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<SEC-DOCUMENT>0000914039-01-000093.txt : 20010326
<SEC-HEADER>0000914039-01-000093.hdr.sgml : 20010326
ACCESSION NUMBER:		0000914039-01-000093
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010323

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BERKLEY W R CORP
		CENTRAL INDEX KEY:			0000011544
		STANDARD INDUSTRIAL CLASSIFICATION:	FIRE, MARINE & CASUALTY INSURANCE [6331]
		IRS NUMBER:				221867895
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		
		SEC FILE NUMBER:	000-07849
		FILM NUMBER:		1576956

	BUSINESS ADDRESS:	
		STREET 1:		165 MASON ST
		STREET 2:		P O BOX 2518
		CITY:			GREENWICH
		STATE:			CT
		ZIP:			06836-2518
		BUSINESS PHONE:		2036293000

	MAIL ADDRESS:	
		STREET 1:		165 MASON ST
		STREET 2:		PO BOX 2518
		CITY:			GREENWICH
		STATE:			CT
		ZIP:			06836-2518
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>y46799e10-k.txt
<DESCRIPTION>FORM 10-K
<TEXT>

<PAGE>   1




                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

           (Mark One)

        [X]    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000
                                       OR
        [ ]    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 0-7849

                            W. R. BERKLEY CORPORATION
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
                      Delaware                                                         22-1867895
<S>                                                                            <C>
         (State or other jurisdiction                                              (I.R.S. Employer
         of incorporation or organization)                                      Identification Number)

165 Mason Street, P.O. Box 2518, Greenwich, CT                                         06836-2518
   (Address of principal executive offices)                                            (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (203) 629-3000

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common stock, par value $.20 per share

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 twelve 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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Aggregate market value of voting stock held by non-affiliates of the registrant
based on the closing price of such stock on the Nasdaq National Market as of
March 7, 2001: $1,156,879,996.

Number of shares of common stock, $.20 par value, outstanding as of March 7,
2001: 28,861,309

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's 2000 Annual Report to Stockholders for the year ended
December 31, 2000 are incorporated herein by reference in Part II, and portions
of the registrant's definitive proxy statement, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 2000, are
incorporated herein by reference in Part III.
<PAGE>   2
                            W. R. BERKLEY CORPORATION

                           ANNUAL REPORT ON FORM 10-K

                                December 31, 2000

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                             <C>
         SAFE HARBOR STATEMENT                                                                                    3

                  PART I

         ITEM     1.  BUSINESS                                                                                    4

         ITEM     2.  PROPERTIES                                                                                 22

         ITEM     3.  LEGAL PROCEEDINGS                                                                          22

         ITEM     4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                        23

                  PART II

         ITEM     5.  MARKET FOR REGISTRANT'S COMMON EQUITY
                      AND RELATED STOCKHOLDER MATTERS                                                            23

         ITEM     6.  SELECTED FINANCIAL DATA FOR THE FIVE YEARS
                      ENDED DECEMBER 31, 2000                                                                    24

         ITEM     7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                      FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                              25

         ITEM     7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 25

         ITEM     8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                25

         ITEM     9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                      AND FINANCIAL DISCLOSURE                                                                   25

                  PART III

         ITEM     10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                         26

         ITEM     11. EXECUTIVE COMPENSATION                                                                     28

         ITEM     12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                      OWNERS AND MANAGEMENT                                                                      28

         ITEM     13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                             28

                  PART IV

         ITEM     14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                      AND REPORTS ON FORM 8-K                                                                    28
</TABLE>


                                       2
<PAGE>   3
                              SAFE HARBOR STATEMENT
                          UNDER THE PRIVATE SECURITIES
                          LITIGATION REFORM ACT OF 1995


         This Annual Report on Form 10-K may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Any
forward-looking statements contained herein, including those related to the
Company's performance for the year 2001 and beyond, are based upon the Company's
historical performance and on current plans, estimates and expectations. 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, the impact of
competition, product demand and pricing, claims development and the process of
estimating reserves, the level of the Company's retentions, catastrophe and
storm losses, legislative and regulatory developments, changes in the ratings
assigned to the Company by rating agencies, investment results, availability of
reinsurance, the effects of our recent restructuring, availability of dividends
from our insurance company subsidiaries, our successful integration of acquired
companies, investing substantial amounts in our information systems and
technology, the ability of our reinsurers to pay reinsurance recoverables owed
to us, exchange rate and political risks and other risks detailed from time to
time in the Company's filings with the Securities and Exchange Commission,
including this Annual Report on Form 10-K (see "Certain Factors That May Affect
Future Results" herein). These risks could cause the Company's actual results
for the year 2001 and beyond to differ materially from those expressed in any
forward-looking statement made by or on behalf of the Company. Forward-looking
statements speak only as of the date on which they are made, and the Company
undertakes no obligation to update publicly or revise any forward-looking
statement, whether as a result of new information, future developments or
otherwise.


                                       3
<PAGE>   4
                                     PART I

ITEM     1.  BUSINESS

         W. R. Berkley Corporation, a Delaware corporation, is an insurance
holding company which, through our subsidiaries, presently operates in five
segments of the property casualty insurance business: specialty lines of
insurance (including excess and surplus lines and commercial transportation);
alternative markets (including the management of alternative insurance market
mechanisms); reinsurance; regional property casualty insurance; and
international. This structure provides the flexibility to respond to local or
specific market conditions and pursue specialty business niches. It also allows
us to be closer to our customers to better understand their individual needs and
risk characteristics. The holding company structure allows us to capitalize on
the benefits of economies of scale through centralized capital, investment and
reinsurance management and actuarial, financial and legal staff support.

         Unless otherwise indicated, all references in this Form 10-K to "W. R.
Berkley," "we," "us," "our," the "Company" or similar terms refer to W. R.
Berkley Corporation together with its subsidiaries.

       Our specialty insurance, alternative markets and reinsurance operations
are conducted nationwide. Regional insurance operations are conducted primarily
in the Midwest, New England, South, and Mid Atlantic regions of the United
States. Presently, international operations are conducted primarily in Argentina
and the Philippines.

       Net premiums written, as reported on a generally accepted accounting
principles ("GAAP") basis, by the Company's five major insurance industry
segments for each of the past five years were as follows:

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                              ---------------------------------------------------------------------------------
                                                 2000              1999              1998              1997             1996
                                                 ----              ----              ----              ----             ----
                                                                              (Amounts in thousands)
<S>                                           <C>               <C>               <C>               <C>              <C>
Net premiums written:

         Specialty insurance operations       $  285,525        $  260,380        $  254,003        $  219,272       $  214,738
         Alternative markets operations          184,255           122,137           106,195            90,870           76,876
         Reinsurance operations                  276,640           309,181           269,634           206,652          218,200
         Regional insurance operations           640,843           649,849           641,316           618,768          517,515
         International operations                118,981            86,172            75,106            42,079           25,182
                                              ----------        ----------        ----------        ----------       ----------

                  Total                       $1,506,244        $1,427,719        $1,346,254        $1,177,641       $1,052,511
                                              ==========        ==========        ==========        ==========       ==========

Percentage of net premiums written:

         Specialty insurance operations             19.0%             18.2%             18.9%             18.6%            20.4%
         Alternative markets operations             12.2               8.6               7.9               7.7              7.3
         Reinsurance operations                     18.4              21.7              20.0              17.5             20.7
         Regional insurance operations              42.5              45.5              47.6              52.6             49.2
         International operations                    7.9               6.0               5.6               3.6              2.4
                                              ----------        ----------        ----------        ----------        ---------

         Total                                     100.0%            100.0%            100.0%            100.0%           100.0%
                                              ==========        ==========        ==========        ==========        =========
</TABLE>

         The following sections briefly describe our insurance segments. The
statutory information contained herein is derived from that reported to state
regulatory authorities in accordance with statutory accounting practices
("SAP"). All of the domestic insurance subsidiaries have an A.M. Best Company,
Inc. ("A.M. Best") rating of "A (Excellent)", other than Admiral Insurance
Company, which has a rating of "A+ (Superior)". A.M. Best's ratings are based
upon factors of concern to policyholders, insurance agents and brokers and are
not directed toward the protection of investors. A.M. Best reviews its ratings
on a periodic basis, and ratings of the Company's subsidiaries are therefore
subject to change.


                                       4
<PAGE>   5
                         SPECIALTY INSURANCE OPERATIONS

         Our specialty segment underwrites complex and sophisticated third-party
liability risks, principally within the excess and surplus ("E&S") lines,
property, professional liability, surety and commercial transportation markets.
The specialty business is conducted through six operating units. The different
companies within the segment are divided along the different customer bases and
product lines which 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.

         Admiral Insurance ("Admiral") specializes in E&S coverages, including
general liability, professional liability and property. Admiral insures risks
requiring specialized treatment not available in the conventional market, with
coverage designed to meet the specific needs of the insured. Business is
received from wholesale brokers via retail agents, whose clients are the
insureds. Admiral operates primarily on a non-admitted basis. Admiral's business
is obtained on a nationwide basis from approximately 190 non-exclusive brokers.

         Coverages are provided to a wide variety of customers which, until
February 2000, included nursing homes and assisted care facilities. In February
2000, Admiral ceased issuing policies to such facilities due to the difficult
legal environment and underwriting results for this business.

         Nautilus Insurance ("Nautilus") insures E&S risks which involve a lower
degree of expected severity than those covered by Admiral. Nautilus obtains its
business nationwide from approximately 135 non-exclusive general agents, some of
which also provide business to Admiral. A substantial portion of Nautilus'
business is written on a binding authority basis, subject to certain contractual
limitations. Nautilus operates primarily on a non-admitted basis. Nautilus also
writes transportation risks, as well as other specialty losses, on an admitted
basis.

         Monitor Liability Managers ("Monitor") is our professional liability
underwriting unit. Monitor writes directors' and officers' and lawyers'
professional coverages. Monitor continues to develop two other insurance lines -
management liability and employment practices liability. Its business is
developed nationally through a combination of wholesale and retail sources.

         Carolina Casualty ("Carolina") writes liability, physical damage and
cargo insurance for the transportation industry, concentrating on long-haul
trucking companies. Public transportation insurance for such risks as charter
buses and school buses also make up a substantial part of Carolina's business.
Carolina's business is obtained nationwide from approximately 120 agents and
brokers. During 2000, in response to the competitive market environment, we
substantially reduced our writings of commercial transportation business;
however, we expect to increase our writings in 2001 as market conditions
improve.

         Clermont Specialty Managers ("Clermont") writes specialty commercial
lines in the New York City metropolitan area. These include package insurance
programs for luxury condominium, cooperative and rental apartment buildings and
restaurants, and motorcycle coverages. Product distribution is through retail
agents and wholesale brokers.

         Monitor Surety Managers ("Surety") writes surety bonds in all 50
states, primarily serving the bonding needs of mid-sized contractors. It
operates five regional offices producing business mostly from retail agents
specializing in surety.

         The following table sets forth the percentage of direct premiums
written by each specialty unit:

<TABLE>
<CAPTION>
                               Year Ended December 31,
                     ---------------------------------------------
                     2000      1999       1998      1997     1996
                     ----      ----       ----      ----     ----

<S>                  <C>       <C>       <C>       <C>      <C>
Admiral               39.5%     36.6%     37.7%     37.9%    34.0%
Nautilus              24.8      24.7      23.0      24.7     23.5
Monitor               17.8      14.2      12.9      12.8     12.5
Carolina              10.9      18.1      20.5      18.7     23.7
Clermont               4.5       4.2       4.0       4.1      5.1
Surety                 2.5       2.2       1.9       1.8      1.2
                     -----     -----     -----     -----     -----

            Total    100.0%    100.0%    100.0%    100.0%   100.0%
                     =====     =====     =====     =====    =====
</TABLE>


                                       5
<PAGE>   6
         The following table sets forth the percentages of direct premiums
written, by line, by our specialty insurance operations:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                      ---------------------------------------------------
                                       2000        1999       1998       1997       1996
                                       ----        ----       ----       ----       ----
<S>                                    <C>        <C>        <C>        <C>        <C>
General Liability                       40.5%      30.5%      28.2%      34.1%      35.3%
Professional Liability                  14.5       16.5       16.9       14.7       12.1
Automobile Liability                    10.6       18.3       19.0       17.7       20.9
Fire and Allied Lines                    9.2        7.7        7.1        7.5        7.1
Directors' and Officers' Liability       7.0        6.6        7.7        8.1       10.0
Commercial Multi-Peril                   4.6        3.3        3.1        3.0        1.0
Automobile Physical Damage               4.3        6.4        6.1        4.9        5.3
Medical Malpractice                      3.7        6.0        6.1        4.0        3.3
Surety                                   2.5        2.1        2.0        1.9        1.3
Inland Marine                            1.6        1.9        1.8        1.5        1.6
Workers' Compensation                    0.7        0.6        1.9        2.5        1.7
Other                                    0.8        0.1        0.1        0.1        0.4
                                      ------     ------     ------     ------     ------

                   Total               100.0%     100.0%     100.0%     100.0%     100.0%
                                      ======     ======     ======     ======     ======
</TABLE>


                               ALTERNATIVE MARKETS

         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, reinsurers,
alternative markets funds and other insurers 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.

         Each of our alternative markets divisions is involved in risk
management and is organized according to one of the following product areas:
insuring excess workers' compensation, or EWC, risks; insuring primary workers'
compensation risks; providing non-risk bearing administrative services
nationwide and offering reinsurance products to alternative markets clients.

         Excess workers' compensation. We market and underwrite EWC insurance
and related risk management services, including a full range of consulting
services. EWC insurance is marketed primarily to employers and employer groups
that self-insure their workers' compensation programs. EWC insurance provides
coverage to self-insured employers and employer groups once their losses exceed
a specified retention amount. We offer a complete line of products, including
specific and aggregate insurance policies and surety bonds.

         Primary workers' compensation. Primary workers' compensation insurance
is provided in California to the small employer market and in North Carolina
primarily to employers moving out of associations or individual self-insurance.

         Insurance services. Our alternative markets insurance service
operations offer a full range of alternative solutions customized to meet risk
financing needs for various structures, such as assigned risk plans, captive
insurance companies, retention pools, risk retention groups, self-funded plans
and specialty insurance company programs.

         Interaction with clients through consulting and other advisory services
is central to marketing efforts in the alternative markets. Our services include
property casualty and workers' compensation third-party administration, claims
adjustment and management, employee benefit consulting and administration,
accounting services, insurance and reinsurance risk transfer, loss control and
safety consulting, management information systems, regulatory compliance and
relations, risk management consulting, alternative markets plan management,
statistical analysis, underwriting and rating and policy issuance.

         Reinsurance. The alternative markets reinsurance division provides
custom designed reinsurance products and services to alternative markets
clients, such as captive insurance companies, risk retention groups, public
entity insurance trusts and governmental pools. These clients are generally
self-insured vehicles which provide insurance buyers with a


                                       6
<PAGE>   7
mechanism for retaining part of their own risk, managing their exposures,
modifying their loss costs and, ultimately, participating in the underwriting
results.

         The following table sets forth the percentages of revenues, by major
source of business, of our alternative markets operations:

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                              ----------------------------------------------------------
                                                               2000          1999         1998        1997         1996
                                                               ----          ----         ----        ----         ----
<S>                                                           <C>           <C>          <C>         <C>          <C>
        Excess Workers' Compensation                           29.3%         32.3%        39.0%       46.1%        48.8%
        Primary Workers' Compensation                          16.7          14.7          6.6          --           --
        Insurance Services                                     25.0          30.5         32.4        35.9         37.5
        Reinsurance Division                                   29.1          22.5         22.0        18.0         13.7
                                                              -----         -----        -----       -----        -----

                            Total                             100.0%        100.0%       100.0%      100.0%       100.0%
                                                              =====         =====        =====       =====        =====
</TABLE>


                             REINSURANCE OPERATIONS

         Our reinsurance operations consist of three operating units, which
specialize in underwriting property casualty and surety reinsurance on both a
treaty and a facultative basis.

         Treaty. Our Property Casualty Treaty Division is our largest business
unit in terms of personnel and premiums written. This division is committed
exclusively to the broker market segment of the treaty reinsurance industry. It
functions as a traditional reinsurer in specialty and standard reinsurance
lines.

         In 2000, we began to focus on reinsurance lines of business which are
more specialty-focused and where knowledge and expertise in a specific area is
valued over the capital scale of the reinsurance provider. It is in those
situations where we can best utilize our intellectual capital to drive the
underwriting process. In the first quarter of 2000, we also began redirecting
our reinsurance business away from the property sub-segments, which expose us to
weather-related and other natural catastrophes, and decided to withdraw
altogether from the Latin American and Caribbean market. In addition, within the
treaty sub-segment, we are shifting our focus toward excess of loss treaties,
which we believe present more profitable opportunities. We anticipate that these
changes will allow us to have more significant participations and greater
influence over the terms and conditions of coverage. However, due to the shift
in our focus, we are expecting a reduction in reinsurance premiums.

         Facultative. Our Facultative Division specializes in individual
certificate and program facultative business. Its highly experienced
underwriters seek to offset the underwriting and pricing cycles in the
underlying insurance business by developing risk management solutions and
through superior risk selection. We develop this business through brokers and on
a direct basis where the client does not choose to use an intermediary.

         Fidelity and Surety. Our Fidelity and Surety Division operates as a
lead reinsurer in a niche market of the property casualty industry where its
highly specialized knowledge and expertise are essential to meet the needs of
fidelity and surety primary writers. Business is marketed principally through
brokers as well as directly to clients not served by intermediaries.


                                       7
<PAGE>   8
         The following table sets forth the percentages of gross premiums
written, by line, by our reinsurance operations:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                  ---------------------------------------------------------------
                                                   2000         1999          1998           1997           1996
                                                   ----         ----          ----           ----           ----
<S>                                               <C>          <C>           <C>            <C>            <C>
Treaty:

     Casualty and other                            50.5%        46.0%         39.7%          38.7%          45.1%
     Property and related lines                    11.4         15.1          19.1           16.1           23.3
     Professional and specialty                     9.1         10.1           8.4            5.5            4.7
     Latin American and Caribbean                   2.0          6.2          11.2           13.8            5.7
                                                  -----        -----         -----          -----          -----
             Total Treaty                          73.0         77.4          78.4           74.1           78.8
                                                  -----        -----         -----          -----          -----

Facultative                                        19.4         14.9          14.8           15.4           11.7
Fidelity and Surety                                 7.6          7.7           6.8           10.5            9.5
                                                  -----        -----         -----          -----          -----

                    Total                         100.0%       100.0%        100.0%         100.0%         100.0%
                                                  =====        =====         =====          =====          =====
</TABLE>


         The following table sets forth the percentage of gross premiums
written, by property versus casualty business, by our reinsurance operations:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                  --------------------------------------------------------------
                                                   2000          1999         1998           1997          1996
                                                   ----          ----         ----           ----          ----
<S>                                               <C>           <C>          <C>            <C>           <C>
     Property                                      14.4%         20.6%        31.4%          32.7%         35.2%
     Casualty                                      85.6          79.4         68.6           67.3          64.8
                                                  -----         -----        -----          -----         -----

                    Total                         100.0%        100.0%       100.0%         100.0%        100.0%
                                                  =====         =====        =====          =====         =====
</TABLE>


                          REGIONAL INSURANCE OPERATIONS

         Our regional subsidiaries provide commercial and personal property
casualty insurance products to customers primarily in 39 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 W. R. Berkley group.
Our regional insurance operations are conducted through four geographic regions
based on markets served: Midwest, New England, South and Mid Atlantic.

       Our regional insurance subsidiaries primarily sell our insurance products
through a network of non-exclusive independent agents who are compensated on a
commission basis. Our regional companies underwrite all major commercial and
personal lines with an emphasis on commercial lines.

         The following table sets forth the direct premiums written by each
region:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                  --------------------------------------------------------------
                                                   2000         1999          1998          1997           1996
                                                   ----         ----          ----          ----           ----
<S>                                               <C>          <C>           <C>           <C>            <C>
       Midwest                                    42.4%         44.2%        44.5%          45.2%          50.8%
       New England                                 24.1         21.4          20.5          20.3           20.4
       South                                       16.9         15.6          16.0          16.6           17.7
       Mid Atlantic                                16.6         18.8          19.0          17.9           11.1
                                                  -----        -----         -----         -----          -----

                    Total                         100.0%       100.0%        100.0%        100.0%         100.0%
                                                  =====        =====         =====         =====          =====
</TABLE>


                                       8
<PAGE>   9
         The following table sets forth the percentages of direct premiums
written, by line, by our regional insurance operations:

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                         -----------------------------------------------------------------
                                                          2000           1999           1998          1997           1996
                                                          ----           ----           ----          ----           ----
<S>                                                      <C>            <C>            <C>           <C>            <C>
     Commercial Multi-Peril                               22.9%          21.9%          20.7%         20.5%          20.8%
     Workers' Compensation                                18.0           17.8           18.6          19.3           20.1
     Automobile:
        Commercial                                        22.1           21.7           20.8          19.6           17.4
        Personal                                          12.9           14.3           14.8          15.2           16.4
     General Liability                                     7.1            7.0            6.9           6.8            6.5
     Homeowners                                            6.1            5.8            6.3           7.1            7.9
     Fire and Allied Lines                                 4.0            4.5            4.7           5.0            4.7
     Inland Marine                                         3.5            3.6            3.4           2.0            2.8
     Other                                                 3.4            3.4            3.8           4.5            3.4
                                                         -----          -----          -----         -----          -----

                  Total                                  100.0%         100.0%         100.0%        100.0%         100.0%
                                                         =====          =====          =====         =====          =====
</TABLE>


         The following table sets forth the percentages of direct premiums
written, by state, by our regional insurance operations:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                         -----------------------------------------------------------------
                                                          2000          1999           1998           1997           1996
                                                          ----          ----           ----           ----           ----
<S>                                                      <C>           <C>            <C>            <C>            <C>
         Maine                                             9.2%          8.2%           9.4%          10.2%          10.8%
         Iowa                                              7.2           7.2            7.5            7.7            8.4
         Nebraska                                          7.2           7.1            7.0            7.5            8.2
         Texas                                             6.8           6.3            6.3            6.8            7.5
         New Hampshire                                     6.7           6.0            5.8            5.8            6.0
         Kansas                                            4.6           4.3            4.5            4.6            4.8
         Massachusetts                                     4.6           3.6            2.2            0.2            0.1
         North Carolina                                    4.4           4.8            4.8            4.2            1.5
         Colorado                                          4.3           3.7            3.5            3.5            3.8
         Pennsylvania                                      4.1           5.4            5.0            4.8            2.2
         Minnesota                                         3.9           5.0            5.4            5.3            5.4
         Virginia                                          3.6           3.7            4.1            4.2            3.7
         Mississippi                                       3.3           3.9            5.0            5.7            6.1
         South Dakota                                      3.3           3.5            3.7            4.2            5.4
         Vermont                                           3.2           3.0            3.0            3.2            3.1
         Missouri                                          3.1           3.5            3.4            3.6            3.6
         Wisconsin                                         2.4           2.5            2.5            2.6            2.9
         Arkansas                                          2.2           1.7            1.7            1.8            1.8
         Illinois                                          2.2           2.4            2.6            2.8            3.1
         Tennessee                                         1.7           1.6            1.3            1.0            0.4
         Oklahoma                                          1.6           1.3            1.3            1.3            1.3
         South Carolina                                    1.6           1.4            1.5            1.0             --
         Idaho                                             1.0           1.2            1.4            1.1            0.6
         Montana                                           1.0           1.1            1.2            1.3            1.4
         North Dakota                                      0.9           0.9            1.0            1.2            1.6
         Arizona                                           0.7           0.7             --             --             --
         Maryland                                          0.6           0.7            0.6            0.7            0.7
         New Mexico                                        0.7           0.4            0.1             --             --
         Ohio                                              0.4           0.8            0.6            0.5            0.5
         Oregon                                            0.7           0.7            0.6            0.6            0.5
         Other                                             2.8           3.4            3.0            2.6            4.6
                                                         -----         -----          -----          -----          -----

                  Total                                  100.0%        100.0%         100.0%         100.0%         100.0%
                                                         =====         =====          =====          =====          =====
</TABLE>


                                       9
<PAGE>   10
                            International Operations

         In 1995, the Company and Northwestern Mutual Life International, Inc.
("NML"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance
Company, entered into a joint venture to form Berkley International, LLC
("Berkley International"), a limited liability company. We agreed to contribute
up to $65 million to Berkley International in exchange for a 65% membership
interest and NML agreed to contribute up to $35 million to Berkley International
in exchange for a 35% membership interest.

         Applying the same approach that we take for our domestic businesses, we
believe that decentralized control is key to the success of our international
effort. For example, we hire local insurance executives who have specialized
knowledge of their customers, markets and products, and we link their
compensation to meeting performance objectives.

         Presently international operations are conducted primarily in Argentina
and the Philippines. In Argentina, we offer customers commercial and personal
property casualty insurance in addition to life insurance and workers'
compensation. In the Philippines, we provide savings and life products to
customers, including endowment policies to pre-fund education costs and
retirement income.

         The following table set forth the percentages of direct premiums for
our international operations:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                        ----------------------------------------------------------------
                                                         2000           1999          1998           1997         1996
                                                         ----           ----          ----           ----         ----
<S>                                                     <C>            <C>            <C>           <C>           <C>
         Property casualty                               72.3%          72.3%          85.5%         96.3%        100.0%
         Life                                            14.7           16.5           10.9           3.7            --
                                                        -----          -----          -----         -----         -----
                  Total Argentina                        87.0           88.8           96.4         100.0         100.0

         Philippines - Life                              13.0           11.2            3.6            --            --
                                                        -----          -----          -----         -----         -----

                             Total                      100.0%         100.0%         100.0%        100.0%        100.0%
                                                        =====          =====          =====         =====         =====
</TABLE>

                           Results by Industry Segment

         Summary financial information about our operating segments is presented
on a GAAP basis in the following table (all amounts include realized capital
gains and losses):

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                        ------------------------------------------------------------------
                                                          2000          1999            1998          1997          1996
                                                          ----          ----            ----          ----          ----
                                                                            (Amounts in thousands)
<S>                                                     <C>           <C>             <C>           <C>           <C>
Specialty Insurance

Total revenues                                          $324,859      $309,068        $311,955      $284,321      $247,131
Income before income taxes                                31,836         39,261        85,889         68,088        52,113

Alternative Markets

Total revenues                                           269,025        222,276        205,935       184,733       172,027
Income before income taxes                                31,592         24,919         36,501        34,733        32,278

Reinsurance

Total revenues                                           349,164        341,940        297,144       242,086       244,066
Income before income taxes                                27,760         14,091         33,858        42,193        32,756

Regional Insurance

Total revenues                                           718,489        702,129        682,519       635,142       529,479
Income (loss) before income taxes                          2,548       (97,362)       (24,524)        47,624        35,169

International

Total revenues                                           118,234         93,878         80,287        45,360        26,435
Income (loss) before income taxes                          6,853          3,535        (7,017)       (3,566)       (1,283)
</TABLE>


                                       10
<PAGE>   11
         The table below represents summary underwriting ratios, on a statutory
accounting basis for our insurance companies and the insurance industry. The
combined ratio represents a measure of underwriting profitability, excluding
investment income. A number in excess of 100 indicates an underwriting loss; a
number below 100 indicates an underwriting profit:


<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                    ------------------------------------------------------------------------
                                                     2000             1999           1998              1997           1996
                                                     ----             ----           ----              ----           ----
<S>                                                 <C>              <C>             <C>              <C>             <C>
Specialty Insurance Operations
Loss ratio                                           73.1%            66.0%           61.8%            61.9%           68.4%
Expense ratio                                        32.0             32.9            31.7             33.3            30.9
Policyholders' dividend ratio                          .1               .2              .3               .5              .3
                                                    -----            -----           -----            -----           -----
Combined ratio                                      105.2%            99.1%           93.8%            95.7%           99.6%
                                                    =====             ====            ====             ====            ====

Alternative Markets Operations
Loss ratio                                           71.2%            67.4%           63.7%            73.1%           74.8%
Expense ratio                                        36.2             37.3            36.0             35.8            34.9
                                                    -----            -----           -----            -----           -----
Combined ratio                                      107.4%           104.7%           99.7%           108.9%          109.7%
                                                    =====            =====           =====            =====           =====

Reinsurance Operations
Loss ratio                                           73.2%            76.0%           74.3%            69.2%           73.3%
Expense ratio                                        32.5             33.2            31.5             32.1            30.1
                                                    -----            -----           -----            -----           -----
Combined ratio                                      105.7%           109.2%          105.8%           101.3%          103.4%
                                                    =====            =====           =====            =====           =====

Regional Insurance Operations
Loss ratio                                           75.1%            84.7%           76.0%            66.6%           66.8%
Expense ratio                                        33.5             36.1            35.8             34.0            34.1
Policyholders' dividend ratio                          .8               .7              .9               .5              .6
                                                    -----            -----           -----            -----           -----
Combined ratio                                      109.4%           121.5%          112.7%           101.1%          101.5%
                                                    =====            =====           =====            =====           =====

International Operations
Loss ratio                                           60.5%            53.3%           59.7%            59.8%           49.7%
Expense ratio                                        36.6             46.4            48.5             54.6            49.9
                                                    -----            -----           -----            -----           -----
Combined ratio                                       97.1%            99.7%          108.2%           114.4%           99.6%
                                                    =====            =====           =====            =====           =====

Combined Insurance Operations
Loss ratio                                           73.1%            76.5%           71.2%            66.4%           68.7%
Expense ratio                                        33.5             35.4            34.9             34.4            33.1
Policyholders' dividend ratio                          .4               .3              .5               .4              .4
                                                    -----            -----           -----            -----           -----
Combined ratio                                      107.0%           112.2%          106.6%           101.2%          102.2%
                                                    =====            =====           =====            =====           =====

Combined Insurance Operations
Premiums to surplus ratio (1)                         1.8              1.6             1.4              1.2             1.2
                                                    =====            =====           =====            =====           =====

Industry Ratios
Combined ratio                                      110.3% (2)       107.1% (3)      104.9% (3)       101.5% (3)      106.3% (3)
Premiums to surplus ratio                              .9% (2)          .9% (4)         .8% (4)          .9% (4)        1.0% (4)
</TABLE>

(1)  Based on the Company's consolidated net premiums written to statutory
     surplus.

(2)  Estimated by A.M. Best.

(3)  Source: A.M. Best Aggregates & Averages, for stock companies.

(4)  Source: A.M. Best Aggregates & Averages, for total industry.


                                       11
<PAGE>   12
Investments

         Investment results before income tax effects were as follows:

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                              ----------------------------------------------------------------------------
                                                 2000                 1999           1998          1997            1996
                                                 ----                 ----           ----          ----            ----
                                                                             (Amounts in thousands)
<S>                                           <C>                  <C>            <C>           <C>             <C>
Average investments, at cost                  $3,032,281           $3,045,391     $2,996,707    $2,873,730      $2,538,806
                                              ==========           ==========     ==========    ==========      ==========
Investment income,
    before expenses                           $  219,955           $  198,556     $  206,065    $  205,812      $  171,047
                                              ==========           ==========     ==========    ==========      ==========
Percent earned on
    average investments                              7.3%                 6.5%           6.9%          7.2%            6.7%
                                              ==========           ==========     ==========    ==========      ==========

Realized gains (losses)                       $    8,364           $   (6,064)    $   25,400    $   13,186      $    7,437
                                              ==========           ==========     ==========    ==========      ==========

Change in unrealized investment
    gains (losses) (1)                        $  117,637           $ (173,084)    $   22,147    $   66,306      $  (22,409)
                                              ==========           ==========     ==========    ==========      ==========
</TABLE>

(1)  The change in unrealized investment gains (losses) represents the
     difference between fair value and cost of investments at the beginning and
     end of the calendar year, including investments carried at cost.

         The percentages of the fixed maturity portfolio categorized by
contractual maturity, based on fair value, on the dates indicated, are set forth
below. Actual maturities may differ from contractual maturities because certain
issuers have the right to call or prepay obligations.

<TABLE>
<CAPTION>
                                               2000             1999            1998              1997             1996
                                               ----             ----            ----              ----             ----
<S>                                            <C>             <C>              <C>              <C>             <C>
1 year or less                                   3.5%           3.0%              1.7%             4.4%            3.1%
Over 1 year through 5 years                     22.1%           16.4%            16.0%            26.4%           20.7%
Over 5 years through 10 years                   21.8%           26.0%            24.4%            19.1%           25.0%
Over 10 years                                   27.7%           34.6%            37.2%            29.2%           27.1%
Mortgage-backed securities                      24.9%           20.0%            20.7%            20.9%           24.1%
                                               -----           -----            -----            -----           -----
             Total                             100.0%          100.0%           100.0%           100.0%          100.0%
                                               =====           =====            =====            =====           =====
</TABLE>


Loss and Loss Adjustment Expense Reserves

         In the property casualty insurance industry, it is not unusual for
significant periods of time to elapse between the occurrence of an insured loss,
the report of the loss to the insurer and the insurer's payment of that loss. To
recognize liabilities for unpaid losses, insurers establish reserves, which is a
balance sheet account representing estimates of future amounts needed to pay
claims and related expenses with respect to insured events which have occurred.
Our loss reserves reflect current estimates of the ultimate cost of closing
outstanding claims. Other than our excess workers' compensation business and the
workers' compensation portion of our reinsurance business, as discussed below,
we do not discount our reserves for financial reporting purposes.

         In general, when a claim is reported, claims personnel establish a
"case reserve" for the estimated amount of the ultimate payment. The estimate
represents an informed judgment based on general reserving practices and
reflects the experience and knowledge of the claims personnel regarding the
nature and value of the specific type of claim. Reserves are also established on
an aggregate basis which provide for losses incurred but not yet reported to the
insurer, potential inadequacy of case reserves, the estimated expenses of
settling claims, including legal and other fees and general expenses of
administering the claims adjustment process ("LAE"), and a provision for
potentially uncollectible reinsurance. Each insurance subsidiary's net retention
for each line of insurance is taken into consideration in the computation of
estimated ultimate losses.

         In examining reserve adequacy, several factors are considered,
including historical data, legal developments, changes in social attitudes and
economic conditions, including the


                                       12
<PAGE>   13
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 events.
Reserve amounts are necessarily based on management's informed estimates and
judgments using data currently available. As additional experience and other
data become available and are reviewed, these estimates and judgments are
revised. This may result in increases or decreases to reserves for insured
events of prior years. The reserving process implicitly recognizes the impact of
inflation and other factors affecting loss costs by taking into account changes
in historical claim patterns and perceived trends. There is no precise method to
evaluate the impact of any specific factor on the adequacy of reserves, because
the ultimate cost of closing claims is influenced by numerous factors.

         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 fluctuation. In particular, high levels of jury verdicts against
insurers, as well as judicial decisions which "re-formulate" policies to expand
coverage to include previously unforeseen theories of liability, e.g., those
regarding pollution and other environmental exposures, have produced
unanticipated claims and increased the difficulty of estimating the loss and
loss adjustment expense reserves.

         We discount our liabilities for excess workers' compensation business
and the workers' compensation portion of our reinsurance business because of the
long period of time over which losses are paid. Discounting is intended to
appropriately match losses and loss expenses to income earned on investment
securities supporting the liabilities. The expected losses and loss expense
payout pattern subject to discounting was derived from the Company's loss payout
experience and is supplemented with data compiled from insurance companies
writing similar business. The liabilities for losses and loss expenses have been
discounted using "risk-free" discount rates determined by reference to the U.S.
Treasury yield curve. The discount rates range from 5.16% to 6.49% with a
weighted average rate of 5.85%. The aggregate net discount, after reflecting the
effects of ceded reinsurance, is $223,000,000, $196,000,000 and $187,000,000, at
December 31, 2000, 1999 and 1998 respectively.

         To date, known asbestos and environmental claims at our insurance
company subsidiaries have not had a material impact on our operations.
Environmental claims have not materially impacted us because these subsidiaries
generally did not insure the larger industrial companies which are subject to
significant environmental exposures.

         Our net reserves for losses and loss adjustment expenses relating to
asbestos and environmental claims were $29,422,000 and $30,944,000 at December
31, 2000 and 1999, respectively. The Company's gross reserves for losses and
loss adjustment expenses relating to asbestos and environmental claims were
$57,167,000 and $65,966,000 at December 31, 2000 and 1999, respectively. Net
incurred losses and loss expenses for reported asbestos and environmental claims
were approximately $1,602,000, $1,371,000 and $2,227,000 in 2000, 1999 and 1998,
respectively. Net paid losses and loss expenses for reported asbestos and
environmental claims were approximately $3,123,000, $3,819,000 and $2,614,000 in
2000, 1999 and 1998, respectively. The estimation of these liabilities is
subject to significantly greater than normal variation and uncertainty because
it is difficult to make a reasonable actuarial estimate of these liabilities due
to the absence of a generally accepted actuarial methodology for these exposures
and the potential affect of significant unresolved legal matters, including
coverage issues as well as the cost of litigating the legal issues.
Additionally, the determination of ultimate damages and the final allocation of
such damages to financially responsible parties are highly uncertain.

         The following table sets forth the components of our gross loss
reserves and net provision for losses and loss expense (amounts in thousands):

<TABLE>
<CAPTION>
                                                                       2000               1999               1998
                                                                       ----               ----               ----
<S>                                                                 <C>                <C>                <C>
Gross Reserves:
      Property casualty                                             $2,475,805         $2,340,890         $2,120,523
      Life                                                              58,112             20,348              6,043
                                                                    ----------         ----------         ---------
                    Total                                           $2,533,917         $2,361,238         $2,126,566
                                                                    ==========         ==========         ==========

Net provision for losses and loss expense:
      Property casualty                                             $1,072,632         $1,070,913         $ 911,069
      Life                                                              21,779             14,913             3,693
                                                                    ----------         ----------         ---------
                    Total                                           $1,094,411         $1,085,826         $ 914,762
                                                                    ==========         ==========         =========
</TABLE>


                                       13
<PAGE>   14
         The table below provides a reconciliation of the beginning and ending
property casualty reserves, on a gross of reinsurance basis (amounts in
thousands)(1):

<TABLE>
<CAPTION>
                                                                                  2000               1999               1998
                                                                                  ----               ----               ----
<S>                                                                            <C>                <C>                <C>
         Net reserves at beginning of year                                     $1,723,865         $1,583,304         $1,433,011
                                                                               ----------         ----------         ----------
         Net reserves of acquired companies                                            --                 --              2,189
         Net provision for losses and loss expenses:
           Claims occurring during the current year                             1,047,060          1,032,089            944,887
           Increase (decrease) in estimates for
             claims occurring in prior years                                       14,042             28,351            (42,929)
           Amortization of discount                                                11,530             10,473              9,111
                                                                               ----------         ----------         ----------
                                                                                1,072,632          1,070,913            911,069
                                                                               ----------         ----------         ----------
         Net payments for claims:
           Current year                                                           394,401            433,942            397,787
           Prior years                                                            584,047            496,410            365,178
                                                                                ---------          ---------          ---------
                                                                                  978,448            930,352            762,965
                                                                               ----------         ----------         ----------
         Net reserves at end of year                                            1,818,049          1,723,865          1,583,304
         Ceded reserves at end of year                                            657,756            617,025            537,219
                                                                               ----------         ----------         ----------
         Gross reserves at end of year                                         $2,475,805         $2,340,890         $2,120,523
                                                                               ==========         ==========         ==========
</TABLE>

       A reconciliation, as of December 31, 2000, between the reserves reported
in the accompanying consolidated financial statements which have been prepared
in accordance with GAAP and those reported on a SAP basis is as follows (amounts
in thousands):

<TABLE>
<S>                                                                             <C>
         Net reserves reported on a SAP basis                                   $1,801,078
         Additions (deductions) to statutory reserves:
           International property & casualty reserves                               40,142
           Loss reserve discounting (2)                                            (31,289)
           Outstanding drafts reclassified as reserves                              13,488
           Other                                                                    (5,370)
                                                                                ----------
         Net reserves reported on a GAAP basis                                   1,818,049
           Ceded reserves reclassified as assets                                   657,756
                                                                                ----------
         Gross reserves reported on a GAAP basis                                $2,475,805
                                                                                ==========
</TABLE>


(1)      Claims occurring during the current year is net of discount of
         $39,990,000, $22,923,754 and $20,354,000 for the years ended December
         31, 2000, 1999 and 1998, respectively.

(2)      For statutory purposes, we use a discount rate of 4.5% as permitted by
         the Department of Insurance of the State of Delaware. For GAAP
         purposes, we use a discount rate based on the U. S. Treasury yield
         curve weighted for the expected payout period, as described above.

       The following table presents the development of net reserves for 1990
through 2000. The top line of the table shows the estimated reserves for unpaid
losses and loss expenses recorded at the balance sheet date for each of the
indicated years. This represents the estimated amount of losses and loss
expenses for claims arising in all prior years that are unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to us.
The upper portion of the table shows the re-estimated amount of the previously
recorded reserves based on experience as of the end of each succeeding year. The
estimate changes as more information becomes known about the frequency and
severity of claims for individual years.

         The "cumulative redundancy (deficiency)" represents the aggregate
change in the estimates over all prior years. For example, the 1990 reserves
have developed a $141 million redundancy over ten years. That amount has been
reflected in income over the ten years. The impact on the results of operations
of the past three years of changes in reserve estimates is shown in the
reconciliation tables above. It should be noted that the table presents a "run
off" of balance sheet reserves, rather than accident or policy year loss
development. Therefore, each amount in the table includes the effects of changes
in reserves for all prior years. For example, assume a claim that occurred in
1990 is reserved for $2,000 as of December 31, 1990. Assuming this claim was
settled for $2,300 in 2000, the $300 deficiency would appear as a deficiency in
each year from 1990 through 1999.


                                       14
<PAGE>   15
<TABLE>
<CAPTION>
Year Ended December 31,         1990    1991     1992     1993     1994      1995      1996    1997     1998       1999       2000
- -----------------------         ----    ----     ----     ----     ----      ----      ----    ----     ----       ----       ----
                                                                    (Amounts in millions)
<S>                            <C>      <C>     <C>       <C>      <C>      <C>      <C>      <C>        <C>       <C>       <C>
Discounted net reserves for
 losses and loss expenses      $ 643    $ 680   $  710    $ 783    $  895   $ 1,209  $ 1,333  $1,433     $1,583    $ 1,724   $1,818

Reserve discounting               --       --       --       --        --       152      172     190        187        196      223
Undiscounted net reserve

Net Re-estimated as of:
One year later                   635      676      704      776       885     1,346    1,481   1,580      1,798      1,934
Two years later                  632      659      694      755       872     1,305    1,406   1,566      1,735
Three years later                619      650      665      744       833     1,236    1,356   1,446
Four years later                 612      637      655      708       789     1,195    1,239
Five years later                 603      631      630      672       764     1,112
Six years later                  588      609      600      649       706
Seven years later                569      585      579      599
Eight years later                550      568      541
Nine years later                 534      534
Ten years later                  502

Cumulative redundancy
  (deficiency) undiscounted      141      146      169      184       189       249      266     177         35        (14)

Cumulative amount of
  net liability paid
  through:
One year later                 $ 139    $ 160   $  169    $ 186    $  221   $   265  $   332  $  365      $ 496     $  584
Two years later                  235      264      275      221       355       434      523     574        795
Three years later                304      332      306      291       445       550      635     737
Four years later                 345      346      344      334       501       616      714
Five years later                 377      371      362      363       528       655
Six years later                  395      384      375      373       543
Seven years later                402      394      376      373
Eight years later                409      392      370
Nine years later                 405      383
Ten years later                  394

Discounted net reserves                                     783       895     1,209    1,333   1,433      1,583      1,724    1,818
Ceded Reserves                                            1,233     1,176       451      450     477        538        617      658
                                                          -----    ------   -------  -------  ------     ------    -------   ------
Discounted gross reserves                                 2,016     2,071     1,660    1,783   1,910      2,121      2,341    2,476
Reserve discounting                                          --        --       192      216     241        248        250      286
                                                          -----    ------   -------  -------  ------     ------    -------   ------
Gross reserve                                            $2,016     2,071    $1,852   $1,999  $2,151     $2,369    $ 2,591   $2,762
                                                          =====    ======   =======  =======  ======     ======    =======   ======

Gross Re-estimated as of:
  One year later                                          2,010     2,043     1,827    1,965   2,132      2,390      2,653
  Two years later                                         1,966     2,026     1,789    1,959   2,096      2,389
  Three years later                                       1,955     1,983     1,754    1,909   2,010
  Four years later                                        1,913     1,951     1,733    1,823
  Five years later                                        1,855     1,928     1,681
  Six years later                                         1,815     1,899
  Seven years later                                       1,788
Gross cumulative redundancy
(deficiency) undiscounted                                $  228   $   172   $   171   $  176  $  141    $   (20)    $  (62)
                                                         ======   =======   =======   ======  ======    =======     ======
</TABLE>


                                       15
<PAGE>   16
Reinsurance

         We follow the customary industry practice of reinsuring a portion of
our exposures and paying to reinsurers a part of the premiums received on the
policies that we write. Reinsurance is purchased principally to reduce net
liability on individual risks and to protect against catastrophic losses.
Although reinsurance does not legally discharge an insurer from its primary
liability for the full amount of the policies, it does make the assuming
reinsurer liable to the insurer to the extent of the reinsurance coverage. We
monitor the financial condition of our reinsurers and attempt to place our
coverages only with substantial, financially sound carriers. As a result,
generally the reinsurers who reinsure our casualty insurance must have an A.M.
Best rating of "A (Excellent)" or better with $250 million in policyholder
surplus and the reinsurers who cover our property insurance must have an A.M.
Best rating of "A-(Excellent)" or better with $150 million in policyholder
surplus.

Regulation

         Our insurance subsidiaries are subject to varying degrees of regulation
and supervision in the jurisdictions in which they do business. They are subject
to statutes which delegate regulatory, supervisory and administrative powers to
state insurance commissioners. This regulation relates to such matters as the
standards of solvency which must be met and maintained; the licensing of
insurers and their agents; the nature of and limitations on investments;
deposits of securities for the benefit of policyholders; approval of policy
forms and premium rates; periodic examination of the affairs of insurance
companies; annual and other reports required to be filed on the financial
condition of insurers or for other purposes; establishment and maintenance of
reserves for unearned premiums and losses; and requirements regarding numerous
other matters. Our property casualty subsidiaries, other than E&S and
reinsurance subsidiaries, must file all rates for personal and commercial
insurance with the insurance department of each state in which they operate. Our
E&S and reinsurance subsidiaries generally operate free of rate and form
regulation.

         In addition to regulatory supervision of our insurance subsidiaries, we
are subject to state statutes governing insurance holding company systems.
Typically, such statutes require that we periodically file information with the
state insurance commissioner, including information concerning our capital
structure, ownership, financial condition and general business operations. Under
the terms of applicable state statutes, any person or entity desiring to
purchase more than a specified percentage (commonly 10%) of our outstanding
voting securities would be required to obtain regulatory approval of the
purchase. Under Florida law, which is applicable to us due to our ownership of
Carolina Casualty Insurance Company, a Florida domiciled insurer, the
acquisition of more than 5% of our capital stock must receive regulatory
approval. Further, state insurance statutes typically place limitations on the
amount of dividends or other distributions payable by insurance companies in
order to protect their solvency. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."

         Various state and federal organizations, including Congressional
committees and the National Association of Insurance Commissioners ("NAIC"),
have been conducting reviews into various aspects of the insurance business. The
NAIC recently completed a process intended to codify statutory accounting
practices for certain insurance enterprises effective January 1, 2001. The
accounting codification will not have a material impact on our insurance
subsidiaries' results of operations or statutory surplus. The NAIC is also
considering model laws on commercial lines deregulation. A number of states have
adopted and others are considering adopting forms of commercial lines
deregulation laws which, depending upon factors such as the relatively high
amount of premium or revenue of an insured, would permit an insurer to provide
insurance without being subject to rate and/or form filing requirements. No
assurance can be given that future legislative or regulatory changes resulting
from such activity will not adversely affect our insurance subsidiaries.

         The NAIC utilizes a Risk Based Capital (RBC) formula which is designed
to measure the adequacy of an insurer's statutory surplus in relation to the
risks inherent in its business. The RBC formula develops a risk adjusted target
level of adjusted statutory capital by applying certain factors to various
asset, premium and reserve items. The RBC Model Law provides for four
incremental levels of regulatory attention for insurers whose surplus is below
the calculated RBC target. These levels of attention range in severity from
requiring the insurer to submit a plan for corrective action to actually placing
the insurer under regulatory control. The RBC of each of our domestic insurance
subsidiaries was above the authorized control level RBC as of December 31, 2000.

         The Gramm-Leach-Bliley Act, or Financial Services Modernization Act of
1999 (the "Act"), was enacted in 1999 and significantly affects the financial
services industry, including


                                       16
<PAGE>   17
insurance companies, banks and securities firms. The Act modifies federal law to
permit the creation of financial holding companies ("FHCs"), which, as regulated
by the Act, can maintain cross-holdings in insurance companies, banks and
securities firms to an extent not previously allowed. The Act also permits or
facilitates certain types of combinations or affiliations for FHCs. The Act
establishes a functional regulatory scheme under which state insurance
departments will maintain primary regulation over insurance activities, subject
to provisions for certain federal preemptions.

         Important provisions of the Act involve requirements for adoption of
(i) multi-state agents' licensing reforms and uniformity requirements and (ii)
privacy protections, giving the states the ability to enact these laws in the
first instance or be preempted. The NAIC adopted a model regulation on privacy,
and a model law on agents' licensing, which have been enacted or are currently
being considered by various state legislatures and insurance departments. It is
not anticipated that the insurance regulatory aspects of the Act will have a
material effect on our operations.

         Our insurance subsidiaries are also subject to assessment by state
guaranty funds when an insurer in that jurisdiction has been judicially declared
insolvent and insufficient funds are available from the liquidated company to
pay policyholders and claimants. The protection afforded under a state's
guaranty fund to policyholders of the insolvent insurer varies from state to
state. Generally, all licensed property casualty insurers are considered to be
members of the fund, and assessments are based upon their pro rata share of
direct written premiums. The NAIC Model Post-Assessment Guaranty Fund Act, which
many states have adopted, limits assessments to an insurer to 2% of its subject
premium and permits recoupment of assessments through rate setting. Likewise,
several states (or underwriting organizations of which our insurance
subsidiaries are required to be members) have limited assessment authority with
regard to deficits in certain lines of business. To date, assessments have not
had a material adverse impact on operations.

         We receive funds from our insurance subsidiaries in the form of
dividends and fees for certain management services. Annual dividends in excess
of maximum amounts prescribed by state statutes may not be paid without the
approval of the insurance commissioner of the state in which an insurance
subsidiary is domiciled.

Competition

         The property casualty insurance and reinsurance businesses are
competitive, with over 2,000 insurance companies transacting business in the
United States. We compete directly with a large number of these companies. Our
strategy in this highly fragmented industry is to seek specialized areas or
geographic regions where our insurance subsidiaries can gain a competitive
advantage by responding quickly to changing market conditions. Each of our
subsidiaries establishes its own pricing practices. Such practices are based
upon a Company-wide philosophy to price products with the general intent of
making an underwriting profit. Competition in the industry generally changes
with profitability.

         Competition for specialty and alternative markets business comes from
other specialty insurers, regional carriers, large national multi-line companies
and reinsurers. Under certain market conditions, standard carriers also compete
for E&S business. With the implementation of commercial lines deregulation (see
"Regulation"), competition for E&S business might increase significantly.

         Competition for the reinsurance business comes from domestic and
foreign reinsurers, which place their business either on a direct basis or
through the broker market.

         The regional property casualty subsidiaries compete with mutual and
other regional stock companies as well as national carriers. Direct writers of
property casualty insurance compete with the regional subsidiaries by writing
insurance through their salaried employees, generally at a lower cost than
through independent agents such as those used by the Company. Also, certain
personal lines have become more competitive due to Internet-based competition.

         The international operations compete with native insurance operations
both large and small, which may be related to government entities, as well as
with branch or local subsidiaries of multinational companies.


                                       17
<PAGE>   18
Employees

         As of March 5, 2001, we employed 4,426 persons. Of this number, our
subsidiaries employed 4,378 persons, of whom 2,256 were executive and
administrative personnel and 2,122 were clerical personnel. We employed the
remaining 48 persons at the parent company and in investment operations, of whom
36 were executive and administrative personnel and 12 were clerical personnel.

Other Information about the Company's business

         We maintain an ongoing interest in acquiring additional companies and
developing new insurance entities, products and packages as opportunities arise.
In addition, the insurance subsidiaries develop new coverages or lines of
business to meet the needs of insureds.

         Seasonal weather variations affect the severity and frequency of losses
sustained by the insurance and reinsurance subsidiaries. Although the effect on
our business of such natural catastrophes as tornadoes, hurricanes, hailstorms
and earthquakes is mitigated by reinsurance, they nevertheless can have a
significant impact on the results of any one or more reporting periods.

         We have no customer which accounts for 10 percent or more of our
consolidated revenues.

         Compliance by W. R. Berkley and its subsidiaries with federal, state
and local provisions which have been enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to protection of the
environment has not had a material effect upon our capital expenditures,
earnings or competitive position.

                 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

      Our business faces significant risks. The risks described below may not be
the only risks we face. Additional risks that we do not yet know of or that we
currently think are immaterial may also impair our business operations. If any
of the events or circumstances described as risks below actually occurs, our
business, results of operations or financial condition could be materially and
adversely affected.

OUR RESULTS MAY FLUCTUATE AS A RESULT OF MANY FACTORS, INCLUDING CYCLICAL
CHANGES IN THE INSURANCE AND REINSURANCE INDUSTRY.

      The results of companies in the property casualty insurance industry
historically have been subject to significant fluctuations and uncertainties.
The industry's profitability can be affected significantly by:

- -        rising levels of actual costs that are not known by companies at the
         time they price their products;

- -        volatile and unpredictable developments (including weather-related and
         other natural catastrophes);

- -        changes in reserves resulting from the general claims and legal
         environments as different types of claims arise and judicial
         interpretations relating to the scope of insurers' liability develop;

- -        fluctuations in interest rates, inflationary pressures and other
         changes in the investment environment, which affect returns on invested
         capital and may impact the ultimate payout of loss amounts; and

- -        the long-tail and volatile nature of the reinsurance business, which
         may impact our operating results and limit opportunities for adequate
         returns.

      The demand for property casualty insurance can also vary significantly,
rising as the overall level of economic activity increases and falling as such
activity decreases. The property casualty insurance industry historically has a
cyclical nature. Recently, the property casualty insurance industry and
especially the commercial lines business have been very competitive. These
fluctuations in demand and competition could produce underwriting results that
would have a negative impact on our results of operations and financial
condition.

WE FACE SIGNIFICANT COMPETITIVE PRESSURES IN OUR BUSINESSES.

      We compete with a large number of other companies in our selected lines of
business. We compete, and will continue to compete, with major U.S. and non-U.S.
insurers and reinsurers, other regional companies, as well as mutual companies,
specialty insurance companies, underwriting agencies and diversified financial
services companies. Some of our competitors,


                                       18
<PAGE>   19
particularly in the reinsurance business, have greater financial and marketing
resources than we do.

      A number of new, proposed or potential legislative or industry
developments could further increase competition in our industry. These
developments include:

- -        the enactment of the Gramm-Leach-Bliley Act of 1999, which could result
         in increased competition from new entrants to our markets;

- -        the implementation of commercial lines deregulation in several states,
         which could increase competition from standard carriers for our excess
         and surplus lines of insurance business;

- -        programs in which state-sponsored entities provide property insurance
         in catastrophe prone areas or other alternative markets types of
         coverage; and

- -        changing practices caused by the Internet, which have led to greater
         competition in the insurance business.

      New competition from these developments could cause the supply and/or
demand for insurance or reinsurance to change, which could adversely affect our
results of operations and financial condition.

      In addition to competition in the operation of our businesses, we face
competition from a variety of sources in attracting and retaining qualified
employees. We can provide no assurance that we will maintain our current
competitive position in the markets in which we operate, or that we will be able
to expand our operations into new markets. If we fail to do so, our businesses
could be materially adversely affected.

OUR ACTUAL CLAIMS LOSSES MAY EXCEED OUR RESERVES FOR CLAIMS.

      We maintain loss reserves to cover our estimated liability for unpaid
losses and loss adjustment expenses, including legal and other fees as well as a
portion of our general expenses, for reported and unreported claims incurred as
of the end of each accounting period. Reserves do not represent an exact
calculation of liability. Rather, reserves represent an estimate of what we
expect the ultimate settlement and administration of claims will cost. These
estimates, which generally involve actuarial projections, are based on our
assessment of facts and circumstances then known, as well as estimates of future
trends in claims severity, frequency, judicial theories of liability and other
factors. In some cases, long-tail lines of business such as excess workers'
compensation and the workers' compensation portion of our reinsurance business
are reserved on a discounted basis. The variables described above are affected
by both internal and external events, such as changes in claims handling
procedures, inflation, judicial and litigation trends and legislative changes.
The risk of the occurrence of such events is especially present in our specialty
lines and reinsurance businesses. Many of these items are not directly
quantifiable in advance. In some areas of our business, the level of reserves we
establish is dependent in part upon the actions of third parties that are beyond
our control. In our reinsurance and excess workers' compensation businesses, we
may not establish sufficient reserves if third parties do not give us advance
notice or provide us with appropriate information regarding certain matters.
Additionally, there may be a significant delay between the occurrence of the
insured event and the time it is reported to us.

      The inherent uncertainties of estimating reserves are greater for certain
types of liabilities, where the various considerations affecting these types of
claims are subject to change and long periods of time may elapse before a
definitive determination of liability is made. Reserve estimates are continually
refined in an ongoing process as experience develops and further claims are
reported and settled. Adjustments to reserves are reflected in the results of
the periods in which such estimates are changed. Because setting reserves is
inherently uncertain, we can provide no assurance that our current reserves will
prove adequate in light of subsequent events.

WE ANTICIPATE INCREASING OUR LEVEL OF RETENTION IN OUR BUSINESS.

     We anticipate increasing our retention levels in 2001 for our operations
generally due to changes in market conditions and the pricing environment. We
expect to purchase less reinsurance (the process by which we transfer, or cede,
part of the risk we have assumed to a reinsurance company), thereby retaining
more risk. As a result, our earnings could be more volatile, and increased
severities could have a material adverse effect upon our results of operations
and financial condition. A significant change in our retention levels could also
cause our historical financial results, including compound annual growth rates,
to be inaccurate indicators of our future performance on a segment or
consolidated basis.


                                       19
<PAGE>   20

AS A PROPERTY CASUALTY INSURER, WE FACE LOSSES FROM CATASTROPHES.

    Property casualty insurers are subject to claims arising out of catastrophes
that may have a significant effect on their results of operations, liquidity and
financial condition. Catastrophe losses have had a significant impact on our
results. Catastrophes can be caused by various events, including hurricanes,
windstorms, earthquakes, hailstorms, explosions, severe winter weather and
fires. The incidence and severity of catastrophes are inherently unpredictable.
The extent of losses from a catastrophe is a function of both the total amount
of insured exposure in the area affected by the event and the severity of the
event. Most catastrophes are restricted to small geographic areas; however,
hurricanes and earthquakes may produce significant damage in large, heavily
populated areas. Catastrophes can cause losses in a variety of our property
casualty lines, and most of our past catastrophe-related claims have resulted
from severe storms. Seasonal weather variations may affect the severity and
frequency of our losses. Insurance companies are not permitted to reserve for a
catastrophe until it has occurred. It is therefore possible that a catastrophic
event or multiple catastrophic events could have a material adverse effect upon
our results of operations and financial condition.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION.

    We are subject to extensive governmental regulation and supervision. Most
insurance regulations are designed to protect the interests of policyholders
rather than stockholders and other investors. This system of regulation,
generally administered by a department of insurance in each state in which we do
business, relates to, among other things:

[ ] standards of solvency, including risk-based capital measurements;

[ ] restrictions on the nature, quality and concentration of investments;

[ ] requiring certain methods of accounting;

[ ] requiring reserves for unearned premium, losses and other purposes; and

[ ] potential assessments for the provision of funds necessary for the
    settlement of covered claims under certain policies provided by impaired,
    insolvent or failed insurance companies.

    State insurance departments conduct periodic examinations of the affairs of
insurance companies and require the filing of annual and other reports relating
to the financial condition of insurance companies, holding company issues and
other matters. Recently adopted federal financial services modernization
legislation is expected to lead to additional federal regulation of the
insurance industry in the coming years. Also, foreign governments regulate our
international operations.

    We can provide no assurance that we have or can maintain all required
licenses and approvals or that our business fully complies with the wide variety
of applicable laws and regulations or the relevant authority's interpretation of
the laws and regulations. Also, some regulatory authorities have relatively
broad discretion to grant, renew or revoke licenses and approvals. If we do not
have the requisite licenses and approvals or do not comply with applicable
regulatory requirements, the insurance regulatory authorities could preclude or
temporarily suspend us from carrying on some or all of our activities or
monetarily penalize us. That type of action could have a material adverse effect
on our business. Also, changes in the level of regulation of the insurance
industry (whether federal, state or foreign), or changes in laws or regulations
themselves or interpretations by regulatory authorities, could have a material
adverse effect on our business.

WE ARE RATED BY A.M. BEST AND STANDARD & POOR'S, AND A DECLINE IN THESE RATINGS
COULD ADVERSELY AFFECT OUR OPERATIONS.

    Ratings have become an increasingly important factor in establishing the
competitive position of insurance companies. Our insurance company subsidiaries
are rated by A.M. Best and certain of our insurance company subsidiaries are
rated for their claims-paying ability by Standard & Poor's Corporation, or
Standard & Poor's. A.M. Best and Standard & Poor's ratings reflect their
opinions of an insurance company's financial strength, operating performance,
strategic position and ability to meet its obligations to policyholders, are not
evaluations directed to investors and are not recommendations to buy, sell or
hold our securities. Our ratings are subject to periodic review by A.M. Best and
Standard & Poor's and the continued retention of those ratings cannot be
assured. The Standard & Poor's 2001 outlook for the U.S. property casualty
insurance industry and the Standard & Poor's mid-year 2000 outlook for the U.S.
reinsurance industry were negative. Since March 2000, Standard & Poor's has
given us a negative rating outlook. While Standard & Poor's recently affirmed
our rating of "A+", as long as we remain on negative rating outlook, a downgrade
in our rating is possible. If our ratings


                                       20
<PAGE>   21
are reduced from their current levels by A.M. Best and/or Standard & Poor's, our
results of operations could be adversely affected.

A SIGNIFICANT AMOUNT OF OUR ASSETS IS INVESTED IN FIXED INCOME SECURITIES AND IS
SUBJECT TO MARKET FLUCTUATIONS.

    Our investment portfolio consists substantially of fixed income securities.
The fair market value of these assets and the investment income from these
assets fluctuate depending on general economic and market conditions. With
respect to our investments in fixed income securities, the fair market value of
these investments generally increases or decreases in an inverse relationship
with fluctuations in interest rates, while net investment income realized by us
from future investments in fixed income securities will generally increase or
decrease with interest rates. In addition, actual net investment income and/or
cash flows from investments that carry prepayment risk (such as mortgage-backed
and other asset-backed securities) may differ from those anticipated at the time
of investment as a result of interest rate fluctuations. Because substantially
all of our fixed income securities are classified as available for sale, changes
in the market value of our securities are reflected in our balance sheet.
Similar treatment is not available for liabilities. Therefore, interest rate
fluctuations could adversely affect our results of operations and financial
condition.

WE INVEST SOME OF OUR ASSETS IN MERGER ARBITRAGE, WHICH IS SUBJECT TO CERTAIN
RISKS.

    We invest a portion of our investment portfolio in merger arbitrage. As of
December 31, 2000, our investment in merger arbitrage securities represented
approximately 14% of our total investment portfolio. Merger arbitrage is the
business of investing in the securities of publicly held companies which are the
targets in announced tender offers and mergers. Merger arbitrage differs from
other types of investments in its focus on transactions and events believed
likely to bring about a change in value over a relatively short time period
(usually four months or less). While our merger arbitrage positions are
generally hedged against market declines, these equity investments are exposed
primarily to the risk associated with the completion of announced deals, which
are subject to regulatory as well as political and other risks.

OUR PREMIUM WRITINGS AND PROFITABILITY ARE AFFECTED BY THE AVAILABILITY OF
REINSURANCE.

    We purchase reinsurance for significant amounts of risk underwritten by our
insurance company subsidiaries, especially catastrophe risks. We also purchase
reinsurance on risks underwritten by others which we reinsure (a retrocession).
Market conditions beyond our control determine the availability and cost of the
reinsurance protection we purchase, which may affect the level of our business
and profitability. Our reinsurance facilities are generally subject to annual
renewal. We can provide no assurance that we can maintain our current
reinsurance facilities or that we can obtain other reinsurance facilities in
adequate amounts and at favorable rates. If we are unable to renew our expiring
facilities or to obtain new reinsurance facilities, either our net exposures
would increase or, if we are unwilling to bear an increase in net exposures, we
would have to reduce the level of our underwriting commitments, especially
catastrophe exposed risks. Either of these potential developments could have a
material adverse effect on our business.

WE DO NOT YET KNOW ALL THE EFFECTS OF THE RECENT RESTRUCTURING OF CERTAIN OF OUR
SUBSIDIARIES.

    In 2000, we implemented a restructuring plan, pursuant to which we refocused
our domestic reinsurance operations. While this restructuring is substantially
complete, all of its operating effects are not yet known, and any difficulties
caused by such restructuring could adversely affect our results of operations
and financial condition.

WE ARE AN INSURANCE HOLDING COMPANY AND, THEREFORE, MAY NOT BE ABLE TO RECEIVE
DIVIDENDS IN NEEDED AMOUNTS.

    Our principal assets are the shares of capital stock of our insurance
company subsidiaries. We have to rely on dividends from our insurance company
subsidiaries to meet our obligations for paying principal and interest on
outstanding debt obligations and for paying dividends to stockholders and
corporate expenses. The payment of dividends by our insurance company
subsidiaries is subject to regulatory restrictions and will depend on the
surplus and future earnings of these subsidiaries, as well as the regulatory
restrictions. As a result, we may not be able to receive dividends from these
subsidiaries at times and in amounts necessary to meet our obligations or pay
dividends.


                                       21
<PAGE>   22
WE MAY NOT FIND SUITABLE ACQUISITION CANDIDATES AND EVEN IF WE DO, WE MAY NOT
SUCCESSFULLY INTEGRATE ANY SUCH ACQUIRED COMPANIES.

    As part of our present strategy, we continue to evaluate possible
acquisition transactions on an ongoing basis, and at any given time, we may be
engaged in discussions with respect to possible acquisitions. We can provide no
assurance that we will be able to identify suitable acquisition transactions,
that such transactions will be financed and completed on acceptable terms or
that our future acquisitions will be successful. The process of integrating any
companies we do acquire may have a material adverse effect on our results of
operations and financial condition.

IF WE DO NOT INVEST SUBSTANTIAL AMOUNTS IN OUR INFORMATION SYSTEMS AND
TECHNOLOGY, OUR BUSINESS MAY BE HARMED.

    Integrated management information and processing systems are vital to our
ability to monitor costs, collect receivables and achieve operating
efficiencies. As we continue our growth, the need for sophisticated information
systems and technology will increase significantly. The cost of implementing
such systems has been, and is expected to continue to be, substantial. The
failure of our information or processing systems, or our failure to upgrade
systems as necessary, could have a material adverse effect on our results of
operations and financial condition.

WE CANNOT GUARANTEE THAT OUR REINSURERS WILL PAY IN A TIMELY FASHION, IF AT ALL.

    We purchase reinsurance by transferring part of the risk that we have
assumed (known as ceding) to a reinsurance company in exchange for part of the
premium we receive in connection with the risk. Although reinsurance makes the
reinsurer liable to us to the extent the risk is transferred or ceded to the
reinsurer, it does not relieve us (the reinsured) of our liability to our
policyholders or, in cases where we are a reinsurer, to our reinsureds.
Accordingly, we bear credit risk with respect to our reinsurers. We can provide
no assurance that our reinsurers will pay the reinsurance recoverables owed to
us or that they will pay such recoverables on a timely basis.

OUR INTERNATIONAL OPERATIONS EXPOSE US TO RISKS.

    Certain assets held by our foreign subsidiaries are subject to foreign
currency risk. Our principal area of exposure relates to fluctuations in
exchange rates between each of the Argentinean and Philippine peso and the U.S.
dollar. Consequently, a change in the exchange rate between the U.S. dollar and
either the Argentinean or Philippine peso could have an adverse effect on our
results of operations and financial condition. We are additionally subject to
political and economic risks in these countries.

ITEM 2. PROPERTIES

W. R. Berkley and its subsidiaries own or lease office buildings or office space
suitable to conduct their operations. The owned property is as follows:

<TABLE>
<CAPTION>
      Location                     Company                                      Size (sq. ft.)
      --------                     -------                                      --------------
<S>                                <C>                                          <C>
      Cherry Hill, New Jersey      Admiral Insurance Company                        42,000
      Lincoln, Nebraska            Union Insurance Company                          43,000
      Lincoln, Nebraska            Continental Western Insurance Company            20,000
      Luverne, Minnesota           Tri-State Insurance Company                      33,000
      Meridian, Mississippi        Great River Insurance Company                    30,000
      Scottsdale, Arizona          Nautilus Insurance Company                       34,000
      Urbandale, Iowa              Continental Western Insurance Company            80,000
      Westbrook, Maine             Acadia Insurance Company                         54,000
</TABLE>

    In addition, W. R. Berkley and its subsidiaries lease office facilities in
various other cities under leases with varying terms and expiration dates.

ITEM 3. LEGAL PROCEEDINGS

    Claims under insurance policies written by our insurance subsidiaries are
investigated and settled either by claims adjusters employed by them, by their
independent agents or by independent adjusters. Generally, the insurance
subsidiary employs a staff of claims adjusters at its home office and at some
regional offices. Some independent agents may have the authority to settle small
claims. Independent claims adjusting firms are used to assist in handling
various claims in areas where insurance volume does not warrant the maintenance
of a


                                       22
<PAGE>   23
staff adjuster. If a claim or loss cannot be settled and results in litigation,
the subsidiary generally retains outside counsel.

    At present, neither W. R. Berkley nor any of its subsidiaries is engaged in
any litigation known to us which is expected to have a material adverse effect
upon our business. As is common with property casualty insurance companies, our
subsidiaries are regularly engaged in the defense of claims arising out of the
conduct of the insurance business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted during the fourth quarter of 2000 to a vote of
holders of the Company's Common Stock.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

    Our Common Stock is traded on the Nasdaq National Market under the symbol
"BKLY". The following table sets forth the high and low sale prices for the
indicated periods, all as reported on such market.

<TABLE>
<CAPTION>
                                                               Common
                                      Price Range          Dividends Paid
                                      -----------          --------------
                                    High         Low          Per Share
                                    ----         ---          ---------
<S>                              <C>          <C>          <C>
    2000:
    Fourth Quarter               $  47.63     $ 30.75      $  .13 cash
    Third Quarter                   35.23       18.38      $  .13 cash
    Second Quarter                  23.19       18.13      $  .13 cash
    First Quarter                   23.48       14.00      $  .13 cash

    1999:
    Fourth Quarter               $  23.75     $ 19.81      $  .13 cash
    Third Quarter                   27.94       21.63      $  .13 cash
    Second Quarter                  29.13       24.38      $  .13 cash
    First Quarter                   36.25       23.75      $  .12 cash
</TABLE>


    The closing price of the Common Stock on March 7, 2001, as reported on the
Nasdaq National Market, was $47.00 per share. The approximate number of record
holders of the Common Stock on March 7, 2001 was 671.

    On November 7, 2000 we made a restricted share grant of 10,000 shares of
common stock to an employee. The grant was made in consideration of past and
future services pursuant to a restricted shares agreement. The shares were not
registered under the Securities Act of 1933 in reliance on the exemption
provided in Section 4 (2) thereof for transactions not involving a public
offering.


                                       23
<PAGE>   24
ITEM 6. SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 2000


<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                               ------------------------------------------------------------------------------------
                                                   2000              1999              1998              1997             1996
                                                   ----              ----              ----              ----             ----
                                                                   (Amounts in thousands, except per share data)
<S>                                            <C>               <C>               <C>               <C>               <C>
Net premiums written                           $ 1,506,244       $ 1,427,719       $ 1,346,254       $ 1,177,641       $ 1,052,511
Net premiums earned                              1,491,014         1,414,384         1,278,399         1,111,747           981,221
Net investment income                              210,448           190,316           202,420           199,588           164,490
Management fees and commissions                     68,049            72,344            70,727            71,456            69,246
Realized investment gains (losses)                   8,364            (6,064)           25,400            13,186             7,437
Total revenues                                   1,781,287         1,673,668         1,582,517         1,400,310         1,225,166
Interest expense                                    47,596            50,801            48,819            48,869            31,963
Income (loss) before Federal and foreign
  income taxes                                      40,851           (79,248)           62,781           129,241           115,049
Federal and foreign income tax (expense)
    benefit                                         (2,451)           45,766            (5,465)          (30,668)          (25,102)
Minority interest                                   (2,162)             (566)            1,444               474               316
Preferred dividends                                   --                (497)           (7,548)           (7,828)          (13,909)
Net income (loss) before change in
    accounting and extraordinary
    gain (loss)                                     36,238           (34,545)           51,212            91,219            76,354
Cumulative effect of change in accounting             --              (3,250)             --                --                --
Extraordinary gain (loss)                             --                 735            (5,017)             --                --
Net income (loss) attributable to
  common stockholders                               36,238           (37,060)           46,195            91,219            76,354
Data per common share:
  Basic:
    Net income (loss) before change in
     accounting and extraordinary item                1.41             (1.35)             1.82              3.09              2.56
    Net income (loss)                                 1.41             (1.44)             1.64              3.09              2.56
  Diluted:
    Net income (loss) before change in
     accounting and extraordinary income              1.39             (1.34)             1.76              3.02              2.53
    Net income (loss)                                 1.39             (1.43)             1.59              3.02              2.53
  Stockholders' equity                               26.54             23.10             28.80             28.72             25.13
  Cash dividends declared                      $       .52       $       .52       $       .48       $       .42       $       .35
Weighted average shares outstanding:
      Basic                                         25,632            25,823            28,194            29,503            29,792
      Diluted                                       25,991            25,927            29,115            30,185            30,130
Investments (1)                                $ 3,111,602       $ 2,975,929       $ 3,233,458       $ 3,106,900       $ 2,991,606
Total assets                                     5,022,070         4,784,791         4,983,431         4,544,318         4,136,973
Reserves for losses
  and loss expenses                              2,533,917         2,361,238         2,126,566         1,909,688         1,782,703
Long-term debt                                     370,158           394,792           394,444           390,415           390,104
Trust Preferred Securities                         198,169           198,126           207,988           207,944           207,901
Stockholders' equity                               680,896           591,778           861,281           947,292           879,732
</TABLE>


(1) Including trading account receivable from brokers and clearing organizations
    and trading account securities sold but not yet purchased.


                                       24
<PAGE>   25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

    Reference is made to the information under the caption "Management's
    Discussion and Analysis of Financial Condition and Results of Operations"
    contained on pages 22 through 29 of the registrant's 2000 Annual Report to
    Stockholders, which information is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Reference is made to the information under "Market Risk" under the caption
    "Management's Discussion and Analysis of Financial Condition and Results of
    Operations" contained on pages 27 and 28 of the registrant's 2000 Annual
    Report to Stockholders, which information is incorporated herein by
    reference.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The consolidated financial statements of the registrant are contained on
    pages 30 through 46 of registrant's 2000 Annual Report to Stockholders and
    are incorporated herein by reference.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    None.


                                       25
<PAGE>   26
                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


    The following information is provided as to the directors and executive
officers of the Company as of March 5, 2001:


<TABLE>
<CAPTION>
      Name                   Age           Position
      ----                   ---           --------
<S>                          <C>    <C>
William R. Berkley           55     Chairman of the Board and Chief Executive Officer
Eugene G. Ballard            48     Senior Vice President - Chief Financial Officer and Treasurer
Robert P. Cole               50     Senior Vice President - Regional Operations
E. LeRoy Heer                62     Senior Vice President - Chief Corporate Actuary
H. Raymond Lankford          58     Senior Vice President - Alternative Markets Operations
Ira S. Lederman              47     Senior Vice President - General Counsel Insurance Operations
                                    and Assistant Secretary
James G. Shiel               41     Senior Vice President - Investments
Edward A. Thomas             52     Senior Vice President - Specialty Operations
William R. Berkley, Jr.      28     Vice President
Clement P. Patafio           36     Vice President - Corporate Controller
George G. Daly               60     Director
Robert B. Hodes              75     Director
Henry Kaufman                73     Director
Richard G. Merrill           70     Director
Jack H. Nusbaum              60     Director
Mark L. Shapiro              56     Director
Martin Stone                 72     Director
</TABLE>

    As permitted by Delaware law, the Board of Directors of the Company is
divided into three classes, the classes being divided as equally as possible and
each class having a term of three years. Directors generally serve until their
respective successors are elected at the annual meeting of stockholders which
ends their term. None of the Company's directors has any family relationship
with any other director or executive officer, except William R. Berkley, Jr. is
the son of William R. Berkley. Each year the term of office of one class
expires. In May 2000, the term of a class consisting of three directors expired.
William R. Berkley, George G. Daly and Robert R. Hodes were elected as directors
to hold office for a term of three years until the Annual Meeting of
Stockholders in 2003 and until their successors are duly elected and qualify. As
a result of the resignation of John D. Vollaro as a director effective March 1,
2000, the Board presently has one vacancy in the class of directors with a term
expiring in 2001.

    William R. Berkley has been Chairman of the Board and Chief Executive
Officer of the Company since its formation in 1967. He also currently serves as
President and Chief Operating Officer, a position which he has held since March
1, 2000 and has held at various times from 1967 to 1995. He also serves as
Chairman of the Board or director of a number of public and private companies.
These include Associated Community Bancorp, Inc., a bank holding company that
owns all of the issued and outstanding capital stock of The Greenwich Bank &
Trust Company, a Connecticut chartered bank; Westport National Bank, a national
bank; Pioneer Companies, Inc., a chemical manufacturing and marketing company;
Strategic Distribution, Inc., an industrial products distribution and services
company; and Interlaken Capital, Inc., a private investment firm with interests
in various businesses. His current term as a director expires in 2003.

    Eugene G. Ballard has been Senior Vice President - Chief Financial Officer
and Treasurer of the Company since June 1, 1999. Before joining the Company, Mr.
Ballard was Executive Vice President and Chief Financial Officer of GRE
Insurance Group, New York, New York since 1995.

    Robert P. Cole has been Senior Vice President since January 1998. Prior
thereto, he was Vice President since October 1996. Before joining the Company,
Mr. Cole was, since 1992, a senior Officer of Christania General Insurance Corp.
of New York, which was purchased by Folksamerica Reinsurance Company in 1996,
and prior to that was associated with reinsurers for twenty years.

    E. LeRoy Heer (deceased on March 18, 2001) had been Senior Vice President -
Chief Corporate Actuary since January 1991. Prior thereto, he had been Vice
President - Corporate Actuary since May 1978.


                                       26
<PAGE>   27
    H. Raymond Lankford has been Senior Vice President - Alternative Markets
Operations since May 1996. Prior thereto, he was President of All American
Agency Facilities, Inc., a subsidiary of the Company, from October 1991, having
joined All American in 1990. He has been in the insurance business in various
capacities for more than 30 years.

    Ira S. Lederman has been Senior Vice President since January 1997 and
General Counsel-Insurance Operations since August 2000. Additionally, he has
been General Counsel of Berkley International, LLC since January 1998. He has
been Assistant Secretary since May 1986. Previously, he was Assistant General
Counsel from July 1989 until August 2000 and Vice President from May 1986 until
January 1997. Prior thereto, he was Insurance Counsel of the Company since May
1986 and Associate Counsel from April 1983.

    James G. Shiel has been Senior Vice President - Investments of the Company
since January 1997. Prior thereto, he was Vice President - Investments of the
Company since January 1992. Since February 1994, he has been President of
Berkley Dean & Company, Inc., a subsidiary of the Company, which he joined in
1987.

    Edward A. Thomas has been Senior Vice President - Specialty Operations of
the Company since April 1991. Prior thereto, he was President of Signet
Reinsurance Company, a subsidiary of the Company, for more than five years.

    William R. Berkley, Jr. has been a Vice President of the Company since May
2000, and additionally serves as President of Berkley International, LLC since
January 2001. He served previously as Executive Vice President of Berkley
International, LLC from March 2000. Mr. Berkley joined the Company in September
1997. From July 1995 to August 1997, Mr. Berkley served in the Corporate Finance
Department of Merrill Lynch Investment Company. Mr. Berkley is also a director
of Associated Community Bancorp, Inc., Middlesex Bank and Trust Company, Master
Protection Holdings, Inc. and Interlaken Capital, Inc.

    Clement P. Patafio has been Vice President - Corporate Controller since
January 1997. Prior thereto, he was Assistant Vice President - Corporate
Controller since July 1994 and Assistant Controller since May 1993. Before
joining the Company, Mr. Patafio was with KPMG LLP from 1986 to 1993.

    George G. Daly has been a director of the Company since 1998. Dr. Daly is
Dean of Stern School of Business, and Dean Richard R. West Professor of
Business, New York University for more than the past five years. In addition to
his academic career, Dr. Daly served as Chief Economist at the U.S. Office of
Energy Research and Development in 1974. Mr. Daly's term as a director expires
in 2003.

    Robert B. Hodes has been a director of the Company since 1970. Mr. Hodes is
Counsel to the New York law firm of Willkie Farr & Gallagher, where prior
thereto he had been a partner for more than five years. He is also a director of
Globalstar Telecommunications, Limited; K&F Industries, Inc.; Loral Space &
Communications, Ltd.; Mueller Industries, Inc.; Leveraged Capital Holdings, N.V.
and R.V.I. Guaranty, Ltd. Mr. Hodes' current term as a director expires in 2003.

    Henry Kaufman has been a director of the Company since 1994. Dr. Kaufman has
been President of Henry Kaufman & Company, Inc., an investment, economic and
financial consulting company since its establishment in 1988. Dr. Kaufman serves
as Chairman Emeritus of the Board of Overseers, Stern School of Business of New
York University; Chairman of the Board of Trustees, Institute of International
Education; Member of the Board of Directors, Federal Home Loan Mortgage
Corporation; Member of the Board of Directors, Lehman Brothers Holdings Inc.;
Member of the Board of Directors, The Statute of Liberty-Ellis Island
Foundation, Inc.; Member of the Board of Trustees, New York University; Member
of the Board of Trustees, The Animal Medical Center; Treasurer (and former
trustee), The Economic Club of New York; Member of the International Advisory
Committee of the Federal Reserve Bank of New York; Member of the Board of
Trustees, Whitney Museum of American Art; Member of the Advisory Committee to
the Investment Committee, International Monetary Fund Staff Retirement Plan; and
Member of the Board of Governors, Tel-Aviv University. Dr. Kaufman's current
term as a director expires in 2001.

    Richard G. Merrill has been a director of the Company since 1994. Mr.
Merrill was Executive Vice President of Prudential Insurance Company of America
from August 1987 to March 1991 when he retired. Prior thereto, Mr. Merrill
served as Chairman and President of Prudential Asset Management Company since
1985. Mr. Merrill is a director of Sysco Corporation. Mr. Merrill's current term
as a director expires in 2002.


                                       27
<PAGE>   28
    Jack H. Nusbaum has been a director of the Company since 1967. Mr. Nusbaum
is the Chairman of the New York law firm of Willkie Farr & Gallagher where he
has been a partner for more than the last five years. He is a director of
Associated Community Bankcorp, Inc., Neuberger Berman Inc., Pioneer Companies,
Inc., Prime Hospitality Corp., Strategic Distribution, Inc. and The Topps
Company, Inc. Mr. Nusbaum's current term as a director expires in 2002.

    Mark L. Shapiro has been a director of the Company since 1974. Since
September 1998, Mr. Shapiro has been a private investor. From July 1997 through
August 1998, Mr. Shapiro was a Senior Consultant to the Export-Import Bank of
the United States. Previously, he was a Managing Director in the investment
banking firm of Schroder & Co. Inc. for more than the past five years. Mr.
Shapiro's current term as a director expires in 2002.

    Martin Stone has been a director of the Company since 1990. Mr. Stone has
been the controlling investor in Sports Tech, LLC, an operator of four sports
performance training centers for elite athletes, since the second quarter of
2000. Previously, Mr. Stone was Chairman of Professional Sports, Inc. (the
Tucson Sidewinders AAA baseball team) and Chairman of Adirondack Corporation,
each for more than the past five years. Mr. Stone is a director of Canyon Ranch,
Inc. and a member of the Advisory Board of Yosemite National Park. Mr. Stone's
current term as a director expires in 2001.

ITEM 11. EXECUTIVE COMPENSATION

    Reference is made to the registrant's definitive proxy statement, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 2000, and which is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    (a) Security ownership of certain beneficial owners

    Reference is made to the registrant's definitive proxy statement, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 2000, and which is incorporated herein by reference.

    (b) Security ownership of management

    Reference is made to the registrant's definitive proxy statement, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 2000, and which is incorporated herein by reference.

    (c) Changes in control

    Reference is made to the registrant's definitive proxy statement, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 2000, and which is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Reference is made to the registrant's definitive proxy statement, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 2000, and which is incorporated herein by reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Index to Financial Statements

    The Management's Discussion and Analysis of Financial Condition and Results
of Operations, and the Company's financial statements, together with the report
thereon of KPMG LLP, appearing on pages 22 through 46 of the Company's 2000
Annual Report to Stockholders, are incorporated by reference in this Annual
Report on Form 10-K. With the exception of the aforementioned information, the
2000 Annual Report to Stockholders is not deemed to be filed as part of this
report. The schedules to the financial statements listed below should be read in
conjunction with the financial statements in such 2000 Annual Report to
Stockholders. Financial statement schedules not included in this Annual Report
on Form 10-K have been omitted because


                                       28
<PAGE>   29
they are not applicable or required information is shown in the financial
statements or notes thereto.

<TABLE>
    Index to Financial Statement Schedules                                  Page
<S>                                                                         <C>
    Independent Auditors' Report on Schedules and Consent                    35

    Schedule II - Condensed Financial Information of Registrant              36

    Schedule III - Supplementary Insurance Information                       40

    Schedule IV - Reinsurance                                                41

    Schedule VI - Supplementary Information concerning
                  Property & Casualty Insurance Operations                   42
</TABLE>

(b) Reports on Form 8-K

    During the quarter ended December 31, 2000, the registrant filed the
    following Reports on Form 8-K:

    Report dated October 30, 2000 with respect to a press release relating to
    earnings of the Company for the third quarter of 2000 (under Item 5 of Form
    8-K).

(c) Exhibits

    The exhibits filed as part of this report are listed on pages 32 and 33
    hereof.


                                       29
<PAGE>   30
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                              W. R. BERKLEY CORPORATION



                              By /s/  William R. Berkley
                                 ---------------------------------------------
                                 William R. Berkley, Chairman of the Board and
                                    President


March 22, 2001


                                       30
<PAGE>   31
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
           Signature                                              Title                                     Date
<S>                                                  <C>                                               <C>
/s/ William R. Berkley                               Chairman of the Board and
- ------------------------------------------------     President
       William R. Berkley                                                                              March 22, 2001
  Principal executive officer


/s/ George G. Daly                                             Director                                March 22, 2001
- ------------------------------------------------
       George G. Daly


/s/ Robert B. Hodes                                            Director                                March 22, 2001
- ------------------------------------------------
       Robert B. Hodes


/s/ Henry Kaufman                                              Director                                March 22, 2001
- ------------------------------------------------
       Henry Kaufman


/s/ Richard G. Merrill                                         Director                                March 22, 2001
- ------------------------------------------------
       Richard G. Merrill


/s/ Jack H. Nusbaum                                            Director                                March 22, 2001
- ------------------------------------------------
       Jack H. Nusbaum


/s/ Mark L. Shapiro                                            Director                                March 22, 2001
- ------------------------------------------------
       Mark L. Shapiro


/s/ Martin Stone                                               Director                                March 22, 2001
- ------------------------------------------------
       Martin Stone


/s/ Eugene G. Ballard                                Senior Vice President,                            March 22, 2001
- ------------------------------------------------     Chief Financial Officer and
       Eugene G. Ballard                             Treasurer
   Principal financial officer


/s/ Clement P. Patafio                               Vice President,                                   March 22, 2001
- ------------------------------------------------     Corporate Controller
      Clement P. Patafio
</TABLE>


                                       31
<PAGE>   32
ITEM 14. (c) EXHIBITS

<TABLE>
<CAPTION>
Number
- ------
<S>         <C>
(2.1)       Agreement and Plan of Merger between the Company, Berkley Newco Corp.
            and MECC, Inc. (incorporated by reference to Exhibit 2.1 of the
            Company's Current Report on Form 8-K (File No. 0-7849) filed with the
            Commission on September 28, 1995).

(2.2)       Agreement and Plan of Restructuring, dated July 20, 1995, by and among
            the Company, Signet Star Holdings, Inc., Signet Star Reinsurance
            Company, Signet Reinsurance Company and General Re Corporation
            (incorporated by reference to Exhibit 2.2 of the Company's Current
            Report on Form 8-K (File No. 0-7849) filed with the Commission on
            September 28, 1995).

(3.1)       Restated Certificate of Incorporation, as amended (incorporated by
            reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K
            (File No. 0-7849) filed with the Commission on March 30, 1994).

(3.2)       Amendment, dated May 12, 1998, to the Company's Restated Certificate of
            Incorporation, as amended (incorporated by reference to Exhibit 3.2 of
            the Company's Annual Report on Form 10-K (File No. 0-7849) filed with
            the Commission on March 23, 1999).

(3.3)       Certificate of Designation, Preferences and Rights of Series A Junior
            Participating Preferred Stock (incorporated by reference to Exhibit 3.1
            of the Company's Quarterly Report on Form 10-Q (File No. 0-7849) filed
            with the Commission on August 11, 1999).

(3.4)       Amended and Restated By-Laws (incorporated by reference to Exhibit 3(ii)
            of the Company's Current Report on Form 8-K (File No. 0-7849) filed with
            the Commission on May 11, 1999).

(4)         The instruments defining the rights of holders of the long-term debt
            securities of the Company are omitted pursuant to Section (b)(4)(iii)(A)
            of Item 601 of Regulation S-K. The Company agrees to furnish
            supplementally copies of these instruments to the Commission upon
            request.

(10.1)      Loan Agreement, dated as of January 5, 2001, between the Company and
            William R. Berkley (filed herewithin).

(10.2)      First Amendment to the Credit Agreement, dated as of December 8, 2000,
            between the Company and Bank of America, NA (incorporated by reference
            as Exhibit 10.1 of the Company's Current Report on Form 8-K (File No.
            0-7849) filed with the Commission on January 24, 2001).

(10.3)      Augmenting Agreement, dated as of December 14, 2000, among the Company,
            Bank of America, NA, as Administrative Agent, and Wells Fargo Bank, NA
            (incorporated by reference as Exhibit 10.2 of the Company's Current
            Report on Form 8-K (File No. 0-7849) filed with the Commission on
            January 24, 2001).

(10.4)      Amendment dated March 9, 2000 to the First Amended and Restated W. R.
            Berkley Corporation 1992 Stock Option Plan (incorporated by reference to
            exhibit 4.1 of the Company's Quarterly Report on Form 10-Q (File No.
            0-7849) filed with the Commission on May 12, 2000).

(10.5)      Credit Agreement dated as of December 10, 1999 among the Company, Bank
            of America, National Association, as Administrative Agent, and the other
            financial institutions party thereto (incorporated by reference to
            Exhibit 10.2 of the Company's Annual Report on Form 10-K (File No.
            0-7849) filed with the Commission on March 27, 2000).

(10.6)      Rights Agreement, dated as of May 11, 1999, between the Company and
            ChaseMellon Shareholder Services, LLC, as Rights Agent (incorporated by
            reference to Exhibit 99.1 of the Company's Current Report on Form 8-K
            (File No. 0-7849) filed with the Commission on May 11, 1999).

(10.7)      The Company's 1982 Stock Option Plan (incorporated by reference to
            Exhibit 10.1 of the Company's Registration Statement on Form S-1 (File
            No. 2-98396) filed with the Commission on June 14, 1985).
</TABLE>


                                       32
<PAGE>   33
<TABLE>
<S>         <C>
(10.8)      First Amended and Restated W. R. Berkley Corporation 1992 Stock Option
            Plan (incorporated by reference to Exhibit 10.2 of the Company's Annual
            Report on Form 10-K (File No. 0-7849) filed with the Commission on March
            23, 1999).

(10.9)      The Company's lease dated June 3, 1983 with the Ahneman, Devaul and
            Devaul Partnership, incorporated by reference to Exhibit 10.3 of the
            Company's Registration Statement on Form S-1 (File No. 2-98396) filed
            with the Commission on June 14, 1985.

(10.10)     W.R. Berkley Corporation Deferred Compensation Plan for Officers as
            amended January 1, 1991 (incorporated by reference to Exhibit 10.4 of
            the Company's Annual Report on Form 10-K (File No. 0-7849) filed with
            the Commission on March 26, 1996).

(10.11)     W. R. Berkley Corporation Deferred Compensation Plan for Directors as
            adopted March 7, 1996 (incorporated by reference to Exhibit 10.5 of the
            Company's Annual Report on Form 10-K (File No. 0-7849) filed with the
            Commission on March 26, 1996).

(10.12)     W. R. Berkley Corporation Annual Incentive Compensation Plan
            (incorporated by reference to Exhibit 10.7 of the Company's Annual
            Report on Form 10-K (File No. 0-7849) filed with the Commission on March
            27, 1998).

(10.13)     W. R. Berkley Corporation Long Term Incentive Plan (incorporated by
            reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K
            (File No. 0-7849) filed with the Commission on March 27, 1998).

(10.14)     1997 Directors Stock Plan, as Amended and Restated as of May 11, 1999
            (incorporated by reference to Exhibit 10.2 of the Company's Quarterly
            Report on Form 10-Q (File No. 0-7849) filed with the Commission on
            August 11, 1999).

(10.15)     Separation Agreement dated January 24, 2000 between John D. Vollaro and
            the Company (incorporated by reference to Exhibit 10.12 of the Company's
            Annual Report on Form 10-K (File No. 0-7849) filed with the Commission
            on March 27, 2000).

(13)        2000 Annual Report to Stockholders of W.R. Berkley Corporation (only
            those portions of such Annual Report that are incorporated by reference
            in this Report on Form 10-K are deemed filed) (filed herewith).
</TABLE>


                                       33
<PAGE>   34
<TABLE>
<S>         <C>
(21)        Following is a list of the Company's significant subsidiaries and other
            operating entities. Subsidiaries of subsidiaries are indented and the
            parent of each such corporation owns 100% of the outstanding voting
            securities of such corporation except as noted below.
</TABLE>


<TABLE>
<CAPTION>
                                                                       Jurisdiction of                Percentage
                                                                       Incorporation                     owned
                                                                       ----------------               ----------
<S>                                                                    <C>                           <C>
Berkley International, LLC                                             New York                            65%
Carolina Casualty Insurance Company                                    Florida                            100%
Clermont Specialty Managers, Ltd.                                      New Jersey                         100%
J/I Holding Corporation:                                               Delaware                           100%
        Admiral Insurance Company:                                     Delaware                           100%
          Admiral Indemnity Insurance Company                          Delaware                           100%
          Berkley Risk Administrators Company, LLC                     Minnesota                          100%
          Nautilus Insurance Company:                                  Arizona                            100%
            Great Divide Insurance Company                             North Dakota                       100%
Key Risk Management Services, Inc.                                     North Carolina                     100%
Monitor Liability Managers, Inc.                                       Delaware                           100%
Monitor Surety Managers, Inc.                                          Delaware                           100%
Queen's Island Insurance Company, Ltd.                                 Bermuda                            100%
Signet Star Holdings, Inc.:                                            Delaware                           100%
        Berkley Insurance Company                                      Delaware                           100%
          Berkley Regional Insurance Company                           Delaware                           100%
             Acadia Insurance Company                                  Maine                              100%
               Chesapeake Bay Property and Casualty
               Insurance Company                                       Maine                              100%
             Berkley Insurance Company of the Carolinas                North Carolina                     100%
             Continental Western Insurance Company                     Iowa                               100%
             Firemen's Insurance Company of Washington, D.C.           Delaware                           100%
             Great River Insurance Company                             Mississippi                        100%
             Tri-State Insurance Company of Minnesota:                 Minnesota                          100%
               American West Insurance Company                         North Dakota                       100%
             Union Insurance Company                                   Nebraska                           100%
             Union Standard Insurance Company                          Oklahoma                           100%
          Key Risk Insurance Company                                   North Carolina                     100%
          Midwest Employers Casualty Company:                          Ohio                               100%
            Preferred Employers Insurance Company                      California                         100%
            Riverport Insurance Company of California                  California                         100%
          Facultative ReSources, Inc.                                  Connecticut                        100%
          Gemini Insurance Company                                     Delaware                           100%
          Starnet Insurance Company                                    Delaware                           100%
</TABLE>


<TABLE>
<S>         <C>
(23)        See Independent Auditors' report on schedules and consent.

(27)        Financial Data Schedule.
</TABLE>


                                       34
<PAGE>   35
              INDEPENDENT AUDITORS' REPORT ON SCHEDULES AND CONSENT


Board of Directors and Stockholders
W. R. Berkley Corporation


The audits referred to in our report dated February 23, 2001, except for Note 20
which is as of March 6, 2001 incorporated by reference in the Form 10-K,
included the related financial statement schedules as of December 31, 2000, and
for each of the years in the three-year period ended December 31, 2000. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for insurance-related assessments in 1999.

We consent to the use of our reports incorporated by reference in the
Registration Statements, (No. 33-95552) and (No. 333-00459) on Form S-3 and (No.
33-7488), (No. 33-88640), (No. 333-33935) and (No. 33-55726) on Form S-8 of W.
R. Berkley Corporation.

                                                        KPMG LLP



New York, New York
March 22, 2001


                                       35
<PAGE>   36
                                                                     Schedule II


                            W. R. Berkley Corporation
                  Condensed Financial Information of Registrant
                         Balance Sheets (Parent Company)
                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                                                            December 31,
                                                                 -------------------------------
                                                                     2000                1999
                                                                 -----------         -----------
<S>                                                              <C>                 <C>
Assets
Cash (including invested cash)                                   $    16,619         $    22,081
Fixed maturity securities:
  Held to maturity, at cost
   (fair value $4,960 and $5,523)                                      4,960               5,523
  Available for sale at fair value (cost $406 and $714)                  396                 705
Equity securities, at fair value:
  Available for sale (cost $698 and $698)                                590               1,110
  Trading account (cost $864 and $773)                                   864                 773
Investments in subsidiaries                                        1,173,775           1,091,312
Due from subsidiaries                                                 47,287              52,124
Current Federal income taxes receivable                                6,482               9,911
Deferred Federal income taxes                                         50,080              82,896
Real estate, furniture & equipment at cost, less
accumulated depreciation                                              18,390              18,962
Other assets                                                           4,762               4,654
                                                                 -----------         -----------
                                                                 $ 1,324,205         $ 1,290,051
                                                                 ===========         ===========

Liabilities, Debt and Stockholders' Equity

Liabilities:
  Due to subsidiaries (principally deferred income taxes)        $    82,304         $    86,680
  Short-term debt                                                     10,000              35,000
  Deferred Federal income taxes                                         --                  --
  Other liabilities                                                   26,469              27,468
                                                                 -----------         -----------
                                                                     118,773             149,148
                                                                 -----------         -----------

Long-term debt                                                       326,365             350,999
Subsidiary trust junior subordinated debt                            198,169             198,126
Stockholders' equity:
  Preferred stock                                                       --                  --
  Common stock                                                         7,281               7,281
  Additional paid-in capital                                         334,061             331,640
  Retained earnings (including accumulated
    undistributed net income of
    subsidiaries of $410,794 and $386,470
    in 2000 and 1999, respectively)                                  574,345             551,401
Accumulated other comprehensive income (loss)                         19,371             (44,500)
  Treasury stock, at cost                                           (254,162)           (254,044)
                                                                 -----------         -----------
                                                                     680,896             591,778
                                                                 -----------         -----------
                                                                 $ 1,324,205         $ 1,290,051
                                                                 ===========         ===========
</TABLE>


See note to condensed financial statements.


                                       36
<PAGE>   37
                                            Schedule II, Continued

                            W. R. Berkley Corporation
            Condensed Financial Information of Registrant, Continued
                    Statements of Operations (Parent Company)
                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                                                   Years ended December 31,
                                                          -------------------------------------------
                                                            2000              1999             1998
                                                          --------         ---------         --------
<S>                                                       <C>              <C>               <C>
Management fees and investment income
  from affiliates, including dividends of
  $44,533, $96,817 and $65,836 for 2000,
  1999 and 1998, respectively                             $ 49,585         $ 102,963         $ 72,812
Realized investment gains (losses)                            (558)              321               --
Other income                                                 4,051             3,975           10,506
                                                          --------         ---------         --------
Total revenues                                              53,078           107,259           83,318

Expenses, other than interest expense                       18,871            20,978           22,201
Restructuring charge                                            --             1,502               --
Interest expense                                            46,521            49,207           47,571
                                                          --------         ---------         --------

Income (loss) before Federal
  income taxes                                             (12,314)           35,572           13,546
                                                          --------         ---------         --------


Federal income taxes:
  Federal income taxes provided by
    Subsidiaries on a separate return
    Basis                                                   24,858             8,474           44,370

  Federal income tax benefit (provision) on a
    Consolidated return basis                                 (630)           48,958           (5,115)
                                                          --------         ---------         --------

Net benefit                                                 24,228            57,432           39,255
                                                          --------         ---------         --------

Income (loss) before undistributed equity
  in net income of subsidiaries and preferred
  dividends                                                 11,914            93,004           52,801

Equity in undistributed net income (loss)
   of subsidiaries                                          24,324          (130,232)           6,835

Preferred dividends                                             --              (567)          (8,424)
                                                          --------         ---------         --------

Net income (loss) before extraordinary gain (loss)          36,238            37,795           51,212

Extraordinary gain (loss)                                       --               735           (5,017)
                                                          --------         ---------         --------

Net income (loss) attributable to
  common stockholders                                     $ 36,238         $ (37,060)        $ 46,195
                                                          ========         =========         ========
</TABLE>


See note to condensed financial statements.


                                       37
<PAGE>   38
                                              Schedule II, Continued

                            W. R. Berkley Corporation
            Condensed Financial Information of Registrant, Continued
                    Statement of Cash Flows (Parent Company)
                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                                                           Years ended December 31,
                                                                 --------------------------------------------
                                                                   2000              1999              1998
                                                                 --------         ---------         ---------
<S>                                                              <C>              <C>               <C>
Cash flows from operating activities:
  Net income (loss) before preferred dividends and
    extraordinary items                                          $ 36,238         $ (37,298)        $  59,636
  Adjustments to reconcile net income to net
    cash flows provided by operating activities:
    Equity in undistributed net
      income of subsidiaries                                      (24,324)          130,232            (6,835)
    Tax payments received from subsidiaries                        28,389            24,105            63,199
    Federal income taxes provided by subsidiaries
      on a separate return basis                                  (24,859)           (8,473)          (44,370)
    Change in Federal income taxes                                  2,478           (35,018)          (29,342)
    Realized investment losses                                        558              (321)               --
    Other, net                                                        643             3,274            (1,790)
                                                                 --------         ---------         ---------
      Net cash provided by operating activities
        before increase trading account securities                 19,123            76,501            40,498
  Increase in trading account securities                              (91)              (75)              (79)
                                                                 --------         ---------         ---------
      Net cash provided by
        operating activities                                       19,032            76,426            40,419
                                                                 --------         ---------         ---------
Cash flow used in investing activities:
  Proceeds from sales, excluding trading account:
    Fixed maturity securities available for sale                       --            23,973             3,167
    Equity securities                                                  --                --                --
  Proceeds from maturities and prepayments of
    fixed maturity securities                                         365               222           112,643
  Cost of purchases, excluding trading account:
    Fixed maturity securities                                        (558)          (23,648)               --
    Equity securities                                                  --                --
  Cost of companies acquired                                           --                --                --
  Proceeds from sale of assets to subsidiaries                    107,391            33,566                --
  Investments in and advances to
      subsidiaries, net                                           (70,439)          (77,362)           (5,775)
    Net additions to real estate, furniture &
      equipment                                                      (290)             (357)              201
  Other, net                                                          500                --                --
                                                                 --------         ---------         ---------
      Net cash used in investing activities                        36,969           (43,606)          110,236
                                                                 --------         ---------         ---------
Cash flows from financing activities:
  Net proceeds from issuance of long-term debt                         --                --            39,882
  Net change in short-term debt                                   (25,000)          (20,500)           55,500
  Purchase of treasury shares                                      (7,020)           (4,895)          (59,240)
  Cash dividends to common stockholders                           (12,701)          (13,888)          (13,518)
  Cash dividends to preferred shareholders                             --            (2,001)           (7,356)
  Purchase of preferred stock                                          --           (98,092)               --
  Retirement of long-term debt                                    (25,000)           (9,171)          (49,104)
  Other, net                                                        8,258               386             2,585
                                                                 --------         ---------         ---------
Net cash provided by financing activities                         (61,463)         (148,161)          (31,251)
                                                                 --------         ---------         ---------
Net increase in cash and invested cash                             (5,462)         (115,341)          119,404
Cash and invested cash at beginning of year                        22,081           137,422            18,018
                                                                 --------         ---------         ---------
Cash and invested cash at end of year                            $ 16,619         $  22,081         $ 137,422
                                                                 ========         =========         =========
</TABLE>


See note to condensed financial statements.



                                       38
<PAGE>   39
                                                          Schedule II, Continued


                            W. R. Berkley Corporation

            Condensed Financial Information of Registrant, Continued

                        December 31, 2000, 1999 and 1998

             Note to Condensed Financial Statements (Parent Company)


    The accompanying condensed financial statements should be read in
conjunction with the notes to consolidated financial statements included
elsewhere herein. Reclassifications have been made in the 1999 and 1998
financial statements as originally reported to conform them to the presentation
of the 2000 financial statements.

    The Company files a consolidated federal tax return with the results of its
domestic insurance subsidiaries included on a statutory basis. Under present
Company policy, Federal income taxes payable by (or refundable to) subsidiary
companies on a separate-return basis are paid to (or refunded by) W. R. Berkley
Corporation, and the Company pays the tax due on a consolidated return basis.


                                       39
<PAGE>   40
                                                                    Schedule III

                   W. R. Berkley Corporation and Subsidiaries
                       Supplementary Insurance Information
                        December 31, 2000, 1999 and 1998
                             (Amounts in thousands)


<TABLE>
<CAPTION>

                              Deferred policy    Reserve for                                            Net            Loss and
                                acquisition    losses and loss     Unearned         Premiums         investment           Loss
                                   cost           expenses         premiums          earned            income           expenses
                                   ----           --------         --------          ------            ------           --------
<S>                           <C>              <C>                 <C>             <C>               <C>               <C>
December 31, 2000
Regional                         $ 84,081        $  660,190        $331,066        $  653,257        $  59,889         $  494,143
Reinsurance                        27,761           518,554         109,824           298,103           50,471            218,116
Specialty                          40,060           753,238         184,160           270,896           48,706            198,237
Alternative markets                13,462           495,057          57,233           161,473           44,350            117,272
International                      30,867           106,878          30,956           107,285            9,636             66,643
Corporate and adjustments              --                --              --                --           (2,604)                --
                                 --------        ----------        --------        ----------        ---------         ----------
Total                            $196,231        $2,533,917        $713,239        $1,491,014        $ 210,448         $1,094,411
                                 ========        ==========        ========        ==========        =========         ==========

December 31, 1999
Regional                         $ 84,046        $  635,115        $338,237        $  650,131        $  52,639         $  554,394
Reinsurance                        34,911           500,808         119,376           297,650           47,288            226,229
Specialty                          37,298           722,689         178,357           256,156           50,231            174,251
Alternative markets                 7,510           442,133          34,846           123,504           36,355             82,757
International                      18,583            60,493          19,010            86,943            6,469             48,195
Corporate and adjustments              --                --              --                --           (2,666)                --
                                 --------        ----------        --------        ----------        ---------         ----------
Total                            $182,348        $2,361,238        $689,826        $1,414,384        $ 190,316         $1,085,826
                                 ========        ==========        ========        ==========        =========         ==========

December 31, 1998
Regional                         $ 83,613        $  495,164        $337,414        $  622,280        $  53,942         $  476,920
Reinsurance                        29,906           435,920         102,566           246,277           47,643            183,020
Specialty                          37,148           745,790         167,648           235,055           59,345            145,624
Alternative markets                 7,531           399,560          37,061           101,755           34,667             65,634
International                      10,696            50,132          20,172            73,032            5,469             43,564
Corporate and adjustments              --                --              --                --            1,354                 --
                                 --------        ----------        --------        ----------        ---------         ----------
Total                            $168,894        $2,126,566        $664,861        $1,278,399        $ 202,420         $  914,762
                                 ========        ==========        ========        ==========        =========         ==========

</TABLE>


<TABLE>
<CAPTION>
                                 Amortization of
                                deferred policy            Other
                                  acquisition          operating cost          Net premiums
                                     costs              and expenses             written
                                     -----              ------------             -------
<S>                             <C>                    <C>                     <C>
December 31, 2000
Regional                            $188,702              $ 33,096              $  640,843
Reinsurance                           95,146                 3,965                 276,640
Specialty                             79,101                15,685                 285,525
Alternative markets                   54,247                65,914                 184,255
International                         37,532                 7,205                 118,981
Corporate and adjustments                 --                15,986                      --
                                    --------              --------              ----------
Total                               $454,729              $141,850              $1,506,244
                                    ========              ========              ==========

December 31, 1999
Regional                            $204,961              $ 33,261              $  649,849
Reinsurance                           92,503                 6,790                 309,181
Specialty                             77,950                17,606                 260,380
Alternative markets                   36,063                78,476                 122,137
International                         32,812                 8,526                  86,172
Corporate and adjustments                 --                15,836                      --
                                    --------              --------              ----------
Total                               $444,289              $160,495              $1,427,719
                                    ========              ========              ==========

December 31, 1998
Regional                            $196,391              $ 33,732              $  641,316
Reinsurance                           62,855                15,084                 269,634
Specialty                             75,968                 4,474                 254,003
Alternative markets                   30,903                72,897                 106,195
International                         28,495                15,244                  75,106
Corporate and adjustments                 --                20,112                      --
                                    --------              --------              ----------
Total                               $394,612              $161,543              $1,346,254
                                    ========              ========              ==========

</TABLE>


                                       40
<PAGE>   41
                                                                     Schedule IV


                   W. R. Berkley Corporation and Subsidiaries
                                   Reinsurance
                  Years ended December 31, 2000, 1999 and 1998
                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                                                             Assumed                            Percentage
                                                           Ceded              from                               of amount
                                         Direct            to other           other                Net           assumed to
                                         amount           companies         companies            amount             net
                                         ------           ---------         ---------            ------             ---
<S>                                    <C>                <C>               <C>                <C>              <C>
Premiums written:
Year ended December 31, 2000:
    Regional insurance                 $  730,546          $ 95,514          $  5,811          $  640,843             .9%
    Reinsurance                            57,210            47,206           266,636             276,640           96.4%
    Specialty insurance                   403,149           122,020             4,396             285,525            1.5%
    Alternative markets                    84,916            21,228           120,567             184,255           65.4%
    International                         143,524            24,543                --             118,981             --
                                       ----------          --------          --------          ----------

  Total                                $1,419,345          $310,511          $397,410          $1,506,244           26.4%
                                       ==========          ========          ========          ==========          =====

Year ended December 31, 1999:
    Regional insurance                 $  755,752          $109,981          $  4,078          $  649,849             .6%
    Reinsurance                             9,094            29,703           329,790             309,181          106.7%
    Specialty insurance                   376,111           126,068            10,337             260,380            4.0%
    Alternative markets                    69,671            20,333            72,799             122,137           59.6%
    International                         107,257            21,085                --              86,172             --
                                       ----------          --------          --------          ----------

  Total                                $1,317,885          $307,170          $417,004          $1,427,719           29.2%
                                       ==========          ========          ========          ==========          =====

Year ended December 31, 1998:
    Regional insurance                 $  744,560          $108,741          $  5,497          $  641,316             .9%
    Reinsurance                             1,240            27,544           295,938             269,634          109.8%
    Specialty insurance                   364,564           120,111             9,550             254,003            3.8%
    Alternative markets                    62,942            15,078            58,331             106,195           54.9%
    International                          95,870            20,764                --              75,106             --
                                       ----------          --------          --------          ----------

  Total                                $1,269,176          $292,238          $369,316          $1,346,254           27.4%
                                       ==========          ========          ========          ==========          =====
</TABLE>


                                       41
<PAGE>   42
                                                                     Schedule VI


                   W. R. Berkley Corporation and Subsidiaries
   Supplementary Information Concerning Property-Casualty Insurance Operations
                        December 31, 2000, 1999 and 1998
                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                                   2000                1999                 1998
<S>                                            <C>                 <C>                 <C>
Deferred policy acquisition costs              $  196,231          $  182,348          $   168,894
Reserves for losses and loss expenses           2,533,917           2,361,238            2,126,566
Unearned premium                                  713,239             689,826              664,861
Premiums earned                                 1,491,014           1,414,384            1,278,399
Net investment income                             210,448             190,316              202,420
Losses and loss expenses incurred:
  Current Year                                  1,047,060           1,032,089              944,887
  Prior Years                                      14,042              28,351              (42,929)
Amortization of discount                           11,530              10,473                9,111
Amortization of deferred policy
  acquisition costs                               454,729             444,289              394,612
Paid losses and loss expenses                     978,448             930,352              762,965
Net premiums written                            1,506,244           1,427,719            1,346,254
</TABLE>


                                       42
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>y46799ex10-1.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>

<PAGE>   1
                                                                    Exhibit 10.1


                                 LOAN AGREEMENT



            This Loan Agreement, dated as of January 5, 2001, is by and between
W.R. Berkley Corporation, a Delaware corporation (the "Company"), and William R.
Berkley ("Berkley").

            The parties hereto agree as follows:

            1. The Company hereby agrees to loan to Berkley $1,500,000.

            2. The loan shall be evidenced by a recourse promissory note dated
the date of such loan in the form of Annex A attached hereto (the "Note"). The
Note shall be unsecured.

            3. Berkley and the Company each hereby represents that he or it, as
the case may be, has all power and authority necessary to enter into this
Agreement and that this Agreement is valid and enforceable against Berkley or
the Company, as the case may be, in accordance with its terms.

            4. If any of the following events ("Events of Default") shall occur:

                   (a) Berkley shall default in the payment of principal or
            interest on the Note when the same shall become due and payable,
            whether at maturity, by acceleration or otherwise, and such default
            continues for more than ten days after receipt of written notice
            from the Company; or

                  (b) Berkley shall file a petition seeking bankruptcy or other
            similar relief or any such petition shall be filed against Berkley
            and not dismissed within 60 days;

then the holder of the Note may by written notice to Berkley (or without such
notice with respect to subsection (b) above), declare the entire unpaid
principal of and the interest then accrued on the Note to be forthwith due and
payable, without other notices or demands of any kind, all of which are hereby
waived by Berkley.

            5. All notices and communications provided for herein shall be
delivered or mailed by registered or certified mail, postage prepaid, or by
courier service, addressed as follows:

            If to the Company:

            165 Mason Street
            Greenwich, Connecticut  06836-2518
            Facsimile No.:  (203) 629-3492
            Attention:  Chief Financial Officer
<PAGE>   2
            If to Berkley:

            c/o W.R. Berkley Corporation
            165 Mason Street
            Greenwich, Connecticut  06836-2518

or to such other address or to the attention of such other person as the
recipient party shall have specified.

            6. No delay on the part of the Company in exercising any right,
power or privilege hereunder or in respect hereof shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege.

            7. This Agreement and the Note shall be governed by and interpreted
and enforced in accordance with the laws of the State of Delaware without giving
effect to the choice of law provisions thereof.

            8. This Agreement shall be binding upon the successors and assigns
of the parties hereto.

            9. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall be
considered one and the same agreement.

            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.


                                     W.R. BERKLEY CORPORATION



                                     By:  /s/ Eugene Ballard
                                         ---------------------------------
                                          Name:  Eugene Ballard
                                          Title: Senior Vice President


                                          /s/ William R. Berkley
                                         ---------------------------------
                                          WILLIAM R. BERKLEY


                                      -2-
<PAGE>   3
                                                               ANNEX  A
                                                               TO LOAN AGREEMENT


                                 PROMISSORY NOTE


$1,500,000                                                       January 5, 2001


            FOR VALUE RECEIVED, William R. Berkley ("Maker" or "Berkley") hereby
 promises to pay to the order of W.R. Berkley Corporation, a Delaware
 corporation (the "Company"), at 165 Mason Street, Greenwich, Connecticut, or at
 such other address as the Company or the holder or this Note shall have given
 to the Maker, the principal sum of One Million Five Hundred Thousand Dollars
 ($1,500,000) on June 1, 2001, together with interest, at the minimum rate which
 can be charged without causing this obligation to be treated as a "below market
 loan" for purposes of Section 7872 of the Internal Revenue Code of 1986, as
 amended.

            Payments of principal and interest shall be made in such currency of
the United States as at the time of payment shall be legal tender for the
payment of public and private debts.

            This Note evidences a recourse loan made by the Company under the
Loan Agreement, dated as of the date hereof, between the Company and the Maker
(the "Agreement"), which provides, among other things, for the acceleration of
the maturity of this Note following an Event of Default, on the terms set forth
in the Agreement.

            This Note may be prepaid in whole or in part at any time and from
time to time without penalty or premium.

            The Maker hereby waives presentment, demand, protest, notice of
protest, notice of dishonor of this Note and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Note.

            This Note shall be governed by and interpreted and enforced in
accordance with the laws of the State of Delaware without giving effect to the
choice of law provisions thereof and shall be binding upon the heirs or legal
representatives of the Maker and shall inure to the benefit of the successors
and assigns of the Company.


                                     /s/ William R. Berkley
                                     -------------------------------------
                                     William R. BERKLEY

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>3
<FILENAME>y46799ex13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>

<PAGE>   1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INDUSTRY OVERVIEW

The demand for insurance is influenced primarily by general economic conditions,
while the supply of insurance is directly related to available capacity, i.e.,
the level of policyholders' surplus employed in the industry and the willingness
of insurance management to risk that capital. The adequacy of premium rates is
affected mainly by the severity and frequency of claims, which are influenced by
many factors, including natural disasters, regulatory measures and court
decisions that define and expand the extent of coverage and the effects of
economic inflation on the amount of compensation due for injuries or losses. In
addition, investment rates of return may impact policy rates. These factors can
have a significant impact on ultimate profitability because a property casualty
insurance policy is priced before its costs are known, as premiums usually are
determined long before claims are reported.


OPERATING RESULTS FOR THE YEAR ENDED
DECEMBER 31, 2000 AS COMPARED TO THE YEAR
ENDED DECEMBER 31, 1999

Net income attributable to common stockholders for 2000 was $36 million, or
$1.39 per diluted share, compared with a net loss of $37 million, or $1.43 per
diluted share, in 1999. Operating income, which is defined as net income before
realized investment gains and losses, extraordinary items and changes in
accounting principle was $31 million, or $1.18 per diluted share, in 2000
compared with an operating loss of $31 million, or $1.19 per diluted share, in
1999. Adjusting for the restructuring charges (see Note 4 of "Notes to
Consolidated Financial Statements"), operating income was $32 million, or $1.23
per diluted share, in 2000 compared with an operating loss of $23 million, or
$.91 per diluted share, in 1999. The improved results in 2000 reflect the impact
of more favorable market conditions, including higher prices and better terms
and conditions, and higher investment income.

Net premiums written increased 6% to $1,506 million for 2000 from $1,428 million
for 1999. Regional premiums decreased 1% to $641 million as price increases were
more than offset by a decline in policy count. Reinsurance premiums decreased
11% to $277 million as a result of the business restructuring implemented in the
first quarter of 2000 (see Note 4 of "Notes to Consolidated Financial
Statements"). Specialty premiums were $286 million, an increase of 10% over
1999, as new business growth was partially offset by a decrease in commercial
transportation business. Alternative markets premiums increased 51% to $184
million due to an increase in excess and reinsured workers' compensation
business. International premiums increased 38% to $119 million due to growth in
both Argentina and the Philippines.

Net investment income increased 11% to $210 million in 2000. The average gross
pre-tax yield earned on the portfolio increased to 7.3% in 2000 from 6.5% in
1999 due primarily to changes in asset allocations during 2000. (See "Liquidity
and Capital Resources.")

Service fees consist primarily of fees earned by the alternative markets
segment. Service fees decreased 6% to $68 million in 2000 principally due to the
sale of All American Agency Facilities, Inc. (See Note 3 of "Notes to
Consolidated Financial Statements.")


22
<PAGE>   2
                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES


Realized investment gains were $8 million in 2000 compared with realized
investment losses of $6 million in 1999. Realized gains and losses result from
security sales and from the change in provision for other than temporary
impairment of securities. Realized investment gains for 2000 were primarily a
result of the sale of equity securities and All American Agency Facilities, Inc.

Loss and loss expenses increased 1% to $1,094 million in 2000 from $1,086
million in 1999. The statutory loss ratio (losses and loss expenses incurred
expressed as a percentage of premiums earned) decreased to 73.1% from 76.5%
primarily as a result of decreased losses in the regional segment. In the fourth
quarter of 1999, the regional segment established additional loss reserves of
$55 million, of which approximately $40 million related to losses incurred in
1998 and prior years. There was no comparable reserve adjustment in 2000.
Weather-related losses for the Company were $49 million in 2000 compared with
$60 million in 1999.

Other operating costs and expenses, which consist of the expenses of the
Company's insurance and alternative markets operations, as well as the Company's
corporate and investment expenses, decreased by 1% to $597 million from $605
million in 1999. The statutory expense ratio of the Company's insurance
operations (underwriting expenses expressed as a percentage of premiums written)
decreased to 33.5% for 2000 from 35.4% for 1999 due primarily to expense savings
related to the regional restructuring in 1999.

The combined ratio represents a measure of underwriting profitability, excluding
investment income. A number in excess of 100 generally indicates an underwriting
loss; a number below 100 generally indicates an underwriting gain. The statutory
combined ratio (after policyholders dividends) decreased to 107.0% in 2000 from
112.2% in 1999 as a result of the decreases in the loss and expense ratios
referred to above.

The Federal and foreign income tax expense in 2000 was $2 million compared with
a tax benefit of $46 million in 1999. The income tax expense/benefit differs
from the amount computed by applying the Federal tax rate of 35% principally
because of tax-exempt investment income. (See "Liquidity and Capital
Resources.")

The Company reported an after-tax restructuring charge of $1.2 million, or 5
cents per diluted share, in 2000 related to the reorganization of the
reinsurance operations. The restructuring, which has been substantially
completed, is expected to result in annual after-tax savings of approximately
$2.5 million.

The 1999 results include an after-tax restructuring charge of $7 million, or
$.28 per diluted share, primarily related to the Company's restructuring of the
regional operations. The restructuring was substantially completed in 1999.


OPERATING RESULTS FOR THE YEAR ENDED
DECEMBER 31, 1999 AS COMPARED TO THE YEAR
ENDED DECEMBER 31, 1998

The net loss attributable to common stockholders for 1999 was $37 million, or
$1.43 per diluted share, compared to net income of $46 million, or $1.59 per
diluted share, in 1998. The operating loss, which is defined as net loss before
realized investment gains and losses, changes in accounting


                                                                              23
<PAGE>   3
principle and extraordinary items, was $31 million in 1999, or $1.19 per diluted
share, compared with operating income of $35 million, or $1.19 per diluted
share, in 1998. Adjusting for the restructuring charge (see Note 4 of "Notes to
Consolidated Financial Statements"), the operating loss was $23 million, or $.91
per diluted share, in 1999. The deterioration in operating results in 1999 was
primarily due to an increase in loss reserves and to the effects of competition
on rate adequacy.

Net premiums written increased 6% to $1,428 million from $1,346 million written
during 1998. Regional premiums grew 1% to $650 million as growth opportunities
were impeded by inadequate rates and competitive market conditions. Reinsurance
premiums increased 15% to $309 million due primarily to growth in pro-rata
treaty business. Specialty premiums were $260 million, an increase of 3% over
1998, as new business growth was partially offset by the non-renewal of
loss-producing business, primarily in the commercial transportation unit.
Alternative markets premiums increased 15% to $122 million due primarily to
growth in businesses that began operations in 1998. International premiums
increased 15% to $86 million, reflecting the first full year of operations in
the Philippines.

Net investment income decreased 6% to $190 million in 1999 due to a lower
average pre-tax return on investments. (See "Liquidity and Capital Resources.")
The portfolio yield decreased to approximately 6.5% in 1999 from approximately
6.9% in 1998 as a result of a higher concentration in municipal bonds on average
during 1999 and a lower yield on the trading portfolio.

Service fees consist primarily of fees earned by the alternative markets
segment. Service fees increased 2% to $72 million in 1999 as market conditions
continued to restrain the growth of the alternative risk market.

Realized investment losses were $6 million in 1999 compared to realized
investment gains of $25 million in 1998. The majority of the 1999 and 1998
realized gains and losses resulted from sales and provisions for permanent
impairment of fixed maturity securities.

The statutory combined ratio of the Company's insurance operations increased to
112.2% in 1999 from 106.6% in 1998 mainly due to an increase in the consolidated
loss ratio. The statutory loss ratio (losses and loss expenses incurred
expressed as a percentage of premiums earned) increased to 76.5% from 71.2%
primarily as a result of increased losses in the regional segment and commercial
transportation unit. The regional segment loss ratio increased to 84.7% from
76.0% in 1998 due to a loss reserve adjustment of $55 million in the fourth
quarter of 1999 and to the continued effects of competition on rate adequacy.
Approximately $40 million of the loss reserve adjustment related to losses
incurred in 1998 and prior years, with the balance relating to losses incurred
in 1999. In 1998, the Company reported a pre-tax charge of $31 million for
additional reinsurance premiums and loss reserves for the regional segment. The
increased losses in the commercial transportation unit were the result of a rise
in claim frequency and severity and of intense price competition.
Weather-related losses for the Company were $60 million in 1999 compared with
$59 million in 1998. The overall increase in incurred losses in 1999 was
partially


24
<PAGE>   4
                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES


offset by recoveries under the aggregate reinsurance cover (see Note 9 of "Notes
to Consolidated Financial Statements") and by favorable reserve development on
business written in prior years by the specialty and alternative markets
segments.

Other operating costs and expenses, which consist of the expenses of the
Company's insurance and alternative markets operations, as well as the Company's
corporate and investment expenses, increased by 9% to $605 million from $556
million in 1998. The increase in other operating costs is primarily due to a 10%
growth in premiums earned, which in turn results in an increase in underwriting
expenses. The statutory expense ratio of the Company's insurance operations
(underwriting expenses expressed as a percentage of premiums written) increased
to 35.4% for the 1999 period from 34.9% for the comparable 1998 period due
primarily to higher reinsurance commissions rates for the specialty and
reinsurance segments. The regional expense ratio increased to 36.1% from 35.8%
due to the impact of additional reinsurance premiums and to certain costs
directly attributable to the restructuring. Adjusting for these items, the
regional expense ratio would have been 34.1% in 1999.

The Federal and foreign income tax benefit in 1999 was $46 million compared with
an expense of $5 million in 1998. The tax benefit in 1999, as compared to a tax
expense in 1998, was due to a loss before income taxes in 1999 and to an
increase in the percentage of revenues that are tax-exempt. In addition, the
1999 Federal income tax benefit reflects the closing with the Internal Revenue
Service of tax years 1992 through 1994.

During 1999, the Company adopted AICPA Statement of Position 97-3, "Accounting
By Insurance and Other Enterprises for Insurance-Related Assessments." The
adoption of this statement resulted in a non-cash, after-tax charge of $3
million, or $.12 per diluted share, which is reflected as a cumulative effect of
a change in accounting principle.

The Company reported an after-tax extraordinary gain of $735,000 in 1999,
related to the repurchase and retirement of $10 million (face amount) of capital
trust securities. In 1998, the Company reported an after-tax extraordinary loss
of $5 million, related to the repurchase and retirement of $34.7 million (face
amount) of long-term debt.


LIQUIDITY AND CAPITAL RESOURCES

GENERAL The net cash provided from operating activities (before increase in
trading account sales) was $76 million in 2000, $82 million in 1999 and $257
million in 1998. The decrease in cash flow in 2000 and 1999 was primarily due to
a higher level of claims activity.

As a holding company, the Company derives cash from its subsidiaries in the form
of dividends, tax payments and management fees. The Company uses cash to pay
debt service, Federal income taxes, operating expenses and dividends. The
Company also provides capital to its subsidiaries. Tax payments and management
fees from the insurance subsidiaries are made under agreements which generally
are subject to approval by state insurance departments. Maximum amounts of
dividends that can be taken without regulatory approval are prescribed by
statute. (See Note 18 of "Notes to Consolidated Financial Statements.")


                                                                              25
<PAGE>   5
The Company's subsidiaries are highly liquid, receiving substantial cash from
premiums, investment income, service fees and proceeds from sales and maturities
of portfolio investments. The principal outflows of cash are payments of claims,
taxes, interest, operating expenses and dividends.

FINANCING ACTIVITY During 2000, the Company repaid $25 million (face value) of
senior notes upon maturity. In 1999, the Company redeemed all outstanding Series
A Preferred Stock for $98 million and repurchased $10 million (face value) of
trust preferred securities for $8.8 million. During 1998, the Company issued $40
million medium-term notes due April 15, 2005, and one of the Company's
subsidiaries issued an $8 million note due December 30, 2003. Also in 1998, the
Company repurchased $34.7 million (face amount) senior notes and debentures for
$41.8 million and retired $10 million (face value) senior notes upon maturity.

During 2000, the Company purchased 300,000 shares of its common stock for
approximately $7 million leaving a balance as of December 31, 2000 of 795,000
shares available for repurchase under its current authorization. During 1999,
the Company purchased 905,000 shares of its common stock for approximately $22
million. During 1998, the Company purchased 3,172,222 shares of its common stock
for approximately $118 million.

As of December 31, 2000 and 1999, the Company had $10 million and $35 million,
respectively, of outstanding short-term debt under its unsecured bank credit
facility. As of December 31, 2000, the Company had an additional $65 million of
short-term debt available under this facility. The credit facility expires on
December 7, 2001.

CAPITALIZATION For the year ended December 31, 2000, stockholders' equity
increased by approximately $89 million. The increase in stockholders' equity is
primarily attributable to after-tax unrealized investment gains of approximately
$64 million and to net income of $36 million. The Company's total capitalization
was $1,249 million at December 31, 2000 and the percentage of the Company's
capital attributable to long-term debt decreased to 30% at December 31, 2000
from 33% at December 31, 1999.

On March 6, 2001, the Company issued 3,105,000 shares of its common stock and
received net proceeds of $122 million. The proceeds will be used to provide
additional capital for its insurance subsidiaries and for general corporate
purposes. The Company may also use the proceeds of this offering to reduce some
of its indebtedness, depending on market conditions.

INVESTMENTS As part of its investment strategy, the Company establishes a level
of cash and highly liquid short-term and intermediate-term securities which,
combined with expected cash flow, is believed adequate to meet foreseeable
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 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 portfolio is considered necessary to
maintain an approximate matching of


26
<PAGE>   6
                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES


assets and liabilities as well as to adjust the portfolio as a result of changes
in financial market conditions and tax considerations.

The investment portfolio (including account receivable from brokers and clearing
organizations and securities sold but not yet purchased), on a cost basis,
increased in 2000 by $35 million to approximately $3,074 million. The Company's
investments are currently comprised of fixed income securities and equity
securities. At December 31, 2000, the portfolio mix was as follows: U.S.
Government securities and cash equivalents were 26% (21% in 1999); state and
municipal securities were 20% (35% in 1999); corporate fixed maturity securities
were 19% (15% in 1999); mortgage-backed securities were 18% (15% in 1999); and
the balance of 17% (14% in 1999) was invested in equity securities.

The Company's equity portfolio is comprised of merger arbitrage securities,
which are classified as trading account assets, and other equity investments,
which are classified as available for sale. Net trading account assets (trading
account equity securities plus trading account receivable from brokers and
clearing organizations less trading account equity securities sold but not yet
purchased) were $448 million as of December 31, 2000, compared with $356 million
as of December 31, 1999. Net trading account assets represented approximately
14% and 12% of the Company's net invested assets as of December 31, 2000 and
1999, respectively.

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

The Company's investments are categorized as either fixed maturity securities or
equity securities. The principal market risk for the Company's fixed maturity
securities is interest rate risk. The Company uses various models and stress
test scenarios to monitor and manage interest rate risk. The following table
outlines the groups of fixed maturity securities and the components of the
interest rate risk:

<TABLE>
<CAPTION>
                                        Market  Effective   Fair Value
Group                                   Yield    Duration     (000's)
- ----------------------------------------------------------------------
<S>                                     <C>     <C>        <C>
U. S. Government securities             5.5%      4.93     $   493,624
- ----------------------------------------------------------------------
State and municipal                     5.0       6.48         615,169
- ----------------------------------------------------------------------
Corporate                               7.4       5.16         604,946
- ----------------------------------------------------------------------
Mortgage-backed securities              7.0       5.87         566,314
- ----------------------------------------------------------------------
  Total                                 6.3%      5.64      $2,280,053
======================================================================
</TABLE>


As a general rule, a portfolio's duration measures the expected change in
portfolio value due to a change in interest rates.

The portfolio's duration is further modified to accurately reflect a portfolio's
expected price movement as interest rates change. Based upon a pricing model,
the Company determines the estimated change in fair value of the fixed maturity
securities, assuming immediate parallel shifts in the treasury yield curve while
keeping spreads between individual securities and treasury securi-


                                                                              27
<PAGE>   7

ties static. The fair value at specified levels at December 31, 2000 would be as
follows:

<TABLE>
<CAPTION>
                                      Estimated Fair         Estimated
                                    Value of Financial       Change in
                                       Instruments           Fair Value
Change in interest rates                 $(000's)             $(000's)
- -----------------------------------------------------------------------
<S>                                     <C>                 <C>
300 basis point rise                    $1,940,197          $(339,856)
- ----------------------------------------------------------------------
200 basis point rise                     2,043,680           (236,373)
- ----------------------------------------------------------------------
100 basis point rise                     2,156,867           (123,186)
- ----------------------------------------------------------------------
Base scenario                            2,280,053                 --
- ----------------------------------------------------------------------
100 basis point decline                  2,399,529            119,476
- ----------------------------------------------------------------------
200 basis point decline                  2,524,443            244,390
- ----------------------------------------------------------------------
300 basis point decline                  2,661,338            381,285
- ----------------------------------------------------------------------
</TABLE>

The estimated changes in fair value, based upon the above table, would be offset
by the Company's liabilities if they were marked to market.

The Company's trading account securities are used for merger arbitrage. Merger
arbitrage is the business of investing in the securities of publicly held
companies which are the targets in announced tender offers and mergers. Merger
arbitrage differs from other types of investments in its focus on transactions
and events believed likely to bring about a change in value over a relatively
short time period (usually four months or less). The Company believes that this
makes merger arbitrage investments less vulnerable to changes in general stock
market conditions. Potential changes in market conditions are also mitigated by
the implementation of hedging strategies, including short sales. Additionally,
the merger arbitrage positions are generally hedged against market declines by
purchasing put options, selling call options or entering into swap contracts.
Based upon these characteristics, the Company's equity securities are primarily
exposed to the completion of announced deals, which are subject to regulatory as
well as political and other risks.

The Company's investments in foreign subsidiaries are subject to foreign
currency risk. In order to mitigate foreign currency risks, the foreign
subsidiaries maintain a portion of their invested assets in US Dollar
denominated securities. The Company's foreign subsidiaries operate primarily in
Argentina and the Philippines. Argentina has established a currency board
exchange rate mechanism that creates a dollar for dollar relationship between
the US Dollar and the Argentine Peso. The Company's investment in the
Philippines is affected by fluctuations in the exchange rate between the US
Dollar and the Philippine Peso. For every one percent change in the exchange
rate, the Company's unrealized foreign currency gain/(loss) would change
approximately $67,000, net of minority interest.

FEDERAL AND FOREIGN INCOME TAXES The Company files a consolidated income tax
return in the U.S. and foreign tax returns in the countries of its overseas
operations. At December 31, 2000, the Company had a deferred tax asset of $141
million (which primarily relates to the discounting of loss reserves for Federal
income tax purposes, unearned premiums and an alternative minimum tax credit
carry forward) and a deferred tax liability of $93 million (which primarily
relates to deferred policy acquisition costs, unrealized investment gains and
intangible assets).

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


28
<PAGE>   8
                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES


REINSURANCE
The Company follows the customary industry practice of reinsuring a portion of
its exposures, paying to reinsurers a part of the premiums received on the
policies it writes. Reinsurance is purchased principally to reduce net liability
on individual risks and to protect against catastrophic losses. Although
reinsurance does not legally discharge an insurer from its primary liability for
the full amount of the policies, it does make the assuming reinsurer liable to
the insurer to the extent of the reinsurance coverage. The Company monitors the
financial condition of its reinsurers and attempts to place its coverages only
with substantial, financially sound carriers.

REGIONAL OPERATIONS In 2000, the regional companies generally retained $500,000
on individual property casualty risks and up to $2.1 million per bond for surety
business. The regional group also maintained catastrophe reinsurance protection
for approximately 100% of weather-related losses above $6 million per occurrence
up to a maximum of $34 million. In 2001, the regional companies will generally
retain up to $1 million on individual property casualty risks for most classes
of business, and the catastrophe protection will increase to $48.5 million in
excess of the $6 million.

REINSURANCE OPERATIONS The catastrophe retrocession program provided coverage
for property losses for 100% of $19.2 million in excess of $3.2 million per
occurrence. Property facultative business retains $262,500 per risk and casualty
facultative business retains up to $3 million per risk over variable layers.
Fidelity & Surety retains $750,000 per risk after an annual aggregate
deductible.

SPECIALTY OPERATIONS Specialty companies generally retained up to $300,000 for
most classes of business, other than business written by Monitor Liability
Managers and Monitor Surety Managers. Retentions were up to $5 million for
business written by Monitor Liability Managers and up to $500,000 for business
written by Monitor Surety Managers. The specialty group (other than Carolina
Casualty Insurance Company) was also covered under the regional group's property
catastrophe reinsurance. In 2001, specialty companies other than Monitor
Liability Managers will generally retain up to $1 million for most classes of
business.

ALTERNATIVE MARKETS OPERATIONS Excess workers' compensation retention was
generally $1 million per occurrence above the self-insured's underlying
retention. Primary workers' compensation companies retained up to $300,000 per
risk.

INTERNATIONAL OPERATIONS The international operations generally retained between
$50,000 and $250,000 per occurrence or individual risk.


                                                                              29
<PAGE>   9
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)


<TABLE>
<CAPTION>
Years ended December 31,                                                                 2000            1999             1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>             <C>              <C>
Revenues:
  Net premiums written                                                               $ 1,506,244     $ 1,427,719      $ 1,346,254
  Change in net unearned premiums                                                        (15,230)        (13,335)         (67,855)
- ---------------------------------------------------------------------------------------------------------------------------------
    Premiums earned                                                                    1,491,014       1,414,384        1,278,399
  Net investment income                                                                  210,448         190,316          202,420
  Service fees                                                                            68,049          72,344           70,727
  Realized investment gains (losses)                                                       8,364          (6,064)          25,400
  Other income                                                                             3,412           2,688            5,571
- ---------------------------------------------------------------------------------------------------------------------------------
    Total revenues                                                                     1,781,287       1,673,668        1,582,517
Operating costs and expenses:
  Losses and loss expenses                                                             1,094,411       1,085,826          914,762
  Other operating costs and expenses                                                     596,579         604,784          556,155
  Interest expense                                                                        47,596          50,801           48,819
  Restructuring charge                                                                     1,850          11,505               --
- ---------------------------------------------------------------------------------------------------------------------------------
    Income (loss) before income taxes                                                     40,851         (79,248)          62,781
Income tax benefit (expense)                                                              (2,451)         45,766           (5,465)
- ---------------------------------------------------------------------------------------------------------------------------------
    Income (loss) before minority interest and preferred dividends                        38,400         (33,482)          57,316
Minority interest                                                                         (2,162)           (566)           1,444
Preferred dividends                                                                           --            (497)          (7,548)
- ---------------------------------------------------------------------------------------------------------------------------------
    Net income (loss) before change in accounting and extraordinary gain (loss)           36,238         (34,545)          51,212
Cumulative effect of change in accounting principle (net of taxes)                            --          (3,250)              --
Extraordinary gain (loss) on early extinguishment
   of long-term debt (net of taxes)                                                           --             735           (5,017)
==================================================================================================================================
    Net income (loss) attributable to common stockholders                            $    36,238     $   (37,060)     $    46,195
==================================================================================================================================
Earnings (loss) per share:
   Basic
     Net income (loss) before change in accounting and extraordinary gain (loss)     $      1.41     $     (1.35)     $      1.82
     Cumulative effect of change in accounting principle (net of taxes)                       --            (.12)              --
     Extraordinary gain (loss) on early extinguishment of long-term debt                      --             .03             (.18)
==================================================================================================================================
    Net income (loss) attributable to common stockholders                            $      1.41     $     (1.44)     $      1.64
==================================================================================================================================
   Diluted
     Net income (loss) before change in accounting and extraordinary gain (loss)     $      1.39     $     (1.34)     $      1.76
     Cumulative effect of change in accounting principle (net of taxes)                       --            (.12)              --
     Extraordinary gain (loss) on early extinguishment of long-term debt                      --             .03             (.17)
==================================================================================================================================
    Net income (loss) attributable to common stockholders                            $      1.39     $     (1.43)     $      1.59
==================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


30
<PAGE>   10
                                      W.R. BERKLEY CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)


<TABLE>
<CAPTION>
December 31,                                                                                             2000               1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>                <C>
Assets
Investments:
  Invested cash                                                                                      $   308,193        $   295,423
  Fixed maturity securities:
    Held to maturity, at cost (fair value $164,229 and $150,465)                                         156,067            152,657
    Available for sale, at fair value (cost $2,087,338 and $2,180,509)                                 2,115,824          2,110,411
  Equity securities, at fair value:
    Available for sale (cost $76,545 and $54,437)                                                         83,823             61,380
    Trading account (cost $340,617 and $236,453)                                                         347,271            253,430
Cash                                                                                                         938             20,051
Premiums and fees receivable                                                                             416,243            380,887
Due from reinsurers                                                                                      713,392            620,446
Accrued investment income                                                                                 36,578             36,925
Prepaid reinsurance premiums                                                                              99,444             91,005
Deferred policy acquisition costs                                                                        196,231            182,348
Real estate, furniture and equipment at cost, less accumulated depreciation                              118,282            128,735
Deferred Federal and foreign income taxes                                                                 47,567             81,976
Excess of cost over net assets acquired                                                                   71,496             76,523
Trading account receivable from brokers and clearing organizations                                       269,444            258,454
Other assets                                                                                              41,277             34,140
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets                                                                                         $ 5,022,070        $ 4,784,791
===================================================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
  Reserves for losses and loss expenses                                                              $ 2,533,917        $ 2,361,238
  Unearned premiums                                                                                      713,239            689,826
  Due to reinsurers                                                                                      132,521            144,712
  Trading securities sold but not yet purchased, at fair value (proceeds $164,312 and $138,731)          169,020            155,826
  Short-term debt                                                                                         10,000             35,000
  Other liabilities                                                                                      182,273            183,218
  Long-term debt                                                                                         370,158            394,792
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                                      4,111,128          3,964,612
- -----------------------------------------------------------------------------------------------------------------------------------
Trust preferred securities                                                                               198,169            198,126
Minority interest                                                                                         31,877             30,275
- -----------------------------------------------------------------------------------------------------------------------------------
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 80,000,000 shares, issued and outstanding,
      net of treasury shares, 25,656,362 and 25,616,578 shares                                             7,281              7,281
  Additional paid-in capital                                                                             334,061            331,640
  Retained earnings                                                                                      574,345            551,401
  Accumulated other comprehensive income (loss)                                                           19,371            (44,500)
  Treasury stock, at cost, 10,747,482 and 10,787,489 shares                                             (254,162)          (254,044)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity                                                                               680,896            591,778
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                                                           $ 5,022,070        $ 4,784,791
===================================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


                                                                              31
<PAGE>   11
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars in thousands, except per share data)


Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                          Preferred
                                                                          and common
                                                                           stock and                     Accumulated
                                                             Total         additional                      other
                                                          stockholders'     paid-in       Retained      comprehensive      Treasury
                                                            equity          capital       earnings      income (loss)        stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>            <C>             <C>             <C>
Balance, December 31, 1997                                $ 947,292        $ 436,106      $ 569,160       $  58,206       $(116,180)
  Net income attributable to common stockholders             46,195               --         46,195              --              --
  Change in other comprehensive income (loss)                (3,534)              --             --          (3,534)             --
  Issuance of common shares                                   2,719              851             --              --           1,868
  Purchase of treasury stock                               (117,944)              --             --              --        (117,944)
  Dividends to common stockholders ($.48 per share)         (13,447)              --        (13,447)             --              --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                                  861,281          436,957        601,908          54,672        (232,256)
  Net (loss) attributable to common stockholders            (37,060)              --        (37,060)             --              --
  Change in other comprehensive income (loss)               (99,172)              --             --         (99,172)             --
  Issuance of common shares                                     387               56             --              --             331
  Purchase of treasury stock                                (22,119)              --             --              --         (22,119)
  Repurchase of preferred stock                             (98,092)         (98,092)            --              --              --
  Dividends to common stockholders ($.52 per share)         (13,447)              --        (13,447)             --              --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                                  591,778          338,921        551,401         (44,500)       (254,044)
  Net income attributable to common stockholders             36,238               --         36,238              --              --
  Change in other comprehensive income (loss)                63,871               --             --          63,871              --
  Issuance of common shares                                   9,323            2,421             --              --           6,902
  Purchase of treasury stock                                 (7,020)              --             --              --          (7,020)
  Dividends to common stockholders ($.52 per share)         (13,294)              --        (13,294)             --              --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                                $ 680,896        $ 341,342      $ 574,345       $  19,371       $(254,162)
====================================================================================================================================
</TABLE>


CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
(Dollars in thousands)


<TABLE>
<CAPTION>
                                                                                2000                 1999                  1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                 <C>                   <C>
Net income (loss) attributable to common stockholders                        $  36,238           $ (37,060)            $  46,195
- ---------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)
  Unrealized holding gains (losses) on investment securities arising
    during the period, net of taxes of ($37,762), $55,491 and ($7,839)          70,129            (103,055)               14,558
  Less: Reclassification adjustment for realized (gains) losses
    included in net income                                                      (5,436)              3,942               (16,510)
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gains (losses) during the period                       64,693             (99,113)               (1,952)
  Change in unrealized foreign exchange (losses)                                  (822)                (59)               (1,582)
- ---------------------------------------------------------------------------------------------------------------------------------
  Other comprehensive income (loss)                                             63,871             (99,172)               (3,534)
- ---------------------------------------------------------------------------------------------------------------------------------
  Comprehensive income (loss)                                                 $100,109           $(136,232)              $42,661
=================================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


32
<PAGE>   12
                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)


<TABLE>
<CAPTION>
Years ended December 31,                                                             2000               1999               1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                <C>                <C>
Cash flows (used in) provided by operating activities:
  Net income (loss) before minority interest, preferred dividends and
    extraordinary items                                                         $    38,400        $   (36,732)       $    57,316
  Adjustments to reconcile net income to net cash flows
    provided by operating activities:
    Increase in reserves for losses and loss expenses, net of due to/from
      reinsurers                                                                     69,417            141,718            169,285
    Depreciation and amortization                                                    21,700             23,598             22,658
    Change in unearned premiums and prepaid reinsurance premiums                     14,974             13,490             68,095
    Change in premiums and fees receivable                                          (35,356)            (3,386)           (45,727)
    Change in Federal and foreign income taxes                                        2,138            (34,289)           (26,923)
    Change in deferred policy acquisition costs                                     (13,883)           (12,457)           (22,057)
    Realized investment (gains) losses                                               (8,364)             6,064            (25,400)
    Other, net                                                                      (12,692)           (15,959)            60,021
- ---------------------------------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities before increase in
        trading account securities                                                   76,334             82,047            257,268
  Increase in trading account securities                                            (89,609)           (32,978)           (37,565)
- ---------------------------------------------------------------------------------------------------------------------------------
      Net cash (used in) provided by operating activities                           (13,275)            49,069            219,703
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) investing activities:
  Proceeds from sales, excluding trading account:
    Fixed maturity securities available for sale                                    725,961            594,993            715,459
    Equity securities                                                                48,079             17,200             52,727
  Proceeds from maturities and prepayments of fixed maturity securities             142,636            147,668            297,303
  Cost of purchases, excluding trading account:
    Fixed maturity securities available for sale                                   (773,804)          (695,928)        (1,033,190)
    Fixed maturity securities held to maturity                                           --                 --             (3,034)
    Equity securities                                                               (70,988)           (14,397)           (33,217)
  Proceeds (cost) of acquired/sold companies, net of acquired cash and
    invested cash                                                                     2,187             (1,533)            (3,304)
  Net additions to real estate, furniture and equipment                              (7,529)            (8,127)           (27,167)
  Other, net                                                                          1,176               (435)             3,956
- ---------------------------------------------------------------------------------------------------------------------------------
      Net cash provided by (used in) investing activities                            67,718             39,441            (30,467)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities:
  Repurchase of long-term debt                                                      (25,000)                --            (49,104)
  Net change in short-term debt                                                     (25,000)           (20,500)            55,500
  Cash dividends to common stockholders                                             (12,701)           (13,888)           (13,518)
  purchase of common treasury shares                                                 (7,020)           (22,119)          (117,944)
  Other, net                                                                          8,935              6,060                735
  Repurchase of preferred stock                                                          --            (98,092)                --
  Repurchase of trust preferred securities                                               --             (8,774)                --
  Cash dividends to preferred stockholders                                               --             (2,001)            (7,356)
  Net proceeds from issuance of long-term debt                                           --                 --             47,882
- ---------------------------------------------------------------------------------------------------------------------------------
      Net cash used in financing activities                                         (60,786)          (159,314)           (83,805)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and invested cash                                    (6,343)           (70,804)           105,431
Cash and invested cash at beginning of year                                         315,474            386,278            280,847
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and invested cash at end of year                                           $   309,131        $   315,474        $   386,278
=================================================================================================================================
Supplemental disclosure of cash flow information:
  Interest paid on debt                                                         $    48,053        $    50,801        $    48,976
=================================================================================================================================
  Federal income taxes (received) paid                                          $    (1,079)       $   (12,973)       $    32,090
=================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                              33
<PAGE>   13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2000, 1999 and 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Principles of consolidation and basis of presentation The consolidated
financial statements, which include the accounts of W. R. Berkley Corporation
and its subsidiaries (the "Company"), have been prepared on the basis of
accounting principles generally accepted in the United States of America
("GAAP"). All significant intercompany transactions and balances have been
eliminated. Reclassifications have been made in the 1999 and 1998 financial
statements to conform them to the presentation of the 2000 financial statements.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the revenues and expenses reflected
during the reporting period. Actual results could differ from those estimates.

(B) Revenue recognition
Insurance premiums written are recognized as earned generally on a pro-rata
basis over the contract period. Service fees on insurance service contracts are
recorded as earned primarily on a pro-rata basis over the policy period.

(C) Investments
The Company has classified its investments into three categories. Securities
that the Company has the positive intent and ability to hold to maturity are
classified as "held to maturity" and reported at amortized cost. Securities
which the Company purchased with the intent to sell in the near-term are
classified as "trading" and are reported at estimated fair value, with
unrealized gains and losses reflected in the statement of operations. The
remaining securities are classified as "available for sale" and carried at
estimated fair value, with unrealized gains and losses, net of applicable income
taxes, excluded from earnings and reported as a component of comprehensive
income (loss) and a separate component of stockholders' equity. Fair value is
generally determined using published market values.

Realized gains or losses represent the difference between the cost of securities
sold and the proceeds realized upon sale. The cost of securities is adjusted
where appropriate to include a provision for significant decline in value which
is considered to be other than temporary. The Company uses the specific
identification method where possible, and the first-in, first-out method in
other instances, to determine the cost of securities sold. Realized gains or
losses, including any provision for decline in value, are included in the
statement of operations.

(D) Trading account
Equity securities purchased (long portfolio positions) are presented in the
balance sheet as trading account assets. Equity securities sold but not yet
purchased (short sales and short call options) are presented as trading
securities sold but not yet purchased. Unsettled trades and the net margin
balances held by the clearing broker are presented as trading account receivable
from brokers and clearing organizations. The Company's trading account portfolio
is recorded at fair value. Realized and unrealized gains and losses from trading
activity are reported as net investment income.

(E) Per share data
Basic per share data is based upon the weighted average number of shares
outstanding during the year. Diluted per share data reflects the potential
dilution that would occur if employee stock-based compensation plans were
exercised. Shares issued in connection with loans to shareholders are not
considered to be outstanding for the purposes of calculating basic per share
amounts. The related amounts due from shareholders are excluded from
stockholders' equity.

(F) Deferred policy acquisition costs
Acquisition costs (primarily commissions and premium taxes) incurred in writing
insurance and reinsurance business are deferred and amortized ratably over the
terms of the related contracts. Deferred policy acquisition costs are limited to
the amounts estimated to be recoverable from the applicable unearned premiums
and the related anticipated investment income by giving effect to anticipated
losses, loss adjustment expenses and expenses necessary to maintain the
contracts in force.

(G) Reserves for losses and loss expenses
Reserves for losses and loss expenses are an accumulation of amounts determined
on the basis of (1) evaluation of claims for business written directly by the
Company; (2) estimates received from other companies for reinsurance


34
<PAGE>   14
                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES


assumed; and (3) estimates for losses incurred but not reported (based on
Company and industry experience). These estimates are periodically reviewed and,
as experience develops and new information becomes known, the reserves are
adjusted as necessary. Such adjustments are reflected in results of operations
in the period in which they are determined. The Company discounts its reserves
for excess and assumed workers' compensation claims using a "risk-free" rate.
(see Note 15 of Notes to Consolidated Financial Statements).

(H) Reinsurance ceded
Ceded unearned premiums are reported as prepaid reinsurance premiums and
estimated amounts of reinsurance recoverable on unpaid losses are included in
due from reinsurers. To the extent any reinsurer does not meet its obligations
under reinsurance agreements, the Company must discharge the liability. Amounts
due from reinsurers are reflected net of funds held where the right of offset is
present. The Company has provided reserves for uncollectible reinsurance.

(I) Excess of cost over net assets acquired
Costs in excess of the net assets of subsidiaries acquired are being amortized
on a straight-line basis over 25 to 40 years. The Company continually evaluates
the amortization period of its intangible assets. Estimates of useful lives are
revised when circumstances or events indicate that the original estimate is no
longer appropriate. Amortization (including adjustments) of the excess of cost
over net assets acquired was $4,036,000, $3,866,000 and $3,178,000 for 2000,
1999 and 1998, respectively.

(J) Federal and foreign income taxes
The Company files a consolidated income tax return in the U.S. and foreign tax
returns in the countries of its overseas operations.

The Company's method of accounting for income taxes is the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are measured using tax rates currently in effect or expected to
apply in the years in which those temporary differences are expected to reverse.

(K) Stock options
The Company uses the intrinsic-value method of accounting for stock-based awards
granted to employees and, accordingly, does not recognize compensation expense
for its stock-based awards to employees. (See Note 10 of Notes to Consolidated
Financial Statements).

(L) Foreign currency
Revenues and expenses in foreign currencies are translated at the weighted
average exchange rate during the year. Assets and liabilities are translated at
the rate of exchange in effect at the close of the period. Unrealized gains or
losses (losses of $4,174,000 and $3,352,000 as of December 31, 2000 and 1999,
respectively) resulting from translating foreign currency financial statements
are reported as a component of common stockholders' equity. Gains or losses
(gains of $775,000 and $1,543,000 for 2000 and 1998, respectively, and losses of
$381,000 for 1999) resulting from foreign currency transactions (transactions
denominated in a currency other than the entity's functional currency) are
included in the statement of operations.

(M) Real estate, furniture and equipment
Real estate, furniture and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated using the estimated useful lives of the
respective assets. Depreciation expense was $17,704,000, $16,291,000 and
$17,114,000 for 2000, 1999 and 1998, respectively.

(N) Comprehensive Income (loss)
Comprehensive income (loss) encompasses all changes in stockholders' equity
(except those arising from transactions with stockholders) and includes net
income, net unrealized capital gains or losses on available-for-sale securities
and unrealized foreign currency translation adjustments.

(O) Insurance Related Assessments
As of January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants (AICPA) Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance Related Assessments." This
statement provides guidance for determining when an entity should recognize
liabilities for guarantee fund and other insurance related assessments, how to
measure those liabilities and when an asset may be recognized for the recovery
of such assessments through premium tax offsets or policy surcharges. The
adoption of this statement resulted in an after tax charge of $3,250,000 for the
year ended December 31, 1999, which is reflected as a cumulative effect of a
change in accounting principle.


                                                                              35
<PAGE>   15
(P) Recent accounting pronouncements
During 1999, the FASB issued FAS 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB 133, and Amendment
of FASB 133" which extended the effective date of FAS 133 to January 1, 2001.
FAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments. This
statement will not have a material impact on the Company's results of operations
or financial condition.

In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a
replacement of FASB Statement No. 125". This statement will not have a material
impact on the Company's results of operations or financial condition.

(2) LEASE OBLIGATIONS

The Company and its subsidiaries use office space and equipment under leases
expiring at various dates through September 1, 2004. These leases are considered
operating leases for financial reporting purposes. Some of these leases have
options to extend the length of the leases and contain clauses for cost of
living, operating expense and real estate tax adjustments. Rental expense was
approximately: $16,580,000, $16,109,000 and $14,095,000 for 2000, 1999 and 1998,
respectively. Future minimum lease payments (without provision for sublease
income) are $14,456,000 in 2001; $11,626,000 in 2002; $9,375,000 in 2003;
$6,071,000 in 2004; and $10,101,000 thereafter.

(3) ACQUISITIONS AND ASSET SALES

During 2000, the company sold the assets of All American Agency Facilities Inc.
("All American"), a managing general agency, and reported a realized gain of
$3,179,000. All American's revenues and operating profits (losses) were
$1,819,000 and ($638,000) in 2000, $7,480,000 and $381,000 in 1999 and
$5,659,000 and $39,000 in 1998.

    During 1999 and 1998, several international and other acquisitions were
completed for an aggregate consideration of approximately $1,533,000 and
$13,389,000, respectively. The acquisitions were accounted for as purchases and,
accordingly, the results of operations of the companies have been included from
the respective dates of acquisition. Proforma results of operations have been
omitted as such effects are not significant.

    Net assets of the acquired companies for 1999 and 1998 were as follows: cash
and investments of $0 and $11,871,000; excess of cost over net assets acquired
of $3,744,000 and $6,847,000; and other liabilities, net of other assets, of
$5,277,000 and $5,329,000, respectively.

(4) RESTRUCTURING PLAN

In the first quarter of 2000, the Company implemented a plan to reorganize its
reinsurance business. Under the plan, the reinsurance segment has withdrawn from
the Latin American and Caribbean market, and the domestic reinsurance operations
have focused on specialty reinsurance lines while de-emphasizing certain
commodity-type lines. The Company reduced its permanent workforce by
approximately 37 employees in connection with the plan. The Company reported a
restructuring charge of $1,850,000 to reflect costs related to the plan. This
charge consisted mainly of severance payments of $1,439,000 and contractual
lease payments related to abandoned facilities. The activities under the plan
were substantially completed in 2000.

    In the first quarter of 1999, the Company implemented a plan to restructure
certain of its operating units. Under the plan, the Company consolidated ten of
its regional units into four; merged two of its alternative market units;
combined two of its international units; and reduced its workforce by
approximately 386 employees. The Company reported a restructuring charge of
$11,505,000 in the first quarter of 1999 to reflect the estimated costs of the
plan. This charge consists mainly of severance payments of $7,562,000,
contractual lease payments related to abandoned facilities and abandoned
equipment and property owned.

    The Company has paid $10,873,000 related to the restructuring charges of
which $7,636,000 relates to severance payments. The remaining restructuring
accrual is $2,482,000 at December 31, 2000, of which certain payments extend
through 2003.


36
<PAGE>   16
                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES

(5) DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
Description                        Rate           Maturity              Face Value       Carrying Value
- -------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>                      <C>              <C>
Senior Notes                       6.71%      March 4, 2003            $ 25,000,000        $ 24,957,000
Senior Subordinated Notes          6.50%      July 1, 2003               35,793,000          35,793,000
Note Payable                        (1)       December 30, 2003           8,000,000           8,000,000
Senior Notes                       6.375%     April 15, 2005             40,000,000          39,854,000
Senior Notes                       6.25%      January 15, 2006          100,000,000          99,323,000
Senior Notes                       9.875%     May 15, 2008               88,800,000          86,561,000
Senior Debentures                  8.70%      January 1, 2022            76,503,000          75,670,000
- -------------------------------------------------------------------------------------------------------
                                                                       $374,096,000        $370,158,000
=======================================================================================================
</TABLE>

(1)Floating rate equal to Libor plus 50 basis points.

The difference between the face value of long-term debt and the carrying value
is unamortized discount. All outstanding long-term debt is not redeemable until
maturity.

SHORT-TERM DEBT As of December 31, 2000 and 1999, the Company had $10,000,000
and $35,000,000, respectively, of outstanding short-term debt under its
unsecured line-of-credit. During 2000 and 1999, the average interest rate of the
Company's short-term debt was 6.87% and 5.36%. As of December 31, 2000, the
Company had an additional $65,000,000 of short-term debt available under its
line-of-credit.

(6) Trust Preferred Securities

The Company-obligated mandatorily redeemable preferred securities of a
subsidiary trust holding solely junior subordinated debentures ("Trust Preferred
Securities") were issued by the W.R. Berkley Capital Trust ("the Trust") in
1996. All of the common securities of the Trust are owned by the Company. The
sole assets of the Trust are $210,000,000 aggregate principal amount of 8.197%
Junior Subordinated Debentures due December 15, 2045, issued by the Company (the
"Junior Subordinated Debentures"). The Company's guarantee of payments of cash
distributions and payments on liquidation of the Trust and redemption of the
Trust Preferred Securities, when taken together with the Company's obligations
under the Trust Agreement under which the Trust Preferred Securities were
issued, the Junior Subordinated Debentures and the Indenture under which the
Junior Subordinated Debentures were issued, including its obligations to pay
costs, expenses, debts and liabilities of the Trust (other than with respect to
the Trust Preferred Securities), provide a full and unconditional guarantee of
the Trust's obligations under the Trust Preferred Securities. The Company
records the preferential cumulative cash dividends arising from the payments of
interest on the Junior Subordinated Debentures as interest expense in its
consolidated statement of operations.

The Trust Preferred Securities are subject to mandatory redemption in a like
amount (i) in whole but not in part, on the stated maturity date, upon repayment
of the Junior Subordinated Debentures, (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 a certain
event and (iii) in whole or in part, on or after December 15, 2006,
contemporaneously with the optional prepayment by the Company of Junior
Subordinated Debentures. In September 1999, a subsidiary of the Company
purchased $10 million (face amount) of the Trust Preferred Securities for
$8,774,000.


                                                                              37
<PAGE>   17


(7) COMMITMENTS, LITIGATION AND
    CONTINGENT LIABILITIES


Neither the Company nor any of its subsidiaries is engaged in any litigation
known to the Company which management believes will have a material adverse
effect upon the Company's business. As is common with other insurance companies,
the Company's subsidiaries are regularly engaged in the defense of claims
arising out of the conduct of the insurance business.


(8) SUPPLEMENTAL FINANCIAL STATEMENT DATA

Other operating costs and expenses consist of the following:

<TABLE>
<CAPTION>
(Dollars in thousands)                        2000          1999          1998
- --------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>
Amortization of deferred
   policy acquisition costs                 $454,729      $444,289      $394,612
Other operating costs
  and expenses of
  insurance operations                        67,254        77,617        77,596
Other costs and expenses                      74,596        82,878        83,947
- --------------------------------------------------------------------------------
Total                                       $596,579      $604,784      $556,155
================================================================================
</TABLE>


(9) REINSURANCE CEDED

The Company follows the customary industry practice of reinsuring a portion of
its exposures principally to reduce net liability on individual risks and to
protect against catastrophic losses. The following amounts arising under
reinsurance ceded contracts have been deducted in arriving at the amounts
reflected in the statement of operations:

<TABLE>
<CAPTION>
(Dollars in thousands)                        2000          1999          1998
- --------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>
Premiums written                            $310,511      $307,170      $292,238
- --------------------------------------------------------------------------------
Premiums earned                             $301,835      $294,823      $286,170
- --------------------------------------------------------------------------------
Losses and loss expenses                    $267,804      $248,767      $211,389
- --------------------------------------------------------------------------------
</TABLE>

In 1999, the Company purchased additional aggregate reinsurance protection for
its regional segment. Pursuant to the contract, the reinsurer will indemnify the
regional companies for losses occurring during 1999 in excess of 71% of earned
premiums, up to a limit of $35,000,000. Premiums of $21,000,000 and losses of
$35,000,000 were ceded to the reinsurer in 1999.

(10) STOCK OPTION PLAN

The Company has a stock option plan (the "Stock Option Plan") under which
7,125,000 shares of Common Stock were reserved for issuance. Pursuant to the
Stock Option Plan, options may be granted at prices determined by the Board of
Directors but not less than fair market value on the date of grant.

  The following table summarizes option information:

<TABLE>
<CAPTION>
                                                  2000                         1999                      1998
                                        ------------------------------------------------------------------------------
                                                         Weighted                    Weighted                 Weighted
                                                         Average                      Average                  Average
                                                         Exercise                    Exercise                 Exercise
                                          Shares          Price          Shares        Price       Shares       Price
- ----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>           <C>            <C>         <C>          <C>
Outstanding at beginning of year        3,662,785        $34.12        3,929,333       $34.25     3,218,762     $29.52
Granted                                   872,000         19.34           68,600        25.73     1,036,975      47.08
Exercised                                 342,266         24.36           14,925        21.91       106,938      23.57
Canceled                                  206,440         37.07          320,223        34.39       219,466      30.56
- ----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year              3,986,079        $31.57        3,662,785       $34.12     3,929,333     $34.25
- ----------------------------------------------------------------------------------------------------------------------
Options exercisable at year end           952,726        $27.43          998,450       $25.28       640,161     $23.72
- ----------------------------------------------------------------------------------------------------------------------
Options available for future grant      2,647,916                      3,326,102                  3,073,916
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

38
<PAGE>   18


                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES

The fair value of the options granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions for 2000 and 1999, respectively: (a) dividend yield of 1%, (b)
expected volatility of 20%, (c) risk free interest rate of 6.63% and 5.61% and
(d) expected life of 7.5 years. The following table summarizes information about
stock options outstanding at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                          Options Outstanding          Options Exercisable
                                        ----------------------------------------------------
                                          Weighted                                  Weighted
  Range of                               Remaining    Weighted                      Average
  Exercise                  Number      Contractual   Average         Number       Exercise
   Prices                 Outstanding       Life       Price        Exercisable      Price
- --------------------------------------------------------------------------------------------
<S>                       <C>           <C>           <C>           <C>            <C>
December 31, 2000
$14 to $27                1,363,366         7.0        $21.05        456,666          $24.39
 27 to  32                  661,812         5.1         28.99        433,927           29.01
 32 to  48                1,960,901         6.8         39.76         62,133           38.71
- --------------------------------------------------------------------------------------------
  Total                   3,986,079         6.6        $31.57        952,726          $27.43
============================================================================================
December 31, 1999
$14 to $27                  736,415         3.9        $23.40        654,815          $23.14
 27 to  32                  875,144         6.2         29.06        337,210           29.17
 32 to  48                2,051,226         7.8         40.13          6,425           38.29
- --------------------------------------------------------------------------------------------
  Total                   3,662,785         6.6        $34.12        998,450          $25.28
============================================================================================
</TABLE>

The Company uses the intrinsic-value method of accounting for stock-based awards
granted to employees and, accordingly, does not recognize compensation expense
for its stock-based awards to employees. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant dates
for awards under those plans, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below (000's omitted
except per share data):

<TABLE>
<CAPTION>
                                                            Net Income        Basic Earnings per Share    Diluted Earnings per Share
                                                     ----------------------   ------------------------    --------------------------
                                                     As Reported   Proforma   As Reported     Proforma    As Reported       Proforma
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>           <C>            <C>             <C>
2000
Before change in accounting and extraordinary item   $36,238       $33,331      $1.41         $1.30          $1.39           $1.28
Attributable to common stockholders                  $36,238       $33,331      $1.41         $1.30          $1.39           $1.28
- ------------------------------------------------------------------------------------------------------------------------------------
1999
Before change in accounting and extraordinary item   $(34,545)    $(37,644)    $(1.35)       $(1.46)         $(1.34)        $(1.45)
Attributable to common stockholders                  $(37,060)    $(40,159)    $(1.44)       $(1.56)         $(1.43)        $(1.55)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(11) COMPENSATION PLAN

The Company and its subsidiaries have profit sharing retirement plans in which
substantially all employees participate. The plans provide for minimum annual
contributions of 5% of eligible compensation; contributions above the minimum
are discretionary and vary with each participating subsidiary's profitability.
Employees become eligible to participate in the Retirement Plans on the first
day of the month following the first full three months in which they are
employed. Profit sharing expense amounted to $7,672,000, $7,768,000 and
$8,524,000 for 2000, 1999 and 1998, respectively.

     In May 1997, the common stockholders approved the Long-Term Incentive
Compensation Plan ("LTIP"). The LTIP provides for incentive compensation to key
executives based on long-term corporate performance and other criteria
established by the Compensation and Stock Option Committee of the Board of
Directors (the "Committee"). Key employees are awarded participation units
("units") as determined by the Committee. The Units vest and become exercisable
over a maximum term of five years from the date of their award. The units are
payable in cash or up to 50% in shares of common stock. The Company awarded
266,250 units in 1997. There were no units awarded and no LTIP expense in 2000,
1999 or 1998.


                                                                              39
<PAGE>   19


(12) INVESTMENTS

At December 31, 2000 and 1999, there were no investments, other than investments
in United States government securities, which exceeded 10% of stockholders'
equity. At December 31, 2000 and 1999, investments were as follows:

(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                               Gross          Gross
                                                                             unrealized     unrealized        Fair        Carrying
Type of investment                                              Cost(a)        gains          losses         value          value
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C>            <C>            <C>
December 31, 2000
Fixed maturity securities held to maturity:
  State and municipal                                       $    54,659    $     4,122    $      (115)   $    58,666    $    54,659
  Corporate                                                      11,592            654            (85)        12,161         11,592
  Mortgage-backed securities                                     89,816          3,586           --           93,402         89,816
- -----------------------------------------------------------------------------------------------------------------------------------
    Total fixed maturity securities held to maturity            156,067          8,362           (200)       164,229        156,067
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed maturity securities available for sale:
  United States Government(b)                                   480,871         14,327         (1,574)       493,624        493,624
  State and municipal                                           544,015         14,169         (1,681)       556,503        556,503
  Corporate                                                     593,308         10,703        (11,226)       592,785        592,785
  Mortgage-backed securities                                    469,144          9,144         (5,376)       472,912        472,912
- -----------------------------------------------------------------------------------------------------------------------------------
    Total fixed maturity securities available for sale        2,087,338         48,343        (19,857)     2,115,824      2,115,824
- -----------------------------------------------------------------------------------------------------------------------------------
Equity securities available for sale:
  Common stocks                                                  49,976          7,830         (1,161)        56,645         56,645
  Preferred stocks                                               26,569            770           (161)        27,178         27,178
- -----------------------------------------------------------------------------------------------------------------------------------
    Total equity securities available for sale                   76,545          8,600         (1,322)        83,823         83,823
- -----------------------------------------------------------------------------------------------------------------------------------
Equity securities trading:
  Long positions(c)                                             340,617         16,159         (9,505)       347,271        347,271
  Receivable from brokers                                       269,444           --             --          269,444        269,444
   Securities sold but not yet purchased                       (164,312)         8,286        (12,994)      (169,020)      (169,020)
- -----------------------------------------------------------------------------------------------------------------------------------
     Total equity securities trading                            445,749         24,445        (22,499)       447,695        447,695
- -----------------------------------------------------------------------------------------------------------------------------------
Invested cash(d)                                                308,193           --             --          308,193        308,193
- -----------------------------------------------------------------------------------------------------------------------------------
Total investments                                           $ 3,073,892    $    89,750    $   (43,878)   $ 3,119,764    $ 3,111,602
===================================================================================================================================

December 31, 1999
Fixed maturity securities held to maturity:
  State and municipal                                       $    56,172    $     2,268    $      (951)   $    57,489    $    56,172
  Corporate                                                      12,839             78           (248)        12,669         12,839
  Mortgage-backed securities                                     83,646            135         (3,474)        80,307         83,646
- -----------------------------------------------------------------------------------------------------------------------------------
    Total fixed maturity securities held to maturity            152,657          2,481         (4,673)       150,465        152,657
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed maturity securities available for sale:
  United States Government(b)                                   334,114            473        (15,419)       319,168        319,168
  State and municipal                                         1,020,716          9,905        (30,968)       999,653        999,653
  Corporate                                                     437,501          1,332        (19,219)       419,614        419,614
  Mortgage-backed securities                                    388,178          1,657        (17,859)       371,976        371,976
- -----------------------------------------------------------------------------------------------------------------------------------
    Total fixed maturity securities available for sale        2,180,509         13,367        (83,465)     2,110,411      2,110,411
- -----------------------------------------------------------------------------------------------------------------------------------
Equity securities available for sale:
  Common stocks                                                   8,676          7,613            (80)        16,209         16,209
  Preferred stocks                                               45,761            206           (796)        45,171         45,171
- -----------------------------------------------------------------------------------------------------------------------------------
    Total equity securities available for sale                   54,437          7,819           (876)        61,380         61,380
- -----------------------------------------------------------------------------------------------------------------------------------
Equity securities trading:
  Long positions                                                236,453         24,241         (7,264)       253,430        253,430
  Receivable from brokers                                       258,454           --             --          258,454        258,454
  Securities sold but not yet purchased                        (138,731)         5,115        (22,210)      (155,826)      (155,826)
- -----------------------------------------------------------------------------------------------------------------------------------
     Total equity securities trading                            356,176         29,356        (29,474)       356,058        356,058
- -----------------------------------------------------------------------------------------------------------------------------------
Invested cash(d)                                                295,423           --             --          295,423        295,423
- -----------------------------------------------------------------------------------------------------------------------------------
Total investments                                           $ 3,039,202    $    53,023    $  (118,488)   $ 2,973,737    $ 2,975,929
===================================================================================================================================
</TABLE>

(a)  Adjusted as necessary for amortization of premium or discount.
(b)  Includes United States government agencies and authorities.
(c)  Includes an investment of $53 million in a merger arbritage limited
     liability corporation.
(d)  Short-term investments which mature within three months of the date of
     purchase.

40
<PAGE>   20

                                       W.R. BERKLEY CORPORATION AND SUBSIDIARIES


The amortized cost and fair value of fixed maturity securities at December 31,
2000, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because certain issuers may have the right to call
or prepay obligations:

<TABLE>
<CAPTION>
(Dollars in thousands)                                 2000
- --------------------------------------------------------------------------------
                                                 Cost         Fair value
- --------------------------------------------------------------------------------
<S>                                          <C>              <C>
Due in one year or less                      $   78,642       $   79,071
Due after one year through five years           495,813          505,324
Due after five years through ten years          489,439          496,721
Due after ten years                             620,551          632,623
Mortgage-backed securities                      558,960          566,314
- --------------------------------------------------------------------------------
Total                                        $2,243,405       $2,280,053
================================================================================
</TABLE>

Realized gains (losses) and the change in difference between fair value and cost
of investments, before applicable income taxes, are as follows:

<TABLE>
<CAPTION>

(Dollars in thousands)                            2000        1999       1998
- --------------------------------------------------------------------------------
<S>                                          <C>           <C>         <C>
Realized gains (losses):
  Fixed maturity securities(a)               $  (2,573)    $   2,792   $ 23,004
  Equity securities                              9,420           (76)     3,506
  Net change in provision
     for other than temporary impairment(b):
    Fixed maturity securities                   (3,299)       (8,300)        --
    Equity securities                               --            --         --
  Other                                          4,816          (480)    (1,110)
- --------------------------------------------------------------------------------
                                                 8,364        (6,064)    25,400
- --------------------------------------------------------------------------------
Change in difference between fair value
     and cost of investments,
     not including trading securities:
  Fixed maturity securities                    108,938      (167,984)       877
  Equity securities                                335           964     (4,130)
- --------------------------------------------------------------------------------
                                               109,273      (167,020)    (3,253)
- --------------------------------------------------------------------------------
Total                                        $ 117,637     $(173,084)  $ 22,147
================================================================================
</TABLE>

(a) During 2000, 1999 and 1998, gross gains of $11,586,000, $15,022,000 and
    $26,054,000, respectively, and gross losses of $14,159,000,
    $12,230,000, and $3,050,000, respectively, were realized.
(b) The provision for other than temporary impairment of investments is
    $14,399,000, $11,100,000 and $2,800,000 as of December 31, 2000, 1999
    and 1998, respectively.


<TABLE>
<CAPTION>
Investment income consists of the following:
(Dollars in thousands)                                        2000             1999             1998
- -----------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>              <C>
Investment income earned on:
  Fixed maturity securities                               $ 152,806        $ 148,081        $ 156,961
  Trading account(a)                                         42,741           33,532           32,997
  Invested cash                                              14,771           12,804            9,771
  Equity securities                                           6,448            3,306            4,670
  Other                                                       3,189              833            1,666
- -----------------------------------------------------------------------------------------------------
    Gross investment income                                 219,955          198,556          206,065
  Interest on funds held under reinsurance treaties          (9,507)          (8,240)          (3,645)
- -----------------------------------------------------------------------------------------------------
  Net investment income                                   $ 210,448        $ 190,316        $ 202,420
=====================================================================================================
</TABLE>

(a) The primary focus of the trading account is merger arbitrage. Merger
    arbitrage is the business of investing in the securities of publicly
    held companies which are the targets in announced tender offers and
    mergers. Merger arbitrage differs from other types of investments in
    its focus on transactions and events believed likely to bring about a
    change in value over a relatively short time period (usually four
    months or less). The Company believes that this makes merger arbitrage
    investments less vulnerable to changes in general financial market
    conditions. Potential changes in market conditions are also mitigated
    by the implementation of hedging strategies, including short sales.


        The arbitrage positions are generally hedged against market declines by
    purchasing put options, selling call options or entering into swap
    contracts. Therefore, just as long portfolio positions may incur losses
    during market declines, hedge positions may also incur losses during market
    advances. As of December 31, 2000, the notional amount of long option
    contracts outstanding is $22,634,000 and short option contracts outstanding
    is $40,875,000.

        Investment income earned from net trading account activity includes
    unrealized trading gains of $1,899,000 and $1,291,000 for 2000 and 1998,
    respectively, and unrealized trading losses of $4,897,000 for 1999.

                                                                              41
<PAGE>   21

(13) Stockholders' Equity

COMMON EQUITY The weighted average number of shares used in the computation of
basic earnings per share was 25,632,000, 25,823,000 and 28,194,000 for 2000,
1999 and 1998, respectively. The weighted average number of shares used in the
computations of diluted earnings per share was 25,991,000, 25,927,000 and
29,115,000 for 2000, 1999 and 1998, respectively. Treasury shares have been
excluded from average outstanding shares from the date of acquisition. The
difference in calculating basic and diluted earnings per share is attributable
entirely to the dilutive effect of stock-based compensation plans.

   Changes in shares of common stock outstanding, net of treasury shares, are as
follows:

<TABLE>
<CAPTION>
(in thousands)                      2000           1999           1998
- --------------------------------------------------------------------------------
<S>                               <C>            <C>            <C>
Balance, beginning of year        25,617         26,504         29,568
Shares issued                        339             18            108
Shares repurchased                  (300)          (905)        (3,172)
- --------------------------------------------------------------------------------
Balance, end of year              25,656         25,617         26,504
================================================================================
</TABLE>


On January 25, 1999, all remaining outstanding shares of the Series A Preferred
Stock were redeemed for $98,092,000.


    On May 11, 1999, the Company declared a dividend distribution of one Right
for each outstanding share of common stock. Each Right entitles the holder to
purchase a unit consisting of one one-thousandth of a share of Series A Junior
Participating Preferred Stock at a purchase price of $120 per unit (subject to
adjustment) upon the occurrence of certain events relating to potential changes
in control of the Company. The Rights expire on May 11, 2009, unless earlier
redeemed by the Company as provided in the Rights Agreement.



(14) FEDERAL AND FOREIGN INCOME TAXES


Federal and foreign income tax expense (before the cumulative effect of change
in accounting and extraordinary items) consists of:

<TABLE>
<CAPTION>
(Dollars in thousands)              2000          1999           1998
- --------------------------------------------------------------------------------
<S>                              <C>            <C>           <C>
Current (expense) benefit        $(2,574)       $11,785        $(30,283)
Deferred (expense) benefit           123         33,981          24,818
- --------------------------------------------------------------------------------
  Total (expense) benefit        $(2,451)       $45,766        $ (5,465)
================================================================================
</TABLE>

A reconciliation of Federal and foreign income tax (expense) benefit and the
amounts computed by applying the Federal and foreign income tax rate of 35% to
pre-tax income are as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)              2000          1999           1998
- --------------------------------------------------------------------------------
<S>                              <C>             <C>           <C>
Computed "expected" tax
  (expense) benefit              $(14,298)       $27,737       $(21,973)
Tax-exempt investment
   income                          13,543         17,853         18,412
Other, net                         (1,696)           176         (1,904)
- --------------------------------------------------------------------------------
  Total (expense) benefit        $ (2,451)       $45,766       $ (5,465)
================================================================================
</TABLE>

At December 31, 2000 and 1999, the tax effects of differences that give rise to
significant portions of the deferred tax asset and deferred tax liability are as
follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                    2000             1999
- --------------------------------------------------------------------------------
<S>                                  <C>              <C>
DEFERRED TAX ASSET

Loss reserve discounting             $  60,737        $  64,946

Unearned premiums                       40,885           40,663

Deferred taxes on unrealized
   investment losses                        --           22,297

Alternative minimum tax credit
   carryforward                         29,610           20,656
Other                                   16,550           22,097
- --------------------------------------------------------------------------------
  Gross deferred tax asset             147,782          170,659
Less: valuation allowance               (7,000)          (7,000)
- --------------------------------------------------------------------------------
  Deferred tax asset                   140,782          163,659
================================================================================

DEFERRED TAX LIABILITY

Amortization of intangibles              7,995            9,625

Deferred policy acquisition costs       57,877           57,317

Deferred taxes on unrealized
  investment gains                      12,678               --

Depreciation                             8,088            8,985

Other                                    6,577            5,756
- --------------------------------------------------------------------------------
  Deferred tax liability                93,215           81,683
- --------------------------------------------------------------------------------
  Net deferred tax asset               $47,567       $   81,976
================================================================================
</TABLE>

Federal income tax expense (benefit) applicable to realized investment gains
(losses) was $2,928,000, ($2,122,000) and $8,890,000 in 2000, 1999 and 1998,
respectively. The Company had a current income tax receivable of $6,376,000 and
$8,939,000 at December 31, 2000 and 1999, respectively. The Company's tax
returns through December 31, 1994 have been examined by the Internal Revenue
Service.

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

42
<PAGE>   22
                                      W. R. BERKLEY CORPORATION AND SUBSIDIARIES


(15) RESERVES FOR LOSSES AND LOSS EXPENSES

The table below provides a reconciliation of the beginning and ending reserve
balances, on a gross of reinsurance basis:

<TABLE>
<CAPTION>

(Dollars in thousands)                               2000              1999              1998
- -----------------------------------------------------------------------------------------------
<S>                                               <C>              <C>              <C>
Net reserves at beginning of year                 $1,723,865       $1,583,304       $ 1,433,011
- -----------------------------------------------------------------------------------------------
Net reserves of companies acquired                        --               --             2,189

Net provision for losses and loss expenses:

  Claims occurring during the current year         1,047,060        1,032,089           944,887

  Increase (decrease) in estimates for
     claims occurring in prior years                  14,042           28,351           (42,929)

  Amortization of discount                            11,530           10,473             9,111
- -----------------------------------------------------------------------------------------------
                                                   1,072,632        1,070,913           911,069
- -----------------------------------------------------------------------------------------------
Net payments for claims
  Current year                                       394,401          433,942           397,787
  Prior years                                        584,047          496,410           365,178
- -----------------------------------------------------------------------------------------------
                                                     978,448          930,352           762,965
- -----------------------------------------------------------------------------------------------
Net reserves at end of year                        1,818,049        1,723,865         1,583,304

Ceded reserves at end of year                        657,756          617,025           537,219
- -----------------------------------------------------------------------------------------------
Gross reserves at end of year                     $2,475,805       $2,340,890       $ 2,120,523
===============================================================================================
</TABLE>

The balance sheet includes $58,112,000 and $20,348,000 as of December 31, 2000
and 1999, respectively, relating to reserves for life insurance which are not
included in the table above, and the statement of operations includes
$21,779,000, $14,913,000 and $3,693,000 for the years ended December 31, 2000,
1999 and 1998, respectively, relating to the policy-holder benefits incurred on
life insurance which are not included in the above table. The 1999 increase in
reserves related to prior years is due to reserve strengthening in the regional
segment partially offset by favorable reserve development in the specialty and
alternative markets segments.

   The Company discounts its liabilities for excess and assumed workers'
compensation business because of the long period of time over which losses are
paid. Discounting is intended to appropriately match losses and loss expenses to
income earned on investment securities supporting the liabilities. The expected
losses and loss expense payout pattern subject to discounting was derived from
the Company's loss payout experience and is supplemented with data compiled from
insurance companies writing similar business. The liabilities for losses and
loss expenses have been discounted using "risk-free" discount rates determined
by reference to the U.S. Treasury yield curve. The weighted average discount
rate for accident years 2000, 1999, 1998, 1997, 1996 and 1995 and prior is
5.88%, 5.90%, 5.16%, 6.43%, 6.49% and 5.80%, respectively. The aggregate net
discount, after reflecting the effects of ceded reinsurance, is $223,000,000,
$196,000,000 and $187,000,000 at December 31, 2000, 1999 and 1998, respectively.
For statutory purposes, the Company uses a discount rate of 4.5% as permitted by
the Department of Insurance of the State of Delaware.

   To date, known asbestos and environmental claims at the insurance company
subsidiaries have not had a material impact on the Company's operations.
Environmental claims have not materially impacted the Company because its
subsidiaries generally did not insure larger industrial companies which are
subject to significant environmental exposures.

   The Company's net reserves for losses and loss adjustment expenses relating
to asbestos and environmental claims were $29,422,000 and $30,944,000 at
December 31, 2000 and 1999, respectively. The Company's gross reserves for
losses and loss adjustment expenses relating to asbestos and environmental
claims were $57,167,000 and $65,966,000 at December 31, 2000 and 1999,
respectively. Net incurred losses and loss expenses for reported asbestos and
environmental claims were approximately $1,602,000, $1,371,000 and $2,227,000 in
2000, 1999 and 1998, respectively. Net paid losses and loss expenses were
approximately $3,123,000, $3,819,000 and $2,614,000 in 2000, 1999 and 1998,
respectively. The estimation of these liabilities is subject to significantly
greater than normal variation and uncertainty because it is difficult to make a
reasonable actuarial estimate of these liabilities due to the absence of a
generally accepted actuarial methodology for these exposures and the potential
effect of significant unresolved legal matters, including coverage issues as
well as the cost of litigating the legal issues. Additionally, the determination
of ultimate damages and the final allocation of such damages to financially
responsible parties are highly uncertain.

                                                                              43
<PAGE>   23
(16) Industry Segments

The Company's operations are presently conducted through five basic segments:
specialty; alternative markets; reinsurance; regional; and international. The
specialty lines of insurance consist primarily of excess and surplus lines,
commercial transportation, professional liability, directors and officers
liability and surety. The Company's alternative markets segment specializes in
insuring, reinsuring and administering self-insurance programs and other
alternative risk transfer mechanisms for public entities, private employers and
associations. The Company's reinsurance segment specializes in underwriting
property, casualty and surety reinsurance on both a treaty and facultative
basis. The regional property casualty insurance segment writes standard
commercial and personal lines insurance for such risks as automobiles, homes and
businesses. The international operations represent the Company's joint venture
with Northwestern Mutual Life International (65% owned by the Company), which
writes property and casualty, as well as life insurance, in Argentina and the
Philippines. The joint venture wrote life premiums of $33,183,000, $24,548,000
and $7,994,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.

   The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Income tax expense (benefits)
were calculated in accordance with the Company's tax sharing agreements, which
provide for the recognition of tax loss carryforwards only to the extent of
taxes previously paid. Summary financial information about the Company's
operating segments is presented in the following table. Income before income
taxes by segment consists of revenues less expenses related to the respective
segment's operations. These amounts include realized gains (losses) where
applicable. Intersegment revenues consist primarily of dividends, interest on
intercompany debt and fees paid by subsidiaries for portfolio management and
other services to the Company. Identifiable assets by segment are those assets
used in the operation of each segment.

<TABLE>
<CAPTION>
                                                    Revenues                                                   Income
                           ------------------------------------------------------------      Income             Tax
                           Investment        Unaffiliated       Inter-                     (loss) before        Expense
(Dollars in thousands)       Income            Customers       Segment           Total       income taxes      (Benefits)
- --------------------------------------------------------------------------------------------------------------------------
<S>                        <C>               <C>              <C>             <C>          <C>                 <C>
December 31, 2000:
  Regional                   $  59,889        $  717,287       $ 1,202        $   718,489        $  2,548        $    308
  Reinsurance                   50,471           348,707           457            349,164          27,760           7,387
  Specialty                     48,706           322,618         2,241            324,859          31,836           9,058
  Alternative Markets           44,350           268,888           137            269,025          31,592           8,675
  International                  9,636           118,234            --            118,234           6,853           1,820
  Corporate, other
      and eliminations          (2,604)            5,553        (4,037)             1,516         (59,738)        (24,797)
- --------------------------------------------------------------------------------------------------------------------------
  Consolidated               $ 210,448        $1,781,287            --        $ 1,781,287        $ 40,851        $  2,451
=========================================================================================================================
December 31, 1999:
  Regional                   $  52,639        $  700,667       $ 1,462        $   702,129        $(97,362)       $ (7,589)
  Reinsurance                   47,288           341,201           739            341,940          14,091           1,992
  Specialty                     50,231           310,373        (1,305)           309,068          39,261           8,692
  Alternative Markets           36,355           221,690           586            222,276          24,919           4,653
  International                  6,469            93,878            --             93,878           3,535           1,443
  Corporate, other
    and eliminations            (2,666)            5,859        (1,482)             4,377         (63,692)        (54,957)
- --------------------------------------------------------------------------------------------------------------------------
  Consolidated               $ 190,316        $1,673,668            --        $ 1,673,668        $(79,248)       $(45,766)
=========================================================================================================================

December 31, 1998:
  Regional                   $  53,942        $  680,505       $ 2,014        $   682,519        $(24,524)       $  3,323
  Reinsurance                   47,643           296,100         1,044            297,144          33,858           6,911
  Specialty                     59,345           309,047         2,908            311,955          85,889          24,349
  Alternative Markets           34,667           205,024           911            205,935          36,501           9,505
  International                  5,469            80,287            --             80,287          (7,017)            349
  Corporate, other
      and eliminations           1,354            11,554        (6,877)             4,677         (61,926)        (38,972)
- --------------------------------------------------------------------------------------------------------------------------
  Consolidated               $ 202,420        $1,582,517            --        $ 1,582,517        $ 62,781        $  5,465
=========================================================================================================================
</TABLE>

44
<PAGE>   24
                                     W. R. BERKLEY CORPORATION AND SUBSIDIARIES

Interest expense for the alternative markets and reinsurance segments was
$2,921,000, $2,870,000 and $2,327,000 for the years ended December 31, 2000,
1999 and 1998, respectively. Additionally, corporate interest expense (net of
intercompany amounts) was $44,675,000, $47,931,000 and $46,492,000 for the
corresponding periods. Identifiable assets by segment are as follows:
<TABLE>
<CAPTION>

December 31,                                   2000               1999               1998
- -----------------------------------------------------------------------------------------
<S>                                     <C>                <C>                <C>
Regional                                $ 1,498,179        $ 1,436,575        $ 1,370,849
Reinsurance                               1,258,155          1,022,776            996,186
Specialty                                 1,425,123          1,370,837          1,502,366
Alternative Markets                         924,785            878,125            863,578
International                               248,243            177,675            151,832
Corporate, other and eliminations          (332,415)          (101,197)            98,620
- -----------------------------------------------------------------------------------------
Consolidated                            $ 5,022,070        $ 4,784,791        $ 4,983,431
==========================================================================================
</TABLE>




(17) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments as of December 31, 2000 and 1999:

<TABLE>
<CAPTION>

(Dollars in thousands)                     2000                             1999
- -----------------------------------------------------------------------------------------------
                                   Carrying                        Carrying
                                     Amount      Fair value          Amount          Fair value
- -----------------------------------------------------------------------------------------------
<S>                              <C>              <C>              <C>              <C>
Investments                      $3,111,602       $3,119,764       $2,975,929       $2,973,737
Long-term debt                      370,158          362,375          394,792          383,901
Trust preferred securities          198,169          136,800          198,126          172,547
- -----------------------------------------------------------------------------------------------
</TABLE>

The estimated fair value of investments is based on quoted market prices as of
the respective reporting dates. The fair value of the long-term debt and the
trust preferred securities are based on rates available for borrowings similar
to the Company's outstanding debt as of the respective reporting dates.


(18) DIVIDENDS FROM SUBSIDIARIES AND STATUTORY FINANCIAL INFORMATION

The Company's insurance subsidiaries are restricted by law as to the amount of
dividends they may pay without the approval of regulatory authorities. During
2001, the maximum amount of dividends which can be paid without such approval is
approximately $85,510,000.

   Combined net income and policyholders' surplus of the Company's consolidated
insurance subsidiaries, as determined in accordance with statutory accounting
practices, are as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)           2000            1999            1998
- --------------------------------------------------------------------------------
<S>                          <C>            <C>              <C>
Net income (loss)            $ 57,226       $ (34,598)       $ 67,014
================================================================================
Policyholders' surplus       $846,658       $ 851,449        $941,853
================================================================================
</TABLE>

The significant variances between statutory accounting practices and GAAP are:
For statutory purposes, bonds are carried at amortized cost, acquisition costs
are charged to operations as incurred, deferred federal income taxes are not
provided for temporary differences between book and tax assets and liabilities,
excess and assumed workers compensation reserves are discounted at a 4.5% rate
and certain assets designated as "non-admitted assets" are charged against
surplus.

   At December 31, 2000 and 1999, bonds with a fair value of $221,194,000 and
$209,485,000 were on deposit with various state insurance departments as
required by state laws.

   The National Association of Insurance Commissioners ("NAIC") has risk-based
capital ("RBC") requirements that require insurance companies to calculate and
report information under a risk-based formula which measures statutory capital
and surplus needs based on a regulatory definition of risk in a company's mix of
products and its balance sheet. All of the Company's insurance subsidiaries have
an RBC amount above the authorized control level RBC, as defined by the NAIC.

   The NAIC recently completed a process intended to codify statutory accounting
practices for certain insurance enterprises effective January 1, 2001. The
accounting codification will not have a material impact on the results of
operations or policyholders' surplus of the Company's insurance subsidiaries.

                                                                              45



<PAGE>   25
(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of quarterly financial data (Dollars in thousands
except per share data):



<TABLE>
<CAPTION>
                                                                       Three months ended
                                     ----------------------------------------------------------------------------------------------
                                           March 31,                 June 30,             September 30,            December 31,
                                       2000        1999         2000        1999        2000        1999         2000        1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>          <C>         <C>         <C>         <C>          <C>         <C>
Revenues                             $423,324    $407,713     $431,933    $416,250    $445,957    $427,823     $480,073    $421,882
===================================================================================================================================

Net income (loss) before
  preferred dividends                $  4,346    $  2,472     $  6,636    $  5,624    $  7,092    $ (1,356)    $ 18,164    $(40,788)
===================================================================================================================================

Net income (loss) attributable
  to common stockholders             $  4,346    $ (1,275)    $  6,636    $  5,624    $  7,092    $   (621)    $ 18,164    $(40,788)
===================================================================================================================================

Earnings (loss) per share:
  Basic
   Before change in accounting
     and extraordinary gain (loss)   $    .17    $    .07     $    .26    $    .22    $    .28    $   (.06)    $    .71    $  (1.59)
   Net income (loss)                 $    .17    $   (.05)    $    .26    $    .22    $    .28    $   (.02)    $    .71    $  (1.59)
  Diluted
   Before change in accounting
      and extraordinary gain (loss)  $    .17    $    .07     $    .26    $    .22    $    .27    $   (.05)    $    .68    $  (1.59)
   Net income (loss)                 $    .17    $   (.05)    $    .26    $    .22    $    .27    $   (.02)    $    .68    $  (1.59)
===================================================================================================================================
</TABLE>

(20) SUBSEQUENT EVENT

On March 6, 2001, the Company issued 3,105,000 shares of its common stock and
received net proceeds of $122 million. The proceeds will be used to provide
additional capital for its insurance subsidiaries and for general corporate
purposes. The Company may also use the proceeds of this offering to reduce some
of its indebtedness, depending on market conditions.


INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
W.R. Berkley Corporation

We have audited the consolidated balance sheets of W. R. Berkley Corporation and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, comprehensive income and cash
flows for each of the years in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of W. R. Berkley
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company has
changed its method of accounting for insurance related assessments in 1999.


New York, New York                  KPMG LLP

February 23, 2001, except for Note 20 which is as of March 6, 2001


46
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>4
<FILENAME>y46799ex27.txt
<DESCRIPTION>EXHIBIT 27
<TEXT>

<TABLE> <S> <C>

<ARTICLE> 7
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR

<S>                             <C>
<PERIOD-TYPE>                  12-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               DEC-31-2000
<EXCHANGE-RATE>                                      1
<DEBT-HELD-FOR-SALE>                         2,115,824
<DEBT-CARRYING-VALUE>                          156,067
<DEBT-MARKET-VALUE>                            164,229
<EQUITIES>                                     431,094
<MORTGAGE>                                           0
<REAL-ESTATE>                                        0
<TOTAL-INVEST>                               2,702,985
<CASH>                                         309,131
<RECOVER-REINSURE>                                   0
<DEFERRED-ACQUISITION>                         196,231
<TOTAL-ASSETS>                               5,022,070
<POLICY-LOSSES>                              2,533,917
<UNEARNED-PREMIUMS>                            713,239
<POLICY-OTHER>                                       0
<POLICY-HOLDER-FUNDS>                                0
<NOTES-PAYABLE>                                578,327
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                         7,281
<OTHER-SE>                                     673,615
<TOTAL-LIABILITY-AND-EQUITY>                 5,022,070
<PREMIUMS>                                   1,491,014
<INVESTMENT-INCOME>                            210,448
<INVESTMENT-GAINS>                               8,364
<OTHER-INCOME>                                   3,412
<BENEFITS>                                   1,094,411
<UNDERWRITING-AMORTIZATION>                    454,729
<UNDERWRITING-OTHER>                           141,850
<INCOME-PRETAX>                                 40,851
<INCOME-TAX>                                     2,451
<INCOME-CONTINUING>                             38,400
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    36,238
<EPS-BASIC>                                       1.41
<EPS-DILUTED>                                     1.39
<RESERVE-OPEN>                               1,723,865
<PROVISION-CURRENT>                          1,047,060
<PROVISION-PRIOR>                               14,042
<PAYMENTS-CURRENT>                             394,401
<PAYMENTS-PRIOR>                               584,047
<RESERVE-CLOSE>                              1,818,049
<CUMULATIVE-DEFICIENCY>                         14,042


</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
