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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, 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, 2016, 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 27, 2017 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/S/ KPMG LLP

New York, New York

February 27, 2017

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
(In thousands, except per share data)	2016				2015				2014
REVENUES:
Net premiums written	$	6,423,913			$	6,189,515			$	5,996,947
Change in net unearned premiums	(130,565		)		(148,906		)		(252,529		)
Net premiums earned	6,293,348				6,040,609				5,744,418
Net investment income	564,163				512,645				600,885
Insurance service fees	138,944				139,440				117,443
Net investment gains:
Net realized gains on investment sales	285,119				125,633				254,852
Other-than-temporary impairments	(18,114		)		(33,309		)		—
Net investment gains	267,005				92,324				254,852
Revenues from non-insurance businesses	390,348				421,102				410,022
Other income	376				337				1,308
Total revenues	7,654,184				7,206,457				7,128,928
OPERATING COSTS AND EXPENSES:
Losses and loss expenses	3,845,800				3,656,270				3,490,567
Other operating costs and expenses	2,395,619				2,289,750				2,157,456
Expenses from non-insurance businesses	375,431				397,461				400,535
Interest expense	140,896				130,946				128,174
Total operating costs and expenses	6,757,746				6,474,427				6,176,732
Income before income taxes	896,438				732,030				952,196
Income tax expense	(292,953		)		(227,923		)		(302,593		)
Net income before noncontrolling interests	603,485				504,107				649,603
Noncontrolling interests	(1,569		)		(413		)		(719		)
Net income to common stockholders	$	601,916			$	503,694			$	648,884
NET INCOME PER SHARE:
Basic	$	4.91			$	4.06			$	5.07
Diluted	$	4.68			$	3.87			$	4.86

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
(In thousands)	2016				2015				2014
Net income before noncontrolling interests	$	603,485			$	504,107			$	649,603
Other comprehensive gain (loss):
Change in unrealized translation adjustments	(124,193		)		(124,744		)		(62,125		)
Change in unrealized investment gains (losses), net of taxes	246,518				(125,542		)		49,666
Change in unrecognized pension obligation, net of taxes	—				—				6,651
Other comprehensive gain (loss)	122,325				(250,286		)		(5,808		)
Comprehensive income	725,810				253,821				643,795
Comprehensive loss (income) to the noncontrolling interest	1,510				(375		)		(752		)
Comprehensive income to common shareholders	$	727,320			$	253,446			$	643,043

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
(In thousands, except share data)	2016				2015
Assets
Investments:
Fixed maturity securities	$	13,190,668			$	12,444,394
Investment funds	1,198,146				1,170,040
Real estate	1,184,981				936,367
Arbitrage trading account	299,999				376,697
Loans receivable	106,798				273,103
Equity securities available for sale	669,200				150,866
Total investments	16,649,792				15,351,467
Cash and cash equivalents	795,285				763,631
Premiums and fees receivable	1,701,854				1,669,186
Due from reinsurers	1,743,980				1,532,829
Deferred policy acquisition costs	537,890				513,128
Prepaid reinsurance premiums	413,140				394,387
Trading account receivable from brokers and clearing organizations	484,593				383,115
Property, furniture and equipment	349,432				348,224
Goodwill	144,513				153,291
Accrued investment income	127,047				123,164
Current federal and foreign income taxes	14,768				55,763
Other assets	402,550				442,782
Total assets	$	23,364,844			$	21,730,967
Liabilities and Equity
Liabilities:
Reserves for losses and loss expenses	$	11,197,195			$	10,669,150
Unearned premiums	3,283,300				3,137,133
Due to reinsurers	213,128				224,752
Trading account securities sold but not yet purchased	51,179				37,035
Deferred federal and foreign income taxes	134,365				6,811
Other liabilities	916,318				837,937
Senior notes and other debt	1,760,595				1,844,621
Subordinated debentures	727,630				340,320
Total liabilities	18,283,710				17,097,759
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, 121,193,599 and 123,307,837 shares, respectively	47,024				47,024
Additional paid-in capital	1,037,446				1,005,455
Retained earnings	6,595,987				6,178,070
Accumulated other comprehensive income (loss)	55,568				(66,698		)
Treasury stock, at cost, 113,924,319 and 111,810,081 shares, respectively	(2,688,817		)		(2,563,605		)
Total common stockholders’ equity	5,047,208				4,600,246
Noncontrolling interests	33,926				32,962
Total equity	5,081,134				4,633,208
Total liabilities and equity	$	23,364,844			$	21,730,967

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Year Ended December 31,
(In thousands)	2016				2015				2014
COMMON STOCK:
Beginning and end of period	$	47,024			$	47,024			$	47,024
ADDITIONAL PAID IN CAPITAL:
Beginning of period	$	1,005,455			$	991,512			$	967,440
Restricted stock units issued including tax benefit	(3,594		)		(16,748		)		(3,894		)
Restricted stock units expensed	35,585				30,691				27,966
End of period	$	1,037,446			$	1,005,455			$	991,512
RETAINED EARNINGS:
Beginning of period	$	6,178,070			$	5,732,410			$	5,265,015
Net income to common stockholders	601,916				503,694				648,884
Dividends	(183,999		)		(58,034		)		(181,489		)
End of period	$	6,595,987			$	6,178,070			$	5,732,410
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized investment gains (losses):
Beginning of period	$	180,695			$	306,199			$	256,566
Unrealized gains (losses) on securities not other-than-temporarily impaired	246,872				(125,391		)		49,071
Unrealized gains (losses) on other-than-temporarily impaired securities	(413		)		(113		)		562
End of period	427,154				180,695				306,199
Currency translation adjustments:
Beginning of period	(247,393		)		(122,649		)		(60,524		)
Net change in period	(124,193		)		(124,744		)		(62,125		)
End of period	(371,586		)		(247,393		)		(122,649		)
Net pension asset:
Beginning of period	—				—				(6,651		)
Net change in period	—				—				6,651
End of period	—				—				—
Total accumulated other comprehensive income (loss)	$	55,568			$	(66,698	)		$	183,550
TREASURY STOCK:
Beginning of period	$	(2,563,605	)		$	(2,364,551	)		$	(2,132,835	)
Stock exercised/vested	6,495				23,975				6,623
Stock issued	685				623				594
Stock repurchased	(132,392		)		(223,652		)		(238,933		)
End of period	$	(2,688,817	)		$	(2,563,605	)		$	(2,364,551	)
NONCONTROLLING INTERESTS:
Beginning of period	$	32,962			$	34,189			$	33,359
Contributions (distributions)	(546		)		(1,602		)		78
Net income	1,569				413				719
Other comprehensive income (loss), net of tax	(59		)		(38		)		33
End of period	$	33,926			$	32,962			$	34,189

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
(In thousands)	2016				2015				2014
CASH FROM OPERATING ACTIVITIES:
Net income to common stockholders	$	601,916			$	503,694			$	648,884
Adjustments to reconcile net income to net cash from operating activities:
Net investment gains	(267,005		)		(92,324		)		(254,852		)
Depreciation and amortization	86,051				85,139				88,836
Noncontrolling interests	1,569				413				719
Investment funds	(99,301		)		(62,228		)		(131,649		)
Stock incentive plans	37,174				32,123				28,068
Change in:
Arbitrage trading account	(10,633		)		(7,173		)		(50,817		)
Premiums and fees receivable	(60,403		)		(60,942		)		(104,174		)
Reinsurance accounts	(235,455		)		(31,930		)		(33,445		)
Deferred policy acquisition costs	(25,912		)		(29,860		)		(42,789		)
Current income taxes	42,632				20,428				(40,935		)
Deferred income taxes	9,012				47,260				30,812
Reserves for losses and loss expenses	572,196				397,685				376,617
Unearned premiums	149,683				142,699				277,826
Other	46,852				(63,680		)		(58,254		)
Net cash from operating activities	848,376				881,304				734,847
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities	2,440,310				1,388,680				633,459
Proceeds from sale of equity securities	143,042				15,833				113,251
Distributions from investment funds	142,601				177,424				69,319
Proceeds from maturities and prepayments of fixed maturity securities	2,189,365				2,999,339				2,605,839
Purchase of fixed maturity securities	(5,541,202		)		(4,455,223		)		(4,292,165		)
Purchase of equity securities	(202,736		)		(29,526		)		(31,207		)
Real estate purchased	(299,123		)		(222,659		)		(213,159		)
Proceeds from sale of real estate	—				—				343,723
Change in loans receivable	166,327				48,909				21,608
Net additions to property, furniture and equipment	(50,829		)		(63,562		)		(41,958		)
Change in balances due from security brokers	20,992				(22,666		)		32,617
Cash received in connection with business disposition	250,216				—				15,783
Payment for business purchased, net of cash acquired	(53,451		)		(7,312		)		(65,421		)
Net cash used in investing activities	(794,488		)		(170,763		)		(808,311		)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net proceeds from issuance of debt	388,769				9,056				354,012
Repayment of senior notes and other debt	(75,487		)		(281,086		)		(3,700		)
Cash dividends to common stockholders	(183,999		)		(58,034		)		(181,489		)
Purchase of common treasury shares	(132,392		)		(223,652		)		(238,933		)
Other, net	(3,823		)		(1,602		)		337
Net cash used in financing activities	(6,932		)		(555,318		)		(69,773		)
Net impact on cash due to change in foreign exchange rates	(15,302		)		(66,033		)		(22,060		)
Net increase (decrease) in cash and cash equivalents	31,654				89,190				(165,297		)
Cash and cash equivalents at beginning of year	763,631				674,441				839,738
Cash and cash equivalents at end of year	$	795,285			$	763,631			$	674,441

See accompanying notes to consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2016, 2015 and 2014

(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 2015 and 2014 financial statements to conform to the presentation of the 2016 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 $8 million, $3 million and $9 million in 2016, 2015 and 2014, respectively.

Revenues from non-insurance businesses are derived from a business engaged in the distribution of promotional merchandise and aircraft services provided to the general, commercial and military aviation markets. These aircraft services include (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenue is recognized upon the shipment of products and parts, the delivery of aircraft, the delivery of fuel, and 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.

(C) Cash and cash equivalents

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

(D) Investments

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

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.

(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 $51 million and $54 million at December 31, 2016 and 2015, 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 $47 million, $45 million and $44 million for 2016, 2015 and 2014, 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, 2016 indicated that there were no material impairment losses related to goodwill and other intangible assets. Intangible assets of $82 million and $94 million are included in other assets as of December 31, 2016 and 2015, 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 $137 million, $130 million and $120 million in 2016, 2015 and 2014, respectively. Income taxes paid were $232 million, $165 million and $314 million in 2016, 2015 and 2014, respectively. Other non-cash items include unrealized investment gains and losses and pension expense. (See Note 11 and Note 25 of Notes to Consolidated Financial Statements.)

(Q) Recent accounting pronouncements

Recently adopted accounting pronouncements:

In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (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 Company adopted this updated guidance on January 1, 2016. The adoption of this guidance did not have a material effect on the Company’s financial condition or results of operations, but did 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. The Company adopted this updated guidance on January 1, 2016 with regard to the annual requirements and on January 1, 2017 with regard to the interim requirements. The amendments in ASU 2015-09 are applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. As the requirements are disclosure only, the adoption of this guidance did not impact our financial condition or results of operations, but did result in additional disclosures.

All other accounting and reporting standards that became effective in 2016 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 FASB issued 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 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 accumulated other comprehensive income (AOCI), but will instead be reported in net income.

In February 2016, the FASB issued ASU 2016-02, Leases, which amends the accounting and disclosure guidance for leases. This guidance retains the two classifications of a lease, as either an operating or finance lease, both of which will require lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months. The right-of-use asset and the lease liability will be determined based upon the present value of cash flows. Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-of-use asset. Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The accounting by lessors is not significantly changed by the updated guidance. The updated guidance is effective for reporting periods beginning after December 15, 2018, and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied. The Company is currently evaluating the impact that the adoption of this guidance will have on its results of operations, financial position and liquidity.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which amends the accounting guidance for credit losses on financial instruments. The updated guidance amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. This guidance also applies a new current expected credit loss model for determining credit-related impairments for financial instruments measured at amortized cost. The updated guidance is effective for reporting periods beginning after December 15, 2019. The Company will not be able to determine the impact the adoption of this guidance will have on its results of operations, financial position or liquidity until the year the guidance becomes effective.

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 February 2016, the Company acquired an 85% ownership interest for $42.3 million in a company engaged in the distribution of promotional merchandise. The fair value of the assets acquired and liabilities assumed have been estimated based on a third party valuation.

In July 2016, the Company acquired a specialty property and casualty insurance company for $15.5 million.

The following table summarizes the estimated fair value of net assets acquired and liabilities assumed for the business combinations completed in 2016:

(In thousands)	2016
Investments	$	6,764
Cash and cash equivalents	4,202
Real estate, furniture and equipment	701
Goodwill	12,281
Premium and service fee receivable	4,399
Other assets (1)	37,981
Total assets acquired	$	66,328
Other liabilities assumed	(5,395		)
Non controlling interest	(3,280		)
Net assets acquired	$	57,653

---

(1) Other assets includes $31.8 million of intangible assets.

In July 2016, the Company sold Aero Precision Industries, an aviation-related business, for $253.1 million. The business had a net carrying value of $118.2 million.

(3) Consolidated Statement of Comprehensive Income (Loss)

The following tables present the components of the changes in accumulated other comprehensive income (loss) (AOCI) as of and for the years ended December 31, 2016 and 2015:

(In thousands) December 31, 2016	Unrealized investment gains (losses)				Currency translation adjustments				Accumulated other comprehensive income (loss)
Changes in AOCI
Beginning of period	$	180,695			$	(247,393	)		$	(66,698	)
Other comprehensive income (loss) before reclassifications	286,734				(124,193		)		162,541
Amounts reclassified from AOCI	(40,216		)		—				(40,216		)
Other comprehensive income (loss)	246,518				(124,193		)		122,325
Unrealized investment gain related to non-controlling interest	(59		)		—				(59		)
Ending balance	$	427,154			$	(371,586	)		$	55,568
Amounts reclassified from AOCI
Pre-tax	$	(61,871	)	(1)	$	—			$	(61,871	)
Tax effect	21,655			(2)	—				21,655
After-tax amounts reclassified	$	(40,216	)		$	—			$	(40,216	)
Other comprehensive income (loss)
Pre-tax	$	379,258			$	(124,193	)		$	255,065
Tax effect	(132,740		)		—				(132,740		)
Other comprehensive income (loss)	$	246,518			$	(124,193	)		$	122,325

(In thousands) December 31, 2015	Unrealized investment gains (losses)				Currency translation adjustments				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 loss 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	)

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

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

(4) Investments in Fixed Maturity Securities

At December 31, 2016 and 2015, investments in fixed maturity securities were as follows:

(In thousands)	Amortized Cost				Gross Unrealized								Fair Value				Carrying Value
Gains				Losses
December 31, 2016
Held to maturity:
State and municipal	$	72,582			$	12,453			$	—			$	85,035			$	72,582
Residential mortgage-backed	15,944				1,693				—				17,637				15,944
Total held to maturity	88,526				14,146				—				102,672				88,526
Available for sale:
U.S. government and government agency	496,187				20,208				(2,593		)		513,802				513,802
State and municipal:
Special revenue	2,791,211				58,559				(26,315		)		2,823,455				2,823,455
State general obligation	524,682				16,964				(5,139		)		536,507				536,507
Pre-refunded	356,535				19,181				(165		)		375,551				375,551
Corporate backed	410,933				6,172				(6,452		)		410,653				410,653
Local general obligation	360,022				15,682				(2,367		)		373,337				373,337
Total state and municipal	4,443,383				116,558				(40,438		)		4,519,503				4,519,503
Mortgage-backed securities:
Residential (1)	1,034,301				15,431				(12,950		)		1,036,782				1,036,782
Commercial	155,540				304				(2,981		)		152,863				152,863
Total mortgage-backed securities	1,189,841				15,735				(15,931		)		1,189,645				1,189,645
Asset-backed securities	1,913,830				5,971				(11,941		)		1,907,860				1,907,860
Corporate:
Industrial	2,315,567				71,007				(7,174		)		2,379,400				2,379,400
Financial	1,369,001				39,543				(11,270		)		1,397,274				1,397,274
Utilities	229,154				10,801				(2,411		)		237,544				237,544
Other	54,073				299				(63		)		54,309				54,309
Total corporate	3,967,795				121,650				(20,918		)		4,068,527				4,068,527
Foreign	858,773				46,794				(2,762		)		902,805				902,805
Total available for sale	12,869,809				326,916				(94,583		)		13,102,142				13,102,142
Total investments in fixed maturity securities	$	12,958,335			$	341,062			$	(94,583	)		$	13,204,814			$	13,190,668

(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
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

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(1) Gross unrealized losses for mortgage-backed securities include $818,691 and $1,269,491, as of December 31, 2016 and 2015, 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, 2016, 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	$	1,023,413			$	1,042,713
Due after one year through five years	5,100,876				5,223,935
Due after five years through ten years	3,157,579				3,249,731
Due after ten years	2,470,682				2,481,153
Mortgage-backed securities	1,205,785				1,207,282
Total	$	12,958,335			$	13,204,814

At December 31, 2016 and 2015, 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, 2016, investments with a carrying value of $1,261 million were on deposit in custodial or trust accounts, of which $1,022 million was on deposit with state insurance departments, $178 million was on deposit in support of the Company’s underwriting activities at Lloyd’s, $43

million was on deposit as security for reinsurance clients and $18 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, 2016 and 2015, 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, 2016
Common stocks	$	94,998			$	351,906			$	(1,046	)		$	445,858			$	445,858
Preferred stocks	125,589				101,392				(3,639		)		223,342				223,342
Total	$	220,587			$	453,298			$	(4,685	)		$	669,200			$	669,200
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

At December 31, 2016, common stocks included HealthEquity, Inc. shares, which had previously been reported in investment funds.

(6) Arbitrage Trading Account

At December 31, 2016 and 2015, the fair value and carrying value of the arbitrage trading account were $300 million and $377 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, 2016, the fair value of long option contracts outstanding was $1 million (notional amount of $27 million) and the fair value of short option contracts outstanding was $2 million (notional amount of $36 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)	2016				2015				2014
Investment income earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	444,247			$	428,325			$	439,489
Investment funds	99,301				62,228				131,649
Arbitrage trading account	18,693				16,891				22,438
Real estate	7,054				11,294				10,228
Equity securities available for sale	4,028				4,624				6,726
Gross investment income	573,323				523,362				610,530
Investment expense	(9,160		)		(10,717		)		(9,645		)
Net investment income	$	564,163			$	512,645			$	600,885

(8) Investment Funds

The Company evaluates whether it is an investor in a variable interest entity (VIE). Such entities do not have sufficient equity at risk to finance their activities without additional subordinated financial support, or the equity investors, as a group, do not have the characteristics of a controlling financial interest (primary beneficiary). The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE's capital structure, contractual terms, nature of the VIE's operations and purpose, and the Company's relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE and on an ongoing basis. The Company is not the primary beneficiary in any of its investment funds, and accordingly, carries its interests in investments funds under the equity method of accounting.

The Company’s maximum exposure to loss with respect to these investments is limited to the carrying amount reported on the Company’s consolidated balance sheet and its unfunded commitments of $372.1 million as of December 31, 2016.

Investment funds consist of the following:

	Carrying Value as of December 31,								Income (Losses)
(In thousands)	2016				2015				2016				2015				2014
Real estate	$	641,783			$	580,830			$	50,415			$	58,032			$	26,233
Energy	91,448				93,719				19,747				(37,373		)		12,797
Hedged equity	73,913				70,580				3,334				(2,762		)		10,760
Other funds	391,002				424,911				25,805				44,331				81,859
Total	$	1,198,146			$	1,170,040			$	99,301			$	62,228			$	131,649

The Company's share of the earnings or losses of investment funds is primarily reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements.

Other funds include private equity investments carried on the equity method of accounting, which included the Company's publicly traded common stock investment in HealthEquity, Inc. (HQY) in 2015. The Company's ownership interest in HQY was approximately 21%, as of December 31, 2015, with a fair value of $300.1 million and a carrying value of $45.4 million. In October 2016, the Company sold approximately 2.2 million shares in HQY, reducing the Company's ownership to 16.5% and causing the Company to report its investment in HQY at fair value as an available for sale security rather than under investment funds.

(9) Real Estate

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

	As of December 31,
(In thousands)	2016				2015
Properties in operation	$	457,237			$	226,055
Properties under development	727,744				710,312
Total	$	1,184,981			$	936,367

In 2016, properties in operation included a long-term ground lease in Washington, D.C., a hotel in Memphis, Tennessee, an office complex in New York City and office buildings in West Palm Beach and Palm Beach, Florida. Properties in operation are net of accumulated depreciation and amortization of $14,996,000 and $9,073,000 as of December 31, 2016 and 2015, respectively. Related depreciation expense was $14,802,000 and $7,425,000 for the years ended December 31, 2016 and 2015, respectively. Future minimum rental income expected on operating leases relating to properties in operation is $16,466,519 in 2017, $27,165,624 in 2018, $27,451,819 in 2019, $26,281,505 in 2020, $26,560,894 in 2021 and $464,803,187 thereafter.

Properties under development include an office building in London and a mixed-use project in Washington, D.C.

(10) Loans Receivable

Loans receivable are as follows:

	As of December 31,
(In thousands)	2016				2015
Amortized cost (net of valuation allowance):
Real estate loans	$	92,415			$	200,499
Commercial loans	14,383				72,604
Total	$	106,798			$	273,103
Fair value:
Real estate loans	$	92,415			$	201,641
Commercial loans	15,884				74,106
Total	$	108,299			$	275,747
Valuation allowance:
Specific	$	1,200			$	—
General	2,197				2,094
Total	$	3,397			$	2,094
	For the Year Ended December 31,
	2016				2015
Increase (decrease) in valuation allowance	$	1,303			$	(392	)

Loans receivable in non-accrual status were $5.4 million and $3.1 million as of December 31, 2016 and 2015, respectively.

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 North Carolina and New York. 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. Commercial loans generally earn interest on a fixed basis and have varying maturities not exceeding 10 years.

In evaluating the real estate loans, the Company considers their credit quality indicators, including loan to value ratios, which compare the outstanding loan amount to the estimated value of the property, the borrower’s financial condition and performance with respect to loan terms, the position in the capital structure, the overall leverage in the capital structure and other market conditions. Based on these considerations, none of the real estate loans were considered to be impaired at December 31, 2016, and accordingly, the Company determined that a specific valuation allowance was not required.

(11)	Realized and Unrealized Investment Gains (Losses)

Realized and unrealized investment gains (losses) are as follows:

(In thousands)	2016				2015				2014
Realized investment gains (losses):
Fixed maturity securities:
Gains	$	72,215			$	23,755			$	39,113
Losses	(6,434		)		(4,065		)		(4,420		)
Equity securities available for sale	14,201				9,639				38,296
Investment funds	58,861				93,529				96,204
Real estate	7,757				—				85,659
Other (1)	138,519				2,775				—
Net realized gains on investments sales	285,119				125,633				254,852
Other-than-temporary impairments (2)	(18,114		)		(33,309		)		—
Net investment gains	267,005				92,324				254,852
Income tax expense	(93,452		)		(32,313		)		(89,198		)
After-tax realized investment gains	$	173,553			$	60,011			$	165,654

Change in unrealized gains (losses) of available for sales securities:
Fixed maturity securities	$	(107,094	)		$	(144,445	)		$	155,765
Previously impaired fixed maturity securities	451				(174		)		865
Equity securities available for sale	465,727				(27,809		)		(69,016		)
Investment funds	12,631				(19,758		)		(14,725		)
Total change in unrealized investment gains (losses)	371,715				(192,186		)		72,889
Income tax benefit (expense)	(125,315		)		66,644				(23,223		)
Noncontrolling interests	59				38				(33		)
After-tax change in unrealized investment gains (losses) of available for sale securities	$	246,459			$	(125,504	)		$	49,633

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(1) Other includes a gain of $134.9 million from the sale of Aero Precision Industries, and certain related aviation services business, for the year ended December 31, 2016.

(2) For the year ended December 31, 2016, OTTI related to equity securities were $18.1 million. For the year ended December 31, 2015, OTTI related to equity securities were $24.3 million and related to fixed maturity securities were

$9.0 million. There was no OTTI for the year ended December 31, 2014.

(12) Securities in an Unrealized Loss Position

The following tables summarize all securities in an unrealized loss position at December 31, 2016 and 2015 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, 2016
U.S. government and government agency	$	112,709			$	1,252			$	35,450			$	1,341			$	148,159			$	2,593
State and municipal	1,562,614				35,553				133,034				4,885				1,695,648				40,438
Mortgage-backed securities	625,903				11,103				109,066				4,828				734,969				15,931
Asset-backed securities	1,010,836				5,340				201,693				6,601				1,212,529				11,941
Corporate	1,035,245				13,448				65,147				7,470				1,100,392				20,918
Foreign government	213,246				1,985				24,820				777				238,066				2,762
Fixed maturity securities	4,560,553				68,681				569,210				25,902				5,129,763				94,583
Common stocks	336				22				8,755				1,024				9,091				1,046
Preferred stocks	—				—				22,034				3,639				22,034				3,639
Equity securities available for sale	336				22				30,789				4,663				31,125				4,685
Total	$	4,560,889			$	68,703			$	599,999			$	30,565			$	5,160,888			$	99,268
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

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, 2016 is presented in the table below:

($ in thousands)	Number of Securities			Aggregate Fair Value				Gross Unrealized Loss
State and municipal	1			$	5,136			$	3,725
Corporate	10			78,462				1,370
Mortgage-backed securities	11			22,987				1,106
Asset-backed securities	4			1,256				362
Foreign government	15			112,985				341
Total	41			$	220,826			$	6,904

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, 2016, there were no OTTI recognized in earnings for fixed maturity securities. For the year ended December 31, 2015, OTTI for fixed maturity securities were $9.0 million, all of which was considered due to credit factors.

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, 2016, there was one preferred stock in an unrealized loss position, with an aggregate fair value of $22.0 million and a gross unrealized loss of $3.6 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, 2016, there were no OTTI for preferred stocks. OTTI for preferred stocks for the year ended December 31, 2015 were $13.4 million.

Common Stocks – At December 31, 2016, there were two common stocks in an unrealized loss position, with an aggregate fair value of $9.1 million and a gross unrealized loss of $1.1 million. Based on management's view on these securities, the Company does not consider the common stocks to be OTTI. For the year ended December 31, 2016, OTTI for common stocks were $18.1 million. OTTI for common stocks for the year ended December 31, 2015 were $10.9 million.

(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, 2016 and 2015 by level:

(In thousands)	Total				Level 1				Level 2				Level 3
December 31, 2016
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	513,802			$	—			$	513,802			$	—
State and municipal	4,519,503				—				4,519,503				—
Mortgage-backed securities	1,189,645				—				1,189,645				—
Asset-backed securities	1,907,860				—				1,907,677				183
Corporate	4,068,527				—				4,068,527				—
Foreign government	902,805				—				902,805				—
Total fixed maturity securities available for sale	13,102,142				—				13,101,959				183
Equity securities available for sale:
Common stocks	445,858				429,647				7,457				8,754
Preferred stocks	223,342				—				219,680				3,662
Total equity securities available for sale	669,200				429,647				227,137				12,416
Arbitrage trading account	299,999				224,623				75,376				—
Total	$	14,071,341			$	654,270			$	13,404,472			$	12,599
Liabilities:
Trading account securities sold but not yet purchased	$	51,179			$	51,089			$	90			$	—
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			$	—

There were no significant transfers between Levels 1 and 2 for the years ended December 31, 2016 and 2015.

The following tables summarize changes in Level 3 assets and liabilities for the years ended December 31, 2016 and 2015:

	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, 2016
Assets:
Fixed maturity securities available for sale:
Asset-backed securities	$	199			$	3			$	16			$	—			$	—			$	—			$	(35	)		$	—			$	183
Corporate	154				177				—				—				—				(331		)		—				—				—
Total	353				180				16				—				—				(331		)		(35		)		—				183
Equity securities available for sale:
Common stocks	7,829				—				160				—				765				—				—				—				8,754
Preferred stocks	3,624				38				—				—				—				—				—				—				3,662
Total	11,453				38				160				—				765				—				—				—				12,416
Arbitrage trading account	176				(176		)		—				—				—				—				—				—				—
Total	$	11,982			$	42			$	176			$	—			$	765			$	(331	)		$	(35	)		$	—			$	12,599
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

During the year ended December 31, 2016, there were no securities transferred out of Level 3. During the year ended

December 31, 2015, five securities were transferred out of Level 3 as an observable price was available.

(14) Reserves for Losses and Loss Expenses

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

The establishment of the actuarially derived loss reserve point estimate also includes consideration of qualitative factors that may affect the ultimate losses. These qualitative considerations include, among others, the impact of re-underwriting initiatives, changes in the mix of business, changes in distribution sources and changes in policy terms and conditions.

The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is priced and written, before any actual claims experience has emerged. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each operating unit. Expected loss

cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns.

Loss frequency and severity are measures of loss activity that are considered in determining the key assumptions described in our discussion of loss and loss expense reserves, including expected loss ratios, rate of loss cost inflation and reported and paid loss emergence patterns. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations.

Another factor affecting estimates of loss frequency and severity is the loss reporting lag, which is the period of time between the occurrence of a loss and the date the loss is reported to the Company. The length of the loss reporting lag affects our ability to accurately predict loss frequency (loss frequencies are more predictable for lines with short reporting lags) as well as the amount of reserves needed for incurred but not reported losses (less IBNR is required for lines with short reporting lags). As a result, loss reserves for lines with short reporting lags are likely to have less variation from initial loss estimates. For lines with short reporting lags, which include commercial automobile, primary workers’ compensation, other liability (claims-made) and property business, the key assumption is the loss emergence pattern used to project ultimate loss estimates from known losses paid or reported to date. For lines of business with long reporting lags, which include other liability (occurrence), products liability, excess workers’ compensation and liability reinsurance, the key assumption is the expected loss ratio since there is often little paid or incurred loss data to consider. Historically, the Company has experienced less variation from its initial loss estimates for lines of businesses with short reporting lags than for lines of business with long reporting lags.

The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect the latest reported loss data, current trends and other factors observed.

A claim may be defined as an event, as a claimant (number of parties claiming damages from an event) or by exposure type (e.g., an event may give rise to two parties, each claiming loss for bodily injury and property damage).

The most commonly used claim count method is by event. Most of the Company's operating units use the number of events to define and quantify the number of claims. However, in certain lines of business, where it is common for multiple parties to claim damages arising from a single event, an operating unit may quantify claims on the basis of the number of separate parties involved in an event. This may be the case with businesses writing substantial automobile or transportation exposure.

Claim counts for assumed reinsurance will vary based on whether the business is written on a facultative or treaty basis. Further variability as respects treaty claim counts may be reflective of the nature of the treaty, line of business coverage, and type of participation such as quota share or excess of loss contracts. Accordingly, the claim counts have been excluded from the below Reinsurance segment tables due to this variability.

The claim count information set forth in the tables presented below may not provide an accurate reflection of ultimate loss payouts by product line.

The following tables present undiscounted incurred and paid claims development as of December 31, 2016, net of reinsurance, as well as cumulative claim frequency and the total of incurred but not reported liabilities (IBNR). The information about incurred and paid claims development for the years ended December 31, 2007 to 2015 is presented as supplementary information. To enhance the comparability of the loss development data, the Company has removed the impact of foreign exchange rate movements by using the December 31, 2016 exchange rate for all periods. In addition, the Company’s UK and European insurance business has been included in the Insurance segment tables below (excluding primary and excess workers' compensation) for accident years 2012 through 2016, since underwriting year information was only available prior to 2012.

Insurance

Other Liability

(In thousands)

Loss and Loss Expenses Incurred, Net of Reinsurance																																As of December 31, 2016
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016				IBNR			Cumulative Number of Reported Claims
2007	$	888,917		$	846,759		$	799,566		$	759,028		$	726,338		$	712,995		$	693,669		$	668,914		$	663,122		$	662,889			$	30,457		26
2008	—			843,528			812,048			755,595			717,985			698,709			689,571			662,644			653,088			654,908				40,213			26
2009	—			—			699,630			664,619			632,324			605,497			595,643			567,578			563,317			558,566				41,517			23
2010	—			—			—			620,030			623,798			598,926			597,272			583,916			580,882			579,538				51,702			23
2011	—			—			—			—			676,275			681,815			666,887			665,885			660,412			655,443				65,108			24
2012	—			—			—			—			—			704,519			712,889			711,727			716,617			723,961				93,444			25
2013	—			—			—			—			—			—			754,543			797,759			788,498			790,734				143,155			26
2014	—			—			—			—			—			—			—			850,243			850,666			851,724				282,056			26
2015	—			—			—			—			—			—			—			—			953,822			992,128				546,566			24
2016	—			—			—			—			—			—			—			—			—			1,020,972				770,954			18
Total																												$	7,490,863

Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	46,993		$	126,938		$	233,194		$	332,348		$	414,621		$	477,050		$	528,583		$	564,049		$	589,270		$	609,568
2008	—			48,699			139,809			252,214			356,362			445,060			505,829			539,166			569,020			588,965
2009	—			—			45,461			124,901			217,471			314,994			388,508			432,622			474,893			489,453
2010	—			—			—			46,868			132,654			252,518			340,262			421,217			466,048			494,381
2011	—			—			—			—			50,702			146,070			271,011			384,107			475,650			527,270
2012	—			—			—			—			—			59,669			162,543			304,171			422,269			517,386
2013	—			—			—			—			—			—			64,535			191,902			335,206			476,662
2014	—			—			—			—			—			—			—			79,801			192,893			342,933
2015	—			—			—			—			—			—			—			—			83,378			208,837
2016	—			—			—			—			—			—			—			—			—			65,599
Total																												$	4,321,054
	Reserves for loss and loss adjustment expenses before 2007, net of reinsurance																											120,276
	Reserves for loss and loss adjustment expenses, net of reinsurance																											$	3,290,085

Primary Workers' Compensation

(In thousands)

Loss and Loss Expenses Incurred, Net of Reinsurance																																As of December 31, 2016
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016				IBNR			Cumulative Number of Reported Claims
2007	$	383,641		$	362,843		$	311,511		$	303,788		$	297,208		$	347,731		$	347,596		$	348,335		$	348,327		$	350,731			$	10,478		48
2008	—			377,794			347,423			345,605			345,413			388,558			388,472			389,343			391,788			393,932				11,623			46
2009	—			—			327,537			332,303			326,766			387,503			392,791			394,303			392,287			395,288				13,128			41
2010	—			—			—			358,734			361,808			411,527			420,604			426,622			429,952			429,762				23,233			42
2011	—			—			—			—			419,364			444,887			457,134			470,026			472,087			474,076				29,589			43
2012	—			—			—			—			—			501,681			501,810			503,956			503,863			509,167				44,568			44
2013	—			—			—			—			—			—			552,570			547,295			546,995			543,293				63,271			48
2014	—			—			—			—			—			—			—			639,436			637,307			627,862				110,364			51
2015	—			—			—			—			—			—			—			—			712,800			690,656				214,854			52
2016	—			—			—			—			—			—			—			—			—			702,761				339,257			49
Total																												$	5,117,528

Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	85,962		$	176,184		$	223,380		$	251,437		$	265,770		$	292,764		$	303,058		$	309,988		$	315,309		$	319,350
2008	—			94,385			203,079			261,867			296,667			320,169			335,030			344,892			352,539			360,799
2009	—			—			93,647			197,736			257,972			297,619			318,349			333,793			344,771			352,516
2010	—			—			—			107,742			214,034			281,280			320,154			344,631			362,078			374,013
2011	—			—			—			—			106,157			236,207			309,509			355,909			385,759			408,304
2012	—			—			—			—			—			115,536			255,063			339,560			387,368			419,588
2013	—			—			—			—			—			—			117,900			277,538			363,028			414,216
2014	—			—			—			—			—			—			—			148,405			319,743			412,716
2015	—			—			—			—			—			—			—			—			139,320			323,879
2016	—			—			—			—			—			—			—			—			—			143,066
Total																												$	3,528,447
				Reserves for loss and loss adjustment expenses before 2007, net of reinsurance																								138,281
				Reserves for loss and loss adjustment expenses, net of reinsurance																								$	1,727,362

Excess Workers' Compensation

(In thousands)

Loss and Loss Expenses Incurred, Net of Reinsurance																																As of December 31, 2016
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016				IBNR			Cumulative Number of Reported Claims
2007	$	241,493		$	242,094		$	246,499		$	262,171		$	259,181		$	254,748		$	254,806		$	250,170		$	251,356		$	243,758			$	40,607		2
2008	—			243,067			240,528			211,624			202,419			197,321			195,385			193,395			194,302			183,802				52,994			1
2009	—			—			228,830			214,506			220,124			210,273			202,239			190,439			193,697			189,646				54,310			1
2010	—			—			—			182,028			178,317			171,925			163,365			147,043			153,430			149,806				47,030			1
2011	—			—			—			—			128,301			146,493			150,551			139,251			138,775			137,265				45,151			1
2012	—			—			—			—			—			98,799			101,663			112,477			117,066			115,583				34,805			1
2013	—			—			—			—			—			—			75,214			54,171			50,448			46,028				28,016			1
2014	—			—			—			—			—			—			—			68,521			66,854			59,903				37,366			1
2015	—			—			—			—			—			—			—			—			74,777			61,574				45,861			—
2016	—			—			—			—			—			—			—			—			—			76,184				62,033			—
Total																												$	1,263,549

Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	2,420		$	10,422		$	18,713		$	27,445		$	39,212		$	49,129		$	61,962		$	72,674		$	80,770		$	87,356
2008	—			2,464			2,942			6,302			9,907			14,489			25,063			34,418			39,257			48,042
2009	—			—			5,298			8,893			12,444			18,338			25,925			32,419			39,200			45,963
2010	—			—			—			3,227			4,700			4,916			7,938			11,745			15,871			20,799
2011	—			—			—			—			3,015			5,051			9,991			18,995			27,399			32,008
2012	—			—			—			—			—			715			7,421			19,184			24,120			28,055
2013	—			—			—			—			—			—			279			679			2,159			3,013
2014	—			—			—			—			—			—			—			377			2,277			4,266
2015	—			—			—			—			—			—			—			—			2,069			2,484
2016	—			—			—			—			—			—			—			—			—			2,501
Total																												$	274,487
	Reserves for loss and loss adjustment expenses before 2007, net of reinsurance																											734,713
	Reserves for loss and loss adjustment expenses, net of reinsurance																											$	1,723,774

Professional Liability

(In thousands)

Loss and Loss Expenses Incurred, Net of Reinsurance																																As of December 31, 2016
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016				IBNR			Cumulative Number of Reported Claims
2007	$	98,534		$	98,272		$	105,191		$	104,445		$	102,807		$	103,607		$	99,723		$	99,193		$	97,571		$	98,461			$	595		2
2008	—			113,171			119,953			116,539			111,452			110,268			107,760			107,320			109,242			108,507				1,857			2
2009	—			—			134,978			139,340			145,638			148,992			148,108			150,545			150,875			153,574				2,523			3
2010	—			—			—			147,564			165,875			179,478			178,079			176,843			172,683			174,969				3,689			4
2011	—			—			—			—			180,080			165,439			187,213			190,411			177,401			173,777				8,319			5
2012	—			—			—			—			—			236,681			240,210			263,640			250,074			238,086				23,185			8
2013	—			—			—			—			—			—			266,538			245,925			242,639			247,687				36,873			8
2014	—			—			—			—			—			—			—			252,167			246,068			255,700				75,613			9
2015	—			—			—			—			—			—			—			—			259,368			256,432				121,119			9
2016	—			—			—			—			—			—			—			—			—			311,042				232,577			9
Total																												$	2,018,235

Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	5,162		$	43,314		$	68,764		$	88,053		$	95,829		$	99,370		$	98,384		$	98,539		$	96,916		$	97,846
2008	—			9,998			37,818			66,167			85,588			96,585			97,796			100,352			105,299			106,381
2009	—			—			12,608			52,597			85,929			117,738			127,798			138,947			144,024			144,792
2010	—			—			—			14,844			58,946			108,627			129,823			144,541			160,666			165,084
2011	—			—			—			—			18,804			62,513			103,200			134,785			151,026			159,193
2012	—			—			—			—			—			21,524			86,356			127,980			159,061			189,796
2013	—			—			—			—			—			—			23,550			63,927			119,553			176,103
2014	—			—			—			—			—			—			—			19,391			83,672			134,726
2015	—			—			—			—			—			—			—			—			20,496			85,348
2016	—			—			—			—			—			—			—			—			—			28,789
Total																												$	1,288,059
	Reserves for loss and loss adjustment expenses before 2007, net of reinsurance																											7,173
	Reserves for loss and loss adjustment expenses, net of reinsurance																											$	737,349

Commercial Automobile

(In thousands)

Loss and Loss Expenses Incurred, Net of Reinsurance																																As of December 31, 2016
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016				IBNR			Cumulative Number of Reported Claims
2007	$	438,263		$	425,645		$	431,903		$	424,158		$	427,800		$	427,918		$	426,200		$	425,576		$	426,314		$	426,769			$	307		49
2008	—			432,629			444,941			430,453			427,088			425,600			422,999			422,309			423,258			421,829				361			50
2009	—			—			362,302			345,139			340,962			335,851			337,922			336,861			334,654			335,091				895			39
2010	—			—			—			310,591			320,302			330,432			329,109			333,028			331,865			330,586				1,193			38
2011	—			—			—			—			314,038			322,724			330,125			335,024			343,701			341,200				2,567			38
2012	—			—			—			—			—			314,309			326,831			342,588			355,609			355,461				5,014			34
2013	—			—			—			—			—			—			327,514			349,136			368,894			366,843				18,768			34
2014	—			—			—			—			—			—			—			363,968			385,345			394,998				28,672			36
2015	—			—			—			—			—			—			—			—			389,914			390,590				58,001			39
2016	—			—			—			—			—			—			—			—			—			387,499				124,075			35
Total																												$	3,750,866

Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	167,894		$	259,300		$	328,600		$	375,101		$	405,204		$	415,228		$	421,192		$	423,046		$	424,954		$	425,081
2008	—			175,402			270,421			334,078			377,643			402,882			413,411			417,598			420,553			420,596
2009	—			—			136,433			209,553			257,326			291,925			312,903			328,845			331,484			333,144
2010	—			—			—			136,029			208,790			263,639			295,355			313,262			324,997			326,804
2011	—			—			—			—			135,350			211,756			262,685			296,370			321,814			333,987
2012	—			—			—			—			—			136,844			215,214			273,446			312,342			335,806
2013	—			—			—			—			—			—			142,929			218,596			267,253			312,952
2014	—			—			—			—			—			—			—			155,615			237,766			306,594
2015	—			—			—			—			—			—			—			—			160,239			242,031
2016	—			—			—			—			—			—			—			—			—			156,545
Total																												$	3,193,540
				Reserves for loss and loss adjustment expenses before 2007, net of reinsurance																								2,157
				Reserves for loss and loss adjustment expenses, net of reinsurance																								$	559,482

Short-tail lines

(In thousands)

Loss and Loss Expenses Incurred, Net of Reinsurance																																As of December 31, 2016
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016				IBNR			Cumulative Number of Reported Claims
2007	$	358,317		$	337,419		$	325,658		$	324,765		$	324,052		$	327,882		$	329,293		$	328,659		$	327,996		$	327,951			$	991		21
2008	—			428,243			415,554			402,911			396,055			393,943			393,913			393,137			392,457			392,782				1,202			23
2009	—			—			368,106			354,134			344,157			332,782			332,621			328,711			327,465			327,199				1,129			19
2010	—			—			—			404,551			387,712			374,214			370,705			360,614			360,616			360,786				1,555			19
2011	—			—			—			—			505,432			488,681			477,675			473,186			470,593			465,856				2,359			22
2012	—			—			—			—			—			555,079			560,110			556,418			550,656			546,259				8,173			41
2013	—			—			—			—			—			—			588,182			598,549			588,285			588,399				10,793			51
2014	—			—			—			—			—			—			—			710,961			718,422			705,706				22,492			60
2015	—			—			—			—			—			—			—			—			752,486			774,801				56,787			62
2016	—			—			—			—			—			—			—			—			—			817,059				179,583			48
Total																												$	5,306,798

Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	185,994		$	282,504		$	301,059		$	309,544		$	314,535		$	318,691		$	323,904		$	324,788		$	325,521		$	326,959
2008	—			248,653			353,632			369,446			380,158			379,494			385,350			386,792			388,068			390,626
2009	—			—			214,062			296,125			311,568			313,052			318,138			318,775			320,701			323,248
2010	—			—			—			248,944			333,807			346,598			356,044			349,611			353,594			356,838
2011	—			—			—			—			307,397			425,522			446,687			451,135			456,707			461,039
2012	—			—			—			—			—			284,916			462,315			514,064			524,678			532,900
2013	—			—			—			—			—			—			316,170			492,780			542,173			564,813
2014	—			—			—			—			—			—			—			374,214			601,225			652,405
2015	—			—			—			—			—			—			—			—			397,084			645,601
2016	—			—			—			—			—			—			—			—			—			447,240
Total																												$	4,701,669
	Reserves for loss and loss adjustment expenses before 2007, net of reinsurance																											3,099
	Reserves for loss and loss adjustment expenses, net of reinsurance																											$	608,228

Reinsurance

Casualty

(In thousands)

Loss and Loss Expenses Incurred, Net of Reinsurance																																As of December 31, 2016
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016				IBNR
2007	$	370,597		$	350,646		$	343,561		$	333,549		$	313,240		$	326,388		$	318,062		$	330,451		$	330,322		$	329,635			$	9,329
2008	—			289,826			273,071			257,676			246,116			237,149			235,122			240,631			241,337			240,434				7,806
2009	—			—			266,204			260,300			254,200			240,722			241,181			236,095			226,141			227,923				11,383
2010	—			—			—			236,460			236,246			228,052			223,537			213,384			200,288			196,105				18,259
2011	—			—			—			—			239,562			247,663			243,468			241,309			247,739			244,833				27,815
2012	—			—			—			—			—			291,395			295,673			282,343			273,152			281,961				53,802
2013	—			—			—			—			—			—			300,906			259,110			264,625			275,901				72,629
2014	—			—			—			—			—			—			—			311,776			307,849			306,791				119,679
2015	—			—			—			—			—			—			—			—			250,976			224,777				115,419
2016	—			—			—			—			—			—			—			—			—			234,392				173,456
Total																												$	2,562,752

Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	6,580		$	34,100		$	82,716		$	151,243		$	192,654		$	234,173		$	249,420		$	265,680		$	279,051		$	295,987
2008	—			9,675			30,151			64,589			102,511			135,642			157,689			175,813			190,494			207,257
2009	—			—			20,535			51,270			81,594			116,544			146,140			171,526			182,913			196,395
2010	—			—			—			16,049			41,463			72,274			101,312			122,709			140,946			155,603
2011	—			—			—			—			15,670			47,500			88,490			123,450			152,163			175,933
2012	—			—			—			—			—			20,749			55,884			97,666			134,122			171,102
2013	—			—			—			—			—			—			28,154			61,692			106,396			143,071
2014	—			—			—			—			—			—			—			20,394			66,656			114,334
2015	—			—			—			—			—			—			—			—			17,259			51,082
2016	—			—			—			—			—			—			—			—			—			23,741
Total																												$	1,534,505
	Reserves for loss and loss adjustment expenses before 2007, net of reinsurance																											257,239
				Reserves for loss and loss adjustment expenses, net of reinsurance																								$	1,285,485

Property

(In thousands)

Loss and Loss Expenses Incurred, Net of Reinsurance																																As of December 31, 2016
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016				IBNR
2007	$	21,645		$	19,073		$	17,366		$	15,093		$	15,459		$	15,258		$	15,191		$	15,211		$	15,210		$	15,265			(28	)
2008	—			23,896			21,055			19,597			19,449			18,879			19,498			18,952			18,968			19,061				66
2009	—			—			26,917			25,118			25,424			24,160			24,071			23,824			23,704			23,246				60
2010	—			—			—			39,792			37,397			36,802			36,489			36,915			36,860			36,956				33
2011	—			—			—			—			66,860			69,441			69,084			70,320			69,494			69,418				152
2012	—			—			—			—			—			73,551			69,515			64,989			65,526			64,170				545
2013	—			—			—			—			—			—			125,131			97,153			100,897			99,513				1,312
2014	—			—			—			—			—			—			—			102,644			86,848			88,592				1,552
2015	—			—			—			—			—			—			—			—			115,942			106,965				5,887
2016	—			—			—			—			—			—			—			—			—			158,664				43,516
Total																												$	681,850

Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	2,387		$	9,609		$	12,014		$	13,755		$	13,924		$	14,383		$	14,948		$	14,970		$	15,054		$	15,125
2008	—			7,275			13,993			16,620			17,670			18,111			18,591			18,816			18,839			18,940
2009	—			—			8,256			17,216			21,384			22,510			23,159			23,026			23,053			23,009
2010	—			—			—			19,859			29,231			33,656			34,632			35,442			35,764			36,285
2011	—			—			—			—			27,164			51,216			63,560			66,012			67,301			67,940
2012	—			—			—			—			—			11,908			42,504			52,640			58,760			60,917
2013	—			—			—			—			—			—			34,625			69,056			85,182			91,192
2014	—			—			—			—			—			—			—			36,723			61,966			74,695
2015	—			—			—			—			—			—			—			—			51,982			81,565
2016	—			—			—			—			—			—			—			—			—			72,976
Total																												$	542,644
	Reserves for loss and loss adjustment expenses before 2007, net of reinsurance																											557
	Reserves for loss and loss adjustment expenses, net of reinsurance																											$	139,763

The reconciliation of the net incurred and paid claims development tables to the reserves for loss and loss adjustment expenses in the consolidated balance sheet is as follows:

(In thousands)										December 31, 2016
Undiscounted reserves for loss and loss expenses, net of reinsurance:
		Other liability								$	3,290,085
		Primary workers' compensation								1,727,362
		Excess workers' compensation								1,723,774
		Professional liability								737,349
		Commercial automobile								559,482
		Short-tail lines								608,228
		Other								158,269
		Insurance								8,804,549
		Casualty								1,285,485
		Property								139,763
		Reinsurance								1,425,248
Total undiscounted reserves for loss and loss expenses, net of reinsurance										$	10,229,797

(In thousands)										December 31, 2016
Due from reinsurers on unpaid claims:
		Other liability								$	362,047
		Primary workers' compensation								585,861
		Excess workers' compensation								55,154
		Professional liability								278,460
		Commercial automobile								7,286
		Short-tail lines								210,859
		Other								32,468
		Insurance								1,532,135
		Casualty								65,314
		Property								9,481
		Reinsurance								74,795
Total due from reinsurers on unpaid claims										$	1,606,930

(In thousands)										December 31, 2016
Loss reserve discount:
		Other liability								$	—
		Primary workers' compensation								(6,367		)
		Excess workers' compensation								(582,384		)
		Professional liability								—
		Commercial automobile								—
		Short-tail lines								—
		Other								—
		Insurance								(588,751		)
		Casualty								(50,781		)
		Property								—
		Reinsurance								(50,781		)
Total loss reserve discount										$	(639,532	)
Total gross reserves for loss and loss expenses										$	11,197,195

The following is supplementary information regarding average historical claims duration as of December 31, 2016:

Insurance
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1		2		3		4		5		6		7		8		9		10
Other liability	7.9	%	14.0	%	18.1	%	16.4	%	13.4	%	8.4	%	6.3	%	4.2	%	3.4	%	3.1	%
Primary workers' compensation	22.8	%	27.0	%	15.2	%	9.2	%	5.6	%	4.8	%	2.7	%	2.0	%	1.8	%	1.2	%
Excess workers' compensation	1.8	%	2.0	%	3.4	%	3.3	%	3.9	%	3.9	%	4.3	%	3.5	%	4.1	%	2.7	%
Professional liability	8.5	%	26.1	%	23.2	%	17.8	%	9.2	%	5.2	%	1.8	%	1.7	%	1.0	%	0.9	%
Commercial automobile	40.1	%	21.6	%	15.5	%	10.6	%	6.5	%	3.3	%	0.9	%	0.5	%	0.2	%	—	%
Short-tail lines	58.5	%	28.5	%	6.0	%	2.2	%	0.6	%	1.0	%	0.9	%	0.5	%	0.4	%	0.4	%
Reinsurance
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1		2		3		4		5		6		7		8		9		10
Casualty	7.2	%	12.3	%	15.2	%	15.3	%	12.5	%	10.4	%	6.2	%	5.7	%	5.5	%	5.1	%
Property	37.2	%	35.5	%	15.4	%	6.2	%	2.3	%	1.3	%	1.6	%	—	%	0.5	%	0.5	%

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

(In thousands)	2016				2015				2014
Net reserves at beginning of year	$	9,244,872			$	8,970,641			$	8,683,797
Net provision for losses and loss expenses:
Claims occurring during the current year (1)	3,826,620				3,653,561				3,495,825
Decrease in estimates for claims occurring in prior years (2)	(29,904		)		(46,713		)		(75,764		)
Loss reserve discount accretion (3)	49,084				49,422				70,506
Total	3,845,800				3,656,270				3,490,567
Net payments for claims:
Current year	1,052,452				914,637				898,944
Prior year	2,401,722				2,342,378				2,216,283
Total	3,454,174				3,257,015				3,115,227
Foreign currency translation	(46,233		)		(125,024		)		(88,496		)
Net reserves at end of year	9,590,265				9,244,872				8,970,641
Ceded reserve at end of year	1,606,930				1,424,278				1,399,060
Gross reserves at end of year	$	11,197,195			$	10,669,150			$	10,369,701

---

(1)	Claims occurring during the current year are net of loss reserve discounts of $18,929,000, $20,357,000 and $21,306,000 in 2016, 2015, and 2014 , 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 $59,175,000, $64,971,000 and $116,866,000 in 2016, 2015 and 2014, respectively.

(3)	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 $59 million in 2016.

Insurance - Reserves for the Insurance segment developed favorably by $53 million in 2016. The favorable development was primarily related to workers' compensation business, and was partially offset by unfavorable development for medical professional 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 2007. During 2016, reported workers' compensation losses continued to be below our expectations at most of our operating units. Loss frequency and severity trends continued to be better than the assumptions underlying our previous reserve estimates. Loss severity trends also benefited from our continued investment in medical case management services and from our preferred provider networks. The long term trend of declining workers' compensation frequency can be attributed to improved workplace safety.

For medical professional liability business, unfavorable development was primarily related to a class of business that has been discontinued. The adverse development for that business stemmed mainly from accident years 2010 through 2015.

Reinsurance - Reserves for the Reinsurance segment developed favorably by $6 million in 2016. The favorable development was primarily related to direct facultative reinsurance business and to accident years 2008 through 2014.

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

Insurance - Reserves for the Insurance segment developed favorably by $52 million in 2015. The favorable development was primarily related to workers' compensation, other liability business and commercial property, and was partially offset by unfavorable development for commercial automobile liability business and professional indemnity 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 property business, favorable 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.

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 improved and fuel prices declined over the past several years.

For Professional indemnity business in the U.K., adverse development was primarily for accident years 2006 through 2013.

Reinsurance - Reserves for the Reinsurance 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.

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

Insurance - For the Insurance segment, favorable development in 2014 of $69 million was driven principally 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. The favorable development was also offset by adverse reserve development driven primarily by unexpected large losses from accident years 2009-2012 in the professional indemnity line of business in the United Kingdom.

Reinsurance - For the Reinsurance 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.

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

The Company’s net reserves for losses and loss expenses relating to asbestos and environmental claims on policies written before adoption of the absolute exclusion was $31 million at December 31, 2016 and $33 million at December 31, 2015. The estimation of these liabilities is subject to significantly greater than normal variation and uncertainty because it is difficult to make an actuarial estimate of these liabilities due to the absence of a generally accepted actuarial methodology for these exposures and the potential effect of significant unresolved legal matters, including coverage issues, as well as the cost of litigating the legal issues. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties are highly uncertain.

Discounting — The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $1.907 million million and $2.308 million at December 31, 2016 and December 31, 2015, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $640 million and $699 million at December 31, 2016 and 2015, respectively. At December 31, 2016, 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 (97% of total discounted reserves at December 31, 2016) are excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience.

The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at December 31, 2016), 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)	2016				2015				2014
Written premiums:
Direct	$	6,647,600			$	6,412,533			$	6,185,242
Assumed	896,101				837,460				877,596
Ceded	(1,119,788		)		(1,060,478		)		(1,065,891		)
Total net written premiums	$	6,423,913			$	6,189,515			$	5,996,947
Earned premiums:
Direct	$	6,492,240			$	6,245,714			$	5,889,021
Assumed	900,570				845,735				886,063
Ceded	(1,099,462		)		(1,050,840		)		(1,030,666		)
Total net earned premiums	$	6,293,348			$	6,040,609			$	5,744,418
Ceded losses and loss expenses incurred	$	707,336			$	501,999			$	475,802
Ceded commission earned	$	201,957			$	173,288			$	160,215

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 $1,049,000, $1,020,000 and $1,144,000 as of December 31, 2016, 2015 and 2014, respectively.

The following table presents the amounts due from reinsurers as of December 31, 2016:

(In thousands)
Alleghany Group	$	150,604
Munich Re	130,623
Swiss Re	120,906
Lloyd’s of London	118,607
Partner Re	74,948
Axis Capital	72,600
Everest Re	53,482
Hannover Re Group	52,472
Berkshire Hathaway	49,340
Chubb Limited	35,304
Korean Re	28,654
Validus	22,871
Arch Capital Group	21,359
Other reinsurers less than $20,000	246,160
Subtotal	1,177,930
Residual market pools	566,050
Total	$	1,743,980

(16) Indebtedness

Indebtedness consisted of the following as of December 31, 2016 (the difference between the face value and the carrying value is unamortized discount and debt issuance costs):

(In thousands)	Interest Rate		Face Value				2016 Carrying Value				2015 Carrying Value
Senior notes due on:
August 15, 2019	6.15%		$	140,651			$	140,301			$	149,484
September 15, 2019	7.375%		300,000				299,308				299,054
September 15, 2020	5.375%		300,000				298,747				298,411
January 1, 2022	8.7%		76,503				76,151				76,097
March 15, 2022	4.625%		350,000				347,834				347,417
February 15, 2037	6.25%		250,000				247,786				247,676
August 1, 2044	4.75%		350,000				344,914				344,730
Subsidiary debt (1)	Various		5,554				5,554				81,752
Total senior notes and other debt			$	1,772,708			$	1,760,595			$	1,844,621
Subordinated debentures due on:
April 30, 2053	5.625%		$	350,000			$	340,579			$	340,320
March 1, 2056	5.9%		110,000				105,952				—
June 1, 2056	5.75%		290,000				281,099				—
Total subordinated debentures			$	750,000			$	727,630			$	340,320

---

(1) Subsidiary debt is due as follows: $4 million in 2017 and $2 million in 2019.

(17) Income Taxes

Income tax expense (benefits) consists of:

(In thousands)	Current Expense				Deferred Expense				Total
December 31, 2016
Domestic	$	259,539			$	3,355			$	262,894
Foreign	23,634				6,425				30,059
Total expense	$	283,173			$	9,780			$	292,953
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

Income before income taxes from domestic operations was $837 million, $689 million and $910 million for the years ended December 31, 2016, 2015 and 2014, respectively. Income before income taxes from foreign operations was $59 million, $43 million and $42 million for the years ended December 31, 2016, 2015 and 2014, 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)	2016				2015				2014
Computed “expected” tax expense	$	313,753			$	256,210			$	333,269
Tax-exempt investment income	(37,379		)		(39,283		)		(38,757		)
Change in valuation allowance	1,420				2,702				1,335
Impact of foreign tax rates	1,984				4,447				6,239
State and local taxes	7,748				940				2,375
Other, net	5,427				2,907				(1,868		)
Total expense	$	292,953			$	227,923			$	302,593

At December 31, 2016 and 2015, 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)	2016				2015
Deferred tax asset:
Loss reserve discounting	$	86,659			$	100,806
Unearned premiums	187,522				176,465
Other-than-temporary impairments	26,139				26,509
Restricted stock units	72,889				62,442
Other	104,130				89,761
Gross deferred tax asset	477,339				455,983
Less valuation allowance	(5,457		)		(4,037		)
Deferred tax asset	471,882				451,946
Deferred tax liability:
Amortization of intangibles	21,192				20,316
Deferred policy acquisition costs	173,481				162,344
Unrealized investment gains	238,232				115,499
Property, furniture and equipment	34,857				33,398
Investment funds	85,075				79,124
Other	53,410				48,076
Deferred tax liability	606,247				458,757
Net deferred tax liability	$	134,365			$	6,811

The Company had current tax receivables of $14,768,000 and $55,763,000 at December 31, 2016 and 2015, respectively. At December 31, 2016, the Company had foreign net operating loss carryforwards of $5.3 million that expire beginning in 2031, and an additional $29.9 million that have no expiration date. At December 31, 2016, the Company had a valuation allowance of $5.5 million, as compared to $4.0 million at December 31, 2015. 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 U.S. Federal tax returns through December 31, 2012.

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

The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $55 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. However, in the future, if such earnings were distributed to the Company, taxes of approximately $6.1 million, assuming all tax credits are realized, would be payable on such undistributed earnings and would be reflected in the tax provision for the year in which these earnings are no longer intended to be permanently reinvested in the foreign subsidiary.

(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 2017, the maximum amount of dividends that can be paid by BIC without such approval is approximately $580 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)	2016				2015				2014
Net income	$	702,830			$	813,303			$	757,010
Statutory capital and surplus	$	5,493,044			$	5,296,435			$	5,438,063

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 an increase to BIC’s statutory capital and surplus by $231 million at December 31, 2016.

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, 2016, BIC’s Total Adjusted Capital of $5.262 billion was 422% 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:

	2016			2015			2014
Basic	122,650,997			124,040,313			127,873,708
Diluted	128,552,838			130,188,866			133,651,855

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.

	2016			2015			2014
Balance, beginning of year	123,307,837			126,748,836			132,233,167
Shares issued	281,654			1,061,026			332,137
Shares repurchased	(2,395,892	)		(4,502,025	)		(5,816,468)
Balance, end of year	121,193,599			123,307,837			126,748,836

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, 2016 and 2015:

	2016								2015
(In thousands)	Carrying Value				Fair Value				Carrying Value				Fair Value
Assets:
Fixed maturity securities	$	13,190,668			$	13,204,814			$	12,444,394			$	12,462,847
Equity securities available for sale	669,200				669,200				150,866				150,866
Arbitrage trading account	299,999				299,999				376,697				376,697
Loans receivable	106,798				108,299				273,103				275,747
Cash and cash equivalents	795,285				795,285				763,631				763,631
Trading accounts receivable from brokers and clearing organizations	484,593				484,593				383,115				383,115
Due from broker	—				—				1,713				1,713
Liabilities:
Due to broker	19,416				19,416				—				—
Trading account securities sold but not yet purchased	51,179				51,179				37,035				37,035
Subordinated debentures	727,630				687,504				340,320				355,880
Senior notes and other debt	1,760,595				1,914,727				1,844,621				2,029,572

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: $45,305,000 in 2017; $40,634,000 in 2018; $35,805,000 in 2019; $33,575,000 in 2020; $29,374,000 in 2021 and $100,704,000 thereafter. Rental expense was $47,453,000, $46,271,000 and $45,198,000 for 2016, 2015 and 2014, 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, 2016, the Company had commitments to invest up to $373.2 million and $495.7 million in certain investment funds and real estate construction projects, respectively.

(23) Stock Incentive Plan

Pursuant to the Company's stock incentive plan, the Company may issue restricted stock units (RSUs) to employees of the Company and its subsidiaries. The RSUs generally vest three to five years from the award date and are subject to other vesting and forfeiture provisions contained in the award agreement. The following table summarizes RSU information for the three years ended December 31, 2016:

	2016			2015			2014
RSUs granted and unvested at beginning of period:	4,158,325			5,330,445			4,491,520
Granted	1,000,559			997,522			1,154,950
Vested	(77,250	)		(1,938,000	)		(81,500	)
Canceled	(219,536	)		(231,642	)		(234,525	)
RSUs granted and unvested at end of period:	4,862,098			4,158,325			5,330,445

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, 2016, 4,097,497 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, 2016:

(In thousands)	2016				2015				2014
Unearned compensation at beginning of year	$	103,538			$	88,015			$	73,205
RSUs granted, net of cancellations	52,697				50,442				51,575
RSUs expensed	(35,585		)		(30,691		)		(27,966		)
RSUs forfeitures	(4,685		)		(4,228		)		(8,799		)
Unearned compensation at end of year	$	115,965			$	103,538			$	88,015

(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 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 $39 million, $42 million and $38 million in 2016, 2015 and 2014, 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, 2016:

	Units Outstanding		Maximum Value			Inception to date earned through December 31, 2016 on outstanding units
2013 grant	197,500		$	49,375,000		$	31,852,800
2014 grant	209,750		20,975,000			9,883,420
2015 grant	211,250		21,125,000			7,239,538
2016 grant	230,500		23,050,000			4,001,480

The following table summarizes the LTIP expense for each of the three years ended December 31, 2016:

(In thousands)	2016				2015				2014
2011 grant	$	(82	)		$	7,397			$	9,855
2013 grant	8,918				7,336				9,493
2014 grant	3,503				2,935				3,663
2015 grant	4,072				3,205				—
2016 grant	4,002				—				—
Total	$	20,413			$	20,873			$	23,011

(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 $4.6 million in 2014. 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 $9,994,000 in 2014, and none in 2015 and 2016.

(26) Supplemental Financial Statement Data

Other operating costs and expenses consist of the following:

(In thousands)	2016				2015				2014
Amortization of deferred policy acquisition costs	$	1,155,954			$	1,102,492			$	1,053,397
Operating insurance expenses	933,249				903,006				843,133
Service company expenses	138,908				127,365				102,726
Net foreign currency (gains) losses	(11,904		)		400				(27		)
Other costs and expenses	179,412				156,487				158,227
Total	$	2,395,619			$	2,289,750			$	2,157,456

(27) Industry Segments

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

• Insurance - commercial insurance business, including excess and surplus lines and admitted lines, throughout the United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia; and

• Reinsurance - 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.

Commencing with the first quarter of 2016, the Company changed the aggregation of its reported segments. Operating units in the Insurance-Domestic segment and Insurance-International segment, previously reported separately, were combined into the Insurance segment. The segment disclosures for prior periods have been revised to be consistent with the new reportable business segment presentation.

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

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

	Revenues
(In thousands)	Earned Premiums				Investment Income				Other				Total (1)				Pre-Tax Income (Loss)				Net Income (Loss)
December 31, 2016:
Insurance	$	5,652,903			$	455,139			$	97,879			$	6,205,921			$	822,617			$	551,482
Reinsurance	640,445				78,967				—				719,412				74,799				51,531
Corporate, other and eliminations(2)	—				30,057				431,789				461,846				(267,983		)		(174,650		)
Net investment gains	—				—				267,005				267,005				267,005				173,553
Consolidated	$	6,293,348			$	564,163			$	796,673			$	7,654,184			$	896,438			$	601,916
December 31, 2015:
Insurance	$	5,431,500			$	410,457			$	96,487			$	5,938,444			$	776,593			$	532,286
Reinsurance	609,109				74,226				—				683,335				94,852				66,627
Corporate, other and eliminations(2)	—				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	$	5,074,308			$	484,039			$	106,853			$	5,665,200			$	826,088			$	561,643
Reinsurance	670,110				88,821				—				758,931				115,677				79,720
Corporate, other and eliminations(2)	—				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

Identifiable Assets
(In thousands)	December 31,
	2016				2015
Insurance	$	19,137,758			$	18,063,730
Reinsurance	2,524,338				2,441,340
Corporate, other and eliminations(2)	1,702,748				1,225,897
Consolidated	$	23,364,844			$	21,730,967

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(1) Revenues for Insurance includes $830.8 million, $828.3 million and $890.1 million in 2016, 2015 and 2014, respectively, from foreign countries. Revenues for Reinsurance includes $166.6 million, $186.6 million and $249.3 million in 2016, 2015 and 2014, respectively, from foreign countries.

(2) 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)	2016				2015				2014
Insurance
Other liability	$	1,798,771			$	1,650,131			$	1,541,836
Workers' compensation	1,408,911				1,363,513				1,198,701
Short-tail lines	1,299,545				1,298,883				1,291,021
Commercial automobile	642,452				674,078				642,713
Professional liability	503,224				444,895				400,037
Total Insurance	5,652,903				5,431,500				5,074,308
Reinsurance
Casualty	390,863				421,811				487,264
Property	249,582				187,298				182,846
Total Reinsurance	640,445				609,109				670,110
Total	$	6,293,348			$	6,040,609			$	5,744,418

(28) Quarterly Financial Information (Unaudited)

The following is a summary of quarterly financial data:

(In thousands, except per share data)	2016
Three months ended	March 31				June 30				September 30				December 31
Revenues	$	1,807,211			$	1,855,914			$	2,019,727			$	1,971,333
Net income	119,511				108,967				220,650				152,790
Net income per share(1)
Basic	0.97				0.89				1.80				1.26
Diluted	0.93				0.85				1.72				1.20

	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

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(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.