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 June 30, 2007


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) has 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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one)

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

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

Yes o No þ

Number of shares of common stock, $.20 par value, outstanding as of July 30, 2007: 187,269,784.

TABLE OF CONTENTS


Part I — FINANCIAL INFORMATION
	ITEM 1. 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 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 4. Submission of Matters To A Vote of Securities Holders
	Item 6. Exhibits
SIGNATURES
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION

Part I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

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


	June 30,			December 31,
	2007			2006
	(Unaudited)
Assets
Investments:
Fixed maturity securities	$	9,735,152		$	9,158,607
Equity securities available for sale		852,794			866,422
Arbitrage trading account		1,020,540			639,481
Investments in partnerships and affiliates		465,672			449,854

Total investments		12,074,158			11,114,364

Cash and cash equivalents		801,993			754,247
Premiums and fees receivable		1,348,560			1,245,661
Due from reinsurers		912,085			928,258
Accrued investment income		127,274			118,045
Prepaid reinsurance premiums		197,218			169,965
Deferred policy acquisition costs		482,376			489,243
Real estate, furniture and equipment		192,800			183,249
Deferred Federal and foreign income taxes		171,390			142,634
Goodwill		68,067			67,962
Trading account receivable from brokers and clearing organizations		62,797			312,220
Other assets		188,119			130,641

Total assets	$	16,626,837		$	15,656,489


Liabilities and Stockholders’ Equity
Liabilities:
Reserves for losses and loss expenses	$	8,207,877		$	7,784,269
Unearned premiums		2,408,198			2,314,282
Due to reinsurers		119,018			149,427
Trading account securities sold but not yet purchased		256,841			170,075
Policyholders’ account balances		—			106,926
Other liabilities		668,093			654,596
Junior subordinated debentures		242,056			241,953
Senior notes and other debt		1,121,653			869,187

Total liabilities		13,023,736			12,290,715


Minority interest		31,924			30,615

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 500,000,000 shares, issued and outstanding, net of treasury shares, 192,875,696 and 192,771,889 shares		47,024			47,024
Additional paid-in capital		896,580			859,787
Retained earnings		2,902,367			2,542,744
Accumulated other comprehensive income		32,944			111,613
Treasury stock, at cost, 42,242,222 and 42,346,029 shares		(307,738	)		(226,009	)

Total stockholders’ equity		3,571,177			3,335,159

Total liabilities and stockholders’ equity	$	16,626,837		$	15,656,489

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						For the Six Months
	Ended June 30,						Ended June 30,
	2007			2006			2007			2006
Revenues:
Net premiums written	$	1,136,764		$	1,217,985		$	2,391,536		$	2,496,516
Change in unearned premiums		34,876			(31,305	)		(64,963	)		(163,459	)

Premiums earned		1,171,640			1,186,680			2,326,573			2,333,057
Net investment income		168,943			145,067			334,364			276,564
Service fees		25,343			26,966			51,336			53,560
Realized investment gains (losses)		5,280			(673	)		12,670			2,002
Other revenues		15,377			306			20,661			697

Total revenues		1,386,583			1,358,346			2,745,604			2,665,880


Expenses:
Losses and loss expenses		703,669			742,110			1,388,816			1,443,308
Other operating expenses		389,791			358,926			775,022			714,580
Interest expense		22,700			23,272			43,400			46,741

Total expenses		1,116,160			1,124,308			2,207,238			2,204,629


Income before income taxes and minority interest		270,423			234,038			538,366			461,251

Income tax expense		(79,376	)		(67,883	)		(158,511	)		(132,806	)
Minority interest		(414	)		(703	)		(796	)		(1,291	)


Net income	$	190,633		$	165,452		$	379,059		$	327,154


Earnings per share:
Basic	$	.98		$	.86		$	1.96		$	1.70


Diluted	$	.93		$	.82		$	1.86		$	1.62

See accompanying notes to interim consolidated financial statements.

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


	For The Six Months
	Ended June 30,
	2007			2006
Common Stock:
Beginning and end of period	$	47,024		$	47,024


Additional paid in capital:
Beginning of period	$	859,787		$	821,050
Stock options exercised, including tax benefits		26,967			7,885
Restricted stock units expensed		9,046			7,283
Stock options expensed		396			877
Stock issued to directors		384			440

End of period	$	896,580		$	837,535


Retained earnings:
Beginning of period	$	2,542,744		$	1,873,953
Net income		379,059			327,154
Dividends		(19,436	)		(15,396	)

End of period	$	2,902,367		$	2,185,711


Accumulated other comprehensive income (loss):
Unrealized investment gains:
Beginning of period	$	121,961		$	40,746
Net change in period		(91,829	)		(64,642	)

End of period		30,132			(23,896	)


Currency translation adjustments:
Beginning of period	$	3,748		$	(15,843	)
Net change in period		12,543			6,712

End of period		16,291			(9,131	)


Net pension asset:
Beginning of period	$	(14,096	)	$	—
Net change in period		617			—

End of period		(13,479	)		—


Total accumulated other comprehensive income (loss):	$	32,944		$	(33,027	)


Treasury Stock:
Beginning of period	$	(226,009	)	$	(199,853	)
Stock options exercised		23,309			8,403
Stock issued to directors		117			89
Purchase of common stock		(105,155	)		(45,059	)

End of period	$	(307,738	)	$	(236,420	)

See accompanying notes to interim consolidated financial statements.

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


	For the Six Months
	Ended June 30,
	2007			2006
Cash flows provided by operating activities:
Net income	$	379,059		$	327,154
Adjustments to reconcile net income to net cash flows provided by operating activities:
Realized investment gains		(12,670	)		(2,002	)
Depreciation and amortization		41,782			33,701
Minority interest		796			1,291
Equity in undistributed earnings of affiliates		(18,478	)		(12,194	)
Stock incentive plans		10,140			8,689
Change in:
Arbitrage trading account		(377,708	)		(123,079	)
Premiums and fees receivable		(101,538	)		(160,313	)
Due from reinsurers		16,641			3,101
Accrued investment income		(11,202	)		(3,036	)
Prepaid reinsurance premiums		(28,346	)		(18,737	)
Deferred policy acquisition cost		(19,235	)		(30,129	)
Deferred income taxes		6,724			(27,090	)
Trading account receivable from brokers and clearing organizations		249,423			(60,046	)
Other assets		(5,730	)		(3,232	)
Reserves for losses and loss expenses		418,641			557,296
Unearned premiums		93,114			182,219
Due to reinsurers		(31,531	)		10,343
Trading account securities sold but not yet purchased		86,766			(74,689	)
Policyholders’ account balances		(238	)		(863	)
Other liabilities		(59,195	)		(55,854	)

Net cash flows provided by operating activities		637,215			552,530

Cash flows used in investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities		1,134,887			781,855
Equity securities		251,648			77,096
Maturities and prepayments of fixed maturities securities		984,504			473,700
Investment in affiliates		79,234			44,245
Cost of purchases, excluding trading account:
Fixed maturity securities		(2,881,135	)		(1,428,745	)
Equity securities		(278,448	)		(163,842	)
Investment in affiliates		(38,102	)		(90,555	)
Change in balances due to/from security brokers		26,722			29,608
Net additions to real estate, furniture and equipment		(15,282	)		(28,325	)
Payment for business purchased, net of cash acquired		(20,173	)		—
Proceeds from sale of business, net of cash divested		(2,061	)		—

Net cash flows used in investing activities		(758,206	)		(304,963	)

Cash flows (used in) provided by financing activities:
Net proceeds from issuance of senior notes		246,295			—
Receipts credited to policyholders’ account balances		3,489			8,669
Return of policyholders’ account balances		(58	)		(201	)
Bank deposits received		13,245			11,267
Advances from (repayments to) federal home loan bank		(2,075	)		(9,500	)
Net proceeds from stock options exercised		22,884			9,016
Repayment of senior notes		—			(100,000	)
Cash dividends		(17,366	)		(21,768	)
Stock repurchases		(105,155	)		(45,059	)
Proceeds from (purchase of) minority interest		(30	)		1,259

Net cash flows (used in) provided by financing activities		161,229			(146,317	)

Change in cash due to foreign exchange rates		7,508			9,211
Net increase in cash and cash equivalents		47,746			110,461
Cash and cash equivalents at beginning of year		754,247			672,941

Cash and cash equivalents at end of period	$	801,993		$	783,402

Supplemental disclosure of cash flow information:
Interest paid	$	36,081		$	47,813

Federal income taxes paid	$	154,139		$	150,386

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, 2006. Reclassifications have been made in the 2006 financial statements as originally reported to conform them to the presentation of the 2007 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 weighted average number of common shares outstanding during the year. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the year and is calculated using the treasury stock method for stock incentive plans. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation.

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.

The Company adopted FASB Interpretation 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes” effective January 1, 2007. The adoption of FIN 48 did not have an impact on the Company’s financial condition or results of operations. The Company believes there are no tax positions that would require disclosure under the FIN 48. The federal tax returns for 2003 through 2006 are currently open and subject to examination. Statutes of limitations have not been extended in any significant tax jurisdiction. Tax years remain open in accordance with federal, foreign and local tax statutes.

2. COMPREHENSIVE INCOME

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


	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2007			2006			2007			2006
Net income	$	190,633		$	165,452		$	379,059		$	327,154
Other comprehensive income (loss):
Change in unrealized foreign exchange gains		6,460			6,207			12,543			6,712
Unrealized holding losses on investment securities arising during the period, net of taxes		(82,936	)		(36,847	)		(83,616	)		(63,423	)
Reclassification adjustment for realized (gains) losses included in net income, net of taxes		(3,417	)		534			(8,213	)		(1,219	)

Total other comprehensive loss		(79,893	)		(30,106	)		(79,286	)		(57,930	)

Comprehensive income	$	110,740		$	135,346		$	299,773		$	269,224

3. INVESTMENTS

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


	Amortized		Fair		Carrying
June 30, 2007	Cost		Value		Value
Fixed maturity securities:
Held to maturity	$	136,336	$	146,042	$	136,336
Available for sale		9,658,947		9,598,816		9,598,816

Total	$	9,795,283	$	9,744,858	$	9,735,152

Equity securities available for sale	$	770,944	$	852,795	$	852,794
Arbitrage trading account	$	1,020,540	$	1,020,540	$	1,020,540


	Amortized		Fair		Carrying
December 31, 2006	Cost		Value		Value
Fixed maturity securities:
Held to maturity	$	147,028	$	160,875	$	147,028
Available for sale		8,967,036		9,011,579		9,011,579

Total	$	9,114,064	$	9,172,454	$	9,158,607

Equity securities available for sale	$	747,584	$	866,422	$	866,422
Arbitrage trading account	$	639,481	$	639,481	$	639,481

4. 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 are net of reserves for uncollectible reinsurance of $2.6 million and $2.5 million as of June 30, 2007 and December 31, 2006, 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 Six Months
	Ended June 30,				Ended June 30,
	2007		2006		2007		2006
Ceded premiums earned	$	113,877	$	121,056	$	232,057	$	236,667
Ceded losses incurred	$	64,231	$	58,096	$	136,123	$	145,087

5. 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, products liability, commercial automobile, professional liability and property lines. 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 42 states and the District of Columbia. Key clients of this segment are small-to-mid-sized businesses and state and local governmental entities. The regional subsidiaries are organized geographically, which provides them with the flexibility to adapt quickly to local market conditions. The regional operations are conducted through four geographic regions based on markets served: Midwest, New England, Southern (excluding Florida) and Mid Atlantic.

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 insurance, the alternative markets segment also provides a wide variety of fee-based services, including consulting and 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 property and casualty reinsurance through Lloyd’s.

Our international segment offers professional indemnity and other lines in the U.K. and Spain and commercial and personal property casualty insurance in Argentina and Brazil.

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, 2006. Income tax expense and benefits are calculated based upon the Company’s effective tax rate.

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.

5. INDUSTRY SEGMENTS (continued)


											Income
											before
	Revenues										Taxes and
	Earned		Investment								Minority			Net
(dollars in thousands)	Premiums		Income		Other			Total			Interest			Income
For the three months ended June 30, 2007:
Specialty	$	442,110	$	57,729	$	—		$	499,839		$	136,843		$	93,743
Regional		309,812		24,285		—			334,097			51,903			35,758
Alternative Markets		159,266		31,643		25,343			216,252			63,592			43,968
Reinsurance		196,986		40,082		—			237,068			45,892			33,143
International		63,466		7,676		—			71,142			7,900			5,411
Corporate and eliminations		—		7,528		15,377			22,905			(40,987	)		(24,807	)
Realized investment gains		—		—		5,280			5,280			5,280			3,417

Consolidated	$	1,171,640	$	168,943	$	46,000		$	1,386,583		$	270,423		$	190,633


For the three months ended June 30, 2006:
Specialty	$	443,212	$	49,555	$	—		$	492,767		$	112,732		$	76,829
Regional		299,613		20,485		—			320,098			43,930			30,009
Alternative Markets		162,028		28,690		26,966			217,684			74,520			50,495
Reinsurance		226,307		33,326		—			259,633			34,037			24,506
International		55,520		8,187		—			63,707			10,820			6,485
Corporate and eliminations		—		4,824		306			5,130			(41,328	)		(22,338	)
Realized investment losses		—		—		(673	)		(673	)		(673	)		(534	)

Consolidated	$	1,186,680	$	145,067	$	26,599		$	1,358,346		$	234,038		$	165,452

5. INDUSTRY SEGMENTS (continued)


									Income
									Before
	Revenues								Taxes and
	Earned		Investment						Minority			Net
(dollars in thousands)	Premiums		Income		Other		Total		Interest			Income
For the six months ended June 30, 2007:
Specialty	$	885,565	$	114,476	$	—	$	1,000,041	$	264,555		$	183,282
Regional		614,179		47,910		—		662,089		107,224			74,434
Alternative Markets		321,930		62,528		51,336		435,794		131,310			91,536
Reinsurance		382,264		80,558		—		462,822		92,299			67,962
International		122,635		16,600		—		139,235		15,271			10,302
Corporate and eliminations		—		12,292		20,661		32,953		(84,963	)		(56,670	)
Realized investment gains		—		—		12,670		12,670		12,670			8,213

Consolidated	$	2,326,573	$	334,364	$	84,667	$	2,745,604	$	538,366		$	379,059


For the six months ended June 30, 2006:
Specialty	$	861,457	$	93,988	$	—	$	955,445	$	219,218		$	152,266
Regional		589,575		39,253		—		628,828		98,560			68,146
Alternative Markets		324,769		54,431		53,560		432,760		141,642			97,728
Reinsurance		451,549		63,431		—		514,980		64,096			48,259
International		105,707		15,088		—		120,795		16,732			11,144
Corporate and eliminations		—		10,373		697		11,070		(80,999	)		(51,608	)
Realized investment gains		—		—		2,002		2,002		2,002			1,219

Consolidated	$	2,333,057	$	276,564	$	56,259	$	2,665,880	$	461,251		$	327,154

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


	June 30,			December 31,
	2007			2006
Specialty	$	5,681,240		$	5,387,934
Regional		2,994,360			2,796,225
Alternative Markets		2,911,176			2,700,782
Reinsurance		5,231,753			5,231,317
International		748,419			811,662
Corporate, other and eliminations		(940,111	)		(1,271,431	)

Consolidated	$	16,626,837		$	15,656,489

5. INDUSTRY SEGMENTS (continued)

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


	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2007		2006		2007		2006
Premises operations	$	181,681	$	193,134	$	369,824	$	367,939
Automobile		69,702		66,008		138,064		130,474
Products liability		58,641		68,114		118,132		130,763
Property		51,555		38,158		100,388		75,506
Professional liability		38,484		39,268		77,499		78,662
Other		42,047		38,530		81,658		78,113

Specialty		442,110		443,212		885,565		861,457


Commercial multiple peril		118,148		117,287		235,093		232,118
Automobile		89,930		86,580		177,809		170,581
Workers’ compensation		62,518		61,463		125,172		119,857
Other		39,216		34,283		76,105		67,019

Regional		309,812		299,613		614,179		589,575


Excess workers’ compensation		74,584		75,052		153,552		149,714
Primary workers’ compensation		63,172		67,301		125,664		136,649
Other		21,510		19,675		42,714		38,406

Alternative Markets		159,266		162,028		321,930		324,769


Casualty		168,315		204,399		324,347		406,192
Property		28,671		21,908		57,917		45,357

Reinsurance		196,986		226,307		382,264		451,549


International		63,466		55,520		122,635		105,707

Total	$	1,171,640	$	1,186,680	$	2,326,573	$	2,333,057

6. 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. However, adverse outcomes are possible and could negatively impact the Company’s financial condition and results of operations.

7. ACQUISITIONS AND DISPOSITIONS

In January 2007, the Company acquired all the shares of outstanding common stock of Atlantic Aero Holdings, Inc. for $21 million. Atlantic Aero is a fixed base operator located in Greensboro, North Carolina and provides a full range of services to the general aviation market, including fuel and line service, aircraft sales and maintenance, avionics and engineering services and parts fabrication.

In March 2007, the Company sold its interest in Berkley International Philippines, Inc. and its subsidiaries (BIPI) for $25 million. The Company reported a pre-tax realized gain of $2.0 million from the sale of BIPI. For the year ended December 31, 2006, the Company reported revenues of $21.0 million and pre-tax earnings of $4.5 million from the operations of BIPI.

8. SUBSEQUENT EVENT

In July 2007, the Company repurchased 5,620,000 shares of its common stock for $174 million.

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 2007 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 insurance and reinsurance business, product demand and pricing, claims development and the process of estimating reserves, the uncertain nature of damage theories and loss amounts, natural and man-made catastrophic losses, including as a result of terrorist activities, the impact of competition, the success of our new ventures or acquisitions and the availability of other opportunities, the availability of reinsurance, exposure as to coverage for terrorist acts, our retention under The Terrorism Risk Insurance Act of 2002, as amended (“TRIA”), and the potential expiration of TRIA, the ability of our reinsurers to pay reinsurance recoverables owed to us, investment risks, including those of our portfolio of fixed maturity 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 or reinsurance industry, changes in the ratings assigned to us by ratings agencies, the availability of dividends from our insurance company subsidiaries, 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 2007 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 service 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 is among the largest commercial lines writers in the United States and operates in five business segments: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international. The Company’s primary sources of revenues and earnings are insurance and investments.

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 maturity securities. The return on fixed maturity 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.

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 reported (“IBNR”) 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 based upon an actuarially derived point estimate and other considerations. The Company uses a variety of actuarial techniques and methods to derive an actuarial point estimate for each operating unit. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. In circumstances where one actuarial method is considered more credible than the others, that method is used to set the point estimate. For example, the paid loss and incurred loss development methods rely on historical paid and incurred loss data. For new lines of business, where there is insufficient history of paid and incurred claims data, or in circumstances where there have been significant changes in claim practices, the paid and incurred loss development methods would be less credible than other actuarial methods. The actuarial point estimate may also be based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” 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 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. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from

historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each operating unit. Expected loss cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns. 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; however, different assumptions and variables could lead to significantly different reserve estimates.

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

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

Historically, the Company has experienced less variation from its initial loss estimates for lines of businesses with short reporting lags than for lines of business with long reporting lags. For example, as of December 31, 2006, initial loss estimates for accident years 1997 through 2005 were increased by an average of 5% for lines with short reporting lags and by an average of 20% for lines with long reporting lags. For the latest accident year ended December 31, 2006, initial loss estimates were $1.6 billion for lines with short reporting lags and $1.3 billion for lines with long reporting lags.

The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect historical changes, current trends and other factors observed. For example, in 2006 loss reserves for our commercial automobile business were increased to reflect an observed trend of higher severity losses, and in 2006 loss reserves for our California workers’ compensation business were decreased to reflect an observed trend of lower severity losses following the enactment of legislative reforms.

If the actual level of loss frequency or severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on our loss estimate for claims occurring in 2006 (dollars in thousands):


	Frequency (+/-)
Severity (+/-)	1%		5%		10%

1%	$	56,109	$	168,886	$	309,857
5%		168,886		286,129		432,683
10%		309,857		432,683		586,215

Our net reserves for losses and loss expenses of $7.4 billion as of June 30, 2007 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above.

Approximately $1.8 billion, or 25%, of the Company’s net loss reserves relate to assumed reinsurance business. There is a higher degree of uncertainty and greater variability regarding estimates of assumed reinsurance 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 on assumed reinsurance business. 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 June 30, 2007 and December 31, 2006 (dollars in thousands):


	June 30,		December 31,
	2007		2006

Specialty	$	2,650,594	$	2,498,030
Regional		1,135,579		1,071,607
Alternative Markets		1,462,484		1,372,517
Reinsurance		1,834,012		1,764,767
International		279,549		240,676

Net reserves for losses and loss expenses		7,362,218		6,947,597
Ceded reserves for losses and loss expenses		845,659		836,672

Gross reserves for losses and loss expenses	$	8,207,877	$	7,784,269

Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of June 30, 2007 and December 31, 2006 (dollars in thousands):


	Reported Case		Incurred but
	Reserves		not Reported		Total

June 30, 2007
General liability	$	737,705	$	1,961,187	$	2,698,892
Workers’ compensation		756,284		935,417		1,691,701
Automobile		358,468		213,543		572,011
International		100,349		179,200		279,549
Other		106,109		179,944		286,053

Total primary		2,058,915		3,469,291		5,528,206
Reinsurance		726,663		1,107,349		1,834,012

Total	$	2,785,578	$	4,576,640	$	7,362,218


December 31, 2006
General liability	$	696,074	$	1,824,395	$	2,520,469
Workers’ compensation		687,127		909,076		1,596,203
Automobile		354,841		193,995		548,836
International		78,489		162,187		240,676
Other		98,368		178,278		276,646

Total primary		1,914,899		3,267,931		5,182,830
Reinsurance		680,272		1,084,495		1,764,767

Total	$	2,595,171	$	4,352,426	$	6,947,597

For the six months ended June 30, 2007, the Company reported losses and loss expenses of $1.4 billion, of which $53 million represented a decrease in estimates for claims occurring in prior years. The estimates for claims occurring in prior years were decreased by $71 million for primary business and increased by $18 million for assumed reinsurance business. On an accident year basis, the change in prior year reserves is comprised of an increase in estimates of $54 million for claims occurring in accident years 2003 and prior, and a decrease in estimates of $107 million for claims occurring in accident years 2004 through 2006.

Case reserves for primary business increased 8% to $2.1 billion at June 30, 2007 from $1.9 billion at December 31, 2006 as a result of a 3% increase in the number of outstanding claims and a 7% increase in the average case reserve per claim. Reserves for incurred but not reported losses for primary business increased 6% to $3.5 billion at June 30, 2007 from $3.3 billion at December 31, 2006. Prior year reserves decreased by: $38 million for the specialty segment, $18 million for the alternative market segment, $13 million for the regional segment and $2 million for the international segment. By line of business, prior year reserves decreased by $46 million, $19 million and $7 million for general liability, workers’ compensation and property, respectively, and increased by $1 million for commercial automobile.

Case reserves for reinsurance business increased 7% to $727 million at June 30, 2007 from $680 million at December 31, 2006. Reserves for incurred but not reported losses for reinsurance business increased 2% to $1,107 million at June 30, 2007 from $1,084 million at December 31, 2006. Prior year reserves increased $18 million as losses reported by ceding companies for those years were higher than expected. The Company sets its initial loss estimates based principally upon information obtained during the underwriting process and adjusts these estimates as losses are reported by ceding companies and additional information becomes available.

Assumed Reinsurance 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 $87 million and $139 million at June 30, 2007 and December 31, 2006, 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 Six Months Ended June 30, 2007 and 2006

Business Segment Results

Following is a summary of gross and 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 for the six months ended June 30, 2007 and 2006. 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.


	For the Six Months
	Ended June 30,
(Dollars in thousands)	2007			2006

Specialty
Gross premiums written	$	938,526		$	996,126
Net premiums written		886,585			943,580
Premiums earned		885,565			861,457
Loss ratio		56.9	%		60.3	%
Expense ratio		26.2	%		25.2	%
Combined ratio		83.1	%		85.5	%

Regional
Gross premiums written	$	749,297		$	737,147
Net premiums written		655,430			634,291
Premiums earned		614,179			589,575
Loss ratio		59.3	%		59.4	%
Expense ratio		31.0	%		30.6	%
Combined ratio		90.3	%		90.0	%

Alternative Markets

Gross premiums written	$	404,334		$	397,291
Net premiums written		351,331			341,131
Premiums earned		321,930			324,769
Loss ratio		56.7	%		53.6	%
Expense ratio		23.4	%		22.2	%
Combined ratio		80.1	%		75.8	%

Reinsurance
Gross premiums written	$	415,235		$	505,661
Net premiums written		381,566			478,766
Premiums earned		382,264			451,549
Loss ratio		67.5	%		73.6	%
Expense ratio		29.5	%		26.3	%
Combined ratio		97.0	%		99.9	%

International
Gross premiums written	$	141,649		$	115,957
Net premiums written		116,624			98,748
Premiums earned		122,635			105,707
Loss ratio		65.5	%		64.0	%
Expense ratio		32.5	%		31.7	%
Combined ratio		98.0	%		95.7	%

Consolidated
Gross premiums written	$	2,649,041		$	2,752,182
Net premiums written		2,391,536			2,496,516
Premiums earned		2,326,573			2,333,057
Loss ratio		59.7	%		61.9	%
Expense ratio		28.0	%		26.7	%
Combined ratio		87.7	%		88.6	%

The following table presents the Company’s net income and net income per share for the six months ended June 30, 2007 and 2006 (amounts in thousands, except per share data):


	2007		2006

Net income	$	379,059	$	327,154
Weighted average diluted shares		203,930		202,450
Net income per diluted share	$	1.86	$	1.62

The increase in net income in 2007 compared with 2006 is primarily attributable to higher investment income as a result of an increase in average invested assets. Underwriting results also improved due to a 2.2 percentage point decrease in the loss ratio (losses and loss expenses incurred expressed as percentage of premiums earned), which was partially offset by a 1.3 percentage point increase in the expense ratio (underwriting expenses experienced as a percentage of premiums earned).

Gross Premiums Written. Gross premiums written were $2,649 million in 2007, down 4% from 2006. The Company has experienced an increased level of price competition that began in 2004. This trend continued in 2007 with price levels for renewal business declining approximately 4% from the prior year period. A summary of gross premiums written in 2007 compared with 2006 by business segment follows:

	•		Specialty gross premiums decreased 6% to $939 million in 2007 from $996 million in 2006. The number of specialty policies issued in 2007 decreased 2%, and the average premium per policy decreased 4%. Average prices for renewal policies, adjusted for changes in exposure, decreased 5%. Gross premiums written decreased 18% for premises operations lines, 11% for products liability and 2% for professional liability. Gross premiums written increased 18% for property lines and 9% for commercial automobile.

	•		Regional gross premiums increased 2% to $749 million in 2007 from $737 million in 2006. The number of policies issued in 2007 increased 1%, and the average premium per policy increased 3%. Average prices for renewal policies, adjusted for changes in exposure, decreased 3%. Gross premiums written increased by 2% for workers’ compensation, 2% for commercial multiple peril and 2% for commercial automobile. Gross premiums included assigned risk plan premiums, which are fully reinsured, of $49 million in 2007 and $64 million in 2006.

	•		Alternative markets gross premiums increased 2% to $404 million in 2007 from $397 million in 2006. The number of policies issued in 2007 increased 6%, and the average premium per policy decreased 3%. Average prices for renewal policies, adjusted for changes in exposure, decreased 6%. Gross premiums written increased by 3% for excess workers’ compensation and decreased by 3% for primary workers’ compensation. Gross premiums included assigned risk plan premiums, which are fully reinsured, of $36 million in 2007 and $39 million in 2006.

	•		Reinsurance gross premiums decreased 18% to $415 million in 2007 from $506 million in 2006. Average prices for renewal business, adjusted for changes in exposure decreased by 4%. Casualty gross premiums written decreased 25% to $314 million, and property gross premiums written increased 17% to $102 million. The 2006 premiums included $74 million related to a reinsurance agreement that was not renewed in 2007.

	•		International gross premiums increased 22% to $142 million in 2007 from $116 million in 2006. The increase is due to growth in both Europe and South America and the effects of changes in foreign exchange rates.

Premiums Earned. Premiums earned decreased 0.3% to $2,327 million from $2,333 million in 2006. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2007 are related to policies bound during both 2007 and 2006. The 0.3% decrease in 2007 earned premiums reflects the underlying change in net premiums written in those periods.

Net Investment Income. Following is a summary of net investment income for the six months ended June 30, 2007 and 2006 (dollars in thousands):


							Average Annualized
	Amount						Yield
	2007			2006			2007			2006
Fixed maturity securities, including cash	$	242,908		$	208,639			4.7	%		4.6	%
Equity securities available for sale		20,760			14,446			5.2	%		6.4	%
Arbitrage trading account		44,796			37,275			11.2	%		11.2	%
Investments in partnerships and affiliates		24,650			16,965			10.9	%		9.0	%
Other		5,671			2,300

Gross investment income		338,785			279,625			5.5	%		5.3	%
Investment expenses and interest on funds held		(4,421	)		(3,061	)

Total	$	334,364		$	276,564			5.4	%		5.2	%

Net investment income increased 21% to $334 million in 2007 from $277 million in 2006. Average invested assets (including cash and cash equivalents) increased 16% to $12.3 billion in 2007 compared with $10.9 billion in 2006. The increase was primarily a result of cash flow from operations. The average annualized gross yield on investments increased to 5.5% in 2007 from 5.3% in 2006 due primarily to higher returns on partnerships and affiliates.

Insurance 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 $51 million in 2007, down from $54 million in 2006, primarily as a result of a decline in fees for managing assigned risk plans.

Realized Investment Gains. Realized investment gains result primarily from sales of securities, as well as from provisions for other than temporary impairment in securities. Realized investment gains were $13 million in 2007 compared with $2 million in 2006. Realized gains in 2007 include a gain of $2 million from the sale of the Company’s business in the Philippines.

The Company buys and sells securities on a regular basis in order to maximize the total return on investments. Decisions to sell securities are based on management’s view of the underlying fundamentals of specific securities as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions.

Other Revenues. Other revenues increased to $21 million in 2007 from $0.7 million in 2006. Most of the other revenues in 2007 was derived from an aviation business that the Company acquired in January 2007. The aviation business provides services to the general aviation market, including fuel and line service, aircraft sales and maintenance, avionics and engineering services and parts fabrication.

Losses and Loss Expenses. Losses and loss expenses decreased 4% to $1,389 million in 2007 from $1,443 million in 2006. The consolidated loss ratio decreased to 59.7% in 2007 from 61.9% in 2006 primarily as a result of favorable loss reserve development of $53 million in 2007 compared with unfavorable loss reserve development of $14 million in 2006. On an accident year basis, the estimated loss ratio for the first six months of 2007 was approximately five points higher than the developed loss ratio for all of 2006 due to the effects of lower premium rates and estimated loss cost inflation. A summary of loss ratios in 2007 compared with 2006 by business segment follows:

•

Specialty’s loss ratio was 56.9% in 2007 compared with 60.3% in 2006 principally due to favorable prior year loss reserve development.

	•		The regional loss ratio was 59.3% in 2007 compared with 59.4% in 2006. Weather-related losses were $22 million in 2007 compared with $25 million in 2006.

	•		Alternative markets’ loss ratio was 56.7% in 2007 compared with 53.6% in 2006. Both periods reflect favorable loss reserve development resulting from the impact of workers’ compensation reforms in California.

	•		The reinsurance loss ratio was 67.5% in 2007 compared with 73.6% in 2006. The improvement of 6.1 percentage points was due primarily to a decrease in unfavorable prior year loss reserve development.

	•		The international loss ratio was 65.5% in 2007 compared with 64.0% in 2006 due to an increase in estimated loss costs in Europe.

			Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses for the six months ended June 30, 2007 and 2006 (dollars in thousands):


	2007		2006
Underwriting expenses	$	651,094	$	623,933
Service company		46,642		45,002
Aviation company		17,797		—
Other costs and expenses		59,489		45,645

Total	$	775,022	$	714,580

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) increased to 28.0% in 2007 from 26.7% in 2006 primarily as a result of an increase in both commissions and internal costs.

Service company expenses, which represent the costs associated with the alternative markets’ fee-based business, increased 4% to $47 million primarily as a result of an increase in costs associated with the servicing of assigned risk plan business.

Aviation company expenses, which represent operating expenses related to the aviation business described above, were $18 million in 2007.

Other costs and expenses, which represent primarily general and administrative expenses for the parent company, increased 30% to $59 million primarily as a result of higher incentive compensation costs, including costs for restricted stock units and other long-term incentive plans.

Interest Expense. Interest expense decreased 7% to $43 million as a result of the redemption of $210 million 8.197% junior subordinated debentures in December 2006, which was partially offset by the issuance of $250 million 6.25% senior notes in February 2007.

Income taxes. The effective income tax rate was 29% in 2007 and 2006. 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 June 30, 2007 and 2006

Business Segment Results

Following is a summary of gross and 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 for the three months ended June 30, 2007 and 2006. 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.


	For the Three Months
	Ended June 30,
(Dollars in thousands)	2007			2006

Specialty
Gross premiums written	$	480,674		$	521,825
Net premiums written		452,610			496,017
Premiums earned		442,110			443,212
Loss ratio		55.7	%		60.7	%
Expense ratio		26.4	%		25.0	%
Combined ratio		82.1	%		85.7	%

Regional
Gross premiums written	$	371,879		$	372,481
Net premiums written		330,057			322,910
Premiums earned		309,812			299,613
Loss ratio		60.1	%		62.0	%
Expense ratio		31.0	%		30.2	%
Combined ratio		91.1	%		92.2	%

Alternative Markets
Gross premiums written	$	123,906		$	123,843
Net premiums written		100,808			102,709
Premiums earned		159,266			162,028
Loss ratio		57.2	%		51.8	%
Expense ratio		24.2	%		23.1	%
Combined ratio		81.4	%		74.9	%

Reinsurance
Gross premiums written	$	210,053		$	258,628
Net premiums written		190,705			242,957
Premiums earned		196,986			226,307
Loss ratio		70.2	%		74.5	%
Expense ratio		26.9	%		25.1	%
Combined ratio		97.1	%		99.6	%

International
Gross premiums written	$	79,167		$	64,570
Net premiums written		62,584			53,392
Premiums earned		63,466			55,520
Loss ratio		65.8	%		62.4	%
Expense ratio		33.3	%		30.1	%
Combined ratio		99.1	%		92.5	%

Consolidated
Gross premiums written	$	1,265,679		$	1,341,347
Net premiums written		1,136,764			1,217,985
Premiums earned		1,171,640			1,186,680
Loss ratio		60.1	%		62.5	%
Expense ratio		27.8	%		26.4	%
Combined ratio		87.9	%		88.9	%

The following table presents the Company’s net income and net income per share for the three months ended June 30, 2007 and 2006 (amounts in thousands, except per share data):


	2007		2006
Net income	$	190,633	$	165,452
Weighted average diluted shares		203,922		202,450
Net income per diluted share	$	.93	$	.82

The increase in net income in 2007 compared with 2006 is primarily attributable to higher investment income as a result of an increase in average invested assets. Underwriting results also improved due to a 2.4 percentage point decrease in the loss ratio (losses and loss expenses incurred expressed as percentage of earned premiums), which was partially offset by a 1.4 percentage point increase in the expense ratio (underwriting expenses experienced as a percentage of premiums earned).

Gross Premiums Written. Gross premiums written were $1,266 million in 2007, down 6% from 2006. The Company has experienced an increased level of price competition that began in 2004. This trend continued in 2007 with price levels for renewal business declining approximately 5% from the prior year period. A summary of gross premiums written in 2007 compared with 2006 by business segment follows:

	•		Specialty gross premiums decreased 8% to $481 million in 2007 from $522 million in 2006. The number of specialty policies issued in 2007 decreased 2%, and the average premium per policy decreased 6%. Average prices for renewal policies, adjusted for changes in exposure, decreased 6%. Gross premiums written decreased 20% for premises operations, 17% for products liability and 4% for professional liability. Gross premiums written increased 23% for property and 4% for commercial automobile.

	•		Regional gross premiums were $372 million in 2007 and 2006. The number of policies issued in 2007 increased 1%, and the average premium per policy increased 2%. Average prices for renewal policies, adjusted for changes in exposure, decreased 4%. Gross premiums written increased by 1% for commercial automobile. Gross premiums written for commercial multiple peril and workers’ compensation were unchanged. Gross premiums also included assigned risk plan premiums, which are fully reinsured, of $21 million in 2007 and $31 million in 2006.

	•		Alternative markets gross premiums were $124 million in 2007 and 2006. The number of policies issued in 2007 decreased 1%, and the average premium per policy was unchanged. Average prices for renewal policies, adjusted for changes in exposure, decreased 9%. Gross premiums written decreased by 8% for primary workers’ compensation and 1% for excess workers’ compensation. Gross premiums also included assigned risk plan premiums, which are fully reinsured, of $17 million in 2007 and $16 million in 2006.

	•		Reinsurance gross premiums decreased 19% to $210 million in 2007 from $259 million in 2006. Average prices for renewal business, adjusted for changes in exposure decreased by 3%. Casualty gross premiums written decreased 26% to $159 million, and property gross premiums written increased 21% to $51 million. The 2006 premiums included $25 million related to a reinsurance agreement that was not renewed in 2007.

	•		International gross premiums increased 23% to $79 million in 2007 from $65 million in 2006. The increase is due to growth in both Europe and South America and the effects of changes in foreign exchange rates.

Premiums Earned. Premiums earned decreased 1% to $1,172 million from $1,187 million in 2006. Insurance premiums are earned ratably over the policy term, and therefore premiums earned in 2007 are related to policies bound during both 2007 and 2006. The 1% decrease in 2007 earned premiums reflects the underlying change in net premiums written in those periods.

Net Investment Income. Following is a summary of net investment income for the three months ended June 30, 2007 and 2006 (dollars in thousands):


							Average Annualized
	Amount						Yield
	2007			2006			2007			2006
Fixed maturity securities, including cash	$	123,631		$	108,155			4.7	%		4.7	%
Equity securities available for sale		10,772			7,545			5.4	%		6.4	%
Arbitrage trading account		22,596			17,683			11.1	%		9.7	%
Investments in partnerships and affiliates		11,229			11,982			9.9	%		12.3	%
Other		2,730			1,389

Gross investment income		170,958			146,754			5.5	%		5.4	%
Investment expenses and interest on funds held		(2,015	)		(1,687	)

Total	$	168,943		$	145,067			5.4	%		5.4	%

Net investment income increased 17% to $169 million in 2007 from $145 million in 2006. Average invested assets (including cash and cash equivalents) increased 16% to $12.5 billion in 2007 compared with $10.8 billion in 2006. The increase was primarily a result of cash flow from operations. The average annualized gross yield on investments increased to 5.5% in 2007 from 5.4% in 2006 due primarily to higher returns on arbitrage trading account.

Insurance 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 $25 million in 2007, down from $27 million in 2006, primarily as a result of a decline in fees for managing assigned risk plans.

Realized Investment Gains (Losses). Realized investment gains (losses) result primarily from sales of securities, as well as from provisions for other than temporary impairment in securities. Realized investment gains were $5 million in 2007 compared with realized investment losses of $0.7 million in 2006.

Other Revenues. Other revenues increased to $15 million in 2007 from $0.3 million in 2006. Most of the other revenues in 2007 was derived from an aviation business that the Company acquired in January 2007. The aviation business provides services to the general aviation market, including fuel and line service, aircraft sales and maintenance, avionics and engineering services and parts fabrication.

Losses and Loss Expenses. Losses and loss expenses decreased 5% to $704 million in 2007 from $742 million in 2006. The consolidated loss ratio decreased to 60.1% in 2007 from 62.5% in 2006 primarily as a result of favorable loss reserve development of $32 million in 2007 compared with unfavorable loss reserve development of $7 million in 2006.

A summary of loss ratios in 2007 compared with 2006 by business segment follows:

	•		Specialty’s loss ratio was 55.7% in 2007 compared with 60.7% in 2006 principally due to favorable prior year loss reserve development.

	•		The regional loss ratio was 60.1% in 2007 compared with 62.0% in 2006. Weather-related losses were $16 million in 2007 compared with $20 million in 2006.

	•		Alternative markets’ loss ratio was 57.2% in 2007 compared with 51.8% in 2006. Both periods reflect favorable loss reserve development resulting from the impact of workers’ compensation reforms in California.

	•		The reinsurance loss ratio was 70.2% in 2007 compared with 74.5% in 2006. The loss ratio improvement of 4.3 percentage points was due primarily to a decrease in unfavorable prior year loss reserve development.

	•		The international loss ratio was 65.8% in 2007 compared with 62.4% in 2006 due to an increase in estimated loss costs in Europe.

			Other Operating Costs and Expenses. Following is a summary of other operating costs and expenses for the three months ended June 30, 2007 and 2006 (dollars in thousands):


	2007		2006
Underwriting expenses	$	325,177	$	313,843
Service company		23,046		21,817
Aviation company		13,187		—
Other costs and expenses		28,381		23,266

Total	$	389,791	$	358,926

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) increased to 27.8% in 2007 from 26.4% in 2006 primarily a result of an increase in both commissions and internal costs.

Service company expenses, which represent the costs associated with the alternative markets’ fee-based business, increased 6% to $23 million primarily as a result of an increase in costs associated with the servicing of assigned risk plan business.

Aviation company expenses, which represent operating expenses related to the aviation business described above, were $13 million in 2007.

Other costs and expenses, which represent primarily general and administrative expenses for the parent company, increased 22% to $28 million primarily as a result of higher incentive compensation costs, including costs for restricted stock units and other long-term incentive plans.

Interest Expense. Interest expense decreased 3% to $23 million as a result of the redemption of $210 million 8.197% junior subordinated debentures in December 2006, which was partially offset by the issuance of $250 million 6.25% senior notes in February 2007.

Income taxes. The effective income tax rate was 29% in 2007 and 2006. 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, it believes 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 were as follows (dollars in thousands):


	June 30,			December 31,
	2007			2006
Fixed maturity securities	$	9,735,152		$	9,158,607
Equity securities available for sale		852,794			866,422
Arbitrage securities trading account		1,020,540			639,481
Partnerships and affiliates		465,672			449,854

Total investments		12,074,158			11,114,364


Cash and cash equivalents		801,993			754,247

Trading account receivable from brokers and clearing organization		62,797			312,220

Trading account securities sold but not yet purchased		(256,841	)		(170,075	)

Unsettled purchases and sales		(25,180	)		1,542

Total	$	12,656,927		$	12,012,298

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, 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 June 30, 2007 (as compared to December 31, 2006), the fixed maturities portfolio mix was as follows: U.S. Government securities were 12% (15% in 2006); state and municipal securities were 53% (50% in 2006); corporate securities were 7% (9% in 2006); mortgage-backed securities were 25% (22% in 2006); and foreign bonds were 3% (4% in 2006).

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 view of the underlying fundamentals of specific securities as well as 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.

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

Arbitrage 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.

Partnerships and Affiliates. At June 30, 2007 (as compared to December 31, 2006), investments in partnerships and affiliates were as follows: equity in Kiln plc was $104 million ($96 million in 2006); real estate funds were $272 million ($275 million in 2006); and other investments were $90 million ($79 million in 2006).

Securities in an Unrealized Loss Position. The following table summarizes all securities in an unrealized loss position at June 30, 2007 and December 31, 2006 by the length of time those securities have been continuously in an unrealized loss position:


					Gross
	Number of		Aggregate		Unrealized
(Dollars in thousands)	Securities		Fair Value		Loss
June 30, 2007
Fixed maturities:
0– 6 months		279	$	3,491,000	$	30,790
7- 12 months		49		574,740		3,837
Over 12 months		297		2,840,198		70,832

Total		625	$	6,905,938	$	105,459


Equity securities available for sale:
0– 6 months		65	$	120,494	$	1,786
7- 12 months		5		20,870		248
Over 12 months		13		47,691		2,102

Total		83	$	189,055	$	4,136


December 31, 2006
Fixed maturities:
0– 6 months		100	$	802,595	$	2,309
7- 12 months		62		645,331		4,445
Over 12 months		269		2,843,721		44,389

Total		431	$	4,291,647	$	51,143


Equity securities available for sale:
0– 6 months		8	$	75,568	$	320
7- 12 months		9		60,853		250
Over 12 months		16		105,085		1,583

Total		33	$	241,506	$	2,153

At June 30, 2007, gross unrealized gains were $158 million, or 1% of total investments, and gross unrealized losses were $110 million, or 0.9% of total investments. There were 364 securities that have been continuously in an unrealized loss position for more than six months. Those securities had an aggregate fair value of $3.5 billion and an aggregate unrealized loss of $77 million. The decline in market value for these securities is primarily due to an increase in market interest rates.

Management regularly reviews all securities that have a fair value less than cost to determine whether an other than temporary impairment has occurred. In determining whether a decline in fair value is other than temporary, management assesses whether the fair value is expected to recover and whether the Company has the intent to hold the investment until it recovers. The Company’s assessment of its intent to hold an investment until it recovers is based on conditions at the time the assessment is made, including general market conditions, the Company’s overall investment strategy and management’s view of the underlying value of an investment relative to its current price. 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.

The following table shows the composition by Standard & Poor’s (“S&P”) and Moody’s ratings of the fixed maturity securities in our portfolio with gross unrealized losses at June 30, 2007. Not all of the securities are rated by S&P and/or Moody’s (dollars in thousands).


		Unrealized Loss					Fair Value
									Percent to
S&P Rating	Moody’s Rating	Amount		Percent to Total			Amount		Total

AAA/AA/A	Aaa/Aa/A	$	100,054		95		$	6,660,967		96
BBB	Baa		5,405		5			244,971		4

	Total	$	105,459		100	%	$	6,905,938		100	%

The scheduled maturity dates for fixed maturity securities in an unrealized loss position at June 30, 2007 are shown in the following table (dollars in thousands):


	Unrealized Loss					Fair Value
			Percent to					Percent to
Maturity	Amount		Total			Amount		Total

Less than one year	$	2,342		2		$	572,438		8
One year through five years		14,858		14			1,149,955		17
Five years through ten years		38,409		36			2,006,711		29
After ten years		22,596		22			1,233,808		18
Mortgage and asset-backed securities		27,254		26			1,943,026		28

Total fixed income securities	$	105,459		100	%	$	6,905,938		100	%

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Due to the periodic repayment of principal, the mortgage and asset-backed securities are estimated to have an effective maturity of approximately two years.

Liquidity and Capital Resources

Cash Flow. Cash flow provided from operating activities was $637 million during the six months ended June 30, 2007 and $553 million in the comparable period of 2006. The levels of cash flow provided by operating activities in these periods, which are high by historical measures in relation to both earned premiums and net income, are a result of an increasing investment income and relatively low paid losses. Cash flow provided by operating activities in 2006 is net of cash transfers to the arbitrage trading account of $225 million.

The Company’s insurance subsidiaries’ principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company targets an average duration for its investment portfolio that is within one year of the average duration of its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed income securities are not sufficient to fund claim payments and other cash requirements, the remainder of the Company’s cash and investments is available to pay claims and other obligations as they become due. The Company’s investment portfolio is highly liquid, with approximately 83% invested in cash, cash equivalents and marketable fixed income securities as of June 30, 2007. If the sale of fixed income securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized.

In February 2007, the Company issued $250 million of 6.25% senior notes due on February 15, 2037. During the second quarter of 2007, the Company repurchased 2,264,200 shares of its common stock for $73 million. In July 2007, the Company repurchased an additional 5,620,000 shares of its common stock for $174 million.

At June 30, 2007, the Company had senior notes, junior subordinated debentures and other debt outstanding with a carrying value of $1,364 million and a face amount of $1,382 million. The maturities of the outstanding debt are $5 million in installments through 2009, $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, $250 million in 2037 and $250 million in 2045 (prepayable in 2010).

At June 30, 2007, stockholders’ equity was $3.6 billion and total capitalization (stockholders’ equity, senior notes, junior subordinated debentures and other debt) was $4.9 billion. The percentage of the Company’s capital attributable to senior notes and other debt and junior subordinated debentures was 28% at June 30, 2007, compared with 25% at December 31, 2006.

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 was 3.5 years at June 30, 2007 and 3.3 years at December 31, 2006. The overall market risk relating to the Company’s portfolio has remained similar to the risk at December 31, 2006.

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 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 June 30, 2007, 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 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2006.

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

Average

Total number of shares

shares that may

Total number

price

purchased as part of

yet be purchased

of shares

paid per

publicly announced plans

under the plans

purchased

or programs

or programs (1)

April 2007

None

24,624,688

May 2007

1,221,287

(2)

33.15

264,200

24,360,488

June 2007

2,000,000

32.34

2,000,000

22,360,488


(1)		Remaining shares available for repurchase under the Company’s repurchase authorizations of 22,000,000 shares and 10,125,000 shares that were approved by the Board of Directors on November 1, 2006 and November 10, 1998, respectively.

(2)		Includes shares delivered to the Company for the payment of exercise price or tax liability incident to the exercise of employee stock options pursuant to the Company’s 2003 Stock Incentive Plan.

During July 2007, the Company repurchased an additional 5,620,000 shares at an average price per share of $31.04 for a total of $174 million.

Item 4. Submission of Matters To A Vote of Securities Holders

The Company held its Annual Meeting of Stockholders on May 8, 2007. The meeting involved the election of four directors for a term to expire at the Annual Meeting of Stockholders to be held in the year 2010, and the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2007. The directors elected and the results of the voting are as follows:

(i) Election of Directors:


Nominee	Votes For		Votes Withheld
W. Robert Berkley, Jr.		169,926,778		7,829,672
Ronald E. Blaylock		171,585,172		6,171,278
Mark E. Brockbank		171,572,084		6,184,366
Mary C. Farrell		171,571,828		6,184,622

(ii) Ratification of Accounting Firm:


Votes For	Votes Against		Votes Abstained
175,840,347		1,775,862		140,241


Number

(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: August 6, 2007	/s/ William R. Berkley
	William R. Berkley
	Chairman of the Board and Chief Executive Officer



Date: August 6, 2007	/s/ Eugene G. Ballard
	Eugene G. Ballard
	Senior Vice President, Chief Financial Officer and Treasurer

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