Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

W. R. Berkley Corporation:

We have audited the accompanying consolidated balance sheets of W. R. Berkley Corporation and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of W. R. Berkley Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), W. R. Berkley Corporation's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 2016 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/S/ KPMG LLP

New York, New York

February 22, 2016

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



	Years Ended December 31,
(In thousands, except per share data)	2015			2014			2013
REVENUES:
Net premiums written	$	6,189,515		$	5,996,947		$	5,500,173
Change in net unearned premiums	(148,906		)	(252,529		)	(273,636		)
Net premiums earned	6,040,609			5,744,418			5,226,537
Net investment income	512,645			600,885			544,291
Insurance service fees	139,440			117,443			107,513
Net investment gains:
Net realized gains on investment sales	125,633			254,852			127,586
Other-than-temporary impairments	(33,309		)	—			(6,042		)
Net investment gains	92,324			254,852			121,544
Revenues from wholly-owned investees	421,102			410,022			407,623
Other income	337			1,308			1,026
Total revenues	7,206,457			7,128,928			6,408,534
OPERATING COSTS AND EXPENSES:
Losses and loss expenses	3,656,270			3,490,567			3,197,024
Other operating costs and expenses	2,289,750			2,157,456			2,000,684
Expenses from wholly-owned investees	397,461			400,535			388,761
Interest expense	130,946			128,174			123,177
Total operating costs and expenses	6,474,427			6,176,732			5,709,646
Income before income taxes	732,030			952,196			698,888
Income tax expense	(227,923		)	(302,593		)	(193,587		)
Net income before noncontrolling interests	504,107			649,603			505,301
Noncontrolling interests	(413		)	(719		)	(5,376		)
Net income to common stockholders	$	503,694		$	648,884		$	499,925
NET INCOME PER SHARE:
Basic	$	4.06		$	5.07		$	3.69
Diluted	$	3.87		$	4.86		$	3.55

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Years Ended December 31,
(In thousands)	2015			2014			2013
Net income before noncontrolling interests	$	504,107		$	649,603		$	505,301
Other comprehensive income:
Change in unrealized translation adjustments	(124,744		)	(62,125		)	(23,848		)
Change in unrealized investment gains (losses), net of taxes	(125,542		)	49,666			(261,064		)
Change in unrecognized pension obligation, net of taxes	—			6,651			8,700
Other comprehensive loss	(250,286		)	(5,808		)	(276,212		)
Comprehensive income	253,821			643,795			229,089
Comprehensive income to the noncontrolling interest	(375		)	(752		)	(5,404		)
Comprehensive income to common shareholders	$	253,446		$	643,043		$	223,685

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	December 31,
(In thousands, except share data)	2015			2014
Assets
Investments:
Fixed maturity securities	$	12,444,394		$	12,705,160
Investment funds	1,170,040			1,211,401
Real estate	936,367			731,612
Arbitrage trading account	376,697			450,648
Loans receivable	273,103			322,012
Equity securities available for sale	150,866			170,991
Total investments	15,351,467			15,591,824
Cash and cash equivalents	763,631			674,441
Premiums and fees receivable	1,669,186			1,651,088
Due from reinsurers	1,532,829			1,503,441
Deferred policy acquisition costs	513,128			488,525
Prepaid reinsurance premiums	394,387			395,748
Trading account receivable from brokers and clearing organizations	383,115			371,034
Property, furniture and equipment	348,224			332,098
Goodwill	153,291			150,944
Accrued investment income	123,164			120,367
Current federal and foreign income taxes	55,763			67,623
Other assets	442,782			369,558
Total assets	$	21,730,967		$	21,716,691
Liabilities and Equity
Liabilities:
Reserves for losses and loss expenses	$	10,669,150		$	10,369,701
Unearned premiums	3,137,133			3,026,732
Due to reinsurers	224,752			237,270
Trading account securities sold but not yet purchased	37,035			106,079
Deferred federal and foreign income taxes	6,811			37,452
Other liabilities	837,937			859,736
Senior notes and other debt	1,844,621			2,115,527
Subordinated debentures	340,320			340,060
Total liabilities	17,097,759			17,092,557
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, 123,307,837 and 126,748,836 shares, respectively	47,024			47,024
Additional paid-in capital	1,005,455			991,512
Retained earnings	6,178,070			5,732,410
Accumulated other comprehensive income (loss)	(66,698		)	183,550
Treasury stock, at cost, 111,810,081 and 108,369,082 shares, respectively	(2,563,605		)	(2,364,551		)
Total common stockholders’ equity	4,600,246			4,589,945
Noncontrolling interests	32,962			34,189
Total equity	4,633,208			4,624,134
Total liabilities and equity	$	21,730,967		$	21,716,691

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



	Years Ended December 31,
(In thousands)	2015			2014			2013
COMMON STOCK:
Beginning and end of period	$	47,024		$	47,024		$	47,024
ADDITIONAL PAID IN CAPITAL:
Beginning of period	$	991,512		$	967,440		$	945,166
Stock options exercised and restricted units issued including tax benefit	(17,456		)	(4,485		)	(1,143		)
Restricted stock units expensed	30,691			27,966			22,881
Stock issued	708			591			536
End of period	$	1,005,455		$	991,512		$	967,440
RETAINED EARNINGS:
Beginning of period	$	5,732,410		$	5,265,015		$	4,817,807
Net income to common stockholders	503,694			648,884			499,925
Dividends	(58,034		)	(181,489		)	(52,717		)
End of period	$	6,178,070		$	5,732,410		$	5,265,015
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Unrealized investment gains (losses):
Beginning of period	$	306,199		$	256,566		$	517,658
Unrealized gains (losses) on securities not other-than-temporarily impaired	(113		)	49,071			(261,791		)
Unrealized gains (losses) on other-than-temporarily impaired securities	(125,391		)	562			699
End of period	180,695			306,199			256,566
Currency translation adjustments:
Beginning of period	(122,649		)	(60,524		)	(36,676		)
Net change in period	(124,744		)	(62,125		)	(23,848		)
End of period	(247,393		)	(122,649		)	(60,524		)
Net pension asset:
Beginning of period	—			(6,651		)	(15,351		)
Net change in period	—			6,651			8,700
End of period	—			—			(6,651		)
Total accumulated other comprehensive income (loss)	$	(66,698	)	$	183,550		$	189,391
TREASURY STOCK:
Beginning of period	$	(2,364,551	)	$	(2,132,835	)	$	(1,969,411	)
Stock exercised/vested	23,975			6,623			2,452
Stock issued	623			594			597
Stock repurchased	(223,652		)	(238,933		)	(166,473		)
End of period	$	(2,563,605	)	$	(2,364,551	)	$	(2,132,835	)
NONCONTROLLING INTERESTS:
Beginning of period	$	34,189		$	33,359		$	29,249
Acquisition (sale) of noncontrolling interest	(1,602		)	78			(1,294		)
Net income	413			719			5,376
Other comprehensive income, net of tax	(38		)	33			28
End of period	$	32,962		$	34,189		$	33,359

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Years Ended December 31,
(In thousands)	2015			2014			2013
CASH FROM OPERATING ACTIVITIES:
Net income to common stockholders	$	503,694		$	648,884		$	499,925
Adjustments to reconcile net income to net cash from operating activities:
Net investment gains	(92,324		)	(254,852		)	(121,544		)
Depreciation and amortization	85,139			88,836			103,090
Noncontrolling interests	413			719			5,376
Investment funds	(62,228		)	(131,649		)	(67,712		)
Stock incentive plans	32,123			28,068			23,784
Change in:
Arbitrage trading account	(7,173		)	(50,817		)	(10,324		)
Premiums and fees receivable	(60,942		)	(104,174		)	(138,027		)
Reinsurance accounts	(31,930		)	(33,445		)	(171,263		)
Deferred policy acquisition costs	(29,860		)	(42,789		)	(52,124		)
Current income taxes	20,428			(40,935		)	(45,613		)
Deferred income taxes	47,260			30,812			56,281
Reserves for losses and loss expenses	397,685			376,617			372,002
Unearned premiums	142,699			277,826			323,160
Other	(63,680		)	(58,254		)	42,787
Net cash from operating activities	881,304			734,847			819,798
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities	1,388,680			633,459			1,344,707
Proceeds from sale of equity securities	15,833			113,251			267,554
Distributions from (contributions to) investment funds	177,424			69,319			(236,580		)
Proceeds from maturities and prepayments of fixed maturity securities	2,999,339			2,605,839			2,718,156
Purchase of fixed maturity securities	(4,455,223		)	(4,292,165		)	(4,198,135		)
Purchase of equity securities	(29,526		)	(31,207		)	(156,557		)
Real estate purchased	(222,659		)	(213,159		)	(107,352		)
Proceeds from sale of real estate	—			343,723			—
Change in loans receivable	48,909			21,608			(30,974		)
Net additions to property, furniture and equipment	(63,562		)	(41,958		)	(63,150		)
Change in balances due from security brokers	(22,666		)	32,617			(26,155		)
Cash distributed in connection with business	—			15,783			—
Payment for business purchased, net of cash acquired	(7,312		)	(65,421		)	(56,878		)
Net cash used in investing activities	(170,763		)	(808,311		)	(545,364		)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net proceeds from issuance of debt	9,056			354,012			346,822
Net proceeds from stock options exercised	—			—			53
Repayment of senior notes and other debt	(281,086		)	(3,700		)	(465,389		)
Cash dividends to common stockholders	(58,034		)	(181,489		)	(52,717		)
Purchase of common treasury shares	(223,652		)	(238,933		)	(166,473		)
Other	(1,602		)	337			7,442
Net cash used in financing activities	(555,318		)	(69,773		)	(330,262		)
Net impact on cash due to change in foreign exchange rates	(66,033		)	(22,060		)	(10,104		)
Net increase (decrease) in cash and cash equivalents	89,190			(165,297		)	(65,932		)
Cash and cash equivalents at beginning of year	674,441			839,738			905,670
Cash and cash equivalents at end of year	$	763,631		$	674,441		$	839,738

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015, 2014 and 2013

(1) Summary of Significant Accounting Policies

(A) Principles of consolidation and basis of presentation

The consolidated financial statements, which include the accounts of W. R. Berkley Corporation and its subsidiaries (the "Company"), have been prepared on the basis of U.S. generally accepted accounting principles ("GAAP"). All significant intercompany transactions and balances have been eliminated. Reclassifications have been made in the 2014 and 2013 financial statements to conform to the presentation of the 2015 financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the revenues and expenses reflected during the reporting period. The most significant items on our balance sheet that involve a greater degree of accounting estimates that are subject to change in the future are the valuation of investments, other-than-temporary impairments, loss and loss expense reserves and premium estimates. Actual results could differ from those estimates.

(B) Revenue recognition

Insurance premiums are recognized as written at the inception of the policy. Reinsurance premiums are estimated based upon information received from ceding companies, and subsequent differences from such estimates are recorded in the period they are determined. Insurance and reinsurance premiums are primarily earned on a pro rata basis over the policy term. Fees for services are earned over the period that the services are provided.

Audit premiums are recognized when they are reliably determinable. The change in accruals for earned but unbilled audit premiums increased net premiums written and premiums earned by $3 million, $9 million and $12 million in 2015, 2014 and 2013, respectively.

Revenues from wholly-owned investees are derived from aircraft services provided to the general, commercial and military aviation markets. These services include (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenue is recognized upon the shipment of parts, the delivery of aircraft, the delivery of fuel, and upon completion of services.

Insurance service fee revenue represents servicing fees for program administration and claims management services provided by the Company, including workers compensation assigned risk plans, as well as insurance brokerage and risk management services. Fees for program administration, claims management and risk management services are primarily recognized ratably over the related contract period for which the underlying services are rendered. Commissions for insurance brokerage are generally recognized when the underlying insurance policy is effective.

Cash equivalents consist of funds invested in money market accounts and investments with an effective maturity of three months or less when purchased.

(D) Investments

Fixed maturity securities classified as available for sale are carried at estimated fair value, with unrealized gains and losses, net of applicable income taxes, excluded from earnings and reported as a component of comprehensive income and a separate component of stockholders' equity. Fixed maturity securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Investment income from fixed maturity securities is recognized based on the constant effective yield method. Premiums and discounts on mortgage-backed securities are adjusted for the effects of actual and anticipated prepayments on a retrospective basis.

Equity securities classified as available for sale are carried at estimated fair value, with unrealized gains and losses, net of applicable income taxes, excluded from earnings and reported as a component of comprehensive income and a separate component of stockholders' equity.

Equity and fixed maturity securities that the Company purchased with the intent to sell in the near-term are classified as trading account securities and are reported at estimated fair value. Realized and unrealized gains and losses from trading activity are reported as net investment income and are recorded at the trade date. Short sales and short call options are presented as trading securities sold but not yet purchased. Unsettled trades and the net margin balances held by the clearing broker are presented as a trading account receivable from brokers and clearing organizations.

Investment funds are carried under the equity method of accounting. For certain investment funds, the Company's share of the earnings or losses is reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements.

Loans receivable primarily represent commercial real estate mortgage loans and bank loans and are carried at amortized cost. The Company monitors the performance of its loans receivable and establishes an allowance for loan losses for loans where the Company determines it is probable that the contractual terms will not be met, with a corresponding charge to earnings. For loans that are evaluated individually and deemed to be impaired, the Company establishes a specific allowance based on a discounted cash flow analysis and comparable cost and sales methodologies, if appropriate. Individual loans that are not considered impaired and smaller-balance homogeneous loans are evaluated collectively and a general allowance is established if it is considered probable that a loss has been incurred.

The accrual of interest on loans receivable is discontinued if the loan is 90 days past due based on the contractual terms of the loan unless the loan is adequately secured and in process of collection. In general, loans are placed on non-accrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. Interest on these loans is accounted for on a cash basis until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value of investments is determined based on a fair value hierarchy that prioritizes the use of observable inputs over the use of unobservable inputs and requires the use of observable inputs when available. (See Note 13 of the Notes to Consolidated Financial Statements.)

Realized gains or losses represent the difference between the cost of securities sold and the proceeds realized upon sale and are recorded at the trade date. The Company uses primarily the first-in, first-out method to determine the cost of securities sold.

The cost of securities is adjusted where appropriate to include a provision for a decline in value which is considered to be other than temporary. An other-than-temporary decline is considered to occur in investments where there has been a sustained reduction in fair value and where the Company does not expect to recover the cost basis of the investment prior to the time of sale or maturity. Since equity securities do not have a contractual cash flow or a maturity, the Company considers whether the price of an equity security is expected to recover within a reasonable period of time.

For fixed maturity securities that the Company intends to sell or, more likely than not, would be required to sell, a decline in value below amortized cost is considered to be an other-than-temporary impairment (“OTTI”). The amount of OTTI is equal to the difference between amortized cost and fair value at the balance sheet date. For fixed maturity securities that the Company does not intend to sell or believes that it is more likely than not it would not be required to sell, a decline in value below amortized cost is considered to be an OTTI if the Company does not expect to recover the entire amortized cost basis of a security (i.e., the present value of cash flows expected to be collected is less than the amortized cost basis of the security). The portion of the decline in value considered to be a credit loss (i.e., the difference between the present value of cash flows expected to be collected and the amortized cost basis of the security) is recognized in earnings. The portion of the decline in value not considered to be a credit loss (i.e., the difference in the present value of cash flows expected to be collected and the fair value of the security) is recognized in other comprehensive income.

Impairment assessments for structured securities, including mortgage-backed securities and asset-backed securities, collateralized debt obligations and corporate debt, are generally evaluated based on the performance of the underlying collateral under various economic and default scenarios that may involve subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default rates, the nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and performance factors. If an OTTI determination is made, a discounted cash flow analysis is used to ascertain the amount of the credit impairment.

Real estate held for investment purposes is initially recorded at the purchase price, which is generally fair value, and is subsequently reported at cost less accumulated depreciation. Real estate taxes, interest and other costs incurred during development and construction are capitalized. Buildings are depreciated on a straight-line basis over the estimated useful lives of the building. Minimum rental income is recognized on a straight-line basis over the lease term. Income and expenses from real estate are reported as net investment income. The carrying value of real estate is reviewed for impairment and an impairment loss is recognized if the estimated undiscounted cash flows from the use and disposition of the property are less than the carrying value of the property.

(E) Per share data

The Company presents both basic and diluted net income per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by weighted average number of common shares outstanding during the year. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the year and is calculated using the treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation.

(F) Deferred policy acquisition costs

Acquisition costs associated with the successful acquisition of new and renewed insurance and reinsurance contracts are deferred and amortized ratably over the terms of the related contracts. Ceding commissions received on reinsurance contracts are netted against acquisition costs and are recognized ratably over the life of the contract. Deferred policy acquisition costs are presented net of unearned ceding commissions. Deferred policy acquisition costs are comprised primarily of commissions, as well as employment-related underwriting costs and premium taxes. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income and, if not, are charged to expense. The recoverability of deferred policy acquisition costs is evaluated separately by each of our operating companies for each of their major lines of business. Future investment income is taken into account in measuring the recoverability of deferred policy acquisition costs.

(G) Reserves for losses and loss expenses

Reserves for losses and loss expenses are an accumulation of amounts determined on the basis of (1) evaluation of claims for business written directly by the Company; (2) estimates received from other companies for reinsurance assumed by the Company; and (3) estimates for losses incurred but not reported (based on Company and industry experience). These estimates are periodically reviewed and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments are reflected in the statements of income in the period in which they are determined. The Company discounts its reserves for excess and assumed workers' compensation claims using a risk-free or statutory rate. (See Note 14 of Notes to Consolidated Financial Statements.)

(H) Reinsurance ceded

The unearned portion of premiums ceded to reinsurers is reported as prepaid reinsurance premiums and earned ratably over the policy term. The estimated amounts of reinsurance recoverable on unpaid losses are reported as due from reinsurers. To the extent any reinsurer does not meet its obligations under reinsurance agreements, the Company must discharge its liability. Amounts due from reinsurers are reflected net of funds held where the right of offset is present. The Company has provided reserves for estimated uncollectible reinsurance.

(I) Deposit accounting

Contracts that do not meet the risk transfer requirements of GAAP are accounted for using the deposit accounting method. Under this method, an asset or liability is recognized at the inception of the contract based on consideration paid or received. The amount of the deposit asset or liability is adjusted at subsequent reporting dates using the interest method with a corresponding credit or charge to interest income or expense. Deposit liabilities for assumed reinsurance contracts were $54 million and $68 million at December 31, 2015 and 2014, respectively.

(J) Federal and foreign income taxes

The Company files a consolidated income tax return in the U.S. and foreign tax returns in countries where it has overseas operations. The Company's method of accounting for income taxes is the asset and liability method. Under this method, deferred tax assets and liabilities are measured using tax rates currently in effect or expected to apply in the years in which those temporary differences are expected to reverse. Interest and penalties, if any, are reported as income tax expense. The Company believes there are no tax positions that would require disclosure under GAAP. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will not be realized.

(K) Foreign currency

Gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's functional currency) are reported on the statements of income as other operating costs and expenses. Unrealized gains or losses resulting from translating the results of non-U.S. dollar denominated operations are reported in accumulated other comprehensive income. Revenues and expenses denominated in currencies other than U.S. dollars are translated at the weighted average exchange rate during the year. Assets and liabilities are translated at the rate of exchange in effect at the balance sheet date.

(L) Property, furniture and equipment

Property, furniture and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the estimated useful lives of the respective assets. Depreciation expense was $45 million, $44 million and $38 million for 2015, 2014 and 2013, respectively.

(M) Comprehensive income

Comprehensive income encompasses all changes in stockholders' equity (except those arising from transactions with stockholders) and includes net income, net unrealized holding gains or losses on available for sale securities, unrealized foreign currency translation adjustments and changes in unrecognized pension obligations.

(N) Goodwill and other intangible assets

Goodwill and other intangible assets are tested for impairment on an annual basis and at interim periods where circumstances require. The Company's impairment test as of December 31, 2015 indicated that there were no impairment losses related to goodwill and other intangible assets. Intangible assets of $94 million and $96 million are included in other assets as of December 31, 2015 and 2014, respectively.

(O) Stock options

The costs resulting from all share-based payment transactions with employees are recognized in the consolidated financial statements using a fair-value-based measurement method. Compensation cost is recognized for financial reporting purposes over the period in which the employee is required to provide service in exchange for the award (generally the vesting period).

(P) Statements of cash flows

Interest payments were $130 million, $120 million and $125 million in 2015, 2014 and 2013, respectively. Income taxes paid were $165 million, $314 million and $186 million in 2015, 2014 and 2013, respectively. Other non-cash items include acquisitions, unrealized investment gains and losses and pension expense. (See Note 2, Note 11 and Note 25 of Notes to Consolidated Financial Statements.)

(Q) Recent accounting pronouncements

The accounting and reporting standards that became effective in 2015 were either not applicable to the Company or their adoption did not have a material impact on the Company.

Accounting and reporting standards that are not yet effective:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Customers. ASU 2014-09 clarifies the principles for recognizing revenue. While insurance contracts

are not within the scope of this updated guidance, the Company’s insurance service fee revenue will be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The updated guidance, as amended by ASU 2015-14, is effective for public business entities for annual and interim reporting periods beginning after December 15, 2017. The adoption of this guidance is not expected to have a material effect on the Company’s financial condition or results of operations.

In February 2015, the FASB issued ASU 2015-02, Consolidation. ASU 2015-02 makes targeted amendments to the current consolidation accounting guidance, in response to accounting complexity concerns. The guidance simplifies consolidation accounting by reducing the number of approaches to consolidation. The updated guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The adoption of this guidance is not expected to have a material effect on the Company’s financial condition or results of operations, but will result in additional disclosures.

In May 2015, the FASB issued ASU 2015-09, Disclosures about Short-Duration Contracts. ASU 2015-09 requires companies that issue short duration insurance contracts to disclose additional information, including: (i) incurred and paid claims development tables; (ii) frequency and severity of claims; and (iii) information about material changes in judgments made in calculating the liability for unpaid claim adjustment expenses, including reasons for the change and the effects on the financial statements. ASU 2015-09 is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The amendments in ASU 2015-09 should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. As the requirements of this literature are disclosure only, the adoption of this guidance will not impact our financial condition or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments. ASU 2016-01 amends the accounting guidance for financial instruments to require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The updated guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017 and interim periods within those years. The adoption of this guidance is not expected to have a material effect on the Company’s financial condition upon adoption, but will impact results of operations after adoption of this guidance as unrealized gains and losses on equity securities will no longer be reported directly in AOCI, but will instead be reported in net income.

All other recently issued but not yet effective accounting and reporting standards are either not applicable to the Company or are not expected to have a material impact on the Company.

(2) Acquisitions / Dispositions

In 2015, the Company acquired an aviation systems company for $8 million.

In 2014, the Company acquired a specialty property and casualty insurance distribution company for $83 million. The fair values of the assets acquired and liabilities assumed have been estimated based on a valuation prepared by a third party. The estimated useful lives of the intangible assets acquired range from 7 years to 15 years, with approximately $10 million having an indefinite life.

In 2014, the Company sold an aviation-related business for $16 million. The business had a net carrying value of $15 million, comprised of $7 million of goodwill, $6 million of other assets, $4 million of furniture and equipment and $2 million of liabilities.

The following table summarizes the estimated fair value of net assets acquired and liabilities assumed for the business combination completed in 2014:



(In thousands)	2014

Cash and cash equivalents	$	17,457
Real estate, furniture and equipment	669
Goodwill and other intangibles assets	79,646
Premium and service fee receivable	24,432
Other assets	2,590
Total assets acquired	124,794
Deferred federal income tax	(7,107		)
Debt	—
Other liabilities assumed	(34,809		)
Net assets acquired	$	82,878

(3) Consolidated Statement of Comprehensive Income (Loss)

The following table presents the components of the changes in accumulated other comprehensive income (loss) (AOCI) as of and for the year ended December 31, 2015:



(In thousands)	Unrealized investment gains (losses)				Currency translation adjustments			Net pension asset		Accumulated other comprehensive income (loss)
Changes in AOCI
Beginning of period	$	306,199			$	(122,649	)	$	—	$	183,550
Other comprehensive income (loss) before reclassifications	(119,994		)		(124,744		)	—		(244,738		)
Amounts reclassified from AOCI	(5,548		)		—			—		(5,548		)
Other comprehensive income (loss)	(125,542		)		(124,744		)	—		(250,286		)
Unrealized investment gain related to non-controlling interest	38				—			—		38
Ending balance	$	180,695			$	(247,393	)	$	—	$	(66,698	)
Amounts reclassified from AOCI
Pre-tax	$	(8,535	)	(1)	$	—		$	—	$	(8,535	)
Tax effect	2,987			(2)	—			—		2,987
After-tax amounts reclassified	$	(5,548	)		$	—		$	—	$	(5,548	)
Other comprehensive income (loss)
Pre-tax	$	(192,186	)		$	(124,744	)	$	—	$	(316,930	)
Tax effect	66,644				—			—		66,644
Other comprehensive income (loss)	$	(125,542	)		$	(124,744	)	$	—	$	(250,286	)

The following table presents the components of the changes in accumulated other comprehensive income (loss) (AOCI) as of and for the year ended December 31, 2014:



(In thousands)	Unrealized investment gains (losses)				Currency translation adjustments			Net pension asset				Accumulated other comprehensive income (loss)
Changes in AOCI
Beginning of period	$	256,566			$	(60,524	)	$	(6,651	)		$	189,391
Other comprehensive income (loss) before reclassifications	98,294				(62,125		)	—				36,169
Amounts reclassified from AOCI	(48,628		)		—			6,651				(41,977		)
Other comprehensive income (loss)	49,666				(62,125		)	6,651				(5,808		)
Unrealized investment gain related to non-controlling interest	(33		)		—			—				(33		)
Ending balance	$	306,199			$	(122,649	)	$	—			$	183,550
Amounts reclassified from AOCI
Pre-tax	$	(74,812	)	(1)	$	—		$	10,232		(3)	$	(64,580	)
Tax effect	26,184			(2)	—			(3,581		)	(2)	22,603
After-tax amounts reclassified	$	(48,628	)		$	—		$	6,651			$	(41,977	)
Other comprehensive income (loss)
Pre-tax	$	72,889			$	(62,125	)	$	10,232			$	20,996
Tax effect	(23,223		)		—			(3,581		)		(26,804		)
Other comprehensive income (loss)	$	49,666			$	(62,125	)	$	6,651			$	(5,808	)

(1) Net investment gains in the consolidated statements of income.

(2) Income tax expense in the consolidated statements of income.

(3) Other operating costs and expenses in the consolidated statements of income.

(4) Investments in Fixed Maturity Securities

At December 31, 2015 and 2014, investments in fixed maturity securities were as follows:



(In thousands)	Amortized Cost			Gross Unrealized					Fair Value		Carrying Value
Gains			Losses
December 31, 2015
Held to maturity:
State and municipal	$	77,129		$	16,246	$	—		$	93,375	$	77,129
Residential mortgage-backed	19,138			2,207		—			21,345		19,138
Corporate	—			—		—			—		—
Total held to maturity	96,267			18,453		—			114,720		96,267
Available for sale:
U.S. government and government agency	645,092			27,660		(2,333		)	670,419		670,419
State and municipal:
Special revenue	2,510,816			102,909		(3,737		)	2,609,988		2,609,988
State general obligation	583,456			28,068		(2,070		)	609,454		609,454
Pre-refunded	439,772			32,056		(31		)	471,797		471,797
Corporate backed	388,904			14,039		(402		)	402,541		402,541
Local general obligation	342,158			24,270		(29		)	366,399		366,399
Total state and municipal	4,265,106			201,342		(6,269		)	4,460,179		4,460,179
Mortgage-backed securities:
Residential (1)	1,126,382			18,935		(11,180		)	1,134,137		1,134,137
Commercial	64,975			875		(128		)	65,722		65,722
Total mortgage-backed securities	1,191,357			19,810		(11,308		)	1,199,859		1,199,859
Asset-backed securities	1,706,694			12,892		(14,414		)	1,705,172		1,705,172
Corporate:
Industrial	1,976,393			75,168		(30,027		)	2,021,534		2,021,534
Financial	1,153,096			31,744		(11,819		)	1,173,021		1,173,021
Utilities	192,857			8,321		(2,527		)	198,651		198,651
Other	81,607			245		(20		)	81,832		81,832
Total corporate	3,403,953			115,478		(44,393		)	3,475,038		3,475,038
Foreign	799,839			50,310		(12,689		)	837,460		837,460
Total available for sale	12,012,041			427,492		(91,406		)	12,348,127		12,348,127
Total investments in fixed maturity securities	$	12,108,308		$	445,945	$	(91,406	)	$	12,462,847	$	12,444,394



(In thousands)	Amortized Cost			Gross Unrealized					Fair Value		Carrying Value
Gains			Losses
December 31, 2014
Held to maturity:
State and municipal	$	72,901		$	17,501	$	—		$	90,402	$	72,901
Residential mortgage-backed	23,278			2,854		—			26,132		23,278
Corporate	4,998			291		—			5,289		4,998
Total held to maturity	101,177			20,646		—			121,823		101,177
Available for sale:
U.S. government and government agency	773,192			33,353		(3,157		)	803,388		803,388
State and municipal:
Special revenue	2,264,210			111,841		(2,084		)	2,373,967		2,373,967
State general obligation	674,022			37,615		(787		)	710,850		710,850
Pre-refunded	504,778			35,619		(289		)	540,108		540,108
Corporate backed	413,234			18,976		(855		)	431,355		431,355
Local general obligation	281,622			25,099		(5		)	306,716		306,716
Total state and municipal	4,137,866			229,150		(4,020		)	4,362,996		4,362,996
Mortgage-backed securities:
Residential (1)	1,201,924			27,124		(9,449		)	1,219,599		1,219,599
Commercial	74,479			1,610		(52		)	76,037		76,037
Total mortgage-backed securities	1,276,403			28,734		(9,501		)	1,295,636		1,295,636
Asset-backed securities	2,019,032			18,868		(11,974		)	2,025,926		2,025,926
Corporate:
Industrial	1,606,724			117,206		(5,131		)	1,718,799		1,718,799
Financial	1,140,801			38,080		(7,673		)	1,171,208		1,171,208
Utilities	184,107			12,436		(1		)	196,542		196,542
Other	86,294			1,370		(2		)	87,662		87,662
Total corporate	3,017,926			169,092		(12,807		)	3,174,211		3,174,211
Foreign	897,668			62,223		(18,065		)	941,826		941,826
Total available for sale	12,122,087			541,420		(59,524		)	12,603,983		12,603,983
Total investments in fixed maturity securities	$	12,223,264		$	562,066	$	(59,524	)	$	12,725,806	$	12,705,160


(1)	Gross unrealized losses for mortgage-backed securities include $1,269,491 and $1,095,671, as of December 31, 2015 and 2014, respectively, related to the non-credit portion of OTTI recognized in other comprehensive income.

The amortized cost and fair value of fixed maturity securities at December 31, 2015, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay obligations.



(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	711,642	$	717,075
Due after one year through five years	4,056,450		4,185,436
Due after five years through ten years	3,653,308		3,795,614
Due after ten years	2,476,413		2,543,518
Mortgage-backed securities	1,210,495		1,221,204
Total	$	12,108,308	$	12,462,847

At December 31, 2015 and 2014, there were no investments, other than investments in United States government and government agency securities, which exceeded 10% of common stockholders’ equity. At December 31, 2015, investments with a carrying value of $1,201 million were on deposit in custodial or trust accounts, of which $963 million was on deposit with state insurance departments, $182 million was on deposit in support of the Company’s underwriting activities at Lloyd’s, $41 million was on deposit as security for reinsurance clients and $15 million was on deposit as security for letters of credit issued in support of the Company’s reinsurance operations.


(5)	Investments in Equity Securities Available for Sale

At December 31, 2015 and 2014, investments in equity securities available for sale were as follows:



(In thousands)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Carrying Value
December 31, 2015
Common stocks	$	56,462	$	—	$	(19,189	)	$	37,273	$	37,273
Preferred stocks	108,730		8,216		(3,353		)	113,593		113,593
Total	$	165,192	$	8,216	$	(22,542	)	$	150,866	$	150,866

December 31, 2014
Common stocks	$	69,870	$	11,929	$	(5,453	)	$	76,346	$	76,346
Preferred stocks	90,425		8,385		(4,165		)	94,645		94,645
Total	$	160,295	$	20,314	$	(9,618	)	$	170,991	$	170,991

(6) Arbitrage Trading Account

At December 31, 2015 and 2014, the fair value and carrying value of the arbitrage trading account were $377 million and $451 million, respectively. The primary focus of the trading account is merger arbitrage. Merger arbitrage is the business of investing in the securities of publicly held companies which are the targets in announced tender offers and mergers. Arbitrage investing differs from other types of investing in its focus on transactions and events believed likely to bring about a change in value over a relatively short time period (usually four months or less).

The Company uses put options, call options and swap contracts in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading account. These options and contracts are reported at fair value. As of December 31, 2015, the fair value of long option contracts outstanding was $3 million (notional amount of $52 million) and the fair value of short option contracts outstanding was $1 million (notional amount of $62 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.


(7)	Net Investment Income

Net investment income consists of the following:



(In thousands)	2015			2014			2013
Investment income earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	428,325		$	439,489		$	442,287
Equity securities available for sale	4,624			6,726			11,380
Investment funds	62,228			131,649			67,712
Arbitrage trading account	16,891			22,438			20,431
Real estate	11,294			10,228			12,498
Gross investment income	523,362			610,530			554,308
Investment expense	(10,717		)	(9,645		)	(10,017		)
Net investment income	$	512,645		$	600,885		$	544,291

(8) Investment Funds

Investment funds consist of the following:



	Carrying Value as of December 31,				Income (Losses)
(In thousands)	2015		2014		2015			2014		2013
Real estate	$	580,830	$	466,703	$	58,032		$	26,233	$	9,315
Energy	93,719		152,056		(37,373		)	12,797		29,739
Hedged equity	70,580		282,335		(2,762		)	10,760		7,655
Other funds	424,911		310,307		44,331			81,859		21,003
Total	$	1,170,040	$	1,211,401	$	62,228		$	131,649	$	67,712

Other funds include private equity investments carried on the equity method of accounting, which includes a publicly traded common stock investment in HealthEquity, Inc. (HQY). Our ownership interest in HQY as of December 31, 2015 is approximately 21% with a fair value of $300.1 million and a carrying value of $45.4 million.


(9)	Real Estate

Investment in real estate represents directly owned property held for investment, as follows:



	As of December 31,
(In thousands)	2015		2014
Properties in operation	$	226,055	$	196,980
Properties under development	710,312		534,632
Total	$	936,367	$	731,612

In 2015, properties in operation included a long-term ground lease in Washington, D.C. and office buildings in West Palm Beach and Palm Beach, Florida. Properties in operation are net of accumulated depreciation and amortization of $9,073,000 and $1,609,000 as of December 31, 2015 and 2014, respectively. Related depreciation expense was $7,425,000 and $4,808,000 for the years ended December 31, 2015 and 2014, respectively. Future minimum rental income expected on operating leases relating to properties in operation is $13,141,756 in 2016, $15,483,248 in 2017, $14,623,307 in 2018, $11,967,190 in 2019, $9,584,128 in 2020 and $352,328,662 thereafter.

Properties under development represent the following: an office building in London, a mixed-use project in Washington D.C. and an office complex in New York City.

(10) Loans Receivable

Loans receivable are as follows:



	As of December 31,
(In thousands)	2015			2014
Amortized cost:
Real estate loans	$	200,499		$	243,407
Commercial loans	72,604			78,605
Total	$	273,103		$	322,012

Fair value:
Real estate loans	$	201,641		$	245,112
Commercial loans	74,106			80,107
Total	$	275,747		$	325,219

Valuation allowance:
Specific	$	—		$	115
General	2,094			2,371
Total	$	2,094		$	2,486

	For the Year Ended December 31,
	2015			2014
(Decrease) increase in valuation allowance	$	(392	)	$	398

Loans receivable in non-accrual status were $3.1 million and $14.2 million as of December 31, 2015 and 2014, respectively, primarily resulting from the sale of such loans.

The Company monitors the performance of its loans receivable and assesses the ability of the borrower to pay principal and interest based upon loan structure, underlying property values, cash flow and related financial and operating performance of the property and market conditions. Loans receivable with a potential for default are further assessed using discounted cash flow analysis and comparable cost and sales methodologies, if appropriate.

The real estate loans are secured by commercial real estate primarily located in Arizona, Maryland, New York and Tennessee. These loans generally earn interest at floating LIBOR-based interest rates and have maturities (inclusive of extension options) through August 2025. The commercial loans are with small business owners who have secured the related financing with the assets of the business. These loans generally earn interest on a fixed basis and have varying maturities not exceeding 10 years.

The Company utilizes a risk rating system to assign a risk to each of its real estate loans. The loan rating system takes into consideration credit quality indicators including loan to value ratios, which compare the outstanding loan amount to the estimated value of the property, the borrower’s financial condition and performance with respect to loan terms, the Company’s position in the capital structure, and the overall leverage in the capital structure. Based on this rating system, none of the real estate loans were considered to be impaired at December 31, 2015, and accordingly, the Company determined that a specific valuation allowance was not required.


(11)	Realized and Unrealized Investment Gains and Losses

Realized and unrealized investment gains and losses are as follows:



(In thousands)	2015			2014			2013
Realized investment gains and losses:
Fixed maturity securities:
Gains	$	23,755		$	39,113		$	48,860
Losses	(4,065		)	(4,420		)	(14,670		)
Equity securities available for sale	9,639			38,296			70,235
Investment funds	93,529			96,204			10,976
Real estate	—			85,659			—
Other gains	2,775			—			12,185
Net realized gains on investments sales	125,633			254,852			127,586

Net other-than-temporary impairments:
Other-than-temporary impairments	(33,309		)	—			(6,042		)
Net other-than-temporary impairments	(33,309		)	—			(6,042		)
Total net investment gains	92,324			254,852			121,544
Income tax expense	(32,313		)	(89,198		)	(47,426		)
After-tax realized investment gain and losses	$	60,011		$	165,654		$	74,118



Change in unrealized gains and losses of available for sales securities:
Fixed maturity securities	$	(144,445	)	$	155,765		$	(401,812	)
Previously impaired fixed maturity securities	(174		)	865			1,076
Equity securities available for sale	(27,809		)	(69,016		)	11,864
Investment funds	(19,758		)	(14,725		)	(10,250		)
Total change in unrealized gains	(192,186		)	72,889			(399,122		)
Income tax benefit (expense)	66,644			(23,223		)	138,058
Noncontrolling interests	38			(33		)	(28		)
After-tax change in unrealized investment gain and losses of available for sale securities	$	(125,504	)	$	49,633		$	(261,092	)

OTTI recognized in earnings were $33.3 million and $6 million for the years ended December 31, 2015 and December 31, 2013, respectively. There were no OTTI for the year ended December 31, 2014. For the year ended December 31, 2015, OTTI related to equity securities were $24.3 million and related to fixed maturity securities were $9 million. For the year ended December 31, 2013, OTTI related to equity securities.

(12) Securities in an Unrealized Loss Position

The following table summarizes all securities in an unrealized loss position at December 31, 2015 and 2014 by the length of time those securities have been continuously in an unrealized loss position.



	Less Than 12 Months				12 Months or Greater				Total
(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
December 31, 2015
U.S. government and government agency	$	101,660	$	487	$	64,500	$	1,846	$	166,160	$	2,333
State and municipal	501,952		4,404		106,681		1,865		608,633		6,269
Mortgage-backed securities	381,986		3,639		184,807		7,669		566,793		11,308
Asset-backed securities	1,091,078		7,703		190,467		6,711		1,281,545		14,414
Corporate	1,232,940		35,406		76,797		8,987		1,309,737		44,393
Foreign government	169,190		8,822		19,528		3,867		188,718		12,689
Fixed maturity securities	3,478,806		60,461		642,780		30,945		4,121,586		91,406
Common stocks	18,641		18,005		7,829		1,184		26,470		19,189
Preferred stocks	—		—		22,320		3,353		22,320		3,353
Equity securities available for sale	18,641		18,005		30,149		4,537		48,790		22,542
Total	$	3,497,447	$	78,466	$	672,929	$	35,482	$	4,170,376	$	113,948

December 31, 2014
U.S. government and government agency	$	84,750	$	522	$	84,850	$	2,635	$	169,600	$	3,157
State and municipal	158,594		631		150,284		3,389		308,878		4,020
Mortgage-backed securities	75,739		332		312,922		9,169		388,661		9,501
Asset-backed securities	1,186,097		6,217		30,818		5,757		1,216,915		11,974
Corporate	400,141		2,480		183,810		10,327		583,951		12,807
Foreign government	76,471		3,907		85,025		14,158		161,496		18,065
Fixed maturity securities	1,981,792		14,089		847,709		45,435		2,829,501		59,524
Common stocks	15,929		5,453		—		—		15,929		5,453
Preferred stocks	27,126		1,139		22,648		3,026		49,774		4,165
Equity securities available for sale	43,055		6,592		22,648		3,026		65,703		9,618
Total	$	2,024,847	$	20,681	$	870,357	$	48,461	$	2,895,204	$	69,142

Fixed Maturity Securities — A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at December 31, 2015 is presented in the table below:



(Dollars in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Mortgage-backed securities	8	$	23,370	$	1,790
Asset-backed securities	7	19,535		264
Corporate	12	128,716		6,717
Foreign government	1	13,956		3,766
Total	28	$	185,577	$	12,537

For OTTI of fixed maturity securities that management does not intend to sell or, more likely than not, would not be required to sell, the portion of the decline in value considered to be due to credit factors is recognized in earnings and the portion of the decline in value considered to be due to non-credit factors is recognized in other comprehensive income.

For the year ended December 31, 2015, OTTI for fixed maturities recognized in earnings were $9.0 million, all of which was considered due to credit factors. There were no OTTI of fixed maturity securities for the year ended December 31, 2014.

The Company has evaluated its fixed maturity securities in an unrealized loss position and believes the unrealized losses are due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default on financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due and does not consider any of these securities to be OTTI.

Preferred Stocks – At December 31, 2015, there was one preferred stock in an unrealized loss position, with an aggregate fair value of $22.3 million and a gross unrealized loss of $3.4 million. The preferred stock is rated investment grade. Management believes the unrealized loss is due primarily to market and sector related factors and does not consider it to be OTTI. For the year ended December 31, 2015, OTTI for preferred stocks were $13.4 million. There were no OTTI of preferred stocks for the year ended December 31, 2014.

Common Stocks – At December 31, 2015, there were two common stocks in an unrealized loss position, with an aggregate fair value of $26.5 million and a gross unrealized loss of $19.2 million. Based on management's view on the underlying securities, the Company does not consider the common stocks to be OTTI. For the year ended December 31, 2015, OTTI for common stocks were $10.9 million. There were no OTTI of common stocks for the year ended December 31, 2014.

Loans Receivable – The Company monitors the performance of its loans receivable, including current market conditions for each loan and the ability to collect principal and interest. For loans where the Company determines it is probable that the contractual terms will not be met, an analysis is performed and a valuation reserve is established, if necessary, with a charge to earnings. Loans receivable are reported net of a valuation reserve of $2 million and $3 million at December 31, 2015 and 2014, respectively.

(13) Fair Value Measurements

The Company’s fixed maturity and equity securities classified as available for sale and its trading account securities are carried at fair value. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Quoted prices for similar assets or valuations based on inputs that are observable.

Level 3 - Estimates of fair value based on internal pricing methodologies using unobservable inputs. Unobservable inputs are only used to measure fair value to the extent that observable inputs are not available.

Substantially all of the Company’s fixed maturity securities were priced by independent pricing services. The prices provided by the independent pricing services are estimated based on observable market data in active markets utilizing pricing models and processes, which may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, sector groupings, matrix pricing and reference data. The pricing services may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs are available for each security evaluation on any given day. The pricing services used by the Company have indicated that they will only produce an estimate of fair value if objectively verifiable information is available. The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness and periodically performs independent price tests of a sample of securities to ensure proper valuation.

If prices from independent pricing services are not available for fixed maturity securities, the Company estimates the fair value. For Level 2 securities, the Company utilizes pricing models and processes which may include benchmark yields, sector groupings, matrix pricing, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, bids, offers and reference data. Where broker quotes are used, the Company generally requests two or more quotes and sets a price within the range of quotes received based on its assessment of the credibility of the quote and its own evaluation of the security. The Company generally does not adjust quotes received from brokers. For securities traded only in private negotiations, the Company determines fair value based primarily on the cost of such securities, which is adjusted to reflect prices of recent placements of securities of the same issuer, financial projections, credit quality and business developments of the issuer and other relevant information.

For Level 3 securities, the Company generally uses a discounted cash flow model to estimate the fair value of fixed maturity securities. The cash flow models are based upon assumptions as to prevailing credit spreads, interest rate and interest rate volatility, time to maturity and subordination levels. Projected cash flows are discounted at rates that are adjusted to reflect illiquidity, where appropriate.

The following tables present the assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014 by level:



(In thousands)	Total		Level 1		Level 2		Level 3
December 31, 2015
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	670,419	$	—	$	670,419	$	—
State and municipal	4,460,179		—		4,460,179		—
Mortgage-backed securities	1,199,859		—		1,199,859		—
Asset-backed securities	1,705,172		—		1,704,973		199
Corporate	3,475,038		—		3,474,884		154
Foreign government	837,460		—		837,460		—
Total fixed maturity securities available for sale	12,348,127		—		12,347,774		353
Equity securities available for sale:
Common stocks	37,273		29,444		—		7,829
Preferred stocks	113,593		—		109,969		3,624
Total equity securities available for sale	150,866		29,444		109,969		11,453
Arbitrage trading account	376,697		256,914		119,607		176
Total	$	12,875,690	$	286,358	$	12,577,350	$	11,982
Liabilities:
Trading account securities sold but not yet purchased	$	37,035	$	35,559	$	1,476	$	—

December 31, 2014
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	803,388	$	—	$	803,388	$	—
State and municipal	4,362,996		—		4,362,996		—
Mortgage-backed securities	1,295,636		—		1,295,636		—
Asset-backed securities	2,025,926		—		2,005,315		20,611
Corporate	3,174,211		—		3,174,057		154
Foreign government	941,826		—		941,826		—
Total fixed maturity securities available for sale	12,603,983		—		12,583,218		20,765
Equity securities available for sale:
Common stocks	76,346		65,605		—		10,741
Preferred stocks	94,645		—		90,932		3,713
Total equity securities available for sale	170,991		65,605		90,932		14,454
Arbitrage trading account	450,648		295,047		154,881		720
Total	$	13,225,622	$	360,652	$	12,829,031	$	35,939
Liabilities:
Trading account securities sold but not yet purchased	$	106,079	$	106,074	$	5	$	—

There were no significant transfers between Levels 1 and 2 for the years ended December 31, 2015 and 2014.

The following tables summarize changes in Level 3 assets and liabilities for the years ended December 31, 2015 and 2014:



	Gains (Losses) Included in:
(In thousands)	Beginning Balance		Earnings (Losses)			Other Comprehensive Income (Losses)			Impairments			Purchases		Sales			Paydowns/Maturities			Transfers In / Out			Ending Balance
Year ended December 31, 2015
Assets:
Fixed maturity securities available for sale:
Asset-backed securities	$	20,611	$	19		$	191		$	—		$	—	$	—		$	(1,820	)	$	(18,802	)	$	199
Corporate	154		—			—			—			—		—			—			—			154
Total	20,765		19			191			—			—		—			(1,820		)	(18,802		)	353
Equity securities available for sale:
Common stocks	10,741		—			(273		)	(2,331		)	—		(308		)	—			—			7,829
Preferred stocks	3,713		(89		)	—			—			—		—			—			—			3,624
Total	14,454		(89		)	(273		)	(2,331		)	—		(308		)	—			—			11,453
Arbitrage trading account	720		(799		)	—			—			72,640		(71,921		)	—			(464		)	176
Total	$	35,939	$	(869	)	$	(82	)	$	(2,331	)	$	72,640	$	(72,229	)	$	(1,820	)	$	(19,266	)	$	11,982
Liabilities:
Trading account securities sold but not yet purchased	$	—	$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—

Year ended December 31, 2014
Assets:
Fixed maturity securities available for sale:
Asset-backed securities	$	42,710	$	47		$	(3,711	)	$	—		$	238	$	(15,244	)	$	(3,429	)	$	—		$	20,611
Corporate	$	154	$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	154
Total	42,864		47			(3,711		)	—			238		(15,244		)	(3,429		)	—			20,765
Equity securities available for sale:
Common stocks	1,238		—			(911		)	—			11,343		(929		)	—			—			10,741
Preferred stocks	3,752		(17		)	—			—			3,430		(3,452		)	—			—			3,713
Total	4,990		(17		)	(911		)	—			14,773		(4,381		)	—			—			14,454
Arbitrage trading account	1,780		2,274			—			—			4,942		(14,073		)	—			5,797			720
Total	$	49,634	$	2,304		$	(4,622	)	$	—		$	19,953	$	(33,698	)	$	(3,429	)	$	5,797		$	35,939
Liabilities:
Trading account securities sold but not yet purchased	$	—	$	(20	)	$	—		$	—		$	31	$	(11	)	$	—		$	—		$	—

During the year ended December 31, 2015, five securities were transferred out of Level 3 as an observable price was available. During the year ended December 31, 2014, two securities were transferred into Level 3 as quoted prices were no longer available.

(14) Reserves for Losses and Loss Expenses

The table below provides a reconciliation of the beginning and ending reserve balances:



(In thousands)	2015			2014			2013
Net reserves at beginning of year	$	8,970,641		$	8,683,797		$	8,411,851
Net provision for losses and loss expenses:
Claims occuring during the current year(1)	3,653,561			3,495,825			3,221,393
Decrease in estimates for claims occurring in prior years(2)(3)	(46,713		)	(75,764		)	(78,810		)
Loss reserve discount accretion(4)	49,422			70,506			54,441
Total	3,656,270			3,490,567			3,197,024
Net payments for claims:
Current year	914,637			898,944			822,787
Prior year	2,342,378			2,216,283			2,055,284
Total	3,257,015			3,115,227			2,878,071
Foreign currency translation	(125,024		)	(88,496		)	(47,007		)
Net reserves at end of year	9,244,872			8,970,641			8,683,797
Ceded reserve at end of year	1,424,278			1,399,060			1,397,144
Gross reserves at end of year	$	10,669,150		$	10,369,701		$	10,080,941


(1)	Claims occurring during the current year are net of loss reserve discounts of $20,357,000, $21,306,000, and $22,680,000 in 2015, 2014 and 2013, respectively.


(2)	The decrease in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior years decreased by $64,971,000, $116,866,000 and $77,430,000 in 2015, 2014 and 2013, respectively.


(3)	For certain retrospectively rated insurance polices and reinsurance agreements, reserve development is offset by additional or return premiums. Favorable reserve development, net of additional and return premiums, was $63 million, $85 million and $98 million in 2015, 2014 and 2013, respectively.


(4)	In 2014, the Company entered into a commutation agreement that resulted in a reduction in prior year workers' compensation reserves of $30 million on an undiscounted basis and $12 million on a discounted basis.

Favorable prior year development (net of additional and return premiums) was $63 million in 2015.

Insurance-Domestic - Reserves for the Insurance-Domestic segment developed favorably by $47 million in 2015. The favorable development was primarily related to workers' compensation and other liability business, and was partially offset by unfavorable development for commercial automobile liability business.

For workers' compensation, the favorable development was related to both primary and excess business and to many accident years, including those prior to 2006. In 2015, reported workers' compensation losses were below our expectations for many of our operating units. In addition, overall loss frequency and severity trends emerged better than the assumptions underlying our previous reserve estimates. The long term trend of declining workers' compensation claim frequency continued in 2015. The improvement is attributable to better workplace safety and to benign medical severity trends as we continue to invest in medical case management services and higher usage of preferred provider networks.

For other liability business, favorable development was concentrated in accident years 2007 through 2013. The favorable development was primarily related to our excess and surplus lines casualty business that has benefited from a persistent improvement in claim frequency trends over the past several years.

For commercial automobile business, adverse development was primarily related to large losses for long-haul trucking business and to accident years 2011 through 2014. The higher loss cost trends for the commercial automobile industry are attributable, in part, to the increase in miles driven as the economy has improved and fuel prices have declined over the past several years.

Reinsurance-Global - Reserves for the Reinsurance-Global segment developed favorably by $11 million in 2015. The favorable development was primarily related to direct facultative reinsurance business and to accident years 2005 through 2013. Loss reserves developed favorably for umbrella business and for other liability coverage for contractors.

Insurance-International - Reserves for the Insurance-International segment developed favorably by $5 million in 2015. The favorable development was related primarily to commercial property. The favorable commercial property development was attributable to accident years 2012 through 2014 and was driven by favorable frequency and severity trends on property business written in Lloyd's. The favorable property development was partially offset by unfavorable development for professional indemnity business in the U.K., primarily for accident years 2006 through 2013.

Favorable prior year development (net of additional and return premiums) was $85 million in 2014.

For the Insurance-Domestic segment, favorable development in 2014 of $92 million was driven primarily by other liability business for accident years 2006 through 2010, primarily related to our excess and surplus lines casualty business. Reported losses during these years continued to be below our initial expectations at the time the business was written, largely as a result of persistent improvement in claim frequency trends (i.e., number of reported claims per unit of exposure). As these accident years have matured, the weighting of actuarial methods has shifted from methods based on initial expected losses to methods based on actual reported losses. We believe the favorable claim frequency trends we have seen during this time period are due to changes in the mix of business written and to the general slowdown in the economy. Commercial automobile reported unfavorable development primarily as a result of large losses for long-haul trucking business in 2012 and 2013.

For the Reinsurance-Global segment, favorable reserve development in 2014 of $16 million was driven primarily by assumed professional liability excess of loss and umbrella treaty business, as well as direct facultative business. This was partially offset by adverse development on brokerage facultative business caused by completed operations losses associated with construction projects in accident years prior to 2009.

For the Insurance-International segment, adverse reserve development in 2014 of $23 million was driven primarily by unexpected large losses from accident years 2009-2012 in the professional indemnity line of business in the United Kingdom.

Favorable prior year reserve development (net of additional and return premiums) was $98 million in 2013.

Favorable development in 2013 was primarily attributable to accident years 2006 through 2012 and included favorable development of $39 million for other liability business, $32 million for reinsurance assumed liability business, $22 million for workers’ compensation, $18 million for commercial property and $24 million for other lines of business. The favorable development in 2013 was largely driven by loss cost trends, which were more favorable than originally anticipated. In particular, loss frequency trends have been more favorable than expected for excess & surplus lines casualty business, workers' compensation and excess of loss professional and other liability business.

The 2013 favorable development was partially offset by unfavorable development of $23 million for commercial automobile business and $14 million for products liability business. Commercial automobile development was driven by large losses for long-haul trucking business in 2011 and 2012. Product liability development stemmed from completed operations losses associated with construction projects in accident years prior to 2009.

Environmental and Asbestos — To date, known environmental and asbestos claims have not had a material impact on the Company’s operations, because its subsidiaries generally did not insure large industrial companies that are subject to significant environmental or asbestos exposures prior to 1986 when an absolute exclusion was incorporated into standard policy language.

The Company’s net reserves for losses and loss expenses relating to asbestos and environmental claims was $33 million at December 31, 2015 and $36 million at December 31, 2014. The Company’s gross reserves for losses and loss expenses relating to asbestos and environmental claims were $51 million and $56 million at December 31, 2015 and 2014, respectively. Net incurred losses and loss expenses for reported asbestos and environmental claims decreased approximately $2 million in 2015 and increased by approximately $4 million and $5 million in 2014 and 2013, respectively. Net paid losses and loss expenses for asbestos and environmental claims were approximately $2 million in 2015, $3 million in 2014 and $3 million in 2013. The estimation of these liabilities is subject to significantly greater than normal variation and uncertainty because it is difficult to make an actuarial estimate of these liabilities due to the absence of a generally accepted actuarial methodology for these exposures and the potential effect of significant unresolved legal matters, including coverage issues, as well as the cost of litigating the legal issues. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties are highly uncertain.

Discounting — The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $2,308 million and $2,187 million at December 31, 2015 and

December 31, 2014, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $699 million and $746 million at December 31, 2015 and December 31, 2014, respectively. At December 31, 2015, discount rates by year ranged from 2.0% to 6.5%, with a weighted average discount rate of 3.9%.

Substantially all of discounted workers’ compensation reserves (98% of total discounted reserves at December 31, 2015) are excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience.

The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 2% of total discounted reserves at December 31, 2015), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware.


(15)	Reinsurance

The Company reinsures a portion of its insurance exposures in order to reduce its net liability on individual risks and catastrophe losses. Reinsurance coverage and retentions vary depending on the line of business, location of the risk and nature of loss. The Company’s reinsurance purchases include the following: property reinsurance treaties that reduce exposure to large individual property losses and catastrophe events; casualty reinsurance treaties that reduce its exposure to large individual casualty losses, workers’ compensation catastrophe losses and casualty losses involving multiple claimants or insureds; and facultative reinsurance that reduces exposure on individual policies or risks for losses that exceed treaty reinsurance capacity. Depending on the operating unit, the Company purchases specific additional reinsurance to supplement the above programs.

The following is a summary of reinsurance financial information:



(In thousands)	2015			2014			2013
Written premiums:
Direct	$	6,412,533		$	6,185,242		$	5,626,172
Assumed	837,460			877,596			884,919
Ceded	(1,060,478		)	(1,065,891		)	(1,010,918		)
Total net written premiums	$	6,189,515		$	5,996,947		$	5,500,173

Earned premiums:
Direct	$	6,245,714		$	5,889,021		$	5,328,955
Assumed	845,735			886,063			857,119
Ceded	(1,050,840		)	(1,030,666		)	(959,537		)
Total net earned premiums	$	6,040,609		$	5,744,418		$	5,226,537

Ceded losses and loss expenses incurred	$	501,999		$	475,802		$	556,108
Ceded commission earned	$	129,766		$	160,215		$	137,449

The Company reinsures a portion of its exposures principally to reduce its net liability on individual risks and to protect against catastrophic losses. Estimated amounts due from reinsurers are reported net of reserves for uncollectible reinsurance of $1,020,000, $1,144,000 and $1,385,000 as of December 31, 2015, 2014 and 2013, respectively.

The following table presents the amounts due from reinsurers as of December 31, 2015:



(In thousands)
Allegany Group	$	138,163
Munich Re	121,661
Swiss Re	115,215
Lloyd’s of London	92,635
Axis Capital	69,840
Partner Re	65,793
Hannover Re Group	48,675
Everest Re	47,945
Berkshire Hathaway	47,309
Chubb Limited (1)	45,645
Arch Capital Group	23,273
Other reinsurers less than $20,000	213,169
Subtotal	1,029,323
Residual market pools	503,506
Total	$	1,532,829

(1) Includes the aggregate recoverables from Ace Group and Chubb Group.


(16)	Indebtedness

Indebtedness consisted of the following as of December 31, 2015 (the difference between the face value and the carrying value is unamortized discount):



(In thousands)	Interest Rate	Face Value		2015 Carrying Value		2014 Carrying Value
Senior notes due on:
May 15, 2015	5.6%	$	—	$	—	$	199,930
August 15, 2019	6.15%	150,000		149,484		149,342
September 15, 2019	7.375%	300,000		299,054		298,800
September 15, 2020	5.375%	300,000		298,411		298,074
January 1, 2022	8.7%	76,503		76,097		76,048
March 15, 2022	4.625%	350,000		347,417		346,999
February 15, 2037	6.25%	250,000		247,676		247,566
August 1, 2044	4.75%	350,000		344,730		344,545
Subsidiary debt (1)	Various	81,752		81,752		154,223
Total senior notes and other debt		$	1,858,255	$	1,844,621	$	2,115,527
Subordinated debentures, due on April, 30, 2053	5.625%	$	350,000	$	340,320	$	340,060

(1) Subsidiary debt is due as follows: $43 million in 2016, $37 million in 2017 and $2 million thereafter.


(17)	Income Taxes

Income tax expense consists of:



(In thousands)	Current Expense			Deferred Expense		Total
December 31, 2015
Domestic	$	179,150		$	31,145	$	210,295
Foreign	(2,318		)	19,946		17,628
Total expense	$	176,832		$	51,091	$	227,923

December 31, 2014
Domestic	$	258,337		$	28,029	$	286,366
Foreign	12,969			3,258		16,227
Total expense	$	271,306		$	31,287	$	302,593

December 31, 2013
Domestic	$	116,802		$	47,370	$	164,172
Foreign	22,362			7,053		29,415
Total expense	$	139,164		$	54,423	$	193,587

Income before income taxes from domestic operations was $689 million, $910 million and $598 million for the years ended December 31, 2015, 2014 and 2013, respectively. Income before income taxes from foreign operations was $43 million, $42 million and $101 million for the years ended December 31, 2015, 2014 and 2013, respectively.

A reconciliation of the income tax expense and the amounts computed by applying the Federal and foreign income tax rate of 35% to pre-tax income are as follows:



(In thousands)	2015			2014			2013
Computed “expected” tax expense	$	256,210		$	333,269		$	244,611
Tax-exempt investment income	(39,283		)	(38,757		)	(40,679		)
Change in valuation allowance	2,702			1,335			—
Impact of foreign tax rates	4,447			6,239			(4,851		)
State and local taxes	940			2,375			2,906
Other, net	2,907			(1,868		)	(8,400		)
Total expense	$	227,923		$	302,593		$	193,587

At December 31, 2015 and 2014, the tax effects of differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows:



(In thousands)	2015			2014
Deferred tax asset:
Loss reserve discounting	$	100,806		$	77,216
Unearned premiums	176,465			165,075
Other-than-temporary impairments	26,509			45,367
Restricted stock units	62,442			60,061
Other	89,761			101,131
Gross deferred tax asset	455,983			448,850
Less valuation allowance	(4,037		)	(1,335		)
Deferred tax asset	451,946			447,515
Deferred tax liability:
Amortization of intangibles	20,316			22,747
Deferred policy acquisition costs	162,344			152,001
Unrealized investment gains	115,499			175,111
Other	160,598			135,108
Deferred tax liability	458,757			484,967
Net deferred tax asset (liability)	$	(6,811	)	$	(37,452	)

The Company had current tax receivables of $55,763,000 and $67,623,000 at December 31, 2015 and 2014, respectively. At December 31, 2015, the Company had foreign net operating loss carryforwards $6.1 million that expire beginning in 2031, and an additional $43.2 million that have no expiration date. At December 31, 2015, the Company had a valuation allowance of $4.0 million, as compared to $1.3 million at December 31, 2014. The Company has provided a valuation allowance against future tax benefits of certain foreign operations. The statute of limitations has closed for the Company’s tax returns through December 31, 2011.

The realization of the deferred tax asset is dependent upon the Company’s ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future current operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset.


(18)	Dividends from Subsidiaries and Statutory Financial Information

The Company’s insurance subsidiaries are restricted by law as to the amount of dividends they may pay without the approval of regulatory authorities. The Company’s lead insurer, Berkley Insurance Company (BIC), directly or indirectly owns all of the Company’s other insurance companies. During 2016, the maximum amount of dividends that can be paid by BIC without such approval is approximately $684 million.

BIC’s combined net income and statutory capital and surplus, as determined in accordance with statutory accounting practices (SAP), are as follows:



(In thousands)	2015		2014		2013
Net income	$	813,303	$	757,010	$	468,850
Statutory capital and surplus	$	5,296,435	$	5,438,063	$	4,908,010

The significant variances between SAP and GAAP are that for statutory purposes bonds are carried at amortized cost, acquisition costs are charged to income as incurred, deferred Federal income taxes are subject to limitations, excess and assumed workers’ compensation reserves are discounted at different discount rates and certain assets designated as “non-admitted assets” are charged against surplus. The Commissioner of Insurance of the State of Delaware has allowed BIC to discount non-tabular workers' compensation loss reserves, which is a permitted practice that differs from SAP. The effect of using this permitted practice was to increase BIC’s statutory capital and surplus by $294 million at December 31, 2015.

The National Association of Insurance Commissioners (“NAIC”) has risk-based capital (“RBC”) requirements that require insurance companies to calculate and report information under a risk-based formula which measures statutory capital and surplus needs based on a regulatory definition of risk in a company’s mix of products and its balance sheet. This guidance is used to calculate two capital measurements: Total Adjusted Capital and RBC Authorized Control Level. Total Adjusted Capital is equal to the Company’s statutory capital and surplus excluding capital and surplus derived from the use of permitted practices that differ from statutory accounting practices. RBC Authorized Control Level is the capital level used by regulatory authorities to determine whether remedial action is required. Generally, no remedial action is required if Total Adjusted Capital is 200% or more of the RBC Authorized Control Level. At December 31, 2015, BIC’s Total Adjusted Capital of $5.002 billion was 456% of its RBC Authorized Control Level.

See Note 4, Investments in Fixed Maturity Securities, for a description of assets held on deposit as security.


(19)	Common Stockholders’ Equity

The weighted average number of shares used in the computation of net income per share was as follows:



	2015	2014	2013
Basic	124,040,313	127,873,708	135,304,752
Diluted	130,188,866	133,651,855	140,742,922

Treasury shares have been excluded from average outstanding shares from the date of acquisition. The difference in calculating basic and diluted net income per share is attributable entirely to the dilutive effect of stock-based compensation plans.

Changes in shares of common stock outstanding, net of treasury shares, are presented below. Shares of common stock issued and outstanding do not include shares related to unissued restricted stock units and unexercised stock options.



	2015		2014		2013
Balance, beginning of year	126,748,836		132,233,167		136,017,732
Shares issued	1,061,026		332,137		139,790
Shares repurchased	(4,502,025	)	(5,816,468	)	(3,924,355)
Balance, end of year	123,307,837		126,748,836		132,233,167

The amount of dividends paid is dependent upon factors such as the receipt of dividends from our subsidiaries, our results of operations, cash flow, financial condition and business needs, the capital and surplus requirements of our subsidiaries, and applicable insurance regulations that limit the amount of dividends that may be paid by our regulated insurance subsidiaries.


(20)	Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of December 31, 2015 and 2014:



	2015				2014
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	12,444,394	$	12,462,847	$	12,705,160	$	12,725,806
Equity securities available for sale	150,866		150,866		170,991		170,991
Arbitrage trading account	376,697		376,697		450,648		450,648
Loans receivable	273,103		275,747		322,012		325,219
Cash and cash equivalents	763,631		763,631		674,441		674,441
Trading accounts receivable from brokers and clearing organizations	383,115		383,115		371,034		371,034
Due from broker	1,713		1,713		—		—

Liabilities:
Due to broker	—		—		23,133		23,133
Trading account securities sold but not yet purchased	37,035		37,035		106,079		106,079
Subordinated debentures	340,320		355,880		340,060		332,640
Senior notes and other debt	1,844,621		2,029,572		2,115,527		2,344,292

The estimated fair values of the Company’s fixed maturity securities, equity securities available for sale and arbitrage trading account securities are based on various valuation techniques that rely on fair value measurements as described in Note 13 above. The fair value of loans receivable are estimated by using current institutional purchaser yield requirements for loans with similar credit characteristics, which is considered a Level 2 input. The fair value of the senior notes and other debt and the subordinated debentures is based on spreads for similar securities, which is considered a Level 2 input.

(21) Lease Obligations

The Company and its subsidiaries use office space and equipment under leases expiring at various dates. These leases are considered operating leases for financial reporting purposes. Some of these leases have options to extend the length of the leases and contain clauses for cost of living, operating expense and real estate tax adjustments. Future minimum lease payments, without provision for sublease income, are: $42,470,000 in 2016; $39,443,000 in 2017; $35,286,000 in 2018; $30,941,000 in 2019; $28,584,000 in 2020 and $105,825,000 thereafter. Rental expense was $46,271,000, $45,198,000 and $44,752,000 for 2015, 2014 and 2013, respectively.

(22) Commitments, Litigation and Contingent Liabilities

In the ordinary course of business, the Company is subject to disputes, litigation and arbitration arising from its insurance and reinsurance businesses. These matters are generally related to insurance and reinsurance claims and are considered in the establishment of loss and loss expense reserves. In addition, the Company may also become involved in legal actions which seek extra-contractual damages, punitive damages or penalties, including claims alleging bad faith in handling of insurance claims. The Company expects its ultimate liability with respect to such matters will not be material to its financial condition. However, adverse outcomes on such matters are possible, from time to time, and could be material to the Company’s results of operations in any particular financial reporting period.

At December 31, 2015, the Company had commitments to invest up to $117 million and $485 million in certain investment funds and real estate construction projects, respectively.

(23) Stock Incentive Plan

The Company has not issued any stock options under its stock incentive plans since 2004, and there were no outstanding options at December 31, 2015 and December 31, 2014.

Pursuant to the stock incentive plan, the Company may issue restricted stock units (RSUs) to employees of the Company and its subsidiaries. The RSUs generally vest three to five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. The following table summarizes RSU information for the three years ended December 31, 2015:



	2015		2014		2013
RSUs granted and unvested at beginning of period:	5,330,445		4,491,520		4,701,120
Granted	997,522		1,154,950		108,400
Vested	(1,938,000	)	(81,500	)	(146,250	)
Canceled	(231,642	)	(234,525	)	(171,750	)
RSUs granted and unvested at end of period:	4,158,325		5,330,445		4,491,520

Upon vesting, shares of the Company’s common stock equal to the number of vested RSUs are issued or deferred to a later date, depending on the terms of the specific award agreement. As of December 31, 2015, 4,275,474 RSUs had been deferred. RSUs that have not yet vested and vested RSUs that have been deferred are not considered to be issued and outstanding shares.

The fair value of RSUs at the date of grant are recorded as unearned compensation, a component of stockholders’ equity, and expensed over the vesting period. Following is a summary of changes in unearned compensation for the three years ended December 31, 2015:



(In thousands)	2015			2014			2013
Unearned compensation at beginning of year	$	88,015		$	73,205		$	93,653
RSUs granted, net of cancellations	50,442			51,575			4,406
RSUs expensed	(30,691		)	(27,966		)	(22,881		)
RSUs forfeitures	(4,228		)	(8,799		)	(1,973		)
Unearned compensation at end of year	$	103,538		$	88,015		$	73,205

(24) Compensation Plans

The Company and its subsidiaries have profit sharing plans in which substantially all employees participate. The plans provide for minimum annual contributions of 5% of eligible compensation; contributions above the minimum are discretionary and vary with each participating subsidiary’s profitability. Employees will become eligible to participate in the plan on the first day of the calendar quarter following the first full calendar quarter after the employee's date of hire provided the employee has completed 250 hours of service during the calendar quarter. The plans provide that 40% of the contributions vest immediately and that the remaining 60% vest at varying percentages based upon years of service. Profit sharing expense was $42 million, $38 million, and $34 million in 2015, 2014 and 2013, respectively.

The Company has a long-term incentive compensation plan ("LTIP") that provides for incentive compensation to key executives based on the growth in the company's book value per share over a five year period.

The following table summarizes the outstanding LTIP awards as of December 31, 2015:



	Units Outstanding	Maximum Value		Inception to date earned through December 31, 2015 on outstanding units
2011 grant	172,850	$	43,212,500	$	34,331,000
2013 grant	204,500	51,125,000		23,804,000
2014 grant	216,750	21,675,000		6,559,000
2015 grant	213,250	21,325,000		3,205,000

The following table summarizes the LTIP expense for each of the three years ended December 31, 2015:



(In thousands)	2015		2014		2013
2011 grant	$	7,397	$	9,855	$	6,939
2013 grant	7,336		9,493		7,231
2014 grant	2,935		3,663		—
2015 grant	3,205		—		—
Total	$	20,873	$	23,011	$	14,170

(25) Retirement Benefits

The Company and its executive chairman of the board entered into an unfunded supplemental benefit agreement (SBA) in 2004. On March 28, 2013, the Company agreed to terminate and distribute the retirement benefit of the SBA. As a result, the Company distributed retirement benefits of $0.3 million and $4.6 million in 2013 and 2014, respectively. The final retirement benefit of $59.4 million, which was fully accrued at December 31, 2014, was distributed in 2015. Net retirement benefit expense was $13,357,000, $9,994,000 and none in 2013, 2014, and 2015 respectively.

(26) Supplemental Financial Statement Data

Other operating costs and expenses consist of the following:



(In thousands)	2015		2014			2013
Amortization of deferred policy acquisition costs	$	1,102,492	$	1,053,397		$	991,070
Other underwriting expenses	903,006		843,133			780,058
Service company expenses	127,365		102,726			88,662
Net foreign currency losses (gains)	400		(27		)	(10,120		)
Other costs and expenses	156,487		158,227			151,014
Total	$	2,289,750	$	2,157,456		$	2,000,684


(27)	Industry Segments

The Company’s reportable segments include the following three business segments, plus a corporate segment:


•	Insurance-Domestic - commercial insurance business, including excess and surplus lines and admitted lines, primarily throughout the United States;


•	Insurance-International - insurance business primarily in the United Kingdom, Continental Europe, South America, Canada, Scandinavia, Asia, and Australia;


•	Reinsurance-Global - reinsurance business on a facultative and treaty basis, primarily in the United States, United Kingdom, Continental Europe, Australia, the Asia-Pacific Region, and South Africa.

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

Summary financial information about the Company’s reporting segments is presented in the following table. Income (loss) before income taxes by segment includes allocated investment income. Identifiable assets by segment are those assets used in or allocated to the operation of each segment.



Revenues
(In thousands)	Earned Premiums		Investment Income		Other		Total		Pre-Tax Income (Loss)			Net Income (Loss)
December 31, 2015:
Insurance-Domestic	$	4,659,359	$	358,935	$	96,487	$	5,114,781	$	724,667		$	495,082
Insurance-International	772,141		51,522		—		823,663		51,926			37,204
Reinsurance-Global	609,109		74,226		—		683,335		94,852			66,627
Corporate, other and eliminations(1)	—		27,962		464,392		492,354		(231,739		)	(155,230		)
Net investment gains	—		—		92,324		92,324		92,324			60,011
Consolidated	$	6,040,609	$	512,645	$	653,203	$	7,206,457	$	732,030		$	503,694

December 31, 2014:
Insurance-Domestic	$	4,271,933	$	428,632	$	106,853	$	4,807,418	$	796,309		$	539,461
Insurance-International	802,375		55,407		—		857,782		29,779			22,182
Reinsurance-Global	670,110		88,821		—		758,931		115,677			79,720
Corporate, other and eliminations(1)	—		28,025		421,920		449,945		(244,421		)	(158,133		)
Net investment gains	—		—		254,852		254,852		254,852			165,654
Consolidated	$	5,744,418	$	600,885	$	783,625	$	7,128,928	$	952,196		$	648,884

December 31, 2013:
Insurance-Domestic	$	3,782,416	$	404,280	$	107,517	$	4,294,213	$	648,740		$	449,981
Insurance-International	723,151		47,039		—		770,190		56,922			40,292
Reinsurance-Global	720,970		89,090		—		810,060		110,425			78,013
Corporate, other and eliminations(1)	—		3,882		408,645		412,527		(238,743		)	(142,479		)
Net investment gains	—		—		121,544		121,544		121,544			74,118
Consolidated	$	5,226,537	$	544,291	$	637,706	$	6,408,534	$	698,888		$	499,925



Identifiable Assets
(In thousands)	December 31, 2015		December 31, 2014
Insurance-Domestic	$	16,351,737	$	16,065,409
Insurance-International	1,711,993		1,879,438
Reinsurance-Global	2,441,340		2,713,554
Corporate, other and eliminations(1)	1,225,897		1,058,290
Consolidated	$	21,730,967	$	21,716,691


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

Net premiums earned by major line of business are as follows:



(In thousands)	2015		2014		2013
Insurance-Domestic
Other liability	$	1,546,157	$	1,449,425	$	1,259,376
Workers' compensation	1,269,785		1,126,704		995,047
Short-tail lines	925,468		875,898		774,809
Commercial automobile	548,450		526,344		486,759
Professional liability	369,499		293,562		266,425
Total Insurance-Domestic	4,659,359		4,271,933		3,782,416

Insurance-International
Other liability	103,974		92,411		65,528
Workers' compensation	93,728		71,997		84,637
Short-tail lines	373,415		415,123		336,814
Commercial automobile	125,628		116,369		130,020
Professional liability	75,396		106,475		106,152
Total Insurance-International	772,141		802,375		723,151

Reinsurance-Global
Casualty	421,811		487,264		507,790
Property	187,298		182,846		213,180
Total Reinsurance-Global	609,109		670,110		720,970
Total	$	6,040,609	$	5,744,418	$	5,226,537


(28)	Quarterly Financial Information (Unaudited)

The following is a summary of quarterly financial data:



(In thousands. except per share data)	2015
Three months ended	March 31		June 30		September 30		December 31
Revenues	$	1,744,679	$	1,789,765	$	1,860,957	$	1,811,056
Net income	118,307		123,035		152,607		109,745
Net income per share(1)
Basic	0.94		0.99		1.24		0.89
Diluted	0.89		0.95		1.18		0.85



	2014
Three months ended	March 31		June 30		September 30		December 31
Revenues	$	1,706,906	$	1,796,989	$	1,840,605	$	1,784,428
Net income	169,673		179,961		188,539		110,711
Net income per share(1)
Basic	1.31		1.41		1.48		0.87
Diluted	1.25		1.35		1.42		0.83


(1)	Net income per share (“EPS”) in each quarter is computed using the weighted-average number of shares outstanding during that quarter, while EPS for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters EPS does not necessarily equal the full-year EPS.

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