,558		$	111,660
Regional		572,336		26,594		—		598,930		107,655			73,167
Alternative Markets		316,296		38,247		58,961		413,504		97,124			67,720
Reinsurance		373,767		43,581		—		417,348		45,636			34,893
International		91,227		10,373		52		101,652		10,602			4,772
Corporate and eliminations		—		3,575		966		4,541		(61,787	)		(40,938	)
Realized investment gains		—		—		5,765		5,765		5,765			3,676
Consolidated	$	2,131,848	$	183,180	$	65,744	$	2,380,772	$	365,553		$	254,950

Identifiable assets by segment are as follows (dollars in thousands):

	June 30,			December 31,
	2006			2005
Specialty	$	5,097,195		$	4,731,062
Regional		2,716,612			2,652,556
Alternative Markets		2,563,442			2,374,967
Reinsurance		4,822,237			4,506,796
International		690,120			613,634
Corporate, other and eliminations		(1,197,690	)		(982,728	)
Consolidated	$	14,691,916		$	13,896,287

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7.INDUSTRY SEGMENTS (continued)

Net premiums earned by major line of business are as follows (dollars in thousands):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2006		2005		2006		2005
Premises operations	$	193,134	$	163,219	$	367,939	$	316,229
Automobile		66,008		68,453		130,474		129,427
Products liability		68,114		58,934		130,763		113,708
Professional liability		39,268		49,464		78,662		96,213
Property		38,158		34,419		75,506		66,417
Other		38,530		31,812		78,113		56,228
Specialty		443,212		406,301		861,457		778,222
Commercial multiple peril		117,287		116,664		232,118		231,584
Automobile		86,580		84,371		170,581		165,661
Workers’ compensation		61,463		60,709		119,857		114,843
Other		34,283		30,293		67,019		60,248
Regional		299,613		292,037		589,575		572,336
Primary workers’ compensation		67,301		76,983		136,649		151,901
Excess workers’ compensation		75,052		67,314		149,714		130,817
Other		19,675		16,732		38,406		33,578
Alternative Markets		162,028		161,029		324,769		316,296
Casualty		204,399		155,178		406,192		312,357
Property		21,908		30,736		45,357		61,410
Reinsurance		226,307		185,914		451,549		373,767
International		55,520		46,592		105,707		91,227
Total	$	1,186,680	$	1,091,873	$	2,333,057	$	2,131,848

8.COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES

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

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SAFE HARBOR STATEMENT

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2006 and beyond, are based upon the Company’s 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 or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to, the cyclical nature of the property casualty industry, the long-tail and potentially volatile nature of the reinsurance business, product demand and pricing, claims development and the process of estimating reserves, the uncertain nature of damage theories and loss amounts, the increased level of our retention, natural and man-made catastrophic losses, including hurricanes and as a result of terrorist activities, the impact of competition, the success of our new ventures or acquisitions and the availability of other opportunities, the availability of reinsurance, exposure as to coverage for terrorist acts, our retention under The Terrorism Risk Insurance Act of 2002, as amended (“TRIA”), the ability of our reinsurers to pay reinsurance recoverables owed to us, investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including merger arbitrage investments, exchange rate and political risks relating to our international operations, legislative and regulatory developments, including those related to alleged anti-competitive or other improper business practices in the insurance industry, changes in the ratings assigned to us by ratings agencies, the availability of dividends from our insurance company subsidiaries, our ability to attract and retain qualified employees, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks could cause actual results of the industry or our actual results for the year 2006 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. Any projections of growth in the Company’s net premiums written and management fees would not necessarily result in commensurate levels of underwriting and operating profits. Forward-looking statements speak only as of the date on which they are made.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

     W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in five business segments: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international. The Company’s primary sources of revenues and earnings are insurance and investments.

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

     An insurer’s profitability is also affected by its investment income. The Company’s invested assets, which are derived from its own capital and cash flow from its insurance business, are invested principally in fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates and the credit quality and duration of the securities. The Company also invests in equity securities, including equity securities related to merger arbitrage and convertible arbitrage strategies.

Critical Accounting Estimates

     The following presents a discussion of accounting policies and estimates relating to reserves for losses and loss expenses and assumed premiums. 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. 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 yet reported 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.

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

     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 future trends in claims severity and frequency, judicial theories of liability and other factors, including the actions of third parties which are beyond the Company’s control. These variables are affected by internal and external events, such as inflation and economic volatility, judicial and litigation trends, reinsurance coverage and legislative changes, 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 assure 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 and are based upon an actuarially derived point estimate. The Company uses a variety of actuarial techniques and methods to derive an actuarial point estimate for each operating unit. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. In circumstances where one actuarial method is considered more credible than the others, that method is used to set the point estimate. For example, the paid loss and incurred loss development methods rely on historical paid and incurred loss data. For new lines of business, where there is insufficient history of paid and incurred claims data, or in circumstances where there have been significant changes in claim practices, the paid and incurred loss development methods would be less credible than other actuarial methods. The actuarial point estimate may also be based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” and in areas where the Company’s own data is limited. The actuarial data is analyzed by line of business, coverage and accident or policy year, as appropriate, for each operating unit.

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

     The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is written, before any actual claims experience has emerged. This expectation is a significant determinant of ultimate losses and 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 increases, loss cost trends and known

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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 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 (“IBNR”) (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, commercial multi-peril business, 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 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. For example, as of December 31, 2005, initial loss estimates for accident years 1996 through 2004 were increased by an average of 6% for lines with short reporting lags and by an average of 37% for lines with long reporting lags. For the latest accident year ended December 31, 2005, initial loss estimates were $1.6 billion for lines with short reporting lags and $0.9 billion for lines with long reporting lags.

     The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect historical changes, current trends and other factors observed. For example, in 2005 loss reserves for our commercial, transportation business were increased to reflect an observed trend of higher severity losses, and loss reserves for our California workers’ compensation business were decreased to reflect an observed trend of lower severity losses following the enactment of legislative reforms.

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     If the actual level of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on our loss estimate for claims occurring in 2005 (dollars in thousands):

	Frequency (+/-)
Severity (+/-)	1%		5%		10%
1%	$	50,866	$	153,165	$	281,014
5%		153,165		259,495		392,407
10%		281,014		392,407		531,648

     Our net reserves for losses and loss expenses of $6.4 billion as of June 30, 2006 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above.

     Approximately $1.6 billion, or 25%, of the Company’s net loss reserves relate to assumed reinsurance business. There is a higher degree of uncertainty and greater variability regarding estimates of assumed loss reserves because those estimates are based, in part, upon information received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be accurate. Furthermore, due to delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is extended. Management considers the impact of delayed reporting in its selection of assumed loss development factors.

     Information received from ceding companies is used to set initial expected loss ratios, to establish case reserves and to estimate reserves for incurred but not reported losses. 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 June 30, 2006 and December 31, 2005 (dollars in thousands):

	June 30,		December 31,
	2006		2005
Specialty	$	2,321,778	$	2,103,542
Regional		988,975		913,768
Alternative Markets		1,284,753		1,198,389
Reinsurance		1,634,165		1,496,455
International		195,946		155,136
Net reserves for losses and loss expenses		6,425,617		5,867,290
Ceded reserves for losses and loss expenses		850,765		844,470
Gross reserves for losses and loss expenses	$	7,276,382	$	6,711,760

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     Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of June 30, 2006 and December 31, 2005 (dollars in thousands):

	Reported Case		Incurred but
	Reserves		not Reported		Total
June 30, 2006
General liability	$	682,792	$	1,593,747	$	2,276,539
Workers’ compensation		654,532		850,773		1,505,305
Automobile		330,294		206,167		536,461
International		63,765		132,181		195,946
Other		104,008		173,193		277,201
Total primary		1,835,391		2,956,061		4,791,452
Reinsurance		654,738		979,427		1,634,165
Total	$	2,490,129	$	3,935,488	$	6,425,617
December 31, 2005
General liability	$	644,278	$	1,410,008	$	2,054,286
Workers’ compensation		602,855		808,207		1,411,062
Automobile		326,827		175,320		502,147
International		52,144		102,992		155,136
Other		104,803		143,401		248,204
Total primary		1,730,907		2,639,928		4,370,835
Reinsurance		686,551		809,904		1,496,455
Total	$	2,417,458	$	3,449,832	$	5,867,290

     For the six months ended June 30, 2006, the Company reported losses and loss expenses of $1.4 billion, of which $14 million represented an increase in estimates for claims occurring in prior years. The estimates for claims occurring in prior years were increased by $31 million for assumed reinsurance and decreased by $17 million for primary business. On an accident year basis, the change in prior year reserves is comprised of an increase in estimates for claims occurring in accident years prior to 2003 that was partially offset by a decrease in estimates for claims occurring in accident years 2004 and 2005.

     Case reserves for primary business increased 6% to $1.8 billion as a result of a 4% increase in the number of outstanding claims and a 2% increase in the average case reserve per claim. Reserves for incurred but not reported losses for primary business increased 12% to $3.0 billion at June 30, 2006 from $2.6 billion at December 31, 2005. Prior year reserves decreased by $25 million for the alternative markets segment and increased by $5 million and $3 million, respectively, for the regional and specialty segments. By line of business, prior year reserves decreased by $25 million and $3 million, respectively, for workers’ compensation and general liability and increased by $3 million and $8 million, respectively, for commercial automobile and property lines. The decrease in worker’s compensation prior year reserves reflects the favorable impact of workers’ compensation reforms in California on loss cost trends.

     Case reserves for reinsurance business decreased 5% to $655 million at June 30, 2006 from $687 million at December 31, 2005. Reserves for incurred but not reported losses for reinsurance business increased 21% to $979 million at June 30, 2006 from $810 million at December 31, 2005. Prior year reserves increased $31 million as losses reported by ceding companies for those years were higher than expected. The Company sets its initial loss estimates based principally upon information obtained during the underwriting process and adjusts these estimates as losses are reported by ceding companies and additional information becomes available.

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     Premium Estimates. 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 premium, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $142 million and $90 million at June 30, 2006 and December 31, 2005, respectively. The assumed premium estimates are based upon terms set forth in the reinsurance agreement, information received from ceding companies during the underwriting and negotiation of the agreement, 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 premiums to be received under its assumed reinsurance agreements.

     The Company’s policy is to recognize earned but unbilled audit premiums when they are reliably determinable. As of June 30, 2006 and December 31, 2005, the Company reported an accrual for earned but unbilled audit premiums receivable of $61 million and $47 million, respectively.

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Results of Operations for the Six Months ended June 30, 2006 and 2005

Business Segment Results

     Following is a summary of gross and net premiums written, premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the six months ended June 30, 2006 and 2005. The combined ratio represents a measure of underwriting profitability, excluding investment income. A combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.

	For the Six Months
	Ended June 30,
(Dollars in thousands)	2006			2005
Specialty
Gross premiums written	$	996,126		$	956,770
Net premiums written		943,580			906,496
Premiums earned		861,457			778,222
Loss ratio		60.3	%		62.0	%
Expense ratio		25.2	%		25.2	%
Combined ratio		85.5	%		87.2	%
Regional
Gross premiums written	$	737,147		$	723,864
Net premiums written		634,291			618,830
Premiums earned		589,575			572,336
Loss ratio		59.4	%		55.4	%
Expense ratio		30.6	%		30.4	%
Combined ratio		90.0	%		85.8	%
Alternative Markets
Gross premiums written	$	397,291		$	426,964
Net premiums written		341,131			349,448
Premiums earned		324,769			316,296
Loss ratio		53.6	%		64.3	%
Expense ratio		22.2	%		20.6	%
Combined ratio		75.8	%		84.9	%
Reinsurance
Gross premiums written	$	505,661		$	394,520
Net premiums written		478,766			370,073
Premiums earned		451,549			373,767
Loss ratio		73.6	%		68.1	%
Expense ratio		26.3	%		31.4	%
Combined ratio		99.9	%		99.5	%
International
Gross premiums written	$	115,957		$	90,784
Net premiums written		98,748			78,332
Premiums earned		105,707			91,227
Loss ratio		64.0	%		64.6	%
Expense ratio		31.7	%		30.6	%
Combined ratio		95.7	%		95.2	%
Consolidated
Gross premiums written	$	2,752,182		$	2,592,902
Net premiums written		2,496,516			2,323,179
Premiums earned		2,333,057			2,131,848
Loss ratio		61.9	%		61.8	%
Expense ratio		26.7	%		27.4	%
Combined ratio		88.6	%		89.2	%

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     The following table presents the Company’s net income and net income per share for the six months ended June 30, 2006 and 2005 (amounts in thousands, except per share data):

	2006		2005
Net income	$	327,154	$	254,950
Weighted average diluted shares		202,450		199,915
Net income per diluted share	$	1.62	$	1.28

     The increase in net income in 2006 compared with 2005 reflects higher investment income and higher profits from underwriting activity. The increase in investment income was the result of an increase in average invested assets as well as an increase in the average yield on investments. The improvement in underwriting results is attributable to a 9% increase in premiums earned and a 0.7 percentage point decrease in the expense ratio (underwriting expenses experienced as a percentage of premiums earned).

     Gross Premiums Written. Gross premiums written were $2.8 billion in 2006, up 6% from 2005. While prices increased significantly in 2002 and 2003, the Company experienced an increased level of price competition in 2004 and 2005. This trend continued in 2006 with price levels for renewal business declining approximately 1% as compared with the prior year period.

     Gross premiums for the regional and alternative markets segments include premiums written on behalf of assigned risk plans managed by the Company. The assigned risk premiums are fully reinsured by the respective state-sponsored assigned risk plans.

     A summary of gross premiums written in 2006 compared with 2005 by business segment follows:

• Specialty gross premiums increased by 4% to $996 million in 2006 from $957 million in 2005. The number of new and renewal policies issued in 2006, net of policy cancellations, increased 2%. Average prices for renewal policies, adjusted for changes in exposure, decreased 1%. Gross premiums written increased 10% for premises operations, 9% for products liability and 17% for property lines. Gross premiums written decreased 9% for professional liability lines and 11% for commercial automobile.

• Regional gross premiums increased by 2% to $737 million in 2006 from $724 million in 2005. The number of new and renewal policies issued in 2006, net of policy cancellations, decreased 3%. Average prices for renewal policies, adjusted for changes in exposure, decreased 2%. Gross premiums written increased 6% for workers’ compensation and 1% for commercial automobile. Gross premiums include assigned risk premiums of $64 million in 2006 and $67 million in 2005.

• Alternative markets gross premiums decreased by 7% to $397 million in 2006 from $427 million in 2005. Gross premiums included gross premiums for assigned risk plans of $39 million in 2006 and $57 million in 2005. Excluding the assigned risk plan premiums, alternative market’s gross premiums decreased by 3%. The number of new and renewal policies issued in 2006, net of policy cancellations, decreased 1%. Average prices for renewal policies, adjusted for changes in exposure, decreased 4%. Gross premiums written decreased 16% for primary workers’ compensation and increased 8% for excess workers’ compensation. The decline in premiums for primary workers’ compensation was primarily due to rate decreases in California.

• Reinsurance gross premiums increased by 28% to $506 million in 2006 from $395 million in 2005. Average prices for renewal business increased 2%. Casualty gross premiums written increased 33% to $419 million, and property gross premiums written increased 10% to $87 million. The 2006 premiums include $91 million related to two new medical malpractice reinsurance agreements. While these agreements contain limits on the potential amount of losses to be paid by the Company they also contain limits on the potential amount of profit to be earned by the Company.

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• International gross premiums increased by 28% to $116 million in 2006 from $91 million in 2005 due to growth in Europe and Argentina.

     Net Premiums Earned. Net premiums earned increased 9% to $2.3 billion from $2.1 billion in 2005. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2006 are related to premiums written during both 2006 and 2005. The 9% growth rate for 2006 earned premiums reflects the underlying growth in net premiums written in those years.

     Net Investment Income. Following is a summary of net investment income for the six months ended June 30, 2006 and 2005 (dollars in thousands):

							Average Annualized
	Amount						Yield
	2006			2005			2006			2005
Fixed maturity securities, including cash	$	208,639		$	150,405			4.6	%		4.0	%
Equity securities available for sale		14,446			13,295			6.4	%		6.5	%
Arbitrage trading account		37,275			8,042			11.2	%		3.8	%
Investments in partnerships and affiliates		16,965			13,781			9.0	%		11.0	%
Other		—			(102	)
Gross investment income		277,325			185,421			5.2	%		4.3	%
Investment expenses and interest on funds held		(761	)		(2,241	)
Total	$	276,564		$	183,180

     Net investment income increased 51% to $277 million in 2006 from $183 million in 2005. Average invested assets (including cash and cash equivalents) increased 24% to $10.6 billion in 2006 from $8.6 billion in 2005 as a result of cash flow from operations and financing activities during the past eighteen months. The average annualized gross yield on investments increased to 5.2% in 2006 from 4.3% in 2005 due to higher short-term interest rates and higher returns on the arbitrage trading account.

     Service Fees. The alternative markets segment offers fee-based services to help clients develop and administer self-insurance programs, primarily for workers’ compensation coverage. Service fees were $54 million in 2006, down from $59 million in 2005, primarily as a result of a decline in fees for managing assigned risk plans.

     Realized Investment Gains (Losses). Realized investment gains (losses) result primarily from sales of securities, as well as from provisions for other than temporary impairment in securities. Realized investment gains were $2 million in 2006 compared with $6 million in 2005. The Company buys and sells securities on a regular basis in order to maximize the total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions.

     Losses and Loss Expenses. Losses and loss expenses increased 10% to $1.4 billion in 2006 from $1.3 billion in 2005 due to increased premium volume. The consolidated loss ratio was 61.9% in 2006 compared with 61.8% in 2005. The 2006 loss ratio reflects an increase in the expected loss ratio for accident year 2006, offset by a decrease in prior year adverse reserve development ($14 million in 2006 compared with $70 million in 2005). A summary of loss ratios in 2006 compared with 2005 by business segment follows:

• Specialty’s loss ratio decreased to 60.3% in 2006 from 62.0% in 2005 principally due to lower prior year adverse reserve development.

• The regional loss ratio increased to 59.4% in 2006 from 55.4% in 2005. The 2006 loss ratio reflects an increase in the expected loss ratio for accident year 2006 as well as higher property losses during the period. Weather-related losses were $25 million in 2006 compared with $15 million in 2005.

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• Alternative market’s loss ratio decreased to 53.6% from 64.3% primarily as a result of the favorable reserve development related to workers’ compensation business in California.

• The reinsurance loss ratio increased to 73.6% in 2006 from 68.1% in 2005. The increase reflects the impact of higher loss ratios for the new medical malpractice reinsurance agreements referred to above, partially offset by lower prior year adverse reserve development.

• The international loss ratio decreased to 64.0% in 2006 from 64.6% in 2005 primarily as a result of lower losses for business written in Europe.

     Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses for the six months ended June 30, 2006 and 2005 (dollars in thousands):

	2006		2005
Underwriting expenses	$	623,933	$	583,289
Service expenses		45,002		47,754
Other costs and expenses		45,645		30,362
Total	$	714,580	$	661,405

     Underwriting expenses increased 7% primarily as a result of higher premium volume. Underwriting expenses are primarily comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums earned) decreased to 26.7% in 2006 from 27.4% in 2005. The decrease is primarily due to the impact of lower expense ratios for the new medical malpractice reinsurance agreements referred to above.

     Service expenses, which represent the costs associated with the alternative market’s fee-based business, decreased 6% to $45 million primarily as a result of a decrease in costs associated with the servicing of assigned risk plan business.

     Other costs and expenses, which represent primarily general and administrative expenses for the parent company, increased 50% to $46 million primarily as a result of higher incentive compensation costs.

     Interest Expense. Interest expense increased 25% to $47 million as a result of interest expense related to $200 million of 5.6% senior notes issued in May 2005 and $250 million of 6.75% junior subordinated debentures issued in July 2005. This was partially offset by a reduction in interest expense as a result of the repayment of $100 million 6.25% senior notes in January 2006.

     Income taxes. The effective income tax rate was 29% in 2006 and 30% in 2005. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.

21

Results of Operations for The Three Months ended June 30, 2006 and 2005

Business Segment Results

     Following is a summary of gross and net premiums written, premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the three months ended June 30, 2006 and 2005. The combined ratio represents a measure of underwriting profitability, excluding investment income. A combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.

	For the Three Months
	Ended June 30,
(Dollars in thousands)	2006			2005
Specialty
Gross premiums written	$	521,825		$	513,297
Net premiums written		496,017			490,557
Premiums earned		443,212			406,301
Loss ratio		60.7	%		62.6	%
Expense ratio		25.0	%		25.3	%
Combined ratio		85.7	%		87.9	%
Regional
Gross premiums written	$	372,481		$	356,491
Net premiums written		322,910			305,005
Premiums earned		299,613			292,037
Loss ratio		62.0	%		57.6	%
Expense ratio		30.2	%		30.4	%
Combined ratio		92.2	%		88.0	%
Alternative Markets
Gross premiums written	$	123,843		$	143,702
Net premiums written		102,709			116,867
Premiums earned		162,028			161,029
Loss ratio		51.8	%		60.7	%
Expense ratio		23.1	%		20.5	%
Combined ratio		74.9	%		81.2	%
Reinsurance
Gross premiums written	$	258,628		$	192,038
Net premiums written		242,957			182,529
Premiums earned		226,307			185,914
Loss ratio		74.5	%		67.2	%
Expense ratio		25.1	%		31.0	%
Combined ratio		99.6	%		98.2	%
International
Gross premiums written	$	64,570		$	44,284
Net premiums written		53,392			40,053
Premiums earned		55,520			46,592
Loss ratio		62.4	%		64.0	%
Expense ratio		30.1	%		30.2	%
Combined ratio		92.5	%		94.2	%
Consolidated
Gross premiums written	$	1,341,347		$	1,249,812
Net premiums written		1,217,985			1,135,011
Premiums earned		1,186,680			1,091,873
Loss ratio		62.5	%		61.9	%
Expense ratio		26.4	%		27.3	%
Combined ratio		88.9	%		89.2	%

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     The following table presents the Company’s net income and net income per share for the three months ended June 30, 2006 and 2005 (amounts in thousands, except per share data):

	2006		2005
Net income	$	165,452	$	134,079
Weighted average diluted shares		202,450		200,051
Net income per diluted share	$	.82	$	.67

     The increase in net income in 2006 compared with 2005 reflects higher investment income and higher profits from underwriting activity. The increase in investment income was the result of an increase in average invested assets as well as an increase in the average yield on investments. The improvement in underwriting results is attributable to a 9% increase in premiums earned and a 0.9 percentage point decrease in the expense ratio (underwriting expenses experienced as a percentage of premiums earned). These were partially offset by a 0.6 percentage point increase in the loss ratio (losses and loss expenses incurred expressed as percentage of premiums earned).

     Gross Premiums Written. Gross premiums written were $1.3 billion in 2006, up 7% from 2005. While prices increased significantly in 2002 and 2003, the Company experienced an increased level of price competition in 2004 and 2005. This trend continued in 2006 with price levels for renewal business declining approximately 2%, as compared with the prior year period.

     Gross premiums for the regional and alternative markets segments include premiums written on behalf of assigned risk plans managed by the Company. The assigned risk premiums are fully reinsured by the respective state-sponsored assigned risk plans.

     A summary of gross premiums written in 2006 compared with 2005 by business segment follows:

• Specialty gross premiums increased 2% to $522 million in 2006 from $513 million in 2005. The number of specialty policies issued in 2006 decreased 1%. Average prices for renewal policies, adjusted for changes in exposure, decreased 1%. Gross premiums written increased 8% for premises operations, 15% for products liability and 16% for property lines. Gross premiums written decreased 13% for professional liability lines and 17% for commercial automobile.

• Regional gross premiums increased by 4% to $372 million in 2006 from $356 million in 2005. The number of policies issued in 2006 was unchanged. Average prices for renewal policies, adjusted for changes in exposure, decreased 3%. Gross premiums written increased 4% for workers’ compensation, 4% for commercial multiple peril and 6% for commercial automobile. Gross premiums include assigned risk premiums of $31 million in 2006 and $32 million in 2005.

• Alternative markets gross premiums decreased by 14% to $124 million in 2006 from $144 million in 2005. Gross premiums included gross premiums for assigned risk plans of $16 million in 2006 and $20 million in 2005. Excluding the assigned risk plan premiums, alternative market’s gross premiums decreased by 13%. The number of policies issued in 2006 decreased 2%. Average prices for renewal policies, adjusted for changes in exposure, decreased 9%. Gross premiums written decreased 21% for primary workers’ compensation and increased 2% for excess workers’ compensation. The decline in premiums for primary workers’ compensation was primarily due to rate decreases in California.

• Reinsurance gross premiums increased 35% to $259 million in 2006 from $192 million in 2005. Average prices for renewal business increased 3%. Casualty gross premiums written increased 40% to $217 million, and property gross premiums written increased 11% to $42 million. The 2006 premiums include $42 million related to the new medical malpractice reinsurance agreements referred to above.

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• International gross premiums increased by 46% to $65 million in 2006 from $44 million in 2005 due to growth in Europe and Argentina.

     Net Premiums Earned. Net premiums earned increased 9% to $1.2 billion from $1.1 billion in 2005. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2006 are related to premiums written during both 2006 and 2005. The 9% growth rate for 2006 earned premiums reflects the underlying growth in net premiums written in those years.

     Net Investment Income. Following is a summary of net investment income for the three months ended June 30, 2006 and 2005 (dollars in thousands):

							Average Annualized
	Amount						Yield
	2006			2005			2006			2005
Fixed maturity securities, including cash	$	108,155		$	79,766			4.7	%		4.1	%
Equity securities available for sale		7,545			6,549			6.4	%		6.3	%
Arbitrage trading account		17,683			2,772			9.7	%		2.5	%
Investments in partnerships and affiliates		11,982			6,329			12.3	%		9.9	%
Other		—			(102	)
Gross investment income		145,365			95,314			5.4	%		4.3	%
Investment expenses and interest on funds held		(298	)		(1,692	)
Total	$	145,067		$	93,622

     Net investment income increased 55% to $145 million in 2006 from $94 million in 2005. Average invested assets (including cash and cash equivalents) increased 22% to $10.8 billion in 2006 from $8.8 billion in 2005 as a result of cash flow from operations and financing activity over the last fifteen months. The average annualized gross yield on investments increased to 5.4% in 2006 from 4.3% in 2005 due primarily to higher short-term interest rates and higher returns on the arbitrage trading account.

     Service Fees. The alternative markets segment offers fee-based services to help clients develop and administer self-insurance programs, primarily for workers’ compensation coverage. Service fees decreased to $27 million in 2006 from $29 million in 2005 primarily as a result of a decline in fees for managing assigned risk plans.

     Realized Investment Gains (Losses). Realized investment gains (losses) result primarily from sales of securities, as well as from provisions for other than temporary impairment in securities. Realized investment losses were $0.7 million in 2006 compared with realized investment gains of $6 million in 2005. The Company buys and sells securities on a regular basis in order to maximize the total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions.

     Losses and Loss Expenses. Losses and loss expenses increased 10% to $742 million in 2006 from $675 million in 2005 due to increased premium volume. The consolidated loss ratio increased to 62.5% in 2006 from 61.9% in 2005. The 2006 loss ratio reflects an increase in the expected loss ratio for accident year 2006, partially offset by a decrease in prior year adverse reserve development ($7 million in 2006 compared with $42 million in 2005). A summary of loss ratios in 2006 compared with 2005 by business segment follows:

• Specialty’s loss ratio decreased to 60.7% in 2006 from 62.6% in 2005 principally due to lower prior year adverse reserve development.

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• The regional loss ratio increased to 62.0% in 2006 from 57.6% in 2005. The 2006 loss ratio reflects an increase in the expected loss ratio for accident year 2006 as well as higher property losses during the period. Weather-related losses were $20 million in 2006 compared with $12 million in 2005.

• Alternative market’s loss ratio decreased to 51.8% from 60.7% primarily as a result of favorable reserve development related to workers’ compensation business in California.

• The reinsurance loss ratio increased to 74.5% in 2006 from 67.2% in 2005. The increase reflects the impact of higher loss ratios for the new medical malpractice reinsurance agreements referred to above, partially offset by lower prior year adverse reserve development.

• The international loss ratio decreased to 62.4% in 2006 from 64.0% in 2005 primarily as a result of lower losses for business written in Europe.

     Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses for the three months ended June 30, 2006 and 2005 (dollars in thousands):

	2006		2005
Underwriting expenses	$	313,843	$	297,538
Service expenses		21,817		23,527
Other costs and expenses		23,266		13,535
Total	$	358,926	$	334,600

     Underwriting expenses increased 5% in 2006 compared with 2005 primarily as a result of higher premium volume. Underwriting expenses are primarily comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums earned) decreased to 26.4% in 2006 from 27.3% in 2005. The decrease is primarily due to the impact of lower expense ratios for the new medical malpractice reinsurance agreements referred to above.

     Service expenses, which represent the costs associated with the alternative market’s fee-based business, decreased 7% to $22 million primarily as a result of a decrease in costs associated with the servicing of assigned risk plan business.

     Other costs and expenses, which represent primarily general and administrative expenses for the parent company, increased 72% to $23 million primarily as a result of higher incentive compensation costs.

     Interest Expense. Interest expense increased 21% to $23 million as a result of interest expense related to $200 million of 5.6% senior notes issued in May 2005 and $250 million of 6.75% junior subordinated debentures issued in July 2005. This was partially offset by a reduction of interest expense as a result of the repayment of $100 million 6.25% senior notes in January 2006.

     Income taxes. The effective income tax rate was 29% in 2006 and 2005. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.

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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 adequate to meet payment obligations. The Company also attempts to maintain an appropriate relationship between the average duration of the investment portfolio and the approximate duration of its liabilities, i.e., policy claims and debt obligations.

     The carrying value of the Company’s investment portfolio and investment-related assets as of June 30, 2006 and December 31, 2005 were as follows (dollars in thousands):

	June 30,			December 31,
	2006			2005
Fixed maturity securities	$	8,495,284		$	8,485,104
Equity securities available for sale		552,260			435,699
Equity securities trading account		711,481			567,760
Investments in partnerships and affiliates		385,411			321,662
Total investments		10,144,436			9,810,225
Cash and cash equivalents		783,402			672,941
Trading account receivable from brokers and clearing organization		158,275			98,229
Trading account securities sold but not yet purchased		(123,737	)		(198,426	)
Unsettled purchases		(34,325	)		(4,719	)
Total	$	10,928,051		$	10,378,250

     Fixed Maturities. 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, active 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. At June 30, 2006 (as compared to December 31, 2005), the fixed maturities portfolio mix was as follows: U.S. Government securities were 16% (15% in 2005); state and municipal securities were 53% (55% in 2005); corporate securities were 9% (9% in 2005); mortgage-backed securities were 18% (18% in 2005); and foreign bonds were 4% (3% in 2005).

     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 market value of the portfolio. Similarly, in a period in which management expects credit spreads to widen, the Company may sell lower quality securities, and in a period in which management expects certain foreign currencies to decline in value, the Company may sell securities denominated in those foreign currencies. The sale of fixed maturity securities in order to achieve the objective of maximizing total return may result in realized gains; however, there is no reason to expect these gains to continue in future periods.

     Equity Securities Available for Sale. Equity securities available for sale primarily represent investments in common and preferred stocks of publicly traded real estate investment trusts, banks and utilities.

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     Equity Securities Trading Account. The trading account is comprised of direct investments in arbitrage securities and investments in arbitrage-related limited partnerships that specialize in merger arbitrage and convertible arbitrage strategies. Merger arbitrage is the business of investing in the securities of publicly held companies that are the targets in announced tender offers and mergers. Convertible arbitrage is the business of investing in convertible securities with the goal of capitalizing on price differentials between these securities and their underlying equities.

     Investments in Partnerships and Affiliates. At June 30, 2006 (as compared to December 31, 2005), investments in partnerships and affiliates were as follows: equity in Kiln plc was $81 million ($74 million in 2005); real estate funds were $253 million ($160 million in 2005); fixed income relative value funds were $12 million ($52 million in 2005); and other investments were $39 million ($36 million in 2005).

     Securities in an Unrealized Loss Position. The following table summarizes all securities in an unrealized loss position at June 30, 2006 and December 31, 2005 by the length of time those securities have been continuously in an unrealized loss position:

					Gross
	Number of		Aggregate		Unrealized
(Dollars in thousands)	Securities		Fair Value		Loss
June 30, 2006
Fixed maturities:
0– 6 months		252	$	2,608,115	$	34,631
7– 12 months		216		2,461,736		72,106
Over 12 months		138		1,447,822		41,541
Total		606	$	6,517,673	$	148,278
Equity securities available for sale:
0– 6 months		37	$	144,637	$	3,200
7– 12 months		28		30,268		1,488
Over 12 months		19		121,767		3,922
Total		84	$	296,672	$	8,610
December 31, 2005
Fixed maturities:
0– 6 months		237	$	2,921,830	$	29,928
7– 12 months		65		878,549		12,124
Over 12 months		96		847,400		17,410
Total		398	$	4,647,779	$	59,462
Equity securities available for sale:
0– 6 months		38	$	45,443	$	1,221
7– 12 months		15		106,979		2,571
Over 12 months		4		11,364		609
Total		57	$	163,786	$	4,401

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     At June 30, 2006, gross unrealized gains were $130 million, or 1% of total investments, and gross unrealized losses were $157 million, or 1% of total investments. There were 401 securities that have been continuously in an unrealized loss position for more than six months. Those securities had an aggregate fair value of $4.1 billion and an aggregate unrealized loss of $119 million. The decline in market value for these securities is primarily due to an increase in market interest rates. Management regularly reviews its investment portfolio to determine whether a decline in value as a result of deterioration in the financial position or future prospects of the issuer is considered to be other than temporary. A decline is value is considered to be other than temporary where there has been a sustained reduction in market value and there are no mitigating circumstances. If a decline in value is considered other than temporary, the Company reduces the carrying value of the security and reports a realized loss on its statement of income.

Liquidity and Capital Resources

     Cash Flow. Cash flow provided from operating activities was $562 million in 2006 and $742 million in 2005. The decrease is primarily a result of higher cash transfers to the arbitrage trading account ($225 million in 2006 compared with $75 million in 2005).

     The Company’s insurance subsidiaries’ principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company targets an average duration for its investment portfolio that is within one year of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed income securities are not sufficient to fund claim payments and other cash requirements, the remainder of the Company’s cash and investments is available to pay claims and other obligations as they become due. The Company’s investment portfolio is highly liquid, with approximately 85% invested in cash, cash equivalents and marketable fixed income securities as of June 30, 2006. If the sale of fixed income 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.

     Financing Activity. At June 30, 2006, the Company had senior notes, junior subordinated debentures and other debt outstanding with a carrying value of $1,320 million and a face amount of $1,337 million. The maturities of the outstanding debt are $89 million in 2008, $150 million in 2010, $200 million in 2013, $200 million in 2015, $150 million in 2019, $76 million in 2022, $12 million in 2023 and $460 million in 2045 (of which $210 million is prepayable in 2006 and $250 million is prepayable in 2010). The Company repaid $100 million of 6.25% senior notes in January 2006.

     As of June 30, 2006, the Company has repurchased preferred securities of the W. R. Berkley Capital Trust with an aggregate principal amount of $84 million and a carrying value of $83 million. The preferred securities, which are secured by the Company’s junior subordinated debentures, are reported as investments in fixed income securities on the accompanying balance sheet and have not been deducted from the outstanding debt amounts referred to in the preceding paragraph.

     At June 30, 2006, stockholders’ equity was $2.8 billion and total capitalization (stockholders’ equity, senior notes, junior subordinated debentures and other debt) was $4.1 billion. The percentage of the Company’s capital attributable to senior notes and other debt and junior subordinated debentures was 32% at June 30, 2006, compared with 36% at December 31, 2005.

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Item 3.Quantitative and Qualitative Disclosure About Market Risk

     The Company’s market risk generally represents the risk of loss that may result from the potential change in the fair value of the Company’s investment portfolio as a result of fluctuations in prices, interest rates and currency exchange rates. The Company attempts to manage its interest rate risk by maintaining an appropriate relationship between the average duration of its investment portfolio and the approximate duration of its liabilities, i.e., policy claims and debt obligations.

     The duration of the investment portfolio increased to 3.9 years at June 30, 2006 from 3.8 years at December 31, 2005. The overall market risk relating to the Company’s portfolio has remained similar to the risk at December 31, 2005.

Item 4.Controls and Procedures

     Disclosure Controls and Procedures. The Company’s management, including its Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14 as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company has in place effective controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act and the rules there under, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

     Changes in Internal Control over Financial Reporting. During the quarter ended June 30, 2006, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A.Risk Factors

     There have been no material changes from the risk factors previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2005.

29

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

     Set forth below is a summary of the shares repurchased by the Company during the quarter and the number of shares remaining authorized for purchase by the Company.

							Maximum number of
	Total				Total number of shares		shares that may
	number of		Average price		purchased as part of		yet be purchased
	shares		paid per		publicly announced plans		under the plans
	purchased		share		or programs		or programs (1)
April 2006(2)		4,484		39.30	None			4,024,688
May 2006		12,868		36.37	None			4,024,688
June 2006		1,400,000		31.73		1,400,000		2,624,688

(1)	Remaining shares available for repurchase under the Company’s repurchase authorization of 10,125,000 shares that was approved by the Board of Directors on November 10, 1998.
(2)	On April 4, 2006 the Company purchased 4,483.5 fractional shares related to the April 4, 2006 common stock split.

Item 4.Submission of Matters To A Vote of Securities Holders

     Reference is made to Item 8.01 of the Company’s current report on Form 8-K dated May 16, 2006 and filed with the Securities and Exchange Commission on May 17, 2006, which is incorporated herein by reference.

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Item 6.Exhibits

Number
(31.1)	(Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/ 15d-14(a).
(31.2)	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/ 15d-14(a).
(32.1)	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	W. R. BERKLEY CORPORATION
Date: August 7, 2006	/s/ William R. Berkley
	William R. Berkley
	Chairman of the Board and
	Chief Executive Officer
Date: August 7, 2006	/s/ Eugene G. Ballard
	Eugene G. Ballard
	Senior Vice President,
	Chief Financial Officer and Treasurer