W. R. Berkley (WRB) 10-Q 2008 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, 2008

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 incorporation or organization)	(I.R.S. Employer 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþ  Accelerated filero  Non-accelerated filer  o
(Do not check if a smaller reporting company) Smaller Reporting Companyo 

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, 2008: 162,866,562.

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 Security 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,
	2008			2007
	(Unaudited)
Assets
Investments:
Fixed maturity securities	$	9,814,839		$	9,840,291
Equity securities available for sale		728,526			726,562
Arbitrage trading account		252,981			301,786
Investment in arbitrage funds		218,677			210,740
Partnerships and affiliates		500,351			545,937
Loans receivable		268,249			268,206
Total investments		11,783,623			11,893,522
Cash and cash equivalents		614,700			951,863
Premiums and fees receivable		1,243,089			1,199,002
Due from reinsurers		879,867			904,509
Accrued investment income		137,293			134,872
Prepaid reinsurance premiums		192,681			179,495
Deferred policy acquisition costs		453,610			455,244
Real estate, furniture and equipment		219,376			204,252
Deferred Federal and foreign income taxes		261,442			186,669
Goodwill		106,461			102,462
Trading account receivable from brokers and clearing organizations		402,399			409,926
Other assets		252,966			210,354
Total assets	$	16,547,507		$	16,832,170
Liabilities and Stockholders’ Equity
Liabilities:
Reserves for losses and loss expenses	$	8,910,469		$	8,678,034
Unearned premiums		2,205,410			2,240,690
Due to reinsurers		112,918			108,178
Trading account securities sold but not yet purchased		56,445			67,139
Other liabilities		709,199			761,690
Junior subordinated debentures		249,482			249,375
Senior notes and other debt		1,021,668			1,121,793
Total liabilities		13,265,591			13,226,899
Minority interest		5,178			35,496
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, 163,869,101 and 180,320,775 shares		47,024			47,024
Additional paid-in capital		912,924			907,016
Retained earnings		3,498,901			3,248,762
Accumulated other comprehensive income (loss)		(29,220	)		53,201
Treasury stock, at cost, 71,248,817 and 54,797,143 shares		(1,152,891	)		(686,228	)
Total stockholders’ equity		3,276,738			3,569,775
Total liabilities and stockholders’ equity	$	16,547,507		$	16,832,170

See accompanying notes to interim consolidated financial statements.

1

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

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2008			2007			2008			2007
Revenues:
Net premiums written	$	991,549		$	1,136,764		$	2,149,114		$	2,391,536
Change in unearned premiums		83,162			34,876			49,906			(64,963	)
Net premiums earned		1,074,711			1,171,640			2,199,020			2,326,573
Net investment income		153,939			168,943			298,436			334,364
Insurance service fees		24,761			25,343			51,873			51,336
Realized investment gains (losses)		(82,163	)		5,280			(28,137	)		12,670
Revenue from wholly-owned investees		27,131			14,684			52,019			19,488
Other income		760			693			1,132			1,173
Total revenues		1,199,139			1,386,583			2,574,343			2,745,604
Operating costs and expenses:
Losses and loss expenses		679,703			703,669			1,362,744			1,388,816
Other operating costs and expenses		376,249			376,604			756,422			757,225
Expenses from wholly-owned investees		26,343			13,187			51,278			17,797
Interest expense		21,396			22,700			44,140			43,400
Total expenses		1,103,691			1,116,160			2,214,584			2,207,238
Income before income taxes and minority interest		95,448			270,423			359,759			538,366
Income tax expense		(15,173	)		(79,376	)		(90,879	)		(158,511	)
Minority interest		(18	)		(414	)		(185	)		(796	)
Net income	$	80,257		$	190,633		$	268,695		$	379,059
Earnings per share:
Basic	$	.48		$	.98		$	1.56		$	1.96
Diluted	$	.46		$	.93		$	1.50		$	1.86
Average shares outstanding:
Basic		167,172			194,345			171,935			193,775
Diluted		173,684			203,922			178,723			203,930

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,
	2008			2007
Common stock:
Beginning and end of period	$	47,024		$	47,024
Additional paid in capital:
Beginning of period	$	907,016		$	859,787
Stock options exercised, including tax benefits		(7,045	)		26,967
Restricted stock units expensed		12,662			9,046
Stock options expensed		121			396
Stock issued to directors		170			384
End of period	$	912,924		$	896,580
Retained earnings:
Beginning of period	$	3,248,762		$	2,542,744
Net income		268,695			379,059
Dividends		(18,556	)		(19,436	)
End of period	$	3,498,901		$	2,902,367
Accumulated other comprehensive income (loss), net of tax:
Unrealized investment gains (losses):
Beginning of period	$	52,497		$	121,961
Net change in period		(88,365	)		(91,829	)
End of period		(35,868	)		30,132
Currency translation adjustments:
Beginning of period		18,060			3,748
Net change in period		4,956			12,543
End of period		23,016			16,291
Net pension asset:
Beginning of period		(17,356	)		(14,096	)
Net change in period		988			617
End of period		(16,368	)		(13,479	)
Total accumulated other comprehensive income (loss)	$	(29,220	)	$	32,944
Treasury stock:
Beginning of period	$	(686,228	)	$	(226,009	)
Stock repurchased		(489,999	)		(105,155	)
Stock options exercised		22,968			23,309
Stock issued to directors		368			117
End of period	$	(1,152,891	)	$	(307,738	)

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,
	2008			2007
Cash from operating activities:
Net income	$	268,695		$	379,059
Adjustments to reconcile net income to net cash flows from operating activities:
Realized investment gains (losses)		28,137			(12,670	)
Depreciation and amortization		41,474			41,782
Minority interest		185			796
Equity in undistributed earnings of partnerships and affiliates		4,097			(18,478	)
Stock incentive plans		13,396			10,140
Change in:
Arbitrage trading account		48,805			(361,321	)
Investment in arbitrage funds		(7,937	)		(16,387	)
Trading account receivable from brokers and clearing organizations		7,527			249,423
Trading account securities sold but not yet purchased		(10,694	)		86,766
Premiums and fees receivable		(42,801	)		(101,538	)
Due from reinsurers		25,158			16,641
Accrued investment income		(2,390	)		(11,202	)
Prepaid reinsurance premiums		(12,162	)		(28,346	)
Deferred policy acquisition costs		2,188			(19,235	)
Deferred income taxes		(27,332	)		6,724
Other assets		(7,844	)		(5,730	)
Reserves for losses and loss expenses		227,737			418,641
Unearned premiums		(36,861	)		93,114
Due to reinsurers		3,993			(31,531	)
Other liabilities		(118,044	)		(59,433	)
Net cash from operating activities		405,327			637,215
Cash used in investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities		1,708,012			1,134,887
Equity securities		61,989			251,648
Distributions from partnerships and affiliates		177,790			79,234
Proceeds from maturities and prepayments of fixed maturity securities		810,372			984,504
Cost of purchases, excluding trading account:
Fixed maturity securities and loans receivable		(2,672,039	)		(2,881,135	)
Equity securities		(112,706	)		(278,448	)
Investments in partnerships and affiliates		(85,729	)		(38,102	)
Change in balances due to/from security brokers		18,139			26,722
Net additions to real estate, furniture and equipment		(20,829	)		(15,282	)
Payment for business purchased, net of cash acquired		(46,330	)		(20,173	)
Proceeds from sale of business, net of cash divested		—			(2,061	)
Net cash used in investing activities		(161,331	)		(758,206	)
Cash flows (used in) from financing activities:
Purchase of common shares		(489,999	)		(105,155	)
Proceeds from issuance of senior notes		—			246,295
Repayment of senior notes		(102,298	)		—
Bank deposits received		13,137			16,676
Advances from (repayments to) Federal Home Loan Bank		1,650			(2,075	)
Net proceeds from stock options exercised		11,292			22,884
Cash dividends to common stockholders		(17,647	)		(17,366	)
Other, net		434			(30	)
Net cash (used in) from financing activities		(583,431	)		161,229
Net impact on cash due to foreign exchange rates		2,272			7,508
Net increase (decrease) in cash and cash equivalents		(337,163	)		47,746
Cash and cash equivalents at beginning of year		951,863			754,247
Cash and cash equivalents at end of period	$	614,700		$	801,993
Supplemental disclosure of cash flow information:
Interest paid	$	44,445		$	36,081
Federal income taxes paid, net	$	155,624		$	154,139

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 interim 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, 2007. Reclassifications have been made in the 2007 financial statements as originally reported to conform them to the presentation of the 2008 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 period. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the period 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.

     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. COMPREHENSIVE INCOME (LOSS)

     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,
	2008			2007			2008			2007
Net income	$	80,257		$	190,633		$	268,695		$	379,059
Other comprehensive income (loss):
Change in unrealized foreign exchange gains		5,908			6,460			4,956			12,543
Unrealized holding gains (losses) on investment securities arising during the period, net of taxes		(124,364	)		(82,936	)		(106,673	)		(83,616	)
Reclassification adjustment for realized gains (losses) included in net income, net of taxes		53,420			(3,417	)		18,308			(8,213	)
Change in unrecognized pension obligation, net of income taxes		495			309			988			617
Other comprehensive loss		(64,541	)		(79,584	)		(82,421	)		(78,669	)
Comprehensive income	$	15,716		$	111,049		$	186,274		$	300,390

5

3.INVESTMENTS

     At June 30, 2008 and December 31, 2007, investments in fixed maturity securities and equity securities available for sale were as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
June 30, 2008
Fixed maturity securities
Held to maturity	$	127,376	$	8,433	$	(40	)	$	135,769
Available for sale		9,707,567		106,391		(126,495	)		9,687,463
Equity securities		766,173		48,158		(85,805	)		728,526
Total	$	11,601,116	$	162,982	$	(212,340	)	$	10,551,758
December 31, 2007
Fixed maturity securities
Held to maturity	$	130,111	$	12,179	$	(64	)	$	142,226
Available for sale		9,602,984		140,419		(33,223	)		9,710,180
Equity securities		771,273		56,650		(101,361	)		726,562
Total	$	10,504,368	$	209,248	$	(134,648	)	$	10,578,968

     The following table summarizes all securities in an unrealized loss position at June 30, 2008 and December 31, 2007 by the length of time those securities have been continuously in an unrealized loss position (dollars in thousands):

	Less Than 12 Months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
June 30, 2008
U.S. government and agency	$	220,567	$	3,496	$	47,427	$	917	$	267,994	$	4,413
State and municipal		1,717,674		33,927		646,156		22,632		2,363,830		56,559
Mortgage-backed securities		457,897		22,321		353,617		11,654		811,514		33,975
Corporate		288,505		18,381		309,261		10,264		597,766		28,645
Foreign		215,937		2,943		—		—		215,937		2,943
Fixed maturity securities		2,900,580		81,068		1,356,461		45,467		4,257,041		126,535
Equity securities		339,615		74,120		89,231		11,685		428,845		85,805
Total	$	3,240,195	$	155,188	$	1,445,692	$	57,152	$	4,685,886	$	212,340
December 31, 2007
U.S. government and agency	$	28,059	$	160	$	16,770	$	989	$	44,829	$	1,149
State and municipal		439,307		6,711		517,768		5,808		957,075		12,519
Mortgage-backed securities		212,769		3,040		488,392		6,242		701,161		9,282
Corporate		169,732		4,940		262,731		4,406		432,463		9,346
Foreign		57,129		985		14,807		6		71,936		991
Fixed maturity securities		906,996		15,836		1,300,468		17,451		2,207,464		33,287
Equity securities		465,933		94,188		39,600		7,173		505,533		101,361
Total	$	1,372,929	$	110,024	$	1,340,068	$	24,624	$	2,712,997	$	134,648

     For the six months ended June 30, 2008, impairment charges included in realized investment gains (losses) were $101 million, including $92 million for equity securities and $9 million for a private equity investment.

6

4.FAIR VALUE MEASUREMENTS

     On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), which was issued by the Financial Accounting Standards Board in September 2006. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The adoption of FAS 157 did not have a material impact on the Company’s financial condition or results of operations.

     FAS 157 establishes 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 the asset or liability, either directly or indirectly. 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.

     Because many fixed income 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, 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 table presents the assets and liabilities measured at fair value on a recurring basis as of June 30, 2008 by level (dollars in thousands):

	Total		Level 1		Level 2		Level 3
Assets:
Fixed maturity securities available for sale	$	9,687,463	$	—	$	9,508,691	$	178,772
Equity securities available for sale		728,526		79,807		542,200		106,519
Arbitrage trading account		252,981		196,889		54,439		1,653
Total assets	$	10,668,970	$	276,696	$	10,105,330	$	286,944
Liabilities:
Securities sold but not yet purchased	$	56,445	$	56,445	$	—	$	—

7

     The following table summarizes changes in Level 3 assets (dollars in thousands):

							Equity
							Securities		Arbitrage
				Fixed			Available		Trading
	Total			Maturities			for Sale		Account
Balance as of January 1, 2008	$	90,918		$	23,725		$	62,911	$	4,282
Realized and unrealized gains and losses:
Included in earnings		(3,878	)		(4,000	)		—		122
Included in other comprehensive income		5,380			—			5,380		—
Purchases, sales and maturities, net		110,524			75,047			38,228		(2,751	)
Transfer in of securities for which observable inputs are no longer available		84,000			84,000			—		—
Balance as of June 30, 2008	$	286,944		$	178,772		$	106,519	$	1,653

5.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 due from reinsurers are reported net of reserves for uncollectible reinsurance of $3.1 million and $2.9 million as of June 30, 2008 and December 31, 2007, respectively. The following amounts arising under reinsurance ceded contracts have been deducted in arriving at the amounts reflected in the statements of income (dollars in thousands):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2008		2007		2008		2007
Ceded premiums earned	$	132,356	$	113,877	$	240,751	$	232,057
Ceded losses incurred	$	35,532	$	64,231	$	88,923	$	136,123

8

6.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, commercial automobile, property lines, product liability and professional liability. 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 segments provide commercial insurance products to customers primarily in 44 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 organized geographically based on markets served.

     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 personal and commercial property casualty insurance in South America and commercial insurance and reinsurance in the United Kingdom, Continental Europe, Australia and Hong Kong.

     The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Income tax expense and benefits are calculated based upon the Company’s overall effective tax rate.

9

6.INDUSTRY SEGMENTS (continued)

     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
	Earned		Investment								Pre-tax			Net
(dollars in thousands)	Premiums		Income		Other			Total			Income			Income
For the three months ended June 30, 2008:
Specialty	$	409,417	$	55,347	$	1,010		$	465,774		$	108,729		$	78,432
Regional		309,424		23,752		—			333,176			25,275			19,754
Alternative markets		155,885		30,279		23,754			209,918			52,698			38,498
Reinsurance		131,767		34,160		—			165,927			33,644			26,654
International		68,218		8,939		—			77,157			7,279			4,578
Corporate and eliminations (1)		—		1,462		27,888			29,350			(50,014	)		(34,239	)
Realized investment losses		—		—		(82,163	)		(82,163	)		(82,163	)		(53,420	)
Consolidated	$	1,074,711	$	153,939	$	(29,511	)	$	1,199,139		$	95,448		$	80,257
For the three months ended June 30, 2007:
Specialty	$	442,110	$	57,729	$	—		$	499,839		$	136,843		$	93,743
Regional		309,812		24,285		—			334,097			51,903			35,758
Alternative markets		159,266		31,643		25,343			216,252			63,592			43,968
Reinsurance		196,986		40,082		—			237,068			45,892			33,143
International		63,466		7,676		—			71,142			7,900			5,411
Corporate and eliminations (1)		—		7,528		15,377			22,905			(40,987	)		(24,807	)
Realized investment gains		—		—		5,280			5,280			5,280			3,417
Consolidated	$	1,171,640	$	168,943	$	46,000		$	1,386,583		$	270,423		$	190,633

(1) Corporate and eliminations represent corporate revenues and expenses, realized investment gains and losses and other items that are not allocated to business segments.

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6.INDUSTRY SEGMENTS (continued)

	Revenues
	Earned		Investment								Pre-tax			Net
(dollars in thousands)	Premiums		Income		Other			Total			Income			Income
For the six months ended June 30, 2008:
Specialty	$	838,753	$	106,340	$	2,020		$	947,113		$	221,515		$	157,607
Regional		620,693		45,315		—			666,008			63,079			46,806
Alternative markets		311,094		58,204		49,859			419,157			113,680			81,348
Reinsurance		284,201		65,457		—			349,658			66,933			51,891
International		144,279		18,350		—			162,629			17,925			10,713
Corporate and eliminations (1)		—		4,770		53,145			57,915			(95,236	)		(61,362	)
Realized investment losses		—		—		(28,137	)		(28,137	)		(28,137	)		(18,308	)
Consolidated	$	2,199,020	$	298,436	$	76,887		$	2,574,343		$	359,759		$	268,695
For the six months ended June 30, 2007:
Specialty	$	885,565	$	114,476	$	—		$	1,000,041		$	264,555		$	183,282
Regional		614,179		47,910		—			662,089			107,224			74,434
Alternative markets		321,930		62,528		51,336			435,794			131,310			91,536
Reinsurance		382,264		80,558		—			462,822			92,299			67,962
International		122,635		16,600		—			139,235			15,271			10,302
Corporate and eliminations (1)		—		12,292		20,661			32,953			(84,963	)		(56,670	)
Realized investment gains		—		—		12,670			12,670			12,670			8,213
Consolidated	$	2,326,573	$	334,364	$	84,667		$	2,745,604		$	538,366		$	379,059

(1) Corporate and eliminations represent corporate revenues and expenses, realized investment gains and losses and other items that are not allocated to business segments.

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

	June 30,			December 31,
	2008			2007
Specialty	$	5,927,357		$	5,887,363
Regional		2,751,907			2,717,199
Alternative markets		3,410,727			3,261,318
Reinsurance		4,573,091			4,912,732
International		976,094			870,404
Corporate and eliminations		(1,091,669	)		(816,846	)
Consolidated	$	16,547,507		$	16,832,170

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6.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,
	2008		2007		2008		2007
Premises operations	$	152,295	$	181,681	$	318,675	$	369,824
Automobile		68,109		69,702		135,232		138,064
Property		54,062		51,555		109,539		100,388
Products liability		46,696		58,641		98,875		118,132
Professional liability		39,326		38,484		78,197		77,499
Other		48,929		42,047		98,235		81,658
Specialty		409,417		442,110		838,753		885,565
Commercial multiple peril		113,684		118,148		229,536		235,093
Automobile		90,879		89,930		181,836		177,809
Workers’ compensation		62,868		62,518		126,798		125,172
Other		41,993		39,216		82,523		76,105
Regional		309,424		309,812		620,693		614,179
Excess workers’ compensation		71,513		74,584		141,267		153,552
Primary workers’ compensation		60,331		63,172		122,582		125,664
Other		24,041		21,510		47,245		42,714
Alternative Markets		155,885		159,266		311,094		321,930
Casualty		112,994		168,315		240,851		324,347
Property		18,773		28,671		43,350		57,917
Reinsurance		131,767		196,986		284,201		382,264
International		68,218		63,466		144,279		122,635
Total	$	1,074,711	$	1,171,640	$	2,199,020	$	2,326,573

7.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.

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SAFE HARBOR STATEMENT

     This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking words such as ‘believes,” “expects,” “potential,” “continued,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of those words or other comparable words. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2008 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 insurance and reinsurance business, product demand and pricing, claims development and the process of estimating reserves, the uncertain nature of damage theories and loss amounts, natural and man-made catastrophic losses, including as a result of terrorist activities, the impact of significant and increasing 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 Program Reauthorization Act of 2007, the ability of our reinsurers to pay reinsurance recoverables owed to us, investment risks, including those of our portfolio of fixed income securities and investments in equity securities, including investments in financial institutions, merger arbitrage and private equity 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 or reinsurance industry, changes in the ratings assigned to us or our insurance company subsidiaries 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 (“SEC”). These risks and uncertainties could cause actual results of the industry or our actual results for the year 2008 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. Our future financial performance is dependent upon factors discussed elsewhere in this Form 10-Q and our other SEC filings. 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.

     Available insurance capacity has increased in recent years, increasing competition in the industry and putting downward pressure on pricing and terms and conditions. In 2007, we saw increased competition and decreased prices across most of our business segments. This trend of increased competition and decreased prices has continued in 2008 and we expect it to continue in 2009.

     The Company’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 those of financial institutions, merger arbitrage, private equity investments and real estate securities.

Critical Accounting Estimates

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

14

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

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

15

     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 increases, 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, 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 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. For example, as of December 31, 2007, initial loss estimates for accident years 1998 through 2006 were increased by an average of 2% for lines with short reporting lags and by an average of 16% for lines with long reporting lags. For the latest accident year ended December 31, 2007, initial loss estimates were $1.8 billion for lines with short reporting lags and $1.0 billion for lines with long reporting lags.

16

     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. 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 2007 (dollars in thousands):

	Frequency (+/-)
Severity (+/-)	1%		5%		10%
1%		57,037		171,678		314,979
5%		171,678		290,859		439,835
10%		314,979		439,835		595,906

     Our net reserves for losses and loss expenses of $8.1 billion as of June 30, 2008 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 $1.9 billion, or 23%, of the Company’s net loss reserves as of June 30, 2008 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 on assumed reinsurance business. This information, which is generally provided through reinsurance intermediaries, is gathered through the underwriting process and from periodic claim reports and other correspondence with ceding companies. The Company performs underwriting and claim audits of selected ceding companies to determine the accuracy and completeness of information provided to the Company. The information received from the ceding companies is supplemented by the Company’s own loss development experience with similar lines of business as well as industry loss trends and loss development benchmarks.

     Following is a summary of the Company’s reserves for losses and loss expenses by business segment as of June 30, 2008 and December 31, 2007 (dollars in thousands):

	June 30,		December 31,
	2008		2007
Specialty	$	2,925,837	$	2,853,479
Regional		1,291,912		1,218,703
Alternative Markets		1,631,335		1,558,643
Reinsurance		1,895,745		1,884,051
International		350,216		308,021
Net reserves for losses and loss expenses		8,095,045		7,822,897
Ceded reserves for losses and loss expenses		815,424		855,137
Gross reserves for losses and loss expenses	$	8,910,469	$	8,678,034

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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, 2008 and December 31, 2007 (dollars in thousands):

	Reported Case		Incurred But
	Reserves		Not Reported		Total
June 30, 2008
General liability	$	797,800	$	2,152,892	$	2,950,692
Workers’ compensation		962,589		966,150		1,928,739
Commercial automobile		373,497		233,764		607,261
International		164,755		185,461		350,216
Other		150,859		211,533		362,392
Total primary		2,449,500		3,749,800		6,199,300
Reinsurance		796,865		1,098,880		1,895,745
Total	$	3,246,365	$	4,848,680	$	8,095,045
December 31, 2007
General liability	$	756,121	$	2,095,913	$	2,852,034
Workers’ compensation		915,588		929,875		1,845,463
Commercial automobile		377,922		223,767		601,689
International		118,807		189,214		308,021
Other		135,221		196,418		331,639
Total primary		2,303,659		3,635,187		5,938,846
Reinsurance		795,922		1,088,129		1,884,051
Total	$	3,099,581	$	4,723,316	$	7,822,897

     For the six months ended June 30, 2008, the Company reported losses and loss expenses of $1,363 million, which is net of $106 million representing a decrease in estimates for claims occurring in prior years. The estimates for claims occurring in prior years decreased by $112 million for primary business and increased by $6 million for assumed reinsurance. On an accident year basis, the change in prior year reserves is comprised of an increase in estimates for claims occurring in accident years 2002 and prior of $47 million and a decrease in estimates for claims occurring in accident years 2003 through 2007 of $153 million. 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.

     Case reserves for primary business increased 6% to $2.4 billion as a result of a 5% 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 3% to $3.7 billion at June 30, 2008 from $3.6 billion at December 31, 2007. By segment, prior year reserves decreased by $61 million for specialty, $25 million for alternative markets, $22 million for regional and $4 million for international. By line of business, prior year reserves decreased by $78 million for general liability, $19 million for workers’ compensation, $12 million for commercial automobile and $3 million for property. The decrease in prior year reserves for general liability reflects the favorable loss reserve trends for excess and surplus lines for accident years 2003 through 2007.

     Case reserves for reinsurance business increased to $797 million at June 30, 2008 from $796 million at December 31, 2007. Reserves for incurred but not reported losses for reinsurance business increased to $1,099 million at June 30, 2008 from $1,088 million at December 31, 2007. Prior year reserves increased by $6 million.

18

     Loss Reserve Discount. The Company discounts its liabilities for excess and assumed workers’ compensation business because of the long period of time over which losses are paid. Discounting is intended to appropriately match losses and loss expenses to income earned on investment securities supporting the liabilities. The expected losses and loss expense payout pattern subject to discounting was derived from the Company’s loss payout experience. For non-proportional business, reserves for losses and loss expenses have been discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These discount rates range from 3.7% to 6.5%, with a weighted average discount rate of 4.9%. For proportional business, reserves for losses and loss expenses have been discounted at the statutory rate permitted by the Department of Insurance of the State of Delaware of 2.6%. The aggregate net discount, after reflecting the effects of ceded reinsurance, was $822 million and $788 million as of June 30, 2008 and December 31, 2007, respectively.

     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 premium, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $72 million and $69 million at June 30, 2008 and December 31, 2007, 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.

     Other-Than-Temporary Declines in the Value of Investments. The cost of securities is adjusted where appropriate to include a provision for decline in value which is considered to be other than temporary. An other than temporary decline is considered to occur in investments where there has been a sustained reduction in market value and where the Company does not expect the fair value to recover prior to the time of sale or maturity. Management regularly reviews securities that have a fair value less than cost to determine whether an other than temporary impairment has occurred. In determining whether a decline in fair value is other than temporary, management assesses whether the fair value is expected to recover and whether the Company has the ability and intent to hold the investment until it recovers. The factors considered by management in making this assessment include 1) the severity and duration of the impairment, 2) the historic and implied volatility of the security, 3) recoveries or additional declines in fair value subsequent to the balance sheet date, 4) the financial condition and near-term prospects of the issuer, 5) whether the market decline was affected by macroeconomic conditions or by specific information pertaining to an individual security and 6) the length of the forecasted recovery period. The Company’s assessment of its intent to hold an investment until it recovers is based on conditions at the time the assessment is made, including general market conditions, the Company’s overall investment strategy and management’s view of the underlying value of an investment relative to its current price. 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.

     The following table provides a summary of all securities for which fair value is less than amortized cost at June 30, 2008 (dollars in thousands):

			Gross
	Aggregate		Unrealized
	Fair Value		Loss
Fixed maturity securities	$	4,257,041	$	126,535
Equity securities		428,846		85,805
Total	$	4,685,887	$	212,340

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     The following table provides a summary of all fixed maturity securities for which unrealized losses were 20% or greater than amortized cost at June 30, 2008 by the length of time those securities have been continuously in an unrealized loss position (dollars in thousands):

Fixed Maturity Securities

					Gross
	Number of		Aggregate		Unrealized
	Securities		Fair Value		Loss
Unrealized Loss 20% or Greater
Less than six months		—	$	—	$	—
Six months to less than nine months		2		17,365		6,618
Nine months to less than twelve months		2		43,346		11,606
Twelve months or greater		—		—		—
Total		4	$	60,711	$	18,224

     The following table provides a summary of all equity securities for which unrealized losses were 20% or greater than amortized cost and 30% or greater than amortized cost at June 30, 2008 by the length of time those securities have been continuously in an unrealized loss position (dollars in thousands):

Equity Securities (1)

					Gross
	Number of		Aggregate		Unrealized
	Securities		Fair Value		Loss
Unrealized Loss 20% or Greater
Less than six months		4	$	78,447	$	36,207
Six months to less than nine months		2		32,465		12,414
Nine months to less than twelve months		4		13,656		4,820
Twelve months or greater		10		9,700		3,318
Total		20	$	134,268	$	56,769
Unrealized Loss 30% or Greater
Less than six months		1	$	4,262	$	5,762
Six months to less than nine months		—		—		—
Nine months to less than twelve months		—		—		—
Twelve months or greater		3		761		410
Total		4	$	5,023	$	6,172

(1) These equity securities are all financial sector common and preferred stocks.

     Investment impairments included in realized investment losses were $101 million in the first six months of 2008. The impairment losses in 2008 included $92 million for financial sector equity securities and $9 million for a private equity investment. The financial sector equity security impairment losses were based primarily on the amount and length of time that these investments had been in an unrealized loss position. The private equity impairment loss was the result of the investee’s deteriorated financial position.

     At June 30, 2008, unrealized losses for all financial sector equity securities were $83 million and included equity securities issued by Fannie Mae, Freddie Mac, commercial and investment banks, insurers and real estate investment trusts. All of these securities are classified as available for sale. The Company has the ability and intent to hold each of these securities at least until the investment impairment is recovered. Management expects the financial sector fundamentals and valuations to improve as the government policies regarding housing and government sponsored entities are put into effect. If the financial sector equity securities remain in a significant unrealized loss position for an extended period of time, however, the Company may incur further impairment losses.

20

Results of Operations for the Six Months Ended June 30, 2008 and 2007

     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, 2008 and 2007. 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)	2008			2007
Specialty
Gross premiums written	$	834,722		$	938,526
Net premiums written		773,726			886,585
Premiums earned		838,753			885,565
Loss ratio		58.4	%		56.9	%
Expense ratio		27.9	%		26.2	%
Combined ratio		86.3	%		83.1	%
Regional
Gross premiums written	$	734,628		$	749,297
Net premiums written		638,864			655,430
Premiums earned		620,693			614,179
Loss ratio		65.6	%		59.3	%
Expense ratio		31.5	%		31.0	%
Combined ratio		97.1	%		90.3	%
Alternative Markets
Gross premiums written	$	389,245		$	404,334
Net premiums written		338,813			351,331
Premiums earned		311,094			321,930
Loss ratio		60.8	%		56.7	%
Expense ratio		23.5	%		23.4	%
Combined ratio		84.3	%		80.1	%
Reinsurance
Gross premiums written	$	263,048		$	415,235
Net premiums written		248,592			381,566
Premiums earned		284,201			382,264
Loss ratio		64.8	%		67.5	%
Expense ratio		34.7	%		29.5	%
Combined ratio		99.5	%		97.0	%
International
Gross premiums written	$	178,340		$	141,649
Net premiums written		149,119			116,624
Premiums earned		144,279			122,635
Loss ratio		63.8	%		65.5	%
Expense ratio		35.8	%		32.5	%
Combined ratio		99.6	%		98.0	%
Consolidated
Gross premiums written	$	2,399,983		$	2,649,041
Net premiums written		2,149,114			2,391,536
Premiums earned		2,199,020			2,326,573
Loss ratio		62.0	%		59.7	%
Expense ratio		29.7	%		28.0	%
Combined ratio		91.7	%		87.7	%

21

     The following table presents the Company’s net income and net income per diluted share for the six months ended June 30, 2008 and 2007 (amounts in thousands, except per share data):

	2008		2007
Net income	$	268,695	$	379,059
Weighted average diluted shares		178,723		203,930
Net income per diluted share	$	1.50	$	1.86

     Net income decreased to $269 million in 2008 from $379 million in 2007 due to lower underwriting profits, lower investment income and realized investment losses. The decrease in the weighted average diluted shares resulted from the Company’s repurchases of its common stock in 2007 and in the first six months of 2008.

     Gross Premiums Written. Gross premiums written were $2.4 billion in 2008, down 9% from 2007. The Company has experienced increased competition and downward pressure on pricing since 2004. This trend continued in 2008, with overall price levels for renewal business declining approximately 6% as compared with the prior year period.

     A summary of gross premiums written in the 2008 compared with 2007 by business segment follows:

• Specialty gross premiums decreased by 11% to $835 million in 2008 from $939 million in 2007. The number of new and renewal policies issued in 2008, net of policy cancellations, increased 5%. Average prices for renewal policies, adjusted for changes in exposure, decreased 7%. Gross premiums written decreased 23% for premises operations, 22% for products liability, 7% for commercial automobile and 8% for property lines. Gross premiums written increased 13% for professional liability.

• Regional gross premiums decreased by 2% to $735 million in 2008 from $749 million in 2007. The number of new and renewal policies issued in 2008, net of policy cancellations, increased 2%. Average prices for renewal policies, adjusted for changes in exposure, decreased 3%. Gross premiums written decreased 2% for commercial automobile, 2% for workers’ compensation and 4% for commercial multiple peril. Gross premiums include assigned risk premiums, which are fully reinsured, of $51 million in 2008 and $49 million in 2007.

• Alternative markets gross premiums decreased by 4% to $389 million in 2008 from $404 million in 2007. The number of new and renewal policies issued, excluding personal accident business which is a new line of business for the Company, decreased 4% in 2008 (net of policy cancellations). Average prices for renewal policies, adjusted for changes in exposure, decreased 6%. Gross premiums written increased 1% for primary workers’ compensation, decreased 11% for excess workers’ compensation and increased 37% for other business lines. Gross premiums include assigned risk premiums, which are fully reinsured, of $25 million in 2008 and $36 million in 2007.

• Reinsurance gross premiums decreased by 37% to $263 million in 2008 from $415 million in 2007. Average prices for renewal business decreased 6%. Casualty gross premiums written decreased 31% to $216 million, and property gross premiums written decreased 53% to $48 million.

• International gross premiums increased by 26% to $178 million in 2008 from $142 million in 2007. Gross premiums in the UK and Continental Europe increased 9% primarily as a result of expanded product offerings. Gross premiums in South America increased 31% as a result of higher price levels and new business. Gross premiums in our Australian branch, which began operating in 2008, were $6 million.

22

     Premiums Earned.Premiums earned decreased 5% to $2,199 million from $2,327 million in 2007. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2008 are related to business written during both 2008 and 2007. The 5% decrease for 2008 earned premiums reflects the underlying decline in net premiums written in 2007 and 2008.

     Net Investment Income. Following is a summary of net investment income for the six months ended June 30, 2008 and 2007 (dollars in thousands):

							Average Annualized
	Amount						Yield
	2008			2007			2008			2007
Fixed maturity securities, including cash	$	256,655		$	242,908			4.7	%		4.7	%
Arbitrage trading account and funds		19,353			44,796			4.6	%		11.2	%
Partnerships and affiliates		(2,668	)		24,650			(1.1	)%		10.9	%
Equity securities available for sale		23,909			20,760			5.9	%		5.2	%
Other		4,925			5,671
Gross investment income		302,174			338,785			4.7	%		5.5	%
Investment expenses and interest on funds held		(3,738	)		(4,421	)
Total	$	298,436		$	334,364			4.6	%		5.4	%

     Net investment income decreased 11% to $298 million in 2008 from $334 million in 2007 primarily as a result of lower income from the arbitrage trading account and from partnerships and affiliates. Earnings from arbitrage investments decreased 57% as the dramatic reduction in merger activity that began in late 2007 continued into 2008. The decrease in income from partnership and affiliates is the result of losses incurred by certain real estate investment funds in 2008. Average invested assets (including cash and cash equivalents) increased 5% to $13.0 billion in 2008 from $12.3 billion in 2007 primarily as a result of cash flow from operations, partially offset by cash used for repurchases of the Company’s own common stock.

     Insurance Service Fees. The alternative markets and specialty segments offer fee-based services to help clients develop and administer self-insurance programs, primarily for workers’ compensation coverage. Service fees were $52 million in 2008, up from $51 million in 2007, primarily as a result of service fees from an insurance company that was acquired by the Company in October 2007.

     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. The Company buys and sells securities on a regular basis in order to maximize its total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions.

     Realized investment losses were $28 million in 2008 compared with realized investment gains of $13 million in 2007. Realized investment losses in 2008 reflect $101 million of impairment losses, which were partially offset by realized investment gains of $73 million, including a gain of $70 million from the sale of the Company’s interest in Kiln Ltd. The impairment losses in 2008 included $92 million for financial sector equity securities and $9 million for a private equity investment. The financial sector equity security impairment losses were based primarily on the amount and length of time that these investments had been in an unrealized loss position. The private equity impairment was the result of the investee’s deteriorated financial position.

23

     Revenues from Wholly-Owned Investees. Revenues from wholly-owned investees were $52 million in 2008 compared with $19 million in 2007. These revenues were derived from three fixed base operators that were separately purchased in 2007 and 2008. These companies provide services to the general aviation market, including fuel and line service, aircraft sales and maintenance, avionics and engineering services and parts fabrication. The 2008 and 2007 revenues are not comparative since the companies are not included for the same periods.

     Losses and Loss Expenses. Losses and loss expenses decreased to $1,363 million in 2008 from $1,389 million in 2007. The consolidated loss ratio was 62.0% in 2008 compared with 59.7% in 2007. Estimated loss ratios for accident year 2008 were higher due to a decline in price levels, higher expected loss cost trends and inflation and higher weather-related losses. Weather-related losses were $45 million in 2008 compared with $22 million in 2007. The increase in accident year 2008 loss ratios was partially offset by favorable prior year reserve development. Net favorable prior year development was $106 million in 2008 compared with $53 million in 2007. The favorable loss reserve development was primarily related to the specialty segment. The Company also experienced favorable development for the regional, alternative markets and international segments. A summary of loss ratios in 2008 compared with 2007 by business segment follows:

• Specialty’s loss ratio increased to 58.4% in 2008 from 56.9% in 2007. Estimated loss ratios for accident year 2008 were higher due to a decline in price levels and a more competitive market environment. The increase in accident year 2008 loss ratios was partially offset by favorable reserve development. Net favorable prior year development was $61 million in 2008 compared with $38 million in 2007.

• The regional loss ratio increased to 65.6% in 2008 from 59.3% in 2007. Estimated loss ratios for accident year 2008 were higher due to a decline in price levels and to higher weather-related losses. Weather-related losses were $45 million in 2008 compared with $22 million in 2007. The increase in accident year 2008 loss ratios was partially offset by favorable reserve development. Net favorable prior year development was $22 million in 2008 compared with $12 million in 2007.

• Alternative markets’ loss ratio increased to 60.8% from 56.7% 2007. Estimated loss ratios for accident year 2008 were higher due to a decline in price levels and a more competitive market environment. The increase in accident year 2008 loss ratios was partially offset by favorable reserve development. Net favorable prior year development was $25 million in 2008 compared with $18 million in 2007.

• The reinsurance loss ratio decreased to 64.8% in 2008 from 67.5% in 2007 due to a decline in unfavorable reserve development. Net unfavorable prior year development was $6 million in 2008 compared with $18 million in 2007.

• The international loss ratio decreased to 63.8% in 2008 from 65.5% in 2007 due to favorable reserve development and a change in the mix of business. Favorable prior year development was $4 million in 2008 compared with $2 million in 2007.

     Other Operating Costs and Expenses.Following is a summary of other operating costs and expenses for the six months ended June 30, 2008 and 2007 (dollars in thousands):

	2008		2007
Underwriting expenses	$	653,065	$	651,094
Service expenses		44,496		46,642
Other costs and expenses		58,861		59,489
Total	$	756,422	$	757,225

     Underwriting expenses are 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) increased to 29.7% in 2008 from 28.0% in 2007 primarily due to the decline in earned premiums.

24

     Service expenses, which represent the costs associated with the alternative markets and specialty segments’ fee-based businesses, decreased 5% to $44 million due to lower employment costs.

     Other costs and expenses, which represent expenses not allocated to the business segments, decreased 1% to $59 million.

     Expenses from Wholly-Owned Investees. Expenses from wholly-owned investees were $51 million in 2008 compared to $18 million in 2007. These expenses represent costs associated with three fixed base operators that were separately purchased in 2007 and 2008. These include cost of goods sold related to aircraft and other sales, labor and equipment costs related to repairs and other services and general and administrative expenses. The results for 2007 included only the results for the first purchased fixed base operator from the date of acquisition. The 2008 and 2007 expenses are not comparative since the companies are not included for the same periods.

     Interest Expense. Interest expense increased 2% to $44 million primarily as a result of the issuance of $250 million of 6.25% senior notes in February 2007, partially offset by the repayment of $89 million of 9.875% senior notes in May 2008.

     Income Taxes. The effective income tax rate was 25% in 2008 and 29% in 2007. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income, which represented a greater portion of pre-tax income in 2008.

25

Results of Operations for the Three Months Ended June 30, 2008 and 2007

     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, 2008 and 2007. 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)	2008			2007
Specialty
Gross premiums written	$	406,580		$	480,674
Net premiums written		375,939			452,610
Premiums earned		409,417			442,110
Loss ratio		58.8	%		55.7	%
Expense ratio		28.3	%		26.4	%
Combined ratio		87.1	%		82.1	%
Regional
Gross premiums written	$	361,633		$	371,879
Net premiums written		315,288			330,057
Premiums earned		309,424			309,812
Loss ratio		67.6	%		60.1	%
Expense ratio		31.9	%		31.0	%
Combined ratio		99.5	%		91.1	%
Alternative Markets
Gross premiums written	$	121,161		$	123,906
Net premiums written		100,776			100,808
Premiums earned		155,885			159,266
Loss ratio		64.1	%		57.2	%
Expense ratio		23.3	%		24.2	%
Combined ratio		87.4	%		81.4	%
Reinsurance
Gross premiums written	$	126,583		$	210,053
Net premiums written		118,946			190,705
Premiums earned		131,767			196,986
Loss ratio		65.7	%		70.2	%
Expense ratio		34.7	%		26.9	%
Combined ratio		100.4	%		97.1	%
International
Gross premiums written	$	98,853		$	79,167
Net premiums written		80,600			62,584
Premiums earned		68,218			63,466
Loss ratio		63.5	%		65.8	%
Expense ratio		37.7	%		33.3	%
Combined ratio		101.2	%		99.1	%
Consolidated
Gross premiums written	$	1,114,810		$	1,265,679
Net premiums written		991,549			1,136,764
Premiums earned		1,074,711			1,171,640
Loss ratio		63.2	%		60.1	%
Expense ratio		30.0	%		27.8	%
Combined ratio		93.2	%		87.9	%

26

     The following table presents the Company’s net income and net income per diluted share for the three months ended June 30, 2008 and 2007 (amounts in thousands, except per share data):

	2008		2007
Net income	$	80,257	$	190,633
Weighted average diluted shares		173,684		203,922
Net income per diluted share	$	.46	$	.93

     Net income decreased to $80 million in 2008 from $191 million in 2007 due to realized investment losses of $82 million in 2008 as compared to realized investment gains of $5 million in 2007, lower underwriting profits and lower investment income. The decrease in the weighted average diluted shares resulted from the Company’s repurchases of its common stock in 2007 and in the first six months of 2008.

     Gross Premiums Written. Gross premiums written were $1.1 billion in 2008, down 12% from 2007. The Company has experienced increased competition and downward pressure on pricing since 2004. This trend continued in 2008, with overall price levels for renewal business declining approximately 6% as compared with the prior year period.

     A summary of gross premiums written in the 2008 compared with 2007 by business segment follows:

• Specialty gross premiums decreased by 15% to $407 million in 2008 from $481 million in 2007. The number of new and renewal policies issued in 2008, net of policy cancellations, increased 6%. Average prices for renewal policies, adjusted for changes in exposure, decreased 7%. Gross premiums written decreased 26% for premises operations, 25% for products liability, 20% for commercial automobile and 13% for property lines. Gross premiums written increased 17% for professional liability.

• Regional gross premiums decreased by 3% to $362 million in 2008 from $372 million in 2007. The number of new and renewal policies issued in 2008, net of policy cancellations, increased 1%. Average prices for renewal policies, adjusted for changes in exposure, decreased 3%. Gross premiums written decreased 3% for commercial automobile, 3% for workers’ compensation and 7% for commercial multiple peril. Gross premiums include assigned risk premiums, which are fully reinsured, of $24 million in 2008 and $21 million in 2007.

• Alternative markets gross premiums decreased by 2% to $121 million in 2008 from $124 million in 2007. The number of new and renewal policies issued, excluding personal accident business which is a new line of business for the Company, decreased 8% in 2008 (net of policy cancellations). Average prices for renewal policies, adjusted for changes in exposure, decreased 6%. Gross premiums written decreased 8% for primary workers’ compensation, 4% for excess workers’ compensation and 47% for other business lines. Gross premiums include assigned risk premiums, which are fully reinsured, of $10 million in 2008 and $17 million in 2007.

• Reinsurance gross premiums decreased by 40% to $127 million in 2008 from $210 million in 2007. Average prices for renewal business decreased 8%. Casualty gross premiums written decreased 34% to $104 million, and property gross premiums written decreased 56% to $22 million.

• International gross premiums increased by 25% to $99 million in 2008 from $79 million in 2007. Gross premiums in the UK and Continental Europe increased 3% primarily as a result of expanded product offerings. Gross premiums in South America increased 33% as a result of higher price levels and new business. Gross premiums in our Australian branch, which began operating in 2008, were $5 million.

27

     Premiums Earned. Premiums earned decreased 8% to $1,075 million from $1,172 million in 2007. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2008 are related to business written during both 2008 and 2007. The 8% decrease for 2008 earned premiums reflects the underlying decline in net premiums written in 2007 and 2008.

     Net Investment Income. Following is a summary of net investment income for the three months ended June 30, 2008 and 2007 (dollars in thousands):

							Average Annualized
	Amount						Yield
	2008			2007			2008			2007
Fixed maturity securities, including cash	$	134,623		$	123,631			5.0	%		4.7	%
Arbitrage trading account and funds		15,338			22,596			7.3	%		11.1	%
Partnerships and affiliates		(8,394	)		11,229			(6.9	)%		9.9	%
Equity securities available for sale		11,184			10,772			5.6	%		5.4	%
Other		2,287			2,730
Gross investment income		155,038			170,958			4.8	%		5.5	%
Investment expenses and interest on funds held		(1,099	)		(2,015	)
Total	$	153,939		$	168,943			4.8	%		5.4	%

     Net investment income decreased 9% to $154 million in 2008 from $169 million in 2007 primarily as a result of lower income from partnerships and affiliates due to losses incurred by certain real estate investment funds. Average invested assets (including cash and cash equivalents) increased 3% to $12.9 billion in 2008 from $12.5 billion in 2007 primarily as a result of cash flow from operations.

     Insurance Service Fees. The alternative markets and specialty segments offer fee-based services to help clients develop and administer self-insurance programs, primarily for workers’ compensation coverage. Service fees were $25 million in 2008 and 2007.

     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. The Company buys and sells securities on a regular basis in order to maximize its total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions.

     Realized investment losses were $82 million in 2008 compared with realized investment gains of $5 million in 2007. Realized investment losses in 2008 represent impairment losses for financial sector equity securities. These equity security impairment losses were based primarily on the amount and length of time that these investments had been in an unrealized loss position.

     Revenues from Wholly-Owned Investees. Revenues from wholly-owned investees were $27 million in 2008 compared with $15 million in 2007. These revenues were derived from three fixed base operators that were separately purchased in 2007 and 2008. These companies provide services to the general aviation market, including fuel and line service, aircraft sales and maintenance, avionics and engineering services and parts fabrication. The 2008 and 2007 revenues are not comparative since the companies are not included for the same periods.

28

     Losses and Loss Expenses. Losses and loss expenses decreased to $680 million in 2008 from $704 million in 2007. The consolidated loss ratio was 63.2% in 2008 compared with 60.1% in 2007. Estimated loss ratios for accident year 2008 were higher due to a decline in price levels, higher expected loss cost trends and inflation and higher weather-related losses. Weather-related losses were $31 million in 2008 compared with $16 million in 2007. The increase in accident year 2008 loss ratios was partially offset by favorable prior year reserve development. Net favorable prior year development was $52 million in 2008 compared with $32 million in 2007. The favorable loss reserve development was primarily related to the specialty segment. The Company also experienced favorable development for the regional, alternative markets and international segments. A summary of loss ratios in 2008 compared with 2007 by business segment follows:

• Specialty’s loss ratio increased to 58.8% in 2008 from 55.7% in 2007 as higher estimated loss ratios for accident year 2008 were partially offset by favorable reserve development. Favorable prior year development was $36 million in 2008 compared with $24 million in 2007.

• The regional loss ratio increased to 67.6% in 2008 from 60.1% in 2007. Estimated loss ratios for accident year 2008 were higher due to a decline in price levels and to higher weather-related losses. Weather-related losses were $31 million in 2008 compared with $16 million in 2007. The increase in accident year 2008 estimated loss ratios was partially offset by favorable reserve development. Net favorable prior year development was $16 million in 2008 compared with $9 million in 2007.

• Alternative markets’ loss ratio increased to 64.1% from 57.2% 2007 as higher estimated loss ratios for accident year 2008 were partially offset by favorable reserve development. Net favorable prior year development was $5 million in 2008 compared with $6 million in 2007.

• The reinsurance loss ratio decreased to 65.7% in 2008 from 70.2% in 2007 primarily due to a decline in unfavorable reserve development and to a change in the mix of business. Net unfavorable prior year development was $5 million in 2008 compared with $9 million in 2007.

• The international loss ratio decreased to 63.5% in 2008 from 65.8% in 2007 primarily due to a change in the mix of business. Favorable prior year development was $0.3 million in 2008 compared with $1.3 million in 2007.

     Other Operating Costs and Expenses.Following is a summary of other operating costs and expenses for the three months ended June 30, 2008 and 2007 (dollars in thousands):

	2008		2007
Underwriting expenses	$	322,197	$	325,177
Service expenses		21,631		23,046
Other costs and expenses		32,421		28,381
Total	$	376,249	$	376,604

     Underwriting expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Underwriting expenses decreased 1% in 2008 primarily as a result of lower commissions, partially offset by higher employment costs. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 30.0% in 2008 compared with 27.8% in 2007 primarily due to the decline in earned premiums.

     Service expenses, which represent the costs associated with the alternative markets and specialty segments’ fee-based businesses, decreased 6% to $22 million due to lower employment costs.

29

     Other costs and expenses, which represent expenses not allocated to the business segments, increased 14% to $32 million primarily as a result of increased employment costs.

     Expenses from Wholly-Owned Investees.Expenses from wholly-owned investees were $26 million in 2008 compared to $13 million in 2007. These expenses represent costs associated with three fixed base operators that were separately purchased in 2007 and 2008. These include cost of goods sold related to aircraft and other sales, labor and equipment costs related to repairs and other services and general and administrative expenses. The results for 2007 included only the results for the first purchased fixed base operator from the date of acquisition. The 2008 and 2007 expenses are not comparative since the companies are not included for the same periods.

     Interest Expense. Interest expense decreased 6% to $21 million primarily as a result of the repayment of $89 million of 9.875% senior notes in May 2008.

     Income Taxes. The effective income tax rate was 16% in 2008 and 29% in 2007. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income, which represented a greater portion of pre-tax income in 2008.

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, 2008 and December 31, 2007 were as follows (dollars in thousands):

	2008			2007
Fixed maturity securities	$	9,814,839		$	9,840,291
Equity securities available for sale		728,526			726,562
Arbitrage trading account		252,981			301,786
Investment in arbitrage funds		218,677			210,740
Partnerships and affiliates		500,351			545,937
Loans receivable		268,249			268,206
Total investments		11,783,623			11,893,522
Cash and cash equivalents		614,700			951,863
Trading account receivables		402,399			409,926
Trading account securities sold but not yet purchased		(56,445	)		(67,139	)
Unsettled sales (purchases)		(18,009	)		130
Total	$	12,726,268		$	13,188,302

30

     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. At June 30, 2008 (as compared to December 31, 2007), the fixed maturities portfolio mix was as follows: U.S. Government securities were 11% (15% in 2007); state and municipal securities were 57% (53% in 2007); corporate securities were 10% (11% in 2007); mortgage-backed securities were 18% (18% in 2007); and foreign bonds were 4% (3% in 2007).

     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, Fannie Mae, Freddie Mac and utilities.

     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. 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.

     Investment in Arbitrage Funds. Investment in merger arbitrage funds represents investments in limited partnerships that specialize in merger arbitrage and convertible arbitrage strategies.

     Partnerships and Affiliates. At June 30, 2008 and December 31, 2007, the Company’s investment in partnerships and affiliates was $500 million and $546 million, respectively, and included investments in real estate funds of $297 million and $294 million, respectively.

     In March 2008, the Company sold its interest in Kiln Ltd for $174 million and reported a realized investment gain of $70 million. At December 31, 2007, the carrying value of the Company’s investment in Kiln Ltd was $109 million.

     Loans Receivable. Loans receivable represent commercial real estate mortgage loans and related instruments with maturities of five years or less and floating, LIBOR-based interest rates.

Liquidity and Capital Resources

     Cash Flow. Cash flow provided from operating activities decreased to $405 million in 2008 from $637 million in 2007 due to a decline in premiums collected and investment income received as well as an increase in paid losses. Cash flow provided by operating activities in 2008 includes cash transfers from the arbitrage trading account of $50 million.

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     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 82% invested in cash, cash equivalents and marketable fixed maturity securities as of June 30, 2008. 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.

Financing Activity

     In the first six months of 2008, the Company repurchased 17,551,667 shares of its common stock for $490 million. In January, 2008, the Company repaid $12 million of subsidiary debt. In February, 2008, the Company repaid $89 million of 9.875% senior notes.

     At June 30, 2008, the Company had senior notes, junior subordinated debentures and other debt outstanding with a carrying value of $1,271 million and a face amount of $1,288 million. The maturities of the outstanding debt are $1 million in 2008, $1 million in 2009, $150 million in 2010, $2 million in 2012, $200 million in 2013, $200 million in 2015, $150 million in 2019, $77 million in 2022, $7 million in 2035 (prepayable in 2010), $250 million in 2037 and $250 million in 2045 (prepayable in 2010).

     At June 30, 2008, stockholders’ equity was $3.3 billion and total capitalization (stockholders’ equity, senior notes, junior subordinated debentures and other debt) was $4.5 billion. The percentage of the Company’s capital attributable to senior notes, junior subordinated debentures and other debt was 28% at June 30, 2008 and at December 31, 2007.

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 was 3.5 years at June 30, 2008 and 3.3 years at December 31, 2007. The overall market risk relating to the Company’s portfolio has remained similar to the risk at December 31, 2007.

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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 thereunder, 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, 2008, 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.

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, 2007.

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 or
	purchased		share		or programs		programs (1)
April 2008		2,383,600	$	26.52		2,383,600		4,509,800
May 2008		3,266,067		26.99		3,266,067		8,285,700
June 2008		1,511,900		25.41		1,511,900		6,773,800

(1) Remaining shares available for repurchase under the Company’s repurchase authorization of 10,000,000 shares that was approved by the Board of Directors on May 21, 2008. The Company’s repurchase authorization was again increased to 10,000,000 shares by its Board of Directors on July 29, 2008.

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Item 4.Submission of Matters to a Vote of Security Holders

     The Company held its Annual Meeting of Stockholders on May 28, 2008. The meeting involved the election of three directors for a term to expire at the Annual Meeting of Stockholders to be held in the year 2011 and the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the year 2008. The directors elected and the results of the voting are as follows:

     (i) Election of Directors:

Nominee	Votes For		Votes Withheld
Rodney A. Hawes, Jr.		151,475,708		3,457,490
Jack H. Nusbaum		84,599,927		70,333,271
Mark L. Shapiro		150,570,269		4,362,929

     (ii) Ratification of Accounting Firm:

Votes For		Votes Against		Votes Abstained
	153,710,226		1,153,405		69,567

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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 8, 2008	/s/ William R. Berkley
	William R. Berkley
	Chairman of the Board and Chief Executive Officer
Date: August 8, 2008	/s/ Eugene G. Ballard
	Eugene G. Ballard
	Senior Vice President, Chief Financial Officer and Treasurer