BERKLEY W R CORP - 10-Q Quarterly Report

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Number of shares of common stock, $.20 par value, outstanding as of November 7, 2003: 83,384,494

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


				September 30,			December 31,
				2003			2002

				(Unaudited)
Assets
Investments:
	Cash and cash equivalents			$	1,196,215		$	594,183
	Fixed maturity securities				4,092,337			3,511,522
	Equity securities available for sale				323,988			204,372
	Equity securities trading account				230,843			165,642
	Other investments				103,909			46,187

			Total investments		5,947,292			4,521,906

Premiums and fees receivable					986,679			822,060
Due from reinsurers					774,843			734,687
Accrued investment income					48,958			46,334
Prepaid reinsurance premiums					257,127			164,284
Deferred policy acquisition costs					396,311			308,200
Real estate, furniture & equipment at cost, less accumulated depreciation					141,198			135,488
Deferred federal and foreign income taxes					34,933			20,585
Goodwill					59,021			59,021
Account receivable from brokers and clearing organizations					163,727			177,309
Other assets					65,247			41,449

			Total assets	$	8,875,336		$	7,031,323

Liabilities and Stockholders’ Equity
Liabilities:
	Reserves for losses and loss expenses			$	3,863,152		$	3,167,925
	Unearned premiums				1,848,818			1,390,246
	Due to reinsurers				178,559			184,912
	Securities sold but not yet purchased				80,028			36,115
	Policyholders’ account balances				50,548			42,707
	Other liabilities				386,083			294,334
	Debt				658,933			362,985
	Trust preferred securities				193,325			198,251

			Total liabilities		7,259,446			5,677,475

Minority interest					37,444			18,649
Stockholders’ equity:
	Preferred stock, par value $.10 per share:
			Authorized 5,000,000 shares; issued and outstanding — none		—			—
	Common stock, par value $.20 per share:
		Authorized 150,000,000 shares, issued and outstanding, net of treasury shares, 83,255,014 and 82,835,172 shares			20,901			20,901
	Additional paid-in capital				817,964			816,223
	Retained earnings				852,548			623,651
	Accumulated other comprehensive income				111,316			104,603
	Treasury stock, at cost, 21,247,246 and 21,669,153 shares				(224,283	)		(230,179	)

			Total stockholders’ equity		1,578,446			1,335,199

			Total liabilities and stockholders’ equity	$	8,875,336		$	7,031,323

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


				For the Three Months						For the Nine Months
				Ended September 30,						Ended September 30,

				2003			2002			2003			2002

Revenues:
	Net premiums written			$	939,677		$	687,990		$	2,707,193		$	1,923,078
	Change in unearned premiums, net				(104,097	)		(119,519	)		(365,019	)		(363,453	)

			Premiums earned		835,580			568,471			2,342,174			1,559,625
	Net investment income				51,678			48,316			153,859			137,032
	Service fees				25,475			21,650			76,854			62,767
	Realized investment gains (losses)				3,383			1,612			61,660			(1,812	)
	Foreign currency gains (losses)				40			(984	)		(1,154	)		(1,046	)
	Other income				226			1,006			1,359			1,326

			Total revenues		916,382			640,071			2,634,752			1,757,892

Expenses:
	Losses and loss expenses				533,201			368,763			1,491,244			1,015,879
	Other operating expenses				261,281			200,182			750,294			560,508
	Interest expense				13,825			11,593			39,193			34,058

		Total expenses			808,307			580,538			2,280,731			1,610,445

			Income before income taxes and minority interest		108,075			59,533			354,021			147,447
Income tax expense					(30,744	)		(19,470	)		(107,960	)		(51,255	)
Minority interest					(862	)		481			(2,049	)		6,122

	Net income			$	76,469		$	40,544		$	244,012		$	102,314

Net income per share:
			Basic	$	0.92		$	0.54		$	2.94		$	1.36
			Diluted	$	0.87		$	0.52		$	2.79		$	1.30
Average shares outstanding:
			Basic		83,183			75,294			83,025			75,120
			Diluted		87,923			77,985			87,468			78,492

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


			Nine Months Ended			Year Ended
			September 30, 2003			December 31, 2002

			(Unaudited)
Common stock:
	Beginning of period		$	20,901		$	19,487
	Issuance of common stock			—			1,414

	End of period		$	20,901		$	20,901

Additional paid in capital:
	Beginning of period		$	816,223		$	648,440
	Issuance of common stock			463			167,783
	Restricted stock units earned			1,278			—

	End of period		$	817,964		$	816,223
Retained earnings:
	Beginning of period		$	623,651		$	467,185
	Net income			244,012			175,045
	Elimination of international reporting lag			1,776			—
	Dividends to stockholders			(16,891	)		(18,579	)

	End of period		$	852,548		$	623,651

Accumulated other comprehensive income:
	Unrealized investment gains:
		Beginning of period	$	114,664		$	41,731
		Net change in period		9,434			72,933

		End of period		124,098			114,664

	Currency translation adjustments:
		Beginning of period		(10,061	)		(4,391	)
		Net change in period		(2,721	)		(5,670	)

		End of period		(12,782	)		(10,061	)

	Total accumulated other comprehensive income		$	111,316		$	104,603

Treasury stock:
	Beginning of period		$	(230,179	)	$	(240,857	)
	Issuance under stock incentive plan			5,968			10,749
	Purchase of common stock			(72	)		(71	)

	End of period		$	(224,283	)	$	(230,179	)

W. R. Berkley Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)


					For the Nine Months
					Ended September 30,

					2003			2002

Cash flows provided by operating activities:
	Net income				$	244,012		$	102,314
	Adjustments to reconcile net income to cash provided by operating activities:
		Realized investment and foreign currency gains (losses)				(60,506	)		2,858
		Depreciation and amortization				13,681			13,680
		Minority interest				2,049			(6,122	)
		Equity in undistributed earnings of affiliates				(4,597	)		75
		Equity securities trading account				(65,201	)		26,889
		Change in: Premiums and fees receivable				(164,619	)		(206,140	)
				Due from reinsurers		(40,156	)		62,282
				Accrued investment income		(2,624	)		(2,732	)
				Prepaid reinsurance premiums		(92,843	)		(57,656	)
				Deferred policy acquisition cost		(88,111	)		(63,798	)
				Deferred federal and foreign income taxes		(21,790	)		31,532
				Account receivable from brokers and clearing organizations		13,582			171,685
				Other assets		(22,083	)		5,180
				Reserves for losses and loss expense		695,227			149,520
				Unearned premiums		458,572			405,415
				Due to reinsurers		(6,353	)		48,734
				Securities sold but not yet purchased		43,913			(25,858	)
				Policyholders’ account balances		7,841			27,390
				Other liabilities		98,422			30,410

				Net cash flows provided by operating activities		1,008,416			715,658

Cash flows used in investing activities:
	Proceeds from sales, excluding trading account:
			Fixed maturity securities			746,213			460,332
			Equity securities			45,039			27,014
			Maturities and prepayments of fixed maturity securities			565,158			204,767
	Cost of purchases, excluding trading account:
			Fixed maturity securities			(1,841,372	)		(1,366,262	)
			Equity securities			(144,325	)		(187,034	)
	Other invested securities					(50,752	)		—
	Change in balances due to/from security brokers					(4,110	)		62,482
	Net additions to real estate, furniture and equipment					(18,368	)		(30,854	)
	Purchase of subsidiary					—			(2,053	)
	Other, net					430			(16,034	)

			Net cash flows used in investing activities			(702,087	)		(847,642	)

Cash flows provided by (used in) financing activities:
	Net proceeds from issuance of debt					356,182			—
	Repayment and repurchase of debt and trust preferred securities					(65,750	)		(8,000	)
	Cash dividends					(21,836	)		(12,982	)
	Net proceeds from stock options exercised					7,709			7,037
	Proceeds from minority shareholder					15,337			—
	Other, net					4,061			(1,838	)

		Net cash flows provided by (used in) financing activities				295,703			(15,783	)

		Net increase (decrease) in cash and cash equivalents				602,032			(147,767	)
Cash and cash equivalents at beginning of year						594,183			534,087

		Cash and cash equivalents at end of period			$	1,196,215		$	386,320

Supplemental disclosure of cash flow information:
	Interest paid				$	33,493		$	29,178

	Federal income taxes paid, net				$	99,932		$	2,647

W. R. Berkley Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 2003

The accompanying consolidated financial statements should be read in conjunction with the following notes and with the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Reclassifications have been made in the 2002 financial statements as originally reported to conform them to the presentation of the 2003 financial statements.

In the fourth quarter of 2002, the Company modified the presentation of reinsurance assumed from Lloyd’s syndicates to reflect the Company’s share of the reinsurance and brokerage costs paid by the syndicates. Previously, these amounts were netted against assumed premiums. Premiums and expenses for the first three quarters of 2002 were reclassified to conform with this presentation. There was no effect from this change on net income or net income per share.

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

Basic earnings per share data is based upon the weighted average number of shares outstanding during the period. Diluted earnings per share data reflects the potential dilution that would occur if options granted under employee stock-based compensation plans were exercised and restricted stock units earned were delivered. Per share amounts have been adjusted to reflect the 3-for-2 common stock split effected August 27, 2003.

In the opinion of management, the financial information reflects all adjustments which are necessary for a fair presentation of financial position and results of operations for the interim periods. Seasonal weather variations affect the severity and frequency of losses sustained by the insurance and reinsurance subsidiaries. Although the effect on the Company’s business of such natural catastrophes as tornadoes, hurricanes, hailstorms and earthquakes is mitigated by reinsurance, they nevertheless can have a significant impact on the results of any one or more reporting periods.

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


			For the Three Months						For the Nine Months
			Ended September 30,						Ended September 30,

			2003			2002			2003			2002

Net income			$	76,469		$	40,544		$	244,012		$	102,314
Other comprehensive income:
	Unrealized holding gains (losses) on investments, net of taxes			(26,872	)		70,041			(30,152	)		87,318
	Reclassification for realized gains (losses) included in net income, net of taxes			2,432			733			39,586			(144	)

		Unrealized investment gains (losses), net of taxes		(24,440	)		70,774			9,434			87,174

	Currency translation adjustments, net of taxes			4,032			(9,094	)		(2,721	)		(4,093	)

		Other comprehensive income (loss)		(20,408	)		61,680			6,713			83,081

		Comprehensive income	$	56,061		$	102,224		$	250,725		$	185,395

W. R. Berkley Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2003

During the first quarter of 2003, the Company adopted SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS No. 123” (“SFAS No. 148”). This statement amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of SFAS No. 148 did not have any impact to our consolidated financial position, results of operations or cash flows as our adoption of this standard involved disclosures only. Under the prospective method of adoption selected by the Company, the fair value recognition provisions are applied to all employee awards granted, modified or settled after January 1, 2003. The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period (dollars in thousands, except per share data).


		For the Three Months						For the Nine Months
		Ended September 30,						Ended September 30,

		2003			2002			2003			2002

Net income, as reported		$	76,469		$	40,544		$	244,012		$	102,314
Add: Stock-based compensation expense included in reported net income, net of tax			7			—			19			—
Deduct: Total stock-based employee compensation expense under fair value based method for all awards,
net of tax			(1,171	)		(1,133	)		(3,561	)		(3,400	)

Pro forma net income		$	75,305		$	39,411		$	240,470		$	98,914

Earnings per share:
	Basic — as reported	$	.92		$	.54		$	2.94		$	1.36
	Basic — pro forma	$	.91		$	.52		$	2.90		$	1.32
	Diluted — as reported	$	.87		$	.52		$	2.79		$	1.30
	Diluted — pro forma	$	.86		$	.51		$	2.75		$	1.26

On April 4, 2003, 300,000 Restricted Stock Units (RSU) were awarded to officers of the Company and its subsidiaries. Each RSU represents the right to receive one share of common stock, conditioned on the employee’s satisfying certain requirements outlined in the award agreement. The RSUs vest after five years of continuous employment. The Company determines the cost of the RSUs awarded based on the market value of the stock at the time of the award. The cost is recognized as compensation expense as the units are earned over the vesting period. Compensation expense related to RSUs was $639,000 and $1,278,000 for the third quarter and first nine months of 2003, respectively. The remaining unearned compensation for outstanding RSUs was $11,502,000 as of September 30, 2003.

W. R. Berkley Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2003

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


					Gross		Gross
					Unrealized		Unrealized			Fair		Carrying
			Cost (a)		Gain		Loss			Value		Value

September 30, 2003
Fixed maturity securities:
	Held to maturity		$	211,830	$	19,771	$	(82	)	$	231,519	$	211,830
	Available for sale			3,711,401		177,503		(8,397	)		3,880,507		3,880,507

		Total	$	3,923,231	$	197,274	$	(8,479	)	$	4,112,026	$	4,092,337

Equity securities available for sale			$	301,091	$	25,073	$	(2,176	)	$	323,988	$	323,988

December 31, 2002
Fixed maturity securities:
	Held to maturity		$	205,856	$	21,861	$	(107	)	$	227,610	$	205,856
	Available for sale			3,129,993		184,751		(9,078	)		3,305,666		3,305,666

		Total	$	3,335,849	$	206,612	$	(9,185	)	$	3,533,276	$	3,511,522

Equity securities available for sale			$	202,388	$	8,232	$	(6,248	)	$	204,372	$	204,372

The Company reinsures a portion of its exposures principally to reduce its net liability on individual risks and to protect against catastrophic losses. The following amounts arising under reinsurance ceded contracts have been deducted in arriving at the amounts reflected in the statement of operations (dollars in thousands):


				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,

				2003		2002		2003		2002

Ceded premiums earned:
	Aggregate reinsurance agreement:
		Individual losses		$	35,151	$	32,612	$	94,920	$	71,784
		Aggregate losses			5,000		6,250		15,000		18,750

		Total			40,151		38,862		109,920		90,534

	Other reinsurance contracts				104,722		71,864		286,482		221,841

			Total	$	144,873	$	110,726	$	396,402	$	312,375

Ceded losses incurred:
	Aggregate reinsurance agreement:
		Individual losses		$	33,215	$	10,093	$	80,144	$	32,070
		Aggregate losses			9,000		11,250		27,000		33,750

		Total			42,215		21,343		107,144		65,820

	Other reinsurance contracts				70,156		50,241		173,311		130,605

		Total		$	112,371	$	71,584	$	280,455	$	196,425

W. R. Berkley Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2003

Effective January 1, 2001, the Company entered into a multi-year aggregate reinsurance agreement that provides two types of reinsurance coverage. The first type of coverage provides protection for individual losses on an excess of loss or quota share basis, as specified for each class of business covered by the agreement. The second type of coverage provides aggregate accident year protection for the Company’s reinsurance segment for loss and loss adjustment expenses incurred above a certain level. Loss recoveries are subject to annual limits and an aggregate limit over the contract period. The agreement contains a profit sharing provision under which the Company can recover a portion of premiums paid to the reinsurer if certain profit conditions are met. Based on its estimate of expected profits under the contract, the Company accrued return premiums of $14 million and $37 million for the third quarter and first nine months of 2003, respectively. No accrued return premiums were recorded during the first nine months of 2002.

Certain of the Company’s reinsurance agreements, including the aggregate reinsurance agreement, are structured on a funds held basis, whereby the Company retains some or all of the ceded premiums in a separate account that is used to fund ceded losses as they become due from the reinsurance company. Interest is credited to reinsurers for funds held on their behalf at rates ranging from 7.0% to 8.9% of the account balances, as defined under the agreements. Interest credited to reinsurers, which is reported as a reduction of net investment income, was $9 million and $25 million for the third quarter and first nine months of 2003, respectively, and $5 million and $14 million for the corresponding 2002 periods. As of September 30, 2003 and December 31, 2002, funds held by the Company under the aggregate reinsurance agreement exceeded the amount recoverable from the reinsurer for losses and loss adjustment expenses.

The Company’s operations are presently conducted through five segments of the insurance business: specialty lines of insurance; alternative markets; reinsurance; regional property casualty insurance; and international. The specialty segment’s business is principally within the excess and surplus lines, professional liability, commercial transportation and surety markets. The Company’s alternative markets segment offers workers’ compensation insurance on an excess and primary basis and provides fee-based services to help clients develop and administer self-insurance programs. The Company’s reinsurance segment specializes in underwriting property casualty reinsurance on both a treaty and facultative basis. The regional property casualty insurance segment provides commercial property casualty insurance products. The international segment offers personal and commercial property casualty insurance in Argentina and savings and life products in the Philippines. During 2001, the Company discontinued its regional personal lines business and the alternative markets division of its reinsurance segment. These discontinued businesses are reported collectively as a separate business segment.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Realized investment and foreign currency gains and losses are not allocated to the segments. Income tax expense and benefits are calculated based upon the Company’s overall effective tax rate. Summary financial information about the Company’s operating segments is presented in the following table. Income (loss) before income taxes by segment consists of revenues less expenses related to the respective segment’s operations, including allocated investment income. Identifiable assets by segment are those assets used in or allocated to the operation of each segment.

W. R. Berkley Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2003


			Revenues

			Earned		Investment									Pre-Tax			Net
(dollars in thousands)			Premiums		Income			Other			Total			Income (Loss)			Income (Loss)

For the three months ended September 30, 2003:
	Specialty		$	297,574	$	18,237		$	—		$	315,811		$	47,410		$	31,092
	Alternative Markets			101,660		9,675			25,475			136,810			18,689			12,364
	Reinsurance			198,145		12,678			—			210,823			17,154			11,780
	Regional			222,389		10,788			—			233,177			40,905			27,377
	International			15,812		1,711			—			17,523			1,887			1,917
	Discontinued Business			—		—			—			—			—			—
	Corporate and eliminations			—		(1,411	)		226			(1,185	)		(21,393	)		(10,493	)
	Realized gains			—		—			3,423			3,423			3,423			2,432

	Consolidated		$	835,580	$	51,678		$	29,124		$	916,382		$	108,075		$	76,469

For the three months ended September 30, 2002:
	Specialty (1)		$	200,699	$	14,126		$	—		$	214,825		$	34,097		$	22,179
	Alternative Markets			61,077		9,759			22,040			92,876			16,880			11,232
	Reinsurance (1)			99,167		10,883			(4	)		110,046			6,729			189
	Regional			183,424		11,723			—			195,147			26,736			15,947
	International			14,967		1,502			—			16,469			(2,241	)		(1,102	)
	Discontinued Business			9,137		801			—			9,938			(3,282	)		(2,133	)
	Corporate and eliminations			—		(478	)		620			142			(20,014	)		(6,501	)
		Realized gains		—		—			628			628			628			733

	Consolidated		$	568,471	$	48,316		$	23,284		$	640,071		$	59,533		$	40,544


			Revenues

			Earned		Investment									Pre-Tax			Net
(dollars in thousands)			Premiums		Income			Other			Total			Income (Loss)			Income (Loss)

For the nine months ended September 30, 2003:
	Specialty		$	810,534	$	50,366		$	—		$	860,900		$	150,707		$	99,444
	Alternative Markets			290,916		28,738			76,854			396,508			63,053			41,844
	Reinsurance			557,254		38,896			—			596,150			37,283			25,741
	Regional			634,683		32,940			—			667,623			107,171			71,220
	International			48,787		4,792			—			53,579			4,889			3,487
	Discontinued Business			—		—			—			—			—			—
	Corporate and eliminations			—		(1,873	)		1,359			(514	)		(69,588	)		(37,310	)
	Realized gains			—		—			60,506			60,506			60,506			39,586

	Consolidated		$	2,342,174	$	153,859		$	138,719		$	2,634,752		$	354,021		$	244,012

For the nine months ended September 30, 2002:
	Specialty (1)		$	525,174	$	38,552		$	—		$	563,726		$	89,972		$	58,424
	Alternative Markets			157,901		27,720			62,882			248,503			44,861			30,097
	Reinsurance (1)			246,005		31,567			(6	)		277,566			17,555			10,546
	Regional			512,067		32,930			—			544,997			67,736			40,437
	International			74,357		3,665			(2	)		78,020			(2,775	)		(2,442	)
	Discontinued Business			44,121		3,817			—			47,938			(7,936	)		(5,158	)
	Corporate and eliminations			—		(1,219	)		1,219			—			(59,108	)		(29,446	)
		Realized losses		—		—			(2,858	)		(2,858	)		(2,858	)		(144	)

	Consolidated		$	1,559,625	$	137,032		$	61,235		$	1,757,892		$	147,447		$	102,314

(1)

During the first quarter of 2003, management responsibility and financial reporting for Vela Insurance Services, Inc., an excess and surplus lines underwriting manager, were transferred from the reinsurance segment to the specialty segment. Segment results for the prior period were restated to reflect this change.

W. R. Berkley Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2003

In July 2003, the Company formed a new consolidated subsidiary, W. R. Berkley Insurance (Europe), Limited (“WRBIEL”), a United Kingdom authorized insurance company. WRBIEL was initially capitalized through a holding company structure with $76 million of equity and $59 million of 7.65% notes due June 2023. The Company and Kiln plc own 80% and 20%, respectively, of the equity and debt of WRBIEL. Kiln plc’s share of equity and debt of WRBIEL are reported as minority interest and debt, respectively, on the Company’s consolidated balance sheet. At September 30, 2003, the minority interest and debt related to WRBIEL were $15,346,000 and $11,747,000, respectively. The Company acquired a 20.1% interest in Kiln plc, a U.K. insurance and reinsurance business, in 2002.

In September 2003, the Company issued $150 million aggregate principal amount of 5.125% senior notes due September 2010. The notes were issued at 99.216% of their face value amount and the net proceeds to the Company after expenses were $147,752,000.

In February 2003, the Company issued $200 million aggregate principal amount of 5.875% senior notes due February 2013. The notes were issued at 99.07% of their face value amount and the net proceeds to the Company after expenses were $196,683,000.

During, the first quarter of 2003, the Company repaid $35,793,000 of 6.5% senior subordinated notes and $25,000,000 of 6.71% senior notes upon their respective maturities.

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

During the third quarter of 2003, two arbitration hearings in which subsidiaries of the Company were involved were completed. The Company recorded an increase in reserves for loss and loss expenses during the third quarter of 2003 of $15 million, which represents the excess of the Company’s estimate of the ultimate cost of the disposition of these matters over amounts previously accrued.

W. R. Berkley Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2003

In the second quarter of 2003, the Company adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 provides accounting and disclosure rules for variable interest entities. A variable interest entity is an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risk among the parties involved. FIN 46 requires disclosures for entities that have either a primary or significant variable interest in a variable interest entity, which clarifies controlling interest. The adoption of Interpretation 46 did not have any impact on the Company’s results of operations or financial condition.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. One requirement under the Statement is that trust preferred securities are to be presented as liabilities. The Company elected to adopt Statement 150 in the second quarter of 2003, and accordingly, trust preferred securities have been reclassified to liabilities in the accompanying consolidated balance sheet. There was no impact from the adoption of Statement 150 on the consolidated statement of operations.

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 2003 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to, the cyclical nature of the property casualty industry, the long-tail and potentially volatile nature of the reinsurance business, product demand and pricing, claims development and the process of estimating reserves, the uncertain nature of damage theories and loss amounts, the ultimate results of various pending legal and arbitration proceedings, the increased level of our retention, natural and man-made catastrophic losses, including as a result of terrorist activities, the impact of competition, the availability of reinsurance, the ability of our reinsurers to pay reinsurance recoverables owed to us, investment results and potential impairment of invested assets, exchange rate and political risks, legislative and regulatory developments, changes in the ratings assigned to us by ratings agencies, our exposure for terrorist acts, the availability of dividends from our insurance company subsidiaries, our successful integration of acquired companies or investment in new insurance ventures, our ability to attract and retain qualified employees, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks could cause actual results of the industry or our actual results for the year 2003 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. Forward-looking statements speak only as of the date on which they are made.

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

The notes to the Company’s financial statements, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, discuss its significant accounting policies. Management considers certain of these policies to be critical to the portrayal of the Company’s financial condition and results since they require management to establish estimates based on complex and subjective judgments, often including the interplay of specific uncertainties with related accounting measurements.

Reserves for losses and loss expenses. In the property casualty insurance industry, significant periods of time may elapse between the occurrence of an insured loss, the report of the loss to the insurer and the insurer’s payment of that loss. To recognize liabilities for unpaid losses, either known or unknown, insurers establish reserves, which is a balance sheet account representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred. Our loss reserves reflect our best estimates of the cost of settling all such claims.

In general, when a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment. The estimate represents an informed judgment based on general reserving practices and reflects the experience and knowledge of the claims personnel regarding the nature and value of the specific type of claim. Reserves are also established on an aggregate basis which provide for losses incurred but not yet reported to the insurer, potential inadequacy of case reserves, the estimated expenses of settling claims, including legal and other fees and general expenses of administering the claims adjustment process, and a provision for potentially uncollectible reinsurance. Reserves are established based upon the then current legal interpretation of coverage provided.

In examining reserve adequacy, several factors are considered in addition to the economic value of losses. These factors include historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. The actuarial process relies on the basic assumption that past experience, adjusted judgmentally for the effects of current developments and anticipated trends, is an appropriate basis for predicting future outcomes. Reserve amounts are necessarily based on management’s informed estimates and judgments using data currently available. As additional experience and other data become available and are reviewed, these estimates and judgments are revised. This may result in increases or decreases to reserves for insured events of prior years. The reserving process implicitly recognizes the impact of inflation and other factors affecting loss costs by taking into account historical claim patterns and perceived trends.

Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what management expects the ultimate settlement and claim administration will cost. While the methods for establishing the reserves are well tested over time, some of the major assumptions about anticipated loss emergence patterns are subject to unanticipated fluctuation. These estimates, which generally involve actuarial projections, are based on management’s assessment of facts and circumstances then known, as well as estimates of future trends in claims severity and frequency, judicial theories of liability and other factors, including the actions of third parties which are beyond the Company’s control. The variables described above are affected by both internal and external events, such as inflation, judicial and litigation trends, reinsurance coverage and legislative changes.

The inherent uncertainties of estimating reserves are greater for certain types of liabilities, where long periods of time elapse before a definitive determination of liability is made. In periods with increased economic volatility, it becomes more difficult to accurately predict claim costs. Reserve estimates are continually refined in an ongoing process as experience develops and further claims are reported and settled. Adjustments to reserves are reflected in the results of the periods in which such estimates are changed. Because setting reserves is inherently uncertain, the Company cannot assure that its current reserves will prove adequate in light of subsequent events. Should the Company need to increase its reserves, its pre-tax income for the period would decrease by a corresponding amount.

Net losses and loss expenses for the nine months ended September 30, 2003 and the year ended December 31, 2002 included increases in estimates for claims occurring in prior years of $175,000,000 and $174,000,000, respectively. The Company, along with the property casualty insurance industry in general, has experienced higher than expected loss costs for certain business written from 1998 to 2001. Following is a summary of the increases in estimates for claims occurring in prior years for the indicated periods (dollars in thousands):

In 2002 and 2003, the Company increased its estimates of the ultimate loss costs for casualty reinsurance risks written between 1998 and 2001 primarily as a result of higher than expected claims reported by ceding companies. Approximately half the increase in estimates for claims occurring in prior years that was recognized in 2003 related to several large accounts. The Company sets its initial loss estimates based principally upon information obtained during the underwriting process and adjusts these estimates as additional information becomes available. As certain large contracts have matured, the Company has adjusted its loss estimates upward to reflect the known loss experience and has revised its expectations regarding the level of ultimate losses to reflect a higher level of known losses as well as a pattern of delayed loss reporting by some ceding companies. The Company analyzes its treaty reinsurance business and sets reinsurance reserves each quarter on a treaty-by-treaty basis, rather than in the aggregate for the entire reinsurance business. The Company believes this method provides a better estimate of required reserves, as the Company is able to promptly identify changes in underlying trends experienced by individual ceding companies and adjust its reserves as necessary.

The Company increased its estimates of ultimate costs for excess and surplus lines casualty business written in prior years to recognize certain recently identified trends in the development of losses and loss expenses. These trends include a substantial increase in legal expenses incurred in the defense of claims, in particular for claims with multiple claimants in multiple states. For some policies, the obligation to defend has caused the Company to incur aggregate legal expenses in excess of policy limits, which was unanticipated in both pricing and reserving these exposures. In addition, the Company identified certain recent changes in the claims reporting pattern that suggest that claim costs are emerging over a longer period of time and at a higher level than in the past. Prior year ultimate loss ratios were adjusted upwards to recognize the estimated impact of such trends.

Ultimate loss costs for workers’ compensation business written in prior years were impacted by a substantial increase in medical cost inflation. This resulted principally from increased utilization of the health care system by injured workers and more expensive and higher usage of prescription drugs. The impact of the increased medical cost trends is especially significant to the excess workers’ compensation business because of the higher severity of claims and longer time period over which claims are paid.

The increase in estimated ultimate loss costs for professional liability business written in prior years relates primarily to lawyers professional liability, liability coverage for senior living centers and employment practices liability. These lines have experienced a higher level of claim frequency and severity and a longer reporting pattern than anticipated when initial loss reserves were established. These lines also have a high incidence of litigated claims, and the reporting patterns have lengthened due to a more protracted and complex litigation environment.

The increase in estimated ultimate loss costs for fidelity and surety reinsurance reflects the settlement of several large surety claims during 2002 and 2003, including arbitration resolutions. In addition, the Company has reserved for certain claims relating to financial guarantee exposures that were not intended to be covered under the Company’s reinsurance policies.

To date, known environmental and asbestos claims have not had a material impact on the Company’s operations. These claims have not materially impacted the Company because its subsidiaries generally did not insure large industrial companies that are subject to significant environmental and asbestos exposures.

Results of Operations for the First Nine Months of 2003 Compared to the First Nine Months of 2002

General. The Company analyzes the results of its operations in four components – underwriting, investing, insurance services and other expenses.

Underwriting represents the revenues and expenses associated with primary insurance and reinsurance property and casualty risks. The standard industry measurement of underwriting performance is underwriting gain or loss, which represents the profit or loss from underwriting activities without consideration of investment results. Underwriting gain or loss is equal to premiums earned less loss and loss expenses and underwriting expenses. The Company conducts and analyzes its underwriting activities by business segment.

Investing activities include interest and dividends received, gains and losses from the sale or disposition of investments and the Company’s share of undistributed earnings of affiliates. The Company manages and analyzes the results of its investing activities on an overall basis.

Insurance services represent the revenues and expenses associated with the Company’s non-risk bearing business, which manages alternative risk management programs and self-insurance pools for businesses, governments and non-profit entities. Insurance service profits represent insurance service fees less insurance service operating costs and expenses.

Other expenses represent interest expense, corporate expenses, foreign currency gains and losses and other miscellaneous income and expenses.

Following are the components of net income for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

Underwriting. Following is a summary of underwriting results for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

(1) Represents losses and loss expenses incurred expressed as a percentage of premiums earned.
(2) Represents underwriting expenses expressed as a percentage of premiums earned.

The Company conducts and analyzes its underwriting activities by business segment. Additional information for each business segment follows.

Specialty. The specialty segment provides insurance products and services principally to the excess and surplus lines, professional liability, commercial transportation and surety markets. Following is a summary of underwriting results for the specialty segment for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

Net premiums written in 2003 increased by 46% compared with 2002 as a result of higher prices as well as new business. Net premiums written increased 43% for the Company’s three excess and surplus lines companies, 33% for commercial transportation business and 40% for Monitor Liability Managers, Inc., which specializes in directors’ and officers’ and lawyers professional liability business. Net premiums written in 2003 also include $19 million from the Company’s new medical excess underwriting unit, Berkley Medical Excess Underwriters, LLC and $21 million from the Company’s new London based unit concentrating on professional liability, W. R. Berkley Insurance (Europe), Limited.

The 2003 loss ratio was unchanged as higher prices, more favorable terms and conditions and lower reinsurance costs were offset by an increase in prior year reserves, including the estimated ultimate cost of the disposition of an arbitration matter. The 2003 expense ratio decreased by 2.6 percentage points to 24.5% as a result of a 54% increase in earned premiums with no significant increase in expenses other than commissions and premium taxes.

Alternative Markets The alternative markets segment offers workers’ compensation insurance on an excess and primary basis. The Company also provides fee-based services to help clients develop and administer self-insurance programs (see Insurance Services). Following is a summary of underwriting results for the alternative markets segment for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

Net premiums written in 2003 increased by 65% compared with 2002. The increase reflects higher prices as well as an increase in policies in-force for both primary and excess workers’ compensation business.

The 2003 loss ratio increased 1.7 percentage points to 68.7% primarily as a result of an increase in loss costs. The Company discounts its liabilities for excess workers’ compensation business because of the long period of time over which losses are paid. The increase in the loss ratio in 2003 reflects a lower discount rate for current year business. The expense ratio decreased by 5.5 percentage points to 24.8% due to an 84% increase in premiums earned with no significant increase in expenses other than commissions and premium taxes.

Reinsurance. The Company’s reinsurance segment specializes in underwriting property casualty reinsurance on both a treaty and facultative basis. Following is a summary of underwriting results for the reinsurance segment for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

Net premiums written in 2003 increased by 55% compared with 2002 as a result of higher prices and new business. Net premiums written increased 109% to $193 million for facultative reinsurance, 27% to $166 million for reinsurance of certain Lloyd’s syndicates, 77% to $250 million for standard treaty business and decreased 32% to $23 million for Berkley Underwriting Partners, LLC. The increase in facultative net premiums written in 2003 includes $40 million from the Company’s new direct facultative underwriting unit, B F Re Underwriters, LLC. Premiums earned in 2003 increased 127% compared with 2002, as a result of substantial growth in net written premiums during 2002 and 2003.

The 2003 loss ratio decreased 1.9 percentage points to 70.8%. The decrease reflects the improved results for the current accident year as a result of higher prices for both treaty and facultative risks which was partially offset by the impact of adverse reserve development on prior years. The 2003 and 2002 underwriting results also reflect loss recoveries under the Company’s aggregate reinsurance agreement. (See Note 5 of “Notes to Consolidated Financial Statements”.) The 2003 expense ratio decreased 2.8 percentage points to 29.5% primarily as a result of a shift in the mix of business and increased volume.

Regional. The regional property casualty insurance segment principally provides commercial property casualty insurance products. Following is a summary of underwriting results for the regional segment for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

Net premiums written in 2003 increased by 23% compared with 2002. The increase generally reflects higher prices across all four regional units. The 2003 loss ratio decreased by 4.5 percentage points to 56.7% primarily as a result of higher prices in 2002 and 2003. Weather-related losses for the regional segment were $35 million in 2003 compared with $34 million in 2002.

International. The international segment offers personal and commercial property casualty insurance in Argentina and savings and life products in the Philippines. Following is a summary of underwriting results for the international segment for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

Net premiums written in 2003 decreased by 23% compared with 2002. The decrease was the result of the withdrawal from life insurance business in Argentina and of lower exchange rates for the Argentine peso in 2003. The combined ratio decreased 12.5 percentage points to 94.3% as a result of a reduction in costs relating to the withdrawal from life insurance business in Argentina and of improvement in underwriting results for the Argentine property casualty business.

Discontinued. The discontinued segment consists of regional personal lines and alternative markets assumed reinsurance, both of which were discontinued in 2001 in order to focus on lines of business in which we expect to be able to achieve higher returns. Following is a summary of underwriting results for the discontinued segment for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

The personal lines and alternative markets assumed reinsurance business were discontinued in 2001.

Investing. Following is a summary of investing activity for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

(1)

Represents net investment income (before interest in funds held) expressed as a percentage of average invested assets.

Net investment income in 2003 increased 12% compared with 2002. Average invested assets increased 35% compared with 2002 as a result of cash flow from operations and of the proceeds from a secondary stock offering in 2002 and debt offerings in 2003. The average yield on investments was 4.7% in 2003 compared with 5.4% in 2002. The lower yield in 2003 reflects the decrease in general interest rate levels as well as an increase in the portion of the portfolio invested in cash and cash equivalents and tax-exempt securities.

The carrying value of the Company’s investment portfolio as of September 30, 2003 and September 30, 2002 is as follows (dollars in thousands):

(1)

Represents trading account equity securities plus trading account receivables from brokers and clearing organizations less trading account equity securities sold but not yet purchased.

At September 30, 2003, as compared with December 31, 2002, the fixed maturity portfolio mix was as follows: U.S. Government securities were 14% (20% in 2002); state and municipal securities were 44% (29% in 2002); corporate securities were 13% (19% in 2002); mortgage-backed securities were 24% (27% in 2002); and foreign bonds were 5% in 2003 and 2002.

Realized investment and foreign currency gains of $61 million resulted primarily from the sale of fixed income securities in order to decrease the duration of the portfolio and to increase the portion of the portfolio invested in municipal securities.

Insurance Services. Following is a summary of insurance services results for the alternative markets segment for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

Service revenues in 2003 increased 22% compared with 2002 primarily as a result of an increase in service fees for managing assigned risk plans in ten states. Service income before taxes increased 20% compared with 2002 due to increasing revenues.

Other Expenses. Following is a summary of other expenses for the nine months ended September 30, 2003 and 2002 (dollars in thousands):

The increase in interest expense was a result of the issuance of $200 million 5.875% senior notes in February 2003 and $150 million 5.125% senior notes September 2003. The increase in corporate expenses reflects higher compensation costs including accruals for incentive compensation.

Income taxes. The effective income tax rate was 30% in 2003 and 35% in 2002. The effective tax rate in 2003 differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.

Operating Results for the Third Quarter of 2003 Compared to the Third Quarter of 2002

The Company reported net income of $76 million, or $.87 per share, for the three months ended September 30, 2003 compared with $41 million, or $.52 per share, for the corresponding 2002 period. Following are the components of net income for the three months ended September 30, 2003 and 2002 (dollars in thousands):

Underwriting. Following is a summary of underwriting results for the three months ended September 30, 2003 and 2002 (dollars in thousands):


Total	2003			2002			% Change

Gross premiums written	$	1,106,280		$	821,612			35	%
Net premiums written		939,677			687,990			37	%
Premiums earned		835,580			568,471			47	%
Loss and loss expenses		533,201			368,763			45	%
Underwriting expenses		232,839			174,422			33	%

Underwriting income		69,540			25,286

Loss ratio		63.8	%		64.9	%
Expense ratio		27.9	%		30.7	%
Combined ratio		91.7	%		95.6	%

Specialty
Gross premiums written	$	386,785		$	273,394			41	%
Net premiums written		350,278			242,558			44	%
Premiums earned		297,574			200,699			48	%
Loss and loss expenses		195,745			129,063			52	%
Underwriting expenses		72,471			51,665			40	%

Underwriting income		29,358			19,971

Loss ratio		65.8	%		64.3	%
Expense ratio		24.4	%		25.7	%
Combined ratio		90.2	%		90.0	%

Alternative Markets
Gross premiums written	$	157,400		$	102,763			53	%
Net premiums written		127,688			89,134			43	%
Premiums earned		101,660			61,077			66	%
Loss and loss expenses		71,672			40,447			77	%
Underwriting expenses		25,851			19,464			33	%

Underwriting income		4,137			1,166

Loss ratio		70.5	%		66.2	%
Expense ratio		25.4	%		31.9	%
Combined ratio		95.9	%		98.1	%

Reinsurance
Gross premiums written	$	262,411		$	184,025			43	%
Net premiums written		213,189			143,822			48	%
Premiums earned		198,145			99,167			100	%
Loss and loss expenses		137,190			72,348			90	%
Underwriting expenses		56,479			30,389			86	%

Underwriting income (loss)		4,476			(3,570	)

Loss ratio		69.2	%		73.0	%
Expense ratio		28.5	%		30.6	%
Combined ratio		97.7	%		103.6	%

Regional
Gross premiums written	$	282,133		$	236,212			19	%
Net premiums written		231,951			199,358			16	%
Premiums earned		222,389			183,424			21	%
Loss and loss expenses		120,430			107,793			12	%
Underwriting expenses		71,842			60,618			19	%

Underwriting income		30,117			15,013

Loss ratio		54.2	%		58.8	%
Expense ratio		32.3	%		33.0	%
Combined ratio		86.5	%		91.8	%

Net premiums written in 2003 increased 37% as a result of price increases and new business as discussed above. The 2003 loss ratio decreased by 1.1 percentage points to 63.8% as a result of higher prices and more favorable terms and conditions for current business as discussed above. The 2003 expense ratio decreased 2.8 percentage points to 27.9% as a result of a 47% increase in earned premiums compared with a 33% increase in underwriting expenses.

Investing. Following is a summary of investing for the three months ended September 30, 2003 and 2002 (dollars in thousands):

Net investment income in 2003 increased 7% compared with 2002. Average invested assets increased 40% compared with 2002 as a result of cash flow from operations and of the proceeds from a secondary stock offering in 2002 and debt offerings in 2003. The average yield on investments was 4.4% in 2003 compared with 5.5% in 2002. The lower yield in 2003 reflects the decrease in general interest rate levels as well as an increase in the portion of the portfolio invested in cash and cash equivalents and municipal securities.

Realized investment and foreign currency gains of $3 million resulted primarily from the sale of fixed income securities in order to decrease the duration of the portfolio and to increase the portion of the portfolio invested in municipal securities.

Insurance Services. Following is a summary of insurance services results for the alternative markets segment for the three months ended September 30, 2003 and 2002 (dollars in thousands):

Service revenues in 2003 increased 24% compared with 2002 primarily as a result of an increase in service fees for managing assigned risk plans in ten states.

Other Expenses. Following is a summary of other expenses for the three months ended September 30, 2003 and 2002 (dollars in thousands):

The increase in interest expense was a result of the issuance of $200 million 5.875% senior notes in February 2003 and $150 million 5.125% senior notes in September 2003. The decrease in corporate expenses reflects lower compensation costs including a reduction of $2.2 million in the accrual for deferred compensation cost recorded in prior years.

Income taxes. The effective income tax rate was 28% in 2003 and 33% in 2002. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.

In February 2003, the Company issued $200 million aggregate principal amount of 5.875% senior notes due February 2013. In September 2003, the Company issued $150 million aggregate principal amount of 5.125% Senior Notes due September 2010. In July 2003, a subsidiary of the Company issued $12 million aggregate principal amount of 7.65% notes due June 2023.

During the first quarter of 2003, the Company repaid $35,793,000 of 6.5% senior subordinated notes and $25,000,000 of 6.71% senior notes upon their respective maturities. During the second quarter of 2003, the Company purchased $4,957,000 (carrying value) of its trust preferred securities.

At September 30, 2003, the Company’s outstanding debt was $667 million (face amount). The maturities of the debt are $40 million in 2005, $100 million in 2006, $89 million in 2008, $150 million in 2010, $200 million in 2013, $76 million in 2022 and $12 million in 2023. The Company also has $195 million (face amount) of trust preferred securities that mature in 2045.

At September 30, 2003, stockholders’ equity was $1,578 million and total capitalization (stockholders’ equity, debt and trust preferred securities) was $2,431 million. The percentage of the Company’s capital attributable to debt and trust preferred securities was 35% at September 30, 2003 compared with 30% at December 31, 2002.

For background information concerning the Company’s Liquidity and Capital Resources, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

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

The duration of the investment portfolio declined from approximately 4.8 years at December 31, 2002 to 4.6 years at September 30, 2003. The overall market risk relating to the Company’s portfolio has remained similar to the risk at December 31, 2002.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14 as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company has in place appropriate controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.

During the third quarter of 2003, two arbitration hearings in which subsidiaries of the Company were involved and each of which concerned coverage issues were completed. One such matter, involving Firemen’s Fund Insurance Company and Berkley Insurance Company, was decided by a final award dated August 13, 2003. The other arbitration was between Everest Reinsurance Company and Admiral Insurance Company and a final decision dated October 1, 2003 and a final award dated November 5, 2003 have been rendered. As a result of these decisions, the Company recorded an increase in reserves for loss and loss expenses during the third quarter of 2003 of $15 million, which represents the excess of the Company’s estimate of the ultimate cost of the disposition of these matters over amounts previously accrued.


Number

	(4.1)	Senior Indenture, dated as of February 14, 2003, between the Company and The Bank of New York, as Trustee, relating to $150,000,000 principal amount of the Company’s 5.125% Senior Notes due 2010 (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K (File No. 1-15202) filed with the Commission on March 31, 2003)

	(4.2)	Second Supplemental Indenture, dated as of September 12, 2003, between the Company and The Bank of New York, as Trustee, relating to $150,000,000 principal amount of the Company’s 5.125% Senior Notes due 2010, including form of the Notes as Exhibit A.

	(31.1)	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/ 15d-14(a)

	(31.2)	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/ 15d-14(a)

	(32.1)	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

During the quarter ended September 30, 2003, the Company filed the following Reports on Form 8-K:

Report dated July 25, 2003 with respect to the press release of the Company relating to the announcement of the Company’s results of operations for the second quarter of 2003 (under Item 9, for information required by Item 12, of Form 8-K).

Report dated August 5, 2003 with respect to the press release of the Company relating to the announcement of a 3-for-2 common stock split to be paid in the form of a stock dividend on August 27, 2003 to holders of record on August 18, 2003, as well as the payment of a regular quarterly cash dividend in the amount of $.07 per share on October 1, 2003 to holders of record on September 19, 2003 (under Item 5 of Form 8-K).

Report dated September 9, 2003 with respect certain exhibits filed in connection with the Prospectus Supplement dated September 9, 2003 to the Prospectus dated June 7, 2002, filed as part of the Registration Statement on Form S-3 (Registration No. 333-88920; declared effective on June 7, 2002) filed by the Company with the Securities and Exchange Commission covering Debt Securities issuable under an Indenture relating Senior Debt Securities, to be dated as of September 12, 2003, between the Company and The Bank of New York, as trustee (the “Trustee”) (under Item 5 of Form 8-K).

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


Delaware		22-1867895

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


475 Steamboat Road, Greenwich, Connecticut		06830

(Address of principal executive offices)		(Zip Code)


Part I — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
Notes to Unaudited Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
SECOND SUPPLEMENTAL INDENTURE
SECTION 302 CERTIFICATION
SECTION 302 CERTIFICATION
SECTION 906 CERTIFICATION


	September 30,			December 31,
	2003			2002

Specialty	$	3,051,890		$	2,271,105
Alternative Markets		1,451,954			1,197,977
Reinsurance		3,161,981			2,431,429
Regional		1,932,837			1,590,913
International		149,849			126,528
Discontinued Business		142,795			162,754
Corporate other and eliminations		(1,015,970	)		(749,383	)

Consolidated	$	8,875,336		$	7,031,323


		Nine Months Ended		Year Ended
		September 30, 2003		December 31, 2002

Reserves for losses and loss expenses at beginning of 2003 and 2002, respectively		$	3,168,000	$	2,764,000

Increase in estimates for claims occurring in prior years, net of reinsurance:
	Casualty reinsurance	$	47,000	$	47,000
	Excess and surplus lines		48,000		30,000
	Workers’ compensation		22,000		40,000
	Professional liability		28,000		31,000
	Fidelity and surety reinsurance		14,000		14,000
	Other		16,000		12,000

	Total	$	175,000	$	174,000

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


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.


			2003			2002

Underwriting			$	194,751		$	61,358
Investing				215,519			135,220
Insurance services				15,528			12,939
Other expenses				(71,777	)		(62,070	)

	Income before income taxes and minority interest			354,021			147,447
Income taxes				(107,960	)		(51,255	)
Minority interest				(2,049	)		6,122

		Net income	$	244,012		$	102,314


International	2003			2002			% Change

Gross premiums written	$	17,551		$	13,045			35	%
Net premiums written		16,571			13,103			26	%
Premiums earned		15,812			14,967			6	%
Loss and loss expenses		8,164			9,290			(12	)%
Underwriting expenses		6,196			8,888			(30	)%

Underwriting income (loss)		1,452			(3,211	)

Loss ratio		51.6	%		62.1	%
Expense ratio		39.2	%		59.4	%
Combined ratio		90.8	%		121.5	%


Discontinued	2003		2002

Gross premiums written	$	—	$	12,173
Net premiums written		—		15
Premiums earned		—		9,137
Loss and loss expenses		—		9,822
Underwriting expenses		—		3,398

Underwriting loss		—		(4,083	)


		W. R. BERKLEY CORPORATION

Date: November 14, 2003		/s/ WILLIAM R. BERKLEY

		William R. Berkley Chairman of the Board and Chief Executive Officer

Date: November 14, 2003		/s/ EUGENE G. BALLARD

		Eugene G. Ballard Senior Vice President, Chief Financial Officer and Treasurer