Item 1. Financial Statements

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Item 1. Financial Statements

W. R. BERKLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	March 31, 2022		December 31, 2021
	(Unaudited)		(Audited)
Assets
Investments:
Fixed maturity securities (amortized cost of $16,838,703 and $16,471,304; allowance for expected credit losses of $26,531 and $22,625 at March 31, 2022 and December 31, 2021, respectively)	$	16,426,196	$	16,602,673
Real estate	1,276,157		1,852,508
Investment funds	1,545,648		1,480,612
Arbitrage trading account	1,188,910		1,179,606
Equity securities	1,126,491		941,243
Loans receivable (net of allowance for expected credit losses of $1,429 and $1,718 at March 31, 2022 and December 31, 2021, respectively)	115,097		115,172

Total investments	21,678,499		22,171,814
Cash and cash equivalents	2,114,841		1,568,843
Premiums and fees receivable (net of allowance for expected credit losses of $28,236 and $25,218 at March 31, 2022 and December 31, 2021, respectively)	2,599,357		2,522,972
Due from reinsurers (net of allowance for expected credit losses of $7,655 and $7,713 at March 31, 2022 and December 31, 2021, respectively)	2,929,161		2,923,026
Deferred policy acquisition costs	716,645		676,145
Prepaid reinsurance premiums	680,703		676,915

Property, furniture and equipment	417,888		419,883
Goodwill	169,652		169,652
Accrued investment income	129,194		122,938
Current and deferred federal and foreign income taxes	43,527		42,457

Other assets	771,487		753,231
Total assets	$	32,250,954	$	32,047,876

Liabilities and Equity
Liabilities:
Reserves for losses and loss expenses	$	15,722,889	$	15,390,888
Unearned premiums	5,026,905		4,847,160
Due to reinsurers	524,562		514,980
Trading account securities sold but not yet purchased	241		1,169
Trading account payable to brokers and clearing organizations	56,652		53,636


Other liabilities	1,189,919		1,305,245
Senior notes and other debt	1,834,155		2,259,416
Subordinated debentures	1,007,832		1,007,652
Total liabilities	25,363,155		25,380,146
Equity:
Preferred stock, par value $0.10 per share:
Authorized 5,000,000 shares; issued and outstanding - none	—		—
Common stock, par value $0.20 per share:
Authorized 750,000,000 shares, issued and outstanding, net of treasury shares, 265,186,251 and 265,170,882 shares, respectively	105,803		105,803
Additional paid-in capital	992,012		981,104
Retained earnings	9,582,790		9,015,135
Accumulated other comprehensive loss	(649,229)		(281,955)
Treasury stock, at cost, 263,828,377 and 263,843,868 shares, respectively	(3,166,873)		(3,167,076)
Total stockholders’ equity	6,864,503		6,653,011
Noncontrolling interests	23,296		14,719
Total equity	6,887,799		6,667,730
Total liabilities and equity	$	32,250,954	$	32,047,876

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)


	For the Three Months Ended March 31,

	2022		2021
REVENUES:
Net premiums written	$	2,413,254	$	2,050,038
Change in net unearned premiums	(164,167)		(200,082)
Net premiums earned	2,249,087		1,849,956
Net investment income	173,512		158,577
Net investment gains:
Net realized and unrealized gains on investments	369,882		51,759

Change in allowance for expected credit losses on investments	(3,617)		(16,920)
Net investment gains	366,265		34,839
Revenues from non-insurance businesses	97,776		87,430
Insurance service fees	27,951		25,808
Other income	818		259
Total revenues	2,915,409		2,156,869


OPERATING COSTS AND EXPENSES:
Losses and loss expenses	1,339,252		1,121,592
Other operating costs and expenses	713,899		616,268
Expenses from non-insurance businesses	94,855		86,290
Interest expense	34,970		36,651
Total operating costs and expenses	2,182,976		1,860,801
Income before income taxes	732,433		296,068
Income tax expense	(139,403)		(64,352)
Net income before noncontrolling interests	593,030		231,716
Noncontrolling interests	(2,392)		(2,191)
Net income to common stockholders	$	590,638	$	229,525

NET INCOME PER SHARE:
Basic	$	2.13	$	0.83
Diluted	$	2.12	$	0.82

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)


	For the Three Months Ended March 31,

	2022		2021
Net income before noncontrolling interests	$	593,030	$	231,716
Other comprehensive (loss) income:
Change in unrealized currency translation adjustments	56,272		4,050
Change in unrealized investment losses, net of taxes	(423,545)		(90,130)

Other comprehensive loss	(367,273)		(86,080)
Comprehensive income	225,757		145,636
Noncontrolling interests	(2,391)		(2,191)
Comprehensive income to common stockholders	$	223,366	$	143,445

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except per share data)


	For the Three Months Ended March 31,

	2022		2021
COMMON STOCK:
Beginning and end of period	$	105,803	$	105,803
ADDITIONAL PAID-IN CAPITAL:
Beginning of period	$	981,104	$	977,215
Restricted stock units issued	(530)		(525)
Restricted stock units expensed	11,438		11,598

End of period	$	992,012	$	988,288
RETAINED EARNINGS:
Beginning of period	$	9,015,135	$	8,348,381

Net income to common stockholders	590,638		229,525
Dividends ($0.09 and $0.08, per share, respectively)	(22,983)		(21,285)
End of period	$	9,582,790	$	8,556,621
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrealized investment (loss) gains:
Beginning of period	$	90,900	$	289,714

Change in unrealized losses on securities without an allowance for expected credit losses	(423,839)		(100,485)
Change in unrealized gains on securities with an allowance for expected credit losses	293		10,355
End of period	(332,646)		199,584
Currency translation adjustments:
Beginning of period	(372,855)		(351,886)
Net change in period	56,272		4,050
End of period	(316,583)		(347,836)




Total accumulated other comprehensive loss	$	(649,229)	$	(148,252)
TREASURY STOCK:
Beginning of period	$	(3,167,076)	$	(3,058,425)
Stock exercised/vested	203		248
Stock repurchased	—		(29,683)

End of period	$	(3,166,873)	$	(3,087,860)
NONCONTROLLING INTERESTS:
Beginning of period	$	14,719	$	14,995
Contributions (distributions)	6,186		(1,502)
Net income	2,392		2,191
Other comprehensive loss, net of tax	(1)		—
End of period	$	23,296	$	15,684

See accompanying notes to interim consolidated financial statements.

W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	For the Three Months Ended March 31,

	2022		2021
CASH FROM OPERATING ACTIVITIES:
Net income to common stockholders	$	590,638	$	229,525
Adjustments to reconcile net income to net cash from operating activities:
Net investment gains	(366,265)		(34,839)
Depreciation and amortization	24,631		33,543
Noncontrolling interests	2,392		2,191
Investment funds	(52,012)		(38,935)
Stock incentive plans	11,438		11,817
Change in:
Arbitrage trading account	(7,215)		(16,108)
Premiums and fees receivable	(69,704)		(96,290)
Reinsurance accounts	(2,643)		(105,589)
Deferred policy acquisition costs	(39,220)		(38,577)
Income taxes	123,763		47,372

Reserves for losses and loss expenses	316,065		303,305
Unearned premiums	167,522		219,920
Other	(221,708)		(206,345)
Net cash from operating activities	477,682		310,990
CASH FROM (USED IN) INVESTING ACTIVITIES:
Proceeds from sale of fixed maturity securities	408,221		1,115,114
Proceeds from sale of equity securities	9,227		57,457
(Contributions) distributions from investment funds	(13,423)		36,236
Proceeds from maturities and prepayments of fixed maturity securities	1,440,457		1,623,357
Purchase of fixed maturity securities	(2,200,214)		(4,118,161)
Purchase of equity securities	(100,356)		(69,181)
Real estate sold	28,141		9,787

Change in loans receivable	332		9,256
Net purchases of property, furniture and equipment	(9,114)		(10,872)
Change in balances due to security brokers	98,058		151,776
Cash received in connection with business disposition	906,789		—
Payment for business purchased net of cash acquired	(49,572)		—
Other	17		—
Net cash from (used in) investing activities	518,563		(1,195,231)
CASH (USED IN) FROM FINANCING ACTIVITIES:
Repayment of senior notes and other debt	(426,503)		(110,000)
Net payments for stock options exercised	(327)		(525)
Net proceeds from issuance of debt	1,186		691,213
Cash dividends to common stockholders	(22,983)		(21,285)
Purchase of common treasury shares	—		(29,683)
Other, net	(2,703)		(1,503)
Net cash (used in) from financing activities	(451,330)		528,217
Net impact on cash due to change in foreign exchange rates	1,083		(1,431)
Net change in cash and cash equivalents	545,998		(357,455)
Cash and cash equivalents at beginning of period	1,568,843		2,372,366
Cash and cash equivalents at end of period	$	2,114,841	$	2,014,911

See accompanying notes to interim consolidated financial statements.

W. R. Berkley Corporation and Subsidiaries

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) General

The unaudited 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”) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for annual financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly the Company’s financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year. All significant intercompany accounts and transactions have been eliminated. 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. For further information related to areas of judgment and estimates and other information necessary to understand the Company’s financial position and results of operations, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Reclassifications have been made in the 2021 financial statements as originally reported to conform to the presentation of the 2022 financial statements. Shares outstanding and per share amounts have been adjusted to reflect the 3-for-2 common stock split effected on March 23, 2022.

The income tax provision has been computed based on the Company’s estimated annual effective tax rate. The effective income tax rate differs from the federal income tax rate of 21% primarily due to a net reduction to the Company’s valuation allowance against foreign tax credits and foreign net operating losses, which was partially offset by state income taxes.

(2) 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 the weighted average number of common shares outstanding during the period (including 11,592,699 and 11,651,811 common shares held in a grantor trust as of March 31, 2022 and 2021, respectively). The common shares held in the grantor trust are for delivery upon settlement of vested but mandatorily deferred restricted stock units ("RSUs"). Shares held by the grantor trust do not affect diluted shares outstanding since the shares deliverable under vested RSUs were already included in diluted shares outstanding. Diluted EPS is based upon the weighted average number of basic and common equivalent shares outstanding during the period and is calculated using the treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

The weighted average number of common shares used in the computation of basic and diluted earnings per share was as follows:


	For the Three Months Ended March 31,

(In thousands)	2022	2021
Basic	276,772	277,793
Diluted	279,157	280,245

(3) Recent Accounting Pronouncements and Accounting Policies

Recently adopted accounting pronouncements:

All accounting and reporting standards that became effective in 2022 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:

All 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.

(4) Acquisitions

In March 2022, the Company acquired an 80.0% ownership interest for $51.1 million in a company engaged in residential and commercial textiles. The fair value of the assets acquired and liabilities assumed have been estimated based on a preliminary valuation. The fair values of the assets and liabilities will be adjusted, as needed, following completion of the final valuation.

The following table summarizes the initial estimated fair value of net assets acquired and liabilities assumed for the business combination completed in 2022:


(In thousands)	2022


Cash and cash equivalents	$	1,564
Real estate, furniture and equipment	2,527
Intangible assets	48,787

Other assets	11,275
Total assets acquired	64,153

Other liabilities assumed	(5,417)
Noncontrolling interest	(7,600)

Net assets acquired	$	51,136

(5) Consolidated Statements of Comprehensive Income

The following table presents the components of the changes in accumulated other comprehensive (loss) income ("AOCI"):


(In thousands)	Unrealized Investment Gains (Losses)			Currency Translation Adjustments		Accumulated Other Comprehensive (Loss) Income
As of and for the three months ended March 31, 2022
Changes in AOCI
Beginning of period	$	90,900		$	(372,855)	$	(281,955)


Other comprehensive (loss) income before reclassifications	(433,136)			56,272		(376,864)
Amounts reclassified from AOCI	9,591			—		9,591
Other comprehensive (loss) income	(423,545)			56,272		(367,273)
Unrealized investment gain related to noncontrolling interest	(1)			—		(1)
End of period	$	(332,646)		$	(316,583)	$	(649,229)
Amounts reclassified from AOCI
Pre-tax	$	12,141	(1)	$	—	$	12,141
Tax effect	(2,550)		(2)	—		(2,550)
After-tax amounts reclassified	$	9,591		$	—	$	9,591
Other comprehensive (loss) income
Pre-tax	$	(539,449)		$	56,272	$	(483,177)
Tax effect	115,904			—		115,904
Other comprehensive (loss) income	$	(423,545)		$	56,272	$	(367,273)



As of and for the three months ended March 31, 2021
Changes in AOCI
Beginning of period	$	289,714		$	(351,886)	$	(62,172)


Other comprehensive (loss) income before reclassifications	(98,991)			4,050		(94,941)
Amounts reclassified from AOCI	8,861			—		8,861
Other comprehensive (loss) income	(90,130)			4,050		(86,080)
Unrealized investment gain related to noncontrolling interest	—			—		—
End of period	$	199,584		$	(347,836)	$	(148,252)
Amounts reclassified from AOCI
Pre-tax	$	11,216	(1)	$	—	$	11,216
Tax effect	(2,355)		(2)	—		(2,355)
After-tax amounts reclassified	$	8,861		$	—	$	8,861
Other comprehensive (loss) income
Pre-tax	$	(113,735)		$	4,050	$	(109,685)
Tax effect	23,605			—		23,605
Other comprehensive (loss) income	$	(90,130)		$	4,050	$	(86,080)

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

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

(6) Statements of Cash Flows

Interest payments were $52,899,000 and $45,393,000 for the three months ended March 31, 2022 and 2021, respectively. No income taxes were paid during such periods.

(7) Investments in Fixed Maturity Securities

At March 31, 2022 and December 31, 2021, investments in fixed maturity securities were as follows:


(In thousands)	Amortized Cost			Allowance for Expected Credit Losses (1)		Gross Unrealized				Fair Value		Carrying Value
Gains			Losses
March 31, 2022
Held to maturity:
State and municipal	$	70,165		$	(378)	$	7,094	$	—	$	76,881	$	69,787
Residential mortgage-backed	4,455			—		324		—		4,779		4,455
Total held to maturity	74,620			(378)		7,418		—		81,660		74,242
Available for sale:
U.S. government and government agency	837,167			—		2,397		(20,716)		818,848		818,848
State and municipal:
Special revenue	1,948,586			—		12,944		(44,803)		1,916,727		1,916,727
State general obligation	378,408			—		7,043		(6,574)		378,877		378,877
Pre-refunded	165,882			—		6,216		—		172,098		172,098
Corporate backed	175,070			—		1,407		(4,472)		172,005		172,005
Local general obligation	410,058			—		11,184		(5,075)		416,167		416,167
Total state and municipal	3,078,004			—		38,794		(60,924)		3,055,874		3,055,874
Mortgage-backed:
Residential	1,179,468			—		2,417		(60,650)		1,121,235		1,121,235
Commercial	266,921			—		339		(3,759)		263,501		263,501
Total mortgage-backed	1,446,389			—		2,756		(64,409)		1,384,736		1,384,736
Asset-backed	4,319,535			—		1,459		(63,573)		4,257,421		4,257,421
Corporate:
Industrial	3,373,710					12,708		(115,614)		3,270,804		3,270,804
Financial	1,747,275			—		4,612		(45,155)		1,706,732		1,706,732
Utilities	422,354			—		1,806		(14,434)		409,726		409,726
Other	206,526			—		47		(5,328)		201,245		201,245
Total corporate	5,749,865			—		19,173		(180,531)		5,588,507		5,588,507
Foreign government	1,333,123			(26,153)		3,411		(63,813)		1,246,568		1,246,568
Total available for sale	16,764,083			(26,153)		67,990		(453,966)		16,351,954		16,351,954
Total investments in fixed maturity securities	$	16,838,703		$	(26,531)	$	75,408	$	(453,966)	$	16,433,614	$	16,426,196

(1) Represents the amount of impairment that has resulted from credit-related factors. The change in the allowance for expected credit losses is recognized in the consolidated statements of income. Amount excludes unrealized losses relating to non-credit factors.


(In thousands)	Amortized Cost		Allowance for Expected Credit Losses (1)		Gross Unrealized				Fair Value		Carrying Value
	Gains		Losses
December 31, 2021
Held to maturity:
State and municipal	$	69,539	$	(387)	$	10,813	$	—	$	79,965	$	69,152
Residential mortgage-backed	4,829		—		632		—		5,461		4,829

Total held to maturity	74,368		(387)		11,445		—		85,426		73,981
Available for sale:
U.S. government and government agency	851,128		—		8,509		(4,294)		855,343		855,343
State and municipal:
Special revenue	2,016,382		—		62,961		(5,706)		2,073,637		2,073,637
State general obligation	388,110		—		23,152		(1,015)		410,247		410,247
Pre-refunded	202,633		—		14,891		(574)		216,950		216,950
Corporate backed	166,943		—		7,191		(1,532)		172,602		172,602
Local general obligation	401,974		—		29,455		(732)		430,697		430,697
Total state and municipal	3,176,042		—		137,650		(9,559)		3,304,133		3,304,133
Mortgage-backed:
Residential	940,744		—		9,896		(11,321)		939,319		939,319
Commercial	125,709		—		3,388		(341)		128,756		128,756
Total mortgage-backed securities	1,066,453		—		13,284		(11,662)		1,068,075		1,068,075
Asset-backed	4,504,950		—		4,409		(18,794)		4,490,565		4,490,565
Corporate:
Industrial	3,231,520		(16)		62,751		(21,092)		3,273,163		3,273,163
Financial	1,739,282		—		30,709		(6,591)		1,763,400		1,763,400
Utilities	396,242		—		13,262		(3,202)		406,302		406,302
Other	154,210		—		125		(1,525)		152,810		152,810
Total corporate	5,521,254		(16)		106,847		(32,410)		5,595,675		5,595,675
Foreign government	1,277,109		(22,222)		7,508		(47,494)		1,214,901		1,214,901
Total available for sale	16,396,936		(22,238)		278,207		(124,213)		16,528,692		16,528,692
Total investments in fixed maturity securities	$	16,471,304	$	(22,625)	$	289,652	$	(124,213)	$	16,614,118	$	16,602,673

The following table presents the rollforward of the allowance for expected credit losses for held to maturity securities for the three months ended March 31, 2022 and 2021:


(In thousands)	2022		2021
Allowance for expected credit losses, beginning of period	$	387	$	798

Provision for expected credit losses	(9)		(68)
Allowance for expected credit losses, end of period	$	378	$	730

The following table presents the rollforward of the allowance for expected credit losses for available for sale securities for the three months ended March 31, 2022 and 2021:


	2022						2021
(In thousands)	Foreign Government		Corporate		Total		Foreign Government		Corporate		Total
Allowance for expected credit losses, beginning of period	$	22,222	$	16	$	22,238	$	1,264	$	518	$	1,782

Expected credit losses on securities for which credit losses were not previously recorded	484		—		484		18,990		16		19,006
Expected credit losses (gains) on securities for which credit losses were previously recorded	3,447		(16)		3,431		(261)		(513)		(774)
Reduction due to disposals	—		—		—		—		(5)		(5)
Allowance for expected credit losses, end of period	$	26,153	$	—	$	26,153	$	19,993	$	16	$	20,009

During the three months ended March 31, 2022, the Company increased the allowance for expected credit losses for available for sale securities utilizing its credit loss assessment process and inputs used in its credit loss model, primarily due

to foreign government securities. During the three months ended March 31, 2021, the Company increased the allowance for expected credit losses for available for sale securities primarily due to foreign government securities that had no reserve in prior periods.

The amortized cost and fair value of fixed maturity securities at March 31, 2022, 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 (1)		Fair Value
Due in one year or less	$	1,472,865	$	1,461,188
Due after one year through five years	7,903,303		7,756,952
Due after five years through ten years	4,029,040		3,898,727
Due after ten years	1,982,273		1,927,232
Mortgage-backed securities	1,450,844		1,389,515
Total	$	16,838,325	$	16,433,614

(1) Amortized cost is reduced by the allowance for expected credit losses of $378 thousand related to held to maturity securities.

At March 31, 2022 and December 31, 2021, there were no investments that exceeded 10% of common stockholders' equity, other than investments in United States government and government agency securities.

(8) Investments in Equity Securities

At March 31, 2022 and December 31, 2021, investments in equity securities were as follows:


(In thousands)	Cost			Gross Unrealized				Fair Value		Carrying Value
Gains			Losses
March 31, 2022
Common stocks	$	699,566		$	191,842	$	(8,091)	$	883,317	$	883,317
Preferred stocks	262,513			2,917		(22,256)		243,174		243,174
Total	$	962,079		$	194,759	$	(30,347)	$	1,126,491	$	1,126,491

December 31, 2021
Common stocks	$	619,896		$	92,401	$	(16,894)	$	695,403	$	695,403
Preferred stocks	250,149			7,874		(12,183)		245,840		245,840
Total	$	870,045		$	100,275	$	(29,077)	$	941,243	$	941,243

(9) Arbitrage Trading Account

At March 31, 2022 and December 31, 2021, the fair and carrying values of the arbitrage trading account were $1,189 million and $1,180 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 and call options in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading account. These options are reported at fair value. As of March 31, 2022, the fair value of short option contracts outstanding was $242 thousand (notional amount of $29.2 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.

(10) Net Investment Income

Net investment income consisted of the following:


	For the Three Months Ended March 31,

(In thousands)	2022		2021
Investment income earned on:
Fixed maturity securities, including cash and cash equivalents and loans receivable	$	101,284	$	94,677
Investment funds	52,012		38,935
Arbitrage trading account	9,187		19,074
Equity securities	10,856		6,180
Real estate	2,146		1,161

Gross investment income	175,485		160,027
Investment expense	(1,973)		(1,450)
Net investment income	$	173,512	$	158,577

(11) 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 investment 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, which were $615 million as of March 31, 2022.

Investment funds consisted of the following:


	Carrying Value as of				Income (Loss) from Investment Funds
	March 31,		December 31,		For the Three Months Ended March 31,
(In thousands)	2022		2021		2022		2021
Financial services	$	454,701	$	431,818	$	25,932	$	17,142
Transportation	341,022		336,688		11,179		6,228
Real Estate	283,897		273,690		16,364		4,434
Energy	136,401		150,224		(892)		3,320
Other funds	329,627		288,192		(569)		7,811
Total	$	1,545,648	$	1,480,612	$	52,014	$	38,935

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

Financial services investment funds include the Company’s minority investment in Lifson Re, a Bermuda reinsurance company. Effective January 1, 2021, Lifson Re participates on a fully collateralized basis in a majority of the Company’s reinsurance placements for a 22.5% share of placed amounts. This pertains to all traditional reinsurance/retrocessional placements for both property and casualty business where there is more than one open market reinsurer participating. For the three months ended March 31, 2022 and 2021, the Company has ceded approximately $89 million and $53 million, respectively, of written premiums to Lifson Re.

Other funds include deferred compensation trust assets of $32 million and $34 million as of March 31, 2022 and December 31, 2021, respectively. These assets support other liabilities reflected in the balance sheet of an equal amount for employees who have elected to defer a portion of their compensation. The change in the net asset value of the trust is recorded in other funds within net investment income with an offsetting equal amount within corporate expenses.

(12) Real Estate

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


	Carrying Value
	March 31,		December 31,
(In thousands)	2022		2021
Properties in operation	$	1,052,198	$	1,626,826
Properties under development	223,959		225,682
Total	$	1,276,157	$	1,852,508

As of March 31, 2022, properties in operation included a long-term ground lease in Washington, D.C., an office complex in New York City and the completed portion of a mixed-use project in Washington D.C. Properties in operation are net of accumulated depreciation and amortization of $32,031,000 and $57,391,000 as of March 31, 2022 and December 31, 2021, respectively. Related depreciation expense was $4,788,000 and $4,890,000 for the three months ended March 31, 2022 and 2021, respectively. Future minimum rental income expected on operating leases relating to properties in operation is

$24,004,686 in 2022, $30,750,724 in 2023, $30,466,934 in 2024, $27,802,134 in 2025, $25,807,966 in 2026, $24,984,457 in 2027 and $476,939,991 thereafter.

During the first quarter of 2022, the Company sold a real estate investment in London.

A mixed-use project in Washington, D.C. has been under development in 2022 and 2021, with the completed portion reported in properties in operation as of March 31, 2022.

(13) Loans Receivable

At March 31, 2022 and December 31, 2021, loans receivable were as follows:


(In thousands)	March 31, 2022		December 31, 2021
Amortized cost (net of allowance for expected credit losses):
Real estate loans	$	89,213	$	89,431
Commercial loans	25,884		25,741
Total	$	115,097	$	115,172

Fair value:
Real estate loans	$	89,672	$	90,793
Commercial loans	25,884		25,741
Total	$	115,556	$	116,534

The real estate loans are secured by commercial and residential real estate primarily located in New York. These loans generally earn interest at fixed or stepped interest rates and have maturities through 2026. The commercial loans are with small business owners who have secured the related financing with the assets of the business. Commercial loans primarily earn interest on a fixed basis and have varying maturities generally not exceeding 10 years.

Loans receivable in non-accrual status were none and $0.2 million as of March 31, 2022 and December 31, 2021, respectively.

The following table presents the rollforward of the allowance for expected credit losses for loans receivable for the three months ended March 31, 2022 and 2021:


	2022						2021
(In thousands)	Real Estate Loans		Commercial Loans		Total		Real Estate Loans		Commercial Loans		Total
Allowance for expected credit losses, beginning of period	$	1,362	$	356	$	1,718	$	1,683	$	3,754	$	5,437

Provision for expected credit losses	(67)		(222)		(289)		(75)		(1,164)		(1,239)
Allowance for expected credit losses, end of period	$	1,295	$	134	$	1,429	$	1,608	$	2,590	$	4,198

During the three months ended March 31, 2022, the Company reduced the allowance primarily due to the decrease in the duration of the loan portfolio.

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.

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.

(14) Net Investment Gains (Losses)

Net investment gains (losses) were as follows:


	For the Three Months Ended March 31,
(In thousands)	2022		2021
Net investment gains (losses):
Fixed maturity securities:
Gains	$	1,705	$	8,240
Losses	(2,984)		(2,071)
Equity securities (1):
Net realized gains on investment sales	905		8,572
Change in unrealized gains (losses)	93,213		(24,335)
Investment funds	(2,162)		47,671
Real estate (2)	286,192		12,909
Loans receivable	(32)		—
Other	(6,955)		773
Net realized and unrealized gains on investments in earnings before allowance for expected credit losses	369,882		51,759
Change in allowance for expected credit losses on investments:
Fixed maturity securities	(3,906)		(18,159)
Loans receivable	289		1,239
Change in allowance for expected credit losses on investments	(3,617)		(16,920)
Net investment gains	366,265		34,839
Income tax expense	(78,442)		(5,887)
After-tax net investment gains	$	287,823	$	28,952


Change in unrealized investment losses on available for sale securities:
Fixed maturity securities without allowance for expected credit losses	$	(540,263)	$	(122,568)
Fixed maturity securities with allowance for expected credit losses	293		10,355

Investment funds	469		(1,020)
Other	52		(502)
Total change in unrealized investment losses	(539,449)		(113,735)
Income tax benefit	115,904		23,605
Noncontrolling interests	(1)		—
After-tax change in unrealized investment losses of available for sale securities	$	(423,546)	$	(90,130)

(1) The net realized gains or losses on investment sales represent the total gains or losses from the purchase dates of the equity securities. The change in unrealized (losses) gains consists of two components: (i) the reversal of the gain or loss recognized in previous periods on equity securities sold and (ii) the change in unrealized gain or loss resulting from mark-to-market adjustments on equity securities still held.

(2) During March 2022, the Company realized a gain on the sale of a real estate investment in London, U.K. of $251 million, net of transaction expenses and the foreign currency impact, including the reversal of the currency translation adjustment.

(15) Fixed Maturity Securities in an Unrealized Loss Position

The following tables summarize all fixed maturity securities in an unrealized loss position at March 31, 2022 and December 31, 2021 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
March 31, 2022
U.S. government and government agency	$	547,027	$	18,521	$	36,307	$	2,195	$	583,334	$	20,716
State and municipal	1,360,055		51,579		95,853		9,345		1,455,908		60,924
Mortgage-backed	1,069,979		49,408		140,480		15,001		1,210,459		64,409
Asset-backed	3,898,607		61,254		186,663		2,319		4,085,270		63,573
Corporate	3,805,020		148,708		381,306		31,823		4,186,326		180,531
Foreign government	809,004		29,721		211,576		34,092		1,020,580		63,813
Fixed maturity securities	$	11,489,692	$	359,191	$	1,052,185	$	94,775	$	12,541,877	$	453,966





December 31, 2021
U.S. government and government agency	$	487,712	$	4,026	$	17,021	$	268	$	504,733	$	4,294
State and municipal	502,333		7,403		29,547		2,156		531,880		9,559
Mortgage-backed	558,751		6,900		106,130		4,762		664,881		11,662
Asset-backed	3,832,944		18,503		75,385		291		3,908,329		18,794
Corporate	2,582,860		29,322		51,095		3,088		2,633,955		32,410
Foreign government	758,975		15,793		82,057		31,701		841,032		47,494
Fixed maturity securities	$	8,723,575	$	81,947	$	361,235	$	42,266	$	9,084,810	$	124,213

Substantially all of the securities in an unrealized loss position are rated investment grade, except for the securities in the foreign government classification. A significant amount of the unrealized loss on foreign government securities is the result of changes in currency exchange rates.

A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at March 31, 2022 is presented in the table below:


($ in thousands)	Number of Securities	Aggregate Fair Value		Gross Unrealized Loss
Foreign government	37	$	132,306	$	30,753
Corporate	12	30,071		3,158
State and municipal	1	13,583		1,422
Mortgage-backed	7	1,785		48
Asset-backed	1	37		5
Total	58	$	177,782	$	35,386

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

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 under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due.

(16) Fair Value Measurements

The Company’s fixed maturity available for sale securities, equity securities and its arbitrage trading account securities are carried at fair value. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, 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 March 31, 2022 and December 31, 2021 by level:


(In thousands)	Total		Level 1		Level 2		Level 3
March 31, 2022
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	818,848	$	—	$	818,848	$	—
State and municipal	3,055,874		—		3,055,874		—
Mortgage-backed	1,384,736		—		1,384,736		—
Asset-backed	4,257,421		—		4,257,421		—
Corporate	5,588,507		—		5,588,507		—
Foreign government	1,246,568		—		1,246,568		—
Total fixed maturity securities available for sale	16,351,954		—		16,351,954		—
Equity securities:
Common stocks	883,317		877,387		1,230		4,700
Preferred stocks	243,174		—		231,203		11,971
Total equity securities	1,126,491		877,387		232,433		16,671
Arbitrage trading account	1,188,910		1,186,353		2,557		—
Total	$	18,667,355	$	2,063,740	$	16,586,944	$	16,671
Liabilities:
Trading account securities sold but not yet purchased	$	241	$	241	$	—	$	—


December 31, 2021
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	855,343	$	—	$	855,343	$	—
State and municipal	3,304,133		—		3,304,133		—
Mortgage-backed	1,068,075		—		1,068,075		—
Asset-backed	4,490,565		—		4,490,565		—
Corporate	5,595,675		—		5,595,675		—
Foreign government	1,214,901		—		1,214,901		—
Total fixed maturity securities available for sale	16,528,692		—		16,528,692		—
Equity securities:
Common stocks	695,403		684,470		1,639		9,294
Preferred stocks	245,840		—		234,544		11,296
Total equity securities	941,243		684,470		236,183		20,590
Arbitrage trading account	1,179,606		1,153,079		26,527		—
Total	$	18,649,541	$	1,837,549	$	16,791,402	$	20,590
Liabilities:
Trading account securities sold but not yet purchased	$	1,169	$	1,137	$	32	$	—

The following tables summarize changes in Level 3 assets and liabilities for the three months ended March 31, 2022 and for the year ended December 31, 2021:


Gains (Losses) Included In:
(In thousands)	Beginning Balance		Earnings (Losses)		Other Comprehensive Income (Losses)		Impairments		Purchases		Sales		Paydowns / Maturities		Transfers In / (Out)		Ending Balance

Three Months Ended March 31, 2022
Assets:




Equity securities:
Common stocks	$	9,294	$	(4,594)	$	—	$	—	$	—	$	—	$	—	$	—	$	4,700
Preferred stocks	11,296		—		—		—		675		—		—		—		11,971
Total	20,590		(4,594)		—		—		675		—		—		—		16,671
Arbitrage trading account	—		—		—		—		—		—		—		—		—
Total	$	20,590	$	(4,594)	$	—	$	—	$	675	$	—	$	—	$	—	$	16,671

Liabilities:
Trading account securities sold but not yet purchased	$	—	$	(1)	$	—	$	—	$	—	$	—	$	—	$	1	$	—
Year Ended December 31, 2021
Assets:
Fixed maturities securities available for sale:

Corporate	$	1,000	$	—	$	—	$	—	$	—	$	(1,000)	$	—	$	—	$	—
Total	1,000		—		—		—		—		(1,000)		—		—		—
Equity securities:
Common stocks	9,215		640		—		—		—		(561)		—		—		9,294
Preferred stocks	9,331		(35)		—		—		2,000		—		—		—		11,296
Total	18,546		605		—		—		2,000		(561)		—		—		20,590
Arbitrage trading account	—		8		—		—		—		(8)		—		—		—
Total	$	19,546	$	613	$	—	$	—	$	2,000	$	(1,569)	$	—	$	—	$	20,590
Liabilities:
Trading account securities sold but not yet purchased	$	—	$	1	$	—	$	—	$	(1)	$	—	$	—	$	—	$	—

For the three months ended March 31, 2022, there was one security transferred into Level 3. For the year ended December 31, 2021, there were no securities transferred into or out of Level 3.

(17) Reserves for Loss and Loss Expenses

The Company's reserves for losses and loss expenses are comprised of case reserves and incurred but not reported liabilities ("IBNR"). When a claim is reported, a case reserve is established for the estimated ultimate payment based upon known information about the claim. As more information about the claim becomes available over time, case reserves are adjusted up or down as appropriate. Reserves are also established on an aggregate basis to provide for IBNR liabilities and expected loss reserve development on reported claims.

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.

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


	March 31,
(In thousands)	2022		2021
Net reserves at beginning of period	$	12,848,362	$	11,620,393


Net provision for losses and loss expenses:
Claims occurring during the current year (1)	1,327,695		1,115,173
Increase (decrease) in estimates for claims occurring in prior years (2) (3)	3,761		(859)
Loss reserve discount accretion	7,796		7,278
Total	1,339,252		1,121,592
Net payments for claims:
Current year	84,598		97,586
Prior years	933,656		794,472
Total	1,018,254		892,058
Foreign currency translation	9,983		(14,779)
Net reserves at end of period	13,179,343		11,835,148
Ceded reserves at end of period	2,543,546		2,245,380
Gross reserves at end of period	$	15,722,889	$	14,080,528

(1) Claims occurring during the current year are net of loss reserve discounts of $7 million and $5 million for the three months ended March 31, 2022 and 2021, respectively.

(2) The change 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 $4 million and $5 million for the three months ended March 31, 2022 and 2021, respectively.

(3) For certain retrospectively rated insurance policies and reinsurance agreements, reserve development is offset by additional or return premiums. Favorable development, net of additional and return premiums, was $1 million and $3 million for the three months ended March 31, 2022 and 2021, respectively.

The COVID-19 global pandemic has impacted, and may further impact, the Company’s results through its effect on claim frequency and severity. Loss cost trends have been impacted and may be further impacted by COVID-19-related claims in certain lines of business. Losses incurred from COVID-19-related claims have been offset, to a certain extent, by lower claim frequency in certain lines of our businesses; however, as the economy and legal systems have reopened, the benefit of lower claim frequency has continued to abate. Although as populations continue to be vaccinated against the virus and the effects of the pandemic have receded in many jurisdictions, most particularly the United States, it remains too early to determine the ultimate net impact of COVID-19 on the Company. New variants of the COVID-19 virus, including the “Omicron” variant, continue to create risks with respect to loss costs and the potential for renewed impact of the other effects of COVID-19 associated with economic conditions, inflation, and social distancing and work from home rules.

Most of the COVID-19-related claims reported to the Company to date involve certain short-tailed lines of business, including contingency and event cancellation, business interruption, and film production delay. The Company has also received COVID-19-related claims for longer-tailed casualty lines of business such as workers’ compensation and other liability; however, the estimated incurred loss impact for these reported claims are not material at this time. Given the continuing uncertainty regarding the pandemic's pervasiveness, the future impact that the pandemic may have on claim frequency and severity remains uncertain at this time.

The Company has estimated the potential COVID-19 impact to its contingency and event cancellation, workers’ compensation, and other lines of business under a number of possible scenarios; however, due to COVID-19’s continued evolving impact, there remains a high degree of uncertainty around the Company’s COVID-19 reserves. In addition, should the pandemic continue or worsen as a result of new COVID-19 variants or otherwise, governments in the jurisdictions where we operate may renew their efforts to expand policy coverage terms beyond the policy’s intended coverage. Accordingly, losses arising from these actions, and the other factors described above, could exceed the Company’s reserves established for those related policies.

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

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

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

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

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

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

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

(18) Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:


	March 31, 2022				December 31, 2021
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	16,426,196	$	16,433,614	$	16,602,673	$	16,614,118
Equity securities	1,126,491		1,126,491		941,243		941,243
Arbitrage trading account	1,188,910		1,188,910		1,179,606		1,179,606
Loans receivable	115,097		115,556		115,172		116,534
Cash and cash equivalents	2,114,841		2,114,841		1,568,843		1,568,843

Due from broker	—		—		20,448		20,448
Liabilities:
Due to broker	77,601		77,601		—		—
Trading account payable to brokers and clearing organizations	56,652		56,652		53,636		53,636
Trading account securities sold but not yet purchased	241		241		1,169		1,169
Senior notes and other debt	1,834,155		1,788,992		2,259,416		2,526,630
Subordinated debentures	1,007,832		957,670		1,007,652		1,095,600

The estimated fair values of the Company’s fixed maturity securities, equity securities and arbitrage trading account securities are based on various valuation techniques that rely on fair value measurements as described in Note 15. 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.

(19) Premiums and Reinsurance Related Information

The following is a summary of insurance and reinsurance financial information:


	For the Three Months Ended March 31,

(In thousands)	2022		2021
Written premiums:
Direct	$	2,542,336	$	2,177,162
Assumed	317,500		307,550
Ceded	(446,582)		(434,674)
Total net premiums written	$	2,413,254	$	2,050,038

Earned premiums:
Direct	$	2,404,597	$	2,003,045
Assumed	292,373		259,541
Ceded	(447,883)		(412,630)
Total net premiums earned	$	2,249,087	$	1,849,956

Ceded losses and loss expenses incurred	$	243,294	$	298,740
Ceded commissions earned	$	117,445	$	101,680

The following table presents the rollforward of the allowance for expected credit losses for premiums and fees receivable for the three months ended March 31, 2022 and 2021:


(In thousands)	2022		2021
Allowance for expected credit losses, beginning of period	$	25,218	$	22,883

Provision for expected credit losses	3,018		1,381
Allowance for expected credit losses, end of period	$	28,236	$	24,264

The Company reinsures a portion of its insurance exposures in order to reduce its net liability on individual risks and catastrophe losses. The Company also cedes premiums to state assigned risk plans and captive insurance companies. Estimated amounts due from reinsurers are reported net of an allowance for expected credit losses.

The following table presents the rollforward of the allowance for expected credit losses associated with due from reinsurers for the three months ended March 31, 2022 and 2021:


(In thousands)	2022		2021
Allowance for expected credit losses, beginning of period	$	7,713	$	7,801

Provision for expected credit losses	(58)		(428)
Allowance for expected credit losses, end of period	$	7,655	$	7,373

(20) Restricted Stock Units

Pursuant to its 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. RSUs are expensed pro-ratably over the vesting period. RSU expenses were $11 million and $12 million for the three months ended March 31, 2022 and 2021 respectively. A summary of RSUs issued in the three months ended March 31, 2022 and 2021 follows:


($ in thousands)	Units	Fair Value

2022	1,660	$	150
2021	885	$	40

(21) 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.

(22) Leases

Lessees are required to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months on the balance sheet. All leases disclosed within this footnote are classified as operating leases. Recognized right-of-use asset and lease liability are reported within other assets and other liabilities, respectively, in the consolidated balance sheet. Lease expense is reported in other operating costs and expenses in the consolidated statement of income and accounted for on a straight-line basis over the lease term.

To determine the discount rate used to calculate present value of future minimum lease payments, the Company uses its incremental borrowing rate during the lease commencement period in line with the respective lease duration. In certain cases, the Company has the option to renew the lease. Lease renewal future payments are included in the present value of the future minimum lease payments when the Company determines it is reasonably certain to renew.

The main leases entered into by the Company are for office space used by the Company’s operating units across the world. Additionally, the Company, to a lesser extent, has equipment leases mainly for office equipment. Further information relating to operating lease expense and other operating lease information are as follows:


	For the Three Months Ended March 31,

(In thousands)	2022		2021
Leases:
Lease cost	$	10,198	$	11,264
Cash paid for amounts included in the measurement of lease liabilities reported in operating cash flows	$	10,993	$	11,377
Right-of-use assets obtained in exchange for new lease liabilities	$	17,269	$	30


	As of March 31,
($ in thousands)	2022			2021
Right-of-use assets	$	180,424		$	156,942
Lease liabilities	$	217,086		$	195,590
Weighted-average remaining lease term	7.3 years			6.7 years
Weighted-average discount rate	4.58		%	5.94		%

Contractual maturities of the Company’s future minimum lease payments are as follows:


(In thousands)	March 31, 2022
Contractual Maturities:
2022	$	34,336
2023	45,618
2024	39,676
2025	29,793
2026	23,150
Thereafter	77,609
Total undiscounted future minimum lease payments	250,182
Less: Discount impact	33,096
Total lease liability	$	217,086

(23) Business Segments

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

Insurance - predominantly commercial insurance business, including excess and surplus lines, admitted lines and specialty personal lines throughout the United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia.
Reinsurance & Monoline Excess - reinsurance business on a facultative and treaty basis, primarily in the United States, the United Kingdom, Continental Europe, Australia, the Asia-Pacific Region and South Africa, as well as operations that solely retain risk on an excess basis.

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 tables. Income (loss) before income taxes by segment includes allocated investment income. Identifiable assets by segment are those assets used in or allocated to the operation of each segment.


	Revenues
(In thousands)	Earned Premiums (1)		Investment Income		Other		Total (2)		Pre-Tax Income (Loss)		Net Income (Loss) to Common Stockholders
Three months ended March 31, 2022
Insurance	$	1,962,835	$	137,654	$	8,676	$	2,109,165	$	382,412	$	315,552
Reinsurance & Monoline Excess	286,252		27,423		—		313,675		57,628		47,080
Corporate, other and eliminations (3)	—		8,435		117,869		126,304		(73,872)		(59,817)
Net investment gains	—		—		366,265		366,265		366,265		287,823
Total	$	2,249,087	$	173,512	$	492,810	$	2,915,409	$	732,433	$	590,638
Three months ended March 31, 2021
Insurance	$	1,604,979	$	105,237	$	8,279	$	1,718,495	$	257,109	$	198,708
Reinsurance & Monoline Excess	244,977		37,708		—		282,685		68,649		54,471
Corporate, other and eliminations (3)	—		15,632		105,218		120,850		(64,529)		(52,606)
Net investment gains	—		—		34,839		34,839		34,839		28,952
Total	$	1,849,956	$	158,577	$	148,336	$	2,156,869	$	296,068	$	229,525

(1) Certain amounts included in earned premiums of each segment are related to inter-segment transactions.

(2) Revenues for Insurance from foreign countries for the three months ended March 31, 2022 and 2021 were $235 million and $196 million, respectively. Revenues for Reinsurance & Monoline Excess from foreign countries for the three months ended March 31, 2022 and 2021 were $96 million and $88 million, respectively.

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

Identifiable Assets


(In thousands)	March 31, 2022		December 31, 2021
Insurance	$	25,057,202	$	24,403,918
Reinsurance & Monoline Excess	5,058,976		4,917,985
Corporate, other and eliminations	2,134,776		2,725,973
Consolidated	$	32,250,954	$	32,047,876

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


	For the Three Months Ended March 31,

(In thousands)	2022		2021
Insurance:
Other liability	$	754,456	$	611,404
Short-tail lines (1)	375,212		324,740
Workers' compensation	285,423		267,449
Commercial automobile	282,234		220,761
Professional liability	265,510		180,626
Total Insurance	1,962,835		1,604,979

Reinsurance & Monoline Excess:
Casualty reinsurance	184,122		149,638
Property reinsurance	50,234		49,466
Monoline excess (2)	51,896		45,873
Total Reinsurance & Monoline Excess	286,252		244,977

Total	$	2,249,087	$	1,849,956

(1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.

(2) Monoline excess includes operations that solely retain risk on an excess basis.

(24) Subsequent Event

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

SAFE HARBOR STATEMENT

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2022 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition, including new entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts, including claims for cybersecurity-related risks; natural and man-made catastrophic losses, including as a result of terrorist activities; the ongoing COVID-19 pandemic; the impact of climate change, which may alter the frequency and increase the severity of catastrophe events; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2019; the ability or willingness of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or cyber security issues; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

These risks and uncertainties could cause our actual results for the year 2022 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Our future financial performance is dependent upon factors discussed in our Annual Report on Form 10-K, elsewhere in this Form 10-Q and our other SEC filings. Forward-looking statements speak only as of the date on which they are made. Except to the extent required by applicable laws, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

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