10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)


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

For the Quarterly Period Ended September 30, 2005


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

For the Transition Period from to .

Commission File Number 1-15202

W. R. BERKLEY CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		22-1867895

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


475 Steamboat Road, Greenwich, Connecticut		06830

(Address of principal executive offices)		(Zip Code)

(203) 629-3000

(Registrant’s telephone number, including area code)

None

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) 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.
Yesþ Noo

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ

Number of shares of common stock, $.20 par value, outstanding as of October 28, 2005: 127,434,042.

Part I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

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


	September 30,			December 31,
	2005			2004
	(Unaudited)
Assets
Investments:
Fixed maturity securities	$	8,012,855		$	6,369,421
Equity securities available for sale		440,436			413,263
Equity securities trading account		496,613			280,340
Investments in affiliates		296,952			240,865

Total investments		9,246,856			7,303,889
Cash and cash equivalents		979,272			932,079
Premiums and fees receivable		1,071,400			1,032,624
Due from reinsurers		942,564			851,019
Accrued investment income		86,347			69,575
Prepaid reinsurance premiums		194,645			191,381
Deferred policy acquisition costs		469,714			442,484
Real estate, furniture and equipment		172,023			162,941
Deferred Federal and foreign income taxes		140,436			90,810
Goodwill		65,759			59,021
Trading account receivable from brokers and clearing organizations		170,670			186,479
Other assets		131,837			128,731

Total assets	$	13,671,523		$	11,451,033


Liabilities and Stockholders’ Equity Liabilities:
Reserves for losses and loss expenses	$	6,473,830		$	5,449,611
Unearned premiums		2,255,317			2,064,519
Due to reinsurers		118,384			119,901
Trading account securities sold but not yet purchased		188,089			70,667
Policyholders’ account balances		75,917			65,982
Other liabilities		545,978			498,114
Due to broker		150,417			9,836
Junior subordinated debentures		450,301			208,286
Senior notes and other debt		967,449			808,264

Total liabilities		11,225,682			9,295,180


Minority interest		21,023			46,151

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 300,000,000 shares, issued and outstanding, net of treasury shares, 127,422,615 and 126,409,313 shares		31,351			31,351
Additional paid-in capital		833,126			820,913
Retained earnings		1,712,903			1,354,489
Accumulated other comprehensive income		48,051			112,055
Treasury stock, at cost, 29,325,653 and 30,344,078 shares		(200,613	)		(209,106	)

Total stockholders’ equity		2,424,818			2,109,702

Total liabilities and stockholders’ equity	$	13,671,523		$	11,451,033

See accompanying notes to interim consolidated financial statements.

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2005			2004			2005			2004
Revenues:
Net premiums written	$	1,131,128		$	1,058,580		$	3,454,307		$	3,161,459
Change in unearned premiums		44			(24,500	)		(191,287	)		(171,464	)

Premiums earned		1,131,172			1,034,080			3,263,020			2,989,995
Net investment income		107,502			71,722			290,682			209,009
Service fees		25,064			28,020			84,025			83,966
Realized investment gains, net		8,120			4,792			13,885			44,559
Other income		319			922			1,337			1,466

Total revenues		1,272,177			1,139,536			3,652,949			3,328,995


Expenses:
Losses and loss expenses		742,242			674,534			2,058,714			1,901,617
Other operating expenses		338,962			309,392			1,000,367			911,646
Interest expense		23,632			16,707			60,974			48,232

Total expenses		1,104,836			1,000,633			3,120,055			2,861,495


Income before income taxes and minority interest		167,341			138,903			532,894			467,500

Income tax expense		(44,540	)		(40,645	)		(153,364	)		(142,837	)
Minority interest		(283	)		(1,186	)		(2,062	)		(1,952	)


Income before change in accounting principle		122,518			97,072			377,468			322,711
Cumulative effect of change in accounting principle, net of taxes		—			—			—			(727	)

Net income	$	122,518		$	97,072		$	377,468		$	321,984


Weighted average shares outstanding
Basic		127,196			126,118			126,413			125,825
Diluted		133,753			132,261			132,791			132,559

Earnings per share:
Basic:
Income before change in accounting principle	$	.96		$	.77		$	2.99		$	2.57
Cumulative effect of change in accounting Principle, net of taxes		—			—			—			(.01	)

Net income	$	.96		$	.77		$	2.99		$	2.56


Diluted:
Income before change in accounting principle	$	.92		$	.73		$	2.84		$	2.44
Cumulative effect of change in accounting principle, net of taxes		—			—			—			(.01	)

Net income	$	.92		$	.73		$	2.84		$	2.43

See accompanying notes to interim consolidated financial statements.

Consolidated Statements of Stockholders’ Equity
(dollars in thousands)


	Nine Months Ended			Year Ended
	September 30,			December 31,
	2005			2004
	(Unaudited)
Common Stock:
Beginning and end of period	$	31,351		$	31,351


Additional paid in capital:
Beginning of period	$	820,913		$	809,938
Stock options exercised		1,201			1,306
Tax benefit related to stock options exercised		4,731			4,350
Restricted stock units earned		5,955			5,152
Stock options earned		101			122
Stock issued to directors		225			45

End of period	$	833,126		$	820,913


Retained earnings:
Beginning of period	$	1,354,489		$	939,911
Net income		377,468			438,105
Dividends to stockholders		(19,054	)		(23,527	)

End of period	$	1,712,903		$	1,354,489


Accumulated other comprehensive income:
Unrealized investment gains:
Beginning of period	$	109,699		$	120,807
Net change in period		(50,133	)		(11,108	)

End of period		59,566			109,699


Currency translation adjustments:
Beginning of period	$	2,356		$	(830	)
Net change in period		(13,871	)		3,186

End of period		(11,515	)		2,356


Total accumulated other comprehensive income	$	48,051		$	112,055


Treasury Stock:
Beginning of period	$	(209,106	)	$	(218,615	)
Stock options exercised		9,049			9,823
Stock issued to directors		80			23
Common stock purchased		(636	)		(337	)

End of period	$	(200,613	)	$	(209,106	)

See accompanying notes to interim consolidated financial statements.

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


	For the Nine Months
	Ended September 30,
	2005			2004
	(Unaudited)			(Unaudited)
Cash flows provided by operating activities:
Net income before change in accounting principle	$	377,468		$	322,711
Adjustments to reconcile net income to net cash flows provided by operating activities:
Realized investment gains		(13,885	)		(44,559	)
Depreciation and amortization		40,248			35,136
Minority interest		2,062			1,952
Equity in undistributed earnings of affiliates		(20,707	)		(14,361	)
Stock incentive plans		6,361			3,388
Change in:
Equity securities trading account		(213,413	)		(68,769	)
Premiums and fees receivable		(38,776	)		(57,784	)
Due from reinsurers		(91,545	)		(68,973	)
Accrued investment income		(16,772	)		(9,840	)
Prepaid reinsurance premiums		(3,264	)		(9,315	)
Deferred policy acquisition cost		(27,230	)		(35,952	)
Deferred income taxes		(20,610	)		(36,973	)
Trading account receivable from brokers and clearing organizations		15,809			(60,679	)
Other assets		(3,557	)		(44,543	)
Reserves for losses and loss expenses		1,024,219			971,038
Unearned premiums		190,798			180,991
Due to reinsurers		(1,517	)		(559	)
Trading account securities sold but not yet purchased		117,422			52,422
Policyholders’ account balances		(315	)		(1,532	)
Other liabilities		32,279			19,374

Net cash flows provided by operating activities		1,355,075			1,133,173

Cash flows used in investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities		1,120,906			1,213,020
Equity securities		175,734			76,098
Maturities and prepayments of fixed maturities securities		1,036,143			398,125
Investment in affiliates		11,799			8,234
Cost of purchases, excluding trading account:
Fixed maturity securities		(3,878,128	)		(3,074,129	)
Equity securities		(216,929	)		(189,575	)
Investment in affiliates		(50,618	)		(90,761	)
Change in balances due to/from security brokers		140,581			27,266
Net additions to real estate, furniture and equipment		(27,996	)		(29,225	)
Cost of minority interest acquired		(33,400	)		1,112

Net cash flows used in investing activities		(1,721,908	)		(1,659,835	)

Cash flows provided by financing activities:
Net proceeds from issuance of junior subordinated debentures		241,665			—
Net proceeds from issuance of senior notes		198,141			147,817
Receipts credited to policyholders’ account balances		10,934			10,506
Return of policyholders’ account balances		(684	)		(180	)
Bank deposits received		9,175			25,312
Advances from (repayments to) federal home loan bank		4,775			(16,710	)
Net proceeds from stock options exercised		10,250			8,829
Repayment of senior notes		(40,000	)		—
Cash dividends		(12,687	)		(17,630	)
Common stock purchased		(636	)		(337	)
Other, net		(6,907	)		(13,285	)

Net cash flows provided by financing activities		414,026			144,322

Net decrease in cash and cash equivalents		47,193			(382,340	)
Cash and cash equivalents at beginning of year	$	932,079		$	1,431,466

Cash and cash equivalents at end of period	$	979,272		$	1,049,126

Supplemental disclosure of cash flow information:
Interest paid	$	55,179		$	46,994

Federal income taxes paid	$	150,285		$	198,507

See accompanying notes to interim consolidated financial statements.

W. R. Berkley Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (unaudited)

1. GENERAL

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, 2004. Reclassifications have been made in the 2004 financial statements to conform them to the presentation of the 2005 financial statements.

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

The Company presents both basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the period and is calculated using the treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation. Per share amounts have been adjusted to reflect the 3-for-2 common stock split effected April 8, 2005.

In the opinion of management, the financial information reflects all adjustments that are necessary for a fair presentation of financial position and results of operations for the interim periods. Seasonal weather variations and natural and man-made catastrophes can have a significant impact on the results of any one or more reporting periods.

2. COMPREHENSIVE INCOME

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,
	2005			2004			2005			2004
Net income	$	122,518		$	97,072		$	377,468		$	321,984

Other comprehensive income:
Change in unrealized foreign exchange gains (losses)		(3,600	)		26			(13,871	)		(9,519	)
Unrealized holding gains (losses) on investment securities arising during the period, net of taxes		(52,654	)		71,183			(41,260	)		15,688
Reclassification adjustment for realized (gains) included in net income, net of taxes		(5,197	)		(3,147	)		(8,873	)		(28,895	)


Other comprehensive income (loss)		(61,451	)		68,062			(64,004	)		(22,726	)


Comprehensive income	$	61,067		$	165,134		$	313,464		$	299,258

3. STOCK-BASED COMPENSATION

The Company adopted FASB Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123,” effective as of January 1, 2003. Under the prospective method of adoption selected by the Company, the fair value recognition provisions of FASB 148 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,
	2005			2004			2005			2004
Net income, as reported	$	122,518		$	97,072		$	377,468		$	321,984

Add: Stock-based compensation expense included in reported net income, net of tax		21			27			65			80

Deduct: Total stock-based employee compensation expense under fair value based method for all awards, net of tax		(499	)		(986	)		(1,499	)		(2,972	)


Pro forma net income	$	122,040		$	96,113		$	376,034		$	319,092


Earnings per share:
Basic — as reported	$	.96		$	.77		$	2.99		$	2.56
Basic — pro forma	$	.96		$	.76		$	2.97		$	2.54

Diluted — as reported	$	.92		$	.73		$	2.84		$	2.43
Diluted — pro forma	$	.91		$	.73		$	2.83		$	2.41

In December 2004, the FASB issued FAS 123R, “Share-Based Payment,” which replaces FAS 123 and is effective on January 1, 2006. FAS 123R requires that the cost resulting from all share-based payment transactions with employees, including those awarded prior to January 1, 2003, be recognized in the financial statements using a fair-value-based measurement method. The adoption of FAS 123R will not have a material impact on the Company’s financial condition or results of operations.

4. INVESTMENTS

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


	Amortized			Fair			Carrying
September 30, 2005	Cost			Value			Value
Fixed maturity:
Held to maturity	$	186,972		$	202,450		$	186,972
Available for sale		7,772,350			7,825,883			7,825,883

Total	$	7,959,322		$	8,028,333		$	8,012,855

Equity securities available for sale	$	405,853		$	440,436		$	440,436

Trading Account:
Equity securities	$	492,056		$	496,613		$	496,613
Receivable from broker		170,670			170,670			170,670
Securities sold but not yet purchased		(186,433	)		(188,089	)		(188,089	)

Total trading account	$	476,293		$	479,194		$	479,194


December 31, 2004
Fixed maturity:
Held to maturity	$	191,081		$	208,731		$	191,081
Available for sale		6,053,512			6,178,340			6,178,340

Total	$	6,244,593		$	6,387,071		$	6,369,421


Equity securities available for sale	$	365,604		$	413,263		$	413,263

Trading Account:
Equity securities	$	274,506		$	280,340		$	280,340
Receivable from broker		186,479			186,479			186,479
Securities sold but not yet purchased		(66,658	)		(70,667	)		(70,667	)

Total trading account	$	394,327		$	396,152		$	396,152

Securities in an Unrealized Loss Position. The following table summarizes, for all securities in an unrealized loss position at September 30, 2005 and December 31, 2004, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position (dollars in thousands):


					Gross
	Number of				unrealized
	securities		Fair value		loss
September 30, 2005
Fixed maturities:
0- 6 months		148	$	1,705,508	$	13,215
7- 12 months		126		1,790,190		19,668
Over 12 months		96		659,183		15,910

Total		370	$	4,154,881	$	48,793


Equity securities available for sale:
0- 6 months		15	$	42,159	$	1,084
7- 12 months		12		77,256		1,404
Over 12 months		4		17,695		563

Total		31	$	137,110	$	3,051

4. INVESTMENTS — CONTINUED


					Gross
	Number of				unrealized
December 31, 2004	securities		Fair value		loss
Fixed maturities:
0- 6 months		109	$	1,005,675	$	4,932
7- 12 months		101		798,721		9,190
Over 12 months		65		189,239		4,245

Total		275	$	1,993,635	$	18,367


Equity securities available for sale:
0- 6 months		4	$	1,448	$	82
7- 12 months		2		26,319		667
Over 12 months		4		1,746		12

Total		10	$	29,513	$	761

5. REINSURANCE CEDED

The Company reinsures a portion of its exposures principally to reduce its net liability on individual risks and to protect against catastrophic losses. Estimated amounts recoverable from reinsurers as of September 30, 2005 and December 31, 2004 are net of reserves for uncollectible reinsurance of $2,507,000 and $2,457,000, respectively. The following amounts arising under reinsurance ceded contracts have been deducted in arriving at the amounts reflected in the statement of income (dollars in thousands):


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2005		2004		2005		2004
Ceded premiums earned	$	124,978	$	116,783	$	374,195	$	351,172
Ceded losses incurred	$	149,559	$	78,099	$	307,269	$	243,544

6. INDUSTRY SEGMENTS

The Company’s operations are presently conducted in five segments of the insurance business: specialty lines of insurance, regional property casualty insurance, alternative markets, reinsurance and international.

Our specialty segment underwrites complex and sophisticated third-party liability risks, principally within the excess and surplus lines. The primary lines of business are premises operations, professional liability, automobile, products liability and property lines. The specialty business is conducted through nine operating units. The companies within the segment are divided along the different customer bases and product lines that they serve. The specialty units deliver their products through a variety of distribution channels depending on the customer base and particular risks insured. The customers in this segment are highly diverse.

Our regional segment provides commercial insurance products to customers primarily in 27 states. Key clients of this segment are small-to-mid-sized businesses and governmental entities. The regional subsidiaries are organized geographically, which provides them with the flexibility to adapt to local market conditions, while enjoying the superior administrative capabilities and financial strength of the Company. The regional operations are conducted through four geographic regions based on markets served: Midwest, New England, Southern (excluding Florida) and Mid Atlantic.

6. INDUSTRY SEGMENTS (continued)

Our alternative markets operations specialize in developing, insuring, reinsuring and administering self-insurance programs and other alternative risk transfer mechanisms. Our clients include employers, employer groups, insurers, and alternative market funds seeking less costly, more efficient ways to manage exposure to risks. In addition to providing primary and excess workers’ compensation insurance, the alternative markets segment also provides a wide variety of fee-based third-party administrative services.

Our reinsurance operations specialize in underwriting property casualty reinsurance on both a treaty and a facultative basis. The principal reinsurance units are facultative reinsurance, which writes individual certificates and program facultative business, treaty reinsurance, which functions as a traditional reinsurer in specialty and standard reinsurance lines, and Lloyd’s reinsurance, which writes quota share reinsurance with certain Lloyd’s syndicates.

Our international segment includes our operations in Argentina and the Philippines. In Argentina, we offer commercial and personal property casualty insurance. In the Philippines, we provide savings and life products to customers, including endowment policies to pre-fund education costs and retirement income. Our operations in the U.K. are reported in our specialty segment.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Income tax expense and benefits are calculated based upon the Company’s overall effective tax rate.

6. INDUSTRY SEGMENTS (continued)

Summary financial information about the Company’s operating segments is presented in the following table. Net income by segment consists of revenues less expenses related to the respective segment’s operations, including allocated investment income. Identifiable assets by segment are those assets used in or allocated to the operation of each segment.


	Revenues
	Earned		Investment							Net
(dollars in thousands)	Premiums		Income			Other		Total		Income
For the three months ended September 30, 2005:
Specialty	$	435,716	$	35,701		$	—	$	471,417	$	62,187
Regional		298,250		15,281			—		313,531		34,033
Alternative Markets		159,760		21,831			25,064		206,655		40,610
Reinsurance		215,982		26,867			—		242,849		135
International		21,464		3,634					25,098		3,225
Corporate and eliminations		—		4,188			319		4,507		(22,869	)
Realized gains		—		—			8,120		8,120		5,197

Consolidated	$	1,131,172	$	107,502		$	33,503	$	1,272,177	$	122,518


For the three months ended September 30, 2004:
Specialty	$	377,046	$	25,578		$	—	$	402,624	$	50,610
Regional		274,520		10,926			—		285,446		28,067
Alternative Markets		149,166		14,476			28,020		191,662		21,816
Reinsurance		215,728		18,826			—		234,554		10,536
International		17,620		2,145			42		19,807		809
Corporate and eliminations		—		(229	)		880		651		(17,913	)
Realized gains		—		—			4,792		4,792		3,147

Consolidated	$	1,034,080	$	71,722		$	33,734	$	1,139,536	$	97,072


	Revenues
	Earned		Investment							Net
	Premiums		Income			Other		Total		Income
(dollars in thousands)
For the nine months ended September 30, 2005:
Specialty	$	1,239,688	$	99,780		$		$	1,339,468	$	176,922
Regional		870,586		41,875					912,461		107,200
Alternative Markets		464,668		58,763			84,025		607,456		105,710
Reinsurance		627,566		72,496					700,062		38,916
International		60,512		10,005			52		70,569		4,802
Corporate and eliminations		—		7,763			1,285		9,048		(64,955	)
Realized gains		—		—			13,885		13,885		8,873

Consolidated	$	3,263,020	$	290,682		$	99,247	$	3,652,949	$	377,468


For the nine months ended September 30, 2004:
Specialty	$	1,077,335	$	74,285		$	—	$	1,151,620	$	146,206
Regional		786,487		32,416			—		818,903		84,187
Alternative Markets		424,941		41,752			83,966		550,659		66,338
Reinsurance		648,243		56,238			—		704,481		47,524
International		52,989		5,430			167		58,586		793
Corporate and eliminations		—		(1,112	)		1,299		187		(51,232	)
Realized gains		—		—			44,559		44,559		28,895
Change in accounting		—		—			—		—		(727	)

Consolidated	$	2,989,995	$	209,009		$	129,991	$	3,328,995	$	321,984

6. INDUSTRY SEGMENTS (continued)

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


	September 30,			December 31,
	2005			2004
Specialty	$	4,711,792		$	3,930,054
Regional		2,574,858			2,360,149
Alternative Markets		2,175,962			1,864,544
Reinsurance		4,577,271			3,922,023
International		231,254			196,355
Corporate, other and eliminations		(599,614	)		(822,092	)

Consolidated	$	13,671,523		$	11,451,033

Net premiums earned by major line of business are as follows (dollars in thousands):


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2005		2004		2005		2004
Premises and operations	$	173,510	$	153,755	$	485,942	$	439,183
Professional liability		71,179		70,390		218,468		202,016
Automobile		60,295		58,056		179,904		162,722
Products liability		65,853		43,329		179,561		120,226
Property		29,680		30,281		88,468		89,547
Other		35,199		21,235		87,345		63,641

Specialty		435,716		377,046		1,239,688		1,077,335


Commercial multiple peril		117,938		110,514		349,522		316,884
Automobile		87,053		79,936		252,714		228,975
Workers’ compensation		60,069		55,295		174,912		158,216
Other		33,190		28,775		93,438		82,412

Regional		298,250		274,520		870,586		786,487


Workers’ compensation		79,368		73,279		231,269		206,071
Excess workers’ compensation		69,153		64,737		199,970		186,137
Other		11,239		11,150		33,429		32,733

Alternative Markets		159,760		149,166		464,668		424,941


Property		42,444		39,807		111,483		129,205
Casualty		173,538		175,921		516,083		519,038

Reinsurance		215,982		215,728		627,566		648,243


International		21,464		17,620		60,512		52,989


Total	$	1,131,172	$	1,034,080	$	3,263,020	$	2,989,995

7. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES

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

8. DEBT

On July 26, 2005, the Company issued $250 million aggregate principal amount of 6.75% Junior Subordinated Debentures due July 26, 2045 (the “Junior Subordinated Debentures”) to W. R. Berkley Capital Trust II (the “Trust”). The Trust simultaneously issued an equal amount of 6.75% mandatorily redeemable preferred securities (“Trust Preferred Securities”), which are fully and unconditionally guaranteed by the Company to the extent the Trust has funds available for repayment of distributions. The Trust Preferred Securities are subject to mandatory redemption in a like amount (i) in whole but not in part upon repayment of the Junior Subordinated Debentures at maturity, (ii) in whole but not in part, at any time contemporaneously with the optional prepayment of the Junior Subordinated Debentures by the Company upon the occurrence and continuation of certain events and (iii) in whole or in part, on or after July 26, 2010, contemporaneously with the optional prepayment by the Company of the Junior Subordinated Debentures.

9. ACQUISITIONS

On June 30, 2005, the Company purchased all of the minority interest in its subsidiary, Berkley International, LLC from a subsidiary of The Northwestern Mutual Life Insurance Company. The purchase price was $28 million, of which approximately $7 million represents goodwill.

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 2005 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 increased level of our retention, natural and man-made catastrophic losses, including Hurricanes Katrina and Rita and as a result of terrorist activities, the impact of competition, the impact of competition, the availability of reinsurance, exposure as to coverage for terrorist acts, our retention under The Terrorism Risk Insurance Act of 2002 (“TRIA”) and the scheduled expiration of TRIA on December 31, 2005, the ability of our reinsurers to pay reinsurance recoverables owed to us, investment risks, including those of our portfolio of fixed income securities and investments in equity securities, including merger arbitrage investments, exchange rate and political risks relating to our international operations, legislative and regulatory developments, including those related to alleged anti-competitive or other improper business practices in the insurance industry, changes in the ratings assigned to us by ratings agencies, the availability of dividends from our insurance company subsidiaries, our ability to successfully acquire and integrate companies and invest 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 2005 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. Any projections of growth in the Company’s net premiums written and management fees would not necessarily result in commensurate levels of underwriting and operating profits. Forward-looking statements speak only as of the date on which they are made.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

W. R. Berkley Corporation is an insurance holding company that provides, through its subsidiaries, commercial property casualty insurance products and services. The Company’s principal focus is casualty business. The Company’s primary sources of revenues and earnings are insurance premiums and investment income. Our company primarily operates in five segments of the property casualty insurance business: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international.

The profitability of the Company’s insurance business is affected primarily by the adequacy of premium rates. The ultimate adequacy of premium rates is not known with certainty at the time a property casualty insurance policy is issued because premiums are determined before claims are reported. The ultimate adequacy of premium rates is affected mainly by the severity and frequency of claims, which are influenced by many factors, including natural and other disasters, regulatory measures and court decisions that define and change the extent of coverage and the effects of economic inflation on the amount of compensation due for injuries or losses. General insurance prices are also influenced by available insurance capacity, i.e., the level of policyholders’ surplus employed in the industry, and the industry’s willingness to deploy that capital.

The Company’s profitability is also affected by its investment income. The Company’s invested assets, which are derived from its own capital and cash flow from its insurance business, are invested principally in fixed income securities. The return on fixed income securities is affected primarily by general interest rates and the credit quality and duration of the securities. The Company also invests in equity securities, including equity securities related to merger arbitrage and convertible arbitrage strategies. Investment returns are impacted by government policies and overall economic activity.

Critical Accounting Estimates

The following presents a discussion of accounting policies and estimates relating to reserves for losses and loss expenses and assumed premiums. Management believes these policies and estimates are the most critical to its operations and require the most difficult, subjective and complex judgments.

Reserves for Losses and Loss Expenses. To recognize liabilities for unpaid losses, either known or unknown, insurers establish reserves, which is a balance sheet account representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred. Estimates and assumptions relating to reserves for losses and loss expenses are based on complex and subjective judgments, often including the interplay of specific uncertainties with related accounting and actuarial measurements. Such estimates are also susceptible to change as significant periods of time may elapse between the occurrence of an insured loss, the report of the loss to the insurer, the ultimate determination of the cost of the loss and the insurer’s payment of that loss.

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

In examining reserve adequacy, several factors are considered in addition to the economic value of losses. These factors include historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. The actuarial process relies on the basic assumption that past experience, adjusted judgmentally for the effects of current developments and anticipated trends, is an appropriate basis for predicting future outcomes. Reserve amounts are necessarily based on management’s informed estimates and judgments using currently available data. As additional experience and other data become available and are reviewed, these estimates and judgments may be revised. This may result in reserve increases or decreases that would be reflected in our results in periods in which such estimates and assumptions are changed.

Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what management expects the ultimate settlement and claim administration will cost. While the methods for establishing the reserves are well tested over time, some of the major assumptions about anticipated loss emergence patterns are subject to unanticipated fluctuation. These estimates, which generally involve actuarial projections, are based on management’s assessment of facts and circumstances then known, as well as estimates of future trends in claims severity and frequency, judicial theories of liability and other factors, including the actions of third parties which are beyond the Company’s control. These variables are affected by internal and external events, such as inflation and economic volatility, judicial and litigation trends, reinsurance coverage and legislative changes, which make it more difficult to accurately predict claim costs. The inherent uncertainties of estimating reserves are greater for certain types of liabilities where long periods of time elapse before a definitive determination of liability is made. Because setting reserves is inherently uncertain, the Company cannot assure that its current reserves will prove adequate in light of subsequent events.

Loss reserves included in the Company’s financial statements represent management’s best estimates and are based upon an actuarially derived point estimate. The Company uses a variety of actuarial techniques and methods to derive the actuarial point estimate. 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. Otherwise, the actuarial point estimate is based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” and in areas where the Company’s own data is limited. The actuarial data is analyzed by line of business, coverage and accident or policy year, as appropriate, for each operating unit.

The establishment of the actuarially derived loss reserve point estimate also includes consideration of qualitative factors that may affect the ultimate losses.

These qualitative considerations include, among others, the impact of re-underwriting initiatives, changes in the mix of business, changes in distribution sources and changes in policy terms and conditions. Examples of changes in policy terms and conditions that can have a significant impact on reserve levels are the use of aggregate policy limits, the expansion of coverage exclusions, whether or not defense costs are within policy limits, and changes in deductibles and attachment points.

The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is written, before any actual claims experience has emerged. The expectation is a significant determinant of ultimate losses and reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate increases, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each operating unit. Expected loss cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns. Management believes the estimates and assumptions it makes in the reserving process provide the best estimate of the ultimate cost of settling claims and related expenses with respect to insured events which have occurred.

While management has used its best judgment in establishing its estimate of required reserves, different assumptions and variables could lead to significantly different reserve estimates. Two key measures of loss activity are loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which 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. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate reserves will be different than management’s estimate. For example, if loss frequency and severity for a given year are each 1% higher than expected for all lines of business, ultimate loss costs for that year would be 2.01% higher than expected.

For example, the effect of higher and lower levels of loss frequency and severity levels on our estimated ultimate costs for claims occurring in 2004 would be as follows (dollars in thousands):


	Ultimate costs of		Change in cost of
Change in both loss frequency and	claims occurring		claims occurring
severity for all lines of business	in 2004		in 2004
3% higher	$	2,373,085	$	136,225
2% higher		2,327,229		90,369
1% higher		2,281,821		44,961
Base scenario		2,236,860		—
1% lower		2,191,899		(44,961	)
2% lower		2,146,491		(90,369	)
3% lower		2,100,635		(136,225	)

Our net reserves for losses and loss expenses of $5.6 billion as of September 30, 2005 relate to multiple accident years. Therefore, a change in frequency or severity for more than one accident year would be higher or lower than the amounts reflected above.

Approximately $1.5 billion, or 28%, of the Company’s net loss reserves relate to its assumed reinsurance business. There is a higher degree of uncertainty and greater variability regarding estimates of assumed loss reserves because those estimates are based, in part, upon information received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be accurate. Furthermore, due to delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is extended. Management considers the impact of delayed reporting in its selection of assumed loss development factors.

Information received from ceding companies is used to set initial expected loss ratios, to establish case reserves and to estimate reserves for incurred but not reported losses. This information, which is generally provided through reinsurance intermediaries, is gathered through the underwriting process and from periodic claim reports and other correspondence with ceding companies. The Company performs underwriting and claim audits of selected ceding companies to determine the accuracy and completeness of information provided to the Company. The information received from the ceding companies is supplemented by the Company’s own loss development experience with similar lines of business as well as industry loss trends and loss development benchmarks.

Following is a summary of the Company’s reserves for losses and loss expenses by business segment as of September 30, 2005 and December 31, 2004 (dollars in thousands):


	September 30,		December 31,
	2005		2004
Specialty	$	2,041,387	$	1,637,204
Regional		891,465		760,440
Alternative Markets		1,111,881		944,546
Reinsurance		1,548,697		1,350,531
International		34,413		30,121

Net reserves for losses and loss expenses		5,627,843		4,722,842
Ceded reserves for losses and loss expenses		845,987		726,769

Gross reserves for losses and loss expenses	$	6,473,830	$	5,449,611

Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of September 30, 2005 and December 31, 2004 (dollars in thousands):


	Reported Case		Incurred but
	Reserves		not Reported		Total
September 30, 2005:
General liability	$	658,393	$	1,297,789	$	1,956,182
Workers’ compensation		600,540		766,015		1,366,555
Automobile		316,722		149,139		465,861
Other		112,901		177,647		290,548

Total primary		1,688,556		2,390,590		4,079,146
Reinsurance		666,197		882,500		1,548,697

Total	$	2,354,753	$	3,273,090	$	5,627,843


December 31, 2004:
General liability	$	538,042	$	1,025,677	$	1,563,719
Workers’ compensation		556,250		605,906		1,162,156
Automobile		231,435		144,009		375,444
Other		112,481		158,511		270,992

Total primary		1,438,208		1,934,103		3,372,311
Reinsurance		574,752		775,779		1,350,531

Total	$	2,012,960	$	2,709,882	$	4,722,842

For the nine months ended September 30, 2005, the Company reported losses and loss expenses of $2.1 billion, of which $149 million represented an increase in estimates for claims occurring in prior years. The increases in estimates for claims occurring in prior years were $76 million for primary business ($67 million for specialty, $13 million for regional and $5 million for international, offset by a decrease of $9 million for the alternative markets segment) and $73 million for assumed reinsurance. For both primary and reinsurance business, increases in estimates for earlier accident years were partially offset by decreases in estimates for accident year 2004.

Case reserves, net of reinsurance, for primary business increased 17% to $1.7 billion at September 30, 2005 from $1.4 billion at December 31, 2004 as a result of a 3% increase in the number of outstanding claims and a 14% increase in the average case reserve per claim. Reserves for incurred but not reported losses, net of reinsurance, for primary business increased 24% to $2.4 billion at September 30, 2005 from $1.9 billion at December 31, 2004. The increase in prior year reserves for direct business of $76 million was primarily related to increased estimates for general liability and commercial automobile business, which were partially offset by decreased estimates for property lines. The increases in prior year reserves reflects upward adjustments in loss ratios for prior accident years to recognize that claim costs, including legal expenses and medical costs, for certain classes of business are emerging over a longer period of time and at a higher level than expected.

Case reserves for reinsurance business increased 16% to $666 million at September 30, 2005 from $575 million at December 31, 2004. Reserves for incurred but not reported losses for reinsurance business increased 14% to $883 million at September 30, 2005 from $776 million at December 31, 2004. The increase in prior year reserves for reinsurance business was primarily a result of higher than expected claims reported by ceding companies. 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 reinsurance contracts have matured, the Company has adjusted its estimates of ultimate losses to reflect a higher level of known losses as well as a pattern of delayed loss reporting by some ceding companies. Most of the increase in prior year reserves for reinsurance relates to business written from 1998 through 2001.

Assumed Premiums. The Company estimates the amount of assumed reinsurance premiums that it will receive under treaty reinsurance agreements at the inception of the contracts. These premium estimates are revised as the actual amount of assumed premiums is reported to the Company by the ceding companies. As estimates of assumed premiums are made or revised, the related amount of earned premium, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $117 million and $136 million at September 30, 2005 and December 31, 2004, respectively. The assumed premium estimates are based upon terms set forth in the reinsurance agreement, information received from ceding companies during the underwriting and negotiation of the agreement, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate premiums to be received under its assumed reinsurance agreements.

Results of Operations For the Nine Months Ended September 30, 2005 and 2004

Following is a summary of net premiums written, premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of premiums earned), expense ratios (underwriting expenses expressed as a percentage of premiums earned) and combined ratios (sum of loss ratio and expense ratio) for each of our business segments. The combined ratio represents a measure of underwriting profitability, excluding investment income. A combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.


	Nine months ended September 30,
(Dollars in thousands)	2005			2004
Specialty
Gross premiums written	$	1,409,763		$	1,194,122
Net premiums written		1,335,737			1,124,666
Premiums earned		1,239,688			1,077,335
Loss ratio		62.8	%		61.9	%
Expense ratio		24.8	%		25.2	%
Combined ratio		87.6	%		87.1	%
Regional
Gross premiums written	$	1,061,654		$	988,657
Net premiums written		910,169			855,032
Premiums earned		870,586			786,487
Loss ratio		56.2	%		57.2	%
Expense ratio		30.5	%		31.0	%
Combined ratio		86.7	%		88.2	%
Alternative Markets
Gross premiums written	$	586,885		$	557,431
Net premiums written		504,740			484,853
Premiums earned		464,668			424,941
Loss ratio		62.2	%		70.4	%
Expense ratio		21.1	%		21.4	%
Combined ratio		83.3	%		91.8	%
Reinsurance
Gross premiums written	$	706,031		$	721,058
Net premiums written		642,073			642,388
Premiums earned		627,566			648,243
Loss ratio		74.4	%		70.6	%
Expense ratio		29.8	%		28.0	%
Combined ratio		104.2	%		98.6	%
International (1)
Gross premiums written	$	67,683		$	59,867
Net premiums written		61,588			54,520
Premiums earned		60,512			52,989
Loss ratio		57.9	%		53.1	%
Expense ratio		35.4	%		35.5	%
Combined ratio		93.3	%		88.6	%
Consolidated
Gross premiums written	$	3,832,016		$	3,521,135
Net premiums written		3,454,307			3,161,459
Premiums earned		3,263,020			2,989,995
Loss ratio		63.1	%		63.6	%
Expense ratio		27.1	%		27.1	%
Combined ratio		90.2	%		90.7	%


(1)		The ratios for international do not include Philippine life operations.

The following table presents the Company’s net income and net income per share for the nine months ended September 30, 2005 and 2004 (amounts in thousands, except per share data):


	2005		2004
Net income	$	377,468	$	321,984
Weighted average diluted shares		132,791		132,559
Net income per diluted share	$	2.84	$	2.43

The increase in net income in 2005 compared with 2004 reflects higher investment income and higher profits from underwriting activity. The increase in investment income is the result of a 29% increase in average invested assets arising primarily from cash flow provided by operating and financing activity. The improvement in underwriting results is attributable to a 9% increase in earned premiums and a 0.5 percentage point decrease in the loss ratio (losses and loss expenses incurred expressed as percentage of earned premiums). Loss and loss expenses attributable to hurricanes were $50 million in 2005 compared with $32 million in 2004.

Gross Premiums Written. Gross premiums written were $3.8 billion in 2005, up 9% from 2004. Although prices generally increased during 2004, the Company is experiencing an increased level of price competition in 2005. Price levels for renewal business fell approximately 1% in the first nine months of 2005, as compared with the prior year period.

Gross premiums for the regional and alternative markets segments include premiums written on behalf of assigned risk plans managed by the Company. The assigned risk premiums are fully reinsured by the respective state-sponsored assigned risk plans.

A summary of gross premiums written in 2005 compared with 2004 by business segment follows:

	•		Specialty gross premiums increased by 18% to $1.4 billion in 2005 from $1.2 billion in 2004. Gross premiums during 2005 include approximately $127 million in 2005 from Berkley Specialty Underwriting Managers LLC, which began operations in July 2004, as compared to $22 million in 2004. The number of specialty policies issued in 2005 increased 19%, and the average premium per policy decreased 1%. Average prices for renewal policies, adjusted for changes in exposure, decreased 1%. Gross premiums written increased 31% for premises and operations, 6% for automobile, 27% for products liability and 3% for property lines. Gross premiums written decreased 3% for professional liability lines.

	•		Regional gross premiums increased by 7% to $1,062 million in 2005 from $989 million in 2004. The number of policies issued in 2005 decreased 7%, and the average premium per policy increased 14%. Average prices for renewal policies, adjusted for changes in exposure, decreased 1%. Gross premiums written increased by 5% for commercial multiple peril, 6% for automobile and 7% for workers’ compensation. Gross premiums include assigned risk premiums of $94 million in 2005 and $75 million in 2004.

	•		Alternative markets gross premiums increased by 5% to $587 million in 2005 from $557 million in 2004. The number of policies issued in 2005 increased 1%, and the average premium per policy increased 3%. Average prices for renewal policies, adjusted for changes in exposure, decreased 2%. Gross premiums written increased by 7% for excess workers’ compensation and 4% for primary

			workers’ compensation. Gross premiums include assigned risk premiums of $65 million in 2005 and $56 million in 2004.

	•		Reinsurance gross premiums decreased by 2% to $706 million in 2005 from $721 million in 2004. The decrease in business written includes a decline of $54 million as a result of the discontinuance of a facultative relationship with a particular ceding company and a decrease of $22 million in reinsurance written through Lloyd’s. The decrease was partially offset by new business production, including an increase of $50 million in program business. Casualty gross premiums written decreased 3% to $562 million and property gross premiums written were unchanged at $144 million.

	•		International gross premiums increased by 13% to $68 million in 2005 from $60 million in 2004.

Net Premiums Earned. Net premiums earned increased 9% to $3,263 million from $2,990 million in 2004. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2005 are related to premiums written during both 2004 and 2005.

Net Investment Income. Following is a summary of net investment income for the nine months ended September 30, 2005 and 2004 (dollars in thousands):


	Amount						Average Yield
	2005			2004			2005			2004
Fixed maturity securities, including cash	$	238,212		$	173,872			4.1	%		3.8	%
Arbitrage trading account		15,925			7,671			4.8	%		2.8	%
Other equity securities and investments in affiliates		39,524			30,118			7.9	%		7.7	%
Other expense		(410	)		(106	)

Gross investment income		293,251			211,555			4.4	%		4.1	%
Investment expenses		(2,569	)		(2,546	)


Total	$	290,682		$	209,009

Net investment income increased 39% to $291 million in 2005 from $209 million in 2004. Average invested assets (including cash and cash equivalents) increased 29% to $8.9 billion in 2005 compared with $6.9 billion in 2004. The increase was a result of cash flow from operations and the net proceeds from borrowings during 2004 and 2005. The average annualized gross yield on investments was 4.4% in 2005 compared with 4.1% in 2004.

Service Fees. The alternative markets segment offers fee-based services to help clients develop and administer self-insurance programs, primarily for workers’ compensation coverage. Service fees were $84 million in 2005 and 2004.

Realized Investment Gains. Realized investment gains result from sales of securities and from provisions for other than temporary impairment in securities. Realized investment gains were $14 million in 2005, compared to $45 million in 2004. In 2005, realized gains were attributable primarily to the sale of equity securities. In 2004, realized gains 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.

Losses and Loss Expenses. Losses and loss expenses increased 8% to $2.1 billion in 2005 from $1.9 billion in 2004 primarily as a result of increased premium volume. The consolidated loss ratio decreased to 63.1% in 2005 from 63.6% in 2004

primarily as a result of a decrease in additions to prior year loss reserves ($149 million in 2005 compared with $200 million in 2004). Weather-related losses, including losses attributable to hurricanes Katrina and Rita, were $74 million in 2005 compared with $58 million in 2004. A summary of loss ratios in 2005 compared with 2004 by business segment follows:

	•		Specialty’s loss ratio was 62.8% in 2005 compared with 61.9% in 2004 principally due to an increase in estimated losses for the commercial transportation business.

	•		The regional loss ratio decreased to 56.2% in 2005 from 57.2% in 2004 primarily as a result of a decrease in prior year reserves. Weather-related losses were $30 million in 2005 compared with $28 million in 2004.

	•		Alternative market’s loss ratio decreased to 62.2% from 70.4% primarily as a result of the Company’s reassessment of the favorable impact of workers’ compensation reforms in California.

	•		The reinsurance loss ratio was 74.4% in 2005 compared with 70.6% in 2004 primarily as a result of higher weather-related losses ($38 million in 2005 compared with $27 million in 2004) and lower profits attributable to our participation at Lloyd’s.

	•		The international loss ratio was 57.9% in 2005 compared with 53.1% in 2004.

Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses for the nine months ended September 30, 2005 and 2004 (dollars in thousands):


	2005		2004
Underwriting expenses	$	883,310	$	809,606
Service company expenses		68,803		64,524
Other costs and expenses		48,254		37,516

Total	$	1,000,367	$	911,646

Underwriting expenses increased 9% in 2005 compared with 2004 primarily as a result of higher premium volume. Underwriting expenses are primarily comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums earned) was 27.1% in 2005 and in 2004.

Service company expenses, which represent the costs associated with the alternative market’s fee-based business, increased 7% to $69 million.

Other costs and expenses, which represent primarily general and administrative expenses for the parent company, increased 29% to $48 million primarily as a result of higher compensation costs.

Interest Expense. Interest expense increased 26% to $61 million as a result of the issuance of $150 million of 6.15% senior notes in August 2004, $200 million of 5.6% senior notes in May 2005 and $250 million of 6.75% junior subordinated debentures in July 2005.

Income taxes. The effective income tax rate was 29% in 2005 and 31% in 2004. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.

Results of Operations For the Three Months Ended September 30, 2005 and 2004


	Three months ended
	September 30,
(Dollars in thousands)	2005			2004
Specialty
Gross premiums written	$	469,432		$	416,458
Net premiums written		444,881			389,997
Premiums earned		435,716			377,046
Loss ratio		63.4	%		62.2	%
Expense ratio		24.4	%		24.9	%
Combined ratio		87.8	%		87.1	%
Regional
Gross premiums written	$	337,790		$	320,640
Net premiums written		291,339			276,488
Premiums earned		298,250			274,520
Loss ratio		57.8	%		57.8	%
Expense ratio		30.7	%		31.1	%
Combined ratio		88.5	%		88.9	%
Alternative Markets
Gross premiums written	$	178,280		$	177,691
Net premiums written		164,015			159,886
Premiums earned		159,760			149,166
Loss ratio		58.3	%		71.6	%
Expense ratio		21.3	%		22.0	%
Combined ratio		79.6	%		93.6	%
Reinsurance
Gross premiums written	$	230,143		$	239,237
Net premiums written		209,296			214,005
Premiums earned		215,982			215,728
Loss ratio		87.2	%		76.3	%
Expense ratio		27.5	%		26.2	%
Combined ratio		114.7	%		102.5	%
International (1)
Gross premiums written	$	23,469		$	19,689
Net premiums written		21,597			18,204
Premiums earned		21,464			17,620
Loss ratio		57.4	%		56.1	%
Expense ratio		35.4	%		35.0	%
Combined ratio		92.8	%		91.1	%
Consolidated
Gross premiums written	$	1,239,114		$	1,173,715
Net premiums written		1,131,128			1,058,580
Premiums earned		1,131,172			1,034,080
Loss ratio		65.6	%		65.2	%
Expense ratio		26.5	%		26.7	%
Combined ratio		92.1	%		91.9	%


(1)		The ratios for international do not include Philippine life operations.

The following table presents the Company’s net income and net income per share for the three months ended September 30, 2005 and 2004 (amounts in thousands, except per share data):


	2005		2004
Net income	$	122,518	$	97,072
Weighted average diluted shares		133,753		132,261
Net income per diluted share	$	.92	$	.73

The increase in net income in 2005 compared with 2004 reflects higher investment income and higher profits from underwriting activity. The increase in investment income is principally the result of a 29% increase in average invested assets arising primarily from cash flow provided by operating and financing activity. The improvement in underwriting results is attributable to a 9% increase in earned premiums and a 0.2 percentage point decrease in the expense ratio (underwriting expenses expressed as a percentage of premiums earned), which were partially offset by a 0.4 percentage point increase in the loss ratio (losses and loss expenses incurred expressed as percentage of earned premiums). Loss and loss expenses attributable to hurricanes were $50 million in 2005 compared with $32 million in 2004.

Gross Premiums Written. Gross premiums written were $1.2 billion in 2005, up 6% from 2004. Although prices generally increased during 2004, the Company is experiencing an increased level of price competition in 2005. A summary of gross premiums written in 2005 compared with 2004 by business segment follows:

	•		Specialty gross premiums increased by 13% to $469 million in 2005 from $416 million in 2004. Gross premiums written increased 33% for premises and operations and 6% for products liability. Gross premiums written decreased 18% for automobile and 2% for property lines, and were unchanged for professional liability.

	•		Regional gross premiums increased by 5% to $338 million in 2005 from $321 million in 2004. Gross premiums written increased by 3% for commercial multiple peril, 6% for automobile and 6% for workers’ compensation and 25% for assigned risk plans.

	•		Alternative markets gross premiums were $178 million in 2005 and 2004. Gross premiums written increased 7% for excess workers’ compensation and 3% for primary workers’ compensation. Gross premiums written decreased 41% for assigned risk plans.

	•		Reinsurance gross premiums decreased by 4% to $230 million in 2005 from $239 million in 2004. Casualty gross premiums written decreased 4% to $182 million and property gross premiums written decreased 1% to $48 million.

	•		International gross premiums increased by 19% to $23 million in 2005 from $20 million in 2004.

Net Premiums Earned. Net premiums earned increased 9% to $1.1 billion from $1.0 billion in 2004. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2005 are related to premiums written during both 2004 and 2005.

Net Investment Income. Following is a summary of net investment income for the three months ended September 30, 2005 and 2004 (dollars in thousands):


	Amount						Average Yield
	2005			2004			2005			2004
Fixed maturity securities, including cash	$	87,807		$	60,130			4.2	%		3.7	%
Arbitrage trading account		7,883			1,332			6.6	%		1.4	%
Other equity securities and investments in affiliates		12,448			11,433			7.5	%		7.5	%
Other income (expense)		(308	)		(2	)

Gross investment income		107,830			72,893			4.5	%		3.9	%
Investment expenses		(328	)		(1,171	)

Total	$	107,502		$	71,722

Net investment income increased 50% to $108 million in 2005 from $72 million in 2004. Average invested assets (including cash and cash equivalents) increased 29% to $9.5 billion in 2005 compared with $7.4 billion in 2004. The increase was a result of cash flow from operations and the net proceeds from borrowings during 2004 and 2005. The average annualized gross yield on investments was 4.5% in 2005 compared with 3.9% in 2004.

Realized Investment Gains, net. Realized investment gains result from sales of securities and from provisions for other than temporary impairment in securities. Realized investment gains were $8 million in 2005, compared to $5 million in 2004.

Losses and Loss Expenses. Losses and loss expenses increased 10% to $742 million in 2005 from $675 million in 2004 primarily as a result of increased premium volume. The consolidated loss ratio increased to 65.6% in 2005 from 65.2% in 2004. Losses attributable to hurricanes in the third quarters of 2005 and 2004 were $50 million and $32 million, respectively (net of reinsurance recoveries and after reinstatement premiums). Total weather-related losses in the third quarter of 2005 were $56 million, including losses of $35 million for reinsurance, $16 million for regional and $5 million for specialty. Total weather-related losses in the third quarter of 2004 were $40 million, including losses of $27 million for reinsurance, $9 million for regional, $3 million for specialty and $1 million for alternative markets. A summary of loss ratios in 2005 compared with 2004 by business segment follows:

	•		Specialty’s loss ratio was 63.4% in 2005 compared with 62.2% in 2004 principally due to an increase in estimated losses for the commercial transportation business.

	•		The regional loss ratio was 57.8% in 2005 and 2004 as increased pricing levels were offset by higher weather-related losses ($16 million in 2005 compared with $9 million in 2004).

	•		Alternative market’s loss ratio decreased to 58.3% from 71.6% primarily as a result of the Company’s reassessment of the favorable impact of workers’ compensation reforms in California.

	•		The reinsurance loss ratio was 87.2% in 2005 compared with 76.3% in 2004 as a result of an increase in weather-related losses ($35 million in 2005 as compared to $27 million in 2004) and lower profits attributable to our participation at Lloyd’s.

	•		The international loss ratio was 57.4% in 2005 compared with 56.1% in 2004.

Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses for the three months ended September 30, 2005 and 2004 (dollars in thousands):


	2005		2004
Underwriting expenses	$	300,021	$	275,888
Service company expenses		21,049		20,555
Other costs and expenses		17,892		12,949

Total	$	338,962	$	309,392

Service company expenses, which represent the costs associated with the alternative market segment’s fee-based business, increased 2% to $21 million.

Other costs and expenses, which represent primarily general and administrative expenses for the parent company, increased 38% to $18 million primarily as a result of higher compensation costs.

Interest Expense. Interest expense increased 41% to $24 million as a result of the issuance of $150 million of 6.15% senior notes in August 2004, $200 million of 5.6% senior notes in May 2005 and $250 million of 6.75% junior subordinated debentures in July 2005.

Income taxes. The effective income tax rate was 27% in 2005 and 29% in 2004. The effective tax rate differs from the federal income tax rate of 35% primarily because of tax-exempt investment income.

Investments

As part of its investment strategy, the Company establishes a level of cash and highly liquid short-term and intermediate-term securities that, combined with expected cash flow, is believed adequate to meet payment obligations. The Company also attempts to maintain an appropriate relationship between the average duration of the investment portfolio and the approximate duration of its liabilities, i.e., policy claims and debt obligations.

The carrying value of the Company’s investment portfolio and investment-related assets as of September 30, 2005 and December 31, 2004 were as follows (dollars in thousands):


	September 30,			December 31,
	2005			2004
Fixed maturity securities	$	8,012,855		$	6,369,421
Equity securities available for sale		440,436			413,263
Equity securities trading account		496,613			280,340
Investments in affiliates		296,952			240,865

Total investments		9,246,856			7,303,889


Cash and cash equivalents		979,272			932,079
Trading account receivable from brokers and clearing organization		170,670			186,479
Trading account securities sold but not yet purchased		(188,089	)		(70,667	)
Unsettled purchases		(150,417	)		(9,836	)

Total	$	10,058,292		$	8,341,944

Fixed Maturities. The Company’s investment policy with respect to fixed maturity securities is generally to purchase instruments with the expectation of holding them to their maturity. However, active management of the available for sale portfolio is considered necessary to maintain an approximate matching of assets and liabilities as well as to adjust the portfolio as a result of changes in financial market conditions and tax considerations. At September 30, 2005 (as compared to December 31, 2004), the fixed maturities portfolio mix was as follows: U.S. Government securities were 15% (15% in 2004); state and municipal securities were 55% (54% in 2004); corporate securities were 10% (10% in 2004); mortgage-backed securities were 18% (18% in 2004); and foreign bonds were 2% in 2005 (3% in 2004).

The Company’s philosophy related to holding or selling fixed maturity securities is based on its objective of maximizing total return. The key factors that management considers in its investment decisions as to whether to hold or sell fixed maturity securities are its expectations regarding interest rates, credit spreads and currency values. In a period in which management expects interest rates to rise, the Company may sell longer duration securities in order to mitigate the impact of an interest rate rise on the market value of the portfolio. Similarly, in a period in which management expects credit spreads to widen, the Company may sell lower quality securities, and in a period in which management expects certain foreign currencies to decline in value, the Company may sell securities denominated in those foreign currencies. The sale of fixed maturity securities in order to achieve the objective of maximizing total return may result in realized gains; however, there is no reason to expect these gains to continue in future periods. During 2004, management’s decisions to sell fixed maturity securities were based primarily on its belief that interest rates were likely to rise and to a lesser extent on its expectations regarding credit spreads and currency values.

Equity Securities Available for Sale. Equity securities available for sale primarily represent investments in common and preferred stocks of publicly traded banks, utilities and real estate investment trusts.

Equity Securities Trading Account. The trading account is comprised of direct investments in arbitrage securities and investments in arbitrage-related limited partnerships that specialize in merger arbitrage and convertible arbitrage strategies. Merger arbitrage is the business of investing in the securities of publicly held companies that are the targets in announced tender offers and mergers. Convertible arbitrage is the business of investing in convertible securities with the goal of

capitalizing on price differentials between these securities and their underlying equities.

Investments in Affiliates. At September 30, 2005 (as compared to December 31, 2004), investments in affiliates were as follows: equity in Kiln plc was $57 million ($51 million in 2004); real estate funds were $155 million ($132 million in 2004); fixed income relative value funds were $51 million ($41 million in 2004); and other investments were $34 million ($17 million in 2004).

The Company’s investments in affiliates are reported under the equity method of accounting. The Company’s share of the earnings of certain affiliates, including Kiln plc, are reported on a one-quarter lag in order to facilitate the timely completion of the Company’s financial statements. The Company’s share of Kiln plc’s losses from the hurricanes in August and September of 2005 will be reflected in the Company’s results in the fourth quarter of 2005.


					Gross
	Number of				unrealized
	securities		Fair value		loss
September 30, 2005
Fixed maturities:
0- 6 months		148	$	1,705,508	$	13,215
7- 12 months		126		1,790,190		19,668
Over 12 months		96		659,183		15,910

Total		370	$	4,154,881	$	48,793


Equity securities available for sale:
0- 6 months		15	$	42,159	$	1,084
7- 12 months		12		77,256		1,404
Over 12 months		4		17,695		563

Total		31	$	137,110	$	3,051


December 31, 2004

Fixed maturities:
0- 6 months		109	$	1,005,675	$	4,932
7- 12 months		101		798,721		9,190
Over 12 months		65		189,239		4,245

Total		275	$	1,993,635	$	18,367


Equity securities available for sale:
0- 6 months		4	$	1,448	$	82
7- 12 months		2		26,319		667
Over 12 months		4		1,746		12

Total		10	$	29,513	$	761

At September 30, 2005, gross unrealized gains were $161 million, or 2% of total investments, and gross unrealized losses were $52 million, or one half of one percent of total investments. There were 238 securities, with an aggregate fair value of $2.5 billion and an aggregate unrealized loss of $38 million, that have been continuously in an unrealized loss position for more than six months. The decline in market value for these securities is primarily due to an increase in market interest rates. Management regularly reviews its investment portfolio to determine whether a decline

in value as a result of deterioration in the financial position or future prospects of the issuer is considered to be other than temporary. A decline is value is considered to be other than temporary where there has been a sustained reduction in market value and there are no mitigating circumstances. If a decline in value is considered other than temporary, the Company reduces the carrying value of the security and reports a realized loss on its statement of income.

Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities was $1.4 billion in 2005 and $1.1 billion in 2004. The increase in operating cash flow in 2005 was primarily due to a higher level of cash flow from investment income and underwriting activities (premium collections less paid losses and underwriting expenses) and to a decrease in payments for federal income taxes.

Financing Activity. At September 30, 2005, the Company’s had senior notes, junior subordinated debentures and other debt outstanding with a carrying value of $1,418 million and a face amount of $1,437 million. The maturities of the outstanding debt are $100 million in 2006, $89 million in 2008, $150 million in 2010, $200 million in 2013, $200 million in 2015, $150 million in 2019, $76 million in 2022, $12 million in 2023 and $460 million in 2045 (of which $210 million is prepayable in 2006 and $250 million is prepayable in 2010).

At September 30, 2005, stockholders’ equity was $2,425 million and total capitalization (stockholders’ equity, senior notes and other debt and junior subordinated debentures) was $3,843 million. The percentage of the Company’s capital attributable to senior notes and other debt and junior subordinated debentures was 37% at September 30, 2005 and 33% at December 31, 2004.

TABLE OF CONTENTS


Part I — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
	Item 2
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II – OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 6. Exhibits
SIGNATURES
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION

Item 3. Quantitative and Qualitative Disclosure About Market Risk

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

The duration of the investment portfolio increased to 3.7 years at September 30, 2005 from 3.2 years at December 31, 2004. The overall market risk relating to the Company’s portfolio has remained similar to the risk at December 31, 2004.

Item 4. Controls and Procedures

Disclosure Controls and Procedures . The Company’s management, including its Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14 as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company has in place, as of September 30, 2005, effective controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act and the rules there under, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

Changes in Internal Control over Financial Reporting. During the quarter ended September 30, 2005, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Set forth below is a summary of the shares repurchased by the Company during the quarter and the number of shares remaining authorized for purchase by the Company.


							Maximum number of
	Total				Total number of shares		shares that may
	number of				purchased as part of		yet be purchased
	shares		Average price		publicly announced plans		under the plans
	purchased		paid per share		or programs		or programs (1)
July 2005		—		—		—		2,683,125

August 2005		12,628	$	36.90		—		2,683,125

September 2005		—		—		—		2,683,125


(1)		Remaining shares available for repurchase under the Company’s repurchase authorization that was approved by the Board of Directors on November 10, 1998.

Item 6. Exhibits


		Number
(4.1)		Amended and Restated Trust Agreement of W. R. Berkley Capital Trust II, dated as of July 26, 2005 (incorporated by reference to Exhibit 4.3 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) Filed with the Commission on August 2, 2005).

(4.2)		Subordinated Indenture between W. R. Berkley Corporation and The Bank of New York, as Trustee, dated as of July 26, 2005 (Incorporated by reference to Exhibit 4.4 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) Filed with the Commission on August 2, 2005).

(4.3)		Supplemental Indenture No. 1 to the Subordinated Indenture between W. R. Berkley Corporation and The Bank of New York, as Trustee, dated as of July 26, 2005 relating to 6.750% Subordinated Debentures Due 2045 (Incorporated by reference to Exhibit 4.5 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) Filed with the Commission on August 2, 2005).

(4.4)		Preferred Securities Guarantee Agreement between W. R. Berkley Corporation, as Guarantor, and The Bank of New York, as Preferred Guarantee Trustee, dated as of July 26, 2005, relating to W. R. Berkley Capital Trust II, (Incorporated by reference to Exhibit 4.6 of the Company’s Quarterly Report on Form 10-Q (File No. 1-15202) Filed with the Commission on August 2, 2005).

(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.


	W. R. BERKLEY CORPORATION
Date: November 3, 2005	/s/ William R. Berkley
	William R. Berkley
	Chairman of the Board and Chief Executive Officer


Date: November 3, 2005	/s/ Eugene G. Ballard
	Eugene G. Ballard
	Senior Vice President, Chief Financial Officer and Treasurer


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


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


/s/ William R. Berkley

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

/s/ Eugene G. Ballard

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

November 3, 2005

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	(1)		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.